Stop Banks from Freezing Accounts for KYC Updation: Savers Are Not Fraudsters
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Freezing of bank accounts inflicts extreme hardship, sometimes even financial death on many honest, law-abiding depositors, and means treating them worse than criminals or those accused of financial fraud.
Worse, there is no clarity on how and when KYC-related punishment can be inflicted on depositors, depriving them of access to their own money, entrusted with banks. We support the need for strict identification to prevent the misuse of banking channels for money-laundering and financial fraud, our plea is only on behalf of law-abiding citizens using banks for routine financial transactions.
We are heartened at your immediate response to me that you will have the issues looked at by the RBI. This petition aims to signal support for urgent action by the Reserve Bank of India in conjunction with the finance ministry.
Our key points in the memorandum are:
1. Indiscriminate Freezing of Accounts: Freezing of bank accounts and depriving people of access to their own money is an extreme punishment, which is imposed with impunity by bank officers, often without adequate notice, or sufficient time for compliance with KYC re-submission.
2. No Clarity on Risk-Categorisation: The freezing is supposed to be based on risk categorisation of customers. We find there is no clear definition or guideline for categorisation of customers into high-risk, medium-risk and low-risk categories and each bank has been asked to evolve their own criteria and claim a certain number in each category. We suspect that banks are mis-classifying customers or doing it randomly for perfunctory compliance with RBI requirements, with the result that fraudsters escape scrutiny (as is evident from the DHFL and PMC Bank cases) while ordinary depositors are being harassed. We request the Reserve Bank to seek and collate data on risk-categorisation of customers and conduct a random sampling exercise to verify if it is being done correctly. Actual complaints received from bank customers could be a part of this sample.
3. No Clarity on Frequency and Basis of KYC Updation: RBI’s Master Directions make it clear that only high-risk customers need to update KYC every two years. Others need to do it once every 8 and 10 years. However, low risk customers and even pensioners or those living on savings are repeatedly harassed for KYC and their accounts are frozen.
4. No SOPs and Inconsistent Application of Rules: We have provided several examples of such indiscriminate freezing of accounts which have serious consequences including default on loans and non-payment of salaries etc. We believe that banks simply cannot be empowered with such draconian powers except in case of financial crime.
5. Technology and Centralised KYC: Banks must use latest available technologies like digital ID or video-based customer identification process (V-CIP) to establish KYC. It is unclear why centralised KYC, which is already mandated by SEBI is not being used across the financial sector. This uses the latest technology and must be mandated urgently for banks.
6. Harassment details: We have provided details of accounts being frozen without warning and customers only realised it when their cheque bounced or PoS transaction was declined. In many instances, banks were at fault, having failed to update the core banking system despite submission of documents or failing to collect requisite data. Banks face absolutely no action for such callousness and there is no compensation for investors. Things are even worse for Non Resident Indians.
7. Covid Trauma: Mindless insistence on KYC, in view of the above issues, causes hardship to customers as well as bankers, who are struggling to come to work in these difficult times.
Sir, We have already sent you a detailed memorandum on this issue, with examples of the untold hardship that is allowed to be inflicted on people, which we have posted on the Moneylife Foundation website. https://www.mlfoundation.in/memorandum/hardship-and-financial-death-inflicted-on-depositors-due-to-arbitrary-freezing-of-bank-accounts/130.html
I would also like to mention that many of our issues, in a previous change.org pettion (https://www.change.org/p/governor-rbi-finance-ministry-stop-banks-fleecing-depositors including costs levied on customers are still pending despite the large number of people who supported our previous petition. We urge you to look at things differently and send a strong signal that you truly care about customer issues.
With a lot of hope and expectations.
Sucheta Dalal and leading consumer activists including Harsh Roongta, Debashis Basu, Ajit V Shenoy, Abhay Datar, Adv Jayesh Desai, Dilip Modi, Yogesh Sapkale, Akshay Naik, Aravind Natarajan and M Maya who helped write this memorandum on behalf of all bank customers.
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