In a landmark move, the Reserve Bank of India (RBI) has directed banks not to freeze accounts of individuals receiving government subsidies or pensions, even if they lack updated Know Your Customer (KYC) documentation. This applies to beneficiaries of schemes involving Direct Benefit Transfers (DBT) like subsidies and pensions. The decision aims to ensure uninterrupted access to essential funds for vulnerable citizens.
RBI’s Strong Stance Against Private Banks
RBI Deputy Governor Swaminathan J. has reprimanded private banks for freezing accounts of DBT beneficiaries without KYC updates. He highlighted cases of delays and lack of proactive customer assistance, leading to account freezes and restricted access to critical funds. This issue primarily affects pensioners, subsidy recipients, and others reliant on government support.
KYC Issues Highlighted by RBI
The RBI identified key shortcomings in KYC handling:
- Delays in KYC updates.
- Inadequate customer support for documentation processes.
- Shortage of staff to handle customer needs.
- Insistence on visiting home branches for services.
- Failure to promptly update records despite receiving documents.
These inefficiencies have disrupted access to funds, particularly for senior citizens and economically weaker sections.
Empathy and Accuracy: RBI’s Call to Action
Addressing private sector bank directors, Swaminathan emphasized the importance of following KYC guidelines with empathy and accuracy. He reiterated that accounts holding government scheme funds must not be frozen solely due to pending KYC updates. This aligns with RBI’s broader goal to enhance customer service standards across banks.
Impact on Customers
This directive is a relief for subsidy recipients and pensioners, ensuring uninterrupted access to their funds. By eliminating unnecessary bureaucratic hurdles, RBI aims to safeguard the financial rights of vulnerable citizens and improve trust in the banking system.
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