How KYC Freeze of the Jan-Dhan Account-holders Is Destroying the Lives of the Poor
“What is a worker supposed to do when he or she is told, after hours of queuing in an overcrowded bank, ‘your account has been closed from the back-end, now move on please’,” asks Jean Dreze who has spent decades working with India’s poorest people. This is the reality of rural India where millions of Jan-Dhan  accounts were opened with great fanfare. As with many other schemes and promises, the reality is vastly different.
 
In this case, one common link between urban elites with multiple bank accounts and impoverished Indians struggling to eke out a living is the harassment by banks who are allowed to freeze savings over know-your-customer (KYC) updation.
 
Earlier this month, Moneylife Foundation sent a memorandum to the governor, Reserve Bank of India (RBI), on the harassment caused to ordinary depositors by the draconian action of blocking access to their own money on the grounds that KYC documents were not updated. 
 
We are all for strict KYC norms being followed, but not its mindless application which treats law-abiding people like economic offenders. Delegating this draconian power to the branch level and making people bear the brunt for mistakes or tardiness of bank officials is nothing short of criminal. The harassment has continued throughout the past year, when India has struggled with a pandemic. 
 
When we wrote our memorandum and followed it up with an online petition, our focus was on urban Indians and even non-resident Indians (NRIs). An email from economist, activist and teacher, Jean Dreze, showed us how much worse the problem is for rural and economically backward Indians who have all been asked to open Jan-Dhan accounts on the promise that their sole identification—the Aadhaar card issued by the UIDAI—was adequate. Their nightmare began afterwards.
 
In 2018, Jean Dreze and his colleagues wrote to RBI governor Urjit Patel alerting him to the issues faced by Jan-Dhan account-holders in Jharkhand. The letter was acknowledged but nothing happened.
 
In 2019, they wrote to senior RBI officials where this was one of the issues raised. Again, nothing happened. 
 
Writing about the deep crisis in the National Rural Employment Guarantee Act (NREGA) scheme in 2018, Mr Dreze said, it is manifested in the form of delayed payments, rejected payments, diverted payments and locked payments.
 
He describes how accounts are not merely frozen but closed altogether for want of ‘e-KYC’ (biometric authentication of Aadhaar-linked accounts), “which is compulsory for NREGA workers—if not in theory then certainly in practice.”
 
Why is e-KYC such a problem for the rural poor?
 
Explaining this in another article that year, Mr Dreze says, “A myth has been created that Aadhaar enabled millions of people to open JanDhan Yojana accounts within minutes, using biometric authentication. In fact, most of these accounts were opened without biometric authentication, by seeding Aadhaar numbers from Aadhaar cards or even second-hand information. Biometric verification (in the form of ‘e-KYC’) was imposed later on, and became a serious ordeal for poor people. Failure of e-KYC often led to discontinuation of benefit payments, or to people being locked out of their accounts, temporarily or permanently.”
 
The problems with biometric authentication, especially for those with calloused and work-worn hands, is well known. 
 
Mr Dreze says, “Many banks used the ‘ultimatum method’ for e-KYC compliance. They set a deadline and simply blocked accounts en masse when people missed the deadline.
 
"The problem was compounded due to inconsistencies between the Aadhaar database and the bank database. The only way to get their account unlocked was to resubmit original documents, sometimes providing new documents like a PAN card.
 
“At every step, accounts were frozen with abandon whenever people needed to be ‘nudged’,” he says, explaining the situation in Jharkhand.
 
For the poor, this not only meant that their savings were blocked but it also led to denial of rations, subsidies, benefits from welfare schemes and the experimentation and glitches involved in seeding every new scheme meant for them.
 
In fact, KYC is just one of the problems faced by the poor; the problems with mapping ‘benefits’ to the Aadhaar-based payment system has a series of flaw that I will not go into in this column, except to point out that these people are forced to operate through banking correspondents and are not issued passbooks and, sometimes, do not even get proper transaction receipts.
 
In 2019, they wrote to the RBI again, about how the Supreme Court ruling on Aadhaar hadn’t help workers in Jharkhand and, often, bankers themselves were unclear about its implications for Aadhaar seeding, e-KYC and the Aadhaar payments bridge system. While banks were allowed to open accounts only with Aadhaar, operating them apparently required e-KYC or the benefits were blocked. This not only inflicted enormous hardship but deprived the poorest Indians of legitimate benefits. But everybody in the system remains unmoved, because there is no accountability. Nobody cares. Approaching the RBI in the past has been like hitting a brick wall, says Mr Dreze.
 
“Perhaps the biggest injustice that has been done in this domain is the freezing of accounts of elderly/widowed/disabled persons for lack of KYC or e-KYC. For many of them, it is really difficult to meet the ever-tightening requirements,” says Mr Dreze.
 
Businessmen and others who have suffered the much-publicised issues with the goods and services tax (GST) portal or MCA21, or more on 28th April, the crash of Co-WIN within minutes after it opened for vaccine registration, could probably empathise with the trauma faced by the poor.
 
Remember, most bankers are fully aware of how they had allowed multiple Jan-Dhan accounts to be opened with the same Aadhaar because they were under pressure to meet account opening targets, but they can’t do much about setting things right.
 
Meena Seshu, a well-known activist and founder of SANGRAM, based in Sangli (Maharashtra), which works at empowering sex workers, says that the problems have been further compounded by the merger of nationalised banks.
 
She says, the government announced COVID-19 relief to women in sex work (Rs5,000 for three months + Rs2,500/month if she had children) through the ministry for women and child development. “We were asked for lists, Aadhaar card numbers, bank details, and IFSC codes, which we provided. But banks refused to honour or credit those accounts where KYC was not updated.”
 
A tedious follow-up to complete KYC by providing by linking Aadhaar to bank accounts and providing additional proof, such as PAN cards, has activated some accounts.
 
But, in many cases, there are inconsistencies in spellings between Aadhaar and bank account details, leading to more hassles.
 
Since some banks have merged, they are struggling all over again with the new changes including IFSC codes.  
 
In the letter to governor Urjit Patel, which was essentially a plea for proper grievance redress, Mr Dreze and his colleague wrote, “In recent years, some of the country's richest people have brazenly plundered public sector banks by defaulting on their loans. Meanwhile, NREGA workers and pensioners are facing endless harassment from the banks. To get their meagre wages or pensions, they have to submit numerous documents, link their accounts with Aadhaar, go through e-KYC again, stand in queues for hours, and run from pillar to post when their money is held up due to technical problems… even when accounts are credited, they are not allowed to withdraw their money.”
 
Mr Patel, who left before completing his term, only acknowledged the letter but didn’t act on it. If grievance redress is such a struggle for us, well-to-do urban Indians, it is almost non-existent for the poor. 
 
In 2019, they wrote to the RBI again, about how the Supreme Court ruling on Aadhaar hadn’t help workers in Jharkhand and, often, bankers themselves were unclear about its implications for Aadhaar seeding, e-KYC and the Aadhaar payments bridge system.
 
While banks were allowed to open accounts only with Aadhaar, operating them apparently required e-KYC or the benefits were blocked. This not only inflicted enormous hardship but deprived the poorest Indians of legitimate benefits.
 
But everybody in the system remains unmoved, because there is no accountability. Nobody cares. Approaching the RBI in the past has been like hitting a brick wall, says Mr Dreze.
 
Will our petition fare any better? Well, RBI governor Shaktikanta Das encouraged us to document the issues and send him a memorandum. He has also asked for it to be examined by the ‘concerned department’.
 
Hopefully, they will dig out letters to past governors, which were probably moth-balled, and come up with a solution. Otherwise, we will have to look for other solutions.
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    COMMENTS

    sandiy

    5 days ago

    In India only poor helpless nice straight People get torture by all modiji we trusted but he forgot to help only those society from where he comes. He thinks he is also highest castes. In India all things based on cash religion and women biasing

    sandiy

    5 days ago

    Why only KYC ? DO KYB (KKOW UR BANK) AND MOST IMPORTANTLY DO KYE( KNOW UR EMPLOYEES)

    INDIA EVERY POWERFUL PERON OR BANK IS LOOTING

    Meenal Mamdani

    1 week ago

    If bank officials have done their job correctly, then just once is enough as KYC is to make sure that the customer is not some shady character.

    Do bank officials hope that if the customer has illegal money and if she/he is asked to do KYC repeatedly then she/he will make an error which will allow the bank to identify and report them to the govt?

    Don't they understand that the people with such illegal money usually have armies of accountants etc to do their work so it is very unlikely that they will be caught?

    All that bank officials end up doing is harassing ordinary people while the shady characters move their money all over, including abroad, with impunity.

    REPLY

    sandiy

    In Reply to Meenal Mamdani 5 days ago

    So true madam. Contact me

    narayannarad007

    1 week ago

    When i go to my bank (PNB) they always ask me for KYC they give me a form and when i fill that and give him for submit they say our server is not working.

    cyrusibl

    2 weeks ago

    Why should KYC be asked every year is beyond understanding.
    How often would you expect to Know Your Customer? Is is not the same Person?

    My money in OLA Money Wallet is blocked for last 45 days inspite of sending them my Pan Card copy.

    They keep sending emails that they are working on it, but my money is blocked and I cannot even use or close this account.

    REPLY

    pawasthi3292

    In Reply to cyrusibl 1 week ago

    Once in 10 years

    mohit_zap

    2 weeks ago

    I think it is for authentication. To stop the funds getting to wrong person other than rightful beneficiary

    REPLY

    pawasthi3292

    In Reply to mohit_zap 1 week ago

    Aml kyc

    yerramr

    2 weeks ago

    Banks' care for the poor man was consigned to the machine in front of them. The Bankers have long back put their common sense in cupboards locked and sealed as they stopped caring for banking! During the days when Jan Dhan accounts were opened with lot of fanfare, I wrote a column here how quick would banks jump to show achievements by opening 7mn accounts in a day in the country! Several accounts with nil balance were latter closed even without notice to the account holder!! Only when Government credited direct benefit to such account holders they realized that the account was non-existing. You have several government schemes - MUDRA, Street Vendors, 59minute Loan - that had the farce of opening millions of accounts presumed to benefit the account holders. Some of the account holders were reported non-existent. Banks argue that they existed when the accounts were opened!!
    Some say, with the merger of the Banks, some accounts also got merged!! Banking in this country is for the rich and those who can operate electronically and not for those who can show their passbooks!!

    REPLY

    pawasthi3292

    In Reply to yerramr 1 week ago

    So?

    Meenal Mamdani

    2 weeks ago

    What more evidence do Indians need to recognize that all these new schemes that were inaugurated with pomp and fanfare by Modi were only for optics.
    Modi-Shah do not care a damn if these schemes work or not. Modi looks great on the world stage.
    All that matters to Modi-Shah is winning elections. For that they have the Gujarat model. Whip up hysteria against Muslims, Dalits and the BJP is assured of victory at the polls.

    shahshafeed

    2 weeks ago

    I am a doctor working in Kerala Health Services. My account has been frozen for not doing KYC updation. I checked the online banking site and it clearly shows that PAN is already registered. What is the point in freezing your account during this pandemic time. Bank is working only till 2 PM due to covid restrictions.I spoke with customer service center,they informed me that I should go to bank to rectify this.How am I supposed to go to bank during the hospital working hours especially when my hospital is a covid treatment center. I think I can manage a few more days with my account being frozen, but what about the poor people. What's the point in freezing one account when the Government itself ask you to stay at home,when there are lot of containment areas around you. Pathetic decision making by RBI and poor execution by banks making common man's life miserable.Thank you Moneylife for taking up this issue.

    akshay.bhgwt

    2 weeks ago

    My mother is a pensioner and her account is frozen. Karnataka is under lock down and she is not able to visit the bank to give KYC. She wanted money urgently and she had to borrow from neighbors. Bank has categorized her account as a platinum account. She had visited the branch countless times, also every year with KYC to give her life certificate. Still, she is not able to withdraw her own pension money during a pandemic. Moreover, I am helpless being employed in the Middle Management level posision in a different office of the same bank.

    REPLY

    pawasthi3292

    In Reply to akshay.bhgwt 1 week ago

    Ask somebody from branch to come home and verify

    aakashgoel

    2 weeks ago

    Bankers somehow enter garbage value in name and dob. I feel they do so purposefully. Strong reasons to back allegations.

    The very simple solution is to force banks give non login option for account holder to enter bank account & uidai, where after bank checking it's records, it goes to uidai for otp, and upon verification fetching name, dob & mobile for update in bank records.

    (tick box is needed because of 'user authentication' because of Supreme Court, otherwise govt can very well order and provide auto api for name/dob/mobile update wherever bank account is opened basis uidai)

    The only way out is pil in Jharkhand high court or Supreme Court. Rbi is a godforsaken institution.

    Giving a pointed solution will make judges give proper orders. It will also keep sanctity of need of governance. Otherwise saying why uidai, why Kyc will never get us anywhere.

    mithunc3

    2 weeks ago

    The online petition link is not opening. Pls help. So we can sign it and also spread the news. Hope to recv some reply

    REPLY

    MDT

    In Reply to mithunc3 2 weeks ago

    You can use this link to sign the petition
    https://www.change.org/p/reserve-bank-governor-stop-banks-from-freezing-accounts-for-kyc-updation-savers-are-not-fraudsters
    Thanks

    mithunc3

    In Reply to MDT 1 week ago

    Thank you. We would also request moneylife to write an informed article on pros vs cons and summary with petition for abolishing income tax which is the need of the hour at such unprecedented times. This will not only increase ppp but also drive demand faster.

    gkartikeya2007

    2 weeks ago

    This is a very important issue. Well articulated by Sucheta. I am not sure why others in the media are not raising this and highlighting the plight of the poor and practically everyone!

    REPLY

    yerramr

    In Reply to gkartikeya2007 2 weeks ago

    Media is in survival mode. If they voice anything against the establishment the advertisements would vanish! and their limited incomes also vanish. Already some of the leading dailies are in problems for running the daily news. 60% of the news space is now taken over by Covid statistics; 15% by finance and business; 5% by sports and 20% by Ads - the main source of revenue. Media is helpless.

    S.SuchindranathAiyer

    2 weeks ago

    The current BJP dispensation has used every opportunity and pretext possible, in classic colonial, totalitarian and fascist traditions, to jerk citizens around and tighten the screws on them as if they were serfs. For example, Aadhar, KYC, Demonetization, GST, Taxation Policies, Highway Tolls, Lock Down, etc etc. which are all intended, in the trajectory set since 1921, to enrich and empower the Government (aka the Rulers) at the cost of the ruled. An even more callous and insouciant tyranny even more divorced from the reality of India than its predecessor Governments.

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