The Hindu Business Line : Bankers wary of creating customer profiles

THE next time you want to open a bank account, do not be surprised if the manager asks you your grandmother's name. He may just be doing what he has been told — "know your customer".

Banks have already been advised by the Reserve Bank of India and Indian Banks Association (IBA) to create "customer profiles" of individual customers by seeking additional information in the account opening form itself. The prudential measure may become mandatory once the regulator finalises anti-money laundering guidelines. Banks have also been instructed to keep a tab on the source of funds that move through customers' accounts.

The measures, meant to prevent money laundering and choke terrorist financing, were initiated by an international financial task force created after the September 11 attacks.

Bankers, however, fear that too much probing may scare customers away. "At the time of account opening, one can ask for the mandatory personal details of the customer. If we start making demands of documentation and various other financial statements, banking will become very tedious and we risk scaring the customer away from the banking system," said a senior official at a leading public sector bank.

Banks are also not comfortable playing detectives. They say a simple account opening process may become a harrowing experience for the customer if bankers start asking them too many questions. Besides, it would be virtually impossible to trace the source of funds of every transaction.

"Most banks in India are not even fully automated. A proper monitoring system has to be devised and the bank staff at all levels have to be trained in money laundering law to detect any aberration or abnormal activity in any account. When people are made accountable, a whole lot of transactions might be reported as being suspicious to avoid any risk," the senior PSU bank official said. Mr Janki Ballabh, Chairman of SBI, said the measures were necessary. "Banks will have to implement these recommendations (of the RBI expert group). A greater due diligence is definitely required. This is happening not only in India, but the world over," Mr Ballabh said.

At a time when banks are trying to reduce customer footsteps in branches, such a measure may also increase their costs substantially. "The practicability of the whole concept needs to be examined before one can take a definite view. A monitoring system needs to be implemented, but the structure will be expensive," said Mr O.N. Singh, Executive Director, Bank of India.

"Another question is the cost of implementation. Sophisticated monitoring systems come at a price. While bigger banks may manage to put expensive systems in place, the cost will be too much for smaller banks. If large banks introduce such systems, the costs will undoubtedly be passed on to the customer," said a senior banker who did not want to be named.

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Bankers wary of creating customer profiles