[Banking] Minor Bank Accounts, SBI’s Pahali Udaan, Pahala Kadam, Kotak My Junior Account

In Economy by Mrunal

  1. Banking rights for Bachchaa Party
    1. Pro arguments: Minor Bank accounts
    2. Anti-Argumens: Minor Bank accounts
  2. SBI: Pahali Udaan, Pahala kadam
  3. Kotak My Junior Account

Banking rights for Bachchaa Party

Topic was in news during May 2014. Again resurfaced in Sep 2014, when SBI launched new products. Therefore I’m combining the two topics for quicker revision.

System, until now:

  • 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. (Bollywood movies exploit this premise by introducing an evil uncle).
  • Minor should be literate
  • Two minors cannot open joint account
  • Minors can sign cheque.

RBI reform May 2014

  • 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:
  1. savings account
  2. fixed deposit account
  3. recurring deposit account.
  • In other words, they cannot open Current account, meant for businessmen.
  • Can get ATM card, cheque books, netbanking facilities

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.

Now let’s see pro and anti-arguments for group discussion / interview:

Pro arguments

  • This will bring uniformity in the bankaccounts. 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.

Anti-Argument

  • Children more Gullible, and likely to be victims of identity theft, hacking, phishing.
  • They can become victim of miselling by private banks via Bancassurance, mutual funds and hidden charges on credit card.
  • Therefore, RBI shouldn’t have allowed the children to open accounts without adult supervision.

Interview Question: Are you in favor of RBI’s latest move of allowing Children to open bank accounts without adult supervision? Yes / No / why?

SBI: Pahali Udaan, Pahala kadam

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

Pehli Udaan Pehla Kadam
Age: 10 years and above any age
Singly operated savings bank account Jointly with his/her parent or guardian

 

Transaction limits
Netbanking Rs.5000
Mobile banking Rs.2000

What are the benefits offered?

  • Specially branded passbook, cheque book,
  • Personalized photo ATM—cum—Debit card.
  • Internet banking with limited transaction facilities like bill payment, opening of fixed deposit, recurring deposits, etc.
  • Auto-sweep facility also available- meaning, part of the savings account money will be transferred to fixed deposit account-, thus kid can earn more interest.

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)