Multiple bank accounts are often difficult to manage because of which, some of them remain idle for a long period of time. Sometimes due to change of cities, or due to some unavoidable circumstances, it’s difficult to run an account or keep in touch with the bank. So after a point, when we go to the bank and enquire about the accounts, we are told that those are now dormant. This is quite a normal thing to happen from a banker’s perspective. But for a common man, it might be a little confusing and tricky.
So let’s first take some time to understand what a Dormant or Inoperative account is all about and what can be done to save our account from becoming dormant.
Inoperative or Dormant Accounts – What Are They?
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. And if the period continues up to 24 months the bank declares the account Dormant or Inoperative.
Financial Transactions that Keep an Account Active
As per a Master Circular published by the RBI, Financial transactions in the above context refers to the transactions that are customer induced which means transactions including credit as well as debit induced at the instance of customers as well as third party. However, the service charges levied by the bank or interest credited by the bank should not be considered.
On a simpler note, the customer itself or somebody else on their behalf has to least 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 following modes.
#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 strict guidelines of the RBI, Banks make annual review of accounts in which no transactions are made. In such a case they approach the customer 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 period the account holder may be requested to operate the account.
However, in case the account holder still does not operate the same during the extended period, banks should classify the same as inoperative account after the expiry of the extended period.
What About Dividend on Shares or Interest on Fixed Deposits?
There has 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 on Saving Account When it becomes Dormant?
Interest on savings bank accounts should be 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 do Banks Declare Accounts Dormant ?
By doing this they only safeguard your money from any risk of fraudulent activities. 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 Reactivate Inactive and Dormant Accounts?
Reactivating an inactive account is quite easy. All you need to do is just 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.
To reactivate a dormant account, you have 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.”
This is all very simple. But in order to avoid this, it’s always better to close an account if we are not going to use it in future, rather than keeping a number of idle accounts.