Allow use of non-financial transactions to decide a/c status: SBI to RBI

State Bank of India (SBI) has approached the Reserve Bank of India (RBI) with a plea to consider allowing non-financial transactions, such as checking account balances, for making inoperative accounts functional.

 

Current regulatory norms permit only credit and debit transactions to render an account operational. This request from SBI to tweak the rules comes in the backdrop of an RBI directive to reduce the incidence of inoperative accounts.

 

“Many a time, an account holder, especially ones where cash transfers under government programmes are the primary usage, conducts a limited number of financial transactions,” said C S Setty, chairman, SBI.

 

After a direct benefit transfer, the money gets credited into the account, and there are at best two or three debit transactions before it becomes dormant. Such accounts then get tagged as inoperative, Setty told reporters late on Tuesday on the sidelines of an event to felicitate the 29 champions of the Paris 2024 Paralympic Games.

 

Even a non-financial transaction should be able to activate the account, he said. The bank has taken up the issue with the regulator. When a customer conducts a non-financial transaction, it signals that they are "aware" of the bank account and, hence, there is a case for tagging it as an active account, he added.

 

The comments come within days of the RBI asking banks to urgently address the issue of inoperative or frozen accounts and start reporting progress on the same on a quarterly basis to the central bank.

 

The RBI has directed banks to facilitate the process of activating accounts by taking an "empathetic view," as in many cases, the regulator observed that such accounts were frozen due to factors such as pending or periodic KYC (Know Your Customer) updates.

 

Additionally, the RBI has instructed banks to organise special campaigns to facilitate the activation of inoperative or frozen accounts and enable Aadhaar updates for customers through branches providing Aadhaar-related services.

 

RBI's analysis revealed that the number of inoperative accounts and unclaimed deposits in several banks was on the higher side, both in relation to their total deposits and in absolute terms. The reasons were attributed to either inactivity over a long period or pending/periodic KYC updates in such accounts. 

  Seeking relief

  → Current norms permit only credit and debit transactions for making the account operational

  → Even a non-financial transaction should be able to activate the account, says SBI

  → The RBI had recently directed banks to reduce incidence of in-operative accounts