Sunday, January 16, 2011

Dilemma of Multiple regulators

Assume you walk into a bank to open an account or a mobile store to take a connection only with a photograph and you were able to open the account / take the connection without any further verification? How much time will it save….

I met a friend of mine recently at a reunion and we started a discussion on workplace. The discussion took some turns to a point when I asked him, "Why don't you people try and make it simple for customers/organizations? Why can't you and RBI be on the same line or make a common forum/requirements/documents etc?"

And the reply made me almost drop my glass. He said, "I am not aware of any RBI. By the way, who is RBI?" I am not surprised because he isn't aware that RBI is Reserve Bank of India but, I am really surprised to see in reality of what I always only heard of. A clash of “ego” between the regulators. I think anyone who's in my place would have had the same feeling knowing that the friend I am speaking about works with another very famous regulator in the world of Indian financial sector.

Have you ever thought of how many copies of PAN, address and other proofs do you submit in a year? Almost every time you want to get into a financial instrument or open a new bank account or take a new telephone/mobile connection / Insurance policy / Loan. Why can't we replace these with a single instrument / single time documentation that is maintained on a particular depository? Yes, it is very important that the details (the so called KYC) are verified and the norms are adhered to. But, there is a better way to do the same and make it convenient for customers which is very much possible. The sad part is the very much possibility is made impossible by the egoistic regulators who always try to prove a point that they are the superior ones / they are not any inferior to others.

This has been to a certain extent done well when, SEBI has made it mandatory for every customer to be KYC compliant and updating the KYC through any intermediary means "you can transact with any intermediary for investments by just quoting your pan number." This is really a wonderful solution within the investments circle but, still I believe this is just done as another paper work rather than following it as per actual requirement. For example, as of now updating KYC at CDSL doesn't have the ways to track the expiry date of address proofs in case of rent agreements given or a latest bank statement given. Might be these additional checks are required to take it to the next level. Might be it can track the expiry date and automatically your KYC turns into "Not Verified" on the expiry date of an agreement. Might be the rule can be changed as KYC to be updated every 3years. These sort of additional checks would make it very much fool-proof and will be useful to any other organizations like banks/data companies rather than to re-verify themselves.

But, updating KYC on CDSL(depository) today doesn't mean you need not do fresh KYC while opening a bank account or for a existing account or for a mobile connection etc., which is very much like doing the same work again and again. Why can't we have the same suffice for a bank account or a mobile connection? Some intermediary has definitely checked the proofs and has done the verification of KYC and it should be a fool-proof one.

Assume you walk into a bank to open an account or a mobile store to take a connection only with a photograph and you were able to open the account / take the connection without any further verification? How much time will it save for customers as well as how much time will it save for the companies in verifying address / identification? The company pulls your data from a common depository and if it says verified, you are given the connection / your account is opened without any further hassles or documentation? So, why can't all these people use the same resource? Aren't they re-doing the same work which already some other organization has done might be very recently or a month back or a year back for the same customer?

But, in today's Indian environment that looks very difficult due to almost single reason: Loss of importance for a regulator. Every one feels superior to each other or else atleast on par and definitely want to be in the light. Obviously SEBI will not allow RBI/TRAI to get into what it believes is it's turf of investments. RBI will not allow TRAI/SEBI to get into what it believes is it's turf of banking. TRAI will not allow RBI/SEBI get into what it believes is it's turf of telecom. A clash of Ego and a clash on loss of identity or a gain of identity for the regulators.

If this kind of co-ordination/ego issues are resolved, many hours are saved for the customers / organizations and might be you will see the lower costs to organizations make your savings bank account get 3.75% rather than 3.5% or 100sms extra on the same pack. I hope some day these equations change to make life simpler.

Open for Comments


Ch.Naveen said...

they claim Aadhar(UID) is the answer for all your questions.and the way the project is shaping up,it may as well work.

sajjapraveenchowdary said...

@Naveen : The way Aadhar(UID) is structured itself says it will not be the answer. It will prove a uniqueness of a person and it is more of for identification. The UID card / server is going to tell if the person in question is same or not and where the person is located or addressed as on the day of card preparation, Dob, Identity details etc., But it is not capable of handling the movement of a person or a relocation from place to place and also to cover the income level movements. And this will be as good as a Passport, Pan and other documents but, yes it comes free of cost. So, you can expect everyone to have it.

Why do banks / telecom companies do a KYC and ask for a local address proof? Because, that's what the regulation asks for. So, it is very much necessary to have a medium which can capture the changes happening around a person's life in terms of relocation, income levels, etc. Can this be handled by UID? I don't think so bcoz, they cannot keep on issuing new UID cards every year or 2years which would capture the data. Unless, this can be captured the mobile company will not be able to offer service. If so, they will need a local address proof as well as a personal verification also done everytime as it is being done now.

Let's assume the cards would remains the same but, the server would start adding up some more parameters which will capture these changes. Then who's gonna request for a change or who's gonna to verify the changes everytime? Am not ruling out Aadhar adding up these fields and getting into a full fledged KYC with all parameters but, it might happen in 2020.. What about today??