Explained: What Do Banks & Insurers Do With Your Unclaimed Money?

In December 2021, Finance Minister Nirmala Sitharaman had informed the parliament that a total amount of over ? 51,500 crore was lying unclaimed with financial institutions, like banks, insurance companies and mutual funds in the country.

This massive number indicates the piled up unclaimed money lying with financial institutions. The reason?

Sometimes the family of the deceased is not aware of the insurance or the bank deposit. Sometimes the savings account becomes dormant and the holder is either unaware or has forgotten about funds in it.

So there can be not one but many reasons why these numbers keep piling up.

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What happens to the unclaimed money?

According to RBI norms, a customerĄ¯s savings and/or current account usually gets treated as inactive if there is no financial activity in it for 1 year, and further it gets treated as an inoperative or dormant account if there are no transactions in the account for over two years.

And if the bank account remains inoperative for a period of 10 years, the money is transferred to Depositor Education and Awareness Fund Scheme (DEAF). The DEAF framework was introduced in 2014 for the promotion of depositorsĄ¯ interest. The scheme allows depositors to reclaim the amount after verification, and then the bank can transfer the claim to the depositor's account and file a refund from RBI.

For unclaimed amount lying idle with insurance companies, according to IRDAI regulation-All unclaimed amount of policyholders for a period of more than 10 years gets transferred to Senior CitizensĄ¯ Welfare Fund (SCWF) every year.

SCWF has been established under the Finance Act of 2015, and is utilized for schemes that promote the welfare of senior citizens, in line with the National Policy on Older Persons.

The policyholders or their beneficiaries will be eligible to claim the dues under their policies up to 25 years from the date of transfer of the money to SCWF. If no claim is made up to a period of 25 years after the transfer to SCWF, the amounts will escheat, ie, revert to the central government, as per a report in FinancialExpress.

As far as unclaimed mutual fund money is concerned, as per SEBI, the Asset Management Company (AMC) may invest unclaimed funds, including redemption and dividend, in the call money market, money market instruments, a liquid scheme or money market mutual fund scheme, specially floated by the AMC for the deployment of unclaimed amounts, according to a report in ET.

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