Banking News


Inoperative Accounts


Bank's have historically understood Inoperative Accounts as those where there have been no operations for some time. Some banks have an additional category called a Dormant Account. 


RBI issued instructions to be followed by all banks to the effect that an account where there are no customer induced operations for 2 years is deemed an inoperative account. Money deposited by the customer in the account, a withdrawal by cheque or at an ATM are examples of customer induced operations. RBI had earlier clarified that credit of interest from a fixed deposit of the customer in to a Savings Bank account constituted a customer induced operation in the Savings Account. Credit of interest from the Savings Account itself does not constitute a customer induced operation.   

Recently RBI has further clarified that credit of dividends on shares as per the mandate of the customer also constitutes a customer induced transaction. An account will become Inoperative only after 2 years from the date of the last customer induced operation. 

The purpose of classifying an account as Inoperative is to alert the staff and guard against risk of fraud. Any attempt at a transaction in an Inoperative account will need to be approved at a supervisory level. 

It is not very clear why the Bank should be much concerned about whether there are operations in the account or not. The objective is to prevent fraud. The solution for that is to ensure that the customer is aware of the account and is regularly monitoring it. Bankers are aware that there are certain types of errors that may not come to light unless pointed out by the customers. If a credit intended for A comes accompanied by all particulars of B's account, a credit to B will show no error in the Bank's books, unless A claims non credit or B complains of unrelated credit. Checking cannot prevent such mistakes. Customer's verification of her account is essential. In electronic transfers RBI has warned customers that banks cannot be expected to verify the customer's name against the account number and will credit the remittance based on the account number. Only the customer can point out a credit to an unintended account. 

Therefore, the key question is whether an account is monitored by the customer or not. Not whether there are operations in it or not. If a devout Muslim intends to save money for 5 years and does not want to accept interest, the only option available to him is to open a current account. Should the Bank compel him to make operations in the account? He has no need to. In any case, banks have now realised that all operations, deposits and withdrawals, have a cost and there is no need to encourage customers to transact unless they have to. I suggest that an account in which there has been an Internet Login during the past one year need not be deemed inoperative. If the account has no internet banking arrangement, a balance confirmation certificate taken from the customer say, 3 months before an account is to become inoperative should be adequate. A SMS of the balance in the account which is acknowledged with an mPIN by the customer should also be adequate. It is not clear to me why in these days of high transaction costs we should insist on operations by a customer who does not want to operate. In fact, credit of interest from FDs or dividends from shares can continue for long after a customer is incapacitated or dead, leaving the account vulnerable to fraud. 


http://rbi.org.in/scripts/BS_CircularIndexDisplay.aspx?Id=9199
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