Banks’ KYC norms barrier to cheap remittance: IIT-M study

A study conducted by the Indian Institute of Technology, Mumbai has shown that small changes in bank procedures can make available cheap and almost instantaneous remittance services to migrant labour without compromising on prudential norms. In a technical report, Ashish Das, professor at department of mathematics, IIT-Mumbai, has highlighted how banks have created barriers for walk-in customers who seek to instantly transfer funds to any beneficiary although their systems allow them to do so.

Incidentally, an earlier report by Prof Das on allowing bank customers free access to third-party ATMs was seriously considered by Reserve Bank of India and was ultimately implemented, resulting in explosive growth in ATM usage in the last two years. Over the last decade, most banks in the country have implemented core banking solution which networks all branches and migrates bank customer information to a central database. As a result, all these banks can electronically transfer funds anywhere in the country under the National Electronic Fund Transfer (NEFT) service introduced by RBI. Under NEFT, each branch is given a unique ID allowing almost instant transfer of funds. 

The IIT report focuses on rationalization of the electronic remittance system in India. The report notes that although systems are adequate for allowing funds transfer, banks’ insistence on know your customer norms act as a deterrent for most of the migrant population to open bank accounts. “With the Indian economy being predominantly cash-based, majority of the migrant population remits cash through the core banking network of the bank by standing in long queues. Post-offices allow such a remittance in form of money-orders. However, it usually takes a minimum of seven days for the money to reach the beneficiary. Moreover, it costs the remitter Rs 250 to remit Rs 5000,” the report said. Due to such drawbacks, migrants get encouraged to use the informal channels of remittance.

The use of India Post or the informal means for money transfer do not require any KYC documentation and can be used by remitter and beneficiary even if they do not have bank accounts. The money being remitted through such systems remains outside the banking system.

The report recommends that RBI encourages the usage of NEFT by migrant labour for remittances to ensure that more cash transactions come within the banking system. The report also says that unless the bank can establish potential fraud beforehand, the information filled in the application form (for cash NEFT) by the remitter should not call for any documentary evidence if the amount is within Rs10,000.

Source:- TimesofIndia

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