KYC entered the life of the Indian banking customer in 2002. Till then “know your customer” meant the intimate and friendly relationship the local bank branch manager had with the depositor. Not anymore. As India adopts impersonal modern habits of arm’s length, faceless transactions, banks are no longer the place where the retired person drops in for a mid-morning chat and cup of tea with the manager. The new normal is KYC: though KEEPING YOU CONFOUNDED fits the acronym far better than KNOW YOUR CUSTOMER.
The past decade has certainly put the depositor through the KYC wringer. Originally conceived to check money laundering and terrorist activities, KYC is today the scourge of the hapless common citizen. For accessing her hard-earned money kept in savings accounts, the citizen is compelled to prove her identity almost every year. While the eKYC is intended to allow for online verification of identity, there are numerous instances of the depositor being required to visit a bank branch to confirm her identity. My own harrowing experiences bear out the repeated trials and tribulations in ensuring KYC compliance.
I have a joint savings account with my spouse in the branch of a private bank in Mumbai. This account was opened before this millennium in a bank which was subsequently taken over by the private bank. Some fifteen years later, I was informed that this account was dormant since no transactions had taken place in the previous couple of years. Question no. 1: why would a bank need to verify the ownership of an account with a limited amount of deposit, just because the depositor has not undertaken either deposits or withdrawals over a period of time? Surely the depositor can exercise her democratic right to operate or not operate the account, since she may be drawing on her reserves in other bank accounts. Anyway, it took us three or four visits to the bank to get the account activated.
Stranger things have since befallen us with this same account. Despite transacting with the account in mid-2024, the account has again been marked inactive in late 2024. Now, the problem has assumed a new dimension. When the account was opened in the predecessor bank in 1997, my name in the account was just ‘Ramani’. Some bright spark in the bank has concluded that this does not coincide exactly with my name in the PAN card and Aadhaar records, where my father’s name precedes my own name. So, no go with eKYC procedure: I am required to present myself at a bank branch so that they can be satisfied that I do indeed exist in flesh and blood.
To build on the madness, my demat account has been rendered inactive on the grounds that I have undertaken no activity in the past 24 months. Question no. 2: why is an investor required to compulsorily buy or sell stocks to satisfy the concerned agency that she is not a ghost operator- that again, when the amount involved is so measly? I tried the eKYC facility on the website: it accepted my signature but refused to accept my mug shot; apparently, a selfie is a must. Question no. 3: since banks and other institutions have already wrapped Aadhaar verification around our necks, why could a simple Aadhaar authentication not have sufficed? To add insult to injury, an affiliate of the same private bank is now sending me messages for eKYC of my car insurance policy, executed just five months ago. Honestly, I don’t know whether to laugh or cry at this buffoonery.
I read in the news recently that the Government of India is concerned about the large number of inoperative bank accounts in the country. With the huge number of Jan Dhan deposits, the mind boggles at the thought of 800 million or more Indians going through the KYC quagmire once a year. My entreaty to the Finance Minister of India, the Finance Secretary of India and the RBI Governor would be as follows:
(1) For bank accounts that have been in existence for years and where KYC has been complied with anytime in the past, do away with future KYC compliance.
(2) Select only those bank accounts for KYC verification which seem to reveal suspicious transactions.
(3) Even where KYC is felt to be necessary, rely on online procedures such as Aadhaar authentication and video calls to the customer, if identification by the bank is required. Many senior and super senior citizens may not be in a position to undertake the numerous trips to a bank branch to complete the KYC formalities.
What comes through clearly from this entire rigmarole is the absolute lack of trust that pervades the system. The banking staff does not trust the virtual customer (even when adequate documentary proof has been provided) and governing institutions do not trust the banking staff. In this entire process, the 0.01 percent of banking malefactors who ought to be caught and prosecuted for their financial wrongdoings go scotfree, while for the remaining 99.99 percent, it continues to be the same routine of KYC verification, ad nauseam ad infinitum, leading to LYC (losing your cool).
Posts Tagged ‘KYC’
15 Jan
KYC – Keeping You Confounded
21 Dec
Oh! to be in Estonia
I wonder how many people in India would even be aware that there is a country on planet Earth called Estonia. Tucked away in the Baltic corner of Europe, Estonia was one of the republics constituting the former USSR. The dissolution of the Soviet Republic in 1991 saw Estonia, along with a clutch of other erstwhile republics, achieve her separate identity. But what is truly remarkable about this small country of barely 1. 3 million people with a geographical area straddling not even 50,000 square kilometres is the rapid strides she has made in the digital revolution sweeping the globe. Estonia has an e-police, e-schools and an e-cabinet: you can now even apply for e-residency in that country. Estonia is virtually the digital hub for Eastern Europe and hosts the NATO Centre for Cyber Excellence. Not that digital progress does not come without a price; Estonia was literally brought to her knees by a major cyber-attack by Russian hackers some eight years ago and, has since, tightened cyber security measures. Her logic for offering e-residence facilities to non-citizens is, among other reasons, aimed at facilitating access to the European market to foreign investors at minimal cost and with a minimum of tiresome legal formalities.
No, I am not planning a shift to Estonia. The weather there is too cold, one has to keep worrying about a possible Russian re-takeover of the country and I am too tied to the earth of Bharat Mata. But I do think wistfully of Estonia’s e-topia whenever I run into India’s bureaucratic conundrums. The latest one is something called the FATCA declaration. For the uninitiated, this acronym stands for “Foreign Account Tax Compliance Act”. India and United States of America have an agreement under which the governments of the two countries will exchange information on taxable transactions by residents in the respective countries. So far, so good…but what gets my goat is the declaration to be signed by every Bharatiya whenever she opens a demat account or commences mutual fund trading, specifying her country of citizenship and place of residence. I am all for unearthing stashing of black money in safe tax havens, but getting over 99% of Bharatiyas, many of whom have not even crossed the Palk Straits or the Wagah check post, to sign one more silly document is surely the height of bureaucratic stupidity. More so, because these Bharatiyas generally transact through banking channels, where details about their citizenship, place of residence, etc. are already available with the banks.
But even the meaninglessness of FATCA pales before that other abomination, inflicted on us by the mandarins of the Finance Ministry, infamously known as KYC. Used by banks, gas agencies, mobile companies and sundry others to harry the unsuspecting customer, KYC officially stands for Know Your Customer. To my mind, it stands for Keep You Confused. I suspect that each time there is a change of Finance Minister or Finance Secretary in the Government of India, 600 million bank customers are once again asked to confirm their place of residence. Why else has one had to go through this exercise three times in the past six years? It is not as though seeking address details leads to lesser tax evasion or concealment of ill-gotten gains. We read daily about the number of fake accounts being uncovered in reputed private and government-owned banks: the mind boggles at what may be going on in cooperative banks.
As a matter of fact, asking for residential details of a customer wanting to open a bank account is itself a source of harassment to a citizen who moves for employment to different parts of the country every couple of years. I have read horror stories of young professionals who had to run from pillar to post to open a bank account when they moved in to stay with their parents and had no independent proof of residence. If the customer retains her bank account at the branch near her earlier residence and largely transacts through internet banking, she still needs to update her address to receive new debit and credit cards or for other transactions like securing loans. The agency that provides a service will invariably insist on a document like the Aadhaar card, passport and driving license or ration card for proof of residence, although a recently relocated customer is unlikely to have the new address on any of these documents. Nor do banks follow a uniform procedure for accepting address changes. One private bank allows for change of address through phone banking, while others ask for scanned copies of address proof. What defies comprehension is why the individual who can transfer/withdraw lakhs of rupees through net banking transactions cannot be trusted to change her address through the same net banking channel, without further verification. This underlines government’s basic lack of trust of the citizen and its permanent suspicion about her motives.
I have also not understood why the Aadhaar card needs to have the address on it at all. As a pan-India identity symbol, it is enough if it testifies to the fact of Indian residency. Updating the address every few years is an avoidable irritant for the geographically and socially mobile Indian: the fate of her economically worse-off migrant sisters and brothers is much more difficult to envision. Equally meaningless is the police verification at the time of issue or renewal of a passport, when any police station would have the list of persons whose record does not entitle them to issue of a passport. The police constable visits the house of a passport-seeker just to verify if she does stay there, never mind if the person moves house a few days after that. All this exercise does is to give a few more rent-seeking opportunities to the official machinery. It has not prevented gangsters and underworld henchmen from acquiring multiple passports at the drop of a hat.
Actually, the concept of a permanent residential address is so antiquated and irrelevant for members of the post-independence Indian domestic diaspora, who (and whose parents) have travelled wherever their employment took them. Most of us today have virtual email addresses that have survived longer than our present residential addresses. So when will our beloved Bharat be rid of this medieval fetish for permanent addresses? Probably when we move in the course of the next few months and years to a cashless economy. Once every transaction of ours leaves an electronic trail, there will be no need for any officious Finance Ministry bureaucrat to insist on an address. Till then, may I request the powers that be to content themselves with a correspondence address and trust the individual citizen when she furnishes that address?
V. Ramani's web 