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Threat to banks without KYC

without updated KYC under govt's radar

RBI directs banks to complete KYC update on recurring basis for all customers with active accounts by June 2023
The Center and the banking sector regulator are investigating active accounts with large balances that have not updated their Know-Your-Customer (KYC) details, according to a report in The Economic Times.
The exercise is aimed at identifying potential risks associated with these accounts.

Trusts, associations, companies and clubs are several entities under scrutiny along with high net worth individuals (HNIs).
An official aware of the matter told ET that the issue was raised after some transactions from several accounts were scrutinized and it was found that their KYC was not updated.

The Reserve Bank of India (RBI) has directed banks to complete KYC update on a recurring basis for all customers with active accounts by June 2023, a senior bank official confirmed.
The official further said that the RBI has stopped lenders from freezing non-KYC compliant accounts till March 2022 due to Covid-19. However, some of these accounts failed to update their KYC even after repeated requests.

Another bank executive said it was still unclear whether lenders could partially freeze these accounts themselves.
“We will now request RBI to clarify this issue and whether banks can have a board-approved policy to freeze such accounts where KYC updates are pending,” he added.

“Risk-based” KYC.
In her FY24 budget speech, Finance Minister Nirmala Sitharaman proposed to make the KYC process easier by moving from the current “one-size-fits-all” method to a “risk-based” approach.

Financial sector regulators will also be encouraged to have a KYC system fully capable of addressing the needs of Digital India, the finance minister said.
Banks and the regulator are discussing further strengthening of the central KYC format to prevent multiple accounts in the banking system with different identifications.

The government is also working on amendments to the Banking Regulation Act, the Banking Companies Act and the Reserve Bank of India Act to improve bank governance and strengthen investor protection.

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