Bank service charges

Although the deposit taking institutions, commonly known as commercial banks, may have certain reservations, the decision of the State Bank on 27th May, 2011 to prohibit all banks from levying any service charges for opening and maintenance of regular saving accounts with effect from 1st July would certainly be welcomed by ordinary savers of the country.

According to a SBP circular, services rendered by banks for the opening/maintenance of regular savings accounts shall be free of charge and there shall be no condition of minimum balance for these accounts. Similarly, no charges would be recovered by banks at the time of closing of account. Besides, banks shall not demand more than Rs 100 as an initial amount for opening these accounts. However, no initial deposit would be required for opening of accounts by (i) Mustahkeen of Zakat, (ii) Students and (iii) Employees of government and semi-government institutions for salary and pension purposes. Also, banks shall ensure that all terms and conditions for the operation of an account, especially in case of its dormancy, closing and/or subsequent reactivation are brought into the knowledge of the customer at the time of account opening.

The key features of the Account Opening Form shall be translated into Urdu and any ambiguity in the terms and conditions mentioned in the form shall be construed to be in favour of the account holders. Banks would also pay profit invariably on “PLS Accounts” without any condition of minimum balance in accordance with instructions issued by SBP from time to time. In order to discourage an indifferent attitude of bankers, they have been further instructed to “make concrete efforts to provide maximum facilities in a friendly manner, to both existing and potential customers/account holders for convenient/smooth operations of their accounts”. Banks would also facilitate those Basic Banking Accounts (BBAs) holders who desire to convert their accounts from BBAs into regular saving accounts.

We feel that the State Bank’s decision to abolish service charges for opening and maintenance of savings accounts and force the commercial banks to accord almost similar treatment to all categories of deposit holders is not only in the larger economic interest of the country and ordinary households. It was, in fact, long overdue. Commercial banks, in general, had devised very novel and self-centred ways to keep small depositors out of the system and tactics like levying of exorbitant service charges, prescribing of minimum balance conditions, refusal to pay any interest and rude behaviour were employed to discourage them to utilise the banking facilities available in the country.

Overall, the policy of commercial banks towards small depositors had become so stringent that the number of small account holders had declined in recent years despite an increase in population and the number of bank branches in the country. To a certain extent, such a policy was also promoting class differentiation in society as people with small means were being avoided. However, high-value depositors were being received with a red carpet. The new instructions of the State Bank are intended to discourage such a behaviour, and would definitely facilitate ordinary depositors who have not to worry anymore now about service charges and other prohibitive actions usually adopted by the commercial banks to keep them away.

Indirectly, the present decision of the State Bank would help inculcate banking habit among ordinary savers, discourage consumption and promote documentation of transactions to a certain extent. These benefits would not appear to be gigantic on paper but would definitely help the economy in certain ways and make the lives of common sections of society somewhat easier. In particular, central bank’s fresh instructions would effectively dissuade small depositors from closing their accounts due to the fear of penalty, etc.

However, the measure may not be looked at favourably by bankers. Their argument could be that they have to spend disproportionately on opening and maintaining small accounts and the State Bank should not intervene unnecessarily in their routine affairs in a free market economy. They may also like to increase the lending rates to a certain extent or reduce the deposit rates on other categories of deposits to compensate for the loss suffered by keeping the small saving accounts into operations under the instructions of the State Bank. However, in a situation where their profit indicators are so promising, such justifications are not quite tenable.