KYC

EXPLAINED
FOR You

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 Table of content

1. KYC: Introduction
1.1 What is KYC and Why it is Required?
1.2 What is eKYC and How Does it Work?
1.3 Benefits of KYC

2. KYC Periodic Updation

3. KYC Documents Requirement

3.1 Individuals
3.1.a Individuals
3.1.b Minors
3.1.c Small Accounts
3.1.d NRIs

3.2 Non-Individuals
3.2.a Accounts of Proprietary Concerns
3.2.b Accounts of Companies
3.2.c Accounts of Partnership Firms
3.2.d Accounts of Trusts and Foundations
3.2.e Hindu Undivided Family (HUF)
3.2.f Accounts of Unincorporated Association or Body of Individuals

? 4. KYC FAQs
 1. KYC: Introduction

1.1 What is KYC and Why it is Important?

Know Your Customer (KYC) is a process by which a business (usually banks) obtains and verifies information
about its customers identity and contact details to ensure that the banks services are used for bonafide
purpose only. The banks complete KYC procedure of customers while opening their accounts and are also
required to update their KYC details periodically henceforth.

Banks and insurance companies ask their customers to provide their and personal details with address and
identity proofs. Not just banks, but companies of all sizes also make use of KYC processes to ensure that their
proposed consultants, distributors or agents are legitimate users.

The KYC guidelines were introduced by the Reserve Bank of India (RBI) in 2002 for all banks and in 2004, RBI
announced that all banks should be following the KYC provisions by 31 December, 2005. Any individual who
wants to open a bank account needs to submit his/ her identity proof, address proof, and a recent photograph.

As per RBI circular, the objective of KYC guidelines is to protect banks from being misused by criminal ele-
ments for terror funding or money laundering activities. KYC procedures also help banks to understand their
clients and their financial needs better.

1.2 What is eKYC and How Does it Work?

e-KYC refers to electronic KYC or online KYC, and it is possible only for Aadhaar card holders as it requires
Aadhaar number of the applicant. When you use e-KYC service, youve to authorise the UIDAI (Unique Identifi-
cation Authority of India) to release your personal details such as name, age, gender, photograph, and address
via biometric authentication to the business correspondent/ bank branches. After that, the UIDAI electronically
transfers your data to the bank or concerned business. Under PML (Prevention of Money Laundering) act rules,
information provided via e-KYC is treated as an Officially Valid Document.

1.3 Benefits of KYC

Identity is the most crucial aspect when an anti-money laundering (AML) software is used for profiling individu-
als, detecting patterns and finding linkages between transactions. Hence KYC is extremely important and ben-
eficial to conduct such processes easily. KYC is important for every transaction to prevent money laundering,
terrorism funding and to suggest suitable financial products to the customer.

Nowadays, you need just one document, i.e the Aadhaar card for KYC. Aadhaar card has made life much sim-
pler by simplifying the complexities in documentations.

Here are some other benefits of Aadhaar Card (link aadhaar ebook) for you.

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 2.KYC Periodic Updation

2. KYC Periodic Updation

The government has prescribed various guidelines for updating KYC records depending on the banks risk per-
ception. For high risk customers, KYC is usually done once in two years at least, for medium risk customers,
its once in eight years, and once in 10 years for the least risk customers.

For low risk customers, if there is no amendment in their identity (name change, address change, etc.), the
banks may ask them to submit just a self-certification of no change in status during periodic updation. These
customers may not be required to submit copies of their officially valid documents at the time of periodic up-
dation. If there is any change in address of such customers, they just need to forward a certified copy of the
proof of address by email, post during periodic updation.

Minor customers have to submit their fresh photograph on turning a major.

If an individual doesnt provide his/ her KYC documents on periodic updation, bank can close his/ her account,
however, before doing so, the bank may impose partial freezing (initially disallowing all debits and allowing all
credits while giving you an option to close your account and take all your money back).

If you dont act even at the time of partial freezing, the bank will disallow even credits. The banks have to give
you a due notice before partial freezing.

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 3.KYC Documentation
Requirement
Here is the documentation requirement for KYC for Individual and Non-Individual categories:

3.1 Individuals

Individuals can be further be classified into four categories: Individual, Minors, Small Accounts Holders,
and NRIs. Here are the documents required for each category of individual:

3.1.a Individual
Any one document from the list mentioned below, for proof of identity and address (current or permanent):

Passport
Driving Licence
Voter ID Card
Aadhaar Card/ Letter
PAN Card
NREGA Card

3.1.b Minors
If a minor is equal to or less than 10 years of age, the person who will be operating the minors account needs
to submit his/ her ID proof. However, if the minor can operate his/ her account independently, KYC procedure
for verification of identification and address would apply as in the case of other individuals .

3.1.c Small Accounts

Small account refers to a savings account in any banking company where:

The sum of all credits doesnt exceed INR 1 lakh in a financial year
The sum of all withdrawals and transfers doesnt exceed INR 10,000 in a month
The balance doesnt exceed INR 50,000 at any point of time

In case of small accounts mentioned above, the individual (account holder) has to submit a self-attested pho-
tograph, affixation of signature, or thumb impression before the Banks officer who is authorised to approve
opening of such accounts. The officer will certify under his own signature that the individual opening the ac-
count has affixed his/ her signature or thumb impression in officers presence.

Small accounts shall remain operational for 12 months initially. Thereafter, if the account holder provides
evidence before the Bank (for a further period of 12 months) that he/ she has applied for any officially valid
document(s) within 12 months of opening the said account, everything will be reviewed in regard to the said
account after 24 months.

The applicant can open a small account with any one of the Officially Valid Documents mentioned below:

ID card with the applicants recent photograph issued by any Central or State Government Department,
Public Sector Undertaking, Statutory or Regulatory Authorities, Public Financial Institution, and Sched-
uled Commercial Bank
Letter issued by any gazetted officer with a photograph (duly attested) of the person

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 3.1.d NRI (Non-Resident Indian)
Copies of Passport and Residence Visa, duly attested by:

Foreign offices
Indian Embassy
Notary Public
Correspondent banks officers whose signatures can be verified through an authorised (A/B category a
Forex handling branch) branch of the Bank

3.2 Non Individuals

Non Individuals can be classified in 6 categories: Accounts of Proprietary Concerns, Accounts of Companies,
Accounts of Partnership Firms, Accounts of Trusts and Foundations, Hindu Undivided Family (HUF), and Ac-
counts of Unincorporated Association or Body of Individuals. Here are the documents required for each cate-
gory:

3.2.a Accounts of Proprietary Concerns

Any two of the documents mentioned below would suffice. The documents should have the name of the
concerned proprietary.

Certificate of registration (for a registered concern)

Certificate or licence issued under Shop and Establishment Act by the Municipal authorities
VAT/ CST certificate
Income and sales tax returns
Registration document/ certificate issued by the Service Tax/ Sales Tax/ Professional Tax authorities
Banks also accept Importer Exporter Code issued by the office of DGFT to the proprietary concern as an
identity proof for opening the bank account.
Licence issued by any Registering authority such as Certificate of Practice issued by the Institute of
Cost Accountants of India, Institute of Chartered Accountants of India, Institute of Company Secretaries
of India, Food and Drug Control Authorities, Indian Medical Council; registration / license issued by the
Central Government or State Government Authority, etc. in the name of proprietary concern.
The Income Tax return in the sole proprietors name where income of the firm is reflected, duly acknowl-
edged/ authenticated by the Income Tax Authorities.
Utility bills including water, electricity, and landline telephone bills in the proprietary concerns name
ID proof and address proof of the sole proprietor

3.2.b Accounts of Companies

Memorandum and Articles of Association
Certificate of Incorporation
A resolution signed by the Board of Directors, Power of attorney given to the managers, officers, or
employees authorising them to transact on its behalf, and an officially valid document that says these
people are holding the attorney to transact on its behalf.
ID and address proof of all the beneficial owners (owning 25% capital or share or 25% profits if the com-
pany is not listed in a Stock Exchange). Submission of ID and address proof by beneficial owner of the
company that is listed in stock exchange is not warranted.

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 3.2.c Accounts of Partnership Firms
Certificate of Registration
Partnership Deed
An officially valid document for the power of attorney holder mentioning he/ she has rights to transact
on its behalf.
Proof of identity and address of all the partners/ beneficial owners (entitled for 15% profits or owning
15% capital).

3.2.d Accounts of Trusts and Foundations

Certificate of Registration
Trust Deed
An officially valid document for the power of attorney holder mentioning he/ she has the rights to trans-
act on its behalf.
Identity and address proof of trustees, administrators, executors, beneficial owners, etc.

3.2.e Hindu Undivided Family (HUF)

ID proof of the Karta
Declaration from the Karta
ID proof of the adult coparceners
Prescribed Letter of Joint Hindu Family duly signed by all the adult coparceners

3.2.f Accounts of Unincorporated Association/ Body of Individuals

Resolution of the managing body or body of individuals of such association
Power of attorney to transact on its behalf and an officially valid document for the same
Information if required by the bank to establish the legal existence of such associations or body of indi-
viduals

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 ? 4.KYC FAQs

a. Is KYC applicable for Debit/ Credit cards?

Yes! KYC is necessary for Credit Cards/ Smart Cards and add-on/ supplementary cards. In the case of debit
cards, since theyre issued only to the account holders and those accounts are opened after the completion of
KYC process, separate KYC is not required.

b. I have to make a remittance but dont have a bank account. Will KYC be appli-
cable for me?
Yes! KYC is mandatory for all those individuals who wish to make domestic remittances of INR 50,000 or above
and for all foreign remittances.

c. Is it necessary to furnish KYC documents for each bank account I open, even
though I have already furnished the proof of identity and address?
No! In case you have opened an account with a bank which is already KYC compliant (other than a small ac-
count), you dont need to furnish documents to open another account with the same bank.

d. Is submitting KYC documents to the bank is mandatory for purchasing third party
products (such as insurance, mutual funds) from them?
Yes. Every walk-in customer (customer who doesnt have an account with the bank) has to submit identity and
address proof for buying third-party products from the banks for a transaction of INR 50,000 and above. KYC
to purchase third party products is not necessary for the existing customers of the bank.

e. If my KYC was completed at the time of opening the account, why is my bank
insisting for KYC again?
Banks need to update KYC records periodically as the ongoing due diligence of bank accounts. The time period
for such updation differs for every account depending on the risk assessed by the bank (Read Section No. 2 for
details). This could be the reason why your bank is asking you to complete KYC again for periodic updation of
your records to prevent frauds in your account.

f. What would happen if I dont provide documents for KYC as requested by my

bank to open an account?
In such case, the bank would not be able to open your bank account.

g. Is it possible to open an account with a bank with just an Aadhaar card?

Yes! Banks can complete your KYC with only your Aadhaar card as it is accepted by them as a proof of identity
as well as address.

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