Central Bank of Sri Lanka (CBSL)!

Central Bank of Sri Lanka (CBSL)!

1. Central Bank of Sri Lanka (CBSL)

Functions and Contributions:

The Central Bank of Sri Lanka enacted the "Central Bank of Sri Lanka Act No. Established under 58". It is the highest banking authority in Sri Lanka. The primary objective of the Central Bank is to ensure the overall financial and economic stability of the country, not the profit motive. Its activities and contributions are as follows:

Determination and implementation of monetary policy: The primary duty of the Central Bank is to control inflation and ensure price stability. It controls inflation by fixing interest rates and controlling the money flow. Open Market Operations, Statutory Reserve Ratio (SRR) The central bank manages liquidity through instruments such as The goal is to create a monetary environment conducive to the growth and productivity of the economy.
Determine and implement exchange rate policy: The Central Bank is responsible for maintaining the value of the Sri Lanka rupee and creating a favourable exchange rate environment for foreign trade and investment. It ensures exchange rate stability by managing foreign exchange reserves and intervening in foreign exchange markets when required.
Financial Advisor and Banker to Government: The Central Bank provides financial advice to the government. It helps manage the government's income and expenditure, and helps raise funds for the government through treasury bills and bonds. It plays an important role in debt management of the government.
Acting as a banker to banks: The Central Bank acts as the 'Bankers' Bank of licensed commercial banks. Banks are required to maintain their mandatory reserve deposits with the Central Bank. In addition, when banks face sudden financial crises, the Central Bank acts as the Lender of Last Resort. Ensures the stability of the financial system. It administers the interbank settlement systems.
Maintaining the stability of the financial system: Ensuring the stability of Sri Lanka's financial system is the most important role of the Central Bank. It regulates, licenses and supervises banks, finance companies and other financial institutions. By issuing Financial Stability Reports, Identifies potential risks to the financial system and recommends measures to address them. Ensuring the health of the banking sector is essential for the overall stability of the economy.
Issue and Management of Currency: CBSL reserves the exclusive right to print, distribute and manage Sri Lanka Rupee Banknotes and coins. This ensures the quality and authenticity of the coin.
Management of Employees' Provident Fund (EPF): The Central Bank manages the Employees' Provident Fund (EPF), one of the largest social security schemes in Sri Lanka. It invests members' pension money, raises funds and provides financial protection for the duration of retirement.
Improvement of Payment and Settlement Systems: The Central Bank operates and develops electronic payment systems such as Cheque Imaging and Truncation System (CITS), Sri Lanka Interbank Payment System (SLIPS) and LankaPay. This increases the efficiency of payment systems, Digital paves the way for economic growth.

2. Licensed Commercial Banks

Licensed commercial banks play an important role in the banking sector in Sri Lanka. These are non-profit organizations that provide a wide range of financial services to the public and businesses. There are State Commercial Banks, Private Commercial Banks and Branches of Foreign Commercial Banks in Sri Lanka.

Major Commercial Banks and their Contributions:

Bank of Ceylon (BOC): Sri Lanka's largest state-owned commercial bank. Established in 1939, the Bank offers retail banking, wholesale banking, international banking and investment banking, with a island-wide branch network. It plays an important role in providing financial facilities to government institutions, small and medium enterprises (SMEs), and individuals.BOC makes a significant contribution to Sri Lanka's economic growth.
People's Bank: People's Bank, established in 1961, is another large state-owned bank. It gives importance to rural economic development and provides banking services to agriculture, small and medium enterprises and rural people. By having a wide branch network (especially in rural areas), it is also possible to provide financial inclusion (Financial Inclusion) And contributes to community development.
Commercial Bank of Ceylon PLC: One of the leading private sector banks in Sri Lanka. Founded in 1969, it has a strong presence in retail and corporate banking and contributes significantly to digital banking, international trade finance and lending.
Sampath Bank PLC: Established in 1986, Sampath Bank is known for its technology enabled banking services and innovations. It was one of the pioneering banks to introduce electronic payment systems, mobile banking services and internet banking. It is digital by providing convenient banking services for consumers and businesses. Contributes to instrumentation.
Hatton National Bank PLC (HNB): Established in 1888, HNB is one of the oldest and most reputed private sector banks in Sri Lanka. Offers a wide range of services to retail, corporate, and SME customers. It has a long history of providing financial support to the rural and urban economy.
DFCC Bank PLC: Started as a Development Finance Institution and later converted into a commercial bank, DFCC Bank specializes in project finance, investment banking services and SME loans. It also supports economic growth by providing financial assistance for new investments.
Amãna Bank PLC: The only fully commercial bank compliant with the Islamic Shari'ah regulations of Sri Lanka. It offers an alternative to interest-free banking. It makes a distinct contribution by providing financial inclusion to those who follow Islamic financial systems.
Other private sector banks such as Union Bank of Colombo PLC, Nations Trust Bank PLC and Seylan Bank PLC also operate in Sri Lanka.
Branches of Foreign Commercial Banks: Branches of foreign banks such as Axis Bank, Indian Overseas Bank, State Bank of India, Habib Bank Limited are operating in Sri Lanka. These are mostly International Trade Funds, Foreign Direct Investment (FDI) and focus on providing banking services to foreigners in Sri Lanka.

General Functions and Contributions of Commercial Banks:

Acceptance of Deposits: Commercial banks accept different types of deposits such as savings accounts, current accounts, fixed deposits etc. from the public and businesses. It mobilizes savings in the economy and facilitates investments.
Lending: Banks offer various types of loans to individuals (home loans, auto loans, personal loans), businesses (working capital loans, project loans, business loans), agricultural sector, and small and medium enterprises (SMEs). It is by encouraging investments It is an important contributor to economic growth by increasing consumption and by increasing consumption.
Credit Creation: Banks create money in the economy by making loans with deposits. By setting aside a part of a deposit and lending the rest, they create a chain reaction in which the credit can come back to the bank as deposits and lend again. It provides liquidity which is essential for economic activity Provides.
Payment services: Banks offer various payment and settlement services such as cheques, credit cards, debit cards, online banking, mobile banking, ATM services and money transfer services. This will facilitate business activities. Ensures safe and efficient payment systems
Foreign Exchange : Banks provide buying and selling services of foreign currencies which facilitate international trade, tourism and foreign remittances.
International Trade Finance: Banks provide financial facilities (e.g., Letters of Credit ( Trade Loans) for import and export trade. This greatly helps Sri Lanka's international trade.
Investment Banking Services: Some large commercial banks also offer investment banking services such as financial advice, securities issues, mergers and acquisitions. This contributes to the development of capital markets.
Other Services: Banks also offer various ancillary services such as jewellery pawning services, insurance product sales (Bancassurance), cash management services, money transfer services, etc.

3. Licensed Specialised Banks

In Sri Lanka, certain banks have been established for a specific purpose or to serve a particular socio-economic strata. These are called 'Licensed Specialized Banks'. They do not provide general banking services like commercial banks and focus on achieving their specific goal.

Key Feature Banks and their Roles:

National Savings Bank (NSB): NSB, established in 1972, has the primary objective of promoting the savings habit of the country. It has branches spread across the country and storage facilities through post offices. Accepting small and large deposits from the public, Invests in safe investments (mostly government securities). By promoting the culture of savings, it helps to increase the National Savings Rate and meet the financial needs of the government.
Housing Development Finance Corporation Bank (HDFC Bank): Established in 1953, HDFC Bank specializes in providing housing loans. It provides financial facilities, especially for low- and middle-income families for purchasing or constructing homes. This can be done by promoting home ownership, It also contributes to social and economic development by facilitating the development of the construction industry.
Sanasa Development Bank PLC (SDB Bank): SANASA Movement is a part of the cooperative sector in Sri Lanka. SDB Bank was established in 1997 and focuses on providing financial services to cooperatives, small and medium enterprises (SMEs) and rural communities. It plays an important role in mobilizing small savings and meeting the rural credit needs. It also supports self-employment opportunities.
Sri Lanka Savings Bank Limited (SLSB): Established in 2006 as a subsidiary of National Savings Bank, SLSB, formerly known as "Domestic Savings Bank". It focuses specifically on serving low-income families and those with small credit needs. By providing microfinance and small loans, It contributes to financial inclusion and poverty alleviation efforts.
State Mortgage & Investment Bank (SMIB): Established in 1931, SMIB specializes in providing long-term mortgage loans. It provides financing especially for land purchase and home construction. It supports national development by providing a stable source of finance to the housing sector.
Regional Development Bank (RDB): Established in 1997, RDB aims to promote economic growth at the rural and regional level. It provides credit facilities to agriculture, small and medium enterprises and rural people. By facilitating access to financial services in rural areas, it aims to reduce regional imbalances, It also contributes to improving the livelihoods of rural communities.

Interbank differences

The different types of banks in Sri Lanka have significant differences in their purpose, operations, ownership and target group.

Vision & Mission Group:

Central Bank: Its primary objectives are to implement monetary policy, ensure financial stability, and act as a banker to the government. It does not provide direct banking services to the public or businesses.
Commercial Banks: They are profit-driven and offer a complete range of banking services to a wide range of customers including individuals, SMEs, and corporates.
Specialized banks: Have specific social or economic goals, for example, serve specific sectors such as housing, savings promotion, rural development or microfinance, which place more emphasis on social participation than the profit motive.

Controlling Authority and License:

Central Bank: It has the supreme authority to control, licens, and supervise the entire banking sector.
Commercial Banks and Specialized Banks: Operate under a license issued by the Central Bank of Sri Lanka and are subject to all regulations and guidelines of the Central Bank.

Range of Services:

Central Bank: Does not offer direct deposit or loan services.
Commercial banks: Offer a wide range of financial services including deposits, loans, foreign currency, international trade finance and electronic payments.
Specialized Banks: Offer limited services such as specific types of deposits (for example, savings banks) or loans of a particular type (for example, housing banks) according to their specific purpose.

Ownership:

Some commercial banks and specialized banks are owned by the state (Example: Bank of Ceylon, People's Bank, National Savings Bank).
Most of the commercial banks are owned by the private sector (Example: Commercial Bank, Sampath Bank).
Branches of foreign banks are owned by foreign companies.

Market Share and Access:

Commercial banks, especially large public and private sector banks, dominate the market. They have wide reach in urban and semi-rural areas with a branch network spread across the country.
Specialized banks focus on serving their target groups so that their market share can be limited to specific segments. However, some banks, such as NSB and RDB, have substantial reach in rural areas.

Social Contribution and Profit Motive:

The central bank and some state-owned specialty banks prioritize social and economic stability and growth.
The primary objective of private commercial banks is to earn profits and at the same time contribute to economic growth.

Conclusion

Sri Lanka's banking sector has a multi-tier structure consisting of the Central Bank, Commercial Banks and Specialized Banks. The Central Bank of Sri Lanka is responsible for ensuring the financial stability of the country and managing monetary policy. Commercial banks are the lifeline of the economy and mobilize deposits and provide loans. They perform essential tasks such as providing payment services and financing international trade. Meanwhile, specialised banks such as National Savings Bank, Housing Development Finance Corporation Bank and Regional Sanghavardhana Bank, contribute to financial inclusion and targeted development, focusing on specific sectors or social segments.

Each of these types of bank, with its unique functions and contributions, complements each other's socio-economic development of Sri Lanka. Understanding the differences between these banks reveals the complexity of Sri Lanka's financial system and the important role they play for the overall development of the country. Facing future challenges and opportunities Sri Lanka's banking sector is undergoing continuous development, regulation and modernization efforts, which will pave the way for sustainable economic growth in the country.

Central Bank of Sri Lanka (CBSL)!

Central Bank of Sri Lanka (CBSL)!

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