Indian banks are now using credit bureaus to perform identity and background checks on their customers as part of their Know-Your-Customer (KYC) process, reported Indian newspaper Business Standard.
In April this year, the Reserve Bank of India (RBI) fined three public sector banks — Bank of Maharashtra, Dena Bank and Oriental Bank of Commerce — Rs1.5 crore each for violating KYC rules. The regulator also reminded eight other public sector banks to ensure strict compliance with KYC rules, as instances were detected where banks were opening fixed deposits and granting overdrafts without performance of due diligence.
According to experts, scores and checks by credit bureaus could be used to better detect fraud and money laundering cases. For example, credit bureaus could help verify the identity of a customer, his/her address, and address stability. Address stability, which depends on the tenure of one's previous loans or the frequency of address changes, could provide warning signals to banks before they offer loans to customers.
Banks might also be turning to credit bureaus to solve logistical issues related to KYC, as credit bureaus are a one-stop shop for credit and identity checks, said Nimilita Chatterjee, Senior Vice-president of products, analytics and data operations at Equifax.