Dormant Savings Account: Need for reclassifying, penalties, reactivation

Dormancy basically means a state of inactiveness. But in terms of savings account ‘inactivity’ and ‘dormancy’ are separate terms. 

When there has been no activity or transaction in a savings bank account for a period of 12 months, it is classified as an ‘inactive savings account’ and if the account continues to be inactive for subsequent 12 months, it is determined as a ‘dormant savings account’. However, bank-initiated transactions, such as interest on savings balance or penalties and service charges debited by bank are not considered while classifying accounts as dormant.

RBI guidelines:

The Reserve Bank of India (RBI) has advised banks to exercise due diligence before clearing transactions from dormant savings accounts. It has also given a free hand to the banks to decide ‘whether and on which features’ to impose restrictions of the dormant accounts.

While some banks restrict ATMs, netbanking and phone transactions, some others do not allow change in address, issue or renewal of ATM/debit/cheque book requests, etc, of such accounts.

Need of reclassifying accounts: Reclassifying account as ‘dormant’ reduces the risk of frauds, both internally and externally. Banks maintain details of such inactive accounts in a separate ledger.

Valid transactions:

Banks recognise valid debit or credit transactions which include withdrawal of cash at a branch or automated teller machine (ATM), payment by cheque, transfer of funds through Internet banking, phone banking or ATMs, inward and outward bill payments, etc., but system generated transactions like interest credit and service charge deduction, are not considered valid. However, dividends on shares or the proceeds of fixed deposit (FD) in the savings account are considered as a customer induced transaction or as operative.

Penalty:

No charges are required to be made in order to reactivate a dormant bank account. In June 2014, the RBI asked the banks not to charge penalty for non-maintenance of minimum balance in dormant accounts.  If any bank imposes a charge, it must be reported to the banking ombudsman.

Reactivation:

The account holder can reactivate the dormant bank account by simply making a deposit or withdrawal transaction. The account holder may be required to visit the home branch and provide a written request for reactivation of the account. The bank may, however, require a fresh KYC documentation like a recent photograph, address proof or any identity proof. Re-activation of a dormant account will be handled as meticulously, by the bank, as opening a new account, since unused balances may lie in such accounts.

Closure of account: A dormant account will have to first be reactivated and then the usual closure form can be submitted to close it.

For more details, visit https://savingaccount.in.