India’s banking regulator, Reserve Bank of India (RBI), does not like it when you leave your savings or current account idle for too long. So, it’s marked inoperative (dormant) after two years of no transactions, and certain financial transactions are blocked unless reactivated by the customer. As per RBI guidelines, banks notify customers after 12 months of no transactions, warning that the account may turn inoperative.
“A dormant account is not just a regulatory classification; it’s a signal of disengagement,” said Reynold D’Souza, president and head-branch banking, North & TASC business, Axis Bank. “We proactively nudge customers to stay active through simple, customer-led transactions and digital engagement.”
Impact of an inoperative account
Experts say the account holder effectively loses access to their account once it’s tagged as ‘inoperative’. As per guidelines, a debit freeze is imposed on the account. Unless the account is reactivated, an inoperative or dormant account is barred from doing any transactions through any channels (offline, online, debit card, and ATM) and other non-financial transactions, such as a change of address.
If the account remains inoperative for 10 years, the funds from such an account are transferred from the bank to the ‘Depositor Education and Awareness Fund’ (DEA Fund), maintained by the RBI. As of March 2024, ₹52,173 crore are lying unclaimed in the DEAF, up 78% from ₹29,265 crore in March 2022. A large chunk of the balance, 86% as of the latest available data, comes from public sector banks. Term deposits that remain unclaimed for more than 10 years are also transferred by banks to the DEA Fund.
To search for unclaimed deposits/amounts, people can go to the centralized web portal UDGAM (Unclaimed Deposits-Gateway to Access Information).
“You can still claim it, but with more paperwork. Online reactivation is generally not allowed; it must be done via a branch,” said Sumitraa Raghavan, a banking professional.
Dormant accounts don’t usually affect your credit score, but unpaid fees or penalties on such accounts can lead to debt or collections, which may hurt your credit score, according to the ICICI Bank website.
The savings account will continue to earn interest. However, transactions such as withdrawals and deposits cannot be made in that account unless it is reactivated. According to the RBI, a penalty for not maintaining a minimum balance cannot be levied when the account is dormant.
“Interest on savings accounts shall be credited regularly irrespective of the fact that the account is in operation or not… No charges shall be levied for activation of inoperative accounts,” said an RBI circular dated 1 January 2024.
How to reactivate a dormant account
Activation of a dormant account shall incur no extra charges. The account holder needs to comply with valid KYC requirements to prove that he/she is the rightful owner of that account. Such checks are done as the chances of fraud are higher in accounts that lie dormant.
“Reactivation is seamless, but prevention is even simpler: A small transaction today can keep your account alive and your banking relationship uninterrupted. Dormancy can be avoided with minimal effort,” said D’Souza from Axis Bank.
If it is a joint ownership account, the approval of both holders is needed to reactivate the account, irrespective of its mode of operation. While experts say visiting a branch is not necessary for activating a dormant account, it is still advisable to do so, as it will speed up the process.
Individuals can go to the branch and submit a written request for activation of the dormant account. The applicant should attach the bank account number, valid ID proof and reason for inactivity. The bank will then tell you to do a fresh KYC using officially valid documents as prescribed in the RBI’s KYC Master Direction.
How to avoid
As the popular saying goes: prevention is better than cure. An account holder should periodically do transactions to avoid their account from getting dormant/inoperative. Savings interest getting credited or deduction of charges or fees from the bank’s side does not count as a transaction; it must be customer-induced. Fixed deposit interest and dividend from shares are considered customer-induced transactions.
To automate the process, users can create a standing instruction to transfer a small amount from one bank account to the bank account that is used less frequently, through alternative channels. They can also connect the account and set up recurring payments, such as connecting it to your Netflix account.
You can also inform the bank of the reason for the inactivity and request that it keep the account active. If you are juggling multiple accounts, consider consolidating them into just a handful that you actually use and closing the rest.
About the Author
