Account holders: SBP bars banks from imposing service charges
Move initiated to stem the decline in bank accounts in recent years.
KARACHI:
The State Bank of Pakistan (SBP) has barred banks from levying service charges for opening and maintaining of regular savings accounts with effect from July 1.
In a set of instructions for banks issued on Friday, the central bank said, “Services rendered by banks for the opening and maintenance of regular savings accounts shall be free of charge. There shall be no condition of maintaining a minimum balance for these accounts.”
The decision comes in the wake of a decline in recent years in the number of account holders, particularly small depositors, despite an increase in bank branches. Among other factors, the service charges on deposit accounts were considered to be one of the main reasons for the trend. However, this move will help document the economy and increase financial outreach.
The instructions would cover all existing and new accounts, except for special deposit accounts wherein banks offer added services, SBP said, adding no charges would be demanded by banks at the time of closing an account.
In 2003, SBP had allowed banks to recover service charges on deposit accounts commensurate with the services provided by them. Later, it fixed the maximum limit on service charges at Rs50 per month and exempted salary and Zakat accounts.
Accounts can be opened
with Rs100
According to the instructions, banks will not demand more than Rs100 as initial amount for opening regular savings accounts. However, no initial deposit will be required from those eligible for Zakat, students, employees of government or semi-government institutions for salary and pension purposes (including widows and children of deceased employees eligible for family pension, benevolent fund grant, etc) and other similar types of accounts.
SBP asked banks to disclose all terms and conditions to customers at the time of opening an account, especially in case of dormancy, closing and reactivation. A copy of the account opening form, detailing the terms and conditions, must be provided to the account holders. Any ambiguity in the terms and conditions will go in favour of account holders.
SBP said key features of the form would be translated into Urdu, adding the banks would not refuse opening of accounts for clients who meet the requirements given in the prudential regulations, other central bank instructions and banks’ own policies.
Moreover, banks will pay profit on Profit and Loss Sharing (PLS) accounts without any condition of minimum balance.
The central bank also advised banks to develop appropriate products for attracting deposits and encouraging savings. Banks were also asked to facilitate Basic Banking Account (BBA) holders who desire to convert their accounts to regular savings accounts.
Depositors protected
JS Global Capital banking sector analyst Mustafa Bilwani said the State Bank has responded to calls of small depositors who had been complaining consistently about levy of service charges and keeping of a minimum balance in bank accounts.
Earlier, he said, the central bank had protected the credit card holders by barring banks from adopting an aggressive approach for recovery of borrowed money. Now, small depositors have been provided relief.
Bilwani said this would have some impact on the banks’ earnings as “every customer is profitable to them.” However, he said the core income for banks came from interest charges, which were in the range of 15 to 18 per cent.
He said the withdrawal of service charges would encourage small savers and rural people to open bank accounts as at present only 10 to 15 per cent of the population was receiving banking services.
Published in The Express Tribune, May 28th, 2011.
The State Bank of Pakistan (SBP) has barred banks from levying service charges for opening and maintaining of regular savings accounts with effect from July 1.
In a set of instructions for banks issued on Friday, the central bank said, “Services rendered by banks for the opening and maintenance of regular savings accounts shall be free of charge. There shall be no condition of maintaining a minimum balance for these accounts.”
The decision comes in the wake of a decline in recent years in the number of account holders, particularly small depositors, despite an increase in bank branches. Among other factors, the service charges on deposit accounts were considered to be one of the main reasons for the trend. However, this move will help document the economy and increase financial outreach.
The instructions would cover all existing and new accounts, except for special deposit accounts wherein banks offer added services, SBP said, adding no charges would be demanded by banks at the time of closing an account.
In 2003, SBP had allowed banks to recover service charges on deposit accounts commensurate with the services provided by them. Later, it fixed the maximum limit on service charges at Rs50 per month and exempted salary and Zakat accounts.
Accounts can be opened
with Rs100
According to the instructions, banks will not demand more than Rs100 as initial amount for opening regular savings accounts. However, no initial deposit will be required from those eligible for Zakat, students, employees of government or semi-government institutions for salary and pension purposes (including widows and children of deceased employees eligible for family pension, benevolent fund grant, etc) and other similar types of accounts.
SBP asked banks to disclose all terms and conditions to customers at the time of opening an account, especially in case of dormancy, closing and reactivation. A copy of the account opening form, detailing the terms and conditions, must be provided to the account holders. Any ambiguity in the terms and conditions will go in favour of account holders.
SBP said key features of the form would be translated into Urdu, adding the banks would not refuse opening of accounts for clients who meet the requirements given in the prudential regulations, other central bank instructions and banks’ own policies.
Moreover, banks will pay profit on Profit and Loss Sharing (PLS) accounts without any condition of minimum balance.
The central bank also advised banks to develop appropriate products for attracting deposits and encouraging savings. Banks were also asked to facilitate Basic Banking Account (BBA) holders who desire to convert their accounts to regular savings accounts.
Depositors protected
JS Global Capital banking sector analyst Mustafa Bilwani said the State Bank has responded to calls of small depositors who had been complaining consistently about levy of service charges and keeping of a minimum balance in bank accounts.
Earlier, he said, the central bank had protected the credit card holders by barring banks from adopting an aggressive approach for recovery of borrowed money. Now, small depositors have been provided relief.
Bilwani said this would have some impact on the banks’ earnings as “every customer is profitable to them.” However, he said the core income for banks came from interest charges, which were in the range of 15 to 18 per cent.
He said the withdrawal of service charges would encourage small savers and rural people to open bank accounts as at present only 10 to 15 per cent of the population was receiving banking services.
Published in The Express Tribune, May 28th, 2011.