RBI simplify minor bank account operation & allow mother as guardian

The Reserve Bank of India (RBI) has simplified and updated the rules and regulations for opening and operating minor bank accounts. It has also allowed mothers to become the guardians of minors for opening and operating the minor's bank account, even if the father of the minor is alive. 

The RBI issued the directions on 21 April under sections 35a and 56 of the Banking Regulation Act 1949.

The new guidelines of the RBI are expected to further boost financial inclusion in the country by making bank accounts of minors more accessible to them and their families.

The following are the main points of the RBI guidelines.

Account Opening of Minor Bank Account and Status of Guardian

Minors of any age can open a bank account through their natural or legal guardian, including their mother. 

The minor can open only a savings account and a term deposit (fixed and recurring) account. They cannot open a current account.

Children below 18 years of age are considered minors.

Two Types of Minor Bank Accounts

RBI has divided the minors into two groups - one up to 10 years of age and one above 10 years but less than 18 years.

Provision for minors up to 10 years 

• They can open savings and term deposits through their natural guardians, legal guardians or mother.
• The account will be operated by the natural or legal guardians, or the mother.

Provision for minors above 10 years of age 

• They can open and operate their bank account independently of their guardians or mother.
• The banks are free to specify deposit limits and other terms and conditions according to their risk assessment policy.
• The bank account of the minor shall have a positive balance
• The account shall not be overdrawn( the bank will provide no loan on this account).
• The banks, based on their risk management policies and product suitability, can offer additional banking facilities, such as internet banking, ATM/debit cards, and cheque book facilities.

What happens when the account holder becomes a major?

When the account holder becomes a major, i.e attains the age of 18 years, the banks will:

• Inform the customer about new guidelines to be followed for the continuation of the account.
• The bank will undertake a fresh Know Your Customer (KYC) process for the minor, including obtaining a new specimen signature.
• Obtain confirmation from the guardian regarding the balance in the account if it is operated by them.
• After completing these formalities, the bank account will no longer be classified as a minor account by the Bank.

On which Bank are these fresh guidelines applicable?

The new guidelines of the RBI regarding minor accounts apply to 

• Commercial banks, 
• Primary (urban) Co-operative Banks, 
• State Co-Operative Banks, and 
• District Central Co-operative Banks.

What is a Commercial bank? 

Commercial Banks in India refer to both scheduled and non-scheduled commercial banks, which the Reserve Bank of India regulates under the Banking Regulation Act, 1949.

The Scheduled Commercial Banks include 

• Public sector banks,
• Foreign banks, 
• Private Indian banks, 
• Regional Rural Banks, 
• Payment Banks, and 
• Small Finance Banks.

The public sector banks include the State Bank of India and nationalised banks like Bank of Baroda, Canara Bank, etc. 

Controversy about Mother as a Guardian 

According to the RBI, some banks were reluctant to accept a mother as a guardian if the child's father was alive. Many banks referred to the provision of the Hindu Minority and Guardianship Act, 1956, which provides that only the father is the natural guardian of the minor.

The RBI, after discussing the issue with the central government, decided that mothers can open savings or fixed deposit accounts for their minor children.