JAIIB AFB Unit 21 - Operational Aspects of KYC/Customer Service

KYC Norms

The objective of KYC guidelines is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering activities. KYC procedures also enable banks to know/understand their customers and their financial dealings better which in turn help them manage their risks prudently. Banks should frame their KYC policies incorporating the following four key elements:

1. Customer Acceptance Policy
2. Customer Identification Procedures
3. Monitoring of Transactions
4. Risk management

Periodical updation of KYC

KYC is required to be done at least every two years for high risk customers, at least every eight years for medium risk customers and ten years for low risk customers. This exercise would involve all formalities normally taken at the time of opening the account.

If there is no change in status with respect to the identity (change in name, etc.) and/or address, such customers who are categorised as ‘low risk’ by the banks may now submit a self-certification to that effect at the time of periodic updation.

In case of change of address of such ‘low risk’ customers, they could merely forward a certified copy of the document (proof of address) by mail/post, etc. Physical presence of such low risk customer is not required at the time of periodic updation.

Recent simplified KYC measures by RBI

Measures taken for simplification:

1. Single document for proof of identity and proof of address

Officially valid documents (OVDs) for KYC purpose include: Passport, driving licence, voters’ ID card, PAN card, Aadhaar letter issued by UIDAI and Job Card issued by NREGA signed by a State Government official.

To further ease the process, the information containing personal details like name, address, age, gender, etc., and photographs made available from UIDAI as a result of e-KYC process can also be treated as an ‘Officially Valid Document’.

2. No separate proof of address is required for current address

Since migrant workers, transferred employees, etc., often face difficulties while submitting a proof of current address for opening a bank account, such customers can submit only one proof of address (either current or permanent) while opening a bank account or while undergoing periodic updation. If the current address is different from the address mentioned on the proof of address submitted by the customer, a simple declaration by her/him about her/his current address would be sufficient.

3. No separate KYC documentation is required while transferring accounts from one branch to another of the same bank

Once KYC is done by one branch of the bank, it is valid for transfer of the account to any other branch of the same bank. The customer would be allowed to transfer her/his account from one branch to another branch without restrictions and on the basis of declaration of his/her local address for communication.

4. Small Accounts

Those persons who do not have any of the ‘officially valid documents’ can open ‘small accounts’ with banks. A ‘small account’ can be opened on the basis of a self-attested photograph and putting her/his signature or thumb print in the presence of an official of the bank. These small accounts would be valid normally for a period of twelve months. Thereafter, such accounts would be allowed to continue for a further period of twelve more months, if the account holder provides a document showing that she/he has applied for any of the officially valid document, within twelve months of opening the small account.

5. Relaxation regarding officially valid documents (OVDs) for low risk customers

If a person does not have any of the ‘officially valid documents’ mentioned above, but if is categorised as ‘low risk’ by the banks, then she/he can open a bank account by submitting any one of the following documents:

(a) identity card with applicant's photograph issued by Central/State Government Departments, Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, and Public Financial Institutions;

(b) letter issued by a gazetted officer, with a duly attested photograph of the person.

6. Other relaxations

KYC verification of all the members of Self Help Groups (SHGs) is not required while opening the savings bank account of the SHG and KYC verification of only the officials of the SHGs would suffice. No separate KYC verification is needed at the time of credit linking the SHG.

Foreign students have been allowed a time of one month for furnishing the proof of local address.

In case a customer categorised as low risk is unable to submit the KYC documents due to genuine reasons, she/he may submit the documents to the bank within a period of six months from the date of opening account.

Physical Aadhaar card/letter issued by UIDAI containing details of name, address and Aadhaar number received through post would continue to be accepted as an ‘Officially Valid Document’.

Operational Procedure to be followed by banks for e-KYC exercise

The e-KYC service of the UIDAI is be leveraged by banks through a secured network. Any bank willing to use the UIDAI e-KYC service is required to sign an agreement with the UIDAI. The process flow to be followed is as follows:

1. Sign KYC User Agency (KUA) agreement with UIDAI to enable the bank to specifically access e-KYC service.

2. Banks to deploy hardware and software for deployment of e-KYC service across various delivery channels. These should be Standardisation Testing and Quality Certification (STQC) Institute, Department of Electronics & Information Technology, Government of India certified biometric scanners at bank branches/ micro ATMs/ BC points as per UIDAI standards.

3. Develop a software application to enable use of e-KYC across various Customer Service Points (CSP) (including bank branch, BCs etc.) as per UIDAI defined Application Programming Interface (API) protocols. For this purpose banks will have to develop their own software under the broad guidelines of UIDAI. Therefore, the software may differ from bank to bank.

4. Define a procedure for obtaining customer authorization to UIDAI for sharing e-KYC data with the bank. This authorization can be in physical (by way of a written explicit consent authorising UIDAI to share his/her Aadhaar data with the bank/BC for the purpose of opening bank account) /electronic form as defined by UIDAI from time to time.

5. Sample process flow would be as follows:

1. Customer walks into CSP of a bank with his/her 12-digit Aadhaar number and explicit consent and requests to open a bank account with Aadhaar based e-KYC.

2. Bank representative manning the CSP enters the number into bank’s e-KYC application software.

3. The customer inputs his/her biometrics via a UIDAI compliant biometric reader (e.g. fingerprints on a biometric reader).

4. The software application captures the Aadhaar number along with biometric data, encrypts this data and sends it to UIDAI’s Central Identities Data Repository (CIDR).

5. The Aadhaar KYC service authenticates customer data. If the Aadhar number does not match with the biometrics, UIDAI server responds with an error with various reason codes depending on type of error (as defined by UIDAI).

6. If the Aadhaar number matches with the biometrics, UIDAI responds with digitally signed and encrypted demographic information [Name, year/date of birth, Gender, Address, Phone and email (if available)] and photograph. This information is captured by bank’s e-KYC application and processed as needed.

7. Bank’s servers auto populate the demographic data and photograph in relevant fields. It also records the full audit trail of e-KYC viz. source of information, digital signatures, reference number, original request generation number, machine ID for device used to generate the request, date and time stamp with full trail of message routing, UIDAI encryption date and time stamp, bank’s decryption date and time stamp, etc.

8. The photograph and demographics of the customer can be seen on the screen of computer at bank branches or on a hand held device of BCs for reference.

9. The customer can open bank account subject to satisfying other account opening requirements.

Customer Service in Banks

Service at the counters

1. Business hours/working hours
2. Display of time norms
3. Commencement/Extension of working hours
4. Identity Badges
5. Complaint Box and Book
6. Booklets/Brochures for Guidance to customers
7. Display of information relating to Interest Rates and Service Charges – Rates at a quick glance
8. Disclosure of Information by banks in the public domain
9. Website
10. Need for Bank Branches / ATMs to be made accessible to persons with disabilities
11. Providing banking facilities to Visually Impaired Persons
12. Facility to sick/old/incapacitated non-pension account holders
13. Extended business hours for non-cash banking transactions

The following non-cash transactions should be undertaken by banks during the extended hours, i.e., up to one hour before the close of working hours:

Non-voucher generating transactions

1. Issue of pass books/statement of accounts
2. Issue of cheque books
3. Delivery of term deposit receipts/drafts
4. Acceptance of share application forms
5. Acceptance of clearing cheques
6. Acceptance of bills for collection

Voucher generating transactions

1. Issue of term deposit receipts
2. Acceptance of cheques for locker rent due
3. Issue of travellers cheques
4. Issue of gift cheques
5. Acceptance of individual cheques for transfer credit

Banking Codes and Standards Board of India (BCSBI)
               
In November 2003, Reserve Bank of India (RBI) constituted the Committee on Procedures and Performance Audit of Public Services under the Chairmanship of Shri S.S.Tarapore (former Deputy Governor) to address the issues relating to availability of adequate banking services to the common person. The Committee recommended setting up of the Banking Codes and Standards Board of India (BCSBI). BCSBI was set up to ensure that the common person as a consumer of financial services from the banking Industry is in no way at a disadvantageous position and really gets what he/she has been promised.

The main objectives of the BCSBI are

To plan, evolve, prepare, develop, promote and publish comprehensive Codes and Standards for banks, for providing for fair treatment to their customers.

To function as an independent and autonomous body to monitor, and to ensure that the Codes and Standards adopted by banks are adhered to, in letter and spirit, while delivering services to their customers.

BCSBI monitors the implementation of the Codes through the following methods:

1. Obtains from member banks an Annual Statement of Compliance (ASC)
2. Visits branches to find out the status of ground-level implementation of Codes
3. Studies complaints received from customers and orders / awards issued by Banking Ombudsmen / Appellate Authority to find out whether there is any system-wide deficiency
4. Organizes an annual Conference with Principal Code Compliance Officers of the Member banks to discuss implementation issues.

BCSBI also

1. Undertakes campaigns and initiatives to spread awareness of the Codes amongst customers and banks
2. Provides faculty support to training establishments of banks
3. Participates in on-location workshops held by / for member banks to increase coverage
4. associates with customer awareness programmes conducted by Banking Ombudsmen
5. provides credit counselling services in Mumbai
6. publishes quarterly newsletter entitled ‘Customer Matters’, containing matters of interest to customers