Know Your Customer (KYC)

Illegal activities like money laundering and fraud had made financial transactions quite risky. To counter this, KYC was introduced in India in 2002. 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 customers. In doing so, the RBI ensured that all transactions are carried out after careful assessment of the customer’s identity and address to prevent fraud. Soon, other regulatory bodies too made it mandatory to complete KYC verification for all customers and clients.

What is KYC?

KYC’s full form is ‘Know Your Customer’. Sometimes, it also refers to ‘Know Your Client’.

KYC is the process of authenticating and verifying the identity of customers before allowing them to avail services. This is done by authenticating the documents linked to their identity and address. 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.

As per the RBI norms, all banks and financial institutions must complete the KYC process for old and new customers before offering them access to services.

What is KYC in Banking?

Banks are always at risk of getting caught up in financial fraud, which can result in both monetary and reputational penalties. To mitigate the risk of money laundering and other fraudulent activities, banks need to do a background check. For this, banks employ KYC services to validate a person/institution’s authenticity. Know more about KYC in Banking.

What is eKYC?

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

What is the Need for KYC?

KYC is needed to open a savings bank account, avail the benefits of a fixed deposit (FD), initiate mutual fund transactions, as well as to avail third-party wallet benefits. In fact, as per the Securities and Exchange Board of India (SEBI) guidelines, full KYC is now mandatory to open a demat account or a stock trading account too as well as avail the services of asset management companies and intermediaries.

Benefits of KYC

The KYC benefits are as follows:

  • Establishes the identity of the customer
  • Helps understand the nature of the customer’s activities
  • Monitors customer’s activities to assess the risk of money laundering
  • Protects lenders from losses and frauds that may arise from illegal transactions

Different Types of KYC Verification

There are two types of KYC verification:

  • Aadhaar-based KYC:

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

  • In-person KYC verification:

As the name suggests, this type of KYC verification is done offline. You can visit a bank branch, office of a fund house, or KYC kiosk to complete the in-person verification (IPV). You can also request the services of a KRA (KYC Registration Agency) executive at your home using Aadhaar-based biometrics or complete the IPV via video call. There is no limit to the amount of money you can invest if you avail the in-person KYC verification service.

What is the Process for KYC Verification?

The KYC verification process can be completed using 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 steps mentioned below:

  • Visit the website of the bank, KYC Registration Agency, or fund house.
  • Opt for ‘KYC verification’.
  • Enter the details requested as per your Aadhaar card.
  • Authenticate using OTP sent to the mobile number registered with Aadhaar.
  • Submit the KYC application.

Post submission, UIDAI (Unique Identification Authority of India) and the KRA verify and approve your KYC application. You can check the status by visiting the KRA website and using your PAN details.

2. Aadhaar-based Biometric Authentication

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

  • Visit the website of the bank, KYC Registration Agency, or fund house.
  • Follow the steps for online KYC as stated above.
  • Place a request for biometric authentication.
  • Submit the application.

An executive would then visit the address mentioned in the application form. You would need to provide your biometrics and present your original documents. Once verified, your KYC application will be processed and approved.

3. KYC Verification Offline

KYC verification can be done offline as well by following the steps mentioned below:

  • Download the KYC form from the website of the bank, KYC Registration Agency, or fund house.
  • Fill the form and mention the Aadhaar card and PAN details.
  • Provide a copy of any of the listed KYC documents as proof of identity and proof of address.
  • Visit the bank, KYC Registration Agency, or fund house.
  • Submit the application to an executive.
  • You might be required to provide your biometrics.

Once the KYC application has been submitted, you will get an application number. You can use this number to check the status of your KYC verification.

What Documents are 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 once, 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.

Which Banks Offer KYC Service?

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

Frequently Asked Questions About KYC

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

    Know Your Customer (KYC) is the process of verifying the documents linked to a customer or client’s identity to get insight into the transaction. It 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, 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 KYC status periodically, you would need to provide a copy of the identity proof and a copy of the address proof, as mentioned on the list of Officially Valid Documents (OVDs) of the Government of India.

  • ✔️Is KYC safe?

    Yes, KYC carried out by designated KYC Registration Agencies (KRA) is a safe and hassle-free process.

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

    No, any investment you make requires you to complete 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.

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