Reserve Bank of India's (RBI's) recently-released report on
Trend and Progress of Banking in India 2024–25 offers a candid assessment of long-standing weaknesses in the banking system, acknowledging that persistent know-your-customer (KYC) lapses, rising cyber fraud and mounting customer grievances continue to undermine consumer trust.
Despite repeated regulatory instructions, special compliance drives and periodic reviews, RBI admits that KYC failures remain widespread. These lapses continue to be among the most common reasons for penalties imposed on banks, raising serious questions about the effectiveness of enforcement and follow-through.
The report notes that even a nationwide re-KYC campaign conducted between July and October 2025 at the gram panchayat level failed to deliver lasting improvements. KYC-related deficiencies continue to surface during supervisory inspections, suggesting that many banks treat compliance drives as one-off exercises rather than ongoing responsibilities.
For customers, the consequences are often immediate and severe. Bank accounts are frozen, transactions are restricted and access to savings is denied, frequently without adequate notice or clear explanations. Resolution timelines remain uncertain, leaving affected customers in prolonged financial and emotional distress.
Vulnerable groups such as senior citizens, pensioners, migrant workers and rural account-holders bear the brunt of these failures. Many struggle with digital processes or repeated documentation demands, while banks rarely face consequences proportionate to the hardship caused by arbitrary or poorly communicated restrictions.
On the digital fraud front, RBI points to initiatives such as MuleHunter.ai for detecting mule accounts and the digital payments intelligence platform to flag suspicious transactions. However, the report concedes that cyber-enabled frauds continue to rise despite these technology-driven interventions.
Fraudsters are increasingly exploiting weak internal controls, delayed detection systems and poor coordination between banks and law enforcement agencies. While technological tools are expanding, the regulator acknowledges that they cannot compensate for weak governance and lax operational discipline within banks.
The scale of customer distress is evident from grievance data. During 2024–25, RBI ombudsman offices received 296,000 complaints, undermining claims of improved customer service in an increasingly digitised banking ecosystem.
Nearly 80% of these complaints related to loans, credit cards, digital banking and deposit accounts—areas where KYC failures and cyber risks frequently intersect. Public and private sector banks, together, accounted for more than 72% of all complaints received.
The report also flags regulatory gaps that have not kept pace with evolving risks. The framework governing customer liability for unauthorised electronic transactions, last revised in 2017, is now widely seen as outdated in an era of explosive growth in digital payments.
Although RBI has indicated that a review of liability norms and stronger powers for Internal Ombudsmen are under consideration, these reforms remain works in progress. Until enforcement becomes sharper and accountability more direct, the central bank's own findings suggest that customers will continue to pay the price for systemic failures in India’s banking system.
MUFG Bank Buys 20% Stake in Shriram Finance for Rs39,618 Crore, Marking Biggest FDI in Indian NBFC Sector
Moneylife Digital Team
19 December 2025
Japanese banking major MUFG Bank Ltd, a subsidiary of Mitsubishi UFJ Financial Group Inc (MUFG), has agreed to invest Rs39,618 crore to acquire a 20% stake in Shriram Finance Ltd, marking the largest foreign direct investment (FDI) in...
