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INTRODUCTION

Know your customer (KYC) is the due diligence and bank regulation that
financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them. Know your customer policies have becoming increasingly important globally to prevent identity theft fraud, money laundering and terrorist financing. In a simple form these rules may equate to answering twelve questions, but this is the tip of the iceberg and regulators now expect much more. KYC should not be thought of as a form to be filled - it is a process to be undergone from the start of a customer relationship to the end.

One aspect of KYC checking is to verify that the customer is not on any list of known fraudsters, terrorists or money launderers, such as the Office of Foreign Assets Control's Specially Designated Nationals list. Beyond name matching, a key aspect of KYC controls is to monitor transactions of a customer against their recorded profile, history on the customers account(s) and with peers. Know Your Customer processes are also employed by regular companies of all sizes, for the purpose of ensuring their proposed agents', consultants' or distributors' antibribery compliance. Banks, insurers and export credit agencies are increasingly demanding that customers provide detailed anti-corruption due diligence information, to verify their probity and integrity.

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With effect from 1st Feb 2008, KYC is mandatory. Till the time, one gets the KYC reference number; one cannot invest 50k or more in the Indian mutual funds.

KNOW YOUR CUSTOMER WHAT YOU MUST KNOW

Know Your Customer - KYC enables banks to know/ understand their customers and their financial dealings to be able to serve them better

Meaning of Customer
For the purpose of KYC Policy, a Customer is defined as: A person or entity that maintains an account and/or has a business relationship with the Bank; One on whose behalf the account is maintained (i.e. the beneficial owner); Beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors, etc. as permitted under the law, and Any person or entity connected with a financial transaction, which can pose significant reputation or other risks to the Bank, say, a wire transfer or issue of a high value demand draft as a single transaction.

FACTOR THAT REQUIRE THE NEED FOR IDENTITY AND ADDRESS PROOF
The identification of a customer is a very critical process with a view to protect the customer interests by preventing from fraudsters who may use the name, address and

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forge signature to undertake benami / illegal business activities, encashment of stolen drafts, cheques, dividend warrants, etc. This also helps to safeguard banks from unwittingly used for the transfer of deposit of funds derived from criminal activity or for financing terrorism. Identification of customers will also help to control financial fraunds, identify money laundering and suspicious activities, and for scrutiny / monitoring of large value cash transactions.

EVOLUTION OF KYC REQUIREMENTS

No, KYC requirements have always been in place and Banks have been taking KYC documents in accordance with the guidelines issued by RBI from time to time. RBI has revisited the KYC guidelines in the context of recommendations made by the Financial Action Task Force (FATF) on Anti Money Laundering standards and on Combating Financing of Terrorism and enhanced the KYC standards in line with international benchmarks

REGULATORY AND LEAGL REQUIREMNTS ABOUT KYC

Regulatory: In terms of the guidelines issued by the Reserve Bank of India (RBI) on November 29, 2004 on Know Your Customer [KYC] Standards Anti Money Laundering [AML] Measures, all banks 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 July 1, 2005 (after rules under the Act were formulated and published in the Official Gazette) also requires Banks, Financial Institutions and Intermediaries to 3

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ensure that they follow certain minimum standards of KYC and AML as laid down in the Act and the rules framed there under

APPLIACTION OF KYC
KYC will be carried out at the following stages: Opening a new account Opening a subsequent account where documents as per current KYC standards not been submitted while opening the initial account Opening a Locker Facility where these documents are not available with the bank for all the Locker facility holders When the bank feels it necessary to obtain additional information from existing customers based on conduct of the account When there are changes to signatories, mandate holders, beneficial owners etc.KYC will also be carried out in respect of non-account holders approaching the bank for high value one-off transactions.

PERSON RESPONSIBLE FOR KYC PURPOSES IN BANK

The contact point for the customer in the Bank will be the Relationship Manager / the official who opens the account and who is in touch with the customer for all transactions.

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ABOUT MONEY LAUNDERING
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 suahc as drugs / arms trafficking, terrorism and extortion. All crimes that produce a financial benefit give rise to money laundering.

MONEY LAUNDERING- ISSUES RELATED WITH OPENING BANK ACCOUNTS

The first step in the laundering process for criminals is to get their money into an account with a Bank, often using a false identity and address. The funds so deposited will be transferred to other accounts locally or abroad or used for buying goods or services. These transactions would appear to be like any legally earned money and becomes difficult to trace it back to its criminal past. Banks under law should not only prevent this, but should stop criminals who wish to use the banking channel to launder the illgotten money from illegal / criminal activities.

AFFECT OF MONEY LAUNDERING ON CUSTOMERS

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 proof of their identity and address. These documents have to be essentially obtained

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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 customers, for example they may try to open a number of accounts using small amounts of money. Hence it is necessary to identify all prospective account holders or customers. Any body including a criminal could falsely use your identity, if these identity documents are not obtained.

PROOF OF IDENTITY REQUIREMENT

The best identification documents are those which are issued by a Government authority, which should have a photograph, address and signature. You may provide one single document which can establish your identify and address or two or more documents. For an individual documents like copy of the Passport, Election Identity Card, Driving License, Permanent Account Number (PAN) card, etc. would be sufficient for the purpose of establishing the identity, address and signature. Similarly, for other entities like firms, companies, trusts, etc., documents like Partnership Deed, Trust Deed, Memorandum & Articles of Association, Certificate of Incorporation, Registration and Service Tax, License under Shops and Establishment Act, etc. would be applicable and the branch / sales staff / call center would be able to help you in providing the details of the list of approved documents.

CONSEQUENCES OF NOT PROVIDING KYC INFORMATION IN BANKS

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The Bank will be entitled to refuse to open the account (if you are a prospective customer) or discontinue its relationship with you citing non-providing of KYC information documents (if you are an existing customer). If you however, require reasonable time to furnish certain non-critical documents you can approach the branch / sales staff.

GUIDELINES FOR SMALL CUSTOMERS

While the internal procedures of the Bank and the guidelines of RBI require that satisfactory proof of customer identity and address, RBI has simplified the KYC procedure with the objective of greater financial inclusion, i.e. making available the basic banking facilities to those persons who intend to keep balances not exceeding Rupees Fifty Thousand (Rs. 50,000/-) in all their accounts taken together and the total credit in all the accounts taken together is not expected to exceed Rupees One Lakh (Rs.1,00,000/-) in a year. Bank can also help prevent crime against yourself and others by maintaining the confidentiality of your account details and identity documents.

INDIAN

REGULATIONS

ON

PREVENTION

OF

MONEY

LAUNDERING
A customer must know Under the Prevention of Money Laundering Act (PMLA) 2002, and the Rules thereof, the banks are required to report: -

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All cash transactions (deposits and withdrawals) of the value of more than Rupees Ten Lakhs or equivalent thereof in foreign currency. All series of cash transactions integrally connected to each other, which have been valued below Rupees Ten Lakhs or its equivalent in foreign currency where such series of transactions have taken place within a month and the aggregate value of such transactions exceeds Rupees Ten Lakhs. All cash transactions were forged or counterfeit currency notes or Bank notes have been used as genuine and where any forgery of a valuable security has taken place; All suspicious transactions whether or not made in cash and by way of as mentioned in the Rules. Under regulatory instructions issued by the Reserve Bank of India in consultation with the Government of India and Indian Banks Association Demand drafts, mail transfers and travelers cheques for Rs. 50,000/- and above can be issued by banks only by debit to the customers account or against cheque or other instrument tendered by the purchaser and not against cash payment; Demand drafts, mail transfers and travelers cheques for Rs. 50,000/- and above can be poaid by banks only by credit to the customers account or through other banking channels and not in cash.

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Th e g e AM St re -Le g d L ool
1. Effective analytics 2. Management reporting 3. Current Methodologies

Technology
1. Knowledge and knowledge transfer 2. Investigative savvy 3. Current tools and processes

1. Sufficient knowledge 2. Strong internal controls 3. Compliance commitment Line of Business

AML PROGRAM

Compliance Managemen t
2

2007RSM McGladreyInc.

RSM McGladre yInc. is a m ber firmof RSM International an affiliationof separateandindependen legal entities. em t

DIFFERENT FEATURES INCLUDED IN KYC TECHNOLOGY

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Open source technology o Google your investigation. Community bank space o Knowledge but lack of consistency. o Fits the bill- cheap. Keys o Dont forget to capture your trail. o Information can be misleading focus on the negatives. List checking o Checks names against the following: Internal lists Other lists

o Community bank space o Keys False positives choking the process Where to stop 100% penetration Minimum functionality

Public data search tools o Check names and entities against public data.

Community bank space o Strong penetration.

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o Can be leveraged for other risks to the organization. Keys o Cost vary but can be prohibitive. o Shelf-ware o Information needs interpretation. CIP solutions o Information collection, management and retrieval. o Too many banks collect but fail to use. Community bank space o Home grown solutions. Integration issues

o Leveraging other technologies to provide solution. Keys o Is the front-end collection leading to back-end analyses? o Integration with account opening is a must.

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OBJECTIVE OF THE STUDY

To know the KYC procedure adopted by the bank. To know how KYC procedures help the banks in reducing non-performing assets To know the concept of KYC helps in identifying the sources of funds and to check the money flowing from restricted sources To study how banks control money laundering, theft, frauds through KYC formats.

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RESEARCH METHODOLOGY

TYPE OF DATA:- There are two type of data i.e. primary data and
secondary data. For carrying out this research study I need Primary data.

METHOD OF DATA COLLECTION:- There are

collecting primary data. Interview method Observation method Questionnaire method Schedule method

4 methods For

For carrying out this study I will use questionnaire as a method of data collection.

SAMPLE AREA Bhopal city

SAMPLE SIZE:- 3 BANKS ( SBI, AXIS BANK, KARNATAKA BANK)

SAMPLE DESIGN:- Stratified Random Sampling

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STATE BANK OF INDIA

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HISTORY - The evolution of State Bank of India can be traced back to the first
decade of the 19th century. It began with the establishment of the Bank of Calcutta in Calcutta, on 2 June 1806. The bank was redesigned as the Bank of Bengal, three years later, on 2 January 1809. It was the first ever joint-stock bank of the British India, established under the sponsorship of the Government of Bengal. Subsequently, the Bank of Bombay (established on 15 April 1840) and the Bank of Madras (established on 1 July 1843) followed the Bank of Bengal. These three banks dominated the modern banking scenario in India, until when they were amalgamated to form the Imperial Bank of India, on 27 January 1921.

An important turning point in the history of State Bank of India is the launch of the first Five Year Plan of independent India, in 1951. The Plan aimed at serving the Indian economy in general and the rural sector of the country, in particular. Until the Plan, the commercial banks of the country, including the Imperial Bank of India, confined their services to the urban sector. Moreover, they were not equipped to respond to the growing needs of the economic revival taking shape in the rural areas of the country. Therefore, in order to serve the economy as a whole and rural sector in particular, the All India Rural Credit Survey Committee recommended the formation of a state-partnered and state-sponsored bank.

BRANCHES - The corporate center of SBI is located in Mumbai. In order to cater

to different functions, there are several other establishments in and outside Mumbai,

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apart from the corporate center. The bank boasts of having as many as 14 local head offices and 57 Zonal Offices, located at major cities throughout India. It is recorded that SBI has about 10000 branches, well networked to cater to its customers throughout India.

ATMServices:
SBI provides easy access to money to its customers through more than 8500 ATMs in India.

THE EIGHT BANKING SUBSIDIARIES ARE:

State Bank of Bikaner and Jaipur (SBBJ) State Bank of Hyderabad (SBH) State Bank of India (SBI) State Bank of Indore (SBIR) State Bank of Mysore (SBM) State Bank of Patiala (SBP) State Bank of Saurashtra (SBS)

KEY MEMBERS OF THE BANK:

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Shri O.P. Bhatt Chairman Shri S.K. Bhattacharyya - MD & CC&RO Shri R. Sridharan - MD & GE(A&S) Shri Dileep C. Choksi Shri. D. Sundaram

MILESTONES OF SBI BANK:

The only Indian Bank to find a place in the Fortune Global 500 list Improved Ranking from 495 last year to 380 this year.

Reputation Institute, US has ranked SBI 29th. Awarded the Bank of the Year 2008 India by the Banker Magazine , London. Ranked #1 in survey of Top 5 companies in India in terms of Financial Reputation by Wall Street Journal Asia.

AXIS BANK

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HISTROY- Axis Bank was the first of the new private banks to have begun
operations in 1994, after the Government of India allowed new private banks to be established. The Bank was promoted jointly by the Administrator of the specified undertaking of the Unit Trust of India (UTI - I), Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) and other four PSU insurance companies, i.e. National Insurance Company Ltd., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance Company Ltd. The Bank today is capitalized to the extent of Rs. 359.76 crores with the public holding (other than promoters) at 57.79%. The Bank's Registered Office is at Ahmedabad and its Central Office is located at Mumbai. The Bank has a very wide network of more than 853 branches and Extension Counters (as on 30th June 2009). The Bank has a network of over 3723 ATMs (as on 30th June 2009) providing 24 hrs a day banking convenience to its customers. This is one of the largest ATM networks in the country. The Bank has strengths in both retail and corporate banking and is committed to adopting the best industry practices internationally in order to achieve excellence.

KEY MEMBERS OF THE BANK:

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Smt. Shikha Sharma - Managing Director & CEO Shri. N.C. Singal Director Shri. J.R. Varma Director

MILESTONES OF AXIS BANK:

UTI Bank re-brands itself as Axis Bank JULY 07 Axis Bank ties up with Banque Prive Edmond de Rothschild Europe for Wealth Management SEPTEMBER 07

Axis Bank gets AAA National Long-Term Rating from Fitch Ratings DECEMBER 07

Axis Bank launches Platinum Credit Card, India's first EMV chip based card MARCH 08

MISSION AND VALUES OF AXIS BANK:

MISSION :

Customer Service and Product Innovation tuned to diverse needs of individual and corporate clientele. Continuous technology upgradation while maintaining human values. Progressive globalization and achieving international standards.

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Efficiency and effectiveness built on ethical practices.

CORE VALUES :

Customer Satisfaction through o Providing quality service effectively and efficiently o "Smile, it enhances your face value" is a service quality stressed on o Periodic Customer Service Audits

Maximisation of Stakeholder value Success through Teamwork, Integrity and People

KARNATAKA BANK LTD.

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HISTORY- Karnataka Bank Limited is a leading private sector bank in India. It
was incorporated on 18th February 1924 at Mangalore, a town located in the Kannada district of Karnataka. The bank emerged as a major player during the freedom movement of 20th Century India. During its process of expansion, the Karnataka Bank merged with other banks like Sringeri Sharada Bank Ltd., Chitradurga Bank Ltd. and Bank of Karnataka. Today, Karnataka Bank has emerged as one of the top financial service institutions in India.

Karnataka Bank Limited, a leading 'A' Class Scheduled Commercial Bank in India, was incorporated on February 18th, 1924 at Mangalore, a coastal town of Dakshina Kannada district in Karnataka State. The bank took shape in the aftermath of patriotic zeal that engulfed the nation during the freedom movement of 20th Century India. Over the years the Bank grew with the merger of Sringeri Sharada Bank Ltd., Chitradurga Bank Ltd. and Bank of Karnataka.

With over 85 years experience at the forefront of providing professional banking services and quality customer service, we now have a national presence with a network of 449 branches spread across 20 states and 2 Union Territories. Managed by a dedicated & professional management team, we have over 4,900 employees, 71,822 shareholders and over 3.7 million customers.

Today, we have emerged as a leading financial service institution in India.

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KARNATAKA BANK: BRANCHES AND BUSINESS

Karnataka bank has expanded its reach to various parts of India, over the 85 years of its existence. Today, the bank has a total of 447 branches, spread across 19 states and 2 Union Territories, with a total business of about Rs. 31248 Crore. The bank presently employs over 4,900 employees and is answerable to about 71,822 shareholders and over 3.7 million customers. The bank has specialized branches like Agricultural Development Branch, Overseas Branches, Foreign Exchange Branches, Specialized SSI Branches, Asset Recovery Management Branches, Currency Chests, Central Processing Centre spread across the length and breath of the country.

KARNATAKA BANK: FACILITIES AND CUSTOMER SERVICE:

Karnataka Bank provides a broad range of customized products and services suitable for all kinds of market, trade and perceived requirements, be it business or personal. It deals in personalized banking, business banking, money transfer, internet banking and insurance services. The facilities include borrowing facilities, deposits, optimum returns on surplus funds and helping with smooth overseas transactions.

As a part of personalized banking, Karnataka Bank provides services for high earning deposits, simple & convenient loans, life insurance, money transfer, utility bill payments and thus, efficiently keeps a track of your finances. As a part

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of its business banking, the bank provides you with working capital finance, term loans and infrastructure finance, to let your business expand smoothly. The Internet Banking facility of Karnataka Bank, Money Click TM lets you manage your finances as per your own convenience, anytime and anywhere. It is a 24X7, completely free and friendly internet banking solution to all your problems.

MISSION OF BANK:

"Our mission is to be a technology savvy, customer centric progressive bank with a national presence, driven by the highest standards of corporate governance and guided by sound ethical values."

KEY MEMBERS OF THE BANK:

o Shri. Ananthakrishna - The Non Executive Chairman of the Bank o Shri K.H. Shivaswamy General Manager o Shri P. Jairama Hande General Manager o Shri P.R. Shrinivasa Holla Deputy Manager o Shri B. Vittal Rao Deputy Manager

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SOME LOAN SCHEMES OF THE BANK:

KBL Apna Ghar Housing Loan Scheme for NRI's Salaried Persons (Scheme Loans) KBL Swarna Nidhi Loan against gold ornaments KBL Swarna Nidhi

ANALYSIS OF QUESTIONNAIRE
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1). What Kind of account you offer and what are the details you ask for opening it ? a).Saving b). Current

RESPONSE
Every bank provides both accounts according to the need of the customer. But the number of saving accounts are more than current accounts because current is taken by business men mostly. In all the banks if a customer wants to open an Current account than he must have PAN number ( PERSONAL IDENTIFICATION NUMBER).

2. What kinds of loans you offer?

ANALYSIS
Banks provide all types of loan like PERSONAL LOAN, EDUCATION LOAN, HOSING LOAN, VECHILE LOAN etc. but interest rate and charges differ from bank to bank. In my study I found that interest rate and charges of Private banks are more than SBI. But taking loan from Govt. bank is little bit tough process than Private banks because that requires a lot of data is to be submitted.

3. How do you track that the funds given for the particular work are utilized for the same purpose?

ANALYSIS

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All banks track by regular inspection of the site. Inspection frequency depends on the amount of loan and also type of customer. Axis Banks inspect site on monthly basis, Karnataka bank inspect sites on 15 day & on monthly basis and same for SBI.

4. How do you encourage your customers to pay back the amount?

ANALYSIS
Banks encourage customer by providing Low interest rate and also by minimizing charges on regular payment of EMI. Sometimes banks also takes harsh steps towards customer for there loan payment. By legal procedure like one month notice, filling suit etc.

5. What are the securities/documents that you look for before getting into customer bank relationship?

ANALYSIS
For Account Opening: Documents required PAN card, Age proof, Photo identity, Residential proof if customer wants to open an account whether it is Saving Bank Account or Current Account.

For Taking Loan: If customer wants loan from the banks he have to submit all the above documents as a proof and some securities is also needed if he wants Personal Loan, Housing Loan, Vehicle Loan, Education Loan etc. Securities like Registry of Home, Gold

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Ornaments, Shares Certificate etc. Type of security is depending on the amount of loan. If loan amount is higher than 4 lacs. In education than customer need to give full security against loan. All private banks & Govt. Banks needs security on the loan amount as per there banks Norms.

6. How do you value the financial position of the guarantor?

ANALYSIS
Guarantor being the key person reason being that if the borrower does not payback the money it would be paid by the guarantor so according to the banks the financial position of the guarantor is as important as that of the borrower.

7. Identification of customer ? a).License e.) Others b). Rashan card c). Passport d.) PAN

ANALYSIS
For identification of customer every bank matches original documents with photocopy as verified by the recognized personnel. If customer provides PAN than from the official web site of Income Tax Dept. individual PAN will be check online.

8. In which sector customer works? a).Govt. Organisation b).Private sector

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ANALYSIS
For opening an account it doesnt matter about the working sector of customer but if he wants loan than for the Govt. employees taking loan is easy because identification of those customer is easy for the banks.

9. How does it impact if the customer has already taken loan?

ANALYSIS
It impacts most because if customer is already taken loan than it helps banks to check his old records and if he taken loan from other bank than it also helps by conforming from that bank he already taken loan and knowing his status. By this the banks confirms that the loan given to the customer can be received back with less issues.

10.What are the factors you take into consideration before entertaining any new customer?

ANALYSIS
If customer wants to open New Account: Type of customer Whether salaried or Business Men. Type of account What type of account he wants? Salary Account or Saving Account or Current Account. Amount Amount he wants to keep in his account. Documents Is all needed documents are available with him or not.

If Customer wants to take Loan for any purpose:

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Type of customer bank verifies that whether the customer is new to bank or He is an old customer wants loan for first time. Type of account If he is the Account holder of the bank and wants loan than which type of account he had whether Saving or Current account because his account positions helps bank to know about his financial status. Amount of loan Purpose of loan Paying capacity It is very important point to know about the paying capacity of the customer.

11. To what extent the Family background matters?

ANALYSIS
For some banks it matters for some it does not matter. Like for state bank of India it matters for axis bank it does not matter. Before giving loan SBI checks full status of loan taker if a particular person wants a loan for business than SBI checks that is any one from his/her family attached to business or not and if yes than Bank provide loan easily. In Axis bank & Karnataka bank they want only proper identification of customer if customer is able to gain the confidence of banks than he may get loan from the bank.

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FINDINGS OF THE REPORT
o KYC is the mandatory process for all the banks whether it is Private Bank or Govt. Bank. o Account opening procedure is more easy in Private banks in comparison of Govt. Bank. o In my study I Found that all banks provide loans of all type and there is no big difference between interest rates. o All banks give loans according to RBI rules.

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CONCLUSION

KYC policies help in creating healthy banking system in the economy.

KYC policies safeguard the banks into bank-customer relationship with customers that hamper the growth of banks. KYC policies help in tracking the customers and identify the source of funds. KYC policies help in checking money laundering in the economy.

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LIMITATIONS

o Less response from the bank Personnel. o Some questions are not properly answered because of the banks policy. o Time constraint. o Cost constraints.

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REFRENCES/ BIBLIOGRAPHY

WEBSITES: www.google.com www.soople.com www.axisbank.com www.onlinesbi.com www.karnatakabank.com www.wikipedia.com www.economictimes.com

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QUESTIONNAIRE
NAME GENDER OCCUPATION _____________________________________ _______________ ______________________________________

1). What Kind of account you offer and what are the details you ask for opening it ? a). Saving b). Current

.. .. 2). What kinds of loans you offer? 3). How do you track that the funds given for the particular work are utilized for the same purpose? 4). How do you encourage your customers to pay back the amount? 5). What are the securities/documents that you look for before getting into customer bank relationship?

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6). How do you value the particulars given by the guarantor? 7). Identification of customer ? a).licence b). rashan card c). passport

d). others 8). In which sector customer works? a). Govt. Organization b). Private sector

9). How does it impact if the customer has already taken loan? 10). What are the factors you take into consideration before entertaining any new customer? 11). Are you also checking previous loan account of customer taken by other bank? .. 12). To what extent the Family background matters? Thank you SIGN.

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