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RBI revises KYC norms for Bank Account of Proprietary Concerns

RBI/2014-15/532
DCBR.BPD(PCB/RCB)Cir.No.24/14.01.062/2014-15
April 1, 2015

The Chief Executive Officer
All Primary (Urban) Co-operative Banks /
State and Central Co-operative Banks (StCBs / CCBs)

Madam / Dear Sir,

Know Your Customer (KYC) Guidelines – Accounts of Proprietary Concerns

Please refer to paragraph 2.5(ii) of our Master Circular no. UBD.BPD.(PCB) MC.No.16/12.05.001/2014-15 dated July 1, 2014 and paragraph 2.5 (vi) of Master Circular RPCD. RRB.RCB.AML.BC. No. 02/07.51.018/ 2014-15 dated July 1, 2014 on KYC norms and our Circular UBD.BPD.CO/NSB1/11/12.03.000/2009-10 dated September 29, 2009 and RPCD Circular RPCD.CO.RF.AML.BC.No.83/07.40.00/2009-10 dated May 12, 2010 prescribing norms for opening of bank accounts in respect of sole proprietary firms and subsequent circulars issued in this regard.

2. Reserve Bank has been receiving representations pointing out difficulties in complying with the requirement of furnishing two documents as activity proof while opening accounts of sole proprietary firms in certain cases. It is possible that in some types of activities there is genuine difficulty in procuring two such documents. The matter has, therefore, been reviewed with a view to ease the process of opening bank accounts of proprietary concerns in such cases. The default rule is that any two documents, out of those listed in paragraphs of the Master Circulars mentioned above, should be provided as activity proof by a proprietary concern. However, in cases where the banks are satisfied that it is not possible to furnish two such documents, they would have the discretion to accept only one of those documents as activity proof. In such cases, the banks, however, would have to undertake contact point verification, collect such information as would be required to establish the existence of such firm, confirm, clarify and satisfy themselves that the business activity has been verified from the address of the proprietary concern.

3. It is also clarified here that the list of registering authorities indicated in paragraph 2.5(ii) of our Master Circular no. UBD.BPD.(PCB) MC. No.16/12.05.001/2014-15 dated July 1, 2014 and paragraph 2. 5 (vi) of Master Circular RPCD.RRB.RCB.AML.BC. No.02/07.51. 018/2014-15 dated July 1, 2014 on KYC norms is only illustrative and therefore includes license / certificate of practice issued in the name of the proprietary concern by any professional body incorporated under a statute, as one of the documents to prove the activity of the proprietary concern.

4. UCBs/DCCBs/StCBs may revise their KYC policy in the light of the above instructions and ensure strict adherence to the same.

Yours faithfully,

(Suma Varma)

Principal Chief General Manager

RBI circular on provisioning pertaining to fraud accounts

RBI/2014-15/535
DBR.No.BP.BC.83/21.04.048/2014-15
April 1, 2015

All Scheduled Commercial Banks (Excluding Regional Rural Banks)

Dear Sir,

Provisioning pertaining to Fraud Accounts

Please refer to the guidelines compiled in paragraph 4.2.9 of Master Circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances dated July 1, 2014, in terms of which, in accounts where there are potential threats for recovery on account of erosion in the value of security or non­-availability of security and existence of other factors such as frauds committed by borrowers, the asset classification, and consequent provisioning, depends upon the realisable value of security.

2. On a review, it has been decided to prescribe a uniform provisioning norm in respect of all cases of fraud, as under:

   1. The entire amount due to the bank (irrespective of the quantum of security held against such assets), or for which the bank is liable (including in case of deposit accounts), is to be provided for over a period not exceeding four quarters commencing with the quarter in which the fraud has been detected;

  2. However, where there has been delay, beyond the prescribed period, in reporting the fraud to the Reserve Bank, the entire provisioning is required to be made at once. In addition, Reserve Bank of India may also initiate appropriate supervisory action where there has been a delay by the bank in reporting a fraud, or provisioning there against.

3. We reiterate that banks must scrupulously adhere to the guidelines contained in circular DBS.CO.CFMC.BC.No.1/23.04.001/2014-15 dated July 1, 2014 on ‘Frauds – Classification and Reporting’.

Yours faithfully,

(Sudarshan Sen)

Chief General Manager-in-Charge