434 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Ref. No. : 02/04/002/005/001
Bank Supervision Department
8th Floor, Renuka Building
41, Janadhipathi Mawatha
Colombo 01.
01 December 1999
To : All Licensed Commer cial Banks &
  all Licensed Specialised Banks
Dear Sir  / Madam,
SECRECY OF BANKING TRANSACTIONS IN TERMS
OF SECTION 77 OF THE BANKING ACT
In terms of Section 77 of the Banking Act, No.30 of 1988 as amended by Banking (Amendment)
Act, No.33 of 1995, Banks are required to observe strict secrecy in respect of all banking transactions.
Innovations in the field of Information Technology have changed the environment of the Banking
Industry and it has been observed  that staff of outside computer firms also have access to confidential
customer information of Banks.
In the above circumstances all Licensed Commercial Banks and all Licensed Specialised Banks are
hereby required to adhere to the following:
 (i) Inclusion of a special clause/condition in software maintenance agreements or service
agreements with outside software companies, requiring them to observe strict secrecy in
respect of all transactions of the bank, its customers and the state of accounts of any person
and all matters relating thereto.
 (ii) Obtain declarations of secrecy from all persons and organisations who perform services in
terms of such maintenance or service agreements.
Yours faithfully,
Sgd. Dr. Anila Dias Bandaranaike
Actg. Director of Bank Supervision


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Directions issued by the Monetary Board of the Central Bank of Sri Lanka in terms of Sections 46(1) and
76(J)(1) of the Banking Act, No. 30 of 1988, as amended.
Nivard Ajith Leslie Cabraal
Chairman of the Monetary Board /
Governor of the Central Bank of Sri Lanka
Colombo
05 October 2011
BANKING ACT DIRECTION NO. 8 OF 2011
CUSTOMER CHARTER OF LICENSED BANKS
In order to ensure the soundness of the banking system, Sections 46(1) and 76( J)(1) of the Banking Act,
No. 30 of 1988, last amended by the Banking Act, No.46 of 2006, empowers the Monetary Board to issue
Directions to licensed banks regarding the manner in which any aspect of the business of such banks is
to be conducted. Safeguarding the interests of the customers, building up a healthy relationship between
customers and banks; and improving the customer confidence in the banking sector would promote and
ensure stability in the banking sector. In view of the above, the Monetary Board issues this Direction
to all licensed banks to adopt a ‘Code of Conduct’ in line with the Customer Charter annexed to this
Direction.
1. All licensed banks shall ensure that the customers’ rights are protected in line with ‘Customer
Charter’ annexed to this Direction and adopt a ‘Code of Conduct’ based on the charter.
2. All licensed banks shall obtain written confirmation on adherence to the ‘Code of Conduct’ from the
current employees and all new employees (prior to taking up their employment in the bank).
3. All licensed banks shall publish the ‘Customer Charter’ in their websites, make copies available for
customers on request in their preferred language and educate them when necessary.
4. All licensed banks shall ensure the implementation of this Direction within 6 months from the date
of the Direction.


436 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Annexure
CUSTOMER CHARTER OF LICENSED BANKS
1. Introduction
 This Charter sets key standards of fair banking practices envisaged by customers when they undertake
transactions with licensed banks and provides guidance to the licensed banks to adopt a ‘Code of
Conduct’ on customer protection. The Charter also includes a set of customer obligations towards
licensed banks in the interest of stable relationship.
2. Receiving information and understanding the banking Pr oducts/Services
 The customers have the right to receive factual information and understand the financial products/
services offered by banks. In this regard, certain good practices of banks would be as follows:
 (a) T he licensed banks should help the customers to understand the financial products/services
offered by providing adequate information about them, explaining their financial implications and
assisting the customers to choose the appropriate banking products/services.
 (b) Each licensed bank should have Key Facts Document in the form of a brochure/leaflet written in
simple language for its products or services, separately or in combination and which should be
distributed to the customers seeking such products/services. These brochures/leaflets should, at
minimum, contain the following basic information and be available in languages preferred by the
customers (i.e., Sinhala/Tamil/English):
 i.  Description of the products/services.
 ii.  Financial and other benefits to customers including any incentives and promotions.
 iii.  Fees/char ges, commission, interest etc., charged from customers.
 iv .  Procedures to be followed to obtain the product/service.
 v .  Major terms and conditions.
 vi.  A common complaint procedure for customers.
 (c) All advertisements by licensed banks should contain factual information on products/services


(c) All advertisements by licensed banks should contain factual information on products/services
offered by them in any media and promotional material, which can be understood by the targeted
customers and not contain information that may be likely to mislead the public. In addition,
all such advertisements should give the contact details and state that the respective bank is a
licensed bank supervised by the Central Bank of Sri Lanka.
 (d) Further information or clarification on any advertisements on bank’s products/services ( i.e., fees/
charges and interest rates etc.) should be provided by banks on request.
 (e) The following information should be conspicuously displayed in the Head Offices and all branches
and other banking outlets of the licensed banks.
 i.  Current interest rates on all deposit and loan products
 ii.  Buying and selling rates of foreign currencies
 iii. Credit rating of the bank with underlying specifications
 iv . The contact details of the Financial Ombudsman and Credit Counselling Centre
 v .  Banking hours and Holiday notices
 vi. Any other relevant information
 (f) A  periodic statement should be sent to customers either in printed form or electronic form opted by
them regarding transactions and balances in their deposit or loan accounts or other services other
than passbook savings accounts of non-dormant category.
  Statements for credit cards should set out the minimum payment required and the total interest
amount charged if only the required minimum payment is made and late payment fee if the
minimum payment is not made.


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 (g) The licensed banks should improve the customer awareness on financial products/services and
risks by arranging specific financial literacy programmes.
 (h) The licensed banks should act fairly and reasonably by ensuring that the banks’ staff follows
procedures and practices stipulated in the ‘Code of Conduct’, the products/services offered are
in line with relevant laws and regulations and the maintenance of the principles of integrity and
transparency.
3. A wareness and understanding the ‘Terms & Conditions’ on Products/Services
3.1 The customers have the right to access to and fully understand the terms and conditions relevant
to each and every product or service they obtain from banks. In this regard, the licensed banks
should ensure that:
 (a) the ‘Terms and Conditions’ associated with each product or service are made available to
customers in languages preferred by them;
 (b) a copy of the ‘Terms and Conditions’ is given to the prospective customer prior to offering
or recommending a product or service and any clarification sought by customers is clearly
explained;
 (c) an of ficer carrying out the duties of a relationship officer should clearly explain to the customer
of the terms and conditions and features of the products/services, provide a comparison of
alternative products/services available and give reasonable time for the customer to make a
decision;
 (d) a written confirmation is obtained from the customer that the details of the products or services
and their terms and conditions were received, explained and understood;
 (e) all the documents pertaining to the product or service are duly completed and signed by the
customer. (Incomplete documents and obtaining signatures on blank papers/documents are
avoided.);


customer. (Incomplete documents and obtaining signatures on blank papers/documents are
avoided.);
 (f) a ny changes made by licensed banks to the agreed terms and conditions on products or
services should be informed to the customers in writing or through paper notice or any other
appropriate way before such changes are made.
3.2 The customers have the right to know specifically the following under ‘T erms and Conditions’.
 (a) The details of the bank’s general charges such as interest rates, fees and commissions, if any,
required to be paid by the customer including the method of computing interest charges.
 (b) The bank’ s procedure for receiving complaints and the resolution mechanism.
 (c) The course of recovery actions a bank may follow in the event of any default by the customer
on his/her obligations and bank’s expenses that will be reimbursed from the customer.
 (d)  Any compensation proposed to be paid by the relevant customers in case of pre-mature
withdrawal/termination of participation in a product/service by the customers.
 (e) Any re strictions on opening of accounts, closing of accounts, maintenance of accounts
(e.g., minimum balance), transfer of funds by customers and policies and procedures on
dormant accounts and abandoned property.
 (f) The disclosure of customer information to a party legally authorised to obtain such information.
 (g) The rules regarding (i) reporting of suspicious transactions and above-the-threshold
transactions to the Financial Intelligence Unit (ii) the reporting procedures that the customer
should follow in the case of stolen cards /financial instruments and (iii) liability of the bank
and the customer.
 (h) The procedures to be employed by the bank to foreclose on the property held as collateral for
a loan and the consequences thereof to the customer and options available to him/her.


438 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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4. Compensation fr om withdrawal / cancellation of products / services by banks
 In the event  a licensed bank seeks to withdraw/terminate a product or service already on contract,
especially deposit products, customers have the right to receive a reasonable time with an exit
compensation scheme disclosed in advance.
5. Pr otection from Agents of banks
 The customers have the right to know the details of the agents appointed for customer services by
licensed banks and the ‘Code of Conduct’ issued to them by banks to refrain from doing any of the
following.
 (a) Harassing customers.
 (b) Using abusive debt collection practices.
 (c) Disclosing customer information to others.
 (d) Giving false or misleading information about products/services.
 (e) Unduly influence customers or the general public to buy or get involved in the bank’s products/
services.
 (f) Engage in getting any security documents signed outside the bank.
6. Complaint measur es and relief
 The customers have the right to resolve their complaints with transparency and effectively. In this
regard, licensed banks should:
 (a) implement a quick and effective resolution mechanism on disputes between customers and banks
by rectifying disputes quickly, handling complaints within a short period, directing to take the
complaints forward if the customer is still not satisfied and reversing any charges that applied due
to a mistake;
 (b) have in place a written procedure for receiving complaints and steps to be taken to resolve such
complaints;
 (c) acknowledge the receipt of any complaint in writing within a reasonably short period of time and
inform the complainants of the procedure that will be followed by the bank for the resolution of
the complaint and the contact details of the officer/officers handling the complaint;


the complaint and the contact details of the officer/officers handling the complaint;
 (d) facilitate receiving complaints verbally or in writing and the banks shall not insist that complaints
be necessarily made only in writing;
 (e) establish a management information system regarding complaints and process of resolution as part
of the duties of risk management committee relating to operational risks;
 (f) assign an of ficer with the duty of handling the complaints and management information in each
branch or office; and
 (g) advise the customers to seek af fordable and efficient recourse through the Financial Ombudsman
or in Courts in the event the complaint is not resolved to their satisfaction.
7. Special attention and Car e
 The customers such as elderly , disabled or customers with low financial literacy have the right to
receive special attention to facilitate them to have a fair access to banking services.
8. Customer  obligations toward banks
 Customers should foster the relationship with banks fulfilling their obligations. In this regard:
 (a) Customers should not borrow beyond their af fordable repayment capacity limit.
 (b) Customers should not allow the repayments or instalments to go into arrears and the prompt
repayments will create healthy relationships with the banks.
 (c) If a customer wants to settle his/her loan before the end of the loan period, he/she has to pay certain
amount of money over the loan amount as agreed at the time of accepting the offer.


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 (d) If the customer is unable to repay his/her loan outstanding as agreed, the bank will have the right
to recover the amount owing to the bank including the bank’s expenses specified in the ‘Terms &
Conditions’.
 (e) If a customer finds himself/herself in financial difficulties, he/she should let the bank know as
early as possible. The sooner the bank discusses the customer’s problems, the easier it will be for
both of the customer and the bank to find a solution.
 (f) When a customer account goes into default, the first step the bank takes is to contact the customer .
In this regard, it is imperative that the customer should inform the bank at all times of any changes
to his/her address and contact details.
 (g) C ustomers should have the full knowledge and understanding of the product/service offered
before entering into the contract.
 (h) Customers should duly fill and submit the required application forms and supporting documents
in time.
 (i) Customers should exercise due care in all transactions with banks.
 (j) Customers should notify the bank promptly of any fraudulent transaction/s or such attempts in
their accounts with the banks whenever they become aware of such instances.
 (k) Cust omers should exercise utmost care in using and storing/handling Personal Identification
Numbers (PIN) and security measures of other electronic cards issued by the bank.
 (l) Customers should not treat any operational lapse of a bank on its obligations mentioned in Clause
2 to 7 above other than any dispute on the amount payable to the bank as a reason for his/her non
settlement or delay in settlement of a debt unless otherwise allowed by a court of law. All such
incidents need to be resolved separately or individually.


440 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Ref. : 02  / 17 / 600 / 002 / 001
Bank Supervision Department
26 July 2013
To : CEOs of all Licensed Commercial Banks and
       Licensed Specialised Banks
Dear Sir / Madam,

CAP ON PENAL INTEREST RATES CHARGED BY LICENSED BANKS
ON LOANS AND ADV ANCES
  The Central Bank of Sri Lanka (CBSL) has reviewed the penal interest rates charged by licensed
banks on overdue loans and advances, and is of the view that such rates are excessively high, and result
in an undue burden to overdue borrowers when repaying loans. The inability to sustainably service the
loans as a result of such excessive rates being charged also has an adverse impact on financial position of
banks, as well as on the financial system stability. In addition high interest rates hinder entrepreneurship
development in the economy.
2. The recent surveys conducted by CBSL has revealed that the penal rates charged by the banks
are in the range of 2 per cent to 20 per cent per annum on the amount in arrears and sometimes on the
total amount outstanding, over and above the original interest rates charged on the loan. In the case of
leasing facilities, penal rates are in the range of 36 per cent to 48 per cent per annum, on overdue rentals
over and above the original rate.
3. In view of the foregoing, the Monetary Board has instructed the undersigned to request all licensed
banks to reduce the penal interest rates charged on all loans and advances including credit facilities already
granted to a level not exceeding 2 per cent per annum for the amount in arrears, during the overdue period
with effect from 1 August 2013.
4. Accordingly , you are requested to take necessary measures to comply with the above.
Yours faithfully,
(Ms.) T M J Y P Fernando
Director of Bank Supervision


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Ref. : 02  / 17 / 600 / 002 / 001
Bank Supervision Department
07 June 2013
To : CEOs of all Licensed Commercial Banks and
       Licensed Specialised Banks
Dear Sir / Madam,

INTEREST RATES ON CREDIT CARDS AND OTHER LOANS AND ADV ANCES
The Central Bank of Sri Lanka in the recent past has eased its monetary policy stance resulting
in a reduction of policy rates leading to a reduction in short term interest rates. In view of these
developments, the Central Bank on many occasions requested banks to reduce interest rates on lending.
Although a marginal reduction in interest rates of a few products has been observed in certain banks,
a wider reduction is required across the banking sector.
2. In view of the foregoing, the Monetary Board has instructed the undersigned to request you to
reduce interest rates on:
(a) credit card advances from its present level of 28 per annum to 24 per annum, and
(b) all other loans and advances in an appropriate manner from their current level, so as to not
exceed 24 per cent per annum.
3. Accordingly , you are requested to take necessary measures to comply with the above.
Yours faithfully,
(Ms.) T M J Y P Fernando
Director of Bank Supervision


442 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Our Ref. : 02  / 17 / 600 / 002 / 001
Bank Supervision Department
17 April 2012
To : CEOs of all Licensed Commercial Banks and
       Licensed Specialised Banks
Dear Sir / Madam,

INTEREST RATES ON CREDIT CARDS AND HOUSING LOANS
We refer to our letter dated 21 September 2010 on the Reduction of Interest Rates on Loans and
Advances and write to inform you that, considering the recent trends in market interest rates, the
Monetary Board is of the view that licensed banks may increase interest rates on housing loans to 16 per
cent per annum and credit card advances to 28 per cent per annum.
Yours faithfully,
(Mrs.) T M J Y P Fernando
Director of Bank Supervision


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Ref. No. : 02  / 04 / 001 / 0105  / 002
Bank Supervision Department
06 April 2005
To : All Licensed Commercial Banks
       Licensed Specialised Banks;
Dear Sirs,
EXTENDING  / RESTRICTING OF BANKING HOURS BY THE BANKS
It has been observed that the Licensed Commercial Banks and Licensed Specialised Banks have
made requests from time to time to extend and restrict their banking hours. There is no legal provision
that governs banking  hours of the licensed banks.  However, as there can be certain repercussions arising
under certain laws if banking hours are extended to bank holidays and/or normal business hours are
restricted, it is important that banks satisfy themselves with the legal implications and liabilities, if any,
arising out of these arrangements.
All licensed banks are hereby informed that the Central Bank of Sri Lanka has no objection to
the extension or restriction of banking hours subject to the above concerns being met. All banks should
ensure that customers are informed of such changes well in advance to avoid inconvenience to them.
Yours faithfully,
Sgd, Director of Bank Supervision
cc: Mr . Upali de Silva
 Secretary-General
 Sri Lanka Banks’  Association (Gte) Ltd.
 Level 8, Ceylinco House
 Colombo 1.


444 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Ref. No. : BS/33/93
1st July, 1993.
NOTICE TO BANKS – 1/93
INCENTIVE SCHEMES FOR MOBILIZING DEMAND DEPOSIT ACCOUNTS
The following guidelines should be followed by all Commercial Banks when framing incentive
schemes to mobilize demand deposits.
1. First preference to be given to schemes that promote service oriented facilities such as –
 (a) permitting withdrawals of funds from any branch office;
 (b) extended banking hours;
 (c) reducing time taken for the encashment of cheques; and
 (d) reducing the minimum deposit required to open an account.
2. Where any other form of incentive is of fered, the scheme should :
 (a) be within the legal framework and accepted banking practices;
 (b) promote banking habits or any other broader objective in the economy;
 (c) not have adverse revenue implications for the Government;
 (d) not have an adverse impact on the profitability of the bank through excessive increase in costs
of mobilizing deposits;
 (e) bestow on the depositor a real benefit and not something illusory;
 (f) not lead to unfair and unethical banking practices;
 (g) not weaken the monetary policy tools or prudential requirements; and
 (h) be operated directly by the bank or, where it is undertaken in association with another company,
the company providing the benefit should not be an affiliate/subsidiary company of the bank
concerned or part of Group to which the bank belongs.
The prior approval of the Director of Bank Supervision should be obtained before such deposit
incentive  schemes are implemented.
Yours faithfully
Sgd.  P. T. Sirisena
Director of Bank Supervision


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INTRODUCTION OF PRODUCTS BASED ON ISLAMIC PRINCIPLES1/
The recent amendments to the Banking Act permit banks to introduce banking products based on
Islamic principles. Several banks have requested permission from CBSL in this regard.
In order to ensure that all banking operations, be it conventional banking or Islamic Banking, are
conducted in a prudential manner, the following regulatory framework will apply:
1. The Islamic Banking operations should be conducted strictly within the existing regulatory
framework applicable to the licensed banks.
2. The respective banks should maintain separate books of accounts for their Islamic Banking
Operations.
3. Data on Islamic Banking should be included under a separate column in the statutory returns
submitted to CBSL in order to enable a clear demarcation between the accounts relating to
conventional banking and Islamic Banking.
4. The prudential regulations that apply to conventional banking operations will apply equally to
Islamic Banking business and banks are advised to strictly follow the existing regulations. If
any deviations are observed, such banks will be required to immediately cease the continuation
of the relevant operations.
The CBSL will write individually to the banks that have inquired in this regard.
1/  Distributed at the meeting of the CEOs of LCBs and LSBs held on 19 May 2005


446 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Bank Supervision Department
31 December 2004
To : CEOs of Licensed Commercial Banks
       Secreatary-General/SLBA
Dear Sirs,
WITHDRAWALS ON SA VINGS ACCOUNTS
This is to inform you that the restriction on payment of interest for a particular month, on savings
accounts in respect of which there had been more than 4 withdrawals per month, in terms of Circular
No. BS/6/81 dated 29 June 1990, has been removed with immediate effect.
Please acknowledge receipt.
Yours faithfully,
Sgd, Director of Bank Supervision


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Ref. No. : BS/6/81
29, June 1990.
To : All Commercial Banks
WITHDRAWALS ON SA VINGS ACCOUNTS AND
7 DAY CALL DEPOSIT ACCOUNTS
It has been observed that some commercial banks operate savings accounts and 7 day call deposit
accounts for their customers in the manner of current accounts, i.e., permitting almost daily withdrawals
on these accounts, whilst paying interest on them. This is tantamount to the payment of interest on
demand deposits and is contrary to established banking practice in Sri Lanka.
To ensure the element of notice on withdrawals from savings accounts, it has been the practice to
permit only once-a-week withdrawals on these accounts. 7 day call deposits by their very name ensure
that a deposit is not uplifted before 7 days for the payment of interest.
In order to ensure the savings character of these accounts and with a view to ensuring uniformity
in the practice prevailing in the commercial banking system in Sri Lanka, commercial banks are hereby
informed that they should, with immediate effect, conform strictly to established banking practice in Sri
Lanka in the operation of savings accounts and 7 day call deposit accounts for their customers, through
their savings  pass books or through automated teller machines.
Where any commercial bank has deviated from the above practice, a press notice drawing the
attention of its customers to the correct procedure in the operation of these accounts is required.
Sgd. P. T. Sirisena
Director of Bank Supervision


448 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Ref. : 02  / 17 / 800 / 007 / 001
Bank Supervision Department
19 March 2012
To : CEOs of all Licensed Commercial Banks and
       Licensed Specialised Banks
Dear Sir / Madam,
THRESHOLD AGE OF THE SENIOR CITIZENS FOR
TRANSACTIONS WITH LICENSED BANKS
The Monetary Board having observed that licensed banks and licensed finance companies use
different thresholds of age to identify senior citizens when conducting banking operations has decided
to request the licensed banks to use a common threshold of 55 years of age in identifying senior citizens.
Accordingly, you are requested to take appropriate measures to implement the above.
Yours faithfully,
(Mrs.) T M J Y P Fernando
Director of Bank Supervision


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Directions issued by the Monetary Board in terms of Section 46(1) of the Banking Act, No.30 of
1988, as amended.
Nivard Ajith Leslie Cabraal
Chairman of the Monetary Board /
Governor of the Central Bank of Sri Lanka
Colombo
27 September 2010
BANKING ACT DIRECTION NO. 5 OF 2010
INSURANCE OF DEPOSIT LIABILITIES
In the exercise of the powers conferred by Section 46(1) of the Banking Act, No. 30 of 1988, last amended
by the Banking Act No. 46 of 2006, the Monetary Board hereby issues Directions to licensed commercial
banks to be effective from 1 October, 2010.
1.1 These Directions shall be cited as the Banking Act, Directions No. 5 of 2010
on Insurance of Deposit Liabilities.
2.1 In terms of Section 46(1) of the Banking Act in order to ensure the soundness
of the banking system, the Monetary Board may issue directions to licensed
commercial banks regarding the manner in which any aspect of the business of
such bank or banks is to be conducted.
3.1 In terms of statutory provisions and best practices in banking, accepting
deposits is a core business that requires effective risk management measures
as it critically depends on the public confidence in banks. As such, insurance
of deposits is a well-accepted safety net measure that will protect and promote
the public confidence and stability of the banking system.
4.1 As such, all licensed commercial banks shall insure their deposit liabilities in
the Deposit Insurance Scheme operated by the Monetary Board in terms of
Sri Lanka Deposit Insurance Scheme, Regulations No. 1 of 2010 issued under
Sections 32 A to 32 E of the Monetary Law Act with effect from 1 October,
2010.
4.2 All licensed c ommercial banks shall also disclose to the public, in their
advertisements soliciting deposits, the fact that eligible deposit liabilities have


advertisements soliciting deposits, the fact that eligible deposit liabilities have
been insured with the Sri Lanka Deposit Insurance Scheme implemented by
the Monetary Board on payment of the applicable premium for compensation
up to a maximum of Rs. 200,000 per depositor.1. Citation.
2. Enabling
statutory
provisions.
3. The objective
of Directions.
4. Insurance of
deposits.


450 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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PART I : SECTION (I) – GENERAL
Central Bank of Sri Lanka Notices
THE MONETARY LAW ACT
REGULATIONS made by the Monetary Board under Section 32 E of the Monetary Law Act,
(Chapter 422).
niv aRd  ajith leslie  cabRaal ,
Chairman,
Monetary Board.
Central Bank of Sri Lanka,
Colombo,
20th June 2011.
Sri Lanka Deposit Insurance Scheme Regulations
Amendment to the Sri Lanka Deposit Insurance Scheme Regulations, No.1 of 2010
1.1 These Regulations shall be cited as “Sri Lanka Deposit Insurance Scheme
Regulations, No. 2 of 2011”.
2.1 Sri Lanka  Deposit Insurance Scheme Regulations, No. 1 of 2010 published in
Gazette Extraordinary No. 1673/11 of 28th September, 2010 are hereby amended
as follows:–
2.2 In regulat ion 7 thereof by the repeal of paragraph 7.3 of that regulation and the
substitution therefor of the following paragraph :
“ 7.3 Debits to the Fund shall be for compensation payments to depositors,
investments and operating expenses of the Scheme as may be determined
by the Monetary Board.”.1. Citation.wxl 1711$14 – 2011 cqks 22 jeks nodod – 2011'06'22
no. 1711/14 – W ednesday , june 22, 2011
(Published by Authority)
2. Amendments
to the principal
regulation.
 Substitution for
regulation 7.3.


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PART I : SECTION (I) – GENERAL
Central Bank of Sri Lanka Notices
THE MONETARY LAW ACT
REGULATIONS made by the Monetary Board under Section 32 E of the Monetary Law Act,
(Chapter 422).
niv aRd  ajith leslie  cabRaal ,
Chairman,
Monetary Board.
Central Bank of Sri Lanka,
Colombo,
26th January 2011.
Sri Lanka Deposit Insurance Scheme Regulations
Amendments to the Sri Lanka Deposit Insurance Scheme Regulations, No. 1 of 2010
1.1 These Regulations shall be cited as “Sri Lanka Deposit Insurance Scheme
Regulations, No. 1 of 2011”.
2.1 Sri Lanka  Deposit Insurance Regulations, No. 1 of 2010 published in Gazette
Extraordinary  No. 1673/11 of 28th September, 2010 is hereby amended as
follows:–
2.2 By the substitution for word “regulation” of the word “regulation” wherever it
is applicable.
2.3 In regulation 5 thereof by the repeal of paragraph 5.2(iii) of that regulation and
the substitution therefor of the following paragraph:
“ 5 .2(iii)  Deposit liabilities to directors, key management personnel and other
related parties excluding shareholders as defined in Banking Act
Direction, No. 11 of 2007 on Corporate Governance for Licensed
Commercial Banks, Banking Act Direction, No. 12 of 2007 on
Corporate Governance for Licensed Specialised Banks and the
Finance Companies Act (Corporate Governance) Direction, No. 3
of 2008 for Registered Finance Companies.”1. Citation.wxl 1690$11 – 2011 ckjd˙ 27 jeks n%yiam;skaod – 2011'01'27
no. 1690/11 – thuRsday , januaR y 27, 2011
(Published by Authority)
2. Amendments
to the principal
regulation.
 Substitution
for the word
“regulation”.
 Substitution
for regulation
5.2(iii).


452 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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PART I : SECTION (I) – GENERAL
Central Bank of Sri Lanka Notices
THE MONETARY LAW ACT
REGULATIONS made by the Monetary Board under Section 32 E of the Monetary Law Act,
(Chapter 422).
niv aRd  ajith leslie  cabRaal ,
Chairman,
Monetary Board.
Central Bank of Sri Lanka,
Colombo,
27th September, 2010.
SRI LANKA DEPOSIT INSURANCE SCHEME REGULATIONS
1.1 These Regulations shall be cited as “Sri Lanka Deposit Insurance Scheme
Regulations, No. 1 of 2010”.
2.1 In terms of Section 5 of the Monetary Law Act, the Central Bank of Sri Lanka
is charged with the duty of securing, as far as possible by action authorized
by such Act, the two objectives, namely, ( a) economic and price stability and
(b) financial system stability.
2.2 In terms of the Sections 32 A to 32 E of the Monetary Law Act, the Central Bank
may establish, maintain, manage and control, as determined by the Monetary
Board from time to time, a scheme for insurance of deposits held by banking
institutions.
2.3 In terms of Sections 46(1) and 76J of the Banking Act, in order to ensure the
soundness of the banking system, the Monetary Board is empowered to issue 1. Citation.
2. Objective of
the Scheme
& Enabling
Provisions.
  wxl 1673$11 – 2010 iema;eïnr® 28 jeks wÛyrejdod – 2010'09'28
no. 1673/11 – tuesday , septeMbeR  28, 2010
(Published by Authority)


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  453
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Directions to licensed commercial banks and licensed specialized banks,
regarding the manner in which any aspect of the business of such banks is to
be conducted.
2.4 In terms of the Sections 27 to 29 of the Finance Companies Act, the Central
Bank may operate a scheme for insurance of deposits held by registered finance
companies and require such finance companies to insure their deposit liabilities
under the scheme or under any other scheme as is specified by the Monetary
Board.
2.5 Accordingly , this Deposit Insurance Scheme will be implemented in the interest
of the overall financial system stability of the country, and it will initially outline
a mechanism to protect small depositors from failure of financial institutions,
thereby promoting the stability of financial institutions by maintaining small-
depositor-confidence.
3.1 This Scheme shall be titled Sri Lanka Deposit Insurance Scheme.
3.2 The Scheme shall come into ef fect from 1 st October, 2010.
4.1 All Licensed Commercial Banks, Licensed Specialised Banks and Registered
Finance Companies shall be the members of the Scheme.
5.1 Deposits to be insured shall include demand, time and savings deposit liabilities
of member institutions and exclude all borrowing instruments.
5.2 The following deposit liabilities shall be excluded from the Scheme:–
 (i) Deposit liabilities to member institutions.
 (ii) Deposit liabilitie s to the Government of Sri Lanka inclusive of
Ministries, Departments and Local Governments.
 (iii) Deposit liabilities to shareholders, directors, key management personnel
and other related parties as defined in Banking Act, Direction No. 11
of 2007 on Corporate Governance for Licensed Commercial Banks,
Banking Act, Direction No. 12 of 2007 on Corporate Governance
for Licensed Specialised Banks and the Finance Companies Act


for Licensed Specialised Banks and the Finance Companies Act
(Corporate Governance) Direction, No. 3 of 2008 for Registered Finance
Companies.
 (iv) Deposit liabilities held as collateral against any accommodation
granted.
 (v) Deposits falling within the meaning of abandoned property in terms of
the Banking Act and dormant deposits in terms of the Finance Companies
Act, funds of which have been transferred to the Central Bank of Sri
Lanka in terms of the relevant Directions issued by the Monetary
Board.
5.3 All eligible deposits shall be insured by member institutions.
6.1 Member institutions shall pay a premium calculated on the total amount of
deposits, excluding the deposit liabilities stated in 5.2 above as at end of the
quarter  / month as may be determined by the Monetary Board from time to
time, to the Deposit Insurance Fund stated in Regulation 7.3. T itle of the
Scheme and
Effective Date.
4. Member
Institutions to
be governed by
the Scheme.
5. Eligible
Deposits to
be insured.
6. Premium to
be levied
on insured
deposits.


454 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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6.2 The calculation of premia ef fective until further notice shall be as follows:–
 (i) Licensed banks which maintained a capital adequacy ratio of 14 per
centum or above at the end of the immediately preceding financial year as
per its audited accounts as accepted by the Director of Bank Supervision
– a premium of 0.10 per centum per annum payable quarterly calculated
on total amount of all eligible deposits as at end of the quarter.
 (ii) All other licensed banks – a premium of 0.125 per centum per annum
payable quarterly calculated on total amount of all eligible deposits as
at end of the quarter.
 (iii) Re gistered Finance Companies – a premium of 0.15 per centum  per
annum payable monthly calculated on total amount of all eligible deposits
as at end of the month.
6.3 Member institutions shall remit the applicable amount of the premium to the
account of the Deposit Insurance Fund within a period of 15 days from the end of
the respective quarter  / month and submit the details of deposits and calculation
of premium in a format specified by the Director of Bank Supervision.
6.4 In the event of a delay in the payment of the premium inclusive of instances
of under-payment, a penalty will be levied at the prevailing weighted average
91 days primary Treasury bill yield rate plus 200 basis points.
7.1 The Scheme shall have a fund titled “Deposit Insurance Fund” (hereafter referred
to as “the Fund”), and it shall be operated and managed by the Monetary Board,
which responsibility it may delegate to an officer or a Department of the Central
Bank of Sri Lanka of its choice.
7.2 Credits to the Fund shall include premia and penalties paid by member -institutions,
all proceeds of profits, income and gains arising out of the investments of the
moneys in the Fund, recovery of deposits paid as compensation, such sums as


moneys in the Fund, recovery of deposits paid as compensation, such sums as
may be appropriated out of the abandoned property in the case of licensed banks
and dormant deposits in the case of registered finance companies transferred to
the Central Bank of Sri Lanka in terms Directions issued by the Monetary Board
under Part IX – Sections 72 and 76 of the Banking Act and Sections 31(1) to
31(3) of the Finance Companies Act as applicable, borrowings and contributions
from the Government and  / or any other sources as may be approved by the
Monetary Board.
7.3 Debits to t he Fund shall be for Compensation payments to depositors,
investments, repayment of abandoned property or dormant deposits, as the
case may be, in the event such property/dormant deposits lying in the fund
and operating expenses of the Scheme as may be determined by the Monetary
Board.
8.1 The moneys in the fund shall be invested as hereinafter provided:
 (i) Government Securities  – Government securities will include Treasury
bills, Treasury bonds and other marketable securities issued by the
Government of Sri Lanka.
 (ii) Secured advances or loans to any member institution in the instance of
a severe liquidity crisis in such member institution, if, in the opinion 7. Deposit
Insurance
Fund.
8. Investments
of moneys in
the Funds.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  455
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of the Monetary Board (after considering an assessment report on the
liquidity position submitted by the Director of Bank Supervision in the
case of a licensed bank or the Director of Department of Supervision
of Non-Bank Financial Institutions in the case of a registered finance
company), such an advance  / loan will help avoid an imminent financial
panic in the particular institution or in the financial system as a whole.
8.2 Su ch advances or loans to member institutions shall be provided on the security
of re-saleable collaterals and  / or G overnment  / Central Bank of S ri Lanka
Guarantees and at rates of interest as may be determined by the Monetary
Board.
8.3 The repayment period of such loans or advances shall be as determined by the
Monetary Board.
9.1 Compensation to depositors on insured deposits will be paid as per regulations
issued by the Monetary Board from time to time, or as hereinafter provided.
9.2 Compensation on insured deposit liabilities of a member institution will
be paid only when the licence  / registration of the member institution is
suspended  / cancelled by the Monetary Board in terms of the relevant statutory
provisions.
9.3 W ithin a week from the announcement of Monetary Board decision to suspend  /
cancel the licence  / registration of the member institution, the Director of
Bank Supervision in the case of a licensed bank or the Director of Department
of Supervision of Non-Bank Financial Institutions in the case of a registered
finance company, shall prepare a list of depositors with the details of deposit
accounts setting out the amounts due from the institution to such depositors as
at the date of the Monetary Board Order of suspension  / cancellation.
9.4 The compensation within the limits as specified will be paid within six months


9.4 The compensation within the limits as specified will be paid within six months
from the date of the suspension/cancellation. No interest will be paid in the
ensuing period.
9.5 The compensation payable in respect of insured deposits of a member institution
will be computed on a “per-depositor” basis, consolidating all insured deposit
liabilities to each depositor inclusive of any interest accrued and net of any dues
from the depositor to the member institution as at the date of the suspension  /
cancellation of licence  / registration.
9.6 The amount of compensation payable to a depositor shall be limited to the total
insured deposits computed as above, subject to a maximum of Rs. 200,000 or
its equivalent in the case of foreign currency deposits, if such amount exceeds
Rs. 200,000.
9.7 Any compensation paid to depositors of a member institution by the Deposit
Insurance Fund shall be accounted in the books of the member institution as its
deposit liability to the Deposit Insurance Scheme, while redeeming the deposit
liabilities due to the respective depositors by an equivalent amount.
9.8 In the event that any depositor is unable to receive the entitled compensation at
the time of payment of compensation, the legal beneficiaries of the depositor 9. Compensation
on Insured
Deposits.


456 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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shall be paid the compensation in terms of the applicable legal provisions and
procedures.
9.9 The payment of compensation shall not be a liability of the Monetary Board
or the Central Bank of Sri Lanka, and shall be limited to funds available or
raised in the Deposit Insurance Fund including any borrowings permitted and
contributions received. The Monetary Board and the Central Bank of Sri Lanka
shall not be responsible for any liability that exceeds the total amount lying to
the credit of the Fund.
9.10 T he payment of compensation shall come into effect in the case of a suspension  /
cancellation as ordered by the Monetary Board on or after 1 st January, 2012.
10.1 There shall be an established Deposit Insurance Unit in the Bank Supervision
Department (The Unit) which shall be responsible for the operational and
management arrangements, under the instructions and supervision of the
Director of Bank Supervision in terms of Directions  / Regulations and policies
as approved by the Monetary Board from time to time.
10.2 The Unit shall maintain books, accounts and statements relating to financial
transactions of the Scheme in terms of the applicable Sri Lanka Accounting
Standards.
10.3 The financial year of the Scheme shall be the calend ar year and the Auditor
General shall be the Auditor.
10.4 The Unit shall prepare financial statements on income and expenses, assets and
liabilities, cash flows and investments for each financial year and submit the
audited financial statements to the Monetary Board on or before 31st March
of the following year and disclose such statements for the information of the
member institutions and the public.
10.5 The financial statements of the Sri Lanka Deposit Insurance Scheme shall be
distinctly separate from the financial statements of the Central Bank of Sri Lanka


distinctly separate from the financial statements of the Central Bank of Sri Lanka
and accordingly, no consolidation of the Unit’s financial statements shall be
made with that of the Central Bank of Sri Lanka.
11.1 Deposit Insurance Scheme Regulations  / No. 1 of 1987 dated 27 th February,
1987 and Gazette, No. 443/17 dated 6 th March, 1987 issued under Section 32 E
of the Monetary Law Act, (Chapter 422) and subsequent amendments shall be
repealed and cease to operate with effect from 1 st October, 2010 and the Deposit
Insurance Fund operated under these Regulations as at 30 th September, 2010
shall be vested with the Sri Lanka Deposit Insurance Scheme with effect from
1st October, 2010.
11.2 As such, all commitments or contingencies arising from the Scheme
operated under Deposit Insurance Scheme, Regulations No. 1 of 1987 as at
30th September, 2010 shall be extinguished as on 1 st October, 2010.10. Books and
Accounts of
the Scheme.

11. Repeal of
Regulations
dated 27
February,
1987 and , No.
443/17dated 6
March, 1987.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  457
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Circular No. : 01  / 2011
Bank Supervision Department
20 April 2011
To : CEOs of all Member Institutions of
       Sri Lanka Deposit Insurance Schemes
Dear Sir  / Madam,
SRI LANKA DEPOSIT INSURANCE SCHEME – OPERATING INSTRUCTIONS
All member institutions are informed that Paragraph 4( c) of Circular No.02/2010 on the above subject
dated 09 December 2010 is hereby amended as follows.
“ Deposits at overseas branches shall not be considered as eligible deposits.  ”.
Accordingly, deposits at Off-shore Banking Unit shall be considered as eligible deposits from next
premium date.
Yours faithfully,
(Mrs). T M J Y P Fernando
Director of Bank Supervision
Copy: Director of Supervision of Non-Bank Financial Institutions
           Central Bank of Sri Lanka


458 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Circular No. : 02  / 2010
Bank Supervision Department
09 December 2010
To : CEOs of all Member Institutions of
       Sri Lanka Deposit Insurance Schemes
Dear Sir  / Madam,
SRI LANKA DEPOSIT INSURANCE SCHEME – OPERATING INSTRUCTIONS
All member institutions are requested to adhere to the following instructions.
1. Conversi on rates for foreign currency deposit liabilities:  The daily indicative exchange rates
issued by International Operations Department of the Central Bank in the Central Bank web site
(http://www.cbsl.gov.lk) should be used to convert the foreign currency liabilities in the local
accounting requirements.
2. Deposits held as collaterals against any accommodation granted:  The deposits held as collateral
to the extent of actual usage of the credit facilities as of the reporting date should be excluded for
calculation of insurance premium. In the case of a deposit taken as an additional collateral, the
deposit balance or the outstanding balance of the accommodation, which ever is lower, should be
excluded.
3. Deposit liability calculation:  The outstanding balance of depositors’ accounts eligible for insurance
as at the end of each month/quarter should be treated as the deposit liability.
4. Eligibility of deposits:
 (a) Certificates of deposits shall be considered as eligible deposits.
(b) V ostro accounts of entities in the member institution’s group entity shall not be considered as
eligible deposits.
(c) Deposits at Off-shore Banking Unit and overseas branches shall not be considered as eligible
deposits.
5. Reporting on depositor wise details:  Member institutions shall submit depositor wise details of
eligible deposits to the Deposit Insurance Unit of the Central Bank of Sri Lanka in the annexed
format in an electronic form, along with a covering letter duly signed by the Chief Executive Officer


and the Chief Financial Officer, commencing from 31 December 2011.
Yours faithfully,
Acting Director of Bank Supervision
Copy: Director of Supervision of Non-Bank Financial Institutions
           Central Bank of Sri Lanka


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  459
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Annex
Form No: SLDIS/02/2010/01
CONFIDENTIAL
…………………………………………………………………..………..
(Name of the Member Institution)
Return on Depositor wise details of eligible deposits
As at ………………  (dd/mm/yyyy)
Account No. Name of Depositor/(s)NIC No.
or
any other Identity No.Eligible
Deposit
Balance
Note: In case of joint accounts, Names and NIC numbers of joint account holders and the total deposit
balances shall be reported.
 ………………………………………………  ………………………………………………
 CFO / Chief Financial Officer  CEO / Chief Executive Officer
 ………………………………………………  ………………………………………………
 Name  Name


460 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Circular No. : 01  / 2010
Bank Supervision Department
15 October 2010
To :  CEOs of all Member Institutions of
 Sri Lanka Deposit Insurance Scheme
Dear Sir  / Madam
SRI LANKA DEPOSIT INSURANCE SCHEME
– PREMIUM TO BE LEVIED ON INSURED DEPOSIT
In terms of Regulation 10.1 of the Sri Lanka Deposit Insurance Scheme Regulations No. 01 of
2010 dated 27 September, we write to inform you of the following.
1. The premium on deposits in terms of Regulation No. 6 of the Regulations should be paid to
“Sri Lanka Deposit Insurance Fund” through RTGS, specially mentioning the account name
as “Sri Lanka Deposit Insurance Fund – Account Number 4681” or drawing a cheque in favor
the said account.
2. In terms of Regulation No. 6.3 of the Regulations, all members of the scheme are required
to e-mail the details of the ‘calculation of premium’ as per Annex I to the Director of Bank
Supervision (e-mail addresses: dbsd@cbsl.lk, anuradha@cbsl.lk and sumithi@cbsl.lk) along
with the payment of premia.
3. All Member Institutions should maintain a proper system of information to support the
accuracy of calculation of premium.
Yours faithfully,
(Mrs.) T M J Y P Fernando
Director of Bank Supervision
Encl.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  461
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Annex 1
Sri Lanka Deposit Insurance Scheme
Payment of Premium
1. Name of the Member  Institution :  ………………………………………………………………
2. Capital Adequacy Ratio
(At	the	end	of	the	immediately 	preceding 	financial	year	as	per	its	audited	accounts) 	:	 ………
3. Quarter  / Month :  …………………………………………………………………………………
4. Pr emium to be Paid                                                                                (Rs. ’000)
Total deposit liability as per the general ledger (a) XXX
Less: Total excluded deposits (XX)
Total eligible deposits XXX
Applicable annual insurance premium rate (%) (b) XX
Total insurance premium to be paid for the quarter/month (c) XXX
 (a) Deposit liability as at end of the quarter in the case of licensed banks and as at end of the month
in the case of registered finance companies.
 (b) Rate of Premium
 (i) Licensed banks which maintained a capital adequacy ratio of 14% or above at the end
of the immediately previous financial year as per its audited accounts as accepted by
the Director of Bank Supervision – a premium of 0.10 per cent per annum, payable
quarterly.
 (ii) All other licensed banks – a premium of 0.125 per cent per annum, payable quarterly .
 (iii) Regist ered Finance Companies – a premium of 0.15 per cent per annum, payable
monthly calculated on total amount of all eligible deposits as at end of the month.
 (c) Premium should be paid within 15 days from the end of the quarter  / month.
 Prepared by  Checked by  Authorised by
Name of the officer :   ……………..  …………….  ………………
Designation of the officer :   ……………..  Head of Finance  Chief Executive
Officer
Date :  ……………..  …………….  ………………
This return should be sent to the Director of Bank Supervision.
Telephone: 01124772100, 0112398602 and 0112477169. Fax: 0112477711.
E-mail: dbsd@cbsl.lk, anuradha@cbsl.lk and sumithi@cbsl.lk


462 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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BANKING ACT
Determination made by the Monetary Board of the Central Bank of Sri Lanka under Section 48 a of
the Banking Act, No.30 of 1988 as amended by Banking (Amendment) Act, No.33 of 1995.
Sgd. A. S. Jayawardena
Governor
Colombo
22 August 1997
DETERMINATION
1. By virtue of the provision of section 48 A of the Banking Act, No.30 of 1988 as amended
by Banking (Amendment) Act, No.33 of 1995, the Monetary Board has determined that a licensed
commercial bank shall not purchase or in any other way acquire any immovable property or any right
therein, exceeding in the aggregate fifteen percent of its capital funds.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  463
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Ref. No. : 02  / 19 / 150 / 0104  / 001
Bank Supervision Department
17 April, 2013
To :  The CEOs of all Licensed Commer cial Banks
Dear Sir  / Madam,
EXEMPTING FOREIGN BORROWINGS OF LICENSED COMMERCIAL
BANKS FROM REGULATORY LIMITS
In order to facilitate the implementation of proposals of Budget 2013 on foreign borrowings by
licensed banks, the Monetary Board has granted approval for the following exemptions:
(a) Foreign borrowings of licensed commercial banks of USD 50 mn each during the period
2013 to 2015 and further borrowing of USD 250 mn by the National Development Bank
PLC, from the limit of 15 per cent of capital funds of respective banks, in terms of Circular
BD/FX/196 dated 13 January 1997 issued by the Central Bank of Sri Lanka.
(b) Non-agricultural credit facilities granted through the utilisation of the above funds from total
loans when computing the respective bank’s mandatory lending to the Agriculture Sector.
Yours faithfully,
(Mrs.) T M J Y P Fernando
Director of Bank Supervision


464 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Ref. No. : 02  / 17 / 800 / 007 / 001
Bank Supervision Department
19 March 2010
To :  CEOs of Licensed Commer cial Banks
Dear Sirs,
DECISION OF THE CABINET OF MINISTERS ON
RESERV ATION OF GOVERNMENT SECTOR IMPORT CARGO FOR
THE CEYLON SHIPPING CORPORATION LTD.
– PUBLIC FINANCE CIRCULAR NO. 415 DATED 6 MAY 2005
The Ministry of Ports and Aviation by their letter dated 10 March 2010 on the above subject has
advised us to inform the licensed commercial banks of the decision taken by the Cabinet of Ministers
dated 3 February 2010, as follows:
“All cargo imported by Government institutions, including Government Owned Companies,
should be carried through the Ceylon Shipping Corporation Ltd., as stipulated in Public Finance
Circular No. 415 of 6 May 2005.”
Yours faithfully,
(Mrs.) T M J Y P Fernando
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  465
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Ref. No. : 02  / 17 / 800 / 007 / 001
Bank Supervision Department
07 April 2009
To :  CEOs of Licensed Commer cial Banks and
 Licensed Specialised Banks
Dear Sir  / Madam,
STIMULUS PACKAGE APPROVED BY THE GOVERNMENT FOR THE
FINANCE AND LEASING INDUSTRY
The Cabinet of Ministers at its meeting held on 25.02.2009, having considered the present
financial stress experienced by some registered finance companies (RFCs) and specialised leasing
companies (SLCs), has approved of a Stimulus Package consisting of several measures to address
the liquidity and funding constraints faced by RFCs and SLCs. This Stimulus Package is designed to
restore public confidence in the finance and leasing companies and thereby to ensure the stability of the
financial system.
The current liquidity problems encountered by the finance companies and leasing companies
have been aggravated by the sudden withdrawal of credit lines by some banking institutions. As the stability
of the financial system is of utmost importance, all licensed banks are requested to carry on their normal
businesses with registered finance companies and specialised leasing companies.
Yours faithfully,
B D W A Silva
Director of Bank Supervision


466 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Ref. No. : PS  / 21 / 98
Bank Supervision Department
14 September 1998
To : All Licensed Commercial Banks
Dear Sirs,
APPOINTMENT OF COMPLIANCE OFFICERS
Your attention is drawn to the discussion held at the Bank Managers’ Meeting of 13 August 1998,
where it was agreed that the banks should establish an independent compliance function to ensure
compliance in respect of banking and other statutory requirements.
As compliance failures affect integrity and reputation of banking institutions, it is imperative, that
banks have in place adequate policies and procedures to ensure compliance with laws and regulations.
Such a compliance function would be most appropriately addressed, by appointing a Compliance
Officer whose terms of reference, would broadly encompass the following:–
1. Develop policies and procedures designed to eliminate or minimize the risk of breach of
regulatory requirements and of damages to the bank’s reputation and to ensure these policies
and arrangements are adhered to in letter and spirit.
2. Promote throughout the business the belief that compliance is not a negative process but a
positive contribution to the success of the Bank, so that the principles and importance of
compliance are clearly understood by all.
3. Secure early involvement in the design and structuring of new products and systems, to
ensure that they conform to local regulatory requirements and internal compliance and ethical
standards.
4. Maintain regular contact and good working relationship with regulators based upon clear and
timely communication and a mutual understanding of the regulators’  objectives.
5. Ensure that reviews are undertaken at appropriate frequencies to assess compliance with
regulatory rules and internal compliance standards.


regulatory rules and internal compliance standards.
6. Promote, across the compliance network, best practices developed in the area of compliance.
7. Understand and apply all new legal and regulatory developments relevant to the business of
the Bank.
8. Represent the compliance function on relevant internal  and external committees.
9. Ensure that compliance policies and procedures are clearly communicated to management and
members of staff.
10. Provide timely reports to management, including senior management, which will highlight
regulatory developments, changes in the law, and other developments insofar as they give rise
to compliance issues relevant to the Bank’s business.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  467
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11. Highlight serious or persistent compliance problems and where appropriate, work with
management to ensure that they are rectified within an acceptable time.
12. Liaise with the Bank’ s Audit function to ensure that:
 (a) Auditors are familiar with local regulatory and ethical requirements, so that they are able
to ensure that compliance issues are properly addressed.
 (b) Compliance weaknesses identified as a result of audits are followed up.
You are requested to make early arrangements to appoint a Compliance Officer with sufficient
seniority and also communicate the name of the officers and his contact telephone number for our
records.
Please acknowledge receipt of this letter.
Yours faithfully,
Sgd, Y. A. Piyatissa
Director of Bank Supervision
cc: Mr . C.A.P. Leonard,
 Chairman
 Sri Lanka Banks’  Association (Gte) Ltd.
 17 1/B, Standard Chartered Bank Building
 Janadhipathi Mawatha
 Colombo 1.


468 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Ref. No. : 02  / 04 / 008 / 0002  / 001
Bank Supervision Department
06 May, 2008
To :  All CEOs of Licensed Commer cial Banks
        and Licensed Specialised Banks
Dear Sir/Madam,
ENHANCING LENDING TO AGRICULTURE SECTOR
 As you are aware, international food prices have risen in an unprecedented manner in the recent
past and these price escalations could have far reaching effects on Sri Lanka and indeed on almost every
country in the world. As you also know, a significant portion of the current inflation in Sri Lanka is driven
by these large increases in food prices. This clearly demonstrates the importance of enhancing food
production and food security in the country.
Hence, as conveyed by the Governor at the Bank Managers’ Meeting held on 24 April 2008, there
is a need to sustain and expand lending to the Agriculture sector.  While we note that some banks have
already achieved the target set out in the Budget 2006, there are others who are yet below such level of
lending to the sector. Hence, banks which are yet to expand their Agriculture lending to reach 10% of
their lending portfolio, are requested to take steps to do so, and also to inform us of their plans to expand
agricultural loans, in particular for cultivation of food crops.
In view of the present national requirement in expanding food production and increasing agricultural
productivity, your urgent attention and cooperation to channel lending to this sector is solicited.
Yours faithfully,
Sgd. Actg. Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  469
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Ref. : 02  / 04 / 008 / 0002  / 003
Bank Supervision Department
30 April 2013
To : CEOs of all Licensed Commercial Banks and
       Licensed Specialised Banks
Dear Sir / Madam,

MANDATORY LENDING TO THE AGRICULTURE SECTOR
We refer to the requests and discussions on compliance with the mandatory lending to the
agriculture sector and write to inform you that the Monetary Board has decided to:
(a) permit licensed banks to include loans and advances granted for growing, processing and
trading of domestic agriculture products in the definition of agriculture for the purpose of
compliance with the above.
(b) exclude the following from the total loans and advances in computing the ratio of mandatory
lending to agriculture sector:
 (i) Total loans and advances granted outside Sri Lanka by Off-shore Banking Units and
by overseas branches on a staggered basis, as 50 per cent of such advances in 2013 and
100 per cent in 2014 onwards; and
 (ii) Direct financing to large Government and other infrastructure projects promoted by the
Government.
(c) permit LCBs and LSBs to include their loans granted to other banks and finance companies for
on-lending to agriculture sector in the mandatory lending, provided that a suitable monitoring
mechanism to identify such lending is maintained by the respective banks.
2. Loans and advances granted for processing and trading of domestic agriculture products include
advances to:
(a) manufacturing companies for value addition using domestic agricultural produce; and
(b) companies that act as intermediaries to provide advances to meet working capital and other
capital requirements of agricultural producers and to facilitate the sale of agricultural produces.
3. The monitoring mechanism under loans granted to other licensed banks for on-lending to agriculture


sector should ensure that the borrowing banks will not consider such loan facilities as lending to agriculture
sector in complying with the above.
Yours faithfully,
(Ms.) T M J Y P Fernando
Director of Bank Supervision


470 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Ref. No. : 02  / 04 / 008 / 0002  / 002
Bank Supervision Department
25 February, 2010
To :  CEOs of all Licensed Banks
Dear Sir/Madam,
MANDATORY LENDING TO THE AGRICULTURE SECTOR
 Further to our letter No: 02/04/008/0002/002 dated 13 July 2009 on the above subject, we write to
inform you of the following:
(1) The Monetary Board has decided to:
 (a) create a refinance fund to be operated by the Regional Development Department (RDD)
of the Central Bank of Sri Lanka (CBSL) for lending to the Agriculture Sector through
banks;
 (b) require banks that are non-compliant with the 10% lending requirement to the Agriculture
Sector since end 2009 to contribute any shortfall to this refinance fund; and
 (c) pay a rate of return of 2% per annum to the contributing banks after commencing lending
through other banks.
(2) A  refinance fund “Special Loan Scheme for Agriculture Sector Development – Account
No: 32 0000 900” has been created in the CBSL.
(3) Accordingly , all licensed banks are required to:
 (a) cre dit funds to the above account to cover any shortfall of the agriculture lending
requirement of 10% by end 2009 within 7 days from the date of this letter; and
 (b) assess the position on lending to agriculture sector quarterly and credit funds equivalent
to the shortfall of the requirement of 10% to the above account within 15 days from the
end of each quarter.
Yours faithfully,
(Mrs.) T M J Y P Fernando
Actg.  Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  471
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Ref. No. : 02  / 04 / 008 / 0002  / 002
Bank Supervision Department
13 July, 2009
To :  CEOs of all Licensed Banks
Dear Sir/Madam,
MANDATORY LENDING TO THE AGRICULTURE SECTOR
 As per the 2006 Budget proposal, all licensed banks have to fulfil the mandatory requirement
of lending 10% of the total advances granted by each bank, to the Agriculture Sector by end 2009.
The following time targets were proposed and agreed with the banks at the meeting of Chief Executive
Officers of Licensed Banks held on 04 July 2006, in order to reach the tar get by end of 2009.
(a) 3% of total advances by 31.12.2007
(b) 6% of total advances by 31.12.2008; and
(c) 10% of total advances by 31.12.2009
The position as at 31 March 2009 shows that of the 36 banks, 10 banks have already achieved the
10% target, while 14 banks have achieved the 6% target.  However, the Monetary Board, having observed
that there are 12 banks that have not yet met even the 6% requirement, has decided to consider the following
two options to facilitate banks to grant credit to the Agriculture Sector.
1. Permitting banks to provide funds to banks of their choice to re-lend such funds to the
Agriculture Sector; and
2. The banks to subscribe to a fund managed and monitored by the Rural Development
Department of the Central Bank, which will lend to the Agriculture Sector.
In this regard, the Central Bank wishes to know the preferred option from each bank, which would facilitate
the bank to achieve the stipulated percentage before end 2009. Therefore, you are kindly requested to
forward your position to us on or before 17th July, 2009.
Yours faithfully,
B D W A Silva
Director of Bank Supervision


472 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Bank Supervision Department
21 August 2006
To : CEOs of all Licensed Commercial Banks
       All Licensed Specialised Banks;
Dear Sirs,
MANDATORY LENDING TO AGRICULTURE SECTOR

We refer to the discussion on the above subject at the meeting of the CEOs of Licensed Commercial
Banks (LCBs) and Licensed Specialised Banks (LSBs) held on 11 August 2006.
As announced, all banks are requested to inform us of the advances granted to the different
sub-sectors in the agriculture sector on the basis of definition provided at the meeting held on 04 July
2006 (copy enclosed for reference). You are also requested to include any other advances that are not
captured in the above definition but are connected with agricultural purposes, separately, indicating the
purpose.
We shall be thankful if you will make arrangements to provide the information on or before
31 August 2006.
Yours faithfully,
Sgd, Actg. Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  473
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MANDATORY LENDING TO THE AGRICULTURE SECTOR
The attention of the CEOs is drawn to the discussion on the proposed implementation of the budget
proposal on mandatory lending to the agriculture sector. The CEOs were requested to send in their
suggestions in this regard.
The BSD has presented a paper in this regard to the Monetary Board, and the following has been
approved:
1.	 The	definition 	of	agriculture
 Cultivation, processing and purchasing of tea, rubber, coconut, paddy, minor export crops, livestock
and dairy farming, fisheries, minor food crops, horticulture, forestry and bee keeping etc. as well as
processing of products for value addition for export purposes.
 W ithin the above definition, the following could be construed as mandatory lending to the agriculture
sector.
(a) Direct finance to farmers to undertake the agricultural activities specified above and
(b) Indirect finance for:
• Purchase of agricultural implements
• Purchase of farm machinery (tractors, trailers, power tillers, tractor accessories and providing
funds to Co-operative societies to provide agricultural equipments and tractors on concessional
rental basis to farmers)
• Purchase of vehicles for the transport of agricultural inputs and farm products including lease
facilities
• Developing the national irrigation potential ( e.g.: implementing multipurpose irrigation
schemes, construction of tanks, tube wells etc. and purchase of drilling units)
• Reclamation and developing land for cultivation
• Construction of farm buildings and structures (Bullock sheds, farm sheds, implement sheds,
tractor and truck sheds)
• Construction and running of storage facilities (warehouses, silos and loans granted for
establishing cold storages for storing produce)
• Production and processing of hybrid seeds for crops ( e.g.: developing state owned seed


• Production and processing of hybrid seeds for crops ( e.g.: developing state owned seed
research farms and seed production farms)
• Obtaining fertilizer (Establishing a fertilizer factory to supply fertilizer at cheaper prices and
providing essential insecticides and weedicides through Co-operatives at competitive prices)
• Agricultural advisory services and research activities (reviving schools of Agriculture and
University faculties, training farmers and equipping them with required technological and
other skills)
• Purchase of Agricultural produce (granting loans at concessionary rates to rehabilitate the
small and medium scale paddy mills and establishing Rice Processing Villages)
• Developing plantations, horticulture, forestry, dairy, fisheries, piggery, poultry, bee
keeping etc. and providing loans for allied activities (Providing incentives for introducing


474 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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new varieties and value addition, conducting research, boosting exports, modernizing
factories, providing assistance for obtaining equipment and new technology, launching
projects to preserve crops, add value to market crops as processed/packed foods and store the
produce, establishing Regional distribution Centres and arranging to store produce in fully
equipped cool rooms etc.)
 In addition, i t is proposed that funding provided under the credit schemes operated by the
Regional Development Department of CBSL, also be considered as agricultural credit.
The schemes presently in operation are as follows:
• T ea Development Project – Established for the purpose of increasing tea small holders’ income
on a sustainable basis, improving the natural environment in the project area and developing
the necessary infrastructure in the sector (2,678 loans amounting to Rs.2,963 mn had been
granted as at end 2005).
• Second Perennial Crops Development Project – Set up to commercialise the perennial crop
sector, increase production, develop nurseries, handle post harvest processing and marketing
(6,250 loans amounting to Rs.1,453 mn had been granted as at end 2005).
• New Comprehensive Rural Credit Scheme – Provision of working capital requirement
of small farmers; short term production loans, production of seeds and plant material and
purchase of agricultural commodities under forward sales contracts (70,196 loans amounting
to Rs.1,620 mn had been granted during 2005).
• Small Farmers and Landless Credit Project – To establish a cost effective and sustainable
micro credit delivery system to generate employment and improve savings habits among the
low income receiving people (106,632 loans amounting to Rs.1,513 mn had been granted as
at end 2005).
2. Pr oposed time frame


at end 2005).
2. Pr oposed time frame
In implementing the proposals, it is suggested that the banks be required to increase their lending to
the agricultural sector to 10% of total advances as follows:
•	3%	by	end	2007,	6%	by	end	2008	and	10%	by	31	December 	2009.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  475
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Bank Supervision Department
27 June 2006
To : CEOs of Licensed Banks
       Panel of Approved Auditors
Dear Sirs,
PAYMENT OF TAXES BY THE BANKING AND FINANCIAL SECTOR

The Inland Revenue Department has drawn the attention of the CBSL to the deviations observed
in the payment of taxes (income tax, V AT – including V AT on financial activities, PAYE, Debit Tax and
Economic Service Charge) by the banking sector.
Licensed Banks are therefore informed that payment of all taxes such as income tax, V AT (including
V AT on financial activities), PAYE, Debit Tax and Economic Service Charge payable to the Department
of Inland Revenue should carry a certification by the External Auditors of the bank, when such payment is
made, that the relevant tax is in conformity with the provisions of the relevant Inland Revenue regulations
in that regard.
Yours faithfully,
Director of Bank Supervision
cc: Secretary-General/SLBA


476 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Ref. No. : 02  / 17 / 800 / 0007  / 001
Bank Supervision Department
08 November 2013
To: CEOs of Licensed Commercial Banks and
      Licensed Specialised Banks
Dear Sirs,
MISLEADING AND UNETHICAL ADVERTISEMENTS
 We refer to our Circular 02/17/800/0007/001 dated 6 November 2008 requiring all banks to refrain
from publishing misleading and unethical advertisements, and to ensure that all important information is
highlighted in a visible manner to enable the general public to understand clearly the nature of the products
and the effective interest rates applicable.
 As informed at the meeting of the Chief Executive Officers of licensed commercial banks and licensed
specialised banks held on 24 October 2013, banks publish advertisements in a misleading and unethical
manner, e.g., publication of annual effective rate of interest (AER) of deposits in small font size which
is much smaller or less than that of other important information, promoting deposits without divulging a
rate of return, i.e., an interest rate or an annual percentage yield.
 W e, therefore, request you to comply with the Circular 02/17/800/0007/001 dated 6 November 2008
at all times, ensuring that all key information including nominal interest rate, AER and credit rating of
the bank is published with the same prominence in all advertisements, articles, etc., to enable the general
public to make informed decisions.
Yours faithfully,
(Mrs.) T M J Y P Fernando
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  477
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Ref. No. : 02  / 17 / 800 / 0007  / 001
Bank Supervision Department
06 November 2008
To: All the CEOs of Licensed Commercial Banks and
      Licensed Specialised Banks
Dear Sirs,
MISLEADING AND UNETHICAL ADVERTISEMENTS
 It has been observed on several occasions that banks are publishing misleading and unethical
advertisements, e.g., 15% on US Dollar deposits, interest rate of 30% on Fixed deposits, mega bonus
return of 300% or bonus interest of 200% etc., in the media and in bill boards displayed in public places.
These advertisements are very misleading and cause much negative misinterpretation of the economic
situation of the country. There have been complaints from the public about being misled by these
advertisements too. Whilst we understand that good marketing strategies are necessary in a competitive
market, we wish to emphasise that they should be ethical, with clear policies.
 Therefore, we hereby request all the l icensed banks to refrain from publishing misleading and
unethical advertisements with immediate effect and to ensure that all important information is highlighted
in a visible manner to enable the general public to understand clearly the nature of the products and the
effective interest rates applicable.
Yours faithfully,
Actg. Director of Bank Supervision
cc: Secretary-General / SLBA


478 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Ref. : 02  / 17 / 600 / 0031  / 001
Bank Supervision Department
28 July 2011
To : CEOs of all Licensed Commercial Banks, and
       Licensed Specialised Banks
Dear Sir  / Madam,
REGISTRATION OF SECURED INTERESTS OVER MOV ABLE PROPERTIES
WITH THE SECURED TRANSACTIONS REGISTRY
It is observed that the Secured Transactions Registry maintained by Credit Information Bureau
(CRIB) of Sri Lanka under section 23 of the Secured Transactions Act, No. 49 of 2009, will be beneficial
to credit risk management of banks as it provides valuable information to assess the availability and
quality of movable assets taken as securities for loans and other banking facilities.
Therefore, licensed banks are requested to register any pledge, mortgage or obligation on movable
assets as collaterals for loans and other banking facilities, as provided for in sections 2 and 3 of
the Secured Transactions Act, with the Secured Transactions Registry at the CRIB and utilize such
information obtainable from the CRIB for credit risk management decisions.
Yours faithfully,
(Mrs.) T M J Y P Fernando
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  479
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Ref. No. : 02  / 01 / 00 / 0002  / 001
Bank Supervision Department
31 December 2007
To :  CEOs of All Licensed Banks
Dear Sirs/Madam,
GUIDELINES FOR EMPLOYMENT OF EXPATRIATE STAFF IN BANKS
 As announced at the meeting of the Chief Executive Officers of licensed banks on 22 November
2007, the Guidelines for employment of expatriate staff in banks, which have been developed to facilitate
the introduction of new banking products and risk management of banks, are sent herewith.
 Please acknowledge receipt of this Circular .
Yours faithfully,
Sgd.  B.D.W.A. Silva
Acting Director of Bank Supervision
Encl.


480 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Guidelines for Employment of Expatriate Staff in Banks
1. Curr ent Policy
1.1 At present, the Central Bank of Sri Lanka (CBSL) recommends to Immigration and Emigration
Department resident visas for expatriate staff of foreign banks to enable the banks to employ them
as follows.
 (i) Maximum of three officers without any restriction.
 (ii) Permission for any officers exceeding 3 is granted on a case-by-case-basis for a specific
period not exceeding one year subject to condition that local staff should be trained to handle
the work initiated/undertaken by such expatriate officers.
1.2 The objective of developing this policy is to provide local staff with the training and opportunities
to take on positions held by the expatriate officers.
1.3 In the case of local banks, there has not been such a policy since local banks generally do not
employ foreign personnel. However, four local banks have employed foreign consultants to
undertake specific assignments.
2. Need for  a Revision of the Policy
 The following factors are considered favourably to relax the current policy to permit more expatriate
officers and to encourage domestic banks to employ foreign experts.
 (i) Expansion of business operations of some foreign banks.
 ( ii) Foreign banks now t end to expand business in Sri Lanka, especially infrastructure projects,
through funds borrowed from their respective head offices and branches.
 (iii) The activ e presence of foreign banks with internationally experienced professionals will help
improve Sri Lanka’s image and investment promotion internationally.
 (iv) T endency to introduce international banking products such as securitization, loan syndication,
foreign loan raising, infrastructure funding and derivative products.
 (v) Banks in Sri Lanka mainly depend on conventional deposit and loan products. Introduction of


(v) Banks in Sri Lanka mainly depend on conventional deposit and loan products. Introduction of
innovative banking products indicate the development of the financial sector and the economy.
International banking know-how is necessary to introduce new banking products, especially to
attract foreign capital to Sri Lanka.
 (vi) Banks will need to employ risk management specialists to implement advanced approaches of
Basel II in the medium term and there may be a need to look for such specialists from countries
which implement Basel II.
 (vii) The proposed adoption of IAS/IFRS also will require bankers who have practical experience in
adopting IAS/IFRS.
 (viii)  In general, banking industry needs experts who have global banking experience if Sri Lankan
banks are to introduce modern banking products, technology and risk management techniques.
3. Policy Guidelines
 3.1 For  Foreign Banks
 (i) The maximum number of expatriate officers permitted will be as follows:
 (a) 3 for banks whose staf f strength is less than 75.
 (b) 5 for banks with staf f strength of 75 to 400.
 (c) 10 for banks with staf f strength of more than 400.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  481
LCB - 30 Nov 2013 (5th Final Proof) - 29/11/2013
 (ii) In the case of Indian banks, agreement as per on-going negotiations of the Comprehensive
Economic Partnership Agreement (CEPA) will be adopted as the minimum criteria.
 (iii) Approval for expatriate officers in excess of the above limits will be considered on a case-
by-case-basis taking into consideration the specific skills of the nominated expatriates
and specific assignments given to them. The banks should submit projections for specific
business or deliverables expected from expatriate officers.
 (iv) V alidity period of the approval will be two years for expatriates under the normal quota and
one year for others (case-by-case-basis criteria).
 (v) In the case of expatriate officers under the normal quota except for CEO, approval may
be renewed for another term of two years after assessing the performance of respective
expatriate officer. For CEOs, approval may be extended for two terms (4 more years) on the
basis of performance records. The renewal for the term of expatriates permitted in excess of
the normal quota (case-by-case basis) will be considered only for extension of the projects/
assignments or new projects/assignments.
 (vi) Approving authority for expatriate officers under normal quota will be the Director of Bank
Supervision. The Deputy Governor will approve expatriate officers in excess of the normal
quota.
 3.2  For  Locally Incorporated Banks
Permission will be granted on a-case-by-case basis taking into consideration the specific needs of
the banks. Special attention will be given to employment of foreign experts in the following fields:
 (a) Basel II-based risk management
 (b) International Accounting Standards
 (c) Risk modeling and data warehouse
 (d) Structuring of derivative products
 (e) Corporate governance


482 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Ref. No. : 02  / 04 / 003 / 0400  / 001
Department of Bank Supervision
19 January, 2004
To :  All Chief Executive Officers
 of LCBs and LSBs
GUIDELINES ON CREDIT RATING OF BANKING INSTITUTIONS
 I refer to the discussions on the above subject at the meetings of the Chief Executive Officers of
Licensed Commercial Banks (LCBs) and Licensed Specialised Banks (LSBs) held on 20.11.2003 and
18.12.2003 and the agreement of the Chief Executive Officers to obtain ratings for banks.
 All LCBs and LSBs are hereby required to observe the following guidelines in this regard.
1. All LCBs and LSBs (both local and foreign) are hereby required to obtain a Credit Rating on
or before 30 June 2004.
2. All ratings should be from an independent rating agency acceptable to the Central Bank of Sri
Lanka.
3. Local Branches of foreign banks may disclose their parent bank’ s rating.
4. W ith effect from July 2004, all banks are required to disclose their rating in all their advertise -
ments soliciting deposits and other debt instruments. The fact that a bank has not obtained a
rating should also be disclosed, if that is the case.
5. Credit Ratings should be updated annually and the rating report should be submitted to the
Central Bank of Sri Lanka within one month from the date of the report.
Please acknowledge the receipt of this letter.
Yours faithfully,
Director of Bank Supervision


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  483
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Our Ref. : 02  / 17 / 800 / 0014  / 01
Bank Supervision Department
24 April 2013
To : CEOs of all Licensed Commercial Banks and
       Licensed Specialised Banks
Dear Sir / Madam,
AMENDMENTS TO GUIDELINES ON THE
OPERATIONS OF THE INVESTMENT FUND ACCOUNT
An amendment to paragraph 3.1( iii) of the above Guidelines and the amended format to submit
information on the utilisation of the investment fund account on a monthly basis are enclosed for
compliance.
The letter dated 1st October 2011 sent on the above subject is hereby withdrawn.
Yours faithfully,
(Ms.) T M J Y P Fernando
Director of Bank Supervision
Encl.
Annex
Amendment to Guidelines to Licensed Commercial Banks and Licensed Specialised Banks
on the Operations of the Investment Fund Account
The following Guidelines will replace 3.1( iii) of the above.
3.1(iii)  Lend only for the following purposes commencing 01 May 2013:
 (a) Long-term loans for cultivation of plantation crops/agriculture crops including, fruits,
vegetables, cocoa and spices and for livestock and fisheries
 (b) Factory/mills modernization/establishment/expansion
 (c) Small and medium enterprises: loans up to Rs. 200 mn to enterprises with annual
turnover less than Rs. 600 mn
 (d) Information Technology related activities and Business Process Outsourcing
 (e) Infrastructure development
 (f) Education: vocational training and tertiary education
 (g) Housing: up to Rs. 2 mn per customer for construction of a house for residential purposes
 (h) Housing development: construction of low cost houses for residential purposes
 (i) Construction of hotels and for related purposes
 (j) Investment in/purchases of sustainable ener gy sources including solar power up to
Rs. 10 mn
 (k) W omen enterpreneurship venture capital projects up to Rs. 10 mn
 (l) Restructuring of loans extended for the above purposes.


484 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
LCB - 30 Nov 2013 (5th Final Proof) - 29/11/2013
Utilization of Investment Fund Account (IFA)
Name of Bank :  …………………………………………………………
Month ended :  …………………………………………………………
(Rs. ’000)
Item Amount
A. Total Transferred to IFA XXXX
B. Total Loans Granted
XXXX
Sector Description Amount
(a) Long-term loans for cultivation of plantation
crops/agriculture crops including, fruits,
vegetables, cocoa and spices and for livestock
and fisheriesXX
(b) Factory/mills modernization/establishment/
expansionXX
(c) Small and medium enterprises: loans up to Rs.
200 mn to enterprises with annual turnover
less than Rs. 600 mnXX
(d) Information Technology related activities and
Business Process OutsourcingXX
(e) Infrastructure development XX
(f) Education: vocational training and tertiary
educationXX
(g) Housing: up to Rs. 2 mn per customer
for construction of a house for residential
purposesXX
(h) Housing development: construction of low
cost houses for residential purposesXX
(i) Construction of hotels and for related
purposesXX
(j) Investments in/purchases of sustainable
energy sources including solar power up to
Rs. 10 mnXX
(k) W omen entrepreneurship venture capital
projects up to Rs. 10 mnXX
(l) Restructuring of loans extended for above
purposesXX
Sub Total
C. Total investments in Government Securities  –  long-term
                                                                                –  short-termXXXX
XXXX
  Sub Total XXXX
D. Balance available for utilization (A-B-C) XXXX
NOTE:  E-mail the above details to dbsd@cbsl.lk with copies to mihiri@cbsl.lk  and
  manjulap@dfd.treasury.gov.lk by 10th of each month following the month of reporting.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  485
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Our Ref. : 02  / 17 / 800 / 0014  / 02
Bank Supervision Department
31 October 2011
To : CEOs of all Licensed Commercial Banks and
       Licensed Specialised Banks
Dear Sir / Madam,
AMENDMENTS TO GUIDELINES ON THE
OPERATIONS OF THE INVESTMENT FUND ACCOUNT
An amendment to paragraph 3.1( iii) of the above Guidelines and the amended format to submit
information on the utilisation of the investment fund account on a monthly basis are enclosed for
compliance.
Yours faithfully,
(Ms.) T M J Y P Fernando
Director of Bank Supervision
Encl.
Annex  I
Amendment to Guidelines to Licensed Commercial Banks and Licensed Specialised Banks
on the Operations of the Investment Fund Account proposed in the 2011 Budget
The following Guidelines will replace 3.1( iii) of the above.
3.1(iii)  Lend only for the following purposes commencing 1 November 201 1:
 (a) Long-term loans for cultivation of plantation crops/agriculture crops including, fruits,
vegetables, cocoa and spices and for livestock and fisheries
 (b) Factory/mills modernization/establishment/expansion
 (c) Small and medium enterprises:  loans up to Rs. 200 mn to enterprises with annual
turnover less than Rs. 600 mn
 (d) Information Technology related activities and Business Process Outsourcing
 (e) Infrastructure development
 (f) Education: vocational training and tertiary education
 (g) Ho using: up to Rs. 2 mn per customer for construction of a house for residential
purposes
 (h) Construction of hotels and for related purposes
 (i) Restructuring of loans extended for the above purposes.


486 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Utilization of Investment Fund Account (IFA)
Name of Bank :  …………………………………………………………
Month ended :  …………………………………………………………
(Rs. ’000)
Item Amount
A. T otal Transferred to IFA XXXX
B. T otal Loans Granted
XXXXSector Description Amount
(a) Agriculture XX
(b) Factory/mills modernization XX
(c) Small and Medium Enterprises XX
(d) Information Technology and BPO XX
(e) Infrastructure development XX
(f) Education XX
(g) Housing XX
(h) Construction of hotels and for
related purposesXX
(i) Restructuring of loans extended
for above purposesXX
C. Total investments in Government Securities  -  long-term
                                                                             -  short-termXXXX
XXXX
D. Balance available for utilization XXXX
NOTE:  E-mail the above details to dbsd@cbsl.lk with copies to mayadunne@cbsl.lk  and
  jayaminiw@fpd.treasury.gov.lk by 10th of each month following the month of reporting.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  487
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Our Ref. : 02  / 17 / 800 / 0041  / 01
Bank Supervision Department
29 April 2011
To : CEOs of all Licensed Commercial Banks and
       Licensed Specialised Banks
Dear Sirs,
GUIDELINES ON THE OPERATION OF THE
INVESTMENT FUND ACCOUNT
We enclose the Guidelines on the establishment and operations of the Investment Fund Account
proposed in the Budget 2011, for compliance.
Yours faithfully,
(Mrs.) T M J Y P Fernando
Director of Bank Supervision
Encl.


488 Directions, Determinations, and Circulars issued to Licensed Commercial Banks
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Guidelines to Licensed Commercial Banks and Licensed Specialised Banks
on the Operations of the
Investment Fund Account proposed in the 2011 Budget
1. Establishment of an Investment Fund Account (IFA)
 As proposed in Budget 2011, every person or partnership who is in the business of banking or financial
services, is required to establish and operate an IFA.
2. Initial Cr edits to IFA
 As and when taxes are paid after 1 January 2011, licensed banks shall transfer the following funds to
the IFA and build a permanent fund in the bank:
 (i) 8 per cent of the profits calculated for the payment of Value Added Tax (V AT) on financial services
on dates as specified in the V AT Act for payment of V AT.
 (ii) 5 per cent of the profits before tax calculated for payment of income tax purpos es on dates
specified in Section 113 of the Inland Revenue Act for the self assessment payments of tax.
3. Utilisation of Funds
3.1 Banks shall commence utilization of funds in the IFA in the following manner within three months
from the date of transfer to the IFA:
 (i) Invest in long-term Government securities and/or bonds with maturities not less than seven
years.
 (ii) Lend on maturities not less than five years at interest rates not exceeding 5-year Treasury bond
rates plus 2 per cent.
 (iii) Lend only for the following purposes:
 (a) Long-term loans for cultivation of plantation crops/agriculture crops including, fruits,
vegetables, cocoa and spices and for livestock and fisheries
 (b) Factory/mills modernization/establishment/expansion
 (c) Small and medium enterprises:
 a. loans up to Rs. 30 mn or
 b. loans over Rs. 10 mn to enterprises with annual turnover less than Rs. 300 mn and employees
less than 400
 (d) Information Technology related activities and Business Process Outsourcing
 (e) Infrastructure development


(e) Infrastructure development
 (f) Education - vocational training and tertiary education
 (g) Restructuring of loans extended for the above purposes.
3.2 Lending may be in Sri Lanka Rupees and/or foreign currency loans granted within the country .
3.3 Ba nks shall invest funds in short-term Government securities until the commencement of
utilization of funds as stated in 3.1 above.
4. Conditions
4.1 Applicability of Prudential Requirements
 (i) Subject to paragraph ( ii) below, transactions of the IFA shall be subject to all Regulations,
Directions, Determinations and Circulars issued by the Central Bank of Sri Lanka as
applicable.


Directions, Determinations, and Circulars issued to Licensed Commercial Banks  489
LCB - 30 Nov 2013 (5th Final Proof) - 29/11/2013
 (ii) Lending to the Agriculture sector in the case of licensed banks shall be in addition to the
requirement on lending to agriculture by banks of 10 per cent of total loans and advances of
the bank in terms of the budget proposal 2006.
4.2 Accounting for Transactions
 (i) T ransfers to the IFA shall be treated as appropriations of profit after tax.
 (ii) The IF A shall be maintained as a separate item under general and other reserves and constitutes
a part of shareholder funds.
 (iii) Cost of operations of IF A and income from investments and lending operations shall be
accounted for in the financial statements of the bank.
 (iv) Banks shall maintain separate accounts with necessary details on all operations of the IF A.
 (v) IF A shall not be impaired or reduced without the approval of the Central Bank of Sri Lanka.
4.3 Disclosur es and Reporting to Central Bank of Sri Lanka
 (i) The following disclosures shall be made in the “Notes to the financial statements”:
 (a) Number of loans granted and total amount outstanding for each purpose stated in
paragraph 3.1(iii ), interest rates and tenure of loans.
 (b) T otal investments in Government securities, interest rates and maturity.
 (ii) Information on the operations of the IFA shall be made available as and when required by the
Central Bank of Sri Lanka and Ministry of Finance.
4.4 T reatment of Taxation
The tax liability in relation to the operations of IFA shall be computed in accordance with
applicable tax laws. However, the following shall be noted:
 (i) Interest income on investments, stated in paragraphs 3.1( i) and 3.3 is liable to income tax.
 (ii) Interest income on loans granted utilizing the IF A will be exempt from income tax.
 (iii) Specific provisions on loan losses will be subject to normal adjustments applicable to bad
debts.


debts.
 (iv) Any ove r-funding or under-funding shall be in accordance with the relevant tax laws/
regulations/guidelines.


Directions, Determinations, and Circulars
issued to
Licensed Specialised Banks
(Inclusive of amendments made up to 30 November 2013)
Bank Supervision Department
Central Bank of Sri Lanka