10 Chapter 4

CHAPTER IV
ANALYSIS
AND
INTERPRETATION
OF
SURVEY DATA
CHAPTER IV
ANALYSIS AND INTERPRETATION OF SURVEY DATA
4.1 INTRODUCTION
According to Polit & Hungler, analysis refers to the process of organizing and
synthesizing data in such a way that research questions can be answered and
hypothesis tested. The term analysis refers to the computation of certain measures
along with searching for patterns of relationship that exist among data groups.
The present study is on Know Your Customer (KYC) Standards and Anti
Money Laundering (AML) Measures of Commercial Banks a study with special
reference to commercial banks in Virudhunagar district. A sample of 320 bank
employees was selected for the collection of primary data. The results of the
descriptive analysis and inferential analysis of the survey data are presented in this
chapter.
A. DEMOGRAPHIC PROFILE OF RESPONDENTS
4.2 DESCRIPTION OF DEMOGRAPHIC VARIABLES OF RESPONDENTS
The following table 4.1 shows the frequency distribution of demographic
profile of the respondents with reference to their location of present working place,
designation, age and experience in the banking sector.

TABLE 4.1
FREQUENCY DISTRIBUTION OF PROFILE OF RESPONDENTS
% to
Demographic variable F
total
Location of present Rural 70 21.88
working place Urban 250 78.12
Clerk 165 51.56
Scale I 72 22.50
Designation
Scale II 58 18.13
Scale III & Above 25 7.81
18 to 25 63 19.69
26 - 35 83 25.94
Age
36 - 45 122 38.12
46 - 58 52 16.25
Below 2 years 32 10.01
2 to 5 Years 43 13.44
Experience in the
6 to 15 Years 81 25.31
banking sector
16 to 25 years 138 43.13
Above 25 years 26 8.11
Total 320 100.00
[F denotes frequency]
Source: Primary data
The study relating to the location of present working place shows that 21.88
per cent of sample respondents have their working places in rural areas and 78.12 per
cent in urban areas. Thus it can be interpreted that highest percentage of sample
respondents has their working places in urban areas.
The study on the respondents! designation reveals that 51.56 per cent of them
are Clerks, 22.50 per cent are in Scale I, 18.13% are in Scale II and 7.81 per cent are
in scale III & above categories. Thus it can be interpreted that highest percentage of
sample respondents are Clerks.
102

Age-wise analysis discloses that 19.69 per cent of respondents are in the age
group of 18-25 years, 25.94 per cent in 26-35 years, 38.12 per cent in 36-45 years and
16.25 per cent in 46-58 years. Thus it can be interpreted that, sample respondents in
the age group of 36-45 years are the highest percentage.
Frequency distribution of experience in the banking sector reveals that 10.01
per cent of respondents have below 2 years experience, 13.44 per cent are between 2
to 5 years experience, 25.31 per cent have gained 6 to 15 years experience, 43.13 per
cent have put in 16 to 25 years experience and 8.11 per cent are above 25 years
experience. Thus it can be interpreted that the highest percentage of sample
respondents has 16 to 25 years experience in the banking sector. The following Figure
4.1 portrays the above event.
103

FIGURE 4.1
FREQUENCY DISTRIBUTIONS OF PROFILE OF RESPONDENTS
104
104

B. KNOWLEDGE OF KYC AND AML
4.3 OPINION ON VARIOUS ASPECTS OF BANKS! KYC & AML POLICIES,
PROCEDURES AND CONTROLS
The survey brings forth the respondents! awareness on the various aspects of the
bank!s KYC & AML policies, procedures and controls. The employees have given their
definite answers on the questions for the different aspects relating to these policies and they
are summed up:
Is there KYC identification process when an account is opened?, Do AML and KYC
go hand in hand?, Are there provisions for all local and foreign individuals/business units?,
Are all KYC Standards and AML Policies approved and supplied by your bank?, Do you
know the KYC requirements as stipulated by the Prevention of Money Laundering Act, 2002
(PMLA)?, Have you identified all KYC information sources needed for verifying the details
of all of your potential customer types?, Whether valid introduction and documents in
accordance with KYC Norms in force are obtained for newly opened Accounts?, Are you
obtaining the needed KYC documents separately for the various types of
organizations/persons, i.e., Individual, Proprietary Concern, Partnership firm, Companies,
Trust, Association, Co-operative Society and Government body, Whether single customer ID
has been given to a customer having multiple Accounts, and Is there an effective record
keeping system?.
105

TABLE 4.2
OPINION ON VARIOUS ASPECTS OF BANKS! KYC & AML POLICIES, PROCEDURES AND CONTROLS
No Unsure Yes Total

Aspect of KYC and AML Policies
N % N % N % N %
Is there KYC identification process when an account is opened? 36 11.25 13 4.06 271 84.69 320 100.00
Do AML and KYC go hand in hand? 5 1.56 14 4.38 301 94.06 320 100.00
Are there provisions for all local and foreign individuals/business units? 12 3.75 13 4.06 295 92.19 320 100.00
Are all KYC Standards and AML Policies approved and supplied by your bank? 11 3.44 18 5.63 291 90.93 320 100.00
Do you know the KYC requirements as stipulated by the Prevention of Money Laundering Act,
4 1.25 8 2.50 308 96.25 320 100.00
2002 (PMLA)?
106
Have you identified all KYC information sources needed for verifying the details of all of your
5 1.56 22 6.88 293 91.56 320 100.00
potential customer types?
Whether valid introduction and documents in accordance with KYC Norms in force are
7 2.19 11 3.44 302 94.37 320 100.00
obtained for newly opened Accounts?
Are you obtaining the needed KYC documents separately for the various types of
organizations/persons i.e. Individual, Proprietary Concern, Partnership firm, Companies, Trust, 3 0.94 8 2.50 309 96.56 320 100.00
Association, Co-operative Society and Government body?
Whether single customer ID has been given to a customer having multiple Accounts? 12 3.75 37 11.56 271 84.69 320 100.00
Is there an effective record keeping system? 21 6.56 13 4.06 286 89.38 320 100.00
106

It is gratifying to note from the table 4.2 that a great majority 84.69 per cent of the
respondents are sure about "KYC identification process when an account is opened!, 94.06
per cent have no doubt that "AML and KYC go hand in hand!, and 92.19 per cent have clear
idea on the "provisions for all local and foreign individuals/business unit!. Similarly, a large
majority of 90.93 per cent of the respondents know about "All KYC standards and AML
policies approved and supplied by their banks!, 96.25 per cent have a clear knowledge on the
KYC requirements as stipulated by the Prevention of Money Laundering Act, 2002 (PMLA)!,
91.56 per cent have identified all KYC information sources needed for verifying the details of
all of their potential customer types!, 94.37 per cent are aware of the importance of the
procedure for introduction and documents in accordance with KYC norms in force for newly
opened Accounts!, 96.56 per cent are sure about "obtaining the needed KYC documents
separately for the various types of organizations/persons, i.e., individual, proprietary concern,
partnership firm, company, trust, association, co-operative society and Government body!,
84.69 per cent know that "single customer ID is given to a customer having multiple
accounts!, and 89.38 per cent are well aware of "effective record keeping system!. Table 4.2
is a pointer to this fact.
It is a revelation that a large majority of the respondents answer affirmatively for the
above various aspects relating to their banks! KYC & AML policies, procedures and controls.
107

4.4 OPINION ON THE SYSTEM THAT IS PREFERRED TO BE INTRODUCED BY
THE BANK AS THE RESULT OF KYC
The survey noted the employees! opinion on the preferred system to be introduced by
the banks as a result of KYC, namely, whether it is to be related to knowing nature of
business, or the source of income, or the other information about customers. The analysis of
such responses with respect to demographic variables, namely, location of the present
working place, designation, age and experience in the banking sector is given below.
Based on the location of working place, the analysis reveals that 3.75 per cent of
employees in rural areas and 10.94 per cent in urban areas record their preferred system to be
introduced by the banks as a result of KYC is for customer nature of business; 1.87 per cent
in rural areas and 5.94 per cent in urban areas it is for customer source of income; 3.12 per
cent in rural areas and 15.94 per cent in urban areas report on their preferred system to be
introduced by the banks as a result of KYC is for the customer other information, and 13.14
per cent in rural areas and 45.30 per cent in urban areas report their preferred system is for all
of the above matters.
The details of frequency distribution in terms of other three demographic variables,
namely, designation, age and experience for the preferred system to be introduced by the
banks as a result of KYC could be seen in the following table 4.3.
108

TABLE 4.3
OPINION ON THE SYSTEM THAT IS PREFERRED TO BE INTRODUCED BY THE BANK AS THE RESULT OF KYC
System to be introduced by the bank as a result of KYC for identification of

Customer nature Customer source Customer other
Demographic variable All of the above Total
of business of income information
N % N % N % N % N %
Location of present Rural 12 3.75 6 1.87 10 3.12 42 13.14 70 21.88
working place Urban 35 10.94 19 5.94 51 15.94 145 45.30 250 78.12
Clerk 30 9.37 6 1.87 40 12.50 89 27.82 165 51.56
Scale I 14 4.38 17 5.31 20 6.25 21 6.56 72 22.50
Designation Scale II 3 0.94 2 0.63 1 0.31 52 16.25 58 18.13
Scale III & Above 0 0.00 0 0.00 0 0.00 25 7.81 25 7.81
109
Age 18 to 25 9 2.81 3 0.93 18 5.63 33 10.32 63 19.69
26 - 35 18 5.63 11 3.44 18 5.62 36 11.25 83 25.94
36 - 45 20 6.25 11 3.44 25 7.81 66 20.62 122 38.12
46 - 58 0 0.00 0 0.00 0 0.00 52 16.25 52 16.25
Below 2 years 3 0.94 2 0.63 6 1.87 21 6.57 32 10.01
2 to 5 Years 11 3.44 6 1.87 8 2.50 18 5.63 43 13.44

Experience in the
6 to 15 Years 18 5.63 11 3.43 20 6.25 32 10.00 81 25.31
banking sector
16 to 25 years 15 4.68 6 1.88 27 8.44 90 28.13 138 43.13
Above 25 years 0 0.00 0 0.00 0 0.00 26 8.11 26 8.11

Total 47 14.69 25 7.81 61 19.06 187 58.44 320 100.00
109

Table 4.3 shows that 19.06 per cent of the respondents stated that their preferred system
to be introduced by the banks as a result of KYC is knowing other information about customers,
14.69 per cent reported of their preference for nature of business; 7.81 per cent reported of their
preferred system is for customer source of income, and 58.44 per cent reported of their preferred
system for all of the above three matters.
It is evident from the above table that for a majority of the respondents! (58.44 per cent)
their preferred system to be introduced by the banks as a result of KYC is for all of the above
things such as Customer other information, Customer nature of business & Customer source of
income.
4.5 USAGE OF KYC IN BANKS
The usage of KYC in banks could be an ongoing process or when bank needs
information, or when RBI advises to the banks, and when bank enters into a formal relationship
with customer. The survey brings to light on the employees! opinion about usage of KYC in
bank with respect to demographic variables, namely, location of the present working place,
With respect to the location of working place, the analysis revealed that 4.69 per cent of
the respondents in rural areas and 15.62 per cent in urban areas reported about usage of KYC in
banks as an ongoing process; 1.25 per cent in rural areas and 9.06 per cent in urban areas
reported on usage of KYC in banks when the bank needs information; for 8.75 per cent in rural
areas and 13.13 per cent in urban areas it is when RBI advises the banks, and for 7.19 per cent in
rural areas, and 40.31 per cent in urban areas reported on the usage of KYC in banks when bank
enters into a formal relationship with customer.
The frequency distribution in terms of other three demographic variables, namely,
designation, age and experience for usage of KYC in banks could be seen in the following
table 4.4.
110

TABLE 4.4
USAGE OF KYC IN BANKS
Banks! use of KYC
As an When bank When RBI When bank enters into a
Demographic variable Ongoing needs advises the formal relationship with Total
process information Banks Customer
N % N % N % N % N %
working place
Urban 50 15.62 29 9.06 42 13.13 129 40.31 250 78.12
Designation Clerk 37 11.56 12 3.75 42 13.13 74 23.12 165 51.56
Scale I 14 4.38 7 2.18 19 5.94 32 10.00 72 22.50
Scale II 10 3.12 9 2.82 7 2.19 32 10.00 58 18.13
111
Scale III & Above 4 1.25 5 1.56 2 0.62 14 4.38 25 7.81
18 to 25 13 4.06 4 1.25 23 7.19 23 7.19 63 19.69
Age 26 - 35 17 5.31 8 2.50 19 5.94 39 12.19 83 25.94

36 - 45 27 8.44 12 3.75 24 7.50 59 18.43 122 38.12
46 - 58 8 2.50 9 2.81 4 1.25 31 9.69 52 16.25
Below 2 years 7 2.19 2 0.62 15 4.69 8 2.51 32 10.01
Experience in the 2 to 5 Years 8 2.50 2 0.62 13 4.06 20 6.26 43 13.44
6 to 15 Years 18 5.62 7 2.19 20 6.25 36 11.25 81 25.31
banking sector
16 to 25 years 28 8.75 17 5.32 20 6.25 73 22.81 138 43.13
Above 25 years 4 1.25 5 1.56 2 0.63 15 4.67 26 8.11
Total 65 20.31 33 10.31 70 21.88 152 47.50 320 100.00
111

It is obvious from the table 4.4 that for 20.31 per cent of the respondents the usage of
KYC in bank is an ongoing process, for 10.31 per cent when bank needs information, for
21.88 per cent when RBI advises the banks and for the remaining 47.50 per cent when bank
enters into a formal relationship with customer.
It is a disclosure from the analysis that a sizeable number of the respondents 47.50 per
cent stated that usage of KYC in banks is when a bank enters into a formal relationship with
customer.
4.6 WAY OF RECOGNIZING THE CUSTOMER WHO WAS NEVER SEEN
BEFORE
Either the identity card or address proof or introduction if required or all the above are
the ways of recognizing the customer who was never seen before.
Analysis was made on the ways of recognizing a customer who was never seen before
with respect to the demographic variables, namely, location of the present working place,
Concerning the location of working place, the analysis divulged that for 4.37 per cent
of the respondents in rural areas and 15.00 per cent in urban areas the way of recognizing the
customer who was never seen before was introduction; for 5.94 per cent in rural areas and
13.44 per cent in urban areas the way of recognizing the customer who was never seen before
was ID card; for 5.94 per cent in rural areas and 0.31 per cent in urban areas it is address
proof, and for 5.63 per cent in rural areas and 49.37 per cent in urban areas it is all the above.
The details in relation to frequency distribution in terms of other three demographic
variables, namely, designation, age and experience for ways of recognizing a new customer
could be seen in the following table 4.5.
112

TABLE 4.5
WAY OF RECOGNIZING THE CUSTOMER WHO WAS NEVER SEEN BEFORE
Way of recognizing the customer

Demographic variable Introduction ID card Address Proof All of above Total
N % N % N % N % N %

working place
Urban 48 15.00 43 13.44 1 0.31 158 49.37 250 78.12
Scale I 8 2.50 17 5.31 3 0.94 44 13.75 72 22.50
Scale II 0 0.00 2 0.63 0 0.00 56 17.50 58 18.13
Scale III & Above 0 0.00 0 0.00 0 0.00 25 7.81 25 7.81
18 to 25 25 7.81 19 5.94 7 2.19 12 3.75 63 19.69
113
26 - 35 14 4.38 18 5.63 10 3.12 41 12.81 83 25.94
Age
36 - 45 23 7.18 25 7.81 3 0.94 71 22.19 122 38.12
46 - 58 0 0.00 0 0.00 0 0.00 52 16.25 52 16.25
Below 2 years 11 3.44 10 3.12 10 3.13 1 0.32 32 10.01
2 to 5 Years 2 0.63 8 2.50 7 2.19 26 8.12 43 13.44
Experience in the
6 to 15 Years 21 6.56 22 6.88 1 0.31 37 11.56 81 25.31
banking sector
16 to 25 years 28 8.74 22 6.88 2 0.62 86 26.89 138 43.13
Above 25 years 0 0.00 0 0.00 0 0.00 26 8.11 26 8.11
Total 62 19.37 62 19.38 20 6.25 176 55.00 320 100.00
113

It is clear from the table 4.5 that 19.37 per cent & 19.38 per cent of the respondents
stated that the way of recognizing the customer who was never seen before is through
introduction & ID card, 6.25 per cent reported the way of recognizing such a customer is
through address proof and a majority of 55.00 per cent stated the way of recognition is
through all the three modes.
It is found that, a majority of the respondents (55.00 per cent) stated the way of
recognizing the customer who was never seen before is through introduction, ID card &
address proof.
4.7 TYPE OF PRUDENTIAL REGULATION IMPLEMENTED BY THE BANKS TO
IDENTIFY THE CUSTOMER
The type of prudential regulation implemented by the banks to identify the customer
may be either KYC or anti money laundering or both.
The survey noted that the type of prudential regulation implemented by the banks
with respect to the demographic profile of sample respondents, namely, location of present
working place, designation, age and experience in the banking sector.
Based on the location of working place, the analysis revealed that 11.25 per cent
employees in rural areas and 18.43 per cent employees in urban areas reported the type of
prudential regulation adopted by the banks to identify the customer was KYC; for 5.32 per
cent in rural areas and 16.25 per cent in urban areas it was AML, and for 5.31 per cent in
rural areas and 43.44 per cent in urban areas, it was both KYC and AML.
variables, namely, designation, age and experience for the type of prudential regulation
implemented by the banks to identify the customer could be seen in the following table 4.6.
114

TABLE 4.6
TYPE OF PRUDENTIAL REGULATION IMPLEMENTED BY THE BANKS
TO IDENTIFY THE CUSTOMER
Type of prudential regulation implemented by bank to
identify the customer
Demographic variable Anti money
KYC Both Total
Laundering
N % N % N % N %
Location of Rural 36 11.25 17 5.32 17 5.31 70 21.88
present
Urban 59 18.43 52 16.25 139 43.44 250 78.12
working place
Clerk 75 23.43 44 13.75 46 14.38 165 51.56

Scale I 20 6.25 21 6.56 31 9.69 72 22.50
Designation Scale II 0 0.00 4 1.26 54 16.87 58 18.13
Scale III &
0 0.00 0 0.00 25 7.81 25 7.81
Above
18 to 25 30 9.37 13 4.07 20 6.25 63 19.69
26 - 35 39 12.19 24 7.50 20 6.25 83 25.94
Age
36 - 45 26 8.12 32 10.00 64 20.00 122 38.12
46 - 58 0 0.00 0 0.00 52 16.25 52 16.25
Below 2 years 15 4.68 6 1.89 11 3.44 32 10.01
Experience in 2 to 5 Years 19 5.94 13 4.06 11 3.44 43 13.44
the banking 6 to 15 Years 26 8.13 18 5.62 37 11.56 81 25.31
sector 16 to 25 years 35 10.93 32 10.00 71 22.20 138 43.13
Above 25 years 0 0.00 0 0.00 26 8.11 26 8.11
Total 95 29.68 69 21.57 156 48.75 320 100.00
It is evident from the table 4.6 that 29.68 per cent reported the type of prudential
regulation implemented by the banks to identify the customer is KYC, for 21.57 per cent it is
AML, and for a sizeable 48.75 per cent it is both KYC & AML.
It is obvious that, a sizeable number of the respondents 48.75 per cent stated that the
type of prudential regulation implemented by the banks to identify the customer is both KYC
& AML.
115

4.8 WAY OF MONEY LAUNDERING AFFECTING THE BANK ACTIVITY
The researcher observed that by the liberalization and globalization of the banking
sector, risk factors are becoming more and more complex. The number of frauds is increasing
in the banking sector within a decade or so in spite of various KYC standards and AML
measures taken by them. The frauds of money laundering affect the bank activity such as
unbalanced economic parameter, disruption in credit deposit ratio, deranged growth of
banking industry, distortion of risk, deranged deposit growth and all of the above.
The survey noted the employees! opinion about the way money laundering affects the
bank activity in terms of the demographic profile of sample respondents, namely, location of
present working place, designation, age and experience in the banking sector.
employees in rural areas and 10.63 per cent employees in urban areas reported the way of
money laundering affecting the bank activity is unbalanced economic parameter; 1.25 per
cent in rural areas and 7.19 per cent in urban areas reported it is in relation to maintenance of
credit deposit ratio; 5.00 per cent in rural areas and 16.25 per cent in urban areas reported of
deranged growth of banking industry; 4.38 per cent in rural areas and 16.87 per cent in urban
areas reported of distortion of risk; 5.00 per cent in rural areas and 13.12 per cent in urban
areas reported of deranged deposit growth and 2.19 per cent in rural areas, 14.06 per cent in
urban areas reported of all of the above.
The details of frequency distribution in terms of other three demographic
variables, namely, designation, age and experience for the way of money laundering affecting
the bank activity are presented in the following table 4.7.
116

TABLE 4.7
WAY OF MONEY LAUNDERING AFFECTING THE BANK ACTIVITY
Way of money laundering affect the bank activity

Disruption Deranged
Unbalanced Deranged
in credit growth of Distortion All of
Demographic variable economic deposit Total
deposit banking of risk above
parameter growth
ratio industry
N % N % N % N % N % N % N %
Location of Rural 13 4.06 4 1.25 16 5.00 14 4.38 16 5.00 7 2.19 70 21.88
present working
place Urban 34 10.63 23 7.19 52 16.25 54 16.87 42 13.12 45 14.06 250 78.12
Clerk 31 9.69 14 4.38 43 13.44 37 11.55 34 10.63 6 1.87 165 51.56
117
Scale I 13 4.06 9 2.81 19 5.94 20 6.26 10 3.12 1 0.31 72 22.50
Designation Scale II 3 0.94 0 0.0 6 1.87 5 1.57 13 4.06 31 9.69 58 18.13
Scale III &
0 0.00 4 1.25 0 0.00 6 1.87 1 0.31 14 4.38 25 7.81
Above
18 to 25 11 3.44 3 0.94 16 5.00 18 5.63 10 3.12 5 1.56 63 19.69
26 - 35 17 5.31 8 2.50 23 7.19 16 5.00 17 5.32 2 0.62 83 25.94
Age
36 - 45 19 5.94 12 3.75 29 9.06 28 8.75 27 8.43 7 2.19 122 38.12
46 - 58 0 0.00 4 1.25 0 0.00 6 1.87 4 1.25 38 11.88 52 16.25
Below 2 years 6 1.87 2 0.62 7 2.19 5 1.56 5 1.57 7 2.20 32 10.01
2 to 5 Years 8 2.50 4 1.25 11 3.44 12 3.75 8 2.50 0 0.00 43 13.44
Experience in the
6 to 15 Years 14 4.38 7 2.20 23 7.18 20 6.25 17 5.30 0 0.00 81 25.31
banking sector
16 to 25 years 19 5.94 10 3.12 27 8.44 25 7.81 27 8.44 30 9.38 138 43.13
Above 25 years 0 0.00 4 1.25 0 0.00 6 1.88 1 0.31 15 4.67 26 8.11
Total 47 14.69 27 8.44 68 21.25 68 21.25 58 18.12 52 16.25 320 100.00
117

It is apparent from the table that 14.69 per cent of the respondents stated that the way
of money laundering affecting the bank activity is unbalanced economic parameter, for 8.44
per cent, it is disrupted in credit deposit ratio, for 21.25 per cent, it is deranged growth of
banking industry and distorted risk, for 18.12 per cent, it is deranged deposit growth and the
remaining 16.25 per cent reported of all of the above.
It is of clear manifestation from the above analysis that, a sizeable number of the
respondents 21.25 per cent stated that the effect of money laundering on the bank activity is
deranged growth of banking industry and distorted risk.
C. EVALUATION OF RISK LEVEL BASED APPROACH
4.9 FREQUENCY DISTRIBUTION OF KEY ISSUES IN THE IMPLEMENTATION
OF RISK LEVEL BASED APPROACH
The key issues in the implementation of the risk level based approach are the time
constraint, lack of human resources, existing processes too difficult to change, lack of
guidance and insufficient support for change.
The survey brings forth the employees! opinion about the key issues in the
implementation of the risk level based approach in regard to the demographic profile of
sample respondents, namely, location of present working place, designation, age and
experience in the banking sector.
118

Based on the location of working place, the analysis exposed that 5.94 per cent
employees in rural areas and 24.37 per cent employees in urban areas reported the key issue
in the implementation of the risk level based approach is time constraint; 7.19 per cent in
rural areas and 23.74 per cent in urban areas reported of lack of human resources; for 5.0 per
cent in rural areas and 13.44 per cent in urban areas it is existing processes too difficult to
change; for 3.44 per cent in rural areas and 9.69 per cent in urban areas it is lack of guidance
and 0.31 per cent in rural areas and 6.88 per cent in urban areas reported of lack of support
for change.
designation, age and experience for the percentagewise of distribution for key issues in the
implementation of the risk level based approach could be seen in the following table 4.8.
119

TABLE 4.8
FREQUENCY DISTRIBUTION OF KEY ISSUES IN THE IMPLEMENTATION OF RISK LEVEL BASED APPROACH
Key issues in the implementation of the risk level based approach
Existing
Lack of Insufficient
Time processes too Lack of
Demographic variable Human support for Total
Constraint difficult to Guidance
Resources change
change
N % N % N % N % N % N %
Location of present Rural 19 5.94 23 7.19 16 5.00 11 3.44 1 0.31 70 21.88
working place Urban 78 24.37 76 23.74 43 13.44 31 9.69 22 6.88 250 78.12
Designation Clerk 41 12.81 49 15.31 34 10.63 29 9.06 12 3.75 165 51.56
Scale I 19 5.93 23 7.19 15 4.69 11 3.44 4 1.25 72 22.50
Scale II 23 7.19 20 6.25 10 3.12 2 0.63 3 0.94 58 18.13
120
Scale III & Above 14 4.38 7 2.18 0 0.00 0 0.00 4 1.25 25 7.81
18 to 25 13 4.06 19 5.94 17 5.31 10 3.13 4 1.25 63 19.69
Age 26 - 35 21 6.56 27 8.44 17 5.31 15 4.69 3 0.94 83 25.94

36 - 45 38 11.88 36 11.24 21 6.57 17 5.31 10 3.12 122 38.12
46 - 58 25 7.81 17 5.31 4 1.25 0 0.00 6 1.88 52 16.25
Below 2 years 9 2.81 10 3.13 7 2.19 6 1.88 0 0.00 32 10.01
Experience in the 2 to 5 Years 12 3.75 15 4.69 10 3.13 5 1.56 1 0.31 43 13.44
6 to 15 Years 19 5.94 25 7.81 20 6.25 12 3.75 5 1.56 81 25.31
banking sector
16 to 25 years 43 13.43 42 13.13 22 6.87 19 5.94 12 3.76 138 43.13
Above 25 years 14 4.38 7 2.17 0 0.00 0 0.00 5 1.56 26 8.11
Total 97 30.31 99 30.93 59 18.44 42 13.13 23 7.19 320 100.00
120

It is plain information from the table that 30.31 per cent report the key issue in the
implementation of the risk level based approach is time constraint, for 30.93 per cent it is lack
of human resources, for 18.44 per cent it is existing processes too difficult to change and for
13.13 per cent it is lack of guidance and 7.19 per cent report of lack of support for change.
It is noticeable from the above analysis that, a sizeable number of the respondents 30.93
per cent stated that key issues in the implementation of the risk level based approach are lack
of human resources, followed by time constraint (30.31 per cent).
4.10 DETAILS OF BANKS! KYC & AML RISK LEVEL BASED APPROACH
The employees! opinion on the details of banks! KYC & AML risk level based
approach is described in this section. The survey elicited responses for the various aspects of
banks! KYC and AML risk level based approach like do you make a risk level based
approach while opening an account?, does the bank take steps to understand the normal and
expected transactions of its customers based on its risk assessment of them?, do you assess
the risk profile of various customers with the updated KYC documents at the stipulated
interval? and do you get information in the system about medium/high risk profile of
customers while dealing with them?.
121

TABLE 4.9
DETAILS OF BANKS! KYC & AML RISK LEVEL BASED APPROACH
Details of KYC and AML risk level based No Unsure Yes Total
approach N % N % N % N %
Do you make a risk level based approach
8 2.50 19 5.94 293 91.56 320 100.00
while opening an account?
Does the bank take steps to understand the

normal and expected transactions of its
13 4.06 19 5.94 288 90.00 320 100.00
customers based on its risk assessment of
them?
Do you assess the risk profile of various

customers with the updated KYC 11 3.44 9 2.81 300 93.75 320 100.00
documents at the stipulated interval?
Do you get information in the system about

medium/high risk profile of customers 5 1.56 14 4.38 301 94.06 320 100.00
while dealing with them?
It is palpable from the table 4.9 that, 91.56 per cent of the respondents are sure about
the risk level based approach while opening an account; 90.00 per cent are sure about bank
taking steps to understand the normal and expected transactions of its customers based on its
risk assessment of its customers; 93.75 per cent are sure about risk profile of various
customers with the updated KYC documents at the stipulated interval, and 94.06 per cent are
sure about getting information in the system about medium/high risk profile of customers
while dealing with them. A portrait of distribution of respondents! opinion is laid in the
table 4.9.
It is found that a great majority of the respondents are sure about all the above four
aspects regarding the details of banks! KYC & AML risk level based approach.
122

4.11 MEASURES DEVISED TO MANAGE MONEY LAUNDERING RISK IN THE
BANK
The measures devised to manage the money laundering risk in the bank are senior
management oversight, well defined organizational structure and staffing, independent
monitoring, ongoing interaction with audit, risk review and other, and all the above elements.
The survey unveils the frequency distribution of measures devised to manage the
money laundering risk in the bank with respect to the demographic profile of sample
respondents, namely, location of present working place, designation, age and experience in
the banking sector.
Based on the location of working place, the analysis exposed that 0.62 per cent
employees in rural areas and 11.25 per cent employees in urban areas reported the measure
devised to manage the money laundering risk in the bank is senior management oversight;
3.13 per cent in rural areas and 12.50 per cent in urban areas reported of well defined
organizational structure and staffing; 3.44 per cent in rural areas and 11.56 per cent in urban
areas reported of independent monitoring and assessment; 5.0 per cent in rural areas and
17.50 per cent in urban areas reported the elements devised to manage the money laundering
risk in the bank is ongoing interaction with audit, risk review and other and 9.69 per cent in
rural areas and 25.31 per cent in urban areas reported of all the above measures to curb the
money laundering risk.
The frequency distribution of the other three demographic variables, namely,
designation, age and experience for the measures devised to manage the money laundering
risk in the bank could be seen in the following table 4.10.
123

TABLE 4.10
MEASURES DEVISED TO MANAGE MONEY LAUNDERING RISK IN THE BANK
Measures devised to manage the money laundering risk in the bank

Well defined
Senior Independent Ongoing interaction
Demographic variable organizational All of the
management monitoring with audit, risk Total
structure and above
oversight and assessment review and other
staffing
N % N % N % N % N % N %
Location of Rural 2 0.62 10 3.13 11 3.44 16 5.00 31 9.69 70 21.88
present working
place Urban 36 11.25 40 12.50 37 11.56 56 17.50 81 25.31 250 78.12
124
Clerk 5 1.56 31 9.69 26 8.13 37 11.55 66 20.63 165 51.56
Designation Scale I 7 2.19 14 4.38 12 3.75 18 5.62 21 6.56 72 22.50
Scale II 9 2.81 4 1.25 9 2.81 15 4.70 21 6.56 58 18.13
Scale III & Above 17 5.31 1 0.31 1 0.31 2 0.63 4 1.25 25 7.81
18 to 25 3 0.93 10 3.13 11 3.44 16 5.00 23 7.19 63 19.69
Age 26 - 35 5 1.56 15 4.69 13 4.06 22 6.88 28 8.75 83 25.94
36 - 45 8 2.50 23 7.18 20 6.25 24 7.50 47 14.69 122 38.12
46 - 58 22 6.88 2 0.63 4 1.25 10 3.12 14 4.37 52 16.25
Below 2 years 1 0.31 4 1.25 5 1.56 7 2.20 15 4.69 32 10.01
6 to 15 Years 4 1.25 15 4.69 11 3.44 25 7.80 26 8.13 81 25.31
banking sector
16 to 25 years 13 4.06 23 7.19 24 7.50 26 8.13 52 16.25 138 43.13
Above 25 years 17 5.31 1 0.31 1 0.31 3 0.93 4 1.25 26 8.11
Total 38 11.87 50 15.63 48 15.00 72 22.50 112 35.00 320 100.00
124

It is evident from the table 4.10 that, 11.87 per cent of respondents report of the
measures devised to manage the money laundering risk in the bank is senior management
oversight; for 15.63 per cent, it is well defined organizational structure and staffing; for 15
per cent, it is independent monitoring and assessment; for 22.50 per cent, it is ongoing
interaction with audit, risk review and other and the remaining 35.00 per cent report of the
measures devised to manage the money laundering risk in the bank are all of the above.
It is uncovered from the analysis that a sizeable number of the respondents report of
the measures devised to manage the money laundering risk in the bank are all of the above.
D. EVALUATION OF KYC AND AML SOFTWARE
4.12 FREQUENCY DISTRIBUTION OF EVALUATION OF KYC AND AML
SOFTWARE AND DATA
The KYC, AML software and data play a vital role in the banking sector. The usage
of KYC, AML software and data are helpful not only to locate the suspicious
transactions/activities but also protect from the criminal activities. It safeguards both bank
and their customers.
In this section, responses elicited from the employees about the KYC, and AML
software and data details of adequate technological assistance/infrastructure, banks! planning
to have an automated KYC system that integrates KYC information sources into its internal
systems, having automated tools and specific procedures for monitoring specified sanction
lists and caution lists before opening an account, updating and disseminating bank!s AML
policies and procedures sufficiently to promote staff commitment to AML, and primary name
screening method through technology assistance to find out the RBI!s Caution list name,
large volume transaction and suspicious transactions are analyzed and presented in the
table 4.11.
125

TABLE 4.11
FREQUENCY DISTRIBUTION OF EVALUATION OF KYC AND AML SOFTWARE AND DATA
No Unsure Yes Total

Details of evaluation of KYC and AML software and data
N % N % N % N %
Does the bank have adequate technological assistance/infrastructure? 9 2.81 3 0.94 308 96.25 320 100.00
Is your organization planning to have an automated KYC system that integrates

KYC information sources into your internal systems? 5 1.56 57 17.81 258 80.63 320 100.00
126
Do you have automated tools and specific procedures for monitoring specified
21 6.56 57 17.81 242 75.63 320 100.00
sanction lists and caution lists before opening an account?
Are the bank!s AML policies and procedures updated sufficiently, disseminated/
8 2.50 13 4.06 299 93.44 320 100.00
accessible, e.g. published on an intranet site, to promote staff commitment to AML?
Is the primary Name Screening method through Technology Assistances (to find out
the RBI!s Caution list name, Large Volume Transaction and Suspicious 20 6.25 48 15.00 252 78.75 320 100.00
Transactions)?
126

It is apparent from the table that 96.25 per cent of employees report that their banks
for the details of KYC & AML software and data have adequate technological assistance/
infrastructure; 80.63 per cent report that for details of KYC & AML software and data, there
is organization planning to have an automated KYC system that integrates KYC information
sources into the internal systems; 75.63 per cent hold the view that there are automated tools
and specific procedures for monitoring specified sanction lists and caution lists before
opening an account; 93.44 per cent are of the view that the bank!s AML policies and
procedures are updated and sufficiently disseminated/ accessible, e.g. published on an
intranet site, to promote staff commitment to AML, and 78.75 per cent report of having
primary name screening method through technology assistance to find out the RBI!s Caution
list name, large volume transaction and suspicious transactions for the details of KYC and
AML software and data.
It is clear from the above table that a large majority of the respondents are sure about
the various details of evaluation of KYC and AML software and data.
4.13 FREQUENCY DISTRIBUTION OF RIGHT FORM OF TECHNOLOGY
PLATFORM FOR IMPLEMENTING KYC AND AML SOFTWARE AND
DATA MAINTENANCE
The right form of technology platform for implementing KYC and AML software and
data maintenance is a fundamental one. It may be developed in house, ready to use software,
done at head office or developed by third party.
The analysis of the right form of technology platform for implementing KYC and
AML software and data maintenance with respect to the demographic profile of sample
respondents, namely, location of present working place, designation, age and experience in
the banking sector is presented in table 4.12.
127

employees in rural areas and 13.75 per cent employees in urban areas reported the right
technology platform for implementing KYC and AML software and data maintenance is
developed in house; 10.62 per cent in rural areas and 36.87 per cent in urban areas reported
of ready to use software; 3.13 per cent in rural areas and 15.31 per cent in urban areas
reported it is done at the head office, and for 6.25 per cent in rural areas and 12.19 per cent in
urban areas it is developed by third party.
The frequency distribution in terms of the other three demographic variables, namely,
designation, age and experience for the right form of technology platform for implementing
KYC and AML software and data maintenance is presented in the following table 4.12.
128

TABLE 4.12
FREQUENCY DISTRIBUTION OF RIGHT FORM OF TECHNOLOGY PLATFORM FOR IMPLEMENTING
KYC AND AML SOFTWARE AND DATA MAINTENANCE
Right form of technology platform
Developed in- Ready-to-use Done at the Developed by
Demographic variable Total
house software Head Office third-Party
N % N % N % N % N %
Scale I 13 4.06 33 10.31 14 4.38 12 3.75 72 22.50
Scale II 15 4.69 28 8.74 9 2.81 6 1.88 58 18.13
129
Scale III & Above 0 0.00 12 3.75 9 2.81 4 1.25 25 7.81
18 to 25 7 2.19 34 10.63 11 3.44 11 3.44 63 19.69

Age 26 - 35 10 3.13 35 10.93 12 3.75 26 8.13 83 25.94
36 - 45 31 9.68 54 16.88 23 7.19 14 4.37 122 38.12
46 - 58 2 0.63 29 9.06 13 4.06 8 2.50 52 16.25
Below 2 years 3 0.94 18 5.63 6 1.88 5 1.56 32 10.01
Experience in the banking 2 to 5 Years 3 0.94 21 6.56 4 1.25 15 4.69 43 13.44
6 to 15 Years 14 4.38 37 11.56 17 5.31 13 4.06 81 25.31
sector
16 to 25 years 30 9.37 63 19.69 23 7.19 22 6.88 138 43.13
Above 25 years 0 0.00 13 4.05 9 2.81 4 1.25 26 8.11
Total 50 15.63 152 47.49 59 18.44 59 18.44 320 100.00
129

It is observable from the above table that 15.63 per cent of the respondents are of the
opinion the right technology platform for implementing KYC and AML software and data
maintenance is developed in house, for 47.49 per cent it is ready-to-use software, for 18.44
per cent it is done at the head office, and for 18.44 per cent it is developed by third party.
A reading of the above table shows that a sizeable number of the respondents 47.49
per cent stated that the right technology platform for implementing KYC and AML software
and data maintenance is ready-to-use software.
4.13.1 HYPOTHESIS TESTING BY CHI-SQUARE ANALYSIS
The present research framed the null hypothesis against the demographic profile of
respondents.
Ho: There is no association between the right form of technology platform for
implementing KYC and AML software and data maintenance and the demographic profile of
sample respondents, namely, location of present working place, designation, age and
The results of the test are shown in the summarized table 4.13.
TABLE 4.13
RESULTS OF CHI-SQUARE TEST
Variable Value df P Sig.

Location of present working place 8.70 3 0.034 Significant
Designation 17.24 9 0.045 Significant
Age 28.61 9 0.01 Highly Significant
Experience in the banking sector 24.54 12 0.017 Significant
130

It is noted from the table 4.13 that, as the p value is less than 0.05 for all the
demographic characteristics of the location of present working place, designation, age, and
experience in the banking sector and so, the above null hypothesis is rejected.
Thus the researcher concludes that at 95 per cent confidence level, KYC and AML
software & data maintenance and the above mentioned personal factors, namely, location of
present working place, designation, age and experience in the banking sector are associated
significantly with each other. This may lead one to conclude that the right form of technology
platform for implementing the KYC and AML software and data maintenance depends on the
above said demographic characteristics.
E. EVALUATION OF TRAINING
4.14 KYC/ AML TRAINING PROVIDED BY BANK TO THE STAFF
The KYC and AML training is essential to provide to all the staff for creating
awareness and upgrading the knowledge among them. It is helpful to update the knowledge
and adhere to KYC standards and AML measures in banks. The survey observed the provision
of training to clerical staff, assistant manager, manager and higher level officers. The
frequency distribution of respondents! opinion (cadre wise) on provision of training by the
banks is shown in the table 4.14. While 95.62 per cent of the respondents are sure about KYC/
AML training imparted to clerical staff, 97.18 per cent are sure about KYC/ AML training
provided to assistant manager and 96.88 per cent are sure about KYC/ AML training provided
to manager and higher level officers.
131

TABLE 4.14
KYC/AML TRAINING PROVIDED BY BANK TO THE STAFF
KYC/ AML training No Unsure Yes Total

provided N % N % N % N %
Clerical staff 3 0.94 11 3.44 306 95.62 320 100.00
Assistant Manager 2 0.63 7 2.19 311 97.18 320 100.00
Manager and higher level officers 1 0.31 9 2.81 310 96.88 320 100.00
It is overt from the above table that a great majority of the respondents in all cadres are
sure about KYC/ AML training provided by bank to the staff. Figure 4.2 portrays this event.
132

FIGURE " 4.2
KYC/AML TRAINING PROVIDED BY BANK TO THE STAFF
133
133

4.15 FREQUENCY DISTRIBUTION OF TRAINING METHOD PREDOMINANTLY
USED FOR BANK STAFF
The training method occupies a significant role in banks. An effective training method
is helpful to understand easily and engraved in the minds of bank employees.
The survey brings forth the training methods predominantly used for bank staff with
respect to location of present working place, designation, age and experience in the banking
sector was analyzed.
Based on the location of working place, 1.88 per cent of the employees in rural areas
and 1.56 per cent employees in urban areas reported the training method predominantly used
for bank staff is face to face; 9.06 per cent in rural areas and 52.81 per cent in urban areas
reported the predominant method is computer based training; 3.75 per cent in rural areas and
12.81 per cent in urban areas reported on the training method predominantly used for bank
staff is written materials; 4.38 per cent in rural areas and 8.44 per cent in urban areas reported
the prominent method of training imparted to bank staff is KYC/AML videos; 2.81 per cent in
rural areas and 1.25 per cent in urban areas reported that they do not know about predominant
method of training for bank staff, and 1.25 per cent employees in urban areas only reported
that the prominent training method used for the bank staff is other training methods.
designation, age and experience for the training methods predominantly used for bank staff
134

TABLE 4.15
FREQUENCY DISTRIBUTION OF TRAINING METHOD PREDOMINANTLY USED FOR BANK STAFF
Training method predominantly used for Bank staff Total

Computer Written KYC/AML Don't
Demographic variable Face to Face Others
Based Training Materials Videos Know N %
N % N % N % N % N % N %
Location of present Rural 6 1.88 29 9.06 12 3.75 14 4.38 9 2.81 0 0.00 70 21.88
working place Urban 5 1.56 169 52.81 41 12.81 27 8.44 4 1.25 4 1.25 250 78.12
Clerk 9 2.81 82 25.63 32 9.99 30 9.38 12 3.75 0 0.00 165 51.56
Scale I 2 0.63 46 14.38 10 3.13 11 3.43 1 0.31 2 0.62 72 22.50
Designation
Scale II 0 0.00 49 15.31 7 2.19 0 0.00 0 0.00 2 0.63 58 18.13
Scale III & Above 0 0.00 21 6.56 4 1.25 0 0.00 0 0.00 0 0.00 25 7.81
18 to 25 3 0.93 30 9.37 14 4.38 14 4.38 2 0.63 0 0.00 63 19.69
Age 26 - 35 6 1.88 43 13.44 12 3.74 15 4.69 6 1.88 1 0.31 83 25.94
135
36 - 45 2 0.63 82 25.63 19 5.94 12 3.74 5 1.55 2 0.63 122 38.12
46 - 58 0 0.00 43 13.44 8 2.50 0 0.00 0 0.00 1 0.31 52 16.25
Below 2 years 2 0.63 16 5.00 5 1.56 6 1.88 3 0.94 0 0.00 32 10.01
2 to 5 Years 4 1.25 20 6.27 5 1.56 8 2.49 5 1.56 1 0.31 43 13.44
Experience in the
6 to 15 Years 3 0.94 48 15.00 15 4.69 13 4.06 1 0.31 1 0.31 81 25.31
banking sector
16 to 25 years 2 0.62 92 28.75 24 7.50 14 4.38 4 1.25 2 0.63 138 43.13
Above 25 years 0 0.00 22 6.86 4 1.25 0 0.00 0 0.00 0 0.00 26 8.11
Total 11 3.44 198 61.88 53 16.56 41 12.81 13 4.06 4 1.25 320 100.00
135

It is discernible from the above discussion that, 3.44 per cent employees report the
training method predominantly used for bank staff is face to face; 61.88 per cent report the
method is computer based training; 16.56 per cent state the method predominantly used for
bank staff is written materials; 12.81 per cent consider it is KYC/AML videos; 1.25 per cent
report of other methods of training and 4.06 per cent are of the opinion that they do not know
about which is the major training method.
It could be seen from the above table, the majority of the respondents (61.88 per cent)
stated that the training method predominantly used for bank staff is computer based training.
4.15.1 HYPOTHESIS TESTING BY CHI-SQUARE TEST
The following null hypothesis was verified by using chi-square test.
Ho: There is no association between the training method predominantly used for bank
staff and the demographic profile of sample respondents, namely, location of present working
place, designation, age and experience in the banking sector.
TABLE 4.16
Location of present working place 34.73 5 < 0.001 Highly Significant
Designation 46.96 15 < 0.001 Highly Significant
Age 34.98 15 0.002 Highly Significant
It could be seen from the table 4.16 that as the p value is less than significance level
of 0.05 for all the personal factors, namely, the location of present working place,
designation, age, and experience in the banking sector; hence, the above null hypothesis is
rejected.
136

From the analysis it is concluded that significant association is found between the
personal factors, namely, location of present working place, designation, age and experience
in the banking sector and the training methods used for bank staff. It means the said four
personal factors play an important role in the training methods of the bank employees.
4.16 MOST EFFECTIVE METHOD OF TRAINING, CONSIDERING BOTH
QUALITY AND COST
The effective method of KYC and AML training considering both quality and cost is
very important one. It includes controlling the cost of the training and evaluating the quality
of training, and also appraises the level of knowledge on KYC and AML proceedings among
the bank staff. The study throws light on the most effective method of training, considering
both, quality and cost with respect to the demographic profile of sample respondents, namely,
location of present working place, designation, age and experience in the banking sector.
Based on the location of working place, the analysis revealed that 2.18 per cent of the
employees in rural areas and 10.00 per cent employees in urban areas reported the most
effective method of training, considering both, quality and cost is face to face method; 6.88
per cent in rural areas and 43.75 per cent in urban areas reported the most effective method
of training, considering both, quality and cost is computer based training; for 3.13 per cent in
rural areas and 9.06 per cent in urban areas it is through written materials; for 4.37 per cent in
rural areas and 12.50 per cent in urban areas it is KYC/AML videos; 3.44 per cent in rural
areas and 2.19 per cent in urban areas are of the opinion that they do not know on the most
effective method of training; and 1.88 per cent in rural areas and 0.62 per cent in urban areas
reported the most effective method of training, considering both, quality and cost is other
methods of training. The frequency distribution in terms of other three demographic
variables, namely, designation, age and experience for the most effective method of training,
in terms of both, quality and cost could be seen in the following table 4.17.
137

TABLE 4.17
FREQUENCY DISTRIBUTION OF MOST EFFECTIVE METHOD OF TRAINING, CONSIDERING BOTH QUALITY AND COST
Most effective method of training, considering both, quality and cost Total
Computer Based Written KYC/AML Don't
Demographic variable Face to Face Others
Training Materials Videos Know N %
N % N % N % N % N % N %
Clerk 28 8.74 63 19.69 20 6.25 31 9.69 16 5.00 7 2.19 165 51.56
Scale I 10 3.13 32 10.00 13 4.06 14 4.37 2 0.63 1 0.31 72 22.50
Designation Scale II 1 0.31 45 14.06 6 1.88 6 1.88 0 0.00 0 0.00 58 18.13
Scale III & Above 0 0.00 22 6.88 0 0.00 3 0.93 0 0.00 0 0.00 25 7.81
18 to 25 11 3.44 21 6.56 8 2.50 15 4.69 6 1.88 2 0.62 63 19.69
26 - 35 10 3.12 37 11.56 12 3.75 18 5.63 3 0.94 3 0.94 83 25.94
138
Age
36 - 45 18 5.62 58 18.13 19 5.94 15 4.68 9 2.81 3 0.94 122 38.12
46 - 58 0 0.00 46 14.38 0 0.00 6 1.87 0 0.00 0 0.00 52 16.25
Below 2 years 3 0.94 8 2.50 4 1.25 6 1.87 8 2.51 3 0.94 32 10.01
2 to 5 Years 6 1.88 19 5.94 8 2.50 7 2.19 1 0.31 2 0.62 43 13.44
Experience in the
6 to 15 Years 15 4.68 39 12.19 12 3.75 14 4.38 1 0.31 0 0.00 81 25.31
banking sector
16 to 25 years 15 4.68 74 23.13 15 4.69 23 7.19 8 2.50 3 0.94 138 43.13
Above 25 years 0 0.00 22 6.87 0 0.00 4 1.24 0 0.00 0 0.00 26 8.11
Total 39 12.18 162 50.63 39 12.19 54 16.87 18 5.63 8 2.50 320 100.00
138

It is perceptible from the table that for 12.18 per cent of the employees the most
effective method of training, considering both, quality and cost is face to face; to 50.63 per
cent, the most effective method of training is computer based training; to 12.19 per cent, it is
written materials. Similarly, for 16.87 per cent the most effective method of training,
considering both, quality and cost is KYC/AML videos; 5.63 per cent do not have a clear idea
about the most effective method of training, and to 2.50 per cent, the most effective method
of training is other method of training.
It is a revelation that for the majority of the respondents 51.00 per cent, the most
effective method of training, considering both quality and cost is computer based training.
The following set of null hypothesis was verified by using chi-square test.
Ho: There is no association between the most effective method of training
(considering both quality and cost) and the demographic profile of sample respondents,
namely, location of present working place, designation, age and experience in the banking
sector.
TABLE 4.18
EXPLANATION OF CHI-SQUARE TEST

Age 48.59 15 < 0.001 Highly Significant
Experience in the banking sector 58.54 20 < 0.001 Highly Significant
139

It is evident from the table 4.18 that, as the p value is less than 0.05 for all the
in the banking sector, and hence the above null hypothesis is rejected.
It may be concluded that there is significant association between the above personal
factors, and the respondents! opinion on the effective method of training. It means the
effectiveness of training (in terms of quality and cost) is dependent on the above demographic
variables.
4.16.2 TWO GROUP DISCRIMINANT ANALYSIS
4.16.2.1 INTRODUCTION
The main objective of discriminant analysis is classification. It is a multivariate
statistical technique. How do the employees who are working in rural bank branches differ
from those who are from urban branches in terms of certain influencing variables? Do
variables like Knowledge of KYC and AML, Awareness of KYC and AML software and
data, and Awareness about Bank's KYC & AML Reporting, differ among these two groups.
In short, what are the independent variables which significantly differentiate the respondents
of one group (Rural) from other group (Urban)?
Two group discriminant analysis answers this question in four stages, namely:
1. Construction of Discriminant Function (Statistical significance of the model)
2. Classification (How good is this model?)
3. Interpretation (Relative importance of variables)
4. Prediction of new case.
140

4.16.2.2 CONSTRUCTION OF DISCRIMINANT FUNCTION
Discriminant analysis attempts to construct a function with the three variables given
in Table 4.19, so that the respondents belonging to either of these two groups are
differentiated at the maximum. The linear combination of the variables is known as
Discriminant Function, and its parameters are called Discriminant Function coefficients.
A typical Discriminant Function will be of the form,
Z a 0 a 1 X 1 a 2 X 2 ....... a 3 X 3
Where, a0 - constant and a1,a2, a3 - Discriminant Function coefficients of the

independent variables X1,X2, X3 respectively.
TABLE 4.19
INPUT DATA
Un-weighted Cases N Per cent
(Z) Rural/Urban 320 100.00
(X1) Knowledge of KYC and AML standard 320 100.00
Valid
(x2) Awareness of KYC Software and data 320 100.00
(X3) Awareness of Bank!s KYC and AML reporting 320 100.00
4.16.3 OUTPUT AND INTERPRETATION
4.16.4 STATISTICAL SIGNIFICANCE OF THE MODEL
4.16.5 CANONICAL DISCRIMINANT FUNCTION
Table 4.20 provides the multivariate aspect of the model given under the heading
'Canonical Discriminant Function!. Note that Discriminant Function is significant at 1 per
cent level and displays a correlation of 0.838.
141

By squaring it one gets 0.702 and may be interpreted as 70.2 per cent of the variation
in the dependent variable may be explained by all the discriminating variables included in the
model and the Wilk!s Lambda and its chi-square value explain that the model is significant in
discriminating between two at 1 per cent level. The value of Wilks! Lambda shall be between
0 and 1, and low value, namely, nearer to zero is preferred. The value of Wilks! Lambda is
0.297 which is less than 0.3, i.e., nearer to 0 is substantially good.
TABLE 4.20
STATISTICAL SIGNIFICANCE OF THE MODEL
Canonical Correlation Wilks' Lambda Chi-square df Sig.
0.838 0.297 383.72 3 0.000
4.16.6 CLASSIFICATION
Once the Discriminant Function is arrived at, then the efficiency of the function as
to, how accurately it predicts or differentiates the respondents in to the respective groups
must be assessed. For this, a classification matrix is to be developed using "original! and
'predicted' group membership of the respondents as shown in Table 4.21.
TABLE 4.21
CLASSIFICATION RESULTS
Predicted Group Membership

Name of present working place Total
Rural Urban
Rural 53 17 70
Count
Urban 0 250 250
Original
Rural 75.7 24.3 100.0
%
Urban .0 100.0 100.0
94.7 per cent of original grouped cases correctly classified.
142

Thus it is seen that, the Discriminant Function has predicted 75.7 per cent of the
cases correctly in the Rural group and 100 per cent of the cases in the Urban group, and
on the whole classified 94.7 per cent of the cases correctly.
4.16.7 RELATIVE STRENGTH OF VARIABLES

Once the Discriminant Function and its classification efficiency are assessed, then
the next question remains to be answered is: how efficient are the discriminating variables in
the Discriminant Function? The discriminating power or the contribution of each variable to
the function can sufficiently answer the question.
Table 4.22 gives which variables are relatively better at classifying the dependent
variable? This is judged by looking at the standardized coefficients of the independent
variables. The larger the absolute value of the standardized coefficient, the better the
predictive or explanatory power of the variable.
TABLE 4.22
STANDARDIZED CANONICAL DISCRIMINANT FUNCTION COEFFICIENTS
Function
Variables 1
R R2
Knowledge of KYC and AML 0.870 0.757
Awareness on KYC and AML software and data 0.318 0.101
Awareness on Bank's KYC & AML Reporting -0.045 0.002
It is seen from the table 4.21 that nearly 75.7 per cent of the variation in the
Discriminant Function is due to Knowledge of KYC and AML, which contributes maximally,
in discriminating between Rural and Urban branch. Next comes, Awareness of KYC and
AML software and data, which contributes about 10.1 per cent in discriminating between the
two groups. Awareness on Bank's KYC & AML Reporting seems to contribute least in
discriminating between Rural and Urban branch.
143

4.16.8 DISCRIMINANT FUNCTION UNSTANDARDISED COEFFICIENTS
Table 4.23 gives the raw coefficients of the discriminating variables finally derived
for the discriminant function.
TABLE 4.23
CANONICAL DISCRIMINANT FUNCTION UNSTANDARDISED COEFFICIENTS
Aspects Function
Knowledge of KYC and AML 0.64
Awareness on KYC and AML software and data 0.33
Awareness on Bank's KYC & AML Reporting -0.19
(Constant) -14.25
The Discriminant Function (Z) for the problem under study can be written as,
Z = -14.25 + 0.64 Knowledge of KYC and AML + 0.33 Awareness on KYC and AML
software and data " 0.19 Awareness on Bank's KYC & AML Reporting.
4.16.9 PREDICTION OF NEW CASE/EMPLOYEE INTO THE RURAL GROUP OR

URBAN GROUP
TABLE 4.24
FUNCTIONS AT GROUP CENTROIDS
Function
Group
1
Rural - 0.273
Urban 0.273
Unstandardised canonical discriminant function is evaluated at group means. From

the above table 4.24, one could see that the means of canonical variables give the new means
for the transformed group centroids. The new mean for group 1 (rural) is -0.273, and the new
mean for group 2 (urban) is 0.273. This means that the midpoint of these two is 0. This is
clear when one plots the two means on a straight line, and locates their midpoint, as shown
below:
144

0.273 0 0.273
(Rural) (Urban)
Discriminant analysis can be used for predicting where a new employee has to be
classified, if the independent variable values are known. By substituting the "x! of the new
case unstandardized canonical score. This is the discriminant score. From the table 4, in the
un-standardized discriminant function, and calculate the value called the unstandardised
discriminant function derived is: (Assuming X1, X2 and X3 with the values of 17, 8.5 and 4
respectively)
Y = -14.25 + Knowledge of KYC and AML X1 (0.64) + Awareness of KYC and AML
software and data X2 (0.33) + Awareness of Banks! KYC and AML reporting X3 (-0.19)
= -14.25 + 17 (0.64) + 8.5 (0.33) + 4 (0.19)
= -14.25 + 10.88 + 2.805 0.76
= -14.25 + 12.925
= -1.325
According to decision rule, any discriminant score to the left of the midpoint of 0
leads to a classification in rural group; hence, the new case falls under the "rural group!.
The same process is to be followed for any new bank employee.
4.17 OPINION ON THE PERIODICITY OF TRAINING ON KYC PROCESS
The periodicity of training on KYC process is essential for combating money
laundering activities. The KYC and AML training records shall be properly maintained by
banks and also periodicity of training for all bank staff assured.
145

The survey discloses the periodicity of training about the KYC process with respect
to the demographic profile of sample respondents, namely, location of present working place,
employees in rural areas and 1.56 per cent employees in urban areas reported on the
periodicity of training on KYC process is quarterly; 5.94 per cent in rural areas and 6.56 per
cent in urban areas reported the periodicity of training on KYC process is semi-annually; 6.25
per cent in rural areas and 70.00 per cent in urban areas reported the periodicity of training is
annual and 3.75 per cent employees in rural areas reported on the periodicity of training on
KYC process is all the above time periods. The details in relation to frequency distribution in
terms of other three demographic variables, namely, designation, age and experience for the
periodicity of training on KYC process could be seen in the following table 4.25.
146

TABLE 4.25
OPINION ON THE PERIODICITY OF TRAINING ON KYC PROCESS
Periodicity of training on KYC process Total

Demographic variable Quarterly Semi-annually Annually All the above
N %
N % N % N % N %
Rural 19 5.94 19 5.94 20 6.25 12 3.75 70 21.88
Location of present working place
Urban 5 1.56 21 6.56 224 70.00 0 0.00 250 78.12
Clerk 22 6.87 38 11.87 94 29.38 11 3.44 165 51.56
Scale I 2 0.63 2 0.63 67 20.93 1 0.31 72 22.50
Designation Scale II 0 0.00 0 0.00 58 18.13 0 0.00 58 18.13
Scale III & Above 0 0.00 0 0.00 25 7.81 0 0.00 25 7.81
18 to 25 6 1.88 7 2.19 47 14.68 3 0.94 63 19.69
147
26 - 35 9 2.81 12 3.75 53 16.57 9 2.81 83 25.94
Age
36 - 45 9 2.81 21 6.56 92 28.75 0 0.00 122 38.12
46 - 58 0 0.00 0 0.00 52 16.25 0 0.00 52 16.25
Below 2 years 8 2.50 8 2.50 11 3.45 5 1.56 32 10.01
2 to 5 Years 7 2.19 8 2.50 21 6.56 7 2.19 43 13.44
Experience in the banking sector 6 to 15 Years 1 0.31 3 0.94 77 24.06 0 0.00 81 25.31
16 to 25 years 8 2.50 21 6.56 109 34.07 0 0.00 138 43.13
Above 25 years 0 0.00 0 0.00 26 8.11 0 0.00 26 8.11
Total 24 7.50 40 12.50 244 76.25 12 3.75 320 100.00
147

It is clear from the table that 7.50 per cent of the respondents stated that the
periodicity of training on KYC process is quarterly; 12.50 per cent stated that the periodicity
of training on KYC process is bi-annual; 76.25 per cent stated that periodicity of training is
annual and 3.75 per cent reported that the periodicity of training on KYC process is all the
above time periods.
It is evident from the above table that a large majority of the respondents 76.25 per
cent stated that the periodicity of training on KYC process is annual.
The following null hypothesis was verified by chi-square test.
Ho: There is no association between respondents! opinion about the periodicity of
training on KYC processes and the demographic profile of sample respondents, namely,
TABLE 4.26

It is noted from the table 4.26 that as the p value is less than 0.05 for all the personal
factors, namely, location of present working place, designation, age and experience in the
banking sector; and hence the null hypothesis is rejected. Thus one concludes that, at 95 per
cent confidence level, the periodicity of training on KYC processes and the said personal
characteristics of respondents are associated significantly with each other.
148

4.18 AREA THAT NEEDS FURTHER TRAINING
Some more special training may be required in the specific areas of regulatory
guidance, process documentation, performance KYC processes, transaction monitoring and
technology assistance to the employees of banks.
The survey noted the specific areas that need further training with respect to the
demographic profile of sample respondents, namely, location of present working place,
In terms of the location of working place, the analysis revealed that for 1.56 per cent
of the employees in rural areas and 8.44 per cent employees in urban areas, the specific area
that needs further training is on regulatory guidance; for 4.37 per cent in rural areas and 10.94
per cent in urban areas reported it is on process documentation; for 3.13 per cent in rural
areas and 14.68 per cent in urban areas reported it is on performance of KYC processes; for
3.13 per cent in rural areas and 15.00 per cent in urban areas it is on transaction monitoring
and for 9.69 per cent in rural areas and 29.06 per cent in urban areas it is on technology
assistance.
designation, age and experience for the frequency of further training on KYC process is
shown in the following table 4.27.
149

TABLE 4.27
AREA THAT NEEDS FURTHER TRAINING
Area that needs further training Total

Regulatory Process Performance of Transaction Technology
Demographic variable
guidance documentation KYC processes monitoring assistance N %
N % N % N % N % N %
Clerk 18 5.63 30 9.37 27 8.44 24 7.50 66 20.62 165 51.56
Scale I 13 4.06 13 4.06 13 4.06 14 4.38 19 5.94 72 22.50
Designation
Scale II 1 0.31 6 1.88 12 3.75 11 3.44 28 8.75 58 18.13
Scale III & Above 0 0.00 0 0.00 5 1.56 9 2.81 11 3.44 25 7.81
18 to 25 10 3.12 11 3.44 11 3.44 9 2.81 22 6.88 63 19.69
150
26 - 35 10 3.13 15 4.68 14 4.38 16 5.00 28 8.75 83 25.94
Age
36 - 45 12 3.75 22 6.88 21 6.55 18 5.63 49 15.31 122 38.12
46 - 58 0 0.00 1 0.31 11 3.44 15 4.69 25 7.81 52 16.25
Below 2 years 4 1.25 6 1.88 5 1.56 4 1.25 13 4.07 32 10.01
2 to 5 Years 2 0.62 9 2.81 7 2.19 7 2.19 18 5.63 43 13.44
Experience in the
6 to 15 Years 12 3.75 15 4.69 14 4.37 14 4.38 26 8.12 81 25.31
banking sector
16 to 25 years 14 4.38 19 5.93 26 8.13 24 7.50 55 17.19 138 43.13
Above 25 years 0 0.00 0 0.00 5 1.56 9 2.81 12 3.74 26 8.11
Total 32 10.00 49 15.31 57 17.81 58 18.13 124 38.75 320 100.00
150

It is demonstrable from the table that while 10.00 per cent of the area that needs further
training is regulatory guidance, for 15.31 per cent, it is in process documentation, for 17.81 per
cent, it is in performance of KYC processes, for 18.13 per cent, it is in transaction monitoring and
for the remaining 38.75 per cent, it is in technology assistance.
It is clear from the above discussion that a sizeable number of the respondents 38.75 per
cent stated that the area in which they need further training is on technology assistance.

Here, the null hypothesis is formulated that the demographic characteristics of respondents
and the areas requiring for their further training are the two independent attributes.
Ho: There is no association between the areas that need further training of respondents and
the demographic profile of the respondents, namely, location of present working place,
TABLE 4.28
Location of present working place 37.14 5 0.395 Not Significant
Designation 55.05 15 0.006 Highly Significant

Age 48.59 15 0.037 Significant
Experience in the banking sector 58.54 20 0.316 Not Significant
It can be seen from the table 4.28 that as the p value is less than 0.05 only for the second
and the third personal factors, namely, designation and age; and as the results are significant at 5
per cent level, the null hypothesis is rejected for this set of hypothesis. As the p value is
greater than 0.05 for the first and the last personal factors, namely, the location of present working
place and experience in the banking sector; and the results are not significant at 5 per cent level,
and hence the null hypothesis is accepted for this set of hypothesis.
151

The finding is that the areas requiring further training do not depend on location of
respondents! working place and their years of experience in banking industry.
From the above chi-square analysis, it is concluded that significant association was found
only between the designation and age of the respondents and the employees! opinion about the
area that needs further training. But, the variables respondents! experience and location of their
working place do not indicate the need for further training.
4.19 EFFECTIVE METHOD OF KYC AND AML TRAINING IMPARTED BY THE
BANKS
Banks impart training to their employees on KYC standards and AML measures in two
ways either the training session is conducted by the senior managers of the banks (Internal
method) or the training is imparted by the external experts (external method). The analysis reveals
the sample employees! assessment of which one of these two methods of training is a better one
based on the demographic variables of location of working place, designation, age and years of
Based on the location of working place, the analysis revealed that 13.44 per cent of the
employees in rural areas and 53.43 per cent in urban areas reported of internal training method,
and 8.44 per cent in rural areas and 24.69 per cent in urban areas reported of external training
method as the effective method of training in the subject KYC standards and AML measures.
namely, designation, age and experience in the banking sector for the effective method of training
on KYC standards and AML measures could be seen in the following table 4.29.
152

TABLE 4.29
EFFECTIVE METHOD OF KYC AND AML TRAINING IMPARTED BY THE BANKS
Effective method of KYC and
AML training imparted by the Total
banks
Internal External
N %
N % N %
Location of present Rural 43 13.44 27 8.44 70 21.88
working place Urban 171 53.43 79 24.69 250 78.12
Clerk 101 31.56 64 20.00 165 51.56
Scale I 52 16.25 20 6.25 72 22.50
Designation
Scale II 44 13.75 14 4.38 58 18.13
Scale III & Above 17 5.31 8 2.50 25 7.81
18 to 25 36 11.25 27 8.44 63 19.69
26 - 35 55 17.19 28 8.75 83 25.94
Age
36 - 45 86 26.87 36 11.25 122 38.12
46 - 58 37 11.56 15 4.69 52 16.25
Below 2 years 19 5.95 13 4.06 32 10.01
2 to 5 Years 29 9.06 14 4.38 43 13.44
Experience in the
6 to 15 Years 54 16.87 27 8.44 81 25.31
banking sector
16 to 25 years 94 29.38 44 13.75 138 43.13
Above 25 years 18 5.61 8 2.50 26 8.11
Total 214 66.87 106 33.13 320 100.00
It is evident from the above table that a majority 66.87 per cent of the respondents
assessed internal training method, and 33.13 per cent reported external training method as the
effective method of KYC and AML training conducted by the banks. The finding is that a
majority 66.87 per cent of the respondents assessed internal training method as the effective
method of KYC and AML training conducted by the banks.
153

Here, chi-square test was applied to test the following null hypothesis.
Ho: There is no association between the employees! assessment of the effective method of
KYC and AML training imparted by the banks and the demographic profile of sample
respondents, namely, location of present working place, designation, age and experience in the
banking sector.
TABLE 4.30

Designation 5.45 3 0.142 Not Significant
Age 3.86 3 0.277 Not Significant
It is noted from the table 4.30 that as the p value is greater than 0.05 for all the personal
factors, namely, location of present working place, designation, age, and experience in the
banking sector; and hence, the null hypothesis is accepted relating to these characteristics.
From the analysis, it is found that at 5 per cent level of significance, there is no association
between respondents! viewing internal or external as the effective method of KYC and AML
training programme of the banks and the personal factors of the location of location of present
working place, designation, age and experience in the banking sector. It means the respondents!
assessment of effective method of KYC and AML training of the banks does not depend on the
above demographic variables of the respondents.
154

4.20 RESPONDENTS! LIKEABLE FEATURE OF BANK TRAINING
The study reveals the particular feature of KYC and AML training offered by the banks
(internal and/or external) that is most liked by the employees, and this analysis is made with
reference to the demographic profile, namely, location of present working place, designation, age
and experience in the banking sector.
Based on the location of working place, the analysis unfolds that none of the employees in
rural areas and 15.62 per cent employees in urban areas reported on "quality! of KYC and AML
training offered by the banks (internal and/or external) as their likeable feature; 8.13 per cent in
rural areas and 18.75 per cent in urban areas reported on "impact! of training as their likeable
feature, and 13.75 per cent in rural areas and 43.75 per cent in urban areas liked the
comprehensiveness/coverage aspect of training.
namely, designation, age and experience for the aspect of training that is liked by the bank
employees are shown in table 4.31.
155

TABLE 4.31
OPINION ON LIKEABLE FEATURE OF BANK TRAINING
Likeable feature Total

Demographic variable Quality Impact Coverage
N %
N % N % N %
present
working place Urban 50 15.62 60 18.75 140 43.75 250 78.12
Clerk 17 5.30 52 16.26 96 30.00 165 51.56
Scale I 11 3.44 17 5.31 44 13.75 72 22.50
Designation
Scale II 15 4.69 12 3.75 31 9.69 58 18.13
Scale III & Above 7 2.19 5 1.56 13 4.06 25 7.81
18 to 25 9 2.81 19 5.94 35 10.94 63 19.69
26 - 35 8 2.50 27 8.44 48 15.00 83 25.94
Age
36 - 45 16 5.00 30 9.37 76 23.75 122 38.12
46 - 58 17 5.31 10 3.13 25 7.81 52 16.25
Below 2 years 0 0.00 9 2.82 23 7.19 32 10.01
2 to 5 Years 3 0.94 16 5.00 24 7.50 43 13.44
Experience
in the 6 to 15 Years 16 5.00 25 7.81 40 12.50 81 25.31
banking sector
16 to 25 years 24 7.50 30 9.38 84 26.25 138 43.13
Above 25 years 7 2.18 6 1.87 13 4.06 26 8.11
Total 50 15.62 86 26.88 184 57.50 320 100.00
It is evident from the above table that 15.62 per cent, 26.88 per cent and 57.50 per cent of
the employees consider quality, impact and comprehensiveness or adequacy respectively of the
bank!s training as their likeable feature of training.
The finding is that a majority of the respondents (57.50 per cent) have liked the adequacy
aspect of banks! KYC and AML training.
156

Here, the following set of null hypothesis was tested by chi-square analysis.
Ho: There is no difference in the respondents! likeable aspect of KYC and AML training
offered by the banks (internal and/or external) for the demographic profile of sample respondents,
namely, location of present working place, designation, age and experience in the banking sector.
The results of the test are shown in the summarized table.4.32.
TABLE 4.32

Age 16.10 6 0.013 Significant
It is understood from the table 4.32 that, as the p value is less than 0.05 for all the personal
factors, namely, location of present working place, designation, age and experience in the banking
sector, and the results are significant at 5 per cent level; hence, the null hypothesis is rejected.
From the analysis, it is concluded that there is significant association between the personal
factors, namely, location of present working place, designation, age and experience in the banking
sector and the respondents! liking of particular feature of KYC and AML training offered by the
banks (internal and/or external). It means there is difference in the respondents! liking of
particular feature in the method of KYC and AML training provided by the banks (internal and/or
external).
157

F. EVALUATION OF AML COST:
4.21 OPINION ABOUT THE TREND IN BANKS! KYC AND AML COSTS
The KYC and AML cost is one of the most important aspects of a bank!s expenditure. It
would change according to the circumstances. The trend in the banks! KYC and AML cost can be
well known by its examination over the past and the next three years.
The survey noted the respondents! opinion on trend in the KYC and AML costs of banks
(all direct and indirect costs) over the past and the next three years and the result is shown in table
4.33.
TABLE 4.33
TREND IN BANKS! KYC AND AML COSTS
Trend in banks! KYC and AML costs
Opinion Decrease No Change Increase No Idea Total
N % N % N % N % N %
Past three Years 15 4.69 12 3.74 282 88.13 11 3.44 320 100.00
Next three Years 194 60.63 58 18.12 59 18.44 9 2.81 320 100.00
It is lucid from the above table that during the past three years there was a decrease in the
trend in the KYC and AML costs of banks for 4.69 per cent respondents, there was no change for
3.74 per cent and 88.13 per cent reported an increase, and the remaining 3.44 per cent had no idea
about it.
It is clear from the table that, for a great majority of the respondents 88.13 per cent, there
was an increase in trend in the KYC and AML cost of banks during the past three years.
158

Similarly, it demonstrates that during the next three years there would be a decrease in the
trend in the KYC and AML costs of banks for the 60.63 per cent of employees; no change for
18.12 per cent respondents, increase for 18.44 per cent respondents, and 2.81 per cent respondents
had no idea about it.
It is evident from the table that, a majority of the respondents 60.63 per cent are of the
opinion that during the next three years there will be a fall in trend in the KYC and AML costs of
banks. Figure 4.3 portrays this event.
159

FIGURE 4.3
TREND IN KYC AND AML COSTS OF BANKS IN THE PAST AND THE NEXT THREE YEARS
160
160

4.22 MAIN DRIVERS OF KYC AND AML COSTS OVER THE PAST AND THE
NEXT THREE YEARS
There may be some main drivers of the KYC and AML costs incurred in the past as
well as to be spent in the next three years. The main drivers are characterized by the banking
environment. The main drivers existed or would exist in different forms of KYC and AML
costs over the past and the next three years.
The respondents! views on the main drivers of KYC and AML costs relating to
transactions of monitoring, (including systems), reporting requirement, KYC - new/existing
customers, training, technology updation & others over the past and the next three years are
analyzed, and the result is shown in table 4.34.
It is understood from the table that during the past three years 9.06 per cent of the
main drivers of KYC and AML costs were related to monitoring the transactions; 11.56 per
cent of such costs were incurred for reporting requirement; 25.94 per cent of costs were
related to KYC - new/existing customers; 19.38 per cent to training; 17.81 per cent for
technology updation and 16.25 per cent related to other causes.
Similarly, during the next three years the main drivers of KYC and AML costs will be
relating to transactions monitoring to 17.81 per cent; relating to reporting requirement will be
19.06 per cent; concerning KYC-new/existing customers will be 12.50 per cent; for the
training will be 10.00 per cent; for technology updation will be 17.50 per cent and relating to
others will be 23.13 per cent.
161

TABLE 4.34
MAIN DRIVERS OF KYC AND AML COSTS OVER THE PAST AND NEXT
THREE YEARS
Past Three Years Next Three Years

Main drivers of KYC and
AML costs N % N %
Transactions Monitoring
29 9.06 57 17.81
(including systems)
Reporting Requirement 37 11.56 61 19.06
KYC - New/Existing customers 83 25.94 40 12.50
Training 62 19.38 32 10.00
Technology updation 57 17.81 56 17.50
Others 52 16.25 74 23.13
Total 320 100.00 320 100.00

It is clear from the above analysis that, a sizeable number of the respondents reported
that while the main causal factor for KYC and AML cost during the past three years is KYC -
new/existing customers, and during the next three years will be others. Figure 4.4 portrays
this event.
162

FIGURE 4.4
MAIN DRIVERS OF KYC AND AML COSTS OVER THE PAST AND THE NEXT THREE YEARS
163
163

4.23 DETAILS OF BANK!S KYC & AML COST
The scheduled commercial banks are tying with some other international and/or
national organization for increasing efficiency and controlling the cost of KYC and AML.
Sometimes, it is believed the cost of KYC and AML would outweigh the related benefits.
The survey noted the respondents! opinion about the following two questions,
namely, Does the bank endeavor to build capacity by establishing links with other
international and/or national partners/tie-up organizations that are also committed to KYC
and AML?, and Do you believe that the cost of KYC and AML outweighs the related
benefits?; the analysis of their responses is shown in table 4.35.
It is a revelation from the above table that 8.13 per cent of the respondents gave
negative answer to the question Does bank endeavor to build capacity by establishing links
with other international and/or national partners/tie-up organizations that are also committed
to KYC and AML; 7.5 per cent were unsure and 84.37 per cent gave affirmative answer.
Similarly, regarding Do you believe that the cost of KYC and AML outweighs the
related benefits 4.38 per cent of the respondents gave negative reply, 5.31 per cent stated as
unsure, and 90.31 per cent gave affirmative reply.
164

TABLE 4.35
DETAILS OF BANK!S KYC & AML COST
No Unsure Yes Total

Response
N % N % N % N %
Does the bank endeavor to build capacity
by establishing links with other
international and/or national partners/tie- 26 8.13 24 7.50 270 84.37 320 100.00
up organizations that are also committed
to KYC and AML?
Do you believe that the cost of KYC and

14 4.38 17 5.31 289 90.31 320 100.00
AML outweighs the related benefits?
It could be seen from the above table that, a large majority of the respondents stated in
affirmative on the statements Does bank endeavor to build capacity by establishing links
with other international and/or national partners/tie-up organizations that are also committed
to KYC and AML, and Do you believe that the cost of KYC and AML outweighs the
related benefits.
165

G. EVALUATION OF ATTITUDE
4.24 VIEWS ON EFFECTIVE MEASURES TAKEN BY BANKS TO COMBAT
MONEY LAUNDERING
The commercial banks are taking effective measures to combat money laundering
activities/transactions. The location of banks is very crucial for taking effective measures to
combat money laundering activities/transactions.
The study throws light on respondents! opinion about the banks! taking effective
measures to combat money laundering with reference to four personal factors, namely,
Based on the location of working place, the analysis exposed that 8.44 per cent of the
employees in rural areas and 28.12 per cent in urban areas reported that public sector banks
take effective measures to combat money laundering; 9.38 per cent in rural areas and 38.75
per cent in urban areas are in favour of private sector banks, and 4.06 per cent in rural areas
and 11.25 per cent in urban areas prefer to foreign banks.
variables, namely, designation, age and experience for the frequency distribution of banks
taking effective measures to combat money laundering could be seen in the following table
4.36.
166

TABLE 4.36
VIEWS ON EFFECTIVE MEASURES TAKEN BY BANKS

TO COMBAT MONEY LAUNDERING
Effective measures taken by banks to
Total
combat Money Laundering
Demographic variable Public Private Foreign
Sector Sector Banks N %
N % N % N %
Location of
Rural 27 8.44 30 9.38 13 4.06 70 21.88
present working
place Urban 90 28.12 124 38.75 36 11.25 250 78.12
Clerk 67 20.94 69 21.56 29 9.06 165 51.56
Scale I 24 7.50 37 11.56 11 3.44 72 22.50
Designation Scale II 17 5.31 32 10.01 9 2.81 58 18.13
Scale III & Above 9 2.81 16 5.00 0 0.00 25 7.81
18 to 25 25 7.81 27 8.44 11 3.44 63 19.69

26 - 35 31 9.69 39 12.19 13 4.06 83 25.94
Age
36 - 45 46 14.38 54 16.87 22 6.87 122 38.12
46 - 58 15 4.68 34 10.63 3 0.94 52 16.25
Below 2 years 11 3.44 16 5.01 5 1.56 32 10.01
Experience in 2 to 5 Years 16 5.00 18 5.63 9 2.81 43 13.44
sector 16 to 25 years 49 15.31 67 20.94 22 6.88 138 43.13
Above 25 years 9 2.81 17 5.30 0 0.00 26 8.11
Total 117 36.56 154 48.13 49 15.31 320 100.00
It is clear from the table that for 36.56 per cent, public sector banks take effective
measures to combat money laundering; 48.13 per cent are in favour of private sector banks
and 15.31 per cent admire foreign banks for taking effective measures to combat money
laundering.
167

It is of clear manifestation that a sizeable number of the respondents 48.13 per cent
are of the opinion that the banks in private sector are taking effective measure to combat
money laundering.
4.25 KEY OPERATIONAL CHALLENGES TO KYC STANDARDS AND AML
MEASURES
In practice, there could be some key challenges to the operation of KYC standards
and AML measures. These operational challenges may arise from internal and external
environment of commercial banks. Such operational challenges may be mainly related to the
updation/improvement of the banking systems and procedures.
The investigation unveils the respondents! opinion about the kinds of key challenges
to KYC standards and AML measures in terms of four personal factors, namely, location of
employees in rural areas and 12.49 per cent employees in urban areas reported the kind of
key operational challenge to KYC/AML lies in change in regulation; 7.19 per cent in rural
areas and 32.81 per cent in urban areas such operational challenge is caused by inadequate
infrastructure and technology; for 7.19 per cent in rural areas and 27.19 per cent in urban
areas, the kind of key operational challenge comes from ill-prepared staff, and 1.25 per cent
in rural areas and 5.63 per cent in urban areas reported on lack of defined process as the
challenge to KYC standard and AML measures.
The frequency distribution of the operational challenges to KYC/AML in terms of the
three other demographic variables, namely, designation, age and experience in the banking
sector could be seen in the following table 4.37.
168

TABLE 4.37
KEY OPERATIONAL CHALLENGES TO KYC STANDARDS AND AML MEASURES
Key operational challenges of KYC Standards and AML Measures Total

Inadequate
Demographic variable Changing Ill-prepared Lack of defined
infrastructure and
Regulations staff process N %
Technology
N % N % N % N %
Clerk 33 10.31 73 22.81 47 14.69 12 3.75 165 51.56
Scale I 10 3.12 32 10.00 23 7.19 7 2.19 72 22.50
Designation
Scale II 10 3.12 15 4.69 30 9.38 3 0.94 58 18.13
Scale III & Above 7 2.19 8 2.50 10 3.12 0 0.00 25 7.81
18 to 25 10 3.12 33 10.31 14 4.38 6 1.88 63 19.69
169
26 - 35 21 6.56 29 9.06 28 8.75 5 1.57 83 25.94
Age
36 - 45 17 5.31 51 15.94 43 13.44 11 3.43 122 38.12
46 - 58 12 3.75 15 4.69 25 7.81 0 0.00 52 16.25
Below 2 years 7 2.19 14 4.38 9 2.81 2 0.63 32 10.01
2 to 5 Years 13 4.06 11 3.44 17 5.31 2 0.63 43 13.44
Experience in the
6 to 15 Years 10 3.12 41 12.81 21 6.57 9 2.81 81 25.31
banking sector
16 to 25 years 23 7.19 53 16.56 53 16.57 9 2.81 138 43.13
Above 25 years 7 2.18 9 2.81 10 3.12 0 0.00 26 8.11
Total 60 18.74 128 40.00 110 34.38 22 6.88 320 100.00
169

It is evident from the above table that 18.74 per cent of the operational challenges
arise from changing regulations, 40.00 per cent from inadequate infrastructure and
technology, 34.38 per cent from ill-prepared staff and 6.88 per cent from lack of defined
process.
It is noticeable that, 40.00 per cent and 34.38 per cent respectively of the respondents
stated the key operational challenges to KYC/AML are inadequate infrastructure and
technology, and ill-prepared staff.
4.26 TYPES OF RISKS FACED BY BANKS FROM MONEY LAUNDERING

The commercial banks are likely to face the money laundering activities /transactions.
This would make the banks to face various kinds of risks. These risks would impair the image
of the banks.
In the survey, the opinion about the types of risks faced by banks from money
laundering with respect to personal factors, namely, location of present working place,
designation, age and experience in the banking sector was analyzed.
Based on the location of working place, the analysis discloses that 6.88 per cent
employees in rural areas and 20.63 per cent employees in urban areas reported that money
laundering creates reputation risk for the bank; for 0.94 per cent in rural areas and 14.37 per
cent in urban areas, credit risk is created; for 4.06 per cent in rural areas and 12.50 per cent in
urban areas money laundering leads to operational risk; for 3.75 per cent in rural areas and
9.06 per cent in urban areas think of compliance risk, and 6.25 per cent in rural areas and
21.56 per cent in urban areas look for all the above risks because of money laundering.
With reference to three other demographic variables, namely, designation, age and
experience, the frequency distribution for the types of risks faced by banks from money
laundering could be seen in the following table 4.38.
170

TABLE 4.38
TYPES OF RISKS FACED BY BANKS FROM MONEY LAUNDERING
Types of risks faced by banks from money laundering Total

Demographic variable Compliance All of the
Reputation risk Credit risk Operational risk
risk above N %
N % N % N % N % N %
Clerk 45 14.06 19 5.93 27 8.44 24 7.50 50 15.63 165 51.56
Scale I 18 5.63 14 4.38 12 3.74 6 1.88 22 6.87 72 22.50
Designation
Scale II 15 4.69 12 3.75 10 3.13 8 2.50 13 4.06 58 18.13
171
Scale III & Above 10 3.13 4 1.25 4 1.25 3 0.93 4 1.25 25 7.81
18 to 25 16 5.00 7 2.19 9 2.81 10 3.13 21 6.56 63 19.69
26 - 35 23 7.19 9 2.81 16 5.00 11 3.44 24 7.50 83 25.94
Age
36 - 45 32 10.00 24 7.50 19 5.94 12 3.74 35 10.94 122 38.12
46 - 58 17 5.32 9 2.81 9 2.81 8 2.50 9 2.81 52 16.25
Below 2 years 11 3.44 1 0.32 5 1.56 5 1.56 10 3.13 32 10.01
2 to 5 Years 11 3.44 3 0.94 9 2.81 8 2.50 12 3.75 43 13.44
Experience in the
6 to 15 Years 19 5.94 15 4.68 13 4.06 8 2.50 26 8.13 81 25.31
banking sector
16 to 25 years 36 11.25 26 8.13 22 6.88 17 5.31 37 11.56 138 43.13
Above 25 years 11 3.44 4 1.24 4 1.25 3 0.94 4 1.24 26 8.11
Total 88 27.51 49 15.31 53 16.56 41 12.81 89 27.81 320 100.00
171

It is understandable from the table that for 27.51 per cent of the respondents, there is
reputation risk from money laundering, for 15.31 per cent, it is credit risk, for 16.56 per cent,
it is operational risk, for 12.81 per cent, it is compliance risk and for 27.81 per cent, it is all
the above risks faced by banks from money laundering. It is interpreted from the above
analysis that, 27.81 per cent expect that money laundering creates all kinds of risks and 27.51
per cent go in for reputation risk.
4.27 FACTORS TO BE CONSIDERED FOR DESIGNATION OF AN EMPLOYEE
AS A PRINCIPAL OFFICER
The money laundering reporting officer is the Principal Officer (PO). The PO is
expected to have sound knowledge about the various financial subjects. He is an apex
reporting authority to Financial Intelligence Unit, India (FIU-IND) on behalf of banks.
Various important factors are to be considered to designate an employee as a PO. The survey
noted the respondents! opinion on the important factors to be considered for designation of an
employee as a PO with respect to personal factors, namely, location of present working place,
Based on the location of working place, the analysis articulates that 5.94 per cent of
the employees in rural areas and 19.06 per cent employees in urban areas report that
important factor for designation of an employee as a PO is his prior work experience; 4.06
per cent in rural areas and 16.87 per cent in urban areas, compliance background, namely,
one!s knowledge and action of reporting money laundering activities is the principal factor;
7.50 per cent in rural areas and 34.69 per cent in urban areas report BFSI (Banking, Financial
Services and Insurance) background and 4.38 per cent in rural areas and 7.50 per cent in
urban areas look for a pass in the Certificate examination as a vital factor. The frequency
distribution for the important factors for designating an employee as a PO in terms of
designation, age and experience of respondents could be seen in the following table 4.39.
172

TABLE 4.39
FACTORS TO BE CONSIDERED FOR DESIGNATION OF AN EMPLOYEE AS A PRINCIPAL OFFICER
Important factor for designating an employee as a Principal Officer Total

Compliance background,
Pass in the
Demographic variable Prior work namely, one!s Knowledge BFSI
Certificate
Experience and Action of reporting Background N %
examination
money laundering activities
N % N % N % N %
Clerk 41 12.81 35 10.93 62 19.38 27 8.44 165 51.56
Scale I 17 5.31 13 4.06 36 11.25 6 1.88 72 22.50
Designation
Scale II 15 4.69 13 4.06 26 8.13 4 1.25 58 18.13
Scale III & Above 7 2.19 6 1.88 11 3.43 1 0.31 25 7.81
18 to 25 17 5.31 12 3.75 24 7.50 10 3.13 63 19.69
173
26 35 19 5.94 15 4.69 37 11.56 12 3.75 83 25.94
Age
36 45 29 9.06 28 8.75 52 16.25 13 4.06 122 38.12
46 58 15 4.69 12 3.74 22 6.88 3 0.94 52 16.25
Below 2 years 8 2.51 5 1.56 12 3.75 7 2.19 32 10.01
2 to 5 Years 11 3.44 9 2.81 16 5.00 7 2.19 43 13.44
Experience in the
6 to 15 Years 21 6.56 18 5.63 35 10.93 7 2.19 81 25.31
banking sector
16 to 25 years 33 10.31 28 8.75 61 19.07 16 5.00 138 43.13
Above 25 years 7 2.18 7 2.18 11 3.44 1 0.31 26 8.11
Total 80 25.00 67 20.93 135 42.19 38 11.88 320 100
173

It is noticeable from the table that 25.00 per cent of the respondents give importance
to the prior work experience of an employee for designation as a principal officer, 20.93 per
cent consider his compliance background, namely, one!s knowledge and action of reporting
money laundering activities, 42.19 per cent look for his BFSI background and 11.88 per cent
give importance to have a pass in the certificate examination to designate an employee as a
principal officer.
The above table indicates that for a sizeable number of the respondents (42.19 per
cent), the key factor to designate an employee as a principal officer is his BFSI background.
4.28 BANKS! SERVING AS SUCCESSFUL CHANNELS FOR REPORTING ON
CASH TRANSACTIONS, SUSPICIOUS TRANSACTIONS AND CURRENCY
COUNTERFEITS
Banks have the obligation for adhering to the KYC standards and AML measures of
RBI from time to time. Reporting is one of the obligations of the commercial banks. The
preparation of Cash Transactions Report (CTR), Suspicious Transactions Report (STR) and
Counterfeit Currency Report (CCR) is very important in order to avoid occurrence of any
discrepancy relating to money laundering activities/transactions in future.
The employees! opinion on the banks! serving as effective channels of reporting cash
transactions, suspicious transactions and currency counterfeits with respect to personal
factors, namely, location of present working place, designation, age and experience in the
banking sector was analyzed.
Based on the location of working place, the analysis reveals that 20.31 per cent of the
employees in rural areas and 76.25 per cent of the employees in urban areas report in
affirmative that the banks as the channels, successfully reporting cash transactions, suspicious
transactions and currency counterfeits, and 1.57 per cent in rural areas and 1.87 per cent in
urban areas hold the negative view of banks! reporting.
174

In terms of three other demographic variables, namely, designation, age and
experience and the frequency distribution for the banks as effective channels of reporting
cash transactions, suspicious transactions and currency counterfeits could be seen in the
following table 4.40.
TABLE 4.40
BANKS! SERVING AS SUCCESSFUL CHANNELS FOR REPORTING ON

CASH TRANSACTIONS, SUSPICIOUS TRANSACTIONS AND
CURRENCY COUNTERFEITS
Serving as channels to report Total
Demographic variable Yes No

N %
N % N %

Clerk 157 49.06 8 2.50 165 51.56
Scale I 69 21.56 3 0.94 72 22.50

Designation
Scale II 58 18.13 0 0.00 58 18.13
Scale III & Above 25 7.81 0 0.00 25 7.81
18 to 25 59 18.44 4 1.25 63 19.69
26 - 35 78 24.38 5 1.56 83 25.94

Age
36 - 45 120 37.49 2 0.63 122 38.12
46 - 58 52 16.25 0 0.00 52 16.25
Below 2 years 30 9.38 2 0.63 32 10.01
2 to 5 Years 40 12.50 3 0.94 43 13.44

Experience in the
6 to 15 Years 79 24.69 2 0.62 81 25.31
banking sector
16 to 25 years 134 41.88 4 1.25 138 43.13
Above 25 years 26 8.11 0 0.00 26 8.11
Total 309 96.56 11 3.44 320 100.00

175

A reading of the table shows that 96.56 per cent of the respondents report in
affirmative and 3.44 per cent in negative that the banks serve as the effective channels of
reporting cash transactions, suspicious transactions and currency counterfeits.
It came to light from the above analysis that a great majority of the respondents 96.56
per cent stated in affirmative that the banks serve as the effective channels of reporting cash
transactions, suspicious transactions and currency counterfeits.
4.29 DO BANKS PROMOTE AML AWARENESS AMONG CUSTOMERS AS A
CULTURE?
The customer should get the awareness of money laundering activities/transactions.
For this, the banks could well educate their customers. If the customers! awareness is
promoted by the banks, the money laundering operations can be weeded out from the healthy
financial transactions, and ultimately, the customers will be protected in the process.
The employees! opinion on the banks! role in the promotion of AML awareness
among customers as a culture with respect to personal factors, namely, location of present
working place, designation, age and experience in the banking sector was analyzed.
Based on the location of working place, the analysis unfolds that 18.75 per cent of the
employees in rural areas and 67.50 per cent of the employees in urban areas report in
affirmative and 3.13 per cent in rural areas and 10.62 per cent in urban areas report in
negative that the banks have successfully promoted the AML awareness among customers as
a culture.
experience in the banking sector and the frequency distribution for the banks! promotion of
AML awareness among customers as a culture could be seen in the following table 4.41.
176

TABLE 4.41
BANKS! ROLE IN THE PROMOTION OF AML AWARENESS
AMONG CUSTOMERS AS A CULTURE
AML awareness
Total
among customers
Demographic variable Yes No
N %
N % N %
Clerk 139 43.44 26 8.12 165 51.56
Scale I 61 19.06 11 3.44 72 22.50
Designation Scale II 51 15.94 7 2.19 58 18.13
Scale III & Above 25 7.81 0 0.00 25 7.81
18 to 25 55 17.19 8 2.50 63 19.69

26 - 35 71 22.19 12 3.75 83 25.94
Age
36 - 45 100 31.24 22 6.88 122 38.12
46 - 58 50 15.63 2 0.62 52 16.25
Below 2 years 28 8.76 4 1.25 32 10.01
2 to 5 Years 36 11.25 7 2.19 43 13.44
Experience in the
6 to 15 Years 68 21.25 13 4.06 81 25.31
banking sector
16 to 25 years 118 36.88 20 6.25 138 43.13
Above 25 years 26 8.11 0 0.00 26 8.11
Total 276 86.25 44 13.75 320 100.00
It is evident from the above table, 86.25 per cent of the employees respond
affirmatively and 13.75 per cent negatively for the banks! promotion of AML awareness
among customers as a culture.
It is put across from the above table that a large majority of the respondents 86.25 per
cent stated that the banks had promoted of AML awareness among their customers as a
culture.
177

4.30 ACTIVITIES TO BE UNDERTAKEN FOR IMPROVING THE COMPLIANCE
OF AML REGULATIONS
Some activities to be undertaken improve the compliance of AML regulations in
banks. These activities enhance the level of knowledge about the customers! transactions
with banks. It is helpful to comply with the KYC standards and AML measures of banks.
Respondents! opinion on the activities to be undertaken for improving the compliance
of AML regulations with respect to personal factors, namely, location of present working
place, designation, age and experience in the banking sector was analyzed.
employees in rural areas and 23.44 per cent employees in urban areas report that KYC
updating is the activity to be undertaken for improving the compliance of AML regulations;
7.50 per cent in rural areas and 23.44 per cent in urban areas stress on transaction monitoring;
4.38 per cent in rural areas and 7.18 per cent in urban areas consider training and 4.69 per
cent in rural areas and 24.06 per cent in urban areas give importance to reporting as the
activity to be undertaken for improving the compliance of AML regulations.
experience, the frequency distribution of the activities to be undertaken for improving the
compliance of AML regulations could be seen in the following table 4.42.
178

TABLE 4.42
ACTIVITIES TO BE UNDERTAKEN FOR IMPROVING THE COMPLIANCE OF

AML REGULATIONS
Activities to be undertaken for improving the

Total
compliance of AML regulations
Demographic variable KYC Transaction
Training Reporting
updating Monitoring N %
N % N % N % N %
Location of Rural 17 5.31 24 7.50 14 4.38 15 4.69 70 21.88
present
Clerk 54 16.87 53 16.56 28 8.75 30 9.38 165 51.56

Scale I 16 5.00 38 11.88 7 2.18 11 3.44 72 22.50
Designation
Scale II 16 5.00 8 2.50 2 0.63 32 10.00 58 18.13
Scale III &
6 1.88 0 0.00 0 0.00 19 5.93 25 7.81
Above
18 to 25 22 6.88 19 5.94 10 3.13 12 3.74 63 19.69
26 - 35 25 7.81 31 9.69 12 3.75 15 4.69 83 25.94
Age
36 - 45 33 10.31 49 15.31 15 4.68 25 7.82 122 38.12
46 - 58 12 3.75 0 0.00 0 0.00 40 12.50 52 16.25
Below 2 years 6 1.88 12 3.75 6 1.88 8 2.50 32 10.01
2 to 5 Years 11 3.44 18 5.63 7 2.18 7 2.19 43 13.44
Experience in
the banking 6 to 15 Years 31 9.69 30 9.38 10 3.12 10 3.12 81 25.31
sector 16 to 25 years 38 11.88 39 12.18 14 4.38 47 14.69 138 43.13
Above 25
6 1.86 0 0.00 0 0.00 20 6.25 26 8.11
years
Total 92 28.75 99 30.94 37 11.56 92 28.75 320 100.00
It is evident from the table that 28.75 per cent consider KYC updation; 30.94 per cent
to transaction monitoring; 11.56 per cent to training and 28.75 per cent to reporting as the
activity to be undertaken for improving the compliance of AML regulations. It is understood
from the above table that a sizeable number of the respondents 30.94 per cent report that the
activity to be undertaken for improving the compliance of AML regulations is transaction
monitoring.
179

The things to be done or the activities to be undertaken like training, KYC updating
and monitoring the customers! transactions for improving the banks! compliance of AML
regulations may vary in relation to certain demographic variables. In this context, the present
researcher formulated a set of null hypotheses for testing.
Ho: There is no association between the activities to be undertaken for improving the
banks! compliance of AML regulations and the personal factors, namely, location of present
TABLE 4.43
It could be seen from the table 4.43 that, as the p value is less than 0.05 for all the
personal factors of location of present working place, designation, age and experience in the
banking sector, and the results are significant at 5 per cent level; and hence, the null
hypothesis is rejected.
From the analysis it is concluded that there is significant association between the
in the banking sector and the activities to be undertaken for improving the banks! compliance
of AML regulations. It means the activities to be undertaken like transaction monitoring play
a vital role in improving the banks! compliance of AML regulations.
180

4.31 CHANNELS OF INFORMATION FOR DISCUSSION ON KYC STANDARDS
AND AML MEASURES
There is a KYC and AML cell for overseeing all activities under KYC standards and
AML measures, liaison with appropriate agencies and for the submission of reports on behalf
of banks to their Board of Directors and the Government authorities concerned. Every bank
has formed the KYC and AML cell as a separate department and it functions autonomously.
The guidelines/regulations for the implementation of KYC and AML are revised by the
Reserve Bank of India (RBI) from time to time. The transactions profiling, monitoring of
suspicious, cash and currency counterfeit transactions, and their reporting are the main
functions of the KYC and AML cell.
The bank employees discuss the KYC standards and AML measures, in order to
update their knowledge on these standards and measures and for which, they need
information. E-circulars, seminar, reports, staff interaction and staff training college serve as
channels of information required by the bank employees for the above discussion.
The survey brings to limelight the channels of information required by the
respondents for their discussion on KYC standards and AML measures. Based on the location
of working place, the analysis reveals that 5.31 per cent of the employees in rural areas and
15.94 per cent in urban areas prefer e-circulars as an important channel of KYC and AML
cell; 5.63 per cent in rural areas and 23.43 per cent in urban areas give importance to staff
training college; 8.13 per cent in rural areas and 29.68 per cent in urban areas insist on staff
interaction and 2.81 per cent in rural areas and 9.07 per cent in urban areas look up on
meetings, seminars and conferences conducted by senior manager as channels of information
to the bank staff for their discussion. The channels of information for bank staff for their
discussion on KYC standards and AML measures in terms of the other three demographic
variables, namely, designation, age and experience are given in the following table 4.44.
181

TABLE 4.44
CHANNELS OF INFORMATION FOR DISCUSSION ON KYC STANDARDS AND AML MEASURES
channels of information for discussion on KYC standards and AML Measures Total
Meeting, Seminar,
Through Staff Training
Demographic variable Staff interaction conference conducted
E-Circulars College N %
by senior management
N % N % N % N %

working place
Urban 51 15.94 75 23.43 95 29.68 29 9.07 250 78.12
Clerk 37 11.56 46 14.37 60 18.75 22 6.88 165 51.56
Scale I 13 4.06 20 6.25 30 9.38 9 2.81 72 22.50
Designation
Scale II 12 3.75 21 6.56 20 6.26 5 1.56 58 18.13
Scale III & Above 6 1.88 6 1.88 11 3.42 2 0.63 25 7.81
182
18 to 25 15 4.69 16 5.00 25 7.81 7 2.19 63 19.69
26 35 18 5.63 24 7.50 30 9.37 11 3.44 83 25.94
Age
36 45 23 7.18 37 11.56 47 14.69 15 4.69 122 38.12
46 58 12 3.75 16 5.00 19 5.94 5 1.56 52 16.25
Below 2 years 8 2.51 8 2.51 12 3.74 4 1.25 32 10.01
2 to 5 Years 10 3.13 13 4.06 14 4.38 6 1.87 43 13.44
Experience in the
6 to 15 Years 18 5.62 21 6.56 32 10.00 10 3.13 81 25.31
banking sector
16 to 25 years 26 8.13 45 14.06 51 15.94 16 5.00 138 43.13
Above 25 years 6 1.86 6 1.87 12 3.75 2 0.63 26 8.11
Total 68 21.25 93 29.06 121 37.81 38 11.88 320 100.00
182

The above table discloses that 21.25 per cent prefer e-circulars; 29.06 per cent turn to
staff training college; 37.81 per cent demand staff interaction and 11.88 per cent consider
meetings, seminars and conferences conducted by senior executives as channels of
information to the bank staff for their discussion on KYC standards and AML measures.
It is comprehended from the table that a sizeable number of the respondents 37.81 per
cent look up on staff interaction as channels of information for their discussion on KYC
standards and AML measures.
A set of the following null hypothesis was tested by the chi-square test.
Ho: There is no association between the respondents! sources of information for their
discussion meant for updating their knowledge on KYC standards and AML measures and
the personal factors, namely, location of present working place, designation, age and
TABLE 4.45

183

It is noted from the table 4.45 that as the p value is greater than 0.05 for all the
personal factors like the location of present working place, designation, age and experience in
the banking sector, and the results are not significant at 5 per cent level; and hence the null
hypothesis is accepted.
From the analysis, it is found that there is no significant association between the
personal factors of the location of present working place, designation, age and experience in
the banking sector and the respondents! sources of information for their discussion on KYC
4.32 RESPONDENTS! VIEWS ON DIFFERENT ASPECTS OF KYC STANDARDS
AND AML MEASURES
The employees! attitude towards the key aspects of KYC standards and AML
measures is very important. It would be helpful for the accomplishment of KYC standards
and AML measures in banks. The respondents! perception about the different aspects like
KYC policy, culture, training, human resources, reporting to CTR/STR/CCR and technology
assistance of their bank is analyzed, and the results are given in table 4.46.
It is apparent from the table that regarding policy, 11.56 per cent banks need no
change; 82.81 per cent banks have to update and 5.63 per cent banks have to improve the
KYC standards and AML measures. Regarding Culture 17.18 per cent banks need no change;
78.13 per cent banks have to update and 4.69 per cent banks have to improve their KYC
184

TABLE 4.46
RESPONDENTS! VIEWS ON DIFFERENT ASPECTS OF
KYC STANDARDS AND AML MEASURES
Need no change To update To improve Total

Key Aspect
N % N % N % N %
Policy 37 11.56 265 82.81 18 5.63 320 100.00
Culture 55 17.18 250 78.13 15 4.69 320 100.00
Training 91 28.44 217 67.81 12 3.75 320 100.00
Human Resources 91 28.44 92 28.75 137 42.81 320 100.00
Reporting to
39 12.19 104 32.50 177 55.31 320 100.00
CTR/STR/CCR
Technology Assistance 27 8.43 247 77.19 46 14.38 320 100.00
Regarding training, 28.44 per cent need no change in training; 67.81 per cent to
update the training and 3.75 per cent for improvement of the training in KYC standards and
AML measures.
Regarding human resource, 28.44 per cent banks need no change, 28.75 per cent
banks to update and 42.81 per cent for improvement towards KYC standards and AML
measures.
Regarding reporting of CTR/STR/CCR, 12.19 per cent banks need no change, 32.50
per cent to update reporting and 55.31 per cent for improvement in reporting in KYC
Concerning technology assistance, 8.43 per cent banks need no change in technology
assistance, 77.19 per cent to update technology and 14.38 per cent for improvement in
technology assistance to maintain KYC standards and AML measures.
185

It is apparent that a majority of the respondents consider that the matters relating to
policy, culture, training and technology assistance towards KYC standards and AML
measures should be updated.
4.32.1 HYPOTHESIS TESTING BY FRIEDMAN TEST
Friedman!s test was applied to verify the following hypothesis.
Ho: There is no difference in the respondents! giving of ranks to the different aspects
of KYC standards and AML measures, namely, KYC policy, culture, training, human
resources, reporting to CTR/STR /CCR and technology assistance.
TABLE 4.47
FRIEDMAN!S TEST
APPROACH OF BANKS TO KYC STANDARD AND AML MEASURES
Factor Mean Std. Deviation Mean Rank

Policy 0.94 0.41 3.26
Culture 0.87 0.45 3.12
Training 0.75 0.51 2.83
Human Resources 1.14 0.83 3.78
Reporting to CTR/STR/CCR 1.43 0.70 4.45
Technology Assistance 1.06 0.47 3.56
It could be seen from the above table that among the six aspects, reporting to
CTR/STR/CCR is ranked first, followed by the Human resource and Technology
assistance.
From the Friedman!s test, it is concluded that the employees! ordering of ranks or
importance to six different aspects of KYC standards and AML measures varies. Figure 4.5
portrays this event.
186

FIGURE " 4.5
RESPONDENTS! VIEWS ON DIFFERENT ASPECTS OF KYC STANDARDS AND AML MEASURES
187
187

4.33 EFFECTIVE METHOD FOR IDENTIFYING THE POTENTIAL MONEY
LAUNDERING
The commercial banks are adopting various methods for identifying the potential
money laundering. These methods vary among the banks and they are helpful for achieving
the KYC standards and AML measures in banks.
The employees! opinion on the effective methods for identifying the potential money
laundering with respect to personal factors, namely, location of present working place,
The methods considered under study are "Reliance on staff vigilance in reporting of
suspicious transactions (X1), Sample review of transactions by compliance department (X2),
Investigation of exception reports on immense value (e.g. Transactions <INR 10.00 Lakhs)
(X3), Investigation of other exception reports such as remittances to high risk countries or,
early(X4), More sophisticated IT systems developed internally and externally(X5) & Reports
from current Core Banking System (X6).
188

Based on the location of working place, the analysis reveals that 3.75 per cent
employees in rural areas and 15.00 per cent employees in urban areas reported that the
effective method for identifying the potential money laundering is reliance on staff vigilance
in reporting suspicious transactions; none of employees in rural areas and 12.19 per cent in
urban areas reported that the effective method for identifying the potential money laundering
is the sample review of transactions by compliance department; 4.69 per cent in rural areas,
15.00 per cent in urban areas reported investigation of exception reports on exceptional value
(e.g. Transactions <INR 10.00 Lakhs); 0.63 per cent in rural areas and 7.81 per cent in urban
areas would like to have investigation of other exception reports; 5.31 per cent in rural areas
and 11.56 per cent in urban areas demand more sophisticated IT systems developed internally
and externally and 7.50 per cent in rural areas and 16.56 per cent in urban areas go in for
current Core Banking System as the effective method for identifying the potential money
laundering.
In terms of other three demographic variables, namely, designation, age and
experience, the frequency distribution for the effective methods for identifying the potential
money laundering could be seen in the following table 4.48.
189

TABLE 4.48
EFFECTIVE METHOD FOR IDENTIFYING THE POTENTIAL MONEY LAUNDERING
Effective method for identifying the potential money laundering Total
Demographic variable X1 X2 X3 X4 X5 X6
N %
N % N % N % N % N % N %
Clerk 29 9.06 15 4.69 35 10.94 13 4.06 31 9.68 42 13.13 165 51.56
Scale I 12 3.75 13 4.06 13 4.06 14 4.38 10 3.13 10 3.12 72 22.50
Designation
Scale II 13 4.06 9 2.81 9 2.81 0 0.00 8 2.51 19 5.94 58 18.13
Scale III & Above 6 1.88 2 0.63 6 1.88 0 0.00 5 1.55 6 1.87 25 7.81
Age 18 to 25 10 3.13 8 2.50 14 4.38 7 2.18 12 3.75 12 3.75 63 19.69
26 - 35 14 4.38 9 2.81 17 5.31 6 1.88 16 5.00 21 6.56 83 25.94
36 - 45 24 7.49 16 5.00 22 6.88 14 4.38 17 5.31 29 9.06 122 38.12
190
46 - 58 12 3.75 6 1.88 10 3.12 0 0.00 9 2.81 15 4.69 52 16.25
Below 2 years 5 1.56 0 0.00 7 2.19 2 0.63 7 2.19 11 3.44 32 10.01
2 to 5 Years 9 2.81 3 0.94 8 2.50 3 0.94 9 2.81 11 3.44 43 13.44
Experience in the
6 to 15 Years 14 4.38 15 4.68 18 5.63 9 2.81 12 3.75 13 4.06 81 25.31
banking sector
16 to 25 years 26 8.13 18 5.63 24 7.50 13 4.06 21 6.56 36 11.25 138 43.13
Above 25 years 6 1.87 3 0.94 6 1.87 0 0.00 5 1.56 6 1.87 26 8.11
Total 60 18.75 39 12.19 63 19.69 27 8.44 54 16.87 77 24.06 320 100.00
X1 denotes "Reliance on staff vigilance in reporting of suspicious transactions; X2 means "Sample review of transactions by compliance department!;
X3 indicates "Investigation of exception reports on immense value! (e.g. Transactions <INR 10.00 Lakhs); X4 means "Investigation of other exception reports
such as remittances to high risk countries or, early!; X5 denotes "More sophisticated IT systems developed internally and externally! and
X6 represents "Reports from current Core Banking System!.
190

It is exposed from the table that 18.75 per cent rely on staff vigilance in reporting of
suspicious transactions; 12.19 per cent prefer sample review of transactions by compliance
department; 19.69 per cent demand investigation of exception reports on immense value; 8.44
per cent insist on investigation of other exception reports such as remittances, 16.87 per cent
look to more sophisticated IT systems developed internally and externally and 24.06 per cent
depend on the reports from current core banking system as the effective method for
identifying the potential money laundering.
It is obvious from the above table that a sizeable number of the respondents (19.69 per
cent) feel the effective method for identifying the potential money laundering is reports from
current core banking system.
A set of null hypothesis formulated against the demographic variables was verified by
the chi-square test.
Ho: There is no association between the opinion about the effective method for
identifying the potential money laundering and the demographic variables, namely, location
of present working place, designation, age and experience in the banking sector.
TABLE 4.49

Location of present working place 21.30 5 0.001 Highly Significant
191

It is understood that as the p value is less than 0.05 for the first two demographic
variables of location of present working place and designation and the results are significant
at 5 per cent level; hence the null hypothesis is rejected for these two variables. It means that
in terms of demographic variables of location of working place and employee designation,
there is difference in their opinion on the effective method for identifying the money
laundering activities. But, as the p value is greater than 0.05 for the last two demographic
variables of Age and Experience in the banking sector and the results are not significant at 5
per cent level; and hence the null hypothesis is accepted for these two variables.
It means for the last two demographic characteristics, namely, age and experience,
there is no difference in employees! opinion on the effective method for identifying the
potential money laundering activities.
4.34 RESPONDENTS! VIEWS ON KYC AND AML ENVIRONMENT
The various statements from various regulatory bodies and government most closely
reflect the KYC and AML environment. The regulatory bodies and government have
extended the certain guidelines for finding money launderers.
In this context, respondents! views on KYC and AML environment were obtained and
their responses with respect to the personal factors, namely, location of present working
place, designation, age and experience in the banking sector were analyzed.
192

employees in rural areas and 15.31 per cent employees in urban areas reported that there are
too many onerous requirements that cause ineffectiveness in combating money laundering,
and so, should be reduced; 4.06 per cent in rural areas and 17.50 per cent in urban areas are of
the opinion that the current level of requirement is acceptable but needs to be more specific in
order to combat money laundering more effectively; 3.44 per cent in rural areas and 14.69 per
cent in urban areas feel that the current level of requirement is acceptable and effective in
combating the money laundering and 9.69 per cent in rural areas and 30.62 per cent in urban
areas insist that the Government should raise the level of requirements to banks in order to
combat money laundering more effectively.
experience in the banking sector, the frequency distribution of sample employees! views on
KYC and AML environment are given in the following table 4.50.
193

TABLE 4.50
RESPONDENTS! VIEWS ON KYC AND AML ENVIRONMENT
View on KYC and AML environment Total

The current level of The current level The Government
There are too
Demographic variable requirement is of requirement is should raise the
many onerous
acceptable but needs acceptable and level of N %
requirements
to be more specific effective requirements
N % N % N % N %
Location of Rural 15 4.69 13 4.06 11 3.44 31 9.69 70 21.88
present
Clerk 32 10.00 35 10.93 26 8.13 72 22.50 165 51.56
Scale I 12 3.75 17 5.31 14 4.38 29 9.06 72 22.50
Designation
Scale II 14 4.37 11 3.44 15 4.69 18 5.63 58 18.13
Scale III & Above 6 1.88 6 1.88 3 0.93 10 3.12 25 7.81
194
18 to 25 12 3.75 14 4.38 10 3.13 27 8.43 63 19.69
26 - 35 15 4.69 19 5.93 15 4.69 34 10.63 83 25.94
Age
36 - 45 23 7.18 26 8.13 24 7.50 49 15.31 122 38.12
46 - 58 14 4.38 10 3.12 9 2.81 19 5.94 52 16.25
Below 2 years 7 2.19 6 1.88 6 1.88 13 4.06 32 10.01
Experience in 2 to 5 Years 8 2.50 10 3.13 7 2.19 18 5.62 43 13.44
the banking 6 to 15 Years 14 4.38 20 6.24 13 4.06 34 10.63 81 25.31
sector 16 to 25 years 29 9.06 27 8.44 28 8.75 54 16.88 138 43.13
Above 25 years 6 1.87 6 1.87 4 1.25 10 3.12 26 8.11
Total 64 20.00 69 21.56 58 18.13 129 40.31 320 100.00
194

It is inferred from the table that 20.00 per cent report that there are too many onerous
requirements that cause ineffectiveness, and so, should be reduced; 21.56 per cent conclude
that the current level of requirement is acceptable but needs to be more specific; 18.13 per
cent are satisfied that the current level of requirement is acceptable and effective and 40.31
per cent reflect that the Government should raise the level of requirements of banks in order
to combat money laundering more effectively.
It is clear from the above analysis that, a sizeable number of the respondents 40.31 per
cent firmly believe that the Government should raise the level of requirements of banks in
order to combat money laundering more effectively.
4.35 CHALLENGES AT VARIOUS LEVELS OF MANAGEMENT IN
COMPLYING WITH KYC/AML REGULATIONS
Challenges at various levels of management exist in complying with the KYC and
AML regulations. They are mainly concerned with the accomplishment of the KYC standards
and AML measures. Bank employees! opinion about the serious challenge at senior, middle
and lower level of operational management in complying with the KYC/AML regulations
is analyzed, and the results are given in table 4.51.
The table 4.64 shows that the serious challenges at the senior management level in
complying with the KYC/AML regulations are found to be 49.69 per cent in implementation,
25.62 per cent in interpretation and 24.69 per cent in reporting. Similarly, the challenges at
the middle management level in complying with the KYC/AML regulations consist of 30.31
per cent in implementation, 44.38 per cent in interpretation and 25.31 per cent in reporting.
The serious challenges at the lower level of operational management in complying with
the KYC/AML regulations exist 25.62 per cent in implementation, 50.63 per cent in
interpretation and 23.75 per cent in reporting.
195

TABLE 4.51
CHALLENGES AT VARIOUS LEVELS OF MANAGEMENT IN COMPLYING

WITH KYC/AML REGULATIONS
Implementation Interpretation Reporting Total

Level of Management
N % N % N % N %
Senior Management Level 159 49.69 82 25.62 79 24.69 320 100.00
Middle Management Level 97 30.31 142 44.38 81 25.31 320 100.00

Lower level of operational
82 25.62 162 50.63 76 23.75 320 100.00
management
The above table shows that for the majority respondents, implementation is the main
challenge at the senior level, and interpretation at the middle level and at the lower level of
operational management in complying with the KYC/AML regulations. Figure 4.6 portrays
this event.
196

FIGURE 4.6
CHALLENGES AT VARIOUS LEVELS OF MANAGEMENT IN COMPLYING WITH KYC/AML REGULATIONS
197
197

H. EVALUATION OF MONITORING
4.36 DEGREE OF CHANGE TO BE MADE IN HUMAN AND FINANCIAL
RESOURCES FOR UPDATING KYC DOCUMENTS AND MONITORING
AML TRANSACTIONS IN SYSTEMS
The human and financial resources are very important for the achievement of KYC
standards and AML measures in banks. For effective creation of KYC and AML
environment, human and financial resources are very essential.
The survey aims at finding levels of change in the human and financial resources
required for updating KYC documents and monitoring AML transactions in systems with
respect to personal factors, namely, location of present working place, designation, age and
Based on the location of working place, the analysis reflects that 0.31 per cent
employees in rural areas and 2.81 per cent employees in urban areas opine that human and
financial resources are to be increased slightly for updating KYC documents and monitoring
AML transactions in systems; 1.25 per cent in rural areas and 3.75 per cent in urban areas
demand substantial decrease; 7.81 per cent in rural areas and 20.63 per cent in urban areas
call for no change; 9.38 per cent in rural areas and 33.75 per cent in urban areas stand for
increase and 3.13 per cent in rural areas and 17.18 per cent in urban areas insist on substantial
increase.
experience, the frequency distribution for the level of human and financial resources required
for updating KYC documents and monitoring AML transactions in systems could be seen in
the following table 4.52.
198

TABLE 4.52
DEGREE OF CHANGE TO BE MADE IN HUMAN AND FINANCIAL RESOURCES FOR UPDATING KYC DOCUMENTS AND
MONITORING AML TRANSACTIONS IN SYSTEMS
Degree of change to be made in human and financial resources required for

Total
updating KYC documents and Monitoring AML transactions in systems
Demographic variable Some Substantial Substantial
No change Some Increase
Decrease Decrease Increase N %
N % N % N % N % N %
Clerk 4 1.24 9 2.81 47 14.69 78 24.38 27 8.44 165 51.56
Scale I 3 0.94 4 1.25 22 6.87 26 8.13 17 5.31 72 22.50
Designation
Scale II 2 0.63 3 0.94 15 4.69 23 7.18 15 4.69 58 18.13
Scale III & Above 1 0.31 0 0.00 7 2.19 11 3.44 6 1.87 25 7.81
18 to 25 2 0.63 4 1.25 19 5.94 28 8.75 10 3.12 63 19.69
199
26 - 35 2 0.63 5 1.56 27 8.44 33 10.31 16 5.00 83 25.94
Age
36 - 45 4 1.23 5 1.56 32 10.00 56 17.52 25 7.81 122 38.12
46 - 58 2 0.63 2 0.63 13 4.06 21 6.55 14 4.38 52 16.25
Below 2 years 1 0.31 2 0.63 12 3.76 12 3.75 5 1.56 32 10.01
2 to 5 Years 0 0.00 3 0.94 17 5.31 16 5.00 7 2.19 43 13.44
Experience in the
6 to 15 Years 3 0.94 4 1.24 23 7.19 36 11.25 15 4.69 81 25.31
banking sector
16 to 25 years 5 1.56 7 2.19 32 10.00 63 19.69 31 9.69 138 43.13
Above 25 years 1 0.31 0 0.00 7 2.18 11 3.44 7 2.18 26 8.11
Total 10 3.12 16 5.00 91 28.44 138 43.13 65 20.31 320 100.00
199

It is clear from the table that 3.12 per cent demand some decrease; 5.00 per cent
expect substantial decrease; 28.44 per cent stand for no change; 43.13 per cent opt for some
increase and 20.31 per cent call for substantial increase in the level of human and financial
resources for updating KYC documents and monitoring AML transactions in systems.
It is evident that a sizeable number of the respondents 43.13 per cent consider some
increase in the level of human and financial resources for updating KYC documents and
monitoring AML transactions in systems.
Chi-square test was applied to test the following null hypothesis.
Ho: There is no association between the changes in the level of human and financial
resources for updating KYC documents and monitoring AML transactions in systems and the
in the banking sector.
TABLE 4.53
demographic variables like location of present working place, designation, age and
experience in the banking sector, the results are not significant at 5 per cent level; hence the
null hypothesis is accepted.
200

From the analysis it is concluded that, there is no association between the
demographic characteristics, namely, location of present working place, designation, age and
experience in the banking sector and the employees! opinion on the changes to be made in the
human and financial resources for updating KYC documents and monitoring AML
transactions in systems. It means the above two attributes are independent of each other.
4.37 FORM OF AUDIT NEEDED FOR TESTING THE EFFECTIVENESS OF KYC
AND AML SYSTEMS
The audit trail is to encourage the good things and correct the bad things in order to
control and improve the effectiveness of KYC and AML systems. It is helpful for banks to
check their performance with KYC standards and AML Measures.
The opinion about the different forms of audit needed for testing the effectiveness of
KYC and AML Systems with respect to personal factors, namely, location of present working
employees in rural areas and 10.00 per cent employees in urban areas like to have internal
audit; 2.81 per cent in rural areas and 13.75 per cent in urban areas give importance to
concurrent audit; 1.88 per cent in rural areas and 10.31 per cent in urban areas want to have
external audit and 12.81 per cent in rural areas and 44.06 per cent call for specialized staff
training needed for testing the effectiveness of KYC and AML systems.
experience in the banking sector and the frequency distribution for the form of audit needed
for testing the effectiveness of KYC and AML systems could be seen in the following table
4.54.
201

TABLE 4.54
FORM OF AUDIT NEEDED FOR TESTING THE EFFECTIVENESS OF KYC AND AML SYSTEMS
Form of audit needed Total

Specialized Staff
Demographic variable Internal Audit Concurrent Audit External Audit
Training N %
N % N % N % N %
Clerk 31 9.69 28 8.74 14 4.38 92 28.75 165 51.56
Designation Scale I 6 1.88 10 3.13 10 3.12 46 14.37 72 22.50

Scale II 5 1.56 10 3.13 11 3.44 32 10.00 58 18.13
Scale III & Above 4 1.25 5 1.56 4 1.25 12 3.75 25 7.81
18 to 25 11 3.44 10 3.13 5 1.56 37 11.56 63 19.69
202
26 - 35 12 3.75 14 4.38 10 3.13 47 14.68 83 25.94
Age
36 - 45 17 5.31 19 5.94 14 4.37 72 22.50 122 38.12
46 - 58 6 1.88 10 3.11 10 3.13 26 8.13 52 16.25
Below 2 years 6 1.88 3 0.94 3 0.94 20 6.25 32 10.01
2 to 5 Years 7 2.19 8 2.50 4 1.25 24 7.50 43 13.44
Experience in the
6 to 15 Years 11 3.44 14 4.38 8 2.50 48 14.99 81 25.31
banking sector
16 to 25 years 18 5.63 23 7.18 19 5.94 78 24.38 138 43.13
Above 25 years 4 1.24 5 1.56 5 1.56 12 3.75 26 8.11
Total 46 14.38 53 16.56 39 12.19 182 56.87 320 100.00
202

A reading of the above table shows that 14.38 per cent consider internal audit, 16.56
per cent consider in concurrent audit, 12.19 per cent demand external audit and 56.87 per cent
need specialized staff training for testing the effectiveness of KYC and AML systems.
It is understood from the above analysis that the large majority of the respondents
consider specialized staff training is needed for testing the effectiveness of KYC and AML
systems.
Chi-square test was applied to test the following set of null hypothesis.
Ho: There is no association between the form of audit needed for testing the
effectiveness of KYC and AML systems and the demographic variables, namely, location of
TABLE 4.55
Variable Value Df P Sig.

The table 4.55 shows that as the p value is greater than 0.05 for all the personal
factors of location of present working place, designation, age and experience in the banking
sector, and the results are not significant at 5 per cent level; hence the null hypothesis is
accepted.
203

This may lead one to conclude that there is no significant association between the
above demographic variables and employees! opinion on the form of audit needed for testing
the effectiveness of KYC and AML systems.
4.38 THINGS REQUIRED TO MEET RESERVE BANK OF INDIA!S NEW
REGULATION OF ANTI MONEY LAUNDERING IN THE FUTURE
For the sake of financial health of banking industry, the Reserve Bank of India (RBI)
revises its regulations on KYC standards and AML measures from time to time. Hence the
bank employees are expected to equip themselves in order to meet RBI!s new regulations on
KYC standards and AML measures in future.
The opinion on the things needed to meet the RBI!s new regulations of anti money
laundering in the future with respect to personal factors, namely, location of present working
Based on the location of working place, the analysis unfolds that 4.06 per cent
employees in rural areas and 14.06 per cent employees in urban areas opt for staff training;
5.63 per cent in rural areas and 19.37 per cent in urban areas prefer technology
implementation; 1.88 per cent in rural areas and 8.75 per cent in urban areas demand
improvement in the global standard; 6.88 per cent in rural areas and 17.81 per cent in urban
areas stress on reporting of STR/SAR systems and 3.43 per cent in rural areas and 18.13 per
cent in urban areas go in for KYC updation.
experience in the banking sector, the frequency distribution for the factors required to meet
the RBI!s new regulations of anti money laundering in the future could be seen in the
204

TABLE 4.56
THINGS REQUIRED TO MEET RBI!S NEW REGULATION OF ANTI MONEY LAUNDERING IN THE FUTURE
Things required to meet RBI!s new regulations of AML in the future Total
Improvement in Reporting of
Demographic variable Staff Technology KYC
the Global STR/SAR
Training Implementation updation N %
Standard systems
N % N % N % N % N %
Location of Rural 13 4.06 18 5.63 6 1.88 22 6.88 11 3.43 70 21.88
present working
place Urban 45 14.06 62 19.37 28 8.75 57 17.81 58 18.13 250 78.12
Clerk 29 9.05 42 13.13 15 4.69 43 13.44 36 11.25 165 51.56
Scale I 11 3.44 17 5.30 6 1.88 15 4.69 23 7.19 72 22.50
Designation
Scale II 12 3.75 14 4.38 10 3.13 15 4.68 7 2.19 58 18.13
205
Scale III & Above 6 1.88 7 2.19 3 0.93 6 1.88 3 0.93 25 7.81
18 to 25 11 3.44 16 5.00 7 2.19 17 5.31 12 3.75 63 19.69
26 - 35 13 4.06 21 6.56 7 2.19 22 6.88 20 6.25 83 25.94
Age
36 - 45 22 6.87 30 9.38 12 3.75 27 8.44 31 9.68 122 38.12
46 - 58 12 3.75 13 4.06 8 2.50 13 4.06 6 1.88 52 16.25
Below 2 years 5 1.56 8 2.50 2 0.63 12 3.75 5 1.57 32 10.01
2 to 5 Years 8 2.50 10 3.13 4 1.25 11 3.44 10 3.12 43 13.44
Experience in the
6 to 15 Years 13 4.06 21 6.56 9 2.81 18 5.63 20 6.25 81 25.31
banking sector
16 to 25 years 26 8.12 34 10.63 16 5.00 31 9.69 31 9.69 138 43.13
Above 25 years 6 1.88 7 2.18 3 0.94 7 2.18 3 0.93 26 8.11
Total 58 18.12 80 25.00 34 10.63 79 24.69 69 21.56 320 100.00
205

It is evident from the table 4.56 that 18.12 per cent of the respondents opt for staff
training, 25 per cent are interested in technology implementation, 10.63 per cent would like
to see improvement in the global standard; 24.69 per cent give preference to reporting of
STR/SAR systems and 21.56 per cent give importance to KYC updation to meet the RBI!s
new regulations of anti money laundering in the future.
It is clear from the above table that a sizeable number of the respondents report the
technology implementation along with reporting of STR/SAR systems are the things required
to meet the RBI!s new regulations of anti money laundering in the future.
The following null hypothesis was tested by the chi-square analysis.
Ho: There is no association between the respondents! opinion on the things required
to meet the RBI!s new anti money laundering regulations in the future and the demographic
variables, namely, location of present working place, designation, age and experience in the
banking sector.
TABLE 4.57

206

banking sector, the results are not significant at 5 per cent level; hence the null hypothesis is
accepted.
From the analysis, it is concluded that there is no significant association between the
above two attributes, and these two attributes are quite independent of each other.
4.39 EXISTENCE OF MONITORING SYSTEM IN THE BANK TO DETECT
CTR/STR/CCR
The non-face-to-face customers are increasing in banks day by day because of the up-
gradation of modern technology. In this situation, monitoring is one of the tools for detecting
and reporting Cash Transactions Report/ Suspicious Transactions Report/ Currency
Counterfeits Report (CTR/STR/CCR).
The respondents! views were sought on whether the monitoring system exists in their
bank for the detection of CTR/STR/CCR and their responses with respect to personal factors,
namely, location of present working place, designation, age and experience in the banking
sector were analyzed.
employees in rural areas and 4.69 per cent employees in urban areas reported in negative;
2.81 per cent in rural areas and 6.25 per cent in urban areas have no firm opinion and 18.13
per cent in rural areas and 67.18 per cent in urban areas answered in affirmative and reported
on the existence of monitoring system in the bank for the detection of CTR/STR/CCR.
207

Respondents! views in terms of three other demographic variables, namely,
designation, age and experience in the banking sector, the frequency distribution for the
existence of the monitoring system in the bank to detect CTR/STR/CCR could be seen in the
TABLE 4.58
EXISTENCE OF MONITORING SYSTEM IN THE BANK
TO DETECT CTR/STR/CCR
Existence of monitoring System

Total
to detect CTR/STR/CCR
No Unsure Yes
N %
N % N % N %
present
working place Urban 15 4.69 20 6.25 215 67.18 250 78.12
Clerk 10 3.13 19 5.93 136 42.50 165 51.56
Scale I 4 1.25 6 1.88 62 19.37 72 22.50
Designation
Scale II 4 1.25 4 1.25 50 15.63 58 18.13
Scale III &
0 0.00 0 0.00 25 7.81 25 7.81
Above
18 to 25 3 0.94 6 1.88 54 16.87 63 19.69
26 - 35 5 1.56 9 2.81 69 21.57 83 25.94
Age
36 - 45 8 2.50 13 4.06 101 31.56 122 38.12
46 - 58 2 0.63 1 0.31 49 15.31 52 16.25
Below 2 years 1 0.31 4 1.25 27 8.45 32 10.01
2 to 5 Years 2 0.63 5 1.56 36 11.25 43 13.44
Experience in
sector
16 to 25 years 8 2.50 12 3.75 118 36.88 138 43.13
Above 25 years 0 0.00 0 0.00 26 8.11 26 8.11
Total 18 5.63 29 9.06 273 85.31 320 100.00
208

The table 4.58 points out that 5.63 per cent of the respondents have reported their
banks do not possess the monitoring system; 9.06 per cent give no definite idea about the
existence of monitoring system and 85.31 per cent are emphatic that their banks have the
monitoring system to detect CTR/STR/CCR.
It is gratifying to note from the above table that a great number of the respondents
85.31 per cent reported that their banks have the monitoring system to detect CTR/STR/CCR.
The following null hypothesis is tested by the chi-square test.
Ho: There is no difference in the existence of the monitoring system in the bank to
detect CTR/STR/CCR for the personal factors, namely, location of present working place,
TABLE 4.59
It can be seen from the table 4.59 that as the p value is greater than 0.05 for all the
banking sector, and the results are not significant at 5 per cent level; hence the null
hypothesis is accepted. From the analysis, one may conclude that in terms of the above
demographic variables there is no difference in the existence of the monitoring system in the
bank to detect CTR/STR/CCR
209

4.40 SOUND METHOD FOR PRIMARY NAME SCREENING DATABASE IN
THE OPERATIONAL MANAGEMENT OF BANK
The commercial banks confirm that their customers are not included in the special and
caution lists issued by RBI, FIU-IND and UN relations. They make special efforts to primary
name screening database from time to time for the fulfillment of KYC standards and AML
measures.
The employees! opinion was sought for which one is the sound method for primary
name screening database in the operational management of KYC/AML with respect to the
in the banking sector was analyzed.
Based on the location of working place, the analysis portrays that 4.06 per cent
employees in rural areas and 10.62 per cent employees in urban areas would like to have
training; 1.25 per cent in rural areas and 5.63 per cent in urban areas expect interaction with
co-employees; 1.25 per cent in rural areas and 6.25 per cent in urban areas prefer
comprehensiveness of information (circulars); 6.88 per cent in rural areas and 26.87 per cent
in urban areas insist on internal system support and 8.44 per cent in rural areas and 28.75 per
cent in urban areas look for technological support as the sound method for primary name
screening database in the operational management of KYC/AML.
experience in the banking sector, the frequency distribution for which one is the sound
method for primary name screening database in the operational management of KYC/AML
210

TABLE 4.60
SOUND METHOD FOR PRIMARY NAME SCREENING DATABASE

IN THE OPERATIONAL MANAGEMENT OF KYC/AML
Sound method for primary name screening database Total
Comprehensiveness Internal
Interaction with Technological
Demographic variable Training of the information system
co-employees support N %
(Circulars) support
N % N % N % N % N %

Clerk 29 9.06 11 3.44 9 2.81 48 15.00 68 21.25 165 51.56
Scale I 11 3.44 6 1.88 6 1.88 25 7.81 24 7.50 72 22.50
Designation Scale II 5 1.56 5 1.56 5 1.56 24 7.50 19 5.94 58 18.13
211
Scale III & Above 2 0.63 0 0.00 4 1.25 11 3.44 8 2.50 25 7.81
18 to 25 11 3.44 5 1.56 4 1.25 16 5.00 27 8.44 63 19.69
26 - 35 16 5.00 5 1.56 5 1.56 29 9.06 28 8.76 83 25.94
Age 36 - 45 16 5.00 10 3.13 9 2.81 42 13.13 45 14.05 122 38.12
46 - 58 4 1.24 2 0.63 6 1.88 21 6.56 19 5.94 52 16.25
Below 2 years 6 1.88 1 0.31 2 0.63 9 2.81 14 4.38 32 10.01
2 to 5 Years 7 2.18 3 0.94 2 0.63 17 5.31 14 4.38 43 13.44
Experience in the
6 to 15 Years 12 3.74 7 2.19 6 1.88 27 8.44 29 9.06 81 25.31
banking sector
16 to 25 years 20 6.25 11 3.44 10 3.13 43 13.44 54 16.87 138 43.13
Above 25 years 2 0.63 0 0.00 4 1.23 12 3.75 8 2.50 26 8.11
Total 47 14.68 22 6.88 24 7.50 108 33.75 119 37.19 320 100.00
211

The table 4.60 illustrates that 14.68 per cent of the of the respondents opt for training;
6.88 per cent prefer interaction with co-employees; 7.50 per cent rely on the
comprehensiveness of the information; 33.75 per cent depend on the internal system support
and 37.19 per cent require technological support as the sound method for primary name
screening database in the operational management of KYC/AML.
It is found that a sizeable number 37.19 per cent of the respondents go in for
technological support as a sound method for primary name screening database in the
operational management of KYC/AML.
I. EVALUATION OF REPORTING
4.41 BANK!S KYC & AML REPORTING
Reporting is essential in banks. It is helpful to prevent the money launderer from
doing illegal activities and transactions in India.
Reporting has different facets like the branch reporting on CTR/STR/CCR, the bank!s
offer of protection to the whistle-blower, and the bank!s offer of incentives or rewards to
employees who report CTR/STR/CCR. The employees! opinion on these facets with respect
to the personal factors, namely, location of present working place, designation, age and
experience in the banking sector, at their personal levels was analyzed.
It is understood from the table 4.61 that 0.63 per cent of employees reply in negative;
5.00 per cent have no definite idea and 94.37 per cent have definite idea on the bank!s KYC
& AML reporting. Similarly, 2.50 per cent of the respondents reply in negative; 6.56 per cent
are unaware and 90.94 per cent are aware that their banks offer protection to whistle-blower.
further, 84.06 per cent reply in negative; 8.13 per cent are unsure and 7.81 per cent are aware
that their banks offer incentives and/or rewards to employees for reporting CTR/STR/CCR.
212

TABLE 4.61
DETAILS OF KYC & AML REPORTING
No Unsure Yes Total

Details of KYC and AML Reporting
N % N % N % N %
Does your branch report

2 0.63 16 5.00 302 94.37 320 100.00
CTR/STR/CCR?
Does your bank offer any form of

8 2.50 21 6.56 291 90.94 320 100.00
protection to the whistle-blower?
Does your bank offer any incentive/s

and/or rewards to employees who 269 84.06 26 8.13 25 7.81 320 100.00
report CTR/STR/ CCR?
It is clear from the above table 4.61 that a great majority of the respondents 94.37 per
cent have awareness that their branches to report CTR/STR/CCR; 90.94 per cent are sure that
their banks offer protection to whistle-blower, and only 7.81 per cent are sure that their banks
offer incentive and/or reward to employees who report CTR/STR CCR.
4.42 TREND IN THE NUMBER OF CASH TRANSACTIONS REPORT (CTR)/
SUSPICIOUS TRANSACTIONS REPORT (STR)/ CURRENCY COUNTERFEIT
REPORT (CCR) RECEIVED
The survey noted the details of what was/will be the number of banks! reporting of
CTR/STR/CCR received over the past/subsequent three years. The number of
CTR/STR/CCR received should be made known to the bank employees.
The employees! opinion on the trend in the number of CTR/STR/CCR received over
the past three years and the next three years in terms of demographic variables, namely,
location of present working place, designation, age and experience in the banking sector was
analyzed.
213

The table 4.62 points out there was an increasing trend in the number of
CTR/STR/CCR in the past three years. Respondents forming 75.94 per cent reported there
was an increase; for 9.38 per cent there was no change; for 4.68 per cent there was a
decrease, and 10.00 per cent had no idea about the number of CTR/STR/CCR received in the
past three years.
Concerning the trend in the number of these reports over the next three years in the
future, for 83.75 per cent there will be an increase; for 3.13 per cent there will be a decrease;
for 10.94 per cent there will be no change, and 2.18 per cent do not have any view about this.
TABLE 4.62
TREND IN THE NUMBER OF CTR/STR/CCR RECEIVED
Trend in number of Increase No change Decrease No Idea Total
CTR/STR/CCR N % N % N % N % N %
In the past three years 243 75.94 30 9.38 15 4.68 32 10.00 320 100.00
Over the next three

268 83.75 35 10.94 10 3.13 7 2.18 320 100.00
years
It is apparent from the above table that there will be an increase in the number of
banks! reporting of CTR/STR/CCR received over the next three years. Figure 4.7 portrays
this event.
214

FIGURE " 4.7
TREND IN THE NUMBER OF CTR/STR/CCR RECEIVED
215
215

4.43 THINGS NEEDED FOR ATTENDING CTR/STR/CCR
Respondents! views on things needed for attending CTR/STR/CCR like better staff
training, improved monitoring system, more explanation on suspicious events, better
guidelines from Government, staff awareness of suspicious activity from experience, extra
effort to contain money related to drug/ crime/terrorism, etc., technology assistance and other
things are examined and presented in the table 4.63.
TABLE 4.63
THINGS NEEDED FOR ATTENDING CTR/STR/CCR
Thing needed Frequency % to Total

Better Staff Training 39 12.19
Improved Monitoring System 50 15.63
More explanation of Suspicious Events 22 6.88
Better guidelines from Government 41 12.81
Staff awareness of suspicious activity from 18.43
59
experience
Extra effort to contain money related to drug/ 10.94
35
crime/terrorism, etc.
Technology Assistance 72 22.50
Other things 2 0.62
Total 320 100.00
The table 4.63 shows that for 12.19 per cent of the respondents better staff training;
for 15.63 per cent improved monitoring system; for 6.88 per cent more explanation on
suspicious events; for 12.81 per cent better guidelines from Government; for 18.43 per cent
staff awareness of suspicious activity from experience; for 10.94 per cent extra effort to
contain money related to drug/ crime/terrorism, etc.; for 22.50 per cent technology assistance
and for 0.62 per cent miscellaneous ones are the things needed for attending the
CTR/STR/CCR.
216

It is clear that for sizeable 22.50 per cent of the respondents, technological assistance
is the dire need for attending on CTR/STR/CCR.
The following null hypothesis is framed against the demographic variables of
respondents.
Ho: There is no association between the different things needed for attending the
CTR/STR/CCR and the personal factors, namely, location of present working place,
TABLE 4.64

It is understood from the above table that as the p value is less than 0.05 for only the
first personal factor of location of present working place, and the result is significant at 5 per
cent level; hence the null hypothesis is rejected. As the p value is greater than 0.05 for the last
three personal factors of designation, age and experience in the banking sector, the results are
not significant at 5 per cent level; hence the null hypothesis is accepted.
From the analysis, it is concluded that there is significant association only between the
location of present working place and the respondents! opinion on the different things needed
for attending the CTR/STR/CCR.
217

J. EVALUATION OF AWARENESS
4.44 MEANS OF EMPLOYEES! AWARENESS ABOUT KYC & AML SYSTEM
The means like a pass in the Certificate examination on Know Your Customer and
Anti-money Laundering conducted by Indian Institute of Banking and Finance (IIBF), and
the encouragement given by the banks to the employees to appear for the examination would
have a tremendous influence on the employees! awareness of KYC & AML system. This
aspect was analyzed.
The table 4.65 demonstrates that 80.94 per cent of the bank employees have not
passed the certificate examination, and the only 19.06 per cent have passed the examination
on Know Your Customer and Anti-money Laundering conducted by IIBF. However, while
only 8.12 percent of the respondents have no encouragement to appear for the KYC & AML
examination, a vast majority 91.88 per cent have encouragement to appear for the certificate
examination conducted by IIBF.
TABLE 4.65
EMPLOYEES! AWARENESS OF KYC & AML SYSTEM THROUGH THE

CERTIFICATE EXAMINATION CONDUCTED BY IIBF
No Yes Total
Employees! Awareness of KYC AML system
N % N % N %
Have you passed the Certificate examination on
Know Your Customer and Anti-money
259 80.94 61 19.06 320 100.00
Laundering conducted by Indian Institute of
Banking and Finance (IIBF)?
Are you encouraged by your Bank to appear for
26 8.12 294 91.88 320 100.00
the KYC & AML Certificate Examination?
218

It is noticeable from the above table that only 19.06 per cent have passed the
certificate examination; however, a vast majority 91.88 per cent is encouraged by the banks
to appear for the certificate examination on Know Your Customer and Anti-money
Laundering conducted by IIBF.
4.45 SOURCES OF UPDATING KNOWLEDGE ON KYC AND AML AFFAIRS
The bank employees are gathering the information from the various sources for
updating their knowledge on KYC and AML affairs. As knowledge is power, the power
creates self-confidence among employees, and completes their tasks successfully for the
accomplishment of KYC standards and AML measures.
The employees! opinion about the sources for updating the knowledge on KYC and
AML affairs with respect to the personal factors, namely, location of present working place,
Based on the location of working place, the analysis reveals that for 4.69 per cent
employees in rural areas and 22.81 per cent employees in urban areas, the source of updating
is bank circulars; for 6.88 per cent in rural areas and 20.62 per cent in urban areas, it is RBI
circulars; for 2.81 per cent in rural areas and 10.94 per cent in urban areas look to updating by
reading newspaper/magazines/ articles; for 2.81 per cent in rural areas and 11.56 per cent in
urban areas, training is the source of updating the knowledge and for the remaining 4.69 per
cent in rural areas and 12.19 per cent in urban areas, interaction with colleagues is the source
of updating the knowledge on KYC and AML affairs.
The frequency distribution in terms of three other demographic variables, namely,
designation, age and experience in the banking sector, for the source of updating the
knowledge on KYC and AML affairs could be seen in the following table 4.66.
219

TABLE 4.66
SOURCES OF UPDATING KNOWLEDGE ON KYC AND AML AFFAIRS
Source of updating knowledge on KYC and AML affairs Total

By reading
By reading By having
Demographic variable By reading Newspapers/ By attending
RBI interaction
Bank Circulars Magazines/ Training N %
Circulars with colleagues
Articles
N % N % N % N % N %
Clerk 43 13.44 55 17.19 22 6.88 16 4.99 29 9.06 165 51.56
Scale I 20 6.25 16 5.00 9 2.81 14 4.38 13 4.06 72 22.50
Scale II 17 5.31 12 3.75 9 2.81 11 3.44 9 2.82 58 18.13
Designation
Scale III & Above 8 2.50 5 1.56 4 1.25 5 1.56 3 0.94 25 7.81
18 to 25 21 6.56 17 5.31 8 2.50 7 2.19 10 3.13 63 19.69
Age 26 - 35 19 5.93 23 7.19 11 3.44 12 3.75 18 5.63 83 25.94
220
36 - 45 30 9.38 38 11.87 16 5.00 17 5.31 21 6.56 122 38.12
46 - 58 18 5.63 10 3.13 9 2.81 10 3.12 5 1.56 52 16.25
Below 2 years 7 2.19 10 3.13 4 1.25 4 1.25 7 2.19 32 10.01
6 to 15 Years 26 8.13 22 6.88 10 3.12 11 3.44 12 3.74 81 25.31
banking sector
16 to 25 years 37 11.56 41 12.81 21 6.56 18 5.63 21 6.57 138 43.13
Above 25 years 8 2.50 5 1.56 4 1.25 6 1.86 3 0.94 26 8.11
Total 88 27.50 88 27.50 44 13.75 46 14.37 54 16.88 320 100.00
220

It is of clear manifestation from the table 4.66 that, for 27.50 per cent of the
respondents bank circulars; for 27.50 per cent RBI circulars; for 13.75 per cent
newspapers/magazines /articles; for 14.37 per cent training and for the remaining 16.88 per
cent interaction with colleagues are the sources of updating their knowledge on KYC and
AML affairs.
It is vivid from the above analysis that a sizeable number of the respondents 27.50 per
cent reported that, bank circulars and RBI circulars are the sources of their updating the
knowledge on KYC and AML affairs.
The following null hypothesis is verified by chi-square test.
Ho: There is no difference in the respondents! opinion about the source of updating
the knowledge on KYC and AML affairs for the personal factors; namely, location of present
TABLE 4.67

banking sector, and the results are not significant at 5 per cent level; hence the null
hypothesis is accepted.
221

The finding from the analysis is that the respondents! views on the sources for
updating the knowledge on KYC and AML affairs do not vary for the above personal
variables.
K. OVERALL SATISFACTION
4.46 RESPONDENTS! LEVEL OF SATISFACTION WITH DIFFERENT ASPECTS

OF KYC STANDARDS AND AML MEASURES OF BANKS
The table 4.68 portrays the employees! level of satisfaction with the different aspects
of KYC standards and AML measures, namely, Knowledge, Risk level based approach,
KYC and AML software, Training, AML cost, Staff attitude, Monitoring, Reporting and
awareness.
It is evident from the table that none of the respondents rates "poor! for the aspect of
knowledge; for 5.62 per cent it is average; for 72.19 per cent it is satisfactory and 22.19 per
cent it is excellent to rate the satisfaction level in all banks.
Similarly, for 5.00 per cent of the respondents, the aspect of risk level based approach
is poor; for 15.62 per cent it is average; for 61.25 per cent it is satisfactory and 18.13 per cent
it is excellent to rate the satisfaction level in all banks.
The 1.88 per cent of the respondents feel that the "KYC and AML software! is a poor
one; for 9.37 per cent it is average; for 68.44 per cent it is satisfactory and for 20.31 per cent
it is excellent in their rating on the satisfaction level in all banks.
For 2.19 per cent of the respondents, training is poor; for 9.06 per cent it is average;
for 79.06 per cent it is satisfactory and for 9.69 per cent it is excellent to rate the satisfaction
level in all banks.
222

For 2.19 per cent of the respondents, "AML cost! is poor; for 5.94 per cent it is
average; for 79.06 per cent it is satisfactory and for 12.81 per cent it is excellent in their
rating on the satisfaction level in all banks.
For 6.56 per cent of the respondents, staff attitude is poor; for 15.00 per cent it is
average; for 63.44 per cent it is satisfactory and 15.00 per cent it is excellent in their rating on
the satisfaction level in all banks.
Similarly, for 8.44 per cent of the respondents, "Monitoring! is poor; for 13.43 per
cent it is average; for 63.75 per cent it is satisfactory and 14.38 per cent it is excellent to rate
the satisfaction level in all banks.
Equally, for 11.88 per cent of the respondents, "Reporting! is poor; 17.81 per cent it is
average; 56.25 per cent it is satisfactory and 14.06 per cent it is excellent in their rating on the
satisfaction level in all banks.
Likewise, for 11.25 per cent of the respondents, "Awareness! is poor; for 32.19 per
cent it is average; for 39.06 per cent it is satisfactory and for 17.50 per cent excellent in their
rating on the satisfaction level in all banks.
223

TABLE 4.68
RESPONDENTS! LEVEL OF SATISFACTION WITH DIFFERENT ASPECTS
OF KYC STANDARDS AND AML MEASURES OF BANKS
Poor Average Satisfactory Excellent Total

Aspect
N % N % N % N % N %
Knowledge 0 0.00 18 5.62 231 72.19 71 22.19 320 100.00

Risk level based
16 5.00 50 15.62 196 61.25 58 18.13 320 100.00
approach
KYC and AML software 6 1.88 30 9.37 219 68.44 65 20.31 320 100.00
Training 7 2.19 29 9.06 253 79.06 31 9.69 320 100.00
AML Cost 7 2.19 19 5.94 253 79.06 41 12.81 320 100.00
Staff Attitude 21 6.56 48 15.00 203 63.44 48 15.00 320 100.00
Monitoring 27 8.44 43 13.43 204 63.75 46 14.38 320 100.00
Reporting 38 11.88 57 17.81 180 56.25 45 14.06 320 100.00
Awareness 36 11.25 103 32.19 125 39.06 56 17.50 320 100.00

It is clear from the table 4.68 that a majority 72.19 per cent of the respondents are
satisfied with the aspect - Knowledge; 61.25 per cent are satisfied with the aspect - risk
level based approach; 68.44 per cent are satisfied with the aspect - KYC and AML
Software; 79.06 per cent are satisfied with the aspect - training; 79.06 per cent are
satisfied with the aspect - AML cost; 63.44 per cent are satisfied with the aspect - Staff
Attitude; 63.75 per cent are satisfied with the aspect - Monitoring; 56.25 per cent are
satisfied with the aspect - Reporting and 39.06 per cent are satisfied with the aspect
Respondents! Awareness of KYC standards and AML measures of the commercial banks
of Virudhunagar District.
224

4.46.1 HYPOTHESIS TESTING BY FRIEDMAN!S TEST
Friedman!s test was applied in order to know whether the respondents! satisfaction
rating for the nine different aspects of KYC standards and AML measures is same or not.
Ho: There is no difference in the respondents! level of satisfaction with the nine
different aspects of KYC standards and AML measures.
The result of Friedman!s test is shown in the summarized table 4.69.
TABLE 4.69
FRIEDMAN!S TEST
RESPONDENTS! LEVEL OF SATISFACTION WITH DIFFERENT ASPECTS OF
KYC STANDARDS AND AML MEASURES OF BANKS
Aspect Mean Std. Deviation Mean Rank
Knowledge 3.17 0.50 5.78
Risk Level Based Approach 2.93 0.73 5.03
KYC and AML Software 3.07 0.61 5.46

Training 2.96 0.52 5.08
AML Cost 3.03 0.52 5.34
Staff Attitude 2.87 0.74 4.83
Monitoring 2.84 0.77 4.85
Reporting 2.73 0.85 4.49
Awareness 2.63 0.90 4.14
It could be noted from the above table that among the nine aspects Knowledge is
ranked first, followed by KYC and AML software, AML cost and Training. From the
Friedman!s test, it is concluded that the respondents! satisfaction rating varies for the
different aspects of KYC standards and AML measures and hence, the null hypothesis is
rejected.
225

4.46.2 MULTIPLE REGRESSION ANALYSIS
Its main objective is to explain the variation in one dependent variable based on the variation
in two or more independent variables. Here, the multiple regression analysis is performed to
explain the variation in the bank employees! satisfaction with the performance of KYC
standards and AML measures (dependent variable) based on the variation over the variables
(independent variable) of Knowledge of KYC and AML, Awareness on Bank!s KYC & AML
risk level based approach, Awareness on KYC and AML software and data, Awareness on bank
providing KYC/ AML training to staff, Awareness on Bank!s KYC & AML cost, Awareness on
Bank!s KYC & AML Reporting and Employees! KYC & AML Awareness. Therefore, the
multiple regression equation becomes
Y = b0 + b1X1 + b2X2+ b3X3+ b4X4+ b5X5+ b6X6+ b7X7+ #

Bank employees! level of satisfaction with performance
Dependent variable is Y=
of KYC standards and AML measures
Independent variables are X1 = Knowledge of KYC and AML
Awareness on Bank!s KYC & AML risk level based
X2 =
approach
X3 = Awareness on KYC and AML software and data

Awareness on bank providing KYC/AML training to
X4 =
staff
X5 = Awareness on Bank!s KYC & AML cost

X6 = Awareness on Bank!s KYC & AML Reporting

X7 = Employees! KYC & AML awareness

First, one looks at the correlation of the variables with each other. The correlation table is
shown in Table4.70. The values in the correlation table are standardized and range from -1 to
+1. The correlation table shows that the rating for performance of KYC standards and AML
measures in all branches have relationship with the independent variables of "Knowledge of
KYC and AML, Awareness on Bank!s KYC & AML risk level based approach, Awareness on
KYC and AML software and data, Awareness on Bank!s KYC & AML cost, Awareness on
Bank!s KYC & AML reporting and Employees! KYC & AML awareness.
226

TABLE 4.70
PEARSON CORRELATION
OVERALL PERFORMANCE LEVEL OF ALL BRANCHES
Y X1 X2 X3 X4 X5 X6 X7
Y 1 0.23 0.244 0.151 -0.001 0.134 0.003 0.01
X1 0.000 1 0.055 0.261 0.31 0.13 -0.005 -0.052
X2 0.000 0.165 1 0.018 0.005 0.069 0.05 -0.009
X3 0.003 0.000 0.376 1 0.303 0.008 -0.005 -0.058
X4 0.491 0.000 0.462 0.000 1 -0.063 -0.019 -0.029
X5 0.008 0.01 0.108 0.444 0.130 1 -0.049 -0.066
X6 0.475 0.466 0.187 0.464 0.370 0.189 1 0.059
X7 0.431 0.178 0.434 0.152 0.302 0.119 0.146 1
Descriptive table 4.71 provides the mean and the standard deviation for each variable in the
analysis. The variables entered and removed from the model are listed and the following goodness-
of-fit statistics are displayed:
TABLE 4.71
DESCRIPTIVE STATISTICS
Mean SD R R2
Satisfaction level with implementing KYC standards and AML 1.97 0.645
measures
Knowledge of KYC and AML 18.78 2.514
Awareness on Bank's KYC & AML risk level based approach 7.58 0.842
Awareness on KYC and AML software and data 9.05 1.628

0.824 0.68**
Awareness on bank providing KYC/ AML training to staff 5.88 0.381
Awareness on Bank's KYC & AML cost 3.62 0.75
Awareness on Bank's KYC & AML Reporting 4.06 0.747
Employees' KYC & AML awareness 1.11 0.492
227

The table also reports the strength of the relationship between the model and the dependent
variable. R, the multiple correlation coefficients, is the linear correlation between the observed and
model-predicted values of the dependent variable. Its large value indicates a strong relationship. R2
indicates that the independent variables explain 68 per cent variation in the dependent variable.
The ANOVA table 4.72 reports a significant F statistic, indicating that using the model is
better than guessing the mean. As a whole, the regression does a good job of modeling satisfaction
level with the performance of KYC and AML measures in bank branches. The ANOVA table tests
the acceptability of the model from a statistical perspective.
TABLE 4.72
ANOVA
Sum of Squares df Mean Square F Sig.
Regression 14.14 2 7.07
Residual 118.61 318 0.37 18.89 < 0.001**
Total 132.75 320
The Regression row displays information about the variation accounted for the model. The
Residual row displays information about the variation that is not accounted for the model. The
regression mean square is greater than residual mean square, which indicates that nearly sixty eight
per cent of the variation in satisfaction level of all branch score is explained by the model. The
significance value of the F statistic is less than 0.05, which means that the variation explained by
the model is not due to chance.
Even though the model fit looks positive, the first section of the coefficients table 4.73
shows that predictors Awareness on KYC and AML software and data, Awareness on bank
providing KYC/ AML training to staff, Awareness on Bank's KYC & AML cost, Awareness on
Bank's KYC & AML Reporting, Employees' KYC & AML awareness are non-significant
coefficient, indicating that these variables do not contribute much to the model.
228

TABLE 4.73
REGRESSION COEFFICIENTS
Un standardized Standardized
t Sig.
coefficients coefficients
B Std. Error Beta
(Constant) 8.365 1.586 0.000 5.275 0.000
Knowledge of KYC and AML 0.060 0.035 0.028 2.463 0.044
Awareness on Bank's KYC &
0.301 0.096 0.174 3.132 0.002*
AML risk level based approach
Awareness on KYC and AML
0.008 0.052 0.009 1.558 0.120
software and data
Awareness on bank providing
0.007 0.231 0.004 0.353 0.725
KYC/ AML training to staff
0.005 0.110 0.002 0.961 0.337
AML cost
-0.001 0.108 -0.001 -0.011 0.991
AML Reporting
Employees' KYC & AML
0.008 0.165 0.006 0.535 0.593
awareness
Dependent Variable: satisfaction with performance level of KYC standards and AML measures
The co-efficient of the regression line states that the satisfaction score for performance in all
branches is equal to
Y= 8.365 + 0.060X1 + 0.301X2 + 0.008X3 + 0.007X4 + 0.005X5 - 0.001X6 + 0.008X7
Looking at the significance values, one sees that Knowledge of KYC and AML and
Awareness on Bank!s KYC & AML risk level based approach are significant at the 0.05 level of
significance in determining satisfaction with performance of KYC standards and AML measures.
4.47 SUGGESTIONS FOR BETTERMENT OF KYC STANDARDS AND AML
MEASURES
During the study, the responses were elicited from the employees as their suggestions for
the improvement of KYC standards and AML measures. The suggestions of the respondents are
listed below:
229

1. While entering the voucher, displayed in the system of the risk category of the
customer/entity account;
2. While entering the voucher, displayed in the system the account is to be reviewed/updated
on KYC;
3. While entering the voucher, alert by system for exceeding the threshold limit of account;
4. Demand by SMS and E-Mail to submit the KYC documents by system generated
automatically;
5. Deny the cash deposit/remittance for KYC non-compliance account of another branch of
same bank
6. The customer as new and not included in the sanction and caution lists issued by RBI and
other regulators from time to time, is to be checked and confirmed by system automatically
while creating new customer id for opening new account.
The frequency distribution of suggestions offered by the respondents is shown in the following
table 4.74.
TABLE 4.74
SUGGESTIONS FOR BETTERMENT OF KYC STANDARDS AND AML MEASURES
% to
Suggestions Frequency
Total
While entering the voucher, displayed in the system of the risk category of
45 14.06
the customer/entity account
While entering the voucher, displayed in the system the account is to be
55 17.19
reviewed/updated on KYC
While entering the voucher, alert by system for exceeding the threshold limit
36 11.25
of account
Demand by SMS and E-Mail to submit the KYC documents by system
51 15.94
generated automatically
Deny the cash deposit/remittance for KYC non-compliance account of
31 9.69
another branch of the same bank
The customer as new and not included in the sanction and caution lists
issued by RBI and other regulators from time to time, is to be checked and
102 31.87
confirmed by system automatically while creating new customer id for
opening new account.
Total 320 100.00
230

It is clear from the table 4.74 that 14.06 per cent of the respondents suggest for displaying in
the system of the risk category of the customer/entity account while entering the voucher; 17.19 per
cent prefer the account is to be reviewed/ updated on KYC while entering the voucher; 11.25 per
cent call for alertness by system in exceeding the threshold limit of account while entering the
voucher; 15.94 per cent call for demanding by SMS and e-mail to submit the KYC documents by
system generated automatically, 9.69 per cent opt for denial of the cash deposited/remittance for
KYC non-compliance account of another branch of the same bank, and 31.87 per cent suggest for
checking and confirming of the system automatically while creating new customer id for opening
new account, the customer as new and not included in the sanction and caution lists issued by RBI
and other regulators from time to time.
Thus it can be seen that the highest percentage goes to the last suggestion - "The customer
as new and not included in the sanction and caution lists issued by RBI and other regulators from
time to time, in checking and confirming by the system automatically while creating new customer
id for opening new account
231

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CHAPTER IV

Money Laundering (AML) Measures of Commercial Banks a study with special

reference to commercial banks in Virudhunagar district. A sample of 320 bank

A. DEMOGRAPHIC PROFILE OF RESPONDENTS

4.2 DESCRIPTION OF DEMOGRAPHIC VARIABLES OF RESPONDENTS

The following table 4.1 shows the frequency distribution of demographic

designation, age and experience in the banking sector.

respondents has their working places in urban areas.

sample respondents are Clerks.

the age group of 36-45 years are the highest percentage.

Frequency distribution of experience in the banking sector reveals that 10.01

experience. Thus it can be interpreted that the highest percentage of sample

4.1 portrays the above event.

FREQUENCY DISTRIBUTIONS OF PROFILE OF RESPONDENTS

4.3 OPINION ON VARIOUS ASPECTS OF BANKS! KYC & AML POLICIES,

PROCEDURES AND CONTROLS

are summed up:

organizations/persons, i.e., Individual, Proprietary Concern, Partnership firm, Companies,

No Unsure Yes Total

is a pointer to this fact.

THE BANK AS THE RESULT OF KYC

the banks as a result of KYC, namely, whether it is to be related to knowing nature of

of the above matters.

The details of frequency distribution in terms of other three demographic variables,

banks as a result of KYC could be seen in the following table 4.3.

System to be introduced by the bank as a result of KYC for identification of

2 to 5 Years 11 3.44 6 1.87 8 2.50 18 5.63 43 13.44

Above 25 years 0 0.00 0 0.00 0 0.00 26 8.11 26 8.11

system for all of the above three matters.

4.5 USAGE OF KYC IN BANKS

designation, age and experience in the banking sector.

enters into a formal relationship with customer.

The frequency distribution in terms of other three demographic variables, namely,

Age 26 - 35 17 5.31 8 2.50 19 5.94 39 12.19 83 25.94

enters into a formal relationship with customer.

4.6 WAY OF RECOGNIZING THE CUSTOMER WHO WAS NEVER SEEN

designation, age and experience in the banking sector.

The details in relation to frequency distribution in terms of other three demographic

could be seen in the following table 4.5.

WAY OF RECOGNIZING THE CUSTOMER WHO WAS NEVER SEEN BEFORE

Way of recognizing the customer

Location of present Rural 14 4.37 19 5.94 19 5.94 18 5.63 70 21.88

through all the three modes.

4.7 TYPE OF PRUDENTIAL REGULATION IMPLEMENTED BY THE BANKS TO

IDENTIFY THE CUSTOMER

may be either KYC or anti money laundering or both.

working place, designation, age and experience in the banking sector.

The details in relation to frequency distribution in terms of other three demographic

Clerk 75 23.43 44 13.75 46 14.38 165 51.56

unbalanced economic parameter, disruption in credit deposit ratio, deranged growth of

urban areas reported of all of the above.

The details of frequency distribution in terms of other three demographic

the bank activity are presented in the following table 4.7.

WAY OF MONEY LAUNDERING AFFECTING THE BANK ACTIVITY

Way of money laundering affect the bank activity

remaining 16.25 per cent reported of all of the above.

deranged growth of banking industry and distorted risk.

C. EVALUATION OF RISK LEVEL BASED APPROACH

4.9 FREQUENCY DISTRIBUTION OF KEY ISSUES IN THE IMPLEMENTATION

OF RISK LEVEL BASED APPROACH

guidance and insufficient support for change.

experience in the banking sector.

The frequency distribution in terms of other three demographic variables, namely,

Age 26 - 35 21 6.56 27 8.44 17 5.31 15 4.69 3 0.94 83 25.94