• Fuelled by private credit and low interest rates, bank deposits grew by nearly 16%
• A simultaneous surge in cash-based transactions reflects a public preference for cash

Sri Lanka’s rupee deposit liabilities surpassed the Rs. 13 trillion mark in the first six months of the year, growing by almost 16% year-on-year (y-o-y), with increased private credit flows, the Central Bank of Sri Lanka (CBSL) said.

According to the market operations report, during the first quarter of 2025, the growth rate of rupee deposit liabilities of licensed commercial banks accelerated compared to the fourth quarter of 2024, particularly among state banks and domestic private banks, which accelerated further in the second quarter.

“The rise in deposits was mainly driven by state banks as well as domestic private banks, aligned with increasing private sector credit flows, supported by a low interest rate environment,” the central bank said.

Banking sector rupee deposit liabilities, which stood at Rs. 12,323.8 billion at the end of 2024, rose to Rs. 12,883 billion by the end of March, and further to Rs. 13,234.3 billion by the end of June.

Moreover, the CBSL said there was a surge in currency-in-circulation (CIC) during the first six months, reflecting heightened public preference for holding cash amidst an increase in cash-based transactions, and the relatively low opportunity cost of holding currency due to low deposit interest rates.

CIC, which is a key determinant of market liquidity, recorded a notable increase up to mid-April 2025, followed by a decline thereafter.

In line with the seasonal demand associated with the festive period beginning in March, the central bank released about Rs. 193.6 billion into the economy, with CIC reaching the highest level on 16 April.

Of this amount, about Rs. 116.2 billion worth of currency had returned to the central bank by the end of May, indicating the usual return of currency following the festive season.