Meaning and Purpose of KYC

• KYC stands for Know Your Customer.
• It is a process banks use to verify the identity of account holders.
• The objective is to prevent fraud, money laundering, and illegal activities.
• It ensures that banks deal only with genuine, traceable individuals or entities.
• KYC compliance is mandatory for opening and maintaining bank accounts.

Components of KYC Documentation

• Customers must submit proof of identity such as PAN, Aadhaar, or passport.
• Address proof like utility bills, voter ID, or driving license is required.
• A recent passport-sized photograph is often necessary.
• Biometric authentication may be included in digital KYC.
• All documents must be valid and verifiable.

Types of KYC Procedures

• Physical KYC involves submitting hard copies of documents at the bank.
• e-KYC uses Aadhaar-based verification through digital platforms.
• Video KYC allows remote identity verification through live video calls.
• Central KYC Registry stores details for reuse across financial institutions.
• Periodic KYC updates are required for long-term accounts.

Importance in Banking Operations

• KYC helps banks assess the customer’s risk profile.
• It is essential for availing loans, cards, and investment services.
• It ensures secure fund transfers and legal financial practices.
• Accounts without updated KYC may face restrictions or suspension.
• It builds trust and compliance in the financial system.

Regulatory Oversight and Compliance

• The Reserve Bank of India mandates KYC for all banks and financial entities.
• Non-compliance may result in penalties or account deactivation.
• Banks maintain KYC records under strict data protection rules.
• KYC norms are aligned with global anti-money laundering standards.
• Regulatory audits ensure banks follow proper KYC procedures.