By: Staff Writer
May 10, Colombo (LNW): The widening fraud investigation at National Development Bank PLC has triggered growing calls from banking professionals and lawmakers for the urgent appointment of a powerful independent Competent Authority to supervise the troubled institution and oversee its Board of Directors.
Financial sector observers warn that the scandal has evolved beyond a simple criminal investigation into a broader national governance failure involving auditors, regulators, and senior management structures.
The alleged fraud, valued at approximately Rs. 13.2 billion, is believed to have been carried out through a sophisticated “slow-drip” system of transactions over nearly two years. Investigators say thousands of low-value electronic transfers were strategically executed during weekends and low-supervision periods to bypass automated compliance systems.
Authorities revealed that internal suspense accounts and temporary ledger balances were repeatedly manipulated while abnormal receivable balances grew dramatically without corresponding impairment provisions. Experts argue these irregularities should have been detected much earlier by multiple layers of internal and external oversight.
The Committee on Public Finance sharply criticized the regulatory failures during a recent parliamentary session, questioning how such a large operational risk escaped detection despite ongoing audits and routine Central Bank supervision.
The Central Bank of Sri Lanka has since ordered tighter controls, including real-time reconciliation systems, enhanced monitoring of weekend transactions, and a “fit and proper” review of senior management personnel.
However, banking experts insist that these measures alone are insufficient without independent supervisory leadership. They argue that appointing a Competent Authority with extensive international banking and financial experience would ensure that all corrective measures are implemented transparently and without delay.
Such an authority, analysts say, would have the power to direct the existing Board to execute urgent security upgrades, strengthen compliance systems, and make immediate personnel changes where necessary. The proposal would allow the Board to continue operational responsibilities while remaining under strict external oversight aligned with the Central Bank’s recovery strategy.
The seriousness of the crisis prompted the appointment of Deloitte Touche Tohmatsu India LLP to conduct a forensic audit that reports directly to regulators rather than the NDB Board itself. Officials say this unusual arrangement was designed to prevent any possibility of interference or tampering with evidence.
Meanwhile, the Criminal Investigation Department has expanded its probe into alleged shell companies, luxury asset purchases, and suspected offshore fund movements. Several suspects remain in remand custody after courts rejected bail applications citing risks of witness interference and the enormous scale of the fraud.
NDB has already revised its financial outlook, reducing expected profitability and suspending shareholder dividends to preserve capital. The bank is also reducing high-risk lending and attempting to stabilize its loan-to-deposit ratio after suffering severe reputational damage.
Although regulators insist customer deposits remain safe and that the bank continues operating within required capital thresholds, industry observers warn that confidence can only be restored through visible, independent, and credible oversight.
As investigations deepen and more arrests appear imminent, pressure is increasing on authorities to act swiftly before the scandal further undermines trust in Sri Lanka’s banking system.