RBI asks banks not to classify zero balance account as inoperative

The central bank said customers need to submit fresh KYC documents for reactivation

The Reserve Bank of India (RBI) has asked banks not to classify zero balance accounts, which are opened for the beneficiaries of government schemes like direct benefit transfer (CBS), even if there is no activity in the account for two years.

The regulator said the central and state governments had been expressing difficulty in crediting cheques/direct benefit transfer/electronic benefit transfer/scholarship amounts in these accounts as they are also classified as inoperative due to non-operation for two years.

“The banks will, based on the purpose of opening the account, segregate the aforementioned accounts in their CBS, so that the stipulation of ‘inoperative’ account is not applicable to these accounts due to their non-operation for a period of more than two years,” the RBI said on Monday.

An account that has not been operated for two years is classified as inoperative. The RBI said customers have to submit KYC documents afresh for reactivating the account.

Deposits maintained in any account, which have not been operated upon for 10 years or more, or any amount remaining unclaimed for 10 years or more, are required to be transferred by banks to the ‘Depositor Education and Awareness Fund Scheme’, which is maintained by the RBI.

For the purpose of classifying an account as ‘inoperative’, only customer-induced transactions and not bank-induced transactions should be considered, the RBI said.

“There may be instances where the customer has given a mandate like standing or auto-renewal instructions, and there are no other operations in the savings or current account or the term deposit. These transactions will also be treated as customer-induced transactions,” the RBI said. Customer-induced transactions can be either financial or non-financial and also KYC updating done in face-to-face physical mode or through digital channels.

Following a review of norms governing inoperative accounts in consultation with stakeholders, the RBI rationalised the instructions, which the regulator said is expected to reduce the quantum of unclaimed deposits in the banking system and return such deposits to their rightful owners/claimants.

The revised instructions will come into effect from April 1, 2024.

Banks have been asked to undertake at least an annual review in respect of accounts, where there are no customer-induced transactions for more than a year.

“In cases where there is no explicit mandate to renew the term deposit, the banks should review such accounts if the customers have not withdrawn the proceeds after maturity or transferred these to their savings/current account in order to prevent such deposits from becoming unclaimed,” the RBI said.

The RBI said the banks should inform the account/deposit holders in writing through letters or email or SMS (if the email and mobile number are registered with the bank) that there has been no operation in their accounts/deposits in the last one year, as the case may be.

“The alert messages shall invariably mention that the account would become ‘inoperative’ if no operations are carried out during the next one year and, the account holder would be required to submit KYC documents afresh for reactivating the account in such a case,” RBI said in the revised instructions.

Bulk deposit limit enhanced to Rs 1 crore for  large UCBs

Reserve Bank of India has enhanced the bulk deposit limit for scheduled Urban Cooperative Banks having deposits above Rs 1,000 crore. For them, bulk deposit would now mean single term deposits of Rs one crore and above. Earlier, bulk deposit meant single term deposits of Rs 15 lakh and above. For other UCBs, bulk deposit would continue to mean single term deposits of Rs fifteen lakh and above.