DRAFT FOR COMMENTS

RBI/2025-26/--
DoR.AML.REC.No./00-00-000/2025-26

XX, 2025

Reserve Bank of India (Non-Banking Financial Companies – Know Your Customer) Directions, 2025

Introduction

In order to prevent banks and other financial institutions from being used as a channel for Money Laundering (ML) / Terrorist Financing (TF) and to ensure the integrity and stability of the financial system, efforts are continuously being made both internationally and nationally, by way of prescribing various rules and regulations. Internationally, the Financial Action Task Force (FATF) which is an inter-governmental body established in 1989 by the Ministers of its member jurisdictions, sets standards and promotes effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. India, as a member of FATF, is committed to upholding measures to protect the integrity of the international financial system.

In India, the Prevention of Money-Laundering Act, 2002, and the Prevention of Money- Laundering (Maintenance of Records) Rules, 2005, form the legal framework on Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT). The provisions of the PML Act, 2002 and the PML Rules, 2005, as amended from time to time by the Government of India, require Regulated Entities (REs) to follow certain customer identification procedures while undertaking a transaction either by establishing an account-based relationship or otherwise, and to monitor their transactions.

Accordingly, in exercise of the powers conferred by sections 45JA, 45K, and 45L of the Reserve Bank of India Act, 1934, section 10(2) read with section 18 of Payment and Settlement Systems Act 2007 (Act 51 of 2007), section 11(1) of the Foreign Exchange Management Act, 1999, Rule 9(14) of the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005, and all other laws enabling the Reserve Bank in this regard, the RBI being satisfied that it is necessary and expedient in the public interest to do so, hereby issues the Directions hereinafter specified.  

Chapter I - Preliminary

A. Short Title and Commencement

1. These Directions shall be called the Reserve Bank of India (Non-Banking Financial Companies – Know Your Customer) Directions, 2025.

2. These directions shall come into effect on the day they are placed on the official website of the RBI.

B. Applicability

3. These Directions shall be applicable to Non-Banking Financial Companies (hereinafter collectively referred to as ‘NBFCs’ and individually as an ‘NBFC’) excluding Housing Finance Companies (HFCs)

4. These directions shall also apply to those branches and majority-owned subsidiaries of the NBFC which are located abroad, to the extent they are not contradictory to the local laws in the host country, provided that:

1. where applicable laws and regulations prohibit implementation of these guidelines, the NBFC shall bring the same to the notice of the RBI. The RBI may advise the NBFC to take further necessary action, including application of additional measures to manage the ML / TF risks.

2. in case there is a variance in KYC / AML standards prescribed by the RBI and the host country regulators, branches / subsidiaries of the NBFC shall adopt the more stringent regulation of the two.

C. Definitions

5. In these Directions, unless the context otherwise requires, the following meanings are assigned to the terms herein:

(1) Terms bearing meaning assigned in terms of the Prevention of Money-Laundering Act, 2002, and the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005:

(i) ‘Aadhaar number’ shall have the meaning assigned to it in clause (a) of section 2 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (18 of 2016);

(ii) ‘Act’ and ‘Rules’ mean the Prevention of Money-Laundering Act, 2002 and the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005, respectively and amendments thereto.

(iii)  ‘Authentication’, in the context of Aadhaar authentication, means the process as defined under sub-section (c) of section 2 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016.

(iv) Beneficial Owner (BO)

(a) Where the customer is a company, the beneficial owner is the natural person(s), who, whether acting alone or together, or through one or more juridical persons, has / have a controlling ownership interest or who exercises control through other means.

Explanation: For the purpose of this sub-clause-

• ‘Controlling ownership interest’ means ownership of / entitlement to more than 10 percent of the shares or capital or profits of the company.

• ‘Control’ shall include the right to appoint the majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements.

(b) Where the customer is a partnership firm, the beneficial owner is the natural person(s), who, whether acting alone or together, or through one or more juridical person(s), has / have ownership of / entitlement to more than 10 percent of capital or profits of the partnership or who exercises control through other means.

Explanation: For the purpose of this sub-clause, ‘control’ shall include the right to control the management or policy decision.

(c) Where the customer is an unincorporated association or body of individuals, the beneficial owner is the natural person(s), who, whether acting alone or together, or through one or more juridical person, has / have ownership of / entitlement to more than 15 percent of the property or capital or profits of the unincorporated association or body of individuals.

Explanation: Term ‘body of individuals’ includes societies. Where no natural person is identified under (a), (b) or (c) above, the beneficial owner is the relevant natural person who holds the position of senior managing official.

(d) Where the customer is a trust, the identification of beneficial owner(s) shall include identification of the author of the trust, the trustee, the beneficiaries with 10 percent or more interest in the trust and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership.

(v)  ‘Certified Copy’ – The NBFC obtaining the certified copy shall mean comparing the copy of the proof of possession of Aadhaar number (where offline verification cannot be carried out) or the officially valid document produced by the customer with the original, and an authorised officer of the NBFC shall record the comparison on the copy as per the provisions contained in the Act. Provided that in case of Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs), as defined in Foreign Exchange Management (Deposit) Regulations, 2016 {FEMA 5(R)}, the NBFC may alternatively obtain the original certified copy, certified by any one of the following:

1. authorised officials of overseas branches of Scheduled Commercial Banks registered in India,

2. branches of overseas banks with whom Indian banks have relationships,

3. Notary Public abroad,

4. Court Magistrate,

5. Judge,

6. Indian Embassy / Consulate General in the country where the non-resident customer resides.

(vi) ‘Central KYC Records Registry’ (CKYCR) means an entity defined under Rule 2(1) of the Rules, to receive, store, safeguard and retrieve the KYC records in digital form of a customer.

(vii) ‘Designated Director’ means a person whom the NBFC designates to ensure overall compliance with the obligations imposed under chapter IV of the PML Act and the Rules and shall include the Managing Director or a whole-time Director, whom the Board of Directors has duly authorised.

Explanation: For the purpose of this clause, the terms ‘Managing Director’ and ‘Whole-time Director’ shall have the meaning assigned to them in the Companies Act, 2013.

(viii) ‘Digital KYC’ means that an authorised officer of the NBFC captures a live photo of the customer and officially valid document or the proof of possession of Aadhaar (where offline verification cannot be carried out), along with the latitude and longitude of the location where such live photo is being taken, as per the provisions contained in the Act.

(ix) ‘Digital Signature’ shall have the same meaning as assigned to it in clause (p) of sub-section (1) of section (2) of the Information Technology Act, 2000 (21 of 2000).

(x) ‘Equivalent e-document’ means an electronic equivalent of a document that the issuing authority of such document issues with its valid digital signature, including documents issued to the digital locker account of the customer as per rule 9 of the Information Technology (Preservation and Retention of Information by Intermediaries Providing Digital Locker Facilities) Rules, 2016.

(xi) ‘Group’ – The term ‘group’ shall have the same meaning assigned to it in clause (e) of sub-section (9) of section 286 of the Income-tax Act,1961 (43 of 1961).

(xii) ‘Know Your Client (KYC) Identifier’ means the unique number or code that the Central KYC Records Registry assigns to a customer.

Explanation: A customer can obtain his KYC Identifier through the following ways:

In the process of opening an account, once the customer’s KYC Identifier is generated by CKYCR and provided to the NBFC, the latter shall share the same with the concerned customer. The customer can also access his KYC Identifier on CKYCR Portal (www.ckycindia.in).

(xiii) ‘Non-profit organisations’ (NPO) means any entity or organisation, constituted for religious or charitable purposes referred to in clause (15) of section 2 of the Income-tax Act, 1961 (43 of 1961), that is registered as a trust or a society under the Societies Registration Act, 1860 or any similar State legislation or a company registered under section 8 of the Companies Act, 2013 (18 of 2013).

(xiv) ‘Officially Valid Document’ (OVD) means the passport, the driving licence, proof of possession of Aadhaar number, the Voter's Identity Card that the Election Commission of India issues, the job card that NREGA issues and an officer of the State Government duly signs, and the letter that the National Population Register issues containing details of name and address.

Provided that,

(a) where the customer submits his proof of possession of Aadhaar number as an OVD, he may submit it in such form that the Unique Identification Authority of India (UIDAI) issues.

(b) When the customer furnishes an OVD that does not have an updated address, the NBFC shall deem the following documents or the equivalent e-documents thereof to be OVDs for the limited purpose of proof of address:-

• utility bill which is not more than two months old of any service provider (electricity, telephone, post-paid mobile phone, piped gas, water bill);

• property or Municipal tax receipt;

• pension or family pension payment orders (PPOs) issued to retired employees by Government Departments or Public Sector Undertakings, if they contain the address;

• letter of allotment of accommodation from employer that is issued by State Government or Central Government Departments, statutory or regulatory bodies, public sector undertakings, scheduled commercial banks, financial institutions and listed companies and leave and licence agreements with such employers allotting official accommodation;

• Illustration: If a customer is staying in Chennai but their OVD contains an address in New Delhi, they can open an account in Chennai by submitting a deemed to be OVD for the purpose of proof of address. However, as mentioned below in paragraph (c), they are required to submit an OVD with current address within a period of three months.

(c) the customer shall submit OVD with current address within a period of three months of submitting the documents specified at (b) above

(d) if the OVD that a foreign national presents does not contain the details of address, the NBFC shall accept documents that Government departments of foreign jurisdictions issue, and a letter that the Foreign Embassy or Mission in India issues, as proof of address.

Explanation: For the purpose of this clause, the NBFC shall deem a document to be an OVD even if there is a change in the name subsequent to its issuance provided that it is supported by a marriage certificate that the State Government issues or a Gazette notification, indicating such a change of name.

(xv) ‘Offline verification’ shall have the same meaning as assigned to it in clause (pa) of section 2 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (18 of 2016).

(xvi) ‘Person’ has the same meaning assigned in the Act and includes:

1. an individual,

2. a Hindu undivided family,

3. a company,

4. a firm,

5. an association of persons or a body of individuals, whether incorporated or not,

6. every artificial juridical person, not falling within any one of the above persons (a to e), and

7. any agency, office or branch owned or controlled by any of the above persons (a to f).

(xvii) ‘Principal Officer’ means a NBFC’s nominated officer at the management level, responsible for furnishing information as per rule 8 of the Rules.

(xviii) ‘Suspicious transaction’ means a ‘transaction’ as defined below, including an attempted transaction, whether or not made in cash, which, to a person acting in good faith:

1. gives rise to a reasonable ground of suspicion that it may involve proceeds of an offence specified in the Schedule to the Act, regardless of the value involved; or

2. appears to be made in circumstances of unusual or unjustified complexity; or

3. appears to have no economic rationale or bona fide purpose; or

4. gives rise to a reasonable ground of suspicion that it may involve financing of the activities relating to terrorism.

Explanation: Transaction involving financing of the activities relating to terrorism includes transaction involving funds that the NBFC suspects are linked or related to, or to be used for terrorism, terrorist acts or by a terrorist, terrorist organisation or those who finance or are attempting to finance terrorism.

(xix) ‘Transaction’ means a purchase, sale, loan, pledge, gift, transfer, delivery or the arrangement thereof and includes:

1. opening of an account;

2. deposit, withdrawal, exchange or transfer of funds in whatever currency, whether in cash or by cheque, payment order or other instruments or by electronic or other non-physical means;

3. the use of a safety deposit box or any other form of safe deposit;

4. entering into any fiduciary relationship;

5. any payment made or received, in whole or in part, for any contractual or other legal obligation; or

6. establishing or creating a legal person or legal arrangement.

(2) Unless the context otherwise requires, terms in these Directions shall bear the meanings assigned to them below:

(i) ‘Common Reporting Standards’ (CRS) means reporting standards set for implementation of multilateral agreement signed to automatically exchange information based on Article 6 of the Convention on Mutual Administrative Assistance in Tax Matters.

(ii) ‘Customer’ means a person who is engaged in a financial transaction or activity with an NBFC and includes a person on whose behalf the person who is engaged in the transaction or activity, is acting.

(iii) ‘Walk-in Customer’ means a person who does not have an account-based relationship with the NBFC, but undertakes transactions with the NBFC.

(iv) ‘Customer Due Diligence (CDD)’ means identifying and verifying the customer and the beneficial owner using reliable and independent sources of identification.

Explanation: The CDD, at the time of commencement of an account-based relationship or while carrying out occasional transaction of an amount equal to or exceeding ₹ 50 thousand, whether conducted as a single transaction or several transactions that appear to be connected, or any international money transfer operations, shall include:

1. Identification of the customer, verification of their identity using reliable and independent sources of identification, obtaining information on the purpose and intended nature of the business relationship, where applicable

2. Taking reasonable steps to understand the nature of the customer's business, and its ownership and control;

3. Determining whether a customer is acting on behalf of a beneficial owner, and identifying the beneficial owner and taking all steps to verify the identity of the beneficial owner, using reliable and independent sources of identification.

(v) ‘Customer identification’ means undertaking the process of CDD.

(vi) ‘FATCA’ means Foreign Account Tax Compliance Act of the United States of America (USA) which, inter alia, requires foreign financial institutions to report about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest.

(vii) ‘IGA’ means Inter Governmental Agreement between the Governments of India and the USA to improve international tax compliance and to implement FATCA of the USA.

(viii) ‘KYC Templates’ means templates prepared to facilitate collating and reporting KYC data to the CKYCR, for individuals and legal entities.

(ix) ‘Non-face-to-face customers’ means customers who open accounts without visiting the branch / offices of the NBFC or meeting the officials of the NBFC.

(x) ‘On-going Due Diligence’ means regular monitoring of transactions in accounts to ensure that transactions are consistent with the NBFC’s knowledge about the customers, customers’ business and risk profile, the source of funds / wealth.

(xi) ‘Periodic Updation’ means the steps taken to ensure that documents, data or information collected under the CDD process are kept up-to-date and relevant by undertaking reviews of existing records at the periodicity prescribed by the RBI.

(xii) 'Regulated Entities' (REs) means:

1. all Scheduled Commercial Banks (SCBs) / Regional Rural Banks (RRBs) / Local Area Banks (LABs) / All Primary (Urban) Co-operative Banks (UCBs) / State and Central Co-operative Banks (StCBs / CCBs), and any other entity which has been licensed under section 22 of Banking Regulation Act, 1949, which as a group shall be referred as ‘banks’

2. All India Financial Institutions (AIFIs)

3. All Non-Banking Finance Companies (NBFCs), Miscellaneous Non-Banking Companies (MNBCs) and Residuary Non-Banking Companies (RNBCs)

4. Asset Reconstruction Companies (ARCs)

5. All Payment System Providers (PSPs) / System Participants (SPs) and Prepaid Payment Instrument Issuers (PPI Issuers)

6. All authorised persons (APs), including those who are agents of Money Transfer Service Scheme (MTSS), regulated by the Regulator.

(xiii) ‘Shell Bank’ means a bank that has no physical presence in the country in which it is incorporated and licensed, and which is unaffiliated with a regulated financial group that is subject to effective consolidated supervision. Physical presence means meaningful mind and management located within a country. The existence simply of a local agent or low-level staff does not constitute physical presence.

(xiv) ‘Video based Customer Identification Process (V-CIP)’: an alternative method by which an authorised official of the NBFC conducts customer identification with facial recognition and customer due diligence. This process involves a seamless, secure, live, informed- consent based audio-visual interaction with the customer to obtain identification information required for CDD purpose, and to ascertain the veracity of the information which the customer furnished, through independent verification and by maintaining an audit trail of the processand the NBFC shall treat such processes complying with prescribed standards and procedures on par with face-to-face CIP for the purpose of these Directions.

(xv) ‘Wire transfer’ related definitions:

1. Batch transfer: A batch transfer is a transfer comprised of a number of individual wire transfers that are being sent to the same financial institutions but may / may not be ultimately intended for different persons.

2. Beneficiary: Beneficiary refers to a natural or legal person or legal arrangement whom / which the originator identifies as the receiver of the requested wire transfer.

3. Beneficiary RE: It refers to a financial institution that RBI regulates, which receives the wire transfer from the ordering financial institution directly or through an intermediary RE and makes the funds available to the beneficiary.

4. Cover Payment: Cover Payment refers to a wire transfer that combines a payment message which the ordering financial institution sends directly to the beneficiary financial institution with the routing of the funding instruction (the cover) from the ordering financial institution to the beneficiary financial institution through one or more intermediary financial institutions.

5. Cross-border wire transfer: Cross-border wire transfer refers to any wire transfer where the ordering financial institution and beneficiary financial institution are located in different countries. This term also refers to any chain of wire transfer in which at least one of the financial institutions involved is located in a different country.

6. Domestic wire transfer: Domestic wire transfer refers to any wire transfer where the ordering financial institution and beneficiary financial institution are located in India. This term, therefore, refers to any chain of wire transfers that takes place entirely within the borders of India, even though the system used to transfer the payment message may be located in another country.

7. Financial Institution: In the context of wire-transfer instructions, the term ‘Financial Institution’ shall have the same meaning as has been ascribed to it in the FATF Recommendations, as revised from time to time.

8. Intermediary RE: Intermediary RE refers to an RBI regulated financial institution / entity that handles an intermediary element of the wire transfer, in a serial or cover payment chain and that receives and transmits a wire transfer on behalf of the ordering financial institution and the beneficiary financial institution, or another intermediary financial institution.

9. Ordering RE: Ordering RE refers to the RBI-regulated financial institution  which initiates the wire transfer and transfers the funds upon receiving the request for a wire transfer on behalf of the originator.

10. Originator: Originator refers to the account holder who allows the wire transfer from that account, or where there is no account, the natural or legal person that places the order with the ordering financial institution to perform the wire transfer.

11. Serial Payment: Serial Payment refers to a direct sequential chain of payment where the wire transfer and accompanying payment message travel together from the ordering financial institution to the beneficiary financial institution directly or through one or more intermediary financial institutions (e.g., correspondent banks).

12. Straight-through Processing: Straight-through processing refers to payment transactions that are conducted electronically without the need for manual intervention.

13.  Unique transaction reference number: Unique transaction reference number refers to a combination of letters, numbers or symbols, a payment service provider determines, in accordance with the protocols of the payment and settlement system or messaging system used for the wire transfer.

14. Wire transfer: Wire transfer refers to any transaction carried out on behalf of an originator through a financial institution by electronic means with a view to making an amount of funds available to a beneficiary at a beneficiary financial institution, irrespective of whether the originator and the beneficiary are the same person.

(3) Unless defined herein, all other expressions shall have the same meaning as has been assigned to them under the Banking Regulation Act, 1949, the Reserve Bank of India Act, 1935, the Prevention of Money Laundering Act, 2002, the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 and regulations made thereunder, any statutory modification or re-enactment thereto or as used in commercial parlance, as the case may be.

Chapter II - General

A. Board of Directors / Policies-related guidelines:

6. Know Your Customer (KYC) Policy:

(1) The NBFC shall have a KYC policy. The Board of Directors of the NBFC, or any committee to which the Board has delegated power, shall duly approved the KYC policy.

(2) The KYC policy shall include following four key elements:

1. Customer Acceptance Policy;

2. Risk Management;

3. Customer Identification Procedures (CIP); and

4. Monitoring of Transactions

(3) The KYC policy shall, inter alia, incorporate provisions for the following:

1. Periodic updation of KYC

2. Any exceptional measures for KYC updation, such as requiring a recent photograph, physical presence, or a more frequent updation schedule than the minimum prescribed.

3. Obtaining a copy of OVD or deemed OVD, for the purpose of proof of change of address during KYC updation.

4. Providing facility of updation / periodic updation of KYC at any branch.

5. Change of registered Mobile Number for accounts opened using Aadhaar OTP based e-KYC, in non-face-to-face mode.

7. The specific responsibilities and actions stipulated for the Board or its relevant committees in paragraphs 6 above are elaborated upon in greater detail within the Directions.

8. In terms of PML Rules, groups shall implement group-wide policies for the purpose of discharging obligations under the provisions of Chapter IV of the PML Act, 2002. (15 of 2003). Accordingly, every NBFC which is part of a group, shall implement group-wide programmes against money laundering and terror financing, including group-wide policies for sharing information required for the purposes of client due diligence, money laundering, and terrorist finance risk management, and such programmes shall include adequate safeguards on the confidentiality and use of information exchanged, including safeguards to prevent tipping-off.

9. NBFC’s policy framework shall seek to ensure compliance with PML Act / Rules, including regulatory instructions in this regard and shall provide a bulwark against threats arising from money laundering, terrorist financing, proliferation financing and other related risks. While ensuring compliance with the legal / regulatory requirements as above, the NBFC may also consider adoption of best international practices taking into account the FATF standards and FATF guidance notes, for managing risks better.

10. Money Laundering and Terrorist Financing Risk Assessment by the NBFC:

1. The NBFC shall carry out ‘Money Laundering (ML) and Terrorist Financing (TF) Risk Assessment’ exercises periodically to identify, assess and take effective measures to mitigate its money laundering and terrorist financing risk for clients, countries or geographic areas, products, services, transactions or delivery channels, etc.
   
   The assessment process shall consider all the relevant risk factors before determining the level of overall risk and the appropriate level and type of mitigation to be applied. While preparing the internal risk assessment, the NBFC shall take cognizance of the overall sector-specific vulnerabilities, if any, that the regulator / supervisor may share with the NBFC from time to time.

2. The NBFC shall properly document its risk assessment and it shall be proportionate to the nature, size, geographical presence, complexity of activities / structure, etc. of the NBFC. Further, the Board or a committee of the Board to which it has delegated power shall determine the periodicity of the risk assessment exercise, in alignment with the outcome of the risk assessment exercise. However, the NBFC shall review it at least annually.

3. The NBFC shall present the outcome of the exercise to the Board or any committee of the Board to which the Board has delegated power in this regard. The outcome shall also be made available to competent authorities and self-regulating bodies.

11. The NBFC shall apply a Risk Based Approach (RBA) for mitigation and management of the risks (identified on its own or through national risk assessment) and shall have Board-approved policies, controls and procedures in this regard. The NBFC shall implement a CDD programme, having regard to the ML / TF risks identified and the size of business. Further, the NBFC shall monitor the implementation of the controls and enhance them if necessary.

12. Compliance of KYC policy: The NBFC shall ensure compliance with KYC Policy through:

1. Specifying as to who constitute ‘Senior Management’ for the purpose of KYC compliance.

2. Allocation of responsibility for effective implementation of policies and procedures.

3. Independent evaluation of the compliance functions of the NBFC’s policies and procedures, including legal and regulatory requirements.

4. Concurrent / internal audit system to verify compliance with KYC / AML policies and procedures.

5. Submission of quarterly audit notes and compliance to the Audit Committee.

13. The NBFC shall ensure that it does not outsource the decision-making functions of determining compliance with KYC norms.

B. Other General Guidelines:

14. Designated Director:

1. A ‘Designated Director’ is a Board-nominated person whom the NBFC designates to ensure overall compliance with the obligations imposed under Chapter IV of the PML Act and the Rules.

2. The NBFC shall communicate the name, designation, address and contact details of the Designated Director to the FIU-IND and RBI.

3. The NBFC shall not nominate the Principal Officer as the 'Designated Director'.

15. Principal Officer:

1. The Principal Officer shall be responsible for ensuring compliance, monitoring transactions, and sharing and reporting information as required under the law / regulations.

2. The NBFC shall communicate the name, designation, address, and contact details of the Principal Officer to the FIU-IND and RBI.

Chapter III - Customer Acceptance Policy

16. The NBFC shall frame a Customer Acceptance Policy.

17. Without prejudice to the generality of the aspect that Customer Acceptance Policy may contain, the NBFC shall:

1. not open any account in an anonymous or fictitious / benami name.

2. open no account where it is unable to apply appropriate CDD measures, either due to non-cooperation of the customer or unreliability of the documents / information furnished by the customer. The NBFC shall consider filing an STR, if necessary, when it is unable to comply with the relevant CDD measures in relation to the customer.

3. undertake a transaction or an account-based relationship only after following the CDD procedure.

4. specify the mandatory information to be sought for KYC purposes while opening an account and during the periodic updation.

5. obtain additional information, where its internal KYC Policy has not specified such information requirement, with the explicit consent of the customer.

6. apply the CDD procedure at the UCIC level. Thus, if an existing KYC-compliant customer of an NBFC desires to open another account or avail of any other product or service from the same NBFC, there shall be no need for a fresh CDD exercise as far as identification of the customer is concerned.

7. follow the CDD Procedure for all the joint account holders, while opening a joint account.

8. clearly spell out the circumstances in which a customer is permitted to act on behalf of another person / entity.

9.  put in place a suitable system to ensure that the identity of the customer does not match with any person or entity, whose name appears in the sanctions lists indicated in Chapter IX of these Directions.

10. verify the Permanent Account Number (PAN) (if obtained) from the verification facility of the issuing authority.

11. verify the customer’s digital signature on the equivalent e-document (if obtained) as per the provisions of the Information Technology Act, 2000 (21 of 2000).

12. verify the Goods and Services Tax (GST) number from the search / verification facility of the issuing authority, where the GST details are available.

18. The Customer Acceptance Policy shall not result in denial of a financial facility to members of the general public, especially those who are financially or socially disadvantaged, including the Persons with Disabilities (PwDs). The NBFC shall not reject an application for onboarding or periodic updation of KYC without application of mind. The officer concerned shall duly record the reason(s) for rejection.

19. Where the NBFC forms a suspicion of money laundering or terrorist financing, and it reasonably believes that performing the CDD process will tip off the customer, it shall not pursue the CDD process and instead file an STR with FIU-IND.

Chapter IV - Risk Management

20. For risk management, the NBFC shall have a risk-based approach which includes the following.

1. The NBFC shall categorise customers into low, medium, and high-risk categories, based on its assessment and risk perception.

2. The NBFC may lay down broad principles for the risk-categorisation of customers.

3. The NBFC shall undertake risk categorisation based on parameters such as the customer’s identity, social / financial status, nature of business activity, and information about the customer’s business and its location, geographical risk covering customers as well as transactions, type of products / services offered, delivery channel used for delivery of products / services, types of transactions undertaken such as cash, cheque / monetary instruments, wire transfers, forex transactions, etc. The NBFC may also factor in the ability to confirm identity documents through online or other services offered by issuing authorities, while considering customer’s identity.

4. The NBFC shall keep the risk categorisation of a customer and the specific reasons for such categorisation confidential and shall not reveal this information to the customer to avoid tipping off.

Provided that the NBFC collects various other non-intrusive information from different categories of customers relating to the perceived risk, and specifies the same in the KYC policy.

Explanation: The NBFC may also use the FATF Public Statement, the reports and guidance notes on KYC / AML issued by the Indian Banks Association (IBA), and other agencies, etc., in its risk assessment. 

Chapter V - Customer Identification Procedure (CIP)

21. The NBFC shall undertake identification of customers in the following cases:

1. Commencement of an account-based relationship with the customer.

2. Carrying out any international money transfer operations for a person who is not an account holder of the NBFC.

3. When there is a doubt about the authenticity or adequacy of the customer identification data it has obtained.

4. Selling third-party products as agents, selling its own products, payment of dues of credit cards / sale and reloading of prepaid / travel cards and any other product for more than ₹50 thousand.

5. Carrying out transactions for a non-account-based customer, i.e., a walk-in customer, where the amount involved is equal to or exceeds ₹50 thousand, whether conducted as a single transaction or several transactions that appear to be connected.

6. When the NBFC has reason to believe that a customer (account-based or walk-in) is intentionally structuring a transaction into a series of transactions below the threshold of ₹50 thousand.

7. The NBFC shall ensure it does not seek introductions while opening accounts.

22. For the purpose of verifying the identity of customers at the time of commencement of an account-based relationship or while carrying out an occasional transaction of an amount equal to or exceeding ₹50 thousand, whether conducted as a single transaction or several transactions that appear to be connected, or any international money transfer operations, the NBFC, shall at its option, rely on customer due diligence done by a third party, subject to the following conditions:

1. The NBFC obtains the records or information of the customer due diligence carried out by the third party immediately from the third party or from the Central KYC Records Registry.

2. The NBFC shall take adequate steps to satisfy itself that the third party will make  copies of identification data and other relevant documentation relating to the customer due diligence requirements available, upon request, without delay.

3. A regulator regulates, supervises, or monitors the third party, and the third party has measures in place for compliance with customer due diligence and record-keeping requirements in line with the requirements and obligations under the PML Act.

4. The NBFC shall ensure that the third party is not based in a country or jurisdiction assessed as high-risk.

5. The NBFC will have the ultimate responsibility for customer due diligence and undertaking enhanced due diligence measures, as applicable.

Chapter VI - Customer Due Diligence (CDD) Procedure

A. Customer Due Diligence (CDD) Procedure in case of Individuals

23. For undertaking CDD, the NBFC shall obtain the following from an individual while establishing an account-based relationship or while dealing with the individual who is a beneficial owner, authorised signatory or the power of attorney holder related to any legal entity:

(1) the Aadhaar number where,

1. they are desirous of receiving any benefit or subsidy under any scheme notified under section 7 of the Aadhaar (Targeted Delivery of Financial and Other subsidies, Benefits and Services) Act, 2016 (18 of 2016); or

2. they decide to submit their Aadhaar number voluntarily to a NBFC or any RE notified under the first proviso to sub-section (1) of section 11A of the PML Act; or

(2) the proof of possession of Aadhaar number where the NBFC can carry out offline verification; or

(3) the proof of possession of Aadhaar number where the NBFC cannot carry out the offline verification or any OVD or the equivalent e-document thereof containing the details of their identity and address; or

(4) the KYC Identifier with an explicit consent to download records from CKYCR; and

(5) the Permanent Account Number or the equivalent e-document thereof or Form No. 60 as defined in Income-tax Rules, 1962; and

(6) the NBFC may require such other documents including in respect of the nature of business and financial status of the customer, or the equivalent e-documents thereof.

Provided that where the customer has submitted,

1. Aadhaar number under clause (1) above to a NBFC notified under first proviso to sub-section (1) of section 11A of the PML Act, such NBFC shall carry out authentication of the customer’s Aadhaar number using UIDAI’s e-KYC authentication. Further, in such a case, if the customer wants to provide a current address, different from the address as per the identity information available in the Central Identities Data Repository, they may give a self-declaration to that effect to the NBFC.

2. proof of possession of Aadhaar under clause (2) above where offline verification can be carried out, the NBFC shall carry out offline verification.

3. an equivalent e-document of any OVD, the NBFC shall verify the digital signature as per the provisions of the Information Technology Act, 2000 (21 of 2000) and any rules issued thereunder and take a live photo as specified under paragraph 24 below.

4. any OVD or proof of possession of Aadhaar number under clause (3) above where offline verification cannot be carried out, the NBFC shall carry out verification through digital KYC as specified under paragraph 24 below.

5. KYC Identifier under clause (4) above, the NBFC shall retrieve the KYC records online from the CKYCR in accordance with paragraph 62 .

Provided that for a period not beyond such date as the Government may notify for a class of REs, instead of carrying out digital KYC, the NBFC pertaining to such class may obtain a certified copy of the proof of possession of Aadhaar number or the OVD and a recent photograph where the customer does not submit an equivalent e- document.

Provided further that in case the NBFC cannot perform an e-KYC authentication for an individual desirous of receiving any benefit or subsidy under any scheme notified under section 7 of the Aadhaar (Targeted Delivery of Financial and Other subsidies, Benefits and Services) Act, 2016 owing to injury, illness or infirmity on account of old age or otherwise, and similar causes, the NBFC shall, apart from obtaining the Aadhaar number, perform identification preferably by carrying out offline verification or alternatively by obtaining the certified copy of any other OVD or the equivalent e-document thereof from the customer. An official of the NBFC shall invariably carry out CDD done in this manner, and such exception handling shall also be a part of the concurrent audit as mandated in paragraphs 12 and 13. The NBFC shall ensure to duly record the cases of exception handling in a centralised exception database. The database shall contain the details of grounds of granting exception, customer details, name of the designated official authorising the exception and additional details, if any. The NBFC shall subject the database to periodic internal audit / inspection and the NBFC shall make database available for supervisory review.

Explanation 1: The NBFC shall, where its customer submits a proof of possession of Aadhaar Number containing Aadhaar Number, ensure that such customer redacts or blacks out his Aadhaar number through appropriate means where the authentication of Aadhaar number is not required as per proviso (i) above.

Explanation 2: An NBFC official can perform biometric-based e-KYC authentication, including Aadhaar Face Authentication.

Explanation 3: The NBFC shall ensure that the use of Aadhaar, proof of possession of Aadhaar etc., is in accordance with the Aadhaar (Targeted Delivery of Financial and Other Subsidies Benefits and Services) Act, 2016 and the regulations made thereunder.

Explanation 4: Aadhaar number is not mandatory for purposes of KYC. However, in case the customer is desirous of receiving any benefit or subsidy under any scheme notified under section 7 of the Aadhaar (Targeted Delivery of Financial and Other subsidies, Benefits and Services) Act, 2016 (18 of 2016), the customer shall provide the Aadhaar number to the NBFC. In other cases, customers may provide the Aadhaar number voluntarily.

24. Digital KYC Process:

(1) The NBFC shall develop an application for digital KYC process and make it available at customer touch points for undertaking KYC of its customers and shall undertake the KYC process only through this authenticated application.

(2) The NBFC shall control the access to the Application and shall ensure that unauthorised persons do not use it. Authorised officials shall access the Application only through a login-id and password or a Live OTP or Time OTP controlled mechanism that the NBFC provides.

(3) The customer, for the purpose of KYC, shall visit the location of the authorised official of the NBFC or vice-versa. The original OVD shall be in possession of the customer.

(4) The NBFC shall ensure that the authorised officer takes a Live photograph of the customer and embeds the same photograph in the Customer Application Form (CAF). Further, the NBFC’s system Application shall put a watermark in readable form, containing the CAF number, GPS coordinates, authorised official’s name, unique employee code (which the NBFC assigns) and date (DD:MM:YYYY) and time stamp (HH:MM:SS), on the captured live photograph of the customer.

(5) The NBFC’s Application shall have the feature that it captures only a live photograph of the customer and does not capture any printed or video graphed photograph. The background behind the customer while capturing live photograph shall be of white colour and no other person shall come into the frame while capturing the live photograph of the customer.

(6) Similarly, the authorised officer shall capture the live photograph of the original OVD or proof of possession of Aadhaar where offline verification cannot be carried out (placed horizontally), vertically from above and shall apply a water-marking in readable form as mentioned above. The authorised officer shall ensure there is no skew or tilt in the mobile device while capturing the live photograph of the original documents.

(7) The authorised officer shall capture the live photograph of the customer and his original documents in proper light so that they are clearly readable and identifiable.

(8) Thereafter, the authorised officer shall fill all the entries in the CAF as per the documents and information furnished by the customer. In those documents where Quick Response (QR) code is available, such details may be auto-populated by scanning the QR code instead of manual filing the details. For example, in case of physical Aadhaar / e-Aadhaar downloaded from UIDAI where QR code is available, the details like name, gender, date of birth and address may be auto-populated by scanning the QR available on Aadhaar / e-Aadhaar.

(9) Once the above-mentioned process is completed, a One Time Password (OTP) message containing the text that ‘Please verify the details filled in form before sharing OTP’ shall be sent to customer’s own mobile number. Upon successful validation of the OTP, the NBFC will treat it as the customer’s signature on CAF. However, if the customer does not have their own mobile number, the NBFC may use the mobile number of their family / relatives / known persons for this purpose and clearly mention it in the CAF. In any case, the NBFC shall not use the mobile number of authorised officer registered with the NBFC for the customer signature. The NBFC shall check that the mobile number used in customer signature is not the mobile number of the authorised officer.

(10) The authorised officer shall provide a declaration about the capturing of the live photograph of the customer and original document. For this purpose, the NBFC shall verify the authorised officer with One Time Password (OTP) which will be sent to his mobile number registered with the NBFC. Upon successful OTP validation, the NBFC shall treat it as the authorised officer’s signature on the declaration. The live photograph of the authorised officer shall also be captured in this authorised officer’s declaration.

(11) Subsequent to all these activities, the Application shall give information about the completion of the process and submission of activation request to activation officer of the NBFC, and also generate the transaction-id / reference-id number of the process. The authorised officer shall intimate the details regarding transaction-id / reference-id number to the customer for future reference.

(12) The authorised officer of the NBFC shall check and verify that:

1. information available in the picture of the document matches with the information entered by authorised officer in CAF.

2. live photograph of the customer matches with the photo available in the document.; and

3. the authorised officer has properly filled all of the necessary details in CAF, including mandatory field.

(13) On Successful verification, the CAF shall be digitally signed by authorised officer of the NBFC who will take a print of CAF, get signatures / thumb-impression of customer at appropriate place, then scan and upload the same in system. Original hard copy may be returned to the customer.

25. Accounts opened using Aadhaar OTP based e-KYC, in non-face-to-face mode, are subject to the following conditions:

1. The Customer shall give specific consent for the authentication through OTP.

2. As a risk-mitigating measure for such accounts, the NBFC shall ensure that it sends transaction alerts, OTP, etc., only to the mobile number of the customer registered with Aadhaar. The NBFC shall have a Board-approved policy delineating a robust process of due diligence for dealing with requests for change of mobile number in such accounts.

3. The aggregate balance of all the deposit accounts of the customer shall not exceed ₹one lakh. In case the balance exceeds the threshold, the NBFC shall cease the account’s operation, until it completes the CDD as mentioned at (6) below.

4. The aggregate of all credits in a financial year, in all the deposit accounts taken together, shall not exceed ₹two lakh.

5. As regards borrowal accounts, the NBFC shall sanction only term loans. The aggregate amount of term loans sanctioned shall not exceed ₹60 thousand in a year.

6. The NBFC shall not allow accounts, both deposit and borrowal, opened using OTP based e-KYC to operate for more than one year unless it carries out identification as per paragraph 23 or as per paragraphs 26 and 27 (V-CIP). If the NBFC uses Aadhaar details under paragraph 26 and 27 it shall follow the process in its entirety, including fresh Aadhaar OTP authentication.

7. If the NBFC does not complete the CDD procedure as mentioned above within a year; (a) in respect of deposit accounts, the NBFC shall close the same immediately, and (b) in respect of borrowal accounts, the NBFC shall allow no further debits.

8. The NBFC shall obtain declaration from the customer to the effect that no other account has been opened nor will be opened using OTP based KYC in non-face-to-face mode with any other RE. Further, while uploading KYC information to CKYCR, NBFC shall clearly indicate that such accounts are opened using OTP based e-KYC and other REs shall not open accounts based on the KYC information of accounts opened with OTP based e-KYC procedure in non-face- to-face mode.

9. The NBFC shall have strict monitoring procedures including systems to generate alerts in case of any non-compliance / violation, to ensure compliance with the above-mentioned conditions.

26. The NBFC may undertake V-CIP to carry out:

1. CDD in case of new customer onboarding for individual customers, proprietor in case of proprietorship firm, authorised signatories and Beneficial Owners (BOs) in case of Legal Entity (LE) customers.
   
   Provided that in case of CDD of a proprietorship firm, the NBFC shall also obtain the equivalent e-document of the activity proofs with respect to the proprietorship firm, as mentioned in paragraph 31 and paragraph 32, apart from undertaking CDD of the proprietor.

2. Conversion of existing accounts opened in non-face-to-face mode using Aadhaar OTP based e-KYC authentication as per paragraph 25.

3. Updation / Periodic updation of KYC for eligible customers.

27. The NBFC opting to undertake V-CIP, shall adhere to the following minimum standards:

(1) V-CIP Infrastructure

1. The NBFC shall have complied with the RBI guidelines on minimum baseline cyber security and resilience framework for NBFCs, as updated from time to time as well as other general guidelines on IT risks. The NBFC shall house the technology infrastructure on its own premises and the V-CIP connection and interaction shall necessarily originate from its own secured network domain. Any technology related outsourcing for the process shall comply with relevant RBI guidelines. Where the NBFC uses a cloud deployment model, it shall ensure that ownership of data in such model rests with the NBFC only and all the data including video recording is transferred to the NBFC’s exclusively owned / leased server(s) including cloud server, if any, immediately after the V-CIP process is completed and the cloud service provider or third-party technology provider assisting the V-CIP shall retain no data.

2. The NBFC shall ensure end-to-end encryption of data between customer device and the hosting point of the V-CIP application, as per appropriate encryption standards. The NBFC shall record the customer consent in an auditable and alteration-proof manner.

3. The V-CIP infrastructure / application shall be capable of preventing connection from IP addresses outside India or from spoofed IP addresses.

4. The video recordings shall contain the live GPS co-ordinates (geo-tagging) of the customer undertaking the V-CIP and date and time stamp. The quality of the live video in the V-CIP shall be adequate to allow identification of the customer beyond doubt.

5. The application shall have components with face liveness / spoof detection as well as face matching technology with high degree of accuracy, even though the ultimate responsibility of any customer identification rests with the NBFC.
   
   Explanation: Making specific facial gestures, like blinking of eyes, smiling, frowning, etc. is not mandatory for liveness check. The NBFC shall take due cognizance of special needs, if any, of the customer during liveness check.

6. The NBFC may use appropriate artificial intelligence (AI) technology to ensure that the V-CIP is robust.

7. Based on experience of detected / attempted / ‘near-miss’ cases of forged identity, the NBFC shall regularly update the technology infrastructure including application software as well as workflows. The NBFC shall report any detected case of forged identity through V-CIP as a cyber event under extant regulatory guidelines.

8. The NBFC shall subject the V-CIP infrastructure to necessary tests such as Vulnerability Assessment, Penetration testing and a Security Audit to ensure its robustness and end-to-end encryption capabilities. The NBFC shall mitigate any critical gap reported under this process before rolling out its implementation. The empaneled auditors of Indian Computer Emergency Response Team (CERT-In) shall conduct such tests. Such tests shall also be carried out periodically in conformance to internal / regulatory guidelines.

9. The NBFC shall subject the V-CIP application software and relevant APIs / webservices to appropriate testing of functional, performance, and maintenance strength before being used in live environment. The NBFC shall roll out the application only after closure of any critical gap found during such tests. Such tests shall also be carried out periodically in conformity with internal / regulatory guidelines.

(2) V-CIP Procedure

(i) Each NBFC shall formulate a clear workflow and standard operating procedure for V-CIP and ensure adherence to it. The V-CIP process shall be operated only by officials of the NBFC specially trained for this purpose. The official shall be capable to carry out liveness check and detect any other fraudulent manipulation or suspicious conduct of the customer and act upon it. The liveness check shall not result in exclusion of person with special needs.

(ii) Disruption of any sort including pausing of video, reconnecting calls, etc., may not result in creation of multiple video files. If pause or disruption is not leading to the creation of multiple files, then the NBFC may not initiate a fresh session. However, in case of call drop / disconnection, fresh session shall be initiated.

(iii) The NBFC shall vary the sequence and / or type of questions, including those indicating the liveness of the interaction, during video interactions to establish that the interactions are real-time and not pre-recorded.

(iv) The NBFC shall reject the account opening process if it observes any prompting at the customer end.

(v) The NBFC shall factor in the fact that the V-CIP customer is an existing or new customer, or if the case relates to one rejected earlier or if the name appears in some negative list, at an appropriate stage of workflow.

(vi) The authorised official of the NBFC performing the V-CIP shall record audio and video as well as capture a photograph of the customer present for identification and obtain the identification information using any one of the following:

1. OTP based Aadhaar e-KYC authentication.

2. Offline Verification of Aadhaar for identification.

3. KYC records downloaded from CKYCR, in accordance with paragraph 62, using the KYC identifier provided by the customer.

4. Equivalent e-document of Officially Valid Documents (OVDs) including documents issued through DigiLocker.

(vii) The NBFC shall ensure to redact or blackout the Aadhaar number in terms of paragraph 23.

(viii) In case of offline verification of Aadhaar using XML file or Aadhaar Secure QR Code, the NBFC shall ensure that the XML file or QR code generation date is not older than three working days from the date of carrying out V-CIP.

(ix) Further, in line with the prescribed period of three working days for usage of Aadhaar XML file / Aadhaar QR code, the NBFC shall ensure that it undertakes video process of the V-CIP within three working days of downloading / obtaining the identification information through CKYCR / Aadhaar authentication / equivalent e-document, if in the rare cases, the entire process cannot be completed at one go or seamlessly. However, the NBFC shall ensure that no incremental risk is added due to this.

(x) If the address of the customer is different from that indicated in the OVD, the NBFC shall capture suitable records of the current address, as per the existing requirement. The NBFC shall ensure that it also confirms the economic and financial profile / information submitted by the customer from the customer undertaking the V-CIP in a suitable manner.

(xi) The NBFC shall capture a clear image of PAN card displayed by the customer during the process, except in cases where e-PAN is provided by the customer. The NBFC shall verify the PAN details from the database of the issuing authority ,including through DigiLocker.

(xii) The use of printed copy of equivalent e-document, including an e-PAN is not valid for the V-CIP.

(xiii) The authorised official of the NBFC shall ensure that photograph of the customer in the Aadhaar / OVD and PAN / e-PAN matches with the customer undertaking the V-CIP and the identification details in Aadhaar / OVD and PAN / e-PAN shall match with the details provided by the customer.

(xiv) The NBFC shall make all accounts opened through V-CIP operational only after subjecting them to concurrent audit to ensure the integrity of process and its acceptability of its outcome.

(xv) The NBFC shall appropriately comply with all matters not specified under the paragraph but required under other statutes such as the Information Technology (IT) Act.

(3) V-CIP Records and Data Management

1. The NBFC shall store the entire data and recordings of V-CIP in a system / systems located in India. The NBFC shall ensure that the video recording is stored in a safe and secure manner and bears the date and time stamp that affords easy historical data search. The extant instructions on record management, as stipulated in these directions, shall also apply to V-CIP.

2. The NBFC shall preserve the activity log along with the credentials of the official performing the V-CIP.

28. Simplified procedure for opening accounts by NBFCs: In case a person who desires to open an account is not able to produce documents, as specified in paragraph 25, NBFCs may at their discretion open accounts subject to the following conditions:

1. The NBFC shall obtain a self-attested photograph from the customer.

2. The designated officer of the NBFC certifies under his signature that the person opening the account has affixed his signature or thumb impression in his presence.

3. The account shall remain operational initially for a period of twelve months, within which CDD as per paragraph 23 or paragraph 26 and 27 shall be carried out.

4. Balances in all their accounts taken together shall not exceed ₹50 thousand at any point of time.

5. The total credit in all the accounts taken together shall not exceed ₹1 lakh in a year.

6. The NBFC shall make customer aware that no further transactions will be permitted until the full KYC procedure is completed in case Directions (4) and (5) above are breached by him.

7. The NBFC shall notify the customer when the balance reaches ₹40 thousand or the total credit in a year reaches ₹80 thousand that appropriate documents for conducting the KYC must be submitted otherwise the operations in the account shall be stopped when the total balance in all the accounts taken together exceeds the limits prescribed in directions (4) and (5) above.

8. The account shall be monitored and when there is suspicion of ML/TF activities or other high-risk scenarios, the identity of the customer shall be established as per paragraph 23 or paragraph 26 and 27.

29. KYC verification once done by one branch / office of the NBFC shall be valid for transfer of the account to any other branch / office of the same NBFC, provided the NBFC has already completed the full KYC verification for the concerned account and the same is not due for periodic updation.

B. CDD Measures for Sole Proprietary firms

30. For opening an account in the name of a sole proprietary firm, the NBFC shall carry out the CDD of the individual (proprietor).

31. In addition to the above, the NBFC shall also obtain any two of the following documents or the equivalent e-documents thereof as proof of business / activity in the name of the proprietary firm:

1. Registration certificate including Udyam Registration Certificate (URC) issued by the Government.

2. Certificate / licence issued by the municipal authorities under Shop and Establishment Act

3. Sales and income tax returns

4. CST / VAT / GST certificate

5. Certificate / registration document issued by Sales Tax / Service Tax / Professional Tax authorities

6. IEC (Importer Exporter Code) issued to the proprietary concern by the office of DGFT or Licence / certificate of practice issued in the name of the proprietary concern by any professional body incorporated under a statute

7. Complete Income Tax Return (not just the acknowledgement) in the name of the sole proprietor where the firm's income is reflected, duly authenticated / acknowledged by the Income Tax authorities

8. Utility bills such as electricity, water, landline telephone bills, etc.

32. In cases where the NBFC is satisfied that it is not possible to furnish two such documents, the NBFC may, at its discretion, accept only one of those documents as proof of business / activity.

Provided that the NBFC undertakes contact point verification and collects such other information and clarifications as would be required to establish the existence of such firm, and shall confirm and satisfy itself that it has verified the business activity from the address of the proprietary concern.

C. CDD Measures for Legal Entities

33. For opening an account of a company, the NBFC shall obtain certified copies of each of the following documents or the equivalent e-documents thereof:

1. Certificate of incorporation

2. Memorandum and Articles of Association

3. Permanent Account Number of the company

4. A resolution from the Board of Directors and power of attorney granted to its managers, officers or employees to transact on its behalf

5. Documents, as specified in paragraph 23, relating to beneficial owner, managers, officers or employees, as the case may be, holding an attorney to transact on the company’s behalf

6. The names of the relevant persons holding a senior management position; and

7. The registered office and the principal place of its business, if it is different.

34. For opening an account of a partnership firm, the NBFC shall obtain the certified copies of each of the following documents or the equivalent e-documents thereof:

1. Registration certificate

2. Partnership deed

3. Permanent Account Number of the partnership firm

4. Documents, as specified in paragraph 23, relating to beneficial owner, managers, officers or employees, as the case may be, holding an attorney to transact on its behalf

5. the names of all the partners and

6. address of the registered office, and the principal place of its business, if it is different.

35. For opening an account of a trust, the NBFC shall obtain the certified copies of each of the following documents or the equivalent e-documents thereof:

1. Registration certificate

2. Trust deed

3. Permanent Account Number or Form No.60 of the trust

4. Documents, as specified in paragraph 23, relating to beneficial owner, managers, officers or employees, as the case may be, holding an attorney to transact on its behalf

5. the names of the beneficiaries, trustees, settlor, protector, if any and authors of the trust

6. the address of the registered office of the trust; and

7. list of trustees and documents, as specified in paragraph 23, for those discharging the role as trustee and authorised to transact on behalf of the trust.

36. For opening an account of an unincorporated association or a body of individuals, the NBFC shall obtain the certified copies of each of the following documents or the equivalent e-documents thereof:

1. Resolution of the managing body of such association or body of individuals

2. Permanent Account Number or Form No. 60 of the unincorporated association or a body of individuals

3. Power of attorney granted to transact on its behalf

4. Documents, as specified in paragraph 23, relating to beneficial owner, managers, officers or employees, as the case may be, holding an attorney to transact on its behalf and

5. Such information as may be required by the NBFC to collectively establish the legal existence of such an association or body of individuals.

Explanation: Unregistered trusts / partnership firms shall be included under the term ‘unincorporated association’.

Explanation: The term ‘body of individuals’ includes societies.

37. For opening account of a customer who is a juridical person (not specifically covered in the earlier part) such as societies, universities and local bodies like village panchayats, etc., or who purports to act on behalf of such juridical person or individual or trust, the NBFC shall obtain and verify the certified copies of the following documents or the equivalent e-documents thereof:

1. Document showing name of the person authorised to act on behalf of the entity

2. Documents, as specified in paragraph 23, of the person holding an attorney to transact on its behalf and

3. Such documents as may be required by the NBFC to establish the legal existence of such an entity / juridical person.

Provided that in case of a trust, the NBFC shall ensure that trustees disclose their status at the time of commencement of an account-based relationship or when carrying out transactions as specified in paragraphs 21 (2), (5), and (6) of these directions.

D. Identification of Beneficial Owner

38. For opening an account of a Legal Person who is not a natural person, the NBFC shall identify the beneficial owner(s) and shall undertake all reasonable steps in terms of sub- rule (3) of Rule 9 of the Rules to verify their identity, keeping in view the following:

(1) Where the customer or the owner of the controlling interest is:

1. an entity listed on a stock exchange in India, or

2. it is an entity resident in jurisdictions notified by the Central Government and listed on stock exchanges in such jurisdictions, or

3. it is a subsidiary of such listed entities; it is not necessary to identify and verify the identity of any shareholder or beneficial owner of such entities.

(2) In cases of trust / nominee or fiduciary accounts, the NBFC determines whether the customer is acting on behalf of another person as trustee / nominee or any other intermediary. In such cases, the NBFC shall obtain satisfactory evidence of the identity of the intermediaries and of the persons on whose behalf they are acting, as well as details of the nature of the trust or other arrangements in place.

E.  On-going Due Diligence

39. The NBFC shall undertake ongoing due diligence of customers to ensure that their transactions are consistent with their knowledge about the customers, customers’ business and risk profile, the source of funds / wealth.

40. Without prejudice to the generality of factors that call for close monitoring, the NBFC shall necessarily monitor the following types of transactions:

1. Large and complex transactions including RTGS transactions, and those with unusual patterns, inconsistent with the normal and expected activity of the customer, which have no apparent economic rationale or legitimate purpose.

2. Transactions which exceed the thresholds prescribed for specific categories of accounts.

3. High account turnover inconsistent with the size of the balance maintained.

4. Deposit of third-party cheques, drafts, etc. in the existing and newly opened accounts followed by cash withdrawals for large amounts.

For ongoing due diligence, the NBFC may consider adopting appropriate innovations including artificial intelligence and machine learning (AI & ML) technologies to support effective monitoring.

41. The NBFC shall align the extent of monitoring with the risk category of the customer.

1. The NBFC shall put in place a system of periodic review of risk categorisation of accounts, with such periodicity being at least once in every six months, and shall establish the need for applying enhanced due diligence measures.

2. The NBFC shall closely monitor the transactions in accounts of marketing firms, especially accounts of Multi-level Marketing (MLM) companies.

Explanation: The NBFC shall subject high-risk accounts to more intensified monitoring.

42. Updation / Periodic Updation of KYC

(1) The NBFC shall adopt a risk-based approach for periodic updation of KYC ensuring that it keeps the information or data collected under CDD is kept up-to-date and relevant, particularly where there is high risk. However, the NBFC shall carry out periodic updation at least once in every two years for high-risk customers, once in every eight years for medium risk customers and once in every 10 years for low-risk customers from the date of opening of the account / last KYC updation. The NBFC shall document its policy in this regard as part of the NBFC’s internal KYC policy duly approved by the Board of Directors of NBFC or any committee of the Board to which power has been delegated.

(2) Notwithstanding the provisions given above, in respect of an individual customer who is categorised as low-risk, the NBFC shall allow all transactions and ensure the updation of KYC within one year of its falling due for KYC or up to June 30, 2026, whichever is later. The NBFC shall subject accounts of such customers to regular monitoring. This shall also apply to low-risk individual customers for whom periodic updation of KYC has already fallen due.

(3) Individuals:

1. No change in KYC information: In case of no change in the KYC information, the NBFC shall obtain a self-declaration from the customer in this regard through the customer’s email-id registered with the NBFC, customer’s mobile number registered with the NBFC, digital channels (such as online banking / internet banking, mobile application of bank) letter, etc.

2. Change in address: In case of a change only in the address details of the customer, the NBFC shall obtain a self-declaration of the new address from the customer through customer’s email-id registered with the NBFC, customer’s mobile number registered with the NBFC, ATMs, digital channels (such as online banking / internet banking, mobile application of bank), letter, etc., and shall verify the declared address through positive confirmation within two months, by means such as address verification letter, contact point verification, deliverables, etc.

3. Further, the NBFC at its option, may obtain a copy of OVD or deemed OVD, as defined in paragraph 5(1)(xiv), or the equivalent e-documents thereof, as defined in paragraph 5(1)(x), for the purpose of proof of address, declared by the customer at the time of updation / periodic updation. However, the NBFC shall clearly specify such requirement, in its internal KYC policy duly approved by the Board of Directors of the NBFC or any committee of the Board to which power has been delegated.

4. Accounts of customers, who were minor at the time of opening account, on their becoming major: In case of customers for whom the NBFC opened an account when they were minors, the NBFC shall obtain fresh photographs upon their becoming a major and, at that time, shall ensure that CDD documents as per the current CDD standards are available. Wherever required, the NBFC may carry out fresh KYC of such customers, i.e., customers for whom it opened account when they were minor, upon their becoming a major.

5.  The NBFC may use Aadhaar OTP based e-KYC in non-face-to-face mode for   updation / periodic updation.  To clarify,  conditions  stipulated  in paragraph 25 are not applicable in case of updation / periodic updation of KYC through Aadhaar OTP based e-KYC in non-face to face mode.

6. Declaration of current address, if the current address is different from the address in Aadhaar, shall not require positive confirmation in this case. The NBFC shall ensure that the mobile number for Aadhaar authentication is same as the one available with them in the customer’s profile, in order to prevent any fraud.

(4) Customers other than individuals:

1. No change in KYC information: In case of no change in the KYC information of the LE customer, the NBFC shall obtain a self-declaration in this regard from the LE customer through its email id registered with the NBFC, ATMs, digital channels (such as online banking / internet banking, mobile application of bank), letter from an official authorised by the LE in this regard, board resolution, etc. Further, the NBFC shall ensure during this process that Beneficial Ownership (BO) information available with them is accurate and shall update the same, if required, to keep it as up-to-date as possible.

2. Change in KYC information: In case of change in KYC information, the NBFC shall undertake the KYC process equivalent to that applicable for onboarding a new LE customer.

(5) Additional measures: In addition to the above, the NBFC shall ensure that:

1. The NBFC has customer’s KYC document as per the current CDD standards available with it. This is applicable even if there is no change in customer information but the documents available with the NBFC are not as per the current CDD standards. Further, in case the validity of the CDD documents available with the NBFC has expired at the time of periodic updation of KYC, the NBFC shall undertake the KYC process equivalent to that applicable for onboarding a new customer.

2. The NBFC verifies the Customer’s PAN details, if available, from the database of the issuing authority at the time of periodic updation of KYC.

3. The NBFC provides an acknowledgment to the customer mentioning the date of receipt of the relevant document(s), including self-declaration from the customer, for carrying out updation / periodic updation. Further, the NBFC shall ensure that it promptly updates the information / documents obtained from the customers at the time of updation / periodic updation of KYC in its records / database and provide an intimation, mentioning the date of updation of KYC details, to the customer.

4. In order to ensure customer convenience, the NBFC may consider making available the facility of updation / periodic updation of KYC at any branch, in terms of their internal KYC policy duly approved by the Board of Directors of the NBFC or any committee of the Board to which power has been delegated.

5. The NBFC shall adopt a risk-based approach with respect to periodic updation of KYC. The NBFC shall clearly specify in its internal policy, duly approved by the Board of Directors of the NBFC or any committee of the Board to which power has been delegated, any additional and exceptional measures, it adopts that are not otherwise mandated under the above instructions, such as requirement of obtaining recent photograph, requirement of physical presence of the customer, requirement of periodic updation of KYC only in the branch of the NBFC where account is maintained, a more frequent periodicity of KYC updation than the minimum specified periodicity etc.

(6) The NBFC shall advise the customers that in order to comply with the PML Rules, in case of any update in the documents submitted by the customer at the time of establishment of business relationship / account-based relationship and thereafter, as necessary; customers shall submit to the NBFC the update of such documents. This shall be done within 30 days of the update to the documents for the purpose of updating the records at the NBFC’s end.

(7) Due Notices for Periodic Updation of KYC: The NBFC shall intimate its customers, in advance, to update their KYC. Prior to the due date of periodic updation of KYC, the NBFC shall give at least three advance intimations, including at least one intimation by letter, at appropriate intervals to its customers through available communication options / channels for complying with the requirement of periodic updation of KYC. Subsequent to the due date, the NBFC shall give at least three reminders, including at least one reminder by letter, at appropriate intervals, to such customers who have still not complied with the requirements, despite advance intimations. The letter of intimation / reminder may, inter alia, contain easy-to-understand instructions for updating KYC, escalation mechanism for seeking help, if required, and the consequences, if any, of failure to update their KYC in time. Issue of such advance intimation / reminder shall be duly recorded in the NBFC’s system against each customer for audit trail. The NBFC shall expeditiously implement the same but not later than January 01, 2026.

43. In case of existing customers, the NBFC shall obtain the Permanent Account Number or equivalent e-document thereof or Form No. 60, by such date which the Central Government may notify, failing which the NBFC shall temporarily cease operations in the account until the customer submits the Permanent Account Number or equivalent e-documents thereof or Form No. 60.

Provided that before temporarily ceasing operations for an account, the NBFC shall give the customer an accessible notice and a reasonable opportunity to be heard. Further, the NBFC shall include, in its internal policy, appropriate relaxation(s) for continued operation of accounts for customers who are unable to provide Permanent Account Number or equivalent e-document thereof or Form No. 60 owing to injury, illness or infirmity on account of old age or otherwise, and such like causes. However, the NBFC shall subject such accounts to enhanced monitoring.

Provided further that if a customer having an existing account-based relationship with a NBFC gives in writing to the NBFC that they do not want to submit their Permanent Account Number or equivalent e-document thereof or Form No. 60, the NBFC shall close the account and all obligations due in relation to the account shall be appropriately settled after establishing the identity of the customer by obtaining the identification documents as applicable to the customer.

Explanation: For the purpose of this paragraph, ‘temporary ceasing of operations’ in relation to an account shall mean the temporary suspension of all transactions or activities in relation to that account by the NBFC till such time the customer complies with the provisions of this paragraph. In case of asset accounts such as loan accounts, for the purpose of ceasing the operation in the account, only credits shall be allowed.

F. Enhanced and Simplified Due Diligence Procedure

44. Enhanced Due Diligence (EDD) for non-face-to-face customer onboarding (other than customer onboarding in terms of paragraph 25): Non-face-to-face onboarding facilitates the NBFC to establish a relationship with the customer without meeting the customer physically or through V-CIP. Such non-face-to-face modes for the purpose of this paragraph include use of digital channels such as CKYCR, DigiLocker, equivalent e-document, etc., and non- digital modes such as obtaining copy of OVD certified by additional certifying authorities as allowed for NRIs and PIOs. The NBFC shall undertake the following EDD measures for non-face-to-face customer onboarding (other than customer onboarding in terms of paragraph 25):

1. If the NBFC has introduced the process of V-CIP, it shall provide the same as the first option to the customer for remote onboarding. It is reiterated that the NBFC shall treat processes complying with prescribed standards and procedures for V-CIP on par with face-to-face CIP for the purpose of these Directions.

2. In order to prevent frauds, alternate mobile numbers shall not be linked post CDD with such accounts for transaction OTP, transaction updates, etc. The NBFC shall permit transactions only from the mobile number used for account opening. The NBFC shall have a Board-approved policy delineating a robust process of due diligence for dealing with requests for change of registered mobile number.

3. Apart from obtaining the current address proof, the NBFC shall verify the current address through positive confirmation before allowing operations in the account. The NBFC may carry out the positive confirmation by means of such as address verification letter, contact point verification, deliverables, etc.

4. The NBFC shall obtain PAN from the customer and the PAN shall be verified from the verification facility of the issuing authority.

5. First transaction in such accounts shall be a credit from existing KYC-complied NBFC account of the customer.

6. The NBFC shall categorise such customers as high-risk customers and shall subject accounts opened in non-face-to-face mode to enhanced monitoring until the identity of the customer is verified in face-to-face manner or through V-CIP.

45. Accounts of Politically Exposed Persons (PEPs)

(1) The NBFC shall have the option of establishing a relationship with PEPs (whether as customer or beneficial owner) provided that, apart from performing normal customer due diligence:

1. the NBFC has in place appropriate risk management systems to determine whether the customer or the beneficial owner is a PEP;

2. The NBFC shall take reasonable measures for establishing the source of funds / wealth;

3. the NBFC shall obtain approval to open an account for a PEP from the senior management;

4.  the NBFC subjects all such accounts to enhanced monitoring on an on-going basis;

5. in the event of an existing customer or the beneficial owner of an existing account subsequently becoming a PEP, the NBFC obtains the senior management’s approval to continue the business relationship;

(2) These instructions shall also apply to family members or close associates of PEPs.

Explanation: For the purpose of this paragraph, ‘Politically Exposed Persons’ (PEPs) are individuals who are or have been entrusted with prominent public functions by a foreign country, including the Heads of States / Governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations and important political party officials.

46. Client accounts opened by professional intermediaries: The NBFC shall ensure while opening client accounts through professional intermediaries, that:

1. The NBFC shall identify clients when a professional intermediary opens a client account on behalf of a single client.

2. The NBFC shall have option to hold 'pooled' accounts managed by professional intermediaries on behalf of entities like mutual funds, pension funds or other types of funds.

3. The NBFC shall not open accounts of such professional intermediaries who are bound by any client confidentiality which prohibits disclosure of the client details to the NBFC.

4. The NBFC shall identify all the beneficial owners where intermediaries do not co-mingle funds at the level of the NBFC, and there are 'sub- accounts', each of them attributable to a beneficial owner, or where such funds are co-mingled at the level of the NBFC, the NBFC shall look for the beneficial owners.

5. The NBFC shall, at their discretion, rely on the 'customer due diligence' (CDD) done by an intermediary, provided that the intermediary is a regulated and supervised entity and has adequate systems in place to comply with the KYC requirements of the customers.

6. The ultimate responsibility for knowing the customer lies with the NBFC.

Chapter VII - Record Management

47. The NBFC shall take the following steps regarding maintenance, preservation and reporting of customer information, with reference to provisions of PML Act and Rules. The NBFC shall,

(1) maintain all necessary records of transactions between the NBFC and the customer, both domestic and international, for at least five years from the date of transaction;

(2) preserve the records pertaining to the identification of the customers and their addresses, obtained while opening the account and during the course of business relationship, for at least five years after the business relationship has ended;

(3) swiftly make available, the identification records and transaction data to the competent authorities upon request;

(4) introduce a system of maintaining proper records of transactions prescribed under Rule 3 of Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (PML Rules, 2005);

(5) maintain all necessary information in respect of transactions prescribed under PML Rule 3 to permit the reconstruction of an individual transaction, including the following:

1. the nature of the transactions;

2. the amount of the transaction and the currency in which it was denominated;

3. the date on which the transaction was conducted; and

4. the parties to the transaction.

(6) evolve a system for proper maintenance and preservation of account information in a manner that allows the NBFC to retrieve data easily and quickly whenever required or when competent authorities request it;

(7) maintain records of the identity and address of its customers, and records in respect of transactions referred to in Rule 3 in hard or soft format.

Explanation: For the purpose of this paragraph, the expressions ‘records pertaining to the identification’, ‘identification records’, etc., shall include updated      records of the identification data, account files, business correspondence, and results of any analysis undertaken.

48. The NBFC shall ensure that in case of customers who are non-profit organisations, the NBFC registers details of such customers on the DARPAN Portal of NITI Aayog. If they are not registered, the NBFC shall register the details on the DARPAN Portal. The NBFC shall also maintain such registration records for a period of five years after the business relationship between the customer and the NBFC has ended or the account has been closed, whichever is later.

Chapter VIII - Reporting Requirements to Financial Intelligence Unit – India

49. The NBFC shall furnish to the Director, Financial Intelligence Unit-India (FIU-IND), the information referred to in Rule 3 of the PML (Maintenance of Records) Rules, 2005 in accordance with Rule 7 thereof.

Explanation: In terms of Third Amendment Rules notified September 22, 2015 regarding amendment to sub rule 3 and 4 of rule 7, Director, FIU-IND shall have powers to issue guidelines to the REs for detecting transactions referred to in various clauses of sub-rule (1) of rule 3, to direct them about the form of furnishing information and to specify the procedure and the manner of furnishing information.

50. The NBFC shall take note of the reporting formats and comprehensive reporting format guide, prescribed / released by FIU-IND and Report Generation Utility and Report Validation Utility developed to assist reporting entities in the preparation of prescribed reports. The NBFC which is yet to install / adopt suitable technological tools for extracting CTR / STR from its live transaction data shall make use of the editable electronic utilities to file electronic Cash Transaction Reports (CTR) / Suspicious Transaction Reports (STR) which FIU- IND has placed on its website.  The Principal Officer of the NBFC, shall have suitable arrangement to cull out the transaction details from branches which are yet to be computerised and to feed the data into an electronic file with the help of the editable electronic utilities of CTR / STR as have been made available by FIU-IND on its website http://fiuindia.gov.in.

51. When furnishing information to the Director, FIU-IND, a delay of each day in not reporting a transaction or delay of each day in rectifying a mis-represented transaction beyond the time limit as specified in the Rule shall constitute as a separate violation. The NBFC shall not put any restriction on operations in the accounts merely on the basis of the STR filed.

The NBFC, its directors, officers, and all employees shall ensure that the fact of maintenance of records referred to in rule 3 of the PML (Maintenance of Records) Rules, 2005, and furnishing of the information to the Director is confidential. However, such confidentiality requirement shall not inhibit sharing of information under paragraph 8 of these Directions of any analysis of transactions and activities which appear unusual, if the NBFC has done any such analysis.

52. To identify and report suspicious transactions effectively, the NBFC shall implement robust software that generates alerts when transactions are inconsistent with a customer's risk categorisation and updated profile.

Chapter IX - Requirements/obligations under International Agreements -
Communications from International Agencies

53. Obligations under the Unlawful Activities (Prevention) (UAPA) Act, 1967:

(1) The NBFC shall ensure that in terms of section 51A of the Unlawful Activities (Prevention) (UAPA) Act, 1967 and amendments thereto, it  does not have any account in the name of individuals / entities appearing in the lists of individuals and entities, suspected of having terrorist links, which are approved by and periodically circulated by the United Nations Security Council (UNSC). The details of the two lists are as under:

1. The ‘ISIL (Da’esh) & Al-Qaida Sanctions List’, established and maintained pursuant to Security Council resolutions 1267 / 1989 / 2253, which includes names of individuals and entities associated with Al-Qaida, is available at www.un.org/securitycouncil/sanctions/1267/aq_sanctions_list

2. The ‘Taliban Sanctions List’, established and maintained pursuant to Security Council resolution 1988 (2011), which includes names of individuals and entities associated with the Taliban is available at https://www.un.org/securitycouncil/sanctions/1988/materials

(2) The NBFC shall also ensure to refer to the lists as available in the Schedules to the Prevention and Suppression of Terrorism (Implementation of Security Council Resolutions) Order, 2007, as amended from time to time. The NBFC shall verify the aforementioned lists, i.e., UNSC Sanctions Lists and lists as available in the Schedules to the Prevention and Suppression of Terrorism (Implementation of Security Council Resolutions) Order, 2007, as amended from time to time, on a daily basis, and any modifications to the lists in terms of additions, deletions or other changes shall be taken into account by the NBFC for meticulous compliance.

(3) The NBFC shall report the details of accounts resembling any of the individuals / entities in the lists to FIU-IND in addition to advising the Ministry of Home Affairs (MHA) as required under UAPA notification dated February 2, 2021 (Annex I of these Directions).

(4) Freezing of Assets under Section 51A of UAPA, 1967: The NBFC shall strictly follow the procedure laid down in the UAPA Order dated February 2, 2021 (Annex I of these Directions), and shall ensure the meticulous compliance with the Order issued by the Government. The list of Nodal Officers for UAPA is available on the website of MHA.

54. Obligations under Weapons of Mass Destruction (WMD) and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 (WMD Act, 2005):

1. The NBFC shall ensure meticulous compliance with the ‘Procedure for Implementation of Section 12A of the Weapons of Mass Destruction (WMD) and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005’ laid down in terms of section 12A of the WMD Act, 2005 vide Order dated September 1, 2023, by the Ministry of Finance, Government of India (Annex II of these Directions).

2. In accordance with paragraph 3 of the aforementioned Order, the NBFC shall ensure not to carry out transactions in case the particulars of the individual / entity match with the particulars in the designated list.

3. Further, the NBFC shall run a check, on the given parameters, at the time of establishing a relation with a customer and on a periodic basis to verify whether individuals and entities in the designated list are holding any funds, financial asset, etc., in the form of NBFC account, etc.

4. In case of a match in the above cases, the NBFC shall immediately inform the transaction details with full particulars of the funds, financial assets or economic resources involved to the Central Nodal Officer (CNO), designated as the authority to exercise powers under section 12A of the WMD Act, 2005. The NBFC shall send a copy of the communication to the State Nodal Officer, where the account / transaction is held and to the RBI.

5. The NBFC may note that, in terms of paragraph 1 of the Order, Director, FIU-India has been designated as the CNO.

6. The NBFC may refer to the designated list, as amended from time to time, available on the portal of FIU-India.

7. In case there are reasons to believe beyond doubt that funds or assets held by a customer would fall under the purview of clause (a) or (b) of sub-section (2) of section 12A of the WMD Act, 2005, the NBFC shall prevent such individual / entity from conducting financial transactions, under intimation to the CNO by email, FAX and by post, without delay.

8. In case the NBFC receives an order to freeze assets under section 12A from the CNO, the NBFC shall, without delay, take necessary action to comply with the Order.

9. The NBFC shall observe the process of unfreezing of funds, etc., as per paragraph 7 of the Order. Accordingly, the NBFC shall forward a copy of application received from an individual / entity regarding unfreezing, along with full details of the asset frozen, as given by the applicant, to the CNO by email, FAX and by post, within two working days.

55. The NBFC shall verify every day, the ‘UNSCR 1718 Sanctions List of Designated Individuals and Entities‘, as available at https://www.mea.gov.in/Implementation- of-UNSC-Sanctions-DPRK.htm, to take into account any modifications to the list in terms of additions, deletions or other changes and also ensure compliance with the ‘Implementation of Security Council Resolution on Democratic People’s Republic of Korea Order, 2017’, as amended from time to time by the Central Government.

56. In addition to the above, the NBFC shall take into account:

1. other UNSCRs and

2. lists in the first schedule and the fourth schedule of UAPA, 1967 and any amendments to the same for compliance with the Government orders on implementation of section 51A of the UAPA and section 12A of the WMD Act.

57. The NBFC shall undertake countermeasures when called upon to do so by any international or intergovernmental organisation of which India is a member and which is accepted by the Central Government.

58. Jurisdictions that do not or insufficiently apply the FATF Recommendations

1. The NBFC shall consider the FATF Statements circulated by the RBI from time to time, and publicly available information, for identifying countries, which do not or insufficiently apply the FATF Recommendations. The NBFC shall apply enhanced due diligence measures, which are effective and proportionate to the risks, to business relationships and transactions with natural and legal persons (including financial institutions) from countries for which this is called for by the FATF.

2. The NBFC shall give special attention to business relationships and transactions with persons (including legal persons and other financial institutions) from or in countries that do not or insufficiently apply the FATF Recommendations and jurisdictions included in FATF Statements.
   
   Explanation: The processes referred to in (1) & (2) above do not preclude the NBFC from having legitimate trade and business transactions with the countries and jurisdictions mentioned in the FATF statement.

3. The NBFC shall examine the background and purpose of transactions with persons (including legal persons and other financial institutions) from jurisdictions included in FATF Statements and countries that do not or insufficiently apply the FATF Recommendations, retain written findings together with all documents, and make them available to the RBI / other relevant authorities, on request.

59. The NBFC is encouraged to leverage latest technological innovations and tools for effective implementation of name screening to meet the sanctions requirements.

Chapter X - Other Instructions

60. Secrecy Obligations and Sharing of Information:

(1) The NBFC shall maintain secrecy regarding the customer information that arises out of the contractual relationship between the NBFC and the customer.

(2) The NBFC shall treat information collected from customers for the purpose of opening of account as confidential and shall not divulge details thereof for the purpose of cross-selling, or for any other purpose without the express permission of the customer.

(3) While considering the requests for data / information from Government and other agencies, the NBFC shall satisfy itself that the information being sought is not of such a nature as will violate the provisions of the laws relating to secrecy in the transactions.

(4) The exceptions to the said rule shall be as under:

1. Where disclosure is under compulsion of law,

2. Where there is a duty to the public to disclose,

3. Where the interest of the NBFC requires disclosure, and

4. Where the disclosure is made with the express or implied consent of the customer.

61. Compliance with the provisions of Foreign Contribution (Regulation) Act, 2010: The NBFC shall ensure adherence to the provisions of Foreign Contribution (Regulation) Act, 2010, and Rules made thereunder. Further, the NBFC shall also ensure meticulous compliance with any instructions / communications on the matter issued from time to time by the RBI based on advice received from the Ministry of Home Affairs, Government of India.

62. CDD Procedure and sharing KYC information with Central KYC Records Registry (CKYCR)

(1) Government of India has authorised the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), to act as, and to perform the functions of the CKYCR vide Gazette Notification No. S.O. 3183(E) dated November 26, 2015.

(2) In terms of provision of Rule 9(1A) of the PML Rules, the NBFC shall capture customer’s KYC records and upload onto CKYCR within 10 days of commencement of an account-based relationship with the customer.

(3) Operational Guidelines for uploading the KYC data have been released by CERSAI.

(4) The NBFC shall capture the KYC information for sharing with the CKYCR in the manner mentioned in the Rules, as per the KYC templates prepared for ‘Individuals’ and ‘Legal Entities’ (LEs), as the case may be. The templates may be revised from time to time, as may be required and released by CERSAI.

(5) NBFC shall upload the KYC data pertaining to all new individual accounts opened on or after from April 1, 2017, with CKYCR in terms of the provisions of the Rules ibid.

(6) The NBFC shall upload KYC records pertaining to accounts of LEs opened on or after April 1, 2021, with CKYCR in terms of the provisions of the Rules ibid. The NBFC shall upload KYC records as per the LE Template released by CERSAI.

(7) Once KYC Identifier is generated by CKYCR, the NBFC shall ensure that the same is communicated to the individual / LE as the case may be.

(8) In order to ensure that all KYC records are incrementally uploaded on to CKYCR, the NBFC shall upload / update the KYC data pertaining to accounts of individual customers and LEs opened prior to the above-mentioned dates as per clauses (5) and (6), respectively, at the time of periodic updation as specified in paragraph 42 of these Directions, or earlier, when the updated KYC information is obtained / received from the customer. Also, whenever the NBFC obtains additional or updated information from any customer as per clause (10) below in this paragraph or Rule 9 (1C) of the PML Rules, the NBFC shall within seven days or within such period as may be notified by the Central Government, furnish the updated information to CKYCR, which shall update the KYC records of  the  existing  customer  in  CKYCR.  CKYCR  shall  thereafter  inform electronically all the reporting entities who have dealt with the concerned customer regarding updation of KYC record of the said customer. Once CKYCR informs the NBFC regarding an update in the KYC record of an existing customer, the NBFC shall retrieve the updated KYC records from CKYCR and update the KYC record maintained by the NBFC.

(9) The NBFC shall ensure that during periodic updation, the customers are migrated to the current CDD standard.

(10) For the purpose of establishing an account-based relationship, updation / periodic updation or for verification of identity of a customer, the NBFC shall seek the KYC Identifier from the customer or retrieve the KYC Identifier, if available, from the CKYCR and proceed to obtain KYC records online by using such KYC Identifier and shall not require a customer to submit the same KYC records or information or any other additional identification documents or details, unless–

1. there is a change in the information of the customer as existing in the records of CKYCR; or

2. the KYC record or information retrieved is incomplete or is not as per the current applicable KYC norms; or

3. the validity period of downloaded documents has lapsed; or

4. the NBFC considers it necessary in order to verify the identity or address (including current address) of the customer, or to perform enhanced due diligence or to build an appropriate risk profile of the customer.

63. Reporting requirement under Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS): Under FATCA and CRS, the NBFC shall adhere to the provisions of Income Tax Rules 114F, 114G and 114H and determine whether they are a Reporting Financial Institution as defined in Income Tax Rule 114F and if so, shall take following steps for complying with the reporting requirements:

(1) Register on the related e-filing portal of Income Tax Department as Reporting Financial Institutions at the link https://incometaxindiaefiling.gov.in/ post login --> My Account --> Register as Reporting Financial Institution.

(2) Submit online reports by using the digital signature of the ‘Designated Director’ by either uploading the Form 61B or ‘NIL’ report, for which, the schema prepared by Central Board of Direct Taxes (CBDT) shall be referred to.

Explanation: REs shall refer to the spot reference rates published by Foreign Exchange Dealers’ Association of India (FEDAI) on their website at http://www.fedai.org.in/RevaluationRates.aspx for carrying out the due diligence procedure for the purposes of identifying reportable accounts in terms of Rule 114H.

(3) Develop Information Technology (IT) framework for carrying out due diligence procedure and for recording and maintaining the same, as provided in Rule 114H.

(4) Develop a system of audit for the IT framework and compliance with Rules 114F, 114G and 114H of Income Tax Rules.

(5) Constitute a ‘High-Level Monitoring Committee’ under the Designated Director or any other equivalent functionary to ensure compliance.

(6) Ensure compliance with updated instructions / rules / guidance notes / Press releases / issued on the subject by Central Board of Direct Taxes (CBDT) from time to time and available on the website http://www.incometaxindia.gov.in/Pages/default.aspx. REs may take note of the following:

1. updated Guidance Note on FATCA and CRS

2. a press release on ‘Closure of Financial Accounts’ under Rule 114H (8).

64. Operation of accounts & Money Mules: The instructions on opening of accounts and monitoring of transactions shall be strictly adhered to, in order to minimise the operations of “Money Mules” which are used to launder the proceeds of fraud schemes (e.g., phishing and identity theft) by criminals who gain illegal access to deposit accounts by recruiting third parties which act as “money mules.” The NBFC shall undertake diligence measures and meticulous monitoring to identify accounts which are operated as Money Mules and take appropriate action, including reporting of suspicious transactions to FIU-IND. Further, if it is established that an account opened and operated is that of a Money Mule, but no STR was filed by the concerned bank,  it shall then be deemed that the NBFC has not complied with these directions.

65. The NBFC shall allot Unique Customer Identification Code (UCIC) while entering into new relationships with individual customers as also the existing individual customers.

66. The NBFC shall, at their option, not issue UCIC to all walk-in / occasional customers provided it is ensured that there is adequate mechanism to identify such walk-in customers who have frequent transactions with them and ensure that they are allotted UCIC.

67. Introduction of New Technologies: The NBFC shall identify and assess the ML / TF risks that may arise in relation to the development of new products and new business practices, including new delivery mechanisms, and the use of new or developing technologies for both new and existing products.

Further, the NBFC shall ensure:

1. to undertake the ML / TF risk assessments prior to the launch or use of such products, practices, services, technologies; and

2. adoption of a risk-based approach to manage and mitigate the risks through appropriate EDD measures and transaction monitoring, etc.

68. Wire Transfer

(1) Information requirements for wire transfers for the purpose of these Directions:

(i) All cross-border wire transfers shall be accompanied by accurate, complete, and meaningful originator and beneficiary information as mentioned below:

1. name of the originator;

2. the originator account number where such an account is used to process the transaction;

3. the originator’s address, or national identity number, or customer identification number, or date and place of birth;

4. name of the beneficiary; and

5. the beneficiary account number where such an account is used to process the transaction.

In the absence of an account, a unique transaction reference number should be included which permits traceability of the transaction.

(ii) In case of batch transfer, where several individual cross-border wire transfers from a single originator are bundled in a batch file for transmission to beneficiaries, they (i.e., individual transfers) are exempted from the requirements of clause (i) above in respect of originator information, provided that they include the originator’s account number or unique transaction reference number, as mentioned above, and the batch file contains required and accurate originator information, and full beneficiary information, that is fully traceable within the beneficiary country.

(iii) Domestic wire transfer, where the originator is an account holder of the ordering NBFC, shall be accompanied by originator and beneficiary information, as indicated for cross-border wire transfers in (i) and (ii) above.

(iv) Domestic wire transfers of ₹50 thousand and above, where the originator is not an account holder of the ordering NBFC, shall also be accompanied by originator and beneficiary information as indicated for cross-border wire transfers.

In case of domestic wire transfers below ₹50 thousand where the originator is not an account holder of the ordering NBFC and where the information accompanying the wire transfer can be made available to the beneficiary RE and appropriate authorities by other means, it is sufficient for the ordering NBFC to include a unique transaction reference number, provided that this number or identifier will permit the transaction to be traced back to the originator or the beneficiary.

The ordering NBFC shall make the information available within three working / business days of receiving the request from the intermediary RE, beneficiary RE, or from appropriate competent authorities.

(v) The NBFC shall ensure that all the information on the wire transfers shall be immediately made available to appropriate law enforcement authorities, prosecuting / competent authorities as well as FIU-IND on receiving such requests with appropriate level provisions.

(vi) The wire transfer instructions are not intended to cover the following types of payments:

1. Any transfer that flows from a transaction carried out using a credit card / debit card / Prepaid Payment Instrument (PPI), including through a token or any other similar reference string associated with the card / PPI, for the purchase of goods or services, so long as the credit or debit card number or PPI id or reference number accompanies all transfers flowing from the transaction. However, when a credit or debit card or PPI is used as a payment system to effect a person-to-person wire transfer, the wire transfer instructions shall apply to such transactions and the necessary information should be included in the message.

2. Financial institution-to-financial institution transfers and settlements, where both the originator person and the beneficiary person are regulated financial institutions acting on their own behalf.

It is, however, clarified that nothing within these instructions will impact the obligation of the bank to comply with applicable reporting requirements under PML Act, 2002, and the Rules made thereunder, or any other statutory requirement in force.

(2) Responsibilities of ordering NBFC, intermediary NBFC and beneficiary NBFC, effecting wire transfer, are as under:

(i) Ordering NBFC:

1. The ordering NBFC shall ensure that all cross-border and qualifying domestic wire transfers {viz., transactions as per clauses (iii) and (iv) of paragraph 68(1) above}, contain required and accurate originator information and required beneficiary information, as indicated above.

2. Customer Identification shall be made if a customer, who is not an account holder of the ordering NBFC, is intentionally structuring domestic wire transfers below ₹50 thousand to avoid reporting or monitoring. In case of non-cooperation from the customer, efforts shall be made to establish identity and if the same transaction is found to be suspicious, STR may be filed with FIU-IND in accordance with the PML Rules.

3. Ordering NBFC shall not execute the wire transfer if it is not able to comply with the requirements stipulated in this paragraph.

(ii) Intermediary NBFC:

(a) The NBFC processing an intermediary element of a chain of wire transfers shall ensure that all originator and beneficiary information accompanying a wire transfer is retained with the transfer.

(b) Where technical limitations prevent the required originator or beneficiary information accompanying a cross-border wire transfer from remaining with a related domestic wire transfer, the intermediary NBFC shall keep a record, for at least five years, of all the information received from the ordering financial institution or another intermediary RE.

(c) Intermediary NBFC shall take reasonable measures to identify cross- border wire transfers that lack required originator information or required beneficiary information. Such measures should be consistent with straight-through processing.

(d) Intermediary NBFC shall have effective risk-based policies and procedures for determining:

1. when to execute, reject, or suspend a wire transfer lacking required originator or required beneficiary information; and

2. the appropriate follow-up action including seeking further information and if the transaction is found to be suspicious, reporting to FIU-IND in accordance with the PML Rules.

(iii) Beneficiary NBFC:

1. Beneficiary NBFC shall take reasonable measures, including post-event monitoring or real-time monitoring where feasible, to identify cross- border wire transfers and qualifying domestic wire transfers {viz., transactions as per clauses (iii) and (iv) of paragraph 68(1) above}, that lack required originator information or required beneficiary information.

2. Beneficiary NBFC shall have effective risk-based policies and procedures for determining: (a) when to execute, reject, or suspend a wire transfer lacking required originator or required beneficiary information; and (b) the appropriate follow-up action follow-up action including seeking further information and if the transaction is found to be suspicious, reporting to FIU-IND in accordance with the PML Rules.

(iv) Money Transfer Service Scheme (MTSS) providers and other NBFCs, shall comply with all of the relevant requirements of this paragraph, whether they are providing services directly or through their agents. The NBFC that control both the ordering and the beneficiary side of a wire transfer shall:

1. take into account all the information from both the ordering and beneficiary sides in order to determine whether an STR has to be filed; and

2. file an STR with FIU, in accordance with the PML Rules, if a transaction is found to be suspicious.

(3) Other Obligations:

(i) Obligations in respect of the NBFC’s engagement or involvement with unregulated entities in the process of wire transfer: The NBFC shall be cognizant of their obligations under these instructions and ensure strict compliance, in respect of engagement or involvement of any unregulated entities in the process of wire transfer. More specifically, whenever there is involvement of any unregulated entities in the process of wire transfers, the concerned NBFC shall be fully responsible for information, reporting and other requirements and therefore shall ensure, inter alia, that:

1. there is unhindered flow of complete wire transfer information, as mandated under these directions, from and through the unregulated entities involved;

2. the agreement / arrangement, if any, with such unregulated entities by the NBFC clearly stipulates the obligations under wire transfer instructions; and

3. a termination clause is available in their agreement / arrangement, if any, with such entities so that in case the unregulated entities are unable to support the wire information requirements, the agreement / arrangement can be terminated. Existing agreements / arrangements, if any, with such entities shall be reviewed within three months to ensure aforementioned requirements.

(ii) The NBFC’s responsibility while undertaking cross-border wire transfer with respect to name screening (such that they do not process cross-border transactions of designated persons and entities).

The NBFC is prohibited from conducting transactions with designated persons and entities and accordingly, in addition to compliance with Chapter IX of the Directions, the NBFC shall ensure that they do not process cross-border transactions of designated persons and entities.

(iii) The NBFC’s responsibility to fulfil record management requirements: Complete originator and beneficiary information relating to wire transfers shall be preserved by the NBFC involved in the wire transfer, in accordance with paragraph 47 of these Directions.

69. Quoting of PAN: Permanent account number (PAN) or equivalent e-document thereof of customers shall be obtained and verified while undertaking transactions as per the provisions of Income Tax Rule 114B applicable to NBFCs, as amended from time to time. Form 60 shall be obtained from persons who do not have PAN or equivalent e-document thereof.

70. Selling Third party products: The NBFC acting as agent while selling third party products as per regulations in force from time to time shall comply with the following aspects for the purpose of these directions:

(1) the identity and address of the walk-in customer shall be verified for transactions above ₹50 thousand as required under paragraph 21 (5) of these Directions.

(2) transaction details of sale of third-party products and related records shall be maintained as prescribed in paragraph 47 of Chapter VII.

(3) AML software capable of capturing, generating and analysing alerts for the purpose of filing CTR / STR in respect of transactions relating to third party products with customers including walk-in customers shall be available.

(4) transactions involving ₹50 thousand and above shall be undertaken only by:

1. debit to customers’ account or against cheques; and

2. obtaining and verifying the PAN given by the account-based as well as walk-in customers.

(5) Instruction at (4) above shall also apply to sale of the NBFC’s own products, payment of dues of credit cards / sale and reloading of prepaid / travel cards and any other product for ₹50 thousand and above.

71. Issuance of Prepaid Payment Instruments (PPIs): PPI issuers shall ensure that the instructions issued by Department of Payment and Settlement System of RBI through their Master Direction are strictly adhered to.

72. Hiring of Employees and Employee training:

1. The NBFC shall put in place an adequate screening mechanism, including Know Your Employee / Staff policy, as an integral part of its personnel recruitment / hiring process.

2. The NBFC shall endeavour to ensure that the staff dealing with / being deployed for KYC / AML / CFT matters have: high integrity and ethical standards, good understanding of extant KYC / AML / CFT standards, effective communication skills and ability to keep up with the changing KYC / AML / CFT landscape, nationally and internationally. The NBFC shall also strive to develop an environment which fosters open communication and high integrity amongst the staff.

3. The NBFC shall put in place an on-going employee training programme so that the members of staff are adequately trained in KYC / AML / CFT policy. The focus of the training shall be different for frontline staff, compliance staff and staff dealing with new customers. The NBFC shall specially train the front desk staff to handle issues arising from lack of customer education. The NBFC shall ensure the proper staffing of the audit function with persons adequately trained and well-versed in KYC / AML / CFT policies of the NBFC, regulation and related issues.

Chapter XI- Repeal and Other Provisions

76. Repeal and saving

1. With the issue of these Directions, the existing Directions, instructions, and guidelines relating to Know Your Customers as applicable to Non-Banking Financial Companies stand repealed, as communicated vide notification dated XX, 2025. The Directions, instructions, and guidelines repealed prior to the issuance of these Directions shall continue to remain repealed.

2. Notwithstanding such repeal, any action taken or purported to have been taken, or initiated under the repealed Directions, instructions, or guidelines shall continue to be governed by the provisions thereof. All approvals or acknowledgments granted under these repealed lists shall be deemed as governed by these Directions.

77. Application of other laws not barred

The provisions of these Directions shall be in addition to, and not in derogation of the provisions of any other laws, rules, regulations, or directions, for the time being in force.

78. Interpretation:

For the purpose of giving effect to the provisions of these Directions or in order to remove any difficulties in the application or interpretation of the provisions of these Directions, the RBI may, if it considers necessary, issue necessary clarifications in respect of any matter covered herein and the interpretation of any provision of these Directions given by the RBI shall be final and binding.