The Lok Sabha on Tuesday passed the Banking Laws (Amendment) Bill, 2024 which allows bank account-holders to have up to four nominees or successive nominations in their accounts. Moneylife Foundation has been demanding successive nominations for bank accounts similar to those available for insurance policies and unclaimed deposits which was mentioned during the debate on the Bill.
The Bill piloted by Union finance minister (FM) Nirmala Sitharaman was approved by a voice vote. Replying to the debate on the Bill, the FM says that bank depositors will have the option of successive or simultaneous nomination facility, while locker-holders will have only successive nominations.
'The proposed amendments will only strengthen governance in Indian banking sector besides enhancing consumer's and customer's convenience with respect to nominations and protection of investors.'
The new Section 45ZG in the Bill allows single or joint deposit-holders to appoint a nominee for their deposit or for items left in the custody of a bank or for a locker hired from a bank. The nominee can access the deposit, articles, or locker in case of the death of the person who nominated him. The Bill allows the appointment of up to four nominees for these purposes.
For deposits, the account-holder can appoint nominees either successively or simultaneously. In case of simultaneous nominees, the nomination will be effective in a declared proportion. For successive nominations, the nominee who has been named higher in the order of nomination will receive priority.
In the Banking Regulation Act of 1949, after Section 45ZF, the following Section shall be inserted, namely:––
“45ZG. (1) Where the nomination is made in favour of more than one person successively under sub-section (1) of section 45ZA or sub-section (1) of section 45ZC or sub-section (1) of section 45ZE, the nomination shall be effective only in favour of one person in the following order of priority, namely:––
(a) nomination of the first nominee shall be effective if that nominee survives the person or persons who made the nomination;
(b) nomination of the second nominee shall become effective only after the death of the first nominee;
(c) nomination of any nominee lower in the order of nomination shall become effective only after the death of all the nominees whose names are higher in the order of nomination.
(2) Where the order of nomination is not mentioned, persons shall be deemed to have been nominated in the order in which their names appear in the nomination.
(3) The provisions of this section shall not apply to the nominations made simultaneously in favour of more than one person under sub-section (1) of section 45ZA.".
Moving the Bill for consideration and passing in the Lok Sabha, Ms Sitharaman says a total of 19 amendments are being proposed to bring changes in the Reserve Bank of India (RBI) Act, 1934, the Banking Regulation (BR) Act, 1949, the State Bank of India Act, 1955, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980.
Participating in the debate, NK Premachandran, a member of Parliament (MP) of the Revolutionary Sociality Party (RSP) from Kollam, objected to limiting the number of nominees to four.
Referring to Moneylife Foundation report on "Challenges in Transmission of Assets to Nominees and Legal Heirs", which highlights difficulties on reclaiming unclaimed funds, now a staggering Rs2 lakh crore or more, the MP demanded RBI to come out with simple and easy standard operating procedures (SOP).
"A recent report prepared by the Moneylife Foundation suggested simplifying the standard of procedures and rules so that the legal heirs can avail the benefits. So I will urge the minister to direct RBI to simplify the procedure while duly guarding against the fraudulent claim so that the bank official can also settle the claim and the interest of the claimants can be protected," Mr Premachandran says.
The amended Bill widens the ambit of the unpaid or unclaimed funds that can be transferred to the Investor Education and Protection Fund (IEPF). Now, shares, for which dividend has not been paid or claimed for seven consecutive years and any interest or redemption amount for bonds which is unpaid or unclaimed for seven years, can be transferred to IEPF. Any person whose shares or unclaimed or unpaid money is transferred to IEPF can claim the transfer or refund.
Another proposed change in the Bill relates to redefining 'substantial interest' for directorships, which could increase to Rs2 crore instead of the current limit of Rs5 lakh which was fixed almost six decades ago. Under the BR Act, substantial interest in a company refers to holding shares of over Rs5 lakh or 10% of the paid-up capital of the company, whichever is less, held by an individual, his spouse, or minor child, either individually or collectively.
The Bill now allows banks to decide remuneration for their auditors. At present, the remuneration paid to the auditors of banks is fixed by the RBI in consultation with the Union government.
As Moneylife has pointed out, outdated nomination rules in respect of savings parked in banks and government savings schemes were resulting in huge accumulation of public money of deceased account-holders in government accounts in case of the death of the sole nominee in case of bank deposits or on the death of any of the joint nominees in case of government savings schemes.
Earlier, Subhash Chandra Agrawal, a well-known Right to Information (RTI) activist from Delhi, filed an RTI application with the RBI on nomination facilities in financial institutions. The central bank told the senior activist, "...under the current provisions, it is not possible to have successive nominations in a bank account. The respective provisions of the BR Act, 1949 and the Banking Companies (Nomination) Rules, 1985 would require amendments to provide for such nomination."
Mr Agrawal says the facility of successive nomination exists at the Life Insurance Corporation of India (LIC) through form-number 5194 whereby succession automatically passes on to the next nominee in case of the death of the earlier nominee.
On the other hand, insurance companies allow successive or alternative nominations for up to three nominees. Section 39 (1) of the Insurance Act, 1938 says, "The holder of a policy of life insurance on his own life may when effecting the policy or at any time before the policy matures for payment, nominate the person or persons to whom the money secured by the policy shall be paid in the event of his death."
Where the nomination is made in favour of successive nominees, i.e., nominee 'A' failing him to nominee 'B' failing whom nominee 'C,' the nomination in favour of one individual in the order mentioned is considered by the insurer. After the death of the policyholder, the first nomination becomes operative. If the first nominee is not alive, then the second one becomes operative. If both the first and second nominees are not alive, then only the third nominee becomes operative.
"This facility is especially of big use in the case of aged senior citizens where usually husband and wife make each other the nominee in their insurance policies, due to unawareness of the facility of successive nominations. Successive nomination provides auto-passing of nomination to the next nominee in case of death of aged nominee, which is either husband or wife of the policyholder," Mr Agrawal says. (Read: Why Banks Can't Offer Successive Nomination Like Insurance Companies, Asks RTI Activist)
Section 45ZG. (1) (b) is totally redundant in view of 45ZG. (1) (c).
Further, 45ZG. (1) (a) should actually be worded as - "(a) nomination of a nominee shall be effective if that nominee survives the person or persons who made the nomination;"
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Further, 45ZG. (1) (a) should actually be worded as - "(a) nomination of a nominee shall be effective if that nominee survives the person or persons who made the nomination;"