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What are the (Know Your Customer) KYC Documents?

What are the (Know Your Customer) KYC Documents?. In the previous articles, we have given What are the Different types of Cheques issued in India and Advantages and Disadvantages of Demonetization. Today we are providing the details of KYC (Know Your Customer) documents. Know your customer (KYC). It is the process of a business identifying and verifying the identity of its clients. The term is also used to refer to the bank regulation which governs these activities. In the year 2002, RBI instructed that all the banks must obtain information about their customers’ identity and address. From that time onwards, it has been carried out by a process called KYC. KYC in banking stands for ‘Know Your Customer’. The main objective of this policy is to prevent money laundering, identity theft, terrorist financing, and financial frauds.

What are the (Know Your Customer)

As given in a RBI Circular, “The objective of KYC/AML/CFT guidelines is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities. KYC procedures also enable banks to know/understand their customers and their financial dealings better which in turn help them manage their risks prudently”.

The guidelines for KYC in banking are issued under Section 35A of the Banking Regulation Act, 1949. However, when it was introduced, the banks were not only asked to implement the rules with immediate effect, but were also asked to make sure all the existing accounts are KYC compliant by 31st dec 2005.

KYC policy is an indispensable part of banking operation, whether it’s about account opening or advancement of loans. Because it helps to ensure that the services are not misused.

Applicability of KYC:-

KYC has to be followed by every financial institute while dealing with customers. KYC procedure needs to be adhered to by a customer during following instances

  • While opening an account in a bank
  • When there are not enough documents with the bank in existing account
  • While investing in a mutual fund

It is important to note that based on norms, financial institutes may ask for a mandatory KYC process in other instances too.

Situations When KYC is required?

KYC has to be followed by every financial institute while dealing with customers. KYC procedure needs to be adhered to by a customer during following instances:

  • While opening a Bank Account.
  • While applying for a credit card or loan
  • While opening a subsequent account
  • Opening a locker facility
  • When there are not enough documents with the bank in existing account
  • When there are changes in signatories, beneficial owners, etc
  • When the bank feels it necessary to obtain additional information from existing customers based on conduct of the account
  • While investing in a mutual fund
  • Financial institutes may ask for a mandatory KYC process in other instances too

KYC Documents

Basically, there are two types of documents required to comply with KYC norms. One is “Proof of Identity” and another is “Proof of Address”.

As stated in RBI’s website, “The Government of India has notified six documents as ‘Officially Valid Documents (OVDs) for the purpose of producing proof of identity. These six documents are Passport, Driving Licence, Voters’ Identity Card, PAN Card, Aadhaar Card issued by UIDAI and NREGA Card. You need to submit any one of these documents as proof of identity. If these documents also contain your address details, then it would be accepted as as ‘proof of address’. If the document submitted by you for proof of identity does not contain address details, then you will have to submit another officially valid document which contains address details.”

For an individual:

  • Proof of identity – PAN card, passport, driving license, ration card (as per bank/PoS expectation)
  • Proof of address – bills of utilities like telephone, LPG, electricity etc., bank statement, ration card (as per bank/PoS expectation)
  • Proof of income (for mutual funds)

For a Partnership-firm:

certificate of registration,Company’s PAN card, partnership deed, proofs of identity and address of partners, Resolution of board of directors to open account and identification of those who has authority to operate such account, power of attorney or authorised signatory documents if any, other documents as per individual bank’s requirement.

For a Sole Proprietorship Firm:

Certificate of incorporation, PAN card, TIN number, telephone bill/ electricity bill, Certificate/licence issued by the municipal authorities under Shop and Establishment Act. Sales and income tax returns etc.

Points to remember:

1. KYC is a mandatory requirement to financial institutions in India. Failure to produce necessary information or necessary documents to KYC to any financial institution will lead to

  • refusal to open an account or discontinuation of existing account – for a bank
  • refusal to permit for any investment – for mutual funds

2. To open a bank account, one needs to submit a ‘proof of identity and proof of address’ together with a recent photograph.

3. If you do not provide the required documents for KYC, the bank will not be able to open your account.

4. Aadhaar card is accepted as a proof of both identity and address.

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