New bill proposes multiple nominees for bank Fixed Deposits to ease fund distribution after death
Nov 25, 2024
Synopsis
A new bill, expected to be introduced in Parliament's winter session, seeks to amend bank nomination laws, allowing up to four nominees for fixed deposits (FDs) to ease the distribution of funds after the account holder’s death. The bill would offer two nomination options: simultaneous, where nominees receive specified shares, and successive, where one nominee replaces another upon death.
A crushing experience in the trail of destruction left by Covid was the inability of family members to freely withdraw and distribute money by breaking the bank fixed deposits (FDs) after the death of the prime earner, who, in many cases, was the sole account holder.
The bill to change the law allowing banks to let a depositor specify multiple nominees and their shares for easier distribution of funds later is expected to come up during the winter session of the Parliament which begins today. The Bill, which was introduced in the last session, has been listed again.
Under the proposed amendment, banks would allow up to four nominees (against the current practice of one). This could be either 'simultaneous nomination', where the percentage shares of different nominees are stated in the nomination form, or 'successive nomination', where there is one actual nominee at any given time and on whose death another nominee becomes effective.
In a simultaneous nomination arrangement, on the death of the account holder, nominees can claim the money in the account according to their respective shares as originally laid down by the depositor. This could make the settlement of claims and distribution of money to the heirs easier.
Amid high morbidity caused by the pandemic, the idea to simplify joint ownership and nomination rules for various financial assets, was broached by Pramod Rao (the current SEBI execution director ) in an article during his days as a banker with ICICI.
Sometime back the finance ministry had again sought the response on the subject from the banking industry which seems to have mixed views, said a banker who felt the problem would not go away unless the nominees are aware about their shares and reach out to banks.
According to senior lawyer and former banker Rajeev Dewal, who specialises in banking laws, "There is little doubt that the amendment has been proposed with the right intention-to reduce hassles faced by family members after the death of the bread earner who also happens to be the account holder."
"However, it would be simplistic to believe that such a move would eliminate all complications. Even while a multiple nomination option is offered, one should keep in mind a few points. First, nomination in any case is not legal succession of the account holder but a mechanism for quicker disposal of deposit/ contents of locker or safe custody. Second, multiple nominees may also create a room for disputes among them thereby delaying the disposal. Lastly, since a bank must split a deposit into multiple parts for distributing the amounts as per the shares, there may be non-reconciliation, unclaimed deposits and even frauds when a nominee dies or does not claim her share," he added.
However, it is perceived a well laid out multiple nomination plan could make things easier for many middle-class families who have a will and hold park a sizable part of savings as bank FDs.
It would be advisable, said Anup P Shah of CA firm Pravin P Shah & Company, to ensure that the legatees under the will (left by the account holder) and the multiple nominees are the same to avoid confusion and possible litigation. Such a facility is allowed in other asset classes, such as units of mutual funds, said Shah. A process (towards meeting the claim) is in place in the securities market that allows a nominee to contact one of the asset management companies which transmits the message to other intermediaries based on the permanent account number (PAN) of the deceased investor.
"For banks there could be identifiers other than the PAN. However, if a similar system can be replicated for bank deposits, it would benefit many as bank deposits are still a large part of household savings," said an industry official. Share of bank deposits in total household savings has come down from over 55% to less than 40% in the past decade.
At present many depositors do not name their nominees in the bank forms while opening FDs -- probably due to lack of awareness. However, since the pandemic most banks have been proactively reminding customers through emails and text messages to register nomination in at least one of the deposit accounts or safe deposit locker with the bank.
[The Economic Times]
