UID to help banks skip KYC RULES

Banks in the medium future, may not need to engage in the "know-your-
customer" (KYC) process, a check on customer antecedents, to open no-
frills accounts. This could happen once a sizeable chunk of population
gets a Unique Identification (UID) Number.
Once the UID number of a person was activated, banks could do away
with KYC norms for small-value, or no-frills, accounts, said a top public
sector bank official after attending a meeting organised by the Reserve
Bank of India (RBI) on Friday on using UID for financial inclusion.
The Unique Identification Authority of India Chairman and former
Infosys [co-chairman Nandan Nilekani made a presentation on how UID
could help expedite the financial inclusion process.
While this will bring relief to banks, development of the UID database is
going to be a long-drawn process in a country with one billion-plus
population. Banks might not give up KYC norms any time soon, said
another senior public sector bank executive.
"The UID authority made a presentation to RBI in which it said it will
play a facilitative role in financial inclusion," K Ramakrishnan, chief
executive of the Indian Banks' Association (IBA), told Business Standard.
"RBI also told banks to draw a roadmap for inclusion. This is something
the UID authority is working on and will include preparation of standards
for micro ATMs, etc," he added.
The authority, set up under the Planning Commission, will provide an
identity to every citizen to establish citizenship and address security
concerns in this regard. The project is expected to be operational in the
next 12-18 months.
The meeting was attended by top bankers like State Bank of India
Chairman OP Bhatt; Managing Director and Chief Executive Officer of
ICICI Bank-Chanda Kochhar ; Managing Director and Chief Executive
Officer of HDFC Bank -Aditya Puri; and Chairman and Managing
Director of Punjab National Bank -KR Kamath.

RBI guidelines on KYC

The Reserve Bank of India has been issuing guidelines for the banks on
KYC regularly. Some of the more important instructions are stated below.
RBI was instructed:
·August 1976 - The applicants for demand drafts, traveler’s cheques and
money transfers should attach their Permanent Account Number (PAN)
on the application for transactions of Rs. 10,000 and above.
·November 1987 - It was declared that cash should not be accepted for
retirement of import bills. It was also mentioned that there must be a
reasonable time between the time an introducer opens his account and
introduces a potential account holder. Introduction of an account should
facilitate the proper identification of the person opening the account so
that the person can be traced if the account is misused.
·April 1991 - Banks were instructed that demand drafts, travelers
cheques, mail transfers and telegraphic transfers for Rs. 50,000 and above
should be by debit to the customer’s account or against cheques only and
not against cash.
·August 1992 - Banks were advised to stick on to the prescribed norms
and safeguards while opening accounts.
·December 1992 - Banks were asked to make sure that when customers
withdrew amounts from their cash credit/ overdraft accounts that funds
were not diverted for the acquisition of fixed assets, acquisition of shares
and other capital market investments and investments in associate
companies.
·September 1993 - Banks were instructed to be alert and ensure proper
end use of bank funds. They were to keep an eye over heavy cash
withdrawals by account holders that may be disproportionate to their
normal trade/ business requirements.
·November 1993 - On account of fraudulent encashment of dividend
warrants / interest banks were instructed to not open accounts without
proper introduction.
· December 1993 - Banks were asked to ask for customer identification
while opening accounts including the obtaining of photographs of
customers.
·April 1994
RBI instructed that photographs should be obtained for both residents and
non- residents and for those authorized to operate accounts.
·September 1994
On account of fraudulent operations in deposit accounts, banks were
asked to inspect every request for opening joint accounts vigilantly.
“Generally crossed cheques” and payable to “order” were to be collected
only on proper endorsement. Banks were also instructed to exercise care
in the collection of cheques of large amounts and make sure that joint
accounts are not used for “Benami” transactions.
· May 1995
Banks were instructed to introduce a system of close watch of new
deposit accounts and observe cash withdrawals and deposits for Rs. 10
lakhs and above in deposit, cash credit and overdraft accounts.
· September 1995
Banks were instructed to report to the RBI all transactions of Rs. 10 lakhs
and above.
·December 2001
Banks were asked to keep a vigilant eye on transactions that may be by
terrorist organizations.
· April 2002
Banks were instructed to freeze the accounts of individuals and entities
identified by the Security Council Sanctions Committee of the United
Nations (UN).
· May 2002
Banks were instructed to make sure that no new accounts were opened by
banned organizations.
· August 2002
Reserve Bank of India (RBI) reinforced its instructions stating:
The key principle of “Know Your Customer” procedure must be the
identification of an individual/ corporate opening an account. This must
involve an introductory reference from an existing account holder/ person
known to the bank. The board of directors should have in place adequate
procedures to verify the authentic identification of individuals. There
must also be processes to monitor transactions of a suspicious nature.
This instruction raised the requirement of submitting PAN to transactions
of Rs. 50,000 or more (earlier it was Rs. 10,000).
· There should be good control systems plus audits and checks to
ensure the bank stick on to its KYC policies.
· There must be a system at branch level to ensure that lists of
terrorist entities are circulated so that accounts/ transactions are not
opened/ consummated.
· Transactions of a doubtful nature should be reported to the
appropriate authorities.
 · May 2004
It was stated that information collected from the customer for KYC
purposes must not be used for cross selling.
In recent years on account of the proliferation of banks and their opening
of branches in new areas, it has been difficult to stick on strictly to KYC
guidelines. In these cases, introductions by well-known citizens and
individuals known to the bank are considered acceptable. The concern is
generally with respect to accounts introduced by outsiders retained for
this purpose who are remunerated on the basis of the number of accounts
they introduce. The consensus in these days of tough competition is that
this is an acceptable risk if proper documentation to verify the
antecedents of the person is taken.
· November 2004
RBI issued comprehensive guidelines. These repeated that the objective
of “Know Your Customer” (KYC) guidelines is to stop banks from being
used, intentionally or unintentionally, by criminal elements for money
laundering activities or for the financing of terrorism. KYC procedures
also enable banks to understand their customers and their financial
dealings better which in turn help them manage their risks carefully. The
guidelines are applicable to foreign currency accounts / transactions and
to all kind new accounts.
RRBs KYC guidelines – Accounts of Proprietary Concerns
April 9th, 2010
RBI/2009-10/389
RPCD.CO RRB.AML.No.67/03.05.33(E)/2009-10

The Chairman
All Regional Rural Banks (RRBs)
Know your Customer (KYC) guidelines – accounts of proprietary
concerns
A reference is invited to Para 3 of the guidelines on ‘Know Your
Customer’ norms and anti-money laundering measures enclosed to our
circular RPCD.RRB.BC.No.81/03.05.33(E)/2004-05 dated February
18,2005. It has been advised to RRBs that internal guidelines for
customer identification procedure of legal entities may be framed by
them based on their experience of dealing with such entities, normal
bankers’ prudence and the legal requirements as per established practices.
If the RRB decides to accept such accounts in terms of the Customer
Acceptance Policy, the RRB should take reasonable measures to identify
the beneficial owner(s) and verify his/her/their identity in a manner so
that it is satisfied that it knows who the beneficial owner(s) is/are
2. For the sake of clarity, in case of accounts of proprietorship concerns,
it has been decided to lay down criteria for the customer identification
procedure for account opening by proprietary concerns. Accordingly,
apart from following the extant guidelines on customer identification
procedure as applicable to the proprietor, RRBs should call for and verify
the following documents before opening of accounts in the name of a
proprietary concern:
i) Proof of the name, address and activity of the concern, like registration
certificate (in the case of a registered concern), certificate/licence issued
by the Municipal authorities under Shop & Establishment Act, sales and
income tax returns, CST/VAT certificate, certificate/registration
document issued by Sales Tax/Service Tax/Professional Tax authorities,
Licence issued by the Registering authority like Certificate of Practice
issued by Institute of Chartered Accountants of India, Institute of Cost
Accountants of India, Institute of Company Secretaries of India, Indian
Medical Council, Food and Drug Control Authorities, etc.
ii) Any two of the above documents would suffice. These documents
should be in the name of the proprietary concern.
3. These guidelines will apply to all new customers, while in case of
accounts of existing customers, the above formalities should be
completed in a time bound manner and should be completed before
December 31, 2010.
4. Please acknowledge receipt to our Regional Office concerned.
Yours faithfully,
(R.C.Sarangi)
Chief General Manager