What Are The KYC Requirements For Financial Services?
December 12, 2022

What Does KYC Mean?

The abbreviation KYC stands for” Know Your Customer” which has become the foundation for all Banking transactions. The Reserve of India has mandated the Know Your Customer process steps for all financial institutions to verify the authenticity of applicants for financial services.

It has been ruled that before acquiring new customers, Banks, Insurance and Asset management companies must comply with the KYC Guidelines, as the financial sector is prone to crimes like money laundering, identity theft, and terrorism funding

Documents Required to Complete The KYC Process

To complete the KYC process, an applicant must submit the appropriate documents. Banks have enumerated several readily available records to simplify the process. The following KYC-required documents are to be submitted as proof of identity and address when applying for a loan or any other credit form,

Aadhaar/PAN/Passport/Driver’s License/Voter ID/Employee ID with photo, etc.

What is the Significance of Primary KYC Documents:

PAN Card

Wikipedia describes a PAN Card or a permanent account number as: “A ten-character alphanumeric identifier Foundational ID issued in the form of a laminated “PAN card” by the Indian Income Tax Department to any person who applies for it or to whom the department allots the number without an application.”

Thus, a PAN Card becomes an essential document for individuals with an income to establish their identity for tax, legal or banking needs. The details of a PAN Card include.

  • The Surname name, middle name and first name of an individual.
  • The Father/Mother name.
  • Date of Birth.
  • The Alphanumeric account numbers.
  • Specimen signature.
  • Passport size photograph.

The details filled in the application form must match exactly with the PAN Card copy submitted. The PAN Card mainly serves as proof of Identity, age proof and signature verification. As mentioned, the father or mother’s name also authenticates as relationship proof if required.

Aadhaar

The Aadhaar is a 12-digit number which gives a unique identity to every Indian citizen and provides a system for single-source offline/online identity verification. The different forms of Aadhaar are Aadhaar Letter, Aadhaar PVC card, e Aadhaar and m Aadhaar. All forms of Aadhaar are equally valid and acceptable. When applying for government or financial services, an Aadhar card can be used as proof of identity, address, and age. Specifications of an Aadhaar card include:

  • The 12-digit unique identification number.
  • A digital photograph.
  • The name and surname
  • The father’s name.
  • Date of Birth
  • Sex.

On the Reverse:

  • The present address.

The QR code contains the demographic details and photograph of the customer, along with the masked email ID and mobile number. UDAI digitally signs the QR code to avoid misuse. As an Aadhaar card has been declared an essential document for all official dealings, it has become nearly mandatory for all banking transactions.

An Aadhaar card is linked with the applicant’s mobile number and endorses the complete details required by Banks such as HDFC and Axis Bank to serve as an Identity and Address proof.

Further, the Aadhaar card also serves as an e-mandate for conducting biometrics, mainly as ICICI Bank operates KYC Verification digitally.

Passport.

It is primarily a travel document issued to all Indian citizens on behalf of the Government of India. A Passport is proof of nationality and enables an individual to seek a permit or VISA to cross borders and travel overseas.

The rigorous checks conducted before issuing a passport give it authority to be used as an officially valid document for the purpose of KYC verification. The passport can be used as proof of Identity and as address proof.

A passport carries a laminated photograph of the applicant and gives the following details: 

  • The First, middle and last name.
  • Father’s Name.
  • Date of Birth
  • Signature of the applicant.
  • Residence address.

A Driver’s Licence, Voter ID and a Government Employment ID are other KYC Documents Banks approve for verification.

Proof of Identity: Key Points to note.

  • The document submitted as a Proof of identity must be clear and valid.
  • The photograph affixed on the document must be recognisable.
  • The Date of Birth mentioned should be similar to the other documents.
  • The Applicant’s full name must match the documents submitted as an address poof.
  • The signature specimen must be similar to the customer’s signature in the Bank’s records.

A Valid Address proof reflects the following:

  • The current address proof can be rented, self-owned, or a family home.
  • The applicant’s name, as mentioned in the document submitted as proof of Identity.
  • The address of the residence location where the applicant is currently residing.
  • If the current address is rented, proof of the permanent address is also required
  • A Verification for KYC compliance will be conducted at the given address to confirm the authenticity of the residence.

Process for completing KYC (know your client) compliance.

For financial services, whether opening a new Bank account or acquiring credit, KYC checks are to be completed per the guidelines of the Reserve Bank of India to ensure that the customer is genuine and not involved in fraudulent activities.

After submission, the financer thoroughly investigates all the documents to ensure that the papers submitted and applicant details are authentic.

The required process for verification of KYC Documentation can be done conventionally. Considering the changing times, the digital processing of KYC requirements for banks has also been declared officially valid by the Reserve Bank of India.

Physical Verification with KYC Documents

  • Copies of the KYC Documents will be submitted to the financer with the application form and financial documents.
  • The financial organisation will conduct a physical verification at the applicant’s office and residence premises.
  • Documents submitted will be matched with the hard copies of the KYC Documents submitted.
  • The client can visit the branch, or the financer will send an executive to see the applicant verify the copies with the original documents.

Biometric-Based KYC

  • Hard copies of documents, with self-attestation, are to be submitted to the branch for KYC authentication.
  • The customer needs to be present to conduct biometrics with a fingerprint scanner.
  • For the convenience of customers, biometrics can now be conducted at the residence premises.
  • Financial institutions send their executive with the instrument to check the documents and authenticate biometrics.

Aadhaar-Based- KYC

  • The applicant must be ready with biometrics and provided with them online on a video call.
  • The identity of an Aadhaar number holder can be verified through an online electronic or digital KYC service.
  • The e-KYC or Video KYC service provides instant identity verification through a video call with the customer.
  • This method significantly reduces costs and processing time as the verification is conducted instantly online.
  • This method is only available to some agencies and banks that have created the systems.
  • The agency will have to provide infrastructure for an online e-KYC service.
  • To be successful requires reliable online connectivity for video calling from the customer and the lender’s side.

Important Points To Note:

  • A mismatch in the name spelling between the income and KYC Documents will need additional proof.
    • The Documents submitted for KYC proof should be clear and legible.
    • Details of documents submitted as Identity and address proof should be similar.
    • The process for the financial request is halted unless the KYC is verified.
    • KYC in banking requires updating documents annually, or the services can be withheld.

The significance of KYC should not be underestimated; a one-time submission of all the necessary documents will help to expedite processing. Only after the KYC has been checked is the Bank or financial institution authorised to complete the financial transaction, be it opening a savings account or acquiring further credit.


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