Industry

KYC India: The types, documentation, and standards

Learn about the types of KYC in India, essential documents, and how Persona can help businesses achieve KYC compliance in India.

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⚡ Key takeaways
  • KYC requirements in India are designed to address the needs of its unique banking population.
  • The Reserve Bank of India has required all financial institutions to complete KYC reviews since 2005, and there are serious penalties for not doing so correctly.
  • Individuals and businesses looking to bank in India should be well prepared for complex due diligence requirements and verification processes.

Once the center of the global spice trade, India’s heat remains unparalleled as one of the fastest-growing major economies in the world. Yet, the Land of the Golden Bird is also unmatched in its blistering bureaucracy and regulatory red tape. There are over 2,000 regulatory websites between all the levels of government across the country, plus a constant stream of updates. Compliance officers must keep a daunting number of plates spinning at once in order to avoid serious penalties.

If your business operations or your customer base are expanding into India, prepare now to adapt and embrace Know Your Customer (KYC) requirements if your plans rely on accessing banking and finance products. 

What is KYC in India?

In 2002, the Prevention of Money Laundering Act, 2002 (PMLA), was approved via an Act of the Indian Parliament, paving the way for the foreign concept of KYC to come to India. Congress eventually enacted the law in 2005. Since then, the Reserve Bank of India (RBI), the country’s central bank and chief regulator of the Indian banking system, has been mandating that financial institutions operating in the country verify identities and addresses of all customers seeking to complete financial transactions. This requirement also includes local branches of non-Indian banks.

The RBI has since enhanced its KYC compliance requirements to keep pace with global recommendations offered by organizations, including the Financial Action Task Force (FATF), which India has been a member of since 2010. The FATF’s 40 Recommendations for members is the leading set of standards for preventing global financial crimes. 

In addition to the RBI, KYC is enforced in the country by the Insurance Regulatory and Development Authority of India (IRDAI) for insurance companies, and the Securities and Exchange Board for India (SEBI) for broker-dealers and asset managers.

Around the world, KYC serves as critical armor against money laundering and terrorist financing as banks are the primary entry point for illegitimate proceeds of crime to be entered into the legitimate financial system. KYC empowers banks to request documents that verify the identities of those intending to use banking products. This creates a friction point to complete a larger set of due diligence checks under the Anti-Money Laundering (AML) umbrella, including addresses, names, identities, employment status for individuals, and beneficial ownership, nature and scope of business activities, and identification of authorized signatories for businesses. Some financial institutions conduct KYC reviews for business clients under the term Know Your Business (KYB).

Importance of KYC in India

KYC is a required step for opening any bank account in India. At the conclusion of the verification process, the financial institution can determine the money laundering risk level based on any red flags and make a decision on whether to pursue a relationship with the client.

KYC not only protects companies and individuals but also the larger financial system in India, locally as well as globally. Safer financial transactions ensure stability: Banks that conduct thorough due diligence on customers are less likely to experience significant losses, security breaches, and reputational risk due to criminals accessing systems. The more a company does proactively, the less likely a regulator is going to identify unmitigated risks or compliance issues resulting in costly penalties and enforcement actions. The more a company guards itself against losses and liabilities, the safer it will be for customers relying on the financial institution to support their immediate needs and protect their assets for the long term. 

A major component of the larger PMLA calls for anyone convicted of money laundering to be sentenced to anywhere between three and seven years in prison — and more if certain drugs were involved. The law also allows the government to seize all property obtained with laundered funds. Data shared by the government in 2022 showed that more than 5,400 suspected cases had been logged since the law was passed, though only 23 people have been convicted. Still, lawyers and Indian media have described the law as “Draconian” and the arrests as “indiscriminate” and say they often appear to be politically driven. 

Under the 2013 Companies Act, which introduced additional reforms for improving the business climate in India, compliance officers and key company personnel can face additional penalties for noncompliance, including jail time. This further supports the importance of following every letter of the law, no matter how duplicative a due-diligence requirement may seem.

Types of KYC in India

India is a vast and growing nation with significant disparities in its population. More than 65% of the population is below age 35 and a significant portion of these young people embrace digital and mobile technology. Yet more than 65% of the population also lives in rural areas without the infrastructure, access, or knowledge to handle formal banking. 

To appeal to the widest possible segment of the potential banking market, financial institutions have been given the option to undertake two different approaches to KYC: An eKYC approach using the Aadhaar identification number and a traditional paper-based, in-person process.

Below we review the technical concepts that are helpful in understanding India’s KYC requirements.

Aadhaar-based KYC

Aadhaar, an identity verification system for Indian citizens and certain foreign nationals, is the world’s largest biometric ID system. It is a 12-digit “proof of residence” provided in the form of a photo ID card to individuals who submit several supporting documents as well as iris scans and fingerprints to the government agency administering the program.

Aadhaar-based KYC verification is able to be completed online, making it highly convenient for those with a broadband or internet connection. A customer simply uploads a scanned copy of their original Aadhaar card to a secure site provided by the bank, which receives instant verification and can proceed with any remaining KYC requirements. Some financial institutions in India allow for limited, or provisional, banking access when an individual only provides an Aadhaar card.

Traditional KYC

Traditional, or in-person, KYC requires that an individual do one of two things: 

  1. Visit a branch with KYC services to authenticate their identity using Aadhaar-equivalent biometrics or 
  2. Request that the KYC registration agency send a representative to a home or office to complete the verification process.

Officially valid documents (OVDs)

An officially valid document (OVD) is a blanket term referring to certified documentation acceptable in India, including:

  • Passport
  • Driver’s license
  • Proof of possession of an Aadhaar number
  • Elector’s Photo Identity Card (EPIC) issued by the Election Commission of India
  • Job card issued by the Finance Ministry and signed by a state government officer as part of the National Rural Employment Guarantee Act (NREGA) 
  • Letter issued by the National Population Register (NPR) containing name and address details (additional documentation required if the address as shown is not current)
  • Any other government document that has been approved in consultation with a regulator
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KYC documentation in India

KYC is a document-intensive process, and India is famously fond of its forms and procedures. You might say that the difference between KYC in India versus other countries is reflected in how traditional Indian weddings are celebrated over multiple days for hundreds of guests, instead of the single-day affair that is common in other parts of the world.

Below we review the typical documents required for Indian citizens and nonresident Indians, and a short list of business types.

Documents for Indian citizens

The following documents are generally included as standard KYC requirements for an Indian citizen opening a typical bank account:

  • Aadhaar number or certified proof of possession, or another verified identity document such as a passport, driver’s license, or Elector’s Photo Identity Card (EPIC)
  • Permanent account number (PAN) or its electronic verification or India Form No. 60
  • Documentary evidence of the nature of the business or customer’s financial status, if requested by financial institution
  • Recent photograph (passport size), physical or digital
  • Proof of address if it differs from official documentation; examples include: utility bill dated within last two months from any service provider (electricity, landline or cell phone, gas, water); tax receipt; government documentation, for example, pension payment orders issued to retirees; or letter of allotment of accommodation from employer issued by state or government, commercial bank, financial institution, etc. 

KYC documentation for nonresident Indians (NRIs)

The following documents are generally included as standard KYC requirements for a nonresident Indian (NRI) opening a typical bank account:

  • Passport
  • Residence visa
  • Valid documentation showing the foreign residential address
  • Embassy/notary/banker introduction
  • Documentary evidence of the nature of the business or customer’s financial status, if requested by financial institution
  • Passport-size photographs (physical or digital)

Business entities in India

The following documents are generally included as standard KYC requirements for the most common business entities opening a standard business banking account outside of bank-specific documentary requests:

Partnership firms need a registration certificate, partnership deed, and business PAN, as well as identification of the partners and anyone authorized to open and operate the accounts.

Proprietary concerns, or businesses owned by one or more individuals, need any two of the following documents: 

  • Registration certificate
  • Local municipal license/certificate
  • Recent income tax return for the entity or for the sole proprietor
  • Utility bills dated within the last two months
  • CST/VAT/GST certificate, government import/export license
  • Proof of professional license issued by an organization such as the Institute of Chartered Accountants of India, food and drug control authorities, Medical Council of India (MCI), etc.

Corporations need a certificate of incorporation, articles of association, business PAN, a current list of directors with biographical information (including full legal name, citizenship, and residential address), resolution from the board of directors and power of attorney granted to managers, employees, or others designated to handle transactions, as well as a separate copy of identity and address documents for beneficial owners, managers, and anyone else with authority to open, operate, or transact with accounts.

Re-KYC requirements in India

Throughout the life cycle of a corporate or business client, banks monitor transactions for red flags, sanctions, watch lists, and negative news reports, and they conduct periodic KYC reviews depending on customer risk categorization.

In India, the RBI mandates that customer identification data, including photographs on file, should be retained, reviewed, and verified at least once:

  • Every 10 years for low-risk customers
  • Every eight years for medium-risk customers
  • Every two years for high-risk customers 

The exact definition of each risk category is determined by respective financial institutions but is based on parameters including the client’s nature of business, geography, products used, size and scope of transactions, etc. Clients are not informed which category they are in.

Automated KYC for businesses with Persona

Whether India is on your company’s expansion road map or off-shore detour, it is important to properly navigate its complex KYC requirements. It’s also critical to arm your business with a KYC and AML tool kit flexible enough to adapt to these unique requirements.

Here at Persona, we know that an off-the-rack approach to KYC doesn’t work. That’s why we’ve designed our identity infrastructure with flexibility in mind so that our customers are empowered to build the verification workflows that best fit each occasion.

With our expansive library of verifications,  you can quickly and easily collect and analyze government IDs, other documents, and even mobile drivers licenses. Running reports, such as watchlist screenings, PEP scans, adverse media reports, and other database queries allows you to build out a fuller picture of individuals or entities. For additional risk signals, you can assess the reputation of the phone numbers and email addresses applicants provide. Use Workflows to reap the benefits of automation and Graph to uncover and proactively block money launderers and other individuals they’re linked to.

Interested in learning more? Start for free or get a demo today.

Frequently asked questions

Who must complete KYC?

Globally, KYC is an almost universally regulated requirement for banks, lenders, insurers, and businesses that handle large transactions, such as casinos and auto dealers. The mandate continues to evolve and now can include fintech companies, cryptocurrency exchanges, e-gaming platforms, and online casinos among others.

Businesses that are not traditionally considered to be financial institutions may also be subject to varying degrees of KYC regulation. Online marketplaces that engage in age-restricted commerce, for example, must also ensure that only customers of legal age purchase through their platforms.

What is Video KYC and who can use it?

Video KYC is an option allowable in certain jurisdictions and by certain financial institutions to make it easier to complete KYC requirements. During the pandemic, given the challenges of opening accounts during the ongoing pandemic, the Royal Bank of India (RBI) and the Securities and Exchange Board for India (SEBI) began allowing video KYC to be used for individuals within India seeking to open savings and salary-based accounts. Through a secured interface, an individual provides documentation to a live agent on the other end of the video call. This option does not yet seem to be allowed for NRIs or for businesses seeking to open corporate accounts.

What is re-KYC?

As businesses grow and evolve, key data can also change, for example, beneficial ownership, business scope, and customer base. This can create unanticipated risk to financial institutions. Re-KYC, or periodic checklist reviews of existing business customers, allows banks to keep tabs on any changes that their customers might fail to voluntarily report. It also ensures that the client’s current information and risks are weighed against the most current regulatory requirements. Re-KYC reviews typically get scheduled using existing risk-based assessments. In India, the RBI mandates that low-risk clients be reviewed every 10 years, medium-risk clients every eight years, and high-risk clients every two years.

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