Should non-KYC complied bank account holder be penalised?

The RBI needs to come out with comprehensive guidelines on KYC to ensure that customers are not harassed by banks. At the same time customers should also be made to get involved in the ongoing KYC process at banks

Know Your Customer (KYC) is a process to identify the veracity of a customer’s identity as well residence proof. This is an integral part of establishing business relationship with a customer for banks and financial institutions. Additionally, the KYC process helps prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities. Last, but not the least, KYC procedures also enable banks to understand their customers and their financial dealings better which in turn help them manage their risks prudently.
 

Banks and financial institutions grapple with the issues related to the KYC compliance. Non-compliance of KYC is a major challenge faced by the banks in India. There are two aspects of KYC compliance that banks need to monitor. The first aspect that they need to check is whether the employees are following the KYC guidelines properly or not. The second, but no less important, is the co-operation of customers. Without help from customers, it is difficult for a bank to build a robust KYC process.
 

The role of the customer is important in the KYC process at two critical steps: first, when the account is opened; second, when the ongoing process of KYC once business relationship has been established. While the first step of KYC is easy to monitor, it is in the ongoing process of KYC that many banks face challenge.
 

The guidelines of Reserve Bank of India (RBI) on KYC process states that banks should follow ‘risk-based’ approach of KYC process and classify customers into low, medium and high risk. The significance of classification lies in the fact that ongoing KYC process is driven by the classification. As per RBI guidelines, “Banks should introduce a system of periodical updation of customer identification data (including photograph/s) after the account is opened. The periodicity of such updation should not be less than once in five years in case of low risk category customers and not less than once in two years in case of high and medium risk categories. Such verification should be done irrespective of whether the account has been transferred from one branch to another and banks are required to also maintain records of transactions as prescribed”.

 

After master circular was issued on 1st July, the RBI carried out amendment in these guidelines for low and medium risk customers which were mentioned by central bank in the notification.
 

So considering the above guidelines, what should a bank do, say for a low risk customer who has failed to produce updated customer identification data? The Bank has two options. First, close the account, especially, if it has become dormant and has nominal balance. Second, the customer should be penalised for failing to submit KYC documents. A bank faces a challenge in intimating customers about the need to re-submit documents, after specified number of years, as many customers move from their initial residence and it also involves cost.
 

SBI’s recent initiative
 

State Bank of India (SBI) has started an initiative in this direction recently. It has come out with advertisement in the newspapers asking customers to comply with KYC requirements at the earliest and has provided a timeline up to 28th February for customers to comply with KYC guidelines. Customers who have not complied with KYC will attract a nominal charge of Rs112. There are restrictions also going to be placed on these accounts by the bank. Also a certain category of account is liable to get closed as well.
 


Is this a right move by the bank? Does this need to be made a permanent feature of KYC process and should it get complete regulatory backing? Should there be a provision for penalty and not just charges?
 

The answer is a firm yes.
 

In order to ensure better compliance process, the bank should penalise a nominal amount to customer if he, or she, fails to provide documents related to proof of residence and identity and other relevant documents wherever applicable. This will act as a deterrent for the customer who tends to take KYC compliance as the responsibility of the banks and not that of the customer. The regulator should come out with comprehensive guidelines on this to ensure that customers are not harassed; however the customers should be made to get involved in the ongoing KYC process.
 

(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)

Comments
Diwas Pradhan
2 years ago
Hello Actually Im working in Abroad now so i also have my sbi savings Account with me here so I have deposited my money from here to my Account But May be my Account is not updated with Kyc They ask for.So in that case ,if my account is not kyc compliant Will my deposited money be safe After 2 years Gap While Returning back.??
Yogendra Udani
6 years ago
Bank branches are not Police Stations or Courts (Kind attention dear Governor of Reserve Bank Of India and related authorities) Know Your Bankers (KYB)
=============================
1. It is not proper if bankers call all saving bank holders personally for compliance of KYC, because the accounts holders are known by their specimen signatures, and their photographs are also on records of bank. In case of lockers also, while documentary evidences of PAN cards, Aadhar Cards, and other identities are submitted by account holders, why banks should insist all accounts holders to come personally including joint account holders to comply with KYC...? Because, in case of students and persons doing jobs and starts @ 7AM to reach to distance area of colleges/offices, how they can go to bank branch during working hours of banks, on the contrary, if FD Receipts are also with bankers of the account holders, why bank should work like a police station... to give personal attendance for KYC/other work..?

2. The account holders also should know that who are who in the bank branches, so bank should also keep photographs of their staff with their full names on the notice board of bank

3. In fact, the persons who have taken loans and don't re-pay installments in time, or in practice to submit all fabricated financial positions of their companies, show fabricated stocks/sundry debtors etc. to the banks should be treated with strict norms of banks, and not saving bank holders/locker holders. (How & why persons can leave country after misusing bank loans)

4. It is time that the bankers should become flexible with account holders who have blindly kept Fixed/term deposits receipts, funds, ornaments with bank lockers should not be asked to come personally for KYC, IT IS INSULT OF SUCH TYPE OF ACCOUNT HOLDERS.

5. In case of cheques/dividend warrants received in favor of individual names of Karta, some bankers refuse to process the same in clearing?

6. Strict actions must be taken immediately against all persons who are involved to sanction bank loans and not recovering funds in time from loanee parties who submit fabricated statements to banks and such defaulters are run away from country with help of such banks, because how and why such fabricated statements are accepted by banks ??

Yogendra Udani
Rajeev Kapur
Replied to Yogendra Udani comment 5 years ago
I fully agree with Yogendra Udani. HDFC Bank is notorious for violation for RBI and SEBI guidelines and has been fined on several occasions. It has been pestering me for resubmission of KYC documents in less than 2 years even there has been no change in my particulars. RBI has laid down revalidation of KYC once in 5 years. SBI notice to charge deposit holders for non-updation of KYC by imposing a fine is illegal. It does not have any legal authority to do so.
gcmbinty
6 years ago
The petition is very well written by MoneLife Foundation and hope it is appropriately addressed by the FM Shri Arun Jaitley. I suggest that this petition be put on Change.org and got signed by not less than one lakh investors and other consumers in the country with a clean notice to the GoI and SEBI to get justice to the investors on the same pattern as in the case of Sahara Family who have had siphoned of thousands of crores of the small investors money.
manthan
6 years ago
i was opened NRE account in 2014 that time i submitted my ID proof with pass port and visa now after 1.5 years bank asking for submit your new VISA for KYC,but now i dint want continue or dint want renew my visa then how can submit visa for KYC. and i have fixed deposit in my account and i want continue please let me know what to do.
manthan
6 years ago
i was opened NRE account in 2014 that time i submitted my ID proof with pass port and visa now after 1.5 years bank asking for submit your new VISA for KYC,but now i dint want continue or dint want renew my visa then how can submit visa for KYC. please let me know what to do.
Kuldeep Krishan
6 years ago
An extremely foolish and thoughtless move by an inconsiderate and incompetent government and its arms. PAN does not change and so proof of identity of any individual does not change. Very few people change their addresses during their lifetime and accordingly their proofs of addresses remain same. Of adults, the appearance changes over a very long time. Asking photographs frequently, too does not serve any purpose. Surely, periodic revision of KYC is a thought of a very foolish person, no doubt. And threatening any customer on this account is not a good business sense.
TIHARwale
6 years ago
SBI decision to penalise a nominal amount to customer if he, or she, fails to provide documents related to proof of residence and identity and other relevant documents wherever applicable is a misguided step. What instead should be done is to stop issuing fresh cheque book, reissue of debit card etc so that customer visits branch and submits necessary papers but at the same time SBI cannot expect customer to visit in person are not Banks honouring cheques based on specimen signature available in Bank record.
Yogendra Udani
6 years ago
SOMETHING SERIOUS REGARDING BANKS :


Hon. Narendra Modiji insist that all citizens should have a saving bank account, but Banking Policy is not flexible and much helpful to citizens read this :


1) Even having full details of all account holders in joint saving bank accounts, at the time of KYC procedures, many bankers insist that all joint account holders too have to attend bank branch and any one of holders should not submit all details !! Banks behave like police station and courts taking cross examinations !! Also in case of nomination in bank lockers, many banks behave like this.


2) In absence of KYC, banks stop issuing cheque book ! so saving bank account holders cant make use of their own funds and monies...? what is this Na.Mo.Ji...?


3) THERE MUST BE KYB & S i.e. KNOW YOUR BANK AND BANK STAFF as per which, photos of all staff with their names must be kept on bank notice boards in each of the branch for staff currently working in a particular branch. This will help accounts holder that WHO IS WHO.


4) In case of saving bank of Hindu Undivided Family, if cheque/dividend warrant is received in name of Karta, many banks refuse to clear said cheques.


5) Have banks taken strict measurement on recovery of loans from businessmen and industries who submit bogus stock statements, bogus book debts against which bank loans are taken...?


6) If loan is taken from bank by business houses, the said loanee parties must first deposit funds in the said bank, further, without permission of funding banks, no other accounts to be opened with other banks, HOW MANY BUSINESS HOUSES FOLLOW THIS BANK RULES, and what measurements are taken by bank to stop this malpractice,...?


7) Can we understand that why many banks are in loss...?


Yogendra Udani
6 years ago
Bank branches are not Police Station or Courts (Kind attention dear Governor of Reserve Bank Of India and related authorities)
=============================

1. It is not proper if bankers call all saving bank holders personally for compliance of KYC, because the accounts holders are known by their specimen signatures, and their photographs are also on records of bank. In case of lockers also, while documentary evidences of PAN cards, Aadhar Cards, and other identities are submitted by account holders, why banks should insist all accounts holders to come personally including joint account holders to comply with KYC...? Because, in case of students and persons doing jobs and starts @ 7AM to reach to distance area of colleges/offices, how they can go to bank branch during working hours of banks, on the contrary, if FD Receipts are also with bankers of the account holders, why bank should work like a police station... to give personal attendance for KYC/other work..?

2. The account holders also should know that who are who in the bank branches, so bank should also keep photographs of their staff with their full names on the notice board of bank

3. In fact, the persons who have taken loans and don't re-pay installments in time, or in practice to submit all fabricated financial positions of their companies, show fabricated stocks/sundry debtors etc. to the banks should be treated with strict norms of banks, and not saving bank holders/locker holders.

4. It is time that the bankers should become flexible with account holders who have blindly kept Fixed/term deposits receipts, funds, ornaments with bank lockers should not be asked to come personally for KYC, IT IS INSULT OF SUCH TYPE OF ACCOUNT HOLDERS.

Yogendra Udani (Malad-Mumbai)
ND
7 years ago
I fully agree with you on this and especially when it comes to SBI, they are very rude in their dealings with customers especially in rural branches. I have even been told by the branch manager to take my business elsewhere because I told him private banks give debit cards free while SBI levies a charge!
pankaj
8 years ago
Our bank has selectively charged 112 for five of our accounts, without ever communicating on KYC requirements.. only communication has been a 3*6 news paper cutting!

Wonder if this is how RBI guidelines are set. Most importantly how does this serve RBI's purpose on KYC..
ND
Replied to pankaj comment 7 years ago
That is the hallmark of SBI! They charge at the drop of a hat and yet, they take weeks to deliver Internet banking kits, credit cards and debit cards etc. Their excuse is, they are a commercial bank! As if ICICI, HDFC etc. are all charitable banks huh!
tejinder
8 years ago
if any customer submit false kyc documents and wrong transaction. what should concern deptt do?
Nagesh Kini
Replied to tejinder comment 8 years ago
Tell him that it is simply not done and do not open the account!
PRABHAT
8 years ago
KYC IS A GOOD THING , BUT THE WAY BANKs ARE PERSUADING IT IS A HERESMENT ?
ND
Replied to PRABHAT comment 7 years ago
I fully agree with you on this and especially when it comes to SBI, they are very rude in their dealings with customers especially in rural branches. I have even been told by the branch manager to take my business elsewhere because I told him private banks give debit cards free while SBI levies a charge!
RANJEET KUMAR
8 years ago
Hi,

I have a SBI student account from 2007 regularly using it. Account was opened with help of college. And now i am not student of that college and i am not living in that city(This time i don't have address proof of that city). Bank is asking for KYC what should i do?
Nagesh Kini
Replied to RANJEET KUMAR comment 8 years ago
when you've operating a student account since 2007 there should be no problem.
The just retired RBI Governor, Dr. D. Subbarao couldn't open an account in his hometown of Hyderabad because he didn't have the required 'proof of residence'. Possibly he may provide you a way out!
Murthy AVSN
Replied to RANJEET KUMAR comment 8 years ago
Kindly clarify as to when you are not living in that place any more and you are not a student of that college, pl ask yourself whether you really need to keep that account. If the answer is yes, you can provide the address proof for the current location and continue the operations in that account. If not, you can either get the same transferred to the same bank at your current location or close the same.
RANJEET KUMAR
Replied to Murthy AVSN comment 8 years ago
Thank you so much for your reply.
Actually i am regularly using that account(net banking and ATM for debit and credit). And i want to continue that account because Bank is in the nearest city from my village() and i go in that city regularly(but bank and my village is in different district). But i don't have any address proof of that city. What should i do.
Murthy AVSN
Replied to RANJEET KUMAR comment 8 years ago
There is no necessity to reside in the same town where the bank branch servicing your account is located. You can reside in any part of the country and have your account in any part of the country. Only things needed are :
1) Provide the proof of your ID;
2) Provide any proof of address of your current residence viz. Driving licence, ration card, voter id card, electricity/ telephone bill or a certificate from your current employer or the Revenue official of your current residence.
3) Carry the originals to the bank and inform that in writing about the change in the address and explain them in writing as to why you want to continue to operate the same account with the same bank and branch.
4) They will happily allow to continue the operations and they also would be enabled to complete their periodical customer due diligence.
5) Have safe and sound banking to prosper.
Nataraj Kailasam
8 years ago
The difficulty in adherence to KYC norms is more in respect of the accounts which were opened many years back. In respect of many old accounts, even writing mails to the customers to submit relevant documents for KYC compliance have not been of much help, as many customers have moved out of of such addresses or choose to not reply . In any case, banks levy a service charge, and in respect of accounts with small balances, say with less than Rs.500/-, these amounts are wiped out by such charges. One nationalised bank levies Rs. 65/- as charge annually. The problem of KYC compliance has always continued to bother banks in the last 7/8 years, and most branches, I know had given false certification of having fully complied with KYC norms, when in real fact, they had not done so.
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