The Reserve Bank of India (RBI) has directed banks to annually review accounts where there have been no customer-induced transactions for over a year, as well as term deposit accounts where there is no explicit renewal mandate and customers have not withdrawn the proceeds after maturity.
“Banks conduct at least an annual review of accounts where there have been no customer-initiated transactions for more than a year. In cases where there is no explicit obligation to renew the term deposit, banks should review such accounts if this is the case.” “Customers have not withdrawn or transferred the proceeds to their savings or current account after maturity to prevent that such deposits will no longer be claimed,” said the central bank’s revised instructions on inactive accounts or unclaimed deposits in banks.
Banks will inform account or deposit holders in writing by letter, email or SMS that no transactions have taken place on their accounts/deposits in the last year. The warning messages indicate that the account will become “inactive” if no operations are performed in the next year. Additionally, the account holder will be required to submit KYC documents again to reactivate the account.
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If no refund is made, the Bank will immediately initiate an investigation to determine the whereabouts of the Account Holder or his or her authorized representative if the Account Holder is deceased.
If the response is received, the account will remain open for another year. “In case the account holder still does not maintain the account within the extended period, the banks shall classify the said account as an inactive account after the expiry of the extended period,” the guidelines said.
The RBI says that while classifying an account as non-functional, only customer-induced transactions and not bank-induced transactions should be taken into account.
Mandates such as Standing Instructions (SI)/Auto-Renewal Instructions are also treated as customer-initiated transactions. The classification of an account as “non-functional” refers to a specific account of the customer and not to the customer. If a customer has multiple accounts at a bank, all accounts are assessed individually.
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If no transactions are carried out and the account is not functional due to the transfer of the main account to another bank, the account holder may be asked to provide the details of the new bank account with an authorization so that the bank can debit the transfer balance from the existing bank account.
When treating accounts opened for the crediting of scholarship amounts and the crediting of direct benefit transfers under government programs, banks will separate these accounts in the core banking solution so that the determination of an “ineffective” account does not apply to these accounts due to their importance applicable has been out of service for more than two years.
The RBI says the bank should exercise “due care” to avoid fraud in such accounts while facilitating transactions in these accounts.
According to RBI, segregation of “non-functional accounts” is required for segregation and audit of non-functional accounts or unclaimed deposits to reduce the risk of fraud. The transactions on inactive accounts that have been reactivated are monitored regularly, for at least six months, at higher levels without the knowledge and notification of customers and trading staff.
The amounts in “inactive accounts” or “unclaimed deposits” and “reactivated inactive accounts” are also subject to simultaneous review. This will also help reduce fraud, the central bank says.
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