Parate execution: Expiry of suspension and the way forward

THE Government previously announced the suspension of “parate action” which was in existence will not be extended beyond 31 March 2025. This has now been confirmed by the press release issued by the Ministry of Finance wherein certain financial accommodations have been revealed towards assisting the affected SME sector. Accordingly, the “parate execution” is now effective.

- By M.C.V. Rajanathan

The decision of the Government in lifting the suspension of parate action is commendable and I consider it as a bold decision. The Central Bank of Sri Lanka has already issued effective guidelines to the commercial banks towards assisting the affected parties in anticipation of the expiry of the suspension. In one of my previous articles on parate action, I have expressed concern of the impediments which will be faced by the financial institutions of any further extension of the suspension.

In this article I venture into giving further insight of the lifting of the suspension for the benefit of all stakeholders.

What I stated in my previous article: Reality on the expiry of the suspension

What will happen after 15 December 2024 after the expiry of the suspension, we cannot predict. Some have argued the “parate action” suspension should be in force for a duration of three years while some others have voiced the complete repeal of the “parate action”. Such action or any extension for a long duration of the suspension will have serious repercussion for banks and will greatly affect their liquidity and hamper their ability to lend especially to the MSME sector. Banks will be cautious in lending against collateral if there is no mechanism at their disposal to realise the collateral within a reasonable period towards recovering their exposure which will compel them to go for a mortgage action. Such action is costly apart from the time duration it will take in arriving at the final outcome which of course will arise only after exhausting all legal options both by the banks and affected borrowers.