An Analysis of Unclaimed bank deposits in india
Dr.K.Alamelu * & M.Soundarya **
Introduction:
The saving and investment process in an economy is organised around a financial framework that facilitates economic growth. A well designed financial system promotes growth through effective mobilisation of savings and their allocation to the most productive uses by either following a centralised approach or a decentralized approach or a combination of both. Typically, economies with underdeveloped capital market adopt a centralised approach, whereby financial intermediaries mobilise resources from savers and allocate them to borrowers. Traditionally, banks have played a critical role in the financial intermediation process as they are able to deal more appropriately with transaction costs and information asymmetries in a financial system.
As financial markets develop, transaction costs and information asymmetries reduce, the decentralised approach for guiding the saving-investment process also gains significance, and households with surplus resources increasingly invest in capital market instruments. The historical experience shows that virtually in all the economies, including the market intermediated ones, banks have played a central role in resource mobilisation and supporting the growth process, and that the development of banks and other intermediaries has itself facilitated the development of financial markets.
Historically, financial intermediation by banks has played a central role in India in supporting the growth process by mobilising savings, particularly after the nationalisation of the 14 major private banks in the late 1960s. Banks have bear particularly instrumental in mobilising deposits from the household sector, the major surplus sector of the economy, which, in turn, has helped raise the financial savings of the household sector and hence the overall saving rate.
* Professor, Department of Bank Management, Alagappa University, Karaikudi-630 004, Tamilnadu, India, E-mail id: [email protected], Mobile: +91 9787328309.
** M.Phil Scholar Department of bank management, Alagappa University, Karaikudi-630 004, Tamilnadu, India, E-mail id: [email protected], Mobil : 8940320834. Notwithstanding the liberalisation of the financial sector and increased competition from various other saving instruments, banks continue to play a dominant role in the financial intermediation of the Indian economy. The deregulation of interest rates has opened up new avenues for banks to mobilise funds at competitive rates. Moreover, banks, by virtue of being the ultimate platform for clearing and settlement for all financial transactions, provide accounts and resources to other sectors as also other financial intermediaries.
The Indian economy has witnessed robust growth performance in recent years and banks have played a major role in providing the required amount of resources. In order to sustain the growth process, banks would have to continue to provide funding on a large scale. In India, there exists an enormous potential of savings in rural and semi-urban areas. Also, in India quite a large part of domestic savings is locked up in unproductive physical assets. The mobilization of savings from hitherto untapped areas and conversion of physical savings into financial savings would necessitate introduction of appropriate products to suit the demand of savers. Banks are indeed in an ideal position to do so because of certain inherent characteristics of deposits such as safety and liquidity.
Deposit Mobilisation by Banks:
The banking sector has played an increasingly important role in the financial intermediation process by mobilising savings in the form of deposits. Yearly aggregate deposit growth of scheduled commercial banks, which remained highly volatile during the period 1951-52 to 1960-61, stabilised thereafter.
Banks are indeed in an ideal position to do so because of certain inherent characteristics of deposits such as safety and liquidity.
A major turning point in the post-independence history of the banking sector was nationalisation of 14 major private sector commercial banks in July 1969. Bank deposit growth of SCBs in the post-nationalisation period could be broadly divided into four phases, viz., Phase I (1969-1984); Phase II (1984- 1995); Phase III (1995- 2005); and Phase IV (2005 ONWARDS).
In the first phase, the aggregate deposit growth of SCBs increased sharply averaging 19.2 per cent during 1969-1984 as compared with 9.5 percent during the pre-nationalisation phase (1951-1969). Relevant details are given in Table 1 . Table 1 Growth in Bank Deposits (Per cent)
Period Averages Demand Time Aggregate
1951-52 to 1968-69 7.1 13.1 9.5
1969-70 to 1983-84 13.3 22.7 19.2
1984-85 to 1994-95 19.5 18.2 18.4
1995-96 to 2004-05 12.6 16.4 15.7
2005-06 onwards 22.5 21.3 21.4
Source: Report on Trend and progress of Banking in India ,various years.
As at end-March 2012, deposits constituted more than three-fourths of the total liabilities of the banking sector. Deposits grew at a slower rate than the previous year, which mainly emanated from contraction of demand deposits as well as slower growth of savings bank deposits. On the other hand, growth in term deposits accelerated. Going forward, the slowdown in demand and savings banks deposit mobilisation, which are the least cost sources of funds, could put downward pressure on profitability of Indian banks.
Unclaimed Deposits:
According to rules laid down by Reserve Bank of India, “a savings bank account is classified as an inoperative account two years after the last entry for interest is credited against a fixed deposit or a savings bank account. In banking parlance, a bank account is classified as inoperative or dormant either after the death of the account holder or when an account is not maintained or business transacted for over two years”.
Reasons for Unclaimed Deposits:
Carelessness, migration, death of the account holder and failure of the legal successors to submit evidence are among reasons behind the existence of inoperative accounts.
The bank accounts are salary accounts and the account holders on shifting to other jobs cease to operate these bank accounts. The bank deposits are under dispute, as the legal heirs or other claimants are unable to arrive at a decision on the sharing pattern.
These account holders relocate to other cities and towns, making it difficult for an account holder to maintain the account. This is especially true before the CBS (core banking solution) era.
The account holders open accounts with other banks, and are no longer interested to operate their old accounts.
In view of the increase in the amount of unclaimed deposits with banks year after year and the inherent risk associated with such deposits, the RBI wanted the banks to adopt a customer-friendly policy with a view to helping the account holders or their successors to revive the accounts and the 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.
RBI guide lines dealing with inoperative/dormant accounts:
i. Banks 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.
Section 26 of the Banking Regulation Act, 1949 provides, interalia, that every banking company shall, within 30 days after close of each calendar year submit a return in the prescribed form and manner to the Reserve Bank of India as at the end of each calendar year (i.e., 31stDecember) of all accounts in India which have not been operated upon for 10 years.
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. ii. 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. iii. 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. iv. 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.
v. 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. vi. 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.
vii. 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. viii. There should not be any charge for activation of inoperative account.
ix. Banks are also advised to ensure that the amounts lying in inoperative accounts ledger are properly audited by the internal auditors / statutory auditors of the bank.
x. Interest on savings bank accounts should be credited on regular basis whether the account is operative or not. If a Fixed Deposit Receipt matures and proceeds are unpaid, the amount left unclaimed with the bank will attract savings bank rate of interest.
Total Unclaimed Deposits in the Indian Banking Industry:
Unclaimed deposits of banks in India have increased by 2.67 times during 2005-2011. Table 2 and figure 1 gives year wise break-up of the data. Table 2
Total Unclaimed Deposits in the Indian Banking Industry
(Amount Rs. in lakh)
Total number of unclaimed Amount outstanding Growth rate Year deposits accounts As on 31st December (%)
2003 11468772 91340 ----
2004 11032850 88073 -3.58
2005 10623228 92954 5.54
2006 10333882 105013 12.97
2007 10354257 109544 4.31
2008 10092143 118807 8.46
2009 10171368 136027 14.49
2010 10345857 172315 26.84
2011 11249844 248140 44.00
2013 14554950 51250 20.6
(Source: Report on Trend and progress of Banking in India, various years)
The amount of unclaimed deposits are a whopping Rs.2,481.40 crore in the year 2011. But in 2013 unclaimed deposits are decreased as Rs.51250. It is noted that the no of accounts has increased by 8% in the year 2013, amount wise it has decreased by20.6 over the previous year 2011.
During 2003 to 2013 the number of accounts were in the declining trend, it has declined by 1.91%, but amount wise it has increased by 171.67% over the period. Figure 1- Total Unclaimed Deposits in the Indian Banking Industry
Distribution of Unclaimed Deposits According to Types of Deposits:
Among the four types of deposits (current deposit, savings deposit, term deposit and other deposits) banks are able to tap more volume of term deposits and they always enjoy a major share in the deposit mix of banks. But in case of unclaimed deposits, average savings deposits have a dominant share. Table 3 and figure 2 highlights the data regarding distribution of unclaimed deposits according to types of deposits. Table 3 - Distribution of Unclaimed Deposits According to types of deposits
* Figures in parenthesis refer to the proportion to the total.
(Amount Rs.in lakh)
Typesof deposits 2003 2004 2005 2006 2007 2008 2009 2010 2011 2013 Average 3944 7041 7178 8412 9583 9758 11996 13241 15062 21560 Current deposits (8%) 10776 (8 %) (8 %) (9 %) (9 %) (9 %) (10 %) (10 %) (9 %) (9 %)
59205 54897 57084 62994 65467 69577 78242 99554 151010 32587 Savings deposits 73062 (66 %) (62 %) (61 %) (60 %) (60 %) (59 %) (58 %) (58 %) (61 %) (64%) 18312 19652 20150 23211 24974 26640 31562 34406 42590 8935 Term deposits 25043 (20 %) (22 %) (22 %) (22 %) (23 %) (22 %) (23 %) (20 %) (17 %) (17%) 5754 6384 7439 8676 9362 10464 12807 21138 31800 4504 Otherdeposits # 11833 (6 %) (7 %) (8 %) (8 %) (9 %) (9 %) (9 %) (12 %) (13 %) (9%) (Plus) Interest 603 915 784 1154 907 1335 1822 3759 3220 1374 14636 Credited @ (Less) Incidental 825 954 914 835 924 1204 1647 1605 2040 95 11043 Charges 90090 88072 92955 104783 109544 118808 136027 172314 248140 51250 Total 1165858 (100 %) (100 %) (100 %) (100 %) (100 %) (100 %) (100 %) (100 %) (100 %) (100 %) Source: Report on Trend and progress of Banking in India ,various years During 2003 to 2011 the share of current deposits has inched up from 8% to 9 % . But in 2013 again it has declined from 9% to 8%.
The proportion of the saving deposits in the unclaimed deposits has declined, even though it has a dominant average share of 60 %.
The proportion of the Term deposits in the unclaimed deposits also has declined.
The proportion of unclaimed ‘other deposits’ has increased significantly during 2003 to 2013
Figure 3 - Distribution of Unclaimed Deposits According to types of deposits
Bank Group Wise Distribution of Amount of Unclaimed Deposits:
Among the different bank groups nationalised banks have the highest share of unclaimed deposits as given in Table 4 and figure 3. Table 4 - Bank Group wise Distribution of Unclaimed Deposits
(Amount Rs.in lakh)
Bank Group 2003 2004 2005 2006 2007 2008 2009 2010 2011 Average 14570 14306 14028 14725 14772 14199 15356 27974 23390 14700 17035.6 SBI Group (16 %) (16 %) (15 %) (14 %) (13 %) (12 %) (11 %) (16 %) (9 %) (29%) (13 %) 67015 65129 69548 79418 82594 90258 101350 118752 194450 27128 96501.6 Nationalised Banks (73 %) (74 %) (75 %) (76 %) (75 %) (76 %) (75 %) (69 %) (78 %) (53%) (75 %) 5207 4806 6428 7737 8620 10109 14402 19585 23360 4492 11139.3 Private Sector Banks (6 %) (5 %) (7 %) (7 %) (8 %) (9 %) (11 %) (11 %) (9 %) (9%) (9 %) 4548 3832 2950 3133 3558 4241 4744 6004 6940 4930 4438.89 Foreign Banks (5 %) (4 %) (3 %) (3 %) (3 %) (4 %) (3 %) (3 %) (3 %) (10%) (3 % 91340 88073 92954 105013 109544 118807 135852 172315 248140 51250 129115 Total
Source: Report on Trend and progress of Banking in India various
* Figures in parenthesis refer to the proportion to the total. Share of SBI Groups in a total unclaimed deposits of a industry has reduced significantly(from 16% to 9%) during 2003 -2013. Its average share is 13%.
Foreign Banks has also witnessed a drop in the share of unclaimed deposits.
Nationalised Banks have registered the highest increase (5%) in the share of unclaimed deposits.
In case of Private Sector Banks the extent of decrease in the share is 9% when compared to 2010.
Banks were advised from time to time to strengthen their machinery and play an active role in finding the whereabouts of the account holders of unclaimed deposits or whose accounts have remained inoperative. Despite such instructions, banks have not been pro-active in tracing customers linked with unclaimed deposits/inoperative accounts. Also, the need to identify the owners of these unclaimed deposits/inoperative accounts is closely linked to KYC due diligence. It is, therefore, imperative to further strengthen the regulatory framework for inoperative accounts and unclaimed deposits. Accordingly, it is proposed: to mandate banks to have a board approved policy on classification of unclaimed deposits; grievance redressal mechanism for quick resolution of complaints; record keeping; and periodic review of such accounts.
In order to reduce the volume of unclaimed deposits, banks have to strengthen their awareness creation campaigns. In other words, they have to educate the customers about the importance of having frequent dealings with banks. Moreover, they have to streamline the procedures with more thrust on customer friendliness in cases involving transfer of accounts, closure of accounts, etc… By addressing the issue of unclaimed deposits banks will be better equipped to take up the challenges involved in financial inclusion.
Conclusion:
Pursuant to the enactment of The Banking Laws (Amendment) Act, 2012, Section 26A has been inserted in the Banking Regulation Act, 1949 which, inter alia, empowers the Reserve Bank to establish a Depositor Education and Awareness Fund (DEAF). DEAF will be credited with the amount to the credit of any account in India with a banking company which has not been operated upon for a period of ten years or any deposit or any amount remaining unclaimed for more than ten years within a period of three months from the expiry of ten years.
DEAF shall be utilised for promotion of depositors’ interest and for such other purposes considered necessary for the promotion of depositors’ interests as specified by the Reserve Bank from time to time. However, the provisions of Section 26A do not prevent a depositor from claiming his/her deposit or operating his/her account or deposit after the expiry of the period of ten years and the banking company should pay the deposit amount and claim refund of such amount from DEAF. In view of the above, it is proposed to finalise the modalities for setting up of DEAF by end- September 2013.
Accordingly ,the draft Depositor Education and Awareness Fund Scheme was placed on Reserve Bank of India website for public comments. Taking into account the comments received from various stakeholders, the ‘Depositor Education and Awareness Fund Scheme, 2014’ has been finalized and forwarded to Government of India for notifying in the Official Gazette. Subsequently the RBI has planned to utilize the funds for endeavours which will protect depositors’ interest.
REFERENCE:
1. RBI,Report on currency and finance (various issues). 2. RBI ,Report on Trend and Progress of Banking in India. 3. RBI,Handbook of Statistics on the Indian economny. 4. RBI, Basic Stastical Returns for various years.