With an aim to reduce money laundering and fraud, the RBI has issued several guidelines which will help banks in identification of depositors and the procedures will help to control financial frauds, identify money laundering and suspicious activities, and for monitoring of large value cash transactions.
Banks have to mandatorily follow the "Know Your Customer" (KYC) procedure as it is a key principle for identification of an individual/corporate opening an account.
Why is KYC done by banks?
The KYC procedures done by the banks are mainly because of following reasons:
- To ensure proper customer identification.
- To help them monitor transactions of a suspicious nature.
- Banks will obtain all information necessary to establish the identity/legal existence of each new customer, based preferably on disclosures by customers themselves.
- Identity will be confirmed with the help of documents such as passport, driving license etc.
- However, where such documents are not available, verification by existing account holders or introduction by a person known to the bank may suffice.
Here are few ceiling and monitoring of cash transactions:
- Banks are advised to issue travellers cheques, demand drafts, mail transfers, and telegraphic transfers for Rs 50,000 and above only by debit to customers' accounts or against cheques and not against cash.
- Further, the applicants for the above transactions for amount exceeding Rs 10,000 should affix permanent account number (PAN) on the applications.
- Since KYC is now expected to establish the identity of the customer and as the issue of demand draft etc. for Rs 50,000 and above is by debit to account, the requirement for furnishing PAN stands increased uniformly to Rs 50,000/-.
- According the RBI guidelines, banks keep a close watch of cash withdrawals and deposits for Rs 10 lakhs and above in deposit, cash credit or overdraft accounts and keep record of details of these large cash transactions in a separate register.
- Branches of banks are required to report all cash deposits and withdrawals of Rs.10 lakhs and above as well as transactions of suspicious nature with full details in fortnightly statements to their controlling offices.
Note that there are charges of depositing huge money in the account other than from your home branch.
This means cash deposit at the branch where a customer has a bank account is not charged and deposit at other branches will be charged as per bank and amount. Some banks also charge for huge withdrawal at non home branch.