By opening a deposit account, an individual who has no other account, begins a relationship with the bank. The beginning of a relationship imposes a number of obligations on a banker. He must therefore be careful about whose accounts he opens.
An account can be opened by anyone who can enter into a valid contract; minors can also open an account jointly with their guardians. Bankers may allow minors to open and operate accounts in their single name. These will be savings accounts and they will not be permitted to overdraw these accounts. They are doing all these things to inculcate banking habits in the young generation.
Deposit accounts are opened by those who have funds in hand. These include :
Persons who are not permitted to open deposit accounts are those who cannot enter into a contract such as persons of unsound mind.
The Reserve Bank of India (RBI) insists that those who are opening accounts should be properly introduced. This becomes more important in view of, frauds money laundering and terrorism. The bank must be satisfied that the person who opens an account is really the person he claims to be and is respectable.
The banker will get legal protection under Section131 of the Negotiable Instruments Act only if the bank has acted in good faith and without negligence. It is assumed that he has acted with negligence if he accepts a customer who has not been properly introduced. The Reserve Bank of India states that appropriate identification enables the bank to trace the person later if required. Therefore the RBI mentions that the practice of obtaining proper introduction should not be treated as a mere formality but it should be a measure to safeguard against opening of accounts by undesirables or in fictitious names to deposit unaccounted money. Normally an account should not be opened without a meeting between the bank official and the customer.
The introduction should be by :
It is required that the individual should be of some standing and a customer for at least 6 months. This is to make sure accounts are not opened on the introduction of new account holders or persons having small and marginal balances. The RBI recommends this interval to enable the bank to monitor transactions in the account and satisfy itself that transactions in the introducer’s account are satisfactory.
a respectable person of the local community known to the bank or the bank’s staff also can introduce a person. This is often the case when a bank is opening its first branch in a city.
This occurs when a person is new to a location but has been having a banking relationship with another bank in another city.
Bank managers/staff should be discouraged from giving the introduction. In these cases, apart from verifying the signatures with the specimen signatures on record, written confirmation should be obtained of the introduction. Till the confirmation is procured, the bank must not collect cheques or drafts through the newly opened account.
The bank will seek from the introducer comfort that the person being introduced is a respectable person that he is honest, with honesty and morals. It should be noted that the introducer has only a moral responsibility. He cannot be sued or taken to task if the person he has introduced turns out to be an undesirable person. Where the customer is not able to provide a acceptable introduction, it must be made incumbent on him to provide sufficient proof of his background before the account is opened.Customers of good standing should be educated to realize the implications of introducing an account without knowing the person introduced.
RBI gives concessions regarding those who will be getting credits by way of salary and makes payments by cheques to government and semi-government agencies and individuals. In their case a simple introduction is considered adequate. In case of accounts which are to be used for remittance transactions and for collection of cheques of substantial amounts besides business payments, deeper enquiries are required. The RBI has advised banks to slot in a certificate in account opening forms confirming the identity, occupation and address of the prospective customer signed by the introducer. The RBI has also mentioned the role of the introducers should be made more specific. It is not adequate to say that he has known the person for a sufficient period of time.
There may be times when the introducer may be unable to visit the bank to introduce the customer. In this case the bank should first verify the signature of the introducer with the specimen signature on record. Then the bank should send a letter to the introducer thanking him for introducing the customer and the introducer must confirm in writing that he has introduced the account. This is to satisfy the banker that the introducer has certainly introduced the customer. Till the written confirmation is procured, the bank must not collect cheques/ drafts through the newly opened account. The bank must also send a letter to the customer and get his confirmation for opening the account. A cheque book should be issued only after written confirmation is received from both the customer and introducer.
Many banks permit fixed deposits to be opened by a “self introduction.” This is by the person opening the account depositing a cheque drawn by him on another bank where he maintains an account. Banks consider this an acceptable risk. However, this does not give the banker any comfort with regard to the moral standing of the person. While individuals must be introduced, trusts, limited companies and other bodies cannot be. In these cases it is the documents that permit their existence that are taken into account such as the certificate of incorporation and the certificate of commencement of business.
Banks must obtain photographs of its customers and all those who are authorized to operate the account. This is just to check the identity of the person operating the account. In the case of minors, the guardian’s photograph should be collected. Photographs of NRE, NRO and FCNR account holders must also be procured.
For operations in the accounts, banks should not insist on the account holder unless the circumstances so warrant.
Banks must obtain complete address of depositors and records these in the books and account opening documentation so that the customers can be traced without difficulty.
Independent confirmation of the address should be obtained in all cases. The following documents can be used as address proof:
Documents that cannot be used as an address proof :
These are not an acceptable document in support of one’s address because they may not be up to date. As a precaution, banks should send a letter to the customer after the account has been opened to the address mentioned on the account opening form.
Account openers with an initial deposit of Rs. 50,000 and above must submit their PAN/GIR. If an account opener doesn’t have a PAN/ GIR number, he must be requested to submit Form 60 of the Income Tax Department (form of declaration to be filed by a person who does not have a permanent account number and who enters into any transaction specified in rule 114(B).
The opening of new accounts should be authorized by the branch manager or by the person to whom the authority has been delegated.
It must make sure that all account-opening facilities are undertaken at the bank’s premises and no document is allowed to be taken out for execution.
When an exception has to be made banks may appoint an officer to verify the particulars, obtain a signed photograph on a suitably formatted verification sheet, forward by registered post account opening forms to clients for verification etc. before any operation is conducted in the account.
From the below given information we can clearly understand the documentation procedure of opening an account: First of all an individual should make an application in the prescribed form. In the application form, he should mention the following details :
Before opening an account, the banker must be satisfied of the identity of the person and make sure that he is respectable, if not the banker can refuse the application to open the account.
The standard documents seen to be satisfied on identity are :
The standard documents seen to be satisfied address proof are :
At the time of opening the account, the account holder and all those authorized must sign their names on the specimen signature card; it is this signature the banker will compare with when cheques are issued on the account or instructions are given. If the signature is not attested the it can be verified from the person’s passport or by a self cheque or it can be verified by another banker ( only if the individual has another account).
When the bank has knowledge or reason to believe that the client account opened by a professional intermediary is on behalf of a single client, that client should be identified. Banks may hold pooled/ collective accounts managed by professional intermediaries on behalf of entities like mutual funds, pension funds or other types of funds. It also maintains pooled accounts managed by lawyers, chartered accountants or stockbrokers for funds held on deposit or in escrow for different types of clients.
Where funds held by the intermediaries are not mingled at the bank and there are sub-accounts, each of them attributable to a beneficial owner, all the beneficial owners should be identified. Where such funds are co-mingled at the bank, the bank should still look through to the beneficial owners. Where the banks rely on the Customer Due Diligence (CDD) done by an intermediary, they must satisfy themselves that the intermediary is regulated and supervised and has adequate systems in place to comply with the KYC (Know Your Customer) requirements. It must be understood that the ultimate responsibility for knowing the customer lies with the bank.
A sole proprietorship should submit the following documents :
A certified copy of its shops and establishment’s licence or any other approval from the government.
Politically exposed persons are individuals who are or have been delegated with important public functions in a foreign country, e.g., Heads of States, Heads of Governments, senior politicians, senior government/judicial/military officers, senior executives of state-owned corporations, important political party officials, etc.
Banks should collect sufficient information on any person/customer of this category intending to create a relationship and it must check all the information available on the person in the public domain.
The above norms may also be applied to the accounts of the family members or close relatives of PEPs.
With the introduction of phone banking and internet banking, banks are increasingly opening accounts for customers without the need for the customer to visit the bank branch these customers are known as non-face-to-face customers. In the case of non-face-to-face customers, apart from applying the usual customer identification procedures, there must be specific and adequate procedures to minimize the higher risk involved.
Certification of all the documents presented may be insisted upon
In the year 2005, the RBI stated that KYC guidelines must not be an excuse for banks to keep the poor away from the banking system. Although the KYC guidelines require an individual opening a new account to produce a number of identification documents, these could be done away with for lower income groups. The RBI has asked banks to make sure that the inability of the lower income group to produce documents to establish their identity and address should not lead to their financial exclusion and rejection of banking services. A simplified procedure could be provided for opening of accounts in respect of those persons who do not mean to keep balances above Rs. 50,000 and whose total credit in one year is not expected to exceed Rs.100, 000.
5. Hindu Undivided Families
Hindu undivided families should submit the following documents to become an account holder :
A declaration that has been signed by all the coparceners affirming the composition of the HUF, its karta and names and relationship of all coparceners including minor sons and their dates of birth
The account can be opened in the name of the karta or in the name of the HUF business.
Partnership Companies should submit the following documents :
Certified true copy of the partnership agreement
An association/ society/ club should submit the following documents :
Certificate of registration
Banks must determine whether the customer is acting on behalf of another person as trustee/nominee or any other intermediary. If so, banks can insist on receipt of satisfactory evidence of the identity of the intermediaries and of the persons on whose behalf they are acting. The bank must also obtain details of the nature of the trust or other arrangements in place.
While opening an account for a trust, banks should take reasonable precautions to verify the identity of the trustees and the settlers of trust, grantors, protectors, beneficiaries and signatories. Beneficiaries should be identified when they are defined.
A Trust/ Nominee or Fiduciary Account should submit the following documents :
Limited Companies should submit the following details :
Memorandum and articles of association
Banks should be vigilant against business entities being used by individuals as a ‘tool’ for maintaining accounts with banks. Banks must examine the control structure of the entity, determine the source of funds and identify the natural persons who have a controlling power and who comprise the management. These requirements may be moderated according to the risk perception e.g. in the case of a public limited company it is not necessary to identify all the shareholders
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