Let us first understand the meaning of a Dormant Account and an Inoperative account.
Dormant Account
A Savings Bank account or Current account becomes a ‘Dormant Account’ if it is not operated during the previous 12 months.
Inoperative Account
An SB or Current account becomes a ‘Dormant Account’ if the account has not operated during the previous 12 months. The account is treated as “inoperative” if there are no transactions in the account over a period of two years, including the period reckoned to classify them as dormant. For the purpose of classifying an account as ‘inoperative’ both the type of transactions i.e., debit entries, as well as credit transactions induced at the instance of customers as well as the third party is considered. However, the service charges levied by the bank or interest credited by the bank are not considered transactions for the purpose of classification of accounts.
If your bank account is classified as dormant or inoperative, you need not worry about it. To reactivate your dormant/inoperative account, you need to visit the branch of the bank and make an application to activate the account. For joint accounts, signatures of all accountholders will be needed, irrespective of a single or joint operating mode. You will have to submit your KYC (Know Your Customer) documents. These will include address proof, PAN Card, and identity documents. Your bank can activate the account on the same day or the next business day or can take more time in some cases depending on internal processes and the risk category of the depositor. Initiate any transaction and your account will be activated once again.
The bank accounts are classified as dormant or inoperative accounts by the banks, with the point of view of reducing the risk of fraud. The classifications are made only to bring to the attention of dealing staff, the increased risk in the account. The transaction may be monitored at a higher level both from the point of view of preventing fraud or making a Suspicious Transactions Report.
When the account becomes dormant or inoperative, banks normally call for ‘Know-Your-Customer’ related updates through Officially Valid Documents of the customer. This is to ensure that the transactions are consistent with the bank’s knowledge of the client, his business, the source of funds, and the risk profile. Operation in such dormant/inoperative accounts may be allowed after due diligence as per the risk category of the customer. Due diligence means, ensuring the genuineness of the transaction, verification of the signature and identity, etc.
Nevertheless, banks normally take the entire process in a non-noticeable manner. This is to ensure that the customer is not inconvenienced in any way, just because his/her account has been rendered inoperative.
Section 26 of the Banking Regulation Act, 1949 provides, inter alia, that every banking company shall, within 30 days after the close of each calendar year submit a return in the prescribed form and manner to the Reserve Bank of India as at the end of each calendar year (i.e., 31st December) of all accounts in India which have not been operated upon for 10 years.
