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RBI relaxes Know-Your-Customer norms, allows full conversion of limited KYC accounts

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The Reserve Bank of India (RBI) made changes to its rules on Know-Your-Customer norms, including extending video-KYC to new categories of customers, allowing full conversion of limited KYC accounts and preventing companies from sanctioning customers who have not updated their existing KYC records.

The central bank made certain relaxations in the existing KYC norms, as part of a broader set of regulatory initiatives to address financial sector related issues caused by the ongoing COVID-19 pandemic.”Taking forward the initiatives of the Reserve Bank for enhancing customer convenience, it has been decided to rationalise certain components of the extant KYC norms,” RBI Governor Shaktikanta Das said in an unscheduled public address on Wednesday.

The RBI made the following changes:

  1. Extending video-KYC or Video customer identification process for proprietorship firms, authorised signatories and beneficial owners of Legal Entities and for periodic updation of KYC
  2. Conversion of limited KYC accounts to full KYC-compliant accounts, provided Aadhaar e-KYC authentication was used initially
  3. Use of KYC Identifier of Centralised KYC (CKYC) Registry for Video KYC
  4. Submission of electronic documents, including those issued on DigiLocker, as identity proof

The RBI also has told regulated entities, like banks, payment firms and non-bank lenders, to encourage the use of digital channels so that customers can periodically update their KYC details. Further, the entities have been instructed to not place any punitive restrictions on customers’ accounts, if they have not been recently updated, until December 31, 2021.The RBI also has directed account holders and users to update their KYC over the coming months.

“Keeping in view the current COVID-19 related restrictions in various parts of the country, REs are advised that in respect of the customer accounts where periodic updation of KYC is due and pending as on date, no restrictions on operations of such account shall be imposed till December 31, 2021, for this reason alone, unless warranted under instructions of any regulator/ enforcement agency/court of law, etc,” the RBI said in a notification.

By relaxing KYC norms, everyone from banks, non-bank lenders to fintech lender, payments firms and neo-banks stand to benefit as the cost of acquisition has dropped significantly. While banks can extend video-KYC to new use-cases like loans and business banking, payments companies can service a large proportion of their client base who so far had restricted accounts due to limited KYC records.  On the other hand, customers and small businesses can use new platforms and/or financial service providers by verifying their identity and documents entirely through digital means.

Omkar Shirhatti – Co-Founder and CEO – Karza Technologie said this was a much-needed move and will lead to substantial reduction not just in customer acquisition costs but also in operations and compliance costs. “A large chunk of operational and compliance costs came from the regular updation of KYC information, something which may now be possible via mobile and internet banking by customers themselves, thus reducing those costs,” he said.

“With the change in norms, current account openings and MSME Lending can now be completely digital, giving small businesses easier access to banking facilities. We also foresee an increase in Neo Banks and Digital SME Banks,” Shirhatti added.

Bhavin Patel, CEO, Co-founder, LenDenClub said the CKYC push will also make it easy for lender’s to verify customers. “Major banks are already part of Central-KYC registry and now Fintech companies like us have already registered to ensure better digital and hassle free experience for customers in need,” he said.

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