Look to temporarily freeze customer account, take away select facilities
If you don’t update your know-your-customer (KYC) documents, banks may temporarily freeze your account or withdraw certain facilities.
Well, banks have moved the banking regulator to arm them with such powers.
This request comes as banks, during a special KYC audit conducted at RBI’s behest in the November-December 2012 period, found that customers who have been banking with them for long are not coming forward to provide latest KYC documents.
KYC is a customer identification process and has two components — identity of the customer and address.
Bankers say while proper KYC procedures are done for new accounts, the problem is with the old accounts.
A senior public sector bank official said though his bank sent a number of letters to customers requesting them to provide recent KYC documents, hardly 10-15 per cent have responded.
“When the bank asks for KYC documents, the customers (persons or entities maintaining an account and/or having business relationship with the bank) are reluctant to provide the same or are not forthcoming. Their argument is that since they are banking with the same bank for many years, why this sudden need for providing fresh documents when there is no problem in the conduct of the account,” the official said.
The KYC audit that banks conduct will not convey the right picture till such time that the RBI does not empower them to either temporarily freeze an account or specifically mention the bank facilities that may be withdrawn in case the customer is not coming forward to update the KYC documents.
KYC process involves determining true identity and beneficial ownership of accounts, source of funds, the nature of customer’s business, reasonableness of operations in the account in relation to the customer’s business, etc.
The objective of the KYC guidelines is to prevent banks being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities.
KYC procedures enable banks to know their customers and their financial dealings better and this in turn help them to prudently manage their risks.
While the identity of a customer remains the same, the address may change and hence the banks are required to update their records.
Proof of identity documents (one of which has to be submitted to the bank) include passport, permanent account number card, voter’s identity card, driving licence, and an identity card. Proof of address documents (one of them has to be submitted to the bank) include telephone/ electricity bill, bank account statement, letter from any recognised public authority, and letter from employer.