Accept identity proofs issued in other states as valid documents for opening no-frills bank accounts - Government

NEW DELHI: The government has asked banks to accept identity proofs issued in other states as valid documents for opening no-frills bank accounts, in a move that will help millions of migrant workers, including domestic helps and drivers, access banking services.

At a specially convened meeting to push the financial inclusion agenda, the finance ministry asked bankers to accept the identity proofs and use their branch network in other states to verify the authenticity of the documents.

As a result, a domestic help in Delhi can use a voter identity card or the NREGA job card issued in Bihar or Orissa to open a bank account in the Capital.

Some banks such as SBI said they have been following this practice when they open accounts through business correspondents, who are agents of the bank for opening small accounts, also referred to as no-frills, and undertaking remittance related transactions.

'RBI rule on identity proof not practical'

While RBI had relaxed norms to permit banks to open accounts based on selfdeclaration in the absence of a valid identity proof, in practice few banks were using the flexibility as they feared penal action from the regulator and enforcement agencies in case anything went wrong.

"RBI also says that the liability is with the bank, so banks develop cold feet and insist on photo, photo ID and local proof of residence," said a banking industry source.

"What the government is saying is tough to implement. It is practically very difficult to use our branch in another state to conduct the verification," said a banker.

As part of the financial inclusion agenda, being pushed by the government as well as RBI, banks have been given flexibility in opening accounts and transacting business. When it comes to opening accounts, last December, the government permitted banks to use relaxed knowyour-customer (KYC) norms for opening small bank accounts. Small bank accounts refer to those accounts where up to Rs 1 lakh is deposited annually, monthly withdrawals do not exceed Rs 10,000 and the balance does not exceed Rs 50,000 at any point of time.

In addition, a move is afoot to get banks to have a presence, either through a branch or a business correspondent, in any village with a population of up to 1,000 so that remittances can take place through the banking channel.