RBI Tightens KYC Norms For Revised DMT; Experts Weigh In

The Reserve Bank of India released a revised framework for domestic money transfer after reviewing the existing one. The newly released circular, on Wednesday, tightened the rules related to KYC and domestic money transfers (DMT).

The framework for domestic money transfer (DMT) was introduced in 2011. But recently RBI noted a significant increase in the availability of banking outlets, developments in payment systems for funds transfers, ease in fulfilling KYC requirements, etc. Since then, and now users have multiple digital options for funds transfer. Therefore, RBI undertook a review of various services facilitated in the current framework.

Based on the review, RBI introduced some changes. Now the remitting bank will have to obtain and keep a record of the name and address of the beneficiary for cash payout. While in cash pay-in services, the remitting banks / Business Correspondents (BCs) will have to register the remitter based on a verified cell phone number and a self-certified ‘Officially Valid Document (OVD)’ as per the Master Direction – Know Your Customer Direction 2016. Now, every transaction by a remitter will be validated by an Additional Factor of Authentication (AFA).

Ankit Ratan, Co-founder and CEO at Signzy believes AFA and OVD provisions will bring transparency. He said, “Each transaction by a remitter will now be validated by an additional factor of authentication (AFA), providing an extra layer of security and ensuring that only authentic parties are involved in the transaction. By registering the remitter based on a verified cell phone number and a self-certified ‘Officially Valid Document (OVD), banks can ensure the authentication of users and confirm they are who they claim to be.”

Further in issued guidelines on Wednesday, RBI provisioned that the Remitting banks and their BCs will have to conform to provisions of the Income Tax Act, 1961, and the rules/regulations framed thereunder (as amended from time to time), of cash deposits. The remitter bank is now directed to include remitter details as part of the IMPS / NEFT transaction message.

Commenting on the revised framework Yashwant Lodha, Co-founder of PayNearby said, “The new KYC requirements are consistent with RBI's stance on tighter KYC to prevent fraud and misuse. We also believe these guidelines will help standardize and elevate the customer experience across various touchpoints."

This circular is issued under Section 18 read with Section 10 (2) of the Payment and Settlement Systems Act, 2007 (Act 51 of 2007), and it will come into effect from 1 November 2024. However, the guidelines on card-to-card transfer are excluded from the purview of the DMT framework and shall be governed under the guidelines/approvals granted for such instruments.