RBI Proposes New Rule for KYC Update to Prevent Money Laundering

The Reserve Bank of India (RBI) has suggested some changes in its Master Direction on ‘Know Your Customer‘ (KYC) norms to control money laundering and make things easier for many bank customers, especially low-risk individuals and beneficiaries of government schemes.

The draft circular explains the steps for periodic KYC updates, to fix the issues related to delays and address complaints from customers. These proposed changes aim to move from strict deadlines to a more flexible system, while preventing money laundering and terrorism funding.

For low-risk customers, the RBI has extended the deadline for updating KYC to either one year after the original due date or until June 30, 2026, whichever comes later.

Until the new deadline, customers can do transactions, but banks will keep an eye on these accounts. This is a big relief because earlier, banks would freeze accounts if KYC was not updated on time.

To deal with long backlogs and make customer service better, the RBI has instructed banks to improve how they communicate with customers. Banks must now send at least three alerts before the KYC due date, one of which must be by letter. After the due date, they need to send three more reminders, again making sure one is a letter.