1

KNOW YOUR CUSTOMER (KYC) NORMS

For the partial fulfilment of
WBUT, BBA(H)

SUBMITTED BY: SUPERVISED BY:

GAURAV KUMAR SINHA ANITA NANDI BARMAN
BBA(H),
NSHM COLLEGE OF MANAGEMENT AND TECHNOLOGY,
DURGAPUR
ROLL NO.- 14905012048
REG. NO. –
 Department of Management Studies

“This is to Certify that the Study Paper entitled is “KNOW YOUR

CUSTOMER(KYC) NORMS ” a bonfire work carried out by GAURAV

KUMAR SINHA holding W.B.U.T. registration number as 121492010269
and college registration number as 1272030 is a student of NSHM College of
Management and Technology, Durgapur, in fulfilment for the award of
Degree of Bachelor in Business Administration (BBA) under West Bengal
University of Technology.
This Study Paper has been approved as it satisfies the academic requirement in
respect of project work prescribed for the BBA (H) degree.
He has adhered to the guidelines chalked out during our consultation while
preparing this study paper.
The study paper has been found satisfactory.
I wish him all the best in future.

SOUMEN CHATTERJEE ANITA NANDI BURMAN

HOD OF MANAGEMENT STUDIES STUDY PAPER GUIDE

________________________ ____________________ ____

APRIL 28, 2015

3

Declaration Of originality

DECLARATION

I GAURAV KUMAR SINHA student of NSHM College of Management &

Technology, Durgapur BBA (H) 3rdyear, batch-011, roll no.-14905012048

under WBUT hereby declare that the project entitled “KNOW YOUR
CUSTOMER (KYC) NORMS”. Is an original work and same has not been
submitted to any other institution for the award of my any other degree...

GAURAV KUMAR SINHA

(Name and signature)

ACKNOWLEDGEMENT

I am sincerely thankful to Professor Anita Nandi Barman (Project Faculty

Guide); under whose guidance I have successfully completed this project and
time spent with them had been a great learning experience. I think their constant
encouragement, warm responses and for filling every gap with valuable ideas
has made this project successful. They made it possible for me to put all my
theoretical knowledge to work out on the topic: KNOW YOUR CUSTOMER
(KYC) NORMS.

A special thanks to the Head Of The Department , Mr. Soumen Chatterjee,

who has given his full effort in guiding as well as encouraging me to go that
extra mile and maintain my progress in track.
Last but not the least I would like to thank my friends & Google-The search
engine which has helped me a lot to assemble the journals and give suggestions
about the different analysis.
5

INDEX:

S.NO. CONTENT
Chap1. INTRODUCTION
1.1 General Introduction
1.2 Histor & Background
1.3 Follow ups
1.4 Kyc Test Checks
1.5 Compliances & Violation Measures for Banks
1.6 Categorization of Customers
1.7 Care to be Exercised

Chap2. LITERATURE REVIEW

2.1 International Journal of Scientific & Research
Publications
2.2 Consolidated KYC Risk Management(Bank for
International Settlements)

Chap3. NEED OF STUDY

Chap4. SCOPE OF STUDY
Chap5. OBJECTIVES OF STUDY
Chap6. RESEARCH & METHODOLOGY
Chap7. FINDINGS & ANALYSIS
Chap8. CONCLUSION
Chap9. BIBLIOGRAPHY
Chap10. ANNEXTURE
Chapter1. INTRODUCTION
1.1General Introduction
Purpose

Looking at all the disturbances in India, the thought that comes to mind is that it is not quite
possible without easy money transfer for people who are disturbing the society.Thus money
is easily made available to such people, and, to say the least, this is a dangerous matter. Apart
from social awareness, help from public, and best governance practices, we require very strict
norms for identifying customers who enter into such banking transactions. The primary
objective of the Policy is to prevent the Cooperative/Regional Rural Bank from being
used, intentionally or unintentionally ,by criminal elements for money laundering or
terrorist financing activities.

What is KYC?

Know Your Customer - KYC enables banks to know / understand their customers and their
financial dealings so as to be able to serve them better.

What is Money Laundering?

Money Laundering refers to conversion of money illegally obtained and to make it appear as
if it originated from a legitimate source. Money laundering is being employed by criminals
worldwide to conceal criminal activity associated with drugs / arms trafficking, terrorism,
extortion and the like. All crimes that produce a financial benefit give rise to money
laundering.

What has this got to do with opening Bank Accounts?

The first step in the money laundering process is for criminals to open a bank account using a
false name and a false address and deposit into this account the money earned from their
criminal and illegal activities. The funds so deposited are then transferred to other bank
accounts locally or abroad or used for buying goods or services. These transactions would
appear to be legitimate and later it becomes difficult to trace it back to its criminal roots.
Banks, under law, should not only prevent this, but should stop criminals from using the
banking system for laundering the ill-gotten money from illegal criminal activities.
7

For the purpose of KYC policy, a ‘Customer’ shall be defined as:

i) A person or entity that maintains and/or has a business relationship with the Company;
ii) One on whose behalf such relationship is maintained (i.e. the beneficial owner);
iii) Beneficiaries of transactions conducted by professional intermediaries, such as Stock
Brokers, Chartered Accountants, Solicitors etc. as permitted under the law, and;
iv)Any person or entity connected with a financial transaction which can pose significant
reputation or other risks to the company, say, a wire transfer or issue of a high value demand
draft as a single transaction.

How could this affect you as a Customer?

 A key defense against money laundering is to prevent accounts being opened in false
identities. Anyone wishing to open an account will therefore be asked for proof of
their identity and address.

 These documents have to be essentially obtained by the bank irrespective of the type
of account to be opened and the purpose for which the account is opened. The fact
that these documents are asked for opening of an account does not mean that a
prospective customer is suspected of money laundering.

 Criminals try to appear to be normal law-abiding customers; for example they may try
to open a number of accounts using small amounts of money. Hence it is necessary to
properly identify all prospective account holders or customers. Anybody, including a
criminal could falsely use other peoples’ identity, if documentary evidence of identity
and address are not insisted upon for all accounts.

What will happen if you do not provide the required KYC information / documents to
us?
The Bank will be entitled to refuse to open the account.
KYC norms actually mean:

In order to prevent identity theft, identity fraud, money laundering, terrorist financing, etc, the
RBI had directed all banks and financial institutions to put in place a policy framework to
know their customers before opening any account.This involves verifying customers' identity
and address by asking them to submit documents that are accepted as relevant proof.
Mandatory details required under KYC norms are proof of identity and proof of address.
Passport, voter's ID card, PAN card or driving license are accepted as proof of identity, and
proof of residence can be a ration card, an electricity or telephone bill or a letter from the
employer or any recognised public authority certifying the address.
Some banks may even ask for verification by an existing account holder. Though the standard
documents which are accepted as proof of identity and residence remain the same across
various banks, some deviations are permitted, which differ from bank to bank.

All the banks and other financial institutions were advised to follow certain customer
identification procedure for opening of accounts and monitoring transactions of a suspicious
nature for the purpose of reporting it to appropriate authority. These ‘Know Your Customer’
guidelines have been introduced in the context of the Recommendations made.

1.2 History & Background

Worldwide Impact
The main purpose of KYC norms was to restrict money laundering and terrorist financing
when it was introduced in late the 1990s in the United States. The US government turned
very strict after 9/11 and all regulations were finalized before 2002 for KYC
.The US has made changes in its major legislations –

Bank Secrecy Act, USA Patriot Act -- to make KYC norms really effective for the banking
sector.
Taking a leaf out of the US book, the Reserve Bank of India too directed all banks to
implement KYC guidelines for all new accounts in the 2nd half of 2002.For existing
accounts, imposing KYC norms was a little difficult, so the RBI issued guidelines for the
same at the end of 2004.
9

The Reserve Bank of India (RBI) had issued a directive that banks should draw up a time
bound action plan for obtaining customer identification documents under new KYC norms in
respect of all the old accounts and complete the entire exercise by 31.12.2004. Accordingly,
the Zones/Branches had been advised to comply with the RBI directive as per the action plan.
All the Zones had confirmed compliance of the KYC norms for all the accounts based on
branch confirmations and the final certificate was furnished by the Bank to the RBI in April,
2005.

1.3 Follow ups

RBI Follow-up:
It has, thereafter, been time and again reiterating the importance of extremely careful
compliance of KYC guidelines.
In 2004, the RBI had come up with more specific guidelines regarding KYC. These were
divided into four parts.
Key Elements of the KYC Policy
Following are four key elements of our KYC policy:

1. Customer Acceptance and Customer Severance Policy

2. Customer Identification Procedures;
3. Monitoring of Transactions;
4. Risk Management

1. Customer Acceptance Policy:

The guidelines for Customer Acceptance Policy (CAP) for the company are given below:
 No account is opened in anonymous or fictitious/ benami name(s).
 The company shall classify customers into various risk categories and based on ris
perception decide on acceptance criteria for each customer category.
 Accept customers after verifying their identity as laid down in customer identification
procedures.
 While carrying out due diligence the company shall ensure that the procedure adopted
shall not result in denial of services to the genuine customers.
 For the purpose of risk categorisation of customer, company shall obtain the relevant
information from the customer at the time of account opening.
 Parameters of risk perception shall be clearly defined in terms of the nature of
business activity, location of customer and his clients, mode of payments, volume of
turnover, social and financial status etc. to enable categorization of customers into
low, medium and high risk; customers requiring very high level of monitoring, e.g.
Politically Exposed
 Documentation requirements and other information to be collected in respect of
different categories of customers depending on perceived risk and keeping in mind
the
 Circumstances, in which a customer is permitted to act on behalf of another
person/entity,shall be clearly spelt out in conformity with the established law and
practice of banking as there shall be occasions when an account is operated by a
mandate holder or where an account shall be opened by an intermediary in the
fiduciary capacity and
 Necessary checks before opening a new account so as to ensure that the identity of
the customer does not match with any person with known criminal background or
with banned entities such as individual terrorists or terrorist organizations etc.
 The company shall prepare a profile for each new customer based on risk
categorisation. The customer profile may contain information relating to customer’s
identity,social/financial status, nature of business activity, information about his
clients’ business and their location etc. The nature and extent of due diligence shall
depend on the risk perceived by the company. However, while preparing customer
profile the company shall take care to seek only such information from the customer
which is relevant to the risk category and is not intrusive. The customer profile shall
be a confidential document and details contained therein shall not be divulged for
cross selling or any other purposes.
 For the purpose of risk categorisation, individuals (other than High Net Worth) and
entities whose identities and sources of wealth can be easily identified and
transactions in whose accounts by and large conform to the known profile, shall be
categorised as low risk.
11

Illustrative examples of low risk customers would be salaried employees whose salary
structures are well defined, people belonging to lower economic strata of the society
whose accounts show small balances and low turnover, Government departments &
Goernment owned companies, regulators and statutory bodies etc. In such cases, the
policy may require that only the basic requirements of verifying the identity and location
of the customer are to be met. Customers that are likely to pose a higher than average risk
to the bank may be categorized as medium or high risk depending on customer's
background, nature and location of activity, country of origin, sources of funds and his
client profile etc. Banks may apply enhanced due diligence measures based on the risk
assessment, thereby requiring intensive ‘due diligence’ for higher risk
customers,especially those for whom the sources of funds are not clear.

Examples of customers requiring higher due diligence may include

 non-resident customers,
 high net worth individuals,
 trusts, charities, NGOs and organizations receiving donations,
 companies having close family shareholding or beneficial ownership,

 firms with 'sleeping partners',

 2. Customer Identification Procedures:

Customer identification requires identifying the customer and verifying his/her identity by
using reliable, independent source documents, data or information. Thus, the first
requirement of Customer Identification Procedures (CIP) is to be satisfied that a prospective
customer is actually who he/she claims to be. The second requirement of CIP is to ensure that
sufficient information is obtained on the identity and the purpose of the intended nature of the
banking relationship. This would enable risk profiling of the customer and also to determine
the expected or predictable pattern of transactions.

Identification data Identification data, as under, would be required to be obtained in respect of

different classes of customers:

For customers that are natural persons:

a) Address/location details

b) Recent photograph

For customers that are legal persons:

13

a) Legal status of the legal person/entity through proper and relevant documents.

b) Verification that any person purporting to act on behalf of the legal person/entity is so
authorized and identity of that person/entity is established and verified.

c) Understand the ownership and control structure of the customer and determine who are
the natural persons who ultimately control the legal person.wherever applicable, information
on the nature of business activity, location, mode of payments, volume of turnover, social and
financial status etc. will be collected for completing the profile of the customer.
If the branch/office decides to accept such accounts in terms of the Customer Acceptance
Policy, the bank should take reasonable measures to identify the beneficial owner(s) and
verify his/her/their identity in a manner so that it is satisfied that it knows who the beneficial
owner(s) is/are.

For New Accounts

"Know Your Customer" (KYC) procedure should be the key principle for identification of an
individual/corporate opening an account. The customer identification should entail
verification through an introduce-tory reference from an existing account holder/a person
known to the bank or on the basis of documents provided by the customer.

The objectives of the KYC framework should be two fold

1.to ensure appropriate customer identification

2.to monitor transcations of suspicious state

Existing Accounts :

With a view to ensuring that existing small account holders are not inconvenienced and the
KYC procedures is completed in time, it has been decided that application of KYC
procedures may be limited to the existing accounts, where the credit or debit summation for
the financial year is more than Rs. 10.00 lakh or where the branch or office suspects any
unusual transaction
 3.Monitoring of Transactions:

Ongoing monitoring is an essential element of effective KYC.Branches can effectively

control and reduce their risk only if they have an understanding of the normal and reasonable
activity of the customer so that they have the means of identifying transactions that fall
outside the regular pattern of activity. However, the extent of monitoring will depend on the
risk sensitivity of the account.

High-risk accounts
3. Branches should pay special attention to all complex, unusually large transactions
and all unusual patterns, which have no apparent economic or visible lawful
purpose.
4. The branch/office may prescribe threshold limits for a particular category of
accounts and pay particular attention to the transactions, which exceed these
limits. Transactions that involve large amounts of cash inconsistent with the
5. normal and expected activity of the customer should particularly attract the
attention of the bank. Very high account turnover inconsistent with the size
6. of the balance maintained may indicate that funds are being 'washed' through the
account.
7. High-risk accounts have to be subjected to intensified monitoring. Bank should set
key indicators for such accounts, taking note of the background of the customer,
such as the country of origin, sources of funds, the type of transactions involved
and other risk factors

Cash transaction of Rs. 10.00 lakh and above

Branches are required to record and report all individual/integrally connected cash deposits
and withdrawals of Rs. 10.00 lakh and above in deposits, cash credit and overdraft accounts
etc, at fortnightly intervals to the respective controlling Offices.

Suspicious Transactions
To observe four eyes concept in reporting suspicious transactions at branch level, first dealing
officer at the branch will report to the Branch Manager (BM), who will get himself satisfied
about existence of a suspicious activity/nature and then report to the controlling office.
15

Further course of action is to be recommended by the controlling officer in consultation with

Law Department. The designated officer at has to take up the matter with appropriate law
enforcing authorities designated under the relevant laws governing such activities.
The Controlling Authority during their visit/surprise inspection to Branch, have to verify the
account opening forms/transactions recorded in the register for the purpose at random.

Closure of Accounts
Where the appropriate KYC measures could not be applied due to nonfurnishing of
information and/or non-cooperation by the customer, the account can be considered for
closure or terminating the banking/ business relationship. Before exercising this option, all
efforts will be made to obtain the desired information and, in the event of failure, due notice,
will be given to the customer explaining the reasons for taking such a decision. In all cases,
the controlling authority at the respective controlling office/Head office shall be the
competent authority to permit closure of such accounts.

4. Risk management:
The bank has put in place an effective KYC programme in place by establishing appropriate
procedures and ensuring their effective implementation covering proper management
oversight, systems and controls, segregation of duties, training and other related matters.
Responsibility has also been explicitly allocated within the bank for ensuring that the bank’s
policies and procedures are implemented effectively.
 The nature and extent of due diligence will depend on the risk
perceived by the branch/bank. However, while preparing customer
profile branches should take care to seek only such information from
the customer which is relevant to the risk category and is not intrusive.
The customer profile will be a confidential document and details
contained therein shall not be divulged for cross selling or any other
purposes.
 Bank’s internal audit and compliance functions have an important role
in evaluating and ensuring adherence to the KYC policies and
procedures. The compliance function should provide an independent
evaluation of the bank’s own policies and procedures, including legal
and regulatory requirements. It would be ensured that the audit
 machinery is staffed adequately with individuals who are well versed
in such policies and procedures.
 Internal Inspectors should specifically check and verify the application
of KYC procedures at the branches/offices and comment on the lapses
observed in this regard. The compliance in this regard may be put up
before the Audit Committee of the Board by HO (Inspection) on
quarterly intervals. While the Cooperative/Regional Rural Bank has
yet to adopt a risk-based
 approach to the implementation of this Policy, it is necessary to
establishing appropriate framework covering them.
The RBI had also directed all banks to make a policy
for implementing 'Know Your Customer' and anti-money laundering measures and
remain fully compliant with given guidelines before December 31, 2005.

1.4 KYC Test Checks

 In the above scenario, as per the directions of the Top Management, Inspection &
Audit Department has carried out test checks at select Branches in each Zone to check
the extent of implementation of KYC norms.
 The Auditors were advised to select all types of accounts over a period and submit
their findings.
 Some banks may even ask for verification by an existing account holder. Though the
standard documents which are accepted as proof of identity and residence remain the
same across various banks, some deviations are permitted, which differ from bank to
bank.
 So, all documents shall be checked against banks requirements to ascertain if those
match or not before initiating an account opening process with any bank. Thus
opening a new bank account is no longer a cake walk.
 The RBI had also directed all banks to make a policy for implementing 'Know Your
Customer' and anti-money laundering measures and remain fully compliant with
given guidelines before December 31, 2005.
17

1.5 Compliances & Violation Measures for banks

There had been instances of lapses in the implementation of KYC guidelines by several
banks. That resulted into the infamous IPO scam. It means that the Branches are not
complying with the KYC guidelines extremely careful and the requirement of KYC
compliance is not being taken seriously by some branches.
Since January 2006, the RBI has slapped penalties on several leading banks. Till date we
have not come across any case of money laundering, terrorist financing or transfer of funds
for anti-national activities, but in case of any more lapses in the 'Know Your Customer'
guidelines, the threat of the misuse of the banking channels for anti-national activities always
lurks around the corner.

RBI’s KYC guidelines for Bank Customers

The latest RBI KYC guidelines for opening new bank accounts make it a lot easier for
common man as only one document would suffice as proof of identity and proof of
residence

 One document to be accepted as Proof of Identity and Proof of Residence: As per

the circular, if a customer submits a document which has his identity details as well as
address details, the bank should not insist on two separate documents for Proof of
Address and POI (Proof of Identity). The circular says, “If the address on the
document submitted for identity proof by the prospective customer is same as that
declared by him/her in the account opening form, the document may be accepted as a
valid proof of both identity and address”. This is indeed a significant change as
customers will not be required to carry two sets of documents if one single document
like passport has both address and identity details.
 Acceptance of Aadhaar letter for KYC purposes: Based on the feedback received
from Unique Identification Authority of India (UIDAI), RBI has instructed banks to
accept Aadhaar letters for the purpose of POA, if the address provided by the account
holder is the same as that on Aadhaar letter.
KYC for Existing Customers
 While the KYC guidelines will apply to all new customers, the same would be applied
to the existing customers on the basis of materiality.
 Efforts would be made to collect necessary details from the existing customers..
 As required under the Act and rules, information so collected shall be properly
retained and preserved for each customer. Profile of customer may be prepared for
quick reference as and when required. The information/documents so collected shall
be treated as confidential and shall not be divulged for cross selling or for any other
purpose.

MAKING CUSTOMER AWARE

 Govt. shall take adequate measures to educate the customer on the objectives of the
KYC programme, especially at the time of obtaining sensitive or personal information
from the customers.

 While dealing with customers, Dealing Officers and Staff in NEDFi shall take special
care in obtaining required information from the client.

 Information of the KYC policy along with relevant forms shall be uplosaded in
websites Govt. shall also take care to see that implementation of the KYC guidelines
in respect of customer acceptance, identification etc. do not result in denial of
financial services to genuine customers/general public.
19

1.6 Categorization of Customers

LOW RISK CUSTOMERS
 Government departments and Government owned Companies, regulatory and
statutory bodies)
 Non Profit Organisations / Non Government Organisations promoted by United
Nations or its agencies

MEDIUM RISK CUSTOMERS

 Non Bank Financial Institution) Stock brokerage
 Import/ Export) Gas Station
 Car/ Boat/ Plane Dealership
 Electronics (wholesale)
 Travel agency
 Telemarketers
  Dot-com company or internet business
 Auctioneers
 Cash-intensive Businesses such as restaurants, retail shops, parking
 Accountants (small, little known)
 Venture capital companies

HIGH RISK CUSTOMERS

 Non Resident Customers,
 High Net worth individuals,
 Trusts, charities, NGOs and organizations receiving donations,
 Companies having close family shareholding or beneficial ownership,
 Politically Exposed Persons (PEPs) of foreign origin,
 Non-face to face customers,
 Individuals or entities listed in the schedule to the order under section 51 A of the
 Unlawful Activities (Prevention) Act, 1967
 Individuals and entities in watch lists issued by Interpol and other similar international
organizations.etc

1.7 Care is to be exercised that-

Implementation of the KYC guidelines should not result in denial of banking

services to the public, especially to those, who are financially or socially
disadvantaged.
1) The broad regulatory guidelines on customer acceptance policy envisage that
persons with criminal background and/or having connections with terrorist
organizations will not be accepted as account holders. It may be necessary to
ensure that banking facilities are not denied for genuine purposes merely for
the reason that criminal charges have been leveled against them or they have
undergone some form of punishment in the past.
2) Introduction of large number of accounts by a single introducer [either account
holder to be accepted with caution.
3) At the time of opening the account / during periodic updation, only
“mandatory” information required for KYC purpose which the customer is
21

obliged to give while opening an account should be obtained. Other

“Optional” customer details/ additional information, if required may be
obtained separately after the account is opened only with the explicit consent
of the customer.
4) In case of existing account holders, KYC procedures have to be completed,
based on materiality and risk, if not already done.
5) The information collected from the customer will be treated as confidential
and not divulged externally for cross selling or any other purposes.
6) For Debit card, Credit card, Internet Banking facilities and other new
technology products, the KYC norms as applicable for the risk categorization
of the customer will be followed for new accounts
Chapter.2 LITERATURE REVIEW

1.1 International Journal of Scientific and Research Publications, July 2013

Research on Know Your Customer (KYC)

Prof. Venkatesh U. Rajput

(A) KYC HAS DIFFERENT CONNOTATIONS AND THE

DEFINITION

Know Your Customer processes are also employed by regular companies of all sizes, for the
purpose of ensuring their proposed agents', consultants' or distributors' anti-bribery
compliance. Banks, insurers and export credit agencies are increasingly demanding that
customers provide detailed anti-corruption due diligence information, to verify their probity
and integrity. Some specialist consultancies help multinational companies and SMEs conduct
Know Your Customer processes when entering new markets. The consultative paper
'Consolidated know-your-customer (KYC) risk management' is a supplement to the Basel
Committee's 'Customer due diligence for banks' issued in October 2001. It examines the
critical elements for effective management of KYC policies and procedures in banks' foreign
branches and subsidiaries.
The adoption of effective know-your-customer (KYC) standards is an essential part of banks'
risk management practices. As discussed in the Customer due diligence for banks (CDD)
paper, banks with inadequate KYC standards may be subject to significant risks, especially
legal and reputational risk. Sound KYC policies and procedures not only contribute to a
bank's overall safety and soundness, they also protect the integrity of the banking system by
reducing the likelihood of banks becoming vehicles for money laundering, terrorist financing
and other unlawful activities.
The CDD paper outlines four essential elements necessary for a sound KYC programme.
These elements are
1. Customer acceptance policy
2. Customer identification
23

3. On-going monitoring of higher risk accounts

(B)KYC (KNOW YOUR CUSTOMER) INFORMATION FOR

CUSTOMERS INTENDING TO OPEN BANK ACCOUNT

The Reserve Bank of India (RBI) has advised banks to follow a 'KYC guidelines', wherein
certain personal information of the account-opening prospect or the customer is obtained. The
objective of doing so is to enable the Bank to have positive identification of its customers.
This is also in the interest of customers to safeguard their hard earned money. The KYC
guidelines of RBI mandate banks to collect three proofs from their customers. They are
1. Photograph
2. Proof of identity
3. Proof of address

(C)ENHANCED DUE DILIGENCE

EDD has not been internationally defined. As a result financial institutions are at risk of being
held to differing standards dependent upon their jurisdiction and regulatory environment. An
article published by Peter Warrack in the July. 2006 edition of ACAMS Today (Association
of Certified Anti-Money Laundering Specialists) suggests the following:
“A rigorous and robust process of investigation over and above (KYC) procedures, that
seeks with reasonable assurance to verify and validate the customer‟s identity;
understand and test th customer’s profile, business and account activity; identify
relevant adverse information and risk assess the potential for money laundering and /
or terrorist financing to support actionable decisions to mitigate against financial,
regulatory and reputational risk and ensure regulatory compliance.”

(B) OVER AND ABOVE KYC PROCEDURES

Files rely upon initial client screening. This definition requires revalidation of the customer’s
identity – knowing the client’s identity, not who they say they are .Processes should use a
tiered approach dependent upon the risk.
Crucial to the integrity of any of this process is the reliability of information and information
sources, the type and quality of information sources used, properly trained analysts who
know where to look for information, how to look and how to corroborate, interpret and
decide the results. Open source intelligence companies such as World Compliance and C6,
aggregate this information and compile it daily into a comprehensive database. Estate
Engineer (Civil) Sunil Ch. Das, Agartala Searching on Google, for example, means different
things to different people. Experience has shown poor returns such as:

* Duplication of documents in some

cases is possible
* Investee firms may also incur
compliance cost

MANDATORY
REQUIREMENTS

 Documents needed: The mandatory details required under KYC norms are proof of
residence and identity.

 A person's ration card, passport, utility bills or a letter from the employer or his
housing society is accepted as residence proof. For proof of identity, passport, voter
ID card, Permanent Account Number (PAN) card or driving license too could work.
Nowadays, most institutions ask for the customer's PAN too.
25

 3. Impact: Although the effort towards strengthening identification norms has

helped in preventing money laundering and reducing fraud, it has had a negative
impact in an unexpected quarter. The growth in investor numbers in various
instruments is either stagnating or reducing. Apparently, the KYC norms are proving
restrictive because of the hassles of documentation.

 4. The KYC requirement sometimes leads to unnecessary and repetitive work,

delaying operations. Customers complain about the paperwork involved. Ultimately,
it means customers have to run from pillar to post for complying with the KYC
norms.
 5. Impact for service providers: Companies and distributors say, KYC requirements
have burdened them with substantial administrative obligations. The verification rules
place a financial burden on banks, insurance companies and mutual funds due to the
involved costs. Currently, every entity has to individually conduct this verification
which results in duplication of effort for customers as well as the institutions.

 6. There is a need to simplify KYC requirements. The authorities could opt for
centralization of the KYC norms to make investing easy for those not well versed
with paperwork. Mutual funds have done this at an industry level by giving the
mandate to a single entity, ventures. Uniformity in requirements for KYC prescribed
by all authorities would help make the filing easier. One important document that will
make life simpler is - 'Aadhar', the unique identification number to be provided to
 each citizen by Unique Identification Authority of India (UIDAI), a government
initiative. But there is still some time before it will be implemented. By making KYC
norms simpler, it will make investments simpler. It is especially required if investing
is to become more inclusive.‟

 7. Beneficiaries of transactions conducted by professional intermediaries, such as

Stock Brokers, Chartered Accountants, Solicitors, etc. as permitted under the law, and
any person or entity connected with a financial transaction, which can pose significant
reputation or other risks to the Bank, say, a wire transfer or issue of a high value
demand draft as a single transaction.

1.2 Consolidated KYC Risk Management

October 2004, Anupam Jain , Practice Director

BANK FOR INTERNATIONAL SETTLEMENTS

1.The adoption of effective know-your-customer (KYC) standards is an essential part of

bank’s risk management practices. Banks with inadequate KYC risk management
programmes may be subject to significant risks, especially legal and reputational risk. Sound
KYC policies and procedures not only contribute to a bank’s overall safety and soundness,
they also protect the integrity of the banking system by reducing the likelihood of banks
becoming vehicles for money laundering, terrorist financing and other unlawful activities.
Recent initiatives to reinforce actions against terrorism in particular have underlined the
importance of banks’ ability to monitor their customers wherever they conduct business.

2. In October 2001, the Basel Committee on Banking Supervision (BCBS) issued Customer
due diligence for banks,subsequently reinforced by a General Guide to account opening and
customer identification (CDD) in February 2003. The CDD paper outlines four essential
elements necessary for a sound KYC programme. These elements are:
(i) customer acceptance policy;
(ii) customer identification;
(iii) on-going monitoring of higher risk accounts; and
27

(iv) risk management.

The principles laid down have been accepted and widely adopted by jurisdictions throughout
the world as a benchmark for commercial banks
and a good practice guideline for other categories of financial institution.

3. A key challenge in implementing sound KYC policies and procedures is how to put in
place an effective groupwide approach. The legal and reputational risks identified in above
paragraph are global in nature. As such, it is essential that each group develop a global risk
management programme supported by policies that incorporate groupwide KYC standards.
Policies and procedures at the branch- or subsidiary-level must be consistent with and
supportive of the group KYC standards even where for local or business reasons such policies
and procedures are not identical to the groups.

4. Consolidated KYC Risk Management means an established centralised process for

coordinating and promulgating policies and procedures on a groupwide basis, as well as
robust arrangements for the sharing of information within the group. Policies and procedures
should be designed not merely to comply strictly with all relevant laws and regulations, but
more broadly to identify, monitor and mitigate reputational, operational, legal and
concentration risks. Similar to the approach to consolidated credit, market and operational
risk, effective control of consolidated KYC risk requires banks to coordinate their risk
management activities on a groupwide basis across the head office and all branches and
subsidiaries.

5. The Govt. recognises that implementing effective KYC procedures on a groupwise basis is
more challenging than many other risk management processes because KYC involves in most
cases the liabilities rather than the assets side of the balance sheet, as well as balances that are
carried as off-balance sheet items. For reasons of customer privacy, some jurisdictions
continue to restrict banks’ ability to transmit names and balances as:

 Basel Committee on Banking Supervision, October 2001

 The term “group” is used in this paper to refer to an organisation’s one or more banks,
and the branches and subsidiaries of those banks. The term “head office” is used in
 this paper to refer also to the parent bank or to the unit in which KYC risk
management is performed on a business line basis.

 Consolidated KYC Risk Management regards customer liabilities whereas there are
now very few countries maintaining similar barriers on the assets side of the balance
sheet. It is essential, in conducting effective monitoring on a groupwide basis, that
banks be free to pass information about their liabilities or assets under management,
subject to adequate legal protection, back to their head offices or parent bank. This
applies in the case of both branches and subsidiaries. The conditions under which this
might be achieved are set out in paragraphs.

6. Jurisdictions should facilitate consolidated KYC risk management by providing an

appropriate legal framework which allows the cross-border sharing of information. Legal
restrictions that impede effective consolidated KYC risk management processes should be
removed.

7. The four essential elements of a sound KYC programme should be incorporated into a
bank’s risk management and control procedures to ensure that all aspects of KYC risk are
identified and can be appropriately mitigated. Hence, a bank should aim to apply the same
risk management, customer acceptance policy, procedures for customer identification, and
process for monitoring its accounts throughout its branches and subsidiaries around the
world. Every effort should be made to ensure that the group's ability to obtain and review
information in accordance with its global KYC standards is not impaired as a result of
modifications to local policies or procedures necessitated by local legal requirements In this
regard banks should have robust information sharing between the head office and all
branches and subsidiaries. Where the minimum KYC requirements of the home and host
countries differ, offices in host jurisdictions should apply the higher standard of the two
subject to the direction given in CDD paragraph 66,Risk management

8. Groupwide KYC risk management programmes should include proper management

oversight, systems and controls, segregation of duties, training and other related policies The
risk management programme should be implemented on a global basis. Explicit responsibility
should be allocated within the bank for ensuring that the bank's policies and procedures for
the risk management programme are managed effectively and are in accordance with the
29

bank’s global standards for customer identification, ongoing monitoring of accounts and
transactions and the sharing of relevant information.

9. Banks’ compliance and internal audit staffs, or external auditors, should evaluate
adherence to all aspects of their group’s standards for KYC, including the effectiveness of
centralised KYC functions and the requirements for sharing information with other group
members and responding to queries from head office. Internationally active banking groups
need both an internal audit and a global compliance function since these are the principal and
in some circumstances the only mechanisms for monitoring the application of the bank’s
global KYC standards and supporting policies and procedures, including the effectiveness of
the procedures for sharing information within the group.
Consolidated KYC Risk Management
Customer acceptance and identification policy

10. A bank should develop clear customer acceptance policies and procedures that include
guidance on the types of customers that are likely to pose a higher than average risk to the
bank (CDD paragraph 20), including managerial review of such prospective customers where
appropriate.

11. Similarly, a bank should establish a risk-based systematic procedure for verifying the
identity of new customers (CDD paragraph 22). It should develop standards on what records
are to be obtained and retained for customer identification on a global basis, including
enhanced due diligence requirements for higher risk customers.

12. A bank should obtain appropriate identification information and maintain such
information in a readily retrievable format so as to adequately identify its customers, as well
as fulfil any local reporting requirements. Relevant information should be accessible for
purposes of information sharing among the banking group’s head office, branches and
subsidiaries. Each office of the banking group should be in a position to comply with
minimum identification and accessibility standards applied by the head office.

13. These customer acceptance, customer identification and record keeping standards should
be implemented with consistent policies and procedures throughout the organisation, with
adjustment as necessary to address variances in risk according to specific business line or
geographic areas of operation. Moreover, it is recognised that different approaches to
information collection and retention may be necessary across jurisdictions to conform with
local regulatory requirements or relative risk factors.

LEGAL IMPEDIMENTS

Although gateways are in place in most jurisdictions to enable banks to share information
with their head offices for risk management purposes, some countries have rigorous bank
secrecy or data protection laws that prevent, or can be interpreted as preventing, the transfer
of such information. In such circumstances, banks’ overseas offices may be inclined to take a
cautious stance regarding the transfer of customer information to their head offices which
may conflict with the consolidated KYC objective.

 It is essential that all jurisdictions that host foreign banks provide an appropriate
 Legal framework which allows information for KYC risk management purposes to be
passed
 to the head office/parent bank and home country supervisors. Similarly, there should
be no
 impediments to onsite visits by head office auditors, risk managers, compliance
officers or
 home country supervisors, nor any restrictions on their ability to access all the local
office’s
 records including customers’ names and balances. This access should be the same for
both branches and subsidiaries. If impediments to information sharing prove to be
insurmountable, and there are no satisfactory alternative arrangements, the home
supervisor should make it clear to the host that the bank may decide for itself, or be
required by its home supervisor, to close down the operation in question (CDD
paragraph 69).

 Where banks’ head office staff are granted access to information on local customers,
there should be no restrictions on them reporting such information back to head
31

office. Such information should be subject to applicable privacy and privilege laws in
the home country.

 Subject to the conditions set out above, the BCBS believes that there is no justifiable
reason why local legislation should impede the passage of customer information from
a bank branch or subsidiary to its head office or parent bank for risk management
purposes. If the law restricts disclosure of information to “third parties” it is essential
that the head office or parent bank is clearly excluded from the definition of a third
party. Jurisdictions that have legislation that impedes, or can be interpreted as
impeding, such information sharing are urged to remove any such restrictions and to
provide specific gateways.
Chapter 3. NEED OF THE STUDY

Yes there is a prominent need of this study about KYC norms. This study provides a single,
consolidated view of all KYC (Know Your Client) cases being managed and provides
awareness about the processes, rules and activities required to ensure the know-how of
consequences to avoid misunderstandings while gaining visibility and control of their
operations which all the bank customers are supposed to carry.
The study offers a information which can be accessed by general masses or other members
of any company with under mark security levels. This study can be used as an extra
information about the clients to get ensured that bank staff has taken the correct steps during
the clients relationship with the bank. The study can be monitored in line with a safe & sound
business requirements. It also offers small & rural bank’s compliance team a 360 view of
your client’s account details including notes, correspondence and KYC activities.
Besides the study paper provides us with enabling us to realize the need of storing and
monitoring Compliance related activities and moreover aiding in providing the young batch
of nation a much required exposure to abide by on-going due diligence.

The study paper most importantly concerns over the use & misuse of the KYC norms to
which all of us must have the knowledge. Having said that, it must be remembered that most
banks use the KYC norms as an excuse to harass genuine customers and at the same time,
indulge in unofficial activities. Therefore, the approach to following KYC norms is to insist
on the same for all customers and especially those who have large sums on deposit as the
scope for money laundering increases with these customers. On the other hand, they must not
harass small depositors who anyway maintain less balance and whose activities can be
monitored for suspicious transactions. The point of this study paper here is that KYC norms
should be used in conjunction with the monitoring of all accounts and the key principle that
must be applied is that the norms are sacrosanct and at the same time, flexible enough to
separate the genuine investors from the dubious ones. Further, banks must ensure that high
value transactions are monitored and insist on proper identification when customers deposit
or withdraw huge sums of money. This is where the study of proper KYC norms become
useful as the contact information provided in the KYC database can be used by law enforcers
and the regulators to track down the source and the destination of the money trail. Apart from
33

this, the money transfer or the funds transfer between banks that involve high denominations
must similarly be monitored through KYC norms and procedures.
The investigators intended to study the KYC compliance of Regional Rural Banks as the
guidelines provided by Reserve Bank of India (RBI) for controlling money laundering. The
Regional Rural Banks (RRBs) are the subsidiaries of leading scheduled banks in that area. In
South India there are Ten RRBs in the four states like Andhra Pradesh, Karnataka, Kerala and
Tamil Nadu after amalgamation of the related RRBs and before that there are fifteen RRBs.
The investors collected secondary data from the websites of these RRBs and RBI and thus
wanted to explore this area as a documentary
.
Chapter 4. SCOPE OF THE STUDY

The scope of the study paper upon KYC norms of banks is very simple & genuine in
application though holding a massive importance.
The scope of this study when held in context of a common man ,it concludes that, for the
common man, a KYC (know your customer) process is needed for every small transaction
and at other hand for corporates, these norms are more firm & strict, in issues of concerning
security and taxation.
The overarching aim of the research project was to examine the current levels of KYC norms
currently in practice in our banking system. The study sought to investigate the goal and to
examine the key issues associated with following the KYC norms . A range of questionnaire
methodologies was used to investigate current practice of KYC in banks and to capture data
about the scope and relative penetration of these norms. Proper review and scan if there are
any limitations tissues associated with KYC norms in practice nationally. Separate concern is
given upon the understanding of these norms need and importance for university students
who may be encountering with these norms for the first time,the same KYC fundamentals
that the citizens of India are subject to. And it is also important to try and find out how things
came to this pass.

KYC and its SUSTAINIBILITY

Chapter
35

Chapter5.OBJECTIVES OF STUDY

 The main objective of the study is to find out the level of implementation of KYC
norms among the banks.
 To know the present status of these norms in practice in terms of their need and
services.
 To collect and evaluate ideas/views and expectations of both the regulating body of
banks of our country and the customers regarding the improvement in performance.
 To make aware about the security and safety a client would get having following
these norms
 To find out the most prominent area of satisfaction & financial security reasons that
banks are gaining in doing their business safely without losses.
 To study the relationship between banks and their customers
 The objective of the study is to interpret the customer satisfaction in the degree to
which a client is satisfied with this KYC product of banks, service of banks offered in
this regard.
 The satisfaction with the process, which includes ease of making them follow the
norms as well as bank service or warranty interactions if it is being followed.
 The objective is the degree to which implementation levels affect future prospects and
business of banks.
 differentiate between their safety assumptions and the actual risk without the
existence of these norms
 enumerate the ways of money laundering and criminal offences which could be made
to banks if KYC don’t exist
 point out the nature of security provided by it; and
 outline the procedure for following KYC norms
 After studying this study paper, one will be able to enlist the utility of KYC norms
and its features
Chapter 6.RESEARCH & METHODOLOGY

The quality and reliability of this research study is dependent on the information collected in
a methodological manner. Planning of designing of research method is a blue print for any
research study. Therefore, proper time and attention is given in carrying the research.
Selection of methodology for this particular project is made easy by sorting out a number of
appropriate questions approaches,each of them having its own importance. Efficient concern
is given over sources of data to ensure that the relevant data are being collected accurately.

RESEARCH DESIGN : Research design is the first and foremost step in methodology
adopted and undertaking research study. It is overall plan for the collection and analysis of
data in the research project. Thus an organized, systematic approach of formulation,
implementation and features is emphasized in this project.

RESEARCH PLACE: PATNA

SAMPLE DESIGN :-

The universe of study paper topic being large, I have to resort to sampling method of data
collection. On the basis of a topic of the study, relevant datas are being collected.

DATA COLLECTION METHOD :

While the quality of research findings depend on data, the adequacy of appropriate data
in turn depends upon proper method of data collection. A number of methods are at
the disposal of which I have selected the most appropriate one for visualizing the
research objective. Thus I have to see that the method adopted is compatible with the
resources and research study.

a) Primary Data: Data which are collected fresh and for the first time and thus
happens to be original in character.

b) Secondary data: Data collected from primary data i.e., they are already exit
somewhere. For the purpose of this study, both the datas are being collected

For the purpose of this study we collected :

37

Secondary data through articles & journals and websites

Primary data through.

a)Questionnaire method.

In this study the main emphasis was on the questionnaire method. I used questionnaire
method which consisted of few attributes and parameters. Question, which were asked, were
of multiple choice in nature and were of closed ended.There was face to face conversation
between me and the respondents. The respective questionnaire consists of questions as
follows:

1. Sir, How much KYC (Know Your Customer) Norms are important?
KYC for banks is as an important factor just like breathing is important to live a life.

2. Sir, Does it really help to overcome future financial problems?

-Yes, it does but up to some extent. We do take all precaution as not to have default in
future but after all problems are uncertain and we never know what will happen in
next moment.

3. Sir, Does customer provide co-operation?

- Yes and they have to. Sometime it does take time for all documentation but then too
customer provides all information and required data.

4. Sir, Are you losing your customer because of KYC?

- Not at all,we do not harres any customer to provide unnecessary information. RBI
has issued some guideline towards KYC and accordingly all banks have to follow it.
We do take care of our customer

5. Sir, Any fraud up till now?

-I cannot say fraud but customer make default but that too5 out of 100 customers. And as I
know in the history of State of Bank of in India there is not any big fraud happened.

6. Sir, anything you want to say about today’s scenario?

-KYC Norms are now days became key factor for each bank. There are lots of fraud
happening every day and to overcome this problem all bank have to keep an eye on each
transaction. Our Government doesn‟t even bother about happening of malpractices of anti-
money laundering which take place every single day .There are lots of rules and regulations
to overcome financial problems but then too frauds happen. We can just take care by following RBI‟s
rules

7. What are the KYC requirements for a Mutual Fund Investor?

Individual investors will have to produce a Proof of identity(Photo PAN card copy or PAN
card copy and copy of the passport ,driving license, etc.) and Proof of Address (any valid
documents listed under the KYC Application Form for Individuals). Non -Individual
Investors will have to produce certain documents pertaining to its constitution/registration to
fulfill the KYC process. A list of Mandatory Certified Documents to be submitted can be
found in section C of the KYC application form for Non - Individual Investors.

8. Where and how does one get to be KYC Compliant? Does the investor have to repeat the
KYC process with every single operation?
-The Association of Mutual Funds of India (AMFI) has facilitated a centralised platform
through CDSL Ventures Limited(CDSL), a wholly owned subsidiary of Central Depository
Services(India) Limited, to carry out the KYC procedure on behalf of all Mutual Funds. Once
the KYC is duly completed in all regards, the client needs to produce a copy of the
acknowledgement when investing for the first time with a Mutual Fund. There is no need to
repeat the KYC process individually for each financial operation.

9.What is a KYC Application Form?Should the investors visit personally to obtain KYC
Compliance?
-A KYC Application Form has been designed for Individual clients and Investors
separately.These forms are available on the website of banks. If the investor is not in a
position to visit personally,the KYC Application Form along with the necessary documents
(including originals if the copies are not attested) can be sent through the distributoror
representative.

.10.To who is KYC applicable? Is there any exemption?-

-Currently, all of them (Individuals or Non-Individual investors) who wish to make an
investment or other general operations in a bank, irrespective of amount will be required to
39

complete the KYC process. This would also apply to new Systematic Investment Plan (SIP)
registrations on or after01 January 2011, irrespective of amount.
Joint Holders
: Joint holders (including first, second and third if any, are required) to be individually KYC
compliant before they can perform any operation and copies of each holder's KYC
Acknowledgement must be attached to the application form with any banking activity
Minors
: In case of banking services in respect of a Minor, the Guardian should be KYC compliant
and attach their KYC Acknowledgement while performing in the name of the minor. The
minor, upon attaining majority, should immediately apply for KYC compliance in his/her
own capacity
.
11.How does the investor transact in Mutual Fund after completing the KYC process?
-Investors must attach their KYC Acknowledgement along with the Investment Application
Form(s)/Transaction Slip(s) while investing for the first time in a mutual fund. Application
Forms/Transaction Slips not accompanied by KYC Acknowledgement are liable to be
rejected by the Mutual Fund. If you do not obtain a KYC Acknowledgement, youwill not be
able to invest in a mutual fund
.
12.What are the consequences of KYC cancellation/rejection
-In the event of any KYC Application Form being found deficien tfor lack of
information/insufficiency of mandatory documentation, further investments will not be
permitted.
Chapter 7.FINDINGS & ANALYSIS

The research work for this study paper on KYC norms is conducted upon taking in
consideration the present scenario of banking system within our country
The analysis of the study paper’s purpose is to show a comparative analysis between a public
sector bank and a private sector bank respectively on the basis of certain parameters keeping
in check on both the banks and their KYC compliances & implementation level.
These parameters are as follows:

1.OBILIGATION

As per the RBI’s Master Circular – Know Your Customer (KYC) norms / Anti-Money
Laundering (AML) standards/Combating of Financing of Terrorism (CFT)/Obligation of
banks act, 2002,banks are following certain customer identification procedures for opening of
accounts and monitoring all the transactions and reporting suspicious nature accounts to
appropriate authority
Banks have advised all its branches to ensure that a proper policy framework on ‘Know Your
Customer’ and Anti-Money Laundering measure is implemented with the approval of their
Board and put in place.

2.EASE OF CONDUCT

Following the RBI guidelines,bank has simplified the KYC documentation to make account
opening less onerous. Earlier, as part of the KYC process, one had to submit separate proofs
for address and identity. . Now, a single document with photograph and address of the
applicant will suffice. Among the documents approved for KYC include passport, driving
licence, voter ID card, PAN card, Aadhaar and job card.
Bank has come up with new ease norm in respect of RBI guideline news for students who
live away from home and migrant workers.Small account can be opened by self-attesting a
photograph and giving thumb impression on the application in the presence of a bank
employee. Small accounts, as the name suggests, will have restrictions in terms of loan (a
maximum of Rs 1 lakh a year), withdrawals (not more than Rs 10,000 a month)
41

3.STRINGENCY LEVEL:

A person without valid KYC documents but categorised as 'low-risk' can open an account by
submitting any of the following-identity card with applicant's photograph issued by a
central/state government department, statutory/regulatory authority, public sector
undertaking, scheduled commercial bank or public financial institution; or, a letter issued by
a gazetted officer with an attested photograph Stringency ,however has evidenced more
affirm & strict norms to be followed equally by low, medium or high risk involving
customers. Also some leading private sector banks like ICICI bank has collaborated with the
central board of direct taxes (CBDT) which bring out guidelines that will require to transmit
data in a standard format to the tax department on accounts held by foreign taxpayers in In
banks, a move that would entail an overhaul of the existing KYC regime followed by every
client

4. REACH:

The bank has so far successfully attained a mark of approx 90% of its individual clients as
well as investors following KYC norms. Though having a separate department for overseeing
the KYC norms being followed and imparted, banks have a outstanding level of follow up in
urban part but lacking so far its reach in sub urban or rural areas of the nation.

5.ADVERSE EFFECTS OF THE ABSENCE OF KYC NORMS:

 Multiple accounts under the same name

• Frequently converting large amounts of currency from small to large
denomination notes
• Placing funds in term Deposits and using them as security for more loans
• Same funds being moved repeatedly among several accounts
 •Transactions inconsistent with the purpose of the account
• Maintaining a low or overdrawn balance with high activity.
 Requests for a complex or unusually large transaction which has no apparent lawful
purpose.
 • Requests to associate undue levels of secrecy with a transaction.
• Situations where the origin of wealth and / or source of funds cannot be easily
verified
 where the audit trail has been deliberately broken and / or unnecessarily layered.
• The unwillingness of customers who are not private individuals to give the
names of their real owners.etc
 A customer having a large number of accounts with the same bank, with frequent
transfer
 between different accounts;
 Transactions in which assets are withdrawn immediately after being deposited, unless
the
 customer’s business activities furnish a plausible reason for immediate withdrawal.
 Corporate accounts where deposits or withdrawals are primarily in cash rather than
 cheques.
 Corporate accounts where deposits & withdrawals by cheque / telegraphic transfers /
 foreign inward remittances / any other means are received from / made to sources
 apparently unconnected with the corporate business activity / dealings.
 Unusual applications for DD/TT/PO against cash.
 Accounts with large volume of credits through DD/TT/PO whereas the nature of
business
 does not justify such credits.
 Retail deposit of many cheques but rare withdrawals for daily operations.

6.POSITIVE EFFECTS POST KYC IMPLEMENTATION:

The provisions of the KYC norms Act amendment Rule 2007 place certain obligation on all
the banks which eventually have resulted in abolishing the criminal offences,money laundary
cases thus putting a ban over severe losses incurred by banks previously.Some of the
obiligations are:

 The norms gives rise to a reasonable ground of suspicion that it may involve the
proceeds of an offence specified in the schedule to the PML Act, 2005, regardless of
the value of high amount transcations.
43

 furnish information in respect of suspicious transactions within seven working days

from
 the date of occurrence of such transactions
 Branches maintain proper record of all transactions involving receipts by non-profit
organizations of value more than rupees ten lakh or its equivalent in foreign currency
and to forward a report to their Regional Office every month before 7th of succeeding
month.
 Regional Offices forward the same to Head Office: Inspection Department before
10th. Till the reporting formats are circulated by RBI, Branches may report the
transactions in the manual CTR formats prescribed for reporting Cash Transactions as
per circulars
 All series of cash transactions integrally connected to each other which have been
 Cross checked thoroughly.
 All cash transactions where forged or counterfeit currency notes or bank notes have
 been used as genuine and where any forgery of a valuable security or a document has
 taken place facilitating the transaction
 Sharing of KYC documents in Fraud cases
 Branches are to share the KYC documents with Paying / Collecting Banks (as
 the case may be) in respect of fraudulent transactions.etc

7. CUSTOMER EDUCATION/AWARENESS:
Banks well understand the fact that Implementation of KYC procedures requires Branches to
demand certain information from customers which may be of personal nature orwhich has
hitherto never been called for. This can sometimes lead to a lot of questioning by the
customer as to the motive and purpose of collecting such information. There is, therefore, a
need for banks to prepare specific literature/ pamphlets etc. so as to educate the customer of
the objectives of the KYC programme.Banks, these days hold a front desk staff specially
trained to handle such situations while dealing with customers.
An overall analysis report of public and private sector banks in Patna region:
PARAMETERS PUBLIC BANK PRIVATE BANK
OBILIGATION HIGH HIGH
STRINGENCY LEVEL HIGH HIGH
REACH HIGH LOW
EFFECTS BEFORE KYC HIGH LOSSES AVERAGE
IMPLEMENTATION LOSSES
POSITIVE EFFECTS POST KYC HIGH HIGH
IMPLEMENTATION
CUSTOMER AWARENESS ABOVE HIGH
AVERAGE

Through the study and research done on the topic ,it has been found that there is a
variation in certificates , documents and registration required as per the KYC norms
for Individuals , Compaanies and Firms in partnership ventures respectively.

FEATURES DOCUMENTS
Accounts of individuals (i) Passport (ii) PAN card (iii) Voter’s Identity Card (iv)
Driving licence
 Legal name and any
other names used (v) Identity card (subject to the bank’s satisfaction) (vi)
Letter from a recognized public authority or public servant
 Correct permanent
verifying the identity and residence of the customer to the
address
satisfaction of bank

(i) Telephone bill (ii) Bank account statement (iii) Letter

from any recognized public authority

(iv) Electricity bill (v) Ration card

(vi) Letter from employer (subject to satisfaction of the

bank)

( any one document which provides customer information to

45

the satisfaction of the bank will suffice )

Accounts of companies (i) Certificate of incorporation and Memorandum & Articles

of Association (ii) Resolution of the Board of Directors to
 Name of the company
open an account and identification of those who have
 Principal place of
authority to operate the account (iii) Power of Attorney
business
granted to its managers, officers or employees to transact
 Mailing address of the
business on its behalf (iv) Copy of PAN allotment letter (v)
company
Copy of the telephone bill
 Telephone/Fax
Number

Accounts of partnership firms (i) Registration certificate, if registered (ii) Partnership deed
(iii) Power of Attorney granted to a partner or an employee
 Legal name
of the firm to transact business on its behalf (iv) Any
 Address
officially valid document identifying the partners and the
 Names of all partners
persons holding the Power of Attorney and their addresses
and their addresses
(v) Telephone bill in the name of firm/partners
 Telephone numbers of
the firm and partners

Information obtained from sources including the Internet, free databases and the media has
put a picture that directly or indirectly indications of involvement in money laundering,
terrorist financing or predicate offences. Examples include fraud and other dishonesty, drug
trafficking, smuggling or other proscribed offences, references to money laundering, or
conducting business, residing in or frequenting countries deemed by the Financial Action
Task Force and/or (institution) as being countries under sanction or countries with which
(institution) does not do business; to official sanctions or watch lists; and to investigations,
convictions or disciplinary findings by authorized agencies.
The ongoing study of KYC norms has resulted in finding several violations of norms by few
banks. An escape from these norms could possibly aid tax evasion by customers, as analysis
of the study tells so. The study covers an overall secondary data of public and private sectors
banks in our country.The ICICI Bank, HDFC bank and Axis Bank which have been found
accused by an online magazine of money laundering. It is found that bank branches do not
diligently follow the central bank’s guidelines on demanding a PAN card while selling gold
coins worth more than Rs 50,000 or enabling cash transactions of a similar
amount.Apparently, all bank officers do not ask customers seeking to open new accounts
whether they already have an existing account. This have led to multiple accounts held by a
single customer wanting to avoid income tax department scrutiny.Banks were also not
reviewing KYC documents every five years, and were failing to recognise suspicious
transactions by customers, an official said while a unofficial conversation. Similar KYC
violations were discovered by the RBI during its annual financial inspection. In the mad
scramble for more customers and higher business, banks tend to dilute KYC norms.
47

Chapter 8. CONCLUSION

The study of KYC analytics present a significant opportunity for banks to manage
rising cost of compliance and the risk of non- compliance. While there is no faster way
to reach the end state, several improvement levers exist to successfully operationalize
KYC analytics.
The four essential elements of a sound KYC programme should be incorporated into
a bank’s risk management and control procedures to ensure that all aspects of KYC risk are
identified and can be appropriately mitigated. Hence, a bank should aim to apply the same
risk management, customer acceptance policy, procedures for customer identification, and
process for monitoring its accounts throughout its branches and subsidiaries around the
world. Every effort should be made to ensure that the group's ability to obtain and review
information in accordance with its global KYC standards is not impaired as a result of
modifications to local policies or procedures necessitated by local legal requirements In this
regard banks should have robust information sharing between the head office and all
branches and subsidiaries. Where the minimum KYC requirements of the home and host
countries differ, offices in host jurisdictions should apply the higher standard of the
two,subject to the direction given. The adoption of effective know-your-customer (KYC)
standards is an essential part of banks’ risk management practices. Banks with inadequate
KYC risk management programmes may be subject to significant risks, especially legal and
reputational risk. Sound KYC policies and procedures not only contribute to a bank’s overall
safety and soundness, they also protect the integrity of the banking system by reducing the
likelihood of banks becoming vehicles for money laundering, terrorist financing and other
unlawful activities. Recent initiatives to reinforce actions against terrorism in particular have
underlined the importance of banks’ ability to monitor their customers wherever they conduct
business
At last, the study concludes that,it requires a significant efforts to bring a
strong layer of master norms and banking organisational transformations to cresate a
single view of customer about the conductance and viability of KYC norms.
Chapter 9. BIBLIOGRAPHY
1) WEBSITE
http://www.rbi.org.in/scripts/BS_ViewMasterCirculardetails.aspxhttp://fiuindia.gov.in/identity-
knowcustomer.htmhttp://www.thehindubusinessline.in/2006/07/18/stories/2006071800690600.htmhttp://www.t
hehindubusinessline.in/2006/07/18/stories/2006071800690600.htm
http://www.scribd.com/doc/76284231/KYC-Norms

articles.economictimes.indiatimes.com

2)NEWS PAPERS:
BUSINESS LINE-DATED: FEB 28TH 2006-IPO SCAM2.

BUSINESS LINE-DATED: Apr 13th 2006-

. BUSINESS LINE DATED: JUL 18 ,2006

. THE ECONOMIC TIMES, DATED: JAN 16TH 2011- CITY BANKFRAUD5.

THE ECONOMICS TIMES-DATED:JUN 3RD 2011-GOLDFINANCE

3)ARTICLE
CONSOLIDATED KYC RISK MANAGEMENT

4)JOURNALS
AN EVEREST GROUP RESEARCH JOURNAL:AML AND KYC ANALYTICS

Regulatory Obligations: Know your customer – version date 12 December 2008

5)MAGAZINE:
MONEYLIFE ,August 01, 2011