Over eight months after the central bank relaxed Know Your Customer (KYC) norms in a bid to simplify compliance and reduce inconvenience for customers, complaints from bank account holders show little sign of abating. Despite regulatory efforts to streamline the process and make KYC updation less cumbersome, many customers continue to face repeated requests for documentation, account restrictions and delays in verification.
“Happy to inform that I have successfully updated my KYC for the 18th time in my rather short adult life. Gratitude to my Investment Adviser, my father (he is overjoyed his name is spelt correctly) and my smart phone,” a customer wrote on X recently.
He went on to add, “But the deepest gratitude is to the government agencies who have repeatedly given me an opportunity to KYC myself over the last two decades. They keep me on my toes. Every time I think it is done, they throw a new challenge. Just so that I don’t slip into a comfort zone.”
The satirical tone couldn’t mask the anger though.
In June last year, the Reserve Bank of India (RBI) announced a string of changes to its Master Direction on KYC norms, which included allowing business correspondents to help conduct the KYC and giving banks one year — till June 2026 — to complete KYC updation of ‘low risk’ category customers.
But the sheer number of bank accounts, which further swelled after the implementation of Centre’s ambitious cash transfer scheme — Pradhan Manrti Jan Dhan Yojana — made the task of verifying the customer’s identity even more difficult, bankers claim.
It leaves both the affected customers and the depositors on tenterhooks. Regulatory pressure has triggered a wave of account restrictions and occasional freezes, leaving customers rattled — even as the bank staff scrambled to keep up with compliance demands.
The insistence stems largely from compliance pressures, internal risk controls and an operational caution within the banking system, according to banking sources. Customers, however, say the repeated demands for KYC updates are no less than harassment.
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Infosys co-founder Mohandas Pai too wrote in his ‘X’ post recently, “@RBI, Please have a look at the harassment to individuals, firms and businesses due to repeated KYC. Banks are asking for the same documents they already have, unnecessary documents, threatening freezing of accounts.”
“When asked why they are asking so many details, again they point to RBI. Can RBI please stop this kind of harassment and threats? We are not crooks and have been banking for 50+ years but harassment has only increased,” Pai wrote.
But it’s not just the customer. The service providers too are facing the pressure.
Identity verification becomes a challenge
Staff shortages and a huge number of bank accounts — that have further swelled after the implementation of Pradhan Manrti Jan Dhan Yojana — have made the task of verifying the customer’s identity even more difficult
Bank officials say the compliance burden has become overwhelming as there are over 250 crore bank accounts in India. State Bank of India alone has over 50 crore bank accounts. The manager of a leading nationalised bank recently alleged irregularities in the KYC updation process and shot off a complaint to enforcement agencies.
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“There are 44 branches under the control of the regional business office… I came to know about the fact that KYC were updated without obtaining actual KYC documents from the accountholder. Clerical staff from the branches were called to the regional office and were pressurised and threatened to do the KYC updation without physical documents or any annexure from the account holder,” the manager wrote in the letter
“It not only jeopardises the bank’s interest but can also lead to frauds & money mules accounts which is a major threat for the organisation and for our nation too. It’s a big threat for our nation too as these can be money mule accounts which can be used for frauds and financing of terrorism.”
“I have raised the matter at each and every level even to the chairman but no one paid heed to my words,” the manager said. There was no response from RBI to the emailed queries sent by The Indian Express seeking clarification on the KYC issue till the press time.
Bank officials say that the pressure to ensure KYC compliance has intensified over the past year. Regulations mandate ‘high risk’ customers to submit KYC documents every two years, ‘medium risk’ customers every eight years and ‘low risk’ customers every 10 years.
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However, this norm is often violated by banks. “Low-risk” customers are placed in the “high-risk” category, and KYC updates are demanded every two years,” said a salaried customer who faced the consequences of KYC verification.
According to an official of a nationalised bank, the industry has been under sustained regulatory scrutiny to ensure that every account is fully KYC compliant.
At the same time, banks are grappling with acute staff shortages. When customers visit branches to resubmit documents, employees often ask them to leave the papers behind for processing.
“These papers sometimes get misplaced and the staff are forced to request them again. This is causing inconvenience to customers but we are also overworked,” the official said.
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For customers who fail to submit documents despite repeated reminders, banks often freeze accounts until the papers are provided.
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