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2019-03-13 | Circular No. 04 of 2019

Circular No. 04 of 2019 on Non-Interest Based Incentive Schemes for Interest Bearing Savings and Time Deposits of Licensed Banks

The Central Bank of Sri Lanka issued Circular No. 04 of 2019 to prohibit licensed banks from using non-interest based incentive schemes such as lotteries and gift draws for mobilizing interest-bearing deposits. This ban aims to prevent undue competition and the distortion of financial product features that undermine the Central Bank's interest rate policies. Banks are permitted to conduct seasonal gift schemes only if gifts are provided to all relevant customers, market interest rates are maintained, and no additional costs or terms are imposed on depositors.

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CENTRAL BANK OF SRI LANKA BANK SUPERVISION DEPARTMENT

13 March 2019 | CIRCULAR | No. 04 of 2019

NON-INTEREST BASED INCENTIVE SCHEMES FOR INTEREST BEARING SAVINGS AND TIME DEPOSITS OF LICENSED BANKS

  1. Objective 1.1 The Central Bank of Sri Lanka is of the view that offering non-interest based incentive schemes for mobilising of interest bearing savings and time deposits create undue competition among licensed banks while undermining the interest rate policies implemented by the Central Bank of Sri Lanka. Accordingly, licensed banks are informed to adhere to the following with immediate effect in order to promote market determined interest rates and fair competition to safeguard the interests of the depositors.

  2. Incentive schemes not permitted 2.1 Licensed banks shall not conduct: (i) lottery schemes/raffle draws. (ii) gift schemes, etc. that result in a disadvantageous situation for the customers where features of a financial product/service are distorted, e.g., relatively reduced interest rates on savings deposits, incorporating features of time deposits to savings accounts.

  3. Permitted gift schemes 3.1 Licensed banks may conduct gift schemes (seasonal/promotional) provided that: (i) all customers of the relevant product, service or category of the product/service receive the offered gift, (ii) applicable market interest rates are offered based on the nature of the product, (iii) cost of the gifts is not charged to customers, and (iv) no additional terms and conditions are imposed on customers with respect to the gifts offered.

[Signature] J P Gamalath Acting Director of Bank Supervision

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