[Economics] Minors Bank Account - New Rules and Regulations

Economics

Minors Bank A/Cs

 Synopsis:

(01) RBI reform in May 2014 on Minor Bank Accounts

(02) Safeguards for minor accounts

(03) Pro-arguments for RBI reforms

(04) Anti-arguments for RBI reforms

(05) Kotak My Junior A/c

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 (01) RBI reform in May 2014 on Minor Bank Accounts:

System until now

RBI Reform (May 2014)

* Children below 18 are “minor” * Minor cannot have separate account * They can open joint account with adults. Father natural guardian. * Later RBI also authorized mothers. (But doesn’t apply to Muslim minors) * If guardian dies, minor will get money from account only after attaining majority. (Indian movies exploit this premise by introducing an evil uncle). * Minor should be literate * Two minors cannot open joint account * Minors can sign cheque.

* All minors can open bank accounts via parents/ legal guardian. * BUT Minors above 10 years can open bank account without adult supervision * AND they can open only three type of Bank accounts (Savings Account, Fixed Deposit Account and Recurring Deposit Account) * They cannot open Current account, meant for businessmen. * Can get ATM card, cheque books, net banking facilities

(02) Safeguards for minor accounts:

·        Bank cannot charge penalty if minimum balance not maintained. (This applies to all minor and major accounts, after 1st April 2014.)

·        But bank should ensure that such accounts remain in credit. Meaning children should not be allowed to totally empty his balance.

·        Bank can put restriction of money withdrawal e.g. not more than 500 in 24 hours.

·        Bank can decide minimum documents.

(03) Pro – argument for RBI reforms:

·        This will bring uniformity in the bank accounts. Some banks already offering separate minor accounts e.g. Kotak Mahindra’s “My Junior account”.

·        Financial awareness, financial literacy: children learn about savings habit and banking system.

·        Financial discipline: They understand the value of money and difference between “needs” vs “wants”.

·        Financial inclusion: e.g. child-laborers in tea-stalls can save money.

·        Government directly sends scholarship money to such account.

·        Social change: many urban teenagers have broken family they’re pretty much living on their own.

(04) Anti – argument for RBI reforms:

·        Children more Gullible, and likely to be victims of identity theft, hacking, phishing.

·        They can become victim of miselling by private banks via Bank assurance, mutual funds and hidden charges on credit card.

·        Therefore, RBI shouldn’t have allowed the children to open accounts without adult supervision.

(05) Kotak My Junior Account:

·        Savings account for kids, Launched in 2013, June.

·        Child alone cannot operate it without guardian.

·        Child is given a ‘membership’ card- to purchase kid products from variety of online and retail stores, at discount.

·        Only kids aged 10 years and above, can get debit card. But with withdrawal limit of Rs.5000/- per month.

·        6% interest on savings account per year– only if balance above 1 lakh rupees. This rate doesn’t apply to NRI kids’ accounts.

·        Parents can also make recurring deposits (RD) to this account and earn 8%. In this case, Kotak provides free movie tickets and book vouchers.

·        Penalty charges apply, if minimum balance (Rs.5000) not maintained. This rule doesn’t apply if parents are making recurring deposits (RD)

[By Sep 2014, SBI has launched two products, after RBI guidelines on minor-accounts:

(i) Pehli Udaan (Age: 10 years and above - Singly operated savings bank a/c        )

(ii) Pehla Kadam (Age: any age - jointly with his/her parent/guardian)]

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