The objective is to prevent fraud at entry-level. It enables the Bank to understand the customers and their financial dealings to manage their risks prudently.
The KYC policy includes:
- Customer acceptance policy.
- Customer Identification procedures.
- Monitoring of Transactions and
- Risk Management. Among them, important are Customer Identification and monitoring the Transactions.
- Customer Identification means identifying the customer and verifying their identity by using the reliable, independent source of documents to the satisfaction of the Bank. This includes verification of CIBIL data, proper pre-sanction visits also. This will ensure avoiding the impending fraud.
- Monitoring of the Transactions: Ongoing effective monitoring of the transactions is essential to confirm that the party is doing business or whether there is any diversion of funds. For which educating of the front line officials is required. They should be aware of the activity of the borrower and to and from where the transactions take place to be observed and reported promptly to the branch.
- Diversion observed the first time is to be taken as a signal and safeguards to be taken.
In advances bank have to check the following:
- KYC non-compliance.
- Falsification of records /statements;
- Creating non-existent Debtors or Creditors;
- Presenting Bogus bills ;
- Fake documents and
The proper pre-sanction visit is important because once the disbursement takes place, even if fraud detected recovery becomes difficult. Avoid visiting the party. Make independent verification of the business units and also the EMT properties.
Take credit decisions based on the present financial position/market condition. Long-standing or satisfactory dealings in the past should not become a reason to overlook danger signals. Fledging of the Balance Sheets.
- Accumulation of overdue bills, diversion of funds, failure to commit financial commitments, cheque returns to be looked at as warning signals.
- Credit decisions are to be based on the need of the borrower and not based on the value of prime/collateral security.
- Market inquiries to be made to verify the ownership of the property even though the LSR is obtained from the panel Advocate.
- Physical verification of the stocks at prescribed intervals are to be made by different officials ON ROTATION. Delegate this work to all the Officers at the branch without fail. This work shall not be only for the record’s sake, rather actual.
- Branch to verify the title of goods to confirm the borrower is the real owner. Whether the stocks received are for Job work or on credit. Verify purchase and sales vouchers.
- When doubt arises, purchases or sales are reflected in their Accounts at the branch. It does not verify whether the party is maintaining any Accounts with other Banks.
- In respect of accepting the immovable property, verify independently, ascertain who is occupying – freehold or leasehold (enforcing would be difficult later ), check municipal taxes paid receipts, etc. to know in whose name exists. If far off place, a property inspection may be made through a nearby branch of our bank.
- Send the property documents directly to the panel Advocate by branch and not through the party.
- In case of large limits, verify the existence of the Audit firm which audited the Balance sheets by way of clarification on the financial data to confirm the genuineness of the financial statements.
- Take over accounts, more than ordinary care to be exercised.
To make sure all the dealing in the bank has secured these are the essentials steps to do KYC.