High-balance bank accounts without updated KYC under govt's radar

The RBI has instructed banks to finish updating KYC on a recurring basis for all customers with active accounts by June 2023, an official said

The Centre and the banking sector’s regulatory body are investigating active accounts with sizeable balances that have not updated their Know-Your-Customer (KYC) details, said a report in The Economic Times.

The exercise is aimed at identifying any risks associated with these accounts.

Trusts, associations, societies, and clubs, are a few of the entities being monitored, along with high-net-worth individuals (HNIs).

An official aware of the matter told ET that the issue was raised after some transactions from a few accounts were examined and it was found that their KYC was not updated.

The Reserve Bank of India (RBI) has instructed banks to finish updating KYC on a recurring basis for all customers with active accounts by June 2023, a senior bank executive confirmed.

The official further said that the RBI had stopped lenders from freezing non-KYC compliant accounts till March 2022, due to Covid-19. However, some of these accounts have failed to update their KYC even after repeated requests.

Another bank executive stated that it is still unclear whether lenders can partially freeze these accounts on their own.

"We will now ask the RBI for clarification on the subject and whether banks can have a board-approved policy for freezing such accounts where KYC updates have been pending," he added.

'Risk-based' KYC

In her FY24 budget speech, Finance Minister Nirmala Sitharaman suggested that the KYC process be made simpler by switching from the current ‘one-size-fits-all’ method to a ‘risk-based’ approach.

Financial sector regulators will also be encouraged to have a KYC system fully capable of addressing the needs of Digital India, the finance minister had said.

A further strengthening of the central KYC format is being discussed by banks and the regulator in order to prevent multiple accounts in the banking system with different identifications.

The government is also working on amendments to the Banking Regulation Act, the Banking Companies Act, and the Reserve Bank of India Act to improve bank governance and enhance investor protection.