Know Your Customer – KYC policy of Banks

KYC – Know Your Customer

Guest Author Himanshu Sharma from FinanceNectar shares with readers of our blog regarding KYC policy of banks, objective of KYC policy and Guidelines of KYC policy.

Well, first of all, let us have look at the brief explanation about KYC policy of banks:
KYC policy is an abbreviation of “Know Your Customer” policy. In  India, KYC policy enforce by the Reserve Bank of India (RBI) for all commercial banks. Under the KYC policy, commercial banks are required to observe various activities such as, Proper identification of customer, help in controlling financial frauds, monitoring on all the large transactions of cash, get residential certificate of their customers, etc. RBI has been issued various instructions at time to time and given advice for wakeful from their customers activities. Bank customers can misuse banking system, if bank does not follow the KYC policies.
Here we define the following guidelines of KYC policy, which are also applicable in transactions of foreign currency.

  1. First guideline for banks is that, banks should have verified the identification of bank customers. Banks should not think that ensure this information only for his benefits. This information is such a confidential for government and for other purpose.
  2. Second guideline for banks is that, monitoring/inspecting all the transactions of their customers, which are suspicious nature. If they find any mistake in transactions, then reporting of such transaction to appropriate authority.
  3. Banks should ensure that all the travellers cheques, mail transfers, demand drafts and telegraphic transfers of Rs. 50,000 and more, by debit to their customer account but this is possible only against cheque not cash. The cash transactions of applicants of Rs. 10,000 or above, should affix by their Permanent account number (PAN).
  4. Banks are required to keep a close watch on their clients, who deposit and withdraw from banks with an amount of Rs. 10,00000 and above. They require maintaining a separate register for their clients and their huge transactions.
  5. Banks are required for sending the details of suspicious transaction to controlling offices during a particular period of time. On the other hand, controlling offices are also responsible for sending these suspicious nature details to the Head office of bank. After that, all essential steps against these transactions are taken by the Head office of bank.

Well, after discussing about guidelines of KYC policy, we mention here four key elements of KYC policy which are incorporated and framed by banks as guidelines of KYC policy. Banks should obey these four elements in their banking procedure, which are as follows:

  1. Customer Identification Procedures,
  2. Customer Acceptance Policy,
  3. Risk Management,
  4. Monitoring of transaction.

Commercial banks maintain and provide all essential information for their clients. They provide information, which is related to the amount of transaction and the currency in which it was designated. They also provide the date information, which means, they facilitate the transaction date when transaction was conducted. Lastly, they provide information which is related to the parties of transaction. All information of their parties, who conduct their transactions, is provided by commercial banks.

For controlling the transaction of money laundering, banks use new technologies such as, ATM card, Credit Card, Internet banking, etc., for money laundering. Whenever user uses this card for any purpose, all their details and the nature of purpose are saved in their bank. The Bank informs their customer and also provides information regarding which goods or services are added in their bill with an appropriate amount. However, one thing which is more significant for banks is that, KYC policy procedure are taken or absorbed by all commercial banks before issuing the cards to the customers. It is mandatory for all commercial banks.

FinanceNectar is a Finance related blog that covers share market, insurance related topics. For more tips and information, visit the website.

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