Unclaimed deposits are commonly defined as those deposits which are lying in accounts not operated for a period of 10 or more years. 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.
However, several common citizens, including the financially sophisticated ones, are observed to be ignorant of the provisions and processes involved. This has led to proliferation of inoperative accounts and unclaimed deposits in the banking system.
As per Section 26A of the amended Banking Regulation Act, 1949, 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 refund of such amount from DEAF.
Chart 1 presents the growth path of the number of unclaimed accounts and amount outstanding at December-end during the decade 2011 to 2020. During this period, both continuously increased, barring a nominal dip in 2014 in respect of the latter.
The growth of amount outstanding (CAGR=29.1 per cent) was steeper than that of accounts (CAGR=24.9 per cent), implying that increasing number of relatively large deposit accounts was becoming unclaimed, which is puzzling and a matter of concern.
Massive jump
The average amount outstanding per account increased by 35.2 per cent from ₹2,215 in 2011 to ₹2,995 in 2020 after a peak of ₹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.
Public Sector Banks (PSBs), obviously, had the highest share both in terms of number of accounts (84 per cent) and amount outstanding (83 per cent).
We tried to compute the extent to which unclaimed deposits are claimed back by the depositors or their legal claimants. This exercise was carried out for the financial year 2020-21 by collecting the relevant data from the balance sheets of 12 PSBs, 12 old private banks and nine new private banks.
Among the PSBs, only 1.26 per cent of the unclaimed deposits outstanding at March-end 2021 was claimed back with a range of 0.35 per cent to 2.25 per cent. For old private banks, it was 1.22 per cent with a range of 0.44 per cent to 1.74 per cent, and for new private banks, it was 0.79 per cent with a range of 0.32 per cent to 3.05 per cent. Thus, a very small proportion of unclaimed deposits is actually claimed back.
The most important reason for a deposit account becoming unclaimed is the death of the depositor without a nomination or without being a joint account with ‘either or survivor’ option. This arises mostly due to ignorance of the account holder while opening the account, or even if she comes to know afterwards, does not carry out the necessary modifications. In the case of such accounts, banks are required to follow the legal procedures before handing over the money to the legal heirs.
Therefore, the onus lies with the deceased depositor’s legal heirs who have to initiate the process with the bank. However, as widely known, legal procedures are cumbersome and consume considerable time.
Financial illiteracy and lack of awareness about the procedures among the people lead to these kinds of situations. Therefore, financial literacy drive is welcome.
Possible solutions
While opening accounts, banks need to see that customers fill in the nomination part in account opening forms appropriately and completely. Customers, in their own interest, must cooperate with banks. It is heartening to note that positive shifts are taking place in this respect, especially after the banks’ intensified use of mobiles and Internet.
Unclaimed deposits may constitute a minuscule proportion of total deposits of a bank, but since banks, especially PSBs serve the ‘small’ depositors, they need to take initiatives for reducing the incidence of unclaimed accounts. Some of the initiatives that could be taken up are:
(i) Organising area-wise special camps for revival or disposal of unclaimed accounts.
(ii) Monitoring the position of unclaimed deposits in customer grievance redressal meetings at various levels.
(iii) Business Correspondents can help establish contact with the holders of inoperative accounts or their legal heirs and reactivate the accounts.
There is always room to progressively simplify the legal procedures for settlement of the unclaimed accounts, especially for those with low amounts.
The RBI has been doing a good job in persuading banks to reduce the incidence of unclaimed deposits. However, a few more things, as mentioned below, may be added:
(i) Asking banks to report the unclaimed deposits data population group-wise (i.e., rural/semi-urban/urban/metro) so that the issue can be tackled more effectively.
(ii) Commenting upon the position of unclaimed deposits while carrying out on-site inspections of banks.
It is only through meaningful cooperation between banks and customers that the incidence of unclaimed deposits can be minimised.
The writer is a former senior economist of SBI. Views expressed are personal.