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Unit 1 to 5 blp notes
1. Definition:-
Banking has been defined as “Accepting for the
purpose of lending & investment, of deposit of money from
the public, repayable on demand order or otherwise and
withdraw able by cheque, draft or otherwise.”
Meaning:-
Banking means transacting business with a bank;
depositing or withdrawing funds or requesting a loan etc.
Unit 1
2. • The development of banking is evaluation in
nature. The origin of the word bank can be traced
back to the German word ‘Banck’ and Italian
word ‘Banco’ which means heap of money.
Banking is an old concept in India. It was
present in ancient Vedic times. There were
bankers known as ‘Sheth’, ‘Shah’, ‘Shroff’ or
‘Chettiar’ who were performing the function of
bank.
HISTORY
3. The main functions of banks are accepting deposit and lending loans:
A – accepting deposits
1. Fixed deposits:- These deposits mature after a considerable long period
like 1 year or more than that the rate of interest is fixed the amount
deposited cannot be withdrawn before maturity date.
2. Current A/C deposit:- These are mainly maintain by business community
to facilitate frequent transaction with big amounts. Generally no rate of
interest or very low rate of interest is paid on this account.
PRIMARY FUNCTIONS
4. 3. Savings bank A/C:- It is kind of demand deposits
which is generally kept by the people for the sake
of safety. These facility is given for small saver
and normally a small rate of interest is paid.
4. Recurring deposit A/C:- In case of recurring
deposit the fixed amount is deposited in a bank
every month for a fixed period of time.
5. B-Lending loans
1. Call loans:- These loan are called back at any time. Normally, this
loans are taken by bill brokers or stock brokers.
2. Short term loans:- These are sanctioned for a period up to 1 year.
3.Medium term loans:- These are sanctioned for the period varying
between 1 and 5 years.
6. These loan are sanctioned for a period of more than 5 years it includes:
1. Overdraft:- The bank grants overdraft facility to its reliable and
respectable depositors. It enables companies, firms and businessmen to
withdraw amount over and above their actual balance in their current
account.
2. Cash credit: Under this facility, the bank allows the borrower to withdraw
cash against certain security.
3. Bills of Exchange:- The bank provide funds to their customers by
purchasing or discounting bills of exchange. The bank charges commission
up to the maturity period of bills.
Long term loans:-
7. Apart from the main functions, the banks also provide financial
services to the corporate sector and business and society. They are
as follows:
1.Merchant Banking:- Merchant banking is an organization which
underwrites securities for companies, advises in various activities.
No person is allowed to carry out any activity as a Merchant Banker
unless holds a certificate granted by SEBI. Thus, merchant banks
are financial institutions which provide specialized services
including acceptance of bills of exchange, corporate finance,
portfolio management and other services.
SECONDARY FUNCTIONS
8. 2. Leasing:- Banks have started funding the fixed assets
through leasing. It refers to the renting out of
immovable property by the bank to the businessmen
on a specified rent for a specific period on terms which
may be mutually agreed upon. A written agreement is
made in this respect.
3.Mutual funds:- The main function of mutual fund is to
mobilize the savings of the general public and invest
them in stock market and money market.
9. 4. Venture Capital (VC):-Venture Capital is financial
capital provided to early-stage, high-potential,
high risk, growth startup companies. The venture
capital fund makes money by owning equity in
the companies it invests in, which usually have a
novel technology or business model in high
technology industries, such as biotechnology, IT,
software, etc.
10. 5. ATM:- An ATM is also known as cash point. The banks nowadays provide ATM
facilities. The customers can withdraw money easily and quickly 24 hours a
day.
6. Telebanking:- Telebanking is a throwback to the days when people would call
into a central number at their bank/financial institution in order to get
balance, check status and other account-related information.
Most financial organizations offer telebanking services today; however, the
public representation is known as telephone-based customer service or just
customer service.
11. 7. Credit cards:- Credit cards allow a person to buy
goods and services up to a certain limit without
immediate payment. The amount is paid to the shops,
hotel, etc. by the commercial banks.
8. Locker Service:- Under this service, lockers are
provided to the public in various sizes on payment of
fixed rent. Customers can deposit their valuables,
documents, jewellery, securities, etc. in these lockers.
12. 9. Underwriting:- This facility is provided to the
joint stock companies and to the government.
The banks guarantee the purchase of certain
proportion of shares, if not sold in the market.
14. Banker and Customer Relationship
• The relationship between the banker and
customer is very important. Both serve the
society to grow and the economy to expand.
• Before we discuss the relationship between
the banker and the customer, it seems
necessary that the two terms banker and
customer are made clear,
15. What is the meaning of Banker?
• A banker is a dealer in capital or more properly a dealer in
money.
• He is an intermediate party between the borrower and the
lender. He borrows from one party and lends to another.
• Banking has been defined as “Accepting for the purpose of
lending or investment of deposits of money from the public,
repayable on demand or otherwise and withdrawals by
check, draft, order or otherwise.
16. What is the meaning of a Customer?
• A customer is a person who maintains an
account with the bank, without taking into
consideration the duration and frequency of
operation of his account.
17. • To constitute a customer of the bank.
– One should have an account with the bank.
– One should deal with the bank in its nature of
regular banking business.
– One should deal with the bank without
consideration of the duration and frequency of
operation of his account.
18. Banker and Customer Relationship
• The relationship between the banker and
customer is very important. It is generally
studied under the following two heads.
– General Relationship
– Special Relationship
19. General Relationship
• Debtor and Creditor:
• The true relationship between banker and
customer is primarily of a debtor and creditor.
• When a customer deposits money with a
bank, the bank then is the debtor and the
customer is the creditor.
20. • The customer expects from the bank that
– His money will be kept safe by the bank
– It will be returned on demand within business hours
– The money will be intact and safe and will give some
thing by the way of return (interest).
– The position is reversed if the customer is advanced
loan then the banker becomes creditors and the
customer is debtors.
21. • Principal and agent:
• The special relationship between the customer and the banker
is that of principal and agent.
• The customer (principal) deposits checks, drafts, dividends for
collection with the bank.
• He also gives written instructions to the bank to purchase
securities, pay insurance premium, installments of loans etc on
his behalf.
• When the bank performs such agency services, he becomes an
agent of his customer.
22. Bailer and Bailment relationship
• A bailment is the delivery of goods in trust. A bank
may accept the valuables of his customer such as
jewellary, documents, securities for safe custody.
• In such a case the customer is the Bailer and the
bank is bailee.
23. • The bank (bailee) charges a very small amount
as service charges for safe custody of the
valuables from his customer (bailer).
• This relationship between the bank and the
customer as bailee and bailer started from the
days of earlier goldsmiths.
24. Pawner and Pawnee:
• When a customer Pledge goods and documents as
security for an advance he then become Pawner
(Pledger) and the bank becomes the pawnee
(pledgee).
• The pledged goods are to be returned intact to the
pawner after the debt is repaid by him.
25. Mortgager and Mortgagee
relationship:
• Mortgage is the transfer of an interest in specific immovable
property for the purpose of securing the payment of money
advanced or to be advanced by way of loan.
• When a customer pledges a specific immovable property with
the bank as security for advance, the customer becomes
mortgager and banker is the mortagee.
26. Bank as a trustee
• The bank act as a trustee for his customer in
those cases where he accept securities and
other valuables for safe custody.
• In such cases the customer continues to be
the owner of the valuables deposited with the
bank.
29. • The main rights and duties of a customer
towards the banker in brief are as under:
• Rights of a customer:
– A customer who has deposited money can draw
check on his account up to the extent of his credit
balance or according to overdrawing limit
sanctioned by the bank.
30. – A customer has the right to receive statement of
accounts from the bank.
– A customer has the right to sue the bank for
compensation of a wrongful dishonor of his check.
– A customer has a right to sue and demand
compensation if the bank fails to maintain the
secrecy of his account.
31. Duties of a customer
– It is the duty of the customer to present checks and other
negotiable instruments during the business hour of the
bank.
– The instruments of credit should be presented by the
customer with in due time from their dates of issue.
– A customer must keep the check books issued by the bank
in safe custody. In case of theft or loss, it is the duty of the
customer to report the matter immediately to the bank.
32. – A customer should fill the check with utmost care.
– If a customer find any forgery in the amounts of
the check issued by him. It should then
immediately be reported to the bank.
34. • Duties or obligations of a
banker towards the customer
35. To honor a customer’s check:
The banker is to honor the check of the
customers provided the check are:
– Properly drawn
– The customer has balance to his credit
– The loan contract has been signed
– There is no legal bar or restriction attaching to the
customer’s funds.
36. Standing orders
• It is the duty of the bank to abide by the
standing orders of the customers in making
periodical payments on his behalf such as
club, library, insurance premium etc.
37. Secrecy of the customer’s account
• The bank owes a contractual duty not to
disclose the customer’s financial position
without his consent.
• However the obligation of secrecy is not
considered essential on the following
occasions.
38. – When a banker is required to give evidence in the
court.
– When there is national emergency and disclosure is
essential in the public interest.
– When there are clear proofs of treason to the state
– When a consent is given by the customer to provide
information for the preparation of balance sheet.
39. Garnishee order
(order of the court)
• It is the duty of the banker to abide by the
order of the court (garnishee order) and
attached the funds of the customer to the
creditors who has obtained the order in his
favor.
40. Rights of a banker
–Right to set off:
– It is a right of the banker to adjust his outstanding
loans in the name of the customer from his credit
balance of any of the accounts he is maintaining
with the bank.
41. Right to charge interest, commission
etc
– It is the right of the banker to charge interest
commission etc according to the rates for the
services the banker has rendered to the customer
as agent, trustee etc.
• A banker has the right to retain the property
belonging to the customer until the debt due from
him has been paid.
43. unit -3. cheques - Definition
• A cheque is a bill of exchange drawn upon a
specified banker and not expressed to be
payable otherwise than on demand and it
includes the electronic image of a truncated
cheque and a cheque in the electronic form.
• All cheques are bills of exchange but all bills
of exchange are not cheques
44. Modes of crossing a cheque
• General crossing.
• Special crossing.
• Restrictive crossing.
• Not negotiable crossing.
45. General crossing
• When a cheque bears across its face an
addition of (i) the words “And company” or (ii)
any abbreviation between two parallel
traverse lines simply either with or without the
word negotiable or (iii) two parallel traverse
lines simply either with or without the words
not negotiable that addition shall be deemed a
crossing, it is a general crossing.
46. General crossing
• The two traverse parallel lines across the face
of the cheque are essential for general
crossing. Effect of such crossing is that the
holder or payee cannot get the payment over
the counter of the bank but through bank only.
48. Special crossing
• When a cheque bears across its face an
addition of name of a bank either with or
without the words ‘ not negotiable’, the
cheque is deemed to be crossed specially. A
cheque cannot be crossed more than once
specially. A special crossing makes the cheque
more safer than a general crossing because the
payee or holder cannot receive payment
except through the banker named in the
cheque.
50. Restrictive crossing
• It includes words like A/C payee, Account
Payee only, A/c Ashok only etc between
traverse parallel lines. The effect of the
restrictive crossing is that it directs the
collecting banker that the proceeds of the
cheques are to be credited only to the account
of the payee named in the cheque or between
the traverse lines.
52. Not negotiable crossing
• A cheque may be crossed with the words ‘not
negotiable’ on it. The effect of the words ‘ not
negotiable’ on a crossed cheque is that cheque
cannot be negotiable.
53. Difference between bill of exchange and cheque
• A bill of exchange may be drawn on any
person including a banker. But a cheque is
always drawn on a bank or banker.
• A bill must be accepted before the drawee
can be called upon to make payment upon it.
A cheque does not require acceptance.
54. Difference between bill of exchange and cheque
• A bill is entitled to 3 days of grace. A cheque is
not entitled to any days of grace.
• A cheque may be crossed. But there is no such
provision for a bill of exchange.
• A bill requires stamp except in certain cases. A
cheque requires no stamp.
55. UNIT 4 - DISHONOUR OF CHEQUE –
DEFINITION
• The Negotiable Instruments Act, 1881 makes the
dishonour of cheques a criminal offence.
• Section 138 of NIA provides that the dishonour of
the cheques for the reasons:
a. “insufficiency of funds” and
b. Signature on the cheque does not match that in the
bank records.
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56. KINDS OF DISHONOUR OF CHEQUE
1. Dishonour by non-acceptance.
2. Dishonour by non-payment is said to be
dishonoured.
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57. • S.91[14] of the Act speaks of dishonour by non-
acceptance. Presentment for acceptance is required
only in the case of a bill of exchange. Usually
acceptance and payment go together and this usually
happens in case an instrument is payable after sight,
thus often it is difficult to distinguish the two because
dishonour by non-payment is usually dishonour by
non-acceptance, and thus it is only this bill of
exchange which can be dishonoured by non-
acceptance and not a cheque as in the case of a
cheque no acceptance is required to be taken to the
banker and cheques are mainly instruments payable at
sight. 57
58. • The second kind of dishonour, is that of dishonour
by non-payment. A negotiable instrument is said
to be dishonoured by non-payment when the
drawee of a cheque makes default in payment
upon being duly required to pay the same.
• Payment countermanded:
When the drawer of the cheques issues
instructions to the bank not to make any payment
of a particular cheque issued by him, the bank
then stands revoked from making payment on that
cheque, this is known as countermand of cheques
by the drawer.
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59. Insufficiency of funds:
When there are no funds to meet the cheque or the
account of the drawer does not hold sufficient funds to
meet the whole credit amount of the cheque, the
banker is then justified in refusing the payment of such
a cheque. However where the account has sufficient
funds, the banker is under an obligation to its customer
of honouring the cheque presented to it.
Non-applicability of funds:
Under S.31 of the Act it is the banker’s duty to honour
the cheque when funds which are lying in the account of
the drawer are applicable for the purpose. Thus when
the funds in the account are lying for other purposes,
the will necessarily dishonour the cheque presented
before it for payment.
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60. EFFECTS OF DISHONOUR OF CHEQUE
1. Taking of legal action. The payee/holder can take action against
the drawer of such a bill may take action on the exact time of
dishonouring of the bill. Thus the holder need not wait for the bill
to mature and then to take action for dishonouring the same.
2. When a cheque is said to be dishonoured it loses its basic
characteristic of negotiability with immediate effect.
3. On dishonouring of a cheque, nothing prevents the holder thereof
to present it again particularly on being asked by the drawer of the
cheque.
4. Mere dishonouring of cheques does not give rise to a cause of
action in favour of the complainant but it accrues only after the
issue of demand notice and failure of the drawer to make the
payment.
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61. WHEN DISHONOUR OF A CHEQUE IS AN
OFFENCE
• Returning the cheque unpaid by the drawee
bank,
• Giving notice in writing to the drawer of the
cheque demanding payment of the cheque
amount,
• Failure of the drawer to make payment within
15 days of the receipt of the notice.
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62. LIABILITY ON DISHONOUR OF CHEQUE
• Necessary Ingredients for Liability
• Civil Liability
• Criminal Liability
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63. Necessary Ingredients for Liability:
1. The cheque must have been issued in favour of the
payee.
2. The cheque so issued must have been issued in
discharge, either in whole or in part, of a legally
enforceable debt or liability.
3. The cheque should have been presented for
encashment within six months of the date it bears or
within its specific validity period which is earlier;
4. The cheque should have been returned by the bank
unpaid, because the amount of money standing to the
credit of the account is insufficient or it exceeds the
amount arranged.
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65. Civil liability:
• Civil Liability is also arises when the cheque is
presented for the payment to the bank gets
dishonoured.
• Section 138 also provides for civil liability which
provides for fine twice the amount of dishonoured
cheque.
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66. Criminal Liability:
• A criminal liability is provided under section 138 of
the Act, which provides imprisonment for two years
or with fine which may extend to twice the amount
of the cheque, or with both.
• In case of dishonour of cheque the drawer of it may
be prosecuted under sections 417 and 420 of the
Indian Penal Code, 1960 (IPC). However, it all
depends on the circumstances of each case. Every
dishonour of a cheque is not cheating.
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67. Promissory Note General Definition
• A promissory note is a legal instrument (more
particularly, a financial instrument), in which one
party (the maker or issuer) promises in writing to
pay a determinate sum of money to the other
(the payee), either at a fixed or determinable
future time or on demand of the payee, under
specific terms. If the promissory note is
unconditional and readily salable, it is called a
negotiable instrument.
68. Promissory Note
• Section 4 of Negotiable instruments Act
defines Promissory-Note as under:
“Promissory-note as an instrument in
writing (not being a Bank note or a currency
note) containing an unconditional undertaking
signed by the maker, to pay on demand or
money only, to, or to the order of a certain
person, or to the bearer of the instrument.
69. Promissory Note
Essentials of Promissory Note
(1)It must be an unconditional written promise.
(2) It must be signed by the maker called
“promiser”.
(3) It must contain a promise to pay a certain sum
in money only.
(4) It may be made by two or more persons, and
they may be liable thereon jointly or severally.
70. Promissory Note
(5) The amount promised in the promissory note
must be payable on demand or at a fixed or
determinable future time.
71. Bill of Exchange General Definition
• An unconditional order issued by
a person or business which directs the
recipient to pay a fixed sum of money to
a third party at a future date.
• A bill of exchange must be in writing and
signed and dated.
72. Bill of Exchange
• Section 5 of the negotiable instruments Act,
1881, defines a bill of exchange as “An
instrument in writing containing an
unconditional order, signed by the maker,
directing a certain person to pay on demand
or at a fixed or determinable future time, a
certain sum of money only to, or to the
person or to the bearer of the instrument”.
73. Bill of Exchange
Essentials of Bill of Exchange
(1) A bill o exchange must be in writing & signed by
the drawer.
(2) It must contain unconditional order or direction.
(3) The direction should be to pay a certain sum in
money only.
(4) The drawee should be directed to pay on
demand or at a fixed or determinable future time.
74. Bill of Exchange
Essentials of Bill of Exchange
(5) The amount should be payable to or to the
order of a certain person or the bearer of the
instrument.
75. Bill of Exchange
Drawer is the maker of the bill of exchange. A
seller/creditor who is entitled to receive money
from the debtor can draw a bill of exchange upon
the buyer/debtor. The drawer after writing the bill
of exchange has to sign it as maker of the bill.
76. Bill of Exchange
Drawee is the person upon whom the bill of exchange is
drawn. Drawee is purchaser of the goods upon whom
the bill of exchange is drawn. The dawee has to write
the word “accepted” if he accepts to make the
payment given in the bill on the due date and has to
put his signatures on it. After the drawee of a bill has
signed his assent on the face of the bill, he is called the
acceptor and this process is called acceptance.
77. Bill of Exchange
Payee is the person to whom the payment is
made. The drawer of the bill himself will be
the payee if he keeps the bill with him till the
date of its payment.
80. Bill of Exchange
Types of Bills
Bills may be the following types:-
(1) Sent bills or bill for collection:-when bills are
handed over to a banker by his customer in
order that they may be collected when due &
the proceeds credited to the customer’s A/C
they are called “bills for collection.
81. Bill of Exchange
(2) Bills Negotiated or Bills Discounted:-Are
those bills for which the banker has given
value at once, without waiting for the
proceeds after collection.
82. Bill of Exchange
(3) Bills Retired:-When a bill withdraw from
circulation or taken up before it is due, it is said to
be “Retired”. Sometimes the acceptor of a bill of
exchange desires to meet the bill before its
maturity if he has sufficient funds. The holder
generally allows the acceptor a rebate or discount
for the unexpired period of the bill.
83. Bill of Exchange
Bills in Set:- Section 132 of the negotiable
instruments Act, 1881, lays down that when
bills of exchange are drawn in two or more
than two parts, they are called “bill in set” &
each part is on a separate piece of paper; but
all parts are worded exactly in the same
language except that the parts are numerically
“the 1st of exchange”, “2nd
of exchange.
85. E-COMMERCE
• E- commerce refers to any financial business
that is done online
• E-Commerce is the paperless exchange of
business information using data interchange,
e-mail, fax transmission, and electronic
funds transfer.
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87. What is E-banking
• Online banking or Internet banking.
• In simple terms it does not involve any physical
exchange of money, but it’s all done
electronically, from one account to another,
using the Internet.
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88. 88
• From a personal computer, you can access your
bank account information, and perform many
banking functions, like transferring money,
making a loan payment
89. Service rendered by banks
• Banks offer the following services to account
holders at their specified branches
• multi-city / Payable at Par (PAP) cheque facility
• anywhere banking facility
• trade services
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91. TYPES OF E-BANKING
• Online Banking
• Phone Banking
• Electronic Payment Services - E Cheques
• Real Time Gross Settlement (RTGS)
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92. • Electronic Funds Transfer (EFT)
• Electronic Clearing Service (ECS)
• Automatic Teller Machine (ATM)
• Point of Sale Terminal
• Tele Banking
• Electronic Data Interchange
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94. CONCLUSION
The bank level changes through online approach.
o "conventional banking to convenience banking"
and
o "mass banking to class banking".
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95. Debit Card
• Also known as Bank Card or Check Card.
• A debit card is a plastic card that provides an
alternative payment method to cash when
making purchases.
• It can be called an electronic cheque, as the
funds are withdrawn directly from either the
bank account, or from the remaining balance on
the card.
107. OTHER SERVICESPROVIDED
ARE -
1. INTERNET BANKING
2. TELE- BANKING
3. ACCEPTING DEPOSIT
4. CENTRALISED BANKING SOLUTION
5. ISSUE OF DEBIT & CREDIT CARD
6. ONLINE BILL PAYMENT
7. SAVINGS PLUS SCHAME
8. AGRICULTURAL SCHAME
9. LIFE INSURANCE POLICIES
108. CREDIT CARD
• A CREDIT CARD IS PAYMENT CARD ISSUED TO USERS AS A SYSTEM OF
PAYMENT.
• IT ALLOWS THE CARDHOLDER TO PAY FOR GOODS & SERVICES BASED ON
THE HOLDER’S PROMISE TO PAY FOR THEM.
• THE ISSUER OF THE CARD CREATES A REVOLVING ACCOUNT & GRANTS A
LINE OF CREDIT TO THE CONSUMER FROM WHICH THE USER CAN BORROW
MONEY FOR PAYMENT TO A MERCHANT OR AS A CASH ADVANCE TO THE
USER.
DIFFERENT CREDIT CARDS AVAILABLE
•CANCARD
•CANARA VISA CLASSIC/MASTERCARD STANDARD GLOBAL CARD
•CANARA GLOBAL GOLD CARD
•CANARA CORPORATE CARD