Operational Aspects of Deposit Accounts
Principles & Practices of Banking | Unit 1 Chapter Notes
CA, SB, BSBDA, FD, RD, CDs — features, interest norms, inoperative accounts, DEAF, joint account modes, nomination (DA-1/DA-2/DA-3), garnishee orders, and all the numbers examiners love to test from this chapter.
📌 Why This Chapter Matters in JAIIB
Chapter 5 is a high-yield chapter — expect 5–8 questions per attempt. Examiners regularly test: who CANNOT open a current account (illiterates, blind, Pardanashin women, minors); minimum FD period (7 days); bulk deposit thresholds (₹2 crore for SCBs); inoperative account rules (2 years, 10 years for DEAF); joint account modes (E or S vs. F or S vs. A or S); nomination forms (DA-1/DA-2/DA-3); BSBDA features (4 free withdrawals/month); and garnishee order basics (Order NISI → Order Absolute).
Current Account & Savings Bank Account
A. Current Account — Key Features
Current account is a transactional account for frequent business/operational transactions. It is primarily used by traders, business people, and entrepreneurs.
| Feature | Rule |
|---|---|
| Interest | No interest payable by the bank on CA deposits. |
| Withdrawal restrictions | None — account holder can withdraw any amount at any time. |
| Deposit restrictions | None — no restriction on amount or number of deposits. |
| Transaction limit | None — no restriction on number of transactions in any period. |
| Minimum balance | Banks often stipulate minimum balance but there is no ceiling on the maximum balance. |
| Temporary Overdraft (TOD) | Allowed with specific policy/circular approval, against written request + Demand Promissory Note from account holder. |
| Cash deposits/withdrawals | Permitted. ATM facility available for individuals. |
| NACH authorisation | Account holders may authorise corporates/FIs to collect payments by debit through NACH mandates. |
⚠️ Who CANNOT Open a Current Account
B. Savings Bank Account — Key Features
Who can open
Individuals (singly or jointly), Karta of HUF, minors above 10 years, and specifically RBI-approved organisations.
Business transactions NOT allowed
SB accounts are not meant for transactions related to business or trading activities.
No ceiling on balance
There is no maximum limit on the balance in a savings account.
Interest rate
Deregulated — banks are free to decide. Uniform rate for balances up to ₹1 lakh. Differential rates permitted for balances above ₹1 lakh (but no discrimination between deposits of similar amount accepted on the same date).
Interest calculation
Calculated on daily end-of-day balance products. Credited at quarterly or shorter intervals.
Cash withdrawal
Through withdrawal slip with passbook (in person only) OR through ATM.
Withdrawals by account holder only
Cash withdrawal through withdrawal form is permitted only for the account holder, with passbook.
C. Organisations Prohibited from Opening SB Accounts
RBI prohibits savings accounts for: Government departments/bodies dependent on budgetary allocations, Municipal Corporations/Committees, Panchayat Samitis, State Housing Boards, Water/Sewerage Boards, Text Book Publishing Corporations, Metropolitan Development Authorities, State/District Level Housing Co-operatives, political parties, and any trading/business/professional concern (proprietorship, partnership, company, or association).
D. Organisations RBI Permits to Open SB Accounts
⚠️ SB Account — Minimum Balance Rules
BSBDA, Fixed Deposits, Recurring Deposits & CDs
A. Basic Savings Bank Deposit Account (BSBDA)
BSBDA facilitates financial inclusion — especially for lower economic strata. The following basic minimum facilities must be offered free of charge, with no minimum balance:
🧠 BSBDA Free Minimum Facilities
Key BSBDA Rules
B. Fixed Deposits (Term Deposits)
| Feature | Details |
|---|---|
| Minimum period | 7 days |
| Maximum period | Normally 120 months (10 years) |
| Bulk deposit threshold (SCBs excl. RRBs, & SFBs) | ₹2 crore and above |
| Bulk deposit threshold (RRBs) | ₹15 lakh and above |
| Premature withdrawal — mandatory for individuals | Mandatory for TDs of ₹15 lakh and below (singly or jointly held). Banks CAN offer TDs without premature withdrawal option. |
| Premature withdrawal before 7 days | NO interest paid |
| Interest on premature withdrawal | At rate applicable for period actually completed — NOT the contracted rate; penalty may apply if disclosed upfront |
| Interest payment | Ordinary TD: periodic (quarterly); Special/Reinvestment TD: compounded quarterly, paid at maturity |
| Overdue (unclaimed) FD interest | SB rate OR contracted rate — whichever is LOWER |
| Payment of maturity amount ≥ ₹20,000 | Must be by account credit only — NOT cash |
| Loan against TD | Permitted on surrender of discharged TD receipt with letter of lien; margin 5%–20% |
| Floating rate TDs | Permitted — linked to a directly observable, transparent, market-determined external benchmark |
C. Recurring Deposits (RD)
D. Certificate of Deposits (CDs)
CDs are short-term negotiable money market instruments — a distinct category from regular bank deposits.
| Feature | Details |
|---|---|
| Issuers | SCBs, RRBs, and SFBs |
| Form | Dematerialised only |
| Denomination | ₹5 lakh — minimum ₹5 lakh |
| Interest rate | Fixed or floating (linked to FIMMDA benchmark) |
| Tenor | Minimum 7 days; Maximum 1 year |
| Issuance | At discounted value OR with a coupon for interest |
| Secondary market | Traded in secondary market |
| Buyback | Permitted if offered to ALL investors in the specific issue |
| Stamp duty | Applicable on issuance |
Interest on Deposit Accounts
A. General Norms
Board-approved policy
Banks must have a comprehensive interest rate policy approved by the Board of Directors (or a delegated committee).
Uniform across branches
Rates must be uniform across all branches and for all customers. No discrimination between deposits of similar amount accepted on the same date at any office.
Not negotiable
Interest rates cannot be negotiated with individual depositors.
Transparent
Rates must be disclosed in advance; interest rate cards in CBS for supervisory review.
Rounding
Interest rounded to nearest rupee for rupee deposits; to two decimal places for FCNR(B) deposits.
FD maturing on non-working day
Interest at contracted rate is paid for the intervening non-business day(s) until the next working day.
Interest calculation (IBA method)
For deposits of less than 3 months or incomplete terminal quarter: interest calculated proportionately for actual days, treating the year as 365 days (366 in leap year per some banks).
B. Interest on Current Account
🚨 No Interest on Current Account Deposits
No interest can be paid on deposits in current accounts. Exception: on balances in a CA of an individual or proprietorship firm, interest is payable from the date of deathof the individual/proprietor to the date of repayment to the claimant — at the SB rate prevailing on the date of payment.
C. Additional Interest on Deposits
| Category | Additional Rate | Conditions |
|---|---|---|
| Bank staff, their exclusive associations, and senior executives (Chairman, MD, ED, etc.) | 1% p.a. over schedule rate on SB or TD (incl. RD) | Also payable on deposits held jointly with dependents. Ceases when eligibility ceases (except TDs — continue till maturity). |
| Resident Indian Senior Citizens | Higher rate — at bank's discretion; typically 0.25% or 0.5% p.a. | Available on deposits of any size. |
D. Interest on Inoperative / Frozen Accounts
E. Prohibitions in Deposit-Taking
Inoperative Accounts & DEAF
🧠 The Critical Timeline — Must Memorise
1 year of no transactions
Annual review required. Bank contacts customer in writing, asks to resume operations.
2 years of no transactions
Account classified as INOPERATIVE / DORMANT.
10 years unclaimed / inoperative
Balance transferred to DEAF (Depositor Education and Awareness Fund). Amount credited within 3 months of expiry of 10 years.
10 years+ (website display)
Banks must display list of inoperative accounts on their websites (names and address only — no other details).
What Counts as a Transaction?
✅ Counts as Customer Transaction
✗ Does NOT Count
Accounts EXEMPT from Inoperative Classification
DEAF — Depositor Education and Awareness Fund
Established by RBI in 2014 under the Banking Regulation Act. Banks must transfer credit balances unclaimed/inoperative for 10 or more years to this fund.
| Aspect | Rule |
|---|---|
| Transfer deadline | Within 3 months from the expiry of 10 years |
| Purpose of Fund | Promotion of depositors' interest (education) as specified by RBI from time to time |
| Customer's right after transfer | Depositor can still claim from the bank at any time. Bank pays the depositor and claims refund from the Fund. |
| Interest rate on DEAF claims (from 11 May 2021) | 3.0% simple interest p.a. on amount transferred to Fund (from date of transfer to date of payment) |
| Foreign currency deposits (unclaimed 3 years from maturity) | Convert (crystallise) to INR at exchange rate prevailing at end of 3rd year. Depositor can claim in INR or equivalent foreign currency at the rate on date of payment. |
| Refund claims from DEAF | Banks claim refund in Indian Rupees only |
| Accounts covered | SB, FD, RD, CA, CC, loan accounts, margin money, outstanding DDs/POs/banker's cheques, unreconciled ATM credits, prepaid card balances (excluding travellers' cheques), etc. |
Joint Account Operations & Nomination
A. Modes of Operation in Joint Accounts
| Mode | Operating Rule & Death Consequence |
|---|---|
| Jointly (no survivorship) | All holders must operate together. On death of any one, operations stop; balance paid to survivors + legal heirs of deceased. |
| Either or Survivor (E or S) | Two persons — any one can operate independently. On death of one, survivor can operate or claim the full balance. |
| Jointly or Survivors | Operated jointly by all. On death of any holder, the surviving holders together can operate or claim balance. |
| Anyone or Survivor (A or S) | More than two persons — any one can operate. On death of one, remaining survivors operate jointly. Fresh mandate from all survivors needed. |
| Former or Survivor (F or S) | Two persons — only the FIRST (former) holder operates during her lifetime. On death of former, survivor operates. |
| First Named or Survivors | More than two persons — only the first named operates during lifetime. On death of first named, the survivors jointly operate. |
Any variation in instructions
Can be made only if authorised jointly by ALL account holders.
Revocation of instructions
Any ONE joint holder can revoke the original authority/survivorship clause. After revocation, operations only on joint authorisation or fresh instructions from all.
Stop payment of a cheque
Any one joint holder can stop payment of a cheque issued by any other joint holder.
Insanity/insolvency of a joint holder
Instructions stand countermanded — operations in the account are stopped.
Closure of joint account
Only on request of ALL joint holders (unless required by other circumstances).
NRI in a joint account
Mode must be 'Either or Survivor'. NRI cheques/remittances/cash must NOT be credited. If NRI becomes sole survivor, the account becomes NRO account.
B. Claims on Death of Account Holder
C. Nomination Facility
Introduced via Sections 45ZA–45ZF of the Banking Regulation Act (amended 1983). Governed by Banking Companies (Nominations) Rules 1985.
🧠 Nomination Forms — Must Memorise
| Aspect | Rule |
|---|---|
| Who can nominate — single a/c | The sole account holder nominates. |
| Who can nominate — joint a/c | All joint holders JOINTLY nominate only ONE person (regardless of operating instructions). |
| Who can nominate — minor's a/c (guardian-operated) | The guardian authorised to operate the account makes the nomination. |
| Minor account holder himself | Minor CANNOT nominate. The person lawfully empowered to act on his behalf nominates. |
| Nomination NOT permitted | For deposits held in representative capacity — e.g., director of company, secretary of association, partner of firm, Karta of HUF. Exception: sole proprietorship. |
| Only one nominee per deposit account | Only one individual per deposit account. Safe deposit lockers/safe custody articles: more than one nominee allowed. |
| Multiple deposits — separate nominations | Each deposit account needs a separate nomination. |
| Nominee is a minor | The nominating person must appoint another adult to receive funds on behalf of the minor. |
| Nominee's role | Nominee receives proceeds on depositor's death — acts as trustee for legal heirs. Does NOT get ownership. No loan against the deposit can be granted to the nominee. |
| Nomination continues on renewal | TD nomination is valid even after deposit is renewed, unless a fresh nomination is made. |
| Splitting deposit for multiple nominees | Permitted — split in desired proportions; period and aggregate amount must not change; NOT treated as foreclosure; no penalty. |
| Who CAN be nominated | Resident Indian (personal capacity), NRI, minor (with guardian), foreign national of Indian origin, foreign national of non-Indian origin. |
| Remittance to non-resident nominee | Subject to FEMA Regulations prevailing at time of remittance. |
⚠️ Key Exam Traps — Nomination
Garnishee Orders & Attachment Orders
What is a Garnishee Order?
A Garnishee Order is an attachment order issued by a Court under Order 21, Rule 46 of the Civil Procedure Code (CPC). It is obtained by a judgment creditor attaching funds belonging to a judgment debtorheld by a third party — such as a bank (the Garnishee). The order is first issued as Order NISI(preliminary); if the bank cannot show cause, it becomes Order Absolute, and the bank must remit the attached amount to the Court.
Record time & date
Time and date of receipt of Garnishee order must be recorded in the System immediately.
Stop payments on Order NISI
Immediately stop payments from affected accounts and inform the customer about the court order.
Transfer to suspense account
Transfer the attached amount to a suspense account (or block it) to prevent accidental payment.
Amount less than order
If available balance is less than the ordered amount — transfer/block whatever is available. If no amount specified, block the entire balance.
Executor/Administrator accounts
Garnishee order in an individual's name does NOT attach accounts operated by that person as Executor/Administrator.
Right to set-off takes priority
If the bank has a prior right to set-off, the garnishee order does not bind the bank for that amount. Excess over lien is attachable. Inform court and vacate the order.
Subsequent credits NOT attachable
Only debts due at the time of service of the order are attached. Credits received after service of order are generally not attachable.
Joint accounts (single name order)
A garnishee order in a single name cannot attach a joint account (E or S). If all joint holders are named — both joint and individual accounts are attached.
Trust accounts
Balance in a trust account cannot be attached if judgment debtor deposited money as a trustee.
Partnership accounts
Firm's account cannot be attached for individual debts of a partner. But a partner's personal account CAN be attached for firm debts (joint & several liability).
Inaccurate name
If the order does not name the customer with sufficient accuracy for identification, the bank is not bound to act on it.
Multiple accounts — net credit attachable
If customer has one account in debit and one in credit in the same branch, the net credit balance (if positive) is attachable.
Balances outside India
Balances held outside India cannot be attached.
Attachment Orders — Income Tax
Under Section 226(3) of the Income Tax Act, 1961, the Income Tax Officer can issue notice to a bank to pay out of the assessee’s account amounts to satisfy tax dues. The order can attach:
Procedure on Receipt of IT Attachment Order
Passbooks, Cheques, Standing Instructions & Quick Reference
A. Passbook Rules
B. Payment of Cheques — Pre-Payment Checklist
| # | Check |
|---|---|
| 1 | Cheque leaf from the drawer's current cheque book |
| 2 | Payee's name filled legibly |
| 3 | Date: not post-dated; not stale (not more than 3 months old) |
| 4 | Amount in words and figures match |
| 5 | Signature valid — properly signed by account holder/authorised person |
| 6 | Authority: rubber stamp affixed for business/company/firm accounts |
| 7 | Mode: bearer or order cheque — obtain bearer's signature + name + address on reverse if paying over counter |
| 8 | Sufficient balance or overdraft arrangement available (accounting for any lien) |
| 9 | All alterations authenticated by drawer (under CTS, no alteration allowed) |
| 10 | No stop payment instruction received |
| 11 | No garnishee or court order restricting payment |
| 12 | Not a crossed cheque being paid over the counter without cancellation by drawer |
| 13 | No notice of death/insolvency/insanity of account holder |
| 14 | A/c Payee Only: credit to payee's account only |
C. Dishonoured Cheques — Key Rules
Return within 24 hours
Dishonoured instruments must be returned/despatched to customer within 24 hours. Clearly indicate return reason code on return memo.
Re-presentation within 24 hours
Technical returns for re-presentation must be made in the immediate next clearing — not later than 24 hours (excluding holidays). Customer to be notified via SMS/email.
Cheque return charges
Levy charges ONLY when the customer is at fault — NOT for technical reasons beyond customer's control.
₹1 crore and above — 4 dishonours in FY
No fresh cheque book to be issued. Bank may consider closing the current account. After the 3rd dishonour, send a cautionary advice to the customer.
Less than ₹1 crore — frequent dishonours
Banks must have a Board-approved policy for dealing with frequent dishonours (including ECS mandates).
Documentary proof for court
Banks must extend full co-operation and furnish documentary proof of dishonour for complainants in court/consumer forum proceedings.
Quick-Reference: All Key Numbers & Rules for the Exam
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