RBI has issued revised Instructions effective 01/04/2024 relating to Inoperative Accounts/ Unclaimed Deposits in Banks and waiver of related Penal Charges. As a result existing guidelines/instructions on these issues shall stand repealed from the said date.
The updated guidelines from RBI, dated 01/01/2024, regarding Inoperative Accounts/Unclaimed Deposits in Banks state that any credit balance in a deposit account that has not been operated upon for ten years or more, or any unclaimed amount for the same duration as specified in paragraph 3(iii) of the “Depositor Education and Awareness” (DEA) Fund Scheme, 2014, must be transferred by banks to the DEA Fund maintained by the Reserve Bank of India.
In an effort to assist account holders and streamline the existing instructions on inactive accounts, the RBI conducted a review in collaboration with all stakeholders. Based on this review, comprehensive guidelines will be issued to banks, covering a range of measures including classifying accounts and deposits as inactive or unclaimed, regular review of such accounts and deposits, preventing fraud, resolving grievances, tracing customers of inactive accounts or unclaimed deposits and reactivating their accounts, settling claims or closing accounts, and outlining the necessary processes. The RBI has provided detailed instructions to complement the ongoing efforts by banks and the Reserve Bank to reduce the amount of unclaimed deposits in the banking system and return them to their rightful owners or claimants.
The updated RBI guidelines regarding Inoperative Accounts/Unclaimed Deposits will be effective from 01/04/2024 for all Commercial Banks (including RRBs) and all Co-operative Banks.
Instructions Related Definitions
RBI has defined some key terms related to instructions on inactive accounts and unclaimed deposits:
(a) Bank-initiated transaction: Transactions in the account initiated by the bank as per its policy, like fees, interest, penalties, taxes etc.
(b) Customer-initiated transaction: Transactions initiated by or for the account holder with the bank or third party. This includes financial transactions, non-financial transactions like balance inquiry, and KYC updates done in-person or digitally.
(c) Financial transaction: A money transaction in the savings or current account, either a credit or debit.
(d) Inactive account: A savings or current account with no ‘customer-initiated transactions’ for over two years.
(e) Non-financial transaction: An inquiry or request for any product/service initiated by the account holder through ATM, internet or mobile banking that requires authentication and leaves an audit trail.
(f) Unclaimed deposits: The credit balance in any deposit account not operated for ten or more years, or any amount unclaimed for ten or more years.
(g) Unclaimed Deposit Reference Number (UDRN): A unique number generated through the Core Banking Solution (CBS) and assigned to each unclaimed account/deposit transferred to RBI’s DEA Fund. The number does not identify the account holder or bank branch.
Other terms have the same meaning as in the Banking Regulation Act, 1949, Reserve Bank of India Act, 1934, or as commonly used.
Review of Inoperative Accounts
As per RBI instructions, the banks should review accounts at least yearly where there have been no customer-initiated transactions for over a year. For term deposits without explicit renewal instructions, banks should review if customers have not withdrawn or transferred the money to their savings/current accounts after maturity. This is to prevent such deposits becoming unclaimed.
Intimation by Banks to Account Holders
As per RBI instructions,, the banks should inform account/deposit holders in writing by letter, email or SMS (if registered) that there have been no operations in their accounts/deposits in the past year. The messages should mention the account will become ‘inactive’ if no operations happen in the next year. In such cases, the account holder would need to submit KYC documents again to reactivate the account.
If letters are returned undelivered or no response is received to registered emails, the bank should immediately investigate the account holder or nominee/legal heirs’ whereabouts if deceased.
Classification of Accounts as Inoperative
As per RBI instructions, if the account holder responds with reasons for account inactivity, banks should continue classifying the account as operative for one more ‘extended period’. If still not operated within this period, banks should classify it as inactive after expiry.
For classifying accounts as ‘inactive’, only customer-initiated transactions should be considered, not bank-initiated ones. Transactions like Standing Instructions and auto-renewals with no other operations should also be treated as customer-initiated.
Inactive classification is for a specific account, not the customer. For customers with multiple accounts/deposits, each should be assessed individually.
If inactivity is due to the account holder shifting their primary account elsewhere, they can be asked to provide new bank details and authorisation to transfer the balance.
Treatment of Accounts for Scholarships/Government Benefits
Banks open zero balance accounts for beneficiaries of central/state government schemes and students receiving scholarships. Governments have difficulty crediting cheques, Direct Benefit Transfers, Electronic Benefit Transfers or scholarships to these accounts as they also get classified as inactive if not operated for two years.
As per RBI instructions, the banks should categorize such accounts separately in their Core Banking System based on the account opening purpose. This way, the ‘inactive account’ stipulation will not apply to them despite no operations for over two years.
To avoid fraud risks in such accounts, banks should exercise due diligence as per existing instructions when allowing operations. Segregation will prevent genuine government credits being denied due to forced inactivity.
Segregation & Audit of Inactive Accounts/Unclaimed Deposits
As per RBI instructions, the inactive accounts should be segregated to reduce fraud risk. For reactivated inactive accounts, transactions should be monitored regularly for at least six months at higher authority levels, without customers or staff knowledge.
Banks must ensure concurrent auditing of amounts in inactive accounts/unclaimed deposits, including reactivated ones.
Segregation facilitates discreet monitoring by controlling authorities to detect any suspicious reactivation activity. Concurrent audits verify proper handling of inactive account funds. Together, these measures enhance oversight and help mitigate fraud risks.
Tracing Customers of Inactive Accounts/Unclaimed Deposits
As per RBI instructions, the banks should contact inactive account/unclaimed deposit holders quarterly by letter, email or SMS (if registered).
If account holders are untraceable, banks should contact the introducer who opened the account, if any. They should also contact the registered nominee to trace the customer.
Banks should conduct periodic special drives to locate untraceable customers, nominees or legal heirs of inactive accounts/unclaimed deposits.
The quarterly outreach and special tracing drives aim to reconnect banks with unresponsive account holders before classifying their accounts as abandoned assets. This gives customers adequate opportunities to reactivate their accounts.
Reactivation of Inactive Accounts by Banks
As per RBI, banks should enable KYC updation to activate inactive accounts/unclaimed deposits at all branches, including non-home branches. This can be done through Video-Customer Identification Process (V-CIP) if the account holder requests it, subject to the bank providing V-CIP facility. Banks should adhere to RBI’s V-CIP instructions under the KYC Master Direction.
Banks should activate frozen inactive accounts/unclaimed deposits only after completing KYC processes like CDD, customer identification, risk categorization etc. as per the Master Direction.
Activation of inactive accounts/unclaimed deposits in CBS should mandatorily require a second authorization by another official at the same or higher level for maker-checker control. System logs should be maintained for any inactive account/unclaimed deposit activity or activation for concurrent audits. Logs should be preserved as per the bank’s internal guidelines.
Banks should automatically intimate account holders through SMS and registered email when inactive status is removed based on their submitted KYC documents. The message should mention available remedies to report any unauthorized access. This alerts account holders to potential fraud in reactivated accounts.
Banks should have adequate safeguards to ensure inactive account/unclaimed deposit claimants are genuine. They should process complete reactivation requests within three working days.
Waiver of Charges by Banks
As per RBI instructions, the banks cannot impose penalties for not maintaining minimum balances in accounts classified as inactive. Also there should be no charges levied for reactivating inactive accounts.
This prevents inactive account holders from incurring additional costs when reactivating their accounts, i.e. the waiver facilitates smooth restoration of account operations.
Website Display and Search Facility
Banks should host details of unclaimed deposits transferred to RBI’s DEA Fund (name, address without pincode, Unclaimed Deposit Reference Number (UDRN)) on their websites. This should be updated at least monthly.
Banks without websites should make this unclaimed deposit list available in branches.
The website database should enable public search for unclaimed deposits by account holder/entity name and address. Successful searches should display the name(s), address without pincode and UDRN only. For non-individual accounts, authorized operator names should be included.
However, the account number, type, balance and branch name should not be disclosed on the website.
This transparent display and search facility allows account holders to identify their unclaimed funds while protecting sensitive account information. Regular updates ensure current status.
Fraud Risk Management in Inactive Accounts
As per RBI instructions, the banks should prohibit debit transactions in inactive accounts unless properly reactivated. They could also impose a cooling-off period after reactivation, with limits on transaction number and amount, as for newly opened accounts.
Banks must prevent unauthorized access to inactive account customer data and take steps to avoid data theft or misuse for fraud.
Restricting undeserved account access and closely monitoring initial reactivation activity curtails fraud potential. Data safeguards are critical given increased information vulnerability in dormant accounts. Prudent protocols protect customers and banks.
Customer Awareness
Banks should provide information on their websites and branches about reactivating inactive accounts/unclaimed deposits and claiming balances. Relevant forms and documents should be made available.
Banks should regularly conduct public awareness and financial literacy campaigns. These should educate people on activating inactive accounts/unclaimed deposits and the procedure for depositors, nominees or legal heirs to claim amounts.
Proactive communication and education empower customers to take action to reclaim their dormant funds. Public outreach also signals the bank’s commitment to reuniting customers with their assets.
Revised RBI Instructions dated 01/01/2024 on Inoperative Accounts/Unclaimed Deposits in Banks effective from 01/04/2024