RBI Advises Banks To Urgently Reduce Number Of Frozen Accounts

The Reserve Bank of India has advised banks to urgently bring down the number of frozen accounts and make the process of activation of such accounts smoother and hassle-free, the central bank said in a press release on Monday.

This will include updating KYC through internet banking, non-home branches, and the video customer identification process.

While accounts of beneficiaries of various central or state government schemes are required to be segregated to facilitate uninterrupted credit of direct benefit transfer amounts in their accounts, the RBI has observed instances where accounts of such beneficiaries have been frozen due to pending or periodic updating of KYC.

Since these accounts mostly pertain to the people from the underprivileged sections of society, banks must facilitate the process of activation of accounts by taking an empathetic view in such cases, RBI said.

Banks may also organise special campaigns for facilitating the activation of frozen accounts.

Further, they should also facilitate updating Aadhaar for customers through branches providing Aadhaar-related services.

In order to minimise customer inconvenience, the RBI has issued instructions separately to scheduled commercial banks to proactively monitor the situation.

This move has come as the RBI has undertaken an annual review of accounts where there are no customer-induced transactions for more than a year.

Recently, RBI's department of supervision conducted an analysis that revealed that the number of unclaimed deposits in several banks was on the higher side as compared to their total deposits as well as in absolute terms.

This was due to either inactivity for a long time or a pending KYC update.

The analysis also showed that a few banks have a large pendency of accounts that are due for KYC upgrade, resulting in such accounts getting frozen for further transactions as per the bank’s internal policies.

This advisory has come as RBI Deputy Governor Swaminathan J last month warned bank boards to ensure that KYC guidelines are followed with both precision and empathy amid a rise in complaints about flouting the KYC norms.

He had urged bank boards to establish policies and adopt standard operating procedures that are not only compliant with regulatory guidelines but also practical for effective implementation.

"The Reserve Bank will not hesitate to take regulatory or supervisory actions against entities that fail to address these concerns in a timely and considerate manner," he said at a conference of directors of private sector banks.