Documente Academic
Documente Profesional
Documente Cultură
SEM:IV/EVEN
II B.COM
HOURS : 6
UNIT I
BANK MEANING
Band have become a part and parcel of our life. Banks cater to the needs of
agriculturists, industrialists, traders and be all the other sections of the society. They
accelerate the growth of economy.
The word, Bank is said to have derived from the French word Banco , or
Bancus or Banc or Banque which means a bench .
According to Banking Regulation Act,-1949,therm banking means accepting for
the purpose of lending or investment of deposits of money from the public repayable of
demand (or) order (or) other ways.
BANKER MEANING AND DEFINITION:
A pe rson who in doing the banking business is called a banker. But, it is not at all
easy to define the term banker precisely because a banker performs multifarious
functions.
Bill of Exchange act of 1882 defines,
the term banker thus, banker includes a body of persons whether
incorporated or not who carry on the business of banking
SECTION 3 of the Negotiable instrument act defines that the term banker
includes a person or a corporation or a company acting as a banker
CUSTOMER MEANING AND DEFINITION:
There is no exact definition or meaning for customer. But Sir. John Paget
defines that, to constitute a customer there must be some recognizable course or habit
of dealing in nature of regular banking business.
The following are the re quisites to constitute a person an a custome r,
He must have some sort of an account
Even a single transaction may constitute him as a customer
Frequency of transaction is anticipated but not insisted upon.
The dealings must be of a banking nature
RELATIONSHIP BETWEEN BANKER AND CUSTOMER:
The relationship fails under two broad categories, namely
1. General relationship:
I)
II)
Primary Relationship
Subsidiary Relationship
The following are the aspects in which the relationship between banker and customer
differs from the ordinary debtors and creditor relationship.
b. Sufficiency of Funds:
There must be sufficient funds of the customer in the hards of the banke r for
honouring the cheques drawn by the former.
c. Applicability of Funds:
The funds in the account must be properly applicable to the payme nt of a
cheque.
d. Proper require ment for payment:
The banker must honour the cheque only when he is duly re quired to pay.
e. No Garnishee of Attachment order:
A banke r may refuse payment on a customer s a/c whe n a Garnishee order
has been issued against that account.
2. Obligation to maintain secrecy of accounts:
The banker has the obligation to maintain secrecy of custome r s account
otherwise customer may to have supper loser. The following circumstances are those the
banker is justified in disclosing secrecy of customer s account.
[i] Legal Necessity:
A banker may disclose the secrecy of customer s account when required by
low.
Fixed Deposit Account. Money in these accounts is deposited for fixed period
of time(say one,two,or five years) and cannot be withdrawn before
the expiry of that period. The rate o inte rest on this account is higher than that
on other types of deposits. The longe r the period, the higher will be the rate of
interest. Fixed deposits are also called time deposits or time liabilities.
(ii)
(iii)
(iv)
(v)
Money at Call. Such loans are very short period loans and can be called back
by the bank at a very short notice of say one day to fourteen days. These loans
are generally made to other banks or financial institutions.
(ii)
(iii)
(iv)
(v)
Term Loans. The banks have also started advancing me dium-term loans. The
maturity period for such loans is more than one year. The amount sanctioned
is either paid or credited to the account of the borrowe r. The interest is
charged on the entire amount of the loan and the loan is repaid either on
maturity or in instalme nts.
3. Credit Creation. A unique function of the bank is to create credit. In fact, credit
creation is the natural outcome of the process of advancing loan as adopted by the
banks. When a bank advances a loan to its customer, it does not lend cash but
opens an account in the borrowe r s name and credits the amount of loan to this
account. Thus, whenever a bank grants a loan, it creates an equal amount of bank
deposit. Creation of such deposits is called credit creation which results in a net
increase in the money stock of the economy. Banks have the ability to create
credit many times more than their deposits and this ability of multiple credit
creation depends upon the cash-reserve ratio of the banks.
4. Promoting Cheque System. Banks also render a very useful medium of exchange
in the form of cheques. Through a cheque, the depositor directs the bankers to
make payment to the payee. Cheque is the most developed credit instrument in the
money market. In the modern business transactions, cheques have become mus h
more convenient method of settling debts than the use of cash.
5. Agency Functions. Banks also perform ce rtain agency functions for and on
behalf of their customers:
(i)
(ii)
(iii)
(ii)
(iii)
(iv)
(v)
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(vi)
(vii)
UNIT - II
DEFINITION OF THE CHEQUE:
Section 6 of the Negotiable Instruments Act defines a cheque as
follows:
A bill of exchange drawn on a specified banker and not
expressed to be payable otherwise than on de mand.
A better unde rstanding of the concept of cheque entails the definition of a Bill of
Exchange, since, a cheque is nothing but a Bill of Exchange.
THE SALIENT FEATURES OF A CHEQUE:
1. Instrument in writing:
A cheque must necessarily be an instrument in writing Oral orders therefore
do not constitute a cheque. The re is no specific rule regarding the writing material to
be used. It may be done by means of a nib, a pencil, a type write r or any other printed
characte r.
2. An unconditional order:
A cheque is an orde r to pay and it is not a request. In the indigenous bill of
exchange, words of courtesy with little monetary implications were generously
employed.
3. On a s pecific banker:
A cheque is always drawn only on a particular banke r. Usually the name
and address of the banker is clearly printed on the cheque leaf itself.
4. Payee to be certain:
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In order that a cheque may be a valid one, it must be made payable to the
order to the order of a certain specified person or to his agent or the bearer thereof.
5. A certain sum of money:
A cheque is usually drawn for a definite sum of money. Indefiniteness has no
place in monetary transactions. Any phrase like less than Rupee One hundred only or
Above rupees two hundred only does not give a clear and concrete idea to the parties
concerned and it will render the cheque invalid.
6. Payable on demand:
A cheque is payable only on de mand. It is not necessary to use the word
on demand as in the case of a demand bill. The cheque is always payable on demand.
7. To be signed by the drawer:
The cheque must be signed by the drawe r, i.e.
the customer. The
drawe r normally puts his signature at the bottom right
hand corner of the
cheque. The signature must be that of the person in whose name the account is kept or
his authorized agent. When the signature differs from the specimen or it is slightly
different, the banker nee not honour the cheque.
PAYING BANKER
Meaning:
The banke r who makes payment of a negotiable instrument is called a
Paying Banker
PRECAUTIONS BY THE PAYING BANKER
While making payme nt of a cheque, the banker has to be extremely
vigilant while handling cheques on a payment basis. No doubt, in the absence of preexisting arrangements between the banker and the custome r that is, in case, the account
of the customer shows a debit balance, the banke r is under n obligation to pay such
cheques. This regularity has to be examined, apart form the sufficiency of funds with
regard to the following:
1. Crossing of the cheque
2. Drawing branch of the bank
3. Presentation of the cheque
4. Proper form of the cheque
5. Drawer s signature
6. Correctness of the amount stated both in words and figures
7. Material alte rations, if any
8. Whether the cheque is mutilated or torn
9. Balance in the customer s account
10. Time of presentation after its is drawn
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The following are some of the important rights and privileges of a holder in due
course:
The defective
title of the previous endorsers will not adversely affect his
rights.
liable to him.
Even the drawe r of a negotiable
instrume nt cannot claim invalidity of
the instrument against him.
His claimcannot be denied on the ground that the payee has no capital to
endorse.
The principle of estoppel is
applicable against the endorser to deny the
capacity of previous parties.
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BASIS OF NEGLIGENCE
i.
ii.
iii.
iv.
Gross negligence
Negligence connected with the immediate collection of cheque
Negligence unde r remote grounds
Contributory negligence
UNIT IV
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TYPES OF CHEQUES:
1. Bearer Cheque:
A cheque payable to a certain person or to the bearer is known as bearer
cheque.
2. Orde r Cheque:
A cheque payable to a certain person or to his order is an order cheque
which can be negotiated by endorsement ( i.e. the transferor should sign his
name)
3. Crossed cheque:
A cheque is known as a crossed cheque when two parallel lines, with or
without the words & co, and company etc. are drawn across the face of the
cheque. A crossed cheque is payable through anothe r bank and not payable over
the counte r.
There are various types of crossing in practice, as given below
a)General crossing:
Where a cheque bears across its face an addition on the words and
company or any abbreviation thereof (& CO) between two parallel transverse
lines or two simple parallel transverse lines with or without the words Not
Negotiable, it is known to be crossed generally.
b)Special Crossing:
Where a cheque bears across its face an addition of the name of a bank
with or without the words Not Negotiable, the cheque is said to be crossed
specially.
c)Restrictive Crossing:
Where a cheque bears across its face such words Account Payee or
A/C Payee only along with general or special crossing it is known as Restrictive
crossing or Account payee crossing.
d)Not Negotiable Crossing:
Where a cheque bears across its face the words Not Negotiable in
addition to a general or special crossing, it is known as Not Negotiable
Crossing.
e)Stale Cheque:
If a cheque is not presented for payme nt within a reasonable time, it
becomes stale or out-of-date cheque.
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f)Mutilated Cheque:
Mutilated cheques are those cheques which have been damaged or
mutilated in course of circulation. Such cheques are not honored by the bankers,
in general, for payment.
CROSSING OF CHEQUES
MEANING OF CROSSING:
Crossing of cheque means drawing two parallel transverse lines on the left hand
top corner of a cheque. Crossing on a cheque is a direction to the paying banker by the
drawer that payment should not be made across the counter. The payment on a crossed
cheque can be collected only through a banke r. The refore, crossing protects the holder
of the cheque and re duces the possibilities of fraud.
OBJECT OF CROSSING:
The main object or purpose of crossing is to ensure that the money should be
trans mitted safely through the cheque and the amount of the cheque should reach the
hands of the rightful owner. In case it is enchased by unauthorized persons, it helps to
detect the parties to whom the amount has been paid. Therefore, crossing, in short,
protects the holder of the cheque and reduces the possibilities of fraud.
PARTIES ELIGIBLE TO CROSS THE CHEQUE:
The following persons are eligible to cross a cheque:
1. Drawer of the cheque
2. Payee of the cheque
3. Holder of the cheque
i)Drawe r:
The drawe r of the cheque can make a general, special or restrictive crossing in a
cheque before issuing it.
ii)Holder:
a) Where the cheque is uncrossed, the holder may cross it generally or specially.
b) Where a cheque is crossed generally, the holde r may cross it specially.
c) Where a cheque is crossed generally or specially, the holder may add the
words not
negotiable . iii)Banker:
Where a cheque is crossed specially, the banker to whom it is crossed may again
cross it specially to anothe r banker, or his agent for collection. (sec 125) A cheque can
be crossing is to a banker as agent for collected cheques.
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TYPES OF CROSSING
There are two types of crossing:
A)General Crossing
b)Special Crossing
A) General Crossing:
According to Section 123 of the Negotiable Instruments Act, 1881.
where a cheque bears across its face an addition of the words and company or any
abbreviation thereof, between two parallel transverse lines, or of two parallel transverse
lines simply, either with or without the words not negotiable, that addition shall be
deemed a crossing and the cheque shall be deemed to be crossed generally.
Significance of General Crossing:
A crossed cheque should not be paid across the counter. Even if the payee of a
crossed cheque is well known, the paying banker is directed to make payment only
through another banker.
b) Special Crossing:
Section 124 defines special crossing as follows:
Where a cheque bears across its face an addition of the name of a banker with
or without the words not negotiable, that addition shall be deemed a crossing and the
cheque shall be deemed to be crossed specially and to be crossed to that banker.
Significance of Special crossing:
Here the paying banker should make payment only to the particular banker
named as a part of special crossing or to his agent for collection. Thus special crossing is
safer than general crossing.
3)Not negotiable crossing:
Section 130 of the Indian Negotiable Instrume nts Act lays down that a
person taking a cheque crossed generally or specially, bearing in eithe r case the
words ,Not negotiable, shall not have and shall not be capable of giving, a better title
to the cheque than that which the person form whom he took it in the first instance
had .
4)Cheque with Account Payee crossing:
The inclusion of the words Account Payee or Payee s Account ensures
greater safety to the cheque. The words Account Payee are not recognized by
Negotiable Instruments Act, but are in usage as a matter of practice. Such words are
directions to the collecting bank, to collect the cheque to payee s account only.
DOUBLE CROSSING
A specially crossed cheque is to be collected only through the banker
specified therein. Therefore, a specially crossed cheque cannot be crossed specially
again to another banke r that is a cheque cannot be crossed specially twice, because
the very purpose of first special crossing is frustrated by the second one.
--------------------------------For example,
State Bank of India
To
Bank of India
As agent for collection
---------------------------------It is necessary, that the words as agent for collection must be
included in the special crossing.
OBLITERATING A CROSSING
Were a cheque is presented for payment which does not at the time of
presentation appear to be crossed or to have had a crossing which has been
obliterated, payment thereof by a banker liable to pay and paying the same according
to the apparent tenor thereof at the time of payment and other wise in due course,
shall discharge such banker form liability thereon and s uch payment shall not be
questioned by reason of the cheque having been c rossed.
ADVANTAGES OF CROSSING
1. If payment is made by means of a crossed cheque, receipt need not be
obtained.
2. Account payee crossed cheque makes sure that only the particular
person to whom the cheques are drawn can receive payment.
3. If a crossed made through cheques particularly crossed cheques enable
an automatic record of the amount in the pass book.
4. Payments made through cheques particularly crossed cheques enable
an automatic record of the amount in the pass book.
ENDORSEMENT
DEFINITION OF ENDORSEMENT
When the maker of holder of a negotiable instrument signs the same otherwise
than as such maker, for the purpose of negotiation on the back or face thereof or on a
slip of paper annexed thereto.he is said to endorse the same and is called the
endorser.
The person who signs the instruments for the purpose of negotiation is called the
endorser and the person in whose favour instrument is transferred is called the
endorsee. The endorser may sign either on the face or on the back of the negotiable
instrument.
5. Restrictive Endorsement:
Restrictive endorsement, by the written words, restricts the right of further
negotiation. In this case, an endorser specifies that the banker should pay
the amount to a particular endorsee only. Example: Pay to X only.
6. Facultative Endorsement:
The endorser waiving the right of notice of dishonor of the
instrument, while making the endorsement is called facultative to the
endorser who has made such facultative endorsement.
7. Partial Endorsement:
If an endorsement is made for the part of the amount of the
instrument, if is called partial endorsement. But such an
endorsement is not valid.
FORGED ENDORSEMENTS
If an instrume nt is endorsed in full, it cannot be further endorsed or
negotiated except by an instrume nt is negotiated by way of a forged
endorsement, the endorses will acquire no title even though the
instrument is purchased for value and it good faith, because the
endorsements nullifies further negotiation.
PAYING BANKER
Meaning:
The banke r who makes payment of a negotiable instrument is called a
Paying Banker
PRECAUTIONS BY THE PAYING BANKER
While making payme nt of a cheque, the banker has to be extremely
vigilant while handling cheques on a payment basis. No doubt, in the absence of preexisting arrangements between the banker and the custome r that is, in case, the account
of the customer shows a debit balance, the banke r is under n obligation to pay such
cheques. This regularity has to be examined, apart form the sufficiency of funds with
regard to the following:
13. Crossing of the cheque
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The defective
title of the previous endorsers will not adversely affect his
rights.
liable to him.
Even the drawer of a negotiable
instrument cannot claim invalidity of
the instrument against him.
His claim
cannot be denied on the ground that the payee has no capital to
endorse.
The principle of estoppel is
applicable against the endorser to deny the
capacity of previous parties.
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COLLECTING BANKER:
A collecting banker is one who undertakes to collect the amount of a cheque for
his customer from the paying banker.
BANKER AS A HOLDER FOR VALUE
In collecting a cheque the banker can act in two capacities namely;
Gross negligence
Negligence connected with the immediate collection of cheque
Negligence under remote grounds
Contributory negligence
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FORMS OF ADVANCES
Loans
Cash credit system
Overdraft
Bills purchased and discounted.
Unit V
E banking:
In simple words banking done electronically is electronic banking.
According to the bank for international settlements (BGS) electronic
banking refers to the provisions of retail and small value banking
products and services through electronic channels.
Objectives:
To handle the expanded customer base easily.
To reduce the cost of handling transactions.
To free the banks from the traditional restrictions on time and
place of business
The range of products and services offered by the e banking includes the
following:
Automated teller machines:
It is an electronic device located in the banks or important
places. By operating this machine, the customer can
Draw money from his account whenever required:
Deposit money into his account
Get mini statement of account
View the balance in his account.
Request for a cheque book
Transfer funds between different accounts in the same branch
Electronic funds transfer (EFT):
It facilitates the transfer of funds from any branch of a bank to
any other branch of any bank in the shortest time.
Personal computer banking:
With PC banking, the customers can access information on
their accounts through a dial-up connection with their bank.
Internet banking:
It is an improvement over personal computer banking. It is
done over a highly accessible public network.
Electronic clearing service:
It includes the following
Electronic credit clearing
Electronic debit clearing
Benefits of e-banking:
Benefits to the customer:
Any time banking:
It provides 24 hours, 365 days a year service to the customer of the
bank.
Anywhere banking:
The customer can make some of the permitted transactions from his office or
from his house or while travelling via mobile telephone.
Cash free banking:
It provides less risk and greater security to the customer as they can avoid
travelling with cash.
Reduction in cost of transaction:
It will bring down the cost of banking transactions to the customers over a
period of time.
Easy to make utility payments:
With the use of electronic debit clearing, it is easy for the customer to make
utility payments like electricity bills, telephone bills etc.
On line purchase:
It facilitates online purchase of goods and services including on-line payments
for the same.
Benefits to the banks:
Competitive advantage:
It provides innovative, security and competitive advantage to the banks.
Unlimited network:
It provides unlimited network to the banks by way of ATM.
Lesser work load:
The work load on banks can be reduced considerably by establishing
centralized database.
Lesser establishment cost:
It reduces customer visits to the branches and thereby reduces the
establishment costs of the bank.
Better profitability:
It provides the scope and potential for better profitability.
DRAWBACKS OF E-BANKING:
Difficulty in the adoption of technology
Fear of technology
High cost of technology
Lack of preparedness
Restrictions on usage of technology