Banks told not to levy penalty on withdrawals in Senior Citizen Savings Scheme, due to death

The Indian Banks’ Association (IBA) has written to member banks urging them not to levy penalties on withdrawal from Senior Citizen Savings Scheme (SCSS) by a nominee or legal heir, due to the death of deposit holders.

“We have come across complaints that some banks while processing settlement/premature payment of the accounts to the legal heirs/nominee of the deceased depositor under SCSS are treating it as premature withdrawal and levying ‘penal interest’,” IBA said in its communication.

As per rules, no deduction shall be made in case of premature closure of an account at any time due to death of a depositor, it added.

ÏBA requested all member banks to be guided by the SCSS rules to avoid any complaints and also suggested to them to devise a mechanism for capturing the reason for premature closure in their core banking solution, for seamless processing of such applications received from customers.

The SCSS is designed by the Centre and is offered through banks and post offices and is the most popular scheme and currently offers an interest rate of 7.4% per annum. An individual above 60 years of age and retired civilian employees above 55 years and below 60 years can invest their retirement benefits in the scheme. Also, retired defence employees above 50 and below 60 years can invest their retirement benefits. A maximum of ₹15 lakhs can be invested and it has a lock-in period of 5 years.

“Since the SCSS has a 5-year lock-in period, any withdrawals prior to that are treated as premature withdrawals even if it is due to the death of the depositor. Premature withdrawals under the scheme also attract a major penalty which ranges from 1-1.5% on the principal amount,” R. Sundararajan, a former banking official said.

“Given the penalty involved, the IBA’s direction comes as a major relief for the general public,” he added.