KYC norms require a relook: Rajan

Reserve Bank Governor Raghuram Rajan said on Friday that it is shameful that so many people in India don't have access to banking, and emphasised the need to make KYC norms less bureaucratic.

“It is a shame that so many people in our country don't have access to banking,” he said.

“Can we do this (KYC) better (without) compromising on security, while allowing ease of access? That is something we need to think about. We have to be innovative,” he said while speaking at the 10th convocation of the National Institute of Bank Management here.

The Governor cited the case of one of his predecessors, who faced hurdles opening a bank account post-retirement.

According to media reports, D Subbarao faced problems opening a bank account in Hyderabad, where he has settled down post-retirement, as he could not provide proof of residence.

Ironically, it was Subbarao who made KYC (know-your-customer) norms for opening bank accounts and other financial transactions stringent. “We have to look at what regulations make sense and what don't. If a senior (ex-)RBI official cannot open a bank account, there is something wrong in the system,” said Rajan.

The Governor added that it is not his case that KYC norms are bad, but said an assessment is needed on the tradeoff between risk and reward.

“I am not saying that KYC norms are bad. If it becomes a bureaucratic end in itself and prevents us from expanding access even while not doing so much to keep the crooks away from the system, we have to re-examine them,” Rajan said.

While one in 100,000 cases would be fraudulent ones who may seep in to get access to an undeserved bank account, Rajan said there might be 1,000 migrants who may stand to benefit if we are more liberal. 

‘Two licenses adequate’

Rajan defended handing out just two licences out of the 25 banking applicants saying the selection panel felt that some of them were better placed to serve as differentiated banks.

“We went through the list of applicants and this was the set of applicants that Jalan committee as well as the Reserve Bank were comfortable with.

“We have opened up the possibility that those excluded applicants can apply again once we put licences on-tap and as create differentiated licences.

“Some of the applicants may be better off applying for a differentiated licence rather than for the full licence,” Rajan said when asked about the very conservative approach to the much-touted licensing process.

Rajan was talking to reporters on the sidelines of the annual convocation of RBI-run National Institute of Bank Management.

Ending a process that began three years ago, the RBI on April 2 handed out just two licences from the 25 applicants to infra lender IDFC and Kolkata-based micro-lender Bandhan-- leaving out notable biggies like Reliance Anil Ambani Group, the Birlas, Bajaj Group among 22 others, after the Election Commission gave the go-ahead a day earlier.