India’s largest lender, the State Bank of India (SBI), is spearheading a significant push for regulatory reform in the banking sector. The bank has formally requested the Reserve Bank of India (RBI) to reconsider the criteria used to define ‘inoperative’ accounts. Currently, an account is deemed inactive if there are no financial transactions for over two years, leading to millions of accounts being incorrectly classified as dormant.
This issue is particularly acute for accounts primarily used for receiving government benefits via direct benefit transfers (DBTs). In many cases, account holders may only have two or three debit transactions after the initial credit of government funds, resulting in the account being prematurely flagged as inoperative, explained SBI Chairman CS Setty. He highlighted that the existing rule, focused solely on financial transactions, overlooks the crucial role of non-financial activities.
Setty argues that a simple balance check, for instance, should suffice to demonstrate account activity and prevent the account from being classified as inactive. He emphasized that such non-financial transactions signify the account holder’s engagement and awareness of their account. “When a customer performs a non-financial transaction, it indicates they are actively involved with their account,” Setty stated, suggesting this interaction should be considered a sign of active account management.
The SBI’s proposal is driven by a growing concern about the large number of accounts rendered inoperative due to this strict definition. The bank believes the current system disproportionately impacts individuals who primarily use their accounts for receiving government assistance. This often results in unnecessary complications, especially since reactivation necessitates a Re-KYC (re-Know Your Customer) process.
To combat this, SBI has also launched a nationwide campaign to raise public awareness about the importance of maintaining account activity and the repercussions of accounts becoming inoperative. The bank’s key message is promoting regular transactions to avoid this classification. The outcome of SBI’s plea to the RBI will significantly impact millions of account holders across India and could potentially redefine the operational guidelines for banking accounts nationwide. The RBI’s response to this crucial request will set a precedent for banking regulations and customer engagement across the financial sector.
