Ashok Parhaiya lives on the margins of subsistence in Uchvabal, a small village in Jharkhand’s Latehar district. Three of his children receive scholarships, but they are unable to withdraw the money because their bank accounts have been frozen. “Kwicy laga hua hai [KYC has been enforced],” explains Ashok. This is the common expression used in the area to mean that an account has been frozen until the customer completes the Know Your Customer (KYC, or “Kwicy”) formalities.
The formalities require each of Ashok’s children to authenticate their Aadhaar number at a local Customer Services Centre (CSC), then take the authentication certificate to the bank, fill up a form, and submit both with the requisite documents. Ashok has no idea how to go about this. The CSC operators keep asking him for money, which he does not have. So, Ashok has given up for the time being.
Many others in Ashok’s village have similar problems. Some can afford to bribe the CSC operators, but there are other hurdles. First, the banks are hopelessly overcrowded. Second, KYC requires the Aadhaar demographic details to be fully consistent with the bank account details. Third, after the whole ordeal, the customer is still at the bank’s mercy for timely reactivation of the account. Reactivation often takes a long time as the local banks are understaffed.
Enquiries reveal that bank accounts have been frozen en masse in Jharkhand. In a survey of three villages in Latehar district conducted in October 2024, almost 40 per cent of the 72 sample households had at least one frozen bank account. In most cases, this is due to KYC problems. Elderly pensioners who depend on their meagre pensions, children who receive scholarships, and women entitled to Rs.1,000 per month under Jharkhand’s new Jharkhand Mukhyamantri Maiya Samman Yojana are unable to withdraw their money.
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When we went to these villages, we had no prior inkling of the KYC issue. According to the local manager of State Bank of India, the epidemic of freezing bank accounts is due to recent instructions from the Reserve Bank of India that require all Aadhaar-linked accounts to be re-registered. The manager admitted that accounts are being frozen without prior intimation, “from the back end”. The operation, staggered over time, will result in more accounts being frozen until KYC formalities are completed. Senior SBI officials in the State capital of Ranchi, however, denied that the RBI had issued such instructions and claimed that SBI was simply applying the RBI’s general KYC guidelines.
Periodic renewal of KYC details, we were told, is necessary in view of rampant fraud in the banking system. Special mention was made of fraud in the Aadhaar-enabled Payment System (AePS). No doubt, the AePS is vulnerable to fraud, as Jharkhand’s very own “scholarship scam” (involving the illegal diversion of the Centre’s scholarship funds for students from disadvantaged minority communities) illustrates, but the scholarship scam had nothing to do with faulty KYC. It is likely that the same applies to most AePS-enabled scams.
In a mess
This is not to deny that faulty KYC may be a problem with some Aadhaar-linked accounts. The main reason behind it, however, is the mess created by the Pradhan Mantri Jan-Dhan Yojana (JDY). When the JDY was launched in 2014, millions of accounts were opened in a hurry to meet centrally assigned targets. Aadhaar numbers were seeded without biometric verification, and demographic details were entered haphazardly from Aadhaar cards. As is well known, Aadhaar demographic details are not reliable in the first place. Perhaps the re-registration of Aadhaar-linked accounts is an attempt to clean up this mess.
For many individuals, a significant challenge with KYC compliance is the requirement for complete consistency of demographic details between their Aadhaar card and bank account.
In cases where Aadhaar is the identity document initially used to open the account, this consistency may seem to be guaranteed. Alas not: people often update their Aadhaar details for various reasons, such as incorrect data entry, change of address, and so on. When they go for KYC, an inconsistency emerges between the bank account and the Aadhaar card. In this situation, according to the local SBI manager, people are asked to correct the Aadhaar card to resolve the inconsistency. This “correction”, however, risks introducing new inconsistencies between the Aadhaar database and other databases such as job cards and ration cards.
When we pointed out to a senior SBI manager in Ranchi that this task of “aligning” Aadhaar with multiple databases is an ordeal for many, he shrugged and said: “This is a one-time exercise.” This response is characteristic of the ignorance of senior bank officials. Drunk on digital records, they are unable or unwilling to see the problems people face on the ground.
Running from counter to counter
In a follow-up survey in four villages of Lohardaga (a neighbouring district), where most people have accounts with Bank of India, the situation was just as bad as in Latehar, except in one village that had a bank branch. In that village, most people had functional accounts, presumably because they had easy access to the bank. In the other villages, 76 per cent of the 147 households surveyed had at least one frozen account.
We conducted a pilot survey in Gotidumar, a small village in Lundra block of Surguja district in Chhattisgarh. Gotidumar is inhabited by Pahadi Korwas, a “particularly vulnerable tribal group”. The nearest bank branch is in Dhaurpur, 8 km away, and the district headquarters is 50 km away, in Ambikapur.
A few years ago, a banking correspondent from the SBI branch in Baghima, 35 km away, came to Gotidumar and opened bank accounts for most residents. Recently, when some of them tried to withdraw money from a CSC, they were sent away and told to visit the home branch in Baghima for KYC. When they visited Baghima, they were told that their accounts had been transferred to Ambikapur. Many of them then ran from counter to counter in Ambikapur, all in vain.
Meanwhile, they were unable to access their pensions or the money earned from work under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), the Pradhan Mantri Kisan Samman Nidhi, or from the collection of tendu leaves. It is only after a local non-profit intervened that at least some KYC problems were resolved.
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At the time of the pilot survey in early October 2024, the situation in Gotidumar was still problematic. At least 40 individuals had KYC problems, in a small village of 50-odd households.
It is likely that the situation in Latehar, Lohardaga, and Surguja districts is just the tip of the iceberg. While follow-up enquiries are in progress, they are unlikely to overturn the basic message of these investigations: the entire KYC process needs urgent review in the light of the burden it imposes on banks and, more importantly, on the public. Only extreme circumstances can justify stopping people from accessing their own money.
Jean Drèze, Vipul Paikra, and Natasha Trivedi are independent researchers. Special thanks to NREGA Sahayata Kendras in Jharkhand for their generous cooperation and to Arti Singh for leading the Gotidumar survey.
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