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Past a/cs may haunt new banking relations
February, 05th 2007

The next time you want to open a bank account, dont be surprised if you are asked to disclose information on all the bank accounts you operate. Banks may introduce stricter Know Your Customer (KYC) norms to establish trails for money laundering and better disclosure of income.

The new account opening form may solicit details such as accounts in other branches of the same bank and accounts in the same city, a source said. The move is part of the governments move to help designated agencies keep tab in a better way. This would be done for demat accounts as well. In fact, some banks have already initiated action by reworking their forms.

It may be noted that in the recent IPO scam, multiple accounts were part of the modus operandi.

Banks have the mandate to collect information on various loans availed by a borrower. Customers also need to disclose information about current accounts. However, soon, even information on deposits will be sought. If a customer was to conduct an illegal sale and deposit the sale proceeds in another bank account, the transaction can be tracked if banks have information on deposits as well, Punjab National Bank general manager (retail operations) US Bhargava said.

Retail lending finding way into capital markets can also be captured if banks can keep tabs on all accounts.

Tax evaders can show up across multiple accounts they operate with various banks, he added. The credit information report (CIR) compiled by the Credit Information Bureau (Cibil) does not provide information on amounts deposited with banks. A CIR is a factual record of a borrowers credit payment history compiled from information received from different credit grantors. Its purpose is to help credit grantors make informed lending decisions. Banks, financial institutions, non-banking financial companies, housing finance companies and credit card companies use CIRs.

With banks migrating to different technological platforms, the sharing of information across the industry is not seamless. Once all banks are on the core banking solution (CBS), every customer will have a common identification number. The common ID will disclose all the information on the customer across banks.

Once triggers are built into the technology, all suspicious transactions will be thrown up by the system, Mr Bhargava said. However, customer information is confidential. Also, routine transactions will not be registered because of in-built triggers in the technology, he said. Not just new customers, even existing ones may behave in a manner inconsistent with the past. So, if there is a departure from the norm, banks can gain from the information drawn from having access to other bank accounts of the customer, a banker said. The objective of the KYC framework today is to ensure appropriate customer identification and to monitor transactions of a suspicious nature.

Experts say the Bank Secrecy Act should be safeguarded even as banks share critical information about their customers. In the long run, however, the banking industry will be more disciplined about sharing such information and spot irregularities that might give clues on terror financing or money laundering.

In India, the financial intelligence unit (FIU) is the central, national agency responsible for receiving, processing, analysing and disseminating information related to suspect financial transactions to enforcement agencies and foreign FIUs. 

 
 
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