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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

Five important rules about Cheques

The Reserve Bank of India recently implemented many new cheque rules to handle the rise in cheque related fraud cases. Some of them has been given below:

1) SMS alerts: The RBI asked banks to send an SMS alert to both payer and drawer when the cheque is received for clearing. Till now, SMS alerts were compulsory only for debit/credit card transactions. While dealing with suspicious or cheques of high value, banks have been asked to alert the customer by a phone call and obtain confirmation from both the parties involved in the transaction. The account holder’s bank branch must also be contacted.

2) Examination of cheques: Besides sending alerts, banks have been asked to examine cheques under UV lamp. This is applicable if the cheque amount goes over Rs 2 lakh. Also, a mechanism must be put in place to ensure multi-level checking of cheques for amount over Rs 5 lakh. Banks are also required to closely monitor how money is deposited or moved out from newly opened transaction accounts.

3) KYC compliance:  Whenever you open a new bank account, you are supposed to go through a process called Know Your Customer or KYC. It ensures that the bank verifies information about you, thus limiting fraud cases. So, the person writing the cheque will be compliant with KYC rules. The RBI now states that even the recipient should be KYC compliant.

4) CTS-2010 cheques: The use of 100% CTS-2010 compliant cheques should be ensured by the bank. As part of the Cheque Truncation System (CTS), an electronic image of the cheque is transmitted to the cheque-writer’s bank branch through the clearing house, along with other relevant information. It helps eliminate the need for physical movement of the cheque for verification. Thus the scope for fraud is reduced.

5) Cheque-handling infrastructure: RBI stated that high quality of equipment and personnel must be ensured for CTS-based clearing.

RBI to Banks: Alert customers in high value cheque payments

To clamp down on cheque-related fraud cases, the Reserve Bank of India (RBI) on Wednesday asked banks to alert account holders by a phone call and contact the base branch in case of non-home cheques before clearing high value payments.

The RBI also asked banks to send an SMS alert to payer/drawer when cheques are received for clearing and examine cheques under UV lamp for clearance beyond Rs 2 lakh.

The central bank further said multi-level checking should be done before clearing cheques above Rs 5 lakh.

“Banks may consider the following preventive measures for dealing with suspicious or large value cheques: Alerting the customer by a phone call and getting the confirmation from the payer/drawer and contacting base branch in case of non-home cheques,” RBI said in a communication to banks.

The RBI said directions have been issued in the wake of a rise in the number of cheque-related fraud cases. It said cases have been reported where even though original cheques were in the custody of account holders cheques in the same series were presented and encashed by fraudsters.

The RBI said banks may resort to given directions selectively, if not feasible to be implemented systematically.

It further asked banks to take appropriate precautionary measures to ensure that the confidential information are neither compromised nor misused either from the bank or from the vendors’ side.

“Due care and secure handling is also to be exercised in the movement of cheques from the time they are tendered over the counters or dropped in the collection boxes by customers.”

Besides, it also asked banks to ensure usage of CTS-2010 compliant cheques, strengthen infrastructure for cheque handling, KYC compliancy, close monitoring of credits and debits in newly opened accounts.

The central bank said such frauds could have been avoided had due diligence been observed at the time of handling or processing of the cheques.

“Banks are, therefore, advised to review and strengthen the controls in the cheque presenting/passing and account monitoring processes and to ensure that all procedural guidelines including preventive measures are followed meticulously by the dealing staff,” RBI said.

Source: Business Today