March 19, 2025, New Delhi: Reserve Bank of India (RBI) Governor Sanjay Malhotra recently drew attention to the sharp rise in complaints received under RBI’s Integrated Ombudsman Scheme, which grew at a compound average rate of almost 50% per year over the past two years, reaching 934,000 in 2023-24.

Urging senior executives of regulated banks and non-banking financial companies (NBFC) to speedily address the complaints, he warned, “In this age of competition, we will not survive long if we do not provide quality service to our consumers.”

Addressing the annual conference of the RBI Ombudsmen, Malhotra stated, “Not only are a large number of complaints getting escalated, but a large proportion — nearly 57% of maintainable complaints last year — required mediation or formal intervention by the RBI Ombudsmen. You would all agree that this is a highly unsatisfactory situation and needs our urgent attention.” The number of complaints processed by the office of the RBI Ombudsman increased by 25%, from about 235,000 in 2022-23 to almost 294,000 in 2023-24.

Even as banks continue to invest in digital solutions to meet customer expectations like easy-to-use interfaces and personalized experiences, the problems faced by consumers are arising due to sudden changes in rules. For instance, despite intervention through technology and innovative services, customers often face impediments like the repeated requirement for KYC (know your customer). A set of guidelines and regulations that financial institutions use to verify the identity of their customers, KYC is a key part of anti-money laundering and counterterrorism measures of the government. The RBI guidelines require banks to conduct periodic KYC updates for their customers, which in common parlance is known as Re-KYC.

The regulations, designed to prevent money laundering and identify suspicious activity, can sometimes lead to poor people being denied access to bank accounts, states the Economic and Political Weekly in a report “KYC and Access to Bank Accounts” published in November 2024. This is due to the difficulty in providing necessary documentation, including formal identification for linking Aadhaar cards to bank accounts which can be challenging for poor and vulnerable communities, effectively leading to financial exclusion.

EPW cites the example of recent surveys in some states that have shown that many people are unable to withdraw money from their bank accounts because those accounts have been frozen until they complete the KYC formalities. For example, recent surveys conducted in Latehar and Lohardaga district of Jharkhand by the local Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) Sahayta Kendras show that the victims of such frozen bank accounts include elderly pensioners who depend on their meagre pensions, children who receive scholarships, and women entitled to INR 1,000 per month under Jharkhand’s new Mukhyamantri Maiya Samman Yojana. In the seven villages surveyed, 60% of the 244 households had at least one frozen bank account. A similar survey of 72 households in three small villages of Latehar district showed that nearly 40% had at least one frozen bank account. This was due to KYC issues in most cases.

These problems arise not only in villages as even in big cities customers face problems when they find that their account is inoperable, or its access has been restricted due to sudden changes in rules without prior information. Apart from KYC requirements, there are several areas where banking has become a challenge for people not familiar with banking rules, digital payments, etc., which are mostly related to lack of familiarity or knowledge of how to handle the digital system, which while being easy for some, can be tricky for others.

With thousands of complaints received by LocalCircles related to online access of bank accounts, KYC and other online banking related issues, it has strived to find out what are some of the problems faced by banking customers. The survey received over 54,000 responses from consumers located in 334 districts of India. 67% respondents were men while 33% respondents were women. 42% respondents were from tier 1, 27% from tier 2 and 31% respondents were from tier 3 and 4 districts.

34% families have 1 or more individuals with bank accounts that they are not able to access online

Different banks appear to have different rules and safeguards for accessing online banking. The survey asked consumers, “How many of your and your family’s existing bank accounts are you unable to access online at all?” Out of 18,133 who responded to the question 5% stated “4-5” bank accounts; 24% of respondents stated “2-3” bank accounts; 5% of respondents stated “1” bank account; 56% of respondents however stated that “all accounts are accessible” and 10% of respondents did not give a clear answer. To sum up, 34% of families have 1 or more individuals with bank accounts that they are not able to access online

63% of families surveyed cannot access 1 or more of their bank accounts online because of KYC issues, login credentials not working or because their bank has put their account in dormant status

The survey next asked consumers, “Why are you/family unable to access or more of your bank accounts online?” Out of 18,375 who responded to the question 7% indicated “account is in DEAF (inactive account which from which money has been transferred to Depositor Education and Awareness Fund) status with balance transferred to RBI and we need to reactivate the account”; 11% of respondents stated “bank has put the account in dormant status and we need to reactivate the account”; 23% of respondents stated “have to do KYC”; 22% of respondents stated “have set up the account online but access credentials are not working”; 30% of respondents stated “there is some other issue that the ones described above”; and 7% of respondents did not give a clear answer. To sum up, 63% of families surveyed cannot access 1 or more of their bank accounts online because of KYC issues, login credentials not working or because their bank has put their account in dormant status.

59% of families surveyed say that they found their bank bureaucratic and inefficient when they approached them for re-enabling their/family’s account access online

While the staff of some banks take pride in customer service, others are reported to be not very helpful. The survey next asked consumers, “How do you find your current bank when you approach them for re-enabling your/ family’s bank account access online?” Out of 18,127 who responded to the question 36% stated that their current bank is “quick and efficient when visited”; 5% of respondents said the bank “has an efficient self service online/ phone system that works”; 59% of respondents, however, stated that their bank is “bureaucratic and inefficient". To sum up, 59% of families surveyed say that they found their bank bureaucratic and inefficient when they approached them for re-enabling their/family’s account access online.

In summary, banking services in India need to drastically improve to meet consumers expectations as 34% families have 1 or more individuals with bank accounts that they are not able to access online. A big problem faced by 63% of families surveyed is that they cannot access 1 or more of their bank accounts online because of KYC issues, login credentials not working or because their bank has put their account in dormant status. Systemic challenges apart, 59% of families surveyed say that they found their bank bureaucratic and inefficient when they approached them for re-enabling their/family’s account access online. The survey findings are important as the Reserve Bank of India has issued revised directives to banks to classify an account as 'inoperative' if there are no customer-induced transactions for over two years. The directive, which will come into effect from April1, is applicable if there is no monetary transaction, KYC update, or non-financial transactions such as balance enquiries or requests for cheque books for two years. What should not happen is that the directives by RBI combined with the bureaucratic and inefficient operating model of many banks makes it harder for consumers to validate accounts, access them and conduct transactions. Banks will need to put in extra efforts on process and transaction efficiency for consumers and unless that becomes a priority, not much is likely to change.

Survey Demographics

The survey received over 54,000 responses from consumers located in 334 districts of India. 67% respondents were men while 33% respondents were women. 42% respondents were from tier 1, 27% from tier 2 and 31% respondents were from tier 3 and 4 districts. The survey was conducted via LocalCircles platform, and all participants were validated citizens who had to be registered with LocalCircles to participate in this survey.