Roll No.15, Tybbi 2010-11
Roll No.15, Tybbi 2010-11
Roll No.15, Tybbi 2010-11
PREPARED BY
ROLL NO:-15
SEMISTER-V, YEAR-2010-11
SUBMITTED TO
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ACKNOWLEDGEMENT
And, last but not least we would like to express our humble thanks to
‘parents’ and friends especially Yash n Dinesh for their encouragement and
boosting which they have given to us….
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INDEX
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CHAPTER 1
INTRODUCTION
1.1 BACKGROUND
1.2 BANEFITS
1.3 GENERAL OVERVIEW
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CHAPTER 1
INTRODUCTION
1.1 BACKGROUND
Reserve Bank of India, after setting up of the Board for Payment and
Settlement Systems in 2005, released a vision document incorporating a
proposal to set up an umbrella institution for all the RETAIL PAYMENT
SYSTEMS in the country. The core objective was to consolidate and
integrate the multiple systems with varying service levels into nation-wide
uniform and standard business process for all retail payment systems. The
other objective was to facilitate an affordable payment mechanism to benefit
the common man across the country and help financial inclusion.
IBA's untiring efforts during the last three years helped turning this
vision a reality. National Payments Corporation of India (NPCI) was
incorporated in December 2008 and the Certificate of Commencement of
Business was issued in April 2009. It has been incorporated as a Section 25
company under Companies Act and is aimed to operate for the benefit of all
the member banks and their customers. The authorized capital has been
pegged at Rs 300 crore and paid up capital is Rs 30 crore so that the
company can create infrastructure of large dimension and operate on high
volume resulting payment services at fraction of the present cost structure.
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1.2 BENEFITS
We need to ensure that payment systems are benchmarked with the best in
the world, in terms of the structure, processes and operations.
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1.3 GENERAL OVERVIEW
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FSAP also raised concerns for the security of the SIPS in India and for the
amount of risk allowed to system participants. The FSAP opined that “the
introduction of Real Time Gross Settlement (RTGS), which would handle
all large value payments, would greatly enhance compliance, boost
efficiency and lower the risks in the payment system” (p. 264).
The RTGS system was subsequently introduced. Per the 2009 CFSA report,
in order to address the shortcomings, the Payment and Settlement Systems
Act was passed in 2007 which strengthened the legal framework for
payment and settlement systems in the country. The reforms undertaken
since the 2001 FSAP also greatly contributed to the compliance of the
Indian payment systems with international standards, the CFSA report
notes.
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Clearing system, weaknesses were noted in the areas of risk management
and timely completion of settlement. As regards to the central bank
responsibilities in overseeing payment systems, the RBI (India's central
bank) observes three and broadly observes one.
Based on the results of the World Bank’s 2008 Global Payment Systems
Survey involving 142 countries, Cirasino and Garcia’s report “Measuring
Payment System Development” published in the same year, evaluates
India’s compliance with four distinct sub components which are broadly
based on the CPSS' CPSIPS. The four components of the Cirasino and
Garcia assessment are the (1) legal and regulatory framework; (2) large-
value payment systems; (3) retail payment systems; and (4) the enabling
environment for the payment system oversight function. The first
component, the legal and regulatory framework, covers CP I and to some
extent CP II. The second component large-value payment systems "is based
on two subcomponents: i) system design and key policy decisions that affect
the safety, soundness and efficiency of the system; and, ii) the actual usage
of the large-value system in terms of the share of the settlement throughput
that flows through the system being rated versus other systems that process
large-value payments" (p. 5). This component addresses some aspects of CP
III through CP X. The third component on retail payment systems is not
discussed in this report because the retail payment systems in India are not
systemically important and therefore fall outside the purview of this
evaluation. The fourth component basically focuses on the Central Bank's
payment system oversight function. The 2008 report by Cirasino and Garcia
concludes that India achieves "medium-low level of development” for
component one; and “medium-high level of development” for components
two and four. However, the information contained in this report, although
informative, does not directly address India’s compliance with the CPSIPS.
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Also, the World Bank Survey and the Cirasino and Garcia assessment
analyze the legal framework that existed before the Payment and Settlement
Systems Act of 2007 came into effect. As indicated in the World Bank
Survey report of 2008, the then pending Act would substantially improve
the country’s legal and regulatory framework with respect to the payment
and settlement systems.
The 2008 World Bank report notes that the RBI’s payment system oversight
is performed over all systemically important funds transfer systems, and that
it is spelled out in a regulation or policy document. The World Bank
remarks that the oversight function of the RBI will be further formalized
when the Payment and Settlement Systems Bill is enacted into law. As
mentioned earlier, the Payment and Settlement Systems Act was enacted in
2007. Overall, even pending the enactment, the World Bank survey found
the oversight function well-established and performed regularly on an on-
going basis. There is also a specific unit within the RBI responsible for
payment system oversight. Although in a non-formal and ad-hoc manner,
the RBI does cooperate with other relevant authorities through regular
meetings and exchange of views and opinions. Further, a formal National
Payments Council is in place in India. The RBI holds regular informal
meetings with senior levels of stakeholders to discuss strategic issues for the
payment system. The RBI also consults stakeholders on particular
operational issues on a bilateral basis or through creating an ad-hoc task
force or working group. In addition, the RBI consults with the Indian Banks'
Association (IBA) on important issues pertaining to the payment systems
regularly.
The 2008 World Bank report notes in its appendix that legal provisions in
India: (1) recognize bilateral and multilateral netting arrangements; (2)
recognize the set off of mutual claims bilaterally; (3) recognize electronic
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processing of payments; and (4) provide for the enforceability of security
interests provided under collateral arrangements. The 2008 World Bank
publication noted that India was reforming its legal and regulatory
framework for payment systems. These reforms were aimed at reducing
systemic risk; improving the overall efficiency of the payment system;
meeting the demands of the market, the end users, and the government
institutions to provide better payment and settlement services; and keeping
up with technological innovation.
In order to focus attention on the payment and settlement systems, the Board
for Regulation and Supervision of Payment and Settlement Systems (BPSS)
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was set up on March 10, 2005 as a Committee of the RBI's Central Board. It
is entrusted with the role of prescribing policies relating to the regulation
and supervision of all kinds of payment and settlement systems, setting
standards for existing and future systems, authorizing the payment and
settlement systems and determining the criteria for membership to these
systems, including the continuation, termination and rejection of
membership. The setting up of the BPSS has strengthened the institutional
framework for payment and settlement systems in the country, the 2009
CFSA report notes. Further, the setting up of National Securities Depository
Limited (NSDL) and Central Depository Services (India) Limited (CDSL)
for the capital market settlements and Clearing Corporation of India Ltd.
(CCIL) for government securities, forex and money market settlements has
improved efficiency in market transactions and settlement processes.
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CHAPTER 2
2.1.1 LIQUIDITY
2.1.2 SAFETY
2.1.3 PROFITABILITY
2.1.4 SECRECY
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CHAPTER 2
Banks are able to lend a major portion of their deposits, and play the
role of an intermediary and constitute the payment system because of
understanding that banks will honour there commitments to the people. If
this trust is broken for any reason, the banks will not able to survive. This
trust might suffer a setback if the banks are not able to return all the deposits
at all times. Failure of one bank can lead to failure of other banks too
because their role as a constituent of the payment system make them have
substantial dealings with others. Large scale systematic failure can cause a
collapse of the economy itself.
2.1.4 Secrecy: During the course of the business, banks come to know
many details of the finance of the customers. Banks have to maintain
confidentiality of such information as revealing the information to the
wrong persons can adversely affect the customers. For examples, a
competitor of the customers or a journalist may use confidential
financial information to cause loss or damage to the reputation of the
customer. Banks owe a duty to their customers to ensure absolute
secrecy of customer information. A bank that does not take his duty
seriously is not likely to be trusted by its customers.
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2.1.5 Service quality: Banking is the transaction intensive business, as
customers have to deal with the banks for almost all the financial
transaction. Since the intensity of interactions is high, customers
would naturally prefer to deal with the banks that make the
interactions pleasant and fast. Poor quality of service in the terms of
errors and delays can seriously erode the confidence of the customers
in the banks because errors and delays in the financial dealings can
result into financial loss apart from causing bitterness. Banks that do
not take their obligations to provide quality service cannot hope to
enjoy the trust and patronage of its customers.
Regulations are good for the economy and the bank. Compliance with
regulatory and statutory requirements is sacrosanct.
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CHAPTER 3
CREDIT CREATION
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CHAPTER 3
Credit Creation
Deposit Services
Banks accept demand deposits and fixed or time deposits. Demand deposits
are repayable on demand while fixed deposits have a fixed maturity period
and are repayable only after the agreed period. Since demand deposits are
more liquid as compared to fixed deposits, the interest paid on such deposits
is at a low rate or no interest is paid at all. Lower the liquidity, higher is the
rate of interest. Therefore, longer the period of the fixed deposit, higher will
be the interest that is paid.
The various products offered by banks within the deposit services are:
Current accounts
Savings bank accounts
Fixed deposit accounts
Recurring deposit accounts
Retail loans
Personal overdrafts
Credit cards
Business/Corporate credit
Working capital facilities
Business card
Post-sale finance or trade finance
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3.1.1 Current Accounts
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Normally, banks charge the customers for any for any service rendered
through a correspondent or partner bank locations or delivery channels. In
such kind of services, ceilings are imposed on payment and collections.
Extra charges are applied in case of transactions in excess of the ceiling.
Similarly, certain banks offer to issue DDs and POs free of charge up to a
certain number per month and chargeable above the prescribed limit.
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based on the minimum balance requirement for a particular account,
the number and nature of transactions.
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3.1.2 Savings Bank Account
The interest rate on these accounts is regulated by the RBI. Presently, the
interest rate on SB account is 3.5 per cent per annum and it is paid every six
months. Interest is calculated depending on the minimum balance in the
account between the 10th and the last day of the month. The account
balance from the 1st to 10th is not considered since it is there will be
maximum inflow through salary and maximum outflow for various regular
payments.
Following are the facilities that are free of charge for SB Account:
Cash transactions
Clearing of local cheques
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Debit cards, which can be used at ATMs and Point of Sales [POS]
terminals
Access to ATMs
Access to Internet Banking
Access to phone banking services
Access to mobile banking services
Standing instructions for making regular payments
ECS facility for making regular payments, such as
electricity/telephone bills, and also for receiving dividends, interest
and pension
Banks have designed the SB accounts with enhanced level of services for
individual who maintain larger deposits with the bank. These customers are
classified as High Net worth Individuals or Private banking customers and
are offered value added services mentioned below:
Home delivery of cash and pick up of cash and cheques from home.
Anywhere banking
Larger withdrawals from ATMs
Withdrawal from ATMs of other banks without payment of any
charge
Faster response to queries at the Phone banking centre
Separate counters for faster service
Dedicated relationship managers
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3.1.3 Fixed Deposits
FDs are repayable after the expiry of the specified term varying form 7 days
to 120 months. Hence they are also known as term deposits. However, they
are not as liquid as savings deposits. The rate of interest paid on FDs is
higher than that of savings deposits. Normally, the longer the term of the
deposit, higher is the rate of interest but a bank may offer lower rate of
interest for a longer period if it expects the rate to dip in future.
Interest on FDs is paid after every three months from the date of the deposit.
The customer has the choice to have the interest reinvested in the FD
account. In such a case, the deposit is called cumulative FD or compound
interest deposit. For such type of deposits, interest is paid with the invested
amount on maturity of the deposit at the end of the term. In case the
customer wants interest to be paid every quarter, it is credited to their SB
account or sent to them by cheque. This is nothing but a simple FD.
All types of entities can make FDs and the minimum amount of deposits
specified by various banks varies from Rs. 1000 to Rs. 10000 with
additional deposits in multiples as stipulated in that particular scheme.
Banks are supposed to deduct tax from the interest paid on FDs if the
amount of interest paid to a customer at any branch exceeds Rs. 10000 in a
financial year. This is applicable to both interests payable or reinvested per
customer / per branch.
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3.1.4 Recurring Deposits
The contract between the customer and the bank is similar to the contract
related to a FD. However, the balances in these deposits cannot be
withdrawn till the date of maturity. Banks do permit premature withdrawals
at a reduced interest applicable to the term ofdeposit but they deduct penalty
for the same. TDS is not applicable to interest paid on RDs. This is a great
attraction for customers since they get interest at FD rates without TDS
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3.2.1 Retail Loans
India has emerges as one of the largest and fastest growing economies of the
world during the last decade. The strengthening of the economy in India has
been fuelled by the convergence of several key influences, like growth of
the key economy sectors, liberalization policies of the government, well-
educated work force and the emergence of a middle class population. India,
having the second largest population in the world, is on its way to become
the world's fourth largest economy in a span of 2 decades.
In the current scenario, banks have been thriving on retail lending. The
focus of banks now, is to increase the probable profits while limiting
possible losses. An increase in market penetration brought about a change in
the business environment and in the way banks conducted their business.
There was a change in terms of innovation in products as well as processes
to cater to the demands of the new age customer on one hand and to protect
the bank from multiple risks on the other.
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Retail Loans - Characteristics
Types of facilities:
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Secured/Unsecured facilities:
Interest:
Tenure:
The tenure for a loan depends upon the amount of the loan and
repayment capacity of the customer. However, the maximum tenure
permitted depends upon the period over which the asset financed
could depreciate completely.
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Loan to Value ratio:
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3.2.2 Working Capital
Calculation
This ration indicates whether a firm has adequate short-term assets for
covering its immediate liabilities. Anything below 1 reflects a negative W/C
(working capital). While anything above 2 indicates that the company is not
investing its excess assets. There exists a general belief that a ratio between
1.2 and 2.0 is sufficient.
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Current assets and current liabilities comprise of three accounts that are of
special importance. These accounts indicate the areas of the business where
managers have a direct impact:
An increase in working capital points out that the business has either
increased current assets (that is received cash, or other current assets) or has
decreased current liabilities, for instance has paid off short-term creditors.
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Debtor's management: Identify the suitable credit policy, i.e. credit
terms by which the customers will get attracted, such that any impact
on the cash flows and the cash conversion cycle shall be offset by
increased revenue and hence Return on Capital (or vice versa)
Short term financing: Identify the suitable source of financing, on
the basis of the cash conversion cycle: the inventory is preferably
financed by credit granted by the supplier; however, it may be
necessary to make use of a bank loan (or overdraft).
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3.2.3 Personal Overdraft
A convenient way of making sure you have enough money in your account
at all times.
ATM
EFTPOS
Telephone Banking
Online Banking
Branch
Cheque
Automatic payments.
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Benefit summary
You only pay interest on the money you use (provided fees and
interest are paid when debited to the account)
You pay a low establishment fee
No security required.
When life gets busy, it's easy to lose track of how much money you have in
your account.
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3.2.4 Business / Corporate Credit
Term Loans: funds required for acquiring fixed assets are given as
long-term loans, which are repaid in installments from the profits of
the organization. The period of repayment & periodicity of
installments are fixed, based on the repayment capacity of the
organization, which in turn is based on estimated profits and cash
generation of the organization. As in the case of retail loans,
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normally, the borrowing organization is required to contribute a
margin.
Leasing: another method of financing fixed assets is for the bank to
buy in its own name and rent it or lease it to the organization for the
period of which the cost of it can be recovered. When an asset is
leased, the bank will own it, while, if the organization buys an asset is
with the help of a loan, the asset will be owned by the organization. If
the organization takes a loan it will the interest and installments,
periodically to the bank.
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3.2.5 POST SALE FINANCE OR TRADE FINANCE
Cash credit, packing credit & demand loan facilities are given to
finance working capital requirements for purchase of raw materials. While
organization can use the facilities to finance their requirements over the
entire working capital cycle from purchase of raw materials to recovery of
sale proceeds from debtors. However, for financing the post sale
requirements, more efficient facilities are available. These are more efficient
because repayment can be monitored better & the rate of interest could be
cheaper for the customer.
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realization of the bill. In case the bill is dishonoured, the amount is
recovered from the customer.
BILL DISCOUNT: In the case of a Usance Bill, the date of payment
is certain as it becomes payable after a certain number of days after it
is accepted or from the date of the bill. Therefore, the bank is able to
calculate the exact amount of interest due on the bill & recover it
upfront. Interest recovered at the time of advance is called discount.
When money is advanced against a usance bill for collection, it is
called bill discounting. In case of bill purchase also, the interest is
recovered at the time of advance.
LETTER OF CREDIT: The Bill Collection facility reduces the risk
in trade transactions for both the buyer & the seller. The seller is
certain that the buyer will not get the possession of the goods till he
pays for it & the buyer is certain that as soon as he pays for it, he will
get the goods. The letter will state that if the seller dispatches the
goods according to the conditions, the payment of the bill submitted
by the buyer guaranteed by the bank. Conditions could be quality,
quantity, price & date of dispatch. Such a letter from the buyer’s bank
to the seller, guaranteeing payment of the bill drawn by the seller
provided he has complied with the conditions specified in the letter, is
called a Letter of Credit or LC in short. Therefore LC facility is also
treated as a credit facility by the bank but it is called a Non Fund
Based Facility, as the bank does not advances any funds. A cash
credit or loan is Fund Based Facility.
BILL NEGOTIATION: When a bill accompanied by the LC is
purchased (Demand Bill) or discounted (Usance Bill), it is called bill
negotiation to distinguish it from bill purchase or discount. When a
bill under LC is negotiated, the risk for the negotiating bank is much
less, as the LC is issuing bank guarantees payment.
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GUARANTEE: LCs are guarantees issued by banks on behalf of
buyers to facilitate trade transactions. For other types of transactions,
customers approach banks to issue guarantees on their behalf. Also,
the government may impose a condition that the work should be
completed within two months & if they fail to complete it, they
should pay a penalty. The government may insist that a bank should
guarantee their performance or pay a penalty in case of failure to
perform. There are many more such transactions for which bank
guarantee are insisted.
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CHAPTER 4
PAYEMENT SYSTEMS
4.1.1 CHEQUES
4.2.1 E.C.S.
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4.1.1 CHEQUES
History
The cheque had its origins in the ancient banking system, in which bankers
would issue orders at the request of their customers, to pay money to
identified payees. Such an order was referred to as a bill of exchange. The
use of bills of exchange facilitated trade by eliminating the need for
merchants to carry large quantities of currency (e.g. gold) to purchase goods
and services. A draft is a bill of exchange which is not payable on demand
of the payee. (However, draft in the U.S. Uniform Commercial Code today
means any bill of exchange, whether payable on demand or at a later date; if
payable on demand it is a "demand draft", or if drawn on a financial
institution, a cheque.)
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A cheque or check (American English) is a piece of paper (usually)
that orders a payment of money. The person writing the cheque, the drawer,
usually has a chequing account where their money is deposited. The drawer
writes the various details including the money amount, date, and a payee on
the cheque, and signs it, ordering their bank, know as the drawee, to pay this
person or company the amount of money stated.
Although cheques have been around since at least 9th century, it was during
the 20th century that cheques became a highly popular non-cash method for
making payments and the usage of cheques peaked. By the second half of
the 20th century, as cheque processing became automated, billions were
issued each year with volumes peaking in or around the early 1990s. Since
that time cheque usage has seen significant decline as electronic payment
systems started to replace physical cheques. In a number of countries
cheques have become a marginal payment system or have been phased out
completely.
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Variations on regular cheques
Certified cheque
When a certified cheque is drawn, the bank operating the account verifies
there are currently sufficient funds in the drawer's account to honour the
cheque. Those funds are then set aside in the bank's internal account until
the check is cashed or returned by the payee. Thus, a certified check cannot
"bounce", and, in this manner, its liquidity is similar to cash, absent failure
of the bank. The bank indicates this fact by making a notation on the face of
the cheque (technically called an acceptance).
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Payroll cheque
Warrants
Warrants look like cheques and clear through the banking system like
cheques, but are not drawn against cleared funds in a deposit account. A
cheque differs from a warrant in that the warrant is not necessarily payable
on demand and may not be negotiable.[22] They are often issued by
government entities such as the military to pay wages or supplies. In this
case they are an instruction to the entities treasurer department to pay the
warrant holder on demand or after a specified maturity date.
Travellers cheque
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Money or Postal order
Oversized cheques
Oversized cheques are often used in public events such as donating money
to charity or giving out prizes such as Publishers Clearing House. The
cheques are commonly 18 by 36 inches (46 × 91 cm) in size,[23] however,
according to the Guinness Book of World Records, the largest ever is 12 by
25 meters (39 × 82 ft).[24] Regardless of the size, such cheques can still be
redeemed for their cash value as long as they have the same parts as a
normal cheque, although usually the oversized cheque is kept as a souvenir
and a normal cheque is provided.[25] A bank may levy additional charges for
clearing an oversized cheque.
Payment vouchers
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4.1.2 PAYORDERS
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Features and Benefits of PAYORDERS:
All Banker's Cheques are pre-printed with the crossing "NOT
NEGOTIABLE".
To be issued for use only within the clearing area of the issuing Bank and if
cleared outside the clearing area then the normal outstation cheque
commission is payable.
Should be accepted as good by the payee as it has been paid for by the
customer at time of issue. It cannot be returned except for technical reasons.
To be used by customers who do not have a current account but wish to
make payments by cheques, or in situations when a personal cheque is
unacceptable.
Issued in Malaysian Ringgit only.
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4.2.3 DEMAND DRAFT
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4.2.4 DEBIT CARD
A debit card (also known as a bank card or check card) is a plastic card
that provides an alternative payment method to cash when making
purchases. Functionally, it can be called an electronic cheque, as the funds
are withdrawn directly from either the bank account, or from the remaining
balance on the card. In some cases, the cards are designed exclusively for
use on the Internet, and so there is no physical card.[1][2]
In many countries the use of debit cards has become so widespread that their
volume of use has overtaken the cheque and, in some instances, cash
transactions. Like credit cards, debit cards are used widely for telephone and
Internet purchases and, unlike credit cards, the funds are transferred
immediately from the bearer's bank account instead of having the bearer pay
back the money at a later date.
Debit cards may also allow for instant withdrawal of cash, acting as the
ATM card for withdrawing cash and as a cheque guarantee card. Merchants
may also offer cashback facilities to customers, where a customer can
withdraw cash along with their purchase.
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Advantages and Disadvantages
Debit and check cards, as they have become widespread, have revealed
numerous advantages and disadvantages to the consumer and retailer alike.
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transactions quicker and less intrusive. Unlike personal checks,
merchants generally do not believe that a payment via a debit card
may be later dishonored.
Unlike a credit card, which charges higher fees and interest rates
when a cash advance is obtained, a debit card may be used to obtain
cash from an ATM or a PIN-based transaction at no extra charge,
other than a foreign ATM fee.
Use of a debit card is not usually limited to the existing funds in the
account to which it is linked, most banks allow a certain threshold
over the available bank balance which can cause overdraft fees if the
customer does not depend on their own records of spending.
Many banks are now charging over-limit fees or non-sufficient funds
fees based upon pre-authorizations, and even attempted but refused
transactions by the merchant (some of which may not even be known
by the client).
Many merchants mistakenly believe that amounts owed can be
"taken" from a customer's account after a debit card (or number) has
been presented, without agreement as to date, payee name, amount
and currency, thus causing penalty fees for overdrafts, over-the-limit,
amounts not available causing further rejections or overdrafts, and
rejected transactions by some banks.
In some countries debit cards offer lower levels of security protection
than credit cards. Theft of the users PIN using skimming devices can
be accomplished much easier with a PIN input than with a signature-
based credit transaction. However, theft of users' PIN codes using
skimming devices can be equally easily accomplished with a debit
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transaction PIN input, as with a credit transaction PIN input, and theft
using a signature-based credit transaction is equally easy as theft
using a signature-based debit transaction.
In many places, laws protect the consumer from fraud much less than
with a credit card. While the holder of a credit card is legally
responsible for only a minimal amount of a fraudulent transaction
made with a credit card, which is often waived by the bank, the
consumer may be held liable for hundreds of dollars, or even the
entire value of fraudulent debit transactions. The consumer also has a
shorter time (usually just two days) to report such fraud to the bank in
order to be eligible for such a waiver with a debit card, whereas with
a credit card, this time may be up to 60 days. A thief who obtains or
clones a debit card along with its PIN may be able to clean out the
consumer's bank account, and the consumer will have no recourse.
Consumer Protection
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some jurisdictions the consumer liability for unauthorized charges is the
same for both debit and credit cards.
In some countries, like India and Sweden, the consumer protection is the
same regardless of the network used. Some banks set minimum and
maximum purchase sizes, mostly for online-only cards. However, this has
nothing to do with the card networks, but rather with the bank's judgement
of the person's age and credit records. Any fees that the customers have to
pay to the bank are the same regardless of whether the transaction is
conducted as a credit or as a debit transaction, so there is no advantage for
the customers to choose one transaction mode over another. Shops may add
surcharges to the price of the goods or services in accordance with laws
allowing them to do so. Banks consider the purchases as having been made
at the moment when the card was swiped, regardless of when the purchase
settlement was made. Regardless of which transaction type was used, the
purchase may result in an overdraft because the money is considered to have
left the account at the moment of the card swiping.
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4.1.5 CREDIT CARD
A credit card is different from a charge card: a charge card requires the
balance to be paid in full each month. In contrast, credit cards allow the
consumers a continuing balance of debt, subject to interest being charged.
Credit card security relies on the physical security of the plastic card as well
as the privacy of the credit card number. Therefore, whenever a person other
than the card owner has access to the card or its number, security is
potentially compromised. Once, merchants would often accept credit card
numbers without additional verification for mail order purchases. It's now
common practice to only ship to confirmed addresses as a security measure
to minimise fraudulent purchases. Some merchants will accept a credit card
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number for in-store purchases, whereupon access to the number allows easy
fraud, but many require the card itself to be present, and require a signature.
A lost or stolen card can be cancelled, and if this is done quickly, will
greatly limit the fraud that can take place in this way. For internet purchases,
there is sometimes the same level of security as for mail order (number
only) hence requiring only that the fraudster take care about collecting the
goods, but often there are additional measures.[citation needed] European banks
can require a cardholder's security PIN be entered for in-person purchases
with the card.
The PCI DSS is the security standard issued by The PCI SSC (Payment
Card Industry Security Standards Council). This data security standard is
used by acquiring banks to impose cardholder data security measures upon
their merchants.
The low security of the credit card system presents countless opportunities
for fraud. This opportunity has created a huge black market in stolen credit
card numbers, which are generally used quickly before the cards are
reported stolen.
The goal of the credit card companies is not to eliminate fraud, but to
"reduce it to manageable levels".[12] This implies that high-cost low-return
fraud prevention measures will not be used if their cost exceeds the potential
gains from fraud reduction - as would be expected from organisations whose
goal is profit maximisation.
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remote purchases using credit cards, security breaches are usually the result
of poor practice by merchants. For example, a website that safely uses SSL
to encrypt card data from a client may then email the data, unencrypted,
from the webserver to the merchant; or the merchant may store unencrypted
details in a way that allows them to be accessed over the Internet or by a
rogue employee; unencrypted card details are always a security risk. Even
encryption data may be cracked.
Additionally, there are security features present on the physical card itself in
order to prevent counterfeiting. For example, most modern credit cards have
a watermark that will fluoresce under ultraviolet light. A Visa card has a
letter V superimposed over the regular Visa logo and a Mastercard has the
letters MC across the front of the card. Older Visa cards have a bald eagle or
dove across the front. In the aforementioned cases, the security features are
only visible under ultraviolet light and are invisible in normal light. Similar
security features are present in paper currency and certain ID cards in the
United States, as well.[citation needed]
The Federal Bureau of Investigation and U.S. Postal Inspection Service are
responsible for prosecuting criminals who engage in credit card fraud in the
United States, but they do not have the resources to pursue all criminals. In
general, federal officials only prosecute cases exceeding US$5,000. Three
improvements to card security have been introduced to the more common
credit card networks but none has proven to help reduce credit card fraud so
far. First, the on-line verification system used by merchants is being
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enhanced to require a 4 digit Personal Identification Number (PIN) known
only to the card holder. Second, the cards themselves are being replaced
with similar-looking tamper-resistant smart cards which are intended to
make forgery more difficult. The majority of smart card (IC card) based
credit cards comply with the EMV (Europay MasterCard Visa) standard.
Third, an additional 3 or 4 digit Card Security Code (CSC) is now present
on the back of most cards, for use in card not present transactions.
Stakeholders at all levels in electronic payment have recognized the need to
develop consistent global standards for security that account for and
integrate both current and emerging security technologies. They have begun
to address these needs through organizations such as PCI DSS and the
Secure POS Vendor Alliance.[13]
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4.1.6 MULTICITY CHEQUES
"Multi City Cheque" or MCC is a facility wherein the customer can issue
cheques drawn at the base branch and payable at any branch at remote
centre. These cheques will be treated as local cheques at the remote branch.
There will be no collection charges and the credit will be given on the same
day, as applicable to local cheques. Even if the cheque is dropped at any
other bank other than the base bank, there will not be any collection charges.
For example, if you are paid a Multi city cheque by an account holder at a
SBI branch in Delhi and you drop the same at any bank in Mumbai where
you hold an account, then there will not be any collection charges.
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Current accounts with a monthly minimum balance of Rs. 50,000/-
Apply for the MCC facility in the prescribed application form available at
all the cluster-connected branches of the Bank.
MCC Cheques cannot be used for withdrawing cash, as they are pre-printed
with A/c Payee Crossing.
Multi City Cheques are payable at all the cluster linked centres, subject to
the availability of clear balance in the account of the customer, and the
availability of the link between the branches.
Cheque Leaf Charges: Rs.5/- per leaf in case of both SB and CD/COD/SOD
accounts. No free cheques would be given. The accounts availing Multi-city
cheque facility can also avail ordinary cheque books.
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Cheque Bounce Charges: In the incident of a Multi-city cheque bounce due
to financial reasons, Rs.100/- will be charged.
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4.1.7 ELECTRONIC FUND TRANSFER
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Electronic Benefit Transfer
In 1978 U.S. Congress passed the Electronic Funds Transfer Act to establish
the rights and liabilities of consumers as well as the responsibilities of all
participants in EFT activities in the United States.
Defn-
INTRODUCTION
1.1 Reserve Bank of India has introduced an electronic funds transfer
system called "The Reserve Bank of India National Electronic Funds
Transfer System" (herein after may be referred to as "NEFT System" or
"System"). A set of procedural guidelines to be followed are detailed in this
document.
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Objects
1.2 The objects of the NEFT System are:
(1) to establish an Electronic Funds Transfer System to facilitate an
efficient, secure, economical, reliable and expeditious system of funds
transfer and clearing in the banking sector throughout India, and
(2) to relieve the stress on the existing paper based funds transfer and
clearing system.
Coverage
1.3 These guidelines shall apply to participating banks/ and branches in the
system as notified by Reserve Bank of India from time to time on its official
Web-sit
Eligibility criteria
3.1 To be eligible to apply for admission, an applicant
1) shall be a bank.
2) shall be a member of Real Time Gross Settlement System (RTGS)
3) shall have installed SFMS
4) shall meet the other prescribed eligibility criteria/conditions , which are
notified by RBI from time to time
Provided that, all or any of the above conditions may be relaxed or
dispensed with, if
so decided by the Reserve Bank of India.
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Procedure for Admission
3.2 Any bank or institution eligible to be admitted in the NEFT System may
submit to the Nodal Department, duly authenticated application, containing
full particulars in the form specified at Annexure-I (Form: NEFT-IA). Every
application shall be accompanied by an undertaking in the specified form to
abide by the Procedural
Guidelines in the event of admission.
3. 3 The Nodal Department shall issue Letter of Admission as specified in
Annexure-II (Form: NEFT-IB) to every bank admitted into the NEFT
System.
CONDITIONS OF TRANSFER
1. Remitting Bank shall not be liable for any loss of damage arising or
resulting from delay in transmission delivery or non delivery of Electronic
message or any mistake, omission, or error in transmission or delivery
thereof or in deciphering the message from any cause whatsoever or from its
misinterpretation received or the action of the destination Bank or any act or
even beyond control.
2. All payment instructions should be checked carefully by the remitter.
3. Messages received after cut-off time will be sent in the next batch.
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4.2.1 ELECTRONIC CLEARING SERVICES
Bulk and repetitive payments like interest/dividend are mostly paper based
involving printing of warrants (in costly MICR format) , dispatching them
by post (most often by Regd. post) and reconciliation thereof after payment
by the agency banks. The difficulties are-
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How does ECS (Credit Clearing ) work ?
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Loss of instruments in transit or fraudulent encashment thereof totally
eliminated.
Reconciliation of transactions is made automatic. By the time the
ECS cycle is completed, the user institution gets an electronic data
file from its bank with the date of payment and banker’s confirmation
thereon.
Cash management becomes easier as arrangement for funds is
required to be made only on the specified date.
Ensuring better customer/investor service.
Paying the way the best companies in the world pay to their share
holders/ investors, customers
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As per the existing system for collection of electricity bills and telephone
bills, the customers/subscribers are required to go to the collection centres
/designated banks and stand in long queues for payment of bills/dues. There
would not be any cash transaction or payment through cheques in the new
system. There is an overall limit of Rs.5,00,000 per transaction. Levy of
service charges by both sponsoring bank and destination bank is now left
entirely to the discretion of respective banks. A sum of Rs.0.50 p. only is
collected by NCC, RBI towards Clearing House charges. Utility service
providers like MTNL, Telephone/Mobile companies, Telecom Departments,
State Electricity Boards, Banks (for collection of credit cards dues) LIC,
Housing Finance Companies, Intermediaries and Clubs etc are making use
of ECS(Debit) Clearing system.
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NCC debits the destination banks’ accounts with clearing house and
simultaneously affords a consolidated credit to the sponsor bank’s
account and furnishes the bank-wise and branch-wise reports to the
service branches of destination banks.
Service branches forward the branch-wise reports to the respective
branches for debiting the accounts of customers with the indicated
amounts.
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4.2.2 CASH MANAGEMENT SERVICES
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Automated Clearing House: services are usually offered by the cash
management division of a bank. The Automated Clearing House is an
electronic system used to transfer funds between banks. Companies
use this to pay others, especially employees (this is how direct deposit
works). Certain companies also use it to collect funds from customers
(this is generally how automatic payment plans work). This system is
criticized by some consumer advocacy groups, because under this
system banks assume that the company initiating the debit is correct
until proven otherwise.
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Lockbox - Retail: services: Often companies (such as utilities) which
receive a large number of payments via checks in the mail have the
bank set up a post office box for them, open their mail, and deposit
any checks found. This is referred to as a "lockbox" service.
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"true" exceptions, that is, those that can be reconciled with the
company's files.
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them to effect payment in accordance with the instructions given. The
message also includes settlement instructions. The actual wire
transfer itself is virtually instantaneous, requiring no longer for
transmission than a telephone call.
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4.2.3 BILL FOR COLLECTION
1. Background
The collecting bank has two alternatives of sending B/C for funds collection
First method: The collecting bank sends cheques to its branch that is
located within the same clearing house as the paying bank. The cheques
then enter one-day clearing. Once the B/C results are known, the agent
branch then notifies the original branch that called for collection.
Second method: Generally used when the collecting bank does not have a
branch within the same clearing center as the paying bank, here the
collecting bank sends the cheques through to the paying bank’s headquarter
via ECH, who calculates the net clearing positions for the member banks.
The paying bank notifies its counterparty, the collecting bank, of the B/C
results, and record the information for ECH, who then carries out interbank
settlement via BAHTNET.
The BOT has issued The Bank of Thailand Regulation on Inter – Provincial
Cheque Collection B.E. 2546 as amended in B.E 2548, 2550. The regulation
determined BOT' s authorities and responsibilities for settlement service. In
addition, it determines the member banks' responsibilities to perform the
process according to The Bank of Thailand Notification on principles,
procedures and time period for settlement.
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There are 2 kinds of members: A direct member refers to a bank that
operates both collecting and paying functions. Moreover, the bank must be
able to operate paying function in all regional areas as determined by BOT.
A direct member can receive collection fees. An indirect member refers to a
bank that operates the collecting function, but does not have branches to
operate the paying function in all regional areas as determined by BOT. An
indirect member will not receive any collection fees.
Normal Round
Once cheques are exchanged at the ECH, the paying bank verifies those
cheques by validating completeness of the physical cheque, verifying
payer's signature, and debits customer's account in 1-2 days. Returned
cheque data and physical cheques must be submitted back to the collecting
bank in 3 working days.
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5. Processing and Equipment
The B/C – 3D clearing position is settled at 1:00 p.m. of day 3 via
BAHTNET. The position equals to the clearing position in day 1 minus the
position of the returned cheque in day 3. The sending bank credits the
customer’s account after the returned round.
Interbank fees are allocated to collecting and paying banks. However, the
allocation ratio is currently determined as 100:0 for collecting and paying
banks respectively. Thailand Banker Association will revise the appropriate
ratio later.
Commercial banks that provide provincial cheque services set fees based on
standard rates of the Thai Bankers' Association, which is 10 baht per each
10,000 baht with the minimum of 10 baht, which is calculated on the face
amount of the cheque.
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1. In the event that a member bank cannot send the clearing data to the
Electronic Clearing House (ECH) via EFS, a member bank is able to switch
to use other means of communication to send the clearing data.
2. In the event that BOT Web Station of a member bank fails, the member
bank brings the clearing data to ECH in order to send the clearing data via
BOT Web Station at ECH.
3. In the event that the member bank’s system, prepared the clearing data,
fails, use the B/C Stand alone at ECH instead.
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CHAPTER 5
FOREX
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CHAPTER 5
FOREX
Forex trading [FX trading] involves the buying and selling of currencies of
various different nations. In this type of trade, currencies are exchanged on a
continuous basis in the forex market that covers the globe. People have
several opportunities for profit-making in forex trading when value of one
currency fluctuates against that of another.
Forex trading is quite popular due to several factors like the leverage
available, the high liquidity 24 hours a day and the very low dealing costs.
In forex market, there does not exist any centralized exchange, trading is
conducted either through the Electronic Broking System (EBS) or online
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through the Internet. Online forex trading is very popular among individual
investors. High leverage, flexibility and liquidity are the three main factors
that attract people towardsforex trading.
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4. Traders don't need to pay commissions to brokers. The transaction
cost is built into the currency price and is known as spread, which is
actually the difference between the buying and selling price at a given
time.
84
between two currencies represents the price that just balances the
relative supplies of, and demand for, assets denominated in those
currencies.”
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expectations that the central bank will raise short-term interest rates to
combat rising inflation.
Economic growth and health: Reports such as GDP, employment
levels, retail sales, capacity utilization and others, detail the levels of
a country's economic growth and health. Generally, the more healthy
and robust a country's economy, the better its currency will perform,
and the more demand for it there will be.
Productivity of an economy: Increasing productivity in an economy
should positively influence the value of its currency. Its effects are
more prominent if the increase is in the traded sector [3].
Internal, regional, and international political conditions and events can have
a profound effect on currency markets.
Market psychology
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Flights to quality: Unsettling international events can lead to a "flight
to quality," with investors seeking a "safe haven." There will be a
greater demand, thus a higher price, for currencies perceived as
stronger over their relatively weaker counterparts. The U.S. dollar,
Swiss franc and gold have been traditional safe havens during times
of political or economic uncertainty.[14]
Long-term trends: Currency markets often move in visible long-term
trends. Although currencies do not have an annual growing season
like physical commodities, business cycles do make themselves felt.
Cycle analysis looks at longer-term price trends that may rise from
economic or political trends.[15]
"Buy the rumor, sell the fact": This market truism can apply to many
currency situations. It is the tendency for the price of a currency to
reflect the impact of a particular action before it occurs and, when the
anticipated event comes to pass, react in exactly the opposite
direction. This may also be referred to as a market being "oversold"
or "overbought".[16] To buy the rumor or sell the fact can also be an
example of the cognitive bias known as anchoring, when investors
focus too much on the relevance of outside events to currency prices.
Economic numbers: While economic numbers can certainly reflect
economic policy, some reports and numbers take on a talisman-like
effect: the number itself becomes important to market psychology and
may have an immediate impact on short-term market moves. In recent
years, for example, money supply, employment, trade balance figures
and inflation numbers have all taken turns in the spotlight.
Technical trading considerations: As in other markets, the
accumulated price movements in a currency pair such as EUR/USD
can form apparent patterns that traders may attempt to use.
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CHAPTER 6
BANKING CHANNELS
88
Inquiries
Get indicative foreign exchange rates and time deposit rates.
Mail Options
Send and receive messages to and from HSBC using the secure mail option.
It's your constant direct line to the world's local bank.
Pay Bills
Pay local bills to various service providers. Funds will be remitted to the
service provider on the next working day of the payment instructions. Please
note this function is not available to delegates with an access level of
"Inquiry only". Speak to the Commercial Banking Relationship
Team about access level status on (02) 85-878 for local calls and +(63) (2)
85-87800 for international calls.
New Features
Our Internet Banking site has been revamped to provide you with a superior
online banking experience. The new layout and design makes it easier for
you to navigate through the products and services. New features include an
Autopay function to make bulk payments to other accounts in HSBC, as
well as improved security functionality to ensure high value transactions
require authorization from two pre-authorized users before completion.
Security
Business Internet Banking uses what may be considered the latest and most
secure technology available. A 128-bit encryption code protects all bank
transfers and on-line bank instructions. While all delegates will be provided
with their Business Internet Banking Username, they can choose their
individual Personal Internet Banking Password (6-8 characters).
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CHAPTER 7
&
SERVICES
This facility can be availed only by account holders of our bank since both
the beneficiary as well as applicant account number (TMB account number)
should be compulsorily mentioned in the NEFT application form.
In RTGS, Settlement will take place continuously between 9.00 A.M and
2.00 P.M and the return time allowed is up to two hours from the time of the
receipt of the payment. However, in NEFT, there are four clearing
settlement batches (9.30,10.30,12.00, & 4.00) and the return time allowed is
24 hours. The messages received by RBI within each settlement batch time
will be consolidated and distributed to payee's banks after settlement.
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Normally, payment message reaches receiving (payee's) bank within 15 to
30 minutes from the batch time. For e.g. message sent to RBI for the 12.00
clock settlement batch, will reach receiving bank by 12.30 P.M. If the
receiving bank has STP (Straight Through process) facility, the amount will
be credited immediately, or otherwise, the amount may be credited within
the end of the day. However, if the receiving bank wants to return the
message, they should return within 12.00 Noon batch of next settlement day
(Within 24 hours).
RBI has introduced NEFT system mainly to send small value payments at
nominal cost. We can send funds from our bank to other bank-branches,
which have IFS Code, and joined in NEFT network. So far, 42 banks have
joined in this system and more than 10000 of their branches are under this
network. More bank-branches are expected to join in the days to come.
Our customers are adviced to instruct their counterpart to quote correctly the
full 15-digit account number for inward payment to identify the branch and
credit their account immediately. If the message received is without 15-digit
account number it will be rejected and returned automatically.
NEFT is the most suitable mode of payment for small value payments as the
charges are cheaper and settlements are faster when compared with other
modes of payment
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REAL TIME GROSS SETTLEMENT
Learn more about the latest technology oriented service being provided by
our TMB viz. RTGS. TMB was one of the earliest adopters of RTGS
facility in India and currently all our branches are RTGS enabled. Under this
system funds can be transferred between two RTGS enabled bank branches
irrespective of the bank and the location of the branch.
Every branch of our bank has a distinctive RTGS Code and the same can be
seen in the branch network under the details for every branch.
In India, 115 Banks have started RTGS transactions with more than 25000
branches. On 14.01.2005, TMB started this facility with 45 of its branches.
The scheme has been receiving good response from the public and the
number of transactions through RTGS is on the increasing trend. So TMB
decided to have 100% RTGS status for customer transactions and to enable
all its 217 branches under RTGS from 8th July 2005. TMB is the First
Bank in Tamilnadu and 3rd in India to achieve 100% RTGS Status
throughout India at all its branches without exception. It is possible because,
TMB has already networked all its 217 branches, all the 7 Regional Offices,
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Extension Counters and Head Office under the 'Finacle' platform provided
by the renowned software major 'Infosys'.
Through RTGS one can send / receive payments across the country to / from
any bank / any branch provided sending bank as well as receiving bank are
members of RTGS and their branches are RTGS enabled with IFSC Code.
RTGS facilitates quick fund transfer and settlements among the banks for
inter bank and customer transactions. It reduces the settlement risk, as
payments are made online basis. This system is very much useful not only
among banks but also for customers as payment / receipt is made on the
same day on real time basis and without any risk, i.e., within two hours at
cheaper cost.
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CHAPTER 8
THE PRINCIPLES
The system should have a well-founded legal basis under all relevant
jurisdictions.
94
QUESTIONAIRE
95
How much foreign exchange can one buy when going for tourism to a
country outside India?
In connection with private visits abroad, viz., for tourism purposes, etc.,
foreign exchange up to US$10,000, in any one calendar year may be
obtained from an authorised dealer. The ceiling of US$10,000 is applicable
in aggregate and foreign exchange may be obtained for one or more than
one visits provided the aggregate foreign exchange availed of in one
calendar year does not exceed the prescribed ceiling of US$10,000 {The
facility was earlier called B.T.Q or F.T.S.}. This US$10,000 (BTQ) can be
availed of by a person alongwith foreign exchange for travel abroad for any
purpose, including for employment or immigration or studies. However, no
foreign exchange is available for visit to Nepal and/or Bhutan for any
purpose. The same can be obtained based on a simple declaration from the
customer in addition to submission of an application form and Form A2 as
per the recent liberalisation policy of the Reserve Bank of India.
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How much foreign exchange is available to a person going abroad on
immigration?
Persons going abroad for immigration can draw foreign exchange upto USD
100,000/- based on a simple declaration from the customer in addition to
submission of an application form and Form A2 as per the recent
liberalisation policy of The Reserve Bank of India.
Is there any purpose for which going abroad requires prior approval
from the Reserve Bank or Govt. of India?
Dance troupes, artistes, etc., who wish to undertake cultural tours abroad,
should obtain prior approval from the Ministry of Human Resources
Development, Government of India, New Delhi.
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banker's draft or Forexplus card. Exceptions to this are (a) travellers
proceeding to Iraq and Libya can draw foreign exchange in the form of
foreign currency notes and coins not exceeding US$ 5000 or its equivalent;
(b) travellers proceeding to the Islamic Republic of Iran, Russian Federation
and other Republics of Commonwealth of Independent States can draw
entire foreign exchange released in form of foreign currency notes or coins.
How much in advance one can buy foreign exchange for travel abroad?
The foreign exchange acquired for any purpose has to be used within 60
days of purchase. In case it is not possible to use the foreign exchange
within the period of 60 days it should be surrendered to an authorised
dealer.
How much foreign exchange can one send as gift / donation to a person
resident outside India?
Any person resident in India under the liberalised remittance scheme can
remit upto US$ 200,000 in an finanacial year as a gift to a person residing
outside India or as donation to a charitable / educational / religious / cultural
organisation outside India. This remittance can be done only under the
liberalised remittance scheme and is meant for individual only
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While coming into India how much foreign exchange can be brought in
by NRIs?
An NRI coming into India from abroad can bring with him foreign
exchange without any limit provided if foreign currency notes, travellers
cheques, Forexplus Card exceed US$ 10,000/- or its equivalent and/or the
value of foreign currency exceeds US$ 5,000/- or its equivalent, it should be
declared to the Customs Authorities at the Airport in the Currency
Declaration Form (CDF), on arrival in India.
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CONCLUSION
I record my appreciation for Bank net India who is organizing such highly
focused banking conferences and workshops. I am sure, this initiative on the
part of Bank net India will provide a platform for knowledge sharing and
networking for the professionals from banking industry.
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BIBLIOGRAPHY
WIKIPEDIA.COM
NIIT
GOOGLE.COM
UNION BANK OF INDIA
MASTERCARD.COM
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