G eneral Banki ng

&

B r a n ch O p e r a t i o n s

Mo d u l e Ow n er s
N a g a S ub r am anian S .
R aje s h G h o s h

C o nt ent E xp e rt s
P r ab ha t S ing h
2
 CONTENT

Page

Introduction 4

Liability Products 6

Operating Instructions for account opening 10

Account Related Transactions 15

Cash 19

Clearing 27

Funds Transfer 34

Annexure 1 42

Annexure 2 50

3
 Introduction

Functioning of a Bank Branch

Role and Perspective of a Bank Branch

When a new bank is established, it may have only one workplace, which may include the branch
office as well as Head Office. However, when the bank wants to extend its activities to far away
places, it will have to open its branches at those places. These branches are authorised to perform
all the functions of a commercial bank, viz., accepting of deposits, lending money and providing
miscellaneous services like remittance facilities, locker facility etc. the branches report their total
transactions to their controlling offices which may be regional office, zonal office or head office
depending upon the size and structure of the bank.

In the recent past, some banks have been opening few branches with the sole objective of
promoting a particular type of business viz. Agricultural Development branches, Industrial Finance
branches, Foreign Exchange branches and Merchant banks. Such branches, although perform all
normal banking transactions, lay total emphasis on promotion of one particular aspect only.

Some branches may provide their limited services at another place in the same city. Such an offic e
is known as Extension Counter. These counters are meant for catering to one or few
institutions/corporations and the nearby public. Although accepting of deposits is permitted at such
counters and drafts can also be issued, no lending operations are undertaken. The accounts of
these counters are usually clubbed with the main branch. Whilst opening of a branch needs a
licence from the Reserve Bank of India, extension counter can be opened with the permission of
the Bank’s Board itself. If the working of th e counter enhances sizeably in course of time, for
converting it into a branch may be sought.

Functions of a Branch

The branches of a bank are generally authorised to perform all the normal banking functions, which
a bank is permitted to perform under th e Banking Regulation Act, 1949. The functions are as under:

Accepting Deposits: Banks accepts deposits from the public which may be repayable, either on
demand or after a fixed period.

The demand deposits can be in the form of Saving Bank Account or Current Account. In Saving
Bank accounts, interest @ 4.5% is paid but restrictions are imposed on the number of withdrawals.
In current account no interest is paid and no restrictions are imposed on the number of
withdrawals. Any profit –making organisation/institution is not allowed to have savings bank
account, which in fact is meant to promote small savings from the public. In both types of
accounts, deposits can be withdrawn at any time by the customer.

In the area of term deposits several schemes with different names in different banks have been
promoted basically to attract deposits for a longer term. The interest rate varies according to the
period of deposit and is 9.5% (maximum) at present for one year and above. The minimum
maturity period is 15 days and maximum 7 years. The interest is usually compounded on quarterly
basis on such deposits.

In term deposits, a person may deposit an amount and collect it back along with interest after a
fixed term or, may deposit every month and collect the total amount along with interest on maturity
date. The former is known as Term Deposit while the latter is called as Progressive/Recurring
Deposit.

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L e n d i n g M o n e y: The money deposited has to be lent in order to earn profits.

Remittances: Banks earn money by way of commission charged on remittance of funds from one
place to another. Compared to post office this service is being rendered by banks at nominal rates.
The various methods used for remittance of funds are – Mail transfers, Telegraphic transfers,
electronic funds transfer, and Demand Drafts.

Lockers facility : For providing the facility of keeping safe the valuables of the customers, banks
provide locker cabinets in their strong rooms, and customers and hire the locker from the bank.
The rates charged are nominal. This facility helps the bank in attracting deposits.

Foreign Exchange Business : Banks are helping in foreign trade by financing of such trade and also
promote tourism by providing foreign exchange facilities. In fact, in each bank some of the
branches are specifically entrusted with such functions.

Innovative Functions: In the recent past, banks have added some new functions like merchant
banking and factoring services.

Management of Cash and Currency Chest : Excess cash, if maintained at the branch, affects the
bank’s profit adversely as it earns no income. If the same is deposited in Reserve Bank of India or
other banks or transferred to Head Office, interest may be earned. Besides, heavy cash adds to the
burden of insurance cost and branch becomes more susceptible to robberies. The branch should
be managed with minimum possible cash and efforts should be made to deposit excess cash with
RBI or Currency Chest of the Bank. Usually the controlling offices lay down cash retention limits for
each branch and stipulate disincentives if the limit is exceeded by the branch.

Currency Chest is like a godown of currency notes and coins. The money lying in it is treated as
RBI’s A/c. The chest is very often managed by commercial banks but it is done on beh alf of Reserve
Bank of India. The currency deposited in chest is treated as RBI Balance. When a bank has its own
currency chest, its nearby branches can easily manage with minimum cash and earn interest on the
transferred balances. Cash deposited in curren cy chest is counted by RBI for the purpose of Cash
Reserve ratio. Thus, if a bank can manage its currency chest effectively, it can add to its profit
sizeably.

House -keeping : House-keeping means keeping the branch in perfect order and following the
systems and procedures meticulously. The systems and procedures have been so laid down that, if
followed, they will eliminate frauds and counteract manipulations. Frauds occur mostly when
procedure is cut short or not followed. There are a lot of built-in checks in the banking system, and
some such examples are – joint custody, balancing of books, reporting of discretionary powers,
audit and inspection, etc.

The following points are worth caring in the regard:

Revenue Leakage: If the interest is not charged correctly by either calculating wrong products,
and/or by charging lower rate of interest, the bank shall suffer loss.

Follow-up of loans and advances. If the loans are not monitored properly, they may become sticky
and result in losses to the Bank. Simply sending reminders for installments and recall notices may
bring good results in many cases. As per the latest guidelines on non-performing assets, interest
cannot be charged and booked if the account is irregular for over 6 months. Hence, every effort
should be made to keep the loan regular.

5
Refinance. Refinance is available from different agencies like IDBI, SIDBI, NABARD, NHB and EXIM
Bank. If it is availed, it not only benefits the borrower by charging a lower rate but also helps the
bank’s resources as well as provide sufficient income.

Computerisation. With the mass banking concept, the handling cost of accounts is quit high, if done
manually. However, computerisation can bring down the costs and also improve the quality of
service.

I. Liability Products

Preamble

Deposits constitute the basic resources for the Bank. Deposits are accepted under two broad heads
‘Demand Deposits’ and ‘Time Deposits’. They are sub divided into various attractive schemes.
Demand deposits, as the name implies, are deposits payable on demand. They are mainly current
and savings bank accounts. Time deposits are deposits payable after a fixed term and would
comprise of fixed deposits, recurring deposits etc. They are often referred to as term deposits,
meaning that they are placed with the Bank for a definite term or period of time.

1.1 Current Account

A Current Account is an account which is meant for the convenience of customers who are relieved
from maintaining large cash balances with them for their day to day business (or other) transaction.
The account can be opened with an initial cash deposit of INR 25,000.00. A Current deposit holder
is required to maintain an average balance of INR 25.000.00 .

Typically, we should try to get current accounts of business entities, which do not have too many
cash transactions or small value cheque transactions. There should be clear potential for higher
than the minimum prescribed balance in the account.

1.2 Premium Current Accounts

The premium current account is a current account product with the following additional features.

• Monthly Average Balance of Rs.2,00,000/- (Rs. Two lacs). Failure to maintain the balance
will attract a fee of Rs.1000/- per month.
• The following facilities are given free:
o Payorders
o Demand Drafts drawn on our branches
o Anywhere banking cheques
o Demand Drafts drawn on correspondents at a concessional rate
o Collection of upcountry cheques payable at locations where we have branches.
Assured credit within 5 days.
o Cheque Books without limit.
o ATM card for Proprietorship and Partnership concerns
o Internet Banking – with Funds Transfer Facility.
o Standing Instructions
o Monthly Statement of Accounts

6
The Branch/Regional Head at their discretion could offer the following additional facilities
selectively after making necessary arrangements.

• Courier pickup of cheques/documents once a day at specified time.

• Cash delivery upto Rs.50,000/- and Cash Pickup upto Rs.1,00,000/- . No. of occasions –
Maximum one a day
• Quantum Optima Facility - for balances in excess of Rs.5,00,000/- (Rs. Five lacs) in lots of
Rs.25,000/-.

1.3 Business Multiplier Accounts (BMA):

The BMA Product was introduced in July 2000 as a modified version of premium current account.
This product is targetted at:

• Traders
• Businessmen &
• Small Corporates having sales turnover of about INR 25.00 crores.

The features of a BMA are:

• Quarterly average balance of INR 1.00 lakh only. For non maintenance of average balance a
charge of INR 1200.00 per quarter is levied
• Automatically transfers any amount in excess of INR 3.00 lakhs, in units of INR 25,000 to I
year FD’s where it earns higher rate of interest.
• Multicity cheque book- payable at par cheques which give power to issue cheques that are
treated as local cheques in cities where we have a branch.
• Anywhere banking facility- BMA in one city can be operated from any designated branch in
same or another city. Cheques can be deposited in your account. Cash upto INR 50,000.00
can be deposited & withdrawal upto INR1.00 lakh on self & order cheque only. No third party
withdrawals are permitted.
• The following facilities are given free:
• Collection of cheques on our bank locations. Normal charges for other locations.
• Payorders & DD on our branches.
• Phonebanking facility
• Cash pick up/ delivery & cheque pick up facility available.
• Internet banking

1.4 Term Deposit

Deposits for fixed periods are accepted under ‘Traditional Plan’ or ‘Reinvestment Plan’ for a
minimum amount of Rs.10,000/- and for a period from 7 days and above and up to 7 years for
domestic deposits. Account opening form or Relationship Form, as in the case of current/ savings
account with photograph shall be obtained with suitable introduction.

Where a cheque in the name of the depositor is received to create the deposit, the effective date of
fixed deposit shall be the date on which the cheque is realised. No fixed deposit receipt shall be
issued in anticipation of realisation of the cheque.

Maximum period for which fixed or recurring deposit may be accepted, other than by way of
current/ savings account, shall not exceed ten years as per RBI guidelines. In our Bank the
maximum period presently is 7 years.

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1.5 Certificate of Deposit
Certificate of Deposit (CD) is a marketable instrument covering funds deposited for a fixed period,
from 15 days to one year.

The minimum issue size of a CD is Rs.5 lacs. The amount relates to face value (i.e. maturity value)
of CDs issued. Banks can issue CDs in denominations of Rs.1 lac each, either for the same maturity
or for different maturities, provided the aggregate amount issued for one depositor at any one
instance is Rs.5 lacs or more.

Individuals, corporations, companies, trusts, firms, co -operative societies, associations etc., can
subscribe to CDs. Presently CDs are issued by scheduled commercial banks (excluding Regional
Rural Banks).

All India Financial Institutions can also issue CDs, but for periods beyond one year and upto 3
years, while banks can issue CDs for periods of three months and above but upto one year. CDs
are issued in the Bank’s security forms.

CD is different from fixed deposit in that it

• Is not a mere receipt

• Is a negotiable document in the form of a usance promissory note
• Is a money market instrument
• Is tradeable in the secondary market
• Is negotiable by endorsement and delivery, after 30 days after the date of CD
• Is paid on the due dates at the place of issue
• Cannot be encashed before maturity
• Issue is governed by RBI guidelines relating to period, negotiability, amount, etc.
• Attracts stamp duty

1.6 Trust & Retention accounts/ Escrow accounts

Trust and Retention accounts are usually opened to secure/ capture the cash flows fo a Borrower to
enable him to meet the loan repayment obligations. To formalise the arrangement a tripartite
agreement is executed between the Lender, Borrower and the designated Bank (where the T& R
account is opened). A tripartite arrangement is intended to:
• receive designated cash streams,
• administer disbursements,
• manage cash balances retained
• build up balances to serve as cash collateral to lenders

Scope of the T & R A c c o u n t a r r a n g e m e n t

Depending on the nature and the structure, the T&R bank will have the following functions to act as
a:

• Receiving agent
• Paying agent
• Investment agent
• Conversion agent
• Custody agent
• Collection agent

The bank is bound by the terms of agreement. Balances in the account/s are treated outside the
purview of liquidation proceedings. The T&R bank does not enjoy the privilege of general right of

8
lien or set off otherwise available to it. T&R accounts are not immune from attachment orders by
court of law.

1.7 Correspondent banking accounts

Cooperative and Foreign Banks typically have a strong presence in a limited region/cities. They
enjoy the patronage of a loyal clientele in their areas of presence. This combination of a limited
presence and a stable client base presents itself as a perfect opportunity for private banks with a
good network to foster correspondent banking relationships with such niche financial
intermediaries.

Primarily, we at ICICI Bank offer the following products/services under correspondent bank tie-ups:

Cheque Drawing Arrangement

The Coop/Foreign Bank opens a current account with ICICI Bank. ICICI Bank issues at par stationary
to the Coop/Foreign Bank, which in turn is circulated to their branches. The Coop/Foreign Bank
issues cheques to their clients against consideration. The cheque details referred to as advice and
funding cheque for the value of the instruments issued by the Coop/Foreign Bank are forwarded to
ICICI Bank on Day 1. The advice is uploaded on the Intranet and funding cheques presented for
clearance. Against the clear funds in the current account with ICICI Bank and on verification of the
cheque details furnished by the Coop/Foreign Bank the cheques issued by them and presented in
clearing at ICIC I Bank centres across the country are duly honoured.

This product helps the Coop/Foreign Bank garner additional fee based income through cheque
issuance and float balance as the funds are passed to ICICI Bank on the following day. ICICI Bank
gains float balance on account of cheques issued but presented for payment on days subsequent
to Day 1. Further, the idle funds of ICICI Bank lying at various clearing centres are suitably utilised
without incurring any additional cost.

CSGL Accounts
Coop/Foreign Banks are required to honour the prudential norms for investment in G-Sec from time
to time. Further they also explore avenues to park additional funds to earn treasury income. The
handicap of interior locations and small size makes it infeasible for the Coop/Foreign Bank to
establish full-scale treasury operations. ICICI Bank with an established treasury function can step in
to open Constituent Subsidiary General Ledger Accounts to assist Coop/Foreign Bank in their
endeavour. CSGL accounts not only allow ICICI Bank to gain a markup on rates beings offered but
also help in building up treasury volumes.

Outstation Cheque Clearance

Local Cheques drawn on branches where a bank does not have its own branch have to be sent in
clearing through other banks having a presence in the said location. Such outstation instruments
generally take 7-25 working days to clear when presented for clearing through traditional banking
channels. Cash Management Service functioning as a specialised unit for collections allows ICICI
Bank to reduce the time taken to clear outstation cheques to 5-10 working days. Banking on CMS
network ICICI Bank offers Coop/Foreign Bank clear credit on 8th working day. This arrangement
helps the Coop/Foreign Bank to get funds at and earlier date as compared to a situation where they
might have gone alone. It also helps ICICI Bank to make fee based income through CMS and also
build up overall volumes.

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 II. Operating Instructions for Account Opening

2.1 Introduction of customers

To open an account, whatever the type viz, current or savings bank or fixed deposit or a loan
account, in the name of individuals or any other legal entity or organisation, it is imperative that a
valid introduction is obtained before opening an account on the first occasion. Introduction for
subsequent accounts for the same person or organization is not required.

Valid introduction means any of the following:

• By customers i.e., by those who already hold accounts with the Bank, provided these accounts
are conducted satisfactorily and no occasions have surfaced reflecting unhealthy practices
• By persons known to the Bank. It is necessary to record the nature of their acquaintance with
the Bank
• By officers of the Bank
• By other banks
• By passport and other documents described in detail hereafter

Introduction is not to be deemed as a mere formality. Banks get the protection of Sections 131 or
131A of the Negotiable Instruments Act 1881, for collecting instruments only if the collection is on
behalf of a customer properly introduced. Failure on this score may be held against the Bank for
permitting ‘conversion’. Many banks have come to grief by laxity for want of proper introduction.

The occasion of opening an account should be used as a marketing opportunity to explain the
Bank’s schemes to the customer. Necessary clarification should be given regarding nomination
facility particularly in case of ‘single’ accounts, need to maintain uniformity while signing cheques,
need to avoid too simple a form of signature which can be easily forged, the care to be exercised
while handling cheques etc.

It is a well established fact and consistently supported by legal decisions, that a banker should take
certain precautions and must enquire from the person wishing to open an account as to his
profession, trade, calling and the nature of the account he proposes to open. Due enquiries made
with the reference furnished by the person would help to make a decision regarding the desirability
of establishing a relationship, as also relating to the integrity and respectability of a person. It is
mandatorily directed by RBI that the introducer clearly states the period for which the customer is
known to him and also confirms the address of the customer.

Introducer’s signature should be obtained in Customer ID form1, verified by an official of Deputy

Manager’s grade and above. Details such as customer identity number of the introducer or how the
introducer is known to the Bank and whether the introducer called in person or not at the Bank
should be recorded in the Customer ID form. Photograph shall be obtained and affixed to Customer
ID Form. As a matter of courtesy (and to guard against possible though not uncommon fraudulent
introduction) a letter of thanks should be sent on the same day to both the customer and the
introducer.

For opening current accounts in the names of corporate bodies, trusts, registered associations etc.
documents evidencing incorporation, their charter like memorandum and articles of association,
trust deed etc., are adequate. However, enquires about the board of directors/pro moters, trustees
etc., may be made with due sensitivity to avoid the account being used for undesirable purposes. It
is strongly urged that staff handling opening of accounts must cultivate extra sensitivity to ensure

1
The Bank has prescribed Relationship Form for individuals and joint accounts on E or S basis. Cust Id
Form will include Relationship Form in such cases.

10
that customers are not offended by the nature of enquiries. Tact and discretion are essential in
dealing with customers.

Obtaining proper introduction and more particularly of making suitable enquiries both from the
introducer and the prospective customer need no further emphasis. Such enquiries, in addition to
protecting the banker from the charge of negligence, thus depriving him of the protection available
to the banker under Section 131 of the Negotiable Instruments Act, 1881, have the following
advantages:

Due enquiries will prevent a dishonest person from coming into possession of a cheque book and
defraud the public at large;The position of the bank would be very weak if such a person who has
gained access by fraudulent means happens to be an undischarged insolvent;By establishing the
credentials of the person through an existing customer it would help to trace and recover from the
customer, moneys due to the Bank in the event of an unintended overdraft.

Introduction establishes the following in respect of new customers:

• identity of a customer
• acceptability of the customer to the Bank

2.2 Photographs
In terms of circular no.GC.BC.46/17.04.001/94 dated 22nd April, 1994, issued by RBI, effective from
1st January, 1994 photographs should be obtained in case of all deposit accounts including
accounts in the name of public limited companies, etc.

Only banks, Local Authorities and Government Departments (excluding public sector undertakings
or quasi-Government bodies) will be exempt from the requirement of photographs.

Obtention of photographs of depositors was one of the recommendations of the Committee to

enquire into various aspects relating to frauds and malpractices in banks (Ghosh Committee).
The stipulation is applicable to both resident and non-resident account holders and all categories of
deposits including fixed, recurring and cumulative deposit accounts.

Photocopies of driving licence or passport containing photographs will not suffice.

Only one set of photograph needs to be obtained. Fresh photographs need not be obtained when
the account holder opens an additional account.

This stipulation is applicable to corporate accounts also. Photographs of persons authorised to

operate deposit accounts, particularly in case of corporate accounts, savings and current accounts
should be obtained. In case of minors, guardian’s photograph should be obtained. In respect of
non-individual accounts, banks need to obtain photographs of the persons authorised to
open/operate the account as applicable.

2.3 Formalities for various types of cli ents

2.3.1 Proprietary Firms

Individuals for business generally float sole proprietary firms. They do not have any separate legal
entity. The proprietor is personally responsible for all acts done in the name of a firm.

To distinguish his personal drawings from those for business, the style of account is in the name of
the firm and the proprietor draws cheques and gives discharge on documents, on behalf of the
firm. Introduction formalities, as applicable to individuals, are relevant for opening accounts in the
names of proprietary firms.

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2.3.2 Partnerships Firms
Section 4 of the Partnership Act, 1932, reads

“A partnership is the relation between persons who have agreed to share the profits of a business
carried on by all or any of them on behalf of all”.

As per section 5B ibid, every firm should be registered with the Registrar of Firms of the State in
which it has its headquarters. The consequence of non-registration (Section 69 ibid) is that the firm
cannot bring in any suit to enforce a right arising out of a contract against any outsider. But it does
not bar filing of suits by outsiders against the firm. The registration of a firm is, however, not
compulsory.

Number of partners in a partnership firm is limited to 20 (10 in the case of banking companies) as
per Sec.11 of the Companies Act, 1956. A minor can be admitted to benefits of a partnership but
shall not be a partner. A partnership cannot exist between a single adult and a minor child. Every
partner of a firm is an authorised agent of the firm under section 18 of the Partnership Act, 1932.
The implied powers of partners are defined in Section 19 ibid, as under:
• Power to borrow money on behalf of the firm
• To acknowledge debts and receive payments
• To sign contracts
Formalities for opening a current account or fixed deposit account in the name of a partnership firm
are given below:
• Partnership deed should be perused to know the clauses regarding authority and liability of
individual partners, authority for borrowing, mode of operations of the bank account, etc.
• Deed of partnership should be verified to know whether the same is registered
• Besides obtaining certified copies of the Deed of partnership, a Partnership Letter on the Bank’s
standard form shall be obtained and held with the account opening form

Unless restricted by the Partnership Deed or another mode is stated in the Partnership Letter, all
partners may operate the account singly. The partners who are not operating the account are,
however, not debarred from countermanding the earlier instructions, in which case, the account
shall be operated jointly by all the partners until a fresh mandate is given.

The partnership is dissolved on death, retirement or insolvency of a partner. If the account is in

debit, further operations must be stopped to fix the liability of the partner who died, resigned or
became insolvent, to avoid operation of the rule in Clayton’s case, under which the first credit goes
to liquidate the first debit. In case of retirement, Deed of Retirement should be verified to know the
manner of settlement of any credit balance in the account. In case of death of a partner, the Bank’s
instructions regarding settlement of dues in deceased depositor’s account should be followed to
settle any credit balance in a partnership account.

A ‘set-off’ of the credit balance in an individual account of a partner may be made against the
overdraft of a firm but a ‘set-off’ in the other way around is not possible. Cheques payable to a firm
should not be collected for credit of individual account of a partner. In order to bind the firm, all
drawings should show the nexus between signatory and the firm.

As a partner is himself an agent of a firm, he cannot delegate his powers to another person without
consent of all partners.

Minors admitted to a firm can exercise an option to join the firm on their attaining majority. A diary
note shall be taken of date of minor’s attaining majority, at which time a fresh partnership letter and

12
a ratification of the earlier letter are obtained from the minor who opts to join the firm. Where a
minor is a partner, care needs to be exercised, not to accept authority for drawing cheques in the
account, by the minor, having regard to his legal status.

Introduction formalities, as in the case of individuals, shall apply with equal force in case of
partnership firms, particularly for unregistered firms. Only Tier I formalities (vide Chapter I para 2.1
and 2.3) apply for obtaining introduction.

2.3.3 Joint Stock Companies

A company is a corporate entity brought into existence by a statute viz. Companies Act, 1956. Its
entity is distinct from that of its shareholders whose liability is limited to the extent of individual
shareholdings. A Company is a legal entity, which can sue others and be sued by others;
shareholders cannot be sued for the company’s affairs. Similar is the constitution of corporations
set up under specific statutes.
Companies Act 1956 is permissive (it speaks of what the company may do) and not prohibitive
(what it should not do). Care needs to be exercised in opening and conducting of accounts of
companies, within the framework of regulations; Memorandum and Articles of Association of a
company set out the objectives as also nature of activities, powers of directors, etc. Companies Act
1956 provides for conduct of a company’s business, constitution, duties and responsibilities of the
board of directors, borrowing powers, procedure for creating charge on its assets, regulations for
raising capital/ debentures by public subscriptions etc.

The Registrar of Companies is vested with authority to issue a Certificate of Incorporation, which
confers legal status for a company. After completion of formalities, a certificate to commence
business is issued when bank accounts could be opened. A certified copy of the following
documents shall be obtained for opening a bank account for a company.
• Memorandum/ Articles of Association;
• Certificate of incorporation issued by the Registrar of companies;
• Resolution of the Board authorising specifically to open account(s) with the Bank, listing the
officials who can operate the account, under such terms and conditions, as may be specified.
The resolution should be certified by the chairman of the meeting at which it was passed,
countersigned by the secretary of the company, together with the company’s seal alongwith
signatures of two directors.

The resolution authorising the opening of a bank account should also specify the mode of
operating the account. Where borrowing arrangements are envisaged, the resolutions should
specify such requirements; limitations regarding borrowing powers vide the Articles of Association
as also Secs.292, 293 (1)(d) of the Companies Act, 1956, need to be perused.

Accounts in the names of new companies may be opened in anticipation of the certificate to
commence business, only for depositing subscriptions for shares, provided the Bank has decided
to act as Bankers to the Issue. No drawings are permissible until the Registrar issues the certificate
of commencement of business. A reference is also invited to Sec.73 of the Companies Act, 1956,
dealing with such contingencies.

In the case of private limited companies, certificate to commence business is not issued. A private
limited company is distinct from a public limited company with certain privileges/limitations,
important among these are as under:

13
 S.
Item Private Limited Company Public Ltd Company
No.
1. Minimum Members 2 7
2. Maximum Members 50 No maximum
excluding employees and ex-
employees
3. Minimum Directors 2 3
4. Certificate to commence No such requirement. Certificate to commence
business Can commence business business is essential
immediately on getting
the Certificate from
Registrar of Companies
5. Name of the company Should contain the word Should contain the word
‘Private Ltd’ “Ltd” at the end
6. Transfer of shares Shares cannot be No such restriction
transferred to third
parties without the
consent of other
shareholders.
7. Subscription from the public Cannot invite No such restriction
subscription from the
public to shares/
debentures.

The original of the certificate of incorporation and the certificate to commence business should be
perused and the relative particulars noted in the Bank’s Power of Attorney Register and the
documents returned to the company.

The resolution appointing the Bank as bankers to the company and naming the person(s)
authorised to operate on the account should also refer to the following
• The mandate is to remain in force until revoked by a subsequent resolution of the board of
directors, which should be communicated to the Bank
• Authority of persons signing the cheques should specify limitations, if any
• Authority should be specific for executing, on the company’s behalf, documents creating
charge over the company’s assets or otherwise binding the company
• Authority should be specific for signing of indemnities, guarantees, purchase/sale of securities,
withdrawal of securities from the Bank etc.
• The Bank shall be entitled to act upon any information given by a director or secretary
regarding changes in directorship o r office of the secretary
• That the specimen signatures of the company’s officials submitted to the Bank are duly attested

In view of the various legal formalities to be complied with, no introduction is considered necessary
for opening an account in the name of a limited company. Compliance with the requirements set
forth in the earlier paragraphs would suffice. However, in the case of new companies or even
existing companies whose accounts are shifted from other banks or when additional accounts are
opened , reputation of the company/promoter directors needs to be enquired into, to avoid
undesirable clientele.

14
Third party cheques drawn in favour of a company (normally these are ‘crossed’ cheques) must be
credited to the account of the company only. Cash should not be paid against such cheques as
such payment may not constitute ‘payment in due course’ in terms of Sec.10 of the Negotiable
Instruments Act, 1881.

As companies are established for business/commercial objective, savings bank accounts are not to
be opened. Normally requests for accounts in the names of companies not established locally or
companies which do not have a branch office as such, should not be entertained. If required, a
reference may be made to Corporate Office.

Official Liquidator
On a winding-up order made in respect of a company, the official liquidator becomes the liquidator
of the company and is required to maintain a personal ledger account normally with
RBI/SBI/Associate Bank of SBI. All moneys received by him shall be deposited in the account. Only
“order cheques” should be issued on such accounts.

III. Account Related Transactions

3.1 Transactions in running accounts

3.1.1 Withdrawals

In saving bank/ current account

The amount of withdrawal in current/savings account is limited to clear balance in the accou nt.
Withdrawals/debits against uncleared items like local cheques presented in clearing, cheques sent
out for collection, shall be authorised only by Branch Manager/Manager, depending on the merits
of the case.

No interest is payable on credit balances held in current account. A minimum balance as specified
in the Bank’s rules, shall be maintained at all times, failing which a charge shall be made to the
customer’s account, under advice to him. In case the client is considered otherwise valued, levy of
this charge may be waived at the discretion of the Branch Manager.

In borrowal accounts
Operations in overdraft or cash credit account are almost similar to normal deposit account except
for the lending aspects of such transactions. These are detailed herein.

Transactions, which result in creation of a debit balance in a customer’s account, require prior
authorisation. Regular advances by way of overdraft, cash credit or demand loan are authorised by
sanction accorded by competent authority, in terms of the Scheme of Financial Delegation.
Occasional overdraft or drawings in excess of drawing power or sanctioned limit, at branch level,
shall be authorised only by the Branch Manager or Manager (Credit) to the extent of financial
powers vested with the official.

In running accounts like overdraft or cash credit, debits shall be permissible by way of cheques or
otherwise (in case of debit vouchers prepared internally) up to the drawing power marked in the
relative accounts. The drawing power in these types of borrowal accounts shall be authorised by
credit officers in charge of borrowal accounts. If payment of a cheque/debit voucher will lead to the
outstandings in the account to exceed drawing power, the cheque/debit voucher shall be entered in
“Cheque Referred and Returned Register” for authorisation by Branch Manager. Thereafter, the
cheque/debit voucher shall be processed as per the normal procedure for passing of such
transaction.

15
In case of a new borrowal account, ordinarily the first debit transaction may be authorised by
Branch Manager or Manager, to ensure that all formalities regarding documentation etc., are
complete before drawal is permitted in the account.

Interest at the contracted rate, as per the terms of sanction, is computed by the system and shall be
debited to the respective account of the borrower as on the last working day of each quarter or at
such other periodicity as agreed upon. Accounts, in which such debits result in overdrawals, shall
be listed out for appropriate follow up.

As at the close of business on reporting Friday or the previous working day, if Friday is a holiday,
the aggregate debit balances in current accounts as well as the aggregate credit balances in cash
credit accounts shall be taken separately by Corporate Office (Treasury) for reckoning ‘demand and
time liabilities’ for statutory reserve requirements.

Payment of cheque
All details such as the following on the cheque shall be verified:
a) date
b) amount in words and figures
c) drawer’s signature
d) in case of an order instrument, whether the person presenting the cheque is properly identified
e) whether the payee’s account is only credited in case of `A/c payee’ crossing
f) whether the presentor’s identity / title is clear and satisfactory in case of `Not negotiable’
crossing
Additional information regarding payment of cheques is given in Annexure 1.
The cheque shall thereafter be entered by the JO in the system and passed for payment upto the
delegated powers of JO if there is no countermanding instruction, and sufficient balance or drawing
power is available in the account.

The passing officer shall ensure that the amount of the cheque is within the delegated passing
powers under the Scheme of Delegation. Inward and Outward cheques received in clearing shall
be handled as per the procedure for clearing and cash transactions shall be as per the procedure
explained in cash section. If payment is by way of a transfer entry, the officer shall pass the cheque
by initialling on the face of the cheque over the stamp “Transfer Paid”. Simultaneously, the
drawer’s signature on the cheque shall be cancelled. Further, the official who passes the cheque
shall also authorise or pass the corresponding credit voucher(s).

Return of cheques
In case a cheque cannot be passed for certain reasons, viz., improperly drawn or inadequate
balance or stop payment instruction, such cheque shall be returned after an entry in the “Cheque
Referred and Returned Register”. Individual entries for return of cheques shall be authorised by the
Manager or Branch Manager or OIC (Operations).
A cheque returning memo mentioning the reasons for return must be attached to the cheque and
duly signed by the officer concerned.

Cheques when returned, for any reason, shall be branded with a stamp “All our Stamps Cancelled”
and signed by the officer concerned.

Handling charges for return of cheque shall be charged as per the Bank’s ‘Directory of Charges’ and
advised to the customer.

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Penalty in case of dishonour of cheques for insufficiency of funds
The Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988
(66 of 1988) has inserted a new Chapter XVII, w.e.f. 1-4-1989 in the Negotiable Instruments Act,
1881, containing sections 138 to 142. This has been done to enhance the acceptability of cheques
in settlement of debt and other liabilities by making the drawer liable for penalties in case of return
of cheques due to insufficiency of funds or for the reason that it exceeds arrangements made by
the drawer. There are adequate safeguards to prevent harassment of honest drawers.

Nothing contained in section 138 shall apply unless -

a) The cheque has been presented to the bank within a period of six months from the date on
which it is drawn or within the period of its validity, whichever is earlier

b) The payee or the holder in due course of the cheque, as the case may be, makes a demand for
the payment of the said amount of money by giving a notice in writing, to the drawer of the
cheque, within fifteen days of the receipt of information by him from the bank regarding the
return of the cheque as unpaid

c) The drawer of such cheque fails to make payment of the said amount of money to the payee or,
as the case may be, to the holder in due course of the cheque, within fifteen days of receipt of
the said notice.

Explanation -For the purposes of this section, “debt or other liability” mean a legally enforceable
debt or other liability.

It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque
of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other
liability.
a) No court shall take cognizance of any offence punishable under section 138 except upon a
complaint, in writing, made by the payee or, as the case may be, the holder in due course of the
cheque
b) Such complaint is made within one month of the date on which the cause of action arises under
clause (c) of the provision to section 138

No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall
try any offence punishable under section 138.

3.1.2 Deposits

Local cheques
Customers could deposit cheques which are drawn on bank branches within a city. Such cheques
are cleared for the customer by sending them to the clearing house.

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Outstation cheques
If a customer tenders cheques for realisation from outstation centres, the branch may purchase
such cheques. The branch under delegated authority may make stray purchases. Where such
purchases are frequent, it is advisable to sanction a limit for cheque purchases to ensure proper
control. In terms of recommendations of a working Group on Customer Service, banks are required
to provide immediate credit to customer’s account, for all outstation cheques up to a value of
Rs.5000/- per instrument. This is permitted provided no unsatisfactory features have been observed
in the customer’s dealings in the past like frequent return of cheques for want of funds.
Commission and other out of pocket expenses shall be recovered as per normal practice.
In cases other than the above, outstation cheques shall be sent for collection in the normal course.

3.2 Transactions in deposit accounts

The operations in fixed deposit are partial withdrawal, premature withdrawal, withdrawal or
renewal on the due date.

Fixed and cumulative fixed deposits are due for repayment on due date, as per the period
mentioned at the time of acceptance of deposits. If due date falls on a holiday or a Sunday,
payment is due on the next working day.

Fixed deposit should be presented for payment duly discharged by the person(s) in whose favour
the receipt was issued. If payment is needed in cash, the discharge shall be over a revenue stamp
of Re.1 (minimum) for amounts over Rs.500/-. In case of credit to depositor’s account with the
Bank, the discharge over revenue stamp is not required.

If payment under a term deposit is made before completion of the period of deposit agreed upon at
the time of making the deposit, the rate of interest payable in respect of such term deposit shall be
the one applicable to the period for which the deposit remained with the bank less one per cent
penalty for premature withdrawal. Presently this is applicable for deposits > INR 15 lacs.

In case of partial premature withdrawal, the prematurely withdrawn portion would be paid interest
as mentioned above and the rest of the deposit would continue as per the original terms of the
deposit.

In the event of premature closure or withdrawal of a deposit under reinvestment plan, which
provides for reinvestment of interest, interest as permissible shall be paid on a compounded basis
with quarterly or longer rests for the period during which the deposit remained with the Bank.

When a branch allows closure of a term deposit or recurring deposit to enable the depositor to
immediately reinvest the amount in another term deposit, the branch shall pay interest in respect of
such term deposit or recurring deposit without reducing the interest by one per cent by way of
penalty, provided that the deposit remains with the bank after reinvestment for a period longer than
the remaining period of the original contract.

It is the policy of the Bank that in case of deposits for Rs.1 crore and above, premature withdrawal
is not to be permitted before 30 days from the date of deposit, irrespective of the original
contracted period. Where the deposit is less than Rs.1 crore, while premature withdrawal is
permissible even where the deposit has run for period less than 30 days, no interest will be paid
for such periods less than 30 days.

3.3 Transa ctions

All the transactions given above would be through the following:
• Cash
• Clearing
• Fund Transfers

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 IV. Cash

Transactions in cash in current/savings accounts as also deposit of instruments for credit to

accounts, call for prompt attention at the counter. Transactions detailed herein shall be handled at a
single window by Junior Officers (JOs). JOs are authorised to handle and are responsible, broadly
for the following types of transactions at the counters at the Branch

• To receive cash for any amount and provide to customers acknowledgement therefor ;
• To make payment in cash from current/savings bank accounts of customers including staff
accounts and Bankers’ Cheques issued by the branch after due observance of the relative
procedures ;

Registers/Forms etc.
A brief description of the various registers/forms which are used for handling the cash transactions
is furnished herein.

Receipts/Payments Scroll
These are loose sheets, serially numbered, given to the JOs handling cash, at the commencement
of the day. The scrolls shall be signed in full by the JO concerned and the officer-in-charge (cash) at
the place indicated at the right hand top corner. Blank scrolls, before issue, shall be in the sole
custody of the officer-in-charge (cash), and retained in the strong room.

Herein are recorded receipts/payments with the relative particulars in regard to the denomination of
notes actually handled, nature of transaction, the customer’s account number etc. Transactions are
to be entered sequentially and the relative sequence number along with the transaction ID number
(generated by the system) shall be entered in the voucher as well as in the counterfoil (in case of
receipts).

Also, in these scrolls shall be entered, in the first few lines indicated, cash taken from the officer in -
charge (Cash) at commencement of the day, subsequently during the day or cash taken/given to
other JOs during the day besides end of the day balance handed over to the officer-in -charge
(cash). At the end of the day, after balancing the cash, the scroll shall be totalled and closed. The
total amount shall be written in words and figures and the JO shall sign in full, for authentication.
The scroll thus closed shall be handed over to the officer-in -charge (cash). These scrolls shall be
filed datewise and kept in the records.

Branch Cash Balance Register

The end of the day cash balance is recorded in this register, in various denominations of
notes/coins. This is written up after the day’s cash is balanced in terms of value, as per vouchers
transacted and after physical verification of cash. The number of vouchers transacted in cash not in
receipts/payments shall also be tallied with respective scrolls.

Individual entries denomination-wise, in the register shall be initialled by both the joint custodians,
after physical verification at the end of the day.

The odd portion of the cash, i.e., notes which do not add up for a packet (less than 100 pieces) in
different denominations, is held in single custody of the officer-in -charge (cash) and these also are
entered in the branch cash balance register. The other part of the cash balance in bundles/packets,
entered in the register, shall be under the joint custody.

The officer-in-charge (cash) shall reckon the total cash receipts and payments independen tly, vide
para 10.4 herein and arrive at the closing balance of cash. This should tally with the position

19
reflected in the branch cash balance register. Thereafter, after physical verification as mentioned
earlier, he shall sign the branch cash balance register.

The Manager shall also sign (besides the joint custodians) the register to evidence the verification
of the cash balance, as per books, with the balance reported in the general ledger under the head
‘cash on hand’.

The cash balance normally consists of notes and coins. If esteemed customers call on the Bank
after business hours within reasonable time of working hours, such persons should be obliged and
such payment should be accounted as late payment in the books of the branch; similarly any cash
deposit being received after cash books have been closed should be accounted as "late receipts".
The relative vouchers must be entered on the same day in the passing official’s scroll under the
following day’s date and recorded in the cash balance book and authenticated by the officer-in -
charge (cash). The physical cash, to the extent of such late payment/receipt should vary with the
closing balance as per register. Any deviation from these instructions shall be regarded as serious.

Vault Register
This register is kept inside the strong room/cash safe at all times, depicting the cash balance in
different denominations held at any point of time. Any deposits into the strong room/cash safe or
withdrawals therefrom shall be entered in this register, initialled by both the joint custodians before
leaving the strong room or closing the safe.

During inspections/verifications, for cash taken out for such verification, entries shall be made in a
separate folio under authentication of the joint custodians.

Strong Ro om
All cash, other than what is held at the counters, are kept in the strong room/cash safe. The strong
room must be under the double lock of the officer-in-charge (cash) and the authorised JO holding
joint custody. Both the joint custodians must be present when the strong room/cash safe is opened
and neither may enter it except in the presence of the other. In exceptional cases, however, when it
is not practicable for both joint custodians to be present in the strong room continuously, such as
during a cash verification by another official, adequate steps should be taken to safeguard both the
Bank’s and absent custodian’s interests.

All safes and as far as possible, all receptacles in the strong room which are used for storing cash,
foreign currency notes must also be under the double lock of the joint custodians with the
exception of the receptacle used for the officer-in-charge (cash) to hold the odd balance in the
notes, part of the branch cash balance, in his sole custody, under single lock

Handling transactions in cash

Handling of Cash Receipts

JOs when accepting cash deposits shall
• verify the particulars regarding :
• the name/type of account;
• account number of the customer;
• verify whether the voucher is filled in, as required;
• in case of drafts/JOs, the relative applications are required to be made on the Bank’s
standard vouchers; please also refer to para 5.2 herein for details to be verified.
• in case of fixed deposits, all particulars such as name, period, rate of interest are to be
carefully entered; in case of new customers, the formalities regarding introductory
reference etc., need to be complied with by the respective staff.
• in case of bills transactions, the particulars regarding the value of the bill, interest and such
other data should be authenticated by the staff concerned for accuracy etc.
• verify the denominations of notes in regard to quality and quantity;

20
 • enter denominations of notes/coins as actually received in Receipt scroll;
• key in, the transaction, into the system;
• enter the scroll number in his own manually maintained "Receipt Scroll’, as also the system
generated Transaction ID No., both in the counterfoil and in the voucher portion;
• post the transaction to the account intended;
• brand the branch ‘cash received stamp’, both on the voucher and on the counterfoil
portion;
• return the counterfoil to the customer at the counter, duly initialled.

In case of receipts in cash for issue of drafts/TTs, the JO shall :

• satisfy himself as to the correctness of the details in the voucher regarding :
• the place or branch where the remittance is to be sent;
• the code number, correct name of the payee branch;
• correct exchange for the transaction as also charges (or telex or such other) for TTs; finer
rates of exchange on transactions in the absence of approved arrangements, shall be
authenticated by the officer-in -charge of drafts/TTs.
• signature of the applicant;

The cash tendered shall be verified for each denomination; As far as possible, soiled notes shall be
sorted out separately, while issuable notes should be bundled separately.

Cash Payments
In case of cash payments against cheques drawn on savings/current accounts, JOs on their
authority can make payments upto Rs.25000/- per instrument. In other cases, cheques etc., must be
passed for payment by an authorised official in terms of the scheme of delegation for passing
powers. Before making the cash payout, the JO shall scrutinise :
• apparent genuineness of the instrument: alterations, if any, whether authenticated with full
signature of the drawer, that there are no signs of tampering of the instrument etc.,;
• date (to make sure the instrument is not stale);
• amounts in words and figures;
• signature(s) of the drawer;
• payee’s (in case of the cheque being presented by a person other than the drawer)
identification, if need be; obtain the signature of the payee at the back of the instrument
• endorsements, if any; and
• key in the cheque particulars.

The system will validate the transaction in regard to :

• adequacy of balance,
• countermanding instructions, if any,
• the cheque leaf numbers as pertaining to the account.
If the drawer’s signature needs to be verified, the system will provide on the screen, the specimen
of the drawer’s signature as recorded.

After verification as above, fi the amount involved is Rs.25,000/- or less, subject to the cheque
being verified to be in order, cash shall be paid over the counter by the JO after entering the
transaction in his payment scroll, recording the denominations of cash given. Cash paid stamp shall
be branded on the face of the cheque. The sequence in the scroll number shall be recorded on the
instrument and the drawer’s signature shall be cancelled.

In case the cheque is for an amount in excess of Rs.25,000/- after preliminary verification, the JO
shall:
• enter the cheque with his ID number and record the transaction ID on the instrument
• ‘Pay Cash’ stamp shall be branded on the cheque and after his initial the instrument passed
over to the authorised official concerned.

21
The officer, on verification, by entering his password, shall post the transaction and pass the
cheque for payment by affixing his signature under the stamp ‘Pay cash’. An entry is made in the
cash scroll of the authorised official and the relative sequence number is entered below the
signature. Thereafter, the cheque as passed, shall be handed to the JO for making the cash payout.

The JO shall then :

• verify the signature of the passing official ;
• whether the amount passed for payment is within the passing powers laid down* for the
official concerned;
• verify the cheque in regard to date, amount in words and figures,
• call the payee to the counter,
• satisfy that the payee’s identity is properly established or on the contrary, no suspicion is
aroused in regard to the payee’s identity.
• Passing powers as laid down in the scheme of delegation, for different officials at the
branch shall be made available to JOs handling cash

In case of cash is to be paid to third parties, for values exceeding say, Rs.5000/-, it shall be ensured
that the payee or the person to receive the cash at the counter, is properly identified. In case of
doubt regarding identity of the payee, the matter should be referred to the official who has passed
the instrument for payment.

Similar shall be the procedure for payment of cash for drafts drawn by other branches of the Bank
or correspondent banks with whom the Bank has established arrangements.

Barring self cheques, normally for cheques/drafts for large amounts the payees should be advised
to have the ch eques credited through their accounts with the Bank or other banks, particularly in
case of payees being corporate entities or partnership firms or trusts.

As cash is paid to the person presenting the instrument at the counter, the JO shall:
• enter the details of denomination of the notes in the receipt/payment scroll;
• also enter the payee’s name, drawers account number and amount paid;
• the (sequence) scroll number shall be recorded on the instrument;
• the signature of the drawer on the cheque/draft shall be cancelled, to prevent any re-
presentation of the same instrument;
• cash paid stamp shall be branded on the instrument and initialled by the JO making the
payment.

All such paid instruments, after tallying the cash with each JO’s scroll, after close of banking hours,
shall be returned to the officer authorised, under acknowledgement, which may be evidenced by
initiating the total no. of instruments in the JO’s scroll.

Balancing of JO’s cash for the day

After the day’s transactions are completed, the JOs (both in receipts/payments) shall add up the
receipts/payments in the respective scrolls, verify the cash on hand and compare with what was
taken from the officer-in -charge (cash) during the day, as available in their scrolls. After such tally,
the scrolls maintained manually, shall be closed and the total written in words/figures, signed by
the JO concerned. Also number of receipt and paid instruments shall be entered. The cash on hand
shall be processed as detailed in subsequent paragraphs before handing these over to the Officer-
in -charge (cash). Likewise, paid instruments shall be handed over and the officer-in-charge (cash)
shall initial the total number of instruments in the scroll.

22
Shroffing

After tallying the cash, each JO shall prepare, pertaining to the balance of cash on hand, note
packets made up of 100 pieces for each denomination. The packets shall be made after sorting the
notes into usable and non-usable categories. Each packet should be wrapped with a note slip
printed on white paper for note packets of usable notes and pink paper for packets of non-usable
notes.

Wrapping should be around the left hand edge of the note packets in such a manner that the slip on
the top covers two thirds or 75% of the note packet (100 pieces) on the front and remaining part of
the note slip will cover the back portion of the packet.

A packet of such notes so wrapped shall be stapled at the left side of the packet, in the middle
portion (roughly at 1/4 or 1/3 of the packet). Only single stapling should be done, to preserve the
quality of the notes for re-issue.

A twine ring or rubber band should be tied around the packet to hold the packet tightly and loose
ends of the twine should be cut out. In case of twine knot, the knot should be at the back of the
packet. The position of the ring should be two or three mm. to the right of the staple pin.

Thereafter, the JO who has prepared the packet, shall fill in the particulars like denomination, date
and sign the note slip in the space with the legend "Examined an d counted by...".

A paper seal, protective, colourless and transparent carrying the Bank’s logo, shall be affixed on
both sides of the packet as to cover the note slip, the ring and the staple pin which is on the
reverse. The seal should cover the knot, in case the ring is made of twine thread.

The procedures laid down in the foregoing paragraphs, ensure that the JO preparing the packet is
primarily responsible for the quality as well as the quantity of the contents, i.e. in regard to the
number of pieces and quality/genuineness of the notes. His responsibility remains till the packet is
dislodged or broken, elsewhere. For the number of pieces in the packet, however, an additional
independent verification is done as detailed in subsequent paras.

The balan ce of cash with all the JOs, processed and tallied in the above manner, shall be handed
over to the JO holding joint custody of cash as indicated elsewhere in this chapter, who shall verify
on a ‘gross’ basis, the arithmetical accuracy of the cash in amounts/denominations of
notes/compared to notings in the JO’s scroll and acknowledge by initialling for the quantity, in the
JO’s scroll and receive the notes for recounting and custody, thereafter.

Recounting/Clip counting/Verification etc.

The JO holding jo int custody of cash, thereafter, shall arrange for recounting of the packets (100
pieces each), either by himself or alongwith other JOs, depending on the volume of packets to be
dealt with. Notes in the denomination of Rs.100/500 shall be verified by both the custodians of cash
independently. Verification of other denominations may be done by clipping a few notes, through
other JOs. As a separate check, joint custodians shall also examine a percentage of smaller
denomination notes, clip counted/verified by JOs.

Recounting involves counting of the notes to ensure that each packet contains 100 pieces, the note
slip bears the branch stamp, date, and denomination.

Where counting/recounting is done through machines, JOs/official concerned shall initial on the
note slip for the verification which signifies the certification for the quantity. This is important, as
subsequently, claims when arise, responsibility needs to be shared.

23
Thereafter, the JO/official verifying the section shall sign in such a manner as to cover the note seal
as well as on the note slip. This again would be crucial to determine or fix up responsibility when
the quantity of notes in a packet is disputed. Normally, such occasions arise when RBI/SBI/other
banks make a claim, when remittances are made. After verification, the note slips are returned or
retained, as documentary evidence for such claims for the shortfall.

‘Clip counting’ means, in a manual system, a few notes being ‘clipped’ ( a portion of the note being
folded inward); the employee to whom the packet is given for ‘recount’, verifies the remaining
number of pieces and indicates the count on top of the note slip with his initials. The official ‘opens’
the clip and verifies whether the total pieces are 100 in the section; if not, the section is recounted
in full. Irrespective of denominations of notes, clipping of packets shall be done by the JO holding
joint custody of cash and counting should always be done by JOs, (other than the JO who has
made the packet earlier). After ensuring the packet contains 100 pieces, the JO can initial, for
evidence of recounting, for the quantity.

After all the cash at the end of the day from all JOs are verified/recounted in the above manner, 10
packets in each denomination, shall be bundled and tied with a twine. Before bundling, the officer-
in -charge (cash) shall ensure that all sections (packets) bear two signatures and branch stamp. The
‘net’ deposit of cash into the strong room is then reckoned by the JO holding joint custody of cash.

Balancin g of day’s transactions/verification by joint custodians

One of the JOs shall write up a summary of the cash transactions in the jotting book of the officer-
in -charge (cash), payments/receipts wise as also JOs wise, from the JOs’ individual scrolls and
reckon the net balance in the strong room/cash safe.

At the end of the day, gross receipts/payments in cash as generated by the system, shall be verified
to match with the aggregate in the scrolls of JOs in receipts/payments.

This shall be done independently by the officer-in-charge (cash) with reference to the scrolls of the
JOs and his own jotting book. In his jotting book, the officer-in -charge shall have recorded the
actual cash taken out at the beginning of the day, further drawals/deposits during the day. This
position should also be available, similarly in the Vault Register. Thereafter, the officer-in -charge
(cash) shall close his jotting book for the day, under full signature.

The officer-in-charge (cash) shall also verify and record in his cash payment scroll, at the end of the
day, a summary of the cash receipts and payments :
• the total cash receipts as made out by the system. This should be equal to total receipts in
the JOs scrolls;
• total of cash payments authorised by each official as entered in their respective scrolls
besides payments authorised by the joint custodian himself;
• the authorised official shall, thereafter add to the total receipts, the opening balance. From
the resultant total, if the total payments are deducted, the closing balance of cash is made
out. This shall be equal to the position reflected in the Branch cash balance register. Against
the total receipts and payments, the number of vouchers shall also be entered.

After the verification, as above, the officer-in-charge (cash) shall close his scroll for the day under
full signature.

Denomination wise, the cash returned by the JOs shall be jotted in the cash balance register as
also those held in the vault in the strong room. Together, the aggregate value should be equal to
the general ledger balance under ‘cash on hand’ in the branch books.

The joint custodians shall verify each and every item of entry of cash in different denominations, as
entered in the ‘Cash Balance Register’ and the actual cash in bundles/packets and in loose cash
(broken).

24
Before taking notes and coins into the ‘Joint Custody’ balance, the officer-in-charge (cash) shall
check the correctness in the following manner :
a. He/she shall verify all notes of Rs.100/- and above, and also a proportion of all other
denominations of notes on clip system as detailed earlier.
b. The officer-in -charge (cash) shall have all bags of rupees and half rupee weighed in his/her
presence and a number of bags emptied to show that the contents are genuine coin. Out of
proportion of the bags, he/she shall take and count a few pieces and have the remainder
counted in front of him/her as a similar check to the ‘Clip System’ for notes, verifying the
relative denomination slips in the bag at the same time.

The officer-in-charge (cash) shall satisfy himself/herself each evening that the ‘Joint Custody’
balance corresponds exactly with the entries in the cash balance book. At least once a week on
different days he/she shall check the whole of the bank cash balance and evidence such check in
the cash balance book, and agreeing into Bank’s Cash Balance with that of General Ledger. In
evidence of having done so, he/she shall subscribe his/her signature with a narration "verified and
found in order"; in the branch cash balance register.

Any shortage in the cash balance, however occasioned, shall be debited to Suspense account, if
not recovered from the concerned JO, the same day; the matter should be reported by the branch
to Controling Authority and approval obtained to debit the amount to ‘Cash Shortages, Misc.
Losses Account’, if the amount is not recovered in the meantime. All such deficiencies, frauds,
including attempted frauds should be reported to Controlling Authority immediately. At the end of
each quarter the latest developments sh ould be reviewed to the Controlling Authority.

Any excess in cash balance must be credited to Sundry Deposit Account; refunds upto Rs.100/-
may be authorised at branch level, after satisfying the genuineness of the claim; amounts in excess
of Rs.100/- shall be refunded only with prior approval of the Controlling Authority.

Whenever cash is brought, as per arrangements, from RBI or correspondent bank or from our own
branch, or deposited into RBI/correspondent bank etc., the relative receipt/payment shall be
scrolled in the JO’s scroll. Precautions/procedure for such transactions are detailed elsewhere in
this chapter.

The Joint custodians, alongwith one of the JOs, shall enter the strong room with the cash thus
verified. The joint custodians shall make the corresponding entries in the ‘vault register’,
denominationwise; both the officials shall authenticate individual entries in the Vault Register as
also in the Cash Balance Register.

Before deposit of the cash into the receptacles denominationwise, issuab le and non-issuable notes
separately, the joint custodian shall examine the bundles, rings, loose cash before turning these
into the vault.

Miscellaneous aspects of cash transactions

It is essential that cash held in the strong room, an asset of the Bank, shall be adequate to meet
normal withdrawals at a branch; excessive holdings of cash would mean holding an asset without
any return while demands for cash from customers MUST be met at all times, as failure to adhere
to this obligation has legal and other dimensions to the Bank’s image. The joint custodians as well
as the Branch Manager shall ensure that standby arrangements with correspondent or other nearby
banks, are effectively placed on record in case of emergency, for smooth operations.

Also, one of the demands of customers relate to supply of fresh notes in various denominations as
well as supply of small coins, on occasions. The branch management shall constantly review the
relative arrangements, for meeting the genuine demands of customers which may reflect on the
quality of service rendered.

25
Excess cash etc.
Excess cash collected on any day, in excess of the cash retention limit prescribed, shall be remitted
over to RBI or the nearby correspondent bank with whom the Bank has finalised agency
arrangements or with any other nearby bank which the Corporate Office may approve of. All such
transfers, from the cash aspect of the transaction, shall be governed by the following :
• determine the exact amount of cash, various denominations (acceptable to the other
bank/branch, as normally smaller denominations may not be acceptable beyond a quantity);
• identify and verify the number of packets (bundles of the packets) in each denomination;
• enter the exact amount of such remittances for withdrawal in the ‘vault’ register under
authentication of the joint custodians as also in the officer-in -charge (cash) jotting book;
• cash shall be stocked neatly alongwith the summary of denominations of notes, in steel
boxes/trunks, one of the keys available with other bank, as per arrangement; the lock
should be closed and sealed with a cloth. The key shall not be carried alongwith the box
while in remittance;
• timings for remittances, as far as possible, should be kept secret; areas of tension, riots,
civil commotions shall be avoided;
• transits within the city or town, shall be delivered on the same day, within the
working/business hours, on the same day;
• an authorised official/JO shall accompany the remittance; security accompanying the
remittance normally shall be armed with fire arms and/or non-lethal weapons;

In case of an inward remittance brought from correspondent/other banks/Bank’s own branch, at the
Bank’s instance, the steel box in which the cash is brought, shall be opened by the Bank’s staff
accompanying the remittance in the presence of the joint custodians in the strong room and,
• gross count of the remittance is taken;
• detailed examination of denominations of Rs.100 and over, taken up;
• necessary entries made in the vault register as well as in the officer-in-charge (cash) jotting
register;

Blanket Insurance
All transit risks, for remittances are covered by Bankers Blanket Indemnity at Corporate Office.
Under Bankers’ Blanket Insurance Policy, losses of the following nature are covered up to the limits
as advised by Head Office from time to time :
a. Loss of cash or securities held in branches, loss of cash in transit between our branch as also
remittances between our Bank and branch of other bank (RBI/SBI/Correspondent or other
banks).
b. Loss due to forgery, alteration and dishonesty of the employee.
Branches shall keep their Controlling Authorities informed of cash retention or cash remittance in
excess of the approved limits fixed to them.

Cash remittances in excess of the approved limits should be advised to Insurance Company for
transit cover in a letter in duplicate. After the receipt of the duplicate, it should be held in the branch
files, as acknowledgement.

Remittance/withdrawals from Reserve Bank of India

The procedural steps for cash deposits/withdrawals from RBI are as follows :

Cash deposit
a. Notice is given to RBI - Issue Department (Currency Officer) generally on the previous day with
details of denominations;
b. By 11 am, cash accompanied by a JO and an armed guard, in a closed van, should reach RBI;
c. Details of remittance are filled up at the branch before cash is taken out;
d. A bond is issued for denominations of Re.1/- and another bond for other denominations
towards any cut/counterfeit notes, if found (Annexure ‘B’);

26
e. In case of shortage of staff/time, RBI may take the cash into a "Triple Lock Guarantee Bond
System". A convenient date is allotted to count the cash but credit to the account is given
immediately.

Cash withdrawal
a. A cheque drawn on the Bank’s account with RBI attesting the signature of the JO for the cash to
be drawn.
b. A system at RBI begins well ahead before tokens are issued. For new notes upto a value of Rs.1
lakh, a requisition needs to be issued to RBI. Normally, deposit and withdrawal are not
permitted on the same day.

Cash Retention Limit

The Cash Retention Limit for Nariman Point Branch is Rs. 1,00,00,000/-(Rupees One Crore Only), ie
the total of Cash balances held as at the end of the working day should not exceed Rs. 1 crore. The
retention limit covers the cash balances held at the Branch and all the extension counters of the
Branch. Maintenance of the cash balances within the retention limit is important, since cash is an
idle asset and the cost associated with holding cash is very high to the Bank. A fortnightly report is
prepared and sent to Corporate Office stating the cash holdings of the branch as at the end of each
day. This report also underlines the reasons for excess holdings of cash over and above the
retention limit, if any during the fortnight.

V. Clearing

Clearing is the process by which banks exchange instruments drawn on one another. The clearing
infrastructure is designed to address the movement of instruments between the presenting and
drawee branches. Each member bank is represented in the clearing house by its service branch,
which collects all the information from the various branches and consolidates them for presentation
to all the banks in the clearing house. Similarly, it receives and distributes among its branches all
the instruments drawn upon its branches by other banks in the clearing house. The service branch
of a bank performs a crucial intermediary role between the clearing house and the branch of a
bank.

The clearing process

The clearing process begins with the deposit of instrument with the bank (presenting bank). All
branches similarly cumulate the instruments received during banking hours and send it to the
designated place called clearing house. At the clearing house the instruments are sorted depending
on the drawee bank and delivered to the service branch of the bank. The service branch in turn
segregates the instruments and delivers it to the drawee branch. The instrument is passed for
payment if the funds are available and the banker is satisfied about the genuineness of the
instrument. The instruments that are unpaid are returned to the presenting bank through another
clearing called Return Clearing. The realisation of funds occurs after the completion of return
clearing and by the absence of an unpaid instruments.

Instruments Accepted
Instruments presented in clearing include cheques, demand drafts, dividend/interest warrants, pay
orders or Banker’s Cheques, gift cheques and Indian postal orders, but shall not include coupons
and fixed deposit receipts.

27
Verification at the Counter
The instruments together with the pay-in-slip tendered by the customer should be verified to
ensure that:
• all particulars are duly filled in the pay-in-slip,
• the pay-in-slip is duly signed by the depositor and the instrument is drawn/duly endorsed
favouring the depositor only. In all other cases, reference should be made to the Officer-in -
charge (Operations) before accepting such a cheque.
• instruments tendered are in order, i.e. these are not out of date/post-dated, bear the signature
of the drawer, etc.,
• material alterations, if any, on the instruments have been duly authenticated by the drawer
under his full signature.

Clearing House
The Clearing House facilitates prompt settlement of cheques between participating banks to
enhance liquidity. All metropolitan, urban and semi-urban centres have clearing arrangements.

Depending on the volume, more than one Clearing House is available at certain centres. For
example, at Bombay, the relative schedule is presently as under:
• High Value Clearing
• Inter Bank
• MICR
• Interest/Dividend Warrant Clearing

Management of Clearing House

The Clearing House is established under the aegis of Reserve Bank of India (RBI). Uniform
Regulations and Rules have been framed by RBI, which govern the functioning of the clearing
house. Generally, RBI undertakes management of Clearing House wherever it has offices of its own.
At other centres, State Bank of India (SBI) or one of its associates is normally authorised. Clearing in
13 major zones is managed by the RBI and the rest by the State Bank of India (with 51% ownership
by the RBI) and its associate banks. In the absence of either, one of the public sector banks at that
centre, as specified by the RBI, shall be the Bank to manage the Clearing House. The President of
the Clearing House presides over the daily operations. Broad guidelines for conduct/
administration of clearing house are laid down. The Clearing House authority decides the matters
relating to attendance of the representatives of the member banks, furnishing of statements
regarding instruments presented and the amount thereof and also the discipline to be o bserved by
the member banks for returning of in struments, etc. Barring major clearing zones, clearing is a
manual process where instruments are manually sorted.
the amount due to or from the bank.

Clearing Hours
Clearing hours are specified at each centre according to local requirements and branches should
strictly adhere to these timings. Sub-members, as a corollary, should correspondingly adhere to
the timings for their presentations/ delivery and collection of inward/ returned instruments, through
the sponsor bank.

High-value Clearing
High-value clearing is a value-added clearing process. A high-value cheque deposit is credited to
the account on the same day as the date of deposit. For a cheque to be presented in high-value
clearing:

• the cheque amount should be greater than Rs.100,000;

• the drawee and payee banks must be situated within the central business district defined by the
clearing house;

28
• the cheque should b e deposited before the cut-off time for that city.

High value clearing is a value-added service. In this clearing select branches located in a central
business/commercial area and in the vicinity of the Clearing House/Service Branches of banks
present instruments deposited by their customers, to the clearing house. The instruments are
dropped into the respective receptacles of the drawee banks and settlement is carried out through
floppy based input statement. The return clearing is held before close of banking hours on the
same day. In case of high value clearing the credit given to the account of the depositor before the
fate of the instrument is actually known.

Local MICR Clearing

MICR Technology
The introduction of MICR technology has resulted in the following benefits :

• considerable improvement in the area of customer service by affording credit by reducing the
time taken in manual clearing
• abolition of second clearing as unlimited number of instruments can be presented in a single
clearing
• the high speed reader-sorter machine installed is capable of handling the voluminous
operations in entirety both in terms of accounting and sorting the instruments Bank/
branchwise.
• the accuracy in processing reduces the errors, thus enabling speedy reconciliation.
• accountwise sorting - Current Account, Savings Bank Account, etc.

M.I.C.R. Instruments
Under the Magnetic Ink Character Recognition Technology (MICR), cheque leaves carry pre-printed
code numbers which are explained below:

a) The first six digits indicate the cheque serial number;

b) The second group of nine digits in the sort code indicate
- First three digits −− −− −→ City code;
- The next three digits −− −− −→ Bank code;
- The last three digits −− −− −→ Branch code;
c) The third group of six digits represent account number.
d) The next group of two digits indicate the transaction type, such as current account, saving Bank
account, drafts, etc.
The last group of 13 digits represent amount field, which should be encoded at the branch before
presenting an instrument in clearing.

Cheques that cannot be deposited in high value are processed in MICR clearing, in which all banks
participate. Cheques are encoded and lodged with the clearing house, which processes the
cheques and delivers them to the respective member banks for settlement. MICR is operational in
20 cities and follows a 48-hour cycle as follows:

Day 0 – cheques are received by the clearing house and presented to the paying
bank.
Day 1 – the paying bank credits funds to the presenting bank; however, funds are
still on an uncleared basis to allow time for returns.
Day 2 – there is a time window to allow for returns after which clear funds are
available in the recipient's account.
However there could be a counter return on Day 3.

29
Inter-bank Clearing
Inter-bank payments are usually settled among banks by issuing cheques drawn on their accounts
with RBI. This practice resulted in a large number of cheques being presented to Deposit Accounts
Department (DAD) of the RBI, leading to heavy work pressures throughout the day. It was therefore
decided to start a separate Inter-bank clearing. In the Inter-bank clearing banks no longer use the
RBI cheques to settle their claims against each other. Instead, they use their own Bankers Cheques.
The settlement is carried out through Floppy Based input statements, submitted to the designated
receptacles. Since there is no return for these instruments, the credit/debit is instantaneous.

Inter-bank clearing is used by banks mainly for four types of transaction: call money transactions,
rupee payment of foreign currency transactions, bank to bank transfers for funding upcountry
requirements and inward remittances.

Computerisation of service branches and clearing houses (both MICR and floppy based) at banking
centres with large volumes of business has resulted in the creation of a base for the introduction of
automated clearing operations at other centres. This has also enabled the introduction of electronic
payments service on an experimental basis so that future expansion of these services using the
clearing infrastructure is possible. However, there is a lot of scope for developing backward and
forward linkages to fully utilise the advantage of the item-wise database created by the MICR
cheque processing.

Clearing Settlement Account

Banks participating in the Clearing House are required to maintain a current account with the bank
managing the Clearing House, for purpose of settlement of funds on account of clearing. This
account shall be debited/credited with the net amount payable/receivable through clearing.
Overdrawing facilities are normally made available for exigencies.

Clearing Settlement
The settlement of funds in clearing occurs at several levels. The aggregate amount or value of
cheques presented by a bank on other banks represents the claim by that bank on the other banks.
All the banks make similar claims on every other bank in the clearing. The value of instruments (i.e.
total of schedules) drawn on the Bank and the value of instruments on other member banks is
‘netted’ and either recovered from or paid to the Bank by debiting or crediting our account with the
bank managing the Clearing House. This would mean that the Bank (branch) has to ensure that
adequate balance is always maintained in the account. For efficient liquidity management,
unremitting attention should be paid to ascertain on a daily basis, the ‘net’ position. Constant feed
back should be provided to Corporate Treasury, with implicit promptitude, in regard to the funds
requirements/surplus. This represents the inter-bank settlement. The settlement of funds between
the service branch and the branch concerned represents the transfer of funds to the branch level.
The payment process is completed only when the funds are debited from the drawer’s account and
credited to the payee’s account. This occurs after the completion of return clearing.

Normally, the overdrawing arrangements exist with the bank managing the Clearing House.
Besides, for emergent requirements, branches should align with oth er banks to meet
contingencies, with the approval of the Corporate Office. For instance, at certain centres, for small
amounts (say, upto Rs.1.00 Crore), local branch of other bank provide overnight call money.

However, it is to be noted that all borrowings, including overdrawings in the Current Account with
the bank managing the Clearing House, shall be reported to the Corporate Office the same day. All
borrowings shall be authorised only by the Corporate Treasury. Extra care should be exercised to
desist from overdrawings/borrowings on the “Reporting Fridays”.

30
Settlement of Clearing Difference
In case of discrepancies in clearing settlement, the concerned branch should immediately take up
the matter with the respective Bank(s), by furnishing full particulars of the underlying instruments,
the amount of discrepancy, etc.

Outward Clearing
Instruments lodged by the customers for collection, if payable at the same centre are to be
presented through clearing house for payment. Normally, areas are defined by local Clearing
House. These instruments are called outward clearing instruments. .

Branch shall sort the cheques bankwise and prepare a separate outward clearing schedule for each
member bank listing out the instruments drawn on the respective member banks together with
total of such instruments. These schedules are exchanged by the clearing members at the Clearing
House at designated time.

Presentation of Instruments
All instruments, depending on the time of receipt and value should be sent in MICR Clearing or
High Value Clearing as the case may be. At centres where no such differentiation exists, the
instruments should be consolidated for presentation in a single lot.

Bankwise totals and total number of instruments presented on each bank and the grand totals,
should be generated in the format prescribed by the Uniform Regulations and Rules (URR) of the
respective Clearing House.

Listing of Documents
It is the responsibility of the presenting bank to ensure the correctness of the instruments
accompanying the list as also its arithmetical accuracy. The Clearing House representative is
authorised by the Bank to present and collect instruments from the Clearing House on behalf of the
Bank. He/she is however, not authorised to alter the list or delete or remove instruments
therefrom, or refuse to receive the lists and in struments of any member-bank or its sub-members
unless specially authorised to do so by the supervisor of the Clearing House, for valid reasons.

Procedure At MICR Centres

At centres where MICR technology is in use, the bank receiving the instruments encodes the
amount field of each cheque. The usual clearing house stamp, endorsements, etc. are dispensed
with and the date of presentation, the branch/ bank presenting the instruments, etc. are
inco rporated on the instruments when these are encoded. It also prepares a batch ticket for every
set of instruments presented. The number of instruments for each batch is prescribed by the
Uniform Regulations and Rules (URR) of the respective Clearing House. The batch ticket is encoded
with the date of presentation, presenting bank and branch code, batch ticket code (555 - the code
which will indicate to the reader-sorter machine that the ticket is a batch ticket and not an
instrument), the number of instruments and the total amount of the batch. A batch generally
consists of 250-300 instruments.

Shadow Balance
In the case of local instruments, the credit is afforded to the customer’s account as soon as the
clearing is settled, i.e. the day on which the relative funds are available to Bank. This represents the
amount of cheques (presented through clearing) for which the Bank has received the credit and the
respective amounts in turn credited to party’s account but awaiting fate of cheques. This credit is
available only as ‘uncleared balance’. This balance is taken into consideration for calculation of
interest, but withdrawals are not permitted until the completion of return discipline time stipulated
for that clearing zone.

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Inter-City - Credit
In case of instruments presented through inter-city clearing, credit is afforded to the customer on
the day on which the Bank’s account with the Clearing House/sponsor bank is credited and the
relative credit advice is received by the branch.

Inward Clearing
The instruments received by a bank at the Clearing House from other members are called inward
clearing instruments.

Process of Verification
Each member bank, on receipt of the inward clearing list alongwith the instruments, should verify
the number of instruments and value thereof. Sponsor members are also to receive the inward
clearing list, alongwith the instruments pertaining to the sub-member bank. The sub-member bank
should pick up the list and the in struments for similar processing at its end and ensure adherence
to the return clearing discipline of the clearing house, as detailed in subsequent paragraphs.

After initial verification of the total number of in struments and the value thereof, the instruments
should be processed for payment by respective sections at the branch. This should be done on a
priority basis to enable the branch to conform to the return clearing discipline.

In order to ensure against misuse or other risks in handling the clearing prior to verification and
posting, the following procedure should be followed :
• verify that all the instruments are drawn on the branch
• all instruments on receipt should be branded with the Bank’s inward clearing stamp
• the instruments should be verified with the list furnished by the Clearing House, for the correct
number of cheques/other instruments and value
• maximum physical control must be exercised over the instruments whereafter these are passed
on to the respective sections for immediate processing
• the instruments should be subject to the normal scrutiny process before posting in the
respective customer’s account and passed for payment.

The instruments are entered in the system and the validation run is conducted by the official-in -
charge to check each account for the following: i) sufficiency of funds; (ii) whether cheque pertains
to that account or not; (iii) any countermanding instructions like any ‘stop’ payment instructions or
court/income tax attachment, etc., cheque already paid/ stopped, etc. It will also give a warning of
any exception that may arise out of the actual inward clearing debit. A printout of this validation
run is to be taken, perused and preserved carefully.

Suitable action needs to be initiated to deal with the exceptions. Once the validation run is done,
the system records the pipeline debit in the respective accounts pending posting. It is, therefore,
desirable to carry out validation run before verification, if the verification process is expected to be
delayed, to ensure that amount of instrument is earmarked wherever there is a mistake in data
entry regarding cheque number/wrong account number, no amount is reserved by the system.

Role of Bank’s Clearing House Representative

At centres where clearing is not computerised, the Clearing House representative (CHR) should be
provided with a register in which the number and amount of the instruments received and
delivered are recorded. The CHR should handover to the sponsor bank branch, the instruments
together with a delivery slip: and should also receive the instruments drawn on CHR’s Bank
alongwith the delivery slip. After comparing the delivery slip with the instruments received and
verifying the totals, the CHR should total the receipts from the deliveries to the other member banks
in the register, strike the ‘net’ position to arrive at.

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 VI. Fund Transfer

6.1 Demand Drafts

At the draft issuing branch

At the draft issuing branch, Inter Branch Drafts Account is maintained. On receipt of cash/credit
through the account of a customer, the amount of draft excluding exchange will be credited to this
account, as an originating credit to the branch on which the draft is issued. For issue of Bank’s own
drafts, no other account should be accessed.

Finnacle system will generate at the end of the day, for Corporate Office, a file of all IBR entries
including drafts issued with details regarding

• system generated draft number

• date of issue
• amount of draft
• drawee branch
• payee’s name

At Corporate Office on receipt of these files from all branches through the system, they will be
processed and branch-wise files of drafts issued on each branch prepared. These files will be
disseminated along with other IBR entries, from Corporate Office, to all branches on whom drafts
are drawn.

At the drawee branch

The following accounts are maintained at the drawee branch

• Drafts Payable Account

• Drafts Paid Ex-advice Account

Drafts payable account

On receipt of the computer file of drafts issued by other branches, the draft amount will be
automatically credited by the system to Drafts Payable account

As and when the computer file of drafts issued by other branches is received, an entry as above is
automatically passed by the system for the drafts drawn on the branch. When a draft is presented
for payment the first effort should be to pay it by debit to Drafts Payable Account. In most cases,
the relative advice of drafts would already have been received (through the computer file
mentioned above) and the credit would be available in the account. For this purpose, the following
particulars viz. Draft no., date of issue, amount, issuing branch code are required to be keyed in.
The entry to be passed is:

Dr. Drafts Payable Account

Cr. Cash or Party’s account

However, where the original entry is not available in the Drafts Payable Account, it would imply that
the computer file of drafts issued has not been received or the relevant entry is not in the file
received. In such a case the entry should be put through the Drafts Paid (Ex-advice) Account as
mentioned in the following paragraph.

33
Drafts Paid (Ex -advice) Account
This account is debited when a draft is paid without advice. That is, if an advice of a draft issued by
the Bank’s branch is not received by the drawee branch through the computer file mentioned
earlier, subject to other procedural requirements, payment of draft should be debited to this
account by passing the following entry.

Dr. Drafts paid (Ex-advice) Account

Cr. Cash or Party’s account, as appropriate

Once a draft is paid ex-advice by debiting Drafts paid (Ex-advice) account, it should be ensured that
the relative credit is received through the computer file in a day or two. Entries in the Drafts paid
(Ex-advice) Account should be closely monitored. No entry should remain outstanding for more
than 2 days. In case of delay in receiving the relative entry the matter should be taken up with
Corporate Office and the issuing branch.

At commencement of the day, therefore, when the system uploads all IBR transactions, all entries
regarding drafts issued by other branches should be verified to ensure whether any of them relates
to entry outstanding in the Drafts paid (Ex-advice) account. If any such item is noticed, the following
entry should be passed manually:

Dr. Drafts Payable Account

Cr. Drafts Paid Ex-advice Account

Drafts paid Ex-advice account should be scrutinised daily by Officer-in-charge. These entries should
be pursued for receipt of relative entries through the computer file. On receipt of such entries, entry
in Drafts paid Ex-advice account should be reversed.

Effect on the Bank’s Demand and Time Liability (DTL)

The net balance in the following accounts constitutes the ‘DTL component’
• Inter Branch Drafts account
• Drafts payable account
• Drafts paid (Ex-advice) Account

Issue of drafts
The system prints the particu lars on the draft form as and when the relative transaction is keyed in
(viz. System generated draft no., name of the payee, date, amount in words and figure, branch
where drawn with branch code no. etc.). The system generated draft number is essential reference
number for all enquiries. The system will print drafts only after posting and verification is done.

The application for draft must be signed by the customer himself, or by a person authorised to
operate the account where a draft is issued by debit to a customer’s account.

Drafts can be issued by accepting cash only upto Rs 50000. Issue of drafts for Rs.50000/- or more
from public should be only by debit to the applicant’s account vide RBI Cir. No. BP.BC.114/C469
(81)-91 dated 19-04-91. It should be ensured that the customer’s cheque is accompanied by draft
application duly signed by him or by a person authorised to operate the account.

Before signing the draft for issue, the officer concerned should verify for correctness the particulars
on the draft printed by the system, such as payee’s name, drawee branch, amount in words and in
figures etc. Also the printed serial number (other than the system generated serial number) on the
draft should tally with the number displayed in the screen.

Drafts should be signed by Officers whose specimen signatures have been circulated by Corporate
Office to various branches/banks. The specimen signature number should invariably be mentioned
below the signature.

34
As a protective arrangement, boxes are provided on the right hand side of the draft with numbers
ranging from 0 to 9. Further, series of the draft, OT, TT, OL, etc. is also provided on the left-hand
side. Appropriate box should be crossed, before handing over the draft to the applicant.

If a draft form is spoilt in preparation for any error/mistake, the form should be cancelled and a
fresh one should be issued. The instruments so cancelled should be preserved separately and
should be destroyed in the presence of internal auditors during inspection.

The draft should be delivered against the recipient’s acknowledgement on the relative application
form.

In case of issue of drafts for large values, say over Rs.10 lacs, on our branch where RBI is not
established, the issuing branch should advise drawee branch by Email the particulars of such drafts
viz., the draft number, payee’s name and amount. This would enable branches at centres where
RBI is not established to make arrangement for funds to meet the payment as and when the draft is
presented.

Payment of drafts
Once the draft is presented for payment, before authorising payment, the staff concerned should
verify
• date of the draft (to know whether it is stale)
• payee’s name/endorsement including clearing bank’s discharge where appropriate
• amount in words and figures
• signature of officer(s) on the draft
• protective arrangement

Draft is a negotiable instrument and requirements under the Negotiable Instruments Act 1881 like
endorsement etc. are applicable.

Drafts like other negotiable instruments are current for a period of six months from the date of
issue. If any draft is presented after six months from the date of issue, the instrument should be
returned with the objection “requires revalidation”.

Drafts when tendered over the counter may be passed by the officials as per the Scheme of
Delegation of Financial Powers.

In case of large value drafts for cash, say over Rs.5,000/- it shall be ensured that the payee or the
person to whom payment is to be made is properly identified. In case of doubt regarding identity of
the payee, the matter should be referred to Manager (Operations) or such other official.

Payments for Rs.50,000/- and above should be made through banking channels and not in cash. In
case a draft is presented for payment where the relative reporting advice has not been received
from the issuing branch, payment may be authorised by debit to Drafts Paid Ex-advice account if
the payee is properly identified and the branch is satisfied with the bonafides of the payee. Such
payments should be authorised only at the level of Deputy Manager and above, even if value-wise
the payment is within the passing powers of the staff concerned.

In case of a draft presented for payment, particulars of which are at variance compared to the
particulars recorded in the system (like payee’s name, date, amount etc.), immediate reference
should be made to the issuing branch for correct details. If required, a reference should be made to
the Corporate Office. In such cases, if the draft is to be paid, it should be debited to the Drafts paid -
Ex advice account. On receipt of the related IBR entry or details from the issuing branch, the entry
in Drafts Paid-Ex advice account should be reversed.

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Issue of duplicate draft when draft is reported lost

When a draft is reported lost and a duplicate is required

At the issuing branch

Such requisition should be in writing signed by the applicant of the draft

Notify the drawee branch immediately to exercise caution, if the draft is presented for payment

Obtain confirmation from the drawee branch that the draft in question has not been paid; such
confirmation should be attached with the voucher for issue of duplicate draft

Obtain a (stamped) letter of concurrence from the payee for issuance of duplicate draft in case it
has been delivered to him

Obtain a letter of indemnity on form prescribed.The indemnity to be obtained need NOT be

attested. The indemnity, however, should be stamped.

In specific cases, the Branch Manager may dispense with the second surety and need NOT insist on
two sureties ; however, the relative reasons should be recorded.

The issue of duplicate draft is to be recorded in the relative draft application voucher noting the
date of issue of the duplicate draft.

A duplicate draft thereafter is to be issued which will be marked by the system as “DUPLICATE”.
The drawee branch should be advised by issuing branch of issue of such duplicate draft.

Where the request for duplicate draft pertains to a draft issued by the branch by way of proceeds of
collection items realised on account of other banks/firms, companies etc., indemnity need not be
insisted upon. A simple letter may be obtained from the payee to confirm that the draft in question
has not been received by them (payee) with an undertaking to return the original draft, if
found/received later.

The indemnity form together with applicant’s letter and confirmation received from drawee branch
about non-payment of the draft should be entered in Branch Documents Register in the relevant
section.

At the paying branch

When an advice is received of a draft reported lost

Verify whether the draft in question is already presented and paid; check in both Draft Payable as
well as Drafts Paid Accounts.

In case it has already been paid, recheck the payment made and confirm whether it is in order; in
case of doubt, matter should be taken up with the issuing branch and if necessary, with Corporate
Office immediately.

In the event of a lost draft being presented for payment (before the duplicate is paid) care must be
exercised to ensure that the payment to be made is in order. If the same is presented in clearing,
the following is to be ensured.

The draft presented in clearing should be returned to the presenting bank with the remarks “ DD
reported lost by the purchaser. Please confirm that the payee’s account will be credited and present

36
again”. When the presenting bank confirms the same, the original draft should be paid. When the
duplicate draft is presented, it should be returned with remarks “original paid already”.

The payee branch should initiate further action through the draft issuing branch as considered
appropriate, for advising the applicant, invoking the indemnity, etc.

Cancellation of draft
Demand draft should be cancelled only by the issuing branch. When a draft purchased is required
to be cancelled, the following procedure will be followed

At the issuing branch

Obtain a letter from the applicant of the draft; in case of non-customers, verify the signature of the
applicant in the relative application form.

Verify that the draft returned for cancellation is in order. No extraneous endorsement should
appear; if any endorsement is observed, the same should have been cancelled by the respective
endorser.

If cash is to be paid to the applicant by cancellation, disch arge over revenue stamp on the reverse
of the draft should be obtained with the endorsement-

“Received payment by cancellation”

Where the draft cancelled is for Rs 50,000/- or more, payment should not be done in cash.

A manual register-‘Drafts Cancelled Register’ should be maintained to record details of drafts

cancelled. This register should be checked at the time of duplicate issue/cancellation to ensure
against cancellation for the second time.

6.2 Banker’s Cheque

Banker’s cheque is an instrument for making payments of various expenditure items of the Bank.
TTs or such other funds received from elsewhere for persons who do not maintain accounts with
the branch. Occasions may arise, when instead of taking bank drafts for making local payments
within the town or city, banker’s cheques are issued to applicants. Such transactions shall be
handled for a fee at rates laid down in the `Directory of Charges’.

Banker’s cheque account is maintained as a pointing type account. Debits are permitted only
against an earlier credit entry. Hence, all debits to this account shall carry in the voucher, the date
of the earlier corresponding credit entry. Where multiple credits for like amoutns are there, the
possibility of reversing a wrong credit entry cannot be ruled out. Branches need to exercise caution
while reversing such entries.

Separate cheque book should be utilised for issuing Banker’s Cheques which shall be in the
custody of an authorised officer. At the beginning of the day when blank cheque forms are given to
JOs, for exercising control, these should be entered in a Security Forms pass book with the
following columns. At the end of the day, the unused forms should be entered and the officer-in -
charge, after verification, should take them into his custody.

As on the last day of each month, the outstandings in the account shall be listed out for
reconciliation with the balance in the general ledger account under this head.

37
In case of a request for issue of a duplicate banker’s cheque, the following procedure should be
followed :
Obtain a letter from the applicant stating
• the circumstances under which the cheque was lost with an undertaking to handover the
instrument if found later, and
• agreeing to make good the loss to the Bank in case of any double payment

The indemnity form prescribed for issue of a duplicate draft should be obtained for issuing
duplicate Banker’s Cheque by modifying the same suitably. The indemnity should be entered in
Branch Documents Register in the relevant column.

Verify in the system that the cheque in question has not been paid ; verify the inward clearing of
the day yet to be posted to ensure that the original Banker’s Cheque has not been received in the
inward clearing.

The amount of the Banker’s Cheque should be debited to “FP/PO Banker’s Cheque Payable
Account” and the original entry should be marked off with a remark in the relative voucher that the
cheque in question is reported lost vide the applicant’s letter. The amount should be
simultaneously recredited to Banker’s Cheque account for issue of a fresh cheque. A noting in red
ink should be made prominently in the new Banker’s Cheque as “Issued in lieu of Banker’s Cheque
No.________ Dated _______”.

At annual intervals, Corporate Office will send instructions to bran ches to transfer Banker’s Cheque
items outstanding for long in branch books. The Banker’s Cheques may be transferred to Corporate
Office.

If payment is demanded at a later date of the items transferred to Corporate Office, the branches
should follow the procedure detailed below.
(i) If such banker’s cheques are presented for payment (before revalidation), it should be
returned unpaid with the remark “Stale Cheque”.
(ii) In case, the purchaser requires revalidation, the branches should do the revalidation after
consulting Corporate Office.
(iii) In case, the purchaser requires cancellation of the Banker’s cheque, the branch should
consult Corporate Office before cancellation.
(iv) Payment of such revalidated item or cancellation of any such item should be made by
debit to Corporate Office. The original Banker’s Cheque after payment or cancellation
should be sent to Corporate Office by retaining a xerox copy at the branch. Corporate
Office will respond to the branch debit based on the original Banker’s Cheque received
from the branch.

The list containing the details of such banker’s cheque, (which are controlled in Corporate Office)
should be kept in a separate file in the custody of Branch Manager / Officer-in-charge. A copy of the
list should also be retained at the desk of the Junior Officer who is looking after issue and payment
of banker’s cheque to ensure that no such outstanding banker’s cheque issued and presented for
payment is returned without verifying the list.

6.3 Anywhere Banking

Anywhere Banking was introduced from January, 1999. Branches shall offer the following facilities
under Anywhere Banking services. Salient features of the Scheme are given in this Chapter.

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For savings account customers

Cash withdrawal
Customer can withdraw upto Rs. 15,000/- per day at a satellite branch. Anywhere Banking facility
should not be extended for amounts above Rs. 50,000/. This facility is available to NRE and NRO
account holders also.
Charges: NIL

Cash Deposit
Customers can deposit cash at the satellite branch for credit to their account with the base branch.
Cash deposit per day at a branch will be subject to a limit of Rs. 50,000/- as per guidelines given in
RBI circular DBOD.No.BP.114/C.469(81)-91 dated April 19, 1991 for acceptance of cash. This facility
is not available to NRE/NRO account holders.
Charges: NIL

Local cheque deposit at satellite center

Subject to a maximum of Rs. 15,000/- cheques payable at satellite centre can be deposited with any
of the branches in the satellite centre. The same will be collected through local clearing and
credited to the account of the client at the base branch. The proceeds of the cheque will be credited
by the satellite branch to the customer’s account at the base branch only after clear funds are
available, i.e. shadow balance credits are not possible. This facility is not available to NRE/NRO
account holders.
Charges: NIL

Balance inquiry
A customer after proper identification can avail of this facility at any of the satellite branches.
Facility is available to NRE/NRO account holders also.
Charges: NIL

Statement of account
This facility should not be extended at the satellite branches.

Funds transfer
Funds transfer between two remote branches should not be permitted, i.e. a customer cannot
request branch 3 to debit his account in branch 2 and credit proceeds to his account in branch 1.

Issue of Banker’s Cheque/demand drafts

Banker’s Cheque and demand drafts can be issued at a satellite branch up to Rs. 50,000/- by debit
to the account at the base branch through a cheque payable to “Yourselves”. This facility is not
available to NRE/NRO account holders. The account holder should invariably sign the draft
application form.
Charges: As per the directory of service charges.

Multicity cheques
This facility should not be extended to savings bank account holders at this stage.
Collection of upcountry cheques at satellite branches.

Under this facility, the customer of a base branch is given separate chequebook pertaining to the
chosen satellite branch. The customer can issue cheques payable at such satellite centres. The
satellite branches will pay these cheques through local clearing by debiting customer’s account
maintained at the base branch. The advantage is that the customer need not open multiple
accounts and also need not come to the branch for obtaining a draft on a satellite centre. Wherever
a branch wants to offer this facility, they should contact Administration Department at Corporate
Office for printing MICR cheques with MICR Code as 29.

39
Even though signatures of the client at the base branch can be accessed through the system, as a
fall back measure, the base branch should circulate the signatures of authorised officials for the
specified account and the operating instructions to all the identified satellite branches.

Ideally, the base branch will accept stop payment of cheques. However, if such an instruction is
given at a satellite branch, it can be accepted only on a best effort basis. This should be made clear
to the client.

Maintenance of account
The original cheques (for instance cash cheques, cheques favouring “Yourselves”, etc.) would be
retained at the satellite branch which has paid it. In case of need, the base branch can get a copy
from the respective satellite branch.

The account would be maintained at the base branch as any other normal current accountThe
cheques paid at other centres would be reflected in the account as normal cheque debits with
suitable indication in the transaction details for the branch to identify them as Anywhere debits.

In case the base branch is having holiday on a day when satellite branch is working (or the server is
not available for any reason), the cheques would be paid by satellite branch to the debit of an
interim suspense account. For this purpose, the base branch in consultation with Corporate
Banking Department will fix a suitable limit for each satellite branch. These cheques would be
debited to the account through Anywhere Module on the next working day. This facility is available
only for select corporate accounts and not for savings account holders.

An interim suspense account, SA/ANYWHERE has been opened at all satellite branches for routing
inward clearing cheques as inward clearing module does not directly support Anywhere
transactions. This account should be used for parking debits, if the base branch is having a holiday
where a separate limit is made available for select Corporate customers as stated above. Other than
the debits on a holiday, the account would have NIL balance at the end of the day.

A consolidated rep ort giving details of all Anywhere transactions done at a branch should be
generated at the end of the day using option MQTDESRP. This report should be treated as a
consolidated voucher for all Anywhere transactions of the day at the base branch. At the base
branch, the report will form the supporting document for the debits passed in the account. At the
satellite branch, the report forms part of IBR vouchers.

In the following four instances, branches will not be able to put through AWB transactions:
• Once the EOD process is initiated at the base branch
• Base branch server/data base is down
• Base branch has a holiday
• When VSAT communication link with the base branch is down

6.4 Inter-branch Transactions

Objective
To facilitate settlement of transactions between branches as well as between branches & Corporate
Office or vie-versa. IBR Centre set up by the Corporate Office does the reconciliation of entries.

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Types of Transactions

Originating Transactions
Originating transaction means raising a credit or deb it transaction on other branches or on
Corporate Office. Branches should normally avoid originating debit transactions. Only in cases
where no alternatives are available should the branch originate a debit, that too after confirming
with the other branch about the availability of sufficient balance in the account. The responding
branch should necessarily reserve the amount in the said account, hereby ensuring the same is not
withdrawn.

While putting through Originating transactions, the following details have to be given
• Transaction Category code
• Responding Branch Code
• Extension Counter Code
• Particulars of the transaction
• Bill No. and date in case of Bill type of transaction

Responding Transactions
Responding transaction are entered from the Transaction List (TLR) generated by the system. The
details of the transaction as well as the account to be debited/credited, as the case may be is
available in the TLR.

While putting through Responding transactions, the following details have to be given
• Originating Branch Code
• Advice Number and date
• Transaction Category code (TCC)
• Bill No. and date in case of Bill type of transaction

Nature of Transactions is illustrated in the Annexure 2 attached.

41
 Annexure I

Payment of cheques
One of the principal functions that a bank performs is related to the payment of customer’s
cheques. What is the nature of this obligation, what disabilities he is likely to suffer for not
performing this duty, etc. is proposed to be discussed under this section.

Duties of paying banker

The duties which a paying banker is set out in Section 31 of the Negotiable Instruments Act, 1881
as under:
"The drawee of a cheque having sufficient funds in his hands, properly applicable to the payment of
such cheque must pay the cheque when duly required so to do, and, in default of such payment,
must compensate the drawer for any loss or damage caused by such default".

This duty is only towards the drawer but to none else.

Obligation is subject to conditions

As can be seen this duty is subject to certain conditions:
• Obligation arises that he should be properly required to make payment.

• He has funds of the customer in his hands.

• He is legally required to apply it in payment for the purpose.

These conditions could be examined in greater detail under the following conditions.
A) Relationship
The account relationship between the banker and customer should be subsisting. In other words,
the account should not have been closed as the relationship comes to an end on that event. The
banker is not bound thereafter. Accounts may be closed either by the customer or by the bank after
giving sufficient notice to the customer.

B) Adequacy of funds
A banker is under no legal compulsion to honour the cheque of his customer in the absence of
sufficiency of funds or if an arrangement or grant of an overdraft has not been concluded. (SBI Vs.
Sambamurthy AIR 1988 ORISSA 50)
Here again, the banker is not bound to combine the different accounts maintained by the customer
for the purpose of meeting the cheque. Further, the customer cannot take such things for granted.
Moreover, a customer cannot draw against the uncleared effects till such time the instruments are
cleared. However, the position would be different if the bank / branch has established a regular limit
for this purpose.

C) The banker must be duly required to make payment

The word "duly" means "properly". As such, the banker is under no obligation if the instrument does
not conform to the laid down norms. They are:

Cheques: They should be in proper form as is issued to the customer.

The cheque should be properly filled in and signed.

The amount should be expressed both in words and in figures.

42
It should be dated. The date should not be post dated neither the cheque should be stale.

All material alterations should be duly authorised under the full signature of the drawer(s).

The endorsement should be regular and the chain unbroken.

D) Place of payment
It is generally a well settled position in law that presentment of a cheque should be done at the
branch where the account is maintained and nowhere else. The banker is under no legal duty to
honour such cheques. The courts in India have been uniformly upholding this position as it can be
seen from the following judgements.

Delhi cloth and General Mills Ltd. Vs. Harnam Singh (AIR 1955 Sc. 590). The Supreme Court has
summed up the position as follows :

"In banking transactions, the following rules are now settled :

The obligation of a bank to pay the cheques of a customer rests primarily on the branch at which he
keeps his account and the bank can rightly refuse to cash a cheque at any other branch;

A customer must make a demand for payment at the branch where his current account is kept
before he has a cause of action against the bank. The rule is the same whether the acco unt is a
current account or whether it is a case of deposit. Either way, there must be a demand by the
customer at the branch where the current account is kept or where the deposit is made and kept
before the bank need pay, and for these reasons the situs of the debt is at the place where the
current account is kept and where the demand must be made".
Other cases:

• AIR 1950 BOM 375 Bank of India Vs. Official Liquidator : "the obligation to honour the
cheque of a customer rests on the branch on which the cheque is drawn. (In proper form of
the cheque issued by the branch)

• AIR 1956 CAL 33 Hansraj Bajaj Vs. Indian Overseas Bank Ltd. : "a banker can refuse payment
of a customer’s cheque except at the particular branch where he keeps his account".

• ILR 1957 Punjab 794 Harikishan Vs. Bharat Nidhi Ltd. : "Deposit of money made in a branch
and not from Head Office of the bank in India".

• Agencia CI Vs. Custodian of Banco National Ultramarino : "The obligation of a bank to pay
the cheques of a customer rests primarily on the branch where he keeps his account and
the bank can rightly refuse to cash the cheques at any other branch of the bank.

• Okara Grain Buyers Syndicate Ltd. Vs. UCO Bank Ltd. AIR 1961 Punjab 66 : Regarding
closure of a branch - "Where a branch office is closed the assets and liabilities are taken over
by the Head Office and persons who have claims should lodge their claims with the Head
Office. However, if the balance with the bank are taken over by a foreign government, then
the liability of the bank ceases and no further steps can be taken against the bank in India."

• SBI Vs. Vathi Sambhamurthy AIR 1988 Orissa 50 : "Where a customer has two separate
account at a branch, he can draw only cheques issued in respect of that particular account".

43
E) Presentment during banking hours (Sec. 65 NI Act)
The Act provides that the presentment of a cheque should be made during the usual business
hours. Bankers should desist from making payment of a cheque outside the business hours as such
payments might not constitute payment in due course in the event of stop instructions, death,
insanity, insolvency of the drawer or by the operation of a court order. Banks do selectively make
payment to the known customer in person to overcome these difficulties.

F ) F u n d s s h o uld be properly applicable:

This deals with the legality of the instrument. A banker has to be cautious in making payment of
cheque ensuring that his authority to pay the cheque will not be brought into question later on. The
happening of the following may determine the authority of the banker :

• Countermanding of cheque (i.e. stop instructions received from the customer).

• Receipt of a court order which prevents payment out of an account (Garnishee order).

• Notice regarding the insolvency, lunacy, insanity or death of a customer.

• If there is a doubt as to the title of the presenter of the instrument.

Generally, banker should not make payment of cheques if he confronts any one of the above
situations as he may lack the authority to debt the customer’s account.

G) Bearer Cheques
Generally, a banker would be discharged of his obligation to pay as also derive his right to debit the
customer’s (drawer’s) account in effecting payment of bearer cheques to the person in possession
of the instrument. In case of bearer cheques, a banker need not unduly make elaborate enquiries as
regards the title of the presenter. Suffice it would be to say that so long as the instrument is
otherwise in order, the banker should effect payment.

H) Order Cheques
The payment of order cheques on the other hand, casts additional burden on the banker requiring
him to ensure that the title of the presenter is not defective. He should make such enquiries as it
would make it possible for the banker to get information as regards the bonafides of the presenter.
As a safeguard in all cases of payment across counter (cash payments), bankers insist on a proper
introduction before parting with funds. Similar principle would hold good in case of payment of
drafts across the counter, which are essentially order instruments.

I) Rights of Paying Banker

The banker who has correctly paid a cheque is entitled to debit his customer’s account with the
amount of the cheque. He is also statutorily protected by law under Section 85 of the Negotiable
Instruments Act, 1881. The other sections which are important in this regard are:

• Sec. 85-A deals with payment of drafts.

• Sec. 128 deals with payment of crossed cheques.

• Sec. 131-A deals with crossed drafts.

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J) Statutory Protection under Sec. 85

This section deals with payment or order cheques which reads as under:

"Section 85(1) where a cheque payable to order purports to be endorsed by or on behalf of the
payee, the drawee is discharged by payment in due course".

"Section 85(2) where a cheque is originally expressed to be payable to bearer, the drawee is
discharged by payment in due course to the bearer thereof notwithstanding any indorsement
whether in full or in blank appearing therein and not withstanding that any such indorsement
purports to restrict or exclu de further negotiation".

From a reading of these two subsections, it becomes clear that the drawee bank can get protection
only when the payment constitutes a payment in due course. The concept of ‘payment in due
course’ is laid down under Section 10 of the Negotiable Instruments Act as under :

"‘Payment in due course’ means payment in accordance with the apparent tenor of the instrument
in good faith and without negligence to any person in possession thereof under circumstances
which do not afford a reasonable ground for believing that he is not entitled to receive payment of
the amount therein mentioned".

The following explanation would import the essentials of Section 10 :

• The payment must be in accordance with the apparent tenor of the instrument.

• Payment must be made in good faith.

• Payment must be made without negligence.

• Payment must be made to the person in possession of the instrument.

• They should not be an element of suspicion as to person of the presenter.

Some issues associated with the above clarification on Section 10:

1) Dating of Cheques:

A cheque without a date is not to be paid, Here, the holder may insert the date. A banker should,
under no circumstances undertake the task of inserting the date on the cheque.

2) Post dated cheque:

As per the apparent tenor of the instrument, a post dated cheque (cheque bearing a date
subsequent to the date of payment) cannot be paid till the arrival of the date mentioned on the
instrument. It is a well recognised principle that the banker will have no authority to debit the
customer’s account before the arrival of the ostensible date on the instrument. Otherwise, a banker
may put himself in jeopardy by paying such instruments as it would not constitute a payment in
due course.

3) Stale Cheques:

By custom, the bankers do not pay a cheque if it has been in circulation for more than 180 days
after its making unless it is once again authorised by the drawer. Such cheques should be
revalidated by the drawer under his full signature before payment. This custom is upheld by courts
in India.

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4) Amount:

Section 18 of the Negotiable Instrument says that if the amount expressed in words differs from the
amount expressed in figures, the amount expressed in words is the amount legally payable. Hence,
the scrutiny of cheq ue should be made to ensure that the amount in words and figures do tally. It is
a practice among bankers in this country to return such cheques for correction with the objection
"amount in words and figure differs".

5) Material Alteration:

A material alterations is one which in any way alters materially or substantially the operations of the
instrument and the liabilities of the parties thereto whether or not such change is prejudicial to the
payee. For example,

• alteration in the date of the instrument with the purpose of acceleranting or postponing the
time of payment.

• alteration of the place of payment.

• alteration of the sum payable.

• alteration affecting the number of relation of the parties or their legal character.

In other words, material alteration in an instrument causes it to speak a different language in legal
effect from that which it originally spoke or which changes the legal identity or character of the
instrument either in terms or in relation to the parties thereto.

The safeguard for all material alteration for a banker is to obtain full signature of the drawer against
the alterations made on the instrument. Where the cheque is drawn by two or more persons jointly
the material alteration would require the signature of all parties. Similarly, in case of corporate
bodies, the material alteration would require the signature of all the signatories to the instrument.

Case Law: J. Ladies Beauty Vs. SBI AIR 1984 GUJ 33; 1986 59 Comp. Cas 20:

The facts of the case are that the customer issued two payees’ account cheques, the cheques were
tampered by someone, who rubbed out the payee’s account endorsement and dates of issue with
some materials. Across the printed word ‘order’ a line in ink was drawn thereby scoring out the
word ‘order’ and the word ‘bearer’ has been inserted. The signature of the partner was made to
give authenticity. The bank made payment of these two cheques to a third party and not to the
payee. It was later on noticed that the new signature of partners for evidencing the material
alterations did not correspond to the specimen signature on record with the branch. The specimen
signature on record were with the name in partnership affixed with a rubber stamp. The court
found that the bank was negligent as it failed to notice the suspicion on the face of the instrument.
The dates and the endorsement payees’ account have been tampered with. The erasures were
visible to the naked eyes. The High Court further observed:

• When the customer issues cheques payable to payee’s account, he is assured that the bank
will not make the payment to anybody except the person in whose favour the cheque is
issued; when such endorsement is tampered with, the bank is put on enquiry.

• The drawer of the cheque will be entitled to claim reimbursement from the bank if it makes
payment negligently.

• The drawer will be entitled to payment of interest.

• The oral deposition that the erasures were not visible on the date when the cheque was
paid but appeared a few days later is no evidence as against the document which clearly
exposed the alteration to the naked eye.

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6) Pencil signature

Though a pencil signature is valid, bankers do not encourage it as they could be erased out.

7) Mutilation of Cheques

Mutilated cheque should not ordinarily be paid except with the consent of the drawer. Where a
mutilated cheque is received through clearing, a collecting banker’s confirmation needs to be
obtained which may include disbursement guarantee from the collecting banker. In all other cases,
the cheque should be returned with objection "mutilated cheque".

8) "Not Negotiable Crossing"

The term ‘not negotiable’ has very little significance to the paying banker. Such cheques could be
paid in the ordinary cause of business observing the usual precaution. This is only a warning to the
person taking it that the transferee cannot get a better title to the instrument than from whom it was
taken.

This is covered by Sec. 130 of the Negotiable Instruments Act which says, "A person taking a
cheque crossed generally or specially, bearing in either case the words ‘not negotiable’ shall not
have and shall not be capable of giving better title to the cheques than that which the person from
whom he took it had". For example,

• If ‘A’ gets hold of a cheque by fraudulent means an order cheque containing ‘not negotiable’
crossing and gets it endorsed to ‘B’ for value, even then ‘B’ title will be defective. This is
because of the fact that ‘A’ had obtained the cheque by fraudulent means.

• A small cheque was given to the secretary of the firm asking her to fill up a small sum
favouring tax authorities which was fraudulently filled up a higher amount and endorsed it
to a third person in payment of a private debt. Though the recipient had acted in good faith,
it was held that he could not get a good title to the amount (Wilson & Meeson Vs. Pickering
1946).

9) Account Payee Crossing

Cheques containing crossings with words ‘Account Payee’ or ‘Account Payee only’ are found in the
normal course of banking operations. Here, the intention is that not only that the cheque should be
collected through a banker, but also to the named payee only. Technically, it is a direction to the
collecting banker as to how the proceeds of the cheque should be applied after its receipt. It
virtually restricts the transferability of the cheque. At time, a person receiving such cheque (pension
payment / LIC dues / PF dues) may not maintain an account and might not desire to open an
account for putting through a single transaction. He would have to get it collected through a person
who maintains a bank account by proper endorsement. A Banker should not undertake such
collections unless he is thoroughly satisfied about the bonafides of the payee. In such cases, an
additional certification may have to be given confirming the first payee’s en dorsement. Such
incidents should be rare.

10) Cheques relating to joint accounts

Apart from the normal precautions taken while paying a cheque, the additional points which are to
be borne in mind in case of joint accounts are :

a. To know how the joint account is to be conducted, mode of operation, limits for drawing
etc., specific instructions in this regard need to be obtained and kept on record for
regulating the conduct of account. Authority to operate an account does not automatically
confer a right to overdraw / borrow nor deal with bills and other transactions in the nature
of safe deposit articles etc. Hence, it would be necessary to get a comprehensive instruction

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 on the joint covering all these contingencies. In the absence of it, it would be necessary that
all the joint account holders join in the operation.

b. A dispute may arise at any time i.e. during the life time of the depositors or after death. The
following procedure should be followed depending upon the facts of the case and arising
circumstances.

i. As regards operation, countermand orders can be given by any one of the joint
account holders, even though the person may not be operating the account. The
bank should take cognisance of such an order and stop operations on the
account. The account would henceforth be treated as joint account which can be
operated by all the joint account holders jointly. Similarly, the authority given by
the joint account holders will stand revoked by the death, insolvency or insanity
of any one of the joint account holders.

ii. Death: Death of a joint account holder revokes the mandate. Hence, the banker
should not honour a cheque drawn by a deceased joint account holder prior to
his death, but presented after his death.

A word of caution would be that in case of accounts with a debit balance, no

further credits should be accepted as any credit made after the death will be
affected by the rule enunciated in Clayton’s case i.e. will have the effect of
reducing the liability of the deceased joint account holder.

iii. Insolve n c y: The mandate given for operation on an account comes to an end on
the insolvency of a joint account holder. No operations are to be permitted and a
cautionary note to be recorded. Payment could be made on the joint drawings of
the official recorder of insolvent account holder and the solvent party. Care
should be taken to ensure that the wordings used in returning the cheque of the
solvent account holder ensures that his credit is not damaged.

iv. Signature : Perhaps, this is the most important point before taking a decision to
pay. Banker recognises his customer through his signature and not in person as
quite often he (banker) would have to base his judgement and act for which the
only authority he has is the customer’s signature. At all points of time, he should
ensure that the customer’s signature is genuine and corresponds with the
specimen signature on record with the bank. Any irregularity in the signature
should put the banker on guard as forgery of the signature will not protect him.
Payment of a cheque with a forged signature is considered as payment made
without authority. Hence, the banker cannot debit the customer’s account. The
liability for such payment will befall him should he make the payment. It is the
duty of a bank employee to identify the signature of the customer. If they fail to
discharge their duty and suffer a loss, there is no reason why the customer
should make good the loss (Lala Pirbhu Dayal Vs. Jwala Bank Ltd., AIR 1938 AII
374). It would be no defence on the part of the banker to claim that the customer
was negligent in the safe keep of his cheque book etc.

In case of joint accounts, all the signatures should be genuine. If one of

the joint account holder’s signature is forged and if banker makes
payment, he (banker) would be liable to the other. The Supreme Court, in
a case involving the forgery of one of the signatures of joint account
holders, evolved the following propositions:

§ Since one of the signatures on the cheque was forged, there was no
mandate to the bank at all.

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 § A document in cheque form to which the customer’s name as drawer is
forged or placed thereon without authority is not a cheque but a mere
nullity.

§ The bank was negligent in not ascertaining whether the signatures on

the cheque were genuine.

§ The dishonesty of an official of the union was not the proximate cause
of loss to the bank.

Going by the above enunciation of the Supreme Court, it would be a

difficult proposition to defend a case where one of the signatures on a
cheque is forged on which the bank has made payment. Hence, a
detailed scrutiny of the instrument is warranted in joint accounts before
effecting payment.

v. R i g h t o f S e t-Off: Bankers enjoy a special statutory right called the ‘Right of Set-
Off’. It enables the debtor (bank) to take into account the debts owed by the
creditor to him. Thus the mutual claims of the debtor and creditor are settled
before the debtor is required to pay the remainder. The advantage to the banker
is that he can combine two accounts of a customer and adjust the debit balance
in one against the credit balance in the other. This right of a banker is subject to
an agreement to the contrary and generally, the bank intimates its decision to
exercise the right to the customer. Most of the banks obtain documents which
specifically empower the banker to exercise this right without notice to the
customer. However, the following points are to be kept in mind. It may also be
noted that the banker can exercise this right before the Garnishee order is made
effective :

§ A lien is a specific right and attaches the money which is earmarked

where it ceases to be such the bank cannot exercise lien but only the
right of set-off.

§ Both the claim and mutual debt sought to be set-off should be of the
same customer under the same right.

The same right implies that the capacity of the customer in both the
accounts should be the same; i.e. a claim by a person in his
representative capacity cannot be set-off against the personal dues. For
example,

§ Balances in the account of customer ‘A’ in his capacity on Trustee

cannot be set off against the personal debts of "A" to the Bank.

§ Balances in a joint account of ‘A & B’ repayable to ‘E or S’ cannot be set

off against the dues from ‘A’ alone. Thus, the banker cannot combine a
customer’s personal account with that of a joint account of the customer
and other person’.

§ No right of set-off can be exercised against the monies credited by

mistake.

§ Similarly, where partners maintain their individual accounts as also

their partnership account in the same bank, the bank cannot set-off the
due debts from the firm against the credit balances in the partners’
individual accounts unless the partners have undertaken to be jointly and
severally liable for the firm’s debts.

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 Annexure II

Inter Branch Transactions

1) Originating Transactions

Account
Nature of transaction TCC code
number
Remittances – Funds Transfers IB.FT FT
Remittances – Drafts on Finacle IB.DD DI (Automatically picked up
branches by system)
Cancellation of drafts issued by IB.Misc-Dr DDCAN
and drawn on B2K branches
Remittances – Drafts on Non-B2K IB.Misc-Cr DDBMD
branches
Remittances – Drafts issued on IB.Misc-Cr DDBOI (for Bank of India)
correspondent banks like Bank of
India, Dhanalakshmi bank DDDBL
(for Dhanalakshmi Bank)
Cancellation of drafts drawn on IB.Misc-Dr DDCAN
Correspondent Banks
Remitting proceeds of collection IB.IN-COLL OCC, OBC
instruments received from other
branches
Remitting proceeds of purchased IB.IN-PUR OCP / OBP / OBD /
instruments received from other
branches (Where Ref number of
sending branch is OCP/OBP/OBD
etc.)
Funds transfer from Corporate (Entry
Office to branch originated by
Corp office)
Funds transfer to Corporate Office I.TRSRY TRSRY
or to Chennai

Funds lent locally to other banks IB.TRSRY TRSRY

to be reimbursed at RBI centres
like Chennai/Mumbai etc.

Funds borrowed locally from IB.TRSRY TRSRY

other banks for clearing adverse
position, to be reimbursed at RBI
centres
Remitting funds collected under IB.CMS CMSCL
CMS arrangement
Returned instruments under CMS IB.CMS CMSRT
For payment of dividend warrants IB.Misc-Dr WARNT
Replenishing Cash in ATM, if IB.SWTATM SWTCS
replenishment is done by branch
Replenishing Cash in ATM, if IB.SWTATM SWTCS
replenishment is done by
outsourcing agency
Forex purchase transactions Originated by
Forex dept,

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 Account
Nature of transaction TCC code
number
Forex dept,
Corporate
office
Forex sale transactions IB.FX-SALE MFB
MUB
MFC
SMC
SMT
SMI
SMD
SMA
OTHER

Responding Transactions

Procedure to identify the entries to be responded

• Data centre, Mumbai will process the IBR files for all centralised branches and send a mail
to the branches on completion of the process.
• On getting the message from data centre, branch should print the list of IBR transactions to
be responded using option ‘TLR’.
• The transactions pertaining to drafts are indicated by TCC code ‘DI’. These transactions are
automatically responded by system for credit of FP.DDPAY (DDs Payable) account.
Therefore, branches may not see these transactions in their unresponded list of IBR
transactions. If draft-related entries exist in unresponded IBR transactions report, the same
should be brought to the notice of IT department.
• For all non-DD transactions, branches should pass entries through option ‘TM’.
• Branch should use the same IB Acount number, TCC code, IB number as appearing in the
TLR report, including the hyphens. Otherwise, system will display an error message
“Advice not come through IBR”. For example, if the originating branch has erroneously
used IB account number ‘IB.IN-COLL’ instead of ‘IB.IN-PUR’ for a purchased instrument, the
responding branch should also respond by debiting ‘IB.IN-COLL’ account only.
• In case the user gets an error message “same possible IBR number not allowed”, it means
that the same IB number is given for responding more than one IB entry. The user should
identify the wrong entry and delete the same or modify the entry for correct IB number.
• The tran-id should be noted against each entry in the TLR report.
• After all transactions are responded, branch should generate a list of unresponded IBR
transactions by using option ‘UNRESP’. This is the responsibility of each branch even in
centres where IBR transactions are repsonded by RPC.

Nature of transaction Account number TCC code

Remittances – Funds Transfers IB.FT FT
Remittances – Drafts on Finacle IB.DD DI
branches
Cancellation of drafts IB.Misc-Dr Other
Remittances – Drafts issued by IB.DDBOM Other
Non-B2K branches
Realisation of collection IB.IN-COLL OCC, OBC
instruments

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 Nature of transaction Account number TCC code
Remitting proceeds of purchased IB.IN-PUR OCP / OBP / OBD /
instruments received from other
branches (Where Ref number of
sending branch is OCP/OBP/OBD
etc.)
Responding to ATM cash IB.ATMWDL ATM
withdrawals
Any other miscellaneous credit IB.Misc-Cr Other
Any other miscellaneous debit IB.Misc-Dr Other
Forex purchase transactions IB.FX-PUR XFC XRP XRD XRN SXA
SXR SXE SXP OTHER
Anywhere transactions

Unresponded IBR entries:

As stated earlier after the entries for the day have been responded the branch generates the
‘unresponded’ transaction report using the option ‘UNRESP’

In some cases the particulars mentioned by the originating branch may be incomplete, incorrect or
inconsistent with the inherent transaction. In such cases the branch should not respond to the
transaction in the TLR, but should inform the orig inating center for additional details/clarifications.
Such transactions appear in the unresponded list generated each day and the branch should
endeavor to clear the same within 2 days.

Common entries found in TLR:

Funds transfer to branches:

Enrty passed by originating branch:

05.1234 Dr Rs. 1,00,000

IB.MISC-C R Cr Rs. 1,00,000 (IB12345 -04) (originating )
(Please credit the account of M/s ABC account number 05.789 at your end)

Enrty passed at r e s p o n d i n g branch:

IB.MISC-C R Dr. Rs. 1,00,000 (IB -123 45 -0 4) (r e s p o n d i n g)

05.789 Cr. Rs. 1,00,000
(Funds transfer from M/s XYZ, Nariman Point Branch)

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