MODULE 3 BANKER & CUSTOMER Notes

🪧Operating the Bank Account🪧

Operation of customers account means depositing money in to the account and its frequent withdrawal. Each and every such transaction should be properly supported by proper documents. The paying-in-slip, cheque book and pass book are the most frequently used documents to operate the account of customers.

1. Pay-in-Slip book:

A paying-in-slip book is a book which contains printed slips called pay-in-slips. This book is supplied by the bank to the customer. This document is used to deposit cash, cheques, drafts, bills etc. to the credit of his account. It contain information such as date of deposit, name and account number of the customer. amount to be deposited, the denominations of currency notes etc.

2. Cheque Book:

A customer is also provided with a cheque book to operate his account. A cheque book contains 10 or 20 blank cheque leaves serially numbered. Cheques are used to withdraw money from current and savings bank account. Money in the savings bank account can also be withdrawn by using separate withdrawal slip.

3. Pass Book:

A pass book is a small book issued by a banker to his customer to record all dealings between them It is a copy of the customers account in the bank's ledger. It contains the particulars of the customer's bank transactions as recorded in the bank ledger.

📌Opening of Saving and Current Accounts

The relationship between the banker and customer begins immediately on the opening of an account tin the name of a customer. Therefore a banker should be very cautious in opening an account.The banker has to take the following steps for opening a savings or current account in the name of customers.

1. Application on the prescribed form:

A prospective customer has to fill up the printed application form supplied by the banker and submit it to the bank for opening an account. Separate forms are available to open savings and current accounts. The applicant should mention his name, full address, occupations name of the referee etc. in the application. The applicant is also required to affix his recent photograph in the application.

2. Introduction of the applicant:

A banker has to satisfy himself the identity of the customer before opening an account in his name. For this purpose he should ask for proper introduction or a satisfactory reference. Proper introduction means the prospective customer has to be introduced to the bank by a respectable person or an existing customer of a bank.

3. Obtaining specimen signature:

After making proper enquiry and the banker is willing to open an account in the name of the applicant, the applicant is required to give his specimen signature to the bank and it is kept in the bank for future reference.

4. Receiving initial deposit:

After all the formalities are over, the banker should obtain the initial deposit from the customer and it should be credited in his account. The minimum deposit should be at least equal to the minimum balance to be maintained in savings or current accounts.

5. Opening the account:

After accepting the deposit, the banker can open a fresh account

in the name of the customer in the ledger. The full details such as name, address, account number etc. are entered at the top of the ledger folio. Then the banker may issue a pay-in-slip book, cheque book and pass book to the customer. Now the customer can operate his account.

🪧KYC norms

KYC (Know Your customer) is a process that has to be complied by financial institutions especially banks. It is a process by which banks obtain information about the identity and address of the customers. This process helps to ensure that banks' services are not misused. The KYC procedure is to be completed by the banks while opening.accounts. Banks are also required to periodically update their customers' KYC details.Basically, there are two types of documents required to comply with KYC norms. One is "Proof of Identity" and another is "Proof of Address". The customer needs to submit self attested copies of acceptable residential address proof and identity proof. Submission of documents and KYC form can be done physically by visiting the bank branch or by scanning the documents and uploading the same on the Net banking portal.

It is a must and all individuals have to comply, if they wish to open account. It is not possible to open a bank account without KYC compliance. The main objective of this policy is to prevent money laundering, identity theft, terrorist financing, and financial frauds.

BANKING OMBUDSMAN

CHEQUE

Meaning and Definition

The banker opens a current and savings account for a customer. At that time, the customer is provided with a cheque book for operating his account. A cheque book contains 10 or 20 printed blank cheque leaves serially numbered. Customers are required to make use of these printed forms for drawing cheques. This practice helps the cheque to become safer. It also provides uniformity to cheques. Cheques are used to withdraw money from current and savings bank account

Section 6 of the Negotiable Instrument Act 1881 defined a cheque as "a bill of exchange drawn on a specified banker and not expressed to be payable otherwise on demand "

Parties to the cheque

There are three parties to a cheque. They are

1.Drawer: Drawer is the person who issues a cheque. He is always a customer of a bank.

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2.Drawee: Drawee is the bank on which a cheque is issued. He is always a banker.

3. Payee: Payee is the person to whom the amount of a cheque is payable

Essential Features of a cheque or Requisites of a valid cheque

1.Instrument in writing:

A cheque must be an instrument in writing. Oral orders therefore do not constitute a cheque. There is no specific rule regarding the writing materials to be used. A cheque may be written even with a pencil because it is not prohibited by the law. But in practice, bankers do not honour such cheques in order to protect the interest of both the banker and customer. So a cheque should be written in ink.

2.An unconditional order:

A cheque must contain an order to pay and not a request. It is not essential that the word 'order' should be used in a cheque. The word 'pay' itself constitutes an order. The order must be unconditional.

3.It is always drawn on a specified banker:

A cheque is always drawn on a specified banker and not on any other person. Again, a cheque should not be drawn on any bank, but only on the particular bank where the drawer has an account. The name and address of the drawee bank is always printed on the face of the cheque.

4. It is drawn only by the customer of a bank:

The cheque is always drawn by a customer of a bank. A customer is the person who have opened an account with a bank by depositing money.

5.At must be signed by the drawer:

The drawer of a cheque must put his signature in the cheque with a pen or ball pen. The signature of the drawer must agree with his specimen signature.

6. The order must be for the payment of money:

This means that the order must direct the banker to pay money only and nothing else. For example, if the drawer directs the banker to pay gold or silver, the instrument cannot be treated as cheque.

7. A certain sum of money only:

The order must be for the payment of a certain sum of money.

8. Payable on demand:

A cheque is always payable on demand. There is no need to write the term "demand" in the cheque.

9. Payee should be a certain person:

A cheque is always made payable to either to a specified person called payee or to the payees order to another person or the bearer of the cheque. Payee may be a human being or artificial person.

Crossing of Cheques

Cheques are of two types namely open cheques and crossed cheques.

A cheque without crossing is called an open cheque. Open cheques are payable at the counter of the bank to any person who present it. Therefore great risk is involved if such cheques fall in the hands of undesirable persons. In order to avoid such risks and to become the cheque more safe, a device known as crossing is introduced. A crossing is a direction to the paying banker to pay the amount of the cheque only to a banker and not directly to a person who presents it at the counter.

Crossing of a cheque means drawing across the face of the cheque two parallel transverse lines with or with out the words "and company". Crossing can be hand-written or stamped.

Objects of Crossing

Crossing of cheques is very essential to minimise the risk involved in open cheques and to ensure its safety.

1.It is very difficult for a wrong person to receive the payment of a crossed cheque. This is because; the crossing is a direction to the paying banker not to pay the cheque at the counter, but to another banker only. Therefore a wrong person finds it difficult to encash the cheque at the counter. He has to collect the cheque through another bank.

The another bank will collect the cheque only for their customers. Thus crossing ensures the safety of the cheque

2.It is also very easy to trace the actual person who has received the payment of the cheque in respect of crossed cheques

Types of Crossing

There are two types of crossing namely general crossing and special crossing..

General Crossing

Section 123 of the Negotiable Instrument Act 1881 defines general crossing as follows.

"Where a cheque bears across its face, an addition of the words' and company' or any abbreviation thereof, between two parallel transverse lines or of two parallel transverse lines simply, either with or with out the words 'not negotiable', that addition shall be deemed to be a crossing, and the cheque shall be deemed to be crossed generally".

Types of Crossing

There are two types of crossing namely general crossing and special crossing..

General Crossing

Section 123 of the Negotiable Instrument Act 1881 defines general crossing as follows. "Where a cheque bears across its face, an addition of the words' and company' or any abbreviation thereof, between two parallel transverse lines or of two parallel transverse Clines simply, either with or with out the words 'not negotiable', that addition shall be deemed to be a crossing, and the cheque shall be deemed to be crossed generally".

Essential features of general crossing

1.There must be two parallel transverse lines on the face of the cheque. Transverse means, that, they should be arranged in a cross wise direction. They should not be straight lines.

2.The lines are generally drawn on the left hand top corner of the cheque

3 .The words 'And company' or its abbreviation may be written in between these lines. But this is not essential. These words are written when the drawer does not know the payees banker.

4. The words such as 'Not Negotiable" or 'Account payee' can also be added with a general crossing) But they themselves do not constitute crossing. However the addition of these words increases the safety of the cheque.

5.The paying banker is required to pay the amount of a generally crossed cheque to another bank and not to the holder.

Effect of general crossing

The effect of the general crossing is that the cheque should be presented to the paying banker through another bank and not by the payee himself at the counter. The collecting banker after collecting the amount of the cheque from the paying banker may credit the account of the payee. The payee can later withdraw the amount from his account by using cheques.

Special Crossing

Section 124 of the Negotiable Instrument Act 1881 defines a special crossing as follows. "Where a cheque bears across its face, the addition of the name of a banker, with or, with out the words 'Not Negotiable", that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed specially, and to be crossed to that banker."

Essential features of Special Crossing

1.Two parallel transverse lines are not at all essential for a special crossing.

2.The name of the collecting banker should be specified in the crossing.

3.The words such as 'Not Negotiable" or 'Account payee' can also be added with a special crossing. But they themselves do not constitute crossing. However the addition of these words increases the safety of the cheque.

4. The paying banker is required to pay the amount of a specially crossed cheque to the banker named in the crossing.

5. The special crossing makes a cheque safer than general

Significance of special crossing

1. The special crossing in the cheque is a direction to the paying banker to honour the cheque only when it is presented through the bank named in the crossing and no other bank

2. If a cheque specially crossed to a bank is presented by another bank, not in the capacity of its agent, the paying banker is justified in returning the cheque

3.A special crossing gives more protection to the cheque than in general crossing. The collecting banker will collect such cheques only on behalf of their customers. So it is very difficult to encash the cheque by a wrong person.

Endorsement

The main feature of a negotiable instrument is negotiability. It can be transferred from one person to another either by mere delivery or by endorsement and delivery. All order instruments are transferable only by endorsement and delivery.

Definition of Endorsement

The term 'endorsement' is derived from the Latin word 'in dorsum' which means "on the back". So, endorsement means signing on the back of a negotiable instrument for the purpose of negotiation. Section 15 of the Negotiable Instrument Act 1881 defines endorsement as follows

Where the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, on the back or face thereof, or on a slip of paper annexed thereto or signs for the same purpose a stamp paper intended to be completed as a negotiable instrument, he is said to endorse the same, and is called the endorser."

Allonge:

If the entire space on the back of a negotiable instrument is covered with endorsement, a piece of paper is safely attached to the instrument for the purpose of endorsement. All subsequent endorsement is made on this piece of paper. The paper attached with a negotiable instrument for the purpose of making further endorsement is called "Allonge".

Effects of Endorsement

1. After endorsement, the endorsee gets the right, title or property in the instrument.

2.He also gets the right of further negotiation.

3. The endorsee acquires the right of the instrument as its holder.

4, The endorser certifies the genuiness of the instrument.

5. The endorser, by his act of endorsing, promises to indemnify the endorsee or any subsequent holder for any loss suffered by them on the dishonour of the instrument.

6. The endorser guarantees to the endorsee that he had a good title to the instrument.

Kinds of Endorsement

1.Blank Endorsement:

This endorsement is also called general endorsement. When the endorser simply signs on the back of the instrument for the purpose of negotiation, the endorsement is said to be in blank. The endorser does not mention the name of the endorsee and therefore it is payable to the bearer.