Government cannot transfer ‘Dormant’ bank deposits without legal amendment, Experts say

KATHMANDU: The Nepal government’s plan to mobilize dormant bank deposits into the state treasury has triggered legal and policy concerns, with experts stating that such a move cannot be implemented without amending existing banking laws.

The issue emerged after the Council of Ministers included a provision in its recently unveiled 100-point governance reform agenda to transfer funds from bank accounts that have remained inactive for 10 years or more into the state treasury. The government has set a 90-day deadline to implement the measure.

However, under the current legal framework, the government is not authorized to directly utilize such funds. The existing provisions under banking laws require a different mechanism, overseen by the Nepal Rastra Bank.

Existing Legal Framework

As per prevailing laws, funds from accounts that remain inactive for 20 years must be transferred to the central bank’s Banking Development Fund, not the government treasury.

Dormant accounts are defined as:

Savings accounts with no transactions for 3 years
Current accounts with no transactions for over 1 year

Banks are required to publish public notices after 5 years of inactivity, urging account holders to claim their funds. If no claims are made, details must be reported to Nepal Rastra Bank after 10 years, and only after 20 years can the funds be transferred to the designated fund.

Importantly, even after such transfers, account holders or rightful claimants retain the legal right to reclaim their money.

Legal Amendment Required

Officials emphasize that to reduce the threshold from 20 years to 10 years—and to redirect funds from the Banking Development Fund to the state treasury—the government must amend the Bank and Financial Institutions Act (BAFIA).

The amendment process would require initiation from Nepal Rastra Bank, followed by approvals from the Ministry of Finance and Ministry of Law, before being tabled in Parliament. Given this process, stakeholders say implementing the policy within 90 days appears highly unlikely.

Scale of Dormant Funds

Authorities estimate that more than Rs 1.80 billion (180 crore) is currently held in dormant accounts across banks and financial institutions.

According to Nepal Rastra Bank, around Rs 1.60 billion is currently accumulated in the Banking Development Fund. However, only about Rs 70 million of this amount originates specifically from long-term dormant accounts.

Industry Perspective

Banking sector leaders acknowledge that idle funds could be utilized productively but stress the need to protect depositor rights.

Santosh Koirala, Chief Executive Officer of Machhapuchhre Bank, stated that while mobilizing unused funds is not inherently problematic, mechanisms must ensure that customers can reclaim their deposits at any time.

“Even if such funds are utilized, the system must guarantee repayment when customers come forward to claim them, potentially with a nominal interest,” he said.

Global Practices

Internationally, similar frameworks exist with safeguards for depositors:

In India, dormant funds after 10 years are transferred to a central bank-managed Depositor Education and Awareness Fund, with full refund rights including interest.

In United Kingdom, unclaimed funds are managed through a government-backed Reclaim Fund.
In the United States, unclaimed assets are handled at the state level, with citizens retaining indefinite rights to reclaim their property.

Implementation Challenge

While the government’s intent aligns with improving fiscal resource mobilization, legal experts and regulators caution that without proper legislative backing and depositor protection mechanisms, the proposal cannot be executed within the stated timeframe.