This document discusses Know Your Customer (KYC) norms in banking and insurance. It provides the following key points:
1) KYC norms were introduced in 2002 by the Reserve Bank of India to prevent money laundering and require banks to verify customers' identities before opening accounts.
2) KYC is important for preventing fraud and ensuring applications are real. It helps banks understand customers and manage risks prudently.
3) Compliance with KYC norms is now mandatory for opening bank accounts, demat accounts, purchasing credit reports, and more. Common documents required include identification documents like passports, driver's licenses, and address proofs.
2. Introduction:
KYC norms were introduced in 2002 by the Reserve Bank of India (RBI). It
directed all banks and financial institutions to put in place a policy framework
to know their customers before opening any account.
The purpose was to prevent money laundering, terrorist financing, theft
So KYC is one of a anti money laundering procedure or a small part
of AML and Combating Financing terrorism (CFT).
3. Importance of KYC
KYC is important because it helps the banker to ensure that the application
and other details are real.
By ensuring the identity of individuals, it would help to prevent fraud.
The objective of KYC guidelines in banks is to prevent the banks from being
used, intentionally or unintentionally, by criminal elements for money
laundering activities.
It also enable banks to better understand their customers and their financial
dealings. This helps them manage their risks prudently.
4. Need for KYC:
To open a bank account, a Demat and Stock trading account, open FD in another
bank, would definitely need to comply with KYC requirements.
It is now mandatory as per guidelines from the Securities and Exchange Board of
India(SEBI) to comply with these KYC norms before you open a Demat and Trading
account.
Adherence to Know Your Customer (KYC) norms while submitting your documents, is
a mandatory requirement for purchasing your CIBIL Rank and Company Credit Report
(CCR). The objective of performing a KYC check is to enable CIBIL to provide
information to the rightful owner.
5. Documents needed for KYC
Passport
Driving Licence
Voters' Identity Card
PAN Card
Aadhaar Card issued by UIDAI
Utility bills like telephone bill,
Electricity bill, gas bill,
Bank account statement received by mail or courier along with signature verification by
the Banker
Ration card
Letter from employer, bank manager of scheduled commercial banks.
6. Small Accounts:
These are the accounts which can be opened without having any one of the documents
as per required guidelines of KYC.
There are certain limitations for this kind of Small Accounts:
Such accounts remain operational initially for a period of twelve months and
thereafter, for a further period of twelve months if the holder of such an account
provides evidence to the bank of having applied for any of the officially valid
documents within twelve months of the opening of such account.
•Balance in such accounts at any point of time should not
exceed Rs.50,000
•Total credits in one year should not exceed Rs.1,00,000
•Total withdrawal and transfers in a month should not exceed
Rs.10,000
•Foreign remittances cannot be credited to such accounts.
7. KYC in Banks
Banks usually frame their KYC policies incorporating the following four key elements:
Customer Acceptance Policy
Customer Identification Procedures
Monitoring of Transactions
Risk management.
8. Impact of KYC
The KYC requirement sometimes leads to unnecessary and repetitive work, delaying
operations. Customers complain about the paperwork involved. Ultimately, it means customers
have to run from pillar to post for complying with the KYC norms. Investors complain of being
asked to provide details repeatedly or face a freeze on their accounts
Companies and distributors say, KYC requirements have burdened them with substantial
administrative obligations. The verification rules place a financial burden on banks, insurance
companies and mutual funds due to the involved costs.
eKYC is a paperless Aadhaar-based process for fulfilling your KYC requirements to start
investing in Mutual Funds. SEBI has recently allowed Aadhaar-based KYC to be used for MF
investments, for the convenience of investors
