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CONTENT

Page

Introduction 4

Liability Products 6

Operating Instructions for account opening 10

Account Related Transactions 15

Cash 19

Clearing 27

Funds Transfer 34

Annexure 1 42

Annexure 2 50

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Functioning of a Bank Branch Role and Perspective of a Bank Branch When a new bank is established, it may have only one workplace, which may include the branch office as well as Head Office. However, when the bank wants to extend its activities to far away places, it will have to open its branches at those places. These branches are authorised to perform all the functions of a commercial bank, viz., accepting of deposits, lending money and providing miscellaneous services like remittance facilities, locker facility etc. the branches report their total transactions to their controlling offices which may be regional office, zonal office or head office depending upon the size and structure of the bank. In the recent past, some banks have been opening few branches with the sole objective of promoting a particular type of business viz. Agricultural Development branches, Industrial Finance branches, Foreign Exchange branches and Merchant banks. Such branches, although perform all normal banking transactions, lay total emphasis on promotion of one particular aspect only. Some branches may provide their limited services at another place in the same city. Such an offic e is known as Extension Counter. These counters are meant for catering to one or few institutions/corporations and the nearby public. Although accepting of deposits is permitted at such counters and drafts can also be issued, no lending operations are undertaken. The accounts of these counters are usually clubbed with the main branch. Whilst opening of a branch needs a licence from the Reserve Bank of India, extension counter can be opened with the permission of the Bank’s Board itself. If the working of the counter enhances sizeably in course of time, for converting it into a branch may be sought. Functions of a Branch The branches of a bank are generally authorised to perform all the normal banking functions, which a bank is permitted to perform under th e Banking Regulation Act, 1949. The functions are as under: Accepting Deposits: Banks accepts deposits from the public which may be repayable, either on demand or after a fixed period. The demand deposits can be in the form of Saving Bank Account or Current Account. In Saving Bank accounts, interest @ 4.5% is paid but restrictions are imposed on the number of withdrawals. In current account no interest is paid and no restrictions are imposed on the number of withdrawals. Any profit –making organisation/institution is not allowed to have savings bank account, which in fact is meant to promote small savings from the public. In both types of accounts, deposits can be withdrawn at any time by the customer. In the area of term deposits several schemes with different names in different banks have been promoted basically to attract deposits for a longer term. The interest rate varies according to the period of deposit and is 9.5% (maximum) at present for one year and above. The minimum maturity period is 15 days and maximum 7 years. The interest is usually compounded on quarterly basis on such deposits. In term deposits, a person may deposit an amount and collect it back along with interest after a fixed term or, may deposit every month and collect the total amount along with interest on maturity date. The former is known as Term Deposit while the latter is called as Progressive/Recurring Deposit.

Introduct ion

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Lending Money: The money deposited has to be lent in order to earn profits. Remittances: Banks earn money by way of commission charged on remittance of funds from one place to another. Compared to post office this service is being rendered by banks at nominal rates. The various methods used for remittance of funds are – Mail transfers, Telegraphic transfers, electronic funds transfer, and Demand Drafts. Lockers facility : For providing the facility of keeping safe the valuables of the customers, banks provide locker cabinets in their strong rooms, and customers and hire the locker from the bank. The rates charged are nominal. This facility helps the bank in attracting deposits. Foreign Exchange Business : Banks are helping in foreign trade by financing of such trade and also promote tourism by providing foreign exchange facilities. In fact, in each bank some of the branches are specifically entrusted with such functions. Innovative Functions: In the recent past, banks have added some new functions like merchant banking and factoring services. Management of Cash and Currency Chest : Excess cash, if maintained at the branch, affects the bank’s profit adversely as it earns no income. If the same is deposited in Reserve Bank of India or other banks or transferred to Head Office, interest may be earned. Besides, heavy cash adds to the burden of insurance cost and branch becomes more susceptible to robberies. The branch should be managed with minimum possible cash and efforts should be made to deposit excess cash with RBI or Currency Chest of the Bank. Usually the controlling offices lay down cash retention limits for each branch and stipulate disincentives if the limit is exceeded by the branch. Currency Chest is like a godown of currency notes and coins. The money lying in it is treated as RBI’s A/c. The chest is very often managed by commercial banks but it is done on beh alf of Reserve Bank of India. The currency deposited in chest is treated as RBI Balance. When a bank has its own currency chest, its nearby branches can easily manage with minimum cash and earn interest on the transferred balances. Cash deposited in curren cy chest is counted by RBI for the purpose of Cash Reserve ratio. Thus, if a bank can manage its currency chest effectively, it can add to its profit sizeably. House -keeping : House-keeping means keeping the branch in perfect order and following the systems and procedures meticulously. The systems and procedures have been so laid down that, if followed, they will eliminate frauds and counteract manipulations. Frauds occur mostly when procedure is cut short or not followed. There are a lot of built-in checks in the banking system, and some such examples are – joint custody, balancing of books, reporting of discretionary powers, audit and inspection, etc. The following points are worth caring in the regard: Revenue Leakage: If the interest is not charged correctly by either calculating wrong products, and/or by charging lower rate of interest, the bank shall suffer loss. Follow-up of loans and advances. If the loans are not monitored properly, they may become sticky and result in losses to the Bank. Simply sending reminders for installments and recall notices may bring good results in many cases. As per the latest guidelines on non-performing assets, interest cannot be charged and booked if the account is irregular for over 6 months. Hence, every effort should be made to keep the loan regular.

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Refinance. Refinance is available from different agencies like IDBI, SIDBI, NABARD, NHB and EXIM Bank. If it is availed, it not only benefits the borrower by charging a lower rate but also helps the bank’s resources as well as provide sufficient income. Computerisation. With the mass banking concept, the handling cost of accounts is quit high, if done manually. However, computerisation can bring down the costs and also improve the quality of service.

Preamble Deposits constitute the basic resources for the Bank. Deposits are accepted under two broad heads ‘Demand Deposits’ and ‘Time Deposits’. They are sub divided into various attractive schemes. Demand deposits, as the name implies, are deposits payable on demand. They are mainly current and savings bank accounts. Time deposits are deposits payable after a fixed term and would comprise of fixed deposits, recurring deposits etc. They are often referred to as term deposits, meaning that they are placed with the Bank for a definite term or period of time. 1.1 Current Account A Current Account is an account which is meant for the convenience of customers who are relieved from maintaining large cash balances with them for their day to day business (or other) transaction. The account can be opened with an initial cash deposit of INR 25,000.00. A Current deposit holder is required to maintain an average balance of INR 25.000.00 . Typically, we should try to get current accounts of business entities, which do not have too many cash transactions or small value cheque transactions. There should be clear potential for higher than the minimum prescribed balance in the account.

1.2 Premium Current Accounts The premium current account is a current account product with the following additional features.

• Monthly Average Balance of Rs.2,00,000/- (Rs. Two lacs). Failure to maintain the balance will attract a fee of Rs.1000/- per month.

• The following facilities are given free: o Payorders o Demand Drafts drawn on our branches o Anywhere banking cheques o Demand Drafts drawn on correspondents at a concessional rate o Collection of upcountry cheques payable at locations where we have branches.

Assured credit within 5 days. o Cheque Books without limit. o ATM card for Proprietorship and Partnership concerns o Internet Banking – with Funds Transfer Facility. o Standing Instructions o Monthly Statement of Accounts

I . Liabi l i ty Products

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The Branch/Regional Head at their discretion could offer the following additional facilities selectively after making necessary arrangements.

• Courier pickup of cheques/documents once a day at specified time. • Cash delivery upto Rs.50,000/- and Cash Pickup upto Rs.1,00,000/- . No. of occasions –

Maximum one a day • Quantum Optima Facility - for balances in excess of Rs.5,00,000/- (Rs. Five lacs) in lots of

Rs.25,000/-. 1.3 Business Multiplier Accounts (BMA): The BMA Product was introduced in July 2000 as a modified version of premium current account. This product is targetted at:

• Traders • Businessmen & • Small Corporates having sales turnover of about INR 25.00 crores.

The features of a BMA are:

• Quarterly average balance of INR 1.00 lakh only. For non maintenance of average balance a

charge of INR 1200.00 per quarter is levied • Automatically transfers any amount in excess of INR 3.00 lakhs, in units of INR 25,000 to I

year FD’s where it earns higher rate of interest. • Multicity cheque book- payable at par cheques which give power to issue cheques that are

treated as local cheques in cities where we have a branch. • Anywhere banking facility- BMA in one city can be operated from any designated branch in

same or another city. Cheques can be deposited in your account. Cash upto INR 50,000.00 can be deposited & withdrawal upto INR1.00 lakh on self & order cheque only. No third party withdrawals are permitted.

• The following facilities are given free: • Collection of cheques on our bank locations. Normal charges for other locations. • Payorders & DD on our branches. • Phonebanking facility • Cash pick up/ delivery & cheque pick up facility available. • Internet banking

1.4 Term Deposit Deposits for fixed periods are accepted under ‘Traditional Plan’ or ‘Reinvestment Plan’ for a minimum amount of Rs.10,000/- and for a period from 7 days and above and up to 7 years for domestic deposits. Account opening form or Relationship Form, as in the case of current/ savings account with photograph shall be obtained with suitable introduction. Where a cheque in the name of the depositor is received to create the deposit, the effective date of fixed deposit shall be the date on which the cheque is realised. No fixed deposit receipt shall be issued in anticipation of realisation of the cheque. Maximum period for which fixed or recurring deposit may be accepted, other than by way of current/ savings account, shall not exceed ten years as per RBI guidelines. In our Bank the maximum period presently is 7 years.

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1.5 Certificate of Deposit Certificate of Deposit (CD) is a marketable instrument covering funds deposited for a fixed period, from 15 days to one year. The minimum issue size of a CD is Rs.5 lacs. The amount relates to face value (i.e. maturity value) of CDs issued. Banks can issue CDs in denominations of Rs.1 lac each, either for the same maturity or for different maturities, provided the aggregate amount issued for one depositor at any one instance is Rs.5 lacs or more. Individuals, corporations, companies, trusts, firms, co -operative societies, associations etc., can subscribe to CDs. Presently CDs are issued by scheduled commercial banks (excluding Regional Rural Banks). All India Financial Institutions can also issue CDs, but for periods beyond one year and upto 3 years, while banks can issue CDs for periods of three months and above but upto one year. CDs are issued in the Bank’s security forms. CD is different from fixed deposit in that it • Is not a mere receipt • Is a negotiable document in the form of a usance promissory note • Is a money market instrument • Is tradeable in the secondary market • Is negotiable by endorsement and delivery, after 30 days after the date of CD • Is paid on the due dates at the place of issue • Cannot be encashed before maturity • Issue is governed by RBI guidelines relating to period, negotiability, amount, etc. • Attracts stamp duty 1.6 Trust & Retention accounts/ Escrow accounts Trust and Retention accounts are usually opened to secure/ capture the cash flows fo a Borrower to enable him to meet the loan repayment obligations. To formalise the arrangement a tripartite agreement is executed between the Lender, Borrower and the designated Bank (where the T& R account is opened). A tripartite arrangement is intended to:

• receive designated cash streams, • administer disbursements, • manage cash balances retained • build up balances to serve as cash collateral to lenders

Scope of the T & R Account arrangement Depending on the nature and the structure, the T&R bank will have the following functions to act as a :

• Receiving agent • Paying agent • Investment agent • Conversion agent • Custody agent • Collection agent

The bank is bound by the terms of agreement. Balances in the account/s are treated outside the purview of liquidation proceedings. The T&R bank does not enjoy the privilege of general right of

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lien or set off otherwise available to it. T&R accounts are not immune from attachment orders by court of law. 1.7 Correspondent banking accounts Cooperative and Foreign Banks typically have a strong presence in a limited region/cities. They enjoy the patronage of a loyal clientele in their areas of presence. This combination of a limited presence and a stable client base presents itself as a perfect opportunity for private banks with a good network to foster correspondent banking relationships with such niche financial intermediaries. Primarily, we at ICICI Bank offer the following products/services under correspondent bank tie-ups: Cheque Drawing Arrangement The Coop/Foreign Bank opens a current account with ICICI Bank. ICICI Bank issues at par stationary to the Coop/Foreign Bank, which in turn is circulated to their branches. The Coop/Foreign Bank issues cheques to their clients against consideration. The cheque details referred to as advice and funding cheque for the value of the instruments issued by the Coop/Foreign Bank are forwarded to ICICI Bank on Day 1. The advice is uploaded on the Intranet and funding cheques presented for clearance. Against the clear funds in the current account with ICICI Bank and on verification of the cheque details furnished by the Coop/Foreign Bank the cheques issued by them and presented in clearing at ICIC I Bank centres across the country are duly honoured. This product helps the Coop/Foreign Bank garner additional fee based income through cheque issuance and float balance as the funds are passed to ICICI Bank on the following day. ICICI Bank gains float balance on account of cheques issued but presented for payment on days subsequent to Day 1. Further, the idle funds of ICICI Bank lying at various clearing centres are suitably utilised without incurring any additional cost. CSGL Accounts Coop/Foreign Banks are required to honour the prudential norms for investment in G-Sec from time to time. Further they also explore avenues to park additional funds to earn treasury income. The handicap of interior locations and small size makes it infeasible for the Coop/Foreign Bank to establish full-scale treasury operations. ICICI Bank with an established treasury function can step in to open Constituent Subsidiary General Ledger Accounts to assist Coop/Foreign Bank in their endeavour. CSGL accounts not only allow ICICI Bank to gain a markup on rates beings offered but also help in building up treasury volumes. Outstation Cheque Clearance Local Cheques drawn on branches where a bank does not have its own branch have to be sent in clearing through other banks having a presence in the said location. Such outstation instruments generally take 7-25 working days to clear when presented for clearing through traditional banking channels. Cash Management Service functioning as a specialised unit for collections allows ICICI Bank to reduce the time taken to clear outstation cheques to 5-10 working days. Banking on CMS network ICICI Bank offers Coop/Foreign Bank clear credit on 8th working day. This arrangement helps the Coop/Foreign Bank to get funds at and earlier date as compared to a situation where they might have gone alone. It also helps ICICI Bank to make fee based income through CMS and also build up overall volumes.

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2.1 Introduction of customers To open an account, whatever the type viz, current or savings bank or fixed deposit or a loan account, in the name of individuals or any other legal entity or organisation, it is imperative that a valid introduction is obtained before opening an account on the first occasion. Introduction for subsequent accounts for the same person or organization is not required. Valid introduction means any of the following: • By customers i.e., by those who already hold accounts with the Bank, provided these accounts

are conducted satisfactorily and no occasions have surfaced reflecting unhealthy practices • By persons known to the Bank. It is necessary to record the nature of their acquaintance with

the Bank • By officers of the Bank • By other banks • By passport and other documents described in detail hereafter Introduction is not to be deemed as a mere formality. Banks get the protection of Sections 131 or 131A of the Negotiable Instruments Act 1881, for collecting instruments only if the collection is on behalf of a customer properly introduced. Failure on this score may be held against the Bank for permitting ‘conversion’. Many banks have come to grief by laxity for want of proper introduction. The occasion of opening an account should be used as a marketing opportunity to explain the Bank’s schemes to the customer. Necessary clarification should be given regarding nomination facility particularly in case of ‘single’ accounts, need to maintain uniformity while signing cheques, need to avoid too simple a form of signature which can be easily forged, the care to be exercised while handling cheques etc. It is a well established fact and consistently supported by legal decisions, that a banker should take certain precautions and must enquire from the person wishing to open an account as to his profession, trade, calling and the nature of the account he proposes to open. Due enquiries made with the reference furnished by the person would help to make a decision regarding the desirability of establishing a relationship, as also relating to the integrity and respectability of a person. It is mandatorily directed by RBI that the introducer clearly states the period for which the customer is known to him and also confirms the address of the customer. Introducer’s signature should be obtained in Customer ID form1, verified by an official of Deputy Manager’s grade and above. Details such as customer identity number of the introducer or how the introducer is known to the Bank and whether the introducer called in person or not at the Bank should be recorded in the Customer ID form. Photograph shall be obtained and affixed to Customer ID Form. As a matter of courtesy (and to guard against possible though not uncommon fraudulent introduction) a letter of thanks should be sent on the same day to both the customer and the introducer. For opening current accounts in the names of corporate bodies, trusts, registered associations etc. documents evidencing incorporation, their charter like memorandum and articles of association, trust deed etc., are adequate. However, enquires about the board of directors/pro moters, trustees etc., may be made with due sensitivity to avoid the account being used for undesirable purposes. It is strongly urged that staff handling opening of accounts must cultivate extra sensitivity to ensure

1 The Bank has prescribed Relationship Form for individuals and joint accounts on E or S basis. Cust Id Form will include Relationship Form in such cases.

I I . Operat ing Instruct ions for Account Opening

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that customers are not offended by the nature of enquiries. Tact and discretion are essential in dealing with customers. Obtaining proper introduction and more particularly of making suitable enquiries both from the introducer and the prospective customer need no further emphasis. Such enquiries, in addition to protecting the banker from the charge of negligence, thus depriving him of the protection available to the banker under Section 131 of the Negotiable Instruments Act, 1881, have the following advantages: Due enquiries will prevent a dishonest person from coming into possession of a cheque book and defraud the public at large;The position of the bank would be very weak if such a person who has gained access by fraudulent means happens to be an undischarged insolvent;By establishing the credentials of the person through an existing customer it would help to trace and recover from the customer, moneys due to the Bank in the event of an unintended overdraft. Introduction establishes the following in respect of new customers:

• identity of a customer • acceptability of the customer to the Bank

2.2 Photographs In terms of circular no.GC.BC.46/17.04.001/94 dated 22nd April, 1994, issued by RBI, effective from 1st January, 1994 photographs should be obtained in case of all deposit accounts including accounts in the name of public limited companies, etc. Only banks, Local Authorities and Government Departments (excluding public sector undertakings or quasi-Government bodies) will be exempt from the requirement of photographs. Obtention of photographs of depositors was one of the recommendations of the Committee to enquire into various aspects relating to frauds and malpractices in banks (Ghosh Committee). The stipulation is applicable to both resident and non-resident account holders and all categories of deposits including fixed, recurring and cumulative deposit accounts. Photocopies of driving licence or passport containing photographs will not suffice. Only one set of photograph needs to be obtained. Fresh photographs need not be obtained when the account holder opens an additional account. This stipulation is applicable to corporate accounts also. Photographs of persons authorised to operate deposit accounts, particularly in case of corporate accounts, savings and current accounts should be obtained. In case of minors, guardian’s photograph should be obtained. In respect of non-individual accounts, banks need to obtain photographs of the persons authorised to open/operate the account as applicable.

2.3 Formalities for various types of cli ents

2.3.1 Proprietary Firms Individuals for business generally float sole proprietary firms. They do not have any separate legal entity. The proprietor is personally responsible for all acts done in the name of a firm.

To distinguish his personal drawings from those for business, the style of account is in the name of the firm and the proprietor draws cheques and gives discharge on documents, on behalf of the firm. Introduction formalities, as applicable to individuals, are relevant for opening accounts in the names of proprietary firms.

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2.3.2 Partnerships Firms Section 4 of the Partnership Act, 1932, reads

“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 on behalf of all”.

As per section 5B ibid, every firm should be registered with the Registrar of Firms of the State in which it has its headquarters. The consequence of non-registration (Section 69 ibid) is that the firm cannot bring in any suit to enforce a right arising out of a contract against any outsider. But it does not bar filing of suits by outsiders against the firm. The registration of a firm is, however, not compulsory.

Number of partners in a partnership firm is limited to 20 (10 in the case of banking companies) as per Sec.11 of the Companies Act, 1956. A minor can be admitted to benefits of a partnership but shall not be a partner. A partnership cannot exist between a single adult and a minor child. Every partner of a firm is an authorised agent of the firm under section 18 of the Partnership Act, 1932. The implied powers of partners are defined in Section 19 ibid, as under:

• Power to borrow money on behalf of the firm • To acknowledge debts and receive payments • To sign contracts Formalities for opening a current account or fixed deposit account in the name of a partnership firm are given below:

• Partnership deed should be perused to know the clauses regarding authority and liability of individual partners, authority for borrowing, mode of operations of the bank account, etc.

• Deed of partnership should be verified to know whether the same is registered

• Besides obtaining certified copies of the Deed of partnership, a Partnership Letter on the Bank’s standard form shall be obtained and held with the account opening form

Unless restricted by the Partnership Deed or another mode is stated in the Partnership Letter, all partners may operate the account singly. The partners who are not operating the account are, however, not debarred from countermanding the earlier instructions, in which case, the account shall be operated jointly by all the partners until a fresh mandate is given.

The partnership is dissolved on death, retirement or insolvency of a partner. If the account is in debit, further operations must be stopped to fix the liability of the partner who died, resigned or became insolvent, to avoid operation of the rule in Clayton’s case, under which the first credit goes to liquidate the first debit. In case of retirement, Deed of Retirement should be verified to know the manner of settlement of any credit balance in the account. In case of death of a partner, the Bank’s instructions regarding settlement of dues in deceased depositor’s account should be followed to settle any credit balance in a partnership account.

A ‘set-off’ of the credit balance in an individual account of a partner may be made against the overdraft of a firm but a ‘set-off’ in the other way around is not possible. Cheques payable to a firm should not be collected for credit of individual account of a partner. In order to bind the firm, all drawings should show the nexus between signatory and the firm.

As a partner is himself an agent of a firm, he cannot delegate his powers to another person without consent of all partners.

Minors admitted to a firm can exercise an option to join the firm on their attaining majority. A diary note shall be taken of date of minor’s attaining majority, at which time a fresh partnership letter and

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a ratification of the earlier letter are obtained from the minor who opts to join the firm. Where a minor is a partner, care needs to be exercised, not to accept authority for drawing cheques in the account, by the minor, having regard to his legal status.

Introduction formalities, as in the case of individuals, shall apply with equal force in case of partnership firms, particularly for unregistered firms. Only Tier I formalities (vide Chapter I para 2.1 and 2.3) apply for obtaining introduction.

2.3.3 Joint Stock Companies A company is a corporate entity brought into existence by a statute viz. Companies Act, 1956. Its entity is distinct from that of its shareholders whose liability is limited to the extent of individual shareholdings. A Company is a legal entity, which can sue others and be sued by others; shareholders cannot be sued for the company’s affairs. Similar is the constitution of corporations set up under specific statutes. Companies Act 1956 is permissive (it speaks of what the company may do) and not prohibitive (what it should not do). Care needs to be exercised in opening and conducting of accounts of companies, within the framework of regulations; Memorandum and Articles of Association of a company set out the objectives as also nature of activities, powers of directors, etc. Companies Act 1956 provides for conduct of a company’s business, constitution, duties and responsibilities of the board of directors, borrowing powers, procedure for creating charge on its assets, regulations for raising capital/ debentures by public subscriptions etc.

The Registrar of Companies is vested with authority to issue a Certificate of Incorporation, which confers legal status for a company. After completion of formalities, a certificate to commence business is issued when bank accounts could be opened. A certified copy of the following documents shall be obtained for opening a bank account for a company.

• Memorandum/ Articles of Association;

• Certificate of incorporation issued by the Registrar of companies;

• Resolution of the Board authorising specifically to open account(s) with the Bank, listing the officials who can operate the account, under such terms and conditions, as may be specified. The resolution should be certified by the chairman of the meeting at which it was passed, countersigned by the secretary of the company, together with the company’s seal alongwith signatures of two directors.

The resolution authorising the opening of a bank account should also specify the mode of operating the account. Where borrowing arrangements are envisaged, the resolutions should specify such requirements; limitations regarding borrowing powers vide the Articles of Association as also Secs.292, 293 (1)(d) of the Companies Act, 1956, need to be perused.

Accounts in the names of new companies may be opened in anticipation of the certificate to commence business, only for depositing subscriptions for shares, provided the Bank has decided to act as Bankers to the Issue. No drawings are permissible until the Registrar issues the certificate of commencement of business. A reference is also invited to Sec.73 of the Companies Act, 1956, dealing with such contingencies.

In the case of private limited companies, certificate to commence business is not issued. A private limited company is distinct from a public limited company with certain privileges/limitations, important among these are as under:

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S. N o . Item Private Limited Company Public Ltd Company

1. Minimum Members 2 7 2. Maximum Members

excluding employees and ex-employees

50 No maximum

3. Minimum Directors 2 3 4. Certificate to commence

business No such requirement. Can commence business immediately on getting the Certificate from Registrar of Companies

Certificate to commence business is essential

5. Name of the company Should contain the word ‘Private Ltd’

Should contain the word “Ltd” at the end

6. Transfer of shares Shares cannot be transferred to third parties without the consent of other shareholders.

No such restriction

7. Subscription from the public Cannot invite subscription from the public to shares/ debentures.

No such restriction

The original of the certificate of incorporation and the certificate to commence business should be perused and the relative particulars noted in the Bank’s Power of Attorney Register and the documents returned to the company.

The resolution appointing the Bank as bankers to the company and naming the person(s) authorised to operate on the account should also refer to the following

• The mandate is to remain in force until revoked by a subsequent resolution of the board of directors, which should be communicated to the Bank

• Authority of persons signing the cheques should specify limitations, if any

• Authority should be specific for executing, on the company’s behalf, documents creating charge over the company’s assets or otherwise binding the company

• Authority should be specific for signing of indemnities, guarantees, purchase/sale of securities, withdrawal of securities from the Bank etc.

• The Bank shall be entitled to act upon any information given by a director or secretary regarding changes in directorship o r office of the secretary

• That the specimen signatures of the company’s officials submitted to the Bank are duly attested

In view of the various legal formalities to be complied with, no introduction is considered necessary for opening an account in the name of a limited company. Compliance with the requirements set forth in the earlier paragraphs would suffice. However, in the case of new companies or even existing companies whose accounts are shifted from other banks or when additional accounts are opened , reputation of the company/promoter directors needs to be enquired into, to avoid undesirable clientele.

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Third party cheques drawn in favour of a company (normally these are ‘crossed’ cheques) must be credited to the account of the company only. Cash should not be paid against such cheques as such payment may not constitute ‘payment in due course’ in terms of Sec.10 of the Negotiable Instruments Act, 1881.

As companies are established for business/commercial objective, savings bank accounts are not to be opened. Normally requests for accounts in the names of companies not established locally or companies which do not have a branch office as such, should not be entertained. If required, a reference may be made to Corporate Office.

Official Liquidator On a winding-up order made in respect of a company, the official liquidator becomes the liquidator of the company and is required to maintain a personal ledger account normally with RBI/SBI/Associate Bank of SBI. All moneys received by him shall be deposited in the account. Only “order cheques” should be issued on such accounts.

3.1 Transactions in running accounts 3.1.1 Withdrawals In saving bank/ current account The amount of withdrawal in current/savings account is limited to clear balance in the account. Withdrawals/debits against uncleared items like local cheques presented in clearing, cheques sent out for collection, shall be authorised only by Branch Manager/Manager, depending on the merits of the case.

No interest is payable on credit balances held in current account. A minimum balance as specified in the Bank’s rules, shall be maintained at all times, failing which a charge shall be made to the customer’s account, under advice to him. In case the client is considered otherwise valued, levy of this charge may be waived at the discretion of the Branch Manager. In borrowal accounts Operations in overdraft or cash credit account are almost similar to normal deposit account except for the lending aspects of such transactions. These are detailed herein.

Transactions, which result in creation of a debit balance in a customer’s account, require prior authorisation. Regular advances by way of overdraft, cash credit or demand loan are authorised by sanction accorded by competent authority, in terms of the Scheme of Financial Delegation. Occasional overdraft or drawings in excess of drawing power or sanctioned limit, at branch level, shall be authorised only by the Branch Manager or Manager (Credit) to the extent of financial powers vested with the official.

In running accounts like overdraft or cash credit, debits shall be permissible by way of cheques or otherwise (in case of debit vouchers prepared internally) up to the drawing power marked in the relative accounts. The drawing power in these types of borrowal accounts shall be authorised by credit officers in charge of borrowal accounts. If payment of a cheque/debit voucher will lead to the outstandings in the account to exceed drawing power, the cheque/debit voucher shall be entered in “Cheque Referred and Returned Register” for authorisation by Branch Manager. Thereafter, the cheque/debit voucher shall be processed as per the normal procedure for passing of such transaction.

I I I . Account Related Transactions

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In case of a new borrowal account, ordinarily the first debit transaction may be authorised by Branch Manager or Manager, to ensure that all formalities regarding documentation etc., are complete before drawal is permitted in the account.

Interest at the contracted rate, as per the terms of sanction, is computed by the system and shall be debited to the respective account of the borrower as on the last working day of each quarter or at such other periodicity as agreed upon. Accounts, in which such debits result in overdrawals, shall be listed out for appropriate follow up. As at the close of business on reporting Friday or the previous working day, if Friday is a holiday, the aggregate debit balances in current accounts as well as the aggregate credit balances in cash credit accounts shall be taken separately by Corporate Office (Treasury) for reckoning ‘demand and time liabilities’ for statutory reserve requirements. Payment of cheque All details such as the following on the cheque shall be verified:

a) date

b) amount in words and figures

c) drawer’s signature

d) in case of an order instrument, whether the person presenting the cheque is properly identified

e) whether the payee’s account is only credited in case of `A/c payee’ crossing

f) whether the presentor’s identity / title is clear and satisfactory in case of `Not negotiable’ crossing

Additional information regarding payment of cheques is given in Annexure 1. The cheque shall thereafter be entered by the JO in the system and passed for payment upto the delegated powers of JO if there is no countermanding instruction, and sufficient balance or drawing power is available in the account.

The passing officer shall ensure that the amount of the cheque is within the delegated passing powers under the Scheme of Delegation. Inward and Outward cheques received in clearing shall be handled as per the procedure for clearing and cash transactions shall be as per the procedure explained in cash section. If payment is by way of a transfer entry, the officer shall pass the cheque by initialling on the face of the cheque over the stamp “Transfer Paid”. Simultaneously, the drawer’s signature on the cheque shall be cancelled. Further, the official who passes the cheque shall also authorise or pass the corresponding credit voucher(s). Return of cheques In case a cheque cannot be passed for certain reasons, viz., improperly drawn or inadequate balance or stop payment instruction, such cheque shall be returned after an entry in the “Cheque Referred and Returned Register”. Individual entries for return of cheques shall be authorised by the Manager or Branch Manager or OIC (Operations). A cheque returning memo mentioning the reasons for return must be attached to the cheque and duly signed by the officer concerned.

Cheques when returned, for any reason, shall be branded with a stamp “All our Stamps Cancelled” and signed by the officer concerned.

Handling charges for return of cheque shall be charged as per the Bank’s ‘Directory of Charges’ and advised to the customer.

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Penalty in case of dishonour of cheques for insufficiency of funds The Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 (66 of 1988) has inserted a new Chapter XVII, w.e.f. 1-4-1989 in the Negotiable Instruments Act, 1881, containing sections 138 to 142. This has been done to enhance the acceptability of cheques in settlement of debt and other liabilities by making the drawer liable for penalties in case of return of cheques due to insufficiency of funds or for the reason that it exceeds arrangements made by the drawer. There are adequate safeguards to prevent harassment of honest drawers.

Nothing contained in section 138 shall apply unless -

a) The cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier

b) The payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid

c) The drawer of such cheque fails to make payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of receipt of the said notice.

Explanation -For the purposes of this section, “debt or other liability” mean a legally enforceable debt or other liability.

It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability.

a) No court shall take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque

b) Such complaint is made within one month of the date on which the cause of action arises under clause (c) of the provision to section 138

No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138. 3.1.2 Deposits Local cheques Customers could deposit cheques which are drawn on bank branches within a city. Such cheques are cleared for the customer by sending them to the clearing house.

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Outstation cheques If a customer tenders cheques for realisation from outstation centres, the branch may purchase such cheques. The branch under delegated authority may make stray purchases. Where such purchases are frequent, it is advisable to sanction a limit for cheque purchases to ensure proper control. In terms of recommendations of a working Group on Customer Service, banks are required to provide immediate credit to customer’s account, for all outstation cheques up to a value of Rs.5000/- per instrument. This is permitted provided no unsatisfactory features have been observed in the customer’s dealings in the past like frequent return of cheques for want of funds. Commission and other out of pocket expenses shall be recovered as per normal practice. In cases other than the above, outstation cheques shall be sent for collection in the normal course.

3.2 Transactions in deposit accounts The operations in fixed deposit are partial withdrawal, premature withdrawal, withdrawal or renewal on the due date. Fixed and cumulative fixed deposits are due for repayment on due date, as per the period mentioned at the time of acceptance of deposits. If due date falls on a holiday or a Sunday, payment is due on the next working day. Fixed deposit should be presented for payment duly discharged by the person(s) in whose favour the receipt was issued. If payment is needed in cash, the discharge shall be over a revenue stamp of Re.1 (minimum) for amounts over Rs.500/-. In case of credit to depositor’s account with the Bank, the discharge over revenue stamp is not required. If payment under a term deposit is made before completion of the period of deposit agreed upon at the time of making the deposit, the rate of interest payable in respect of such term deposit shall be the one applicable to the period for which the deposit remained with the bank less one per cent penalty for premature withdrawal. Presently this is applicable for deposits > INR 15 lacs. In case of partial premature withdrawal, the prematurely withdrawn portion would be paid interest as mentioned above and the rest of the deposit would continue as per the original terms of the deposit. In the event of premature closure or withdrawal of a deposit under reinvestment plan, which provides for reinvestment of interest, interest as permissible shall be paid on a compounded basis with quarterly or longer rests for the period during which the deposit remained with the Bank. When a branch allows closure of a term deposit or recurring deposit to enable the depositor to immediately reinvest the amount in another term deposit, the branch shall pay interest in respect of such term deposit or recurring deposit without reducing the interest by one per cent by way of penalty, provided that the deposit remains with the bank after reinvestment for a period longer than the remaining period of the original contract. It is the policy of the Bank that in case of deposits for Rs.1 crore and above, premature withdrawal is not to be permitted before 30 days from the date of deposit, irrespective of the original contracted period. Where the deposit is less than Rs.1 crore, while premature withdrawal is permissible even where the deposit has run for period less than 30 days, no interest will be paid for such periods less than 30 days. 3.3 Transa ctions All the transactions given above would be through the following:

• Cash • Clearing • Fund Transfers

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Transactions in cash in current/savings accounts as also deposit of instruments for credit to accounts, call for prompt attention at the counter. Transactions detailed herein shall be handled at a single window by Junior Officers (JOs). JOs are authorised to handle and are responsible, broadly for the following types of transactions at the counters at the Branch

• To receive cash for any amount and provide to customers acknowledgement therefor ; • To make payment in cash from current/savings bank accounts of customers including staff

accounts and Bankers’ Cheques issued by the branch after due observance of the relative procedures ;

Registers/Forms etc. A brief description of the various registers/forms which are used for handling the cash transactions is furnished herein. Receipts/Payments Scroll These are loose sheets, serially numbered, given to the JOs handling cash, at the commencement of the day. The scrolls shall be signed in full by the JO concerned and the officer-in-charge (cash) at the place indicated at the right hand top corner. Blank scrolls, before issue, shall be in the sole custody of the officer-in-charge (cash), and retained in the strong room. Herein are recorded receipts/payments with the relative particulars in regard to the denomination of notes actually handled, nature of transaction, the customer’s account number etc. Transactions are to be entered sequentially and the relative sequence number along with the transaction ID number (generated by the system) shall be entered in the voucher as well as in the counterfoil (in case of receipts). Also, in these scrolls shall be entered, in the first few lines indicated, cash taken from the officer in -charge (Cash) at commencement of the day, subsequently during the day or cash taken/given to other JOs during the day besides end of the day balance handed over to the officer-in-charge (cash). At the end of the day, after balancing the cash, the scroll shall be totalled and closed. The total amount shall be written in words and figures and the JO shall sign in full, for authentication. The scroll thus closed shall be handed over to the officer-in-charge (cash). These scrolls shall be filed datewise and kept in the records. Branch Cash Balance Register The end of the day cash balance is recorded in this register, in various denominations of notes/coins. This is written up after the day’s cash is balanced in terms of value, as per vouchers transacted and after physical verification of cash. The number of vouchers transacted in cash not in receipts/payments shall also be tallied with respective scrolls. Individual entries denomination-wise, in the register shall be initialled by both the joint custodians, after physical verification at the end of the day. The odd portion of the cash, i.e., notes which do not add up for a packet (less than 100 pieces) in different denominations, is held in single custody of the officer-in-charge (cash) and these also are entered in the branch cash balance register. The other part of the cash balance in bundles/packets, entered in the register, shall be under the joint custody. The officer-in-charge (cash) shall reckon the total cash receipts and payments independen tly, vide para 10.4 herein and arrive at the closing balance of cash. This should tally with the position

IV. Cash

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reflected in the branch cash balance register. Thereafter, after physical verification as mentioned earlier, he shall sign the branch cash balance register. The Manager shall also sign (besides the joint custodians) the register to evidence the verification of the cash balance, as per books, with the balance reported in the general ledger under the head ‘cash on hand’. The cash balance normally consists of notes and coins. If esteemed customers call on the Bank after business hours within reasonable time of working hours, such persons should be obliged and such payment should be accounted as late payment in the books of the branch; similarly any cash deposit being received after cash books have been closed should be accounted as "late receipts". The relative vouchers must be entered on the same day in the passing official’s scroll under the following day’s date and recorded in the cash balance book and authenticated by the officer-in-charge (cash). The physical cash, to the extent of such late payment/receipt should vary with the closing balance as per register. Any deviation from these instructions shall be regarded as serious. Vault Register This register is kept inside the strong room/cash safe at all times, depicting the cash balance in different denominations held at any point of time. Any deposits into the strong room/cash safe or withdrawals therefrom shall be entered in this register, initialled by both the joint custodians before leaving the strong room or closing the safe. During inspections/verifications, for cash taken out for such verification, entries shall be made in a separate folio under authentication of the joint custodians. Strong Ro om All cash, other than what is held at the counters, are kept in the strong room/cash safe. The strong room must be under the double lock of the officer-in-charge (cash) and the authorised JO holding joint custody. Both the joint custodians must be present when the strong room/cash safe is opened and neither may enter it except in the presence of the other. In exceptional cases, however, when it is not practicable for both joint custodians to be present in the strong room continuously, such as during a cash verification by another official, adequate steps should be taken to safeguard both the Bank’s and absent custodian’s interests. All safes and as far as possible, all receptacles in the strong room which are used for storing cash, foreign currency notes must also be under the double lock of the joint custodians with the exception of the receptacle used for the officer-in-charge (cash) to hold the odd balance in the notes, part of the branch cash balance, in his sole custody, under single lock Handling transactions in cash Handling of Cash Receipts JOs when accepting cash deposits shall

• verify the particulars regarding : • the name/type of account; • account number of the customer; • verify whether the voucher is filled in, as required; • in case of drafts/JOs, the relative applications are required to be made on the Bank’s

standard vouchers; please also refer to para 5.2 herein for details to be verified. • in case of fixed deposits, all particulars such as name, period, rate of interest are to be

carefully entered; in case of new customers, the formalities regarding introductory reference etc., need to be complied with by the respective staff.

• in case of bills transactions, the particulars regarding the value of the bill, interest and such other data should be authenticated by the staff concerned for accuracy etc.

• verify the denominations of notes in regard to quality and quantity;

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• enter denominations of notes/coins as actually received in Receipt scroll; • key in, the transaction, into the system; • enter the scroll number in his own manually maintained "Receipt Scroll’, as also the system

generated Transaction ID No., both in the counterfoil and in the voucher portion; • post the transaction to the account intended; • brand the branch ‘cash received stamp’, both on the voucher and on the counterfoil

portion; • return the counterfoil to the customer at the counter, duly initialled.

In case of receipts in cash for issue of drafts/TTs, the JO shall :

• satisfy himself as to the correctness of the details in the voucher regarding : • the place or branch where the remittance is to be sent; • the code number, correct name of the payee branch; • correct exchange for the transaction as also charges (or telex or such other) for TTs; finer

rates of exchange on transactions in the absence of approved arrangements, shall be authenticated by the officer-in-charge of drafts/TTs.

• signature of the applicant; The cash tendered shall be verified for each denomination; As far as possible, soiled notes shall be sorted out separately, while issuable notes should be bundled separately. Cash Payments In case of cash payments against cheques drawn on savings/current accounts, JOs on their authority can make payments upto Rs.25000/- per instrument. In other cases, cheques etc., must be passed for payment by an authorised official in terms of the scheme of delegation for passing powers. Before making the cash payout, the JO shall scrutinise :

• apparent genuineness of the instrument: alterations, if any, whether authenticated with full signature of the drawer, that there are no signs of tampering of the instrument etc.,;

• date (to make sure the instrument is not stale); • amounts in words and figures; • signature(s) of the drawer; • payee’s (in case of the cheque being presented by a person other than the drawer)

identification, if need be; obtain the signature of the payee at the back of the instrument • endorsements, if any; and • key in the cheque particulars.

The system will validate the transaction in regard to :

• adequacy of balance, • countermanding instructions, if any, • the cheque leaf numbers as pertaining to the account.

If the drawer’s signature needs to be verified, the system will provide on the screen, the specimen of the drawer’s signature as recorded. After verification as above, if the amount involved is Rs.25,000/- or less, subject to the cheque being verified to be in order, cash shall be paid over the counter by the JO after entering the transaction in his payment scroll, recording the denominations of cash given. Cash paid stamp shall be branded on the face of the cheque. The sequence in the scroll number shall be recorded on the instrument and the drawer’s signature shall be cancelled. In case the cheque is for an amount in excess of Rs.25,000/- after preliminary verification, the JO shall:

• enter the cheque with his ID number and record the transaction ID on the instrument • ‘Pay Cash’ stamp shall be branded on the cheque and after his initial the instrument passed

over to the authorised official concerned.

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The officer, on verification, by entering his password, shall post the transaction and pass the cheque for payment by affixing his signature under the stamp ‘Pay cash’. An entry is made in the cash scroll of the authorised official and the relative sequence number is entered below the signature. Thereafter, the cheque as passed, shall be handed to the JO for making the cash payout. The JO shall then :

• verify the signature of the passing official ; • whether the amount passed for payment is within the passing powers laid down* for the

official concerned; • verify the cheque in regard to date, amount in words and figures, • call the payee to the counter, • satisfy that the payee’s identity is properly established or on the contrary, no suspicion is

aroused in regard to the payee’s identity. • Passing powers as laid down in the scheme of delegation, for different officials at the

branch shall be made available to JOs handling cash

In case of cash is to be paid to third parties, for values exceeding say, Rs.5000/-, it shall be ensured that the payee or the person to receive the cash at the counter, is properly identified. In case of doubt regarding identity of the payee, the matter should be referred to the official who has passed the instrument for payment. Similar shall be the procedure for payment of cash for drafts drawn by other branches of the Bank or correspondent banks with whom the Bank has established arrangements. Barring self cheques, normally for cheques/drafts for large amounts the payees should be advised to have the ch eques credited through their accounts with the Bank or other banks, particularly in case of payees being corporate entities or partnership firms or trusts. As cash is paid to the person presenting the instrument at the counter, the JO shall:

• enter the details of denomination of the notes in the receipt/payment scroll; • also enter the payee’s name, drawers account number and amount paid; • the (sequence) scroll number shall be recorded on the instrument; • the signature of the drawer on the cheque/draft shall be cancelled, to prevent any re-

presentation of the same instrument; • cash paid stamp shall be branded on the instrument and initialled by the JO making the

payment. All such paid instruments, after tallying the cash with each JO’s scroll, after close of banking hours, shall be returned to the officer authorised, under acknowledgement, which may be evidenced by initiating the total no. of instruments in the JO’s scroll. Balancing of JO’s cash for the day After the day’s transactions are completed, the JOs (both in receipts/payments) shall add up the receipts/payments in the respective scrolls, verify the cash on hand and compare with what was taken from the officer-in-charge (cash) during the day, as available in their scrolls. After such tally, the scrolls maintained manually, shall be closed and the total written in words/figures, signed by the JO concerned. Also number of receipt and paid instruments shall be entered. The cash on hand shall be processed as detailed in subsequent paragraphs before handing these over to the Officer-in-charge (cash). Likewise, paid instruments shall be handed over and the officer-in-charge (cash) shall initial the total number of instruments in the scroll.

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Shroff ing After tallying the cash, each JO shall prepare, pertaining to the balance of cash on hand, note packets made up of 100 pieces for each denomination. The packets shall be made after sorting the notes into usable and non-usable categories. Each packet should be wrapped with a note slip printed on white paper for note packets of usable notes and pink paper for packets of non-usable notes. Wrapping should be around the left hand edge of the note packets in such a manner that the slip on the top covers two thirds or 75% of the note packet (100 pieces) on the front and remaining part of the note slip will cover the back portion of the packet. A packet of such notes so wrapped shall be stapled at the left side of the packet, in the middle portion (roughly at 1/4 or 1/3 of the packet). Only single stapling should be done, to preserve the quality of the notes for re-issue. A twine ring or rubber band should be tied around the packet to hold the packet tightly and loose ends of the twine should be cut out. In case of twine knot, the knot should be at the back of the packet. The position of the ring should be two or three mm. to the right of the staple pin. Thereafter, the JO who has prepared the packet, shall fill in the particulars like denomination, date and sign the note slip in the space with the legend "Examined an d counted by...". A paper seal, protective, colourless and transparent carrying the Bank’s logo, shall be affixed on both sides of the packet as to cover the note slip, the ring and the staple pin which is on the reverse. The seal should cover the knot, in case the ring is made of twine thread. The procedures laid down in the foregoing paragraphs, ensure that the JO preparing the packet is primarily responsible for the quality as well as the quantity of the contents, i.e. in regard to the number of pieces and quality/genuineness of the notes. His responsibility remains till the packet is dislodged or broken, elsewhere. For the number of pieces in the packet, however, an additional independent verification is done as detailed in subsequent paras. The balance of cash with all the JOs, processed and tallied in the above manner, shall be handed over to the JO holding joint custody of cash as indicated elsewhere in this chapter, who shall verify on a ‘gross’ basis, the arithmetical accuracy of the cash in amounts/denominations of notes/compared to notings in the JO’s scroll and acknowledge by initialling for the quantity, in the JO’s scroll and receive the notes for recounting and custody, thereafter. Recounting/Clip counting/Verif ication etc. The JO holding jo int custody of cash, thereafter, shall arrange for recounting of the packets (100 pieces each), either by himself or alongwith other JOs, depending on the volume of packets to be dealt with. Notes in the denomination of Rs.100/500 shall be verified by both the custodians of cash independently. Verification of other denominations may be done by clipping a few notes, through other JOs. As a separate check, joint custodians shall also examine a percentage of smaller denomination notes, clip counted/verified by JOs. Recounting involves counting of the notes to ensure that each packet contains 100 pieces, the note slip bears the branch stamp, date, and denomination. Where counting/recounting is done through machines, JOs/official concerned shall initial on the note slip for the verification which signifies the certification for the quantity. This is important, as subsequently, claims when arise, responsibility needs to be shared.

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Thereafter, the JO/official verifying the section shall sign in such a manner as to cover the note seal as well as on the note slip. This again would be crucial to determine or fix up responsibility when the quantity of notes in a packet is disputed. Normally, such occasions arise when RBI/SBI/other banks make a claim, when remittances are made. After verification, the note slips are returned or retained, as documentary evidence for such claims for the shortfall. ‘Clip counting’ means, in a manual system, a few notes being ‘clipped’ ( a portion of the note being folded inward); the employee to whom the packet is given for ‘recount’, verifies the remaining number of pieces and indicates the count on top of the note slip with his initials. The official ‘opens’ the clip and verifies whether the total pieces are 100 in the section; if not, the section is recounted in full. Irrespective of denominations of notes, clipping of packets shall be done by the JO holding joint custody of cash and counting should always be done by JOs, (other than the JO who has made the packet earlier). After ensuring the packet contains 100 pieces, the JO can initial, for evidence of recounting, for the quantity. After all the cash at the end of the day from all JOs are verified/recounted in the above manner, 10 packets in each denomination, shall be bundled and tied with a twine. Before bundling, the officer-in-charge (cash) shall ensure that all sections (packets) bear two signatures and branch stamp. The ‘net’ deposit of cash into the strong room is then reckoned by the JO holding joint custody of cash. Balancin g of day’s transactions/verification by joint custodians One of the JOs shall write up a summary of the cash transactions in the jotting book of the officer-in-charge (cash), payments/receipts wise as also JOs wise, from the JOs’ individual scrolls and reckon the net balance in the strong room/cash safe. At the end of the day, gross receipts/payments in cash as generated by the system, shall be verified to match with the aggregate in the scrolls of JOs in receipts/payments. This shall be done independently by the officer-in-charge (cash) with reference to the scrolls of the JOs and his own jotting book. In his jotting book, the officer-in-charge shall have recorded the actual cash taken out at the beginning of the day, further drawals/deposits during the day. This position should also be available, similarly in the Vault Register. Thereafter, the officer-in-charge (cash) shall close his jotting book for the day, under full signature. The officer-in-charge (cash) shall also verify and record in his cash payment scroll, at the end of the day, a summary of the cash receipts and payments :

• the total cash receipts as made out by the system. This should be equal to total receipts in the JOs scrolls;

• total of cash payments authorised by each official as entered in their respective scrolls besides payments authorised by the joint custodian himself;

• the authorised official shall, thereafter add to the total receipts, the opening balance. From the resultant total, if the total payments are deducted, the closing balance of cash is made out. This shall be equal to the position reflected in the Branch cash balance register. Against the total receipts and payments, the number of vouchers shall also be entered.

After the verification, as above, the officer-in-charge (cash) shall close his scroll for the day under full signature. Denomination wise, the cash returned by the JOs shall be jotted in the cash balance register as also those held in the vault in the strong room. Together, the aggregate value should be equal to the general ledger balance under ‘cash on hand’ in the branch books. The joint custodians shall verify each and every item of entry of cash in different denominations, as entered in the ‘Cash Balance Register’ and the actual cash in bundles/packets and in loose cash (broken).

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Before taking notes and coins into the ‘Joint Custody’ balance, the officer-in-charge (cash) shall check the correctness in the following manner : a. He/she shall verify all notes of Rs.100/- and above, and also a proportion of all other

denominations of notes on clip system as detailed earlier. b. The officer-in-charge (cash) shall have all bags of rupees and half rupee weighed in his/her

presence and a number of bags emptied to show that the contents are genuine coin. Out of proportion of the bags, he/she shall take and count a few pieces and have the remainder counted in front of him/her as a similar check to the ‘Clip System’ for notes, verifying the relative denomination slips in the bag at the same time.

The officer-in-charge (cash) shall satisfy himself/herself each evening that the ‘Joint Custody’ balance corresponds exactly with the entries in the cash balance book. At least once a week on different days he/she shall check the whole of the bank cash balance and evidence such check in the cash balance book, and agreeing into Bank’s Cash Balance with that of General Ledger. In evidence of having done so, he/she shall subscribe his/her signature with a narration "verified and found in order"; in the branch cash balance register. Any shortage in the cash balance, however occasioned, shall be debited to Suspense account, if not recovered from the concerned JO, the same day; the matter should be reported by the branch to Controling Authority and approval obtained to debit the amount to ‘Cash Shortages, Misc. Losses Account’, if the amount is not recovered in the meantime. All such deficiencies, frauds, including attempted frauds should be reported to Controlling Authority immediately. At the end of each quarter the latest developments sh ould be reviewed to the Controlling Authority. Any excess in cash balance must be credited to Sundry Deposit Account; refunds upto Rs.100/- may be authorised at branch level, after satisfying the genuineness of the claim; amounts in excess of Rs.100/- shall be refunded only with prior approval of the Controlling Authority. Whenever cash is brought, as per arrangements, from RBI or correspondent bank or from our own branch, or deposited into RBI/correspondent bank etc., the relative receipt/payment shall be scrolled in the JO’s scroll. Precautions/procedure for such transactions are detailed elsewhere in this chapter. The Joint custodians, alongwith one of the JOs, shall enter the strong room with the cash thus verified. The joint custodians shall make the corresponding entries in the ‘vault register’, denominationwise; both the officials shall authenticate individual entries in the Vault Register as also in the Cash Balance Register. Before deposit of the cash into the receptacles denominationwise, issuab le and non-issuable notes separately, the joint custodian shall examine the bundles, rings, loose cash before turning these into the vault. Miscellaneous aspects of cash transactions It is essential that cash held in the strong room, an asset of the Bank, shall be adequate to meet normal withdrawals at a branch; excessive holdings of cash would mean holding an asset without any return while demands for cash from customers MUST be met at all times, as failure to adhere to this obligation has legal and other dimensions to the Bank’s image. The joint custodians as well as the Branch Manager shall ensure that standby arrangements with correspondent or other nearby banks, are effectively placed on record in case of emergency, for smooth operations. Also, one of the demands of customers relate to supply of fresh notes in various denominations as well as supply of small coins, on occasions. The branch management shall constantly review the relative arrangements, for meeting the genuine demands of customers which may reflect on the quality of service rendered.

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Excess cash etc. Excess cash collected on any day, in excess of the cash retention limit prescribed, shall be remitted over to RBI or the nearby correspondent bank with whom the Bank has finalised agency arrangements or with any other nearby bank which the Corporate Office may approve of. All such transfers, from the cash aspect of the transaction, shall be governed by the following :

• determine the exact amount of cash, various denominations (acceptable to the other bank/branch, as normally smaller denominations may not be acceptable beyond a quantity);

• identify and verify the number of packets (bundles of the packets) in each denomination; • enter the exact amount of such remittances for withdrawal in the ‘vault’ register under

authentication of the joint custodians as also in the officer-in-charge (cash) jotting book; • cash shall be stocked neatly alongwith the summary of denominations of notes, in steel

boxes/trunks, one of the keys available with other bank, as per arrangement; the lock should be closed and sealed with a cloth. The key shall not be carried alongwith the box while in remittance;

• timings for remittances, as far as possible, should be kept secret; areas of tension, riots, civil commotions shall be avoided;

• transits within the city or town, shall be delivered on the same day, within the working/business hours, on the same day;

• an authorised official/JO shall accompany the remittance; security accompanying the remittance normally shall be armed with fire arms and/or non-lethal weapons;

In case of an inward remittance brought from correspondent/other banks/Bank’s own branch, at the Bank’s instance, the steel box in which the cash is brought, shall be opened by the Bank’s staff accompanying the remittance in the presence of the joint custodians in the strong room and,

• gross count of the remittance is taken; • detailed examination of denominations of Rs.100 and over, taken up; • necessary entries made in the vault register as well as in the officer-in-charge (cash) jotting

register; Blanket Insurance All transit risks, for remittances are covered by Bankers Blanket Indemnity at Corporate Office. Under Bankers’ Blanket Insurance Policy, losses of the following nature are covered up to the limits as advised by Head Office from time to time : a. Loss of cash or securities held in branches, loss of cash in transit between our branch as also

remittances between our Bank and branch of other bank (RBI/SBI/Correspondent or other banks).

b. Loss due to forgery, alteration and dishonesty of the employee. Branches shall keep their Controlling Authorities informed of cash retention or cash remittance in excess of the approved limits fixed to them. Cash remittances in excess of the approved limits should be advised to Insurance Company for transit cover in a letter in duplicate. After the receipt of the duplicate, it should be held in the branch files, as acknowledgement. Remittance/withdrawals from Reserve Bank of India The procedural steps for cash deposits/withdrawals from RBI are as follows : Cash deposit a. Notice is given to RBI - Issue Department (Currency Officer) generally on the previous day with

details of denominations; b. By 11 am, cash accompanied by a JO and an armed guard, in a closed van, should reach RBI; c. Details of remittance are filled up at the branch before cash is taken out; d. A bond is issued for denominations of Re.1/- and another bond for other denominations

towards any cut/counterfeit notes, if found (Annexure ‘B’);

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e. In case of shortage of staff/time, RBI may take the cash into a "Triple Lock Guarantee Bond System". A convenient date is allotted to count the cash but credit to the account is given immediately.

Cash withdrawal a. A cheque drawn on the Bank’s account with RBI attesting the signature of the JO for the cash to

be drawn. b. A system at RBI begins well ahead before tokens are issued. For new notes upto a value of Rs.1

lakh, a requisition needs to be issued to RBI. Normally, deposit and withdrawal are not permitted on the same day.

Cash Retention Limit The Cash Retention Limit for Nariman Point Branch is Rs. 1,00,00,000/-(Rupees One Crore Only), ie the total of Cash balances held as at the end of the working day should not exceed Rs. 1 crore. The retention limit covers the cash balances held at the Branch and all the extension counters of the Branch. Maintenance of the cash balances within the retention limit is important, since cash is an idle asset and the cost associated with holding cash is very high to the Bank. A fortnightly report is prepared and sent to Corporate Office stating the cash holdings of the branch as at the end of each day. This report also underlines the reasons for excess holdings of cash over and above the retention limit, if any during the fortnight. Clearing is the process by which banks exchange instruments drawn on one another. The clearing infrastructure is designed to address the movement of instruments between the presenting and drawee branches. Each member bank is represented in the clearing house by its service branch, which collects all the information from the various branches and consolidates them for presentation to all the banks in the clearing house. Similarly, it receives and distributes among its branches all the instruments drawn upon its branches by other banks in the clearing house. The service branch of a bank performs a crucial intermediary role between the clearing house and the branch of a bank. The clearing process The clearing process begins with the deposit of instrument with the bank (presenting bank). All branches similarly cumulate the instruments received during banking hours and send it to the designated place called clearing house. At the clearing house the instruments are sorted depending on the drawee bank and delivered to the service branch of the bank. The service branch in turn segregates the instruments and delivers it to the drawee branch. The instrument is passed for payment if the funds are available and the banker is satisfied about the genuineness of the instrument. The instruments that are unpaid are returned to the presenting bank through another clearing called Return Clearing. The realisation of funds occurs after the completion of return clearing and by the absence of an unpaid instruments. Instruments Accepted Instruments presented in clearing include cheques, demand drafts, dividend/interest warrants, pay orders or Banker’s Cheques, gift cheques and Indian postal orders, but shall not include coupons and fixed deposit receipts.

V. Clear ing

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Verif ication at the Counter The instruments together with the pay-in-slip tendered by the customer should be verified to ensure that: • all particulars are duly filled in the pay-in-slip, • the pay-in-slip is duly signed by the depositor and the instrument is drawn/duly endorsed

favouring the depositor only. In all other cases, reference should be made to the Officer-in-charge (Operations) before accepting such a cheque.

• instruments tendered are in order, i.e. these are not out of date/post-dated, bear the signature of the drawer, etc.,

• material alterations, if any, on the instruments have been duly authenticated by the drawer under his full signature.

Clearing House The Clearing House facilitates prompt settlement of cheques between participating banks to enhance liquidity. All metropolitan, urban and semi-urban centres have clearing arrangements. Depending on the volume, more than one Clearing House is available at certain centres. For example, at Bombay, the relative schedule is presently as under: • High Value Clearing • Inter Bank • MICR • Interest/Dividend Warrant Clearing Management of Clearing House The Clearing House is established under the aegis of Reserve Bank of India (RBI). Uniform Regulations and Rules have been framed by RBI, which govern the functioning of the clearing house. Generally, RBI undertakes management of Clearing House wherever it has offices of its own. At other centres, State Bank of India (SBI) or one of its associates is normally authorised. Clearing in 13 major zones is managed by the RBI and the rest by the State Bank of India (with 51% ownership by the RBI) and its associate banks. In the absence of either, one of the public sector banks at that centre, as specified by the RBI, shall be the Bank to manage the Clearing House. The President of the Clearing House presides over the daily operations. Broad guidelines for conduct/ administration of clearing house are laid down. The Clearing House authority decides the matters relating to attendance of the representatives of the member banks, furnishing of statements regarding instruments presented and the amount thereof and also the discipline to be o bserved by the member banks for returning of instruments, etc. Barring major clearing zones, clearing is a manual process where instruments are manually sorted. the amount due to or from the bank. Clearing Hours Clearing hours are specified at each centre according to local requirements and branches should strictly adhere to these timings. Sub-members, as a corollary, should correspondingly adhere to the timings for their presentations/ delivery and collection of inward/ returned instruments, through the sponsor bank. High-value Clearing High-value clearing is a value-added clearing process. A high-value cheque deposit is credited to the account on the same day as the date of deposit. For a cheque to be presented in high-value clearing: • the cheque amount should be greater than Rs.100,000; • the drawee and payee banks must be situated within the central business district defined by the

clearing house;

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• the cheque should b e deposited before the cut-off time for that city. High value clearing is a value-added service. In this clearing select branches located in a central business/commercial area and in the vicinity of the Clearing House/Service Branches of banks present instruments deposited by their customers, to the clearing house. The instruments are dropped into the respective receptacles of the drawee banks and settlement is carried out through floppy based input statement. The return clearing is held before close of banking hours on the same day. In case of high value clearing the credit given to the account of the depositor before the fate of the instrument is actually known. Local MICR Clearing MICR Technology The introduction of MICR technology has resulted in the following benefits : • considerable improvement in the area of customer service by affording credit by reducing the

time taken in manual clearing • abolition of second clearing as unlimited number of instruments can be presented in a single

clearing • the high speed reader-sorter machine installed is capable of handling the voluminous

operations in entirety both in terms of accounting and sorting the instruments Bank/ branchwise.

• the accuracy in processing reduces the errors, thus enabling speedy reconciliation. • accountwise sorting - Current Account, Savings Bank Account, etc. M.I.C.R. Instruments Under the Magnetic Ink Character Recognition Technology (MICR), cheque leaves carry pre-printed code numbers which are explained below: a) The first six digits indicate the cheque serial number; b) The second group of nine digits in the sort code indicate

- First three digits −− −− −→ City code; - The next three digits −− −− −→ Bank code; - The last three digits −− −− −→ Branch code;

c) The third group of six digits represent account number. d) The next group of two digits indicate the transaction type, such as current account, saving Bank

account, drafts, etc. The last group of 13 digits represent amount field, which should be encoded at the branch before presenting an instrument in clearing. Cheques that cannot be deposited in high value are processed in MICR clearing, in which all banks participate. Cheques are encoded and lodged with the clearing house, which processes the cheques and delivers them to the respective member banks for settlement. MICR is operational in 20 cities and follows a 48-hour cycle as follows:

Day 0 – cheques are received by the clearing house and presented to the paying bank. Day 1 – the paying bank credits funds to the presenting bank; however, funds are still on an uncleared basis to allow time for returns. Day 2 – there is a time window to allow for returns after which clear funds are available in the recipient's account. However there could be a counter return on Day 3.

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Inter-bank Clearing Inter-bank payments are usually settled among banks by issuing cheques drawn on their accounts with RBI. This practice resulted in a large number of cheques being presented to Deposit Accounts Department (DAD) of the RBI, leading to heavy work pressures throughout the day. It was therefore decided to start a separate Inter-bank clearing. In the Inter-bank clearing banks no longer use the RBI cheques to settle their claims against each other. Instead, they use their own Bankers Cheques. The settlement is carried out through Floppy Based input statements, submitted to the designated receptacles. Since there is no return for these instruments, the credit/debit is instantaneous. Inter-bank clearing is used by banks mainly for four types of transaction: call money transactions, rupee payment of foreign currency transactions, bank to bank transfers for funding upcountry requirements and inward remittances. Computerisation of service branches and clearing houses (both MICR and floppy based) at banking centres with large volumes of business has resulted in the creation of a base for the introduction of automated clearing operations at other centres. This has also enabled the introduction of electronic payments service on an experimental basis so that future expansion of these services using the clearing infrastructure is possible. However, there is a lot of scope for developing backward and forward linkages to fully utilise the advantage of the item-wise database created by the MICR cheque processing. Clearing Settlement Account Banks participating in the Clearing House are required to maintain a current account with the bank managing the Clearing House, for purpose of settlement of funds on account of clearing. This account shall be debited/credited with the net amount payable/receivable through clearing. Overdrawing facilities are normally made available for exigencies. Clearing Settlement The settlement of funds in clearing occurs at several levels. The aggregate amount or value of cheques presented by a bank on other banks represents the claim by that bank on the other banks. All the banks make similar claims on every other bank in the clearing. The value of instruments (i.e. total of schedules) drawn on the Bank and the value of instruments on other member banks is ‘netted’ and either recovered from or paid to the Bank by debiting or crediting our account with the bank managing the Clearing House. This would mean that the Bank (branch) has to ensure that adequate balance is always maintained in the account. For efficient liquidity management, unremitting attention should be paid to ascertain on a daily basis, the ‘net’ position. Constant feed back should be provided to Corporate Treasury, with implicit promptitude, in regard to the funds requirements/surplus. This represents the inter-bank settlement. The settlement of funds between the service branch and the branch concerned represents the transfer of funds to the branch level. The payment process is completed only when the funds are debited from the drawer’s account and credited to the payee’s account. This occurs after the completion of return clearing. Normally, the overdrawing arrangements exist with the bank managing the Clearing House. Besides, for emergent requirements, branches should align with oth er banks to meet contingencies, with the approval of the Corporate Office. For instance, at certain centres, for small amounts (say, upto Rs.1.00 Crore), local branch of other bank provide overnight call money. However, it is to be noted that all borrowings, including overdrawings in the Current Account with the bank managing the Clearing House, shall be reported to the Corporate Office the same day. All borrowings shall be authorised only by the Corporate Treasury. Extra care should be exercised to desist from overdrawings/borrowings on the “Reporting Fridays”.

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Settlement of Clearing Difference In case of discrepancies in clearing settlement, the concerned branch should immediately take up the matter with the respective Bank(s), by furnishing full particulars of the underlying instruments, the amount of discrepancy, etc. Outward Clearing Instruments lodged by the customers for collection, if payable at the same centre are to be presented through clearing house for payment. Normally, areas are defined by local Clearing House. These instruments are called outward clearing instruments. . Branch shall sort the cheques bankwise and prepare a separate outward clearing schedule for each member bank listing out the instruments drawn on the respective member banks together with total of such instruments. These schedules are exchanged by the clearing members at the Clearing House at designated time. Presentation of Instruments All instruments, depending on the time of receipt and value should be sent in MICR Clearing or High Value Clearing as the case may be. At centres where no such differentiation exists, the instruments should be consolidated for presentation in a single lot. Bankwise totals and total number of instruments presented on each bank and the grand totals, should be generated in the format prescribed by the Uniform Regulations and Rules (URR) of the respective Clearing House. Listing of Documents It is the responsibility of the presenting bank to ensure the correctness of the instruments accompanying the list as also its arithmetical accuracy. The Clearing House representative is authorised by the Bank to present and collect instruments from the Clearing House on behalf of the Bank. He/she is however, not authorised to alter the list or delete or remove instruments therefrom, or refuse to receive the lists and instruments of any member-bank or its sub-members unless specially authorised to do so by the supervisor of the Clearing House, for valid reasons. Procedure At MICR Centres At centres where MICR technology is in use, the bank receiving the instruments encodes the amount field of each cheque. The usual clearing house stamp, endorsements, etc. are dispensed with and the date of presentation, the branch/ bank presenting the instruments, etc. are incorporated on the instruments when these are encoded. It also prepares a batch ticket for every set of instruments presented. The number of instruments for each batch is prescribed by the Uniform Regulations and Rules (URR) of the respective Clearing House. The batch ticket is encoded with the date of presentation, presenting bank and branch code, batch ticket code (555 - the code which will indicate to the reader-sorter machine that the ticket is a batch ticket and not an instrument), the number of instruments and the total amount of the batch. A batch generally consists of 250-300 instruments. Shadow Balance In the case of local instruments, the credit is afforded to the customer’s account as soon as the clearing is settled, i.e. the day on which the relative funds are available to Bank. This represents the amount of cheques (presented through clearing) for which the Bank has received the credit and the respective amounts in turn credited to party’s account but awaiting fate of cheques. This credit is available only as ‘uncleared balance’. This balance is taken into consideration for calculation of interest, but withdrawals are not permitted until the completion of return discipline time stipulated for that clearing zone.

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Inter-City - Credit In case of instruments presented through inter-city clearing, credit is afforded to the customer on the day on which the Bank’s account with the Clearing House/sponsor bank is credited and the relative credit advice is received by the branch. Inward Clearing The instruments received by a bank at the Clearing House from other members are called inward clearing instruments. Process of Verification Each member bank, on receipt of the inward clearing list alongwith the instruments, should verify the number of instruments and value thereof. Sponsor members are also to receive the inward clearing list, alongwith the instruments pertaining to the sub-member bank. The sub-member bank should pick up the list and the instruments for similar processing at its end and ensure adherence to the return clearing discipline of the clearing house, as detailed in subsequent paragraphs. After initial verification of the total number of instruments and the value thereof, the instruments should be processed for payment by respective sections at the branch. This should be done on a priority basis to enable the branch to conform to the return clearing discipline. In order to ensure against misuse or other risks in handling the clearing prior to verification and posting, the following procedure should be followed : • verify that all the instruments are drawn on the branch • all instruments on receipt should be branded with the Bank’s inward clearing stamp • the instruments should be verified with the list furnished by the Clearing House, for the correct

number of cheques/other instruments and value • maximum physical control must be exercised over the instruments whereafter these are passed

on to the respective sections for immediate processing • the instruments should be subject to the normal scrutiny process before posting in the

respective customer’s account and passed for payment. The instruments are entered in the system and the validation run is conducted by the official-in-charge to check each account for the following: i) sufficiency of funds; (ii) whether cheque pertains to that account or not; (iii) any countermanding instructions like any ‘stop’ payment instructions or court/income tax attachment, etc., cheque already paid/ stopped, etc. It will also give a warning of any exception that may arise out of the actual inward clearing debit. A printout of this validation run is to be taken, perused and preserved carefully. Suitable action needs to be initiated to deal with the exceptions. Once the validation run is done, the system records the pipeline debit in the respective accounts pending posting. It is, therefore, desirable to carry out validation run before verification, if the verification process is expected to be delayed, to ensure that amount of instrument is earmarked wherever there is a mistake in data entry regarding cheque number/wrong account number, no amount is reserved by the system. Role of Bank’s Clearing House Representative At centres where clearing is not computerised, the Clearing House representative (CHR) should be provided with a register in which the number and amount of the instruments received and delivered are recorded. The CHR should handover to the sponsor bank branch, the instruments together with a delivery slip: and should also receive the instruments drawn on CHR’s Bank alongwith the delivery slip. After comparing the delivery slip with the instruments received and verifying the totals, the CHR should total the receipts from the deliveries to the other member banks in the register, strike the ‘net’ position to arrive at.

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6.1 Demand Drafts At the draft issuing branch At the draft issuing branch, Inter Branch Drafts Account is maintained. On receipt of cash/credit through the account of a customer, the amount of draft excluding exchange will be credited to this account, as an originating credit to the branch on which the draft is issued. For issue of Bank’s own drafts, no other account should be accessed.

Finnacle system will generate at the end of the day, for Corporate Office, a file of all IBR entries including drafts issued with details regarding

• system generated draft number • date of issue • amount of draft • drawee branch • payee’s name

At Corporate Office on receipt of these files from all branches through the system, they will be processed and branch-wise files of drafts issued on each branch prepared. These files will be disseminated along with other IBR entries, from Corporate Office, to all branches on whom drafts are drawn.

At the drawee branch The following accounts are maintained at the drawee branch

• Drafts Payable Account

• Drafts Paid Ex-advice Account Drafts payable account On receipt of the computer file of drafts issued by other branches, the draft amount will be automatically credited by the system to Drafts Payable account

As and when the computer file of drafts issued by other branches is received, an entry as above is automatically passed by the system for the drafts drawn on the branch. When a draft is presented for payment the first effort should be to pay it by debit to Drafts Payable Account. In most cases, the relative advice of drafts would already have been received (through the computer file mentioned above) and the credit would be available in the account. For this purpose, the following particulars viz. Draft no., date of issue, amount, issuing branch code are required to be keyed in. The entry to be passed is:

Dr. Drafts Payable Account Cr. Cash or Party’s account

However, where the original entry is not available in the Drafts Payable Account, it would imply that the computer file of drafts issued has not been received or the relevant entry is not in the file received. In such a case the entry should be put through the Drafts Paid (Ex-advice) Account as mentioned in the following paragraph.

VI. Fund Transfer

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Drafts Paid (Ex -advice) Account This account is debited when a draft is paid without advice. That is, if an advice of a draft issued by the Bank’s branch is not received by the drawee branch through the computer file mentioned earlier, subject to other procedural requirements, payment of draft should be debited to this account by passing the following entry.

Dr. Drafts paid (Ex-advice) Account Cr. Cash or Party’s account, as appropriate

Once a draft is paid ex-advice by debiting Drafts paid (Ex-advice) account, it should be ensured that the relative credit is received through the computer file in a day or two. Entries in the Drafts paid (Ex-advice) Account should be closely monitored. No entry should remain outstanding for more than 2 days. In case of delay in receiving the relative entry the matter should be taken up with Corporate Office and the issuing branch.

At commencement of the day, therefore, when the system uploads all IBR transactions, all entries regarding drafts issued by other branches should be verified to ensure whether any of them relates to entry outstanding in the Drafts paid (Ex-advice) account. If any such item is noticed, the following entry should be passed manually:

Dr. Drafts Payable Account Cr. Drafts Paid Ex-advice Account

Drafts paid Ex-advice account should be scrutinised daily by Officer-in-charge. These entries should be pursued for receipt of relative entries through the computer file. On receipt of such entries, entry in Drafts paid Ex-advice account should be reversed. Effect on the Bank’s Demand and Time Liability (DTL) The net balance in the following accounts constitutes the ‘DTL component’

• Inter Branch Drafts account • Drafts payable account • Drafts paid (Ex-advice) Account

Issue of drafts The system prints the particu lars on the draft form as and when the relative transaction is keyed in (viz. System generated draft no., name of the payee, date, amount in words and figure, branch where drawn with branch code no. etc.). The system generated draft number is essential reference number for all enquiries. The system will print drafts only after posting and verification is done. The application for draft must be signed by the customer himself, or by a person authorised to operate the account where a draft is issued by debit to a customer’s account. Drafts can be issued by accepting cash only upto Rs 50000. Issue of drafts for Rs.50000/- or more from public should be only by debit to the applicant’s account vide RBI Cir. No. BP.BC.114/C469 (81)-91 dated 19-04-91. It should be ensured that the customer’s cheque is accompanied by draft application duly signed by him or by a person authorised to operate the account. Before signing the draft for issue, the officer concerned should verify for correctness the particulars on the draft printed by the system, such as payee’s name, drawee branch, amount in words and in figures etc. Also the printed serial number (other than the system generated serial number) on the draft should tally with the number displayed in the screen. Drafts should be signed by Officers whose specimen signatures have been circulated by Corporate Office to various branches/banks. The specimen signature number should invariably be mentioned below the signature.

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As a protective arrangement, boxes are provided on the right hand side of the draft with numbers ranging from 0 to 9. Further, series of the draft, OT, TT, OL, etc. is also provided on the left-hand side. Appropriate box should be crossed, before handing over the draft to the applicant. If a draft form is spoilt in preparation for any error/mistake, the form should be cancelled and a fresh one should be issued. The instruments so cancelled should be preserved separately and should be destroyed in the presence of internal auditors during inspection. The draft should be delivered against the recipient’s acknowledgement on the relative application form.

In case of issue of drafts for large values, say over Rs.10 lacs, on our branch where RBI is not established, the issuing branch should advise drawee branch by Email the particulars of such drafts viz., the draft number, payee’s name and amount. This would enable branches at centres where RBI is not established to make arrangement for funds to meet the payment as and when the draft is presented. Payment of drafts Once the draft is presented for payment, before authorising payment, the staff concerned should verify

• date of the draft (to know whether it is stale) • payee’s name/endorsement including clearing bank’s discharge where appropriate • amount in words and figures • signature of officer(s) on the draft • protective arrangement

Draft is a negotiable instrument and requirements under the Negotiable Instruments Act 1881 like endorsement etc. are applicable. Drafts like other negotiable instruments are current for a period of six months from the date of issue. If any draft is presented after six months from the date of issue, the instrument should be returned with the objection “requires revalidation”. Drafts when tendered over the counter may be passed by the officials as per the Scheme of Delegation of Financial Powers. In case of large value drafts for cash, say over Rs.5,000/- it shall be ensured that the payee or the person to whom payment is to be made is properly identified. In case of doubt regarding identity of the payee, the matter should be referred to Manager (Operations) or such other official. Payments for Rs.50,000/- and above should be made through banking channels and not in cash. In case a draft is presented for payment where the relative reporting advice has not been received from the issuing branch, payment may be authorised by debit to Drafts Paid Ex-advice account if the payee is properly identified and the branch is satisfied with the bonafides of the payee. Such payments should be authorised only at the level of Deputy Manager and above, even if value-wise the payment is within the passing powers of the staff concerned. In case of a draft presented for payment, particulars of which are at variance compared to the particulars recorded in the system (like payee’s name, date, amount etc.), immediate reference should be made to the issuing branch for correct details. If required, a reference should be made to the Corporate Office. In such cases, if the draft is to be paid, it should be debited to the Drafts paid -Ex advice account. On receipt of the related IBR entry or details from the issuing branch, the entry in Drafts Paid-Ex advice account should be reversed.

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Issue of duplicate draft when draft is reported lost When a draft is reported lost and a duplicate is required At the issuing branch Such requisition should be in writing signed by the applicant of the draft Notify the drawee branch immediately to exercise caution, if the draft is presented for payment Obtain confirmation from the drawee branch that the draft in question has not been paid; such confirmation should be attached with the voucher for issue of duplicate draft Obtain a (stamped) letter of concurrence from the payee for issuance of duplicate draft in case it has been delivered to him

Obtain a letter of indemnity on form prescribed.The indemnity to be obtained need NOT be attested. The indemnity, however, should be stamped.

In specific cases, the Branch Manager may dispense with the second surety and need NOT insist on two sureties ; however, the relative reasons should be recorded. The issue of duplicate draft is to be recorded in the relative draft application voucher noting the date of issue of the duplicate draft. A duplicate draft thereafter is to be issued which will be marked by the system as “DUPLICATE”. The drawee branch should be advised by issuing branch of issue of such duplicate draft. Where the request for duplicate draft pertains to a draft issued by the branch by way of proceeds of collection items realised on account of other banks/firms, companies etc., indemnity need not be insisted upon. A simple letter may be obtained from the payee to confirm that the draft in question has not been received by them (payee) with an undertaking to return the original draft, if found/received later. The indemnity form together with applicant’s letter and confirmation received from drawee branch about non-payment of the draft should be entered in Branch Documents Register in the relevant section. At the paying branch When an advice is received of a draft reported lost Verify whether the draft in question is already presented and paid; check in both Draft Payable as well as Drafts Paid Accounts. In case it has already been paid, recheck the payment made and confirm whether it is in order; in case of doubt, matter should be taken up with the issuing branch and if necessary, with Corporate Office immediately. In the event of a lost draft being presented for payment (before the duplicate is paid) care must be exercised to ensure that the payment to be made is in order. If the same is presented in clearing, the following is to be ensured. The draft presented in clearing should be returned to the presenting bank with the remarks “ DD reported lost by the purchaser. Please confirm that the payee’s account will be credited and present

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again”. When the presenting bank confirms the same, the original draft should be paid. When the duplicate draft is presented, it should be returned with remarks “original paid already”. The payee branch should initiate further action through the draft issuing branch as considered appropriate, for advising the applicant, invoking the indemnity, etc. Cancellation of draft Demand draft should be cancelled only by the issuing branch. When a draft purchased is required to be cancelled, the following procedure will be followed At the issuing branch Obtain a letter from the applicant of the draft; in case of non-customers, verify the signature of the applicant in the relative application form. Verify that the draft returned for cancellation is in order. No extraneous endorsement should appear; if any endorsement is observed, the same should have been cancelled by the respective endorser. If cash is to be paid to the applicant by cancellation, disch arge over revenue stamp on the reverse of the draft should be obtained with the endorsement- “Received payment by cancellation” Where the draft cancelled is for Rs 50,000/- or more, payment should not be done in cash. A manual register-‘Drafts Cancelled Register’ should be maintained to record details of drafts cancelled. This register should be checked at the time of duplicate issue/cancellation to ensure against cancellation for the second time. 6.2 Banker’s Cheque Banker’s cheque is an instrument for making payments of various expenditure items of the Bank. TTs or such other funds received from elsewhere for persons who do not maintain accounts with the branch. Occasions may arise, when instead of taking bank drafts for making local payments within the town or city, banker’s cheques are issued to applicants. Such transactions shall be handled for a fee at rates laid down in the `Directory of Charges’. Banker’s cheque account is maintained as a pointing type account. Debits are permitted only against an earlier credit entry. Hence, all debits to this account shall carry in the voucher, the date of the earlier corresponding credit entry. Where multiple credits for like amoutns are there, the possibility of reversing a wrong credit entry cannot be ruled out. Branches need to exercise caution while reversing such entries. Separate cheque book should be utilised for issuing Banker’s Cheques which shall be in the custody of an authorised officer. At the beginning of the day when blank cheque forms are given to JOs, for exercising control, these should be entered in a Security Forms pass book with the following columns. At the end of the day, the unused forms should be entered and the officer-in-charge, after verification, should take them into his custody. As on the last day of each month, the outstandings in the account shall be listed out for reconciliation with the balance in the general ledger account under this head.

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In case of a request for issue of a duplicate banker’s cheque, the following procedure should be followed :

Obtain a letter from the applicant stating

• the circumstances under which the cheque was lost with an undertaking to handover the instrument if found later, and

• agreeing to make good the loss to the Bank in case of any double payment

The indemnity form prescribed for issue of a duplicate draft should be obtained for issuing duplicate Banker’s Cheque by modifying the same suitably. The indemnity should be entered in Branch Documents Register in the relevant column.

Verify in the system that the cheque in question has not been paid ; verify the inward clearing of the day yet to be posted to ensure that the original Banker’s Cheque has not been received in the inward clearing. The amount of the Banker’s Cheque should be debited to “FP/PO Banker’s Cheque Payable Account” and the original entry should be marked off with a remark in the relative voucher that the cheque in question is reported lost vide the applicant’s letter. The amount should be simultaneously recredited to Banker’s Cheque account for issue of a fresh cheque. A noting in red ink should be made prominently in the new Banker’s Cheque as “Issued in lieu of Banker’s Cheque No.________ Dated _______”. At annual intervals, Corporate Office will send instructions to bran ches to transfer Banker’s Cheque items outstanding for long in branch books. The Banker’s Cheques may be transferred to Corporate Office. If payment is demanded at a later date of the items transferred to Corporate Office, the branches should follow the procedure detailed below.

(i) If such banker’s cheques are presented for payment (before revalidation), it should be returned unpaid with the remark “Stale Cheque”.

(ii) In case, the purchaser requires revalidation, the branches should do the revalidation after consulting Corporate Office.

(iii) In case, the purchaser requires cancellation of the Banker’s cheque, the branch should consult Corporate Office before cancellation.

(iv) Payment of such revalidated item or cancellation of any such item should be made by debit to Corporate Office. The original Banker’s Cheque after payment or cancellation should be sent to Corporate Office by retaining a xerox copy at the branch. Corporate Office will respond to the branch debit based on the original Banker’s Cheque received from the branch.

The list containing the details of such banker’s cheque, (which are controlled in Corporate Office) should be kept in a separate file in the custody of Branch Manager / Officer-in-charge. A copy of the list should also be retained at the desk of the Junior Officer who is looking after issue and payment of banker’s cheque to ensure that no such outstanding banker’s cheque issued and presented for payment is returned without verifying the list. 6.3 Anywhere Banking Anywhere Banking was introduced from January, 1999. Branches shall offer the following facilities under Anywhere Banking services. Salient features of the Scheme are given in this Chapter.

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For savings account customers Cash withdrawal Customer can withdraw upto Rs. 15,000/- per day at a satellite branch. Anywhere Banking facility should not be extended for amounts above Rs. 50,000/. This facility is available to NRE and NRO account holders also. Charges: NIL Cash Deposit Customers can deposit cash at the satellite branch for credit to their account with the base branch. Cash deposit per day at a branch will be subject to a limit of Rs. 50,000/- as per guidelines given in RBI circular DBOD.No.BP.114/C.469(81)-91 dated April 19, 1991 for acceptance of cash. This facility is not available to NRE/NRO account holders. Charges: NIL Local cheque deposit at satellite center Subject to a maximum of Rs. 15,000/- cheques payable at satellite centre can be deposited with any of the branches in the satellite centre. The same will be collected through local clearing and credited to the account of the client at the base branch. The proceeds of the cheque will be credited by the satellite branch to the customer’s account at the base branch only after clear funds are available, i.e. shadow balance credits are not possible. This facility is not available to NRE/NRO account holders. Charges: NIL Balance inquiry A customer after proper identification can avail of this facility at any of the satellite branches. Facility is available to NRE/NRO account holders also. Charges: NIL Statement of account This facility should not be extended at the satellite branches. Funds transfer Funds transfer between two remote branches should not be permitted, i.e. a customer cannot request branch 3 to debit his account in branch 2 and credit proceeds to his account in branch 1. Issue of Banker’s Cheque/demand drafts Banker’s Cheque and demand drafts can be issued at a satellite branch up to Rs. 50,000/- by debit to the account at the base branch through a cheque payable to “Yourselves”. This facility is not available to NRE/NRO account holders. The account holder should invariably sign the draft application form. Charges: As per the directory of service charges. Multicity cheques This facility should not be extended to savings bank account holders at this stage. Collection of upcountry cheques at satellite branches. Under this facility, the customer of a base branch is given separate chequebook pertaining to the chosen satellite branch. The customer can issue cheques payable at such satellite centres. The satellite branches will pay these cheques through local clearing by debiting customer’s account maintained at the base branch. The advantage is that the customer need not open multiple accounts and also need not come to the branch for obtaining a draft on a satellite centre. Wherever a branch wants to offer this facility, they should contact Administration Department at Corporate Office for printing MICR cheques with MICR Code as 29.

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Even though signatures of the client at the base branch can be accessed through the system, as a fall back measure, the base branch should circulate the signatures of authorised officials for the specified account and the operating instructions to all the identified satellite branches. Ideally, the base branch will accept stop payment of cheques. However, if such an instruction is given at a satellite branch, it can be accepted only on a best effort basis. This should be made clear to the client. Maintenance of account The original cheques (for instance cash cheques, cheques favouring “Yourselves”, etc.) would be retained at the satellite branch which has paid it. In case of need, the base branch can get a copy from the respective satellite branch. The account would be maintained at the base branch as any other normal current accountThe cheques paid at other centres would be reflected in the account as normal cheque debits with suitable indication in the transaction details for the branch to identify them as Anywhere debits. In case the base branch is having holiday on a day when satellite branch is working (or the server is not available for any reason), the cheques would be paid by satellite branch to the debit of an interim suspense account. For this purpose, the base branch in consultation with Corporate Banking Department will fix a suitable limit for each satellite branch. These cheques would be debited to the account through Anywhere Module on the next working day. This facility is available only for select corporate accounts and not for savings account holders. An interim suspense account, SA/ANYWHERE has been opened at all satellite branches for routing inward clearing cheques as inward clearing module does not directly support Anywhere transactions. This account should be used for parking debits, if the base branch is having a holiday where a separate limit is made available for select Corporate customers as stated above. Other than the debits on a holiday, the account would have NIL balance at the end of the day. A consolidated report giving details of all Anywhere transactions done at a branch should be generated at the end of the day using option MQTDESRP. This report should be treated as a consolidated voucher for all Anywhere transactions of the day at the base branch. At the base branch, the report will form the supporting document for the debits passed in the account. At the satellite branch, the report forms part of IBR vouchers. In the following four instances, branches will not be able to put through AWB transactions:

• Once the EOD process is initiated at the base branch • Base branch server/data base is down • Base branch has a holiday • When VSAT communication link with the base branch is down

6.4 Inter-branch Transactions Objective To facilitate settlement of transactions between branches as well as between branches & Corporate Office or vie-versa. IBR Centre set up by the Corporate Office does the reconciliation of entries.

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Types of Transactions Originating Transactions Originating transaction means raising a credit or deb it transaction on other branches or on Corporate Office. Branches should normally avoid originating debit transactions. Only in cases where no alternatives are available should the branch originate a debit, that too after confirming with the other branch about the availability of sufficient balance in the account. The responding branch should necessarily reserve the amount in the said account, hereby ensuring the same is not withdrawn. While putting through Originating transactions, the following details have to be given • Transaction Category code • Responding Branch Code • Extension Counter Code • Particulars of the transaction • Bill No. and date in case of Bill type of transaction Responding Transactions Responding transaction are entered from the Transaction List (TLR) generated by the system. The details of the transaction as well as the account to be debited/credited, as the case may be is available in the TLR. While putting through Responding transactions, the following details have to be given • Originating Branch Code • Advice Number and date • Transaction Category code (TCC) • Bill No. and date in case of Bill type of transaction Nature of Transactions is il lustrated in the Annexure 2 attached.

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Payment of cheques One of the principal functions that a bank performs is related to the payment of customer’s cheques. What is the nature of this obligation, what disabilities he is likely to suffer for not performing this duty, etc. is proposed to be discussed under this section.

Duties of paying banker The duties which a paying banker is set out in Section 31 of the Negotiable Instruments Act, 1881 as under:

"The drawee of a cheque having sufficient funds in his hands, properly applicable to the payment of such cheque must pay the cheque when duly required so to do, and, in default of such payment, must compensate the drawer for any loss or damage caused by such default".

This duty is only towards the drawer but to none else.

Obligation is subject to conditions As can be seen this duty is subject to certain conditions:

• Obligation arises that he should be properly required to make payment.

• He has funds of the customer in his hands.

• He is legally required to apply it in payment for the purpose.

These conditions could be examined in greater detail under the following conditions.

A) Relationship

The account relationship between the banker and customer should be subsisting. In other words, the account should not have been closed as the relationship comes to an end on that event. The banker is not bound thereafter. Accounts may be closed either by the customer or by the bank after giving sufficient notice to the customer.

B) Adequacy of funds

A banker is under no legal compulsion to honour the cheque of his customer in the absence of sufficiency of funds or if an arrangement or grant of an overdraft has not been concluded. (SBI Vs. Sambamurthy AIR 1988 ORISSA 50)

Here again, the banker is not bound to combine the different accounts maintained by the customer for the purpose of meeting the cheque. Further, the customer cannot take such things for granted. Moreover, a customer cannot draw against the uncleared effects till such time the instruments are cleared. However, the position would be different if the bank / branch has established a regular limit for this purpose. C) The banker must be duly required to make payment

The word "duly" means "properly". As such, the banker is under no obligation if the instrument does not conform to the laid down norms. They are:

Cheques: They should be in proper form as is issued to the customer.

The cheque should be properly filled in and signed.

The amount should be expressed both in words and in figures.

Annexure I

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It should be dated. The date should not be post dated neither the cheque should be stale.

All material alterations should be duly authorised under the full signature of the drawer(s).

The endorsement should be regular and the chain unbroken.

D) Place of payment

It is generally a well settled position in law that presentment of a cheque should be done at the branch where the account is maintained and nowhere else. The banker is under no legal duty to honour such cheques. The courts in India have been uniformly upholding this position as it can be seen from the following judgements.

Delhi cloth and General Mills Ltd. Vs. Harnam Singh (AIR 1955 Sc. 590). The Supreme Court has summed up the position as follows :

"In banking transactions, the following rules are now settled :

The obligation of a bank to pay the cheques of a customer rests primarily on the branch at which he keeps his account and the bank can rightly refuse to cash a cheque at any other branch;

A customer must make a demand for payment at the branch where his current account is kept before he has a cause of action against the bank. The rule is the same whether the acco unt is a current account or whether it is a case of deposit. Either way, there must be a demand by the customer at the branch where the current account is kept or where the deposit is made and kept before the bank need pay, and for these reasons the situs of the debt is at the place where the current account is kept and where the demand must be made".

Other cases:

• AIR 1950 BOM 375 Bank of India Vs. Official Liquidator : "the obligation to honour the cheque of a customer rests on the branch on which the cheque is drawn. (In proper form of the cheque issued by the branch)

• AIR 1956 CAL 33 Hansraj Bajaj Vs. Indian Overseas Bank Ltd. : "a banker can refuse payment of a customer’s cheque except at the particular branch where he keeps his account".

• ILR 1957 Punjab 794 Harikishan Vs. Bharat Nidhi Ltd. : "Deposit of money made in a branch and not from Head Office of the bank in India".

• Agencia CI Vs. Custodian of Banco National Ultramarino : "The obligation of a bank to pay the cheques of a customer rests primarily on the branch where he keeps his account and the bank can rightly refuse to cash the cheques at any other branch of the bank.

• Okara Grain Buyers Syndicate Ltd. Vs. UCO Bank Ltd. AIR 1961 Punjab 66 : Regarding closure of a branch - "Where a branch office is closed the assets and liabilities are taken over by the Head Office and persons who have claims should lodge their claims with the Head Office. However, if the balance with the bank are taken over by a foreign government, then the liability of the bank ceases and no further steps can be taken against the bank in India."

• SBI Vs. Vathi Sambhamurthy AIR 1988 Orissa 50 : "Where a customer has two separate account at a branch, he can draw only cheques issued in respect of that particular account".

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E) Presentment during banking hours (Sec. 65 NI Act)

The Act provides that the presentment of a cheque should be made during the usual business hours. Bankers should desist from making payment of a cheque outside the business hours as such payments might not constitute payment in due course in the event of stop instructions, death, insanity, insolvency of the drawer or by the operation of a court order. Banks do selectively make payment to the known customer in person to overcome these difficulties.

F) Funds should be properly applicable:

This deals with the legality of the instrument. A banker has to be cautious in making payment of cheque ensuring that his authority to pay the cheque will not be brought into question later on. The happening of the following may determine the authority of the banker :

• Countermanding of cheque (i.e. stop instructions received from the customer).

• Receipt of a court order which prevents payment out of an account (Garnishee order).

• Notice regarding the insolvency, lunacy, insanity or death of a customer.

• If there is a doubt as to the title of the presenter of the instrument.

Generally, banker should not make payment of cheques if he confronts any one of the above situations as he may lack the authority to debt the customer’s account.

G) Bearer Cheques

Generally, a banker would be discharged of his obligation to pay as also derive his right to debit the customer’s (drawer’s) account in effecting payment of bearer cheques to the person in possession of the instrument. In case of bearer cheques, a banker need not unduly make elaborate enquiries as regards the title of the presenter. Suffice it would be to say that so long as the instrument is otherwise in order, the banker should effect payment.

H) Order Cheques

The payment of order cheques on the other hand, casts additional burden on the banker requiring him to ensure that the title of the presenter is not defective. He should make such enquiries as it would make it possible for the banker to get information as regards the bonafides of the presenter. As a safeguard in all cases of payment across counter (cash payments), bankers insist on a proper introduction before parting with funds. Similar principle would hold good in case of payment of drafts across the counter, which are essentially order instruments.

I) Rights of Paying Banker

The banker who has correctly paid a cheque is entitled to debit his customer’s account with the amount of the cheque. He is also statutorily protected by law under Section 85 of the Negotiable Instruments Act, 1881. The other sections which are important in this regard are:

• Sec. 85-A deals with payment of drafts.

• Sec. 128 deals with payment of crossed cheques.

• Sec. 131-A deals with crossed drafts.

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J) Statutory Protection under Sec. 85

This section deals with payment or order cheques which reads as under:

"Section 85(1) where a cheque payable to order purports to be endorsed by or on behalf of the payee, the drawee is discharged by payment in due course".

"Section 85(2) where a cheque is originally expressed to be payable to bearer, the drawee is discharged by payment in due course to the bearer thereof notwithstanding any indorsement whether in full or in blank appearing therein and not withstanding that any such indorsement purports to restrict or exclu de further negotiation".

From a reading of these two subsections, it becomes clear that the drawee bank can get protection only when the payment constitutes a payment in due course. The concept of ‘payment in due course’ is laid down under Section 10 of the Negotiable Instruments Act as under :

"‘Payment in due course’ means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned".

The following explanation would import the essentials of Section 10 :

• The payment must be in accordance with the apparent tenor of the instrument.

• Payment must be made in good faith.

• Payment must be made without negligence.

• Payment must be made to the person in possession of the instrument.

• They should not be an element of suspicion as to person of the presenter.

Some issues associated with the above clarification on Section 10:

1) Dating of Cheques:

A cheque without a date is not to be paid, Here, the holder may insert the date. A banker should, under no circumstances undertake the task of inserting the date on the cheque.

2) Post dated cheque:

As per the apparent tenor of the instrument, a post dated cheque (cheque bearing a date subsequent to the date of payment) cannot be paid till the arrival of the date mentioned on the instrument. It is a well recognised principle that the banker will have no authority to debit the customer’s account before the arrival of the ostensible date on the instrument. Otherwise, a banker may put himself in jeopardy by paying such instruments as it would not constitute a payment in due course.

3) Stale Cheques:

By custom, the bankers do not pay a cheque if it has been in circulation for more than 180 days after its making unless it is once again authorised by the drawer. Such cheques should be revalidated by the drawer under his full signature before payment. This custom is upheld by courts in India.

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4) Amount:

Section 18 of the Negotiable Instrument says that if the amount expressed in words differs from the amount expressed in figures, the amount expressed in words is the amount legally payable. Hence, the scrutiny of cheque should be made to ensure that the amount in words and figures do tally. It is a practice among bankers in this country to return such cheques for correction with the objection "amount in words and figure differs".

5) Material Alteration:

A material alterations is one which in any way alters materially or substantially the operations of the instrument and the liabilities of the parties thereto whether or not such change is prejudicial to the payee. For example,

• alteration in the date of the instrument with the purpose of acceleranting or postponing the time of payment.

• alteration of the place of payment.

• alteration of the sum payable.

• alteration affecting the number of relation of the parties or their legal character.

In other words, material alteration in an instrument causes it to speak a different language in legal effect from that which it originally spoke or which changes the legal identity or character of the instrument either in terms or in relation to the parties thereto.

The safeguard for all material alteration for a banker is to obtain full signature of the drawer against the alterations made on the instrument. Where the cheque is drawn by two or more persons jointly the material alteration would require the signature of all parties. Similarly, in case of corporate bodies, the material alteration would require the signature of all the signatories to the instrument.

Case Law: J. Ladies Beauty Vs. SBI AIR 1984 GUJ 33; 1986 59 Comp. Cas 20:

The facts of the case are that the customer issued two payees’ account cheques, the cheques were tampered by someone, who rubbed out the payee’s account endorsement and dates of issue with some materials. Across the printed word ‘order’ a line in ink was drawn thereby scoring out the word ‘order’ and the word ‘bearer’ has been inserted. The signature of the partner was made to give authenticity. The bank made payment of these two cheques to a third party and not to the payee. It was later on noticed that the new signature of partners for evidencing the material alterations did not correspond to the specimen signature on record with the branch. The specimen signature on record were with the name in partnership affixed with a rubber stamp. The court found that the bank was negligent as it failed to notice the suspicion on the face of the instrument. The dates and the endorsement payees’ account have been tampered with. The erasures were visible to the naked eyes. The High Court further observed:

• When the customer issues cheques payable to payee’s account, he is assured that the bank will not make the payment to anybody except the person in whose favour the cheque is issued; when such endorsement is tampered with, the bank is put on enquiry.

• The drawer of the cheque will be entitled to claim reimbursement from the bank if it makes payment negligently.

• The drawer will be entitled to payment of interest.

• The oral deposition that the erasures were not visible on the date when the cheque was paid but appeared a few days later is no evidence as against the document which clearly exposed the alteration to the naked eye.

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6) Pencil signature

Though a pencil signature is valid, bankers do not encourage it as they could be erased out.

7) Mutilation of Cheques

Mutilated cheque should not ordinarily be paid except with the consent of the drawer. Where a mutilated cheque is received through clearing, a collecting banker’s confirmation needs to be obtained which may include disbursement guarantee from the collecting banker. In all other cases, the cheque should be returned with objection "mutilated cheque".

8) "Not Negotiable Crossing"

The term ‘not negotiable’ has very little significance to the paying banker. Such cheques could be paid in the ordinary cause of business observing the usual precaution. This is only a warning to the person taking it that the transferee cannot get a better title to the instrument than from whom it was taken.

This is covered by Sec. 130 of the Negotiable Instruments Act which says, "A person taking a cheque crossed generally or specially, bearing in either case the words ‘not negotiable’ shall not have and shall not be capable of giving better title to the cheques than that which the person from whom he took it had". For example,

• If ‘A’ gets hold of a cheque by fraudulent means an order cheque containing ‘not negotiable’ crossing and gets it endorsed to ‘B’ for value, even then ‘B’ title will be defective. This is because of the fact that ‘A’ had obtained the cheque by fraudulent means.

• A small cheque was given to the secretary of the firm asking her to fill up a small sum favouring tax authorities which was fraudulently filled up a higher amount and endorsed it to a third person in payment of a private debt. Though the recipient had acted in good faith, it was held that he could not get a good title to the amount (Wilson & Meeson Vs. Pickering 1946).

9) Account Payee Crossing

Cheques containing crossings with words ‘Account Payee’ or ‘Account Payee only’ are found in the normal course of banking operations. Here, the intention is that not only that the cheque should be collected through a banker, but also to the named payee only. Technically, it is a direction to the collecting banker as to how the proceeds of the cheque should be applied after its receipt. It virtually restricts the transferability of the cheque. At time, a person receiving such cheque (pension payment / LIC dues / PF dues) may not maintain an account and might not desire to open an account for putting through a single transaction. He would have to get it collected through a person who maintains a bank account by proper endorsement. A Banker should not undertake such collections unless he is thoroughly satisfied about the bonafides of the payee. In such cases, an additional certification may have to be given confirming the first payee’s en dorsement. Such incidents should be rare.

10) Cheques relating to joint accounts

Apart from the normal precautions taken while paying a cheque, the additional points which are to be borne in mind in case of joint accounts are :

a. To know how the joint account is to be conducted, mode of operation, limits for drawing etc., specific instructions in this regard need to be obtained and kept on record for regulating the conduct of account. Authority to operate an account does not automatically confer a right to overdraw / borrow nor deal with bills and other transactions in the nature of safe deposit articles etc. Hence, it would be necessary to get a comprehensive instruction

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on the joint covering all these contingencies. In the absence of it, it would be necessary that all the joint account holders join in the operation.

b. A dispute may arise at any time i.e. during the life time of the depositors or after death. The following procedure should be followed depending upon the facts of the case and arising circumstances.

i. As regards operation, countermand orders can be given by any one of the joint account holders, even though the person may not be operating the account. The bank should take cognisance of such an order and stop operations on the account. The account would henceforth be treated as joint account which can be operated by all the joint account holders jointly. Similarly, the authority given by the joint account holders will stand revoked by the death, insolvency or insanity of any one of the joint account holders.

ii. Death: Death of a joint account holder revokes the mandate. Hence, the banker should not honour a cheque drawn by a deceased joint account holder prior to his death, but presented after his death.

A word of caution would be that in case of accounts with a debit balance, no further credits should be accepted as any credit made after the death will be affected by the rule enunciated in Clayton’s case i.e. will have the effect of reducing the liability of the deceased joint account holder.

iii. Insolve ncy: The mandate given for operation on an account comes to an end on the insolvency of a joint account holder. No operations are to be permitted and a cautionary note to be recorded. Payment could be made on the joint drawings of the official recorder of insolvent account holder and the solvent party. Care should be taken to ensure that the wordings used in returning the cheque of the solvent account holder ensures that his credit is not damaged.

iv. Signature : Perhaps, this is the most important point before taking a decision to pay. Banker recognises his customer through his signature and not in person as quite often he (banker) would have to base his judgement and act for which the only authority he has is the customer’s signature. At all points of time, he should ensure that the customer’s signature is genuine and corresponds with the specimen signature on record with the bank. Any irregularity in the signature should put the banker on guard as forgery of the signature will not protect him. Payment of a cheque with a forged signature is considered as payment made without authority. Hence, the banker cannot debit the customer’s account. The liability for such payment will befall him should he make the payment. It is the duty of a bank employee to identify the signature of the customer. If they fail to discharge their duty and suffer a loss, there is no reason why the customer should make good the loss (Lala Pirbhu Dayal Vs. Jwala Bank Ltd., AIR 1938 AII 374). It would be no defence on the part of the banker to claim that the customer was negligent in the safe keep of his cheque book etc.

In case of joint accounts, all the signatures should be genuine. If one of the joint account holder’s signature is forged and if banker makes payment, he (banker) would be liable to the other. The Supreme Court, in a case involving the forgery of one of the signatures of joint account holders, evolved the following propositions:

§ Since one of the signatures on the cheque was forged, there was no mandate to the bank at all.

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§ A document in cheque form to which the customer’s name as drawer is forged or placed thereon without authority is not a cheque but a mere nullity.

§ The bank was negligent in not ascertaining whether the signatures on the cheque were genuine.

§ The dishonesty of an official of the union was not the proximate cause of loss to the bank.

Going by the above enunciation of the Supreme Court, it would be a difficult proposition to defend a case where one of the signatures on a cheque is forged on which the bank has made payment. Hence, a detailed scrutiny of the instrument is warranted in joint accounts before effecting payment.

v. Right of Set-Off: Bankers enjoy a special statutory right called the ‘Right of Set-Off’. It enables the debtor (bank) to take into account the debts owed by the creditor to him. Thus the mutual claims of the debtor and creditor are settled before the debtor is required to pay the remainder. The advantage to the banker is that he can combine two accounts of a customer and adjust the debit balance in one against the credit balance in the other. This right of a banker is subject to an agreement to the contrary and generally, the bank intimates its decision to exercise the right to the customer. Most of the banks obtain documents which specifically empower the banker to exercise this right without notice to the customer. However, the following points are to be kept in mind. It may also be noted that the banker can exercise this right before the Garnishee order is made effective :

§ A lien is a specific right and attaches the money which is earmarked where it ceases to be such the bank cannot exercise lien but only the right of set-off.

§ Both the claim and mutual debt sought to be set-off should be of the same customer under the same right.

The same right implies that the capacity of the customer in both the accounts should be the same; i.e. a claim by a person in his representative capacity cannot be set-off against the personal dues. For example,

§ Balances in the account of customer ‘A’ in his capacity on Trustee cannot be set off against the personal debts of "A" to the Bank.

§ Balances in a joint account of ‘A & B’ repayable to ‘E or S’ cannot be set off against the dues from ‘A’ alone. Thus, the banker cannot combine a customer’s personal account with that of a joint account of the customer and other person’.

§ No right of set-off can be exercised against the monies credited by mistake.

§ Similarly, where partners maintain their individual accounts as also their partnership account in the same bank, the bank cannot set-off the due debts from the firm against the credit balances in the partners’ individual accounts unless the partners have undertaken to be jointly and severally liable for the firm’s debts.

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Inter Branch Transactions 1) Originating Transactions

Nature of transaction Account number TCC code

Remittances – Funds Transfers IB.FT FT Remittances – Drafts on Finacle branches

IB.DD DI (Automatically picked up by system)

Cancellation of drafts issued by and drawn on B2K branches

IB.Misc-Dr DDCAN

Remittances – Drafts on Non-B2K branches

IB.Misc-Cr DDBMD

Remittances – Drafts issued on correspondent banks like Bank of India, Dhanalakshmi bank

IB.Misc-Cr DDBOI (for Bank of India) DDDBL (for Dhanalakshmi Bank)

Cancellation of drafts drawn on Correspondent Banks

IB.Misc-Dr DDCAN

Remitting proceeds of collection instruments received from other branches

IB.IN-COLL OCC, OBC

Remitting proceeds of purchased instruments received from other branches (Where Ref number of sending branch is OCP/OBP/OBD etc.)

IB.IN-PUR OCP / OBP / OBD /

Funds transfer from Corporate Office to branch

(Entry originated by Corp office)

Funds transfer to Corporate Office or to Chennai

I.TRSRY TRSRY

Funds lent locally to other banks to be reimbursed at RBI centres like Chennai/Mumbai etc.

IB.TRSRY TRSRY

Funds borrowed locally from other banks for clearing adverse position, to be reimbursed at RBI centres

IB.TRSRY TRSRY

Remitting funds collected under CMS arrangement

IB.CMS CMSCL

Returned instruments under CMS IB.CMS CMSRT For payment of dividend warrants IB.Misc-Dr WARNT Replenishing Cash in ATM, if replenishment is done by branch

IB.SWTATM SWTCS

Replenishing Cash in ATM, if replenishment is done by outsourcing agency

IB.SWTATM SWTCS

Forex purchase transactions Originated by Forex dept,

Annexure I I

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Nature of transaction Account number TCC code

Forex dept, Corporate office

Forex sale transactions IB.FX-SALE MFB MUB MFC SMC SMT SMI SMD SMA OTHER

Responding Transactions Procedure to identify the entries to be responded

• Data centre, Mumbai will process the IBR files for all centralised branches and send a mail to the branches on completion of the process.

• On getting the message from data centre, branch should print the list of IBR transactions to be responded using option ‘TLR’.

• The transactions pertaining to drafts are indicated by TCC code ‘DI’. These transactions are automatically responded by system for credit of FP.DDPAY (DDs Payable) account. Therefore, branches may not see these transactions in their unresponded list of IBR transactions. If draft-related entries exist in unresponded IBR transactions report, the same should be brought to the notice of IT department.

• For all non-DD transactions, branches should pass entries through option ‘TM’. • Branch should use the same IB Acount number, TCC code, IB number as appearing in the

TLR report, including the hyphens. Otherwise, system will display an error message “Advice not come through IBR”. For example, if the originating branch has erroneously used IB account number ‘IB.IN-COLL’ instead of ‘IB.IN-PUR’ for a purchased instrument, the responding branch should also respond by debiting ‘IB.IN-COLL’ account only.

• In case the user gets an error message “same possible IBR number not allowed”, it means that the same IB number is given for responding more than one IB entry. The user should identify the wrong entry and delete the same or modify the entry for correct IB number.

• The tran-id should be noted against each entry in the TLR report. • After all transactions are responded, branch should generate a list of unresponded IBR

transactions by using option ‘UNRESP’. This is the responsibility of each branch even in centres where IBR transactions are repsonded by RPC.

Nature of transaction Account number TCC code Remittances – Funds Transfers IB.FT FT Remittances – Drafts on Finacle branches

IB.DD DI

Cancellation of drafts IB.Misc-Dr Other Remittances – Drafts issued by Non-B2K branches

IB.DDBOM Other

Realisation of collection instruments

IB.IN-COLL OCC, OBC

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Nature of transaction Account number TCC code Remitting proceeds of purchased instruments received from other branches (Where Ref number of sending branch is OCP/OBP/OBD etc.)

IB.IN-PUR OCP / OBP / OBD /

Responding to ATM cash withdrawals

IB.ATMWDL ATM

Any other miscellaneous credit IB.Misc-Cr Other Any other miscellaneous debit IB.Misc-Dr Other Forex purchase transactions IB.FX-PUR XFC XRP XRD XRN SXA

SXR SXE SXP OTHER Anywhere transactions

Unresponded IBR entries: As stated earlier after the entries for the day have been responded the branch generates the

‘unresponded’ transaction report using the option ‘UNRESP’

In some cases the particulars mentioned by the originating branch may be incomplete, incorrect or inconsistent with the inherent transaction. In such cases the branch should not respond to the transaction in the TLR, but should inform the orig inating center for additional details/clarifications. Such transactions appear in the unresponded list generated each day and the branch should endeavor to clear the same within 2 days. Common entries found in TLR: Funds transfer to branches:

Enrty passed by originating branch: 05.1234 Dr Rs. 1,00,000 IB.MISC-CR Cr Rs. 1,00,000 (IB12345 -04) (originating ) (Please credit the account of M/s ABC account number 05.789 at your end) Enrty passed at responding branch: IB.MISC-CR Dr. Rs. 1,00,000 (IB -123 45 -04) (responding) 05.789 Cr. Rs. 1,00,000 (Funds transfer from M/s XYZ, Nariman Point Branch)