With a huge population of middle-class people in India, the lending space is growing exponentially. According to Trading Economics, the value of loans in India increased 12% in July of 2019 over the same month in the previous year. The statistic reveals that today more people apply for loans than ever to fulfil their needs. Particularly, personal loans have been the ultimate financial product for people to meet their unforeseen expenses such as medical emergencies, car repairs, home renovations, travel, wedding and many more. But lending is a risky proposition for lenders because it's hard for them to know whether the person borrowing the money is genuine or a fraud. Therefore, banks and other financial institutions get "Know Your Customer" or KYC done to verify the identity of the customers before they do business with them.
KYC in India stands for 'Know Your Customer.' It is a legal and a mandatory regulatory requirement used for identifying and verifying the details of a customer with the help of reliable and independent information or documents. It helps to counter illegal activities such as money laundering. KYC is practiced not only in the lending sector but also in investments and other banking transactions too. It is an effective tool that helps prevent financial institutions from possible losses and frauds.
The Reserve Bank of India directed all banks, online financial lenders and lending platforms to obtain KYC information to prevent identity thefts, money laundering, financial frauds, signature forgery and other illegal activities. It is an indispensable banking requirement; only when the customer details are verified, a loan can be applied.
As a customer, KYC helps to ensure that the financial services are not being misused as it confirms your authenticity. Through KYC, the banks/online lenders get to see the transparency in your financial dealings, which in turn helps them manage their risks prudently.