Banking Laws Amendment 2024: What it means for you

Bank account holders can now designate up to four nominees for their accounts, following the Banking Laws (Amendment) Bill passed by the Lok Sabha on December 3, 2024. This amendment aims to provide greater flexibility and convenience for account holders by updating the nomination rules.

Nomination plays a crucial role in ensuring the smooth transfer of funds after an account holder's demise. In the absence of a nominee, legal heirs can get entangled in time-consuming process, requiring documents such as a will, legal heir certificate, and no-objection certificates (NOCs) to claim the funds.

Previously, account holders could appoint only one nominee, which often led to complications. If the sole nominee failed to claim the funds or predeceased the account holder, the account could remain inactive. After 10 years of inactivity, such unclaimed funds would be transferred to the Reserve Bank of India’s (RBI) Depositor Education and Awareness (DEA) Fund. These funds earn interest at rates specified by the RBI, which are generally lower than the original deposit rate.

New Nomination Options

The amendment introduces two nomination methods: simultaneous (joint) and successive nominations.

Simultaneous Nomination: In this approach, all listed nominees are eligible to receive the account proceeds simultaneously upon the account holder's death. The distribution of funds is based on the percentage share specified by the account holder, ensuring clarity and fairness.

Successive Nomination: Under successive nomination, nominees are prioritised in a specific sequence decided by the account holder. The first nominee in the order becomes eligible for the funds. If the first nominee is unavailable or predeceases the account holder, the entitlement passes to the next nominee in the sequence. This arrangement ensures that only one nominee at a time can claim the proceeds, as per the predefined order.

Will vs Nomination: What Takes Precedence?

While nominations simplify the transfer process, a will holds greater legal authority in the event of a conflict between the two. A will is a formal document specifying how the testator's (person making the will) assets – including movable and immovable property, artifacts, patents, and copyrights – are to be distributed after their demise.

In cases where the nomination details differ from the will, the provisions of the will override the nomination for financial assets like insurance policies and bank accounts. This highlights the legal significance of creating a well-drafted will to ensure the seamless transfer of wealth to rightful heirs.

The recent changes aim to provide account holders with greater flexibility and control while addressing common challenges in fund transfers, making the nomination process more robust and inclusive.