by way of capitalisation of accrued and unpaid interest as NPL in terms of
Directions 3(5) and 4(5) and categorise as required by Direction 4(6).
4(5) Classification of multiple credit facilities granted to a single borrower:
 (i) Banks shall classify all credit facilities extended to a borrower as
NPL, when one or more credit facilities has/have been classified
as NPL in terms of Direction 3(5) and if the aggregate amount
outstanding of such NPL exceeds 30% of the total credit facilities
extended to such borrower. Banks are required to comply with this
Direction commencing January 1, 2009.
 ( ii)  In the computation of the percentage threshold as specified in
Direction 4(5)(i) above, banks shall exclude all accrued interest
credited to an interest in suspense account from both numerator and
denominator.


116 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
4(6) Categorisation of non-performing credit facilities:
  Banks shall categorise NPL, which are classified in terms of Directions
3(5) and 4(5) above, into the four categories mentioned below based on
(a) the period which the credit facilities have remained non-performing and
(b) the potential risk of credit facilities. However, multiple credit facilities
granted to a single borrower, which are classified in terms Direction 4(5),
shall be categorised as follows:
 (i) Facilities classified in terms of Direction 3(5), shall be categorised as
per Directions 4(6)(I) to 4(6)(IV).
 (ii) Other faciliti es of such borrower shall initially be categorised into
the “Special Mention” category. Subsequent categorisation of such
facilities shall be in terms of Directions 4(6)(I) to 4(6)(IV).
4(6)(I)  “Special Mention” credit facilities:
 ( i) The period which the credit facilities have remained non-per -
forming.
Facility Type Determinant
Overdrafts Exceeds the sanctioned limit for a
continuous period of 90 days or more
but less than 180 days.
Credit facilities,
repayable in monthly
installments3 installments or more but less than
6 installments, principal and/or interest
are due and unpaid.
Credit Cards The minimum payment is in arrears for
90 days or more but less than 120 days
from the due date.
Other credit facilities The payments are in arrears for 90 days
or more but less than 180 days from the
due date.
4(6)(II)  Sub-standard credit facilities:
 ( i) The period which the credit facilities have remained non-per -
forming.
Facility Type Determinant
Overdrafts Exceeds the sanctioned limit for a
continuous period of 180 days or more
but less than 360 days.
Credit facilities,
repayable in monthly
installments6 installments or more but less than
12 installments, principal and/or interest
are due and unpaid.
Credit Cards The minimum payment is in arrears for


are due and unpaid.
Credit Cards The minimum payment is in arrears for
120 days or more but less than 180 days
from the due date.
Other credit facilities The payments are in arrears for 180
days or more but less than 360 days
from the due date.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  117
 (ii) The potential risk of credit facilities:
  Where the situation of the borrower makes it uncertai n that part or
the entirety of the facility will be repaid and involves more than
normal risk of loss due to unsatisfactory debt servicing record or
financial condition of the borrower, insufficiency of collateral or
any other factors which give rise to some doubts as to the ability
of the borrower to comply with the present repayment terms.
4(6)(III)  Doubtful credit facilities:
 ( i) The period which the credit facilities have remained non-
performing.
Facility Type Determinant
Overdrafts Exceeds the sanctioned limit for a
continuous period of 360 days or more
but less than 540 days.
Credit facilities,
repayable in monthly
installments12 installments or more but less than
18 installments, principal and/or interest
are due and unpaid.
Credit Cards The minimum payment is in arrears for
180 days or more but less than 240 days
from the due date.
Other credit facilities The payments are in arrears for 360
days or more but less than 540 days
from the due date.
 (ii) The potential risk of credit facilities:
  Where there is a high risk of partial default or where full collection
is improbable and there is a high risk of default.
4(6)(IV)  Loss credit facilities:
 ( i) The period which the credit facilities have remained non-
performing.
Facility Type Determinant
Overdrafts Exceeds the sanctioned limit for a
continuous period of 540 days or more.
Credit facilities,
repayable in monthly
installments18 installments or more principal and/or
interest are due and unpaid.
Credit Cards The minimum payment is in arrears for
240 days or more.
Other credit facilities The payments are in arrears for 540
days or more.
 (ii) The potential risk of credit facilities:
  Where the situation of the borrower makes it virtually certain that


Where the situation of the borrower makes it virtually certain that
the facility will not be repaid, as in the following circumstances:


118 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
 (a) The customer is in a weak financial position or the ability of
the customer to earn income is low, which indicates that the
customer may not be able to service the debt.
(b) The business of the customer has become uncertain or the
customer has used the funds obtained for purposes other than
for which they were meant.
(c) The customer is deceased  and there are no assets to repay the
debt.
(d) The customer has ceased or dissolved his business and is in debt
to other creditors with preferential rights over the whole of the
customer’s assets, where the said creditors’ total claims exceed
the value of the customer’s assets.
 (e) The customer ’s business is under liquidation.
 (f) The bank has filed a bankruptcy suit against the customer or
has applied for participation in property with other creditors
who have filed for bankruptcy, where the parties have agreed to
restructure the debt with approval from the Court.
 (g) The bank has applied for participation in property with other
creditors who have sued the debtor.
 (h) The bank is unable to contact or find the borrower .
4(7) Reclassification of credit facilities:
4(7)(I)  Re-classification of NPL  as PLA:
  Banks shall reclassify NPL as PLA, if interest and principal in arrears
are paid by the borrower in relation to classified NPLs.
4(7)(II)  Re-classification of rescheduled NPL  as PLA:
  The NPL  accounts which have been subjected to rescheduling, whether
in respect of principal installment or interest amount, would be eligible
to be upgraded to the PLA category only after the specified periods
in respect of following category, subject to satisfactory performance
during such period.
Rescheduled NPL in Upgrade to the PLA
Special mention
categoryPeriod of 90 days after the date when
first payment of interest or of principal,
whichever is earlier, falls due under the
rescheduled terms.
Sub-standard and


whichever is earlier, falls due under the
rescheduled terms.
Sub-standard and
Doubtful categoriesPeriod of 180 days after the date when
first payment of interest or of principal,
whichever is earlier, falls due under the
rescheduled terms.
Loss category Period of 360 days after the date when
first payment of interest or of principal,
whichever is earlier, falls due under the
rescheduled terms.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  119
The amount of specific provision made earlier, in respective of
rescheduled NPL of above categories, could also be reversed after the
period specified above.
4(8) Granting of new credit facilities:
  Banks shall not grant new credit facilities for repayment of NPL in the name
of the same borrower or any party, unless the credit facility so created is also
classified as NPL and categorised into the same category of the repaid NPL
had been categorized under Direction 4(6). The reclassification of such NPL
as PLA shall be subject to Directions (4)(7)(I) and 4(7)(II).
5(1) Banks shall recognise interest on an account which has been classified as
NPL as income, as and when the interest is collected by the bank, if it is
collectedon a cash basis.
5(2) Ba nks shall suspense all interest accrued but uncollected from the date
a credit facility is classified as NPL and credit such accrued interest to
the “Interest in Suspense Account” and debit such accrued interest to the
“Interest Receivable Account-NPL”.
5(3) Banks shall continue the present practice of debiting the overdraft/credit
card facilities classified as NPL with interest receivable and crediting to
Interest in Suspense Account.
5(4) At the time of classifying the credit facilities as NPL, bank shall reverse the
accrued interest and credit the same to Interest in Suspense Account. The
reversal of unearned income identified after the close of a financial year
could be accounted for in the financial year in which the advances were
identified as NPL.
6(1) Banks shall maintain (a) General provisions and (b) Specific provisions, for
credit risk mitigation purposes.
6(1)(I)  General Provisions
  Banks shall maintain general provisions in the following manner:
 (i) 1% of total outstanding of on-balance sheet PLAs as referred to
in Direction 3(4) above and total outstanding of special mention


in Direction 3(4) above and total outstanding of special mention
on-balance sheet credit facilities as referred to in Direction 4(6)(I)
above, net of interest in suspense that has been debited to the
respective accounts.
 (ii) Banks shall have a general provision of 0.7 per cent of total credit
facilities as specified in Direction 6(1)(I)(i) above by 30.06.2008
and, thereafter, make an incremental provision of 0.1 per cent
every quarter till 31.03.2009. In effect, banks shall meet the total
requirement of 1 per cent not later than 31.03.2009.
 ( iii) Banks are exempted from maintaining a general provision in
respect of credit facilities secured by cash deposits, gold or
Government Securities with the same bank. Banks shall, for
this purpose, meet the following conditions to be eligible for the
exemption: Recognition of
Interest on NPL.
Provisions for
credit facilities.


120 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
 (a) Bank shall have the right to take legal possession of such
securities, in the event of default, insolvency or bankruptcy
of borrower.
 (b) All documentation used in such collateralised transactions
shall be binding on all parties and be legally enforceable in
all relevant jurisdictions.
6(1)(II)  Specific Provisions
  Ba nks shall maintain specific provisions, as per the credit facilities
categorised in accordance with Direction 4(6), on the amount
outstanding, net of realisable security value as specified in Direction
7(1) and interest suspensed in the event of such interest being debited
to the credit facility as per the following:
Categories of Non-performing
Credit FacilitiesMinimum Specific
Provisioning Requirement
Substandard
   Credit card
   Others 25%
20%
Doubtful 50%
Loss 100%
6(2) In respect of any credit facilities falling within the ambit of Direction 4(8),
banks shall maintain specific provisions as follows:
 ( i)  Where credit facilities are applied for the repayment of the capital
sum outstanding, provisions shall be maintained at a level not less
than what would have been required to be maintained under Direction
6(1)(II) at the time of repayment of the NPL.
 ( ii)  Where credit facilities  are applied for the repayment of interest,
provision shall be maintained at 100% of the outstanding facility.
 (iii) Where credit facilities are applied for the repayment of capital and
interest (e.g., in the case of an overdraft), provisions for capital and
interest shall be provided for in accordance with Directions 6(2)(i) and
6(2)(ii).
7(1) V aluation of security for provisioning purposes shall be as specified below.
7(1)(I)  Primary Mortgage over Immovable Property
 ( i) T he value of security is based on progressive discounts on the
forced sale value (FSV) of immovable property and on a current
valuation report as specified below. Valuation of


valuation report as specified below. Valuation of
Security.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  121
 (ii) The progressive discounts shall be as follows:
Item% of FSV of immovable property
that can be considered as the value
of security
Freehold PropertyLeasehold
Property
At the first time of
Provisioning 75 60
Period in the Loss Section
Less than 12 months 75 60
More than 12 but less
than 24 months60 50
More than 24 but less
than 36 months50 40
More than 36 but less
than 48 months40 30
More than 48 monthsProperty should be
reviewed on a regular
basis, and discounted
further at the discretion
of the bank’s manage-
ment.Nil
 (iii) Current external professional valuation report:
  The valuation report shall meet the following conditions.
 (a) Banks shall obtain a current external professional valuation
report in respect of a facility/ies where the capital outstanding
amount is equal to or more than Rs.5,000,000/- or 0.1% of
the bank’s capital base, whichever is less. Capital base shall
be the same as that appearing in the computation of the
Capital Adequacy Ratio subject to certification by the bank’s
External Auditor.
 (b) Such report shall be from an External Independent Valuer.
  An External Independent Valuer shall be:
 (aa) A  Chartered Valuation Surveyor; or
 (ab) A  Fellow of the Institute of Valuers of Sri Lanka (IVSL)
with 5 years experience
 (ac) A  Graduate member of IVSL with 10 years experience
 (ad) An Associate member of IVSL with 20 years
experience.
 (c) The period of the valuation report shall be:
 (aa) In respect of credit facil ities granted against residential
property which is occupied by the borrower for
residential purposes: a report that is not more than four
years old.


122 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
 (ab) In re spect of credit facilities granted for all other
purposes: a report that is not more than three years
old.
 (iv) Current internal valuation report:
  The valuation report shall meet the following conditions.
 ( a) Banks shall obtain a current internal valuation report in
respect of a credit facility/ies where the capital outstanding
amount is less than Rs.5,000,000/- or 0.1% of the bank’s
capital base, whichever is less.
 ( b) I t shall be a current internal assessment of the value of
properties mortgaged for such credit facilities, carried out
by an independent officer who has not been involved in the
credit decision and signed by a senior officer of the bank.
 ( c) A  current internal assessment is defined as an assessment
that is not more than two years old.
7(1)(II)  Mortgages other than Primary Mortgages
  Mortgages other than primary mortgages over immovable property will
qualify for the above purpose subject to complying with the conditions
in Direction 7(1)(I) above and if such property is mortgaged to the
same bank.
7(1)(III)  Deposit of Title Deeds of Property with an Undertaking to Mortgage
  No value shall be assigned until a property mortgage is executed in
favour of the bank.
7(1)(IV)  Assignment over Life Insurance Policies
  90 per cent of the surrender value shall be considered as value of
security, provided confirmation of surrender value from the insurer is
available and the assignment in favour of the bank is duly registered.
7(1)(V)  Secured on Gold
  The market price of gold, subject to an adequate insurance cover .
7(1)(VI)  Assignment of Shares
 (i) Quoted
 (a) 90 percent of the latest market price
 ( b) If trading has been s uspended (other than temporary
suspension), the net realisable tangible asset value, as per
the latest audited financial statements (not more than 18


the latest audited financial statements (not more than 18
months old), is to be used, provided an auditor’s certificate
evidencing the value per share is available. No value shall be
given if appropriate financial statements/certificates are not
available and if sales are temporarily suspended.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  123
 (ii) Unquoted
  V alue may be given, provided the shares are marketable.
Appropriate value may be determined on the basis of 75 per
cent of the net tangible asset value per share as certified by the
company’s auditors.
7(1)(VII)  Mortgage over Plant, Machinery and Equipment
  V alue based on an external valuation report or, in the absence of
such valuation, the net book value calculated by using a 20 per cent
depreciation rate on the straight-line basis taking into account the date
of acquisition and the acquisition price shall be applicable.
7(1)(VIII)  Mortgage over Motor Vehicles
  Based on an external valuation report or , in the absence of such
valuation, the net book value calculated by using a 25 per cent
depreciation rate on the straight line basis taking into account the date
of original registration and the acquisition price on that date, would be
applicable.
7(1)(IX)   Pledge over Stocks/Goods under the Bank’ s Control
  50 per cent of the market value determined on a case-by-case basis may
be applicable.
7(1)(X)   Hypothecation of Stock-in-T rade
  30 per cent of the current value of stocks provided that the level of
stock-in-trade is closely monitored by the bank.
7(1)(XI)   Quoted Debentures
 (i) 90 per cent of the latest market price
 (ii) If trading has been suspended (other than temporary suspension),
the net realisable tangible asset value, as per the latest audited
financial statements (not more than 18 months old), is to be
used, provided an auditor’s certificate evidencing the value
per share is available. No value shall be given if appropriate
financial statements/certificates are not available and if sales are
temporarily suspended.
7(1)(XII)   Guarantees
 (i) Licensed Banks – incorporated locally or outside Sri Lanka
  Eligible value of guarantee is based on a rating given by an eligible


Eligible value of guarantee is based on a rating given by an eligible
credit rating agency recognition under the Direction issued on
maintenance of capital adequacy ratio (Basel II), as follows:
Bank’s credit rating Value of security
AAA to AA- or equivalent 80%
A+ to A- or equivalent 50%


124 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
 (ii) Government Guarantee
  Full value.
7(1)(XIII)   Other Types of Security
  As specifically approved by the Director of Bank Supervision on a
case-by-case basis.
8(1) Banks incorporated or established within Sri Lanka shall have a well-designed
write-off/write down policy established by the Board of Directors, delineating
the approach, authority, accountability for negligence and inappropriate follow-
up, independent review and audit, continuous monitoring, reporting, etc . This
policy should aim at recovering maximum salvage value through enforcement
of collateral / guarantees, etc.
  Banks, incorporated outside Sri Lanka, are required to follow write-off/write
down policy duly laid down by their head office.
9(1) Ba nks shall segregate all credit facilities (a) classified as non-performing
(b) rescheduled (c) written off/written down from other credit facilities to
facilitate close follow-up action and to monitor recoveries.
10(1)  Banks shall submit the information on classification of loans and advances to
the Central Bank of Sri Lanka on a monthly basis, in accordance with reporting
format and instructions at Annex attached hereto. The returns for a given period
should be submitted to the Central Bank on or before the 15th day of the month
following the month to which the information relates.
11(1)  The following Direction s and Circulars issued to licensed commercial banks are
hereby revoked:
 ( i) Directions on Suspension of interest on non-performing advances and
classification of bad and doubtful advances for provisioning purposes
(Schedule I) and valuation of securities for provisioning purposes (Schedule
II) dated 22 August 1997, issued under Section 46A of the Banking Act, as
amended.
 (ii) Circular letter dated 15 August 2003 amending Direction 11(1)(i) above.
 (iii) Circular letter dated 13 July 2004 on criteria for selection of Valuers.


(iii) Circular letter dated 13 July 2004 on criteria for selection of Valuers.
 (iv) Circular letter dated 8 September 2004 on classification of bad and doubtful
advances for provisioning purposes (classification of medium and long-term
project loans).
 (v) Amendment to Direction  11(1)(i) dated 15 December 2004 on valuation of
securities for provisioning purposes relating to the requirement to obtain a
current professional valuation report.
 (vi) Circular letter dated 29 March 2006 on reversal of unearned income and
classification of advances as non-performing.
 (vii) Direction dated 6 Decem ber 2006 on the requirement to maintain a general
provision for advances.Write Off/Write
down of
non-performing
credit facilities.
Segregation of
non-performing
credit facilities.
Reporting
Requirement.
Revocation
of Previous
Directions and
Circulars.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  125
Annex
Licensed Commercial Banks
Banking Act Direction No. 3 of 2008
Classification 	of	Loans	and	Advances, 	Income	Recogntion 	and	Provisioning
Reporting Format
Name of Bank:
As at: DD/MM/YYYY
 Amount in ’000
Credit FacilitiesPerforming
Loans and
Advances
(PLA)Categorisation of Non-performing
Loans and Advances (NPL) Total
NPLsTotal
Credit
FacilitiesSpecial
MentionSub-
standardDoubt-
fulLoss
On-balance Sheet Credit Facilities
Cheques purchased
Import bills
Export bills
Overdrafts
Credit card
Short-term loans
Medium and long-term loans
Housing loans
Staff loans
Re-scheduled loans
Lease rentals (net)
Loans against debt securities
Pawning advances
Loans to Banks and Financial
Institutions
Other credit exposures
Interest receivables
Loans and Advances (gross)
Suspended Interest (-)
Specific provisions (-)
General provisions (-)
Loans and Advances (net)
Value of Security
Off-balance Sheet Credit Facilities
Guarantees
Bonds
Letters of Credit
Acceptances
Interest Receivables
Loans and Advances (gross)
Suspended Interest (-)
Specific provisions (-)
General provisions (-)
Loans and Advances (net)
Value of Security


126 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Directions issued by the Monetary Board of the Central Bank of Sri Lanka under Sections 46(1) and
76(J)(1) of the Banking Act, No.30 of 1988, as amended.
Sgd. Nivard Ajith Leslie Cabraal
Chairman of the Monetary Board and
Governor of the Central Bank of Sri Lanka
Colombo
04 April 2013
BANKING ACT DIRECTION NO. 1 OF 2013
EXPOSURE TO THE STOCK MARKET BY
LICENSED COMMERCIAL BANKS AND
LICENSED SPECIALISED BANKS
In the exercise of the powers conferred by Sections 46(1) and 76J(1) of the Banking Act, No. 30
of 1988, last amended by the Banking (Amendment) Act, No. 46 of 2006, the Monetary Board hereby
issues the following Directions on Exposure to Stock Market by Licensed Commercial Banks and
Licensed Specialised Banks (hereinafter referred to as Licensed Banks), having reviewed the exposures
of Licensed Banks to the stock market and decided to require Licensed Banks to adopt appropriate risk
management standards to mitigate any potential risks at prudent levels with a view to promoting the
safety and soundness of the banking system.
1. These Directions may be cited as the Banking Act, Directions No. 1 of 2013.
2. A  Licensed Bank may extend margin trading facilities on shares to customers/
investors, provided that:
 (i) the Licensed Bank shall have internal limits in respect of:
(a) individual customer/investor margin trading exposure based on the
market value of such customer’s/investor’s share portfolio subject to
any statutory limits in place; and
(b) aggregate mar gin trading exposures based on the total outstanding
amount of loans and advances granted by a licensed bank.
 (ii) all shares purchased from margin trading facility shall be under pledge to
the Licensed Bank providing margin trading facility.
3.1 A  Licensed Bank may issue guarantees for the purpose of purchase of shares
from Initial Public Offerings not exceeding fifty percent of the value of such


from Initial Public Offerings not exceeding fifty percent of the value of such
Initial Public Offering.
3.2 The guarantees issued against cash deposits shall be exempted from the above
limit, provided that:
 (i) the cash deposit is not less than the value of the guarantee;
 (ii) the cash deposit is not financed from any loans from the bank; andCitation.
Internal limits on
Margin trading
on Shares.
Limit on issue
of guarantees
for purchase
of shares.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  127
 (iii) the Licen sed Bank has the right to take possession of such cash deposits
in the event of default of commitments by the customer.
4. The Board of Directors of Licensed Banks incorporated in Sri Lanka and the
Head Office/Regional Office of the branches of banks incorporated outside
Sri Lanka shall formulate a Board/Head Office/Regional Office approved risk
management policy, guidelines and internal controls on their exposures to
stock market activities including prudential limits for margin trading as per 2(i)
above and assess risk exposures, such as credit, liquidity and concentration with
appropriate risk management information on an on-going basis.
5. Every Licensed Bank shall spread margin trading facilities among a reasonable
number of customers with diversified portfolios of shares to mitigate risky
concentrations.
6. Every Licensed Bank shall report to the Director of Bank Supervision details
of exposure to the stock market in accordance with the reporting format at
Annex A on or before the 15th day of the month following each quarter.
7. The following Banking Act Directions are hereby revoked:
 (i) Banking Act Direction No. 5 of 2011, dated 26 August 2011 on Exposure
to Stock Market and Banking Act, Direction No. 11 of 2011, dated
16 December 2011 on Amendments to Direction on Exposure to Stock
Market issued to Licensed Commercial Banks;
 (ii) Banking Act Direction No. 6 of 2011, dated 26 August 2011 on Exposure
to Stock Market and Banking Act, Direction 12 of 2011, dated
16 December 2011 on Amendments to Direction on Exposure to Stock
Market issued to Licensed Specialised Banks.Role of Board
of Directors.
Control on
Concentrations.
Reporting.
Revocation of
Directions.


128 Directions, Determinations, and Circulars issued to Licensed Commercial BanksTo  :  Director of Bank Supervision, Central Bank of Sri Lanka
Name of Licensed Bank :
Quarter ended  :
Quarterly Statement of Exposure to the Stock Market
A.  Exposure to the Stock Market
ItemOn Balance Sheet Exposure Off Balance Sheet Exposure
Total
Exposure
(h) = (d + g)Margin
Trading
Facilities
(a)Other loans
granted for
purchase of
listed shares
(b)Others (i)
(c)Sub Total
(d) =
(a + b + c)Total
value of
guarantees
issued
(e)Under-writing
and other
commitments,
credit lines, etc .
(f)Sub Total
(g) = (e + f)
Amount outstanding (Rs. mn)
As a % of outstanding amount of
total loans and advances
B.   Guarantees issued for purchase of shares at IPO
Name of IPO (i)Size of
IPO (j)Fully cash backed
 guarantees
(Rs. Mn) (k)Guarantees issued
without cash deposits
(Rs. mn) (l)Total value of guarantees issued
(Rs. mn)
(m) = (k + l)
Total
Note : (i)  if any, please provide details separately.
This statement should be submitted to the Bank Supervision Department by the 15th day of the month following end of each quarter. Please e-mail to
banksup@cbsl.lk or fax to 2477711Annex  A


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  129
BANKING ACT
Determinations made by the Monetary Board of the Central Bank of Sri Lanka under section
17a(1)(a) and (1)(b) of the Banking Act, No.30 of 1988 as amended by the Banking (Amendment) Act,
No.33 of 1995.
Sgd. A. S. Jayawardena
Governor
Colombo
22 August 1997
DETERMINATION
By virtue of the provisions of section 17 a(1)(a) and (1)(b) of the Banking Act, No.30 of 1988
as amended by Banking (Amendment) Act, No.33 of 1995, the Monetary Board has determined that
a licensed commercial bank shall not acquire or hold shares in any company other than a listed public
company, and
 (i) shareholding acquired by such bank in any such listed public company shall not be in excess of
ten percent of its capital funds :
  Provided that such acquisition or holding of shares shall not exceed twenty percent of the paid
up capital of such listed public company.
 (ii) the aggregate amount invested in the shares of listed public companies excluding companies
which are subsidiaries of the bank, shall not exceed thirty percent of its capital funds.


130 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
BANKING ACT
Determination made by the Monetary Board of the Central Bank of Sri Lanka under Section 47(3),
(4), (5) and (6) of the Banking Act, No.30 of 1988 as amended by the Banking (Amendment) Act, No.2
of 2005.
Sgd. Sunil Mendis
Governor
Colombo
11 February 2005.
DETERMINATION
1. The Monetary Board, by virtue of the provisions of section 47(3), (4), (5) and (6) of the Banking
Act, has approved the following as security to be obtained by a licensed commercial bank in granting
accommodation to a director or to a close relation of such director or to any concern in which director
has a substantial interest, as the case may be:
 (a) Sir Lanka Government Guarantees;
 (b) Bank Guarantees;
 (c) Guarantees of International Financial Institutions; such as the World Bank, IMF, IFC, ADB,
USAID etc.
In the case of accommodation secured by items ( a), (b) or ( c) above, the accommodation granted
should not exceed 100 per cent of the guarantee.
 (d) Government or Central Bank Securities provided that the accommodation granted would not
exceed 90 per cent of the face value or market value, whichever is lower of such securities;
 (e) Cash Deposits in any commercial bank held under lien to the order of the lending bank provided
that the accommodation granted would not exceed 90 per cent of such cash deposits;
 (f) Life Insurance Policie s issued in Sri Lanka and assigned to the lending bank provided that the
accommodation granted would not exceed 75 per cent of the surrender value of such policy;
 (g) Immovable property held on a freehold basis and on which a primary mortgage has been taken
by the lending bank provided that the accommodation granted would not exceed 60 per cent of
the value of such property.
 (h) Immovable property held on a leasehold basis provided that –
 (i) the lease has been granted by a statutory body;
 (ii) the unexpired period of lease is at least 50 years;


(ii) the unexpired period of lease is at least 50 years;
 (iii) there is no prohibition on the mortgage of the leasehold rights contained in the Deed of
Lease, or if the Deed of Lease requires the prior approval of the Lessor for the mortgage of
the leasehold rights such approval has been obtained from the Lessor;
 (iv) a primary mortgage has been taken on the leasehold rights by the lending bank;
  and provided further that the accommodation granted does not exceed 60 per cent of the value of
such property.
 (i) Sh ares of Public Companies quoted on the Colombo Securities Exchange provided that the
accommodation granted would not exceed 50 per cent of the market value of such shares;


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  131
 (j) Mortgage of Stock-in-Trade provided that the accommodation granted would not exceed 30 per
cent of the market value of such Stock-in-Trade.
 (k) In the case of a concern where a substantial interest is held by a Banking Institution as defined
in section 127 of the Monetary Law Act, other than a licensed commercial bank, immovable
property held on a freehold basis and on which a secondary mortgage has been taken by a lending
bank, provided that the total accommodation granted on the primary mortgage and the secondary
mortgage does not exceed 60 per cent of the value of such property; and
 (l) Pledge of non-perishable goods of a commercial nature which are readily marketable, excluding
all manufactured foods and other items with a limited shelf life, provided that the accommodations
granted would not exceed 40 per cent of the market value of such goods.
2. For the purposes of Section 47(5), in respect of accommodation granted by a licensed commercial
bank to a concern in which a director of such bank has a substantial interest, where the substantial
interest held in the concern by such director –
 (i) e xceeds one million rupees but does not exceed 10 per cent of its paid up capital or is the
existence of a guarantee or indemnity for a sum less than 10 per cent of that capital, where the
concern is a company.
 (ii) Is the existence of a guarantee or indemnity for a sum less than 10 per cent of the total capital
subscribed by all its partners, where the concern is a firm.
  Such security as the licensed commercial bank considers adequate having regard to the
creditworthiness of such concern should be obtained. Such accommodation should be reported
to the Director, Bank Supervision, within one week of disbursement of such accommodation.


132 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Order published under Section 47(4) of the Banking Act, No. 30 of 1988 as amended by
Banking (Amendment) Act, No. 2 of 2005
In terms of Section 47(4) of the Banking Act, No.30 of 1988 as amended by Banking (Amendment)
Act, No.2 of 2005, the Monetary Board of the Central Bank of Sri Lanka has approved the following
limits in respect of accommodation granted by a licensed commercial bank to a director or to a close
relation of such director with effect from 11th February, 2005.
 (a) In the case of accommodation secured by cash or near cash collateral [items ( a) to ( e) of the
Determination issued by the Monetary Board in terms of Section 47(3) of the Banking Act,
No.30 of 1988 as amended by Banking (Amendment) Act, No.2 of 2005, upto the limit of
the security permitted in terms of the said Determination.
 (b) In the case of accomm odation secured by other types of approved securities, upto Rupees
Five Hundred Thousand (Rs.500,000/-).
 (c) In the case of accommodation by way of issue of a credit card, upto Rupees Five Hundred
Thousand (Rs.500,000/-), provided that such accommodation is on the same terms and
condition as for other customers of the respective bank.
Sgd. Sunil Mendis
Governor
Colombo
11 February 2005.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  133
Determinations made by the Monetary Board of the Central Bank of Sri Lanka under Section 47(3), (4),
(5) and (6) of the Banking Act, as amended.
Sgd. Nivard Ajith Leslie Cabraal
Chairman of the Monetary Board /
Governor of the Central Bank of Sri Lanka
Colombo
02 September 2009.
BANKING ACT, DETERMINATION NO.3 OF 2009
LEASE-BACKED TRUST CERTIFICATES/LEASE RECEIV ABLES
AS APPROVED SECURITY FOR ACCOMMODATION TO ANY DIRECTOR OR
CLOSE RELATION OF A DIRECTOR OR TO ANY CONCERN
IN WHICH THE DIRECTOR HAS SUBSTANTIAL INTEREST
1. This Determination may be cited as the Banking Act, Determination No. 3 of
2009. The Sections referred to in this Determination will be those of the Banking
Act, No. 30 of 1988, last amended by the Banking Act, No. 46 of 2006.
2. In terms of Section 47(3), (4), (5) and (6) of the Banking Act the Monetary
Board shall approve any security to be given by any director, or a close relation
of a director or to any concern in which the director has substantial interest, in
the grant of  accommodation to such parties by a licensed commercial bank.
3. The following new Determination will be inserted immediately after 1( l) of
the Determination issued in terms of Section 47(3), (4), (5) and (6) dated 11
February 2005.
 1(m) Lease-backed trust certificates/lease receivables provided that–
 (i) The total accommodation granted on the lease-backed trust
certificates/lease receivables shall not exceed 50 per cent of the
value of such lease backed trust certificates/lease receivables.
 (ii) The total accommodation granted on the lease-backed trust
certificates/lease receivables shall not exceed 50 per cent of the
aggregate amount of the total outstanding accommodation granted
to the individual company.
 (iii) Lease-backed trust certificates/lease receivables shall be based on
the un-encumbered (performing) lease portfolio.


the un-encumbered (performing) lease portfolio.
 (iv) Lease-backed trust certificates/lease receivables shall be mort-
gaged to the lending bank.
 (v) The lending bank should be a registered establishment under the
Finance Leasing Act, No. 56 of 2000. Approved Security.Citation.
Empowerment
under Sections
47(3), (4), (5)
and (6).


134 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Bank Supervision Department
31 December 2004
To : All Licensed Commercial Banks
       Licensed Specialised Banks;
       Approved Auditors
Dear Sirs,
ACCOUNTING FOR PROPERTIES ACQUIRED BY FORECLOSURE OF
COLLATERAL  / PART SETTLEMENT OF DEBT
It has been observed that the accounting treatment adopted by some banks with respect to
immovable property acquired by foreclosure of collateral from defaulting customers or which have
devolved on the banks as part settlement of debt, leads to a misrepresentation of the bank’s assets and
the level of non performing advances of the bank.
2. In order to create a uniform practice among the banks in accounting for such assets, and
to avoid misrepresentation of the level of non performing advances, all banks are hereby informed to
adhere to the following procedure in accounting for such property;
2.1 Immovable property acquired by foreclosure of collateral from defaulting customers, or
which have devolved on the banks as part settlement of debt should not be accounted for as investment
property or as part of the assets of the bank. Such property should be recorded on a memorandum
basis.
2.2 The related facility should remain classified in the books of the bank until such property is
disposed of and the proceeds realized by the bank.
3. Y our attention is drawn to section 48 a of the Banking Act, No.30 of 1988, as amended by
Act, No.33 of 1995, which requires banks to dispose of property acquired by foreclosure of collateral
from defaulting customers or which have devolved on the banks as part settlement of debt, at the
earliest opportunity.
Yours faithfully,
Sgd, Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  135
Ref. No. : 02  / 17 / 800 / 008 / 001
Bank Supervision Department
05 January 2009
To :  Chief Executive Officers of all State Banks
ESTABLISHMENT OF A REVOLVING FUND TO GRANT LOANS TO
ACQUIRE PROPERTY TO THE STATE SECTOR EMPLOYEES
His Excellency the President, at the discussions held on 21 October 2008 with the state sector
employees union, has directed the Central Bank to inform all state banks to establish a Revolving
Fund for the purpose of granting loans to acquire property, to state sector employees. Accordingly, we
request all state banks to accede to the above.
B D W A Silva
Director of Bank Supervision


136 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No. : 02  / 17 / 600 / 0026  / 001
Bank Supervision Department
12 June, 2013
To :  The CEOs of all Licensed Commer cial Banks
FINANCIAL ACCOMMODATION TO FINANCE COMPANIES
We write to inform you that the applicability of the Circular issued under Ref. No. BS/13/89 dated
20 March 1989 on the above subject is hereby revoked.
Yours faithfully,
(Mrs.) T M J Y P Fernando
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  137
Ref. No. : 02  / 17 / 800 / 0006  / 01
11 March 2010
Directions to Licensed Commercial Banks
  appointed as Authorised Dealers
Dear Sir/Madam,
PREPAYMENT OF IMPORT BILLS
 Licensed commercial banks appointed as authorised dealers are hereby informed that the
Operating Instructions issued under Ref. No.02/17/800/0006/01 dated 31/10/2008 on the above subject
are hereby withdrawn.
Yours faithfully,
 Controller of Exchange  Director of Bank Supervision


138 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No. : 02  / 17 / 800 / 0006  / 01
31 October 2008
Instructions to Licensed Commercial Banks
  Appointed as Authorised Dealers
Dear Sirs,
PREPAYMENT OF IMPORT BILLS
 The licensed commercial banks who are authorised dealers are informed that until further notice,
they should not effect pre-payment of import bills and that such bills should be honoured as agreed to in
the contract entered into with the supplier at the time of placing the import order.
Yours faithfully,
 Controller of Exchange  Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  139
Ref. No. : 02  / 04 / 004 / 0009  / 001
Bank Supervision Department
8th Floor, Renuka Building
41, Janadhipathi Mawatha
Colombo 1.
17th August, 2001
To :  All Licensed Commer cial Banks who are
Authorized Dealers in Foreign Exchange
Dear Sirs,
PREPAYMENT OF IMPORT BILLS
We refer to our circular dated 29th January 2001 on the above subject, in terms of which licensed
commercial banks who are Authorized Dealers were informed that they should not effect pre-payment
of import bills and that such bills should be honoured on the date of maturity as agreed to in the
contract entered into with the supplier at the time of placing the import order.
Commercial banks who are Authorized Dealers are hereby informed that this requirement is
withdrawn with effect from Monday, 20th August 2001. However, a commercial bank/Authorized
Dealer may use his discretion for prudential reasons to reject any prepayment of an import bill, without
referring to us.
Yours faithfully,
 Controller of Exchange  Director of Bank Supervision


140 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No. : 02  / 05 / 009 / 0100  / 001
Bank Supervision Department
8th Floor, Renuka Building
41, Janadhipathi Mawatha
Colombo 1.
05 September, 2001
To :  All Licensed Commer cial Banks
RECOVERY OF ACCOMMODATION TO EXPORTERS
We refer to our circulars dated 22nd January, 2001, 29th January, 2001, 16th February, 2001 and
30th March, 2001 on the above subject.
As agreed at the Bank Managers’ meeting held on 23rd August, 2001, licensed commercial banks
may use their judgment and discretion to extend the credit period granted to exporters who experienced
delays in dispatching their documents due to interruption of flights in July by a maximum of 7 days.
Sgd, P.T. Sirisena
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  141
Ref. No. : 02  / 05 / 009 / 0100  / 001
Bank Supervision Department
8th Floor, Renuka Building
41, Janadhipathi Mawatha
Colombo 1.
30th March, 2001
To :  All Licensed Commer cial Banks
RECOVERY OF ACCOMMODATION TO EXPORTERS
We refer to our circulars 01/01/002/0034/001 dated 22nd January, 2001 and 02/05/009/0100/001
dated 29th January, 2001 and 16th February, 2001 on the above subject.
Some licensed commercial banks have sought further clarifications on the contents of the above
circulars. Accordingly, we furnish the following clarifications;
1. Circulars will apply to credit granted to finance all types of export orders irrespective of the
terms of payments which can be on sight, on deferred payment terms supported with letters of
credit or other terms inclusive of bills on collection or on consignment basis. All such export
credit should be recovered only out of export proceeds, and enhanced rates of interest should
apply, if there is any delay in recovery of credit beyond the periods specified in the previous
circulars.
2. There may be instances where export credit requested may not be identified with a particular
export order with specific terms of payments. Also, some customers may negotiate for credit
to finance imports of raw materials or other needs which are directly connected with export
business, although it may be difficult to identify such credit with specific export orders. In
such cases, banks are requested to apportion such credit among export orders or shipments
of the particular exporter and enhanced rates of interest should apply if there is any delay in
recovery of the apportioned credit beyond the periods specified in the previous circulars.
3. Certain instances have also been reported where some customers repay their export credit out
of rupee funds on the grounds that export proceeds are brought and kept in their foreign cur -


of rupee funds on the grounds that export proceeds are brought and kept in their foreign cur -
rency accounts with banks. However, this would not conform to the method of recovery of
export credit stipulated in our circulars. Banks are requested to recover export credit only out
of export proceeds, which should be surrendered to banks in sufficient amounts to settle in
full the export credit.
All banks are requested to refer queries, if any, to Director, Bank Supervision Department, for any
further clarifications on the contents of these circulars.
Sgd.  J M T B Jayasundara
Actg. Director of Bank Supervision


142 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No. : 02  / 05 / 009 / 0100  / 001
Bank Supervision Department
8th Floor, Renuka Building
41, Janadhipathi Mawatha
Colombo 1.
16th February, 2001
To :  All Licensed Commercial Banks
RECOVERY OF ACCOMMODATION TO EXPORTERS
I refer to our Circulars 01/01/002/0034/001 dated 22nd January, 2001 and 02/05/009/0100/001
dated 29th January, 2001, in which procedures agreed on the above subject were conveyed by us. Since
then, some banks and exporters have requested an extension of the maximum period of 90 days granted
from the date of shipment to settle export credit out of export proceeds, without being subjected to
enhanced interest rates, on the ground that it is customary for certain exports to be made on 120 days
deferred payment terms. They have cited, as an example, tea exports to Russia where, in the normal
course of business, a period exceeding 90 days would be necessary for settlement of export credits.
2. Having considered these representations, it has now been decided that licensed commercial banks
may use their judgement and discretion to enhance the period granted to settle export credit out of
export proceeds up to 120 days from the date of shipment in respect of exports where it is customary to
grant 120 days deferred payment terms to buyers. Accordingly, enhanced rates of interest applicable on
accommodation in respect of such exports will be as follows.
 (i) 1,000 basis points per annum, where there is a delay of not more than 30 days beyond the
120 days or lesser period decided by the banks from the date of shipment; and
 (ii) an additional 200 basis points per annum for every 30 days delay thereafter.
 This will come into ef fect from Monday 19th February, 2001.
3. The following clarifications on the contents of the two Circulars referred to above are also made
for your information.


for your information.
 (i) In t he event the agreed payment period of the export bill/order connected with the
accommodation exceeds 90 days or the period decided by the banks under the paragraph
2 above, enhanced interest rates would apply for the period beyond 90 days or the period
decided by the banks, as the case may be, from the date of shipment.
 (ii) Where export credits are not recovered within 90 days or the period decided by banks under
the paragraph 2 above, enhanced interest rates would apply to all accommodation granted
to such exporters by way of purchasing/discounting bills, pre-shipment/post-shipment
credit as well as other loans and overdraft facilities. In the event credit facilities such as
overdrafts cannot be identified with a specific export bill/order, such credit facilities may
be apportioned among export bills/orders of the customer concerned for the purpose of
applying enhanced interest rates.
 (iii) Enhanced interest rates would apply to export credit facilities in rupees as well as in foreign
currencies granted by both Domestic Banking Units and Foreign Currency Banking Units.
 (iv) Enhanced interest rates would not apply to credit facilities granted against export bills
negotiated prior to 22nd January, 2001. However, enhanced interest rates would apply to


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  143
such credit facilities if they are not recovered out of export proceeds within the agreed
payment period of the export bill/order.
 (v) The banks may permit exemption from enhanced interest rates in respect of credit facilities
which will be granted against export bills which have been supported by Letters of Credit
opened prior to 22nd January, 2001. However, enhanced interest rates would apply if such
export credits are not recovered within the agreed period out of export proceeds.
4.   The reporting format has now been changed as given in Annex. Please use the new format to
report to the Bank Supervision Department monthly the details of accommodation and enhanced
interest. In particular, please note that the credit settlement period of the normal 90 days or the
enhanced 120 days should be indicated in column 2 of the Annex.
Sgd,  P.T. Sirisena
Director of Bank Supervision


144 Directions, Determinations, and Circulars issued to Licensed Commercial Banks Credit  Date  Amount  Rate of  Tenor Overdue  No. of  Enhanced  Amount  Enhanced
 Settlement  Granted  Granted  Interest   Amount  Days  Interest  Outstan-  Interest
 Period    (%)   overdue  Amount  ding Amount
        Char ged  Char ged
 (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) Annex
INTEREST CHARGED ON OVERDUE EXPORT CREDIT FACILITIES* FOR THE MONTH OF …………………
Name of the Bank: ……………………………….
……………………………………
Signature of Authorized Officer
Name and Seal of Bank Date: ………………….(Amounts in Sri Lanka Rupees ’000)
Name of Customer
(1) Export Bills Finance  Other Export
 (Discounted/Negotiated)  Credit Facilities**
Notes
* Include export credits in rupees as well as in foreign currencies granted by both DBUs and FCBUs.
** All export credits other than bills financing such as short term loans and overdrafts granted to finance export
business identified separately with or apportioned among export bills/orders.
Please send the duly completed form to Bank Supervision Department, Central Bank of Sri Lanka, Fax 477711.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  145
Ref. No. : 02  / 05 / 009 / 0100  / 001
Bank Supervision Department
8th Floor, Renuka Building
41, Janadhipathi Mawatha
Colombo 1
29th January, 2001
To :  All Licensed Commer cial Banks
RECOVERY OF ACCOMMODATION TO EXPORTERS
At the meeting of Bank Managers held on 26 January 2001 the Bank Managers sought
clarifications with regard to the contents of the Circular No. 01/01/002/0034/001 of 22nd January 2001
on the above subject. The agreements reached at the meeting are set out below.
(A) Settlement of Export Credit out of Export proceeds
 The Bank Managers raised the issue as to whether in all instances export credit should be settled
out of proceeds of the relevant exports. It is agreed that export credit (including overdraft granted
for export purposes) is granted on the basis that repayment would be made out of export proceeds
and that, therefore, the enhanced interest rates specified in the circular would apply where there is
failure to settle the export credit out of export proceeds within 90 days of the shipment of goods
under the export order.
(B) Applicability of the Circular to Off-shore Banking Units
 The Bank Managers also raised the issue as to whether the requirements of the circular would
apply to off-shore banking units as well. It was agreed that the rationale underlying the
requirements of the circular would apply equally to credit granted by both domestic units and
off-shore units of banks which are part of a single licensed commercial bank and that, therefore,
its requirements would apply to settlement of export credit granted by both such units.
(C) Applicability of the Circular to Overdrafts
 The Bank Managers raised the question of the settlement of overdrafts out of export proceeds.
It was agreed that the overdraft facilities granted for export purposes should be settled out of


It was agreed that the overdraft facilities granted for export purposes should be settled out of
export proceeds within 90 days of the shipment of goods and the failure to do so would attract the
enhanced interest rates specified in the circular.
 Licensed commercial banks are required to abide by the agreements reached at the Bank
Managers’ meeting.
Director of Bank Supervision


146 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No. : 01  / 01 / 002 / 0034  / 001
Department of Bank Supervision
22nd January, 2001
To :  All Licensed Commer cial Banks
RECOVERY OF ACCOMMODATION TO EXPORTERS
As discussed at the Bank Managers’ meetings of 22nd December 2000 and 18th January 2001
and the meeting of Sri Lanka Forex Dealers’ Association on 24th November 2000, it has been agreed
that the delays in the settlement of accommodation granted by licensed commercial banks for financing
export orders, can cause problems for the prudential management of the banks and that there is a need
to adopt a uniform practice in this regard by all the banks.
2. Therefore, with a view to securing the early settlement of financial accommodation granted
to exporters on the basis of export orders, licensed commercial banks are required to observe the
following procedures with effect from 23 January 2001.
(a) Licensed commercial banks should make every endeavour to ensure the repatriation of
export proceeds in time against export orders made through them.
(b) In doing so, licensed commercial banks should ensure that their borrowers settle in full the
accommodation granted to finance export orders out of export proceeds within a period of
90 days from the date of shipment of goods in respect of which the accommodation has been
granted.
 (c) In order to achieve the above objectives, the rate of interest applicable on such
accommodation, where the borrower does not repay export proceeds in time, shall be
enhanced as follows:
 (i) 1,000 basis points per annum, where there is a delay of not more than 30 days beyond
the 90 days from the date of shipment; and
 (ii) an additional 200 basis points per annum for every 30 days delay thereafter.
3. Licensed commercial banks are hereby requested to submit monthly  reports to the Director of
Bank Supervision (DBS) on the details of such accommodation which has not been settled within the


Bank Supervision (DBS) on the details of such accommodation which has not been settled within the
specified period in the format given in the Annexure.
4. Each monthly report should be submitted to DBS on or before the end of the second week of
the subsequent month. Accordingly, the first report providing the aforementioned details in respect of
January 2001 should reach DBS on or before 16th February 2001.
 Chief Accountant  Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  147
 Date  Amount  Rate of  Maturity or  Overdue  No. of Days  Enhanced
 Granted  Granted  Interest (%)  Expiry Date  Amount  overdue  Interest Rate (%) Annexure
INTEREST CHARGED ON OVERDUE EXPORT FACILITIES FOR THE MONTH OF …………………
Name of the Bank: ……………………………….
……………………………………
Signature of Authorized Officer
Name and Seal of BankDate: ………………….(Amounts in SL Rupees)
Name of Customer


148 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No. : 02  / 17 / 600 / 0002  / 001
Bank Supervision Department
30 January 2009
To :  All  Licensed Commer cial Banks and
 Licensed Specialised Banks
Dear Sir  / Madam,
CONCESSIONS GRANTED TO TOURISM INDUSTRY
In view of the major setback in global economic activities and their impact on the tourism
industry, the Monetary Board has requested all licensed commercial banks and licensed specialised
banks to grant the following concessions to those institutions in the tourism industry, that wish to avail
themselves of such concessions:
 (i) Grant a moratorium of 6 months from January 2009 to June 2009, in respect of outstanding credit
facilities to tourist hotel companies and the holding companies of such hotel companies, provided
that the hotel companies concerned retain their employees at levels prevailing as at December
2008.
 (ii) Recover the capital and interest falling due during the moratorium period, from January 2010
onwards in thirty-six equal installments and a concessionary rate of interest be charged for this
facility.
 (iii) W aive the penal interest imposed on any defaulted credit facilities taken by the tourist hotel
companies, and the holding companies of such hotel companies.
 (iv) Continue to maintain any non-performing loans in the same category for provisioning purposes,
during the six-month moratorium period.
Yours faithfully,
B D W A Silva
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  149
Ref. No. : 02  / 17 / 600 / 0002  / 001
Bank Supervision Department
02 March 2009
To :  Chief Executive Offivers of
 all Licensed Commer cial Banks
Dear Sir  / Madam,
RELIEF PACKAGE FOR THE TEA SECTOR
The Ministry of Finance and Planning by its Circular Letter dated 12 January 2009 has informed
licensed commercial banks (LCBs) of a relief package for the tea sector. In this regard, the Government
will provide a 100 percent Treasury Guarantee, subject to conditions including that such loans are
secured on existing mortgages or any other security available with the respective banks.
In the event an LCB grants accommodation to a director of the bank or a close relation of such
director or any concern in which a director has a substantial interest, the Banking Act requires the LCB
to obtain securities approved by the Monetary Board.
In view of the above, the Monetary Board approved of the following in relation to security to be
obtained by an LCB in granting accommodation to a director of the bank or a close relation of such
director or any concern in which a director has a substantial interest, under the relief package for the
tea sector:
The unexpired period of lease of immovable property held on leasehold basis referred
to in paragraph 1(h)(ii) of the Determination dated 11 February 2005, issued in terms
of Section 47(3), (4), (5) and (6) of the Banking Act be reduced to a period of at least
25 years for this purpose.
Yours faithfully
B D W A Silva
Director of Bank Supervision


150 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No. : 02  / 17 / 800 / 007 / 001
Bank Supervision Department
03 March 2009
To :  CEOs of Licensed Commer cial Banks and
 Licensed Specialised Banks
Dear Sir  / Madam,
GRANTING CREDIT FACILITIES TO PRIV ATE SECTOR
It has been brought to our notice that some banks have informed their customers that the Central
Bank has required banks to curtail credit to their customers.
The recent trends show that growth in credit to the private sector has decelerated significantly.
Inflation and inflation expectations are also moderating. In view of these developments and to mitigate
the negative consequences of the global financial turmoil on the domestic economy, the Central Bank has
also taken several measures to ease conditions in the domestic financial markets.
Accordingly, you may take appropriate measures to expand credit to the private sector, based on the
evaluation of credit risk of the customers.
Yours faithfully,
B D W A Silva
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  151
Order made by the Monetary Board of the Central Bank of Sri Lanka under Section 101(1) of the
Monetary Law Act, No. 58 of 1949, as amended.
Sgd. Nivard Ajith Leslie Cabraal
Chairman of the Monetary Board and
Governor of the Central Bank of Sri Lanka
Colombo
12 March 2012.
MONETARY LAW  ACT, ORDER NO. 1 OF 2012
CEILING ON CREDIT GROWTH OF LICENSED BANKS
In view of the higher than desired increase in credit extended by licensed banks and its impact
on the monetary aggregates and inflation, the Monetary Board in the exercise of powers conferred by
Section 101(1) of the Monetary Law Act, No. 58 of 1949, as amended, hereby issues Orders No. 1 of
2012 as follows:
1. The credit growth of a licensed bank in the year 2012 shall not exceed
18 per cent of the total outstanding of credit as at end of year 2011 or
Rs. 800 million, whichever is higher. Provided however, that a licensed bank
may grant credit in the year 2012 in excess of 18 per cent or Rs. 800 million,
up to 23 per cent of the total outstanding of credit as at end of year 2011 or
Rs. 1,000 million, whichever is higher, where corresponding funds are raised
from overseas sources.
2. The following definitions shall be applicable for the purposes of this Order .
  i. “Credit” shall mean all on-balance sheet rupee credit facilities such as any
loan, overdraft or advance inclusive of finance leases, hire purchase and
trade finance.
 ii. “Outstanding amount of credit” shall mean:
a. In  the case of overdrafts and credit card receivables, the total
of outstanding amount after deducting all accrued interest of all
non-performing overdrafts and credit card receivables.
b. I n the case of other loan and advances (other than overdrafts and
credit card receivables), the total of capital outstanding amount after
deducting all accrued interest on performing and non-performing loans
and advances.Credit growth
limits.


and advances.Credit growth
limits.
Definitions.


152 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No. : 02/04/004/0005/001
Central Bank of Sri Lanka
Bank Supervision Department
To : All Licensed Commer cial Banks and
 all Licensed Specialised Banks
GUIDELINES ON THE GRANT OF FACILITIES FOR THE ISSUE OF
COMMERCIAL PAPER AND OTHER FORMS OF PROMISSORY NOTES
All Licensed Commercial Banks (LCBs) and Licensed Specialised Banks (LSBs) are hereby
required to observe the following guidelines when they provide accommodation for the issue of
Commercial Paper and other forms of Promissory Notes (CP/PN) by their corporate customers by
accepting, endorsing, guaranteeing, underwriting or purchasing such CP/PN, or where they support the
issue of such instruments by acting as issuing/paying agents, dealers, or by authenticating signatures of
the issuers.
1. Form of Commercial Paper/Promissory Notes –  CP/PN shall take the form of a usance promissory
note negotiable by delivery or endorsement and delivery, in accordance with the Bills of Exchange
Ordinance.
2. Eligibility Criteria –  The LCBs and LSBs shall observe the following criteria when supporting the
issue of CP/PN referred to above:
 2.1 The issuing corporate customers should not be LCBs, LSBs or Finance Companies.
 2.2 All existing credit facilities enjoyed by the issuing company with any LCB/LSB should be
“current” in terms of the Central Bank’s Directions on Non-Performing Advances issued under
Section 46A and Section 76J(I) of the Banking Act for LCBs and LSBs, respectively.
 2.3 In the case of providing accommodation, the issuing company should have an approved stand-
by credit line from the LCB/LSB supporting the issue, to the full redemption value, which
should be specifically reserved for the purposes of redemption of such CP/PN. Such credit line
should be for a period longer than the maturity date of CP/PN.
  OR
  An ‘investment grade rating’  by a Rating Agency approved by the Central Bank of Sri Lanka.


OR
  An ‘investment grade rating’  by a Rating Agency approved by the Central Bank of Sri Lanka.
  “full redemption value” refers to the amount of the principal, interest and any other
charges which is payable upon redemption of such CP/PN.
3. Pr ocedures –  A LCB's/LSB's support for the issue of CP/PN does not require the prior approval of
the Central Bank of Sri Lanka. However, in supporting the issue of these instruments, LCBs/LSBs
shall ensure that:
 3.1 The company intending to issue such CP/PN submits to LCBs/LSBs –
 (a) A  written request indicating the nature of support applied for in respect of each issue
of CP/PN;
 (b) Com prehensive financial information which would include company profiles and
financial data including a projected cash flow statement;
 (c) The value of CP/PN already issued and outstanding;
 (d) Board resolution for the issue of CP/PN concerned.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  153
 3 .2  The LCBs/LSBs should also ensure that the company profiles and financial data are made
available to investors upon request.
 3.3 An adequate appraisal of the financial condition of the issuer is carried out and due caution is
exercised before lending the support of the LCB/LSB. For this purpose, the LCB/LSB should,
among other things, obtain a report from the Credit Information Bureau (CRIB).
 3.4 The CP/PN are printed on good quality security paper incorporating adequate security features,
that necessary precautions have been taken to keep documents in safe custody, preventing
access by unauthorised persons.
 3.5 The issue of CP/PN is completed within a period of 14 calendar days from the date of issue.
Thus, any unsold portion of the issue after the 14 day cannot be issued.
 3.6 Each single issue of CP/PN should have the same maturity date.
 3.7 The issuing company should discharge the obligations on the CP/PN on the date of maturity.
No grace period shall be given to the issuer in this regard.
 3.8 The CP/PN shall contain the following minimum information/features:
 (a) The description of debt instrument should be clearly printed on it;
 (b) Name of the issuing company;
 (c) Serial number;
 (d) Place of payment (of interest and principal);
 (e) Date of issue;
 (f) Amount (in words and figures);
 (g) Date of maturity;
 (h) Names of the issuing and paying agents;
 (i) If the repayment of principal and payment of interest are guaranteed, name of the
guarantor;
 (j) Signatures of authorised signatories of the issuing company
 (k) W here the LCB/LSB does not accept any obligation for the payment on the
CP/PN, as when it only authenticates the signature, such fact should be conspicuously
stated on the CP/PN;
 (l) The counterfoil of CP/PN should also contain the information at ( a) to (k). In the case
of (j), the signature/initials of the respective signatories.


of (j), the signature/initials of the respective signatories.
 (m) Adequate space should be provided for endorsements on the reverse of the CP/PN.
3.9 (a) The LCB’s/LSB’s accounts in respect of CP/PN should be in conformity with
applicable/accepted accounting practices and non fund based support for CP/PN
should be recorded and reported as off-balance sheet items.
 (b) The LCB’s/LSB’s obligations/commitments on CP/PN shall be reported in the statutory
returns submitted to the Central Bank of Sri Lanka.
 (c) Details of the LCB/LSB support for the issue of CP/PN outstanding monthly, shall be
reported to the Director of Bank Supervision in a monthly statement as in the annexed
format. This statement shall be submitted by the 15th of the following month, duly
certifying that the obligations of the LCB/LSB under the different categories of issue,
as recorded in the General Ledger, are correctly reflected in the statement. A ‘nil’
statement should be sent if there are no outstanding balances.


154 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
 3.10 The LCBs/LSBs supporting the issue of CP/PN should conform to all legal requirements.
 3.1 1  Roll-over of CP/PN should be considered as a new issue.
4. Prudential Requir ements of the Central Bank
 4.1 All credit facilities extended, and commitments made, by LCBs/LSBs relating to the issue of
CP/PN will be treated as accommodation granted to the issuing company and shall be subject
to directions issued from time to time under the Banking Act and to all prudential guidelines
issued by the Central Bank.
5. These Guidelines shall be ef fective from 05 January 2001.
6. Guidelines to Licensed Commercial Banks in Sri Lanka on the grant of facilities for the issue of
Commercial Paper dated 05.06.1995 are hereby rescinded.
7. Any clarifications/queries with regard to these Guidelines should be addressed to the Director of
Bank Supervision.
Sgd. P. T. Sirisena
Director of Bank Supervision
05 January 2001


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  155
(Amounts in Rupees Thousands)
 Name of  Legal Status  Type of  Amount  Amount  Date of  Date of  Rate of  Nature of
 Issuing Company  of Issuing  Promissory   of the Issue  Subscribed  Issue  Maturity  Interest (%)  Support
  Company  Notes Issued  (Face Value)   (YY/MM/DD)  (YY/MM/DD)
 (1) (2) (3) (4) (5) (6) (7) (8) (9)
We hereby certify that this statement reflects the value of support extended to the Bank’s customers and that the statement figures tally with the General
Ledger Balances as at the end of the month.
Date :  Name of Bank :  Authorised Of fcer :* Column (9)
Please indicate using the foliowing
Codes :
Nature of Support  Code
Accepting  AC
Endorsing  EN
Guaranteeing  GT
Underwriting  UN
Purchasing  PR
Issuing Agent  IA
Paying Agent  PA
Dealer  DE
Authenticating  AUInstructions :
* Column (2)
Please indicate using the foliowing Codes :
Private Company  –  PR
Public Unquoted Company  –  PU
Public Quoted Company  –  PQ
Peoples Company  –  PC
* Column (3) : Please indicate whether Commercial Paper (CP), Promissory Notes (PN), or any other form
(Please specify)
* This statement should reach the Director, Bank Supervision Department on or before the 15th of the following
month.
* A ‘nil’ statement should be submitted if there are no outstanding amounts.Monthly Statement of Commercial Paper / Promissory Notes
As at ……………………… in terms of Guidelines dated 5 January 2001


156 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No. : 02  / 17 / 500 / 0540  / 001
Bank Supervision Department
05 April, 2013
To :  The CEOs of all Licensed Commer cial Banks
DEFINITION OF LIQUID ASSETS UNDER SECTION 86 OF THE
BANKING ACT, NO. 30 OF 1988, AS AMENDED
The Monetary Board has determined that investments in Gilt Unit Trusts (GUTs) by LCBs
shall be treated as liquid assets in terms of item ( g) of the definition of “liquid assets” under Section 86
of the Banking Act, No. 30 of 1988, subject to the following conditions.
(a) GUTs should be open ended mutual funds.
(b) Underlying investment portfolio of GUTs should always be Sri Lanka Government Securities
(Treasury bills and Treasury Bonds).
(c) Only 90% of investments in GUTs should be treated as liquid assets.
Licensed Commercial Banks are further informed that, the eligible value of the investments in
GUTs be reported under code number 4.1.2.4.0.0 of the monthly web based return on Statutory Liquid
Assets Ratio for Domestic Banking Unit (BSD-MF-04-LD).
Yours faithfully,
(Mrs.) T M J Y P Fernando
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  157
Ref. No. : 02  / 17 / 500 / 0540  / 001
Bank Supervision Department
26 October, 2012
To :  The CEOs of all Licensed Commer cial Banks
DEFINITION OF LIQUID ASSETS UNDER SECTION 86 OF THE
BANKING ACT, NO. 30 OF 1988, AS AMENDED
We refer to the Circular No. 02/04/002/005/002 dated 31 January 2001 on the above subject and write
to clarify the following with respect to the requirement therein for Commercial Paper/Promissory Notes to
be backed by an approved standby credit line from a licensed commercial bank/licensed specialised bank.
A licensed commercial bank could consider 50% of its investments in Commercial Paper/Promissory
Notes as liquid assets only if such Commercial Paper/Promissory Notes are backed by an approved
standby credit line supporting the issue to the full redemption value from another licensed commercial
bank/licensed specialised bank.
Yours faithfully,
(Mrs.) T M J Y P Fernando
Director of Bank Supervision


158 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No. : 02  / 17 / 500 / 0540  / 001
Bank Supervision Department
15 October, 2012
To :  The CEOs of all Licensed Commer cial Banks
DEFINITION OF LIQUID ASSETS UNDER SECTION 86 OF THE
BANKING ACT, NO. 30 OF 1988, AS AMENDED
The Monetary Board has determined that Reverse Repurchase Agreements in Treasury bills and
Treasury bonds shall be treated as liquid assets in terms of item ( g) of the definition of “liquid assets”
under Section 86 of the Banking Act, No. 30 of 1988.
Licensed commercial banks may, therefore, take into account the daily outstanding amount of the
Reverse Repurchase Agreements or the market value of the underlying securities held under Reverse
Repurchase Agreements, whichever is less, in computing their liquid assets ratio.
Licensed commercial banks are further informed that, the eligible value of the Reverse Repurchase
Agreements in Treasury bills and Treasury bonds should be reported under code number 4.1.2.4.0.0
and 4.1.2.13.0.0, respectively, of the monthly web based return on Statutory Liquid Assets Ratio for
Domestic Banking Unit (BSD-MF-04-LD).
Yours faithfully,
(Mrs.) T M J Y P Fernando
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  159
My. No. : 02  / 17 / 800 / 0005  / 01
Bank Supervision Department
20 August 2008
To :  CEOs of all Licensed Commer cial Banks
Dear Sirs,
DEFINITION OF LIQUID ASSETS – UNDER SECTION 86 OF THE
BANKING ACT, No. 30 OF 1988, AS AMENDED
The Monetary Board has determined that investment in the International Sovereign Bonds issued
in 2007 by the Government of Sri Lanka shall be treated as liquid assets in terms of item (g) of the
definition of “liquid assets” under Section 86 of the Banking Act, No.30 of 1988.
Licensed commercial banks may, therefore, take into account the daily market value of their
investment in the International Sovereign Bonds in computing their liquid assets ratio for the purpose
of complying with the provisions of Section 21 of the Banking Act.
Yours faithfully,
B D W A Silva
Director of Bank Supervision


160 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No. : 02  / 04 / 002 / 0106  / 001
Bank Supervision Department
15th August 2002
To : All  Licensed Commercial  Banks
DEFINITION OF LIQUID ASSETS – UNDER SECTION 86 OF THE
BANKING ACT NO: 30 OF 1988
In exercise of the powers conferred by paragraph ( g) of the definition of “liquid assets” in Section
86 of the Banking Act, No.30 of 1988 as amended by Banking (Amendment) Act, No.33 of 1995, the
Monetary Board has determined that Sri Lanka Development Bonds (SLDBs) issued under the Foreign
Loans Act, No.29 of 1957 shall be liquid assets.
Licensed Commercial Banks may, therefore, take into account the daily market value of their
investment in SLDBs for the purpose of complying with the provisions of Section 21 of the Banking
Act, relating to maintaining liquid assets.
Yours faithfully,
Sgd. Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  161
Ref. No. : 02  / 04 / 002 / 0005  / 002
Bank Supervision Department
Central Bank of Sri Lanka
8th Floor, Renuka Building
41, Janadhipathi Mawatha
Colombo 1
31st January 2001
To :  All Licensed Commer cial Banks
Dear Sir  / Madam,
DEFINITION OF LIQUID ASSETS – UNDER SECTION 86 OF THE
BANKING ACT No. 30 OF 1988
In exercise of the powers conferred by Item ( g) of the definition of “liquid assets” in Section 86
of the Banking Act, No.30 of 1988, the Monetary Board has determined that 50% of the investments
in Commercial Paper/Promissory Notes, which are backed by an approved standby credit line from
a Licensed Commercial Bank/Licensed Specialised Bank supporting the issue to the full redemption
value or an investment grade rating by a Rating Agency approved by the Central Bank of Sri Lanka,
and has a remaining maturity of less than 1 year be considered as liquid assets.
Kindly acknowledge receipt of this letter.
Yours faithfully,
Sgd.  P. T. Sirisena
Director of Bank Supervision


162 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No. : BS/35/97
Bank Supervision Department
Central Bank of Sri Lanka
8th Floor – Renuka Building
41 Janadhipathi Mawatha
Colombo 1.
15th May 1998.
To : All Licensed Commercial Banks
Dear Sir,
DEFINITION OF LIQUID ASSETS – UNDER SECTION 86 OF THE
BANKING ACT NO. 30 OF 1988
In exercise of the powers conferred by paragraph ( g) of the definition of “liquid assets” in section
86 of the Banking Act, the Monetary Board has determined that Treasury Bonds issued under section
21A of the Registered Stock and Securities Ordinance shall be liquid assets.
The commercial banks may, therefore, take into account the Treasury Bonds they hold on their
account for the purpose of complying with the provisions of section 21 of the Banking Act relating to
their obligation to maintain the required amount in liquid assets.
Yours faithfully,
Sgd.  Y. A. Piyatissa
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  163
Ref. No. : BS/14/88  V ol. IV
24th March, 1997
Sent to :  All 26 Commercial Banks
Dear Sir,
MONTHLY STATEMENT OF LIQUID ASSETS
Your attention is drawn to our letter No. BS/14/88 of V ol. II dated 10th April, 1989 on the above
subject.
We wish to inform you that the Monetary Board of the Central Bank of Sri Lanka has approved of
the reporting of the re-discountable value of Treasury Bills held instead of the purchase prices of such
Bills by commercial banks as part of their liquid assets in the monthly liquid assets statements furnished
to the Central Bank.
The re-discountable value referred to above means the value of Treasury Bills arrived at on the basis
of re-discounting prices determined by the Chief Accountant of the Central Bank of Sri Lanka.
Please acknowledge receipt of the letter.
Yours faithfully,
Sgd.  Y. A. Piyatissa
Director of Bank Supervision


164 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No. : BS/14/88  V ol. III
10th April, 1989
Dear Sir,
BANKING ACT NO. 30 OF 1988
MONTHLY STATEMENT OF LIQUID ASSETS
All licensed commercial banks are required, in terms of section 21(2) of the Banking Act, No.30 of
1988, to submit a monthly return certifying the total liabilities and the volume of liquid assets required
to be maintained, substantially in the form shown in Appendix I of this notice. Such statement should be
forwarded before the 15th day of the month following the month to which the statement relates.
In view of the fact that the Monetary Board has decided that maintenance of Liquid Assets, in
accordance with the determination made by the Monetary Board as set out in Paragraph 5 of the notice
dated 1st March, 1989, would come into operation with effect from 1st April, 1989, the first return
(i.e. the return for the month of April) should be forwarded before 15th May, 1989.
Yours faithfully,
Sgd.  P. T. Sirisena
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  165
APPENDIX  I
From  :
To : Director of Bank Supervision
  Central Bank of Sri Lanka
STATUTORY LIQUID ASSETS
(Return in terms of section 21(2) of the Banking Act, No. 30 of 1988)
Sri Lanka Rs. (’000)
A. 1. T otal liabilities excluding contingent liabilities as at the beginning of the
first working day of the month of …………………. (base date)  ……………………
  Less :
  (a) Liabilities to the shareholders  ……………………
  (b) Liabilities to the Central Bank  ……………………
B. A verage statutory liquid assets for the Month of ……… (maintenance period)  ……………………
  1. Cash  ……………………
  2. Balances with licensed commercial banks  ……………………
  3. Money at call in Sri Lanka  ……………………
  4. T reasury Bills and Securities issued or guaranteed by
the Govt. of Sri Lanka which have a maturity not exceeding one year  ……………………
  5. Goods Receipts  ……………………
  6. Import Bills  ……………………
  7. Export Bills  ……………………
  8. Inland Bills  ……………………
  9. Cash Items in process of collection  ……………………
 10. Balances with banks abroad  ……………………
 1 1.  T reasury bonds issued under section 21A
of the Registered Stock and Securities Ordinance  ……………………
  Total Liquid Assets  ……………………
C. Liquid Assets Ratio (B as a % of A)  ……………………
We / I hereby certify that the above statement is correct and is in accordance with the books of this
bank.
…………………………………
Authorised Official Signature
Date : ……………….
Note :  The base date is the first working day of the month preceding the maintenance period.
 e.g. Liquid assets for April will be based on Liabilities on March 1st.
 The required liquid assets should be maintained for a period (maintenance period ) commencing
on the 1st working day and ending on the last working day of the calendar month following the
month in which the base date occurs.


166 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No : 02  / 04 / 002 / 0005  / 003
Bank Supervision Department
20 May 2004
To : All Licensed Commercial Banks
Dear Sir  / Madam,
MONTHLY STATEMENT OF LIQUID ASSETS
FOR THE DOMESTIC BANKING UNIT (DBU) AND
OFF-SHORE BANKING UNIT (OBU)
 Reference the Determination dated 24.12.2002 and Directions dated 21.01.2003 and 08.10.2003 on
the above subject.
 All licensed commercial banks are required to note that they should maintain Statutory Liquid
Assets of an amount not less than 20% of total liabilities, less liabilities to the Central Bank and to the
share holders, in respect of the DBU in Rupees and in respect of the OBU in US dollars, for each month
commencing May 2004.
 A ny deficiency in Statutory Liquid Assets in the DBU or in the OBU will be subject to the provisions
of Section 21(3) of the Banking Act, No.30 of 1988 as amended by the Banking (Amendment) Act,
No.33 of 1995, and the penalty involved will be payable in Rupees in the case of the DBU and in
US dollars in the case of the OBU.
 Please acknowledge receipt of this letter .
Yours faithfully,
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  167
Bank Supervision Department
8th October 2003
To : All Licensed Commercial Banks
Dear Sir  / Madam,
MONTHLY STATEMENT OF LIQUID ASSETS
FOR THE OFF-SHORE BANKING UNIT
Further to our letter dated 21 January 2003, and the discussion on the above subject at the
Meeting of the Chief Executive Officers of Licensed Commercial Banks (LCBs) and Licensed
Specialised Banks (LSBs), all LCBs are informed as follows:
1. Monthly Return on Liquid Assets – Since the liabilities of the Off-shore Banking Unit (OSBU)
are in foreign currency, the liquid assets for meeting the Statutory Liquid Assets Ratio (SLAR)
shall also be in foreign currency. A separate return indicating the SLAR for the OSBU in respect of
each month, computed on the same basis as for the DBU shall be submitted each month.
2. Placements of the Domestic Banking Unit (DBU) with own OSBU  – In computing the liquid
assets ratio of the Domestic Banking Unit, placements of the DBU of a LCB with its own OSBU
will be limited to 20%.  The full amount of the placements should be included in the liability base
of the OSBU.
3. Liquid Assets of the OSBU – Banks are required to ensure that the liquid assets included in the
computation fall within the meaning of defined liquid assets. In this regard, the following could be
considered:
 a. Securities/Bonds issued by Foreign Governments maturing within 1 year
 b. Other debt securities and Bonds, maturing within 1 year, which are traded on an exchange,
or have an investment grade rating, or are backed by a standby credit facility from a banking
institution.
Such investments, which are not already defined as liquid assets, could be included with the prior
approval of the Central Bank of Sri Lanka.
Yours faithfully,
Director of Bank Supervision


168 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
Ref. No. : 02  / 04 / 002 / 0005  / 003
Bank Supervision Department
21st January 2003
To : All Licensed Commercial Banks
Dear Sir/Madam,
BANKING ACT NO. 30 OF 1988
MONTHLY STATEMENT OF LIQUID ASSETS FOR THE OFF-SHORE BANKING UNIT
Reference the Circular dated 24 December 2002, regarding the application of the provisions
under Section 21(2) of the Banking Act, No.30 of 1988 to the off shore banking business of Licensed
Commercial Banks, with effect from January 2003.
In terms of the provisions of the above Section, all Licensed Commercial Banks are required to
submit a separate monthly return in respect of their off-shore banking business, indicating the total
liabilities and the volume of liquid assets maintained by the Off-shore Banking Unit. Your attention is
invited to the need to maintain the liquid asset in respect of the off-shore banking business in foreign
currency. The return should denominated in US dollars, whilst the liquid asset components and the
format of the return would be the same as for the Domestic Banking Unit. In view of the fact that the
determination would come into operation with effect from 31 January 2003, the first return for the
month of January 2003, should be forwarded to the undersigned by 15 February 2003.
You are hereby informed that the penalty for any shortfall in the Statutory Liquid Assets Ratio in
terms of Section 21(3) would also be payable in foreign currency.
Yours faithfully,
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  169
APPLICATION OF PRUDENTIAL REGULATIONS ON
OFF-SHORE BANKING UNITS
Determination dated 10 April 1989 on Statutory Liquid Assets Ratio issued under Section 21(2) of
the Banking Act:
The above Determination shall be applicable to all licensed commercial banks in respect of both
the domestic banking business and the off-shore banking business on a consolidated basis, with effect
from 01 January 2003.
Sgd. A. S. Jayawardena
Governor
Colombo
24 December 2002


170 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
BANKING ACT
Directions made by the Monetary Board of the Central Bank of Sri Lanka under Section 46(1) of
the Banking Act, No.30 of 1988 as amended by the Banking (Amendment) Act, No.33 of 1995 and Act,
No.2 of 2005.
Sgd. Sunil Mendis
Governor
Colombo
01-03-2006.
DIRECTION ON THE PRUDENTIAL NORMS FOR CLASSIFICATION, V ALUATION
AND OPERATION OF THE BANK’S INVESTMENT PORTFOLIO
1. W ith effect from 31 March 2006, all Licensed Commercial Banks are required to classify their
investment portfolio under two categories: i.e., the Investment Account and the Trading Account. All
banks are required to maintain two separate books of accounts for this purpose.
2. Banks should decide on the category of investment at the time of acquisition and the decision should
be documented. Classification is not a free choice but is based on facts and the management’s intent at
the date of purchase. Transfers between categories after initial recognition are restricted.
3. The criteria for classifying and valuation of the bank’ s investment portfolio are as provided below:
A. Investment Account
 (a) All securities acquired with the positive  intent  and ability  to hold till maturity  shall be
classified under the Investment Account.
 (i) Positive intent cannot be demonstrated if:
 • the bank has the intent to hold the securities for only an undefined period; or
 • the bank stands ready to sell the securities in response to changes in market interest
rates or risks, liquidity needs, changes in the availability of the yield on alternative
investments, changes in financing sources or terms, or changes in foreign currency
risk; or
 • the issuer has a right to settle the securities at an amount significantly below its
amortised cost.
 (ii) The ability to hold the securities to maturity cannot be demonstrated if:


amortised cost.
 (ii) The ability to hold the securities to maturity cannot be demonstrated if:
 • the bank does not have the financial resources available to continue to finance the
investment until maturity; or
 • the bank is subject to legal or other constraints that could frustrate its intention to
hold the securities to maturity.
 (iii) When a bank’s actions cast doubt on its intent or ability to hold investments to maturity,
the Central Bank of Sri Lanka shall retain the right to reclassify all or part of the
Investment Account as Trading and require appropriate provisioning.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  171
 (b) All unlisted securities ( eg.: shares, debentures) should generally be classified under the
Investment Account. However, government securities will have to be classified based on the
rules specified under point A(a) above.
 (c) Securities in the Investment Account may be used for repurchase transactions.
 (d) Securities in the Investment Account shall be carried and reported at acquisition cost over
the period of redemption.
 (i) Carrying values of interest bearing securities in the Investment Account may be adjusted
to account for the accretion of discount (or depletion of premium). The adjustments
should be amortised annually on a straight-line basis over the period to maturity.
 (ii) All other securities should be maintained at cost. Any impairment in value which is
considered to be permanent should be fully provided for in the Profit & Loss Account
immediately. The following conditions should be taken into consideration in deciding on
whether there is an impairment of value.
 • T rack record of dividends/returns – Non-receipt of dividends/returns for a
consecutive period of three years, should be considered as an impairment and the
investment should be classified as non-performing.
 • Market prices – A continuously declining trend in market prices, with the investment
value being below cost for over three years should be considered as an impairment
in value.
 (iii) The Central Bank of Sri Lanka will retain the flexibility to consider specific requests/
exceptions in this regard.
 (iv) Any impairment in value or losses on the sale of investments held in the Investment
Account should be taken to the Profit & Loss Account.
 (e) Sale of securities classified under the Investment Account should only be an insignificant
amount of the investment portfolio and should be limited to circumstances that do not taint


amount of the investment portfolio and should be limited to circumstances that do not taint
the rest of the portfolio. These circumstances are:
 • if the investment was close enough to maturity or call date so that changes in the market
rate of interest could not have a significant effect on the investment’s market value;
 • the sale is made after the entity has collected substantially all of the investment’s original
principal through scheduled payments or prepayments;
 • the sale was due to an isolated event that was beyond the entity's control, non-recurring
and could not have been reasonably anticipated.
B. T rading Account
 (a) All securities acquired for the specific purpose of trading on a regular basis (at least every
quarter), to take advantage of the short-term changes in market prices and yields, shall
be classified under the Trading Account. The classification of Trading assets is based on
original intention and these are not transferred to the Investment category because intention
subsequently changes.
 (b) Securities held in the Trading Account must be revalued or marked to market on a daily
basis. In the case of securities for which daily prices are not available, banks are advised to


172 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
mark to market at least on a weekly basis. Where two-way quotes are published (eg.: Rates
for government securities), the middle rate should be adopted.
 (c) Any gains or losses on the sale of investments held in the Trading Account should be taken
to the Profit & Loss Account.
C. T ransfer of Securities
The transfer of securities between portfolios will generally not be permitted, except under
specified circumstances. This is to limit the opportunities to manipulate the recognition of gains
or losses or to mask changes in market value.
 (a) T ransfer of securities between the Trading Account and the Investment Account must be
justifiable, documented and authorised.
 ( b) Port folio transfers to or from the Investment Account shall only be undertaken rarely
(preferably at the beginning of the accounting year), with the approval of the Board
of Directors, the Assets and Liability Committee or the Investment Committee. The
circumstances justifying such transfers are given below:
 (i) A  change in the statutory and regulatory requirements.
 (ii) A  significant increase in the capital requirements that may oblige the Bank to reduce
its investment holdings.
 (iii) A  major business occurrence that necessitates the transfer of securities to maintain the
Bank’s risk profile.
 ( iv)  Exceptional circumstances such as tight liquidity conditions and extremely
volatility.
 (c) The carrying value of securities transferred from the Trading Account into the Investment
Account shall be marked to market prior to the transfer. Therefore, any gains or losses due
to revaluation would have been recognised in earnings prior to the transfer. The market
value of the securities at the point of transfer into the Investment Account then becomes
the ‘acquisition cost’ for accounting purposes.


the ‘acquisition cost’ for accounting purposes.
 (d) A  statement on portfolio transfers, if any, shall be signed by the Chief Executive Officer
of the Bank and submitted to the Bank Supervision Department of the Central Bank of Sri
Lanka, on a quarterly basis.
 (e) The Central Bank of Sri Lanka will retain the right to review the statement of portfolio
transfers and require the bank to make provisions if considered necessary.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  173
Directions issued by the Monetary Board of the Central Bank of Sri Lanka under Section 46(1) of the
Banking Act, No. 30 of 1988, as amended.
Nivard Ajith Leslie Cabraal
Chairman of the Monetary Board /
Governor of the Central Bank of Sri Lanka
Colombo
01 September 2009.
BANKING ACT, DIRECTION NO.3 OF 2009
DIRECTIONS ON RISK MANAGEMENT RELATING TO
FOREIGN EXCHANGE BUSINESS OF LICENSED COMMERCIAL BANKS
In the exercise of the powers conferred by Section 46 of the Banking Act, No. 30 of 1988, last amended
by the Banking (Amendment) Act, No. 46 of 2006, the Monetary Board hereby issues these Directions
under provisions of Section 46(1) of the Act in respect of risk management relating to foreign exchange
business of licensed commercial banks.
1. Introduction
1.1 The purpose of these Directions is to standardise and strengthen foreign exchange risk management
systems in Licensed Commercial Banks (LCBs) and increase their soundness, thereby strengthening
financial system stability.
1.2 In the case of financial derivatives, detailed operational guidelines and effective foreign exchange
risk management practices have been already set out in the “Directions on Financial Derivative
Products” issued by the Director International Operations and the Controller of Exchange, on
31 July 2009. These Directions shall therefore, be read in conjunction with the above mentioned
Directions.
1.3 These Directions shall be ef fective from 01 September 2009.
1.4 All LCBs shall fully comply with the provisions as set out in this Directions No. 3, on or before
31 March 2010.
2. For eign Exchange Risk Management Policy
2.1 LCBs shall ensure that policies, procedures, controls and limits are established to identify, measure,
monitor and control foreign exchange risks. These policies, procedures and controls in relation to
foreign exchange risk management shall be:


foreign exchange risk management shall be:
 (i) approved by the Board of Directors;
 (ii) properly documented and drawn up after consideration of the foreign exchange risks associated
with different types of products  and processes;
 (iii) circulated among staf f of all relevant departments and units;
 (iv) reviewed by the Board of Directors on a regular basis, at least annually, to ensure that such
policies, procedures and controls remain relevant, appropriate and timely.


174 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
2.2 The design of foreign exchange risk management policies, procedures, controls and limits, shall at
least cover:
 (i) responsibilities of the Board, senior management and all other staf f involved;
 (ii) risk monitoring and control;
 (iii) approved products;
 (iv) internal and external limits, including system-wide and trading limits;
 (v) risk measurement and reporting;
 (vi) stress testing mechanisms;
 (vii) valuation of foreign currency positions;
 (viii) internal controls and audit;
 (ix) fit and proper criteria for persons engaged in foreign exchange business;
 (x) procedure for the introduction of new products, services and activities; and
 (xi) contingency planning.
2.3 The foreign exchange risk management policies and procedures shall be supplemented with ethical
rules and standards, such as a comprehensive Code of Conduct, for adherence by the employees
engaged in foreign exchange activities.
3. Responsibilities of the Board and Senior  Management and all other staff involved
3.1 The Board/senior management shall, take measures to strengthen the foreign exchange risk
management systems and their soundness through the following:
 (i) p ut in place Board approved prudent foreign exchange risk management policies and
connected procedures and oversee the implementation of the same;
 (ii) duly document related internal control procedures in the form of procedure manuals;
 (iii) review the policies on a regular basis, at least annually , in an appropriate manner;
 (iv) establish an Asset and Liability Management Committee (ALCO) for, inter alia, the
management of foreign currency denominated assets and liabilities within the risk parameters
approved by the Board;
 (v) establish, inter alia, a mechanism such as a Middle office, to monitor the foreign exchange
risk, on an on going basis, and report the same to the ALCO;