Clearing department

Meaning of clearing
The word clearing has been derived from the word clear and is defined as: A system by which banks exchange cheques and other negotiable instruments drawn on each other within a specific area and thereby secure payment for their clients through the Clearing House at specified time in an efficient way. EXPLANATION:By clearing means sometimes the account holder of Bank Al-Falah Limited present cheques, which is not drawn on Bank Al-Falah but the person, has an account in Bank Al-Falah Limited. In this case bank accepts these cheques in clearing department and later on collets the amount from bank on which cheques is drawn through clearing house. This function is called clearing.

Clearing House
It is a place where representatives of all banks sit together and interchange their claims against each other with the help of controlling staff of NIFT. It is one of the services provided by NIFT to other commercial banks. NIFT acts as a clearinghouse. Different banks are the members of the clearinghouse. A representative of each bank represents his bank in the clearinghouse. Each bank has collected cheques as behalf of their customer but these cheques are not drawn on their own bank so in the clearinghouse, they hand over these cheques to respective banks on which these cheques are drawn. Similarly each bank receives cheques from other banks if any.

Instrument to be presented
Cheques Demand Drafts Pay Orders

Types of clearing
There are four types of clearing:1. Inward Clearing 2. Outward Clearing 3. Intercity Clearing 4. Same Day Clearing

1. Inward Clearing
Those Cheques and other negotiable instruments which are drawn on BAL sent by other banks, constitutes the inward clearing of Bank Al-Falah Limited. After having all the stamps and dates of cheques confirmed, the concerned drawers accounts are debited in BAL.

Inward Return:Return may be of any reason:

Presentation Flaw e.g. Clearing stamp not affixed or wrong discharge given by collecting banker.  Defect in the Cheques i.e. Post dated cheques, unauthorized cutting.  Insufficient Balance Accounting Entries OF Inward Clearing

Inward Clearing Single Branch:In Case OF Lodgment:Dr. Customer Account Cr. SBP Account In Case of Return:Dr. SBP Account Cr. Customer Account

Inward Clearing Main Branch:In Case OF Lodgment:Dr. M.O Account Cr. SBP Account In Case of Return:Dr. SBP Account Cr. M.O Account Inward Clearing Centre Branch:In Case OF Lodgment:Dr. Customer Account Cr. M.O Account In Case of Return:Dr. M.O Account Cr. Customer Account

2. Outward Clearing
When cheques and other negotiable instruments drawn upon other banks like City Bank, MCB, ABN-AMRO or Askari Bank of the same city are presented in BAL to deposit them in the respective payees accounts, these instruments are lodged in outward clearing of BAL. Outward Return: Cheques return will be treated as inward cheques.  In case the cheques is returned because of wrong presentation e.g. clearing stamp not affixed or wrong discharge given on the cheques etc. it should be relodged in the next day clearing after rectification of the mistake.

If the cheques is returned for any other reason then  Enter the cheques in cheques return register, mentioning the reason as appearing on the cheques return memo received from the paying bank.  Advice the customer about fate.  Return the cheques to the customer after getting sign on the register.  Collect the cheques return charges as per S.O.C (Schedule of charges). Accounting Entries OF outward Clearing Outward Clearing Single Branch:In Case OF Lodgment:Dr. SBP Account Cr. Customer Account In Case Of Return:Dr. Customer Account Cr. SBP Account

Outward Clearing Main Branch:In Case OF Lodgment:Dr. SBP Account Cr. M.O Account In Case of Return:Dr. M.O Account Cr. SBP Account Outward Clearing Centre Branch:In Case OF Lodgment:Dr. M.O Account Cr. Customer Account

In Case of Return:Dr. Customer Account Cr. M.O Account

3. Inter City Clearing

The cheques that are presented in intercity clearing are of another city and received by air. In this type of clearing the bank confirm at that time that the cheques are clear or not and give to the rider.

4. Same Day Clearing

The cheques that are presented in same day clearing are the local cheques and these cheques are clear in same day. Basically it is the benefit that is provided to customer.

Clearing process
i. Stamps Put On the Cheques:When the cheques are presented in BAL to be deposited in their respective payees accounts, different stamps are put on cheques before their lodgment in outward clearing. ii. Crossing the cheques:Crossing means two parallel lines, drawn across the face of the cheques with or without words written in between them. Crossing may be general or special. In clearing, cheques are crossed specially. Cheques are stamped with banks name between two parallel lines to constitute special crossing. After the cheques have been crossed specially, the holder cannot receive payment except through the banker named on the cheques crossing saves the instrument to go it in illegal hands. If, crossed cheques is lost or stolen, there is no risk involved. So it is an effective means of minimizing the risk of loss.

iii. Clearing Stamp:After the cheques have been crossed specially, clearing stamp is put on the cheques and other instruments, with the next date, so these cheques would have to be presented in their concerned drawee banks on the subsequent day. iv. Endorsement Stamp:The word endorsement means anything written or printed on the back of an instrument. So endorsement stamp has to put with words Payees account Credited in Bank AlFalah Limited. v. National Institutional Facilitation Authority:After putting these three stamps on cheques & other negotiable instruments, they are sent to NIFT. NIFT after segregating the cheques of different banks delivers them to their concerned banks. VI. SEND Report to the Bank:After delivering the cheques to different banks NIFT send report to BAL, then the banks staff tally the amount of that report for its own record. vii. Delivered Cheques to Respective Banks:Next morning, these cheques are delivered to the respective banks between 9:00 to 9:30AM. In the same manner, other banks present their clearing drawn on Bank AlFalah. Total number of cheques and their amount delivered to other banks and received from them are written on the Clearing House schedule branch for their payment. After proper scrutiny of cheques, verification of signatures and confirmation of balance in the account, the Officer Clearing Department Debit the customer Account. If any cheque is not passed due to insufficient balance or any other reason, Officer Cash Department returns the same cheque by attaching a cheque return memo containing reason for return. viii. Credit the Customer Account:If the cheques are clear then the BAL credit the customer Account. If the bank receives the outward return due to any reason then this cheque is entered into the cheque returned register and bank charges are deducted according to the schedule of charges. Then send the outward and return inward as IBDA (Inter Branch Debit Advise) to Main Branch. And Main Branch sends outward return and inward to BAL

Procedure of settlement
Assume that BAL got the cheques which are drawn on HBL, NBP, and MCB for amount Rs.50, 000/-, Rs.30, 000/-, Rs.15, 000/- respectively, its total being Rs.95, 000/-. It means that this amount is to be credited to BAL account with NIFT. On the other hand the cheques drawn on BAL are from HBL, NBP and MCB of Rs.15, 000/- Rs.75, 000/-, and Rs.30, 000/- respectively, its total being Rs.120, 000/-. It means that this amount is to be debited from BAL account. The difference between Rs.95, 000/- credit and Rs.120, 000/- debit is Rs.25, 000/- debit, which means the house is against BAL for Rs.25, 000/-. Settlement sheet:In clearing department this sheet is prepared and contain detail amount of cheques received, amount of cheques will be paid and balance of these accounts.