The document discusses various aspects of the relationship between banks and their customers. It outlines the obligations and rights of customers, including maintaining sufficient funds and bringing any discrepancies to the bank's notice. It also discusses how the relationship can be terminated voluntarily or by law. The document then covers operations in deposit accounts like minimum balances, interest rates and nomination facilities. Finally, it discusses key negotiable instruments like promissory notes, bills of exchange and cheques as defined in the Negotiable Instruments Act.

1. Banker Customer Relationship – 24
 Obligations of a Customer :
- To draw his cheques with sufficient care so as
not to mislead the banker or facilitate forgery or
fraud
- To bring to the bank’s notice any discrepancy in
his a/c or any forgery of his cheques
- To pay interest on all debit accounts and a
reasonable charge on all accounts
- To safe-keep cheques to avoid forgery

2. Banker Customer Relationship
 Rights of a Customer :
- A customer has the right on the bank to honour
his cheques provided there are sufficient funds in
the account and duly applicable for payment of
such cheques and cheques are in order
- In case the bank wrongfully dishonours a
cheque, customer has right to get compensated
for the damage such a dishonour would cause to
his reputation

3. Banker Customer Relationship – 26
• Termination of Banker Customer Relationship
- Voluntary Termination by either party
- Termination by law (Death, Insolvency,
Lunancy, Garnishee/Court Attachment Order
and Income Tax/ Sales Tax Attachment Order)

4. Banker Customer Relationship – 27
• Operations in the Deposit Accounts:
- Specimen Signature
- Operation of the a/c by the a/c holder(s)
- Operation of the a/c by authorised agent (Mandate or
Power of Attorney)
- Pay-in-Slip Book/Challan
- Cheque Book
- Pass Book/Statement of Account (Paper based or E-
Statement)

5. Banker Customer Relationship – 28
• Operations in the Deposit Accounts:
- New Account/Caution: Operations in a newly opened a/c
should be watched/monitored closely with much care and
caution for at least 6 months or such other longer period as
the branch management feels in order to avoid any fraudulent
or undesirable transactions as such accounts are more fraud
prone.. The Cheque book should be branded as new A/c also.
- Dormant Account: If there are no operation continuously
for a period of 12 months in an SB a/c or 6 months in a CA,
the a/c will be branded as Dormant and subsequent
transactions in such accounts will be allowed with care by a
senior official/ txns. to be monitored/watched carefully in
order to avoid any frauds as such accounts are more fraud
prone.

6. Banker Customer Relationship – 29
• Operations in the Deposit Accounts:
- Inoperative Account: If there are no operation continuously
for a period of 2 years in any SB/CA a/c (including the
dormant period), the a/c will be branded as Inoperative and
subsequent transactions in such accounts will be allowed with
due care by a senior official/ txns. to be monitored/watched
carefully in order to avoid any frauds as such accounts are
more fraud prone.
- Transfer to Unclaimed Balances A/C at Bank’s HO: An
account remaining in Inoperative Status for more than 5
years (i.e. total no operation in the a/c for 7 years) should be
transferred to Unclaimed Balances A/C at Bank’s HO.

7. Banker Customer Relationship – 28
• Different Types of Customers
- Individuals (Single or Joint)
- Minors/Illiterate Persons/Blind Persons
- HUF
- Club, Association, Society, Trust
- Proprietorship Firm
- Partnership Firm
- Company
- Local Authority/Body
- NRI

8. Banker Customer Relationship – 29
• Operational Instructions in Joint Accounts/Accounts of
Firms & Companies :
- Either or Survivor (E or S) with 2 a/c holders
- Anyone or Survivor(s) with > 2 a/c holders
- Joint Operation
- Former or Survivor(s)
- Latter or Survivor(s)
- Specific mandate/authority for accounts of Firms,
Companies and other representative accounts

9. Banker Customer Relationship – 30
• Deposit Insurance by DICGC :
- Banks Covered : Deposits of all Commercial Banks,
RRBs, Co-operative Banks (Urban, State & District
Central) are insured u/r this scheme by Deposit
Insurance & Credit Guarantee Corporation. It is
compulsory and no bank can opt out of it.
- Maximum Cover : Rs. 1 lakh per depositor (in the
same status and right) per bank
- Deposit Insurance Premium (current rate is 10 paise
per Rs.100 of assessable deposit p.a.) to be borne
entirely by the insured bank

10. Banker Customer Relationship – 31
• Type of Deposit Accounts :
- Transaction Deposit Accounts/Chequable
Accounts/Demand Deposits (Current Deposit
Accounts and Savings Bank Accounts)
- Term/Time Deposit Accounts :
1. Fixed Deposit Accounts (FD) : (a) Cumulative/
Reinvestment Deposits where interest is
reinvested with the principal and (b) Non-
cumulative deposits providing periodical interest

11. Banker Customer Relationship – 31
2. Recurring Deposit Accounts (RD) : (a) A fixed
Monthly deposit for a chosen period/no. of
months (b) A Variable RD A/C - A core
monthly deposit with flexibility to increase
the monthly deposit
- Hybrid Deposits/Flexi Deposits/Sweep in
Deposits/Unitised Deposits
- Certificate of Deposits (Negotiable Term
Deposits)

12. Banker Customer Relationship – 32
• Deposit Accounts/General Norms :
- Minimum Balance Requirements : Varies from Bank
to Bank and also type/class of accounts offering
differing level of value added services. Regular
Minimum Bal. or Average Quarterly Bal. (AQB). Charges
for non-maintenance of Minimum Bal.
- Differing level of value added services (Free
ATM/Debit Card, Free Credit Card, Free Remittance
facility (DD/BC/NEFT/RTGS) up to a specified limit p.m.,
Free Cheque Collection facility up to a certain limit
p.m., Free internet and Mobile Phone Banking etc.)

13. Banker Customer Relationship – 33
• Deposit Accounts/General Norms (contd.. ) :
- Minimum & Maximum Period for a Term Deposits :
- RD (6 months & 120 months (10 years))
- FD (Minimum : 15 days for any amount, but 7 days for
an amount = or > a cut-off amount which varies from
bank to bank and maximum 10 years)
- For Deposits in the name of minors maximum period
can be > 10 years till he becomes major and for
deposits made @ court direction maximum period can
be > 10 years

14. Banker Customer Relationship – 34
• Deposit Accounts/General Norms (contd.. ) :
- Interest rates on SB/CA : Deregulated by RBI since
November 2011. Banks are to fix their SB Interest. CA : No
interest, SB interest is calculated on the daily balance.
- Interest rates on Term Deposits : Interest rate is totally
deregulated, banks are free to decide their deposit rates as
approved by bank’s board or Asset Liability Committee
(ALCO) which should be uniform for all depositors except
for high value/bulk deposits of Rs.15 lakh and above from
individuals/firms/Corporates where banks have discretion
to offer/quote different rates (normally higher rates) from
the normal/card rates
- Fixed (Interest) Rate –vs- Floating Rate Deposits

15. Banker Customer Relationship – 35
• Nomination Facility for Bank Deposits, Safe Custody of
Articles and Safe Deposit Lockers :
- Nomination of Bank accounts are compulsory, Bank
should educate their customers as to the advantages of
nomination.
- A valid nomination ensures that in the event of death of
the sole depositor or all depositors, bank will return the
amount lying in the account to the nominee without any
legal hassle. Note Nomination per se does not confer any
legal heirship/absolute ownership to the nominee, it only
authorises the nominee to collect the amount from the
bank and payment to nominee gives a valid discharge to
the bank.

16. Banker Customer Relationship – 36
• Nomination in Bank Deposit Accounts :
- Who can nominate? : The sole depositor or all joint depositors in
Deposit a/cs held in individual capacity and not in any
representative capacity. So No Nomination in Partnership Firm,
Company, Trust, HUF or Association Accounts.
- Who can be nominated? : Only Individuals can be a nominee. One
nominee for each deposit a/c. Anybody including a minor, NRI,
Foreigner or blind/illiterate person can be a nominee (But Not a
lunatic). In case of minor nominee an adult individual to be
appointed to receive the deposit in the event of the death of the
depositor during the minority of the nominee.
- Nomination forms in DA1/ for cancellation of nomination form
DA2/Variation by DA3

17. Banker Customer Relationship – 37
• Nomination in Safe Custody of Articles Accounts :
- Who can nominate? : Facility available only when the
articles are held in the single name of an individual in
his personal capacity. Thus Safe custody a/c in joint
names are not eligible for nomination unlike Deposit
A/C and Safe Deposit Locker A/c.
- Who can be nominated? : Only one Individual can be
appointed as a nominee. Anybody including a minor,
NRI, Foreigner or blind/illiterate person can be a
nominee (But Not a lunatic).
- Nomination forms in SC1/ for cancellation of
nomination form SC2/Variation by SC3

18. Banker Customer Relationship – 37
• Nomination in Safe Deposit Locker (SDL) Accounts :
- Who can nominate? : Facility available only when the SDL
A/Cs are held in the name of individuals (singly or jointly) in
his/their personal capacity.
- Who can be nominated? : Nominee should be Individuals.
In a single a/c only one nominee, in joint a/c more than one
nominee allowed, but the number of nominees should not
exceed the number of joint hirers. Anybody including a
minor, NRI, Foreigner or blind/illiterate person can be a
nominee (But Not a lunatic).
- Nomination forms in SL1 for sole hirer, SL1A for joint
hirers/ for cancellation of nomination form SL2/Variation by
SL3 for sole hirer and SL3A for joint hirers.

19. Salient Features of NI Act - 1
• Negotiable Instruments: Negotiable Instruments
Act, 1881 (NI Act) does not define a Negotiable
Instrument. Sec. 13 of NI Act merely states “A
negotiable instrument means a promissory note,
bill of exchange or cheque payable either to order
or bearer”. These 3 instruments are, therefore,
negotiable instruments by statute. These
negotiable instruments have certain common
features and any instrument that possess these
features may be considered to be a negotiable
instrument (e.g. bank drafts, government
promissory notes etc.)

20. Salient Features of NI Act - 2
• Common features of Negotiable Instruments :
- Transferability
- Negotiability
- Right of Action/Recovery
1. Freely Transferable: The right/interest/
ownership/property in an NI passes from one person to
another by mere delivery, in case of a bearer
instrument, or by endorsement and delivery, in case of
an order instrument. However, the transferability of the
instrument may be restricted by the maker or the
holder as under:

21. Salient Features of NI Act - 3
1. Freely Transferable (Contd…):
a. By the maker by drawing it payable to “X only”
b. By the maker/drawer and holder by crossing it
as “Account Payee” or “Account Payee only”.
c. By the holder or the endorser making a
restrictive endorsement like “Pay to X only”.

22. Salient Features of NI Act - 4
2. Title of transferee/holder better than that of
transferor, i.e. free from all defects: A negotiable
instrument confers an absolute and valid title on
the transferee who takes it in ‘good faith (bona
fide), for value and without notice of defect in the
title of the transferor’. This is an exception to the
general rule of law that says that ‘no one can give
to another a better than what one has’. Such a
holder/ transferee of NI is known as ‘holder in
due course’. This is the essential feature of
“Negotiability” of a negotiable instrument.

23. Salient Features of NI Act - 5
3. Right of Action/Recovery: The holder in due
course of an NI can sue upon a negotiable
instrument in his own name for the recovery
of the amount of the instrument from the
party liable to pay thereon. Further he need
not give the notice of transfer to the party
liable on the instrument to pay.

24. Salient Features of NI Act - 6
• Promissory Note/Sec. 4: “A Promissory Note is an
instrument in writing (not being a bank note or a
currency note) containing an unconditional
undertaking, signed by the maker, to pay a
certain sum of money only to, or to the order of a
certain person, or to the bearer of the
instrument.”
( 2 parties: Maker & Payee): Used in borrowing
and lending transactions. Borrower is the maker
(Promisor) and lender is the Payee (Promisee) of
the note.

25. Salient Features of NI Act - 7
• Bill of Exchange/Sec. 5: “A bill of exchange is an
instrument in writing containing an unconditional
order, signed by the maker, directing a certain person
to pay a certain sum of money only to, or to the order
of a certain person, or to the bearer of the instrument.”
• (3 parties: Maker/Drawer, Drawee and Payee):
 BoE is used in business and trade involving the seller
and buyer of goods/services sold on credit terms. Seller
is the Drawer/Maker, Buyer is the Drawee and to
whom money is to be paid is the Payee (Beneficiary).

26. Salient Features of NI Act - 8
 Instead of paying cash, the drawee (buyer)
undertakes to pay to the payee or to his order, a
specified sum on demand (i.e. demand bill on
presentment of the bill) or on a specified future
date (i.e. usance bill after acceptance).
 The drawee of the bill is not liable until he
accepts the bill, indicating thereby his assent to
the drawer’s order to pay. Demand bill is payable
immediately on presentment to the drawee.
Usance bill is presented twice to the drawee-first
for its acceptance and thereafter for payment on
the due date.

27. Salient Features of NI Act - 9
The date of payment must be certain or
ascertainable. Demand bill is payable on
demand or immediately on presentment.
Usance bill is payable after a specified period
or at a future date. Usance bills attract ad
valorem stamp duty and they need to be
accepted by the drawee(s) to legally bind
him/them for payment.

28. Salient Features of NI Act - 10
• Cheque/Sec. 6: “A cheque is a bill of exchange
drawn on a specified banker and is not
expressed to be payable otherwise than on
demand.”
• It also includes (i) electronic image of a
Truncated Cheque and (ii) Cheque in
electronic form (e-Cheque)
• (3 parties: Drawer, Drawee/Bank and Payee).

29. Salient Features of NI Act - 11
• Common features of a Cheque :
- Drawer : Account holder signing the cheque.
- Drawee : Always the bank branch where the
a/c holder maintains his a/c.
- Payee : Beneficiary who will receive the
amount mentioned in the cheque.

30. Salient Features of NI Act - 12
• Other features of a Cheque :
- In written format (By Pen or Typed, Not in Pencil)
- Form of Cheque [Cheque No., MICR Code/9 digits, A/C
name & no. of the drawer, Branch Name, (RTGS/NEFT) IFSC
Code/11 digits (4 a + 7 n), other security features]
- Drawer’s Signature
- Date of Cheque [Stale/Ante-dated (date > 3 m on date of
presentation) and Post-dated cheques are Not to be paid]
- Amount of Cheque (In words and Figures)
- Bearer Cheque and Order Cheque (Cheques payable to X
or bearer, to X, to X or order, to X only)

31. Salient Features of NI Act - 13
• Other features of a Cheque :
- Material Alteration of the Cheque : Requires Drawer’s
full signature/authentication
- Holder/Holder in Due Course (Sec. 8 & 9)
- Payment in due course (Sec. 10)
- Payable at par Cheques/Multi-City Cheques
- Crossed Cheques and Uncrossed (Open) Cheques:
Open cheques can be paid across counter in cash while
Crossed cheques should be collected through a bank
account, i.e., no cash can be paid.

32. Salient Features of NI Act - 14
• Other features of a Cheque :
• Crossing of Cheques
- General Crossing : drawing on its face 2
parallel transverse lines
- Special Crossing : addition of the name of a
banker across the face of the cheque
- Account Payee Crossing/Not Negotiable
Crossing

33. Salient Features of NI Act - 15
• Endorsements [Means writing of a person’s name on
the face or back of an NI or on a slip of paper (called
allonge) annexed thereto for the purpose of
negotiation] : Blank Endorsement, Special
Endorsement/Endorsement in Full, Restrictive
Endorsement, Endorsement sans recourse.
• Other Negotiable Instruments :
- Banker’s Drafts
- Traveller’s Cheques
- Dividend/Interest Warrants

34. Salient Features of NI Act - 16
• Circumstances when a Drawee Banker can refuse payment of a cheque :
- Insufficiency of funds in the drawer’s a/c
- Payment counter mended/stopped by drawer
- Post dated cheque/Stale cheque
- No signature of drawer/No date/Material alteration requires full
signature of drawer
- Drawer’s signature differs
- Cheque mutilated
- Crossed cheque cannot be paid across counter
- Exceeds arrangement [in case of Cash Credit (CC) or Overdraft (OD)a/c]

35. Salient Features of NI Act - 17
• Bouncing of Cheques /Civil & Criminal Liability of the
Drawer (Debtor) and the endorser(s) (Guarantors): Sec.
138 to 147 of NI Act, 1881. Following conditions are to
be satisfied :
- Drawing of a cheque for valid consideration, i.e. for
discharge of debt or liability
- Presentation to the bank within the validity period
- Cheque returned unpaid/dishonoured by bank b/o
insufficiency of funds or exceeds arrangement

36. Salient Features of NI Act - 18
- Payee or holder in due course gives notice in writing
to drawer demanding payment of cheque amount
within 30 days of receipt of information from the bank
about the dishonour
- Drawer fails to pay the amount to the payee within 15
days of the receipt of the notice
- Payee must make a written complaint before the
court/file criminal suit within one month from the
expiry of 15 days period given to drawer to make
payment (cause of action)
- Maximum Punishment : Imprisonment up to 2 years
or fine up to 2 times the cheque amount or both

37. Miscellaneous Topics
• CASA Deposits, Importance of CASA and CASA
ratio for a bank, Strategies for mobilising CASA
Deposits

38. KEY WORDS/TERMINOLOGIES/GLOSSARY
• Retail Banking – vs- Wholesale/Corporate
Banking; Banker, Customer, KYC-AML-CFT
Guidelines, Customer Due Diligence, Money
Laundering, Placement, Layering & Integration,
AML, Suspicious Transactions, CASA & CASA
Ratio, Deposit Insurance & DICGC, Nomination
• Negotiable Instruments (NI), Cheques, BoE,
Promissory Notes, Negotiability, Transferability,
Right of Action/Recovery, Holder & Holder in
Due Course, Payment in due course, Crossing of
Cheques – General/Special, Endorsements

39. Topics for Next Class – All of you Should get prepared before coming
to the class
• New Banking Technology/Electronic Banking :
TBA, CBS, ATM, Credit, Debit &
Smart/Charge/Stored Value Cards, Mechanics
of Credit Card Transaction. Tele Banking,
Internet Banking, Mobile Banking, Mobile
Phone Banking.
• Payment and Settlement System : Different
Clearing Systems of Cheques, MICR, Cheque
Truncation System (CTS), e-Cheque; Electronic
Transfer of Funds – ECS, EFT, NEFT, RTGS,
SWIFT etc.

40. Home Task & Assignment for Next Class
• Group Assignment for submission in the next
class through the Class representative sharp
before the start of the class.
• Assignment : Compare the SB, CA, Term Deposit
Products along with value added
services/freebies and Cash Management
Solutions offered by the two banks allotted to
your group. Suggest which bank gives better
facility/low service charges/better value to
customers product-wise.