An important update is coming regarding KYC. Indian banks and insurance companies will launch a common customer identification system in August, which will later include asset managers. This will eliminate the need for customers to present different identity documents and allow them to avail financial products. Let's understand what this actually entails.

What is CKYC?

The news agency Reuters cited sources as saying this. This new system is called "Central Know-Your-Customer 2.0," or CKYC. Under this system, when opening an account or updating customer information, these entities will only need their consent to access the data stored in a central registry.

India has been trying for the past decade to create a system similar to Singapore and several European countries, wherein a digital identity system would allow customers to avail various financial products through a common verification process.

Regulatory sources said it would also help prevent
fraud through easier monitoring. They said capital market firms, including mutual funds and brokerage firms, could start using the system by the end of this year, as the regulator is working on sector-specific requirements.

The Reserve Bank of India, the Securities and Exchange Board of India (SEBI) and the insurance regulator, which are working together on the project, did not immediately respond to Reuters emails seeking comment. The move comes as India aims to increase people's participation in financial products after achieving basic financial inclusion.

According to World Bank data, about 89% of adults had bank accounts in 2024, but regulatory data shows that the share of mutual funds, insurance and pensions is still quite low.

What will change?
India already has a central registry, containing records for approximately 1.2 billion customers. However, it wasn't widely used due to data quality issues such as duplication and incomplete information. Because records from the registry weren't approved by the RBI, investors had to repeatedly submit documents to avail of various financial products. The new system will assign a confidence score based on the accuracy of the recorded data and will also indicate which form verified the information.

D.P. Singh, joint CEO of SBI Funds Management, India's largest asset management company, said CKYC could significantly expand the industry's investor base. "After universal customer identification, if even a small number of eligible customers start investing, it will be a huge benefit," Singh said. He said the system could be implemented across the entire industry within four months. For example, State Bank of India, the fund house's largest shareholder and the country's largest bank by assets, has 500 million bank accounts.

PC: RocHak Khabre