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Know Your Customer

Illegal activities like money laundering and fraud can make financial transactions quite risky and to counter this, KYC was introduced in 2002 in India. The full form of KYC is ‘Know Your Customer’ or ‘Know Your Client’. KYC refers to the process of authenticating and verifying the documents linked to the identity and address of customers before allowing them to avail any services. Once the KYC verification is complete, a unique number/code is assigned by the Central KYC Records Registry known as the Know Your Customer/Client Identifier.

In 2004, the Reserve Bank of India (RBI) made it mandatory for banks, financial institutions, and intermediaries to carry out KYC verification of all their old and new customers. In doing so, the RBI ensured that all transactions are carried out after careful assessment of the identity of a customer which in turn will help to prevent fraud. Soon, other regulatory bodies also made it mandatory to complete KYC verification for all customers and clients.

Need for KYC

KYC is needed to conduct any kind of financial transaction meaning that if you want to open a savings bank account, avail the benefits of a fixed deposit (FD) and third-party wallet, and initiate mutual fund transactions; you would need to complete the KYC process. In fact, as per the guidelines of the Securities and Exchange Board of India (SEBI), full KYC is now mandatory to open a Demat account or a stock trading account and avail the services of asset management companies and intermediaries.

Benefits of KYC

From the above, you can clearly understand the meaning of KYC. Now, let’s focus on benefits of KYC:

  • Establishes the identity of a customer

  • Helps understand the nature of the financial activities of a customer

  • Monitors the activities of customer that help to assess the risk of money laundering

  • Protects lending institutions from losses and frauds that may arise from illegal transactions

How does KYC Work

The KYC process typically includes ID card verification, face verification, document verification, and biometric verification. Once you complete the different verification processes and submit essential documents through either the online or offline method, you can get approval on KYC. After that, you can carry out any kind of financial transaction.

KYC Verification Process

The KYC verification process can be completed by following any of the three ways mentioned below:

1. Aadhaar OTP-based Online KYC

Aadhaar OTP-based KYC online verification can be done by following the process mentioned below:

  • Step 1: Visit the website of a bank, KYC Registration Agency, or fund house.

  • Step 2: Create your account by providing personal details.

  • Step 3: Enter your Aadhaar number and registered mobile number.

  • Step 4: Enter the OTP.

  • Step 5: Prepare a self-attested copy of your e-Aadhaar and upload it.

  • Step 6: Accept the declaration forms.

2. Aadhaar-based Biometric Authentication

To complete online KYC verification via Aadhaar Biometric Authentication you need to follow the process mentioned below:

  • Step 1: Visit the website of a bank, KYC Registration Agency, or fund house.

  • Step 2: Follow the steps of Aadhaar OTP-based Online KYC as stated above.

  • Step 3: Choose the online biometric authentication option.

  • Step 4: An authorised representative will visit the given address to take your biometrics.

  • Step 5: Wait for your KYC approval.

3. KYC Verification Offline

KYC verification can be done offline by following the process mentioned below:

  • Step 1: Download the KYC form the website of a bank, KYC Registration Agency, or fund house.

  • Step 2: Fill in the form and mention the Aadhaar card and PAN details.

  • Step 3: Attach identity proof and address proof along with the application form.

  • Step 4: Visit the nearest KYC Registration Agency office. (You might be required to provide your biometrics).

  • Step 5: Submit the application form to an executive present there.

  • Step 6: Once the KYC application is submitted, you will get an application number. You can use this number to check the status of your KYC verification.

KYC in Banking

As stated in the introductory paragraph, banks are always at risk of getting caught up in financial fraud which can result in monetary and reputational penalties. To mitigate the risk of money laundering and other fraudulent activities, banks need to do a background check and for this, banks employ KYC services to validate the authenticity of a person/institution.

Different Types of KYC Verification

There are two types of KYC verification:

1. Aadhaar-based KYC

Aadhaar-based KYC verification can be done online. You can opt for either Aadhaar OTP-based online KYC or Aadhaar-based Biometric KYC. Do note that if you opt for this variant of KYC verification, you can invest only up to ₹50,000 in a mutual fund per year.

2. In-person KYC verification

As the name suggests, this type of KYC verification is done offline. You can visit a KYC kiosk to complete the in-person verification (IPV). You can also call the KYC Registration Agency and request an executive to come to your home and carry out verification. There is no limit to the amount of money you can invest if you avail the in-person KYC verification service.

eKYC

Earlier, the KYC procedure was complex and required you to submit hard copies of all the requested documents. However, the recent KYC policies have made the process extremely easy, quick and hassle-free. eKYC is a paperless and completely digitised process that allows you to complete the KYC process online. Most financial institutions today offer eKYC services.

Documents Required for KYC Verification

The Government of India has a list of ‘Officially Valid Documents’ (OVDs) that can be submitted as proof for KYC verification. You can check this list of KYC documents here and submit one as proof of identity and another as proof of address. Post submitting the KYC documents the financial institution can request you to share the documents again in a periodic manner to update the KYC records. The periodicity of updating the KYC information is at the discretion of the bank and varies from one account type to another.

Banks Offering KYC Services

Some of the popular banks that offer KYC services include the State Bank of India (SBI), Axis Bank, HDFC Bank, RBL Bank, etc. You can opt for offline or online KYC services based on your convenience. If you wish to go digital, you can even avail eKYC services offered by these banks.

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FAQs on Know Your Customer (KYC)

✔️What is KYC verification and how to initiate KYC verification?

Know Your Customer (KYC) is the process of verifying the documents linked to the identity of a customer or client and helps to get an insight into that particular customer or client. KYC was introduced by the Reserve Bank of India to mitigate the risk of money laundering and other fraudulent activities. It is mandatory for all banks and financial institutions/intermediaries to complete KYC for all individuals transacting on their platforms. KYC verification can be done online, offline, or via Aadhaar-based biometric authentication.

✔️How to check KYC status?

To know your KYC status, you can use your application number or PAN card number on the application portal.

✔️How to update KYC?

To update the KYC status periodically, you will have to provide a copy of the identity proof and a copy of the address proof, as mentioned in the list of Officially Valid Documents (OVDs) of the Government of India.

✔️Is KYC safe?

Yes, KYC is safe as it is carried out by designated KYC Registration Agencies (KRA).

✔️Can I make investments without completing KYC? Do I have to initiate KYC again for another investment?

No, you cannot make investments without completing your KYC registration. Once you have completed your KYC through any of the SEBI-approved entities, you are not required to immediately do another KYC. You might, however, be required to periodically update your KYC information.

✔️Is the KYC process free?

Yes, KYC verification is completely free-of-cost.