Financial Times

Unclaimed or abandoned property goes beyond funds or other items in the custody of a Bank and developed countries have set up more sophisticated systems to ensure protection to the general Public.

Recent moves by the Central Bank to transfer dormant accounts of the commercial Banks to a special account in the Central Bank did cause a certain amount of anxiety in the minds of the customers.

The Central Bank in fact went to the extent of issuing a statement that it is not an attempt to seize private funds for the government through the Bank.

This was necessary as much of the panic came from the Sri Lankan expatriate communities of all levels who yet maintain local accounts despite being away from the home country for long periods.

Expatriate remittances have now become a key-financing source in the background of widening current account compounded by increasing oil prices.

The Banking Act of 1988 initiated the precautionary move to protect the interests of the banks’ depositors who do not transact in accounts for a considerable period of time by introducing measures to protect such accounts in keeping with the established best practices. However this provision has been in the Monetary Law Act from a very early period.

It is widely believed that when accounts are dormant for considerable periods of time there is a high risk of fraudulent misappropriations unknown to the depositors. Section 73 of the Banking Act provides that any licensed commercial bank holding such abandoned property /dormant accounts should report to the Monetary Board of the Central Bank the nature of the Articles held and in the case of the money the amount involved.

Section 72 details the requirements of such abandoned items not transacted for a period of 10 years to be reported. According to the Banking Act such monies are required to be transferred to a special account in the Central Bank to provide protection to the account holders and eliminate any possible irregularities.

The Act further provides for full transparency to these transactions by making it mandatory for the transferring banks to publish transfer details in newspapers in all three languages.

Having no knowledge of one’s own funds locked up in some remote bank account is possible.

In most families even the husband and wife may at times not know of each others full banking details or it will be fully handled by one of the spouses and some of the credits like insurance proceeds and share dividends may go direct to a bank account, and if the address has been changed surviving family members may not know any information about such funds lying dormant.

In Sri Lanka some of the commonest abandoned properties could be Savings, Current Account Balances, Share certificates, Certificates of Deposit and Fixed Deposit certificates.

Similarly a safety locker could contain a whole host of documents. One precautionary measure a customer could take is to prepare a up to date list of all family assets including Bank Accounts, Certificates of Deposits, Title deeds and utility deposits etc and keep copies with trusted parties. It is believed that significant dormant funds are now held by the commercial banks.

Unclaimed or abandoned property goes beyond funds or other items in the custody of a Bank and developed countries have set up more sophisticated systems to ensure protection to the general Public. In the US details of such unclaimed properties are available in web pages of the relevant unclaimed property offices.

Limitation of Parate rights on SME defaults ?
Proposed amendments to the Recovery of Loans by Banks Special provisions Act which aim to limit the parate right to sell the mortgaged property of loan defaulters where the principal capital amount is less than Rs 5 million.

Obviously this amendment comes in as a long felt relief to the SME sector, now identified as a key driver in the country’s economic activity. But bankers feel that the majority of the defaulted loans would come under this category thereby causing major worry to the lenders.

While there’s concern on the impact of this legislation on the much awaited Basle11 implementation, it is also likely bankers will attempt to build in a higher cost or premium for default risk to the lending rates applicable to the loans below Rs 5 million.

This will be determined by the borrower’s repayment ability as demonstrated in the projected cash flows and the bankers will also need to increase their supervision costs to ensure the viability of the projects. It is hoped that the measures to restrict existing mechanisms to recover bad loans would not be counter productive.

Whilst the small and medium scale business sector may have their concerns in the manner loans are recovered it is a known factor that this sector suffers from major weaknesses in financial management thus leading to business failures.

The government, through the respective trade chambers, should attempt to address this issue and give these businessmen and entrepreneurs assistance to improve their financial management skills.

Another issue to be noted is the incidence of taxation such as the recently introduced Economic Service Charge and the long delays associated with VAT refunds to exporters that causes major cash flow problems to struggling businesses.