Business Expansion and Operations

CENTRAL BANK OF SRI LANKA

20 August 2020 FINANCE LEASING ACT DIRECTIONS No.05 of 2020

BUSINESS EXPANSION AND OPERATIONS

In terms of powers conferred by Section 34 of the Finance Leasing Act No. 56 of 2000, the Director of the Department of Supervision of Non-Bank Financial Institutions hereby issues the following Directions on the business expansion and operations of Specialised Leasing Companies (SLCs).

1. Applicability of the Direction 1.1 SLCs shall be authorized to carry on leasing business only at business places, namely fully-fledged branches and collection centers. SLCs may operate mobile banking units and such mobile banking units shall be affiliated to a branch of such SLC. SLCs shall follow the Guidelines set out for opening, closure and relocation of business places, and operation of mobile banking units as in Appendix A. 1.2 SLCs shall inform the Director at least ten (10) working days prior to opening a business place or close any existing business place or effect a change in the location of any existing business place, in any part of Sri Lanka; and in setting-up mobile banking units. 1.3 No SLC shall open, close or relocate a business place in any place outside Sri Lanka, without the prior approval of the Director with the concurrence of the Monetary Board.

2. Minimum criteria in opening of a new business place 2.1 SLCs shall ensure compliance with the following, at a minimum, when opening a new business place: (i) Complied with the minimum capital adequacy ratios as specified in the Direction No. 03 of 2018 on Capital Adequacy Requirements, or as amended. (ii) Complied with the minimum core capital requirement as specified in the Direction No. 01 of 2012 on Minimum Core Capital, or as amended. (iii) Complied with the minimum liquid assets requirements as specified in the Direction No. 04 of 2012 on Finance Leasing (Liquid Assets), or as amended. (iv) Maintained Non-Performing Advances (NPA) ratios at a manageable level. (v) Has not been subject to imposition of any caps/restrictions on deposits or lending.

3. Board of Directors approvals 3.1 Every SLC shall establish Board of Directors’ approved prudent policy on business expansion largely considering the potential for business at the new business places, ability of providing adequate resources (physical assets, human resources, etc.), efficiency of the internal control systems, defining responsibilities of key officers with regard to business place operations, extension of prompt and cost-effective customer service to the clientele, etc. 3.2 SLCs shall ensure to obtain prior approval of the Board of Directors before opening of a new business place, closure of a business place, or relocation of any existing business place.

4. Annual Business Expansion Plan 4.1 Every SLC shall submit the company’s board approved Annual Business Expansion Plan (ABEP) to the Director for approval, on or before 31st December each year for the next calendar year. 4.2 SLCs shall indicate the details of business places proposed to be opened, business places proposed to be closed or relocated within the year, in the ABEP, as set out in Appendix B. 4.3 SLCs shall not open, close or relocate a business place that was initially not included in the ABEP submitted to the Director. 4.4 The approved ABEP is valid only for one year (the calendar year) and the approval for any openings, closures or relocations which are not completed within the year deemed to be lapsed.

5. Risk Management 5.1 Board of Directors shall be responsible to ensure; (i) Maintain an effective system of internal control and oversight of business place operations. (ii) Maintain proper controls to safeguard the information, communication and IT systems and data from both internal and external threats. (iii) Provide business place officers operational manuals to ensure efficient services to their customers. (iv) Ensure business place employees are made aware and well trained to prevent, detect and manage risks arising from the operations at the business places. (v) Maintain a business continuity plan to mitigate any significant disruption, discontinuity or gaps in the operations conducted at the business places. 5.2 Board of Directors or Integrated Risk Management Committee, as applicable, shall review the overall and individual business place level risk reports, at least on a quarterly basis.

6. Standardization of existing other outlets 6.1 Every SLC shall submit board of directors approved ‘Other Outlets Standardization Plan’ for existing other outlets to the Director prior to 30.09.2020, and such plan shall be implemented on or before 31.12.2021. 6.3 SLC shall inform Director on the completion of standardizing of an existing other outlet within ten (10) working days after such standardizing.

7. Powers of the Director 7.1 The Director has the authority to inform the SLC objecting opening, closing, relocating, of any business place with specific reasons stated in writing. 7.2 Further, the Director has the authority to restrict an SLC in further business expansion at any point of time.

8. Closure of business places for business 8.1 No SLC shall close any business place for business on any day of the week from Monday to Friday, except for a holiday declared by the Ceylon Chamber of Commerce. 8.2 SLCs may be granted two (02) additional holidays except the holidays specified in Direction 8.1 above, as required, with prior approval in writing of the Director. In granting such approval, the Director may impose conditions as may deem necessary. 8.3 However, SLCs shall not close any business places for business for five consecutive days, including holidays declared by Ceylon Chamber of Commerce and additional holidays approved by the Director. 8.4 SLCs shall give notice to its customers of such closure of business places. 8.5 In the event of any special circumstances such as flood, riot or any other abnormal incident, which necessitates closure of a business place for business, SLC may decide to do so with the approval of a relevant authority internally, and inform the Director accordingly, without delay.

9. Reporting requirements 9.1 SLCs shall submit a certificate on a quarterly basis, confirming that they are in full compliance with the requirements of this Direction, by fifteenth (15th) of the following month, from the end of each quarter. 9.2 SLC shall submit the web-based returns on business places by fifteenth (15th) of the following month, from the end of each quarter.

10. Regulatory Measures in the event of non-compliance In the event of non-compliance by an SLC with these Directions, the Director shall act on any one or more of the following: (i) Impose restrictions on business place operations/expansion. (ii) Impose monetary penalties as determined by the Director. (iii) Impose disclosure requirements on non-compliances. (iv) Determine the responsible Key Management Personnel as not fit and proper immediately.

11. Interpretations In these Directions, (i) Business place shall mean branches and collection centers. (ii) Director shall mean, the Director of the Department of Supervision of Non-Bank Financial Institutions of the Central Bank of Sri Lanka. (iii) Key Management Personnel shall have the same meaning as defined in the Direction No. 04 of 2009 on Finance Leasing (Corporate Governance), or as amended. (iv) Other outlets shall mean, window offices, service centers, service windows, or any other outlets in operation. (v) Collection Centers shall mean centers set up to collect lease rentals and loan installments from the SLC’s customers.

12. Revocation of Previous Directions The Finance Leasing Act Direction No.1 of 2016 on Opening, Closure and Relocation of Business Places is hereby revoked.

J D S J Nanayakkara Director, Department of Supervision of Non-Bank Financial Institutions, Central Bank of Sri Lanka

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Appendix A

Guidelines to SLCs in Opening, Closure and Relocation of Business Places

1. Opening of New Business Places 1.1 SLCs shall submit the information regarding the opening of new business places to the Director at least ten (10) business days prior to such opening. Information regarding the new business places shall be submitted in accordance with the format given in Appendix C. 1.2 SLCs shall prepare and document an economic feasibility study for each business place to be opened, analyzing the need for financial services in the area where the SLC is planning to open a business place. Such a study shall cover, at least, the following areas; (a) The need of financial services in the proposed area based on the financial institutions’ density (Population in the Divisional Secretariat divided by Number of Business Places of Financial Institutions in the Divisional Secretariat). (b) The geographical and economic service areas to be served and overview of the market to be served. (c) Expected increase in the demand for financial services in that area, and the period within which the activity of the business place will become profitable. (d) The financial assumptions of the applied business place, based on its anticipated business size, business development, establishment cost and operating cost and results over an adequate period of not less than three years. 1.3 Board of Directors shall ensure SLCs have obtained necessary approvals/clearance from the respective Government Authorities and a police clearance certificate before opening of new business places. 1.4 SLC shall ensure to notify the Director on the date of new business place opened within ten (10) business days after opening.

2. Closure of Business Places 2.1 SLCs shall inform Director at least prior to ten (10) business days of closing of existing business places in accordance with the format given in Appendix D. 2.2 SLCs shall exhibit a notice of the closure to the customers and the public who are generally served by that business place prior to such closure. 2.3 SLCs shall ensure that no further business activities would thereafter be carried out at the location of the business place by the SLC after the date of closure. 2.4 SLCs shall ensure to notify the Director on the date of business place closed within ten (10) business days after the closure.

3. Relocation of Business Places 3.1 Relocation is considered as changing the business location within the same Divisional Secretariat. 3.2 SLCs shall inform the Director at least prior to ten (10) business days of changing the location of any existing business place to the Director in accordance with the format given in Appendix E. 3.3 Board of Directors shall ensure SLCs have obtained necessary approvals/clearance from the respective Government Authorities and a police clearance certificate before relocating a business place. 3.4 SLCs shall exhibit a notice of the relocation to the customers and the public who are generally served by that business place prior to such relocation. 3.5 SLCs shall ensure that no further business activities by the SLC would thereafter be carried out at the original location of the business place after the relocation. 3.6 SLCs are not encouraged to relocate a business place frequently, to ensure customer convenience and continual service. SLCs shall be established at one location, at least for a continuous period of three (3) years.

4. Guidelines to SLCs in setting up Mobile Banking Units 4.1 Mobile banking units and its operations shall be affiliated to a particular branch of the SLC. 4.2 The operations of mobile banking units shall only be carried out by the employees of the SLCs. 4.3 Mobile banking units may serve the customers at regularly scheduled locations on specific days/hours or be open at various times and locations. However, SLCs shall ensure the local customers are informed suitably of the details including specified days and working hours ensuring customer convenience. 4.4 Mobile banking units shall have online connectivity to the core-system and any transactions that would be done through the mobile banking units shall be updated real-time. 4.5 The customers transacting through the mobile banking units shall be given a reliable proof of transaction, preferably a notification on a real time basis, such as a Short Message Service (SMS) via the SLCs’ central system. 4.6 Mobile banking units shall have adequate physical and information security measures to protect any collected cash and confidential customer data while transporting or transmitting to the affiliated branch.

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Appendix B

Annual Business Expansion Plan (ABEP)

1	General:
1.1	Name of Specialised Leasing Company:
1.2	Date of approval of the Board of Directors for the ABEP:
2	Number of Existing Branches, Collection Centers and Other Outlets (as at the year-end):
2.1	Branches
	a. All branches
	b. Loss making branches
2.2	Collection Centers
2.3	Other Outlets (if any)

3	Details of Openings, Closures or Relocations approved with previous year’s ABEP, but not completed as proposed:
3.1	Openings of Business Places not completed:
	Locations:	Reasons:
3.2	Closure of Business places not completed:
	Locations:	Reasons:
3.3	Relocation of Business places not completed:
	Locations:	Reasons:

4	Details of New Business Places proposed to be opened:
4.1	Branches:	Administrative District	Name of Town	Local Government Authority	Divisional Secretariat
	1-9
4.2	Collection Centers:	Administrative District	Name of Town	Local Government Authority	Divisional Secretariat
	1-5
4.3	Projected Financial Information: Please provide the financial projections for next three (3) year period of company operations, including the proposed business places.	Year 1	Year 2	Year 3
4.3.1	Tier I Ratio, %
4.3.2	Total Capital Ratio, %
4.3.3	Gross Non-Performing Ratio, %
4.3.4	Net Non-Performing Ratio, %
4.3.5	Total Borrowings, Rs. Bn
4.3.6	Total Loans and Advances, Rs. bn
4.3.7	Core Capital, Rs. Bn
4.3.8	Total Capital Base, Rs. Bn
4.3.9	Profit/ Loss, Rs.bn

5	Details of Business Places proposed to be closed:
	Type of Business Place	Reason for Closure	Administrative District	Name of Town	Local Government Authority	Divisional Secretariat	Postal Address
	1-5

6	Details of Business Places proposed to be relocated:
	Type of Business Place	Administrative District	Name of Town	Local Government Authority	Divisional Secretariat	Present Location’s Postal Address
	1-5

7	Certification
	The undersigned have the authority to submit this information on behalf of the company and the information provided herein is true and correct to the best of my knowledge and belief.
	Name:	Name:
	Title: Chief Executive Officer	Title: Compliance Officer
	Signature:	Signature:
	Date:	Date:

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Appendix C

Form 1: Opening of a New Business Place

1	General
1.1	Name of Specialised Leasing Company:
1.2	Date of approval of the Board of Directors for the proposed opening:
2	Details of the New Business Place: (submit separate information sheet for each business place)
2.1	Official name to be used by the business place
2.2	Location
	a. Administrative District
	b. Name of Town
	c. Local Government Authority
	d. Divisional Secretariat
	e. Postal Address
2.3	If an economic feasibility study has been conducted for opening of the business place and documented?	Yes / No
2.4	If a police clearance certificate and necessary approvals/clearance have been obtained from the relevant government authorities for opening of the business place at the proposed location?	Yes / No
2.5	Projected Financial Information: Please provide projections for each proposed business place for next three-year period of operations.	Year 1
2.5.1	Profit/ Loss, Rs. Bn
2.5.2	Impact on Tier I Ratio, %
2.5.3	Impact on Total Capital Ratio, %
2.6	Staff Requirements	Clerical
	Provide the staff profiles of the proposed business place indicating their qualification, experience and job description (submit the details on a separate annexure).

3	Certification
	The undersigned have the authority to submit this information on behalf of the company and the information provided herein is true and correct to the best of my knowledge and belief.
	Name:	Name:
	Title: Chief Executive Officer	Title: Compliance Officer
	Signature:	Signature:
	Date:	Date:

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Appendix D

Form 2: Closure of a Business Place

1	General
1.1	Name of Specialised Leasing Company:
1.2	Category of the proposed business place to be closed (X): Branch [ ] Collection Center [ ] Others (specify) [ ]
1.3	Date of approval of the Board of Directors for the proposed closure:
1.4	Reasons for the closure of business place:

2	Location
2.1	Administrative District
2.2	Name of Town
2.3	Local Government Authority
2.4	Divisional Secretariat
2.5	Postal Address

3	Key information of the proposed closure (Rs.mn)
3.1	Total Assets
3.2	Loans and advances
3.3	Other assets
3.4	Total borrowings
3.5	Other Liabilities
3.6	Number of Borrowers
3.7	Number of Employees

| 4 | Describe the actions to be taken on assets, liabilities and employees of proposed closure of business place: | | | :--- | :--- |

5	Certification
	The undersigned have the authority to submit this information on behalf of the company and the information provided herein is true and correct to the best of my knowledge and belief.
	Name:	Name:
	Title: Chief Executive Officer	Title: Compliance Officer
	Signature:	Signature:
	Date:	Date:

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Appendix E

Form 3: Relocation of a Business Place

1	General
1.1	Name of Specialised Leasing Company:
1.2	Category of the proposed business place to be relocated (X): Branch [ ] Collection Center [ ] Others (specify) [ ]
1.3	Date of approval of the Board of Directors for the proposed relocation:
1.4	Reasons for the relocation of business place:

2	Location
2.1	Existing
	a. Administrative District
	b. Name of Town
	c. Local Government Authority
	d. Divisional Secretariat
	e. Postal Address
2.2	New (Proposed)
	a. Administrative District
	b. Name of Town
	c. Local Government Authority
	d. Divisional Secretariat
	e. Postal Address

3	If an economic feasibility study has been conducted for relocation of the business place and documented?	Yes / No
4	If a police clearance certificate and necessary approvals/clearance have been obtained from the relevant government authorities to establish the business places at the proposed location?	Yes / No

5	Certification
	The undersigned have the authority to submit this information on behalf of the company and the information provided herein is true and correct to the best of my knowledge and belief.
	Name:	Name:
	Title: Chief Executive Officer	Title: Compliance Officer
	Signature:	Signature:
	Date:	Date: