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KYC in banking: meaning, documents and types
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KYC stands for Know Your Customer. It is the process by which a bank verifies who a customer is before opening an account or offering a service, and keeps that information updated afterwards. The rules come from the RBI's Master Direction on KYC, issued in line with the Prevention of Money Laundering Act, 2002 and its Rules, to stop accounts being used for money laundering and terror financing.
The four elements of a KYC policy
- Customer Acceptance Policy: who the bank will and will not take on as a customer.
- Customer Identification Procedures: verifying identity and address.
- Monitoring of transactions: watching for unusual activity.
- Risk management: classifying customers as low, medium or high risk, with checks to match.
Officially valid documents (OVD)
The RBI lists these as proof of identity and address:
- Passport
- Driving licence
- Proof of possession of an Aadhaar number
- Voter ID card
- NREGA job card
- Letter issued by the National Population Register
A PAN or Form 60 is also taken for financial transactions. Banks may accept a simplified set for low-risk accounts.
Ways to complete KYC
| Route | How it works |
|---|---|
| In person | Documents and photograph at the branch |
| Aadhaar e-KYC | Authentication using an OTP or biometric, with the customer's consent |
| Video-based Customer Identification Process (V-CIP) | A live video call with a bank official, with document capture |
| Central KYC (CKYC) | Details stored once in the central registry, and each customer receives a 14-digit KIN so other lenders can reuse them |
Small accounts can be opened with limited documents but carry limits on balance and transactions, and can be converted to regular accounts once full KYC is done. KYC must be refreshed periodically; the interval depends on the customer's risk category.
How bank exams ask about it
Common stems: "KYC stands for", "which of these is not an OVD", "Which Act mandates KYC", and the CKYC registry. It is also easy material for an interview answer, such as what documents a first-time account holder needs. For related schemes see PMJDY and financial inclusion. Add KYC to the compliance list in banking awareness.
Where to check
The RBI's latest Master Direction on KYC is at rbi.org.in. Read its definitions for any limits.
Frequently asked questions
Is Aadhaar compulsory for a bank account?
Aadhaar is one of the permitted documents, but the rules allow other OVDs. For some schemes, banks may ask for Aadhaar number for benefit transfers.
What is re-KYC?
Periodic updating of your details. Banks ask for it at intervals based on your risk category and may freeze or restrict an account if it is not done after notice.
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