Compliance & Risk Management Final

300 Exports of Goods & Services: The exporter should realize and repatriate the full value of goods/ software/ services to India within 9 months from the date of export. Certain special arrangements in place are - Counter-Trade Arrangement; Border trade with Myanmar; Counter –Trade arrangements with Romania; Repayment of State credits, etc. Imports of Goods & Services: AD Banks may allow remittance for making payments for imports into India, after ensuring that all the requisite details are made available, and the remittance is for bona fide trade transactions as per applicable laws in force. Where foreign exchange acquired has been utilised for import of goods into India, the AD bank should ensure that the importer furnishes evidence of import. Remittances against imports should be completed no later than six months from the date of shipment, except in cases where amounts are withheld towards guarantee of performance, etc. Forex Facilities for Individuals: (i) Liberalised Remittance Scheme (LRS) - AD may freely allow remittances by resident individuals up to USD 2,50,000 per FY, for any permitted current or capital account transaction or a combination of both. Within the prescribed limit per FY current account transactions as (specified under Para 1 of Schedule III of the FEMA Rules) are also included. (ii) Accounts for Non-Residents/ NRIs in India – (a) Non-Resident (External) Rupee Account Scheme (NRE Account) (b) Foreign Currency (Non-resident) Account (Banks) Scheme (FCNR (B) Account) - (c) Non-Resident (Ordinary) Account Scheme (NRO account) 6.9 KEY WORDS Equity Instruments; Convertible Note; E-commerce entity; Foreign Portfolio Investor (FPI); Foreign Institutional Investor (FII); Fully diluted basis; Indian entity; Foreign entity; Automatic Route; Approval Route; Automatic Route; Transferable Development Rights; Non-Repatriation basis; Alternative Investment Fund; American Depository Receipt; Sponsor contribution; Financial Commitment; Foreign Currency Convertible Bond; Host country; Indian Depository Receipts; Foreign Currency Exchangeable Bond; Compulsorily Convertible Preference Shares (CCPS);; ECB liability-Equity ratio; IOSCO Compliant Country; Loan Registration Number (LRN); Untraceable Entities; Suppliers’ credit; Buyers’ credit; Diamond Dollar Account; Exchange Earners’ Foreign Currency Account (EEFC Account); Forfaiting; Export Data Processing and Monitoring System (EDPMS); SOFTEX Forms; Shut out Shipments; Customs Assessment Certificate; Capital Account Transactions; Current Account Transactions.

301 6.10 CHECK YOUR PROGRESS 1) Foreign investment is not reckoned as FDI if the investment is made in ----. a) equity shares, b) fully and mandatorily convertible preference shares c) fully and mandatorily convertible debentures with the pricing being decided upfront as a figure or based on the formula that is decided upfront. d) Rated debentures 2) The normal prescribed Aggregate limit for investment by all FPIs in an Indian company is ______ % a) 10 b) 49 c) 51 d) 24 3) Authorised Dealer Category - I (AD Category - I) banks have been allowed to offer the facility of repatriation of export related remittances by entering into standing arrangements with Online Payment Gateway Service Providers (OPGSPs) subject to export of goods and services of value not exceeding USD ____. a) 3000 b) 5000 c) 10000 d) 4000 4) The general permission for raising ECB under the Automatic Route by an eligible entity in a financial year is USD ___ million. a) 500 b) 750 c) 100 d) 200

302 5) Under Liberalised Remittance Scheme for Resident Individuals permitted investment is ___________. a) Funding margin calls b) Funding active foreign exchange trading c) Purchasing real estate d) None of the above 6.11 KEY TO ‘CHECK YOUR PROGRESS’ 1 (d); 2 (d); 3 (c); 4 (b); 5 (c) References: 1) RBI Circular No. FED Master Direction No.11/2017-18 dated January 4, 2018 (Updated up to March 17, 2022) - Master Direction – Foreign Investment in India (https://www. rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11200) 2) RBI Circular No. A.P. (DIR Series) Circular No.12 dated August 22, 2022 - Foreign Exchange Management (Overseas Investment) Directions, 2022 (https://rbi.org.in/ Scripts/BS_ViewMasDirections.aspx?id=12381) 3) The Foreign Exchange Management (Overseas Investment) Rules, 2022 dated 22nd August, 2022 (https://rbidocs.rbi.org.in/rdocs/content/pdfs/GazetteRules23082022. pdf) 4) RBI Circular No. FED Master Direction No.5/2018-19 dated March 26, 2019 (Updated as on September 30, 2022) - Master Direction - External Commercial Borrowings, Trade Credits and Structured Obligations (https://rbi.org.in/Scripts/BS_ViewMasDirections. aspx?id=11510) 5) RBI Circular No. FED Master Direction No. 16/2015-16 dated January 1, 2016 (Updated as on November 22, 2022) - Master Direction – Export of Goods and Services (https:// www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10395) 6) RBI Circular No. FED Master Direction No. 17/2016-17 dated January 1, 2016 (Updated as on November 21, 2022) - Master Direction – Import of Goods and Services (https:// www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10201) 7) RBI Circular No. FED Master Direction No. 7/2015-16 dated January 1, 2016 (Updated as on August 24, 2022) - Master Direction – Liberalised Remittance Scheme (LRS) (https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10192) 8) RBI Circular No. FED Master Direction No. 14/2015-16 dated January 1, 2016 (Updated up to January 9, 2020) - Master Direction – Deposits and Accounts (https:// www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10198)

303 9) RBI Circular No. A.P. (DIR Series) Circular No. 11 dated February 16, 2021 - Remittances to International Financial Services Centres (IFSCs) in India under the Liberalised Remittance Scheme (LRS) (https://rbi.org.in/Scripts/NotificationUser. aspx?Id=12029&Mode=0) 10) RBI Circular No. A.P. (DIR Series) Circular No. 6 dated June 22, 2023 - Remittances to International Financial Services Centres (IFSCs) in India under the Liberalised Remittance Scheme (LRS) (https://www.rbi.org.in/Scripts/NotificationUser. aspx?Id=12518&Mode=0)

304 CHAPTER 7 KNOW YOUR CUSTOMER and ANTI MONEY LAUNDERING (KYC/AML) STRUCTURE 7.1 Purpose Of KYC/AML Norms 7.2 AML Frameworks 7.3 Customer – For KYC Purposes 7.4 KYC Policy 7.5 Customer Due Diligence Procedure 7.6 Special Cases 7.7 Record Management 7.8 Reports To Financial Intelligence Unit - India 7.9 Money Laundering and Terrorist Financing Risk Assessment 7.10 Designating Specific Functionaries 7.11 Requirements/Obligations Under International Agreements - Communications From International Agencies 7.12 Wire Transfer 7.13 Other Instructions 7.14 Let Us Sum Up 7.15 Key Words 7.16 Check Your Progress 7.17 Key to Check Your Progress

305 OBJECTIVES In this Chapter the learner will  Know about the frameworks for AML measures  Learn about customer identification processes  Know about customer acceptance policy  Know about beneficial ownership  Learn about reports to be submitted to FIU-IND  Know about norms for wire transfers  Learn about prohibitions on designated persons  Know about sundry mitigating measures 7.1 PURPOSE OF KYC/AML NORMS Among various risks faced by banks, the risks of abuse for money laundering and terrorism financing, as also financial crimes, have emerged over last few decades. Know Your Customer (KYC) refers to due diligence process of financial sector businesses and other specified businesses to ascertain relevant information about their clients. Anti-Money Laundering (AML) measures refer to monitoring of client’s transactions and also ongoing due diligence. 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 money laundering and terrorism financing risks prudently. 7.2 AML FRAMEWORKS 7.2.1 International Framework Financial Action Task Force (FATF) FATF (established in 1989) is the global body that sets international standards aimed at preventing money laundering, terrorism financing and proliferation financing. It initially published forty recommendations for prevention of money laundering and followed up with nine recommendations for combating terrorism financing. In 2012, these were integrated into 40 Standards. FATF continually enhances these Standards in the light of various changes taking place in the ecosystem. It also carries out mutual evaluation of the status of implementation of the FATF Standards by various countries and suggests remedial measures for any gaps noticed. For countries identified as having weak AML regime, it continuously monitors the progress made in implementing the suggested remedial measures. Such countries are placed on the ‘Grey’ list published thrice a year in February, June and

306 November. It also publishes a ‘Black’ list of such countries that are non-co-operative and have not implemented any of the FATF Recommendations. FATF Style Regional Bodies (FSRBs) are regional organisations that support FATF endeavours by guiding countries in their regions in implementation of FATF Recommendations, and in carrying out the mutual evaluation exercise jointly with FATF. There are nine FSRBs covering the whole world. India was admitted as a member of FATF in June 2010 post a review of the KYC/AML framework in India by the FATF committee. Other Global Bodies Basle Committee on Banking Supervision has issued: Sound Management of Risks Related to Money Laundering and Financing of Terrorism (July 2020) superseding its earlier guidelines, and Due Diligence and Transparency Regarding Cover Payment Messages (May 2009). Both these publications are operational guidelines on implementation of FATF norms by banks. The Wolfsberg Group, an association of 13 global banks, has also issued several guidance notes for banks on important aspects related to AML/CFT. Egmont Group of Financial Intelligence Units has been formed for co-operation among the financial intelligence units of various countries. The objective of the Group is to find ways to promote the development of FIUs and to cooperate, especially in the areas of information exchange, training and the sharing of expertise. 7.2.2 The Indian Framework Organisational Framework The FATF Cell in the Ministry of Finance of the Central Government co-ordinates with FATF on the matters connected with AML/CFT measures in India. Financial Intelligence Unit – India has been set up as an autonomous central national agency responsible for receiving, processing, analysing and disseminating information relating to suspect financial transactions to enforcement agencies and foreign FIUs. It functionally reports to the Economic Intelligence Council, headed by the finance minister. Various players of the financial sector and certain designated non-finance sector businesses and professions (called ‘Reporting Entities’ - REs) are required to take several preventive and detection measures, including reporting to FIU transactions that are suspected to be for the purpose of money laundering or terrorism financing. FIU analyses the reports received from the Res and forwards these to an appropriate law enforcement agency (LEA), like Enforcement Directorate (ED), Nationale Investigating Agency (NIA), Narcotics Control Bureau (NCB) etc.

307 Legislative Framework Following two laws are the primary legislation for AML/CFT regime in India: (i) Prevention of Money Laundering Act 2002 (PMLA) defines money laundering offence, prescribed the punishment for it, spells out the powers of investigating agency (i.e. ED) and of the adjudicating authority (i.e. Special Courts at various High Court), and the obligations of the Reporting Entities. PMLA provides for attachment, seizure, and confiscation of assets connected with money laundering. Prevention of Money Laundering (Maintenance of Records) Rules lay down detailed operational measures RE’s are required to take for fulfilling their obligations under PMLA. (ii) The Unlawful Activities (Prevention) Act, 1967 (UAPA) defines terrorism, terrorism financing and prescribes punishment for these. It provides for attachment, seizure and confiscation of the assets or funds intended to be used for financing terrorism. It also has provisions for declaring individuals and entities that are identified as indulging in terrorism to be subjected to certain sanction measures mainly prohibiting providing them with any economic resources of funds. An Order issued under PMLA lays down the procedure to be followed by the financial sector players, including banks, on detecting any transaction in which a designated individual or entity is a party. Following are other laws containing certain provisions that also help in mitigating money laundering and terrorism financing risks. (i) The Income Tax Act, 1961 (ii) The Benami Transactions (Prohibition) Act, 1988 (iii) The Indian Penal Code and Code for Criminal Procedure, 1973 (iv) The Narcotics Drugs and Psychotropic Substances Act, 1985 (v) The Foreign Exchange Management Act, 1999 (vi) The Foreign Contribution (Regulation) Act, 2010. Regulations Issued by Regulators Various regulators in the financial sector viz. RBI, SEBI, IRDAI and PFRDA are authorised under the PMLA to issue operational guidelines for the REs regulated by them. Similar obligation is placed on the authorities or bodies regulating or registering an monitoring the players in the DNFBPs. 7.3 CUSTOMER – FOR KYC PURPOSES For the purpose of KYC a ‘Customer’ is defined as : “a person who is engaged in a financial transaction or activity with a Regulated Entity (RE) and includes a person on whose behalf the person who is engaged in the transaction or activity, is acting”.

308 This definition covers the following categories but not necessarily confined to these: � a person or entity maintaining an account and/or having a business relationship; � one on whose behalf the account is maintained (i.e. the beneficial owner); � beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors etc., and � any person or entity connected with a financial transaction say, a wire transfer or issue of a demand draft, purchase of insurance policy or investing in mutual funds, etc. 7.4 KYC POLICY Banks need to frame KYC policies having the following four key elements: Customer Acceptance Policy (CAP); Risk Management; Customer Identification Procedures (CIP); and Monitoring of Transactions. For compliance of KYC Policy following measures are required: (i) To specify the ‘Senior Management’ for KYC compliances. (ii) To allocate responsibility for effective implementation of policies and procedures. (iii) To get independent evaluation carried out of the compliance of policies and procedures, including legal and regulatory requirements. (iv) Concurrent/internal audit system to verify the compliance with KYC/AML policies and procedures. (v) Submission of quarterly audit notes and compliance to the Audit Committee. Decision-making functions of determining compliance with KYC norms cannot be outsourced. 7.4.1 Customer Acceptance Policy (CAP) Banks should have a customer acceptance policy determining the criteria for accepting any customer. Following stipulations must be included in the CAP: (a) No account is opened in anonymous or fictitious/benami name. (b) No account is opened where appropriate customer due diligence (CDD) measures cannot be applied, either due to non-cooperation of the customer or non-reliability of the documents/information furnished by the customer. (c) No transaction or account-based relationship is undertaken without following the CDD procedure. (d) The mandatory information to be sought for KYC purpose while opening an account and during the periodic updation, is specified.

309 (e) Additional information, if any, is obtained with the explicit consent of the customer. (f) To apply the CDD procedure at the UCIC level. So, for an existing KYC compliant customer desiring to open another account, there is no need for a fresh CDD exercise. (g) CDD Procedure is followed for all the joint account holders. (h) Circumstances in which, a customer is permitted to act on behalf of another person/ entity, is clearly spelt out. (i) To ensure that the identity of the customer does not match with any person or entity, whose name appears in the sanctions lists, specified by RBI. (j) PAN should be verified. (k) For an equivalent e-document, to verify the digital signature. (l) GST number shall be verified. CAP should not result in denial of banking/ financial facility to members of the public, especially those, who are financially or socially disadvantaged. If there is a suspicion of money laundering or terrorist financing, and if performing the CDD process is likely to tip-off the customer, not to pursue the CDD process, and instead file an STR with FIU-IND. “Customer Due Diligence (CDD)” means identifying and verifying the customer and the beneficial owner using ‘Officially Valid Documents’ as a ‘proof of identity’ and a ‘proof of address’. “Customer identification” means undertaking the process of CDD. 7.4.2 Risk Management Risk based approach is followed in adopting AML measures. Following norms should be followed for this purpose: (a) Customers shall be categorised as low, medium and high-risk category, based on the assessment and risk perception. (b) Broad principles for risk-categorisation of customers to be laid down. (c) Risk categorisation is based on parameters such as: (i) customer’s identity, (ii) social/ financial status, (iii) nature of business activity, and information about the customer’s business and their location, (iv) geographical risk covering customers as well as transactions, (v) type of products/services offered, (vi) delivery channel used for delivery of products/services, (vii) types of transaction undertaken – cash, cheque/ monetary instruments, wire transfers, forex transactions, etc.The ability to confirm

310 identity documents through online or other services offered by issuing authorities may also be factored in. (d) The risk categorisation of a customer and the specific reasons for it to be kept confidential and shall not be revealed to the customer to avoid tipping off. Any other information collected from different categories of customers relating to the perceived risk, should be non-intrusive and be as per that specified in the KYC policy. For risk assessment FATF Public Statement, the reports and guidance notes on KYC/AML issued by the Indian Banks Association (IBA), and other agencies, etc., may also be used. 7.4.3 Customer Identification Procedure (CIP) Customer identification is to be carried out in following cases: (a) Commencing an account-based relationship. (b) For any international money transfer for a non account holder. (c) When the authenticity or adequacy of the customer identity data obtained earlier is doubted. (d) Selling third party products (as agents) and own products for more than `50,000/-. (e) Receiving payment of credit cards dues/ Sale and reloading of prepaid/travel cards and any other product for more than `50,000/-. (e) Carrying out transactions for a walk-in customer of value equal to or exceeding `50,000/- as a single transaction or several transactions that appear to be connected. (f) When there is a reason to believe that a customer (account- based or walk-in) is intentionally structuring a transaction into a series of transactions below the threshold of `50,000/-. (g) Introduction should not be sought while opening accounts. 7.4.4 Reliance on Third Parties For verifying the identity of customers at the time of commencement of an account-based relationship reliance on CDD done by a third party is permitted, subject to the following conditions: (a) Records or the information of the CDD carried out by the third party is obtained within two days from the third party or from the Central KYC Records Registry. (b) Adequate steps are taken by REs to satisfy themselves that copies of identification data and other relevant documentation relating to the customer due diligence requirements shall be made available from the third party upon request without delay.

311 (c) The third party is regulated, supervised or monitored for, and has measures in place for, compliance with CDD and record-keeping requirements in line with the requirements and obligations under the PMLA. (d) The third party shall not be based in a country or jurisdiction assessed as high risk. (e) The ultimate responsibility for CDD and undertaking enhanced due diligence (EDD) measures, as applicable, will be with the bank. 7.5 CUSTOMER DUE DILIGENCE (CDD) PROCEDURE CDD procedures differ for different types of customers, primarily based on their constitutions. Digitally signed e-documents where available are acceptable, in lieu of physical documents. 7.5.1 Individuals Documentary Requirements While establishing an account-based relationship with an individual or while dealing with the individual who is a beneficial owner, authorised signatory or the power of attorney holder related to any legal entity following document/ information must be obtained: (1) For identity and address proof, any one of the following documents: (a) theAadhaar number where: (i) he is desirous of receiving any benefit or subsidy under any scheme notified under section 7 of the Aadhaar (Targeted Delivery of Financial and Other subsidies, Benefits and Services) Act, 2016 (18 of 2016); or (ii) he decides to submit his Aadhaar number; or (b) the proof of possession of Aadhaar number where offline verification can be carried out; or (c) the proof of possession of Aadhaar number where offline verification cannot be carried out or any OVD containing the details of his identity and address; or (d) the KYC Identifier with an explicit consent to download records from CKYCR; (2) PAN or Form No. 60; and (3) other documents (including in respect of the nature of business and financial status of the customer), as per the bank’s KYC Policy. Officially Valid Document (OVD): OVD means the passport, the driving licence, 13proof of possession of Aadhaar number, the Voter’s Identity Card issued by the Election Commission of India, job card issued by NREGA duly signed by an officer of the State Government and letter issued by the National Population Register containing details of name and address. Following provisions have been specified in case of OVDs - (a) Proof of possession of Aadhaar number may be submitted in a form as issued by the Unique Identification Authority of India (UIDAI).

312 (b) If the OVD does not have updated address, the following documents are deemed to be OVDs only as proof of address for temporary period: (i) utility bill (not more than two months old) of any service provider (electricity, telephone, post-paid mobile phone, piped gas, water bill); (ii) property or Municipal tax receipt; (iii) pension or family pension payment orders (PPOs) issued by Govt. Depts. or Public Sector Undertakings, containing the address; (iv) letter of allotment of accommodation from employer issued by State Govt. or Central Govt. Depts., statutory or regulatory bodies, public sector undertakings, scheduled commercial banks, financial institutions and listed companies and leave and licence agreements with such employers allotting official accommodation. With in three months, an OVD with current address to be submitted. (c) If the OVD presented by a foreign national does not contain the details of address, the documents issued by the Govt. depts. of foreign jurisdictions and letter issued by the Foreign Embassy or Mission in India to be taken as proof of address. (d) If there is a change in the name after its issuance of a document, it should be supported by a marriage certificate issued by the State Govt. or Gazette notification, indicating the change. (e) Aadhaar number, where furnished, should be authenticated vide e-KYC authentication, and for any difference in address self-declaration of the customer will suffice. (f) For proof of possession of Aadhaar number offline verification should be carried out. (g) For equivalent e-document of any OVD, the digital signature should be verified, and its live photo taken. (h) For an OVD or proof of possession of Aadhaar number (without offline verification) to carry out verification through digital KYC. Currently, if digital KYC cannot be carried out, a certified copy of the document along with the photograph of the customer are required. (i) For KYC Identifier, the KYC records should be retrieved online from the CKYCR. (j) For a person availing subsidy in case e-KYC authentication is not possible owing to injury, illness or infirmity and similar causes, offline verification of Aadhaar is required. If not possible, a certified copy of Aadhaar letter or any other OVD or an equivalent e-document may be obtained. This should be done by an official of the bank and should be subject to concurrent audit. It should be recorded in a centralised exception database with details of grounds of granting exception, customer details, name of the designated official authorising the exception and additional details, if any. It shall be subjected to periodic internal audit/inspection by the RE and shall be available for supervisory review.

313 (k) On Aadhaar letter or card copy, the customer should redact the Aadhaar number, unless required for the purpose of subsidy assistance. (l) Biometric based e-KYC authentication can be done by bank official/ business correspondents/ business facilitators. (m) Use of Aadhaar/ proof of possession of Aadhaar etc., shall be in accordance with related legal provisions. 7.5.2 Sole Proprietary firms CDD of the sole proprietor is to be carried out like for an individual. Besides, any two of the following documents to be obtained as a proof of business/ activity in the name of the proprietary firm: (a) Registration certificate including Udyam Registration Certificate (URC) issued by the Govt.; (b) Certificate/licence issued by the municipal authorities under Shop and Establishment Act; (c) Sales and income tax returns; (d) CST/VAT/ GST certificate; (e) Certificate/registration document issued by Sales Tax/ Service Tax/Professional Tax authorities; (f) IEC (Importer Exporter Code) issued to the proprietary concern by the office of DGFT or Licence/certificate of practice issued in the name of the proprietary concern by any professional body incorporated under a statute; (g) 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; (h) Utility bills such as electricity, water, landline telephone bills, etc. If the bank is satisfied the firm does not have two such documents, at its discretion, it may obtain one of the above documents and undertake contact point verification and collect such other information and clarification as would be required to establish the existence of such firm, and shall confirm and satisfy itself that the business activity has been verified from the address of the proprietary concern. 7.5.3 Legal Entities Certified copies of the prescribed documents or their e-document and specified information must be obtained, as indicated for each type of entity. A. Company (a) Certificate of incorporation; (b) Memorandum and Articles of Association; (c) PAN of the company; (d) A resolution from the Board of Directors and power of attorney granted to its managers, officers or employees to transact on its behalf; (e) Documents (prescribed for an individual) relating to beneficial owner, the managers, officers or employees holding an attorney to transact on the company’s behalf; (f) Names of the persons holding senior management position; and (g) Registered office and the principal place of its business, if it is different.

314 B. Partnership Firm (a) Registration certificate; (b) Partnership deed; (c) PAN of the partnership firm; (d) Documents (prescribed for an individual) relating to beneficial owner, managers, officers or employees holding an attorney to transact on its behalf; (e) Names of all the partners and (f) Address of the registered office, and the principal place of its business, if it is different. C. Trust (a) Registration certificate; (b) Trust deed; (c) PAN or Form No.60 of the trust; (d) Documents (prescribed for an individual) relating to beneficial owner, managers, officers or employees, as the case may be, holding an attorney to transact on its behalf; (e) Names of the beneficiaries, trustees, settlor and authors of the trust; (f) Address of the registered office of the trust; and (g) List of trustees and documents (prescribed for an individual) for those discharging the role as trustee and authorised to transact on behalf of the trust. D. Unincorporated Association (includes Unregistered trusts/ Partnership firms) or a Body of individuals (includes Societies) (a) Resolution of the managing body of such association or body of individuals; (b) PAN or Form No. 60 of the unincorporated association or a body of individuals; (c) Power of attorney granted to transact on its behalf; (d) Documents (prescribed for an individual) relating to beneficial owner, managers, officers or employees, as the case may be, holding an attorney to transact on its behalf; and (e) Information required by the bank to collectively establish the legal existence of the entity. E. Juridical person* (not specified above) or who purports to act on behalf of such juridical person or individual or Trust (*Societies, universities, and local bodies like village panchayats, etc.) (a) Document showing name of the person authorised to act on behalf of the entity; (b) Documents (prescribed for an individual) of the person holding an attorney to transact on its behalf; and (c) Such documents as may be required by the RE to establish the legal existence of such an entity/juridical person. 7.5.4 Beneficial Owner Identification Criteria for Beneficial Owners For a legal person its beneficial owner(s) (BO’s) need to be identified and their identity verified. Criteria to determine BO’s of different types of legal entities are given below. A. Company: The natural person(s), who, whether acting alone or together, or through one or more juridical persons, has/ have a controlling ownership interest or who exercise control through other means. ‘Controlling ownership interest’ means ownership of/entitlement to more than 10% of the shares or capital or profits of the company. ‘Control’ shall include the

315 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. Partnership Firm: The natural person(s), who, whether acting alone or together, or through one or more juridical person, has/have ownership of/entitlement to more than 15% of capital or profits of the partnership. C. Unincorporated Association or Body of Individuals (includes Societies): The natural person(s), who, whether acting alone or together, or through one or more juridical person, has/have ownership of/ entitlement to more than 15% of the property or capital or profits of the unincorporated association or body of individuals. D. Trust: BO’s include identification of the author of the trust, the trustee, the beneficiaries with 10% 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. Where no natural person is identified under A, B or C above, the BO is the relevant natural person who holds the position of senior managing official. Other Norms for Identification of BO’s (a) Where the customer or the owner of the controlling interest is (i) an entity listed on a stock exchange in India, or (ii) it is an entity resident in jurisdictions notified by the Central Government and listed on stock exchanges in such jurisdictions, or (iii) it is a subsidiary of such listed entities; it is not necessary to identify and verify the identity of any shareholder or beneficial owner of such entities. (b) In cases of trust/nominee or fiduciary accounts whether the customer is acting on behalf of another person as trustee/ nominee or any other intermediary is determined. In such cases, satisfactory evidence of the identity of the intermediaries and of the persons on whose behalf they are acting, as also details of the nature of the trust or other arrangements in place shall be obtained. 7.5.5 On-Going Due Diligence On-going due diligence of customers is required to ensure that their transactions are consistent with (i) the knowledge about the customers, customers’ business and risk profile; and (ii) the source of funds. Banks must give particular emphasis to the following types of transactions: (a) Large and complex transactions (including RTGS), and those with unusual patterns, inconsistent with the normal and expected activity of the customer, which have no apparent economic rationale or legitimate purpose. (b) Transactions which exceed the thresholds prescribed for specific categories of accounts.

316 (c) High account turnover inconsistent with the size of the balance maintained. (d) Deposit of third-party cheques, drafts, etc. in the existing and newly opened accounts followed by cash withdrawals for large amounts. Banks may adopt appropriate innovations including artificial intelligence and machine learning (AI & ML) technologies for effective monitoring. The extent of monitoring shall be aligned with the risk category of the customer, with high- risk customers subject to more intense monitoring. Following measures be adopted: (a) Periodic review of risk categorisation of accounts should be carried out at least once in six months, and if needed EDD measures to be applied. (b) The transactions in accounts of marketing firms, especially Multi-level Marketing (MLM) Companies shall be closely monitored. (c) Accounts showing following traits need to be reported immediately to RBI and FIU- India: (i) a large number of cheque books are sought by the company; (ii) multiple small deposits (generally in cash) across the country in one bank account; and/ or (iii) where a large number of cheques are issued bearing similar amounts/dates. 7.5.6 Updation / Periodic Updation of KYC Periodicity Periodic updation of KYC is required to be done at a periodicity as per risk category of the customer: (i) Low risk: 10 years; (ii) Medium Risk: 8 years and (iii) High risk: 2 years from the date of opening the account or the last updation date. KYC Policy of the bank should spell out the modality for periodic updation. Modalities To facilitate updation exercise, risk-based modalities have been advised by RBI. a) Individuals: (i) No change in KYC information: A self-declaration from the customer shall be obtained through any of these modes of - email-id or mobile number registered with the bank, ATMs, digital channels (online banking / internet banking, mobile application of RE), letter, etc. (ii) Change in address only: A self-declaration of the new address to be obtained through any of the modes stated above. New address shall be verified through positive confirmation within two months - address verification letter, contact point verification, deliverables, etc. (iii) Banks have the option of obtaining a copy of OVD or deemed OVD or the equivalent e-documents at the time of periodic updation if it is clearly specified in the KYC policy.

317 (iv) Minor’s accounts: For such accounts on the minor customer becoming major fresh photographs are required. It should be verified that the documents available are as per the current CDD standards. If required, fresh KYC may be carried out. (v) Aadhaar OTP based e-KYC in non-face to face mode may be used for periodic updation. These will continue to be treated as full KYC compliant accounts. If the address in Aadhaar is different, a self-declaration of current address will suffice, not requiring positive verification, if the mobile number registered with the bank is same as that in Aadhaar. b) Customers other than individuals (viz. Legal Entity (LE)) (i) No change in KYC information: A self-declaration from the LE customer to be obtained through its email id registered with the RE, ATMs, digital channels ( online banking / internet banking, mobile application of bank), letter from an official authorized by the LE in this regard, board resolution, etc. It should also be ensured that BO information available is accurate and update the same, if required. (ii) Change in KYC information: Need to undertake the KYC process as in case of on- boarding a new LE customer. c) Additional measures to be taken at the time of Periodic Updation (i) KYC documents are to be updated as per the current CDD standards, if required, even if there is no change in customer information. If the validity of the available documents has expired, bank should undertake the same process as for on boarding a new customer. (ii) To verify PAN details, at the time of periodic updation of KYC. (iii) Acknowledgment to be given to the customer giving the date of receipt of the document(s), including self-declaration. (iv) The information / documents obtained to be promptly updated in the records / database, and date of updation intimated to the customer. (v) The facility of periodic updation may be provided at any branch. (vi) Risk-based approach should be adopted with respect to periodic updation of KYC. (vii) Any additional and exceptional measures adopted, in addition to RBI mandated, must be included in te KYC Policy of the bank. These measures could include - obtaining recent photograph, requirement of physical presence of the customer, requirement of periodic updation of KYC only in the branch where account is maintained, a more frequent periodicity of KYC updation than the minimum specified periodicity etc. Customers should be advised that if any of the documents earlier submitted to the bank is updated, within 30 days the updated document should be furnished to the bank.

318 d) Furnishing of PAN by Customer Where a customer has not submitted PAN or Form 60, bank should insist upon it. After a date to be notified by the Central Govt., operations in the accounts of defaulting customers should be temporarily suspended till PAN/ Form 60 is submitted, after giving due notice and opportunity of hearing to the customer. In loan accounts credits can be received. In deserving cases of illness injury etc. relaxations may be given, with enhanced monitoring of such accounts. If a customer refuses in writing to provide PAN/ Form 60, the relationship should be terminated and all obligations paid out after proper identification of the customer. 7.5.7 Onboarding Modalities Other Than Face to Face A. Video Customer Identification Procedure Norms for Video Customer Identification Procedure (V-CIP) have been developed to facilitate on-line face to face interaction between the customer and the bank officials. V-CIP is a method of customer identification with facial recognition and customer due diligence by an authorised official of the bank by undertaking seamless, secure, live, informed-consent based audio-visual interaction with the customer to obtain identification information required for CDD purpose, and to ascertain the veracity of the information furnished by the customer through independent verification and maintaining audit trail of the process. Such processes complying with prescribed standards and procedures are treated on par with face-to-face CIP. It can be used for: (i) New customer on-boarding for individuals, proprietor of proprietorship firm, authorised signatories, and BOs of LE customers. For proprietorship firm, e-document of the activity proofs should also be obtained. (ii) Conversion of accounts opened in non-face to face mode using Aadhaar OTP based e-KYC authentication. (iii) Updation/ Periodic updation of KYC for eligible customers. Key norms for the V-CIP process are as follows: (i) RBI guidelines on minimum baseline cyber security and resilience framework for banks should be complied with. (ii) The technology infrastructure should be housed in own premises of the bank. (iii) V-CIP connection and interaction shall originate from bank’s own secured network domain. (iv) The V-CIP infrastructure / application should be capable of preventing connection from IP addresses outside India or from spoofed IP addresses.

319 (v) The video recordings should contain the live GPS co-ordinates (geo-tagging) of the customer undertaking the V-CIP and date-time stamp. The quality of the live video in the V-CIP shall be adequate to allow identification of the customer beyond doubt. (vi) The application shall have components with face liveness / spoof detection as well as face matching technology with high degree of accuracy. (vii) The V-CIP process shall be operated only by officials of the RE specially trained for this purpose. The official should be capable to carry out liveness check and detect any other fraudulent manipulation or suspicious conduct of the customer and act upon it. (viii) The customer consent should be recorded in an auditable and alteration proof manner. (ix) The sequence and/or type of questions, including those indicating the liveness of the interaction, during video interactions shall be varied in order to establish that the interactions are real-time and not pre-recorded. (x) Any prompting observed at end of customer shall lead to rejection of the account opening process. (xi) The authorised official of the RE performing the V-CIP shall record audio-video as well as capture photograph of the customer present for identification and obtain the identification information using any one of the following: (a) OTP based Aadhaar e-KYC authentication; (b) Offline Verification of Aadhaar for identification; (c) KYC records downloaded from CKYCR using the KYC identifier provided by the customer; (d) Equivalent e-document of Officially Valid Documents (OVDs) including documents issued through DigiLocker. (xii) If the address of the customer is different from that indicated in the OVD, suitable records of the current address shall be captured, as per the existing requirement. (xiii) It shall be ensured that the economic and financial profile/information submitted by the customer is also confirmed from the customer undertaking the V-CIP in a suitable manner. (xiv) Bank shall capture a clear image of PAN card to be displayed by the customer during the process, except in cases where e-PAN is provided by the customer. (xv) Use of printed copy of equivalent e-document including e-PAN is not valid for the V-CIP. (xvi) The authorised official shall ensure that photograph of the customer in the Aadhaar/ OVD and PAN/ e-PAN matches with the customer undertaking the V-CIP and the identification details in Aadhaar/ OVD and PAN/ e-PAN match with the details provided by the customer.

320 (xvii)Assisted V-CIP shall be permissible when banks take help of Business Correspondents (BCs) facilitating the process only at the customer end. (xviii)All accounts opened through V-CIP shall be made operational only after being subject to concurrent audit, to ensure the integrity of process and its acceptability of the outcome. (xix) The entire data and recordings of V-CIP shall be stored in a system located in India. (xx) REs shall ensure that the video recording is stored in a safe and secure manner and bears the date and time stamp that affords easy historical data search. (xxi) The activity log along with the credentials of the official performing the V-CIP shall be preserved. B. Digital KYC PMLR contain provisions for “Digital KYC”. It means the capturing live photo of the customer and OVD or the proof of possession of Aadhaar, where offline verification cannot be carried out, along with the latitude and longitude of the location where such live photo is being taken by an authorised officer of the bank as per the provisions contained in the Act. Key norms for the digital-KYC process are as follows: (i) Banks are required to develop an application for digital KYC process which shall be made available at the customer touch points. (ii) The access of the Application shall be controlled through login-id and password or Live OTP or Time OTP and it should be ensured that the same is not used by unauthorized persons. (iii) The customer, for the purpose of KYC, shall visit the location of the authorized official of the RE or vice-versa, and should have the original OVD. (iv) Live photograph (not printed or video-graphed photograph) of the customer is taken by the authorised officer and it is embedded in the Customer Application Form (CAF). (v) The background behind the customer while capturing live photograph should be of white colour and no other person shall come into the frame while capturing the live photograph of the customer. (vi) The Application shall put a water-mark in readable form having CAF number, GPS coordinates, authorized official’s name, unique employee Code and Date (DD:MM:YYYY) and time stamp (HH:MM:SS) on the photograph. (vii) The live photograph of the original OVD or Aadhaar letter/ card where offline verification cannot be carried out (placed horizontally), shall be captured vertically from above and water-marked in readable form.

321 (viii) No skew or tilt in the mobile device shall be there while capturing the live photograph of the original documents. (ix) All the entries in the CAF shall be filled as per the documents and information furnished by the customer. In those documents where Quick Response (QR) code is available, such details can be auto populated by scanning the QR code instead of manual filing the details. (x) A One Time Password (OTP) message containing the text that ‘Please verify the details filled in form before sharing OTP’ shall be sent to customer’s own mobile number. (xi) Upon successful validation of the OTP, it will be treated as customer signature on CAF. (xii) If a customer does not have a mobile number, then mobile number of his/her family/ relatives/known persons may be used and mentioned in the CAF. Mobile number of the bank’s officer should not be used. (xiii) The authorised officer shall provide a declaration (verified through OTP), containing his live photograph, about the capturing of the live photograph of customer and the original document. (xiv) An activation request is sent to activation officer of the bank, and the transaction-id/ reference-id number of the process is generated and intimated to the customer. (xv) The authorized officer shall check and verify that:- (a) information available in the picture of document is matching with the information entered in CAF. (b) live photograph of the customer matches with the photo available in the document.; and (c) all of the necessary details in CAF including mandatory field are filled properly. (xvi) The CAF shall be digitally signed by authorized officer. (xvii) A print of CAF is taken and the customer’s signature/ thumb-impression taken on it, then scanned and uploaded in system. The original is given to the customer. (xv) The process may be carried out by a Business Correspondent in lieu of an authorised officer of the bank. C. EDD for Non-Face-To-Face Customer Onboarding Non-face-to-face onboarding here includes use of digital channels such as CKYCR, Digi Locker, equivalent e-document, etc., and non-digital modes such as obtaining copy of OVD certified by additional certifying authorities as allowed for NRIs and PIOs. But it does not include onboarding through Aadhaar OTP based e-KYC or through V-CIP. Following EDD measures are required to be taken in the non-face-to-face onboarding: (a) The process of V-CIP (if available with the bank) shall be provided as the first option to the customer for remote onboarding, which is treated on par with face-to-face CIP.

322 (b) Alternate mobile numbers shall not be linked post CDD with such accounts for transaction OTP, transaction updates, etc. (c) Transactions shall be permitted only from the mobile number used for account opening. (d) Apart from obtaining the current address proof, RE shall verify the current address through positive confirmation before allowing operations in the account. (e) Positive confirmation may be carried out by means such as address verification letter, contact point verification, deliverables, etc. (f) PAN should be obtained and verified. (g) First transaction in such accounts shall be a credit from existing KYC-complied bank account of the customer. (h) Such customers shall be categorized as high-risk customers and the accounts shall be subjected to enhanced monitoring until the identity is verified in face-to-face manner or through V-CIP. 7.6 SPECIAL CASES When opening accounts or onboarding customers of certain categories or through certain modes certain specified measures stated below should be undertaken. 7.6.1 Aadhaar OTP based e-KYC (Non-face-to-face) Accounts (i) Specific customer consent is required for authentication through OTP. (ii) Transaction alerts, OTP, etc., should be sent only to the mobile number registered with Aadhaar. Banks shall have a board approved policy delineating a robust process of due diligence for dealing with requests for change of mobile number in such accounts. (iii) The aggregate balance of all the deposit accounts of the customer shall not exceed `1 lakh. If the threshold is breached, the account shall cease to be operational, till CDD is complete. (iv) The aggregate of all credits in a financial year, in all the deposit accounts taken together, shall not exceed `2 lakh. (v) Only term loans shall be sanctioned as credit facility, and aggregate term loans sanctioned in a year shall not exceed rupees `60,000/-. (vi) These accounts (both deposit and borrowal) shall not be allowed for more than one year, without carrying out normal KYC or V-CIP. If Aadhaar details are used fresh Aadhaar OTP authentication will be required. (vii) If the CDD procedure is not completed within a year, the deposit accounts shall be closed immediately, and in borrowal accounts no further debits shall be allowed.

323 (viii) A declaration shall be obtained from the customer that no other account has been opened nor will be opened using OTP based KYC in non-face-to-face mode with any other bank. (ix) While uploading KYC information to CKYCR, it should be clearly indicated that such accounts are opened using OTP based e-KYC, in non-face-to- face mode. (x) There should be strict monitoring procedures including systems to generate alerts in case of any non-compliance/ violation. 7.6.2 Small Accounts (i) A self-attested photograph of the customer is obtained. (ii) The designated bank officer certifies that the person opening the account has affixed his signature or thumb impression in his presence. (iii) In case of prisoners in jail, the officer-in-charge of the jail shall certify this for opening the account and thereafter every year till the person is in prison. (iv) Ceilings applicable: (a) Aggregate credits in the account in a financial year should not exceed `1 lakh. (b) Aggregate of all withdrawals and transfers in a month does not exceed `10,000/-. (c) Balance at any point of time does not exceed `50,000/-. (Not to be considered when depositing Government grants, welfare benefits and payment against procurements.) (vi) Should be opened only at the branches linked to the core banking system of the bank. (vii) To take care the stipulated monthly and annual limits on aggregate of transactions and balance requirements in such accounts are not breached, before a transaction is allowed to take place. (viii) Foreign remittance shall not be allowed to be credited into the account unless the identity of the customer is fully established (ix) The account is initially opened for 12 months, during which the usual KYC should be completed. It can be extended for another 12 months, if the customer provides evidence of having applied for an OVD. (x) After 24 months the relaxations need to be reviewed. 7.6.3 Simplified norms for Self Help Groups (SHGs) (i) CDD of all the members of SHG is not required while opening the SB account of the SHG. (ii) CDD of all the office bearers shall suffice.

324 (iii) CDD of all the members of SHG may be undertaken at the time of credit linking of SHGs. 7.6.4 Accounts of Foreign Students (i) Banks shall, at their option, open a NRO bank account of a foreign student on the basis of his/her passport (with visa & immigration endorsement) bearing the proof of identity and address in the home country together with a photograph and a letter offering admission from the educational institution in India. (ii) A declaration about the local address shall be obtained within a period of 30 days of opening the account and the it should be verified. (iii) Pending the verification of address, should allow foreign remittances into the account not exceeding USD 1,000 or equivalent and a cap of rupees fifty thousand on aggregate during the 30-day period. (iv) It shall be treated as a normal NRO account. (v) Students with Pakistani nationality shall require prior approval of the RBI for opening the account. 7.6.5 Accounts for Foreign Portfolio Investors (FPIs) (i) Accounts of FPIs (eligible/ registered as per SEBI guidelines) for the purpose of investment under Portfolio Investment Scheme (PIS), shall be opened by accepting KYC documents indicated below, and subject to Income Tax (FATCA/CRS) Rules. (ii) Banks should obtain undertaking from FPIs or the Global Custodian acting on behalf of the FPI that as and when required, the exempted documents will be submitted.

325 Table: Documents to be obtained for FPIs of Various Categories Document Type FPI Type Category I Entity Level Constitutive Documents Mandatory Category II Category III (Memorandum and Mandatory Mandatory Articles of Association, Certificate of Mandatory Mandatory Mandatory Incorporation etc.) other than Power of Proof of Address Attorney (Power of (PoA Mandatory Mandatory Attorney mentioning Mandatory {PoA} the address mentioning is acceptable the address is as address acceptable as proof) address proof) PAN Mandatory Mandatory Financial Data Exempted * Exempted * SEBI Registration Mandatory Mandatory Certificate Board Resolution @@ Exempted * Mandatory Mandatory Mandatory Mandatory Senior List Exempted * Exempted * Mandatory Management Proof of Identity Exempted * Exempted * Entity (Whole Time Exempted * Exempted * declares* on letter head Directors/ full name, nationality, Partners/ date of birth or submits photo Trustees/etc.) identity proof Proof of Address Declaration on Photographs Letter Head * Exempted *

326 Document Type FPI Type Authorized List and Signatures Category I Category II Category III Signatories Mandatory – Mandatory – Mandatory list of Global list of Global Custodian Custodian signatories signatories can be given can be in case of given in PoA to Global case of PoA Custodian to Global Custodian Proof of Identity Exempted * Exempted * Mandatory Proof of Address Photographs Exempted * Exempted * Declaration on List Letter Head * Proof of Identity Exempted * Exempted * Exempted * Proof of Address Ultimate Photographs Exempted * Mandatory Mandatory Beneficial (can declare Owner “no UBO (UBO) over 10%”) Exempted * Exempted * Mandatory Exempted * Exempted * Declaration on Letter Head * Exempted * Exempted * Exempted * * Not required while opening the bank account. However, FPIs concerned may submit an undertaking that upon demand by Regulators/Law Enforcement Agencies the relative document/s would be submitted to the bank. @@ FPIs from certain jurisdictions where the practice of passing Board Resolution for the purpose of opening bank accounts etc. is not in vogue, may submit ‘Power of Attorney granted to Global Custodian/Local Custodian in lieu of Board Resolution’.

327 Category Eligible Foreign Investors I. Government and Government related foreign investors such as Foreign Central Banks, Governmental Agencies, Sovereign Wealth Funds, International/ Multilateral Organizations/ Agencies. II. a) Appropriately regulated broad based funds such as Mutual Funds, Investment Trusts, Insurance /Reinsurance Companies, Other Broad Based Funds etc. b) Appropriately regulated entities such as Banks, Asset Management Companies, Investment Managers/ Advisors, Portfolio Managers etc. c) Broad based funds whose investment manager is appropriately regulated. d) University Funds and Pension Funds. e) University related Endowments already registered with SEBI as FII/Sub Account. III. All other eligible foreign investors investing in India under PIS route not eligible under Category I and II such as Endowments, Charitable Societies/ Trust, Foundations, Corporate Bodies, Trusts, Individuals, Family Offices, etc. 7.6.6 Accounts of Politically Exposed Persons (PEPs) or With PEP as BO (i) Sufficient information including about the sources of funds, accounts of family members and close relatives should be gathered. (ii) The identity of the person should be verified before accepting the PEP as a customer. (iii) The decision to open an account for a PEP is taken at a senior level as specified in te bank’s CAP. (iv) All such accounts are subjected to enhanced monitoring on an on-going basis. (v) If an existing customer or the BO of an existing account subsequently becomes a PEP, senior management’s approval should be obtained to continue the business relationship; (vi) The CDD measures applicable to PEPs including enhanced monitoring on an on-going basis to be made applicable in such cases. 7.6.7 Client Accounts Opened by Professional Intermediaries (i) Clients shall be identified when client account is opened on behalf of a single client. (ii) Banks may hold ‘pooled’ accounts managed by professional intermediaries on behalf of entities like mutual funds, pension funds or other types of funds. (iii) Banks shall not open accounts of professional intermediaries who are bound by any client confidentiality that prohibits disclosure of the client details.

328 (iv) All the BOs shall be identified where funds held by the intermediaries are not co- mingled at the level of the bank, and there are ‘sub-accounts’, each of them attributable to a BO, or where such funds are co-mingled at the level of the bank, it shall look for the BOs. (v) Banks shall, at their discretion, rely on the CDD done by an intermediary, provided that the intermediary is a regulated and supervised entity and has adequate KYC systems in place. (vi) The ultimate responsibility for knowing the customer lies with the bank. 7.7 RECORD MANAGEMENT Under the provisions of PMLA/ PMLR banks are required to maintain specified records for the prescribed periods. Accordingly, banks should: (i) maintain all necessary records of transactions, both domestic and international, for at least five years from the date of transaction; (ii) preserve the records pertaining to the identification of the customers and their addresses obtained while opening the account and during the course of business relationship, for at least five years after the business relationship is ended; (iii) imake available swiftly, the identification records and transaction data to the competent authorities upon request; (iv) introduce a system of maintaining proper record of transactions prescribed under Rule 3 of PMLR; (v) maintain all necessary information in respect of transactions prescribed under PML Rule 3 to permit reconstruction of individual transaction, including the following: (a) the nature of the transactions; (b) the amount of the transaction and the currency in which it was denominated; (c) the date on which the transaction was conducted; and (d) the parties to the transaction. (vi) evolve a system for proper maintenance and preservation of account information so that it can be retrieved easily and quickly; (vii) maintain records in hard or soft format. (viii) “Records pertaining to the identification”, “Identification records”, etc., include updated records of the identification data, account files, business correspondence and results of any analysis undertaken. (ix) In case of non-profit organisations, the details are registered on the DARPAN Portal of NITI Aayog. If the same are not registered, the bank shall do so and also maintain such registration records for a period of five years after the business relationship has ended or the account has been closed, whichever is later.

329 7.8 REPORTS TO FINANCIAL INTELLIGENCE UNIT - INDIA Banks are required to submit to the Director, FIU- India following reports in prescribed manner. 7.8.1 Cash Transactions Report (CTR) CTR should include for a customer all individual cash transactions of `10 lakh or more and integrally connected cash transactions aggregating `10 lakh or more during a calendar month. It should be submitted by the 15th of the month following the month to which it pertains. 7.8.2 Non-Profit Organisation Reports (NTR) NTR should include all transactions involving receipt of more than `10 lakh by a non-profit organisation during the month. It should be submitted by the 15th of the following month. 7.8.3 Cross Border Transactions Report (CBTR) CBTR should include all cross border wire transfers of more than `5 lakh during the month, where either origination or destination of funds is in India. It should be submitted by the 15th of the following month. 7.8.4 Counterfeit Currency Report (CCR) CCR should include all cash transactions, where forged or counterfeit Indian currency notes have been used as genuine during the month. It should be submitted by the 15th of the next month on the prescribed format. Cash transactions where forgery of valuable security or documents has taken place should also be reported to FIU-IND in plain text form. 7.8.5 Suspicious Transaction Reports (STR) Suspicious transactions are to be determined as per the definition of suspicious transaction contained in PMLR that cover transactions that are: (i) suspected to involve proceeds of scheduled offence, or (ii) suspected to be for terrorism financing; or (iii) unusual or of unjustified complexity; or (iv) not having apparent economic rationale or bonafide purpose. It is to be submitted as and when a transaction is determined as suspicious, within seven days of such determination. Attempted transactions should also be reported. It should include transactions irrespective of the amount and the mode that is in cash, by cheque or digital. The reasons for treating any transaction or a series of transactions as suspicious should be recorded. Banks should not put any restrictions on operations in the accounts where an STR has been made. Banks and their employees should keep the fact of furnishing of STR strictly confidential. It should be ensured that there is no tipping off to the customer at any level. Robust software, throwing alerts when the transactions are inconsistent with risk categorization and updated profile of the customers shall be put in to use as a part of effective identification and reporting of suspicious transactions.

330 7.9 MONEY LAUNDERING AND TERRORIST FINANCING RISK ASSESSMENT Banks shall carry out ‘ML and TF Risk Assessment’ exercise periodically (at least once in a year) to identify, assess and take effective measures to mitigate its money laundering and terrorist financing risk for clients, countries or geographic areas, products, services, transactions or delivery channels, etc. It should consider all the relevant risk factors before determining the level of overall risk and the appropriate level and type of mitigation to be applied. It shall be properly documented and be proportionate to the nature, size, geographical presence, complexity of activities/structure, etc. of the bank. The outcome shall be put up to the Board/ Committee of the Board. Board approved policies, controls and procedures for mitigation and management of the identified risk should be adopted based on Risk Based Approach. 7.10 DESIGNATING SPECIFIC FUNCTIONARIES 7.10.1 Designated Director Banks are required to specify a “Designated Director” (DD) (to be nominated by the Board) to ensure overall compliance with the obligations under PMLA and PMLR. Particulars of the DD shall be communicated to the FIU-IND and RBI. In no case, the Principal Officer shall be nominated as the DD. 7.10.2 Principal Officer Banks should appoint a Principal Officer (PO) who shall be responsible for ensuring compliance, monitoring transactions, and sharing and reporting information as required under the law/regulations. Particulars of the PO shall be communicated to the FIU-IND and RBI. 7.11 REQUIREMENTS/ OBLIGATIONS UNDER INTERNATIONAL AGREEMENTS - COMMUNICATIONS FROM INTERNATIONAL AGENCIES 7.11.1 Sanctions Related Obligations under the Unlawful Activities (Prevention) (UAPA) Act, 1967 Banks should ensure that no account is in their books in the name of individuals/entities appearing in the following lists of individuals and entities, suspected of having terrorist links circulated by the UN Security Council: (i) The “ISIL (Da’esh) &Al-Qaida Sanctions List” (UNSCR resolutions 1267/1989/2253) (ii) The “Taliban Sanctions List” (UNSCR 1988 (2011)) Banks should also refer to the lists as available in the Schedules to the Prevention and Suppression of Terrorism (Implementation of Security Council Resolutions) Order, 2007.

331 Details of accounts resembling any of the individuals/entities in the lists shall be reported to FIU-IND and Ministry of Home Affairs (MHA) as required under UAPA notification dated February 2, 2021. The procedure laid down in this order for freezing of assets should be scrupulously followed. Obligations under Weapons of Mass Destruction (WMD) and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 (WMD Act, 2005) Banks should ensure compliance with the “Procedure for Implementation of Section 12A of the Weapons of Mass Destruction (WMD) and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 contained in Order dated January 30, 2023, by the Ministry of Finance, Govt. of India. Banks shall ensure not to carry out transactions in case the particulars of the individual / entity match with the particulars in the designated list. Banks should run a check to verify whether individuals and entities in the designated list are holding any funds, financial asset, etc., in the form of bank account, etc. In case of any match the prescribed procedure should be followed. Banks shall also verify ‘UNSCR 1718 Sanctions List of Designated Individuals and Entities‘, pertaining to ensure compliance with the ‘Implementation of Security Council Resolution on Democratic People’s Republic of Korea Order, 2017’. Besides, banks should consider – (a) other UNSCRs and (b) lists in the first schedule and the fourth schedule of UAPA, 1967 for compliance with the orders take into account – (a) other UNSCRs and (b) lists in the first schedule and the fourth schedule of UAPA, 1967. Banks should leverage latest technological innovations and tools for effective implementation of name screening to meet the sanctions requirements. 7.11.2 Jurisdictions that do not or insufficiently apply the FATF Recommendations Banks should consider risks arising from the deficiencies in AML/CFT regime of the jurisdictions included in the FATF Statement. Special attention shall be given to business relationships and transactions with persons from or in such countries. Banks are not prevented from having legitimate trade and business transactions with the countries and jurisdictions mentioned in the FATF statement. The background and purpose of transactions wit such persons shall be examined. Written findings together with all documents shall be retained and shall be made available to RBI/ other relevant authorities, on request. 7.12 WIRE TRANSFER 7.12.1 Information Requirements (i) All cross-border wire transfers shall be accompanied by accurate, complete, and meaningful originator and beneficiary information as follows: (a) Originator - name; number of the account used for transaction; address, or national identity number, or customer identification number, or date and place of birth; (b) Beneficiary: Name;

332 number of the account used to process the transaction. If no account is used, a unique transaction reference number to be included for traceability. (ii) In case of batch transfer, of several individual cross-border wire transfers from a single originator in a batch file.each individual transfer may not contain originator information, if they include the originator’s account number or unique transaction reference number, and the batch file contains required and accurate originator information, and full beneficiary information, fully traceable within the beneficiary country. (iii) Domestic wire transfer, where the originator is an account holder of the ordering bank, shall be accompanied by originator and beneficiary information, as indicated for cross- border wire transfers. (iv) Domestic wire transfers of ₹50,000/- and above, where the originator is not an account holder of the ordering bank, shall also be accompanied by originator and beneficiary information as indicated for cross-border wire transfers. (v) Banks should ensure that all the information on the wire transfers shall be immediately made available to appropriate law enforcement and/or prosecutorial authorities as well as FIU-IND on receiving such requests with appropriate legal provisions. (vi) Following types of payments are not covered by these norms: (a) Any transfer arising from a transaction with a credit / debit card / Prepaid Payment Instrument (PPI), including through a token or similar reference string associated with the card / PPI, for the purchase of goods or services, if the credit/ debit card number or PPI ID or reference number accompanies all transfers flowing from the transaction. However, when a credit/ debit card/ PPI is used for a person-to-person transfer, the necessary information should be included in the message. (b) Transfers and settlements, where both the originator person and the beneficiary person are regulated financial institutions acting on their own behalf. 7.12.2 Responsibilities of Ordering, Intermediary and Beneficiary banks (i) Ordering Bank: (a) To ensure all cross-border and qualifying domestic wire transfers contain required and accurate originator information and required beneficiary information. (b) Customer, if not an account holder, to be identified, if intentionally structuring domestic wire transfers below ₹50,000/- to avoid reporting or monitoring. In case of non-cooperation, efforts shall be made to establish identity and if the transaction is found to be suspicious, STR may be filed. (c) Should not execute the transfer if is not able to comply with the stipulated requirements. (ii) Intermediary RE: (a) When processing an intermediary element of a chain of wire transfers shall ensure that all originator and beneficiary information accompanying a wire transfer is retained with the transfer. (b) If technical limitations prevent the

333 required originator or beneficiary information accompanying a cross-border wire transfer to remain with a related domestic wire transfer, to keep a record, for at least five years, of all the information received from the ordering financial institution or another intermediary financial institution. (c) Should take reasonable measures, consistent with straight-through processing, to identify cross-border wire transfers that lack required originator information or required beneficiary information. (d) Should have effective risk-based policies and procedures for determining - when to execute, reject, or suspend a wire transfer lacking required originator or required beneficiary information; and the appropriate follow-up action including seeking further information and if the transaction is found to be suspicious, reporting to FIU-IND. (iii) Beneficiary RE: (a) Should take reasonable measures, including post-event monitoring or real-time monitoring where feasible, to identify cross-border wire transfers and qualifying domestic wire transfers, that lack required originator information or required beneficiary information. (b) Should have effective risk-based policies and procedures for determining - when to execute, reject, or suspend a wire transfer lacking required originator or required beneficiary information; and the appropriate follow-up action follow-up action including seeking further information and if the transaction is found to be suspicious, reporting to FIU-IND. (iv) Money Transfer Service Scheme (MTSS) Providers: Should comply with all the relevant requirements, whether providing services directly or through their agents. A MTSS provider that controls both the ordering and the beneficiary side, should: (a) take into account all the information from both the ordering and beneficiary sides in order to determine whether an STR has to be filed; and (b) file an STR with FIU, if a transaction is found to be suspicious. 7.12.3 Other Obligations (i) Wire Transfers Involving Unregulated Entities Banks shall ensure strict compliance, in respect of engagement of any unregulated entities in the process of wire transfer. The concerned banks shall be fully responsible for information, reporting and other requirements. They should ensure, inter alia, that: (a) there is unhindered flow of complete wire transfer information from and through the unregulated entities. (b) the agreement / arrangement, if any, with such unregulated entities clearly stipulates the obligations under wire transfer instructions; and (c) a termination clause is available in their agreement / arrangement, if any, so that in case the unregulated entities are unable to support the wire information requirements, it can be terminated.

334 (ii) Responsibility of Name Screening for Cross-Border Wire Transfers Banks shall ensure not to process cross-border transactions of designated persons and entities. (iii) Responsibility of Record Management Complete originator and beneficiary information relating to wire transfers shall be preserved by the banks involved in the wire transfer. 7.13 OTHER INSTRUCTIONS 7.13.1 Secrecy Obligations and Sharing of Information Banks shall maintain secrecy regarding the customer information, and information collected for the purpose of opening of account shall not be divulged for the purpose of cross selling, or for any other purpose without the express permission of the customer. When considering the requests for data/information from Govt. and other agencies, it should be ensured that it will not violate the provisions of the laws relating to secrecy in the transactions. Following exceptions apply to this: (i) Where disclosure is under compulsion of law; (ii) Where there is a duty to the public to disclose; (iii) The interest of bank requires disclosure; and (iv) Where the disclosure is made with the express or implied consent of the customer. 7.13.2 CKYCR - DD Procedure and Sharing KYC information Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) is authorised to act as, and to perform the functions of the CKYCR. Banks shall upload customer’s KYC records, as per the templates prepared for ‘Individuals’ and ‘Legal Entities’ (Les), onto CKYCR within 10 days of commencement of an account-based relationship with the customer. Once KYC Identifier is generated by CKYCR, banks should communicate it to the individual/LE. During periodic updation, the customers should be migrated to the current CDD standard. If for establishing an account-based relationship, a customer submits a KYC Identifier with an explicit consent to download records from CKYCR, he should not be required to submit the same KYC records or information or any other additional identification documents or details, unless: (i) there is a change in the information of the customer as existing in the records of CKYCR; (ii) the current address of the customer is required to be verified; (iii) the bank considers it necessary in order to verify the identity or address of the customer, or to perform enhanced due diligence or to build an appropriate risk profile of the client; (iv) the validity period of documents downloaded from CKYCR has lapsed. 7.13.3 Reporting requirement under Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS) In respect of FATCA and CRS, banks should adhere to the provisions of Income Tax Rules 114F, 114G and 114H. Banks should register as Reporting Financial Institutions, and submit

335 online reports under digital signature of the ‘Designated Director’ on Form 61B or ‘NIL’ report based on the schema prepared by Central Board of Direct Taxes (CBDT). Banks should develop IT framework for due diligence procedure and a system of audit for the IT framework and compliance. A “High Level Monitoring Committee” under the Designated Director should be set up to ensure compliance. 7.13.4 Period for Presenting Payment Instruments Payment of cheques/drafts/ pay orders/ banker’s cheques, if they are presented beyond the period of three months from the date of such instruments, shall not be made. 7.13.5 Operation of Bank Accounts & Money Mules The instructions on opening of accounts and monitoring of transactions shall be strictly followed to minimise the operations of “Money Mules”. If it is established that an account opened and operated is that of a Money Mule, it shall be deemed that the bank has not complied with KYC directions. 7.13.6 Collection of Account Payee Cheques Account payee cheques for any person other than the payee constituent shall not be collected. Banks shall, at their option, collect account payee cheques drawn for an amount not exceeding `50,000/- to the account of a co-operative credit society, if the payees of such cheques are the constituents of that co-operative credit society. 7.13.7 Unique Customer Identification Code (UCIC) A UCIC shall be allotted to individual customers while entering into new relationships as also the existing individual customers. For walk-in/ occasional customers, banks may, at their option, not issue UCIC provided there is adequate mechanism to identify walk-in customers who have frequent transactions with them and ensure that they are allotted UCIC. 7.13.8 Introduction of New Technologies Banks should identify and assess the ML/TF risks that may arise in relation to the development of new products, business practices, delivery mechanisms, technologies for both new and pre-existing products. They should undertake ML/TF risk assessment prior to the launch or use of such products, practices, services, technologies; and adopt a risk-based approach to manage and mitigate the risks. 7.13.9 Correspondent Banking Banks shall have a policy approved by Boards/ a committee headed by the Chairman/CEO/ MD to lay down parameters for approving cross-border correspondent banking and other similar relationships. In addition to normal CDD, following conditions will apply: (i) Sufficient information in relation to the nature of business of the respondent including information on management, major business activities, level of AML/CFT controls, purpose of opening the account, identity of any third party entities that will use the

336 correspondent banking services, regulatory/supervisory framework in the respondent bank’s home country, and publicly available information regarding the reputation of the institution and the quality of supervision, including whether it has been subjected to a ML/TF investigation or regulatory action, shall be gathered. (ii) Prior approval from senior management and post facto approval of the Board/ Committee empowered for this purpose shall be taken. (iii) Responsibilities of each bank shall be clearly documented. (iv) For payable-through-accounts, should be satisfied that the respondent bank has conducted CDD and is undertaking on-going ‘due diligence’ on the customers having direct access. The respondent bank should be able to provide the relevant CDD information immediately on request. (v) Correspondent relationship shall not be entered into with a shell bank. (vi) Banks should ensure that the correspondent banks do not permit their accounts to be used by shell banks. (vii) Banks shall be cautious with correspondent banks located in jurisdictions which have strategic deficiencies or have not made sufficient progress in implementation of FATF Recommendations. (viii) Banks shall ensure that respondent banks have KYC/AML policies and procedures in place and apply enhanced ‘due diligence’ procedures for transactions carried out through the correspondent accounts. 7.13.10 Issue and Payment of Demand Drafts, etc. For demand draft, mail/ telegraphic transfer/ NEFT/ IMPS or any other remittance mode and issue of travellers’ cheques of `50,000/- and above shall be effected by debit to the customer’s account or against cheques and not against cash payment. The name of the purchaser shall be incorporated on the face of the demand draft, pay order, banker’s cheque, etc., by the issuing bank. 7.13.11 Quoting of PAN PAN or equivalent e-document thereof of customers shall be obtained and verified while undertaking transactions as per the provisions of Income Tax Rule 114B applicable to banks, as amended from time to time. Form 60 shall be obtained from persons who do not have PAN or equivalent e-document thereof. 7.13.12 Selling Third party products Banks acting as agents while selling third party products should comply with the following aspects: (a) the identity and address of the walk-in customer shall be verified for transactions above `50,000/-. (b) transaction details of sale of third-party products and related records

337 shall be maintained as prescribed. (c) AML software capable of capturing, generating and analysing alerts for the purpose of filing CTR/ STR in respect of transactions relating to third party products with customers including walk-in customers should be deployed. (d) transactions involving rupees `50,000/- and above shall be undertaken only by - debit to customers’ account or against cheques; and obtaining and verifying the PAN (given by the account-based as well as walk-in customers. (e) This Instruction shall also apply to sale of own products, payment of dues of credit cards/ sale and reloading of prepaid/travel cards and any other product for `50,000/- and above. 7.13.13 At-Par Cheque Facility Availed by Co-Operative Banks ‘At par’ cheque facility offered to co-operative banks shall be monitored and reviewed to assess the risks. Right to verify the records maintained by the customer cooperative banks/ societies under such arrangements shall be retained by banks providing the facility. Cooperative banks availing the facility should ensure that the ‘at par’ cheque facility is utilised only for their own use, and for their account-holders who are KYC compliant. All transactions of `50,000/- or more should be by debit to the customers’ accounts, and for walk-in customers against cash for less than `50,000/- per individual. They should maintain: (a) records pertaining to issuance of ‘at par’ cheques, and (b) sufficient balances/ drawing arrangements. ‘At par’ cheques should be crossed ‘account payee’ irrespective of the amount involved. 7.13.14 Issuance of Prepaid Payment Instruments (PPIs) PPI issuers shall ensure the instructions issued by RBI are strictly adhered to. 7.13.15 Hiring of Employees and Employee training Banks should have adequate screening mechanism, including Know Your Employee / Staff policy. They should ensure that the staff dealing with/ being deployed for KYC/AML/CFT matters have high integrity and ethical standards, good understanding of extant standards, effective communication skills and ability to keep up with the changing landscape, nationally and internationally. They should also develop an environment which fosters open communication and high integrity amongst the staff. On-going employee training programme shall be put in place so that staff are adequately trained in KYC/AML/CFT policy. The focus shall be different for frontline staff, compliance staff and staff dealing with new customers. The front desk staff should be trained to handle issues arising from lack of customer education. Audit function should have persons adequately trained and well-versed in KYC/AML/CFT policies of the RE, regulation and related issues. 7.14 LET US SUM UP 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

338 and their financial dealings better which in turn helps them manage their risks prudently. At the same time banks have to ensure that the customer is not put to undue hardship. Four key elements of KYC Policy are: Customer Acceptance Policy; Customer Identification Procedures; Monitoring of Transactions; and Risk management. Banks are required to take various measures to mitigate the ML/TF risks faced by them adopting risk based approach. Customer Due Diligence is the primary mitigant for ML/TF risks. Banks should adopt Enhanced Due Diligence where ML/TF risks are high. Banks are required to assess the ML/TF risks faced by them in respect of their products, delivery channels, customers, geographies, and transactions. Monitoring customer transactions on ongoing basis is another key element of the AML framework. Effective monitoring of transactions is important for prompt submission of various reports including the Suspicious Transactions Report to FIU-IND. Information contained in the wire transfer messages has been standardised to facilitate better monitoring by beneficiary bank. Certain other restrictions like transactions in cash, obtention of PAN, etc. also serve as mitigants for ML/TF risks. 7.15 KEY WORDS Customer, Beneficial Owner, Customer Acceptance Policy, Customer Identification Procedure, Customer Due Diligence, Enhanced Due Diligence, Transaction Monitoring, Know Your Customer Policy, Beneficial Owners, Money Laundering, Terrorism Financing, Risk BasedApproach, OfficiallyValid Documents,Video- Customer Identification Procedure, Digital KYC, Non-face-to-face, OTP based Verification, Wire Transfer, Ordering Bank, Intermediary Bank, Beneficiary Bank, Cash Transactions Report, Non-Profit Organisation Transactions Report, Cross Border Wire Transfers Report, Counterfeit Currency Report, Financial Intelligence Unit, Law Enforcement Agency. 7.16 CHECK YOUR PROGRESS (1) Which of the following is not one of the 4 key elements of KYC? (a) Customer Acceptance Policy; (b) Customer Identification Procedures; (c) Monitoring of Transactions; and (d) Funds management

339 (2) ____ is not an Officially Valid Document. (a) Driving Licence (b) Passport (c) PAN Card (d) Voter ID (3) Certificate of incorporation is required for opening the account of a ____. (a) Partnership firm (b) Limited company (c) Trust (d) Proprietory concern (4) Wire transfers from or to a location in India from any location outside India above `_____ lakh are required to be reported in Cross Border Wire Transfer Report to FIU- IND. (a) 10 (b) 20 (c) 35 (d) 5 (5) Receipts from foreign sources above `______ lakh in the accounts of Non-Profit Organizations are required to be reported in Non- Profit Organisation Transactions Report to FIU-IND. (a) 10 (b) 20 (c) 35 (d) 50 7.17 KEY TO CHECK YOUR PROGRESS 1 (d); 2 (c); 3 (b); 4 (d); 5 (a) References : RBI Master Directions 1) RBI Circular DBR No. DBR.AML.BC.No.81/14.01.001/2015-16 - Master Direction - Know Your Customer (KYC) Direction, 2016 dated February 25, 2016 (Updated as on May 04, 2023) (https://www.rbi.org.in/Scripts/BS_ViewMasDirections. aspx?id=11566)

340 CHAPTER 8 CUSTOMER SERVICE – OPERATIONAL ASPECTS OF BANKING STRUCTURE 8.1 Customer Confidentiality Obligations 8.2 Operations in Savings & Time Deposit accounts 8.3 Nomination Facility in Accounts 8.4 Income Tax Act Provisions - Cash Operations 8.5 Attachment Orders 8.6 Remittance - Demand Drafts 8.7 Collection of Instruments 8.8 Clean Note Policy 8.9 Safe Deposit Lockers 8.10 Guidance to Customers and Disclosure of Information 8.11 Disclosure of Information by Banks in the Public Domain 8.12 Dealing with Complaints and Improving Customer Relations 8.13 Grievance Redressal Mechanism 8.14 Review of Grievances Redressal Machinery in Public Sector Banks 8.15 Reconciliation of Transactions at ATMs Failure – Time Limit 8.16 Government Business 8.17 Let us Sum up 8.18 Key Words 8.19 Check Your Progress 8.20 Key to ‘Check your Progress’

341 OBJECTIVES In this Chapter the learner will  Know about operations related to savings and time deposits  Learn about the nomination facility for deposit accounts  Know about handling of Demand Drafts/ Cheques  Understand the obligations of confidentiality and guidance to customers  Know the Grievance Redressal Mechanism  Learn about government business 8.1 CUSTOMER CONFIDENTIALITY OBLIGATIONS The scope of the secrecy law in India has generally followed the common law principles based on implied contract. The bankers’ obligation to maintain secrecy arises out of the contractual relationship between the banker and customer, and as such no information should be divulged to third parties except under circumstances which are well defined. The following exceptions to the said rule are normally accepted: i. Where disclosure is under compulsion of law ii. Where there is duty to the public to disclose iii. Where interest of bank requires disclosure and iv. Where the disclosure is made with the express or implied consent of the customer. 8.1.1 Collecting Information for Cross-selling Purposes The information provided by the customer for KYC compliance while opening an account is confidential and divulging any details thereof for cross selling or any other purpose would be in breach of customer confidentiality obligations. Banks may, therefore, ensure 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 information collected about the customer for a purpose other than KYC requirements should not form part of the account opening form. Such information may be collected separately, purely on a voluntary basis for the customer, after explaining the objectives to the customer and taking his express approval for the specific uses to which such information could be put.

342 8.2 OPERATIONS IN SAVINGS & TIME DEPOSIT ACCOUNTS Comprehensive Deposit Policy Banks should have a transparent policy setting out the rights of the depositors in general and small depositors in particular. The policy should cover all aspects of operations of deposit accounts, charges leviable and other related issues, including the policy of secrecy and confidentiality of the customers. Intra-bank Deposit Accounts Portability Banks should be guided by instructions on KYC / AML for identification procedure for opening of accounts for individuals. Full KYC once done by one branch should be valid for transfer of the account within the bank for the concerned account. The customer should be allowed to transfer his account from one branch to another branch on the basis of a self- declaration from the account holder about his / her current address, subject to submitting proof of address within a period of six months. Periodical updation of KYC data would continue to be done by bank as per prescribed periodicity. 8.2.1 Savings Bank Rules The Savings Bank Rules must be annexed as a tear-off portion to the account opening form so that the account holder can retain the rules. Photographs of depositors Banks should obtain and keep on record photographs of all depositors’ / account holders, subject to the following clarifications: i. Two copies of photographs should be obtained. Photocopies of driving licence/ passport containing photographs will not suffice. ii. Photographs are required for all types of deposits including fixed, recurring, cumulative, etc. Only one set of photographs need be obtained for a customer and separate photographs should not be obtained for each category of deposit. The applications for different types of deposit accounts should be properly referenced. Fresh photographs need not be obtained when an additional account is opened. iii. Banks, Local Authorities and Government Departments (excluding public sector undertakings or quasi-Government bodies) are exempt from the requirement of photographs. iv. Photographs may not be insisted upon in case of accounts of staff members only (Single/Joint). v. Photographs of the ‘Pardanishin’ women also should be obtained.

343 vi. Photographs of all persons authorised to operate the accounts should be obtained. For operative accounts, viz. Savings Bank and Current accounts, photographs of all the persons authorised to operate should be obtained. For other deposits, viz., Fixed, Recurring, Cumulative, etc., photographs of all depositors in whose names the deposit receipt stands are required. In the case of deposits in the name of minors only guardians’ photographs may be obtained. vii. Photographs cannot be a substitute for specimen signatures. The banks should not ordinarily insist on the presence of account holder for making cash withdrawals in case of ‘self’ or ‘bearer’ cheques unless the circumstances so warrant. The banks should pay ‘self’ or ‘bearer’ cheques taking usual precautions. Opening of Bank Accounts in the Names of Minors With a view to promote the objective of financial inclusion and also to bring uniformity among banks in opening and operating minors’ accounts, following provisions have been made: i. A savings /fixed / recurring bank deposit account can be opened for a minor of any age through his/her natural or legally appointed guardian. ii. Minors above the age of 10 years may be allowed to open and operate savings bank accounts independently, if they so desire. A bank need to fix for itself limits for age and amount up to which minors may be allowed to operate the deposit accounts independently. It has also to decide for itself what minimum documents are required for this purpose. iii. On attaining majority, the erstwhile minor should confirm the balance in his/her account. If the account is operated by the natural guardian/ legal guardian, fresh operating instructions and specimen signature of erstwhile minor should be obtained. iv. Banks may also offer additional banking facilities like internet banking, ATM/ debit card, cheque book facility etc., subject to the safeguards that minor accounts are not allowed to be overdrawn. Opening accounts in the name of minors with Mothers as guardians A minor cannot enter into a contract; hence a minor’s bank account is permitted to be opened by her/ his guardian. Section 6 of the Hindu Minority and Guardianship Act, 1956, stipulates that the father alone, when he is alive, should be deemed to be the guardian of a minor. Similar legal provisions exist in respect of other communities. So women were not in a position to open accounts in the name of their minor children. The legal and practical aspects of the above problem were examined by RBI, in consultation with the Government of India. It was considered that if mothers are treated as guardians only

344 for opening of fixed and savings bank accounts in the name of minors, there would seem to be no difficulty. Banks would need to take adequate safeguards in allowing operations in the accounts by ensuring that such accounts are not allowed to be overdrawn and they always remain in credit. Thus, the minors’ capacity to enter into contract would not be a subject matter of dispute, and the banks’ interests would be adequately protected. Banks are now allowed to open minors’ accounts (fixed, savings, and recurring deposit account only) with mothers as guardians, subject to this safeguard. Minimum balance in savings bank accounts At the time of opening the accounts, banks should inform their customers in a transparent manner the requirement of maintaining minimum balance and levying of charges, etc., if the minimum balance is not maintained. Any charge levied subsequently should be transparently made known to all depositors in advance with one month’s notice. The banks should inform, at least one month in advance, the existing account holders of any change in the prescribed minimum balance and the charges that may be levied if the prescribed minimum balance is not maintained. The guidelines for levy of such charges are as follows: i. Penal charges for non-maintenance of minimum balances are not permitted in any inoperative account. ii. In the event of a default in f minimum balance / average minimum balance as agreed to, the bank should notify the customer clearly by SMS / email / letter etc. that if the minimum balance is not restored within a month from the date of notice, penal charges will be applicable. iii. In case the minimum balance is not restored within a reasonable period (to be at least one month from the date of notice of shortfall), penal charges may be recovered under intimation. iv. The policy on penal charges to be so levied should be decided with the approval of Board. v. The penal charges should be directly proportionate to the extent of shortfall observed. The charges should be in terms of a fixed percentage of the difference between the actual balance and the minimum balance required. A suitable slab structure for such charges may be finalised. vi. The penal charges should reasonable and not out of line with the average cost of providing the services. vii. The balance in the savings account does not turn into negative balance solely on account of levy of charges for non-maintenance of minimum balance.

345 viii. These guidelines should be brought to the notice of all customers apart from being disclosed on the bank’s website. 8.2.2 Statement of accounts / Pass Books (a) Passbooks to Savings Bank Account holders (Individuals): A passbook is a ready reckoner of transactions and is handy and compact. It is far more convenient to the small customer than a statement of account. Following are some difficulties inherent to a statement of account – i. These need to be filed regularly, ii. The opening balance needs to be tallied with closing balance of last statement, iii. Loss of statements in postal transit is not uncommon and obtaining duplicates thereof involves expense and inconvenience, iv. ATM slips during the interregnum between two statements does not provide a satisfactory solution as full record of transactions is not available, and v. There are a large number of small customers who do not have access to computers / internet, etc. As such, non-issuance of pass-books to such small customers would indirectly lead to their financial exclusion. Banks must invariably offer pass book facility to all its savings bank account holders (individuals). (b) Updating passbooks i. Customers may be made conscious of the need on their part to get the pass-books updated regularly and employees may be exhorted to attach importance to this area. ii. Wherever pass-books are held back for updating, because of large number of entries, paper tokens indicating the date of its receipt and also the date when it is to be collected should be issued. iii. In addition to the instructions printed in the passbook, whenever a passbook is tendered for posting after a long interval of time or after very large number of transactions, a printed slip requesting the depositor to tender it periodically should be given. (c) Statements of Savings Bank Account: In case a bank offers the facility of statement of account and the customer chooses to get a statement of account, the bank must issue monthly statement of accounts. (d) Charges for Passbook or Statement of Account: The cost of providing such Pass Book or Statements should not be charged to the customer.

346 (e) Entries in passbooks / Statements of account i. Ensure that the entries made in pass books/ statements of accounts are correct and legible with required particulars. ii. The entries in depositors’ passbooks / statements of accounts, are stated as “by clearing” or “by cheque”. In the case of Electronic Clearing System (ECS) and RBI Electronic Fund Transfer (RBIEFT), banks generally do not provide any details though brief particulars are provided to the receiving bank. In some cases, codes of computerized entries just cannot be deciphered. Banks should avoid such inscrutable entries in passbooks / statement of accounts and ensure that brief, intelligible particulars are invariably entered in passbooks / statements of account. (f) Precautions for holding savings bank pass books: Negligence in taking adequate care in the custody of savings bank pass books facilitates fraudulent withdrawals from the relative accounts. A few precautions in this regard are given below: i. Branches should accept the pass books and return them against tokens. ii. Pass books should be in the custody of named officials. iii. Pass books should be held under lock and key overnight. (g) Providing monthly statement of accounts i. Banks must ensure that monthly periodicity of sending statement of accounts. ii. For current accounts these may be sent in a staggered manner instead of a single date. The customers may be informed about staggering of the statements. iii. Inspecting Officers should carry out sample check at the time of internal inspection to verify whether the statements are being despatched in time. (h) Address / Telephone Number of the Branch in Pass Books / Statements of Account It would be useful to customers if the address / telephone number of the branch is mentioned on the passbooks / statement of accounts. Full address / telephone number of the branch should invariably be mentioned in the passbooks / statements of account issued to account holders. (i) Printing of MICR code and IFSC code on Passbook / Statement of account The Magnetic Ink Character Recognition (MICR) code is necessary for all Electronic Clearing Service (ECS – Credit and Debit) transactions and the Indian Financial System Code (IFSC) is a pre-requisite for National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) transactions. At present, this information is made available

347 on the cheque leaf along with the IFSC code of the branch. However, on a review, banks are advised to take necessary steps to provide this information in all passbook / statement of account of their account holders. 8.2.3 Issue of Cheque Books (a) Issuing large number of cheque books (issued to Public Sector Banks) Banks may issue cheque books with larger number of leaves (20/25) if a customer demands the same and also ensure that adequate stocks of such cheque books are maintained to meet the requirements of the customers. Banks should take appropriate care while issuing large number of cheque books. (b) Writing the cheques in any language All cheque forms should be printed in Hindi and English. The customer may, however, write cheques in Hindi, English or in the concerned regional language. (c) Dispatching the cheque book by courier Banks should refrain from obtaining such undertakings from depositors and ensure that cheque books are delivered over the counters on request to the depositors or his authorized representative. (d) Acceptance of cheques bearing a date as per National Calendar (Saka Samvat) for payment An instrument written in Hindi having date as per Saka Samvat calendar is a valid instrument. (e) Issue of Multicity / Payable at All Branches Cheques by CBS enabled Banks: All CBS enabled banks have to issue only “payable at par” / “multi-city” CTS 2010 Standard cheques to all eligible customers without extra charges. 8.2.4 Term Deposit Account Bank should issue term deposit receipt indicating therein full details, such as, date of issue, period of deposit, due date, applicable rate of interest, etc. Term deposits should be freely transferable from one office of bank to another. (a) Disposal of deposits Advance instructions from depositors for disposal of deposits on maturity may be obtained in the application form itself. Where such instructions are not obtained, banks must send intimation of impending due date of maturity well in advance to their depositors. (b) Notifying the change in interest rates Change in interest rate on deposits should be intimated to customers as well as bank branches expeditiously.

348 (c) Calculation of interest on fixed deposit For the purpose of interest on domestic term deposit, IBA has prescribed that on deposits repayable in less than three months or where the terminal quarter is incomplete, interest should be paid proportionately for the actual number of days reckoning the year at 365 days. Some banks are adopting the method of reckoning the year at 366 days in a Leap year and 365 days in other years. Banks may adopt their methodology, they should inform their depositors about the manner of calculation of interest appropriately while accepting the deposits and display the same at their branches. (d) Premature withdrawal of term deposit i. Penalty on premature withdrawal: A bank, on request from the depositor, must allow withdrawal of a term deposit of less than ₹1 crore before completion of the period of the deposit agreed upon at the time of making the deposit. For deposits of larger amounts, a bank has the option of permitting premature withdrawal. A bank can determine its own penal interest rate of premature withdrawal of term deposits. The depositors should be informed about the penal rate along with the deposit rate. ii. Interest Rate on premature withdrawal: On pre-matured payment, interest on the deposit for the period that it has remained with the bank is paid at the rate applicable to the period for which the deposit remained with the bank and not at the contracted rate. No interest is payable, where premature withdrawal of deposits takes place before the minimum period prescribed, currently seven days. iii. Premature withdrawal of large deposits: Banks have the discretion to disallow premature withdrawal of a term deposit in respect of bulk deposits of ₹1 crore and above. Bank should notify depositors of this policy in advance, i.e., at the time of accepting such deposits. (e) Repayment of Term/Fixed Deposits in Joint Names: Signatures of both the depositors should not be insisted upon for repayment of money in fixed/term deposits, where the deposit account is opened with operating instructions, ‘Either or Survivor’ or ‘Former or Survivor’. Such insistence makes the mandate given by the depositors redundant. i. For term deposits with operating instructions ‘Either or Survivor’, the signatures of both the depositors need not be obtained for payment on maturity. For payment before maturity, the signatures of both the depositors may be obtained. If one of the depositors expires, pre-payment may be allowed only with the concurrence of the legal heirs of the deceased joint holder. On maturity, the payment can be made to the survivor. ii. For ‘Former or Survivor’ mandate, the ‘Former’ alone can operate/withdraw the matured amount of the fixed/term deposit, when both the depositors are alive. Signature

349 of both the depositors should be obtained for payment before maturity. Premature withdrawal would require the consent of the surviving depositor, and the legal heirs of the deceased in case of death of one of the depositors. If the former holder expires before the maturity the ‘Survivor’ can withdraw the deposit on maturity. iii. If the joint depositors prefer to allow premature withdrawals of fixed/term deposits also in accordance with the mandate of ‘Either or Survivor’ or ‘Former or Survivor’, banks may on their choice provide the facility. For this a specific joint mandate should be taken from the depositors to this effect. Banks should incorporate a clause in the account opening form and make the customers aware of the facility of such mandate, to avoid putting the “surviving” deposit account holder(s) to unnecessary inconvenience. The joint deposit holders may give the mandate either at the time of placing fixed deposit or anytime subsequently during the term/ tenure of the deposit. With such a mandate, banks can allow premature withdrawal of term/ fixed deposits by the surviving depositor without seeking the concurrence of the legal heirs of the deceased joint deposit holder. Such premature withdrawal would not attract any penal charge. iv. Proceeds of ‘Either or Survivor’ Fixed Deposits: When a fixed deposit account is opened in the joint names of two depositors on ‘Either or Survivor’ basis and they already have a savings bank account in their names jointly on ‘Either or Survivor’ instructions, the proceeds of the matured fixed deposit can be credited to this savings account. There is no need for opening a separate savings bank account in the name of the first depositor for crediting the proceeds of the fixed deposit. v. Renewal of Overdue Fixed deposits: All aspects concerning renewal of overdue deposits may be decided by a bank, subject to its Board laying down a transparent policy in this regard. . The policy should be non-discretionary and non-discriminatory. The customers should be informed of the terms and conditions of renewal including interest rates, at the time of acceptance of deposit. In case, if a Term Deposit (TD) matures and proceeds are unpaid, the amount left unclaimed with the bank shall attract rate of interest as applicable to savings account or the contracted rate of interest on the matured TD, whichever is lower. (Ref:RBI/2021-22/66 DoR.SPE.REC.29/13.03.00/2021-2022 July 02, 2021 vi. Addition or deletion of the name/s of joint account holders: A bank may, at the request of all the joint account holders, allow the addition or deletion of name/s of joint account holder/s; or allow an individual depositor to add the name of another person as a joint account holder. The amount or duration of the original deposit undergo a change in case the deposit is a term deposit. vii. Splitting of Joint Deposit Receipt: A bank may, at its discretion, at the request of all the joint account holders of a deposit receipt, allow the splitting up of the joint deposit,