Modern-age banking and investment avenues have significantly developed with time, and accordingly, their rules and regulations and their requirements also have evolved. One of them is KYC!

You must have come across the term KYC quite a lot of times, haven’t you? But then, what do you mean by KYC? Why do banks do KYC? What are the various documents banks require to complete KYC, and what are the different KYC processes? Let us look at the answers to these questions through this blog.

1. What do you mean by KYC?

Know Your Customer, popularly known as KYC, in simple words, is a process followed by banks and other financial institutions to verify the identity and address of customers who do financial transactions with them. The process is mandatory for every financial institution and made compulsory by the Reserve Bank of India. KYC is imperative for account opening, mutual fund investments, loan applications, applying for a credit card, investing in FDs, RDs, etc.

2. What are the documents required to do KYC while opening a bank account?

While opening a bank account, you must submit PAN as ID and address proof and Aadhar number/ enrolment number, along with a recent photograph.

3. What are the KYC documents for address proof?

• Electricity bill (not more than three months old)
• Telephone bill (not more than three months old)
• Water bill (not more than three months old)
• Passport
• Driving license
• Voter’s card
• Valid rent agreement
• Valid identity cards with address printed and issued by colleges affiliated to ICAI, ICWAI, ICSI, Bar Council, etc. can also be considered as address proof for KYC

4. What are the documents for identity proof?

• Voter ID card
• Passport
• UID that comes with the Aadhar card
• PAN card with photograph
• Documents with a photo of the document holder, issued by State, or Central Government, regulatory bodies, etc.
• Valid identity cards issued by colleges affiliated to ICAI, ICWAI, ICSI, Bar Council, etc. can also be considered as address proof for KYC
• A valid credit or debit card with the individual’s name and address

5. What are the different types of KYC verification?

The two types of KYC verification – Aadhar-based KYC and in-person KYC. Let us look at both these types of KYC verifications.

Aadhar-Based KYC

Aadhar-based KYC can be done online. So, if you have an internet connection, you can do Aadhar-based KYC. However, you need to scan and upload a copy of your original Aadhar card to do the process.

Let us consider the example of mutual fund investments. If you want to invest in a particular mutual fund and opt for an Aadhar-based KYC, you can only invest INR 50,000 annually. However, if you’re going to invest more, you need to do an in-person KYC verification.

In-Person KYC Verification

As the name suggests, in-person KYC verification is done offline, i.e., in-person. To complete the in-person KYC verification process, you need to visit a KYC kiosk or the bank and authenticate your identity through Aadhar biometrics. Nevertheless, if it isn’t possible for you to see the bank in person, you can call the bank representative or the third-party vendor to send its KYC executive to your home or office and get the KYC done.

These days, and especially given the pandemic, banks or financial institutions complete KYC through video call, wherein you are required to show your Aadhar card and other documents as requested.

6. Are you required to do periodic KYC even after you’ve done it?

Yes. Banks are required to update their KYC records periodically. There are two reasons for it. First, it is a part of their measures to prevent fraud concerning customer accounts, and secondly, it forms a part of their ongoing due diligence on bank accounts. The period after which the bank may call or connect with you to update your KYC records varies based on the type of account and factors such as the bank’s risk perception. However, yes, the bank may connect with you after a specific period to update their KYC records.

7. Is it necessary to complete the KYC process for every account that you open in a bank?

No. KYC is required only for the first time when you open a KYC-compliant account in a bank. You wouldn’t need to submit the same documents while opening a new account in the same bank.

KYC is an essential process that helps banks and financial institutions verify the identity of their customers. It is a process that’s important from the banks’ security perspective and thus avoids security concerns such as fraud, fake identity, etc. We hope this blog was helpful enough to help you know about KYC. For more updates, keep following Arth Shikshan.

Permanent Account Number, popularly known as PAN, is an electronic system through which the information concerning the tax of a particular person or a company is recorded against a single PAN. PAN is unique, and hence, no two tax-paying individuals, companies, or entities can have a single PAN. Let us now look at a few questions concerning the benefits of a PAN card, the application process of PAN, documents required to apply for a PAN, etc.

1. What are the different types of PAN?

The various types of PAN include,

• IndividualIndividual
• Company
• Trusts
• Society
• HUF- Hindu Undivided Family
• Foreigners
• Partnerships/ Firms

2. Who issues a PAN?

It is the Income Tax Department, Government of India that issues a PAN.

3. Is a PAN lifetime?

Yes, a PAN’s validity is lifetime.

4. What are the different documents required to apply for a PAN card?

To apply for a PAN, you need to submit two types of documents – Proof of Address (POA), and Proof of Identity (POI).

Apart from the above, foreigners also can apply for a PAN card. To do so, they need to submit passport PIO/ OCI issued by the Indian Government, bank statement of the country of residence, and a copy of the NRE bank statement in India.

5. How to apply for a PAN?

You can apply for a PAN through either the online or the offline process. Let us look at how to apply for a PAN online and also the step-by-step process to apply for PAN offline.

Online PAN Application Process

• Go to the website of NSDL or UTIITSL
• Fill in the required form with your details furnished in it
• Submit the necessary documents and pay the processing fee
• After the completion of the process, the authorities will send the PAN to the given address

Offline PAN Application Process

• Visit the authorized PAN center and the get the PAN application form
• Fill in the application form
• Attach the required documents
• Submit the form, along with the processing fee
• After the completion of the process, the authorities will send the PAN to the address you’ve given

6. How much does it cost to apply for a PAN?

The charges for applying for a PAN are INR 93 + GST. So the total cost is INR 110 for an Indian communication address.

7. How to reapply for a PAN in the case of a lost PAN card?

Lost your PAN card, now, what to do? Well, if that happens, do not panic or get hassled. You can apply for a duplicate PAN card online or offline. Follow almost the same process that you did when applying for the PAN card in the first place. Go to the NSDL or UTIITSL website, fill the form 49-A if you are an Indian citizen, or 49-AA if you are a foreigner, pay online for the duplicate PAN card copy. The authorities will dispatch your PAN card within 45 days.

8. Why do you need a PAN card?

Having a PAN simplifies and expedites a lot of essential processes. Accordingly, some of the benefits of a PAN card include,

• Proof of AddressProof of Address
• Proof of Identity
• Business registration
• Tax filing
• Get a phone connection
• Apply for a gas connection
• Open a Demat account
• Invest in mutual funds
• To be eligible to open and operate bank accounts
• Do financial transactions
• To claim tax refund

Applying for a PAN card benefits you in several ways. In a way, it establishes your credibility and signifies that you are a responsible citizen of India. So, if you do not already have a PAN card, you must apply for one and get it to be eligible for the above benefits. Keep following us for more on financial literacy.

As a digital-age banking customer, you must have come across the terms NEFT, RTGS, and IMPS. Of course, all these are associated with online funds transfer. However, have you ever wondered what these terms individually mean, the advantages and disadvantages of each one, how they are different from each other, and how to use them? If you haven’t already, this blog from Arth Shikshan answers it before you do.

NEFT

What is NEFT?

Introduced by RBI, NEFT stands for National Electronic Funds Transfer. It enables quick money transfer anywhere across India. However, to facilitate fund transfer through NEFT, the branches of the banks involved must be NEFT-enabled. Let us now look at some of the pros and cons of NEFT.

Advantages and Disadvantages of NEFT

Advantages of NEFT

• Near real-time funds transfer
• Secure funds settlement
• Positive credit confirmation to beneficiary account to the remitter through email/ SMS
• Available throughout the year, 24/7, and seven days a week

Disadvantages of NEFT

• The method is secure, but as an online fund transfer system, data remains vulnerable to hacking.
• People unaware of online transfer systems may be unable to transfer funds through NEFT

How to use NEFT for online funds transfer?

Let us now see how to do NEFT transfer in ten simple steps.

1. Sign-in into the internet banking page of your bank1. Sign-in into the internet banking page of your bank

2. On the home screen, click on the Fund Transfer option

3. Select the NEFT option

4. Select the proper beneficiary from the list

5. If the beneficiary isn’t already added, click on the Add Beneficiary button.

6. Enter the required details of the beneficiary, verify them, and confirm

7. You receive a four-digit OTP on your registered mobile number to confirm the addition of the new beneficiary

8. Wait until the beneficiary is added to the account

9. Now, choose the beneficiary and select the bank account from which the money will be transferred\

10. Enter the right amount and click on the Confirm button to initiate the NEFT transfer

RTGS

What is RTGS?

Launched in 2004 by the RBI, RTGS is the short form of Real-Time Gross Settlement. Real-time enables continuous real-time fund transfers, which refers to processing instructions at the moment the bank receives them. On the other hand, gross settlement refers to handling fund transfer instructions on an instruction by instruction basis.

Advantages and Disadvantages of RTGS

Advantages of RTGS

• No maximum limit for RTGS transfers
• All-day availability of funds transfer
• Enablement of a real-time fund transfer through the bank branch
• Elimination of the need to issue a demand draft or a physical cheque
• No fee or charges for the transfer
• Money can be transferred anytime and from anywhere

Disadvantages of RTGS

• The minimum amount to do RTGS is INR 2 lac with no upper limit
• It does not allow to track the transaction to its customers

How to do an RTGS transfer?

Let us look at the steps to do RTGS transfer online.

1. Sign in to the internet banking of your bank

2. On the home page of the website, click on Fund Transfer

3. Select the beneficiary option

4. Choose the RTGS option from the inter-bank payment options available

5. Add a beneficiary while providing the required details

6. Click on Accept Terms and Conditions and confirm

7. You will receive a high-security password to your mobile number

8. Enter the password to authorize the beneficiary

9. The beneficiary addition takes around 30 minutes to a few hours

10. Once the beneficiary is added, go to Fund Transfer/ Payment Transfer tab and click on RTGS

11. Enter the required amount and select the appropriate beneficiary

12. Click on Accept Terms and Conditions and confirm to process the transfer

IMPS

What is IMPS?

IMPS is the short form of Immediate Payment Service. It was introduced by the RBI and the NPCI and initiated by the latter in 2010 through a pilot project with four major banks. However, over the years, it has grown to be used by over 150 banks throughout the country. It enables instant funds to transfer through laptop and mobile and is available at all times. Banks charge a nominal fee for IMPS transfers.

Advantages and Disadvantages of IMPS Transfer

Advantages of IMPS Transfer

• vailable 24/7
• Instant funds transfer
• IMPS transfer is available online
• Availability of intrabank and interbank transfer
• No minimum amount on transfer
• Transfer is available SMS, mobile, net banking, ATM, etc.

Disadvantages of IMPS Transfer

• There’s a limit on the maximum transaction

How to do an IMPS transfer?

Here a step-by-step process of IMPS transfer.

1. Log in to your bank’s net banking portal or website.

2. Go to the Funds Transfer option.

3. Enter the recipient’s MMID and mobile number. However, you can also enter the account number of Aadhar or the IFSC number.

4. Enter the transfer amount

5. Enter your PIN to authenticate the transfer request

6. You and the recipient receive SMS confirmation on the successful transfer of the funds.

Online banking has revolutionized banking, and RTGS, IMPS, and NEFT have played an instrumental role in transforming banking in terms of pace and convenience. Arth Shikshan hopes you got enough basic information about NEFT, RTGS, and IMPS through this blog. Keep following this space for more insights on financial literacy.

Banking isn’t new to India. It has been a part of the country’s economic ecosystem for over 200 years. It is also one of the sectors that have evolved significantly over the years and have always walked hand-in-hand with time.

Banking now forms an integral part of our lifestyle and our financial habits. It is because we trust banks a lot. However, we have many people, yet unaware of banking basics, such as what banks are, the types of banks, the various nationalized, private banks, etc. Arth Shikshan, through this blog that talks about a few such essential aspects of banking in India. We hope, the blog adds to the banking knowledge of people.

What is a bank?

A bank is a financial institution authorized and licensed to receive deposits, store them, enable its customers to withdraw money whenever required, and loan money. Additionally, banks also provide other financial services such as wealth management, lockers, currency exchange, etc. In India, the country’s banking system is regulated by the Reserve Bank of India (RBI), which is India’s central and regulatory body.

What are the different types of banks in India?

In India, banks are classified as the following.

Commercial Banks

In India, commercial banks are regulated by the Banking Regulation Act, 1949. These banks aim to earn profits. Fundamentally, they accept deposits and give loans to corporates, the government, and the general public. Commercial banks include public sector banks, private sector banks, foreign banks, and regional rural banks. 

Small Finance Banks

As the name suggests, small finance banks aim to provide finance to micro industries, marginal farmers, and a lot of small businesses, and the unorganized sector. These banks are licensed under Section 22 of the Banking Regulation Act, 1949, and are governed by the provision of the RBI Act, 1934, and FEMA. Small finance banks support small businesses, and hence, contribute significantly to the Indian economy.

Cooperative Banks

Banks registered under the Cooperatives Act, 1912 and run by an elected managing committee are called cooperative banks. These banks work on a no-profit no-loss basis, and their target segment mainly includes small businesses, entrepreneurs, industries, and self-employed people across cities. Cooperative banks also cater to the rural parts of India. Their customers across this segment include people involved in activities such as farming, hatcheries, etc. 

Payments Banks

Payments bank is a relatively new segment across the banking cosmos of India and was conceptualized by the RBI. Currently, payments banks have a deposit limited to INR 1 lakh per customer. These banks offer various other services that include net banking, mobile banking, ATM cards, and debit cards.

Nationalized, Private Sector, Foreign Banks, and Small Finance Banks in India

urther to the classification of banks, let us now look at a few banks that fall under the categories we look earlier.

Nationalized Banks:

Bank of India, State Bank of India, Bank of Maharashtra, Indian Bank, Union Bank of India, Central Bank of India, Indian Overseas Bank, Bank of Baroda, Punjab National Bank, Canara Bank, and Punjab and Sindh Bank, and UCO Bank

Private Sector Banks:

HDFC Bank, ICICI Bank, IDFC Bank, IDBI Bank, Bandhan Bank, Axis Bank, Karur Vysya Bank, Karnataka Bank, Jammu, and Kashmir Bank, IndusInd Bank, Federal Bank, etc.

Foreign Banks:

BNP Paribas, HSBC Bank, Qatar National Bank (QPSC), Bank of America, JP Morgan Chase Bank NA, Credit Agricole Corporate & Investment Bank, Deutsche Bank, and many others.

Small Finance Banks:

Capital Small Finance Bank Ltd., Jana Small Finance Bank Ltd., Utkarsh Small Finance Bank Ltd., Equitas Small Finance Bank Ltd., Equitas Small Finance Bank Ltd., and others.

Facilities Provided by Banks in India

Banks provide an extensive range of facilities to their customers to simplify banking and enhance the banking experience. Let us quickly run through the five most significant ones.

1. Banker’s Cheque

A banker’s cheque is a pay order that a bank itself issues by withdrawing the required amount from the payer’s account. It also forms one of the methods of sending money by a bank. The banker issues a cheque in the name of the person or company to whom the customer wants to pay. Customers pay commission to the bank for this service. This facility is used to make local payments.

2. NEFT (National Electronic Funds Transfer)

NEFT is a modern-day electronic funds transfer system that involves online funds transfer from one bank to the other. NEFT does not have any minimum or maximum fund transfer limit. This facility is usually used by people who have bank accounts. However, it can be availed even by people who do not have an account. In the latter case, an individual can deposit cash at the NEFT-enabled branch and issue instructions to transfer funds through NEFT.

3. Bank Draft

Through the bank draft facility, customers, precisely account holders, can send money to other places. It requires account holders to fill a particular proforma with details as requested by the bank. 

The bank issues a draft to the customer after it debits his account with the required amount. Further, the customer sends the draft to the person he is about to pay the money to. The draft recipient deposits the draft with his bank, and the bank credits the amount to his account. The bank intimates the branch, wherein the draft is payable. However, the bank draft is quite a time-consuming process and involves a considerable amount of fees.

4. Cash-Credit

Cash credit is another significant facility wherein a bank loans money based on a customer on his current assets, fixed assets, etc. While giving loans on assets, banks hypothecate them in the banker’s favor.

5. RTGS (Real Time Gross Settlement)

RTGS refers to funds transfer on a real-time and gross basis. In RTGS, there’s no waiting period for the transaction. The system settles the transaction as soon as it is processed. Further, gross settlement refers to settling the transaction on a one-to-one basis without netting or bunching it with any other transaction. But one must note that RTGS payments are final and irrevocable, and take place, and maintained, or controlled by the country’s central bank.

What is online baking?

Online banking is the newest form of banking. It involves customers conducting banking transactions through electronic mediums. It is a one-click banking facility that allows customers to transfer funds, pay bills, open bank accounts, check account statements, make service requests, seek information on various products, services, offers of the bank, apply for loans, etc. through a desktop, laptop, smartphone, tablet, etc.

Some of the services under online banking include electronic funds transfer (IMPS, RTGS, NEFT, etc.), ATMs, mobile banking, internet banking, and many others. It is a convenient form of banking as it allows 24/7 access to the bank account, makes digital payments anytime and anywhere, sends instant notifications and alerts about transactions, and helps customers avoid the hassles of handling a lot of cash and do cash transactions.

About Arth Shikshan

Arth Shikshan is a FinTech initiative that aims to enhance financial literacy by explaining several basic and advanced concepts relating to banking, finance, and financial technology in vernacular languages. It is hopeful about the difference that increasing financial literacy can make to a particular society.