Know your Customers or keep them away?

To open an account, identification of the person is what the bank should insist on initially. Knowing the customer comes only after a person becomes a customer.

It is no wonder that financial inclusion does not take off — most people would prefer to remain outside the banking system than comply with the Know Your Customer (KYC) norms of banks as reportedly prescribed by the Reserve Bank of India. My experience with the country's largest bank, the State Bank of India, is something worth recording to bring to the authorities' notice that the KYC procedure should be a simple one to understand your customers and not to keep away or kill your prospective customers. Very recently, my wife and I approached the State Bank of India to open a Special Tax Saving Fixed Deposit Account in my wife's name to enable her to claim tax rebate under Section 80c. Being retired bank officials and having a fair knowledge of KYC requirements to be complied with, we carried our PAN cards, a telephone bill as a proof of residence and our passports along with copies of all these documents. The account opening forms were filled up and handed over to the dealing official with all attachments as per the KYC norms. The official perused the documents minutely and carried the papers to her superior for approval. He scrutinised the documents and sought to clarify in whose name the account was to be opened in. When I clarified that it was for my wife, he insisted on proof that the lady with me is my wife and a separate piece of evidence that she resides with me in the same address. I had the shock of my life for a moment and having had a very harmonious married life for more than 34 years, I am required to produce sufficient proof to the official. I made a futile attempt to convince him that her passport carried my name indicating that I am her husband and for my identity I gave him my identity card as a retired senior official from a well-known bank along with the PAN card. After showing whatever evidence I had and even after giving a written declaration that the applicant for opening the Tax savings FD account is my wife, the chap was not convinced and insisted that unless I provided some proof that she resides with me in the address mentioned, he would not be in a position to open the account. Of course, the gentleman was very polite and courteous in his behaviour and expressed his helplessness that unless such proof was given, his higher authorities would return the documents and the account would not be opened. I had no other choice but to make a final effort with the branch manager, who after acknowledging my identity and work experience, immediately approved the application for opening the account and the whole transaction was over after spending about a couple of hours in the branch.

Document trouble

This episode I narrated is not to complain about the bank and its officials but only to highlight the practical difficulties people encounter to open an account — that too a deposit account — in a Government-owned bank. This incident should make one ponder seriously how an ordinary person without proper employment, income or shelter can open a bank account and get himself included in the banking fold and enjoy the benefits of economic growth under the much talked about inclusive growth. The basic understanding of KYC norms at the ground level is unfortunately missing and this is perhaps the major stumbling block in making inclusive growth and financial inclusion a reality. I understand from my own informal survey of people of poor means that they shell out Rs 1,500 to Rs 2,000 to make the documents as the banks want to open an account.

No doubt, knowing a customer is a must and understanding a customer thoroughly through observing his transactions closely over a period to ward off frauds and antisocial activities is inevitable, but keeping away the prospective customers or killing the customers before entering the bank premises in the name of KYC is something surely not intended or desired by the authorities.

Time to rethink KYC

The issue of KYC — the procedure to be followed, the documents needed and its implementation at the operational level — should be revisited by authorities for a serious review. To open an account, identification of the person is what the bank should insist on initially. Knowing the customer comes only after a person becomes a customer. The operations in the account can give more information about the customer and in case of shady deals the banks can call for more details and documents from the customer. The banks should also be able to distinguish between a deposit customer and a borrower customer. Further, there should be a difference in approach between a small depositor and a heavy deposit customer. Perhaps the banks may have to call for additional information from a heavy deposit customer to establish that the deposits emanate from genuine deals and do satisfy taxation laws of the country.

The banks' approach of insisting on certain documents — which in the present nature of the family set up, cultural, social and educational background of the country and its people are difficult to produce by all segments of the population — helps only to harass the prospective customers and keep them away from banks. It is in the banks' own interest, from a social and commercial point of view, to be innovative in making inclusive growth a viable business opportunity. KYC norms presently pursued need to be reinvented and made workable for economic growth.

The authorities can once in a while get feedback from people on their experiences. Continuous rapport with people of ordinary means through informal and formal surveys will be of great help in eliciting information particularly on financial inclusion. Bank officials should be mentally attuned to serve people as a way of life and for career growth. The beneficiary is the economy and there will be welfare of the society and this is what is expected of financial inclusion and inclusive growth. Wrong approach to KYC should not be allowed to come in the way of the country's growth and peoples' welfare.

(The author is a Mumbai-based consultant and the views are personal)


This article appeared in Business Line dated 2/04/12.

Dr.T.V.Gopalakrishnan