History of banking in Sri Lanka

Registration of banks and its importance to the economy

The regulatory and supervisor framework for banks is specified mainly in the banking Act,and the Monetary Law Act.

• Licensing of commercial banks and specialised banks 
• Issue Prudential directions, determination, orders and guidelines to banks
• Conduct continuous supervision and examination of banks.
• Enforce regulatory action and the resolution of weaker banks.

 The regulatory and supervisory function relating to banks licensed by the Monetary Board is carried out by the Bank Supervision Department of the Central Bank.the supervision of banks is based on the international accepted standards for bank Supervision set out by the Basel committee for Banking supervision. The director of Bank Supervision or her nominee is given powers to examine the books and accounts of

• Every commercial bank or
• A subsidiary or
• An agency of such bank in Sri Lanka

 The department of Bank Supervision was one of the two main Department to be established in 1950 under section 28 of the Monetary Law Act No.58 of 1949 at the inception of the Central bank of Sri Lanka.

Banking Policy Division

The policy division plays an important role in drafting and issuing Prudential regulations to banks in order to ensure stability of the banking sector in Sri Lanka.

The Prudential regulations are issued based on,

• Statutory provision,
• Basel Core principles of the Basel committee on Banking Supervision,
• Local and international regulatory developments and
• International Best practices adopted by other international Regulatory and Markets.

In terms of the supervision of the Banking Act and the Monetary Law Act.all Banks are subject ti statutory examinations.The examinations are conducted focusing mainly on enhancing Sustainability and Efficiency of the Banks.

Bank Sustainability Rating Index : A risk based examination process is followed, which focuses on assessment and identification of banking risks and management of these risks.An assessment of the adequacy of resources to mitigate these risks are also carried out.Non-compliance with any purdential requirements,weaknesses in the financial conditions and systems and any lapses in corporate governance of a particular bank will be brought to the notice of its Board of Directors to ensure corrective action.