1. RBI GENERAL GUIDELINES FOR
INFANTA PRIYA
POOJA NAIR
BANKS

2. Know Your Customer (KYC) Norms
Guidelines
The objective of KYC guidelines is to prevent banks from being used, intentionally
or unintentionally, by criminal elements for money. KYC procedures also enable
banks to know/understand their customers and their financial dealings better.
 Banks should keep in mind that the information collected from the customer for the
purpose of opening of an account is to be treated as confidential (not for cross
selling or any other purposes).
 Banks should ensure that the provisions of Foreign Contribution (Regulation) Act,
wherever applicable, are strictly followed.
 Banks should obtain only the ‘mandatory’ information required for KYC purpose at
the time of opening the account/during periodic updation.

3. Contd…
 KYC Policy
Banks should frame their KYC policies incorporating the following four key
elements:
(a) Customer Acceptance Policy;
(b) Customer Identification Procedure;
(c) Monitoring of Transactions; and
(d) Risk Management.

4. Customer Acceptance Policy (CAP)
Every bank should develop a clear Customer Acceptance Policy laying down
criteria for acceptance of customers.
 Banks should prepare a profile for each new customer based on risk
categorisation. The customer profile may contain information relating to
customer’s identity, social/financial status, nature of business activity, their
location, etc.
 For the purpose of risk categorization, individuals (other than High Net Worth)
whose identities and sources of wealth can be easily identified, may be categorized
as low risk.
 It is important to bear in mind that the adoption of the policy and its
implementation should not become too restrictive and must not result in denial of
banking services to general public, especially to those, who are financially or
socially disadvantaged.

5. Customer Identification Procedure
(CIP)
 Customer identification means identifying the customer and verifying his/her
identity by using reliable data or information.
 Acceptance of Aadhaar letter for KYC purposes
 Acceptance of NREGA Job Card as KYC document for normal accounts- In
order to avoid inconvenience to customers from rural areas, banks may accept
NREGA Job Card as an 'officially valid document' for opening of bank
accounts without the limitations applicable to 'Small Accounts’.

6. Monitoring of Transactions
 Banks can effectively control and reduce their risk only if they have an
understanding of the normal and reasonable activity of the customer so that
they have the means of identifying transactions that fall outside the regular
pattern of activity.
 In view of the risks involved in cash intensive businesses, accounts of bullion
dealers and jewellers should also be categorised by banks as “high risk”.
 High risk associated accounts should be taken into account by banks to
identify Suspicious Transactions Reports.

7. RISK MANAGEMENT
 The Board of Directors of the bank should ensure that an effective KYC
programme is put in place by establishing appropriate procedures and
ensuring their effective implementation.

8. GUIDELINES FOR REPORTING
FRAUDS TO POLICE/CBI
Private sector banks (including foreign banks operating in India) should
follow the following guidelines for reporting of frauds (negligence and cash
shortages, cheating, forgery, etc. )to the State Police authorities:
 In dealing with cases of fraud , banks should not only try for recovering
expeditiously the amount involved, but should also be motivated by public
interest and the need for ensuring that the guilty persons do not go
unpunished.
 Public sector banks should report fraud cases involving amount of 300 lakh
and above to CBI and those below 300 lakh to local police, as detailed below:

9. Contd..
Cases to be referred to CBI
(a) Cases involving 300. lakh and above and upto 2500 lakh
(b) All cases involving more than 2500 lakh – Banking Security and Fraud Cell of the
respective centres, which is specialised cell of the Economic Offences Wing of the
CBI for major bank fraud cases.
Cases to be referred to Local Police
 Cases below 300 lakh – Local Police.
 Cases of frauds above 10,000/- but below 1 lakh should be reported to the local
police station by the bank branch concerned.
 Fraud cases involving amounts of 100 lakh and above should also be reported to the
Director, Serious Fraud Investigation Office (SFIO), Ministry of Company Affairs.
 All fraud cases of value below `10,000/- involving bank officials, should be referred
to the Regional Head of the bank.

10. Guarantees and co-acceptance
 The banks should confine themselves to the provision of financial guarantees
and exercise due caution with regard to performance guarantee business.
 Banks should guarantee shorter maturities and leave longer maturities to be
guaranteed by other institutions.
 No bank guarantee should normally have a maturity of more than 10 years.
While issuing such guarantees, banks are advised to take into account the
impact of very long duration guarantees on their Asset Liability Management.

11. HOUSING FINANCE GUIDELINES
Banks could deploy their funds under the housing finance allocation in any of the three
categories, i.e.
1. DIRECT HOUSING FINANCE
Direct Housing Finance refers to the finance provided to individuals or groups of
individuals including co-operative societies.
 The following types of bank finance may be included under Direct Housing Finance:
(i) Bank finance extended to a person who already owns a house in town/village where he
resides, for buying/ constructing a second house in the same or other town/ village for
the purpose of self occupation.
(ii) Bank finance extended for purchase of a house by a borrower who proposes to let it
out on rental basis on account of his posting outside the headquarters or because he
has been provided accommodation by his employer.

12. Contd..
(iii) Bank finance extended to a person who proposes to buy an old house where he is
presently residing as a tenant.
(iv) Bank finance granted only for purchase of a plot, provided a declaration is obtained
from the borrower that he intends to construct a house on the said plot, with the
help of bank finance or otherwise, within such period as may be laid down by the
banks themselves.
2. INDIRECT HOUSING FINANCE
Banks should ensure that their indirect housing finance is channeled by way of term
loans to housing finance institutions, housing boards, other public housing agencies,
etc., primarily for augmenting the supply of serviced land and constructed units.
3.Investment in bonds of NHB/HUDCO, or combination thereof.
NHB – National Housing Bank
HUDCO – Housing and Urban Development Corporation Ltd.

13. Guidelines issued on wilful
defaulters
 RBI in consultation with the Government of India, constituted in May 2001 a
Working Group on Wilful Defaulters (WGWD) for examining some of the
recommendations of the Committee.
 The Group submitted its report in November 2001. The recommendations of
the WGWD were further examined by an In House Working Group
constituted by the Reserve Bank. Accordingly, the Scheme was further revised
by RBI on May 30, 2002.

14. Master Circular on Branch
Licensing - Regional Rural Banks
(RRBs)
 The opening of branches by banks is governed by the provisions of the Banking Regulation
Act. In terms of these provisions, banks cannot open a new place of business in India or
abroad or change otherwise than within the same city, town or village, the location of the
existing place of business without the prior approval of the Reserve Bank of India (RBI).
 It is mandatory for RRBs to seek prior approval / license from Rural Planning and Credit
Department (RPCD) of RBI before opening of new branches / offices.
 RRBs should fulfill the following conditions, to become eligible to open new branches :
(i) No default in maintenance of SLR and CRR during the last two years;
(ii) Operational profits are being made;
(iii) Net worth shows improvement;
(iv) Net NPA ratio does not exceed 8 per cent.

15. Contd…
Relaxation in Branch Licensing Policy :
RRBs are permitted to open branches in Tier 2 to Tier 6 centers (with population of
up to 99,999 as per Census 2001) without having the need to take permission from
RBI in each case, provided they fulfill the following conditions as per the latest
inspection report:
i) CRAR of at least 9%;
ii) Net NPA ratio less than 5%;
iii) No default in CRR / SLR for the last year;
iv) Net profit in the last financial year;
v) CBS compliant

16. RBI GUIDELINES FOR
CO-OPERATIVE BANK

17. Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio
(SLR)
 The various Forms/Returns are given in the Banking Regulation (Co-operative
Societies) Rules, 1966.
 In order to monitor the day-to-day position of liquidity of the bank, all
Urban Cooperative Banks (UCBs) are required to maintain a register, as per
format given in Annex 8, showing the daily position of cash reserve and liquid
assets maintained under sections 18 and 24 of the BR Act, 1949 (AACS).

18. Contd…
 The work of maintaining the register on daily basis may be entrusted to a
responsible official and it should be put up daily to the Chief Executive
Officer, who is responsible for ensuring compliance with the statutory
liquidity requirements at the close of business every day.
 To facilitate compilation of figures under various heads of the register, the
explanations in respect of each item which form part of the Rules.

19. Maintenance of Deposit Accounts
 OPENING OF DEPOSIT ACCOUNTS
 Introduction not Mandatory for opening accounts.
 Photographs of Account Holders
 Address of Account Holders.
 OTHER SAFEGUARDS:
 Permanent Account Number (PAN)/General Index Register (GIR) Number:
The banks are required to obtain PAN/GIR number of a depositor
opening an account with an initial deposit of Rs.50,000/- and above.

20. Contd…
 Authorisation:
The opening of new accounts should be authorised only by the
Branch Manager or by the Officer-in-Charge of the Deposit Accounts
Department concerned at bigger branches.
 Completion of Formalities:
The banks should ensure that all account opening formalities are
undertaken at the bank's premises and no document is allowed to be taken out
for execution.

21. INTERNAL INSPECTION AND AUDIT
 Internal Audit Machinery:
 The head of the inspection department at the Head Office should be a
sufficiently senior person and should report directly to the Chairman.
 If the bank has Regional Offices, there should be an audit machinery under
an official of sufficient seniority as the Regional Office Chief to conduct the
periodic audit of branches under its jurisdiction.
 Periodicity of Internal Audit:
The periodicity of the internal audit of the branches should be at least
once in every 12 months, which should be really of surprise character.

22. Contd…
 Compliance with Prudential Norms:
Internal auditors should bring out non-compliance with the prudential norms
relating to income recognition, asset classification and provisioning for taking
suitable action in the matter.
 Revenue Audit
The reasons of leakage of income unearthed during such audit should be
examined in-depth and action taken against the officials responsible for the
lapses.

23. Contd…
 Cheque Purchase Transactions
The internal inspectors should verify all the cheque
purchased/discounted beyond the sanctioned limit. They should be asked to
conduct a sample checking of transactions.
 Supplementary Inspections/Audit
The annual internal inspection may be supplemented by surprise short
inspections, revenue audit, credit portfolio audit etc. in large sized banks.

24. RATE OF INTEREST PAYABLE ON CURRENT ACCOUNTS
 Primary (urban) co-operative banks may, at their discretion, pay interest at a
rate not exceeding half per cent per annum on current accounts.
 As the discretionary provisions generally lead to increase in cost of such
deposits, banks are encouraged not to pay interest on current accounts.
 Interest on current account balances, wherever paid, shall be calculated on a
daily product basis and paid on quarterly or longer rests.

25. RATE OF INTEREST PAYABLE ON SAVINGS DEPOSITS
 Banks should pay interest on domestic savings deposits at the rates specified
in the Annex 1 to this Circular.
 With effect from November 25, 2011, the interest rate on saving bank deposit
for resident Indian has been deregulated. Accordingly, banks are free to
determine, their savings bank deposit interest rate.
 Interest on balances in savings bank accounts should be calculated on a daily
product basis.
 Such interest should be paid at quarterly or longer rests.
 Banks may continue to credit the interest to the savings bank accounts frozen
by enforcement authorities on a regular basis.

26. ROLE OF DIRECTORS - DOs AND DON’TS
DOs
(a) Discipline & Involvement
(b) Constructive & Developmental Role
(c) Business Specific Contribution
 DON’TS
(a) Non-Interference
(b) No Sponsorship
(c) Confidentiality

27. REFERENCES
 RBI Website (www.rbi.org.in)
Links referred are :
 http://rbi.org.in/scripts/BS_ViewMasterCirculardet
ails.aspx?did=342
 http://rbi.org.in/scripts/BS_ViewMasterCirculardet
ails.aspx?did=340