If you have ever opened a bank account, you have performed the KYC process.
KYC or Know Your Customer is used to verify a person’s identity. Reserve Bank of India (RBI) has made it mandatory for banks to perform the KYC procedure for their customers. Here’s a list of documents that are required as part of the KYC process.
The KYC process protects:
KYC guidelines were issued based on the recommendations made by the Financial Action Task Force on Anti Money Laundering and Combating Financing of Terrorism in 2004. It helps Financial Institutions (FIs) establish the legitimacy of their customers.
FIs need to protect themselves from identity theft, money laundering, financial fraud, terrorism financing, and various other financial crimes. They need to establish proof of a customer’s legal identity to prevent fake accounts and identity thefts from forged documents or stolen identity documents. KYC plays a vital role in doing so.
Yet another reason that the KYC process is important is to protect from money laundering. It is the process of concealing the origin of money obtained from illegal activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. To avoid suspicion, criminals use dummy accounts for narcotics, human trafficking, smuggling, racketeering, and other crimes. FIs need to protect themselves from these criminals.
You have probably heard of fraudsters using stolen IDs to apply for loans. These fraudsters then use the funding from the loans for various fraudulent or criminal activities. KYC also protects from financial fraud such as using fake or stolen IDs to apply for loans.
Documents required for KYC process
Aadhar Card, Driving License, Passport and Voter ID Card can be used as both identity proof as well as address proof.
Apart from the above-mentioned documents, the following can also be used as proof of identity:
- PAN Card
- Photo ID Card issued by the Central/State Government
- Photo ID Card issues by the Public Financial Institutions
- Scheduled Commercial Banks, or Public Sector Undertakings
- Photo ID card issued by university
- Photo ID card issued by professional bodies such as ICAI, ICSI, Bar Council, etc. to members
- Debit or credit card issued by a bank that has the name of the individual.
The following documents can also be used as proof of address other than the four main documents mentioned earlier.
- Registered Agreement for Lease or Sale of Residence
- Utility bills not older than three months
- Bank account statement not older than 3 months
- Self-declaration validating the address offered by a High Court or Supreme Court judge
- Address proof issued by bank managers of Multinational Foreign Banks, Scheduled Commercial Banks and Scheduled Co-Operative Banks
- Address proof issued by a central/state government department, or any of the statutory or regulatory bodies
- ID card with address issued to members by professional bodies such as ICAI, ICSI, Bar Council, etc.
- Land or municipal tax receipt
- Monthly pension payment records issued by ministries or public sector companies that have the address mentioned.
KYC norms in India
Now that you know the documents required for the KYC process in India, let’s take a look at the KYC norms in India.
- Customer Identification Process
According to RBI guidelines, Financial Institutions need to perform the identification of their customers under the following circumstances.
- When a customer wants to open a bank account.
- For carrying out international money transfer operations.
- If there’s any doubt about the authenticity of the customer identification data.
- A walk-in customer, where the amount exceeds Rs. 50,000 as a single transaction or across multiple transactions.
These are just a few of the circumstances where the customer identification process is performed. You can read more about it here.
- Customer Due Diligence
Customer Due Diligence is the process of collecting and evaluating information about customers or potential customers. There are various KYC methods that Financial Institutions can use to perform this process.
These various methods of KYCs that banks, NBFCs, and FinTech companies can use are Digital KYC, Offline KYC, Central KYC and Video KYC.
Digital KYC and Offline KYC – All banks, NBFCs, and FinTech companies can use Digital KYC. All these financial institutions can make use of Offline KYC with the consent and cooperation of their customers.
CKYC – CKYC is only available to entities regulated by the Government of India. These regulators include RBI, SEBI, IRDA, and PFRDA.
V-KYC – The V-KYC process is accessible only to banks using OTP-based eKYC and Offline Aadhaar verification and NBFCs and FinTech companies using Offline KYC.