What KYC actually means for a bank, the documents accepted, how due diligence intensity varies by risk, and the periodic re-verification every account holder eventually goes through.
Know Your Customer (KYC) is the mandatory process by which a bank verifies the identity and address of a customer, and understands the nature of their expected transactions, before opening an account or providing any financial service â governed in India by the RBI's Master Direction on KYC and the Prevention of Money Laundering Act (PMLA), 2002.
KYC exists to stop banks from being used â knowingly or unknowingly â as a channel for money laundering, terror financing, tax evasion or fraud. It has four components: Customer Acceptance Policy, Customer Identification Procedure, Risk Management, and ongoing Monitoring of Transactions.
RBI defines a fixed list of documents accepted as proof of identity and address:
Most common OVD; e-KYC/Aadhaar-based authentication widely used for instant onboarding.
Valid proof of both identity and address if current.
Accepted as identity/address proof, subject to validity.
Issued by the Election Commission of India.
Signed by a State Government officer, accepted for rural accounts.
Containing name and address, issued by the Central/State Government.
PAN is compulsory for most account relationships (or Form 60 declaration where PAN is not held) primarily for tax-reporting purposes, and is required in addition to â not instead of â an OVD.
The standard-level verification applied to every customer â identity + address verification via OVD, photograph, and basic understanding of the purpose of the relationship.
Additional scrutiny applied to higher-risk customers â Politically Exposed Persons (PEPs), NRIs, trusts, high-net-worth individuals, and businesses in cash-intensive sectors â including source-of-funds verification and closer transaction monitoring.
EDD is not a one-time extra step; it usually means more frequent account review, lower alert thresholds on transaction monitoring, and senior management sign-off for onboarding.
Every customer is placed into a risk category at onboarding, which determines the review frequency:
For legal entities (companies, partnerships, trusts), banks must identify the natural person(s) who ultimately own or control the entity â the Beneficial Owner (BO). Following the 2023 amendment, the controlling-ownership threshold was revised to 10% for companies and trusts (previously 25%/15%), tightening scrutiny of shell structures.
The Central KYC Records Registry (CKYCR), operated by CERSAI, stores KYC records centrally so a customer doesn't need to repeat full KYC at every new bank â a 14-digit KYC Identification Number (KIN) lets any regulated entity fetch the existing record with consent.
Periodic updation â re-verifying documents at the risk-based intervals above â can now be done via simple self-declaration for many low-risk individual customers (where no material change has occurred), rather than requiring a branch visit, easing the compliance burden while keeping records current.
Related deep-dive: See the JAIIB notes on KYC / AML for exam-focused coverage with 50 practice MCQs.
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