Banks to start cross-checking KYC scores, too

These scores and checks by credit bureaus can help in weeding out violations of KYC or anti-money laundering norms

If you fill in the wrong date of birth in a loan application form or have not filled the correct address, there is a chance now that your application may be rejected or take longer to process. For, apart from checking your credit history, banks and financial institutions have also started checking your identity score as a part of their Know Your Customer (KYC) procedure.

The move comes in the backdrop of rising frauds at banks and as a result, lenders have become more cautious. Retail loans have held up at a time when corporate demand is muted but banks are ensuring they are not caught off guard in their endeavour to push these loans.

“The KYC procedure was always being followed but it is now getting integrated with credit score checks as well. Banks and other institutions are opting to go via credit bureaus because it helps in solving logistical issues for the lenders. Moreover, credit bureaus are coming up as a one-stop shop to do credit and identity checks,” said Nimilita Chatterjee, a senior vice-president — products, analytics and data operations at Equifax, a credit bureau.

Mohan Jayaraman, managing director (MD) of Experian Credit Information Company, says lenders are taking the help of credit bureaus to ascertain identity parameters. “As part of this, we will check if the address you have provided is correct or not. In addition, suppose in the same house there are other people who have defaulted on loans or don’t have a sound credit history, it can raise a red alert for banks,” he explained.

Also, if you change your house very often, that might ring warning bells for lenders, explains Kalpana Pandey, chief executive officer & MD, CRIF High Mark Credit Information Services.

“The idea is to also verify the address stability. Suppose you have a home loan in another address and for your personal loan you have given another address, then it may be a concern for banks. Or if there are times when in one form a customer has mentioned a different birth date than the actual one, even that can lower the KYC score,” she added.

Experts explain these scores and checks by credit bureaus can help weed out violations of KYC or anti-money laundering (AML) norms. In April, the Reserve Bank of India (RBI) slapped a penalty of Rs 1.5 crore each on three public sector banks — Bank of Maharashtra, Dena Bank and Oriental Bank of Commerce — for violating KYC-AML rules, while asking several others  to ensure strict compliance with these.

RBI had pointed out that instances of banks opening fixed deposits and granting overdrafts without due-diligence were detected. The credit bureaus say such instances can be reduced by such identity scores.

“We have a solution to authenticate the identity of the applicant, which is now being used by banks and credit institutions. This is a unique solution that allows banks and credit institutions to authenticate a customer in real time by leveraging CIBIL’s vast credit information database, thereby helping drive process efficiency for faster and smoother on boarding of customers,” said Harshala Chandorkar, senior vice-president — consumer services and communication, CIBIL.

Experian’s Jayaraman also said part from identity checks and location, even the tenure of one’s previous loans will affect these background check scores. He explains if the tenure of a loan a customer has been repaying from a particular address is longer, then it will help in affirming the veracity of his address.
 

Credit bureaus said that not only banks but even Non Banking Financial Companies, Insurance players and even telecom companies are using these background checks. However, considering that these services are limited the number of players using the score is still limited. 

"KYC procedure was always being followed by banks but now it is getting integrated with the credit score checks as well. Banks and other institutions are opting to go via credit bureaus like Equifax because it helps in solving logistical issues for the lenders and more over now credit bureaus are coming up as a one-stop shop to do credit and identity checks,” said Nimilita Chatterjee, Senior VP – Products, Analytics and Data Operations at Equifax.