Central Bank Issues Official Circular on Disaster Relief Grants

 In order to provide special financial relief to individuals and businesses affected by the recent floods and cyclones caused by adverse weather conditions, the Central Bank of Sri Lanka has issued Circular No. 04 of 2025, which includes a new set of instructions to all licensed banks.

This mechanism, formulated without hindering the stability of the financial system and taking into account the proposals of the Sri Lanka Banks' Association, provides for the suspension of existing loan recoveries for disaster-affected individuals and the provision of new loans at concessionary interest rates.

The Central Bank informs that customers wishing to obtain these loan reliefs must submit their requests in writing or through electronic methods to the respective banks before January 15, 2026. After considering the relevant requests, banks have been permitted to suspend the repayment of the principal or interest of existing loan facilities for affected loan customers for a period of 3 to 6 months, and

banks have also been instructed to refrain from charging interest higher than the contracted interest or penal interest during this period.

Banks should also provide new loan facilities to affected parties to rebuild their livelihoods and businesses, based on their repayment capacity, with the opportunity to commence new loan repayments after a 3-month grace period. For these new loans, an annual fixed interest rate of 9 percent or the lower of the existing contracted interest rates should be charged for a period of up to 2 years, and for loans exceeding two years, the interest rate can subsequently be revised to a rate linked to the prevailing Average Weighted Prime Lending Rate (AWPLR).

In the event of a loan restructuring, the customer must be informed of the relevant terms and fees and their consent obtained before approval, and banks have been strictly instructed not to reject new loan applications based solely on Credit Information Bureau (CRIB) reports. The Central Bank emphasizes that if a loan application is rejected for any reason, the customer must be provided with the reasons in writing, and an appeal can be made to the Financial Consumer Relations Department of the Central Bank of Sri Lanka.

Furthermore, steps have been taken to suspend the charging of cheque dishonour fees, stop payment fees, late fees, and penal interest from affected customers until January 31, 2026. If these amounts have been automatically charged by banking systems, licensed banks must ensure they are re-credited to the respective accounts within 3 days.