Banks target to clear 30-40% unclaimed deposit in FY26

New Delhi: The Centre may ask state-run banks to settle at least 30-40% of over ₹78,000 crore of deposits lying unclaimed in their books in 2025-26, said two persons close to the development.

To achieve the target, the central government is likely to ask public sector banks (PSBs) to identify geographical areas with the most unclaimed deposits, set quarterly settlement targets at the branch level, and develop a standard operating procedure (SoP), in addition to implementing new central bank guidelines, said the first of the two persons mentioned above.

The Reserve Bank of India (RBI) guidelines, effective 1 April, require banks to display details of unclaimed deposits, along with a public search feature, on their websites. 

In fact, the government has included the settlement of unclaimed deposits in the EASE, or Enhanced Access and Service Excellence, reforms agenda for PSBs for the current fiscal, added the second of the two persons mentioned above.

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“This initiative will assist banks in alleviating compliance and operational challenges while enhancing transparency in accordance with EASE reforms. By re-engaging with dormant account holders, banks can improve their balance sheets, mitigate reputational risks, and create new opportunities for customer engagement," said Pratik Shah, national leader-financial services, EY India.

It would also help state-run banks reduce the risk of fraud and illicit activities, he added. 

The flip side

The plan, however, may lead to litigation due to disputed ownership, inadequate documentation, and contested heirship. “Accelerated timelines may compromise due diligence, increasing the likelihood of rejected or mishandled claims. To mitigate legal fallout, robust verification processes, transparent claim mechanisms, and proactive public awareness campaigns are imperative,” said Shah.

To be sure, banks transfer deposits that remain unclaimed for over 10 years to the RBI's depositor education and awareness fund (DEAF), which stands at north of ₹78,000 crore. “Refunds of these deposits will help depositors redeploy them in the banking system,” said Vivek Iyer, partner and financial services risk leader, Grant Thornton Bharat. 

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“With significant KYC/CDD clean-ups that banks have been undertaking over the past 10 years, we believe that the ability to trace customers and initiate a refund or unclaimed deposits will be a far more successful imitative than what it was anytime in the past,” he added.

The move will also help banks reduce record-keeping and overhead burdens since a large number of dormant accounts will be closed, said Manmeet Kaur, partner at Karanjawala & Co.

Clearing the clog

Though the government exercise is targeted at PSBs as they account for about 80% of unclaimed deposits, the Indian Banks' Association (IBA) will convey the SoP to private sector banks.

At present, customers can check unclaimed deposits through the RBI’s UDGAM portal. However, they must visit the respective bank branch to complete the claim process. The proposed changes would digitize and simplify this process, eventually allowing deposit retrieval online.

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The exercise follows Union finance minister Nirmala Sitharaman’s call to organize a special drive to address the issue of unclaimed deposits. 

Moreover, the Banking Laws (Amendment) Bill, 2024, cleared by Parliament, increased the number of nominees accepted per bank account from one to four, allowing easier identification of beneficiaries if the account becomes dormant.