Operational Aspects of Deposit Accounts: Jaiib/DBF Paper 2 (Module D) Unit-5

Operational Aspects of Deposit Accounts: Jaiib/DBF Paper 2 (Module D), Unit-5

Dear bankers,

As we all know that  is Operational Aspects of Deposit Accounts for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are providing the Operational Aspects of Deposit Accounts (Unit-5), Banking Operations and Accounting Functions (Module D), Accounting Finance for Bankers-Paper 2.

♦Features of Deposit Accounts

Current Account

This account is meant for Individual or Institutions having large number of transactions, mainly for meeting their day to day business and operational requirement for parking their operational fund balance.

  • Current Accounts (C/As) under type of can be opened by individuals, partnership firms, private and public limited companies, HUFs, societies, trusts, clubs, associations, Govt Departments etc.
  • A current account cannot be opened by:
  1. Minors. However accounts of minors to be operated by the natural guardian may be opened.
  2. Purdanashin Women
  3. Illiterate persons
  4. Blind Persons
  • No interest is payable on credit balances in Current Accounts.
  • The customers may receive the statements of account according to the frequency desired by them.
  • Cheque books are issued to all Current Account holders and all withdrawals should be made only through issue of cheques.
  • There is no restriction on the number of transactions in the account holder at any one time.
  • All withdrawals by the current holder, including request for RTGS/NEFT/Draft, must be through cheques only.
  • As per RBI directive, the applicant for Current Account should declare in the account opening form or separately that he/they is/are not enjoying any credit facility with any Bank and if he/they does/do enjoy any credit facility, he/they should declare full particulars thereof indicating the name of the Bank/branch concerned.

Savings Accounts

Saving Bank accounts are meant for individuals operating singly or jointly with other individuals. Sometimes such accounts are opened in the names of institutions which are specifically approved by the RBI for maintaining saving bank accounts with banks.

Eligibility to open accounts:

  • Individual is single name.
  • Two or more persons in joint names.
  • Associations, club or similar other Non-trading institutions provided their by-law/rules are found acceptable and strictly adhered to. They must also be eligible as per the guidelines of RBI.
  • Minor above 10 years can open and operate Saving bank account.
  • A bank should not open more than one Saving bank account for the same person in his individual name.

Saving Deposit account cannot be opened by banks in the name of:

  • Government Departments
  • Bodies depending upon budgetary allocations for performance of their functions.
  • Municipal corporations or Municipal committees
  • Panchayat samitis
  • State Housing Boards
  • Water and Sewerage/ Drainage Boards
  • State Text Book Publishing Corporations
  • Societies
  • Metropolitan Development Authority
  • State/ District Level Housing Co-op Societies etc.

Saving Deposit account cannot be apply by banks in the name of:

  • Khadi and Village Industries Boards.
  • Societies registered under the Societies Registration Act, 1860 or any other corresponding law in force in State or a Union Territory.
  • Companies governed by the Companies Act, 1956 which have been licensed by the Central Government under Section 25 of the said Act, or under the corresponding provision in the Indian Companies Act, 1913 and permitted, not to add to their names the words “Limited” or the words “Private Limited”.
  • Agriculture Produce Industries Borads.

The main objective of saving account is to promote savings.

  • There is no restriction on the number and amount of deposits. However, in India, mandatory PAN (Permanent Account Number) details are required to be furnished for doing cash transactions exceeding र50,000.
  • Withdrawals are allowed subject to certain restrictions.
  • The money can be withdrawn either by cheque or withdrawal slip of the respective bank.
  • The rate of interest payable is very nominal on saving accounts. At present it is between 4% to 6% p.a in India.
  • Saving account is of continuing nature. There is no maximum period of holding.
  • A minimum amount has to be kept on saving account to keep it functioning.
  • No loan facility is provided against saving account.
  • Electronic clearing System (ECS) or E-Banking are available to pay electricity bill, telephone bill and other routine household expenses.
  • Generally, equated monthly installments (EMI) for housing loan, personal loan, car loan, etc., are paid (routed) through saving bank account.

Unclaimed Deposits and Inoperative/ Dormant Accounts

  • In view of the increase in the amount of unclaimed deposits with banks year after year and the inherent risk associated with such deposits, it is felt that banks should play a more pro-active role in finding the whereabouts of the account holders whose accounts have remained inoperative. Keeping these factors in view, Banks may follow the instructions detailed below while dealing with inoperative/dormant accounts:
  • Further, the segregation of the inoperative accounts is from the point of view of reducing risk of frauds etc. However, the customer should not be inconvenienced in any way, just because his account has been rendered inoperative.
  • Operation in such accounts may be allowed after due diligence as per risk category of the customer. Due diligence would mean ensuring genuineness of the transaction, verification of the signature and identity etc.
  • There should not be any charge for activation of inoperative account.
  • Banks are also advised to ensure that the amounts lying in inoperative accounts ledger are properly audited by the internal auditors/statutory auditors of the bank.
  • Interest on savings bank accounts should be credited on regular basis whether the account is operative or not. If a Fixed Deposit Receipt matures and proceeds are unpaid, the amount left unclaimed with the bank will attract savings bank rate of interest.
  • Banks should carry out an annual review of accounts in which there are no operations for more than one year. The banks may approach the customers and inform them in writing that there has been no operation in their accounts and ascertain the reasons for the same.
  • If the letters are returned undelivered, they may immediately be put on enquiry to find out the whereabouts of customers or their legal heirs in case they are deceased.
  • In case the whereabouts of the customers are not traceable, banks should consider contacting the persons who had introduced the account holder. They could also consider contacting the employer/or any other person whose details are available with them. They could also consider contacting the account holder telephonically in case his telephone number / Cell number has been furnished to the bank. In case of Non Resident accounts, the bank may also contact the account holders through email and obtain their confirmation of the details of the account.
  • A savings as well as current account should be treated as inoperative/dormant if there are no transactions in the account for over a period of two years.
  • In case any reply is given by the account holder giving the 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. However, in case the account holder still does not operate the same during the extended period, banks should classify the same as inoperative account after the expiry of the extended period.
  • For the purpose of classifying an account as ‘inoperative’ both the type of transactions i.e. debit as well as credit transactions induced at the instance of customers as well as third party should be considered. However, the service charges levied by the bank or interest credited by the bank should not be considered. Interest on Fixed Deposit account is credited in the Savings Bank accounts as per the mandate of the customer, the same could be treated as a customer induced transaction and the account should be treated as operative account as long as the interest on Fixed Deposit account is credited to the Savings Bank account.

Basic Savings Bank Deposit Account (BSBDA)

Basic Saving Bank Deposit account is made available by banks to facilitate financial inclusion of persons of lower economic standing and enable them to get access to banking facilities. The earlier “No Frills” account have been converted to Basic Saving bank deposit account (BSBDA), under instructions from RBI.

  • The BSBAD should be considered a normal banking service available to all.
  • This account shall not have the requirement of any minimum balance.
  • The services available in the account will include deposit and withdrawal of cash at bank branch as well as ATMs; receipt/credit of money through electronic payment channels or by means of deposit/collection of cheques drawn by Central/State Government agencies and departments;
  • While there will be no limit on the number of deposits that can be made in a month, account holders will be allowed a maximum of four withdrawals in a month, including ATM withdrawals;
  • Facility of ATM card or ATM-cum-Debit Card;
  • The above facilities will be provided without any charges.  Further, no charge will be levied for non-operation/activation of in-operative ‘Basic Savings Bank Deposit Account’.
  • Banks would be free to evolve other requirements including pricing structure for additional value-added services beyond the stipulated basic minimum services on reasonable and transparent basis and applied in a non-discriminatory manner.
  • The BSBDA would be subject to RBI instructions on Know Your Customer (KYC) / Anti-Money Laundering (AML) for opening of bank accounts issued from time to time.
  • If such account is opened on the basis of simplified KYC norms, the account would additionally be treated as a ‘Small Account’ and would be subject to conditions stipulated for such accounts.
  • Holders of BSBDA will not be eligible for opening any other savings bank deposit account in that bank. If a customer has any other existing savings bank deposit account in that bank, he/she will be required to close it within 30 days from the date of opening a BSBDA.

♦Operational Instructions in Joint Account

  • Joint Account Without Survivorship Clause: This Account is to be operated jointly by all the Account holders. In the event of death of one of the account holders, operations in this account should be stopped and the balance in this account is payable to the survivors and the legal heirs of the deceased party.
  • Joint or Survivor with Survivorship: This account is to be operated jointly by all the account holders. In the event of death of one of the account holders, the survivor/s can be allowed to continue to operate the account or the balance in the account can be paid to survivor/s.
  • Either or Survivor: This is the most common type of joint account and is applicable between any two individuals. For example, if a husband and wife have a joint account with ‘either or survivor’ clause, either of them can operate the account. In the case of the death of one of the depositors, the other can continue, and receives the final balance in the account along with all interests (as applicable at the time of closure). If there is a nominee for the account, the conditions will be the same and the nominee gets access to the funds on the death of both the account holders.
  • Anyone or Survivor: This type of account holds true when more than two individuals start an account jointly. Here, any of the depositors can operate the account at any time. In case any of the depositors expire, the others can continue the account. If required, the final balance along with interest will be paid to any of the survivor/s as requested.

♦Opening and Operating of Accounting Under Different Categories

How to open a minor savings account

  • According to Indian Majority Act, a Minor is one who has not completed 18 years of age, but in the case of a Minor whose guardian is appointed by the court, the Minority status continue up to of 21 years.
  • An account opening form needs to be filled with the minor as the first holder and parent/guardian as the joint holder.
  • Birth certificate of the child needs to be submitted to verify the age of the minor as well as his relationship with the parent/guardian.
  • Pan Card details of the parent/guardian are required. Also, the parent/guardian should have an account in the bank where they wish to open the minor’s account.
  • A separate form needs to be filled by the parent/guardian with all the necessary details.
  • Address proof for the minor (such as the minor’s name which reflects on the ration card) is mandatory.
  • The signature of the parent/guardian is also registered for all future account transactions.
  • Photographs of the parent/guardian should be attached to the account opening form. Some banks even require the minor’s photograph.

Accounts of illiterate persons:

  • Once again I will like to remind the bankers that the illiterate person is competent to contract like any other person.  However, he may contest subsequently that his consent was obtained by misrepresentation and thereby try to avoid the contract. Therefore, banks should get the same witnessed to the effect that the terms and condition of the bank were explained to the illiterate person in his own language and he signed the form after understanding in their presence.
  • Normally cheque book is not issued to illiterate depositor. However cheque book can be issued for making statutory payments post dated cheques for repayment of installments of loan. In such cases, the cheques will be crossed account payee and thumb impression of the illiterate depositor will be verified on such cheques at the of issue of cheque book by competent authority of the bank.

Accounts of Blind Persons:

  • You need to remember that a blind person is fully competent to  enter into a contract like any other person. However, due to his physical disability, there can be a situation where he contests subsequently that the facts were misrepresented to him and-thereby try to avoid the contract. Therefore, signature or thumb impression of the blind person should be attested by an independent witness to the effect that all terms and conditions were properly explained to the blind person in his presence. Moreover, cash deposit and withdrawal by blind person should be handled by the officer of the bank. Cheque book can be issued only if the blind person can sign consistently.

Accounts of Pardanashin ladies:

Let us first understand who is a Pardanashin lady?

  •  A pardanashin lady is one who remain in complete seclusion and does not transact with people other than members of her family. Though Pardanashin lady is legally competent to enter into a contract, she may be able to able to avoid it on the pretext of undue influence and the onus of proving of influence is  on the bank.
  • Therefore, bank should take extra care in this regards. Signature of pardanashin lady should be attested by her guardian if she is unmarried and by her husband if she is married. The signature may be attested by any other member of the family also. If she is illiterate she will not be issued cheque book and for every payment she will have to give the discharge in the presence of an independent witness. However, in case of literate Woman, cheque book will be issued and payment will be made on the basis of recorded signatures.

♦Nomination

Salient features

  • Nomination facilitates faster and easier release of funds/articles without insistence on Succession Certificate/Probate of Will.
  • Nomination facility is available to accountholders operating current accounts, savings bank accounts and all types of term deposit accounts, safe deposit lockers or safe custody of articles.
  • Nomination facility is intended for individuals only.
  • Nomination can be made in favour of one person only. It can be made in existing or new accounts and can be cancelled or changed subsequently by the depositors.
  • Nomination cannot be made in accounts where deposits are held in a representative capacity e.g. trust accounts etc. and in accounts of partnership firms, H.U.F., companies, associations, clubs etc.
  • In case of a joint account of individuals, nomination should be made by all depositors jointly.
  • In case of minor’s account whether self operated or otherwise, nomination should be made by a person lawfully entitled to act on behalf of the minor.
  • Nomination favouring the minor is permitted on the condition that the account holder, while making the nomination, appoints 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 during the minority of the nominee. Date of birth of minor be obtained and noted.
  • A nomination will continue to be in force even on renewal of term deposit, unless specifically cancelled or changed.
  • Name of existing nominee in respect of specific Term Deposit Receipt will not be added for subsequent deposit receipts. Separate nomination will be obtained for each deposit receipt.
  • Nomination facility is available for savings bank accounts opened for credit of pension. However, Banking Companies (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 the Banking Companies (Nomination) Rules, 1985 in case a pensioner desires to avail of nomination facility.
  • A non-resident can be nominated as a nominee in a resident account. In case of non-resident nominees, the amount entitled to him from the account(s)/deposit(s) of a deceased person, will be credited to his NRO account.

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