Banks to bring in extra KYC verification layers
Mar 4, 2024
Synopsis
Banks are enhancing their KYC standards by adding extra verification layers to identify accounts and account holders. The plan includes updating existing accounts, especially those with a single phone number linked to multiple or joint accounts, and seeking more verification from individuals with multiple accounts opened using different documents. A committee led by finance secretary TV Somanathan is working to standardise and ensure interoperable KYC norms across the financial sector. The move aims to address concerns about slackened KYC norms by fintech companies, which may increase risks for lenders.
Banks are working on updates to strengthen their KYC (Know Your Customer) standards by adding extra verification layers to identify accounts and account holders. Under the plan being discussed with the Reserve Bank of India and the government, lenders would update all existing accounts, especially those with a single phone number linked to multiple or joint accounts. Banks would also seek more verification from individuals having multiple accounts opened with different documents.
This comes even as the government has set up a committee led by finance secretary TV Somanathan to standardise and ensure KYC norms are interoperable across the financial sector.
"We are looking at multi-level secondary identifiers such as PAN, Aadhaar, and unique mobile number (UMN) for joint accounts as well," said a senior bank executive aware of the matter.
The secondary identifiers will allow tracing multiple accounts of an individual if they are not linked and are opened with different KYC documents.
"This will also help in extending the account aggregator, or AA network, to joint accounts," said the above-quoted bank executive.
At present, only single-operated individual accounts have been included for sharing financial information under the AA framework.
Account aggregator retrieves or collects information related to the financial assets of a customer from the holders of such information and aggregates, consolidates and presents it to specified users.
At present, passport, Aadhaar, voter card, NREGA card, PAN card, or driving licence can be used to open a bank account.
Last month, the Finance Stability and Development Council (FSDC) discussed uniform KYC norms, inter-usability of KYC records across the financial sector, and simplification and digitalisation of the KYC process.
"In the last year, we, through the Indian Banks' Association, or IBA, shared our concern with the RBI on slackened KYC norms by fintech companies," said another banker, adding that they represented that some of these firms do not report to credit bureaus, which increases the risk for other lenders who rely on data available through credit bureaus.
[The Economic Times]
