Tag: freeze

No a/c freeze till Dec for want of KYC, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: The RBI on Monday reiterated that until December 2021, banks cannot freeze accounts if the customer has not done a periodic KYC (know your customer) update. The central bank said this while cautioning the public not to fall prey to fraudulent messages seeking bank details for KYC updation purposes.

The RBI said it has been receiving complaints/reports about customers falling prey to frauds being perpetrated in the name of KYC updation. The RBI asked the public not to share key information like account details or passwords with unidentified persons or agencies under threat of account freeze. Many customers have avoided visiting branches during the pandemic, which has provided fraudsters an opportunity to use KYC as a reason to engage with customers.“The usual modus operandi in such cases include receipt of unsolicited communication, such as, calls, SMSs, emails urging him/her to share certain personal details, account / login details/ card information, PIN, OTP, etc or install some unauthorised/ unverified application for KYC updation using a link provided in the communication,” it said.

The RBI also said that it has made the process of KYC updation much simpler. The directions on simplified process comes in the wake of banks asking customers to fill multiple sheets of all-in-one document merely to get a periodic proof of address and identity. The central bank on Monday said that NBFCs and payment system operators seeking to obtain Aadhaar e-KYC authentication licence can submit the application with the RBI.

In May 2019, the finance ministry had come out with a detailed procedure for processing of applications (under the PML Act) for use of Aadhaar authentication services by entities other than banking companies.

“Accordingly, non-banking finance companies (NBFCs), payment system providers and payment system participants desirous of obtaining Aadhaar Authentication license — KYC User Agency (KUA) ;icense or sub-KUA license (to perform authentication through a KUA), issued by the UIDAI, may submit their application to this department for onward submission to UIDAI,” the RBI said in a circular. The RBI has also provided the format of the application.



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Small businesses hit as banks freeze current a/cs

Banking & Finance

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Operations of thousands of small businesses across the country were disrupted after their current accounts were closed on Monday, as banks rushed to comply with the Reserve Bank of India’s directive on the opening of such accounts by borrowers aimed at preventing diversion of funds.

As per the RBI’s directive issued in August 2020, no bank can open current accounts for customers who have availed of credit facilities in the form of cash credit (CC)/overdraft (OD) from the banking system. While the central bank had given banks time until end-July to implement the new rules, many account holders were caught unaware.

Accounts frozen

Rajiv Podar, President of IMC Chamber of Commerce & Industry, said borrowers across corporate as well as non-corporate structures did not receive any intimation from the banks and were surprised to find all the current accounts frozen, leading to complete operational disruption.

“For example, project accounts are frozen, plant-wise current accounts are frozen, banks have withdrawn current account products without any intimation, which is against the spirit of banking. How will the companies pay salaries in August and even all other statutory dues?,” Podar asked.

Besides maintaining a cash credit/overdraft account with the lead bank in the consortium of banks, businesses with pan-India operations also have relationships with other banks with either a strong presence in specific geographical locations or offering superior product and service capabilities or both. But concerned about the diversion of funds by borrowers via accounts outside the consortium, the RBI had imposed restrictions on the opening of CC/OD accounts by borrowers.

Banks are now forcing companies to route all their transactions only through the bank which had extended cash credit and overdraft facilities. While MSMEs are allowed to open as many current accounts as possible for receiving credits, all debits have to happen only through the bank which has an exposure of over 10 per cent of the borrower.

Chandrakant Salunkhe, President, SME Chamber of India, said many small units are struggling to meet their payment commitments even after having the required money in the bank as their accounts are frozen and attempt to release the funds would take 15 days to one month.

Compliance status

Meanwhile, the RBI, on Monday, took stock of the compliance status of banks with its directive. Banks are believed to have largely complied with the RBI’s directive.

To alleviate the suffering of borrowers, Podar sought a breather of six months for implementing the guidelines in a modified manner, with proper guidelines to banks and clients.

“Lead banks should be allowed to hold multiple shadow current accounts to meet borrower requirements such as salary, contract-specific, location-specific, purpose-specific, etc. Each shadow account shall have a unique number and a standalone bank statement,” the IMC President said.

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