Updated: April 19, 2021 6:00:35 am
Customers of a number of private and public sector banks are unable to operate their accounts in recent months as lenders have been freezing them in many cases for lack of Know Your Customer (KYC) documentations. Banks have been asking customers to comply with KYC norms, and accounts are also frozen in certain cases if KYC is not done, industry sources said.
According to the RBI’s KYC regulations, periodic updation of KYC should be carried out at least once in every two years for high-risk customers, once in every eight years for medium risk customers and once in every ten years for low-risk customers. However, in the case of low-risk customers when there is no change in status with respect to their identities and addresses, a self-certification to that effect should be obtained, the RBI guideline says.
The RBI did not reply to a mail sent by The Indian Express about the arbitrary actions of the banks freezing the accounts of ordinary customers – mostly savers, pensioners and salaried class.
When the Covid pandemic was at its peak last year, a customer of Trichur-based CSB Bank, who operates a normal SB account, in Mumbai got a telephone call from the branch asking him to submit KYC documents immediately or his account will be frozen.
“My KYC was done only three or four years ago and nothing has changed since then. The bank insisted that I should come in person and submit the documents. I tried to reason with them, but to no avail. I had to come to the branch at the risk of contracting Covid infection during the lockdown period,” said the customer.
“I took it up with the bank’s headquarters. I asked them how they categorized me as a high-risk customer. I’m a salaried person, pay tax, file tax returns and I have not made any cash deposits or withdrawals,” he said.
According to banking sources, most banks randomly select some customers without really checking whether they are high risk, medium risk or low risk and ask them to resubmit the KYC documents. “If they fail to submit the KYC documents, banks just freeze the accounts without giving proper intimation. Banks don’t explain how they select people for KYC updation, There’s no system in place” he said.
“Without any prior notice, you’re restricting transactions for KYC details. Is this your SOP (standard operating procedure)? Why no prior intimation or email and timeline for KYC update. Please unblock my account urgently and give time for KYC update,” a harried customer of a leading private bank tweeted.
Some senior citizens have not received their monthly pensions as life certificates could not be processed at the banks’ end on time.
An elderly citizen, for instance, has been drawing pension from United Bank of India for the last 15 years. This month, however, her pension was not credited by the due date apparently due to issues with the branch in Kolkata not receiving life certificates.
Another senior citizen, who asked not to be named, received a message from her state-owned bank on April 7: “Pensioners are requested to submit their Life Certificate at your nearest branch/digitally through Jeevan Pramaan immediately for pension payment.” When the elderly lady’s daughter contacted bank officials, she was told that they could not access the portal, as it was facing certain issues.
An India Post Payments Bank (IPPB) official said there have been instances of people visiting the office for submitting digital life certificates, after their initial submissions were not processed by their respective disbursing authorities. To ease the process of government employees receiving their pensions, IPPB announced last November that life certificates can be generated and delivered digitally.
Industry sources said the RBI has not issued any formal directive to banks to freeze bank accounts in an event of non-compliance of KYC, although it stresses it as an important aspect. Citing RBI’s various directions and the need to adhere to the Prevention of Money Laundering Act, 2002 (PMLA), banks are required to seek KYC compliance.
Risk categorisation should be undertaken based on parameters such as customer’s identity, social/financial status, nature of business activity, and information about the clients’ business and their location etc, the RBI says. While considering customer’s identity, the ability to confirm identity documents through online or other services offered by issuing authorities may also be factored in.
RBI guidelines say that banks need not insist on the physical presence of the customer for the purpose of furnishing officially valid document (OVD) or furnishing consent for Aadhaar authentication/ Offline Verification unless there are sufficient reasons that physical presence of the account holder/holders is required to establish their bona-fides.
Normally, OVD/ consent forwarded by the customer through mail/post, etc., should be acceptable. A system of periodic review of risk categorisation of accounts, with such periodicity being at least once in six months, and the need for applying enhanced due diligence measures should be put in place, RBI norms say.
According to the RBI, an account should be monitored when there is suspicion of money laundering or financing of terrorism activities or other high risk scenarios.
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