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KYC Norms and Anti Money Laundering

  • Introduction

  • Money laundering has become a pertinent problem worldwide threatening the stability of various regions by actively supporting and strengthening terrorist networks and criminal organizations. The links between money laundering, organized crime, drug trafficking and terrorism pose a risk to financial institutions globally. 

    The Reserve Bank of India (RBI) has instructed Regulated entities to follow ‘KYC Guidelines’, in terms of Prevention of Money Laundering Act 2002, wherein certain personal information of the customer is obtained. The objective of doing so is to enable the Regulated entities to have identification of its customers. This is also in the interest of customers to safeguard their hard earned money.

  • What is Money Laundering and Terrorist financing?

  • Money laundering refers to conversion of money illegally obtained to make it appear as if it originated from a legitimate source. Money laundering is being employed by launderers worldwide to conceal criminal activity associated with it such as drugs /arms trafficking, terrorism and extortion. Terrorist financing is the financing of terrorist acts, and of terrorists and terrorist organizations. Money launderers send illicit funds through legal channels in order to conceal their criminal origin while those who finance terrorism transfer funds that may be legal or illicit in original in such a way as to conceal their source and ultimate use, which is to support Terrorist financing.

  • How this affect you as a customer?

  • A key defense against money laundering is to prevent accounts being opened in false identities. Anyone wishing to open an account will therefore be asked for latest photo, proof of their identity and current address. These documents have to be essentially obtained irrespective of the type of account to be opened and the purpose for which the account is opened for.

    The fact that these documents are asked for opening of account does not mean that you are suspected of money laundering. Criminals try to appear to be normal law-abiding citizens, for example they may try to open a number of accounts using small amount of money. Hence it is necessary to identify all prospective account holders. Anybody including a criminal could falsely use your identity, if these identity documents are not obtained.   

  • What is KYC?

  • KYC is an acronym for “Know your Customer” a term used for Customer identification process. It involves making reasonable efforts to determine, the 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 which in turn helps the banks to manage their risks prudently. The objective of the KYC guidelines is to prevent banks being used, intentionally or unintentionally by criminal elements for money laundering.

  • Whether KYC is mandatory?

  • Yes. It’s a regulatory and legal requirement.

    Regulatory: In terms of the Master Direction - Know Your Customer (KYC) guidelines issued by the Reserve Bank of India (RBI) on 25th February 2016 and as amended from time to time, all Regulated Entities are required to put in place a comprehensive policy framework covering KYC Standards and AML Measures.

    Legal: The Prevention of Money Laundering Act, 2002 (PMLA) which came into force from 1st July, 2005 (after “rules” under the Act were formulated and published in the Official Gazette) also requires Banks, Financial Institutions and Intermediaries to ensure that they follow certain minimum standard of KYC and AML as laid down in the ACT and the “rules” framed thereunder.  

  • What is KYC Policy?

  • As per RBI guidelines, all Regulated Entities are required to formulate a KYC Policy with the approval of their respective boards. The KYC Policy consists of the following four key elements.

    • Customer Acceptance Policy
    • Risk Management
    • Customer Identification Procedures (CIP)
    • Monitoring of Transactions
  • Who is a Customer?

  • For the purpose of KYC policy a ‘customer” may be defined as:

    • A person or entity that maintains an account and/or has a business relationship with SBICPSL;
    • One on whose behalf the account is maintained (i.e. the beneficial owner);
    • Any person or entity connected with a financial transaction which can pose significant reputational or other risks to the bank, say a wire transfer or issue of high value demand draft as a single transaction.
  • What is a Customer Acceptance Policy?

  • Customer Acceptance Policy refers to the general guidelines followed by Regulated Entities in allowing customers to open accounts with them. Generally the guidelines stipulate that no accounts shall be opened in anonymous or fictitious names or when the identity of the customer matches with any person with known criminal background or banned entities. Similarly accounts should not be opened when the bank is unable to verify the identity and/or obtain documents required as per the policy.

  • What is the Customer Identification Procedure?

  • Customer identification means identifying the customer and verifying his/her identity through reliable and independent documents, data and information. The Policy also elaborates the Customer Due Diligence (CDD) process to be undertaken by Regulated Entities to identify and verify the customer.

  • What documents required to be obtained from customers during onboarding?

  • Features

    Documents

    Accounts of individuals

    - Legal name and any other names used

    Certified copy of any one of the document or its equivalent e-documents shall be obtained

     

     

     

     

     

     

     

     

     

     

    ·     Permanent Account Number/Equivalent e-document/Form 60

     A certified copy of Officially Valid Document

    ·     Passport

    ·     Voter’s ID card

    ·     Driving License

    ·     Proof of possession of Aadhaar Number** (mask first 8-digits of Aadhaar Number).

    ·     Letter issued by National Population Register containing details of name, address

    ·     Job card issued by NREGA duly signed by an officer of the State Government

    ·     Where officially valid document presented by a foreign national does not contain the details of address, then documents issued by the Government departments of foreign jurisdictions and letter issued by the Foreign Embassy or Mission in India shall be accepted.

     Additional Documents for current address

    Provided that in case of officially valid document furnished by the customers does not contain updated address, the following documents shall be deemed to be officially valid documents for the limited purpose of proof of address. However the customer shall submit updated Officially Valid Document with current address within a period of three months of submitting the following documents.

    (a)  utility bill which is not more than two months old of any service provider (electricity, telephone, post-paid mobile phone, piped gas, water bill);

    (b)  property or Municipal tax receipt;

    (c)  pension or family pension payment orders (PPOs) issued to retired employees by Government Departments or Public Sector Undertakings, if they contain the address;

    (d)  letter of allotment of accommodation from employer issued by State Government or Central Government Departments, statutory or regulatory bodies, public sector undertakings, scheduled commercial banks, financial institutions and listed companies and leave and license agreements with such employers allotting official accommodation;

    Accounts of companies

    Certified copies of each of documents shall be obtained

    ·     Certificate of Incorporation

    ·     Memorandum & Articles of Association

    ·     Permanent Account Number of the Company or the equivalent e-document thereof

    ·     Resolution of the Board of Directors and power of attorney granted to its managers, officers or employees to transact on its behalf

    ·     Identification information/ documents, as mentioned for ‘accounts of individual’ above, in respect of managers, officers or employees holding an attorney to transact on its behalf.

    Account of Sole Proprietary Firms

    Certified copies of any of the two documents there of shall be obtained

    ·     Registration Certificate

    ·     Certificate/Licence issued by the municipal authorities under Shop and Establishment Act

    ·     Sales and income tax returns

    ·     CST/VAT/ GST certificate (provisional/final)

    ·     Certificate/Registration document issued by Sales Tax/ Service Tax/Provisional tax authorities

    ·     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

    ·     Complete Income Tax Return (not just the acknowledgement) in the name of the Sole Proprietor where the firms income is reflected , duly authenticated /acknowledged by the income tax authorities.

    ·     Utility bills such as electricity, water, landline telephones bills etc.

    In case SBICPSL is satisfied that it is not possible to furnish two such documents, it may at its discretion accept only one of those documents as proof of business/activity.

    Accounts of partnership firms

    Certified copies of each of documents shall be obtained

    ·     Registration certificate;

    ·     Partnership deed;

    ·     Permanent Account Number of the partnership firm or the equivalent e-document thereof; and

    ·     Identification information/ documents, as mentioned for ‘accounts of individual’ above, in respect of managers, officers or employees holding an attorney to transact on its behalf.

    Accounts of trusts and foundations

    Certified copies of each of documents shall be obtained

    ·     Registration certificate;

    ·     Trust deed;

    ·     Permanent Account Number or the equivalent e-document thereof or Form 60 of the trust; and

    ·     Identification information/ documents, as mentioned for ‘accounts of individual’ above, in respect of managers, officers or employees holding an attorney to transact on its behalf.

    Accounts of Unincorporated association or body of individuals (incl. Unregistered trusts/partnership firms), Societies

    Certified copies of each of documents shall be obtained

    ·     Resolution of the managing body of such association or body of individuals;

    ·     Permanent Account Number or the equivalent e-document thereof or Form 60;

    ·     Power of attorney granted to transact on its behalf;

    ·     Identification information/ documents, as mentioned for ‘accounts of individual’ above, in respect of managers, officers or employees holding an attorney to transact on its behalf.

    ·     Such information as may be required by the SBICPSL to collectively establish the legal existence of such an association or body of individuals.

    Accounts of juridical persons, not covered above, such as Government or its Departments, societies, universities and local bodies like village panchayats

    Certified copies of each of documents shall be obtained

    ·     Document showing name of the person authorised to act on behalf of the entity

    ·     PAN/ Officially valid documents or the equivalent e-document thereof for proof of identity and address in respect of the person holding an attorney to transact on its behalf and

    ·     Such documents as may be required by the SBICPSL to establish the legal existence of such entity/juridical person.

     

     * For Driving Licences issued in states where it is specifically mentioned that the document cannot be used as address proof, the same will not be acceptable as a KYC document.

    **  For Aadhaar Card, please mask/black-out first 8-digits of your Aadhaar number. Only last four digits should be readable. You can also download the masked Aadhaar through official website: https://www.uidai.gov.in – by going on home page and clicking on ‘download Aadhaar’ filling the required details and selecting the option given as “Masked Aadhaar”.

    Important points to remember:

    • Documents should be valid on current date
    • Each document should be self-attested
  • When does KYC apply?

  • KYC will be carried out for the following but is not limited to:

    • Opening a new account.(deposit/ borrowal)
    • Opening a subsequent account where documents as per current KYC standards not submitted while opening the initial account.
    • When the Company feels it is necessary to obtain additional information from existing customers based on the conduct of the account.
    • After periodic intervals based on instructions received from RBI.
    • When there are changes to signatories, mandate holders, beneficial owners, etc.
  • What will happen if you do not provide the required KYC information/documents?

  • The Company will be entitled to refuse to open the account (if you are a prospective customer) or discontinue its relationship with you citing non-provision of KYC information/documents (if you are existing customer).