23 Apr Unclaimed Shares and Other Forgotten Wealth
Harnessing forgotten wealth has become a huge problem problem statement for the society and there are no easy solutions.
Every week we receive at least five calls inquiring about shares that have slipped to IEPF. We try to help people as much as we can. Not just unclaimed shares or shares that have slipped into IEPF. The amount of wealth out there is staggering. One can easily imagine the amount of wealth that has gone unclaimed just by googling. It is truly mind BOGGLING. A few numbers to flabbergast yourself.
As of June 2018, unclaimed insurance alone was Rs.15,167 crores. On its own, it will look huge. But compared with the fact that just in the year 2012 – 2013 total unclaimed insurance was only Rs.4,865 crores in the whole of the insurance industry. While it was Rs.10,509 crores in LIC alone IN 2018. Unclaimed insurance over 25 years gets transferred to The Senior Citizens Welfare Fund and if the money remains unclaimed for over 25 years from the date of transfer, the SCWF fund will transfer the money to the Government.
One major reason why insurance due has remained unclaimed is because the nominee is not aware of the policy. Change of address is another prominent reason. Do you think any of your near and dear ones who expired has had an insurance policy? If yes, it might pay to pay a visit (pun unintended) to the insurer. Compared to even shares and debentures or defunct bank accounts the process is fairly opaque. If you don’t know the share folio number or even company, we can find the shares. If you don’t know the bank account number it can be traced. But, if you don’t know the policy number, there is no way you can find the details of the policy in question. Insurance industry has to evolve transparent process and visible delinquent policies database.
Unclaimed Bank Deposits
Insurance industry is never lonely when it comes to unclaimed wealth. The banking sector beats the insurance sector
hands down. According to RBI, as of 2019, the unclaimed bank deposits were worth Rs.18,000 crores. Just a year before, it was only Rs.14,307 crores. Be very sure. Just like insurance, the bank deposit is classified as unclaimed if they are not operated for 10 years or more. In 2015 RBI wanted the Banks to trace the unclaimed account holders and repay the money. RBI said, “Keeping in view public interest, it has been decided that banks should… play a more pro-active role in finding the whereabouts of the account holders of unclaimed deposits and inoperative accounts”.
Five years and another Rs.10,000 crores later things have not improved. Unclaimed bank deposits are only galloping. There is a problem with respect to unclaimed deposits though. Unclaimed deposits are very large in number and the average deposit was only Rs.3000 per bank account and there are about 60 million accounts. Ten years of dormancy leads to the deposits getting transferred to the Depositors Education and Awareness Fund (DEAF) maintained by the Reserve Bank of India. This money is getting invested and the balance in the account may be approaching Rs.30,000 crores. One good factor is the unclaimed deposits indeed gain interest.
In all fairness to banks, unlike insurance, are mandated to publish the name of the account holder and the last known address on their website. Here again, there is an element of opaqueness. They have to distinguish between unclaimed bank fixed deposits and other small accounts. If the fixed deposits details are available separately many will be able to claim it. Nevertheless, if you think you or your relatives have some fixed deposits, you should search the websites of possible banks. It may be worth the effort.
Unclaimed Provident Fund
Another big-ticket arena is Provident Fund. The total in-operative Provident Fund account was in excess of Rs.27,000 crores as of June 2015. With the proliferation of migrant labour, it is anybody’s guess as to how much it would be today. The money is with Provident Fund authority and is gaining interest. One has to reach out to the Provident Fund authorities. There is a fairly decent helpline too. Aside from this, there are a lot of other small financial instruments like post office balances, Indira Vikar Patra etc. In other words, the total of all these will be in excess of Rs.1 lac crores in less than two years. This does not include the mother of all unclaimed wealth – stock exchange related wealth.
There is a huge amount of money lying in the form of unclaimed dividend, debentures, public deposits, mutual funds and shares. There is a long history of unclaimed wealth from listed companies. It pays to understand how it happened. Every one of the below events is a separate blog topic and we will eventually write separate blogs on them.
The Late 1970s
Entry of Reliance in the stock market in 1977 was a major event in encouraging commoners to get interested in stocks. The issue was oversubscribed seven times. Can you believe the market capitalization of Reliance was Rs.10 crores? Today the market cap is approaching US$ 200 billion. Let this sink in. Rs.10 crores in 1977 has become Rupees Thirteen Lac crores today. Rs.1,000/- invested in 1977 has already become over Rs.25 lacs today. This does not include the rights issues that have happened in 1991 and 2020. If 1% of the shares of Reliance remain unclaimed, the value of unclaimed shares will be Rs.13,000 crores. Already Rs.7,000 crores worth of shares of Reliance Industries has remained unclaimed and have been transferred to Investors Education and Protection Fund (IEPF).
The Harshad Mehta Era
Stock Exchange was buoyant in late 1985 and beyond till 1992 when the Harshad Mehta Scam broke. Bombay Sensex sored from around 2500 points to 6,000 points and beyond. Buzz was the big bull would take the Sensex to 10,000 points. And then the bubble burst.
Lot of people in their late 30s and late 40s who had disposable income invested into the stock market like never before, thanks to Dhirubhai Ambani earlier and Harshad Mehta later on. People with disposable income stayed invested in shares. During the Harshad Mehta period, a few stocks were quite famous – Reliance, ITC, Asian Paints, Larsen and Toubro, ACC and Tata Steel. Of these, Reliance, ITC, Asian Paints and Larsen and Toubro went on to become top companies in terms of increasing shareholders wealth.
No wonder, these companies have the highest level of share delinquencies in the country. Asian Paints has made similar returns to shareholders. In the case of Asian Paints, Rs.2,300 invested in 1982 has become over Rs.56 lacs today. These factors contributed to the quantum of wealth while the delinquencies will continue to remain between 1 and 2% of the Market Cap.
Just when the time high energy activity was happening in stock markets, India started riding on the software boom. Many youngsters, then, from 1985 to 1995 were working in Indian IT companies with a decent salary. Their disposable income got channelled to the stock market and then the migrated to, where else, the United States of America. We personally know of at least Rs.100 crores worth of Indian stock that are lying unclaimed. You will have a separate blog entry on this topic in these pages.
a. A lot of people, middle-class and upper-middle-class in their late 30s and 40s invested in shares from 1980 onwards. The youngest among them would be 75 years of age and a few of them may have crossed centenary. And watch more this generation did not trust technology and quite a few of them were quite secretive about their financial dealings.
b. Likewise migrated investors lost track of the shares. The last thing a migrant youth with pumping adrenaline and a lot of self-doubts cared about was to worry about his investment. Nobody is tech savvy more than them. But unfortunately, depository participation and dematerialization of share were not in vogue. The complications arising out of them are lost share certificates (need to claim duplicate certificate), change of address, status change (resident to non-resident, Indian citizen to foreign citizen), signature mismatch due to passage of time, death of an individual resulting in succession and probate issues and transmission of shares.
There is a further complication to this saga if, dividends have remained unclaimed in seven years on a particular share or mutual fund or debentures, and public deposits in corporates have not been claimed after the maturity date, there will be transferred to Investors Education Protection Fund (IEPF).
The idea of this blog series is to demystify the operation of re-claiming unclaimed wealth in general and unclaimed shares in particular. To summarize this first point lot of shares were bought in the late 70s, 80s and early part of 90s which have become defunct now. As we progress let us find out how to reclaim your unclaimed wealth.