JAIIB PPB Paper-2 Module-A Unit 5: Operational Aspects Of Deposit Accounts

25/02/2023

Table of Contents

JAIIB Paper 2 (PPB) Module A Unit 5: Operational Aspects Of Deposit Accounts (New Syllabus)

The Institute of Indian Banking and Finance (IIBF) has recently revealed the revised syllabus and examination pattern for the JAIIB Exam 2023. The JAIIB 2023 will consist of four papers, with Paper 2 (Principles & Practices of Banking ) covering the crucial topic of “Unit 5: Operational Aspects Of Deposit Accounts.” It is essential for candidates to thoroughly understand this unit to perform well in the examination.

To assist candidates in comprehending the topic, we will provide all the necessary details related to Unit 5: Operational Aspects Of Deposit Accounts of JAIIB Paper 2 (PPB) Module A: General Banking Operations. We highly recommend that candidates refer to this article and make use of our Online Mock Test Series to enhance their knowledge of Operational Aspects Of Deposit Accounts.

Understanding each unit in the syllabus, especially the Marketing unit, is essential for JAIIB Certification Examination 2023 candidates. This unit plays a vital role in the banking industry, and thus, candidates must prepare well to excel in the exam and establish a successful career in the banking sector.

Deposits

Deposits form a major portion of the resources available to the bank to carry out its other basic functions, viz. lending and investment. The deposit raising function of the bank takes into account not only the amount to be raised but also the average cost of the deposits because it has a major impact on the profitability of a bank.

Features of Current Accounts

It is meant for individuals/institutions having large number/ volume of transactions. No interest is payable by the bank on the deposits
A current account cannot be opened by: (a) Minors (b) Pardanashin women. (c) Illiterate persons. (d) Blind persons.
There is no restriction on the amount to be withdrawn or deposited in the account by the account holder at any time.
Banks often stipulate minimum balance requirements, but there is no ceiling on the balance in the account.
There is no restriction on the number of transactions in the account during any period of time.
Accounts of individuals are operated by the account holder(s) in personal capacity, the accounts of legal entities are operated by the authorised signatories, in representative capacity.
Accounts may be debited by cheques drawn either singly or jointly, or through net banking authorised by single user or more than one user.
Account holders may issue standing instructions to the bank for executing debits as mandated in these instructions.
Banks can debit the accounts for its charges, interest, etc. based on the customer authtorisation given in the account opening form, applications for credit facility or non-fund based facility, etc.
Cash deposits and withdrawals are permitted in the account. For accounts of individuals, facility of withdrawal through ATMs is also provided.

Features of Savings Bank Accounts

An annual review of both SB and CA, in which there are no operations for more than one year.
Approach the customers and inform them in writing to advise the reasons for no operations in the account, and advise them to resume operations.
SB and CA should be treated as inoperative/dormant if there no transactions for over two years.
Where the customer has given a mandate for crediting the interest on TDs to the SB account, these should be treated as customer induced transactions and as operative
Account is not treated inoperative in case where operations in the account have been stopped under Garnishee order or any Court Order. (ii) Where the nature of account itself permits only periodical and not regular operation. (iii) Where the account is under lien or charge for advances allowed to the same customer in another account. (iv) Where the account is showing debit balance.

Eligibility to Open Savings Accounts

Banks are prohibited from opening savings account in the name of Government departments/ bodies, Municipal Committees/ Panchayat Samitis etc
Following categories of persons/ institutions are eligible to open savings accounts with a bank:

i)Individuals either in single name or in joint names of two or more persons.

ii)Minors aged above 10 years can open and operate Savings bank account independently.

iii)Karta of HUF.

iv)Entities of the categories for which RBI has given special permission

Organisations for which Savings Bank Account is Permitted by RBI

Other Saving Bank Regulations

Minimum Balance: Some banks lay down a condition for maintaining a minimum balance in the account. (ii) A notice of the shortfall amount and that if not regularized within one month from the date of notice, penal charges will be recovered should be given. (iii) If the balance remains continuously less than the prescribed minimum, the bank may close such an account or change the category of the account in consultation with the customer.
Withdrawals: Sometimes number of withdrawals permitted during a period are restricted. (ii) Usually limit is also set for the amount that can be withdrawn at any point of time. (iii) Cash withdrawal through withdrawal form is permitted only for the account holder, and with pass book.
Passbook: Pass books are issued in SB accounts at the time of opening the account and is issued to the customers after getting their acknowledgement.
Transfer of accounts: At the written request of the customer, the SB account can be transferred from one branch to another branch of the bank free of any charges. (ii) All unused cheque leaves must be surrendered to the old branch. (iii) The account opening form and specimen signature card must be transferred to the transferee branch. (iv) With the introduction of CBS and multi-city cheques, transfer of accounts is not essential. The base branch/ parent branch is changed.
Staff accounts: The number of SB accounts of a staff member of the bank in his individual name or in joint names with family member(s), may be restricted. (ii) All cheques drawn on staff accounts should be scrutinized (iii) Third party cheques/DDs should not be collected in staff account. (iv) An account operated with disproportionately huge amounts must be watched.
Closing of account: SB account may be closed on written request of the single/ all joint account holder(s). (ii) All the unused cheque leaves must be surrendered and the pass book presented. (iii) The pass book may be returned after updating and marking “account closed” in all pages. (iv) For the balance in the account a cheque/ withdrawal form must be obtained for effecting the payment.

Basic Savings Bank Deposit Account

Following basic minimum facilities should be offered free of charge, and without any minimum balance requirement:

Deposit of cash at bank branch as well as ATMs/CDMs
Receipt/credit of money through any electronic channel deposit/collection of cheques including cheques drawn by Central/ State Government agencies and departments.
No limit on number and value of deposits that can be made in a month.
Minimum of four withdrawals in a month
ATM Card

A person can have only one BSBDA in the banking system. Any other existing SB account(s) in that bank should be closed within 30 days from the date of opening a BSBDA.

Fixed Deposits

These are deposits of specified sum of money placed with the bank for a specific period. The period of for fixed deposits ranges from 7 days to 120 months. No interest shall be paid, where premature withdrawal takes place before 7 days.
Fixed deposits can be accepted for any amount. Fixed deposits of Rs. 2 crore and above in case of scheduled commercial banks (other than RRBs) and small finance banks, and those of 15 lakh and above in case of RRBs have been categorized as “Bulk Deposits” by RBI.
Bank should issue term deposit receipt indicating therein full details.
These deposits are repayable to the customer/ renewable as per the instructions of the customer given in the fixed deposit account opening form.
Premature encashment is permitted in case of exigency/need. The interest is paid as applicable for the period for which deposit was actually with the bank.
Banks shall can offer TDs without premature withdrawal option. Provided that the TDs for Rs. 15 lakh and below must have premature-withdrawal facility.
Overdue TDs may be renewed at the customer’s request, as per the policy duly approved by the Board of the bank.
Interest on fixed deposits is paid periodically, normally at quarterly intervals. But it may also be paid, at the customer’s choice, on maturity along with the Principal amount.
Periodical interest is paid, as per the customer’s instruction, in cash, by credit/ remittance to the SB or CA of the customer only.
If a Term Deposit matures and proceeds are unpaid, the amount left unclaimed with the bank shall attract rate of interest as applicable to savings account or the contracted rate of interest on the matured deposit, whichever is lower. Maturity amount of Rs. 20,000/- and above is to be paid in account only.

Loan Against Term Deposits

Loans against TDs may be given to the customers on surrender of duly discharged TD receipt with a letter of lien.
The permissible loan amount is determined after margin of say 5% to 20% on the principal amount or on the value along with accrued interest.
Interest rate on the loan is at certain percentage over the rate paid on the TD, as per the policy of the bank.
If TD is foreclosed, the loan is first recovered from the proceeds of the deposit.

Recurring Deposits

These deposits are in the nature of fixed amounts being paid by the depositor every month for a predetermined period.
The maturity amount is arrived at based on the cumulative amount to be deposited on due dates over the period of deposit, plus interest computed based on compounding at quarterly rests.
If the periodical instalments are not paid regularly on due dates, the amount payable on maturity is adjusted for the delayed payment on account of reduction in the amount of interest payable.
In the event of foreclosure of a RD, the interest is paid without compounding for the incomplete quarter.
No RD is accepted under FCNR (B) Scheme.

Other Type of Deposits

Cash Certificates: These are issued at a discounted value at the rate applicable on the TD of similar tenor and amount. The face value of the certificate of deposit represents the maturity value of the amount paid at the time of investing in the certificate of deposit.
Annuity Deposits: Annuity deposits are the reverse of RDs. The principal amount deposited is returned to the customer in periodical (say monthly or quarterly) instalments over the tenor of deposit that will include both interest and principal component
Certificate of Deposits (CDs): These are short-term negotiable money market instruments

(i)CDs can be issued by the SCBs, RRBs, and SFBs to all persons resident in India.

(ii) They are issued in dematerialized form in denominations of Rs. 5 lakh, with minimum Rs. 5 lakh.

(iii)Tenor of CDs should be minimum 7 days and maximum 1 year.

(iv) Interest rate may be fixed or floating linked to the benchmark rate specified by Fixed Income Money Market and Derivatives Association of India (FIMMDA).

(v) CD’s may be issued at discounted value or with a coupon for interest.

(vi) CDs are traded in the secondary market.

(vii) Buyback of CDs can be done, if offered to all investors in the specific issue of CDs.

(viii) Issuance of CDs attracts stamp duty.

Action By Banks In Inoperative Accounts/Unclaimed Deposits

An annual review of both SB and CA, in which there are no operations for more than one year.
Approach the customers and inform them in writing to advise the reasons for no operations in the account, and advise them to resume operations.
SB and CA should be treated as inoperative/dormant if there no transactions for over two years.
Where the customer has given a mandate for crediting the interest on TDs to the SB account, these should be treated as customer induced transactions and as operative
Account is not treated inoperative in case where operations in the account have been stopped under Garnishee order or any Court Order. (ii) Where the nature of account itself permits only periodical and not regular operation. (iii) Where the account is under lien or charge for advances allowed to the same customer in another (iv) Where the account is showing debit balance.

In 2014, RBI has established ‘The Depositor Education and Awareness Fund (the Fund)’ (DEAF) under the provisions of Banking Regulation Act. The banks are required to transfer the credit balance in any account or any deposit in a bank remaining unclaimed or inoperative for ten years or more to the fund.

Salient aspects of this scheme are:

The amount is credited to the Fund, within three months from the expiry of ten years.
The Fund is utilized for promotion of depositors’ interest as specified by RBI from time to time.
The depositor is entitled to claim from the bank his/her deposit or any other unclaimed amount or operate the account, even after the amount has been transferred to the Fund.
The bank will pay the amount to the depositor/claimant and claim refund of such amount from the Fund.

In case of Foreign Currency Deposits that remain unclaimed RBI has advised to crystallise the deposits, that is convert the credit balances into Indian Rupee. The following provisions should be followed:

For deposits being inoperative for three years from the date of maturity: the conversion to be at the end of the third year, at the exchange rate prevailing as on that date.
For deposits with no fixed maturity period being inoperative for three years: after giving a three month notice at the last known address of the depositor as available, the conversion to be at the end of the notice period at the prevailing exchange
The depositor can claim the amount either in Indian Rupee or the foreign currency equivalent.
If amount had been transferred to Fund, banks shall repay the customer, along with interest if applicable, and lodge a claim for refund from the Fund for an equivalent amount.
The rate of interest payable by banks to the depositors/ claimants on amount transferred to the Fund shall be 0% simple interest p.a. w.e.f. 11th May 2021.

Unremunerative/ Undesirable Accounts

Unremunerative accounts: These are the accounts in which balances quite often fall below the minimum balance prescribed and/or the accounts which have been opened and maintained with very meager balance just to avail other facilities like purchase of DDs etc.
Undesirable accounts: These are the accounts wherein cheques are often drawn for amounts in excess of balance available and without any arrangement, which results in return of many cheques.

Operational Instructions In Joint Accounts

“Jointly” without survivorship clause
“Jointly or Survivors”
“Either or Survivor”
“Anyone or Survivor”
“Former or Survivor”
“First named or Survivors”:
Variations in Instructions:
Stop Payment Instructions for a Cheque:
Incapacity of a Joint Holder
Closure of Account:
Mode of Operation not Specified:
Held Jointly with a NRI:

Rules for Claim of Deposit in Account of Deceased Constituent

ACCOUNT STATUS	WHO CAN CLAIM AMOUNT
Death of any of the joint account holders	Survivors
Death of all of the joint account holders	Nominee
Deposit made by Hindu jointly with wife or any other person	Legal heirs including his wife
Individual Saving account with no nominee	Legal heirs

Note: On the death of depositor or one of the depositors in case of joint accounts the mandate regarding the operations of his account should be treated as cancelled and cheques signed by him/her after the notice of death should not be paid.

Conversion of Accounts – Single into Joint and Joint into Single

To convert an existing single account into a joint or ‘E or S’ account

A letter from the existing account holder stating the purpose of converting into joint account, the relationship with the proposed joint holders, the specimen signature the required KYC form and OVDs of new person will be obtained

To convert joint account into single account

It is desirable to close such account by getting necessary instructions from all the existing account holders

Nomination Facility

The Banking Regulations Act, 1949 was amended by section 37 of the Banking Laws (Amendment) Act, 1983 by introducing new sections 45 ZA to ZF which provides for nomination facilities to Banks’ customers in respect of deposit accounts, safe deposits, and safe vault lockers.

FORMS	Nomination Facility
Form DA-1	for making nominations by the depositors.
Form DA-2	For cancellation of said nominations to be made by the depositors.
Form DA-3	For variations of said nominations to be made by the depositors.

Who Can Nominate

Type Of Account	Who Can Nominate
In the name of Individual	Sole account holder
In the Joint names	All joint account holders jointly
Minor-operated by guardian	Guardian
Minor jointly with guardian	Guardian both on behalf of minor and Guardian himself
Minor- operated by self	Person lawfully entitled/empowered to act on behalf of the minor.

Note: Under no circumstance a Nominee be permitted to become the depositor of the account. No loan can be granted to a nominee against the deposit of the deceased depositor(s).

Guidelines Regarding Payment of Cheques

Cheque Particulars	Measures To Follow
Cheque Leaf	Should be from drawer’s current cheque book
Cheque Date	Must not be post-dated or stale
Payee Name	Filled up legibly
Amount	Figures and Words should match
Signature	Correctly by account holder/authorised person
Authority	Rubber stamp is affixed & signed by authorised officials
Bearer or Order Cheque	Bearer signature and his name & address on the back of cheque
Account Balance	Sufficient balance is available or overdraft arrangement is allowed
Alterations	Under CTS, alteration is not allowed.
Stopped Cheque	account holder has not instructed for not making payment of the cheque presented.
Enforcement Actions	No restriction due to instructions from legal authorities
Account holder’s Status	No notice/information of death/insolvency/lunacy
Crossed Cheque- AC Payee only	The proceeds are credited to the payee’s account only.
Crossed Cheque- payment in cash	the drawer has to cancel the crossing & write pay cash along with his signature.

Garnishee Order

Garnishee order is an attachment order issued by a Court under order 21, Rule 46 of Civil procedure code, that is obtained by the judgment creditor attaching the funds belonging to a judgment debtor in the hands of latter’s debtors, including a bank (the Garnishee).

The service of the garnishee order nisi is the preliminary proceedings of a Court. This is to be followed by subsequent proceedings of a Court to make it absolute, when it is called garnishee absolute.

The order applies only to the balance in the account of the customer (i.e. amount accruing due or payable to the customer) at the time of receipt of the order.

GARNISHEE ORDER (Do’s and Don’ts)

Joint accounts: When a garnishee order is in a single name and the customer/s account is in joint names with the operation clause ‘either or survivor’, the monies lying in such account cannot be attached.
Trust accounts: The outstanding amount in a trust account cannot be attached, if the judgment – debtor has deposited the money as a trustee.
Partnership accounts: The personal account of a partner can be attached for the firm’s debt because partners are jointly and severally liable for the firm’s debts. The firm’s account cannot be attached for individual debts of the partners.
Balances out of India: Balances held outside India cannot be attached.

Attachment Orders

Attachment Orders under The Income Tax Act, 1961

The attachment orders issued by the Income tax Officers under section 226 (3) of Income Tax Act, 1961. This Act lays down certain procedures regarding recovery of tax from the assesses in default.

The order of the ITO may attach:

Any debt due and payable;
Debts due but not payable on the date of receipt of the notice
Any amount received subsequently.

Other Attachment Orders

Attachment Orders under The Income Tax Act, 1961

Saving or Current Account: If the attached amount is lying in a CA/SB, the amount must be transferred to suspense account or block the amount.
Term Deposit Account: If the attached amount is in TD, a noting in the System should be made – “Under Attachment by IT/Commercial Tax Authorities”. No foreclosure of such attached TD should be allowed. No loan against such attached TD should be sanctioned.
Joint Account: If the bank holds amount of the asses see jointly with any other person the shares of the joint holders in such account shall be presumed to be equal and this amount is to be attached.