The government and the banking sector regulator are looking into operative accounts with significant balances that have not updated their know your customer (KYC) details.
The exercise seeks to know if these accounts carry any risks.
Some of those on the radar include trusts, associations, societies and clubs, as well as high-net-worth individuals (HNIs).
“The issue was flagged after some transactions from a few accounts came under scrutiny and it was found that their KYC was not updated,” said an official aware of the matter.
A senior bank executive confirmed that the Reserve Bank of India (RBI) has directed banks to complete the periodic update of KYC for all customers with operative accounts by June 2023.
“Due to Covid, RBI had stopped lenders from freezing non-KYC compliant accounts till March 2022, but some of these accounts have not updated their KYC despite repeated requests,” the official said.
Another bank executive said there is a lack of clarity on whether lenders can partially freeze such accounts on their own.
“We will now seek clarity from the RBI on the matter and whether banks can have a board-approved policy for freezing such accounts where updation of KYC has been pending.” he added.
In her FY24 budget speech, finance minister Nirmala Sitharaman proposed to simplify the KYC procedure by adopting a ‘risk-based’ approach rather than the ‘one-size-fits-all’ approach currently in practice.
Sitharaman had said that financial sector regulators will also be encouraged to have a KYC system fully amenable to meeting the needs of Digital India.
Banks are also in discussion with the regulator to further strengthen the central KYC format to avoid multiple accounts in the banking system with different identifications.
The government is 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.