Kinds of accounts, opening an account, and special classes of customers

1. Kinds of accounts

• Savings account. For individuals' savings, with interest and limits on withdrawals. A basic savings bank deposit account with no minimum balance is offered for financial inclusion.
• Current account. For businesses: unlimited transactions, no interest, overdraft facility.
• Fixed (term) deposit. For a fixed period at a fixed rate; the receipt is not a negotiable instrument. Premature withdrawal is allowed on terms; loans against it are common.
• Recurring deposit. A fixed sum every month for a fixed period.
• Non-resident accounts (NRE, NRO, FCNR) under the Foreign Exchange Management Act and RBI regulations.
• Joint accounts in two or more names, operated as “jointly”, “either or survivor”, “former or survivor” or “anyone or survivors”. The mandate decides who may draw and who takes on death. A joint account cannot be set off against the separate debt of one holder.

2. Precautions in opening an account

• Know Your Customer. Identity and address must be verified from officially valid documents under the RBI's KYC directions issued under the Prevention of Money-Laundering Act, 2002 and its Rules. Beneficial owners of entities must be identified, and accounts are categorised by risk.
• Application and mandate. A signed account-opening form, specimen signatures, photographs, and a clear mandate on who operates the account.
• Capacity. The bank must check that the applicant can contract and, for an entity, that the persons signing are authorised.
• Why it matters. A bank that opens an account carelessly risks losing the protection of s.131 of the Negotiable Instruments Act when it later collects a stolen cheque for that account: Indian Overseas Bank v. Industrial Chain Concern, 1989 INSC 336.
• Nomination. Under s.45ZA of the Banking Regulation Act, as amended by the Banking Laws (Amendment) Act, 2025 from 1 November 2025, depositors may nominate up to four persons, either simultaneously (with the share of each stated in percentages, adding up to the whole deposit) or successively (each nominee taking only if those above him have died, s.45ZG). Articles in safe custody and locker contents allow up to four successive nominees (ss.45ZC, 45ZE). The nominee receives the money but does not own it as against the heirs: Ram Chander Talwar v. Devender Kumar Talwar, 2010 INSC 677.

3. Minors

A minor's agreement is void: Mohori Bibee v. Dharmodas Ghose (Privy Council, 1903). So:

• Deposit accounts. A minor may open a savings or term deposit account, alone or through a guardian; RBI directions allow a minor above ten years to open and operate a savings account independently within limits the bank sets. The bank only owes money to the minor, so there is no risk.
• Cheques. Under s.26 of the Negotiable Instruments Act a minor may draw, indorse, deliver and negotiate an instrument so as to bind all parties except himself.
• No overdraft or loan. A loan to a minor cannot be recovered from him, and the minor cannot be estopped by misstating his age. A guarantee for a minor's loan is also doubtful, because the principal debt is void; banks take an indemnity instead.
• Guardian's account. Where the account is operated by a natural or court-appointed guardian, the guardian acts for the minor's benefit. Under s.8 of the Hindu Minority and Guardianship Act, 1956 the natural guardian may do all acts necessary or reasonable for the benefit of the minor or the realisation, protection or benefit of his estate.
• On attaining majority the minor must be asked to confirm the balance and give a fresh specimen signature.

4. Persons of unsound mind, drunkards, illiterates

• Unsound mind. Under s.12 of the Contract Act a person who is usually of unsound mind may contract when of sound mind. On notice of insanity the bank must stop operations until a guardian or manager appointed by a competent court takes charge. Cheques signed during a lucid interval may be paid on medical evidence.
• Intoxicated persons. A cheque drawn when drunk may be voidable; the bank should postpone payment and get confirmation.
• Illiterate and blind persons. Accounts are opened on thumb impression with photographs; withdrawals require the customer's presence and identification before a bank officer.

5. Partnerships and HUFs

• The account must be in the firm's name, with a mandate signed by all partners stating who may operate. A partner has implied authority to bind the firm in its ordinary business (s.19 of the Indian Partnership Act, 1932), but not to open an account in his own name on the firm's behalf (s.19(2)(c)).
• Partners are jointly and severally liable for the firm's overdraft. The bank takes a partnership letter recording this.
• On the death, retirement, insolvency of a partner, or dissolution, the bank should stop a debit account to preserve its claim against the outgoing partner or his estate, because of the rule in Clayton's case.
• Hindu undivided family. The karta operates the account; adult coparceners sign a declaration. The karta can bind the family for legal necessity or benefit of the estate.

6. Companies, trusts, clubs and local authorities

• Companies. The bank calls for the certificate of incorporation, memorandum and articles, a certified copy of the board resolution opening the account and naming signatories, and the KYC of beneficial owners. Borrowing must be within the company's powers and the board's limits under s.180 of the Companies Act, 2013; charges must be registered (s.77).
• Trusts. Account in the trust's name, operated by the trustees under the trust deed. Co-trustees must act together (s.48 of the Indian Trusts Act, 1882) and may not delegate except as the deed or the Act allows (s.47), so the bank needs every trustee's signature unless the deed provides otherwise. The bank must not allow trust money to be used for a trustee's private debt.
• Clubs, societies, associations. The bye-laws and a resolution of the managing committee decide who operates. Members are not personally liable for an overdraft unless they guarantee it.
• Local authorities (municipalities, panchayats). They are created by statute, and their power to open accounts and borrow comes only from that statute and the rules under it. A loan beyond those powers is ultra vires and irrecoverable. The bank must check the enabling provision and any Government sanction required.
• Executors and administrators operate in a representative capacity on production of probate or letters of administration.

7. Problem

Ramesh, father of minor son Suresh, wants a loan against a fixed deposit receipt of ₹1 lakh issued in the name of Suresh. Decide. (January 2026)

Issue. Whether a bank may lend to the father, as natural guardian, on the security of a deposit belonging to the minor.

Law. The deposit is the minor's property. A loan to the minor himself would be void (Mohori Bibee). The natural guardian may deal with the minor's property only for acts that are necessary or reasonable and proper for the minor's benefit or for the protection of his estate (s.8(1) of the Hindu Minority and Guardianship Act). A guardian stands in a fiduciary position and may not use the ward's property for his own purposes. Banking practice follows the same line: loans against a minor's deposit are given only where the purpose is the minor's benefit (his education, medical treatment) and the guardian gives a written declaration to that effect.

Application. If Ramesh wants the loan for his own business or household, the pledge of Suresh's deposit is not for Suresh's benefit. The bank would be taking security it knows belongs to the minor for another person's debt, and on attaining majority Suresh could repudiate the transaction and recover his deposit. If the loan is for Suresh's needs, the guardian's act is within s.8(1), and the bank may lend on a declaration of purpose, with the FD lien noted.

Conclusion. The bank should refuse the loan if it is for Ramesh's own purposes. It may grant it to Ramesh as guardian, for a stated purpose that benefits Suresh, on his declaration and with the deposit marked as security. A loan to Suresh in his own name is out of the question.

How this is examined

“Discuss on various types of accounts” (January 2026), “Types of accounts” (June 2025), “Different kinds of customers” (February 2025) and “Discuss the various precautions to be taken by a banker while opening a new account” (August 2024). For the essays give kinds of accounts, the opening precautions, and then each special customer with the law that governs capacity. The minor's FD problem has been set recently and is answered as above.