KYC Process in Banks

KYC in Banking

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What KYC Means in Banks?

On This Page: KYC in Banking | Why is KYC Compulsary? | Customer Due Diligence | eKYC | FAQs

KYC, or Know Your Customer, is a process synonymous with banking and lending services. In 2004, India’s apex banker Reserve Bank of India (RBI) made it mandatory for banks to complete KYC verification for all their customers. It was to ensure that the customers availing the services are real and involved in ethical transactions. Hence, for banks, KYC is focused on assessing and monitoring risks to counter money laundering and other illegal schemes.

What is the KYC Process in Banks?

The KYC process in banks focuses on reducing financial risk. This is done by identifying the customer, validating their true identity, and being aware of their source of funds and related financial activities. For this, banks require you to provide certain documents, namely your proof of identity and proof of address. There is a list of Officially Valid Documents (OVDs) that can be used to authenticate one’s identity. You can choose the preferred mode of KYC verification from the different types of KYC processes available. The bank may also require you to update KYC from time to time to prevent the risk of financial frauds using your account.

Why is KYC Compulsory in Banking?

Banks run the risk of getting caught up in illegal financial transactions. To prevent the monetary and reputational damage which may result due to such events, it is compulsory for banks to tick off all the KYC requirements. This means that you cannot even open a bank account without KYC. You also need it when applying for a loan or credit card, or securing a bank locker, etc. Do note that the responsibility of KYC compliance rests with the banks. If the bank fails to ensure the same, it can attract heavy penalties.

What Does Customer Due Diligence Mean in Banking?

Customer Due Diligence, or CDD, refers to the measures taken by the bank to ensure that the transactions are authenticated. This includes categorising customers based on risk by establishing their identity and verifying all relevant documents. It also involves the collection of data from trusted sources to understand the nature and purpose of transactions while ensuring that such transactions are consistent with the recorded customer details.

What is eKYC in Banking?

To speed up the KYC verification process, the Electronic Know Your Customer/Client, i.e. eKYC, process was introduced. eKYC allows you to complete your KYC verification process online. You are not required to submit hard copies of your documents like you would for paper-based KYC verification. Your identity is verified electronically using the identification details you provide and verified using the OTP sent to you. Read more about eKYC here.

To make the process of KYC verification hassle-free, some popular banks such as the State Bank of India (SBI), Axis Bank, HDFC Bank, RBL Bank, etc., have introduced new-age, digital ways. To avail these methods and be compliant with the Know Your Customer (KYC) guidelines for banks, you would not even need to step out from the comfort and safety of your home.

Simply go through the KYC documents required, choose the ones you would like to provide, and opt for your preferred mode of KYC verification. Once you have submitted your application, you can check the KYC status too on the bank’s website using your PAN card details.

Frequently Asked Questions About KYC in Banking

  • ✔️What is the difference between KYC and AML?

    AML (Anti-Money Laundering) and KYC (Know Your Customer) in banking are closely related. While AML refers to the complete range of regulatory processes that banks must be compliant with, KYC is a part of the broader AML guidelines that focuses on the verification of the customer’s identity.

  • ✔️What are the different types of KYC in Banking?

    The KYC process in banks can be grouped into three types: Aadhaar OTP-based KYC, Aadhaar Biometric KYC, and In-Person Verification. You can either complete your bank KYC online or offline depending on your preference. To make the verification process easier, banks also offer options for Digital KYC and Video KYC.

  • ✔️What is the purpose of KYC in banking?

    The purpose of KYC in the banking sector is to authenticate the identity of an individual in order to prevent illegal transactions and activities such as money laundering and fraud.

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