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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

Type of Cheques that Can Be Presented In the CTS

 All the local cheques can be presented in the CTS. Banks may also present cheques on banks situated outside the NCR, but such banks have branches in the NCR region. The CTS also supports the intercity clearing and specialized clearing like high value clearing etc. The on-us instruments where both presenting and drawee banks are same are not allowed in the CTS. Images of such instruments would be stopped at the Clearing House Interface itself.

Benefit of Cheque Truncation to Customers of Banks

The cheques presented by customers, today, are sent to the clearing house at the drawee centres by the beneficiaries bank. The cheques at the bigger cities, in view of the large volume of paper instruments, are subjected encoding and then to mechanical sorting and thereafter reach the drawee branches. As per the existing banking practice, these instruments received at the counters of the drawee branches are paid or returned by them. The returned instruments are passed on to the presenting customers through the process of a return clearing. Only after the return clearing process gets over, banks release the credit to the customers. The beneficiaries account gets credited on the same day on which the drawees account gets debited; however, the beneficiary is permitted to use the proceeds only after the return clearing process. With the introduction of the imaging and truncation, the physical movement of instruments would be stopped and the electronic movement of images of cheques would speed up the process of settlements and ultimately alter the clearing cycles. The clearing cycle could be shortened and it would be possible for customers to realize the proceeds of cheques early. Thus cheque truncation would reduce effectively the time of float, i.e. time from the point of issue of cheque to the point of time the actual debit takes place. In case such clearing is introduced across the cities, it would ensure the realisation of inter-city instruments faster thus ensuring early availability of funds to beneficiaries. Thus the benefits could be summarized as:

a) Faster clearing cycle;

b) Better reconciliation/verification process

c) Better Customer Service and Enhanced Customer Window

d) T+0 for Local Clearing and T + 1 for inter-city clearing.

e) Elimination of Float and Incentive to shift to Credit Push payments.

f) The jurisdiction of Clearing House can be extended to the entire country and No Geographical   Dependence

g) Operational Efficiency will benefit the bottom lines of banks and Local Clearing activity is a high cost no revenue activity.

h) Minimises Transaction Costs.

i) Reduces operational risk by securing the transmission route.