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Introduction to Banking

Nomination Facility In Bank Accounts

One of the foremost responsibilities of the earning member of a family is to make provisions so that the family can have easy access to all funds in his absence. All banks extend the nomination facility to its customers to make this process smoother. Through this facility, an account holder can nominate anybody of his choice to receive the fund in case of his/her death. This nomination facility is available to all types of accounts including joint accounts and safe deposit lockers. The name of the nominee is printed in bank documents for easy understanding.

 

The nominee can be any individual, even minors. In case the nominee is a minor, an appointee has to be fixed who may or may not be the guardian of the minor. In case of a fixed deposit, the original nomination continues even when the fixed deposit auto-renews. 

 

A customer can change a nominee any number of times in a particular bank holding. The rights of nominees come in force only upon the death of the account holder. 

 

The process of designating a nominee is extremely simple and can be done by simply signing a form (Form DA1). Similarly, the cancellation of a nominee is also extremely easy and can be done by signing (Form DA2). 

 

Importance of designating a nominee

In India, the awareness regarding the nomination facility is quite low. In fact, RBI reports that more than ₹ 1000 crore of unclaimed money is lying across different banks due to the absence of a nomination facility. When there is no nomination in an account and a dispute arises after the death of a customer, the money lying in the account will become disputed and will not be handed over by the bank to anybody, thus lying idle as unclaimed money. Such disputes can be fixed through a legal process only which can be time-consuming.  

 

It is impossible for anyone to understand what the situation will be upon his/her death. Having nomination in any account smoothens the process of transfer of funds to any person favored by the account holder to receive the money. 

 

Rights of a nominee over an asset

It is commonly assumed that nomination gives someone the right to an asset. Be it a bank account, insurance policy proceeds, or a property, people think that the person who holds the nomination will get the rights. 

 

However, in reality, although the nomination holder receives the asset of a deceased, the rightful owner of the asset is the legal heir(s) of the deceased. The nomination holder is merely the receiver and the holder of the assets of the deceased till he/she is legally bound to transfer the same to the legal heir (s). This has been a center of massive discussion over several years which was finally brought to an end in 2006 by the Hon Supreme Court of India over a dispute regarding a flat in a cooperative housing society in Kolkata. In its verdict, the Court said that the flat would be transferred to the nominee but the legal heirs hold the right to ownership of the flat. 

 

Following this, RBI has clarified that the same applies in the case of deposits held by the bank. The nominee shall receive the proceeds only “as a trustee of the legal heirs of the deceased”. Hence, in case of bank deposits, all proceeds are duly transferred to the nominee. A bank’s responsibility ends with such a transfer. Banks will not be involved in further legal proceedings.

 

It is essential to note that this applies to bank deposits only. The scenario can be different for different assets such as mutual funds or property. 

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