DBT: RBI pulls up banks for freezing accounts over KYC

MUMBAI: RBI pulled up banks for freezing accounts that receive direct benefit transfer (DBT) funds from govt due to incomplete KYC. Banks have also been found to be at fault for delaying KYC updates, resulting in accounts getting frozen.

Addressing directors of private sector banks, RBI deputy governor Swaminathan J said that banks must "ensure that KYC guidelines are followed with both precision and empathy." He pointed out that in the past RBI had given instructions to banks, asking them not to freeze accounts that receive government transfers for want of KYC. KYC or know your customer norms pertain to obtaining identity and address proof to prevent money laundering.

"Our root cause analysis indicates a set of issues, including high pendency at the bank level in periodical updation of KYC details of the customers; lack of a proactive approach in assisting and obtaining the required customer documents; inadequate staff deployment in such critical functions resulting in overcrowding or denial of service at branches; directing customers to approach their 'home branch' for availing such services rather than being empathetic to customer needs by attending to them at a branch of their convenience; and failure to update the details in the system even after the customers have provided the required documents," said Swaminathan.

He said that the way in which the guidelines were being implemented seemed to be resulting in a number of accounts getting frozen, denying customers access to their funds. "Boards must ensure that the banks' service delivery embodies empathy and fairness, particularly toward vulnerable groups like senior citizens," said Swaminathan.


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