Unit 3.

Procedure for opening & operating of deposit account

3.1. Procedure for opening of Deposit account:
To open a deposit account, person has to fill up an account opening application form, submit to the
concerned branch. Application form should be accompanied with the following documents in order to
avoid misuse or illegal dealings:
i. Introductory reference of an acceptable person or an existing account holder with the branch.
ii. Acceptable proof of his / her identity and residential address. It may be one of: Aadhaar Card /
photo identity card such as Passport, Ration card, PAN card, Driving license, Election identity
card etc.
iii. Recent photographs (2 to 3 varies from bank to bank, branch to branch).
iv. An initial deposit amount not less than the minimum amount decided by the bank (amount
varies from bank to bank ranging from 0 to Rs. 10,000/ or even more).
v. The bank keeps attested photo copies of all the documents along with the account opening
form.
1. Know your Customer Norms (KYC norms)
In 2002, RBI issued an order to all banks to follow the procedure of "Know Your Customer" with all
their new and existing Domestic customers and Non-resident customers. It helps to verify the identity
and residential address of the customers with the help of specific documental evidence. Hence
proper KYC prevents misuse of the banking system for money laundering and financing of terrorist
activities.
These "Rules" would help to stop illegal moneys coming into the banking stream. It is mandatory
requirement to all religious and non-religious trust accounts should also have to follow
all KYC processes.
The RBI needs all banks to strictly follow the KYC guidelines and cash transaction norms.
The KYC Rules of RBI support the existing practice of some banks and makes it a compulsory
requirement to be followed by all the banks in regard to all of their customers who maintain
domestic / Non-resident rupee / foreign currency accounts.
2. Application form
The proposal form must be duly filled in all respects. Necessary details regarding name,
address, occupation and other details must be filled in wherever required. Two or three specimen
signatures are required on the specimen signature card. If the account is opened in joint names, then
the form must be signed jointly. Now days the banks ask the applicant to submit copies of his latest
photograph for the purpose of his identification.
3. Introduction
After having provided all the documents as stated above the most important factor and also
MANDATORY is to provide an Introduction of the person desiring to open an account with a bank.
This introduction part is very important as the introduction is not merely a formality but is also
recognized by the Law.
In case of any miss happening or a fraud in any account, the foremost thing taken into account is
whether or not the account was duly introduced as per KYC norms. If not the bank official responsible
to open the accounts without proper introduction also becomes a subject matter of suspicion and
accordingly staff side action (An action to fix the responsibility and if found guilty to be punished
accordingly) is taken against him which may even result in terminating his services for a vital fraud
taking place because of wrong introduction. It is therefore of utmost importance for the banks to
obtain an introduction of a person for whom the bank is going to open an account.
 4. Proof of residence
There are two aspects of Customer Identification- One is establishing identity and the other is
establishing present residential address. For establishing identity, the bank requires any authentic
document carrying photo of the customer such as driving license/ passport/pan card/ voter’ card etc.
Though these documents carry the residential address of the customer, it may not be the present
address. Therefore, in order to establish the present address of the customer , in addition to
passport/driving license/voter’s card / pan card; the bank may ask for utility bills such as
Telephone/Electricity bill etc. A Banker would ask for the following list of documents to establish the
proof of identity and residence of a customer.
 For Individuals The Banker will ask for copies of any the documents such as Aadhar card,
Passport, Pan Card, Voter’s Identity Card, Driving License, Identity Card and a letter from a
recognized public authority or public servant verifying the identity and residence of the
customer to the satisfaction of the bank. This would help the bank to establish the
genuineness of the legal name or any other used by customer. To verify the documents such as
Telephone bills, bank account statement, letter from any recognized public authority,
electricity bill, ration card and letter from employer (Subject to satisfaction of the bank).
 For Companies In the case of companies, the banker will ask for documents such as Certificate
of Incorporation and the Memorandum of Association and the Articles of Association to verify
the name of the company. Similarly, banks will look into the resolution of the Board of Directors
to open an account and identification of those who have authority to operate the account to
determine the principal place of business
5. Specimen signature
A Specimen (sample) signature of the customer is obtained on the account opening form in the
presence of the bank staff and it is attested by an authorized bank officer on the form itself. A
customer is recognized mainly by signature on the cheque / vouchers and these are compared with
the specimen signature on record to verify the genuineness of the customer’s signature.
6. Nomination: Their importance
The facility of nomination is governed by section 45 (ZA to ZF) incorporated in the banking
regulation Act,1949 and the rules are farmed under the banking companies (nomination)
rules,1985.Nomination is applicable for deposit accounts, articles kept in safe custody and the
contents of safety lockers.
Importance of nomination
The importance of nomination is that in the event of death of an account holder(s) or locker holder(s),
the Bank can release the account proceeds or contents of the locker to the nominee(s) without
insisting upon a Succession Certificate, Letter of Administration or Court Order. The nominee holds
the monies in the capacity of a Trustee on behalf of the legal heirs of the deceased account holder(s)
or locker holder(s) and the Bank's liability is duly discharged on payment to the Nominee.
Nomination facility simplifies the procedure for settlement of claims of deceased depositors as banks
get a valid discharge by making payment of the balance outstanding in a depositor's account at the
time of his death or delivering contents of locker or articles kept in safe custody to the nominee.
Nomination is optional for bank customers. It is therefore necessary that nomination facility is
popularized and customers are made aware of its advantages while opening a deposit account.
 No. frills Account
The Reserve Bank of India (RBI) has taken several measures to ensure the most basic banking
facilities are made available to the Indian population. Very often, individuals from low-income
backgrounds rarely ever have bank accounts where their finances can be saved. This is largely
because opening a savings account in most banks includes having to maintain a minimum balance in
your account at all times. If the balance of the savings account dips below the required minimum
balance to be maintained, the bank usually levies a fine.
In an attempt at financial inclusion, the RBI launched the “No Frills” account in 2005. The No
Frills account aimed to offer the most basic banking service to those from the low-income
backgrounds. The concept was formulated as means of providing individuals from low-income
backgrounds the opportunity to benefit from the credit and savings programs offered by most
financial institutions.
With all the above-mentioned factors considered, the No Frills account was launched and it
allows its holders the ability to open and maintain a savings account with zero balance. Those who
hold No Frills accounts are offered basic banking services such as mobile and internet banking, a
free Debit Card and access to ATMs all over the country. In addition, No Frills account holders also
have the option to receive free quarterly account statements to their registered email id. In addition,
the service charges applicable to the No Frills account were substantially lower than that of the
regular savings accounts. As a result of the zero balance requirements that most banks offered, the
account became commonly known as a zero-balance account.
Since its launch in 2005, the No Frills accounts began to receive a large number of applicants.
However, the title “No Frills” seemed to brand those who hold such accounts. In an attempt to undo
the branding associated with the title, the RBI replaced the title of the account to Basic Savings
Deposit Account (BSDA) in 2012. Therefore, the No Frills account and the Basic Savings Deposit
Account is essentially the same thing.
According to an official notification by the RBI, the services offered by BSDAs intend to bring
uniformity across the banking system. Since its launch, the RBI has instructed all banks that offered
the no-frills accounts to convert existing accounts into Basic Savings Deposit Accounts. This
notification also included offering services such as unlimited deposits to the account, zero charges on
ATM/debit cards, and no fines for accounts that are inactive. Moreover, the Basic Savings Deposit
Accounts do not impose any restrictions on income or age and is available to all Indian residents.

3.2. Procedure for operating Deposit account:

Pay - in- slips
Paying-slip’ for deposit of the initial amount while opening your account. It is a printed form,
which you get in the bank. Each ‘pay-in-slip’ has two parts divided by perforation, the right-hand part
known as ‘foil’ and the left-hand part known as ‘counter-foil’. The slip has to be filled up while
depositing cash or a cheque. Separate pay-in-slip form will have to be filled up while depositing both
cash and cheques. For deposit cash in account pay-in-slip has to be filled up giving the date of deposit,
your name or accountholders name if you deposit money in somebody’s account, account number, and
the amount deposited in figures and words. Besides you have to enter on the slip, in the place
indicated, how many currency notes of different denominations ( ₹ 5, 10, 20, 50, 100, etc.) are being
deposited along with the amount against the types of notes. The bank has had a counter for cash
receipts then sign and present the pay-in-slip there and also hand over the amount of cash. The
receiver will keep the foil (right hand part) of the pay-in slip while the left-hand part (counter-foil)
will be rubber-stamped, signed by him, and returned to you. Instead of cash, when deposit cheque in
bank, instead of going to another bank to in cash it. Bank will collect the amount of the cheque and
record it as a deposit in savings bank account. To deposit the cheque, you have to use the pay-in-slip
again, filling in particulars like the date of deposit, the account number, name of the account-holder,
the serial number and date of the cheque, name and address of the bank on which the cheque is
drawn, and the amount of the cheque in figures and words. After signing the slip, have to attach the
cheque with the foil by an all pin (steel pin), and present the slip at the counter for cheque receipt. The
person at the counter will keep the foil with the cheque attached, and return to you the counter-foil
with bank rubber stamp and his signature. In some banks, there is a box kept near the counter. The
bank rubber stamp is also available at the counter. The depositor is to put the rubber stamp on the foil
and counterfoil. Then after separating the counter-foil, the cheque along with the foil is to be dropped
in the box through a slit.
Issue of pass book, (Current Savings or Recurring deposits)
Pass Book is a record of transactions taken place between a banker and customer. It is called “Pass
Book” as it passes between the banker and customer, whenever transactions are taking place. It is a
conclusive evidence of banking transactions.
Customer depends on the Pass Book entries to know his account balance and act for further
transactions. Customer should bring the Pass Book to the bank at time of each transaction. Banker will
update the Pass Book, by entering the transaction taken place. Customer has a right to point out the
mistake in the Pass Book at any time. According to Sir John Paget “The proper functioning of a Pass
Book is to constitute a conclusive and unquestionable record of transactions between the banker and
the customer and it should be recognized as such”.
Contents of a Bank Pass Book
The First Page of a bank pass book usually contains two fold information:
 Details of the bank
 Details of the Account Holder

Issue of Cheque book

A Cheque book is a folder or small book containing preprinted paper instruments issued to checking
account holders and used to pay for goods or services. A checkbook contains sequentially numbered
checks that account holders can use as a bill of exchange. The checks are usually preprinted with the
account holder's name, address, and other identifying information. In addition, each check will also
include the bank's routing number, the account number, and the check number.
After opening the account, cheque books issued to the customer at his request. But, Banks should
follow certain precautions /procedures in Issue of Cheque Books to the customer. Bank issues cheque
book against the cheque book request forms (duly signed) submitted by the customer.  After that
whenever required, after usage of the first cheque book, the customer again can place a cheque book
request through a cheque book requisition slips from the previous cheque book.
Customers can also place a request for the issue of Cheque Book through a separate letter signed by
him. Then it is better to handover the cheque book to the customer personally or the Bank should
send the cheque book through registered Post to the address specified by him on his Account opening
form. The bank should avoid to handover the cheque book to the bearer of the letter as a
precautionary measure.
A checkbook is comprised of a series of checks that can be used to make purchases, pay bills, or in any
other situation that requires payment. With the advent of online commerce and banking, more people
are making purchases and paying bills online, thereby reducing or eliminating the need for paper
checkbooks.
Cheque book include a set quantity of numbered checks and usually contain some type of register in
which users can keep track of check details and balance account statements. Before being handed over
 in exchange for goods or services or any payment, a customer must fill out certain information on the
check and then sign it. The information to be filled out includes the date, the name of the individual or
business, and the amount of funds to be withdrawn.

Issue of fixed deposit receipt

As one of the most common savings and investment options used by individuals, fixed deposits are
risk free and offer guaranteed returns. Fixed deposits provide investors with an interest rate that is
higher than what is offered on normal savings accounts. The maturity value of a fixed deposit is based
on the date of maturity chosen by the individual. Individuals opt for fixed deposits as they are not
risky and also provide assured returns, even if these returns are not very high such as those provided
by mutual investments and equities.
Applicants can procure Fixed Deposits by visiting their bank or even on their bank’s website as many
banks have enabled the facility of providing fixed deposits online. Once applicants apply for their fixed
deposit scheme and all formalities are complete, they will receive a fixed deposit receipt as an
acknowledgment. This is an important document and should be kept safely.
What is a Fixed Deposit Receipt?
A Fixed Deposit Receipt (FDR) is nothing but a document provided by the bank after the applicant
procures a fixed deposit scheme from their bank. This document contains details such as the
individual’s name, age, address, details of the scheme chosen by them such as deposit amount, tenure
and interest rate applicable on the deposit and so on.
What are the Components and Importance of a Fixed Deposit Receipt?
A Fixed Deposit Receipt contains all the details related to the deposit option procured by the
individual. These details include:
 Name of the applicant
 Age of the applicant
 Account Number of the applicant
 Amount of principal that has been placed
 Rate of Interest that is applicable
 Date of Maturity
 Amount of interest that the individual will receive on maturity
 Instructions regarding maturity date such as account transfer or rollover amount
The Fixed deposit receipt acts as an acknowledgment and proof of the ownership of the fixed deposit
account by a particular individual.. Apart from this, this receipt contains every single detail pertaining
to the fixed deposit such as interest applicable, term and so on. Hence this receipt is a very important
document and must be in the possession of the applicant.
Things to Check in a Fixed Deposit Receipt
When individuals receive their Fixed Deposit Receipt, the following are the things that they need to
check for:
 Term and interest rate offered - Although this is a basic component of the receipt and may already
be known to the customer, it is important to check these details again. This has to be given priority
especially when individuals are renewing their fixed deposit scheme as certain rates may be
discontinued by the bank.
 Auto renewal and date of maturity - It is convenient for individuals to opt for auto renewal if they
have a guaranteed salary every month as it saves on hassle and time during the next renewal. Also,
date of maturity is another detail that should not be missed by individuals as this will help them
plan out their financials better and also with regard to the day they can withdraw their fixed deposit
investment.
 Penalty for Prepayment - Banks sometimes charge a penalty on their fixed deposit if prepayment
has been done. For example, if a bank charges 1% as the penalty for prepayment and individuals
 withdraw their fixed deposit (valued at 9%) after a period of 6 months, then they will receive an
interest rate of only 6%, assuming the bank provides 7% as the interest for a 6 month FD.
 Nomination - The receipt must provide details of the nomination in case the individual has made
one. In the event of the unfortunate death of the individual, his/her nominee will receive the
proceeds of the fixed deposit.
 Declaration to save TDS - Tax at source is deducted by the bank in case the income from interest is
over Rs.10,000. In case an individual’s income falls into the bracket of ‘no income tax’ then
declaration through Form 15G or Form 15H can be submitted and this must be mentioned in the
receipt.

Premature encashment of fixed deposits

 Fixed deposit is the preferred choice for risk-averse investors, along with those who wish to strike a
balance in their investment portfolio. This investment option allows customers to earn guaranteed
returns at pre-specified interest rates without having to bear market-related risks that come with
other investment options like mutual funds.
 Fixed deposits, with premature withdrawal facility, allow the depositor to close the FD before the
date of maturity arrives. This comes as a relief in times of cash crunch.
 However, a certain amount may be required to be paid by the depositor as a penalty to the bank.
This usually ranges between 0.5% and 1%. Some banks do offer premature withdrawal facility with
zero penalty charges.
 However, if the FD is prematurely closed, before completing 7 days from the date of the booking, the
bank or the company is not liable to pay any interest.
 A penalty is a cost that is charged by the banks or companies when the depositor takes out the
money from their bank prematurely or before the date of maturity. This is done to discourage
frequent withdrawals and encourage the habit of saving.

Loan against fixed deposit

 During a cash crunch or emergency, people tend to look for loans from a lot of sources. One of those
sources can be getting loans against fixed deposits (FD) from banks. This is a time-efficient way of
getting a short-term loan. Instead of breaking the FD prematurely, depositors can easily apply for a
loan against their FD with the bank.
 Loan against FD (Fixed Deposit) is a type of secured loan where customers can pledge their fixed
deposit as security and get a loan in return. The amount of loan depends on the FD deposit amount.
This can go up to 90% – 95% of the deposit amount.
 Loan against fixed deposits is extended to all the fixed deposit holders, be it individual holders or
those with joint accounts
 FD in the name of a minor does not qualify for this facility
 Investors of a 5-year tax-saving FD cannot apply for this type of loan

Recurring deposits: Premature encashment

Recurring Deposits (RD) provides customers with the flexibility to invest an amount of their
choice each month and save money with ease. Recurring deposit accounts are offered by most of the
banks in India with tenures ranging from 6 months to 10 years. The interest rate usually ranges
from 5.00% - 7.85%.
 RD offers you a fixed interest on the invested amount at a specific frequency till the pre-determined
term or up on maturity. At the end of the term, the amount upon maturity (which is your invested
capital) along with remaining or accumulated interest is paid.
 The main features of Recurring Deposit account are as follows:
 Recurring Deposit schemes aim to inculcate a regular habit of saving among the public.
 Minimum amount that can be deposited varies from bank to bank. It can be an amount as small as
Rs.10.
 The minimum period of deposit starts at six months and the maximum period of deposit is ten
years.
 The rate of interest is equal to that offered for a Fixed Deposit and is hence higher than any other
Savings scheme.
 Premature and midterm withdrawals are not allowed. However, the bank may allow to close the
account before the maturity period, sometimes with a penalty for premature withdrawal.
 RD offers the additional benefit of taking loan against the deposit, i.e., by using the deposit as
collateral. About 80 to 90% of the deposit value can be given as loan to the account holder.
 The Recurring Deposit can be funded periodically through Standing Instructions which the
instructions are given by the customer to the bank to credit the Recurring Deposit account every
month from his/her Savings or Current account.

Premature Withdrawal of Recurring Deposit

 If the account holder withdraws the deposited amount before its maturity, the rate of interest that is
received will be the one applicable to the period for which the deposit has remained with the bank.
1% penalty will also be levied by the bank for premature withdrawal recurring deposit.
 The interest rate offered by banks vary as per bank stipulations.
 However, some banks would deduct interest rate by 1% to 2% for the period during which the
deposit remained in the bank in case of premature withdrawal.
 Usually, the minimum lock-in period for an RD account is 3 months. If a premature withdrawal is
made before this period, the account holder would earn zero interest and only the principal amount
that was deposited would be refunded to him/her by the bank.
 In addition to penalty on interest, the depositor is not eligible for incentives offered by the bank on
the recurring deposit.

3.3. Closure of accounts

Similar to the opening of account, banker has to adopt certain procedures while closing of account of a
customer. At the time of closing an account, the banker should ask the customer to surrender the
unused cheque along with the passbook.
When a customer expresses his willingness to close the account in writing, the banker should settle
his account. Before doing so, the banker has to arrive at the closing balance which maybe to the credit
or debit of the customer. When the balance is to the credit of the customer, the banker to pay the
amount either in person or send the same by a cheque to the address of customer.
In case of undesirable customer, banker will give notice to the customer for closing the account. If the
customer evades the request of the banker, a date will be fixed by the banker to close the account. This
will be informed to the customer. On that particular day, the bank will close the account of the
undesirable customer and send the credit balance to the address of the customer.
A bank will chose the account of the customer under the following conditions
(1) Death of customer
(2) Insolvency of the customer
(3) When customer becomes insane
(4) Garnishee order
(5) With drawl of power attorney
(6) When the partnership firm is dissolved
(7) In case of company, on winding up
(8) When the customer assigns his entire credit balance
(9) In the case of associations and institutions, on the passing of resolution as per the Bye-laws.
Transfer of accounts to other branches
  The Reserve Bank of India (RBI) has asked banks to allow portability of accounts among their
branches if the customer has fulfilled complete KYC (know your customer) details.
 The facility would provide customers the flexibility to move their accounts to desired branches
without much paperwork.
 "The customer should be allowed to transfer his account from one branch to another branch
without restrictions. In order to comply with KYC requirements of correct address of the
person, fresh address proof may be obtained from him/her upon such transfer by the
transferee branch," the RBI said in its notification.
 The account holder(s) should submit a written application or form to either the new branch or
the old one (home branch). The letter should clearly indicate account numbers, which are to be
transferred to another branch. The exact name of the new branch, where the account is to be
transferred, must be mentioned in the letter as well.
 Surrendering the cheque book
Along with the application, the account holders are required to return any cheque book(s) and
unused cheque leaves.
 Other documents
Proof of new address should be accompanied by the application. Contact details such as new
landline or mobile number should also be updated.
 Process
once the application is received, the request is sent to the home branch. The home branch
closes the account and transfers balances to the other branch. A new account is then opened at
the branch where the account is transferred and funds are deposited in this account. The whole
transfer process may take 8-10 working days. Once the account is transferred, the customer is
allotted the new account number, and a new cheque book can be issued.

3.4. Types of account holders

3.4.1. Individual account holders –
Single or joint,

Accounts of Individuals

Individuals generally open transaction accounts like Savings accounts or Current

accounts. It has already been mentioned that any adult person/individual competent
to contract can open an account with any bank after observing usual formalities
provided that the bank is satisfied with his identity, respectability, and desirability. On
many occasions, identity is ascertained by passports, voter identity cards (ID),
certificates of ward commissioners, employer’s certificates, and tax identification
numbers (TIN), etc. They are required to furnish a passport size photograph and an
introduction from an acceptable person. Normally individuals – either singly or jointly
– are allowed to open Savings account.

Joint Accounts

Accounts are allowed to be opened in two or more names (individuals). Documents

required are similar to those applicable to the individual accounts. In the case of joint
accounts, generally ‘Either or Survivorship’ instructions are obtained in the
handwriting of the account holders concerned under their signatures. In such cases
account may be operated by any one of them. In the event of the death of either one,
the survivor can operate the account. In the absence of instructions otherwise, in the
‘Either or Survivorship’ declaration, the balance of the joint, account is payable to the
survivor and the legal representatives of the deceased joint account holder if there is
no nomination.

Illiterate

Minor

Married women

Pardahnashin woman

Non-residents accounts
There are different types of bank accounts for Indians or Indian-origin people living overseas. These accounts
are called overseas accounts. They include two types of savings accounts and fixed deposits -- NRO or non-
resident ordinary and NRE or non-resident external accounts. Banks also offer foreign currency non-resident
fixed deposit accounts. Let us quickly see the various types of bank accounts for NRIs-

a) Non-resident ordinary (NRO) savings accounts or fixed deposit accounts

NRO accounts are rupee accounts. When NRIs deposit money in these accounts, usually in foreign currency, it
is converted into INR at the prevailing exchange rate. NRIs can park money earned in India or overseas in NRO
bank accounts. Payments like rent, maturities, pension, among others, can be sent abroad through NRO
accounts. The income earned on these deposit accounts is taxed. 

b) Non-resident external (NRE) savings accounts or fixed deposit accounts

NRE deposit accounts are similar to NRO accounts and the funds in these accounts are maintained in INR. Any
money deposited into these accounts is converted into INR at prevailing exchange rates. But, these accounts
are only for parking your earnings from abroad. The funds, both principal and interest, are transferable. But, the
interest earned on these deposit accounts is not taxed in India. 

C) Foreign currency non-resident (FCNR) account

As the name suggests and unlike the other two types of bank accounts, FCNR accounts are maintained in
foreign currency. The principal and interest from these accounts are transferable, but the interest earned is not
taxed in India. 
3.4.2. Institutional account holders-

Accounts of Sole Proprietorship

The sole proprietorship concerns do not enjoy any legal status. Hence they are
treated as individuals by the banks. While opening a new Current account, the owner
is required to produce the trade license, a certificate from Chamber of Commerce,
Tax Identification Number (TIN), and Value Added Tax (VAT) registration number as
may be applicable or similar another document. In the case of savings accounts,
documents required are similar to those applicable to individual accounts.

Accounts of Partnership Firms

A partnership account is allowed to be opened by the banks on the production of

trade licenses and other documents evidencing the partnership business. If it is a
registered partnership it is required to produce a registration number and partnership
deed. If not, a standard partnership letter supplied by the banks is required to be
signed by all the partners of the ‘firm’ in their individual capacities. The account may
be in the name of the ‘firm’. But legally the firm does not have any existence. Hence
partners jointly and severally have to bear all the responsibilities.

The partnership deed or partnership letter is thoroughly studied by the banks to

ascertain the names and addresses of all the partners and the nature of the business.
The names of the partners authorized to operate the account on behalf of the firm
including the authority to draw, endorse and accept bills, mortgage, and sell property
belonging to the firm, etc are also ascertained from the Deed or Letter. Banks also
ascertain the position of the firm on retirement or death or insolvency of any of the
partners.

Joints stock company

Hindu Undivided family

Clubs, Associations & Societies & Trusts