RBI Warns Banks: Stop Freezing Accounts Over KYC Issues

The Reserve Bank of India (RBI) has issued a warning to banks to stop freezing accounts over Know Your Customer (KYC) issues, particularly for those receiving government funds such as subsidies and pensions. The RBI found that delays in updating KYC information were causing account freezes, impacting vulnerable groups, especially senior citizens. The RBI Deputy Governor urged banks to follow KYC norms accurately and empathetically, ensuring service quality. Banks were reminded not to freeze accounts of those receiving government scheme funds due to incomplete KYC. The RBI identified several customer issues, including delayed KYC updates, lack of staff and proactive assistance, unnecessary referrals to home branches, and system delays despite complete documentation. The RBI emphasized the need for banks to prioritize customer service and compliance, highlighting the adverse effects of account freezes on customers’ ability to access their funds. This directive aims to ensure that banks handle KYC processes efficiently without disrupting customers’ access to their accounts.