Banks' KYC Norms

Banking Fundas - KYC Norms -

KYC is an acronym for “Know your Customer”, a term used for customer identification process. It involves making reasonable efforts to determine true identity and beneficial ownership of accounts, source of funds, the nature of customer’s business. The objective of the KYC guidelines is to prevent banks being used, intentionally or unintentionally by criminal elements for money laundering.

KYC has two components - Identity and Address. While identity remains the same, the address may change and hence the banks are required to periodically update their records.

 Reserve Bank of India has issued guidelines to banks under Section 35A of the Banking Regulation Act, 1949 and Rule 7 of Prevention of Money-Laundering Rules, 2005. Any contravention thereof or non-compliance shall attract penalties under Banking Regulation Act.

Accounts of Individuals -
Legal name and any other names used
(i) Passport
(ii) PAN card
(iii) Voter's Identity Card
(iv) Driving licence
(v) Identity card (subject to the bank's satisfaction)
(vi) Letter from a recognized public authority or public servant verifying the identity and residence of the customer to the satisfaction of bank

- Correct permanent address
(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 the satisfaction of the bank will suffice)

For Companies/Firms
- Registration Certificate
- Telephone Bill

Important =>
A customer belonging to low income group who is not able to produce  documents to satisfy the bank about his identity and address, can open bank account with an introduction from another account holder who has been subjected to full KYC procedure provided that the balance in all his accounts taken together is not expected to exceed Rupees Fifty Thousand (Rs. 50,000/-) and the total credit in all the accounts taken together is not expected to exceed Rupees One Lakh (Rs. 1,00,000/-) in a year.

*** The information collected from the customer for the purpose of opening of account is treated as confidential and details thereof are not divulged for cross selling or any other similar purposes.

Basic Saving Bank Deposit Account (BSBDA)

Any individual, including poor or those from weaker section of the society, can open zero balance account in any bank.  All the accounts opened earlier as 'no-frills' account should be renamed as BSBDA. Banks are required to convert the existing 'no-frills' accounts’ into 'Basic Savings Bank Deposit Accounts'.

Salient Features of BSBDA Account -
1. An individual is eligible to have only one 'Basic Savings Bank Deposit Account' in one bank
2. Holders of 'Basic Savings Bank Deposit Account' will not be eligible for opening any other savings account in that bank. If a customer has any other existing savings account in that bank, he / she will be required to close it within 30 days from the date of opening a 'Basic Savings Bank Deposit Account'.
3. He can other deposit accounts such as Fixed Deposit in the same bank where he holds BSBDA account
4. BSBDA guidelines are applicable to "all scheduled commercial banks in India, including foreign banks having branches in India".
5. Banks should offer the ATM Debit Cards free of charge and no Annual fee should be levied on such Cards.
6. There will be no limit on number of deposits but it restricts no of withdrawls to 4 in a month including ATM withdrawl
7. BSBDA can also be opened with simplified KYC norms. However, if BSBDA is opened on the basis of Simplified KYC, the accounts would additionally be treated as “BSBDA-SMALL account”

BSBDA Small Account -

i. Total credits in such accounts should not exceed 1 lakh rupees in a year.
ii. Maximum balance in the account should not exceed 50,000 Rs at any time
iii. The total of debits by way of cash withdrawals and transfers will not exceed 10,000 rupees in a month
iv. Foreign remittances cannot be credited to Small Accounts without completing normal KYC formalities
v. Small accounts are valid for a period of 12 months initially which may be extended by another 12 months if the person provides proof of having applied for an Officially Valid Document.

Government (Postal/PPF) Saving Schemes

Shyamala Gopinath panel recommendations

 

In 2011, The Government has recently accepted the recommendations of former RBI deputy governor Shyamala Gopinath panel which would help investors earn higher interest on small savings schemes such as public provident fund and post office deposits. A government panel, set up to review the small investment schemes of post offices and banks, has recommended discontinuation of the popular Kisan Vikas Patra, among other changes.

The committee has also proposed a 0.5% raise in the interest rate for post office savings account to 4%, reduction in the maturity period of National Savings Certificates (NSCs) to five years from six, and raising the annual contribution limit in Public Provident Fund (PPF) toRs 1 lakh, from the current Rs 70,000. 

What is market-linked interest rate system for small savings scheme and other panel recommendations?

1. One of the most significant recommendations by the Shyamala Gopinath panel was making the returns of small saving schemes market-linked. This means that now from this financial year, the rates for small saving instruments will be benchmarked to those of government securities (G-secs) of similar maturity periods with a positive mark-up of 25 basis points (bps). 
2. However, for Senior Citizen's Savings Scheme (SCSS), the mark-up is 100 bps  
3. To address the need for a long-term investment instrument, it has recommended introduction of a 10-year NSC scheme. The Panel recommended 50 basis points spread for the recommended 10-year NSC, keeping in view of its higher illiquidity.
4. Interest on loans from PPF raised to 2% per annum from 1%
5. Commission on PPF (1%), Sr Citizens Savings Scheme (0.5%) discontinued   

Kisan Vikas Patra is popular. Why then it was discontinued?

Shyamala Gopinath panel had said in its report that continued popularity of both Kisan Vikas Patra (KVP) and NSC among the urban population who are not all small savers could be prompted by an incentive to avoid tax. The KVP is more popular as it is a bearer-like certificate due to its ease of transfer. It also has an in-built liquidity due to the regulated premature closure facility offered in the scheme. However, in view of the recent developments on Anti Money Laundering/CFT front, the committee recommends that KVP should be discontinued

Second Quarter Review of Monetary Policy

The Reserve Bank of India (RBI) has come out with its Second Quarter Monetary Policy review, wherein the policy stance of this meet is in line with the general consensus. 

• The RBI has increased the Repo Rate by 25bps to 7.75% accordingly, Reverse Repo Rate under the Liquidity Adjustment Facility (LAF) determined with a spread of 100 basis points below the repo rate, stands adjusted to 6.75%. 
• However, RBI has reduced the Marginal Standing Facility (MSF) by 25bps to 8.75%. With these changes, the MSF rate and the Bank Rate are recalibrated to 100bps above the repo rate, accordingly, Bank Rate stands adjusted to 8.75%. 
• Cash Reserve Ratio remained unchanged at 4%.
• Statutory Liquidity Ratio unchanged at 23%
• Liquidity available under term repos of 7-day and 14-day tenor increased from 0.25% to 0.50% of NDTL of banks.
• GDP growth forecast of 5.00% for 2013-14
• WPI Inflation likely to remain higher than current levels for rest of the year
• Retail Inflation (CPI) likely to remain around or above 9%
• Normalcy in exchange market will be restored when oil dollar demand is fully returned to market
• Launch Inflation Indexed National Saving Securities (IINSSs) for retail investors in November/December 2013 in consultation with the Government of India.
• Issue guidelines on 10-year Interest Rate Futures by mid-November 2013 and product to be launched by end-December 2013

• Considerations and Policy Stance
• Delay in QE tapering helped capital flows to resume. However, headwinds to growth from domestic factors constrains continue to pose downside risk.
• Pass-through effect of rupee depreciation and ongoing adjustments in administered fuel prices are likely to keep inflation at elevated levels, demanding adjustment in Repo Rates.
• Industrial activity has weakened with signs of downturn in both consumption and investment demand. Strengthening export growth and stalled project clearances by Cabinet Committee on Investment may buoy investment and overall activity towards the close of the year.
• Though the foreign exchange market have calmed with trade deficit and CAD improving on account of exports growth and contraction in non-oil import demand, normalcy will be restored only when dollars demand from public sector oil marketing companies is fully returned to the market
• Monetary policy measures are intended to curb mounting inflationary pressures and manage inflation expectations in a situation of weak growth

On-line Tax Accounting System (OLTAS)

OLTAS refers to On-line Tax Accounting System (OLTAS) for Direct Taxes (Income and Wealth Tax). The advisory Group on Tax Reforms under the Chairmanship of Dr. Vijay Kelkar had recommended networking of Income Tax Department, Banks and Reserve Bank of India to facilitate On-line Transmission of details regarding tax collection/refund, etc. between banks and offices of Income Tax Department and also RBI for settlement of funds.

To examine the various issues relating to implementation of the Kelkar Committee recommendations stated above, the RBI constituted a High Power Committee in February 2003, under the Chairmanship of Shri B. Swarup, Member (Inv.), Central Board of Direct Taxes (CBDT) to recommend suitable measures in this regard. Chairman, IBA was a Member of this Committee.

OLTAS was introduced in April, 2004 for collection, accounting and reporting of the receipts and payments of Direct Taxes on-line through a network of bank branches. The tax payers' data flow from banks directly to Tax Information Network (TIN) maintained by National Securities Depository Ltd. (NSDL)

The authorised bank branches accept Direct Taxes by cash or cheque/demand draft drawn on the same branch or on other banks/branches with Single Challan. The bank immediately returns the tear off portion of the challan duly stamped with a unique Challan Identification Number (CIN) when the payment is made in cash. In the case of challans presented with cheque/demand draft drawn on other banks/branches, tear-off portion of the challan will be released to the tax-payer only after the realisation of the cheque/demand draft but tax shall be deemed to have been paid on the date of tender.

Base Rate

Base Rate is the minimum lending rate that banks charge their customers from July 1, 2010 after a directive by RBI. Prior to this all lending rates were pegged to a Bank's Prime Lending Rate or PLR. The base rate was designed to replace the flawed benchmark prime lending rate (BPLR). The bulk of wholesale credit (loans to corporate customers) was contracted at sub-BPL rates and it comprised nearly 70% of all bank credit. Under this system, banks were subsidising corporate loans by charging high interest rates from retail and small and medium enterprise customers.

The introduction of the Base Rate aims at bringing the transparency in the lending market. Base Rate has also become the new floor rate below which no bank can lend. Under the new rule, banks were free to use any method to calculate their base rates (the RBI did provide an 'illustrative' formula), provided the RBI found it consistent. Banks were also directed to announce their base rates on their Websites, in keeping with the objective of making lending rates more transparent.

As per RBI guidelines (as in July 2012), the following categories of loans could be priced without reference to Base Rate :-
(a) DRI Advances;
(b) Loans to banks' own employees including retired employees;
(c) Loans to banks' depositors against their own deposits

Diffrence between Commercial Paper and Certificate of Deposit

Important Banking Question -

Commercial Papers
The Commercial papers (CP) are money market instrument and are just "Unsecured" Promissory" Notes. As these papers are Unsecured and not backed by any collateral security, highest credit rated firms or companies with people's trust are able to sell their CPs at reasonable price. The maturity of the CP is from 7 days to 1 year. Usually the CP is sold at a discount value and redeemed at face value. For example, if Akash buys a CP with face value at ` 100 at the discount value of ` 98, when he redeems the CP on its maturity.

Commercial Deposit (CD)
There is not much of a difference between a Commercial Paper (CP) and Certificate of Deposits (CD) except the CD is issued by the Commercial banks and Finance Institutions. Using the CDs banks are able to mobilize the bulk financial resources.