Agenda No

INDEXParagraphParticularsPage No.

Chapter -1 Introduction

1.1Definition of Customer7

1.2Definition of Transactions7

1.3General Guidelines8

1.4Some Important Guidelines8

a) Customer identification procedure& KYC updation8

b) Verification of genuineness of PAN9

c) KYC for sale of Third Party product9

d) Risk Categorization of accounts9

e) Monitoring & Reporting of Transactions9

f) Issuing of DD/BC for Rs.50,000 and above10

g) Structuring of transactions with value just below threshold limits10

h) Transactions through NRE/NRO Accounts10

i) Acceptance of cash deposits10

j) Management Overview & Compliance Culture10

k) Internal Audit & Concurrent Audits10

1.5KYC Policy11

Chapter - 2 Customer Acceptance Policy

2.1Customer Acceptance Policy12

2.2Customer Profile13

2.3Risk Cartegorisation13

(i) Level-I (Low Risk) Customers13

(ii) Level-I (Medium Risk) Customers15

(iii) Level-I (High Risk) Customers15

2.4Guidelines16

Chapter - 3 Customer Identification Procedure

3.1Procedure to be adopted in Customer identification17

a) Introduction to customer identification procedure17

b) Seeking mandatory information17

c) Customer identification requirements17

d) Beneficial Owners18

e) Unique Customer Identification Code (UCIC)19

f) Customer Due Diligence (CDD) in case of suspicious transactions19

g) KYC of close relatives viz. wife, son, daughter & parents19

ParagraphParticularsPage No.

h) Shifting of bank accounts to another centre Proof of address20

i) Periodical updation of customer identification data20

j) Officially valid document for Proof of Identity22

3.2Customer Identification Requirements Indicative Guidelines22

A. Customer Identification Procedure to be followed for opening of new account22

B. Account Opening Form22

C. Obtaining PAN/GIR or alternatively Form 60 / Form 6122

D. Other Requirements24

E. Photograph25

F. KYC Verification for Self-Help Group (SHG)26

G. Introduction Identification through Introductory Reference26

H. Independent Confirmation of the Address of New Account Holder27

I. Simplification of Know Your Customer (KYC) Procedures for Low Income Group in Urban and Rural Areas27

3.3Customer Identification Requirements in respect of a few typical cases, especially, legal persons28

i) Walk-in Customer28

ii) Salaried Employees28

iii) Trust/Nominee of Fiduciary Accounts28

iv) Accounts of companies and firms29

v) Client accounts opened by professional intermediaries29

vi) Accounts of Politically Exposed Persons (PEPs) resident outside India30

vii) Accounts of non-face-to-face customers30

viii) Accounts of proprietary concerns 30

ix) Procedure to be followed in respect of foreign students31

3.4Correspondent Banking and Shell Bank32

A. Correspondent Bank32

B. Correspondent relationship with a Shell Bank32

C. Due Diligence in Correspondent banking Relationship33

3.5Simplified KYC norms for Foreign Portfolio Investors (FPIs)33

3.6Operation of bank account and Money Mules34

3.7Bank no longer knows the true identity34

3.8Small Account35

A. Small accounts35

B. Officially Valid Documents36

3.9Comprehensive Financial Inclusion38

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Chapter - 4 Monitoring of Transactions

4.1Monitoring of New Accounts39

4.2Operations in New Account39

4.3Monitoring Transactions of Suspicious Nature40

A. Transaction monitoring(Alert generation through AML software)41

B. Offline Transaction Monitoring42

C. Ceiling and Monitoring of Cash Transactions / Issuance of Travellers Cheques / Demand Drafts / Mail Transfers / Telegraphic Transfers43

D. White-listing of Accounts for AML System43

4.4Screening of Cash Withdrawals and Deposits for the Purpose of CTR44

4.5Maintenance of Customers Profile (Risk Profile)44

4.6Terrorist Finance45

4.7Freezing of Assets under Section 51A of Unlawful Activities (Prevention) Act,196746

4.8Adherence to Foreign Contribution Regulation Act (FCRA,1976)50

4.9Anti-money Laundering Focus50

4.10Wire Transfer51

(A) Cross-border Wire Transfer52

(B) Domestic Wire Transfer52

4.11Closure of accounts53

4.12Preservation and Reporting of Customer Account information53

1. Maintenance of Records of Transactions53

2. Information to be preserved55

3. Maintenance and Preservation of records55

4. Reporting to Financial Intelligence Unit of India (FIU- IND)56

a) Cash Transaction Report (CTR)57

b) Counterfeit Currency Report (CCR)58

c) Suspicious Transaction Report (STR)58

d) Non-Profit Organisation Transaction Report (NTR)60

e) Cross-border Wire Transfer Report (CWTR)60

5. Procedures to be followed for submission of the reports61

4.13Roles and Responsibilities of Bank Officers/Employees62

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Chapter - 5 Risk Management

5.1Duties / Responsibilities of Staff / Officers63

a) Staff/Officer/Branch Manager vested with authority to open new accounts63

b) Branch Manager63

c) Zonal Office/FGM Office/Head Office63

d) Nodal Officers64

e) Concurrent auditors wherever posted64

f) Inspecting Officer of the Bank64

5.2Management of Customer Risk Profile64

5.3Evaluation of KYC Guidelines by Internal Audit and Inspection System65

5.4Training to Staff Members65

5.5Retention of Records65

5.6Customer Education65

5.7Introduction of New Technologies Credit Cards / Debit Cards / Smart Cards etc.65

5.8KYC for the Existing Accounts66

5.9Applicability to Branches and Subsidiaries Outside India66

5.10Designated Director66

5.11Principal Officer67

5.12Penalty for Non-Adherence of KYC Norms67

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Appendix -IIndicative list of High/Medium Risk Customers68

Appendix -IICustomer identification procedure : Features to be verified and documents that may be obtained from customers72

Appendix-IIIForeign Portfolio Investors (FPIs) categorized by SEBI75

Appendix-IVKYC documents prescribed by RBI for FPIs76

Appendix-VGovt. of India Notification No.14/2010/F.No.6/2/2007-ES dated 16.12.2010 on Small Accounts77

Appendix-VISimplified account opening form for opening of accounts under FI79

Appendix-VIIAlert scenarios indicated by IBA study for detection of suspicious transactions81

Appendix-VIIIOffline alert indicators provided by IBA study for detection of suspicious transactions at branches87

Appendix-IXAn Indicative list of suspicious activities89

Appendix-XGovt. of India, Ministry of Home Affairs Notification No.17015/10/2002-IS-IV dated 27.08.2009 on Procedure for Implementation of Section 51A of the Unlawful Activities (Prevention) Act, 1967 92

Appendix-XIAn illustrative Check list covering Money laundering Activities98

Appendix-XIIRisk Profile100

Appendix-XIIIList of firms advised by RBI posing as Multi Level Marketing (MLM) Agencies102

Appendix-XIVCompanies/Individuals identified/suspected of carrying out MLM activities108

Appendix-XVChanges incorporated in the current consolidated guidelines vis--vis guidelines issued in terms of last Policy vide IC No. 12808 dated 16.12.2013109

Appendix-XVIList of Circulars on Know Your Customer (KYC) Guidelines issued from July 2013115

INVENTORY

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Page No. 119

Policy/Guidelines on Know Your Customer (KYC) Norms/Anti-Money Laundering (AML) Measures/Combating of Financing of Terrorism (CFT)/Obligations of banks under PMLA, 2002

Chapter - 1

Introduction

The objective of KYC/AML/CFT guidelines is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities. KYC procedures also enable banks to know/understand their customers and their financial dealings better which in turn help them manage their risks prudently.

1.1 Definition of Customer

For the purpose of KYC policy, a Customer is defined as :

a person or entity that maintains an account and/or has a business relationship with the bank;

one on whose behalf the account is maintained (i.e. the beneficial owner)

[Beneficial Owner' means the natural person who ultimately owns or controls a client and or the person on whose behalf a transaction is being conducted, and includes a person who exercise ultimate effective control over a juridical person]

beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors etc. as permitted under the law, and

any person or entity connected with a financial transaction which can pose significant reputational or other risks to the bank, say, a wire transfer or issue of a high value demand draft as a single transaction.

1.2 Definition of Transactions"Transaction" means a purchase, sale, loan, pledge, gift, transfer, delivery or the arrangement thereof and includes :-

(i) opening of an account;

(ii) deposits, withdrawal, exchange or transfer of funds in whatever currency, whether in cash or by cheque, payment order or other instruments or by electronic or other non-physical means;

(iii) the use of a safety deposit box or any other form of safe deposit;

(iv) entering into any fiduciary relationship;

(v) any payment made or received in whole or in part of any contractual or other legal obligation;

(vi) any payment made in respect of playing games of chance for cash or kind including such activities associated with casino; and

(vii) establishing or creating a legal person or legal arrangement.'[RBI Cir DBOD.AML.BC. No.26/14.01.001/2013-14 dated 17.07.2014] [Govt. of India Notification dated 27.08.2013]1.3 General guidelinesi) It should be kept in mind that the information collected from the customer for the purpose of opening of account is to be treated as confidential and details thereof are not to be divulged for cross selling or any other like purposes. It should, therefore, be ensured that information sought from the customer is relevant to the perceived risk, is not intrusive, and is in conformity with the guidelines issued in this regard. Any other information from the customer should be sought separately with his/her consent and after opening the account.

ii) Branches/Offices are advised to ensure that the extant guidelines on Know Your Customer (KYC) and Anti-Money Laundering (AML) Norms are strictly complied with. Branches/Offices should also note that officials/employees should not indulge in unnecessary dialogue or provide unwanted guidance to the customers/intended customers to avoid dispute of any kind in future.

iii) It should be ensured that any remittance of funds by way of demand draft, mail/telegraphic transfer or any other mode and issue of travellers cheques for value of Rupees fifty thousand and above is effected by debit to the customers account or against cheques and not against cash payment. iv)With effect from April 1, 2012, bank is debarred from making payment of cheques/drafts/pay orders/bankers cheques bearing that date or any subsequent date, if they are presented beyond the period of three months from the date of such instrument. [RBI Master Cir DBOD.AML.BC.No.22/14.01.001/2014-15 dated 01.07.2014, Point No.2.1 (iii)]v) It should also be ensured that the Provisions of Foreign Contribution (Regulation) Act as amended from time to time, wherever applicable are strictly adhered to.

1.4 Some important guidelinesBranches are advised to note the following important guidelines for meticulous compliance, in view of the importance attached for adherence to the KYC policy :-

a) Customer identification procedure & KYC updation(i) The identity of the proposed customer and the beneficial owner should be established to the satisfaction of the bank before permitting the opening of accounts.(ii) The identity of the existing customer also needs to be re-verified while activating dormant/in-operative accounts.(iii) The identification requirements in respect of walk-in-customers should be met and records to be preserved, wherever applicable.b) Verification of Genuineness of Permanent Account Number (PAN)Branches must not enter Junk / Invalid PAN as this situation is not only fraught with risk with facilitating the customer with less deduction of tax but also makes the branch Managers personally responsible.

c) KYC for sale of Third party productsWhen banks sell third party products as agents, the responsibility for ensuring compliance with KYC/AML/CFT regulations lies with the third party. However, to mitigate reputational risk to banks and to enable a holistic view of a customers transactions, branches must follow the appended guidelines :(i) Even while selling of third party products as agents, banks should verify the identity and address of the walk-in-customer.(ii) Banks should also maintain transaction details with regard to sale of third party products and related records.(iii) The instructions to make payment by debit to customers accounts or against cheques for remittance of funds/issue of travellers cheques, sale of gold/silver/platinum and the requirement of quoting PAN number for transactions of Rs.50,000/- and above would also be applicable to sale of third party products by banks as agents to customers, including walk-in customers. This instruction would also apply to sale of banks own products, payment of dues of credit cards/sale and reloading of prepaid/travel cards and any other product for Rs. 50,000 and above. [RBI Cir DBOD.AML.BC.No.29/14.01.001/2014-15 dated 12.07.2014, Point No.5)]d) Risk Categorization of AccountsRisk categorization in respect of the accounts should be assigned ab initio at the time of opening of the accounts. Periodical reviews of all accounts regarding its risk categorization have to be carried out at the prescribed intervals.e) Monitoring & Reporting of Transactions(i) The coverage and intensity of monitoring of transactions should be in commensurate with the risk categorization of the customers and should meet all the obligations of the bank under PMLA 2002. Moreover, monitoring of transactions of walk-in customers should also be subjected to the same rigour as that applicable to the banks own customers for monitoring purposes. (ii) It is observed that some branches were using internal accounts as a parking account for own customers / walk-in customers cash transactions which involved purchase of DDs, sale of gold coin etc. for amounts above Rs.50,000. This is strictly prohibited under extant policy guidelines. In such cases, the transactions effected were not being captured for the purposes of monitoring and reporting under CTR/STR. It is, therefore, advised to put a stop to this practice forthwith. f) Issuing of Demand Draft/Bankers Cheque/Inter Office Instrument for Rs.50,000 and aboveBranches must not accept cash for issuing of Demand Drafts(DD) / Bankers Cheque(BC) / Inter-Office-Instrument (IOI) of Rs.50,000 and above to customers / walk-in customers.g) Structuring of transactions with value just below threshold limitsStructured transactions involving multiple cash deposits, DD purchases and sale of gold coins, with the individual transactions of values just below the threshold limit of Rs.50,000 i.e. in the range of Rs.40,000 to Rs.49,999 (i.e. less than thresh hold limit of Rs.50,000) to the same purchaser (favouring same beneficiary) on a single day (aggregate of such drafts issued exceeds Rs.50,000), indicating accommodating them by splitting of amounts, is against the spirit of PMLA guidelines.

h) Transactions through NRE/NRO Accounts, Liberised Remittance Scheme and Import of gold under consignment basisBranches must ensure strict adherence to the extant FEMA, 1999 regulations on permissible transactions and upper limits for transactions in NRE & NRO accounts considering the aspect of repatriation of funds through such accounts. It may also be ensured that the transactions within the extant ceilings prescribed under Liberised Remittance Scheme are put through only in case of resident individuals meeting all other conditions specified in the related FED instructions. It is reiterated that the facility should not be extended to non-individuals. Banks should not part with advance payments on import of gold under consignment basis. i) Acceptance of Cash DepositsBranches are advised that there is no restriction regarding acceptance of cash deposits from the customers provided PAN/Form 60/61 is obtained in case of deposits above Rs.50,000 and CTR reports are filed with FIU-IND for transactions above Rs.10,00,000. However, attempts to structure transactions below the threshold limits of Rs.50,000 and / or Rs.10,00,000 should attract the attention of the branches for further necessary action including generation of CTRs and reporting of such transactions under STRs.j) Management Overview and Compliance CultureLackadaisical approach in ensuring KYC compliance will be detrimental to the interests of the banks in the long run, not only in the domestic front, but in the international market as well. A bank that knowingly / unknowingly participates in transactions intended to be used by customers to avoid regulatory or financial reporting requirements, evade tax liabilities or facilitate illegal conduct will be exposing itself to reputational risk. k) Internal Audit and Concurrent AuditsBanks internal audit and compliance functions have an important role in evaluating and ensuring adherence to the KYC policies and procedures. Branches should take a proactive role to make optimum use of the management tools like internal audit and concurrent audit machinery by ensuring reporting of such cases of non-adherence to the KYC policies. 1.5 KYC Policy KYC policy incorporates the following four key parameters :-

a) Customer Acceptance Policy;

b) Customer Identification Procedures;

c) Monitoring of Transactions; and

d) Risk Management.

Chapter 2

Customer Acceptance Policy (CAP)2.1 In order to establish relationship with the intending customer, comprehensive information regarding the new customer should be obtained at the initial stage. The prospective customer should be interviewed by the Branch Manager/ Officer to understand customers intended relationship with the Bank.

Branch heads/officials, in the process of establishing relationship with the customer and/or permitting opening of the account, should protect the bank from the risks of doing business with any individual or entity whose identity cannot be determined or who refuses to provide information, or who have provided information that contains significant inconsistencies which cannot be resolved after due investigation.

The following guidelines should be taken into account while accepting a customer :(i) No account is opened in anonymous or fictitious/benami name. Opening of or keeping any anonymous account or accounts in fictitious name or account on behalf of other persons whose identity has not been disclosed or cannot be verified should not be allowed.

(ii) Parameters of risk perception are clearly defined in terms of the nature of business activity, location of customer and his clients, mode of payments, volume of turnover, social and financial status etc. to enable categorisation of customers into low, medium and high risk Customers requiring very high level of monitoring, e.g. Politically Exposed Persons (PEPs) may, if considered necessary, should be categorized even higher.(iii) Documentation requirements and other information to be collected in respect of different categories of customers depending on perceived risk and keeping in mind the requirements of PML Act, 2002 and instructions/guidelines issued from time to time.(iv) Not to open an account or close an existing account where it is not possible to verify the identity and /or obtain documents required as per the risk categorisation due to non cooperation of the customer or non reliability of the data/information furnished to the bank. It is, however, necessary to have suitable built in safeguards to avoid harassment of the customer. For example, decision by the branch to close an account should be taken at Zonal Office level after giving due notice to the customer explaining the reasons for such a decision.

(v) Circumstances, in which a customer is permitted to act on behalf of another person/entity, should be clearly spelt out in conformity with the established law and practice of banking as there could be occasions when an account is operated by a mandate holder or where an account is opened by an intermediary in fiduciary capacity.

(vi) Necessary checks should be conducted before opening a new account so as to ensure that the identity of the customer does not match with any person with known criminal background or with banned entities such as individual terrorists or terrorist organisations etc.

2.2 CUSTOMER PROFILE A profile for each new customer should be prepared based on risk categorization taking the under noted points into consideration:

Identity of the customer

Social/financial status

Nature of business activity and location

Information about his clients location of business

Volume of turnover

Mode of payment, sources of fund

The nature and extent of due diligence will depend on the risk perceived by the branch. However, while preparing customer profile care should be taken to seek only such information from the customer, which is relevant to the risk category and is not intrusive. The customer profile is a confidential document and details contained therein should not be divulged for cross selling or any other purposes.

2.3 RISK CATEGORISATION

Customers that are likely to pose a higher than average risk to the bank should be categorised as medium or high risk depending on customer's background, nature and location of activity, country of origin, sources of funds and his client profile etc.Branch should apply enhanced due diligence measures based on the risk assessment, thereby requiring intensive due diligence for higher risk customers, especially those for whom the sources of funds are not clear. In view of the risks involved in cash intensive businesses, accounts of bullion dealers (including sub-dealers) & jewellers should also be categorized as 'high risk' requiring enhanced due diligence. Other examples of customers requiring higher due diligence include (a) nonresident customers; (b) high net worth individuals; (c) trusts, charities, NGOs and organizations receiving donations; (d) companies having close family shareholding or beneficial ownership; (e) firms with 'sleeping partners'; (f) politically exposed persons (PEPs) of foreign origin, customers who are close relatives of PEPs and accounts of which a PEP is the ultimate beneficial owner; (g) non-face to face customers and (h) those with dubious reputation as per public information available etc. However, only NPOs/NGOs promoted by United Nations or its agencies may be classified as low risk customer.

All customer accounts (both existing and new) should be categorized into three levels as per risk perceived, viz.

(i) Level - I (low risk),

(ii) Level - II (medium risk),

(iii) Level - III (high risk).

(i) Level - I (Low risk) customers : For the purpose of risk categorization, individuals (other than high net worth) and entities whose identities and sources of wealth can be easily identified and transactions in whose accounts by and large conforms to the known profile, may be categorized as low risk accounts.

Illustrative examples of Level - I (low risk) customers may include ;

Salaried employees whose salary structures are well defined.

Businessmen/ Traders whose activities are well defined and transactions in the accounts commensurate with the business transactions.

People belonging to lower economic strata of society and whose accounts show small balances and low turn over.

Government departments & Government owned companies, regulators and statutory bodies etc.

In such cases, only the basic requirements of verifying the identity and location (address) of the customers and introducers are to be met.

Reserve Bank of India observed that of late, there has been an increase in instances of fictitious offers, where fraudsters are using RBIs corporate logo/name in their e-mail messages and also sometimes include the photograph of the Governor to convince the victims of the authenticity of the purported messages conveying lottery/prize winnings. The fraudsters persuade victims into making initial payment into a specified bank account towards charges for claiming the prize money. The victims invariably complain to RBI after they have lost money in such transactions. It was also observed by RBI from the responses received from banks in this regard that these transactions generally take place in newly opened accounts of individuals/salary accounts, which are classified as low risk.In view of RBI directives, Bank has issued various advisories on website, warning public against falling prey to fictitious offers/ lottery winnings/ remittance of cheap funds in foreign currency from abroad by so-called foreign entities/individuals or to Indian residents acting as representatives of such entities/individuals.

Field functionaries are advised to adopt the following measures as part of the monitoring exercise:

a) Generally the fraudsters open and route transactions through salary/savings accounts categorized as low risk, by way of small deposits to evade detections. Branch should monitor operations in these low risk accounts for identifying atypical transaction. The abnormal patterns in the range of transactions, salary accounts, newly opened accounts etc should be identified. The transactions that are deviating from the threshold limit/outside the normal transaction region should be probed into and resolved quickly.

b) Branches should closely monitor such accounts in the initial 3-6 months of their opening with threshold limit carefully calibrated to track transactions not in line with customer profile and ensure quick turnaround time in resolution of alerts.

c) Branch officials should clarify queries from customers regarding such lottery winnings where they have been advised to deposit money in specified accounts. Branches should also display a notice within the premises that such facility is available.

The front office/ operations desks should exercise due caution to deal with accounts where STR is filed. (ii) Level - II (Medium risk) customers :

Customers those are likely to pose a higher than average risk should be classified as Level - II (Medium risk). Customers particularly whose sources of fund are not clear and transaction exceeds the disclosed source of fund.

(iii) Level - III (High risk) customers :

Customers that are likely to pose a higher than average risk should be categorized as Level - III (High risk) depending upon customers back ground, nature and location of activity, country of origin, source of funds and his clients profile.

Illustrative examples of Level - III (High risk) customers may include:

In view of the risks involved in cash intensive business, accounts of bullion dealers (including sub-dealers) & jewelers should be categorized as High Risk.

Those who are engaged in certain professions where money laundering possibilities are high e.g. Antique dealers (individuals and entities), Money Services Bureau (entities non employees of these entities) and dealers in arms etc.

Non-resident customers.

High net worth individuals.

Trust, Charities, N.G.Os and organizations receiving donations. However, NPOs/NGOs promoted by United Nations or its agencies may be classified as low risk customer

Companies having close family share holding or beneficial ownership.

Firms with sleeping partners.

Funds coming from the list of countries/ centers which are known for money laundering.

Non face to face customers, and

Those with dubious reputation as per public information available etc.

Politically exposed persons (PEPs) of foreign origin, customers who are close relatives of PEPs and accounts of which a PEP is the ultimate beneficial owner;

(Indicative list of High/Medium risk customers and high/medium risk products & services enclosed in Appendix - I)However, NPOs/NGOs promoted by United Nations or its agencies may be classified as Low Risks customers. [RBI Master Cir DBOD.AML.BC.No.22/14.01.001/2014-15 dated 01.07.2014, Point No.2.3 (c)]The above examples are illustrative and not exhaustive.

The Branch manager/ officer of the concerned branch where suspicious activity/ transaction is noticed should verify the transactions depending upon the nature and circumstances, satisfy himself whether the activity/ transactions in the account is to be reported as a suspicious nature or to be treated as a bonafide one. Accordingly, the account should be categorized as Level - I/ Level - II/ Level - III as deemed fit and be monitored suitably.

Preparation of customers profile should be a continuous exercise. Customers profile should be reviewed periodically. The bank is required to put in place a system of periodical review of risk categorization of accounts and the need for applying enhanced due diligence measures in case of higher risk perception on a customer. Such review of risk categorization of customers should be carried out at a periodicity of not less than once in six months.A Low-risk customer may be treated as Medium/ High risk if the transactions in the account in subsequent period does not conform to his declared income/ source of fund and raise suspicion.

Accordingly, the profile of each customer account should be reclassified/ updated as and when situation arises.

In addition to what has been indicated above, bank should take steps to identify and assess ML/TF risk for customers, countries and geographical areas as also for products/ services/ transactions/delivery channels. Bank should have policies, controls and procedures, duly approved by the board, in place to effectively manage and mitigate risk adopting a risk-based approach. As a corollary, bank would be required to adopt enhanced measures for products, services and customers with a medium or high risk rating. In this regard, bank may use for guidance in their own risk assessment, a Report on Parameters for Risk-Based Transaction Monitoring (RBTM) dated March 30, 2011 which was issued by Indian Banks' Association as a supplement to their guidance note on Know Your Customer (KYC) norms / Anti-Money Laundering (AML) standards issued in July 2009. The IBA guidance also provides an indicative list of high risk customers, products, services and geographies. [RBI Master Cir DBOD.AML.BC.No.22/14.01.001/2014-15 dated 01.07.2014, Point No.2.3 (d)]2.4 It is important to bear in mind that the adoption of customer acceptance policy and its implementation should not become too restrictive and must not result in denial of banking services to general public, especially to those, who are financially or socially disadvantaged.

Chapter - 3

Customer Identification Procedure (CIP)3.1 Procedure to be adopted in Customer Identification a) Customer Identification Procedure is to be carried out at different stages i.e. while establishing a banking relationship; carrying out a financial transaction or when there is a doubt about the authenticity/veracity or the adequacy of the previously obtained customer identification data. Customer identification means identifying the customer and verifying his/her identity by using reliable, independent source documents, data or information.

Branches need to obtain sufficient information necessary to establish, to their satisfaction, the identity of each new customer, whether regular or occasional, and the purpose of the intended nature of banking relationship. Being satisfied means that the branch must be able to satisfy the competent authorities that due diligence was observed based on the risk profile of the customer in compliance with the extant guidelines in place. Such risk based approach is considered necessary to avoid disproportionate cost to banks and a burdensome regime for the customers.

Besides risk perception, the nature of information/documents required would also depend on the type of customer (individual, corporate etc.).For customers that are natural persons, sufficient identification data should be obtained to verify the identity of the customer, his address/location, and also his recent photograph. For customers that are legal persons or entities, the branch should (i) verify the legal status of the legal person/entity through proper and relevant documents; (ii) verify that any person purporting to act on behalf of the legal person/entity is so authorised and identify and verify the identity of that person; (iii) understand the ownership and control structure of the customer and determine who are the natural persons who ultimately control the legal person.

b) Bank has to seek mandatory information required for KYC purpose which the customer is obliged to give while opening an account or during periodic updation. Other optional customer details/additional information, if required may be obtained separately after the account is opened only with the explicit consent of the customer. The customer has a right to know what is the information required for KYC that she/he is obliged to give, and what is the additional information sought by the bank that is optional. Further, it is reiterated that bank should keep in mind that the information (both mandatory - before opening the account as well as optional- after opening the account with the explicit consent of the customer) collected from the customer is to be treated as confidential and details thereof are not to be divulged for cross selling or any other like purposes. [RBI Master Cir DBOD.AML.BC.No.22/14.01.001/2014-15 dated 01.07.2014, Point No.2.4 (b)]c) Customer identification requirements in respect of a few typical cases, especially, legal persons requiring an extra element of caution are given in paragraph 2.5 below for guidance of field functionaries. Based on practical experience of dealing with such persons/entities, branches/ offices may apply normal bankers prudence within established legal framework and practices. If the bank decides to accept such accounts in terms of the Customer Acceptance Policy, the bank should take reasonable measures to identify the beneficial owner(s) and verify his/her/their identity in a manner so that it is satisfied that it knows who the beneficial owner(s) is/are [Ref: Government of India Notification dated June 16, 2010 - Rule 9 sub-rule (1A) of PML Rules]. [RBI Master Cir DBOD.AML.BC.No.22/14.01.001/2014-15 dated 01.07.2014, Point No.2.4 (c)]d) Beneficial Owners :Reference may be made to our Instruction Circular No. 12362/AML & KYC/2012-13/13 dated 21st March, 2013, wherein the procedure for determination of Beneficial Ownership, as advised by Government of India has been specified.Rule 9(1 A) of the Prevention of Money Laundering Rules, 2005 requires that every banking company, and financial institution, as the case may be, shall identify the beneficial owner and take all reasonable steps to verify his identity. The term "beneficial owner" has been defined as the natural person who ultimately owns or controls a client and/or the person on whose behalf the transaction is being conducted, and includes a person who exercises ultimate effective control over a juridical person. Government of India has since examined the issue and has specified the procedure for determination of Beneficial Ownership. Consequent upon Government of India Notification on Prevention of Money-Laundering (Maintenance of Records) Amendment Rules, 2013 (Rules), published in the extraordinary official gazette vide G.S.R. No. 576 (E) dated August 27, 2013, and subsequent RBI circular dated 17.07.2014, the amended procedure for Identification of Beneficial Owners is appended for strict adherence to the field functionaries.

(a) Where the client is a company, the beneficial owner is the natural person(s), who,

whether acting alone or together, or through one or more juridical person, has a

controlling ownership interest or who exercises control through other means.

Explanation.- For the purpose of this sub-clause :-

1. "Controlling ownership interest" means ownership of or entitlement to more

than twenty-five percent of shares or capital or profits of the company

2. "Control" shall include the right to appoint majority of the directors or to

control the management or policy decisions including by virtue of their

shareholding or management rights or shareholders agreements or voting

agreements

(b) Where the client is a partnership firm, the beneficial owner is the natural person(s),

who, whether acting alone or together, or through one or more juridical person, has

ownership of/entitlement to majority more than fifteen percent of capital or

profits of the partnership.

(c) where the client is an unincorporated association or body of individuals, the

beneficial owner is the natural person(s), who, whether acting alone or together, or

through one or more juridical person, has ownership of or entitlement to more than

fifteen percent of the property or capital or profits of such association or body

of individuals.

(d) Where no natural person is identified under (a) or (b) or (c) above, the beneficial

owner is the relevant natural person who holds the position of senior

managing official;

(e) Where the client is a trust, the identification of beneficial owner(s) shall include

identification of the author of the trust, the trustee, the beneficiaries with fifteen

percent or more interest in the trust and any other natural person exercising

ultimate effective control over the trust through a chain of control or ownership.

(f) Where the client or the owner of the controlling interest is a company listed on a

stock exchange, or is a subsidiary of such a company, it is not necessary to

identify and verify the identity of any shareholder or beneficial owner of such

companies.

[RBI Cir DBOD.AML.BC. No.26/14.01.001/2013-14 dated 17.07.2014] [Govt. of

India Notification dated 27.08.2013]

e) The increasing complexity and volume of financial transactions necessitate that customers do not have multiple identities within a bank, across the banking system and across the financial system. This can be achieved by introducing a unique identification code for each customer. The Unique Customer Identification Code (UCIC) will help our bank to identify customers, track the facilities availed, monitor financial transactions in a holistic manner and enable us to have a better approach to risk profiling of customers. It would also streamline banking operations for the customers. Bank has to complete the process of allotting UCIC to all customers including those entering into a new relationship. Earlier RBI advised us to complete the process of allocation of UCIC to all existing customers by 31st May 2013. However, in view of difficulties in implementing UCIC the time has further extended up to December 31, 2014. Bank has been advised to expedite the procedure and complete the work of allotting UCIC to all the existing individual customers, within the stipulated timeframe. No further extension in this regard would be considered. This job should be completed in time under monthly progress reporting to the Board. Further, it is reiterated that UCIC should be allotted to all customers while entering into new relationships. [RBI Master Cir DBOD.AML.BC.No.22/14.01.001/2014-15 dated 01.07.2014, Point No.2.4 (e)]f) Whenever there is suspicion of money laundering or terrorist financing or when other factors give rise to a belief that the customer does not, in fact, pose a low risk, full scale customer due diligence (CDD) should be carried out before opening an account.

When there are suspicions of money laundering or financing of the activities relating to terrorism or where there are doubts about the adequacy or veracity of previously obtained customer identification data, due diligence measures should be reviewed including verifying again the identity of the client and obtaining information on the purpose and intended nature of the business relationship.

g) It has been observed that some close relatives, e.g. wife, son, daughter and parents, etc. who live with their husband, father/mother and son, as the case may be, are finding it difficult to open account as the utility bills required for address verification are not in their name. It is clarified, that in such cases, Bank can obtain an identity document and a utility bill of the relative with whom the prospective customer is living along with a declaration from the relative that the said person (prospective customer) wanting to open an account is a relative and is staying with him/her. Bank can use any supplementary evidence such as a letter received through post for further verification of the address. It should be kept in mind the spirit of instructions issued by the Reserve Bank and avoid undue hardships to individuals who are, otherwise, classified as low risk customers.

h) Shifting of bank accounts to another centre - Proof of address :

Norms for furnishing proof of address have been relaxed to allow submitting only one documentary proof of address (either current or permanent) while opening a bank account or while undergoing periodic updation. In case the address mentioned as per proof of address undergoes a change, fresh proof of address may be submitted to the branch within a period of six months.

In case the proof of address furnished by the customer is not the local address or address where the customer is currently residing, the branch may take a declaration of the local address on which all correspondence will be made by the bank with the customer. No proof is required to be submitted for such address for correspondence/local address. This address may be verified by the bank through positive confirmation such as acknowledgment of receipt of (i) letter, cheque books, ATM cards; (ii) telephonic conversation; (iii) visits; etc. In the event of change in this address due to relocation or any other reason, customers may intimate the new address for correspondence to the bank within two weeks of such a change. [RBI Cir DBOD.AML.BC.No.119/14.01.001/2013-14 dated 09.06.2014]Branches are advised that KYC once done by one branch of the bank should be valid for transfer of the account within the bank as long as full KYC has been done for the concerned account. The customer should be allowed to transfer his account from one branch to another branch without restrictions. Branches may transfer existing accounts at the transferor branch to the transferee branch without insisting on fresh proof of address and on the basis of a self-declaration from the account holder about his/her current address. . [RBI Cir DBOD.AML.BC.No.119/14.01.001/2013-14 dated 09.06.2014]

i) Branches should periodically update customer identification data (including photograph/s) after the account is opened. In the light of practical difficulties/ constraints in obtaining/submitting fresh KYC documents at frequent intervals as the relative documents submitted earlier specially by low-risk customers have remained unchanged in most of the accounts, it has been decided to amend the instructions as under :(i) Branches/offices would need to continue to carry out on-going due diligence measures while commencing an account-based relationship. Such measures include identifying and verifying the customer and beneficial owner on the basis of reliable and independent information and data or document.

(ii) Full KYC exercise will be required to be done at least every two years for high risk, every eight years for medium risk and at least every ten years for low risk customers.

(iii) Full KYC may include all measures for confirming identity and address and other particulars of the customer that the bank may consider reasonable and necessary based on the risk profile of the customer. [RBI Master Cir DBOD.AML.BC. No.22/14.01.001/2013-14 dated 01.07.2014 Point No. 2.4 J(i)](iv) Carry out ongoing due diligence of existing clients in order to ensure that their transactions are consistent with the banks knowledge of the client, his business and risk profile and, wherever necessary, the source of funds.

(v) Earlier, Positive confirmation (obtaining KYC related updates through email/letter/telephonic conversation/forms/interviews/visits, etc.), was required to be completed at least every two years for medium risk and three years for low risk customers. Now, RBI has reviewed the matter based on feedback received in light of provisions of the PML Rules. Accordingly, it is advised that while the requirements of client due diligence measures applied when establishing an account-based relationship, and on-going due diligence would continue as indicated in paragraph (i), (ii), (iii) & (iv) above, it has been decided to dispense with the requirement of positive confirmation as noted above. [RBI Cir No. RBI /2014-15/212 DBOD.AML.BC. No.39 / 14.01.001/2014-15 dated 04.09.2014](vi) Further, the requirement of applying client due diligence measures to existing clients at an interval of two/eight/ten years in respect of high/medium/low risk clients respectively, would also continue taking into account whether and when client due diligence measures have previously been undertaken and the adequacy of data obtained. Physical presence of the clients may, however, not be insisted upon at the time of such periodic updations. [RBI Cir No. RBI /2014-15/212 DBOD.AML.BC. No.39 / 14.01.001/2014-15 dated 04.09.2014](vii) Fresh photographs will be required to be obtained from minor customer on becoming major.

(viii) The time limits prescribed above would apply from the date of opening of the account/ last verification of KYC. [RBI Master Cir DBOD.AML.BC. No.22/14.01.001/2013-14 dated 01.07.2014 Point No. 2.4 J(iv)]An indicative list of the nature and type of documents/information that may be relied upon for customer identification is given in Appendix -II. It is clarified that permanent correct address, as referred to in Appendix-II, means the address at which a person usually resides and can be taken as the address as mentioned in a utility bill or any other document accepted by the bank for verification of the address of the customer.

The indicative list furnished in Appendix - II should not be treated as an exhaustive list and no section of public should be denied access to banking services.

If the address on the document submitted for identity proof by the prospective customer is same as that declared by him/her in the account opening form, the document may be accepted as a valid proof for both identity and address. [RBI Master Cir DBOD.AML.BC. No.22/14.01.001/2013-14 dated 01.07.2014 Point No. 2.4 (l)]In view of the Government of India Notification dated 27.08.2013 on amendment of PML (Maintenance of Records) Rules and subsequent RBI circular dated 17.07.2014, it is been decided that where a customer, categorized as low risk, expresses inability to complete the documentation requirements on account of any reason that the bank considers to be genuine, and where it is essential not to interrupt the normal conduct of business, the bank may complete the verification of identity within a period of six months from the date of establishment of the relationship. [RBI Cir DBOD.AML.BC. No.26/14.01.001/2013-14 dated 17.07.2014] [Govt. of India Notification dated 27.08.2013]j) Officially Valid Document for Proof of Identity :Government of India has notified the Prevention of Money-Laundering (Maintenance of Records) Amendment Rules, 2013 (Rules) and have published the same in the extraordinary official gazette vide G.S.R. No. 576 (E) dated August 27, 2013. In terms of the notification, Officially valid document means the Passport, the Driving License, the Permanent Account Number (PAN) Card, the Voters Identity Card issued by Election Commission of India, Job Card issued by NREGA duly signed by an officer of the State Government, the letter issued by the Unique Identification Authority of India (UIDAI) containing details of name, address and Aadhaar number or any document as notified by the Central Government in consultation with the regulator.

In terms of the above notification, RBI has issued instruction dated 17.07.2013 on the line that henceforth, only the documents mentioned in the rule or any other document as notified by the Central Government in consultation with the Regulator would be officially valid documents. The discretion given to banks earlier stands withdrawn. [RBI Cir DBOD.AML.BC. No.26/14.01.001/2013-14 dated 17.07.2014] [Govt. of India Notification dated 27.08.2013]3.2 Customer Identification Requirements Indicative Guidelines

It would be rather impossible to detect/ prevent a fraudulent transaction if the persons whose true identity, source of funds, expected transactions and relationship with the Bank are not verified at entry level and thereafter the profile of the customers are updated.

Some major areas to consider in identification of customers and opening / operating of their accounts are appended :-A. Customer Identification Procedure to be followed for opening of new account : No account should normally be opened without a meeting between the bank official and the customer. Before opening of New Accounts, the prospective customer should be interviewed by the Branch Manager/ Officer to ascertain the purpose of opening the account, kind of transactions intended, nature of business activity and its location, address of the customer and his clients, social and financial status, source of funds etc.

Particular care should be taken when dealing with accounts opened by post or where there is no face-to-face contact with the customers, so as to ensure that the identity of the customer is verified to the satisfaction of the Bank.

B. Account Opening Form : Branches should obtain appropriate forms and other related papers/ documents from the customers while opening a new account and follow the laid down procedures as detailed in Branch Instruction Manual.

C. Obtaining PAN/GIR or alternatively Form 60 / Form 61

The Manager or Officer of the Branch at the time of opening an account shall ensure that Permanent Account Number (PAN) or General Index Register Number (GIR) of the customer concerned has been duly quoted in the relevant documents/ account opening form or alternatively declaration in Form No.60 or Form No.61 as the case may be is received without fail. Avoid accepting junk PAN and insist for valid PAN for applicable transactions.In this connection, following points are reiterated for meticulous compliance :-In terms of HO Instruction Circular No.11954/AML & KYC/2012-13/04 dated 29.06.2012 containing guidelines on KYC norms, PAN card is one of the documents included in the list of documents for KYC and is not a mandatory document for identification.

In terms of HO Instruction Circular No.11844 Gen A/Cs & Audit/IT/2012-13/1 dated 12.04.2012, every holder shall quote PAN in the following cases :a) A time deposit, exceeding fifty thousand rupees;

b) Opening an account ( not being a time deposit referred to above ) with a banking company to which the Banking Regulation Act, 1949 applies (in case PAN is not available form 60/61 must be obtained);

c) Deposit in cash aggregating fifty thousand rupees or more with a banking company to which the Banking Regulation Act, 1949 applies during any one day;

d) Making an application to a banking company to which the Banking Regulation Act, 1949 applies, for issuance of a Debit Card (incl. prepaid card);

e) Making an application to a banking company to which the Banking Regulation Act, 1949 applies, for issuance of a Credit Card;

f) A contract of a value exceeding one lakh rupees for sale or purchase of securities.

g) Payment in cash exceeding twenty-five thousand rupees for purchase of foreign currency in connection with travel to any foreign country.

h) Payment of an amount aggregating fifty thousand rupees or more in a year as life insurance premium to an insurer as defined in clause (a) of Section 2 of Insurance Act, 1938 (4 of 1938).

i) Payment to a dealer of an amount of five lacs rupees at any one time or against a bill for an amount of five lakhs rupees or more for purchase of bullion or jewellery.

j) Payment of an amount of fifty thousand rupees or more to RBI, for acquiring bond issued by it.

k) Payment of an amount of fifty thousand rupees or more to a Mutual Fund for purchase of its units or to a company or an instruction for acquiring bond or debenture issued by it.

In terms of HO Instruction Circular No. 12548/General A/Cs & Audit/2013-14/23 dated 10.07.2013, if the depositor / deductee does not provide PAN, Tax (TAS) will be deducted @20%.

RBI has noticed that branches are filling Junk PAN / Invalid PAN to facilitate lesser deduction of Tax and when they remit the tax so deducted to the Income Tax authorities, the same is returned with remarks PAN not matching.

This situation is not only fraught with risk but also makes the branch Managers personally responsible.

The matter has since been taken up for verification of all existing PAN already entered with NSDL database, and also for on-going verification of PAN for the new accounts with NSDL. In line with the above, CBSPO has since started verification of PAN already with NSDL database, and reports having details of PAN discrepancies are uploaded regularly in daily report folder of the branch under file name INVALID_PAN_REPORT.txt.Branches/offices are, therefore, advised to ensure that corrective measures are initiated immediately on receipt of such report folder. Zonal Offices are advised to monitor the branches very strictly on daily basis so that Invalid/Junk/Incorrect PAN do not prevail any more in any of the branches. [HO IC No. 13084/AML & KYC/2014-2015/04 dated 05.06.2014]

In view of the seriousness of the matter, branches are advised as under :-

(i) No Junk / Invalid PAN should be entered in the system henceforth and if any Junk PAN is noticed, concerned official will be held personally responsible.

(ii) On receipt of information from CBS, Branches must issue a letter to all the customers whose Junk PAN has been deleted immediately on the lines of format provided in our earlier Instruction Circular No. 12713/AML & KYC/2013-14/10 dated 22.10.2013.

In case of account of a minor the PAN or GIR number of his/her father or mother or guardian as the case may be should be quoted in the documents pertaining to opening an account.

However, quoting of PAN/GIR No. in account opening forms is not required in respect of:

Term Deposits not exceeding Rs.50,000/-

Non-Residents

D. Other Requirements The Account Opening Form duly filed in all respects and signed by both the prospective account holder and the introducer should only be accepted for opening an account. Among other things, it should be particularly ensured that complete postal address of both the account holder and the introducer is mentioned in the form.

The form should be thoroughly checked and the opening of new accounts should be authorised only by the Branch Manager/ Officer-in-Charge permitting the account to be opened.

The responsibility for ensuring that all the accounts are opened in regular manner devolves upon Manager/ Dealing Officer. They should ensure that all the new accounts are introduced properly.

The Branches should ask their customers to establish their identity (true name, residential and mailing address). This may be done with the help of certain official documents in original. The verifying official, at the time of opening the account must scrutinize the documents submitted with their original and certify the KYC documents through seal as Verified from original and put his signature, name & PF number below his official signature.Identification documents that can be easily obtained in any name should not be accepted as the sole means of identification. In case of doubt, the information furnished by the customer should also be corroborated from some other sources/ personal verification and bank should be satisfied in this regard.

List of the documents that should be obtained from the different types of customers viz. Individuals, Companies, Partnership Firms, Trust, Unincorporated Association or Body of Individuals and Proprietorship Firms are detailed in Appendix - II

The guidelines shall also apply to the branches and majority owned subsidiaries located out side India, specially, in countries which do not or insufficiently apply the Financial Action Task Force (FATF) recommendations, to the extent local laws permit. It is clarified that in case there is a variance in KYC/AML standards prescribed by the Reserve Bank of India and the host country regulators, branches/overseas subsidiaries of banks are required to adopt the more stringent regulation of the two. For the purpose of identifying and verifying the identity of customers at the time of commencement of an account-based relationship, reporting entity may rely on a third party; subject to the conditions that :-

(a) the reporting entity immediately obtains necessary information of such client due diligence carried out by the third party;

(b) the reporting entity takes adequate available from the third party upon request without delay;

(c) the reporting entity is satisfied that such third party is regulated, supervised or monitored for, and has measures in place for compliance with client due diligence and record-keeping requirements in line with the requirements and obligations under the Act;

(d) the third party is not based in a country or jurisdiction assessed as high risk; and

(e) the reporting entity is ultimately responsible for client due diligence and undertaking enhanced due diligence measures, as applicable. steps to satisfy itself that copies of identification data and other relevant documentation relating to the client due diligence requirements will be made [RBI Cir DBOD.AML.BC. No.26/14.01.001/ 2013-14 dated 17.07.2014] [Govt. of India Notification dated 27.08.2013]E. Photograph Two recent photographs (not more than of six months old) of the customer must be obtained. Photographs of the person/ persons authorised to operate the account should also be obtained invariably. On the face of the photographs, the signature of the respective customer/ authorised operators should be taken.

Stipulation of obtaining photographs would apply uniformly to both resident and non-resident account holder and all categories of deposits including Fixed/Recurring/ Cumulative Deposit accounts. Only Banks, Local Authorities and Government Departments (excluding Public Sector Undertakings and Quasi- Govt. Bodies) will be exempted from the requirement of photographs.

In case of joint account, photographs of all joint account holders who are authorised to operate the account should be obtained without exception.

In case of account to be operated by authorised persons, power of attorney holders, photographs of both the account holders and authorised persons should be obtained.

In respect of accounts in the names of minors, photograph of the guardian operating the account should be obtained.

The official, authorising opening of the account should attest photographs of the account holder(s).

Wherever a depositor is desirous of and/or maintaining Current Account, Savings, Fixed Deposits or other deposit accounts, only one set of photographs need be obtained and separate photographs should not be obtained for each category of deposit. Proper reference should be recorded in the applications for different types of deposit accounts.

In case of company accounts, partnership firms accounts and trust accounts, photographs of authorised signatories who will operate the accounts duly attested by the competent authority of the company / partnership firm / trust should be obtained.

Members of staff / officer may be exempted from affixing photographs. In case of joint account with their family members who are not staff of the Bank, the photograph of such members should be obtained. Similarly, in case of any joint account of staff/officer with outsiders (not related to them and/or not a member of the family) photographs should be obtained from the non-family member of staff/ officer.

F.KYC Verification for Self-Help Groups (SHGs) In order to address the difficulties faced by SHGs in complying with KYC norms while opening savings bank accounts and credit linking of their accounts, Reserve Bank of India has prescribed simplified norms for SHGs.

As per RBI instructions, KYC verification of all the members of SHG need not be done while opening the savings bank account of the SHG and KYC verification of all the office bearers would suffice. As regards KYC verification at the time of credit linking of SHGs, it is clarified that since KYC would have already been verified while opening the savings bank account and the account continues to be in operation and is to be used for credit linkage, no separate KYC verification of the members or office bearers is necessary. G.Introduction - Identification through Introductory Reference Introduction is not mandatory for opening an account. Since introduction is not necessary for opening of accounts under PML Act and Rules or Reserve Banks extant KYC instructions, branches should not insist on introduction for opening bank accounts of customers. (IC No. 12361/AML&KYC/2012-13/12 dated 21.03.2013)However, an existing account holder maintaining a satisfactory account for at least 12 months may introduce an account preferably by signing the account opening form in the presence of the branch officials. Implication of introducing an account should be made known to the introducer.

With regard to introduction by staff members, if the depositor is well known to the officer/ staff of the Branch/Bank, the latter (officer / staff) may introduce the depositors under his/her full signature. It is advised that staff members should refrain from introducing parties who are not well known to them. For opening a Current Account, it may be introduced only by an officer of the Bank. For opening other accounts (excepting Current Account), these may be introduced by any member of staff of the Branch except sub-staff.

In case where the Account Opening Forms bear the signatures of Manager / Officials of other branches/ offices of the Bank for introduction, apart from verifying signatures of such introducers with the specimen signatures available on record, the branch concerned should obtain written confirmation of the introduction from the officials of other branches/ offices who introduced the account.

However, the above examples are illustrative. The Branch manager/ officer of the concerned branch at the time of opening of an account should follow the laid down procedures as given in Branch Instruction Manual.

H.Independent Confirmation of the Address of New Account holder Independent confirmation of the address of the account holders in all cases should be done through sending of Letter of Thanks to both the account holder as well as to the introducer as per laid down procedures given in Branch Instruction Manual.

A Register should be maintained for recording the date of sending of letter of thanks to the new account holder and the introducer. Acknowledgements of the Letter of Thanks from account holder and introducer should also be properly recorded in the Register. Response from the introducer i.e. confirmation/ contradiction (if any) should also be recorded.

For customers that are legal persons or entities, the branch should take the following steps :-(i) Verify the legal status of the legal person/ entity through proper and relevant documents.

(ii) Verify that any person purporting to act on behalf of the legal person/ entity is so authorized and verify the identity of that person.

(iii) Understand the ownership and control structure of the customer and determine who are the natural persons who ultimately control the legal person.

I. Simplification of Know Your Customer (KYC) Procedures for Low Income Group in Urban and Rural Areas

The KYC Norms for the above group in respect of identity and address is simplified on the following areas :

The persons who intend to keep balances not exceeding rupees fifty thousand (Rs. 50000/=) in all their accounts taken together 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, and the aggregate of all withdrawals and transfers in a month does not exceed rupees ten thousand.

In such case a person who wants to open an account is not able to produce documents about his/her identity and address as per Banks requirement, branches may open accounts of those persons subject to :a) Introduction from another account holder who has been subjected to full KYC procedures. The introducers account with the branch should be at least six months old and should show satisfactory transactions. Photograph of the Customer who proposes to open the account and also his/her address needs to be certified by the introducer.

OR

b) Any other evidence as to the identity and address of the customer to the satisfaction of the bank.

While opening accounts as described above, the customer should be made aware that if at any point of time, the balances in all his /her accounts with the bank(taken together) exceeds rupees fifty thousand (Rs.50,000/=) or total credit in the account exceeds rupees one lakh (Rs.1,00,000/=) in a year, no further transactions will be permitted until the full KYC procedure is completed. In order to obviate inconvenience to the customer, the branches must notify the customer when the balance reaches rupees forty thousand (Rs.40,000/=) or the total credit in a year reaches rupees eighty thousand (Rs.80,000/=) so that appropriate documents for conducting the verification as per KYC norms be submitted otherwise the operations in the account will be stopped when the total balance in all the accounts taken together exceeds rupees fifty thousand ( Rs.50,000/=) or the total credit in the accounts exceeds rupees one lakh (Rs.1,00,000/=) in a year.

The accounts which have already been opened under relaxed KYC standards in respect of persons affected by floods to credit the grant received by them from the Government shall also be treated at par with the accounts opened in terms of the above. However, the maximum balance in such accounts may be permitted as the amount of grant received from the Government or rupees fifty thousand (Rs.50,000.00) whichever is more and the initial credit of the grant amount shall not be counted towards the total credit.

3.3 Customer identification requirements in respect of a few typical cases, especially, legal persons

Customer identification requirements in respect of a few typical cases, especially, legal persons requiring an extra element of caution are appended for guidance. In case of accepting such types of accounts Branches should take reasonable measures to identify the beneficial owner(s) and verify his/ her/ their identity to the satisfaction of the Branch Manager/ Officer authorising to open the account.

i) Walk-in Customers

In case of transactions carried out by a non-account based customer, that is a walk-in customer, where the amount of transaction is equal to or exceeds rupees fifty thousand, whether conducted as a single transaction or several transactions that appear to be connected, the customer's identity and address should be verified. However, if there is reason to believe that a customer is intentionally structuring a transaction into a series of transactions below the threshold of Rs.50,000/- identity and address of the customer should be verified and filing a suspicious transaction report (STR) to FIU-IND should also be considered.

NOTE : In terms of Clause (b) (ii) of sub-Rule (1) of Rule 9 of the PML Rules, 2005 banks and financial institutions are required to verify the identity of the customers for all international money transfer operations ii ) Salaried Employees

In case of salaried employees, it is clarified that with a view to containing the risk of fraud, certificate/letter of identity /address issued only from corporate and other entities of repute should be relied on and branch should be aware of the competent authority designated by the concerned employer to issue such certificate/letter. Further, in addition to the certificate/letter issued by the employer, at least one of the officially valid documents as provided in the Prevention of Money Laundering Rules (viz. passport, driving licence, PAN Card, Voters Identity card, etc.) or utility bills for KYC purposes for opening bank accounts of salaried employees of corporate and other entities should be insisted upon.

iii) Trust/Nominee or Fiduciary Accounts There exists the possibility that trust/nominee or fiduciary accounts can be used to circumvent the customer identification procedures. It should be determined whether the customer is acting on behalf of another person as trustee/nominee or any other intermediary. If so, branches should insist on receipt of satisfactory evidence of the identity of the intermediaries and of the persons on whose behalf they are acting, as also obtain details of the nature of the trust or other arrangements in place. While opening an account for a trust, reasonable precautions to verify the identity of the trustees and the settlors of trust (including any person settling assets into the trust), grantors, protectors, beneficiaries and signatories should be taken. Beneficiaries should be identified when they are defined. In the case of a 'foundation', steps should be taken to verify the founder managers/ directors and the beneficiaries, if defined.

iv) Accounts of companies and firms Branches should be vigilant against business entities being used by individuals as a front for maintaining accounts with banks. Branches should examine the control structure of the entity, determine the source of funds and identify the natural persons who have a controlling interest and who comprise the management should be identified. These requirements may be moderated according to the risk perception e.g. in the case of a public company it will not be necessary to identify all the shareholders.

v) Client accounts opened by professional intermediaries

a) When the branch has knowledge or reason to believe that the client account opened by a professional intermediary is on behalf of a single client, that client must be identified. There may be 'pooled' accounts managed by professional intermediaries on behalf of entities like mutual funds, pension funds or other types of funds. There may also be 'pooled' accounts managed by lawyers/chartered accountants or stockbrokers for funds held 'on deposit' or 'in escrow' for a range of clients. Where funds held by the intermediaries are not co-mingled at the bank and there are 'sub-accounts', each of them attributable to a beneficial owner, all the beneficial owners must be identified. Where such funds are co-mingled at the bank, the branch should still look through to the beneficial owners. Where the branches rely on the 'customer due diligence' (CDD) done by an intermediary, they should satisfy themselves that the intermediary is regulated and supervised and has adequate systems in place to comply with the KYC requirements. It should be understood that the ultimate responsibility for knowing the customer lies with the bank.

b) Under the extant AML/CFT framework, therefore, it is not possible for professional intermediaries like Lawyers and Chartered Accountants, etc. who are bound by any client confidentiality that prohibits disclosure of the client details, to hold an account on behalf of their clients. It is reiterated that branches should not allow opening and/or holding of an account on behalf of a client/s by professional intermediaries, like Lawyers and Chartered Accountants, etc., who are unable to disclose true identity of the owner of the account/funds due to any professional obligation of customer confidentiality. Further, any professional intermediary who is under any obligation that inhibits bank's ability to know and verify the true identity of the client on whose behalf the account is held or beneficial ownership of the account or understand true nature and purpose of transaction/s, should not be allowed to open an account on behalf of a client.

vi) Accounts of Politically Exposed Persons (PEPs) resident outside India a) Politically exposed persons are individuals who are or have been entrusted with prominent public functions in a foreign country, e.g., Heads of States or of Governments, senior politicians, senior government/judicial/military officers, senior executives of state-owned corporations, important political party officials, etc. Sufficient information should be gathered on any person/customer of this category intending to establish a relationship and all the information available on the person in the public domain should be checked. Identity of the person should be verified and information about the sources of funds should be sought before accepting the PEP as a customer. The decision to open an account for PEP should be taken at a senior level not less than the Zonal Head. Branches should also subject such accounts to enhanced monitoring on an ongoing basis. The above norms may also be applied to the accounts of the family members or close relatives of PEPs.

b) In the event of an existing customer or the beneficial owner of an existing account, subsequently becoming a PEP, branches should obtain Zonal Heads approval to continue the business relationship and subject the account to the CDD measures as applicable to the customers of PEP category including enhanced monitoring on an ongoing basis. These instructions are also applicable to accounts where PEP is the ultimate beneficial owner.

c) Further, branches should ensure appropriate ongoing risk management procedures for identifying and applying enhanced CDD to PEPs, customers who are close relatives of PEPs, and accounts of which a PEP is the ultimate beneficial owner. [RBI Master Cir DBOD.AML.BC. No.22/14.01.001/2013-14 dated 01.07.2014 Point No. 2.5 f(iii)]vii) Accounts of non-face-to-face customers

With the introduction of telephone and electronic banking, increasingly accounts are being opened for customers without the need for the customer to visit the bank branch. In the case of non-face-to-face customers, apart from applying the usual customer identification procedures, specific and adequate procedures to mitigate the higher risk involved. Certification of all the documents presented should be insisted upon and, if necessary, additional documents may be called for. In such cases, branches may also require the first payment is to be effected through the customer's account with another bank which, in turn, adheres to similar KYC standards. In the case of cross-border customers, there is the additional difficulty of matching the customer with the documentation and the bank may have to rely on third party certification/introduction. In such cases, it must be ensured that the third party is a regulated and supervised entity and has adequate KYC systems in place.

viii) Accounts of proprietary concerns Apart from following the extant guidelines on customer identification procedure as applicable to the proprietor, branches should call for and verify the following documents before opening of accounts in the name of a proprietary concern:

a. Proof of the name, address and activity of the concern, like registration certificate (in the case of a registered concern), certificate/licence issued by the Municipal authorities under Shop & Establishment Act, sales and income tax returns, CST/VAT certificate, certificate/registration document issued by Sales Tax/Service Tax/Professional Tax authorities, Licence issued by the Registering authority like Certificate of Practice issued by Institute of Chartered Accountants of India, Institute of Cost Accountants of India, Institute of Company Secretaries of India, Indian Medical Council, Food and Drug Control Authorities, registration/licensing document issued in the name of the proprietary concern by the Central Government or State Government Authority/Department. Branches may also accept IEC (Importer Exporter Code) issued to the proprietary concern by the office of DGFT, the complete Income Tax Return (not just the acknowledgement) in the name of the sole proprietor where the firm's income is reflected, duly authenticated/acknowledged by the Income Tax authorities and utility bills such as electricity, water, and landline telephone bills in the name of the proprietary concern as required documents for opening of bank accounts of proprietary concerns. . [RBI Master Cir DBOD.AML.BC. No.22/14.01.001/2013-14 dated 01.07.2014 Point No. 2.5 h]b. Any two of the above documents would suffice. These documents should be in the name of the proprietary concern.

c. These guidelines on proprietorship concerns will apply to all new customers, while in case of accounts of existing customers, the above formalities should have been completed immediately in terms of our earlier guidelines.

ix) Procedure to be followed in respect of foreign students :

A foreign student studying in India would be considered a Person Resident in India as defined in Section 2 (v) of FEMA Act, 1999 and is eligible to open bank account without prior permission of RBI. As such account opening and monitoring procedure no longer falls under FEMA Regulations. Branches/ Offices can open accounts of foreign students studying in India after observing the normal KYC procedure. Closure of such accounts and repatriation of proceeds are also allowed as per FEMA notification No. 13/2000 dated 3rd May,2000 and amendments thereon from time to time. Detail of documents based on which Bank can open an account, in the name of a foreign students studying in India, are as below :-

i. Passport - as the document for proof of identity

ii. Valid Visa - a visa with photograph in it can also serve as an identity proof

iii. Proof of admission - usually a letter from the university or college

iv. Address proof - a letter from the college or hostel, certificate from embassyofthe country of origin or any appropriate legal authority, certified local address inIndia/rent agreement / certification of registration issued by Foreigner Registration Regional Office (FRRO).

It is observed that foreign student arriving in India are facing difficulties in complying with KYC norms while opening a bank account due to non-availability of any proof of local address. In view of the above, RBI has informed the following procedure for opening accounts of foreign students who are not able to provide an immediate address proof while approaching for opening bank account :-

i) Banks may open a Non-Resident Ordinary Rupee (NRO) bank account of a foreign student on the basis of his/her passport (with appropriate visa and immigration endorsement) which contains the proof of identity and address in the home country along with a photograph and a letter offering admission from the educational institution.

ii) Within a period of 30 days of opening the account, the foreign student should submit to the branch where the account is opened, a valid address proof giving local address, in the form of a rent agreement or a letter from the educational institution as a proof of living in a facility provided by the educational institution. Banks should not insist on the landlord visiting the branch for verification of rent documents and alternative means of verification of local address may be adopted by banks.

iii) During the 30 days period, the account should be operated with a condition of allowing foreign remittances not exceeding USD 1,000 into the account and a cap of monthly withdrawal to Rs. 50,000/-, pending verification of address.

iv) On submission of the proof of current address, the account would be treated as a normal Non-Resident Ordinary Rupee (NRO) account. It will be operated in terms of extant guidelines for NRO accounts and the provisions of Schedule 3 of FEMA Notification 5/2000 RB dated May 3, 2000 may also be kept in view.

v) Students with Pakistani nationality will need prior approval of the Reserve Bank for opening the account.

3.4 Correspondent Banking and Shell BankA. Correspondent Bank Correspondent banking is the provision of banking services by one bank (the correspondent bank) to another bank (the respondent bank). These services may include cash/funds management, international wire transfers, drawing arrangements for demand drafts and mail transfers, payable-through-accounts, cheques clearing etc. Bank should gather sufficient information to understand fully the nature of the business of the correspondent/respondent bank. Information on the other banks management, major business activities, level of AML/CFT compliance, purpose of opening the account, identity of any third party entities that will use the correspondent banking services, and regulatory/supervisory framework in the correspondent's/respondents country may be of special relevance. Similarly, bank should try to ascertain from publicly available information whether the other bank has been subject to any money laundering or terrorist financing investigation or regulatory action. While it is desirable that such relationships should be established only with the approval of the Board, in case the Board wishes to delegate the power to an administrative authority, they may delegate the power to a committee headed by the Chairman/CEO of the bank while laying down clear parameters for approving such relationships. Proposals approved by the Committee should invariably be put up to the Board at its next meeting for post facto approval. The responsibilities of each bank with whom correspondent banking relationship is established should be clearly documented. In the case of payable-through-accounts, the correspondent bank should be satisfied that the respondent bank has verified the identity of the customers having direct access to the accounts and is undertaking ongoing 'due diligence' on them. The correspondent bank should also ensure that the respondent bank is able to provide the relevant customer identification data immediately on request. [RBI Master Cir DBOD.AML.BC. No.22/14.01.001/2013-14 dated 01.07.2014 Point No. 2.20(a)]B. Correspondent relationship with a Shell Bank

Bank should refuse to enter into a correspondent relationship with a shell bank (i.e. a bank which is incorporated in a country where it has no physical presence and is unaffiliated to any regulated financial group). Shell banks are not permitted to operate in India. Bank should not enter into relationship with shell banks and before establishing correspondent relationship with any foreign institution, bank should take appropriate measures to satisfy that the foreign respondent institution does not permit its accounts to be used by shell banks. Bank should be extremely cautious while continuing relationships with correspondent banks located in countries with poor KYC standards and countries identified as 'non-cooperative' in the fight against money laundering and terrorist financing. Bank should ensure that respondent bank has anti money laundering policies and procedures in place and apply enhanced 'due diligence' procedures for transactions carried out through the correspondent accounts. [RBI Master Cir DBOD.AML.BC. No.22/14.01.001/2013-14 dated 01.07.2014 Point No. 2.20(b)]C. Due Diligence in Correspondent Banking Relationship

If any branch has arrangements with co-operative bank/s wherein the latter open current accounts and use the cheque book facility to issue at par cheques to their constituents and walk-in- customers for facilitating their remittances and payments in the nature of correspondent banking arrangements, Zonal Office should monitor and review such arrangements to assess the risks including credit risk and reputational risk arising therefrom. For this purpose, bank retains the right to verify the records maintained by the client cooperative banks/ societies for compliance with the extant instructions on KYC and AML under such arrangements. [RBI Master Cir DBOD.AML.BC. No.22/14.01.001/2013-14 dated 01.07.2014 Point No. 2.7]3.5 Simplified KYC norms for Foreign Portfolio Investors (FPIs)

Reserve Bank of India in its first Bi-Monthly Monetary Policy Statement, 2014-15, has proposed to simplify the KYC related procedure for opening bank accounts by FPIs. Based on the proposals, RBI vide circular No. RBI/2013-14/552 DBOD.AML.BC.No.103/14.01.001/2013-14 dated April 03, 2014 has issued guidelines of KYC norms for Foreign Portfolio Investors (FPIs).

Consequent to the Budget proposal for the year 2013-2014 and the recent amendments to the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (Rules), Securities and Exchange Board of India (SEBI) has rationalised the KYC norms for entry of FPIs. Accordingly, the matter has since been examined by RBI with the Government and it has been decided by RBI to simplify the KYC norms in the case of FPIs.

FPIs have been categorized by SEBI based on their perceived risk profile as detailed in Appendix-III. In terms of Rule 9 (14)(i) of the Rules, simplified norms have been prescribed for those FPIs have been duly registered in accordance with SEBI guidelines and have undergone the required KYC due diligence/verification prescribed by SEBI through a Custodian/Intermediary regulated by SEBI. Such eligible/registered FPIs may approach the branch for opening a bank account for the purpose of investment under Portfolio Investment Scheme (PIS) for which KYC documents prescribed by the Reserve Bank (as detailed in Appendix-IV) would be required. For this purpose, branches may rely on the KYC verification done by the third party (i.e. the Custodian/SEBI Regulated Intermediary) subject to the conditions laid down in Rule 9 (2) [(a) to (e)] of the Rules.

In this regard, Custodians/Intermediaries regulated by SEBI will share the relevant KYC documents with the banks concerned based on written authorization from the FPIs. Accordingly, a set of hard copies of the relevant KYC documents furnished by the FPIs to the Custodians/Regulated Intermediaries will be transferred to the concerned bank through their authorised representative. While transferring such documents, the custodian/Regulated Intermediary shall certify that the documents have been duly verified with the original or Notarised documents have been obtained, where applicable. In this regard, a proper record of transfer of documents, both at the level of the Custodian/Regulated Intermediary as well as at the bank, under signatures of the officials of the transferor and transferee entities, may be kept. While opening bank accounts for FPIs in terms of the above procedure, branches may bear in mind that they are ultimately responsible for the customer due diligence done by the third party (i.e. the Custodian/Regulated Intermediary) and may need to take enhanced due diligence measures, as applicable, if required. Further, branches are required to obtain undertaking from FPIs or a Global Custodian acting on behalf of the FPI to the effect that as and when required, the exempted documents as detailed in Annex II will be submitted.

It is further advised that to facilitate secondary market transactions, the branch may share the KYC documents received from the FPI or certified copies received from a Custodian/Regulated Inter