RBI imposes penalty on Sri Ganesh Co-operative Bank Ltd., Gulbarga, Karnataka

The Reserve Bank of India has imposed a monetary penalty of ₹ 15.00 lakh (Rupees Fifteen lakh only) on Sri Ganesh Co-operative Bank Ltd., Gulbarga, Karnataka.

The monetary penalty is for violation of Reserve Bank of India’s instructions for violating Know Your Customers (KYC)/Anti Money Laundering (AML) Guidelines in issuing ‘at par cheques’ to large number of walk-in-customers by intentionally structuring them below ₹ 50,000/-.

RBI also observed that it had opened benami accounts and allowed huge cash deposits in such accounts.

Tourist spots in Gulbarga can be viewed here.

Taste of Gulbarga cuisine can be viewed here.

11 observations on Reserve Bank of India’s monetary penalty on three Banks; cautions Eight

01)   Today vide a Press Release RBI has announced that it has imposed monetary penalty on the following three banks for violation of Reserve Bank of India instructions:-

Sl. No.          Name of the bank           Penalty Amount (in ` mn)

1.                  Bank of Maharashtra                   15

2.                  Dena Bank                                      15

3.                  Oriental Bank of Commerce       15

02)   Broadly RBI guidelines on ‘Know Your Customer (KYC)’, and ‘Anti Money Laundering (AML)’, were violated.

03)   Eight other banks, namely, Central Bank of India, Bank of India, Punjab and Sind Bank, Punjab National Bank, State Bank of Bikaner & Jaipur, UCO Bank, Union Bank of India and Vijaya Bank have been cautioned to put in place appropriate measures and review them from time to time to ensure strict compliance of KYC requirements in future.

04)   The penalties have been imposed in exercise of powers vested in the Reserve Bank under the provisions of Section 47(A) (1) (c) read with Section 46(4)(i) of the Banking Regulation Act, 1949.

05)   RBI has clarified that action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank and its customers.

Background

06)   On the basis of a complaint received by the Reserve Bank from a private organisation, a scrutiny of fixed accounts opened in its name in Mumbai based branches of certain public sector banks was undertaken in July 2014.

07)   With more complaints and involvement of other banks coming to light, a wider thematic review was conducted and in all 12 branches of 11 Public Sector Banks was covered. The scrutiny/thematic review looked into the modus operandi of the alleged frauds involving accounts of certain organisations in these banks, deficiencies / irregularities while opening Fixed Deposits (FD) and extending Overdraft (OD) facility there against.

08)    Besides the effectiveness of systems and processes in place pertaining to implementation of KYC norms / AML standards in respect of these accounts was also looked into.

The findings revealed violation of certain regulatory guidelines issued by the Reserve Bank as also other disquieting actions on the part of the banks, as under:

·       non-adherence to certain aspects of KYC norms of the Reserve Bank like customer identification and acceptance procedure

·       non-adherence to the Reserve Bank’s instructions on monitoring of transactions in customer accounts

·       non-adherence to the Reserve Bank’s instructions regarding funds received through Real Time Gross Settlement System (RTGS)

·       opening of fixed deposit accounts and granting overdrafts there against without due diligence or process

·       weaknesses in the internal control systems, management oversight, use of internal accounts for parking customer funds, etc.

·       involvement of middlemen/intermediaries in opening of the accounts as also subsequent operations in those accounts

09)   Based on the findings, the Reserve Bank issued a show cause notice to 11 banks, in response to which the individual banks submitted written replies. After considering the facts of each case and individual bank’s reply, the Reserve Bank came to the conclusion that some of the violations of serious nature were substantiated and warranted imposition of monetary penalty on three banks, namely, Bank of Maharashtra, Dena Bank and Oriental Bank of Commerce. 

10)   Failure on the part of the above three banks to take timely remedial measures had aggravated the seriousness of the contraventions and its impact.

11)   In respect of eight other banks, namely, Central Bank of India, Bank of India, Punjab and Sind Bank, Punjab National Bank, State Bank of Bikaner & Jaipur, UCO Bank, Union Bank of India and Vijaya Bank, based on written and oral submissions, it was decided not to impose any monetary penalty as the banks’ explanations were judged to be reasonable. 

National electronic funds transfer (NEFT) transaction code 50

            In NEFT there are specific codes for special type of transactions. For eg: Transaction Code 52 denotes Credit Card Transactions.

            Like wise, Transaction Code 50 denotes Cash Transactions. Yes, you might be surprised as to how Cash and ePayment can co-exist.

            A couple of years ago, Reserve Bank of India, introduced a new Transaction Code 50. This was aimed at Indians who desired to remit money through banking channels, but did not have a Bank Account, at least with the NEFT originating bank.  However, the beneficiary had a bank account.        

    

            The remitters could walk into any bank branch and request for a NEFT transaction through cash deposit.  

            The upper limit per transaction is Rs50, 000/-

Process in brief:

• In order to facilitate cash remittances through NEFT up to Rs 50,000/- for persons who are not having account with the originating bank, the originating banks are required to collect the full details of remitters, including complete address and telephone number, etc., in order to comply with the Wire Transfer Guidelines.

• These details need to be keyed in the Sender's details field provided in NEFT outward debit message with transaction code 50 for identification.

• A Special Account may need to be opened for this purpose at the originating branches to route the cash transactions and that Special Account Number should be given while originating a Cash Transaction.

• This account would also facilitate the handling of returned NEFT transactions.

• The returns would automatically be credited to the Special Account in a Straight through Processing (STP) environment.

The AML (Anti-Money Laundering) Cell of the remitting bank is expected to closely monitor this account to ensure that only legitimate transactions are being routed through. Over a period of time, it is expected, each bank will develop their processes to make sure that no regulations are violated.

            The main challenge would be in ‘return’ of funds of returned NEFT transactions. Of course, we Indians are smart enough to mention the correct details to ensure 100% successful transactions. 

Budget 2013-14 – Benefits for Safe ePayments

            The following points are of great interest to Safe ePayments Motivators.

            In the medium run, these new initiatives announced by Mr.P.Chidambaram, Finance Minister, will encourage Indian industry and bank customers to adopt more and more ePayments modes in their daily routine.

01) 11 lakh beneficiaries have received benefit under Direct Benefit Transfer scheme. Direct Benefit Transfer (DBT) Scheme to be rolled out throughout the country during the term of UPA Government: - The more beneficiaries experience the joy of Safe ePayments, the more they will spread the word of Safe ePayments.

02)Rs 532 crore to make post offices part of core banking: - At present, Post Office Saving Bank is not part of electronic payment channels viz ATMs,NEFT,RTGS,IMPS etc. The core banking solution is the first step to integrate Post Office Saving Bank into mainstream eBanking Channel.

03)Tax credit of Rs. 2,000 for income upto Rs. 5 lakh: - This will encourage people to file their tax-returns irrespective of whether their tax liability. This is a step to ensure more and more countrymen obtain PAN.

04)First home loan from a bank or housing finance corporation upto Rs. 25 lakh entitled to additional deduction of interest upto Rs. 1 lakh: The disbursements to real-industry should be via eMode only.

05)Insurance companies can now open branches in Tier 2 cities and below without prior approval. All towns of India with a population of 10000 or more will have an LIC branch and one other public sector insurance company:- All Insurance companies have adopted ePayments in their daily routine. The above initiative will deepen the reach of ePayments.

06)All public-sector banks have assured the Finance Minister that they will all have ATMs in their branch areas by 2014.

07)India's first women's bank as a PSU proposed, Rs. 1,000 crore working capital announced

08)The country has moved a step towards uniform know-your-customer (KYC) norms for different investments. The Union Budget has proposed the use of bank KYC for buying insurance as well. This will make the process for purchase of insurance simpler

            

Amendments to Policy Guidelines for issuance and operation of Prepaid Payment Instruments in India

As the concept of Prepaid Payment Instruments are becoming popular in our country, RBI to further encourage Safe ePayments has considered it necessary to announce two amendments.

The following are two amendments announced on 12/06/2012

1. The limit of Rs 1000/- for semi-closed prepaid payment Instrument that can be issued under Para 6.4 (i) of guidelines dated April 27, 2009 has been raised to Rs 2000/-.

The instruments can be issued against any identity document furnished by the customer as long as the issuer reports the annual transfer/suspicious transactions. Further, RBI has also specified that only one active instrument should be issued by the issuer to the same holder I.e multiple instruments should not be issued.

Another important amendment is on the belief that the full KYC of the customer has been done by the provider of such services.

2. The issue of semi-closed prepaid payment instrument upto Rs 10,000 without separate KYC being conducted by the issuer, for payment of utility bills/ essential services/ air and train travel under Para 6.4 (iii) was permitted on the premise that full KYC of the customer is already being done by the provider of such services. The control exercised by the issuer has been on the acceptance side, ie. utility of the card for the specific purpose at the specific merchant. Based on this rationale, it has been decided to redefine the merchant categories under Para 6.4 (iii).

The Merchant categories now included under Para 6.4(iii) are :-

a) Utility providers/Essential service providers viz electricity bills, water bills, telephone/mobile phone bills, insurance premium, cooking gas payments, rental for Internet/Broadband Connections, Cable/DTH subscriptions and Citizen Services by Government or Government bodies. .

b) Air and Train travel tickets

c) recurring payment of college fees

d) recurring payment of school fees

e) government taxes upto a limit of Rs10,000/-

The concept of Prepaid instruments in India was first thought of in the paragraph 151 of ‘Annual Policy Statement for 2009 – 2010’

Semi-closed system payment instruments are redeemable at a group of clearly identified merchant locations or establishments which contract specifically with the issuer to accept the payment instrument. No cash withdrawals are permitted under the semi-closed payments instrument options.

A Payment Instrument in brief can said to be instruments which permit transactions for value between a payer and beneficiary by which the payer discharges the payment obligation of the beneficiary. The payment mode can be pre-paid, post-paid(eg mobile connections) or immediate discharge.

A simple defintion of Pre-Paid Instrument is any payment instrument which permit transactions for value stored in them. The most popular prepaid instruments in India are the prepaid mobile vouchers. As the prepaid mobile vouches gained popularity, the concept was extended to other services.

Prepaid instruments aim to reduce the usage of cash and also enable ePayments through internet/mobile shopping.

Popular types of Prepaid payment instruments.

1) Closed System Payment Instruments: These are payment instruments generally issued by business establishments for use at their respective establishment only. These instruments do not permit cash withdrawal or redemption. The best example could be canteen tokens issued by business establishments.

2. Open System Payment Instruments: These are payment instruments which can be used

for purchase of goods and services and also permit cash withdrawal at ATMs; The best example is the Bank Debit Card.

3. Semi‐closed System Payment Instruments: These are payment instruments which are

redeemable at a group of clearly identified merchant locations/ establishments which contract specifically with the issuer to accept the payment instrument. These instruments do not permit cash withdrawal or redemption by the holder; The best example are the mobile recharge vouchers.

4. Semi‐open System Payment Instruments: These are payment instruments which can be

used for purchase of goods and services at any card accepting merchant locations (Point

of sale terminals). These instruments do not permit cash withdrawal or redemption by

the holder.

Normally, cross border transactions are not permissible on these instruments. However, only entities which have permissions under FEMA can issue cross border transaction enabled prepaid instruments.

In India, of the above 4, RBI has permitted the issuance of the following three types of instruments:

(i) Closed system payment instruments Examples of such instruments are gift vouchers issued by certain merchant establishments and telephone calling cards. Mobile prepaid value may also be considered as a closed‐system prepaid payment instrument, though they can be used for availing of additional value‐added services.

(ii) Semi‐closed system payment instruments. E.g. prepaid cards which are redeemable at a group of establishments associated with a particular shopping mall, tourist resorts, or at establishments and service providers listed out by the issuer; and

(iii) Open system payment instruments ‐ only banks are permitted to issue this type of

instruments.

Previous Circulars on Pre-Paid Instruments:

RBI / 2008-09 / 458 DPSS. CO. PD. No. 1873/02.14.06/2008-09 dated April 27, 2009,

RBI / 2010-11 / 261 DPSS. CO. No. 1041 / 02.14.006 / 2010-2011 dated November 04, 2010

RBI / 2011-12 / 144 DPSS. CO. PD. No. 225/02.14.006/2011-12 dated August 04, 2011

IMPS remittance service extended to No Frills Account Holders

New and innovative features are being added to the IMPS Product by NPCI. The latest feature, is that No Frills account holders are now interoperable with IMPS

No Frills accounts as the name suggests are Bank accounts with minimal features. As the accounts are opened with the bare minimum documentation, the sum of credit transactions in a financial year should not exceed Rs. one lakh in "No Frills Accounts". Once the limit is crossed, the customers have to take steps to submit the documentation for a full KYC, so that the no-frills account can be converted into a normal account.

To encourage Banks to open more 'No Frills Accounts', and also to extend the reach of IMPS, NPCI has taken steps to enable IMPS facility to 'No frills accounts', too.

Union Bank of India was the first bank to link IMPS to 'No Frills accounts'.

Yes, MMID is compulsory even for No Frills accounts', to avail the IMPS facility. The agents of Corporate Business Correspondent I.e FINO, will facilitate the process of obtaining MMID by account holders.

Top 5 Benefits of this facility:

1. Customers need not opt for mobile banking services.
2. The funds transfer is instant, as the IMPS works 24*7, 365 days a year.
3. No additional infrastructure is required by the Banks nor the account holders.
4. Reach or last mile connectivity issues are resolved, as Mobiles have penetrated almost every nook and corner of the country.
5. The additional spinoff will be for the mobile companies, as the customer's stickiness to their company will increase. This is because customer's having a MMID will not prefer to shift their loyalties elsewhere.

KYC Norms/AML Standards/Combating Financing of Terrorism - Obligation of Payment System Operators

KYC Norms/AML Standards/Combating Financing of Terrorism - Obligation of Payment System Operators

 Reserve Bank of India, Department of  Payments and Settlement Systems, has issued a Notification stating that all the Payment System Operators have been brought under the purview of PML2A, 2002, in  terms of Prevention of Money Laundering Act, (PMLA), 2002, as amended by Prevention of Money Laundering (Amendment) Act, 2009.

The complete Notification i.e RBI/2009-10/269 DPSS.CO.AD.No./1320/02.27.005/2009-10, dt. December 22, 2009, can be accessed at

http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=5432&Mode=0

Basically the Payment System Operators   will have to submit 2 kinds of Reports. The Notification clearly states that the rules will also apply to all the agents and sub-agents of the Payment System Operators in India and it will be the sole responsibility of Payment System Operators, to ensure that their agents and sub-agents also adhere to these guidelines.

I personally feel that the above notification has been issued at an early stage, when a large number of entities are trying to become Payment System Operators in India.

This Notification will enable the prospective Payment System Operators, to reassess their business plans, and ensure an error-free rollout.