How hard can it be to fill up a one-page form that asks for simple things, such as your name, age, address, telephone number and sundry details that you would have at your fingertips? Take the case of the know-your-client (KYC) form that asks for these and a few more details; nothing, of course, that you wouldn’t, or shouldn’t, know. As per capital markets regulator Securities and Exchange Board of India (Sebi)’s guidelines, if you wish to invest in a mutual fund (MF), you must be KYC-compliant. In other words, you need to fill out the KYC form and have it approved by any one of the five KYC registration agencies (KRAs). But looks can be deceptive. This simple and innocuous looking form can raise havoc in your investing life.
Devitoma Kar, 31, a homemaker based in Rupnagar, Punjab, found this the hard way. On the back of rising equity markets in October 2012, Kar tried to open an MF investment account with Fundsindia.com. She was particularly interested in investing in gold MFs. Along with the account opening form, she duly filled out the KYC form (since she was a first-time MF investor) and sent it to the portal along with a copy of her residence and identity proofs. Weeks later, her KYC was rejected.
She later found out that there was another KYC form— in her name—pending at one of the KRAs; unless she filled and completed that form, her new KYC (through Fundsindia.com) would not go through, she was told by an email that Fundsindia.com sent her almost a month later. “I had no idea what the other KYC was; I did not know what to do,” Kar told us over telephone from Rupnagar, where she now lives at the Indian Institute of Technology campus with her husband who teaches there. It took Kar three months to sort out the mess; in January 2013, her Fundsindia.com account was finally ready, allowing her to invest in MFs.
Like Kar, many investors face different problems in getting their KYC done. And it’s not even about filling a wrong detail here or leaving a blank there. Despite filling out details diligently, there is still a chance that your KYC application gets rejected. One of the biggest problems that investors face is because of lack of coordination among various KRAs. Here’s what it means.
In October 2011, Sebi said that if you wished to invest in the stock markets, either through a stock broker, MFs or portfolio management services and so on, you needed to do your KYC, just once. This single KYC would have to be done “in-person” but will be valid through all such stock market intermediaries. Further, Sebi also allowed some firms to set up KRAs so that you—the investor—do not have to do KYCs again and again. These KRAs would store your KYC records and would share your KYC record among them (as multiple KRAs are allowed to be set up). The idea: Do a KYC with any intermediary who will then approach any KRA that it has tied up with and upload your details. Then if you approach another intermediary, it should be able to pull out your earlier KYC and confirm your KYC status.
KRA inter-operability is a distant dream
At present, there are five KRAs—CAMSKRA (set up by Computer Age Management Services (Cams), one of the two largest registrar and transfer agents to service MFs); CDSL Ventures Ltd (CVL, a division of Central Depository Services (India) Ltd); NSDL Database Management Ltd (NDML, a subsidiary of National Securities Depository Ltd); DotEx International Ltd, a unit of the National Stock Exchange; and Karvy Data Management Services Ltd.
Last year, Sebi also mandated the intermediaries to upload your KYC records on the centralized system (through any KRA). Here’s where Kar’s—and apparently many other investors’—KYC got stuck. Kar had opened a demat account with a stock brokerage firm in 2010 and forgot about it, eventually. In 2012, Sebi instructed intermediaries to upload their existing clients’ KYC details in the KRA system in a phased manner. Mainly stock brokers were affected by this as KYC was mandated long back to open demat accounts. Kar’s existing KYC details with her stock broker (done when she had opened her stock broking account) also got uploaded at NDML Ltd (a KRA). “But it turned out that my KYC done at that time was incomplete. When I tried to do a (fresh) KYC with Fundsindia.com last year, my new KYC clashed with my existing KYC (which was already uploaded) and things came to a halt. After a lot of back and forth, I was forced to close my stock broking account, make my earlier KYC redundant and then fill up a new KYC form all over again. Then, my KYC got approved,” she says.
Fundsindia.com typically uploads its clients’ KYC detail on CVL KRA. If inter-operability works in true spirit, CVL KRA should be able to accept the remaining details, irrespective of which intermediary (Kar’s earlier stock broker or Fundsindia.com) submits the KYC documents afresh.
Apart from this, if your KYC is done, you should also be able to check your KYC status at any of the KRAs’ websites and get a confirmation. For instance, if your KYC application gets registered with one KRA, your status should show “KYC Complete” on all KRA websites. “Unfortunately, many times this does not happen. If the KYC process is efficient, the investor should be able to give KYC documentation through any KRA. Isn’t that what a uniform KYC meant to do?” says Rajesh Krishnamoorthy, managing director, iFast Financial India Pvt. Ltd.
“Inter-operability (connectivity) between the five KRAs is still in process; it’s not yet complete. This is a big problem, but we expect it to be resolved soon,” says Srikanth Meenakshi, director, Fundsindia.com.
The problem compounds when you submit your KYC application form at the time of investment, only to be rejected later. One of Shashank Joshi’s (a Mumbai-based MF distributor) client’s KYC got rejected almost 15 days after she had submitted her KYC and investment application forms. Once the KYC got rejected, the fund house refunded her money. “In the meantime, if the market moves sharply, the investor loses out,” says Joshi. Like Kar, Joshi’s client had opened a stock broker’s account in 2008; her stock broker subsequently uploaded her KYC records that turned out to be incomplete.
When any change means trouble
When Kolkata-based Paromita Haldar Roy got married in 2009—she subsequently took up a job at Cognizant Technology Solutions Corp.—she chose to retain both her maiden name (Haldar) as well her husband’s last name (Roy). Her plans hit the roadblock when she tried to open a salary bank account in her new job, at HDFC Bank Ltd which did not allow her to use both her names. That’s not all. When she tried to apply for a ration card, she was told to put one of the two names in brackets. Her voter identity and Aadhaar cards accepted both her names. Finally, she opened her bank account that does not carry her maiden name. “As a result, my full name appears differently in my office, bank account, Aadhaar card and the ration card,” says Haldar Roy.
But can banks insist on only one last name and not two, like in Haldar Roy’s case? “No. the account holder has a choice to use her maiden name, married name or both these names or she can even use neither, provided she submits a relevant document such as a marriage certificate as proof,” says a Reserve Bank of India (RBI) spokesperson, who did not want to be named.
As part of your KYC, you also have to submit proof for your residential address, both current and permanent. But what happens if you don’t own a house and stay in a rented accommodation? Hari Unnikrishnan, 32, a professor, wanted to open a bank account with South Indian Bank in Bangalore when he moved there in 2012. As part of his KYC, he had to submit a residence proof. Unnikrishnan had a problem. Since he lived with his friend in Bangalore, the rent agreement was not in his name. It’s only when he requested his college to write a letter certifying that he teaches there, that his KYC was complete and he was allowed to open a bank account. “Three months later when I took a place on rent, I took my rent agreement and updated my new address on it,” says Unnikrishnan.
That is not all. The slow enrolment of Aadhaar numbers has meant that some banks still do not accept Aadhaar as a valid proof. Those who wish to open a savings account have to either produce a ration card, a rental agreement or a utility bill as proof of address. This, in spite of RBI allowing banks to accept Aadhaar cards issued by the Unique Identification Authority of India (UIDAI) as a valid address proof for opening a new account, in December. Before the December notification Aadhaar was just considered as a proof of identity and not an address proof as bankers were confused after a previous RBI notification said lenders have to “satisfy themselves about the current address of the customer by obtaining required proof of the same…”
What should you do
Says V.N. Kulkarni, chief counsellor, Abhay credit counselling centre: “The recent rise in threats related to terrorism has put KYC in the spotlight and unlike western countries there is no single social security number here, hence the emphasis on documentation.”
Kulkarni specifies that there are six different identity proofs accepted by banks, according to RBI regulations. They are Permanent Account Number, Aadhaar, voter identity card, passport, identity cards issued by central or state governments and driving licence. For address proof, there is electricity bill, telephone bill or rent agreement.
“For young workers and students who may not have a residential proof, banks accept a letter from the company in which case the statements will be sent to the office of the person,” says Kulkarni, who also adds that “ration cards are also not accepted as address proof by banks because of an increase in number of duplicate cards and a government notification debarring the acceptance of ration cards”. However, many banks claim that they accept ration cards.
As we cut through the KYC noise and clutter, hope comes from finance minister P. Chidambaram. “It’s important that the KYC norms within a market regulator should converge and become one set of KYC norms. The next step is to converge the KYC norms of different regulators,” he said at a press conference in Mumbai last week when he mourned why retail investors get scared from investing in financial instruments. And when he blamed this on why it is easier for investors to invest in gold (“there are no KYC norms in buying a gold coin”) instead, little wonder the audience gave him a big round of applause. “Life must be made simple,” said Chidambaram.
Vivina Vishwanathan contributed to this story.