RBI publishes FAQs on KYC – Question on Modes of Onboarding Raises more Questions

– Subhojit Shome and Sakshi Patil | finserv@vinodkothari.com

Introduction

The Know Your Customer (KYC) Direction, 2016 dated February 25, 2016 are dense, highly technical and operationally intricate. While these directions form the regulatory backbone for customer onboarding and due diligence for financial institutions, they are not always easy to navigate for the very people tasked with implementing them, the on ground compliance officers and operational staff. 

Recognising this operational gap, on June 9, 2025, the RBI published a comprehensive set of FAQs on KYC guidelines, with the intent of simplifying the KYC framework and aimed at clarifying confusion surrounding KYC measures for banks and financial institutions. While the majority of these FAQs successfully provide the much-needed clarity to the financial sector, the response to Question 13, however, has the possibility of inadvertently creating a regulatory arbitrage, by treating the modes of collecting KYC documents in isolation, as full fledged face to face customer onboarding. This article examines the root of this discrepancy, its potential consequences, and why it warrants a re-examination by the regulator.

Face to Face vs. Non-face-to-face Modes of Onboarding

The RBI’s KYC Directions classify onboarding into two modes:

• Face-to-Face
• Non Face-to-Face

This classification is significant because the risk perception, control measures, and regulatory compliances differ for each mode, especially with remote onboarding posing higher risks of impersonation, identity fraud, and misuse. Para 40(f) of the directions provides that the customers onboarded in non face to face mode shall be classified as high risk customers and shall be subjected to enhanced due diligence until they have done the face to face identification.

As per the KYC Directions, a ‘Non face to face customer’ means customers who open accounts without visiting the branch/offices of the REs or meeting the officials of REs (refer para 3(b)(x)).  In this regard, e-KYC authentication, undertaking offline verification of proof of possession of Aadhaar Number (submitted by way of aadhaar XML, mAadhar or electronic copy of the PVC card)); obtaining equivalent e-document of OVD can all be done by remote mode. These modes of submitting KYC information do not require the presence of the customer at the branch or an authorised official having to meet the customer in person. Hence, the aforesaid modes of collecting KYC documents are regarded as non face to face onboarding process.

However, a confusion has erupted since these modes have been listed under face-to-face methods of onboarding in the response to Question 13 in the FAQs. The relevant extract is reproduced herein below:

• Visit to the branch/ office of the RE;
• using e-KYC authentication (OTP as well as biometric based authentication); undertaking offline verification of proof of possession of Aadhaar Number; obtaining certified copy of the OVD or equivalent e-document thereof; undertaking ‘Digital KYC Process’, as per paragraph 16 of the MD on KYC.
• Video based Customer Identification Process (V-CIP) complying with prescribed standards and procedures.

While it is understood that physical visit to the bank or digital KYC process requires the physical presence of the customer either at the branch or the authorised official of the RE meeting the customer physically. The KYC documents are collected and verified accordingly during the physical meeting or as a part of the digital KYC process. Similarly, the process of conducting V-CIP, has been specifically recognised as a face to face mode of onboarding, which also requires the KYC document to be submitted by the customer through any one of the modes mentioned above.

V-CIP as face to face mode of onboarding

In case these modes of collecting the KYC documents, in isolation, are considered as face to face modes of onboarding then the utility of performing V-CIP also comes into question. Let us examine why? V-CIP has been granted the same standing as face to face mode of onboarding and REs performing V-CIP are freed from additional compliance burden of performing EDD according to para 40 of the KYC Directions. The V-CIP process requires the REs to maintain costly infrastructure and also bear operating costs to run the process. Now, the V-CIP process has two parts – one, the KYC Directions mandate a rigorous process for capturing and storing the live video of the customer which is used for establishing the existence/ genuineness of the said person and two, obtaining requisite identification information from the Customer as per para 18 (b)(vi). The modes of obtaining customer identification information are –

• OTP based Aadhaar e-KYC authentication
• Offline Verification of Aadhaar for identification
• KYC records downloaded from CKYCR, in accordance with paragraph 56, using the KYC identifier provided by the customer
• Equivalent e-document of Officially Valid Documents (OVDs) including documents issued through DigiLocker

Hence, if merely performing Aadhar-based e-kyc or offline verification of aadhar or obtaining OVD e-document are considered as face-to-face modes of customer onboarding, REs will have no motivation of performing the full V-CIP. This cannot be the intention of the regulator.

Additionally, RBI in its notification dated June 12, 2025 on Updation/ Periodic Updation of KYC – Revised Instructions has touched upon the distinction between face-to-face, Non face-to-face, and V-CIP onboarding. It has considered only biometric-based e-kyc and digital KYC as face to face onboarding while considering V-CIP on the same footing as face to face onboarding.

As per para 40(f) of KYC Directions, customers onboarded through non face to face mode, are classified as high risk customers. Enhanced due diligence measures are required to be undertaken for such accounts until the customer undergoes face-to-face KYC verification.

Conclusion

The meaning of face-to-face mode of onboarding is implicit in the definition of Non-face-to-face Customer as per para 3(b)(x) of the KYC Directions. Face to face onboarding will mean that  either the customer physically visits the branch of the RE to open their account or or an authorised official of the RE physically meets such customer for such purpose. In either case the existence of the customer is physically verified when it comes to face to face onboarding.

Given the aforesaid understanding of the regulations, in our view, the KYC Directions allow for only the following three modes of face to face onboarding –

• Physical meeting of the Customer with the officials of the RE (e.g. branch visit), or
• Conducting Digital KYC as per Annex I where an authorised official of the RE is required to meet the customer physically, or
• Conducting V-CIP, in compliance with all the infrastructure and operational requirements, has been explicitly recognised to have the same standing as face-to-face onboarding per para 3(b)(xvi).

The different modes of face to face and non-face to face KYC has been visualised in the following infographic :

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