Do the banks have the right to freeze operations in dormant/inoperative Savings, Current accounts (that are not due for KYC review), stop access to ATM, Internet & Mobile Banking, and/or return/bounce cheque/s drawn by their customers on these CASA accounts?

Also Read: Unlawful Freezing of Bank Account by banks for pendency of Re-KYC

Preamble

My two articles published the same day on a similar subject may create confusion in the minds of the reader. Whether both are the same?

I wish to clarify that both articles have a different theme and should be looked at independently to comprehend.

Many things that were stated in detail in the other article are not repeated in this write-up. (I had assumed the reader may read another one also). However, in the context of things what was necessary, has been incorporated in this.

As in the case of another article, if I am to give a two-line response to the subject being discussed herein I may respond as under: 

The regulator should take appropriate steps to arrest autocratic actions (by banks, wallet companies) of illegally freezing the operations in inoperative accounts of such customers (re-KYC not due). The ombudsman should be directed to entertain the complaints rather than disposing of them stating that these matters do not come under the Integrated Ombudsman Scheme 2021 (IO Scheme 2021).

Access to ATM, Internet banking, and Mobile banking should not be stopped nor can banks bounce cheques that are drawn on the account by these clients (subject to broad satisfactory due diligence), for this reason.

I assume readers know, Banking Ombudsman Scheme,2006 stands replaced with Integrated Ombudsman Scheme 2021.

Many a time I doubt whether the RBI does the job of enforcing its regulation sincerely and whether the Consumer Education and Protection Department of RBI CEPD does the job of protecting the legitimate interest of the bank/NBFC consumers as it clearly, by its actions, direct & indirect supports to illegitimate acts of the banks/branches seen denying the rights of the bank customers. Along with consumer education, a time has come to educate the bank branches and basic matters like dormant/inoperative accounts. Indirectly RBI is contributing to developing an autocratic attitude among new banks. Due to inactions and dodging matter common man believe that RBI will not act on this grievance and will dispose of the complaint case without any corrective action.

However after many years of experience of dealing with the Reserve Bank of India, especially with CEPD (RBI), and DoR (RBI) on customers’ general matters (both internally as a senior banker and as a bank customer), I am rather compelled to state:

Consumer Education and Protection Department of RBI neither do the job of educating the customers on their legitimate rights nor assists them in protecting their interest by taking required actions based on their complaint against the erring bank (Regulated Entity) through its regulatory departments such as DoR (RBI), and EFD(RBI).

Many times by not taking any action it indirectly encourages earring bank/s to harass the customers and make them suffer (despite the existence of legal provisions otherwise).

In this article, I have attempted to highlight a few related aspects like recklessness at Integrated Ombudsman’s office.

Coming to the main subject:

I wonder why banks do not accept customers’ simple written requests to make their dormant account/s active (operationalize it, in non-KYC due cases also) and insist on KYC compliance. Why do banks insist on fulfilling other absurd requirements?

In almost all cases it does the job of simply forwarding the complaint to an ‘integrated ombudsman’ (earlier ‘banking ombudsman’) who due to strict timelines, inexperienced staff, or lack of intricate banking knowledge at the supervisory level dispose of the cases recklessly using some handy provisions of the IO/BO scheme and classify the case disposed of under non-appealable category. Thus the whole grievance mechanism/machinery at the regulatory level serves no differentiating purpose (except in very routine matters) and customer harassment continues.

CPGRAMs (Central Govt Grievance  Redressal mechanism operate through the CMS segment of CEPD (RBI). The case again gets landed in the court of RBI. Consumer Dispute Redressal Forums do not encourage complex or technical cases from the banking fraternity and advise the customers to approach RBI as it cannot analyze technicalities.

Thus to file a case in a court of law and venting the feeling through e-media are two options left to gullible customers (as print media also does not favor taking up the matter due to obvious reasons). The grievance redressal mechanism in banking and related segment (NBFC etc) has now become a mockery.

The worst thing is that ‘the regulated entities’ (Banks/NBFCs) are well aware of these things and hence scare the customers through terrorizing actions like freezing funds/account(s). I have dozens of examples with evidence to substantiate the accusations. A few of them have been cited as examples in my other articles.

A bank account cannot be blocked/frozen unless there is the appropriate direction from a competent judicial authority and or law enforcement agency.

Readers may feel why I have given a detailed account of an instance like the name of the bank, branch, action taken by the bank, action taken by Internal Ombudsman, action by Banking Ombudsman (RBI), action by CEPD (RBI), Action on alternate dispute resolution channel formed Central Govt (CPGRAMS), etc. I feel without a full-fledged case, readers may not able to appreciate the reality concerning the subject under discussion.

In this case, Bank bounced a cheque, drawn by the customer on her inoperative account (not due for KYC review), in gross violation of RBI’s specific directions (brief text of directions is given below) –

“The segregation of the inoperative or dormant accounts is from the point of view of reducing the risk of fraud etc. However, the customer should not be inconvenienced in any way, just because his account has been rendered inoperative. The classification is there only to bring to the attention of dealing staff, the increased risk in the account. The transaction may be monitored at a higher level both from the point of view of preventing fraud and making a Suspicious Transactions Report. However, the entire process should remain un-noticeable by the customer.

The case, in brief, was as under;

Last year my spouse (a housewife) received an SMS from the Bank of India (BoI) reading:

Your A/c  xxxxxxxx    is Dormant, please contact Branch personally with a fresh KYC document for activation -Team BOI-Vile Parle.

 

This full KYC-compliant SB account was 6 years old (it was a low-risk category classified account and KYC review was due after 10 years). In this case, the dormancy of the account had no connection with ‘Re-KYC’, despite BOI calling for KYC papers. However, the account holder sent an email from a registered email address stating the reasons for it being not operated and informed that she will originate a customer-mandated debit transaction (cheque) to start with. Bank was also made aware of the fact: Visiting the branch for activating the dormant account with KYC papers was unheard of and is not mandated by the banking regulator. My spouse gave a legally valid reason through email behind the issue of a cheque to activate the account. The branch confirms it received this communication in time. Notwithstanding this and RBI’s directions, the bank bounced the cheques drawn by customers on inoperative accounts recklessly (even after appropriate written advance intimation), giving a stupid reason:

Bank’s top brass from the grievance department dismissed the complaint of ‘wrongful dishonor of cheque”. The complaint to Ombudsman was dismissed by Ombudsman. HO of the Bank later activated the account without any KYC paper, refunded its cheque return charges levied by it, and communicated accordingly (giving a face-saving excuse for activating the account). It however refused to refund other bank’s cheque bouncing charges (payee’s side) nor agreed to its lapse. It is pity that the regulatory machinery meant to award justice to the aggrieved customer, Ombudsman did not bother to read the mandatory directions issued by RBI (mentioned above). It disposed of the case stating the case falls outside the Ombudsman scheme mandate. [Case No:202021013015576].

Can banks freeze operations in dormantin-operative bank accounts

The matter was escalated at the Centralized Public Grievance Redressal and Monitoring System (CPGRAMS), an online platform created at the behest of the Central Govt. It referred the matter back to RBI (CMS CEPD). RBI like the postman/woman referred the matter again to BOI. HO, BoI gave the same reply. The case was closed by RBI without any corrective directions to the BoI on the wrongful bouncing and for seeking KYC papers from a full KYC-compliant account/client. It was a simple case of an inoperative account (not Re-KYC due) due to the client shifting from Mumbai to Pune.

The grievance redressal mechanism failed to address core concerns. Such acts in my view encourage the erring entity to continue doing such irresponsible things in the future resulting in serious financial problems for the customer.

In the majority of cases; as a senior ex-banker I observed; where the account is inoperative (but not due for KYC review-ReKYC) as a matter of routine/practice banks insist customers submit KYC documents afresh, visit personally the bank/branch to reactivate the dormant account.

It has become a regular subject of harassment and the customers are asked to submit the KYC document instead of the bank doing simple due diligence (in cases where ‘KYC review is not due’). Those interested in reading more about KYC, CKYC, Re-KYC, and Inoperative/Dormant Accounts may peruse my detailed article dedicated to this subject, on the web.

A bank can at the most obtain a letter and/or ask him/her to do any customer-mandated debit (cheque/ATM transaction or originate customer-mandated credit transaction/s). The very object of RBI’s directions dt: August 22, 2008 is defeated if banks start to bounce the cheques or insist customers visit the office to submit documents for Re- KYC (cases where re-KYC is not due).

In the instant case as per RBI directions of 5th May 2021: Banks were asked not to ask the customers to comply with re-KYC even if it has fallen due unless it is required to comply with ‘court directions or law enforcement agencies specific directions’, applicable to the case, till 31st Dec 2021.

In the COVID scenario, many accounts have gone dormant (due to the pandemic many senior citizens did not go out of their homes for 1 ½ year or operate) and suffered due to this autocratic attitude of bankers.

A full reference to the case was made to highlight how every agency associated with grievance redressal brushed it aside, and how the directions of RBI were utterly disrespected by the bank. RBI itself did not bother to ensure compliance. If such is the attitude of RBI I wonder how their grievance redressal mechanism could ensure compliance and award justice to the aggrieved.

It was a clear case of autocracy and wrongful bouncing of cheques with reason: Drawers authority to operate account not received”. My spouse asserted: “your bank/branch gave a strange reason on cheques return memo reading” Drawers authority to operate account not received ”. She further wrote: “in clear terms, to me, it seems to be an irrational and stupid reason. Had your bank had the courage to disregard RBI’s directions ‘clearly communicated to you through email before the cheque in the subject was issued’,  you should have stated the reason as: ‘the account is inoperative. You chose to hide the facts under ambiguous words. ‘You ought to know that a cheque is a direction to the bank to pay a certain sum stated in the cheque to the payee named on it’. The subject (cheque) was perfectly in order. Your action of returning the cheque after the serious of communications (totally disregarding clear directions of RBI) giving this silly reason, shows that either your bank officials lack knowledge of banking or are arrogant and don’t care about the clear directions of RBI. Both situations are scary”.

Indicating gross violation of the regulatory direction ( dt: August 22, 2008). Text of it *** was communicated to ‘BoI’ before the instance of bouncing, also shared with Ombudsman, CEPD, and CPGRAMS at the time of lodging the grievance with it.

It was a case of violation of RBI’s directives and also an act of deficiency in service.

CEPD (RBI), Ombudsman, and Banks Grievance Cell all simply ignored the grievance making a mockery of the grievance redressal mechanism set by RBI + Govt.

Please peruse the highlighted text

 

***RBI / 2008-09 / 138 DBOD.No.Leg. BC. 34 /09.07.005/2008-09 August 22, 2008

 

All Scheduled Commercial Banks

Unclaimed Deposits / Inoperative Accounts in banks

 

(vii) Further, the segregation of the inoperative accounts is from reducing the risk of fraud, etc. However, the customer should not be inconvenienced in any way, just because his account has been rendered inoperative. The classification is there only to bring to the attention of dealing staff, the increased risk in the account. The transaction may be monitored at a higher level both from the point of view of preventing fraud and making a Suspicious Transactions Report. However, the entire process should remain unnoticeable by the customer.

 

(viii) Operation in such accounts may be allowed after due diligence as per the risk category of the

customer. Due diligence would mean ensuring the genuineness of the transaction etc. However, it has to be ensured that the customer is not inconvenienced as a result of the extra care taken by the bank.”

I am sure the banks/branches will respond properly when many customers raise their concerns (are aware of the facts and assert forcefully) otherwise this practice of harassment will continue unchecked.

Having regulations in place is not adequate unless it is enforced by the authority that is assigned to the task.

 

On CKYC:

Enabling provision to share KYC information with Central KYC Records Registry (CKYCR) was made on 26th Nov 2015. Regulated entities were asked to upload data on the designated website from Jan 2017. It was expected that where a customer, to establish an account-based relationship, submits a KYC Identifier to a RE, with explicit consent to download records from CKYCR, then such RE shall retrieve the KYC records online from the CKYCR using the KYC Identifier and the customer shall not be required to submit the same KYC.

As per the Reserve Bank of India (RBI) notification dated December 18, 2020, on Amendment to Master Directions, 2016, Banks are required to file an electronic copy of the customer’s KYC records with the Central KYC Registry. Central KYC Registry issues unique KYC identifiers for any future KYC reference. This is called a KYC identifier or CKYC number [14 digits (KIN)]. The KYC identifier(KIN) can be used as a KYC reference for any banking or financial relationship with any Bank, Financial Institution, or SEBI-regulated entity (for Demat, Broking Account, etc). SEBI and other Financial Market Regulators have issued directions to their regulated entities on these lines.

In clear terms, there is no need to submit KYC papers again to any bank, FI, or SEBI-regulated entity if KYC is done with anyone and KIN is available with the client. RBI Circular DOR.AML. BC. No.31/14.01.001/2020- 21 December 18, 2020,#.

**Compulsory visiting the branch ‘with KYC papers’ for activating an inoperative/dormant account is unheard of and not mandated by the banking regulator. Purpose of KYC/Re-KYC, changing the status of account active/inactive has different objectives. The bank could have asked CKYC and gotten the latest inputs required for due diligence, although these things were not possible when directions were issued on 22nd Aug,2008.

Apart from many ways suggested by RBI through its circular 01-09-2014 going by the spirit of the guidelines banks can consider various new ways to reactivate inoperative accounts active based on simple due diligence:

  • withdrawal of cash from ATM/Branch
  • Deposit of cash in the account (Cash Deposit Machine or Branch)
  • Payment by cheque, Deposit of cheque in the account
  • Transfer of funds online through net banking
  • Transfer of funds through any banking channels
  • Online Bill Payment, SIP transactions, etc
  • Mandate/instruct the bank to credit dividends on shares to Savings/current accounts as per the mandate of the customer should be treated as a customer-induced transaction. The same is the treatment in cases where FD/RD interest /principal is to be credited to the account As such, the account should be treated as an operative account as long as the dividend/interest is credited to the SB/Current account. [Ref: RBI Cir 2014-15/200 [DBOD.No. Leg. BC. 36 /09.07.005/2014-15 01-09-2014}

On the matter of freezing the CASA account: Detailed observations can be perused from my other article simultaneously being published.

A bank account cannot be blocked unless there is the appropriate direction from judicial authority and or law enforcement agency under applicable provisions under the Act like Section 51A of Unlawful Activities (Prevention) Act, 1967.

Banks and customers must be aware that the PMLA did not give punitive powers to RBI and also did not give any authority to RBI to grant such powers to the bank/branch or its officials.

Bank cannot withdraw the facility of ATM, bounce cheques drawn on account classified as inoperative/dormant or illegal freeze. Readers may peruse the case State Bank of India vs. Ashvin Chaturbhai Parmar Gujarat High Court No. 5100 of 2012.

For REs/Banks closing undesirable account/s (after following the proper process laid down to close undesirable bank accounts) is treated as the best practical solution. Despite that Banks continue with their threatening actions of debit freeze followed by credit freeze (total freeze) which is illegitimate.

Bank depositors associations should always be alert and raise their voices formally and collectively against wrongdoings by banks. It should take the matter to other forums when there is a concurrent failure of regulatory mechanisms to arrest such happenings. If this does not happen things will not change and individual depositors will continue to get harassed.

Shivaprasad Laxman Chhatre, Pune

Author Bio

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Company: BNP Paribas, Kotak Mahindra Bank, ICICI Bank, PSU Banks, Ex- CEO FIMMDA
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Member Since: 03 Oct 2019 | Total Posts: 20
35 years of supervisory level banking experience which includes the experience as Group Head of Compliance of an MNC Bank, 15 years in senior positions in Banks Integrated Treasuries of ICICI Bank, Kotak Mahindra Bank; Securities Market (in New Private and PSU Banks), and 10 years in Wholesale & View Full Profile

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