New Delhi: A committee appointed by the Reserve Bank of India (RBI) has recommended several steps that will reduce Know-Your-Customer (KYC) compliance burden on bank and other financial institution customers, speed up claim processes and enhance Unified Payments Interface. Can pick up for (UPI) transactions.
The suggestions include speeding up the processing of claims by nominees of deceased customers and applying greater discretion while classifying particular accounts as “high risk”.
The RBI had constituted the committee in May 2022 to review the customer service standards in the central bank’s regulated entities (REs), which include banks, non-banking financial companies (NBFCs) and regional rural banks.
The central bank made the report of the committee public on Monday and invited public comments till July 7, 2023.
The terms of reference of the committee, headed by former RBI deputy governor BP Kanungo, were to assess and review the quality of customer service in regulated entities, examine emerging needs, identify best practices and suggest measures to improve service and Grievance Redressal Mechanism.
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reevaluate risk identification
The committee found that many banks and other financial institutions used a broad-brush approach when classifying special accounts as “high-risk,” which refers to customers with complex businesses with similar levels of income and expenses. Was under ownership structures.
“The Committee observed that some REs classify customers with ‘high net worth’ or all ‘walk-in customers’ as high risk and follow similar procedures for monitoring all customers within that risk profile , hold diverse individual customers with similar rigor. , say, customers with complex business ownership structures, even if the customer is a high-paid executive, with similar patterns of inflows and outflows to suit his profile ,” the panel report said.
Such “simplistic linear identification” may result in misclassification of risk and may also cause inconvenience to individuals, especially in the case of salaried individuals.
To rectify this, the Committee recommended a more nuanced approach to RE risk identification.
“For example, salary-earners with inflows and outflows consistent with the client profile need not be classified as high risk, even if they are ‘high net worth’ individuals,” the report said. “Similarly, students can also be classified as at-risk.”
The existing rules are such that REs are required to classify customers as low, medium and high risk based on the assessment and risk perception of the RE on parameters such as identity of the customer, social/financial status, nature of business activity and so on. Information about the customer’s business and their location.
Based on this classification, REs have to adopt a risk-based approach with regard to periodic updation of KYC.
Light burden on nominees
The report states that, during the Committee’s interactions with the stakeholders, it came to the notice of several cases of difficulty where nominees or legal heirs are facing considerable difficulty in closing the accounts maintained by the deceased deposit-holders in the banks. Had to do
It added that a large number of accounts did not have a designated nominee, while also noting that being nominated did not mean that the claims process was hassle-free.
“Difficulties are also being faced in accounts where nominations are being made by deceased account holders,” the report said. “Though specific instructions have been laid down relating to the procedure to be followed for settlement of claims in respect of deceased depositors, these are not always followed.”
Further, the committee found that even when nominations were made, banks were insisting on submission of “unnecessary” documents, for example, succession certificates in case of any legal disputes that may arise in future. Undertaking to indemnify, etc., which are specifically prohibited by regulation.
The Committee also observed that even after the required documents are submitted, the bank branch is sometimes not authorized to release claims beyond a certain limit and hence the cases are referred to controlling offices and even to the head office of the bank. are also required to be dispatched, resulting in avoidable delays. ,
“It may be made mandatory to obtain nomination in deposit accounts to facilitate hassle free settlement of claims in case of death of the account holder,” the committee recommended. “RE should be asked to obtain nomination in all such cases within a reasonable time period, say three years.”
Further, the committee suggested that the process of settlement of claims relating to accounts of deceased customers should also be made available online, allowing for submission and verification of all necessary documents.
“The claims may be settled within a reasonable time period, such as 30 days from the date of submission of all necessary documents,” the committee said. “The time limit shall apply even when the claims are physically submitted.”
After 30 days, the committee suggested that REs would have to pay interest at a rate 2 per cent higher than that of the deceased person’s deposit.
No limit on UPI transactions
The Committee noted that payments through UPI were gaining popularity, and that UPI was being used extensively for small value payments, which should be encouraged.
“At present, banks limit debit in savings accounts,” it said. “In order to promote digital transactions, the committee has recommended… transactions done through UPI may be excluded from the limit prescribed on debit transactions in savings bank accounts, including basic savings bank deposits accounts are also included.
In other words, the committee suggested removing the cap on the number of UPI transactions that can be done from a single account.
(Editing by Nida Fatima Siddiqui)
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