Tag: Banking Law

Changed bank nomination rules

Banking Laws (Amendment) Bill, 2024 which was passed by the Lok Sabha recently, proposes 19 amendments which aim at ease of compliance, better regulation and efficient auditing of banks and multi-state cooperatives offering banking services.

One of the important amendments proposes significant changes to the nomination rules for bank accounts.

The changes in nomination rules which allow for multiple nominees should enhance customer convenience and ensure that deposits don’t move to unclaimed deposits and from there to Deposit Education and Awareness Fund (DEAF).

Let us try to understand the changes proposed in the amendments in banking laws in nomination and how they impact you.  

What is nomination? 

Nomination is a facility that enables an account holder to appoint an individual, who can claim the proceeds of the deposit account after the demise of the depositor. The benefit of nomination is that in the event of death of an account holder, the

bank can pay the amount to the nominee without insisting on a succession certificate, letter of administration or a court order.

Though nomination is optional for bank customers and the facility is available on a voluntary basis, it would be wise if you nominate a person for bank accounts to avoid family disputes, confusion & litigation.

A nominee is only a trustee of your assets and does not take away the right of your legal heirs on your financial assets. The person you are nominating need not be related to you. You can nominate anyone- your relative, an acquaintance or even a friend.

The changes  Before the amendment, savings account & fixed deposit holders could register only one nominee except in case of lockers where joint hirers could nominate up to two nominees. For example, if the account holder had registered  wife as a nominee & his wife had predeceased him, on his death the claim procedure would be delayed as the amount has to be paid to legal heirs. 

The new bill allows up to four nominees and gives greater flexibility in managing and distributing funds among family members or beneficiaries. Account holders can now choose between the following two types of nominations: 

Successive nomination: In this the nominees receive the funds in a predetermined order. For example, if the account holder appoints his wife and two sons for his savings account, on his death the wife will receive 100% of the balance in the savings account. If the wife had predeceased him, the elder son would receive the amount and if both the wife & elder son were not alive the younger son would inherit the assets of the deceased. This option provides a clear chain among nominees. 

Successive nomination: In this the nominees receive the funds in a predetermined order. For example, if the account holder appoints his wife and two sons for his savings account, on his death the claim procedure would be delayed as the amount has to be paid to legal heirs.  The new bill allows up to four nominees and gives greater flexibility in managing and distributing funds among family members or beneficiaries. Account holders can now choose between the following two types of nominations: 

Simultaneous or joint nomination: Under this option, the account holder can decide the distribution of funds among multiple nominees at the same time, with each nominee receiving a specified share. If the percentage is not specified, then all nominees will get equal share. For example, an account holder nominates his wife and son, he can allocate specific ratios like 50:50 or 60:40 or 70:30 et cetera. 

The amendments aim to bring uniformity in nomination rules across different assets or products like bank deposits, mutual funds, demat accounts & insurance policies.

This would lead to simplifying the inheritance process for customers while reducing the administrative burden for banks, asset management companies and life insurance companies.

In the end, do note that the specific implementation of these changes may vary depending on the individual bank’s policies and procedures. You should consult your bank concerned for further details and guidance on the new nomination rules.

Government’s Proposed Changes in Banking Laws

Government to Introduce Two Key Bills in Lok Sabha

The government is set to bring forward two significant Bills in the Lok Sabha for deliberation in the upcoming week commencing on August 5. The first of the two Bills pertains to amendments in the banking laws, while the second addresses modifications to the Oilfields (Regulation and Development) Act.

Changes in Banking Laws

The Union Cabinet, during its meeting on Friday, granted approval for the introduction of the ‘Banking Laws (Amendment) Bill 2024.’ While specific details are yet to be disclosed due to the ongoing parliamentary session, it is anticipated that the Bill will encompass alterations to various banking laws. This may include redefining substantial interest for directors, revising the number of nominees for bank accounts, and adjusting the dates for monthly reporting, among other amendments.

Under the current provision of the Banking Regulation Act, Section 45ZA allows a depositor to nominate one individual to whom the deposit amount shall be returned in the event of the depositor’s demise. However, sources suggest that the proposed amendment may raise the number of nominees to four.

Targeting Unclaimed Deposits

One of the primary objectives of the proposed changes is to address the issue of unclaimed deposits in banks. Data reveals a substantial increase in unclaimed deposits with public and private sector banks combined, reaching over ₹42,000 crore as of March 31, 2023, from around ₹33,000 crore a year earlier. Unclaimed deposits comprise balances in savings or current accounts that have remained inactive for 10 years, or term deposits that have not been claimed within 10 years from their maturity date. Such amounts are designated as ‘unclaimed deposits’ and are transferred by banks to the Depositor Education and Awareness (DEA) Fund maintained by the Reserve Bank of India.

Despite depositors retaining the right to claim these deposits along with accrued interest at a later date, the increasing trend in unclaimed deposits remains a concern. The proposal to allow for four nominees aims to mitigate the amount of funds categorized as unclaimed deposits.

Other Proposed Amendments

Further changes include the redefinition of ‘substantial interest’ for directorship. The current provision in the Banking Regulation Act defines ‘substantial interest’ as a beneficial interest held by an individual, their spouse, or minor child, either singly or collectively, in shares with a paid-up value exceeding ₹5 lakhs or 10% of the paid-up capital of the company, whichever is lesser. Reports indicate a proposal to increase the threshold for substantial interest in directorship to ₹2 crore or 10% of the paid-up capital.

Additionally, amendments are expected regarding the reporting dates and the tenure for directors in co-operative banks. The existing provision requires banks to report various compliances on the second and fourth Friday of every month, which is now proposed to be changed to the 15th and 30th day of each month. There is also an anticipated provision to limit the tenure of a director in a co-operative bank to 10 years.

These impending changes in banking laws and regulations hold significance for the banking industry and the overall economic landscape, with potential implications for stakeholders and consumers alike.