Clipped from: https://www.thehindubusinessline.com/opinion/unclaimed-headaches/article66748453.ece
Banks must step up measures to reduce such deposits
The RBI along with its recent MPC statement stated that it “has decided to develop a web portal to enable search across multiple banks for possible unclaimed deposits…” The measure is depositor-friendly and necessary, but would it be sufficient?
The question arises because despite banks displaying the list of unclaimed deposits on their websites and RBI “taking various measures…”, these deposits have increased over time.
At December-end 2021, the scheduled commercial banks had 98.7 million unclaimed deposit accounts with ₹310.8 billion deposits, posting decadal compound annual growth rates of 25.1 per cent and 27.1 per cent respectively.
The average amount outstanding per account remained low: it increased by 15.5 per cent from ₹2,726 in 2012 to ₹3,148 in 2021 after a peak of ₹3,521 in 2013.
While the Savings Bank portfolio had the highest incidence, the Public Sector Banks (PSBs) had the highest share both by accounts and amount.
A very small proportion of the unclaimed deposits is actually claimed back by the depositors or their legal claimants. During 2021-22, for 12 PSBs and 19 Private Banks in aggregate, only 1.22 per cent of the unclaimed deposits was claimed back.
One of the common reasons 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.
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, legal procedures are cumbersome and time-consuming.
Increasing use of IT in banks, procedural ease in opening bank accounts, accelerated financial inclusion, increased mobility, etc., have led people to resort to bank ‘hopping’ without closing their account/s in the previous branch/es and leaving ‘nominal’ amounts therein.
Small or retail deposits are the lifeline of the Indian banks, and hence, they need to take initiatives for reducing the incidence of unclaimed accounts. For banks it would be beneficial as maintaining inoperative accounts has cost implications and sometimes such accounts become easy conduits for fraudulent transactions.
Further, RBI has directed banks to launch special drives to locate the inoperative account holders/their legal heirs.
Positive shifts are occurring in this respect, especially after banks’ intensified use of mobiles and Internet. Besides, while opening accounts, bankers are more attentive towards whether the customer is correctly filling in the nomination details in account opening forms. Periodic KYC updating helps too.
The Indian Banks’ Association can be directed to conduct a limited primary-level sample study covering inoperative account holders (who can be reached) and bank branch functionaries, with funding from the RBI’s Depositor Education and Awareness Fund. Practices followed by other deposit-taking agencies, e.g., India Post, and even corporates/insurance companies for distributing their unclaimed dividends/ shares/policies may be examined.
Unclaimed accounts with balances below a threshold should be closed after sending three letters to the account holders. Separate thresholds should be prescribed for different deposits categories. Legal procedures therefor should be progressively simplified.
Business Correspondents can help establish contact with the inoperative accounts holders or their legal heirs. Similarly, the Debt Recovery Agents model can be examined for its adaptability to tackling unclaimed accounts.
The issue can be included in the Enhanced Access & Service Excellence (EASE) Reforms agenda as the PSBs are the highest repositories of inoperative accounts/amount.
The writer is a former senior economist of SBI. Views are personal.