Towards Customer-Centric KYC: RBI’s 2025 Amendments from a Financial Inclusion Lens

The Reserve Bank of India (RBI) announced new changes to the KYC (Know Your Customer) directions in June 2025[1]. The amendment changes the mandatory periodic KYC updation processes, implicitly intending to enhance the convenience of select customers, especially PMJDY account holders. In this blog post, we analyse the changes in the direction and weigh them through the lens of customer protection and long-term sustainability. We also offer suggestions on streamlining the KYC updation (re-KYC) exercise without adding to systemic risks.

KYC Updation – the PMJDY case

Multiple reports over the years have highlighted persistent challenges in banking access for customers of PMJDY accounts, i.e., the economically vulnerable customers[2] [3] [4]. KYC processes, designed to mitigate financial risks in the banking system, are inadvertently limiting some households’ access to their savings, wages, pensions, or transfers from government welfare schemes. This primarily stems from documentation issues and supply-side infrastructural challenges.

Currently, customers face significant KYC hurdles due to biometric failures, missing Officially Valid Documents (OVDs) and name mismatches, which lead to frozen accounts. On the supply side, banks, particularly rural branches, are overwhelmed by the large volume of re-KYC applications, which, combined with limited staff (as shown by the reduced number of non-officer staff from RBI data[5]), lead to a diversion of resources from other core banking functions. Often, the staffing trade-off manifests as delays in re-KYC processes.

Transitioning from short-term fixes to sustainable solutions

The recent recognition by the RBI[6] and the Department of Financial Services (DFS)[7] of challenges in re-KYC processes, particularly among Direct Benefit Transfer (DBT) beneficiaries and PMJDY account holders, highlights growing concerns in policy circles. Given this context, the directive in the amendment extending the deadline for KYC updation for low-risk[8] customers until June 30, 2026, is a welcome move, providing immediate relief from account blockage. The amendment also permits Business Correspondents (BCs) to collect self-declarations and mandates notices to customers before their KYC due date. Undoubtedly, these will help in the short term, but in the long term, addressing the structural issues is critical.

Hence, in the following section, we provide some recommendations aimed at safeguarding customer interest while maintaining the banking system’s ability to detect systemic risks.

1. Re‑examine KYC Frequency for PMJDY accounts

Currently, PMJDY accounts are categorised as low risk, requiring KYC updates every 10 years. While the amendments allow a one-year extension for some accounts due for KYC, the process will still be repeated every ten years, keeping the compliance burden on crores of PMJDY account holders in the long run.

It is important to note that PMJDY accounts, often a key vehicle for government transfers or small savings, typically pose minimal risk for money laundering due to strict limits (account balance less than or equal to ₹50,000 and a maximum of four withdrawals per month)[9]. In theory, thus, there is a limit to the risk posed by such accounts, but in practice, with adequate transaction monitoring, the risk posed by PMJDY accounts can be further reduced. Therefore, it would be more practical to waive the universal mandatory re-KYC requirement post-2026, especially when there is no change in the account’s risk profile.

For low-risk accounts, it may be more effective to shift from rigid, time-bound KYC renewal cycles (currently updating every 10 years) to more flexible alternatives. The RBI could consider allowing entities to adopt a “perpetual KYC” approach[10]. Perpetual KYC refers to a dynamic, technology-driven model where customer information is monitored continuously in real-time. Here, updates to a customer’s KYC records are only required when specific risk triggers emerge, such as unusual spikes in transaction volume, large cash deposits, or suspicious activity. If no such red flags are detected, the account remains compliant without any need for manual updates. Applying this system to low-risk accounts would mean that most PMJDY customers can avoid repeated KYC procedures unless risk indicators are triggered. Importantly, this enables targeted surveillance, allowing regulators and banks to focus on specific higher-risk customer cohorts rather than imposing blanket requirements for all.

This approach mirrors international practices like mobile-money KYC tiers and would help include more people in the financial system while still managing risks[11]. Over 60 countries, including Mexico, Nigeria, and the Philippines, use tiered KYC systems for mobile money[12], allowing basic financial services with minimal documentation while progressively applying stricter checks for higher-value or higher-risk accounts.[13] The table below highlights how select low- and middle-income countries with a thrust on financial inclusion, like India, manage re-KYC requirements for low-risk accounts:

Table 1: Global Approaches to Re-KYC for No-frills Accounts

Note: Transaction triggered means a flag raised by a specific event and Activity-based means a flag raised by a shift in overall behaviour.

Beyond the risk-based KYC, another important aspect is enabling account holders to complete the re-KYC processes more easily.

2. Make self-declaration facilities more accessible for accounts where changes aren’t required.

The current amendment enables Business Correspondents (BCs) to facilitate re-KYC. Though a step in the right direction, universal accessibility of BCs remains a question. Hence, additional sources should be explored by banks simultaneously.

The current KYC guidelines allow banks to offer various re-KYC channels, including email, SMS, post, video KYC, app/online portals, and branch visits. However, our review of internal KYC policies across leading public and private banks reveals heterogeneity in the channels offered. The table below presents an overview of available channels based on the KYC policies of select banks:

Table 2: Channels offered by selected Banks for re-KYC

Source: Bank’s Internal KYC Policy Documents and customer-facing sections of major bank websites (retrieved in July 2025)

Even if we ignore the absence of some of the channels, access to them is expected to differ widely, particularly for low-income populations, who may not exhibit a high level of digital proficiency and may often lack smartphones and/or internet access, key requisites for many of the channels. Therefore, it is essential to implement a standardised and simplified self-declaration process through at least one accessible re-KYC channel for all customer segments. Thus, we propose mandating the implementation of a simple SMS-based self-declaration for re-KYC. Though banks are empowered to use such a facility for re-KYC, few have adopted it fully.

The banks, which have adopted such a process, like Canara Bank, can serve as guides for others. In the case of Canara Bank, it allows customers to send “REKYC <space> Customer ID” via SMS from their registered mobile to confirm unchanged details. This model could be standardised, where customers text a code from their registered number to a central number, triggering re-KYC verification. This approach is low-tech (working on basic phones) and aligns with RBI’s KYC guidelines (Para 38(a) of the 2016 KYC Master Direction). Such an approach is expected to be both cheaper for the providers and more inclusive for the customers.

Finally, though the recent measures by the RBI offer temporary relief to many impacted by the re-KYC processes, they underscore an urgent need for structural reforms. A more inclusive KYC framework should incorporate risk-proportionate approaches and innovations that are accessible to low-income and digitally marginalised populations. Without systemic adjustments, the proverbial can just gets kicked down the road, and the policy objective of complete financial inclusion will inadvertently suffer.

References:

[1] Reserve Bank of India. (2025). Updation/ Periodic Updation of KYC – Revised Instructions . Reserve Bank of India. https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12866

[2] Parmar,  Jinit . (2024, March 14). Customers face issues as banks push for re-KYC. Moneycontrol. https://www.moneycontrol.com/news/business/customers-face-issues-as-banks-push-for-re-kyc-12458971.html

[3] Ghulghule, V. (2024, August 20). Incomplete kyc forces scores of ladki bahins to queue up at banks. The Times of India. https://timesofindia.indiatimes.com/city/nagpur/incomplete-kyc-issues-cause-delays-for-ladki-bahins-at-banks/articleshow/112637533.cms

[4] Chadha, S. (2025, March 19). 63% unable to access 1 or more bank accounts online due to KYC issues. Business Standard. https://www.business-standard.com/finance/personal-finance/63-unable-to-access-1-or-more-bank-accounts-online-due-to-kyc-issues-125031900240_1.html

[5] Basic Statistical Returns of Scheduled Commercial Banks in India, DSIM, RBI.

[6] Malhotra, S. (2025, March 17). Transforming Grievance Redress: The AI Advantage. Annual Conference of the RBI Ombudsmen, Mumbai. https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1498

[7] DFS Secretary urges banks to use all means, especially digital, for updating of PMJDY accounts in a time bound manner. (2024, November 11). Press Information Bureau. https://www.pib.gov.in/www.pib.gov.in/Pressreleaseshare.aspx?PRID=2072501

[8] Low-risk individuals have easily identifiable identities and predictable transactions, such as salaried employees with defined salary structures or lower-income people with small balances and low turnover.

[9] Upadhyay, D. (2023, December 28). What is basic savings bank account? How it is different from regular savings account? Mint. https://www.livemint.com/industry/banking/what-is-basic-a-savings-bank-account-how-it-is-different-from-a-regular-savings-account-11703702968487.html

[10] Isherwood, N. (2022). Moving to a perpetual KYC model: The benefits and the challenges. Journal of Financial Compliance, 5(3), 228. https://doi.org/10.69554/VGVE3167

[11] FATF offers a framework for proportionate measures based on identified risks, supporting simplified customer due diligence, without explicitly using the phrase “tiered KYC”.

[12] An electronic wallet service that allows users to store, send, and receive money using mobile phones, without needing a traditional bank account

[13] Kipkemboi, Kennedy , Woodsome, J., & Pisa, M. (2019). Overcoming the Know Your Customer Hurdle: Innovative Solutions for the Mobile Money Sector. GSMA and Center for Global Development. https://www.gsma.com/solutions-and-impact/connectivity-for-good/mobile-for-development/gsma_resources/overcoming-the-know-your-customer-hurdle-innovative-solutions-for-the-mobile-money-sector/