It's a shame many don't have bank A/c; KYC norms need a relook, says Raghuram Rajan

Reserve Bank of India Governor Raghuram Rajan on Friday said 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 in Pune.

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.

Ironical as it may sound, 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 regulations don't make sense. If a senior (ex-)RBI official cannot open a bank account, there is something wrong in the system. We have to figure out a better way," said Rajan.

The Governor added that it is not his case that the KYC norms are bad, but said we need to do an assessment of the trade-off between the risk and reward.

"I am not saying that the 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 get benefitted if we are more liberal.

"Business is always about managing risks, about trade-offs. An adage in finance says there is no return without risks, that applies as much for regulation as it does for business," Rajan said, adding the point is can we do this better without compromising on security, while allowing ease of access. That is something we need to think about, we have to be innovative.

"We have to be looking inwards to see what we are doing right and what we are doing wrong ? " he said.

Speaking at the event, Uday Kotak, Vice-chairman and Managing Director of Kotak Mahindra Bank said only about 350 million of the estimated 1.23 billion citizens have bank accounts and termed the financial inclusion drive launched to get more people into the fold as a very big business opportunity for banks.