Time to look up our unclaimed deposits

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Bank deposits are simple, secured, safe, liquid and convenient means of savings at a reasonable, but assured, return. For a common people, bank deposits forms a major part of their financial savings.

If a savings account is not operated i.e. there is no customer induced transaction for a period of 10 years or more; or the term deposit is not withdrawn i.e. not claimed for 10 years from the due date, these deposits are treated as unclaimed deposits. 

Deposits become “unclaimed” on account of a variety of reasons: legal heirs/nominees may not have knowledge of the deposits of deceased depositors; deposits may have been kept in names different from their usual style, may be using a short name/nick name; incomplete address provided; depositor might have forgotten the details, especially when he/she is under a transferrable job; maintaining secrecy of bank accounts and not sharing information with family members; banking with multiple banks etc.

Earlier, banks would enjoy the funds available under unclaimed deposits. In 2014, however, for effective usage of the amount, the RBI directed banks to transfer the outstanding amount under unclaimed deposits to the Depositors Education and Awareness Fund (DEAF) under the RBI. The fund shall be utilised for the promotion of depositors’ interests and for such other purposes which may be necessary as specified by RBI from time to time. 

In January 2015, RBI also released guidelines on criteria for seeking financial assistance from the DEAF to be granted to institutions/ organisations/ associations for taking up various activities relating to promotion of bank depositors’ education and awareness.

Banks are now required to transfer these unclaimed deposits with up to date interest on monthly basis to the DEAF. The type of deposits includes savings accounts, fixed/ term deposits, cumulative/ recurring deposit, current accounts, other deposit accounts in any form or with any name, cash credit accounts (with credit balance), loan accounts after due appropriation, margin money against issue of Letter of Credit/Guarantee etc, or any security deposit, outstanding telegraphic transfers, mail transfers, demand drafts, pay orders, bankers cheques, sundry deposit accounts, inter-bank clearing adjustments, unadjusted NEFT credit balances and other such transitory accounts, unreconciled credit balances on account of ATM transactions etc.

Upon receipt of demand from the customer/depositor, banks are required to repay along with interest, if applicable, the unclaimed deposit transferred to the DEAF while lodging a claim for refund from the fund. The interest payable from the fund, if any, shall accrue only from the date on which the balance in an account was transferred to the DEAF to the date of payment to the customer. 

In the case of a claim for refund of foreign currency denominated deposit accounts, the banks shall be entitled to claim refund of the eligible amount in INR only. The in-operative account can be converted to operative at the option of the depositors. 

Legitimate dues
The RBI Annual Report – June 30, 2015, indicates outstanding in DEAFund at Rs 7,875 crores as compared with Rs 2,795 (June 30, 2014). This amount with the fund is the legitimate dues from the banking sector to the depositors. 

Banks have been attempting to refund unclaimed deposits by sending letters to the last available address of the depositors. During the earlier days of banking, there were no strict Know Your Customer (KYC) norms in place and accounts were opened only with introduction, sometimes even without photographs. Hence, banks are not in a position to locate all the beneficiaries and refund the amount. The action, therefore, to get the amount back from banks should be initiated by the beneficiary-customers.

Banks have taken pro-active steps to find whereabouts of the account holders of unclaimed deposits/in-operative accounts and also display the list of these accounts on their websites. The list contains only the names of account holder(s) and their addresses. If such accounts are of non-individuals, the names of the authorised persons are mentioned too. The account number, its type and the name of the branch are not disclosed. The “find”option is provided to enable the public to search. 

The claim process, activating the inoperative account, forms and documents required for claiming are also provided. If anyone is aware of the bank wh-ere the unclaimed deposits are kept or if someone has a memory of his parents/ grant parents/ other relatives having kept their accounts with any bank, they can visit the bank’s website and initiate the action for refund.

The real issue, though, is how a depositor or nominee/legal heirs can identify their “deposits” under unclaimed deposits. Is it feasible to visit the websites of all the banks? Perhaps, the solution lies in providing the entire data of unclaimed deposits in a single website with proper “find/search” option so that the real beneficiary can have a simple means to identify the legitimate account and proceed to claim the amount with the respective banks. 

The initiative towards this end can be from the Depositors Education and Awareness Fund (RBI) itself or Indian Bank Association (IBA). This will help the beneficiaries to claim refunds to some extent.

BY KNV Prabhu
(The writer teaches banking at ICICI Manipal Academy (IMA), Bengaluru)

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Overview of Bank Rules on Fixed Deposit (FD)

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Proper understanding of the regulations/ practices prevailing amongst the banks on key issues helps in effectively managing fixed deposits (FDs) with banks. The interest rates on FDs vary from banks to banks. Uniform rates for different period are offered for deposits up to Rs 1 crore. Differential rates on bulk deposits (Rs 1 crore and above) are offered.  

Subsequent interest rate changes shall not affect the deposits already opened.  For resident Indian senior citizens of 60 years and above (in case of joint accounts, senior citizen being the first holder) but not for NRIs, additional rate (0.25 to 0.75 per cent) is offered. Some banks also fix maximum limits for offering this incentive rate. The common method of calculating interest (PNR/100: P=principal, N=number of years and R=rate) is applicable only for completed quarters. 

When the period is in less than a quarter or where the terminal quarter is incomplete, interest is paid proportionately for the actual number of days reckoning the year at 365/366 days. 

To ensure liquidity, always prefer Unit/Flexi FDs (both on simple and compound interest) to prematurely close required amount and continuation of the remaining amount as per the original terms. For premature closure, the rate applicable for the period completed (prevailing as on the date of deposit) with penalty, if specified at the time of deposit, is paid. 

No interest is paid, if closure is before completion of the minimum period of seven days. Alternatively, loan can be availed (75 to 90 per cent of deposit + interest accrued) at an additional rate specified by banks on the deposit rate. Avail loan against the deposits having lowest interest rate. Prefer Over Draft (OD, running account) to Fixed Loan as surplus funds can be parked and required amount can be withdrawn (within the loan limits) and save cost since interest is computed on the day-end balances. 

While a fixed loan is to be closed on or before the due date, FD with OD can be renewed and OD can continue. Perhaps, keeping maximum amount in FDs, availing OD against FDs and prudently operating/managing the OD in lieu of a savings account can maximise net returns. 

Out of the two options (loan and premature closure), which option is better to meet the liquidity?  The guiding factors for availing loan can be based on (1) duration of the deposits (on long duration deposits, the period completed is more than the residual period); and (2) temporary liquidity mismatch/the loan can be closed in near future.  Compare the loss on account of additional interest on loan with the loss on premature closure and decide. 

When aggregate interest received is Rs 10,000 and above in a financial year from a bank – not from a branch, tax is deducted at source (TDS) on the entire interest amount at the time of payment of interest/ financial year ends, whichever is earlier. 

To avoid TDS, non-IT assesses can submit Form 15G (F 15H for senior citizens) with PAN copy at the commencement of every financial year/ opening of new deposits. In joint accounts, TDS is in the hands of first holder. For receiving the full maturity value of compound interest FD, instruct the bank to deduct the TDS amount from SB account. 

Renewal of FDs
Auto-renewal facility provided is for renewal of FDs on due dates for identical period/ scheme. If any change is required, decide on the period/ scheme depending upon the interest rates on the due dates/ specific requirement and inform the bank before due date. Nomination gets renewed along with the renewal. The period within which the overdue deposit can be renewed retrospectively from the due date differ from bank to bank. 

The SB interest is paid from the due date till date of withdrawal of overdue deposits. Institutions/corporates not eligible to open SB accounts can open FDs for ultra-short duration, allows the FD to continue as overdue and withdraw the amount any time with SB interest. Banks pay a little more interest on non-withdraw able deposits (regulatory minimum Rs 15 lakh) and the right of premature closure is not available on these deposits.

You can also add or delete (in case of joint accounts) name/s by keeping the amount/duration of the original deposit uncha-nged. Banks display the list of unclaimed deposits (not claimed for a period of 10 years from the due date/ last operations) on their websites containing the names and address/the names of individuals authorised to operate the accounts with “find” option to search, along with the process to claim the amount. 

The unclaimed deposits are transferred to RBI - Depositors Education and Awareness Fund (DEAF) – and as per the RBI’s June 15 annual report of RBI June 15, Rs 7,875 crores is outstanding. One can attempt to locate these deposits and initiate steps to claim.

Even though bank deposits are considered to be simple, secured, safe, liquid and convenient way of savings at a reasonable but assured return, customers must be aware of the basic rules/practices with regard their fixed deposits and thereby maximise the returns and liquidity.

BY K N V PRABHU
(The writer is a Banking Faculty in ICICI Manipal Academy, Bengaluru)

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