Now, make central KYC registry fully operational

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A lot of attention is paid to ease of doing business rankings since they impact perceptions about the government and drive investments. High ease of doing business rankings, however, don’t translate into high ease of living rankings for citizens. There is some focus now on the ease of living index for citizens. Both the Ministry of Rural Development and the Ministry of Urban Affairs have come out with their own versions of the ease of living index for various areas.

You may be forgiven if you have never heard of this index or are surprised to find that your city tops the ease of living index 2021 (Bengaluru among large cities and Shimla among smaller ones). The experience of dealing with public or semi-public institutions continues to be like changing gears in a car that has sand in the gearbox. We also seem to have a penchant for doing 95 per cent of the hard work but leaving the final 5 per cent unfinished. What starts out as a well-intentioned exercise to improve the lives of citizens ends up causing chaos and confusion.

Let me highlight two initiatives from the financial sector which, if implemented fully, can considerably increase ease of living for most citizens. First is the complete operationalisation of the Central KYC registry (CERSAI) that has been in place since 2016. Imagine a situation where you complete the change of address or any other KYC formality with any one entity (say, your bank) and then it automatically spreads to all the financial sector entities you deal with. Your KYC should get automatically modified in your mutual fund folios, stock broking or demat accounts, insurance policies, provident fund and National Pension System accounts.

The groundwork needed for enabling this has already been completed for some time now, with CERSAI reportedly having KYC records of 380 million individuals. But automated dissemination of information from this centralised database doesnt happen. It will need coordinated effort among all the regulators (RBI, Sebi, IRDAI, PFRDA & EPFO) to standardise the information required by all of them and work out protocols for automatic sharing. It doesn’t help that CERSAI is not accountable to any of the regulators. Also, no single regulator has been made responsible for the successful rolling out of this reform.

The second reform on which a lot of work has already been done and which can be completed easily is bank account and loan account portability. Bank account holders put up with poor service from their existing bankers because many standing instructions for both expenses and incoming receipts are linked to their existing bank accounts. It is a tedious task for the account holder to open another account and then manually deal with each of the providers to change the instruction to the new account.

Mobile number portability considerably improved the subscriber’s ability to get better service from mobile service providers. Similarly, a standardised bank account portability process will do the same for bank account holders.

Existing borrowers getting access to a standardised loan portability process will enable them to get the best terms from their existing lenders themselves. Currently the borrower’s ability to switch lenders is constrained by the non-financial barriers put up by existing lenders, which make shifting difficult.

These reforms are in the domain of the central government and just need somebody senior in the government to use its famed mission mode approach. If implemented successfully, these reforms will considerably enhance the ease of living score for all citizens.

The writer heads Fee-Only Investment Advisors LLP, a Sebi-registered investment advisor; Twitter: @harshroongta

(A slightly different version of this column first appeared in the Business Standard on February 07, 2022.)

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