Knowledge On KYC

KYC norms and beyond – Certain additional points for bankers-By pannvalan

Most of us think that if ‘Proof of Identity’ and ‘Proof of Residential Address’ are obtained, KYC norms are complied with and a banker’s duty is over.

But, it is a wrong notion.  Mere obtention of these documents will not suffice.   A prudent banker shall take a little more pains to verify all the documents submitted by the prospective client.

In this regard, following golden rules are to be followed without any slackness or negligence.

1. Do not allow too many people to crowd you at the time of scrutiny

If too many people crowd you, it may be a part of the well planned strategy so that you do not find adequate time to scrutinise all the papers properly.  They will try to ask you too many questions, sometimes most stupid and irrelevant.  Their motive may be to confuse you and force you to complete the scrutiny in a haphazard manner.

2. Never act in haste

Some people deliberately call on you at the close of business hours or on Saturdays, when the branch is crowded.  This is done, with a view to ensure that the officer/manager scrutinising the papers does not get enough time to do his job thoroughly.  So, be careful in such cases too.

3. Ensure all the documents speak the same language

The officer accepting the documents must ensure that there is no inconsistency or contradiction between various documents like PAN Card, Passport, Ration Card, Aadhaar Card, Driving Licence, Voter’s ID Card, Business Permit/Licence etc.

Name, its spelling, surname, initial/s, father’s name etc. are to be carefully examined, compared and reconciled.  Similarly, Date of Birth, Sex/Gender, Address etc. are to be looked into.  Some documents may not contain the full details.  If they are silent with regard to some description or identity of the client, it’s alright.  But, if they convey differing information, when compared to other documents produced, wake up immediately.  You may ask for clarifications, without any hesitation. But, without creating an impression that you are suspecting their credentials, act tactfully.

4. Insist for Introduction, if possible

In case of new clients or total strangers, it is better to insist for introduction by an existing customer having regular and satisfactory transactions at the same branch.  Usually, a party intending to open a current account is to be introduced by another current account holder. There may be some exceptions to this rule.  It must be ensured that the introducer and the new client are not blood relatives and do not have creditor-debtor relationship.  In case of long term clients, subject to their bona fides, no introduction needs to be insisted upon.

In case of Trusts, Associations, Societies and Clubs, extra precautions are to be taken.

5. If necessary, ask for additional details/documents

In case of a company, its ‘Corporate Identification Number’ (CIN) and ‘Director Identification Number’ (DIN).  Further, ask for the particulars of companies/firms in which these directors are interested and have a controlling stake.  In case of a firm/company intending to do forex transactions, insist for ‘Import Export Code’ (Impex Code).  If the firm/company is new, they will get this code, only after opening their bank account.

6. Visit their premises once, if felt necessary

If there arises some doubt in the mind of the manager/officer, it’s always better to visit their business premises (in case of current account) or residence (in case of individual accounts). Visiting their place of business/residence will be immensely useful, in myriad ways.  In a way, it will strengthen the bond between the client and bank also, in future.

7. In case of persons from other places/towns, exercise maximum caution

In case of people from other places/towns or even other states, exercise maximum caution.  In ‘Risk Profile’, you may categorise such people as ‘High Risk’ initially.  Accordingly, the threshold limit may also be fixed.

8. Monitor the new accounts carefully, at least for a few weeks

Operations in the new accounts must be monitored at least for the first few weeks/months.  If any transaction for large sum was noticed and if it is not at all connected to the nature of business/occupation of the account holder, be vigilant.  You may also seek clarifications from the account holder/s about such transactions.

9. Other precautions to be taken

In case of new accounts, certain other precautions are to be taken as follows.

(a)  If the account holder deposits a cheque for huge value and the cheque is dated prior to the date of opening of the account, make additional enquiries.

(b)  If the account holder’s signature is not consistent and not tallying with the specimen on our records, advise him/her to sign in an identical manner always.

(c)  If the account holder has given ‘letter of mandate’ to someone else to operate his account, but both he and the mandate holder are signing the cheques regularly, thereby confusing the bank official who passes the cheque, you may withdraw the mandate facility.

(d)  If any suspected fraud is detected in the account, stop the operations in the account immediately.

(e)  If the PAN or any other critical information is found wrong at a later date, stop the operations in the account immediately.

(f)   If the party opens an account only for the purpose of applying for a loan, discourage him/her politely.  Tell him/her, that there is a cooling period of 6 months.  Only if the transactions during this period are regular and satisfactory, loan proposal may be considered.

(g)  Most importantly, do not open accounts of people from the same area/activity/employment in bulk within a short period (‘Bulk’ means for anything more than 10;  ‘Short Period’ means a few days or a few weeks).  This requires deeper study and more discreet enquiries from other sources.

Date: 13-04-2015                                                                                                     pannvalan