5 min read
Updated on Apr 27, 2023
KYC is one of the important criteria to identify and verify customer addresses in financial institutions. We use KYC on different occasions in our banking and financial processes. But many people may not know the KYC full form. KYC means ‘Know Your Customer’. As the name implies, KYC is a process which helps insurance companies, banks etc. to verify and identify addresses of customers during their transactions.
As per the RBI mandate, KYC is compulsory for every financial institution including banks and companies dealing in digital payment for carrying out monetary transactions.
KYC is an abbreviation that stands for ‘Know Your Customer’ and it is used to validate customer information such as address and identity proof during financial transactions. So, KYC uses relevant documents to validate the customer identity. Some of the documents used include Aadhar card, PAN card, and other photo identity as well as address proof and IPV or In-Person Verification.
KYC compliance has been mandated by RBI to prevent the cases of black money and Money Laundering. The process of KYC has two parts:
The first part includes the required KYC information of a customer as suggested by the Central KYC registry called Uniform KYC.
The second Part known as Additional KYC needs any extra KYC information individually by the financial agency.
Although KYC is obligatory, getting the process of KYC/eKYC done can also help a person in accessing numerous premium products provided by different companies easily. Thus, KYC is required to improve the transaction process and to hasten transactions.
To get the KYC update process done regularly is important in the banking sector depending on the account wise risk perception of banks. KYC is, hence, required at the time of opening an account in a bank or while making any investments etc. With KYC, banks can ensure the legitimacy of the applicant and other details to check fraud cases.
In the insurance and investment sector, the KYC updates ensure that the policyholder is genuine and also curbs black money accumulation. Thus, most investors of Life insurance as well as other tools of investment need to stick to KYC mandates. Regarding this, KYC Registration Agency or KRA is a process that Investors have to go through at the time of making an investment. This rule has been laid as per IRDA (Insurance Regulatory and Development Authority) India and SEBI (Securities and Exchange Board of India guidelines).
Individuals need to get their KYC done for any financial transaction such as for opening demat account, opening bank account, purchasing life insurance, digital money transfer etc. If you do not get your KYC update, you may not get a monetary transaction done in India.
The Government of India has set some guidelines which make 6 important documents to be applicable as Officially Valid Documents or OVDs. These OVDs can be used for identity verification of customers. KYC is done periodically to update records of customers.
Like other KYC details, being aware of various types of KYC applicable in India is also important as mentioned below:
The eKYC supports investments like mutual fund of up to INR 50, 000 per annum. However, if the customer wants to invest beyond that amount, they need to get the offline KYC or In-Person KYC verification.
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Below are the steps to do Online and Offline KYC update:
Now you know all about what is KYC in bank and other financial institutions. You must get your KYC done so that you can manage finances better. Completing the KYC process is important as directed by the RBI. KYC enables financial institutions like banks, insurance companies etc., to get key customer details. Thus, it is essential for everyone to complete the KYC process to get hassle-free services.
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KYC means 'Know Your Customer'. It is used to validate customer information such as address and identity proof during financial transactions.
There are two types of KYC in India, Aadhaar based KYC (eKYC) and Offline KYC or In-Person-Verification (IPV) KYC.
The KYC checklist includes documents like Passport, Driving license, PAN Card, Voter's Identity Card, NREGA card, PAN card, Photo ID card, etc.
The offline KYC procedure may take over a week to complete, whereas the online KYC registration might be done in a shorter duration. However, this depends on a number of factors like any errors or ambiguities being made in the application form etc.
KYC is generally done once every two years for customers perceived as high risk. It is done every eight years for customers with medium risk and once in every ten years for the low risk customers.
All Indian citizens, including Indian residents and Tax residents of India above the age of 18 years are eligible for KYC.
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