16 Jul 2015

Unclaimed Fixed Deposits with Banks - Legal heirs of a Deceased Customer

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 wait. 
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

A family had found out about the deceased assets, in this case -  fixed deposit (FD) with Syndicate Bank, only after 15 years, while combing through the last rusted  Trunk left by the deceased. 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 1980s, 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.

It is 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.
Latest RBI Notification:           
As per RBI/2011-12/389 :DBOD.No.Leg.BC. 81/09.07.005/2011-12 DT.07-02-2012 on Unclaimed Deposits/ Inoperative Accounts in Banks - Display list of Inoperative Accounts  RBI has advised the Banks to e refer to their Circular DBOD.No.Leg.BC.34/09.07.005/2008-09 dated August 22, 2008, wherein detailed instructions have been given to banks on dealing with unclaimed deposits / inoperative accounts.  Banks had been advised to find the whereabouts of the customers and their legal heirs. These instructions, inter alia, included  i) annual review of accounts in which there are no operations, ii) operations in such accounts to be allowed after due diligence and iii) no charge to be levied for activation of inoperative account, etc.
2. Keeping in view public interest, it had been decided that banks should, in addition to the instructions contained in the above mentioned circular, play a more pro-active role in finding the whereabouts of the account holders of unclaimed deposits/ inoperative accounts.  Banks are, therefore, advised that they should display the list of unclaimed deposits/inoperative accounts which are inactive / inoperative for ten years or more on their respective websites. The list so displayed on the websites must contain only the names of the account holder(s) and his/her address in respect of unclaimed deposits/inoperative accounts. In case such accounts are not in the name of individuals, the names of individuals authorized to operate the accounts should also be indicated. However, the account number, its type and the name of the branch shall not be disclosed on the bank’s website. The list so published by the banks should also provide a “Find” option to enable the public to search the list of accounts by name of the account holder.Check your Bank's Website.
3. Banks should also give on the same website, the information on the process of claiming the unclaimed deposit/activating the inoperative account and the necessary forms and documents for claiming the same. Banks are required to have adequate operational safeguards to ensure that the claimants are genuine.
4. Banks should complete action as above by June 30, 2012 and keep their websites updated at regular interwals.
Real - Life Story (Contd...) : When the 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 applicable 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 1980s, 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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