84 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
Directions issued by the Monetary Board under Section 76 j(1) of the Banking Act, No.30 of 1988,
as amended.
Nivard Ajith Leslie Cabraal
Governor
Colombo
19 January 2007
DIRECTIONS
BANKING ACT DIRECTIONS NO. 2 OF 2007
OWNERSHIP OF ISSUED CAPITAL CARRYING VOTING RIGHTS

In exercise of the powers conferred by Section 76 j(1) of the Banking Act, No.30 of 1988, last
amended by the Banking Act, No.46 of 2006, the Monetary Board hereby issues Directions as follows:
1. These Directions may be cited as the Banking Act, Directions No.2 of 2007. The
Sections referred to in these Directions will be those of the Banking Act, No.30 of
1988, last amended by the Banking Act, No.46 of 2006.
2. I n terms of Section 76 j(1), the Monetary Board has been empowered to issue
Directions to licensed specialised banks regarding the manner in which any aspect of
the business of such banks is to be conducted, including Directions pertaining to the
maximum percentage of the share capital in a licensed specialised bank incorporated
in Sri Lanka–
 (i) held by a company , an incorporated body, or an individual;
 (ii) held in the aggregate by—
 (a) a company and one or more of the following:—
(aa)  its subsidiaries
(bb)  its holding company;
(cc)  a subsidiary of its holding company; or
(dd)  a company in which such company or its subsidiary, or its holding
company, or a subsidiary of its holding company has a substantial
interest; or
 (b) an individual and one or more of the following:—
(aa) his close relations;
(bb) a company in which he has a substantial interest or in which his
close relation has a substantial interest;
(cc) the subsidiary of such company;
(dd) a holding company of such company;
(ee) a subsidiary of such company’ s holding company;
(ff) a company in which such company, or its subsidiary, or its holding
company has a substantial interest; orCitation.
Empowerment


company has a substantial interest; orCitation.
Empowerment
under Section
76J(1).


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  85
(gg) an incorporated body other than a company in which such individual
or his close relation has a substantial interest; or
(c) companies in each of which an individual or company as the case may
be, has either directly, indirectly or beneficially a substantial interest or
significant management interest.
3. (1) Any of the categories of shareholders referred to in Section 76 j(1)(q) shall not,
either directly or indirectly or through a nominee or acting in concert with any other
category/categories of shareholders, hold shares carrying voting rights in excess of
15 per cent of the issued capital carrying voting rights in a licensed specialised bank
incorporated or established within Sri Lanka by or under any written law without the
prior written approval of the Monetary Board.
 ( 2)  “ Acting in concert” means acting pursuant to an understanding (whether
formal or informal) to actively co-operate in acquiring or holding of over
15 per cent of the issued capital carrying voting rights of a licensed specialised bank
so as to obtain or consolidate control of the bank.
4. Nevertheless, in the case of a licensed specialised bank which requires restructuring
to avoid inadequacy of capital, insolvency or potential failure, the Monetary Board
may, subject to terms and conditions it may deem fit, grant permission to any of the
categories of the shareholders specified in Section 76 j(1)(q) to acquire or hold issued
capital carrying voting rights in excess of 15 per cent in the licensed specialised bank
subject to the condition that the issued capital so acquired shall be reduced to 15 per
cent within a specified period as may be determined by the Monetary Board on a
case-by-case basis, provided also that such period shall not exceed five years from the
date of granting permission.
5.  (1) Any ownershi p of issued capital carrying voting rights previously


5.  (1) Any ownershi p of issued capital carrying voting rights previously
acquired in excess of 15 per cent of the issued capital carrying voting rights in
a licensed specialised bank by any of the categories of the shareholders referred
to in Section 76 j(1)(q) and held at the date of these Directions shall be disposed
of and/or otherwise reduced by such shareholders to a level not exceeding
15 per cent of the issued capital carrying voting rights in the licensed specialised
bank.
 (2) Such disposal and/or reduction shall be carried out within the period as may be
specified by the Monetary Board on a case-by-case basis, provided that such period
shall not exceed five years from the date of stipulation.
 (3) In the event, any of the categories of the shareholders referred to in Section
76j(1)(q) fails to comply with the directives of the Monetary Board within the
stipulated period of time, the voting rights in excess of 15 per cent attributable to the
ownership of shares held by the categories of shareholders subject to this Direction
shall be deemed invalid with effect from the last date of the period specified by the
Monetary Board to reduce the ownership of shares carrying voting rights.
6. (1) W ithin two months of the date of these Directions, each licensed specialised
bank shall inform the Monetary Board of instances, if any, in its bank where the
categories of shareholders referred to in Section 76 j(1)(q) own share capital carrying
voting rights exceeding 15 per cent of the issued capital carrying voting rights in its
banks and seek a Direction from the Monetary Board as to the period within which Maximum
percentage
of ownership
of shares.
Exceptions.
Provisions in
relation to existing
ownership.
Transitional
arrangements


86 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
the disposal and/or reduction of the issued capital carrying voting rights to the level
of 15 per cent shall be carried out.
 (2) W ithin two months of receipt of such information and request, the Monetary
Board will specify the period within which the disposal and/or reduction should
take place as per Direction 5(2) above and inform the licensed specialised bank
accordingly.
 ( 3)  Immediately thereafter , the licensed specialised bank shall direct the
shareholders who hold issued capital carrying voting rights in its bank over the 15
per cent limit specified in these Directions to dispose of and/or reduce the number
of shares carrying voting rights in order to comply with these Directions, within the
period as stipulated by the Monetary Board.
7. Subject to Directions 5 and 6 above, a licensed specialised bank shall not enter in
its register of members the name of any shareholder referred to in Section 76 j(1)(q)
as the holder of shares of the bank, who or which has contravened the provisions of
these Directions.
8. Anything contained in these Directions shall not be construed to restrict the
ownership of issued capital carrying voting rights in–
(a) Regional Development Banks established under Regional Development Banks
Act, No.6 of 1997;
(b) a licensed specialised bank established by a statute or under the Companies
Act, No.17 of 1982 in which the ownership of a majority of the shares is held by the
Government or a public corporation or a statutory body.
9. ( 1)  T he Banking Act, Directions No.3 of 1999 (Share Capital Ownership -
Licensed Specialised Banks) dated 23 November 1999 issued under Section 76 j(1)
are hereby revoked.
 (2) The ef fect of revocation of previous Directions shall not affect any penalty or
liability incurred under those Directions prior to the revocation.Steps to secure
compliance.
Non-application
of Directions.
Revocation


compliance.
Non-application
of Directions.
Revocation
of previous
Directions.


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  87
BANKING ACT NO. 30 OF 1988
AS AMENDED BY BANKING (AMENDMENT) ACT NO. 33 OF 1995
The directions issued by the Monetary Board of the Central Bank of Sri Lanka under Section 76 j(1)
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
21-11-1997.
DIRECTIONS UNDER 76 j(1)
RESERVE FUND
1. Every licensed specialised bank having an equity capital as defined in the Banking Act shall –
 1.1 Maintain a reserve fund.
 1.2 T ransfer to such reserve fund out of net profits of each year, after payment of taxes due for each
year and before the declaration of dividends or the transfer of profits elsewhere :
  1.2.1  a sum equivalent to not less than five percent of such net profits until the amount of the
said reserve fund is equal to fifty percent of the equity capital of such licensed specialised
bank and after such percentage is reached :–
  1.2.2  a sum equivalent to not less than two percent of such net profits until the amount of the
said reserve fund is equal to the equity capital of such licensed specialised bank.
Provided, however, that an amount not less than twenty five per centum of the net profits shall be
utilised for setting off such intangible assets as may be determined by the Central Bank, before such
profits are transferred to the reserve fund.
2. For the purposes of this direction “intangible assets” shall mean goodwill, preliminary expenses
including legal and other fees, all capitalized expenses and other items not represented by tangible
assets.


88 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
Our Ref. : 02  / 17 / 500 / 0086  / 001
Bank Supervision Department
07 December 2012
To : CEOs of all Licensed Commercial Banks and
       Licensed Specialised Banks
Dear Sir / Madam,
ICRA Lanka Limited –
Recognition as an External Credit Assessment Institution
The Monetary Board of the Central Bank of Sri Lanka (CBSL) has approved ICRA Lanka Limited
as a recognised External Credit Assessment Institution, for the purpose of all regulatory requirements of
CBSL applicable to Licensed Commercial Banks and Licensed Specialised Banks.
Accordingly, Table 1 and Table 3 under the item No. 6.4.2.3.1 of the Guidelines on Computation
of Capital Adequacy Ratio is revised as in Annex.
Yours faithfully,
(Mrs.) T M J Y P Fernando
Director of Bank Supervision
Encl.


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  89
Annex
Table 1
Mapping of Notations of the Credit Rating Agencies in Sri Lanka
Fitch Rating LankaRAM Ratings
(Lanka) LimitedRating of ICRA
Lanka Limited Rating Scale for CAR
AAA (lka) AAA (SL) AAA AAA
AA+ (lka) AA+ (SL) AA+ AA+
AA (lka) AA (SL) AA AA
AA- (lka) AA- (SL) AA- AA-
A+ (lka) A+ (SL) A+ A+
A (lka) A (SL) A A
A- (lka) A- (SL) A- A-
BBB+ (lka) BBB+ (SL) BBB+ BBB+
BBB (lka) BBB (SL) BBB BBB
BBB- (lka) BBB- (SL) BBB- BBB-
BB+ (lka) BB+ (SL) BB+ BB+
BB (lka) BB (SL) BB BB
BB- (lka) BB- (SL) BB- BB-
B+ (lka) B+ (SL) B+ B+
B (lka) B (SL) B B
B-(lka) & Lower B- & Lower (SL) B- & Lower B- & Lower
Table 3
Mapping of Short Term Ratings
Short term ratings
Risk
Weights RAM Ratings
(Lanka) LimitedStandard and
Poor’sMoody’sFitch
RatingsICRA Lanka
Limited
P – 1 A – 1+ / A – 1 P – 1 F1+ / F1 (SL) A1+ / A1 20%
P – 2 A – 2+ / A – 2 P – 2 F2 (SL) A2+ / A2 50%
P – 3 A – 3+ / A – 3 P – 3 F3 (SL) A3+ / A3 100%
NP Below A – 3 NP Below F3 (SL) Below A3 150%


90 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
Ref. No. : 02  / 04 / 003 / 0400  / 001
Bank Supervision Department
13 July 2004
To : CEOs of all Licensed Specialised Banks
Dear Sirs,
CLASSIFICATION OF ADV ANCES AND SPECIFIC PROVISIONS  /
CRITERIA FOR SELECTION OF V ALUERS UNDERTAKING THE REV ALUATION OF
FIXED ASSETS FOR THE COMPUTATION OF THE CAPITAL ADEQUACY RATIO
Licensed Specialised Banks (LSBs) are required to note the following :–
1.  Current professional valuation reports referred to in the Directions dated 22 August 1997 on
Classification of Advances and Specific Provisions issued under Section 46 a of the Banking Act shall
mean current professional valuation reports obtained from external Independent valuers.
2.  For the Purpose of the Directions referred to in 1 above, the banks are exempted from the
requirement to obtain professional valuation reports in  respect of loans and advances of Rs.250,000 or
below, subject to the condition that a current internal assessment of the value of properties mortgaged for
such loans, signed by the Assistant General Manager or such other senior officer of the bank in charge of
credit, is available.
Note :  Current internal assessment is defined as an assessment that is not more than two years old.
3.  V aluers referred to in the circular dated 19 April 1999 issued on “Criteria for Selection of Valuers
Undertaking the Revaluation of Fixed Assets for the Computation of the Capital  Adequacy Ratio” shall
mean external Independent valuers.
Please acknowledge receipt of this circular.
Yours faithfully,
Sgd, Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  91
Ref. No. : BS/69/93
Bank Supervision Dept.
8th Floor, Renuka Building
No. 41 Janadhipathi Mawatha
Colombo 1.
19th April 1999
To : All Licensed Specialised Banks
Dear Sir/Madam,
CRITERIA FOR SELECTION OF V ALUERS UNDERTAKING THE REV ALUATION OF
FIXED ASSETS FOR THE COMPUTATION OF THE CAPITAL ADEQUACY RATIO
All Licensed Specialised Banks are hereby informed that in the selection of Valuers to undertake the
revaluation of the Bank’s fixed assets for the purpose of including 50 per cent of such revaluation reserves
in the computation of the Capital Adequacy Ratios, the following eligibility criteria would apply:–
The Valuer shall be :–
 (a) a Chartered Valuation Surveyor; or
 (b) a Fellow of the Institute of Valuers (Sri Lanka) with a Degree or Diploma in Valuation and
work experience of 15 years; or
 (c) a Licentiate of the Institute of Valuers (Sri Lanka) with work experience of over 25 years.
Please acknowledge receipt of this letter.
Yours faithfully,
Sgd. Ms. C I Fernando
Actg. Director of Bank Supervision


92 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
Ref. No. : 02  / 17 / 402 / 0073  / 002
Bank Supervision Department
29 July 2010
To : CEOs of Licensed Specialised Banks
Dear Sir,
ENHANCEMENT OF MINIMUM CAPITAL REQUIREMENT OF BANKS
We refer to our Circular No. 02/17/402/0073/001 dated 12 April 2005 on the above subject and
write to inform you that as announced at the meeting held on 24 November 2009, the Monetary Board of
the Central Bank of Sri Lanka has decided to require licensed specialised banks to increase their capital
as follows in the interest of a strong and sound banking system:
(a) Rs. 2 bn by 31 December 201 1
(b) Rs. 2.5 bn by 31 December 2013
(c) Rs. 3 bn by 31 December 2015
Capital for this purpose shall mean the Core Capital as defined in terms of item No. 6.2.2.2 in
the Guidelines that were annexed as Schedule I to the Banking Act, Direction No. 10 of 2007 dated
26 December 2007 on Maintenance of Capital Adequacy Ratio.
Yours faithfully,
Sgd, T M J Y P Fernando
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  93
Ref. No. : 02  / 17 / 402 / 0073  / 002
Bank Supervision Department
01 January 2008
To : CEOs of Licensed Specialised Banks
Dear Sir/Madam,
ENHANCEMENT OF MINIMUM CAPITAL REQUIREMENT OF BANKS
Further to our circular dated April 12, 2005 on the above, informing Licensed Specialised Banks
(LSBs) of the decision of the Monetary Board of the Central Bank of Sri Lanka to increase the minimum
capital requirement of LSBs to Rs.1,500 million.
We write to inform you that ‘capital’ for the purpose of meeting the minimum capital requirement
shall mean the Core Capital as defined under item No. 6.2.2.2 in the Guidelines annexed as Schedule I
of the Banking Act, Direction No.10 of 2007 dated December 26, 2007 issued by the Monetary Board
of the Central Bank of Sri Lanka.
Yours faithfully,
Sgd, B.D.W.A. Silva
Actg.  Director of Bank Supervision


94 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
Ref. No. : 02  / 17 / 800 / 0002  / 001
Bank Supervision Department
11 December 2006
To : the CEOs of All Licensed Specialised Banks
  (excluding the RDBs)
Dear Sirs,
MINIMUM CAPITAL REQUIREMENT OF LICENSED SPECIALISED BANKS
This is to inform you that considering the difficulties faced by some Licensed Specialised Banks
that are in the process of infusing fresh capital to meet the increased minimum capital requirement in
terms of Circular No. 02/17/402/0073/001, dated 12 April 2005, the Monetary Board of the Central Bank
of Sri Lanka has decided to grant an extension of time to such banks on a case-by-case basis to meet the
said requirement, on the following basis–
(a) till end 2008 to infuse at least 50 per cent of the shortfall
(b) till end 2009 to meet the total capital requirement of Rs.1,500 million
 The banks which require an extension of time may submit their requests to the Director of Bank
Supervision for consideration of the Monetary Board, along with a time-bound capital infusion plan to
meet the minimum capital requirement by the new dates stipulated above. The Monetary Board may
grant extensions subject to such terms and conditions as it may deem necessary.
Yours faithfully,
Sgd, Mrs. L K Gunatilake
Actg. Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  95
Ref. No. : 02  / 17 / 402 / 0073  / 001
Bank Supervision Department
12 April 2005
To : The CEOs of all Licensed Specialised Banks
Dear Sirs,
ENHANCEMENT OF MINIMUM CAPITAL REQUIREMENTS OF BANKS
As intimated to you at the meeting held on 08.04.2005, as part of its responsibility to maintain
financial system stability and in the interest of a strong and sound banking system, the Monetary Board
of the Central Bank of Sri Lanka has decided to require all licensed specialised banks to increase their
capital to Rs.1,500 mn.  For this purpose capital shall mean the Tier I capital (Core Capital) as defined
by the Directions dated 21.11.1997 issued by the Monetary Board under Section 76 j(1) of the Banking
Act as amended from time to time.  Specialised banks that do not currently meet this requirement may
enhance their capital in the following manner.
• The current capital should be enhanced by at least 50% of the deficiency by the end of 2006;
and
• the balance of the  deficiency should be met by the end of 2007.
All specialised banks are required to meet the enhanced capital requirements within the stipulated
periods.
The Monetary Board has also decided that with immediate effect the required equity capital for a
new specialized bank should be Rs.1,500 mn.
The enhanced capital requirements will not apply to the Regional Development Banks for the
time being.
You are kindly requested to assess the present position of your bank vis-à-vis the enhanced capital
requirements based on the audited financials for the last financial year and inform me of the position
by 30 June 2005, along with a time bound plan for capital augmentation in case the level of capital is
below the stipulated minimum capital requirement.
Further, you are requested to be mindful of the enhanced capital requirements when deciding on
declaration of dividends.
Please acknowledge receipt.
Yours faithfully,


declaration of dividends.
Please acknowledge receipt.
Yours faithfully,
Sgd, Director of Bank Supervision
cc – Mr . Upali De Silva
 Secretary-General
 Sri Lanka Bankers’  Association (Gte) Ltd.
 Level 8, Ceylinco House
 Colombo 01.


96 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
Ref. No. : 02  / 04 / 002 / 0005  / 003
Bank Supervision Department
06 January 2004
To : All Domestic Licensed Commercial Banks and
       all Licensed Specialised Banks
Dear Sir  / Madam,
INTERPRETATION OF CAPITAL FUNDS
All Domestic Licensed Commercial Banks and Licensed Specialised Banks are hereby informed
that the proceeds of redeemable cumulative preference shares would constitute part of Capital Funds of
banks for the purpose of Banking Act, and the direction issued thereunder, relating to the basis for the
computation of the Single Borrower Limit and Investments in Equity in terms of section 46 and 17  a
respectively and, section 76 j(1) of the Banking Act.
Yours faithfully,
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  97
02/04/003/0400/002
Bank Supervision Department
16 December 2004
To : CEOs of Licensed Commer cial Banks
 CEOs of Licensed Specialised Banks
 Panel of Approved Auditors
 Secr etary-General / SLBA
Dear Sirs,
SHIPPING GUARANTEES ISSUED BY BANKS
Further to the discussion of the above subject at the Meetings of the Chief Executive Officers
of Licensed Commercial Banks and Licensed Specialised Banks, the amendment to the Directions
on Single Borrower Limit and Risk Weighted Capital Adequacy Ratio to enable the banks to include
shipping guarantees issued at the invoice value of goods, are included herewith.
Please acknowledge receipt.
Yours faithfully,
Sgd, Director of Bank Supervision


98 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
BANKING ACT NO. 30 OF 1988
AS AMENDED BY BANKING (AMENDMENT) ACT NO. 33 OF 1995
The directions issued by the Monetary Board of the Central Bank of Sri Lanka under Section 76 j(1)
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
21-11-1997.
DIRECTIONS UNDER 76 j(1)
CONDITIONS FOR GRANT OF ACCOMMODATION
1. No licensed specialised bank shall grant any accommodation -
 1.1 on the security of its own shares;
 1.2 on the security of the shares of any of its subsidiaries;
 1.3 to purchase its own shares;
 1.4 on the security of shares of a company in which a company referred to in 1.2 above has a
shareholding, in excess of ten percent of the paid up capital of the former company.


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  99
BANKING ACT NO. 30 OF 1988
AS AMENDED BY BANKING (AMENDMENT) ACT NO. 33 OF 1995
The directions issued by the Monetary Board of the Central Bank of Sri Lanka under Section 76 j(1)
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
21-11-1997.
DIRECTIONS UNDER 76 j(1)
INVESTMENTS IN EQUITY
1. Subject to paragraphs 2 and 3 below a licensed specialised bank having an equity capital as defined
in the Banking Act shall not invest in the equity of any institution other than a public company and
 1.1 any shareholding acquired by such bank shall not be in excess of ten per cent of its capital
funds; and
 1.2 the aggregate amount invested in the shares of public companies shall not exceed fifty per cent
of its capital funds:
Provided that such acquisition or holding of shares in terms of paragraph 1.1 above shall not exceed
twenty per cent of the paid up capital of the public company:
Provided further a licensed specialised bank may, without exceeding the limits specified above,
acquire shares in a company other than a public company if such acquisition becomes necessary for
the purpose of rehabilitating such company to make it financially viable.
2.
 2.1 A  licensed specialised bank is permitted to invest in the equity of a private company subject
to sub paragraph 2.2 below of this paragraph, provided such investment does not exceed 20%
of the paid up capital of the private company and 10% of the capital fund of the licensed
specialised bank provided further that the aggregate amount of such investments in the private
companies shall not exceed 25% of the capital funds of the licensed specialised bank and the
total aggregates of its investments in private and public companies shall not exceed 75% of its
capital funds.


capital funds.
 2.2 Any equity investment in a private company by a licensed specialised bank shall be subject
to the condition that before the lapse of five years from the date of such investments or such
longer period extended by the Central Bank :
2.2.1  the entire investment in the company shall be purchased by the other shareholders of
the company or
2.2.2  the private company be converted to a public company .
3. The provisions of paragraph 1 above shall not apply to –
 3.1 investment in a subsidiary or associate company of the bank acquired or formed prior to the
issue of these directions.
 3.2 investments in any other subsidiary or associate company acquired or formed with the approval
of the Central Bank of Sri Lanka.


100 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
 3.3 any shareholding which the bank has acquired or might acquire in the course of the satisfaction
of any debt due to such bank, or as a consequence of the underwriting of a share issue:
  Provided that, where as a result of the acquisition of these shares the total investment of the
bank exceeds the percentage of capital funds as determined by the Monetary Board under
paragraph 1 above, the bank shall dispose of such excess shares within two years or such longer
period as may be determined by the Central Bank of Sri Lanka, from the date of this direction
or the date of the acquisition whichever is later.
 3.4 Any equity which the bank has acquired or might acquire consequent to a statutory provision
in an Act establishing a financial institution.


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  101
Directions issued by the Monetary Board of the Central Bank of Sri Lanka in terms of Section 76 J(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
27 September 2010
BANKING ACT DIRECTION NO. 4 OF 2010
AMENDMENTS TO DIRECTIONS ON CLASSIFICATION OF LOANS AND ADV ANCES,
INCOME RECOGNITION AND PROVISIONING FOR
LICENSED SPECIALISED BANKS IN SRI LANKA
In the exercise of the powers conferred by Section 76J(1) of the Banking Act, No. 30 of 1988,
last amended by the Banking Act, No. 46 of 2006, the Monetary Board hereby issues the following
Direction replacing Directions No. 6(1)(I) of the Banking Act, Direction No. 4 of 2008 dated 8 May 2008
issued by the Monetary Board.
6(1)(I)  General Pr ovisions
 Banks shall maintain general provisions in the following manner:
 (i) Commencing 01 January 2012, 0.5% of total outstanding of on-balance sheet PLAs as
referred to 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) For this purpose banks shall reduce the existing general provision requirement of
1% to 0.5% at a rate of 0.1% per quarter during the five quarters commencing 01 October
2010.
 (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:
 (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


(b) All documentation used in such collateralised transactions shall be binding on all
parties and be legally enforceable in all relevant jurisdictions.


102 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
Directions issued by the Monetary Board of the Central Bank of Sri Lanka in terms of Section 76 j(1) of
the Banking Act, No.30 of 1988, as amended.
Sgd. Nivard Ajith Leslie Cabraal
Chairman of the Monetary Board /
Governor of the Central Bank of Sri Lanka
Colombo
May 8, 2008.
DIRECTIONS
BANKING ACT, DIRECTION NO. 4 OF 2008
CLASSIFICATION OF LOANS AND ADV ANCES, INCOME RECOGNITION AND
PROVISIONING
In the exercise of the powers conferred by Sections 76 j(1) of the Banking Act, No.30 of 1988, last
amended by the Banking Act, No.46 of 2006, the Monetary Board hereby issues Directions as follows:
1(1) These Directions may be cited as the Banking Act, Direction No.4 of 2008.
The Section referred to in these Directions will be those of the Banking Act,
No.30 of 1988, last amended by the Banking Act, No.46 of 2006.
2(1) In terms of Section 76 j(1) of the Banking Act, the Monetary Board is
empowered to issue Directions to licensed specialised banks regarding
the manner in which any aspect of the business of such banks is to be
conducted.
3(1) The following definitions shall be applicable for the purposes of these
Directions.
3(2) T otal credit facilities shall mean on-balance sheet credit facilities and
off-balance sheet credit facilities as specified below:
3(2)(I)  On-balance sheet credit facilities:
   On-balance sheet credit facilities shall mean Term loans, Block
loans, Packing credits, Pledge loans, Revolving loans, Bills financed,
Discounting facilities, Hire purchase loans, Leasing facilities, Trust
receipts, Pawning advances, Credit card facilities, Reverse repurchase
facilities, Lending for debt instruments under stand by credit lines and
other instruments of a similar nature.
3(2)(II)  Of f-balance sheet credit facilities:
   Off-balance sheet credit facilities shall mean a commitment to accept
contingent liabilities, and include guarantees, bonds, warranties,


contingent liabilities, and include guarantees, bonds, warranties,
letters of credit and acceptances.
3(3) Borrower shall mean individuals, single companies, the Government of Sri
Lanka, public corporations, statutory bodies, firms, associations of persons
and any other institutions.Citation.
Empowerment
under Sections
76J(1) of the
Banking Act.
Definitions.


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  103
Classification of
credit facilities.3(4) Performing loans and advances (PLA) shall mean all credit facilities other
than non-performing loans and advances (NPL) classified in terms of
Direction 3(5).
3(5) NPL  shall mean bad and doubtful debts. For this purpose, all credit
facilities, excluding exempted credit facilities referred to in Direction 4(2),
are classified as non-performing on the following basis:
3(5)(I)  Based on period
 (i) C redit facilities repayable in monthly instalments: when
3 consecutive instalments, principal and/or interest, have not
been paid.
 (ii) Credit facilities repayable in quarterly/half yearly instalments:
when an instalment is not paid within 90 days from the due date.
 (iii) Credit facilities repayable in one instalment at the end of a
specified period or on a due date (bullet payments): when the
payment is not made within 90 days from the end of the agreed
period or the due date.
 (iv) Credit cards: when the minimum payment is in arrears for
90 days from the due date.
3(5)(II)  Based on potential risk
   In addition to the classification requirements for NPL  as set out
in Direction 3(5)(I), banks shall classify PLA as NPL where full
recoverability in accordance with the agreed terms is in doubt due to
circumstances affecting the repayment capacity.
3(6) New c redit facility shall mean any credit facility granted to borrowers
with the involvement of cash/fund movements. A facility granted for the
capitalisation of accrued and unpaid interest or to convert an overdraft to a
term loan shall not be considered as a new credit facility.
4(1) Classification of performing and non-performing credit facilities:
  Banks shall classify all credit facilities granted to a borrower, for monitoring
and risk mitigation purposes, into the two categories of (a) performing loans


and risk mitigation purposes, into the two categories of (a) performing loans
and advances and (b) non-performing loans and advances, as specified in
Directions 3(4) and 3(5) above.
4(2) Exempted credit facilities:
  When classifying credit facilities as NPL under Direction 4(1) above, credit
facilities secured on cash deposits shall be exempted. Banks shall, for this
purpose, meet the following conditions to be eligible for the exception:
 (i) Banks  shall have the right to take legal possession of such cash
deposit, in the event of default, or insolvency or bankruptcy of
borrower.
 (ii) Al l documentation used in cash collateralised transactions shall
be binding on all parties and legally enforceable in all relevant
jurisdictions. A duly signed lien in the bank’s favour and a letter of
set-off shall be available.


104 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
 (iii) Such cash deposit shall be set-of f against the credit facilities within
3 months from the date on which the credit facilities would have
otherwise been classified as non-performing.
 (iv) During the period referred to in Direction 4(2)( iii) above, if the
outstanding exceeds the deposit, such excess shall be classified as
non-performing.
4(3) The availability of security or net worth of the borrower/guarantor shall not
be considered in the application of Direction 3(5) except as permitted by
Direction 4(2) above.
4(4) Classification of rescheduled credit facilities:
  When rescheduling occurs before a credit facility is classified as NPL,
the rescheduled credit facility shall be classified as non-performing when,
in aggregate, the period of time the credit facility was in arrears before
rescheduling and after rescheduling exceeds the time period specified in
the Direction 3(5) in respective credit facilities. In the case of capitalisation
of accrued and unpaid interest, banks shall classify a credit facility created
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 per cent of the total credit facilities extended
to such borrower. Banks are required to comply with this Direction
commencing 01 January 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.


credited to an interest in suspense account from both numerator and
denominator.
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 facilities 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.


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  105
Facility Type Determinant
Credit facilities,
repayable in monthly
instalments3 instalments or more but less than
6 instalments, 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
Credit facilities,
repayable in monthly
instalments6 instalments or more but less than
12 instalments, principal and/or interest
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.
 (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-per -
forming.
Facility Type Determinant
Credit facilities,
repayable in monthly
instalments12 instalments or more but less than
18 instalments, 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.


106 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
 (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-per -
forming.
Facility Type Determinant
Credit facilities,
repayable in monthly
instalments18 instalments 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
the facility will not be repaid, as in the following circumstances:
 (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) 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.


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  107
4(7)(II)  Re-classification of rescheduled NPL  as PLA:
  The NPL  accounts which have been subjected to rescheduling, whether
in respect of principal instalment 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
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.
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
collected on 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


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.Recognition of
Interest on NPL.


108 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
6(1) Banks shall maintai n (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
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% 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% every
quarter till 31.03.2009. In effect, banks shall meet the total
requirement of 1% 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:
 (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%


Provisioning Requirement
Substandard
   Credit card
   Others 25%
20%
Doubtful 50%
Loss 100%
6(2) In respect of any cr edit 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 c ase of an overdraft), provisions for capital and Provisions for
credit facilities.


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  109
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) The 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.
 (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 repor t 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
experienceValuation of
Security.


110 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
 (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.
 (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)(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 per cent of the latest market price


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  111
 (b) 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.
 (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


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


112 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
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%
 (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) Banks 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 Directions and Circulars issued to licensed specialised 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 I) and valuation of securities for provisioning purposes
(Schedule II) dated 21 November 1997, issued under Section 76 j(1) 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.
 (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) Circular letter dated 29 March 2006 on reversal of unearned income and
classification of advances as non-performing.
 (vi) 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 Specialised Banks  113
Annex
Licensed Specialised Banks
Banking Act, Direction No.4 of 2008
Classification 	of	Loans	and	Advances, 	Income	Recognition 	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
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


114 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
Directions issued by the Monetary Board of the Central Bank of Sri Lanka under Section 76 j(1) of the
Banking Act, No.30 of 1988, as amended.
Sgd. Nivard Ajith Leslie Cabraal
Governor
Colombo
01 November 2007
DIRECTIONS
BANKING ACT DIRECTIONS NO. 8 OF 2007
MAXIMUM AMOUNT OF ACCOMMODATION
In exercise of the powers conferred by Section 76 j(1) of the Banking Act, No.30 of 1988, last
amended by the Banking Act, No.46 of 2006, the Monetary Board hereby issues Directions as follows:
1. T hese Directions may be cited as the Banking Act, Directions No.8 of 2007.
The Sections referred to in these Directions 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 76 j(1), the Monetary Board has been empowered to give
Directions to licensed specialised banks or to any category of licensed specialised
banks regarding the manner in which any aspect of the business of such banks
is to be conducted. Accordingly, the Monetary Board hereby gives Directions to
licensed specialised banks pertaining to the maximum amount of accommodation
as may be made by such banks–
 (i) to any single company, public corporation, firm, association of persons or an
individual; or
 (ii) in the aggregate to –
 (a) an individual, his close relations or to a company or firm in which he has
a substantial interest;
 (b) a company and one or more of the following:–
 (aa) its subsidiaries;
 (bb) its holding company;
 (cc) its associate company;
 (dd) a subsidiary of its holding company; or
 (ee) a company in which such company or its subsidiary , or its holding
company, or a subsidiary of its holding company, has a substantial
interest.Citation
Empowerment
under 76J(1)


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  115
3. The maximum amount of accommodation that may be granted by a licens ed
specialised bank shall not exceed the following percentage of the capital base of
the licensed specialised bank subject to the Directions 7, 8 and 9.
 (i) 30 per cent in respect of customers referred to in Section 2(i) above.
 (ii) 33 per cent in respect of customers referred to in Section 2(ii) above.
4. (1) Notwithstanding the provisions of Direction 3(ii) above, a licensed specialised
bank may grant accommodation in excess of 33 per cent of the capital base of
the licensed specialised bank to customers referred to in paragraph 2(ii) above,
on the basis of a sum of scores assigned for the following as determined in
Direction 4(2) below.
 ( i) T he Credit Rating and Capital Adequacy Ratio of the bank granting
accommodation and,
 ( ii) The Credit Rating of the holding company of the customers referred
to in paragraph 2(ii) above. In the event the relationships within the
companies in respect of whom accommodation shall be aggregated in
terms of paragraph 2(ii) above do not lead to a holding company, the
credit ratings of each of the companies that comprise such aggregate
shall be considered and the lowest credit rating assigned to any company
within such aggregate shall be deemed to be the credit rating that shall be
applicable for the purpose of giving effect to this Direction.
(2) The scores referred to in Direction 4(1) above shall be assigned as follows.Maximum limits of
accommodation
to customers
referred to in
paragraphs 2(i)
and 2(ii) above.
Enhanced limits
of accommodation
in aggregate to
customers referred
to in paragraph
2(ii) above.
Aggregate
limit of large
accommodation.Bank’s
Credit RatingCustomers’
Credit RatingBank’s Capital
Adequacy
RatioScore
Assigned for
Each Column
AAA to AA- or
equivalentAAA to AA- or
equivalent> 12% 1
A+ to A- or
equivalentA+ to A- or


AAA to AA- or
equivalentAAA to AA- or
equivalent> 12% 1
A+ to A- or
equivalentA+ to A- or
equivalent11% - 12% 2
BBB+ or
equivalent and
belowBBB+ or
equivalent and
below or unrated10% - <11% 3
(3) The maximum amount of accommodation that may be granted by a licensed
specialised bank under Direction 4(1) above to customers referred to in
paragraph 2(ii) above shall not exceed the following percentages of the
capital base of the licensed specialised bank, based upon the sum of the
scores assigned for the three columns as per the Table set out in Direction
4(2) above.
 (i) 40 per cent if the sum of scores is between 3 and 5.
 (ii) 36 per cent if the sum of scores is between 6 and 8.
5. In the case of amount of accommodations granted as at any given date to any
category of customers referred to in paragraphs 2(i) and 2(ii) above excluding
the Government of Sri Lanka in excess of 15 per cent of the capital base of
the licensed specialised bank, the sum total of the outstanding amount of


116 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
accommodation granted to such customers shall not exceed 55 per cent of the
total outstanding amount of accommodation granted by the licensed specialised
bank to all customers excluding the Government of Sri Lanka as at the end of the
immediately preceding month.
6. ( 1) No twithstanding the provisions of Directions 3 and 4 above, a licensed
specialised bank may grant accommodation in excess of the maximum limits
specified under Directions 3 and 4 above to the categories of customers referred to
in paragraphs 2(i) and 2(ii) above, provided that the prior approval of the Monetary
Board has been sought and obtained. The Monetary Board may grant such
approval on a case-by-case basis, subject to terms and conditions it may deem fit,
taking into consideration, inter-alia, instances of national priorities and/or national
interest and the ability of the licensed specialised bank to withstand the potential
risk arising from the exposure to such enhanced accommodation, provided that the
assessment of risks arising out of such accommodation to the licensed specialised
bank has been analysed in detail and such analysis is furnished by the licensed
specialised bank to the Monetary Board when seeking approval of the Monetary
Board.
 ( 2)  Subject to Direction 6(1) above, a licensed specialised bank may grant
accommodation to the categories of customers referred to in paragraphs 2(i) and
2(ii) above up to 50 per cent of the capital base of the licensed specialised bank
for the purpose of direct funding of infrastructure projects referred to in Annex 1
hereto for the commencement or expansion of the projects, provided that,
 (i) the customer(s) has (have) been awarded a contract to directly engage in
an infrastructure development project in Sri Lanka, and,
 (ii) such project is funded to the extent of at least 50 per cent by sources


(ii) such project is funded to the extent of at least 50 per cent by sources
outside Sri Lanka or by a consortium of licensed banks excluding the
bank providing the accommodation.
7. When computing the maximum amount of accommodation under Directions 3 and
4 above that may be granted to any category of customers referred to in paragraphs
2(i) and 2(ii) above, the following accommodations shall be excluded.
 ( i) Ac commodation granted against the security of cash, gold, Government
Securities, Central Bank Securities, Treasury Guarantees, Central
Bank Guarantees and Guarantees issued by the World Bank, the Asian
Development Bank, International Development Association or any other
international institution acceptable to the Director of Bank Supervision.
 ( ii) Ac commodation granted against the security of a guarantee or similar
instrument Director of Bank Supervision issued by a bank incorporated
within or outside Sri Lanka other than the bank granting accommodation,
subject to the following:–
 (a) The bank that provides the guarantee having a credit rating of AAA to
A- or equivalent.
 (b) T he amount of accommodation that shall be excluded from the
computation of accommodation being 80 per cent in the event the
credit rating of the bank that provides the guarantee is in the rank of
AAA to AA- or equivalent and 50 per cent in the event the bank’s
credit rating is in the rank of A+ to A- or equivalent.Exclusions of
accommodations
from maximum
limits under
Directions 3 and 4.Monetary Board
to approve
accommodation
in excess of the
specified limits.


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  117
 (c) The aggregate amount of all accommodation that shall be excluded in
respect of all such instances not exceeding 100 per cent of the capital
base of the licensed specialised bank.
 (d) The licensed specialised bank being satisfied that the credit rating of
the bank providing the guarantee has been obtained within 15 months
of providing accommodation and the accommodation be revised
immediately if there is any change in such credit rating.
8. The maximum limits of accommodation specified in these Directions shall not
apply to the following persons / institutions.
 (i) The Government of Sri Lanka.
 (ii) The Ceylon Petroleum Corporation and the Ceylon Electricity Board for a
maximum period of two years from the date of these Directions.
 (iii) Other licensed banks in respect of accommodation granted with a contractual
maturity of less than two years.
9. The following definitions shall be applicable for the purposes of these
Directions.
 (i) Accommodations: As defined and provided for in Section 86 of the Banking
Act, accommodations shall mean credit exposure and investment exposure
as specified below.
 ( a) C redit exposure shall include all on-balance sheet accommodations
such as any loan, overdraft or advance inclusive of finance lease, hire
purchase and reverse repurchase agreements against debt securities
and all off-balance sheet accommodations such as any commitment to
grant any loan, overdraft or advance or such other facility including a
commitment to accept a contingent liability.
 (b) Investments exposure shall include all financial investments excluding
investments in equity (only ordinary shares).
 ( ii) Amount of accommodations: The amount of accommodations shall be
the total of on-balance sheet accommodations and off-balance sheet
accommodations.
 ( a) Amount of on-balance sheet accommodations: The amount of


accommodations.
 ( a) Amount of on-balance sheet accommodations: The amount of
on-balance sheet accommodations shall mean the total of the accommo-
dation limits prevailing at any given time or the total outstanding
amount of all accommodations, whichever is higher. In the case of
fully drawn term loans, the outstanding amount of accommodations
shall be reckoned as the amount of accommodations.
 ( b) Amount of of f-balance sheet accommodations: The amount of
off-balance sheet accommodations shall mean the credit equivalent
amount of total of the accommodation limits prevailing at any given
time or the outstanding amount of accommodations, whichever is
higher.
 (iii) Outstanding amount of accommodations: The outstanding amount of
accommodations shall be the total of outstanding on-balance sheet
accommodations and outstanding off-balance sheet accommodations.Definitions.Persons/
Institutions
exempted from
maximum limits
under Directions
3 and 4.


118 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
 ( a) Outstanding on-balance sheet accommodations: The outstanding
amount of on-balance sheet accommodations shall be the capital
outstanding.
 ( b) Outstanding of f-balance sheet accommodations: The outstanding
amount of off-balance sheet accommodations shall be the
credit equivalent amount of the outstanding off-balance sheet
accommodations.
 (iv) Credit equivalent amount of off-balance sheet accommodations: The credit
equivalent amount computed using the credit conversion factors applicable
to off-balance sheet accommodations in the computation of the Capital
Adequacy Ratio shall be applicable.
 ( v) Capital Base and Capital Adequacy Ratio: Capital Base and Capital
Adequacy Ratio appearing in the computation of the Capital Adequacy
Ratio shall be applicable, provided that those shall be as at end of the
preceding financial year or immediately preceding quarter or other latest
quarter preceding the applicable quarter, whichever is available, subject to
certification by the licensed specialised bank’s external auditor.
 (vi) Credit Rating: The credit rating shall be the credit rating obtained from a
credit rating agency listed in the Annex 2 hereto and shall be one that has
been obtained within the past 15 months of providing accommodation.
10. (1) In instances where the accommodation granted to a customer has to be revised
due to a reduction in the applicable accommodation limit, the accommodation
granted shall be reduced at the next facility review date or within six months,
whichever occurs earlier.
 (2) In the event a merger or acquisition between any institutional customers results
in existing accommodations exceeding the applicable maximum limits, the
licensed specialised bank shall reduce such accommodations to be within the
applicable maximum limits before expiry of six months from the date of such
merger or acquisition.


applicable maximum limits before expiry of six months from the date of such
merger or acquisition.
11. In the event the accommodation that has been granted to any category of
customers referred to in paragraphs 2( i) and 2( ii) above as at the date of these
Directions exceeds the limits, i.e., maximum limits or aggregate limit, specified in
these Directions, the licensed specialised bank shall reduce such accommodation
to be within the respective limits before the expiry of three months from the date
of these Directions.
12. Where the Monetary Board has determined that a licensed specialised bank has
contravened these Directions and the determination of such contravention has
been conveyed to the licensed specialised bank, such licensed specialised bank
shall not pay dividends until the contravention is rectified and such rectification is
confirmed by the Director of Bank Supervision.
13. The Banking Act, Direction No.4 of 2007 dated 20 February 2007 of Maximum
Amount of Accommodation is hereby revoked.Review of
Accommodation.
Transitional
Arrangements
Steps to secure
compliance with
Directions
Revocation of
Previous Direction


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  119
Annex 1
DIRECTIONS
BANKING ACT DIRECTIONS NO. 8 OF 2007
MAXIMUM AMOUNT OF ACCOMMODATION
Specification 	of	Infrastructure 	Projects
Any project that involves in developing or operating and maintaining or developing, operating,
upgrading and maintaining any infrastructure facility listed below shall qualify for the accommodation
under the Direction 6(2) of the above Directions, provided that the accommodation referred to in the
Direction shall be for the purpose of meeting direct cost of the project which shall not include repayment
of any accommodation already granted by other banks or financial institutions or meeting the cost of
purchase of a project already in operation.
 (i) a road, including toll road, a bridge or a rail system;
 (ii) a highway project including other activities being an integral part of the highway project;
 (iii) a port, airport, inland waterway or inland port;
 ( iv)  a wat er supply project, irrigation project, water treatment system, sanitation and sewerage
system or solid waste management system;
 ( v)  telecommunication services whether basic or cellular , including radio paging, network of
trunking, network and internet services;
 (vi) an industrial park or special economic zone;
 (vii) generation or generation and distribution of power;
 (viii)  transmission or distribution of power by laying a network of new transmission or distribution
lines;
 (ix) construction relating to projects involving agro-processing and supply of inputs to agriculture;
 (x) construction of educational institutions and hospitals;
 (xi) any other infrastructure project as may be specified by the Monetary Board from time to time.
Annex 2
DIRECTIONS
BANKING ACT DIRECTIONS NO. 8 OF 2007
MAXIMUM AMOUNT OF ACCOMMODATION
List of Credit Rating Agencies Acceptable to the Monetary Board
1. Fitch Ratings Lanka Ltd.
2. Lanka Ratings Agency Ltd.
3. Standard & Poors


1. Fitch Ratings Lanka Ltd.
2. Lanka Ratings Agency Ltd.
3. Standard & Poors
4. Moody’ s Investors Service
5. Credit Rating Information Services of India (CRISIL)
6. Investment Information & Credit Rating Agency (ICRA)
7. Fitch Ratings India Ltd.
8. Pakistan International Credit Rating Agency
9. Rating Agency Malaysia
10. Japan Credit Rating Agency Ltd.
11. Any other credit rating agency as may be accepted by the Monetary Board from time to time.


120 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
Bank Supervision Department
17 March 2005
To : The CEOs of Licensed Specialised Banks
Dear Sirs,
ACCOMMODATION TO DIRECTORS & RELATED COMPANIES
As intimated to you at the Meeting of the CEOs of Licensed Commercial Banks (LCBs) and
Licensed Specialised Banks (LSBs) held on 17.03.2005, the Directions to LSBs on the above subject
have been amended to be consistent with the Directions issued to the LCBs in this regard.
Please find enclosed the amendment to the Direction issued under Section 76J (1) of the Banking
Act.
Yours faithfully,
Sgd, Director of Bank Supervision
cc – Secretary-General/SLBA
ENCL:


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  121
BANKING ACT, NO.30 OF 1988
As amended by Banking (Amendment) Act No.33 of 1995 and
Act No.2 of 1995
Amendment to the Directions issued by the Monetary Board of the Central Bank of Sri Lanka under
Section 76J(1) of the Banking Act No.30 of 1988 as amended by Act No. 33 of 1995 and Act No.2 of
2005.
Sgd. Sunil Mendis
Governor
Colombo
17 March 2005.
AMENDMENT TO DIRECTIONS UNDER SECTION 76J(1)
ACCOMMODATION TO DIRECTORS AND RELATED COMPANIES
Direction on Accommodation to Directors and Related Companies dated 21.11.97 issued by the
Monetary Board is hereby amended as follows:
1. By the repeal of subsection 1.1 and substitution therefor of the following:
1.1 “any of its directors or to a close relation of such director exceeding Rupees Five Hundred
Thousand (Rs.500,000/-), and except where such accommodation is provided by the issue of
a credit card, such accommodation is secured by such specified security as set out in section 7
below.
Where the accommodation is provided by the issue of a credit card, the limit applicable shall
be Rupees Five Hundred Thousand (Rs.500,000/-) provided that such accommodation is on the
same terms and conditions as for other customers of the respective bank.
However, where the accommodation is secured by the security specified at subsection 7.1
to 7.5 below, accommodation may be granted upto the limit of the security permitted in the
relevant subsection.”
2. By the insertion of section 6.1 immediately after section 6:
6.1 “Where any accommoda tion is granted by a licensed specialised bank under section 1 during the
course of any financial year, such accommodation shall be disclosed in the accounts for that
financial year and for each subsequent financial year till such accommodation has been repaid
or settled in full.”
The above amendment will be operative with immediate effect.


122 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
BANKING ACT NO. 30 OF 1988
AS AMENDED BY BANKING (AMENDMENT) ACT NO. 33 OF 1995
The directions issued by the Monetary Board of the Central Bank of Sri Lanka under Section 76 j(1)
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
21-11-1997.
DIRECTIONS UNDER 76 j(1)
ACCOMMODATION TO DIRECTORS & RELATED COMPANIES
1. No licensed specialised bank shall grant accommodation to –
 1 .1  any director or to a close relation of such director an amount exceeding the amount of
accommodation, if any, extended to him or such close relation, outstanding on the day prior
to the date of his appointment as a director or the date of this direction whichever is later or
Rs.1 million, whichever is more and such accommodation is secured by such specified security
referred to at paragraph 7 below.
 1.2 any concern in which such director or his close relation –
 1.2.1  has a shareholding in excess of 10 per cent of the paid up capital of the concern if such
concern is a company;
 1.2.2  is the sole proprietor or is a partner;
  unless such accommodation is secured by specified security referred at paragraph 7
below.
2. Any accommodation granted in accordance with paragraph 1 above shall be sanctioned at a meeting
of the Board of Directors with not less than two-thirds of the number of the directors constituting
the Board of Directors of the licensed specialised bank (other than the director concerned) voting in
favour of such accommodation.
3. Where any accommodation has been granted by a licensed specialised bank to a person or close
relation of a person or to any concern mentioned at paragraph 1.2.1 or 1.2.2 above, and if that person
is a director of a licensed specialised bank on the date of this direction or appointed a director after


the date of this direction, steps shall be taken to obtain such specified security referred to at paragraph
7 below within one year from the date of this direction or from the date of appointment as a director
as may be applicable or such longer period as may be given by the Monetary Board.
4. Where such special security at paragraph 7 below has not been provided within the time period
granted or any extension granted by the Monetary Board, such director shall be deemed to have
vacated office on the expiry of the period granted /extended to obtain such specified securities under
paragraph 3 above.
5. Provisions of paragraph 3 & 4 above shall not apply if and when the director concerned vacates such
office by death, retirement, resignation or otherwise.


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  123
6. No accommodation or any part thereof, granted by a licensed specialised bank to a director or a
close relation of the director or to any concern mentioned at paragraph 1.2.1 & 1.2.2 above, shall
be remitted without the prior approval of the Monetary Board and any such remission without such
approval shall be null and void.
7. The specified securities referred to at paragraphs 1, 3 & 4 above shall be –
 7.1 Sri Lanka Government Guarantees;
 7.2 Bank Guarantees;
 7.3 Guarantees of International Financial Institutions;
 7.4 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;
 7.5 Cash Deposits held under lien to the order of the lending licensed specialised bank provided
that the accommodation granted would not exceed 90 per cent of such cash deposits;
 7.6 Life Insurance Policies issued in Sri Lanka and assigned to the lending licensed specialised
bank provided that the accommodation granted would not exceed 75 per cent of the surrender
value of such policy;
 7.7 Immovable property held on a freehold basis and on which a primary mortgage has been taken
by the lending licensed specialised bank provided that the accommodation granted would not
exceed 60 per cent of the value of such property;
 7.8 Immovable property held on a leasehold basis provided that –
 7.8.1  the lease has been granted by a statutory body;
 7.8.2  the unexpired period of lease is at least 50 years;
 7.8.3  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;
 7.8.4  a primary mortgage has been taken on the leasehold rights by the lending licensed
specialised bank;


specialised bank;
  and provided further that the accommodation granted does not exceed 60 per cent of
such property.
 7.9 Shares 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;
 7.10 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;
 7 .11  Pledge of non-peris hable goods of a commercial nature which are readily marketable,
excluding all manufactured foods and other items with a limited shelf life, provided that the
accommodation granted would not exceed 40 per cent of the market value of such goods;
 7.12 Mortgage of Plant and Machinery provided that the accommodation granted shall not exceed
50% of the value of such plant and machinery as at date of accommodation.


124 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
Directions issued by the Monetary Board of the Central Bank of Sri Lanka under Section 76 J(1) of the
Banking Act, as amended.
Nivard Ajith Leslie Cabraal
Chairman of the Monetary Board and
Governor of the Central Bank of Sri Lanka
Colombo
2nd September 2009.
BANKING ACT DIRECTION NO. 4 OF 2009
LEASED-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
In the exercise of the powers conferred by Section 76 J(1) of the Banking Act, No. 30 of 1988, last
amended by the Banking Act, No. 46 of 2006, the Monetary Board hereby issues Directions to licensed
specialised banks.
1. These Directions may be cited as the Banking Act, Direction No. 4 of 2009.
The Sections referred to in this Direction will be those of the Banking Act
No. 30 of 1988, last amended by the Banking Act No. 46 of 2006.
2. In the exercise of the powers conferred by Section 76 J(1) of the Banking Act, the
Monetary Board is empowered to issue Directions to licensed specialised banks
regarding the manner in which any aspect of the business of such banks is to be
conducted.
3. The  following new Direction shall be inserted immediately after Direction
7.12 of the Directions issued in terms of Section 76 J(1) of the Banking Act on
Accommodation to Directors and Related Companies issued dated 21 November
1997.
 7.13 Lease-backed trust certificates/lease receivables provided that–
 7 .13.1  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.
7.13.2  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


the aggregate amount of the total outstanding accommodation
granted to the individual company.
7.13.3  Lease-backed trust certificates/lease receivables shall be based
on the un-encumbered (performing) lease portfolio.
7.13.4  Lease-backed trust certificates/lease receivables shall be
mortgaged to the lending bank.
7.13.5  The lending bank should be a registered establish ment under the
Finance Leasing Act No. 56 of 2000.Citation.
Empowerment
under Section
76J(1).
Approved Security.


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  125
Directions issued by the Monetary Board of the Central Bank of Sri Lanka under Section 46(1) and
76J(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.


126 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
 (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.


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  127
To  :  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


128 Directions, Determinations, and Circulars issued to Licensed Specialised 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 Specialised Banks  129
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


130 Directions, Determinations, and Circulars issued to Licensed Specialised 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 instalments 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 Specialised Banks  131
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


132 Directions, Determinations, and Circulars issued to Licensed Specialised Banks
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.


Directions, Determinations, and Circulars issued to Licensed Specialised Banks  133
Ref. No. : 02/04/004/0005/001
Central Bank of Sri Lanka
Bank Supervision Department
To : All Licensed Commer cial Banks and
 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 46 a and Section 76 j(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.