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A Study on Know Your Customer Needs & Significance

Abstract

KYC (Know Your Customer) is today a significant element in the fight against
financial crime and money laundering and customer identification is the most critical
aspect as it is the very first step to better perform in the other stages of the process.

KYC checks are done through an independent and reliable source of documents, data,
or information. Each client is required to provide credentials to prove identity and
address.

KYC is one of the most controversial subjects in today's crypto world. For this reason,
it's essential to have a clear understanding of this procedure. KYC is aimed to make it
easier for the banks and other final institutions to know and understand their
customers.

e-KYC stands for electronic KYC. The service of e-KYC can only be used by those
who have Aadhar numbers.

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.

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Chapter 1

Introduction

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1.1 Introduction to KYC

"Know Your Customer" or KYC is an important term used by businesses and refers to
the process of verification of the identity of the customers and clients either before or
during the start of doing business with them. Banks, digital payment companies or any
kind of financial institutions are now required by the RBI norms to have their customers
KYC process completed before allowing them complete access to all services.

The main aim of conducting KYC is to verify the identity of clients and additionally
examining the probabilities of any illegal wrongdoings. Another reason due to which
almost all major companies and organizations are carrying out KYC is to make sure
that their distributors, consultants, and agents are bribery-free and are not involved in
any unlawful activities. In other words, it ensures that the information provided is real
and authentic.

KYC is done as a precaution against illegal activities like money laundering, bribery or
corruption. It helps the government and businesses keep track of such activities or
suspect them beforehand. Apart from being a legal requirement, completing the
procedure will also help you gain access to many of the financial company's premium
products and get transactions done faster.

Even when you already submit the KYC documents once, the banks can ask again as
they are required to periodically update KYC records. This is a part of their ongoing
due diligence on bank accounts. The periodicity of such updation would vary from
account to account or categories of accounts depending on the bank's perception of risk.
Opening bank account, mutual fund account, bank locker, online investing in the mutual
fund or gold your KYC should be updated with bank.

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1.2 History of KYC

The main purpose of KYC norms was to restrict money laundering and terrorist
financing when it was introduced in late the 1990s in the United States. The US
government turned very strict after 9/11 and all regulations were finalized before 2002
for KYC.

The US has made changes in its major legislations -- Bank Secrecy Act, USA Patriot
Act -- to make KYC norms really effective for the banking sector.

Taking a leaf out of the US book, the Reserve Bank of India too directed all banks to
implement KYC guidelines for all new accounts in the 2nd half of 2002.

For existing accounts, imposing KYC norms was a little difficult, so the RBI issued
guidelines for the same at the end of 2004.

The Reserve Bank of India (RBI) had issued a directive that banks should draw up a
time bound action plan for obtaining customer identification documents under new
KYC norms in respect of all the old accounts and complete the entire exercise by
31.12.2004. Accordingly, the Zones/Branches had been advised to comply with the RBI
directive as per the action plan. All the Zones had confirmed compliance of the KYC
norms for all the accounts based on branch confirmations and the final certificate was
furnished by the Bank to the RBI in April, 2005. We have, thereafter, been time and
again reiterating the importance of extremely careful compliance of KYC guidelines.

In spite of these instructions and compliance certificates, instances of non-compliance


of KYC norms have been pointed out by the RBI Auditors and Internal/Concurrent
Auditors. At every quarterly meeting, the RBI has been expressing serious concern over
the continue instances of non-compliance of KYC guidelines.

They had categorically advised that the Bank should adopt zero tolerance policy in
respect of deviation from adherence to KYC norms in all accounts including existing
accounts and confirm compliance to them.

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1.3 Importance to KYC

KYC is important because it helps


the banker to ensure that the
application and other details are
real. There have been instances of
fraud and siphoning off of money
from accounts. By ensuring the
identity of individuals, it would
help to prevent fraud. The Know
Your Customer practice has been in vogue for many years now. It is a must and all
individuals have to comply, if they wish to open account. It is not possible to open a
back account or account for mutual funds without KYC compliance.

KYC procedures defined by banks involve all the necessary actions to make sure their
customers are real, assess, and monitor risks. These processes help prevent and identify
money laundering, terrorism financing, and other illegal corruption schemes.

KYC process includes ID card verification, face verification, document verification


such as utility bills as proof of address, and biometric verification.

Banks must comply with KYC regulations and anti-money laundering regulations to
limit fraud. KYC compliance responsibility rests with the banks.

In case of failure to comply, heavy penalties can be applied.

In the U.S., Europe, the Middle East, and the Asia Pacific, a cumulated USD26
billion in fines have been levied for non-compliance with AML, KYC, and sanctions-
fines in the past ten years (2008-2018) - let alone the reputational damage done that has
not been measured.

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1.4 Benefits of KYC

Even though the KYC process has received mixed reactions, there is no denying the
fact it has several benefits. The benefits are as follows:

1. It makes sure that all monetary transactions are legitimate and transparent.

2. It is responsible for fighting against any kind of criminal activities, such as money
laundering, bribery, fraud, black money etc.

3. Due to its transparent nature of working, it helps in avoiding reputational, tax and
legal discrepancies or problems.

4. It works towards stopping con artists and scammers from stealing money.

5. One of the biggest advantages of KYC is that it successfully establishes


the credibility of the customer.

6. KYC also serves as good news for investors and their assets. If you have got your
KYC done, be rest assured that no one else apart from you can access your assets
and exploit it. Since the concerning, authority already has all your necessary details;
it can be difficult to get to them through any illegal means.

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1.5 Problems with KYC

The problems of excessive contact from financial institutions, inconsistent requests and
security concerns continue to be the main pain points for corporates facing the KYC
compliance process, according to research by Thomson Reuters. The survey of more
than 1,100 corporate executives earlier this year highlighted several problems with the
KYC process globally.

1. Lack of KYC standard

The research found that one of the main problems facing corporates – and their banking
partners – is that there is no global standard for know your customer (KYC) regulations,
so different banks will have varying documentary requirements for their corporate
customers. The report states: “Survey respondents reported an average of 10 global
banking relationships — each one placing different demands on corporates, resulting
in frustration, rising costs and wasted time.” Corporates were also frustrated with
having to deal with many different people within the bank.

2. Contact with too many people within bank

The report – KYC compliance: the rising challenge for corporates – also found a
disparity in the amount of contact required between corporates and their financial
institutions during the KYC process. The FIs said that they need to contact corporate
clients on average four times during the KYC compliance, while corporates reported an
average of eight times.

3. Companies not reporting material changes

Another issue that was highlighted in the survey was reporting material changes within
the organisation, such as a merger or change of a key executive role. The complexity
involved in reporting such changes is deterring corporates from making their banking
partners aware of the changes. Thomson Reuters found that companies had on average
six material changes in the two-year period before the survey – but just 30 per cent

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reported these changes to their partner FIs. It's not hard to see why: the average time
corporates spend updating their FIs about material changes is now 30 days, up from 27
days in 2016.

4. Security concerns

Concerns over security and who is viewing documents is also an important issue for
corporates, partly because the documents required for KYC include the personal
documents (such as passports) of company directors.

5. Compliance is taking longer

Complying with KYC regulations is also taking longer for corporates and companies
are now spending an average of 26 days on the process, up from 23 days in 2016.
However, corporate customers claim that, on average, they are spending 32 days on
KYC compliance. And half of FI respondents thought the time taken to onboard was
likely to increase in the coming year.

6. 12% changed banks because of KYC

The survey also found that 12 per cent of companies said they had changed banks as a
result of KYC issues.

The research was carried out in April and May 2017 and gathered responses from 1,122
corporate decision-makers from the UK, Germany, South Africa, the United States,
Australia, Hong Kong, Singapore and France in roles including treasury, risk
management, compliance, finance directors, financial controllers, procurement,
corporate secretaries and general counsel.

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1.6 Documents required for KYC

KYC checks are done through an independent and reliable source of documents, data,
or information. Each client is required to provide credentials to prove identity and
address.

In May 2018, the U.S. Financial Crimes Enforcement Network (FinCEN) - added a new
requirement for banks to verify the identity of natural persons of legal entity customers
who own, control and profit from companies when those organizations open accounts.

Bottom line: when a corporate company opens a new account, it will have to
provide Social Security numbers and copies of a photo ID and passports for their
employees, board members, and shareholders.

1.7 Rules regarding periodical updation of KYC

• Different periodicities have been prescribed for updation of KYC records


depending on the risk perception of the bank. KYC is required to be done once in
every two years for high risk customers, once in every eight years for medium risk
customers and once in every ten years for low risk customers. This exercise would
involve all formalities normally taken at the time of opening the account.

During the process, the following are carried out.

1. PAN verification from the verification facility available with the issuing authority
and
2. Authentication, of Aadhaar Number already available with the RE with the explicit
consent of the customer in applicable cases.
3. In case identification information available with Aadhaar does not contain current
address an Officially Valid Documents (OVDs) containing current address may be
obtained.
4. Certified copy of OVD containing identity and address shall be obtained at the time
of periodic updation from individuals not eligible to obtain Aadhaar, except from

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individuals who are categorised as ‘low risk’. In case of low risk customers when
there is no change in status with respect to their identities and addresses, a self-
certification to that effect shall be obtained.

• Customers who are minors have to submit fresh photograph on becoming major.
• REs may not insist on the physical presence of the customer for the purpose of
furnishing OVD or furnishing consent for Aadhaar authentication/Offline
Verification unless there are sufficient reasons that physical presence of the account
holder/holders is required to establish their bona-fides. Normally, OVD/Consent
forwarded by the customer through mail/post, etc., shall be acceptable.

1.8 Introduction to e-KYC

e-KYC refers to electronic KYC. e-KYC is possible only for those who have Aadhaar
numbers. While using e-KYC service, you have to authorise the Unique Identification
Authority of India (UIDAI), by explicit consent, to release your identity/address
through biometric authentication to the bank branches/business correspondent (BC).
The UIDAI then transfers your data comprising name, age, gender, and photograph of
the individual, electronically to the bank/BC. Information thus provided through e-
KYC process is permitted to be treated as an ‘Officially Valid Document’ under PML
Rules and is a valid process for KYC verification.

How does e-KYC work


Accounts opened using OTP based e-KYC, in non-face-to-face mode are subject to the
following conditions:

1. There must be a specific consent from the customer for authentication through OTP.
2. the aggregate balance of all the deposit accounts of the customer shall not exceed
rupees one lakh. In case, the balance exceeds the threshold, the account shall cease
to be operational, till CDD as mentioned at (v) below is complete.
3. the aggregate of all credits in a financial year, in all the deposit accounts taken
together, shall not exceed rupees two lakh.

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4. As regards borrowal accounts, only term loans shall be sanctioned. The aggregate
amount of term loans sanctioned shall not exceed rupees sixty thousand in a year.
5. Accounts, both deposit and borrowal, opened using OTP based e-KYC shall not be
allowed for more than one year within which identification as per Section 16 is to
be carried out.
6. If the CDD procedure as mentioned above is not completed within a year, in respect
of deposit accounts, the same shall be closed immediately. In respect of borrowal
accounts no further debits shall be allowed.
7. A declaration shall be obtained from the customer to the effect that no other account
has been opened nor will be opened using OTP based KYC in non-face-to-face
mode with any other RE. Further, while uploading KYC information to CKYCR,
REs shall clearly indicate that such accounts are opened using OTP based e-KYC
and other REs shall not open accounts based on the KYC information of accounts
opened with OTP based e-KYC procedure in non-face-to-face mode.
8. REs shall have strict monitoring procedures including systems to generate alerts in
case of any non-compliance/violation, to ensure compliance with the above-
mentioned conditions.

1.9 Anti Money Laundering

Anti-money laundering refers to a set of laws, regulations, and procedures intended to


prevent criminals from disguising illegally obtained funds as legitimate income.
Though anti-money-laundering (AML) laws cover a relatively limited range of
transactions and criminal behaviors, their implications are far-reaching. For example,
AML regulations require that banks and other financial institutions that issue credit or
allow customers to open deposit accounts follow rules to ensure they are not aiding
in money-laundering.

AML compliance officers are often appointed to oversee anti-money laundering


policies and ensure that banks and other financial institutions are compliant.

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How Anti Money Laundering (AML) Works


Anti-money-laundering laws and regulations target criminal activities including market
manipulation, trade in illegal goods, corruption of public funds, and tax evasion, as well
as the methods that are used to conceal these crimes and the money derived from them.

KEY TAKEAWAYS

• Criminals use money laundering to conceal their crimes and the money derived
from them.
• Anti Money Laundering seeks to deter criminals by making it harder for them
to hide the loot.
• Financial institutions are required to monitor customers' transactions and report
on anything suspicious.
Criminals often try to "launder" the money they obtain illegally through acts such as
drug trafficking so that it can't easily be traced back to them. One of the most common
techniques is to run the money through a legitimate cash-based business owned by the
criminal organization or its confederates. The supposedly legitimate business can
deposit the money, which the criminals can then withdraw.

Money launderers may also sneak cash into foreign countries to deposit it, deposit cash
in smaller increments that are likely to arouse suspicion or use it to buy other cash
instruments. Launderers will sometimes invest the money, using dishonest brokers who
are willing to ignore the rules in return for large commissions.

Money launderers often try to disguise illegally obtained money by running it through
a legitimate cash business.
It's up to financial institutions to monitor their customers' deposits and other
transactions to ensure they aren't part of a money-laundering scheme. The institutions
must verify where large sums of money originated, monitor suspicious activities, and
report cash transactions exceeding $10,000. Besides complying with AML laws,
financial institutions must make sure that clients are aware of them.

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Money-laundering investigations by police and other law enforcement agencies often


involve scrutinizing financial records for inconsistencies or suspicious activity. In
today's regulatory environment, extensive records are kept on just about every
significant financial transaction. So when police try to trace a crime to its perpetrators,
few methods are more effective than locating the records of financial transactions they
were involved in.

In cases of robbery, embezzlement, or larceny, the law enforcement agency can


frequently return the funds or property uncovered during the money-laundering
investigation to the victims of the crime. For example, if an agency discovers money a
criminal laundered to cover up embezzlement, the agency can usually trace it back to
those from whom it was embezzled.

AML vs. KYC


The difference between AML and KYC (Know Your Customer). In banking, KYC is
the process that institutions must take in order to verify their customer's identities before
providing services. AML operates on a much broader level and are the measures that
institutions take to prevent and combat money laundering, terrorism financing, and
other financial crimes. Banks use AML/KYC compliance to maintain secure financial
institutions.

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1.10 Process of KYC

1. Customer Identification

Before checking a customer’s, identification documents, it’s necessary to verify their


and scrutinise all available information for any inconsistencies. You need to be sure
that your potential customer is not on any of the Sanction Lists (such as the OFAC or
Interpol Lists).

You also want to be informed if your prospective customer is Politically Exposed, as


it is deemed at international level that a PEP (Politically Exposed Person) is more
susceptible to corruption, hence such customers should be considered as high risk and
subject to specific mitigation measures.

2. Customer Due Diligence (CDD)

Due diligence measures should include collecting all available data on the customer
from trusted sources, determining the purpose, intended nature and key beneficiaries
of the relationship, as well as maintaining ongoing monitoring of the relationship to
ensure all activity is consistent with recorded customer information.

3. Enhanced Due Diligence (EDD)

If the customer is deemed to be higher risk than expected, enhanced due diligence
measures are required.

High-risk customers include those with political exposure (PEP), an existing


relationship with competitors, or anyone whose country of origin is on the “High-Risk
Third Countries” list, as outlined in Article 18 of the 4AMLD. Enhanced due
diligence measures usually include more intense monitoring of the customer
relationship and deeper investigative research.

The most efficient way to become KYC compliant is to build the gathering and
analysis of information into existing processes, such as client onboarding. That being

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said, it can be difficult and time-consuming to execute these processes consistently at


scale. To address these issues, automation plays an increasingly large role in KYC
compliance.

Take Customer Identification, for instance. It’s both quicker and more reliable for a
computer to cross-reference and verify a person’s identity documents than it is for a
human to make a copy of those documents, put them on file and manually check for
inconsistencies. This is especially unreliable when tools like Photoshop can easily be
used to manipulate pictures. A computer system which is designed to detect
counterfeit documents is also far more likely than a human to spot a fraudulent
document.

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1.11 Statement of the Research Problem

The 2008 financial crisis left a legacy that caused a major shift in the financial world.
Although for the best, a highly complex compliance framework now presents its own
set of challenges to the industry, from rising costs to the difficulty of implementation.
One such policy is ‘Know Your Customer’, commonly referred to as KYC. The logic
behind the recent upgrade in KYC is reasonable; by demanding detailed information
about counter parties, banks are less likely to engage in money laundering and terrorist
financing unknowingly, while also being hampered from doing so knowingly. In recent
years, Governments worldwide have grown increasingly stringent on their regulatory
efforts, followed by reinforcements, in clamping down money laundering. Financial
institutions which were found to have lax compliance controls in the area of anti-money
laundering (AML) weren’t spared, and have been fined up to billions of dollars. In view
that the regulations serve as a check-and balance measure to ensure financial
institutions are well armed to counter such crimes; failure of compliance thus suggests
a weak line of defence. To safeguard our financial systems, regulatory pressures
surrounding compliance with AML is set to further increase. Meanwhile, financial
institutions will need to measure up in addressing rising regulatory demands, starting
with meeting the “Know Your Customer” (KYC) compliance requirements to combat
money laundering. KYC is a bank regulation which enforces financial institutions and
regulated companies to perform all that they need to identify, document and validate
the authenticity of the customer prior to any engagement. Comprehensive KYC policies
serve as a risk mitigator and surveillance control to safeguard financial institutions,
their systems and platforms, from being taken advantage of by money launderers

1.12 Brief profile of the Study Area


Primary survey is taken from the people living in the area of Ambernath and Badlapur.
Data is collected through random sampling unit and data is collected through
questionnaire form 50 respondents

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Chapter 2

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Research methodology is a careful investigation for inquiring in a systematic method


and finding solution of a problem. It comprises the defining and redefining of problem
formulating hypothesis, collection and evaluating data, making detection and reaching
conclusion. This research consists of following element:
• • Research Design

• • Sampling Design

• • Sampling Universe

• • Sampling Unit

• • Sample Size

The project has been titled ―A study on Know You Customer Need & Significance,
Money is considered as the life line of an economy. A common investor saves his hard-
earned money for its future need. In order to safeguard the investor’s interest central
bank of India i.e. Reserve Bank of India takes appropriate measures. As the titled
indicates, it is an attempt to study need & significance of KYC in broader sense.

The project was carried out as per the steps of Marketing Research. The well supportive
objective of Research Methodology was set for the study. To meet the objectives
primary research was undertaken. The data collection approach adopted was
experimental research & survey research. The instrument used for the data collection
was observation & questionnaire. The target respondents are from general public, with
the sample size of 50 for the study. Tables & charts were used to translate responses
into meaningful information to get the most out of the collected data. Based on those
the inferences have been drawn with peer supportive data.

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2.1 Objectives of the Study:


The main objective of this study is:

➢ To understand the concept of KYC.

➢ To understand the need and significance of KYC.

➢ To identifying the risk factors arises when KYC is not done.

➢ To understand the concept of Anti-money Laundering.

➢ To understand the documents required at the time of KYC.

➢ To understand the problems faced by layman while doing KYC.

2.2 Hypothesis of the Study:

KYC (Know Your Customer) is today a significant element in the fight against
financial crime and money laundering and customer identification is the most critical
aspect as it is the very first step to better perform in the other stages of the process.

H1: There is a significant impact of need & significance of KYC on all monetary
transactions.

H2: There is a significant association between KYC and Anti-Money Laundering.

H3: There is a significant impact of KYC on loan repayments.

2.3 Scope of study

The study of the subject KYC enables bankers to understand and predict the behaviour
of a borrower. It is concerned with nature and type of borrower, creditability of
borrower, solvency level of the firm taking loans and advances, also helps to understand
the risk associated with the transaction. So, before embarking on further, it is essential
for us to understand the need & significance of KYC.

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2.4 Limitations of the study

• Responses may vary as some of people are not aware with the concept of KYC in
real sense.
• Sample size is limited to 50 responses only.
• In the project, nonrandom sampling has been used which is a non-probability
sampling method; it therefore does not provide estimates of precision.
• Research is undertaken in a very short period from 1st March 2020 to 20th March
2020 due to time constraint.

2.5 Significance of the study:

In this competitive world investors park their money with banking and financial
institutions. On the other hand, these institutions lend money to needy individuals and
corporates in the form of loans and advances. So, in order to safeguard the interest of
investors banking has to take some measures. KYC is one of the preventive measure
taken by banking system to safeguard the interest of firms and individuals. Hence, a
detailed study on need & significance of KYC has become a necessity to understand
concept in real sense. It will also help to understand risk ability of borrowers and also
helps in banking and financial-crimes which are growing in rapid manner and also helps
to understand the concept of Anti-Money Laundering.

2.6 Sample Size:

Sample size is a subset of the target population and it is used to represent the population
under the study (Kothari, C. R., 2004) This means that if the sample is carefully selected
and if the sample is optimum to fulfil the requirements of efficiency, representative,
reliability and flexibility then the information gathered from the sample can be used to
generalize the general population. The sample size for the present study is 50
respondents.

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Sampling Method: Non-probability Convenience Method


Since the study is restricted to investors and perspective investors from the area of
Ulhasnagar city and according to the convenience randomly they are being picked so
sampling method is used in this study is Random Convenient Sampling.
Sample size : 50 respondents
Sampling Method : Random Convenience sampling
Sample Unit : General Public
Measuring Tools : Questionnaire

Research instrument & tools of data analysis


A questionnaire is a research instrument consisting of a series of questions (or other
types of prompts) for the purpose of gathering information from respondents. The
questionnaire was invented by the Statistical Society of London in 1838.
Although questionnaires are often designed for statistical analysis of the responses, this
is not always the case.
Questionnaires have advantages over some other types of surveys in that they are cheap,
do not require as much effort from the questioner as verbal or telephone surveys, and
often have standardized answers that make it simple to compile data. However, such
standardized answers may frustrate users. Questionnaires are also sharply limited by
the fact that respondents must be able to read the questions and respond to them. Thus,
for some demographic groups conducting a survey by questionnaire may not be
concrete.

2.7 Data Collection

Source - Primary & Secondary data


Any research requires two types of data i.e. primary data & secondary data. Primary
data has been used abundantly for the study. Well-structured questionnaires were
prepared & the survey was undertaken. Feedback for the display has been taken by
asking questions & observations has also done to gather primary information. There is

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also a use of secondary data, collected from the various journals, books, & websites &
from store managers.

There are two types (sources) for the collection of data:


(I) Primary Data (2) Secondary Data
Primary Data: The primary data are the first hand information collected, complied and
published by organization for some purpose. They are most original data in character
and have not undergone any sort of statistical treatment. Example: Population census
reports are primary data because these are collected, complied and published by the
population census organization.
Secondary Data: The secondary data are the second hand information which is already
collected by someone (organization) for some purpose and are available for the present
study. The secondary data are not pure in character and have undergone some treatment
at least once. Example: Economics survey of England is secondary data because these
are collected by more than one organization like Bureau of statistics, Board of Revenue,
the Banks etc.
Primary data – Field Survey
Secondary Data – Various websites
Research approach - Survey method

Methods of Collecting Primary Data: Primary data are collected by the following
methods:
I) Personal Investigation: The researcher conducts the survey and collects data from
it. The data collected in this way is usually and reliable. This method of collecting data
is only applicable in case of small research projects.
2) Through Investigation: Trained investigators are employed to collect the data.
These investigators contact the individuals and fill in questionnaire after asking the
required information. Most of the organizing implied this method.
3) Collection through Questionnaire: The researchers get the data from local
representation or agents that are based upon their own experience. This is quick but
gives only rough estimate.

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4) Through Telephone: The researchers get information through telephone this


method is quick and give accurate information.
Methods of Collecting Secondary Data: The secondary data are collected by the
following sources:
I) Official: e.g. The publications of the Statistical Division, Ministry of finance, the
Federal
Bureaus of Statistics, Ministries of Food, Agriculture, Industry, Labor etc.
2) Semi-Official: e.g. State Bank, Railway Board, Central Cotton Committee, Boards
of Economic Enquiry etc.
3) Publication of Trade of Associations, Chambers of commerce etc.
4) Technical and Trade Journals and Newspapers.
5) Research Organizations such as Universities and other institutions.

Difference between Primary and Secondary Data: The difference between primary
and secondary data is only a change of hand. The primary data are the first hand data
information which is directly collected form one source. They are most original data in
character and have not undergone any sort of statistical treatment while the secondary
data are obtained from some other sources or agencies. They are not pure in character
and have undergone some treatment at least once.

According to the need of the research and the reliability of data, both primary and
secondary sources were used to collect data. Primary data are the data collected from
original sources that were previously unknown. These data are collected particularly
for the research project (Saunders, Lewis, & Thornhill, 2012). It can be collected by
various methods. For this research, primary data were collected through Questionnaire
from 50 respondents.

2.8 Statistical tools used for data presentation

The main statistical tools used for the analyses of data in this project are: (1) Pie Charts,
(2) Bar Diagrams.

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Chapter 3

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A literature review is a comprehensive summary of previous research on a


topic. The literature review surveys scholarly articles, books, and other sources
relevant to a particular area of research. The review should enumerate, describe,
summarize, objectively evaluate and clarify this previous research. It should give a
theoretical base for the research and help you (the author) determine the nature of your
research. The literature review acknowledges the work of previous researchers, and in
so doing, assures the reader that your work has been well conceived. It is assumed that
by mentioning a previous work in the field of study, that the author has read, evaluated,
and assimilated that work into the work at hand.

A literature review creates a "landscape" for the reader, giving her or him a full
understanding of the developments in the field. This landscape informs the reader that
the author has indeed assimilated all (or the vast majority of) previous, significant
works in the field into her or his research.

1. Mr. Mahendra Kumawat in his journal titled - Dimensions of economic crimes


in India. Stated that - Economic crimes have the propensity to cause havoc and
undermine not only the economy of the country, but also national security as well. The
enormity of the challenge is posed by economic offenders calls for a professional and
pro-active approach. This multi-headed monster can be controlled effectively only by
coordinated and imaginative efforts of all the enforcement and investigative agencies.

2. Daniel Mulligan in his journal titled - Know Your Customer Regulations and
the International Banking System: Towards a General Self-Regulatory Regime.
Stated that - Within a framework, KYC principles should be suggested not mandated.
A self-regulatory system that adheres to certain prudent KYC principles, but that will
allow nations the flexibility to address KYC issues in a manner that is fair, efficient,
and equitable will be most beneficial to the entire international financial community.

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3. Ms. B. Neeraja, Research Scholar in her journal titled - Know Your Customers.
Stated that - KYC should be understood that the set of customers are of different criteria
and the motives which motivate them are different for different customers. Not only
that, the customer has a different set of choice for different motives and different
situations. Therefore, understanding the customer is an important issue for any business
to be successful.

4. Ajmal Raza in his thesis titled - Prevalence of money laundering and its
compliance in Commercial Banks of Lahore, Pakistan. Stated that - Money
laundering may exist in commercial banks because there is no limit for deposit of hundi
and money exchangers. It also exists in the form of unlimited term deposits over the
counter transaction, for transfer of deposit form within the country and between the
countries. Money laundering results in unbalanced growth of the deposit of the
commercial banks. The money laundering could not be wiped out but it could be
minimized by following rules and regulations strictly established by State bank of
Pakistan and other international regulatory bodies.

5. Vaneshree Ramalu in his dissertation titled - An examination of Anti-money


laundering initiatives undertaken by six major banks in South Africa. Stated that -
Banks as well as bank employees now have legal responsibilities to ensure that they
report any suspicious activity and that they do not knowingly do business with money
launderers. All banks have policies and procedures in place to tackle the issue of money
laundering and controls that are in place are consistent with FICA (Financial
Intelligence Centre Act). The banks acknowledged a direct relationship between staff
awareness on sophisticated crime and increased attempts to launder money and the
resulting need to constantly evaluate and assess their training programmes for quality,
impact and effectiveness. For law regulators and law makers, future challenges for
banks in South Africa include providing more specific guidance on implementing AML
in a coordinated manner and to facilitate a better exchange of information between
various AML partners. An increasingly comprehensive South Africa approach is
needed to defend the banking industry and the country against such growing threats.

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6. Alina Georgiana in his Ph.D thesis titled - Risk Management in Banking. Stated
that - Risk management must focus on operational risk, reinforcing the climate of
confidence in the seriousness and professionalism of bank employees, the continuation
of education and training of bank staff through participation in training programs
organized by the bank, increasing permanently the computerization of the bank
facilities with new equipment and software products for banking.

7. Sanjoy Bose and Abhiman Das in their article titled - Estimation of Counterfeit
Currency Notes in India! Alternative Methodologies. Stated that - As a result,
counterfeiting is posing increasing challenges to currencies all over the world, including
India. Despite the extent of counterfeiting being apparently small, it poses serious
threats to the currency and financial system. The Government and RBI have
progressively responded to this threat by redesigning notes as per current theories,
established country practices as also perceived sufficient condition to fulfil public
understanding about authenticity of currency through awareness campaigns. To assess
the effectiveness of various measures to deter counterfeiting, one needs to understand
the exact nature of the threat that counterfeiting poses on the economic activity.

8. Nhienan Le Khac, SammerMarkos, M. O'Neill, A. Brabazon and M-


TaharKechadi in their paper titled - An investigation into Data Mining
approaches for Anti Money Laundering. Stated that - Rule-based AML systems have
been replaced by artificial intelligent approach for AML. Unsupervised learning with a
small set of training data is suitable for building Data Mining (DM) based solutions for
AML. Classification and clustering are two important mining methods that can
efficiently apply for AML. A cooperation of multi DM-techniques is needed to build
an efficient solution for detecting ML patterns that are more and more sophisticated.
The researcher emphasizes the need for an efficient framework for integrating DM
techniques that can deal with different levels of AML from transactions to
multiorganization.

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9. KPMG, survey organization in their survey titled - FORENSIC India Anti-


Money Laundering Survey 2012. Stated that - The integrity of the banking and
financial services marketplace depends heavily on the perception that it functions
within a framework of high legal, professional and ethical standards. A reputation for
integrity is one of the most valuable assets of a financial institution. A damaged
integrity of a financial institution can lead to a damping effect on a country’s growth
aspects when a country’s commercial and financial sectors are perceived to be subject
to the control and influence of organized crime.

Vijay Kumar Singh in his research paper for the Conference of Money and
Finance in the Indian Economy - Controlling Money Laundering in India!
Problems and Perspectives. Stated that - The Government of India should move
forward expeditiously with amendments to the PMLA that explicitly criminalize
terrorist financing, and expand the list of predicate offenses so as to meet FATF’s core
recommendations. Further steps in tax reform will also assist in negating the popularity
of hawala and in reducing money laundering, fraud, and financial crimes. The GOI
should ratify the UN Conventions against Transnational Organized Crime and
Corruption. The GOI needs to promulgate and implement new regulations for
nongovernment organizations including charities. Given the number of terrorist attacks
in India and the fact that in India hawala is directly linked to terrorist financing, the
GOI should prioritize cooperation with international initiatives that provide increased
transparency in alternative remittance systems. India should devote more law
enforcement and customs resources to curb abuses in the diamond trade. It should also
consider the establishment of a Trade Transparency Unit (TTU) that promotes trade
transparency; in India, trade is the back door to underground financial systems. The
GOI also needs to strengthen regulations and enforcement targeting illegal transactions
in informal money transfer channels.

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Chapter 4
Data Analysis &
Interpretation

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Data analysis is a process of inspecting, cleansing, transforming and modeling data with
the goal of discovering useful information, informing conclusion and supporting
decision-making. Data analysis has multiple facets and approaches, encompassing
diverse techniques under a variety of names, and is used in different business, science,
and social science domains. In today's business world, data analysis plays a role in
making decisions more scientific and helping businesses operate more effectively.

Data Interpretation is the process of making sense out of a collection of data that has
been processed. This collection may be present in various forms like bar graphs, line
charts and tabular forms and other similar forms and hence needs an interpretation of
some kind. Here we will learn about data interpretation with the help of many important
techniques and examples. We will see how we can make sense out of the graphical data
and other forms of it.

Analysis helps the reader understand the data by describing general trends in the data
and pointing out differences and similarities among data points. Interpretation relates
data to the objectives they are supposed to measure, explores the relationships between
multiple measures of an educational objective, qualifies, amplifies, draws inferences,
and evaluates.

Data analysis and interpretation is the process of assigning meaning to the collected
information and determining the conclusions, significance and implications of the
findings. It is an important and exciting step in the process of research. In all research
studies, analysis follows data collection.

Data analysis and interpretation is a process by which sense and meaning are made of
the data gathered in qualitative research, and by which the emergent knowledge is
applied to clients' problems. This data often takes the form of records of group
discussions and interviews, but is not limited to this. Through processes of revisiting
and immersion in the data, and through complex activities of structuring, re-framing
or otherwise exploring it, the researcher looks for patterns and insights relevant to the
key research issues and uses these to address the client's brief.

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Gender: Number of Respondents

Male 21
Female 29
Grand Total 50

Interpretation:

From the data collected from sample size of 50 respondents.


Number of Male Respondents are 21 and number of Female Respondents are 29.

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Age: Number of Respondents

25 - 35 years 12
35 - 45 years 6
Above 45 years 4
Below 25 years 28

Grand Total 50

Interpretation:

From the data collected from sample size of 50 respondents.


Respondents from age group below 25 years are 28 i.e. 56% of sample population,
respondents from age group 25 – 35 years are 12 i.e. 24% of sample population,
respondents from age group 35 - 45 years are 6 i.e. 12% of sample population, and
respondents from age group Above 45 years are 4 i.e. 8% of sample population.

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Educational Qualification: Number of Respondents

Graduate 19

Postgraduate 19

Undergraduate 12

Grand Total 50

Interpretation:

From the data collected from sample size of 50 respondents.


12 respondents are undergraduates, 19 respondents are graduates and 19 respondents
are postgraduate.

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Occupation: Number of Respondents

Businessman 4
Housewife 6
Private Sector Employee 17
Public Sector Employee 1
Student 22

Grand Total 50

Interpretation:

From the data collected from sample size of 50 respondents.


22 respondents are students, 17 respondents are employees from private sector, 6
respondents are housewife’s, 4 respondents are businessman, and 1 respondent is public
sector employee.

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Family monthly income: Number of Respondents

Above Rs. 65,000 11

Less than Rs. 25,000 17

Rs. 25,000 - Rs. 45,000 13

Rs. 45,000 - Rs. 65,000 9

Grand Total 50

Interpretation:

From the data collected from sample size of 50 respondents.


17 respondents are having earnings less than Rs. Twenty-Five thousand per month, 13
respondents are having earnings between Rs. Twenty-Five to Forty-Five thousand per
month, 9 respondents are having earnings between Rs. Forty-Five to Sixty-Five
thousand per month, and 11 respondents having income of more than Rs. Sixty-Five
thousand per month.

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Number of dependent members in family: Number of Respondents

2 or less than 2 members 18

3 members 11

4 members 12

5 or more than 5 members 9

Grand Total 50

Interpretation:

From the data collected from sample size of 50 respondents.


18 respondents are having two or less than two dependent members in family, 11
respondents are having three dependent members in family, 12 respondents are having
four dependent members in family, and 9 respondents are having five or more than five
dependent members in family.

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Interpretation:

From the data collected from sample size of 50 respondents.


92% of respondents are having bank accounts as well as they are familiar with the
concept of KYC where as 8% of respondents are not having bank accounts, this would
be the reason that they are not aware about KYC.

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Interpretation:

From the data collected from sample size of 50 respondents.


38% of respondents said that main purpose of KYC is to Safeguard your Business.

30% of respondents said that main purpose of KYC is to Highlight any suspicious
activity related to money laundering or terrorist financing, as well as fraudulent
behavior.

28% of respondents said the reason of taking KYC are other reasons which are not
given in options.

And 4% respondents said that main purpose of KYC is Remain compliance with global
legislation concerning Anti-money laundering and provide Suspicious Activity Reports
(SARs) to relevant authorities.

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Interpretation:

From the data collected from sample size of 50 respondents.


78% of respondents said that essential elements of a KYC procedure is Identification,
Acceptance, Monitoring and Risk Management.

22% of respondents answered the other two options given i.e Acceptance, monitoring
and risk management and Identification and risk management.

Nearly 80% of population are aware about the correct procedure of KYC which can be
considered as a positive sign that there is banking knowledge among the people.

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Interpretation:

From the data collected from sample size of 50 respondents.


74% of respondents said that all the customers must be screened from KYC.

16% of respondents said that KYC should be made to customers who are suspected to
be involved in any illegal activities.

And 10% of respondents said that KYC should be made to Customers whose revenue
amounts more than Rs. 1,00,000.

In banking terms KYC is must for all the customers.

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Need for KYC Number of Respondents

Because we are obliged by the legislation to do


23
KYC.
Customer might be involved in money
13
laundering or terrorist financing activities.
Customer might end up not paying loans
14
granted.

Grand Total 50

Interpretation:

From the data collected from sample size of 50 respondents.


26% of respondents said need for KYC is for customer might be involved in money
laundering or terrorist financing activities.
46% of respondents said need for KYC is for customer might end up not paying loans
granted.
28% of respondents said need for KYC is because we are obliged by the legislation to
do KYC

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Interpretation:
From the data collected from sample size of 50 respondents.
21 respondents said for KYC requirements are A proof of identity, A proof of address
and recent photograph.

Interpretation:
From the data collected from sample size of 50 respondents.
34 respondents said that they can open bank account with only an Aadhaar card
whereas 16 respondents did not agree the same.

A person must have Pan card for opening bank account.

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Interpretation:

From the data collected from sample size of 50 respondents.

27 respondents said that language barrier is not challenge for them, 13 respondents said
that language barrier is some challenge for them, 10 respondents said that language
barrier is significant challenge for them.

Interpretation:

From the data collected from sample size of 50 respondents.

10 respondents said that lack of data availability is not challenge for them, 21
respondents said that lack of data availability is some challenge for them, 19
respondents said that lack of data availability is significant challenge for them.

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Interpretation:

From the data collected from sample size of 50 respondents.

17 respondents said that cost of data is not challenge for them, 20 respondents said that
cost of data is some challenge for them, 13 respondents said that cost of data is
significant challenge for them.

Interpretation:

From the data collected from sample size of 50 respondents.

12 respondents said that format of data is not challenge for them, 22 respondents said
that format of data is some challenge for them, 16 respondents said that format of data
is significant challenge for them.

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Interpretation:

From the data collected from sample size of 50 respondents.

14 respondents said that KYC maintaining process is not challenge for them, 19
respondents said that to maintain consistent process is some challenge for them, and 17
respondents said that to maintain consistent process is significant challenge for them.

Interpretation:

From the data collected from sample size of 50 respondents.


80% of respondents said that they are familiar with the concept of e-KYC whereas
20% of respondents are not familiar with e-KYC.

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Interpretation:

From the data collected from sample size of 50 respondents.


There are many advantages of e-KYC to customers as well as to the providers which
are mentioned above. Majority of people agree that e-KYC is beneficial to them.

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CHAPTER 5

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Findings:

Approximately 60% of respondents are Females.

Majority of respondents are from age group of below 35 years.

Majority of respondents are educated having graduation and postgraduation.

Majority of respondents are Students and employees from private sector.

60% of respondents are in income group of less than 25,000 or 25,000 – 45,000 per
month, 40% of respondents are in income group of more than 45,000 per month.

Approximately 60% of respondents are having up to three dependent members in


family.

92% of respondents are having bank accounts as well as they are familiar with the
concept of KYC.

30% of respondents said that main purpose of KYC is to Highlight any suspicious
activity related to money laundering or terrorist financing, as well as fraudulent
behavior.

78% of respondents said that essential elements of a KYC procedure is Identification,


Acceptance, Monitoring and Risk Management.

74% of respondents said that all the customers must be screened from KYC.

26% of respondents said need for KYC is for customer might be involved in money
laundering or terrorist financing activities. 46% of respondents said need for KYC is
for customer might end up not paying loans granted.

40% of respondents said for KYC requirements are A proof of identity, A proof of
address and recent photograph.

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80% of respondents said that language barrier is not a challenge or some challenge for
them.

60% of respondents said that lack of data availability is not a challenge or some
challenge for them.

80% of respondents said that cost of data is not a challenge or some challenge for them.

65% of respondents said that format of data is not a challenge or some challenge for
them where as 35% face problems while doing KYC.

63% of respondents said that maintain KYC during the course of business is not a
challenge or some challenge for them where as 37% face problems in process
maintaining of KYC.

80% of respondents said that they are familiar with the concept of e-KYC.

There are many advantages of e-KYC to customers as well as to the providers which
are mentioned above. Majority of people agree that e-KYC is beneficial to them.

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Suggestions/ Recommendations:

Awareness of concept & need of KYC should be provided to all the customers. People
living in rural and semi urban areas are still not aware about KYC. Even when they are
asked for documents they hesitate to provide as they think that someone will take away
their money from bank accounts.

Prime Minister, Mr. Narendra Modi came up with opening bank accounts for all under
Pradhan Mantri Jan Dhan Yojana was a great initiative to provide knowledge to all.

KYC process should be simplified so that customers do not face any difficulties in
providing KYC documents.

Digital KYC process or e-KYC should be followed in all transactions and institutions
to improve efficiency, reduce the process time, and support go green concept/paper less
transactions.

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Conclusion:
Those banks who are complying with KYC norms are benefiting the customers who
are coming from a rural background.

In the beginning when guidelines regarding KYC were issued there was not any
awareness about it among the employees or customers, mainly the weaker sections of
the society lacked awareness.

After this, flexibility was given to submit the compulsory documents slowly aiming the
news to reach the larger group.

“KYC norms are customer-friendly and the opinion that in availing banking facilities
the norms are an obstruction for people from a rural background is not true”.

KYC has ended the lengthy procedures, insisted by the banks. Now, only one identity
proof is sufficient for opening a bank account.

This initiative by the government helps and benefits the workers and daily workers as
it is very difficult for these groups to obtain two different proofs for address and identity
because most of these people migrates from one place to another so this step will act as
a relief for them.

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References

IIBF Text Book of Legal and Regulatory Aspects of Banking

http://www.ijsrp.org/research-paper-0713/ijsrp-p1989.pdf

http://www.fintrac.gc.ca/multimedia/education/c1/pop/4-4-eng.asp?s=1

Learn How to Make Your Goals SMART web page, retrieved November 5, 2006

"Why KYC is mandatory now". business. rediff. com.

http://business.rediff.com/report/2010/oct/18/perfin-why-kyc-is-mandatorynow.htm.
Retrieved 25 Oct 2010.

en.wikipedia.org/wiki/Know your customer latory Practices of Banking

www.rbi.org.in

www.moneycontrol.com

www.amfiindia.com/KYC.aspx

mbanking.blogspot.com

kycnetblog.blogspot.com

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Appendix
Dear respondents, I am Pallavi Ashok Mahadik, student of TYBAF degree, as a part of
my curriculum, I am required to do project report on Know your customer need and
significance. All the responses given by you will be kept confidential and used for
academic purpose only. *Required

1. Name: * ________________________________________

2. Gender: *

Male Female

• Age: *

Below 25 years 25 - 35 years

35 - 45 years Above 45 years

4. Educational Qualification: *

Undergraduate Graduate Postgraduate

5. Occupation: *

Student Private Sector Employee

Public Sector Employee Businessman

Housewife

6. Family monthly income: *

Less than Rs. 25,000 Rs. 25,000 - Rs. 45,000

Rs. 45,000 - Rs. 65,000 Above Rs. 65,000

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7. Number of dependent members in family: *

2 or less than 2 members 3 members

4 members 5 or more than 5 members

8. Do you have a bank account? *

Yes No

9. Are you familiar with the concept of KYC (Know Your Customer)? *

Yes No

10. What is the main purpose of a KYC? *

Highlight any suspicious activity related to money laundering


or terrorist financing, as well as fraudulent behaviour.

Safeguard your business.

Remain compliance with global legislation concerning Anti-


money laundering and provide Suspicious Activity Reports
(SARs) to relevant authorities.

Others

11. What are the essential elements of a KYC procedure? *

Identification, acceptance, monitoring and risk management.

Identification and risk management.

Acceptance, monitoring and risk management.

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12. To which type of customers there is need to preform KYC? *

Customers whose revenue amounts more than Rs. 1,00,000.

Customers whose is suspected to be involved in any illegal activities.

All the customers must be screened.

13. What is the need to screen clients for KYC? *

Customer might end up not paying loans granted.

Customer might be involved in money laundering or terrorist financing


activities.

Because we are obliged by the legislation to do KYC.

14. What are the KYC requirements for opening a bank account? *

A proof of identity

A proof of address

Recent photograph

15. Can a person open a bank account with only an Aadhaar


card? *

Yes

No

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16. How would you rate the following challenges when it comes to gathering
KYC data? *

No Some Significant
Challenge Challenge Challenge
Language Barrier

Lack of data available

Cost of data

Format of data

Consistent process across business

17. Are you familiar with e-KYC?

Yes

No

18. What are the advantages of e-KYC? *

Reduced KYC cost

Improved in KYC quality

Improved control over the KYC process

Enhanced the boarding experience of customers

Reduced time to revenue

` Improved efficieny

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