The Reserve Bank of India has directed banks to formulate a proper policy framework on 'Know Your Customer' and anti-money laundering measures with board approval before December 31.

It said banks should refrain from divulging confidential customer information to other agencies for cross-selling or any other purposes.

The RBI also asked banks to ensure that remittances by way of demand draft, mail/telegraphic transfer or any other mode, and issue of traveller's cheques for value of Rs 50,000 and above is effected by debit to an account or against cheques and not against cash payment.

The objective of KYC guidelines is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering, said the RBI.

KYC procedures will also enable banks to know their customers and their financial dealings better, which in turn help them manage their risks prudently, it added.

Banks have been directed to follow a customer acceptance policy laying down explicit criteria for acceptance of customers.

In addition to this the central bank has urged banks not to open an account or close an existing account where the bank is unable to apply appropriate customer due diligence measures.

To adhere to the KYC norms, banks would henceforth have to prepare a profile for each new customer based on risk categorisation.