The harassment, humiliation and mental agony of customers in the name of updating know-your-customer (KYC) continues unabated and banks are regularly found freezing accounts without any intimation or communication, as mandated by the regulator.
This inflicts ‘financial death’ on people by depriving them of access to their own savings. KYC documents are basic identification documents such as your PAN number or Aadhaar or some address proof to prove that your account is bona fide. However, banks simply do not pay any heed to directions issued by the Reserve Bank of India (RBI) and ignore whether the customer is a senior citizen, an old customer, or a company or even a non-government organisation (NGO) or trust.
Even many senior citizens, who have been banking with the same branch for decades, are being repeatedly harassed for re-KYC. Some of them are pensioners and submit their life certificates once a year to the bank. However, these pensioners are also not spared by banks from the re-KYC.
While the maximum harassment is for business accounts and trusts, individuals with savings accounts, which need KYC renewal only once in a decade, are also routinely harassed. Most are unaware that RBI has now permitted online KRC renewal. Instead, customers are being asked to come to the ‘home’ branch in person and sometimes wait for a long time to update KYC.
Online KYC
The central bank, however, thinks that banks have resolved the KYC and KYC renewal issue. A high-level source at the RBI says: “We have simplified the re-KYC process and low-risk customers are required to do re-KYC once in 10 years. This can be done through self-declaration in case there are no changes in KYC details. This can be done through digital channels such as customer’s email ID, mobile, ATMs, online banking or internet banking, and mobile application of the bank concerned.”
“In case of a change only in the address details of the individual customer, a self-declaration of the new address has also been allowed, which has to be verified by the bank through positive confirmation within two months,” the source says.
Very few customers are aware of this change and banks, who relentlessly spam their customers for loans and credit cards, do not bother to provide this information either. RBI itself has funds under the depositor education and awareness fund (DEAF)—comprising of unclaimed deposits and interest—which can be used to create public awareness. The Fund even uses superstar Amitabh Bachchan in its public service campaigns. The central bank has apparently not realised that online KYC could also do with an awareness campaign.
Disaggregated customers are unable to get their voices heard, so our sister entity Moneylife Foundation had submitted a detailed memorandum to RBI in April this year as a first step in this long battle to mitigate hardships faced by bank customers.
As pointed out in the memorandum, denying customers 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.
“Often, customers get no warning and learn of the draconian action when their cheques bounce or debit card is dishonoured, despite money in the bank. Sometimes, they suffer because banks have made horrible mistakes or failed to seek or update information in the core banking system. Banks neither apologise nor face any consequences when this happens,” the memorandum says.
Last year, we also found that the regulator had not penalised any lender for failing to adhere to its KYC updating guidelines. Further, RBI had no information about communication between banks and the regulator for KYC updates of customers in the high-risk, medium-risk and low-risk categories, as shown by a reply received under the Right to Information (RTI) Act.
According to a top banker, banks are supposed to classify customers on the basis of their risk profile and the KYC harassment is reserved for those who are seen at higher risk.
However, the nature of complaints that one sees on social media reveals that depositors, who would logically have the lowest risk profile—for instance, senior citizens living on savings and pensions, current accounts of companies that are used for routine business and salary payments—also suffer harassment and threats to freeze accounts.
Neither banks nor RBI are willing to clarify the basis of risk classification. Although banks claim that they are harassed by RBI, and the regulator blames the finance ministry’s money laundering regulations for this, victims of such coercive action have no answers or redress.
The updated master direction issued by RBI on KYC mandates periodic updating to be carried out at least once every two years for high-risk customers, once in every eight years for medium-risk customers and once in every 10 years for low-risk customers. In the case of low-risk customers, when there is no change in status with respect to their identities and addresses, a self-certification to that effect shall be obtained.
Risk categorisation is undertaken based on parameters such as customer’s identity, social and financial status, nature of business activity, and information about the clients’ business and their location. Source: Moneylife.in