Part 05 — The Lending Lifecycle
KYC Onboarding
Purpose
Section titled “Purpose”Know Your Customer (KYC) onboarding establishes that the applicant, business entity, promoters, authorised signatories and beneficial owners are real, eligible and not prohibited. In SME lending this is harder than retail because the borrower may be a sole proprietor using personal identity, a partnership, limited liability partnership (LLP), private limited company, Hindu Undivided Family (HUF), trust, society or co-operative. The controlling regulation is Master Direction - Know Your Customer (KYC) Direction, 2016, dated 25 February 2016 and updated as amended, with a 12 June 2025 amendment on periodic KYC updation for low-risk individual customers (RBI KYC Master Direction; RBI KYC Amendment Directions, 2025).
Actors
Section titled “Actors”Actors include borrower, promoter/director/partner/karta/trustee, authorised signatory, sales maker, KYC operations checker, AML officer, video customer identification process (V-CIP) agent, compliance, CKYCR operations, DigiLocker or Aadhaar offline verification provider, sanctions-screening vendor and credit. Legal may assist when constitution documents are ambiguous.
Inputs & documents
Section titled “Inputs & documents”Core inputs are PAN/Form 60 where permitted, officially valid document (OVD), current address, photograph, date of birth, mobile, e-mail, constitution proof, board/partner authorisation, beneficial-owner details, FATCA/PEP declarations, GSTIN, Udyam Registration Number and bank account. RBI KYC requires CKYCR upload within 10 days of commencement of an account-based relationship; legal-entity accounts opened on or after 1 April 2021 also require CKYCR upload using the legal entity template (RBI KYC Master Direction, CKYCR section).
| Constitution | KYC focus | Usual documents |
|---|---|---|
| Proprietorship | Proprietor identity plus business existence | Proprietor PAN/OVD, GST certificate, Udyam, shop act/trade licence, bank statement |
| Partnership | Firm existence and partners | Partnership deed, firm PAN, registration certificate if registered, partners’ KYC, authority letter |
| LLP | LLP legal existence and designated partners | Certificate of incorporation, LLP agreement, LLP PAN, master data, designated-partner KYC, resolution |
| Private limited | Company, directors and beneficial owners | Certificate of incorporation, memorandum/articles, PAN, board resolution, director KYC, shareholding pattern |
| HUF | Karta authority and coparcener context | HUF PAN, deed/declaration, karta KYC, bank account, business proof |
| Trust/society | Objects, trustees and authorised persons | Registration certificate, trust deed/bylaws, PAN, trustee KYC, resolution |
Step-by-step workflow
Section titled “Step-by-step workflow”- Identify constitution from PAN/GST/Udyam and customer declaration. Do not rely only on trade name.
- Retrieve CKYC identifier if available; where current and complete, avoid asking for the same KYC records again unless an exception applies under the KYC Master Direction.
- For individuals/proprietors/promoters, complete customer due diligence through OVD, DigiLocker document, Aadhaar offline verification, bank-mode KYC or V-CIP where policy permits.
- For legal entities, verify incorporation or registration documents, PAN, registered address and authority to borrow.
- Identify beneficial owners. RBI’s KYC direction uses more-than-10% thresholds for companies and partnerships, more-than-15% for unincorporated associations/bodies of individuals, and trust-specific identification of author, trustees and beneficiaries with 10% or more interest (RBI KYC Master Direction, beneficial-owner definition).
- Screen parties against sanctions, politically exposed person lists, adverse media and internal negative lists.
- Verify Udyam where relevant. The official Udyam portal states revised MSME classification from 1 April 2025: micro up to ₹2.5 crore investment and ₹10 crore turnover, small up to ₹25 crore and ₹100 crore, medium up to ₹125 crore and ₹500 crore (Udyam important information).
- Store KYC status, evidence, expiry/periodic-review date and maker-checker approvals.
Exceptions & edge cases
Section titled “Exceptions & edge cases”Proprietorship is the hardest because it is not a separate legal person. The borrower may call the business “Shree Balaji Enterprises”, but the legal borrower is the proprietor unless the lender structures otherwise. Partnership deeds may be unregistered, old or silent on borrowing power. LLP master data may show designated-partner changes not reflected in uploaded documents. Private companies may have corporate shareholders, requiring ownership look-through until a natural person or senior managing official is identified. Trust deeds may restrict borrowing or require trustee quorum.
V-CIP failures include poor network, location mismatch, PAN not legible, face mismatch, screen-recording attempts, applicant prompted by a third party and non-live liveness checks. Such cases should move to branch/offline KYC or reject, not be manually marked complete.
Systems touched
Section titled “Systems touched”KYC module, CKYCR, DigiLocker, PAN verification, GST/Udyam verification, MCA/LLP data source, sanctions/PEP screening, V-CIP platform, document management system, LOS, audit log and customer master. Vendors used in Indian lending stacks include Karza, Signzy, IDfy, OnGrid and HyperVerge for identity, document extraction, liveness and fraud checks; final responsibility remains with the regulated entity.
TATs/SLAs
Section titled “TATs/SLAs”Digital individual KYC can finish in 5-20 minutes if documents and video pass. Entity KYC usually takes 2-24 working hours for clean proprietorships and 1-3 working days for companies, LLPs, trusts or multi-layer ownership. CKYCR upload should be operationally tracked within the 10-day regulatory requirement after account-based relationship commencement.
Stage metrics
Section titled “Stage metrics”Track KYC completion rate, CKYC hit rate, CKYCR upload pendency, V-CIP success/failure reasons, beneficial-owner exception rate, sanctions false-positive rate, Udyam verification success, constitution mismatch rate, re-KYC pendency and audit defects per 1,000 onboardings.
Co-lending/partner-origination variant
Section titled “Co-lending/partner-origination variant”The 2025 co-lending directions allow the partner regulated entity to rely on the originating regulated entity for the customer identification process under the KYC Master Direction, but both remain regulated entities with their own compliance obligations (RBI Co-Lending Arrangements Directions, 2025). A co-lending system should store who performed KYC, evidence hash, reliance basis, CKYC identifier, exceptions and whether the partner accepted or requested remediation.