Clipped from: https://www.thehindubusinessline.com/opinion/are-banks-ready-to-adopt-the-new-nomination-rules/article70299870.ece
Allowing more than one nominee for deposits and lockers is welcome. But banks need more time to align software systems
New norms: Customer-friendly | Photo Credit: rvimages
The Reserve Bank of India on October 28 notified amendments made by the Centre to Sections 45ZA, 45ZC and 45ZE of the Banking Regulation Act, 1949. These provisions relate to nomination facilities for bank deposits and safe-deposit lockers.
The revised Rules have into effect from November 1.
For the uninitiated, a “nomination” does not confer ownership rights. The title to the money vests solely with the legitimate legal heirs. The purpose of nomination is to enable smooth transfer of the depositor’s funds to the nominee upon the depositor’s death, sparing the bank and the family the procedural delay associated with processing a formal claim supported by legal documents.
It needs to be mentioned that marking nomination is optional, not mandatory. However, banks are expected to strongly advise customers to register a nomination for the reasons said earlier.
Earlier, depositors could appoint only one nominee per account or locker. This restriction often caused practical difficulties in inheritance, leading to delays in money reaching the rightful owners. It is therefore quite thoughtful of both the Centre and the RBI to amend the provisions by allowing a depositor to nominate up to four individuals, either on a successive basis or on a simultaneous basis.
In a successive nomination, the bank must transfer the entire deposit to the first nominee. Only if the first nominee is no more does the right pass to the next nominee in the given order.
In a simultaneous nomination, the depositor must specify the percentage share of each nominee.
Practical issues
Take an example: Depositor A, opts for simultaneous nomination for ₹10 lakh fixed deposit, assigning 20 per cent, 20 per cent and 60 per cent respectively to X, Y and Z.
This raises an important question — why should the responsibility of dividing the deposit be shifted to the bank? If the depositor is already clear about the proportions, he may comfortably choose to create three separate deposits of ₹2 lakh, ₹2 lakh and ₹6 lakh with X, Y and Z as nominees respectively. This avoids making the bank an arbiter of distribution. Banks are meant to act only as transferors, not distributors of inherited wealth.
In such a situation, the amendment appears to offer limited practical benefit.
Consider another situation. Depositor A places a fixed deposit of ₹10 lakh for a period of two years at the highest slab rate, say 8 per cent a year and registers simultaneous nominations in the earlier stated proportions. Unfortunately, he passes away when the deposit has run a period of 1 year and 9 months.
The bank, in line with the normal practice will now prematurely close the deposit and release the proceeds to the nominees, paying interest applicable to the immediately lower tenure slab, say 7.5 per cent. Ordinarily, a penalty applies on pre-closure, but RBI permits waiver in such circumstances.
However, nominee Z — entitled to the largest share — may prefer that the deposit be kept alive until maturity to avoid loss of interest. The bank, operating in a fully automated environment, now finds itself in a quandary.
* Should the bank pre-close the deposit and pay the nominees?
* Should it oblige Z and defer the payment till the maturity of the deposit?
* Can the bank carve out the portion due to Z and open a fresh deposit in his name with interest to run from the original date of deposit?
Banks will need time to reconfigure their software systems to manage these situations, particularly in apportioning deposits, handling different nominee preferences and ensuring at the same time, regulatory compliance.
As of now, the Banking Companies (Nomination) Rules, 2025 are yet to be notified in the Gazette. It would therefore be appropriate for the authorities to address these ambiguities and consider a short extension — say, three months — to enable banks to prepare for a smooth and faithful compliance.
The writer is Former Chairman (Non-executive), City Union Bank Ltd. Views are personal
Published on November 20, 2025
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