POST OFFICE SAVINGS BANK OF SINGAPORE (AMENDMENT) BILL

Order for Second Reading read. 5.44 pm

The Minister of State for Finance (Mr Lee Yock Suan): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Bill seeks to amend the Post Office Savings Bank of Singapore Act, 1971, to clarify and redefine the functions and powers of the Bank in line with its objectives as a Savings Bank. The Bill also enables the Bank to offer certain additional types of banking services.

The existing objects of POSB are to promote thrift and to deploy the funds so garnered for public development. These objects have been achieved. To provide a better service to its customers, the Bank is seeking approval to offer personal fixed deposits, personal current accounts and the sale of travellers' cheques.

Certain restrictions are placed on the POSB to ensure that it steers clear of risks inherent in commercial banking business. The Bank will lend mainly to the public sector, that is, statutory boards and companies in which the Government has a substantial interest. It will be prohibited from extending loans to any individual in excess of $5,000 without any security, or in excess of $30,000 solely upon the security of any guarantee or guarantees.

The POSB will exercise financial prudence in its investment activities. It may hold Government securities, mortgages of property and deposits with licensed banks. It may, with the approval of the Minister, invest in shares and securities where these are considered to be in the economic interest of Singapore.

Such restrictions and prudence are in keeping with the POSB's role as a national savings bank whose deposits are guaranteed by the Government.

Clause 7 provides for a new section 46, which will remove any possible doubt that the POSB enjoys the protection of a banker under the Bills of Exchange Act.

Sir, I beg to move.

Question proposed. 5.46 pm

Mr S. Chandra Das (Chong Boon): Mr Speaker, Sir, I would like to offer a few comments and observations on the Post Office Savings Bank of Singapore (Amendment) Bill. To-date, there are 2.49 million savings accounts, with depositors' balances exceeding $6 billion. This indeed speaks very well for the Post Office Savings Bank and the services it has been providing for all Singaporeans. This is indeed a creditable record.

I am very pleased to note that as a result of the Amendment Bill further services will be provided to these 2.49 million accounts. These services are spelt out clearly in the new section 5, particularly (a), (b) and (c) which are of special importance to the account holder. The provision of checking account will indeed be a big boon to the small man. The small account holder can now have a checking account which has been traditionally denied to him. Large banks have tended to look upon small account holders as inconveniences and to discourage the small man they have imposed such conditions as minimum balances and charging service fees if minimum limits are absent. I sincerely hope the POSB which has served the small man very well for so long will not be tempted to impose such prohibitive conditions.

Sir, we are now moving towards a cashless society and this move to offer checking accounts is a step in the right direction. All protests about unfair competition, I am afraid, does not hold water as this market segment really does not interest the big banks, Having catered for the needs of the small man, I think it is only fair and proper for POSB to have such additional benefits.

The 2.49 million accounts have supported the POSB largely because of the tax exempt status on interest earned. This factor has been most instrumental in the growth of the POSB. It is important that this tax exempt status is maintained at all times, otherwise I am afraid it will be a breach of faith by the Government. A categorical statement to the effect from the Minister would be most reassuring to all account holders, including myself.

Sir, next I would like to refer to the new section 5 (h) of the Bill which states that the Bank shall have powers "to form or participate in the formation of a company or enter into partnership or an arrangement for the sharing of profits as may be conducive to the functions of the Bank." Here, I would like to see some caution exercised so that the funds of the POSB are properly invested and must be fully accountable to the Minister at all times. I do not think we want to see situations where the Bank can take a minority stake in a company and then this new company starts investing its funds in Cayman Islands. The associate companies will not be totally accountable to the Minister. I would suggest that all joint ventures, particularly where minority interests are taken, should be approved by the Minister so that they keep in line with the objectives of the POSB.

Sir, in conclusion, I would urge that, while the POSB must compete with existing banks in the provision of new services, great care must be taken especially in the provision of automated services. Where computer security is concerned, there have been lapses in this area and it is important that proper measures are taken to avoid such recurrences. The Public Accounts Committee has commented on this subject in its Third Report presented to this House on 27th August, 1983, and I quote:

"Bearing in mind the vulnerable nature of computer operation the Committee recommends that POSB constantly review its security controls to maintain the highest standard of security at all times."

The Minister's assurance on computer security would be most welcome.

Sir, I support the Amendment Bill. 5.51 pm

Dr Chau Sik Ting (Thomson): Mr Speaker, Sir, I rise to support this Bill. As explained by the Minister of State for Finance, the POSB should retain its unique role as a national savings bank by providing a convenient banking service for the personal depositor. The need to encourage thrift and mobilise domestic savings for public development is still as relevant today as it was when the POSB was first established. These objectives must continue to be pursued, POSB has performed creditably so far. But should POSB go commercial, it could lose sight of the needs and interests of its personal depositors and would therefore be diverted from its initial objectives.

Sir, we are glad to hear that POSB will offer personal current accounts, personal fixed deposits and sale of travellers' cheques. The public will certainly welcome these additional services. Commercial banks and finance companies must therefore continually ensure a high standard of personal services in view of the potential competition from the POSB. The public will benefit from such a competition.

As a statutory board, POSB remains severely restricted in its lending and investment policy and therefore should retain all its existing privileges, namely:-

i) exemption from income tax of interest earned on savings deposit;

ii) a Government guarantee of deposits; and

iii) exemption from the provisions of the Banking Act, particularly the reserve requirements.

Should tax exemption on interest of savings deposit be discontinued, POSB would lose its inherent attractiveness to personal depositors. I am, moreover, in favour of payment of interest on POSB current accounts as it is in the interest of the public. The general public will welcome this. As to whether this move would lead to increased lending costs to commercial enterprises, in particular the small ones, since the banks would be deprived of the so-called "free funds", keen competition in the market-place may, however, dictate otherwise. After all, some commercial banks, such as DBS, are already paying interest on current accounts through something known as the Autosave.

Finally, Sir, I would like the Minister of State for Finance to elaborate on clause 7 of the Post Office Savings Bank of Singapore (Amendment) Bill.

Sir, I support the Bill.

Mr Lee Yock Suan: Mr Speaker, Sir, I wish to thank the hon. Members for Chong Boon and Thomson for supporting this Bill and for their various suggestions and comments.

I would, first of all, like to deal with the comments by the Member for Chong Boon. At the outset, may I assure the House that the personal depositors with POSB will continue to enjoy tax exemption on the interest which they earn from savings deposits with the POSB. This will continue to be the attraction of POSB. The attractiveness has perhaps been overstated because most of the depositors with POSB are, in fact, small savers who pay little or no tax. This exemption from tax will only extend to the saving deposits and not to fixed deposit interest. In the case of current accounts raised by the Member for Thomson, the POSB is as yet undecided whether it will pay interest on current accounts. If it does so, the interest will be taxable.

The other point raised by the Member for Chong Boon is an appeal to POSB not to impose too many conditions in the operation of the current accounts. On this point, I would like to assure Members that the POSB always has the interest of the small saver in mind. POSB is still looking into this matter. In the interest of banking prudence, of course certain conditions may have to be set. For example, if an account holder has only $1 in his savings account, it will be very difficult for him to operate a current account but the assurance I have given is that the POSB will always have the interest of the small depositor in mind.

The Member for Chong Boon referred to the new section 5(h) of the Bill regarding the powers to participate in companies and so forth. May I refer him to another new section 5(A) of the Bill which imposes the restrictions on the Bank. If I may quote section 5A (1):-

"Notwithstanding any other provisions of this Act, the Bank shall not -

(d) through any company or undertaking do anything which the Bank is not authorised to do or is prohibited from doing."

And section 5A (2) states as follows, and I quote:

"Except as authorised by this Act, the Bank shall not engage in any commercial, industrial or financial undertaking or acquire any direct interest in the stocks or shares of any trading, industrial or financial company."

So whatever it does, it must conform with the provisions of this Act. As I have said before, there are various rather severe restrictions placed on POSB to confine its role to those of a national savings bank, and not to go into the areas of commercial banking.

In any case, all the operations of the Bank, including its subsidiaries, are accountable to the Minister and both my Ministry and POSB will be extremely cautious to ensure that the Bank observes prudence in all its lending and investment activities.

I wish to thank the Member for Chong Boon for raising the question of security of the automated services. This is a matter which the POSB is continually reviewing, and POSB will engage the assistance of experts, if necessary, to ensure proper security of its computer systems, the automated teller machines and so forth. As Members. are aware, I think there was one incident reported in the papers of theft from an ATM and the POSB has reviewed procedures and will continue to review procedures to prevent a recurrence of such an event.

If I may now come to the points raised by the Member for Thomson. I fully agree with him, and it is the intent of this Bill, that the POSB should remain as the national savings bank with a special role to play in our economy. The Bank has done extremely well in this regard and should continue to do so. As the national savings bank, the POSB is fully justified in retaining its existing concessions, especially tax exemption on savings deposits and Government guarantee of all its deposits. With the existing high level of LDC debt and the concomitant risk of bank failures abroad, the Government guarantee of deposits in POSB offers depositors a safe haven for their hard-earned savings. However, these concessions must be seen in perspective in relation to POSB's role and objectives and the restrictions which have been placed on POSB. For example, in return for exemption from the provisions of the Banking Act, the POSB is required to hold at least 50% of its assets with the Government.

The Bill will restrict the POSB severely in its lending and investment policy. The POSB is not free to accept deposits from corporate bodies or to engage in foreign exchange transactions and the financing of foreign trade. It will lend mainly to statutory boards and corporations wholly or mainly owned by the Government.

A lot of weight has been placed on the tax exemption on savings deposit in attracting depositors. As I have said, this has been overstated to some extent.

The POSB must also be commended for the imaginative and bold steps that it has taken to inculcate the savings habit. For example, it pioneered Giro and the computerization of savings transactions. Its marketing efforts have been targeted solely at the personal depositor. It has established a large number of branches throughout the country, in housing estates, in shopping centres and elsewhere. It keeps branches open on Saturday afternoons and selected branches open till 7.00 pm. The POSB has generally been responsive to the needs of its depositors.

The Member for Thomson raised the question of the payment of interest on current accounts. As I have said, the POSB has not yet decided whether it will pay interest on current accounts. The Banking Act does not prohibit banks from paying interest on current accounts if they wish to do so. In addition, the MAS has not prohibited banks from paying interest on current accounts, and it does not intend to play a regulatory role in this matter. It is actually a restriction placed by the Association of Banks of Singapore on the banks themselves, and it is really up to the banks to decide whether in the interest of competition they should offer this facility.

Finally, I would just like to say a few words to clarify the nature of the protection under clause 7 of this Bill. Clause 7 of the Post Office Savings Bank of Singapore (Amendment) Bill will enable the Bank to enjoy protection accorded to bankers under the Bills of Exchange Act against liabilities in connection with the proposed operation of current accounts. Protection is provided in such instances as:-

(a) where a banker in good faith and in the ordinary course of business pays unindorsed or irregularly indorsed cheques; and

(b) where a banker in good faith and without negligence collects payments of cheques or certain other instruments for his customers who turned out to be not the true owners of these instruments.

Maybe I can explain this in simpler terms. You have a cheque book and you happen to lose it. Now, somebody uses it to write cheques, forging your signature or whatever. It is not possible for the bank to check every signature, and if in good faith the bank pays this cheque to a third party, the paying bank is not liable under this clause; neither is the receiving bank liable. That is the meaning of this provision and it is normally accorded to all bankers. So the lesson is: Do keep your cheque books under lock and key.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Mr Lee Yock Suan].

Bill considered in Committee.

[Mr Speaker in the Chair]

6.05 pm

Clause 1 -

The Chairman: The citation year will be altered from "1983" to "1984".

Clause I ordered to stand part of the Bill.

Clauses 2 to 8 inclusive ordered to stand part of the Bill.

Bill reported without amendment; read a Third time and passed.