Thursday, November 28

Sting Operation : Banks violate RBI norms to deny zero-balance (Small) accounts

Banks have been found to use the Reserve Bank of India's norms as an excuse to avoid opening zero-balance accounts. In a sting operation conducted by a web portal, an IIT Mumbai professor sought to open a basic bank account in 19 banks without address or identity proof. In all the 19 branches, the professor was shooed away although RBI regulations require banks to open a 'small account' without address or identity proof.

The professor's sting operation seeks to expose how banks use the pretext of 'know your customer' guidelines to turn away business that is unprofitable. Incidentally, these are the same banks which fell victim to a sting operation by a web portal which exposed their willingness to violate the 'know your customer' guidelines to grab business. The professor's experience was that the underprivileged were chased away from bank branches by intimidating them, citing RBI norms and account opening requirements ranging from Rs 500 to Rs 3 lakh. The lenders included public, private and foreign banks.

The surprising part was that even when confronted with RBI regulations, nearly all front office staff were clueless. None were aware that RBI norms do indeed allow customers to open an account with zero balance requirement and ATM card facility merely on the basis of an application form, a photograph and a self-declaration.


Ashish Das from the department of mathematics at IIT Bombay conducted the survey across bank branches as part of a study, titled Banks Violating Prevention of Money-Laundering Act for Excluding the Excluded. The study has now been published by the department and also released in the form of a report.

The notification on the basic savings account facility was issued by RBI on August 2012. RBI norms on its website state that a basic account can be opened with simplified KYC norms. But if simplified norms are used, the account would be treated as a 'small account'. In other words, such accounts will be eligible for a maximum balance of Rs 50,000 and maximum withdrawals cannot exceed Rs 10,000 in a month. Also, these accounts cannot be used for receiving money from abroad. While the limits ensure that these accounts cannot be misused for money laundering, it provides individuals without address proof or identity cards the opportunity to maintain savings with banks and also use ATMs.

But rather than open these accounts, banks are instead pushing underprivileged customers to 'business correspondents', who charge for opening bank accounts. Das's report shows that majority of bank employees are unaware that RBI norms allow a small basic bank account on the basis of a mere application form and declaration that proof of address will be provided within a year.

Even at the head office level, the awareness of account opening requirements appear to be low. Six of the banks covered gave RBI norms as a reason not opening the basic accounts.

RBI has not made it any easier for banks to open small accounts. The requirement for banks to open a 'small account,' without address or identity proof, comes in a directive from the finance ministry notification dated December 16, 2010. The reference to the notification on simplified KYC norms is buried in an annexure to RBI on directions for opening small accounts.

Source : Times of India

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