Operational Aspects of Deposit Accounts” refers to the various procedures, rules, and day-to-day activities that a bank follows to open, manage, and close customer accounts like savings and current accounts.
Account Opening
This is the first and most critical step.
- Application Form: The process starts with the customer filling out a detailed Account Opening Form (AOF).
- KYC Compliance: The bank must conduct a thorough Know Your Customer (KYC) process. This involves verifying the customer’s identity and address using Officially Valid Documents (OVDs).
- Customer Due Diligence (CDD): The bank assesses the risk profile of the customer (low, medium, high) to determine the level of monitoring required.
- Specimen Signature: The bank obtains the customer’s signature on a specimen signature card or digitally, which is used to verify the authenticity of future transactions like cheques.
In India, when you open a bank account, the bank must check how risky you are as a customer.
This is called risk profiling.
- If you are Low Risk (like a salaried person with regular income), the bank checks your account less often.
- If you are Medium Risk (like a small business with higher transactions), the bank checks more carefully.
- If you are High Risk (like people dealing with foreign transactions, large cash deposits, or politically exposed persons), the bank monitors very closely.
| Risk Profile | Examples | Level of Monitoring |
|---|---|---|
| Low Risk | Salaried employee, pensioner, small savings account holder | Basic KYC, minimal monitoring |
| Medium Risk | Small/medium businesses, professionals | Periodic monitoring of transactions |
| High Risk | High net-worth individuals, foreign transactions, politically exposed persons | Enhanced due diligence, continuous monitoring |
Types of Account Operations
1. Single Account
- The account is opened and operated by a single individual.
2. Joint Accounts
- An account opened in the names of two or more individuals. The operational instructions are crucial here:
- “Either or Survivor”: Either of the account holders can operate the account. In case of the death of one, the survivor can continue to operate it. This is the most common mode.
- “Former or Survivor”: Only the first-named account holder (the “former”) can operate the account. The “survivor” can only operate it after the death of the former.
- “Jointly”: All transactions must be authorised by all account holders together.
3. Minor’s Account
- An account can be opened for a minor (a person below 18 years of age).
- It is typically operated by the natural guardian (parent) until the minor turns 18.
- A minor above the age of 10 may be allowed to open and operate a savings account independently, subject to certain limits.
Key Operational Procedures
Nomination Facility
This is a facility that allows an account holder to nominate a person who will receive the funds in the account upon the account holder’s death.
- Importance: It is highly recommended for all accounts as it greatly simplifies the process of settling death claims and avoids legal complexities like requiring a will or succession certificate.
Inoperative and Dormant Accounts
- Inoperative Account: A savings or current account in which there have been no customer-induced transactions for a period of two years.
- Reactivation: To reactivate an inoperative account, the customer usually needs to submit a request along with fresh KYC documents.
Death of a Customer
- When a bank receives notice of a customer’s death, it must immediately stop all operations in the account.
- The balance is then settled based on the following:
- With Nomination: The amount is paid to the nominee after verifying their identity.
- With Survivorship Clause (Joint Accounts): The amount is paid to the survivor(s).
- Without Nomination/Survivorship: The amount is paid to the legal heirs after they produce the necessary legal documents (like a succession certificate).