REMITTANCES AND OTHER

FUNCTIONS IN BANKS
By Mrs. M.K. GANGAKHEDKAR
 BANKING REGULATION ACT, 1949
• Definition of banking explained.
• Restrictions on other businesses. (Banks cannot trade
in goods except the securities held by them)
• Banks cannot hold immovable property except for its
own use.
• Banks cannot pay commission or brokerage for
canvassing of deposits and loan accounts to its staff or
others. However, commission/brokerage can be paid
for certain other businesses, such as maintenance of
ATMs, share business etc.
 BANKING COMPANIES (ACQUISITION &
TRANSFER OF UNDERTAKINGS) ACT, 1970
• Banks deal with public money.
• Banks are bound by Secrecy Act.
• Banks cannot disclose the balance of the accounts, financial
position of the customers and the details of the dealings in
any customer’s account to any other person.
• If disclosed, it would harm the reputation of the account
holder and banks can be held responsible.
• However, Obligation of Secrecy is not applicable when Courts
ask for details, Law demands it, or Central/State Govts. asks
for it, or other banks call for the details when they have to
consider some loan proposals for that customer.
BANKER-CUSTOMER RELATIONSHIP
• When a customer keeps his deposits with the bank, his
money is held in the bank’s custody. It is repayable on
demand.
• Here, the customer/depositor is the creditor, while the bank
is the debtor.
• When a customer takes loan/credit facilities from the bank,
he is under obligation to repay to the bank.
• Hence, the bank is the creditor, while the borrower is the
debtor.
• In the case of collection of cheques, remittances etc., the
bank is the Agent, while the customer is the Principal.
BANKER-CUSTOMER RELATIONSHIP
• Relationship • Transaction
• Debtor/Creditor • Deposit/Loan Account
• Agent/Principal • Collection of cheques,
money transfers
• Safe custody of articles
• Bailee/Bailor
• Safe Deposit Lockers
• Lessor/Lessee
• When property is
• Mortgagor/Mortgagee
mortgaged by the borrower
in favour of the bank
• When security is pledged in
• Pledgor/Pledgee a loan account
 NEGOTIABLE INSTRUMENTS ACT
• This Act was first enacted in 1881.
• It is a fool-proof Act covering cheques, drafts,
promissory notes and documents of title to goods
(such as Bill of Lading, Railway Receipts)
• All negotiable instruments are presumed to have been
made, endorsed or transferred for some
consideration.
• It is presumed that (unless proved otherwise) that the
holder, the endorsements and the payment are all
made in due course (proper course of business).
 CHEQUES
• Parties to a cheque – Drawer is one who draws the cheque, i.e. the
account holder.
• Drawee – the Bank where the account is maintained.
• Payee – the person named in the cheque, i.e. the person to whom
the amount is to be paid.
• A cheque also includes a cheque in electronic form (known as
truncated cheque).
• Cheques with digital signature or asymetric crypto system are valid.
• Ambiguous Instrument – Unclear instrument
• Inchoate Instrument – Incomplete instrument (legally not valid).
But, it can be made valid if it is completed, blanks filled in before
presenting to the bank for payment.
 CHEQUES (Contd…)
• Holder of a cheque – one who holds the cheque and is entitled to
hold it.
• There cannot be a holder of a forged cheque or a stolen cheque.
• Holder in due course – the beneficiary to whom the cheque is
endorsed. He must have possession of the cheque and there has to
be some consideration. (He is either the Payee or the Endorsee).
• Bearer cheques are payable to the holder.
• Crossing of cheques – Two parallel transverse lines on the face of
the cheque, with or without the words “not negotiable” or “A/c
Payee only”. Crossing implies money cannot be paid across the
counter, but will be credited to the beneficiary’s account only.
 PAYMENT OF CHEQUES
• Banks can pay only during the working hours.
• Payment can be made only if sufficient funds are available in the
customer’s account.
• There is proper demand to make the payment.
• Payment in due course means payment as per the apparent
tenor of the instrument, payment made in good faith and without
negligence, when payment has not been ‘stopped’ and payment
is made to the rightful beneficiary (no scope for doubts).
• Payment will not be made if the customer has died, or the
Company has gone into liquidation, customer has become
insolvent, or when cheque is stale/post dated.
 DISHONOUR OF CHEQUES
• Issuing cheques without maintaining sufficient balance is a
criminal offence.
• Such cheques are returned by the banks to the
payee/endorsee, with the reason “Refer to Drawer” or
“Insufficient Funds”.
• The beneficiary can then file a case in the Court against the
drawer of the cheque, within one month after the return of
the cheque.
• Other reasons for dishonouring of cheques by the banks is
when signature on the cheque differs, date is incorrect, or
payment is countermanded, or there are changes made in the
cheque writings which are not countersigned.
 CREDIT CARDS
• Credit Card – A Credit card is an instrument of payment.
• The Card is attached to the Savings or Current Account
of the card holder.
• The Card holder can obtain goods or services from
Merchant Establishments (MEs) or POS, with whom such
arrangements exist.
• The payment under the Card is payable by the card
holder over a specified period, for which he has to pay
interest also.
• It is like a revolving credit.
 DEBIT CARDS
• Debit Card – A Debit Card is also a payment instrument,
used for obtaining cash, goods and services.
• The amount automatically gets debited to the card
holder’s account instantly in which credit balance exists.
• The Debit card can be used only to the extent of the
balance available in the charge account.
• The Merchant Establishment swipes the Card on a
swiping machine, which is an electronic data capture
machine. Upon swiping, the ME gets the payment
before providing the goods and services.
 ELECTRONIC PAYMENT AND SETTLEMENT
SYSTEM
• 1) RTGS – (REAL TIME GROSS SETTLEMENT SYSTEM) – HERE, MONEY
IS TRANSFERRED FROM ONE BANK TO ANOTHER ON A “REAL TIME”
AND ON A “GROSS BASIS”.
• REAL TIME MEANS PROCESSING OF THE PAYMENTS AT THAT TIME
WHEN INSTRUCTIONS ARE RECEIVED. GROSS SETTLEMENT MEANS
SETTLEMENT OCCURS ON ONE-TO-ONE BASIS, I.E. LINE-WISE.
• 2) ECS – (ELECTRONIC CLEARING SYSTEM) – ELECTRONIC MODE FOR
TRANSFER OF FUNDS FROM ONE BANK ACCOUNT TO ANOTHER. THIS
IS USED FOR LARGE TRANSACTIONS.
• 3) EDI – (ELECTRONIC DATA INTERCHANGE) – THIS ENABLES
COMPUTER-TO-COMPUTER EXCHANGE OF ELECTRONIC DOCUMENTS,
SUCH AS PURCHASE ORDERS, SHIPMENT NOTICES ETC., WITHOUT
HUMAN INTERVENTION.
 NEW TRENDS IN BANKING
• Universal Banking – All banking transactions in one step
(such as checking account balance, transfer of funds, order
cheque books etc.)
• POS (Point of Sales) – Making payment transactions in
exchange of goods purchased using debit or credit card.
• Wearable – Using Smart Watch technology, bank
customers can access banking services with a click on the
wearable device.
• Satellite Banking – A future technological innovation to
solve communication links in weak terrestrial places by
connecting many parts of the country.
 USE OF MODERN TECHNOLOGY
• UPI (UNIFIED PAYMENTS INTERFACE) – THIS IS REAL-TIME PAYMENT SYSTEM
THAT ENABLES INSTANT INTER-BANK TRANSACTIONS WITH THE USE OF A MOBILE
PLATFORM. IT IS DEVELOPED BY NATIONAL PAYMENTS CORPORATION OF INDIA.
IT IS AVAILABLE 24/365. EXAMPLES ARE GOOGLE PAY, PAYTM, BHIM UPI ETC.
• BIOMETRIC AUTHENTICATION SYSTEM – WITH A MIXTURE OF ENCRYPTION
TECHNOLOGY AND OTPS, THIS WILL CREATE A HIGHLY SECURED DATABASE,
PROTECTING IT FROM HACKERS.
• HYBRID CLOUD TECHNOLOGY – THIS ENABLES BANKS TO PARTNER WITH OTHER
SOFTWARES FOR QUICKER COMMUNICATION. FOR EXAMPLE, ICICI BANK HAS
PARTNERED WITH ZOHO BOOKS, AN ONLINE ACCOUNTING SOFTWARE. THIS
ALLOWS RETAIL SHOP OWNERS TO AUTOMATE THEIR RECONCILIATION PROCESS.
• VOICE BANKING – IS A PROCESS WHICH PROVIDES A CUSTOMER WITH VOICE
MANAGEMENT FOR ALL EVERYDAY BANKING OPERATIONS.(VOICE PAYMENT
TECHNOLOGY WITH THE HELP OF VOICE ASSISTANTS)
NEW TRENDS IN BANKING (Contd.)
• Artificial Intelligence Robots (Chatbots) - This is used for assistance in
customer support services. This technology is made up of machine learning,
natural language processing, intelligent analytics and AI language. It can
recognise fraudulent behaviour, resulting into zero human error. Helps to
improve financial decisions.
• Quantum Computers – These are machines which use the properties of
Quantum Physics, to store data and perform calculations. Very useful for
financial analysis and making optimal investment portfolios.
• Digital only banks – They operate in IT platforms and are paperless &
branchless. They provide high speed banking facility at low costs.
• Neo banks - They are online-only fintech companies operating solely
digitally or via mobile apps. Introduced in 2017, customer acquisitions,
remittances, utility payments, personal finance and MSME loans are some of
the services rendered presently.