Closure of Dormant, Inactive, and Zero Balance Accounts

Question 1

The Reserve Bank of India (RBI) has issued a new guideline starting from ______, which mandates
the closure of 3 types of bank accounts.

Answer 1

January 1, 2025
- These include Dormant Accounts, Inactive Accounts, and Zero
Balance Accounts. This move aims to enhance banking security, reduce fraudulent activities, and improve overall efficiency in banking operations.

• By enforcing this closure policy, the RBI aims to safeguard the financial ecosystem and ensure the
  banking system remains secure and functional.

Question 2

Types of Closure Accounts:

Answer 2

i. Dormant Accounts: Accounts that have not seen any transaction activity for continuous 2 years or more.
* These accounts are highly susceptible to fraudulent activities, as they tend to be neglected by
their holders, making them targets for hacking and other malicious actions.

ii. Inactive Accounts: Accounts that have remained inactive for 12 months or longer will be closed unless reactivated by the account holder.
* The aim is to reduce banking inefficiencies and to minimize the risks related to online fraud.

iii. Zero Balance Accounts: Accounts that have maintained a zero balance for an extended period will be closed.

• These accounts serve little purpose and may be vulnerable to misuse. The closure helps to streamline operations and ensures compliance with Know Your Customer (KYC) norms.

Question 3

Steps to Avoid Closure for Account Holders’:

Answer 3

• Reactivate Inactive Accounts: To ensure at least one transaction is carried out if the account has been inactive for over 12 months.
• Engage with Dormant Accounts: To visit the branch to reactivate accounts that have been
  dormant for 2 years.
• Maintain a Positive Balance: To avoid keeping an account with a zero balance for long periods.

Question 4

RBI’s new Fixed Deposits(FDs) rules:

Answer 4

The RBI also introduced new guidelines for Fixed Deposits(FDs) with Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) which will come into effect from January 1 2025.

Key changes include revised premature withdrawal rules.

For small deposits up to Rs 10,000, depositors can withdraw the entire amount within three months of depositing without interest.

For larger deposits, partial withdrawals of up to 50% of the principal amount or Rs 5 lakh (whichever is lower) are allowed within three months without interest.

Additionally, in cases of critical illness, depositors can withdraw the entire principal amount prematurely
without interest, regardless of the deposit term.

Further more, NBFCs will now notify depositors of maturity details at least two weeks before the maturity date, providing more timely updates.

Question 5

Types of Bank Accounts I

• Money Market Account
• Joint Account
• Student Account
• Basic Savings Bank Deposit
• Cash Credit Account
• Cash Management Account

Answer 5

Money Market Account (MMA): Account that offers higher interest rates in exchange for higher
balance requirements.

Joint Account: Account shared by two or more individuals, couples, family members, or business
partners. All account holders have equal rights to access and manage the funds.
* Shared Ownership, Signatures required to approve large transactions and Beneficiary Rights:

Student Account: An account designed for young people, under the age of 24, to manage their finances while studying.
* No Monthly Fees, Lower Minimum Balance Requirements, ATM Access and Limited Services
(overdraft limits or loans, which are usually offered to working professionals).

Basic Savings Bank Deposit Account (BSBDA): Offers essential banking services without high charges
and provides access to banking services to those who cannot afford regular account charges.
* No Minimum Balance, Free Automated Teller Machine (ATM) withdrawals, Limited free
transactions allowed and Limited Services.
* Ideal For: Low-income individuals or people who need only basic banking services.

Cash Credit Account(CCA): A short-term credit facility extended to businesses that provide businesses
with working capital.
* Overdraft Facility and Interest on Used Portion.
* Ideal For: Small and medium-sized businesses for managing day-to-day operations.

Cash Management Account (CMA): Used by businesses to manage their finances effectively and to optimize liquidity and control cash flow.
* Automated Transfers and Interest on Funds.
* Ideal For: Large businesses with fluctuating cash flow.

Question 6

Types of Bank Accounts II
- Non- Resident Ordinary Account
- Foreign Currency Non-Resident Account
- Recurring Deposit Account
- Current Account
- Savings Account
- Salary Account
- Fixed Deposit Account

Answer 6

Non Resident Indian (NRI) Accounts:
- Non-Resident Ordinary (NRO) Account
* Rupee (Re) Account: Allows NRIs to manage income earned in India subject to taxes in India.
* Convertibility: Funds can be repatriated after paying applicable taxes.
Non-Resident External (NRE) Account
* Repatriable Funds: Both principal and interest can be repatriated without any restrictions and
are not taxed in India.
* Foreign Earnings: Only foreign earnings can be deposited.

• Foreign Currency Non-Resident (FCNR) Account
• Foreign Currency: Maintained in foreign currency (USD, GBP, EUR, etc.) and are not taxed in India
• Repatriable Funds: Both principal and interest are fully repatriable.
  Ideal For: Non-resident Indians managing earnings from abroad or India.

Recurring Deposit Account (RD): To invest a fixed amount regularly and earn interest.
* Monthly deposit for fixed tenure, Interest rate similar to FDs and Premature withdrawal penalties.
* Ideal For: Individuals with a regular income.
vi.An account that stores shares, bonds, and securities in electronic form for easy trading.
* Key Features: Electronic storage of securities, Linkage to trading accounts and Monthly
maintenance charges
* Ideal For: Investors in the stock market.
* In India, depository institutions like National Securities Depository Limited (NSDL) and Central
Depository Services Limited (CDSL) oversee these accounts, necessary for stock market trading.

Current Account: Designed for businesses, traders, and entrepreneurs requiring frequent transactions.
* Overdraft facility (account holders withdraw more money than they have in their account), No
interest earned, Free daily transactions and High minimum balance requirement.
* Ideal For: Businesses and professionals handling high transaction volumes.

Savings Account: A standard deposit account aimed at individuals who want to save money while earning
interest on deposits.
* Interest earnings (3% to 7% annually),Limited transactions per month and Zero-balance
accounts available,auto sweep facilities, debit cards, bill payments, and cross-product benefits
like discounts on demat accounts.
* Types: Regular Savings Accounts, Children’s Savings Accounts, Senior Citizens’ Savings Accounts,
Women’s Savings Accounts, Institutional and Family Savings Accounts.
* Ideal For: Individuals, students, homemakers, and salary earners.

Salary Account:A type of savings account created to receive monthly salaries.
* No minimum balance requirement, Higher transaction limits and Additional benefits like loan offers.
* Ideal For: Salaried Employees.

Fixed Deposit Account (FD): To invest a lump sum amount for a fixed tenure and earn interest.
* Fixed interest rates (5% to 7.5%), Penalty on premature withdrawal and Safe investment with
guaranteed returns
* Ideal For: Individuals looking for secure investments