RBI Urges Banks to Urgently Reduce Inoperative Accounts and Report Quarterly Numbers

The Reserve Bank of India (RBI) has urged banks to swiftly address the issue of inoperative or frozen accounts. Banks are now required to report the number of such accounts every quarter. The RBI expressed concern over the growing amounts of money in these accounts, noting that supervisory inspections have highlighted several issues causing accounts to become inactive or frozen.

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Addressing Inoperative Accounts

The RBI's Department of Supervision recently analysed the situation and found a significant number of inoperative accounts and unclaimed deposits across various banks. These numbers were high both in relation to total deposits and in absolute terms. Banks have been advised to take immediate action to reduce these numbers and simplify the process for reactivating such accounts.

Banks are encouraged to facilitate seamless updates of Know Your Customer (KYC) information through mobile or internet banking, non-home branches, and Video Customer Identification Process. The RBI noted that some underprivileged beneficiaries of government cash transfer schemes had their accounts frozen due to pending KYC updates, despite the need for these accounts to remain active for uninterrupted fund transfers.

Empathetic Approach and Campaigns

The RBI has asked banks to adopt an empathetic approach towards affected customers. Special campaigns should be organised to help activate inoperative or frozen accounts. Additionally, banks should assist customers with Aadhaar updates at branches offering related services. State-level banking committees have been instructed to monitor the situation actively to minimise customer inconvenience.

The analysis by the RBI revealed that many accounts become inactive due to prolonged inactivity or pending KYC updates. Customers often face difficulties when trying to reactivate these accounts, including errors like name mismatches. Some banks have a backlog of accounts needing KYC updates, leading to account freezing as per their internal policies.

Monitoring and Reporting

Banks must ensure progress in reducing inoperative or frozen accounts is monitored by their Customer Service Committee (CSC). They are required to report quarterly on their efforts through the DAKSH portal, starting from the quarter ending December 31, 2024. The notification on inoperative accounts must be presented at the next CSC Board meeting, along with an actionable compliance plan.

The RBI's directive aims to streamline processes and reduce customer inconvenience associated with inactive or frozen bank accounts. By implementing these measures, banks can enhance customer service and ensure smoother operations for account holders.