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Opening of A Bank Account

The document outlines the procedures and requirements for opening various types of bank accounts, including savings, current, fixed deposit, and recurring deposit accounts. It emphasizes the necessity of obtaining a letter of introduction, completing an application form, and adhering to KYC norms for customer identification. Additionally, it details the legal compliance and documentation needed to establish identity and address for new customers.

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0% found this document useful (0 votes)
13 views5 pages

Opening of A Bank Account

The document outlines the procedures and requirements for opening various types of bank accounts, including savings, current, fixed deposit, and recurring deposit accounts. It emphasizes the necessity of obtaining a letter of introduction, completing an application form, and adhering to KYC norms for customer identification. Additionally, it details the legal compliance and documentation needed to establish identity and address for new customers.

Uploaded by

VnusTae Tae
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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OPENING OF A BANK ACCOUNT

Opening Savings Bank Account- Normally, a banker will not open an account in
favour of a stranger. Any person who wishes to open a savings account has to be
introduced by another savings account holder of the same branch. Even a minor
is allowed to open a saving account.
Opening Current Account - In the case of current account, it cannot be opened
by any person unless he is introduced by another current account holder of the
branch. The current account holder has to give a letter of introduction in favour
of the person intending to open the current account.
Current account can also be opened when the employee of the bank gives a letter
of introduction about the person intending to open the current account. A third
type of letter of introduction can be given by a well reputed person known to the
banker.
The contents of letter of introduction must spell out the conduct and character of
the person intending to open the current account. It is more of a fidelity guarantee
vouchsafing the character of the person, willing to open the current account. The
banker requires such a letter as the current account holder is not only providing
with overdraft and cash credit facility but also acceptance of third party cheques
through endorsement.
At present the bank insists not only the introduction but also the photographs in
duplicate of persons intending to open an account; one photograph is affixed in
the pass book and the other in the ledger.
Opening Fixed Deposit Account and Recurring Deposit – For opening a fixed
deposit account, the banker does not impose any condition. But he normally
accepts fixed deposits from known persons and the fixed deposit account is
opened only by deposit cash or in case of cheques only after realization of
cheques. The same rule applies for recurring deposit also.
STEPS IN OPENING ACCOUNTS
Following are the steps involved in the opening of an account for customer, by a
banker:
OBTAINING LETTER OF INTRODUCTION
The first and the foremost step in opening an account for a new customer is to
obtain a letter of introduction from the person who wants to open an account. A
letter obtained by a banker from a prospective customer before a banker can open
an account in the name of the prospective customer is known as ‘letter of
introduction’. The purpose of obtaining this type of a letter enables the banker to
ascertain the genuineness of applicant. The letter serves as a letter of guarantee
of conduct and genuineness of the applicant obtaining a letter of introduction is
an important duty of a modern banker. The information obtained so helps the
banker in confidently providing various services of banking and financial
services. The information is also need to obtain protection from the provisions of
the various legislations that are in force from time to time as part of carrying out
the banking business.
Application Form
After obtaining a letter of introduction, the banker supplies an application form
according to the type of account, which the customer wants to open The
application form contains the rules and regulations of the bank with the terms and
conditions of deposit. The application form is to be filled in and handed over to
the banker. The applicant furnishes all details about himself including the name,
nomination, address, etc.
Specimen Signature
After the application form duly filled in, the banker obtains the specimen
signature of the new customer in a separate card called ‘specimen signature’ card.
Every customer is expected to have read the rules of business of the bank to
confirm in writing his willingness to comply with and bound by them before his
account is opened. He is required to supply his bankers with one or more
specimens of his signature and the bank usually enters these in a signature card
maintained for the purpose. The cards are filed and arranged in an alphabetical
order. Each customer’s name must be written in bold characters above his account
in the ledger. His address and occupation are also noted.
Issue of Cheque, Pay-in –slip, and Passbook
The banker issues pay-in-slips, cheque book, and passbook immediately after
successfully completing the first transaction with the customer. The cheque book
supplied to the customer usually contains ten or twenty blank forms. These leaves
are used for making payments. A cheque book contains a requisition slip which
helps to get a new cheque book. Pay-in-slip or credit voucher are forms used to
pay coins, notes, bills, and cheques to the credit of customer’s account. Each slip
should be signed by the customer or the person who has prepared it on his behalf.
For correct accounting, name, account number, date, and the amount of the
customer should be clearly mentioned. Customer will receive a duplicate slip or
counterfoil with a signature and the rubber stamp of the banker. It is an
acknowledgement to the customer that cash, etc. Have been duly received. The
initials of the cashier in counterfoil do not in any way mean that the cheques, etc.,
are in order.
PAY-IN-SLIP BOOK
The pay-in-slip book is a book that contains printed slips with perforated
counterfoils to be filled in by the depositor or his agent at the time of depositing
cash, cheques, drafts etc., to the credit of his account. Usually every bank
prescribes and supplies free of cost separate pay-in-slips for depositing cash and
cheques and drafts. The contents of pay-in–slips include the information
regarding the date of deposit, name and account number of the customer, amount
to be deposited, etc.
PRINTED CHEQUE FORMS
A cheque drawn on any paper is legally valid. When the customer draws a cheque
on ordinary slip of paper, the banker must be careful to see that it is an
unconditional order. Otherwise the banker would lose the statutory protection.
But it is to be noted that using plain papers to write cheques will prove risky for
the paying banker. Hence, bankers always insists on using printed cheque forms
to enable customers to derive the following advantages:
1. Easy and convenience of writing a cheque, only the relevant columns need to
be filled in.
2. Avoidance of forgery and hence safety to banker and customer too.
3. Easy detection of fraud in a printed form is possible.
4. Ensure that the signature is drawn only according to the requirements of law.
5. Facility of verifying the customer’s name by referring to chequebook issue
record.
6. Easy countermanding of cheques by the customer; it is enough if the customer
instructs to countermand the cheque number to the banker in case of fraud.
7. Counterfoils kept by the customer can be used as a record of payment made.
8. Popularity of name of the company or the individual where the names are
printed on the cheque.
CUSTOMER IDENTIFICATION AND KYC NORMS
The term KYC for ‘Know Your Customer’. KYC is used for identifying a
customer of bank.The objective of KYC is to help the banks and financial
institutions to manage their risks prudently. KYC is made available by the RBI
by way of guidelines designed to prevent banks from being used, intentionally or
unintentionally by criminal elements for money laundering.
There are two important components of KYC, viz., Identity and Address. While
identity remains the same, the address may change and hence the banks are
required to periodically update their records.
Legal Compliance
KYC norms have legal backing of the RBI. RBI has issued guidelines to banks
under Section Regulation Act, 1949 and Rule 7 of Prevention of Money –
Laundering (Maintenance of Records of the Nature and Value of Transactions,
Time for Furnishing Information and Verification and Maintenance of records of
the Identity of the Clients of Banking Companies, Financial Institutions and
Intermediaries) Rules, 2005. Any contravention thereof non- compliance will
attract penalties under Banking Regulation Act.
Applicability
KYC norms are applicable to a bank customer. For this purpose, a customer
includes the following:
A person or entity that maintains an account and/ or has a business relationship
with the bank. One on whose behalf the account is maintained i.e., the beneficial
owner. Beneficiaries of transactions conducted by professional intermediaries
such as Stockbrokers, Charted Accountants and Solicitors etc as permitted under
the law. Any person or entity connected with a financial transaction which can
pose significant reputational of other risks to the bank, say, wire transfer or issue
of a high value demand draft as a single transactions.
In certain cases such as ‘no frill accounts’, which are meant providing basic
banking facilities to poor and promote financial inclusion, KYC norms are rather
relaxed by banks.
Customer Identification
Customer identification involves identifying the customer and verifying the
identity by using reliable, independent source documents, data or information.
Banks have been advised by the RBI to lay down Customer Identification
Procedure to be carried out different stages i.e., while establishing a banking
relationship; carrying out a financial transaction or when the bank has a doubt
about the authenticity/veracity or the adequacy of the previously obtained
customers, KY details about a customer are required to be updated periodically
by the banker. Banks create a customer profile with details on social/ financial
status, nature of business activity, information about his clients’ business and
their location, the purpose and reason for opening the account, the expected origin
of the funds to be used within the relationship and details of
occupation/employment, sources of wealth or income, expected monthly
withdrawals etc. In the event of the transactions in the account are bring consistent
with the customer profile already created, bank may ask for is any additional
details/ documents as required. The ultimate objectives is to ensure that the
account is not being used for any Money Laundering / Terrorist/Criminal
activities.
KYC Documents for Normal Customers
There are two aspects of Customer Identification- One is establishing identity and
the other is establishing present residential address. For establishing identity, the
bank requires any authentic document carrying photo of the customer such as
driving license/ passport/pan card/voter’ card etc. Though these documents carry
the residential address of the customer, it may not be the present address.
Therefore, in order to establish the present address of the customer , in addition
to passport/driving license/voter’s card / pan card; the bank may ask for utility
bills such as Telephone/Electricity bill etc. A Banker would ask for the following
list of documents to establish the proof of identity and residence of a customer.
For Individuals The Banker will ask for copies of any the documents such as
Aadhar card, Passport, Pan Card, Voter’s Identity Card, Driving License, identity
Card and a letter from a recognized public authority or public servant verifying
the identity and residence of the customer to the satisfaction of the bank. This
would help the bank to establish the genuineness of the legal name or any other
used by customer. To verify the documents such as Telephone bills, bank account
statement, letter from any recognized public authority, electricity bill, ration card
and letter from employer(Subject to satisfaction of the bank)

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