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SRM INSTITUTE OF SCIENCE AND
TECHNOLOGY
DEPARTMENT OF COMMERCE
CLASS : I BCOM G & H
COURSE CODE : UCM20201J
COURSE NAME : BANKING LAW & PRACTICES
UNIT II
DR.S.MANI
RELATIONSHIP BETWEEN BANKER AND CUSTOMER GENERALAND SPECIAL RELATIONSHIP
Q. WHAT IS THE RELATIONSHIP BETWEEN BANKER AND CUSTOMER?
A banker renders a number of services to his customer. The relationship between them primarily is that of a
creditor and a debtor. A banker also acts as an agent or trustee of his customer if the latter entrusts the former
with agency or trust work. In such cases, the banker acts as a debtor, an agent and a trustee
simultaneously but in relation to the specified business.
1. General Relationship
Debtor and Creditor:
An essential relationship between a banker and a customer is that of a debtor and a creditor. Where the customer
has a credit balance in his account, the customer is the creditor and banker is the debtor. Conversely where the
customer has a debit balance in his account, the customer is the debtor and banker is the creditor.
Trustee and Beneficiary
Trustee and beneficiary is another important type of relationship between the banker and the customer. Where the
banker maintains the deposit balances of customers and allows them to use those deposit money as per their wish
he is said to be acting as a trustee of the customer. Similarly, where the banker accepts securities and other
valuables for safe custody, he becomes the trustee and the customer becomes the beneficiary.
Agent and Principal
A banker essential acts as an agent of a customer as he carries out the agency functions such as
collection of cheques, bill of exchange, payment of insurance premium etc.
2. Special Relationship
Assignor and Assignee
Whenever a bank gives loan against life insurance policy or book debts or supply bills, the banker is the assignee and
the customers is the assignor. Thus assignment is done by customers when they take loan against insurance policy or
book debts.
Bailer and Bailee
The banker will act as a bailee only when goods are entrusted to him for a specific purpose. The customer
is the bailer. Any expenses incurred towards malignance of the security or goods have to borne by the customer. But
the goods kept in the safe deposit value will not come under bailment.
Banker as Agent and Advisor
When a banker or sells securities on behalf of his customer and renders other services, he is acting as an agent of his
customer. Similarly when he collects cheques, dividends, bill or promissory notes on behalf of his customer the
banker is acting as agent of the customer concerned.
Pledger and Pledge
The relationship between customer and banker can be that of pledger and pledge. This happens when customer
pledge (Promises) certain assets or security with the bank in order to get a loan. In this case, the customer
becomes the pledger, and the bank becomes the pledge. Under this agreement, the assets or security will remain with
the bank until a customer repays the loan.
The nature of relationship between the banker and the customer can be explained as follows
SPECIAL TYPES OF CUSTOMERS Q.EXPLAIN THE SPECIAL TYPES OF ACCOUNTS & CUSTOMERS.
Opening of a bank account is a special type of contract. Some persons like the minors, lunatics and drunkard
are not competent to enter into a valid contract. Some person acts on behalf of other have limitation on their power to
contract. Institutions like schools, colleges, clubs societies and corporate bodies are the personal customers of a banker.
While dealing with these persons, a special case on the part of the banker is necessary. So they are called special type
of accounts and the account holders are called as a special type of customers.
1. Minor
A person who has not completed 18 years of age is a minor. If a guardian of his person or property is appointed by the
court before he competes 18th
year. He remains minor till he completes his 21st
year. According to the Indian
contract act 1872 a minor is not capable of entering into a valid contract and a contract entered into by a minor is void.
A contract for the supply of necessaries of life to a minor is how even a valid contract.
Nature Guardianship of Minor
The guardian of minor may be either (i) a natural guardian or (ii) a testamentary guardian or (iii) a guardian
appointed by the court.
(i)Natural Guardian
According to section 6 of the Hindu minority and guardianship act 1956, in case of a minor boy or an unmarried girl,
his/her father and after him the mother shall be the natural guardian. In case of a married girl (minor), her husband
shall be the natural guardian. If the father is alive and is not removed from guardianship the mother does not becomes
the natural guardian of her minor child.
(ii)Testamentary Guardian
A Hindu father who is entitled to act the natural guardian of his minor legitimate children may by will
appoint a guardian for any of them in respect of the minor’s person or property. Such guardian acts after the death of
the father or the mother
(iii)Guardian Appointed by Court
A guardian may be appointed by the court under the guardian and wards act 1890, but the court shall not be
authorized to appoints or declare a guardian of the person of a minor, if his father is alive and is not, in the opinion
of a minor.
2. Married Women
A married women is competent enter into a valid contract. The banker may therefore, open an account in the name of a
married. In case of debt taken by a married woman, her husband shall not be liable except in the following
circumstances
(i)If the loan is taken with his consent or authority and
(ii)If the debt is taken for the supply of necessaries of life to the wife in any other circumstance. The
creditor may in that case recover his debt out of the personal assets of the married women
3.Illiterate Persons
Illiterate persons cannot sign their names and hence the bankers take their thumb impressions as a
substitute for signature and also a copy of their recent photo graph. The application form and the photograph
should be attested by an approved witness. For withdrawing money, he must attend personally and affix thumbs
impression in the presence of an official of the bank for the purpose of identification
4.Trustees
The person who reposes the confidence is called the author of the trust. Trustee is the person in whom the
confidence is reposed. The person for whose benefit the trust is formed is called the beneficiary. A trust is usually
formed by means of a document called the “trust deed” while opening an account in the names of
persons in their capacity as trustees the banker should take the precautions.
5.Executors and Administrators
These are persons who are appointed to conduct the affairs of a person after his death. When a person known as
testator appoints another person for this purpose through a will he is known as an executor. If the person appointed
as executor dies or refuses to act the court appoints a person for the purpose that is known as administrator. Both
the executor and the administrator perform the same duties i.e. to realize the assets of the deceased and to pay off
his debts. The executor is appointed by the will. His is power and authorities are vested therein. He has to act
according to obtain a probate (official confirmation of the will) from the court. The administrator is
appointed by the court through a letter of administration and is directed in the absence of the will to settle the
6.Customer’s Attorney
A customer may appoint an attorney to deal with his bank account. The power of attorney is a general notice and an
authority for his purpose. It is different from an ordinary mandate authorizing a person to operate his bank account.
The power of attorney may be either special of general. In the former case the person so authorized get
powers in regard to certain matters only e.g. sale or purpose of property etc. in case of the general power
of attorney the grantor of such power authorizes the other person generally to act on hi behalf in all matters
concerning his business.
7.Clubs, Societies and Charitable Institutions
Clubs, societies, charitable and religion institutions, libraries schools etc not engaged in service to the public. These
associations may be registered under the societies registration act or the Indian companies act.
8.Pardanashin Women
A Pardanashin woman observes complete seclusion in accordance with the custom of her own community.
She does not deal with the people other than the members of her own family. As she remains completely
secluded a presumption in law exists that
(i)Any contract entered into by her might have been subject to undue influence and
(ii)The same might not have been made with her free will and with full understanding of what the
contract actually means
Thus a contract entered into by a pardanaship woman is not a contract free from all defects. The banker
should therefore take due precaution in opening an account in the name of a pardanashin women
9. Hindu Family
A joint family possesses ancestral properties and carries an ancestral business the ownership of such
property passes on to the members of the family according to the Hindu law while dealing with the account of a
joint Hindu family and granting it a loan the backer is naturally faced with a difficult task of ascertaining rights of
the members of the joint family.
10.Joint Stock Companies
The capital of joint stock companies is divided into shares. People who purchase there are the properties of the
companies concerned. But a joint stock company is a separate legal entity. It has a separate legal existence
apart from that of the shareholders. Although some share holders may die or become banking the company
is not dissolved.
11.Partnership
A partnership is “the relation between persons who have agreed to share the profits of a business, carried on by all or
any of them acting for all”. There are no legal formalities for starting a partnership firm. Registration in not
compulsory. The agreement of the partners need not necessarily be in writing. It may be oral or written. There
should not be more than 10 partners in a firm doing banking business and not more than 10 people in a firm doing
and other kind of business. A partnership has no separate existence of its own from the existence of the partners.
12.Joint Account
When an account is opened in the name of two or more persons, who are not partner in a firm or who are not
joint trustees. It is called a joint account. When a joint account is opened the banker should obtain
comprehensive mandate. The mandate should cover all points because the right to draw cheques conferred
upon a person does not automatically confer upon him the right to deal in securities, to contract debts, or to
deal in bill of exchange. If one of the joint account holders obtains an overdraft the other does not have any
liability.
13.Drunken Persons
A drunkard is a person who is under the influence of alcoholic drinks or drugs and stand on the
same footing as a lunatic. When customer presents his own cheques when he is drunk, the bank should not
make immediate payment.
14.Lunatics
lunatic is a person of an unsound mind and hence he is incompetent to enter into a valid contract under the
Indian contract act 1872 since a lunatic does not understand what is right and what is wrong and
hence a contract entered into by him in void.
CLASSIFICATION AND NATURE
DEPOSIT ACCOUNT
Q.DESCRIBE THE CLASSIFICATION AND NATURE DEPOSIT ACCOUNT.
The banker have introduced with deferent type of accounts can be divided into three types namely.
Saving bank deposit account
Current deposit account and
Fixed deposit account
Recurring deposit account
SAVING BANK DEPOSIT ACCOUNT
Q. WRITE A NOTE ON SAVING BANKS DEPOSIT ACCOUNT.
The deposits are mostly of small amount and are accepted by banks to encourage persons of small means of
savings. Frequent withdrawals are not allowed and interest is generally allowed on monthly balance. The cheque
facility is also available in case the depositors agree to maintain a minimum balance.
Q. WHAT ARE THE FEATURES OF SAVING BANK DEPOSIT ACCOUNT?
These accounts are intended to cater of the requirement of low income and middle class families who are having
regular income.
The banks mop up the saving of people through the savings bank account. That is the basic objective of saving bank
accounts is developing the savings habit among people.
Any person can open a savings bank account with as little as rupees
Payment of interest: savings bank balances carry some interest. At present interest allowed on these
accounts in 45 %. This is more attractive than the current account where virtually no interest is paid.
Restrictions on withdrawals: in pursuance of the objective of the savings bank account, bank imposes
restriction on the right of the depositor to withdraw money within a given period
If the banker is satisfied the customer can get the use of cheque book facility
Accounts can be opened in the individual or joint names of depositors. Accounts can also be opened and operated by
minors, provided they have completed 14 years of age and have the power of understanding
Savings bank accounts can be transferred from one branch to another at the request of the account holder
The minimum balance to be maintained in an ordinary saving bank account is Rs.250/- in accounts where cheque
books are issued minimum balance of Rs.500/-.
Q. WHAT ARE THE LIMITATION OF SAVINGS BANK ACCOUNTS?
Restrictions on withdrawals: The banks restrict the number of withdrawals in any savings bank account.
Banks do not accept cheques or other instruments payable to third parties for collection in saving bank
account
When the cheque book facilities is not provided bank is on the personal appearance of the customer for
withdrawal of funds from savings bank account. That part, pass books must accompany the pay order. This
procedure causes inconvenience of the busy customers
More over banks do not wish to keep substantial balances in the savings bank account.
CURRENT DEPOSIT ACCOUNT
Q. WHAT DO YOU MEAN BY CURRENT ACCOUNT?
A current account is a running and active account which may be operated upon any number of times during a working
day. There is no restriction on the number and the amount of withdrawals from a current account. It suits the
requirements of big businessman, joint stock companies, institutions, public authorities and public corporations etc.
Q.WHAT ARE THE FEATURE OF CURRENT ACCOUNT?
 The basic objective of current account is to facilitate the handing of cash dealings and reducing risks involved in it.
 Current accounts do not carry any interest on the amounts of deposit
 Most banks charges incidental charges on such accounts which depend upon the balance kept.
 Cheques book facility can be availed of by all the current account holders but only a few savings bank deposit
account holders can avail this facility.
 Third party cheques can be collected only in current account
 Overdraft facilities are available only to current account holders.
Q. WHAT ARE ADVANTAGES TO THE CUSTOMER OF HAVING A CURRENT ACCOUNT?
As cash, cheques and draft are deposited in the bank’s account they will be perfectly safe
The customers can make his payments more conveniently. He need not count each out the time making
payments. This not only reduce errors but saves time
Payment to creditors situated at distant places is facilitated
Collection of cheques drawn on banks situated outside the place of business becomes easier.
The paid cheque forms at the bank, serves as a receipt. It can be referred to in case of dispute
Current account can be transferred from on branch to another at the nearest of the account holder
Nomination facilities as available for current account opened within individual and joint names depositors
Standing institution for remittance such as insurance premium, subscription for clubs etc will he carries
out by his bank subject to levy of service charges in force.
FIXED DEPOSIT ACCOUNT
Q. WHAT DO YOU MEAN BY/NOTE ON FIXED ACCOUNT?
The deposits with the bank for a fixed period which is specified at the time of making the deposit. A fixed deposit is
repayable on the expiry of a specified period, chosen by the depositor to suit his purpose and to enable him to get back the
money as and when he needs it. Items regarding this can be listed as
Opening of Fixed Deposit Account
To open this account no introduction is required. The depositor required to till in an application giving the name and
specimen signature.
Fixed Deposit Receipt
Banker issues fixed deposit receipt which contains the rate of interest and the date on which the deposit will fall do for
payment
Payment of Interest
Payment of interest usually paid on fixed deposit account but banker may pay interest to depositor every 3 or 6 months or
credit the money of interest to his savings or current account to the principal amount at his request.
Advances against Fixed Deposit Receipt
The banker supposed to grant 75 % of deposit as a loan against fixed deposit and the rate of interest will be
 2% higher than the interest rate payable on fixed deposit if the receipt is in the name of the borrower
 15% as minimum in the case of the depositor stands in the name of person other than the borrower
Surrender of Deposit Receipt Before the Maturity Date
Banker is not bound to accept the surrender of deposit receipt before maturity.
Q.EXPLAIN THE PROCEDURE FOR OPENING A CURRENT OR SAVING BANK ACCOUNT.
As such before opening a deposit account the banker should certain general precautions as follows:
1. Application Forms
The request for opening a savings or current account is made on the prescribed form of the bank concerned.
Banks provide separate application forms for opening savings and current accounts for individuals, partnership
firms and companies. The applicant is required to mention his name, occupation, full address, specimen
signature and the name and signature of a referee. The applicant is also required to submit three copies of
his pass port size photograph.
2. Introduction of the Applicant
Before opening a savings or current account in the name of an intending customer, the banker must get true identity of
the former in order to ensure that he is a respectable person. The person so signing gives his account number with
the bank or his address.
3. Specimen Signature
The applicant is required to gives his specimen signature on a prescribed from, generally a card for the purpose of
bank’s record. The specimen signature thus protects the banker against forgery. He should be very careful in
comparing the signature of the customer given on a cheque with his specimen signature.
4. Mandate in Writing
In case customer desires to get his account operated upon by another person, the bank will obtain a mandate
in writing to that effect as well as the specimen signature of the person in whose favour the mandate is given.
5. Opening the Account
After observation of these formalities the bank opens an account is the name of the applicant. The applicant
is required to deposit alternative minimum amount ranging from Rs.500 to Rs.1000 in a savings bank account and
Rs.5000 to Rs.20000 in case of current account. The bank provides the customer with
Pay in Slip Book
The pay customer is supplied with a pay in slip book. The pay in slip is a document which is used for depositing cash
or cheque or till into the account
Cheques Book: The customer is also supplied with a cheque book which leaf is used for the purpose of withdrawing
money.
Pass Book: Pass book is an authenticated copy of the customer’s account with the bank. It is written by the bank
and records all dealing between the bank and the customer.
5. Opening the Account
After observation of these formalities the bank opens an account is the name of the applicant. The applicant
is required to deposit alternative minimum amount ranging from Rs.500 to Rs.1000 in a savings bank account and
Rs.5000 to Rs.20000 in case of current account. The bank provides the customer with
Pay in Slip Book
The pay customer is supplied with a pay in slip book. The pay in slip is a document which is used for depositing cash
or cheque or till into the account
Cheques Book: The customer is also supplied with a cheque book which leaf is used for the purpose of withdrawing
money.
Pass Book: Pass book is an authenticated copy of the customer’s account with the bank. It is written by the bank
and records all dealing between the bank and the customer.
RECURRING DEPOST ACCOUNT Q.WHAT DO YOU MEAN BY RECURRING DEPOSIT ACCOUNT?
Recurring deposit account is generally opened for a purpose to be served at a future date. Generally opened to
finance pre-planned future purposes like, wedding expenses of daughter, purchase of costly items like land, luxury
car, refrigerator or air conditioner, etc.
Recurring deposit account is opened by those who want to save regularly for a certain period of time and earn a
higher interest rate. In recurring deposit account certain fixed amount is accepted every month for a
specified period and the total amount is repaid with interest at the end of the particular fixed period.
Q.WHAT ARE THE NATURE OR FEATURES OF RECURRING DEPOSIT ACCOUNT?
The main objective of recurring deposit account is to develop regular savings habit among the public
The period of deposit is minimum six month and maximum ten years
The rate of interest is higher
No withdrawals are allowed. However the bank may allowed to close the account before the maturity
The bank provides the loan facility. The loan can be to given upto 75% of the amount standing to the credit of the
account holder.
R.WHAT ARE THE ADVANTAGE OF RECURRING DEPOSIT ACCOUNT?
Recurring deposit encourages regular savings habit among the people.
Recurring deposit account holder can get a loan facility.
The bank can utilize such funds for lending to businessmen.
The bank may also invest such funds in profitable areas.
OPENING AND CLOSING OF A BANK ACCOUNT
1.Opening of a Bank Account
1.Opening Savings Bank Account- Normally, a banker will not open an account in favour of a stranger. Any person
who wishes to open a savings account has to be introduced by another savings account holder of the same branch. Even a
minor is allowed to open a saving account.
2.Opening Current Account - In the case of current account, it cannot be opened by any person unless he is
introduced by another current account holder of the branch. The current account holder has to give a letter of introduction in
favour of the person intending to open the current account.
Current account can also be opened when the employee of the bank gives a letter of introduction about the person intending to
open the current account. A third type of letter of introduction can be given by a well reputed person known to the banker.
The contents of letter of introduction must spell out the conduct and character of the personintending to open the current
account. It is more of a fidelity guarantee vouchsafing the character of the person, willing to open the current account. The
banker requires such a letter as the currentaccount holder is not only providing with overdraft and cash credit facility but also
acceptance ofthird party cheques through endorsement.
At present the bank insists not only the introduction but also the photographs in duplicate of persons intending to
open an account; one photograph is affixed in the pass book and the otherin the ledger.
3.Opening Fixed Deposit Account and Recurring Deposit – For opening a fixed deposit account, the banker does not
impose any condition. But he normally accepts fixed deposits from known persons and the fixed deposit account is
opened only by deposit cash or in case of cheques only after realization of cheques. The same rule applies for recurring
1.STEPS IN OPENING ACCOUNTS
Following are the steps involved in the opening of an account for customer, by a banker:
1.Obtaining Letter of Introduction
The first and the foremost step in opening an account for a new customer is to obtain a letter of introduction from
the person who wants to open an account. A letter obtained by a banker from a prospective customer before a banker can open
an account in the name of the prospective customer is known as ‘letter of introduction’. The purpose of obtaining this type of a
letter enables the banker to ascertain the genuineness of applicant. The letter serves as a letter of guarantee of conduct and
genuineness of the applicant obtaining a letter of introduction is an important duty of a modern banker. The information
obtained so helps the banker in confidently providing various services of banking and financial services. The information is
also need to obtain protection from the provisions of the various legislations that are in force from time to time as part of
carrying out the banking business.
1.Benefits/purposes:
Obtaining a proper letter of introduction is beneficial for the banker to know more about the new customer in the
following manner:
Protecting against issuing cheque books to unscrupulous persons.
Facilitating the claiming of overdraft inadvertently granted by the banker.
Protecting against undischarged insolvent.
Helping to provide correct financial information about the customer.
Obtaining statutory protection.
2.Application Form
After obtaining a letter of introduction, the banker supplies an application form accordingto the type of account, which the
customer wants to open The application form contains the rules and regulations of the bank with the terms and conditions of
deposit. The application form is to be filled in and handed over to the banker. The applicant furnishes all details about himself
including the name, nomination, address, etc,.
3.Specimen Signature
After the application form duly filled in, the banker obtains the specimen signature of the new customer in a separate card
called ‘specimen signature’ card. Every customer is expected to have read the rules of business of the bank to confirm
in writing his willingness to comply with and bound by them before his account is opened. He is required to supply his
bankers with one or more specimens of his signature and the bank usually enters these in a signature card
maintained for the purpose. The cards are filed and arranged in an alphabetical order. Each customer’s name must be
4. First Transaction
After obtaining the specimen signature of the new customer, the banker open the ne account by obtaining cash
from the new customer. This marks the first transaction between the new customer and the banker. The relationship
between the banker and customer begins after this transaction.
5. Issue of Cheque, Pay-in –slip, and Passbook
`The banker issues pay-in-slips, cheque book, and passbook immediately aftersuccessfully completing the first transaction
with the customer. The cheque book supplied to the customer usually contains ten or twenty blank forms. These leaves are
used for making payments. A cheque book contains a requisition slip which helps to get a new cheque book.
Pay-in-slip or credit voucher are forms used to pay coins, notes, bills, and cheques to the credit of customer’s
account. Each slip should be signed by the customer or the person who has prepared it on his behalf. For correct
accounting, name, account number, date, and the amount ofthe customer should be clearly mentioned. Customer will receive a
duplicate slip or counterfoil with a signature and the rubber stamp of the banker. It is an acknowledgement to the customer that
cash, etc,. have been duly received. The initials of the cashier in counterfoil donot in any way mean that the cheques, etc., are in
order.
6. PAY-IN-SLIP BOOK
The pay-in-slip book is a book that contains printed slips with perforated counterfoils to be filled in by the depositor or his
agent at the time of depositing cash, cheques, drafts,etc., to thecredit of his account. Usually every bank prescribes and
supplies free of cost separate pay-in- slips for depositing cash and cheques and drafts. The contents of pay-in–slips
include the information regarding the date of deposit, name and account number of the customer, amount to be deposited, etc.
7. ‘DONATIO MORTIS CAUSA’
‘Donatio mortis causa’ means a gift made in contemplation of death. The gift is said to be made by a person who
owns any movable property and who is very ill and believes that he is going to die. This is a peculiar gift as
it has a condition that it will come into operation if only thedonor actually dies of the illness. But if he recovers from
the illness, the gift is to e returned.
8.PRINTED CHEQUE FORMS- MERITS
A cheque drawn on any paper is legally valid. In England, banks honor cheques even they are not drawn on forms
supplied by them. However, when the customer draws a cheque on ordinary slip of paper, the banker must be careful to see
that it is an unconditional order. Otherwise the banker would lose the statutory protection. But it is to be noted that using plain
papers to write cheques will prove risky for the paying banker. Hence, bankers always insists on using printed cheque
forms to enable customers to derive the following advantages:
Easy and convenience of writing a cheque, only the relevant columns need to be filled in.
Avoidance of forgery and hence safety to banker and customer too.
Easy detection of fraud in a printed form is possible.
Ensure that the signature is drawn only according to the requirements of law.
1.Facility of verifying the customer’s name by referring to chequebook issue record.
2.Easy countermanding of cheques by the customer; it is enough if the customer instructs tocountermand the cheque number
to the banker in case of fraud.
3.Counterfoils kept by the customer can be used as a record of payment made.
4.Popularity of name of the company or the individual where the names are printed on thecheque.
3. CUSTOMER IDENTIFICATION AND KYC NORMS
3.1 Meaning
The term KYC for ‘ Know Your Customer’. KYC is used for identifying a customer of banking and a financial
service company such as a Mutual Fund, Pension Fund, etc. KYC essentisally involves making reasonable efforts to
determine true identity and beneficial ownership of accounts, source of funds, the nature of customer’s business etc.
The objective of KYC is to help the banks and financial institutions to manage their risks prudently. KYC is made available
by the RBI by way of guidelines designed to prevent banks from being used, intentionally or
unintentionally by criminal elements for money laundering. There are two important components of KYC, viz.,
Identity and Address. While identity remains the same, the address may change and hence the banks are required to
periodically update their records.
2. Legal Compliance
KYC norms have legal backing of the RBI. RBI has issued guidelines to banks under Section Regulation Act, 1949
and Rule 7 of Prevention of Money – Laundering (Maintenance of Recordsof the Nature and Value of Transactions,
Time for Furnishing Information and Verification and Maintenance of records of the Identity of the Clients of Banking
Companies, Financial Institutions and Intermediaries) Rules, 2005. Any contravention thereof non- compliance will
attract penalties under Banking Regulation Act.
3. Applicability
KYC norms are applicable to a bank customer. For this purpose, a customer includes the following:
 A person or entity that maintains an account and/ or has a business relationship with the bank.
 One on whose behalf the account is maintained i.e., the beneficial owner.
 Beneficiaries of transactions conducted by professional intermediaries such as Stock Brokers, Charted
Accountants, Solicitors etc as permitted under the law.
 Any person or entity connected with a financial transaction which can pose significant reputational of other
risks to the bank, say, wire transfer or issue of a high value demand draft as a single transactions.
 In certain cases such as ‘ no frill accounts’, which are meant providing basic banking facilities to poor and
promote financial inclusion, KYC norms are rather relaxed by banks.
Customer Identification
Customer identification involves identifying the customer and verifying the identity by using reliable,
independent source documents, data or information. Banks have been advised by the RBI to lay down
Customer Identification Procedure to be carried out different stages i.e., while establishing a banking
relationship; carrying out a financial transaction or when the bank has a doubt about the authenticity/veracity or the
adequacy of the previously obtained customers, KYC details about a customer are required to be updated periodically
by the banker.
Banks create a customer profile with details on social/ financial status, nature of business activity,
information about his clients’ business and their location, the purpose and reason for opening the account, the
expected origin of the funds to be used within the relationship and details of occupation/employment, sources of
wealth or income, expected monthly withdrawals etc. In the event of the transactions in the account are bring
consistent with the customer profile already created, bank may ask for is any additional details/ documents as required.
The ultimate objectives is to ensure that the account is not being used for any Money Laundering / Terrorist/ Criminal
activities.
3.4 KYC Documents for Normal Customers
There are two aspects of Customer Identification- One is establishing identity and the other is establishing present
residential address. For establishing identity, the bank requires any authentic document carrying photo of the
customer such as driving license/ passport/pan card/ voter’ card etc. Though these documents carry the residential
address of the customer, it may not be the present address. Therefore, in order to establish the present address of the
customer , in addition to passport/driving license/voter’s card / pan card; the bank may ask for utility bills suchas
Telephone/Electricity bill etc.
A Banker would ask for the following list of documents to establish the proof of identity and residence of a customer.
1. For Individuals
The Banker will ask for copies of any the documents such as Aadhar card, Passport, Pan Card, Voter’s Identity Card,
Driving License, Identity Card and a letter from a recognized public authority or public servant verifying the identity and
residence of the customer to the satisfaction of the bank. This would help the bank to establish the genuineness of the legal
name or any other used by customer. To verify the documents such as Telephone bills, bank account statement, letter from
any recognized public authority, electricity bill, ration card and letter from employer (Subject to satisfaction of the bank).
2. For Companies
In the case of companies, the banker will ask for documents such as Certificate of Incorporation and the Memorandum of
Association and the Articles of Association to verify the name of the company. Similarly, banks will look into the
resolution of the Board of Directors to open an account and identification of those who have authority to operate the
account to determine the principal place of business.
20
4. CLOSING OF BANK ACCOUNTS
1. INTRODUCTION
Similar to the opening of account, banker has to adopt certain procedures while closing ofaccount of a customer. At the time of
closing an account, the banker should ask the customer to surrender the unused cheque along with the passbook.
When a customer expresses his willingness to close the account in writing, the banker should settle his account. Before doing so,
the banker has to arrive at the closing balance which maybe to the credit or debit of the customer. When the balance is to the
credit of the customer, the banker to pay the amount either in person or send the same by a cheque to the address of customer.
In case of undesirable customer, banker will give notice to the customer for closing the account. If the customer evades the request
of the banker, a date will be fixed by the banker to close the account. This will be informed to the customer. On that particular
day, the bank will close the account of the undesirable customer and send the credit balance to the address of the customer.
A bank will chose the account of the customer under the following conditions
 Death of customer
 Insolvency of the customer
 When customer becomes insane
 Garnishee order
 With drawl of power attorney
 When the partnership firm is dissolved
 In case of company, on winding up
 When the customer assigns his entire credit balance
 In the case of associations and institutions, on the passing of resolution as per theBye-laws.
21
1. DEATH OF A CUSTOMER
When a customer dies, the contractual relationship stands terminated and operations in theaccount should be
stopped as soon as the banker receives the notice of death. The banker should also obtain a copy of the death
certificate.If the customer has left a will, the will has to be probated by a court and the amount should be paid to the
executor, or administrator of the will. In the absence of a will, the legal heirs have to obtain a Succession Certificate.
In that case, he should be satisfied through discreet enquiries that the customer died in state and that the legal heirs are
not required to obtain a Succession Certificate for the disposal of other assets left by him. However, the legal heirs
wouldhave to execute a stamped indemnity form along with two sureties each good for the amount involved. The
legal heirs are also required to submit affidavit from an independent person, indicating their heir- ship or submit
an heir- ship certificates.
2. Insolvency of Customer
When a customer is adjusted insolvent by the court, an assignee will appointed by the court. The
account of the customer in the bank will not be operated by the official assignee appointed by the court. Thus, the
account of the customer stands closed and the customer cannot operate the same.
3. When the customer becomes insane:
When the customer is of unsound mind, the account cannot be operated. As soon as the banker comes to know
that the customer is of unsound mind, a doctor will be asked to judge the nature of unsound mind. If it is of permanent
nature, the bank will have to close the account of the customer. But if the unsound mind is of a temporary nature, the
account will be suspended till such time the customer becomes normal. It is on the basis of medical report, the banker
21
4. Garnishee Order:
On the receipt of order from the court, the banker has to close the account of the customer. Such an order is
called Garnishee Order. This order is of two parts. First, the court will ask the banker about the status of the
account which is called Order Nisi. After receiving the explanation from the bank when court sends an
absolute order, it is called Order Absolute. Thereupon, the account will be closed. The court orders the closure of the
account when creditors of the customer convince the court that in spite of sufficient funds at his disposal, the customer
is unwilling to settle their claims.
22
5. Withdrawal of Power of Attorney:
When the customer gives permission to another person to operate his account during the absence of the customer,
such an account is called Power of attorney account. When the customer withdraws such a power, the agent who was
allowed to operate can no longer operate the account.
6. Dissolution of Firm:
When a partnership firm has an account in a bank, it is operated as long as the firm remains in operation. A firm
gets dissolved due to the death, insolvency, insane, etc., of any partner or all the partners. The partners may also agree
to dissolve the firm. In all the above cases, the account of the firm stands closed.
7. Winding up of Company:
A company‘s account will be operated as long as it is in operation. Once the company’s winding up process
commences, the account will operated by liquidator. The company’s accountstands closed.
8. Assignment of credit balance:
When a customer informs the banker to assign his entire credit balance to third party, the account of the customer
gets closed.
5. Closing of Account of Associations and Institution:
The accounts of association, institutions with the bank are operated as per their bye-laws. When they pass a
resolution to close the account with the bank, it will be closed as per the provisions provided in their bylaws.
23
Different Forms Used in Banks:
1. Deposit Challan
A deposit slip orchallan is a form supplied by a bank for a depositor to deposit money in the bank.
24
Let us understand the details to be filled up on the Bank Copy. Most of the same information is
filled up on the left side also.
Note: Since authorization is not required for depositing money, anybody can deposit money
to any account.
25
2. Withdrawal Slips
A Withdrawal Slip is a written order to your bank instructing it to withdraw funds from the account.
Withdrawal slips vary from bank to bank.A customer can withdraw cash using withdrawal silp only at their home
branch.
26
There are some restrictions on the use of withdrawal slip. They are:
oOnly the account holder can use this slip to withdraw the amount for himself.
oThis form cannot be used to make payment to others.
oAccount holder has to produce the pass book.
Since withdrawal slip cannot be used to make payment to others, we use a form called cheque.
3. Cheque
The cheque is a negotiable instrument containing an order to a bank to pay a stated sum from the drawer’s
account, written on a specially printed form. It is signed by the drawer. It can be easily transferred through a mere
hand delivery. There are three parties to the cheque-Drawer (maker of the cheque), Drawee (bank on which
the cheque is drawn), Payee (to whom the amount of the cheque is payable).
27
Q.WHAT ARE THE CHARACTERISTIC / FEATURE OF A CHEQUE?
 It is an instrument in writing
 A cheque is to be drawn only on the branch in which the customer is maintaining an account
 The cheque is must bear the signature of drawer
 The payment order must be for a specific sum of money
 Cheque is meant for payment of money
 It should be written both in words and figures
 Cheque is payable to a specific persons, he must have an account in the bank.
28
30
4. Demand Draft
Demand Drafts is a pre-paid instrument, wherein bank by whom the DD has been made undertakes
responsibility to make full payment. DD is valid for 6 months. Demand draft is accepted where the transfer of money
is guaranteed. As most of the individuals make payments through the RTGS, NEFT, IMPS mechanism demand draft is
losing it’s place. But still application for job, examinations, admissions, services, high amount purchases etc. requires
demand draft rather than cheques.
31
32
5. Difference between Cheque and Demand Draft
32
5. Difference between Cheque and Demand Draft
33
PROS AND CONS OF MULTIPLE BANK ACCOUNTS
PASS BOOK
Meaning of Pass Book
Pass Book is a record of transactions taken place between a banker and customer. It is called “Pass Book” as it passes
between the banker and customer, whenever transactions are taking place. It is a conclusive evidence of banking
transactions. Customer depends on the Pass Book entries to know his account balance and act for further transactions.
Customer should bring the Pass Book to the bank at time of each transaction. Banker will update the Pass Book, by
entering the transaction taken place. Customer has a right to point out the mistake in the Pass Book at any time.
According to Sir John Paget “The proper functioning of a Pass Book is to constitute a conclusive and unquestionable
record of transactions between the banker and the customer and it should be recognized as such”.
Pros Cons
Separate funds More accounts to manage
Track multiple savings goals More minimum balances to maintain
Take advantage of other features and perks More potential fees
Earn bank bonuses Multiple bank logins to remember
Earn higher interest rates
34
FEATURES OF PASS BOOK
Convenient monitoring. Easy record-keeping through a passbook.
Earn and build your savings. Let your savings grow by earning interest.
Curb impulse spending. A great way to help you save and take charge of your finances.
COMMON MISTAKES THAT OCCUR IN THE PASS BOOK
The following are the common mistakes that occur in the Pass Book when bank wrongly debits the Pass Book.
Mistake occurs when any two account holders' names are identical. ...
Mistake occurs in case a person has more than one account in a bank. ...
Sometimes amounts of cheques are wrongly recorded.
TYPES OF ACCOUNT HOLDERS
Accounts of Individuals
Individuals generally open transaction accounts like Savings accounts or Current accounts. It has already been
mentioned that any adult person/individual competent to contract can open an account with any bank after
observing usual formalities provided that the bank is satisfied with his identity, respectability, and desirability. On
many occasions, identity is ascertained by passports, voter identity cards (ID), certificates of ward
commissioners, employer’s certificates, and tax identification numbers (TIN), etc. They are required to furnish a
passport size photograph and an introduction from an acceptable person. Normally individuals – either singly or jointly
– are allowed to open Savings account.
34
Joint Accounts
Accounts are allowed to be opened in two or more names (individuals). Documents required are similar to those
applicable to the individual accounts. In the case of joint accounts, generally ‘Either or Survivorship’
instructions are obtained in the handwriting of the account holders concerned under their signatures. In such cases
account may be operated by any one of them. In the event of the death of either one, the survivor can operate the
account. In the absence of instructions otherwise, in the ‘Either or Survivorship’ declaration, the balance of the
joint, account is payable to the survivor and the legal representatives of the deceased joint account holder if
there is no nomination.
35
Accounts of Sole Proprietorship
The sole proprietorship concerns do not enjoy any legal status. Hence they are treated as individuals by the
banks. While opening a new Current account, the owner is required to produce the trade license, a certificate from
Chamber of Commerce, Tax Identification Number (TIN), and Value Added Tax (VAT) registration number as
may be applicable or similar another document. In the case of savings accounts, documents required are similar to
those applicable to individual accounts.
Accounts of Partnership Firms
A partnership account is allowed to be opened by the banks on the production of trade licenses and other
documents evidencing the partnership business. If it is a registered partnership it is required to produce a
registration number and partnership deed. If not, a standard partnership letter supplied by the banks is required to be
signed by all the partners of the ‘firm’ in their individual capacities. The account may be in the name of the ‘firm’. But
legally the firm does not have any existence. Hence partners jointly and severally have to bear all the responsibilities.
The partnership deed or partnership letter is thoroughly studied by the banks to ascertain the names and
addresses of all the partners and the nature of the business. The names of the partners authorized to operate the
account on behalf of the firm including the authority to draw, endorse and accept bills, mortgage, and sell
property belonging to the firm, etc are also ascertained from the Deed or Letter. Banks also ascertain the
position of the firm on retirement or death or insolvency of any of the partners.
35
IMPORTANT QUESTIONS
1. Give the meaning of banking.
2. What is licensing?
3. Define negotiable instruments.
4. State any two functions of commercial banks.
5. What do you mean by ombudsman?
6. Explain the term inspection.
7. What do you mean by current account?
8. Explain the term fixed deposits.
9. Give the meaning of customers.
10. State the meaning of demand draft.
11. Define crossing.
12. State Bill of Exchange.
13. What is E-Banking?
14. Explain the various kinds of Deposit account.
15. Explain in detail the functions of RBI.
16. Explain the function of commercial bank in detail.
17. Explain the merits and demerits of branch banking
18. What is Negotiable instrument? Explain the types of Negotiable instrument.
19. Define cheque. Explain the salient features of cheque.
20. What are the advantages of E-banking?

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Banking theory law & Practice Unit II.ppt

  • 1. SRM INSTITUTE OF SCIENCE AND TECHNOLOGY DEPARTMENT OF COMMERCE CLASS : I BCOM G & H COURSE CODE : UCM20201J COURSE NAME : BANKING LAW & PRACTICES UNIT II DR.S.MANI
  • 2. RELATIONSHIP BETWEEN BANKER AND CUSTOMER GENERALAND SPECIAL RELATIONSHIP Q. WHAT IS THE RELATIONSHIP BETWEEN BANKER AND CUSTOMER? A banker renders a number of services to his customer. The relationship between them primarily is that of a creditor and a debtor. A banker also acts as an agent or trustee of his customer if the latter entrusts the former with agency or trust work. In such cases, the banker acts as a debtor, an agent and a trustee simultaneously but in relation to the specified business. 1. General Relationship Debtor and Creditor: An essential relationship between a banker and a customer is that of a debtor and a creditor. Where the customer has a credit balance in his account, the customer is the creditor and banker is the debtor. Conversely where the customer has a debit balance in his account, the customer is the debtor and banker is the creditor. Trustee and Beneficiary Trustee and beneficiary is another important type of relationship between the banker and the customer. Where the banker maintains the deposit balances of customers and allows them to use those deposit money as per their wish he is said to be acting as a trustee of the customer. Similarly, where the banker accepts securities and other valuables for safe custody, he becomes the trustee and the customer becomes the beneficiary. Agent and Principal A banker essential acts as an agent of a customer as he carries out the agency functions such as collection of cheques, bill of exchange, payment of insurance premium etc.
  • 3. 2. Special Relationship Assignor and Assignee Whenever a bank gives loan against life insurance policy or book debts or supply bills, the banker is the assignee and the customers is the assignor. Thus assignment is done by customers when they take loan against insurance policy or book debts. Bailer and Bailee The banker will act as a bailee only when goods are entrusted to him for a specific purpose. The customer is the bailer. Any expenses incurred towards malignance of the security or goods have to borne by the customer. But the goods kept in the safe deposit value will not come under bailment. Banker as Agent and Advisor When a banker or sells securities on behalf of his customer and renders other services, he is acting as an agent of his customer. Similarly when he collects cheques, dividends, bill or promissory notes on behalf of his customer the banker is acting as agent of the customer concerned. Pledger and Pledge The relationship between customer and banker can be that of pledger and pledge. This happens when customer pledge (Promises) certain assets or security with the bank in order to get a loan. In this case, the customer becomes the pledger, and the bank becomes the pledge. Under this agreement, the assets or security will remain with the bank until a customer repays the loan. The nature of relationship between the banker and the customer can be explained as follows
  • 4. SPECIAL TYPES OF CUSTOMERS Q.EXPLAIN THE SPECIAL TYPES OF ACCOUNTS & CUSTOMERS. Opening of a bank account is a special type of contract. Some persons like the minors, lunatics and drunkard are not competent to enter into a valid contract. Some person acts on behalf of other have limitation on their power to contract. Institutions like schools, colleges, clubs societies and corporate bodies are the personal customers of a banker. While dealing with these persons, a special case on the part of the banker is necessary. So they are called special type of accounts and the account holders are called as a special type of customers. 1. Minor A person who has not completed 18 years of age is a minor. If a guardian of his person or property is appointed by the court before he competes 18th year. He remains minor till he completes his 21st year. According to the Indian contract act 1872 a minor is not capable of entering into a valid contract and a contract entered into by a minor is void. A contract for the supply of necessaries of life to a minor is how even a valid contract. Nature Guardianship of Minor The guardian of minor may be either (i) a natural guardian or (ii) a testamentary guardian or (iii) a guardian appointed by the court. (i)Natural Guardian According to section 6 of the Hindu minority and guardianship act 1956, in case of a minor boy or an unmarried girl, his/her father and after him the mother shall be the natural guardian. In case of a married girl (minor), her husband shall be the natural guardian. If the father is alive and is not removed from guardianship the mother does not becomes the natural guardian of her minor child.
  • 5. (ii)Testamentary Guardian A Hindu father who is entitled to act the natural guardian of his minor legitimate children may by will appoint a guardian for any of them in respect of the minor’s person or property. Such guardian acts after the death of the father or the mother (iii)Guardian Appointed by Court A guardian may be appointed by the court under the guardian and wards act 1890, but the court shall not be authorized to appoints or declare a guardian of the person of a minor, if his father is alive and is not, in the opinion of a minor. 2. Married Women A married women is competent enter into a valid contract. The banker may therefore, open an account in the name of a married. In case of debt taken by a married woman, her husband shall not be liable except in the following circumstances (i)If the loan is taken with his consent or authority and (ii)If the debt is taken for the supply of necessaries of life to the wife in any other circumstance. The creditor may in that case recover his debt out of the personal assets of the married women
  • 6. 3.Illiterate Persons Illiterate persons cannot sign their names and hence the bankers take their thumb impressions as a substitute for signature and also a copy of their recent photo graph. The application form and the photograph should be attested by an approved witness. For withdrawing money, he must attend personally and affix thumbs impression in the presence of an official of the bank for the purpose of identification 4.Trustees The person who reposes the confidence is called the author of the trust. Trustee is the person in whom the confidence is reposed. The person for whose benefit the trust is formed is called the beneficiary. A trust is usually formed by means of a document called the “trust deed” while opening an account in the names of persons in their capacity as trustees the banker should take the precautions. 5.Executors and Administrators These are persons who are appointed to conduct the affairs of a person after his death. When a person known as testator appoints another person for this purpose through a will he is known as an executor. If the person appointed as executor dies or refuses to act the court appoints a person for the purpose that is known as administrator. Both the executor and the administrator perform the same duties i.e. to realize the assets of the deceased and to pay off his debts. The executor is appointed by the will. His is power and authorities are vested therein. He has to act according to obtain a probate (official confirmation of the will) from the court. The administrator is appointed by the court through a letter of administration and is directed in the absence of the will to settle the
  • 7. 6.Customer’s Attorney A customer may appoint an attorney to deal with his bank account. The power of attorney is a general notice and an authority for his purpose. It is different from an ordinary mandate authorizing a person to operate his bank account. The power of attorney may be either special of general. In the former case the person so authorized get powers in regard to certain matters only e.g. sale or purpose of property etc. in case of the general power of attorney the grantor of such power authorizes the other person generally to act on hi behalf in all matters concerning his business. 7.Clubs, Societies and Charitable Institutions Clubs, societies, charitable and religion institutions, libraries schools etc not engaged in service to the public. These associations may be registered under the societies registration act or the Indian companies act. 8.Pardanashin Women A Pardanashin woman observes complete seclusion in accordance with the custom of her own community. She does not deal with the people other than the members of her own family. As she remains completely secluded a presumption in law exists that (i)Any contract entered into by her might have been subject to undue influence and (ii)The same might not have been made with her free will and with full understanding of what the contract actually means Thus a contract entered into by a pardanaship woman is not a contract free from all defects. The banker should therefore take due precaution in opening an account in the name of a pardanashin women
  • 8. 9. Hindu Family A joint family possesses ancestral properties and carries an ancestral business the ownership of such property passes on to the members of the family according to the Hindu law while dealing with the account of a joint Hindu family and granting it a loan the backer is naturally faced with a difficult task of ascertaining rights of the members of the joint family. 10.Joint Stock Companies The capital of joint stock companies is divided into shares. People who purchase there are the properties of the companies concerned. But a joint stock company is a separate legal entity. It has a separate legal existence apart from that of the shareholders. Although some share holders may die or become banking the company is not dissolved. 11.Partnership A partnership is “the relation between persons who have agreed to share the profits of a business, carried on by all or any of them acting for all”. There are no legal formalities for starting a partnership firm. Registration in not compulsory. The agreement of the partners need not necessarily be in writing. It may be oral or written. There should not be more than 10 partners in a firm doing banking business and not more than 10 people in a firm doing and other kind of business. A partnership has no separate existence of its own from the existence of the partners.
  • 9. 12.Joint Account When an account is opened in the name of two or more persons, who are not partner in a firm or who are not joint trustees. It is called a joint account. When a joint account is opened the banker should obtain comprehensive mandate. The mandate should cover all points because the right to draw cheques conferred upon a person does not automatically confer upon him the right to deal in securities, to contract debts, or to deal in bill of exchange. If one of the joint account holders obtains an overdraft the other does not have any liability. 13.Drunken Persons A drunkard is a person who is under the influence of alcoholic drinks or drugs and stand on the same footing as a lunatic. When customer presents his own cheques when he is drunk, the bank should not make immediate payment. 14.Lunatics lunatic is a person of an unsound mind and hence he is incompetent to enter into a valid contract under the Indian contract act 1872 since a lunatic does not understand what is right and what is wrong and hence a contract entered into by him in void.
  • 11. Q.DESCRIBE THE CLASSIFICATION AND NATURE DEPOSIT ACCOUNT. The banker have introduced with deferent type of accounts can be divided into three types namely. Saving bank deposit account Current deposit account and Fixed deposit account Recurring deposit account SAVING BANK DEPOSIT ACCOUNT Q. WRITE A NOTE ON SAVING BANKS DEPOSIT ACCOUNT. The deposits are mostly of small amount and are accepted by banks to encourage persons of small means of savings. Frequent withdrawals are not allowed and interest is generally allowed on monthly balance. The cheque facility is also available in case the depositors agree to maintain a minimum balance. Q. WHAT ARE THE FEATURES OF SAVING BANK DEPOSIT ACCOUNT? These accounts are intended to cater of the requirement of low income and middle class families who are having regular income. The banks mop up the saving of people through the savings bank account. That is the basic objective of saving bank accounts is developing the savings habit among people. Any person can open a savings bank account with as little as rupees Payment of interest: savings bank balances carry some interest. At present interest allowed on these accounts in 45 %. This is more attractive than the current account where virtually no interest is paid.
  • 12. Restrictions on withdrawals: in pursuance of the objective of the savings bank account, bank imposes restriction on the right of the depositor to withdraw money within a given period If the banker is satisfied the customer can get the use of cheque book facility Accounts can be opened in the individual or joint names of depositors. Accounts can also be opened and operated by minors, provided they have completed 14 years of age and have the power of understanding Savings bank accounts can be transferred from one branch to another at the request of the account holder The minimum balance to be maintained in an ordinary saving bank account is Rs.250/- in accounts where cheque books are issued minimum balance of Rs.500/-. Q. WHAT ARE THE LIMITATION OF SAVINGS BANK ACCOUNTS? Restrictions on withdrawals: The banks restrict the number of withdrawals in any savings bank account. Banks do not accept cheques or other instruments payable to third parties for collection in saving bank account When the cheque book facilities is not provided bank is on the personal appearance of the customer for withdrawal of funds from savings bank account. That part, pass books must accompany the pay order. This procedure causes inconvenience of the busy customers More over banks do not wish to keep substantial balances in the savings bank account.
  • 13. CURRENT DEPOSIT ACCOUNT Q. WHAT DO YOU MEAN BY CURRENT ACCOUNT? A current account is a running and active account which may be operated upon any number of times during a working day. There is no restriction on the number and the amount of withdrawals from a current account. It suits the requirements of big businessman, joint stock companies, institutions, public authorities and public corporations etc. Q.WHAT ARE THE FEATURE OF CURRENT ACCOUNT?  The basic objective of current account is to facilitate the handing of cash dealings and reducing risks involved in it.  Current accounts do not carry any interest on the amounts of deposit  Most banks charges incidental charges on such accounts which depend upon the balance kept.  Cheques book facility can be availed of by all the current account holders but only a few savings bank deposit account holders can avail this facility.  Third party cheques can be collected only in current account  Overdraft facilities are available only to current account holders. Q. WHAT ARE ADVANTAGES TO THE CUSTOMER OF HAVING A CURRENT ACCOUNT? As cash, cheques and draft are deposited in the bank’s account they will be perfectly safe The customers can make his payments more conveniently. He need not count each out the time making payments. This not only reduce errors but saves time Payment to creditors situated at distant places is facilitated
  • 14. Collection of cheques drawn on banks situated outside the place of business becomes easier. The paid cheque forms at the bank, serves as a receipt. It can be referred to in case of dispute Current account can be transferred from on branch to another at the nearest of the account holder Nomination facilities as available for current account opened within individual and joint names depositors Standing institution for remittance such as insurance premium, subscription for clubs etc will he carries out by his bank subject to levy of service charges in force.
  • 15. FIXED DEPOSIT ACCOUNT Q. WHAT DO YOU MEAN BY/NOTE ON FIXED ACCOUNT? The deposits with the bank for a fixed period which is specified at the time of making the deposit. A fixed deposit is repayable on the expiry of a specified period, chosen by the depositor to suit his purpose and to enable him to get back the money as and when he needs it. Items regarding this can be listed as Opening of Fixed Deposit Account To open this account no introduction is required. The depositor required to till in an application giving the name and specimen signature. Fixed Deposit Receipt Banker issues fixed deposit receipt which contains the rate of interest and the date on which the deposit will fall do for payment Payment of Interest Payment of interest usually paid on fixed deposit account but banker may pay interest to depositor every 3 or 6 months or credit the money of interest to his savings or current account to the principal amount at his request. Advances against Fixed Deposit Receipt The banker supposed to grant 75 % of deposit as a loan against fixed deposit and the rate of interest will be  2% higher than the interest rate payable on fixed deposit if the receipt is in the name of the borrower  15% as minimum in the case of the depositor stands in the name of person other than the borrower Surrender of Deposit Receipt Before the Maturity Date Banker is not bound to accept the surrender of deposit receipt before maturity.
  • 16. Q.EXPLAIN THE PROCEDURE FOR OPENING A CURRENT OR SAVING BANK ACCOUNT. As such before opening a deposit account the banker should certain general precautions as follows: 1. Application Forms The request for opening a savings or current account is made on the prescribed form of the bank concerned. Banks provide separate application forms for opening savings and current accounts for individuals, partnership firms and companies. The applicant is required to mention his name, occupation, full address, specimen signature and the name and signature of a referee. The applicant is also required to submit three copies of his pass port size photograph. 2. Introduction of the Applicant Before opening a savings or current account in the name of an intending customer, the banker must get true identity of the former in order to ensure that he is a respectable person. The person so signing gives his account number with the bank or his address. 3. Specimen Signature The applicant is required to gives his specimen signature on a prescribed from, generally a card for the purpose of bank’s record. The specimen signature thus protects the banker against forgery. He should be very careful in comparing the signature of the customer given on a cheque with his specimen signature. 4. Mandate in Writing In case customer desires to get his account operated upon by another person, the bank will obtain a mandate in writing to that effect as well as the specimen signature of the person in whose favour the mandate is given.
  • 17. 5. Opening the Account After observation of these formalities the bank opens an account is the name of the applicant. The applicant is required to deposit alternative minimum amount ranging from Rs.500 to Rs.1000 in a savings bank account and Rs.5000 to Rs.20000 in case of current account. The bank provides the customer with Pay in Slip Book The pay customer is supplied with a pay in slip book. The pay in slip is a document which is used for depositing cash or cheque or till into the account Cheques Book: The customer is also supplied with a cheque book which leaf is used for the purpose of withdrawing money. Pass Book: Pass book is an authenticated copy of the customer’s account with the bank. It is written by the bank and records all dealing between the bank and the customer.
  • 18. 5. Opening the Account After observation of these formalities the bank opens an account is the name of the applicant. The applicant is required to deposit alternative minimum amount ranging from Rs.500 to Rs.1000 in a savings bank account and Rs.5000 to Rs.20000 in case of current account. The bank provides the customer with Pay in Slip Book The pay customer is supplied with a pay in slip book. The pay in slip is a document which is used for depositing cash or cheque or till into the account Cheques Book: The customer is also supplied with a cheque book which leaf is used for the purpose of withdrawing money. Pass Book: Pass book is an authenticated copy of the customer’s account with the bank. It is written by the bank and records all dealing between the bank and the customer.
  • 19. RECURRING DEPOST ACCOUNT Q.WHAT DO YOU MEAN BY RECURRING DEPOSIT ACCOUNT? Recurring deposit account is generally opened for a purpose to be served at a future date. Generally opened to finance pre-planned future purposes like, wedding expenses of daughter, purchase of costly items like land, luxury car, refrigerator or air conditioner, etc. Recurring deposit account is opened by those who want to save regularly for a certain period of time and earn a higher interest rate. In recurring deposit account certain fixed amount is accepted every month for a specified period and the total amount is repaid with interest at the end of the particular fixed period. Q.WHAT ARE THE NATURE OR FEATURES OF RECURRING DEPOSIT ACCOUNT? The main objective of recurring deposit account is to develop regular savings habit among the public The period of deposit is minimum six month and maximum ten years The rate of interest is higher No withdrawals are allowed. However the bank may allowed to close the account before the maturity The bank provides the loan facility. The loan can be to given upto 75% of the amount standing to the credit of the account holder. R.WHAT ARE THE ADVANTAGE OF RECURRING DEPOSIT ACCOUNT? Recurring deposit encourages regular savings habit among the people. Recurring deposit account holder can get a loan facility. The bank can utilize such funds for lending to businessmen. The bank may also invest such funds in profitable areas.
  • 20. OPENING AND CLOSING OF A BANK ACCOUNT 1.Opening of a Bank Account 1.Opening Savings Bank Account- Normally, a banker will not open an account in favour of a stranger. Any person who wishes to open a savings account has to be introduced by another savings account holder of the same branch. Even a minor is allowed to open a saving account. 2.Opening Current Account - In the case of current account, it cannot be opened by any person unless he is introduced by another current account holder of the branch. The current account holder has to give a letter of introduction in favour of the person intending to open the current account. Current account can also be opened when the employee of the bank gives a letter of introduction about the person intending to open the current account. A third type of letter of introduction can be given by a well reputed person known to the banker. The contents of letter of introduction must spell out the conduct and character of the personintending to open the current account. It is more of a fidelity guarantee vouchsafing the character of the person, willing to open the current account. The banker requires such a letter as the currentaccount holder is not only providing with overdraft and cash credit facility but also acceptance ofthird party cheques through endorsement. At present the bank insists not only the introduction but also the photographs in duplicate of persons intending to open an account; one photograph is affixed in the pass book and the otherin the ledger. 3.Opening Fixed Deposit Account and Recurring Deposit – For opening a fixed deposit account, the banker does not impose any condition. But he normally accepts fixed deposits from known persons and the fixed deposit account is opened only by deposit cash or in case of cheques only after realization of cheques. The same rule applies for recurring
  • 21. 1.STEPS IN OPENING ACCOUNTS Following are the steps involved in the opening of an account for customer, by a banker: 1.Obtaining Letter of Introduction The first and the foremost step in opening an account for a new customer is to obtain a letter of introduction from the person who wants to open an account. A letter obtained by a banker from a prospective customer before a banker can open an account in the name of the prospective customer is known as ‘letter of introduction’. The purpose of obtaining this type of a letter enables the banker to ascertain the genuineness of applicant. The letter serves as a letter of guarantee of conduct and genuineness of the applicant obtaining a letter of introduction is an important duty of a modern banker. The information obtained so helps the banker in confidently providing various services of banking and financial services. The information is also need to obtain protection from the provisions of the various legislations that are in force from time to time as part of carrying out the banking business.
  • 22. 1.Benefits/purposes: Obtaining a proper letter of introduction is beneficial for the banker to know more about the new customer in the following manner: Protecting against issuing cheque books to unscrupulous persons. Facilitating the claiming of overdraft inadvertently granted by the banker. Protecting against undischarged insolvent. Helping to provide correct financial information about the customer. Obtaining statutory protection. 2.Application Form After obtaining a letter of introduction, the banker supplies an application form accordingto the type of account, which the customer wants to open The application form contains the rules and regulations of the bank with the terms and conditions of deposit. The application form is to be filled in and handed over to the banker. The applicant furnishes all details about himself including the name, nomination, address, etc,. 3.Specimen Signature After the application form duly filled in, the banker obtains the specimen signature of the new customer in a separate card called ‘specimen signature’ card. Every customer is expected to have read the rules of business of the bank to confirm in writing his willingness to comply with and bound by them before his account is opened. He is required to supply his bankers with one or more specimens of his signature and the bank usually enters these in a signature card maintained for the purpose. The cards are filed and arranged in an alphabetical order. Each customer’s name must be
  • 23. 4. First Transaction After obtaining the specimen signature of the new customer, the banker open the ne account by obtaining cash from the new customer. This marks the first transaction between the new customer and the banker. The relationship between the banker and customer begins after this transaction. 5. Issue of Cheque, Pay-in –slip, and Passbook `The banker issues pay-in-slips, cheque book, and passbook immediately aftersuccessfully completing the first transaction with the customer. The cheque book supplied to the customer usually contains ten or twenty blank forms. These leaves are used for making payments. A cheque book contains a requisition slip which helps to get a new cheque book. Pay-in-slip or credit voucher are forms used to pay coins, notes, bills, and cheques to the credit of customer’s account. Each slip should be signed by the customer or the person who has prepared it on his behalf. For correct accounting, name, account number, date, and the amount ofthe customer should be clearly mentioned. Customer will receive a duplicate slip or counterfoil with a signature and the rubber stamp of the banker. It is an acknowledgement to the customer that cash, etc,. have been duly received. The initials of the cashier in counterfoil donot in any way mean that the cheques, etc., are in order. 6. PAY-IN-SLIP BOOK The pay-in-slip book is a book that contains printed slips with perforated counterfoils to be filled in by the depositor or his agent at the time of depositing cash, cheques, drafts,etc., to thecredit of his account. Usually every bank prescribes and supplies free of cost separate pay-in- slips for depositing cash and cheques and drafts. The contents of pay-in–slips include the information regarding the date of deposit, name and account number of the customer, amount to be deposited, etc.
  • 24. 7. ‘DONATIO MORTIS CAUSA’ ‘Donatio mortis causa’ means a gift made in contemplation of death. The gift is said to be made by a person who owns any movable property and who is very ill and believes that he is going to die. This is a peculiar gift as it has a condition that it will come into operation if only thedonor actually dies of the illness. But if he recovers from the illness, the gift is to e returned.
  • 25. 8.PRINTED CHEQUE FORMS- MERITS A cheque drawn on any paper is legally valid. In England, banks honor cheques even they are not drawn on forms supplied by them. However, when the customer draws a cheque on ordinary slip of paper, the banker must be careful to see that it is an unconditional order. Otherwise the banker would lose the statutory protection. But it is to be noted that using plain papers to write cheques will prove risky for the paying banker. Hence, bankers always insists on using printed cheque forms to enable customers to derive the following advantages: Easy and convenience of writing a cheque, only the relevant columns need to be filled in. Avoidance of forgery and hence safety to banker and customer too. Easy detection of fraud in a printed form is possible. Ensure that the signature is drawn only according to the requirements of law. 1.Facility of verifying the customer’s name by referring to chequebook issue record. 2.Easy countermanding of cheques by the customer; it is enough if the customer instructs tocountermand the cheque number to the banker in case of fraud. 3.Counterfoils kept by the customer can be used as a record of payment made. 4.Popularity of name of the company or the individual where the names are printed on thecheque.
  • 26. 3. CUSTOMER IDENTIFICATION AND KYC NORMS 3.1 Meaning The term KYC for ‘ Know Your Customer’. KYC is used for identifying a customer of banking and a financial service company such as a Mutual Fund, Pension Fund, etc. KYC essentisally involves making reasonable efforts to determine true identity and beneficial ownership of accounts, source of funds, the nature of customer’s business etc. The objective of KYC is to help the banks and financial institutions to manage their risks prudently. KYC is made available by the RBI by way of guidelines designed to prevent banks from being used, intentionally or unintentionally by criminal elements for money laundering. There are two important components of KYC, viz., Identity and Address. While identity remains the same, the address may change and hence the banks are required to periodically update their records.
  • 27. 2. Legal Compliance KYC norms have legal backing of the RBI. RBI has issued guidelines to banks under Section Regulation Act, 1949 and Rule 7 of Prevention of Money – Laundering (Maintenance of Recordsof the Nature and Value of Transactions, Time for Furnishing Information and Verification and Maintenance of records of the Identity of the Clients of Banking Companies, Financial Institutions and Intermediaries) Rules, 2005. Any contravention thereof non- compliance will attract penalties under Banking Regulation Act. 3. Applicability KYC norms are applicable to a bank customer. For this purpose, a customer includes the following:  A person or entity that maintains an account and/ or has a business relationship with the bank.  One on whose behalf the account is maintained i.e., the beneficial owner.  Beneficiaries of transactions conducted by professional intermediaries such as Stock Brokers, Charted Accountants, Solicitors etc as permitted under the law.  Any person or entity connected with a financial transaction which can pose significant reputational of other risks to the bank, say, wire transfer or issue of a high value demand draft as a single transactions.  In certain cases such as ‘ no frill accounts’, which are meant providing basic banking facilities to poor and promote financial inclusion, KYC norms are rather relaxed by banks.
  • 28. Customer Identification Customer identification involves identifying the customer and verifying the identity by using reliable, independent source documents, data or information. Banks have been advised by the RBI to lay down Customer Identification Procedure to be carried out different stages i.e., while establishing a banking relationship; carrying out a financial transaction or when the bank has a doubt about the authenticity/veracity or the adequacy of the previously obtained customers, KYC details about a customer are required to be updated periodically by the banker. Banks create a customer profile with details on social/ financial status, nature of business activity, information about his clients’ business and their location, the purpose and reason for opening the account, the expected origin of the funds to be used within the relationship and details of occupation/employment, sources of wealth or income, expected monthly withdrawals etc. In the event of the transactions in the account are bring consistent with the customer profile already created, bank may ask for is any additional details/ documents as required. The ultimate objectives is to ensure that the account is not being used for any Money Laundering / Terrorist/ Criminal activities.
  • 29. 3.4 KYC Documents for Normal Customers There are two aspects of Customer Identification- One is establishing identity and the other is establishing present residential address. For establishing identity, the bank requires any authentic document carrying photo of the customer such as driving license/ passport/pan card/ voter’ card etc. Though these documents carry the residential address of the customer, it may not be the present address. Therefore, in order to establish the present address of the customer , in addition to passport/driving license/voter’s card / pan card; the bank may ask for utility bills suchas Telephone/Electricity bill etc. A Banker would ask for the following list of documents to establish the proof of identity and residence of a customer. 1. For Individuals The Banker will ask for copies of any the documents such as Aadhar card, Passport, Pan Card, Voter’s Identity Card, Driving License, Identity Card and a letter from a recognized public authority or public servant verifying the identity and residence of the customer to the satisfaction of the bank. This would help the bank to establish the genuineness of the legal name or any other used by customer. To verify the documents such as Telephone bills, bank account statement, letter from any recognized public authority, electricity bill, ration card and letter from employer (Subject to satisfaction of the bank). 2. For Companies In the case of companies, the banker will ask for documents such as Certificate of Incorporation and the Memorandum of Association and the Articles of Association to verify the name of the company. Similarly, banks will look into the resolution of the Board of Directors to open an account and identification of those who have authority to operate the account to determine the principal place of business.
  • 30. 20 4. CLOSING OF BANK ACCOUNTS 1. INTRODUCTION Similar to the opening of account, banker has to adopt certain procedures while closing ofaccount of a customer. At the time of closing an account, the banker should ask the customer to surrender the unused cheque along with the passbook. When a customer expresses his willingness to close the account in writing, the banker should settle his account. Before doing so, the banker has to arrive at the closing balance which maybe to the credit or debit of the customer. When the balance is to the credit of the customer, the banker to pay the amount either in person or send the same by a cheque to the address of customer. In case of undesirable customer, banker will give notice to the customer for closing the account. If the customer evades the request of the banker, a date will be fixed by the banker to close the account. This will be informed to the customer. On that particular day, the bank will close the account of the undesirable customer and send the credit balance to the address of the customer. A bank will chose the account of the customer under the following conditions  Death of customer  Insolvency of the customer  When customer becomes insane  Garnishee order  With drawl of power attorney  When the partnership firm is dissolved  In case of company, on winding up  When the customer assigns his entire credit balance  In the case of associations and institutions, on the passing of resolution as per theBye-laws.
  • 31. 21 1. DEATH OF A CUSTOMER When a customer dies, the contractual relationship stands terminated and operations in theaccount should be stopped as soon as the banker receives the notice of death. The banker should also obtain a copy of the death certificate.If the customer has left a will, the will has to be probated by a court and the amount should be paid to the executor, or administrator of the will. In the absence of a will, the legal heirs have to obtain a Succession Certificate. In that case, he should be satisfied through discreet enquiries that the customer died in state and that the legal heirs are not required to obtain a Succession Certificate for the disposal of other assets left by him. However, the legal heirs wouldhave to execute a stamped indemnity form along with two sureties each good for the amount involved. The legal heirs are also required to submit affidavit from an independent person, indicating their heir- ship or submit an heir- ship certificates. 2. Insolvency of Customer When a customer is adjusted insolvent by the court, an assignee will appointed by the court. The account of the customer in the bank will not be operated by the official assignee appointed by the court. Thus, the account of the customer stands closed and the customer cannot operate the same. 3. When the customer becomes insane: When the customer is of unsound mind, the account cannot be operated. As soon as the banker comes to know that the customer is of unsound mind, a doctor will be asked to judge the nature of unsound mind. If it is of permanent nature, the bank will have to close the account of the customer. But if the unsound mind is of a temporary nature, the account will be suspended till such time the customer becomes normal. It is on the basis of medical report, the banker
  • 32. 21 4. Garnishee Order: On the receipt of order from the court, the banker has to close the account of the customer. Such an order is called Garnishee Order. This order is of two parts. First, the court will ask the banker about the status of the account which is called Order Nisi. After receiving the explanation from the bank when court sends an absolute order, it is called Order Absolute. Thereupon, the account will be closed. The court orders the closure of the account when creditors of the customer convince the court that in spite of sufficient funds at his disposal, the customer is unwilling to settle their claims.
  • 33. 22 5. Withdrawal of Power of Attorney: When the customer gives permission to another person to operate his account during the absence of the customer, such an account is called Power of attorney account. When the customer withdraws such a power, the agent who was allowed to operate can no longer operate the account. 6. Dissolution of Firm: When a partnership firm has an account in a bank, it is operated as long as the firm remains in operation. A firm gets dissolved due to the death, insolvency, insane, etc., of any partner or all the partners. The partners may also agree to dissolve the firm. In all the above cases, the account of the firm stands closed. 7. Winding up of Company: A company‘s account will be operated as long as it is in operation. Once the company’s winding up process commences, the account will operated by liquidator. The company’s accountstands closed. 8. Assignment of credit balance: When a customer informs the banker to assign his entire credit balance to third party, the account of the customer gets closed. 5. Closing of Account of Associations and Institution: The accounts of association, institutions with the bank are operated as per their bye-laws. When they pass a resolution to close the account with the bank, it will be closed as per the provisions provided in their bylaws.
  • 34. 23 Different Forms Used in Banks: 1. Deposit Challan A deposit slip orchallan is a form supplied by a bank for a depositor to deposit money in the bank.
  • 35. 24 Let us understand the details to be filled up on the Bank Copy. Most of the same information is filled up on the left side also. Note: Since authorization is not required for depositing money, anybody can deposit money to any account.
  • 36. 25 2. Withdrawal Slips A Withdrawal Slip is a written order to your bank instructing it to withdraw funds from the account. Withdrawal slips vary from bank to bank.A customer can withdraw cash using withdrawal silp only at their home branch.
  • 37. 26 There are some restrictions on the use of withdrawal slip. They are: oOnly the account holder can use this slip to withdraw the amount for himself. oThis form cannot be used to make payment to others. oAccount holder has to produce the pass book. Since withdrawal slip cannot be used to make payment to others, we use a form called cheque. 3. Cheque The cheque is a negotiable instrument containing an order to a bank to pay a stated sum from the drawer’s account, written on a specially printed form. It is signed by the drawer. It can be easily transferred through a mere hand delivery. There are three parties to the cheque-Drawer (maker of the cheque), Drawee (bank on which the cheque is drawn), Payee (to whom the amount of the cheque is payable).
  • 38. 27 Q.WHAT ARE THE CHARACTERISTIC / FEATURE OF A CHEQUE?  It is an instrument in writing  A cheque is to be drawn only on the branch in which the customer is maintaining an account  The cheque is must bear the signature of drawer  The payment order must be for a specific sum of money  Cheque is meant for payment of money  It should be written both in words and figures  Cheque is payable to a specific persons, he must have an account in the bank.
  • 39. 28
  • 40. 30 4. Demand Draft Demand Drafts is a pre-paid instrument, wherein bank by whom the DD has been made undertakes responsibility to make full payment. DD is valid for 6 months. Demand draft is accepted where the transfer of money is guaranteed. As most of the individuals make payments through the RTGS, NEFT, IMPS mechanism demand draft is losing it’s place. But still application for job, examinations, admissions, services, high amount purchases etc. requires demand draft rather than cheques.
  • 41. 31
  • 42. 32 5. Difference between Cheque and Demand Draft
  • 43. 32 5. Difference between Cheque and Demand Draft
  • 44. 33 PROS AND CONS OF MULTIPLE BANK ACCOUNTS PASS BOOK Meaning of Pass Book Pass Book is a record of transactions taken place between a banker and customer. It is called “Pass Book” as it passes between the banker and customer, whenever transactions are taking place. It is a conclusive evidence of banking transactions. Customer depends on the Pass Book entries to know his account balance and act for further transactions. Customer should bring the Pass Book to the bank at time of each transaction. Banker will update the Pass Book, by entering the transaction taken place. Customer has a right to point out the mistake in the Pass Book at any time. According to Sir John Paget “The proper functioning of a Pass Book is to constitute a conclusive and unquestionable record of transactions between the banker and the customer and it should be recognized as such”. Pros Cons Separate funds More accounts to manage Track multiple savings goals More minimum balances to maintain Take advantage of other features and perks More potential fees Earn bank bonuses Multiple bank logins to remember Earn higher interest rates
  • 45. 34 FEATURES OF PASS BOOK Convenient monitoring. Easy record-keeping through a passbook. Earn and build your savings. Let your savings grow by earning interest. Curb impulse spending. A great way to help you save and take charge of your finances. COMMON MISTAKES THAT OCCUR IN THE PASS BOOK The following are the common mistakes that occur in the Pass Book when bank wrongly debits the Pass Book. Mistake occurs when any two account holders' names are identical. ... Mistake occurs in case a person has more than one account in a bank. ... Sometimes amounts of cheques are wrongly recorded. TYPES OF ACCOUNT HOLDERS Accounts of Individuals Individuals generally open transaction accounts like Savings accounts or Current accounts. It has already been mentioned that any adult person/individual competent to contract can open an account with any bank after observing usual formalities provided that the bank is satisfied with his identity, respectability, and desirability. On many occasions, identity is ascertained by passports, voter identity cards (ID), certificates of ward commissioners, employer’s certificates, and tax identification numbers (TIN), etc. They are required to furnish a passport size photograph and an introduction from an acceptable person. Normally individuals – either singly or jointly – are allowed to open Savings account.
  • 46. 34 Joint Accounts Accounts are allowed to be opened in two or more names (individuals). Documents required are similar to those applicable to the individual accounts. In the case of joint accounts, generally ‘Either or Survivorship’ instructions are obtained in the handwriting of the account holders concerned under their signatures. In such cases account may be operated by any one of them. In the event of the death of either one, the survivor can operate the account. In the absence of instructions otherwise, in the ‘Either or Survivorship’ declaration, the balance of the joint, account is payable to the survivor and the legal representatives of the deceased joint account holder if there is no nomination.
  • 47. 35 Accounts of Sole Proprietorship The sole proprietorship concerns do not enjoy any legal status. Hence they are treated as individuals by the banks. While opening a new Current account, the owner is required to produce the trade license, a certificate from Chamber of Commerce, Tax Identification Number (TIN), and Value Added Tax (VAT) registration number as may be applicable or similar another document. In the case of savings accounts, documents required are similar to those applicable to individual accounts. Accounts of Partnership Firms A partnership account is allowed to be opened by the banks on the production of trade licenses and other documents evidencing the partnership business. If it is a registered partnership it is required to produce a registration number and partnership deed. If not, a standard partnership letter supplied by the banks is required to be signed by all the partners of the ‘firm’ in their individual capacities. The account may be in the name of the ‘firm’. But legally the firm does not have any existence. Hence partners jointly and severally have to bear all the responsibilities. The partnership deed or partnership letter is thoroughly studied by the banks to ascertain the names and addresses of all the partners and the nature of the business. The names of the partners authorized to operate the account on behalf of the firm including the authority to draw, endorse and accept bills, mortgage, and sell property belonging to the firm, etc are also ascertained from the Deed or Letter. Banks also ascertain the position of the firm on retirement or death or insolvency of any of the partners.
  • 48. 35 IMPORTANT QUESTIONS 1. Give the meaning of banking. 2. What is licensing? 3. Define negotiable instruments. 4. State any two functions of commercial banks. 5. What do you mean by ombudsman? 6. Explain the term inspection. 7. What do you mean by current account? 8. Explain the term fixed deposits. 9. Give the meaning of customers. 10. State the meaning of demand draft. 11. Define crossing. 12. State Bill of Exchange. 13. What is E-Banking? 14. Explain the various kinds of Deposit account. 15. Explain in detail the functions of RBI. 16. Explain the function of commercial bank in detail. 17. Explain the merits and demerits of branch banking 18. What is Negotiable instrument? Explain the types of Negotiable instrument. 19. Define cheque. Explain the salient features of cheque. 20. What are the advantages of E-banking?