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KYC and Re-KYC in Banking

October 24, 2017

KYC and Re-KYC in Banking

The concept of Know Your Customer, i.e. KYC was introduced by the RBI in 2002 and fully implemented by the financial institutions like banks and NBFCs across the country by 2004.

KYC sets the guidelines for the identification of a customer through certain documents submitted by them. It also helps to check black money and enables a bank to provide better services to its customers by understanding their needs up close.

1. KYC

The following are the major aspects of the KYC guidelines that are provided by the RBI:

  • Borrowers must accept the KYC policy
  • KYC should identify and verify a borrower with the documents provided by them
  • Banks must monitor the financial activities of their borrowers regarding their loans and credit usage

To comply with the KYC guidelines a borrower is required to submit two types of documents:

  • Proof of Address
  • Proof of Identity

The following documents can be used for that purpose: Passport, PAN Card, Aadhaar, Driving License, Voter ID card, etc. A customer can also provide a copy of their latest utility bill such as electricity bill, phone bill, etc.

2. Re-KYC

In a bid to ensure consistency in customer records, RBI has directed the banks to update the documents of their customers periodically. So, a bank can ask their customers to re-submit their documents from time to time. This is done through Re-KYC.

If a customer doesn’t update their KYC or comply with the Re-KYC requirements, the bank has the authority to partially freeze their account. However, they are required to send them a reminder notice three months in advance before freezing. If the customer doesn’t update their KYC within 6 months since receiving the notice, the bank can fully deactivate their account.

KYC and Re-KYC are both equally important processes of the banking sector. The RBI itself is quite stringent with their norms and implementation to tackle the problem of identity theft and money laundering in the country.

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