'63% unable to access 1 or more bank accounts online due to KYC issues'

63% of respondents indicated that issues related to KYC, dormant accounts, or malfunctioning login credentials prevent them from accessing one or more of their bank accounts online.

Banking services in India need to drastically improve to meet consumers expectations as 34 per cent of families have one or more individuals with bank accounts that they are not able to access online, according to a survey conducted by Local Circles. Many respondents mentioned difficulties such as having accounts put into dormant status or experiencing issues with login credentials and KYC (Know Your Customer) verification.

 

A big problem faced by 63% of families surveyed is that they cannot access one or more of their bank accounts online because of KYC issues, login credentials not working or because their bank has put their account in dormant status. These issues can cause significant delays and frustrations, particularly for families who depend on timely access to their financial accounts for daily transactions.

 

The survey received over 54,000 responses from consumers located in 334 districts of India. 67% respondents were men while 33% respondents were women. 42% respondents were from tier 1, 27% from tier 2 and 31% respondents were from tier 3 and 4 districts. 

 

Systemic challenges apart, 59% of families surveyed said that they found their bank bureaucratic and inefficient when they approached them for re-enabling their/family’s account access online. The survey findings are important as the Reserve Bank of India has issued revised directives to banks to classify an account as 'inoperative' if there are no customer-induced transactions for over two years. 

 

"What should not happen is that the directives by RBI combined with the bureaucratic and inefficient operating model of many banks makes it harder for consumers to validate accounts, access them and conduct transactions. 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," said Sachin Taparia, founder of LocalCircles. 

 

The results come as the Reserve Bank of India (RBI) Governor, Sanjay Malhotra, highlighted a surge in complaints received by the RBI's Integrated Ombudsman Scheme. The number of complaints has been rising sharply, growing by almost 50% annually over the past two years. Malhotra emphasized the need for banks to prioritize customer service in light of these growing issues, warning that quality service is essential for long-term survival in an increasingly competitive market.

 

As part of an effort to improve service efficiency, the RBI has also issued new directives to banks to address issues like account dormancy. The new rules, set to come into effect from April 1, will classify an account as ‘inoperative’ if there are no customer-induced transactions for over two years, including KYC updates and non-financial transactions such as balance inquiries.

 

KYC requirements, designed to prevent money laundering and protect against fraud, have led to challenges for many consumers, particularly those from economically disadvantaged backgrounds. A report published by the Economic and Political Weekly (EPW) in November 2024 highlighted that poor and vulnerable populations often struggle to provide the necessary documentation for KYC, including Aadhaar card linking. As a result, many individuals, particularly in rural areas, face barriers to accessing their bank accounts, leading to financial exclusion.

 

In some districts of Jharkhand, surveys found that up to 60% of households had at least one frozen bank account due to KYC issues. These accounts included those of elderly pensioners, children receiving scholarships, and women entitled to government welfare programs, all of whom rely on timely access to their funds.