Vasant G Hegde - CFA, former banker, presently teaching at Manipal Academy of Higher Education, Bengaluru.
Credit: DH Illustration
The 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.
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.