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PMLA,2002 - Obligation of NBFCs

DNBS(PD). CC 126/03.10.042/ 2008- 09

August 5, 2008

All Non-Banking Financial Companies,
Miscellaneous Non-Banking Companies,
and Residuary Non-Banking Companies

Dear Sir,

Prevention of Money Laundering Act, 2002 – Obligation of  NBFCs in terms of Rules notified there under

Please refer to our circular DNBS(PD). CC 68 /03.10.042/2005-06 dated April 5, 2006. In Paragraph 3 of the said circular, NBFCs were advised to go through the provisions of PMLA, 2002  and the Rules notified there under and take all steps considered necessary to ensure   compliance with the requirements of section 12 of the Act ibid. Further, it  was advised that NBFCs should also report information in respect of all transactions referred to in Rule 3 ibid to the Director, Financial Intelligence Unit-India (FIU-IND).

2. In terms of instructions contained in the guidelines on ‘Know Your Customer Norms’ and ‘Anti-Money Laundering Measures’ of our circular dated February 21, 2005, NBFCs are required to prepare a profile for each customer based on risk categorization. Further, vide paragraph 4 of our circular DNBS(PD). CC 68 /03.10.042/2005-06 dated April 5, 2006, the need for periodical review of risk categorization has been emphasized. It is, therefore, reiterated that NBFCs, as a part of transaction monitoring mechanism, are required to put in place an appropriate software application to throw alerts when the transactions are inconsistent with risk categorization and updated profile of customers. It is needless to add that a robust software throwing alerts is essential for effective identification and reporting of suspicious transactions.

3. In paragraph 7 of our circular dated April 5, 2006, referred to above, NBFCs were advised to initiate urgent steps to ensure electronic filing of cash transaction report (CTR) and Suspicious Transaction Reports (STR) to FIU-IND. It has been reported by FIU-IND that many NBFCs are yet to file electronic reports. It is, therefore, advised that in case of NBFCs, where all the branches are not yet fully computerized, the Principal Officer of the NBFC should cull out the transaction details from branches which are not computerized and suitably arrange to feed the data into an electronic file with the help of the editable electronic utilities of CTR/STR as have been made available by FIU-IND on their website

4. In paragraph 7(I)(a) of our circular dated April 5, 2006, referred to above, NBFCs were advised to make Cash Transaction Reports (CTR) to FIU-India for every month latest by 15th of the succeeding month. It is further clarified that cash transaction reporting by branches/offices of NBFCs to their Principal Officer should invariably be submitted on monthly basis (not on fortnightly basis) and the Principal Officer, in turn, should ensure to submit CTR for every month to FIU-IND within the prescribed time schedule.

5. In regard to CTR, it is reiterated that the cut-off limit of Rupees ten lakh is applicable to integrally connected cash transactions also. Further, after consultation with FIU-IND, it is clarified that :

a) For determining integrally connected cash transactions, NBFCs should take into account all individual cash transactions in an account during a calendar month, where either debit or credit summation, computed separately, exceeds Rupees ten lakh during the month. However, while filing CTR, details of individual cash transactions below rupees fifty thousand may not be indicated. Illustration of integrally connected cash transactions is furnished in Annex-I to this circular;

b) CTR should contain only the transactions carried out by the NBFC on behalf of their clients/customers excluding transactions between the internal accounts of the NBFC;

c) All cash transactions, where forged or counterfeit Indian currency notes have been used as genuine should be reported by the Principal Officer to FIU-IND immediately in the format (Counterfeit Currency Report – CCR) as per Annex-II, Annex-III. Electronic data structure has been furnished in Annex-IV to enable NBFCs to generate electronic CCRs. These cash transactions should also include transactions where forgery of valuable security or documents has taken place and may be reported to FIU-IND in plain text form.

6. As stated in paragraph 4 of the Guidelines on KYC Norms/AML Measures annexed to our circular DNBS(PD). CC 48 /10.42/2004-05 dated February 21, 2005, NBFCs are required to pay special attention to all complex, unusual large transactions and all unusual patterns of transactions, which have no apparent economic or visible lawful purpose.  It is further clarified that the background including all documents/office records/memorandums pertaining to such transactions and purpose thereof should, as far as possible, be examined and the findings at branch as well as Principal Officer level should be properly recorded. These records are required to be preserved for ten years as is required under PMLA, 2002. Such records and related documents should be made available to help auditors in their work relating to scrutiny of transactions and also to Reserve Bank/other relevant authorities.

7. In paragraph 7 of our April 5, 2006 circular, NBFCs have been advised that the customer should not be tipped off on the STRs made by them to FIU-IND. It is likely that in some cases transactions are abandoned/aborted by customers on being asked to give some details or to provide documents. It is clarified that NBFCs should report all such attempted transactions in STRs, even if not completed by customers, irrespective of the amount of the transaction.

8. While making STRs, NBFCs should be guided by the definition of 'suspicious transaction' as contained in Rule 2(g) of Rules ibid. It is further clarified that NBFCs should make STRs if they have reasonable ground to believe that the transaction involve proceeds of crime generally irrespective of the amount of transaction and/or the threshold limit envisaged for predicate offences in part B of Schedule of PMLA, 2002 .

9. In the context of creating KYC/AML awareness among the staff and for generating alerts for suspicious transactions, NBFCs may consider the indicative list of suspicious activities contained in Annex-V.

10. These guidelines are issued under Sections 45K and 45L of the Reserve  Bank of India Act, 1934. Any contravention of the said guidelines may attract penalties under the relevant provisions of the Act.

Yours faithfully,

( P Krishnamurthy)
Chief General Manager In-Charge