When death visits a bank depositor

For many years, the treatment accorded by banks to the deceased depositor's family was based on who you are and who you know. The Reserve Bank of India circulars of March 14, 2000, and December 6, 2000, required survivors to produce a succession certificate or a letter of administration or probate.

These requirements were introduced after a dispute in a prominent business family which dragged the concerned bank into the dispute. The upshot of this was that the common man was subject to considerable hardship as the family of the deceased was denied access to his or her funds.

One of the early initiatives taken by Dr Y.V. Reddy when he took charge as the Governor of the RBI was to ensure that the common man was not subjected to onerous banking procedures.

The RBI, in June 2005, issued a benchmark circular simplifying the procedures regarding the death of a depositor.

A central feature of this circular was that in the case of a valid nomination or if the account was opened with a survivorship clause (“either or survivor” or “anyone or survivor” or “former or survivor” or “latter or survivor”) the bank was deemed to have discharged its liability if it released the funds to the survivors/nominees.

This was subject to the provisos that the identity of the survivors/nominees and the death of the depositor was established; that there was no court order restraining the bank on the particular bank account; and that it was made clear to the survivors/nominees that the payment was received by them as a trustee of the legal heirs of the deceased depositors, that is, such payment would not affect the right or claim of any person against the survivors/nominees to whom the payment is made.

Premature termination

The RBI circular stated that payment to the survivors/nominees would constitute a full discharge of the bank's liability. Insistence by the bank on production of succession certificate or letter of administration or probate would invite serious supervisory disapproval.

The circular required banks to incorporate a clause in the account opening form itself to the effect that in the event of death of a depositor, premature termination of the term deposit would be allowed and such premature termination would not attract any penal charge.

Under the Banking Codes and Standards Board of India's Code on Bank's Commitment to Customers (July 2006, revised in August 2009), the banks gave a commitment to incorporate such a clause in the form. The banks committed themselves to settle all claims within a period not exceeding 15 days from the date of receipt of the claim and proof of death.

Legal heir

According to the RBI's circular of November 4, while the survivor/nominee can withdraw the term deposit on maturity, premature withdrawal would be allowed only with the “concurrence of the legal heirs of the deceased joint holder.”

If the survivors are entitled to withdraw the deposit on maturity without reference to the “legal heirs,” it stands to logic that they should also be allowed to prematurely terminate the deposit without reference to them. We are allowing legalese to thwart common sense.

The November circular rolls back the major reform in the June 2005 circular as also the Code. Furthermore, it is unfortunate that most banks have not incorporated the clause on premature termination in case of depositor's death in the account opening form.

If the November circular is allowed to stand, the families of deceased depositors would be subject to great hardship. It is precisely when a depositor dies that the survivors need access to his or her funds and denying them the funds is an infringement of their fundamental rights.

The November circular queers the pitch by bringing in the issue of legal heirs. The concept of legal heir varies with the community and in many cases the heirs may not be the joint holders or the intended beneficiaries.

The RBI and the Codes and Standards Board should ensure that all banks incorporate a clause in the account opening form to the effect that during their lifetime all joint holders should get an 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 would be permitted.”

The RBI circular of June 2005 softened the blow on the family of the deceased depositor and this circular was finalised after intense scrutiny by the then Governor, Dr Reddy; the Deputy Governor, Ms K.J. Udeshi, the Executive Director, Ms Usha Thorat; and the Chief General Manager, Department of Banking Operations and Development, Mr Anand Sinha. The present top management of the RBI should review the November circular.

How many families should suffer before the RBI realises that too many have suffered?

(The author is an economist. blfeedback@thehindu.co.in )

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