Karan Kumar, an IT professional, did not have sufficient money for withdrawal in his salary account. He tried to withdraw from his old salary account of his previous employer. However, his withdrawal requests were repeatedly rejected by one ATM after another. On contacting that particular bank, he learnt that his account had become dormant as he had not used it for more than 2 years. Like Karan, many people face the dilemma of dormant savings account.
Here is short write-up on how bank accounts become inactive and dormant and how to deal with the consequences.
Why bank accounts become inactive/dormant?
If your current/savings account does not witness any transaction over a period of 12 months, it gets classified as inactive account. Thereafter, if such account continues to remain inactive for another 12 months, it is reclassified as dormant account.
Transactions considered for re-classifying accounts
Both debit and credit transactions are considered for re-classifying accounts as inactive/dormant. However, these transactions have to be initiated by you or some third party. Some examples would be cash withdrawal/deposit, cheque payment/ deposit, ATM withdrawal, online purchases and transfer of funds from/to your account. The credit of interest earned on your fixed deposit, dividends earned from stocks/mutual funds or the deductions for your recurring deposit, SIP or EMIs are also taken into account before re-classification.
Note that bank-initiated transactions, such as interest credited or service charges or penalties levied by your bank, will not be considered for re-classification.
Purpose of re-classifying accounts
The main intent behind segregating accounts into active, inactive and dormant accounts is to reduce the risk of frauds, etc in your account. By segregating the accounts, banks bring into their staff’s attention about the risk involved in these accounts and calls for their due diligence.
Restrictions on inactive and dormant account
Although the RBI has not placed any restriction on the transactions in dormant or inactive accounts, it has advised banks to exercise due diligence before clearing those transactions. At the same time, banks have been also advised against causing any inconvenience to customers on the pretext of dealing with inactive/dormant accounts.
The restrictions or absence of it on inactive/dormant account totally varies from bank to bank. While some banks may impose restrictions on just ATM, net banking and phone-banking transactions, others may extend the restrictions to even cheque transactions. For example, HSBC in India do not allow address change request, issue or renewal of ATM/Debit card, cheque book request, ATM/Debit card transactions, internet banking, phone banking and clearing cheque transactions on dormant and inactive accounts. Similarly, HDFC Bank discontinues ATM, net banking and phone banking facilities in its dormant accounts.
Communication from bank before reclassification into dormant account
Your bank will inform you at least three months before your account is re-classified as dormant. It will also inform about the procedure for re-activating your account. If there is still no subsequent transaction from your end or through third parties, the bank may classify your account as a dormant account.
However, if you chose to reply and provide the reasons for not operating the account, your bank will continue to consider your account as an operative account for one more year. However, if you still don’t operate that account during the extended period, that account will be classified as dormant account at the end of the period.
Also, you would continue to receive the interest on your savings account even after its reclassification as an inactive or dormant account.
How to reactivate your bank account?
You can reactivate your inactive bank account by simply making a deposit or withdrawal transaction. To reactivate your dormant account, visit your home branch and provide a written request for reactivation of your account. Your bank may ask you for fresh KYC documentation and hence, carry along with you an identity proof, address proof and recent photograph. Remember that your bank cannot charge you for reactivating the inoperative account.
Given that the problem of inactive or dormant bank accounts mainly results from not closing unnecessary accounts, the first step towards avoiding it is to close the accounts that we can simply do without. For other important but lesser used accounts, try to do at least one deposit or withdrawal in those accounts every year. An easier alternative would be to use the lesser used accounts for routing some investments and receiving dividends or bonuses from shares, mutual funds or insurance products.
The author is VP and Business Head-Payment Products, Paisabazaar.com