What is KYC: KYC Meaning, Importance, Types, and More
With a huge population of middle-class people in India, the lending space is growing exponentially. According to Trading Economics, the value of loans in India increased 8.2% in January of 2022 over the same month in the previous year.
The statistic reveals that today more people apply for loans than ever to fulfil their needs. Particularly, personal loans have been the ultimate financial product for people to meet their unforeseen expenses such as medical emergencies, car repairs, home renovations, travel, wedding and many more.
But lending is a risky proposition for lenders because it’s hard for them to know whether the person borrowing the money is genuine or a fraud.
Therefore, banks and other financial institutions get KYC done. The KYC full form is “Know Your Customer.” Simply put, the KYC meaning is to verify the identity of the customers before the banks and financial institutions do business with them.
What is KYC?
KYC in India stands for ‘Know Your Customer.’ It is a legal and a mandatory regulatory requirement used for identifying and verifying the details of a customer with the help of reliable and independent information or documents.
It helps to counter illegal activities such as money laundering. KYC is practiced not only in the lending sector but also in investments and other banking transactions too. It is an effective tool that helps prevent financial institutions from possible losses and frauds.
Why is KYC required?
The KYC process is important to prevent fraud and other illegal financial activities. KYC helps financial institutions avoid being used money laundering activities without their knowledge.
The KYC process also helps companies that offer services such as stock brokerage, mutual fund investments, etc. KYC allows banks and financial institutions verify the legal status of a company, owners, and their authorized signatories. It also helps verify the authenticity of individuals and financial companies.
Know Your Customer (KYC) in India allows banks and other financial institutions to:
- Identify the customer accurately.
- Check the customers’ activities and determine their source of income.
- Assess if there is any risk of money laundering associated with the customer.
When do you need to fill up KYC Form?
As a customer, you need to fill up the Know Your Customer (KYC) Form when you want to:
- Invest in mutual funds
- Open a bank account
- Request for financial planning services through a registered board
- Apply for a credit card, personal loan, home loan or any kind of a loan
- Change the signatories, beneficial owners, etc. on your accounts
Types of KYC
The two types of KYC include:
This KYC verification process is online and therefor convenient and hassle-free. All the customers need to do is upload a scanned copy of their Aadhaar card. This online KYC is also eKYC.
In-person KYC verification involves a personal interaction where the customer visits the branch of the financial institution or a KYC kiosk to verify their identity. In some cases, a KYC registration executive can also visit the customer for a KYC verification. A few financial institutions are now opening up to the idea of verifying the documents while on a video call with the customer.
How does KYC help in loan approvals?
The Reserve Bank of India directed all banks, online financial lenders and lending platforms to obtain KYC information to prevent identity thefts, money laundering, financial frauds, signature forgery and other illegal activities. It is an indispensable banking requirement; only when the customer details are verified, a loan can be applied.
Why should you file KYC?
As a customer, KYC helps to ensure that the financial services are not being misused as it confirms your authenticity.
Through KYC, the banks/online lenders get to see the transparency in your financial dealings, which in turn helps them manage their risks prudently.
KYC Documents for a Personal Loan in India
- Photo Identity Proof
- Residence Ownership Proof
- Residence Address Proof
- Job Continuity Proof
- Income Proof
- Bank Statement
- Investment Proof
- Passport size colour photograph
The Evolution of eKYC
Until a few years ago, applying for a loan was a challenge. Long bank queues, filling an endless number of documents, waiting for weeks and sometimes even months to hear a revert or status from the bank are now things of the past.
Because now, technology and digitalisation in the banking sector have made the whole process of applying for a loan extremely streamlined and simplified through eKYC. What is eKYC? The full form of eKYC is Electronic Know Your Customer and it is a process of getting your KYC done online. Paperless eKYC process has accelerated the process of loan approval and disbursal because the KYC procedure that used to take weeks, now takes just a few minutes.
eKYC vs oKYC vs CKYC
The key differences between eKYC vs oKYC vs CKYC are outlined below:
|Electronic Know your Customer (eKYC)||Offline Know Your Customer(oKYC)||Central Know Your Customer (cKYC)|
|KYC verification is done electronically and online.||KYC verification is done either through offline Aadhaar XML or through QR code.||KYC verification is done by checking the central database of all the KYC records of customers.|
|KYC process is simple, fast, and paperless.||KYC process is just as quick as eKYC but with more privacy.||The customer doesn’t need to go through the KYC process each time for each institution.|
What are the benefits of e-KYC when applying for loans online?
- You won’t have to submit physical documents for loan approvals.
- e-KYC speeds up the loan process ensuring quick disbursal of loans.
- The verification process that used to take days now takes just a few minutes.
- Through eKYC, you can also link your Aadhaar Card to authenticate your identity through just one ID.
Paperless e-KYC has made the personal loan application process simpler and it has also reduced the time taken to sanction a loan to just a couple of days.