Canara Bank Penalised by RBI: Is Your Account Affected by the KYC and ‘Inoperative’ Account Lapses?

In another instance of banks facing issues due to RBI’s regulations, the Reserve Bank of India has slapped a fine of ₹41.8 lakh on Canara Bank for non-compliance with some of its rules regarding the KYC norms and managing inoperative accounts. 

The decision by the RBI came after a supervisory inspection carried out by the central bank, and this has raised some questions amongst customers regarding the status of their accounts/deposits. But there is one bright side to the decision made by the central bank.

Why Did RBI Penalise Canara Bank?

It was discovered by the RBI that there had been non-upload of certain customer KYC documents into the CKYCR system. In other cases, some accounts had been labeled “inoperative” even though customer-led activity had happened within a period of one year prior.

This was discovered during the RBI assessment carried out in light of the status of the bank as of March 31, 2025. After the assessment, RBI found that the bank had not adhered to the relevant directives regarding KYC and inoperative accounts.

What Is an Inoperative Account?

Customers are now trying to figure out the definition of an “inoperative account.”

An account can be defined as an inoperative or dormant account if there haven’t been any customer-initiated transactions for a considerable period of time, usually two years. According to the guidelines of the RBI, it is essential for banks to take good care of their dormant accounts as these can easily fall prey to fraud or misuse, etc.

What was the problem with Canara Bank is that some accounts were declared as inoperative accounts despite qualifying customer transactions having taken place within the prescribed period.

Should Canara Bank Customers Be Worried?

There is no cause for alarm for the majority of customers. The RBI has clarified that the penalty imposed by them was purely for regulatory reasons and not as an assessment on the legitimacy of the customers’ transactions or agreements. This penalty is a way of raising compliance standards among customers.

This indicates that customers do not necessarily have to panic to close their bank accounts or to withdraw money based on the RBI’s penalty imposition. Nevertheless, the current event serves as a reminder for customers to always maintain up-to-date KYC information.

How to Check if Your Account Could Be Affected

Clients that haven’t done KYC updates for many years need to confirm if they have done so.

Additionally, it is important to ensure that the account is not dormant or inactive because it has been inactive for a long time.

It is important to note that when one receives messages from the bank asking for KYC updates, they are encouraged to reply to them.

This could be achieved through communicating with your branch or even digital banking channels.

RBI’s New Push on Dormant Accounts

This penalty is levied at a time when RBI had made efforts to facilitate the reactivation of dormant accounts and unclaimed deposits of its customers.

According to RBI guidelines, customers can get their KYC requirements done through multiple mediums such as a bank branch, KYC through video and banking correspondent. This measure is taken to lower the number of dormant accounts and make money accessible for customers.

It is important for the banks to note that no mistakes should be made while classifying accounts of customers.

Why KYC Compliance Matters

KYC laws form an important component of the Indian banking system. This facilitates banks to verify their customers’ identity, curb activities such as money laundering, financial fraud, and use of accounts for any other illegitimate purpose.

Not maintaining up-to-date KYC files results in the bank facing operational risks, not to mention that the client will face difficulties in accessing his/her bank account during this period.

Therefore, RBI considers KYC compliance as an important regulatory matter in the Indian banking system.

What Happens Next?

Compliance processes of Canara Bank will surely improve, and all deficiencies will be attended to by RBI.

As far as customers are concerned, there should not be any direct impact. But the lesson that other Indian banks can learn from this experience is that they need to be more diligent about updating their KYC documents and classifying their dormant accounts correctly.

RBI’s message is loud and clear: Correct information about the customers is a must for a bank.

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Conclusion

The ₹41.8 lakh fine against Canara Bank can be considered a regulatory measure concerning KYC record management and categorization of some non-operational accounts. Though this problem draws attention to non-compliance, RBI has already confirmed that this does not mean that client money or transactions are in danger. 

In general, the most advisable move for clients is to keep their KYC data updated and regularly monitor their accounts.