KYC

AND

DUE DILIGENCE

WHO IS A CUSTOMER?
General
Public

Bank

A/c open

Customer

A person or entity who maintains an

account or has a business relationship with

the bank.

What Is KYC?
KYC is related to identification and verification

of customer.
The KYC act was implemented in 2002 under
Section 35 (A) of BR Act, 1949 and revised in
2004.

OBJECTIVES OF KYC
To prevent criminal elements for using banks

for Money laundering activities.

To enable bank to understand the customers
and their financial transactions.
Appropriate controls for detection and
representation of suspicious activities.

KEY ELEMENTS OF KYC

CAP

CIP

Monitoring
Transaction
s

Risk
Manageme
nt

CLASSIFICATION OF CUSTOMERS
RISK

TYPE OF
CUSTOMER

REVIEW OF
RECORDS

LOW

Salaried persons,
pensioners, self
employed

10yrs

MEDIUM

Stock brokers, NBFC,

Business entities

8yrs

HIGH

Politicians, NRE, HNI,

NGO, Trusts, Clubs,
Bullion dealers

2yrs

ocuments required for CASA accoun

For individual
accounts

The passport
The driving license
The Permanent Account Number (PAN)
Card
The Voters Identity Card
Job card issued by NREGA duly signed
by an officer of the State Government
AADHAAR Card

Accounts of companies

Certificate of incorporation
Memorandum and Articles of Association
A resolution from the Board of Directors
and power of attorney granted to its
managers, officers or employees to
transact on its behalf

ocuments required for CASA accoun

Accounts of
partnership firms

Registration certificate
Partnership deed
An officially valid document in respect of
the person holding an attorney to transact
on its behalf.

Accounts of trusts and Registration certificate

foundations
Trust deed
An officially valid document in respect of the
person holding a power of attorney to transact
on its behalf

Can we open a bank account if a person do not have

any of the documents to show his proof of identity ?

Yes

 We can open a bank account known as Small Account by

submitting the persons recent photograph and putting his/her
signature or thumb impression in the presence of the bank official.
The Small Accounts have certain limitations such as:

Balance in such accounts at any point of time should not

exceed Rs.50,000

Total credits in one year should not exceed Rs.1,00,000

Total withdrawal and transfers should not exceed Rs.10,000 in

a month.

Foreign remittances cannot be credited to such accounts.

Such accounts remain operational initially for a period of twelve
months and thereafter, for a further period of twelve months, if the
holder of such an account provides evidence to the bank of having
applied for any of the officially valid documents within twelve months
of the opening of such account. The bank will review such account
after twenty four months to see if it requires such relaxation.

MONEY LAUNDERING
Conversion of illegal or dirty money to legal or

legitimate money through banking channels.

Stages of money laundering:
Placement
Layering
integration

DUE DILIGENCE

What is Due Diligence?

The performance of an investigation of a

business or person with a certain standard of

care
Example:
Steps carried out by banks before and during
each credit decision phase of a start-up
business

Need for Due Diligence

To know the strengths and weaknesses of the

business
Gives a fair value of the investment
Helps in identifying the irregularities
To appraise the credit worthiness of a project

which help the bank to avoid potentially risky

business.

Steps in Due Diligence

Process
1

Planning phase

Data collection phase

Data analysis phase

Report finalization phase

Due diligence reporting

Market report
Enquire about borrowers identity
Enquire about past history of the borrower
Enquire about present status
Enquire about credit worthiness
Assess the business potential in the market
Enquire about the prevailing competition in the

industry
Judge the acceptability of the customer

Recommended documents
Complete KYC documents
Certificate of Incorporation
Articles & Memorandum of Association
Certificate of commencement of Business (if required)
Status reports
Licenses/Certificates
Web Site addresses
Resumes of Managers or Key employees
Corporate brochure or company overviews

Due diligence benefits

Both

time and cost get minimized

Borrower

would be aware that Bank will undertake

verification of information provided, so they will
be more careful and give accurate information

Why Due Diligence fails?

Failure to Focus on Key Issues

Failure to Identify New Opportunities and

Risks

Failure to Allocate Adequate/ Right

Resources

Conclusion
Due Diligence plays an important role in

identifying, quantifying and reducing the

risks related to an investment