The Reserve Bank of India (RBI) has asked regional rural and co-operative banks to modify Fixed Deposit account opening forms to allow premature withdrawal of FD on death of one of the joint account holders without any penalty. Under the modified norms, it will be easier for the surviving joint account holders to go for premature withdrawal of FD in the event of death of the other.

As per the RBI notification, banks will have to incorporate a clause in the FD form to give option of premature withdrawal by survivor in case of death of the other joint account holder.



August 23, 2012

All Regional Rural Banks / State and Central Co-operative Banks

Dear Sir,

Repayment of Term/Fixed Deposits with ‘Either or Survivor’ or ‘Former or Survivor’ Mandate

It has come to our notice that some Regional Rural Banks (RRBs) / State and Central Co-operative Banks (StCBs/DCCBs) insist on the signatures of both the depositors to allow repayment of money in fixed/term deposits, though the deposit account is opened with operating instructions (sometimes called ‘repayment instructions’), ‘Either or Survivor’ or ‘Former or Survivor’. Such insistence on the signatures of both the depositors has the effect of making the mandate given by the depositors redundant. This, in turn, results in unjustified delays and allegations of poor customer service.

2. In this connection, it is clarified that if fixed/term deposit accounts are opened with operating instructions ‘Either or Survivor’, the signatures of both the depositors need not be obtained for payment of the amount of the deposits on maturity. However, the signatures of both the depositors may have to be obtained, in case the deposit is to be paid before maturity. If the operating instruction is ‘Either or Survivor’ and one of the depositors expires before the maturity, no pre-payment of the fixed/term deposit may be allowed without the concurrence of the legal heirs of the deceased joint holder. This, however, would not stand in the way of making payment to the survivor on maturity.

3. In case the mandate is ‘Former or Survivor’, the ‘Former’ alone can operate/withdraw the matured amount of the fixed/term deposit, when both the depositors are alive. However, the signature of both the depositors may have to be obtained, in case the deposit is to be paid before maturity. If the former expires before the maturity of the fixed/term deposit, the ‘Survivor’ can withdraw the deposit on maturity. Premature withdrawal would however require the consent of both the parties, when both of them are alive, and that of the surviving depositor and the legal heirs of the deceased in case of death of one of the depositors.

4. If the joint depositors prefer to allow premature withdrawals of fixed/term deposits also in accordance with the mandate of ‘Either or Survivor’ or ‘Former or Survivor’, as the case may be, it would be open to RRBs/StCBs/DCCBs to do so, provided they have taken a specific joint mandate from the depositors for the said purpose. In this regard you may also refer to para 3 of our circular RPCD.CO.RRB.BC.22/03.05.33/2005-06 dated July 19, 2005 and RPCD.CO.RF.BC.No.12/07.38.01/2005-06 dated July 12, 2005 in terms of which, RRBs/StCBs/DCCBs were advised to incorporate a clause in the account opening form itself to the effect that in the event of death of the depositor, premature termination of term deposits would be allowed subject to the conditions which they may specify therein. RRBs/StCBs/DCCBs were also advised to give wide publicity to the above and provide guidance to deposit account holders in this regard.

5. However, many of the RRBs/StCBs/DCCBs s have neither incorporated such a clause in the account opening form nor have they taken adequate measures to make the customers aware of the facility of such mandate, thereby putting the “surviving“ deposit account holders to unnecessary inconvenience. RRBs/StCBs/DCCBs are, therefore, advised to invariably incorporate the aforesaid clause in the account opening form and also inform their existing as well as future term deposit holders about the availability of such an option.

6. The joint deposit holders may be permitted to give the joint mandate allowing premature withdrawals of fixed/term deposits also in accordance with the mandate of ‘Either or Survivor’ or ‘Former or Survivor’ either at the time of placing fixed deposit or anytime subsequently during the term/tenure of the deposit. If such a mandate is obtained, RRBs/StCBs/DCCBs can allow premature withdrawal of term/fixed deposits by the surviving depositor without seeking the concurrence of the legal heirs of the deceased joint deposit holder. It is also reiterated that such premature withdrawal would not attract any penal charge.

7. The clarification provided in paras 5 and 6 of this circular supersede para 3 of our circular RPCD.CO.RRB.BC.22/ 03.05.33/2005-06 dated July 19, 2005 and RPCD.CO.RF.BC.No.12/07.38.01/2005-06 dated July 12, 2005.

Yours faithfully,

Chief General Manager

More Under Fema / RBI


  1. vswami says:

    To Continue:

    >This refers to a related story published in the Businessline , Issue of 9th Sept., titled- Bank pulled up for ‘deficient documentation
    A home loan was given under an agreement dated 30 august 2005. As per the festival offer it was a concessional fixed roi of 7.50 per cent. Date of the loan agreement was August 30, 2005. Later on, however, in November 2011, claiming that as per its internal guidelines, roi on home loans was to be reset every three years, raised an additional demand. The complaint of the borrower has been favourably decided by the concerned Ombudsman. The ground of the decision is that there were no enabling clauses in the agreement to reset the interest periodically.
    In defence the bank’s plea was despite there being an internal circular way back on August 16, 2005, the branch did not incorporate it in the loan documents by oversight. The additional demand was raised after the said omission was pointed out by its internal audit as late as in November 2011.

    The Ombudsman, as is reported, rejecting the defence, in one’s firm view rightly so, held that the bank’s action of revising the rate without prior notice to the borrower was arbitrary and contractually not binding.”
    So far so fair and good. But what really calls for a comment is the foot Note:

    Disclaimer: The Reserve Bank of India does not vouch for the correctness, propriety or legality of orders passed by Banking Ombudsman. The object of placing this in the public domain is merely to disseminate information on the working of the Banking Ombudsman Scheme.)

    The contents / purport of the said “Disclaimer, in one’s perception, based on logical thinking, cannot be accepted to be sound or legally valid. For the officer designated as Ombudsman is, admittedly, a creature / an appointee of the RBI. As a regulatory authority, RBI has control and responsibility for the proper functioning/ conduct of its constituents, so called good governance. On both grounds, to claim that it has no obligation, be it by way of responsibility, answerability or accountability for any irregular practice by banks has no leg to stand on. Same way, in case of a dispute, there can be no valid denial or disclaimer by RBI that it has the authority, hence the ultimate responsibility to the customers- be he a borrower or deposit holder,- for any wrong decision of an Ombudsman . For, any such denial or disclaimer prima facie offends its own code of ethics/conduct laid down for banks to diligently follow; also betrays its abject ignorance , real or feigned, of its own powers or authority to supervise , audit, and oversee on a regular basis, the practices , many times wrong practices, indulged in by banks, in such matters, gravely to the detriment/discontent of the serviced public at large; prejudicial to public interest in its profound sense.

    KEY NOTE: It is worth specially noting that,even in tax cases, courts have invariably ruled against the Revenue’s attempt at rectifying or reopening assessments once made, on the basis of its own later audit party’s objection(S).Should that be so, in respect of such a matter governed by a central enactment, it does not at all stand to any sane reason why the banks should be allowed to indulge in, and continue to do so,in indulging in objectionable practices in any matter governed by the general law of contract.

  2. vswami says:

    A Rejoinder:
    @v n kulkarni
    To add ( more by way of clarifying own thoughts, rather than vindicating own individual viewpoints) :
    In all fairness and magnanimity it is agreed that “and hence it is essential. the nomenclature can be changed.” (despite that has left one perplexed about  the import of the words “and hence”  ; rather why it makes sense or connects with what precedes, – “ it will affect the ALM of the bank”.
    Be that as it could have been only expected, what is more perplexing is that why the defence placed on “ALM” needs to be agreed as having any force. 
    The faulty logic behind such defence will be appreciated if due regard be had to, among others, the other more serious but bizarre stories  being told and retold on other connected  (even if remotely) areas e.g. the mounting but worrisome NPAs, reflecting on how badly the banks have been performing, highlighting the irregularities, in pursuing the so dubbed pet  policy of “ALM”. Again, is it not the very same defence, though put up by banks, but not accepted by the RBI on the issue of premature repayment of ‘borrowings’?  It is commonly known, the RBI has not looked upon favorably but virtually ruled against the banks continuing the practice of imposing a penal charge for  repaying  borrowings  prematurely, especially in the changes  overwhelmingly taking place in the economic scenario. If so, the question that remains unanswered , but without any  sound reason behind,  is that, – why then the same logic should not hold good  against levy of a penal charge if FD holder  asks  for  an earlier  repayment of ITS OWN MONIES ?
    In this or other like matters, indisputably entailing the larger interests of the gullible investors , in one’s long standing conviction, before any individual chooses  to air his individual view point , it is not but prudent for him  to do a proper  home work and consider  all  the impinging factors/facts of life  standing out in a wholesome manner; instead of  hastening  to put forth a view based on a reasoning  verging on so called  ‘lame duck’ attitude.
    For doing a sincere homework, it is recommended that it might be worthwhile to look up the numerous views floated around in public domain; for instance, in a recent post at the indiacorpblog – hyperlink  Prepayment fees in loan transactions
    (if so considered necessary, to be followed by narration of a true life story)

  3. v n kulkarni says:

    it is agreed that the word “penal” need not be used.but to allow such withdrawal without deducting such penalty,it will affect the ALM of the bank and hence it is essential.the nomneclacture can be changed.

  4. vswami says:

    Why the charge is dubbed a ‘penal’ charge ? By no sane reasoning, or logic, more so going by common sense, it could be named as ‘penal’ ; as the FD holder (s) opting to prematurely withdraw is not guilty of any conduct / action contumacious or umnlawful. The objectionable conduct / practice by banks patently betrays the management’s ignorance of the legal or ordinary connotation of the term “penal’. Sadly, it is obvious, RBI itself has been a mute / willing party to the unlawful practice.

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