Know Your Customer (KYC) Norms 🆔
Definition: KYC is a process by which banks obtain information about the identity and address of the customers.
Mandated by: Reserve Bank of India (RBI) under Banking Regulation Act and PMLA (Prevention of Money Laundering Act, 2002).
Why is KYC Necessary? 🤔
Objective: To prevent banks from being used for Money Laundering or Terrorist Financing.
- Identity Verification: Ensure person opening account is real (not fake/benami).
- Risk Categorization: Classify customers as Low, Medium, or High risk.
- Monitoring: Track suspicious transactions.
Money Laundering = Converting "Black Money" (illegal) into "White Money" (legal).
Process:
- Placement: Putting dirty cash into bank.
- Layering: Moving money through many accounts to hide source.
- Integration: Bringing money back as "legal" wealth (buying property).
KYC stops Step 1!
When is KYC Done? 🕒
- Opening Account: New savings/current/FD account.
- Periodic Updation: Every few years (Re-KYC).
- Big Transactions: E.g., Cash deposit > ₹50,000 (PAN required).
- International Transfer: Sending/receiving money abroad.
Officially Valid Documents (OVDs) 📄
RBI accepts 6 OVDs for Proof of Identity & Address:
- Passport 🛂
- Driving License 🚗
- Voters' Identity Card 🗳️
- PAN Card 💳 (Identity only)
- Aadhaar Card 🆔
- NREGA Job Card 👷
Note: Since 2018, Aadhaar + PAN is practically mandatory for linking.
KYC Process 🛠️
1. Physical KYC
- Submit self-attested copies of OVDs.
- Paste photo on form.
- Sign in front of bank official.
2. e-KYC (Aadhaar based)
- Provide Aadhaar number.
- Authenticate via Biometric (Fingerprint) or OTP (Mobile).
- Instant verification from UIDAI database.
3. Video KYC (V-CIP) 🎥
- Video Customer Identification Process.
- Live video call with bank official.
- Show original PAN/Aadhaar on camera.
- Benefit: Open account from home (Zero contact).
Customer Risk Categorization 📊
Banks classify customers based on risk:
| Risk Level | Examples | Re-KYC Frequency |
|---|---|---|
| Low Risk | Salaried employees, Govt depts, Small accounts | Every 10 years |
| Medium Risk | Self-employed, HNIs, Corporates | Every 8 years |
| High Risk | Politicians (PEPs), Jewelers, NGOs, Trusts | Every 2 years |
PEP: Politically Exposed Person.
Quiz Time! 🎯
Test Your Knowledge
Question 1 of 5
1. KYC stands for:
💡 Final Wisdom: "KYC is not just paperwork; it's the firewall protecting the banking system from criminals!" 🛡️
Next up: Opening of Bank Accounts - Procedures & Forms! 📝