India sits on Rs.1 trn unclaimed money!

Interest Rate on Bearing Deposits

- Effective from-- Interest (%)

- June 30, 2018-------------04

- July 1, 2018---------------3.5

- May 11, 2021-------------0.3

(Source-RBI)

Mumbai: You may blame it to lack of financial awareness, but the entire financial system of India is flush with over Rs1 lakh crore of unclaimed money. The problem was how to reach to the beneficiaries in absence of proper documents.

The banking system alone was having Rs 40,000 crore of unclaimed deposits out of the total of Rs180 lakh crore of deposits it was having right now. In fact, the unclaimed money lying in the banking system was in the form of dormant accounts, which have remained dormant for 10 years or more. In such a case the unclaimed deposits are transferred to the RBI for safety purpose. These funds are parked with RBI in the form of DEAF or Depositors Education and Awareness Fund, which came into being in 2013. Under this fund, the unclaimed money is kept in safe custody.

The idea was to save depositors with any kind of unforeseen circumstances. For example, a bank goes for liquidation, then complicated situation arises and hence RBI keeps this fund with it to ensure safety of the depositors' money. Whenever a bank is approached by the depositor, the bank is liable to pay him the money along with the rate of interest prevailing at that point of time. Moreover, banks are supposed to inform RBI about these funds in details every year.

But the menace of unclaimed money exists with all the financial sectors like provident fund (Rs 26,500 crore) and inactive mutual fund (Rs 18,000 crore). More than Rs 15,000 crore was lying with the country's insurance behemoth, LIC alone. Not to mention that LIC is all set to go for IPO within a year's time.

"Depositors need to become financially literate. Also, the banks need to go for nomination facility vigorously so that the genuine beneficiary gets his/her money back from the bank," Amitha Sehgal, honorary secretary, All India Bank Depositors' Association (AIBDA) told Bizz Buzz.

Mostly, these are legacy accounts, which are lying unattended with banks since 2003 or even earlier. It was the time when banks were not having 'anywhere banking' and rather they were doing it with 'branch banking'.

Suppose you are connected with a bank through branch banking, then sometimes you forget that you have kept your money with that particular branch. Sometimes, people don't even leave a will. Even though there has been nomination facility in practice, but depositors often forget to give their nomination.

Again, in many families, the members don't trust each other. So, they prefer to die without any will. The question was what can a bank do in such kind of awkward situation. In fact, nobody can claim until and unless one knows how much was the money in the bank account of their departed near and dear ones. Banks also need to be careful. The KYC (know your customer) norm, in its present form, has come into force since 2002 only that too under the Anti-Money Laundering Act. In earlier days, you need to only introduce for your friend/relative so as to allow him to open a bank account in the branch where you were already have got an account. What happened, many a time, the branch didn't have any idea about the proper address of the customer, opening the account with his branch. In case of change of address, the situation would

become worse as no information was needed to be shared with the bank's branch. Because there was no cellphone, no SMS alert used to come.

Falling on the lines of BAE funds RBI was having with it, the capital markets regulator SEBI was also having one such fund, which is known as Investor Education and Technical Fund (IETF).

An estimated amount of a whopping Rs 49,000 crore is idly lying in unclaimed accounts and the money is sitting with banks and insurance companies at the moment. The calculated amount is only up to December 31, 2020.

"Unclaimed bank deposits stood at Rs 24,356 crore, accounting for more than 50 per cent of the total unclaimed amount as of December 31, 2020. Data from the Insurance Regulator Development Authority of India (IRDAI) indicates that policyholders in the public and private sector insurance companies have parked Rs 24,586 crore in unclaimed accounts", says Rachit Chawla, CEO & Founder, Finway FSC.

Insurers sitting on unclaimed funds deposited by policyholders for more than 10 years transfer the idle money to the Senior Citizens' Welfare Fund (SCWF) each year. The money is then spent on promoting the interest of the senior citizens, he added.