If the development of the retail financial services in India were to be measured by the amount of KYC (Know Your Customer) activity that is happening, then one couldn't but conclude that such services were growing very robustly. In fact, given the enthusiasm with which banks, mutual funds and others are asking their customers to be KYC'ed, Re-KYC'ed and Rere-KYC'ed, it's possible that SEBI and RBI have secretly stared setting KYC growth rate targets for the entities they regulate.
It's true that the regulators now claim that the process of positively identifying financial customers is now smoothened and deduplicated, but the reality on the ground level is very different. In the last week alone, just among people I personally know, I have come across three cases of banks and mutual funds asking for KYC to be done again without any apparent logic. Moreover, service providers seem to ask for re-KYC not on the basis of precise guidelines, but on how brave or how cautious their particular compliance departments are feeling.
In one of these cases, a schoolteacher, who got her KYC done just one year back, was asked to get a fresh KYC done by a mutual fund she invested in. The strange thing was that she had simultaneously invested in funds from two AMCs and only one thought that a fresh KYC was required. In another case, a bank blocked a small transaction by a customer of 25 years' standing, one who had had multiple KYCs done, because they wanted fresh KYC done. Of course, in both these cases, these were small retail customers who weren't commercially very important to the service providers.
That's the reality behind this escalating KYC rubbish. Those who have serious volumes of money of uncertain origins will get away with it while the small customers will bear the burden of this redundant bureaucratic activity. Over the next few months, the Lok Sabha elections will probably see upwards of Rs 10,000 crore of expenditure. You can be certain that not much of that amount's origins would stand up to any serious KYC exercise. But it doesn't matter, because no one is going to be scrutinising that money with any enthusiasm.
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