Professional Documents
Culture Documents
Promotion Study Material I To II and II To III-1
Promotion Study Material I To II and II To III-1
Dear Colleagues,
Our Bank is going to conduct an Inter-Scale Promotion process in order to select eligible
candidates to assume higher responsibilities in terms of HO Circular No. PA (OE)/PROM
/ 7 /OM-435 / 19-20 dated 23Oct2019. Morever, the industry is knowledge based, and all
officers are expected to upgrade their knowledge and sharpen their skills to meet the future
challenges.
The written tests and interviews are expected to take stock of an officer’s understanding of
the various areas of banking and also changes that are taking place in and around us. In
order to help you to prepare for your forthcoming promotion, we have prepared a Training
Material. The material provided is a guide book and the officers appearing for the
examination are advised to also go through manuals, policies and circulars, RBI directions
and policies issued from time to time. Wishing each aspirant all the very best, so that you
come out with flying colors in the written examination as well as in the Interview.
24th of October 2019
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QUICKBITES
CRR 4% | SLR 18.75 % | Bank Rate 5.65% | MSF 5.65% | Repo
Rate 5.40% | Rev. Repo Rate 5.15%, MCLR-Y-8.55%
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Bench Mark Parameters of Lending Policy
Parameters
STOCK AUDIT: Once in a year by empanelled stock auditor of the Bank for Working
capital Credit Limits of Rs. 2 crore &above
a. Property / Fixed assets shall be revalued once in 3years
b. Valuation of property- Upto Rs.50 lac- 1 valuer & above Rs.50 lac- 2 valuers
c. Searching of immovable property- Upto Rs.10 crores- 1lawyer, above 10 crore
by two empanelled advocates.
d. Vetting of all loans (fund based or non fund based) > 10lac
Important Points:
a. Registration with ROC- within 30 days. Efforts should be made to complete
immediately after sanction.
b. Disbursement- Advance payment to be restricted to 20% of the cost of the
machinery
c. Restrictions on cash withdrawal
1. Before a loan account turns into a NPA, banks are required to identify incipient
stress in the account by creatin three sub-categories under the Special Mention
Account SMA categories as given in the table below:
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Export Credit
Export credit is allowed in two stages namely pre shipment or packing credit and post
shipment. Salient features of packing credit are as under:
1. For packing credit eligibility conditions are (a) Exporter should have Import
Export Code Number (b) Exporter should not be on the caution list of RBI (c)
Exporter should not be on the specific approval list of ECGC (d) He should have
confirmed order of LC. However, if running packing credit facility has been
allowed confirmed order can be submitted later on.
2. Amount of PCL: on the basis of F.O.B value
3. Period of PCL: As per need of exporter. If pre-shipment advances are not
adjusted by submission of export documents within 360 days from the date of
advance, the advances will cease to qualify for prescribed rate of interest for
export credit to the exporter ab initio.
4. Adiustment of PCL:Normally through proceeds of export bills or export
incentives or debit to EEFC account.
Post shipment credit
1. As per Exchange Control Regulations, bills should be submitted for negotiation
within 21 days of shipment.
2. Export proceeds should be realized within 9 months from date of shipment in all
cases except for warehousing for which the period of realization is 15 months.
3. Authorised Dealer can grant extension up to 6 months if invoice amount is up to
USD 1 million.
4. If any export is not realized within 180 days of date of shipment, in all cases, a
report should be sent to RBI on XOS statement which is a half yearly statement
submitted as at the end of June & Dec of each year. This is to be submitted by
15th of July / January.
5. Post-shipment credit is to be liquidated by the proceeds of export bills received
from abroad in respect of goods exported/ services rendered or from balances in
Exchange Earners Foreign Currency (EEFC) Account as also from proceeds of
any other unfinanced (collection) bills.
6. Normal Transit Period is the period between negotiation of bills and credit to
Nostro account. It is fixed by FEDA' and presently it is 25 days irrespective of
the country.
Interest Rate on Export Credit
1. Export credit in rupees:Not below MCLR of Bank.
2. Export Credit in Foreign Currency: As per Bank discretion w.e.f. 5th May 2012.
Interest Equalisation Scheme on Pre and Post Shipment Rupee Export Credit
The Government of India has announced the Interest Equalisation Scheme (earlier called
Interest Subvention Scheme) on Pre and Post Shipment Rupee Export Credit to eligible
exporters. The scheme is effective from April 1, 2015. Salient features of the scheme
are given below:
1. The rate of interest equalisation would be 5% w.e.f 02.11.2018
2. The scheme would be applicable w.e.f 01.04.2015 for 5 years.
3. The scheme will be available to all exports under 416 tariff lines [at ITC (HS)
code of 4 digit] and exports made by Micro, Small & Medium Enterprises
(MSMEs) across all ITC(HS) codes. Scheme would not be available to merchant
exporters.
4. A study may be initiated on the impact of the scheme on export promotion on
completion of 3 years of the operation of the scheme. The study may be done
through one of the llMs.
Export Declaration Forms for goods and services
1. Form EDF: To be completed in duplicate for export from Non EDI port
including export of software in physical form i.e. magnetic tapes/discs and paper
media. For export by post also this form will be used (earlier form GR was used
for exports other than by post and PP form for exports by post).
2. Form SDF: To be completed in duplicate and appended to the shipping bill, for
exports declared to customs Offices notified by the Central Government which
have introduced Electronic Data Interchange (EDI) system for processing
shipping bills notified by the Central Government.
3. Form SOFTEX: To be completed in triplicate for declaration of export of
software otherwise than in physical form, i.e. magnetic tapes/discs, and paper
media. A common "SOFTEX Form" will be used for declaration of single and
bulk software exports.
As per revised procedure, the exporters will have to declare all the export transactions,
including those less than US$ 25,000 in the form as applicable. Duplicate copy of the
declaration form which is submitted to the AD is now required to be retained by the AD
for the purpose of audit and not to be forwarded to RBI.
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Gold Card Scheme for Exporters
1. Exporters with good track record eligible for the Card. Their account should have
been Standard for 3 years continuously with no irregularity.
2. Gold Card Scheme is not applicable to those exporters who are blacklisted by
ECGC or included in RBI's defaulter's list/ caution list or making losses for the
past three years or having overdue export bills in excess of 10 per cent of the
'previous year's turnover'.
3. Limits to Card holder exporters to be sanctioned for 3 years with provision for
automatic renewal subject to fulfilment of terms and conditions. For disposal of
fresh applications, the period is 25 days, 15 days for renewal of limits and 7 days
for sanction of ad-hoc limits.
4. A stand by limit of not less than 20% of the limits sanctioned should be made
available for executing sudden orders.
5. Gold Card holder exporters will be given preference in the matter of sanction of
PCFC.
6. Gold Card holders are entitled for concessional interest on post shipment credit
up to 365 days.
Trade and Exchange Control Regulations for Imports
1. Importer can import goods either on the basis of OGL or specific import licence
issued by DGFT.
2. Payment for imports should be made within 6 months from date of shipment.
3. Advance payment against imports is allowed up to any amount. However, where
the amount of advance remittance for services exceeds US $ 500,000 or its
equivalent, or for goods exceeds USD500,000.
4. (provided bank is satisfied about the bonafides of importer otherwise USD
200,000), the same can be allowed against guarantee of an international bank of
repute or guarantee of a bank in India against counter guarantee of an
international bank. However, in respect of Public Sector Company or a
Department/ Undertaking of the Government of India/ State Governments,
approval from the Ministry of Finance, Government of India is required for
advance remittance for import of goods or services without bank guarantee for
an amount exceeding USD 100,000.
5. Banks can make remittances for imports, where the import bills / documents have
been received directly by the importer from the overseas supplier and the value
of import bill does not exceed USD 300,000.
6. Bill of Entry is documentary evidence of physical arrival of goods into India. For
advance remittance exceeding US $ it should be submitted within 6
months of remittance. If not submitted within 6 months, it should be reported to
RBI on BEF statement on half yearly basis (within 15 days from the close of the
half-year) as at the end of June & December of every year.
7. Delinking or Crystallisation of Export and Import bills: Crystallisation means
converting a foreign currency liability to rupee liability. In the case of overdue
export bills it will be done as per bank discretion and exchange rate will be TT
selling rate. In the case of import bills conversion will be at Bills selling rate. In
demand bills it will be on 10th day and in case of usance bills it will be done on
due date.
8. For release of forex for imports, requirement of application on Form Al has been
withdrawn. For release of forex for purpose other than import, application should
be made on Form A2 if the amount of remittance is more than USD 25000.
INCO TERMS
Inco terms stand for International Commercial Terms. Inco Terms framed by
International Chamber of Commerce. The latest version is of 2010. There are 11 terms
in revised version but in earlier version it used to be 13. The main objective for issue of
Inco terms is to rovide rules for inter retation of commonl used terms in foreign trade.
Contract Seller, in addition to cost of Buyer bears
goods, bears
Ex-Works - Goods available at factory All cost of insurance and freight
EXW subsequent to seller's factory
Free alongside Cost relating to place the All cost relating to loading,
the ship- FAS goods alongside the ship insurance and freight after these
areplaced along the ship.
Free on Board- Cost up to loading the goods All cost relating to insurance and
(FOB) on the ship freight once these are on board of
the ship
Cost & Freight- After shipment cost of freight Insurance
CF also
Cost, insurance Subsequent to shipment His cost starts after the goods
& freight CIF insurance and frei ht cost reach the port of destination.
Delivered at All cost till goods reach the His liability starts after the goods
Frontier- DAF customs boarder — normally reach the frontier.
by rail or road
Risk in Foreign Exchange
1. Risk in foreign exchange arises when a bank has open position in forex i.e either
it is overbought or oversold. A bank is said to be overbought when purchase is
more than sale and it is oversold when sale is more than purchase.
2. When a bank is overbought and it wants to square its position it will gain if rate
of forex goes up and will lose if rate of forex goes down. When a bank is oversold
and it wants to square its position, it will gain if rate of forex goes down and will
lose if rate of forex goes up.
3. The Daylight open position will be generally more than the overnight open
position.
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COMPUTER TERMINOLOGY
Page 41 of 131
Reverse Repo: When RBI sells govt. securities to bank to absorb liquidity. It reduces
liquidity with banks and done at reverse Repo Rate.
CERTIFICATE OF DEPOSIT & COMMERCIAL PAPER
1. Commercial paper can be issued by corporates while Certificate of Deposit can
be issued by banks.
2. Minimum period: 7 days; Maximum period: 1 year
3. Minimum denomination: For CP Rs 5 lac; For CD Rs 1 lac.
4. Maximum amount: No limit
5. Both are usance promissory notes issued at discount. Can be issued in
Dematerialised form only
6. No premature payment, no loan against CP, CD
7. Transfer by endorsement and delivery
8. If payment day is holiday, paid on next preceding business day
9. For issue of Commercial paper 4 conditions are to be satisfied (1) Net worth Rs.4
cr, sanctioned working capital, their loan accounts in standard category and credit
rating of A3 from CRISIL or equivalent from others.
TERMS RELATING TO MONEY MARKET
Call Money Money lent for one day
Notice Mone Mone lent for a period of 2-14 days
Term Money Money lend for 15 days or more in Inter-bank market
Held till maturit Govt. securities which are not meant for sale and shall be kept till
maturity .
Held for trading Govt. securities acquired by the banks with the intention to trade
by taking advantage of the short-term price/ interest rate
movements.
Available for sale Govt. securities which do not fall within the above two categories
i.e. HTM or HFT.
Yield to maturity Expected rate of return on a security during the period, it is held
by an investor which may include capital gains and losses also.
Coupon Rate Specified interest rate on a fixed maturity security , fixed at the
time of issue.
Gilt Edged Government security: It is a secured financial instrument which
security guarantees certainty of both capital and interest. These securities
are free of default risk or credit risk, which leads to low market
risk and hi gh liquidity .
Dated securities Instruments which -have tenure over one year. The -returns on
dated securities are based on fixed coupon rates. These are
considered risk free.
Prudential limits Borrowing: On a fortnightly basis, maximum 100% of capital
for call money fund of latest audited balance sheet. It can go up to 125% on any
particular day.
Lending: On a fortnightly basis, maximum 25% of capital fund
of latest audited balance sheet. It can o u to 50% on an articular
da .
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TERMS RELATED WITH RISK
Credit Risk Risk on account of possible default by the borrower in meeting his
commitments
Market Risk Risk on account of trading in securities
Le al Risk Risk on account of deficiency in loan documentation
Liquidity risk Risk of inability of a bank to meet its liabilities due to mismatch in
inflows from assets and liabilities
Interest rate Risk due to changes in interest rates leading to effect on profit and
risk loss of the bank
Operational Risk on account of failure of internal rocesses, procedures etc.
risk
Forex Risk Risk on account of fluctuation in forex rates
Sy stemic Risk to a system on account of failure of other related systems.
Risk
RIGHT TO INFORMATION ACT
1. Information can be obtained by Indian Citizen from any public authority without
giving any reason.
2. Time for providing information: 30 days; If information pertains to life and
liberty, the period is 48 hours
3. Fine for delay in providing information: Per day Rs.250 and total maximum fine
Rs.25000
4. Record preservation time: 5 to 8 years as fixed by Central Govt.
Financial Inclusion: Providing Banking Services in unbanked areas
1. Financial inclusion means providing banking services to poor persons at
affordable cost.
2. First committee on financial inclusion was headed by Dr C Rangarajan
3. The Committee on Comprehensive Financial Services (2nd Committee on
Financial Inclusion — 2014) was
4. headed by Shri Nachiket Mor
5. In 2015, RBI constituted a Committee with the objective of working out a
medium-term (five year) measurable action plan for financial inclusion. The
Committee is headed by Shri Deepak Mohanty, Executive Director, RBI.
6. Steps taken for financial inclusion include appointing business correspondents,
opening small accounts and Basic saving accounts, relaxation in KYC, Jan Dhan
Yojna, Jeevan Suraksha Yojna, Jeevan Jyoti Yojna.
Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)
Implemented from June 1st, 2015. Life Insurance for Rs. 2 lakhs, at Rs 330, per annum.
Available to all bank account holders whose age is between 18 to 50 years.
Pradhan Mantri Suraksha Bima Yojana (PMSBY)
Implemented from June 1st, 2015. Accident insurance worth Rs 2 lakhs at Rs 12 per
annum. Available to all bank account holders whose age is between 18 to 70 years.
Including Time varying tariff of Rs 5. Service tax is extra. No charges for Inward
RTGS/NEFT/ECS
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NEGOTIABLE INSTRUMENTS ACT
1. Provisions relating to Negotiable Instruments are given in the Negotiable
Instruments Act, 1881 .
2. The Negotiable Instruments Act is applicable in whole of India including Jammu &
Kashmir.
3. As per Section 13 of the Act, promissory notes, bills of exchange and cheques are
the negotiable instruments.
4. As per practice and usage and as per court decisions, certain instruments such as
Treasury Bills, Certificate of Deposit, Commercial Paper, Govt. Promissory Note
are also Negotiable instruments.
5. Some instruments like Railway Receipt, Bill of Lading, Warehouse Receipt etc are
also treated as Negotiable instruments as per Section 137 of Transfer of Property
Act.
6. The main feature of a negotiable instrument is that it is freely transferable and the
title of the transferee-will be better than the transferor.
7. Promissory Note: As per Sec 4, PN is in writing, containing unconditional
undertaking or promise, signed by the maker, to pay a certain sum of money to or
to the order of a certain person or to the bearer thereof. It requires payment of stamp
duty and can be demand PN or usance PN. There are 2 parties (maker & payee).
Currency/bank notes are excluded from the definition of promissory notes. Writing
the words "l owe you Rs 1000" does not constitute PN but "l owe you Rs 1000
payable on demand constitute PN.
8. Bill of exchange: As per Sec 5, BOE is an instrument in writing, containing an
unconditional order, signed by maker, directing a certain person to pay a certain
sum of money only or to the order of a certain person or to the bearer of the
instrument. In a Bill of Exchange, the person ordering for payment is called Drawer
and the person directed to pay is called Drawee. The beneficiary is called payee.
9. Cheque is defined in Sec 6 of NI Act.
10. Cheque is a bill of exchange but always payable on demand and drawee is always
a banker. It also include truncated cheque and electronic cheque.
11. A cheque is similar to a Bill of Exchange.
12. Any bill of exchange which is payable on demand and in which drawee is a banker
will be called cheque.
13. The promissory note or bill of exchange can be payable on demand or after some
time. If no time is mentioned then the same will be treated as Demand promissory
note or Demand Bill of Exchange.
14. A negotiable instrument can be payable to bearer or order. If neither bearer nor order
is written it is treated as payable to order. If both bearer or order are written it is
treated as payable to bearer.
15. As per Section 31 of RBI Act, no person other than Central Government or Reserve
Bank of India or any other person authorized in this behalf can issue bearer
promissory notes and a demand bills of exchange payable to bearer.
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16. Inchoate Instruments: As per section 20 of the NI Act, an instrument on which
date, payee or amount is not mentioned is called as Inchoate or incomplete
instrument. Incomplete cheque can be completed by the Holder and the completion
wilt not be treated as material alteration.
17. An instrument without signatures is not treated as an instrument at all.
18. AmbigousnInstruments: As per section 17 of the NI Act, an instrument which can
be bill of exchange or promissory note. Holder can treat it either of these.
19. Presumption: UIs 118 NIS are presumed to be (a) made for consideration, (b) bear
date on which they are made. (c) every holder is a holder in due course.
20. Holder: defined in section 8 of the NI Act. Holder of a promissory' note, bill of
exchange or cheque means any person entitled in his own name to the possession
thereof and to receive the amount due thereon from parties thereto.
21. Holder in Due Course: defined in Section 9 pf the NI Act. Holder in due course is
a person who became possessor of a NI for valuable consideration, in good faith,
before becoming due, and without having any reason to believe that the person
transferring the instrument was not entitled thereto.
Transfer of a Neqotiable Instrument and Endorsement
1. Transfer of a Negotiable instrument: by assignment (under Transfer of Property
Act) or by Negotiation(under NI Act).
2. Negotiation of a Bearer instruments: A bearer instrument is negotiated by mere
delivery and no endorsement is required.
3. Negotiation of an order instrument: An order instrument-can be negotiated by
endorsement followed by delivery. It’ may be noted that legal heirs can not
complete the negotiation of a negotiable instrument with endorsement by the
deceased merely by delivery.
4. Endorsement: Signing of an instrument on the back or face thereof or on a slip of
paper annexed thereto for the purpose of negotiation is called endorsement (Section
15). The person who transfers the instrument is called endorser and the person to
whom it is transferred is called endorsee.
5. Blank Endorsement: In a blank endorsement the endorser just signs his name
without indicating endorsee. It can be converted into full by writing name of a
person above signatures. The effect of an endorsement in blank is that it makes an
instrument dawn originally payable to order to bearer instrument for the purpose of
negotiation which can be further negotiated by mere delivery.
6. Endorsement in Fult: When, the endorser indicates the name of the endorsee it is
called full endorsement.
7. Sans RecourseEndorsement: An endorsement in which endorser excludes his
liability is termed 'sans recourse' or without recourse endorsement. In case of
dishonour of instrument, the amount can not be recovered from such endorser.
8. Facultative: An endorsement in which endorser waives the notice of dishonour is
called Facultative endorsement. But this is not applicable to other parties to the
instrument.
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9. Restrictive endorsement: An endorsement which restricts further right of
negotiation is called as restrictive endorsement. For example if it is written in the
endorsement as "Pay to Hari for my use" it is restrictive endorsement.
10. Conditional Endorsement: When alongwith endorsement, condition is imposed
by endorser. For example, pay to C on completion of studies. Paying bank not to
ensure compliance of condition. Condition binds endorser and endorsee only.
11. Back to Back Endorsement: An endorsement in which the endorser himself
becomes endorsee is called as back to back endorsement and in such a case, the
endorsee can recover the amount only from parties prior to his own endorsement.
12. Negotiation Back: When the drawer of a cheque himself becomes endorsee, it is
called "Negotiation Back" and this cheque is treated as satisfied.
13. Partial Endorsement: The endorsement can be made only for full amount but in
case part payment has been received and a note to that effect is made on the
instrument, then the same can be endorsed for the balance amount.
14. Forged Endorsement: When endorsement is made by a person other than Holder
by forging signatures of Holder. Title does not pass to any person on the basis of
such endorsement. A person getting instru•ment after such endorsement does not
become holder.
15. Regularity of endorsement: Paying bank gets protection u/s 85(1) only when
endorsement is regular (may not be genuine).
16. Payment of cheques
17. A paying banker gets protection under Section 85 of the NI Act.
18. tn the case of order cheques, protection is available under section 85(1) and for
bearer cheques it is available under section 85(2) of NI Act. In the case of drafts it
is available under section 85A.
19. As per section 85(1) of the Act a paying banker has two duties i.e. the endorsement
should be regular and payment should be in due course. Paying banker is not
concerned about genuineness or forgery of endorsement.
20. As per section 85(2) of the NI Act, in case of a bearer cheque the responsibility of
paying banker is to ensure that payment is in due course. If a bearer cheque is
endorsed, the bank is not required to take note of any such endorsement. Thus as
per section 85(2), 'Once a bearer always a bearer'
21. Payment in Due Course: As per Sec 10, a payment would be considered in due
course if: (a) Payment as per apparent tenor of instrument; (b) Payment in good
faith and without negligence; (c) Payment to person in possession of instrument; (d)
Payment under circumstances which do not afford a reasonable ground for believing
that he is not entitled to receive payment of the amount mentioned therein
22. Form of Cheque has not been given in the Act. It is simply as per practice. However,
RBI has prescribed format at centres where cheque truncation has started. RBI has
prescribed the new cheque standards "CTS-2010" and all banks providing cheque
facility to their customers, will issue only 'CTS-2010' standard cheques across the
country by March 31 , 2013.
23. Different ink: A cheque can be drawn in different inks, handwritings or different
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scripts. Thus, a cheque presented with different ink, handwriting or script can be
paid.
24. Language: The cheque should be written in Hindi, English or Regional language.
Bank is within its powers to return a cheque written in a language other than the
language of that region.
25. Signatures on Back: When a cheque is presented for payment signatures of the
presenter are taken on the back as a witness of payment. If the presenter refuses to
sign, the bank can take receipt on a separate paper.
Date on Cheque
1. Ante dated cheque: A cheque dated prior to its date of presentation is called ante
dated cheque. tt is valid and can be paid.
2. Post dated cheaue means a cheque which is dated subsequently to the date of
presentation. It is valid but can be paid only on date on cheque or thereafter till it is
stale. If it is paid before date on cheque, it is not a payment in due course.
3. Stale cheque: As per RBI guidelines issued under section 35A of B R Act, a cheque
becomes stale after 3months of its issue. These guidelines are effective for cheques
issued on or after 1.4.12. The validity can be reduced by the drawer but it cannot be
extended. On a cheque becoming stale, the cheque can be revalidated up to 3 months
at a time.
4. Impossible Date: A cheque with impossible date like 31.11.12 should be paid on
the last day of the month or within three months of the last day of the month.
5. Cheque dated prior to opening the account: A cheque dated prior to the date of
opening the account or issue of cheque book can be paidüf otherwise in order.
Amount of Cheque
1. The amount should be written both in words and figures.
2. As per Sec 18 of the NI Act, if the amount written in words and figures differ, the
amount written in words should be paid.
3. The amount written in words is called legal amount and amount written in figures
is called courtesy amount.
4. If the balance in the account is just equal to the amount of the cheque, the cheque
will be paid.
5. If the balance in the account is insufficient to pay the cheque, it should not be paid
relying on the balance in some other account or transferring the amount from other
account unless there is an arrangement to that effect.
6. If number of cheques are presented at the same time and the balance is not sufficient
to pay all the cheques, then normally priority is given to cheques favouring revenue
authorities, then to cheques favouring public authorities. If balance is left,
maximum number of cheques should be passed taking care that cheque of very
small amount is not dishonoured.
7. Banking Hours: The payment of a cheque should be made only during banking
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hours otherwise it will not be a payment in due course. However, the payment of a
reasonable amount can be made to drawer even after banking hours.
8. Mutilation: if there is any mutilation of cheque, it should be confirmed by drawer
or by collecting banker.
9. Alteration in Cheque
10. Material alteration: Any change in date, amount or name of payee is called
material alteration.
11. The change from order to bearer, or cancellation of crossing or converting special
crossing to general crossing is also material alteration.
12. However, bearer to order or crossing a cheque or converting general crossing to
special crossing or completing an incomplete cheque is not material alteration.
13. If there is any material alteration on a cheque it can be paid only after confirmation
from drawer under his full signatures.
14. In the case of joint accounts with "either or survivor' clause any of the account
holders can confirm material alteration but in jointly operated accounts signatures
of all are required.
15. Under Section 89 of the NI Act, 1881 paying banker gets protection in case of
payment of materially altered cheques if the alteration is not apparent at the time of
payment and payment has been made in due course.
16. W.e.f. 31.12.10, CTS cheques with material alteration except in date will not be
collected even if confirmed by drawer.
17. Payee: if the payee is fictitious person then the cheque can be paid to bearer if it is
payable to bearer but if the cheque is payable to order, it can be paid only to the
drawer.
18. Bearer or Order: if a cheque is payable to bearer or order, it can be paid to bearer.
However, if neither bearer nor order is written it is payable to order.
19. Forged signatures: If there is a forgery in the signatures, such an instrument is null
and void. Paying banker will not get protection if it pays such a cheque even though
the drawer might have been careless in custody of the cheque book or bank might
have sent statement of accounts and the customer did not point out the mistake.
20. However, if the cheque has been signed by the drawer himself but in a different
fashion, the banker will not be liable.
Crossing of a cheque or demand draft
1. General Crossing: Crossing is of two types - General or special crossing. If there
are two parallel transverse lines on the face of cheque it is called General Crossing.
The parallel lines can be with words and company or & co or not contain any word.
(Sec 123)
2. For General crossing parallel lines are must. Any other thing is not so material.
3. A cheque on which name of some station like Indore is written between two parallel
lines will be called Generally crossed cheque.
4. Crossing is direction of drawer to paying banker. According crossed cheque can be
paid to or through a bank only (in cash or through clearing) and not across the
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counter, to payee or holder. A cheque with General Crossing should be paid only to
a bank.
5. Even if the name of a city is written between two parallel lines like "Indore", it will
continue to be a general crossing and the cheque can be paid to any bank. Such
cheque can be paid at any station to a bank and not necessarily at Indore.
6. A general crossing can be convened into a special crossing.
7. Special Crossing: If name of a bank is written on the face of a cheque with or
without two parallel transverse lines it is called special crossing (Section 124).
Parallel line is not necessary. The name of a bank can be written anywhere on the
face of a cheque.
8. Specailly crossed cheque can be paid only to the bank whose name is mentioned on
the cheque or his authorized agent for collection.
9. A cheque crossed to two banks has to be returned unpaid unless crossed by one
bank to another as his agent for collection. Two branches of a bank for this purpose,
are only one bank
10. The special crossing is in favour of a bank and not in favour of a particular branch.
Therefore, if a cheque is favouring Canara Bank Patna, it can be paid to Canara
Bank at any place.
11. For special crossing it is not necessary that the cheque should bear two parallel tines.
12. A generally or specially crossed cheque can be paid to a banker in cash also.
13. If a crossed cheque is paid in violation of guidelines, it will not be a payment in due
course and bank will be liable to true owner of cheque i.e. payee or holder in due
course.
14. Provisions relating to crossing are applicable to cheques and drafts only and not to
Promissory Notes or Bill of Exchange. Therefore, if any Bill or Promissory note is
having addition of two parallel lines or name of a banker, it does not have any effect.
15. Who can cross a cheque: The Crossing can be done by drawer, payee or holder or a
banker.
16. 'Account Payee' crossing is not recognised by law but is a long standing practice
amongst bankers.
17. Account payee crossing is a direction to the collecting banker.
18. Account payee cheque can be collected for credit of the named payee only and
cannot be endorsed or transferred.
19. RBI has directed banks not to collect account payee cheques for any person other
than the payee as it is established practice.
20. RBI has advised banks not to credit 'Account payee' cheque to the account of any
person other than the payee.
21. RBI has clarified that the practice of collecting third party account payee cheques
on behalf of co-operative credit societies who are their constituents can be allowed
if the amount is up to Rs 50,000.
22. Not Negotiable Crossing: It is defined in Section 130 of N I Act.
23. Not negotiable crossing does not restrict transferability but it takes away the
important element of negotiation i.e. passing on better title to the transferee
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(transferee cannot become holder in due course). It is direction to collecting bank.
Paying bank has to pay such cheques in normal course.
24. If words 'Not negotiable' are written between two parallel lines or with the name of
a bank, this cheque will continue to be transferable. It can be endorsed. But the title
of transferee will not be better than the title of transferor.
25. Cancellation of crossing can be done by drawer only under his full signatures by
writing the words crossing cancelled. In such cases, the payment is made in cash to
a person known to the bank.
26. Paying bank gets protection on payment of crossed cheques u/s 128 by ensuring that
the payment is made in due course.
When payment should not be made
Payment cannot be made in case of (a) death, insolvency, insanity of customer or
insolvency of partner or firm or liquidation of company (b) stop payment (c) receipt of
garnishee/attachment order (d) post dated cheque and (e) stale cheque. However, payment
can be made in case of death of agent (authorized signatory of a company, agent appointed
by a customer, trustee, office bearer of society or club etc.) where cheque is not dated prior
to date of authority to the agent and subsequent to date of death.
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PROTECTION TO BANKERS
85 (1)Paying banker protected by payment in due course of order cheque that bears regular
endorsement. Genuineness of endorsement is not to be ensured by the paying bank.
85 (2)Protection to paying banker in case of a bearer cheque. Endorsement on a bearer
cheque to be ignored.
85 (A) Protection to paying banker in case of Bank drafts.
89Protection to paying bank for materially altered instrument,
128 Protection for payment in due course of crossed cheques
131Protection to collecting bank for crossed cheques subject to compliance of conditions
131 A Protection to collectin bank for crossed bank drafts.
Dishonour of Cheques due to Insufficient balance
1. As per Section 138 of the Act, if any cheque drawn by a person is returned by the
bank unpaid, either with the reason funds insufficient or exceeds arrangement or
similar reason such person shall be deemed to have committed an offence.
2. As per judgements of the Supreme Court, the cheques which are dishonoured on
account of stop payment by the drawer or Account being closed will attract penalty
prescribed under Sec 138 of the Act.
3. Penalty as per section 138: In case of dishonour of cheque due to reasons stated
above, punishment can be imprisonment up to two year, or maximum fine up to
twice the amount of the cheque, or both.
4. Conditions for invokinq section 138: (a) the cheque has been presented to the bank
within a period of six months from the date on which it is drawn or within the period
of its validity, whichever is earlier. (b) the cheque had been received for
consideration i.e. to discharge a liability or debt.
5. Notice to Drawer: should be sent by the payee or the holder in due course within
thirty days of the receipt of information regarding dishonor of cheque
6. When cause of action arise: If drawer of cheque fails to make the payment, to the
holder in due course, within fifteen days of the receipt of the said notice.
7. Limitation period for making complaint: The complaint in such cases should be
made in the court of a metropolitan magistrate or a judicial magistrate of the first
class or above within one month of the date of the cause-of-action (i.e. if payment
is not made within 15 days)
Bill of Exchange
1. Demand Bill: A bill of exchange payable on demand or at sight or on presentment
is called Demand Bill.
2. Usance Bill: A bill of exchange payable after some time is called Usance Bill.
3. Documentary bill: which is accompanied by document of title to goods like railway
receipt, bill of lading, etc.
4. Clean bill: is one which is not accompanied by any document of title to goods.
5. Inland bill: which is drawn or made in India and is either payable in India or on a
person resident in India.
6. Foreign bill: is one which is not an Inland Bill i.e. it is drawn outside India or if
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drawn in India is payable outside India on a person resident outside India. Foreign
Bills are issued in more than one part.
7. Accomodation Bill: means a bill issued without consideration and dealing in such
bills is called kite flying.
8. Interest Rate: If in a bill of exchange or promissory note, interest rate is not
mentioned, it will be 18% p.a.
Calculation of Due Date
1. Usance bills should be presented for acceptance within a reasonable time.
2. The reasonable time is given under section 105 of NI Act. As per section 105,
reasonable time means as per usage and practice of the area.
3. The drawee is allowed 48 hours excluding public holiday to accept the bill.
4. If a Usance bill is payable after date, its due date is calculated from date of the bilt
and if it is payable after sight, its due date is calculated from the date of acceptance.
5. As per section 22 of the N Act, three days of grace are allowed in the case of Usance
bills and Usance promissory notes. But if the due date is fixed on a particular day
or days of grace are specifically prohibited, the same need not be given.
6. Days of grace are allowed only in case of Usance Promissory Note or Usance Bill
of Exchange and not in the case of demand bill or demand promissory note.
7. As per Section 25 of the Act, if a bill or promissory note matures for payment on
public holiday under NI Act, 1881 (Sunday or any day declared to be public holiday
by the Central Government) it falls due on immediate next preceding business day.
Since 26th Jan, 15th August and 2rd October are national holidays and if the bill
falls due on any of these dates, then preceding business day will be the due date.
8. If the period of usance is given in days, then the day from which due date is to be
calculated is excluded. Due consideration should be given to leap year in which
February has 29 days.
9. If the period of usance is given in months and there is no corresponding day in the
month in which bill matures, last day of the month is taken into account. For
example, a bill dated 31 st Dec payable two months after date will fall due on 31 st
Feb without grace period. But since February has only 28 days, 28th February will
be considered and after 3 days of grace, 3rd March will be due date.
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5. Noting and protest is optional in case of Inland bills.
6. If a bill is dishonoured by non acceptance, then the drawer will be primarily liable
on the bill.
7. If a bill is dishonoured due to non payment (it means it was accepted), acceptor
(drawee) witl be primarily liable on the bill and drawer's liability will be secondary.
Banking Regulation Act, 1949
1. Statutory Reserve: As per section 17 of B R Act, a bank should transfer to Reserve
Fund 20% of its net profits before declaring dividend or bonus. As per current
guidelines of RBI, a scheduled bank is required to transfer 25% of the profit before
providing for bonus and declaring dividend.
2. As per Section 19 (2), a bank can not hold shares in a company either as owner or
as pledgee more than 30% of the paid up share capital of that company or 30% of
its own paid up share capital and reserves, whichever is less. As per RBI, a bank
can not hold shares in a company as owner more than 10% of the paid up share
capital of that company or 10% of its own paid up share capital and reserves,
whichever is
3. As per section 20, a bank can not grant loans or advances on the security of its own
shares.
4. As per section 24, banks are required to maintain SLR (Statutory Liquidity Ratio)
5. Banks should transfer to RBI monthly all deposits which have not been
operated/claimed for the last 10 years. (Section 26 A).
6. Section 45 Y: Power granted to Central Govt. to make rules for preservation of
records.
7. Section 45Z: Return of paid instruments to customers after keeping a true copy of
such instruments.
8. Section 45ZA to 45 ZF relate to Nomination in deposits, safe custody and locker
accounts.
Reserve Bank of India Act, 1934
1. Reserve Bank of India Act, 1934 came into force on 01.04.1935.
2. RBI was established on the recommendations of the Hilton Young Commission.
3. Section 24: RBI can issue bank notes of the denomination of 2, 5, 10, 20, 50, 100,
500, 1000, 5000, 10000.
4. Section 31: No person other than RBI/Central Govt. can draw, accept, make/issue
Bill of Exchange, Hundi or promissory note payable to bearer on demand.
5. Section 42(1) deals with cash reserves ratio to be maintained by scheduled
commercial banks.
6. Section 49 requires RBI to publish bank rate from time to time.
Banker Customer Relationship
Definition of Bank & Banking: Bank is one which conducts business of banking. Banking
has been defined in Section 5 of Banking Regulation Act.
Definition of Customer: Customer is not defined in any Act. However, it is defined in KYC
norms. As per various court decisions, any person for whom bank agrees to open an
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account is called as customer of the bank.
Right of Lien
1. Lien is the right of creditor to retain possession of goods and securities belonging
to the debtor till the debts due to him (creditor) are paid.
2. This right is available only on goods and securities and not on balances in the
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accounts.
3. Lien can be Particular lien (Sec 170 of the Indian Contract Act) or General Lien
(Section 171 of the Indian Contract Act). In the case of General Lien, creditor has
right to retain the goods and securities belonging to the debtor for all dues payable
by him. This right is available only to bankers, factors, wharfingers, attorneys.
4. Banker's Lien is also a general lien but it is an implied pledge because the banker
has right to retain as well as sell goods of the borrower after giving him reasonable
notice.
5. For exercising right of lien, (a) the goods or securities and debt should be in the
same right and same capacity (b) Loan should be due or overdue and lawful (iii)
Reasonable notice is given. Further, Right of Lien is available on the goods and
securities received in the ordinary course of business.
6. It is not available when the goods or securities have been deposited for a specific
purpose; goods received for safe custody or lying in safe deposit vault or goods left
by the debtor negligently. However, in the case of loans against pledge of jewellery,
bank can exercise right of general lien on the ornaments left in the possession of the
bank after adjustment of the jewellery loan in case some other advance is
outstanding.
7. Law of limitation does not apply to Lien.
8. Negative lien is a declaration from the borrower to the effect that securities/goods
offered as security are not encumbered and that the borrower will not create any
charge over them without bank's permission. This undertaking does not create any
charge in favour of the bank and therefore advance against negative lien are treated
as clean advance.
Right of Set Off
1. Set off is the right to combine two or more accounts having debit and credit balance.
2. It is not defined in any Act. It is available due to implied contract.
3. This right arises when two parties are debtor as well as creditor to each other i.e.
one account should be in debit and another account should be in credit.
4. For banks, this right arises when wants to combine its loan due from a borrower
with his deposit accounts.
5. For exercising right of set off following conditions should be satisfied (i) Both
accounts should be in same right and same capacity (ii) The debt should be due and
not accruing due (iii) Reasonable notice should be sent to the depositor before
exercising set off.
6. Law of limitation does not apply and set off can be exercised even in case of loans
which are time barred.
7. It cannot be applied on fixed deposit which is not due as yet but can be exercised
when FDR matures. Similarly it cannot be applied for adjusting term loan or CC or
overdraft which are regular and not overdue.
8. If a loan is in the name of an individual, set off can be exercised on credit balance
in his individual account and sole proprietorship account. Set off cannot be
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exercised on deposit accounts which are held jointly with other individuals, or
partnership in which the borrower is partner, or client account maintained by a
solicitor or account of minor under guardianship where borrower is the guardian or
on the credit balance of a trust in which borrower is trustee.
9. If loan is in joint names, set off can be exercised on credit balance in joint account
as well as credit balance in individual accounts of joint borrowers.
10. If loan is in the name of a partnership firm then set off can be exercised on credit
balance in the name of firm, partners and any other partnership firm which has just
same partners as are in the borrowing firm.
11. Available for the deposit of guarantor (after serving a recall notice on him).
12. For exercising right of set off, all branches of a bank are considered as one.
Appropriationof Payments
1. Section 59,60,61 of Indian Contract Act, deal with appropriation of payments.
2. If a customer maintains more than one account with a bank and he deposits some
amount then he has the first right to indicate to which account the amount should
be credited. If he does not exercise this right, then bank can credit the amount to
any of his accounts including an account which is time barred by limitation.
3. Clayton's rule is related to appropriation of payments and is applicable in case of
running borrowal accounts like cash credit or overdraft. This rule is applicable in
case of death, insolvency, insanity of a joint borrower or partner or guarantor or
retirement of a partner or revocation of guarantee by guarantor.
Garnishee Order
1. A Garnishee Order is an order issued by court under provisions of Order 21, Rule
46 of the Code of Civil Procedure, 1908. The bank upon whom the order is served
is called Garnishee. The depositor who owes money to another person is called
judgement debtor.
2. Garnishee Order applies to existing debts as also debts accruing due i.e.
SB/CD/RD/FD
3. Garnishee Order applies only to those accounts of Judgement Debtor which have
credit balance.
4. The relationship between bank and judgement debtor is of debtor and creditor. Bank
is the debtor of Judgement Debtor who is a creditor of the bank.
5. Garnishee order does not apply to money deposited subsequent to receipt of
Garnishee order. It also does not apply to cheques sent for collection but yet to be
realized. But if credit was allowed in the account before realization with power to
withdraw to customer, GO will be applicable on this amount.
6. Garnishee order does not apply to unutilized portion of overdraft or cash credit
account of the borrower as no debt is due to judgement debtor. For example, if limit
is Rs 4 crore and outstanding is Debit Rs 3 crore, Garnishee order is not applicable
on the balance Rs 1 crore.
7. Bank can exercise right of set off before applying Garnishee Order.
8. Garnishee order is applicable only if both debts are in same right and same capacity.
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Garnishee order issued in a single name does not apply to accounts in the joint
names of judgement debtor with other person(s). But if Garnishee order is issued in
joint names, it will apply to individual accounts also of the same debtors. When
Garnishee Order is in the name of a partner it will not apply to partnership account
but when Garnishee order is in the name of firm, accounts of individual partners are
covered.
9. If amount is not specified in the order, then it will be applicable on the entire balance
in the account. However, if it is for specific amount, the cheques can be paid from
the balance available after setting aside the amount as mentioned in the Garnishee
order.
10. Not applicable on fixed deposits taken as security for some loan.
11. If loan given against FD, applicable on the amount after adjusting the loan.
Income Tax Attachment Orders
1. Income Tax Authorities issue Attachment Orders in terms of Section 226(3) of
Income Tax Act, 1961. On receipt of this order, banker is required to remit the
desired amount to income tax authorities.
2. A order without mentioning the amount is not a valid order.
3. Attachment Order is different from Garnishee order in following respects (a)
Attachment order applies to money deposited in the account after receipt of order
also till it is fully satisfied whereas Garnishee order does not apply to subsequent
deposits. (ii) Attachment Order in single name applies to joint accounts also
proportionately unless the contrary is proved whereas Garnishee order in single
name does not apply to joint accounts.
4. However, right of set off is available to bank before applying the order.
5. In case banker fails to comply with Attachment Order, it will be liable for the
amount of order and deemed as an assessee in default.
6. When both Garnishee order and Attachment Order are received simultaneously,
priority should be given to attachment order.
TYPES OF CUSTOMERS
1. Accounts of Minors
2. A minor is a person who has not attained the age of 18 years. A person will become
major at the age of 18 whether guardian is natural or appointed by a court of law.
3. Guardians: There can be three types of guardians.
4. Natural-guacgjans like father, mother.
5. Testamentary Guardian: A Guardian appointed by Will (Vasiyat). Natural guardian
may appoint somebody to act as guardian after his or her death through will. But
such guardian will come into picture only on the death of natural guardian (in case
of Hindus on the death of father as well as mother).
6. Legal guardian: A Guardian appointed by Court. If neither natural or testamentary
guardian then appointed by court.
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Minor Guardian
Hindu son, unmarried Father and after father's death mother
daughter
Hindu Married daughter Husband. If husband is minor or has died, father in law and
after his death mother in law.
Mohammdan minor Father. After death of father, executor of father's will. If no
will, father's father i.e. paternal grand father and after his
death, his executor.
Christian or Parsi Father. After death mother.
7. When guardian of a Hindu minor ceases to be a Hindu or he becomes a hermit or
sanyasi he ceases to be natural guardian.
8. As per section 11 of the Indian Contract Act, 1872 a minor is not competent to enter
into a contract and the contract entered into by him is void ab-initio.
9. Loan to minor: Banks do not grant overdraft / loan to a minor, even if security is
provided because a contract with minor is void, and the bank will not be able to
recover the loan.
10. Loan against FD: No loan if account self operated. If under guardianship, loan can
be granted to guardian for benefit of minor.
11. Premature payment of FD): If account self operated, it is allowed as minor can give
valid discharge.
12. Addition of name: Even when loan has been raised on a term deposit in the name
of a major person, the request for addition of the name of the minor can not be
entertained till loan is adjusted.
13. Ratification of agreement by minor: A minor cannot ratify an agreement after
attaining majority.
14. Loan for education: A contract for the supply of necessities of life like food, clothes,
education to a minor is a valid contract.
15. Loan to minor against Guarantee: Cannot be recovered even from guarantor.
16. Minor as Agent: Minor cannot appoint an agent. However, a minor can be appointed
as an agent and he can make principal liable by his actions. A minor can not delegate
authority in his self operated account.
17. Issue of Cheques etc: According to Section 26 of NI Act, a minor can draw or
endorse or negotiate a cheque or a bill. He can make everybody liable except
himself.
18. A minor can not appoint nominee. However, minor can be appointed as a nominee.
19. A minor cannot be full fledged partner in a partnership concern as he can not enter
into a valid contract and partnership is created by agreement.
20. A minor may be admitted to benefits of partnership with the consent of all partners.
However, the liability of the partner wilt be limited to his share in the business of
the firm and he will not liable personally for the acts of the firm.
21. On attaining majority, a minor has to give public notice within six months of
attaining majority or when it comes to his knowledge after becoming major which
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ever is later, whether he wants to continue as a partner. If he remains silent, it
amounts to his implied consent. If he chooses to become a partner, he will be held
liable as a partner from the date he has been admitted to the benefit of the
partnership firm.
22. As minor is not partner, he cannot give stop payment instructions on a cheque issued
by partnership.
23. Accounts of a minor: A minor can have account under guardianship as well as self
operated account.
24. Accounts under gauardianship: The account will be operated by the guardian during
minority of the child and once the minor becomes major, the debit in the account
will be allowed only with the consent of minor who has become major even though
the cheques might have been issued prior to his attaining majority. In case of death
of minor, next guardian to operate the account.
25. Minor's Account with Mother as Guardian: RBI has allowed mother to open and
operate all types of deposit accounts even though the father is alive and no consent
of father is required for such accounts.
26. Self operated account of minor: A minor can open self-operated deposit account
provided he has completed the age of 10 years and is literate. He can not appoint
nominee in this account. On his behalf nomination will be done by a person legally
competent to act on his behalf. Joint account is also allowed in the name of two
minors provided both are of 10 years of age, are literate, belong to the same family
and operation is jointly. In case of death of minor, payment to legal heirs of minor.
27. A bearer cheque presented for cash payment by a minor may be paid as a minor can
give a valid discharge in the capacity of the payee.
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cheques at the time of issue of cheque book by competent authority of the bank.
Joint accounts
1. Either or Survivor (E or S): It means anyone can operate the account till both are
alive. After the death of either of them, the bank can pay the balance to the survivor
without any formality.
2. To be operated iointly: Account witl be operated by both jointly till both are alive
and, if one of the two expires, the bank would pay the final balance to the survivor,
along with all the legal heirs of the deceased.
3. Jointly or by Survivors: Account can be operated by both / all the person jointly
during their lifetime and, in the event of death of any one, the balance is payable to
the surviving persons jointly.
4. Former or Surv'ivor: In such accounts, till the first named person is alive, the second
named person has no right to withdraw/operate the account. After the death of the
first named person, the payment will be made to second named person.
5. In case of "either" or "either or survivor' or "joint" operation any one of the account
holders can stop payment of the cheque. The revocation in case of either or either
or survivor can be done by either but in case of joint operation, revocation has to be
done by all jointly.
6. In case of former or survivor cheque can be stopped by former and revocation of
stop payment can also be done by former only.
7. In case of "either of survivor' alteration on the cheque can be confirmed by any of
the account holders. In case of former or survivor it can be confirmed only by former
and in case of joint operation by both.
8. If in a joint account any one becomes insane (Pagal), operation in the account will
be suspended and balance will be payable to the other account holders alongwith
guardian of insane appointed by court.
9. Any authority to a third party has to be with the consent of all joint account holders.
10. Premature payment of FDR: In all cases it will be consent of all account holders
unless mandate has already been taken that any one take premature payment.
11. 1 1 Loan against FDR: In all cases it will be consent of all account holders unless
mandate has already been taken that any one take raise loan singly.
12. 12 Joint accounts are joint property. Therefore, unless there is clear mandate in the
account opening form that any one can undertake the following functions, these
should be done by atl joint account holders jointly under signatures of all (a)
opening the account (b) closure of account (c) making or altering nomination (d)
raising loan against term deposit (e) premature payment of term deposit
Transaction Either or survivor Former or survivor Joint operations
Stop payment Any one Former Any one
Request for loan All jointly All jointly All jointly
Premature payment All jointly All jointly All jointly
of FDR
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Payment on death Survivor Survivor Survivor with legal
SB/CA heirs
Death - FDR Survivor with legal Survivor with legal Survivor with legal
Premature heirs heirs heirs
Closure of account All jointly All jointly All have to sign
Nomination All to sign All to sign All to sign
Payment in case of Survivor till any of Survivor, till any of Survivor & legal
them them heirs till a
Attachment order Each liable Each liable Each of them liable
proportion- proportion-
Garnishee order Order in joint Order in joint Order in joint
names only names names
Partnership Firms
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firm and bind the firm.
14. What is not included in Implied authority: A partner's implied authority does not
cover (a) admission of any liability in a suit against the firm (b) withdrawal of any
suit filed on behalf of the firm (c) acquire/transfer any immovable property on
behalf of the firm (d) submitting a dispute relating to the business of the firm to
arbitration (e) opening a bank account on behalf of the firm in his own name (f)
compromising on behalf of a firm (g) entering into partnership on behalf of the firm.
But if all partners agree for these issues and authorize any one in this regard, these
jobs can be undertaken by the said partner.
15. Liabilitv of a partner: Every partner is liable, jointly with all other partners and also
personally, for all acts of the firm while he is a partner. His liability is unlimited.
16. Operational Aughority.: In Partnership accounts operation authority is given by all
partners.
17. Any change in the operational authority is also with the consent of all partners.
18. Partner can not delegate authority.
19. Every partner including a sleeping partner has authority to stop payment of a cheque
issued by another partner of the firm but revocation can be done only as per
operational authority.
20. A partner is the agent of the firm for the purpose of business of the firm and all his
action in the course of business will be binding on other partners also.
21. Death of a partner: On the death of a partner, the partnership is dissolved.
22. The cheques signed by the deceased, insane or insolvent partner will be paid after
obtaining consent of surviving partners.
23. if the account is in credit, operations are allowed for winding up of the firm.
24. It the account is in debit, operations in the account should be stopped to retain
liability of the deceased linsolvent partner or his/her estate and to avoid operations
of the Clayton's rule.
25. Assets of the firm are first used to meet the liability of the firm. Surplus if any, can
be distributed and used to meet the personal liability of the partners. Assets of the
partners are first used to meet the liability of the partner. Surplus if any, can be used
to meet the liability of the firm.
Limited Liability Partnership
Minimum members -2; Max — No limit
Liability of partners restricted up to amount agreed to be contributed by the
partner.
Limited Liability partnership is registered with Registrar ot Companies.
Limited Companies
1. A limited company is an artificial person with perpetual succession incorporated
under the Companies Act.
2. Company is a legal person, created through process of incorporation for which
Registrar of Companies issues Certificate of Incorporation.
3. Shareholders are owners of the Company and directors are agents of the company
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to manage company.
4. A limited company may be private limited or public limited.
5. Members in a private limited comoany (as per Companies Act 2013): Minimum 2;
Maximum excluding employees can be 200 (earlier as per Companies Act 1956 it
could be 50)
6. Members in a public limited companv: minimum 7 and there is no ceiling on
maximum number.
7. Number of Directors: A private limited company should have minimum 2 directors
whereas a public limited company should have minimum 3 directors. No limit on
maximum number of directors. As per Companies Act 2013, if directors are more
than 15, company is required to pass a special resolution. No permission required
from central govt. As per Companies Act 2013, minimum one director should be
woman, one director as resident and in case of listed companies minimum one third
directors should be independent directors. An individual can become director of
maximum 20 companies but not more than director of 10 public companies.
8. Public company: When minimum 51% shares with government.
9. Main difference between Private and Public limited company: Transferability of
shares. Shares of a public limited company are transferable and are quoted on the
stock exchange while in case of a private limited company these are transferable
only among the members and are not quoted on stock exchange.
10. Documents for opening the account: Memorandum of Association, Articles of
Association, Certificate of Incorporation, Certificate of Commencement of
Business (only for public limited companies) and Board Resolution. KYC norms to
be applied on all persons authorized to operate the account.
11. Memorandum of Association: It contains name of the Company, its authorised
capital, registered office and liability of shareholders, objects of the company etc.
12. Ultra Vires: Anything done by the directors beyond the objects stated in the
memorandum of association is called ultra-vires the company. The company will
not be liable for such actions. These can't be ratified even in a general body meeting.
Therefore, directors can borrow only for the objects mentioned in the memorandum
of association.
13. Articles of Association: lays down the internal working of the company like rights
and powers of the rules of conducting meetings, borrowing power of directors etc.
14. Borrowing Power of Companv: Company's borrowing powers arise from
Memorandum of Association. Hence shareholders have unlimited borrowing
powers.
15. Borrowing Power of Directors: Board's borrowing powers are stated in the Articles
of Association. Where it is not mentioned, these are equal to paid up capital and
free reserves of the Company. Where Board wants to borrow beyond the paid up
capital and free reserves of the company, it has to seek consent from shareholders
under section 180 (1) of Companies Act 2013 by way of resolution in general body
meeting of shareholders. However, short term borrowings like cash credit,
overdraft, BP limit are not covered under this provision.
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16. Constructive Notice: As per doctrine of 'Constructive Notice' anybody dealing with
company is assumed to have knowledge of Memorandum and Articles of
Association.
17. Certificate of Incorporation: It is just like birth registration certificate of the
company issued by Registrar of Companies
18. Certificate of Incorporation is issued by Registrar of Companies.
19. This is the most important document. A company does not exist without it. If an
account is opened without this certificate, the bank will hold the amount as trustee.
20. Certificate of commencement of business: is issued by Registrar of companies.
Earlier, Certificate of Commencement of Business was required only by public
limited companies.
21. As per Companies Act,2013 no certificate will be issued by ROC. Instead both
private limited and public limited companies will file a declaration with ROC before
starting business
22. Resolution of Board of Directors is passed by the Board of Directors authorising
opening and operation of the account by named officials of the company. A copy
of the resolution should be attested by its Company Secretary and / or Chairman of
the meeting at which resolution was passed.
23. Operational Authority: The operational authority is decided by Board Resolution.
24. Any change in operational authority is also as per Board Resolution.
25. Stop payment of a cheque and revocation of stop payment will be as per operational
authority.
26. The directors can not delegate their authority to any other person.
27. In case a director dies, the cheques signed by him presented for payment can be
paid if these are dated prior to his death.
28. If a director stops authority of other director it is of no use. Bank will allow
operations as per Board Resolution. 29 Common Seal of the Company is to be
affixed on documents as per Articles of Association or Board Resolution.
29. Cheque favouring company should not be credited to the personal account of the
director. Such cheques should not be paid in cash. These should be credited to the
account of company only.
Registration of Charqe:
a. In case of advance against security of a limited company, charge is required to be
registered with Registrar of Companies under section 77 of Companies Act 2013.
b. Charge is required to be registered if advance is against hypothecation, or mortgage
of property or assignment of debt. Charge is not required to be registered if advance
is given against Lien, pledge of goods or securities or against Fixed Deposits.
c. The particulars of the charge should be filed with the Registrar of companies in
whose jurisdiction the Registered Office of the Company is located. For example,
a company having its registered office at Jaipur shall have to file particulars of
charge with ROC Jaipur though loan might have been availed from a bank in Delhi
and security may be located in any other state.
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d. For filing particulars of fresh charge and for modification of charge Form No. CHG
1 (earlier form no 8) is required.
e. Particulars of charge should be filed with Registrar of Companies (ROC) within 30
days of creation of charge. It is the primary duty of the company to get the charge /
modification of charge / satisfaciton of the charge registered with ROC. However,
if the company does not get the charge registered, bank in its own interest can file
particulars of charge.
f. In case the particulars are not filed, the bank becomes the unsecured creditor against
the officiat liquidator.
g. When charge in favour of two banks is registered, the priority of the charge is from
the date of creation of charge (i.e. date of documents) and not from the date of
registration if the charge is registered within the stipulated period.
Hindu Undivided Family (HUF)
1. HUF is neither a legal person nor a natural person. It is not created by agreement.
It is not incorporated under any Act. It is from a common ancestor and membership
is by birth or adoption.
2. The eldest member of family is the Karta and others are co parceners. Daughter can
also be Karta.
3. Seniormost member continues to be Karta even when he/she lives outside India.
4. Operational authority to operate the account is with Kana.
5. Karta can appoint any other coparcener or third party to conduct business of HUF
and/or operate the account.
6. Co parcener can not stop payment of the cheque unless he is authorized to operate
the account.
7. Karta is personally liable.
8. The liability of a co parcener is limited up to his share in the firm. He is not liable
personally.
9. HUF can not be partner as per Supreme Court Judgement.
Trusts
1. Trusts can be of two types - private trusts where beneficiaries are certain specified
individuals or groups and public trusts where beneficiary is public at large.
2. Private trusts are governed by Indian Trust Act, 1882, public trusts are governed by
Public Trusts Act of the concerned state.
3. The document creating a trust is called 'trust deed'. Public Trusts are registered with
the Charity Commissioner.
4. The operation and other aspects of the bank account are to be conducted as per the
Trust Deed. If trust deed is silent about operational authority, all trustees have to
operate the account jointly.
5. Stop payment will be as per operational authority. Revocation of stop payment as
per operational authority.
6. Trustees can't delegate their powers to an outsider even by mutual consent.
7. Loan to a trust: Loan can be allowed provided it is permitted by Trust Deed and it
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is for the purposes of Trust.
8. On the death of a trustee, the trust property is passed on to the next trustee while in
the event of death of sole trustee or last surviving trustee, the court can appoint a
trustee.
9. Death or insolvency of a trustee does not affect the trust property and the bank can
pay cheques issued by the deceased trustee prior to his death.
Clubs and Societies
1. For opening account of Clubs and Societies bank will require Certificate of
Registration, Bye laws of the Society, and resolution of Managing Committee or
Executive Committee.
2. Operational Authority will be as per resolution of Managing Committee.
3. Change in Operational authority as per resolution of Managing Committee.
4. Stop payment and revocation of stop payment as per Operational Authority.
5. Cheque signed by the secretary or treasurer or president of society and presented
after his death can be paid if otherwise in order.
Account of Executors and Administrators
1. An executor is a person named by the deceased in his will to mange his estate
whereas an administrator is appointed by the court of law for the same purpose
where the deceased dies without leaving behind a will (intestate).
2. In the eyes of law, executors and administrators, unlike trustees are treated as one
person. On opening a bank account, therefore, executors/administrators can
authorise any one or more of them to operate the account.
3. On the death of an executor or administrator, the surviving executor(s) or
administrator(s) can continue to operate the account unless otherwise provided for
in the will or letter of administration.
4. While opening the account of an executor, bank should obtain letter of probate,
which is an official confirmation of the will of the deceased by a court of law. For
opening account in the name of administrator(s), letter of administration is required
which is issued by the court of law.
Mandate and Power of Attorney
1. When an account holder authorises another person through a simple letter of
authority, it is called mandate. On the other hand, power of attorney is executed on
stamped paper and may cover any other transactions besides opening/operation of
an account. Bank generally accept mandates.
2. The account holder can revoke mandate or power of attorney any time even if it is
stated to be irrevocable.
3. Any cheque signed by the agent and presented after cancellation of authority shall
not be paid.
4. Power of attorney or mandate is revoked by death, insanity, insolvency of the
Principal. Any cheque signed by the principal or agent presented after the death,
insanity or insolvency of the principal will not be paid.
5. In case Cheque issued by the agent is presented for payment after his death, insanity
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or insolvency, the same can be paid so long as the principal is alive provided the
cheque is otherwise in order and is dated prior to the date of death or insanity of the
agent.
6. Agent can not delegate authority to a third party.
Death of a Customer and Settlement of Claims
1. In the case of death of individual customer, operation in the account should be
stopped. Any cheque presented after the death of individual account holder should
not be paid as bank's authority to pay the cheque is terminated in case of death,
insanity or insolvency of individual customer.
2. The payment should be made to nominee if there is nomination. If there is no
nominee but will has been written by the account holder, then the person named in
the will be required to bring Probate from competent court. The person named in
the will or probate is called Executor. In this case payment should be made to
executor.
3. When a person dies without writing Will, he is said as having dies intestate. In this
case, payment will be made to legal heirs.
4. RBI has advised that for making payment of balance in the account of deceased
customer to legal heirs of the deceased, Succession certificate is not mandatory for
any amount. Bank has to satisfy about legal heirs. For delivering contents of locker
or safe custody, Letter of Administration is required.
5. While delivering contents of locker or safe custody, inventory should be prepared.
If some sealed packet is found in the locker of safe custody, it should be delivered
as it is without opening the same.
6. The claim should be settled and payment should be made within 15 days from the
date of receipt of completed papers.
7. If any credit is received in the account after death of customer, it should be credited
to a separate account in the name of customer with the permission of legal heir or
nominee. Otherwise it should be returned to remitter under intimation to the legal
heir or nominee.
8. Pre-mature payment of term deposit can be allowed but no loan can be allowed.
9. Interest in case of current account should be paid at Saving rate from date of death
till date of payment.
10. In case of term deposits, up to due date interest should be paid at contracted rate.
For overdue period, interest should be paid at applicable rate on date of maturity if
the death was before maturity and at saving rate if the depositor died after maturity.
KNOW YOUR CUSTOMER (KYC) GUIDELINES
1. KYC guidelines have been issued by RBI under Section 35A of the Banking
Regulation Act, 1949 (and Rule 7 of Prevention of Money Laundering Rules)
keeping in view the recommendations of Financial Action Task Force
2. Objective: The objective of KYC guidelines is to ensure Anti Money Laundering
(AML) and Combating Terrorism Finance (CTF) and risk management.
3. Banks should frame their KYC policies incorporating the following four key
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elements: Customer Acceptance Policy; Customer Identification Procedures;
Monitoring of Transactions; and Risk management.
4. While opening the account, bank should obtain photograph for the purpose of
identification, proof of identity and proof of address. If address on proof of identity
is same as on Account opening form then separate proof of address is not required.
5. Documents for identity of the customer: (i) Passport (ii) PAN card (iii) Voter's
Identity Card (iv) Driving Licence (v) Job card issued under NREGA (vi) Aadhar
card issued by the Unique Identification Authority of India (vii) Any document as
notified by the Central Government in consultation with the regulator
6. Documents for proof of address: For proof of address also same documents as
mentioned in proof of identity should be used.
7. One Documentary Proof of Address: Customers may submit only one documentary
proof of address (either current or permanent) while opening a bank account or
while undergoing periodic updation. In case the address mentioned as per 'proof of
address' undergoes a change, fresh proof of address may be submitted to the branch
within a period of six months. In case the proof of address furnished by the customer
is not the local address or address where the customer is currently residing, the bank
may take a declaration of the local address on which all correspondence will be
made by the bank with the customer. No proof is required to be submitted for such
address for correspondence/local address. This address may be verified by the bank
through 'positive confirmation' such as acknowledgment of receipt of (i) letter,
cheque books, ATM cards; (ii) telephonic conversation; (iii) visits; etc.
8. Transfer of account or change of address: No proof of new address required. In the
event of change in this address due to relocation or any other reason, customers may
intimate the new address for correspondence to the bank within two weeks of such
a change.
9. Customers should be categorised into low, medium and high risk customers.
10. High risk customers include Politically Exposed persons, High Net worth
individuals, NGO, Trust etc.
11. Low risk customers include salaried persons, pensioners, no frill accounts and
Government departments.
12. Risk review of customers: Bank should review the risk profile of the customer at
least once in six months.
13. Introduction is not necessary for opening accounts.
14. Periodical updation of customer identification data: Full KYC exercise will be
required to be done at least every two years for high risk individuals and entities, at
least every eight years for medium risk individuals and at least every ten years for
low risk individuals. However, physical presence of the clients may, not be insisted
upon at the time of such periodic updations. Positive confirmation has been
dispensed with. Fresh photographs will be required to be obtained from minor
customer on becoming major.
15. Small accounts: As per PMLA guidelines, a small account is one in which balance
will not be more than Rs 50,000; credits in a Financial year not more than Rs 1 lac;
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withdrawals or transfers in a month not more than Rs 10,000. These accounts can
be opened with self attested photo and self attested address. Foreign remittances
cannot be credited to these accounts.
16. Basic saving bank deposit account: No minimum or maximum balance or restriction
on credits in a year but maximum number of withdrawal in a month 4 times without
any limit on amount of withdrawals. Other saving bank accounts in that bank to be
closed within 30 days of opening Basic Saving Bank Deposit account.
17. Foreign students studyinq in India: Non Resident Ordinary (NRO)) bank account to
be opened on the basis of his passport along with a photograph and a letter offering
admission from the educational institution. Foreign student should submit a valid
address proof giving local address, in the form of a rent agreement or a letter from
the educational institution as a proof of living in a facility provided by the
educational institution within 30 days of opening the account. During the 30 days
period, maximum credit of foreign remittances up to USD 11000 and maximum
monthly withdrawal to Rs. 50,000/-, pending verification of address.
18. Simplified Measures for KYC: 'Simplified measures' may be applied to verify the
identity of the 'Low risk' customers and for this purpose following documents shall
be deemed to be 'officially valid documents for proof of identity and address: (i)
identity card with applicant's Photograph issued by Central/State Government
Departments, Statutory/Regulatory Authorities, Public Sector Undertakings,
Scheduled Commercial Banks, and Public Financial Institutions; (ii) letter issued
by a gazetted officer, with a duly attested photograph of the person.
19. Time for completing KYC Norms: Where a customer categorised as low risk
expresses inability to complete the documentation requirements on account of any
reason that the bank considers to be genuine, and where it is essential not to interrupt
the normal conduct of business, the bank may complete the verification of identity
within a period of six months from the date of establishment of the relationship.
20. Any remittance of funds by way of demand draft, MT/TT or any other mode and
issue of travelers' cheques for value of Rupees fifty thousand and above should be
only by debit to the customer's account or against cheques and not against cash
payment.
21. Monitoring of Transactions & Reporting to FIU (Financial Intelliaence Unit)
22. Record of transactions: Branches should maintain proper record of all cash
transactions (deposits and withdrawals) of more than Rs.10 lakh.
23. Banks should send report of alI cash transactions (deposit or withdrawal) of more
than Rs 10 lakh (Cash transaction report -CTR) to FIU— India within 15 days from
the close of the month to which it pertains.
24. Series of Transactions: Banks should maintain proper record of all series of cash
transactions integrally connected to each other which have been individually valued
below rupees ten Lakhs or its equivalent in foreign currency where such series of
transactions have taken place within a month and the monthly aggregate exceeds
rupees ten lakhs or its equivalent in foreian currency. Such transactions should be
reported to FIU on CTR. However, while filing CTR, details of individual cash
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transactions below rupees fifty thousand may not be indicated.
25. Suspicious Transactions: In respect Of suspicious transactions involving any
amount, report called as Suspicious Transaction Report (STR) should be sent within
7 days from the date of transaction.
26. Counterfeit currency notes: All Cash transactions where forged or counterfeit
currency notes or bank notes has been used as genuine or where any forgery of
valuable security or a document has taken place facilitating the transactions, it
should be reported by the 15th day of the succeeding month.
27. Preservation Period of Records: The record of transactions repotted to FIU should
be kept for 5 years from the date of transaction between the bank and the client.
Banks should also maintain records pertaining to the identification of the customer
and his address (e.g. copies of documents like passports, driving licenses, PAN card,
etc.) for at least 5 years after closure of account.
28. Banks are to appoint a Sr. Mgmt. Officer, to be designated as Principal Officer
responsible for monitoring and reporting.
29. Cross border wire transfers: All cross border wire transfers of the value of more
than rupees five lakhs or its equivalent in foreign currency where either the origin
or destination of fund is in India to be reported to FIU.
30. Hard or Soft copy of Record: Banks may maintain records of the identity of clients,
and records in respect of transactions-with its client in hard or soft format.
31. Rely on third party due dilience: For identifying and verifying the identity of
customers, banks may rely on a third party provided (a) the bank takes adequate
steps to satisfy that copies of identification data will be made available from the
third party upon request without delay; (b) the bank is satisfied that such third party
is regulated, supervised or monitored for compliance with client due diligence and
record-keeping requirements. The bank is ultimately responsible for client due
diligence.
32. Central KYC Records Registry (CKYCR): The KYC records received and stored
by the CKYCR could be retrieved online by any reporting entity across the financial
sector for the purpose of establishing an account based relationship. Every reporting
entity shall within three days after the commencement of an accountbased
relationship with a client, file the electronic copy of the client's KYC records with
the Central KYC Records Registry. The Central KYC Records Registry shall issue
a KYC Identifier for each client to the reporting entity, which shall communicate
the KYC Identifier in writing to their client. Where a client, submits a KYC
Identifier to a reporting entity, then such reporting entity shall retrieve the KYC
records online from the Central KYC Records. Registry by using the KYC
Identifier shall not require a client to submit the same KYC records or information
or any other additional identification documents or details.
33. In case of marriage, a document shall be deemed to an "officially valid document"
even if there is a change in the name subsequent to its issuance, provided it is
supported by a marriage certificate issued by the State Government or a Gazette
notification, indicating such a change of name.
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NOMINATION FACILITIES IN CUSTOMERS' ACCOUNTS
1. Provisions relating to nomination are contained Section 45ZA to 45ZF of the B R
Act.
2. Nomination facilities are available in deposit accounts (Sec 45 ZA & 45ZB), in
respect of articles deposited for safe custody with the bank (Sec 45ZC & 45ZD) and
in locker accounts (45ZE & 45ZF)
3. Where façility is available: Nomination facility is available in all types of deposit
accounts like SB, CA, FD, RD, foreign currency accounts of individuals and
accounts of NRI like NRE, FCNR(B) and NRO.
4. Who can nominate: Account should be in individual capacity or joint account of
individuals or a sole proprietorship firm.
5. Who çan not nominate:The facility of nomination is not available in partnership
accounts, HUF, deposit accounts of clubs/societies/limited companies/trusts. A
minor can not appoint a nominee. On his behalf, nomination facility can be
exercised by the person legally competent to act on behalf of the minor.
6. Who can be nominee: Only an individual can be appointed nominee. He can be
Resident or Non-resident. He or She can be minor, very' old person or even an
insolvent person. If nominee is a minor, the depositor has to appoint a major person
to receive deposit amount / articles in the safe custody / locker etc. on behalf of the
minor nominee in the event of death of the depositor.
7. Who can not be nominee: Trust, HUF, Ltd Co, Partnership, Society.
8. Number of nominess: the case of deposit accounts there can be only one nominee
irrespective of the fact whether deposit account is in single name or joint names and
also irrespective of operating instructions in the joint accounts.
9. In the case of articles deposited for safe custody only one nominee is permitted if
account is in the name of a single person. In case articles are deposited by more
than one person, nomination facility is not available. Nomination not allowed in
joint Safe Custody account.
10. In the case of locker accounts in single names or in joint names where under contract
of hire, operation is allowed to any one or more of locker holder(s)/survivor(s),
nominee can be only one. However, in locker accounts in joint names where
operations are 'jointly, by 2 or more of such hirers, more than one nominee can be
appointed.
11. Nomination can be made any time from opening of account to closure of account.
Nomination once exercised can be changed, cancelled or modified by the
depositor(s) at any time and any number of times. In case of more than one
depositors, all such acts require their joint consent.
12. When does the right of nominee start?: Right of a nominee starts only after death of
all depositors/locker holders/safe custody article lodger. In case of either or survivor
accounts payment should be made to survivor and in case of jointly operated
accounts, if one dies, payment to survivor alongwith legal heirs of deceased. The
only exception is the nominee(s) in case of jointly operated lockers. In that case,
right of nominee(s) starts immediately after the death of any of the hirers.
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13. Witnessing of nomination: In the case of illiterate account holder nomination is
required to be witnessed by two persons but in case of account in the name of a
literate person no witness required.
14. Status of nominee: The status of nominee is just like trustee of legal heirs. He does
not become absolute owner of the amount or items lying in safe custody or in safe
deposit vault. Nominee can not get his name added or get his name substituted or
renew FDR. He can not raise any loan against FDR. However, Nominee is entitled
to premature payment of deposit and no penalty is levied in effecting premature
payment to nominee.
15. Legal Heir versus nominee: When both nominee and legal heirs approach the bank
for getting payment after the death of depositor or locker holder, bank will make
payment to the nominee and not to legal heirs unless there is a court order to make
payment to legal heirs, Bank gets a valid discharge by payment to nominee.
16. Formalities for making payment to nominee: In case of death of depositor, nominee
has to submit following documents (a) Copy of death certificate (b) claim form (c)
Identification which can be done by 1st class Magistrate or Gazetted officer or by a
bank officer or any two persons known to bank. While delivering contents of locker
or safe custody, if any sealed packet is found, the same should be delivered without
opening the same.
17. In case of term deposits, there is no need of fresh nomination in the case of renewal
of FDR.
18. In the case of accounts in the name of single persons, nomination must be obtained.
If the depositor does not want to nominate any body, a written letter should be
obtained from him in this regard. In case the person opening the account declines
to give such a letter, the bank should record the fact on the account opening form .
19. Banks should acknowledge the receipt of the duly completed form of nomination,
cancellation and / or variation of the nomination. Such acknowledgement should be
given to all the customers irrespective of whether the same is demanded by the
customers.
20. Banks should incorporate the legend "Nomination Registered' on every pass book
or deposit receipt so as to enable the relatives to know that the nomination facility
was availed of by the deceased depositor.
21. In addition to the legend "Nomination Registered", banks should also indicate the
name of the Nominee in the Pass Books / Statement of Accounts / FDRs, in case
the customer is agreeable to the same.
22. In case of joint deposit account, all persons to sign the nomination.
23. Nomination forms: For nomination — Deposit accounts DA1, Safe Custody SC1,
Locker SL1
BANK OMBUDSMAN SCHEME 2006
1. The Ombudsman Scheme has been started by RBI under section 35 A of B R Act.
2. Applicable all Scheduled Commercial Banks including Private sector banks and
foreign banks, RRB/Coop Banks (including J&K State)
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3. Ombudsman is appointed by RBI. The appointment will be for 3 years at a time.
4. Who can be Ombudsman?: The Chief General Manager / General Manager of RBI
5. The expenses of the Ombudsman will be borne by RBI.
6. Scope - Complaints relating to deficiency in service in deposit, ancillary services,
non adherence of RBI guidelines on advances, delay in sanction or disbursement,
time schedutes, credit card and direct selling agents. The scope of scheme has been
extended to internet banking , violation of code of banking services.
7. Before making a complaint to the Ombudsman, the complaint will be made to the
bank. The complainant can file the complaint with the Ombudsman if no reply is
received within one month of lodging the complaint with bank or reply received is
not satisfactory.
8. Maximum period within which complaint can be filed is 1 year from the date of
receiving the reply from the bank. In case reply is not received from the bank,
complaint can be lodged within 13 months from the date of making the complaint
to the bank.
9. Ombudsman will not entertain a complaint where (a) case is pending in the court
(ii) case has already been decided by the court (iii) similar case has already been
decided Ombudsman.
10. Procedure: On receipt of complaint views of bank called to promote settlement by
agreement. If not settled within 1 month, Ombudsman shall announce award. Role
of the Ombudsman is that of Arbitrator with mutual consent.
11. Maximum amount of award: Rs 10 lakh. In case of credit card maximum claim is
Rs 1 lakh.
12. The complainant should accept the award within 30 days of receipt of the copy of
the award. The award shall not be binding on a bank unless the complainant gives
acceptance within 30 days from the date of receipt of copy of award.
13. If complainant accepts the award, the bank should implement the award within 1
month of receipt of acceptance from the complainant and intimate compliance to
the Banking Ombudsman.
14. If Ombudsman rejects the complaint or award is not acceptable to the complainant,
he can file an appeal to the Appellate authority (Deputy Governor, RBI) within 30
days of the of the date of receipt of communication regarding award or rejection of
the complaint.
15. Bank may also file appeal with Deputy Governor, RBI within thirty days from the
date on which the bank receives letter of acceptance of Award by complainant.
16. In the case of bank, appeal may be filed by a bank only with the previous sanction
of the CMD or ED or CEO of the bank.
17. Non-implementation: If award is not implemented, report to Customer service
committee of the Board and make disclosure in balance sheet of the bank.
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OTHER ISSUES RELATING TO CUSTOMER SERVICE
1. Delays in Cheque Clearing: (i) For local cheques credit and debit shall be given on
the same day or at the most the next day of their presentation in clearing. (ii)
Timeframe for collection of cheques drawn on state capitals / major cities / other
locations to be 7/10/14 days respectively.
2. Customer Committees: Branch level committees include their customers too.
Further a senior citizen may preferably be included therein. The Branch Level
Customer Service Committee may meet at least once a month.
3. Both the drop box facility and the facility for acknowledgement of the cheques at
the regular collection counters should be available to customers and no branch
should refuse to give an acknowledgement if the customer tenders the cheque at the
counters. On the cheque drop box it should be indicated that customer can deposit
the cheque at collection counter and obtain acknowledgement.
4. Banks should invariably offer pass book facility to all its savings bank account
holders (individuals) and in case the bank offers the facility of sending statement of
account and the customer chooses to get statementof account, the banks must issue
monthly statement of accounts. The cost of providing such Pass Book or Statements
should not be charged to the customer.
5. Banks should mention the address / telephone number of the branch on the Pass
Books / Statement of accounts issued to account holders.
6. Unique Customer Identification Code (UCIC) for banks' customers in India: Banks
should initiate steps for allotting UCIC to all their customers while entering into
any new relationships for individual customers to begin with, and to existing
individual customers by end-March 2014.
7. Banks should give an acknowledgment to customer at the time of receipt of Form
15-G/15-H.
CONSUMER PROTECTION ACT
1. The Act is not applicable in J&K
2. A complaint can be filed by the consumer, voluntary consumer association, Central
or State Government.
3. The objective is to address consumer's grievances against deficiency in the quality
of goods or services for consideration.
4. Limitation period for lodging the complaint is 2 years from the date of cause of
action.
5. Pecuniary jurisdiction: The Forum operates at three levels i.e. District, State or
National. For claims up to Rs 20 lac, complaint will be lodged with Distt. Forum,
for claims over Rs 20 lac up to Rs 100 lac with State Commission and for claims
more than Rs 100 lac with the National Commission.
6. Time limit — admissibility of complaint 21 days. Decision 3 months without
analysis and 5 months with analysis.
7. Penalty - Imprisonment 1 month to 3 years and fine Rs.2000 to Rs.10000.
8. Appeal — Appeal from one forum to another can be made within 30 days of the
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order. Against Distt Forum to State Commn deposit of 50% of amount or Rs.25000,
whichever less, against State Commission, to National Commission Rs.35000 and
against National Commn to Supreme Court Rs.50000.
Agency Commission:-
a. i. Receipt- Physical mode-Rs.40 per transaction
ii. Emode -Rs.9 per transaction
b. Pension Payment- Rs.75 per transaction
c. Payment other than pension-6.5 Paisa per Rs.100 turnover
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DEPOSIT INSURANCE
1. Deposit Insurance is provided by Deposit Insurance and Credit Guarantee
Corporation.
2. Compulsory for all banks in India including private, foreign and co-operative banks
except Primary Agricultural societies.
3. Each depositor in a bank insured to max extent of Rs.l lac for principal and interest
held in same right same capacity (account of A& B are separate from account of B
& A) on date of liquidation/cancellation of bank's licence or date of amalgamation
'merger / reconstruction.
4. If a customer has more than one account in a bank, all his accounts will be clubbed
and maximum claim will be Rs 1 lakh in case of liquidation or amalgamation of a
bank.
5. Premium is Rs 10 paise per Rs 100 per annum payable on half yearly basis as on 31
st March (For Apr to Sept) and 30th Sept ( Oct to Mar). Thus, effectively insurance
premium is 5 paise per half year. Insurance premium is payable in advance within
2 months of beginning of the half year.
6. 100% of the premium is to be borne by bank and not by depositor.
7. Deoosits in the name of Central or State Govt. Banks and Foreign Govt not covered.
However, deposits in the name of quasi Govt bodies, local authorities like Municipal
Corporation, Statutory bodies, Govt owned corporations are covered.
TAX DEDUCTED AT SOURCE
1. Interest on deposits with banks:
a. No tax is deducted at source on interest payable on saving bank deposits.
From 1.6.2015, TDS will be applicable on interest on RD also.
b. TDS on interest on deposits: if the interest payable in a financial year exceeds
Rs 10,000.
c. TDS in banks with CBS will be on the basis of deposit in bank and not on
the basis of branch.
d. Rate of TDS: 10%; if PAN No not submitted then 20%
e. Interest paid on NRE,FCNR accounts is exempt from income tax.
f. On NRO, TDS for all accounts and on all interest payments.
g. Submission of Form No.15G/15H: For non deduction of TDS declaration on
15G (for senior citizens on 15H). If PAN no not submitted TDS will be
deductible @ 20%.
h. Senior Citizen means who is of 60 years or above and very senior citizen
means of 80 years & above.
2. TDS certificate — On deduction, T DS certificate to be issued on Form No.16-A
within 15 days from the due date for furnishing the quarterly statement of TDS.
No surcharge or Educational Cess on TDS.
If PAN is not submitted T DS rate is 20% wef 1.4.2010.
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Advance tax is payable if the tax liability is Rs. 10000 or more from 2009-10.
VARIOUS PENALTIES IN TAX NON-COMPLIANCE
If a person makes payment of FDR of Rs.20000 or above in cash: penalty equal to
amount paid. No penalty of imprisonment.
Penalty for non-deduction of TDS on interest on deposits, by a bank: Bank shall be
assessee in default in respect of that amount, pay simple interest at 1.5% per month
on the amount of that tax before furnishing quarterly statement of each quarter (Sec
200 IT Act); Imprisonment: 3 months to 7 years. Delay in filing TDS return —
Rs.200 per day
Non compliance of provision of PAN = Rs.10000
Wrong reporting in TDS statement: Rs 10,000 to Rs 100,000
CHARGING OF SECURITIES
PLEDGE
1. Pledge is defined in section 172 of Indian Contract Act.
2. Pledge is the bailment of goods as a security for payment of a debt or performance
of a promise.
3. Bailment is defined in Indian Contract Act.
4. Bailment. means delivery of goods with some purpose and with the condition that
when the purpose is accomplished the goods will be delivered back to the bailor.
5. Pledge can be only in respect of movable goods like stocks. On Railway receipt also
charge is created by pledge.
6. In the case of pledge, ownership remains with the borrower; onIy possession is
transferred to the banker.
7. The bank as a pledgee must take care of the goods pledged as a person of ordinary
prudence would take of his own goods of the same value.
8. Bank can sell the goods without intervention of the court in case the pledgor fails
to repay the bank loan. But the sale can be done only after giving reasonable notice
to the pledgor.
9. Bank as a pledgee has priority in right over the goods and Bank's right of sale under
pledge cannot be extinguished even by lawful seizure of goods pledged to it.
HYPOTHECATION
1. Hypothecation is defined in Section 2 of Sarfaesi Act.
2. Hypothecation is also done on moveable property like stocks.
3. In case of hypothecation both ownership as well as possession remains with the
borrower i.e. neither ownership nor possession is transferred to the bank.
4. The charge created in Hypothecation is equitable charge.
5. When stocks are hypothecated to the bank, the charge is floating charge.
6. 60 Basic difference between pledge and hypothecation is on account of possession.
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ASSIGNMENT
1. Provisions relating to Assignment in section 130 of Transfer of Property Act
2. Assignment is transfer of right or interest to recover the debt.
3. The transferor of claim is called as the assignor and the transferee is called the
assignee.
4. Assignment is done on Book Debts, Supply Bills, LIC policy, fixed deposit etc.
5. Assignment is possible through writing only.
6. Acknowledgment required to be acknowledged by original debtor u/s 131.
7. Assignor cannot give better title to the assignee than what assignor has.
8. In case of default, the assignee can recover the actionable claim amount from the
original debtor without reference to assignor.
MORTGAGE
1. Mortgage is defined in Section 58 of the Transfer of Property Act.
2. Mortgage is the transfer of interest in a specific immovable property, for the purpose
of securing an existing or future debt.
3. The person creating the mortgage is called as the mortgagor and the person in whose
favour mortgage is created (bank) is called as the mongagee.
4. Mongage is created on immovable property like land and building.
5. Types of Mortaaae: There are six types of mortgages namely (i) Simple Mortgage
(ii) Mortgage by Conditional Sale (iii) Usufructuary Mortgage (iv) English
Mortgage (v) Mortgage by Deposit of title Deeds (Equitable Mortgage) and (vi)
Anamalous Mortgage. Of these, all mortgages except Equitable Mortgage require
registration with the Registrar of Assurances.
6. Registered Mortgage: In the case of registered mortgage (also called legal
mortgage) first a mortgage deed is written which is stamped as per Stamp Act of
the concerned state. The deed is then executed in the presence of two witnesses.
Thereafter, in terms of the Indian Registration Act 1908, it is to be registered with
the Registrar of Assurances (Sub Registrar) within 4 months of the execution.
Equitable Mortgage
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f. The bank should not part with the title deeds even for a short duration at the
request of the mortgagor because if some other creditor is induced to finance on
the basis of title deeds, the bank may lose priority over the mortgaged property.
g. Equitable Mortgage does not require registration with Registrar of Assurances.
But in case of a limited company charge in respect of equitable mortgage under
Section 125 of the Companies Act, 1956 must be registered with Registrar of
Companies.
h. All mortgages in favour of bank require registration with CERSAI (established
under SARFAESI Act) within 30 days.
Advance against Shares
Bank should not grant advance against security of partly paid shares because these
represent contingent liability. Moreover, it is prohibited by RBI.
Amount of advance: Loans against the security of shares, should not be more than
Rs 10 lakh per borrower if the shares etc are held in physical form and not more
than Rs 20 lakh per borrower if these are in dematerialised form.
Margin: Minimum margin of 50 percent of the market value of equity
shares/convertible debentures held in physical form and 25% for demat shares. in
case advance is granted to an employee for purchase of shares of his own company,
then the amount of advance can be up to 90% of the value.
GUARANTEE & BANK GUARANTEE
1. Guarantee is defined in section 126 of Indian Contract Act.
2. There are three parties to a contract of guarantee namely principal debtor, creditor
and surety.
3. The liability under guarantee is a contingent liability and surety is liable on default
by the principal debtor.
4. Once there is a default, the liability of the surety is co extensive with the principal
debtor. That is he is equally liable as principal debtor.
5. When a guarantor makes payment on being called by the creditor, he becomes
entitled to all rights and remedies which creditor had against the principal debtor.
This right of the surety is called Right of Subrogation.
6. When guarantee is issued for a single transaction it is called specific guarantee and
when it is issued for series of transactions it is called continuing guarantee.
7. Deferred payment guarantee is issued when the applicant purchases machine etc on
instalment basis.
8. Deferred payment Guarantee is just like financial guarantee.
LIMITATION OF LOAN DOCUMENTS
1. Period of Limitation:Time limit within which legal remedy can be sought in a court
of law to enforce the right.
2. 2. There is no limitation period in case of pledge or lien or set off.
3. Date of execution of a document is excluded for the purpose of ascertaining
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limitation period of a document. Thus, a suit based on a DPN dated 5.4.2015 can be
filed latest by 5.4.2018.
4. If courts are closed on the day the limitation period expires, case can be filed on the
day the court reopens.
5. In case documents are signed by various partners on different dates, limitation will
start from last date of signing the documents.
6. Extension of Period of Limitation:
a. Period of limitation can be extended -by Acknowledgement of debt or part
payment. In both cases, limitation period will start from the date of
acknowledgement or part payment
b. The acknowledgment or part payment should be by the borrower himself or
his agent specifically authorized for this purpose.
c. Acknowledgement or part payment should be before the expiry of limitation
period. Once the limitation expires it can not be extended by pan payment or
acknowledgement of debt.
d. An admission of debt in the balance sheet, acknowledgement to third party,
credits on account of standing instruction also extends the period of
limitation.
e. In case limitation expires in a particular case, the liability can be revived by
obtaining fresh promise to pay the outstanding debt. Limitation period of
various documents is given below:
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Execution of Decree 12 years from the date of decree
Recovery of loss caused by fraud 3 years from the date of detection of
fraud
Claim under Consumer Protection Act 2 year from the date ri ht accrues
Dishonour of cheque under sec 138 of NI Act 1 month from the date right accrues
Apeal to High Court against Lower court 90 days from date of decree
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Start Up India
Objectives:
1. Bank financing for start up ventures to boost entrepreneurship and jobcreation
2. To promote ‘Ease of Doing Business’ which includes land permissions and
environmental clearances by Govt, single window clearance, 80% reduction in
patent registration fees and othertaxes
3. Rs.10,000 crorpus funds
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14 major banks with deposit base of INR 50 crores and above were nationalized
1969 so as to platform for branch expansion. Since then, population per branch came
down drastically from 65,000 in 1969 to around 15,000 in 2009.
Focus was shifted from trade and business to agricultural farm credit and small
1970 industries.
1972 Lead Bank Scheme was launched to provide impetus to rural and backward
areas. Differential Rate of Interest with low interest rate on the loans to poor
borrowers –DRI scheme was introduce with a direction of 1 percent of credit to
be under DRIscheme, 40 percent of which to go to SC/ST sectors, resulting in
significant contribution for business entity towards margin money.
1975 Five Regional Rural Banks (RRBs) set up and formulated.
Though Tandon and Chore Committee, scientific lending norms were
introduced so as to deploy the funds that were scare when credit squeeze was
prevailing and also to ensure that borrower‘s stake is crystallized.
1976 Regional Rural Bank was set up with the central government, sponsoring bank
and thestate government contributing 50:35:15 ratio in capital formation.
1978 Deposit Insurance and Credit Guarantee Corporation (DICGC) was established.
Integrated Rural Development Programme (IRDP) was launched to benefit the
1979 rural populace.
1980 Six more banks were nationalized and class banking changed into mass
banking. Twenty Point Programme was introduced to ensure efficient
production and distribution of essential goods and services to the community
and to raise income and standard of living of weaker section.
1982 NABARD and EXIM bank came into existence
1983 Scheme for Self Employment for Educated Unemployed Youth was introduced.
1985 Nomination facility introduced
1988 Introduction of capital adequacy requirements as part of Basel Committee
norms.
1989 Service area approach
1991 Financial sector reforms, akin to what is practiced in western countries, were
introduced.
Securities scam surfaced and shocked the banking sector with the undesirable
1992 link with the capital market.
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1992- Narasinhman Committee –First Report on Financial Sector reform:
1993 Income Recognition & Asset Classification (IRAC) norms introduced.
Standard assets, non- performing assets (NPAs)- substandard, doubtful and loss
assets, capital adequacy, phasing out directed credit programme, deregulation
of interest rate, slowly waning out the health code system, etc. resulted in banks
reporting net loss depending on certain norms.
1994 Photograph in deposit a/c.
1993 Deposit insurance amount raised to INR 1 lac per depositor.
1994 Introduced Board for Financial Supervision so as to focus on regulation.
1995 Put in place Off-Site Monitoring and Online Supervision (OSMOS)
mechanism.
1995 Banking Ombudsman.
New Private sector banks were allowed entry with certain stipulated minimum
1996 capital funds.
Narsimham Committee: Second Report. PSBs allowed total capital market
1998 through public issue of shares.
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Banks without international presence were also required to comply with Basel II
2009 norms by March 2009.
With effect from April 2009, the foreign investors can have stake in banks, up to
a maximum of 74 percent, up from, 25 percent. As part of rationalization of
capital market public issue collection, concept of Application Supported Blocked
Amount (ASBA) is introduced.
2010 Basel III norms introduced
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Lok Adalats
1. Lok Adalats are created under Legal Services Authority Act 1987
2. There is no court fees in Lok adalats.
3. Since its decisions are consent decree, no appeal can be filed against decision of
Lok Adalat.
4. Cases involving an amount upto Rs.20 lakh may be referred to Lok Adalats.
5. Type of accounts that can be referred: Suit filed and non-suit filed accounts, which
are in "doubtful" and "loss" category, with outstanding balance up to Rs.20 lakh.
6. Repayment: Preferably down-payment. Max in 1-3 years.
7. Limitation not extended by filing a case in Lok Adalat
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SARFAESI ACT
Securitisation & Reconstruction of Financial Assets and Enforcement of Secuirty Interest
Act 2002.
Applicable throughout India including Jammu & Kashmir.
Rights of Bank: (i) take possession of the security (ii) sale or lease or assign the
right over the same (iii) Manage the same and/or appoint any person to manage the
same (iv) Recover money receivable from 3rd parties.
Competent authoritv to enforce rights under SARFAESI is Chief Manager and
above. Board of Bank can delegate powers to lower rank official also.
A bank can exercise rights under the Act provided following conditions are
satisfied.
a. The asset to be acquired should be charged to the bank.
b. Minimum recoverable dues: more than Rs 1,00,000/-
c. The Act is not applicable if 80% of the Principal has been paid. It means
outstanding amount should be more than 20% of the Principal amount.
d. Notice period: A notice of 60 days is required to be given before taking over
possession.
e. Consortium: tf loan from more than one bank/Fl, consent of 60% (earlier
75%) of lenders by value is required before initiating action under the Act.
No condition of number of banks. BIFR cases can be recalled back with
consent of 75% of creditors by value.
f. Agricultural Land: The Act does not cover agricultural land mortgaged to
the credit institution. (However, other assets charged to bank can be
acquired).
g. Type of account: Account should be NPA
h. The documents are within the limitation period The security is not charged
by pledge or lien
Loans not eligible — Amount up to Rs.l lac, agricultural land as security, security
under pledge or lien and where recovery up to 80% of due amount already affected.
Remedy to borrower: If borrower has objection against the action of the bank, bank
has to reply within 15 days (earlier one week). If borrower still not satisfied, can
file application with the DRT within 45 days of the taking over of possession by the
bank and is not required to deposit any amount with DRT at this stage.
Bank or borrower can make appeal to DRAT within 30 days of receiving the copy
of judgement.
If the borrower prefers an appeal with DRAT, he is required to deposit 50% ot the
bank's claim which can be reduced to 25% by the Chairperson.
Notice after taking possession: Within 7 days of taking over of possession.
Notice period for sale: If the bank wants to sell the acquired assets, 30 days notice
is to be given to the borrower/guarantor.
Sale: Sale at reserve price to be fixed by bank. Below reserve price consent of the
borrower. Sale by public tenders or through public auction. If sale through public
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auction, public notice in one English and one Hindi or Regional language paper.
Sale is confirmed by bank on receipt of 25% amount immediately and balance is
payable in 15 days.
Concept of NPA
IRAC Norms & Non-Performing Assets
Non performing assets are loans which have ceased to earn income for lending banks.
Classification of NPA
Term Loan- if interest/installment remain overdue for a period of more than 90 days.
Bills/ Cheque purchased- if the bills remain overdue & unpaidfora period of more
than 90 days. The entire facility along with other facilities will be treated as NPA if
any of the Bills /cheques remain overdue for more than 90days.
Cash Credit- Overdraft account: if account remains out of order for more than90
days.
An account should be treated as ‘out of order’ –
If the outstanding balance remainscontinuously in excess of sanctioned limit/drawing
power. In cases, where the outstanding balance in the principal operating account is less
than the sanctioned limit / drawing power, but there are no credit continuously for 90 days
or credit are not enough to cover the interest debited during the same period, these accounts
should be treated as ‘out oforder’.DP allowed on the basis of stock statement older than 3
months is irregular & if this irregularity is allowed for more than 90days the account will
turn to NPA. An a/c where Review is pending for more than 180 days than also the account
will be straight way classified NPA.
Direct Agricultural advances:- A loan granted for
1. Short duration crops will be treated as NPA if the installment or interest remain
overdue for two crop seasons i.e. the period up to the harvesting ofcrops.
2. Long duration crops will be treated as NPA if the installment or interest remain
overdue for one cropseason.
Long duration crops are having crop season longer than 1 year and except long duration
crops, all others are short duration crops.
The crop season for each crop, which means the period up to harvesting of the crops raised,
would be as determined by the State Level Bankers Committee in each State.
Depending upon the duration of crops raised by an agriculturist, the above NPA norms
would also be made applicable to agricultural term loans availed of by him.
Advances under consortium: The concept of NPA is based on the record of recovery of the
individual Banks. In respect of Consortium advances or financing under multiple Banking
arrangements, each bank may classify the borrower accounts according to its own record
of recovery and other aspects having a bearing on the recoverability of the advances.
Govt. guaranteed accounts: w.e.f 01.04.2000 advances sanctioned against State Govt
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guarantees, should be classified as NPA, if the guarantee is invoked and remains in default
for more than 90 days. Advances against Central Govt. guarantee may be treated as NPA,
when the Govt. repudiates it’s guarantee when invoked.
ASSET CLASSIFICATION
PerformingAssets Non PerformingAssets
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Important clarification
1. Treatment of NPAs – Borrower wise and not Facilitywise
2. In respect of a borrower having more than one facility with a Bank, all the facilities
granted by the Bank will have to be treated as NPA and not the particular facility or
part thereof which has become irregular. Borrower wise classification i.e if one a/c
becomes NPA, all other credit facilities of the same borrower will also becomeNPA.
3. Advances against TD, NSC, LIC are excluded from the Prudential accounting
norms.
4. Interest will be due after Moratoriumperiod.
5. Provision on the balance amount in excess of the Guaranteed amount under schemes
covered by ECGC, CGTSIguarantee.
6. Non fund based facilities like LC/LG, will become NPA only after it becomes a
fund based facility and the amount remains overdue for more than 90days.
One Time Settlement Through OTS Module–I:
Eligible Accounts:
All NPA and Technically Written Off accounts, having outstanding ledger balance
upto Rs.10.00 lac, irrespective of the security. Outstanding Balance above Rs.5 Lac up to
Rs.10 Lac backed by mortgage security SARFAESI action 13(2), 13(4), DM,CMM
Permission ,E-auction sale notice should be completed .
Exclusion:
Following type of accounts will not be considered for settlement through OTS Module-I
by Branch /RLCC:
Quick Mortality accounts (The account which becomes NPA within 12 months
from the date of first disbursement).However quick mortality accounts upto Rs.5.00
lac can be approved for compromise settlement by AGM Headed RLCC & up to
Rs.10.00 lac by DGM Headed RLCC.
Declared Fraud accounts
NPA account of less than 6 months old
Accounts referred to Vigilance Deptt., HO
Staff / staff guaranteed / staff related accounts
Computation of Minimum Recoverable Amount (MRA) under OTS Module-I:
Asset Classification of account MRA as % of Outstanding Ledger Balance as on date
and Code of OTS proposal
Substandard (210) 85%
Doubtful-1 (220) 65%
Doubtful-2 (230) 50%
Doubtful-3 (270) 35%
Loss --------(250) 25%
Technically Written Off-(270) 25%
Page 91 of 131
Deviation:
Any proposal which does not conform to the norms in respect of MRA mentioned above
and /or
involve remission of payment of interest for extending repayment period beyond 3
months,should be referred to the next higher authority and the same will be considered as
follows:
1. Deviation up to 5% of amount of MRA or / and remission of payment of interest
for extending
2. repayment period uotp 12 months - by the RLCC;
3. ii) Deviation above 5% but upto 15% of amount of MRA or / and remission of
payment of interest
4. for extending repayment period beyond 12 months- by the authority one step above
the RLCC
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& its sale)
Computation of Net Book Value (NBV):
NBV of the account is arrived as below’
NBV = Ledger Balance of a/c on date of submission of OTS proposal – Interest Suspense
–Provision provided.
Fixation of OTS Amount of a proposal Under Module-II
The minimum OTS amount will be higher of the below:-
a. Minimum Recoverable Amount (MRA)
Or
b. Net Present Value (NPV) of securities
Or
c. Computed Net Book Value of the account (NBV)
Deviation clause:
a. Any proposal which does not conform to the norms with respect to Minimum
RecoverableAmount (MRA) / Net Present Value (NPV) / Net Book Value of the
account (NBV) mentioned above should be referred to the next higher authority and
the same will be considered as follows:
i) Deviation up to 5% of amount of MRA /NPV/NBV- by the next higher
authority;
ii) Deviation above 5% but up to 15% of amount of MRA /NPV/NBV – by the
authority one stepabove the authority specified above.
iii) iii) Deviation above 15% in MRA /NPV/NBV - by Cedit Approval Committee
(CAC).
b. Proposals referred to HO, where the offer amount is below the MRA NPV/NBV
will be disposed off according to the delegated Discretionary Power of different
tiers of committees at H.O.
Payment of settled amount:
Negotiation with the obligant(s) should be made to recover the entire settled amount in one
stroke.However, if the borrower/guarantor concerned desires to pay the settled amount in
installments, utmost endeavour should be to recover the entire settled dues from the
borrower/guarantor within 3(three) months. If the settled amount is paid within a period of
three months from the date of communication of sanction, no interest on the settled amount
is payable.
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DISCRETIONARY POWER FOR WRITE OFF AND WAIVER
Page 94 of 131
SARFAESI ACT
Securitisation & Reconstruction of Financial Assets and Enforcement of Secuirty
Interest Act 2002.
1. Applicable throughout India including Jammu & Kashmir.
2. Rrights of Bank: (i) take possession of the security (ii) sale or lease or assign the
right over the same (iii) Manage the same and/or appoint any person to manage
the same (iv) Recover money receivable from 3rd parties.
3. Competent authoritv to enforce rights under SARFAESI is Chief Manager and
above. Board of Bank can delegate powers to lower rank official also.
a. A bank can exercise rights under the Act provided following conditions
are satisfied.The asset to be acquired should be charged to the bank.
b. Minimum recoverable dues: more than Rs 1,00,000/-
c. The Act is not applicable if 80% of the Principal has been paid. It means
outstanding amount should be more than 20% of the Principal amount.
d. Notice period: A notice of 60 days is required to be given before taking
over possession.
e. Consortium: tf loan from more than one bank/Fl, consent of 60% (earlier
75%) of lenders by value is required before initiating action under the
Act. No condition of number of banks. BIFR cases can be recalled back
with consent of 75% of creditors by value.
f. Agricultural Land: The Act does not cover agricultural land mortgaged
to the credit institution. (However, other assets charged to bank can be
acquired).
g. Type of account: Account should be NPA
h. The documents are within the limitation period The security is not
charged by pledge or lien
i. Loans not eligible — Amount up to Rs.l lac, agricultural land as security,
security under pledge or lien and where recovery up to 80% of due
amount already affected.
4. Remedy to borrower: If borrower has objection against the action of the bank,
bank has to reply within 15 days (earlier one week). If borrower still not satisfied,
can file application with the DRT within 45 days of the taking over of possession
by the bank and is not required to deposit any amount with DRT at this stage.
5. Bank or borrower can make appeal to DRAT within 30 days of receiving the
copy of judgement.
6. If the borrower prefers an appeal with DRAT, he is required to deposit 50% ot
the bank's claim which can be reduced to 25% by the Chairperson.
7. Notice after taking possession: Within 7 days of taking over of possession.
8. Notice period for sale: If the bank wants to sell the acquired assets, 30 days
notice is to be given to the borrower/guarantor.
9. Sale: Sale at reserve price to be fixed by bank. Below reserve price consent of
the borrower. Sale by public tenders or through public auction. If sale through
public auction, public notice in one English and one Hindi or Regional language
paper. Sale is confirmed by bank on receipt of 25% amount immediately and
balance is payable in 15 days.
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Insolvency & Bankruptsy Code-2016
Parliament passed Insolvency and Bankruptsy Code on 11th may 2016, which came into
existence on 20th May 2016.The code created a new institutional framework which
facilitates a formal & time bound insolvency resolution process & Liquidation.
Pillar of the IBC framework:-
1. Adjudication Authority: National Company Law Tribunal(NCLT) constituted
under the Companies Act 2013 has to act as Adjudicating authority.It has 13
benches.
2. Insolvency professional: They should be registered with IBBI
3. Information utilities: Creation of information utilities to collect, authenticate and
disseminate financial information of debtors in centralized electronic data base.
4. Regulator: Insolvency Bankruptsy Board of India (IBBI):-
Key points
a. To initiate an insolvency process, default should be at least Rs.1.00 Lac.
b. Demand Notice to be issued in a prescribed manner and debtor is required
to reply within 10 days of receipt of notice and on expiry of 10 days , if
payment not received, NCLT passess orderfor initiating insolvency
resolution process.
c. NCLT orders a moratorium on the debtors operations and during this
period no judicial process for recovery takes place against the debtor.
d. NCLT appoints Interim resolution professionals who constitutes
committee of creditors(COC) .Later on COC appoints a resolution
professional who takes over the management of the company.
e. Resolution professionals prepare Information memorandum and on that
basis resolution plan is prepared which may be either approved or not
approved by COC.If not approved then liquidation order is passed by
NCLT.
f. The resolution process should be completed wiyhin 180 days which may
be extended by 90 days once.
Priority of Claim
1. The insolvency resolution process & liquidation cost in full.
2. Workmen dues pending 24 months and dues owed to secured creditor.
3. Unpaid dues owed to employees other than workmen for 12 months.
4. Debts owed to unsecured creditor.
5. Any amount due to Government.
6. Any remaining debts and dues.
7. Preference share holders.
8. Equity share holders.
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United Housing Loan
Salient features of united Housing Loan Scheme
Eligibility: Individual of 21 to 65 years. Salaried person in regular and permanent
service, self-employed persons having at least 3 years IT return filed separately in each
financial year preferably loan should be given in joint names of two or more individuals
i.e. co-owner of the property (must) /Spouse/Parent / Children.
Purpose:
1. Purchase ready built house / flat or house or flat under construction. / purchase
of old house / flat not old over 35 years
2. Construction of house on own land / purchase of land for construction of house
within 2 years.
3. Takeover of loan from other bank/HFC.
4. Renovation/extension/repair/furnishing of house or flat.
Quantum of Loan:
Location Max.
quantu
m
Metros i.e. 300 lac
Mumbai,Delhi,Calcutta,Chennai,Bengaluru,Ahmedabad,Hyderabad,Gurg
aon,Noida and New Delhi.
Other Metro Cities 150 lac
Urban 100 lac
Semi urban 45 lac
Rural 25 lac
For Furnishing 20%
extra
High value loan (Rs 50 lac above) for purchase of flats is restricted to buy flats from
National/State level/Reputed builders/developers.
For repair of Existing House Max 10 lac and for Extension/ModificationMax15 lac and
LTV should be >=75% and margin for the additional loan should be minimum 25%.
Margin:
1. For loan amount upto 30 lac is 10%, but if the annual income of the borrower is
3 lac or
2. below then Up to 30 lacs is 25%.
3. For loan amount above 30 lacs and upto 75 lac is 20% of the project cost.
4. For loan amt above 75 lacs is 25% of project cost.
5. For purchase of land 40% of maximum eligibility of the borrower and 75% of
cost of the landwhichever is lower.
Page 97 of 131
Rate of Interest:
Page 98 of 131
UNITED PLATINUM HOUSING LOAN SCHEME
Our bank introduced United Platinum Housing Loan scheme to serve the Govt.
employee / Employees of statutory/regulatory bodies / PSUs in our fold as this segment
has negligible default rate and lending is secured with assurance on time return.
Scheme Code LAUPH
Target Segment Permanent Employees of State / Central Government /
Statutory & Regulatory Bodies / PSUs
Rate of Interest EBLR=0.15%
Other Terms and • The facility will be offered only to the employees of State
Conditions / Central Government Departments / Statutory & Regulatory
Bodies / PSUs etc. • Undertaking from the employer to Pay
EMI by direct deduction from Salary Bill and to remit to the
financing branch • Undertaking from the Employee
borrower authorizing his / her employer to pay EMI by
direct deduction from salary bill and to remit to the
financing branch •
All other terms and conditions as per UHL scheme.
Page 99 of 131
SMART LOAN
ELIGIBILITY: Existing Housing Loan borrowers having completed minimum 2(two)
years of repayment schedule with a record of regular repayment and having good
repayment capacity
PURPOSE: Personal purpose including purchase of furniture/fixtures and interior
decoration of the house
QUANTUM OF LOAN: The maximum quantum of loan may be to the extent of the
principal amount of housing loan repaid subject to maximum ceiling of Rs.5lac with
condition that outstanding in both loan should not exceed the original limit sanctioned
in housing loan.
However, while fixing quantum of loan and repayment period of loan under this scheme
it must be ensured that the amount of EMI of smart loan, amount of EMI on housing
loan plus other deductions from the gross salary/income must not exceed 60% of the
borrower's gross monthly salary/income in terms of Salary Certificate /Form No.16
(Copy of IT Return). Where spouse is co-borrower in the original sanction, the gross
monthly income of both the borrowers shall be considered.
NATURE OF LOAN: Loan can be availed either in the form of Term Loan or OD as
per convenience of the customers, subject to review every year.
REPAYMENT: Term loan should be repaid within 5 years and OD facility should be
reviewed every year.
MARGIN: No Margin
SECURITY: Extension of charge (mortgage) by the borrowers who have executed
documents in connection with existing housing loan and should be in force till
liquidation of loan.
RATE OF INTEREST: @MCLR + 2.80%
PROCESSING FEES:2% plus GST of the sanctioned loan subject to minimum
Rs.500/-.
DISBURSEMENT: Loan, under the scheme may be disbursed after observing all the
required formalities by crediting directly to SB/CD/CC account maintained by the
borrower with the Branch as per requirement of the borrower.
1 EWS 30 Sqm
2 LIG 60 Sqm
3 MIG-I 160 Sqm
4 MIG-II 200 Sqm
Beneficiary:
A beneficiary family will comprise husband, wife and unmarried son(s) and
daughter(s)
The beneficiary family should not own a Pucca house (an all weather dwelling
unit) either in his/her name or in the name of any member of his/her family in
any part of India.
An adult earning member (irrespective of marital status) can be treated as a
separate household.
Income Criteria:
A EWS Annual family Income upto Rs.3 Lac
B LIG Annual family income more than Rs.3.00 lakh and upto Rs.6.00 lakh
C MIG-I Annual Income more than Rs.6 lac and up to Rs.12 Lac
D MIG-II Annual family income more than Rs.12 lac and up to Rs.18 lac
Quantum of Loan Amount eligible for Interest Subsidy:
A) EWS Rs.6.00 Lac
B LIG Rs.6.00 Lac
C) MIG-I Rs.9.00 Lac
D) MIG-II Rs.12.00 Lac
Note: Additional Loans beyond the specified limit will be at non subsidized Rate
Interest Subsidy:
A EWS @6.5% Max.Rs.2.67 Lac for 20 Years
B LIG @6.5 Max.Rs.2.67 Lac for 20 Years
C MIGI @4% Max.Rs.2.35 Lac for 20 Years
D MIG-II @3% Max.Rs.2.30 Lac for 20 Years
Tenure of loan: Maximum repayment period is 30 years or 70 years of age whichever
is earlier provided the applicant have sufficient income generation for repayment.
However, subsidy will be allowed for tenure upto 20 years or tenure of loan, whichever
is earlier.
PV = Property Value
Qualifying Amount or LTVR = Loan to Value Ratio = 80%
OTDA = One Time Disbursement Amount
n = Loan Disbursement Period = 15 years or 180 months
Disbursement Frequency = Monthly
I = Current Interest = (MCLR-Y+2.80)% = (8.85 + 2.80)% = 11.65% p.a. or (11.65 / 12)%
= 0.008541667 monthly
Repayment of Loan: The borrower will not be called upon to service the loan during his / her
lifetime. The loan (including accumulated interest) is repaid from the proceeds of the sale of
the property, on the occurrence of any or more the following events:
1. The owner of the residential property and his / her spouse are generally joint borrowers
and the surviving borrower is allowed to retain the property till his / her death.
2. When the last surviving borrower dies, sells the home, or permanently moves out of the
home. (Typically, a “permanent move” would mean that neither the borrower nor any
other co-borrower has lived in the house for continuous one year).
3. If the residential property so mortgaged to the Bank is donated or abandoned by the
borrower(s).
4. The borrower(s) having failed to pay property taxes or maintain and repair residential
property or failed to keep the home insured.
5. Borrower(s) having declared himself/ herself/ themselves bankrupt.
6. If the borrower(s) effect any changes in the residential property that affect the security
of the loan for the Bank. For example: renting out part or all of the house; adding a new
owner to the house’s title; changing the house’s zoning classification; or taking out new
debt against the residential property.
7. Perpetration of fraud or misrepresentation by the borrower(s).
8. If a government agency needs the residential property for public use (for example, to
build a highway).
9. If a government agency condemns the residential property (for example, for health or
safety reasons).