Central Bank deputy governor Ranee Jayamaha says nine percent of the 250,000 cheques, especially in the Colombo area sent for clearing are returned each day.
"Fifty percent of that is due to lack of funds," Jayamaha told participants of the LawAsiaICT2008 conference in Colombo which focusing on the application of laws governing electronic commerce in the Asian region.
"Banks are plagued with this problem every single day.
"
Jayamaha says account holders are writing cheques without funds despite it being a criminal offense.
In Sri Lanka cheques are cleared electronically mostly on the same day and is the most widely used payment mechanism after cash.
Banks in Sri Lanka are regulated by the Central Bank.
To counter the problem banks have themselves decided to suspend the accounts of customers who write more than three dud cheques.
However banks had then told the central bank that it could not be implemented as customers then use it as an excuse not to pay back loans.
"Th