The Reserve Bank of India (RBI) made significant announcements recently — allowing minors above 10 years of age to open and operate savings bank accounts independently in May and a month later declaring that a bank account can be opened with just one address proof, which can be either permanent or local.
While the former means a minor can use facilities like ATM and cheque books as well as operate an account independently, the latter that allows opening an account with local address proof will aid lakhs of migrant workers. This is significant as the relaxation will enable workers from one state to open a bank account in another using the address proof in his home state.
In a country with close to 60 per cent of its population without a functional bank account, these steps by the central bank are likely to reverse the trend.
“The RBI’s latest move to relax the KYC (know your customer) requirements (with respect to single proof of address) is a welcome move, that will definitely give a boost to basic savings bank deposit account (BSBD) opening, especially in urban areas. Having local address proof is always a big hurdle for migrant labourers, students and even white-collar workers with transferable jobs,” said Rishi Gupta, COO & ED, FINO PayTech.
“Documentation is possibly one of the biggest hindrances faced by the unbanked or under-banked section of the society to avail formal financial services. It has been demonstrated time and again that such lowering of KYC thresholds has positively impacted the financial inclusion of this section of society,” he said. By linking Aadhaar numbers to KYC norms, the RBI had earlier already paved the way for universalising bank accounts, thus removing one of the most important barriers to financial access. With the latest relaxation on address proof norms, a customer doesn’t even need to have an Aadhaar card to open an account.
In case the proof of address furnished by the customer is not the local address, the bank will just take a declaration of the local address on which all correspondence will be made with the customer. The Damodaran Committee on customer services in banks, first pushed for a change in the guidelines, saying that “no frills accounts” need to be further simplified to enable rapid financial inclusion. “The poorer sections, with whom the committee interacted in different places in the country, desired a simple account which can be opened with a self-attested photograph and address proof. This account may be upgraded to a basic account if the customer fulfills KYC requirements. Wherever UIDAI is introduced, it should be possible to open a ‘no frills account’ purely on the basis of UIDAI with necessary validation from UIDAI system,” it said.
WHY NORMS NEED TO BE LIBERALISED
Following in the footsteps of Damodaran panel, the Nachiket Mor committee on financial inclusion, said KYC guidelines of the RBI are very different from those of other regulators and require that in addition to a proof of identity, the individual provide documented proof of his/her current address. “Proof of identity can be obtained by the individual from local authorities from the place they were born, but proof of local address is much harder to obtain and is perhaps now the most significant barrier to opening a bank account for many individuals in urban and rural environments,” the Mor panel said.
This requirement appeared to be unique to the RBI and is neither required by the global Financial Action Task Force (FATF) nor by other equally conservative financial regulators. FATF Guidance on Financial Inclusion (2013) states that “In a normal Customer Due Diligence (CDD) scenario, the FATF Recommendations do not require information to be gathered on matters such as occupation, income, or address, which some national AML/CFT regimes mandate, although it may be reasonable in many circumstances to seek some of this information so that effective monitoring for unusual transactions can occur.”
According to the Mor committee, the situation in both urban and rural India is very grim overall with only 45 per cent of the urban residents and 32 per cent of the rural residents having bank accounts. There is also significant variation from district to district even within that, indicating that the central banks needs a new strategy to take banking to the doorsteps of all households.
The Mor committee has suggested that by January 1, 2016, each resident above the age of 18 would have an individual, full-service, safe, and secure electronic bank account. It also proposed that every resident should be issued a Universal Electronic Bank Account (UEBA) automatically at the time of receiving their Aadhaar number by a national, full-service bank. The RBI is studying the proposals submitted by the panel, said an official.
“We expect to benefit from the very good work being done by UIDAI and National Population Register to give people Aadhaar numbers by December 2015. The numbers have already reached 54.37 crore individuals with about 3 crore new ones being generated every month. About 24 crore of these have asked for new bank accounts to be opened. So if banks are willing (SBI, Axis and Bank of Baroda have indicated that they are) then simply opening an electronic bank account for all Aadhaar holders should not be a challenge,” RBI Central Board Member Nachiket Mor said in an earlier interview to The Indian Express. With the RBI beginning to take measures to bring more people under banking, more steps could be in the offing.