KYC in Bank: Check the Importance, Process, Documents Involved and Types of Bank KYC

By Ritesh|Updated : October 21st, 2021

KYC in Bank: KYS stands for Know you Customer is a process by which the banks obtain and authenticate the relevant information required from their customer which are their personal details like address, date of birth, and other details. The information is obtained from a genuine source identified by the government which is Aadhar. KYC has now become a mandatory procedure in order for any customer to make transactions in the bank.

Table of Content

Importance of KYC in Banks

KYC exists for every financial institution in India. KYC is important because it helps to identify the identity of the customer. One of the main reasons for KYC is to stop or prevent money laundering which happens sometimes. Another reason to do KYC is to authenticate whether the source of funds of the customer is legitimate or not. KYC is for the benefit of both parties. For customers, it is for them to establish their identity in the financial institution. For the financial bodies, it is important as it helps them to stay protected against any type of fraud, corruption, money laundering, and terrorist financing.

With the help of KYC, any financial body can track the identity of the person/customer involved in any illegal activity.

KYC Process in Bank

The sole purpose of the KYC is to prevent any illegal activity and to identify any individual or business who is suspected of the following:

  • Involved in any criminal activity
  • Involved or suspected to take part in any money laundering or bribery
  • Any politically exposed person.

Traditionally the KYC is done by asking the individual to provide their details or the information related to their business. The information provided by the individual is then compared and cross-checked with the publicly available information from the open sources. The information is then compared again with the list of individuals and organizations known to the government. 

KYC process includes various stages which are:

  • ID Card verification
  • Document verification
  • Face Verification

KYC in India

In India, KYC is done through Aadhar card and PAN card. For any individual to open a bank account or to do any financial transaction they had to provide their Aadhar card and PAN card. The UID number provided by the candidate will be verified from the national database and the information will be automatically updated from the database. PAN card is mandatory for taxation purposes. 

Other Documents Involved in the KYC Process

Apart from the Aadhar card, the customer has to provide one more identity proof in order to authenticate himself. Customers can show any of the given below ID:

  • PAN Card
  • Voter ID
  • Passport
  • Driver’s License

Type of KYC in Bank

There are 3 types of KYC processes which are listed below:

 

  • Aadhar Based KYC
  • In-Person-Verification KYC
  • Centralized KYC

 

  1. Aadhar Based KYC: Aadhar based KYC is done through Aadhar card in which individuals have to provide their aadhar card number and within minutes their details are uploaded from the national database through their aadhar card number. This is the most common method of KYC in India.
  2. In-Person Verification: A representative from the financial institution will visit you in person and you have to provide the original supporting documents which will prove your identity.
  3. CKYC: This is done through an online CKYC form. Candidates have to upload their documents and within the time they will receive a 14 digits unique number. Through this CKYC number individuals don’t have to provide any documents when they open a bank account, they just have to submit the KYC number and their details will be verified.
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FAQs

  • KYC is the process through which the financial institution knows their customer and the bank verifies their details and confirms whether the person is involved in any illegal transaction or money laundering.

  • Aadhar is the basic and Mandatory document for KYC in India.

  • In the centralized-based KYC process, the customer is provided with a unique 14 digits unique number which they can submit every time whenever they open a bank account to complete their KYC process.

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