“What is a worker supposed to do when he or she is told, after hours of queuing in an overcrowded bank, ‘your account has been closed from the back-end, now move on please’,” asks Jean Dreze who has spent decades working with India’s poorest people. This is the reality of rural India where millions of Jan-Dhan accounts were opened with great fanfare. As with many other schemes and promises, the reality is vastly different.
In this case, one common link between urban elites with multiple bank accounts and impoverished Indians struggling to eke out a living is the harassment by banks who are allowed to freeze savings over know-your-customer (KYC) updation.
Earlier this month, Moneylife Foundation sent a memorandum to the governor, Reserve Bank of India (RBI), on the harassment caused to ordinary depositors by the draconian action of blocking access to their own money on the grounds that KYC documents were not updated.
We are all for strict KYC norms being followed, but not its mindless application which treats law-abiding people like economic offenders. Delegating this draconian power to the branch level and making people bear the brunt for mistakes or tardiness of bank officials is nothing short of criminal. The harassment has continued throughout the past year, when India has struggled with a pandemic.
When we wrote our memorandum and followed it up with an online petition, our focus was on urban Indians and even non-resident Indians (NRIs). An email from economist, activist and teacher, Jean Dreze, showed us how much worse the problem is for rural and economically backward Indians who have all been asked to open Jan-Dhan accounts on the promise that their sole identification—the Aadhaar card issued by the UIDAI—was adequate. Their nightmare began afterwards.
In 2018, Jean Dreze and his colleagues wrote to RBI governor Urjit Patel alerting him to the issues faced by Jan-Dhan account-holders in Jharkhand. The letter was acknowledged but nothing happened.
In 2019, they wrote to senior RBI officials where this was one of the issues raised. Again, nothing happened.
Writing about the deep crisis in the National Rural Employment Guarantee Act (NREGA) scheme in 2018, Mr Dreze said, it is manifested in the form of delayed payments, rejected payments, diverted payments and locked payments.
He describes how accounts are not merely frozen but closed altogether for want of ‘e-KYC’ (biometric authentication of Aadhaar-linked accounts), “which is compulsory for NREGA workers—if not in theory then certainly in practice.”
Why is e-KYC such a problem for the rural poor?
Explaining this in another article that year, Mr Dreze says, “A myth has been created that Aadhaar enabled millions of people to open JanDhan Yojana accounts within minutes, using biometric authentication. In fact, most of these accounts were opened without biometric authentication, by seeding Aadhaar numbers from Aadhaar cards or even second-hand information. Biometric verification (in the form of ‘e-KYC’) was imposed later on, and became a serious ordeal for poor people. Failure of e-KYC often led to discontinuation of benefit payments, or to people being locked out of their accounts, temporarily or permanently.”
The problems with biometric authentication, especially for those with calloused and work-worn hands, is well known.
Mr Dreze says, “Many banks used the ‘ultimatum method’ for e-KYC compliance. They set a deadline and simply blocked accounts en masse when people missed the deadline.
"The problem was compounded due to inconsistencies between the Aadhaar database and the bank database. The only way to get their account unlocked was to resubmit original documents, sometimes providing new documents like a PAN card.
“At every step, accounts were frozen with abandon whenever people needed to be ‘nudged’,” he says, explaining the situation in Jharkhand.
For the poor, this not only meant that their savings were blocked but it also led to denial of rations, subsidies, benefits from welfare schemes and the experimentation and glitches involved in seeding every new scheme meant for them.
In fact, KYC is just one of the problems faced by the poor; the problems with mapping ‘benefits’ to the Aadhaar-based payment system has a series of flaw that I will not go into in this column, except to point out that these people are forced to operate through banking correspondents and are not issued passbooks and, sometimes, do not even get proper transaction receipts.
In 2019, they wrote to the RBI again, about how the Supreme Court ruling on Aadhaar hadn’t help workers in Jharkhand and, often, bankers themselves were unclear about its implications for Aadhaar seeding, e-KYC and the Aadhaar payments bridge system. While banks were allowed to open accounts only with Aadhaar, operating them apparently required e-KYC or the benefits were blocked. This not only inflicted enormous hardship but deprived the poorest Indians of legitimate benefits. But everybody in the system remains unmoved, because there is no accountability. Nobody cares. Approaching the RBI in the past has been like hitting a brick wall, says Mr Dreze.
“Perhaps the biggest injustice that has been done in this domain is the freezing of accounts of elderly/widowed/disabled persons for lack of KYC or e-KYC. For many of them, it is really difficult to meet the ever-tightening requirements,” says Mr Dreze.
Businessmen and others who have suffered the much-publicised issues with the goods and services tax (GST) portal or MCA21, or more on 28th April, the crash of Co-WIN within minutes after it opened for vaccine registration, could probably empathise with the trauma faced by the poor.
Remember, most bankers are fully aware of how they had allowed multiple Jan-Dhan accounts to be opened with the same Aadhaar because they were under pressure to meet account opening targets, but they can’t do much about setting things right.
Meena Seshu, a well-known activist and founder of SANGRAM, based in Sangli (Maharashtra), which works at empowering sex workers, says that the problems have been further compounded by the merger of nationalised banks.
She says, the government announced COVID-19 relief to women in sex work (Rs5,000 for three months + Rs2,500/month if she had children) through the ministry for women and child development. “We were asked for lists, Aadhaar card numbers, bank details, and IFSC codes, which we provided. But banks refused to honour or credit those accounts where KYC was not updated.”
A tedious follow-up to complete KYC by providing by linking Aadhaar to bank accounts and providing additional proof, such as PAN cards, has activated some accounts.
But, in many cases, there are inconsistencies in spellings between Aadhaar and bank account details, leading to more hassles.
Since some banks have merged, they are struggling all over again with the new changes including IFSC codes.
In the letter to governor Urjit Patel, which was essentially a plea for proper grievance redress, Mr Dreze and his colleague wrote, “In recent years, some of the country's richest people have brazenly plundered public sector banks by defaulting on their loans. Meanwhile, NREGA workers and pensioners are facing endless harassment from the banks. To get their meagre wages or pensions, they have to submit numerous documents, link their accounts with Aadhaar, go through e-KYC again, stand in queues for hours, and run from pillar to post when their money is held up due to technical problems… even when accounts are credited, they are not allowed to withdraw their money.”
Mr Patel, who left before completing his term, only acknowledged the letter but didn’t act on it. If grievance redress is such a struggle for us, well-to-do urban Indians, it is almost non-existent for the poor.
In 2019, they wrote to the RBI again, about how the Supreme Court ruling on Aadhaar hadn’t help workers in Jharkhand and, often, bankers themselves were unclear about its implications for Aadhaar seeding, e-KYC and the Aadhaar payments bridge system.
While banks were allowed to open accounts only with Aadhaar, operating them apparently required e-KYC or the benefits were blocked. This not only inflicted enormous hardship but deprived the poorest Indians of legitimate benefits.
But everybody in the system remains unmoved, because there is no accountability. Nobody cares. Approaching the RBI in the past has been like hitting a brick wall, says Mr Dreze.
Will our petition fare any better? Well, RBI governor Shaktikanta Das encouraged us to document the issues and send him a memorandum. He has also asked for it to be examined by the ‘concerned department’.
Hopefully, they will dig out letters to past governors, which were probably moth-balled, and come up with a solution. Otherwise, we will have to look for other solutions.