New RBI norms to safeguard NBFCs: Sharma

The Reserve Bank of India (RBI) has issued a circular to all non-banking financial companies (NBFCs), miscellaneous non-banking companies (MNBCs) and residuary non-banking companies (RNBCs) early this year, as per the regulations of the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998, containing guidelines relating to identification of depositors.

"RBI has introduced a number of measures to enhance the regulatory and supervisory standards of NBFCs. One of the most important instructions issued by RBI relate to 'Know Your Customer' guidelines," said Vani Sharma, regional director for Gujarat, RBI.

"These instructions issued in January this year aim at putting in place systems and procedures to help control financial frauds, identify money laundering and suspicious activities."

"Further, they also safe guard NBFCs from being unwittingly used for transfer of deposit of funds derived from criminal activity or for financing of terrorism. I request all the NBFCs in Gujarat to scrupulously observe these instructions, both in letter and spirit," she said.

In terms of these provisions, every NBFC should obtain proper introduction of the new depositors before opening their accounts and accepting the deposits and keep it on record, the evidence on which it has relied upon for the purpose of such introduction.

NBFCs should also obtain written confirmation from their introduces and in absence of such introduction, any other document of identity of the prospective deposit holders may be obtained and kept on their record.

NBFCs have been advised to ensure that the new depositor is not a fictitious person. The guidelines have been reviewed in the context of the provisions of the Prevention of Money Laundering Act, 2002, and the need to put in place in systems and procedures to help control financial frauds, identify money laundering and suspicious activities.

Further, the guidelines aim at safeguarding NBFCs from being unwittingly used for transfer of deposit of funds derived from criminal activity or for financing of terrorism.

The guidelines are also applicable deposits accepted from NRIs. These guidelines will also be applicable to MNBC and RNBC.

The KYC guidelines for new deposits is applicable to all the new customers and is the key guiding principle for identification of an individual, corporate customer, depositor or borrower.

The KYC framework has two fold objective "" first to ensure customer identification and verifying his identity and residential address and secondly to monitor transactions of a suspicious nature.

In respect of existing customers, NBFCs should ensure that gaps and missing information in compliance of KYC guidelines on customer identification procedure is filled up and completed before June 30, this year, the circular states.

This clearly appears to be a move to enhance the competitiveness of NBFCs and bring them on par with commercial banks.