Maximum Interest Rates on Deposits and Debt Instruments

23 June 2025
GOVERNING BOARD
CENTRAL BANK OF SRI LANKA
FINANCE BUSINESS ACT DIRECTIONS No.01 of 2025 MAXIMUM INTEREST RATES ON DEPOSITS AND DEBT INSTRUMENTS

1. Legal
   provisions
2. Objectives of
   the directions
3. Applicability
4. Reference
   rates
   4.1
   In terms of the powers conferred by Section 12(1) of the Finance Business Act, No.42 of2011 read with Section 133(1) of the Central Bank of Sri Lanka Act, No.16 of 2023, the Central Bank of Sri Lanka (CBSL) hereby issues these directions on maximwn interest rates on deposits and debt instruments applicable to all Finance Companies (FCs) licensed under the Finance Business Act, No. 42 of 2011. These directions promote sustainable business practices in soliciting deposits and issuing debt instruments by providing a methodology for determining the maximum interest rates on deposits and debt instruments offered or paid by FCs. These directions will be effective from 1 July 2025 and shall be applicable for existing and new savings deposits, new time deposits and debt instruments and at the renewal of time deposits and debt instruments. FCs are allowed to decide the maximum interest rates that may be offered or paid by an FC on Sri Lank.an Rupee (LKR) deposits and debt instruments based on the Weighted Average Yield Rate (WA YR) of the Treasury Bills (T-bills) or the Overnight Policy Rate (OPR).
   4.2 The maximum interest rates in respect of time deposits and other types
   of innovative deposits (such as recurring deposits) of tenure of one month and above, up to three years, and in respect of debt instruments will be reviewed quarterly, based on the simple average WA YR of the latest four primary auctions for T-bills in the immediately preceding quarter.
   4.3 The maximwn interest rates in respect of savings deposits and other
   deposits of tenure less than one month or where the maturity of 1

23 June 2025
5. Maximum
interest rates on deposits
GOVERNING BOARD
CENTRAL BANK OF SRI LANKA
FINANCE BUSINESS ACT DIRECTIONS No.01 of2025 5.1 deposits is not specified, shall be based on OPR and to be reviewed quarterly by FCs. Accordingly, the reference rate of OPR for the quarter will be the OPR, as at the end of the immediately preceding quarter. The maximum annual nominal interest rates that may be offered or paid by an FC on LKR time deposits and other types of innovative products for which interest is paid at maturity shall not exceed the interest rates derived in accordance with Table 1 below:
Table 1: Maximum interest rates for deposits
Tenure of the Deposit Maximum Interest Rate Per Annum 1 month and less than 3 months 91 days T-bills WAYR + 0.10% 3 months and less than 6 months 182 days T-bills WAYR + 0.25% 6 months and less than 1 year 364 days T-bills WAYR + 0.50% 1 year and less than 2 years 364 days T-bills WAYR + 2.00% 2 years and less than 3 years 364 days T-bills WAYR + 2.75% 3 years 364 days T-bills WAYR + 3.00%
5.2 Further, for LKR time deposits and other types of innovative products
for which periodic interest payments are made, the Annual Effective Interest Rates (AER) that may be offered or paid by an FC during the tenure of the deposits shall not exceed the interest rates derived in accordance with Table 1 above.
5.3 The maximum AER that may be offered or paid by an FC on LKR
savings deposits and other deposits of a tenure of less than one month or where the maturity of deposits is not specified, shall not exceed OPR.
5.4 Notwithstanding the provisions in Directions 5.1, 5.2 and 5.3 above,
the maximum interest rates payable by an FC for savings deposits of 2

• 23 June 2025

6. Maximum
   interest rates on debt instruments
7. Regulatory
   reporting
8. Definitions
   GOVERNING BOARD
   CENTRAL BANK OF SRI LANKA
   FINANCE BUSINESS ACT DIRECTIONS No.01 of 2025 6.1 children under the age of 18 years and for time deposits with a tenure of one year or more of senior citizens may be a maximum of 50 basis points (0.5%) higher than the rates given in Table I above. The maximum annual nominal interest rates that may be offered or paid by an FC on debt instruments for which interest is paid at maturity shall not exceed the interest rates derived in accordance with Table 2 below:
   Table 2: Maximum interest rates for debt instruments
   Tenure of the Debt Instrument Maximum Interest Rate Per Annum Less than I year 364 days T-bills WAYR + 0.50% I year and less than 2 years 364 days T-bills WAYR + 2. 75% 2 years and less than 3 years 364 days T-bills WAYR + 3.25% 3 years 364 days T-bills WAYR + 3.50%
   6.2 Further, for debt instruments for which periodic interest payments are
   made, AER that may be offered or paid by an FC during the tenure of the debt instruments shall not exceed the interest rates derived in accordance with Table 2 above. 8.1 FCs shall submit periodic returns on the interest rates paid through the Financial Information Network Reporting System in terms of the Finance Business Act (Periodic Reporting Requirements) Direction, No.01 of 2024, or as amended. The following definitions shall be applicable for the purposes of these directions:
   a) "Annual effective interest rate" means the amount of interest expressed as a percentage, a deposit product/ debt instrument would earn in a year at a stated interest rate after taking into account the effects of compounding of interest. 3

23 June202S
9. Revocation of
previous direction/ circular
GOVERNING BOARD
CENTRAL BANK OF SRI LANKA
FINANCE BUSINESS ACT DIRECTIONS No.01 of 202S b) "Annual nominal interest rate" means the interest rate stated in the agreement for a deposit product/ debt instrument without compounding of interest. c) "Debt instruments" means a bond, debenture, asset backed security, commercial paper, promissory note or any other instrument used for borrowing as may be determined by the Director, Department of Supervision of Non-Bank Financial Institutions. d) "Senior citizens" means persons who are over 60 years of age at the time of acceptance or renewal of a deposit. e) "Time deposit" means any deposit accepted by an FC with an agreement to repay on/after a specified period of time. Finance Business Act (Maximum Interest Rates on Deposits and Debt Instruments) Direction No.01 of 2019 and the letter dated 18 April 2022 on the subject 'Amendments to the Maximum Interest Rates on Deposits and Debt Instruments by Licensed Finance Companies, are revoked effective from 1 July 2025. t--o~'--,,-S)-----=-----~ Dr. P Nandalal Weerasinghe Chairperson of the Governing Board and Governor of the Central Bank of Sri Lanka 4