Preventive Vigilance Steps in Banking Operations

PREVENTIVE VIGILANCE

MISSING A SMALL STEP MAY LEAD TO

YOUR FALL

(Preventive Vigilance Steps in Banking Operations)

The suggestions/guidance contained in

This booklet are only indicative and

not exhaustive. The readers are requested to

For internal Circulation only

go through the manuals/circulars issued

by the bank from time to time

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Table of Contents

Sl No Contents Page No

1 Preventive Vigilance to be adopted for KYC compliance and account opening 3

2 Preventive Vigilance - Staff Angle 5

3 Preventive Vigilance - Trade Finance and other Credit 6

4 Preventive Vigilance to be adopted for Vehicle Loans 7

5 Preventive Vigilance to be adopted for Jewel Loans 8

6 Preventive Vigilance to be adopted in Home Loan accounts 9

7 Preventive Vigilance to be adopted in areas of IT 10

8 Preventive Vigilance to be adopted in areas of LOD 11

9 Preventive Vigilance to be adopted in areas of Salary Loan 12

10 Preventive Vigilance to be adopted in areas of Education Loan 13

1. Preventive Vigilance to be adopted for KYC compliance and account opening

· No account should be opened in anonymous or fictitious/ in Benami names

· No new account to be opened or existing account to be closed where the bank is unable to apply appropriate customer due diligence measures

· Necessary checks to be made before opening a new account so as to ensure that the identity of the customer does not match with any person with known criminal background or with banned entities such as individual terrorists or terrorist organizations etc.

· Examples of customers requiring higher due diligence may include (a) non-resident customers, (b) high net worth individuals, (c) trusts, charities, NGOs and organizations receiving donations, (d) companies having close family shareholding or beneficial ownership, (e) firms with 'sleeping partners', (f) politically exposed persons (PEPs) of foreign origin, (g) non-face to face customers, and (h) those with dubious reputation as per public information available, etc.

· Customer identification by verifying his/ her identity by using reliable, independent source documents, data or information.

· Transactions that involve large amounts of cash inconsistent with the normal and expected activity of the customer should particularly attract the attention of the bank.

· Very high account turnover inconsistent with the size of the balance maintained may indicate that illegal funds are being 'laundered' through the account.

· High-risk accounts have to be subjected to intensified monitoring.

· Frontline staff, compliance staff and staff dealing with new customers should have sufficient knowledge of the KYC guidelines

· Even though the documents are submitted at the time of opening of the accounts, customers may be required to submit the documents/details as and when called for at frequent intervals. This is in the interest of customers to weed out the chances of frauds happening in the accounts.

· Low Income group customers are those who keep balances not exceeding Rs.50000/- in all their accounts (FDR/CA/SB) taken together and the total credit summation in all the accounts taken together is not expected to exceed Rupees One Lakh (Rs.1,00,000/-) in a year. For these customers, branches are permitted to open accounts subject to the following conditions:

i. An introduction (in lieu of the KYC documents) from another account holder who has been subjected to full KYC procedure should be given.

ii. The introducer's account with the Bank should be at least six month's old and should show satisfactory transactions.

iii. The photograph of the customer who proposes to open the account and his address need to be certified by the introducer. When this is not complied, full KYC process should be undergone.

Restrictions on transaction mode

· Issue and payment of traveller’s cheques, demand drafts, electronic funds transfers and other remittances of Rs.50,000 and above could be made only by debit/credit to customers' accounts or against cheques and not against cash.

· The applicants (whether customers or not) for the above transactions for amount of Rs.50,000 and above should furnish PAN (Permanent Account Number allotted by Income Tax Authorities) on the applications.

· If the Bank is not able to adhere to the KYC norms in a particular account due to non co-operation by the customer or non-reliability of the data/ information furnished to the Bank, it may close the account, after giving due notice to the customer explaining the reasons for such a decision

Maintenance of records of transactions (nature and value)

· We have to maintain a record of,

(A) all cash transactions of the value of more than rupees ten lakhs or its equivalent in foreign currency

(B) 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

(C) all cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine and where any forgery of a valuable security has taken place

(D) all suspicious transactions whether or not made in cash and by way of : deposits and credits, withdrawals into or from any accounts in whatsoever name they are referred to in any currency maintained by way of cheques including third party cheques, pay orders, demand drafts, cashiers cheques or any other instrument of payment of money including electronic receipts or credits and electronic payments or debits, or travellers cheques, etc

2. Preventive Vigilance - Staff Angle

· At the close of business each day, ledgers, registers, documents, specimen signature cards, files, etc., should be placed in shelves and kept locked under the custody of the officer concerned. The record room must be securely locked.

· V V R checking to be done with care and not as a ritual

· Password should not be shared/disclosed

· Log off system even for short interval movements from seat

· Voucher bundles should be stitched every day, numbered and stored carefully under the custody of the officer concerned.

3. Preventive Vigilance - Trade Finance and other Credit

· Normal KYC norms should be adhered to when opening the account

· Genuineness of the borrower from the present bankers/market report should be ascertained

· The assets declared by the borrower in relevant statements should be cross verified from reliable sources

· In case of current accounts, the operations in the account in the initial days should be closely monitored

· In case of Limited Companies, a search in the books of ROC to be done

· The working of the account should be subject to through watch as to the end use of funds, kite flying, diversion of funds etc

· Periodical verification of assets and stock should be done meticulously

· Actions of the borrower indulging in activities not connected to the business to be watched carefully

· The legal opinion of the document to title deeds to be scrutinized thoroughly, and genuineness regarding the registration and stamp paper to be verified

· In large advances second valuation should be done invariable wherever stipulated by HO

· Pre release audit should be completed before disbursal of advances above the cut off limit stipulated

· Stock audit is to be done every year (within a span of 15 months) for large advances as stipulated

· In case where security is by way of Book Debts the age should be certified by Chartered Accountants

· Acute care should be taken in cases of over valuation/obsolete/unpaid stocks

4. Preventive Vigilance to be adopted for Vehicle Loans

· Proof of Identity such as PAN Card / Voter’s ID/Passport/Driving License.

· Proof of residence such as Recent Telephone Bill / Electricity Bill / Property Tax Receipt / Passport / Voter’s ID.

· Proof of business address in respect of businessmen / industrialists.

· Proof of Employment.

· Ensure genuineness of Salary Certificate.

· Proof of other income like rent, interest on investment, if any.

· Balance Sheet for the past three financial years in the case of Professionals, Businessmen & Self employed.

· Income Tax / Wealth Tax (if applicable) Returns for the past 3 years.

· Copy of Driving Licence.

· Quotation for Vehicle to be purchased from the authorized dealer

· Whether he conforms to income criteria laid by the Bank

· Whether it is used as a status symbol for few personal visits / mode of conveyance for official purpose and if so any income / time saving is envisaged

· Verify if there are forged and fake documents in different names

· Ensure it is not difficult to recover or track these loans, as it is possible that after using the vehicles for some time, they are being sold into remote parts of adjoining States

· Frequent lodging of complaints of theft or loot of their vehicles

· Whether the borrower has good track record

· In case of second hand vehicles ensure bonafide of the transaction by verifying all documents

· Tie up with transport operators who are banned by IBA

· Whether the nature of goods transported is locally produced or procured from outside

· If procured from outside whether those goods are not e-wastes/radio-active/hazardous materials

· Whether he has any previous experience in running this business

· Registration of RC book in favour of the Bank

· In case of old vehicles whether annual taxes are paid

· Ensure adequate insurance for the vehicle and its annual renewal

· Keep the duplicate keys of the vehicle in an immediately reclaimable position

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5. Preventive Vigilance to be adopted for Jewel Loans

· Ensure appraiser is not colluding with borrower by frequent random checking

· Don’t keep jewel safe keys of two officers in the same drawer

· Have an eye on the recent thefts/burglary in the area

· If spurious jewels are lodged, then ensure that a police complaint is made so that it will act as a deterrent to others

· Keep jewels packets duly numbered and tagged and keep in an orderly fashion

· Don’t exceed the limit for jewel loan

· Ensure periodical servicing of interest

· Don’t keep jewels/packets in table tops

· Ensure the weighing balance is showing the correct weight by periodical verification

· Ensure dual custody

6. Preventive Vigilance to be adopted in Home Loan accounts

· Documents produced under KYC norms to be scrutinized thoroughly especially for walk in customers

· Wherever estimates for construction/purchase submitted, the value should be verified as to match real market price

· Discreet enquiry about the borrower in the market/place of work to be made, about the credentials of the borrower

· The salary certificate produced should be cross verified with the employer mentioned therein

· When salary certificate and bank statements are available, the salary amount must be verified with Bank statement

· Wherever possible, the EM documents submitted by the borrower should be verified with sub-registrar office

· Pre-release audit, second valuation etc should be conducted as per laid down norms

· When back documents are obtained for large number of years, the missing/photocopy of interim documents should be enquired into thoroughly

· The documents for legal opinion/valuation should not be handed over to the borrower nor obtained back from the advocate through the borrower

· Periodical inspection of the construction site should be done meticulously, especially regarding the location using a site plan

· Inspection of home loan sites should be done independently without taking borrowers guidance

· The credentials of the builder may be verified regarding his standing in the market

· Payment may be remitted to the builder by way of crossed cheque/RTGS mode of wherever possible

· Wherever registration of EM is to be done statutorily it is to be done without fail

· Extreme caution to be exercised even when there is a remote chance of collusion between the borrower and builder especially in new suburban areas

· Whenever property of third party is offered as security who has no business connection special care is to be taken

· When property offered is by way of inheritance, the position regarding the ancestors is to be clarified

· Subsequent EC to be obtained in all cases within the time norms of 4 months, and further yearly

· Whenever a document is suspected as fake, immediate attention should be drawn to check the genuineness

7. Preventive Vigilance to be adopted in areas of IT

· Password secrecy is to be maintained strictly

· Periodically password should be changed by all users especially on rejoining after leave

· Before passing any transaction in the account the matching of account number and name to be verified

· Whenever transactions are sent for passing the passing official has to thoroughly verify the details like amount, beneficiary account number, name etc.

· When a supervisory override message is displayed it should be thoroughly studied and understood the consequences before queue is passed

· If the customer has entered an account number wrongly, it should be verified thoroughly before passing

· If any digit is missing in any account, the same should not be guessed casually

· VVR checking should be done regularly without time delay

· External agency should not be engaged in security areas like cash, ATM card etc

· All the abnormal transactions should be verified regularly at the branch

· Transactions above a cut off level should be scrutinized by the Branch Manager

· Wherever transactions of single man transactions are effected it should be carefully scrutinized

· Any operation in dormant accounts should be verified thoroughly

· For ATM and Credit Cards, PIN mailer secrecy to be adhered to

· For all ATM card holders, mobile number should be obtained and entered in CIF to enable them to get alert when ATM card is used at POS

· All ATM points should be visited daily and wherever web camera is available it should be kept in good condition

· All BGL heads under the CBS environment are to be tallied and reconciled periodically and meticulously

· Transactions in the BGL heads to be verified at least on alternate days

· In the office environment trust on people should not be blind, and there should be an overall watch on everyone