‘Either or survivor’ clause in bank FDs a myth; surviving joint-holder has a Herculean task on hand

The mainstream belief is that central banks will reverse course after a period of consolidation. (File image)

“RBI Kehta Hai – Jaankar Baniye, Satark Rahiye!”

You couldn’t have missed this punchline in customer alert campaigns on television (TV) during Kaun Banega Crorepati or various other shows and TV series. So, who needs to be alert ― the bank or the customer? Let us explain.

The last quarter of CY2022 saw an aggressive drive by banks to garner fixed deposits (FD) on the back of increased interest rates. Retirees and pensioners prefer bank FDs, thanks to the security of principal amount, ease of operation, and instant liquidity. However, they do not seem to be aware that it is an unsecured instrument.

FD forms across banks are standardised with operating instructions and terms such as “Either or Survivor” “Jointly”, over and above “Self”, “Anyone or Survivor”, “Minor – operated by guardian” and “Others (Specify)”.

The myth of ‘Either or Survivor’
Depositors tend to blindly follow the “Either or Survivor” clause as operating guidelines by operating staff at branches. It means that a large majority customers opt for "Either or Survivor" clause as they are guided by bank staff.

The understanding that on the death of a joint-holder, the surviving joint-holder gets the proceeds of the FD has turned out to be a myth.

The twist takes place when the surviving joint-holder(s) approaches the bank to prematurely withdraw the FD on the demise of the other joint-holder. For premature withdrawals, signatures of all joint-holders are required. Clearly, this turns can be a challenge when joint-holders is either incapacitated or dead.

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The Reserve Bank of India’s (RBI) circular (notification dated June 9, 2005) enables claimant(s)/ legal heir(s) to recover the FD amounts even if there is no nomination. RBI, through its Awareness Campaign on the significance of Nomination in case of FDs, mentions that "In case of a joint deposit account, the nominees’ right arises only after the death of all account holders.” Payment by bank to the surviving joint-holder(s) or nominee of a deceased deposit joint-holder represents a valid discharge of the bank's liability.

Sign this mandateUpon surveying real-life cases and scenarios, we have seen that reality is different ― banks have been rejecting claims from surviving joint-holders.

Taking note of this situation, RBI had, vide notification dated November 4, 2011, stated that for premature withdrawals by surviving joint-holder(s), concurrence of legal heirs of deceased joint-holder is required.

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This however, has a caveat ― banks can still allow premature withdrawals, provided they have taken a specific joint mandate from the depositors for the said purpose during the tenure of the FD, in accordance with the November 4, 2011 circular. This mandate entails that when a person invests in an FD, the bank takes a written mandate (with physical signatures) from all joint-holders that the surviving joint holder(s) is allowed to redeem the FD, prematurely, if one of the joint-holders passes away.

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RBI, vide its follow-up circular dated August 16, 2012, asked banks to include a specific joint mandate from the depositors for the said purpose. This is also done to widely publicise the same to provide guidance to depositors.

Regretfully, this is not happening on the ground.

A real-life tragedy
Dhrunal Raja, a retired physicist was staying at Dehu Road, with his second wife Pushpa. His first wife had died during child birth, and their son was since then raised by his erstwhile parents-in-law. His daughter from the wedlock with Pushpa is married and living overseas.

Raja’s pension, interest and annuity income were adequate for the duo to live comfortably. However, at the age of 72 years, he suffered a cardiac arrest and died. Pushpa’s earnings were now reduced to half the amount of pension. And so, she needed to liquidate the FDs intermittently to meet some expenses. But the banks where Raja had maintained FDs, refused premature withdrawals, even though the FDs were held with the “Either or Survivor” clause.

The banks sought a No-Objection Certificate (NOC) or Affidavits from the legal heirs of her late husband (the son from Raja’s first marriage and the daughter from the second marriage) along with Pushpa, who was the joint holder with Raja (now deceased). This meant signatures of her stepson and also her biological daughter had to be procured for filing the Succession Certificate, as Dhrunal had died intestate (without leaving a Will).

Thanks to the high legal and court fees, besides the time involved in the process, Pushpa preferred to wait till each of the FDs matured over the next four years. Meanwhile, to meet her financial needs, she borrowed from her neighbours and relatives. Sadly, she couldn’t use her own money that was stuck in those FDs.

Physical FD forms or on websites of major private and public sector banks do not have the required clause incorporated, nor have the banks taken adequate measures to make customers aware of the facility of such a mandate, thereby putting the “surviving” deposit account holder(s) at grave inconvenience and hardship.

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If the joint-holder(s) waits till the scheduled date of maturity, then on submission of death certificate of the deceased joint-holder(s), the surviving joint-holder(s) can claim the entire proceeds. In case, on the date of maturity the surviving joint-holder(s) is also deceased, then the Nominee becomes the claimant, which itself dilutes the relevance of the Survivorship clause.

All the more reason, therefore, for banks to make sure the mandate is submitted at the time of making an FD.

(Names changed for the purpose of confidentiality)