Sri Lanka’s government has proposed to impose a cap/limit on the interest rates offered by Finance Companies, Minister of Finance Ravi Karunanayake announced on Friday.

Presenting the Budget 2016 proposals, the Minister said that a Financial Institution Restructuring Agency (FIRA) on the lines of the Resolution Trust Corporation in the United States of America will be established shortly to help failing finance companies to be recapitalized and their troubled assets to be taken over by this agency for purposes of restructuring.

In this regard, the government has pledged to provide an initial capital of Rs.10 million as equity and also issue a Treasury bond to the value of Rs. 25 billion with a tenure of 5 years for the FIRA.

“The Central Bank will be entrusted to undertake strict supervision on this restructured finance companies. However, as a prelude to the above proposal in order to provide the depositors with a sense of comfort and security, the Central Bank of Sri Lanka will give a 100 percent guarantee on all deposits of all the registered finance companies by end January 2016,” the Minister said.

Karunanayake added that the government will protect the public who have got into difficulties in the payment of the high rates of interest and penalty charges levied by financial institutions on credit cards and other personal lifestyle loans.

To ensure this process, the Central Bank will, in association with all other banks operating in Sri Lanka, expand the credit counselling activities.

“We expect the Central Bank to issue directions that will restrict the ability of financial institutions to grant unlimited amounts of expensive credit to unsuspecting borrowers,” the Finance Minister said.

Meanwhile, the Budget has also directed all commercial banks to cease in engaging in leasing business from 01 June, 2016. Minister Karunanayake said that this was because the leasing business “has become a distraction to core banking functions”.

Meanwhile, the Minister also proposed to consider the situations where cheques are returned as a criminal offence and asked to enforce stringent legal action against such offences.