Can having multiple nominees in bank accounts reduce disputes, unclaimed deposits?

A nominee in a bank account acts as a custodian of the funds in the event of the account holder’s death, ensuring a smooth transfer of funds.

Bank account holders in India will soon be able to name up to four individuals as their nominees, thanks to the passage of the Banking Laws (Amendment) Bill on December 3 in the Lok Sabha. This new provision aims to provide greater convenience for depositors.

According to Finance Minister Nirmala Sitharaman, account holders will have the flexibility to choose between "successive" and "simultaneous" nominations. However, for locker holders, only "successive nomination" will be allowed, providing a clear line of succession for access to the locker.

What does this mean

A nominee acts as a custodian of the monies in the event of the account holder’s death, ensuring a smooth transfer of funds. “It is useful to clarify that a nominee is not an heir, but simply the person to whom the bank can hand over the custody of the account, which discharges their obligation — heirs do not have any further claims on the bank, but may proceed against the nominee,” says Amey Pathak, Partner (Head - Banking), Cyril Amarchand Mangaldas. The nominee will be required to ensure that the assets in the account are transferred to the heir in accordance with succession laws.

“The benefits of allowing multiple nominees include increased flexibility and security for depositors, as well as a more efficient process for asset transfer,” says Kunal Sharma, Partner, Singhania & Co. This can reduce the administrative burden on banks and provide peace of mind for account holders.

“Multiple nomination also prevents accumulation of funds as unclaimed deposits, which are growing every year,” says Pathak. The Reserve Bank of India's (RBI) annual report reveals a significant surge in unclaimed deposits, which jumped 26 percent from Rs 62,225 crore in March 2023 to Rs 78,213 crore in March 2024. Allowing multiple nominees for a single bank account is expected to increase awareness about the account and encourage claims on the unclaimed amount, thus helping reduce the growing pool of unclaimed deposits.

“It will also strengthen governance in the banking sector and enhance customer convenience with respect to nomination and protection,” says Neelam Singh, Advocate, High Court of Allahabad.

The amendment prescribes two methods of multiple nomination — simultaneous and successive. “If followed properly along with proper identification of nominees, these  should mitigate the risk of disputes between nominees,” says Vijay Mani, Partner, Banking & Capital Markets Leader, Deloitte India.

Simultaneous nomination

Simultaneous nomination refers to the process of nominating multiple individuals to receive the proceeds of a bank account in the event of the account holder's demise. “It will be done on a proportionate basis with respect to the  amount,” says Pathak.

For instance, if Mr P had a savings account with a balance of Rs 10 lakh and nominated his wife (40 percent), son (30 percent), and daughter (30 percent) as simultaneous nominees, the bank would divide the proceeds accordingly. Upon P's demise, his wife would receive Rs 4 lakh (40 percent of Rs 10 lakh), while his son and daughter would each receive Rs 3 lakh (30 percent of Rs 10 lakh), and the bank would subsequently close the account.

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Successive nomination

Successive nominations ensure that the primary nominee can be succeeded by a secondary nominee if they are unavailable, creating a clear, priority-based succession pathway. This change ensures that asset distribution continues smoothly even if the initial nominee is unable or unwilling to claim the assets. “This method also covers the exigency where a nominee dies before receiving the money,” says Pathak.

For instance, if there are three successive nominees, A, B, and C, then the bank proceeds will be paid to A first. If A is unable to receive the proceeds, then the bank will pay to B, and if B is unable to receive the proceeds, then C will receive them.

“The amendment simplifies the succession process by reducing reliance on judicial procedures, such as probate, which is particularly helpful for urgent financial needs,” says Sharma. It allows nominees to access funds more swiftly, ensuring financial continuity for dependents or business operations, he adds.

It must be noted that in the case of articles kept in bank lockers, only the successive nomination method can be followed.

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But wait

According to Pathak, the proposed banking reform will become binding only after it's passed by the Rajya Sabha, approved by the President, and published in the Official Gazette. To ensure the reform's effectiveness, Pathak emphasises the need for public awareness campaigns and training for bank staff to implement the changes correctly.

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Not a complete antidote to disputes

“With multiple nominees, disputes may arise regarding the interpretation of proportions between multiple nominees, even though the Bill clearly states that the proportion should be explicitly stated,” says Pathak. Clear documentation by the account-holder is crucial to mitigate such conflicts.

“To mitigate these risks, it is crucial for depositors to ensure that their nominations are consistent with their will and other estate planning documents,” Sharma adds.