Have you ever been an introducer to an individual for opening a bank account? I think most of us will show spontaneous reaction – ‘yeah’. It has been a normal practice adopted by banks to get the account introduced by an existing account holder. However, to be clear, introduction does not mean taking up any liability of the account holder. Earlier, introduction was a necessary and sufficient condition for opening a bank account. But a significant judgment of the Supreme Court that an introducer, without other evidence, could not be held liable for a fraud played on the bank by an account holder, saw change in the rule for opening a bank account. Today, introduction is not mandatory for opening an account and this has Reserve Bank of India (RBI) backing. However, the accountholder has to mandatorily submit documents supporting his identity as well as address proof.
Even as bank introducers don’t offer any value now as accounts can be opened without introduction, they still hold worth in case of missing account holders. Let me tell you in what sense an introducer is still worthy for the bank. Some time back, one of my acquaintances was shocked to see a team of bank officials at his doorsteps. The team was not there to sell their products or services, but to seek whereabouts of a ‘missing’ account holder. Since bank officials usually visit defaulting borrowers’ or their guarantors’ place to recover loan, my acquaintance quickly told them that he was not guarantor in any loan of the ‘missing’ person.
The bank officials, sensing his confusion, clarified that they were looking for the ‘missing’ account holder to claim the balance amount in his saving bank account, left unattended for years together. The bank officials also told him that he being the introducer to his savings bank account made a sense for them to seek information about ‘missing’ account holder’s whereabouts. Relieved of the tension, my acquaintance guided them about his location.
It often happens that people move from place to place and change jobs or business destinations more frequently now. During the course, most of them leave their old bank accounts inoperative and open new ones at their new destinations.
It’s also a reality that many don’t share their financial details with family members and in case of any unfortunate incident, the family members have no idea of their bank accounts. Resultantly, the unattended accounts turn inoperative/dormant and finally the amount in such accounts land into the category of unclaimed deposits.
The Reserve Bank of India (RBI) guidelines envisage, if a bank account remains inoperative for a period of 10 years, the money can be transferred to Depositors Education and Awareness Fund (DEAF). An account is considered dormant or inoperative if there has been no transaction (apart from interest credited or maintenance fees charged) for a period of two years. Inoperative accounts also include your fixed deposits (FDs), recurring deposits, demand draft, banker’s cheques, pay orders and unadjusted National Electronic Fund Transfer transactions. The bank is required to contact the customer via e-mail or phone about this.
Unclaimed deposits with banks have been growing every year. Let me, in this regard, share an interesting piece of information. By the end of the financial year 2019, the unclaimed deposits surged by almost Rs.4000 crore and the total value of was recorded to around Rs.18,380 crore as against the amount of Rs.14,307 crore at the end of the financial year 2018.
Even as the RBI has directed all banks to take proactive measures to trace owners of the unclaimed deposit accounts, the mounting outstanding balance in this segment of deposits has witnessed huge surge over the years. According to the RBI data, unclaimed bank deposits as of December 2008 were worth Rs. 1,188 crore lying in 1.92 crore inactive or dormant accounts. Within a span of five years, that is as of December 31, 2013, a whopping amount of Rs. 5,124.98 crore was recorded unclaimed in various deposit accounts in the banks. In another span of five years (as on financial year 2018), the unclaimed bank deposits surged by almost Rs.9000 crore.
The uncontrolled surge in unclaimed deposits only reflects the inept attitude of the banks which have failed to put concerted efforts to trace the missing account holders and handover their unclaimed deposits to them. Notably, in the financial year 2019-20, DEA fund was about Rs.33,114 crore (including both banks and insurance companies). Last year, it was Rs.25,747 crore, according to the RBI’s annual report.
Notably, inoperative status does not at any point of time snatches ownership status of the account holder. However, to reclaim ownership rights of a dormant or inoperative account, the customer has to comply with ‘know your customer’ guidelines. Operations in such accounts would be allowed after due diligence as per risk category of the customer. Due diligence would mean ensuring genuineness of the transaction, verification of the signature and identity etc. However, it has to be ensured that the customer is not put to inconvenience as a result of extra care taken by the bank.
What is Depositor Education and Awareness Fund (DEAF) Scheme and how is it linked to the unclaimed deposits?
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 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 utilized?
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 the made the deposit. Now with 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 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.