Ensure premature termination of term deposits in case of demise of a joint holder  

June 5, 2012

Distinguished economist and former RBI governor SS Tarapore calls for implementation of guidelines so that families do not suffer due to onerous bank procedures

Nagesh Kini

Economist SS Tarapore, a distinguished economist and a former deputy governor of the Reserve Bank of India (RBI), in his column Maverick View in the Hindu Business Line – When death visits a bank deposit raises certain vital concerns that call for immediate action on the parts of RBI/DBOD, BCSBI and IBA.

“Ensure that all banks incorporate a clause in the account opening form to the effect that during their lifetime all joint holders should get the option to state that premature termination of the term deposit may be permitted in the event of the demise of one of the joint holders, particularly the first holder... It would be best if, on the term deposit receipt itself, there is a stamped and signed endorsement by the bank that in the event of death of a depositor premature termination will be permitted.”
 
Mr Tarapore rightly asks, “How many families should suffer before the RBI realises that too many have suffered?” He calls on the top management to review the RBI’s November 2011 circular.  He writes that one of the earliest initiatives taken by Dr YV Reddy when he took charge as RBI governor was to ensure that common man was not subjected to onerous bank procedures.

Presently dealing with this matter are RBI circulars of 14th March and 4th November 2011, where the BCSBI Code on Bank’s Commitment to Customers July 2006 was revised in August 2009.

In the light of prevailing conditions and taking a cue from Mr Tarapore all of them need to be revisited de novo and replaced by an all comprehensive circular covering all aspects including a clause in the term deposit application form, term/recurring deposit receipt, making it clear that the joint holder, as the survivor, becomes automatically entitled to the proceeds, including premature encashment subject to the heirs presenting the banks appropriate documents as to their title thereto.

The law anyway lays down that the joint holder or the nominee, if any, only holds the funds of the deceased as a trustee for the heirs and doesn’t become an absolute owner.

Since the accounts like joint operations, either or survivor and numb

er one or survivor, belong to different genres, clear cut guidelines are required for disposition in the case of each of these. Also in the case of nominees more particularly when there are conflicting claims by heirs and/or interested parties.

After reading Mr Tarapore’s article, we collected the term deposit application forms from four PSU, three co-operative and two private banks. It was noticed that only Canara Bank, Saraswat and NKGSB Bank’s application forms contained relevant declarations that are reproduced hereunder.

Our discussions with bank managers disclosed total lack of clarity on the concerns raised. To err on the safer side their immediate reaction was to first mark the account with remark ‘Deceased’ and freeze the account and demand all kinds of documents like succession certificate, probate, etc. This botheration happens when they are not required or relevant, more so when the money is most required for the grieving families, most in middle-class and below.

The RBI in its wisdom needs to re-examine the matter and mandate immediate incorporation of an appropriately worded clauses clearing spelling out the mode of disposition in all the three circumstances of joint holding at the earliest to prevent unnecessary hardships to poor depositors.

Relevant extracts from Term Deposit application forms

Canara Bank—“In the event of the death any of the joint depositor/s prior to the maturity of the deposit, the bank will at the written request of the surviving depositor/s be at liberty, though not bound and at its absolute discretion  to pay interest till the date of settlement, to repay the deposit before maturity or to grant an advance against the  security thereof to any one or more of the surviving depositor/s with the consent of other surviving depositors/any of the surviving depositors as the bank may decide and to add/delete/substitute any names therein. The discharge given by such surviving depositor/s/any of the surviving depositor/s shall give the bank a valid discharge.”

Saraswat Bank—“Special instruction for term deposit : In the event of death of any of the joint depositors prior to the maturity of the deposit, the bank will be, at the request of the surviving depositor or all surviving depositors at liberty though not bound and at its absolute discretion to add/delete any name, or to repay the deposit before maturity or grant an advance against the security thereof, on such terms and conditions as the bank may decide and such payment before maturity shall constitute a valid discharge to the bank.”

NKGSB Coop Bank—“In the event of any of us, the bank shall be at liberty to make payment of the money to the survivors without the concurrence of the legal heirs of the deceased (?).”

(Nagesh Kini is a Mumbai based chartered accountant turned activist.)