Arguably THE hottest JAIIB topic right now, thanks to the 10% beneficial-ownership rule, the tightened CKYCR upload/update timelines, and the just-passed low-risk re-KYC deadline. This guide covers all 18 sub-topics in expert detail โ KYC, Customer Identification, CDD, EDD, Beneficial Owner, Risk Categorisation, CKYCR, OVDs, PAN, Aadhaar, Periodic Updation, AML, Money Laundering Stages, PMLA, FIU-IND, STR, CTR and Record Keeping โ with 50 exam-style MCQs with hidden answers.
| Rule | Current Position (2026) |
|---|---|
| Beneficial Owner โ Company | >10% shares/capital/profits (reduced from 25%, effective 7 March 2023) |
| Beneficial Owner โ Partnership Firm | >10% capital/profits (reduced from 15%, effective 4 Sept 2023) |
| Beneficial Owner โ Trust | >10% interest (reduced from 15%) |
| CKYCR initial upload | Within 10 days of account-based relationship |
| CKYCR record update | Within 7 days of receiving updated info |
| Periodic updation | High risk: 2 yrs; Medium risk: 8 yrs; Low risk: 10 yrs |
| Low-risk re-KYC relief | Extended to within 1 year of falling due, or 30 June 2026, whichever later |
| CTR threshold | โน10 lakh and above (cash) in a calendar month |
| STR threshold | None โ filed on suspicion, regardless of amount |
Know Your Customer (KYC) is the regulatory framework requiring banks and other Regulated Entities (REs) to verify the identity of their customers, understand the nature of their business and the source of their funds, and assess the risk they pose โ so that the financial system cannot be misused for money laundering or terrorist financing.
KYC applies uniformly across banks, NBFCs, payment system providers, and other RBI-regulated entities, governed by RBI's Master Direction on KYC (originally issued 2016, amended extensively and repeatedly through 2023-2025 to align with PMLA Rules and FATF standards).
The Customer Identification Procedure (CIP) is the first practical step of KYC โ identifying the customer using reliable, independent source documents/data, and verifying their identity through Officially Valid Documents (OVDs), along with a recent photograph. Identification is mandatory at the commencement of an account-based relationship, and in several other specified situations (e.g., carrying out a transaction above a prescribed threshold for a walk-in customer).
Customer Due Diligence (CDD) is the broader, ongoing process built around four pillars:
Using reliable, independent documents/data (OVDs).
Look through legal entities to find the real controlling individual(s).
The nature of business and intended purpose of the relationship.
Ensure transactions remain consistent with the customer's known risk profile.
Enhanced Due Diligence (EDD) applies extra scrutiny to higher-risk customers โ such as Politically Exposed Persons (PEPs), non-face-to-face relationships, customers from high-risk jurisdictions, or those involved in complex/unusual transactions with no clear economic rationale.
A Beneficial Owner (BO) is the natural person who ultimately owns, controls, or benefits from a customer entity โ even when the account is opened in the name of a company, partnership, or trust. Identifying the BO prevents shell entities from hiding the real controller.
| Entity Type | Current Threshold | Previous Threshold |
|---|---|---|
| Company | > 10% of shares/capital/profits | 25% (until 7 March 2023) |
| Partnership Firm | > 10% of capital/profits | 15% (until 4 Sept 2023) |
| Trust | > 10% of beneficiary interest | 15% (until 7 March 2023) |
| Unincorporated Association / Body of Individuals | > 15% interest | 15% (unchanged) |
Every customer is classified into one of three risk categories โ Low, Medium or High โ based on factors like identity, occupation, source of funds, location, and nature of business. This classification drives both the intensity of due diligence and the frequency of periodic KYC updation (Section 11).
The Central KYC Records Registry (CKYCR) is a centralised repository operated by CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India), storing KYC records for reuse across every regulated entity in India โ so a customer never has to repeat full KYC at each new institution.
Officially Valid Documents (OVDs) are the government-recognised identity/address proof documents accepted for KYC:
Universally accepted proof of identity and address.
Issued by the Election Commission of India.
Valid photo ID with address.
Widely used, subject to voluntary-use safeguards (Section 10).
Must be signed by a State Government official.
National Population Register letter with name and address.
If an OVD doesn't reflect the customer's current address, a "deemed OVD" process allows the customer to submit the document along with a simple self-declaration of the current address.
A Permanent Account Number (PAN) is generally required to open a bank account. Customers who do not have a PAN may instead submit Form 60 โ a declaration confirming they don't have a PAN, along with specified particulars. PAN verification becomes mandatory for banking transactions above โน50,000.
Following the Supreme Court's Puttaswamy judgment (2018), which struck down mandatory Aadhaar linkage for private entities under Section 57 of the Aadhaar Act, the use of Aadhaar for opening a bank account is voluntary, at the customer's option.
Quick, but subject to an annual aggregate cap of around โน1 lakh unless supplemented by further verification.
Verifies identity without disclosing the Aadhaar number itself.
Video Customer Identification Process โ treated as equivalent to in-person, face-to-face verification.
RBI's risk-based framework (Para 38 of the KYC Directions) requires periodic re-verification of every customer's KYC details at a frequency tied to their risk category: High risk โ every 2 years; Medium risk โ every 8 years; Low risk โ every 10 years, unless a material change occurs earlier.
Anti-Money Laundering (AML) is the umbrella term for the entire framework of laws, regulations and institutional procedures designed to prevent, detect and report the laundering of proceeds of crime through the financial system. KYC is the front-line defence; AML is the broader system built around it, including PMLA, FIU-IND, and mandatory reporting (STR/CTR).
Illicit cash enters the financial system for the first time.
Complex, multiple transactions obscure the money's true origin.
"Cleaned" money re-enters the economy looking legitimate.
The Prevention of Money Laundering Act, 2002 (PMLA) came into force on 1 July 2005. It criminalises money laundering, provides for the confiscation of property derived from proceeds of crime, and establishes the legal basis for KYC/AML obligations on "reporting entities."
The Financial Intelligence Unit โ India (FIU-IND), established in 2004, is India's central national agency for receiving, processing, analysing and disseminating information on suspicious financial transactions. It functions under the Department of Revenue, Ministry of Finance, and reports to the Economic Intelligence Council, chaired by the Finance Minister.
A Suspicious Transaction Report (STR) must be filed with FIU-IND whenever a reporting entity has reasonable grounds to believe that a transaction (or attempted transaction) may involve proceeds of crime โ irrespective of the amount involved. STRs must be filed within 7 days of the entity arriving at the conclusion that the transaction is suspicious.
A Cash Transaction Report (CTR) covers all cash transactions โ or a series of integrally connected cash transactions โ totalling โน10 lakh or more in a calendar month. CTRs must be filed with FIU-IND by the 15th of the succeeding month.
| Basis | STR | CTR |
|---|---|---|
| Trigger | Suspicion of proceeds of crime | Cash transactions crossing a fixed monetary threshold |
| Threshold | None | โน10 lakh/month |
| Filing deadline | Within 7 days of concluding suspicion | By the 15th of the succeeding month |
Reporting entities must maintain records of all transactions, along with CDD and beneficial-owner documentation, for at least 5 years from the date of the transaction or the end of the business relationship โ whichever is later. This ensures investigators can reconstruct individual transactions if required for a future inquiry or prosecution.
Test your understanding with these 50 practice MCQs, closely modelled on the pattern expected in the upcoming JAIIB PPB exam โ including combination-answer questions and the very latest beneficial-ownership and CKYCR rules. Each question has 5 options โ the correct answer is hidden by default; tap "Show Answer" to reveal it along with a short explanation.
Explore related topics: our Banker-Customer Relationship guide (lien, set-off, secrecy, garnishee order), our Negotiable Instruments guide (cheques, endorsement, crossing, CTS), our Deposit Accounts guide (nomination, joint accounts, dormant accounts), our MSME guide, our Indian Economy guide, our Government Schemes guide, our RBI & Monetary Policy guide, our Priority Sector Lending guide, the Indian Financial System guide, our guide to the Banking Structure of India, our DSCR guide, and the complete JAIIB / CAIIB Library on AskBanker.in.