Know Your Customer (KYC) is the first crucial step in credit analysis for any commercial lending firm. The primary objective of this process is to prevent money laundering, and to manage risk and financial frauds.
As per RBI regulations on KYC, the objective of KYC/Anti Money Laundering (AML)/Combating of Financial Terrorism (CFT) guidelines is to prevent banks or Financial Institutions (FIs) from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities. KYC procedures also enable banks and FIs to know and understand their customers and their financial dealings better, and so manage their risks prudently.
KYC is an integral part of the banking process. Regardless of whether it is for retail banking or corporate banking, KYC norms are non-negotiable.
In simple terms, KYC involves four essential steps:
- The identity of the customer: Individual, Partnership, Sole Proprietorship Firm, Company, or LLP
The business’ address: Registered address where business activities are being carried out, such as offices, factories, depots, or warehouses
- Statutory registration: Whether the business is compliant with various statutory registrations pertaining to RoC, Income Tax, GST, etc
- Legality of the business: Whether the business is legal as per Indian laws
To verify the above details, RBI has issued a list of documents which can be submitted to banks and FIs for further due diligence and acceptance.
The KYC process is lengthy and time-consuming since it involves a lot of documentation, compliance checks, and verifications. Often, this can take 2-3 weeks to complete and also entails an enormous cost to banks and FIs.
Although it is a legal mandate for banks and FIs, KYC also creates a miserable experience for customers. Over the year banks and FIs have adopted technology to automate KYC processes. Ideally, minimal customer interaction and contact is needed during KYC, as most data are available on public domain. Asking the customer to submit the same data will only delay the process.
How can Probe42 significantly improve the KYC process?
- Improve cycle time: Access company incorporation documents such as MoA, AoA, DIR-12, segment-wise industry analysis, and director details along with their other directorships
- Improve customer experience: Seamless KYC process is essential to boosting the customer experience and long-term relationships with the bank
- Save Cost: Time is money. So, digitization will not only reduce the cycle time significantly but also replace unwanted paperwork for both customers and banks.
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