Safe Deposit Lockers - Are spruced up rules the answer?
Both Public and Private Sector Banks have offered Safe Deposit Lockers (SDL) as a service since long, usually to privileged customers. The locker - useful for storing valuables like gold ornaments or important papers - can be operated by the customer as and when required using the keys provided by the bank.
In addition to annual rent, banks could earn revenue for providing specific services during the locker's "life cycle", such as breaking it open if the keys are lost. In most branches, demand for lockers is high and therefore, before allotting one, some banks might insist on a fixed deposit from the customer, which goes towards enlarging the overall deposit portfolio. At times, the locker is a conduit for beginning a new customer relationship, which could blossom into a long-standing one, or at least one that lasts as long as the locker is operational. Another reason why banks maintain lockers is so that they can offer end-to-end services under one roof, and not lose customers to competition.
For banks, the locker is a one-time investment, which earns a return in the manner described above, and from an Income Tax perspective, enjoys the advantage of depreciation. On the flip side, it can be quite an expensive proposition, one that takes up valuable space, as well as entails cost towards software, maintenance, staff and establishment expenses. This often raises the question of viability. In general, it is seen that SDLs achieve break even only in the 3rd or 4th year of operation.
From a servicing perspective, banks need to dedicate an officer to record access of lockers by customers in a manual or electronic register, after necessary checks and validations. Even those banks using software for locker management cannot entirely escape manual or procedural work.
Since banks are not entitled to check the contents of the lockers as per standard agreements and rules, customers could misuse them to stash unaccounted cash. Typically, such funds are stored for a short period of time, whereas, had they been accounted for, they might have found their way into long term saving instruments thereby increasing the banks' overall business.
To conclude, banks do not profit much from safe deposit lockers, except for the customer relationships they help sustain. On top, there is a rising incidence of cases of unaccounted valuables being stored in these lockers. When one of these is investigated, the bank is forced to assist the authorities, which puts additional pressure on staff. Sometimes, the bank is also drawn into the ring of suspicion. This makes a case for the age-old locker policies to be modified in order to prevent misuse. Some ways to do that include:
1. Attaching a PAN Card to a locker/customer account
2. Prohibiting customers from availing a standalone locker facility, without maintaining a transaction account
3. Demanding additional documentation, such as a declaration of purpose, lockers held with other banks etc.
4. Periodically providing data of customers with lockers to regulatory authorities
5. Avoiding the formation of a bank-customer nexus by frequently changing staff in charge of lockers.
The banking and financial services sector is the watchdog for tax and regulatory policy .One indicator of the maturity of the financial system in any country is the usage of cards and cheques, compared to cash transactions. By devising appropriate policies which prohibit the customer to place unaccounted cash in the Bank provided locker (though it may be a small share of unaccounted money in the overall ecosystem), it can be a stepping-stone in helping the Government in effective policy implementation in that direction. This will help the Government machinery in the long run, by preventing tax evasion, money laundering and other financial malpractices.