When A Bank Opens An Account

Published Date: 02 Nov 2017

9.0 Introduction

When a bank opens an account of a customer by documentation, a contract is established between the two. Both parties have to follow the terms of the agreement and the laid-down rules, regulations and procedures.

John: Do we have to use the word ‘laid-down rules’.

Account operations are guided by the internal guidelines and codified manuals.

Procedures are developed for smooth operational convenience and are backed by legal and rational reasoning.

The relationship of banker and customer depends on the nature of transaction and the related legal provisions within banking law. Often banks find themselves in situations, which require a change in the terms of agreement. Banking law and practices recognise such requirements and accordingly procedures evolve. Some of them have stood the test of time and law and have become common banking practices.

In this unit, we will learn about some of these special requirements, which come up during account operations.

Learning Objectives

By the end of this module, you will be able to:

Describe the internal procedures to be followed on frequent service requests of customers

List the steps to complete the process of… Settlement of a claim

List the steps to complete the process of… Nomination procedure

List the steps to complete the process of… Transfer of account between branches

List the steps to complete the process of… Deduction of tax at source

List the steps to complete the process of… Handling of stop payment instructions

Treatment of unclaimed deposits/inoperative accounts.

9.1. Update contact details

Graphic: Dialogue between an Indian lady and bank representative

Indian lady Bank representative

I got married recently. How do I change my name and address in my account?

No problem. I’ll help you with that.

Contact details such as customer’s address, telephone number, mobile number and email ID are generally recorded at the time of opening an account. When a customer changes their address, telephone number, mobile number or email ID, the bank needs to update these details.

Customers can visit the branch and fill in the requisition form to change the contact details. The branch will verify the identity of the customer with the help of their photo ID and signature on the service request form. In addition, it may seek documentary proof for the contact details that need to be updated. If the identity and details provided by the customer are confirmed, then the changes are updated. The bank will send the confirmation of contact details.

John’s comment:

Made changes to make it general for contact details instead of specific for address change because the title is Update contact details not update address change.

Is this unit dedicated to the individual customer type?

9.2. Addition of name

No problem. I’ll help you with that.

Graphic: Dialogue between an Indian man and bank representative

Indian man Bank representative

Can I add my wife’s name to my account?

Addition of name(s) in an existing account may be required in the following circumstances:

Reconfiguration of account holders after the death of one or more of the existing account holders.

Specific request from existing account holder(s).

Considerations: Addition of Name request

The following conditions should be considered while accepting an Addition of Name request:

Resident applicants cannot be joint holders for Non Resident External (NRE), Foreign Currency Non Resident (FCNR) and Resident Foreign Currency (RFC) accounts. For details on these accounts refer to the module on NRE Banking.

Resident applicants can be added in Non Resident Ordinary (NRO) accounts, provided the first applicant is an Non Resident India (NRI).

An addition of name request cannot be carried out in loan/overdraft accounts.

Care must be taken to ensure that the existing account has not been attached or marked for freeze/lien by any regulatory body.

If an addition of name is requested in a fixed Deposit Account against which a loan or overdraft has been taken, a fresh set of security documents signed by all account holders including the new account holder have to be obtained.

John: Is Dharna okay with the treatment of the request name?

Process: Addition of Name request

*Flow chart diagram

The following process is to be followed for Addition of Name request:

For addition of a name, a letter of request has to be obtained from the existing account holders.

Both new and existing customers must be asked to fill in a fresh Account Opening form. The order of names on the form must be the same as the order of names to be mentioned in the account.

The proof of identity, proof of address and photograph of the new applicant must be obtained. These documents must be accordance with the prevailing Know Your Customer (KYC) policy of the bank.

Self-attestation by the applicants and ‘verified with original’ stamp by the bank official will have to be affixed on the copies of documents obtained.

John: Don’t understand meaning.

A letter must be obtained from new applicant (s) acknowledging issue of ATM/Debit card to existing account holders.

John: Is it actually like that? Sounds odd.

If the account has an existing nomination, all account holders must sign Form DA1(Nomination form) afresh to confirm all nominees.

In case any of the new applicants are nominees in the existing account, Form DA2 must be obtained from existing account holders to cancel the nomination.

Following the death of one of the account holders, if a new name is to be added, the old account will be closed and a new account opened. In other cases, the same account will be continued with addition of the new name as a joint account holder.

John: Did not understand.

In the case of accounts of companies, Societies and so on, copies of resolutions passed by the Board/Managing Committee must be obtained.

9.3. Deletion of name

Deletion of name(s) in an existing account may be required in the following circumstances:

Specific request is received from existing account holders.

John’s comment: The first bulleted text was deleted because it was not a circumstance and it repeated itself in the first bullet point of the considerations.

Considerations: Deletion of Name request

The following conditions should be considered while accepting a Deletion of Name request:

The name of any existing account holder can only be deleted with the consent of all the account holders. It does not matter whether the operating instruction is ‘Either or Survivor’ or ‘Any One or Survivor’.

If the name of an NRI is being deleted from an NRO account, care must be taken to ensure that there is at least one more NRI continuing as account holder.

John: Sounds odd. Is this correct?

Deletion of name cannot be carried out on loan/overdraft accounts.

If deletion of name is requested in a fixed deposit (FD) against which a loan or overdraft has been given, a fresh loan/overdraft (OD) account has to be opened and fresh security/documents is taken from the new account holders.

Care must be taken to ensure that the existing account has not been attached or marked for freeze/lien by any regulatory body

In the case of accounts of legal entities, resolution of the Board/Managing Committee must be obtained.

Process: Deletion of Name request

*Flow chart diagram

The following process is to be followed for effecting deletion of name:

A request letter for deletion of name needs to be obtained from all the existing account holders.

The applicant whose name is being deleted must be asked to surrender his ATM/Debit card.

The branch must arrange to have the card hot-listed and physically destroyed in the presence of two branch officials after making an entry in the ATM/Debit card delivery register.

Customers must be asked to surrender existing cheque book(s) and should be informed that a new cheque book will be issued. This is necessary as the old cheque book will contain the names of all the existing account holders and the presence of the deleted name may lead to inadvertent passing of the cheque signed by him.

The customer must be informed that cheque in favour of the account holder whose name is deleted will not be accepted for clearing, collection. Similarly, any cheque signed by the same holder will not be honoured.

If the name of a deceased account holder is being deleted, the account will be closed and a fresh account will be opened. In other cases, the existing account will be continued.

9.4. Conversion of minor to adult account holder

A guardian can open a Deposit Account in the sole name of a minor, which he can operated on their behalf. In this case, the style of account should be ‘Master ABC (minor) by father and natural guardian XYZ’. Alternatively, he can open a joint account in the name of the minor and himself.

John: Sounds odd. Is this information correct?

From the date the minor becomes an adult, he has the sole right to operate the account. Unless it is a joint account, the guardian can no longer operate it. For term deposits maturing on or after the date on which the minor attains majority, the amount must be paid to the account holder and not to the guardian. The guardian also does not have the power to foreclose such terms deposits.

Process: Conversion from minor to major account holder

*Flow chart diagram

If an operating account like SB is held in the name of a minor, the following documents should be submitted to the bank so that the account holder as an adult can operate their account independantly:

An intimation letter informing the bank about attaining majority along with a proof of date of birth

A fresh Account Opening form

A specimen signature card

Latest photographs

If it is a joint account, the joint account holder should sign a fresh operating clause.

John: Is the usage correct? What is SB?

9.5 Death claims

Settlement of claims arises due to the death of an account holder. The balance in such accounts must be paid to the rightful persons based on nomination or inheritance. A claim on the credit balance of the assets of a customer can be settled in any one of following three ways:

Payment to nominee

Payment on production of legal representation

Payment without the production of legal representation

Where there is a valid nomination, the bank is fully discharged by making payment to the nominee. Claims and counter claims by legal heirs and others need not be taken into cognizance unless and otherwise they produce a court order. Payment to nominee can be stopped by producing a valid court order and nothing else. The nominee received the payment as a trustee of the legal heirs and the latter have the right to claim the amount from him.

A legal representation is an order of a court empowering a certain person to collect the amounts due to the deceased. It cab be as follows:

Probated will

Letter of administration

Succession certificate

Banks prefer to settle claims against legal representation since it provides a valid discharge. RBI has advised banks not to insist upon legal representation for the release of deposits, jewels, other assets irrespective of the amount, if they are convinced of the genuineness of claimants. However, banks can insist on the production of legal evidence when there is dispute among legal heirs and they do not join to indemnify the bank. Banks may also insist on legal evidence when they have reason to doubt the genuiness of the claims.

Process: Death claims

*Flow chart diagram

On the death of an account holder, operations in the account must be handled in the following manner:

Any cheque signed by the deceased person presented after his death, should be returned unpaid with the remark ‘signatory reported deceased’.

John: Is this a specific remark and to be written like this?

In a single account, joint account, proprietary account or a partnership account, operations of the account must be stopped and the balance disposed of.

John: What do you mean by a single account?

If there is a nominee for a single account, the balance must be paid to the nominee by issuing a cheque in favour of him or her. But before that a letter of request and proof of identity must be obtained. If the nominee is a minor, payment must be made to the guardian whose name is mentioned in the Nomination form.

In the absence of a nominee, if there is a will, the balance should be paid to the legal heirs, as per the will. But before that a letter of request and proofs of identities must be obtained from them.

If the account holder died intestate or without a will, payment must be made to the successors as listed in the succession certificate issued by a court. But before that a letter of request, copy of succession certificate and proofs of identities must be obtained from the successors. To reduce procedural burden for the customer, most banks agree to pay balances up to a specified amount to the successors of deceased account holders, even without a succession certificate, provided there is no dispute amongst them or multiple claims from different persons have not been received.

John’s comments: I added that bit. Is it ok?

The balance is paid after obtaining a letter of request and a stamped indemnity signed by all the successors together with proofs of identities and also another stamped indemnity from one or two independent persons (who act as surety to the bank) depending upon the amount involved. The independent persons guarantee the bank against any loss in case of any dispute and claim on the bank from other persons for the settlement amount. The worth of the independent indemnifiers should be more than the amount settled.

If the operating instruction was ‘E or S’ or ‘Anyone or Survivor’ or ‘Jointly or Survivor/s’, the balance is payable to the surviving account holders. It could be paid to them by cheque or credited to a new account opened in their names.

If the operating instruction was ‘jointly’ only, the balance is payable to the surviving account holder(s) and the successors of the deceased account holder.

If all the joint account holders die, say in a car crash, the balance is payable to the successors of all the account holders, by a cheque issued in favor of all of them jointly. In case of dispute among them, they should be asked to produce a court order for payment of the balance in the account.

Process: Death claims in case of proprietorship concern

The account of a proprietorship concern has to be treated as a single account of the proprietor. The procedure specified above for single accounts is applicable to accounts of proprietorship concerns too.

Process: Death claims in case of partnership firms

*Flow chart diagram

On the death of a partner, operations in the account must be handled in the following manner:

The partnership firm gets automatically dissolved unless the Partnership Deed states that it will be a continuing partnership.

If the partnership is dissolved, the balance in the account has to be paid jointly to the surviving partners and the legal heirs of the deceased partner by a cheque drawn in their favor.

The partners of a continuing partnership can constitute a new firm in the same name or another name and request the bank to transfer the balance to their new account.

The successors of the deceased partner cannot make a claim on the bank for a share of the balance in the account of the firm. Their claim lies against the other partners for return of the capital invested by the deceased partner.

John’s comment: Is this in case of a continuing partnership?

Legal Entities

The death of a director of a company, member of the Management Committee of a society or association, trustee or a karta of an HUF does not dissolve the entity.

Process: Death claims in case of Legal Entities

*Flow chart diagram

On the death of a director of a company, member of the Management Committee of a society or association, trustee or a karta of an HUF, operations in the account must be handled in the following manner:

The remaining members of the Board of a company or Management Committee of an Association or Society can continue to operate the account as per the original resolution. They can also appoint a new member and make him an authorised signatory by a resolution of the Board or Management Committee.

In case of a Trust, the procedure prescribed in the Trust Deed has to be followed on the death of a trustee. In the case of an HUF, the next senior most coparcener will become the Kartha. Fresh documents signed by all the coparceners is taken and the account is allowed to continue.

Executors, Administrators, Receivers and Liquidators

Since all of these entities are appointed by the court, on their death, fresh directions of the appointing court are obtained. Cheques issued before their death can be paid even after their death, though caution has to be exercised. The signatory will not be available for giving evidence.

What are these entities? Need clarification.

General

Processing of requests of nominees/successors, legal heirs of the deceased account holders have to be handled with sensitivity and care. It should be borne in mind that the claimants might be facing emotional and financial stress due to the death of the customer.

The bank officer handling such requests must do a thorough check of the legal documents required in each case. When in doubt, check with the relevant authority. Clearly specify to the claimants about the documents required and the formalities that need to be completed to process the claim. Unclear communication will result in unnecessary and avoidable delays.

John’s comment: Is it written correctly?

9.6. Dormancy of accounts

As per its Circular of 1st October 1977, banks were advised by RBI that Deposit Accounts, which have not been operated for a period, say 2 years, should be segregated and maintained in separate ledger/s. In view of the increase in the amount of the unclaimed deposits with banks, year after year and the inherent risk associated with such deposits, RBI has issued following revised instructions on 22nd August 2008 defining the process of handling them.

Process: Dormancy of accounts

The proactive process, defined by RBI, for the banks to handle dormant accounts are as follows:

Banks should make an annual review of accounts in which there are no operations for more than one year. That is, no credit or debit other than crediting of periodical interest or debiting of service charges, the banks may approach the customers to ascertain the reasons.

A Savings/Current Account should be treated as inoperative/dormant if there are no transactions in the account for over a period of two years.

If the account holder provides any reply giving reasons for not operating the account, banks should continue classifying the same as an operative account for one more year within which period the account holder may be requested to operate the account.

If the account holder still does not operate during the extended period, banks should classify the same as an inoperative after the expiry of the extended period. For classifying an account as ‘inoperative’, debits as well as credit transactions induced at the instance of customers as well as third party should only be considered.

John’s comments: Third party what?

If the account holder wishe to activate the account, there should not be any charge for activation of an inoperative account.

John’s comment: Add this bit. Is it ok?

Interest on saving bank account should be credited on regular basis whether the account is operative or not. If an FD receipt matures and proceeds are unpaid, the amount left unclaimed with the bank will attract savings bank rate of interest.

John’s comments: Is the word right? And how is it written formally?

9.7. Issuance of deliverables

While opening an account, banks generally issue certain deliverables to new customers. Banks offer a range of products and services. And, customers choose the ones they need. The deliverables depend on the services chosen by the customer while filling in the Account Opening form.

*In one row, images of ATM machine, Online banking screen, Mobile phone with phone banking screen shot, Computer screen with online trading screen and Share market?IGNORE. REWRITE-Refer to table.

The following services are usually offered by the bank while customer opens a new SB/Current account.

ATM facility

Internet facility

Phone banking facility

Demat services

Share trading

For each of these services, bank has standardised Welcome kit. Details of deliverables and their issuance is given in the following Figure 1.9.1

John’s comment: Should it be issue or offer? What is the difference between range of products and services and deliverables? Confusing. Please clarify.

Fig 1.9.1 Issuance of deliverables

Name of the service

Deliverables sent in Welcome kit

Deliverables issued separately through courier

ATM cum Debit card facility

User guide

ATM/Debit card Personal Identification Number (PIN)

Net banking

Net banking product book let

Net banking PIN

Credit card facility

Credit card

Credit card user guide

Credit card PIN

Phone banking

The easy to carry Phone Banking pocket guide

Phone Banking -Telephone Identification Number (TIN)

Cheque leaves (personalised)

25 cheque leaves book

Depository service

Client master list

Agreement for DP account (copy) for future reference and records of the client

Personalised delivery instruction book for issuing DP delivery instructions.

Holding statement on quarterly basis through courier

Savings Bank account

Terms and conditions book

Personalised cheque book

Account statement on quarterly basis

Trading account of associate broking subsidiary

Booklet on trading products and terms and conditions .

E-broking password

Broking invoice electronically or physical copy through post/courier

Account opening formalities are completed at the branch or at a customer’s place. Now a days banks generally do account opening at a centralised location. Therefore, the Account Opening form and other supporting documents are sent to the centralised Account Processing Centre (APC) by the account sourcing branch. The APC further processes the documents received from branches.

John: Does it mean residence or any location where the customer decides such as office, store, mall, etc?

Welcome kit

In the Account Opening form customer indicates the services that he wants to avail from the bank. Accordingly, the APC prepares the Welcome kit . APC sends a kit to the address opted by the customer to receive the communication. The kit will usually contain the documents and deliverables relevant to the services opted by the customer.

ID and pass word (PIN and TIN) are important inputs required for using the alternate channels of banking. PINs/TINs are usually sent in a sealed cover by other vendors entrusted with such work.

John: What is ID? What is PIN and TIN?

The Welcome kit and the PINs are important documents for starting banking operations. In some banks Welcome kits are sent to the base branch address for onward delivery to the customer.

Welcome kit is the first important communication sent to the customer. Above items contained in the kit help to familiarise the bank and its products. The kit also acts as a first point of ‘look and feel’ of the product and services of the bank.

It is important that all the closed covers, containing the PINs/TINs for the services chosen, are opened. Password should be changed by going to the site of the bank. Thereafter, the sealed covers and the sheet containing the pass word should be destroyed to avoid pass words falling into wrong hands.

John: What is site of the bank?

Other deliverables

Most of the banks offering credit card facility to customers keep sending ‘offers’ available for their card holders. Customers will periodically get such communications. Customers will also get their credit card bills periodically for payment of dues.

Banks prefer that their customers use their technology-based services, which are cost effective and convenient. As a promotion measure, such banks offer hands-on training to new customers at important locations. This is also a part of the deliverables.

Deliverables are important to familiarise the banks products, policies and terms. Most of the information is provided in the Welcome kit which comes very handy to use the banking services.

9.8. Nomination

The Banking Regulation Act was amended in 1984 and Section 45ZA to 45ZF were added to the Act for providing nomination facility in Banks.

John: Missing Year for the Act. What is it?

In 1985, the Central Government made the ‘Banking Companies (Nomination) Rules which was notified in official Gazette of India on 29th March, 1985. Nomination facility was introduced in banks with effect from this date.

*Image

Banks can provide nominating facility for Deposit Accounts, safe custody of articles and safe deposit lockers.

Section 45ZA and 45ZB deal with the provisions for nomination in Deposit Accounts

Section 45 ZC and 45 ZD deal with safe custody

Section 45 ZE and 45 ZF for safe deposit lockers.

Banks cannot provide nomination facility in respect of Jewel Loans, Cash Credit Account or any such account other than the three mentioned above.

John: Is the captialisation correct?

9.8.1 Nomination facility for Deposit Accounts

*Image – Reuse stick figures on a box where currency notes are being inserted into it!!

What type of accounts: Nomination facility is available only in the case of Deposit Accounts held in individual capacity of the depositor(s) and not in any representative capacity. As such no nomination can be made in case of accounts in the name of a Company, Firm, HUF, Association, Trust and so on.

Minor Accounts: Where the deposit is in the name of a minor, the nomination will be made by the legal guardian. In case of self-operated minor accounts no nomination can be accepted.

John: Should it be Deposit Account instead?

Joint Accounts: Nomination is permitted in Deposit Accounts in the joint names of two or more individuals. Nomination should be made jointly by all the joint account holders even if the account is operated by ‘either or survivor’ or ‘former or survivor’.

John: Have not come across the term yet. Is there such a term?

Proprietary concerns: In law, there is no difference between a proprietary concern and an individual. Therefore, nomination is permitted in proprietary account.

Who can be appointed as nominee: Only an individual can be appointed as a nominee. Nomination cannot be made in favour of firms/companies/HRU or any representative body.

John: What is HRU? Again consistency is missing writing the different types.

Only one person can be appointed as a nominee for a particular account. This provision is different in safe deposit locker accounts. As many nominees can be nominated as there are joint holders for the locker.

A minor can be appointed as a nominee. However, in such cases another adult, not necessarily his/her guardian or relative, must be named to receive the deposit on behalf of the minor, in case of the death of depositor(s) during the minority of the nominee.

9.8.2 Process: Nomination

The following needs to be taken care of during the appointment of a nominee:

In case of joint accounts, all depositors must join together to appoint a nomine. For nomination, Form DA1 is used.

Separate nominations have to be obtained in respect of different Deposit Accounts.

As per RBI’s guidelines, the bank should brand the pass book/receipt and relative ledger folio with the stamp ’Nomination Registered’.

RBI has advised that at the written request of the customer, the bank may mention the name of the nominee in SB pass book/term deposit receipt.

John: Fractured and incomplete information. Is there any connection to the topic?

9.8.3 Cancellation and variation of nomination

John: What is variation of nomination?

A nomination already made can be cancelled by the sole depositor or by all the depositors in a joint account. Form DA-2 is used for this purpose .

John: Is it written like this?

The variation of nomination can be made by all depositors together by using Form DA-3. In case of the death of one of the joint depositors, the cancellation or variation can be made under the signature of all surviving depositors/depositor. This is also applicable to deposits having operating instruction ‘either or survivor’.

John: Is it written like this?

John: Have we talked about joint depositors in the course before?

Fresh nomination need not be made when a Deposit Account is renewed. The existing nomination does not cease to operate merely by reason of the renewal of the deposit.

Where the style of the account is changed, or some addition/deletion in the name of depositors is made, the nomination stands cancelled.

John: What do you mean by style of account?

A term deposit can be paid, at the request of the nominee, before its maturity. No penalty need be charged in case of such foreclosure. Before paying to the nominee, the bank must ask for the death certificate .

Need to make this into bulleted text

9.8.4 Legal position on payment to nominee

On the death of the depositor(s), the nominee is entitled to receive the balance. The bank need not take into account any other notice or claim except the order of a competent court. The bank can ignore any will or any other testamentary/non-testamentary disposition in respect of such deposit.

The nominee does not become the owner of the proceeds by virtue of his right to receive the payment. Any person having a right over the balance can claim it from the nominee.

9.8.5 Nomination facility for articles kept in safe custody

Nomination facility is available only where the articles are held in single name of individuals. In other words, safe custody in joint names are not eligible for nomination. Note that the differences from Deposit Account and lockers where nomination is accepted in an account in joint names. Like Deposit Accounts, nomination is also not available on safe custody deposits made in representative capacity. Only one individual can be appointed as nominee.

Nomination can be made by using Form SC-1.Cancellation and variation can be made by using Form SC-2 and Form SC-3 respectively.

John: What does ‘articles kept in safe custody mean? What service is it?

John: What does ‘single name of individuals’ mean?

John: Incomplete sentence/can’t understand this para.

John: Treatment for text safe custody deposits.

9.8.6 Nomination facility in safe deposit locker accounts

Nomination facility is also available for safe deposit lockers. The main points of difference between nomination facility in a Deposit Account and that of safe deposit locker account are the following:

Number of nominees: While in case of a Deposit Account in joint names only one person can be appointed as nomine; in case of safe deposit locker account in joint names more than one person can be appointed as nominee. However, the maximum number of nominees will be restricted to the number of joint account holders.

Where the locker is hired in the name of a minor, the nomination should be made by a person lawfully entitled to act on behalf of the minor.

John: Is that correct?

John: Is there a difference between safe deposit lockers and safe deposit lockers accounts. Can there be a nomination facility for safe deposit locker... did it mean safe deposit locker account?

9.9.7 RBI guidelines on nomination

Banks should take nomination in all eligible accounts both new and existing, except in cases where the customer himself does not want to nominate a person. Where the customer prefers not to nominate a person, a written confirmation should be obtained from him.

The Account Opening form should have a space to record the names and addresses of the nominee.

Availability of nomination facility should be widely published by printing messages in the pass book, cheque book and other literature reaching the customer.

John: Is this correct?

Banks should record on the face of the pass book and deposit receipt ‘nomination registered’ so as to enable the legal heirs to ascertain that there is a nomination in the account. Banks can also indicate the name of the nominee in the pass book/deposit receipt/statement of account if the customer agrees for the same.

John: Treatment - Bulleted text

A comparison of nomination facility for Deposit Accounts with safe custody and safe deposit lockers is provided in Fig 1.9.1 below.

Fig 1.9.1: Comparison of nomination facility

Points of comparison

Deposit Account

Safe custody

Safe deposit locker

Enabling section

45ZA, 45ZB

45ZC. 45ZD

45ZE. 45ZF

Allowed in Joint account or not

Allowed

No

Allowed

Maximum number of nominees in joint account

One

Nil

Equal to number of hirers

Form for nomination

DA-1

SC-1

SL-1, SL 1A

Can a minor be nominee

Yes

Yes

Yes

Can a non-resident be nominee

Yes

Yes

Yes

Variation of nomination by survivors (in case of joint account)

Allowed

Not allowed

Not allowed

Death of one of the joint holders

Nominee does not come into picture

Not applicable

All nominees along with survivors to take delivery of goods

Form for cancellation

DA-2

SC-2

SL-2

Form for variation

DA-3

SC-3

SL-3, SL3A

9.9. Transfer of accounts

It is common for customers to request for transfer of their account from one branch to another in the same city or another city on account of transfer of residence. With banks having a centralised database and networked branches, operation of the account is not limited to the branch where the account is maintained. Since the account is in a central database, it can be accessed from any branch. Further, most of the operations are done at centralised operation centres. Hence, there is little need to shift an account from one branch to another in the same city.

While technically, an account can be operated from any branch in any city, when a customer shifts to another city there is a need to open a fresh account due to limitations imposed by the clearing houses. Every city has a clearing house which settles interbank cheques drawn on branches in that city only. Cheques carry a unique code number, called the sort code, which enables the clearing house systems to identify the branch and bank that has issued the cheque. A cheque issued by a branch of a bank in Mumbai, will be rejected by the Chennai clearing house as an outstation cheque. Hence, a person shifting from Mumbai to Chennai has to necessarily open an account in Chennai and get a fresh cheque book issued, if his cheques are to be cleared through the local clearing houses.

John: Check interbank usage. I think interbank is also some other concept because it appears as article on Wikipedia.

This limitation can be overcome by having ‘anywhere cheques’ which carry a special sort code and is accepted as a local cheque wherever it is presented. A customer having an account is Mumbai can operate the account as a local account if he has the facility of ‘anywhere cheques’. At the same time, it has to be appreciated that not all customers enjoy the facility and even if they do, there are restrictions on the number and kinds of transactions that can be done from an upcountry centre. Hence, it is desirable to have an account with a local branch.

John: What is an upcountry centre?

There are two ways in which a person can shift his banking account. He can open a new account with a branch at the new centre and then request the bank to close the account at the previous centre and credit the balance to the new account. Alternatively, the customer can request that his existing account be ‘transferred’ to a branch in the new centre. Even in this case, the bank has to close the old account and open a new account at a branch in the new centre.

In both cases, the customer has to fill in a new Account Opening form. Supporting documents are not required as he is already known to the bank. The advantage in ‘transferring’ an account is that the customer can continue to use the old ATM card, Internet and Phone Banking login IDs and passwords. Only the cheque book will be changed. This is possible because every customer has a unique ‘Customer ID’ to which all accounts of the customer are linked. Hence the new account number can be easily linked to the ATM card and Internet/Phone Banking facilities.

Some banks, which have a centralised storage of Account Opening forms, do not insist on a new Account Opening form. They take only an application for transfer of account. The customer will be issued a new cheque book and all other access devices will continue to be valid.

The exact procedure may vary slightly from bank to bank. What is common is that the customer will definitely get a new account number and a new cheque book.

9.10. Account closure

Circumstances where account closure takes place are as follows:

At the instance of the bank

At the request of the customer

At the instance of the Bank

The bank may like to close the account of an undesirable customer for the following reasons:

The customer issues too many cheques without maintaining sufficient balance

When he is countermanding payment of his cheques

When cheques deposited are frequently returned

When the customer is guilty of forgery

When the customer acts in a manner detrimental to the bank’s prestige or causes nuisance and inconvenience to the bank.

When there are no funds to meet the maintenance-expenses of the account

In such cases, the bank has to give proper notice to the customer/s so that the latter may make alternative arrangement. Sufficient time should be given to him to make alternative arrangements. If sufficient notice is not given, the customer may take legal action against the bank. To be on the safe side, banks, normally issue a notice giving about two months’ time and again issue one more notice giving another month’s time before forcibly closing the account and sending the customer a pay-order for the balance in the account.

At the request of the customer:

A customer can request the bank, in writing, to close the account at any time of his choice. Such a request must be signed by all joint account holders or the authorised signatories in the case of accounts of legal entities. Legally, a customer is not bound to give any reason as to why he is closing the account. However, Banks do try to find out the reason for closure of the account to know whether it is due to dissatisfaction with the service of the bank. In cases of customer dissatisfaction, immediate remedial action is often initiated by the bank to redress the customer’s grievance and the customer is persuaded to continue the account.

The ATM/debit card and unused cheques must be collected and destroyed before closing the account.

9.11 Tax Deduction at Source (TDS)

Section 194 A of Income Tax Act 1961, as amended by Finance Act 1995 requires banks to deduct tax at source from interest paid/payable on term deposits opened on or after 1st July 1995. Relevant guidelines are given below.

John: DONE TILL HERE...

9.11.1 Interest on Term Deposits (Sec194A)

Deposits on which tax is to be deducted: TDS is applicable to Fixed Deposit/Time Deposit excluding Recurring Deposit made/renewed on or after 1 July 1995. TDS is not applicable for recurring deposits/cumulative deposits.

Amount on which TDS is to be deducted: Interest paid/credited or likely to be paid/credited to the customer’s account or interest payable account or suspense account, and so on. during the financial year. This is applicable for interest paid/payable of Rs 10000 and above.

Non-resident account: Interest paid on NRE, FCNR, NRNR accounts is exempt from deduction of tax source. For NRO account, deductions is to be made for all interest payments in all accounts (where funds are in the form of inward remittance from abroad, rate of deduction would be 20% instead of normal 30%).This rate is varied by budget proposal from time to time.

Joint Accounts and minor’s account: Interest would be accounted in the hands of first named joint holder. In the absence of any information to the contrary, bank has to aggregate the interest on deposit in the individual account who has higher interest income. In case of accounts in the name of minors, the deduction to be made in the name of parents/guardians.

TDS at lower rates: If a depositor submits certificate from the Income Tax Assessing Officer for deducting tax at a lower rate or for not deducting tax at all, then, the bank will act as per the certificate issued by the Assessing Officer.

Issue of TDS certificate: Banks have to issue TDS certificate within one month from the end of the quarter in which credit is given or the amount is paid.

9.11.2 TDS exempted categories:

TDS is not applicable to deposits kept in the name of the

Banks including co-operative banks

Financial Institutions formed under a Central or State Act Ex: IDBI, IFCI, SIDBI, SFC

LIC

UTI

Insurance companies

9.11.3 Where deduction is not to be made:

No TDS to be deducted in the following cases:

Where the aggregate amount of interest paid/payable during the financial year does not exceed Rs. 10000/-.

Where interest is credited or paid to any banking company, co-operative society engaged in banking business, public financial institutions, the Life Insurance Corporation, the Unit Trust of India, a company or a co-operative society carrying on the business of insurance.

Where interest is credited/paid for deposits (by non-members) with a primary agriculture credit society or co-operative land mortgage bank or co-operative land development bank.

9.11.4 Submission of Form No. 15G/15H

Under section 197A (i) of the income Tax Act, no deduction shall be made in the case of an individual who is resident in India and furnishes a declaration in writing in duplicate, in the prescribed form (15G for normal persons/15H for senior citizens of 60 years and above) and satisfies the following conditions:

Depositor is other than a company or Firm.

Tax on the estimated income of the depositor of the financial year will be NIL.

The amount of interest on securities, dividends, interest other than interest on securities, payment in respect of deposits under National Savings Scheme and income in respect of units credited or paid during the previous year does not exceed the maximum amount, which is not chargeable to income tax.

The condition is not applicable, if the depositor is a resident individual whose age is 60 years or more at any time during the financial year, in such case he will have to submit Form 15H in duplicate to the bank.

9.11.5 Tax deduction account number (TAN)

Sec 203 A of IT Act requires that every person deducting tax at source must obtain a tax deduction account number. For obtaining the TAN number, application should be made in Form 49 B.

This number is to be quoted in the challans, returns and TDS certificates and failure to do so attracts penalty of Rs 10000/

9.11.6 Electronic Deposit of TDS

The deductor having deducted the tax at source has to deposit the same to the credit of the account of CBDT with SBI/RBI or any other bank. This has to be done within a week from the end of the month in which such tax was deducted. From July 2009, it has become mandatory to make such deposits only through electronic means, internet banking or through credit card.

Once the data is uploaded the system will automatically verify these details for each deductee and if the same are in order, it will generate Unique Transaction Number (UTN) for each deductee and will provide an acknowledgement giving the details of such UTNs. The deductor is required to quote these UTNs in the TDS certificate to be issued to the deductees.

9.11.7 Issue of TDS certificate

The deductor is required to issue certificate for deduction of tax (i.e TDS certificate) in form 16-A to the deductees. The IT department will allow the TDS refund claims only if the assessee quotes the relevant UTN and said UTN matches with the UTN in the data base of the IT department.

9.11.8 IBA guidelines on TDS

IBA has advised all banks to comply with the following guidelines with respect to the Tax Deduction at Source.

The provisions regarding the TDS should be displayed in the branch premises for the knowledge of the depositors

All depositors should be educated regarding the TDS provisions and the requirement of the submission of the form 15 G/15 H every year

Bank is required to provide a consolidated TDS certificate at the end of the financial year which would mention the details of the tax deducted during the whole year.

9.12 Stop payment instructions

Customer of the bank can issue instruction to stop the payment of a cheque which is already issued.

Bank cannot make payment of a cheque that has been stopped by the drawer. Customer can stop payment of a single cheque or a series of cheques by giving a written request. A stop payment request can be given through any of the authenticated channel like ATM, Internet Banking and Phone Banking channels. The request must specify the account number and cheque number/ numbers and reason for stop payment. Stop payment instructions are recorded in the system after verifying the signature or identity of the customer and also whether the cheque has already been paid or are in the process of payment. An acknowledgment is issued to the customer giving the date and time of receiving the instruction to prevent any dispute in future.

The customer has the right to countermand (stop) the payment of the cheque issued by him, before it is actually paid.

Such instructions are accepted from the drawer of a cheque and not from the payee or endorsee because bank has contractual relationship with the drawer only. If a payee or endorsee reports loss of the instrument to the bank, bank can advise him to get stop payment instruction issued by the drawer.

Stop payment instructions can be issued even after business hours, preferably in writing. Oral instructions or telephonic/telegraphic requests are also accepted by Banks, if followed by written confirmation. If several persons are authorised to operate the account, stop payment instruction given by any one of them will be treated as valid.

The instructions are valid only when these are received before the payment of the cheque has actually been made. Payment shall not be deemed to have been made in cases where token has been issued but amount has not been handed over, debit entry has been made in the account but the amount is yet to be paid, cheque has been presented through clearing and time of returning the cheque has not elapsed and cheque has been paid by way of transfer entry from customer’s account to payee’s account but credit advice has not been issued to the payee and payee is unaware of this credit.

Failure of bank-When the banker fails to take proper precautions and pays a countermanded cheque, even by mistake, the payment will not be considered to be in due course. Bank cannot debit customer’s account in such circumstances nor claim the money from the holder whose rights to the amount of cheque are unaffected.

Validity period- Stop payment instruction is valid till the time the countermanded cheque is returned by the bank.

9.13 Unclaimed Deposits/Inoperative Accounts

Except for drafts, cash orders, Rupee Travelers Cheques (RTC)/Gift Cheques all other in-operative accounts remaining in-operative for further period of 7 years or more, (after initial period of 3 years in unclaimed stage) are to be transferred to in-operative accounts category on 1st day of December each year. An annual report also is submitted to RBI as on 31st Dec each year, within 30 days, under section 26 of Banking Regulation Act,.

The banks are to display on their websites, the list of unclaimed deposits/inoperative accounts which are inactive/inoperative for 10 years or more. Such a list must contain the names of the account holder(s) and his/her address. It should be updated regularly.