Banks No Longer ‘DEAF’ To Voice Of Depositors For Unclaimed Deposits

On August 28, Nagaraju Maddirala, secretary in the department of financial services (DFS), Ministry of Finance, asked the chiefs of public-sector banks (PSBs) to host block-level events and a nationwide campaign to return depositor money lying in “DEAF” accounts.

DEAF stands for Depositor Education and Awareness Fund. Established in 2014, this is a fund of unclaimed deposits in banks, demand drafts, and other financial instruments that have been inactive or dormant for at least 10 years. The Reserve Bank of India (RBI) manages this corpus. Banks transfer such unclaimed deposits every year to the RBI, which uses the fund for financial education and depositor-protection initiatives.

The finance ministry wants the process of returning the money to depositors to be completed by December this year. The PSBs need to involve their vast branch network to make it a success. The number of all scheduled commercial bank branches in India stood at 165,501 in September 2024. Of these, 85,116 were PSB branches — a sizeable portion of them located in rural and semi-urban areas.

Besides PSB chiefs, the RBI governor, the chairman of the Securities and Exchange Board of India (Sebi), and the chairman of the Pension Fund Regulatory & Development Authority were also present at that meeting.

Banks are not alone with unclaimed deposits. Many insurance policies also remain inactive. Unclaimed insurance funds worth ~21,718 crore have been lying with the Insurance Regulatory and Development Authority of India (Irdai). Unlike the DEAF, here the corpus has been declining over the years.  In March 2024, the copus was Rs20,062 crore, down from Rs22,237 crore in the beginning of that financial year.

Also, as on January 31, around ~323 crore worth of dividend and ~182 crore worth of securities had been lying unclaimed with Sebi.

As on March 31, 2025, the size of the DEAF was ~97,545 crore. There has been a 57 per cent rise in the corpus in the past one year. On March 31, 2024, it was ~78,213 crore. And, a year earlier, on March 31, 2023, it had been ~62,215 crore.

The DFS secretary carried forward Finance Minister Nirmala Sitharaman’s message at the 29th meeting of the Financial Stability and Development Council (FSDC) in Mumbai on June 10. At that meeting, where all regulators and the chief economic advisor in the finance ministry were present, Sitharaman had emphasised the need to keep citizens’ interests at the forefront and ensure a smooth refund process.

The focus of that meeting was on the timely return of the growing pile of unclaimed deposits held by the RBI. This money belongs to ordinary people and should be returned without delay.

 Banks have the responsibility to take steps to keep the customer accounts active and prevent them from turning dormant. Once an account is categorised dormant and the customer wants to reactivate such an account, she can visit her branch and submit new Know Your Customer (KYC) documents to make the account operational again.

Given that a sizeable part of this money is part of the coveted current accounts and savings accounts (Casa), it is surprising that banks are not in a hurry to revive these accounts. Overdue term deposits are also part of such dormant accounts.

When such dormant accounts are not revived within 10 years, money leaves the banks’ books and flows into the DEAF, maintained by the RBI. Similarly, any unclaimed insurance fund after 10 years is transferred to the insurance regulator. And, the unclaimed demat accounts accumulate under the market regulator’s oversight.

Why do such accounts turn dormant, and why does nobody care for 10 years? The reasons range from the death of an account holder to migration, and, in some cases, even lack of awareness. Most of these accounts belong to deceased customers. Their legal heirs often struggle to meet the elaborate and time-consuming processes required to claim the money from the deceased account holders’ balances.

Another significant reason is customers relocating to other cities or states for jobs. These customers often withdraw a large part of their money, leaving a small balance behind, and move on. Closing these accounts is as complicated as claiming money from a deceased account holder’s account.

The question is: Why do banks let such a crucial part of their low-cost savings accounts slip into the DEAF? After all, once the money flows out, a bank can no longer use it for lending or earning interest. Last year, banks transferred close to ~20,000 crore worth of dormant savings bank deposits to the RBI.

While banks are struggling to collect low-cost deposits, they fail to safeguard the funds of their existing customers. There could be many excuses for this oversight, but the most credible reason seems to be the lack of genuine desire to help these customers, many of whom get frustrated visiting bank branches again and again to reclaim money lying in such accounts.

Inadequate information technology infrastructure and operational support also affect the process. The private banks, especially the large ones, seem to have managed dormant accounts well, slowing down the transfer of unclaimed deposits from their books to the DEAF. It seems that 90 per cent of the DEAF accounts are from PSBs and regional rural banks. One of the reasons could be that the private banks are choosy in opening deposit accounts.

“We cannot let public money sit unused when rightful claimants are available. The government is committed to helping families reclaim what is theirs,” Sitharaman had said on June 10. Her directive was clear: Hold district-level camps and take necessary actions to identify accountholders and return the money.

She told banks and the RBI to use technology and historical data to identify dormant accountholders, reach out proactively to potential legal heirs, simplify the claim process by reducing paperwork and delays, and use platforms like the RBI’s Unified Database for Unclaimed Deposits (UDGAM) portal.

Incidentally, in 2023, the RBI launched a campaign called “100 Days – 100 Pays” to settle the top 100 unclaimed deposits in every bank, in every district of India, within a 100-day period. The campaign’s goal was to reunite depositors with their dormant funds by helping them track and claim deposits that had been inactive for at least 10 years.

Although the initial campaign period ended, the overall initiative to handle unclaimed deposits continues. The UDGAM portal allows users to search across multiple banks for unclaimed deposits by providing basic KYC details.

As most accounts are KYC-compliant, data analysis tools can help identify potential owners or legal claimants of such accounts. Many depositors have active accounts in one bank and dormant accounts in others. Tracing these depositors and returning the funds through a common portal is one solution. With the help of Unit Identification Authority of India, legal heirs of deceased accountholders could be located and money could be returned to them.

This initiative should not only be seen as a financial project but a way to build citizens’ trust in the banking system. Proactive steps by financial institutions can restore confidence and show that the system responds to citizens’ needs.

The number of unclaimed deposits, inactive insurance policies, and unclaimed securities have been growing. But the message from the highest financial authority in the country is loud and clear. The government’s commitment to returning unclaimed deposits and idle assets to their rightful owners signals an important shift in financial governance and consumer rights advocacy.

To make this happen, banks need to finetune technology and train their staff. A responsive, inclusive, and accountable financial system keeps the customers at the centre stage.

The writer, a Consulting Editor with Business Standard, is an author and senior advisor to Jana Small Finance Bank Ltd. His latest book: Roller Coaster: An Affair with Banking. To read his previous columns, log on to www.bankerstrust.in. X: @TamalBandyo