Besides real miscreants who collect deposits from public with the ulterior motive of cheating their ‘clientele’, the government and corporates too become indirect beneficiaries of accumulating “unclaimed deposits”. This is because money not paid back to the original depositors/ savers becomes surplus income or profit for them in due course
The media reports about the Supreme Court proceedings in the “Sahara bonds” case on 22 April 2013 are extremely disturbing. The helplessness of the Securities and Exchange Board of India (SEBI) and the court to ensure judicious handling of a huge amount of Rs24, 000 crore collected by two ‘corporations’ (Sahara India Real Estate Corporation and Sahara Housing Investment Corporation) is pathetic. The Sahara companies’ claim that they had “repaid investors who wanted their money” gives an impression that once an organisation collects money, even if it does not use the money for the purpose for which it was collected, the money will be refunded only if the depositor proves that “he wants the money”!
When the ‘bench’ laments about manipulating courts, every authority responsible for the sad state of affairs should take cognizance and start acting. One is wondering whether Kapil Sibal was right when he said in India any loss of public funds is ‘zero’ loss. During the initial days of the 2G scam, the minister had said that the losses estimated by the Comptroller and Auditor General of India (CAG) at thousands of crores were equal to zero from the GOI perspective!
Here we look at the issue from a different angle. Of late, huge amounts of money being collected from public in various forms is not being used for the purpose for which it is originally collected. This includes taxes, bank deposits and investments made by small and big savers in various instruments and with different organisations. Such funds get accumulated as bank deposits, balances in the treasury and accumulations in the corpus of provident fund or insurance and so on. With growth of huge corporates in the private sector and their counterparts in the public sector cash gets accumulated with them also without getting productively deployed.
There are several watchdogs in the form of auditors and supervisory and regulatory bodies whose job is to ensure proper accounting and right end-use of these funds. But, what we observe is, even when misappropriations or straight daylight looting of funds are brought to light, instead of proper investigation leading to recovery of loss or punishment of the guilty, a blame game between or amongst certain vested interests gets started in the legislatures and the media and the real issues get submerged.
According to one report over Rs2, 400 crore were lying in inoperative bank accounts, last year. This would have further increased by now. There was not much difference in position across public sector-private sector banks in the continued rise in number of such accounts and accumulation of balances. It is intriguing that even in a well-regulated sector like banking, a system which can take care of the need to pay back the ‘unclaimed’ balance when the account becomes ‘inoperative’ from a bank’s perspective is yet to be put in place.
Sometime back, it was reported that Centre proposed to set up a “depositor education and awareness fund” using part of the money lying unclaimed with banks. Though any move to create awareness is laudable, the sourcing of funds from unclaimed deposits for the purpose, the proposal to appropriate idle funds irrespective of their origin or ownership, is unethical. The word unethical is used consciously, as government is omnipotent to make anything ‘legal’. The funding for this purpose should have come from the profit made by banks, or still better from the surplus profits/income periodically transferred to government from the financial sector.
Such practices exist outside banking sector also. Unclaimed dividends and deposits of companies that get credited to the Investor Education and Research Fund (IERF) has to depend on paltry budgetary allocations for its existence which again gets ploughed back to government as advertisement charges paid to government-owned electronic media.
In accumulating “unclaimed money” banks are in the elite company of LIC, Employees Provident Fund Organisation and Department of Posts, besides several other organisations in the public and private sectors, in holding on to money payable to the depositors/beneficiaries after the payments have become due on maturity of deposits, death of depositors and so on.
The government should guide all organisations sitting on unclaimed deposits or maturity proceeds of other financial instruments like insurance policies to exhaust all reasonable options available to track the depositors or their heirs whose money would be transferred to unclaimed accounts before such transfer every year. From notice boards at bank branches to electronic media could be used to draw the depositors’/beneficiaries’ attention. If banks’ secrecy provisions stand in the way, necessary changes should be thought of.
It would be also worthwhile to enquire whether the organisations including banks were periodically updating the database on their folios. Last year the Employees Provident Fund Organization proposed not to pay interest on inoperative accounts in EPF accounts consequent to a proposal to freeze about three crore accounts (amount involved was about Rs10,000 crore) in which there was no fresh contribution during the previous three years or more. Such moves send out disturbing signals about safety of depositors’ funds with public sector organizations.
Ironically, the position will only aggravate with compulsory opening of more accounts to promote financial inclusion, insistence on Aadhaar-enabled accounts even before Aadhaar is yet to reach and crediting of government scheme benefits through bank accounts. The GOI and RBI may look at the issue from a social security angle, lest people lose faith in government-sponsored savings schemes and social security measures and even in the financial sector regulator.
Besides real miscreants who collect deposits from public with the ulterior motive of cheating their ‘clientele’, government and corporates too become indirect beneficiaries of accumulating “unclaimed deposits”. This is because money not paid back to the original depositors/savers becomes surplus income or profit for them in due course.
The huge accumulations under ‘unclaimed’ category point to the fact that the existing machineries for handling grievances relating to payment of dues and claims are not very effective.
In the absence of any power to fix liabilities and give directions, the ombudsmen or similar arrangements within organisations remain helpless spectators when complaints about non-payment of money from depositors/savers reach them.
It is in the above context that a statutory body to oversee accounting of the so-called “unclaimed deposits/payments” becomes relevant. Such a body should be made responsible to:
(M G Warrier is a freelancer based in Thiruvananthapuram)
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“Every institution shall transfer the unclaimed amounts, including those under the following schemes to the Fund namely:-
(a) Small savings and other savings schemes of the Central Government including the Post Office Savings Accounts, Post Office Recurring Deposit Accounts, Post Office Time Deposit Accounts, Post Office Monthly Income Accounts, Senior Citizens’ Savings Scheme Accounts, Kisan Vikas Patras, National Savings Certificates (all issues), Sukanya Samriddhi Accounts and discontinued Small Savings Schemes;
(b) Accounts of Public Provident Funds under the Public Provident Fund Scheme, 1968 maintained by the institutions concerned; and
(c) Accounts of Employees’ Provident Fund under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952.”
The recent media reports indicate that EPFO alone has about Rs32,000 crore as balances classified as ‘inoperative accounts’ which did not earn any interest for the last five or six years and thousands of crores may be lying idle in ‘unclaimed’ deposits under other categories mentioned above. The proposed transfer may end up in misappropriation of a huge amount of savings/deferred wages of millions of citizens kept in trust with statutory bodies/authorities. Instead of going ahead with the proposal, GOI should cause a professional audit of these unclaimed/inoperative accounts and find out why millions of accounts are remaining clueless on the books of these organisations. First effort should be to reach out to the real ‘owners’ or their genuine heirs to whom the balances should reach. While the nobility of the intentions to set up a welfare fund for seniors is impeccable, before appropriating funds from citizens’ savings, there should be an appropriate regulator for inoperative/unclaimed deposit accounts with institutions.
M G Warrier, Mumbai
You're right in putting up the original article.
As a matter of fact Mr.Nagesh Kini, FCA, [closely associated with ML] had put up this issue about two years back. He had the expert view coz of his expertise in bank audits.
I've known many things since Harshad Mehta scam, my uncle was an administrator to the failed bank, appointed by RBI.
PSU banks will never fail in delayed claims. Question is 'claimant/[s]'!
As is KYC, why it should not be mandatory to nominate, NOT OVERRIDING WILL OR POA [which may be ultra vires], unless proved to the satisfaction of the concerned authority.
2.4KCR since four odd years may have netted the banks a phenomenal return.
None of the banks highlight 'unclaimed' deposits BUT CAR [capital adequacy ratio] in percentage in their B/S.
In which manner can it be ascertained that the unclaimed amount is not taken into consideration.
[as per AS & GAAP.] NPA's are given in figures with percentages & returns on assets - annualized- in percentage.
All other things are covered under 'other liabilities & provisions' & only microscopic analyses of the schedule will unearth two/three asterisks marked inclusion - no explanation.
Neither will segment revenues will highlight.
ICAI should come forward to address this issue.
Regards,
This space may not allow a detailed discussion on the subject. Let banks make a beginning by publishing available details about depositors with ‘unclaimed’ balances above Rs1000 on branch notice board and on a dedicated website (If such arrangements exist, let it be known to public).
Also
Thank you, Joshi