Nomination Facility and Its Importance
Rama Krishna Vadlamudi, HYDERABAD April 18, 2011
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Nomination is a facility provided to depositors of commercial banks in India. If a depositor opts for nomination facility for his/her deposit, it will be very easy for legal heirs to claim the deposit amount in the event of the unfortunate death of the depositor. Wherever nomination is there, the process of settling the claim in favour of the nominee (who was authorised by the deceased depositor to receive the deposit from the bank) is very simple and painless.
However, if the depositor dies without any nomination for the deposit, the legal heirs will have to either bring a succession certificate from a court or claim the money from the bank through a lengthy, expensive and cumbersome process commonly known as Settlement under Indemnity-cum-Affidavit basis.
In view of the above, all depositors have to insist on utilising the Nomination Facility in their own interest. To use the nomination facility, depositors have to fill in a form (which will be provided by the bank) and submit the same to the bank. Bank’s will register the name of the nominee in their books and give an acknowledgement to the depositor for having registered the nomination as per the depositor’s requirement.
All commercial banks in India are governed by provisions of the Banking Regulation Act of 1949 and The Banking Companies (Nomination) Rules, 1985. The Nomination Rules of 1985 were framed by the Government of India in consultation with the Reserve Bank of India.
Reserve Bank of India has been, time and again, sensitizing commercial banks in India about the importance of Nomination Facility and has been advising banks to give wide publicity to Nomination Facility and provide guidance to the depositors – new as well as existing.
Enclosed are a set of guidelines on Nomination Facility in respect of bank deposit accounts. The guidelines are in a simple question and answer format and are easily understandable by everyone.
FREQUENTLY ASKED QUESTIONS ON
NOMINATION FACILITY
NOMINATION RULES FOR BANK DEPOSIT ACCOUNTS:
1. What is a nomination?
o Nomination is a facility extended to depositors to nominate an individual who can claim the deposit proceeds in the event of the unfortunate death of the depositor.
2. Whether nomination facility can be extended to deposits held by a bank by several types of depositors?
o No. As per the nomination rules, the nomination facility is extended only to deposits held by individual depositors and not to deposits held by others – like, companies, associations, partnerships, government agencies, societies, HUF, etc.
o However, nomination facility can be extended to all types of deposits, like, savings bank account, current account, fixed deposit accounts (by whatever name they are called), flexible rate deposit accounts, recurring deposits, etc, held by individual depositors in their individual capacity.
3. Whether nomination facility can be extended to deposits held by a bank in the name of a sole proprietary concern?
o Yes. Nomination facility can be extended to deposits held by a sole proprietary concern.
4. Who can nominate?
o The nomination can be made by the depositor. In case of joint accounts, all the depositors have to sign in the prescribed nomination form to make a nomination.
o A nomination may be made only in respect of a deposit account which is held in the individual capacity of the depositor, and not in any representative capacity such as the holder of an office like director of a company, secretary of an association, partner of a firm, or karta of an HUF.
5. Whether a nomination can be made in respect of a deposit held by a minor?
o Yes. In case of a deposit made in the name of a minor, the nomination shall be made by a person lawfully entitled to act on behalf of the minor.
6. Who can be a nominee?
o A nomination shall be made in favour of only one individual. As per nomination rules, any nomination other than in favour of a single individual will not be valid. Nomination can not be made in favour of an association, trust, society or any other organisation or any office bearer thereof in his/her official capacity.
o Hence, banks accept only one nomination in respect of one account.
7. Whether a minor can be a nominee?
o Yes. Where the nominee is a minor, the depositor or, as the case may be, all the depositors together, may while making the nomination, appoint another individual, not being a minor, to receive the amount of the deposit on behalf of the nominee, in the event of the death of the depositor or, as the case may be, all the depositors, during the minority of the nominee.
8. Whether a nomination can be cancelled?
o Yes. The cancellation of a nomination is to be made by the depositor or all the depositors as the case may be, in the prescribed form.
9. Whether a variation of nomination is permitted?
o Yes. A variation of the nomination (cancellation of existing nomination and making of fresh nomination) can be made by the depositor or all the depositors as the case may be, in the prescribed form.
10. Whether the bank has to give an acknowledgement to the depositor(s) after making a nomination?
o Yes. An acknowledgement has to be given, in writing, to the depositor(s) concerned irrespective of whether the same is demanded by the depositor(s). Acknowledgement has to be given in case of cancellation and variation also. This is mandatory as per RBI.
11. Is it necessary that all nominations and cancellation/variation of nominations are required to be witnessed?
o No. As per a clarification given by Reserve Bank of India, vide their notification dated 30.03.2011, the signatures of the depositor(s) in forms DA1, DA2 and DA3 need not be attested by any witness. However, as per the nomination rules, banks are required to take signatures of two witnesses in case of illiterate depositor(s) who give their thumb impression(s) in the prescribed nomination forms.
12. Whether a nomination is compulsory?
o Nomination should be a rule (rather than an exception) and the bank shall make necessary efforts to cover all accounts, existing as well as new, with the facility of nomination exception being the ones where the depositor himself/herself would prefer not to nominate, a separate letter shall invariably be given by the depositor to the bank stating that he/she is not willing to nominate any person to the deposit account.
o As per RBI guidelines, banks have to give wide publicity to the nomination facility and persuade depositors to avail the nomination facility. RBI has advised banks to insist that the person opening a deposit account makes a nomination. In case the person opening an account declines to fill in nomination, banks should explain the advantages of nomination facility. If the person opening the account still does not want to nominate, banks should ask him/her to give a specific letter to the effect. In case the person declines to give such a letter, banks should record the fact on the account opening form and proceed with opening of the account if otherwise found eligible. Under no circumstances, banks should refuse to open an account solely on the ground that the person opening the account refused to nominate.
13. What are the procedure to be followed by the nominee while claiming the amount from the bank after the death of the depositor?
o The nominee authorised by the deceased depositor has to approach the bank where the money was deposited.
o The nominee has to make a claim to the monies and submit a claim form (which will be provided by the bank) to the bank.
o The nominee has to submit a death certificate issued by the competent authority to the bank.
o The nominee has to identify himself/herself to the bank and may have to satisfy the bank as per the existing Know-your-customer (KYC) guidelines and provide a proof of his/her identify to the bank.
o After submitting death certificate, claim from and proof of identify as per KYC norms, the banks usually settle the claim in favour of the nominee in a matter of one or two weeks.
14. What are the benefits of Nomination facility to depositors/claimants:
o The depositor will be sure that the monies/articles left by him/her will go to the person(s) as desired by him/her provided the depositor has submitted a valid nomination to the Bank before his/her death.
o In the event of unfortunate death of the depositor, the nominee can get the monies deposited with the Bank very easily and in a quick manner where nomination is available. Settlement of claims on the basis of Indemnity/Affidavit or Succession Certificate is very expensive, lengthy and burdensome – both to the Bank as well to the claimants.
15. What are the benefits of Nomination facility to banks?
o It is easy to settle a claim in favour of nominee in the event of unfortunate death of the depositor/locker hirer.
o Bank wins the trust and confidence of the customers when customers are apprised of the benefits of nomination. The increased confidence will bring repeat business to the Bank. Bank’s image also goes up with the public as nomination facility is in public interest.
o Good compliance with the RBI regulations enhances the credibility of the Bank in the eyes of the regulators.
16. Whether banks can enter the name of the nominee in pass books/deposit receipts?
o Yes. The name of the nominee may be entered by banks in Savings Bank pass books or the fixed deposit receipts, etc, only with the specific written mandate of the depositor, that is, in case the depositor is agreeable to the same.
o Reserve Bank of India has advised banks to record on the face of the pass books or fixed deposit receipts, the position regarding the availment of nomination facility with the legend “NOMINATION REGISTERED.”
17. What are the nomination forms available in case of deposit accounts?
o DA 1 – appointment of nomination
o DA 2 – cancellation of nomination
o DA 3 – variation of nomination
o These three are standard formats for bank deposit accounts.
18. What are the statutes that provide nomination facility to bank depositors?
o The Banking Regulation Act, 1949; and
o The Banking Companies (Nomination) Rules, 1985 – framed by the Government of India.
o Commercial banks in India are guided by the above two statutes in respect of nomination facility to bank deposits, safe deposit lockers and articles in safe custody.
References:
RBI master circular
Other RBI circulars
The Banking Companies (Nomination) Rules, 1985
Disclaimer: The views of the author are personal.
