What is a dormant account?

Bank accounts have become an indispensable part of our modern lives. The digital vision of the country has enabled the reach of these bank accounts even to the remotest parts of the country where earlier there was not a single bank just a few years back. Many account holders also have multiple bank accounts that are held either jointly or in their own name but not every account is actively used. These dormant accounts have are a number of restrictions and cannot be used immediately if they are classified as dormant. 

So what are these dormant accounts and how are they classified as such? Given below is the meaning of dormant accounts and related details of the same. 

What is the meaning of a dormant account?

A dormant account is an account that has not been used actively by the account holder over a significant period of time. According to the guidelines of the Banking Regulations Act,

• If an account is not used by the account holder for a period of over 1 year, such account is declared or classified to be inactive.
• Furthermore, upon being classified as an inactive account, if the same account is not used for over a cumulative period of 2 years, such an account is classified as a dormant account.
• Dormant accounts however have the right to earn interest on the balance held in the account and the credit of the same has to be accounted for as income in the tax returns as well.

This classification is done to protect the interest of the account holder and prevent any chance of misappropriation of funds held in the account as well as for administrative purposes from the bank’s end. Once an account is classified as a dormant account there are a number of restrictions that are placed on such accounts which stop the account holder or any authorized party from accessing the same without prior clearance. 

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What are the restrictions on the dormant accounts?

The restrictions placed on the dormant accounts vary from bank to bank as there is no direction of any restrictions from the RBI. However, some of the key restrictions placed on a dormant account include, 

1. Restricted use of ATMs, net banking facility, phone banking facility
2. Restrictions on cheque transactions
3. Restrictions on issue of new cheque book
4. Restriction on change or modification of address and other details like the signature, mobile number, etc.
5. Restrictions on addition or deletion of a joint account holder
6. Restrictions on issue or renewal of ATM cards or other cards like debit card/credit card.

When and how is a dormant account reclassified as an active account?

These dormant accounts need not stay dormant forever. The account holder can reactivate the same and use it as their primary account or can close it for good at their discretion. The RBI has mandated excess caution on part of the banks before reactivating a dormant account to safeguard their interest and that of the account holders. Most banks require the account holder to be physically present for reactivation of a dormant account along with providing the necessary KYC documents as per the guidelines of individual banks. 

Also, some banks require the account holders to carry out some basic transactions like issuing a cheque or carrying out an ATM or card transaction, or a net banking transaction. In many cases, account holders can simply make a deposit or a withdrawal to reactivate a dormant account after filing the necessary application for such reactivation and submitting the necessary KYC documents. It is important to note that banks cannot charge any fees or levy a penalty on the account holders to reactivate a dormant bank account. 

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Conclusion

Dormant accounts are an issue with all the banks as at any point if an account holder has multiple accounts it is difficult to keep track of every such account and carry out transactions to keep them active. Therefore, it is prudent for the account holders to close such multiple accounts if they are not being used actively and to keep their funds less scattered. 

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