Mumbai: The government wants to amend the law to allow it to use the large pool of unclaimed money in bank deposits to spread financial literacy.
Indian banks had about Rs 1,723.24 crore lying in 10.3 million non-operational accounts as of December 2010, finance minister Pranab Mukherjee told Parliament last August. An updated number wasn’t available.
The banking division of the finance ministry is seeking an amendment to the banking regulations so it can recover the money lying idle in non-operative accounts for 10 years or longer, two government officials said, including one from the finance ministry. They declined to be named as the proposal is at an initial stage.
“This central pool of non-operative account could be used for education and generating awareness of the banking system,” said one of the officials cited above.
Of the Rs 1,723.24 crore of unclaimed money, Rs 1,467 crore was lying with state-run banks and the rest with private and foreign banks. Private banks were sitting on an unclaimed amount of Rs 195.9 crore and foreign banks, Rs 60 crore, Press Trust of India said in a report last August.
State Bank of India and its associates have Rs 279.7 crore of unclaimed deposits, followed by Canara Bank at Rs 274.6 crore and Union Bank of India at Rs 163.6 crore, while ICICI Bank Ltd had Rs 74.2 crore and ING Vysya Bank Ltd had Rs 30.12 crore.
Mint’s Dinesh Unnikrishnan says the government wants to change the laws so it can access unclaimed money in bank deposits and use it for financial literacy.
Banks keep such money in a central pool until the depositors or their legal heirs claim the amount later. The money is typically generated when a customer dies without mentioning a nominee or is unable to access the account because of personal reasons, say bankers.
They, however, said the unclaimed amount is insignificant. “This amount has been accumulated over a very long time. Even then, as compared with the total deposits of the banking system, it is somewhat insignificant,” said the chairman of a south India-based public sector bank, who, too, declined to be named as the matter is under the consideration of the finance ministry.
Sometimes, money gets diverted to a wrong account when a customer enters an incorrect account number. Such deposits get categorized as unclaimed after a period of 10 years and automatically get transferred to the central pool. The interest accrued on such deposits is maintained with the banks.
The government’s move has come at a time when the Reserve Bank of India (RBI) has asked banks to initiate efforts to return the unclaimed deposits to the customers.
In February, RBI made it mandatory for commercial banks to publish on their websites the names of customers whose accounts have been lying inoperative for 10 years or more. Banks have till 30 June to complete this exercise.
Banks should be more pro-active in finding the owners of the unclaimed deposits and inoperative accounts, the central bank has said.
On Wednesday, the regulator further strengthened the rules for banks to deal with inoperative accounts and unclaimed deposits, saying banks have to put in place board-approved policies on classification of unclaimed deposits, grievance-redressal mechanisms for a quick resolution of complaints, record-keeping and periodic reviews of such accounts.
Banks should send their first such reviews to their boards by 30 September, RBI said.
Experts said the government’s plan may run into legal hurdles.
“This is not a suspect money or anything of that kind. There should be a clear and transparent procedure and due diligence that needs to be followed,” said Jeet Sengupta, associate partner of banking and finance at Economic Laws Practice, a law firm. “How the government intends to recover this money that actually belongs to private individuals is a challenge. There can be many legal hurdles about the deployment of such money as well, even if it is intended to spread financial literacy.”
In the case of mutual fund investments, dividends and even redemption proceeds of individual clients, if not claimed within three years, will go to an investor protection fund maintained by individual fund houses.
Recently, the commission for minorities, in a meeting with the finance ministry, suggested that the government determine the quantum of such money lying in the banking system and use it for the benefit of socially and economically backward sections of society.