Interest Accrual during the Moratorium Period

Explanatory Note No. 03of 2020 on Interest Accrual during the Moratorium Period Department of Supervision of Non-bank Financial Institutions Central Bank of Sri Lanka 04th May 2020 Interpretations for circular No. 04 of 2020 on Relief Measures to Assist Covid-19 affected Businesses and Individuals and Circular No.5 of 2020 on Rupees 50 billion, Six-month Re-financing Facility to Support Covid-19 hit Businesses including Self-employment and Individuals The following explanations are given with regard to interest accrual during the moratorium period for Licensed Finance Companies(LFCs) and Specialised Leasing Companies (SLCs).

1. Interest shall continue to be accruedduring the moratorium period on a concessionary
   rateand such accrued interest shall be converted in to a new interest free term loan, which shall be recovered from the borrower. E.g., for calculation of Monthly Interest Charge:
   Interest charge per month of April 2020= Outstanding loan amount at the commencement of the moratorium period (Beginning of April 2020) * (concessionary rate/12).

2. LFCs and SLCs shall recover the interest free loan from the borrower using the two
   optionsgiven below with the consent of the eligible borrower.
   Option 1: LFCs/SLCs shall recover the interest free term loan in equated monthly installments after the end of the moratorium period and the repayment period shall be two years or remaining maturity period of the credit facility whichever is lower.The concessionary rate for the Option 1 shall be one third (1/3) of the contractual rate subject to a cap of 6.5%. Option 2: LFCs/SLCs shall recover the interest free term loan after the end of the contractual period (extended contractual period after considering the moratorium) in installments not exceeding the monthly instalment of the original contract. The concessionary rate that can be charged to option 2 shall be one third (1/3) of the contractual rateplus 1%, subject to a cap of 7.5%.

3. The consent of the borrower shall be obtained for the option selected, after duly explaining
   the different implications of the options considered including total interest cost to be paid and time value of money. Example1, Option 1:
   Loan Grant Date 01-April 2019
   Loan Amount Rs. 2,000,000
   Loan Period (Original) 24 months
   Interest Rate 16% p.a.
   Monthly Instalment (Derived) Rs. 97,926
   Remaining maturity as at end March 2020 (Original remaining maturity+ Moratorium Period) 18 months Remaining maturity after the moratorium period as at end September 2020 12 months (a) Moratorium will be applicable for the installments from April 2020 to September 2020. Customer will commence the repayment from October 2020 at a monthly installment of Rs. 97,926 until end September 2021. (b) The interest accrual during the moratorium period will be, Rs. 29,104 (1/3 of 16% per month for 6 months) shall be converted into an interest free term loan for a period 12 months. The value shall be recovered from customers in equal monthly installments of 12 months (i.e. the lower of 24 months or remaining maturity after the end of moratorium period),at Rs. 2,425 per month. Example 2,Option 01 Loan Grant Date 01-April 2019 Loan Amount Rs. 2,000,000 Loan Period (Original) 60 months Interest Rate 24% p.a. Monthly Instalment (Derived) Rs. 57,536 Remaining maturity as at end March 2020 (Original remaining maturity+ Moratorium Period) 54 months Remaining maturity after the moratorium period as at end September 2020 48 months (a) Moratorium will be applicable for the installments from April 2020 to September 2020. Customer will commence the repayment from October 2020 at a monthly installment of Rs. 57,536 until end September 2024. (b) The interest accrual during the moratorium period, Rs. 58,139 (cap rate of6.5% for 6 months) shall be converted into an interest free term loan for a period 24 months. The value shall be recovered from customers in equal monthly installments of 24 months

(lower of 24 months or remaining maturity after the end of moratorium period),at Rs. 2,422 per month. Example 3, Option 02 Loan Grant Date 01-April 2019 Loan Amount Rs. 2,000,000 Loan Period (Original) 60 months Interest Rate 24% p.a. Monthly Instalment (Derived) Rs. 57,536 Remaining maturity as at end March 2020 (Original remaining maturity+ Moratorium Period) 54 months Remaining maturity after the moratorium period as at end September 2020 48months (a) Moratorium will be applicable for the installments from April 2020 to September 2020. Customer will commence the repayment from October 2020 at a monthly installment of Rs. 57,536 until end September 2024. (b) The interest accrual during the moratorium period, Rs. 67,223(cap rate of 7.5% for 6 months) shall be converted into an interest free term loan and recovered after September
2024. The value shall be recovered from customer in two monthly installments not
exceeding the original instalment of Rs. 57,536.