history of banking sysytem in sri Lanka



The Bank's Beginning


To accommodate dynamic economic and financial system developments upon gaining independence in 1948, the post-independence Government of Ceylon (as Sri Lanka was then known) established the Central Bank of Ceylon to maintain an active monetary policy regime and a dynamic financial sector to support and promote economic growth.


Prior to the establishment of the Central Bank, the Currency Board System set up under the Paper Currency Ordinance No.32 of 1884 functioned as the country’s Monetary Authority, though very narrow in its capacity. This system was deemed inadequate for a developing country upon gaining political independence.  



Technical expertise to establish a central bank was sought from the United States of America (USA) in July 1948, with Mr. John Exter, an American economist from the Federal Reserve of USA being appointed to carry out this task. 

The Exter Report on the rationale and the legal framework for a central bank was presented to the House of Representatives in November 1949. Along with this report, a draft bill with explanatory comments was presented as part II of the report. The Bill was passed by the House as the Monetary Law Act No. 58 of 1949 on 25 November 1949, paving the way for the establishment of the Central Bank of Ceylon and an end to the Currency Board System. The Central Bank of Ceylon was established by the Monetary Law Act (MLA) No.58 of 1949 and commenced operations on August 28, 1950. It was renamed the Central Bank of Sri Lanka (CBSL) in 1985.




The Central Bank was given wide powers to administer and regulate the entire money, banking and credit system of the country. The Central Bank was also given the sole right and authority to issue currency and it also became the custodian of the international reserves of the country.

The objectives of the Central Bank as specified in the MLA in 1949 were;


     (a)  The stabilization of domestic monetary values (maintenance of price stability).
     (b)  The preservation of the par value or the stability of the exchange rate of the Sri Lankan Rupee (maintenance of exchange rate stability).
     (c)  The promotion and maintenance of a high level of production, employment and real income in Sri Lanka.
     (d)  The encouragement and promotion of the full development of the productive resources of Sri Lanka



However, in keeping with the worldwide trends in central banking and the rapid changes in international financial markets, consequent to the economic liberalization and the significant advancement in information technology, the Central Bank embarked on a modernization programme in 2000 and the objectives were adjusted accordingly, bringing them down to two core objectives:
:   (1) The maintaining of economic and price stability
    (2) The maintaining of financial system stability









The banking sector in Sri Lanka is monitored by the Bank Supervision Department of the Central  bank of Sri Lanka under the Banking Act, Monetary Law Act and the Exchange Control Act
Three types of financial institutions are permitted under Banking Act and the Finance Companies Act to operate in Sri Lanka by the CBSL. They are
  1. Licensed Commercial Banks
  2. Registered Finance Companies
  3. Licensed Specialized Banks
These institutions can accept deposits from the public. The number of licensed specialized banks reduced from 14 to 9 and the number of registered financial institutions increased from 31 to 36 during the period of 2007 to 2010. The current List of bank in Sri Lanka is published by CBSL periodically.

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