While banks and other financial institutions offer nomination facility for customers, there is no provision for successive nomination like what the insurance companies provide. Looking at the changing circumstances, the Reserve Bank of India (RBI) needs to take a proactive step and introduce successive nomination facilities for financial consumers, says Subhash Chandra Agrawal, a well-known Right to Information (RTI) activist from Delhi.
He says, "Outdated nomination rules in respect of savings parked in banks and government savings-schemes, which are now available through public sector banks (PSBs) also, in addition to earlier post-offices only, are resulting in huge accumulation of public money of deceased account holders in government accounts in case of death of sole nominee in case of bank deposits or on death of any of the joint nominees in case of government savings schemes."
"The situation becomes even more peculiar when spouses of aged couples usually nominate each other as nominees where in case of the death of both, legal heirs may have to go through a cumbersome procedure of getting a succession certificate," the RTI activist says.
Mr Agrawal had filed an RTI query with the RBI seeking information on nomination facility in financial institutions. The reply from RBI shows that only one nominee can be appointed in respect of bank-deposits and lockers under sections 45ZA to 45ZF of the Banking Regulation Act, 1949 and Banking Companies (Nomination) Rules, 1985. Unclaimed money of customers is transferred to depositor education and awareness fund (DEAF) introduced by the RBI in 2014.
RBI told the senior activist, "...under the current provisions it is not possible to have successive nominations in a bank account. The respective provisions of the BR Act, 1949 and the Banking Companies (Nomination) Rules, 1985 would require amendments to provide for such nomination."
Mr Agrawal says, the facility of successive nomination exists at the Life Insurance Corp of India (LIC) through form-number 5194 whereby succession automatically passes on to next nominee in case of death of the earlier nominee.
Insurance companies, on the other hand allow successive or alternative nominations for up to three nominees. Section 39 (1) of the Insurance Act, 1938 says, "The holder of a policy of life insurance on his own life may, when effecting the policy or at any time before the policy matures for payment, nominate the person or persons to whom the money secured by the policy shall be paid in the event of his death."
Where nomination is made in favour of successive nominees, i.e., nominee 'A' failing him to nominee 'B' failing whom nominee 'C,’ the nomination in favour of one individual in the order mentioned is considered by the insurer. After the death of the policyholder, first nomination becomes operative. If first nominee is not alive, then the second one becomes operative. If both the first and second nominees are not alive, then only the third nominee becomes operative.
"This facility is especially of big use in case of aged senior citizens where usually husband and wife make each other the nominee in their insurance policies, due to unawareness of the facility of successive nominations. Successive nomination provides auto-passing of nomination to the next nominee in case of death of aged nominee, which is either husband or wife of the policy-holder," Mr Agrawal says.
The Insurance Act also has a provision where neither the policyholder nor the nominees are alive. Section 39 (5) states "Where the policy matures for payment during the lifetime of the person whose life is insured or where the nominee or, if there are more nominees than one, all the nominees die before the policy matures for payment, the amount secured by the policy shall be payable to the policy-holder or his heirs or legal representatives or the holder of a succession certificate, as the case may be."
Government schemes like senior citizen saving scheme (SCSS), and public provident fund (PPF) provide the facility of joint nomination with the depositor compelled to fix percentage of amount to be deposited amongst nominees in case of death of the depositor.
According to Mr Agrawal, depositors usually have single nominees, and the peculiar situation of claiming deposit-money by legal heirs may be required in case of deaths of both the depositor and nominee, which is quite usual with aged couples.
He says, the same facility should also be provided in all saving-schemes of government and banks including the PPF. At present, PPF provides the facility of joint nomination making it necessary to specify the share of the benefit to each of the joint nominees in case of death of the account-holder. It is not clear what happens to the share of benefit of a nominee in case of deaths of both the account-holder and any of the joint nominees.
The RTI activist contends that statistics and data can prove a very huge amount of unclaimed money of PPF and other savings-schemes of government and banks where funds are not claimed because of tedious and cumbersome process of getting a succession certificate.
He says, "It seems that outdated nomination-policies are deliberately not changed for enriching the RBI and the public-exchequer through unethical means. Central government through an ordinance should urgently replace such outdated nomination policies in respect of different types of deposits, by enacting a unified policy providing the facility of successive nominations as already exists at LIC."
"Better is to make such a successive nomination compulsory in case of all private deposits also to minimise litigations and to prevent a debtor from becoming beneficiary in case of the death of the depositor. Central government and RBI should urgently introduce the facility of successive nominations in all saving schemes of government and banks which should be clearly mentioned in account opening forms," Mr Agrawal added.