Financial Times

Monetary authorities have decided to consider deposits in savings accounts including Residential Foreign Currency Accounts and Non-Resident Foreign Currency Accounts that have been inactive for 10 years (since December 31, 1995) as disowned property.

The amendment to the Banking Act is to recover non-performing accounts of commercial banks and use its provisions relating to disowned/abandoned property to access the dormant funds.

According to clauses of the banking regulations all commercial banks are required to disclose to the Central Bank any disowned/abandoned deposits. Thus, the first report by all registered commercial banks on dormant accounts for the 10 years ending December 31, 2005 is pending.

Before the confiscation of the defunct depositary accounts the commercial banks have been instructed to inform the respective account holders in writing and if no response is received to the letter within 30 days the account is to be confiscated.

Officials say money in defunct accounts would be credited to a separate account for the utilisation of government activities but claimed that banks are obligated to reimburse them when demanded by depositors.

However, what is unclear is the interest component of confiscated and subsequently reimbursed deposits. Logically, the commercial banks should allow any withdrawal of deposits inclusive of any accrued interest upon demand and the government/Central Bank should reimburse the full amount (the initial deposit plus the interest portion) to the commercial banks. Nevertheless, legitimate owners of dormant accounts would still have to follow a lengthy process in order to claim their rightful monies.

Officials say the amount in dormant accounts exceeds Rs 3 billion and is about 1 percent of savings, time and foreign currency deposits. These monies could be used by the government and of which a portion would not be claimed nor reimbursed at all.

From the government/national view point any abandoned/disowned property should be transferred as property of the government rather than a privately-held institution. Also the system helps the government to generate finances at a lower cost due to unclaimed abandoned/disowned money which may not involve any principal or interest payment. A commercial bank may argue for the simple reason of losing the benefit of dormant/defunct accounts and for going through the tedious process in case of a reimbursement.

However, proper drafting of such a monetary system is mandatory for a country’s economic health. Policies should be drafted to encourage and reinforce the financial system rather than creating uncertainty amongst the general public. In Argentina, a restriction on money withdrawals erupted in an economic and social crisis. Thus, before implementing a doubtful policy, proper educatory campaigns by the authorities are essential to restore the public’s confidence again.