A deepening financial scandal at National Development Bank PLC (NDB) has intensified scrutiny of Sri Lanka’s banking oversight, with former Finance Minister Ravi Karunanayake urging President Anura Kumara Dissanayake to take immediate and decisive action. The controversy centers on an internal fraud estimated at Rs 13.2 billion, raising serious concerns about governance, regulatory delays, and systemic weaknesses.
Despite the scale of the fraud, the bank’s current board remains in place, as it continues to meet minimum solvency requirements under the supervision of the Central Bank of Sri Lanka. However, this decision has sparked concerns about potential conflicts of interest, particularly as the board oversees a forensic audit into the very failures that occurred under its watch.
The forensic investigation, commissioned to Deloitte Touche Tohmatsu India LLP, is expected to trace the movement of funds and report directly to the Central Bank. Yet critics argue that this alone is insufficient. While forensic audits identify where the money went, a parallel management audit is needed to determine why internal controls failed and whether leadership negligence or complicity played a role.
Internationally, such crises often trigger the appointment of a statutory administrator to independently oversee affected institutions. In Sri Lanka, however, regulators appear to be waiting for preliminary audit findings to establish gross negligence before removing board members—an approach some see as overly cautious given the scale of the losses.
Karunanayake has highlighted that at least two commercial banks had alerted the Financial Intelligence Unit about suspicious transactions nearly 16 months before the fraud became public. He argues that this delay reflects a serious breakdown in regulatory responsiveness and accountability.
The letter outlines several systemic weaknesses, including poor middle-office monitoring processes, the absence of automated reconciliation between CEFT and RTGS systems, and outdated banking software infrastructure. Questions have also been raised about whether the Securities and Exchange Commission of Sri Lanka and the Colombo Stock Exchange properly supervised NDB’s Rs 16.2 billion debenture issuance.
Karunanayake has also called for calculating and recovering tax revenue losses linked to the fraud and suggested seeking technical support from the Reserve Bank of India, Bank of England, and Monetary Authority of Singapore. He further urged a review of Sri Lanka’s regulatory framework and stronger oversight of audit committees.
Meanwhile, the Criminal Investigation Department has launched a parallel criminal investigation, arresting several suspects including senior IT and managerial staff. This forms part of a broader coordinated effort involving auditors, regulators, and law enforcement.
With investor confidence under pressure, the NDB scandal has become a major test of Sri Lanka’s financial governance and regulatory strength.