Making KYC Simpler: RBI’s Proposal for Boosting Periodic Updation

– Sakshi Patil | finserv@vinodkothari.com

The Reserve Bank of India (RBI) has continually worked to strengthen the Know Your Customer (KYC) framework to ensure inclusion. Recognizing challenges in periodic KYC updation, especially in remote areas where bank branches and ATMs are scarce, the RBI has proposed pragmatic measures involving Business Correspondents (BCs). These initiatives aim to ease the KYC process for beneficiaries of government schemes and rural banking customers.

Via these regulations the RBI has also proposed additional measures for REs to increase the effectiveness of periodic KYC updation, while reducing hardship on customers; these are also discussed in this article.

BC allowed to perform KYC Periodic Updation

RBI identified a significant backlog in periodic KYC updation, particularly in accounts opened for the credit of Direct Benefit Transfer (DBT), Electronic Benefit Transfer (EBT), scholarship payments, and those under the Pradhan Mantri Jan Dhan Yojana (PMJDY).

To address this, RBI’s proposed framework allows authorized BCs to assist customers with certain types of KYC updation, improving service access for those in underserved locations. However, the ultimate responsibility for KYC updation still remains with the bank. Once the bank receives the updated information from the BC, it must update its records and intimate the customer upon completion. This is mandated under paragraph 38(c) of the RBI’s Master Direction on KYC.

Updated KYC Periodic Updation Process

• Self-declaration for No Change / Address Change
  • Customers can submit a self-declaration through a BCs if:
    • There’s no change in their KYC details, or
    • Only the address has changed.

• Collection and Recording of Self-declarations
  • Electronic Mode:
    • Banks are expected to enable their BC systems to record and store self-declarations and supporting documents electronically.
  • Physical Mode (in case electronic facilities are not available):
    • BC will authenticate the customer’s physical self-declaration and documents.
    • These will be forwarded promptly to the concerned bank branch.
    • Acknowledgment receipt shall be issued to the customer.

Transaction Flexibility for Low-Risk Accounts

In line with the KYC directions and Anti-Money Laundering (AML) standards, customers are categorized into low, medium, and high-risk categories. The risk categorization helps to determine the extent of ongoing monitoring, transaction limits, and enhanced due diligence required for each customer category.

The frequency of the periodic updation depends on the risk categorisation of the customer –

RBI vide this guideline proposes that, low risk customers will be allowed time till June 2026 or one year from when their periodic KYC is due, whichever is later to complete the periodic KYC.

For example, if a customer’s KYC was due in September 2025 and it remains pending, the bank can allow the customer to continue the transactions in their accounts upto September 2026. If the due date of the periodic updation was earlier, say May 2025 then the customer could continue to transact until June 2026.

Timely Intimations and Reminders to Customers

Periodic KYC updation is a regulatory requirement under Para 12 of KYC Directions where REs are required to periodically update the customer’s KYC records after on-boarding the customer. REs face several practical challenges in completing periodic KYC updation, such as the customer being unaware about these requirements or reluctance and misconceptions towards sharing personal documents or information.

With respect to this, RBI has proposed that, REs must issue at least three advance KYC due notices (including one by letter) at appropriate intervals, using available communication channels. If the customer still does not complete periodic KYC, three additional reminders must be sent.

All communications should contain easy to understand instructions for updating KYC, escalation mechanism for seeking help, if required, and the consequences, if any, of failure to update their KYC in time. REs are also required to maintain detailed records of these notifications and reminders.

Conclusion

By enabling simplified and decentralized KYC updation, these measures address both operational challenges and the broader goals of financial inclusion.

As the financial ecosystem evolves, such regulatory measures remain crucial for building a secure, inclusive, and customer-friendly financial environment.