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COLLECTION SERVICES:
In modern business, different types of credit instruments such as bills of exchange, promissory notes,
cheques etc. are used. Banks deal with such instruments. Modern banks collect and pay different types
of credit instruments as the representative of the customers. Collecting cheques, drafts, bill of
exchange, dividends, and interests etc. on behalf of its customers and credit the amount in their
account is one of the most important agency services rendered by the banks. Banker accepts standing
instructions from the customers and arranges to collect dividend, interest, pension, salaries, bills etc.
on behalf of his customers. In collecting and clearing these instrument banks must take due diligence
and care in order to protect them from legal consequences (Refer Duties and Liabilities of Collecting
Banker in the next chapter). Some of the prominent collection services offered by commercial banks
are:
(1) Collection of Cheques:
Banks as a part of their normal banking operations undertake collection of cheques deposited by their
customers, some of which also could be drawn on local branches referred as local cheques and non-
local bank branches referred as outstation cheques. Speed clearing refers to collection of
outstation cheques through the local clearing.
• Local Cheques: Local cheques are payable within the jurisdiction of the clearing house and will
be presented through the clearing system prevailing at the centre. Credit arising out of local
cheques shall be given to the customer’s account as indicated in the Cheque Collection Policy
(CCP) of the concerned collecting bank.
Notwithstanding to the CCP of concerned collecting bank, ideally, in respect of local clearing,
banks shall permit usage of the shadow credit afforded to the customers’ accounts immediately
after closure of the relative return clearing on the next working day or maximum within an
hour of commencement of business on the third working day from the day of presentation in
clearing, subject to usual safeguards. Under grid-based Cheque Truncation System clearing, all
cheques drawn on bank branches falling within in the grid jurisdiction are treated and cleared
as local cheques. The grid clearing allows banks to present/ receive cheques to/ from multiple
cities to a single clearing house through their service branches in the grid location. If there is
any delay in credit, beyond the period specified above, customer is entitled to receive
compensation at the rate specified in the CCP of the concerned collecting bank. In case, no rate
is specified in the CCP for delay in realisation of local cheques, compensation at savings bank
interest rate has to be paid for the corresponding period of delay.
• Outstation Cheques: Maximum timeframe for collection of cheques drawn on state
capitals/major cities/other locations are 7/10/14 days respectively. If there is any delay in
collection beyond this period, customer is entitled to receive compensation at the rate
specified in the Cheque Collection Policy (CCP) of the concerned bank. In case the rate is not
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specified in the CCP, interest rate on Fixed Deposits for the corresponding maturity to be paid.
Banks' cheque collection policy also indicates the limit up to which outstation cheques are
given immediate/instant credit.

(2) Collection of Bills:

If a business has numerous bills he got from various debtors he may send these bills to his banker for
collection purposes. It should be remembered that, this is not discounting of a bill of exchange. The bill
is sent for safety and collection purposes. The bank keeps the bill in its custody till the due date and on
the due date, the bank will present the bill to acceptor. After collecting the amount, the bank transfers
the amount to the account of its customer (by giving credit to his account). The bank charges some
nominal fee from the customer for service he rendered

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(3) Electronic Clearing Services:

ECS is an electronic mode of payment / receipt for transactions that are repetitive and periodic in
nature. ECS is used by institutions for making bulk payment of amounts towards distribution of
dividend, interest, salary, pension, etc., or for bulk collection of amounts towards telephone /
electricity / water dues, cess / tax collections, loan instalment repayments, periodic investments in
mutual funds, insurance premium etc. Essentially, ECS facilitates bulk transfer of monies from one
bank account to many bank accounts or vice versa. In India, ECS includes transactions processed
under National Automated Clearing House (NACH) operated by National Payments Corporation of
India (NPCI).
Primarily, there are two variants of ECS - ECS Credit and ECS Debit.
ECS Credit is used by an institution for affording credit to a large number of beneficiaries (for
instance, employees, investors etc.) having accounts with bank branches at various locations within
the jurisdiction of a ECS Centre by raising a single debit to the bank account of the user institution.
ECS Credit enables payment of amounts towards distribution of dividend, interest, salary, pension,
etc., of the user institution.
ECS Debit is used by an institution for raising debits to a large number of accounts (for instance,
consumers of utility services, borrowers, investors in mutual funds etc.) maintained with bank
branches at various locations within the jurisdiction of a ECS Centre for single credit to the bank
account of the user institution. ECS Debit is useful for payment of telephone / electricity / water bills,
cess / tax collections, loan instalment repayments, periodic investments in mutual funds, insurance
premium etc., that are periodic or repetitive in nature and payable to the user institution by large
number of customers etc.
Based on the geographical location of branches covered, there are three broad categories of
ECS Schemes – Local ECS, Regional ECS and National ECS. These schemes are either operated by RBI
or by the designated commercial banks.
Local ECS – this is operating at 81 centres / locations across the country. At each of these ECS centres,
the branch coverage is restricted to the geographical coverage of the clearing house, generally
covering one city and/or satellite towns and suburbs adjoining the city.
Regional ECS – this is operating at 9 centres / locations at various parts of the country. RECS facilitates
the coverage all core-banking-enabled branches in a State or group of States and can be used by
institutions desirous of reaching beneficiaries within the State / group of States. The system takes
advantage of the core banking system in banks. Accordingly, even though the inter-bank settlement
takes place centrally at one location in the State, the actual customers under the Scheme may have
their accounts at various bank branches across the length and breadth of the State / group of States.
National ECS – this is the centralized version of ECS Credit which was launched in October 2008. The
Scheme is operated at Mumbai and facilitates the coverage of all core-banking enabled branches
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located anywhere in the country. This system too takes advantage of the core banking system in
banks. Accordingly, even though the inter-bank settlement takes place centrally at one location at
Mumbai, the actual customers under the Scheme may have their accounts at various bank branches
across the length and breadth of the country. Banks are free to add any of their core-banking-enabled
branches in NECS irrespective of their location.

DISTRIBUTION SERVICES:
Distribution is the process of making a product/service available for the consumer. It is one of the
vital components in marketing a product/service. In modern commercial banks, the banker apart
from the core functions distributes certain products which help commercial banks in earning
profitable revenue. Most of the services distributed by commercial banks are provided by many
financial institutions, but commercial banks serve to be a safe haven since it is directly controlled by
RBI. Some of the prominent services distributed by commercial banks are:
(1) Mutual Funds
A mutual fund is a company that pools money from many investors and invests the money in
securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are
known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part
ownership in the fund and the income it generates. Mutual funds offer consumers a great way to
access a professionally managed group of assets at a relatively low cost, with reasonable annual
expenses. Mutual funds can be purchased through any investment account which can be opened with
many different financial institutions, including banks. Banks have lower account balance
requirements than any brokerage firm, making investing a real possibility for more individuals. Also,
when you have a mutual fund with your bank, you can check on your balances and holdings as you do
your banking. You will also get your statements regarding the mutual fund when you get you bank
statement.
(2) Insurance Policies
Insurance companies tie up with banks to sell products because it is a low-cost distribution channel
and gives them access to a large customer base. In this partnership, bank staff and tellers become the
point of sale and point of contact for the customer. Bank staff are advised and supported by the
insurance company through wholesale product information, marketing campaigns and sales training.
The bank and the insurance company share the commission. Insurance policies are processed and
administered by the insurance company. This partnership arrangement can be profitable for both
companies. Banks can earn additional revenue by selling the insurance products, while insurance
companies are able to expand their customer base without having to expand their sales forces or pay
commissions to insurance agents or brokers.
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(3) Government Bonds, Gold Bonds etc.

A government bond a bond issued by a national government, generally with a promise to pay periodic
interest payments and to repay the face value on the maturity date. A bond is issued to raise funds for
a purpose and they are paid back after a specified period of time once the investment starts earning
returns. Government bonds are usually denominated in the country's own currency which are
referred as Government securities (G-Secs) or valued in terms of gold referred as Gold Bonds. The
popular Government Gold bond scheme issued in India are the Sovereign Gold Bond (SGB) Scheme
which are issued for the purpose of reducing the demand for real gold, but giving the customers the
benefit of investing in gold. Banks distribute and market these types of bonds generally issued by the
Government and the RBI, which gives them fairly good returns.

ADVISORY SERVICES:
Advisory services are provided by commercial banks to advice the customer on suitable investment
opportunity according to their creditworthiness. They serve to be professional advisors regarding
various investment options ranging from deposits to investments in shares, mutual funds etc. In this
function, banks hire financial, legal and market experts, who provide advices to customers in
regarding investment, industry, trade, income, tax etc. When customers are left with huge amount of
money in their account, they can be invested in company securities for capital appreciation or for
getting a good return. The banker will be able to advise customers about various investment
opportunities as he has the services of experts. They offer services to individuals, who could
effectively build up their wealth portfolio, also to small entrepreneurs who enter into any start-ups,
and to corporate and business professionals for structuring their huge capital portfolios. The function
of commercial banks is limited only to providing investment advice for a nominal commission.
Providing various investment products are done by investment banks.

OTHER SERVICES:
(1) Safe Deposit Vaults
Safe Deposit Vault or Safe Deposit Lockers are the facilities provided by banks to their customers to
keep their valuables. This facility is not offered through all bank branches and wherever the facility is
offered, allotment of safe deposit vault will be subject to availability and compliance with other terms
and conditions related to this service. Safe deposit lockers may be hired by an individual (a non-
minor) singly or jointly with another individual(s), HUFs, firms, limited companies, associates,
societies, trusts etc. Nomination facility is available to individual(s) holding the lockers singly or
jointly. In respect of lockers held in joint names, up to two nominees can be appointed. Joint locker
holders can give mandate for access to the lockers in the event of death of one of the holders which is
in similar lines to those for deposit accounts. In the absence of nomination or mandate for disposal of
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contents of lockers, with a view to avoid hardship to common persons, the bank will release the
contents of locker to the legal heirs against indemnity on the lines as applicable to deposit accounts.
Lockers / Return of Safe Custody Articles by banks:
The Committee on Procedures and Performance Audit on Public Services (CPPAPS) had made some
recommendations for easy operation of lockers. Banks have been advised by RBI to adhere to the
following guidelines with respect to issue and maintenance of Safe Deposit Lockers.
• Linking of Allotment of Lockers to placement of Fixed Deposits
RBI has advised banks to refrain from such restrictive practices such as linking the lockers facility
with keeping fixed or any other deposit beyond what is specifically permitted.
• Fixed Deposit as Security for Lockers
Banks may face situations where the locker-hirer neither operates the locker nor pays rent. To ensure
prompt payment of locker rent, banks may at the time of allotment, obtain a Fixed Deposit, which
would cover 3 years rent and the charges for breaking open, the locker in case of an eventuality.
However, banks should not insist on such Fixed Deposit from the existing locker-hirers.
• Wait List of Lockers
Branches should maintain a wait list for the purpose of allotment of lockers and ensure transparency
in allotment of lockers. All applications received for allotment of locker should be acknowledged and
given a wait list number. Banks are also advised to give a copy of the agreement regarding operation
of the locker to the locker-hirer at the time of allotment of the locker.
• Security aspects relating to Safe Deposit Lockers
Banks should exercise due care and necessary precaution for the protection of the lockers provided to
the customer. Banks should review the systems in force for operation of safe deposit vaults / locker at
their branches on an on-going basis and take necessary steps. The security procedures should be well
documented and the concerned staff should be properly trained in the procedure. The internal
auditors should ensure that the procedures are strictly adhered to. Customer due diligence for
allotment of lockers / measures relating to lockers which have remained inoperative. After
experiencing explosives and weapons found in a locker in a bank branch, banks should be aware of
the risks involved in renting safe deposit lockers. In this connection, banks should take following
measures:
1. Banks should carry out customer due diligence for both new and existing customers at least to
the levels prescribed for customers classified as medium risk. If the customer is classified in a
higher risk category, customer due diligence as per KYC norms applicable to such higher risk
category should be carried out.
2. Where the lockers have remained un-operated for more than three years for medium risk
category or one year for a higher risk category, banks should immediately contact the locker-
hirer and advise him to either operate the locker or surrender it. This exercise should be
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carried out even if the locker hirer is paying the rent regularly. Further, banks should ask the
locker hirer to give in writing, the reasons why he / she did not operate the locker. In case the
locker-hirer has some genuine reasons as in the case of NRIs or persons who are out of town
due to a transferable job etc., banks may allow the locker hirer to continue with the locker. In
case the locker-hirer does not respond nor operate the locker, banks should consider opening
the lockers after giving due notice to him. In this context, banks should incorporate a clause in
the locker agreement that in case the locker remains un operated for more than one year, the
bank would have the right to cancel the allotment of the locker and open the locker, even if the
rent is paid regularly.
3. Banks should have clear procedure drawn up in consultation with their legal advisers for
breaking open the lockers and taking stock of inventory.
4. If the sole locker hirer nominates a person banks should give to such nominee access of the
locker and liberty to remove the contents of the locker in the event of the death of the sole
locker hirer. In case the locker was hired jointly with the instructions to operate it under joint
signatures, and the locker hirer(s) nominates person(s), in the event of death of any of the
locker hirers, the bank should give access of the locker and the liberty to remove the contents
jointly to the survivor(s) and the nominee(s).
5. In case the locker was hired jointly with survivorship clause and the hirers instructed that the
access of the locker should be given over to ‘either or survivor’, ‘anyone or survivor’ or ‘former
or survivor’ or according to any other survivorship clause, banks should follow the mandate in
the event of the death of one or more of the locker-hirers.
However, banks should take the following precautions before handing over the contents:
1. Bank should exercise due care and caution in establishing the identity of the survivor(s) /
nominee(s) and the fact of death of the locker hirer by obtaining appropriate documentary
evidence;
2. Banks should make diligent effort to find out if there is any order from a competent court
restraining the bank from giving access to the locker of the deceased; and
3. Banks should make it clear to the survivor(s) / nominee(s) that access to locker/ safe custody
articles is given to them only as a trustee of the legal heirs of the deceased locker hirer i.e., such
access given to him shall not affect the right or claim which any person may have against the
survivor(s) / nominee(s) to whom the access is given.
1. Similar procedure should be followed for return of articles placed in the safe custody of the
bank. Banks should note that the facility of nomination is not available in case of deposit of safe
custody articles by more than one person.
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2. Banks should prepare an inventory before returning articles left in safe custody / before
permitting removal of the contents of a safe deposit. The inventory shall be in the appropriate
Forms prescribed by RBI from time to time.
Further, in case the nominee(s)/survivor(s)/legal heir(s) wishes to continue with the locker, banks
may enter into a fresh contract with nominee(s) / survivor(s) / legal heir(s) and also adhere to KYC
norms in respect of the nominee(s) / legal heir(s). Banks are not required to open sealed/closed
packets left with them for safe custody or found in locker while releasing them to the nominee(s) and
surviving locker hirers / depositor of safe custody article.

(2) Demat Account

Dematerialization is the process of converting physical shares into electronic format. A demat account
number is required to enable electronic settlements of all the trades. Demat account functions like a
bank account, where the customer can hold their money and respective entries are done in bank
passbook. In a similar form, securities too are held in electronic form and are debited or credited
accordingly. A demat account can be opened with no balance of shares. As it is difficult to hold shares
in physical forms because it involves a lot of paperwork, long process and risk of fake shares. So, for
simple and seamless trading and investing, Demat account is must to trade in India’s stock exchanges.
Although the Securities and Exchange Board of India (SEBI), has allowed trades of up to 500 shares to
be settled in physical form but this option is not preferable any more. A demat account holds the
certificates of financial instruments like shares, bonds, government securities, mutual funds etc. So, it
involves the process of converting physical shares into electronic form and credited to investor’s
demat account.
There are two types of demat accounts you can get for yourself:
• A repatriable demat account (NRE account),
• A non-repatriable demat account (NRO account)
Repatriable demat account
Repatriable funds refer to funds that can be transferred abroad. If you’re going to be moving your
money back to your country, you’ll need a special demat account that allows for such movement.
Repatriable funds are deposited in a separate bank account known as a Non-Resident External
Account (NRE account). The investments made using repatriable funds are managed through an
NRE demat account.
Non-repatriable demat account
On the other hand, if you hold non-repatriable funds (which cannot be taken abroad), these are
deposited in a different type of bank account known as a Non-repatriable account (NRO). To
trade or invest in non-repatriable funds, you will need to hold an NRO demat account.
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You can easily transfer your money from an NRE to NRO account. However, keep in mind that
once the funds are transferred, the repatriability of your funds is lost and thus you will not be
able to transfer them back to an NRE account.
NRE vs NRO Accounts
NRE Accounts NRO Accounts
Funds Funds generated in India cannot be All funds generated in India must
stored in an NRE account. mandatorily be stored here.
Joint Allowed - but only with another NRI. Allowed with both NRIs and Indian
Holdings residents.

How to Open a Demat Account?

• Then fill up an account opening form and submit along with copies of the required documents
and a passport-sized photograph. You also need to have a PAN card. Also carry the original
documents for verification.
• You will be provided with a copy of the rules and regulations, the terms of the agreement and
the charges that you will incur.
• During the process, an In-Person Verification would be carried out. A member of the DP’s staff
would contact you to check the details provided in the account opening form.
• Once the application is processed, the DP will provide you with an account number or client ID.
You can use the details to access your demat account online.
• As a demat account holder, you would need to pay some fees like the annual maintenance fee
levied for maintenance of account and the transaction fee -- levied for debiting securities to and
from the account on a monthly basis. These fees differ from every service provider (called a
Depository Participant or DP). While some DPs charge a flat fee per transaction, others peg the
fee to the transaction value, and are subject to a minimum amount. The fee also differs based
on the kind of transaction (buying or selling). In addition to the other fees, the DP also charges
a fee for converting the shares from the physical to the electronic form or vice-versa.
• Minimum shares: A demat account can be opened with no balance of shares. It also does not
require that a minimum balance be maintained.
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Documents Required for a Demat Account:

Documents required are proof of identity and address along with a passport size photograph and the
account opening form. Only photocopies of the documents are required for submission, but originals
are also required for verification.
Proof of identity: PAN card, voter's ID, passport, driver's license, bank attestation, IT returns,
electricity bill, telephone bill, ID cards with applicant's photo issued by the central or state
government and its departments, statutory or regulatory authorities, public sector undertakings
(PSUs), scheduled commercial banks, public financial institutions, colleges affiliated to universities, or
professional bodies such as ICAI, ICWAI, ICSI, bar council etc.
Proof of address: Ration card, passport, voter ID card, driving license, bank passbook or bank
statement, verified copies of electricity bills, residence telephone bills, leave and license agreement or
agreement for sale, self-declaration by High Court or Supreme Court judges, identity card or a
document with address issued by the central or state government and its departments, statutory or
regulatory authorities, public sector undertakings (PSUs), scheduled commercial banks, public
financial institutions, colleges affiliated to universities and professional bodies such as ICAI, ICWAI,
Bar Council etc.
Finally fill in the Demat Request Form (DRM), fill in the appropriate details of the share
certificates you hold, and submit it with the physical share receipt. Every share certificate needs a
separate DRM form. Once the form is approved, your demat account will automatically be updated to
reflect your newly dematerialized shares.
Benefits of Dematerialisation:
• Common Bank:
Dematerialization is not just for shares, but also for debt instruments like bonds. Now, you can hold all
your investments in a single account.
• Automatic Update:
Since this is a common account, you don’t have to keep giving all your details like addresses every
time you transact or every time you change the details. These details are automatically made available
to companies you transact with.
• Odd-Lot Problem:
Earlier, shares were transacted in lots. A single or odd number of securities could not be transacted.
This problem is now eliminated.
• Delivery Risks:
Dematerialization has also eliminated the risks of fake shares, thefts, deliveries gone wrong, and so on,
and reduced the paperwork involved. Time of delivery has also reduced drastically. Once your trade is
approved, the securities are automatically credited to your account. This applies to other company-
related activities like stock splits, stock bonuses, and so on.
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• Cost Reduction:
Earlier, when you transferred the securities, you incurred extra costs due to the stamp duty. This is
not a problem with the demat form.
• Easy To Hold:
Paper certificates are vulnerable to tears and damage. In contrast, the dematerialized or demat format
is a safe and convenient way to hold securities. You also have a nomination facility, whereby you can
facilitate a transfer of shares in the event of your demise.
(3) Collection and filing of taxes
Banks also provide services for the customers to collect and file their taxes both direct and indirect
taxes for nominal commission charged from the customer. Online filing of tax returns are done for
direct taxes including Tax deducted at Source (TDS), Tax Collected at Source (TCS), Income Tax,
Corporation Tax, Dividend Distribution Tax, Security Transaction Tax,Hotel Receipts Tax, Estate Duty,
Interest Tax, Wealth Tax, Expenditure Tax / Other direct taxes and Gift Tax, Fringe Benefits Tax,
Banking Cash Transaction Tax and all the indirect taxes.

Thus, the above mentioned Secondary/Non-core functions can also be grouped into Agency functions
and Utility Functions.
Agency functions include:
• To collect and clear cheques, dividends and interest warrant
• To make payments of rent, insurance premium, etc.
• To deal in foreign exchange transactions
• To purchase and sell securities
• To act as trustee, attorney, correspondent and executor
• To accept tax proceeds and tax returns.
Utility functions include:
• To provide safety deposit vault/locker facility to customers to keep their valuables.
• To provide money transfer facility
• To issue traveller's cheque
• To accept various bills for payment: phone bills, gas bills, water bills, etc.
• To provide various cards: credit cards, debit cards, smart cards, etc.