The Reserve Bank of India (RBI) advised banks to take necessary action and make the Know Your Customer (KYC) process smooth and hassle-free for inoperative accounts’ customers. In a notification dated December 2, 2024, RBI advised banks to annually review their accounts and deposits in which no transaction (customer-induced) has happened for more than one year. It asked banks to segregate the accounts opened for crediting scholarships, direct benefit transfer, or electronic benefit transfer from other inoperative accounts, contact these customers and make accounts operative/active.
Inoperative Bank Accounts On The Rise Due To Non-Updated KYC; RBI Urges Banks To Make The KYC Process Hassle-Free
The number of inoperative bank accounts has been increasing annually. An account becomes inoperative when there are no customer-induced transactions for over a year. However, when a customer requests reactivation, the requirement for KYC compliance often complicates the process, contributing to the issue
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An account becomes inoperative when there is no customer-induced transaction for more than one year. After remaining inoperative for 10 years, the amount in such accounts is transferred to the Depositor Education and Awareness (DEA) Fund as unclaimed deposits. As per the annual report of the RBI, unclaimed deposits have grown 26 per cent in one year to Rs 78,213 crore at the end of March 2024. These were Rs 62,225 crore at the end of March 2023.
Pending KYC Updation Causing ‘Inconvenience To Customers’:
The central bank analysed and found that inoperative accounts and unclaimed deposits are higher than their total deposit in many banks. The reason behind this increasing number of inoperative accounts came out as ‘inactivity for a long time or pending updation/ periodic updation of KYC’.
It found out that customers are ‘facing inconvenience’ when they approach their banks for account activation, mostly because of errors like name mismatch, etc. Of all the banks, few were found to have a higher pendency of inoperative accounts, which RBI attributed to delay in KYC updation leading to account freeze as per every bank's internal policies.
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Therefore, it advised banks to take action, including the following:
Make KYC updation possible through mobile/internet banking, customers' video identification process, KYC at non-home branches, etc.
It highlighted that the bank accounts opened for credit benefits under government schemes belong to the underprivileged section of society, and thus, banks should have an ‘empathetic view’ for such account detail updation.
Banks can organise campaigns for account activation of frozen and inoperative accounts. They may further offer Aadhaar updation through their branches.
It made the Customer Service Committee (CSC) of the Board responsible for monitoring the progress of reducing inoperative accounts in banks and reporting it to the Senior Supervisory Manager (SSM) online every quarter.
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