Central Bank to penalise banks not complying with lending rate caps

Several large and small banks are likely to face penalties as they are yet to fully comply with Central Bank’s (CB) lending rate caps.

In September, CB issued directions to licensed commercial banks (LCBs) to bring down the weekly Average Weighted Prime Lending Rate (AWPR) by 150 basis points (bps) by  November 1 and by at least 250 basis points by  December 27, compared to the AWPR as at 26 April 2019.

“There are seven banks that have to bring down their rates by further 50 basis points to comply with the directions, which are highly unlikely to happen before the year end. 

“People’s Bank, Sampath Bank and DFCC Bank have to bring down their rates by more than 50 basis points before the deadline,” CB Senior Deputy Governor Dr. Nandalal Weerasinghe said.

The Public Bank, Axis Bank, Cargills Bank and Indian Overseas Bank were among the smaller banks that are likely to face penalties for not complying. 

“Next week onwards, we will start imposing certain penalties or sanctions on banks that haven’t complied with CB directions as it’s unfair for banks who have brought down rates by 250 basis points,” Dr.Weerasinghe stressed. 

He said the Monetary Board will decide on penalties based on the extent of the deviation from the direction.

“We will have to discuss it in the Monetary Board; there are several provisions on the Banking Act. It will depend on their deviation.” 

However, the current Banking Act doesn’t allow CB to impose monetary penalties on banks. 

As of December 20, AWPR of the banking sector declined by 220 basis points to 10.04 percent since end-April, below the expected 250 basis points.