Banking
Unclaimed fixed deposits might be harder to claim than you thought

Here is a real-life story of legal heirs of a deceased, who successfully managed to claim a matured fixed deposit along with compound interest after 15 years

What happens when someone, in absence of a nominee, dies before the fixed deposit is matured? Most of the times, the legal heirs are clueless as to what assets the deceased held and the process to deal with claiming the same from financial institutions. One of our readers brought to us an interesting case.

A family had found out about the deceased assets, in this case—a fixed deposit (FD) with Syndicate Bank, only after 15 years, while combing through the last remnants of a trunk left in their attic. This situation is quite common not just in India but all over the world.

So what happens to the fixed deposit in such a case?

The simple case would be that the assets would be transferred to the nominee. However, we learn that, in the 1970s, nomination facilities weren’t readily available. In fact, one had to ask for it. Thus the deceased was probably not aware of such a facility. Moreover, the family wasn’t aware that the deceased held a FD.

Usually, Syndicate Bank would have to notify the depositor, whether alive or dead, on the maturity of the FD. In some cases, these letters go unnoticed as there may not be anyone residing after death and the relatives might be living elsewhere.

We found out that according to RBI: “If the letters are returned undelivered, they may immediately be put on enquiry to find out the whereabouts of customers or their legal heirs in case they are deceased.”

Therefore, if the bank does not hear from the depositor for a period of time, it must use whatever methods at disposal to track down its legal heirs.

When this family found out about the existence of the FD, they approached Syndicate Bank in order to claim the FD, along with stipulated interests. However, the family was “bullied” by the Bank for not taking measures to claim the FD at time of death of the depositor. What was surprising was that the deceased lived one floor below Syndicate Bank’s office! The Bank might have been aware of the death of the depositor, but had not bothered to track and inform the legal heirs of the same. Instead, they had virtually used the depositor’s FD for “free”.

This isn’t the only peculiarity with FDs and death before its maturity. We learn that there’s another issue—the question of how much the legal heirs are entitled to the interests and FDs.

According to Syndicate Bank: “....In the case of death of the depositor after the date of maturity of the deposit, the bank shall pay interest at savings deposit rate obtaining on the date of maturity from the date of maturity till the date of payment.”

The logic in this case is that the fixed deposits had matured when depositor died, and thus Time Deposit had become Demand Deposit (i.e. savings bank). Therefore, if the FD is not claimed within due time, it will be converted to a savings bank account and only the savings rate would apply henceforth.

However, it is different in case the depositor dies before maturity, as in this case, “In the event of death of the depositor before the date of maturity of deposit and amount of the deposit is claimed after the date of maturity, the Bank shall pay interest at the contracted rate till the date of maturity. From the date of maturity to the date of payment, the Bank shall pay 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; as per the Bank's policy in this regard.”

The key word here is “simple interest at the applicable rate”. What does the simple interest means? Is it savings rate? Or a rate decided by the bank without the knowledge of the depositor’s legal heirs? The wording used here gives the bank the freedom to choose whatever rate it prefers, which will be usually less than the contracted rate.

Syndicate Bank had offered the legal heirs savings rate instead of the contracted rate, thus trying to fleece its customers.

What do we learn from this episode?

Simple, customers are taken for granted by the banks. Most of the times, the customers are short-changed without their knowledge, even in the simplest of cases. In this case, the Bank failed to take cognizance the fact that the FD was taken in the 1970s, where rules and banking practices were different then. It is the bank’s duty and responsibility to ensure that common sense be applied to cases such as these and adapt it accordingly within the framework today in such a manner that is fair to the legal heirs.

Also, there ought to be a solution to communicate better to the legal heirs of the deceased, which would not only make the bank’s job of tracking down legal heirs much easier, but also serve customers better. While the employees of Syndicate Bank in the 1970s and 1980s may have failed in their duties, the bank had no right to bully the legal heirs because of some lapse of its own employees many years ago.

Fortunately, despite all this, we learn that the legal heirs have managed to obtain a succession certificate as well as a court order stating that Syndicate Bank must pay compound interest at the contracted rate, but only after a lot of hard work done by them.

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COMMENTS

Shibaji Dash

5 years ago

A correction in the 1st line of my comments day ago. It should read as : a nominee may or may not be a legal heir.

Nagesh Kini FCA

5 years ago

I entirely agree with Shibaji Dash, the Ministries of Finance and Consumer affairs need to come out with clear cut directions now that they are talking of inclusive banking going into rural India in a big way.

Shibaji Dash

5 years ago

With all respect for Mr. Vinay Joshi, may I further add that the logic of caveat emptor ( buyer be aware) ought not to apply to the depositor-nominee issue.With increasing penetration of banking to rural areas, a more responsible, responsive and a real pro-active role is warranted for the Govt. and the Regulator.

Shibaji Dash

5 years ago

With reference to comments of Mr. Vinay Joshi: it's trite to point out that a nominee is not a legal heir.Mr. Joshi is perhaps have in mind the ruling of the Supreme Court in this regard in 2011.Point I made is law/regulations must be dynamic to address the newly emerging problems and hence efforts must be on to make Succession Act and nomination Regulations converge to make nomination harassment -proof.Alas, with a Govt. that legalizes fudging of bank loans, legal professionals who are greedy for expanding areas of disputes and, finally with increasing spread of regulation illiteracy among bank officials, depositor citizens are doomed to suffer.

arun adalja

5 years ago

bank is responsible to pay the matured amount to nominee if depositor dies and bank must do all efforts to find out the whereabouts of depositor it is the social responsibility of bank and effors must be notified to rbi.today many crores rupees are lying with the company for unclaimed dividend from the share holders as companies are not intimating shareholders everyyear so the thing is accumulated and finally it goes to fund from where you cannot claim we must find out some mechanism to this issue.

R Nandy

5 years ago

As a single account holder in a couple of private bank I had to
face some difficulty while getting my FD's nominated. Both the banks
insisted on 2 witness signatures for accepting the nomination. I had to
send them a copy of the RBI circular in this regard(which makes it
unnecessary to give signature of 2 witnesses) and get the nominations
registered. Incidentally I was not nominating earlier due to financial
illiteracy. I was surprised that even many bank officials are ignorant
of the latest nomination rules. Nor has the banks updated the DA1-DA3
forms based on the new rules(no witness signature) of nomination.

a v moorthi besides TIHAR

5 years ago

The banks are required to submit to the Reserve Bank, a return in Form VIII showing unclaimed deposit accounts in India which have not been operated upon for 10 years or more, as at the end of each calendar year. A separate folio may be opened in the register for different types of deposit accounts.unclaimed deposits Term Deposits lying with them beyond 10 years from date of maturity to their head office who in turn deposits it to RBI. ML should find out whether this happened in this particular case if otherwise it is clear systems are on paper only there is no monitoring of such process by annual inspection, concurrent auditors if the branch is provided with one, RBI inspection at H.O. whether bank is reporting unclaimed deposits and lastly when balance sheets are signed by CAs (balance sheets auditors) are they looking into such provisions and whether they are being followed.

Vinay Joshi

5 years ago

MLD,

Consumer is the king! Appreciate the subject put forth.

Similarly [a relative case] Indian Post office [deposits] in dock for being indifferent.

They were asked [dept indicted] by the consumer court to pay up for keeping widow in dark in Jt.A/C case.

Subject matter : A joint deposit cannot be treated as an individual deposit after the death of one of the joint holder.—Read-

Two joint a/cs established in Post Office under MIS, 420K first holder with wife as joint holder. Second 180K with wife as first holder, opener second jt.

First 420K holder – expires during the subsistence of the scheme. The joint. holder wife approached the postal authorities for legal changes, was advised by the officers not necessary as deposits were payable ‘either or’ & death to be registered at the time of maturity of the deposits.

On maturity of the deposits wife was told that investment limits were 300k for individuals & 600k joint [as at the time of investment fulfilling.] but the death now amounts to individual deposit[s].

Further she was told that she has violated prescribed limits. Hence no bonus, excess deposit interest reversed, plus penalty to be adjusted & deducted from the maturity value of the deposits.

The Consumer court judgment Dt, Dec 2,2011 noted the deceased’s wife, the joint holder had approached the postal authorities, irrelevant advise given.

The postal authorities were made liable, total payout, 9% interest plus 5k costs.

The post rule -- Rule 20, --- ‘ when the death of a joint holder is reported, the post master has to instruct the surviving depositor to withdraw the amount in excess of single name deposit limit.

[By Jehangir B.Gal.]

Regards,

Nagesh Kini FCA

5 years ago

The mandated KYC compliance ought to include Nominee particulars in addition to identity and residence proof, at the account opening stage itself to mitigate hardships later.
The BCSBI should lay down in clear terms the rate of interest on unclaimed deposits. After all the banks are making use of the depositors to lend out and earn interest. So it has to be interest compounded at the contracted rate.
As a part of Customer Service once a while the banks ought to track down on the unclaimed deposits more particularly to track down heirs.

REPLY

Vinay Joshi

In Reply to Nagesh Kini FCA 5 years ago

Dear Mr. Nagesh Kini, FCA,

Under the Banking Regulation Act or RBI or standard banking aspects – why BANK’s should trace legal heirs? Who is the bank ?

They are mandated to deal with the deposits & accounts held as per the banking regulations. That’s all.

Is nominee a legal heir? In which manner can bank’s mitigate hardships?

Nomination has different meanings under diff acts which I need not tell you, viz, Co’s Act, debts act, insurance, EPF, banks, coop soc,

But some acts provide for nomination ‘expressly overriding’ succession laws. [not banking regulation of 1949.] & the rights are to the “exclusion of all persons”.

As a part of customer service HDFC will levy charges for inoperative a/cs or un-deliverable courier.

BUT THEY WILL NOT GO AFTER THEIR NPA’s & TODAY TWO DOZEN BIGGEST LAW FIRMS ARE SADDLED TO PLEAD ERRING CASES!

Who earns? Who earned earlier in telcom imbroglio?

Why today PwC is sued upon? [partners.]

Regards,

nagesh kini

In Reply to Vinay Joshi 5 years ago

You don't have to teach a RBI empaneled bank auditor now turned activist that "the banks are mandated to deal with deposits and accounts". The banks do make use of the depositors' funds lying in Unclaimed Deposits to make Advances and earn interest. Consequently they owe interest to these depositors.
That the advances go to become NPAs and law firms are making money is irrelevant. Don't mix issues.

Vinay Joshi

In Reply to nagesh kini 5 years ago

Dear Mr.Nagesh Kini, FCA

Oh! RBI empaneled! Earlier you were Insurance!

In which year you were empaneled? What audit highlighted?
What activist are you? Can you highlight? One single! This is my challenge!

Oh! Panelist auditor, may I respectfully ask from you - what are the RBI provisions for unclaimed deposits? What is the definition of ‘unclaimed’? What should the banks do?

Is there such segregation of funds? Mr. Auditor answer! If at all you can, which you never can! Will not!

Mr. Nagesh Kini, FCA , activist [no auditor now], - ‘EXPLAIN UNCLAIMED DEPOSITS TO MAKE ADVANCES’ – your statement - such advances become NPA’s – your statement!

Mr. Nagesh Kini, FCA, -- what is the percentage of unclaimed deposits? How much is NPA’s?

What is the total bank’s lending?

ICAI, [FCA] member’s comments I honour but not ridicule it out of respect to the institute.

Regards,

Shibaji Dash

5 years ago

RBI must make it mandatory that the depositor must nominate at least one nominee and two at the option of the depositor and such nomination must be the pre-conditions for making the FD. The existing law of nomination read with the relevant provisions of the Indian Succession Act urgently requires a fresh look by the Govt.to spare the deceased's heirs from the agony and expenses for a probate that takes years to obtain from the court. Moneylife deserves all cudos for the efforts its team is making in increasing awareness among the people about the benefits of making a Will.

REPLY

Vinay Joshi

In Reply to Shibaji Dash 5 years ago

Mr.Shibaji Dash,

Nominee[s] is/are not legal heir[s].

So Govt. need not look into anything.

Why people across board do not hold in joint names esp; bank - 'either or survivor'?

In seventies also the bank FD form did contain nomination clause, unlike stated by MLD. More soever the SB A/c was the only route apart from CA.

Regards,

K Sanjay Singh

5 years ago

No doubt,legal heirs faced a lot of hardship in that case. If seen from other angle,it was the depositor who didnot adequate care by not informing his family members. why should the bank pay interest and why shouldnot the bank be compensated for safekeeping the money beyond its obligation ?

REPLY

Gopinath Prabhu

In Reply to K Sanjay Singh 5 years ago

Hi,

Bank has to pay because

1. It has made use of the money
2. It has not fulfilled its responsibility to informing the legal heirs despite knowing its sitting on Unclaimed FDs.

Ashok Visvanathan

5 years ago

What you have described is for Bank Deposits. In the case of Company Fixed Deposit, no interest is payable after maturity, even 16 years later.

ali

5 years ago

even i have to share an experience abt Syndicate Bank. I have taken a housing loan with the bank. i used to pay more than my EMI regularly. But it was noticed later that the bank was charging me interest on the balance amt- the actual EMI, and not on the amt paid. when i brought it to their notice, at first they shrugged it off saying it was i at fault by paying extra amt, inspite of their being no prepayment charges. but finally they credited my A/c wth the extra amt after a lot of correspondence

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Moody’s upgrades India’s short-term foreign currency rating to investment grade

The development will help domestic companies to raise funds from overseas markets at better rates. The latest upgrade comes less than a month after Moody’s had upgraded the credit rating of Indian government’s bonds from speculative to investment grade

New Delhi: Global agency Moody’s today upgraded India’s short-term foreign currency rating from speculative to investment grade, a development which will help domestic companies to raise funds from overseas markets at better rates, reports PTI.

“... there has been another upgrade by Moody’s with the short-term country ceiling on foreign currency bank deposit increasing from NP (not prime) to Prime (P-3), suggesting acceptable ability to repay short-term obligations,” the finance ministry said.

The ‘P-3’ ratings suggest acceptable ability to repay short-term obligations.

The latest upgrade comes less than a month after Moody’s had upgraded the credit rating of Indian government’s bonds from speculative to investment grade, a move that was expected to encourage FIIs to increase their exposure in gilts and help companies raise funds from abroad at competitive rates.

On 20th December last year, Moody’s had upgraded short term government bonds denominated in domestic currency from NP to P-3.

Moody’s had upgraded rating on long-term government bond denominated in domestic currency from Ba1 to Baa3 or from speculative to investment grade.

Besides, the long-term country ceiling on the foreign currency bank deposit was also upgraded from Ba1 to Baa3.

Giving a rationale for the upgrade in December, Moody’s had at that time said, “Diverse sources of Indian growth have enhanced its resilience to global shocks”.

It had added the present slowdown “could reverse sometime in 2012-13, as inflation cools from current 9% levels”.

The finance ministry had approached the ratings agency seeking clarification regarding the ‘short-term country ceiling on foreign currency bank deposit’, which had not found mention in the earlier decision by Moody’s.

According to the ministry, the ratings firm has sent it a mail affirming an upgrade in that front as well.

“The Department of Economic Affairs (DEA) will continue to engage rating agencies on regular basis to impress upon them the long-term structural strengths and sound fundamentals of the Indian economy,” joint secretary in the capital markets division of the DEA Thomas Mathew said.

Presently, six sovereign ratings agencies—Standard & Poor’s, Moody’s, DBRS, Fitch, Japanese Credit Rating Agency and the Rating and Investment Information Inc—assigns ratings to India.

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