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Master Circular
Maintenance of Deposit Accounts
1. INTRODUCTION
Acceptance of deposits and maintenance of
deposit accounts is the core activity in any
bank. The very basic legal interpretation of the
word 'banking" as defined in the Banking
Regulation Act, 1949 means accepting deposits
ofmoney, for the purpose of lending or
investment, from the public, repayable on
demand or otherwise, and withdrawable by cheque,
draft, order or otherwise. Thus, deposits are
the major resource and mainstay of a bank and
the main objective of a bank is to mobilise
adequate deposits. Various instructions,
guidelines, etc. issued from time to time to
primary (urban) co-operative banks in regard to
opening and conduct/monitoring of deposit
accounts are detailed hereunder.
2. OPENING OF DEPOSIT ACCOUNTS
2.1 Introduction of New Depositors A
large number of frauds are perpetrated in banks
mainly through opening of accounts in fictitious
names, irregular payment of cheques,
manipulation of accounts and unauthorised
operations in accounts. Considering the fact
that opening of an account is the first entry
point for any person to become a customer of the
bank, utmost vigilance in opening of accounts
and operations in the accounts is called for.
Even the legal protection under the Negotiable
Instruments Act, 1881 which governs payment and
collection of negotiable instruments and
provides certain rights, liabilities
(obligations) and protections to the
issuers/drawers, payees, endorsees, drawees,
collecting banks and paying/drawee banks, will
be available, only if the bank makes the payment
or receives payment of a cheque/draft payable to
order in due course. Any payment or collection
of a negotiable instrument is deemed in due
course only when the bank acts in good faith and
without negligence and does so for a customer.
2.1.1 Necessity of Introduction
(i) Introduction of an account is obtained not
merely as a formality to get protection under
section 131 of the Negotiable Instruments Act
1881, but also to enable proper identification
of the person opening an account, so that it
would be possible, to trace the person later
when required.
(ii) It is necessary for banks to know their
customers and to put in place proper systems and
procedures. The practice of obtaining proper
introduction should not be treated as a mere
formality, but as a measure of safe-guard
against opening of accounts by undesirable
persons or in fictitious names with a view,
inter alia, to depositing unaccounted money.
2.1.2 Proper Introduction
(i) The account should not be normally opened
without a meeting between the bank official and
the customer.
(ii) The banks should invariably insist upon
prospective depositors to furnish introduction
(from either any of the existing account holders
or a respectable member of the local community
known to the bank or the bank's staff) for
opening not only current and cheque operated
savings bank accounts but also all deposit
accounts including call, short-term and fixed
deposits. The banks should take steps to satisfy
themselves about the identity of their
depositors.
(iii) The role of the introducers should be made
more specific. It is not sufficient to state
that he has known the person for a sufficient
length of time.
(iv) The person giving introduction should be of
some standing and have an account with the bank
for at least six months to ensure that the
accounts are not opened on the introduction of
new account holders or persons having small and
marginal balances. The interval will also enable
the bank to monitor the account closely to
satisfy itself that the transactions in the
introducer's account are satisfactory.
(v) Branch Managers/staff members should be
discouraged from giving the introduction.
(vi) Where the party is not able to provide an
introduction satisfactorily, it must be made
incumbent upon him to provide sufficient proof
of his antecedents before the account is allowed
to be opened.
(vii) Customers of good standing should be
educated to realise the implications of
introducing an account without knowing the new
parties.
(viii) In the case of a customer who will be
getting credits, say by way of salary, and
making payments by cheques to government/
semi-government agencies/individuals, simple
introduction along with photograph, may suffice.
(ix) In case of accounts, which are likely to be
used for putting through remittance transactions
and for collection of cheques of substantial
amounts besides business payments, deeper
enquiries would be necessary on the part of the
bank.
2.1.3 Introduction in Absentia
When an introducer does not personally call at
the branch to introduce an account, the fact
ofhaving introduced a new account should be got
confirmed from him in writing. In cases where
the account opening forms bear the signatures of
manager/officials of other branches of the bank
for introduction, apart from verifying the
signatures of such introducers with the specimen
signatures available on record, the branch
concerned should obtain written confirmation of
the introduction from the officials of the
branches who introduced the account. Till such
time the confirmation is received, the banks
should not collect cheques/draft through the
newly opened accounts. The same procedures
should be adopted in cases where the introducers
of accounts are not officials of the bank and do
not personally call at the bank to introduce an
account. The bank should send a letter by post
both to the customer and the introducer and seek
their confirmation for opening the
account/giving introduction. Cheque book may be
issued after receipt of confirmation from both.
2.2 Photographs of Account Holders
2.2.1 Mandatory Obtention of Photographs
(i)The banks should obtain photographs of the
depositors/account holders who are authorised to
operate the accounts at the time of opening of
all new accounts. The customers' photographs
should be recent and the cost of photographs to
be affixed on the account opening forms may be
borne by the customers.
(ii)Only one set of photographs need be obtained
and separate photographs should not be obtained
for each category of deposit. The applications
for different types of deposit accounts should
be properly referenced.
(iii)Photographs of persons authorised to
operate the deposit accounts viz. S.B. and
Current accounts should be obtained. In case of
other deposits viz. Fixed/Recurring, Cumulative
etc. photographs of all depositors in whose
names the deposit receipt stands may be
obtained, except in the case of deposits in the
name of minor, where guardians' photographs
could be obtained.
(iv)The banks should also obtain photographs of
'Pardanashin" Women.
(v)The banks should also obtain photographs of
NRE, NRO, FCNR account holders.For operations in
the accounts, banks should not ordinarily insist
on the presence of account holder unless the
circumstances so warrant. Photographs cannot be
a substitute for specimen signatures.
2.2.2 Exceptions
(i) The photographs need not be insisted upon by
banks in the under noted cases:
(a) new savings bank accounts where cheque
facility is not provided; and
(b) fixed and other term deposits upto an amount
and inclusive of Rs. 10,000/-
(ii) However, the banks should take usual and
necessary precautions/safeguards in regard to
opening and operation of these accounts.
(iii) Where a depositor has a term deposit of
less than Rs. 10,000/- but he/she is also having
a savings bank account with cheque facility or a
current account, it will be necessary to havethe
photograph of the depositor.
(iv) Banks, local authorities and government
departments (excluding public sector
undertakingsor quasi-government bodies) are
exempt from the requirement of photographs.
(v) The photographs need not be obtained for
borrowal accounts viz. Cash Credit, Overdrafts
accounts, etc.
(vi) The banks may not insist for photographs in
case of accounts of staff
members (Single/Joint).
2.3 Address of Account Holders
It is not proper for banks even unwittingly to
allow themselves to be utilised by unscrupulous
persons for the purpose of tax evasion.
Therefore, banks should obtain full and complete
address of depositors and record these in the
books and the account opening forms so that the
parties could be traced without difficulty, in
case of need. Independent confirmation of the
address of the account holder should be obtained
in all cases.
2.4 Other Safeguards
2.4.1 PAN/GIR Number The banks are
required to obtain PAN/GIR number of a depositor
opening an account with an initial deposit of
Rs.50,000/- and above.
2.4.2 Authorisation
The opening of new accounts should be authorised
only by the Branch Manager or
by the Officer-in-Charge of the concerned
deposit accounts department at bigger
branches.
2.4.3 Completion of Formalities
The banks should ensure that all account opening
formalities are undertaken at the bank's
premises and no document is allowed to be taken
out for execution. Where it is absolutely
necessary to make exception of the above rule,
banks may take precaution such as deputing an
officer to verify the particulars, obtaining a
signed photograph on a suitably formatted
verification sheet, forwarding by registered
A.D., mailing a copy of the account opening form
and accompanying instructions to the client for
necessary verification before any operations are
conducted in the accounts.
2.4.4 Opening of current account – Need for
discipline:
Keeping in view the importance of credit
discipline for reduction in NPA level of banks,
banks should insist on a declaration from the
account-holder to the effect that he is not
enjoying any credit facility with any other bank
or obtain a declaration giving particulars of
credit facilities enjoyed by him with any other
bank(s). The account-opening bank should
ascertain all the details and should also inform
the concerned lending bank(s). The
account-opening bank should obtain No-objection
certificate from such banks. However, in case no
response is received from the existing bankers
after a minimum period of a fortnight, banks may
open current accounts of prospective customers.
Further, where the due diligence is carried out
on the request of a prospective customer who is
a corporate customer or a large borrower
enjoying credit facilities from more than
one bank, the bank may inform the consortium
leader, if under consortium, and the concerned
banks, if under multiple banking arrangement.
Banks are advised to be guided by the need for
effective due diligence in these matters as also
the objective of customer satisfaction and
ensure that suitable arrangements are in place
for prompt and serious attention to references
received from banks in this regard.
2.4.5 Financial Inclusion
While recognizing the role of primary (urban)
co-operative banks in providing basic and
affordable banking services in their respective
area of operation, it is observed that in some
UCBs, the requirement of minimum balance
continues to deter a sizeable section of
population from opening / maintaining bank
accounts. With a view to achieving the objective
of greater financial inclusion, all UCBs are
advised to make available a basic banking
'no-frills' account either with 'nil' or very
low minimum balances as well as charges that
would make such accounts accessible to vast
sections of population. The nature and number of
transactions in such accounts could be
restricted, but made known to the customer in
advance in a transparent manner. All UCBs are
advised to give wide publicity to the facility
of such 'no-frills' account including on their
web sites indicating the facilities and charges
in a transparent manner.
2.5 Opening of NRO/NRE accounts:
2.5.1 UCBs may maintain NRO accounts arising
from their redesignation as such, upon the
existing resident account holders becoming
non-resident and in such accounts only,
periodical credit of interest will be permitted.
UCBs are not permitted to open any fresh NRO
accounts. (with the exception of Category I
Authorized Dealers)
2.5.2 UCBs registered in States that have
entered into a Memorandum of Understanding (MOU)with
Reserve Bank for supervisory and regulatory
co-ordination and those registered under the
Multi State Co-operative Societies Act, 2002 and
complying with the following norms are eligible
for authorization to maintain NRE accounts.
(i) Minimum net worth of Rs 25 crore.
(ii) CRAR of not less than 9%
(iii) Net NPAs to be less than 10%
(iv) Compliance with CRR/SLR requirements
(v) Net profit for preceding three years without
any accumulated losses.
(vi) Sound internal control systems
(vii) Satisfactory compliance with KYC/AML
guidelines
(viii) Presence of at least two professional
directors on the Board.
3 RESTRICTIONS ON OPENING OF CERTAIN TYPES OF
DEPOSIT ACCOUNTS
3.1 Minor's Account with Mother as Guardian
3.1.1 Generally, the banks are reluctant to open
deposit account in the name of minor, with
mother as a guardian. Presumably, reluctance to
allow mother as a guardian when the father is
alive, is based on section 6 of the Hindu
Minority and Guardianship Act, 1956 which
stipulates that, during his lifetime, father
alone should be the natural guardian of a Hindu
minor.
3.1.2 The legal and practical aspects of the
problem have been examined by the Reserve Bank
of India. If the idea underlying the demand for
allowing mothers to be treated as guardians
related only to the opening of fixed, recurring
deposit and savings banks accounts,
notwithstanding the legal provisions, such
accounts could be opened by banks provided they
take adequate safeguards in allowing operations
in the accounts by ensuring that minors' account
opened with mothers as guardians are not allowed
to be overdrawn and that they always remain in
credit. In this way, the minor's capacity to
enter into contract would not be a subject
matter of dispute.
3.1.3 Further, in cases where the amount
involved is large, and if the minor is old
enough to understand the nature of the
transaction, the banks could take his acceptance
also for paying out money from such account.
4. NOMINATION FACILITIES
4.1 Operational Instructions
(i) Nomination facility should be made available
to all types of deposit accounts irrespective of
the nomenclature used by different banks.
(ii) Unless the customer prefers not to
nominate, (this may be recorded, without giving
scopefor conjecture of non-compliance)
nomination should be a rule, to cover all
existing and new accounts.
(iii) Nomination facility is available for
saving bank accounts opened for credit of
pension. However, Co-operative Societies
(Nomination) Rules, 1985, are distinct from the
Arrears of Pension (Nomination) Rules, 1983, and
the nomination exercised by the pensioner under
the latter Rules for receipt of arrears of
pension will not be valid for the purpose of
deposit accounts held by the pensioners with
banks for which a separate nomination is
necessary in terms of Co-operative Societies
(Nomination) Rules, 1985, in case a pensioner
desires to avail of nomination facility.
(iv) Banks are advised to generally insist that
the person opening a deposit account makes a
nomination. In case the person opening an
account declines to fill in nomination, the
banks should explain the advantages of
nomination facility. If the person opening the
account still does not want to nominate, the
banks should ask him to give a specific letter
to th effect that he does not want to make
nomination. In case the person opening the
account declines to give such a letter, the bank
should record the fact on the account opening
form and proceed with opening of the account if
otherwise found eligible. Under no
circumstances, a bank should refuse to open an
account solely on the ground that the person
opening the account refused to nominate. This
procedure should be adopted in respect of
deposit accounts in the name of Sole Proprietary
Concerns also.
4.2 The Act Provisions
Sections 45ZA to 45ZF of the Banking Regulation
Act, 1949 (As applicable to co-operative
societies) provide, inter alia, for the
following matters:
(i) to enable a co-operative bank to make
payment to the nominee of a deceased depositor,
of the amount standing to the credit of the
depositor.
(ii) to enable a co-operative bank to return the
articles left by a deceased person in its safe
custody to his nominee, after making an
inventory of the articles in the manner directed
by the Reserve Bank.
(iii) to enable a co-operative bank to release
the contents of a safety locker to the nominee,
of the hirer of such locker, in the event of the
death of the hirer after making an inventory of
the contents of the safety locker in the manner
directed by the Reserve Bank.
4.3 The Rules
The Co-operative Banks (Nomination) Rules, 1985
provide for:
(i) Nomination forms for deposit accounts,
articles kept in safe custody and the contents
of safety lockers,
(ii) Forms for cancellation and variation of the
nomination,
(iii) Registration of nominations and
cancellation and variation of nominations, and
matters related to the above. The Nomination
Rules in respect of Deposit Accounts provide as
under:
(a) The nomination to be made by the depositor
or, as the case may be, all the depositors
together in respect of a deposit held by a
co-operative bank to the credit of one or more
individuals.
(b) The said nomination may be made only in
respect of a deposit, which is held in the
individual capacity of the depositor and not in
any representative capacity as the holder of an
office or otherwise.
(c) Where the nominee is a minor, the depositor
or, as the case may be, all the depositors
together, may, while making the nomination,
appoint another individual not being a minor, to
receive the amount of the deposit on behalf of
the nominee in the event of the death of the
depositor or, as the case may be, all the
depositors during the minority of the nominee.
(d) In the case of a deposit made in the name of
a minor, the nomination shall be made by a
person-lawfully entitled to act on behalf of the
minor.
(e) The cancellation of the said nomination to
be made by the depositor or, as the case may be,
all the depositors together.
(f) A variation of the said nomination to be
made by the depositor or, as the case may be,
all the depositors together.
(g) The said nomination shall be made in favour
of only one individual.
(h) A nomination, cancellation of nomination or
variation of nomination may be made as aforesaid
at any time during which the deposit is held by
a co-operative bank to the credit of the
depositor or depositors, as the case may be.
(i) In the case of a deposit held to the credit
of more than one depositor, the cancellation or
variation of a nomination shall not be valid
unless it is made by all the depositors
surviving at the time of the cancellation or
variation of the nomination.
(j) The co-operative bank shall acknowledge in
writing, to the concerned depositor or
depositors the filing of the relevant duly
completed Form of nomination or cancellation of
nomination or variation of nomination, as the
case may be, in respect of a deposit.
(k) The relevant duly completed Form of
Nomination or cancellation of nomination or
variation of nomination filed with the
co-operative bank shall be registered in the
books of the co-operative bank.
(l) A nomination or cancellation of nomination
or variation of nomination shall not cease to be
in force merely by reason of the renewal of the
deposit.
4.4 Record of Nomination
The Rules 2(10), 3(9) and 4(10) require a bank
to register in its books the nomination,
cancellation and/or variation of the nomination.
The banks should accordingly take action to
register nominations or changes therein, if any,
made by their depositor's) hirer's) of lockers.
The following aspects may be adhered to while
recording nominations:
(i) In addition to obtaining nomination form,
banks may provide for mentioning name and
address of the nominee in the account opening
form. Publicity about nomination facility is
needed, including printing compatible message on
cheque book, passbook and any other literature
reaching the customer as well as launching
periodical drives to popularize the facility.
(ii) In case of joint deposits, after the death
of one of the depositors, the banks may allow
variation/cancellation of a subsisting
nomination by other surviving depositor (s)
acting together. This is also applicable to
deposits having operating instructions “either
or survivor”. It may be noted that in the case
of a joint deposit account, the nominee’s right
arises only after the death of all the
depositors
(iii) The banks may introduce a practice of
recording on the face of the pass book the
position regarding availment of nomination
facility with the legend ‘Nomination
Registered’. This may be done in the case of
term deposit receipts also.
4.5 Nomination Facility in respect of
Articles in Safe Custody
4.5.1 Legal Provisions The legal
provisions providing for nomination and return
of articles keptin safe custody to the nominee
and protection against notice of claims of other
persons are detailed in Sections 45ZC and 45ZD.
4.5.2 Nomination Rules in respect of Articles
in Safe Custody
The Nomination Rules in respect of articles kept
in safe custody provides as under:
(a) The nomination to be made by an individual
(hereinafter referred to as the “depositor”) in
respect of articles left in safe custody with a
co-operative bank.
(b) Where the nominee is minor, the depositor
may, while making the nomination, appoint
another individual not being a minor, to receive
the said articles on behalf of the nominee in
the event of the death of the depositor during
the minority of the nominee.
(c) Where the articles are left in safe custody
with a co-operative bank in the name of a minor,
the nomination shall be made by a person
lawfully entitled to act on behalf of the
minor.
(d) The nomination should be made in favour of
only one individual.
(e) A nomination, cancellation of nomination or
variation of nomination may be made by the
depositor at any time during which the articles
so deposited are held in safe custody by the co-
perative bank.
(f) The co-operative bank should acknowledge in
writing, to the depositor, the filing of the
relevant duly completed Form of nomination or
cancellation of nomination or variation of
nomination, as the case may be, in respect of
the articles so deposited.
(g) The duly completed Form of nomination or
cancellation of nomination or variation of
nomination filed with the co-operative bank
should be registered in the books of the co-perative
bank.
4.5.3 Operational Instructions
(i) Nomination facilities are available only in
the case of individual depositors and not in
respect of persons jointly depositing
articles for safe custody.
(ii) While returning articles kept in safe
custody to the nominee or nominees and surviving
hirers, banks are not required to open
sealed/closed packets left with them for safe
custody while releasing them.
(iii) In the matter of returning articles left
in safe custody by the deceased depositor to the
nominee, the Reserve Bank of India, in pursuance
of sections 45ZC(3) and 45ZE(4), read with
section 56, of the Banking Regulation Act, 1949,
has specified the formats for the purpose.
(iv) In order to ensure that the articles left
in safe custody are returned to the genuine
nominee, as also to verify the proof of death,
co-operative banks may devise their own claim
formats or follow the procedure, if any,
suggested for the purpose either by their own
federation/association or by the Indian Banks'
Association. As regards proof of death of
depositor, the IBA has advised its member banks
to follow the procedures as prevalent in banks
viz. production of the death certificate or any
other satisfactory mode of proof of death.
4.6 Nomination in respect of Safe Deposit
Locker Accounts
4.6.1 Legal Provisions
4.6.2 The legal provisions providing for
nomination and release of contents of safety
lockers tothe nominee and protection against
notice of claims of other persons are detailed
in Sections 45ZE and 45ZF of the Act ibid. The
Nomination Rules in respect of Safety Locker The
Nomination Rules in respect of Safety Lockers
provide as under:
(a) Where the locker is hired from a
co-operative bank by two or more individuals
jointly, the nomination to be made by such
hirers.
(b) In the case of a sole hirer of a locker,
nomination shall be made in favour of only one
individual.
(c) Where the locker is hired in the name of a
minor, the nomination shall be made by a person
lawfully entitled to act on behalf of the minor.
(d) The cancellation of the said nomination to
be made by the sole hirer or, as the case maybe,
joint hirers of a locker.
(e) A variation of the said nomination to be
made by the sole hirer of a locker.
(f) A variation of the said nomination to be
made by the joint hirers of a locker.
(g) A nomination, cancellation of nomination or
variation of nomination may be made as aforesaid
at any time during which the locker is under
hire.
(h) A co-operative bank shall acknowledge in
writing to the sole hirer or joint hirers, the
fillingof the relevant duly completed Form of
nomination or cancellation of nomination or
variation of nomination, as the case may be, in
respect of the locker so hired.
(i) The relevant duly completed Form of
nomination or cancellation of nomination or
variation of nomination filed with the
co-operative bank shall be registered in the
books of the co-operative bank.
4.6.3 Operational Instructions
(i) In the matter of allowing the nominee's) to
have access to the locker and permitting
him/them to remove the contents of the locker,
the Reserve Bank of India, in pursuance of
sections 45ZC(3) and 45ZE (4), read with section
56, of the Banking Regulation Act, 1949, has
specified the Formats for Banking Regulation
Act, 1949.
(ii) In order to ensure that the amount of
deposits, articles left in safe custody and
contents of lockers are returned to the genuine
nominee, banks may take action as indicated in
para 4.5.3 (iv) above.
(iii) While releasing contents of lockers to the
nominee or nominees and surviving hirers, banks
are not required to open sealed/closed packets
found in locker.
(iv) As regards locker hired jointly, on the
death of any one of the joint hirers, the
contents of the locker are only allowed to be
removed (jointly by the nominee and the
survivors) after an inventory is taken in the
prescribed manner. In such a case, after such
removal preceded by an inventory, the nominee
and surviving hirer's) may still keep the entire
contents with the same bank, if they so desire
by entering into a fresh contract of hiring a
locker.
(v) Section 45ZE, read with section 56, of the
Banking Regulation Act, 1949, does not preclude
a minor from being a nominee for obtaining
delivery of the contents of a locker. However,
the responsibility of the banks in such cases is
to ensure that when the contents of a locker are
sought to be removed on behalf of the minor
nominee, the articles are handed over to a
person who, in law, is competent to receive the
articles on behalf of the minor.
5 OPERATIONS IN ACCOUNTS
5.1 Joint Accounts
5.1.1 Modes of Operations in Joint Accounts A
copy of the letter No. LA.C/19-96-29 dated 28
August 1980, received from the Indian Banks’
Association, Bombay is given in the Annex I.
Banks may consider the desirability of issuing
suitable instructions to their branches for
their information and necessary guidance on the
subject.
5.1.2 Precautions in Opening Joint Accounts
(i) In the case of too many joint account
holders, the banks should keep the
followingguidelines in view, while opening joint
accounts and permitting operations thereon:
(a) While there are no restrictions on the
number of account holders in a joint account, it
is incumbent upon the banks to examine, every
request for opening joint accounts very
carefully. In particular, the purpose, nature of
business handled by the parties and other
relevant aspects relating to the business, and
the financial position of the account holders,
need to be looked into before opening such
accounts. Care has also to be exercised when the
number of account holders is large.
(b) The account payee cheques payable to third
parties should not be collected.
(c) Cheques that are “crossed generally” and
payable to "order" should be collected only on
proper endorsement by the payee.
(d) Care should be exercised in collection of
cheques for large amounts.
(e) The transactions put through in joint
accounts should be scrutinised by the banks
periodically and action taken as may be
appropriate in the matter. Care should be
exercised to ensure that the joint accounts are
not used for benami transactions.
(ii) The internal control and vigilance
machinery should be tightened to cover the above
aspects relating to the opening and operation of
joint accounts.
5.2 Monitoring Operations in New Accounts
5.2.1 A system of maintaining a close watch over
the operations in new accounts should be
introduced. While at branches, primarily the
responsibility for monitoring newly opened
accounts would rest with the in-charges of the
concerned Department/Section, the Branch
Managers or the Managers of Deposit Accounts
Department at larger branches should at least
for the first six months, from the date of
opening of such accounts, keep a close watch, so
as to guard against fraudulent or doubtful
transactions taking place therein. If any
transaction of suspicious nature is revealed,
banks should enquire about the transaction from
the account holder, and if no convincing
explanation is forthcoming, they should consider
reporting such transactions to the appropriate
investigating agencies.
5.2.2 Caution should be exercised whenever
cheques/ drafts for large amounts are presented
for collection, or Telegraphic Transfers (TTs)/Mail
Transfers(MTs) are received for credit of new
accounts immediately/within a short period after
opening of account. In such cases, genuineness
of the instruments and the account holder should
be thoroughly verified. If necessary the paying
bank should check with the collecting bank about
the genuineness of any large value cheques/drafts
issued. Demand Drafts (DDs)/Cheques for large
amounts presented for collection should be
verified under ultra violet lamps to safe guard
against chemical alterations.
5.3 Monitoring Operations in all Accounts
5.3.1 A system of close monitoring of cash
withdrawal for large amounts should be put in
place. Where third party cheques, drafts, etc.
are deposited in the existing and newly opened
accounts followed by cash withdrawals for large
amounts, the banks should keep a proper vigil
over the requests of their clients for such cash
withdrawals for large amounts. 5.3.2 The banks
should introduce a system of closely monitoring
cash deposits and withdrawals for Rs. 5 lakh and
above not only in deposit accounts but also in
all other accounts like cash credit/overdraft
etc. The banks/branches should also maintain a
separate register to record details of
individual cash deposits and withdrawals for Rs.
5 lakh and above. The details recorded should
include, in the case of deposits, the name of
the account holder, account number, amount
deposited and in the case of withdrawals, the
name of the account holder, account number,
amount of withdrawal and name of the beneficiary
of the cheque. Further, any cash deposits or
withdrawals of Rs. 5 lakh and above should be
reported by the Branch Manager to the Head
Office on a fortnightly basis along with full
particulars, such as name of the account holder,
account number, date of opening the account,
etc. On receipt of these statements from
branches, the Head Office should
immediately scrutinise the details thereof and
have the transactions looked into by deputing
officials, if the transactions prima facie
appear to be dubious or giving rise to
suspicion. The inspecting officials from the
Reserve Bank of India during the course of their
inspections will also be looking into the
statements submitted by the branches.
5.3.3 The other important areas in the payment
of cheques wherein due caution need to be
exercised are verification of drawer's
signature, custody of specimen signature cards,
supervision over issue of cheque books and
control over custody of blank cheque
books/leaves. While need for examining cheques
for large amounts under Ultra Violet Ray Lamps
is recognised by all banks, in practice it is
rarely done as there is often a tendency to be
lax in the matter resulting in avoidable loss.
In addition, due care should be exercised in
regard to issue and custody of tokens, movement
of cheques tendered across the counter and
custody of all instruments after they are paid
by the banks. Depositors/ Customers should be
asked to surrender unused cheque books before
closing/transferring the accounts. Also safe
custody of specimen signature cards is of utmost
importance, especially when operating
instructions are changed, the change should be
duly verified by a senior official in the
branch.
5.4 Issue of Cheque Books
Fresh cheque books should be issued only against
production of duly signed requisition slipsfrom
previous cheque book issued to the party. In
case the chequebook is issued against a
requisition letter, the drawer should be asked
to come personally to the bank or cheque
bookshould be sent to him under registered post
directly without being delivered to the bearer.
Loose cheques should be issued to account holder
only when they come personally with a
requisition letter and on production of
passbooks.
5.5 Dormant Accounts
The accounts which have not been operated upon
over a period two years should be segregated and
maintained in separate ledgers. The relative
ledger(s) and the specimen signature cards
should be held under the custody of the Manager
or one of the senior officials. The first
withdrawal in such segregated accounts should be
allowed only with the approval of the Manager.
5.6 Operation of Banks Accounts by
Old/Sick/Incapacitated Customers
5.6.1 In order to facilitate
old/sick/incapacitated bank customers to operate
their bank accounts, procedure as laid down in
para 5.6.2 below may be followed. The cases
ofsick/old/incapacitated account holders fall
into the following categories:
(j) an account holder who is too ill to sign a
cheque/cannot be physically present in the bank
to withdraw money from his bank account but can
put his/her thumb impression on the cheque/withdrawal
form, and
(ii) an account holder who is not only unable to
be physically present in the bank but is also
noteven able to put his/her thumb impression on
the cheque/withdrawal form due to certain
physical defect/incapacity.
5.6.2 The banks may follow the procedure as
under:
(i) Wherever thumb or toe impression of the
sick/old/incapacitated account holder is
obtained, it should be identified by two
independent witnesses known to the bank, one of
whom should be a responsible bank official.
(ii) Where the customer cannot even put his/her
thumb impression and also would not be able to
be physically present in the bank, a mark
obtained on the cheque/withdrawal form which
should be identified by two independent
witnesses, one of whom should be a responsible
bank official.
5.6.3 In such cases, the customer may be asked
to indicate to the bank as to who would withdraw
the amount from the bank on the basis of cheque/withdrawal
form as obtained above and that person should be
identified by two independent witnesses. The
person who would be actually drawing the money
from the bank should be asked to furnish his
signature to the bank. 5.6.4 In this context,
according to an opinion obtained by the Indian
Banks' Association from their consultant on the
question of opening of a bank account of a
person who had lost both his hands and could not
sign the cheque/withdrawal form, there must be
physical contact between the person who is to
sign and the signature or the mark put on the
document. Therefore, in the case of the person
who has lost both his hands, the signature can
be by means of a mark. This mark can be placed
by the person in any manner. It could be the toe
impression, as suggested. It can be by means of
mark which anybody can put on behalf of the
person who has to sign, the mark being put by an
instrument which has had a physical contact with
the person who has to sign.
5.7 Receipt of Foreign Contributions by
various Associations/ Organizations in
Indiaunder Foreign Contribution (Regulation)
Act, 1976
5.7.1 The Foreign Contribution (Regulation) Act,
requires that the associations having a definite
cultural, economic, educational, religious and
social programme and receiving foreign
contribution should get themselves registered
with the Ministry of Home Affairs, Government of
India and receive foreign contribution only
through such one of the branches of a bank, as
an association may specify in its application
for registration with the Ministry of Home
Affairs.
5.7.2 Further, the said Act provides that every
association referred to in sub-section (1)
ofSection (6) may, if it is not registered with
the Central Government, accept any foreign
contribution only after obtaining prior
permission of the Central Government.
5.7.3 There are also certain organizations
of a political nature, not being political
parties (including their branches/units)
specified by the Central Government under
Section 5(l) of theAct. These organisations
require prior Permission of the Central
Government for accepting any foreign
contribution. In this regard, the banks should
take the following precautions:
(i) To afford credit of the proceeds of cheques/drafts
representing foreign contribution only if the
association is registered with the Ministry of
Home Affairs, Government of India.
(ii) To insist on production of a communication
from the Ministry of Home Affairs conveying
prior permission of the Central Government
for acceptance of specific amount of foreign
contribution in case the association is not
registered under the Foreign Contribution
(Regulation) Act, 1976.
(iii) Not to afford credit to the account of
such associations as are not registered with the
Ministry of Home Affairs separately for the
purpose of accepting foreign contribution under
the Foreign Contribution (Regulation) Act, 1976.
(iv) Not to afford credit to the account of such
associations as have been directed to receive
foreign contributions only after obtaining prior
permission of the Central Government.
(v) Not to allow the credit of the proceeds of
the cheques/ demand drafts etc. to the
organisations of a political nature, not being
political parties (including their branches and
units) unless a letter containing the prior
permission of the Central Government under the
Foreign Contribution (Regulation) Act, 1976 is
produced by such organisations.
(vi) To note the registration number as conveyed
by the Ministry of Home Affairs to the various
associations in the relevant records
particularly the pages of the ledgers in which
the foreign contribution accounts of
associations are maintained to ensure that no
unwanted harassment is caused to such
associations.
(vii) In case any cheque/demand draft has been
tendered to the bank for realisation of its
proceeds and credit to the account of the
association/organisation by an association or
organisation which is not registered or which
requires prior permission, as the case may be,
the concerned branch of the bank may approach
the Ministry of Home Affairs for further
instructions. In no case the banks should credit
the account of association/organisation of a
political nature, not being a political party,
as specified by the Central Government and of an
unregistered association, unless the
association/ organisation produces a letter of
the Ministry of Home Affairs conveying
permission of the Central Government to accept
the foreign contribution.
(viii) Where prior permission has been granted
such permission is to accept only the specific
amount of the foreign contribution which would
be mentioned in the relevant letter. The
Ministry of Home Affairs is invariably endorsing
a copy of the order of registration or prior
permission for each association/organisation to
the concerned branch of the bank through which
the foreign contributions are to be received for
credit to the Associations/ Organisations
deposit account.
5.7.4 For the above purpose, appropriate systems
may be devised within the bank to ensure
meticulous compliance with these instructions
and completely eliminate instances of non-
ompliance. The system so devised may be
intimated to all the branches of the bank for
proper implementation and strict compliance and
the same should be effectively monitored at Head
Office level.
5.7.5 Further, banks are also required to submit
a return furnishing details of the foreign
contributions credited to the accounts of
associations/ organisations on a half yearly
basis for the period ending 30th September and
31st March every year as per the format given in
the Annex II to Government of India, Ministry of
Home Affairs within a period of two months from
the close of half year. To facilitate timely
submission of half yearly returns to the
Government, the banks may designate a 'Nodal
Officer' at the Head Office who should be
responsible for ensuring accurate and timely
submission of returns.
5.7.6 Non-adherence to these instructions will
tantamount to violation of the provisions of the
said Act. Even non-submission of the prescribed
return in time to the Government of India would
be viewed very seriously.
6. Settlement of claims in respect of deceased
depositors To facilitate expeditious and hassle
settlement of claims on the death of a
depositor, the following guidelines may be
followed:
ACCESS TO BALANCE IN DEPOSIT ACCOUNTS
6.1 Accounts with survivor/ nominee clause In
the case of deposit accounts where the depositor
had utilized the nomination facility and made a
valid nomination or where the account was opened
with the survivorship clause ("either or
survivor", or "anyone or survivor", or "former
or survivor" or "latter or survivor"), the
payment of the balance in the deposit account to
the survivor's)/nominee of a deceased deposit
account holder represents a valid discharge of
the bank's liability provided :
(a) the bank has exercised due care and caution
in establishing the identity of the survivor's)
/ nominee and the fact of death of the account
holder, through appropriate documentary
evidence;
(b) there is no order from the competent court
restraining the bank from making the payment
from the account of the deceased; and
(c) it has been made clear to the survivor's) /
nominee that he would be receiving the payment
from the bank as a trustee of the legal heirs of
the deceased depositor, i.e., such payment to
him shall not affect the right or claim which
any person may have against the survivor(s) /
nominee to whom the payment is made.
6.2 It may be noted that since payment made to
the survivor's) / nominee, subject to the
foregoing conditions, would constitute a full
discharge of the bank's liability, insistence on
production of legal representation is
superfluous and unwarranted and only serves to
cause entirely avoidable inconvenience to the
survivor(s) / nominee and would, therefore,
invite serious supervisory disapproval. In such
case, therefore, while making payment to the
survivor(s) / nominee of the deceased depositor,
the banks are advised to desist from insisting
on production of succession certificate, letter
of administration or probate, etc., or obtain
any bond of indemnity or surety from the
survivor's)/nominee, irrespective of the amount
standing to the credit of the deceased account
holder.
6.3 Accounts without the survivor/ nominee
clause In case where the deceased depositor had
not made any nomination or for the accounts
other than those styled as "either or survivor"
(such as single or jointly operated accounts),
banks are advised to adopt a simplified
procedure for repayment to legal heir's) of the
depositor keeping in view the imperative need to
avoid inconvenience and undue hardship to the
common person. In this context, banks may,
keeping in view their risk management systems,
fix a minimum threshold limit, for the balance
in the account of the deceased depositors, up to
which claims in respect of the deceased
depositors could be settled without insisting on
production of any documentation other than a
letter of indemnity.
6.4 Premature Termination of term deposit
accounts In the case of term deposits, banks are
advised to incorporate a clause in the account
opening form itself to the effect that in the
event of the death of the depositor, premature
termination of term deposits would be allowed.
The conditions subject to which such premature
withdrawal would be permitted may also be
specified in the account opening form. Such
premature withdrawal would not attract any penal
charge.
6.5. Treatment of flows in the name of the
deceased depositor
In order to avoid hardship to the survivor(s) /
nominee of a deposit account, banks are advised
to obtain appropriate agreement / authorization
from the survivor(s) / nominee with regard to
the treatment of pipeline flows in the name of
the deceased account holder. In this regard,
banks could consider adopting either of the
following two approaches:
• The bank could be authorized by the
survivor(s) / nominee of a deceased
account holder to open an account styled as
'Estate of Shri ________________, the Deceased'
where all the pipeline flows in the name of the
deceased account holder could be allowed to be
credited, provided no withdrawals are made. OR
• The bank could be authorized by the
survivor(s) / nominee to return the pipeline
flows to the remitter with the remark "Account
holder deceased" and to intimate the survivor(s)
/ nominee accordingly. The survivor(s) / nominee
/ legal heir's) could then approach the remitter
to effect payment through a negotiable
instrument or through ECS transfer in the name
of the appropriate beneficiary.
6.6 Access to the safe deposit lockers / safe
custody articles For dealing with the requests
from the nominee's) of the deceased locker-hirer
/ depositors of the safe-custody articles (where
such a nomination had been made) or by the
survivor(s) of the deceased (where the locker /
safe custody article was accessible under the
survivorship clause), for access to the contents
of the locker / safe custody article on the
death of a locker hirer / depositor of the
article, the banks are advised to adopt
generally the foregoing approach, mutatis
mutandis, as indicated for the deposit accounts.
Detailed guidelines in this regard are, however,
being issued separately.
6.7 Time limit for settlement of claims
Banks are advised to settle the claims in
respect of deceased depositors and release
payments to survivor(s) / nominee's) within a
period not exceeding 15 days from the date of
receipt of the claim subject to the production
of proof of death of the depositor and suitable
identification of the claim's), to the bank's
satisfaction. Banks should report to the
Customer Service Committee of the Board, at
appropriate intervals, on an ongoing basis, the
details of the number of claims received
pertaining to deceased depositors /
locker-hirers / depositors of safe custody
article accounts and those pending beyond the
stipulated period, giving reasons therefor.
6.8 Provisions of the Banking Regulation Act,
1949
In this connection, attention is also invited to
the provisions of Sections 45 ZA to 45 ZF read
with Section 56 of the Banking Regulation Act,
1949 and the Co-operative Banks (Nomination)
Rules, 1985.
6.9 Customer Guidance and Publicity
Banks are advised to give wide publicity and
provide guidance to deposit account holders on
the benefits of the nomination facility and the
survivorship clause. Illustratively, it should
be highlighted in the publicity material that in
the event of the death of one of the joint
account holders, the right to the deposit
proceeds does not automatically devolve on the
surviving joint deposit account holder, unless
there is a survivorship clause.
7 DEPOSIT MOBILIZATION
7.1 Deposit Collection Agents
7.1.1 Banks are prohibited from paying brokerage
on deposits in any form to any individual, firm,
company, association, institution or any other
person.
7.1.2 Banks should not employ/engage outside
persons even through firms/ companies for
collection of deposits including Non-Resident
deposits or for selling any other deposit linked
products on payment of fees/ commission in any
form or manner, except to the extent permitted
vide RBI Interest Rate Directives.
7.2 Acceptance of Deposits by Unincorporated
Bodies/ Private Ltd. Companies with "Bank
Guarantee" Banks should not accept deposits at
the instance of private financiers or
unincorporated bodies under any arrangement,
which provides for either the issue of deposit
receipts favouring the clients of private
financiers or giving of an authority by power of
attorney, nomination otherwise for such clients
receiving such deposits at maturity.
7.3 Deposit Collection Schemes Floated by
Private Organisations It may be noted that the
Prize Chits and Money Circulation Schemes
(Banning) Act, 1978 (No. 43 of 1978) imposes a
total ban on the promotion and conduct of prize
chit scheme except by charitable and educational
institutions notified in that behalf by the
State Governments concerned. The lottery falls
within the expression "prize chit" under the Act
referred to above. Further, sale of lottery
tickets on bank counters could be open to abuse
and avoidable complaints from members of public.
Therefore, the banks should not associate
themselves directly or indirectly with lottery
schemes of organisations of any description.
8 OTHER ASPECTS
8.1 Greater Co-ordination between Banking System
and Income-Tax Authorities
8.1.1 Safe Deposit Lockers In order to
facilitate the identification of locker keys by
the Income-tax officials, the banks should
emboss on all locker keys an identification code
which would indicate the bank and the branch
which had hired the lockers.
8.1.2 Co-ordination with Officers of Central
Board of Direct Taxes There is a need for
greater co-ordination between the Income Tax
Department and the banking system. As such, the
banks may ensure that they extend necessary
help/co-ordination to tax officials whenever
required. Further, the banks will have to view
with serious concern cases where their staff
connives/assists in any manner with offences
punishable under the Income Tax Act. In such
cases, in addition to the normal criminal
action, such staff member should also be
proceeded against departmentally.
8.2 Register for Unclaimed Deposits
8.2.1 The banks are required to submit to the
Reserve Bank, a return in Form VIII showing
unclaimed deposit accounts in India which have
not been operated upon for 10 years or more, as
at the end of each calendar year. In order to
ensure accuracy and timely reporting, it is
desirable to maintain a separate register for
this purpose at all the branches of each bank.
8.2.2 The banks should, therefore, advise their
branches to maintain a register for unclaimed
deposits in a separate register.
8.2.3 The branches may also be advised that
entries therein may be made in respect of
deposit accounts not operated upon for 10 year.
A separate folio may be opened in the register
for different types of deposit accounts.
8.2.3.1.1 The branches should ensure to note in
the folio in which the relative unclaimed
deposit account is maintained, that the
unclaimed deposits register should be referred
to before allowing operations in the account, so
as to caution the bank not to allow operations
on such accounts in the usual course but to do
so after obtaining the authorisation of a higher
official.
9 "Know Your Customer" (KYC) guidelines and
Anti Money Laundering Standards As part of
'Know Your Customer' (KYC) principle, Reserve
Bank has issued several guidelines relating to
identification of depositors and advised the
banks to put in place systems and procedures to
prevent financial frauds, identify money
laundering and suspicious activities, and for
scrutiny/ monitoring of large value cash
transactions. Instructions have also been issued
from time to time advising banks to be vigilant
while opening accounts for new customers to
prevent misuse of the banking system for
perpetration of frauds. ‘Know Your Customer’
guidelines have been revisited in the context of
the Recommendations made by the Financial Action
Task Force (FATF) on Anti Money Laundering (AML)
standards and on Combating Financing of
Terrorism (CFT). These standards have become the
international benchmark for framing Anti Money
Laundering and Combating Financing of Terrorism
policies by the regulatory authorities. Banks
are advised to ensure that a proper policy
framework on ‘Know Your Customer’ and Anti-Money
Laundering measures is formulated and put in
place with the approval of the Board. While
preparing operational guidelines, banks may
ensure that information sought from the customer
is relevant to the perceived risk, is not
intrusive, and is conformity with the guidelines
issued in this regard from time to time. Any
other information from the customer should be
sought separately with his/her consent and after
opening the account.
Annex I
Master Circular
Maintenance of Deposit Accounts
Joint Accounts – ‘Either or Survivor’, ‘Latter
or Survivor’
‘Former or Survivor’, etc.
{Ref.Para 5.1.1 (i)}
LAC/19-96-29
28 August 1980
Chief Executives of all member banks
Dear Sirs,
Joint Accounts ‘Either or Survivor’,
Latter or Survivor’ ‘Former or Survivor’ etc. In
the recent past, several letters have appeared
in the press highlighting the difficulties
experienced by the joint holders of Savings Bank
or Term Deposit accounts, especially in regard
to payment before maturity or in the settlement
of claims when one of the account holders dies.
There appears to be some confusion and
misunderstanding about the procedure to be
followed in respect of such accounts and the
legal implications of the expressions
‘Either or Survivor’, ‘Latter of Survivor’,
‘Former or Survivor’ etc.
2. Joint Accounts
In the case of joint accounts (Current, Savings
or Deposits) in the names of two or more
persons, the terms relating to which do not
provide for payment of the amount due under the
account to the Survivor(s) in the event of death
of one of them, for the banks to obtain a valid
discharge payment should be made jointly to
Survivor(s) and the legal heirs of the deceased
joint account holder. In such a case, in view of
the difficulty in ascertaining with certainty as
to who the legal heirs of the deceased are, it
is the practice of the banks to insist on the
production of legal representation (to the
estate of the deceased) before settling the
claim. As obtaining a grant of legal
representation would entail delay and expenses,
banks should encourage the opening of joint
accounts on terms such as, payable to (a) Either
or Survivor, (b) Former/Latter or Survivor, (c)
Anyone or Survivors, or Survivor, etc. This
point has been emphasized in the Recommendation
NO. 6 of the Working Group on Customer Service
in banks.
3. Benefits of Survivorship
If the benefit of survivorship is provided, the
survivor can give a valid discharge to the bank.
Even though payment to the survivor will confer
a valid discharge to the bank, the survivor
will, however, hold the money only as trustee
for the legal heirs (who may include the
survivor as well) unless he is the sole
beneficial owner of the balance in the account
or the sole legal heir of the deceased. Thus,
the survivor’s right unless he is the sole owner
of the balance in the account/sole legal heir of
the deceased, is only in the nature of a mere
right to collect the money from the bank. If the
legal heirs of the deceased lay a claim to the
amount in the bank, they should be advised that
in terms of the contract applicable to the
account, the survivor is the person entitled to
payment by the bank and that, unless the bank is
restrained by an order of a competent court, the
bank would be within its rights to make the
payment to the survivors) named in the account.
The position, briefly, is that a payment to
survivor can be made if there are no orders from
a competent court restraining the bank from
making such payments.
4. Joint Savings Bank Account – Either or
Survivor/Any one or Survivors or Survivor
As stated in para 3 above, the survivor can give
a valid discharge to the bank. If the legal
heirs claim the amount, the bank can inform them
that unless they obtain and have served on the
bank an order of competent court restraining the
bank from effecting payment to the survivor, the
bank will be within its rights to do so.
5. Joint Term Deposit Account –
Premature/Payment or Loan on death of one of the
account holders
5.1 Account in the style of ‘Either or Survivor
or ‘Anyone or Survivors or Survivor’ In a joint
term deposit account which has been opened in
the style of either or survivor/any one or
survivors or survivor, the bank often receives a
request, on the death of one of the joint
account holders, from the surviving depositors)
to allow premature encashment or the grant of a
loan against the term deposit receipt. It would
be in order to accede to the request of the
surviving depositors) for premature payment if (i)
there is an option included in the contract of
deposit to repay before maturity and (ii)
“either/any one or survivorship” man- date has
been obtained from original depositors. Requests
for loans from surviving depositor's) could also
be considered in special cases, though in the
case of such loans, the bank may face a possible
risk if the legal representatives of the
deceased depositor lay an effective claim to the
deposit before it is paid on maturity. In such
an event, the bank will have to look to the
borrower's) for repayment. This position for
premature payment or grant of loan is applicable
also in respect of a joint account (in the style
of either or survivor/any one or survivors or
survivor), where all the account holders are
alive. As a measure of operational prudence, a
clause to the effect that loan/premature payment
can be permitted to either/any one of the
depositors any time during the deposit period
can, however, be included in the term deposit
contract, i.e. the account opening or
application form itself, in the manner indicated
in para 6 below.
5.2 Joint Term Deposit – Former or
Survivor/Latter or Survivor etc. In the case of
these term deposits, the intention of the owner
depositor (former/latter) is to facilitate
repayment of the term deposit to the survivor
only in the event of his death. He (the owner
depositor) is in a position to retain with him
at all times, the right to dispose of the monies
until his death or maturity of the deposit
receipt, whichever is earlier. There should,
therefore, be no objection to the bank
permitting premature payment of such deposits or
granting advances against them at the request of
the former/latter without insisting on the
production of a consent letter from the other
party/parties to the term deposit receipt. Here
also it is preferable to make this position
explicit to the joint depositors, by
incorporating suitable clause in the term
deposit account opening or application form.
6. Special clause in the application/account
opening form for Term Deposit Receipt
Banks may consider incorporating a clause to the
following effect in the account opening
form/application form establishing the contract
of term deposit: ‘The Bank may, on receipt of
written application from Shri
-------------------- the former/the latter/the
first name the second name etc. of us or Either
or Survivor of us, in its Any one or Survivors
of Survivor of us, absolute discretion and
subject to such terms and conditions as the Bank
may stipulate, (a) grant a loan/advance against
the security of the term deposit receipt to be
issued in our joint names or (b) make premature
payment of the proceeds of the deposit to the
former/the latter/the first named of us/either
the second or survivor of us etc. named of
us/any one of us or survivors or survivor of
us”.
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