Noteson Banking

8/13/2019 Noteson Banking

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COLLATERAL OR SECURITY

Very easy definition of Collateral or Security as Something to fall back upon

This means that when banker provides loans or other financing facility, the banker

need some tangible or intangible to be provided by the borrower to secure it, and if

that loan or facility is not adjusted than banker may adjust them by disposing thosetangibles and intangibles

Those tangibles and intangibles in brief are!

"and and #uilding $Tangible%

&lant and 'achinery $Tangible%

Vehicles $Tangible%

Stocks and inventories $Tangible%

(uarantees and #onds $)ntangible%

*eposit certificates, Credit balances in accounts $Tangible%

#ills of e+change and promissory notes $)ntangible%$)n above stated categories there are some items where it should be better that

banker must take a letter of intent that the security has been willfully provided by

the borrower and it could prove that the borrower has provided them under

#anker Customer elations%

Qualities of a Good Security:

- &referably it should be tangible

. The owner should have absolute title

/ The ownership not be undivided or disputed

0 )f ownership rests with third party then the intention of third party must be

obtained

1 )ts market and forced sale price can be ascertained2known

3 )t should have demand in market

4 )ts price should not be subject to drastic change

5 )t should not pertain to fashion or season

6 )t should be easily saleable

-7)t should not be contra banned item

--)t should not be perishable

-.)f it is agricultural crop, it must be of current season and loan2finance mustbe adjusted before ne+t season

-/Consumer loans are given without any tangible or intangible but only and

only on repayment capacity of the borrower 8or salaried persons on the

basis of salary and for small and medium class business, the base is turn

over appearing in statement of account )n this situation the most important

thing is re9verification of the information

-0)n case of finance against receivable or sale proceeds, proper recovery of

sale proceeds must be done


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RIGHTS AND DUTIES OF BANKER

:nder #anker Customer relations there are some rights of bankers towards their

customers and they have to abide by the duties those are legally to be performed bythem Similarly there are some rights and duties of customers too

These rights and duties would be discussed in detail in our coming sessions, but

now we would start with one of the most important right of banker and this right is

known as Right to lien.

Right to lien. "ien is the right to retain the property belonging to another until the

debt due from the latter has been paid ;ccording to section -4- of contract act,

-54., a banker


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FORMS OF SECURITY/COLLATERAL

Securities are of following types!

Tangible! those have physical e+istence? can be seen touched and felt

)ntangible! those do not have physical e+istence? cannot be seen touched of felt

$angibles are: land building, machinery, lants, goods, stocks, in!entories

agric%roducts etc.&ntangibles are: Guarantee and &ndemnity.

8urther more tangibles have been subdivided into moveable and immovable

"and and #uilding are immovable )mmovable property cannot go in the custody

or possession of lender, it remains with the borrower but the lender


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8or borrower point of view, such security is availed for their short term financing

known as working caital.

The borrower cannot have access to them nor sell them unless the facility is

adjusted

Hypothe!t"o#

This is the form where the security is moveable and it remains in the custody ofborrower, but bank has got legal charge on them, meaning by that in case of default

by the borrower bank can take possession of them and can dispose them to adjust

the loan2facility provided

:nder hypothecation there are two situations!

- &roperty remains in the custody of borrower? he can use it but cannot sell it

)t happens in the case where financing is given against plant, machinery and

vehicles $:nder current consumer financing%

. &roperty remains in the custody of borrower and he can sell it also, with the

condition that the over all value of those items should not decrease than the

value declared at the time of taking loan 8or e+ample if a departmentalstore has been granted loan against the hypothecated goods worth s -7

million, and items include! fabrics, garments, grocery, cutlery, shoes,

electronic items etc, than borrower is free to sell them, but also responsible

to replace the sold items to match the value of these items worth s-7

million

These items are also insured at the cost of borrower

Mo$tg!ge

Ahere banker charge is created against immovable property, whereby theborrower can use it but cannot sell it is termed as mortgage "and and #uilding

could be the e+ample #anker creates its charge in a way that in case of default

from the borrower bank can have access to the property and can adjust the loan

by selling that property )n any case borrower cannot sell it without getting

clearance from the bank

'ortgage could be commercial and non9commercial )f an enterprise borrows

against land and building being used for business or the funds are utiliBed for

running business, it is termed as commercial mortgage >n the other hand if

some one avails loan for buying land or for constructing house for his personal

use and that land or building has been mortgaged as security it would beconsumer mortgage


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FORMS OF SECURITY/COLLATERAL %Co#td&

'ien on (ccounts

;nother form of security is that borrower provides the banker to mark lien on the

accounts in the bank? those could either be his own but of third party

The ;ccounts being maintained are!

Current ;ccount

Saving #ank ;ccount

otice *eposit ;ccount

Term deposit or fi+ed deposit ;ccount

8oreign Currency ;ccounts? and those are also in the shape of current,

saving or fi+ed deposit accounts

$Dust for the knowledge of students, it is being informed that in &akistan 8oreignCurrency ;ccounts can be maintained in Dapanese yen, (reat #ritain &ound, :S

*ollar and Euro *eposit in these accounts must be in foreign currency but

withdrawal can be done both in foreign and local currency depending upon the

choice of customer 8urther more deposit of funds in these accounts could be either

by cash or through Che=ue%

Sometime customer offers his balance of his account as security? and bank accepts

it by marking lien on those accounts )n case of current or saving account the

amount offered as security is blocked by the bank and customer would not be

allowed to withdraw to that e+tent )n case of otice deposit or term2fi+ed deposit

the original receipt or certificate is given to the bank and bank keeps it under thecustody until the repayment or adjustment of loan

Same is the case with foreign currency accounts Customer would either allow the

bank to block his current or saving account to the e+tent of the money offered as

security, or would surrender his fi+ed deposit certificate with the bank to remain

under the custody of bank till the adjustment of loan

)n these entire situations if the customer fails to repay the loan? bank would debit

his account if it is current or saving and if it fi+ed deposit the bank would en cash

that certificate, adjust the loan and if there is any remaining balance it would be

given to the customer;nother thing to be noted is that customer would continue to receive the agreed

profit on that deposit and is bound to pay )nterest2'ark up on the finance2loan

availed

8or further clarification of the students following illustrations are given!

; customer is having is his current account which is his business account and also

has deposited s177, 77729 with the bank in the shape of fi+ed deposit for ten

years and is availing profit of -.F per annum To meet his short term commitment


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he needs s -77, 77729 Ge has got two options? first to get his fi+ed deposit to get

it encashed, but would loose rate of profit as five are remaining to mature, or the

second option is to re=uest the bank to lend him loan of s -77,77729 for a period

of one month and as security would surrender that fi+ed deposit certificate to the

bank so that bank may keep it as security Second option is beneficial for him and

he would surrender it to the bank The bank would allow him loan and it would be

the most secured loan as the money is already with the bank in the shape of fi+eddeposit )n this position both of them have advantages? for customer the interest or

mark9up paid on s -77,77729 would be much lesser than the loss, had he got it en

cashed before maturity 8or the bank it is good that it would not loose deposit and

would further earn on loan of s-77, 77729 which is secured in all respect $This

illustration is given for a small amount but practically it could be in millions%

;nother illustration is "ien of 8oreign currency account The situation is that

customer has got E: -77,77729$which is almost e=uivalent to s5 million% with

the bank, and needs s . million for a period of si+ months to meet his business

commitments or other wise 8or him the first option is to withdraw from hisforeign currency account and meet his needs? but he feels that the rate would Euro

would rise in future and within ne+t si+ months its local value might rise to s 5.

million, and does not want to loose the gain due to e+change rate rise Customer

would like to go for ne+t option and which is that he should borrow s . million

from the bank by allowing the bank to mark lien in his account to the e+tent of s

. million $ E=ual to 8oreign Currency%

The customer would be financed but his foreign currency account would be

blocked to the e+tent of Euro .177729

)(RG&*

Ae have now come to know that what collateral2 security and why it is taken by

the bank or why offered by the borrower #ut the =uestion lies that to what e+tent a

bank can allow to borrow against a security 'eaning by that if the value of

security is s 1million can a bank allow loan for s 1 million or less and if less

than how much less, and what would we call the difference of between the value of

security offered and why that difference is maintainedH

>ne thing is for sure that bank would never allow a customer to avail loan either

more than the value of security or even e=ual to the value of security8or e+ample the value of security is s1 million? bank would not allow loan for

s 1 million or more against the same security #ank must allow below s 1

million? either 0 million / million or . million

So there is difference between the value of security and amount of loan that can be

availed The amount of loan that can be availed against a specific security is

termed as *rawing &ower of the borrower )t means that how much power has

borrower got to draw loan against specific security, and what would we term the


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difference between the value of security and amount of loan $drawing power% The

term is known as margin.

+e can say that difference between !alue of security and drawing ower is

termed as )argin-

Value of Security -7 million

*rawing &ower 4 million

*ifference is million /it is known as margin0

Value of Security 177,777

*rawing &ower 077,777

'argin 122,222

Value of Security 177,777

*rawing &ower .17,777

'argin 3#2,222

)n first situation the margin amount is / million? which is /7F of value of security,in second situation the value of margin is -77,77729 which is .7F of the value of

security, and in last case the value of margin is .17,77729 which is 17F of value of

security

So =uestion arises that why there is variation in the value or percentage of margin

and why this margin is retained )ts simple answer is that it depends upon the

nature of security )f the nature of security is such that it holds all the =ualities of

goods security the lesser would be the margin, and if the security is very week and

does not hold =ualities of good security the higher would be the margin

'argin is retained so that the loan could be secured in a way that if the security isto be sold it must have so much value that it could adjust the loan and e+penses to

be incurred

Gere under the first situation where the margin is /7F it might be inventories

having risk of loosing price to the e+tent of /7F :nder second situation the

security could be land or building which might loose price not above .7F and

under the last situation where the loan amount and margin amount is 17F the

security is very week and might be agricultural crop which might get destroyed if

not adjusted

4R(+&*G 56+7RThe amount or value which the borrower is allowed to avail against a security is

termed as drawing power or *&

)t very simple definition is!

*ifference between value of security and margin is drawing power )n the above

stated situations the drawing power is!

Value of Security -7 million

'argin / million


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*rawing &ower 8 million

Value of security 177,777

'argin -77,777

*rawing &ower 922,222

Value of Security 177,777'argin .17,777

*rawing &ower 3#2,222

FORMS OF FINANCING

#asically we have two forms!

F'#d B!(ed

No#)F'#d B!(ed

Fund ased:Gere the banker provides finance by involving their funds

physically >r we can say under fund based financing banks funds are involved in

a way that it has to part from their funds and those are at disposal of borrower$s%

Types of fund based financing!

"oan ame in &akistan $*emand 8inance%

>verdraft ame in &akistan $Cash 8inance%

#ill &urchased and discounted

#ridge 8inancing

Consortium "oans or 8inancing

'oan or 4emand Finance"

)t is the form under which the entire sanctioned2approved finance amount is

credited in the account of borrower The total funds are put at his disposal by

crediting his account )ts accounting entry is?

*ebit "oan or *emand 8inance ;ccount

Credit Customer


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The amount adjusted in this type of financing cannot be re9availed under the

same loan Either it is re9structured or a fresh loan is granted

Gere is illustration?

*emand 8inance ;ccount?

*ate *ebit Credit #alance

7-7-74 177,777 $177,777%

/-/-74 17,777 $017,777%/77374 17,777 $077,777%

/77674 17,777 $/17,777%

/--.74 17,777 $/77,777%

Gere loan was debited with s 177,77729 and was adjusted with installments of

s17, 77729 per =uarter $three months% ;mount in bracket indicates debit balance

6!erdraft or ;ash Finance"

:nder this form of financing a limit is approved in favour of borrower? and he is

allowed to overdraw his account within that limit The entire approved amount

may be utiliBed in single day or as much as he needs in peace meals Suppose a

customer has got approved facility for s 177,77729 under Cash 8inance? at the

time of approval of this type of facility s 177,77729 would not be given to him

nor credited to his account, but he would be allowed to overdrawn his account for

s 177,77729 This facility is unlike demand finance is on revolving basis )t

means that the amount once availed and adjusted can be re9availed multiple times

Gere is illustration!

Cash 8inance ;ccount $8acility was allowed2approved on Dan7-.774 and on

that date there were s 17,77729 his own balance in his account%*ate *ebit Credit #alance

7-7-74 17,777 Gis own balance

7-7-74 41,777 $.1,777% ;ccount overdrawn by .1777

-17-74 -41,777 $.77,777% ;ccount overdrawn by .77,777

-47-74 -77,777 $-77,777% ;ccount overdrawn by -77,777

7.7.74 -17,777 17,777 Gis own balance

.47.74 .17,777 $.77,777% ;ccount overdrawn by .77,777

707/74 -17,777 $/17,777% ;ccount overdrawn by /17,777

737/74 -17,777 $177,777% ;ccount overdrawn by total limit..7/74 /77,777 $.77,777% ;ccount overdrawn by .77,777

7.7074 077,777 .77,777 Gis own balance

.77074 /77,777 $-77,777% ;ccount overdrawn by -77,777

)n this illustration it has been noted that this type of finance is running finance and

is operated like a current account? sometime credit balance $his own money% and

sometime debit balance? account overdrawn ;lso it shows that twice the facility

was adjusted and again re9availed


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ill 5urchased

)f a customer deposits a che=ue in his account which is drawn on other bank and

usually out of city and country and account holder needs to be financed against that

che=ue so that later on bank may adjust after that che=ue is credited? the finance

thus made is known as finance against bill purchased Gere bill means che=ue

ill discounted.

Sometime customer has got post dated che=ue2che=ues? those are payable on futuredate and needs funds currently Ge would deposit those che=ues to the bank and

bank would pay him by creating finance and also would charge )nterest2'ark up

for the remaining period? this finance is termed as finance against bill discounted

B$"dge F"#!#"#g

)t is a short term financing and is for a temporary period The term can be well

understood with the term bridge, as bridge means a link between two ends This

type of financing maintains a link between current financing which is to be

adjusted with immediate e+pectation of funds

Ill'(t$!t"o#

; person wants to buy a house and he intends to buy after selling his house where

he is residing presently >ne option is to sell his house first and then buy new one

#ut in this situation he would not have any house to reside )f he contacts banker

for a very short term and temporary loan whereby the banker would lend him to

buy new house first, would shift there and would sell his house and adjust the loan

taken from the bank

;nother illustration is about corporate body $&ublic "imited Company% whichwould start its business after getting funds in shape of share subscription #efore

the shares are offered and subscribed company need funds to establish office and to

meet preliminary e+penses Such e+penses are met from the funds borrowed from

the banker for a short and temporary period? and those would be adjusted as soon

as funds are received in shape of share subscription

#ut one thing is clear that while allowing bridge financing the lending bank are

sure for the receipt of funds for its adjustment

)n case of bridge financing allowed for purchase of house, banker gets authority toget the sale proceed of house )n case of allowing financing to corporate body the

bank which lends to the company underwrites or we can say gets authority to get

the funds in the shape of subscription of share

Co#(o$t"'* F"#!#"#g

)t is joint financing by two or more financial institution )f a heavy project where

huge financing is needed that cannot be met by single institution then two or more


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financial institution gets together and share their lending )n simple words when

more than one lending institution is involved in lending to a person or project the

financing is termed as consortium financing

>n )nternational level when group of countries are lending loan to a country for its

development? it is also consortium financing

*on%Fund ased! Gere banker


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case the person on whose behalf guarantee is issued fails to perform? the bank

issued guarantee would compensate the party to whom the guarantee is issued

$=57S 6F (*> (;;6


14/22

U#l!"*ed Depo("t(

)n &akistan it is compulsory for every bank to surrender balances of every type of

accounts where there is not any operation for the last -7 years? declaring them as

unclaimed deposits )t includes balances of current accounts, saving accounts, term

and fi+ed deposits These balances are surrendered to State #ank of &akistan withcomplete information of the account and account holders

These balances also include funds lying with the bank in any sector of account or

deposit where no one has claimed them for the last -7 years >ther balances

include funds not clamed under demand draft, payment order, security deposit

receipt or any such type of accounts

Dee!(ed Ao'#t

)n case of )ndividual and Doint account either current, saving or fi+ed deposit?when account holder or any of the account holder dies the account becomes

deceased account

Ho, !o'#t "( *!$-ed !( Dee!(ed Ao'#t.

Ahen banker comes to know from any authentic source of news that account

holder has died? it becomes the duty of banker to declare and mark that account as

deceased account Gere the important thing is that banker would mark it as

deceased only after receiving information from any authentic source or by the legalheirs of the deceased )nformation may come from any known person of account

holder, printed or electronic media, even in small villages such information might

comes from the loud speaker of mos=ue, but important thing is to confirm and

verify it

)t is very much possible that the account holder might have died long ago and

banker has not come to know about it, nor any of the legal heirs has contacted the

bank to inform? so the account would be declared dormant on the date when banker

has come to know about the death of account holder

;s soon as information is received changes are made in the system in such a way

that amount is blocked and information is noted on account opening form about the

date and time of information received and also source is noted )n case the

information has been brought by the legal heirs, than it must be in written form and

is kept as record


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+hat haens when account is marked as 4eceased@-

'oney can be deposited

There cannot be any withdrawal, other than bank


16/22

with different way as compared to the person


17/22

>ther way is that a major known as (uardian opens account in the name of

minor, but the opening of account and operation is done by major >nly name of

minor is used as account holder

)n this case any person known as major can open account in the name of minor?

male or female $obviously his or her age must be below -5%

The title of account would be?'aster Iubair 'inor

'r Shahid (uardian

$#oth names would appear in account opening form in the same manner%

This account will be totally operated by the person 'r Shahid known as guardian

but the owner of the balances in the eyes of law would be Iubair, the minor

The purpose of maintaining such account is to give legal right of succession to the

minor in case of death of 'ajor

)f Shahid opens his account in his name and he dies, in this case the balance would

be given to the heirs as per Sharia but if he opens an account in the name of anyof his son or daughter, naming him or her as ')>, then the total sum would be

paid to the minor

Ahen an account is opened in the name of person known as minor, he or she

would be entitled to operate that account after attaining the age of .- and not -5

2o"#t Ao'#t

Ahen two or more person open one account jointly, and it is non9commercial or

not pertaining to business the account is known as Doint ;ccount)f any business or commercial account is opened by two or more person, it is not

termed as joint account but &artnership ;ccount

Ahen joint account is opened, all the account holders would sign account opening

form, but its operation depends on the instructions given by all jointly

:sually such account is maintained within the family members as? husband and

wife, father and son or daughter, mother and son or daughter, father with mother

and daughter or mother with son and daughter #ut it can be opened by two or

more friends or ac=uaintances also

This account can be operated by any one, two of them or by all of them, but the

condition is that such instructions must be given by all of the accounts holders

jointly either at the opening of account The operational instructions can be

changed or revoked even after opening of account any time in future but conditions

rests that all of them would write to the banker jointly

Co$po$!te Ao'#t(


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;ccounts of &rivate and &ublic "imited Companies are termed as corporate

accounts

These are routine accounts and are basically current accounts and are operated like

any other regular current account, but the difference lies that they have to provide

some additional documents before opening the account

Re0'"$e*e#t 3o$ Co$po$!te !o'#t(

)n addition to account opening form they have to provide the followings

- 'emorandum of ;ssociation

. ;rticles of ;ssociation

/ Certificate of )ncorporation

0 Certificate of Commencement of business

1 esolution from board of directors

3 "ast years balance sheet or projected financial statements

For 5ri!ate limited comanies, they need not to ro!ide letter of

commencement of business.

Me*o$!#d'* o3 A((o"!t"o#

)t is charter of company stating name, address, nature and scope of business

A$t"le( o3 A((o"!t"o#

)t contains rules, laws, salaries and authorities of directors

Ce$t"3"!te O3 I#o$po$!t"o#

)t is permission letter from Corporate "aw authority to confirm that the company

has been legally established

Ce$t"3"!te O3 Co**e#e*e#t O3 B'("#e((

)t is permission from Corporate law ;uthority to start business, and it is given by

them when the company gets subscription from the share holder This is not

needed in case of &rivate "imited Company

Re(ol't"o# F$o* Bo!$d O3 D"$eto$()n this resolution board of directors resolve and confirm that they can open account

with the one or more banker :nless resolution is passed by the board of directors

that ay which bank they intend to open account, directors are not authoriBed to

open or operate account

L!(t Ye!$ B!l!#e Sheet O$ P$o4eted F"#!#"!l St!te*e#t(


19/22

)t is mandatory for every banker to know and maintain the ma+imum information

about source and utiliBation of funds of account holders The term is known as

JKC J>A K>: C:ST>'E and it can be known by the financial

documents of the corporate body and the best available one is #alance Sheet or

&rojected financial documents

anker ;ustomer Relations#efore we come to #anker Customer elation, we must know about #anker and

Customer

B!#-e$

#anker is a legal person who accepts deposit from one customer and lends it to

another customer The customer depositing money is known as depositor and

person to whom bank lends is called borrower #anker pays to the depositor and

earns from borrower Ahat banker pays to depositor is known as &rofit and what

earns from borrower is mostly 'ark9up $)n &akistan% ate of mark9up is always

much higher than the rate of profit, and the difference of this mark9up and profit is

spread or &rofit of the bank

C'(to*e$

; person who maintains his account is customer )rrespective of the fact that the

person is maintaining Current, Saving, Term and 8i+ed *eposit and whether

maintains heavy or petty deposit all are e=ual and respectable as customer of bank

&erson who borrows money from the banker is also customer )t is very obvious

that banker would not lend to any person who is does not maintain any accountwith bank

'ost of the bank


20/22

under principal and customer relation Gere the Customer is &rincipal and #anker

is ;gent

$o elaborate it an illustration is gi!en"

; Customer Saleem has his account with :nited #ank "imited, and Iubair gives

him a che=ue of s 1777729 ;ccount of Iubair is at Gabib #ank "imited and

would be paid by the same bank Saleem who has received the che=ue has to go toGabib #ank to get cash from there, but it might be difficult for him due to distance,

cost and time involved >ther available option is that Saleem deposits this che=ue

to his banker, :nited #ank to present it on his behalf to Gabib #ank, get payment

from that bank and give credit to his account

Ahen bank would do this act? it would be done under the relation of &rincipal and

;gent

B!"lo$ !#d B!"lee

Ahen movable property which a person gives in the custody of banker for purpose

of safe custody? the relations so established are #ailor and #ailee Gere Customeris #ailor and banker is #ailee E+ample can be given for hiring of Safe *eposit

"ockers where a customer keeps his valuables in the bankther than

Safe *eposit Vault customer can hand over any valuable items or documents to the

banker to keep it in its own safe

P!,#e$ !#d P!,#ee

Ahen any borrower provides his movable property to banker to be kept as security

against borrowing? the relation so established are &awner and &awnee )nstance can

be given when goods are pledged with the borrower to the banker Customer wouldbe &awner and banker would be &awnee

Mo$tg!go$ !#d Mo$tg!gee

:nder the situation when borrower offers his immovable property as security

against borrowing the relations so established are 'ortgagor and 'ortgagee

)llustration can be given as 'ortgage of property of borrower by the banker

Stop P!y*e#t I#(t$'t"o#

;ccount holder has right to instruct his banker to Stop &ayment of his che=ueeither issued in favour of some one or it is blank Some time account holder can

instruct his banker to stop payment of full che=ue book or remaining che=ues after

utiliBation

)f a che=ue is issued in favour of some one, customer would write to banker to stop

payment of che=ue giving following information?

Che=ue umber


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*ate of issuance

;mount of che=ue

ame of person to whom issued

Customer may or may not write the reason for stopping the payment? he could

simply write that he intends not to pay the che=ue

;s stated earlier, customer may instruct to stop payment of numerous che=ues )tusually happens when the che=ue book is either lost or stolen )n such situation

customer would write that che=ues from this number to that number have been lost

or stolen and if any of these che=ues are presented should not be paid

>n receipt of such instructions bank verifies signature of account holder from

specimen signature card and if found genuine would accept and entertain this

instruction

#anker would feed that che=ue number in system $Computer% and block its

payment ;ny time that che=ue is presented to the banker? system would not accept

it and payment would not be made

;s already discussed, whenever che=ue is returned, banker must state reason for

returning it and that too in writing )n this case the true and genuine reason would

be written and it would be &;K'ET ST>&&E* #K *;AE Same would

be the case when instructions are to stop payment of numerous che=ue

STOP PAYMENT INSTRUCTIONS ON PHONE OR E)MAIL)n rare cases customer is in such an awkward position that he cannot come to bank

to instruct stop payment of che=ue and informs bank not to pay the che=ue )t

happens only when the che=ue has been lost, misplaced or looted and has been

issued asBEARER. 'ain reason is that the customer is afraid that by the time he

reaches the bank? che=ue may be presented and paid Therefore he gives phonic

instruction or could send e9mail The problem with the banker would be that bank

accepts and accommodate only instructions those are in writing ;pprehension for

the bank is that if it acts on verbal instruction the customer might say later on that

he did not instruct so? and if such situation arise banker might face allegation of

Arongful *ishonour of Che=ue

>n other hand if banker refuses to accept such instruction, its customer may face

loss of money due to wrong or false payment

This situation is handled in a way that both ends are saved #anker accepts this

instruction from customer with the condition that banker would not honour and pay

che=ue for a limited period and in between that period customer must come and

give instruction in writing


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So payment would not be made between these periods and if che=ue comes during

that period, che=ue would be returned with following reason?

PAYMENT PENDING RE6UIRE DRA1ER7S CONFIRMATION

"ater on customer would come and give instruction in writing and then banker

would have genuine ground to return it with reason as &ayment Stopped by*rawer )f during this time customer does not come and give instruction in

writing then banker has no option but to pay it The condition would be that che=ue

is otherwise in order

Re*o+!l o3 Stop P!y*e#t I#(t$'t"o#

Customer has right to cancel or revoke his stop payment instructions, but he would

do it by giving such cancellation instruction in writing )n that case he would write

to banker and banker would release this che=ue or numerous che=ues from system

and if che=ue is presented would be paid

STOP PAYMENT IN 2OINT ACCOUNT AND PARTNERSHIP ACCOUNT

)n Doint account any one of joint account holder can stop payment of che=ue

whether he or she is authoriBed signatory or not, but in account opening form

appear as one of the joint account holder Same would apply in &artnership account

where any partner can give instruction to stop payment of che=ue issued and

signed by other partner2partners )n both cases banker is bound to accept and act on

such instruction

;s far as Cancellation of Stop &ayment is concerned? it must be done by all the

Doint account holders in case of joint account and all partners in case of partnershipaccount

Noteson Banking

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Transcript of Noteson Banking