News | RBI Proposes Simplified KYC Norms to Revive Dormant Bank Accounts

RBI Proposes Simplified KYC Norms to Revive Dormant Bank Accounts

News

24 May 2025

2 min read

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In a significant move to enhance financial inclusion and ease customer access to banking services, the Reserve Bank of India (RBI) has proposed a streamlined Know Your Customer (KYC) process for reactivating inoperative bank accounts.

According to the draft guidelines released by the central bank, customers may soon be able to reactivate dormant accounts through a simplified, risk-based KYC update mechanism. This initiative aims to make it easier for individuals—particularly those in rural and financially underserved segments—to regain access to their funds without undergoing the full KYC process again.

Under current norms, bank accounts that remain inactive for two years are classified as inoperative, often requiring customers to visit branches and submit extensive documentation for reactivation. The new proposal seeks to reduce this friction by allowing certain updates via digital platforms or self-declaration, depending on the customer’s risk profile.

“Given the challenges faced by customers in reactivating dormant accounts, the proposed changes will introduce a more customer-friendly approach while maintaining compliance and security,” the RBI said in a statement.

The banking regulator has invited public feedback on the draft circular until June 30, 2025, suggesting it may incorporate suggestions before finalizing the new framework.

The move is expected to benefit a large number of account holders—especially migrant workers, pensioners, and rural customers—whose accounts often become dormant due to infrequent transactions or changes in contact details.

Banking experts have welcomed the proposal, calling it a pragmatic step toward balancing regulatory diligence with user convenience. “A simplified KYC process for reactivating accounts is long overdue. Many low-income and elderly individuals lose access to their own funds because of avoidable procedural hurdles,” said Meera Subramanian, a financial inclusion researcher based in Bengaluru.

This initiative also aligns with the RBI’s broader push to deepen banking penetration and modernize KYC compliance using digital infrastructure. Recent updates in e-KYC and video-based customer verification have already reduced onboarding friction, and this move is seen as part of that broader transformation.

With over 18 crore inactive accounts across India as per industry estimates, the proposed relaxation could reintroduce a significant volume of idle funds into the active financial system, boosting liquidity and formal financial participation.

Reference : ETBFSI