Operational Aspects of KYC
Principles & Practices of Banking | Unit 1 Chapter Notes
Customer Acceptance Policy, six CIP trigger events, OVDs (PAN is NOT one!), beneficial owner thresholds, Aadhaar OTP account limits, V-CIP, Digital KYC, CKYCR/CERSAI, wire transfer rules, and periodic updation (2-8-10 years) — everything examiners love to test from this chapter.
📌 Why This Chapter Matters in JAIIB
Chapter 3 is where the Chapter 2 theory becomes operational practice. Expect 5–8 questions every attempt — from OVD identification (PAN is the classic wrong answer), the 6 CIP trigger events, beneficial owner thresholds (25% for companies, 15% for others), Aadhaar OTP account limits, V-CIP / Digital KYC rules, CKYCR upload timelines, wire transfer thresholds, and the 2-8-10 periodic updation schedule. Every number in this chapter has appeared in past papers.
Customer Acceptance Policy (CAP)
The Customer Acceptance Policy (CAP)of a bank lays down the criteria for accepting a customer from the perspective of ML/TF risks. It is one of the four mandatory elements of a bank’s KYC Policy (see Chapter 2). RBI’s KYC Directions 2016 prescribe the following norms that every bank’s CAP must include:
No anonymous or benami accounts
No account to be opened in a fictitious, anonymous, or benami name under any circumstances.
No account if CDD cannot be done
Account not to be opened if CDD procedure cannot be completed due to customer non-cooperation or unreliable documents.
No transaction without CDD
No transaction or account-based relationship to be initiated without completing the CDD procedure.
Acting on behalf clearly defined
Circumstances in which a customer may act on behalf of another person or entity must be clearly spelt out in the policy.
Sanction list check
Identity of prospective customer must be checked against sanction lists circulated by RBI — no account for sanctioned persons.
PAN verification
Permanent Account Number (PAN) to be obtained and verified through the facility of the issuing authority.
Digital signature verification
Digital signature of any e-document submitted by the customer must be verified.
Consent for optional information
Mandatory KYC info is specified in the Policy. Optional/additional information to be obtained only with prior consent, and only after account is opened.
Joint accounts: CDD for all
In joint accounts, CDD procedure must be carried out for every joint account holder — no exceptions.
⚠️ Exam Trap — CAP Cannot Deny Basic Banking
The Customer Acceptance Policy must NOT result in denial of banking or financial services to members of the general public, especially those who are financially or socially disadvantaged. If an existing customer fails to comply with KYC guidelines, the bank may close the account only after giving due notice.
Customer Identification Procedures (CIP) — When & How
Customer identification means identifying and verifying identity using reliable, independent source documents, data, or information. CIP is not just for account opening — there are six distinct triggers where identification is mandatory.
🧠 6 Trigger Events for CIP — Must Memorise All Six
Opening an account or establishing any account-based relationship
Threshold: Always required — no threshold
Doubt about authenticity, adequacy, or correctness of existing customer's information
Threshold: Whenever doubt arises
International wire transfer for a non-account holder
Threshold: ANY value — no threshold at all
Selling any product (including third-party) or loading/reloading prepaid/travel cards
Threshold: Value exceeding ₹50,000
Transaction or series of connected transactions for a walk-in customer
Threshold: Value exceeding ₹50,000
Doubt that customer is intentionally structuring transactions to stay below threshold
Threshold: Below ₹50,000 but structuring suspected
⚠️ Classic Exam Trap — International Transfer Threshold
For international transfers of a non-account holder, CIP is required for ANY value— there is no minimum threshold of ₹50,000. Options “₹50,000 and above” or “over ₹50,000” are wrong. The correct answer is “any value”. This has appeared in nearly every JAIIB attempt.
Officially Valid Documents (OVDs) — Only Six
The following documents have been notified as OVDs under KYC Directions. PAN Card is not in this list — a source of the most common mistakes in JAIIB.
| # | OVD | Note |
|---|---|---|
| 1 | Passport | Also valid for NRIs — certified copy accepted |
| 2 | Driving Licence | State-issued; contains address and photo |
| 3 | Proof of possession of Aadhaar number | Not the card itself — the Aadhaar number proof |
| 4 | Voter's Identity Card (ECI) | Issued by Election Commission of India |
| 5 | Job Card issued by NREGA | Duly signed by an officer of the State Government |
| 6 | Letter issued by National Population Register (NPR) | Containing name and address details |
🚨 PAN Card is NOT an OVD
PAN Card does NOT appear in the list of Officially Valid Documents. PAN or Form 60 is a separate mandatory requirement for KYC — but it is not an OVD. When a question asks to identify which is NOT an OVD, PAN Card is always the answer. Proof of possession of Aadhaar number, NREGA Job Card, and NPR Letter ARE OVDs.
Address-Only Proof Documents (Limited Purpose)
If an OVD does not have an updated address, the following can be used for address only. An OVD with current address must be submitted within 3 months:
⚠️ 3-Month Rule
When an address-only document is accepted, the customer must submit an OVD with their current address within 3 months. For foreign nationals whose OVD has no address — a Government-issued document from the foreign jurisdiction + letter from the Foreign Embassy or Mission in India is accepted.
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