The Union Budget was high on feel-good rhetoric, promises and slogans, with an eye on the general elections. It, nevertheless, pays lip service to solving some of the contentious issues faced by ordinary people. There was also an absence of new experiments that have, in the past, triggered outrage, discussions and a roll-backs. The finance minister (FM) Nirmala Sitharaman has not tinkered with capital gains tax, as feared by investors; has offered personal tax concessions, at least offset some impact of inflation and has announced some tangible benefits to senior citizens and women who like to save through bank deposits.
To me, the big positive is that the government has at least addressed a few serious issues that I have been highlighting through Moneylife Foundation over the past few years. One, the harassment unleashed on individuals and businesses in the guise of know-your-customer (KYC) updation which is callously administered by banks. Second, the friction and harassment in claiming our own unclaimed money and assets that are impounded and pooled by various regulators after 7-10 years.
Although the Budget speech has very few details on these, the FM appears to have made a beginning by recognising these issues as problems. Hopefully, she will not flatter to deceive and her KYC concessions are aimed at ordinary people and not solely aimed at facilitating faster on-boarding of customers by the tech start-ups or make life easier for investment managers.
Let’s look at the announcement and the follow-up notification by the Reserve Bank of India (RBI) more closely. The FM says, “The KYC process will be simplified adopting a ‘risk-based’ instead of ‘one size fits all’ approach. The financial sector regulators will also be encouraged to have a KYC system fully amenable to meet the needs of Digital India.”
That sounds good, except the fact that KYC rules, framed under the Prevention of Money Laundering Act, framed by her own ministry are already ‘risk-based’. In fact, RBI’s updated master directions on KYC clearly mandate risk-based KYC updates—at least once every two years for high-risk customers, once in every eight years for medium-risk customers and once in every 10 years for low-risk customers. If there is no change in status, address or identity, low-risk customers can also update KYC through simple self-certification. But this is only on paper. So are the three warnings that banks are supposed to issue to customers before freezing their accounts.
So why does the Budget speech appear to suggest that a ‘risk-based’ approach is something new? Also, shouldn't the banks’ KYC, which is the strictest, apply to all other products and services, instead of having separate KYC for each product?
The FM also announced, a “one stop solution for reconciliation and updating of identity and address of individuals maintained by various government agencies, regulators and regulated entities will be established using DigiLocker service and Aadhaar as foundational identity.”
So what happens to the plethora of agencies that have been offering KYC and e-KYC facilities, including video-based updation? Will their databases be consolidated or will earlier systems be discarded and a brand new one introduced that mandates use of Aadhaar and a DigiLocker? This would only mean a fresh round of KYC and need to avail a DigiLocker.
For the record, Moneylife Foundation (Read our memorandum here: https://www.mlfoundation.in/memorandum/ arbitrary-freezing-of-bank-accounts/130.html) has also been advocating standardisation, transparency and the introduction of a single central, e-KYC across regulators in order to do away with the hassle of KYC updates for every investment.
Another announcement by the FM is that businesses will have an easier time by making the permanent account number (PAN) a “common identifier for all digital systems of specified government agencies… through a legal mandate.”
RBI has acted on this with great alacrity and issued a quick notification (RBI Allows Banks To Accept SEBI KYC for Opening Accounts of Foreign Portfolio Investors) allowing banks to accept a KYC by custodians or an intermediary under the Securities and Exchange Board of India (SEBI) for opening bank accounts by foreign portfolio investors (FPIs).
Will FM ensure that RBI and other regulators show the same alacrity in rolling out a single, central KYC for all investments, deposits and transactions by individuals and put an end to the criminal practice of illegally freezing bank accounts and demat accounts by misusing their regulatory powers? The need for speed to prevent harassment of low-risk individuals and also non-resident Indians (NRIs) is far greater.
Reclaiming Shares and Dividends
Para 106 of the Budget is a curious one. It says: “For investors to reclaim unclaimed shares and unpaid dividends from the Investor Education and Protection Fund Authority (IEPFA) with ease, an integrated IT portal will be established.”
It is unclear if this is another half-hearted promise. An online system of reclaiming shares, bonds, debentures and the dividend, bonus and interest pooled into a fund by the IEPFA already exits and is a nightmare. Only last week, I wrote about how IEPFA had sought public feedback on improving its system (Read: Public Feedback on Investor Grievances: Are Investors Finally Being Heard? Or Is It Just a Pointless Exercise?). If the FM’s speech refers to this, nothing is going to change in the near future.
However, the moot question is: Why should the FM restrict the promise to shares and dividends? The same problem with reclaiming money applies to bank deposits and their interest, provident fund, post-office deposits, national savings schemes, insurance and mutual funds. Unclaimed money in such pools, belonging to people, may be as high as Rs82,000 crore (Shouldn’t Regulators Be Accountable for Returning Rs82,000 Crore of Unclaimed Money To Savers?).
Our plea was to make public, on centralised platform, the details of unclaimed money of investors and depositors taken by various regulators and remains inaccessible to rightful legal heirs. I went a step further and prepared a paper on global practice in dealing with unclaimed public money and shared it with all the financial regulators. It shows that every developed nation has a process for tracing ‘true owners’ and ‘uniting them’ with their unclaimed funds. (Read: Use Global Practices To Reunite Unclaimed Financial Assets with Their Rightful Owners).
Since prime minister Narendra Modi believes that the world is watching India and its Budget, shouldn’t we have made the leap to at least declare our intent to catch up with the developed world in this regard? Let us hope that the FM decides to go beyond her Budget announcements and do what is right for the people.
While IEPF gives only 15 days for Companies to respond to the Beneficiary's claim, after submission of the confirmation by companies, IEPF DOES NOT ACT ON IT FOR 15 MONTHS.
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