When we Indians are so proud of our information technology (IT) prowess and the many global tech giants headed by Indians, why isn’t cutting-edge technology being employed to refund money that rightfully belongs to savers and investors? The amount of money lying with the government, in the form of unclaimed deposits, interest, insurance, mutual fund investment, shares, dividend and provident fund dues, has been swelling rapidly every year.
Last week, industrialist Harsh Goenka put out a tweet suggesting that money lying in unclaimed accounts is now Rs82,025 crore and suggested that it should be used “to alleviate sufferings of those who are very adversely affected by the Covid phenomenon.” The actual amount may be significantly higher.
While the thought about utilisation of these funds is laudable, this money belongs to middle-class, tax-paying Indians. In a country where there is no social security whatsoever for the middle class, why should their money be confiscated instead of tracking rightful claimants?
In the past five years, every lender—whether a bank, finance company or the proliferation of loan apps—has obtained access to multiple streams of data (social media profiles, Google, UIDAI/Aadhaar , telecom users and other customer databases, legally and illegally) to find multiple intrusive ways to track their borrowers. They take pride in telling us that they have their ‘ways and means’ to ensure that defaulters don’t escape.
So why isn’t the same technology being used to refund unclaimed money by tracking claimants? Instead, the finance ministry and its financial regulators pool the money under investor education or awareness funds doing nothing of value. Not even the interest on these big pools of money is being used to find ways to track down savers, investors or their heirs and nominees.
It all began with the Investor Education and Protection Fund (IEPF), set up in 1999 through an amendment to the Companies Act. Companies were asked to transfer dividends, deposits and interest that remained unclaimed for seven years to a central pool. Until then, this money used to lie with companies and claims could be filed with them. Once the funds were transferred to IEPF, no claim could be made against it, in the early days. Those drafting the law forgot that litigation, succession processes and even probates in India are a slow, expensive and harrowing process that could go on for decades.
It needed concerted representations and litigation by claimants to get the government to change the rules to allow money to be claimed from IEPF in 2017 after the IEPF Authority was formed in 2016. The Authority now publishes the names of people whose money has been transferred to the Fund on IEPF’s website.
Click on the website and you are first warned that it is ‘unsecure’. This is enough to tell you how little effort has gone into making it accessible to claimants. Before you can proceed, there is a pop-up asking you not to get into the clutches of brokers, agents, or middlemen for refunds.
IEPF boasts that its process is “Simple, easy and FREE OF COST.” The reality, as every single user will tell you, is exactly the opposite. In fact, it is so tiresome that people are willing to pay as much as 50% of the due amounts to ‘middlemen’ to get their money back. A simple Google search shows several firms advertising their claims service and many do provide legitimate and reliable help.
The annual accretion to these funds needs to be seen as a national embarrassment. If, like the private sector, a bureaucrat or a regulator had his pay hike, post-retirement posting or pension, linked to the return of funds to legitimate claimants, we would have seen a rapid decline unclaimed funds. It would also help if the standing committee of parliament for finance, which is traditionally headed by an Opposition member, were to question regulators every quarter about their performance in refunding money and put out a public statement on this.
I was a member of IEPF for four years when it was established around 1999; then, it had only Rs400 crore after the initial corporate transfers. My submission that IEPF should track claimants was ignored.
In 2008, I argued that there is no room for fresh ‘unclaimed’ dividends’, given the stringent KYC (know-your-customer) and PAN (permanent account number) requirements for all investments. In 2012, I was invited as the only independent member on the ‘Committee on Financial Markets and Investors’ Protection’ set up under the Institute of Chartered Accountants of India (ICAI). I made the same demand in writing and also emailed secretary in the ministry of corporate affairs (MCA), Naved Masood. Not only were my suggestions ignored but I later realised that the sole purpose of the committee was to help the ministry set up the IEPF Authority in 2016. A partisan assessment of IEPF’s functioning prepared by the Indian Institute of Public Affairs was the typical fig leaf used to justify the decision.
Successive MCA secretaries did nothing to make it easier for investors to file claims. Mr Masood, however, has been rewarded with board positions on many capital market infrastructure institutions, like many retired IAS officers. With IEPF as a frontrunner and an example, similar funds were set up under the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and the rest goes to a government fund.
Juxtapose this against the fact that no regulator has shown the slightest concern for thousands of crores of rupees lost by savers to broker defaults, banks and shadow banking failures and write-off of bonds, equity and deposits in the past five years alone and the massive write-off of bad loans to large corporate defaulters running into several lakh crore rupees.
An article in The Economic Times (ET) in July 2021 says that all regulators put together, collectively hold over Rs82,000 crore or more that legitimately belongs to Indian savers. (Rs 82,000 crore lying in unclaimed bank a/cs, life insurance, mutual funds, PF: How to get your money back). It points out that the interest on this, even at 6%pa (per annum) would be nearly Rs5,000 crore. This is money enough to hire the best tech companies to track down genuine claimants and far more than what private lenders spend to track defaulters.
Here are some more details of this unclaimed money.
- The RBI’s Depositors’ Education and Awareness Fund (DEAF) had Rs39,264.25 crore at the end of March 2021, up from Rs33,114 crore on 31 March 2020 and a sharp rise from Rs18,381 crore at the end of March 2019. Moneylife has repeatedly written about the difficulty in having bank accounts unfrozen and made operative again. The constant accretion to DEAF, despite stringent KYC requirements, is testimony to the callousness of a system that makes it difficult for funds to be transferred to rightful claimants. In the case of death, each bank makes up its own rules to transfer funds (‘Zindagi ke baad bhi’: COVID and the Worries about Transmission and Succession); some even arm-twist heirs to park it in fixed deposits with the same banks. Apart from the red-tape involved in obtaining succession certificates, etc, some banks, in addition to succession certificates, demand two sureties from unrelated persons—which is a completely unreasonable demand.
- The Insurance Regulatory and Development Authority of India (IRDAI) had Rs15,167 crore at the end of March 2018. The regulator mandates that all insurers need to transfer all policy-holders’ money lying unclaimed for over 10 years to the Senior Citizens’ Welfare Fund (SCWF) of the government set up in 2015.
- Unclaimed deposits under small savings, public provident fund (PPF), employee provident fund (EPF), all post-office savings accounts, senior citizens’ savings scheme accounts, Indira Vikas Patra and Kisan Vikas Patras are also transferred to the SCWF.
- Of these, ET estimates that unclaimed amounts with Employee Provident Fund Organisation (EPFO) alone had Rs26,497 crore of unclaimed funds at the end of March 2019 transferred to SCWF. However, Zee Business reported another study which put the number at a whopping Rs58,000 crore at the end of June 2021. Although there is an online channel to make claims, it is very tedious for legal heirs to make a claim if there is no will or nomination. One estimate puts the unclaimed money with the PPF at Rs22,000 crore.
- According to ET, unclaimed mutual fund investments are estimated at Rs17,880 crore lying in inactive folios. Every mutual fund has strict KYC requirements, so a little effort by the regulator would be able to trace potential claimants who can be asked to submit the necessary documents to make a valid claim. Another large chunk of money may be lying with frozen demat accounts of the two depositories.
- The amount lying with the IEPF at MCA, started at Rs400 crore in 1999, was 10 times higher at Rs4,100 crore at the end of March 2020. This is apparently after settling 15,000 claims in two years – mainly due to the efforts of intermediaries.
Why Do Funds Remain Unclaimed?
The most common reason for funds remaining unclaimed is that people have died intestate and without informing their families about their investments, banks accounts, insurance policies, etc. Many don’t record nominees either. Since most insurance and deposit forms only ask for the name of a nominee without any address or telephone number, the nominees may not be aware of the investment. Often, money cannot be claimed for decades because of disputes between heirs and litigation that drags on for decades. In many cases, people are unable to withdraw funds because of issues with KYC documentation or other red tape.
RBI, the Securities and Exchange Board of India (SEBI) and IRDAI require all banks, mutual funds and insurers to display the names of those with unclaimed deposits on their website. This is a step forward but not enough, if legal heirs or claimants are unaware about the existence of investments. Regulators must use the vast resources at their disposal to collate the data, arrange it in a searchable manner (by geography or pin code, names, entity, etc) and submit claims online for scrutiny. In fact, private entities, such as Jeevantika Consultancy (www.jeevantika.com), have done what the government ought to have, by putting information about 1.5 million investors on their website and app that can be accessed free for IEPF claims. There is, however, a cost attached to the tedious process of filing the documents and follow-up involved in making a successful claim.
If a private consultant can do this, regulators with access to interest on savers’ funds can surely do a lot more. Only when there is empathy for the hassles faced in making claims will the government stir itself to scrap the requirement for a probate in just four jurisdictions across India or make the process of getting a succession or heirship certificate easier. If the government is quick to adopt technology to collect taxes (goods and services tax, income tax), track people (UIDAI) and to enable payments for the benefit of fintech companies, why can’t it use it to make life and post-death processes easier for people?
First published by Moneylife.
The article was originally published in The Leaflet.