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Posted at: Feb 20, 2017, 12:26 AM; last updated: Feb 20, 2017, 12:26 AM (IST)PERSONAL FINANCE

Opening bank account? Appoint a nominee

Opening bank account? Appoint a nominee

Anand Aras

It is important to exercise the “nomination” facility while opening a savings bank account, a deposit account or a safe deposit locker. The lack of a nominee can have adverse implications for the account in the event of the death of the account holder(s).

What is a nomination?

Nomination is a facility that allows deposit account holder(s) (individual or sole proprietor) or safe deposit locker holder(s) to nominate an individual who can claim the proceeds of the account(s) or contents of the locker following the death of the original depositor(s) or locker holder(s).

The nomination facility is covered by the Banking Regulation Act, 1949. It states, “Where a deposit is held by a banking company to the credit of one or more persons, the depositor or, as the case may be, all depositors together, may nominate, in the prescribed form, one person to whom in the event of the death of the sole depositor or the death of all depositors, the amount of deposit may be returned by the banking company.”

The key benefit of nomination is that in the event of death of the account holder(s), the bank can release the balance or proceeds to the nominee(s) without insisting on a Succession Certificate or Letter of Administration. The nominee holds the monies in the capacity of a trustee on behalf of the legal heirs of the deceased account holder(s) and makes it easier for the bank to make payment(s) to the nominee.

Who can avail the facility

The nomination facility can be availed of by the following categories of customers:

  • Bank account holders having deposit accounts in their individual names or jointly in the names of two or more individuals.
  • A sole proprietor for a sole proprietorship account with the bank.
  • In case of a deposit account in the name of a minor, nomination shall be made by a person lawfully entitled to act on behalf of the minor in respect of a deposit account.
  • Safe deposit locker holder(s) can appoint nominee(s) to their safe deposit locker(s).
It may be noted that a nomination can be made only in respect of a deposit account held in individual capacity of the depositor and not in any representative capacity, such as holder of an office such as director of a company, secretary of an association, partner of a firm, or karta of an HUF.

The ‘Code of Bank’s Commitment to Customers’ has specific provisions for accounts with a survivor/nominee clause. Para 8.8.1 of the code stipulates that in case of a deposit account of a deceased depositor, where the depositor had utilised the nomination facility or opened the account with the survivorship clause, the bank will pay the balance amount in the account to the survivor(s)/ nominee, provided:

(i) The identity of the survivor(s)/nominee and the fact of the death of account holder(s) are established through appropriate documentary evidence.

(ii) There is no order from a competent court restraining the bank from making the payment from the account of the deceased.

Further, Para 8.8.2 notes that where the deceased depositor did not make any nomination or for the accounts other than those styled as “either or survivor” (such as single or jointly operated accounts), banks will adopt a simple procedure to repay the legal heir(s) without causing any inconvenience.

Depending on their risk management policy, banks fix a minimum threshold limit up to which claims are settled with only a letter of indemnity. As per Para 8.8.3 of the code, banks are committed to settle claims and release payments to survivor(s) or nominee within a period not exceeding 15 days from the date of receipt of the claim, subject to the production of proof of death of the depositor(s) and proof of identity of the claimant(s).

Now, let us examine two interesting cases related to nomination.

(i) One complainant said his father had opened a savings account with the auto sweep facility in which he was the registered nominee. After his father’s death, he approached the bank to settle the death claim. However, the bank informed the complainant that his father had opted for the sweep-out facility on his savings account wherein the excess amount was transferred to fixed deposits. Since an FD is an independent contract between the bank and customer, the nominee of a savings account cannot be considered as the nominee for fixed deposits. The complainant had to fulfil certain formalities to settle claims of accounts where he was not a nominee.

(ii)   A banking ombudsman’s office received a complaint from a woman who alleged that the bank insisted on a Succession Certificate for withdrawal of a fixed deposit amount in the name of her deceased husband, even though she was the nominee as per bank records. The bank said it had sought a Succession Certificate based on the interim judgment of a court, as there was a dispute between the legal heirs. After scrutinising the judgment, the banking ombudsman observed that the bank could insist on a Succession Certificate only if it was necessary to withdraw the deposits as per banking rules. Further, the court order was not intended to affect the procedural formalities of the bank in releasing the FDs. Since there was no order from the competent court restraining the bank from making payment from the account of the deceased, the Banking Ombudsman directed the bank to pay the nominee in terms (vide instructions in RBI circulars RPCD.CO.RF.BC.No.12.07.38.01/2005-06dated July 12, 2005, DBR.No.Legal BC.21/09.07.006/2015-16 dated July 1, 2015, and IBA Model operational procedure for settlement of claims of deceased depositors, June 2006).

In conclusion, the importance of nomination cannot be underscored. Bank account holders and safe deposit locker holders must avail of the nomination facility in their own interests and to avoid complications for their legal heirs. A separate nomination is required for each type of account i.e. savings account, fixed deposit account and safe deposit locker. Remember: A nomination ensures peace of mind for your loved ones.

The author is CEO, Banking Codes and Standards Board of India. The views expressed in this article are his own

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