Current Account
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Usually, a current account is opened for commercial or business purposes and is a form of demand deposit from which the holder can withdraw money any number of times or upto an agreed amount. Opening ...

Usually, a current account is opened for commercial or business purposes and is a form of demand deposit from which the holder can withdraw money any number of times or upto an agreed amount. Opening a current account is a risky proposition for the banks. For instance, if the bank makes an overdraft by mistake, then the bank has to bear the loss if it is unpaid. There is no restriction to the amount deposited in the current account. This form of account is liable for transaction tax especially if the individual or a Hindu Undivided Family (HUF) withdraws Rs 50,000 in cash on any single day. Similar tax is also levied on a corporate entity if the withdrawal is Rs 1,00,000 and above. Although no interest or countervailing interest is payable on a current account however banks are entitled to pay interest to the account of a regional rural bank or the account of a deceased individual. As far as nomination is concerned a single depositor can make nominations while nominations cannot be made by incorporated entities or other trade bodies. With respect to current accounts there are several prohibitions placed on the banks. For example, the bank cannot lure the depositors by announcing prizes or attractive lottery schemes. Similarly, banks also cannot pay brokerage or gifts to agents for deposits placed at the bank.

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    Current Account Current Account Presentation Transcript

    • Current Account Definition and Uses Who Can Open? Procedure for Opening Credit Discipline Operation of Current Account Cheque books and Statements Interest Dormant Accounts and Charges Nomination Deceased Depositor Closing an Account ProhibitionsCurrent Account Retail Banking Chapter 04
    • Definition and Uses A current account is defined by the Reserve Bank as, “ a form of demand deposit wherefrom withdrawals are allowed any number of times depending upon the balance in the account or up to particular agreed amount and shall also be deemed to include other deposit accounts that are not savings deposit nor term deposit.” A current account is opened usually for commercial or business purpose.Current Account Retail Banking Chapter 04
    • Who Can Open? As stated earlier this account is opened for business orcommercial use. Normally Current account is opened by those whohave commercial interest and have need to issue many cheques.These include;•Individuals•Sole Proprietorships•Hindu Undivided Family•Partnerships•Trusts, Associations / Societies and clubs•Limited Companies. Current Account Retail Banking Chapter 04
    • Procedure for Opening RBI has advised banks to include certificate in accountingopening forms confirming the identity, occupation and address ofthe prospective customers signed by the introducer. Introductionto account is very much important for banks, because in the eventof account not being introduced the bank will not get theprotection under Section 131 of the Negotiable Instrument Act. Ifan overdraft is give by mistake, the bank bears the risk of loss if itis unpaid. Several banks permit accounts to be opened by a “selfintroduction.” However this does not give the banker any comfortwith regard to the moral standing of the person. Current Account Retail Banking Chapter 04
    • Credit Discipline The RBI has stated that for maintaining credit discipline banks should, insist on a declaration from the account holder. Ascertain whether he/she is a member of any other cooperative society/bank. If so the details should be produced. Banks may open current accounts of prospective customers if no response is received after a minimum period of fortnight. If due diligence is carried out on the request of a prospective customer who is a corporate or large borrower, banks may inform the consortium leader.Current Account Retail Banking Chapter 04
    • Operation of Current Account At the time the account is opened, customer would mention how the account should be operated. The terms used are; Single Joint Either or survivor – in this case, should one of the account orders die, the survivor can draw the balance in the account. An account should not be opened, on a zero balance as the banker in this instance has not taken on deposit any amount. An account holder will deposit cash or cheques in two his account by providing details entered in paying slip.Current Account Retail Banking Chapter 04
    • Operation of Current Account The RBI has stated that ‘No bank should refuse an acknowledgement if the customer makes deposit at the counter of the bank’. There is no restriction on the amount that may be deposited in a current account. There are no restrictions on the number of withdrawals that may be made in a period. Customers make withdrawals from the account by drawing cheques or withdrawal slips if they do not have a cheque book.Current Account Retail Banking Chapter 04
    • Operation of Current Account Third party cheques and cheques with endorsement may be deposited in current accounts. If an individual or HUF withdraws Rs. 50,000/- or more in cash in one day banking cash transaction tax is payable. In case of companies and other bodies, the same is payable if the withdrawal is Rs. 1,00,000/- or more.Current Account Retail Banking Chapter 04
    • Cheque books and Statements When a cheque book is exhausted, the customer should fill in a cheque requisition form. Normally bank sends new cheque books to customer my courier. The RBI has stated that Checkbook should be handed over to customers/their representatives at the branch of the bank where they bank. Banks either give customers a pass book or a statement of the account with the bank. To improve service RBI has asked bank to ensure that full address and telephone number of the branch is mentioned on the statements of accounts.Current Account Retail Banking Chapter 04
    • Interest Banks do not pay interest on balances maintained in a current account. The RBI prohibits the payment of interest in the current account. In addition, RBI also prohibits the payment of countervailing interest. Banks are permitted to pay interest on the current account of a regional rural bank they have sponsored. Since May 1983 banks have been permitted to pay interest on the balances in the current account standing in the name of deceased individual.Current Account Retail Banking Chapter 04
    • Dormant Accounts and Charges If there has been no customer initiated transactions in the account for 2 years, the account will be designated as the “Dormant Account” Many banks reduced this period to 6 months. These accounts are subject to greater check, as they are susceptible to fraud. Bank often insist on a minimum averag monthly/quarterly balance to be maintained in the account. If the balance is not maintained a service charges is levied. Client must be advised of any changes in the charges.Current Account Retail Banking Chapter 04
    • Nomination The banking laws (Amendment) Act, 1983 inserted section 45ZA to permit the facility of nomination. A single depositor can in the event of his death, nominate who should be paid the balance lying on his account. Nomination may be made in the favor of individuals only. Incorporated entities and bodies cannot make nominations. Nomination confers upon the nominee the right to receive the deposit from the bank. Nomination may be varied or cancelled at any time. On making payment to the nominee the bank is fully discharged, from its liability regarding the deposit.Current Account Retail Banking Chapter 04
    • Deceased Depositor When a depositor has utilised nomination facility payment of balance in the deposit account to the survivors of deceased deposit account holder valid if •Bank has exercised due care and caution in establishing identity of survivor. •There is no court order restraining bank. •Where the deceased depositor has not made any nomination or the account does not have survivor clause, banks are expected to follow simplified procedure for repayment. Banks should settle claims and release payment within fifteen days, from receiving claim along with documents.Current Account Retail Banking Chapter 04
    • Closing an Account To close an account all the account holders should write to the bank stating that intent to close the account. All unused cheques should be cancelled and return to the bank. The bank may also request the customer to close his account if; The customer is no longer a desirable person and the account has not been operated for a long time. If a customer cannot be traced, the balance placed in an unclaimed deposit account. It’s a statement or correspondence sent to the customer is returned the balance and should be transferred to the “Dormant Account”.Current Account Retail Banking Chapter 04
    • Prohibitions Following are some of the prohibitions should be followed by banks; 1. May not pay interest on current account other than by sponsor banks. 2. Not to pay brokerage or gifts to agents/others for deposit placed at the bank. 3. No bank should launch prize/lottery all other schemes to attract deposits. 4. Banks should not pay interest on margin money held in current account.Current Account Retail Banking Chapter 04
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