Reserve Bank of India (RBI) Governor Sanjay Malhotra has urged banks to avoid repeatedly asking customers for their Know Your Customer (KYC) documents. Speaking at the annual RBI Ombudsmen Conference, he stressed that once a customer submits their documents to a financial institution, they should not be asked to submit them again.
Government has also asked Banks to create a shared video-based Know Your Customer (KYC) system. This decision follows discussions with the government, which wants all financial institutions to fully digitize their KYC process. The goal is to connect these institutions with the Central Know Your Customer Registry (CKYCR). This integration will allow different financial institutions to share KYC records, reducing the need for customers to verify their details multiple times.
Repeated KYC Requests Cause Customer Inconvenience
Malhotra pointed out that KYC documents submitted to any entity under a financial regulator can be accessed from a centralized database. However, many banks and Non-Banking Financial Companies (NBFCs) have not enabled their branches to use this system. As a result, customers face unnecessary trouble.
“This must be facilitated soon. It will benefit both customers and financial institutions,” Malhotra stated. His comments come amid rising customer complaints about KYC re-submission, especially on social media.
Banks Warned Against Misclassifying Complaints
The RBI Governor also warned banks against misreporting customer complaints to hide the actual numbers. He called this a “gross regulatory violation” and emphasized the need for transparency.
Malhotra revealed that in FY24, banks received nearly 1 crore customer complaints, and the number would be even higher if complaints against other financial entities were included. 57% of these complaints required intervention from the RBI Ombudsman, which he termed as a serious issue.
“This situation is highly unsatisfactory and requires urgent action,” he said.
Banks Must Prioritize Consumer Complaints
Malhotra advised banks to improve customer service, not just as a duty but as a competitive advantage. He suggested that senior officials, including Managing Directors and Branch Managers, should dedicate time weekly for handling complaints.
“This is a must. CEOs worldwide set aside time for customer grievance redressal, and Indian banks should do the same,” he emphasized.
He also warned that unresolved complaints damage customer confidence and harm the overall banking system. Instead of seeing complaints as a nuisance, banks should address them properly to prevent repeat complaints, which indicate deeper system flaws.
Use of AI in Complaint Redressal
The RBI Governor encouraged banks to use Artificial Intelligence (AI) to handle complaints more efficiently. However, he advised caution, ensuring that customer privacy is maintained.
Focus on Other Customer Service Issues
Apart from KYC and complaint management, Malhotra highlighted other critical areas where banks need to improve:
- Misselling of financial products
- Increasing digital frauds
- Harsh recovery practices
Banks must address these concerns to build trust and ensure better customer experiences.
