Question: A nominee requested premature closure of a deceased customer's term deposit. The bank refused the request solely because the deposit had not yet reached its maturity date. According, to the RBI Master Circular on Customer Service in Banks, 2014, was the bank's decision appropriate?
Answer: No, as per RBI Master Circular, it advises banks to allow premature termination of term deposits in eligible cases involving deceased depositors, subject to the applicable terms and conditions. Hence, the bank should consider the request in accordance with the RBI instructions on premature closure.

Supporting evidence:
title: rbi.org.in/72MC010714CS.pdf
quote: In the case of term deposits, banks are required to incorporate a clause in the account opening form itself to the effect that in the event of the death of the depositor, premature termination of term deposits would be allowed. The conditions subject to which such premature withdrawal would be permitted may also be specified in the account opening form
context: ocedure for repayment to legal heir(s) of the depositor keeping in view the imperative need to avoid inconvenience and undue hardship to the common person. In this context, banks may, keeping in view their risk management systems, fix a minimum threshold limit, for the balance in the account of the deceased depositors, up to which claims in respect of the deceased depositors could be settled without insisting on production of any documentation other than a letter of indemnity.

20.3 Premature Termination of term deposit accounts

In the case of term deposits, banks are required to incorporate a clause in the account opening form itself to the effect that in the event of the death of the depositor, premature termination of term deposits would be allowed. The conditions subject to which such premature withdrawal would be permitted may also be specified in the account opening form. Such premature withdrawal would not attract any penal charge.

20.4 Treatment of flows in the name of the deceased depositor

In order to avoid hardship to the survivor(s) / nominee of a deposit account, banks should obtain appropriate agreement / authorization from the survivor(s) / nominee with regard to the treatment of pipeline flows in the name of the deceased account holder. In this regard, banks could consider adopting either of the following two approaches:
The bank could be authorized by the survivor(s) / nominee of a deceased account holder to open an account styled as 'Estate of Shri ________________, the Deceased' where all the pipeline flows in the name of the deceased account holder could be allowed to be credited, provided no withdrawals are made.
OR
The bank could be authorized by the survivor(s) / nominee to return the pipeline flows to the remitter with the remark "Account holder deceased" and to intimate the survivor(s) / nominee accordingly. The survivor(s) / nominee / legal heir(s) could then approach the remitter to effect payment through a negotiable instrument or through ECS transfer in the name of the appropriate beneficiary.

20.5 Interest payable on the deposit account of deceased depositor

In the case of a term deposit standing in the name/s of
- (i) a deceased individual depositor, or
- (ii) two or more joint depositors, where one of the depositors has died,
the criterion for payment of interest on matured deposits in the event of death of the depositor in the above cases has been left to the discretion of individual banks subject to their Board laying