Advance Remittance for Imports 

How Bankers can protect themselves?

The recent issue in certain banks and its aftermath has created a panic across bankers to deal with advance remittances.

But a clear understanding of the procedure is suffice to avoid such costly errors where bankers' ignorance or reduced compliance is exploited by a few 'clients'.   

Protection to bankers are available when they follow:

1. KYC - when they open account

Verification process when opening account should be effective.    Verification of PAN, visit to place of residence, company premises, market enquiry, cross-checking with referenced entity, checking for Benami accounts, etc. should be done meticulously.    Many frauds can be avoided at this entry point.

Care: Greed to add more current accounts, get quick CASA deposits, etc. will invite trouble; instead genuineness of the customer should be established beyond doubt.

2. Due Diligence - when they handle transactions

High value transactions in newly opened accounts should be avoided or scrutinised at multiple levels.   Such entities should be asked to route their transactions through their existing bankers at least for six months.   Or such transactions can be discussed with the previous banker to know the modus operandi. 

Care: Over-ambitiousness to earn more non-interest income / fee based income should be discouraged; instead genuineness and necessity of the transaction should be evaluated.

3. Follow up - post remittance

FEMA clearly specifies certain guidelines for sending remittances and the follow up for Bill of Entry as evidence of imports.  Waiver of Bill of Entry follow up, up to an equivalent of USD 100,000 is subject to conditions.    Post-remittance follow up cannot be compromised and it should be monitored by the controlling offices also.  

Care: Some times lack of clear segregation of follow up work between Authorised Dealer and Non-AD branches also contribute to negligence: instead both have to follow up the submission of evidence.

4. Report - in case of non-compliance

Escalation to controlling office / regulator should be done if the clients fail to comply with the guidelines.    This is possible only if the follow up is effective.

Care: In the name of retaining the clients, bankers compromise on compliance giving long rope to clients to fulfil their commitments; instead financial and performance discipline of the customers should be given more importance over retaining 'such' clients.

postscript

Competition among banks, competition among the same bank branches and pressure to perform - are all contributing to the mad rush to give in to the unjust 'demands' of customers, old or new.

Will it be possible to do banking on Banks' terms?