The Hindu Business Line : Are KYC norms crossing the limits?

Too much of anything is not good, or so the adage goes. This is true in the case of banks enforcing Know Your Customer (KYC) norms. With the Reserve Bank of India penalising several banks for violating KYC norms, most banks are now applying them with zeal, even at the cost of losing customers sometimes.

The mandatory details required under KYC norms are proof of residence such as ration card, letter from employer or the housing society and proof of identity, which could be any photo identity such as passport, voter ID card, PAN card, and driving licence. But customers often face banks asking for other personal details.

Recently, a local Mumbai branch of Indian Overseas Bank asked customers for information about their blood group, along with other details such as PAN number and proof of residence, as part of KYC. But such personal details are optional and it is not binding on the customer to provide them, said an official from the bank.

"The rationale is to shore up the customer database. We could be getting into insurance later on, when such information will be useful," said Mr S. Chatterji, Chief Regional Manager for Mumbai, IOB. However, he admitted that it could be a time-consuming job for customers to provide all details that the bank asks for.

"For an account holder filling in all the data can be a bother. Sometimes, we do lose customers because of this," he said. Complying with KYC norms is not just an inconvenience for customers; it also comes with a huge cost for banks, said Mr H.N. Sinor, Chief Executive, Indian Banks' Association.

Compliance Risk

"But it is for the general good. There is a law and there is need to follow a certain process. World over compliance risk is the biggest risk," he said.

Bank officials point out that all application forms are divided into two parts — mandatory information and optional information.

The mandatory information includes the ISA verification - Identity, Signature and Address, said Mr Ghotgalkar, Corporate Head, Retail Banking, IDBI Ltd.

Other information, such as previous credit history and details about the customers' assets are usually part of optional information, which the customer need not reveal.

For instance, a bank may ask the customer what vehicle he or she owns and age of the vehicle and so on, in order to target the customer for a vehicle loan in future. However, it is purely voluntary information. This is information, which the relationship manager of the bank will try to extract from the customer in any way, said Mr Ghotgalkar.

To prevent fraud

"KYC is needed to prevent identity fraud. But banks do ask for marketing information in order to connect with their customer," he said. Stressing the need for following KYC norms, Mr M.V. Nair, Chairman and Managing Director, said it is a question of reputation. "Once the country and the banking sector are KYC complaint, getting permission to open branches overseas becomes easier," he said.

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