Shouldn’t Regulators Be Accountable for Returning Rs82,000 Crore of Unclaimed Money To Savers?

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.

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.

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?