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Banks and the cheque problem

by Ubhaya Gunawardena

(June 18, Colombo, Sri Lanka Guardian) The Central Bank, the so called watchdog of the financial system seems to adopting the practice of burying its head in the sand with regard to some burning issues affecting the public in general. While there are several issues that I can dwell on, this letter will focus only on the age-old problem of the inexcusable volume of cheques returned by banks on a daily basis.

I understand through reliable sources that the number of cheques returned during any given month is in the range of over 200,000. Isn't the Central Bank worried about the immense damage caused by this to the public, especially the trading community? The cheque leaf in this country is just a worthless piece of paper and is not accepted by anyone other than traders who are compelled to accept them despite having to face the consequences of having to chase behind the drawer when it gets returned.

A banker friend says that banks do close the account in most cases when a customer issues cheques without funds in his account. But what such a customer does is to walk across to the nearest bank branch and open another account. There does not appear to be a central database to verify the track record of an applicant to open an account as in the case of loans where such an arrangement exists.

Why cannot the Central Bank take steps to create such a database — that is if they are really interested in curtailing cheques being returned? Recently steps were taken by them to disallow re-presentation of cheques returned for lack of funds. The intention was good but only the beneficiary of the returned cheque suffered and not the banks who happily carry on with no attempts being made to reduce cheque returns — maybe as my bank friend tells me — due to the enormous amount of penalties they happily charge on each cheque returned.

My suggestion to the Central Bank is: it's high time the CB pulled its head out of the sand and used the regulatory stick against banks by imposing a heavy penalty on banks whose cheque returns exceed a certain percentage of total cheques cleared.

Banks will react immediately to any regulation that hits their bottom line and the volumes of returns are bound to fall.

Do banks take adequate measures to screen a customer before opening an account? I am told that while some banks ask a whole heap of questions before an account is opened, some others attract business by not making enough queries before commencing a relationship with a customer.

Again, my friend tells me that the anti money laundering laws require banks to carry out extensive inquiries before opening an account. Here too, the Central Bank which is expected to monitor such matters has been totally ineffective and has failed in carrying out its responsibilities.

If the Central Bank disagrees with any of the above contentions please do enlighten the public through these columns.
- Sri Lanka Guardian

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