Know Your Customer (KYC) Norms



Know Your Customer (KYC) Norms 

Reserve Bank of India (RBI) has issued guidelines to Public Sector Banks for making ‘Know Your Customer’ (KYC) norms compulsory. RBI’s instructions to banks have been consolidated in the RBI master Circular dated 1st July, 2014 on Know Your Customer (KYC) norms/Anti-Money Laundering (AML) standards/Combating of Financing of Terrorism (CFT)/obligations of bank under Prevention of Money Laundering Act (PMLA), 2002. Further, instructions based on the Amendments to PML Rules notified on August 27, 2013 have been issued vide RBI circular dated 17th July, 2014. 


RBI has also instructed banks for freezing bank accounts of those who fail to submit KYC norms within a fixed period of time. RBI has been simplifying KYC norms from time to time and despite various attempts by banks for seeking KYC compliance, there are still many KYC non-compliant accounts due to non-submission of KYC documents by customers at the time of opening bank accounts and periodical updation. To ensure that KYC non-compliant accounts do not continue to be operated and make banks vulnerable to money-laundering and terrorist financing activities, banks have been advised vide RBI circular dated 21st October, 2014 to impose ‘partial freezing’ on KYC non-compliant accounts. 

If the customer, despite repeated reminders by banks does not cooperate with the bank for KYC compliance, then banks should impose ‘partial freezing’ on such KYC non-compliant in a phased manner. Meanwhile, the account holders can revive accounts by submitted the KYC documents as per instructions in force. While imposing ‘partial freezing’, banks are advised to ensure that the option of ‘partial freezing’ is exercised after giving due notice of three months initially to the customers to comply with KYC requirement and followed by a reminder for further period of three months. Thereafter, banks may impose ‘partial freezing’ by allowing all credits and disallowing all debits with the freedom to close the accounts. If the accounts are still KYC non-compliant after six months of imposing initial ‘partial freezing’, banks may disallow all debits and credits from/to the accounts, rendering them inoperative. Further, it would always be open to the bank to close the account such customers. 

This information was given by the Minister of State of Finance, Shri Jayant Sinha in written reply to a question in Lok Sabha today. 

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Measures for Fiscal Prudence 

Government has announced measures for fiscal prudence and economy to rationalize expenditure and optimize available resources. This include 10% mandatory cut in the current financial year on non-plan expenditure excluding interest payments, repayments of debt, defence capital, salaries, pension and Finance Commission grants to States. Austerity measures, such as restrictions on holding of meetings and conferences at five star hotels, ban on creation of Plan and Non Plan posts, restriction on purchase of new vehicles, restrictions on foreign travel, observance of discipline in fiscal transfers to States, Public Sector Undertakings and Autonomous Bodies at Central/State/Local level have also been imposed. 

In the General Budget 2014-15, fiscal deficit has been estimated to 4.1 per cent of GDP. 

The savings likely to be accrued as a result of austerity measures are not centrally monitored and cannot be quantified. 

The measures for fiscal prudence and economy are enforced with immediate effect and until further orders. 

This information was given by the Minister of State of Finance, Shri Jayant Sinha in written reply to a question in Lok Sabha today. 

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Banking Reforms for Housing Sector 

            Addressing the problem of housing shortage in the country requires other multiple interventions besides financial intervention. ‘Affordable Housing for All’ has been a stated national policy of the Government of India. Many of the programmes of the Government are designed to provide affordable housing to lower-income households through the subsidy-cum-loan schemes. In order to further expand the market to the lower-income segment of the populace, the availability of mortgage guarantee products like Credit Risk Guarantee Fund for Low Income Housing has been launched by the Central Government.

            Government has taken following measures to spur growth in the housing sector.

Budget Announcements FY 2014-15

The corpus of Rural Housing Fund and Urban housing Fund have been augmented to Rs. 8000 crore and Rs. 4000 crore respectively to refinance banks. Housing Finance Companies (HFCs) and other Financial Institutions.
To encourage development of Smart Cities, which will also provide habitation for the neo-middle class, requirement of the built up area and capital conditions for FDI has been reduced from 50,000 square metres to 20,000 square metres and from USD 10 million to USD 5 million respectively with a three year post completion lock-in.
To further encourage this, projects which commit at least 30 per cent of the total project cost for low cost affordable housing have exempted from minimum built up area and capitalization requirements, with the condition of three year lock-in.

Other measures

In order to encourage affordable housing, the Reserve Bank of India (RBI) has permitted Bank to raise long-term bonds to lend to housing segment.
In terms of extant RBI instructions, banks have been advised to allow finance to facilitate the growth of house sector through finance provided to individuals or groups of individuals including cooperative societies.
Banks may consider request for additional within overall ceiling for carrying out alternative additions/repairs to the house/flat already financed by them.
Banks to ensure that their housing finance is channeled by way of term loans to housing finance institutions, housing boards, other public housing agencies, private builders etc, primarily for augmenting the supply of serviced land and constructed units.
Finance provided for construction of residential houses to be constructed by public housing agencies like HUDCO, Housing Boards, local bodies, individuals, co-operative societies, employers, priority being accorded for financing construction of houses meant for economically weaker sections, low income group and middle income group.
Finance for construction meant for improving the conditions in slum areas for which credit may be extended directly to the slum-dwellers on the guarantee of the Government, or indirectly to them through the State Governments.
RBI has carved out a separate sub sector out of ‘Commercial Real Estate (CRE)’ as ‘Commercial Real Estate Residential Housing (CRE-RH) with the intention of providing regulatory support to lending towards residential housing projects by allowing lower provisioning and risk-weights.

The restructuring norms in case of CRE projects have been relaxed wherein extension of Date of Commencement of Commercial Operation within one year enable loans to remain standard assets.

This information was given by the Minister of State of Finance, Shri Jayant Sinha in written reply to a question in Lok Sabha today.



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Shadow Banking Implementation Group (SBIG) Constituted to undertake Micro Mapping of Shadow Banks and to Assess the Risks 

Reserve Bank of India (RBI) has constituted Shadow Banking Implementation Group (SBIG) to undertake micro mapping of shadow banks to assess the risks posed by such entities to the formal financial sector. SBIG is chaired by RBI and constitutes of members from Ministry of Finance, Stock Exchange Board of India, Ministry of Agriculture and Cooperation, National Housing Bank, National Bank for Agriculture & Rural Development, Insurance Regulatory Development Authority, Ministry of Corporate Affairs, Registrar of Agriculture and Cooperatives.

            Terms of Reference of SBIG are as follows:

As a first step, the Group will undertake an assessment of the position of compliance of the regulatory framework in the country vis-à-vis the Financial Stability Board policy guidelines;
The Group will then carry out gap, analysis to identify the reform measures that can be implemented and those where implementation may not be desirable given the specific domestic conditions;
Where it may not be desirable to initiate the reform measures, the Group will document the same setting out the reasons within an overall ‘comply of explain’ framework;
The Group will set out a roadmap indicating the timelines for implementation of the reform area concerned together with the regulatory/agency which will implement the reforms and the framework for monitoring;
The Group will also recommend whether publishing of a formal approach to implementation of reform measures, as being done by several jurisdictions for some of the reform areas, would be appropriate in the Indian context; and
Setting up a data repository for the shadow banking sector.

            The Committee on Shadow Banking is in initial stages in an ongoing assessment process being monitored by Inter Regulatory Technical Group comprising of RBI, Securities and Exchange Board of India, Pension Fund Regulatory and Development Authority, Forward Markets Commission and Insurance Regulatory and Development Authority. The Committee will not submit its report to the Government.

This information was given by the Minister of State of Finance, Shri Jayant Sinha in written reply to a question in Lok Sabha today.



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No Dues Certificates by Banks 

Reserve Bank of India (RBI) have advised Scheduled Commercial Banks (including Regional Rural Banks) to dispenser with the requirement of ‘no dues’ certificate for small loans upto Rs. 50,000/- to small and marginal farmers, share-croppers etc and instead obtain self-declaration from the borrowers. 

The RBI has not received any complaints against any bank for non-compliance of the said directions in the recent past. 

This information was given by the Minister of State of Finance, Shri Jayant Sinha in written reply to a question in Lok Sabha today. 

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Fishing Expedition of CBDT Officers 

The complaints including complaints regarding harassment of tax payers by the income tax officers are received by the Government and various income tax authorities all over the country. There is no centralized system of maintaining category-wise database of complaints, which are dealt with by the officers concerned as per prescribed procedures.

            A communication dated 7.11.2014 issued by the Central Board of Direct Taxes (CBDT) listing steps towards a non-adversarial tax regime, inter-alia, directs:

Effective monitoring and supervision of the subordinates by senior officers;
Periodic review and inspection of scrutiny assessment orders to ensure that long and non-specific questionnaires are not issued so that frivolous additions or high-pitched assessments are not made without proper basis;
Limiting of scrutiny only to that information on the basis of which the case was selected and wider scrutiny, if necessary, with the approval of higher authorities;
Processing of recovery and stay of demand as per guidelines;
Attending to taxpayer grievances in time; and
Filing of appeals before courts only on merits of the case.

The officers and staff at all levels have been advised to follow these directions scrupulously. Non adherence to the 12 guidelines specified in the above mentioned communication is to be viewed seriously.

This information was given by the Minister of State of Finance, Shri Jayant Sinha in written reply to a question in Lok Sabha today.



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G20 Summit 

India participated in the G-20 Summit held in Australia recently. The G20 Summit was held in Brisbane on 15-16 November 2014. The topics for discussion in the plenary sessions focussed on: 

(i) `Global Economy` with an emphasis on increasing investment in infrastructure and strengthening job creation; 

(VI) `Delivering global economic resilience` with an emphasis on strengthening the international `cax system, the financial system and IMF Reforms; (iii) `Energy` with an emphasis on strengthening collaboration, energy efficiency and gas markets; 

(iv) `Trade` with an emphasis on the trade as a driver of growth and strengthening of the global trading, system. 

On conclusion, the G20 Leaders formally adopted the Leaders` Communique which provides the details of discussions and agreements arrived at by the member countries. 

The Brisbane Leaders Communique provides details of all the outcomes of the Summit. The Communique can be accessed at https://g2Q.org. 

Some of the key selected outcomes, of significance to India, as contained in the Communique are as follows: 

1. The Leaders agreed to an ambitious goal of lifting the G20`s GDP by at least an additional two per cent by 2018 and creating millions of jobs. India is likely to benefit from higher global growth which can ensure greater economic development of the country. 

2. The Leaders endorsed the Global Infrastructure Initiative, a multi-year work programme to lift quality public and private infrastructure investment. To support implementation of the Initiative, G20 agreed to establish a Global Infrastructure Hub with a four-year mandate. The Hub will facilitate knowledge sharing and also promote financing of infrastructure, which are critical for India. 

3. The Leaders agreed to continue working on measures to facilitate long-term financing from institutional investors and to encourage market sources of finance, including transparent securitisation, particularly for small and medium-sized enterprises which are important sectors for India. 

4. The Leaders also endorsed the global Common Reporting Standard (CRS) for the Automatic Exchange of Tax Information (AEOI) on a reciprocal basis to prevent cross-border tax evasion. In this regard, G20 member agreed to exchange information automatically with each other and with other countries by 2017 or end-2018, subject to completing necessary legislative procedures. The AEOI based on CRS, when fully implemented, would enable India to receive information from every country in the world including offshore financial centres and tax havens. This would prevent international tax evasion and avoidance and would be instrumental in getting information and repatriation of unaccounted money stashed abroad. 

5. India has been insisting that reducing the cost of transferring remittances under a timeline was very crucial for developing countries. Subsequently, the G20 members committed to take strong practical measures to reduce the global average cost of transferring remittances to five per cent and to enhance financial inclusion as a priority. 6. The Leaders also agreed to the collective goal of reducing the gap in labour participation rates between men and women by 25 per cent by 2025, taking into account national circumstances. 

7. The Leaders also urged the United States to ratify implementation of the IMF 2010 reforms. Further, in case this does not happen by year-end, then the G20 has asked the IMF to build on its existing work and stand ready with options for next steps. 

This was stated by Shri Jayant Sinha, Minister of State in Ministry of Finance in written reply to a question in the Lok Sabha today. 

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