Question: A customer's bank stopped UPI and card usage while KYC is pending, but cash withdrawal at the branch still works. As per the RBI Master Direction on Know Your Customer (KYC), is that partial freezing allowed?
Answer: Yes. The Master Direction permits banks to impose partial freezing on KYC non-compliant accounts in a phased manner, after due notice.

Supporting evidence:
title: RBI Master Direction on Know Your Customer (KYC)
quote: In case of non-compliance of KYC requirements by the customers despite repeated reminders by banks/FIs, banks/FIs may impose ‘partial freezing’ on such KYC non-compliant accounts in a phased manner While imposing ‘partial freezing’, banks/FIs have to ensure that the option of ‘partial freezing’ is exercised after giving due notice of three months initially to the customers to comply with KYC requirements
context: should suffice in such cases. In case of change of address of such ‘low risk’ customers, they could merely forward a certified copy of the document (proof of address) by mail/post, etc. Banks/FIs should not insist on physical presence of such low risk customer at the time of periodic updation. The time limits prescribed at (i) above would apply from the date of opening of the account/ last verification of KYC. Fresh photographs to be obtained from minor customer on becoming major. B. Freezing and closure of accounts In case of non-compliance of KYC requirements by the customers despite repeated reminders by banks/FIs, banks/FIs may impose ‘partial freezing’ on such KYC non-compliant accounts in a phased manner. During the course of such partial freezing, the account holders can revive their accounts by submitting the KYC documents as per instructions in force. While imposing ‘partial freezing’, banks/FIs have to ensure that the option of ‘partial freezing’ is exercised after giving due notice of three months initially to the customers to comply with KYC requirements to be followed by a reminder giving a further period of three months. Thereafter, banks/FIs may impose ‘partial freezing’ by allowing all credits and disallowing all debits with the freedom to close the accounts. If the accounts are still KYC non-compliant after six months of imposing initial ‘partial freezing’ banks/FIs should disallow all debits and credits from/to the accounts thereby, rendering them inoperative. Further, it would always be open to the bank/FI to close the account of such customers after issuing due notice to the customer explaining the reasons for taking such a decision. Such decisions, however,

need to be taken at a reasonably senior level. In the circumstances when a bank/FI believes that it would no longer be satisfied about the true identity of the account holder, the bank/FI should file a Suspicious Transaction Report (STR) with Financial Intelligence Unit – India (FIU-IND) under Department of Revenue, Ministry of Finance, Government of India. IV. Miscellaneous A. At-par cheque facility availed by co-operative banks Some commercial banks have arrangements with co-operative banks under which the latter open current accounts with the commercial banks and use the cheque book facility to issue ‘at par’ cheques to their constituents and walk-in- customers for effecting their remittances and payments. Since the ‘at par’ cheque facility offered by commercial banks to co-ope