RBI Proposes KYC Reforms: Business Correspondents May Soon Play a Larger Role

As per the RBI, there has been a significant backlog in periodic KYC updates, including accounts opened under various govt schemes, such as DBT and EBT, where seamless credit of subsidies is crucial.

The central bank is inviting public feedback on the proposed changes, with a deadline of June 6.

Source : PTI

In response to persistent grievances regarding know-your-customer (KYC) procedures, the Reserve Bank of India (RBI) is considering a proposal that would allow banks to use business correspondents (BCs) more extensively. This move could ease challenges in updating KYC information, particularly for customers in rural and underserved areas.

The RBI unveiled a draft circular on Friday outlining potential changes to the existing KYC regulations. According to the central bank, there has been a significant backlog in periodic KYC updates, reported PTI. This includes accounts opened under various government schemes, such as Direct Benefit Transfer (DBT) and Electronic Benefit Transfer (EBT), where seamless credit of subsidies is crucial.

The circular further noted that even accounts under the Pradhan Mantri Jan Dhan Yojana have not been immune to these issues. Customers have repeatedly reported hurdles when attempting to complete routine KYC updates, prompting the RBI to rethink its approach.

To enhance customer convenience, the RBI is proposing to amend current KYC norms to permit authorised BCs to assist in both KYC and its periodic updates. “In order to further ease the process for the convenience of customers, the instructions regarding updation/periodic updation of KYC are being amended with the intent, inter alia, to allow BCs to facilitate in the process of KYC and KYC updation,” the draft circular stated.

The central bank is inviting public feedback on the proposed changes, with a deadline of June 6.

Inoperative Accounts May Also See Revamp

Apart from KYC updates, the RBI’s draft also tackles the issue of dormant or inoperative accounts. As per current norms, accounts that remain inactive for over a decade are marked as inoperative, with the funds being transferred to the Depositor Education and Awareness Fund.

To address this, the draft proposes that “an authorised BC of the bank may be utilised for activation of inoperative accounts.” Furthermore, banks are being advised to offer KYC updation services for such accounts at all branches, including non-home branches. Customers would also have the option to use the Video-Customer Identification Process for reactivating dormant accounts, if they prefer.

In a bid to reduce the KYC backlog, the RBI is also evaluating the idea of instructing banks to hold KYC camps, especially in rural and semi-urban areas, and in branches where the number of pending updates is high. The regulator urged banks to adopt an empathetic approach to these efforts.

Despite earlier steps to simplify customer onboarding and KYC procedures, the central bank acknowledged that many customers continue to face operational challenges. The new proposals aim to bridge that gap by leveraging the expansive reach of BCs and using digital tools to make the KYC process more accessible.

The public can submit their suggestions on both the KYC update and inoperative account proposals until June 6, after which the RBI will finalise its guidelines.