Dealing with Unclaimed Bank Deposits : Daily Current Affairs

Relevance: GS-3: Indian Economy, mobilization of resources, Banking System.

Key phrases: Unclaimed Deposits, CAGR, PSBs, Life Insurance Corporation, RBI, DEAF.

Why in News?

There is a huge sum of money lying unclaimed with both public and private banks. Here are some ways of helping people reclaim it.

Unclaimed Deposits in India:

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.
Graph given below 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.
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).
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.
Life Insurance Corporation of India holds 82% of all unclaimed insurance amounts as of December 2020. The share of such unclaimed amounts with the LIC was only 69% in 2018. LIC of India had ₹1, 19,100 crore of unclaimed money, which is over 80% of the total such money in all insurance companies.

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.
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.

Reasons for Rise in Unclaimed Deposits:

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.
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.

What should be the solution?

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:
- Organising area-wise special camps for revival or disposal of unclaimed accounts.
- Monitoring the position of unclaimed deposits in customer grievance redressal meetings at various levels.
- 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 Insurance Regulatory and Development Authority of India (IRDAI) has made it mandatory for all insurance companies to display information of unclaimed amounts if the sum is more than Rs 1,000.
SEBI has made it mandatory for mutual fund houses to provide details of unclaimed investments on their websites. Anyone can check if there is any unclaimed sum by just keying in the investor’s name and PAN.
Depositor Education and Awareness Fund Scheme, 2014: The very purpose of Depositor Education and Awareness Fund Scheme is to consolidate the overall amounts from all the dormant accounts in the form of the fund called DEA Fund. As per the terms of the scheme, the banks are ought to calculate the cumulative balances in all such accounts and transfer the amount to the DEA Fund on the last working day of the subsequent month.

Way Forward:

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:
- 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.
- 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.

Source: The Hindu BL

Mains Question:

Q. Discuss the Unclaimed Bank Deposits in Indian banking system. What are the reasons for rise in Unclaimed Bank Deposits and steps to tackle this? Critically Examine.