KYC Indian Banks – Overseas Indian Citizen

by Whytecroft Ford | Apr 1, 2023 | Indian Law, Indian Law Weekly Round-Up, NRI Legal Services, PAN, Power of Attorney, Taxation

As an Overseas Indian Citizen with Indian bank accounts, you should know about KYC. In this segment we look at KYC and its application in Indian banking.

Before you begin, if you’ve not read our previous segments for Non Resident Ordinary Account (NRO) and Non Resident External Account (NRE) , you may want to become familiar with the types of accounts available to you. This will help in understanding your Indian banking process better.

Full Terminology – KYC

Firstly, defining the term KYC and its core purpose. Along with an introduction to Regulated Entities and their responsibilities. The aim is to understand the policy and its subsequent application better.

What is the full form of KYC?

KYC is an abbreviation of the full term “Know Your Customer.”

It is commonly referred to as KYC in most major Indian banks. For example, when you open an NRO account with an Indian bank, KYC compliance will be required.

Know Your Customer, is a mandatory compliance requirement that a bank must adhere to with its customer. I.e. your bank is responsible to implement KYC under the regulatory requirements of the Reserve Bank of India, Government of India.

What Does KYC Entail

Correspondingly, KYC direction although uniformly outlined by the Reserve Bank of India for all (RE’s), it may have slight variations. In terms of timeframes, document allowances and considerations of acceptable documents under KYC.

Origin & Associated Official body(s)

To provide further background, in 2016, the Reserve Bank of India, Government of India, “Master Direction” set the “Know Your Customer” Direction. Updated again in 2021.

Requirements from Regulated Entities set by RBI:

“Regulated Entities (REs) are required to follow certain customer identification procedures while undertaking a transaction. Either by establishing an account-based relationship or otherwise and monitor their transactions. REs will take steps to implement the provisions of the aforementioned Act and Rules. Including operational instructions issued in pursuance of such amendment(s).”

An example of an RE (Regulated Entities) is an Indian bank.

Regulated Entities (RE’s)

Listed below are the types of RE’s as detailed by the Reserve Bank of India.

All Scheduled Commercial Banks (SCBs)/ Regional Rural Banks (RRBs)/ Local Area Banks (LABs). All Primary (Urban) Co-operative Banks (UCBs) /State and Central Co-operative Banks (StCBs / CCBs). And any other entity which has been licenced under Section 22 of Banking Regulation Act, 1949, which as a group shall be referred as ‘banks.’

All India Financial Institutions (AIFIs).

All Non-Banking Finance Companies (NBFCs). Miscellaneous Non-Banking Companies (MNBCs). And Residuary Non-Banking Companies (RNBCs).

All Payment System Providers (PSPs), System Participants (SPs) and Prepaid Payment Instrument Issuers (PPI Issuers).

All authorised persons (APs) including those who are agents of Money Transfer Service Scheme (MTSS), regulated by the Regulator.

It is the (RE’s) responsibility to set up a KYC policy for its clients. The onus is placed on them by the RBI and there are legal implications for both the bank and customer in non-compliance.

Now, let’s take a look at the key elements advised by RBI that must be included in a KYC by an (RE).

Four Key Elements For (RE’s)

The bank has to approve a Know Your Customer (KYC) policy under the RBI regulatory guidelines.

It includes the following four key elements;

Customer Acceptance Policy;
Risk Management;
Customer Identification Procedures (CIP); and
Monitoring of Transactions

Similarly, as a customer, what type of information may be required from you? Let’s take a look at this below.

Typical Customer Requirements

Proof of Identity
Proof of Address
Aadhar Card if an NRI residing in India for 182 or more.
PAN card is mandatory for both Indian Citizens and Overseas Citizens.
Other types of documents depend on your circumstances, for example they may include POA, certificates and so on.

Quoting Your Permanent Account Number (PAN)

Your Permanent account number (PAN) or equivalent e-document will be required and verified while undertaking transactions as per the provisions of Income Tax Rule 114B applicable to banks. You should ensure that your PAN Card is up to date to avoid further delays to your banking procedures.

Accordingly, you can open a bank account or update your information as per KYC requirement. Furthermore, for Overseas Indians, conveniently, many of the major Indian banks have branches worldwide.

KYC-Indian-Banks-Overseas-Indian-Citizen

Setting its Precedence

Subsequently, to set the precedence of KYC, the RBI states that, “the Reserve Bank of India being satisfied that it is necessary and expedient in the public interest to do so, hereby issues the Directions.”

The RBI Government of India’s initiatives over the past few years involves bringing the Indian financial structure up to date. Which also involves eventually making transactions more digitally astute. The PAN, KYC and other related administrative policies are now an integral part of these steps.

Now that you have a general understanding of the KYC application, the latter parts of this segment will highlight CAP and periodic updates in KYC.

Customer Acceptance Policy – CAP

Below are key points of the Customer Acceptance Policy (CAP). These may vary bank to bank and all points may not apply to your circumstances.

CAP Key Points

An account will not be opened in an anonymous or fictitious/benami name.

No transaction or account-based relationship can be undertaken without following the CDD procedure.

Mandatory information to be sought for KYC purpose while opening an account and during periodic updation is specified.

‘Optional’/additional information is obtained with the explicit consent of the customer after the account is opened.

If an existing KYC compliant customer of a RE wishes to open another account with the same RE, a fresh CDD is not required.

CDD Procedure is followed for all the joint account holders while opening a joint account.

Circumstances in which a customer is permitted to act on behalf of another person/entity is clearly spelt out.

Ensure that the identity of the customer does not match with any person or entity, whose name appears in the sanctions lists circulated by Reserve Bank of India.

Permanent Account Number (PAN) verified from the verification facility of the issuing authority.

If an equivalent e-document is obtained from the customer, the digital signature will be verified as per the provisions of the Information Technology Act, 2000 (21 of 2000).

No denial of banking/financial facility to members of the general public. Especially those who are financially or socially disadvantaged.

Periodic KYC Updates

Your bank may request a periodic update for your account details. This is to make sure that your information is up to date and correct.

For example, you may have had a change of address or change of status. In which case you would require to update your bank details to avoid any account issues. You may forget to do so. Periodic updates in instances such as these may be quite beneficial for you as a customer.

Frequency of KYC updates;

Once every two years for high risk customers.
Once in every eight years for medium risk customers.
Once in every ten years for low risk customers from the date of opening of the account / last KYC updation.