RBI KYC Amendment 2026: FPI Documentation Rules Changed

What Happened?

The Reserve Bank of India (RBI) issued Amendment Directions on September 18, 2026, modifying the Urban Co-operative Banks – Know Your Customer (KYC) Directions, 2025. The key change: Foreign Portfolio Investors (FPIs) can now obtain certified copies of their identity documents from overseas authorities instead of requiring in-person verification by Indian bank officials. This facility was previously available only to Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs).

Background & Legal Context

The original KYC Directions were issued on November 28, 2025, in compliance with the Prevention of Money Laundering Act, 2002 and the Prevention of Money Laundering (Maintenance of Records) Rules, 2005. These are critical anti-money laundering (AML) compliance frameworks that all financial institutions in India must follow.

Under the original framework, banks had to physically verify customer identity documents. However, for overseas customers (NRIs and PIOs), the RBI recognized the practical difficulty of obtaining certified copies locally. The September 2026 amendment extends this flexibility to FPIs as well.

Legal Authority: The RBI invoked the following statutory powers:

• Section 35A of the Banking Regulation Act, 1949
• Section 56 of the Banking Regulation (AACS) Act, 1949
• Sections 10(2) and 18 of the Payment and Settlement Systems Act, 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

While this circular is not directly related to the Income Tax Act 2025, it impacts Section 139A (PAN requirements) and Schedule FA (foreign assets disclosure) for FPIs, and it also connects to Section 90 (Foreign Tax Credit) and Section 92 (Transfer Pricing) regulations that require proper KYC and documentation.

What Does This Mean for You?

For Urban Co-operative Banks:

Urban co-operative banks now have simplified onboarding procedures for FPI accounts. Instead of requiring FPIs to travel to India or use complex document authentication processes, banks can now accept certified copies obtained from:

• Authorized officials of overseas branches of Scheduled Commercial Banks registered in India
• Branches of overseas banks with whom Indian banks have established relationships
• Notary Public abroad
• Court Magistrate
• Judge
• Indian Embassy or Consulate General in the customer's country of residence

This significantly reduces operational friction and improves customer experience.

For Foreign Portfolio Investors (FPIs):

FPIs now enjoy parity with NRI/PIO treatment in KYC documentation. This is positive for:

• Faster account opening: No need for physical document verification in India
• Lower compliance costs: Can obtain certifications through established overseas institutions
• Enhanced market participation: Streamlined process encourages foreign investment in Indian markets

For AML Compliance Officers:

Banks must ensure that certified copies meet the RBI's standards. The bank's authorized officer must still compare the certified copy with the original document as per the Prevention of Money Laundering Act, 2002 framework. The simplification applies to obtaining the certified copy location, not to the verification process itself.

Income Tax Implications for Assessment Year 2026-27:

For FPIs filing income tax returns during AY 2026-27:

• Section 115AD (tax on income of FPIs): FPIs must maintain proper KYC records with Indian banks. This amendment improves documentation trail for tax authorities.
• Schedule FA (Foreign Assets): FPI documentation is now easily available for income tax filings.
• TDS implications (Section 194LA, 194LBA): Proper KYC ensures TDS is correctly withheld on FPI income.

What Should You Do Now?

If You Are an FPI:

1. Update your documentation plan: If you're opening an account with an Indian urban co-operative bank, you no longer need to arrange in-person verification. Work with your overseas banker or local notary public to obtain certified copies.
2. Prepare identity documents: Ensure you have official valid documents (passport, national ID, etc.) ready in their original form for certification abroad.
3. Verify bank partnerships: Confirm that your Indian bank has a relationship with your overseas bank branch for certification purposes.
4. Maintain records for tax compliance: Keep all KYC-related documents for your Income Tax filings, especially if you have Indian source income subject to TDS under Section 194LA or similar provisions.

If You Are a Compliance Officer at an Urban Co-operative Bank:

1. Update KYC procedures: Modify your onboarding documents to reflect the new FPI provisions.
2. Train staff: Ensure bank officials understand which overseas authorities are acceptable for certification.
3. Maintain audit trail: Document which certification authority provided each FPI's certified copies.
4. Coordinate with overseas branches: Establish clear communication channels with overseas bank branches for certification verification.
5. Review existing FPI accounts: Check if any FPIs currently on your books can benefit from this simplified process for account maintenance or updates.

If You Are an Income Tax Professional:

1. Advise FPI clients: Inform them about the simplified KYC process for AY 2026-27 onwards.
2. Update client questionnaires: Request clarity on KYC-related documentation obtained through overseas authorities.
3. Verify authenticity: While not directly an IT Act requirement, ensure that all KYC documents are genuine (coordinate with your client's banking institution).

Key Takeaways

• Effective Date: The amendment came into force with immediate effect from September 18, 2026. All new FPI accounts and account modifications can use this simplified process.
• Scope of Change: FPIs are now treated on par with NRIs/PIOs for KYC certification purposes—a significant regulatory relief.
• Acceptable Authorities: Six categories of overseas authorities can certify FPI documents. Indian banks have flexibility in choosing partners.
• No Weakening of AML Compliance: The simplified process applies only to the location of document certification, not to the verification standards themselves. RBI maintains strict AML compliance.
• Tax Compliance Connection: While primarily an AML/RBI circular, this impacts Income Tax filings for FY 2026-27 (AY 2026-27) under Sections 115AD, 194LA, and Schedule FA for foreign asset disclosure.

Important Note: This amendment applies specifically to Urban Co-operative Banks. Scheduled Commercial Banks and other financial institutions may have different KYC frameworks. Always verify with your specific bank regarding applicability.

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