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Clunky KYC norms put off investors

The know-your-client form may look innocuous but this document can turn a mutual fund investor's life upside down. Kayezad E Adajania and Joel Rebello report.

business Updated: Feb 22, 2013 22:54 IST

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 this simple and innocuous looking form can raise havoc in your investing life.

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.

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 do not have to do KYCs again and again.

KRA inter-operability is a distant dream
At present, there are five KRAs-CAMSKRA (set up by Computer Age Management Services), 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 NSE; and Karvy Data Management Services Ltd.

SEBI also mandated that intermediaries upload KYC records on the centralised system. Here's where the KYC of Devitoma Kar, 31, a homemaker based in Rupnagar, Punjab - and apparently many other investors-got stuck. Kar opened a demat account with a stock brokerage firm in 2010 and forgot about it. 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).

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, MD, iFast Financial India Pvt. Ltd.

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.

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 if you don't own a house and stay in a rented accommodation?

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 as a valid address proof for opening a new account, in December.

What should you do
VN Kulkarni, chief counsellor, Abhay credit counselling centre, specifies six identity proofs accepted by banks, according to RBI: PAN, Aadhaar, voter identity card, passport, identity cards issued by Centre or state, and driving licence. For address proof, 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 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".

Hope comes from P Chidambaram. "It's important that 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," the FM said recently. He added wryly that it was easier to invest in gold ("there are no KYC norms in buying a gold coin") and stated, "Life must be made simple."

With inputs from Vivina Vishwanathan