Savings accounts for minors to promote financial inclusion

On Tuesday, the Reserve Bank of India (RBI) allowed minors aged more than 10 years to open and operate savings bank accounts independently. Taking into account their risk management systems, banks, however, can fix limits in terms of the minimum age and the amount up to which minors may be allowed to operate the deposit accounts. They can also decide the documents required to open such accounts.

The central bank's directive also allows banks to offer additional banking facilities to minors. These include internet banking, automated teller machines/debit cards and cheque book facilities, subject to the conditions that these accounts aren't overdrawn and always maintain a certain credit balance.
 
Safety
In December, 1976, RBI had allowed banks to open accounts (fixed and savings deposit) for minors, with their mothers as guardians, subject to certain safeguards. In 1989, the facility was extended to recurring deposits.

NO PARENTAL GUIDANCE

• RBI has allowed minors aged more than 10 years to open and operate savings bank accounts independently
• Banks, however, can fix limits in terms of the minimum age
• Banks can also fix the amount up to which minors may be allowed to operate the accounts
• In December, 1976, RBI had allowed banks to open accounts for minors, with their mothers as guardians
• RBI says move to promote financial inclusion

The central bank has said its latest step will promote financial inclusion and bring uniformity among banks in opening and operating minors' accounts.

But should one worry about safety? Soumya Kanti Ghosh, chief economic advisor (economic research department), State Bank of India, says, "This is a positive step and is directed towards enabling more people to have bank accounts, with an objective of financial inclusion. With this, 10-year-olds can now open accounts singularly. In certain cases, in which banks allow minors aged at least 12, the move will reduce the age criterion. This will help banks get more accounts into their fold."

"I am not too worried about the safety element, as it is well taken care of by banks. Banks have multiple security layers. Moreover, KYC (know-your-customer) norms are quite stringent and take care of verification and validation of all accounts," he adds.

In some cases, RBI's latest move merely lowers the age requirement. Several products that let minors open and operate savings bank accounts are already available, albeit if they are aged more than 12.

HDFC Bank, for instance, allows those aged more than 12 to open and operate savings bank accounts. "The minor can open a savings bank account and this can be operated by the natural guardian or the minor himself/herself, if he/she is aged more than 12. The account can also be opened jointly," the bank's website says. "On attaining majority, the erstwhile minor should confirm the balance in his/her account, and if the account is operated by the natural guardian/guardian, fresh KYC documents and specimen signature of the erstwhile minor, duly verified by the natural guardian, will be obtained and kept on record for all operational purposes," it adds.

ICICI Bank offers the 'ICICI Bank Young Stars Account' for those aged up to 18. According to the norms for these, it is essential for the parent/guardian to hold an account with the bank, too. The bank, however, authorises only the guardian/parent to open and operate the account.

Similarly, Kotak Mahindra Bank offers the 'Kotak Junior Account', for which non-maintenance charges are waived. These accounts have personalised debit cards for minors, which are issued only on a guardian's request to children aged more than 10, with a withdrawal limit of Rs 5,000.