RBI Directs Banks To Cut Down Inoperative Accounts, Submit Quarterly Reports

The RBI has recommended that banks explore ways to enable seamless KYC updates through mobile or internet banking, non-home branches, and the Video Customer Identification Process

The Reserve Bank of India (RBI) urged banks on Monday to "urgently" take steps to reduce the number of inoperative or frozen accounts and report their numbers quarterly. The central bank expressed concern over the increasing amounts of money held in such accounts, noting that its supervisory inspections had uncovered various issues leading to accounts becoming inactive or frozen.

A recent analysis by the RBI's Department of Supervision revealed that the number of inoperative accounts and unclaimed deposits in several banks was disproportionately high in relation to their total deposits and absolute terms.

"The banks are ...advised to take necessary steps urgently to bring down the number of inoperative/frozen accounts and make the process of activation of such accounts smoother and hassle free," a notification to chiefs of all the banks said.

The RBI has recommended that banks explore ways to enable seamless KYC (Know Your Customer) updates through mobile or internet banking, non-home branches, and the Video Customer Identification Process (VCIP).

The notification highlighted concerns over instances where the accounts of underprivileged beneficiaries of state-run cash transfer schemes were frozen due to reasons like pending or periodic KYC updates. These accounts, which are meant to be segregated for uninterrupted crediting of scheme funds, should not be impacted by such issues.

The RBI urged banks to adopt an "empathetic view" in these situations and suggested that they organise special campaigns to help activate inoperative or frozen accounts.

Additionally, banks should facilitate Aadhaar updates for customers through branches that provide Aadhaar-related services. Instructions have also been issued to state-level banking committees to proactively monitor the situation in their jurisdictions to minimise customer inconvenience.

The RBI’s analysis found that accounts were becoming inoperative and deposits unclaimed due to various reasons, including long periods of inactivity or pending KYC updates.

"Reportedly, there were instances of customers facing inconvenience when they approached the bank branches for activation of inoperative accounts, including inadvertent errors in customer details such as mismatch in name, etc," it added.

The RBI also noted that some banks have a significant backlog of accounts pending KYC updates or periodic re-verifications, leading to these accounts being frozen for further transactions by the bank’s internal policies.

The notification stated that the Customer Service Committee (CSC) of the bank's Board should monitor progress in reducing inoperative or frozen accounts and any special efforts made by banks to address the issue. Banks must report this progress quarterly to the respective Senior Supervisory Manager (SSM) via the DAKSH portal, starting with the quarter ending December 31, 2024.

Additionally, banks must present the notification regarding inoperative accounts at the next CSC Board meeting and a clear, monitorable action plan for compliance.