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The Importance of KYC


Time to read: 3 mins | December 15, 2017

Complying with the Know Your Customer (KYC) norms is a prerequisite today for your banking and investing activity. This vital part of compliance for bank and financial product manufacturers helps them to know you better, serve you better.
Why KYC Is Important

As per the Reserve Bank of India (RBI) guideline and the Prevention of Money Laundering Act (PMLA), it is mandatory to comply with KYC norms irrespective of who you are, what you do, and your net worth.

In addition to complying with KYC at the time of opening an account, you may even be required to undergo a re-KYC periodically to update customer identification documents. Like for example, currently your Aadhaar details need to be furnished to the bank as part of the KYC norm.

Please note, different periodicities have been prescribed to update your KYC records depending on the risk perception of the bank. According to RBI, for high-risk customers, KYC is required to be done at least once in two years. For medium risk customers once in eight years, and for low-risk customers, its once in ten years. Periodically updating KYC records is a part of the bank’s due-diligence.

So, typically KYC is needed:

  • While establishing banking relationship, i.e. at the time of opening the account
  • When there are changes to signatories, mandate holders, beneficial owners, etc.
  • While carrying out financial transactions, including investments
  • While opting for credit cards/smart cards/prepaid cards
  • For bank lockers
  • For remittances in India (of Rs 50,000 and above) and abroad
  • When bank/financial institution know about the authenticity or adequacy of customer identification data

Some of the acceptable KYC documents are:

  • As address proof: Valid Passport, permanent Driving License, Voter Id, Aadhaar, Copy of Birth Certificate, Ration Card, NREGA job card, Electricity Bills, Water Bills, Gas Bills, Property Tax/Municipal Receipts, Post-paid phone bills, Leave & License Agreement, valid employment contract letter
  • As photo id proof: Permanent Account Number (PAN), Aadhaar, Voter Id, valid Passport, permanent Driving License
  • A recent passport-size coloured photograph
[For an extensive list of documents required, click here]

 

And when you submit the aforesaid documents with a duly signed and filled KYC form, self-attestation is a must! For Non-Resident Indian (NRIs) and Persons of Indian Origin, attestation by Indian Embassy or Consulate or Notary Public or existing banker could even be insisted.

Now, if you do not have any or some of the documents to show your proof of identity, banks could permit you to still open a bank account termed as a ‘Small Account’. However, the balance in such an account at any point of time should not exceed Rs 50,000; total credit in one year should not exceed Rs 1,00,000; total withdrawals & transfers in a month cannot exceed Rs 10,000; and foreign remittance cannot be credited to the ‘Small Account’.

The ‘Small Account’ is operational initially for a period of only twelve months. During this period or after twelve months, evidence to the bank of having applied for any of the officially valid documents needs to be furnished.

Please note that, once you comply with the bank’s KYC norms entirely, then for opening another account with the same bank, furnishing documents is not necessary.

How can you go about complying with KYC norms?

Here are the options…

Email –– You can send scanned copies of your self-attested documents along with the duly filled and signed KYC form through your registered email Id addressing it to the Branch Head and Head of Operations of the bank. Write the mail with the correct subject line so that it is not missed.

Courier –– If you do not have access to mails, you may also send the duly filled and signed KYC form along with sell-attested copies of your documents to the branch, addressing the courier to your relationship manager/branch head/head of operations of the bank.

Visit to branch –– If you believe in banking the conventional way, you can even visit your home branch and handover the duly filled and signed KYC form along with sell-attested copies of your documents to your relationship manager. Alternatively, your relationship manager can visit you and collect the vital documents from you and complete the formalities.

e-KYC –– If you have Aadhaar, e-KYC is possible. Axis Bank has this facility, which has made life even simpler for you as regards complying with KYC. All you need to is:

  • walk into bank branch;
  • provide your Aadhaar (which will be submitted on the UIDAI server);
  • do biometric scan of your finger on the biometric reading device connected to UIDAI server;
  • your authentication, online validation, and your identity will be confirmed;
  • a receipt gets displayed with all your demographic information mentioned; and
  • the banker will log-in into Axis Bank’s system and your e-KYC is done

So, the process is rather seamless for Aadhaar registered individuals. And the best part is the same e-KYC can be used when you buy mutual funds and insurance, since the e-KYC is recognised by both, the Securities and Exchange Board of India (SEBI) and Insurance Regulatory and Development Authority (IRDA).

What if you do not comply with KYC norms?

Banks have the option to close your account for non-compliance of KYC norms.

But before closing the account, banks may impose ‘partial freezing’, i.e. initially allowing all credits and disallowing all debits while giving you the option to close the account and withdraw your money. Later, even credits would be disallowed. Usually, ‘partial freezing’ is imposed in the following way:

  • A notice is served three months before exercising the option of ‘partial freezing’
  • After that a reminder for a further period of three months is issued
  • Thereafter, banks impose ‘partial freezing’ by allowing all credits and disallowing all debits with the freedom to close the accounts
  • If the accounts are still KYC non-compliant after six months of imposing ‘partial freezing’, both debits and credits will be disallowed from/to the accounts, classifying them inoperative.

Likewise, for non-compliance of KYC norms for investment activity too, the folios/account can be categorised as frozen.

To conclude…

Complying with KYC norms ensures that your identity is verified and documented. In a ruthless world where frauds and thefts are on a rise, KYC serves as a security feature. It ensures that there’s no breach of security, as the authentication of the identity of the account ensures vigilant monitoring.

Hence be safe, be a law abiding citizen, and bank smart!

Happy Banking!


Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm known for offering unbiased and honest opinion on investing. Axis bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.

NOTE WORTHY

As per the Reserve Bank of India (RBI) guideline and the Prevention of Money Laundering Act (PMLA), it is mandatory to comply with KYC norms irrespective of who you are, what you do, and your net worth.

 

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