Were you surprised that your bank asked you to update your Know Your Customer (KYC) details even when you have been a customer with them for long years? The request to provide your KYC details may come as an irritant to you, but the bank is mandated by the Reserve Bank of India to periodically update the customer identity and address that their services are being used by the authorised person and that the banking channels are not be misused. KYC involves simple process of providing the latest identity and address proofs to the bank, which is initially done at the time of opening a bank account and is updated at periodic intervals.
So what are the requirements relating to updation of KYC periodically? Are the requirements different for different customers? And what are the consequences of not complying with the banks’ request for refreshing your KYC details?
Banks seek KYC updates at different intervals for different clients based on their risk-categorisation. Regulations require banks to categorise customers in low-risk, medium-risk and high-risk.
The RBI has allowed banks to categorise these three types of customers according to their own nomenclature which could be something like Level-1, Level-2 and Level-3. Customers which banks feel could be of higher risk than any of these categories such as Politically Exposed Persons can be categorised even higher. The criteria for categorisation would depend on the risk perception of the bank on the basis parameters such as finanical status, social status nature of business, the place of business and turnover.
According to the RBI, those categoised as low-risk customers should be asked to update KYC details once in 10 years, for medium risk once in 8 years and for high-risk customers once in two years. This would involve providing identification and address proof. Customers who are minors have to submit fresh photograph on becoming major.
The consequences for not complying with the bank’s request for update of KYC details could lead to closure of your account in extreme cases. However, before resorting to closure, the bank will have to impose ‘partial freezing’ of the account where initially further debits are not allowed while credits will be permitted. If the KYC details continue to be missing even after this, the bank will then take the step of stopping credits into the account.
However, it is mandatory for the bank to give you adequate notice before resorting to such steps. The initial notice period has to be three months, followed by a reminder for a period of another three months. Partial freezing would be allowed after the expiry of these six months. If KYC details are not available even after another six months, the bank can take the step of disallowing all debits and credits, which would result in the account being categorised as ‘inoperative’.