Banks Violating Prevention of Money-Laundering Act for Excluding the Excluded

Abstract

To facilitate banking for small clients, Reserve Bank of India (RBI), as early as 2005, introduced savings bank account not requiring maintenance of minimum balance in the account. For such accounts, the fee for non-maintenance of certain minimum balance was removed. These accounts were initially called basic banking 'no-frills' account and later rechristened as Basic Savings Bank Deposit Account. RBI during the same period also initiated the concept of Small Deposit Account wherein it introduced relaxed know your customer (KYC) norms. Later in 2010, the Government of India (GoI) brought in appropriate legislation to give more teeth to RBI‘s small deposit accounts. GoI called such accounts as 'Small Account' and it was introduced under the Prevention of Money-Laundering (PML) Act 2002. The PML Third Amendment Rules, 2010, empowered every citizen to open a bank account and carry out financial transactions using the banking channel. The novelty of such an account is that an individual desirous to have a bank account can simply walk into any bank branch with only a self-attested photograph and open such an account. Opening of such Small Accounts, in a bank branch, has been made as simple as walking into a Post Office for making a money order of, say, Rs. 3000.

Despite well thought of initiatives of the government and RBI, foundations of which were laid more than 8 years back, and culminating in form of empowerment of millions of people in India (to facilitate social financial inclusion) through appropriate amendment of the PML Act as early as 2010, the present scenario is that there is an inherent repulsion by banks to cater to low net worth individuals in non-rural locations where the usage of banking service is more on natural demand basis unlike the rural model of a supply based induced structure. During the course of this study, it was overwhelming to learn that bankers at large (and thus practically every Indian to whom it matters more) do not know about the provision under legislation that a small savings bank deposit account can be opened in banks across India, without the requirement of any ID and/or address documentary proofs.

This Report is based on a designed survey experiment, carried out involving more than 20 representative banks, to understand the state of access to basic banking facilities by the financially excluded. After assessing the demand and supply of basic banking facility and various aspects of the current impasse, the Report makes some recommendations to facilitate financial inclusion.