Basic Terms

What is KYC (Know Your Customer)?

KYC is a tool that enables banks to know their customers by verifying their identity in order to prevent banks from money laundering, identity theft, financial fraud and terrorist financing so that they can manage their risks prudently. KYC is a regulatory and legal requirement.

Following documents are required by banks under KYC of an individual:

  1. Photo Identity Proof (anyone of following):
    • Passport
    • PAN card
    • Voter's Identity Card
    • Driving license
    • Job card issued by NREGA duly signed by an officer of the State Government
    • Aadhaar Card
  2. Correct Permanent Address Proof (anyone of following):
    • Property or Municipal Tax receipt (not more than 1 year old)
    • Pension or family pension payment orders
    • Letter issued by Foreign Embassy or Mission in India certifying/mentioning customer's current residential address.
    • Any Identity Document issued by Government department or agency of foreign jurisdiction
    • Identity card with applicant's Photograph issued by Public Sector Undertakings, Scheduled Commercial Banks, and Public Financial Institutions.
    • Letter issued by a gazetted officer (with a duly attested photograph of the person containing name, current address, permanent address, nationality and DOB of the customer;)
    • Utility bill (electricity, telephone, post paid mobile phone, internet, piped gas, water bill)
    • Bank account statement or Post Office savings bank account statement (Statement should not be more than two months old & Bank account shall be of any scheduled commercial Bank)
    • Letter from employer

What is Dormant Account?

"A savings as well as current account should be treated as inoperative / dormant if there are no transactions in the account for over a period of two years" as per RBI guidelines.

According to RBI, following type of transactions will be considered for the purpose of classifying an account as ‘dormant’:

  1. A debit transaction e.g. Cash withdrawal via ATM
  2. A credit transaction e.g. Deposit of cash / cheque
  3. A customer induced transaction e.g. if the interest on Fixed Deposit account is credited to the Savings Bank account as per the mandate of the customer
  4. A third party transaction e.g. Internet banking transaction

However, the service charges levied by the bank or interest credited by the bank are not considered as transaction for the purpose of classifying an account as 'dormant'.

What the bank will do in order to protect any account from being dormant?

The banks make annual review of all savings bank account and current accounts and in case there is no transaction, the bank is required to inform the account holder to activate the account by making some transaction. If the account is not activated in the second year too then the bank is again required to inform the customer three months in advance of the account being classified as dormant.

It is mandatory for the banks to credit the interest on savings bank accounts on regular basis whether the account is operative or not.

Consequences of any account being dorman

Account holder may face many consequences on his/her account being dormant like cheque book be cannot be issued, address cannot be changed, no cash withdrawal from an ATM, no transaction through internet banking, no renewal of ATM/debit card etc.

Reactivation of dormant account

To reactivate the dormant account, the account holder has to submit a request to the bank in person to change the status of the account from 'Dormant to Active' indicating the reasons for not operating the account in the past along with a copy of the pass book or cheque of his/her savings bank account or current account. The account holder has also to submit 2 recent colour passport size photos and KYC documents. Please note that banks do not levy any charge for reactivation of dormant accounts as per RBI guidelines. The reactivation process differs from one bank to another. The account generally gets activated within 24 hours.

What is Non-performing Asset (NPA)?

Non-performing Asset is the loan given by a bank on which previously agreed upon interest payments or repayments are not being received by the bank on time and has remained overdue for a period of 90 days. NPA is an asset that does not generate any income for the bank.

As per RBI guidelines, a term loan on which interest or instalment of principal remain overdue for a period of more than 90 days from the end of a particular quarter is called a Non-performing Asset.

In the balance sheet of the bank, loans made to customers are shown as assets and when customers who have taken the loan stop making their interest payments or principal repayments, the value of the loan assets starts declining in the balance sheet. The higher is the amount of NPAs, the weaker will be the bank’s revenues.

NPAs are categorised into 3 major types:

  1. Substandard assets: Assets which has remained NPA for a period less than or equal to 12 months
  2. Doubtful assets: An asset which has remained in the substandard category for a period of 12 months.
  3. Loss assets: If the loan is not repaid even after it remained a substandard asset for more than 3 years and it has been identified as unrecoverable by internal / external audit and it would be called Loss asset. As per RBI, "Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value."

For Agriculture Loans, there is some change while classifying loan as NPA as mentioned below:

  1. For short duration crop agriculture loans such as paddy, Jowar, Bajra etc., if the loan instalment / interest is not paid for crop seasons from the due date, it would be classified as a NPA.
  2. For Long Duration Crops, if the loan instalment / interest is not paid for 1 crop season from the due date, it would be classified as a NPA.

Banks can neither credit the income nor debit the loss unless either recovered or identified as loss in case of NPA.

Gross NPA

It is the amount which is outstanding in the books of bank regardless of any interest.

Net NPA

It is Gross NPA minus interest debited to borrower's account and not recovered as income.

If a bad loan has remained NPA for minimum of 2 years, the bank can resale such bad loan to the Asset Reconstruction Companies e.g. Asset Reconstruction Company (India) (ARCIL). Asset Reconstruction Companies purchase such bad loan on very less amount and then try to make maximum possible recovery of such loans from the defaulters.

What is ATM?

An automated teller machine (ATM) is a specialized computerized machine that allows bank customers to gain access to their accounts with a magnetically encoded plastic card and a code number (PIN). Through ATM, customer can process a variety of banking transactions like cash withdrawal, cash deposit, change of mobile number, getting transaction summery of his account, pay bills, etc.

It a safe and convenient way to manage one's money. There are thousands of ATMs which remain open 24 hours a day and all 7 days a week.

In addition to cash dispensing ATMs may have many services / facilities such as:

  • Cash Deposit
  • Account information
  • Regular bills payment
  • Mini Statement
  • Change of personal details like change of mobile number
  • Loan account enquiry etc.

The services offered vary from bank to bank and can also depend on the ATM’s capacity to offer these options.

Banks usually set limit for withdrawal of cash from ATM by customers which is set by the issuing bank at the time of issuance of the card. For cash withdrawals at other bank ATMs, banks have decided to maintain a limit of Rs 10,000/- per transaction. Banks can also restrict the number of free transactions like cash withdrawal from different banks' cards to a maximum of 5 per month and can charge maximum of Rs 20/- per transaction for transactions beyond this number.

Upcoming Bank Holidays

2017 March 28 is a bank holiday in Goa due to Gudi Padwa/1st Navratra.
2017 March 29 is a bank holiday in Andhra Pradesh due to Chandramana Ugadi/Sajibu Nongmapanba (Cheiraoba)/Telugu New Year's Day.
2017 March 30 is a bank holiday in Jharkhand due to Sarhul.
2017 April 01 is a bank holiday in Andhra Pradesh due to Annual Closing Of Accounts Of Commercial And Co-operative Banks.

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