One of my acquaintances was shocked to see a team of bank officials at his doorstep. The team was not there to sell their products or services, but they had stepped at his residence to know the whereabouts of a ‘missing’ accountholder from him. My acquaintance while taking the ‘missing’ accountholder as a loan defaulter, told them that he had not guaranteed repayment of any loan of the ‘missing accountholder’.
The bank officials were quick enough to sense his confusion and clarified that they were looking for the ‘missing’ accountholder to let him know about some handsome amount left in his savings bank account which he had not operated for over a decade. The bank officials also told him that he being the introducer to his savings bank account made sense for them to seek information about the ‘missing’ accountholder’s whereabouts.
Relieved of the tension, my acquaintance guided them about the ‘missing’ accountholder’s whereabouts.
The above narrated incidents are some five years old and the basic reason to share this small but significant story is just to take a look at unclaimed accounts where thousands of crores are lying idle for decades.
Basically, there is a huge sum of money lying unclaimed with banks. According to a data available, during the decade 2011 to 2020, the number of unclaimed accounts and amount outstanding has witnessed a massive jump. The average amount outstanding per account increased by 35.2 per cent from Rs.2, 215 in 2011 to Rs. 2, 995 in 2020 after a peak of Rs.3,521 in 2013. The savings bank portfolio had the highest incidence of unclaimed deposits — three-fourth of the total unclaimed accounts and two-third of the total amount.
A report recently submitted by the union finance ministry to the parliament revealed that a total amount of over Rs 51, 500 crore is lying unclaimed with financial institutions, like banks, insurance companies and mutual funds, in the country. According to the Reserve Bank of India (RBI), as on 31.12.2020, the total number of unclaimed accounts in Scheduled Commercial Banks (SCBs) was 8,13,34,849 and the amount of deposits in such accounts was Rs 24, 356 crore. Similarly, the number of accounts not operated for more than 10 years and the amount in such accounts with Urban Co-operative Banks (UCBs) was 77,03,819 and Rs 2,341 crore, respectively, as on December 31, 2020.
As per the information received from the Insurance Regulatory and Development Authority of India (IRDAI), the total amount of unclaimed deposits with life insurance companies as on March 31, 2021 was Rs 22,043.26 crore, and that with non-life insurance companies was at Rs 1,241.81 crore.
Similarly, the amount lying unclaimed with mutual funds was Rs 1,590.67 crore which comprised of Rs 671.88 crores towards unclaimed redemption and Rs 918.79 crores towards unclaimed dividend as on March 31, 2021, reveals a report by the Securities and Exchange Board of India (SEBI).
Why is an account categorised as an unclaimed account?
An account is categorised as unclaimed if there are no transactions in the account for 10 years or more and the money left in such accounts is defined as unclaimed deposits. Here it’s imperative to understand ‘inoperative’ or ‘dormant’ accounts. As per Reserve Bank of India (RBI) guidelines, a savings bank account, and even a current account, is considered dormant or inoperative if there are no transactions in it for at least two years. Inoperative accounts with banks also include term deposits, recurring accounts, various forms of transfers such as telegraphic or mail, demand drafts, pay orders, bankers cheques, unadjusted National Electronic Fund Transfer (NEFT) balances, among others.
After the account remains inoperative for one year, the banks have to explore the possibility of contacting the accountholder either through post or telephone to ascertain the reason for not conducting transactions in his account. If the customer cannot be traced, the bank has to contact the introducer or nominee of the account. If the accountholder still remains untraced for another year, the account has to be termed inoperative. Once the account falls in the inoperative category, the accountholder cannot operate it before complying with certain mandatory formalities. Notably, money lying in dormant bank accounts is transferred to the Depositor Education and Awareness Fund (DEAF) within a period of three months from the expiry of the above-said 10 years. The depositor is, however, entitled to claim from the bank her/his deposit or any other unclaimed amount or operate the account after the expiry of 10 years, even after such amount has been transferred to DEAF. The bank is liable to pay the amount to the depositor/claimant and claim a refund of such amount from DEAF.
It’s also worth mentioning that under Section 26 of the Banking Regulation Act, 1949 requires banks to submit to RBI information about these accounts within 30 days after each calendar year ends. Unclaimed deposits can be claimed by their legal owners after satisfying certain conditions prescribed by RBI.
What is the Depositor Education and Awareness Fund (DEAF) Scheme?
Even as the RBI has directed all banks to take proactive measures to trace owners of the unclaimed deposit accounts, the Government of India in March 2014 empowered the Reserve Bank of India (RBI) to establish a Fund under the Depositor Education and Awareness Fund Scheme, 2014 by inserting section 26A in the Banking Regulation Act, 1949. On May 24, 2014, the RBI notified the establishment of the DEA Fund in the Official Gazette.
As per this amendment, all banks are required to transfer money lying in accounts that have been inoperative for at least 10 years to the Fund. In fact, banks have to list out inoperative accounts every month and transfer funds lying in these, along with interest accrued, by the end of the subsequent month.
Notably, the unclaimed money is to be transferred to this fund within 3 months from the expiry of 10 years.
How is this unclaimed money parked under the DEAF Scheme utilised?
The money transferred to the fund by various banks is invested in instruments such as government securities by a committee set up by the RBI. The income thus earned is used for paying interest on the deposits as well as using it for investor awareness and education purposes.The educational initiatives for customers could include information sharing seminars or research projects related to banking practices.
How is it possible for individuals to know about their unclaimed deposit accounts, if any?
As per the RBI regulations, every bank is required to show the details of unclaimed accounts on its website. After checking the details on the website, one can visit the bank branch with a duly filled claim form and submit know your customer (KYC) documents to claim the money. It’s not mandatory for a claimant to visit the home branch with which he/she had made the deposit. Now with the core banking solution, the claimant can approach any branch of the bank. If the claimants are the legal heir or nominee, they need to approach the bank with the deposit receipts, identity proof and a copy of the death certificate of the account holder. After verifying the genuineness of the claim, the bank will release the payment along with the interest on the money.
It’s worth mentioning that the claimant can get a refund of his/her unclaimed money along with interest even if the money stands transferred to the DEAF account. In this case the bank will make the payment to the customer, and subsequently will lodge a claim with the RBI at the end of the month to get a refund from the DEAF account.
Disclaimer: The views and opinions expressed in this article are the personal opinions of the author. The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK