The markets regulator Securities and Exchange Board of India (SEBI) wants to leverage the a government-backed digital document storage platform DigiLocker to address the vast amount of unclaimed assets in the securities market such as mutual fund folios and stocks left with fund houses and depositories after the death of an investor.
The proposal, notified by SEBI in a draft circular on Wednesday, includes automatic updates to a DigiLocker user’s account status upon their demise.
DigiLocker currently integrates the Aadhaar, PAN, driving licence and a host of other government-issued documents on a single, digital app and can be accessed on the phone. In December 2020, the government notified integration of bank accounts, insurance policies and new pension schemes on the DigiLocker.
In the draft circular, the stock markets watchdog has proposed that fund houses and depositories provide demat and mutual fund holding statements on the DigiLocker. The regulator also wants KYC registration agencies to share information on an investor's demise with the DigiLocker.
The move comes on the heels of the RBI earlier in the month asking banks to streamline and speed up the refund of unclaimed deposits and the huge amount of money stuck in inoperative bank accounts.
According to the government, the amount of money stuck in banks is over Rs 1 trillion as of December 2023, of which over Rs 42,200 crore are in unclaimed deposits alone.
The finance ministry told Parliamentarians last December that the amount of unclaimed deposits in banks jumped 28 percent to Rs 42,270 crore as of March 2023 as against Rs 32,934 crore in March 2022, while a stupendous Rs 1 trillion, is lying with banks under the head inoperative accounts.
Of the total unclaimed deposits of Rs 42,270 crore, only Rs 6,087 crore were with private banks, and public sector banks accounted for the bulk at Rs 36,185 crore, the law makers were informed.
To enable this refund process, the government last week tabled a bill to amend the banking laws, including that of the RBI Act, which mandates the unclaimed deposits and other money stuck n market to be transferred to the investor education and protection fund of the corporate affairs ministry and the money will be refunded by under the provisions of the Companies Act, 2013.
While the Lok Sabha passed the bill, it is pending for the upper house approval.
However, the SEBI's draft circular does not quantify how much is the money stuck in various market instruments.
The aim is to streamline the processes and reduce unclaimed assets in the securities market and its proposals include automatic updates to a DigiLocker user’s account status upon their demise, based on data from the Registrar General of India or KYC registration agencies.
According to the draft circular, by integrating demat and mutual fund holding statements, and information on investor deaths, SEBI aims to streamline the transfer of assets to rightful heirs. The move will consolidate an individual’s financial holdings within her DigiLocker account and notify the nominee/s on the passing away of the accountholder.
The objective is to minimise the accumulation of unclaimed assets in the securities market by transferring the assets to the rightful heirs. If implemented, these measures can streamline asset management, reduce inheritance disputes, and make claiming unclaimed assets easier for investors and their nominees and also to eliminate paperwork.
SEBI has sought public comments on the draft circular by December 31.
"The proposed inclusion of mutual funds and demat holding statements within the DigiLocker can make available the entire financial holdings of an individual in a single DigiLocker account," the draft circular said.
In October 2023, Sebi had initiated a centralised process for reporting the death of an investor through the KYC registration agencies. The proposed integration of these documents with the DigiLocker aims to further smoothen the process.
Currently, DigiLocker users have the option to nominate individuals for their accounts. SEBI now wants KYC registration agencies to also share information about an investor's death with the DigiLocker.
“At SEBI's instance, the Digital India Corporation has created a mechanism where the DigiLocker system automatically notifies the DigiLocker Nominee(s) about the demise of the user through an SMS and e-mail," SEBI's draft circular stated.