KYC – bank accounts of proprietory firms

RBI’s KYC requirements for opening bank accounts of proprietory firms were way too stringent and cumbersome with the result that many proprietory firms were unable to open current accounts at all for starting their businesses. Proprietory firms are the simplest way of starting any business in India with the opening of current accounts being the first and main step in the process, other requirements such as registrations with tax authorities coming only after some threshold had been reached.

Now the RBI has eased its KYC requirements for opening bank accounts for proprietorship firms with the requirement that only of the two documents are required for doing so.

The extant guidelines on KYC for opening bank accounts for proprietorship concerns were as follows as the RBI Master Circular dated 1st July, 2014.

Accounts of proprietary concerns

Apart from following the extant guidelines on customer identification procedure as applicable to the proprietor, banks should call for and verify the following documents before opening of accounts in the name of a proprietary concern:

Proof of the name, address and activity of the concern, like registration certificate (in the case of a registered concern), certificate/licence issued by the Municipal authorities under Shop & Establishment Act, sales and income tax returns, CST/VAT certificate, certificate/registration document issued by Sales Tax/Service Tax/Professional Tax authorities, Licence issued by the Registering authority like Certificate of Practice issued by Institute of Chartered Accountants of India, Institute of Cost Accountants of India, Institute of Company Secretaries of India, Indian Medical Council, Food and Drug Control Authorities, registration/licensing document issued in the name of the proprietary concern by the Central Government or State Government Authority/Department. Banks may also accept IEC (Importer Exporter Code) issued to the proprietary concern by the office of DGFT, the complete Income Tax Return (not just the acknowledgement) in the name of the sole proprietor where the firm’s income is reflected, duly authenticated/acknowledged by the Income Tax authorities and utility bills such as electricity, water, and landline telephone bills in the name of the proprietary concern as required documents for opening of bank accounts of proprietary concerns.

Any two of the above documents would suffice. These documents should be in the name of the proprietary concern.

Now the revised KYC norms provide any one of the above documents would suffice to open a bank account in the name of the proprietory concern.

The relevant portion of the RBI circular dated March, 13, 2015 states as under:

Reserve Bank has been receiving representations pointing out difficulties in complying with the requirement of furnishing two documents as activity proof while opening accounts of sole proprietary firms in certain cases. It is possible that in some types of activities there is genuine difficulty in procuring two such documents. The matter has, therefore, been reviewed with a view to ease the process of opening bank accounts of proprietary concerns in such cases. The default rule is that any two documents, out of those listed in paragraph 2.5 (h) of the Master Circular, should be provided as activity proof by a proprietary concern. However, in cases where the banks are satisfied that it is not possible to furnish two such documents, they would have the discretion to accept only one of those documents as activity proof.  In such cases, the banks, however, would have to undertake contact point verification, collect such information as would be required to establish the existence of such firm, confirm, clarify and satisfy themselves that the business activity has been verified from the address of the proprietary concern.

3. It is also clarified here that the list of registering authorities indicated in paragraph 2.5 (h) of the Master circular is only illustrative and therefore includes license/certificate of practice issued in the name of the proprietary concern by any professional body incorporated under a statute, as one of the documents to prove the activity of the proprietary concern.

A copy of the RBI circular is given in this link i.e. http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=9599&Mode=0

Leave a comment

Filed under Uncategorized

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s