KYC (Know Your Customer)

By Manu Rao | Updated March 2026

What Is KYC?

Know Your Customer (KYC) is a regulatory process through which banks, financial institutions, and regulated entities verify the identity, address, and financial profile of their customers. In India, KYC is a mandatory compliance requirement governed by the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI), and other sector-specific regulators.

For foreign investors establishing a company in India, KYC is the first practical hurdle. You cannot open a bank account, file for incorporation, subscribe to shares via FC-GPR, or obtain a PAN card without completing KYC. Getting this right from the start prevents weeks of delays.

Legal Framework

KYC requirements in India are anchored in multiple laws and regulations:

• Prevention of Money Laundering Act, 2002 (PMLA) — Section 12 mandates that every banking company, financial institution, and intermediary verify client identity and maintain records. The PMLA Rules, 2005 (particularly Rules 2 and 9) prescribe detailed KYC procedures.
• RBI Master Direction on KYC — RBI/DBR/2015-16/18, updated regularly, is the primary directive for banks. It covers Customer Due Diligence (CDD), Enhanced Due Diligence (EDD), risk categorization, and ongoing monitoring.
• SEBI KYC Registration Agency (KRA) Regulations, 2011 — Mandates KYC for all securities market participants, with centralized KYC through KRAs like CAMS KRA, CVL KRA, or DotEx KRA.
• FEMA (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 — Requires AD banks to perform KYC on foreign investors before processing FDI transactions.
• Companies Act, 2013 — Directors and subscribers must provide KYC documents during incorporation and annually via DIR-3 KYC.

Types of KYC in India

KYC requirements vary depending on the entity type and the activity:

1. Bank Account KYC

This is the most common form. To open a current account for an Indian company with foreign shareholders, the AD bank requires KYC for:

• The Indian company itself (Certificate of Incorporation, PAN, registered office proof, board resolution)
• All directors (passport, address proof, PAN/DIN, photograph)
• All beneficial owners holding 10% or more (as per RBI's beneficial ownership guidelines — reduced from 25% in 2023)
• The authorized signatories

2. Director KYC (DIR-3 KYC)

Every person holding a Director Identification Number (DIN) must file DIR-3 KYC annually with the Ministry of Corporate Affairs by September 30. This applies to both Indian and foreign directors. The form requires:

• Personal details (name, father's name, date of birth, nationality)
• Current address (verified with utility bill or bank statement)
• PAN (for Indian residents) or passport (for foreigners)
• Unique personal mobile number and email address
• Verification by a practicing professional (CA/CS/Cost Accountant)

Failure to file DIR-3 KYC results in the DIN being marked as "Deactivated" — the director cannot sign any filings until it is reactivated (with a fee of INR 5,000).

3. SEBI KYC (for Investments)

Foreign Portfolio Investors (FPIs) and any non-resident investing in Indian securities must complete SEBI-mandated KYC through a KYC Registration Agency. This includes the SEBI-prescribed KYC form, identity documents, and the Common Application Form (CAF) for FPIs.

4. GST Registration KYC

When applying for GST registration, the applicant must upload Aadhaar (for Indian promoters), passport (for foreign promoters), PAN of the entity, proof of business premises, and a photograph of the authorized signatory.

KYC Documents Required for Foreign Investors

Foreign nationals face additional documentation requirements compared to Indian residents:

All foreign documents must be apostilled (for Hague Convention countries) or embassy-attested (for non-Hague countries). The apostille or attestation must be current — most banks accept documents apostilled within the preceding 6 months.

Central KYC (CKYC)

India introduced the Central KYC Registry (CKYCR) in 2016, managed by CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India). The goal is "do KYC once, use everywhere." When you complete KYC with one financial institution, your KYC records are uploaded to CKYCR, and you receive a 14-digit KYC Identification Number (KIN). Other institutions can retrieve your KYC from the registry using this KIN.

In practice, CKYC works well for Indian residents with Aadhaar. For foreign nationals, the integration is less seamless, and most banks still request full documentation even if a CKYC record exists.

Video KYC (V-KYC)

RBI permitted Video-based Customer Identification Process (V-CIP) through its January 2020 circular. Banks can now complete KYC remotely via a video call with the customer. This is significant for foreign investors who may not be physically present in India. During V-KYC:

• A bank official conducts a live video call
• The customer displays their original passport and other documents
• The official captures a live photograph and records the session
• OTP verification is done on the registered mobile number
• Geo-tagging of the customer's location is captured

Not all banks offer V-KYC for non-residents, and some require at least one in-person visit for high-value accounts. But the availability of V-KYC has significantly reduced the time required for foreign directors and shareholders to complete account opening.

Enhanced Due Diligence (EDD)

RBI's Master Direction requires Enhanced Due Diligence for high-risk customers, including:

• Non-resident customers — all foreign investors are automatically classified as medium or high risk
• Politically Exposed Persons (PEPs) — current or former senior government officials, their family members, and close associates
• Customers from high-risk jurisdictions — countries identified by FATF as having strategic deficiencies in AML/CFT
• Complex or unusual ownership structures — multi-layered holding companies, trusts, or nominee arrangements

EDD means the bank collects more documents, conducts more thorough background checks, requires senior management approval, and monitors transactions more closely. Foreign investors should expect this — especially those from FATF grey-listed countries.

Ultimate Beneficial Owner (UBO) Identification

Under the PMLA Rules (Rule 9) and RBI's Master Direction, banks must identify the Ultimate Beneficial Owner — the natural person who ultimately owns or controls the customer entity. The thresholds are:

• Companies — Natural person holding more than 10% of shares or voting rights (reduced from 25% in 2023)
• Partnerships — Natural person with more than 15% of capital or profits
• Trusts — Settlor, trustee, protector, and each beneficiary holding more than 15%

For multi-layered structures (e.g., a US LLC owned by a Cayman fund managed by a UK GP), the bank traces the ownership chain up to the natural person(s). This can be documentation-intensive, and banks often send multiple rounds of queries.

Common Mistakes

• Submitting non-apostilled documents. Indian banks are strict about apostille and attestation requirements for foreign documents. A notarized-only passport copy will be rejected — it needs to be apostilled by the competent authority in the issuing country.
• Forgetting DIR-3 KYC. Foreign directors often do not realize they must file DIR-3 KYC annually by September 30. A deactivated DIN blocks all company filings until reactivated.
• Using expired documents. Banks typically want address proof dated within 3-6 months. A utility bill from 18 months ago will be sent back.
• Incomplete UBO chain. If a Singaporean holding company owns the Indian entity, the bank will ask for KYC of the Singaporean company and trace upward until it finds natural persons. Sending only the Singapore company's documents without the UBO chain causes repeated queries.
• Not applying for PAN early enough. Foreign investors need an Indian PAN for KYC. Applying for PAN through Form 49AA takes 2-4 weeks if done correctly, longer if there are errors. Start this before opening bank accounts.

Practical Example

Sarah, a British entrepreneur, is incorporating a Private Limited Company in India with her Indian co-founder Raj. She will hold 70% equity as the foreign shareholder and serve as a director. Here is her KYC journey:

Step 1 — PAN Application: Sarah applies for an Indian PAN through Form 49AA, submitting her UK passport (apostilled by the UK Foreign, Commonwealth & Development Office). PAN is issued in 3 weeks.

Step 2 — DIN Application: Sarah applies for a DIN as part of the SPICe+ incorporation form. Her passport and address proof (a Barclays bank statement dated within 3 months, apostilled) are uploaded.

Step 3 — Bank Account Opening: The company opens a current account with an AD bank. The bank requires: (i) Certificate of Incorporation, (ii) PAN of the company, (iii) board resolution for account opening, (iv) KYC of both directors — Sarah submits her apostilled passport, apostilled bank statement, Indian PAN card, and a passport photograph. Raj submits his Aadhaar, PAN, and a utility bill. (v) UBO declaration identifying Sarah as the UBO with 70% shareholding.

Step 4 — Video KYC: Since Sarah is in London, the bank conducts V-KYC via video call. She shows her original passport, the bank captures a live photo, and OTP verification is done on her UK mobile number.

Step 5 — Annual DIR-3 KYC: Every September, Sarah's CS files DIR-3 KYC for her DIN, confirming her current address and contact details.

Total time from PAN application to functional bank account: approximately 5-7 weeks.

Key Takeaways

• KYC is required for bank accounts, company incorporation, investments, and GST registration — it is the gateway to operating in India
• Foreign documents must be apostilled (Hague countries) or embassy-attested (non-Hague) — notarization alone is insufficient
• DIR-3 KYC is an annual filing for all directors — missing it deactivates the DIN
• Banks trace UBO chains up to the natural person — prepare the full ownership structure in advance
• Video KYC allows remote completion for foreign investors not physically in India
• Apply for PAN early — it is needed for almost every subsequent step
• Foreign investors are automatically classified as medium/high risk, triggering Enhanced Due Diligence

Need help navigating KYC for your Indian company? Beacon Filing manages the complete KYC process for foreign directors and investors, from PAN application to bank account activation.