The Reserve Bank of India (RBI), the country’s central banking institution, has revised guidelines concerning inoperative accounts and unclaimed deposits. The objective of these guidelines is to streamline the procedures for classifying and reactivating these accounts. These changes are going to be applied to all Commercial and Cooperative Banks, and will be effective from 1st April 2024.
Understanding Inoperative Accounts and Unclaimed Deposits
An Inoperative Account refers to an account that has not seen any ‘customer-induced transactions’ for more than two years. A customer-induced transaction can range from a financial operation initiated by the bank or a third party on behalf of the account holder to a non-financial transaction, or even a Know Your Customer (KYC) update either in person or via digital channels such as internet banking or the bank’s mobile banking application. It is estimated that around Rs 1-1.30 lakh crore is dormant in inoperative bank accounts.
On the other hand, Unclaimed Deposits pertain to balances in savings or current accounts that have remained inactive for 10 years or term deposits that have gone unclaimed for a decade after their maturity. As of March 2023, unclaimed deposits in banks stand approximately at Rs 42,270 crore.
Revised Guidelines by RBI: An Overview
The RBI’s new rules require banks to conduct an annual review of accounts that haven’t seen any customer-induced transactions in over a year. Banks have also been instructed to notify account holders about inactive accounts through letters, emails, or SMS. If no operations are performed within the following year, the account is headed towards being classified ‘inoperative’, and customers will be required to resubmit KYC documents for reactivation of such accounts.
Classification Criteria & Exemptions for Inoperative Accounts
According to the new guidelines, only customer-induced transactions will be considered for an account’s classification as inoperative. Transactions such as charges, fees, interest payments, penalties, and taxes induced by the bank will not be taken into account. However, accounts opened for beneficiaries of government schemes and students (with zero balance) are exempted from this classification.
Reactivation Process & Guidelines
To reactivate an inoperative account, customers will need to submit updated KYC documents. The updated guidelines also suggest that the Video-Customer Identification Process (V-CIP) can be used for reactivation if requested so by the account holder. Moreover, it is prohibited for banks to impose any kind of charges for activation of these accounts.
Penalties, Interest & DEA Fund
Under the revised RBI guidelines, banks are no longer authorized to levy penal charges for non-maintenance of minimum balances in an account classified as ‘inoperative’. Interest on accounts should be credited regularly irrespective of whether the account is in operation or not. Furthermore, credit balance in any deposit account unoperated for ten years or more must be transferred by banks to the DEA (Depositor Education and Awareness) Fund maintained by the RBI.
Relevance for UPSC Civil Services Examination
The understanding of these revised guidelines can help aspirants of the UPSC Civil Services Examination answer questions related to RBI policies and banking sector. For instance, in the 2020 exam, a question related to the RBI’s expansionist monetary policy was asked. In the 2019 Mains examination, there was a question about the Indian economy’s state in view of steady GDP growth and low inflation.
