22 April 2006
Abu Dhabi: Banks should be held responsible jointly with drawers for dishonoured cheques, a legal consultant said."Banks can check the problem of bad cheques through rationalising the issue of cheque books to customers according to their credit ratings or issue of cheques with certain financial ceilings," said Mohammad Ebrahim Al Shaiba of Al Bahr Advocates and Legal Consultants.
"Banks are misusing the authority given to them by the Central Bank to judge whether a dishonoured cheque should be counted or not. This allows many customers to get away with the offence of issuing a bad cheque on the ground that the bank regarded that it was issued in good faith. Banks should strictly follow instructions of the Central Bank and each dishonoured cheque must be counted."
Rashid Mohammad Al Fandi, executive director of the Central Bank's banking operations, agreed that some banks did not follow proper standards in offering chequebooks to their customers and offered easy personal loans despite the low incomes of customers.
Tighter norms
"To reduce the number of dishonoured cheques and ensure better discipline among bank customers and to enhance the standing of the cheque as a payment instrument in the country, the Central Bank had decided since 1993 that current account holders whom at least 4 cheques get returned unpaid due to insufficient funds, within a year, their current accounts must be closed, remaining cheques collected and the name reported to the Risk Bureau along with the amounts of each returned cheque," Al Fandi said.
He added this information is used to compile a list of "Current Account Restricted Persons", which is available to all banks electronically.
However, Al Shaiba argued that these measures did not work and the problem has ever since exacerbated.
He urged that banks issue different types of cheques with different values, based on the income or the money deposited with the banks.
"How can low income person be issued a cheque-book and allowed to issue a cheque worth Dh1 million or more while his current account has only Dh5,000 or less?" he asked.
"A ceiling should be fixed for each type of cheques similar to that of credit cards," Al Shaiba said.
A banking official said the suggestion is not viable. "A bank cannot deny a current account holder the right to obtain a cheque book. Once the chequebook is given, the bank has no authority over the use of it or responsibility for misusing it.
"A cheque is a negotiable instrument drawn against deposited funds for payment and undertaking to pay a determinate amount of money to a specific person upon demand."
Abu Dhabi Current account holders who get four cheques dishonoured due to insufficient funds within a year get their current accounts closed, remaining cheques collected and their names blacklisted so that no chequebook is issued to them.
According to statistics of the Central bank, more than 750,000 cheques were dishonoured last year.
Abu Dhabi Police General Headquarters said that 1,748 UAE nationals were reported defaulters from 1999 to 2004 with a total of Dh2.727 billion in credits. Some 35,418 bad cheque cases involving Dh1.14 billion were registered with the police from 2002 to 2004.
The amount of credit extended by banks here in the first nine months last year reached more than Dh318.69 billion, while it was Dh255.59 billion in 2004.
By Samir Salama
Gulf News 2006. All rights reserved.
