Legal and Regulatory Aspects
ICAI Indore
Dt.24.01.2014
Contents
 Banking Law & Practice
 Banking Regulation Act
 Banking Laws (Amendment) Act, 2012
 Types of charges over securities ( Transfer of Property Act,
Indian Contract Act, SARFAESI)
 Credit Information Companies (Regulation) Act, 2005
 Negotiable Instruments Act
 Anti Money Laundering & Know Your Customer
- Key Aspects and elements of AML KYC
Banking Law and Practice


Several enactments
-
Banking Regulation Act, 1949
-
Reserve Bank of India Act, 1934
-
Banking Companies (Acquisition and Transfer of Undertakings) Act,1970 & 1980
-
SBI Act, 1955 & SBI (Subsidiary Banks) Act, 1959
-
RRB Act, 1976
-
Companies Act, 1956
-
Negotiable Instruments Act, 1881
-
Prevention of Money Laundering Act, 2002
-
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
-
Credit Information Companies Act
-
Recovery of Debts due to Banks
-
Transfer of Property Act
Regulations
Banking Regulation Act, 1949
Banking Regulation Act, 1949

Definition of banking & banking company

Licensing

Permitted business

Prohibited business

RBI’s powers

Control over management
Definitions

Banking means
“ accepting, for the purpose of lending or investment, of deposits of money from the
public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or
otherwise”
{Section 5(b)}

Banking company
“means any company which transacts the business of banking in India”
-
Explanation excludes manufacturing and trading company
{Section 5 (c)}

Use of the word “bank”, ”banker”, “banking” or “banking company” - Section 7
Permitted business

Can carry on business permitted u/s 6
-

Borrowing, lending, bill discounting, etc.
•
Buying, selling and dealing in bullion
•
Buying and selling of foreign exchange
•
Traveller’s cheques
•
Letters of credit
•
Underwriting and dealing in shares, debentures, etc.
•
Safe deposit
•
Collecting and transmitting of money and securities
•
Undertaking/ executing trusts
-
Activities that are incidental/ conducive to the promotion/ advancement of its business
-
Central Govt. empowered to notify permitted business
Act overrides memorandum, articles, etc.
Prohibited business

Trading prohibited vide Sec 6

Non-banking assets – Sec 9
-
Immoveable property can only be held for own use
-
Other – disposed within 7 years
•

RBI can give additional 5 year extension
Restriction on nature of subsidiary companies – Sec 19
-
Permitted business u/s 6
-
Carrying on banking outside India
-
Credit information business
-
Other business with RBI and CG approval
Licensing
 RBI empowered to issue & cancel licences
- Section 22 criteria
•
Solvency
•
Affairs/ management not detrimental to depositor and public interest
•
Adequate capital structure and capital prospects
•
Public interest will be served
•
Grant of licence not prejudicial to operation and consolidation of banking system
•
Foreign banks – home country does not discriminate against Indian banks
•
Other conditions specified by RBI
- New bank licencing requirements
 Branch licencing u/s 23
Returns


Section 24
-
Monthly return of assets in India
-
DTL on reporting Friday
Section 25
-
Quarterly return of assets and liabilities at the close of business on the last Friday of every
quarter


Section 27
-
Monthly return on Asset & Liability position as on last Friday
-
RBI empowered to direct banks to furnish information within a specified time frame
-
RRBs also need to submit a copy to NABARD
Section 26
-

Return of unclaimed deposits
Section 31
-
Three copies of annual returns to be submitted to RBI
Inspection
 Section 35
- Inspect books
• Also on direction of CG
• Copy of report to be given to bank
• Empowers RBI Inspecting officer to examine bank officials under
oath
- Also empowers RBI to carry out a scrutiny
Powers of RBI
 Sec 35A – Power to give directions
 Sec 35B – Prior RBI approval required for
appointment of Chairman, MD, CEO or director
 Sec 36 – Further powers and functions of RBI
- Caution/ give advice regarding certain transaction/ class
of transactions
- Call for meeting of directors, depute its officer to board
meeting, appoint observer, etc
- Report on Trend and Progress in Banking in the country
Powers of RBI – Control over
management
 Sec 36AA – Power to remove managerial and
other persons from office
- Appeal lies with Central Government
 Sec 35B – Power to appoint additional directors
Other important provisions
 Sec 14 – Prohibition of charge on unpaid capital
 Sec 15 – Prohibition on payment of dividend
unless intangible assets written off
 Sec 17 – Creation of reserve fund
 Sec 18 – Maintenance of cash reserve ratio
 Sec 20 – Restrictions on loans and advances
 Sec 24 – SLR
Applicability of BR Act



Nationalised Banks
-
Banking Companies (Acquisition and Transfer of Undertakings) Act,1970/1980;
-
Section 51 of BR Act makes specific sections applicable
Regional Rural Banks
-
Regional Rural Banks Act, 1976
-
Section 51 of the BR Act
Cooperative Banks
-
Cooperative Societies Act. 1912 or the respective Co-operative Socieities Act of the
state concerned
-
Part V of the B R Act – BR (AACS) Act
Some important RBI instructions in
context of BR Act
 Master Circular
- Loans & Advances – Statutory and other restrictions
- Branch authorisation
- Cash Reserve Ratio and Statutory Reserve Ratio
 Others
- Restriction on drawdown of reserves
- Guidelines on declaration of dividend
Banking Laws (Amendment) Act

Passed by Parliament in Dec 2012

Some highlights
-
Voting rights
•
26% from existing 10% in private sector banks
•
10% from existing 1% in public sector banks
-
Prior approval for voting rights/ shareholding more than 5%
-
Power to RBI to supersede entire board of banks
-
Power to call for information from associate and group companies
-
Depositor Education and Awareness Fund
-
Primary cooperative societies to be licenced by RBI
-
Preference shares
-
Naionalised banks can issue bonus shares
-
Joint inspections of associates with sectoral regulator
Laws relating to securities and
modes of charging
Transfer of Property Act, 1882
Indian Contract Act, 1872
SARFAESI
Overview of charges
 Creation of a right in favour of the creditors
Nature of security
Types of security
Kind of Charge
Defined in Act
Immoveable property
Land and building
Mortgaage
Sec 58, Transfer of Property Act
Actionable claims (i.e.
unsecured debts)
Book debts, term deposit
receipts, etc.
Assignment
Sec 130, Transfer of Property
Act
Moveable property/
goods
Plant & machinery, stocks,
vehicles, etc.
Pledge/
hypothecation/ lien
Pledge-Sec 172 Indian Contract
Act
Hypothecation – Sec 2(n)
SARFAESI
Paper securities
Shares, debentures, MF, bonds
Lien
Sec 170 and 171Indian Contract
Act
Personal guarantee
Promoters & 3rd party
guarantees
Personal liability
Sec 126 Indian Contract Act
Kinds of charges – Fixed v/s Floating
 Fixed charge
-
created on properties such as land and buildings, plant and machinery
- Identity does not change
- Credit consent required for disposal
- Debtor retains ownership and possession
 Floating charge
- Created on assets that undergo change
- Security allowed to be used in ordinary course of business unless charge
crystallises
Kinds of charges



Pari Passu charge
-
Several creditors- typically in consortium accounts
-
Equal priority
Exclusive charge
-
To one creditor
-
No intervention of other creditors
First charge
-

First right over the proceeds from the security charged
Second charge
-
Rights subject to those of first charge holder
Mortgage

Dealt with in Transfer of Property Act, 1882
-
“A mortgage is the transfer of interest in specific immoveable property, for the
purpose of securing the payment of money advanced or to be advanced by
way of loan, on existing or future debt or the performance of an engagement which
may give rise to pecuniary liability”- Section 58

Types
-
Simple
-
Conditional sale
-
Unsufructuary mortgage
-
English mortgage
-
Equitable Mortgage
-
Anomoalous morgage
Simple Mortgage
“Without delivering possession of the mortgaged property, the mortgager binds himself
personally to pay the mortgage money and agrees, expressly or impliedly, that in the
event of his failing to pay according to his contract, the mortgagee shall have a right to
cause the mortgaged property to be sold by a decree of the court in a suit and the
proceeds of the sale to be applied so far as may be necessary in payment of the
mortgage money” [Sec 58(b)]
 Intervention of court required
 Mortgagee has no right to get any payments out of the
rents and produce of the mortgaged property
 Mortgagee not put in possession of the property
 Registration is mandatory
Conditional Sale
“The mortgager ostensibly sells the mortgaged property on the condition that:
(a) on default of payment of the mortgage money on a certain date, the sale
shall become absolute, or
(b) on such payment being made the sale shall become void, or
(c) On such payment being made, the buyer shall transfer the property to the
seller” [Sec 58(c)]
 Sale is ostensible – not real
 If money not paid ostensible sale shall become
absolute – Court decree required
 No personal liability for repayment of the loan
Unsufructuary mortgage
“mortgage transaction in which
(a)
the mortgager delivers possession expressly, or by implication binds himself to deliver possession
of the mortgaged property to the mortgagee, and
(b)
Authorises the mortgagee to retain such possession until payment of the mortgage money and to
receive the rents and profits accruing from the property or any part of such rents and profits and to
appropriate the same in lieu of interest, or in payment of the mortgage money, or partly in lieu of
interest and partly in payment of the mortgage money” [Sec 58(d)]
 Mortgagee in actual legal possession of the property, till dues are repaid
 Mortgage has the right to receive rents and profits accruing from the
property
 No personal liability of the mortgager
 No time limit specified
English mortgage
“mortgagee binds himself to repay the mortgaged property absolutely to the
mortgagee, but subject to the provision that he will retransfer it to the
mortgagee upon payment of the mortgage money as agreed” [Sec 58(e)]
 Personal covenant to pay on a specified date
notwithstanding the absolute transfer of property to
the mortgagee
 Absolute transfer
- Subject to reconveyance in event of repayment
 Court decree for sale
Equitable mortgage
“where a person delivers to a creditor or his agent documents of title to
immoveable property, with the intent to create a security thereon, the
transaction is called a mortgage by deposit of title deeds” [Sec 58(f)]
 Deposit of title deed with intention to secure debt
- Original deed not required but recommended
- Saves on stamp duty
 Deposit at notified places only
- Independent of location of the property
Anomalous mortgage
“a mortgage which is not a simple mortgage, a mortgage by conditional
sale and Unsufructuary mortgage and English mortgage or a mortgage by
deposit of title deeds within the meaning of this section” [Sec 58(g)]
 Should satisfy the basic definition of mortgage
 Should not fall in the earlier categories
 Usually a combination of two mortgages
Mortgages- Other key aspects
 Registration requirements
- Registration required for mortgages other than equitable mortgage – Sec
59
- Indian Registration Act- Sec 23 - required within 4 months of execution
- Companies Act, 1956-Sec 125- within 30 days of execution
 Priority of mortgages
- First in point of time has better title – Sec 48
- Amongst registered instruments- date of execution
- Registered has priority over unregistered
•
Exception is deposit of title deeds
Mortgages-Other key aspects
 Enforcement
- Code of Civil procedure
- Jurisdiction based on location of property
- Preliminary decree
- Final decree
- Sale
Which Mortgage would you prefer?
Mortgage
Personal Liability
Possession
Simple Mortgage


Conditional Sale


Unsufructuary Mortgage


English Mortgage



(Court decisions)

(Deposit of title deeds)
Equitable Mortgage
Assignment
 Transfer of actionable claim
- Claim to debt other than debt
• secured by mortgage of immoveable property
• Hypothecation/ pledge of moveable property not in possession
 Key features
- Should be in writing
- Due notice to be given to the debtor
- Assignor cannot give better title
- Eg LIC policies used as security
Pledge
“Pledge is the bailment (delivery) of goods as security for payment of a debt or performance of a
promise” (u/s 172 of Indian Contracts Act)

Key aspects
-
Delivery of goods
•
Need not be physical delivery
•
May be constructive delivery – eg handing over keys of godown
•
Can only be on existing goods- not on future goods
-
Pawnor – borrower who gives the goods as security
-
Pawnee- lender who takes the goods as security
-
Ownership retained with pawnor
-
Possession with pawnee
•
Possession may be parted with against Trust Receipt
•
Right to retain or sell goods where pawnor makes default in payment
•
Notice to sell required to be given
•
Right of pledge prevails over any other dues including Government dues except workers wages
Hypothecation



Defined in SARFAESI, 2002 (Sec 2(n))
-
Charge upon moveable property
-
Existing/ future
-
Without delivery – possession with borrower
Drawbacks
-
Risk of fraud- multiple charges on same property
-
Erosion of security value
Precautions
-
Periodic stock statements
-
Registration of charge
-
Notice of charge
-
Insurance of property
Lien
 General Lien
- Creditor’s right to retain property of debtor
- Possession in ordinary course of business
- Limited to possession of property – not to sell
 Banker’s lien
- General lien+ right to sell
- Applicable to negotiable instruments and credit balances
- Not applicable to safe deposit, for sale
Other aspects relating to Contracts
 Proposal and acceptance
 Consideration
- Exemption

Free consent
 Capacity to contract
- Sound mind
- Not disqualified from entering into a contract
- Minor contract
Stamping of documents



Stamp duty – tax levied on documents
-
Originated in Netherlands – 1624
-
France (1654), Denmark (1657), Prussia (1682)
Key aspects
-
Amount of duty
-
Type of stamp used
-
Cancellation of stamp
-
Time of stamping and execution
-
Place of stamping and execution
Consequences
-
Admissibility as evidence
-
Adjudication
Law of limitation
 Period within which suit can be filed
- Bars to remedies
- Original right may continue to be exercisable
 Right of action revived by
- Fresh set of documents
- Acknowledgement of debt
• Writing, signed, stamped and addressed to lender
- Part payment authorised by the borrower
Power of Attorney
 Types
- General v/s special
 Registration of power of attorney
 Precautions
- Scope of powers
- Agent acting within the scope of powers
- Confirmation of validity
SARFAESI Act, 2002
 Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act,
2002
- Coverage
- Securitisation and reconstruction of financial assets
- Enforcement of security interest without court
intervention
- Central Registry
SARFAESI - Coverage

Effective since June 21, 2002
-
Retrospective coverage
-
Applicable to whole of India including J&K
-
Also covers notified Housing Finance Companies
-
Sec 31
-
•
Lien and pledge
•
Aircrafts, shipping vessels
•
Conditional sale, hire purchase, contract where no security interest created
•
Financial asset<=Rs.1 lakh
•
Agricultural land
•
Amount due<20% of the Principal +Interest
Mardia Chemicals case – Supreme Court
•
Sec 17(2) – unconstitutional- arbitrary, oppressive and unreasonable
•
Subsequent amendment
SARFAESI – Securitisation/
Reconstruction Companies
 Registration with RBI
- Guidelines issued by DNBS
- Minimum owned fund of Rs100 crore/ 15% of financial assets
to be acquired – whichever is lower
 Acquisition of financial assets
- Scheme wise
- Funded by investors – QIBs
- Issuance of Security Receipts
- Managed by trust
SARFAESI – Enforcement of security
interest

No need for court intervention
-
Overriding effect over provisions of Transfer of property Act
-
Notice mandatory
-
-

•
60 days notice
•
Details of amount payable and secured asset intended to be enforced
•
Borrower prohibited from transferring assets
SC Guidelines in Mardia case
•
Borrower can raise objections
•
Bank to apply mind while answering objections
•
Response to borrower within one week
•
Rejection of objections cannot be appealed to DRT
Can appeal to DRT – deposit of 50% of the amount due
Can seek help of District Magistrate/ Chief Metropolitan Magistrate
SARFAESI – Enforcement of security
interest

Recourse available to lender
-
Possession of secured asset
-
Management of secured asset
-
Appoint person as manager of secured assets
-
Require from any person who has acquired the secured asset from the borrower to
pay the amount due to the extent of the secured asset


Appropriation of proceeds
-
Expenses->Dues->Balance to debtor
-
If winding up – dues of workman have pari passu charge
Consortium accounts – multiple secured creditors
-

Creditors representing ¾ of outstanding dues have to agree
Recent amendment- bank may purchase at auction [13(5A)]
SARFAESI – Enforcement of security
interest

Safeguards
-
Inventory of property taken into possession
-
Take care of property as owner of ordinary prudence – insure if necessary
-
Expedite sale if subject to speedy decay
-
Possession notice
-
-
•
affixation at outer door/ conspicuous place
•
Publication in 2 leading newspapers including one vernacular
Auction
•
30 days notice – publication in 2 leading newspapers incl. vernacular
•
Valuation to fix reserve price
Appeal to DRT - Compensation
•
Within 45 days of measures being initiated
•
50% to be deposited- DRT may reduce to 25%
SARFAESI - CERSAI
 Sec 25 Company promoted by Government & PSU banks
 Maintains registry of
- Securitisation of financial assets
- Reconstruction of financial assets
- Creation of security interests
 Registration additional – not substitute for existing requirements
 Records available for search
 Minimisation of frauds due to multiple borrowing on same
security
Recovery of Debts due to Banks and
Financial Institutions Act, 1993
 Coverage
- Applicable to whole of India except J&K
- Debt > Rs. 10.00 lakhs
 Constituted Debt Recovery Tribunals for speedy recovery
- Established by Central Government
- Single member – Presiding Officer
- Appeal against DRT order lies with DRAT
• Chairperson
- Jurisdiction of civil courts (other than HC/SC) barred
Credit Information Companies
(Regulation) Act, 2005
Credit Information
Companies(Regulation) Act, 2005

Objective- regulation of credit information companies

Registration
-
Compulsory registration with RBI
•
-
Existing companies to apply within 6 months
Conditions
•
Minimum capital – Rs. 30 crore (authorised), Rs.20 crore(issued)
•
Management not prejudicial to interests of users, clients or borrowers, credit information companies
•
Additional conditions at discretion of RBI
-
RBI may determine cap on maximum number of credit information companies
-
RBI may cancel registration
-
Appeal lies with Central Government
RBI Powers
 Registration and cancellation
 Frame policy and regulations
 Give directions
 Inspection
 Appoint observers
 Supersede board – appoint administrator
 Specify maximum fee
 Recommend exemption and rules
Management of Credit Information
Companies
 Management
- Chairman (whole time)/ Managing Director
- 50% of board with specialised knowledge
• Public administration, law, banking, management, finance,
accountancy and information technology
- RBI empowered to supersede board – appoint
Administrator
Functions



Permitted businesses
-
Collect information on trade, credit and standing of borrowers of member credit institutions
-
Provide
•
Information to specific users, credit institutions
•
Credit scoring
-
Research projects
-
Other business specified by RBI
Membership
-
Credit institutions to become members
-
Compulsory to be member of at least one
-
Bound to give information
Disclosure of credit information restricted
Information Privacy Principles
 Accuracy and secrecy of credit information
 Alteration of credit information
- Credit information to be supplied by credit institutions
- Borrower may request updation
 Fine for unauthorised access
Credit Information Companies
Regulations, 2006

Specified users
-
Member credit institutions (specified in Act itself)
•
Banks, Financial Institutions, NBFCs, credit card companies, housing finance company, state financial corporation
-
Insurance companies
-
Cellular phone service providers
-
Rating agency
-
Broker
-
Trading member of recognised commodity exchange
-
SEBI
-
IRDA

Forms of business

Privacy principles

Maximum fee and charges
-
Membership - Rs.15.00 lakh
-
Providing credit information report- Rs.500 for individuals, Rs. 5,000 for other borrowers/ specified users
Principles
1.
Care in collection of credit information
2.
Data security and secrecy
3.
Access and modification
4.
Data collection limitation
5.
Data use limitation
6.
Data accuracy
7.
Archiving and length of preservation
Credit Information Companies
 Credit Information Bureau (India) Ltd,
 Equifax Credit Information Services Pvt. Ltd
 Experian Credit Information Co. of India Pvt. Ltd,
 Highmark Credit Information Services Pvt. Ltd.
Reporting of wilful defaulters
 Wilful default
- Default in meeting obligations
•
Despite capacity to repay
•
Diversion of funds
•
Siphoning of funds
•
Sale of assets
 Diversion
- Short term loans used for long term purposes
- Purchasing assets other than those for which the loan was sanctioned
- Transferring to subsidiaries group companies
- Investments of funds in equity/ debti without lender’s permission
- Shortfall in deployment vis-à-vis disbursal
Reporting of wilful defaulters
 Penalties
- No additional facilities
- Legal process
- Proactive towards change of management
- Covenant- prohibiting directors from wilful defaulters
 Quarterly reporting
- Suit filed
- Rs. 25 lakh and above
 Monitoring end use
Negotiable Instruments Act, 1881
Negotiable Instruments Act, 1881
 Brought in to
- Encourage use of negotiable instruments
- Improve credibility of negotiable instruments
 Important aspects
- Definitions
- Negotiation v/s transfer by assignment
- Presumption of consideration
- Endorsement
- Payment in due course
- Holder in due course
Definitions – Negotiable Instrument
 What is a negotiable instrument (Sec 13)
- Promissory note (Sec 4)
•
Unconditional signed undertaking to pay a certain sum of money
- Bill of exchange (Sec 5)
•
Unconditional signed order by maker
•
Directing a certain person to pay a certain sum of money
•
To a certain person/ bearer
- Cheque (Sec 6)
•
Bill of exchange
•
Drawn on banker
•
Payable on demand
•
Includes image of cheque
NB. All are to be in writing
Definitions - Holder
 Holder (Sec 8)
- Person entitled in his own name to possession
- Entitled to receive/ recover amount due
 Holder in due course (Sec 9)
- On consideration becomes
• Possessor – bearer instruments
• Endorsee/Payee – order instruments
- No cause to believe that title defective
Cheques
 Cheques
- Crossing – Special vs general
- Order v/s Bearer
- Protection to
• Paying banker for payment in due course – Sec 128
• Collecting banker for receiving payment for customer in
good faith & without negligence – Sec 131
• Cheques payable to order subsequently endorsed - Sec 85
So what is the difference?
Crossing of Cheques
 General Crossing (Sec 123)
- Two parallel transverse lines
- Payment only through banker (Sec 126)
 Special Crossing (Sec 124)
- Name of the banker also mentioned
- Payment only through banker whose name is mentioned (Sec 126)
 Liability to true owner continues if not paid through a bank (Sec 129)
Protection to paying and collecting
bankers
 Protection to paying banker
- Sec 128 – protection for payment in due course
• Same rights and same position if the cheque had been paid to
and received by the true owner thereof
 Protection to collecting banker
• Sec 131
• Good faith and without negligence
• No liability if title proves defective
Payment in due course
 Payment in accordance with
- Apparent tenor of the instrument
- Good faith
- Without negligence
- No reasonable ground for believing that possessor
of NI not entitled for to receive payment
Order and Bearer Cheques
 Order
- Drawn payable to order
- If endorsed by/behalf of payee, drawee discharged by payment in due
course
 Bearer
- Expressed payable to bearer
- Discharge by payment to bearer
•
Irrespective of subsequent endorsements
- Endorsement in blank –
•
payable to bearer even if originally payable to order
Account Payee
 Not provided in the NI Act
 Developed as practice
 RBI instructions
- January 23, 2006
- Limited exemptions to cooperative societies
- Demand drafts over Rs.20,000 (AML aspect)
Anti Money Laundering
Know Your Customer
AML & KYC
 Background
- June 1998 – UN call on member states to adopt
national money laundering legislation
- Prevention of Money Laundering Act, 2002
 Objective
• Prevent banks from being used by criminals for money
laundering and terrorist activities
Key aspects

Customer
-
Account holder/ business relationship
-
Beneficial owner
-
Any person connected to the transaction which can cause significant reputational/
other risks to the bank/FI

General guidelines
-
Confidentiality of customer information
-
Remittances over Rs.50,000 – only by debit to customer’s account/ cheque
-
Tenor of instrument reduced to 3 months
-
Adherence to provisions of Foreign Contribution (Regulation) Act, 2010
Elements of KYC Policy
 Customer Acceptance Policy
 Customer Identification Procedures
 Monitoring of Transactions
 Risk Management
Customer Acceptance Policy
 No accounts in fictitious/ benami names
 Parameters for categorising customers based on risk perception
 Documentation to be collected
 Not to open/ close accounts where due diligence not possible
 Circumstances where agency/ fiduciary capacity allowed
 Background checks
 Product wise/ geography wise controls
 Profile of each customer
Examples of customers requiring
higher due diligence
 Non Resident customers
 High Net Worth individuals
 Politically exposed persons & their relatives
 Companies having close family shareholding/firms
with sleeping partners
 Non face to face customers
 Trusts, charities, NGOs, etc receiving donations
- Exemption for NGOs promoted by UN
Customer Identification Procedure



Policy should be specified for various stages
-
Initiating the relationship
-
Carrying out a financial transaction
-
Doubts about veracity of data
Natural persons
-
Identity of customer
-
Address
-
Photograph
Legal persons/ entities
-
Legal status
-
Authorised persons
-
Ownership and control structure

Unique Customer Identification Code (UCIC)

Avoid undue hardship to customers
Customer identification requirements –
Indicative Guidelines
 Walk in customers
 Salaried employees
 Trustee accounts
 Companies and firms
 Accounts managed by professional intermediaries
 Politically exposed persons
 Non face-to-face customers
 Proprietary concerns
Simplified KYC
 Targeted at low income groups - urban and rural poor
 Limits
- Balance not to exceed Rs.50,000
- Total credits not to exceed Rs.1,00,000
 Simplified KYC procedure
- Introduction from another account holder with full KYC
- Other documents that satisfy the bank about the identity
Money Mules
 Third parties act on behalf of criminals
 Recruited through
- Spam emails
- Advertisements on genuine websites/ newspapers
- Social networking sites
 Banks advised to strictly adhere to guidelines on KYC/AML
Monitoring of transactions
 Understanding of normal and reasonable pattern of
activity
 Monitoring dependent upon the risk classification of
the account
 Special attention to large and complex transactions
 Threshold limits
 Cash transactions
Risk Management
 Board to ensure effective KYC,AML system in
place
 Role of audit and compliance mechanisms
 Quarterly review before Board
 Cash Transaction Report
 Suspicious Transaction Report
 Screening & training of employees
Thank you