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Relevance Of KYC Norms For Borrowers

Relevance Of KYC Norms For Borrowers

Relevance Of KYC Norms For Borrowers
(Dreamstime)

The Know Your Customer (KYC) policy is an essential part of banking operations, regardless of whether you want to open an account or get a loan. The Section 35A of The Banking Regulation Act, 1949, has clearly stipulated the customer identification guidelines governing the KYC and Anti-Money Laundering (AML) activities.

If you are a home loan aspirant, you must understand the relevance and gravity of the KYC activity.

MakaaniQ tells you more about the relevance of KYC, as an important banking policy.

What is KYC?

Will you ever lend to, or borrow money from someone you do not know? You almost certainly will not, and if you know why it is easy to understand the significance of KYC.

KYC is the process of verifying the identity of customers to prevent identity theft, money laundering, financial fraud and other illegal activities. Banks frame their KYC policies incorporating these four key elements: -

  • Customer Acceptance policy (Bank guidelines are in place and adhered to, for accepting prospective customers)
  • Customer Identification procedures (Verifying the identity of customers using documents acceptable as proof of identity and proof of address)
  • Monitoring of Transactions (Identification regular activities and activities outside the regular activity pattern of customers)
  • Risk Management (Establishing procedures to manage risks)

The process of KYC involves establishing and verifying reliable identity proof documents such as Passport, PAN Card, Voter's identity card, Driving License, Ration Card, Aadhaar card, Bank Passbook, Utility Bills, Rent Agreement and Notarised Affidavits.

The KYC procedure for home loan buyers

The KYC check is used as the first step by the lender while assessing your home loan application. He will ensure that all your KYC documents are in order. Every minute detail and information (related to identity and address proof) is crosschecked from the independent source document (i.e. identity and address proofs). It is mandatory that banks establish the identity and contractibility of every prospective home loan buyer by ascertaining his identity, age, place of residence etc. All primary details are checked and cross verified through various reliable sources and official documents.

As a part of the home loan process, banks, and financial institutions also initiate residence and office address verifications. They also verify the authenticity of original documents through empaneled agencies. These measures are to determine the authenticity of the prospective home loan customer. Loan officers also arrange personal discussion meetings with customers and their family and colleagues to establish the degree of truthfulness of their claims and needs.

The set of KYC documents vary for different types of home loan customers like individuals, partnership firms, companies and Trusts. For non-individuals, lenders will obtain identification proof to verify the legal status of the entity, authorised signatories and beneficial operators/ owners of the account.

A recent passport sized photograph and signature also form an important part of the KYC process.

If there was any change in your residential address, proof to this effect must be in records. You must present this while applying for the home loan. The permanent address proof is really important if you have been changing the house you rented frequently in the recent past.

Similarly, proof to the effect that you have to change your surname after marriage also plays an important role in KYC process.

A mismatch in the signature in the home loan agreement and identity proofs (like PAN Card) can also land you in trouble. It is better to fill up the home loan application form on your own. The Direct Sales Agent (DSA) or any other person should NOT fill it. For many banking transactions, a mismatch in 'signature' is not a trivial thing.

The KYC procedures are done for co-applicants and mandate holders as well while assessing a home loan application.

Last Updated: Tue Aug 30 2016

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