Over One-Third Indian Families Face Online Banking Access Issues, KYC Compliance: LocalCircles

Banking services in India need to drastically improve to meet consumers' expectations, as 34% families have one or more individuals with bank accounts that they are not able to access online, according to a survey conducted by LocalCircles.

Conducted across 334 districts, with over 54,000 consumer responses, the survey highlighted challenges related to online banking access, Know-Your-Customer compliance, and digital banking inefficiencies.

The findings are significant as the Reserve Bank of India has issued new directives to classify accounts as ‘inoperative’, if there are no customer-induced transactions for over two years. Effective April 1, 2025, the directives will be applicable on accounts with no monetary activity, KYC updates, or non-financial transactions, such as balance inquiries or cheque book requests.

63% of families surveyed said they could not access one or more of their bank accounts online because of KYC issues, login credentials not working or because their bank had put their account in dormant status, the survey said.

Systemic challenges apart, 59% of families surveyed said they found their bank bureaucratic and inefficient, when they approached them for re-enabling their or family’s account access online.

Reserve Bank of India Governor Sanjay Malhotra acknowledged the inefficiencies at the annual Ombudsman conference. “Not only are a large number of complaints getting escalated, but a large proportion — nearly 57% of maintainable complaints last year — required mediation or formal intervention by the RBI Ombudsmen. You would all agree that this is a highly unsatisfactory situation and needs our urgent attention," he had said.

The number of complaints processed by the office of the RBI Ombudsman increased by 25%, from about 235,000 in 2022-23 to almost 294,000 in 2023-24.

"Banks will need to put in extra efforts on process and transaction efficiency for consumers and unless that becomes a priority, not much is likely to change," the survey report concluded.

LocalCircles highlighted that even as banks continue to invest in digital solutions to meet customer expectations like easy-to-use interfaces and personalised experiences, the problems faced by consumers are arising due to sudden changes in rules. "For instance, despite intervention through technology and innovative services, customers often face impediments like the repeated requirement for KYC," it said.

A set of guidelines and regulations that financial institutions use to verify the identity of their customers, KYC is a key part of anti-money laundering and counterterrorism measures of the government. The RBI guidelines require banks to conduct periodic KYC updates for their customers, which in common parlance is known as Re-KYC.