Unclaimed Deposits – Are banks doing enough? 1273595 Paras walia (f2) MBA 4

Unclaimed Deposits – Are banks doing enough?

Introduction

Unclaimed Deposits/Inoperative accounts in Banks

“Inoperative Accounts - savings as well as current account will be treated as 

 Inoperative/dormant if there are no transactions in the account for over a period of two years.”

“Unclaimed deposit accounts” means accounts, which have not been operated upon for ten years (in the case of money deposited for a fixed period the said term of ten years shall be reckoned from the date of the expiry of such fixed period).”

A term deposit is also considered as unclaimed when the same is not renewed/withdrawn after 10 years or more from the date of maturity. 

Discussion

What are banks doing?

In an effort to play a more pro-active role in finding the whereabouts of the account holders of unclaimed deposits/inoperative accounts, the list of such accounts which are inoperative for ten years or more has been displayed on our Bank’s website. For Individual Customers, the list so displayed on the website contains the names of the account holder(s) and his/her address in respect of unclaimed deposits/ inoperative accounts.

For Non Individual Customers, the list so displayed on the website contains the names of the Entity and its address in respect of unclaimed deposits/inoperative accounts.

RBI instructions on dealing with unclaimed deposits

In view of the increase in the amount of unclaimed deposits with banks year after year and the inherent risk associated with such deposits, it is felt that banks should play a more pro-active role in finding the whereabouts of the account holders whose accounts have remained inoperative. Moreover, there is a feeling that banks are undeservedly enjoying the unclaimed deposits, while paying no interest on it.

Keeping these factors in view, UCBs may follow the instructions detailed below while dealing with inoperative/dormant accounts:

(i) UCBs should carry out an annual review of accounts in which there are no operations (i.e. no credit or debit other than crediting of periodic interest or debiting of service charges) for more than one year. The banks may approach the customers and inform them in writing that there has been no operation in their accounts and ascertain the reasons for the same. In case the non-operation in the account is due to shifting of the customers from the locality, they may be asked to provide the details of the new bank accounts to which the balance in the existing account could be transferred.

(ii) If the letters are returned undelivered, they may immediately be put on enquiry to find out the whereabouts of customers or their legal heirs in case they are deceased.

(iii) In case the whereabouts of the customers are not traceable, banks should consider contacting the persons who had introduced the account holder. They could also consider contacting the employer / or any other person whose details are available with them. They could also consider contacting the account holder telephonically in case his telephone number / Cell number has been furnished to the bank. In case of Non Resident accounts, the bank may also contact the account holders through email and obtain their confirmation of the details of the account.

(iv) A savings as well as current account should be treated as inoperative / dormant if there are no transactions in the account for over a period of two years.

(v) In case any reply is given by the account holder giving the reasons for not operating the account, banks should continue classifying the same as an operative account for one more year within which period the account holder may be requested to operate the account. However, in case the account holder still does not operate the same during the extended period, banks should classify the same as inoperative account after the expiry of the extended period.

(vi) For the purpose of classifying an account as 'inoperative' both the type of transactions i.e. debit as well as credit transactions induced at the instance of customers as well as third party should be considered. However, the service charges levied by the bank or interest credited by the bank should not be considered. There may be instances where the customer has given a mandate for crediting the interest in Fixed Deposit account to the Savings Bank account and there are no other operations in the Savings Bank account. Since the interest on Fixed Deposit account is credited in the Savings Bank accounts as per the mandate of the customer, the same could be treated as a customer induced transaction and the account should be treated as operative account as long as the interest on Fixed Deposit account is credited to the Savings Bank account. The Savings Bank account can be treated as inoperative only after two years from the date of the last credit entry of the interest on Fixed Deposit account.

(vii) Further, the segregation of the inoperative accounts is from the point of view of reducing risk of frauds etc. However, the customer should not be inconvenienced in any way, just because his account has been rendered inoperative. The classification is there only to bring to the attention of dealing staff, the increased risk in the account. The transaction may be monitored at a higher level both from the point of view of preventing fraud and making a Suspicious Transactions Report. However, the entire process should remain un-noticeable by the customer.

(viii) Operation in such accounts may 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 inconvenienced as a result of extra care taken by the bank.

(ix) There should not be any charge for activation of inoperative account.

Media buzz

The Hindu

Information provided by the Reserve Bank of India (RBI) under the Right to Information Act, 2005, has revealed that a staggering amount of Rs. 2481,39,70,461 was lying in 1,12,49,844 unclaimed deposits or inoperative accounts with 85 nationalised, public sector, private sector, foreign and other banks operating in the country as on December 31, 2011.

S. Sampath, an RTI activist based here, says that the figures provided by the RBI was stunning as Rs. 215,63,26,667 was lying in 4,87,94 inoperative current accounts; Rs. 1510,12,99,413 in 87,88,949 savings accounts; Rs. 425,89,41,510 in 8,27,663 fixed deposits; and Rs. 317,97,14,034 in 11,45,938 other deposits with the 85 banks.

Stating that the information was being circulated among RTI activists across the country, he said that they were all for taking urgent steps to utilize the money in a better way.

Times of India

The recent buzz behind RBI reprimanding banks for not being pro-active in tracing customers of unclaimed deposits / in-operative accounts and the strict guidelines enforcing banks to display the name and address of such account holders on their websites, latest by September 30, 2012, with a further maintenance of such list, has got one thinking, are banks even following the basic KYC due diligence norms? If they would have, would there be such a huge occurence of unclaimed deposits, causing RBI to enforce such specific instructions!

Alternatively, one wonders as to what prevents banks from tracing down customers of such unclaimed / in-operative accounts. Is it the lack of interest or sheer man-power shortage which prevents them from doing so? If so, should there not be collaboration or nexus that helps all banks trace down such account holders, through mutual co-operation and sharing of information amongst each other?

CONCLUSION

I strongly disagree from the statement that banks are doing enough for settling the unclaimed deposit as they are not even able to fulfill the RBI guidelines.

Information provided by the Reserve Bank of India (RBI) under the Right to Information Act, 2005, has revealed that a staggering amount of Rs. 2481,39,70,461 was lying in 1,12,49,844 unclaimed deposits or inoperative accounts with 85 nationalized, public sector, private sector, foreign and other banks operating in the country.

The RTI information also disclosed that the RBI had been writing to the banks since 2008 with detailed instructions on dealing with unclaimed deposits or inoperative accounts. They had been advised to conduct an annual review of such accounts and allow operations in such accounts, without any charge, after finding out the whereabouts of the customers and legal heirs after due diligence.

Recommendations

There should be provision in the application package of the banks (including co-operative banks) for automatic transfer of accounts to the in-operative /unclaimed accounts as and when they fall under these categories based on the present RBI prescription.

Bank branches should trace down such accounts by all modes of communication. If the account holder is not traceable, the account holder may be tracked through his/her introducer.
Census and such other database may be utilized to locate the persons whose present address is not known.

Unclaimed deposits list should be common for all banking system and displayed on IBA/RBI website.