RBI Revises KYC Rules: Easier Updates and Access to Funds

In June 2025, the Reserve Bank of India (RBI) announced a major overhaul of its KYC (Know Your Customer) norms. Under the new guidelines, banks must simplify periodic KYC compliance so that customers – especially those in rural or underserved areas – can easily access their own funds. Many accounts have remained inactive for years because of missed KYC deadlines, causing balances to get transferred to the RBI’s Depositor Education and Awareness (DEA) Fund. 

The RBI noted that inactive accounts include many linked to Direct Benefit Transfers (DBT), electronic benefits or schemes like Pradhan Mantri Jan Dhan Yojana (PMJDY), where payments have been stuck for want of updated KYC. By issuing a circular on June 12, 2025, the RBI aims to ensure anti-money-laundering rules do not block rightful account holders from reclaiming their savings.

New KYC norms mean customers in even remote areas can update their bank details more easily. The RBI has enabled local agents (banking correspondents) and digital channels to handle KYC updates, aiming to unlock deposits that have gone untouched.

Why RBI Changed the KYC Rules

RBI data showed a large backlog of dormant and inoperative accounts. Any deposit account without customer-initiated transactions for two years is classified “inoperative”, and balances in accounts inactive for ten years must be moved to the RBI’s DEA Fund. In practice, customers often missed notifications and only found out about a blocked account when they tried to transact. The new rules respond to this by making reactivation and updates much simpler, especially for low-risk, rural and benefit-linked accounts.

The overhaul also follows calls from policy makers to reduce unclaimed assets. In May 2025, Finance Minister Nirmala Sitharaman urged regulators to minimize stranded bank and investment funds and ensure smooth refunds to owners. Shortly after, RBI flagged that many Jan Dhan and welfare‐linked accounts had KYC pendency blocking payments. The June circular directly addresses these concerns: it focuses on advance reminders, simpler e-KYC methods, and on-the-spot services via local agents so that customers don’t lose access due to paperwork delays.

Key Changes in KYC Compliance

The RBI’s new guidelines (issued as an amendment to the KYC Directions) introduce several customer-friendly measures. The main points include:

• Business Correspondents (BCs) Can Update KYC: Banks may now use their field agents – such as NGOs, self-help groups, microfinance institutions or even local Kirana store owners – to collect KYC updates. These authorized BCs can assist customers in submitting self-declarations (in person or electronically) and help complete biometric e-KYC on the spot. In effect, rather than traveling to a distant branch, a customer can visit a nearby BC outlet to handle KYC.
• Advance Notices and Follow-up Reminders: Banks must proactively inform customers about upcoming KYC deadlines. The RBI directs each bank to send at least three notices before the due date, including one by physical letter, using all available channels (SMS, email, app, etc.). If the customer still doesn’t comply, the bank must send three more reminders after the due date (again, including one letter) before restricting the account. All such notices must be logged for audit. This ensures people get clear instructions early on, rather than finding out at the last minute through only an email or one missed alert.
• KYC Updates at Any Branch (Not Just Home Branch): Customers no longer have to go back to their “home” branch. Banks are instructed to allow KYC updates and account reactivations at any branch where the customer holds an account. This adds great convenience for those who have moved or who live far from their original branch.
• Flexible Verification Channels (Aadhaar OTP, Video KYC): The new rules explicitly allow digital verification tools for periodic KYC updates. For example, an Aadhaar OTP (one-time password) can be used to verify identity during an update, and the Video-based Customer Identification Process (V-CIP) is permitted for both onboarding and existing customers. In practice, a customer could update KYC from home via a video call with the bank, or complete Aadhaar-based e-KYC face-to-face, rather than presenting paper documents at a branch.
• Self-Declarations for Minor Changes: If a customer’s details have not changed, or only the address has changed, no fresh proof documents are needed. The customer may submit a simple self-declaration instead. A BC or digital channel can collect this declaration. The bank records it and updates the account, without demanding new KYC paperwork. This reduces hassle for the vast majority who haven’t changed their name or ID.
• Camps and Outreach in Rural/Semi-Urban Areas: The RBI urges banks to hold KYC update camps in rural and semi-urban branches with many pending cases. Banks should run awareness drives, special camps and focused campaigns for groups like DBT recipients or Jan Dhan accountholders. The idea is to bring KYC services to the doorstep of underserved customers, rather than expect them to figure it out themselves.
• Extended Timeline for Low-Risk Customers: Customers classified as “low risk” get extra flexibility. Banks are allowed to continue processing transactions for such individuals while their KYC is updated. Specifically, RBI says that if KYC is due, the bank may let all normal transactions continue and simply require the update within one year after the original due date or by June 30, 2026, whichever is later. In other words, low-risk customers (who often have simpler profiles) get a grace period so their accounts aren’t suddenly frozen if they miss a deadline.

Many of these changes reverse or relax older practices. Previously, a customer with an expired KYC might have had to stand in line at their home branch with stacks of documents. Now, even non-face-to-face methods (like OTP or video) and local agents can be used. Similarly, banks must chase customers with written notices under the new rules, whereas earlier notifications were more ad-hoc. The RBI circular also aligns with past instructions: for instance, in December 2024 it advised banks to “take an empathetic view” for low-risk account reactivations. The latest move formalizes and expands that approach.

How Customers Benefit

Together, these reforms should greatly ease KYC pain points. People in rural or remote areas especially stand to gain, since BCs or special camps can bring banking services closer to home. For example, one can now meet a banking correspondent at a nearby Kirana shop or NGO office to submit a self-declaration and have KYC done via fingerprint or video. This cuts travel time and fees for those who once had to trek to distant branches.

Regular notifications mean customers won’t be caught by surprise. Receiving multiple reminders (with clear instructions) helps avoid situations where accounts are suddenly blocked when one tries to withdraw benefits or pension money. In fact, banks themselves note that un-updated KYC has delayed DBT subsidy payments; the new rules explicitly aim to fix that holdup.

For many low-income or elderly customers, the ability to simply declare no-change in address is a boon. They no longer need to gather proofs or visit offices. Likewise, extending deadlines for low-risk groups means their day-to-day banking isn’t interrupted over a minor paperwork delay. Overall, the intent is clear: keep the customer’s needs front and centre. As one industry expert noted, expanding BC networks and e-KYC will “bridge the last mile” and ensure customers retain seamless access to their accounts.

Banks, for their part, must act on these guidelines. They were told to implement everything by January 1, 2026. This includes updating IT systems (to log all notices), training BCs, and planning camps. Fortunately, many banks already have large correspondent networks; the new circular simply officially brings them into the periodic KYC process (as analysts have pointed out).