A report from World Bank reveals that, the dormancy rate in India is as high as 43% and accounts for about 195 million of 460 million adults with a dormant account around the world. While deliberate actions are being taken to expand the banking coverage in India and to provide banking facility to the grass root level of the society, growing number of dormant accounts in India can cause a lot of inconvenience in the entire banking mechanism. This article is based on the meaning of dormant account in India and talks about the tips to prevent bank accounts from getting inactive or dormant.
Dormant refers to a state of inactivity where normal activities are suspended.
From banking point of view, the term ‘dormant’ is used while explaining the status of a bank account. A bank account can be active, inactive or dormant depending on a few situations.
Well, we all are pretty sure about an active account. And we can almost assume the meaning of inactive and dormant account in India. But that assumption may not be enough. So let’s find out what dormant account means and what are the implications.
Inactive Bank Account Meaning
Any bank account whether savings/current where no financial transactions are made (other than interest credited by the bank or service charge levied by the bank) over a period of 12 months, is termed as Inactive account.
Dormant Bank Account Meaning
If the above period continues up to 24 months it’s called Dormant or Inoperative.
How to Keep an Account Active: Types of Transaction
As per the Master Circular published by RBI, the financial transactions in the present context refers to the transactions that are customer induced. This means transactions including credit and debit, induced at the instance of customers as well as third party.
The service charges levied by the bank or interest credited by the bank are not taken into consideration.
On a simpler note, the customers themselves or somebody else on their behalf must carry out the common financial operations like cash withdrawals or deposits. And if no such activities are seen over a period of 24 months the account becomes dormant.
Other than this, a customer can also keep an account active through the followings,
- Transactions through cheque.
- Cash or cheque deposit.
- Withdrawal or deposit through ATM.
- Transaction through internet
- Transaction by standing instruction and ECS
- Transactions through Mobile/Phone/Kiosks
- Transaction through Real Time Gross Settlement/National Electronic Funds Transfer
Do the Banks Inform the Account Holders Before Converting their Accounts?
Yes, they do. As per the guidelines of RBI, Banks make annual review of accounts in which no transactions are made. They approach the customers in writing that there has been no operation in their accounts and ascertain the reasons for the same.
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, the account holder may be requested to operate the account.
However, if the account holder is still not able to operate the same during the extended period, banks should classify the the account as inoperative account after the expiry of the extended period.
What About Dividend on Shares or Interest on Fixed Deposits?
There have been certain doubts from different ends whether the credit of dividend on shares or interest from fixed deposit to a saving account keeps it active even when there is no operation in that account for two years other than this and whether such an account is to be treated as dormant after two years
The circulars by RBI answers it this way,
“we clarify that since the interest on Fixed Deposit account and/or dividend on shares is credited to the Savings Bank accounts as per the mandate of the customer, the same should be treated as a customer induced transaction. As such, the account should be treated as operative account as long as the interest on Fixed Deposit account and/or dividend on shares is credited to the Savings Bank account. The Savings Bank account can be treated as inoperative account only after two years from the date of the last credit entry of the interest on Fixed Deposit account and/or dividend on shares, whichever is later, provided there is no other customer induced transaction”
What Happens to the Interest in Dormant Account?
Interest on savings bank accounts are 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.
Why Banks Declare Some Accounts Dormant?
By doing this they protect your money from any potential risk of financial frauds. The banks always make sure that a customer is not inconvenienced in any way, just because his account has been rendered inoperative. Banks also ensure that the amounts lying in inoperative accounts ledger are properly audited by the internal auditors / statutory auditors of the bank.
How to Activate an Inactive Account?
Reactivating an inactive account is quite easy. All you need to do is carry out any financial transaction as stated above or simply conduct a transaction by cheque or ATM. Or you can just visit the branch and either deposit or withdraw cash at least once to retain the active status.
How to Activate a Dormant Account?
Dormant account activation is really easy. To reactivate a dormant account, you’ll be required to go through the due diligence verification and submit your KYC document (identity proof and address details) at the bank.
As per the RBI guidelines, “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. and there should not be any charge for activation of inoperative/dormant accounts.”
Write an application to the branch manager, requesting the reactivation of your account. Usually bank’s have their specific dormant account application forms. Fill out the application form properly and attach it with the photocopies of identity and address proof. Carry the KYC documents in original. Take the bank passbook or cheque book (as they carry the account numbers) and passport size photographs as well. Although, penal charges are not to be levied, banks may ask you for this depending on your current balance status and pending deduction amount. Besides, the process of KYC may vary from bank to bank. After the due diligence process is over, the bank will reactivate your bank account.
Inactive or dormant bank account results from lack of maintenance, especially when we have multiple bank accounts. To avoid this from happening, it’s always better to close the account if we are not going to use it anymore, rather than keeping a number of idle accounts.