RBI relaxes client due diligence measures for NBFCs

KYC will be required every ten years for low risk and eight years for medium risk individuals, from five and two years respectively

The Reserve Bank of India (RBI) has relaxed the client due diligence measures for existing clients of Non-Banking Finance Companies (NBFCs) based on risk categorisation. Accordingly, full know-your-customer (KYC) exercise will be required to be done at least every 10 years for low-risk and at least every eight years for medium-risk individuals and entities, taking into account whether and when client due diligence measures have previously been undertaken and the adequacy of the data obtained.  

Earlier, for low- and medium-risk categories, the requirement was not less than once in five years and two years, respectively.

RBI also said that NBFCs need not seek fresh proof of identity and address at the time of periodic updation, from those customers who are categorised as low risk, in case of no change in status with respect to their identities and addresses. RBI decided to relax the requirements in the light of practical difficulties and constraints expressed in obtaining and submitting fresh KYC documents. "A self-certification by the customer to that effect should suffice in such cases. In case of change of address of such low risk customers, they could merely forward a certified copy of the document (proof of address) by mail/post, etc," said RBI.

According to RBI fresh photographs will be required to be obtained from minor customer on becoming major. Besides that if an existing KYC compliant customer of NBFC desires to open another account in the same NBFC, there should be no need for submission of fresh proof of identity and/or proof of address for the purpose, RBI said.

However, the central bank said that NBFCs would need to continue to carry out on-going due diligence with respect to the business relationship with every client and closely examine the transactions in order to ensure that they are consistent with their knowledge of the client, his business and risk profile and, wherever necessary, the source of funds.

RBI decided to relax the requirements in the light of practical difficulties and constraints expressed in obtaining and submitting fresh KYC documents at frequent intervals as the relative documents submitted earlier specially by low-risk customers have remained unchanged in most of the accounts.