Description
Shareholdings of Banks in Detail
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Minimum Capital (Sec 11 BR Act) Banking Companies (Acquisition & Transfer of Undertaking) Act 1970 – authorized capital for public sector banks cannot be less than Rs. 1500 crores For Private sector bank – minimum capital is Rs. 200 crores – RBI guideline Cooperative Banks – Rs. 5 crores
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Minimum CAR is 9% comprising of Tier I, Tier II capital & unallocated reserves Tier I
? Paid up cap, statutory reserves, free reserves ? Capital reserves – surplus on sale of assets
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Tier II
? Undisclosed reserves ? Revaluation reserves ? General Provision & Loss reserve – max 1.25% of total risk weighted assets ? Hybrid Debt ? Subordinate Debt
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How much equity can foreign investors hold?
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10% of the paid-up capital of the banks established in India
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How many votes can Shareholders exercise for every share held by them? One vote wherever a pole is held on any proposed resolution in a general meeting of shareholders
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Is there a cap on the voting rights?
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No person can exercise more than 10% of the total voting rights of shareholders of a bank [Sec 12(2) BR Act]
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What is the purpose of such restrictions?
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To prevent any powerful person or a group from controlling management of a bank, which may not be in the interest of the financial health of the bank or in the interest of the depositors
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Exception? GOI wrt to holding of shares of pub sec banks
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In case of Cooperative Banks what is the norm? One vote 4 each shareholder irrespective of no. of shares held by him
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There are 2 categories of Directors of Banking Company Which are they?
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Whole-time Directors – CMD, MD, ED, etc
? Under Sec 10.1(c)(iii) of BR Act they can hold office for a maximum of 5 years at a time ? Their term can be renewed for further period of 5 years each
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Part-time Directors
? They cannot hold office for consecutive periods exceeding 8 years
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Sec 10-A(2) of BR Act stipulates that not less than 51% of the total number of directors of a banking company should consist of persons who are
? professionals ? persons having knowledge or experience of
? ? ? ? ? ? ? ? accountancy, agricultural & rural economy, banking, cooperation, economics, finance, law, small scale sector, etc.
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None of the above should have substantial interest (i.e. should not hold more than 10% of the capital, either singly or along with his spouse & minor child) in any company (except a company registered under Sec 25 of Companies Act 1956) or a firm (except an SSI firm)
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A person already on the board of a banking company cannot be appointed as a director of another banking company
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Banking company incorporated in India cannot have on its board more than 3 persons who are directors of companies,
which are entitled to exercise more than
20% of the total voting rights of all shareholders of the banking company (Sec 16 of BR Act)
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Management of the Bank rests with the Board of Directors Board has to be constituted in compliance with the provisions of Sec 10 of BR Act
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One director has to be appointed as Chairman of the Board If Chairman is a whole-time director, entrusted with the management of the Bank, subject to superintendence, control & direction of Board If Chairman is part-time, then the management of the bank is entrusted with a Managing Director What is the term of a whole-time Chairman or whole-time Managing Director?
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If RBI finds a whole-time Chairman or whole-time Managing Director not fit and proper to hold such office, it may require the bank to elect or appoint any other person whole-time Chairman or Managing Director within 2 months Can you cite an example of such sacking of wholetime Chairman?
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Such sacked whole-time Chairman/ MD can appeal to Central Government within 1 month The decision of Central Government & the order of RBI cannot be challenged any court.
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Under Sec 10-BB of BR Act, if the position of whole-time director is vacant, RBI may fill such vacancy 4 a term not exceeding three years If such person is not a director of a Bank, the person is deemed to have been elected till in office
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Under Sec 20 of BR Act, none of the directors of a bank, the company in which they hold substantial interest, their firms, partners, employers can be sanctioned any loan or advances by the bank.
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No Director can stand as a guarantor to a loan or advance by the bank
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Under Sec 5(b) of BR Act, Banking means what? Accepting 4 the purpose of lending or investing of deposits of money received 4m public payable on demand or otherwise and withdrawal by cheque, draft, order or otherwise pg 30
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Only a firm or a company is permitted to act as Bank Individual cannot use Banking term in his name Firm of not more than 10 partners & a company (under Cos Act) can be a Bank Moneylenders are not bankers. Bankers do not include Indian moneylenders or mahajans or Saukars or Shettys
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Acceptance of deposits for the purpose of lending & investment financing
Companies accepting deposits for the purpose of financing their trading & manufacturing?? The deposit should be accepted from public i.e. Nidhi & multi benefit societies which accept deposit from their members?? Cooperative credit societies??
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Acceptance should be in money Bank obtain large funds from depositors? The depositors do not have any control over the banks Banks have to accept deposits from public & not from members only Acceptance should be for the purpose of lending and investment
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Important functions of Bank covered under section 6 of BR Act
? ? ? ? ? ? ? Discounting of bills Collection of cheques & bills Remittances Safe custody of articles Hiring safe deposit lockers Conducting Forex Transactions Conducting Government Transactions
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Who is a Customer?
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Anyone conducting banking transactions with a bank – individual, group, firm, company, trust, institution, government, semi-government, local government, self government
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Banker-customer relationship arises from the above services rendered by banks to its customers. The relationship varies depending on the services.
? Debtor – Creditor ? Creditor – Debtor ? Trustee(cust keeping valuables /securities/deposits money 4 purpose) ? Bailee – Bailor (safe custody) ? Agent – Principal(payment of bills) ? Lessor – Lessee(safe deposit lockers) ? Consultant ? Trustee & Beneficiary
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Obligation to pay Cheques
? Statutory obligation – having sufficient funds for payment, if there is balance which is free of encumbrances like lien, uncleared cheques, etc., ? In case of failure – must compensate (Sec 31 of NI Act) ? Above obligation is not unconditional
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Obligation to Maintain Secrecy of Account
? Statutory obligation ? In case of failure – liable to compensate ? Above obligation is qualified but not absolute
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An institution accepting deposits for the purpose other than lending & investment can be called a Bank? pg 64 Deposit should be repayable _______. The deposit may be withdrawable by cheque, draft order or otherwise
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Which are types of Deposits?
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Which are types of Deposits?
? Demand Deposits – payable on demand ? Time Deposits – payable after certain time mutually agreed upon
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Demand Deposits – withdrawable by cheque/ withdrawal slip or even a simple letter containing instruction. Transfer of funds from accounts can be done by TT/ MT/ DD/ PO, etc. Time Deposits ??
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Time Deposits – discharging the receipts on maturity date. Time Deposits can be withdrawn before maturity date only with Bank?s consent
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Commercial Banks Lend money by way of:
? ? ? ? ? Overdraft Demand Loans Term Loans Cash Credits Purchase or discounting of bills, etc.
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For what purpose?
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Financing
? ? ? ? Trade, commerce, industry or any other business activity
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Banks mostly lend against security. Security like??
Goods Book debts Land & building Machinery Livestock Shares, etc. When loans are given against security, it is known as secured Advance
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Negotiable Instruments Act 1881 NI occupy an important position in the operations of a bank. Examples of negotiable instruments -
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Promissory Notes, Bills of Exchange, cheques payable either to order to bearer
? Easily
transferable. Converse not true. Eg.
? The
property in NI can be transferred by mere delivery of instrument if it is bearer or by order
? The
title in a NI can be transferred – free from defect. Eg
? Liability
is extensive. Eg
? They
are either bearer or to order
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What is negotiation?
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Where a bill of exchange, promissory note or cheque is transferred to any person, the instrument is said to be negotiated. Negotiation implies transfer by endorsement and delivery if payable to order or by delivery if payable to bearer
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Sec 5 NI Act An instrument in writing containing
? ? ? ? ? ? an unconditional order signed by the maker, directing some certain person to pay certain sum of money to a certain person or to the order of that certain person or the bearer of the instrument
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Maker of BoE – Drawer Person Directed to pay – Drawee Person named in instrument – Payee Name in addition to Drawee in case on endorsement – Drawee in case of need Acceptor – Drawee on giving assent
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Sec 6 NI A bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand
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Negotiability
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Payability
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Tripartite – Drawer, Drawee, Payee
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Unconditionality
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Monetary nature
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Certainty
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Payee certain
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To order or bearer
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Drawee – Cheque – Banker; BoE – not necessary
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Payability: Cheque – on Demand; BoE – on Demand or payable on future date
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Maturity: BoE – 3 days grace; Cheque – on Demand – no grace
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Crossing: Cheques – can be; BoE - never
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Notice of Dishonour: Cheques – no notice; BoE – notice to all concerned parties
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When a cheque is crossed, the banker on whom it is drawn, shall pay the amount thereof only to a banker. Crossing reduces the risk of the proceeds going into wrong hands – having no title
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General Crossing Sec 123 NI Act Where a cheque bears across its face in addition of the words “& „Company?” or any abbreviation thereof, between two parallel transverse lines or two parallel transverse lines simply, either with or without the words “not negotiable” that shall be deemed a crossing and the cheque shall be deemed to be crossed generally
& Company
Account Payee
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Not Negotiable Crossing: Sec 130 Special Crossing Sec 124 NI Act State Bank of India
Account Payee – SBI
Not Negotiable - SBI
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Sec 125 Where cheque is not crossed – holder can cross it generally or specifically Where a cheque is crossed generally – holder can cross it specifically Where a cheque is crossed generally or specifically– holder can add “Not Negotiable”
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Only the Drawee – by writing “Crossing canceled pay cash” across the cheque and authenticate it with the full signature
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A person entitled in his/ her own name the possession of promissory note and to receive or recover the amount due thereon from the parties thereto. Finder of Lost cheque is NOT a holder
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When the holder of a negotiable instrument signs the same for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto, he or she is said to be endorse the same and is called an endorser
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Endorsement in Blank – in effect making it bearer Endorsement in full – to certain person. By specifying the name, the endorser guarantees that at the time the cheque left the his/ her hands it was of good title and the instrument was genuine in all respects Conditional endorsement(happening of some event) Restrictive endorsement(negotiation is restricted)
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Paying Banker is the banker who makes the payment of cheque drawn by a customer or Drawee
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Payment of cheques – duty bound to honour subject to:
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Payment of cheques – duty bound to honour subject to:
? Should be legal cheque ? Balance in account should permit
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Precautions to be taken
? ? ? ? ? ? ? ? ?
Open or Crossed Payment at the branch where the account stands Mutilated cheques Correctness of form Post-dated Stale Amount in words & Figures should tally Payment within Banking hours Alteration – In case of forgery – bank liable for payment
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Precautions to be taken
? Computation of balance – in case there are 2 cheques being presented and there is not sufficient balance to pay both, the bank should honour the cheque with lower amount
?
Precautions to be taken
? Computation of balance ? Endorsements – bearer or blank endorsements ? Forged Signature
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Payment in due course – payment in accordance with apparent tenor of the instrument in good faith and without negligence.
? Apparent Tenor ? Payment in Good faith ? Bona fides
doc_565741875.pptx
Shareholdings of Banks in Detail
?
?
?
?
Minimum Capital (Sec 11 BR Act) Banking Companies (Acquisition & Transfer of Undertaking) Act 1970 – authorized capital for public sector banks cannot be less than Rs. 1500 crores For Private sector bank – minimum capital is Rs. 200 crores – RBI guideline Cooperative Banks – Rs. 5 crores
?
?
Minimum CAR is 9% comprising of Tier I, Tier II capital & unallocated reserves Tier I
? Paid up cap, statutory reserves, free reserves ? Capital reserves – surplus on sale of assets
?
Tier II
? Undisclosed reserves ? Revaluation reserves ? General Provision & Loss reserve – max 1.25% of total risk weighted assets ? Hybrid Debt ? Subordinate Debt
?
How much equity can foreign investors hold?
?
10% of the paid-up capital of the banks established in India
?
?
How many votes can Shareholders exercise for every share held by them? One vote wherever a pole is held on any proposed resolution in a general meeting of shareholders
?
Is there a cap on the voting rights?
?
No person can exercise more than 10% of the total voting rights of shareholders of a bank [Sec 12(2) BR Act]
?
What is the purpose of such restrictions?
?
To prevent any powerful person or a group from controlling management of a bank, which may not be in the interest of the financial health of the bank or in the interest of the depositors
?
Exception? GOI wrt to holding of shares of pub sec banks
?
?
In case of Cooperative Banks what is the norm? One vote 4 each shareholder irrespective of no. of shares held by him
?
There are 2 categories of Directors of Banking Company Which are they?
?
?
Whole-time Directors – CMD, MD, ED, etc
? Under Sec 10.1(c)(iii) of BR Act they can hold office for a maximum of 5 years at a time ? Their term can be renewed for further period of 5 years each
?
Part-time Directors
? They cannot hold office for consecutive periods exceeding 8 years
?
Sec 10-A(2) of BR Act stipulates that not less than 51% of the total number of directors of a banking company should consist of persons who are
? professionals ? persons having knowledge or experience of
? ? ? ? ? ? ? ? accountancy, agricultural & rural economy, banking, cooperation, economics, finance, law, small scale sector, etc.
?
None of the above should have substantial interest (i.e. should not hold more than 10% of the capital, either singly or along with his spouse & minor child) in any company (except a company registered under Sec 25 of Companies Act 1956) or a firm (except an SSI firm)
?
A person already on the board of a banking company cannot be appointed as a director of another banking company
?
Banking company incorporated in India cannot have on its board more than 3 persons who are directors of companies,
which are entitled to exercise more than
20% of the total voting rights of all shareholders of the banking company (Sec 16 of BR Act)
?
?
Management of the Bank rests with the Board of Directors Board has to be constituted in compliance with the provisions of Sec 10 of BR Act
?
?
?
?
One director has to be appointed as Chairman of the Board If Chairman is a whole-time director, entrusted with the management of the Bank, subject to superintendence, control & direction of Board If Chairman is part-time, then the management of the bank is entrusted with a Managing Director What is the term of a whole-time Chairman or whole-time Managing Director?
?
If RBI finds a whole-time Chairman or whole-time Managing Director not fit and proper to hold such office, it may require the bank to elect or appoint any other person whole-time Chairman or Managing Director within 2 months Can you cite an example of such sacking of wholetime Chairman?
?
?
Such sacked whole-time Chairman/ MD can appeal to Central Government within 1 month The decision of Central Government & the order of RBI cannot be challenged any court.
?
?
?
Under Sec 10-BB of BR Act, if the position of whole-time director is vacant, RBI may fill such vacancy 4 a term not exceeding three years If such person is not a director of a Bank, the person is deemed to have been elected till in office
?
Under Sec 20 of BR Act, none of the directors of a bank, the company in which they hold substantial interest, their firms, partners, employers can be sanctioned any loan or advances by the bank.
?
No Director can stand as a guarantor to a loan or advance by the bank
?
?
Under Sec 5(b) of BR Act, Banking means what? Accepting 4 the purpose of lending or investing of deposits of money received 4m public payable on demand or otherwise and withdrawal by cheque, draft, order or otherwise pg 30
?
?
?
?
?
Only a firm or a company is permitted to act as Bank Individual cannot use Banking term in his name Firm of not more than 10 partners & a company (under Cos Act) can be a Bank Moneylenders are not bankers. Bankers do not include Indian moneylenders or mahajans or Saukars or Shettys
?
Acceptance of deposits for the purpose of lending & investment financing
Companies accepting deposits for the purpose of financing their trading & manufacturing?? The deposit should be accepted from public i.e. Nidhi & multi benefit societies which accept deposit from their members?? Cooperative credit societies??
?
?
?
? ? ?
?
?
Acceptance should be in money Bank obtain large funds from depositors? The depositors do not have any control over the banks Banks have to accept deposits from public & not from members only Acceptance should be for the purpose of lending and investment
?
Important functions of Bank covered under section 6 of BR Act
? ? ? ? ? ? ? Discounting of bills Collection of cheques & bills Remittances Safe custody of articles Hiring safe deposit lockers Conducting Forex Transactions Conducting Government Transactions
?
Who is a Customer?
?
Anyone conducting banking transactions with a bank – individual, group, firm, company, trust, institution, government, semi-government, local government, self government
?
Banker-customer relationship arises from the above services rendered by banks to its customers. The relationship varies depending on the services.
? Debtor – Creditor ? Creditor – Debtor ? Trustee(cust keeping valuables /securities/deposits money 4 purpose) ? Bailee – Bailor (safe custody) ? Agent – Principal(payment of bills) ? Lessor – Lessee(safe deposit lockers) ? Consultant ? Trustee & Beneficiary
?
Obligation to pay Cheques
? Statutory obligation – having sufficient funds for payment, if there is balance which is free of encumbrances like lien, uncleared cheques, etc., ? In case of failure – must compensate (Sec 31 of NI Act) ? Above obligation is not unconditional
?
Obligation to Maintain Secrecy of Account
? Statutory obligation ? In case of failure – liable to compensate ? Above obligation is qualified but not absolute
?
?
?
An institution accepting deposits for the purpose other than lending & investment can be called a Bank? pg 64 Deposit should be repayable _______. The deposit may be withdrawable by cheque, draft order or otherwise
?
Which are types of Deposits?
?
Which are types of Deposits?
? Demand Deposits – payable on demand ? Time Deposits – payable after certain time mutually agreed upon
?
?
Demand Deposits – withdrawable by cheque/ withdrawal slip or even a simple letter containing instruction. Transfer of funds from accounts can be done by TT/ MT/ DD/ PO, etc. Time Deposits ??
?
Time Deposits – discharging the receipts on maturity date. Time Deposits can be withdrawn before maturity date only with Bank?s consent
?
Commercial Banks Lend money by way of:
? ? ? ? ? Overdraft Demand Loans Term Loans Cash Credits Purchase or discounting of bills, etc.
?
For what purpose?
?
Financing
? ? ? ? Trade, commerce, industry or any other business activity
? ?
Banks mostly lend against security. Security like??
Goods Book debts Land & building Machinery Livestock Shares, etc. When loans are given against security, it is known as secured Advance
? ?
?
Negotiable Instruments Act 1881 NI occupy an important position in the operations of a bank. Examples of negotiable instruments -
?
Promissory Notes, Bills of Exchange, cheques payable either to order to bearer
? Easily
transferable. Converse not true. Eg.
? The
property in NI can be transferred by mere delivery of instrument if it is bearer or by order
? The
title in a NI can be transferred – free from defect. Eg
? Liability
is extensive. Eg
? They
are either bearer or to order
?
What is negotiation?
?
?
Where a bill of exchange, promissory note or cheque is transferred to any person, the instrument is said to be negotiated. Negotiation implies transfer by endorsement and delivery if payable to order or by delivery if payable to bearer
?
?
Sec 5 NI Act An instrument in writing containing
? ? ? ? ? ? an unconditional order signed by the maker, directing some certain person to pay certain sum of money to a certain person or to the order of that certain person or the bearer of the instrument
? ? ? ?
?
Maker of BoE – Drawer Person Directed to pay – Drawee Person named in instrument – Payee Name in addition to Drawee in case on endorsement – Drawee in case of need Acceptor – Drawee on giving assent
? ?
Sec 6 NI A bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand
?
Negotiability
?
Payability
?
Tripartite – Drawer, Drawee, Payee
?
Unconditionality
?
Monetary nature
?
Certainty
?
Payee certain
?
To order or bearer
?
Drawee – Cheque – Banker; BoE – not necessary
?
Payability: Cheque – on Demand; BoE – on Demand or payable on future date
?
Maturity: BoE – 3 days grace; Cheque – on Demand – no grace
?
Crossing: Cheques – can be; BoE - never
?
Notice of Dishonour: Cheques – no notice; BoE – notice to all concerned parties
?
?
When a cheque is crossed, the banker on whom it is drawn, shall pay the amount thereof only to a banker. Crossing reduces the risk of the proceeds going into wrong hands – having no title
?
?
?
General Crossing Sec 123 NI Act Where a cheque bears across its face in addition of the words “& „Company?” or any abbreviation thereof, between two parallel transverse lines or two parallel transverse lines simply, either with or without the words “not negotiable” that shall be deemed a crossing and the cheque shall be deemed to be crossed generally
& Company
Account Payee
? ?
Not Negotiable Crossing: Sec 130 Special Crossing Sec 124 NI Act State Bank of India
Account Payee – SBI
Not Negotiable - SBI
? ? ?
?
Sec 125 Where cheque is not crossed – holder can cross it generally or specifically Where a cheque is crossed generally – holder can cross it specifically Where a cheque is crossed generally or specifically– holder can add “Not Negotiable”
?
Only the Drawee – by writing “Crossing canceled pay cash” across the cheque and authenticate it with the full signature
?
?
A person entitled in his/ her own name the possession of promissory note and to receive or recover the amount due thereon from the parties thereto. Finder of Lost cheque is NOT a holder
?
When the holder of a negotiable instrument signs the same for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto, he or she is said to be endorse the same and is called an endorser
?
?
?
?
Endorsement in Blank – in effect making it bearer Endorsement in full – to certain person. By specifying the name, the endorser guarantees that at the time the cheque left the his/ her hands it was of good title and the instrument was genuine in all respects Conditional endorsement(happening of some event) Restrictive endorsement(negotiation is restricted)
?
Paying Banker is the banker who makes the payment of cheque drawn by a customer or Drawee
?
Payment of cheques – duty bound to honour subject to:
?
Payment of cheques – duty bound to honour subject to:
? Should be legal cheque ? Balance in account should permit
?
Precautions to be taken
? ? ? ? ? ? ? ? ?
Open or Crossed Payment at the branch where the account stands Mutilated cheques Correctness of form Post-dated Stale Amount in words & Figures should tally Payment within Banking hours Alteration – In case of forgery – bank liable for payment
?
Precautions to be taken
? Computation of balance – in case there are 2 cheques being presented and there is not sufficient balance to pay both, the bank should honour the cheque with lower amount
?
Precautions to be taken
? Computation of balance ? Endorsements – bearer or blank endorsements ? Forged Signature
?
Payment in due course – payment in accordance with apparent tenor of the instrument in good faith and without negligence.
? Apparent Tenor ? Payment in Good faith ? Bona fides
doc_565741875.pptx