Stop withdrawal penalty on death of SCSS a/c holder: IBA
The Indian Banks’ Association (IBA) has asked banks to not charge penalties for premature withdrawal under the Senior Citizen Savings Scheme (SCSS) after the death of the account holders.
“…we have come across complaint (s) that some banks while processing settlements/ premature payments of accounts to the legal heirs / nominees of deceased depositors under the captioned scheme [SCSS], are treating the same as premature withdrawal and levying penal interest,” the IBA said in a communication to its member banks on Thursday.
SCSS is a governmentbacked retirement benefits programme, where senior citizens residing in the country can invest upto ~15 lakh, and get access to regular income, along with tax benefits. An SCSS account can be opened at a bank or a post office. The maturity period for the scheme is five years, which can be extended by another three. The scheme offers an interest rate of 7.4% at present.
IBA cited the amendment made in a government notification dated July 28, 2010 in the Rule 8, sub-rule (3) of the SCSS rules, 2004, which says in case of a death of a depositor before maturity, the account shall be closed and deposits should be refunded to the nominee or his/her legal heirs, along with interest as applicable to the scheme till the date on which the depositor expired. The bank body further cited Rule 8, subrule (5) of the SCSS rules 2004, which clearly says no deduction shall be made in case of premature closure of an account at any time due to death of a depositor.
“We request all member banks to be guided by the SCSS rules to avoid any complaints,” the IBA communication said, a copy of which has been reviewed by Business Standard.
The bank body has asked the banks to devise a mechanism to capture the closure reason of such deposits in their Core Banking System (CBS) for seamless processing of such applications received from the customers.
Premature withdrawal is allowed in the SCSS after one year of its opening. There is a penalty of 1.5% of total amount deposited in case withdrawal is made between 1 and 2 years and 1% penalty if withdrawal is made after 2 years. All public sector banks and many private sector banks offer such a scheme.