What changed
Earlier, NBFCs had broad discretion to set internal guidelines for identifying legal entities. Now, RBI has laid down a specific, minimum list of documents for proprietary concerns. NBFCs must collect and verify at least two of these documents before opening accounts.
What it means for you
NBFCs now have a clear, uniform checklist for proprietary concern KYC, reducing ambiguity and potential compliance gaps. This tightens AML/CFT safeguards for a common business structure. Lenders must update their account opening procedures and train staff on the new document requirements.
What you must do
- Update your KYC policy and account opening forms to include the prescribed document list for proprietary concerns.
- Train front-office and operations staff to collect and verify at least two of the specified documents before opening any proprietary concern account.
- Ensure your system flags accounts opened without the required documentation for review and remediation.
- Review existing proprietary concern accounts to confirm they meet the new KYC standards, and remediate any gaps.
Who it affects
All Non-Banking Financial Companies (NBFCs), Residuary Non-Banking Companies (RNBCs), Compliance and KYC teams at NBFCs, Proprietary concern customers opening accounts with NBFCs
What documents are acceptable for KYC of a proprietary concern?
Acceptable documents include registration certificate, Shop & Establishment licence, sales/income tax returns, VAT/CST certificate, professional tax certificate, professional body licence (e.g., ICAI, IMA), IEC code, complete income tax return of the proprietor reflecting firm income, and utility bills (electricity, water, landline). Any two of these in the concern's name suffice.
Can we accept only one document if it is very strong?
No. The circular explicitly requires any two of the listed documents. This is a minimum requirement; you may ask for more if needed, but at least two are mandatory.
Does this apply to existing proprietary concern accounts?
The circular is prospective for new accounts. However, as a prudent measure, you should review existing accounts and, where documentation is insufficient, request additional documents to meet the new standard.