IFMR Blog points to this development at RBI’s end.
Apparently, RBI has simplified the process of providing addresses while opening bank accounts:
Customers attempting to open a savings bank account in a scheduled commercial bank will no longer require to furnish proof of current address if the customer is staying at a location that does not correspond with that of his or her permanent address. In such instances, the customer need only provide a declaration of the local address to which all correspondence is to be sent by the bank – no proof needs to be submitted for such an address and the bank may verify this address through ‘positive confirmation’ such as by the acknowledgement of receipt of a letter, cheque books, or ATM card, telephonic conversations or visits. In a Circular issued yesterday, the Reserve Bank has eased the rule for local address proof by requiring customers to submit only one documentary proof of address – that can either be the current address or the permanent address.
In its report, the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households had recommended waiving the need for documentary proof of current address for the purpose of opening a full-service bank account. It strongly suggested requiring banks to carry out careful tracking of usage and transactions patterns through a risk-based surveillance process developed internally by each bank.
Prior to the change suggested in yesterday’s RBI Circular, the RBI had permitted customer accounts to be operated without submission of a local address proof only if such accounts adhered to restrictions on transaction and maximum balance amounts (small accounts).
The new rules substantially ease the process of account opening for a large section of individuals especially migrants who are unable to produce any valid documentary proof of a local address and who thus are consequently unable to rely on a bank account to save and remit funds.
This is a classic case of finance looking for a solution where the problem is of real sector. This move makes lives of banks really complicated as migrants could be of any type. Providing a local address is the best way to have atleast some control over your customer. With people now giving just permanent address (which could be anywhere) which the local branch cannot verify, it poses large problems for the bank branch. When one gives a local address, it is verified by the bank whether the person actually lives there or not. This helps monitor whether the person is genuine or not.
Infact even now banks open bank accounts based on letter from employer etc. But as the employee leaves, problems continue for the bank. It keeps sending information statements which are not collected by anyone and so on.
The real and bigger problem for migrants is inability to get any address proof at all (provided he gets house at affordable rents)! The problem does not end with just a bank account but affects one across public services. You need address proof for gas connections, for passports, for purchasing vehicles and so on.
The process to get any kind of address prof is a nightmare. To register a tenant agreement is way too tenuous and difficult. This is actually a bigger problem to resolve.Infact, now we have two kinds of such agreements
- Stamp paper ones: This one is cheaper and costs a few 100 rupees and was valid till a few years. Now some take it as address proof, others do not accept it.
- Those registered at the local municipality office: This is accepted at most places but is quite costly as it equals nearly a month of rent. And most of the times the owner is hesitant to get it registered for tax reasons. Moreover, the tenant might end up paying the whole amount which makes him reluctant too to register this.
And then both of these are available at far flung places making it even more painful.
The end result is jugaad. One just tries to game the system by using some combination of documents to show as a proof to get some public service. And then use the document from the first public service to get otheimr public services and so on.
Ideally, the govt should just ease this process of tenancy registration and make it affordable. This will resolve most of the problems for most people including the service provider.
Bank branch managers are likely to fret over this RBI decision. I mean how do bank branches verify a person based on transactions alone? We have all seen how much of global financial crisis had its roots in this oversimplification of such kinds of bank issues. But yes, since it did not effect as much we just don’t seem to care.
Well no one is arguing not to push financial inclusion and open more bank accounts, but it cannot be at the cost of basic banking stability. These things all add up to make a bigger problem as we saw in the recent global crisis.