CB directs finance companies to raise core capital by 2021

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Mar 17, 2017 (LBO) – Sri Lanka’s central bank has issued directions on the minimum amount of core capital held by Licensed Finance Companies (LFCs) with a view to encourage consolidation.

Chairman of the Monetary Board and Governor of the Central Bank Indrajit Coomaraswamy said in a recent directive to Licensed Finance Companies that the decision has been taken in the interest of safety and soundness of the LFC sector.

As per the new directive, every LFC should maintain an unimpaired core capital at a level not less than 400 million rupees until 31 December 2017.

Thereafter, Licensed Finance Companies should maintain an unimpaired core capital at a level not less than the amounts stipulated below.

i. Rs. 1.0 billion by 01.01.2018
ii. Rs. 1.5 billion by 01.01.2019
iii. Rs. 2.0 billion by 01.01.2020
iv. Rs. 2.5 billion by 01.01.2021

In the event of non-compliance by an LFC with these directions, the director of the non-bank financial institutions supervision department has powers to impose maximum ceilings on deposit liabilities and borrowings of such LFCs.

The director also has powers to freeze distribution of dividends or repatriation of profits and to restrict expansion of business operations of such LFCs.

With this new direction, the Finance Companies (Minimum Core Capital) Direction, No. 01 of 2011 has been revoked.