RBI revises KYC guidelines; what you need to know

The Reserve Bank of India (RBI) Thursday announced amendments to its Know Your Customer (KYC) Directions, 2016, to enhance customer service and ensure smoother compliance processes. The revised guidelines, titled RBI (KYC) (Amendment) Directions, 2025, came into effect immediately.

The central bank exercised its powers under multiple financial laws, including the Banking Regulation Act, 1949; the RBI Act, 1934; and the Prevention of Money Laundering Rules, 2005, to introduce the changes. The amendments are aimed at simplifying KYC processes, especially for low-risk individuals, and making financial services more accessible.

One of the key changes is a relaxation in KYC timelines for individual customers classified as low risk. Regulated Entities (REs) are now permitted to allow all transactions for such individuals and update their KYC within one year of the due date or by June 30, 2026, whichever is later. Regular monitoring of these accounts, however, remains mandatory.

Anand Kumar Bajaj, founder, MD & CEO of PayNearby, said, “The RBI’s revised KYC guidelines are a vital step towards promoting equitable financial access while strengthening governance, compliance, and customer protection. Timely KYC updates are crucial to preventing account misuse and combating financial fraud.” 

In another customer-friendly move, banks have been allowed to use Business Correspondents (BCs) for periodic KYC updates. BCs can collect self-declarations and supporting documents, either electronically or physically, from customers with no change or only address-related updates in their KYC. These documents will be authenticated and forwarded to the bank, which will update the KYC records accordingly. “By enabling Business Correspondents to assist with these updates, banks can efficiently reach customers in areas with limited branch presence. This empowers citizens in remote and underbanked regions, who can now visit a Nearby Retail outlet to update their KYC digitally and securely,” added Bajaj.

Additionally, the RBI has made it compulsory for REs to proactively remind customers about KYC updates. Customers must receive at least three advance notices—including one by post, before the due date, followed by at least three more reminders post-due date, if necessary. These communications must include clear instructions, assistance channels, and consequences of non-compliance. Banks are expected to implement this system no later than January 1, 2026.

Vishwas Patel, Chairman, Payments Council of India, “This is a significant step toward making digital payments more inclusive, seamless, and accessible especially for underbanked populations in semi-urban and rural India. Simplifying KYC while maintaining regulatory safeguards will enable the ecosystem to onboard customers faster, reduce friction, and accelerate the adoption of formal financial services. We commend the RBI for its continued commitment to supporting innovation while safeguarding trust in the digital financial ecosystem.”

The RBI said these amendments aim to strike a balance between regulatory compliance and customer ease, while strengthening the overall KYC framework to prevent misuse of financial systems.

Manas Gond, Co-founder & CEO of Prosperr.io , said, "The RBI's draft circular on KYC clearly demonstrates the regulator's acknowledgment of systemic issues that have long plagued the banking sector. While implementation challenges remain, this directive shows promise in balancing regulatory compliance with customer protection, especially for vulnerable populations whose access to essential services like pensions and scholarships has been disrupted by account freezes. The emphasis on empowering banking correspondents and enabling multiple channels for KYC updates reflects a more customer-centric approach that could significantly reduce the burden on ordinary citizens."