Tuesday, June 22, 2010

Importance of nomination in bank accounts

According to the Reserve Bank of India (RBI) report, around Rs 1,100 crore of unclaimed money is lying with Indian banks.

The report further stated that a major portion of this unclaimed money belongs to Hindu Undivided Family and individual accounts because the accountholders have died.

In such cases the main reason for unclaimed money lying with bank is that the accountholders have not nominated anyone in their accounts. This way not only legal heirs are deprived of the money also banks are facing problem in managing these unclaimed funds.

To solve this double edged problem, in 1983 the government of India had amended the banking laws to include nomination facilities in respect of all bank accounts. But, still many of us either are not aware of this facility especially people who are uneducated or living in rural areas, or do not want to face the fact that unforeseen events can happen to us.

Filing nomination is not difficult. While opening a new account, there is a column for nomination in the same form and you should fill it. You can nominate two persons with first and second option. If you have not done nomination in your accounts you can file a request for nomination for both – a single account or a joint account in Form No DA-1. In case of your death or the death of any of the joint accountholders the nominated person can received the amount lying in the account.

The form can be taken from bank and is applicable for all types of deposit accounts - savings account, recurring deposit account, fixed deposit account or even a current account.

In case you want to cancel the nomination or change the nominee at any point in the future, you can do so by simply submitting Form No DA-2.

In case of change in nomination or cancellation you must obtain a written acknowledgement of any request made to the bank. The banks normally give acknowledgement in a tear-off of the form being submitted.

If changes and variations in nomination are made frequently then you must keep photocopies of the forms to avoid any dispute in future and also for a ready reference. However banks make note of such submission of nomination forms or variations/ cancellations thereof in their records. At the time of deletion or addition to the original bank account, always ensure that the nomination form is also submitted with the bank covering all the account holders at the relevant times.

Nomination facility is available for individuals and other entities like partnership firms, limited companies and trusts, etc. This facility is also available to accounts operated by proprietors in respect of their business concerns, including current accounts.

In case of minor account holders, a nomination can be made by a person who is lawfully entitled to act on behalf of the minor.

Whereas, if the nominee is a minor, in such case the accountholder will have to appoint a person to receive the money during the time the nominee stays a minor. When nominee turns a major, he/she can claim the money from the bank directly.

Joint accounts

In case of joint accounts if the joint account holder dies without making any nomination, in such case the remaining accountholder/s can still make a valid nomination in respect of the bank account.

In case of one account holder, the bank will remove the name of the deceased from the account and the remaining accountholder/s remains the account holder/s. In case of only one account holder surviving, he becomes the sole accountholder of the account.

Fixed deposits
In fixed deposits also there is nomination facility. But in this if fixed deposit is held jointly, all the joint accountholders have to give nomination. A nomination request not signed by all accountholders will not be a valid request.

The nomination will remain active and alive as long as the deposit account is renewed also it automatically gets renewed on renewal of the deposit from time to time.

For nominees
As nominee becomes authorized accountholder after the death of accountholder therefore he is entitled to give a valid discharge for payment of the money due to the bank. The banks only consider registered nominees and not the legal heirs.

The nominees have to provide valid proof of death of the accountholder together with the claim in the prescribed form. The bank is also supposed to send a letter to the nominee in case no claim is filed within three months of the notice of death of accountholder being given to the branch.

The bank allows the nominee to foreclose the fixed deposit if he/she submit relevant document like death certificate/ claim form etc. But banks cannot grant any loan against such fixed deposit held by the deceased.

In case the nominee is other than legal heirs, then they can lodge their claim for the money of the deceased against the nominee and not against the bank, once the bank has paid the money to the nominee as per the terms of the nomination filed with it.

Legal heirs who obtain any order from the court then they can restrain bank from paying the money to the nominee.


PB said...

Useful write up. Banks can take bold prints of the article and display in their branches

A query: Some banks have a system of allotting a common "customer code no??" to their account holders which is also used in all accounts of that customer like SB, FD etc/ They take one nomination form for a code and say it is valid for all the accounts of that customer, Is this ok?

What about safe deposit lockers and nomination of these accounts

PB Madhavan

Banyan Financial Advisors said...

Good point. While nomination is important, it is helpful to know that doing nomination can not solely serve the purpose. People also need to prepare their will.
You can refer to an article on this website which details upon the relationship between Nomination versus Will

Banyan Financial Advisors