5
 incentives, gifts or funds from the employees, customers, suppliers,
shareholders or any other stakeholder of the bank;
t) Inculcate a sound corporate culture which reinforces norms for
professional, ethical and prudent behaviour throughout the bank .
Approve and oversee the implementation of a Code of Conduct
based on corporate values providing clear guidelines on
professionally and ethically acceptable behaviours of directors and
employees addressing inter alia the issues on confidentiality of
data, conflicts of interest, procedures for dealing with financial and
non-financial benefits and gifts, integrity in reporting, and th e fair
treatment to customers;
u) Ensure timely rectification of the supervisory concerns raised by the
regulator/s and for this purpose, the assistance of the relevant sub -
committees shall be sought ;
v) Approve a whistleblowing policy with a view to encouraging
employees to communicate confidentially the legitimate concerns
regarding illegal, unethical or questionable practices without the
risk of reprisal. The policy shall be reviewed at least on an annual
basis. The whistleblowing policy shall clearly specify:
(i) the persons to whom the concerns can be escalated within the
bank;
(ii) procedures for investigating legitimate material concerns
raised by the employees;
(iii) procedures to ensure protection and anonymity of the
employees who raise concerns due to any detrimental
treatment or reprisals; and,
(iv) alternative avenues for whistleblowing to regulators.
w) Promote sustainability through appropriate environmental, social
and governance considerations in the bank's business strategies and
ensure that policies are in place to  assist  businesses that are greener,
climate -friendly and socially inclusive .


6
 1.2 Appointing
Chairperson and
CEO  The Board shall appoint the Chair person and CEO and define and
approve the functions and responsibilities of the Chair person  and CEO
in line with Direction  5 of these Directions.

1.3 Board Meetings  The Board shall meet at approximately monthly intervals and Board
meetings shall be held at least twelve times a year. Such regular Board
meetings shall normally involve  active  deliberation  of a majority  of
directors  entitled  to be present.  Obtaining  the Board’s consent through
the circulation of written resolutions/papers shall be avoided as far as
possible. The Board approvals obtained through circulation shall be
ratified at the Board meeting held immediately  following the
circulation. The Board may convene and/or a Board member may attend
the Board meetings virtually subject to ensuring active involvement of
the relevant directors  and attending Board meetings physically at least
on a half yearly basis .

1.4 Board Procedures  a) The Board shall ensure that arrangements are in place to enable all
directors to include  matters and proposals in the agenda for regular
Board meetings where such matters and  proposals  relate  to the
promotion of banking  business, risk management and conduct of
employees of  the bank.
b) The Board procedures shall ensure that notice of at least 7 days is
given of a regular Board  meeting to provide all directors an
opportunity to attend. For all other Board meetings,  reasonable
notice  may be  given.
c) The Board procedures  shall  ensure  that a director  who has not
attended  at least two-thirds of the meetings  in the period  of 12
months  immediately  preceding  or has not attended  the
immediately  preceding  three  consecutive  meetings  held,  shall
cease  to be a director. Participation at the Board meetings through
an alternate director shall, however, be acceptable as attendance.


7
 1.5 Appointing a
Company
Secretary  a) The Board shall appoint a company secretary who satisfies the
provisions of Section 43 of the Banking Act, whose primary
responsibilities shall be to handle the secretariat services to the
Board and shareholder meetings and to carry out other functions
specified in the statutes and such other written laws for the time
being in force.
b) All directors shall have  access to advice  and services of  the
company  secretary  with a  view to ensuring  that Board procedures
and all applicable  laws, rules  and regulations  are followed.
c) The company secretary shall implement the recommendations made
by the Nomination and Governance Committee on training,
capacity building and professional development programs for the
directors.
d) The company  secretary  shall  maintain  the minutes  of Board
meetings together with the recordings of meetings  and such minutes
shall be  open  for inspection at  any reasonable  time, on  reasonable
notice  by any director or the regulator.

1.6 Maintenance of
Board Meeting
Minutes  Minutes of Board meetings shall be recorded in sufficient detail so that
it is possible to gather from the minutes as to whether the Board acted
with due care and prudence in performing  its duties. The minutes shall
also serve as a reference for regulatory and supervisory  authorities  to
assess  the depth  of deliberations  at the Board meetings.  Therefore,  the
minutes      of a Board meeting shall clearly  contain or refer to the
following:
a) a summary of data  and information and justifications/rationale used
by the Board in its deliberations;
b) the matters considered by the Board;
c) the fact -finding discussions reflecting the issues of contention or
dissent which may illustrate whether the Board was carrying out its
duties with due care and prudence;
d) the testimonies and confirmations of relevant key management


d) the testimonies and confirmations of relevant key management
personnel  which indicate compliance with the Board’s strategies


8
 and policies and adherence to relevant laws and regulations
appropriately ;
e) the Board’s knowledge and understanding of the risks to which the
bank is exposed to , and an overview of the risk management
measures adopted; and,
f) the Board resolutions and decisions.

1.7 Obtaining
Independent
Professional
Advice  There shall be a procedure agreed by the Board to enable directors, upon
reasonable request, to seek independent professional advice in
appropriate circumstances, at the bank’s expense. The Board shall
resolve to provide separate independent professional a dvice to directors
to assist the relevant director or directors to effectively discharge the
duties.

1.8 Managing
Conflicts of
Interest  a) Directors shall avoid conflicts of interest, or the potential  conflicts
of interest, in the activities  with,  and commitments  to, other
organisations, related  parties and other stakeholders.
b) A director shall abstain from  participating in any discussion in
relation to a matter in which he/she or any of his/her close relation
or a concern in which he/she  has substantial interest, is interested ,
nor shall receive the access to the information pertaining thereto,
including accessing such information both physically and/or
electronically.
c) Directors shall ensure that the relationships between the directors
amongst themselves as well as between the directors , CEO and key
management personnel are at a level that does not result in excessive
familiarity, undue influence or coercion.
d) The Board shall approve and oversee the implementation of a policy
to identify and manage conflicts of interests, which shall include:
(i) a Board member’s duty to promptly disclose any matter that
may result, or has already resulted, in a conflict of interest;
(ii) a Board member’s duty to avoid, to the extent possible,
activities that could create conflicts of interest or the potential


activities that could create conflicts of interest or the potential
conflicts of interest including political affiliations;


9
 (iii) situations where conflicts may arise when serving as a Board
member;
(iv) a Board member’s responsibility to abstain from participating
in discussions on any Board decisions in relation to which
he/she or any of his/her close relation s or a concern in which
he/she  has substantial interest, is interested ; and,
(v) the measures to be taken in the event of any non -compliance
with the policy.

1.9 Requirement to
inform on
inability to meet
obligations  The Board shall,  if it considers  that the bank  is, or is likely  to be, unable
to meet its obligations or about  to become  insolvent  or is about  to
suspend  payments  due to depositors  and other creditors, forthwith
inform  the Director  of Bank  Supervision  of the situation  of the bank  prior
to taking  any decision or  action.

1.10 Compliance with
Prudential
Requirements
 The Board shall ensure that the bank is capitalized at levels as required
by the Central Bank of Sri Lanka in terms of the capital adequacy ratio
and other prudential requirements  imposed by the Central Bank of Sri
Lanka from time to time .

1.11 Annual Corporate
Governance
Report  The Board shall publish in the bank’s Annual Report, an Annual
Corporate Governance Report setting out the compliance with these
Directions.
2. Board’s
Composition  The Board’s composition shall ensure a healthy mix of knowledge,
qualifications, skills, experience in relevant disciplines, gender and
have varied backgrounds to promote diversity of views commensurate
with the size, scale, diversity and complexity of operations of the bank.
The qualifications and experience shall be i n banking, finance,
economics, accounting, business administration, information
technology, risk management, law or any other relevant discipline as
may be determined by the Central Bank  of Sri Lanka .
2.1 Procedure for
Appointing
Directors  a) There shall be a formal and transparent procedure for the


Appointing
Directors  a) There shall be a formal and transparent procedure for the
appointment of new  directors to the Board. There shall also be
Board approved procedures in place for the orderly succession of


10
 appointments  to the  Board.
b) A director or an employee of a bank  shall  not be appointed,  elected
or nominated  as a director of another  bank  except  where  such bank
is a subsidiary  company  or an associate  company  of the first
mentioned bank.

2.2 Number of
Directors  a) The number  of directors  on the  Board shall  not be  less than  7 and
not more than  13. The number of directors shall be  commensurate
with the size, scale, diversity and complexity of operations of the
bank.
b) The Board shall have at least one female representative by
31.12.2025 and the Boards with more than 10 members shall have
at least two female representatives by 31.12.2026.

2.3 Executive
Directors  A member of the key management personnel of the bank may be
appointed, elected or nominated as a director of the bank  (hereinafter
referred to as an “executive director”) provided that the number of
executive  directors  shall  not exceed  one-third  of the number  of directors
of the Board.  In such an event, one of the executive directors shall be
CEO of the bank.

2.4 Non-Executive
Directors  Non-executive directors shall be suitable professionals  with credible
track record  of good conduct and integrity and have necessary
knowledge,  skills and experience to bring an independent judgment to
effectively address  issues of strategy,  performance  and resources  and to
contribute towards the sustainability of the bank .

2.5 Independent
Directors  a) At least half of the  total number of directors shall be independent
non-executive directors. Licensed banks shall comply with this
Direction by 01.01.2027.
b) A non-executive  director  shall  not be considered independent if
he/she:
(i) has direct  and indirect  voting and/or non -voting shareholdings
of more  than 1 per cent of the bank;


11
 (ii) currently has or had during the period of two years
immediately preceding his/her appointment as director, any
business transactions with the bank as described in Direction
7.2, exceeding 10 per cent of the regulatory capital of the
bank;
(iii) has been employed by the bank during the two -year period
immediately preceding the appointment as director;
(iv) currently has or had during the period of two years
immediately preceding his/her appointment as director, a
material b usiness relationship with the bank;
(v) has a close relation who is a director or CEO or a member of
the key management personnel or a material shareholder of
the bank. For this purpose, a “close relation” shall mean the
spouse or a dependent child;
(vi) represents a specific stakeholder of the bank;
(vii) is an employee or a director or a material shareholder or has
a material business relationship in a company or business
organization;
a. which currently has a transaction with the bank as defined
in Direction 7.2 of these Directions, exceeding 10 per
cent of the regulatory capital of the bank, or
b. in which  any of the other  directors  of the bank  are
employed  or are directors  or    are material  shareholders
except for the appointments recommended by the
financial sector authorities, or,
c. in which any of the other directors of the bank have a
transaction as defined in Direction  7.2, exceeding 10 per
cent of regulatory capital in      the bank.
(viii) currently is or has been during the period of one year
immediately preceding his/her appointment as director,
serving as a consultant/ advisor or principal
consultant/advisor in the case of a firm providing consultancy
to the bank; and,


12
 (ix) currently is or has been during the period of one year
immediately preceding his/her appointment as director, an
engagement partner of a firm providing audit services to the
bank.
       The requirements of Direction 2.5 b) with extended compliance
dates  are provided in Schedule V.
c) The independent non -executive directors shall be expressly
identified in all corporate communications that disclose the names
of directors of the bank.

2.6 Representation
through Alternate
Directors
 a) Representation through an alternate director is allowed only in
exceptional circumstances as approved by the Board for a maximum
period of one year from the date of such appointment with prior
approval of the Director of Bank Supervision under the provisio ns
of Section 42 of the Banking Act.
b) In the event an alternate director is appointed to represent an
independent director, the person so appointed shall also meet the
criteria that applies to the independent director.
c) An existing director of the bank cannot be appointed as an alternate
director to another existing director of the bank.
d) An individual appointed as an alternate director to one of the
directors cannot be appointed as an alternate director to another
director in the same Board.
2.7 Quorum for the
Board Meetings  At least half of the Board members shall constitute the quorum for the
Board meetings. A meeting of the Board shall not be duly constituted,
although the number of directors  required  to constitute  the quorum  at
such meeting  is present,  unless  more  than one  third of  the   number of
directors present at such meeting are independent non -executive
directors. Licensed banks shall comply with this Direction by
01.01.2026.

3. Suitability of
Directors  A person who serves or wishes to serve as a director of a licensed bank
shall comply with the following requirements.


13
 3.1 Criteria to Assess
Fitness and
Propriety

 The provisions  of Section  42 and Section 76H of the Banking  Act
shall apply to determine the fitness and propriety of a person who serves
or wishes to serve  as a director  of a licensed bank.  Non-compliance
with any criteria  set out therein  shall disqualify  a person  to be appointed,
elected  or nominated  as a director  or to continue  as a director.  The prior
approval of the Director of Bank Supervision shall be obtained for
the fitness and propriety of each person to be appointed, elected or
nominated as a director of a licensed bank in terms of Section 42 and
Section 76H of the Banking Act.

3.2 Additional
Requirements for
Suitability of
Directors
 a) The age of  a person  who serves  as a director  shall  not exceed  70
years.
b) The total period of service of a director other than a director who
holds the position of CEO or key management personnel position
shall not exceed nine years.
c) A person shall not hold office as a director of more than 20
companies/entities/institutions inclusive  of subsidiaries  or associate
companies  of the bank.
d) Directors  shall have sufficient time to carry out the responsibilities
as a director of the bank.
3.3 Coolin g-Off
Period
 A director or CEO of a licensed bank operating in Sri Lanka shall not
be appointed as a director or CEO of another licensed bank operating
in Sri Lanka before the expiry of a period of six months from the date
of cessation of his/her office at the licensed  bank in Sri Lanka. Any
variation thereto in exceptional situations such as where expertise of
retiring bankers may be required when reconstituting Boards of
licensed banks which need restructuring, shall be subject to the prior
approval of the Central Ban k of Sri Lanka .

4. Delegation of
Functions  The Board shall comply with the following requirements in delegating
its functions.


14
 4.1 Division of
Responsibilities  There shall be a clear division of the responsibilities at the Board level
and the key management level to ensure a greater balance of power and
authority, so that powers are not concentrated in any individual.
4.2 Specific Matters
for Board
Decisions  The Board shall have a formal schedule of matters specifically reserved
for its decisions to ensure that the direction and control of the bank is
firmly under its authority.
4.3 Restrictions to
Delegate  The Board shall not delegate any matters to a Board committee, CEO,
executive directors or key management personnel, to an extent that such
delegation would significantly hinder or reduce the ability of the Board
as a whole to discharge its functions.
4.4 Review of
Delegation Process  The Board shall  review  the delegation  processes  in place  on a periodic
basis  to ensure  that they  remain relevant to the  needs  of the bank.
5. The Chairperson
and CEO  There are two key aspects of management of every bank, viz., (a) the
overall governance by the Board, and (b) the day -to-day management
of the bank’s business by CEO, in line with Board approved strategic
objectives, corporate values, overall risk policy and risk management
procedures .

5.1 Division of
Responsibilities
between
Chairperson and
CEO  The roles of Chairperson and CEO shall be separate and shall not be
performed by  the same  individual. The division of responsibilities
between Chairperson and CEO shall be clearly established and set out
in writing.
5.2 Suitability of the
Chairperson  a) The Chairperson shall be an independent non -executive director . In
the event the Chairperson becomes non -independent after the initial
appointment, as an interim arrangement, the Board shall designate
an independent director as the Senior Director for a period not
exceeding six months with suitably documented terms of reference.


exceeding six months with suitably documented terms of reference.
The designation  of the Senior  Director  shall  be disclosed in the
bank’s Annual Report.
b) Where a non -independent director is currently serving as the
Chairperson, such director may continue to serve as the Chairperson


15
 for a further period not beyond 31.12.2027, subject to applicable
laws and regulations including Direction  3.
c) A Chairperson appointed after the effective date of this Direction
shall be an independent non -executive director.

5.3 Responsibilities of
the Chairperson  The Chairperson shall:
a) provide leadership to the Board and ensure the Board works
effectively and  duly discharges its responsibilities;
b) ensure that all key and appropriate  issues  are discussed by  the Board
in a timely  manner;
c) approv e the agenda for  each Board meeting, considering where
appropriate, any matters proposed by the  other  directors  for
inclusion  in the agenda.  The Chairperson  may delegate  the
preparation of agenda to the  company  secretary ;
d) ensure that all directors are properly briefed on issues arising at
Board  meetings  and also ensure  that directors  receive  adequate
information  in a timely  manner;
e) encourage  all directors  to make  a full and active  contribution  to
the Board’s affairs and take the lead to ensure that the Board acts in
the best interests of the bank;
f) facilitate the effective contribution of non -executive directors in
particular and ensure constructive discussions  between executive
and non -executive directors;
g) encourage all directors to make critical and constructive discussions
at the Board meetings and ensure that dissenting views can be freely
expressed and discussed within the decision -making process;
h) not engage  in activities  involving  direct  supervision  of key
management personnel, other employees  or any other  executive
duties  whatsoever; and,
i) ensure  that appropriate  steps  are taken  to maintain  effective
communication with shareholders and that the views of
shareholders are communicated to  the Board .


16
 5.4 Conduct of CEO
 a) CEO shall function as the apex executive -in-charge of the day -to-
day management of the bank’s operations and business and shall not
hold any other executive functions .
b) CEO shall not be appointed or nominated as an employee or a
director of another licensed bank or any other
company/institution/entity except as a non -executive director of a
subsidiary or an associate company of the licensed bank .
c) In the event CEO is appointed as a non -executive director of a
subsidiary or an associate company of the licensed bank, he/she
shall ensure that such duties do not affect the effective discharge of
responsibilities as CEO.
5.5 Suitability of CEO
 The person appointed as CEO shall be a fit and proper person to hold
such position  in terms of Section 44A and Section 76H of the Banking
Act, and shall possess sufficient authority, stature, knowledge,
competencies, and expertise in the core banking functions given the
size, scale, diversity and complexity of operations of the bank .

6. Board
Committees  Each  licensed bank  shall have at least five Board  committees  as set out in
Directions  6.2 – 6.6 of these Directions.
6.1 Requirements for
the Board
Committees  a) Each committee shall report directly to the Board.
b) Board shall set out the authority of each committee, and in particular,
whether the committee has the authority to act on behalf of the Board
or simply has the authority to examine a particular issue and report
back to the Board with recommendations.
c) Each committee shall have a Board approved Terms of Reference.
d) All committees shall appoint a secretary to inter alia arrange the
meetings and maintain minutes, records in sufficient detail, under
the supervision of the Chairperson of the committee. The minutes of
all committees shall be submitted to the Board .
e) The quorum of each committee shall consist of at least half of the
committee members.


e) The quorum of each committee shall consist of at least half of the
committee members.
f) The Board shall present a report on the performance of each
committee, on the duties and roles at the annual general meeting.


17
 6.2 Audit Committee  a) The Chairperson  of the Committee  shall  be an independent
director  and is not the chair of the Board or any other  Board
committee and shall p ossess qualifications and experience in
finance , accounting and/or auditing, with a membership of a
recognized professional accounting body.
b) All members of the Committee shall be non -executive directors,
with a majority of independent directors. The members shall
possess a collective balance of skills and expert knowledge in
financ e, accounting and auditing commensurate with size, scale,
diversity and complexity of operations of the bank.
c) A majority of the members of the Committee shall not be
constituted by the members of the Integrated Risk Management
Committee and vice -versa.
d) The Committee shall make recommendations on matters in
connection with:
(i) the appointment of the external auditor for audit services to be
provided in compliance  with the relevant  statutes;
(ii) the implementation of the Central Bank guidelines issued to
external auditors from time to time;
(iii) the application of the relevant accounting standards; and
(iv) the service  period,  audit  fee and any resignation  or dismissal
of the external auditor, provided that the engagement of the
external auditor shall not exceed six years and shall change the
particular engagement partner once in every  three  years.
e) The Committee shall review and monitor the external auditor’s
independence, integrity, objectivity and the effectiveness of the
audit processes in accordance with applicable standards and best
practices.
f) The Committee shall develop and implement a policy on the
engagement of an external   auditor to provide non -audit services
that are permitted under the Guidelines issued by the Central Bank
of Sri Lanka to External Auditors. The Committee shall ensure that


18
 the provision by an external auditor of non -audit services does not
impair the external auditor’s independence or objectivity. When
assessing the external auditor’s independence or objectivity in
relation to the provision of non -audit services, the  Committee shall
consider:
(i) whether the skills and experience of the audit firm make it a
suitable provider of the non -audit services;
(ii) whether there are safeguards in place to ensure that there is no
threat to the objectivity and/or independence in the conduct of
the audit resulting from the provision of such services by the
external auditor; and,
(iii) whether the nature of the non -audit services, the fee levels
individually and in aggregate relative to the audit firm, pose
any threat to the objectivity and/or independence of the
external auditor.
g) The Committee shall, before the audit commences, discuss and
finalise with the external auditor, the nature and scope of the audit,
including:
(i) an assessment of the bank’s compliance with the relevant
Directions in relation to corporate governance and the
management’s internal control over financial reporting;
(ii) the preparation of the financial statements for external
purposes in accordance with relevant accounting principles
and reporting obligations; and
(iii) the co -ordination between firms where more than one audit
firm is involved.
h) The Committee shall review the accounting policies/systems and
the internal control framework with a view to ensuring greater
transparency and integrity of the bank’s financial reporting process
and the adequacy of accounting and other internal controls.
i) The Committee shall review the financial information of the bank,
in order to monitor the integrity of the financial statements of the


19
 bank, its annual report, accounts and quarterly reports prepared for
disclosure, and the significant financial reporting judgements
contained therein. In reviewing the bank’s annual report and
accounts and quarterly reports before submission to the Board, the
committee shall focus particularly on:
(i) major judgmental areas;
(ii) any changes in accounting policies and practices;
(iii) significant adjustments arising from the audit;
(iv) the going concern assumption; and
(v) the compliance with relevant accounting standards and other
legal requirements.
j) The Committee shall discuss issues, problems and reservations
arising from the interim and final audits, and any matters the
external auditor may wish to discuss including those matters that
may need to be discussed in the absence of CEO and key
management pers onnel, if necessary.
k) The Committee shall review the external auditor’s management
letter and the management’s response thereto.
l) The Committee shall take the following steps with regard to the
internal audit function of the bank:
(i) Review the adequacy of the scope, functions and resources of
the internal audit  department, and satisfy itself that the
department has the necessary authority to  carry  out its work;
(ii) Review the internal audit programme and results of the
internal audit process and, where necessary, ensure that
appropriate actions are taken on the recommendations of the
internal audit department;
(iii) Review any appraisal or assessment of the performance of the
Chief Internal Auditor (CIA) and senior staff members of the
internal audit department;
(iv) Recommend any appointment or termination of CIA, senior


20
 staff members and outsourced service providers to the internal
audit function;
(v) Ensure that the committee is apprised of  resignations of senior
staff members of the internal audit department including CIA
and any outsourced service providers, and to provide an
opportunity to the resigning senior staff members and
outsourced service providers  to submit reasons for resigning;
and,
(vi) Ensure that the internal audit function is independent of the
activities it audits and that it is performed with impartiality,
proficiency and due professional care.
m) The Committee shall consider the major findings of internal
investigations and management’s responses thereto.
n) Other Board members, CEO, CIA, the Chief Financial Officer
(CFO), the Chief Risk Officer (CRO), the Chief Compliance
Officer (CCO), any other key management personnel and a
representative of the external auditors may attend meetings upon the
invitation of the Committee for the relevant agenda item. However,
at least twice a year, the Committee shall meet with the external
auditors without the executive directors being present.
o) The Committee shall have: (i) explicit authority to investigate into
any matter within its terms of reference; (ii) the resources which it
needs to do so; (iii) full access to information; and (iv) authority to
obtain external professional advice and to invite outsiders with
relevant experience to attend, if necessary.
p) The Committee shall meet regularly, with due notice of issues to be
discussed and shall record its conclusions in discharging its duties
and responsibilities.
q) The secretary of the Committee (who may be the company  secretary
or CIA ) shall record and keep detailed minutes of the Committee
meetings.
r) The Committee  shall:


21
 (i) ensure effective implementation of the Board approved
whistleblowing policy; and,
(ii) ensure that proper  arrangements are in place for the fair and
independent investigation of such matters  and for appropriate
follow -up action.
s) The Committee shall act as the key representative  body  for
overseeing the bank’s relations with the external auditor.

The requirements of Direction 6.2 with extended compliance dates
are provided in Schedule V.
6.3 Human  Resources
and Remuneration
Committee
 The Committee shall:
a) be chaired by a director who is not the chair of the Board and
preferably independent;
b) preferably be constituted with a majority of independent directors;
c) require CEO to be present at the meetings upon invitation, except
when matters relating to CEO are being discussed;
d) determine the remuneration policy in relation to salaries,
allowances, special payments/benefits made at termination or
retirement, and other financial and non -financial benefits made to
directors, CEO and the key management personnel ;
e) set goals and targets for the directors, CEO and the key management
personnel;
f) evaluate the performance of CEO and the key management
personnel against the set targets and goals periodically and
determine the basis for revising remuneration, benefits and other
payments of performance -based incentives;
g) ensure that the prior written approval of the shareholders is obtained
for any special payments/ financial and non -financial benefits to be
made to the directors, CEO and key management personnel at the
termination of employment or at the retirement. In th e case of
licensed banks where the Government of Sri Lanka holds fifty per
cent or more of issued capital carrying voting rights of the bank,
such prior approval shall be obtained from the Secretary to the


22
 Treasury;
h) coordinate with the Integrated Risk Management Committee to
ensure that the compensation made to directors, CEO and key
management personnel is within the risk appetite limits of the bank;
and,
i) establish a policy on claw -back arrangements for performance -
based payments made to CEO and key management personnel of
the licensed bank under the circumstances of inter alia  fraud and
misappropriation of funds, to the extent of the financial loss caused
to the licensed bank. Such policy shall articulate the process to be
followed by the licensed bank prior to giving effect to the claw back
arrangements ensuring procedural pro priety, fair hearing and
transparency. The claw -back procedure of the licensed ba nk shall
be incorporated into the employment contracts of CEO and key
management personnel and a similar arrangement shall be
implemented for the existing CEO and key management personnel.

The requirements of Direction 6.3 with extended compliance dates
are provided in Schedule V.
6.4 Nomination  and
Governance
Committee:
 The Committee shall:
a) be chaired  by an independent  director  who is not the chair of the
Board and shall  be constituted with a majority of independent
directors. CEO may be present at  meetings  by invitation except
when matters relating to CEO are being discussed;
b) implement a formal and transparent procedure to identify, nominate
and recommend new directors, CEO and the key management
personnel;
c) ensure the directors, CEO and the key management personnel are
fit and proper persons to hold office as specified in the criteria given
in Direction s 3 and 8.2 and as  set out  in the applicable laws and
regulations;
d) obtain the views of the Integrated Risk Management Committee in
selecting CRO and CCO and that of the Audit Committee in


23
 selecting CIA;
e) consider  and recommend  (or not recommend)  the re-election  of
current  directors,  through periodic evaluation of the performance
and contribution  made  by the director concerned towards the
overall discharge of the Board’s responsibilities;
f) quarterly evaluate the status of independence of the independent
non-executive directors in terms of the Direction 2.5 b) and whether
such directors have any conflict s of interest that may impede the
ability to perform duties independently and notify the changes to
the independent status (if any) to the Director of Bank Supervision;
g) set the criteria such as qualifications, experience and key attributes
required for eligibility to be considered for appointment or
promotion to the post of CEO  and the  key management  positions;
h) consider and recommend from time to time, the requirements of
additional/new expertise  to the Board  and the succession
arrangements for retiring directors ;
i) ensure  that the bank  has a robust succession  plan for CEO and the
key management personnel with an effective and transparent
process to:
(i) identify qualified and competent persons (internal/external)
to fulfil the positions of CEO and key management personnel
for succession in short, medium and long term given the size,
scale, diversity and complexity of operations of the bank;
(ii) groom the selected successors for the respective positions by
identifying and mitigating the skill/knowledge gaps for the
respective area; and,
(iii) review the succession plan at least on an annual basis .
j) ensure that the directors are updated on the applicable laws,
regulations, macroeconomic policies, latest technological
developments and emerging financial sector and market
developments relevant to the banking industry on a continuous
basis;
k) identify the training needs of the directors and make


24
 recommendations to the Board relating to training, capacity
building and professional development programs for the directors
on a regular basis;
l) review the structure, size, qualifications and composition of the
Board and Board committees to ensure effective discharge of duties
and responsibilities; and,
m) ensure that the overall corporate governance framework and
policies of the bank are reviewed, updated and effectively
implemented considering all applicable laws and regulations and
industry/international best practices.

The requirements of Direction 6.4 with extended compliance dates
are provided in Schedule V.
6.5 Integrated Risk
Management
Committee  The Committee shall:
a) be chaired by an independent director who is not the chair of the
Board or any other Board committee;
b) consist of at least three non -executive directors with a majority of
independent directors. The Committee members shall have sound
collective experience in risk management issues and practices in
relation to banking and/or financial services;
c) A majority of the members of the Committee shall not be
constituted by the members of the Audit Committee and vice -versa;
d) require CEO, CRO, CCO and key management personnel
supervising broad risk categories, i.e., credit,  market, liquidity,
operational and strategic risks to attend the meetings on needs basis;
e) work with key  management personnel very closely and make
decisions on behalf of the Board within  the framework of  the
authority and  responsibility  assigned  to the Committee;
f) establish an independent risk management function responsible for
integrated risk management of the bank;
g) assess all risks, i.e., credit, market, liquidity, operational,
information security and strategic risks to the bank on a monthly
basis through appropriate risk indicators and management


25
 information. In the case of subsidiary companies and associate
companies, risk management shall be conducted, both on solo and
consolidated  basis;
h) advise and report to the Board on the bank’s exposures against the
risk appetite;
i) oversee the functioning of CRO. The Committee shall receive
regular reports and communication from CRO and other relevant
functions with respect to the risk profile, exposures against the
established risk appetite limits and limit breaches;
j) oversee the strategies implemented by CEO and the key
management personnel for capital and liquidity management and
management of all relevant risks of the bank, such as credit, market,
operational, information security and strategic risks, to ensure
consi stency with the stated risk appetite;
k) review the adequacy and effectiveness of all management level
committees  that are related to risk taking activities, such as the
credit  committee  and the asset -liability  committee  to address
specific risks and to manage those risks within quantitative and
qualitative risk limits as specified by the Committee;
l)  take prompt corrective action to mitigate the effects of specific
risks where  such risks  are at levels  beyond  the prudent  levels
decided  by the Committee on the basis of the bank’s policies and
regulatory and supervisory requirements;
m) meet at least quarterly to assess all aspects of risk management
including updated business continuity plans;
n) take prompt corrective actions against the Officers responsible for
failure to identify specific risks as recommended by the Committee;
o) submit a risk assessment report within a week of each meeting to
the Board seeking the Board’s views, concurrence and/or specific
directions;
p) establish a compliance function to assess the bank’s compliance
with laws, regulations, regulatory guidelines and approved policies
on all areas of business operations. A dedicated compliance officer


26
 selected from key management personnel shall carry out the
compliance function and report to the Committee periodically;
q) establish an effective communication and coordination mechanism
with the Audit Committee to facilitate exchange of information to
ensure effective management of all risks, including emerging risks,
and any adjustments needed to the integrated risk manageme nt
framework of the bank; and,
r) without prejudice to the tasks of the Human Resources and
Remuneration Committee, examine whether the incentives
provided to the employees take into consideration the levels of risk,
capital, liquidity and earnings of the bank.
The requirements of Direction 6.5 with extended compliance dates
are provided in Schedule V.
6.6 Related Party
Transactions
Review Committee
 The Committee shall:
a) be chaired by an independent director who is not the chair of the
Board;
b) consist of at least three non -executive directors with a majority of
independent directors. CEO  and relevant key management
personnel  may attend the meetings on need basis only for the
relevant agenda items;
c) ensure that a clear policy, procedures and processes are in place for
identifying, monitoring and reporting related party transactions on
an on -going basis in line with applicable laws and regulations;
d) review the related party transactions of the bank including the
transactions defined in Direction. 7.2, particularly with the persons
who shall be considered as “related parties”, as defined in Direction
7.1, with a view to avoiding any conflicts of interest that may arise
from such transactions;
e) quarterly report to the Board, the details of related parties, related
party transactions and economic consequences of the related party
transactions;
f) ensure that a director abstains from participating in discussions on
any Board decision on transactions in relation to the director or any


27
 of his/her close relation or a concern in which the director has
substantial interest;  and,
g) ensure that the bank does not engage in transactions with related
parties as defined in Direction  7.1 in a manner that would grant such
parties “more favourable treatment” than that accorded to other
constituents of the bank carrying on the same business. In this
context, “more favourable treatment” shall mean:
(i) granting of “total net accommodation” to related parties,
exceeding a prudent percentage of the bank’s regulatory
capital, as determined by the Board. For purposes of this sub -
direction;
a. “Accommodation” shall mean accommodation as defined
in the Banking Act Directions on Maximum Amount of
Accommodation/ Large Exposures.
b. The “total net accommodation” shall be computed by
deducting from the total accommodation, the cash
collateral and investments made by such related parties in
the bank’s share capital and debt instruments with a
maturity of 5 years or more.
(ii) charging of a lower rate of interest than the bank’s best lending
rate or paying more than the bank’s deposit rate for a
comparable transaction with an unrelated comparable
counterparty;
(iii) providing of preferential treatment, such as favourable terms,
covering trade losses and/or waiving fees/commissions, which
extend beyond the terms granted in the normal course of
business undertaken with unrelated parties;
(iv) providing services to or receiving services from a related party
without an evaluation procedure; and
(v) maintaining reporting lines and information flows that may
lead to sharing potentially proprietary, confidential or
otherwise sensitive information with related parties, except as
required for the performance of legitimate duties and functions.


28

Listed licensed banks and unlisted licensed banks shall comply with
Direction 6.6 by 01.01.2025 and 01.01.202 7, respectively.
7. Related Party
Transactions  The following requirements shall apply to related party transactions
of licensed banks.
7.1 Related Parties  The categories of persons considered as “related parties” for the
purpose of this Direction  are as follows .
a) a director of a licensed bank;
b) close relations of such director;
c) a concern in which a director of a licensed bank has a substantial
interest, being an interest acquired either before or after the
appointment as a director of such licensed bank;
d) a concern in which a close relation of a director of a licensed bank
has a substantial interest;
e) a chief executive officer or an officer performing executive
functions of a licensed bank in respect of any accommodation
granted other than an accommodation granted to such officer under
a scheme applicable to the employees of such licensed bank;
f) a shareholder of a licensed bank having material interest, whether
individual or a concern;
g) a subsidiary or an associate company of the licensed bank;
h) a holding company of the licensed bank including its subsidiaries,
excluding the parent bank and subsidiaries of a bank incorporated
outside Sri Lanka;
i) a director of a subsidiary or an associate company of the licensed
bank;
j) a director of a holding company of the licensed bank and its
subsidiaries;
k) a close relation of a person specified in Direction 7.1 (e) and (f)
above;
l) a concern, whose director or partner is a director of such bank;
m) a concern in which a material shareholder of a licensed bank has
substantial interest; and,


29
 n) a concern in which a close relation of an individual material
shareholder has substantial interest.
7.2 Type of Related
Party Transactions  The type of transactions  with related  parties  that shall  be covered  by
this Direction  shall include the following .
a) The grant of any type of accommodation, as defined in the Banking
Act Directions on Maximum Amount of Accommodation/ Large
Exposures  of Licensed Banks.
b) The creation of any liabilities of the bank in the form of deposits,
borrowings and investments .
c) The provision of any services of a financial or non -financial  nature
provided to the bank or received from the bank .
d) The creation or maintenance of reporting lines and information
flows between the bank and any related parties which may lead to
the sharing of potentially proprietary, confidential or otherwise
sensitive information that may give benefits to such related p arties.
7.3 Applicability of
Banking Act
Provisions  Licensed banks shall ensure compliance with the provisions of  Section
47 and Section 76K of the Banking Act, with respect to accommodation
granted to any of its related parties defined in Direction 7.1 as
applicable, except for any accommodation granted to a CEO or a
member of the key management personnel under a scheme applicable
to the employees of the bank.
7.4 Accommodation
Granted to
Director s and
Connected Parties   Where any accommodation has been granted by a  licensed  bank to a
person or to a close relation of a person or to any concern in which the
person has a substantial interest, and such person is subsequently
appointed as a director of the bank, and if:
a) the necessary security as approved by the Central Bank  of Sri Lanka
is not provided, within one year from the date of appointment of
such person as a director; and,
b) any amount due on account of such accommodation, together with
interest, if any, is not settled within the period specified at the time


interest, if any, is not settled within the period specified at the time
of grant of accommodation or at the expiry of a period of eighteen
months from the date of appointment of the director, whichever is
earlier, in the event such security is not provided by the period as


30
 provided in a) above;
such director shall be deemed to have vacated the office of director.
This Direction, however, shall not apply to a director who at the time
of the grant of the accommodation was an employee of the bank and the
accommodation was granted under a scheme appl icable to all
employees of such bank.
7.5 Accommodation
granted to
Employees  A bank shall not grant any accommodation or “more favourable
treatment” relating to the waiver of fees and/or commission to any
employee or a close relation of such employee or to any concern in
which the employee or close relation has a substantial intere st other than
on the basis of a scheme applicable to the employees of such bank or
when secured by security as may be approved by the Central Bank of
Sri Lanka in respect of accommodation granted as per Sections 47(3)
and (5) of the Banking Act.
7.6 Writing -off of
Accommodation to
Related Parties  No accommodation granted  by a licensed bank  to related parties given
in Direction  7.1, nor any part of such accommodation, nor any interest
due thereon shall be written -off without the prior approval of the
Central Bank  of Sri Lanka  and any writing -off without such approval
shall be void and of no effect.
8. Senior
Management  The senior management shall mean CEO and the key management
personnel of the licensed bank for the purpose of this Direction.
8.1 Board Oversight
on Senior
Management  The overall responsibility of the Board shall not be construed as an
obligation to undertake the inspection of day -to-day activities, but shall
rather be understood as an obligation to oversee and ensure that the
senior management members are carrying out the day -to-day activities
in a safe and sound manner in accordance with the Board a pproved
strategies and policies. Accordingly, the Board shall:
a) define the areas of authority and responsibilities of the senior
management;


a) define the areas of authority and responsibilities of the senior
management;
b) ensure  that the actions of senior management are consistent with the
business strategy and policies approved by the Board;


31
 c) meet regularly, on needs basis, with the senior management to
review the progress towards achieving corporate objectives;
d) question and critically review explanations and information
provided by the senior management;
e) assess whether collective knowledge and expertise of the senior
management remain appropriate given the size, scale, diversity and
complexity of operations of the bank; and,
f) hold the senior management members accountable for the actions.

8.2 Criteria to Assess
the Fitness and
Propriety of Senior
Management
 In terms of Section 44A and Section 76H of the Banking Act, the senior
management of licensed banks as determined by the Central Bank of
Sri Lanka shall be fit and proper persons to hold such respective
positions and the provisions of Sections 42(2) of the Banking Act shall
apply in determining whether the members  of the senior management
are fit and proper persons.
8.3 Responsibilities of
Senior
Management
 Senior management members shall:
a) contribute substantially to a licensed bank’s sound corporate
governance framework through personal conduct;
b) devote sufficient professional time to discharge his/her duties at the
licensed bank. In the event a senior management member is
appointed as a non -executive director of a subsidiary or an associate
company of the licensed bank, he/she shall ensure that su ch duties
do not affect the effective discharge of responsibilities to the bank;
c) implement business strategies, risk management systems, risk and
compliance culture, processes and controls for managing both
financial and non -financial risks under the directions given by the
Board;
d) recognize and respect the independent duties of the risk
management, compliance and internal audit functions and shall not
interfere in the exercise of such duties;
e) receive access to regular training to maintain and enhance
competencies and keep abreast of developments relevant to the


competencies and keep abreast of developments relevant to the
respective areas of responsibility;


32
 f) be responsible for delegating duties to staff and overseeing such
delegated duties;
g) establish a management structure that promotes accountability and
transparency throughout the bank;
h) ensure that appropriate remedial or disciplinary action is taken if
breaches are identified;
i) regularly provide the Board and the Board sub -committees as
applicable with the information of material matters including but
not limited to;
(i) changes in business strategy, risk strategy/risk appetite,
(ii) the bank’s performance and financial condition,
(iii) breaches of risk limits or compliance rules,
(iv) internal control failures, and,
(v) legal or regulatory concerns.
j) notify the Director of Bank Supervision upon becoming aware of
any material information that may negatively affect the fitness and
propriety of a Board member or another senior management
member.
9. Disclosures  Licensed banks shall comply with the following requirements with
respect to disclosure of information .

9.1 Board
Responsibilities on
Disclosures  The Board shall ensure adequate and timely public disclosures of
relevant information including but not limited to key performance
indicators, capital adequacy, liquidity, business concentrations, related
party transactions, corporate governance, financial statements, etc.,  are
made with a view to facilitating enhanced market d iscipline and
transparency commensurate with the size, scale, diversity and
complexity of operations of the bank. The Board shall ensure that
annual audited financial statements and quarterly financial statements
are prepared and published in accordance wi th the formats prescribed
by the supervisory and regulatory authorities and applicable accounting
standards.


33
 9.2 Minimum
Disclosures to be
made in the
Annual Report  The Board shall ensure that the following minimum disclosures are
made in the Annual Report.
a) A statement to the effect that the annual audited financial statements
have been prepared in line with applicable accounting standards and
regulatory requirements, inclusive of specific disclosures.
b) A report by the Board on the bank’s internal control mechanism
which  confirms the financial reporting system has been designed to
provide reasonable assurance regarding the reliability of financial
reporting, and the preparation of financial statements for external
purposes has been done in accordance with relevant account ing
principles and regulatory requirements.
c) The external auditor’s certification on the effectiveness of the
internal control mechanism referred to in b) above. The Assurance
Report issued by the Auditors under “Sri Lanka Standard on
Assurance Engagements SLSAE 3050 – Assurance Reports for
Banks on Directors’ Statements on Internal Control” may be used
as a substitute disclosure in this regard.
d) Details of directors, including names, transactions with the bank and
the total fees/remuneration paid by the bank.
e) Total net accommodation granted to each category of related
parties. The net accommodation granted to each category of related
parties shall also be disclosed as a percentage of the bank’s
regulatory capital.
f) The aggregate values of remuneration paid by the bank to its CEO
and the key management personnel and the aggregate values of the
transactions of the bank with its CEO and key management
personnel, set out by broad categories such as remuneration paid,
accommodation granted, and deposits or investments made in the
bank.
g) Details of Board committees including (i) details of the key
activities of each Board committee during the year; (ii) the number
of meetings of each committee held in the year; and (iii) attendance


of meetings of each committee held in the year; and (iii) attendance
of each individual director at such meetings.


34
 h) The following  shall be disclosed in the Annual Corporate
Governance Report:
(i) the external auditor’s certification of the compliance with
these Directions, clearly demonstrating the compliance status
of the licensed bank with each sub -direction;
(ii) the composition of the Board, by category of directors,
including the names of the Chairperson, executive directors,
non-executive directors and independent non -executive
directors; and,
(iii) the identity of the Chairperson and CEO and the nature of any
relationship including financial, business, family or other
material/ relevant relationship(s), if any, among the
Chairperson, CEO and the members of the Board.
i) A report setting out details of the compliance with prudential
requirements, regulations, laws and internal controls and measures
taken to rectify any material non -compliances.
j) A statement of the regulatory and supervisory concerns on lapses in
the bank’s risk management, or non -compliance with these
Directions that have been communicated  by the Director of Bank
Supervision, or administrative fines imposed by the Central Bank  of
Sri Lanka , if so directed by the Central Bank  of Sri Lanka  to be
disclosed to the public, together with the measures taken by the bank
to address such concerns.
k) The aggregate value of total non-statutory special payments/
financial or non -financial benefits made to directors, CEOs and key
management personnel at the termination of employment or at the
retirement during the respective financial year.


35
 9.3 Disclosures to be
made on
Resignation,
Removal or
Vacation of Office
of Directors  If a director resigns or is removed or is deemed to have vacated the
office of director due to regulatory non -compliances and/or as decided
by the Board, the Board shall disclose the director’s resignation or
removal or the status of being deemed vacated the office and the
reasons for same in the official website of the licensed bank, including
but not limited to information relating to the relevant director’s
disagreement with the bank, if any.
10. Banks
Incorporated
Outside Sri Lanka  Banks incorporated outside Sri Lanka shall comply with the following
requirements.
10.1 Applicability of
the Directions  These Directions shall apply to the banks incorporated outside Sri
Lanka to the extent that it is not inconsistent with the regulations and
laws applicable in such bank’s country of incorporation . Accordingly,
the banks incorporated outside Sri Lanka shall comply with the
requirements of these Directions as applicable, based on the existing
governance frameworks/structures that are laid down by the Head
Office or the Regional Office.
10.2 Submission of
Information  The banks incorporated outside Sri Lanka shall submit  the following
information to the Director of Bank Supervision on an annual basis.
a)  Information required by Direction 9.2 except Direction 9.2 d), g)
and h) together with the annual audited financial statements. The
Reports referred to in Directions 9.2 b) and i) shall be prepared by
the Head Office or the Regional Office supervising Sri Lankan
operations.
b) The following details within one month after the  closure of the
financial year :
(i) a list of all management level committees functioned during the
financial year together with the meeting dates and the key
subject matters discussed at each meeting ;
(ii) copies of Terms of Reference for all management committees
approved by the relevant authority ;


36
 (iii) composition of each committee: Names and designations of the
members ; and,
(iv) details of functional reporting lines of the branch to the Head
Office and/or the Regional Office that were in effect during the
year.
c) A copy of the parent bank’s annual corporate governance report
within five months after the closure of its financial year .
11. Conflict with
Articles of
Association  In the event of a conflict between any of the provisions of these
Directions and the Articles of Association (or Internal Rules) pertaining
to any bank, the provisions of these Directions shall prevail. In the event
the Articles of Association of an individual bank set a more stringent
standard than that specified in this Direction, such provisions in the
Articles of Association may be followed.


37
 12. Interpretations  1.1 “Duty of care” shall mean the duty of  a director of a licensed bank
to act and take decisions with skill, care, prudence and due diligence
in the performance of his duties of such bank .
1.2 “Duty of loyalty” shall mean the duty of the Board of directors to
act in good faith in the interest of the bank, for the purpose of these
Directions.
1.3 “Key management personnel” shall mean the Officers performing
executive functions as referred to in the Banking Act Determination
No. 01 of 2019 on Assessment of Fitness and Propriety of Chief
Executive Officer and Officers Performing Executive Functions in
Licensed Banks.
1.4 “Material business relationship” shall mean a relationship resulting
in income/noncash benefits equivalent to 20 per cent of the
director’s annual income and any  income/noncash benefits received
by such director which are applicable on a uniform basis to all non -
executive directors on the Board shall not be considered for this
purpose.
1.5 “Board of directors in the case of a bank incorporated outside Sri
Lanka” shall mean the Head Office or the Regional Office of such
licensed bank that supervises the respective branch or a
management committee, for which the powers on overseeing the
manage ment have been delegated by such Head Office or the
Regional Office, as the case may be, to act as the Board of directors
of such branch.
1.6  “Regulatory capital” shall mean the to tal capital reported in the
latest computation of the Total Capital in terms of the Banking Act
Direction No. 01 of 2016 on Capital Requirements under Basel III,
as at the end of the preceding financial year or immediately
preceding quarter, subject to cert ification by the external auditor.
1.7 “Financial sector authority” shall be as defined in the Central Bank
of Sri Lanka Act, No. 16 of 2023.


38
 Schedule II

Responsibilities of the Risk Management Function

Every licensed bank shall establish an independent risk management function as per the
requirements of this Schedule in addition to the Banking Act Directions No. 07 of 2011 on
Integrated Risk Management Framework for Licensed Banks

1. The Integrated Risk Management Committee shall establish an effective independent risk
management function which shall be a part of the second line of defence, under the
direction of a Chief Risk Officer (CRO).
2. CRO shall be a member of the key management personnel, and in the case of Domestic
Systemically Important Banks (D -SIBs), he/she shall be in the immediate layer below the
level of CEO in the organizational structure .
3. CRO shall possess sufficient stature, independence, knowledge, skills and expertise in
risk management and shall be fit and proper to hold such position in terms of the Section
44A and Section 76H of the Banking Act.
4. CRO shall be independent from the other executive functions of the bank and shall not
have management or financial responsibility related to any operational business lines or
revenue generating functions.
5. The Chief Operating Officer, Chief Compliance Officer, Chief Financial Officer, Chief
Internal Auditor, or any other key management personnel shall not serve as CRO.
6. Appointment, dismissal and other changes to CRO position shall be recommended by the
Integrated Risk Management Committee to the Board.
7. The primary responsibilities of CRO shall include but not limited to:
7.1 implement the Board approved integrated risk management framework which
covers (i) risk management policies,  processes and procedures (ii) material risk
exposures and the sources of such risks (iii) mechanisms of identifying, assessing,
monitoring and reporting of such risks (iv) reviewing of bank's  exposures against
the risk appetite framework and risk limits (v) quantitative and qualitative risk


the risk appetite framework and risk limits (v) quantitative and qualitative risk
analysis methods including stress testing and (vi) effective risk control and
prudential risk mitigation methods in terms of the Banking Act Directions No.  07
of 2011 on Integrated Risk Management Framework for Licensed Banks;


39
 7.2 actively engage in assessing material risks individually and in aggregate and
measuring the bank’s exposure against risk appetite limits;
7.3 establish an early warning or trigger system for breaches of the bank’s risk appetite
limits;
7.4 implement necessary measures to strengthen the staff skills and to enhance the risk
management systems, policies, processes and reports on an on -going basis to
ensure that the bank’s risk management capabilities are sufficiently robust and
effective to mee t the strategic objectives of the bank;
7.5 regularly report and communicate to the Integrated Risk Management Committee
on the risk profile, current state of the risk culture, exposures against the established
risk appetite limits and limit breaches in a timely and accurate manner to take
informed decisions;
7.6 support the Board in its oversight of the development of the bank’s risk appetite
framework including the risk limit structure;
7.7 outline actions to be taken when the approved risk appetite limits are breached,
including disciplinary actions for excessive risk -taking, escalation procedures and
notifications to the Board; and,
7.8 participate in key decision -making processes of the bank, e.g., strategic planning,
capital and liquidity planning, new products and services , etc.
8. The risk management function shall be independent of any responsibilities related to
the first line of defence, the compliance function and the third line of defence and shall
not be involved in revenue generation. However, the risk management function sha ll
ensure effective coordination and communication with business and operational units
and the internal audit function of the bank to facilitate exchange of information for
effective risk management.
9. The risk management function shall have a sufficient number of employees who possess
the requisite experience and qualifications, including market and product knowledge and


the requisite experience and qualifications, including market and product knowledge and
the command of risk disciplines.


40
 Schedule I II
Responsibilities of the Compliance Function

Every licensed bank shall establish an independent compliance function as per the requirements of
this Schedule in addition to the Circular dated 14.09.1998 on Appointment of Compliance Officers.
1. The Integrated Risk Management Committee shall establish an effective independent
compliance function as a part of the second line of defence and approve the bank’s policies
and processes for identifying, assessing, monitoring, reporting and advising on co mpliance
risk, providing sufficient authority, stature, independence, resources and access to the
Board.
2. The Board through the Integrated Risk Management Committee shall establish a
compliance policy that inter alia contains the basic principles of compliance and the main
processes by which compliance risks are to be identified and managed through all levels
of the bank.
3. The compliance function shall be responsible for ensuring that the bank operates with
integrity in compliance with applicable laws and regulations.
4. The compliance function shall proactively assess compliance risk faced by various
activities undertaken by the first line of defence together with ensuring remediation on
gaps observed during the assessment.
5. The compliance function shall be independent of any responsibilities related to the first
line of defence, the risk management function and the third line of defence.
6. The compliance function shall have full and unconditional access to bank's records,
physical properties, management information systems and minutes of all
consultative/decision making bodies.
7. A dedicated person with sufficient authority, stature, independence, relevant knowledge,
skills and expertise selected from key management personnel shall be designated as the
Chief Compliance Officer (CCO) and in the case of DSIBs, he/she shall be in the
immediate layer below the level of CEO in the organizational structure.


immediate layer below the level of CEO in the organizational structure.
8. CCO shall be fit and proper to hold such position in terms of the Section 44A and Section
76H of the Banking Act.
9. Appointment, dismissal and other changes to CCO position shall be recommended by the
Integrated Risk Management Committee to the Board.


41

 10. The Chief Operating Officer, CRO, Chief Financial Officer, Chief Internal Auditor, or
any other key management personnel shall not serve as CCO.
11. CCO shall have the overall responsibility for identification, management, mitigation of
bank's compliance risk and supervising activities of other compliance function staff.
12. CCO shall have the ability to interpret and articulate compliance risk in an understandable
manner as well as to effectively engage the Board, Integrated Risk Management
Committee and key management personnel in constructive dialogue on key compliance
risk issues.
13. CCO shall regularly report to the Integrated Risk Management Committee on the bank’s
compliance with applicable laws, rules and regulations, level of compliance risk, the
quality and effectiveness of the bank’s internal controls put in place to manage
comp liance risk and the latest developments in the area of compliance. Such reporting
shall be without any management filtering or intervention.
14. CCO shall function as a contact point within the bank for compliance queries from staff
members and provide guidance to staff on the appropriate implementation of applicable
laws and regulations.


42
 Schedule I V
Responsibilities of the Internal Audit Function

Every licensed bank shall establish an independent internal audit function as per the requirements
of this Schedule.
1. The internal audit function shall provide independent assurance to the Board of directors,
CEO and key management personnel on the quality and effectiveness of the bank’s internal
controls, risk management and governance systems and processes.
2. The internal audit function shall have a clear mandate, be accountable to the Board and the
Audit Committee and be independent of the audited activities.
3. The internal audit function shall have sufficient standing, knowledge, skills, resources and
authority within the bank to enable the internal auditors to carry out the assignments
effectively and objectively commensurate with the size, scale, diversity and  complexity of
operations of the bank.
4. A dedicated person with sufficient authority, stature, independence, relevant knowledge,
skills and expertise selected from key management personnel shall be designated as the
Chief Internal Auditor (CIA), and in the case of D -SIBs, he/she shall be in the immediate
layer below the level of CEO in the organizational structure.
5. CIA shall be fit and proper to hold such position in terms of the Section 44A and Section
76H of the Banking Act.
6. The Board, CEO and key management personnel shall contribute to the effectiveness of
the internal audit function by:
7. providing the function with full and unconditional access to any records, file data and
physical properties of the bank, including access to management information systems and
records and the minutes of all consultative and decision -making bodies;
7.1 requiring the function to independently assess the effectiveness and efficiency of the
internal controls, risk management and governance systems and processes; and,
7.2 requiring timely and effective correction of audit issues by senior management.


7.2 requiring timely and effective correction of audit issues by senior management.
8. The internal audit function shall perform a periodic assessment of the bank’s overall risk
governance framework, including but not limited to the assessment of:
8.1 the effectiveness of the risk management and compliance functions;
8.2 the quality of risk reporting to the Board and senior management; and,
8.3 the adequacy and integrity of the bank’s internal controls and management
information systems.


43
 9. The Board, CEO and key management personnel shall promote the independence of the
internal audit function by ensuring that:
9.1 internal audit reports are provided to the Board or the Audit Committee without
management filtering and the internal auditors have direct access to the Audit
Committee; and,
9.2 CIA’s primary reporting line is to the Audit Committee, which is also responsible for
the selection, oversight of the performance and, if necessary, dismissal of CIA.


44
 Schedule V
Extended Timelines for Compliance
Direction  New/ Amended
Requirement  Date to be complied
2.5 a)  At least half of the  total number of
directors shall be independent non-
executive directors.  01.01.2027

Licensed banks shall comply with the
Direction s prevailing immediately
preceding these Directions, till the above
date.
2.5 b)  Enhanced independent criteria
1. 2.5 b)(iv)
2. 2.5 b)(viii)
3. 2.5 b)(ix)  01.01.2026
2.7 At least half of the Board members
shall constitute the quorum for the
Board meetings. A meeting of the
Board shall not be duly constituted,
although the number of directors
required  to constitute  the quorum  at
such meeting  is present,  unless  more
than one third of  the   number of
directors present at such meeting are
independent non -executive directors.  01.01.2026

Licensed banks shall comply with the
Direction s prevailing immediately
preceding these Directions, till the above
date.
5.2 a)  The Chairperson shall be an
independent non -executive director. In
the event the Chairperson becomes
non-independent after the initial
appointment, as an interim
arrangement, the Board shall designate
an independent director as the Senior
Director for a period not exceeding six
months with suitably documented Where a non -independent director is
currently serving as the Chairperson,
such director may continue to serve as
the Chairperson for a further period not
beyond 31.12.2027 .


45
 Direction  New/ Amended
Requirement  Date to be complied
terms of reference. The designation  of
the Senior  Director  shall  be disclosed
in the bank’s Annual Report.
6.2 Board Audit Committee
1. 6.2 a)
2. 6.2 b)
3. 6.2 c)  01.01.2027
6.3 Board Human Resources and
Remuneration Committee
1. 6.3 a)
2. 6.3 i)  01.01.2026
6.4 Board Nomination and Governance
Committee
1. 6.4 a)  01.01.2027
6.5 Board Integrated Risk Management
Committee
1. 6.5 a)
2. 6.5 b)
3. 6.5 c)  01.01.2027
6.6 Board Related Party Transactions
Review Committee  Listed licensed banks by 01.01.2025 .
Unlisted licensed banks by 01.01.2027 .


01 October 2024CENTRAL BANK OF SRI LAI\KA
BANKING ACT DIRECTIONS No.06 of 2024
DTRECTTONS UNDER SECTTON 76J (1) OF TrrE BANKING ACT NO.30 OF 1988,
AS AMENDED
ACCOMMODATION TO DIRECTORS AND RELATED COMPAI\IES
With the issuance of Banking Act Determination No. 04 of 2024 dated 01 October 2024 on
'Approved Securities for Accommodation Granted to Related Parties of Licensed Banks", the
following Banking Act Directions relating to the accommodation granted to directors and
related parties oflicensed specialised banks are hereby revoked.
Banking Act Directions under 76J (l) dated 21 November 1997 on Accommodation to
Directors and Related Companies.
Banking Act Directions No. 04 of 2009 dated 02 Septemb er 2009 on Lease-backed Trust
Certificates/Lease Receivables 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.
W
Dr. P Nandalal Weerasinghe
Chairman of the Governing Board and
Governor of the Central Bank of Sri Lanlu(i)
(ii)


CENTRAL BANK OF SRI LANKA
07 October 2024 BANKING ACT DIRECTIONS No. 07 of 2024
DIRECTIONS UNDER SECTION 76J (1) OF THE BANKING ACT NO. 30 OF 1988,
AS AMENDED
ACCOMMODATION TO DIRECTORS AND RELATED COMPANIES
With the issuance of the Gazette No. 2404/33 dated 03.10.2024 on the Order published under
Sections 47(4), 47(11B) and 76K of the Banking Act No. 30 of 1988, as amended, Amendment
to the Directions under 76J (1) on Accommodation to Directors and Related Companies dated
17 March 2005 is hereby revoked.
fen at 2 Dr. P Nandalal Weerasinghe
Chairman of the Governing Board and
Governor of the Central Bank of Sri Lanka (-


14 Jrne2024CENTRAL BANK OF SRI LAI\KA
BANKING ACT ORDER No.01 of2024
BANKING (OFF-SHORE BATIKTNG BUSTNESS) ORDER
DESIGNATED F'OREIGN CURRENCIES
In terms of Section 22A ofthe Banking Act No. 30 of 1988, as amended, thJ Central Bank of Sri
Lanka (CBSL) hereby issues Banking (Off-shore Banking Business) Order, designating foreign
currencies for the purpose of carrying on off-shore banking business by Licensed Commercial Banks.
1. Designated
Foreign
Currencies1.1
t.2The foreign currencies set out in Schedule I below are determined
as the Designated Foreign Currencies, effective from the appointed
date of the Banking (Amendment) Act, No. 24 of 2024, on
ts.06.2024.
Banking (Off-shore Banking Business Scheme) Order No. 01 of
2022, dated 26 August 2022 is
revoked from the appointed date of the Banking (Amendment)
Act, No. 24 of 2024, on 15.06.2024.
W
Dr.P@
Chairman of the Governing Board and
Governor of the Central Bank of Sri Lanka
Schedule I
Designated Foreign Currencies
9 New Zealand Dollar (NZD)
l0 Norwegian Kroner (NOK)
11 Sterling Pound (GBP)
12 Singapore Dollar (SGD)
13 Swedish Kroner (SEK)
14 Swiss Franc (CHF)
15 Thai Bhat GHB)
16 United States Dollar (USD)
11
2
3
4
5
6
7
8Australian Dollar (AUD)
Canadian Dollar (CAD)
Chinese Renminbi (CI.[Y)
Danish Kroner (DKK)
Euro (EUR)
Hongkong Dollar (HKD)
Indian Rupee (INR)
Japanese Yen (JPY)


ffi
L4 June2024CENTRAL BAIIK OF SRI LAI\KA
BANKING ACT ORDER No.02 of2024
BANKING (OFF-SrrORE BANKTNG BUSINESS) ORDER
With the implementation of the Banking (Amendment) Act, No. 24 of 2024,the demarcation of the
Domestic Banking Unit and Off-shore Banking Unit is eliminated, and off-shore banking business is
identified as a permissible activity that a Licensed Commercial Bank (LCB) may carry out.
Accordingly, with a view to facilitating the conduct of off-shore banking business, the following
shall take effect.
1. Revocations 1.1The Banking (Off-shore Banking Business Scheme) Orders and
such other instruments applicable to Off-shore Banking Units of
Licensed Commercial Banks, as set out in Schedule I hereto, are
hereby revoked, effective from the appointed date of the Banking
(Amendment) Act, No. 24 of 2024, on15.06.2024.
The revocation effected above shall not affect:
(i) any offence committed or liability incurred under the Orders
and other instruments referred to in schedule I hereto;
(ii) any action or proceeding pending or incomplete on the date of
revocation; or
(iii) any examination, investigation or inquiry pending on the date
of revocation and such action, proceeding, examination,
investigation or inquiry shall be carried on and concluded as
if the Orders and such other instruments referred to in
Schedule I hereto, continue to be in force.r.2
ffr9-,^r---a-*o i'-."---*-f
o". rxuilffiffign"
Chairman of the Governing Board and
Governor of the Central Bank of Sri Lanka


Schedule I
Revocation of Banking Orders and Operating Instructions
1. Banking (Off-shore Banking Scheme) Order,2000 dated 07.04.2000.
2. Operating Instructions EC1O4I2O}O (D) dated 07.04.2000 on Off-shore n-anking Business.
3. Circular Reference No. 021171800/0005/01 dated 20.08.2008 on granting perrnission to
licensed commercial banks to trade in the international sovereign bonds issued in 2007 by the
Goven:ment of Sri Lanka.
4. Banking Act, Order No. 01 of 2008 dated 12.09.2008 on Banking (Off-shore Banking
Business Scheme) Order.
5. Banking Act, Order No. 01 of 2009 dated 23.10.2009 on Banking (Off-shore Banking
Business Scheme) Order.
6. Banking Act, Order No. 01 of 2011 dated 27.10.2011 on Banking (Off-shore Banking
Business Scheme) Order.
7. Banking Act, Order No. 02 of 2011 dated 08.11.2011 on Banking (Off-shore Banking
Business Scheme) Order.
8. Banking Act, Order No. 0l of 2018 dated 14.03.2018 on Banking (Off-shore Banking
Business Scheme) Order.
9. Banking Act, Order No. 02 of 2018 dated 30.11.2018 on Banking (Off-shore Banking
Business Scheme) Order.


CENTRAL BANK OF SRI LANKA
BANK SUPERVISION DEPARTMENT
29 February 2024 CIRCULAR No. 01 of 2024
AMENDMENTS TO THE LIST OF QUALIFIED AUDITORS TO AUDIT THE
ACCOUNTS OF LICENSED COMMERCIAL BANKS AND LICENSED
SPECIALISED BANKS
Circular No.08 of 2019 dated 18.11.2019 on List of Qualified Auditors to Audit the Accounts
of Licensed Commercial Banks and Licensed Specialised Banks is hereby amended by
replacing (iv) and (v) of the list of qualified auditors provided in Section 2.1 of the aforesaid
Circular as follows.
2. List of (iv) Deloitte Partners (Previously known as PricewaterhouseCoopers)
Qualified No.100, Braybrooke Place, Colombo 02
Auditors (v) Deloitte Associates (Previously known as SIMS Associates)
No. 11, Castle Lane, Colombo 04
g
R R S De Silva Jayatillake
Director of Bank Supervision


CENTRAL BAIIK OF SRI LAI[KA
28March2024 CIRCT]LAR No.02 of2024
GTJIDELIIIES FOR THE ESTABLISIIMENT OF BUSIIYESS REVWAL T'MTS IN
LICENSED BAI\KS
Challenging macroeconomic circumstances have led to disrupting the income generating
activities of businesses adversely impacting the ability of borrowers to duly repay their
obligations and thereby impairing the recovery process of licensed commercial banks and
licensed specialised banks (hereinafter referred to as licensed banks). Therefore, with a view
to facilitating the sustainable economic revival of businesses affected by the extraordinary
macroeconomic circumstances and to improve asset quality of licensed banks, the Central Bank
of Sri Lanka hereby issues broad guidelines to further strengthen the existing Post COVID-19
Revival Units of licensed banks and reformulate such units as Business Revival Units with an
enhanced scope.
1. Objective t.1
2. Governance
Framework and
ResourcesThe purpose of Business Revival Units is to identifr and assist
performing and non-performing borrowers of licensed banks
who are facing challenges or may face potential financial
[and/or business] difficulties inter-alia due to a reduction of
income, cash flows or sales, reduction or impairment of
business operations or the temporary closure of business
emanating from the extraordinary macroeconomic
circumstances. The Unit aims to revive businesses that are
facing actual or potential financial difficulties but are
fundamentally viable, with a view to providing benefits to such
borrowers, leading to the revival of such businesses,
enhancement of economic activities and contributing to the
development of the national economy.
The Board of Directors, Chief Executive Officer (CEO) and
the respective Key Management Personnel (KI/P) are
responsible for ensuring that the licensed bank has robust2.1


28March2024CENTRAL BANK OF SRI LAIIKA
CIRCULAR No.02 of2024
2.2
2.3
2.4business revival and rehabilitation policies and procedures,
including an effective system of internal controls, to manage
business revival in accordance with these guidelines.
Licensed banks shall formulate a revival and rehabilitation
policy for borrowers who are facing actual or potential
financial difficulties but are fundamentally viable. Such policy
shall be approved by the Board of Directors for a locally
incorporated licensed bank and by the regional/global head
office for a licensed bank incorporated outside Sri Lanka.
These policies need to be reviewed and updated, at least
annually.
The Revival and Rehabilitation Policy shall inter alia include
the following at a minimum:
(i) Mandate for establishment ofthe Business Revival Unit
(ii) Its scope of activities including deliverables
(iii) Revival mechanism for borrowers
(iv) Eligibility Criteria for a loan transfer from the Loan
Origination Unit to the Business Revival Unit and vice
VETSA
(v) Quantitative and / or qualitative triggers for a loan
transfer, including days-past-due and the time period (in
days) during which this transfer shall take place from
the Loan Origination Unit to the Business Revival Unit
(vi) Internal methodology for determining the financial
viability of borrowers including an economic and
financial analysis of the borrower, analysis of the
borrower's business plans, cash flow projections,


28March2024CENTRAL BAIIK OF SRI LANKA
CIRCT]LAR No.02 of2024
2.5
2.6
2.7
2.8current and expected overall level ofindebtedness and
solvency assessment
(vii) Time period for how long a loan can stay in the Business
Revival Unit before being transfened to the Credit
Enforcement Unit in the case of unsuccessful revival or
to the Loan Origination Unit in the case of successful
revivals
(viii) Operational criteria for a Corporate Workout
Framework and the Framework Agreement for
Corporate Workout as provided for in Section 5 below.
The Business Revival Unit shall monitor the repayment
behaviour and the financial condition of the borrower, who is
subject to revival, on an ongoing basis.
Transfer of revived business loans from the Business Revival
Unit to the Loan Origination Unit shall not be affected in less
than one year.
The Business Revival Unit shall be organuationally separate
from Loan Origination Units. The Unit shall not report to the
same management level committee as the Loan Origination
I Inits-
The Business Revival Unit shall be headed by a KMP of the
licensed bank with sufficient authority and seniority to ensure
effective and efficient oversight of the Unit and expeditious
implementation of revival and rehabi litation activities.
The Business Revival Unit shall be adequately staffed and
possess sufficient expertise and authority and be provided with
all other resources such as financial, human resources, and
information technology as needed.2.9


28March2024CENTRAL BAI\K OF SRI LAI\KA
CM.CULAR No.02 of2024
2.I0 The Business Revival Unit shall work together in a
coordinated manner with other relevant departments of the
bank including the Risk Management and Legal Units, among
others. When loans are transferred between Loan Origination
and Business Revival Units, or between the Business Revival
and the Credit Enforcement Units, licensed banks shall ensure
an orderly handover of cases, including a full transfer of
relevant loan documentation and relevant information.
2.ll The Business Revival Unit shall be provided with unfettered
access to the bank's loan documentation and management
information systems in order to function effectively.
2.12 Licensed banks may consider establishment of Business
Revival Units at large branches / regional offices of banks as
appropriate in the case of licensed banks with more than 50
bank branches considering the effectiveness ofthe operations.
Other licensed banks shall have the Unit established centrally.
2.13 Licensed banks shall report the performance of Business
Revival Unit/s to an appropriate Board Sub-Committee on a
quarterly basis.
3.1 At a minimum, the following criteria need to be met, in order
to consider as an eligible borrower under the Business Revival
Unit:
3.1.1 Fundamental Viability
(i) The Unit shall consider borrowers who are fundamentally
viable. Borrowers that do not meet the viability qriteria,
i.e., non-viable borrowers shall not be transferred to the
Business Revival Unit. The viability assessment shall, to
the extent possible, be based on the audited financial3.Eligibility
Criteria for
Selection of
Borrowers


28March2024CENTRAL BAI\K OF SRI LATIKA
CIRCULAR No.02 of2024
statements for the three preceding financial years and
include at a minimum the analysis of the following
financial indicators:
(a) Operating income, gross profit, profit before interest
and tax
(b) Financial cost, interest coverage ratio, interest cost to
total borrowings
(c) Profitability, return on equity, return on assets
(d) Leverage, debt to equity, assets to equity
(e) Sufficiency of liquidity and cash flows, to assess the
adequacy cash Jlows to service the forthcoming debt
obligations and to meet working capital requirements,
such as curuent ratio, quick-assets ratio
(f) Maturity profile ofthe liabilities ofthe borrower
(g) Other quantitative and qualitative information to assess
the fundamental viability ofthe business.
(ii) In the absence of audited financial statements owing to
justifiable reasons, licensed banks may use appropriate
and credible sources of information at the discretion of
the bank.
(iii) Licensed banks shall prescribe threshold values on the
above indicators distinguishing fundamentally viable
businesses from non-viable businesses. Threshold values
may be adjusted in light of any special considerations
concerning a specific industry or sector. Where threshold
values have already been satisfied, qualitative factors
relating to the borrower may be taken into account in
determining whether the borrower is viable or not viable.


28March2024CENTRAL BAI\K OF SRI LANKA
CM.CULAR No.02 of2024
(iv) Licensed banks are encouraged to disclose these
methodologies in their Annual Report or any other
published reports as part of risk and non-performing loan
management disclosures.
3.1.2 Borrower Co-operation
(i) Licensed banks shall consider only the cooperative
borrowers for revival. Therefore, licensed banks shall
ensure that the borrower is cooperative, before
considering for revival.
(ii) Non-cooperative borrowers are identified based on one of
the following, at a minimum:
(a) The borrower has defaulted in meeting its
payment/repayment obligations to the licensed bank
even when the borrower has the financial capacity to
honour its obligations.
(b) The borrower has defaulted or has a potential to default
due to a diversion of funds where the borrowed funds
have not been utilized for the specific purposes for
which the finance was availed of.
(c) The borrower has defaulted in meeting its
payment/repayment obligations to the licensed bank
and has also disposed of or removed the movable fixed
assets or immovable property pledged by him for the
purpose of securing such loans without the consent of
the licensed bank.
(d) The borrower does not submit periodical financial
statements for the assessment of its financial and
operational viability.


28March2024CENTRAL BANK OF SRI LATIKA
CIRCT'LAR No.02 of2024
(e) The borrower is not responsive to the enquiries
(elechonic, postal, invitations to meetings, etc.) of the
licensed bank or has not acted in good faith during the
course of the restructuring negotiations.
(D The borrower does not allow the licensed bank to
reviedassess the state of assets pledged as collateral
against the loan.
(g) Any other relevant qualitative and quantitative factors,
including the behaviour of the distressed borrower in
prior restructurings, including in cases involving other
licensed banks.
4.1 The Business Revival Unit shall use financial and./ or
operational restructuring tools and techniques or any
combination thereofto revive distressed but viable businesses.
These tools and techniques include:
4.1.1 Financial Restructuring
(i) The tools and techniques for financial restructuring
include debt forgiveness, debt rescheduling (including
grace periods for the payment of principal and interest),
adjustment of interest rates, maturity extensions, and
provision of new financing, including interim financing
and exit financing, etc. These tools and techniques may be
combined as appropriate.
(ii) Licensed banks shall adopt the following assessments,
when deciding to provide restructuring measures
including the following at a minimum:Revival
Mechanisms


.28March2024CENTRAL BAIIK OF SRI LAI\KA
CIRCULAR No.02 of2024
(a) Borrower's debt servicing capacity based on the
borrower's overall indebtedness, including debts owed
to other creditors, viz., financial and non-financial
creditors, including tax authorities
(b) Aggregate debt service obligations
(c) Borrower's economic interests
(d) Reports of the Credit Information Bureau of Sri Lanka
(cRrB)
(e) Assessments based on other external sources, as
necessary.
(iii) The revised repayment plan for borrowers considered for
restructuring shall be based on a full assessment of the
borrower's cash flow available for debt servicing, and
analysis of financial statements and projected cash flows.
4.1.2 Operational Restructuring
(i) The Business Revival Unit may in addition consider
proposing operational restructuring of the business of the
borrowers, i.e., fundamental changes in the business's
operations or assets to restore commercial viability,
including but not limited to developing a new business
plan/strategy, and enhancing operational efficiency and
profitability of such businesses, improving cash
management systems, reviewing pricing strategy, and
reviewing customer retention and/or acquisition shategies.
4.2 The Unit may also conduct awareness programs on
rehabilitation initiatives, procedures and methodologies to
relevant stakeholders,viz., branches and business units of the


28March2024CENTRAL BAIIK OF SRI LAI\KA
CIRCTILAR No.02 of2024
5. Framework for
Corporate
Workouts5.1bank, borrowers and provide credit counselling and business
advisory services, in reaching out to potential investors.
Licensed banks may establish a framework for corporate
workouts namely "Corporate Workout Framework" to
address the financial and,/or business distress faced by
corporate borrowers who have obtained credit facilities
from more than one licensed bank, without court
intervention. Workouts are a potential means of achieving
financial and operational restructuring as described in
subsections 4.1.1 and 4.1.2. For this purpose, a corporate
is defined as a business with an annual turnover above
Rs. I bn, as per the latest available audited financial
statements or cumulative outstanding credit facilities
granted by licensed banks are equal to or more than
Rs.250 mn.
Any Workouts conducted under the Corporate Workout
Framework shall be a voluntary, consensual process
involving the corporate borrower and the licensed banks
without court intervention. It shall, if successful, result in a
restructuring plan between the corporate borrower and
licensed banks setting forth the terms of the agreed upon
restructuring.
The Corporate Workout shall be conducted in accordance
with the provisions of this section and through a
"Framework Agreement for Corporate Workout" between
and among licensed banks that have exposures to a given
corporate borrower.5.2
5.3


28March2024CENTRAL BANK OF SRI LANKA
CIRCT]LAR No.02 of2024
5.4
5.5
5.6Performing credit facilities of corporate borrowers that are
facing actual or potential financial and/or business distress
and non-performing credit facilities of corporate borrowers
may be eligible to be restructured under the Corporate
Workout Framework subject to a positive outcome at the
viability assessment.
Licensed banks may adopt a collaborative approach to
develop a model for Framework Agreement for Corporate
Workout that shall govern negotiations of a workout
agreement between the licensed banks and any given
corporate borrower that seeks to avail the Corporate
Workout Framework.
Individual banks may become a party to a Framework
Agreement for Corporate Workout on a voluntary basis.
The Corporate Workout Framework shall set forth the
parameters for the process of negotiating a workout
solution between licensed banks and a corporate borrower.
The Framework Agreement for Corporate Workout shall, at
a minimum, includp provisions addressing, inter alia, the
following:
(i) A specified standstill period
(ii) Confrdentiality
(iii) Information sharing
(iv) Procedures for developing a restructuring plan
(v) Methods for handling disputes arising in the course of
conducting the workout
A corporate borrower on a voluntary basis, may apply to
have a workout conducted in accordance with the5.7
10


28March2024CENTRAL BAI\K OF SRI LAIIKA
CIRCT'LAR No.02 of2024
7.6. Accounting
Considerations
and Regulatory
Reporting
Reporting to the
Credit
Information
Bureau ofSri
Lanka
Credit Facilities
granted under
Re-finance or
Interest Subsidy
Schemes
Recovery Action
for Default afterFramework Agreement for Corporate Workout; provided,
however, that the standstill afforded to any such borrower,
pursuant to the terms of Framework Agreement for
Corporate Workout, may be terminated if the borrower
breaches any of the covenants set forth in its application.
5.8 The corporate borrower and the licensed banks may agree
on a Corporate Workout on a voluntary basis along with the
terms of any restructuring agreement negotiated in this
regard.
6.1 Licensed banks shall apply relevant Sri Lanka Accounting
Standards issued by the Institute of Chartered Accountants of
Sri Lanka and prudential Directions & regulations issued by
the Central Bank of Sri Lanka for accounting and regulatory
reporting of credit facilities considered under the Business
Revival Unit.
7.1 Licensed banks, in consultation with CRIB, may develop an
appropriate reporting modality to report credit facilities
transferred to the Business Revival Unit.
8.1 Licensed banks are required to seek necessary instructions
from the relevant agencies, if credit facilities granted under
various refinance or interest subsidy or guarantee schemes are
to be transferred to the Business Revival Unit.
9.1 Licensed banks may adopt suitable recovery and/or
enforcement actions against borrowers who have failed to8.
9.
11


28March2024CENTRAL BAIIK OF SRI LANKA
CIRCT]LAR No.02 of2024
Unsuccessful
Revival
l0.Implementation
ll.Reporting
Requirementadhere to the terms and conditions agreed for revival and
rehabilitation under the Business Revival Unit as per the
bank's intemal guidelines and policies.
10.1 Licensed banks are required to make necessary arrangements
to establish Business Revival Units within forfy-fi ve days from
the date of this Circular.
10.2 Licensed banks that have already established Revival Units,
may expand the scope of activities of these Units to be in line
with the requirements of this Circular within thirty days from
the date of this Circular.
10.3 Licensed banks which do not have non-performing business
loans as at the date of this Circular and potential stressed
borrowers in the foreseeable future, may not be required to
establish a Business Revival Unit. However, such licensed
banks are required to closely monitor the performance and the
quality of the credit portfolio and adopt measures in line with
the provisions of this Circular if and when the need arises.
10.4 The scope of this Circular focusses on the loans granted for
business purposes and which are currently under stress or
potential stress. Licensed banks are advised to take appropriate
measures with respect to loans granted for non-business
purposes, which are currently under stress or potential stress.
11.1 Licensed banks shall report the progress of revival and
rehabilitation proposals availed to the bank's borrowers as at
the end of each quarter, within 15 working days, commencing
30 September 2024, in the format given in Annex I.
t2


;fr
i'
\-,
28March2024CENTRAL BAI\IK OF SRI LANKA
CM.CT]LAR No.02 of2024
Ll.z Licensed banks me required to make necessary arrangements
to disclose to customers on the establishment of Business
Revival Unit, including the objectives, scope, functions,
activities, through their respective websites and public media.
l2.l Circular No. 01 of 2022 dated,24.03.2022 on Guidelines on
Establishment of Post COVID-I9 Revival Units in Licensed
Banks is hereby revoked.
13.1 Licensed banks are required to fully comply with the
requirements ofthis Circular by 0l July 2024.12.Revocation
l3.Effective Date
Mrs.TMJYPFernando
Chief Executive fficer / Senior Deputy Governor
ofthe Central Bankof Sri Lanka
13


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r
I
I:,1
Name of the Bank:
(o) Sectorc to be mentioned as per the sector-wise FitNet Retum, specily sub-,sectors, i/applicable.Rcport on Borrowers Facllltatcd Under Busincss Rcyival Unit (BRU) as at (Rcporting Date)Annex-I
All Amourtts in Rs. 000's
)
)Total Number of Facilities Undcr BRU:
Details of the Exlstlng Facillties