Account holders must name legal heirs
Pushpa Girimaji Pushpa Girimaji

THE financial difficulties faced by families on account of delayed settlement of life insurance claims is well known. What is generally not known are the problems that legal heirs run into when it comes to accessing the bank accounts and lockers of deceased depositors.

The banking regulator, the Reserve Bank of India, is, however, only too aware of this and has, therefore, issued detailed instructions to banks on the subject, aimed at reducing the hassles faced by relatives. Yet, not every bank follows the regulatorís instructions in letter and in spirit, resulting in considerable hardships to the surviving family members.

First and foremost, when customers open accounts or hire lockers, the banks are supposed to advise them on the imperative need for nominations. Similarly, term deposits should have nominations, and even if the depositors are unaware of their importance, or forgets about them, the banks have the responsibility to inform them of the same. Banks, however, never take this task seriously.

The regulator has told banks to educate clients on the importance of the survivorship clause
The regulator has told banks to educate clients on the importance of the survivorship clause

In fact, the regulator has advised banks to not only provide guidance to account holders on the benefits of the nomination facility, but also educate them on the importance of the "survivorship clause" in case of joint accounts. That is, in case of a joint account, in the event of the death of one of the account holders, the right to the deposit proceeds does not automatically devolve on the surviving joint account holder, unless there is a survivorship clause such as "either or survivor," or "anyone or survivor," or "former or survivor," or "latter or survivor," underscores the Reserve Bank. Here again, not many consumers are aware of this and banks do not educate them either.

Even where the deceased depositor has not made any nomination, banks should adopt a simple procedure for repayment to the legal heirs, advises the regulator. In fact on June 9, 2005, the banking regulator issued detailed instructions to banks on how to simplify and expedite claim settlement, following the death of a depositor.

Saysthe Reserve Bank in its circular: "Banks are advised to adopt a simplified procedure for repayment to legal heir(s) of the depositors, keeping in view the imperative need to avoid inconvenience and undue hard ships to the common person."

But even after six years of this circular, the simplified procedure prescribed by the regulator eludes family members or legal heirs of account holders. For example, the regulator says that where the account holder has made use of the nomination facility, banks should not insist on production of succession certificate, or demand any bond of indemnity or surety from the survivor or nominee. Not many banks, however, follow this advice.

Similarly, referring to term deposits, the RBI says that banks should not insist on the completion of the term of the deposit and should allow premature termination on the death of the deposit holder. In fact the RBI advises banks to incorporate a clause in the account opening form itself to the effect that in the event of the death of the depositor, premature termination of term deposits would be allowed. "The conditions subject to which such premature withdrawal would be permitted may also be specified in the account-opening form. Such premature withdrawal would not attract any penal charge", says the RBI circular.

Yet, there are any number of cases where banks have refused to cut short the term of the deposit and denied the deposit amount to the legal heirs in urgent need of money.

In short, the circular makes it clear that banks should adopt procedures that are consumer friendly and help the legal heirs access the accounts without any difficulty. "These instructions should be viewed as a very critical element for bringing about significant improvement in the quality of customer service provided to survivors/nominees of deceased depositors", says the regulator.

The RBI circular also prescribes a time limit for settling the claims in respect of deceased depositors and releasing payment to survivors or nominees. It should be done within 15 days from the date of receipt ofthe claim, subject to the production of proof of death of the depositor and suitable identification of claim, to the bankís satisfaction, RBI says. I wonder how many banks really stick to this time limit?