Summary of this article
Inoperative and dormant accounts keep money safe but restricted.
Closed accounts are permanently shut, balance returned at closure.
RBI now allows easier KYC through branches, video, correspondents.
Over the years, it has been common for people to open several bank accounts. One may be linked to a job, another to a savings goal, or even to take advantage of offers. Over time, some accounts cease being used. Maybe the account holder moved to a new city, changed jobs, or simply forgot about it. When customer-driven transactions do not take place for a long period, banks classify the account differently.
Inoperative, Dormant, and Closed Accounts
An inoperative account is an account where no fund transfers, withdrawals, or deposits made by the customer have occurred over a period of two years. The banks do this to reduce the risk of misuse, but the funds are secure and earn interest.
A dormant account is often used as a broader term to describe long-inactive accounts. In practice, many banks use inactive and dormant accounts in the same way. The key point is that the account cannot be freely used until the customer updates their details and requests activation.
A closed account is different. Once an account is formally closed by the customer or the bank, it cannot be used again. Any balance left is then paid back to the account holder at the time of closure.
What Happens to Your Money
Even if your account becomes dormant or inactive, the money doesn't simply disappear. The bank still keeps it securely and charges interest normally. But you might not be able to withdraw or transfer it until the account is made active.
If an account is not used for a period of 10 years, then its balance is shifted to the Depositor Education and Awareness (DEA) Fund maintained by the Reserve Bank of India (RBI). The positive part is that this amount is still available to the account holder or his legal heirs with proper documents at some point in the future.
RBI Rules for Reactivation
In June 2025, RBI launched new measures to simplify the process of reactivating inoperative and dormant accounts. The customers can now revise their Know Your Customer (KYC) information in any branch, not necessarily their home branch. It removes a significant obstacle for individuals who might have shifted cities.
RBI has also allowed video-based KYC (V-CIP, or Video-Based Customer Identification Process), which enables customers to complete the process over a secure video call with a bank representative.
Moreover, banks now have the option of using business Correspondents (BCs) to facilitate customers' KYC updation in rural or remote locations. Such account holders no longer have to go long distances to fill out forms.
Overall, these steps are intended to simplify individuals' access to money and lower unclaimed deposits. These measures are especially helpful for senior citizens, persons with mobility problems, or those who are staying outside the country.
Why is it Important
Neglecting past accounts does not sound like a bad thing, but it can cause chaos down the line. For instance, if an account goes dormant without a nominee, your loved ones may face significant delay in receiving the funds. It also increases chances of money staying idle or being completely forgotten without your knowledge.
It is a good practice to keep accounts active with a transaction or so each year. A small withdrawal or transfer will suffice to keep the account open.
What You Should Do
If you have accounts, you no longer use, decide whether to keep them active or close them. If you want to keep them, make sure to make small transactions and update your KYC details when needed. If you do not need the account, close it formally and transfer the balance to your main account.
If your account has already become dormant or inoperative, do not worry. With RBI's new rules, you can now reactivate it through any branch, via video call, or with the help of a business correspondent.
