Banking theory law & Practice Unit II.ppt

RELATIONSHIP BETWEEN BANKER AND CUSTOMER -
GENERAL AND SPECIAL RELATIONSHIP -
SPECIAL TYPES OF CUSTOMERS - CLASSIFICATION AND NATURE - DEPOSIT ACCOUNT -
SAVING BANK DEPOSIT ACCOUNT -
CURRENT DEPOSIT ACCOUNT - FIXED DEPOSIT ACCOUNT - RECURRING DEPOST ACCOUNT - OPENING AND CLOSING OF A BANK ACCOUNT - Different Forms Used in Banks - PROS AND CONS OF MULTIPLE BANK ACCOUNTS - PASS BOOK - COMMON MISTAKES THAT OCCUR IN THE PASS BOOK

1. SRM INSTITUTE OF SCIENCE AND
TECHNOLOGY
DEPARTMENT OF COMMERCE
CLASS : I BCOM G & H
COURSE CODE : UCM20201J
COURSE NAME : BANKING LAW & PRACTICES
UNIT II
DR.S.MANI

2. RELATIONSHIP BETWEEN BANKER AND CUSTOMER GENERAL AND SPECIAL RELATIONSHIP
Q. WHAT IS THE RELATIONSHIP BETWEEN BANKER AND CUSTOMER?
Abankerrendersanumberofservicestohiscustomer.Therelationshipbetweenthemprimarilyisthatofa
creditorandadebtor.Abankeralsoactsasanagentortrusteeofhiscustomerifthelatterentruststheformer
withagencyortrustwork.Insuchcases,thebankeractsasadebtor,anagentandatrustee
simultaneouslybutinrelationtothespecifiedbusiness.
1. General Relationship
Debtor and Creditor:
Anessentialrelationshipbetweenabankerandacustomeristhatofadebtorandacreditor.Wherethecustomer
hasacreditbalanceinhisaccount,thecustomeristhecreditorandbankeristhedebtor.Converselywherethe
customerhasadebitbalanceinhisaccount,thecustomeristhedebtorandbankeristhecreditor.
Trustee and Beneficiary
Trusteeandbeneficiaryisanotherimportanttypeofrelationshipbetweenthebankerandthecustomer.Wherethe
bankermaintainsthedepositbalancesofcustomersandallowsthemtousethosedepositmoneyaspertheirwish
heissaidtobeactingasatrusteeofthecustomer.Similarly,wherethebankeracceptssecuritiesandother
valuablesforsafecustody,hebecomesthetrusteeandthecustomerbecomesthebeneficiary.
Agent and Principal
Abankeressentialactsasanagentofacustomerashecarriesouttheagencyfunctionssuchas
collectionofcheques,billofexchange,paymentofinsurancepremiumetc.

3. 2. Special Relationship
Assignor and Assignee
Wheneverabankgivesloanagainstlifeinsurancepolicyorbookdebtsorsupplybills,thebankeristheassigneeand
thecustomersistheassignor.Thusassignmentisdonebycustomerswhentheytakeloanagainstinsurancepolicyor
bookdebts.
Bailer and Bailee
Thebankerwillactasabaileeonlywhengoodsareentrustedtohimforaspecificpurpose.Thecustomer
isthebailer.Anyexpensesincurredtowardsmalignanceofthesecurityorgoodshavetobornebythecustomer.But
thegoodskeptinthesafedepositvaluewillnotcomeunderbailment.
Banker as Agent and Advisor
Whenabankerorsellssecuritiesonbehalfofhiscustomerandrendersotherservices,heisactingasanagentofhis
customer.Similarlywhenhecollectscheques,dividends,billorpromissorynotesonbehalfofhiscustomerthe
bankerisactingasagentofthecustomerconcerned.
Pledger and Pledge
Therelationshipbetweencustomerandbankercanbethatofpledgerandpledge.Thishappenswhencustomer
pledge(Promises)certainassetsorsecuritywiththebankinordertogetaloan.Inthiscase,thecustomer
becomesthepledger,andthebankbecomesthepledge.Underthisagreement,theassetsorsecuritywillremainwith
thebankuntilacustomerrepaystheloan.
The nature of relationship between the banker and the customer can be explained as follows

4. SPECIAL TYPES OF CUSTOMERS Q.EXPLAIN THE SPECIAL TYPES OF ACCOUNTS & CUSTOMERS.
Openingofabankaccountisaspecialtypeofcontract.Somepersonsliketheminors,lunaticsanddrunkard
arenotcompetenttoenterintoavalidcontract.Somepersonactsonbehalfofotherhavelimitationontheirpowerto
contract.Institutionslikeschools,colleges,clubssocietiesandcorporatebodiesarethepersonalcustomersofabanker.
Whiledealingwiththesepersons,aspecialcaseonthepartofthebankerisnecessary.Sotheyarecalledspecialtype
ofaccountsandtheaccountholdersarecalledasaspecialtypeofcustomers.
1. Minor
Apersonwhohasnotcompleted18yearsofageisaminor.Ifaguardianofhispersonorpropertyisappointedbythe
courtbeforehecompetes18
th
year.Heremainsminortillhecompleteshis21
st
year.AccordingtotheIndian
contractact1872aminorisnotcapableofenteringintoavalidcontractandacontractenteredintobyaminorisvoid.
Acontractforthesupplyofnecessariesoflifetoaminorishowevenavalidcontract.
Nature Guardianship of Minor
Theguardianofminormaybeeither(i)anaturalguardianor(ii)atestamentaryguardianor(iii)aguardian
appointedbythecourt.
(i)Natural Guardian
Accordingtosection6oftheHinduminorityandguardianshipact1956,incaseofaminorboyoranunmarriedgirl,
his/herfatherandafterhimthemothershallbethenaturalguardian.Incaseofamarriedgirl(minor),herhusband
shallbethenaturalguardian.Ifthefatherisaliveandisnotremovedfromguardianshipthemotherdoesnotbecomes
thenaturalguardianofherminorchild.

5. (ii)Testamentary Guardian
AHindufatherwhoisentitledtoactthenaturalguardianofhisminorlegitimatechildrenmaybywill
appointaguardianforanyoftheminrespectoftheminor’spersonorproperty.Suchguardianactsafterthedeathof
thefatherorthemother
(iii)Guardian Appointed by Court
Aguardianmaybeappointedbythecourtundertheguardianandwardsact1890,butthecourtshallnotbe
authorizedtoappointsordeclareaguardianofthepersonofaminor,ifhisfatherisaliveandisnot,intheopinion
ofaminor.
2.Married Women
Amarriedwomeniscompetententerintoavalidcontract.Thebankermaytherefore,openanaccountinthenameofa
married.Incaseofdebttakenbyamarriedwoman,herhusbandshallnotbeliableexceptinthefollowing
circumstances
(i)If the loan is taken with his consent or authority and
(ii)If the debt is taken for the supply of necessaries of life to the wife in any other circumstance. The
creditor may in that case recover his debt out of the personal assets of the married women

6. 3.Illiterate Persons
Illiteratepersonscannotsigntheirnamesandhencethebankerstaketheirthumbimpressionsasa
substituteforsignatureandalsoacopyoftheirrecentphotograph.Theapplicationformandthephotograph
shouldbeattestedbyanapprovedwitness.Forwithdrawingmoney,hemustattendpersonallyandaffixthumbs
impressioninthepresenceofanofficialofthebankforthepurposeofidentification
4.Trustees
Thepersonwhoreposestheconfidenceiscalledtheauthorofthetrust.Trusteeisthepersoninwhomthe
confidenceisreposed.Thepersonforwhosebenefitthetrustisformediscalledthebeneficiary.Atrustisusually
formedbymeansofadocumentcalledthe“trustdeed”whileopeninganaccountinthenamesof
personsintheircapacityastrusteesthebankershouldtaketheprecautions.
5.Executors and Administrators
Thesearepersonswhoareappointedtoconducttheaffairsofapersonafterhisdeath.Whenapersonknownas
testatorappointsanotherpersonforthispurposethroughawillheisknownasanexecutor.Ifthepersonappointed
asexecutordiesorrefusestoactthecourtappointsapersonforthepurposethatisknownasadministrator.Both
theexecutorandtheadministratorperformthesamedutiesi.e.torealizetheassetsofthedeceasedandtopayoff
hisdebts.Theexecutorisappointedbythewill.Hisispowerandauthoritiesarevestedtherein.Hehastoact
accordingtoobtainaprobate(officialconfirmationofthewill)fromthecourt.Theadministratoris
appointedbythecourtthroughaletterofadministrationandisdirectedintheabsenceofthewilltosettlethe
affairsaccordingtotheprovisionofthelaw.

7. 6.Customer’s Attorney
Acustomermayappointanattorneytodealwithhisbankaccount.Thepowerofattorneyisageneralnoticeandan
authorityforhispurpose.Itisdifferentfromanordinarymandateauthorizingapersontooperatehisbankaccount.
Thepowerofattorneymaybeeitherspecialofgeneral.Intheformercasethepersonsoauthorizedget
powersinregardtocertainmattersonlye.g.saleorpurposeofpropertyetc.incaseofthegeneralpower
ofattorneythegrantorofsuchpowerauthorizestheotherpersongenerallytoactonhibehalfinallmatters
concerninghisbusiness.
7.Clubs, Societies and Charitable Institutions
Clubs,societies,charitableandreligioninstitutions,librariesschoolsetcnotengagedinservicetothepublic.These
associationsmayberegisteredunderthesocietiesregistrationactortheIndiancompaniesact.
8.Pardanashin Women
APardanashinwomanobservescompleteseclusioninaccordancewiththecustomofherowncommunity.
Shedoesnotdealwiththepeopleotherthanthemembersofherownfamily.Assheremainscompletely
secludedapresumptioninlawexiststhat
(i)Any contract entered into by her might have been subject to undue influence and
(ii)The same might not have been made with her free will and with full understanding of what the
contract actually means
Thus a contract entered into by a pardanaship woman is not a contract free from all defects. The banker
should therefore take due precaution in opening an account in the name of a pardanashin women

8. 9. Hindu Family
Ajointfamilypossessesancestralpropertiesandcarriesanancestralbusinesstheownershipofsuch
propertypassesontothemembersofthefamilyaccordingtotheHindulawwhiledealingwiththeaccountofa
jointHindufamilyandgrantingitaloanthebackerisnaturallyfacedwithadifficulttaskofascertainingrightsof
themembersofthejointfamily.
10.Joint Stock Companies
Thecapitalofjointstockcompaniesisdividedintoshares.Peoplewhopurchasetherearethepropertiesofthe
companiesconcerned.Butajointstockcompanyisaseparatelegalentity.Ithasaseparatelegalexistence
apartfromthatoftheshareholders.Althoughsomeshareholdersmaydieorbecomebankingthecompany
isnotdissolved.
11.Partnership
Apartnershipis“therelationbetweenpersonswhohaveagreedtosharetheprofitsofabusiness,carriedonbyallor
anyofthemactingforall”.Therearenolegalformalitiesforstartingapartnershipfirm.Registrationinnot
compulsory.Theagreementofthepartnersneednotnecessarilybeinwriting.Itmaybeoralorwritten.There
shouldnotbemorethan10partnersinafirmdoingbankingbusinessandnotmorethan10peopleinafirmdoing
andotherkindofbusiness.Apartnershiphasnoseparateexistenceofitsownfromtheexistenceofthepartners.

9. 12.Joint Account
Whenanaccountisopenedinthenameoftwoormorepersons,whoarenotpartnerinafirmorwhoarenot
jointtrustees.Itiscalledajointaccount.Whenajointaccountisopenedthebankershouldobtain
comprehensivemandate.Themandateshouldcoverallpointsbecausetherighttodrawchequesconferred
uponapersondoesnotautomaticallyconferuponhimtherighttodealinsecurities,tocontractdebts,orto
dealinbillofexchange.Ifoneofthejointaccountholdersobtainsanoverdrafttheotherdoesnothaveany
liability.
13.Drunken Persons
Adrunkardisapersonwhoisundertheinfluenceofalcoholicdrinksordrugsandstandonthe
samefootingasalunatic.Whencustomerpresentshisownchequeswhenheisdrunk,thebankshouldnot
makeimmediatepayment.
14.Lunatics
lunaticisapersonofanunsoundmindandhenceheisincompetenttoenterintoavalidcontractunderthe
Indiancontractact1872sincealunaticdoesnotunderstandwhatisrightandwhatiswrongand
henceacontractenteredintobyhiminvoid.

10. CLASSIFICATION ANDNATURE
DEPOSIT ACCOUNT

11. Q.DESCRIBE THE CLASSIFICATION AND NATURE DEPOSIT ACCOUNT.
The banker have introduced with deferent type of accounts can be divided into three types namely.
Saving bank deposit account
Current deposit account and
Fixed deposit account
Recurring deposit account
SAVING BANK DEPOSIT ACCOUNT
Q. WRITE A NOTE ON SAVING BANKS DEPOSIT ACCOUNT.
Thedepositsaremostlyofsmallamountandareacceptedbybankstoencouragepersonsofsmallmeansof
savings.Frequentwithdrawalsarenotallowedandinterestisgenerallyallowedonmonthlybalance.Thecheque
facilityisalsoavailableincasethedepositorsagreetomaintainaminimumbalance.
Q. WHAT ARE THE FEATURES OF SAVING BANK DEPOSIT ACCOUNT?
These accounts are intended to cater of the requirement of low income and middle class families who are having
regular income.
The banks mop up the saving of people through the savings bank account. That is the basic objective of saving bank
accounts is developing the savings habit among people.
Any person can open a savings bank account with as little as rupees
Payment of interest: savings bank balances carry some interest. At present interest allowed on these
accounts in 45 %. This is more attractive than the current account where virtually no interest is paid.
A depositor can withdraw as small a sum Rs.10/-

12. Restrictions on withdrawals: in pursuance of the objective of the savings bank account, bank imposes
restriction on the right of the depositor to withdraw money within a given period
If the banker is satisfied the customer can get the use of cheque book facility
Accounts can be opened in the individual or joint names of depositors. Accounts can also be opened and operated by
minors, provided they have completed 14 years of age and have the power of understanding
Savings bank accounts can be transferred from one branch to another at the request of the account holder
The minimum balance to be maintained in an ordinary saving bank account is Rs.250/-in accounts where cheque
books are issued minimum balance of Rs.500/-.
Q. WHAT ARE THE LIMITATION OF SAVINGS BANK ACCOUNTS?
Restrictions on withdrawals: The banks restrict the number of withdrawals in any savings bank account.
Banks do not accept cheques or other instruments payable to third parties for collection in saving bank
account
Whenthechequebookfacilitiesisnotprovidedbankisonthepersonalappearanceofthecustomerfor
withdrawaloffundsfromsavingsbankaccount.Thatpart,passbooksmustaccompanythepayorder.This
procedurecausesinconvenienceofthebusycustomers
More over banks do not wish to keep substantial balances in the savings bank account.

13. CURRENT DEPOSIT ACCOUNT
Q. WHAT DO YOU MEAN BY CURRENT ACCOUNT?
Acurrentaccountisarunningandactiveaccountwhichmaybeoperateduponanynumberoftimesduringaworking
day.Thereisnorestrictiononthenumberandtheamountofwithdrawalsfromacurrentaccount.Itsuitsthe
requirementsofbigbusinessman,jointstockcompanies,institutions,publicauthoritiesandpubliccorporationsetc.
Q.WHAT ARE THE FEATURE OF CURRENT ACCOUNT?
The basic objective of current account is to facilitate the handing of cash dealings and reducing risks involved in it.
Current accounts do not carry any interest on the amounts of deposit
Most banks charges incidental charges on such accounts which depend upon the balance kept.
Cheques book facility can be availed of by all the current account holders but only a few savings bank deposit
account holders can avail this facility.
Third party cheques can be collected only in current account
Overdraft facilities are available only to current account holders.
Q. WHAT ARE ADVANTAGES TO THE CUSTOMER OF HAVING A CURRENT ACCOUNT?
As cash, cheques and draft are deposited in the bank’s account they will be perfectly safe
The customers can make his payments more conveniently. He need not count each out the time making
payments. This not only reduce errors but saves time
Payment to creditors situated at distant places is facilitated

14. Collection of cheques drawn on banks situated outside the place of business becomes easier.
The paid cheque forms at the bank, serves as a receipt. It can be referred to in case of dispute
Current account can be transferred from on branch to another at the nearest of the account holder
Nomination facilities as available for current account opened within individual and joint names depositors
Standing institution for remittance such as insurance premium, subscription for clubs etc will he carries
out by his bank subject to levy of service charges in force.

15. FIXED DEPOSIT ACCOUNT
Q. WHAT DO YOU MEAN BY/NOTE ON FIXED ACCOUNT?
Thedepositswiththebankforafixedperiodwhichisspecifiedatthetimeofmakingthedeposit.Afixeddepositis
repayableontheexpiryofaspecifiedperiod,chosenbythedepositortosuithispurposeandtoenablehimtogetbackthe
moneyasandwhenheneedsit.Itemsregardingthiscanbelistedas
Opening of Fixed Deposit Account
Toopenthisaccountnointroductionisrequired.Thedepositorrequiredtotillinanapplicationgivingthenameand
specimensignature.
Fixed Deposit Receipt
Bankerissuesfixeddepositreceiptwhichcontainstherateofinterestandthedateonwhichthedepositwillfalldofor
payment
Payment of Interest
Paymentofinterestusuallypaidonfixeddepositaccountbutbankermaypayinteresttodepositorevery3or6monthsor
creditthemoneyofinteresttohissavingsorcurrentaccounttotheprincipalamountathisrequest.
Advances against Fixed Deposit Receipt
The banker supposed to grant 75 % of deposit as a loan against fixed deposit and the rate of interest will be
2% higher than the interest rate payable on fixed deposit if the receipt is in the name of the borrower
15% as minimum in the case of the depositor stands in the name of person other than the borrower
Surrender of Deposit Receipt Before the Maturity Date
Banker is not bound to accept the surrender of deposit receipt before maturity.

16. Q.EXPLAIN THE PROCEDURE FOR OPENING A CURRENT OR SAVING BANK ACCOUNT.
As such before opening a deposit account the banker should certain general precautions as follows:
1.Application Forms
Therequestforopeningasavingsorcurrentaccountismadeontheprescribedformofthebankconcerned.
Banksprovideseparateapplicationformsforopeningsavingsandcurrentaccountsforindividuals,partnership
firmsandcompanies.Theapplicantisrequiredtomentionhisname,occupation,fulladdress,specimen
signatureandthenameandsignatureofareferee.Theapplicantisalsorequiredtosubmitthreecopiesof
hispassportsizephotograph.
2.Introduction of the Applicant
Beforeopeningasavingsorcurrentaccountinthenameofanintendingcustomer,thebankermustgettrueidentityof
theformerinordertoensurethatheisarespectableperson.Thepersonsosigninggiveshisaccountnumberwith
thebankorhisaddress.
3.Specimen Signature
Theapplicantisrequiredtogiveshisspecimensignatureonaprescribedfrom,generallyacardforthepurposeof
bank’srecord.Thespecimensignaturethusprotectsthebankeragainstforgery.Heshouldbeverycarefulin
comparingthesignatureofthecustomergivenonachequewithhisspecimensignature.
4.Mandate in Writing
Incasecustomerdesirestogethisaccountoperateduponbyanotherperson,thebankwillobtainamandate
inwritingtothateffectaswellasthespecimensignatureofthepersoninwhosefavourthemandateisgiven.

17. 5.Opening the Account
Afterobservationoftheseformalitiesthebankopensanaccountisthenameoftheapplicant.Theapplicant
isrequiredtodepositalternativeminimumamountrangingfromRs.500toRs.1000inasavingsbankaccountand
Rs.5000toRs.20000incaseofcurrentaccount.Thebankprovidesthecustomerwith
Pay in Slip Book
Thepaycustomerissuppliedwithapayinslipbook.Thepayinslipisadocumentwhichisusedfordepositingcash
orchequeortillintotheaccount
Cheques Book: The customer is also supplied with a cheque book which leaf is used for the purpose of withdrawing
money.
Pass Book: Pass book is an authenticated copy of the customer’s account with the bank. It is written by the bank
and records all dealing between the bank and the customer.

18. 5.Opening the Account
Afterobservationoftheseformalitiesthebankopensanaccountisthenameoftheapplicant.Theapplicant
isrequiredtodepositalternativeminimumamountrangingfromRs.500toRs.1000inasavingsbankaccountand
Rs.5000toRs.20000incaseofcurrentaccount.Thebankprovidesthecustomerwith
Pay in Slip Book
Thepaycustomerissuppliedwithapayinslipbook.Thepayinslipisadocumentwhichisusedfordepositingcash
orchequeortillintotheaccount
Cheques Book: The customer is also supplied with a cheque book which leaf is used for the purpose of withdrawing
money.
Pass Book: Pass book is an authenticated copy of the customer’s account with the bank. It is written by the bank
and records all dealing between the bank and the customer.

19. RECURRING DEPOST ACCOUNT Q.WHAT DO YOU MEAN BY RECURRING DEPOSIT ACCOUNT?
Recurringdepositaccountisgenerallyopenedforapurposetobeservedatafuturedate.Generallyopenedto
financepre-plannedfuturepurposeslike,weddingexpensesofdaughter,purchaseofcostlyitemslikeland,luxury
car,refrigeratororairconditioner,etc.
Recurringdepositaccountisopenedbythosewhowanttosaveregularlyforacertainperiodoftimeandearna
higherinterestrate.Inrecurringdepositaccountcertainfixedamountisacceptedeverymonthfora
specifiedperiodandthetotalamountisrepaidwithinterestattheendoftheparticularfixedperiod.
Q.WHAT ARE THE NATURE OR FEATURES OF RECURRING DEPOSIT ACCOUNT?
The main objective of recurring deposit account is to develop regular savings habit among the public
The period of deposit is minimum six month and maximum ten years
The rate of interest is higher
No withdrawals are allowed. However the bank may allowed to close the account before the maturity
The bank provides the loan facility. The loan can be to given upto 75% of the amount standing to the credit of the
account holder.
R.WHAT ARE THE ADVANTAGE OF RECURRING DEPOSIT ACCOUNT?
Recurring deposit encourages regular savings habit among the people.
Recurring deposit account holder can get a loan facility.
The bank can utilize such funds for lending to businessmen.
The bank may also invest such funds in profitable areas.

20. OPENING AND CLOSING OF A BANK ACCOUNT
1.Opening of a Bank Account
1.OpeningSavingsBankAccount-Normally,abankerwillnotopenanaccountinfavourofastranger.Anyperson
whowishestoopenasavingsaccounthastobeintroducedbyanothersavingsaccountholderofthesamebranch.Evena
minorisallowedtoopenasavingaccount.
2.OpeningCurrentAccount-Inthecaseofcurrentaccount,itcannotbeopenedbyanypersonunlessheis
introducedbyanothercurrentaccountholderofthebranch.Thecurrentaccountholderhastogivealetterofintroductionin
favourofthepersonintendingtoopenthecurrentaccount.
Currentaccountcanalsobeopenedwhentheemployeeofthebankgivesaletterofintroductionaboutthepersonintendingto
openthecurrentaccount.Athirdtypeofletterofintroductioncanbegivenbyawellreputedpersonknowntothebanker.
Thecontentsofletterofintroductionmustspellouttheconductandcharacterofthepersonintendingtoopenthecurrent
account.Itismoreofafidelityguaranteevouchsafingthecharacteroftheperson,willingtoopenthecurrentaccount.The
bankerrequiressuchaletterasthecurrentaccountholderisnotonlyprovidingwithoverdraftandcashcreditfacilitybutalso
acceptanceofthirdpartychequesthroughendorsement.
Atpresentthebankinsistsnotonlytheintroductionbutalsothephotographsinduplicateofpersonsintendingto
openanaccount;onephotographisaffixedinthepassbookandtheotherintheledger.
3.OpeningFixedDepositAccountandRecurringDeposit–Foropeningafixeddepositaccount,thebankerdoesnot
imposeanycondition.Buthenormallyacceptsfixeddepositsfromknownpersonsandthefixeddepositaccountis
openedonlybydepositcashorincaseofchequesonlyafterrealizationofcheques.Thesameruleappliesforrecurring
depositalso.

21. 1.STEPS IN OPENING ACCOUNTS
Following are the steps involved in the opening of an account for customer, by a banker:
1.Obtaining Letter of Introduction
Thefirstandtheforemoststepinopeninganaccountforanewcustomeristoobtainaletterofintroductionfrom
thepersonwhowantstoopenanaccount.Aletterobtainedbyabankerfromaprospectivecustomerbeforeabankercanopen
anaccountinthenameoftheprospectivecustomerisknownas‘letterofintroduction’.Thepurposeofobtainingthistypeofa
letterenablesthebankertoascertainthegenuinenessofapplicant.Theletterservesasaletterofguaranteeofconductand
genuinenessoftheapplicantobtainingaletterofintroductionisanimportantdutyofamodernbanker.Theinformation
obtainedsohelpsthebankerinconfidentlyprovidingvariousservicesofbankingandfinancialservices.Theinformationis
alsoneedtoobtainprotectionfromtheprovisionsofthevariouslegislationsthatareinforcefromtimetotimeaspartof
carryingoutthebankingbusiness.

22. 1.Benefits/purposes:
Obtainingaproperletterofintroductionisbeneficialforthebankertoknowmoreaboutthenewcustomerinthe
followingmanner:
Protecting against issuing cheque books to unscrupulous persons.
Facilitating the claiming of overdraft inadvertently granted by the banker.
Protecting against undischarged insolvent.
Helping to provide correct financial information about the customer.
Obtaining statutory protection.
2.Application Form
Afterobtainingaletterofintroduction,thebankersuppliesanapplicationformaccordingtothetypeofaccount,whichthe
customerwantstoopenTheapplicationformcontainstherulesandregulationsofthebankwiththetermsandconditionsof
deposit.Theapplicationformistobefilledinandhandedovertothebanker.Theapplicantfurnishesalldetailsabouthimself
includingthename,nomination,address,etc,.
3.Specimen Signature
Aftertheapplicationformdulyfilledin,thebankerobtainsthespecimensignatureofthenewcustomerinaseparatecard
called‘specimensignature’card.Everycustomerisexpectedtohavereadtherulesofbusinessofthebanktoconfirm
inwritinghiswillingnesstocomplywithandboundbythembeforehisaccountisopened.Heisrequiredtosupplyhis
bankerswithoneormorespecimensofhissignatureandthebankusuallyenterstheseinasignaturecard
maintainedforthepurpose.Thecardsarefiledandarrangedinanalphabeticalorder.Eachcustomer’snamemustbe
writteninboldcharactersabovehisaccountintheledger.Hisaddressandoccupationarealsonoted.

23. 4.First Transaction
Afterobtainingthespecimensignatureofthenewcustomer,thebankeropentheneaccountbyobtainingcash
fromthenewcustomer.Thismarksthefirsttransactionbetweenthenewcustomerandthebanker.Therelationship
betweenthebankerandcustomerbeginsafterthistransaction.
5.Issue of Cheque, Pay-in –slip, and Passbook
`Thebankerissuespay-in-slips,chequebook,andpassbookimmediatelyaftersuccessfullycompletingthefirsttransaction
withthecustomer.Thechequebooksuppliedtothecustomerusuallycontainstenortwentyblankforms.Theseleavesare
usedformakingpayments.Achequebookcontainsarequisitionslipwhichhelpstogetanewchequebook.
Pay-in-sliporcreditvoucherareformsusedtopaycoins,notes,bills,andchequestothecreditofcustomer’s
account.Eachslipshouldbesignedbythecustomerorthepersonwhohasprepareditonhisbehalf.Forcorrect
accounting,name,accountnumber,date,andtheamountofthecustomershouldbeclearlymentioned.Customerwillreceivea
duplicatesliporcounterfoilwithasignatureandtherubberstampofthebanker.Itisanacknowledgementtothecustomerthat
cash,etc,.havebeendulyreceived.Theinitialsofthecashierincounterfoildonotinanywaymeanthatthecheques,etc.,arein
order.
6.PAY-IN-SLIP BOOK
Thepay-in-slipbookisabookthatcontainsprintedslipswithperforatedcounterfoilstobefilledinbythedepositororhis
agentatthetimeofdepositingcash,cheques,drafts,etc.,tothecreditofhisaccount.Usuallyeverybankprescribesand
suppliesfreeofcostseparatepay-in-slipsfordepositingcashandchequesanddrafts.Thecontentsofpay-in–slips
includetheinformationregardingthedateofdeposit,nameandaccountnumberofthecustomer,amounttobedeposited,etc.

24. 7.‘DONATIO MORTIS CAUSA’
‘Donatiomortiscausa’meansagiftmadeincontemplationofdeath.Thegiftissaidtobemadebyapersonwho
ownsanymovablepropertyandwhoisveryillandbelievesthatheisgoingtodie.Thisisapeculiargiftas
ithasaconditionthatitwillcomeintooperationifonlythedonoractuallydiesoftheillness.Butifherecoversfrom
theillness,thegiftistoereturned.

25. 8.PRINTED CHEQUE FORMS -MERITS
Achequedrawnonanypaperislegallyvalid.InEngland,bankshonorchequeseventheyarenotdrawnonforms
suppliedbythem.However,whenthecustomerdrawsachequeonordinaryslipofpaper,thebankermustbecarefultosee
thatitisanunconditionalorder.Otherwisethebankerwouldlosethestatutoryprotection.Butitistobenotedthatusingplain
paperstowritechequeswillproveriskyforthepayingbanker.Hence,bankersalwaysinsistsonusingprintedcheque
formstoenablecustomerstoderivethefollowingadvantages:
Easy and convenience of writing a cheque, only the relevant columns need to be filled in.
Avoidance of forgery and hence safety to banker and customer too.
Easy detection of fraud in a printed form is possible.
Ensure that the signature is drawn only according to the requirements of law.
1.Facility of verifying the customer’s name by referring to chequebook issue record.
2.Easy countermanding of cheques by the customer; it is enough if the customer instructs tocountermand the cheque number
to the banker in case of fraud.
3.Counterfoils kept by the customer can be used as a record of payment made.
4.Popularity of name of the company or the individual where the names are printed on thecheque.

26. 3. CUSTOMER IDENTIFICATION AND KYC NORMS
3.1 Meaning
ThetermKYCfor‘KnowYourCustomer’.KYCisusedforidentifyingacustomerofbankingandafinancial
servicecompanysuchasaMutualFund,PensionFund,etc.KYCessentisallyinvolvesmakingreasonableeffortsto
determinetrueidentityandbeneficialownershipofaccounts,sourceoffunds,thenatureofcustomer’sbusinessetc.
The objective of KYC is to help the banks and financial institutions to manage their risks prudently. KYC is made available
by the RBI by way of guidelines designed to prevent banks from being used, intentionally or
unintentionally by criminal elements for money laundering. There are two important components of KYC, viz.,
Identity and Address. While identity remains the same, the address may change and hence the banks are required to
periodically update their records.

27. 2.Legal Compliance
KYCnormshavelegalbackingoftheRBI.RBIhasissuedguidelinestobanksunderSectionRegulationAct,1949
andRule7ofPreventionofMoney–Laundering(MaintenanceofRecordsoftheNatureandValueofTransactions,
TimeforFurnishingInformationandVerificationandMaintenanceofrecordsoftheIdentityoftheClientsofBanking
Companies,FinancialInstitutionsandIntermediaries)Rules,2005.Anycontraventionthereofnon-compliancewill
attractpenaltiesunderBankingRegulationAct.
3.Applicability
KYC norms are applicable to a bank customer. For this purpose, a customer includes the following:
A person or entity that maintains an account and/ or has a business relationship with the bank.
One on whose behalf the account is maintained i.e., the beneficial owner.
BeneficiariesoftransactionsconductedbyprofessionalintermediariessuchasStockBrokers,Charted
Accountants,Solicitorsetcaspermittedunderthelaw.
Anypersonorentityconnectedwithafinancialtransactionwhichcanposesignificantreputationalofother
riskstothebank,say,wiretransferorissueofahighvaluedemanddraftasasingletransactions.
Incertaincasessuchas‘nofrillaccounts’,whicharemeantprovidingbasicbankingfacilitiestopoorand
promotefinancialinclusion,KYCnormsareratherrelaxedbybanks.

28. CustomerIdentification
Customeridentificationinvolvesidentifyingthecustomerandverifyingtheidentitybyusingreliable,
independentsourcedocuments,dataorinformation.BankshavebeenadvisedbytheRBItolaydown
CustomerIdentificationProceduretobecarriedoutdifferentstagesi.e.,whileestablishingabanking
relationship;carryingoutafinancialtransactionorwhenthebankhasadoubtabouttheauthenticity/veracityorthe
adequacyofthepreviouslyobtainedcustomers,KYCdetailsaboutacustomerarerequiredtobeupdatedperiodically
bythebanker.
Bankscreateacustomerprofilewithdetailsonsocial/financialstatus,natureofbusinessactivity,
informationabouthisclients’businessandtheirlocation,thepurposeandreasonforopeningtheaccount,the
expectedoriginofthefundstobeusedwithintherelationshipanddetailsofoccupation/employment,sourcesof
wealthorincome,expectedmonthlywithdrawalsetc.Intheeventofthetransactionsintheaccountarebring
consistentwiththecustomerprofilealreadycreated,bankmayaskforisanyadditionaldetails/documentsasrequired.
TheultimateobjectivesistoensurethattheaccountisnotbeingusedforanyMoneyLaundering/Terrorist/Criminal
activities.

29. 3.4 KYC Documents for Normal Customers
TherearetwoaspectsofCustomerIdentification-Oneisestablishingidentityandtheotherisestablishingpresent
residentialaddress.Forestablishingidentity,thebankrequiresanyauthenticdocumentcarryingphotoofthe
customersuchasdrivinglicense/passport/pancard/voter’cardetc.Thoughthesedocumentscarrytheresidential
addressofthecustomer,itmaynotbethepresentaddress.Therefore,inordertoestablishthepresentaddressofthe
customer,inadditiontopassport/drivinglicense/voter’scard/pancard;thebankmayaskforutilitybillssuchas
Telephone/Electricitybilletc.
ABankerwouldaskforthefollowinglistofdocumentstoestablishtheproofofidentityandresidenceofacustomer.
1.For Individuals
TheBankerwillaskforcopiesofanythedocumentssuchasAadharcard,Passport,PanCard,Voter’sIdentityCard,
DrivingLicense,IdentityCardandaletterfromarecognizedpublicauthorityorpublicservantverifyingtheidentityand
residenceofthecustomertothesatisfactionofthebank.Thiswouldhelpthebanktoestablishthegenuinenessofthelegal
nameoranyotherusedbycustomer.ToverifythedocumentssuchasTelephonebills,bankaccountstatement,letterfrom
anyrecognizedpublicauthority,electricitybill,rationcardandletterfromemployer(Subjecttosatisfactionofthebank).
2.For Companies
Inthecaseofcompanies,thebankerwillaskfordocumentssuchasCertificateofIncorporationandtheMemorandumof
AssociationandtheArticlesofAssociationtoverifythenameofthecompany.Similarly,bankswilllookintothe
resolutionoftheBoardofDirectorstoopenanaccountandidentificationofthosewhohaveauthoritytooperatethe
accounttodeterminetheprincipalplaceofbusiness.

30. 20
4.CLOSING OF BANK ACCOUNTS
1.INTRODUCTION
Similartotheopeningofaccount,bankerhastoadoptcertainprocedureswhileclosingofaccountofacustomer.Atthetimeof
closinganaccount,thebankershouldaskthecustomertosurrendertheunusedchequealongwiththepassbook.
Whenacustomerexpresseshiswillingnesstoclosetheaccountinwriting,thebankershouldsettlehisaccount.Beforedoingso,
thebankerhastoarriveattheclosingbalancewhichmaybetothecreditordebitofthecustomer.Whenthebalanceistothe
creditofthecustomer,thebankertopaytheamounteitherinpersonorsendthesamebyachequetotheaddressofcustomer.
Incaseofundesirablecustomer,bankerwillgivenoticetothecustomerforclosingtheaccount.Ifthecustomerevadestherequest
ofthebanker,adatewillbefixedbythebankertoclosetheaccount.Thiswillbeinformedtothecustomer.Onthatparticular
day,thebankwillclosetheaccountoftheundesirablecustomerandsendthecreditbalancetotheaddressofthecustomer.
A bank will chose the account of the customer under the following conditions
Death of customer
Insolvency of the customer
When customer becomes insane
Garnishee order
With drawl of power attorney
When the partnership firm is dissolved
In case of company, on winding up
When the customer assigns his entire credit balance
In the case of associations and institutions, on the passing of resolution as per theBye-laws.

31. 21
1.DEATH OF A CUSTOMER
Whenacustomerdies,thecontractualrelationshipstandsterminatedandoperationsintheaccountshouldbe
stoppedassoonasthebankerreceivesthenoticeofdeath.Thebankershouldalsoobtainacopyofthedeath
certificate.Ifthecustomerhasleftawill,thewillhastobeprobatedbyacourtandtheamountshouldbepaidtothe
executor,oradministratorofthewill.Intheabsenceofawill,thelegalheirshavetoobtainaSuccessionCertificate.
Inthatcase,heshouldbesatisfiedthroughdiscreetenquiriesthatthecustomerdiedinstateandthatthelegalheirsare
notrequiredtoobtainaSuccessionCertificateforthedisposalofotherassetsleftbyhim.However,thelegalheirs
wouldhavetoexecuteastampedindemnityformalongwithtwosuretieseachgoodfortheamountinvolved.The
legalheirsarealsorequiredtosubmitaffidavitfromanindependentperson,indicatingtheirheir-shiporsubmit
anheir-shipcertificates.
2.Insolvency of Customer
Whenacustomerisadjustedinsolventbythecourt,anassigneewillappointedbythecourt.The
accountofthecustomerinthebankwillnotbeoperatedbytheofficialassigneeappointedbythecourt.Thus,the
accountofthecustomerstandsclosedandthecustomercannotoperatethesame.
3.When the customer becomes insane:
Whenthecustomerisofunsoundmind,theaccountcannotbeoperated.Assoonasthebankercomestoknow
thatthecustomerisofunsoundmind,adoctorwillbeaskedtojudgethenatureofunsoundmind.Ifitisofpermanent
nature,thebankwillhavetoclosetheaccountofthecustomer.Butiftheunsoundmindisofatemporarynature,the
accountwillbesuspendedtillsuchtimethecustomerbecomesnormal.Itisonthebasisofmedicalreport,thebanker
willtakeadecision..

32. 21
4.Garnishee Order:
Onthereceiptoforderfromthecourt,thebankerhastoclosetheaccountofthecustomer.Suchanorderis
calledGarnisheeOrder.Thisorderisoftwoparts.First,thecourtwillaskthebankeraboutthestatusofthe
accountwhichiscalledOrderNisi.Afterreceivingtheexplanationfromthebankwhencourtsendsan
absoluteorder,itiscalledOrderAbsolute.Thereupon,theaccountwillbeclosed.Thecourtorderstheclosureofthe
accountwhencreditorsofthecustomerconvincethecourtthatinspiteofsufficientfundsathisdisposal,thecustomer
isunwillingtosettletheirclaims.

33. 22
5.Withdrawal of Power of Attorney:
Whenthecustomergivespermissiontoanotherpersontooperatehisaccountduringtheabsenceofthecustomer,
suchanaccountiscalledPowerofattorneyaccount.Whenthecustomerwithdrawssuchapower,theagentwhowas
allowedtooperatecannolongeroperatetheaccount.
6.Dissolution of Firm:
Whenapartnershipfirmhasanaccountinabank,itisoperatedaslongasthefirmremainsinoperation.Afirm
getsdissolvedduetothedeath,insolvency,insane,etc.,ofanypartnerorallthepartners.Thepartnersmayalsoagree
todissolvethefirm.Inalltheabovecases,theaccountofthefirmstandsclosed.
7.Winding up of Company:
Acompany‘saccountwillbeoperatedaslongasitisinoperation.Oncethecompany’swindingupprocess
commences,theaccountwilloperatedbyliquidator.Thecompany’saccountstandsclosed.
8.Assignment of credit balance:
Whenacustomerinformsthebankertoassignhisentirecreditbalancetothirdparty,theaccountofthecustomer
getsclosed.
5. Closing of Account of Associations and Institution:
Theaccountsofassociation,institutionswiththebankareoperatedaspertheirbye-laws.Whentheypassa
resolutiontoclosetheaccountwiththebank,itwillbeclosedaspertheprovisionsprovidedintheirbylaws.

34. 23
Different FormsUsed inBanks:
1. Deposit Challan
Adeposit slip orchallanis a form supplied byabank for adepositor to deposit moneyin thebank.

35. 24
Let us understand the details to be filled up on the Bank Copy. Most of the same information is
filled up on the left side also.
Note:Since authorization is not required fordepositingmoney,anybodycan deposit money
toanyaccount.

36. 25
2.WithdrawalSlips
AWithdrawalSlipisawrittenordertoyourbankinstructingittowithdrawfundsfromtheaccount.
Withdrawalslipsvaryfrombanktobank.Acustomercanwithdrawcashusingwithdrawalsilponlyattheirhome
branch.

37. 26
Therearesomerestrictionsontheuseofwithdrawalslip.Theyare:
oOnly the account holder can use this slip to withdraw the amount for himself.
oThis form cannot be used to make payment to others.
oAccount holder has to produce the pass book.
Sincewithdrawalslipcannotbeusedtomakepaymenttoothers,weuseaformcalledcheque.
3.Cheque
Thechequeisanegotiableinstrumentcontaininganordertoabanktopayastatedsumfromthedrawer’s
account,writtenonaspeciallyprintedform.Itissignedbythedrawer.Itcanbeeasilytransferredthroughamere
handdelivery.Therearethreepartiestothecheque-Drawer(makerofthecheque),Drawee(bankonwhich
thechequeisdrawn),Payee(towhomtheamountofthechequeispayable).

38. 27
Q.WHAT ARE THE CHARACTERISTIC / FEATURE OFA CHEQUE?
It is an instrument in writing
A chequeis to bedrawnonlyon the branch in which thecustomer is maintaininganaccount
Thechequeis must bearthe signatureof drawer
Thepayment order must be for aspecificsum ofmoney
Chequeis meant forpayment ofmoney
It should be written both in words and figures
Chequeis payable to aspecificpersons, hemust haveanaccount in the bank.

39. 28

40. 30
4.DemandDraft
DemandDraftsisapre-paidinstrument,whereinbankbywhomtheDDhasbeenmadeundertakes
responsibilitytomakefullpayment.DDisvalidfor6months.Demanddraftisacceptedwherethetransferofmoney
isguaranteed.AsmostoftheindividualsmakepaymentsthroughtheRTGS,NEFT,IMPSmechanismdemanddraftis
losingit’splace.Butstillapplicationforjob,examinations,admissions,services,highamountpurchasesetc.requires
demanddraftratherthancheques.

41. 31

42. 32
5. Differencebetween Chequeand Demand Draft

43. 32
5. Differencebetween Chequeand Demand Draft

44. 33
PROS ANDCONS OFMULTIPLEBANKACCOUNTS
PASS BOOK
Meaning of Pass Book
PassBookisarecordoftransactionstakenplacebetweenabankerandcustomer.Itiscalled“PassBook”asitpasses
betweenthebankerandcustomer,whenevertransactionsaretakingplace.Itisaconclusiveevidenceofbanking
transactions.CustomerdependsonthePassBookentriestoknowhisaccountbalanceandactforfurthertransactions.
CustomershouldbringthePassBooktothebankattimeofeachtransaction.BankerwillupdatethePassBook,by
enteringthetransactiontakenplace.CustomerhasarighttopointoutthemistakeinthePassBookatanytime.
AccordingtoSirJohnPaget“TheproperfunctioningofaPassBookistoconstituteaconclusiveandunquestionable
recordoftransactionsbetweenthebankerandthecustomeranditshouldberecognizedassuch”.
Pros Cons
Separate funds More accounts to manage
Track multiple savings goals More minimum balances to maintain
Take advantage of other features and perks More potential fees
Earn bank bonuses Multiple bank logins to remember
Earn higher interest rates

45. 34
FEATURES OF PASS BOOK
Convenient monitoring. Easy record-keeping through a passbook.
Earn and build your savings. Let your savings grow by earning interest.
Curb impulse spending. A great way to help you save and take charge of your finances.
COMMON MISTAKES THAT OCCUR IN THE PASS BOOK
The following are the common mistakes that occur in the Pass Book when bank wrongly debits the Pass Book.
Mistake occurs when any two account holders' names are identical. ...
Mistake occurs in case a person has more than one account in a bank. ...
Sometimes amounts of cheques are wrongly recorded.
TYPES OF ACCOUNT HOLDERS
AccountsofIndividuals
IndividualsgenerallyopentransactionaccountslikeSavingsaccountsorCurrentaccounts.Ithasalreadybeen
mentionedthatanyadultperson/individualcompetenttocontractcanopenanaccountwithanybankafter
observingusualformalitiesprovidedthatthebankissatisfiedwithhisidentity,respectability,anddesirability.On
manyoccasions,identityisascertainedbypassports,voteridentitycards(ID),certificatesofward
commissioners,employer’scertificates,andtaxidentificationnumbers(TIN),etc.Theyarerequiredtofurnisha
passportsizephotographandanintroductionfromanacceptableperson.Normallyindividuals–eithersinglyorjointly
–areallowedtoopenSavingsaccount.

46. 34
JointAccounts
Accountsareallowedtobeopenedintwoormorenames(individuals).Documentsrequiredaresimilartothose
applicabletotheindividualaccounts.Inthecaseofjointaccounts,generally‘EitherorSurvivorship’
instructionsareobtainedinthehandwritingoftheaccountholdersconcernedundertheirsignatures.Insuchcases
accountmaybeoperatedbyanyoneofthem.Intheeventofthedeathofeitherone,thesurvivorcanoperatethe
account.Intheabsenceofinstructionsotherwise,inthe‘EitherorSurvivorship’declaration,thebalanceofthe
joint,accountispayabletothesurvivorandthelegalrepresentativesofthedeceasedjointaccountholderif
thereisnonomination.

47. 35
AccountsofSoleProprietorship
Thesoleproprietorshipconcernsdonotenjoyanylegalstatus.Hencetheyaretreatedasindividualsbythe
banks.WhileopeninganewCurrentaccount,theownerisrequiredtoproducethetradelicense,acertificatefrom
ChamberofCommerce,TaxIdentificationNumber(TIN),andValueAddedTax(VAT)registrationnumberas
maybeapplicableorsimilaranotherdocument.Inthecaseofsavingsaccounts,documentsrequiredaresimilarto
thoseapplicabletoindividualaccounts.
AccountsofPartnershipFirms
Apartnershipaccountisallowedtobeopenedbythebanksontheproductionoftradelicensesandother
documentsevidencingthepartnershipbusiness.Ifitisaregisteredpartnershipitisrequiredtoproducea
registrationnumberandpartnershipdeed.Ifnot,astandardpartnershiplettersuppliedbythebanksisrequiredtobe
signedbyallthepartnersofthe‘firm’intheirindividualcapacities.Theaccountmaybeinthenameofthe‘firm’.But
legallythefirmdoesnothaveanyexistence.Hencepartnersjointlyandseverallyhavetobearalltheresponsibilities.
Thepartnershipdeedorpartnershipletteristhoroughlystudiedbythebankstoascertainthenamesand
addressesofallthepartnersandthenatureofthebusiness.Thenamesofthepartnersauthorizedtooperatethe
accountonbehalfofthefirmincludingtheauthoritytodraw,endorseandacceptbills,mortgage,andsell
propertybelongingtothefirm,etcarealsoascertainedfromtheDeedorLetter.Banksalsoascertainthe
positionofthefirmonretirementordeathorinsolvencyofanyofthepartners.

48. 35
IMPORTANT QUESTIONS
1.Give the meaning of banking.
2.What is licensing?
3.Define negotiable instruments.
4.State any two functions of commercial banks.
5.What do you mean by ombudsman?
6.Explain the term inspection.
7.Whatdoyoumeanbycurrentaccount?
8.Explain the term fixed deposits.
9.Give the meaning of customers.
10.Statethemeaningofdemanddraft.
11.Definecrossing.
12.State Bill of Exchange.
13.What is E-Banking?
14.ExplainthevariouskindsofDepositaccount.
15.Explain in detail the functions of RBI.
16.Explain the function of commercial bank in detail.
17.Explainthemeritsanddemeritsofbranchbanking
18.WhatisNegotiableinstrument?ExplainthetypesofNegotiableinstrument.
19.Definecheque.Explainthesalientfeaturesofcheque.
20.WhataretheadvantagesofE-banking?