In an unscheduled announcement today, the Reserve Bank Of India (RBI) relaxed rules for Know Your Customer (KYC) mandates, in light of the disruption unleashed by the second Covid-19 wave.
RBI governor Shaktikanta Das announced measures to expand the scope of video KYC for small and medium businesses among other new categories of customers. The RBI also allowed the use of video KYC banking entities to convert limited accounts to complete KYC-compliant accounts. Besides this, the central bank announced a number of digital channels to help customers update KYC details.
These measures have been implemented considering that people are finding it increasingly challenging to visit bank branches physically for completing KYC.
The key announcements include:
- Allowing video KYC for customers who are small businesses and legal entities
- Video KYC and Digilocker channels to complete pending periodic KYC of customers
- Conversion of limited KYC accounts to full KYC accounts
- Extension of pending KYC deadline to December 31st, 2021.
Video KYC For Small Businesses
In January 2020, RBI had allowed video based customer identification process for individual customer onboarding by regulated entities of RBI i.e customer onboarding by banks.
With the announcement today, RBI has extended this scope for small businesses, legal entity owners, chartered accountancy firms and proprietorship firms.
“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. These include extending the scope of video KYC known as V-CIP (video-based customer identification process) for new categories of customers such as proprietorship firms, authorised signatories and beneficial owners of legal entities and for periodic updation of KYC,” said Das.
The move will improve financial inclusion by allowing fintech companies and banks to use video KYC norms to rapidly onboard and offer financial services to businesses.
KYC Via Digilocker
The RBI governor also announced measures to ease customer concerns around pending KYC. Earlier, customers had to physically submit self-attested documents with proof of identity and address for the mandatory KYC to banks.
RBI has now allowed the use of digital channels for this process, through documents issued through DigiLocker.
Conversion Of Limited KYC To Full KYC Accounts
In what is likely to be a big boost to payments banks, the RBI has also allowed the conversion of ‘limited KYC’ accounts opened on the basis of Aadhaar-based e-KYC to ‘fully KYC-compliant’ accounts. Basically, e-KYC accounts will be treated as full KYC accounts, and will not require in-person KYC procedure.
According to the older rules, customers who opened bank or payment bank accounts through Aadhaar-based e-KYC were termed as ‘limited KYC’ accounts that had limited access to banking services such as savings limit and credit. Such customers were required to complete their KYC process in person, but now these accounts can now be converted to full KYC compliant accounts through video KYC.
Considering Covid-related restrictions across the country, RBI has extended the timeline for pending customer KYCs till December 31, 2021. No punitive restrictions on operations shall be imposed on such customers, it said.
In light of the health crisis facing the country, the fintech startup ecosystem has also welcomed these initiatives.
“Aadhaar based e-KYC based authentication will be considered as a full KYC. The central KYC push will also make it easy for lender’s to verify customers at the lending point and further strengthen the overall lending ecosystem,” said Bhavin Patel, CEO, Co-founder, LenDenClub, a peer to peer lending platform.
Fintech companies will be able to ensure better digital experience for customers in need through these measures, added Patel.
The video KYC rules had already made access to financial services much easier for individuals and consumers, but with the expansion of the video KYC scope, the biggest benefit will be the greater financial inclusion, particularly among SMEs. While the move has coincided with lockdowns in most major economic centres which are metros, it will benefit customers and SMEs in Tier 2/3 markets equally. It is also a big boost to the payments bank industry, which already received a shot in the arm last month with the new RBI monetary policy.
By Romita Majumdar, May 2021, published on Inc42