Nabard slams rural, co-op banks on money laundering rules

Regional rural banks (RRBs), state co-operative banks (SCBs) and district central co-operative banks (DCCBs) would be penalised if they fail to implement know your customer (KYC), anti-money laundering (AML) and combat financing of terrorism (CFT) guidelines.

State-run National Bank for Agriculture and Rural Development (Nabard) said during its inspection it found many banks lack implementation of these guidelines, while some are yet to formulate a policy on this regard.

A Nabard official told Business Standard: “Our bank, as a supervisor of SCBs, CCBs and RRBs, was involved in monitoring, sensitising and imparting training to the client banks on KYC and AML guidelines. However, during the course of our statutory inspections, it was observed that even after more than six years since the Prevention of Money Laundering Act came into effect in 2005 and despite various initiatives by Nabard, many such banks failed to implement the guidelines”.

He said if this continued, Nabard would critically evaluate the status and in case of any shortcoming, would take a decision to recommend to the Reserve Bank of India for imposition of penalty for violation of the Banking Regulation Act.

The official said cooperative banks and RRBs which have not prepared a KYC/AML policy, had been asked to get these done within a month.

“A copy of the same may be furnished to the regional office of Nabard for information within a period of one month from the date of receipt of this circular,” goes the order.

Based on the policy, operational guidelines should be issued to branches clearly indicating the documents acceptable to the bank for customer identification,” he added.

Nabard has also asked co-operative banks and RRBs to appoint a sufficiently senior officer as ‘Principal Officer’ (PO), who would be responsible for implementation of KYC/AML/CFT in the bank. Further, these banks need to categorise the customers into low-risk, medium and high-risk, based on the risk perception.

There are 83 RRBs, 31 state co-operative banks and 317 DCCBs in the country.