India’s financial stability panel plans to roll out a uniform approach to verifying customers across the financial sector and prevent illegal lending based on online applications, it said on Wednesday.

It is unclear when the plans will be enforced. Their announcement follows a meeting of the Financial Stability and Development Council (FSDC), which brings together all the country’s financial regulators.

India’s fintech sector has been thrown into crisis after India’s banking regulator on Jan. 31 directed Paytm Payments Bank to stop accepting fresh deposits in its accounts or popular wallets from March. The regulator cited “persistent non-compliances and continued material supervisory concerns in the bank”.

Wednesday’s statement made no direct reference to Paytm Payments Bank, saying only the FSDC discussed Know Your Customer (KYC) norms.

Different financial institutions currently follow different ways to verify the account holders and the panel said the process should be standardised to enable “inter-usability of KYC records across the financial sector”.

Wednesday’s statement said the body also discussed steps to prevent the harmful effects of illegal online lending apps.  The apps, which became popular during the COVID-19 pandemic, charged high interest rates and employed predatory recovery practices.

Source: Business- Standard.com/industry/banking

Editorial Comment:

Our member Kausal Sampat of Rubix Data Sciences Private Limited recently made a comment concerning the KYC issue in India: 

“#KYC has been in the news recently thanks to the RBI’s tough stance on entities that have been lax in collecting and validating KYCs of their customers.

While the RBI is cracking down on inadequate KYC carried out by banks/ fintechs to help protect the financial system, I think it is important for businesses and individuals to understand different kinds of KYC fraud. In this discussion with Hiral Thanawala at moneycontrol.com, I share my views on different types of KYC Fraud and how businesses and individuals can protect themselves from KYC #fraudsters.

The most important thing to note about KYC fraud is that the modus operandi of the fraudsters hinges on creating and exploiting a sense of urgency and fear, coercing unsuspecting individuals into divulging sensitive personal information or login credentials. Once armed with these details of customers, scammers gain unauthorised access to victims’ bank or investment accounts and carry out a variety of fraudulent activities and unauthorised transactions.”