Moneylife Foundation Impact: RBI Implements the Main Recommendations of MLF Memorandum on KYC
Moneylife Digital Team 05 May 2021
Even as the country is grappling with the second COVID wave, governor, Reserve Bank of India (RBI), Shaktikanta Das, today directed banks and other regulated financial entities not to impose any punitive restriction on customers for failure to update KYC(know-your-customer) till 31 December 2021. This announcement was part of the RBI governor’s unscheduled speech to announce measures to tackle the ongoing coronavirus pandemic and addresses some of the pain points faced by bank customers.
 
RBI asked banks and other regulated entities, who need periodic KYC updates, to ensure that “no punitive restriction on operations of customer account(s) shall be imposed till December 31, 2021 unless warranted due to any other reason or under instructions of any regulator/enforcement agency/court of law, etc. Account holders are requested to update their "KYC during this period".
 
RBI has also decided to extend the scope of video KYC or V-CIP (video-based customer identification process) for new categories of customers such as proprietorship firms, authorised signatories and beneficial owners of legal entities.
 
The RBI has also permitted enabling the use of KYC identifier of Centralised KYC Registry (CKYCR) for V-CIP and submission of electronic documents (including identity documents issued through DigiLocker) as identify proof. It has called for the introduction of more customer-friendly options, including the use of digital channels for the purpose of periodic updation of KYC details of customers. This will benefit millions of bank customers who already have CKYC by CERSAI while opening brokerage and depository accounts for stock market transactions. 
 
The decision today addresses several issues raised by Moneylife Foundation in a memorandum submitted to the RBI governor on 12th April along with detailed cases studies. See the detailed memorandum here: https://www.mlfoundation.in/memorandum/hardship-and-financial-death-inflicted-on-depositors-due-to-arbitrary-freezing-of-bank-accounts/130.html
The governor's announcements are welcome and address immediate concerns of depositors whose accounts were being indiscriminately frozen or who were being summoned to bank branches in person to update KYC. SBI had set the ball rolling last week by asking its offices not to ask people to visit the branch of KYC updation. 
 
Moneylife Foundation’s memorandum, followed up by an online petition (https://www.change.org/DontFreezeMySavings) ), which had garnered 11,224 signatures, had made the following demands that were accepted. But many larger issues have yet to be answered. First, why absolutely risk-free accounts are subject to repeated KYC updation; second, whether banks have the right to freeze any saver’s money held in trust when there is no financial misdemeanour or crime; third whether such a draconian power to inflict financial death can be delegated to branch managers without any oversight; fourth whether risk classification by banks is properly done and, if yes, why are routine accounts and pension accounts in the high-risk category requiring frequent KYC updation; fifth, when accounts are frozen due to mistake by banks there is no compensation or apology to customers for the cascading impact and trauma caused by the action, which ought to be part of the consumer charter; sixth, RBI has still to issue standard operating procedures (SOPs) to banks for when, if at all, it can block access to a depositor’s own money.
 
Unfortunately, the announcements do not have any answers for the hardship faced by the economically underprivileged due to freezing of Jan-Dhan accounts. RBI announced that limited KYC accounts opened on the basis of Aadhaar e-KYC authentication in non-face-to-face mode can be converted to fully KYC-compliant accounts. Moneylife had written on 29th April how freezing of Jan-Dhan accounts was depriving people of key state benefits during the pandemic and repeated pleas on behalf of these account- holders had fallen on deaf ears even as their hardship had increased in the pandemic : https://www.moneylife.in/article/how-kyc-freeze-of-the-jan-dhan-account-holders-is-destroying-the-lives-of-the-poor/63692.html
 
The key points that RBI has accepted from our 20-page memorandum. 
 
1. Indiscriminate Freezing of Accounts: Denying access to their own money is an extreme punishment which is imposed with impunity by bank officers, often without adequate notice, merely for a delay in compliance with KYC re-submission. This is often done without adequate notice. RBI has accepted this and disallowed freezing of accounts but only until the pandemic. 
 
We said banks should be allowed to freeze accounts only in case of financial crime and that, too, on requests from revenue authorities, Central investigation agencies or the economic offences wing (EOW) of the police, ideally ratified by courts. This point has been acted upon by RBI. 
 
2. Technology and Centralised KYC: Banks must use latest available technologies, like digital ID or video-based customer identification process (V-CIP), to establish KYC. 
 
A centralised KYC already has all the facilities in place for smooth and easy online updation. But, instead of using it, banks have been forcing customers to visit the home branch with physical documents, even in the middle of the COVID pandemic. RBI has accepted this recommendation and issued detailed directions. 
Comments
yerramr
1 month ago
Congratulations
Sudhir Bhimani
1 month ago
My residential status has changed from resident to non-resident. I am filing returns as NRI as Individual & HUF.

Now Axis bank has freezed my HUF account & asking me to open HUF savings account in some other bank as they don't want any NRI to continue their old HUF account.

Please advice names of banks in Mumbai where I can open HUF account without coming to India as I need to have one account as HUF, as I have investment in mutual funds from HUF account in MF Schemes of Franklin India where money is expected back & I have some SIPs running with other mutual funds.

Please help.
rameshnair.rcpl
1 month ago
I had been following up with the finance ministry,and SBI for their follys of closing my account (company)since last four years.Bank swist and turn the facts and deny justice inspite of NCLT /Banking ombudsman order's.And funny part is inspite if meeting with financial secretary they ensured to attend the issue but later on pretend they never met me.I had been trying to approach money life to explain the entire issues and how bank is Scott free after commiting innumerable follys.
rameshnair.rcpl
1 month ago
I had been following up with the finance ministry,and SBI for their follys of closing my account (company)since last four years.Bank swist and turn the facts and deny justice inspite of NCLT /Banking ombudsman order's.And funny part is inspite if meeting with financial secretary they ensured to attend the issue but later on pretend they never met me.I had been trying to approach money life to explain the entire issues and how bank is Scott free after commiting innumerable follys.
MA Dhavan
1 month ago
Grateful to the moneylife.in team for the efforts. Thank you.
Dilip Modi
1 month ago
PS: One more issue:
7 The banks cannot freeze any account without giving in writing to the account holder as to the circumstances and reasons for taking such an action. Even the Courts give a show-cause notice to the person/institute concerned before taking any action!
Dilip Modi
1 month ago
Thank you, ML for focused effort and time-bound relief from the clutches of Re KYC blindly followed by banks. As you quite rightly said, there are other issues too that need follow-up. I list these as:
1 Implement Centralised KYC in a time-bound manner
2 implement Account mobility like cell phone SIM and health insurance policies
3 Greater ease of process for KYC of NRI Accounts, especially those that are in the low risk / no risk category
4 Making it mandatory for Banks to declare to the account holders, the risk category assigned to the account at the time of opening and at each revision resulting in a change of category and intimation as to when a RE KYC can be expected so that the account holder can take necessary steps and is also made aware of the frequency of KYC is in synch with the risk category assigned.
5 Stop the nonsense of banks seeking attested copies of Official Documents like passport, driving license, Aadhar card, Pan card. This puts an additional burden on account holders to print, sign, scan, compress such documents. For what purpose and what happens to all these documents in soft copy state or in hard copies? How / where are they stored? What security prevails?
6 Penalise banks for not taking on record documents provided for any banking activity that enables banks to update the KYC records, thereby putting an end to the standard excuse given by the banks that these were for a different purpose.
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