Bank Accounts Nomination Facility

The Nomination Facility in Bank Accounts is a provision that allows an account holder to appoint one or more persons to receive the proceeds of their account in the event of their death. It is a crucial component of personal financial management, ensuring that funds are easily transferred to rightful beneficiaries without lengthy legal formalities. This facility is available across all major categories of bank accounts in India, including savings, current, fixed deposit, and recurring deposit accounts.

Background and Legal Framework

The concept of nomination was introduced in Indian banking to simplify the process of transferring funds after the death of an account holder. Before the introduction of this facility, legal heirs were required to produce succession certificates or court orders to claim the deceased’s funds, which often led to delays and disputes.
The nomination facility was institutionalised under the Banking Regulation Act, 1949 and the Banking Companies (Nomination) Rules, 1985. The Reserve Bank of India (RBI) also issued detailed guidelines to ensure uniform implementation of the facility across all scheduled banks. The Section 45ZA to 45ZF of the Banking Regulation Act provides the statutory basis for the nomination process in different types of accounts and deposits.

Purpose and Importance

The primary objective of the nomination facility is to provide a simple, hassle-free mechanism for transferring bank balances to the nominee(s) in the event of the depositor’s demise. It does not confer ownership rights during the depositor’s lifetime; rather, it operates only after their death.
Key benefits include:

• Simplified claim process: Nomination avoids the need for legal documents like succession certificates.
• Quick settlement: Banks can release the funds promptly to the nominee upon submission of required documents.
• Reduced disputes: It helps prevent family disputes or legal complications over financial claims.
• Financial continuity: Ensures that dependants have immediate access to funds in emergencies.

Procedure for Making a Nomination

The process for making a nomination is straightforward and can be completed at the time of opening an account or later during its tenure.

1. Submission of Nomination Form:
   • For bank deposits, the depositor must fill in Form DA-1 (Nomination Form).
   • In the case of joint accounts, all account holders must jointly sign the nomination form.
2. Acknowledgement by Bank:
   • The bank provides an acknowledgment of nomination in Form DA-2.
3. Variation or Cancellation:
   • A nomination can be changed using Form DA-3, duly signed by the account holder(s).
   • The latest nomination automatically supersedes any previous one.
4. Who Can Be a Nominee:
   • Any individual, including a family member, relative, or even a minor, can be nominated.
   • If the nominee is a minor, the account holder must appoint a guardian to receive the amount on the minor’s behalf.
5. Multiple Nominations:
   • In single-holder accounts, only one nominee is permitted.
   • For jointly held accounts, nomination can be made jointly but to only one nominee at a time.

Nomination in Different Types of Accounts

• Savings and Current Accounts: The nomination facility is available for both individual and joint accounts. Upon the death of the account holder(s), the balance is released to the nominee.
• Fixed and Recurring Deposits: Each deposit receipt can have a separate nominee. This ensures clear entitlement of funds across different deposits.
• Locker Accounts: The nomination facility also extends to safe deposit lockers, governed under Section 45ZE of the Banking Regulation Act. The nominee is entitled to access the contents of the locker after fulfilling documentation requirements.
• Joint Accounts: In joint accounts with a survivorship clause (e.g., “either or survivor”), the survivor retains the right to operate the account. Only after the death of all account holders does the nominee’s right arise.

Rights and Role of the Nominee

The nominee acts as a trustee or custodian of the funds rather than the legal owner. This means the nominee’s role is primarily to receive the funds on behalf of the legal heirs of the deceased. If disputes arise, the distribution of funds among legal heirs is determined by succession law (such as the Hindu Succession Act or the Indian Succession Act).
However, from the bank’s perspective, payment to the nominee constitutes a full discharge of its liability. The bank is not responsible for any subsequent disputes among heirs or beneficiaries.

Documentation Required for Claim Settlement

When an account holder passes away, the nominee must provide the following documents to claim the amount:

• Death certificate of the account holder.
• Proof of identity and address of the nominee.
• Duly completed claim form.
• In case of a minor nominee, documents of the appointed guardian are also required.

The bank verifies the claim and releases the funds after due diligence. This process is generally quicker and smoother compared to claims without nomination.

Regulatory Guidelines and Safeguards

The Reserve Bank of India has issued detailed directions to ensure transparency in handling nominations. Banks are required to:

• Inform customers about the nomination facility at the time of opening the account.
• Record the nomination details in the system and print them on passbooks or deposit receipts.
• Allow customers to modify or cancel nominations at any time.
• Settle nominee claims expeditiously without insisting on unnecessary documents.

Further, the RBI mandates that banks should not refuse to register a nomination or impose additional charges for availing or altering it.

Common Misconceptions and Clarifications

• Nominee vs Legal Heir: A nominee does not become the owner of the funds. The nominee merely receives the amount and holds it in trust for the legal heirs.
• Mandatory Nature: Nomination is not compulsory but strongly advised.
• Joint Accounts: Nomination is effective only after the death of all joint holders, unless otherwise specified.
• Multiple Accounts: Separate nominations are required for each account or deposit.

Significance in Financial Planning

The nomination facility is an essential aspect of estate and succession planning. It ensures financial security for dependants and avoids complications that may arise from unclaimed or disputed accounts. In India, where a significant portion of personal wealth is held in bank deposits, proper nomination ensures continuity and certainty in financial affairs.
Financial advisors recommend regularly reviewing and updating nominations, especially after major life events such as marriage, childbirth, or the death of a family member. Keeping records of nominations with other estate documents helps avoid confusion for heirs.