Journal Press India^®

Author Details ( * ) denotes Corresponding author

Unclaimed deposits, which refer to funds left dormant in bank accounts for extended periods, have become a significant concern in the Indian banking system. These deposits, typically inactive for 10 years or more, can pose challenges related to liquidity, profitability, and overall financial health of banks. The Reserve Bank of India (RBI) and the government have established guidelines to manage these deposits, such as transferring unclaimed funds to the Depositor Education and Awareness Fund (DEAF). However, the increasing volume of unclaimed deposits raises questions about their impact on the banking sector and the economy.

This paper aims to explore the implications of unclaimed deposits on the Indian banking system, focusing on three key areas: liquidity management, profitability, and financial health. First, unclaimed deposits represent idle capital that banks cannot use for lending or investment, affecting their liquidity. While these funds are technically part of a bank’s reserves, their inactivity prevents them from contributing to economic growth. Second, banks incur administrative costs to track and manage dormant accounts, reducing overall profitability. Moreover, the opportunity cost of not utilizing these funds for revenue-generating activities is significant. Finally, the broader financial health of the banking system is affected, as unclaimed deposits may signal issues such as poor customer engagement or lack of financial literacy.

The paper also discusses potential solutions to address the issue, including improving customer engagement, enhancing financial literacy, leveraging digital banking technologies, and revising regulatory frameworks. By adopting these strategies, banks can better utilize dormant funds, reduce inefficiencies, and contribute to a more stable and inclusive financial system. Ultimately, addressing the challenge of unclaimed deposits can help enhance the financial well-being of both individual depositors and the broader economy.

Keywords

Unclaimed Deposits, Indian Banking System, Bank Liquidity, Financial Health

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