Banks In India Violate RBI Norms On 'Zero-Bal' Accounts

By Maithili Sharma | Mumbai

Banks have been found to use the Reserve Bank of India’s norms as an excuse to avoid opening zero-balance accounts. In a sting operation conducted by a web portal, an IIT Mumbai professor sought to open a basic bank account in 19 banks without address or identity proof. In all the 19 branches, the professor was shooed away although RBI regulations require banks to open a ‘small account’ without address or identity proof. 
    
The professor’s sting operation seeks to expose how banks use the pretext of ‘know your customer’ guidelines to turn away business that is unprofitable. Incidentally, these are the same banks which fell victim to a sting operation by a web portal which exposed their willingness to violate the ‘know your customer’ guidelines to grab business.
 The professor’s experience was that the underprivileged were chased away from bank branches by intimidating them, citing RBI norms and account opening requirements ranging from Rs 500 to Rs 3 lakh. The lenders included public, private and foreign banks. 
    
The surprising part was that even when confronted with RBI regulations, nearly all front office staff were clueless. None were aware that RBI norms do indeed allow customers to open an account with zero balance requirement and ATM card facility merely on the basis of an application form, a photograph and a self-declaration. 

Ashish Das from the department of mathematics at IIT Bombay conducted the survey across bank branches as part of a study, titled Banks Violating Prevention of Money-Laundering Act for Excluding the Excluded. The study has now been published by the department and also released in the form of a report. 

WHAT RBI CAN DO 

• Allow banks to pay lower rates to those maintaining deposits below Rs 10,000 to offset costs 
• Exempt balances under small accounts from reserve requirements 
• Allow banks to insist on minimum amount of Rs 500 for opening basic accounts 
• Ask banks to upgrade IT systems to have separate limits for small accounts 
• Allow use of prepaid cards issued by non-banks at ATMs 
• RBI should undertake campaigns to increase awareness of small accounts