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India

Unfortunately, India does not have a Data Protection Act. However, last month the Reserve Bank of India (RBI) issued a directive to all banks prohibiting them from disclosing data provided by customers to the banks under the Know your customer (KYC) guidelines while opening their bank account with such banks. Under the KYC guidelines, banks must ensure appropriate customer identification aimed at monitoring transactions of suspicious nature, money laundering and for countering terrorist finance.

The RBI directive is based on the recommendations of the Committee on Procedure and Performances Audit on Public Services, which observed that customer information was being used for the cross selling of services of various products by banks and commercially exploited through disclosure to other agencies. The Committee observed that such information provided by the customer for KYC compliance was confidential and that using it for cross selling or any other purpose was in breach of customer confidentiality obligations.

However, RBI has clarified that if banks want to collect information for purposes other than under KYC guidelines, the information may be collected separately on a voluntary basis after explaining the objectives to the customer and should be collected after seeking express approval for the specific uses to which the data will be put.

Curiously, the Insurance Regulatory and Development Authority (IRDA), the insurance regulator, had in February 2003 permitted insurance companies to enter into referral agreements with banks under which insurance companies could access banks databases and, in return, banks were entitled to referral fees ranging from 5.5% to 55% of the business generated. However, an IRDA constituted expert committee under the stewardship of Mr AC Mukherjee, has recommended the avoidance of referral arrangements, except in rural insurance, as an intermediary mechanism, owing to its inherent inadequacies and susceptibility to misuse.

Shardul Thacker

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