KYC Menace: Even Savvy Customers Are Unaware of Online KYC Option
Moneylife Digital Team 03 December 2022
The harassment, humiliation and mental agony of customers in the name of updating know-your-customer (KYC) continues unabated and banks are regularly found freezing accounts without any intimation or communication, as mandated by the regulator. 
 
This inflicts 'financial death' on people by depriving them of access to their own savings. KYC documents are basic identification documents such as your PAN number or Aadhaar or some address proof to prove that your account is bona fide. However, banks simply do not pay any heed to directions issued by the Reserve Bank of India (RBI) and ignore whether the customer is a senior citizen, an old customer, or a company or even a non-government organisation (NGO) or trust. 
 
Even many senior citizens, who have been banking with the same branch for decades, are being repeatedly harassed for re-KYC. Some of them are pensioners and submit their life certificates once a year to the bank. However, these pensioners are also not spared by banks from the re-KYC. 
 
While the maximum harassment is for business accounts and trusts, individuals with savings accounts, which need KYC renewal only once in a decade, are also routinely harassed. Most are unaware that RBI has now permitted online KRC renewal. Instead, customers are being asked to come to the 'home' branch in person and sometimes wait for a long time to update KYC. 
 
Online KYC
 
The central bank, however, thinks that banks have resolved the KYC and KYC renewal issue. A high-level source at the RBI says: "We have simplified the re-KYC process and low-risk customers are required to do re-KYC once in 10 years. This can be done through self-declaration in case there are no changes in KYC details. This can be done through digital channels such as customer's email ID, mobile, ATMs, online banking or internet banking, and mobile application of the bank concerned."
 
"In case of a change only in the address details of the individual customer, a self-declaration of the new address has also been allowed, which has to be verified by the bank through positive confirmation within two months," the source says. 
 
Very few customers are aware of this change and banks, who relentlessly spam their customers for loans and credit cards, do not bother to provide this information either. RBI itself has funds under the depositor education and awareness fund (DEAF)—comprising of unclaimed deposits and interest—which can be used to create public awareness. The Fund even uses superstar Amitabh Bachchan in its public service campaigns. The central bank has apparently not realised that online KYC could also do with an awareness campaign.  
 
Disaggregated customers are unable to get their voices heard, so our sister entity Moneylife Foundation had submitted a detailed memorandum to RBI in April this year as a first step in this long battle to mitigate hardships faced by bank customers. 
 
As pointed out in the memorandum, denying customers access to their own money is an extreme punishment which is imposed with impunity by bank officers, often without adequate notice, merely for a delay in compliance with KYC re-submission.
 
"Often, customers get no warning and learn of the draconian action when their cheques bounce or debit card is dishonoured, despite money in the bank. Sometimes, they suffer because banks have made horrible mistakes or failed to seek or update information in the core banking system. Banks neither apologise nor face any consequences when this happens," the memorandum says. (Read: Let's Stop This Indiscriminate Freezing of Bank Accounts)
 
Last year, we also found that the regulator had not penalised any lender for failing to adhere to its KYC updating guidelines. Further, RBI had no information about communication between banks and the regulator for KYC updates of customers in the high-risk, medium-risk and low-risk categories, as shown by a reply received under the Right to Information (RTI) Act.
 
According to a top banker, banks are supposed to classify customers on the basis of their risk profile and the KYC harassment is reserved for those who are seen at higher risk. 
 
However, the nature of complaints that one sees on social media reveals that depositors, who would logically have the lowest risk profile—for instance, senior citizens living on savings and pensions, current accounts of companies that are used for routine business and salary payments—also suffer harassment and threats to freeze accounts. 
 
Neither banks nor RBI are willing to clarify the basis of risk classification. Although banks claim that they are harassed by RBI, and the regulator blames the finance ministry's money laundering regulations for this, victims of such coercive action have no answers or redress. (Read: Bank KYC Menace: No Penalty on Banks for Failing in KYC Updating, Says RBI)  
 
The updated master direction issued by RBI on KYC mandates periodic updating to be carried out at least once every two years for high-risk customers, once in every eight years for medium-risk customers and once in every 10 years for low-risk customers. In the case of low-risk customers, when there is no change in status with respect to their identities and addresses, a self-certification to that effect shall be obtained.
 
Risk categorisation is undertaken based on parameters such as customer's identity, social and financial status, nature of business activity, and information about the clients' business and their location. 
 
However, banks continue to follow their own rules while asking for re-KYC from existing customers and then taking action as per the whims and fancies of its officials. Responding to a tweet by Sucheta Dalal, managing editor of Moneylife, several bank customers shared their sad experiences with re-KYC. Here are a few of them...
 
 
 
 
 
 

 

Comments
himakrand
1 month ago
Dear ML team, Article is informative but missed key aspect. Br. staff (Axis & ICICI) told me Re-KYC is possible online but ONLY for single holder acc. Joint holders must visit Br. for Re-KYC. You may know if such is RBI rule or software problem to identify 2 holders in ATM for Re-KYC. PSUs are all same (except SBI) on this + other aspects..
cbk1097
1 month ago
Paytm Bank froze my wife's bank account stating that there is name mismatch after marriage. I submitted the marriage certificate and updated Aadhar and PAN card details. But they are insisting on submission of an Rs. 600 affidavit which has to be executed in Maharashtra and then have to upload it on-line
anagasthya
1 month ago
My IT refund has not been credited as I get an information that my aadhar is not linked to my bank account. None of the banks have sent me an sms about this aadhar linking as they have been done long ago. I am a senior citizen and since,I am abroad for a few months, I don't have access to otp through sms. How should I handle this?
saumilm
1 month ago
I was told the KYC is to protect against frauds for dormant accounts. If that is yo, isn't there some way to identify dormant for rather than harass everyone?

Banks say RBI wants it. Brokers say that SEBI wants it.

Isn't KYC and self attestation unique to India?
v4shekars
2 months ago
Best have few accounts, submit KYC filled standard copy every month for each account/ bank , take acknowldgement. They will fall in line, yet another example of rotting system.
Gupta10
2 months ago
Fulfilling various banks' insatiable appetite for papers (and they themselves don't know what they want) in order to be KYC compliant on bank accounts that are over 25 years old has been a source of torture for me over the last 10-15 years. 2 simple examples out of dozens of such experiences I have had.
1) I'm a NRI and have to go through 3rd degree KYC torture every 2 years. Recently I gave ICICI my KYC papers in person in a branch. I gave my original international driver's license which has my address. It has holographic security features and hence slightly harder to read but it is readable. The branch took a photocopy and while both the branch manager and I could read the address clearly on the photocopy, they refused to accept it saying that when they scan that photocopy and send it, their back office won't be able to read it and will reject the KYC. They sent me back asking me to bring another international address proof. They don't care that it is the only permissible proof I have.

2) I'm an employee of an MNC bank that transferred me overseas to another country where they operate. Post that, I could never meet the expected KYC standards for my erstwhile salary account in the same bank in India. After trying everything possible to satisfy their paper requirements for over 18 months, I finally had to close the account instead of trying to do KYC. So shocking that I was still an employee of the same bank and had been their employee for almost a decade, but they couldn't do a KYC on me!!!
yerramr
2 months ago
Very true. Neither the branch manager nor the counter executive knows that these things happened! They say that it is system that dealt with it. None either at the branch nor at the regional office are aware. A regional manager of SBI tells me that my HRMS did not give me password to handle my pension account, my gmail to which I get my monthly accounts, the HRMS handle of the SBI does not have my email record and therefore the password was not sent!! The persons yet the counter face the angst customers and they plead helpless!! Can't the banks have a relationship executive exclusively to deal with the system lapses, bounces and enquiries so that the Manager (Accounts) at the branch can handle account related issues? I have a joint account - Either or Survivor. The statement for the month says so but the second account holder name is a repeat of my name. When I showed the last 3 months' statements carrying the same name, branch showed me that they entered the particulars of the second account holder, my spouse but the network did not recognize. Where is the remedy? Neither the BM, nor the RM knows the solution. This is just the sample. We do not know what would happen when we deal in the so-called digital currency.
cjninan
2 months ago
I truly request you to take this up with RBI or the Finance Ministry. You are so right, every word mentioned in this article is true. We retail customers keep our hard earned money as deposits and CSB bank froze the account where the accrued interest was falling. I could not use the money. My account is with CSB is for the last 20 years. They did not even call to sall that they are freezing the account. This is a draconian law. If you check the rekyc form it is one of the silliest form that a person need to fill. Same content is written again and a photo attached and sent to them. What do they do with this data, I am not sure. But they are quite smart in freezing the account. One of the foreign bank wants pay slips to be sent to them. They have my existing deposits and I have not put any new one. Still they want this and keep writing nasty emails giving notice that the account will be closed. Think, we have placed FD for 5 to 10 years and these guys will threaten to close the account for keeping deposits.

Sir/Madam - Only you can take this up collectively with RBI. I heard that there is a central record where the KYC is updated. Why should a customer given the docs to each and every bank if it is updated in the central registry.
pr_vaidya
2 months ago
Thank you for this article which echoes our thoughts. Most disturbing aspect is the periodicity with which they ask for KYC updation. You have rightly said that the source of nuisance is not RBI but the Big Brother at the Finance Ministry.
The least we want is the Receipt of the KYC done and risk classification of the customer so that the bank does not keep asking for it so often. The manager promises something but by the time new KYC asked , s/he has been transferred and you have no one to argue with. Banks DO NOT VALUE CUSTOMERS anymore.
Jocker
2 months ago
Your headline says even savvy customers are not aware. My question is are banks aware? Even if you submit docs they will keep asking for KYC doc and threaten to freeze your account. It has happend to me multiple times.
Gupta10
Replied to Jocker comment 2 months ago
So true. They have no freaking clue how to do KYC. You submit some papers and they will ask something else. Then you give those and they will ask something more. At least on 3 occasions, after I submitted my KYC papers to the banks' satisfaction, they woke up almost after 1 year saying that my papers were inappropriate and I need to resubmit them! Even worse, they don't even know how to fill up some FATCA declarations. Being a banker, I understand it, but on one occasion one banker was trying to force me to declare my nationality as non-Indian simply because that joker didn't understand the difference between "Nationality" and "Residency status". I'm Indian but non-resident, but in his view no NRI customer can write Nationality as Indian.... this is the quality of our bankers!
jjimesh
2 months ago
This is gross. SBI put salary account on freeze! They have all my updated KYC documents as I have recently taken a loan from SBI with reference to my salary account. Even after intimating the bank to update KYC based on the available documents with them, they have frozen the day-to-day account.
hari.bansal55
2 months ago
Thanks to Mam Sucheta for vibrantly raising this burning issue of KYC updating which is virtually harassin and causing monetary loss to small customers. Banks are not updating their own software and sytem for re-KYC. Customers are not informed by individual bank about KYC rule for updation but adopting draconian way out discarding / fail financial transaction. Recently , my IPO application was rejected / failed transaction . On query I am informed that my KYC account is not updated. I asked for their rule, notice reminder , they are evading reply. Even banking Ombudsman is not admitting my grievance, as they are not ready to treat it as DEFICIENCY OF SERVICE. It is clear cut case of HARASSMENT AND ABUSE OF POWER BY BANKS AND RBI itself. Only in case of High Risk accountholders, rekyc / updation is to be followed regularly at short interval say 2-3 years.
mehtarun
2 months ago
Was harrased by SBI ,Nerul east twice in one month.have joint accounts with my wife and one fine day on a friday preceeding holiday get a STOP SMS with no prior intimation to submit KYC documents.KYC could be submitted online or banks should give a notice for submission.They quote RBI requirements
hari.bansal55
Replied to mehtarun comment 2 months ago
Sir, when did you opened this account i.e. how old your account is . For wrongful discarding myIPO application by SBI, I filing a case in Consumer Forum.
mehtarun
Replied to hari.bansal55 comment 2 months ago
we are senior citizens and would have complied to the requirements if we were informed in time Blocking a account without notice is bad practice.
kallumint56
2 months ago
Thank you for sharing the information
kallumint56
2 months ago
It happened to me with AXIS bank freezing my accounts although I had submitted documents online for KYC. Couldnt pay my AXIS credit card and they levied interest and cheque bouncing charges for Automatic payment of Credit card. They are refusing to change address unless I bring aadhaar card proof
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