The Banking Laws (Amendment) Act, 2025 promises more options for depositors with new nomination rules. But unless important legal and practical issues are resolved, these well-meaning reforms might complicate lives, especially those of nominees, legal heirs, and the banks themselves.
A Reform Intended to Help-But Is It Ready for Prime Time?
When it comes to your money in the bank, you want things to be simple. A nomination is supposed to make things smoother for your family if something happens to you. The new Banking Laws (Amendment) Act, 2025, is expected to expand nomination options, allowing you to name up to four people, either one after the other or all at once, with specific shares.
Sounds great in theory. But scratch the surface, and the well-intended amendment raises serious legal, operational, and even emotional complications. Let's break it down in simple terms.
The Basics: What's Changing?
Under current rules, you can nominate one person to receive your deposit after your death. This nominee is not the owner of your money but is allowed to collect it on behalf of your legal heirs.
Now, under the amended act, there are two options:
1. Successive Nomination- Upto four people, listed in priority. If the first nominee has died, the second gets the money, and so on.
2. Simultaneous Nomination- Up to four people can be nominated together to a deposit account, each getting a percentage share (e.g., 40%, 30%, 20%, 10%).
Successive Nomination: Helpful but Incomplete
This idea makes sense. If you nominate your spouse, but they pass away before you, the bank can pay your next-in-line nominee-your daughter, for example. No extra paperwork or court visits.
But here's the catch: What if your first nominee is alive but unreachable? Or unwilling to claim the deposit? The law currently allows the next nominee to take over only if the previous nominee is dead.
So, unless your first nominee has passed away-and a death certificate is produced-no one else in line can claim the funds.
Why is this a problem?
Imagine a scenario where the first nominee is alive but suffering from dementia, in a coma, is a lunatic, or just refuses to act. Your next nominee/s are left stuck.
What's needed?
Clear provisions for banks to proceed with alternate nominees (or legal heirs) when a nominee is alive but unavailable due to the above. As it stands, the rules ignore such real-life complexities.
Simultaneous Nomination: A Pandora's Box
This one is trickier. It allows you to nominate multiple people-say your spouse and two children-and allocate different portions of your single deposit to each. One or more nominees could be outsiders to your family relations.
Let's say Mr. Rao nominates four individuals with shares as follows:
- Wife- 40%
- Son - 30%
- Daughter - 20%
- Sister - 10%
What happens if his daughter dies before making a claim?
Her 20% becomes "unclaimed." The bank is now supposed to withhold that portion until the legal heirs of Mr. Rao (or of the deceased nominee) come forward.
The provisions of the new law state as follows:
"If any nominee dies before receiving a deposit from the banking company, the nomination in respect of such nominee alone shall become ineffective and the amount of deposit purported to be nominated in favour of the deceased nominee shall be treated as if the nomination had not been made in respect of that portion of the deposit"
There are a few unanswered questions in this case:
Say, if the legal heirs are not aware of this portion and if they do not claim
a) Should the bank wait till the entire amount is claimed?
b) Whether the bank would break the deposit and pay the other three nominees?
c) What will the bank do with the unclaimed 20%? Should it be treated as an overdue deposit? What would be the accounting treatment for it?
d) In case there is no claim for 10 years, can the bank transfer this portion to the RBI DEAF (fund)? How would such data be maintained?
and what if one nominee is missing/relocated/untraceable or uncooperative? Can a bank refuse to process the entire claim, leading to delays and distress?
Now picture this: Four nominees scattered across cities, possibly unaware of each other, each needing to fill out forms, get documents, and work together to make a single claim. The workload of the banks shall increase as they have to deal with four different claims. The claim might get delayed-or worse, go into dispute.
Even worse:
The public might think these percentages give legal ownership, like a WILL. That's not true. A nominee is only a trustee, not the owner. The real owners are the legal heirs as per succession laws or a WILL, if one exists.
What is the bank's responsibility?
Once the claim is settled with the nominees, the bank is free from deposit liability, and it need not worry whether the nominee acts as a trustee and distributes the proceeds to the legal heirs/beneficiary of the WILL, the real beneficiaries.
Nominees ≠ Legal Heirs. Why That Matters.
This is the heart of the issue. The law is clear: a nominee is just a placeholder, someone to collect the money so that the bank isn't required to verify the succession or other aspects.
Without this clarity, here's what can happen:
- The nominee would assume the money belongs to the nominee.
- The legal heirs tend to believe their rights have been taken away.
- The bank is stuck between conflicting claims.
- The matter goes to court, and the deposit stays unclaimed-sometimes for years, and may end up in the Depositors Education and Protection Fund (DEAF) with the RBI
Don't Believe It? Here's a Real-World Parallel
Let's say you live in a housing society. You nominate your son to inherit your flat. When you pass away, society admits your son as a provisional member. Does that mean he owns the flat?
No.Ownership of the flat still needs to be passed on through a WILL or under inheritance laws. The nomination only makes society's paperwork easier. Your daughter or spouse could legally claim their right to the property despite not being nominated, as they're also legal heirs.
Bank deposits are no different. Nomination doesn't override succession. It's for convenience, not ownership.
Why These Rules Won't Help Reduce Unclaimed Deposits
One of the goals behind these amendments is to reduce unclaimed deposits. But that will only happen if:
- People make clear Wills.
- Banks educate depositors about WILL and succession also along with nomination.
- Nominees know they're trustees, not owners.
- Laws are harmonized to avoid disputes.
Without this, all we'll get is more nominations, more confusion, and more cases going to court.
The way forward: what the government and RBI should do.
1. Efforts to remove bottlenecks faced in implementation - Whether suitable standard forms are ready? Whether the Software of all the banks is ready to support the changes introduced? What are the real issues/problems faced by the banks, including small co-operative banks?
2. Rethink the implementation of simultaneous nomination until the legal framework supports it. May discuss with all stakeholders and suggest modifications to the Act and/or rules.
3. Clarify the rules on 'successor nominees, especially' in non-death cases, like absence or incapacity of the nominee in the subject.
4. Mandate public education-use RBI's Depositor Education and Awareness Fund (DEAF) and infrastructure to explain:
- Who is/are the nominee/s?
- What's the difference between nomination and inheritance?
- Why the execution of WILL by an individual is important.
5. Train bank staff so they can guide customers correctly. Today, even some branch managers believe that nominees own the deposit amount claimed.
6. Redesign forms to include proper points to clarity and disclaimers in bold:
"Nomination does not confer ownership. The nominee is a trustee for legal heirs."
Final Thought: Let's Keep It Simple and Lawful
People expect that if they've nominated someone, their job is done. But that's far from the truth. If the nominee isn't also a legal heir, or if there's no Will, confusion is guaranteed. Even a nominee will find it difficult to distribute the money claimed and received from the bank as a nominee among the deceased's lawful claimants.
These new rules, especially simultaneous nomination with share percentages, will not reduce disputes. They could lead to more legal challenges, delayed claims, and frozen deposits.
What Indian's need is not nomination complexity (as it cannot substitute a WILL or inheritance, but more clarity and an increase of general awareness in the bank depositor community so that nominations will be done more responsibly, avoiding conflicting situations, or execution of a WILL also be in sync with the nomination and may become the new normal.
Encouraging the writing of a simple WILL, educating the public on nomination/succession laws, and aligning it with relevant banking laws is the way forward.
So far, banks have not standardised the processes of handling forms to be used to give effect to the new provisions of the Act. It is high time to consider holding a debate and take required actions to avoid messy and complicated situations.
Let's not create a new headache in the name of flexibility.
For the uninitiated, a few terms are explained in the annexure below.
Annexure
Nominee: (concerning bank deposit)
A person appointed by the depositor to receive the funds from a fixed deposit if the depositor dies. The nominee is responsible for safeguarding the funds until the legal heirs claim them from him.
A nominee can help ensure a smooth transfer of funds to the rightful heirs. Legal heirs may face difficulties accessing the funds without a nominee, such as proving their relationship and obtaining a death certificate.
A nominee is a trustee of funds for the legal heirs who are entitled to inherit the assets of the deceased, and the bank gets discharged from the liability of the depositor by effectively paying to the nominee (as stated by the depositor through the current DA1/DA3 form).
A nominee is only for convenience and does not override the law on succession. When successors claim the deceased's assets or property, the nominee cannot decline.
Legal heir:
A person who is legally entitled to inherit a deceased person's assets and liabilities. Legal heirs are designated by the account holder in a will or through succession laws.
The distinction between nominees and legal heirs is critical, as nominees serve to facilitate the transfer of funds while legal heirs hold the right to inherit assets.
WILL:
While the succession laws will prevail, a WILL can override this. WILL is defined in Sec 2(h) of the Indian Succession Act as 'WILL' means the legal declaration of the intention of the testator with respect to his property, which he desires to be carried into effect after his death.
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