The recent directions from the Central Bank of Sri Lanka (CBSL) on maximum interest rates for Finance Companies (FCs), officially titled "Finance Company Directions - DLF No 01 of 2025," establish a new legal framework for how FCs can manage interest rates on deposits and debt instruments. These "Finance Company Directions - DLF No 01 of 2025" supersede previous directives. A ‘Finance Company’ is defined in the Finance Business Act No. 42 of 2011 as ‘a company licensed under the Act to carry on finance business ‘.
We set out below a breakdown of the key legal and regulatory aspects:
Legal Authority and Issuing Body –
The directions are issued by CBSL under and in terms of Section 12(1) of the Finance Business Act, No.42 of 2011, read in conjunction with Section 133(1) of the Central Bank of Sri Lanka Act, No.16 of 2023.
Scope –
The directions are applicable to all Finance Companies (FCs) licensed under the Finance Business Act in Sri Lanka. They cover:
- Existing and new savings deposits.
- New time deposits and debt instruments.
- The renewal of time deposits and debt instruments.
Effective Date –
The provisions will come into effect from July 1, 2025.
Objectives of the Directions –
To provide a clear methodology in determining maximum interest rates on deposits and debt instruments offered or paid by FCs, in support of encouraging sustainable business practice.
Reference Rates for Interest Determination –
FCs in Sri Lanka are required to determine maximum interest rates for deposits and debt instruments paid in Sri Lankan Rupee (LKR) based on specific Sri Lankan economic indicators:
- The Weighted Average Yield Rate (WAYR) of the Treasury Bills (T-bills).
- The Overnight Policy Rate (OPR). The maximum interest rates for time deposits and other innovative products with tenures of one month and up to three years will be reviewed quarterly, based on the simple average WAYR of the latest four primary auctions for T-bills in the immediately preceding quarter. For savings deposits and other deposits of tenure less than one month, the reference rate for the quarter is the OPR as at the end of the immediately preceding quarter.
Specific Rate Ceilings -
- Maximum Annual Nominal Interest Rates for Deposits as per table below (Table 1):
These rates are set relative to the 91-day, 182-day, or 364-day T-bills WAYR, depending on the tenure of the deposit. - Maximum Annual Effective Interest Rates (AER):
For LKR time deposits and other innovative products with periodic interest payments, the AER cannot exceed the rates derived in accordance with the Table below. For LKR savings deposits and other deposits of tenure less than one month, the maximum AER shall not exceed the OPR. - Senior Citizens' Provisions:
For children under 18 and for senior citizens who are over 60 years of age, the maximum interest rates can be a maximum of 50 basis points (0.5%) higher than the rates specified in the Table 1 below, for time deposits with a tenure of one year or more. This is a specific demographic consideration within the Sri Lankan regulatory framework. - Maximum Annual Nominal Interest Rates for Debt Instruments Table 2 below:
These rates are also tied to the 364-day T-bills WAYR, varying by the tenure of the debt instrument.
Regulatory Reporting Requirements –
FCs are mandated to submit periodic returns on the interest rates paid through the Financial Information Network Reporting System. This is done in accordance with the existing Finance Business Act (Periodic Reporting Requirements) Direction, No.01 of 2024, or as amended, and forms part of ongoing compliance obligations of FCs.
Revocation of Previous Directives –
These new directions revoke previous Sri Lankan regulations concerning maximum interest rates on deposits and debt instruments. Specifically, the "Finance Business Act (Maximum Interest Rates on Deposits and Debt Instruments) Direction No.01 of 2019" and a related letter dated April 18, 2022, are superseded from July 1, 2025.
Table 1: Maximum interest rates for deposits
| Tenure of the Deposit | Maximum Interest Rate Per Annum |
|---|---|
| 1 month and less than 3 months | 91 days T-bills WAYR + 0.10% |
| 3 months and less than 6 months | 182 days T-bills WAYR + 0.25% |
| 6 months and less than 1 year | 364 days T-bills WAYR + 0.50% |
| 1 year and less than 2 years | 364 days T-bills WAYR + 2.00% |
| 2 years and less than 3 years | 364 days T-bills WAYR + 2.75% |
| 3 years | 364 days T-bills WAYR + 3.00% |
Table 2: Maximum interest rates for debt instruments
| Tenure of the Debt Instrument | Maximum Interest Rate Per Annum |
|---|---|
| Less than 1 year | 364 days T-bills WAYR + 0.50% |
| 1 year and less than 2 years | 364 days T-bills WAYR + 2.75% |
| 2 years and less than 3 years | 364 days T-bills WAYR + 3.25% |
| 3 years | 364 days T-bills WAYR + 3.50% |
