Thursday, September 10, 2009

Different Types of Bank Customers

Accounts of Minors:

Who is a Minor?

As per sec.4 of “The Guardian and Wards Act, 1890, “ ‘Minor’ means a person who, under the provisions of Indian Majority Act, 1875(9 of 1875) is to be deemed not to have attained his majority”.
As per Sec3 of “Indian Majority Act, 1875,” every other person domiciled in India shall be deemed to have attained his majority when he shall have completed his age of eighteen years and not before”. Thus a ‘Minor’ is a person who has not completed the age of eighteen years. Where a legal guardian is appointed by a court of law the person attains majority on completion twenty-one years of age and not before (Sec3 of Indian Majority Act, 1875). According to the Indian Contract Act, 1872, a minor is not capable of entering into a valid contract and a contract entered into by a minor is void. A minor after attaining majority cannot ratify the contract made by him during his minority since agreement made by him as a minor is void.
However, section 26 of NI Act provides that a Minor may draw, endorse, deliver and negotiate a cheque so as to bind all parties except himself. Of Course the minor is not bound by the terms and conditions of Bank Account. A question may obviously arise that in spite of above-mentioned disabilities, why banks are allowing opening an account in the name of Minor. The main reason for this is that in this age of cutthroat competition for deposit mobilization
Who is a Guardian?
As per Sec.4 of “ The Guardians And Wards Act, 1890” "guardian" means a person having the care of the person of a minor or of his property or of both his person and property.
Guardians may be categorized into following three types:
(i) Natural guardian,
(ii) Testamentary Guardian: -Guardian appointed by the will of the minor's father or
(iii) Guardian appointed by a court under the Guardians and Wards Act, 1890.
Natural Guardians in Different Religions:
a) Hindu
According to Sec.6 of Guardians and Wards Act, 1890,the natural guardian of a Hindu minor, in respect of the minor’s person as well as in respect of the minor’s property (excluding his or her undivided interest in joint family property), are-
(a) In the case of a boy or unmarried girl- the father, and after him, the mother,
provided that the custody of a minor who has not completed the age of five
years shall ordinarily be with the mother;
(b) In the case of illegitimate boy or an illegitimate unmarried girl- the mother,
and after her, the father;
(c) In the case of married girl -the husband:
(Note: The expression “father” and “mother” do not include a step- father and a
b) Muslim: Under the Mohammedan Law, father is the natural
guardian of the property of a minor. A mother of a Muslim minor is not a natural
guardian of her child.
A Muslim minors natural guardian in the order of preference is as under:
oExecutor appointed by father’s will
oExecutor appointed by grandfather’s will
oIf there is no guardian from any of the four categories mentioned above,
then guardian will have to be appointed by the court.
c)Christians & Parsis:
The natural guardian of a minor child is father during his lifetime and after him, the mother. In respect of child born out of wedlock registered under “The Special Marriage Act, 1954” the Guardian and Wards Act, 1890, govern guardianship.
Opening of Minor’s Account:
Generally, banks are reluctant to open deposit account in the name of minor, with mother as a guardian. Probably it may be due to the provisions of Sec. 6 of the Hindu Minority and Guardianship Act, 1956. According to which mother is not a guardian when the father is alive. During his lifetime, father alone is the natural guardian of a Hindu minor.
After examining the legal and practical aspects of problem, the Reserve Bank of India has permitted banks to open fixed, recurring deposit and savings banks accounts, mother as a guardian. Although there is no legal protection provided to the accounts opened in the name of minor with mother as guardian banks have been permitted to open accounts in the names of minors with mother as guardian.
RBI has advised banks to take adequate safeguards in allowing operations in the accounts by ensuring that minors' account opened with mothers as guardians are not allowed to be overdrawn and that they always remain in credit. By not allowing the account to be overdrawn the minor's capacity to enter into contract would not be a subject matter of dispute.
RBI has also advised banks that in cases where the amount involved are large, and if the minor is old enough to understand the nature of the transaction, the banks could take his acceptance also for paying out money from such account.
The account of minor can be opened in any one of the following modes.
i) By a natural guardian, i.e., father or mother on behalf of the minor:
ii) By a natural guardian, i.e., father or mother in the joint names of
himself/herself and the minor, payable to either or survivor;
iii) By a person in the name of any minor of whom he or she is the guardian
appointed by a competent Court under any enactment for the time being in force;
iv) By a minor of age 10 and above in his/her single name to be operated upon by
himself/herself, provided he/she can put uniform signatures.
Funds for opening Account:
oGuardian can open accounts from own funds. If guardian’s intention is to
utilize the money for the benefit of the minor and to eventually make the money
lying to the credit of the account available to minor or his/her attaining
majority, in that case from the date of the minor attaining majority the account
is to converted as a joint account (either or survivor) and can be operated upon
by the minor.
oIn a case where the funds with which the account in the name of the minor is to
be opened devolve upon him/her by gift, inheritance etc., or where the bank, at
its discretion, to consider it necessary, the account in the name of the minor
will be permitted to be opened only by a guardian appointed by a Court and the
guardianship certificate must embody an express authority to open and operate an
account with the Bank.
oOn attaining majority, the erstwhile minor has to confirm the balance in his/her
account and if the account is operated by the natural guardian / guardian, fresh
specimen signature of erstwhile minor duly verified by the natural guardian
are obtained and kept on record for all operational purposes.
According to age accounts of minor can be classified in to three categories.
o Below 10 years of age.
o Between 10 to 14 years of age
o 14 years of age and above
A legal guardian appointed by a Court to deal with the property of a minor can open an account in the name of the minor. Legal guardian cannot join as an accountholder in his individual capacity with the minor. All operations in such an account have to be for and on behalf of the minor in the capacity of a legal guardian.
Banks do not open accounts in the names of two or more minors either jointly between themselves or with the natural guardian/s or with any other person/s.
Third party cheques are not collected for the credit of any type of account in the name of a minor either solely in his/her name or jointly with his/her guardian/s or other person/s.
Essential requirements for opening Minor’s Account:
For opening the account of a minor bank requires:
o Minor’s date of birth. The birth date of is ascertained and verified from
the Municipal Birth Certificate or Birth Certificate issued by the School
Authority where the minor is studying.
o Recording the date of birth and date of maturity in the
o Account opening form, specimen signature card and the ledger folio. Since
banks have computerized their operations the date of birth should be
recorded in the records maintained on computer.
o Date of birth to be recorded in the passbook and in all types of account
such as Current, Savings Bank, Term Deposit Receipt in case of Term Deposit
Accounts or Recurring Deposit maintained by the minor.
On the minor attaining majority necessary steps are taken to ensure that the account is properly reconstituted if the account of a minor is held jointly with guardian/s or other person/s.
(1) Minors below 10 years of age:
Savings bank account can be opened in the name of a minor below 10 years of age in his own name, but the minor cannot operate the account. The account is to be operated by father as natural guardian or mother as guardian or by both of them. For all practical purposes, such accounts are treated as a single account. The date of birth of minor is recorded on the application form. Signatures of the guardian obtained even though he/she is not a joint accountholder.
In such cases, the account is styled as:
"Master ABC (Minor) through his Father and Natural Guardian Mr.XYZ." The mode of signatures in such account is as under:
For Master ABC
Father and Natural Guardian and/or Mother and Natural Guardian
Signatures of the natural guardian are obtained even though he/she is not a joint accountholder.
oOn attaining majority, the erstwhile minor is required to confirm the balance
in his/her account and if the account is operated by the natural guardian /
guardian, fresh specimen signature of erstwhile minor duly verified by the
natural guardian/ guardian is obtained and kept on record for all operational
(2) Minor between the age of 10 to 14 years:
A minor of the age of 10 years and above can open Savings Bank and all types of term deposit accounts in his sole name and can also operate the account. Many banks have fixed a limit of maximum balance in accounts of minors, between the ages of 10-14 years.
3) Minor of 14 years of age and above:
There is no limit to maximum balance for savings bank accounts of minors’ above-14-years. A minor of 14 years of age and above can also open current account in his sole name, subject to following terms and conditions:
o The minor should be able to read and write and in the opinion of the bank
officials is capable of understanding what he/she does.
o The account opening form, the application form, specimen signature card
etc., to be signed by the minor in the presence of a branch official and the
minor should be properly introduced by the guardian.
Joint Accounts of Minors:
Joint account in the names of two or more minors either jointly between themselves or with the natural guardian/s or with any other person/s is not opened.
Account of Minor by legal guardian:
A legal guardian authorized by an order from the Court to specifically deal with the property of a minor, can open an account in the name of the minor. All operations on such an account by the legal guardian has necessarily to be for and on behalf of the minor in the capacity of a legal guardian. A legal guardian cannot open account jointly with the minor in his personal capacity.
Accounts of Hindu minors where persons other than the guardians place deposits:
Deposits in the name of a Hindu minor placed by any person other than the natural guardian, as guardian, is accepted only on the condition that the deposit would be payable to the minor on attaining majority. Bank exercises proper care in such accounts.
.On minor’s attaining the age of majority i.e. 18 years:
.On attaining the majority the old Savings Bank account is closed and a new
account is opened wherein the name of the person who has attained majority is
included as one of the joint Account Holders and fresh operational instructions,
specimen signatures etc., are obtained.
2. Accounts of Married Women:
Marriage of woman does not affect any right of her separate property (Streedhan). Section 14 of the Hindu Succession Act, 1956 provides that property of a Hindu female shall be her absolute property. A Married woman has a legal entity of her own, which is separate from her husband. According to the Hindu Marriage Act 1956,Hindu married women can have separate property in her own name. A married woman can open accounts in her own name, operate freely and enjoy overdraft limit as long as the liabilities are met out from her own property. At the time of opening the account in the name of a married woman the name and occupation of her husband, details of his employer is obtained and recorded. Some banks also obtain the maiden name of the married women.
A married woman can make her husband liable for the overdraft enjoyed by her
o If she borrows money for the necessities of her life,
o If she borrows for the necessaries of her house hold,
o If she acts as agent of he husband.
The status of the married women is governed by the following Acts:-
(a) Hindu Succession Act, 1956
(b) Married Women's Property Act, 1874
(c) Indian Succession Act, 1925
3. Account of Pardanasheen Women:
A pardanasheen women is a women who puts a veil and does not show her face to people /outsiders and observes complete seclusion. Even they do not pose for photographs. Contract entered into by a Pardanasheen Woman is not a contract free from all defects. Banks generally refuse to open accounts in the name of Pardanasheen Women, because identity of Pardanasheen Women cannot be ascertained as she observes complete seclusion.
However, if under special circumstances, such an account is opened, two respectable persons known to the branch invariably attest the signatures on the account opening form and on the withdrawals by withdrawal slips.
4.Accounts of the disabled persons with autism, cerebral palsy, mental retardation and multiple disabilities:Banks can open account by the legal guardian and permit them to operate the account as long as he remains the legal guardian appointed by the Local Level Committees set up under the “Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999”.
Vide circular No. RBI /2009-10/142 DBOD.No.Leg.BC. 37 /09.07.005/2009-10 dated September 2, 2009 Reserve Bank has advised banks to rely upon the Guardianship Certificate issued either by the District Court under Mental Health Act or by the Local Level Committees under the above Act for the purposes of opening / operating bank accounts. Banks have also been advised to give proper guidance so that the parents / relatives of the disabled persons do not face any difficulty in this regard.
Appointment of guardian:
As per the Act, “a parent or relative of a person with disability may apply to the Local Level Committee for appointment of a guardian/or a person with disability. A registered organisation can also make such an application with consent of the natural guardian of the disabled person. The Local Level Committee will examine whether the person with disability needs a guardian and for what purpose and also lay down the duties of the guardian. The guardian will be responsible for the maintenance of the person with disability.”
5. Accounts opened by Illiterates:
Those who are unable to sign but use thumb impression are illiterates for banks. Illiteracy does not make a person incompetent to contract. Therefore an illiterate person can open and operate a bank account. However, banks do not open current account of illiterate person. For opening an account the person has to come to bank personally along with a witness who is known both to the depositor and to the bank. While opening an account banks obtain left hand thumb impression of illiterate men and right hand thumb impression of illiterate female. The thumb impression is obtained in the presence of a person known to the bank and the depositor.
The thumb impression is to be witnessed by a customer of the bank and noting to this effect is done (left/right thumb impression of Mr./Ms. affixed in my presence). Photograph of the account holder is obtained which is affixed on the ledger folio, account opening form and pass book.
Normally, no chequebook is issued to the account holder. The account holder has to come to the bank for operating the account. After proper identification banks pay the amount to the account holder. All other terms and conditions applicable for opening an account also apply in this case. Banks are required to explain the terms and conditions governing the account to the illiterate.
6.Opening of accounts by a person who can not sign due to loss of both hands:
A handicapped person is not barred from opening an account. Bank branches entertain the requests from handicapped persons for opening their accounts. After observing all account opening norms and obtaining the photograph of the handicapped person, bank opens account.
IBA has advised banks “In terms of the General Clauses Act, the term “Sign” with its grammatical variations and cognate expressions, shall with reference to a person who is unable to write his name, include “mark” with its grammatical variations and cognate expressions. The Supreme Court has held in AIR 1950 – Supreme Court, 265 that there must be physical contact between the person who is to sign and the signature can be by means of a mark. This mark can be placed by the person in any manner. It could be the toe impression, as suggested. It can be by means of mark which anybody can put on behalf of the person who has to sign, the mark being put by an instrument which has had a physical contact with the person who has to sign”.
In case the person has lost both hands bank obtains his/her toe impression (either right or left) on the relevant forms in presence of bank officials and a witness. As an alternative, the person is also advised to give a suitable power of attorney to a person of his/her confidence.
7. Opening of Accounts by visually impaired (blind) person:
A blind person is legally competent to enter into a contract or to open and operate an account. The risks in case of such an account arises due to the physical inability of the person to see. For opening an account, the person has to personally come to the bank along with a witness known to both the depositor and the bank.
While there is no legal provision for the appointment of a guardian of a blind person, banks prefer a properly constituted attorney to operate the account on behalf of the accountholder. Attested copies of the photograph of the blind person are obtained (attested by someone well known to the branch) and a copy of each is affixed on the account opening form/specimen signature card, ledger folio and pass book. Both the signature and thumb impression of the blind person are obtained on the specimen signature card along with the signatures of witnesses known to the bank. A rubber stamp indicating that the accountholder is a blind customer, is affixed on the account opening form, specimen signature card, ledger folio, pass book, paying- in-slip, withdrawal form, chequebook etc. This enables bank officials in exercising caution in the transactions with the blind customers. Bank is required to explain the terms and conditions governing the account to the blind person. In general the blind customers are given special attention whenever they come to the bank.
o While opening an account the blind person has personally to come to bank.
o He can open all types of accounts either singly or jointly with any other
person, which he considers to be reliable.
o While opening the account, rules, regulations, terms and conditions are read
out and explained to him in the presence of a witness and the signature of
the witness of having done this is obtained on the account opening form.
Operations in accounts by blind persons:
o Banks allow the next of kin of a blind customer to operate his account as a
guardian or a representative of the blind person.
o Generally no chequebook is issued. Where chequebooks are issued, the blind
person is advised to issue only crossed and order cheques and not to issue
bearer cheques so that payees could always be traced.
o Cash payments to blind person are made in person in the presence of a
witness (preferably an account holder) who signs the cheque/withdrawal
form/voucher etc., as witness. Branch official, other than paying cashier,
also signs as a witness.
o Cash deposited by the blind customer is accepted in the presence of a
witness (an account holder or an officer of the branch other than the
receiving cashier) and the amount deposited is informed orally to him. This
fact is noted on the pay- in -slip/voucher and under signature of a witness.
o The blind account holder is required to bring passbook for withdrawal and
the entries and balance are read out to him in confidence
RBI guidelines for providing banking facilities to Visually Impaired Persons:
RBI has advised banks to offer banking facilities including cheque book facility / operation of ATM, Net banking facility, locker facility, retail loans, credit cards etc. to the visually challenged without any discrimination as they are legally competent to contract.
In the Case No. 2791/2003, the Honourable Court of Chief Commissioner for Persons with Disabilities had passed Orders dated 05.09.2005 that banks should offer all the banking facilities including cheque book facility, ATM facility and locker facility to the visually challenged and also assist them in withdrawal of cash. In the above Order, the Honorable Court has observed that visually impaired persons cannot be denied the facility of cheque book, locker and ATM on the possibility of risk in operating / using the said facility, as the element of risk is involved in case of other customers as well.
8.Accounts by Old & Incapacitated Persons:
It is possible that with aging or due to sickness or a person becoming is incapacitated he /she is unable to operate account and is not willing to open and operate joint accounts. RBI has advised banks to extend the facility offered to sick/old/incapacitated pension account holders to non-pension account holders also.
Types of sick / old / incapacitated account holders:
Sick / old / incapacitated account holders fall into following categories:
(a) An account holder who is too ill to sign a cheque / cannot be physically present
in the bank to withdraw money from his bank account but can put his/her thumb
impression on the cheque/withdrawal form
(b) An account holder who is not only unable to be physically present in the bank
but is also not even able to put his/her thumb impression on the
cheque/withdrawal form due to certain physical incapacity.
Operational Procedure:
With a view to enabling the old / sick account holders operate their bank accounts, banks may follow the procedure as under: -
(a)Wherever thumb or toe impression of the sick/old/incapacitated account holder is
obtained, it should be identified by two independent witnesses known to the bank,
one of whom should be a responsible bank official.
(b)Where the customer cannot even put his / her thumb impression and also would not
be able to be physically present in the bank, a mark can be obtained on the
cheque / withdrawal form which should be identified by two independent witnesses,
one of whom should be a responsible bank official.
(c)The customer may also be asked to indicate to the bank as to who would withdraw
the amount from the bank on the basis of cheque / withdrawal form as obtained
above and that person should be identified by two independent witnesses. The
person who would be actually drawing the money from the bank should be asked to
furnish his signature to the bank.
9.Accounts of Lunatics:
As per Contract Act, a person of unsound mind is not capable of entering into a valid contract. Banks therefore, do not knowingly open an account in the name of a person of an unsound mind.
In case of an existing account, as soon as the information about insanity of the accountholder’s is received, banks suspend / stop operations in the account and do not pass cheques. When the proof of customer's sanity is received, operations in the account are resumed.
An account in the name of a lunatic person can be opened or operated only by a guardian appointed by a competent Court and the balance of such accounts is paid to the person appointed by the competent court.
10.Accounts of Insolvents:
A person when fails to pay his debts is declared insolvent by the court. As soon as a person is declared insolvent, operations in his existing account is stopped forthwith and balance of such accounts are disposed as per the instructions of the Official Receiver. Insolvency of an accountholder revokes the bank's authority to pay the cheques drawn by him and the balance at credit of the account and the entire estate of the insolvent vests in the official receiver appointed by the court.
Declaration of insolvency renders invalid all the transactions entered into subsequently and already entered into within six months. Banks do not open insolvent’s account nor advance money to an un-discharged insolvent. During the pendency of insolvency proceedings, no creditor can have any remedy against the property of the insolvent in respect of his debts or commence any suit or legal proceedings against the property without the leave of the Court. Insolvency of an agent does not affect the relationship of the principal and agent
11. Accounts of Drunkards:
Intoxicated person cannot take a rational judgment about his interest. State of intoxication renders a person incapable of understanding the nature of his action. Therefore, the law provides that all the contracts made by a person in a drunken state are void.
When a drunkard approaches the branch of a bank for opening an account, the branch if satisfied that the person is incapable of entering into a contract refuses to open the account as a precautionary measure. In case of an existing account, payment of a cheque to a drunkard is done after taking proper witness.
12. Accounts of Hindu Undivided Families (HUF):
The Hindu Succession Act 1956 governs HUF. The HUF carries out ancestral business and possesses ancestral properties.
As per Hindu Law two schools of thought, Dayabhaga and Mitakshara govern Hindu undivided family. In west Bengal Dayabhaga is followed and in the rest of the country Mitakshara is followed. In Dayabhaga the father acquires absolute right and sons do not acquire any right by birth in Mitakshara a male member acquires the right by birth. Female members are not co-parceners except in Tamil Nadu and Andhra Pradesh.
The eldest male member is called as a Karta and all other male members are called as co-parceners. The right to manage HUF property vests in the 'Karta' of the family. Karta is either the father or the senior most male member of the family. All other male members are called coparceners.
In the interest of the family and family business, only the Karta can create a charge over the ancestral property. However, he cannot make a contract, which binds the other member personally. Other members are responsible to the extent of their share in the ancestral property.
HUF is not dissolved In the event of death of one of the members of the joint Hindu family. It differs from the partnership firm as on the death of one of the partners, the firm is dissolved. On the death of karta the senior most co-parcener becomes karta.
A coparcener continues to be a member of HUF, even after his migration outside India and acquiring status of NRI or taking citizenship of another country.
If the Karta himself migrates, an alternative Karta of the HUF is appointed by the HUF with consent from all coparceners.
Opening of Account of HUF:
The account is opened in the name of the Karta and family business. The Karta and all the adult members of the HUF are required to sign the account opening form. Banks do not open Savings Bank account of HUF engaged in trading and business activities
Operations in account:
The operations in the account are normally restricted to Karta of the family. The Karta can appoint any of the adult coparceners to operate the bank account as 'Manager' if HUF carries out business at various places through its branches.
HUF accounts can also be operated by coparcener and /or other adult members of HUF also, against a letter of authority and against a stamped letter of indemnity cum undertaking give by the Karta. Since female members in an HUF are not coparceners, they cannot be authorised to operate bank account. If there is no adult coparcener, a mother is allowed to manage the property of HUF and operate the account.
13. Account of Sole Proprietary Concerns:
Banks do not open savings bank account in the name of a proprietorship firm but open current account in the name of the sole proprietary concerns. Accounts in the name of a sole proprietary concern are treated like individual accounts. The account can be operated either by the proprietor himself or by a person duly authorised to operate the account on his behalf. Banks exercise caution while accepting cheques drawn in favour of the sole proprietary concern and deposited in personal account of the proprietor.
When the sole proprietor of the firm deposits cheque payable to the firm for credit of his personal account bank obtains a declaration from him to the effect that he is the sole proprietor of the firm.
14.Accounts of Unincorporated Associations:
Banks open accounts of unincorporated associations and clubs started for purposes of sports, recreation, promotion of fine arts, education etc. Accounts are opened for reliable ad reputed parties. These unincorporated associations have no legal entity. While opening the account in the name of the association, bank makes detailed inquiry into the existing rules, regulations and byelaws governing such associations. All usual formalities for opening the account are adhered by the bank viz. obtaining account-opening form, specimen signature card etc.
Bank also obtains certified copy of the resolution passed by the Governing Body or the Managing Committee of the club/ association for opening of the account in the bank and names of the office bearers authorised to open and to operate the account on behalf of the club/ association duly certified by the Chairman are obtained.
Banks generally do not permit account to go into debit, even for temporary period. Bank does not collect cheques in the personal accounts of the office- bearers, payable to associations.
15.Accounts of registered societies, clubs and Associations:
A club or a society gets legal entity only when it is incorporation under Company’s Act, 1956 or under Cooperative Societies Act, 1860.Byelaws of the society, clubs, and association contain rules, regulations or conduct and activities of the association. While opening account banks obtain:
o Copy of the byelaws;
o Copy of resolution passed by the managing committee regarding opening and
conduct of account,
o Certificate of registration in original,
o A list of the Managing Committee members
o Copies of resolutions electing them as Committee members duly certified by
the Chairman
Bank keeps a copy of the above-mentioned document for its record.
16.Account of Partnership Firms:
According to Section 4 of the Indian Partnership Act, a partnership is the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.
The Supreme Court has held that the word "persons" in Section-4 contemplates only natural or artificial persons i.e., legal persons. Since a firm is not a person, is not entitled to enter into partnership with another firm or Hindu undivided family or individual. Therefore, banks do not open account where a firm is a partner in another firm. As Joint stock companies and statutory bodies constitute "artificial or legal persons" therefore, they can be partners in a partnership firm.
As per the Indian Partnership Act, minimum number of partners can be two and maximum twenty. The number of partners is restricted to 10, if the partnership firm carries out business of banking. Minors can be admitted as partner only to the benefits of the partnership.
Registration of partnership firm:
A partnership firm can be registered with Registrar of Firms. However, as per law, it is not compulsory to register a partnership firm. Non-registered partnership firm have certain disabilities. Such firms cannot sue others to enforce a right arising out of a contract. A suit filed by an unregistered partnership firm is not maintainable, even after its subsequent registration. Even partners of an unregistered firm cannot sue other partners or his firm, for their rights.
Opening of Account:
A partnership firm can open all types of accounts except savings bank account. Bank opens account of a partnership firm in the name of the firm and not in the names of partners individually or jointly. The account opening form is signed by all the partners in their individual capacity as well as in the capacity of a partner to ensure joint and several liabilities. While opening the account banks verify the partnership deed to examine whether any clause of the deed is detrimental to the interest of bank. Since bank would not like to be bound by the terms of the partnership deed, banks do not accept the partnership deed even if offered.
In case of registered firm, banks obtain registration certificate. The account is opened in the name of the firm and all the partners are required to sign account opening form.
Operations in account:
Bank obtains operational instructions i.e. who will operate the account and how it is to be operated. In case a minor is also a partner in the firm his birth certificate is obtained to ascertain the date of birth, which is recorded in the account opening form.
Who can operate?
o All partners jointly
o One of the named partners
o Two / three of the named partners
o A third party under a mandate letter or a power of attorney signed by all
the partners.
A partner authorised to operate the firm's account cannot delegate his authority to another person unless all other partners agree. The authority given to operate the account can be withdrawn by any of the other partners including dormant or sleeping partner by giving notice to the bank. Each partner, whether he/she is operating the account or not, has powers to countermand payment of the cheques drawn by another partner or by an attorney on behalf of the firm.
Partnership firms with illiterate partners:
Current accounts of partnership firms, where a partner is illiterate and affixes thumb impression, can be opened provided a Magistrate attests the thumb impression affixed on the account opening form.
Implied authority:
A partner acts as an agent of the firm for the purpose of the business of the firm. He binds the firm and also other partners by his acts. An authority to bind the firm by his acts is called the implied authority of a partner.
Operations in the accounts:
Without proper inquiry with the other partners, bank does not accept cheque drawn in favour of the firm for credit to the personal account of a partner. Failure to make proper inquiries would deprive the bank of the protection afforded under Section-131 of the Negotiable Instruments Act on grounds of negligence. Cheques payable to a partner are not be credited to the firm’s account without proper inquiry being made with the other partners.
Retirement of a partner:
On notice of retirement of a partner, the bank closes the existing account and opens a new account of the firm with the remaining partners or along with the new partner if admitted to the new firm.
Death of a partner:
o Death of a partner dissolves the partnership. However, for the purpose of
winding up of the firm, the bank may allow the surviving partner(s) to
operate the firm's account, if the account is in credit.
o Cheques drawn by a partner before his death and presented for payment are
honoured after obtaining confirmation of the surviving partners.
Dissolution of a partnership firm:
Dissolution of a firm amounts to the breaking up of relation of partnership between all the partners. In the event of dissolution banks do not permit operations in the account. A partnership firm may be dissolved by any of the following modes
(a) By mutual agreement between all the partners.
(b) By notice of dissolution in case of partnership at will.
(c) By operation of law or compulsory dissolution of the firm.
(d) By happening of certain contingencies such as death or insolvency of a partner.
(e) Dissolution by Court of Law in cases like insanity, permanent incapacity,
misconduct of a partner affecting business etc.
17.Accounts of Co-Operative Societies & Co-Operative Banks:
Co-operative institutions are authorised to open accounts under the Cooperative
Societies Act only with banks, which are recognised for the purpose. Our Bank has been recognised for accepting funds of co-operative societies. It is, however, for the co-operative society or the co-operative bank to obtain permission from the Registrar of Co-operative Societies in the State concerned to invest their funds in the Bank. The bank is not affected by the omission on the part of the society or the co-operative bank to obtain the Registrar's permission to open the account or even to observe the limits imposed on it by the Registrar on the amount and period of the deposit lodged with the Bank. These are matters of internal routine of the co-operative institution, whose compliance can be presumed by the Bank. While opening the account, the branch should call for the following documents:
(i) Certificate of registration of the society or the Bank;
(ii) Certified copy of the byelaws of the society or the Bank;
(iii) Resolution of the managing committee appointing the Bank as its banker and
stipulating the conditions for the conduct of the account.
(iv)List of members of the managing committee with the copy of the resolution
electing them to the committee.
In case of accounts of co-operative banks, bank obtains a copy of the licence issued by RBI.
18.Accounts of Joint Stock Companies:
A joint stock company is constituted under company Act 1956. Company is an Artificial person’ with perpetual succession. It is a voluntary association of persons formed for some common purpose with capital divisible into parts known as share. It has separate legal entity and corporate personality. It is separate from the shareholders constituting it.
The company can own assets; contract debts and can sue and be sued in its own name. The property of the company is not the personal property of its shareholders nor the company's liability is the liability of its shareholders/directors, unless they consent to be personally liable for the company's debts.
Company can be classified into three categories:
1.Public Ltd. Co.:
It can issue shares to public.
Minimum number of shareholders required is 7.
There is no restriction in the maximum number of shareholders.
Shares can be freely transferred.
Minimum number of directors required is 3
Requires certificate of commencement of business.
2.Private Ltd.Co.:
It can not issues shares to public.
Shares are not freely transferable.
Minimum number of shareholder required 2 and maximum number of share holders can
be 50.
Minimum number of directors required 2.
It does not require certificate of commencement of business.
3.Government Co.:
A company where not less 51% of the share capital is held by the government.

Depending upon the liability of shareholders the Company it may be limited or

Documents required for opening an account:
1. Account opening form
2. Certified copies of memo of association and articles of association
3. Copy of certificate of incorporation
4. Certificate of commencement of Business
5. Up-to-date list of directors with name and address
6. Certificated copy of a resolution of the Board of directors for opening and
conducting the account.
Documents obtained by bank:
For opening an account of a joint stock company bank obtains following documents:
(i) Certificate of incorporation:
The Registrar of Joint Stock Companies issue this certificate. It is a
conclusive proof that all the requirements under the Companies Act have been
complied with.
(ii) Certificate of commencement of business:
This certificate is essential in the case of public limited companies. A
public limited company cannot borrow until this certificate is obtained.
(iii) Memorandum and Articles of Association:
The bank obtains a certified copy of the Memorandum and Articles of Association
of the company to satisfy that the conduct of the account is in conformity with
the provisions. Certificates signed by the Chairman or one of the authorised
directors of the company stating that the Memorandum and Articles of Association
are true and up-to date.
(iv) Board Resolution:
A copy of the resolution of the Board of Directors of the company, certified as
true by the Chairman of the meeting, requesting the Bank to open an account in
its name and specifying the instructions regarding the conduct thereof, is
obtained. Instructions in the resolution regarding conduct of the account have to
be in strict conformity with the provisions of company’s Articles of Association.
The resolution is to be countersigned either by the company's secretary or any of
the other directors.
(v) List of the present directors:
A list of the present directors of the company is obtained under the signature of
the Chairman, accompanied by a certified copy of the resolution of the general
body of the shareholders appointing them as directors.
(vi) Reference to the company's previous bankers:
Banks also ascertain the names and addresses of the company’s previous bankers,
if any, and get a report on the company and its directors and keep it along with
the account opening form.
Memorandum of Association:
The memorandum of association contains name and address of the registered office of the company, name and addresses of the directors, objectives and powers of the company. Any act done or contract entered into by the company, which is outside the scope of these objectives becomes ultra vires (i.e. beyond the powers of the company) and, therefore, is not binding on it.
The Memorandum and Articles of Association of the company is studied to find out the extent of the powers of its directors, its powers to borrow and mortgage property or to give guarantees and the provisions relating to the conduct of its bank accounts
Articles of Association:
The Articles of Association contain the rules regulations regarding company's internal affairs.
Conversion of cheques payable to companies:
Cheques payable to or endorsed by limited companies should not be collected for the personal accounts of their directors, managers and other employees. Ordinarily, cheques payable to limited companies are to be credited to company’s account.
Insolvency of a director:
In case one of the directors becomes insolvent or an un-discharged bankrupt, he cannot act as a director of a limited company. The bank does not permit operations in the account by the insolvent director.
Winding up of a company:
Winding up of a joint stock company is deemed to have commenced from the date on which petition for such winding up is presented, or in the case of voluntary winding up from the date on which an extra ordinary resolution to this effect is passed. With commencement of winding up of a joint stock company, the Directors cease to have powers to operate on the account and the authority stands vested with the liquidator appointed for the purpose. Therefore banks do not pay cheques signed by the directors after the commencement of the winding up proceedings. Liquidator should furnish evidence of his appointment by sending a certified copy of the Court Order, or a certified copy of the resolution of the general body in case of a voluntary winding up. If required, he may be furnished with details of the company's accounts, securities etc., and should be allowed to operate upon the accounts of the company only for the purpose of winding up of its affairs.
19.Accounts of Private Companies:
A private limited company is a company, which have a minimum 2 and maximum 50 shareholders. Shares of these companies are not sold in the public and cannot be transferred. Banks are cautious while opening accounts of Pvt. Ltd.Co. Bank obtains all documents as required while opening accounts of a joint stock company.
20. Accounts of Trusts:
As per Sec.3 of Indian Contract Act, 1882 “A trust is an obligation annexed to the ownership of property, and arising out of a confidence in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner.”
Bank opens trust accounts for good parties. A trust can be public or private. All public trusts are required to be registered with the Charity Commissioner under Public Trust Act of the respective state.
Before registering a public trust, the office of the Charity Commissioner makes necessary enquiries regarding the trust, its trustees, the mode of succession of trusteeship etc., and after proper enquiries makes entries in the register, which are final, conclusive and are binding on all concerned. Banks open trust accounts after taking all precautions.
While opening account of a trust bank obtains
o Copy of constitution of the trust
o Trust deed if available,
o Certificate of registration and/or a certified copy of the entry of the
public trusts register
o Public Trust Register No
o A list of the current trustees and the authority appointing them as trustees.
o The necessary resolution passed by the trustees for opening the account
with the bank.
o Certified copy of the resolution signed by all the trustees in regard to
the conduct of the account.
Trusts which have no constitution, instruments of trust or scheme:
While opening accounts of such trusts bank obtains following documents:
• A certificate of registration issued by the office of the Deputy/Assistant
Charity Commissioner (Where it is so possible, under the relative law).
• A certified copy of the latest entry in the public trusts register (Public
Trust Registration), which shows the name of the trust, the Public Trust
register No of the Trust, at which it is registered and name/s of the
• A declaration and an indemnity from are obtained all the trustees.
• A resolution passed by the trustees relating to the opening of the account
Trust accounts must be opened and conducted strictly in accordance with the terms of the trust deed. All the trustees are required to act jointly by the persons so authorised by the registered trust deed. Trustees have no powers to delegate their authority to one or more unless the power of delegation is authorised by the trust deed or is in accordance with the directions of the court on an application made by the trustees.
Trustees have no implied authority to borrow or pledge trust property, unless so provided for in the trust deed.
Death of a trustee:
On the death of one of the trustees, the trust property passes to the other trustees as per the provisions of the trust deed. If the deceased is the sole trustee, his executor has no right to recover the trust money. The executor, however, has the right to appoint a new trustee, provided the deceased trustee has in his will specifically authorised such an appointment.
21. Accounts of Religious and Charitable Trusts:
To regulate public religious and charitable trusts some States have passed Acts. These charitable trusts are registered with the Charity Commissioner or the Assistant Charity Commissioner of the region concerned. A Certificate of registration is issued to these trust by the authorities. Mostly these trusts do not have a properly written trust deed. Bank opens account of religious and charitable trusts on merits and on being satisfied as to the integrity of the trustees and their status.
Opening and operations of account:
While opening account bank obtains following documents in addition to account opening form duly signed by the trustees.
• A resolution specifying the name of the bank passed in a proper meeting held
by all the trustees.
• Indemnity signed by all the trustees, indemnifying the bank for having
allowed operations on the trust account.
• Banks do not permit operations in the account by one person.
• Reasonable number of members is required for opening and operating the
• If the number of trustees is larger, then the number of person operating the
account has to be large.
• Bank periodically obtains confirmation of balance in the account, signed by
all the trustees.
• Wherever possible, order or direction from the Charity Commissioner is
obtained, permitting the bank to allow operations on the trust account in the
manner approved by the trustees.
22.Provident fund Accounts:
Provident fund accounts are treated as trust accounts. In case a provident fund is recognised by the income tax authorities, a certificate to that effect issued by the concerned Commissioner of Income Tax, should be obtained for registration with the Bank. It should be recorded in the Power of Attorney Register. This certificate is to be obtained in addition to all other credentials mentioned earlier.
23.Accounts of Executors and Administrators:
Executors and administrators are persons appointed by a person through a will to mange the affairs of his estate after his death. The person appointing an executor in his will is known as testator. There can be more than one executors or administrators. Sec.311 of Indian Succession Act, 1925 deals with the powers of several executors or administrators exercisable by one.
If the person has not appointed any one to manage the affairs of his estate after his death court appoints administrator for the purpose.
An administrator drives power to deal with the estate of the deceased from the letters of administration issued by the Court. The estate of the deceased vests in the executor from that date of letters of administration. Banks generally do not permit an executor to deal with the moneys or securities of the deceased until he produces the probate as the evidence for his title. In law, executors and administrators constitute a single person. In the absence of any mandate to the contrary, either or any one of the two or more executors or administrators can open and operate the account and deal with the estate of the deceased without a written authority from the others.
Opening of Account of Executors and Administrators:• Bank obtains account opening form duly signed by all the executors or administrators and obtains clear instructions as to the manner in which the account will be operated.
• Bank also obtains copy of probate or letters of administration in original
for scrutiny and registration in their books.
• Bank ascertains identity of executors or administrators for their
satisfaction. (KYC norms)
An executor or administrator has no right to delegate his authority to an outside party, not being co-executor or administrator. Any one of the executors or administrators can countermand the actions of the others. Cheques drawn or payable to the executor or administrator's account are not collected for credit of their personal accounts without inquiry.
24.Accounts of Liquidators:
A company can go into liquidation either voluntary or by the orders of court. Incase a company goes in to liquidation by the orders of court, it appoints a liquidator Under Section 552 of the Companies Act, 1956. The liquidator so appointed by courts is known as official liquidator. When a company goes into voluntary liquidation, it appoints liquidators at its extraordinary general meeting convened for the purpose. Official liquidators have to deposit the moneys only into the public account of the Government of India with the Reserve Bank of India. Official liquidator cannot open accounts with scheduled banks. In case of voluntary winding up, authority to operate account by the liquidator is passed in the general meeting.
Opening of account:
While opening account of liquidators bank requires:
o True copy of the resolution passed in the extraordinary general meeting.
o The resolution has to be certified by the Chairman of the extraordinary
general meeting
o Signature of the liquidator is required to be verified by one of the
authorised officials of the company concerned.
o Liquidators cannot delegate their powers to third parties
o The account is styled as "The Liquidation Account of ........"(name of the
26. Accounts of local bodies:
Banks open accounts of local bodies include Municipal Corporation, Panchayat, Board etc., created by special act of the parliament or legislative Assembly.
a) Accounts of Village Panchayats:
Banks open accounts of village panchayats/district/taluka after getting a copy of the resolution passed by the Panchayat of the Village or Taluka of the District concerned.
In various states the village panchayat are governed by the Panchayat Raj Acts passed by the respective state governments.
While opening such accounts banks refer to the Act for ascertaining the nature of transactions permitted by the Act. The accounts of village panchayats are operated only bythe President or Sarpanch. The Vice-President (Vice Sarpanch) of thePanchayat can operate the account only in the absence of the President (Sarpanch) only after the written authority of the sarpanch.
Accounts of village panchayats/district/taluka are opened and styled as
"President (or Sarpanch).........Gram/Panchayat".
b) Accounts of Local Authorities/bodies:
Banks open accounts of local authorities like municipalities, district boards, port trust, state financial corporations and such bodies created by statute. These are considered as local bodies or quasi- government institutions. While opening accounts of such authorities banks go through the municipal enactments and regulations. Transactions in account are permitted strictly in accordance with the statutory provision.
Accounts with Similar Names:
Where there are two accounts either in the same name/s or with great similarity in their titles, caution should be noted on both the ledger headings with the word "CARE" : Similar account in the name ........ Page... " Giving cross-references. If it comes to the notice of the branch that the client is maintaining an account with another branch of the Bank, the fact should be noted in the ledger heading with a view to enable the branch or branches to exchange any useful information, which may come to its notice about the client.

Saturday, September 5, 2009

Procedures and Practices in Opening Deposit Accounts:

Opening of Account:

Before opening an account the bank has to carry out due diligence as required under “Know Your Customer” (KYC) guidelines issued by RBI from time to time and such other norms or procedures adopted by the Bank.
In addition to the due diligence requirements under KYC norms

Who can open Account?
Any person who is legally capable of entering into a valid contract can open an account. As the relationship between the bank and the depositor is that of “Debtor” and “Creditor”, the parties to the contract should be competent to enter into the contract.
According to Sec. 2 of the Indian Contract Act, 1872, every person is competent to enter in to contract if he /she is:
(i) Of the age of majority.
(ii) Of sound mind, and
(iii) Not disqualified from contracting by any law to which he /she is subjected.

Thus, any person, who is not a minor, lunatic or an un-discharged insolvent, drunkenness etc., and is competent, to contract can open an account in his/her name with bank.
A question that naturally arises in the mind that when as per Indian Contract Act, a contract with a minor is void ab-initio and when even after attaining majority the minor cannot ratify a contract made during his minority, why banks open account of minors? Since Sec.26 of N I Act, provides that a minor may draw, endorse, deliver and negotiate a cheque so as to bind all parties except himself, banks open account of minors.

Application form:

The person opening an account has to fill up the application form (account opening form / card provided by the bank) and sign it in the presence of bank officials.
The applicant has to state his/her name, father’s/husband’s name, full address, occupation, telephone number; PAN, in the application form and has to affix his photograph (at the space provided for that purpose) duly authenticated by himself.
In case of accounts of minor, date of birth is to be mentioned on the application form and on the specimen signature card.
Some banks also obtain e-mail address, telephone and mobile number of the person opening the account, as it facilitates bank in contacting the account holder in case of need and also helps in building long lasting relationship and in marketing various products.
Account opening form is to be introduced by a person known to the bank.

In the ordinary course of business banks render number of services to its customers. It is, therefore, essential that the bank is aware of the credentials of the prospective customer. Before opening an account, it is the duty of the bank to verify the true identity of the intending customer. For opening a bank account, introduction from someone known to the bank is must. Introduction enables proper identification of the person opening an account, so that it would be possible, to trace the person later when required. Introduction establishes the identity and genuineness of the person/party opening the account
Obtaining proper introduction is not a mere formality. It is a measure of safeguard against opening of accounts by undesirable persons or in fictitious names with a view (Benami Account), inter alia, to depositing unaccounted money.
Introduction is also necessary for getting protection under Section 131 of the Negotiable Instrument Act 1881 as in the absence of proper introduction, the bank may not get the statutory protection.
Banks have to follow know your customer (KYC) guidelines issued by RBI while opening account.
What is a proper introduction?
It is not that banks accept introduction of any existing account holder. Bank accepts introduction from persons of some standing and have an account with the bank for at least six months to ensure that the accounts are not opened on the introduction of new account holders or persons having small and marginal balances. The interval of six months enables the bank to monitor the account closely to satisfy itself that the transactions in the introducer's account are satisfactory.
Banks also accept introduction from respectable and well-known persons of society. Therefore it is necessary that the person introducing the account, must himself be a respectable person.
The introducer has to sign bank's account opening forms in token of his verifying the identity of an applicant.
Introducers play an important role. It is not sufficient for an introducer to state that he has known the person for a sufficient length of time. Mere casual words of introduction of a person desirous to open an account with the bank would not constitute a proper introduction.
Introduction in absentia:
It is necessary for the introducer to come personally to the bank. When an introducer does not personally call at the branch to introduce an account, written confirmation of the fact of having introduced a new account is obtained from him. Bank is supposed to send a letter by post both to the customer and the introducer and seek their confirmation for opening the account/giving introduction.
In cases where the account opening forms bear the signatures of manager/officials of other branches of the bank for introduction, apart from verifying the signatures of such introducers with the specimen signatures available on record, the branch is required to obtain written confirmation of the introduction from the officials of the branches that introduced the account.
Who can Introduce?
Accounts can be introduced by:
a) Bank officials (Unless well known generally avoid. It is advisable for bank to discourage branch managers and staff members for giving introduction. )
b) An existing account holder, of repute and standing whose account is satisfactorily and actively conducted.
c) In the event the person opening the account does not know any existing account holder of the, the bank would accept any one of the following documents bearing photograph of the holder as introduction provided she/he furnishes proof of identity and proof of address as required by the Bank.
Withdrawal of Introduction by Introducer:
While opening the account bank has to make clear to the account holder that In the event of withdrawal of introduction by the introducer, bank would suspend operations in the account and would not to honour cheques issued by him/her and that the bank would closing the account without any intimation. If the introducer wants to withdraw introduction, he/she has to inform bank in writing and the reasons and circumstances which led him / her to withdraw the introduction.
If introduction is withdrawn on account of personal reasons (there is no adverse reasons for withdrawal of introduction) and if the bank officials are convinced over the identity and the conduct of the account after taking a prudent decision operations in the account can be continued, and bank may ask for a fresh introduction.
Proof of Identity:
Any one of the following with authenticated photograph thereon:
(1) Valid passport
(2) PAN Card
(3) Driving License
(4) Voters ID card
(5) Defence ID Card
(6) Identity card of employees of Central/State Govt. & Public Sector undertakings.
(7) Senior Citizen’s Card

Proof of Current Address:
Any of the following:
i)Credit Card Statement
ii)Salary Slip
iii)Income/Wealth Tax Assessment Order.
iv)Electricity Bill
v)Telephone Bill
vi)Statement of Bank account
vii)Letter from reputed employer
Viii)Letter from any recognized authority

Banks take only original valid documents for verification of:
The photo affixed on the account opening form/card
Address of the opener of account form and the document presented for identification.
Liabilities of the Introducer:
Introduction is not a guarantee of the introducer to the bank about the conduct of account of the person whose account he has introduced. The purpose behind obtaining introduction is that in case of need, the introducer would be in a position to identify/trace the accountholder. Therefore, a person should introduce no account unless he knows the prospective accountholder.
Operations in Account
Deposit accounts can be opened by an individual in his own name i.e. in his single name or by more than one individual in their own names i.e. as Joint Account.
1-Operations in Single account
The individual opening the account operates accounts himself. He can also authorise other person to operate the account through a mandate or power of attorney, which has to be registered with the bank.
2-Conversion of account from single name to joint names:
Single account with credit balance can be converted into joint accounts. Banks obtain a letter of request from the accountholder for converting the single account to a joint account. Bank obtains new specimen signature card, duly signed by all the joint accountholders and also the operational instructions from all the joint accountholders.
Operation in Joint Account:
Joint accounts are the accounts opened by two or more individuals, who are neither partners nor executors or trustees. Section 45 of the Indian Contract Act, 1872, talks about ‘Devolution of joint rights’. According to the section
“When a person has made a promise to two or more persons jointly, then, unless a contrary intention appears from the contract, the right to claim performance rests, as between him and them, with them during their joint lives, and, after the death of any of them, with the representative of such deceased person. Jointly with the survivor or survivors, and, after the death of the last survivor, with the representatives of all jointly.”
Addition or Deletion of the name/s of Joint Account Holders
At the request of all the joint account holders banks permit addition or deletion of name/s of joint account holder/s or allow an individual depositor to add the name of another person as a joint account holder.
Opening of a joint account:
Persons intending to open joint account have to signed account opening form. Clear instructions regarding mode of operations, transfer, closure of account, and payment in case of death of a joint accountholder is obtained at the time of opening the account.
The Joint Account opened by more than one individual can be operated by single individual or by more than one individual jointly. The mandate for operating the account can be modified with the consent of all account holders. The joint account holders can give any of the following mandates for operating the account.
1.Joint accounts in two names:
i)Either of us or survivor
ii)Both of us jointly or survivor.
iii)Payable to "the former/ latter or survivor
iv) Account will be generally operated upon by and cheques will be signed by only Mr.
a) Either or Survivor
If the account is held by two individuals say, A & B, the final balance
along with interest, if applicable, will be paid to survivor on death of
anyone of the account holders.
b) Former or survivor 'or' latter or survivor'
Subject to the condition that the second/first named account holder
respectively, will be entitled to the balance lying in the account only on
the death of the former/latter account holder.

2.Joint account in three or more names:
i)Either of us or survivors
ii)All of us jointly or survivors
iii)Account will be generally operated upon jointly by any of the two.
iv)Account will be generally operated upon jointly by any of the three.
v)A particular person during his/her lifetime or survivors jointly or the last
vi)Mr…Mr… and Mr…. will generally operate upon account jointly.
vii) Anyone or Survivor/s

If the account is held by more than two individuals say, A, B and C, the final balance along with interest, if applicable, will be paid two individuals say, A, B and C, the final balance along with interest, if applicable, will be paid to the survivor on death of any two account holders.

Authority to countermand:
Any of the joint accountholders, whether having powers to operate on the account or not, has the authority to countermand payment of a cheque signed by the other joint account holders.
Death of a joint account holder:
Banks stop operations in the account at the time of death of a joint accountholder, if the account shows a debit balance.
If the bank has valid instructions to pay the balance to the survivor, the bank will pay the balance in the account to the survivors on receipt of satisfactory proof of the death of the joint accountholder.
In the absence of instructions to the contrary, the balance in the joint account vests jointly in the legal representatives of the deceased accountholder and the surviving accountholders.

Types of Deposit Accounts:

Bank deposits can be classified in to two broad categories Resident and Non-Resident.
Banking in terms of Sec.5 (b) of the Banking Regulation Act, 1949, is accepting, deposits of money from the public for the purpose of lending or investment. The deposit so accepted is repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise.
It would be observed from the definition that banks accept two types of deposits:
a)Payable on demand (i.e. Demand Deposits) and
b)Not payable on demand (i.e. term deposits)
Demand Deposits:
Demand deposits are those deposits which are payable / withdrawable on demand. Customers having these accounts can withdraw their deposits from bank at any time they desire.
Kinds of Demand Deposits:
Savings bank, current account and overdue deposits come under the category of demad deposits. (Overdue deposits are those term deposits, which have not been withdrawn on maturity by the depositor and are held in the books of bank. Since the depositor can withdraw this deposit any time, these deposits are treated as demand deposits.)
Savings Bank Deposits:
Savings bank deposit is the most common demand deposit account for individuals for non-commercial transactions and is primarily meant for developing the habit of savings amongst public.
Banks open Savings Bank Account for eligible person / persons and certain organizations / agencies (as advised by Reserve Bank of India from time to time). These accounts cannot be opened in the names of business organizations. However, non-profit welfare organizations are permitted to open Savings bank accounts.
Banks stipulate certain minimum balance to be maintained in the account, which differs from bank to bank. The depositor can withdraw the amount from account as and when he/she desires. However, there are restrictions on the number of withdrawals over a period of time. Banks levy charges when withdrawals exceed the stipulated number.
As per RBI guidelines, banks are required to inform their customers at the time of opening the accounts the requirement of maintaining minimum balance and levying of charges etc., if the minimum balance is not maintained. Banks are also advised to inform at least one month in advance to all depositors about any change in the prescribed minimum balance and the charges that may be levied if the prescribed minimum balance is not maintained.
Payment of Interest:
The Reserve Bank of India has deregulated payment of interest on savings bank deposit. In the year 2003, it increased interest rates on savings deposit tp 3.5% .On May 3,2011rate on Savings deposits were increased to 4% per annum. On October 25,2011, RBI deregulated Savings Bank Deposit rate, subject to following conditions:
First ,each bank has to offer a uniform interset rate on savings bank deposits up to Rs.One Lac,irrespective of the amount in the account within this limit.
Second for savings bank deposits over Rs. One Lac ,a bank may provide different rates ,if it chooses ,subject to the condition that banks will not discriminate in the matter of interest paid on such deposits,between one deposit and anoter of similar amount,accepted on the same date ,at any of its offices.
Earlier the interest on deposits kept in savings bank account were calculated on the minimum balances held in the account during the period from the 10th day to the last day of each calendar month. RBI in its annual policy statement for the year 2009 –10 announced that with effect from 1st April 2010 banks would calculate interest on daily product basis and not on the minimum balances held in the account from the 10th to the last day of each month.
Banks as a rule do not give overdraft in savings bank account but allow overdrawing to meet exigencies. Nomination facility is available in such accounts.
Operations in Account:
Savings bank accounts can be operated either through cheque or through withdrawal form. Normally a higher minimum balance is stipulated in cheque-operated account as compared to non-cheque operated account.
Pass Book:
A passbook is a ready reckoner of transactions done by a customer with his bank. It is used for recording bank transaction. In fact it is a replica of bank record in a compact form given to customers for their convenient and record. Many banks instead of issuing passbook off late started issuing statement of account. These statements of account contained details of transactions pertaining to a certain period monthly /quarterly.
Vide circular no. RBI /2006-07/139 DBOD.No.Leg.BC.32 /09.07.005/2006-07 dated October 4, 2006,Reserve Bank of India has directed all banks to issue passbooks to savings bank account holders. Banks have also been advised not to charge the cost of providing such passbook to the customers. Banks have also been asked to make their customers aware the need of getting the passbooks updated regularly and ensure that entries made in the pass books and statement of accounts are correct and legible. Banks charge for issuing duplicate passbooks.
Pass book is not only issued in case of deposit account, but is also issued to small borrowers, farmers etc., so that they know the amount of interest charged by bank, amount deposited towards repayment, due date of instalments etc.
A customer is expected to go through the entries made in the passbook and discrepancies if any are to be brought to the notice of the bank for correction.
Passbook can be used as evidence in a court of law.
In case of a wrong entry, which is in, favour of the customer and the customer has reasons to believe about the correctness of the entry, in good faith withdraws amount from his account, or issues cheques, bank has no recourse against the customer. In case the bank realizes that the credit entry was a wrong entry, reverses the entry and the cheque is dishonored due to the reversal the bank is liable.
Bank can rectify the wrong the entry before the amount is withdrawn under advice to the account holder.
In case the wrong entry is favourable to the bank, bank cannot take advantage, as it was the mistake of the bank.
Current Account:
"Current Account” is a form of demand deposit and includes other deposit accounts, which are neither Savings Deposit nor Term Deposit. The account is generally opened for 'Trading' and 'Business' purposes by individuals, business enterprises, partnership firms, private and public limited companies, HUFs, specified associates, societies, trusts, government/semi-government organisations, etc. whose transactions happen to be numerous.
Banks stipulate certain minimum balance to be maintained in the account, which differs from bank to bank. Failure to maintain minimum balance in the account attract levy of charges as specified by the bank from time to time. These are cheque-operated account. There are no restrictions in number of transactions. Withdrawals are allowed any number of times depending upon the balance in the account or overdrawing are permitted under arrangement. Banks levy charges for issue of cheques books, additional statement of accounts, folio charges, incidental charges depending upon the number of transactions etc.
RBI directives prohibit payment of interest on current accounts. Since banks do not pay any interest on the balances held in current account, they compete with each other in mobilization of funds on the basis of the quality of services rendered to the depositors. However, savings bank interest is paid on the balances held in current account of deceased.
'No-frills' Account:
With a view to achieving the objective of greater financial inclusion, RBI has advised all banks to make available a basic banking 'no-frills' account either with 'nil' or very low minimum balances as well as charges that would make such accounts accessible to vast sections of population. The customer is informed in advance about the restrictions in the nature and number of transactions in such accounts.
Dormant Account:
Dormant accounts are those accounts, which have not been operated for a considerable period of time. As per RBI guidelines a savings as well as current account is to be treated as inoperative / dormant if there are no transactions in the account for over a period of two years. The service charges levied by the bank or interest credited by the bank is not taken in to account while classifying an account as non-operative /dormant.
For classifying an account as ‘in-operative’ both the type of transactions i.e. debit as well as credit transactions induced at the instance of customers as well as third party is considered.
Banks allow operation in such accounts after due diligence. Due diligence means ensuring genuineness of the transaction, verification of the signature, identity and ascertaing the reasons for not operating the account etc. RBI has advised banks that as a result of taking extra care customers should not be put in to inconvenience. A bank can levy charge for activation of inoperative account.
Irrespective of the fact that the account is operative or not interest on savings bank accounts is to be credited on regular basis. The banks have to approach the customers and inform them in writing that there has been no operation in their accounts and to ascertain the reasons for the same. In case the account is not operated due to shifting of the customers from the locality, they may be asked to provide the details of the new bank accounts to which the balance in the existing account could be transferred.
If a Fixed Deposit Receipt matures and proceeds are unpaid, the amount left unclaimed with the bank attracts savings bank rate of interest. After implementation of technology, in many banks the fixed deposits are automatically renewed at the prevailing rate on the date of maturity for the period or which the amount was originally kept in fixed deposit.
Escrow Account:
An escrow a/c is a third party arrangement to ensure performance of certain obligations between certain parties and operated in terms of an underlying agreement. The account is kept by bank on behalf of two others in dispute over its rightful ownership. Escrow is a legal arrangement in which an asset (such as cash, real property or other tangible assets) is deposited into an escrow account. The account is kept as a current account without cheque drawing facility or a Fixed Deposit account, as defined in the terms of the agreement. The funds in the account are held for the benefit of the beneficiary of the account rather than person / company in whose name the account is opened.
Standing Instructions:
These are the instructions given by a customer to his banker to pay a person or an organization a certain sum of money at regular intervals to the debit of his/her account. For example, customers may give standing instructions to pay insurance premium on due dates or remit a certain sum of money for credit to some other account or pay his bills etc. Bank is liable for the damages if it fails to comply with the instructions.
Time/ Term Deposits:
Term deposits are those deposits, which are kept for a specified fixed period with a bank and are not payable on demand. In 1997,RBI deregulated the interest rates on fixed deposit scheme. Banks are free to quote their rates on term deposits.Term deposits can be bifurcated in to short deposits and fixed deposits. Deposits for twelve months or more are termed as 'Fixed Deposits' and those kept for less than 12 months are termed as 'Short Deposits'
Term deposits include notice deposits, short deposits, fixed deposits, recurring deposits, cumulative deposits, monthly income certificate, quarterly income certificate, annuity, reinvestment deposits, cash certificates etc. These deposits can be withdrawn only after the expiry of the period for which they have been kept. The minimum period for which term deposits are kept is 7 (seven) days and the maximum period is 10 (Ten) years.
Term Deposits Accounts can be opened by individuals / partnership firms / Private and Public Limited Companies / HUFs/ Specified Associates / Societies / Trusts, etc.
In the case of "Term Deposits" the depositor deposits a lump sum amount at one time for a fixed term and receives payment in future after the period for which the deposit has been kept i.e. on maturity. Rate of interest is contracted at the time of opening of account, which is based on the period of deposit. Banks pay higher rate of interest on deposits kept for a longer period. Generally banks do not pay higher rate on deposits kept for over 3/4 years. This is done to avoid interest rate risk.
Banks have full discretion to fix their own interest rates on such deposits. Generally the rates depend on market conditions and banks assets and liability position. Bank decides its own interest rate on the basis of Asset and Liability Management. RBI has permitted banks to quote a higher rate of interest on individual deposits of more than 15 lacs (fifteen lacs).
When a bank quotes a certain percentage of interest per annum for a given period, it is understood that interest payment is made on quarterly basis. As per the directives of Reserve Bank of India interest on term deposits is to be calculated at quarterly intervals.
In case of monthly deposit scheme, the interest is calculated for the quarter and paid monthly at discounted value. As desired by the depositor, bank pays interest quarterly/half yearly or the interest is reinvested. In case a deposit is taken with reinvestment of interest, the maturity amount of the deposit is mentioned on the face of the deposit receipt. Banks calculates the interest on term deposits in accordance with the formulae advised by Indian Banks’ Association.
Changes in the interest rates from time to time do not alter the interest payable on the existing term deposits. The bank pays the contracted rate of interest at the time of issuing the deposit till the maturity. The option for renewal or prepayment of deposit vests with the depositor and the bank has no option. In the event of rise in the interest rates, the depositor has an option to take prepayment of his deposit and reinvest it with the bank at a higher rate. In the event the rates decreases the depositor continues the deposit till the maturity date and earn higher interest. {An option is a contract, which is an obligation only on one party .The holder of an option contract, has an option either to buy (Call option) or sell (Put option) at an agreed price at a prefixed future date. A depositor has both call and put option with him and banks hardly have any option.}
Payment of higher interest on term deposits:
Banks pay one percent higher interest (over the prevailing interest rate) on term deposits kept by their staff members.
Senior citizens (those persons who are 60 years and above of age) are paid half a percent higher interest over the prevailing interest rate on their term deposits. (For the purposes of Income Tax those who are of 65 years and above of age are treated as Senior Citizens.)
In terms of directives on interest rates on deposits issued by Reserve Bank of India, from time to time, on term deposits for 2 years and above of Army Group Insurance Directorate (AGID), Naval Group Insurance Fund (NGIF) and Air-Force Group Insurance Society (AFGIS), Public Sector Banks are permitted to pay additional interest of 1.28 per cent per annum over and above the normal rate of interest permissible by the bank, provided such deposits are not in any way linked with payment of insurance premia.
Salient features of term deposits:
1.These deposits have a due date
2.They carry higher rate of interest
3.Interest is payable quarterly or compounded ever quarter as per the choice of
4.Every deposit transaction is a separate contract
5.A time deposit receipt is not a negotiable instrument and, therefore, cannot be
transferred by endorsement in favour of another person by the depositor.
A depositor can give instructions to bank regarding closure of deposit account or renewal of deposit account for further period on the date of maturity at the time of placing deposits for a fixed period.
Premature withdrawal of Term Deposit
Premature withdrawal means withdrawal of term deposit before completion of the period of the deposit agreed upon at the time of placing the deposit. Though prepayment is the sole discretion of bank, they generally do not exercise this discretion but accede to the request of depositor for premature withdrawal. The Bank has to declare to the account holders their penal interest rates policy for premature withdrawal of term deposit. Banks pay interest on premature withdrawals at the rate applicable for the period the deposit has been kept less penalty levied.
Premature Renewal of Term Deposit:
In case the depositor desires to renew the deposit at a higher rate by seeking premature withdrawal of an existing term deposit, banks permit such renewals at the rate applicable on the date of renewal, provided the deposit is renewed for a period longer than the balance period of the original deposit. While prematurely closing a deposit for the purpose of renewal, interest on the deposit for the period it has remained with the bank is paid at the rate applicable to the period for which the deposit remained with the bank and not at the contracted rate. No penalty is levied on such pre-payments for renewal.
Bank levies penalty for premature withdrawals in case on their non-renewal.
Renewal of Overdue Term Deposits:
When a term deposit is renewed on maturity bank renews it t at the rate as applicable on the date of maturity. If request for renewal is received after the date of maturity, such overdue deposits are renewed with effect from the date of maturity at interest rate applicable as on the due date, provided such request is received within 14 days from the date of maturity. In respect of overdue deposits renewed after 14 days from the date of maturity, interest for the overdue period will be paid at the rates decided by the bank from time to time.
Interest Payable on Term Deposit in Deceased Account:
In the event of death of the depositor before the date of maturity of deposit the bank pays interest at the contracted rate till the date of maturity. The bank pays simple interest at the applicable rate obtaining on the date of maturity, for the period for which the deposit remained with the bank beyond the date of maturity.
However, in the case of death of the depositor after the date of maturity of the deposit, savings deposit interest rate is paid from the date of maturity till the date of payment.
Income Tax Guidelines on operations in account:
Provision of Section 114B (f) of Income Tax apply to all deposit accounts opened with a bank. While opening of account, the Banks have to ask for PAN/GIR Number or in the absence of these numbers, a declaration is to be obtained in Form No.60/61.
As per the amendment to Rule 114 (B) of Income Tax Rules 1962 quoting of PAN Number by the person is necessary at the time of making following banking transactions.
1)Incase of time deposit made against transfer and or clearing transaction-exceeding Rs.50, 000/-.
2)While purchasing Bank Draft or Pay Order or Banker’s cheque by cash for an amount
aggregating Rs.50, 000/- or more during any one day.
3) Payment of cash for purchase from bank, foreign currency in connection with
travel to any Foreign country of an amount exceeding Rs.25, 000/- at any one time.
4) Any cash deposit aggregating Rs.50, 000/- or more in any one day.
Tax Deduction:
If the total interest paid / payable on all term deposits held by a person exceeds the amount specified under the Income Tax Act, the bank has to deduct tax at source. It is statutory obligation. The bank will issue a tax deduction certificate (TDS Certificate) for the amount of tax deducted. The depositor, if entitled to exemption from TDS can submit declaration in the prescribed format at the beginning of every financial year.
Notice Deposit:
Notice deposits are term deposit kept for specific period and can be withdrawn only after giving one complete banking day’s notice in advance.
Recurring Deposits:
Recurring deposits are like a Fixed Deposit. Banks have introduced such deposit account for inculcating the habit of saving amongst people by offering higher rate of interest. The depositor is required to deposit amount in pre-agreed equal monthly instalments for a fixed period and the amount on maturity is paid in one lump sum with interest.
Cash Certificates:
Cash certificates are fixed deposits that are issued for a certain period. They carry a face value and are issued at a price lower than the face value .On maturity the depositor is paid the amount mentioned on the face of the certificate. Difference between the face value and the issue price accounts for interest, compounded every quarter.
Standing Instructions:
These are the instructions given by a customer to his banker to pay a person or an organization a certain sum of money at regular intervals to the debit of his/her account. For example, customers may give standing instructions to pay insurance premium on due dates or remit a certain sum of money for credit to some other account or pay his bills etc. Bank is liable for the damages if it fails to comply with the instructions.
Closing of Account:
An account holder can close the account after applying in writing to this effect to the bank. A banker is not entitled to arbitrarily close any account. However, in case of unsatisfactory transactions, the banker has right to close the customer‘s account after giving him a reasonable notice. To protect fraudulent use of unused cheque forms, banks take back all the unused cheque forms for destruction.
Non –Resident Accounts:
Non-Resident accounts are those accounts, which are maintained in banks in India by Non Resident Indians and Persons of Indian origin residing abroad, foreign nationals and foreign companies in India. They can maintain account in Rupees as well as in permitted foreign currencies, which includes Pound Sterling, US Dollar, Deutche Mark, Japanese Yen and EURO. The opening, maintenance and operation of Non-Resident Accounts are governed by Exchange Control Regulations in force from time to time
Who is a Non Resident Indian?
As per Section 2w of FEMA 1999, Non-Resident Indians are those
i) Indian citizens who stay abroad for employment or for carrying on a business or vocation or for any other purpose in circumstances indicating an indefinite period of stay outside India. Indian citizens working abroad on assignment with Foreign Government, Government Agencies or International / Regional Agencies like United Nations Organization (UNO) and its affiliates, IMF, IBRD, UNDP, World Bank etc.
ii) Government officials (both central and state) and other officials of public sector undertakings deputed abroad o assignment or posted abroad (including Diplomatic Missions)
As per RBI circular number RBI/2006-07/22 Master Circular No. /04/2006-07 of July1, 2006,students going abroad for studies are treated as Non-Resident Indians (NRIs) and are eligible for all facilities available to NRIs under FEMA.
Persons of Indian Origin:
A Person of Indian Origin means a citizen of any country other than Bangladesh or Pakistan
a)Who at any time held an Indian Passport or
b)A person who himself or either of his parents or any of his grand parents were
citizens of India by virtue of the Constitution of India or the Citizenship Act,
1955, or
c)Spouse of an Indian citizen or
d)Spouse of a person covered under (a) or (b) above.
The citizens of Bangladesh, Pakistan, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan are not considered as Person of Indian Origin (PIO) even if they satisfy the above conditions under FEMA for different purposes under different regulations.
Types of Non Resident Account:
Non-resident accounts can be classified as under
(i) Non-Resident (Ordinary) Rupee Accounts
(ii)Non Resident (external) Rupee Accounts
(iii)Foreign Currency (Non Resident) Accounts (FCNR)-B
(iv)Resident foreign currency accounts (RFC)
Non-Resident (Ordinary) Rupee Account (NRO):
When a person resident in India leaves India for a country (other than Nepal or Bhutan) for taking up employment or for carrying on business or vocation outside India or for any other purpose indicating his intention to stay outside India for an uncertain period, his existing account is designated as a Non- Resident (Ordinary) Account.
Opening of NRO Account:
These accounts can be opened and maintained in the form of current, savings, and recurring or fixed deposits and held jointly with residents and / or with non-residents. The minimum tenor of domestic/ NRO term deposits is 7 days.
Banks can open these accounts in the name of non-resident persons /entities without the approval of Reserve Bank of India. Persons resident outside India can also open and maintain savings bank accounts with Post Offices in India.
Accounts in the name of individuals/entities of Pakistani/ Bangladeshi nationality /ownership cannot be opened without the prior permission of Reserve Bank of India.
Methods of opening NRO account:
The accounts of Residents in India (i.e. Indian Nationals) are redesignated as
NR(O)Account once they go abroad (other than to Nepal or Bhutan) for taking up employment or for profession or vocation or for indefinite stay.
A non-resident can open NR (O) accounts in following ways.
i)By redesigning his existing savings bank account into a NR (O) account after his becoming a non-resident.
ii)By opening a NRO account by remitting foreign exchange from abroad in an approved manner or transfer from existing self-NRE/FCNR accounts.
Purpose of opening NRO Account:
These accounts are opened for the purpose of putting through bonafide transactions in rupees. While opening the account the account holder has to give an undertaking to the bank with which the account is opened that in case the balances held in the account are used for the purpose of investment in India or in case the sale proceeds of investments are credited in the account he will ensure that such investments/disinvestments are in accordance with the regulations made by Reserve Bank in this regard. The account holder cannot make available foreign exchange to any person resident in India against reimbursement in rupees or in any other manner.
Operations by Power of Attorney holder:
A resident holding a Power of Attorney from the non-resident account holder can operate his NR(O)account for the following purposes:
a)For making local payments in rupees including payments for eligible investments subject to compliance with relevant regulations made by the Reserve Bank.
b)He can remit current income in India of the non-resident individual account holder, net of applicable taxes outside India.
The power of attorney holder cannot:
i)Repatriate funds held in the account outside India other than to the non-resident individual account holder.
ii)Make payment by way of gift to a resident on behalf of the non-resident account holder.
iii)Transfer of funds from the account to another NRO account.
Change in the Status from Non Resident to Resident
Persons, who were resident outside India, cease to be Non Residents on their return to India for taking up employment, or for carrying on business or vocation or for any other purpose indicating his intention to stay in India for an uncertain period. Therefore, immediately on his return to India, he is required to declare to the bank about the change in his status and his NRO account is re-designated as resident rupee account. Where the account holder is only on a temporary visit to India, he continues to be non-resident.
Rate of Interest:
Guidelines for opening, operating, maintenance, rate of interest of such accounts, are governed by the directives/instructions issued by Reserve Bank from time to time. Interest earned on the deposit is taxable under Indian Income Tax.
Permissible Credits:
The account can be credited by:
1.Proceeds of remittances received from outside India, through normal banking channels in any permitted currency or in foreign currency, which is freely convertible tendered by the account-holder during his temporary visit to India.
Foreign currency exceeding USD 5000/- or its equivalent in form of cash is to be supported by Currency Declaration Form. Encashment Certificate should support rupee funds, if they represent funds brought from outside India.
2.Transfers from rupee accounts of non- resident banks.
3.Legitimate dues in India of the account holder. This includes current income like rent, dividend, pension, interest, etc. as also sale proceeds of assets including immovable property acquired out of rupee/foreign currency funds or by way of legacy/inheritance. (Income tax is deducted on the half- yearly interest credited in the account and remitted to appropriate authority.)
Permissible Debits
1.Withdrawals for local payments such as towards insurance premia, school fees, etc, are allowed without Reserve Bank of India’s approval,
2.All local payments in rupees including payments for investments in India subject to compliance with the relevant regulations made by the Reserve Bank,
3.Remittance outside India of current income like rent, dividend, pension, interest, etc.,in India of the account holder,
The existing regulations permit Non-Resident Indians (NRIs) and Persons of Indian Origin(PIO)to remit up to USD one million per calendar year for any bonafide purpose out of the balances in their Non-Resident Ordinary (NRO) accounts. The balance in the NRO accounts may also include the sale proceeds of immoveable property acquired by the non-resident out of her/his resources in India, or sale proceeds of property received by way of inheritance or gift. The remittance of sale proceeds of the immoveable property is at present is without any lock in period, subject to the above limit of USD 1 million per financial year (RBI/2007-08/19 Master Circular on Non-Resident Ordinary Rupee (NRO) Account Master Circular No. 03 /2007- 08 July 2, 2007).
Currency Declaration Form:
Travellers can bring into India any amount of foreign exchange, subject to condition that on arrival a declaration is made to the custom authorities in a Currency Declaration Form. It is necessary to fill out a declaration form if the foreign exchange exceeds US$ 10,000 or its equivalent and /or the aggregate value of foreign currency notes is US$ 5,000 or its equivalent.
NRO Account of Foreign Nationals:
Foreign nationals of non-Indian origin visiting India can open NRO account current/savings) with funds remitted from outside India through banking channel or by sale of foreign exchange brought by him to India.
Authorised dealers are permitted to convert the balance in the NRO account into foreign currency for payment to the account holder at the time of departure of the foreign national from India, provided the account has been maintained for a period not exceeding six months and the account has not been credited with any local funds, other than interest accrued thereon.
Loans/ Advances:
Banks grant advances against fixed deposits to NR (O) account holders for meeting their personal requirements or for the purpose of business on the similar terms and conditions applicable to the residents. Advances for the purpose of re-lending or carrying on agricultural/plantation activity or for investment in real estate business are not granted.
The advance is repaid from remittances from abroad. In the event of change in the resident status of the borrower, the bank may allow continuance of loan/ overdraft. In such event repayment of principal and interest may be made by inward remittances or out of the legitimate resources in India of the person concerned.
Non-Resident (External) Rupee Account:
In order to encourage remittances from Non-Resident Indians, NR (Ext.) accounts were introduced with effect from 21st February 1970 under the Non-resident (External) Accounts Rules, 1970. These accounts are opened in the name of Non-Residents of Indian nationality or origin. Overseas Corporate Bodies (OCBs) are also permitted to maintain these accounts with authorised dealers and with banks (including cooperative banks) authorised by the Reserve Bank to maintain such accounts.
Opening of NR(Ext) Account:
Non- Resident (Ext.) Rupee accounts can be opened by the non-resident account holder as Saving, Current, Term deposit or recurring deposits in Indian rupees. These accounts are opened with remittances received from abroad in an approved manner in a freely convertible currency. The account is opened on receipt of funds in foreign currency from abroad through Mail Transfer, Telegraphic Transfer, Demand Draft favouring the accountholder, by transfer of balance from an existing NRE/FCNR A/c of the accountholder, by tendering foreign currency traveller's cheque issued in the name of the NRI in his own name or by tendering foreign currency notes or coins, while on a temporary visit to India, provided he has not ceased to be a non- resident.
The minimum maturity period for NRE term deposits is one 1 year and maximum maturity period is 3 three years.
Prior permission of Reserve bank of India is required for opening of NRE accounts in the names of individuals/entities of Bangladesh/Pakistan nationality/ownership.
It can be jointly with any other non-resident Indian but cannot be opened jointly with a resident. Non-resident Indians can appoint residents to operate their NRE accounts for local payments through a power of attorney/letter of authority. The resident power of attorney holder cannot repatriate funds held in accounts outside India under any circumstances or make payment of gifts on behalf of the account holder.
Benefits of NR(Ext)Account:
The interest on deposits and any other income accruing on the balances in the account are free of Indian Income Tax. Balances held in such accounts are exempted from wealth tax. Gifts made out of the deposit are free from Gift Tax in India.
Permitted Credits:
NR (Ext) Accounts can be credited from the:
1.Proceeds of remittances to India in any permitted currency.
2.Transfer from one NRE account to other account.
3.Interest earned on the deposit account.
4.Interest on government securities, dividend on units of mutual funds, provided the
securities /units were purchased to the debit of the account holder's NRE/FCNR
account or out of inward remittance through normal banking channels.
5.Maturity proceeds of government securities, including National Plan/Savings
Certificates as well as sales proceeds of Government securities and units of
mutual fund provided the securities/units were originally purchased by debiting
NRE/FCNR account or out of remittances received from outside India in free foreign
6.Refund of share/debenture subscription to new issues of Indian companies or
portion thereof, if the amount of subscription was paid from the same account or
from another NRE/FCNR account of the accountholder or by remittance from abroad
through normal banking channels,
7.Proceeds of foreign currency/bank notes tendered by account holder during his
temporary visit to India, provided
(i) the amount was declared on a CurrencyDeclaration Form (CDF), where
applicable, and (
ii) the notes are tendered to the authorised dealer in person by the account
holder himself and the authorised dealer is satisfied that accountholder is a
person resident outside India,
iii)Proceeds of personal cheques drawn by the account holder on his foreign currency
account and of travellers cheques, bank drafts payable in any
permitted currency including instruments expressed in Indian rupees for which
reimbursement will be received in foreign currency, deposited by the account
holder in person during his temporary visit to India, provided the authorised
dealer/bank is satisfied that the account holder is still resident outside
India, the travellers' cheques/drafts are standing/endorsed in the name of the
account holder and in the case of travellers' cheques, they were issued outside
iv)Any other transaction covered by general or special permission of RBI.
Permitted Debits:
1.Withdrawals for local payments or payments abroad in any convertible currency are allowed without the approval of Reserve Bank of India,
2.Remittance abroad (Exchange risk arising due to conversion of rupee in to foreign currency is borne by the account holder),
3.Transfer to NRE/FCNR accounts of the same accountholder or any other person eligible to maintain such account,
4.Investment in shares/securities /commercial paper of an Indian company or for purchase of immovable property in India provided such investment/purchase is covered by the regulations made, or the general/special permission granted, by the Reserve Bank,
5.Any other transaction generally/specially approved by RBI.
Rate of Interest:
Rate of interest applicable to these accounts are paid in accordance with the directions/instructions issued by Reserve Bank from time to time. As per RBI directives rates on fresh NR (Ext) Rupee term deposits for one to three years maturity are not to exceed the LIBOR/SWAP rates as on the last working day of the previous month for US dollar of correspondent maturity (as against LIBOR/SWAP rates) plus 50 basis points effective from Jan31, 2007.The interest rates for above 3 years deposits will be the same as applicable to 3 years deposits. The changes in interest rates will be applicable to those NRE deposits, which are renewed after their present maturity of fixed deposits. (Ref. RBICircular No.RBI/2006-2007/344 DBOD.NO.Dir.BC.89/13.03.00/ 2006-07.dated April 24,2007 issued in this regard)
Foreign Currency (Non-Resident) Account (FCNR- Banks):
The Foreign Currency Non-Resident (FCNR-B)) scheme was introduced with effect from May 15, 1993.It replaced the earlier FCNR (A) scheme introduced in1975 which was withdrawn in August; 1994.The exchange risk in FCNR (A) scheme was borne by RBI. With effect from 15th August, 1994 the exchange risk on FCNR deposits which were earlier borne by Reserve bank is now borne by the concerned bank. The opening, maintenance and operations of these accounts are subject to compliance of Exchange Control Regulations in force from time to time.
Who can open FCNR (B) Account?
a)Non-resident individuals of Indian nationality or origin (NRIs) can open FCNR (B) account.
b)Opening of FCNR (B) accounts in the names of NRIs of Bangladesh/Pakistan nationality requires approval of Reserve Bank.These accounts can be opened with funds remitted from outside India through normal banking channels or funds received in rupees by debit to the account of a non-resident bank maintained with an authorised dealer in India or funds which are of repatriable nature in terms of the regulations made by Reserve Bank.
Accounts can also be opened by transfer of funds from existing NRE accounts to
FCNR(B)Accounts and vice versa, of the same account holder, without the prior approval of Reserve Bank of India.
Currency in which the account can be opened:
FCNR (B) deposits can be opened in any of the six designated currencies viz., US dollar, Pound Sterling, Euro, Japanese Yen, Canadian dollars and Australian dollars and such other currencies as may be designated by Reserve Bank from time to time. If the remittance is received in a currency other than the designated currency including funds received in rupees by debit to the account of a nonresident bank), it has to be converted into the designated currency by the authorised dealer at the risk and cost of the remitter and account is to be opened/credited in only the designated currency.
Types of Deposit:
These accounts are opened only in the form of term deposit for any of the following maturities. Recurring Deposits are not accepted under the FCNR (B) Scheme. Banks cannot accept or renew a deposit over five years.
(a)One year and above but less than two years
(b)Two years and above but less than three years
(c) Three years and above but less than four years
(d) Four years and above but less than five years
(e) Five years only
Payment of Interest:
The rate of interest in respect of FCNR (B) deposits of all maturities is linked with LIBOR/SWAP rate. The present ceiling rate for the respective currency of corresponding maturities is minus 75 basis points.
Depending on the choice of the depositor interest is paid half yearly or on an annual basis. In case of deposits kept at floating rate, interest is paid within the ceiling of Swap rates for respective currency/ maturities minus 75 basis points. For floating rate deposits the interest rest is paid at six monthly intervals. The period of one year for payment of interest under the FCNR scheme is reckoned as 360 days.
Calculation and payment of Interest:
The interest on FCNR(B)deposits is calculated and paid as under:
1.Deposits up to one year: At the applicable rate without any compounding effect.
2.Deposits for more than 1 year: At intervals of 180 days each and thereafter for the remaining actual number of days or as per the option of the depositor to receive the interest on maturity with compounding effect
Interest can also be credited to a new FCNR (B) account or an existing/new NRE/NRO account in the name of the account holder.
Payment of interest on overdue FCNR (B) Deposits:
Banks renew an overdue deposit or a portion thereof provided the overdue period from the date of maturity till the date of renewal (both days inclusive) does not exceed 14 days. The rate of interest payable on the amount of the deposit so renewed is the rate of interest prevailing on the date of maturity or on the date when the depositor seeks renewal, whichever is lower.
In the case of overdue deposits where the overdue period exceeds 14 days and if the depositor places the entire amount of overdue deposit or a portion thereof as a fresh FCNR (B) deposit, banks fixes their own interest rates for the overdue period on the amount so placed as a fresh term deposit. Banks will have the freedom to recover the interest so paid for the overdue period if the deposit is withdrawn before completion of the minimum stipulated period under the scheme, after renewal.
Benefits of FCNR (B) Account:
a)By opening FCNR (B) account the account holder is protected from exchange loss, as interest and principal amounts are paid in the currency in which the deposit has been kept.
b)Interest earned on these accounts is free from income tax.
c)Gifts made out of these accounts are free from gift tax.
d)Deposits held in FCNR (B) accounts are free from Wealth Tax.
e)Repatriation of funds in foreign currencies is permitted,
f)Nomination facility is available in the account,
g)The account holder can avail Loan on the same terms and conditions, which is applicable to NR (Ext.) deposit holders,
Permissible Debits / Credits:
All debits/ credits permissible in respect of NR (Ext.) accounts are applicable in respect of this account also.
Premature withdrawal of deposits:
Banks permit premature withdrawal of deposits under the FCNR (B) Scheme. In case of premature withdrawals before completion of the minimum stipulated period of one year no Interest is paid. Banks levy penalty for premature withdrawal and also recover the swap cost.
London Interbank Offered Rate (LIBOR):
LIBOR is the interest rate at which banks can borrow funds from other banks in the London Interbank market. LIBOR rate represents the average rate of lending or offering funds by banks in the London market at 11:00 am on the given day. LIBOR is is the most widely used benchmark for short-term interest rates. The rates are published on each business day in London. The rates are quoted in respect of overnight borrowing, borrowings for periods of one week, one month, two months and so on up to 12, months.
LIBOR is often used as a rate of reference for Pound Sterling and other currencies, including US dollar,Euro, Japanese Yen, swiss franc,canadian dollar,Australian dollar,Swedish Krona,Danish Krone and New Zealand dollar.
Resident Foreign Currency Account: (RFC)
Persons of Indian nationality or origin, who have returned to India on or after 18th April 1992 for permanent settlement (Returning Indians), after being resident outside India for a continuous period of not less than one year, are permitted to open foreign currency accounts with banks in India for holding funds brought by them to India. The account can be opened in US Dollar or any other permitted currency either in the form of Savings Bank Account or Term Deposits singly in their name. Interest is payable half yearly in Foreign Currency. The amount can be held in foreign currency for indefinite period by renewals.
The balances standing to the credit of NRE and FCNR accounts at the time of return can be credited to RFC accounts. Foreign exchange brought to India in the form of foreign currency notes/bank notes/travellers cheques should have been declared to Customs at the time of arrival on the Currency Declaration Form (CDF) if it exceeded U.S. $ 10,000 or its equivalent. In the case of foreign currency/bank notes, such a declaration on form CDF is compulsory if the amount exceeds U.S. $ 2,500 or its equivalent.
Persons who have returned to India before 18th April 1992 can also open RFC account if
a)They are holding foreign currency assets abroad with Reserve Bank's permission, or
b)They are in receipt of pension or other monetary benefits from their erstwhile employers abroad.
The funds in RFC account are free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment outside India. No loans or overdrafts are allowed against RFC. Nomination facility is available in this account.
Permissible Credits:
Following credits are permitted in RFC account
1.Remittance of funds received from abroad from the account of the account holder for credit of his account,
2.Income from the assets (interest, dividend, profit, rent etc.) held abroad,
3.Sale proceeds of eligible assets abroad,
4.Interest earned on RFC account,
5.Foreign currency notes, travellers’ cheques brought into India,
6.Transfer from other RFC account of the account holder.
Permissible Debits;
1.For bonafide remittance outside India,
2.Remittance of funds abroad on account holder becoming Non-resident.