Accordingly, the Central Bank has drafted the guidelines in consultation with the Ministry of Finance, the Inland Revenue Department and the Panel of Auditors. These draft guidelines were approved by the Monetary Board, and have been submitted to the Ministry of Finance and Planning for their concurrence. Action 4: Regulatory coordination There are several public institutions involved in the merger and acquisition process of listed and unlisted financial institutions. Therefore, the Central Bank had several discussions with all such institutions including the Securities and Exchange Commission of Sri Lanka, Colombo Stock Exchange, Inland Revenue Department and Registrar of Companies to facilitate the companies in the consolidation programme to fast track the process. Outcome of phase II Most of the banks and NBFIs submitted their respective confirmed merger proposals by 30 June 2014, while only a few financial institutions did not have firm plans due to certain reasons and were in need of additional time to finalise their respective plans. In order to resolve issues related to these banks and NBFIs, the second round of one-on-one meetings, chaired by the Governor of the Central Bank, were held between 11 and 22 July 2014. At these meetings, matters relating to the delays in arranging mergers and acquisition were discussed and financial institutions were provided with appropriate guidance to manage the consolidation process. Accordingly, all NBFIs who had not confirmed their consolidation plans were requested to submit their final plans at their earliest.
Banks in Sri Lanka have been in operation for over 160 years while the NBFI sector has been a part of the economy for the last 80 years. Before the economic liberalisation in 1977, NBFIs carried out hire purchase and leasing business using their own funds or personally borrowed funds. Since the owners of such companies prudently managed their businesses and were cautious in lending, NBFI failures during pre-1977 era were extremely limited. The new economic policies in the post-liberalisation period gave rise to higher demand for credit from the private sector, which led the NBFIs to raise public deposits. However, lack of controls and regulations during that period limited the ability of the Authorities to move directly into the affairs of NBFIs. With the commencement of operations of the Central Bank of Sri Lanka in 1950, the Bank Supervision Department was set up, and has since been entrusted with the responsibility of supervision and examination of banking institutions. The scope of functions of the Bank Supervision Department was extended with the enactment of the Control of Finance Companies Act, No.27 of 1979, to include the supervision of NBFIs. The Bank Supervision Department was entrusted with the responsibility of providing the public with the required confidence in the financial system and protecting the interests of depositors. In order to achieve this objective, the Department was charged with the duty of continuous supervision and periodic examination of all banks and NBFIs in Sri Lanka.