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Joint FD holders & RBI

Most of us have joint FDRs with “either or survivor” operational instruction. We feel that by having joint operational instruction, we will never face any operational difficulty in case of any contingency. Our general presumption is that the other surviving joint holder of FD will have the same operational powers as we enjoy when both of us are alive.

But this assumption of ours is far away from the reality. In absence of correct knowledge of exact RBI guidelines, we simply believe that in case of death of any one of the joint FD holders, the surviving one can get it even pre- matured as per his/ her own convenience. Till yesterday morning, I was also under the same impression.

Yesterday, by chance family members of one of our society flat met me at bank and shared their problem of not getting the FDRs of their parents pre- matured. I decided to help them in sorting out the matter and met the Bank manager along with them to peruse him to allow the pre- maturity of FDS. But when the manager disclosed me the RBI provisions regarding the pre- maturity of FDRs, I was bit surprised and even quite shocked also.

As per RBI guidelines, in case of death of any one of the joint holder of FDR (even having valid nomination also), the surviving joint holder do not have free assess to the funds so as to get it pre- matured as per his/ her own will or choice. He/ she can get the final amount only at the time of final maturity of the FDR without any ones interference. Before maturity time, for getting it pre- matured, consent of all the legal heirs of deceased FDR holder is must. Means the joint holder do not enjoy the free authority to get the FDRs pre- matured. The surviving FD holder is entitled only at the time of regular maturity of the FDR and not before that.

So, if we have long duration joint FDR, then in case of demise of one of the joint holder, the surviving one can not get the FDRs pre-matured without the consent of all the legal heirs of deceased one. This provision restrict the final authority of any surviving joint holder to use the funds freely in case of need. If any legal heir has any objection or not instantly available, the surviving FD holder will bound to wait till final maturity date or availability of all the legal heirs at a given time.

Further never leave your joint holding FDR without nomination as he will be the one to claim the FDR proceeds in case of any contingency with both the FD joint holders, otherwise all the legal heirs will be required to claim the amont. One thing is very clear that here nominee is only the custodian of the Proceeds - not the owner of the amount so handed over to him/ her. If we wish to make the nominee as the sole claimant of FDR proceeds after our death, we should clearly mention this fact in our will also to avoid any future dispute.

Hope knowledge of this important provision of RBI will help us in planning the management of our own funds for timely availability thereof at the time of real need.

RBI/2012-13/168 DBOD No. Leg. BC. 37/09.07.005/2012-13

August 16, 2012

All Scheduled Commercial Banks (excluding RRBs)

Dear Sir

Premature Repayment of Term/Fixed Deposits in banks with “Either or Survivor” or “Former or Survivor” mandate – Clarification

Please refer to para 4 of our circular DBOD No. Leg BC 46 /09.07.005/2011-12 dated November 4, 2011 whereby we had advised that in case joint depositors of term/fixed deposits with “Either or Survivor” or “Former or Survivor” mandate intend to allow premature withdrawal of their deposits by one of the joint depositors on the death of the other, it would be open for banks to allow the same, provided they have taken a specific joint mandate from the depositors for the said purpose. In this regard you may also refer to Para 3 of our circular DBOD.No.Leg.BC.95/09.07.005/2004-05 dated June 9, 2005 in terms of which, banks were advised to incorporate a clause in the account opening form itself to the effect that in the event of death of the depositor, premature termination of term deposits would be allowed subject to the conditions which they may specify therein. Banks were also advised to give wide publicity to the above and provide guidance to deposit account holders in this regard.

2. It is reiterated that in case of term deposits with “Either or Survivor” or “Former or Survivor” mandate, banks are permitted to allow premature withdrawal of the deposit by the surviving joint depositor on the death of the other, only if, there is a joint mandate from the joint depositors to this effect.

3. It has come to our notice that many of the banks have neither incorporated such a clause in the account opening form nor have they taken adequate measures to make the customers aware of the facility of such mandate, thereby putting the “surviving“ deposit account holders(s) to unnecessary inconvenience. Banks are, therefore, advised to invariably incorporate the aforesaid clause in the account opening form and also inform their existing as well as future term deposit holders about the availability of such an option.

4. The joint deposit holders may be permitted to give the mandate either at the time of placing fixed deposit or anytime subsequently during the term/tenure of the deposit. If such a mandate is obtained, banks can allow premature withdrawal of term/fixed deposits by the surviving depositor without seeking the concurrence of the legal heirs of the deceased joint deposit holder. It is also reiterated that such premature withdrawal would not attract any penal charge.

5. The clarification provided in this circular would supersede para 3 of circular DBOD.No.Leg.95/09.07.005/2004-05 dated June 9, 2005.

Yours faithfully,

(Rajesh Verma) Chief General Manager

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