Sri Lanka’s banking sector is confronting one of its most serious internal fraud scandals in recent memory, as the crisis engulfing the National Development Bank (NDB) continues to widen. Despite mounting pressure, regulators have yet to appoint a Competent Authority, with the Central Bank of Sri Lanka appearing to delay intervention until forensic findings are finalized—likely to prevent destabilizing public panic.
At the center of the controversy is a staggering Rs. 13.2 billion internal fraud, now under investigation by both regulators and law enforcement. While NDB leadership—Chairman Sriyan Cooray and CEO Kelum Edirisinghe—remains in place to maintain operational continuity, scrutiny over their oversight has intensified. Critics point to a controversial 96-hour delay in fully disclosing the fraud, raising questions about transparency and governance.
Early audit findings reveal a methodical pattern: fraudulent transactions were executed during weekends in amounts just below the Rs. 5 million reporting threshold, effectively bypassing internal red flags. Investigators believe perpetrators accessed core banking systems using compromised login credentials belonging to senior officials, exposing alarming weaknesses in cybersecurity protocols.
To ensure independence, NDB has engaged Deloitte Touche Tohmatsu India LLP to conduct a forensic audit, with results to be submitted directly to the Central Bank rather than through internal channels. This unusual reporting structure underscores the seriousness of the situation and concerns about internal accountability.
Meanwhile, the Criminal Investigation Department has expanded its probe, identifying a network of nearly 60 suspects. Recent arrests include an external accomplice allegedly linked to laundering Rs. 390 million through cryptocurrency channels hinting at a sophisticated, cross-border financial operation. Authorities now estimate that Rs. 12.8 billion has already been moved offshore through layered electronic transfers, complicating recovery efforts.
Financially, the fallout is already visible. NDB is projecting a Rs. 4 billion after-tax loss for the first quarter of 2026. Despite this, the Central Bank maintains that the institution remains solvent, citing liquidity ratios above required thresholds. However, the damage to investor confidence is evident: Fitch Ratings has downgraded NDB to ‘A-(lka)’ with a Negative Outlook, highlighting systemic failures in internal risk management.
Regulatory restrictions have followed swiftly. Acting on a directive issued April 6, the bank has suspended dividend payments, halted branch expansion, and imposed strict limits on discretionary spending to preserve capital buffers.
Perhaps most troubling is what internal audits failed to catch. Reports indicate that a 400% surge in receivable balances over an 18-month period went undetected an oversight that now appears to have been a major warning sign.
As investigations deepen, the NDB scanda
l is shaping into more than just a case of fraud it is becoming a litmus test for Sri Lanka’s banking governance, regulatory vigilance, and institutional accountability.
By a special correspondent