Know Your Customer
Also called: KYC, e-KYC, Video KYC · Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT
Meaning
Know Your Customer (KYC) is the process banks and other financial institutions use to check who their customers are. It includes due diligence, which means checking the customer's background and risk. It helps prevent fraud, fake accounts and money laundering (making illegal money look legal). In India, KYC rules come from the PMLA 2002 and the RBI KYC Master Direction 2016.
- e-KYC: identity is checked electronically.
- CKYC: a central KYC registry run by CERSAI, so a customer does not have to repeat KYC with every institution.
- Video-KYC: allowed from 2020.
Example
To open a savings account, a customer must submit identity and address proof, or complete video-KYC. In January 2024, RBI restricted Paytm Payments Bank over compliance and KYC failures.
Related concepts
- Letter of undertaking
- Legal Entity Identifier
- Ponzi scheme
- Chit fund
- Subprime lending
- Systemic risk
- Stress test