1. What is a Dormant Wallet?

A. PPI Wallet (Paytm, PhonePe, Amazon Pay etc):
As per RBI Master Directions on PPIs -
PPIs with no financial transaction for a consecutive period of 1 year shall be made inactive by PPI issuer after sending a notice to holder. These PPIs shall be reported to RBI separately.

B. Bank Account Linked Wallet:
Savings account becomes inoperative after 2 years without customer-induced transaction under RBI instructions of 1 Jan 2024. Balance unclaimed for 10 years moves to RBI's DEAF (Depositor Education and Awareness Fund) but remains claimable anytime.

C. New 2026 Draft PPI Guidelines (Major Change):
RBI draft proposes:

PPIs will be deactivated after 1 year of inactivity and closed after an additional year if not reactivated, with remaining balances transferred back to source account.
A transit PPI with no financial transaction for 1 year will be classified as inactive. Issuer needs to notify holder via SMS/email 45 days prior to expiry/inactive.

Purpose: There are large number of inactive wallets with no money. By enforcing this rule, RBI is weeding out those numbers and to reduce dormant balances where users may lose track

2. Mandatory Treatment - What Issuer MUST Do

1. No Forfeiture:
In case PPI holder approaches issuer for refund after expiry date, same shall be paid to holder in bank account. User will NOT lose money for KYC non-compliance - RBI Deputy Governor assurance

2. No Charges:
There are no charges for activation of inoperative accounts as per RBI guidelines. Unclaimed deposits if account remains inoperative for 10 years transferred to DEAF

3. Notice Requirement:
Issuer must send 45-day notice before marking inactive / expiry via SMS/email. PPIs with no transaction for 1 year made inactive after notice

4. Refund Path:

• Inactive wallet balance remains redeemable
• On closure request, refund to bank account / source account within reasonable time - failure = deficiency under Ombudsman
• Failed transactions must be credited back to PPI immediately

5. Reporting:
Issuer must report inactive PPIs to RBI separately and keep them in separate ledger.

3. Risk Controls for Dormant Wallets

Why RBI is strict - Dormant wallets = Mule accounts.

RBI found in Paytm Payments Bank case: About 35 crore e-wallets, of this about 31 crore are dormant while only 4 crore operative. Unusually high number of dormant accounts prone to have been used as mule accounts. Major irregularities in KYC - This led to ban on Paytm Bank.

Controls:

• KYC Re-verification: For re-activating dormant account, fresh KYC including Video-KYC mandatory
• Debit Freeze: No debit allowed after inactive tag, only credit/refund to source
• Zero Liability Protection: Same as bank - If unauthorized transaction from PPI, customer liability ZERO in case of contributory fraud/negligence of PPI issuer irrespective of reporting time. If third party breach and reported within 3 days, zero liability
• UDGAM Portal: RBI's centralized search for unclaimed deposits - Supreme Court noted 44 lakh searches.

4. Case Laws

1. Supreme Court on Unclaimed Deposits Policy - 2024-25
Supreme Court Seeks Comprehensive Policy on Unclaimed Deposits as RBI Reports 44 Lakh UDGAM Searches. Directed Central Govt to file detailed affidavit outlining comprehensive policy to help legal heirs identify and claim dormant assets. Court observed Rs. 67,000+ Cr lies in DEAF.
Principle: Dormant money never belongs to Bank/Wallet - it is held in trust. Even after transfer to DEAF, holder/legal heir can claim anytime.

2. Privy Council 1860 + SC on Escheat - Bona Vacantia Doctrine
The principle of bona vacantia or escheat was declared part of law in India by Privy Council as early as 1860. General law having universal application is that private ownership not existing, State must be owner as ultimate Lord. But Indian framework rejects automatic escheat - balance remains claimable, unlike US where after 3-5 years property goes to State.

3. Paytm Payments Bank Liable - Delhi Consumer Commission South-II - 2024
Commission held Paytm Payments Bank deficient - amount debited from Paytm Wallet for insurance payment of Rs. 40,466 but insurer did not receive. Ordered refund with interest. Held that wallet holder approaches issuer for refund after expiry, same shall be paid.
Shows dormant treatment failure = deficiency.

4. RBI Ombudsman Rule for PPI Closure
If System Participant has not transferred/refused to transfer/failed to transfer PPI's balance to consumer's own bank account or back to source during closure, expiry, within reasonable time - consumer can file complaint under RB-IOS. This is treated as deficiency.

5. Inoperative Account - No Charges - RBI Master Circular
Accounts becoming inoperative - bank must warn after 1 year, keep crediting interest, charge no minimum-balance penalty and reactivate free on fresh KYC at any branch. Balances unclaimed for 10 years move to DEA Fund but remain claimable

5. Practical Checklist for Your Wallet Company

If you are a PPI issuer:

1. Day 320 of inactivity: Send SMS/Email Notice 1
2. Day 365: Mark Inactive, disable debit, report to RBI
3. Day 365-730: Allow reactivation via Video KYC, no fee
4. Day 730: If still inactive, close PPI, transfer balance to source bank account / escrow. If source not traceable, keep in Sundry Creditors - never recognize as income
5. Never levy Dormant Charges - RBI prohibits
6. After 10 years: Transfer to DEAF if bank account, but for PPI wallet you must have refunded to source within 2 years itself

Illegal Practice = Unfair Trade Practice under Consumer Protection Act 2019 Section 2(47) + RBI Penalty + License Cancellation as in Paytm case.