RBI Orders Banks To Shutdown Inactive Accounts; Demands Quaterly Reports

The Reserve Bank of India (RBI) has directed banks to urgently decrease the number of inoperative or frozen accounts. Banks must streamline the activation process through seamless KYC updates and special campaigns. Progress on this initiative must be reported quarterly, beginning December 31, 2024.

Key RBI Directives

1. Reduce Inoperative Accounts
   • Banks must urgently minimize the number of frozen or inactive accounts, which hold significant unclaimed deposits.
   • Supervisory inspections by the RBI revealed rising concerns over unclaimed deposits and frozen accounts.
2. Seamless KYC Updates
   • Banks are encouraged to simplify Know Your Customer (KYC) updates via mobile banking, non-home branches, and Video Customer Identification Processes.
   • Special campaigns should be launched to facilitate easier account reactivation.
3. Focus on Underprivileged Beneficiaries
   • Accounts of beneficiaries of government cash transfer schemes must be segregated to avoid freezing due to KYC delays.
   • Banks are advised to adopt an empathetic approach for such accounts to ensure uninterrupted credit of scheme funds.

Challenges Identified by the RBI

• High Volume of Inoperative Accounts:
  Many banks have a significant number of inactive accounts compared to their total deposits.
• Inconvenience to Customers:
  Customers face challenges like errors in personal details and long activation processes when trying to reactivate frozen accounts.
• Pending KYC Updates:
  Delays in periodic KYC updates often lead to accounts being frozen for transactions.

Monitoring and Compliance

• Customer Service Oversight:
  Banks must present the RBI directive and an actionable plan to their Customer Service Committee (CSC).
• Quarterly Reporting:
  Banks are required to report progress on reducing frozen accounts via the DAKSH portal starting December 31, 2024.
• State-Level Monitoring:
  State-level banking committees will oversee efforts to minimize customer inconvenience.

Conclusion

The RBI’s directives aim to enhance customer service, reduce unclaimed deposits, and ensure a more inclusive banking experience. By focusing on streamlined processes and KYC updates, banks can alleviate customer concerns and address systemic inefficiencies.

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