What changed
RBI amended clause (c) of Section 43 of the Master Direction on KYC (Feb 25, 2016) to mandate that CDD for all SHG members must be done at credit linking. Previously, simplified norms allowed flexibility; now the timing is fixed.
What it means for you
Banks must now complete full KYC verification for every SHG member before disbursing credit, increasing operational workload but strengthening AML compliance. This may delay SHG loan processing if member documentation is incomplete.
What you must do
- Update internal KYC policies to require CDD for all SHG members at credit linking stage.
- Train branch staff on the new timeline for SHG member verification.
- Review existing SHG accounts to ensure compliance with the amended directive.
- Coordinate with SHG federations to collect member documents in advance.
Who it affects
All scheduled commercial banks, Regional rural banks, Small finance banks, SHG lending teams and branch managers
Does this apply to existing SHGs already linked to credit?
The amendment is effective immediately from April 1, 2021, but the source does not specify retroactive application. Banks should apply it to new credit linkages and may need to review existing ones for compliance.
What happens if CDD is not completed at credit linking?
The directive does not specify penalties, but non-compliance with KYC norms can lead to regulatory action. Banks should ensure CDD is done before disbursing any credit to SHGs.