Repco Micro Finance Limited

KYC

Guidelines on ‘Know Your Customer norms’ and Anti-Money Laundering Measures

In line with the directions of Reserve Bank of India, the company has formulated a set of guidelines to ensure that the company has adequate systems in place to prevent criminal elements from misusing the company for money laundering activities and to enable the company to know their customers and their financial dealings. The KYC policy of the company broadly rests on four elements is under

  • 1. Customer Acceptance Policy
  • 2. Customer Identification Procedures
  • 3. Monitoring of Transactions
  • 4. Risk management.

For this purpose a customer is defined is under

  • A person or entity that maintains an account and/or has a business relationship with the company;
  • One on whose behalf the account is maintained (i.e. the beneficial owner);
  • Beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors etc. as permitted under the law, and
  • Any person or entity connected with a financial transaction, which can pose significant reputational or other risks to the company. Customer Acceptance Policy (CAP)
    The company will lay down specific criteria for accepting a person/entity as customer with specific reference to the following:
  • No account is opened in anonymous or fictitious/benami name(s);
  • The company will define parameters of risk perception. For this purpose nature of business activity location of customers, mode of payment, sales turn over, social and financial status may be taken into account. Based on this the company will classify its customer in the following categories
    – Low
    – Medium
    – High Risk

The following type of customers will be assigned under special risk category which requires greater caution:

1. Trust/Nominee of Fiduciary Accounts
2. Accounts of companies and firms
3. Client accounts opened by professional intermediaries
4. Accounts of politically exposed persons resident outside India.
5. Accounts of non-face-to-face customers.
The company however shall ensure that the implementation is not too restrictive in nature, which may result in denial of financial services to the general Public / MSME Sector.

Customer Identification Procedure (CIP):

The Company will have a detailed Customer Identification Procedure while establishing a banking relationship/ carrying out financial transaction. It will call for and verify necessary documents for personal identification and also obtain independent source of documents, data or information. Before entering into a financial relationship necessary due diligence shall be observed based on the risk profile of the customer as per the extant guidelines of the company.

For customers who are natural persons a company shall collect individual information through legal documents regarding their name, address / location and also their recent photographs.

For non natural persons / entities the company shall verify and establish the following:
1. Legal status of the person / entity shall be verified with reference to relevant documents for creation of such entity.
2. In case a person is purporting to act on behalf the legal person / entity, the verification of the individual shall be made by calling for necessary documents pertaining to that person.
3. It shall be ensured that due diligence shall be exercised to understand the ownership and control structure of the customer and determine who are the natural persons who ultimately control the legal person.
Illustrative nature of legal persons / entities and the documents required to be produced are enclosed in the Annexure 1 & 2.

Monitoring of Transactions:

Effective KYC procedure involves ongoing monitoring of transactions also. The extant of monitoring will be determined with special reference to complex and unusually large transactions and all unusual patterns indicating no apparent economic or visible lawful purpose. Those monitoring of transactions, which exceed certain threshold limits in particular, transactions will also be undertaken.

The company shall keep a close watch on transaction involving huge amounts of cash inconsistent with the size of the average balance maintaining the account. The branches shall maintain regular records of all cash transactions of Rs.10 lakh and above and any transaction of suspicious nature identified with reference to the risk profile of the customer shall be reported to Corporate Office on a fortnightly basis.

Risk Management:

The company will establish adequate systems controls, segregation of duties and training in risk management, which would ensure creation of risk profiles and application of various anti-money laundering measures with specific reference to a transaction, account or financial / business relationship. The company’s internal audit also will play a significant role in ensuring adherence to KYC policies and procedures. The audit staff will be adequately sensitized in regard to KYC policies and procedures. Compliance / rectification of audit comments in regard to KYC will be placed before the Audit Committee of the Board atleast on a quarterly basis. All the staff members will also be given adequate training inputs on KYC to ensure strict implementation.

Customer Education:

The company shall create adequate awareness among the customers as to the need for adherence to KYC norms through appropriate guidelines in the website. Further KYC guidelines shall be observed in regard to persons authorized by the company including brokers / agents for undertaking various activities of the company. Due diligence in respect of such persons shall be made through a uniform policy for appointment and detailed verification. Detailed records of due diligence undertaken shall be kept.

Appointment of Principal Officer:

The company shall have a Principal Officer at the Corporate Office, who shall be of Senior Management Grade. The Official will be responsible for monitoring and reporting of all transactions and sharing of information as required under the law. He will maintain close liaison with all enforcement agencies / other institutions, which are involved in anti money laundering measures and combating financing of terrorism.

ANNEXURE – 1 to KYC norms and Anti-Money Laundering Measures
Customer Identification Requirements – Illustrative Guidelines
Trust/Nominee or Fiduciary Accounts

There exists the possibility that trust/nominee or fiduciary accounts can be used to circumvent the customer identification procedures. The company will determine whether the customer is acting on behalf of another person as trustee/nominee or any other intermediary. If so, the company will insist on receipt of satisfactory evidence of the identity of the intermediaries and of the persons on whose behalf they are acting, as also obtain details of the nature of the trust or other arrangements in place. While opening an account for a trust, the company will take reasonable precautions to verify the identity of the trustees and the settlers of trust (including any person settling assets into the trust), grantors, protectors, beneficiaries and signatories. Beneficiaries should be identified when they are defined. In the case of a ‘foundation’, steps should be taken to verify the founder managers/ directors and the beneficiaries, if defined.

Accounts of companies and firms

The company will exercise caution and vigilance against business entities being used by individuals as a ‘front’ for maintaining accounts with the company. The company will examine the control structure of the entity, determine the source of funds and identify the natural persons who have a controlling interest and who comprise the management. These requirements will be moderated according to the risk perception e.g. in the case of a public company it will not be necessary to identify all the shareholders. Client accounts opened by professional intermediaries

When the company has knowledge or reason to believe that the client account opened by a professional intermediary is on behalf of a single client, that client must be identified. The company will hold ‘pooled’accounts managed by professional intermediaries on behalf of entities like mutual funds, pension funds or other types of funds. The company will also maintain ‘pooled’accounts managed by lawyers/chartered accountants or stockbrokers for funds held ‘on deposit’or ‘in escrow’for a range of clients. Where funds held by the intermediaries are not co-mingled at the company and there are ‘sub-accounts’, each of them attributable to a beneficial owner, all the beneficial owners must be identified. Where such funds are co-mingled at the company, the company will still look through to the beneficial owners. Where the company relies on the ‘customer due diligence'(CDD) done by an intermediary, it will satisfy that the intermediary is regulated and supervised and has adequate systems in place to comply with the KYC requirements.

Accounts of Politically Exposed Persons (PEPs) resident outside India

Politically exposed persons are individuals who are or have been entrusted with prominent public functions in a foreign country, e.g., Heads of States or of Governments, senior politicians, senior government/judicial/military officers, senior executives of state-owned corporations, important political party officials, etc.
The company will gather sufficient information on any person/customer of this category intending to establish a relationship and check all the information available on the person in the public domain. The company will verify the identify of the person and seek information about the sources of funds before accepting the PEP as a customer. The decision to open an account for PEP should be taken at a senior level, which will be clearly spelt out in Customer Acceptance policy. The company will also subject such accounts to enhanced monitoring on an ongoing basis. The above norms will be applicable to the accounts of the family members or close relatives of PEPs.

Accounts of non-face-to-face customers:

With the introduction of telephone and electronic finance / banking, increasingly accounts are being opened by companies for customers without the need for the customer to visit any office. 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 mitigate the higher risk involved. Certification of all the documents presented will be insisted upon and, if necessary, additional documents will be called for. In such cases, the company will also require the first payment to be effected through the customer’s account with a bank, which, in turn, adheres to similar KYC standards. In the case of cross-border customers, there is the additional difficulty of matching the customer with the documentation and the company will have to rely on third party certification / introduction. In such cases, it will be ensured that the third party is a regulated and supervised entity and has adequate KYC systems in place.

ANNEXURE – 2 to KYC norms and Anti-Money Laundering Measures
Customer Identification Procedure
Features to be verified and documents that may be obtained from customers

FeaturesDocuments
Accounts of individuals
  • Legal name and any other names used
  • Correct permanent address
(i) Passport(ii) PAN card(iii) Voter’s Identity Card(iv) Driving licence

(v) Identity card (subject to the company’s satisfaction)

(vi) Letter from a recognized public authority or public servant verifying the identity and residence of the customer to the satisfaction of the company.
(i) Telephone bill

(ii) Bank account statement

(iii) Letter from any recognized public authority

(iv) Electricity bill

(v) Ration card

(vi) Letter from employer (subject to satisfaction of the company) (any one document which provides customer information to the satisfaction of the company)

Accounts of partnership firms
  • Legal name
  • Address
  • Names of all partners and their addresses
  • Telephone numbers of the firm and partners
Registration certificate, if registered(ii) Partnership deed(iii) Power of Attorney granted to a partner or an employee of the firm to transact business on its behalf(iv) Any officially valid document identifying the partners and the persons holding the Power of Attorney and their addresses

(v) Telephone bill in the name of firm/partners

Accounts of trusts &foundations
  • Names of trustees, settlers, beneficiaries and signatories
  • Names and addresses of the founder, the managers/directors and the beneficiaries
  • Telephone/fax numbers
(i) Certificate of registration, if registered(ii) Power of Attorney granted to transact business on its behalf(iii) Any officially valid document to identify the trustees, settlers, beneficiaries and those holding Power of Attorney, founders / managers / directors and their addresses(iv) Resolution of the managing body of the foundation/association

(v) Telephone bill

Guidelines on ‘Know Your Customer norms’ and Anti-Money Laundering Measures

In line with the directions of Reserve Bank of India, the company has formulated a set of guidelines to ensure that the company has adequate systems in place to prevent criminal elements from misusing the company for money laundering activities and to enable the company to know their customers and their financial dealings. The KYC policy of the company broadly rests on four elements is under

1. Customer Acceptance Policy;
2. Customer Identification Procedures;
3. Monitoring of Transactions; and
4. Risk management.
For this purpose a customer is defined is under

  • A person or entity that maintains an account and/or has a business relationship with the company;
  • One on whose behalf the account is maintained (i.e. the beneficial owner);
  • Beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors etc. as permitted under the law, and
  • Any person or entity connected with a financial transaction, which can pose significant reputational or other risks to the company. Customer Acceptance Policy (CAP)
    The company will lay down specific criteria for accepting a person/entity as customer with specific reference to the following:
  • No account is opened in anonymous or fictitious/benami name(s);
  • The company will define parameters of risk perception. For this purpose nature of business activity location of customers, mode of payment, sales turn over, social and financial status may be taken into account. Based on this the company will classify its customer in the following categories
    – Low
    – Medium
    – High Risk

The following type of customers will be assigned under special risk category which requires greater caution:
1. Trust/Nominee of Fiduciary Accounts
2. Accounts of companies and firms
3. Client accounts opened by professional intermediaries
4. Accounts of politically exposed persons resident outside India.
5. Accounts of non-face-to-face customers.
The company however shall ensure that the implementation is not too restrictive in nature, which may result in denial of financial services to the general Public / MSME Sector.

Customer Identification Procedure (CIP):

The Company will have a detailed Customer Identification Procedure while establishing a banking relationship/ carrying out financial transaction. It will call for and verify necessary documents for personal identification and also obtain independent source of documents, data or information. Before entering into a financial relationship necessary due diligence shall be observed based on the risk profile of the customer as per the extant guidelines of the company.

For customers who are natural persons a company shall collect individual information through legal documents regarding their name, address / location and also their recent photographs.

For non natural persons / entities the company shall verify and establish the following:
1. Legal status of the person / entity shall be verified with reference to relevant documents for creation of such entity.
2. In case a person is purporting to act on behalf the legal person / entity, the verification of the individual shall be made by calling for necessary documents pertaining to that person.
3. It shall be ensured that due diligence shall be exercised to understand the ownership and control structure of the customer and determine who are the natural persons who ultimately control the legal person.
Illustrative nature of legal persons / entities and the documents required to be produced are enclosed in the Annexure 1 & 2.

Monitoring of Transactions:

Effective KYC procedure involves ongoing monitoring of transactions also. The extant of monitoring will be determined with special reference to complex and unusually large transactions and all unusual patterns indicating no apparent economic or visible lawful purpose. Those monitoring of transactions, which exceed certain threshold limits in particular, transactions will also be undertaken.

The company shall keep a close watch on transaction involving huge amounts of cash inconsistent with the size of the average balance maintaining the account. The branches shall maintain regular records of all cash transactions of Rs.10 lakh and above and any transaction of suspicious nature identified with reference to the risk profile of the customer shall be reported to Corporate Office on a fortnightly basis.

Risk Management:

The company will establish adequate systems controls, segregation of duties and training in risk management, which would ensure creation of risk profiles and application of various anti-money laundering measures with specific reference to a transaction, account or financial / business relationship. The company’s internal audit also will play a significant role in ensuring adherence to KYC policies and procedures. The audit staff will be adequately sensitized in regard to KYC policies and procedures. Compliance / rectification of audit comments in regard to KYC will be placed before the Audit Committee of the Board atleast on a quarterly basis. All the staff members will also be given adequate training inputs on KYC to ensure strict implementation.

Customer Education:

The company shall create adequate awareness among the customers as to the need for adherence to KYC norms through appropriate guidelines in the website. Further KYC guidelines shall be observed in regard to persons authorized by the company including brokers / agents for undertaking various activities of the company. Due diligence in respect of such persons shall be made through a uniform policy for appointment and detailed verification. Detailed records of due diligence undertaken shall be kept.

Appointment of Principal Officer:

The company shall have a Principal Officer at the Corporate Office, who shall be of Senior Management Grade. The Official will be responsible for monitoring and reporting of all transactions and sharing of information as required under the law. He will maintain close liaison with all enforcement agencies / other institutions, which are involved in anti money laundering measures and combating financing of terrorism.

ANNEXURE – 1 to KYC norms and Anti-Money Laundering Measures
Customer Identification Requirements – Illustrative Guidelines

Trust/Nominee or Fiduciary Accounts

There exists the possibility that trust/nominee or fiduciary accounts can be used to circumvent the customer identification procedures. The company will determine whether the customer is acting on behalf of another person as trustee/nominee or any other intermediary. If so, the company will insist on receipt of satisfactory evidence of the identity of the intermediaries and of the persons on whose behalf they are acting, as also obtain details of the nature of the trust or other arrangements in place. While opening an account for a trust, the company will take reasonable precautions to verify the identity of the trustees and the settlers of trust (including any person settling assets into the trust), grantors, protectors, beneficiaries and signatories. Beneficiaries should be identified when they are defined. In the case of a ‘foundation’, steps should be taken to verify the founder managers/ directors and the beneficiaries, if defined.

Accounts of companies and firms

The company will exercise caution and vigilance against business entities being used by individuals as a ‘front’ for maintaining accounts with the company. The company will examine the control structure of the entity, determine the source of funds and identify the natural persons who have a controlling interest and who comprise the management. These requirements will be moderated according to the risk perception e.g. in the case of a public company it will not be necessary to identify all the shareholders. Client accounts opened by professional intermediaries

When the company has knowledge or reason to believe that the client account opened by a professional intermediary is on behalf of a single client, that client must be identified. The company will hold ‘pooled’accounts managed by professional intermediaries on behalf of entities like mutual funds, pension funds or other types of funds. The company will also maintain ‘pooled’accounts managed by lawyers/chartered accountants or stockbrokers for funds held ‘on deposit’or ‘in escrow’for a range of clients. Where funds held by the intermediaries are not co-mingled at the company and there are ‘sub-accounts’, each of them attributable to a beneficial owner, all the beneficial owners must be identified. Where such funds are co-mingled at the company, the company will still look through to the beneficial owners. Where the company relies on the ‘customer due diligence'(CDD) done by an intermediary, it will satisfy that the intermediary is regulated and supervised and has adequate systems in place to comply with the KYC requirements.

Accounts of Politically Exposed Persons (PEPs) resident outside India

Politically exposed persons are individuals who are or have been entrusted with prominent public functions in a foreign country, e.g., Heads of States or of Governments, senior politicians, senior government/judicial/military officers, senior executives of state-owned corporations, important political party officials, etc.
The company will gather sufficient information on any person/customer of this category intending to establish a relationship and check all the information available on the person in the public domain. The company will verify the identify of the person and seek information about the sources of funds before accepting the PEP as a customer. The decision to open an account for PEP should be taken at a senior level, which will be clearly spelt out in Customer Acceptance policy. The company will also subject such accounts to enhanced monitoring on an ongoing basis. The above norms will be applicable to the accounts of the family members or close relatives of PEPs.

Accounts of non-face-to-face customers:

With the introduction of telephone and electronic finance / banking, increasingly accounts are being opened by companies for customers without the need for the customer to visit any office. 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 mitigate the higher risk involved. Certification of all the documents presented will be insisted upon and, if necessary, additional documents will be called for. In such cases, the company will also require the first payment to be effected through the customer’s account with a bank, which, in turn, adheres to similar KYC standards. In the case of cross-border customers, there is the additional difficulty of matching the customer with the documentation and the company will have to rely on third party certification / introduction. In such cases, it will be ensured that the third party is a regulated and supervised entity and has adequate KYC systems in place.
ANNEXURE – 2 to KYC norms and Anti-Money Laundering Measures
Customer Identification Procedure
Features to be verified and documents that may be obtained from customers

Features Documents

Accounts of individuals

Legal name and any other names used
Correct permanent address

  • (i) Passport
  • (ii) PAN card
  • (iii) Voter’s Identity Card
  • (iv) Driving licence
  • (v) Identity card (subject to the company’s satisfaction)
  • (vi) Letter from a recognized public authority or public servant verifying the identity and residence of the customer to the satisfaction of the company.
  • (i) Telephone bill
  • (ii) Bank account statement
  • (iii) Letter from any recognized public authority
  • (iv) Electricity bill
  • (v) Ration card
  • (vi) Letter from employer (subject to satisfaction of the company) (any one document which provides customer information to the satisfaction of the company)

Accounts of partnership firms
Legal name
Address
Names of all partners and their addresses
Telephone numbers of the firm and partners Registration certificate, if registered

(ii) Partnership deed
(iii) Power of Attorney granted to a partner or an employee of the firm to transact business on its behalf
(iv) Any officially valid document identifying the partners and the persons holding the Power of Attorney and their addresses
(v) Telephone bill in the name of firm/partners
Accounts of trusts & foundations
Names of trustees, settlers, beneficiaries and signatories
Names and addresses of the founder, the managers/directors and the beneficiaries
Telephone/fax numbers (i) Certificate of registration, if registered
(ii) Power of Attorney granted to transact business on its behalf
(iii) Any officially valid document to identify the trustees, settlers, beneficiaries and those holding Power of Attorney, founders / managers / directors and their addresses
(iv) Resolution of the managing body of the foundation/association
(v) Telephone bill

Guidelines on Fair Practices Code for NBFCs

Applications for loans and their processing :

All communications to the borrower will be made in the vernacular language or in a language to be understood by the borrower.
The loan application form will indicate the details of documents to be submitted along with the application. Further, at the time of application, rate of interest, schedule of charges / fees to be paid will be made available in a transparent manner. Likewise refund of collected fee in the event of non-acceptance of application / non-availment of sanctioned loan, will also be brought to the notice of the applicants.

Receipt of completed application forms will be duly acknowledged. All loan applications will be disposed off within 4 weeks from the date of receipt, where the applicant has provided all requisite information / papers / clarifications.

Loan appraisal and terms/conditions:

The company will appraise the loan proposal in accordance with prescribed viability norms in terms of suitable margin / securities based on risk assessment and due diligence.

The company will communicate in writing by means of a sanction letter the amount of loan sanctioned and other terms and conditions and obtain acceptance of the borrower of such terms and conditions, which will be kept on record.

The annualized rate of interest and method of application thereof will be stipulated in sanction letter. Interest rate charged will be based on internal principles and procedures and in tune with the interest rate model of the company. The change in interest rate will be published in the web-site of the company.

Disbursement of loans including changes in terms and conditions:

Disbursement of loans will be made immediately on execution of loan documents and full compliance of terms and conditions as per the sanction letter.
The company will furnish a copy of loan agreement along with a copy of all enclosures quoted in the loan agreement to all the borrowers at the time of disbursement of loans.

Any change in terms and conditions (including rate of interest and service charges) will be individually intimated to the borrower in case of specific changes and in case of others by public notice / display in the Notice Board at the branches of the company or on the website of the company from time to time.
Changes in rates of interest will be effected prospectively on due intimation as above and a clause to this effect shall be incorporated in the loan agreement.
Any decision to recall / accelerate payment of the loan will be in consonance with the loan agreement.

The company will release all securities on repayment of all dues / claims of the borrower subject to any legitimate right or lien for any other claim the company may have against the borrower. Due notice will be given to the borrower before any such right of set off / lien is exercised giving full details of the claims and conditions.

General:

The company will refrain from interference in the affairs of the borrower except for the purposes provided in the terms and conditions of the loan agreement (unless new information, not earlier disclosed by the borrower, has come to the notice of the company).
In case of request from the borrower for transfer of loan account, the consent or otherwise i.e. objection of the company will be conveyed within 21 days from the date of receipt of request. Such transfer of account will be as per transparent contractual terms in consonance with law.
In the matter of recovery of loans, the company is adopting fair and legal recovery policy and is taking care to avoid undue harassment viz. bothering the borrowers at odd hours, and use of muscle power for recovery of loans etc. The company is giving adequate training for the staff to deal with the customers in pleasing manner and to avoid customer complaint.

Complaints and Redressal:

In the case of complaints / grievance, the applicants / borrowers have to inform in writing to the head of the concerned branch of the company and the branch officials will immediately take up the matter for redressal, seeking the guidance of corporate office wherever necessary. The functioning of the redressal mechanism will be reviewed by the Board quarterly.

B. NBFC-MFIs:

i. General:

Training if any, offered to the borrowers will be free of cost. Field staff are trained to offer such training and also make the borrowers fully aware of the procedure and systems related to loan / other products.
Necessary inquiries will be made with regard to existing debt of the borrowers by the field staff duly trained and due diligence will be carried out to ensure the repayment capacity of the borrowers. Loan application is made simple and loan disbursement is made at the branch premises in the presence of borrowers/animator/representatives in a time bound manner.

Notice board installed at branches / H.O will display the following

The effective rate of interest charged & the system of grievance redressal.
A declaration that we are accountable for preventing inappropriate staff behavior.

ii Disclosures in loan agreement / loan card:

Board approved format of loan agreement in vernacular language is being introduced and the agreement will show the terms &conditions, Rate of Interest, (Processing charges, Insurance premium -if any). Other conditions such as the borrower cannot be a member of more than one SHG/JLG, the moratorium between the grant of loan and the due date of repayment of the first installment, non charging of penalty, non collection of security deposit/margin will be disclosed in the agreement and the privacy of borrowers data will be secured.

Individual loan passbook will show the terms and conditions as given in loan agreement , information about the borrower,details about grievance redressal system, details about the loan /non loan products and entries relating to repayment and closure of the loan in vernacular language.

Non-Coercive Methods of Recovery:

Loan recovery/collection will be done at the branches. Field staff will visit the place of residence or work of the borrower, if the borrower fails to appear at the branch on two or more successive occasions.
Board approved policy is in place with regard to Code of Conduct by field staff and systems for their recruitment, training and supervision. . Training to field staff includes programs to inculcate appropriate behavior towards borrowers without adopting any abusive or coercive debt collection / recovery practices. Compensation methods for staff have more emphasis on areas of service and borrower satisfaction than merely the number of loans mobilized and the rate of recovery. Appropriate action will be taken against staff for non-compliance with the Code of conduct. Staff members alone are utilized for recovery in sensitive areas.

Internal control system:

Periodic Inspection of branches is undertaken and the reports are reviewed by Directors. Designated Individuals of the company are assigned with the responsibility for compliance of the Directions relating to MFI issued by RBI from time to time.

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