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Re: Fwd: RBI SHOULD BE CUSTODIAN OF UNCLAIMED FUNDS IN BANKS

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  • G. C. Mathur
    Dear Sona Kumar, thank you for referring to me the article of Mr. M. S. Warrier in in moneylife. It is a good articulate view on unclaimed balances lying in
    Message 1 of 6 , Jun 28, 2013
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      Dear Sona Kumar, thank you for referring to me the article of Mr. M. S. Warrier in in moneylife. It is a good articulate view on unclaimed balances lying in the banking and equity markets. There are other markets as well where government and corporates too become indirect beneficiaries of accumulating unclaimed deposits. For example, insurance sector, provident fund commissioner, income tax department, sales tax departments in states, national pharmaceutical pricing authority, et al.

      I have, as I mentioned in my earlier message, drafted a Bill titled "Draft Consumer Welfare Fund Bill 2010" which has been hanging fire with the Ministry of Consumer Affairs. I have also submitted the same to the Committees on Petitions of the Rajya Sabha and Lok Sabha besides some MPs, PM and Lok Sabha Speker to which there is no response.

      Now is the time for me to file a case before the Supreme Court for adjudication on the issue that such unclaimed and un-refunded amounts with the institutions mentioned are the results of unfulfilled or incomplete or ill-motivated transactional obligations of the providers of goods and services in the public and private sector. The regulators in these sectors have no business to appropriate such funds.

      As Mr. M. G. Warrior has said in his article and we have often been emphasising, the Centre's initiative to set up a "depositor education and awareness fund" using part of the money lying unclaimed with banks may sound laudable but is full of suspicious in view of the existence of the full fledged Ministry of Consumer Affairs that manages the Consumer Welfare Fund provided under the Consumer Protection Act, 1986, besides having a mechanism to take decisions on consumer issues like the one in discussion here. The CPA 1986 provides for Consumer Protection Councils at the Centres and the States where such consumer issues have got to be taken up and resolved. Therefore, as Mr. Warrior says, the proposal to appropriate idle funds irrespective of their origin or ownership, is unethical. The word unethical is used consciously, as government is omnipotent to make anything legal. The funding for this purpose should have come from the profit made by banks, or still better from the surplus profits/income periodically transferred to government from the financial sector as a part of government social responsibility.

      PLEASE KEEP IN MIND THAT THE RELATIONSHIP BETWEEN THE PROVIDERS OF GOODS AND SERVICES WHETHER IN PRIVATE SECTOR OR PUBLIC SECTOR IS THAT OF CONTRACTUAL TRANSACTION NATURE AS A RESULT OF WHICH THE UNCLAIMED AND UN-REFUNDED MONEY MUST BE RETURNED TO CONSUMERS IN THE MANNER S.C. MANDATED IN EXCISE MATTER THAT CREATED CONSUMER WELFARE FUND.

      I would like to have as much of information on the issue as possible from any quarters affected or not affected. Please send the same to me at my email ID: gcmbinty@... or call me at landline Nr 011-26136232 or Mobile Nr 0-9910338312.



      --- In karmayog@yahoogroups.com, "karmayog.org" <info@...> wrote:
      >
      > From: sona kumar
      >
      > ----- Forwarded Message -----
      > From: MG Warrier mgwarrier_rbi@...
      >
      >
      > Sona
      > Please consider forwarding the following article (Published @... sometime back) to Mathur.
      > Thanks and regards
      >
      >
      > M G Warrier (M-134)
      >
      >
      > Do we need a regulator for ‘unclaimed’ deposits?
      > M G WARRIER
      >
      >
      > Besides real miscreants who collect deposits from public with the ulterior motive of cheating their clientele, government and corporates too become indirect beneficiaries of accumulating unclaimed deposits. This is because money not paid back to the original depositors/savers becomes surplus income or profit for them in due course. GOI and RBI may look at this issue from a social security angle, lest people lose faith in government-sponsored savings schemes and social security measures and even in the financial sector regulator.
      >
      > The media reports about the Apex court proceedings in ‘ Sahara bonds’ case on April 22, 2013 are extremely disturbing. The helplessness of SEBI and the court to ensure judicious handling of a huge amount of Rs24, 000 crore collected by two ‘corporations’ (Sahara India Real Estate Corporation and Sahara Housing Investment Corporation) is pathetic. The Sahara companies’ reported claim that they had ‘repaid investors who wanted their money’ gives an impression that once an organisation collects money, even if it does not use the money for the purpose for which it was collected, the money will be refunded only if the depositor proves that ‘he wants the money’! When the ‘Bench’ laments about manipulating courts, every authority responsible for the sad state of affairs should take cognizance and start acting. One is wondering whether Kapil Sibal was right when he said in India any loss of public funds is ‘zero’ loss. During the initial days of 2G scam, the Hon’ble Minister had said that the losses estimated by CAG at thousands of crores were equal to zero from the GOI perspective!
      >
      > Here we look at the issue from a different angle. Of late, huge amounts of money being collected from public in various forms is not being used for the purpose for which it is originally collected. This include taxes, bank deposits and investments made by small and big savers in various instruments and with different organisations. Such funds get accumulated as bank deposits, balances in the treasury and accumulations in the corpus of provident fund or insurance and so on. With growth of huge corporates in the private sector and their counterparts in the public sector cash gets accumulated with them also without getting productively deployed. There are several watchdogs in the form of auditors and supervisory and regulatory bodies whose job is to ensure proper accounting and right end-use of these funds. But, what we observe is, even when misappropriations or straight daylight looting of funds are brought to light, instead of proper investigation leading to recovery of loss or punishment of the guilty, a blame game between or amongst certain vested interests gets started in the legislatures and the media and the real issues get submerged.
      >
      > According to one report over Rs2, 400 crore were lying in inoperative bank accounts, last year. This would have further increased by now. There was not much difference in position across public sector-private sector banks in the continued rise in number of such accounts and accumulation of balances. It is intriguing that even in a well-regulated sector like banking, a system which can take care of the need to pay back the ‘unclaimed’ balance when the account becomes ‘inoperative’ from a bank’s perspective is yet to be put in place.
      >
      > Sometime back, it was reported that Centre proposed to set up a â€Å"depositor education and awareness fund†using part of the money lying unclaimed with banks. Though any move to create awareness is laudable, the sourcing of funds from unclaimed deposits for the purpose, the proposal to appropriate idle funds irrespective of their origin or ownership, is unethical. The word unethical is used consciously, as government is omnipotent to make anything ‘legal’. The funding for this purpose should have come from the profit made by banks, or still better from the surplus profits/income periodically transferred to government from the financial sector.
      >
      > Such practices exist outside banking sector also. Unclaimed dividends and deposits of companies get credited to the Investor Education and Research Fund(IERF) has to depend on paltry budgetary allocations for its existence which again gets ploughed back to government as advertisement charges paid to government-owned electronic media.
      >
      > In accumulating ‘unclaimed money’ banks are in the elite company of LIC, Employees Provident Fund Organisation and Department of Posts, besides several other organisations in the public and private sectors, in holding on to money payable to the depositors/beneficiaries after the payments have become due on maturity of deposits, death of depositors and so on.
      >
      > Government should guide all organisations sitting on unclaimed deposits or maturity proceeds of other financial instruments like insurance policies to exhaust all reasonable options available to track the depositors or their heirs whose money would be transferred to unclaimed accounts before such transfer every year. From notice boards at bank branches to electronic media could be used to draw the depositors’/beneficiaries’ attention. If banks’ secrecy provisions stand in the way, necessary changes should be thought of.
      >
      > It would be also worthwhile to enquire whether the organisations including banks were periodically updating the database on their folios. Last year the Employees Provident Fund Organization proposed not to pay interest on inoperative accounts in EPF accounts consequent to a proposal to freeze about 3 crore accounts (amount involved was about Rs10, 000 crores) in which there was no fresh contribution during the previous three years or more. Such moves send out disturbing signals about safety of depositors’ funds with public sector organizations.
      >
      > Ironically, the position will only aggravate with compulsory opening of more accounts to promote financial inclusion, insistence on ADHAAR-enabled accounts even before ADHAAR is yet to reach and crediting of Government Scheme benefits through bank accounts. GOI and RBI may look at the issue from a social security angle, lest people lose faith in government-sponsored savings schemes and social security measures and even in the financial sector regulator.
      >
      > Besides real miscreants who collect deposits from public with the ulterior motive of cheating their ‘clientele’, government and corporates too become indirect beneficiaries of accumulating ‘unclaimed deposits’. This is because money not paid back to the original depositors/savers becomes surplus income or profit for them in due course.
      >
      > The huge accumulations under ‘unclaimed’ category points to the fact that the existing machineries for handling grievances relating to payment of dues and claims are not very effective.
      >
      > In the absence of any power to fix liabilities and give directions, the Ombudsmen or similar arrangements within organisations remain helpless spectators when complaints about non-payment of money from depositors/savers reach them.
      >
      > It is in the above context that a statutory body to oversee accounting of the so called unclaimed deposits/payments becomes relevant. Such a body should be made responsible to:
      >
      > a.. Track unclaimed deposits with organisations,
      > b.. Monitor timely repayment of public funds collected, as in the case of Sahara Corporations,
      > c.. Audit accounts of maturity proceeds of policies, deposits, accumulated balances in provident/pension funds remaining undisbursed beyond a reasonable period,
      > d.. Receive and handle claims from public relating to such deposits/balances and
      > e.. Coordinate among various agencies and government departments for achieving these objectives.
      >
      > (M G Warrier is a freelancer based in Thiruvananthapuram)
      >
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