All You Need To Know About KYC

When carrying out any financial transaction, be it investments, buying insurance, applying for loans, or even opening a bank account, the applicant must provide complete and legitimate information to the financial institution. Proper documentation and presentation of legitimate documents ensure that no malicious activity will be carried out under the pretext of a financial transaction. The KYC process is an authentication process used by all financial institutions, as mandated by the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), and the Insurance Regulatory and Development Authority of India (IRDAI).

Let us understand what the KYC process is, in the context of loans.

What is KYC?

The abbreviation ‘KYC’ stands for ‘Know Your Customer’, or sometimes ‘Know Your Client’. Simply put, it is a standardised verification process for the customer to authenticate their identity and financial status when carrying out a financial transaction. An individual customer must complete the KYC process. An incomplete or incorrect KYC process may lead to the financial institution taking action against the customer by rejecting their application or by carrying out other serious actions. 

Additionally, many non-individual customers also apply for a loan. Basis KYC, banks and financial institutions have the right to verify the legal status of such non-individual entities, apart from individual customers. This can include cross-checking their operating address and verifying the identities of their beneficial owners. 

Types of KYC

• Aadhar-based KYC: The most relevant type of KYC that depends on an Aadhar Card issued by the Government of India.
• e-KYC: It uses electronic methods to verify customer identity, mainly through APIs and digital platforms.
• Video KYC: It allows customers to conveniently carry out remote KYC through authorised live video calls.
• Sector-specific KYC: Sectors like mutual funds, banking, insurance, and others may have specific KYC requirements to ensure compliance with sectoral regulations.
• Centralized KYC: Also known as CKYC, it is a centralized KYC repository regulated by the Central Registry of Securitization and Asset Reconstruction and Security Interest of India (CERSAI). 

The General KYC Process

• Collection of information: The process begins with collecting relevant information about the customer. The customer must fill out the required information on paper or digitally. It is solely the customer’s responsibility to provide all the information accurately. In this step, they must provide their basic information, like name, age, sex, and address, as well as other information like government-issued identification number, bank statements, and income tax returns, among others.
• Handing over the evidence: To support the information provided before, customers must upload/submit the required evidence. This mainly includes official, original evidence like government-issued IDs, passports, and other documents. 
• Verification of documents: Once uploaded, the documents go through rigorous checks by the authorities of the financial institution. They are identified and examined to ensure that they haven’t been tampered with.

There are two main types of KYC processes – offline KYCs and online KYCs. Let’s have a detailed look at them:

Offline KYC

Offline KYC is a common KYC method for customers who aren’t very tech-savvy or simply lack access to digital methods. A key feature of offline KYC is that it requires physical copies of documents. Here are the general steps involved in the offline KYC process:

• Download and print out the KYC form. These forms are also available at KYC kiosks or financial institutions.
• Fill out the form with up-to-date information. Customers must make sure that no empty spaces are left. Usually, Aadhar and PAN details are also required to be filled in, so fill them diligently.
• Visit the nearest KYC registration agency (KRA). During this, customers must carry all documents with them.
• Submit the proof of address and proof of identity. Customers must ensure that they keep a xerox copy of the same with them.
• Some financial institutions require customers to complete the biometrics as well. In such cases, they must cooperate and complete their biometrics, which may involve giving thumbprints, handprints, and a photograph. 
• After submitting the application, customers can track their KYC status using the application number provided.

The entire process may take around a week to complete. On the other hand, online KYC is comparatively quicker.

Online KYC

Online KYC or e-KYC is fairly similar to the offline mode, but is quicker, given the information uploaded is correct. The process only requires the customer’s Aadhar number and their consent to access their data. The service provider will then access the UIDAI database and verify the customer’s identity, address, and other demographic details.

Within online KYC, there are two types: Aadhar OTP application and Aadhar-based biometric application. Here are the steps that customers must take in both of these methods:

Aadhar OTP Application

• Log on to the official website of a known KRA.
• Enter the Aadhar number along with the registered phone number.
• Enter the OTP sent to the registered phone number.
• Submit a self-attested copy of e-Aadhar.
• Agree to the terms and conditions.

Aadhar-based Biometric Application

• Log on to the official website of a known KRA.
• Follow similar steps as mentioned above.
• Opt for the biometric authentication option.
• Wait for an authorised representative to visit the customer’s address.
• Provide biometric authentication. 
• Show the official verification documents and wait for KYC approval. This step can also be done over an authorised video call with the representative.

Documents Required for KYC Verification

There are officially valid documents (OVDs) as classified by the Government of India. These are mandatory in any KYC process. They are divided into broad categories as follows:

• Proof of identity
  1. PAN card
  2. Aadhar card, passport, driving licence
  3. ID card with photograph issued by any central/state department, or statutory/regulatory authorities
  4. ID card issued by public financial institutions and banks
  5. ID card issued by educational institutions affiliated with universities
• Proof of address
  1. Passport, lease agreement, and voter’s ID
  2. Ration card, utility bills less than 3 months old, and flat maintenance bill
  3. Bank statements
  4. ID cards with address, such as Aadhar card
  5. Residency proof issued by a notary public, gazetted officer, parliament, bank managers, multinational foreign banks, or scheduled cooperative banks

Depending on the type of loan the customer applies for, additional documents may be asked to submit.

Why is KYC Important?

KYC is important because it helps prevent financial scams like money laundering, terrorism financing, or other illegal activities. Moreover, it provides a verified user database and helps check the customer’s background in case of identity theft. Robust implementation of KYC helps build a transparent and trustworthy relationship between the financial institution and the customer as well.

Summing Up

The KYC process mainly consists of online and offline methods for verification. It is crucial for financial institutions as well as customers to carry out the KYC process for improved transparency and help prevent financial crimes.  

FAQs

What is CKYC’s Full Form?

CKYC, or Central Know Your Customer, is a centralised database of KYC information across the financial sector. It is intended to reduce the burden of submitting KYC documents for verification when starting a new financial relationship with a new finance company.

How do I Check my KYC Status?

The KYC application status can be checked with the help of the unique application number customers receive at the end of the KYC document submission process.

Is KYC Mandatory for All Financial Transactions?

Yes, KYC is mandatory for almost all financial transactions, including applying for loans, opening new bank accounts, and investing in mutual funds.

What is a KYC Registration Agency (KRA)?

KRA is an agency registered with SEBI under the Securities and Exchange Board of India (KYC Registration Agency) Regulations, 2011. The KRA is responsible for maintaining KYC records of the investors centrally, on behalf of capital market intermediaries registered with SEBI. NSE, CAMS, CVL, Karvy, and NDML are the prominent KRAs in India.