Unclaimed deposit accounts explained

RBI announces a special 100 days campaign under which banks have to trace and settle their top 100 deposits in every district
Representational Image
Representational Image File/ GK

The issue of unclaimed and inoperative deposit accounts in the banks has once again assumed importance as the Reserve Bank of India (RBI) on Friday said a special 100 days campaign will be launched under which banks have to trace and settle their top 100 deposits in every district of the country. The banks will commence the campaign from June 1, 2023. The RBI at regular intervals has been telling the banks to spruce up their act in dealing with deposit accounts which have remained inoperative and are unclaimed so far.

Even the apex bank had advised the banks to put in place a grievance redressal mechanism for quick resolution of complaints, record keeping and periodic review of such accounts. There are even standing instructions for the banks to find the whereabouts of the missing customers and their legal heirs.

However, the performance of banks in bringing down the volume of unclaimed deposits has been dismal and the RBI has also shown its displeasure that banks are not active enough in settling the unclaimed deposit accounts. It is worth mentioning that the RBI’s displeasure over the issue of unclaimed deposits reveals the feeling that banks are undeservedly enjoying the unclaimed deposits, while paying no interest on it. Besides, there is an inherent risk associated with these unclaimed deposits as huge amounts are lying idle in such accounts with banks and the balance is swelling year after year. The unclaimed deposits are transferred by banks to "Depositor Education and Awareness" (DEA) Fund maintained by the central bank.

Notably, the RBI data shows that at the end of February 2023, the total amount of unclaimed deposits transferred to RBI by Public Sector Banks (PSBs) was Rs 35,012 crore with State Bank of India (SBI) leading the ranking with Rs 8,086 crore unclaimed deposits. Just a decade back, the amount of unclaimed deposits was just a little over Rs. 5,124 crore.

Now the RBIs '100 Days 100 Pays' campaign for banks to trace and settle the top 100 unclaimed deposits of every bank in every district of the country within 100 days, is move in the right direction. This initiative will reduce the quantum of unclaimed deposits in the banking system and return such deposits to their rightful owners/claimants.

It is pertinent to mention that the RBI has already announced the development of a new centralised web portal to search for unclaimed deposits. The portal will help bank customers to find their unclaimed deposit at a single point. At present, the depositors or beneficiaries of unclaimed bank deposits have to go through the websites of multiple banks to trace such deposits.

Additionally, banks have been once again encouraged to think about starting a special drive to track down customers or legal heirs in relation to accounts that have become inoperative, or where there have been no transactions for at least two years. There are certain issues which as a bank customer you must be aware of. How does a bank account become inoperative or dormant? Once a bank account becomes inoperative, what is the procedure to make it operational? What is the procedure to withdraw money from the dormant account of a deceased account holder by his legal heirs?

Meanwhile, we have seen people moving from place to place and changing 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. So, what should one do? A straight and simple answer to this is that one should close the account if it is not going to be used. Closing the account means either the money be withdrawn or transferred to a new account.

What is an inoperative account or dormant account?

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.

What is an unclaimed account?

If a bank account remains inoperative for a period of 10 years, the account is categorized as an unclaimed account. The money in this account is called unclaimed money. As per the RBI guidelines, the unclaimed money can be transferred to Depositors Education and Awareness Fund (DEAF).

What is the 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 can a customer know about his unclaimed money and what’s the procedure of claiming it?

Every bank is required to show the details of unclaimed accounts on the bank’s website. After checking the details on the website, you can visit the bank branch with a duly filled claim form, receipts of the deposits and know your customer (KYC) documents to claim the money.If you are the claimant, you need to visit the branch. Earlier, you would have had to go to the particular branch with which you had made the deposit but now with core banking, you can approach any branch. However, if the claim is related to an old account (when digital banking was not enabled), it is advisable to visit your home branch.

If you are the legal heir or nominee, you 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.According to the Reserve Bank of India (RBI) guidelines if there are no transactions in the account for a period over two years, it is to be treated as dormant or inoperative. However, there is a hassle free mechanism in place for such accountholder to make their dormant accounts (accounts declared inoperative by the bank) operational.

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.

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