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Fixed deposits (FDs) are the preferred form of savings especially for pensioners, senior citizens and retirees. However, they could be prone to hardships which need to be known, experts say.
Incidentally, while garnering FDs enthusiasm amongst banks is high. But, they tend to provide lukewarm service when the uneventful happens, thereby defeating the purpose of immediate funds availability in case of contingency, says Rajat Dutta, Founder and Initiator, Inheritance Needs Services, which offers inheritance related services to individuals.
FDs are held either in sole name with a nomination or in joint names with survivorship clauses like “Either or Survivor” or “Latter or Survivor”, “Former or Survivor”, “Anyone or Survivor”, he pointed out. While all FD holders must have a nominee registered, it is important that they change the nominee if the nominee is deceased or is incapacitated, he said.
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Mr. Dutta said the common spirit of the clauses in case of joint FD holdings is that on demise of one of the joint holders, the surviving joint holder would operate. However, he said it is neither properly understood by the FD holders nor conveyed by the banks to them in spite of various efforts made by the Reserve Bank of India (RBI). For FD withdrawal on the date of maturity or for premature withdrawal, signature of all Joint holders is required, Mr. Dutta notes.
In the event of death of one joint holder the other surviving holders should be allowed to withdraw the FD amount on maturity or even prematurely. However, in case of demise of one of the Joint holders’ premature withdrawals poses a challenge as banks tend not to follow the survivorship clauses, he points out.
In its June 2005 circular, the RBI has stipulated that if the account was opened with the survivorship clause, the payment of the balance to survivor / nominee of the deceased deposit account holder represents a valid discharge of bank’s liability, Mr. Dutta says. However, the banks falter to process claims of surviving joint holders and seek a no objection certificate from heirs of the deceased FD holder(s) or succession certificate or probate.
The RBI, in a preamble to its notification dated November 14, 2011, clarified that if any of the joint holders died and there is a need for premature withdrawal, the concurrence of legal heirs of the deceased joint holder was required. This, however, comes with a caveat that banks can allow premature withdrawals provided they have taken a specific joint mandate from the depositors for the said purpose, Mr. Dutta said.
The RBI in its August 16, 2012, circular, aligned the terms on premature withdrawals, as stated in its November 2011 notification, to be incorporated in its circular dated June 9, 2005, and asked the banks to include specific joint mandate from the depositors for the purpose.
Only a few banks have taken cognizance and put in place adequate measures to modify their FD forms incorporating adequate instructions and also make customers aware of the same, he said.
The RBI committee for review of Customer Service Standards in regulated entities in its report has also pointed out several cases of hardship faced by nominees / legal heirs in closing the accounts held by deceased deposit holders of banks.
Even in cases where nomination is available, banks were found to be insisting on submission of unnecessary documents, for example, an undertaking to indemnify the bank in case of any legal dispute arising in the future, succession certificate, etc., which are specially prohibited by regulation, it said.
Several existing accounts do not have nominations at present and obtaining nomination in deposit accounts may be made mandatory within a reasonable time frame say three years, the report suggested.
The claims may be settled within a reasonable time period of 30 days from the date of submission of necessary documents online and physically. Beyond 30 days, the regulated entities may be required to pay an interest rate, say two percent higher than the rate at which the deceased person’s deposit was held, it said.
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