Essential KYC Documents and Guidelines for Financial Services

KYC Guidelines

As per RBI guidelines, it is mandatory to complete the KYC (Know Your Customer) process before opening a bank account and operating it. The completion of the KYC safeguards banking and other financial services from being misused for unlawful activities. 

According to this process, customers must provide valid documents required for KYC, such as proof of identity (PAN card, Voter ID, Aadhaar card, or Passport) and proof of address (Rental agreement, Utility bills, or driving license). You also need to provide a recent passport-sized photograph. 

The purpose of the KYC verification process is to ensure the financial system is safe and secure. Proper verification of customers helps banks and other financial institutions protect their systems against fraud and illegal financing. Maintaining transparency from both ends builds trust between the bank and its customers.  

There are two ways to complete KYC.

Physical KYC – For a physical KYC, customers are required to submit hard copies of documents, and verification is conducted in person at the office and residence address. The applicant must show the originals for a successful verification.l 

eKYC – Also known as online KYC registration. In this process, a digital approach is adopted by utilising Aadhaar authentication on a video call with the customer, thus making it quick and paperless.

The KYC process is not just a regulatory formality, but a crucial step that ensures authenticity and safety for both the bank and the customer. 

Why is the KYC mandatory for all Banks and Credit institutions?

Improved security and risk control – KYC helps banks thoroughly verify customers’ identities, which in turn lowers the risk of fraud, identity theft, and other illicit financing.

Here are some points to consider: ‘Why KYC is mandatory for banks’

• For verification of customer identity, this ensures that the customer opening the account is genuine.
• For confirmation of address, it helps banks to maintain accurate customer details.
• To prevent Fraud, it lowers the chance of identity theft and fake accounts.
• To build trust and transparency, it enhances the relationship between the customer and the bank.
• To comply with RBI regulations, it is mandatory as per regulatory and legal requirements. 

Customer Queries on KYC :

What is KYC?

KYC, short for “Know Your Customer” or “Know Your Client,” is not just a standard regulatory procedure mandated by the Reserve Bank of India for Banks and Financial institutions. It’s a crucial step in maintaining the integrity of the financial system. 

 In simple terms, to complete the KYC process, the bank or financial institution must verify the customer’s identity and address to confirm that the submitted details are genuine.

Each time a new customer is acquired, the KYC process must be completed to verify the customer’s identity and address as a compulsory compliance measure. The KYC details of individuals should also be updated periodically by the financier.

What is the purpose of the KYC process?

The KYC process began in 2002 to verify that customers and entities with which banks and financial institutions deal are legitimate and not involved in illegal activities, such as fraud, money laundering, and terrorist financing. The primary objectives of the KYC include:

• Confirmation of the customer’s identity and address.
• To eliminate the risk of fraud and potential illegal activities.
• To complete the regulatory compliance process required by the RBI.

Is KYC necessary for a bank account?

Before opening any new bank account, the bank must complete the KYC process. The required KYC documents must be submitted, and the institution must carry out the necessary due diligence.  The account will be operative only after a successful KYC process is conducted. Failure to complete the KYC process may result in the account not being opened or being frozen, hindering your financial transactions.

The KYC process is not only necessary for opening a new Bank account, savings or current account and a fixed deposit, but also for:

• Trading and Demat Accounts.
• Mutual Funds and investments.
• Life or general Insurance policy.
• Other financial products such as funds and investments. 

What are the essential documents commonly required for KYC?

To complete the KYC process, you must submit vital documents to verify your identity and address. 

• Identity Proof

Government-issued documents with a photograph affixed are required as an Identity proof for the KYC process. The evidence of identity also gives the Name and the date of birth details of the customer.

The list of documents approved as an Identity proof includes:

• Aadhaar Card
• PAN Card
• Voter ID Card
• Passport
• Driving license

Other documents approved as proof of identity include government-issued identity cards and identity cards issued by educational institutions.

• Address Proof

Your address proof must reflect the location where you currently reside. The approved documents include;

• Passport
• Registered rent agreement
• Utility Bills (last 3 months)
•  Aadhaar Card
• Bank Passbook or Statement 

• Recent Photograph

• A recent passport-size photo is required for physical verification
• Some digital platforms may seek video verification or a selfie in place of a photo.

Providing valid documents with clear copies will help expedite the KYC process.

What are the steps for completing the KYC?

 The KYC process undergoes the following key stages:

1. Customer Identification:

• The first step of the KYC is the collection of the customer’s details and documents as proof of the identity and residence address of the customer.
• The data is verified, and the documents are checked to be true copies as per the government records to confirm the identity.
• A record of the customer details and documents submitted is maintained for future reference.

• Customer Due Diligence:

Due diligence is conducted to understand the customer’s background and business activities.

Banks and financial institutions conduct verification to confirm the customer’s residence and employment details. 

• Enhanced Due Diligence:

If a customer is classified as high-risk, a thorough investigation is conducted into the customer’s background.

This may include requesting additional documents and thoroughly analysing your sources of income and financial activities.

1. Ongoing Monitoring:

• It is the responsibility of the financial organisation to maintain an ongoing process to revalidate the customer’s KYC documentation.
• To check on transactions to trace any unusual patterns that may indicate potential illegal activities or fraud.
• While monitoring, any suspicious activity must be reported to the concerned authority, as it helps prevent fraud and money laundering.
  

       The difference between e-KYC and physical KYC

• e-KYC – It is entirely digital. The verification process is done through Aadhaar OTP or biometrics. It’s quick and paperless. 
• Physical KYC – In this, you need to visit the branch, hand over the photocopies of valid documents, and sign the forms. It is a little slower, but for specific services it’s necessary.
  
  The initial process of KYC involved a physical collection of KYC documents and a manual verification. With the introduction of the digital KYC processing, the e-KYC process is now being used by most financial organisations.

The manual verification of the KYC documents involved:

• Collection of self-attested hard copies of documents from the customer.
• A representative from the verification agency would personally visit to verify the original documents.
• Files and records were maintained of all the documents.

With the transformation to the e-KYC process;

• The customer can upload the KYC documents online to the financer’s website. 
• Scanned copies are verified in real time from government websites.
• Linking your mobile number to the Aadhaar and PAN Card facilitates verification.

Benefits of the e-KYC process.

• With the e-KYC process, customers can upload their KYC documents from the comfort of their home or office, eliminating the hassle of visiting the Bank.
• Accessibility: Documents can be easily accessed online when required, and customers in remote locations can be verified easily.
• Time and Cost Reduction: The digital KYC process saves time and the cost of manual work.
• Accuracy and storage: The digital process eliminates the chances of clerical errors and the risk of misplacing documents.

Do NRIs (Non-Resident Indians) also need to update KYC?

Non-resident Indians (NRIs), whether they are Indian or foreign passport holders, must complete the KYC process when opening a Bank account or conducting any other financial transactions.

• Indian Pan Card.

A permanent account number issued by the Indian Income Tax authorities is mandatory for conducting all financial transactions.

• Valid passport

Copies of the first two and last two pages of your Indian passport or a passport issued by a foreign country.

• Foreign address proof.”Submit a copy of your overseas address proof. Valid documents include your driving licence, official work permit, or a utility bill.

NRIs with an Indian residence address must submit an Indian address proof, such as a driving licence, Aadhaar card, Voter ID card, or utility bill.

• Passport-size photograph.

A recent colour passport-size photograph is required for identification.

Additional requirements include:

• OCI or PIO Card.

Provide your OCI (Overseas Citizen of India) or PIO (Person of Indian Origin Card), if available.

• FATCA/ CRS.

A declaration under the Foreign Account Tax Compliance Act or Common Reporting Standard is needed.

• Hand Signature.

A self-signed proof of signature on white background paper is required as proof of signature.

• If you hold an Aadhaar card, you should link it with your PAN Card to expedite financial transactions.

If I change my name or address, will I have to update KYC again?

An updated KYC is required for any new financial transaction, and if you need to revalidate your KYC. You will need to submit an updated proof of Identity and Address. If there are any changes in your existing identity or Address proof due to the following reasons

• If you shift your residence.
• If you change your surname after marriage
• If you change your contact details or email address that is linked to your bank account.

Is the KYC process standard for all credit approval?

Yes, in India, the KYC process is necessary and standard for all credit approvals. It is mandated by RBI and PMLA (Prevention of Money Laundering Act, 2002). Furthermore, the KYC details of customers are stored with the Central Know Your Customer (CKYC), which enables a one-time KYC to be stored and made available to Banks and financial institutions for customer verification.

However, the Bank might perform a KYC recheck for a new relationship or for a suspicious account.