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General Banking Laws: Page 1 of 116

CHAPTER - 2
GENERAL BANKING

BANKING LAWS

Banking Regulation Act
Reserve Bank of India Act
Negotiable Instrument Act
Statutory Ratios
Banker Customer Relation
Different Types of Customers
Garnishee & Income Tax Attachment Order
KYC and AML
Nomination
Customer Service
Banking Ombudsman Scheme,
The consumer Protection Act
Cheque Collection Policy
Compensation Policy
Grievance Red ressal Policy
Code of Banks Commitment to Customers by BCSBI
Right of Information Act
Latest Changes

THE BANKING REGULATION ACT, 1949
An act to consolidate and amend the laws relating to banking
Came in to force w.e.f.16.03.1949. The act was passed as

The Banking companies Act,


1949

and later on the name changed to

The Banking Regulation Act, 1949, w.e.f.


01.03.1966.
Extends to the whole country (made applicable to the J&K in 1956).
The act is not applicable to primary agricultural credit societies, cooperative land
mortgage banks and non-agricultural primary credit societies.
Salient provisions of the act are as under:-



General Banking Laws: Page 2 of 116
Section Summary of salient provisions
5
Contains definition of Banking, Banking Company , secured loans or advances -
Banking means accepting for the purpose of lending or investment, of deposits of money
from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order
or otherwise.
Banking Company: means any company which transacts the business of banking in India
Secured loan or advance: means a loan or advance made on the security of asset the
market value of which is not at any time less than the amount of such loan or advance, and

unsecured loan or advance

means a loan or advance not secured.


6 Describes the forms of business in which a banking company may engage in addition to the
Banking Business.
7 Use of Word Banking: Banking company carrying on banking business in India to use at
least one word, bank, banker, banking, or banking company in its name.
8 Prohibition of trading: restricts/prohibits business like trading for goods etc.
9 Holding of Immovable Property (other than for own Use):
No Banking company shall hold any immovable property howsoever acquired except as is
acquired for its own use for a period exceeding 7 years from the date of acquisition. RBI
can further grant extension for a period not exceeding 5 years.
10 Management: Prohibitions on employment of managing agents and restriction on certain
form of employment.
A person adjudicated insolvent, convicted for an offence involving moral turpitude, or one
who has suspended payment or has compounded with his creditor cannot be employed by
the banking company. Persons employed by the banking company cannot take remuneration
in the form of commission or of a share in the profits of the company. No banking company
to be managed by any person who is director of any other company (other than subsidiary
company or company registered U/S 25. Every Banking Company should be managed by a
whole time Chairman Term of office at any one time cannot exceed 5 years.
11 Requirement as to minimum paid up Capital and Reserves
Domestic Banks Min. Rs. 5 lac
Foreign Banks - Min. Rs. 15 lac (Rs. 20 lac for business in Mumbai or Kolkata)
12 Regulation of paid up capital, subscribed capital and authorized capital and
voting rights
Subscribed capital should not be less than of its authorized capital
Paid up capital should not be less than of its subscribed capital
(i.e. ratio of authorized capital, subscribed and paid up capital should be minimum 4:2:1)
No person shall have voting rights in excess of 10% of total voting rights of all the
shareholders.
13 Commission / brokerage, discount etc. on sales of shares; cannot pay more than 2.5% of
paid up value of one share.
14 Prohibits a banking company from creating a charge upon any unpaid capital.
14A
Prohibits a banking company from creating a floating charge on the undertaking or any
property of the company without the permission of RBI
15
Restrictions as to payment of dividend: Prohibits payment of dividend until all its
capitalized expenditure has been completely written off.
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17 Every banking company to create reserve fund and 20% of its profits should be transferred
to this fund before any dividend is declared. (RBI has directed the banks to transfer not less
than 25% of net profits to Reserve Funds).The appropriation of any sum from the reserve
fund or share premium account is to be reported to Reserve Bank, within 21 days from date
of appropriation.
18
Cash Reserve: Non scheduled banks to maintain 3% of the demand and time liabilities by
way of cash reserves with itself or by way of balance in a Current Account with RBI.
19 Permits bank to form subsidiary company for certain purposes (vide section 6)
19(2)
No banking company shall hold shares in any company, whether as pledgee, mortgagee or
absolute owners of an amount exceeding 30% of its own paid up share capital + reserves or
30% of the paid up share capital of that company whichever is less.
20 Restrictions on loans and advances: Banks cannot grant loans against security of their own
shares
21 Empowers the RBI to issue directives to banks to determine policy for Advances
21A Rate of interest charged by banks shall not be reopened by any court on the ground that the
rate of interest charged by banks is excessive
22 Empowers RBI to issue license for opening a bank.
23 Empowers RBI to grant license for opening of branches
24
Statutory Liquidity Ratio--Every bank has to maintain liquid assets in form of cash, gold
& unencumbered approved securities at the close of any business which is
minimum of certain percentage (Presently 23%,{wef. 11.08 .2012} of its total demand and
time liabilities in INDIA as on last Friday of the second preceding fortnight. (Minimum SLR
is as per RBI discretion now, as against 25% earlier. Maximum is 40%)
26 Return of unclaimed deposits (10 years and above) within 30 days of close of each calendar
year
29 Every bank to prepare its Balance Sheet as on last working day of March every year on
Form Rs.A and profit and loss a/c on Form Rs.B of the 3rd schedule of the Act.
30(I) Balance Sheet should be got audited from qualified auditors
31
To publish Balance Sheet and Auditors report within 3 months from the end of
period to which they refer. RBI may extend the period by further 3 months
34A
Prevents banks from producing any confidential information to any authority under Industrial
Disputes Act.
35 Authorizes RBI to undertake inspection of banks and give appropriate directions
36AE Central Govt. is empowered to acquire undertaking of Banking Companies in
certain cases
36AF Central Govt. may, after consultation with RBI, make a scheme for such acquired
bank.
45 Powers of RBI to apply to Central Govt. for suspension of business by a Banking
company and to prepare scheme of amalgamation
45Y Empowers Central Govt. to frame rules specifying the period for which a bank
shall preserve its books
45Z Returning a paid instrument to a customer after keeping true copy.
45(ZA to
ZF)
Nomination Facility
47A RBI can impose penalty for various kinds of violations
49A Other than a banking company / RBI / SBI, no person can accept deposit of money
withdrawable by cheque
General Banking Laws: Page 4 of 116

RESERVE BANK OF INDIA ACT 1934

Established on 1st April, 1935, under RBI Act, 1934 on the recommendations of John
Hilton Young Commission (known as Royal Commission on Indian Currency &
Finance)
Nationalized on Jan. 1, 1949. Paid up capital Rs. 5 crore
Management Managed by a Central Board of Directors (one Governor, 4 Dy.
Governors
& 15 other Directors) and 4 Local Boards (at Mumbai, Chennai, Kolkatta & New Delhi)
1st Governor Mr. O Smith, 1st Indian Governor Dr. C Desmukh, Present
Governor Sh. Dr. Raghuram Rajan
Functions:
A) Issuance of Currency (Section 22 of RBI Act)
Sole authority to issue currency notes of various denominations under signatures of
Governor (except One rupee note, which is issued by Central Govt. under Signature of
Finance Secretary).
B) Banker to the Government
RBI transacts Govt. business & manages debt U/s 20 of RBI Act (for Central Govt. & U/s
21-A (for State Govt.), advises Govt. on monetary policy matters, provides ways and means
advance (U/s 17(5) of RBI Act) to Govt. (Central / State) for meeting temporary mismatch /
shortfall in revenue.

C) Bankers Bank
Acts as a banker to the Scheduled banks and the lender of the last resort by providing
financial assistance by way of refinance / rediscounting (Sec 17 (2) & (3) and Liquidity
Adjustment Facility (injection of liquidity through repo auctions & absorption of liquidity
through reverse repo auctions).
D)
E)
Controller of Banks
Grants licence to carry on banking business, issue directions, carries out inspection (onsite
as well as off site) and exercises management control.

Controller of Credit
U/s 21 & 35A of Banking Regulations Act, RBI can fix interest rates (including Bank rate)
and also exercises selective credit controls in order to control inflation and money supply
for ensuring growth of economy and price stability.
Various methods used by RBI for this purpose are:
Change in Cash Reserve Ratio,Statutory Liquidity Ratio
Stipulation of margin on securities
Directed credit guidelines
Open market operations (Sale and purchase of securities).
F) Collection of Information
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RBI collects information on borrowers enjoying credit limits up to Rs. 10 lac on secured basis
& Rs. 5 lac on unsecured basis (u/s 45C) and shares this information with other Banks (Sec.
45-D). It also collects information on BSR (Basic Statistical Return); BSR-I Part A:
Containing particulars of borrowal a/cs enjoying credit limits above Rs. 2 lac, Part B:
aggregate figures of limits of Rs. 2 lac and less), - BSR-II (containing information on deposits
with break up in to current, Savings and term deposits) & also the information on suit filed
accounts and willful defaulters.
G) Managing Payment System
Acts as a regulator of payment & settlement system, manages cheque clearing system
(introduced Magnetic Ink Character Recognition System (MICR), Cheque truncation
system, Electronic Clearing Service (ECS), National Electronic Fund Transfer (NEFT), Real
Time Gross Settlement (RTGS) system for faster cheque clearance / settlement.

Maintenance of value of Indian currency
RBI maintains and regulates foreign exchange transactions under the Foreign Exchange
Management Act (FEMA).

Supervision of Financial System
Board for Financial Supervision (BFS) has been set up u/s 58 of RBI Act on 16.11.1994,
with Governor, RBI as its ex-officio Chairman. Its functions include empanelment and
selection of statutory auditors and exercise of integrated supervision over commercial
banks. Financial Institutions & NBFCs and other para-banking financial institutions
through onsite inspection & off-site supervision through DSB Returns (eight Returns,
DSB-I is monthly return, DSB-VIII is daily return of structured liquidity) & other returns
are quarterly returns.





(Salient Provisions of Some Important Sections)
Sec.17 Defines various types of business which RBI may transact which include:
i. Accepting deposits of Central / State Governments free of interest
ii. Purchase Purchase/rediscount of Bills of Exchange from banks.
iii. Purchase/sale of Foreign Exchange to/from banks
iv. To give loans to banks, SFCs, etc.
v. To provide advances to Central/State Governments.
vi. To purchase/sale Government securities, etc.
Sec.18 Grant of Emergency loan to banks on liberal terms
Sec.19 Specifies business which RBI may not transact
Sec.20 Banker to Govt.- Obligation of the Bank to transact Govt. business
Sec.21 Confers right to transact govt. business in India
Sec.22 Exclusive right to issue bank notes.
Sec.24 Denomination of bank note may be maximum Rs. 10000/-. Central Govt. may
direct
discontinuance or non-issuance to bank note of any denomination
Sec.28
RBI can frame rules for refunding value of mutilated, soiled or imperfect notes as a
matter of grace.
Sec.29 Bank note exempted from stamp duty under Indian Stamp Act
Sec.31 No Body other than RBI or Central Government is authorized to issue promissory
note payable to bearer on Demand. Similarly, except RBI and Central
Government, nobody is authorized to draw/accept / make or issue Bills of Exchange
payable to bearer on demand (Exception: Cheques payable to bearer on demand
can be drawn
by anybody).
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Sec.33 Assets of the Issue department shall consist of gold coins, gold bullion and foreign
securities which will not be less than Rs. 200 cr. at any time, of which gold coin and
bullion
will not be less tha1 15 crore.
Sec. 42 Maintenance of CRR by scheduled banks.
Sec. 45C Power to call for credit information from banks.
Sec. 48 Exemption to RBI from paying income tax and super tax
Sec. 49 Publication of Bank Rate. Standard rate at which RBI is prepared to buy or
rediscount bills of exchange or other commercial papers eligible for purchase under
this Act.
Current rate is 6% (w.e.f. 29.4.03)
Sec. 58 RBIs Central Board is empowered to make regulations consistent with the Act.
CASH RESERVE RATIO
With a view to monitoring compliance of maintenance of statutory reserve requirements vi z. Cash
Reserve Ratio and Statutory Liquidity Ratio by the Scheduled Commercial Banks (SCBs), the
Reserve Bank of India has prescribed statutory returns i . e.Form A return (for CRR) under Section
42 (2) of the RBI Act, 1934 and Form VIII return (for SLR) under Section 24 of the Banking
Regulation Act, 1949. These guidelines applicable to all Scheduled Commercial Banks excluding
Regional Rural Banks.
The Reserve Bank In terms of Section 42 (1) of the Reserve Bank of India Act, 1934 having regard
to the needs of securing the monetary stability in the country, prescribes the CRR for Scheduled
Commercial Banks (SCBs) without any floor or ceiling rate.
Maintenance of CRR
Effective from the fortnight beginning January 28, 2012 the CRR was prescribed at 4.00 per cent of
a bank's total of demand and time liabilities adjusted for the exemptions. RBI decided to reduce the
cash reserve ratio (CRR) of scheduled banks by 75 basis points from 5.50 per cent to 4.00 per cent
of their net demand and time liabilities (NDTL) with effect from the fortnight beginning March 10,
2012. (as per RBI notification) Presently CRR is 4.00% ( 10.03.2012)

Incremental CRR
At present no incremental CRR is required to be maintained by banks.
Computation of Demand and Time Liabilities
Liabilities of a bank may be in the form of demand or time deposits or borrowings or other
miscellaneous items of liabilities. As defined under Section 42 of RBI Act, 1934, liabilities of a bank
may be towards banking system or towards others in the form of demand and time deposits or
borrowings or other miscellaneous items of liabilities.
Demand Liabilities
Demand Liabilities include all liabilities which are payable on demand that include current deposits,
demand liabilities portion of savings bank deposits, margins held against letters of credit/guarantees,
balances in overdue fixed deposits, cash certificates and cumulative/recurring deposits, outstanding
Telegraphic Transfers (TTs), Mail Transfer (MTs), Demand Drafts (DDs), unclaimed deposits, credit
balances in the Cash Credit account and deposits held as security for advances which are payable on
demand. Money at Call and Short Notice from outside the Banking System should be shown against
General Banking Laws: Page 7 of 116
liability to others.
Time Liabilities
Time Liabilities are those which are payable otherwise than on demand that include fixed deposits,
cash certificates, cumulative and recurring deposits, time liabilities portion of savings bank deposits,
staff security deposits, margin held against letters of credit, if not payable on demand, deposits held
as securities for advances which are not payable on demand and Gold deposits.
Other Demand and Time Liabilities (ODTL)
Other Demand and Time Liabilities (ODTL) include interest accrued on deposits, bills payable,
unpaid dividends, suspense account balances representing amounts due to other banks or public, net
credit balances in branch adjustment account, any amounts due to the "Banking System" which are
not in the nature of deposits or borrowing. Such liabilities may arise due to items, like (i) collection
of bills on behalf of other banks, (ii) interest due to other banks and so on. Participation Certificates
issued to other banks, the balances outstanding in the blocked account pertaining to segregated
outstanding credit entries for more than 5 years in inter-branch adjustment account, the margin
money on bills purchased / discounted and gold borrowed by banks from abroad, also should be
included in ODTL.
Borrowings from Banks Abroad
Loans/borrowings from abroad by banks in India will be considered as 'liabilities to others' and will
be subject to reserve requirements.
Upper Tier II instruments raised and maintained abroad shall be reckoned as liability for the
computation of DTL for the purpose of reserve requirements.
Arrangements with Correspondent Banks for Remittance Facilities
The balance amount in respect of the drafts issued by the accepting bank on its correspondent bank
under the remittance facilities scheme and remaining unpaid should be reflected in the accepting
bank's books as liability under the head ' Liability to others in India' and the same should also be
taken into account for computation of DTL for CRR/SLR purpose.

Liabilities not to be included for DTL/NDTL computation
The under-noted liabilities will not form part of liabilities for the purpose of CRR;
a) Paid up capital, reserves, any credit balance in the Profit & Loss Account of the bank, amount
of any loan taken from the RBI and the amount of refinance taken from Exim Bank, NHB,
NABARD, and SIDBI.
b) Net income tax provision.
c) Amount received from DICGC towards claims and held by banks pending adjustments
thereof.
d) Amount received from ECGC by invoking the guarantee.
e) Amount received from insurance company on ad-hoc settlement of claims pending judgment
of the Court.
f) Amount received from the Court Receiver.
g) The liabilities arising on account of utilization of limits under Bankers Acceptance Facility
(BAF).
h) District Rural Development Agency (DRDA) subsidy of Rs. 10,000/- kept in Subsidy
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Reserve Fund account in the name of Self Help Groups.
i) Subsidy released by NABARD under Investment Subsidy Scheme for Construction/
Renovation/Expansion of Rural Godowns.
j) Net unrealized gain/loss arising from derivatives transaction under trading portfolio.
k) Income flows received in advance such as annual fees and other charges which are not
refundable.
l) Bill rediscounted by a bank with eligible financial institutions as approved by RBI. Provision
not being a specific liability arising from contracting additional liability and created from
profit and loss account.
Exempted Categories
Scheduled Commercial Banks are exempted from maintaining CRR on the following liabilities
I. Liabilities to the banking system in India as computed under Clause (d) of the
Explanation to Section 42(1) of the RBI Act, 1934.
II. Credit balances in ACU (US$) Accounts.
III. Demand and Time Liabilities in respect of their Offshore Banking Units
IV. Scheduled Commercial Banks are not required to include inter-bank term deposits/term
borrowing liabilities of original maturities of 15 days and above and up to one year in
"
Liabilities to the Banking System
"
(item 1 of Form
"
A
"
).

Similarly banks should exclude
their inter-bank assets of term deposits and term lending of original maturity of 15 days and
above and up to one year in "Assets with the Banking System" (item III of Form A) for the
purpose of maintenance of CRR. The interests accrued on these deposits are also exempted
from reserve requirements.

(Master circular on SLR & CRR of RBI)
Procedure for Computation of CRR
In order to improve the cash management by banks, as a measure of simplification, a lag of one
fortnight in the maintenance of stipulated CRR by banks has been introduced with effect from the
fortnight beginning November 06, 1999.
Maintenance of CRR on Daily Basis
With a view to providing flexibility to banks in choosing an optimum strategy of holding reserves
depending upon their intra fortnight cash flows, all Scheduled Commercial Banks are required to
maintain minimum CRR balances up to 70 per cent of the average daily required reserves for a
reporting fortnight on all days of the fortnight with effect from the fortnight beginning December 28,
2002.
No Interest Payment on Eligible Cash Balances maintained by SCBs with RBI under CRR
In view of the amendment carried out to RBI Act 1934, omitting sub-section (1B) of section 42, the
Reserve Bank of India does not pay any interest on the CRR balances maintained by Scheduled
Commercial Banks with effect from the fortnight beginning March 31, 2007.
Fortnightly Return in Form A
Under Section 42 (2) of RBI Act, 1934, all SCBs are required to submit to RBI a provisional return
in Form 'A' within 7 days from the expiry of the relevant fortnight. The final Form 'A' is required to
be sent to RBI within 20 days from expiry of the relevant fortnight.
General Banking Laws: Page 9 of 116
For reporting in Form 'A' return, banks should convert their overseas foreign currency assets and
bank credit in India in foreign currency in four major currencies viz., US dollar, GBP, Japanese Yen
and Euro into rupees at the Foreign Exchange Dealers Association of India's (FEDAI) noon mean
rate on reporting Friday.
Penalties
From the fortnight beginning June 24, 2006, penal interest will be charged as under in cases of
default in maintenance of CRR by Scheduled Commercial Banks:
(i) In cases of default in maintenance of CRR requirement on a daily basis which is presently 70
per cent of the total CRR requirement, penal interest will be recovered for that day at the rate
of 3 % per annum above the Bank Rate on the amount by which the amount actually
maintained falls short of the prescribed minimum on that day and if the shortfall continues on
the next succeeding day/s, penal interest will be recovered at a rate of 5% cent per annum
above the Bank Rate.
(ii) In cases of default in maintenance of CRR on average basis during a fortnight, penal interest
will be recovered as envisaged in sub-section (3) of Section 42 of Reserve Bank of India
Act, 1934.
SCBs are required to furnish the particulars, such as date, amount, percentage, reason for default in
maintenance of requisite CRR and also action taken to avoid recurrence of such default.


STATUTORY LIQUIDITY RATIO (SLR)

Consequent upon amendment to the Section 24 of the Banking Regulation Act, 1949 through the
Banking Regulation (Amendment) Act, 2007 replacing the Regulation (Amendment) Ordinance,
2007, effective January 23, 2007, the Reserve Bank can prescribe the Statutory Liquidity Ratio
(SLR) for SCB in specified assets. The value of such assets of a SCB shall not be less than such
percentage not exceeding 40 per cent of its total demand and time liabilities in India as on the last
Friday of the second preceding fortnight as the Reserve Bank may, by notification in the Official
Gazette, specify from time to time.
SCBs can participate in the Marginal Standing Facility (MSF) scheme introduced by RBI with effect
from May 09, 2011. Under this facility, the eligible entities may borrow overnight, up to two
percent of their respective NDTL outstanding at the end of the second preceding fortnight.(as per
RBI notification) Presently, Marginal Standing Facility rate is 8.75%.(29.01.2013)
Reserve Bank has decided that all SCBs shall continue to maintain a uniform SLR of 23 per cent on
their total net demand and time liabilities (NDTL) with effect from the fortnight beginning August
11, 2012, valued in accordance with the method of valuation specified by the Reserve Bank of India
from time to time:
a) In Cash, or
b) In Gold valued at a price not exceeding the current market price, or
c) In unencumbered investment in the following instruments which will be referred to
as

statutory liquidity ratio (SLR) securities


"
:
(i) Listed Dated securities issued up to May 06, 2011.
(ii) Treasury Bills of the Government of India;
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(iii) Dated securities of the Government of India issued from time to time under the market
borrowing programme and the Market Stabilization Scheme;
(iv) State Development Loans (SDLs) of the State Governments issued from time to time under
their market borrowing programme; and
(v) Any other instrument as may be notified by the Reserve Bank of India.
Provided that the securities (including margin) referred to above, if acquired under the Reserve Bank-
Liquidity Adjustment Facility (LAF), shall not be treated as an eligible asset for this purpose.
Explanations:
A.
"
unencumbered investment
"
of a banking company shall include its investment in the
aforesaid securities lodged with another institution for an advance or any other credit
arrangement to the extent to which such securities have not been drawn against or availed
of.
B. "market borrowing programme" shall mean the domestic rupee loans raised by the
Government of India and the State Governments from the public and managed by the
Reserve Bank of India through issue of marketable securities, governed by the
Government Securities Act, 2006 and the Regulations framed thereunder, through an
auction or any other method, as specified in the Notification issued in this regard.
C. In computing the amount for the above purpose, the following shall be deemed to be
"cash maintained in India":
(i) The deposit required under sub-section (2) of Section 11 of the Banking Regulation
Act, 1949 to be made with the Reserve Bank by a banking company incorporated
outside India;
(ii) Any balances maintained by a scheduled bank with the Reserve Bank in excess of
the balance required to be maintained by it under Section 42 of the Reserve Bank of
India Act, 1934 (2 of 1934); and
Net balances in current accounts with other scheduled commercial banks in India.
Procedure for Computation of Statutory Liquidity Ratio (SLR)
The procedure to compute total net demand and time liabilities for the purpose of SLR under Section
24 (2) (B) of B.R. Act 1949 is broadly similar to the procedure followed for CRR purpose. The
liabilities mentioned above for CRR will not form part of liabilities for the purpose. Thus, Scheduled
Commercial Banks are required to include inter-bank term deposits / term borrowing liabilities of all
maturities in 'Liabilities to the Banking System'. Similarly banks should include their inter-bank
assets of term deposits and term lending of all maturities in 'Assets with the Banking System
'
for
computation of NDTL for SLR purpose.
Penalties
If a banking company fails to maintain the required amount of SLR, it shall be liable to pay to RBI
in respect of that default, the penal interest for that day at the rate of 3 per cent per annum above the
Bank Rate on the shortfall and if the default continues on the next succeeding working day, the
penal interest may be increased to a rate of 5 per cent per annum above the Bank Rate for the
concerned days of default on the shortfall.
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Return in Form VIII to be submitted to RBI
(i) Banks should submit to the RBI before 20th day of every month, a return in Form VIII
showing the amounts of SLR held on alternate Fridays during immediate preceding month
with particulars of their DTL in India held on such Fridays or if any such Friday is a Public
Holiday under the Negotiable Instruments Act, 1881 at the close of business on preceding
working day.
(ii) Banks should also submit a statement as annexure to form VIII giving daily position of (a)
value of securities held for the purpose of compliance with SLR and (b) the excess cash
balances maintained by them with RBI in the prescribed format.

Correctness of Computation of Demand and Time Liabilities to be certified by Statutory
Auditors
The Statutory Auditors should verify and certify that all items of outside liabilities, as per the
banks books had been duly compiled by the bank and correctly reflected under DTL/NDTL in the
fortnightly/monthly statutory returns submitted to RBI for the financial year.
CRR & SLR AT A GLANCE
CRR SLR
Statutory basis Sec. 42 (1) of RBI Act, 1934 Sec. 24 (2.a) of Banking Regulation Act,
1949
Minimum and maximum
percentage to NDTL
RBI Discretion Minimum :RBI discretion
Maximum :40%
Rate 4.00%(09.02.2013) 23% (11.08.2012)
How maintained Cash balance with RBI Cash in hand, Gold/ investment in
approved Govt. Securities / net Bank
balance with scheduled commercial
banks
Basis for computation %age of NDTL on fortnightly
average basis. (Min. 70% of
average balance to be
maintained on daily basis)
%age of NDTL on daily basis on last
Friday of 2nd preceding fortnight
Interest No interest payable w.e.f.
31.3.2007
According to class of securities in which
investment is made
Penal interest for
default
1st day
Next day
3% p.a. above bank rate
5% p.a. above bank rate
3% p.a. above bank rate
5% p.a. above bank rate
Return to RBI Form A (fortnightly) Form VIII (by 20
th
every month)


NEGOTIABLE INSTRUMENTS ACT 1881

Came into force w.e.f. March 01, 1882.
It has 147 sections and 17 chapters
Section 138 to 142 were added in 1988 (came into effect from 1.4.1989). Section 143 to 147
were added in Dec. 2002
This Act is applicable to entire India.
General Banking Laws: Page 12 of 116

1. MEANING OF NEGOTIABLE INSTRUMENT
As per Sec. 13 of the Act, Negotiable Instruments (NI) means and includes promissory note, bill of
exchange and cheque payable to order or bearer. Bank Draft finds mention in Sec-85(a) of NI Act.
Apart from the aforesaid instruments defined in the NI Act, following instruments satisfy the
features of Negotiable Instruments.
Sr.No.
Instrument Possessing feature of
i Certificate of Deposit a promissory note
ii Commercial Paper a promissory note
iii Treasury Bill a promissory note
iv Share warrant a cheque
v Dividend warrant a cheque
Also u/s 137 of Transfer of Property Act, documents of title to goods are also negotiable, which
include Bill of lading, Railway Receipts, Dock warrant, Warehouse receipt, GR approved by IBA,
Wharfinger Certificate etc.
2. CHARACTERISTIC FEATURES OF NEGOTIABLE INSTRUMENT
Negotiability
A negotiable instrument possesses a unique characteristic called

Negotiability

. Negotiability refer
to following two features in an Instrument:

(i) The instrument is freely transferable by delivery (if it is payable to bearer) and by
endorsement and delivery if it is payable to order; and
(ii) A person (i.e., transferee) taking the instrument bonafide for value (known as a holder in due
course) gets an absolute title to the instrument notwithstanding any defect in the title of the
transferor or any other prior party.
Railway Receipt, Bill of Lading, Ware House Receipts, cannot be called negotiable instruments
because they satisfy the first feature of negotiability but not the second. Such instruments are called
Quasi Negotiable Instruments.
Some of the instruments which cannot be called negotiable instrument because they do not satisfy
the very first feature of negotiability are: (I) Motor Transport Receipt, (ii) Mate

s Receipt, (iii) Dock


Warrant, (iv) Wharfingers Certificate, (v) LIC Policy, (vi) Pay warrants of pension, (vii) Airways
Bill, (viii) Share Certificate, (ix) Fixed Deposit Receipt etc./ Inchoate Incomplete instruments
Withdrawal slips used for drawing money from S.F. account are not negotiable instruments
(Reason: There is a condition that it must accompany the pass book).
RESERVE BANK OF INDIA ACT & NEGOTIABLE INSTRUMENT PAYABLE TO
BEARER
As per section 31 of Reserve Bank of India Act 1934, no person other than Reserve Bank or Central
General Banking Laws: Page 13 of 116
Government, can draw, accept, make or issue any bill of exchange or promissory note payable; to
bearer on demand.
Further, as per section 31(2) no person, other than Reserve Bank or Central Government, can issue
or make a promissory note payable to bearer (whether payable on demand or not).
The effect of section 31 is that it gives sole authority to RBI/Central Govt. to issue paper currency.
The effect of section 31(2) is that a demand promissory note or a usance promissory note cannot be
issued payable to bearer.
This section renders the word, to bearer in the definition of promissory note in section 4 of N.I.
Act inoperative as section 31 and 32 of RBI Act override the provisions of N.I. Act
PROMISSORY NOTE (SEC 4 OF NI ACT)
It is a written unconditional undertaking by the maker (drawer & drawee), to pay a certain sum of
money to or to the order of a certain person) (payee) or to the Bearer of instrument. (not being a
bank note / currency note)
Promissory Note payable on demand (immediately) is called Demand Promissory Notes (DPN) and
those payable after a definite period of time are called Usance Promissory Notes (UPN).
Both demand and usance promissory notes need be stamped as per Indian Stamp Act and Stamp
duty on promissory note is same throughout India.
Promissory Note in Installments
Promissory Notes containing an undertaking to pay the amount in instalments are valid and a
provision can be made that on default in payment of one instalment, the entire amount will become
due.
General Public is prohibited from issuing demand or usance promissory notes payable to bearer.
As per Indian Currency Act (Sec. 21), Currency note is not a Negotiable instrument (though it
fulfills a number of conditions of Promissory Note).
BILL OF EXCHANGE (SECTION 5)
Bill of Exchange is a written unconditional order by the maker (drawer), directing a certain person
(drawee) to pay a certain sum of money or to the order of certain person (payee) or to the bearer of
the instrument.

As per Sec 31(1) of RBI Act, Bill of Exchange / Hundi cannot be made payable to bearer on
demand.
A bill of exchange is an order to pay money while a promissory note is a promise/undertaking to
pay money.
Demand Draft issued by banks fall in the category of bill of exchange. A cheque is also a bill of
exchange.
General Banking Laws: Page 14 of 116
Bill of exchange drawn in vernacular language as per local use is locally called
Hundis. CHEQUE (SECTION 6)
A cheque is a bill of exchange, drawn on a specified banker and payable on demand.
A cheque is a bill of exchange and satisfies all the requirements of a bill of exchange except that:
It cannot be drawn on any person other than a bank;
It cannot be drawn payable so many days after date or after sight as is the case with a
bill of exchange. It is always payable on demand.
N.I. Act does not provide any standard format for a cheque.
Since a cheque is not a legal tender nobody can be compelled to accept cheque towards settlement
of his debt.
DIFFERENCE BETWEEN BILL OF EXCHANGE AND CHEQUE
S.No. Bill of Exchange Cheque
1. Cannot be drawn payable to bearer on demand Can be done
2. Drawee of a bill can be any one Only a banker
3. Can be made payable on demand or after
sometime
Only on demand
4. Provisions of crossing not applicable Cheques can be crossed
5. Usance bills need be accepted Cheques require no
acceptance
6. Usance bills qualify for 3 days

grace Not applicable to cheques


PRESUMPTIONS AS TO A NEGOTIABLE INSTRUMENT (Sec.118)
Unless proved to the contrary, the following presumptions are made regarding negotiable
instruments:
I. It is drawn/accepted, endorsed or negotiated for consideration.
II. It is drawn/made on the date mentioned
III. It is transferred before its maturity.
IV. The endorsements appearing upon it are in the order in which they appear.
V. Every holder is a holder in due course
VI. If it is a bill of exchange, which has been accepted, such acceptance is done before maturity.
VII. It was duly stamped and stamp duty cancelled when it was lost.
The onus of proving that the instrument is contrary to these presumption lies with the person
who challenges the same.
HOLDER (Section 8)
The

holder of a promissory note, bill of exchange or cheque means any person entitled in his own
name to the possession thereof and to receive or recover the amount due thereon from the parties
thereto.
In order to become a holder:
1. He should have acquired title to the instrument lawfully and in a proper manner i.e. not through
General Banking Laws: Page 15 of 116
fraud, coercion, undue influence or by any such illegal method.
2. He should not have stolen or found the instrument, which is lost.
3. He should be the payee or endorsee (if it is an order instrument) and bearer (if it is a bearer
instrument).
Actual possession is not essential legal right to possess is enough
RIGHTS OF A HOLDER
1. A holder is entitled to receive or recover the amount of a cheque/bill/promissory note and give
a good discharge to the person making the payment.
2. He can negotiate the instrument.
3. He can file a suit in his own name against parties liable to pay.
4. He can complete an inchoate stamped instrument.
5. He can claim a duplicate copy of a lost cheque.
HOLDER IN DIFFERENT SITUATIONS:

Order Cheque The payee, or the last endorsee (if any) is the holder
Bearer Cheque Any person to whom the cheque is validly negotiated is the holder
Damaged / lost /
stolen Cheques
Payee or last endorsee who was the holder continues to be its
holder (A thief cannot acquire title to the cheque).
if the thief / finder of a bearer instrument transfers it to a person
who becomes its holder in due course, the latter gets a good
title to the instrument. All subsequent parties deriving title
through him also get good title.
If the finder of an order cheque, forges the signature of the
holder (true owner) and transfers it to another person, the latter
cannot become a holder in due course and accordingly cannot
get a good title to the cheque
The holder of a lost instrument is entitled to get a duplicate of the
instrument from the drawer. In case the drawer does not comply
to his request he can be compelled to give the duplicate (Sec 45-A)
Death of a holder
(payee / endorsee),
his legal heirs
Forged Cheque No holder. The instrument is itself a nullity; There cannot be a
holder-in-due course of such an instrument
If signature of the endorser is forged; the endorsee cannot claim
a good title to the instrument even if he is a holder for value.
The Drawee/acceptor of a bill or the maker of a note continues to
be liable to the true owner even if they make payment to a
wrong person under forged endorsement
However, a paying banker gets statutory protection in case of
payment of cheques having forged endorsement (Sec.85 N.I.
Act)
Who else (other than a holder) can sue?
General Banking Laws: Page 16 of 116
An assignee of the instrument
Unregistered firm can only sue as endorsee but not as payee.
HOLDER IN DUE COURSE (Section 9 of N.I. Act)
Holder in due course is a person (payee or endorsee or bearer) who must have the instrument in his
possession after satisfying the following three conditions:
Consideration: He should have got the instrument for adequate and lawful consideration.
(Not by way of gift or no consideration.)
Before maturity: He should have become holder of the instrument before its maturity.
This condition is applicable to usance bills and promissory notes and not a cheque which is
always payable on demand. (A person taking an instrument after it is due has right only
against his immediate transferor (Sec.59).
Good faith: He should have become holder of the instrument without having sufficient
cause to believe that any defect existed in the title of the person from whom he derived his
title.
A Holder-in-due course gets a good title over the instrument notwithstanding any defective title of the
transferor.
Where a cheque is marked

not negotiable

nobody can get a better title than that of the transferor as


these words expressly take away the feature of negotiability that transferee gets a better title than
the transferor:
Forged Endorsement: Any person deriving his title through a forged endorsement cannot
claim himself as a holder in due course.
Passes better title: Any person who derives his title through a holder in due course also
gets title free of defects (Sec 53).
There cannot be a holder in due course of:
An inchoate instrument
An overdue instrument
A non-negotiable instrument
A person taking inchoate (incomplete) instrument cannot claim to be a holder in due course
even if he completes it in terms of authority of Section 20. However, if the instrument is
endorsed, the endorsee becomes holder in due course.

Rights of a holder in due course:
If any inchoate / incomplete instrument has been handed over for a sum greater than what it
was intended by maker, the maker cannot challenge the right of the holder in due course to
recover the amount mentioned.
If a bill is drawn payable to drawers order in a fictitious name, the acceptor is not relieved
from liability to any holder in due course, provided endorsement & the drawer

s signature are
in same handwriting (Sec. 42)
A person liable on an NI is not relieved from his liability towards the holder in due course
General Banking Laws: Page 17 of 116
on the ground that the bill was lost or obtained by fraud or for unlawful consideration (Sec.
58)
Every prior party to an NI is liable thereon to a holder in due course until the instrument is
duly satisfied (Sec. 36)
HOLDER & HOLDER IN DUE COURSE
Aspect Holder Holder in due course
Consideration Not essential Essential
Good Faith Not essential NI Should have been obtained in
good faith
Title Same as that of
transferor
Transferee

s get better title notwithstanding


any defect in transferors title
Time Before or after maturity Before maturity only
Inchoate Instrument Can complete Can complete
Possession of NI May / may not be Possession essential
Authority Can sue in his own name Can sue in his own name

CHEQUES

Form: No specific form is defined in NI Act. Cheques also mean & include the cheques issued in
electronic form.'The electronic image of a truncated cheque' and 'a cheque in the electronic form'
have been included in the definition of 'cheque'.
e-cheque or cheque in electronic form?
The electronic cheque is a cheque which contains the exact mirror image of a paper cheque & is
generated , written and signed in a secured system ensuring safety standards with the use of digital
signatures
The e- cheque is being developed by the Financial Services Technology Consortium (FSTC) of the
USA, consisting of a group of banks, technology providers, universities and Government agencies.
The FSTC has developed and is pioneering the e-cheque project as a secure payment mechanism. In
this system, the e-cheque can be transferred from the drawer to the payee to his bank and onwards
using the internet and e-cheques totally eliminate physical movement of cheques.
A truncated cheque is defined by the new Section 6(b) as "a cheque which is truncated during the
course of a clearing cycle, either by the Clearing House or by the bank, whether paying or receiving
payment, immediately on generation of an electronic image for transmission, substituting the further
physical movement of the cheque in writing.
"

Thus the characteristics of a 'truncated cheque' can be summed up as below:
It is an electronic image of a paper cheque.
Only the Bank's involved and the Clearing House can truncate a Cheque (i.e. create an
electronic image of a cheque) .The drawer /holder of a cheque cannot truncate a cheque.
The electronic image of the 'truncated cheque ' will substitute the physical cheque from the
point and time of truncation onwards.
Truncation is to be done only during the course of a clearing cycle to reduce the time taken
for realization.
The paper cheque, after truncation is to be kept in the custody of the Bank/Clearing House
General Banking Laws: Page 18 of 116
that truncated the cheque.
Addition of digital signature of the truncating bank/Clearing House to the electronic image
of the truncated cheque is optional.
Under the concept of truncation, the electronic image will replace the physical cheque

Incidental provisions relating to Truncated Cheque
1. Drawee bank has been given right to demand any further information regarding truncated
cheque, from the bank holding the truncated cheque, in case of any suspicion about the
genuineness of the instrument. The drawee bank has also been given right to further demand
presentment of the truncated cheque itself for verifications thereof and in such case the
drawee bank shall have the right to retain such cheque after making the payment. (Section
64)
2. In the ordinary course, the Payee bank retains the instruments. In case cheque is an electronic
image of a truncated cheque, the collecting bank is entitled to retain the truncated cheque and
a certificate issued on the foot of the print out of the electronic image of truncated cheque by
the paying banker, shall be the prima -facie proof of such payment. (Section 81)
3. Any difference between electronic image and the truncated cheque shall be material
alteration and it shall be duty of the bank while truncating and transmitting the image to
ensure that electronic image of the truncated cheque is exactly the same (Section 89). The
paying banker shall verify from the party who transmitted the electronic image that image so
transmitted is exactly the same.
The collecting banker has to verify the prima-facie genuineness of the cheque to be truncated.
(Section 131-Explanation II)

Language of cheque: can be drawn in any language even partly in one language and partly in
another language. Cheques can also be signed using digital signatures.
Post dated cheque: - is like a bill of exchange which is payable on certain date, thus it is a
negotiable instrument.
Payment of post dated cheque before the date mentioned there on, is not payment in due course,
and banker cannot debit customer

s a/c.
Cheque dated on Sunday/ Holiday: - is paid on the following business day.
Cheques Bearing non-existing (impossible dates) :- cheques dated 31
st
Sept , 30
th
Feb will be
paid on last day of that month i.e. 30
th
Sept , 28/29 Feb etc.
Validity period of cheques: - Normally valid for a period of 3 months. Drawer may restrict
the period shorter than . months, but he cannot extend the period beyond 3 months,
Cheque in favor of Non-existent persons: - Bearer cheque issued in favour of non- existent
/impossible person, like Lord Krishna, can be paid across the counter. However if this cheque
is order one, it should not be paid except to the drawer.
Amount of cheque:- Banker pays the forged amount as alteration was not apparent even with
exercise of reasonable care, Banker would be justified in debiting the account of Customer (Sec-
89).
As per sec 18, if amount in words and figures differs, amount stated in words be paid.
However if customer has written instructions on the cheque restricting the amount like Not over
Rs. 5000/-, the cheques drawn for an amount exceeding Rs. 5000/- should be returned.
Cheque issued in foreign currency is a valid instrument and payment should be made at the rate
of exchange prevailing at the time of presentation.
General Banking Laws: Page 19 of 116
Inchoate (incomplete) cheque: (sec-20)
o Holder gets the authority to complete the cheque for any amount (upto the value of stamp,
in case of Bills of exchange).
o The drawer of such instrument, shall be liable even for the excess amount, to the holder in
due course.
o The above provision also applies to cheques. However blank cheque is not a negotiable
instrument, until it is completed, and is handed over to holder in due course.
o The authority to complete such inchoate instrument is only with holder i.e. a person
having stolen blank cheque cannot bind the drawer.
Bearer or order cheque: If nothing is mentioned, a cheque is to be treated as order cheque.
Any further conversion of an order cheque into bearer, requires full signatures of drawer.
Cheque payable jointly: Cheque can be made payable to two or more persons jointly
Forged Signatures:
o When signatures are forged, paying banker has no right to debit the account of a
customer even if the forged signatures exactly match with the original signatures.
o The onus of proving signatures forged lies with the customer.
o Collecting banker is protected u/s 131 of NI act.
o In case of joint accounts (operated jointly) all signatures must be genuine.

Cheque with no date/Incomplete date: A cheque presented for payment without date or
incomplete date is to be returned. The holder of the cheque has the authority to fill/complete
the date, hence when presented again with complete/full date, be paid.
MATERIAL ALTERATION (SEC. 87)
o Alterations which may affect the rights, liabilities, or legal position of the prior parties,
then as originally expressed.
o Example : Alteration to date, payee, amount and the word order to bearer, or in the
endorsement,
o Sec 89 protects a banker if the material alteration is not apparent i.e. it is done in such a
way that it cannot be detected with reasonable care, prudence and scrutiny.

SPECIAL CIRCUMSTANCES / SITUATIONS IN REGARD TO PAYMENT OF
CHEQUES:
DEATH OF DRAWER (in case of
individual, Joint individual, HUF,
Partnership firm, Proprietorship firm)
Relationship is terminated and cheque should not
be paid.
INSOLVENCY of a customer or
liquidation of a company
Payment be made as per direction of official
assignee/receiver
INSANITY of a customer
Payment should be made as per the direction of
court.
DRAWER IS ARRESTED/
CONVICTED
cheque is to be paid
General Banking Laws: Page 20 of 116
ACCOUNTS IN REPRESENTATIVE
CAPACITY (a company, a trust, a society
etc) & the authorized representative who
has signed the cheque has expired:,
the cheques signed by representatives such as
director, trustee, secretary etc, who have expired and
cheques bearing date prior to the date of date of
death of such representatives, can be paid.
STOP PAYMENT In PARTNERSHIP FIRM any partner, whether
authorized to operate a/c or not, may issue stop
payment instruction. In case of JOINT
ACCOUNTS OPERATING JOINTLY OR
WITH E/S OPTIONS, any of the Joint account
holders may give instructions for stop payment.
Stopping the payment of a post dated cheque issued
to debt of liability. It is also a criminal offence
under SECTION 138 of the NI act.
NEGOTIATION: (Sec. 14) is the transfer of any instrument from one person to another to convey
title and to constitute the transferee the holder thereof.
Negotiation of order instrument completes by endorsement & delivery (Sec. 48) whereas
negotiation of bearer instruments completes by mere delivery (Sec. 47)
ENDORSEMENTS
Endorsement is defined in Sec. 15 of NI Act as

Where the maker or holder of a negotiable


instrument signs the same, otherwise than as such maker, for the purpose of negotiation, on
the back or face thereof, or on a slip of paper annexed thereto. He is said to endorse the
same, and is called the endorser

.
According to (Sec.6 of the Indian Securities Act, 1886) an endorsement made on a
document, elsewhere than the back itself is not valid.
The endorser of a negotiable instrument, by act of endorsing, signifies the following to his endorsee
and any subsequent holder, that, when the instrument left his hand -
1) He had a good title to it.
2) It was genuine in all its particulars at the time of his endorsement.
3) All the previous endorsements were genuine. Thus Sec 122 of the NI Act provides that no
endorser of a negotiable instrument shall, in a suit thereon by a subsequent holder, be
permitted to deny signature or capacity to contract of any prior party to instrument.
4) Further the endorser, by his act of endorsing, promises to indemnify the endorsee or any
subsequent holder for any loss suffered by them on the dishonor of the instrument, provided;
the procedure necessary on dishonor has been duly followed.
5) An endorsement carries with it a right of further negotiation to the endorsee, along with the
right of ownership.
Sec 85 (2) of NI Act states 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
General Banking Laws: Page 21 of 116
endorsement, whether in full or in blank appearing thereon, and not withstanding that any such
endorsement purports to restrict or exclude further negotiation. This section implies once a
bearer al ways a bearer.
Cheques payable to an illiterate person should be endorsed with his left hand thumb
impression, which should be witnessed by an individual well known to both the parties.
A cheque in the name of the deceased person must be endorsed by his legal representative.
Endorsement in the case of firms can be either in the name of the firm itself, or, it may be by
an authorized agent or by a legally authorized person on behalf of the firm. But the name of the
firm must be mentioned in full. The omission of the word

company

in the endorsement
amounts to an irregular endorsement.
A cheque payable to impersonal payees, e.g. income tax, must be endorsed by the authority in
relation to the impersonal payee.
All endorsement must be done in ink only. Even though, endorsement in pencil is not
prohibited by law, the possibility of alteration/obliteration cannot be avoided in case of
endorsement in pencil.

Who can endorse?: A Holder of an instrument, payee of a cheque or Promissory Note & drawer of
an accepted bill.

Types of endorsement:
Blank endorsement (16-1): endorser signs his name without adding any words or direction.
An order cheque or bill becomes payable to bearer, with the blank endorsement (Sec. 54)
Endorsement in full: Endorsement adds a direction to pay the amount to the order of
specified persons & signs the Negotiable Instrument.
Restrictive Endorsement: (Sec. 50): Further negotiability is restricted eg. Pay Ram
Kumar only.
o Partial endorsement (Sec. 56) Only a part time of Negotiable Instrument is
transferred (not valid for the negotiations)
o Sans recourse (Sec. 52) endorser does not incur any liability
Conditional Endorsement conditions are stipulated. Paying bank is not bound to verify
fulfillment of such conditions. Conditions are binding between endorser & endorsee only.
Facultative Endorsement - Endorser reduces rights or increases his liability by express
word.
Forged Endorsement
o By a person other than the holder by signing the name of holder.
o Endorsee (including a holder in due course) or holder for value, subsequent to forged
instrument do not derive any title.
o Paying bank gets protection (Sec. 85(1), if endorsement is regular
Endorsement by minor - Minors can endorse, but not liable.
CROSSING (SECTION 123 TO 131 OF NI ACT)
1. Crossing is a direction by the drawer to his banker to make payment of a cheque drawn by him.
In general crossing, payment can be made through any bank, while in special crossing; it can
be made only through a specified banker. However in any case, payment can be made through
a bank account only.
General Banking Laws: Page 22 of 116
General Crossing: (Sec 123): Important aspect in a crossing is two parallel lines, with
or without the words & CO., Not negotiable etc
Special crossing: (Sec 124): Where a cheque bears across its face, an additional name
of banker with or without transverse lines, cheque is deemed to be crossed specially to
that bank. Such cheques should be paid to that banker or to his agent for collection (sec.
126).
As per section 127, if cheque is crossed specially to more than one bank,(unless one bank is acting
as collecting agent to another)the payment shall be refused.
Not-Negotiable crossing (U/s 130):- This crossing does not restrict transferability; however, the
endorsees do not get a better title than the endorsers.
It is a direction to collecting banker that when the collection is for account of an endorsee instead
of a payee. Failure to ensure genuineness of the endorsement may amount to conversion. The
cheque bearing the

not-negotiable crossing do not confer the special Privilege of the holder in


due course
A/C payee crossing: It is not defined by NI Act. It is a direction to collecting banker, that such
cheques should be collected only for the named payee. This cheque cannot be endorsed further. RBI
has directed the banks (u/s 35-A of BR Act) to credit the proceeds of account payee cheques to the
account of named payee only else the payment will be treated as unauthorized.
A Crossing can be cancelled / special crossing can be converted to a general crossing only under
the signature of the drawer.
PAYMENT OF CHEQUES:
1) Duty of Banker: To honor customer

s cheque up to balance held in his accounts as per


the mandate of the customer (Apparent Tenor). Bank has to compensate the drawer for
any loss or damage, caused by non-payment. The cheques should, however, be paid as
per mandate of the customer. (Sec 31)
2) Payment in due course (Sec-10):- A payment is considered in due course if it satisfies
the following conditions:
Payment in accordance with apparent tenor of the instrument, in good faith and
without negligence, to the person who possesses the instrument, and is able to give
valid discharge.
Payment must be made under circumstances which do not afford a reasonable
ground for believing that the person is not entitled to receive payment of the
amount.
Payment must be made in money only.





General Banking Laws: Page 23 of 116
3) STATUTORY PROTECTION TO PAYING BANKER (SEC-85)
Sec. of NI Act Conditions to be fulfilled for availing protection.
85(1) Regularity of endorsement i.e no break in chain of endorsement. Paying bank not
concerned with genuineness.
No protection is available, if drawers signatures are forged. If an order cheque,
without having any endorsement, is paid to someone else, banker would not get
protection.
85(2) Endorsement on bearer cheques A paying banker is not required to verify
endorsement on bearer cheques, even if, such endorsement restricts further
transferability of the instrument.
85(A) Protection available u/s 85(1), is also available to Crossed Bank drafts.
89 Cheques on which alteration is not apparent: - Where a cheque, promissory
note, or bill of exchange, has been materially altered, but does not appear to have
been so altered, payment thereof, shall discharge a banker from all liabilities
thereon.
128 Paying bank gets protection if the Payment of a crossed cheque is made in due
course.
General:
a) When more than one cheque has been received for payment and the balance in the customer

s
a/c is not sufficient to pay all cheques received , Bank has discretion to pay any cheque and
efforts be made to pay cheque of smaller amount first. Cheques representing revenue deptt.,
electricity boards, Insurance Companies etc be paid first..
b) No cheque should be dishonored on account of stipulations for maintaining minimum balance
in an account. Banks may impose separate penalty for the same.
c) Wherever customer has been granted credit limits, any reduction or cancellation thereto, should
be intimated with a notice in writing, giving him a reasonable time to make alternate
arrangements.
d) As per section 45Z(1) of BR Act, bank can return used cheques to drawer, at drawers cost, after
keeping Xerox copies in record. Then the drawer is responsible for its preservation as per
Central Govt Rules.
e) Cheques drawn in favour of a company should not be paid in cash (including a bearer cheque)
and should be credited in Companys account.
f) Cheques drawn in favour of a company and endorsed in favour of 3rd parties and directors and
employees should also not be paid to third person (endorsee). Cheques in favour of the Govt.
Deptt or Corporations are also to be treated similarly.
COLLECTION OF CHEQUES & DUTIES OF COLLECTING BANKER:
Statutory protection against conversion( illegal interference in the property of another person /
collecting a cheque in customer

s account on which customer has no title.) is available to the


collecting banker as per the section 131( for cheque) and section 131 (A) for the bank draft, subject
to fulfillment of three conditions:
Collection is in good faith & without negligence. (The account should be properly
introduced. Collection of large amount cheques in new accounts without proper scrutiny
implies negligence.
General Banking Laws: Page 24 of 116
Payment is received for a customer.( protection will not be available if collection is for a
non-customer/not maintaining an account with the bank.)
Cheque is generally or specially crossed before it is presented to the bank.
DUTIES OF COLLECTING BANKER:
To present cheque within a reasonable time (else liable for damages under section 72 and 84
of NI Act., if customer is put to loss for the delayed presentation.
To serve notice of dishonor on the customer.
To handover the proceeds after realization without delay.
BANK DRAFT (SEC 85 (A) OF NI ACT)
It is a bill of exchange, drawn by a bank on another bank or on it

s another branch.
As per sec 31 of RBI act, demand draft payable to bearer can be issued only by RBI.
Banks relationship with the purchaser of a demand draft is that of a debtor and creditor and
when the draft reaches the payee, its relationship with the payee is that of a trustee and
beneficiary.
IMPORTANT GUIDELINES:
DDs/MTs/TTs Rs. 50000 & above should not be issued/paid against cash.
Cancellation:- May be got cancelled by the purchaser before its delivery to the payee (draft
should not have any sign of negotiation.
Stop payment:-Payment cannot be countermanded by the purchaser.
Validity:
o All Drafts are valid uniformly for a period of 3 months.
o Validity can be extended further by the issuing branch on the request of the purchaser or
the payee.
Dupli cate Draft : -
Issued after getting indemnity from purchaser.
Drafts up to Rs. 5000/-, may be issued without waiting for non- payment advice
from drawee branch.
To be issued to a customer within a maximum period of 15 days; else the banks
should pay interest as applicable to FDR of corresponding maturity for the period of
delay beyond this stipulated period. (This period of fortnight is applicable only if the
request comes from either purchaser or beneficiary and not the 3rd party endorsee)
In case original and duplicate drafts are presented for payment, duplicate be paid and
original be returned with remarks about loss of draft /payment on collecting bank

s
Guarantee.
If draft was handed over to payee and lost thereafter, before making payment to
purchaser by issuing duplicate draft, consent of payee is required, as payee gets legal right
of payment once the draft has been handed over to him (including his agent i.e. post office
etc). The payee also can ask for duplicate draft in terms of section 45 of NI Act.
BILLS OF EXCHANGE AND PROMISSORY NOTES IMPORTANT SECTIONS/
PROVISIONS OF NI ACT:
General Banking Laws: Page 25 of 116
Acceptance of Bills:-
Acceptance means signing of a bill and delivery thereof, or giving notice of signing to the drawer.
As per Sec-7, In case of several drawees, each one has to accept for himself, one can accept for
others only if authorized by others to do so.
When bills are drawn on partnership firms, if any one of partners, in his official
capacity/partnership capacity (including sleeping, excluding minor) accepts it, it is binding on the
firm.
In case bill is drawn on two or more persons (not partners), it should be accepted by all. If one of
them refuses, holder may treat it as dishonored
Acceptance for honor (Sec 108) :- When original drawee refuses to accept and bill has been noted
or protested for non acceptance or for better security, a 3rd party, which is no way concerned with
the bill, accepts the bill with the consent of the holder, it is called acceptance for honor. It is
necessary that bill be forwarded for presentment or presented to acceptor for honor, not later than
the day next after day of its maturity (Sec-111). Its maturity is calculated from the date of
acceptance for honor.
Time for acceptance (Sec 63):- 48 hours time (excluding Public holidays) is given to the drawee
for acceptance of a bill, after presentation for acceptance.
As per Sec 83, if holder allows time for more than 48 hours, all the prior parties to the bill are
discharged.
1) Drawee In case of need (Sec 115): The drawer or endorser of a bill may insert, the name of a
person to whom holder can resort to, in case of dishonor of bill. Drawee in case of need is liable
only if he had accepted the bill. The bill is said to be dishonored when it is dishonored by
drawee and drawee in case of need i.e. by both.
Presentment for Acceptance: A Bill Of Exchange, payable after sight, be presented to the drawee
within a reasonable time (if no time is specified) after it is drawn during business hours and on
business day (Sec-61), and,
A Promissory Note payable at a certain period after sight be presented to the maker within a
reasonable time, for sight (Sec-62), by a person entitled to demand payment. If default occurs, no
party shall be liable to the person making such default.
Time period for acceptance: Section 83 allows 48 hours time (exclusive of Public holidays) to the
drawee to accept or reject a bill. If acceptance is not conveyed during this period, bill is treated as
dishonoured for non-acceptance.
Days of Grace: (Section 22): Every promissory note or bill of exchange which is not expressed to be
payable on demand, at sight or on presentment is at maturity on the 3rd day after the day on which
it is expressed to be payable.
When day of maturity is a public holiday, the instruments shall be payable on the next preceding
General Banking Laws: Page 26 of 116
business day ( i.e. the previous business day.)
Interest rate: when interest rate is specified in the Bill of Exchange (BOE)/or Promissory Note
(PN), it will be charged accordingly. If no interest is mentioned, Interest will be calculated @
18% p.a. , as per section 80.
Due date calculation:-
a) If a bill is payable

certain number of days after date, usance will commence from the date
following the date of bill, for example a bill dated 2 Feb 1988, payable 30 days after date, it
will be due for payment on 6 March 1988.( 27 Feb (leap year) + 3 March + 3 days of grace.)
Sec 24
b) If a bill is payable

certain number of months after date, maturity will be the on the day of
the month which corresponds with the date of bill. For example due date of bill 2 Feb 1988,
after

two month sight

will be 5th April 1988. In cases where no corresponding date exists in


that month, bill shall fall due on last day of month. For example, if bill is dated 31 Jan, it will
fall due on 3 March if it is one month after date.
c) When day of maturity is public holiday, the instrument shall be due on the next preceding
business day. Sec-25
d) Utmost care should be taken while calculating date of maturity when different dates i.e. date of
bill, date of sight/presentment, date of acceptance are given. Terms of payment should be taken
care of, whether these are

after date

or

after sight

, and due date be calculated accordingly. If


terms of payment are after date due date be calculated from the date of bill and if terms of
payment are

after sight, due date be calculated from the date of

sight i.e. the date of


acceptance of the bill.
Dishonor of Bill:-
A bill may be dishonored either by way of non acceptance (Sec 91) or by nonpayment (Sec 92). In
case of dishonor, holder has to give notice of dishonor to all previous parties, to whom he wants to
make jointly liable (Sec 93). Notice is not required to drawee/ acceptor of a bill or maker of
promissory note. Notice must be given within a reasonable time,
Noting and Protesting:-
Noting and protesting is optional in case of inland bills but is compulsory in case of foreign bills.
Noting (Sec 99):- Noting is a process of collection of evidence of dishonor , under which the
Notary presents the bill again to the drawee and on dishonor, gives a noting on the bill, mentioning
the date and reasons of dishonor..
Protest (Sec-100)- is a certificate from a Notary Public containing facts of dishonour. Protest is
considered an authentic and satisfactory evidence of dishonor.
CRIMINAL LIABILITY FOR DISHONOR OF CHEQUES (NI ACT SEC 138 TO 142) :
Section 138 of NI act (Amend-1988) provides for criminal liability on the drawer of
dishonored cheque. Relevant provisions are as under:
Consideration: Cheque should have been issued for discharge of any debt, either partly or fully.(
not as a gift). As per sec 139 until contrary is proved, it will be presumed that cheque in question
was issued for discharge of a debt.
Validity: Cheque should have been presented with in its validity period or 6 months, whichever is
earlier - U/s 138(a).

General Banking Laws: Page 27 of 116

Dishonour:
a) Cheques should have been dishonored for insufficiency of funds.
b) As per sec 140, drawer himself is responsible to keep balance in account to take care of all
issued cheques.
c) The paying bank should return dishonored cheques presented through clearing houses
strictly as per the return discipline prescribed for respective clearing house in the Uniform
Regulations and Rules for Banker clearing Houses. The collecting bank on receipt of a
dishonored cheque should return it immediately to the payee/holder
iv) Notice: Payee or holder should give notice, demanding payment within 30 days of receiving
information for dishonor of cheque. Drawer can make payment within 15 days of receipt of
such notice.
v) Complaint: On a written complaint, either from payee or holder in due course, court of the
metropolitan or judicial magistrate shall try an offence. (Sec-142). The summons can be
served by speed post or by authorized courier services and if not accepted, will be treated as
duly served.

vi) Sentence:
a) The drawer may be punished up to two year imprisonment, and/or fine up to
twice the amount of cheque, or both.
b) As per Sec 141, if a company sends a cheque that is dishonored, every person who at
the time of the offence was in charge of and was responsible to the company as well
as the company shall be deemed to be guilty. As per a recent Supreme Court
judgement, only those partner or director who were directly in control of the
business would be held responsible
c) Directors of the companies who are nominated directors in employment of
Central/State Govt or FIs owned or controlled by Center/State Govt are exempted
from prosecution.
d) Stopping of payment of a post dated cheque issued shall also attract penalty under
this section.
vi) Summary Trial: Provision of summary trial has been made applicable and efforts be made to
conclude the trial within 6 months. In case of convi cti on in a summary trial, the
Magistrate has been empowered to pass a sentence not exceeding one year imprisonment
and fine not exceeding Rs. 5000. Further offence under the act has been made
compoundable.
vii) Limitation: Complaint should be made within one month, of the date on which, cause of
action arise (U/s 142) i.e. after expiry of 15 days time given to make payment.
viii) Financial Discipline: To bring financial discipline among customers banks to introduce a
condition at the time of opening of account (in AOF itself) that in case cheque valuing Rs.
100 lacs (25 lacs in PNB) and above (irrespective of any amount if issued in favor of Stock
Exchanges by the Stock Brokers) are dishonored for want of sufficient balance at 4
occasions during a financial year, cheque book facility would be stopped. Banks, at their
discretion may even consider closure of the accounts. In case of advance accounts such as
CC or OD, decision for continuation or otherwise of such cases be taken one step higher
than the sanctioning authority. Branches should report such data to their controlling office
and Banks should place before their boards/MC the data regarding dishonor of cheque
involving amount of Rs. 100 lacs ( 25 lacs in PNB) and above including transactions of
General Banking Laws: Page 28 of 116
stock exchange brokers.
Dishonour of Cheque and Dishonour of Electronic Fund Transfer (EFT) for insufficiency
of funds in the account - Brief Summary of applicable provisions of Negotiable
Instruments Act 1881 and Payment and Settlement System Act 2007, with important case
law
In order to encourage the culture of use of cheques and enhancing the creditability of the
instrument, the Negotiable Instruments Act, 1881 was amended by the Banking, Public
Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, wherein a
new chapter XVII containing Section 138 to 142 were incorporated for penalties in case of
dishonor of cheque due to insufficiency of funds in the account of the drawer of the cheque.
These provisions were further amended in the year 2002 by the Negotiable Instruments
(Amendments and Miscellaneous Provisions) Act, 2002. By this amending Act, the punishment
was increased from one year to two years and also the period for issue of notice by the payee to
the drawer was increased from 15 days to 30 days. Besides this amending Act, certain
provisions were amended and simplified summary procedure for trial of the offence under the
Act was inserted.
REMEDY AVAILABLE TO THE BANK AS PAYEE OR HOLDER IN DUE COURSE
OF CHEQUE IF RETURNED FOR WANT OF SUFFICIENT FUND/EXCEED
ARRANGEMENT IN THE ACCOUNT OF DRAWER


PART- I

1. Bank can file a summary suit for recovery of the amount along with the cost & interest under
order 37 of Civil Procedure Code, 1908.
Bank can also file a Criminal Complaint u/s.138 of Negotiable Instruments Act, 1881, for
punishment to the drawer of the cheque for having committed an offence alongwith claim for
compensation.
2 Conditions to initiate Criminal action u/s.138 of NI Act
a) The cheque must have been issued for the discharge in whole or in part, of any debt
or other liability.
b) The cheque was presented to the Bank within 6 months from the date on which it is
drawn or within its validity, which ever is earlier.
c) The cheque is returned by the bank unpaid :
i) Either because of the amount of money standing to the credit of that account is
insufficient to honour the cheque i.e. for reasons of

insufficient funds

. or
ii) The amount of cheque exceeds the amount arranged to be paid from the account
by an agreement with the bank.
d) The payee or the holder in due course of the cheque makes a demand for payment of
the said amount by giving a notice in writing to the drawer of the cheque within 30
days of the receipt of information by him from the bank regarding the return of
General Banking Laws: Page 29 of 116
the cheque as unpaid (earlier 15 days). and
(e) The drawer of such cheque fails to make payment of the said amount to the payee or to
the holder in due course, as the case may be, within 15 days of the receipt of the
notice.
ISSUANCE OF STATUTORY NOTICE AND FILING OF COMPLAINT
3. In terms of Section 142 of the N.I. Act, the complaint can be filed before the Metropolitan
Magistrate or a Judicial Magistrate within one month, after lapse of 15 days from the
date of service of the Demand Notice as mentioned in (e) above.
In terms of Proviso to Section 142 (b) of N.I. Act, the court can condone the delay in
filing the complaint within the prescribed period if complainant satisfies the court that
he had sufficient cause for not making complaint within such period. Sufficient cause
depend upon fact of each case.
4. Service of Demand Notice Honble Supreme Court in the matter of K. Bhaskaran Vs
Sankaran Vaidhyan (2005) (iii) BC 158 (SC) followed by Supreme Court in the matter
of V. Rajakumari Vs P. Subbarama Naidu & Another 2004(8) SCC 774, while
discussing service of demand notice held that the Act provides for giving a notice
making a demand. It is, therefore, clear that giving notice in the context is not the same
as receipt of notice. Once notice has been sent by Registered Post and under Certificate
of Posting to correct address, presumption of service to be raised unless the noticee
proves that it was not really served.
As such, while issuing the notice, the correct addresses of the noticees should be
mentioned and notice should be sent by Registered AD Post and UPC. The demand
notice can be issued through Advocate or as per the draft enclosed (Annexure-I, II & III)
making suitable amendments therein, as per the facts.
5. Jurisdiction for filing Complaints - Honble Supreme Court in the matter of Smt.
Shamshad Begum Vs. B. Mohammed Decided on 3.11.08 analyze the ingredients for
commission of offence and place of filing complaint. The offence under Section 138 of
the Act can be completed only with the concatenation of a number of acts and
concatenation of all the below five is sine qua non for the completion of the offence
under Section 138 of the Act. The acts which are components are as follows:
(i) Drawing of the cheque;
(ii) Presentation of the cheque to the bank;
(iii) Returning the cheque unpaid by the drawee bank;
(iv) Giving notice in writing to the drawer of the cheque demanding
payment of the cheque amount;
(v) Failure of the drawer to make payment within 15 days of receipt of
notice.
5.1 It was held that for the purpose of ascertaining jurisdiction, it is not necessary that the above five
acts should have been perpetrated at the same place. It is possible that each of those five acts could
be done at five different localities. The Complaint can be filed at any place where one of the 5 acts is
done.
6. Representation in complaint by any employee on behalf of company or corporation
General Banking Laws: Page 30 of 116
It has been held by the court that the complainant has to be a corporeal person who is
capable of making a physical appearance in the court. It has been held that if a complaint is
made in the name of a incorporeal person (like a company or corporation) it is necessary
that a natural person represents such juristic person in the court. It is held that the court
looks upon the natural person to be the complainant for all practical purpose. It is held that
when the complainant is a body corporate, it is the de jure complainant and it must
necessarily associate a human being as de facto complainant to represent the former in court
proceedings. It has further been held that no magistrate shall insist that the particular person,
whose statement was taken on oath at the first instance, alone can continue to represent the
company till the end of the proceedings. It has been held that there may be occasions when
different persons can represent the company. It has been held that it is open to the de jure
complainant company to seek permission of the court for sending any other person to
represent the company in the court.
(M.M.T.C. LTD. VS. MEDCHL CHEMICALS AND PHARMA (P) LTD. DECIDED ON
19.11.01, AIR 2002 (SC) 182, 2002 (1) SCC 234, 2002 (108) COMPANIES CASES 48)
In view of the above judgment, our bank being a body corporate and acts through its
representative. An application can be moved informing court that the incumbent/other
officials who has filed the complaint has been transferred and in his place name of new
authorized representative is taken on record. Thereafter, new authorized representative can
represent the bank in the complaint. The procedure can be adopted in consultation with
dealing counsel.
In view of above, for prosecution u/s 138 of NI Act the facts required to be proved can be
proved by bank officials by way of affidavit and on the basis of bank record by the present
incumbent/authorized representative. This will obviate need for calling the officials who
have been transferred after filing complaint on behalf of the bank.
7. Punishment Under the Act, Court has power to try cases summarily. In case of any
conviction in a summary trial under this Act, it shall be lawful for the Magistrate to pass a
sentence of imprisonment for a term not exceeding one year and an amount of fine
exceeding five thousand rupees.
Provided further that when in the course of summary trial, it appears to the Magistrate that
the nature of the case is such that a sentence of imprisonment for a term exceeding one year
may have to be passed or that it is, for any other reason, undesirable to try the case
summarily, the Magistrate shall after hearing the parties, record an order to that effect and
thereafter recall any witness who may have been examined and proceed to hear or rehear the
case. In the above circumstances, the Act provides for a punishment with imprisonment for
a term which may extend to two years or with fine which may extend to twice the amount of
cheque or with both.
As per the provision of the NI Act for the offence of dishonor of cheque, the court besides
awarding punishment of imprisonment can also award compensation equivalent to twice the
amount of the cheque. As such, while filing complaint it should be ensured that prayer
should also be made for awarding compensation along with punishment of imprisonment. If
such a prayer is not made, court may not allow compensation.
General Banking Laws: Page 31 of 116
8. Offences by Companies (Section 141) - If the person committing an offence is a
company, every person, who at the time the offence was committed, was In charge and was
responsible for the conduct of the business of the company as well as the company, shall be
deemed to be guilty of the offence provided such person shall be permitted to prove that the
offence was committed without his knowledge or that he exercise all due diligence to
prevent the commission of such offence.
8.1 Section 141(2) explains that any Director, Manager Secretary or other officer of the
company can be proceeded against for commission of offence, if it is proved that the
offence was committed with the consent, connivance or is attributable to any neglect
on the part of such persons. Therefore, if complaint is filed against such person also,
in the complaint specific allegation needs to be made against these persons to hold
them liable.
8.2 For the purpose of this Section, company means any body corporate and includes a
firm or other association of individuals and director in relation to a firm means a
partner in the firm. Therefore, the provisions are applicable against incorporated
bodies and association of persons, partners of firms and Director, Manager,
Secretary etc of the Company.
9. Nominee Director - By amendment w.e.f. 6.2.2003, a proviso was inserted in Section 141
of the N.I. Act that where a person is nominated as a Director of a company by virtue of his
holding any office or employment in the Central Government or State Government or

Financial Corporation, owned or controlled by Central or State Government, he shall not be liable
for prosecution.
Therefore, while getting issued a notice under Section 138 to the company and its Directors, it
should be ensured that this notice is not issued to the nominee Director(s).
10. Section 145 - Evidence on Affidavit The evidence of the complainant may be given by him
on Affidavit. The Court shall, if thinks fit, on the application of the prosecution or accused
summons and examine any person giving evidence on affidavit.
11. Section 146 - The Court shall, in respect of every proceeding under this Chapter, on
production of bank's slip or memo having thereon the official mark denoting that the cheque
has been dishonoured, presume the fact of dishonour of such cheque, unless and until such
fact is disproved.
Section 147 Every offence punishable under this Act shall be compoundable.
Limited Liability Partnership Act 2008 (LLP)
LLP is viewed as an alternative corporate business vehicle that provides the benefits of limited
liability but allows its members the flexibility of organising their internal structure as a partnership
based on a mutually arrived agreement.
Government passed the Limited Liability Partnership Act, 2008, which came into force w.e.f. 9th
January, 2009
LEGAL STATUS OF LLP
General Banking Laws: Page 32 of 116
LLP is a body corporate formed and incorporated under the LLP Act which is a distinct legal entity
separate from that of its partners. It has perpetual succession. Any change in the partners will not
affect the existence, rights or liabilities of the LLP.
On Registration, a LLP would be capable of suing and being sued, acquiring, owning, holding and
developing or disposing of property moveable or immoveable. The Act provides for entry of new
partners in accordance with LLP agreement and exit of existing partners both with due notice to the
Registrar of Companies.

MINIMUM NUMBER OF PARTNERS
LLP shall have at least two partners but there is no prescribed limit on the maximum number of
partners in an LLP. Any individual or body corporate may be a partner in LLP. There is no specific
provision to admit minor as a partner in firm. If at any time the number of partners of a LLP is
reduced below two and the LLP carries on business for more than 6 months while the number is so
reduced, the person who is the only partner of the LLP during the time that it so carries on business
after those 6 months and has the knowledge of the fact that it is carrying on business with him alone,
shall be liable personally for the obligation of the LLP incurred during that period.
DESIGNATED PARTNERS AND THEIR OBLIGATIONS
There is a concept of

Designated Partner, which is defined as a partner designated as such. Every


designated partner of the LLP must obtain a Designated Partner Identification No. (DPIN) from the
Central Govt. Every LLP must have atleast two designated partners. Both the designated partners
must be individuals and atleast one of them must be a resident in India. If all the partners in LLP are
bodies corporate, they must nominate their respective individuals who are to act as

Designated
Partners

(DP) and one of the nominee shall be a resident of India.



DP is liable to all penalties imposed on LLP for any contravention of those provisions. Every LLP
shall file with Registrar of companies the particulars of every individual who has given his consent
to Act as DP. This is similar to provisions relating to Director in Companies Act.
INCORPORATION OF LLP
The LLP may be incorporated by two or more persons associated to carrying on a lawful business
with a view to profit shall subscribe their names to an incorporation documents. The registering
authority will be Registrar of Companies under the Companies Act. The name of LLP must end
with the words Limited Liability Partnership (or the acronym LLP). In LLP in place of
memorandum of association / article of association, an LLP partnership agreement is entered into
defining rights and obligations of partners inter se with LLP.
Every LLP should have a registered office and can be changed with due notice to the Registrar, to
which all communications and notices may be addressed and where they shall be received.
In the Act there is no provision for regular meeting of Directors like Companies Act and partners
can decide when and how to meet, delegation of powers etc. and provision is made that LLP should
maintain a minute book. In LLP there is no requirement of issuance of share and share certificate
CONTRIBUTION BY PARTNERS
General Banking Laws: Page 33 of 116
Contribution of a partner may be in the form of money, tangible or intangible property or by
contracts for services performed or to be performed. The contribution of a partner in LLP shall be
accounted for and disclosed in the accounts of LLP.
PARTNERS AND THEIR RELATIONSHIP WITH LLP
On incorporation of LLP, the persons who have subscribed to the incorporation document shall be its
partners and any other person may become a partner in accordance with LLP agreement. The
mutual rights and duties of the partners inter se and that of the LLP and its partners are governed by
the LLP agreement. In the absence of any such agreement, will be governed by the provisions of the
first schedule of the Act.
It further provides that where after a partner's death the business is continued in the same LLP
name, the continued, use of that name or of the deceased partner
'
s name as a part thereof shall not of
itself make his legal representative or his estate liable for any act of the LLP done after his death.
It is clear that LLP agreement is a most important document and any changes therein should
be filed with the Registrar.
CESSATION OF PARTNERSHIP
A person may cease to be a partner of a LLP in accordance with an agreement with other partners
or by giving a notice in writing of not less than 30 days to the other partners of his intention to
resign as partner. A person shall cease to be a partner of a LLP, on his death or dissolution of LLP
or if he is declared to be a unsound mind by a competent court or if he has applied to be adjudged as
an insolvent or declared as an insolvent.
LIABILITY OF LLP AND PARTNERS
Every partner of the LLP is an agent of the LLP but not of the other partners. LLP is bound
by Act of a partner. A partner is not personally liable, directly or indirectly for an obligation of the
LLP, whether arising in contract or otherwise solely by reason of being a partner of the LLP.
ASSIGNMENT AND TRANSFER OF PARTNERSHIP RIGHTS
The rights of a partner to share the profits and losses of LLP and to receive distribution in
accordance with the partnership agreement are transferable either wholly or in part.
CONVERSION OF EXISTING FIRM/PRIVATE/AN UNLISTED COMPANY
INTO AN LLP Section 54 to 56 of Chapter X contain provisions in this regard
1. Section 54 read with second schedule provide for conversion from firm to LLP.
2. Section 55 read with third schedule provide for conversion from private company to a LLP.
3. Section 56 read with fourth schedule provide for conversion from unlisted public company to
a LLP.
Therefore, a listed company desirous of converting itself into an LLP will first need to delist and
then apply for conversion into an LLP.
WINDING UP AND DISSOLUTION OF LLP
General Banking Laws: Page 34 of 116
The winding up of the LLP may be either voluntary or by the Tribunal to be established under the
Companies Act, 1956. Till the Tribunal is established, the power in this regard has been given to
the High Court.
CONCLUSION
The LLP is a new edition for conducting a business or profession and is an option that would
facilitate professionals to come together in bigger number and form LLPs. Due to flexibility in
structure and operation, LLP could be the preferred mode for venture capital. The LLP Act provides
for establishment of foreign LLPs and permit them to carry out business activities in India.
BANKER CUSTOMER RELATIONSHIP
BANKER: Sec 5 (b) of Banking Regulation Act-1949 defines a banker as a person undertaking
business of banking. Banking means (SECTION 6 of BR Act) accepting deposits from public, for
the purpose of lending, repayable on demand or otherwise withdrawable by cheque, draft, order or
otherwise.

Customer There is no legal/statutory definition of the customer but from various judgements
based on section 131/131 A of NI Act 1881, a customer means a person who seeks to open account
which bank accepts with proper introduction.
As per the KYC policy (RBI, Dec. 2004),a customer may be defined as:
A person or entity that maintains an account with the Bank and /or has a business
relationship with the Bank;
One on whose behalf the a/c is maintained (the beneficial owner)
Beneficiaries of transactions conducted by professional intermediaries, such as Stock
Brokers, Solicitors etc. as permitted by the Law, and
Any person or entity connected with a financial transaction which can pose significant
reputational or other risks to the bank, for example - a wire transfer or issue of a high value
demand draft as a single transaction.
BANKER CUSTOMER RELATIONSHIP in different transactions:
The primary relationship between a banker and customer is that of a debtor and creditor (Reason:
on opening the SF/CA/Term/any deposit account the banker becomes a debtor).
However a banker is different from an ordinary debtor on two counts, viz.
The banker is required to pay the customer only when payment is demanded within
business hours of a working day at the branch (An ordinary debtor should search for his
creditor and repay the debt).
For a normal debt, the period of limitation start from the date of debt. However, in case of
bank deposits, it starts from the date of demand, by the depositor.
Apart from the primary relationship, there can be other legal relationship between a banker and
customer depending up to the transaction as given hereunder:

Type of transaction Relationship
Bank Customer
General Banking Laws: Page 35 of 116
1. Acceptance of Deposits debtor creditor
2 Loan from bank Creditor Debtor
3 Collection of cheque on behalf of customer Agent Principal
4 Sale/purchase of securities/shares on behalf of
customer
Agent Principal
5 Safe Custody of articles Bailee Bailor
6 Safe deposit locker Lessor
( Licensor)
Lessee
(Licensee)
7 Payee of a Draft & Issuing Bank Trustee Beneficiary
8 Money tendered to bank pending
instruction for its disposal
Trustee Beneficiary
9 Articles left by Mistake Trustee Beneficiary
10
Carrying on standing instruction Agent Principal
BANKERS OBLIGATIONS:
DUTY TO MAINTAIN SECRECY OF ACCOUNTS:
In addition to implied contract between bank and customer not to disclose the affairs of the
customers, section 13 of banking companies (acquisition & transfer of undertakings act 1970
Nationalisation of 14 banks) except under the following circumstances::
o Disclosure is compulsion of law e.g. (i) Companies act U/s 235/237 to inspector
appointed by Central Govt for investigating the company concerned ; (ii) Bankers
Book evidence act U/s 4 to court for legal proceedings; (iii) Code of civil procedure
act u/s 94(3) to Police inspector for investigation; (iv) U/s 12(2) of FEMA for making
inspection of books
o Interest of Bank require disclosure e.g. (i) disclosure to guarantor to recover dues; (ii)
disclosure to Bank Lawyer to file suit; (iii) disclosure to other banks to ascertain credit
worthiness of borrower as per IBA guidelines
o With express/ implied consent of customer, strictly in terms of direction e.g. (i)
Disclosing information to guarantor, (ii) disclosing information to staff of customer
regularly visiting branch for banking business of the customer etc. However, for
disclosing information of Husband or wife

s account to Wife or Husband cannot be


taken as implied consent.
o Disclosure to Incharge of Police Station U/s 91(1) of Cr PC. U/S 102 , a police officer
can seize a stolen property (including money lying in a Bank).
o Disclosure to Income tax authorities (U/s 131 and 133, of Income Tax act).
o Submitting return to RBI of accounts not operated for the last 10years (Disclosure U/s
26 of BR Act)
o Disclosure to RBI: RBI can collect any information in such a manner as it thinks fit.
(U/s 45 B of RBI act )
Banker is bound by this duty even after closure of account or death of the customer
BANKERS RIGHTS:
The primary rights enjoyed by a banker are:
(I) Right of General Lien,
(ii) Right of Set-off,
General Banking Laws: Page 36 of 116
(iii)Right of Appropriation,
(iv) Right to act as per mandate of the customer.
Right of lien: (Section 171 of Indian Contract Act)
A banker may, in absence of a contract to the contrary, retain as security, for a general balance
of account, any goods bailed to them in ordinary course of business in capacity as banker.
Lien means right to retain goods in possession (but not to sell) until debit is discharged. Banker
can sell the goods or securities after giving the debtor a reasonable notice.
Banker

s right of general lien is available only over goods and securities received during normal
course of business but not over those received for specific purpose as an agent or as a trustee
etc. I
Right of Lien is lost when possession is lost. It is available on goods & securities and not on
money or any other thing except goods & securities
A reasonable notice is must before selling the goods/ securities under lien of a bank. Banker

s
right of lien is not barred by law of limitation.
There may be particular lien over particular goods as per specific contract or even a negative lien
i.e. an undertaking not to alienate a security without specific consent of the Bank.
Right of Set Off:
Banker has a right to combine two or more accounts, of a customer in the same name and
same right, if one of them is showing debit balance
This is a statutory right arising on account of contractual obligations between the Bank and its
customers.
Different branches of the bank are treated as one unit for exercising this right. This right is not
available if there is an agreement (express or implied) for not exercising this right.
This right can only be exercised, when debit balance is certain, determined and due ( & not
a future or contingent debt) , after sending notice to the customer and satisfying the
condition that the account must be in the same name and in the same capacity / right.
(ii) An account in the individual capacity of the Customer showing debit balance cannot be
combined with one in fiduciary capacity (i.e. trustee etc.) showing credit balance.
(iii)Accounts really belonging to same persons, but in different names can be combined.
Thus an account of a sole proprietorship concern may be combined with that in his
personal name.
(iv) Two a/cs, of a solicitor, one in his personal name and other marked clients a/ c cannot be
combined.
(v) Two A/cs, one belonging to an individual and other jointly with someone, cant be
combined. The right cant be exercised if the deposit is in the firms name and debt due
is in partner

s name, and also when deposit is in the dividend account of company and
borrowing is in the Co

s name. But if deposit is in the single name and borrowing is in


the joint name with joint and severally liability, and deposits are in partners name and
borrowing by firm and also deposit in joint names payable to former or survivor and
borrowing is in the name of former, this right can be exercised.
(vi) The right should be exercised after giving due notice, unless a contract to the contrary
exists.
The right may be exercised before the garnishee order/ notice of assignment of
customers credit balance & even attachment orders by Income tax or other appropriate
General Banking Laws: Page 37 of 116
authorities is made effective.
(vii) The right is available on time barred debts and can be exercised also in case of
Insolvency, death and lunacy of customer
The aforesaid right to combine accounts is available to bank only. The customer cannot combine his
two or more accounts and hence cannot expect bank to honour cheques, drawn on one a/c, if balances
are not sufficient in that account, but there is balance in other accounts of the said customer.
POSITION OF AVAILABILITY OF RIGHT OF SET OFF IS SUMMARISED IN THE
FOLLOWING TABLE:
Right to Set Off
Deposit in name of Loan in name of Status of Availability
Single PERSON Same person Available
Single PERSON Same person, jointly with others Available
Joint Name One of the Joint a/c Holder Not available
Single Person Same name but with different
capacity i.e. trustee
Not available
Proprietor Prop Firm Available
Prop Firm Proprietor Available
Partner in a firm Partnership Firm Available
Partnership Firm Partner Not available
Trust Trustee Not available
Trustee Trust Not available
Minor( Under guardianship) Guardian Not available
Dividend account of the
company
Loan a/c of the co. Not available.


TERMINATION OF BANKER CUSTOMER RELATIONSHIP
The banker customer relationship stands terminated on the (i) death, (ii) insolvency, (iii) lunacy of the
customer. On the happening of any of these events the bank must stop operation of the account and
stop payment of cheques.
The banker customer relationship is not affected by reason of (i) arrest of the customer, (ii)
imprisonment of the customer, (iii) migration of customer to foreign country and such other
reasons.
Rules of Appropriation - Indian Contract Act
When a debtor owing several debts makes a payment, the creditor should appropriate it as per the
rules of appropriation.
The rules of appropriation are laid down in section 59, 60 &61 of Indian Contract Act.
Express mention By Debtor: Sec. 59 states that where the debtor( borrower) , owes more than one
debts to one person( Bank) , and he makes payment, either with express intimation or under
General Banking Laws: Page 38 of 116
Circumstances, implying that the payment is to be applied to the discharge of some particular debt,
the payment, if accepted, must be applied accordingly by the creditor( banker) .
Omission by debtor to intimate: (Sec. 60): In the absence of the express or implied intention of the
borrower, the creditor may use his discretion and apply the payment to any lawful debt actually due
and payable including time barred debt from the debtor.
Non-appropriation: Sec. 61: Where neither of the two parties makes any appropriation, the
payment will be applied for discharging debt in order of time. If the debts are of equal time, the
payment will go to discharge the debts proportionately. The provision of this section is same to
that of the rule laid down in famous Claytons case.
RULE IN CLAYTONS CASE
This rule, which was laid down in the famous case Devayanas Vs. Noble states the rule of
appropriation in running accounts like Cash Credit and Overdraft accounts.
As per this rule, each withdrawal in a cash credit account is considered as a new loan and each
deposit as a repayment of the loan in the order in which it is made. The first debit in the account is
considered to have been discharged or reduced by the first item in credit side and accordingly other
entries follow suit in chronological order.
It is to avoid application of this rule, the bankers stop operation of the account in case of
death/insolvency of a partner/guarantor/joint account holder.
APPROPRIATION FIRST TOWARDS INTEREST
In the absence of the agreement to the contrary, any payment by a borrower to a loan will first go
towards interest and then to principal (M/s Kharavela Industries Vs OSFC & others).
APPLICATION OF CLAYTONS RULE:
In the case of:
Death or insolvency or insanity of a borrower or a joint borrower,
Death, insolvency, insanity , retirement of partner in a firm ,or
Death, insolvency of guarantor or revocation of guarantee by the guarantor in a loan
account, the existing debts due from the borrower is adjusted if subsequent credits are
allowed in the same account, If fresh debits are allowed, these are considered fresh loan and
Bank cannot recover such debt from the assets of the deceased , retired or insolvent partner
and may ultimately suffer the loss if the debt cannot be recovered from the remaining
partners.
GARNISHEE ORDER & ATTACHMENT ORDER: Obligation of the Bank to honour the
cheques issued by the customer (subject to fulfillment of certain conditions stipulated U/s sec.31 of
NI Act) is not applicable when either a Garnishee Order or an attachment Order is received by the
bank.
GARNISHEE ORDER
A garnishee Order is an attachment order issued by a Court at the request of a creditor to attach his
debtors fund in the hand of a banker. Garnishee means a debtor to the debtor and accordingly the
banker who holds the deposit balance of the debtor is called the garnishee, it is called a garnishee
General Banking Laws: Page 39 of 116
order.
Statute
Issued under Section 60 of Code of Civil Procedure, 1908. The procedure for issuing a garnishee
order is laid down on Order 21, Rule 46 of the Code of Civil Procedure, 1908.
A Garnishee Order is issued in two stages, first as an Order Nisi and then an Order Absolute.
Order Nisi
An Order Nisi requires the banker to explain as to why the funds of the depositor should not be
attached towards satisfaction of the dues of the judgement creditor.
On receipt of an Order Nisi the bank is bound to stop operation in the depositors account.
He must immediately inform the customer about the receipt of the order.
Order Absolute
o After receipt of the explanation from the bank the Court may issue Order Absolute.
o On receipt of

Order Absolute

, the bank should pay the amount to the court.


o The production of passbook or deposit receipt is not necessary for making such
payment.
Amount of the Garnishee Order
A garnishee order usually does not mention the amount.
In case no amount is mentioned, the entire balance should be attached.
However, if it is issued for a specific amount, only that amount should be attached.
Accounts to be attached
Principle: Garnishee Order extends only to those accounts, which are held in the same capacity in
which the order is issued and not to accounts held otherwise.
Joint account: If the Garnishee Order is in the name of A, but the account is in joint names of A, B
& C, the account is not to be attached. However, if the Garnishee Order is in joint names of A, B
and C it will not only attach the joint account of A, B, C but also accounts in their individual names.
Partnership Account: In case the Garnishee Order is in the name of A and the account is in the
name of a partnership firm where A is a partner, the firm

s account cannot be attached.


However, a Garnishee Order issued in the name of a partnership firm, extends to the balance in the
firms account and also to the balance available in the accounts in the individual names of the
partner.
Proprietorship Account: Where the Garnishee Order is in name of individual, it would extend to
any account maintained by him in the name of a firm as sole proprietor. (Reason: There is no
distinction between a proprietor and his proprietary firm).
Trust Account: Accounts held by a person in trust (i.e. in fiduciary capacity) are not attached by a
Garnishee Order issued in the individual name.
Advocates name: A garnishee order in the name of the advocate will attach his office account
General Banking Laws: Page 40 of 116
(Reason: it is his personal account) but not client

s account maintained by him (Reason: advocate


holds this account as a trustee for his client).
Accounts not Attached
Deceased person: Funds belonging to deceased constituents are not attachable by a Garnishee
Order.
Insolvent Persons: Funds in the name of an un-discharged insolvent are not attachable by a
Garnishee Order.
Type of Deposits Attached
1. All deposits due and accruing due are attached.
2. Deposits due means SF, CA, Call deposits payable on demand and overdue time deposits
(as they are due for payment).
3. Deposits accruing due are term deposits, which will mature for payment in future.
Accordingly, Garnishee Order attaches the term deposits however, the amount is payable
only on their maturity.
4. Where before receipt of a Garnishee Order an amount is passed for payment, the debit
entry is made and token issued but the amount is still not paid by the Cashier, the
Garnishee Order attaches such amount (Reason: A payment is not conclusive unless the
amount is actually parted by the bank).
5. Similarly where a cheque is received in clearing for payment and a Garnishee Order is
received before the time within which the clearing cheque can be returned unpaid, the cheque
should be returned unpaid and the amount attached by the order.
Type of Asset not Attached
1. A garnishee order attaches only debt.
It does not extend to funds/goods/money held by a bank other than as a debtor. Therefore,
funds held in safe custody, safe deposit locker, funds held in trust are not attachable by a
Garnishee Order.
2. Cheques, Bills sent on collection are not attachable. (Reason: The relationship of banker
and customer is not that of a debtor and creditor). However, if a cheque has been collected
at an upcountry centre (drawees account debited through clearing or otherwise), but
credit is not given to the payees account for want of the credit advice from the
collecting branch, that amount can be attached.
3. The sale proceeds of shares/securities yet to be received by the bank cannot be attached.
4. Call Deposits payable on Notice cannot be attached. (Reason: They are neither due nor
accruing due unless a notice demanding payment is received by the bank).
5. Cash Credit A/c: The undrawn portion of a cash credit account cannot be attached, as it is
not debt due.
6. Uncleared Balance in SF/CA account cannot be attached.
Future Credits
The balance available at the time of the receipt of order is taken into consideration for attachment.
General Banking Laws: Page 41 of 116
Credits/deposits given after the receipt of the order are not attachable. To illustrate, if the Garnishee
Order is received at 11 A.M., the money deposited at 1 P.M. in the account is not attached.
Miscellaneous
Notice to Customer: On receipt of a garnishee order, the customer should be informed about it, at
the earliest.
Right of Set Off: The bank is entitled to exercise its right of set off for all debt due from the customer
(but not contingent dues) before complying with the order.
A Garnishee Order can be served at the Head Office of a Bank. However, it will become effective
on the branch after a reasonable time, which is required to send the communication.
Balance with foreign branches: No garnishee order can be issued for attaching balance available
in foreign branches of a bank in the name of the debtor.
Salary: A garnishee order cannot attach salary.
Cheques marked Good for Payment
Cheques marked

good for payment

by a banker can be paid even after the receipt of garnishee


order (as it constitutes the liability of the bank).
b. INCOME TAX ATTACHMENT
ORDER Statutory Basis
Issued under Sec.226 (3) of Indian Income Tax Act, 1961, by an Income Tax
Officer. Section 226(3)
This section authorizes the ITO to require, by notice in writing, any person from whom money is
due or may become due, to the assessee, or any person holds or may subsequently hold money for
or on account of assessee, to pay the Income Tax Officer an amount equal to the amount of arrears
of tax

.
It is not only debts due and payable (as is the case with a garnishee order), but also any money
held on account of assessee is attached by an Income Tax Attachment Order.
Accordingly, it can attach: (I) Saving Fund and Current Account, (ii) Term Deposit (however,
amount is payable on maturity), (iii) Proceeds of Collection item not credited to account
Joint Account
Even though the order is received in a single name, it attaches balance (pro-rata) in any joint
account maintained by such person. Unless it is proved otherwise, the share of the joint account
holders is considered to be equal (Section 226(3)(iii)).
Procedure before attaching joint account
Account in joint name can be attached only where there is a mention in the order that a copy of the
same is sent to the other joint account holders. In case no such remark is made, the Income Tax
Department should be advised.

You have not sent the notice to both/all depositors as provided in


Sec. 226(3)(iii) of the Act. We are, therefore, unable to comply with your demand without
references to the other joint depositors

.
General Banking Laws: Page 42 of 116
The joint account holders should be asked to establish their claim, if any, to the entire balance to the
exclusion of the person named; in the order. In case they fail to produce Court order/stay order,
within a reasonable time, the bank should act on the presumption made by the Act and pay
proportionate amount to Income Tax Authority.
Account in the name of a deceased or insolvent person
An I.T. attachment order attaches the funds held on account of a deceased or insolvent depositor.
(Garnishee Order does not attach the same).
Attachment of joint account towards the dues payable by a deceased depositor
Where the attachment order relates to the arrears of tax dues on the estate of the deceased depositor,
the balance in the joint account in his name need not be attached.
Accounts in other capacities
If the order is individual name, it does not attach accounts in the name of partnership firms (where he
is a partner) or in the name of a trust (where he is a trustee).
Money held subsequent to receipt of order
As per the Act, the order attaches the money held or that may be subsequently held. Accordingly if
an order is received at 10 AM and an amount is deposited at 11 AM, this amount should also be
attached by the order.
Right of Set Off
The bank is entitled to first exercise its right of set off before acting on the order.
Penalty
Where a bank fails to attach the amount it would be deemed to be an assessee in default.
GBR-2 Page 38 of 98
Action to be taken on receipt of the order
1. On receipt of the order, the customer must be given notice.
2. The account holder must be informed about the payment to I.T.O.
3. Like Income Tax Attachment Order, attachment orders can also be issued under Wealth Tax
Act, The Recovery of Debts due to Banks & Financial Institutions Act, 1993 and also Sales
Tax Acts of different States.
Garnishee vis--vis I T attachment order
Parti cul ars Garni shee I T attachment order
Authority Court Revenue/Tax authority
Amount May be specific Must be specific, else it is a not valid order.
Applicable amount At the time of receipt At the time of receipt and all credits after
receipt
Joint Accounts
Order Single name
Order Joint Names
Not applicable
Applicable
Applicable pro-rata
Applicable
Order in name of Partner,
Trustee, executor, director
etc
Not applicable Not applicable
General Banking Laws: Page 43 of 116
Deceased accounts Applicable Applicable
Insolvents Not applicable Applicable
Undrawn CC or OD
balances
Not applicable Not applicable
Proceeds of cheques/Bills
on collection
Not attached Attached
Future Credits Not attached Attached
Right to set off Available Available
Both received
simultaneously or pending
for payment
Preference to
attachment being State
dues.
Preference to attachment being State dues
Limitation 12 Years being
execution of decree
30 years being Govt dues.

DIFFERENT TYPE OF CUSTOMERS
MINORS
Minor is defined in Section 3 of Indian Majority Act, 1875
A minor (of Indian domicile) is a person who has not completed 18 years of age.
Even when a guardian is appointed by the Court (for the person, or property or both) or a
Court of ward is appointed as guardian a person attains majority on completion of 18 years of
age.
MINOR

S AGREEMENT
A minor is not competent to enter into a contract. All agreements with a minor are void ab-
initio (i.e. invalid from the very beginning) [Ref. Sec 11 of Indian Contract Act, 1872]. [Note:
A contract for the supply of necessaries suitable to the life of a minor is, however, valid].
In case a bank sanctions a loan, or opens deposit account in the name of a minor, it cannot
legally compel him to perform his part of the contract (since there cannot be a contract with a
minor). For this reason, banks never sanction loans/overdraft to minors. However, they open
deposit accounts in the name of minors, after taking necessary precautions. As long as the
account is in credit, the banks run no risk in such accounts.
A person upon attaining majority cannot ratify a contract entered during his
minority. Since a minor is incapable to contract, he can be represented by his
lawful guardian. A lawful guardian, like a trustee, has the power to represent the
minor in dealing with his property. He has got a fiduciary relationship and can
lawfully deal with this property only for the

benefit of the minor.


WHO IS THE GUARDIAN OF A MINOR?
The guardian to a minor can be a: (a) Testamentary Guardian, or (b) Legal Guardian, or (c)
Natural Guardian.
Testamentary Guardian
Guardian appointed by the will of the minor's father is called testamentary guardian.
Such guardian acts only after the death of the father & mother of the minor
child. Legal Guardian
General Banking Laws: Page 44 of 116
Where there is no natural guardian, or testamentary guardian, the Court can appoint a guardian
i.e. legal guardian as per the provisions of Guardian and Wards Act, 1890.
Natural Guardian
In case of Hindus, the guardianship of minor is determined as per the provisions of Hindu
Minority & Guardianship Act, 1956.
Section 6 of the Act provides that in case of a minor boy or unmarried girl, the father and after
his death the mother shall be the guardian of both person and property of the minor. Opening of
Fixed Deposit, Recurring & Savings Deposit account under the guardianship of mother has
been allowed by RBI (provided accounts are not allowed to be overdrawn).
After the death of both father and mother, a minor can be represented only through a legal
guardian.
Step father/step mother cannot act as natural guardian.
For a minor married girl, her husband (if major) is the natural guardian. In case the husband is a
minor, her father (or mother, if the father is dead) may continue to be natural guardian.
For a minor married girl, who has become a widow, her husband

s father (mother, if father is


dead) is to act as natural guardian.
In case of an illegitimate minor child, his/her mother is the natural guardian.
The natural guardian of an adopted son is his adoptive father/mother.
For a Muslim minor, father is the natural guardian (for property only). After father,
guardianship lies with (i) executor appointed by father

s will and after him (ii) father

s father
(iii) the executor appointed by the will made by the fathers father.
Where none of these persons is alive, the minor can be represented only by a legal guardian.
In case of Christians and Persons of other Religions
The father, and on his death, mother acts as natural guardian.
Where both are dead, a person appointed by Court can alone act as guardian.
OTHER IMPORTANT POINTS ON GUARDIANSHIP
Even after conviction, the natural guardian continues to be the natural guardian.
A guardianship can be for the person, or for the property or for both. A legal guardian
appointed for person (and not for the property) is not entitled to open, operate and receive
deposit on behalf of the minor.

In case of Muslims, the natural guardian is guardian only for the property and not the person
of the minor.
TYPE OF DEPOSIT ACCOUNT FOR MINORS
Account can be opened in the name of a minor are broadly the following: (I) Minor

s Account
to be operated by guardian (ii) Minors Account to be operated by mother. (iii) Minors
Account to be operated by himself/herself.
Minors Account Opened and Operated by
General Banking Laws: Page 45 of 116
Guardian Single or Joint A/c.
The guardian can open a deposit account in sole name of the minor to be operated by him on
behalf of the minor. Alternatively he can open a joint account in the name of the minor and
himself.
Guardian

s Power
He can operate the account on behalf of the minor.
He can foreclose the term deposit or avail loan against the same for the benefit of the minor.
His power to operate account/foreclose deposit/borrow against deposit ceases as soon as the
minor attains majority.
When Minor Attains Majority
From the date the minor becomes a major, he has the sole right to operate the account (not the
guardian).
For term deposits maturing for payment on or after a date on which the minor attains
majority, the guardian has no power to foreclose the same. The amount should be paid to the
minor upon his attaining majority.
Advance against Minors Deposit
Should be sanctioned only for the benefit of the
minor. Death of Minor
Balance is payable as a claim case.
Death of Guardian
The balance is treated as a Trust and is paid to the minor upon his attaining majority. During
his minority it can be paid only to his guardian appointed by Court.
Self Operated Minor Account
Minors who have completed 10 years of age, who are literates and can sign uniformly are
permitted to open S.F. or F.D./RD account (not Current Account) in their own name and
operate the same.
- No Cheque book should be issued to the minor customer. (IAD Cir 61/07 dtd. 23.11.07)
Term Deposits
Opening of Term deposits including R.D. can be allowed for any amount.
No advance can be given against such deposits.
IMPORTANT
Mental Health Act, 1987. The Act deals with persons who are mentally ill (persons in need of
treatment by reason of any mental disorder other than mental retardation). Under the Act,
where the Mentally ill person is incapable of taking care of himself, the Distt. Court or where a

direction has been issued under the Act, the Collector of the Distt may appoint any suitable person to
General Banking Laws: Page 46 of 116
be his guardian.
National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and
Multiple Disabilities Act, 1999. (Act deals with persons suffering from disabilities like Autism,
Cerebral Palsy, Mental Retardation and Multiple Disabilities). Under the Act, a parent of a
person with disability or his relative, defined under the Act, may make an application to the local
level committee for appointment of any person of his choice to act as a guardian of persons with
disability. Under the Act, Local Level Committees can be constituted and they are also empowered
to appoint guardian under the Act.
Where guardian of a minor or major person, (suffering from Mental illness And persons,
suffering from disabilities like Autism, Cerebral Palsy, Mental Retardation and Multiple
Disabilities or any existing account holder subsequently acquiring these disabilities), duly
appointed by the competent authority /court under Mental Health Act, 1987 or under The National
Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Mental
Disability Act, 1999 approaches the branch for opening/continuing to operate the account of such
person, such accounts (savings/term deposits and recurring deposit accounts only) may be
opened/allowed to be operated by the guardian appointed under the aforesaid Acts. The
operational guidelines in such cases will be same like existing guidelines, as are applicable for
accounts opened in the name of minor under guardianship.
The guardianship will continue (even after attaining the age of 18 years, in case of minor) as
long as the disability continues.
The guardian, appointed under any of the above Acts, will be asked to furnish once in a year, a
certificate from the appointing Authority that he/she continues to be guardian of such person/s
and has not been removed from the guardianship. Guardian so appointed will be asked to give
affidavit to the Bank that in case his appointment as guardian has been cancelled / elapsed /
withdrawn by the Competent Authority, he will immediately bring this fact to the notice of Bank
and also shall indemnify the Bank in case of any loss to the Ward on account of his not bringing
this fact to the notice of Bank.
No current account will be opened in the name or on behalf of such persons and in no case such
person will be allowed an overdraft.
In case the ward, whose guardian has been appointed under the above two Acts, is minor,
nominee in the account can be appointed by such guardian in terms of the nomination rules.
However, where the ward is major, Guardian will not be permitted to make nomination in
the account. Nomination made during minority of the ward will cease to be operative after the
attainment of age of majority by the ward.
On the death of the guardian, no operation in the account will be allowed unless the new
guardian is appointed by the Competent Authority under the Act.
On the death of the ward, the matter will be dealt as a claim case.
Locker facility will not be allowed to the guardian appointed under the above
General Banking Laws: Page 47 of 116
Acts. ILLITERATE PERSONS
i) Capacity to Contract
Persons who cannot read and write are called illiterates.
Like others, illiterate persons are fully competent to enter into contracts.

However, they can avoid the contract if they can prove that their consent was obtained by
misrepresenting the facts due to their incapability to read. Banks, therefore, must create
sufficient evidence to prove that the illiterate understood the terms and conditions beyond
doubt.
ii) Type of Account
No Current Account should be normally opened in the name of illiterate persons as it would be
difficult to identify his LTI in cheque issued by him.
- SF and Term Deposit Accounts can be opened with condition that withdrawals will be allowed
only in person.
iii) Joint Account
Joint Accounts in the name of two illiterates can be opened after observing usual safeguards.
iv) Operation
No cheque book is to be issued. Withdrawal should be allowed only in person after proper
identification. The passing official will verify in the withdrawal form under his signature to the
effect that the left hand thumb impressions affixed in his presence and the amount withdrawn is
orally confirmed, by the (illiterate) depositor.
Where the illiterate person gives a power of attorney in his account, the mandate should be
attested by a Notary public.
BLIND PERSONS
i) Risks in Opening Account in the Name of Blind Persons
Blind persons are fully competent to enter into contract and there is no legal bar in opening
accounts in their name or getting loan documents executed by them.
- However, in case of dispute they can always argue that the terms and conditions of the account and
the amount paid were misrepresented to them. They may dispute their signature at a later date.
The courts may also believe this on account of their blindness. For this reason banks should be
extra careful while opening and allowing operations in the accounts of blind persons.
ii) Type of Accounts
Current A/c.: Current account should not be opened in the name of a blind person.
Joint Accounts
- Joint Account in the name of two blind persons must not be opened.
iii) Opening and Operation of Account
A respectable person, who should certify that the contents are explained to the blind person in
General Banking Laws: Page 48 of 116
his presence, must witness the signature in the account opening form.
Photographs should be obtained and be used in the same way as is done in case of illiterates.
The visually impaired customer may be allowed to use cheque book provided the Incumbent
Incharge is satisfied that the account holder is capable of conducting his / her account
satisfactorily. Where cheque book / cheque leaves is / are issued, the same should be marked
with ordinary crossing and the word bearer substituted with order so that the payees could
be traced.
Even cheque book / cheque leaves can be issued to the blind customers who put thumb
impression or cannot sign consistently, for certain specified purposes, such as payment of loan
instalments, utility bill payment. In such cases at the time of issuance of cheques, the customer
will also affix his / her left / right thumb impression, as the case may be, on each cheque leaf
and the same should be verified by the Bank

s authorized official under his / her full signature,


with date and GBPA / specific PA number. If the cheque is for loan payment all the details with

(post) date must be filled in at the time of issue. For utility bill payment amount and date will be
filled in at the time of actual issue. But all the cheques will be ordinarily crossed.
The blind person must come in person to withdraw cash.
Cash payments and cash deposits should be made in presence of a witness who should be
preferably a customer of the bank.
The account opening form, specimen signature sheet, pass book, cheque book must be branded
with

Blind Person

so that caution is exercised while transacting with the blind customers.


Considering the fact that the blind persons / persons with low vision are legally competent
to contract, lockers facility can be allowed to such persons also. Locker facility may be
allowed jointly with a person without any visual impairment known / related to him / her (the
visually impaired person intending to take locker on lease) and operation of such locker shall be
permitted jointly. All the documents relating to leasing of locker shall be executed jointly. If the
locker facility is allowed in the single name, operation of such locker shall be permitted in the
presence of one literate witness with no visual impairment who shall be designated by the blind
lessee at the time of execution of Rent Deed Memorandum. The lessee (the visually impaired
person) may designate maximum three witnesses at the time of executing the Rent Deed
Memorandum. The signature of the witness shall also be obtained along with the signature /
thumb impression of the visually impaired lessee at the time of operation of locker. However, it
should be ensured that the designated witness(es) is / are customer(s) of the branch and whose
identification and address verification has been conducted by applying full KYC procedures.
MARRIED WOMEN
The legal status of a married woman is regulated by Hindu Succession Act, 1956 Married
womens property Act, 1874 and Indian Succession Act, 1925.
Competent to contract: A married woman can enter into a valid agreement in her own
name and therefore, the bank can open account in her name and give loans against
documents executed by her.
She possesses legal entity separate from her husband. Her marriage does not affect any
right of her separate property.
General Banking Laws: Page 49 of 116
Sec. 14 of Hindu Succession Act provides that property of a Hindu female is her absolute
property.
Change of name after marriage: While a lady maintaining account in maiden name
approaches for a change of name in the deposit account consequent to her marriage, the
bank should obtain a letter from her asking for the change and evidence like marriage
invitation card/marriage certificate/newspaper publication about the marriage. (In case it
is not available, a respectable person/ introducer should confirm about the marriage).
Fresh specimen signature will be obtained and the title of the account will be changed as:
Mrs. LM Gupta nee Miss LM Aggarwal.
There is no need to close the existing account and open a new one.
Cheques in her maiden name can be collected in the account after proper endorsement.
Cheques issued prior to the change of name can be paid in the account.
The letter requesting the change of name should expressly authorize bank to collect
cheques in her maiden name and also to pay cheques signed in her maiden name.
.
i) Liability in case of Overdraft/Loan
A husband cannot be made liable for payment of loans taken by his wife except when (i)
the debt is incurred for the purpose of necessities suited to her life, and (ii) the loan is
given with his consent.
For this reason banks prefer to take guarantee of husband while sanctioning loans to a
lady.
As per Sec. 56 of CPC, a woman cannot be arrested or imprisoned for non-payment of
judgement debt.
PURDANASHIN LADIES
A purdanashin lady is a woman who remains in complete seclusion and does not transact with people
other than her family members.
i) Undue Influence
A purdanashin can avoid a contract if there is undue influence on her for signing the contract.
Where a purdanashin complains of undue influence the onus of proving the absence of undue
influence lies on the other party to the contract.
ii) Type of Account
No account should be opened in the name of a purdanashin lady who is an illiterate.
No Current Account should normally be opened in the name of purdanashin lady except in
exceptional cases (with prior approval from Circle Office).
The signature of the purdanashin lady in the account opening form should be attested by her
husband and in case of unmarried, by her natural guardian.
The cheques/withdrawal slips executed by her should be attested by her husband or two
account holders of the bank.
Photograph of the purdanashin must be obtained while opening account in her name. TRUST
ACCOUNT
General Banking Laws: Page 50 of 116

DEFINITION AND MEANING OF TRUST
Trust is defined in Sec.3 of Indian Trust Act 1882.

Trust is an obligation, annexed to the ownership of property and arising out of a confidence
reposed in and accepted by the owner or declared and accepted by him for the benefit of
another or of another and the owner.
In simple words, a trust is said to be created when the ownership of a property is transferred
to, somebody with an obligation to hold and manage the same for the benefit of another.
Usually there are three parties to a trust viz.
The person who transfers the property and reposes confidence is called the Author of the trust
or Creator of the trust or Donor or Settler.
The transferee of the property on whom confidence or trust is reposed is called the trustee.
The person for whose benefit the trust is formed, is called beneficiary or donee.
Trust Deed is the document through which a trust is formed. It records the right and
obligations of the trustees. A trust deed should be registered.
APPOINTMENT OF TRUSTEES
The trust deed generally mentions the names of the trustees. Alternatively it may name a
person who will appoint trustees.
It may provide that new trustees can be appointed by the surviving trustees/legal
representative of surviving trustee. In this case, the appointment is done by executing a

deed of appointment

by the outgoing and incoming trustees.


The trust deed may provide that new trustees will be appointed by Court.
OPENING OF TRUST ACCOUNT Documents Required
(I) Trust deed (in case of private trusts) or Certificate from Charity Commissioner (in case of
public trust) or Order of Court (in case there is no trust deed), (ii) Latest deed of appointment,
(iii) Certified copy of

resolution by all trustees

regarding opening and conduct of bank


account, (iv) List of all trustees.
SCRUTINY OF TRUST DEED AND OPERATION OF ACCOUNT
Joint Signatures
Unless the trust deed provided otherwise, all trustees must join in operating the account
(Sec. 48 of Indian Trust Act).
All trustees can sign a resolution and instruct bank to allow one or more of them to
operate the account. In the absence of such instruction all trustees must join in signing
the cheque.
No Delegation
Unless the trust deed provides otherwise, trustee(s) cannot delegate his/their powers.
General Banking Laws: Page 51 of 116
(Sec.47).
Borrowing Power
Unless the trust deed gives power to borrow money, trustees cannot borrow or overdraw
account. To be on safe side the bank should ask for personal guarantee of trustees, while
giving advance.
Death of Trustee
If the sole trustee dies, the operation in the account should be stopped. Cheques signed by
him are not to be paid.
If one of the trustees dies/retires the surviving trustees can operate the account if the trust
deed provides of. For example, if the trust deed provides that minimum two trustees can
operate the accounts, the operation of the account need not be stopped as long as the number
of surviving trustees is two or more.

Insolvency
Even if a person is declared insolvent, he can continue to be the trustee.
The trust property cannot be attached to pay the dues of a trustee who is declared insolvent.
BREACH OF TRUST
In case of a trust account, the bank must take all possible precautions to protect the interest of
the beneficiaries of the trust. So far as the use of trust money is concerned, bank

s
responsibility is as good as that of trustee. In case there is misuse of money within his
knowledge, he will be liable for

breach of trust and will be required to compensate the


beneficiary for any loss.
Breach of Trust can be established where bank allows transfer of funds form trust account
to the personal account of the trustee or where a cheque favouring the trust is collected in the
personal account of the trustee.
BANK IS NOT BOUND BY TRUST
It is an accepted practice that the bank should guard against misappropriation in all accounts
where there are circumstances to indicate that it is a trust. However there is no responsibility
on the part of a bank to enquire as to whether an account is a trust account or not. A bank is
not bound by trust, if it is not within his knowledge.
JOINT HINDU FAMILY
Joint Hindu Family or Hindu Undivided Family (HUF) is governed by Hindu Law except to the
extent altered by certain acts.
Two Schools of Hindu Law
There are two schools of Hindu Law: (I) Mitakshara, which prevails throughout India except
West Bengal and (ii) Dayabhaga which prevails in Bengal.
i) Mitakshara Law
Under Mitakshara school of Hindu law all male member have a right on the joint family
General Banking Laws: Page 52 of 116
property by birth (even from the time of conception) which is called as

Doctrine of ownership
by birth

. The HUF consists of one common living ancestor and his male descendents upto three
generations next to him. The HUF is also known as

COPARCENERY and the male members


are called co-parceners. All co-parceners have equal right on the property of HUF.
- As per

The Hindu Succession (Amendment) Act 2005

which came into force w.e.f.


09.09.2005 the daughters have been given equal rights as sons.
ii) Dayabhaga School of Law
They treat father as the absolute owner of property and sons do not acquire any interest in
property by birth.
Karta and Co-parceners
The eldest male member of the HUF is called Karta and other male members are called co-
parceners.
As per law, Karta has power to incur debt, execute document, pledge securities on behalf of the
family for the purpose of family business for the legal necessity of the family. His liability is
unlimited while that of the co-parceners is limited to the shares in the joint family estate.
Accordingly the consent of co-parceners is not required.
While giving loan/overdraft to a HUF the bank should be extra careful because the banks
prefer to obtain loan documents executed by all major male members of the family or with
their written consent by the head of the family.
Further the liability of co-parceners is limited only to the extent of their share in HUF
property. However, if the documents are executed by all co-parceners they become personally
liable.
Where there is a minor co-parcener, his guardian should sign the document on his behalf.
Upon attaining majority, express consent should be obtained form him.
Ancestral Business
The HUF carries on the ancestral business and possesses ancestral properties.
The bank must verify the purpose for which the loan is availed. In case the Karta borrows for
any new business, the co-parceners, unless they have joined in executing document, are not
liable for the debt.
But in case of a HUF consisting of father and sons, the new business started by father is
deemed to be ancestral and co-parceners can be made liable to the extent of their shares in
family property. (Achut t a Narayanayya Vs. Rat naj i )
Operation of Account
A co-parcener, even though not permitted to operate the account, can countermand the
payment of a cheque.
The Karta can give a mandate in favour of a major co-parcener to operate the account.
Mandate in favour of a third party to operate the account is not acceptable unless all co-
parceners execute an indemnity.
For opening a HUF account, apart from the accounting opening form, a half yearly declaration
letter regarding change in family on PNB 36 signed by KARTA is obtained.
General Banking Laws: Page 53 of 116
CLUBS, COMMITTEES, ASSOCIATIONS REGISTERED CLUBS/ASSOCIATIONS
Clubs can be registered or unregistered.
A club can be registered under (I) The Societies Registration Act, 1860 or (ii) Companies Act,
1956 (Sec.25 non-profit making company)
The Registrar of Societies, after registering the bye-law of the society, issues a Registration
Certificate.
While opening account in the name of a registered association bank should obtain (I) copy of
certificate of Registration (ii) copy of Bye-laws (i.e. Rules, Regulations), (iii) a certified copy
of resolution of the Executive/Managing/Governing Body) to open account and giving names
of office bearers to operate account. (This should be certified by Chairman of the meeting of
that body.)

UNREGISTERED ASSOCIATIONS
Examples of unregistered associations are: (I) some schools, (ii) some clubs, (iii) other
associations not registered.
Should be opened only in case of very reliable persons.
All members of managing committee/governing body should sign the resolution as per the
rules.
In no case overdraft should be given in such accounts.
No loan should be sanctioned to an unregistered club.
OPERATION OF ACCOUNT Payment of cheques
Cheques signed by an authorized signatory can be paid even after his death, insolvency or
retirement.
Collection of Cheques
Cheques favouring the club/association should not be collected in the personal account of its
office bearers / employees as bank can be held guilty of conversion.
Cheques drawn by the club in favour of third parties should not be collected in the
personal account of office bearers/employees for the above mentioned reason.
CO-OPERATIVE SOCIETIES
A co-operative society is an association registered under the provisions of the Co- operative
Societies Act of the State concerned. Therefore, all formalities required for opening the
account of a registered association must be complied with by the bank.
Generally co- operative societies are not permitted to open accounts in banks other than co-
operative banks unless specifically permitted by Registrar of Co- operative Societies. Banks
should ask for this permission before opening the account.
LOCAL AUTHORITIES
Examples of local authorities are: (I) Municipal Corporation, (ii) Zilla Boards, (iii) Notified
Area Council, etc.
General Banking Laws: Page 54 of 116
These authorities are established under separate statutes of State/Central legislature.
Bank must obtain copy of such statute and find out the provisions as to who would authorize
opening bank account and who can be authorized to operate the account.
Generally, these authorities have a Managing Committee; with a President, Vice-President &
Treasurer, and the Treasurer is given powers to open and operate bank account.
No overdraft/advance should be given to such authorities, except to the extent and for the
purpose permitted by the statute.
GOVERNMENT DEPARTMENTS
Obtain copy of the government Notification/order authorizing the concerned person to open
and operate account.
Obtain copy of the letter signed by the Head of the Department, authorizing the executive to
open and operate bank account.
Also obtain certified copy of rules and regulations framed by the department for opening and
operation of such account.
PROVIDENT FUNDS
Accounts in the name of provident funds are similar to the account opened in the name of
trusts.
Documents to be obtained are: (i) copy of Trust Deed, (ii) copy of Rules of the Provident
Fund, (iii) Resolution by trustees, and (iv) other documents required to open a trust account.
JOINT ACCOUNT MEANING
Joint account means an account in the name of two or more persons. These are governed under
Section 45 of Indian Contract Act.
The balance in a joint account is a joint property and can be disposed off as per the
instructions given by all the depositors.
All the depositors must join in signing the account opening form and the authority letter for
operation of the account.
DIFFERENT TYPES OF OPERATION
The different types of authorities which can be given to a bank for operating a joint account
are the following: (i) By all depositors jointly, (ii) By both or survivor, (iii) By either or
survivor, (iv) By former or survivor, and (v) By any one/two persons named by them.
Meaning of Either or Survivor
In SB or CA account it means: (I) account can be operated by any one of the depositors, (ii)
On the death of one of the depositors the survivor can operate the account and the account can
be closed under both signatures. (Reasons: Authority to operate does not include authority to
close the account).
In term deposit account this notation means the following (I) On maturity, the proceeds is
payable to either or survivor, (ii) it does not by itself mean that either of them or the survivor can
foreclose the deposit or can avail a loan against the deposit under his single signature unless
specifically provided in the account opening form.
General Banking Laws: Page 55 of 116
The survivor can be allowed to foreclose the deposit/avail loan against it only if an
undertaking to this effect was obtained from all the depositors which is a part of the AOF
itself.
Style of operations if the account is in the name of more than two persons
It can be (a) Jointly by all depositors, (ii) Jointly by all or survivor, (iii) Any one or survivors
and (iv) First named or survivors.
SOME IMPORTANT POINTS ON OPERATION OF A JOINT ACCOUNT
i) Mandate for operation of Account : A mandate/authority to allow any one of the depositors
or a third party to operate the account must be signed by all joint depositors.
ii) Delegatee can not delegate : A person who is authorised to operate a joint account can not
give mandate to somebody to operate the account on his behalf. This is based on the
principle an agent has no authority to delegate his powers

.
Revocation of Authority : The mandate/authority given for operation of the account can be
revoked by any one of the joint account holders irrespective of whether he is allowed to
operate the account or not.
iv) Signature on the cheque: cheque should be signed by person(s) authorised to operate the
account. Cheques signed by other depositors should be returned unpaid.
v) Alteration in the cheque : Alteration, if any, in a cheques is to be authenticated by the same
person who has signed the cheque, and or by others who are permitted to operate the
account severally.
vi) Stop payment order : Like revocation of the mandate for operation, a stop payment order for
cheques can be validly given by any one of the depositors, even if he is not permitted to
operate the account. Restoration of operation is possible only when all of them sign.)
DEATH, INSOLVENCY OR LUNACY
After the receipt of the confirmend news of death, or insolvency or lunacy of any one of the
joint depositors, the bank must stop operation in the account. Cheques signed by such
depositor should be returned unpaid.

Accounts operated jointly by all depositors
In the case of a joint account unless there is a contract to the contrary the balance is payable to
jointly to the surviving depositors along with the legal heirs of the deceased depositor.
As such unless there is a contract to pay the balance to

either or survivor

or

former or
survivor or

any one or survivor the bank should pay the balance in a joint account to the
surviving depositors and the legal heirs of the deceased depositor.
Either or Survivor Accounts
If the balance is payable to either or survivor, the bank gets a good discharge by paying the
amount to the survivor.
However, if there is a counter claim from the legal heirs of the deceased, the bank should ask
for a court order/legal representation for the disposal of the balance.
In case of S.F. Account, the name of the deceased should be deleted and account should be
General Banking Laws: Page 56 of 116
treated as belonging to the survivor.
DEATH OF A DEPOSITOR, WHEN THE ACCOUNT IS OVERDRAWN
The operatiion of the account should be stopped.
Any credit given to this account will reduce the liability of the deceased person due to
operation of Clayton

s rule.
No fresh debit should be allowed, as the legal heirs of the deceased depositor can not be made
liable for the same.

INSOLVENCY OF A DEPOSITOR
- The operation of the account should be stopped.
- The payment from the account can be made as per the instruction jointly signed by the solvent
depositors and official receiver of the insolvent. In case of a former or survivor account, the
insolvency of the 2nd party does not affect the operation of the account.
DEVOLUTION OF JOINT LIABILITIES (Sec. 46 of Indian Contract Act)
When two or more persons have incurred a debt in their joint names, they are liable to pay the
debt jointly. In case of death of one or more persons, the debt should be jointly paid by the
surviving persons along with the legal heirs of the deceased. Thus a bank can file a suit in joint
names alone.
Banks like to esatablish individual liability of the joint borrowers in addition to their joint
liability. This is done by obtaining promissory note and other documents with joint and several
liability clause.
Several (individual) liability of each joint depositor helps bank in : (I) filling suit in individual
name(s) for the entire liability, (ii) exercising right of set-off from the credit balance available
in the accounts in individual names.
Number of account holders
There are no restrictions but as per RBI directives, banks should examine purpose, nature of business
handled and other relevant aspects relating to business, finance and other aspects.
PARTNERSHIP FIRM
The law relating to partnership firms is codified in Indian Partnership Act.
U/s 4 of the Act, a partnership is a relationship between two or more persons who agree to
share the profits of business carried on by all or any of them acting for all.The contract
(agreement) may be written or oral. The document containing the written agreement is called

partnership deed.
Since partnership arises out of a contract, persons who are incapable of entering into contract
(i.e. minors, insolvents, alien enemy) can not enter into relationship arrangement with others.
Mutual Agency
The most important characteristic of a contract of partnership is that

the business can be carried


on by all or any of them acting for all

.
It means each partner can act as an agent of all partners (firm) and can bind them by all his acts
General Banking Laws: Page 57 of 116
during the usual course of business.
Thus a partner has a two fold status. He is an agent of all other partners and also the principal to
all of them. ln other words they are mutually agents to each other.
Sec. 18 of the Act provides that, for purpose of the business of the firm, a partner can act as an
agent for all partners.
In fact law or partnership is an extension of law of
agency. Unlimited Liability (Sec.25)
The liability of partners is unlimited. Not only properties of the firm, but the individual
properties of partners are also liable for the satisfaction of the liabilities of the firm.
All partners are jointly and severally liable for all the debts of the firm. Therefore, for realising
its debts given to a partnership firm, a bank can sue a partner individualy or jointly with other
partners.
The principle of unlimited liability is however, subject to provision laid down in Sec.49 of the
Act. As per this Act, where a firm is dissolved the debts of the firm will be first met out of the
property of the firm and surplus, if any, will be utilised for payment of private debts of partners.
Similarly the personal debts of a partner will be paid first out of his personal assets and surplus, if
any, can be utilised in case of need towards the settlement of the debt of the firm.
Minimum and Maximum Number of Partners
The minimum number of partners can be two.
The partnership Act does not provide for any ceiling in the number of partners. However,
section 11 of Companies Act 1956, provides that the number of partners of a firm carrying on
banking business should not exceed 10 and that carrying any other business 20.
For computing this ceiling the following points may be noted:
i) Where one or more companies are partners of a firm, each company, irrespective of its
number of share holders, is treated as one person/partner.
ii) Firms can not become partners of another firm. Where a firm is said to be partner of
another firm, the number of partners in the former are taken into consideration for
computing this ceiling. A Minor admitted for the benefits is not to be counted towards
number of members.
Similarly a Hindu Undivided Family can not become partner of a firm. But the Karta
or any other co-parcener of the HUF can become a partner of any partnership firm in his
individual capacity.
LAW RELATING TO PARTNERSHIP 1) Registration of the Firm
a. It is not compulsory to register a firm. However unregistered firms suffer from certain
handicaps, and these handicaps indirectly compel firms to get themselevs registered.
Effects of Non-registration (Sec.69)
The partners of an unregistered firm can not sue the firm or any partners of the firm for
enforcing rights arising out of a contract or from the partnership Act.
An unregistered firm can not sue third parties to enforce its rights arising out of a contract.
General Banking Laws: Page 58 of 116
Though the rights of non-registered firm are affected,the right of third party to proceed
legally against the firm to enforce its rights arising out of a contract is not affected by the
fact that the firm is unregistered.
b. Procedure for Registration (Sec. 58 and 59)
A partnership firm can get itself registered at any time (even years after its formation) with
Registrar of Firms of the State where the head office of the firm is located.
For registration, the partners have to file an application giving details of the firm along with
fees. The Registrar records these particulars in the

Register of Firm maintained in his


office and issues a

Certificate of Registration

. Registration is effective from the date when


Registrar makes the entry in the register.
c. Banks Preference
Banks prefer to deal with registered firms particularly while sanctioning credit facilities,
Reasons: (i) It is easy to verify the particulars about the firm with the Registrar of Firms, (ii)
A registered firm is in a better position to pay its debts as it can sue outsiders to recover its
debts.
2) Minor as Partner
A minor being incompetent to contract can not become a partner in a partnership firm.
However, he can be admitted to the benefit of an already existing partnership with the consent
of all partners (Sec.30 of Indian Partnership Act).
The liability of a minor admitted to the benefit of partnership is limited to his share in the firm.
His personal assets nor he personally can be held liable for the debt of the firm.
Though a minor can not be declared insolvent, his share in a firm which is declared invsolvent
vests in Official Receiver/Official Assigner.
On attaining majority a minor can opt-out of the partnership.
He must exercise this option within six months form date of his attaining majority or from the
date when he first knew about his interest in the partnership, whichever date is later.
This option is exercised by giving a public notice [Public Notice is given by (i) giving notice to
Registrar of Firms (ii) publication in at least one vernacular newspaper circulation in the district
where the firm has principal place of business].
In case he fails to give a public notice, within the stipulated time limit, he is deemed to have
become a partner and is personally liable for all liabilities of the firm from the date of his
admission to the benefit of partnership.
3) Right and Liabilities of Partners Act Subordinate to Partnership Deed
The rights, duties and liability of partners of a firm are determined as per the agreement
between them (as recorded in the partnership deed).
Where there is no agreement or the agreement is silent, the rights of partners are determined as
per the provisions of the Partnership Act.
Therefore provisions of the Act are subordinate to any contract between partners and will apply
only if the partnership deed is silent as to particular right and duty of partners.
Therefore for finding out the right of a partner, the partnership deed is to be
General Banking Laws: Page 59 of 116
referred. Essential Features of a Partnership Deed:
Should bear signatures of all partners.
Should be adequately stamped as per Stamp Act.
OPERATION OF ACCOUNT
1) Operation only by Authorised Persons: Only partners/person authorized by the partnership
deed or separate authority letter signed by all partners should be allowed to operate the
account. Cheque signed by other partners can be returned unpaid. In case the authority is not
given to any particular partner/s to operate the account, all partners will jointly operate the
account. No operation is to be allowed by the partner in whose favour authority is not
available.
2) A partner authorized to operate account cannot delegate his authority to another person.
3) Any partner, whether authorized to operate account or not can stop payment of a cheque.
4) Revocation of mandate: Any partner (whether allowed to operate the account or not) can
revoke/cancel authority given for operation of account. However, the authority cancelled, can
be reinstated only under the signature of all partners.
5) Death/Insolvency/Retirement of Partners: A firm gets automatically dissolved on the death,
insolvency or retirement of one or more than one partners unless there is a specific provision
in the partnership deed to the effect that the remaining partners, would continue the
partnership in case of such eventuality. No public notice is required.
- Cheques signed by a partner, who is adjudged insolvent, should not be paid unless it is
confirmed by other solvent partners.
On the death/insolvency/retirement of a partner the operation of the account should be
stopped.
If the account has credit balance, the balance should be given to all surviving partners under
their joint signatures or anybody authorized by them.
In case there is debit balance (i.e over draft/cash credit account) no further debit or credit
should be allowed in order to keep the deceased/insolvent/retired partner

s estate liable for the


debt.
Lunacy of a Partner: Cheque signed by other partners can be paid even after the lunacy of a
partner. However cheque signed by the lunatic should be returned unpaid.
Illiterate Partner: A partner who is illiterate should not be allowed to operate the
account. DISSOLUTION OF A FIRM
A firm is said to be dissolved when the partnership relation between the partners comes to an
end.

1) Effect of Dissolution
Each partner ceases to have authority (i.e. agent), to bind the firm.
All partners at the time of dissolution remain jointly and severally liable for all dues of the
firm outstanding on the date of dissolution.
General Banking Laws: Page 60 of 116
A partner retiring from partnership will continue to be liable to third parties for any act
done after his retirement unless a public notice is given regarding the retirement.
RECONSTITUTION
In the case the partnership deed provides for the continuation of the firm by the remaining
partners and these partners opt for the same, then the firm is said to be re-constituted.
Action to be taken by Bank in case of Reconstitution
Where the bank wants to keep the outgoing partners liable, it should not recognize
reconstitution & following steps are required to be taken:
Give notice to the retiring partner/legal heirs of deceased partner to the effect that they
would not be released of their liability.
The account should be frozen under notice to all partners.
No credit/debit should be allowed to avoid operation of rule laid down in Clayton

s case.
In case the bank recognizes the reconstitution it should ask for:
i) Consent letter from guarantor.
ii) Consent form mortgagors to the effect that the mortgage will continue to be available for
the drawings of the reconstituted firm.
iii) Confirmation of balance by all partners.
In case of reconstitution of a firm due to the admission of a partner, a letter from the new
partner should be taken to the effect that he undertakes the liability of the firm incurred
before his admission.
FORMATION OF A NEW FIRM BY THE REMAINING PARTNERS
Where the partnership deed does not provide for reconstitution, the firm cannot be
reconstituted. It stands dissolved on the death/ insolvency/retirement of a partner(s).
In such a case if the remaining partners decide to continue the business, it would be
considered as a new partnership.
All procedure applicable to advance given to a new partnership should be done afresh for this
account.

JOINT STOCK COMPANIES
The Companies Act, 1956 recognizes a stock company as a legal person. It is a separate legal entity.
TYPES OF COMPANIES
Companies limited by shares can be classified into three categories viz., (I) Private Ltd. Co.
(ii) Public Ltd. Co. and (iii) Government Company.
A Private Ltd. Co is a company which by its articles (I) restricts transfer of its shares (ii)
prohibits itself from inviting subscription of shares/debentures from public, (iii) limits the
number of its members to 50.
A Public Ltd. Co does not have such restrictions.
A Government Co. is a company where not less than 51% of the share capital is held by
government (central/state/both).
General Banking Laws: Page 61 of 116
Company Limited by the guarantee:
A company limited by guarantee is a registered company having the liability of its members limited
by its memorandum of association to such amount as the members may respectively undertake to
pay if necessary on liquidation of the company.
DIFFERENCE BETWEEN A PVT. LTD. CO. AND A PUBLIC LTD. CO.

Points of Difference Private Ltd. Co. Public Ltd. Co.
i) Minimum number of shareholders 2 7
ii) Maximum number of shareholders 50 No limit
iii) Transfer of share Restricted Freely
Transferable
iv) Invitation to public for shares & debentures
and fixed deposits
Prohibited Permitted
v) Certificate of commencement of Business Not required Required
vi) Minimum Directors 2 3
vii) Minimum paid up capital Rs. 1 lac Rs. 5 lac
DOCUMENTS RELATING TO COMPANY ACCOUNTS
i) Certificate of Incorporation is issued by Registrar of Companies. This gives the conclusive
proof that all formalities involved in formation of a company are duly complied with.
ii) Memorandum of Association (also known as charter of the company or document of
outdoor management)
Specifies relationship of the company with outside world.
The memorandum of association of every company contains the following six clauses (I) Name
clause (which gives the name of the company), (ii) Place clause (gives address of the registered
office of the company), (iii) Objects clause (gives the activities the company can pursue), (iv)
Liability clause (gives that the liability of shareholders is limited), (v) Capital clause (gives the
maximum capital the company can issue/authorized capital), (vi) Association clause (gives the
consent of the promoters under their signatures that they are desirous of forming a company).
- The object clause usually sets out the powers which the company can exercise for achieving its
objectives. A loan given for an activity which is not stated in objective clause is unauthorized
(ultravires) and cannot be recovered from the company. For this reason memorandum of
association is also called charter of the company.
iii) Articles of Association (Document of indoor management)
Like Memorandum of association it is also a public document.
It contains the rules and regulations for internal management of the company like the powers of
Board of Directors, Rules for conducting meetings, use of common seal, use of borrowing
power etc.
The Articles are subordinated to memorandum.
A public limited company may opt not to register article of association. In that case the rules
and regulations given in Table A in first schedule of the Companies Act will be taken as the
General Banking Laws: Page 62 of 116
article of association of the company.
iv) Certificate of Commencement of Business
Required only in case of public limited companies. Omnibus Resolution
A resolution (passed by Board) authorizing to open account in the name of the company with
any bank at any place is called Omnibus resolution.
An omnibus resolution can be accepted for opening current account. No credit/overdraft facility
is sanctioned in the account, based on such resolution.
OPERATION OF COMPANY ACCOUNT
Cheque signed by an authorized person can be paid even after his death or insolvency.
Cheques payable to a limited company should not be collected in personal account of any
director, employee/ official of the payee company.
Cheques issued by a company in favour of a third party and endorsed by the payee in favour of
a director/employee of the company should not be collected without proper enquiry.
Insolvency
A company cannot be declared insolvent. Where a company cannot pay its debts it can be
liquidated/wound up.
Where one of the directors becomes insolvent, it does not affect operation of account. Cheques
signed by him can be paid. However, after insolvency he cannot act as director.
If one of the two directors of a Private. Ltd. Co. is adjudged insolvent, the operation in the
company

s account should be stopped till a fresh director is appointed.


NON-PROFIT MAKING COMPANY
A limited company need not add the word limited to its name if it is a non-profit making
association formed for the promotion of art, literature, religion and licensed by Central
Government under Sec. 25 of Companies Act, 1956.
The word limited in the name of a company indicate that the liability of a share holder is
limited to the extent of the face value of shares held by him.
ACCOUNTS TO COLLECT SUBSCRIPTION
When a newly formed public limited company wants of open a bank account for the purpose of
collection of subscription money for its shares/debentures, banks should note the following
points.
It is the responsibility of banker to ensure that the money is not withdrawn/utilized till the
company obtains the Certificate of commencement of Business.
For opening subscription account the bank, therefore, should not insist upon

Certificate of
Commencement of Business

.
No cheque book can be issued in such account.
No drawal can be allowed until the company obtains certificate to commence business.
However, bank can transfer the amount or part thereof for investing in short term
deposits. WINDING UP OF COMPANY
General Banking Laws: Page 63 of 116
Winding up or Liquidation is the process by which a company is dissolved.
Winding up can be (I) voluntary, either by shareholders or by creditors (ii) compulsory by
Court, or (iii) through Court supervision.,
On the appointment of a liquidator, all the powers of Board of Directors cease to operate except
when it is otherwise permitted in general body meeting resolution.
In case of death/ resignation of the liquidator the company in general body meeting appoints the
next liquidator.
Order of payment on debts
In case of winding up, the debts of the company are paid in the following order (I) Workmen
dues, (ii) Secured Creditors, (iii) Cost and charges of winding up, (iv) Preferential debts (taxes
etc.) (v) Floating charges, (vi) Unsecured Creditors.
The unsecured Creditors are paid pari passu their claim.
DIFFERENCE BETWEEN PARTNERSHIP AND A COMPANY
PARTNERSHIP COMPANY
A partnership firm is the sum total of persons
(minimum 2 and maximum 20) who have come
together to share the profits of the business carried
on by them or any of them. It does not have a
separate legal entity.
The company has a separate legal entity. It
needs to be incorporated. A public company may
have as many members as it desires subject to a
minimum of 7 members. A private company can

t
have more than 50 members and less than 2.
Liability of partners is unlimited.
Liability of shareholders of a limited company is
limited to the extent of unpaid shares or unpaid
amount guaranteed by the shareholders.
Property of the firm belongs to the partners and
they are collectively entitled to it.
In case of a company the property belongs to
the company and not to its shareholders.
A partner cannot transfer his shares in a
partnership firm without the consent of all other
partners.
Shares may be transferred without the
permission of the other members due to the
absence of provision to contrary in the articles of
associations of the company.
On the death of a partner, the partnership is
dissolved unless there is provision to the
contrary in the Deed of Partnership.
On the death of the shareholder the companys
existence is not affected.

KNOW YOUR CUSTOMER & PREVENTION OF MONEY LAUNDERING GUIDELINES
OBJECTIVE OF KYC/AML NORMS
The Policy has been framed to develop a strong mechanism for achieving the following objectives:
1. To prevent Bank from being used, intentionally or unintentionally, by criminal elements for
Money Laundering or Terrorist Financing activities. KYC procedures also enable the Bank to
know/understand their customers and their financial dealings better, which in turn helps them
to manage the associated risks prudently.
General Banking Laws: Page 64 of 116
2. To enable the Bank to comply with all the legal and regulatory obligations in respect of KYC
/ AML / CFT measures / Obligation of Bank under PMLA 2002 and to cooperate with
various government bodies dealing with related issues
DEFINITION OF CUSTOMER:-
For the purpose of KYC Policy, a Customer is defined as :
(a) a person or entity that maintains an account and/or has a business relationship with the Bank
and/or receives occasional / regular cross border inward remittances under Money Transfer
Service Scheme (MTSS) and/ or undertakes regular/occasional transaction with regard to
purchase/sale of foreign currency notes / traveller cheques;
(b) one on whose behalf the account is maintained, i.e. the beneficial owner. (Beneficial Owner
means the natural person who ultimately owns or controls a client and or the person on whose
behalf a transaction is being conducted,
and includes a person who exercises ultimate effective control over a juridical person);
(c) beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers,
Chartered Accountants, Solicitors etc. as permitted under the law; and
(d) any person or entity connected with a financial transaction which can pose significant
reputational or other risks to the bank, say, a wire transfer or issue of a high value demand
draft as a single transaction
KYC Policies as per RBI guidelines:
There will be four pillars of KYC policy, as under:
1. Customer Acceptance Policy;
2. Customer Identification Procedures;
3. Monitoring of Transactions; and
4. Risk Management

1. CUSTOMER ACCEPTANCE POLICY defines explicit criteria for acceptance or non-
acceptance of a customer and his / her relationship with the Bank. The broad aspects of the policy
are:
i. Bank will not accept any person / entity barred by law of the land to avail banking
facilities as its customer;
ii. No account should be opened in anonymous / fictitious or benami name (s).
iii. To ensure that new or existing customer

s identity does not match with that of any


person with known criminal background, any banned entity like terrorist
organizations, violators of law etc.
iv. No account should be opened (or existing account continued) where the banks due
diligence relating to identity, and the availability of valid documents are not fulfilled;
v. The bank will ensure to obtain documents and other information in respect of different
categories of customers depending on perceived risk and keeping in mind the
requirements.
vi. Bank will parameterize risk perception of the customer in terms of nature of
business/activity, location of customer and his clients, mode of payments, volume of
General Banking Laws: Page 65 of 116
turnover, social and financial status, etc. to enable categorization of customers into three
types of risk categories viz., Low, Medium and High Risk, based on risk perception
decided on acceptance criteria for each category of customers;
vii. Bank will not make payment of any remittance where the Bank is unable to apply
appropriate customer due diligence measures

3. CUSTOMER IDENTIFICATION PROCEDURE(CIP): The Customer Identification
Procedure will be carried out at the time of:
a) Establishing banking relationship;
b) Carrying out a financial transaction or when the bank has a doubt about the
authenticity/veracity or the adequacy of the previously obtained customer
identification data.
c) When the Bank feels it is necessary to obtain additional information from the existing
customers based on the conduct/behavior of the account.
Identifying the customer and verifying his/her identity by using reliable, independent source
documents, data or information. Besides obtaining of valid proof of address, an independent
verification of address will also to be carried out, by sending Letter of Thanks to the customer
and to the introducer (if required).
The nature of information/documents required would also depend on the type of customer
(individual, corporate etc.). For customers that are natural persons [individuals], the bank to obtain
sufficient identification data to verify the identity of the customer, address/location, and also recent
photograph.
List of Documents required for opening of accounts:
Individuals:
(i) Identity Document: Any of the following documents with authenticated photograph
thereon. [Copy verified from the original will be kept on record with AOF]
1. Passport 2. PAN card 3. Voters Identity Card 4. Driving licence 5. Job card issued by NREGA
duly signed by an officer of the State Government 6. The letter issued by UIDAI containing
details of name, address and Aadhaar number
7 Identity card issued by following authorities (subject to the banks satisfaction)
a. Government/Defence ID card
b. ID cards of reputed Public Sector employers
c. Pension Payment Orders issued by Central/State Govt Departments, PSUs.
d. Photo ID cards issued by Post Offices
e. Photo identity cards issued to bonafide students by a University, approved by the UGC and/or an
Institute approved by All India Council for Technical Education (AICTE).
f. Photo identity issued by any public authority having proper record of issuance of identity proof
which is verifiable from records
g. Ex-Servicemen Card with photograph
h. Bar Council/ Medical Association/ Institute of Chartered Accountants of India/ Institute of Cost
Accountants of India / Institute of Company Secretaries of India, Card with photograph
i. Student Identity Card with photo issued by reputed colleges with validity during course.
j. Defense Dependents Card with photograph.
General Banking Laws: Page 66 of 116
k. Letter from a recognized public authority or public servant verifying the identity and residence of
the customer to the satisfaction of bank.
l. Married woman identity proof with maiden name, if supported with marriage certificate
m. Credit cards with photo together with statement of card, not more than 3 months old.
n. Registered Property document with photo identity
o. Arms License issued by State / Central Government of India.
p. Freedom fighters pass issued by Ministry of Home Affairs, Govt of India with photo.
q. Employee State Insurance Card (ESIC) with photo supported by latest months pay slip..
r. Talati / Patwari (a local govt. official) attestation by way of putting rubber stamp and signature.
Gram Sarpanch / Mukhiya attestation by way of putting rubber stamp and signature [For Small
Accounts]

NOTE: a). If the address on the document submitted for identity proof by the prospective
customer is same as that declared by him/her in the Account Opening Form (AOF), the
document may be accepted as a valid proof of both identity and address.
b) If the address indicated on the document submitted for identity proof differs from the
current address mentioned in the AOF, a separate proof of address should be obtained.

(iii) For Address Proof :
Any of the following latest documents: [Copy verified from the original will be kept on record
with AOF]:
1 Ration Card
2 Electricity Bill
3 Telephone Bill
4 Bank account statement
5 Letter from employer (to the satisfaction of the Bank)
6 Letter from any recognized public authority (to the satisfaction of the Bank)
7 Credit Card Statement #
8. Income/Wealth Tax Assessment Order.
9 Letter from Public Sector employer
10 Letter from any recognized public authority having proper and verifiable record of issuance.
11 Voter ID Card (only if it contains the current address)
12 Pension Payment Orders issued to retired employees by Government Departments/Public Sector
Undertakings, if they contain current address.
13 Copies of Registered Lease & License agreement/Sale Deed/Lease Agreement.
14 Certificate and also proof of residence, incorporating local address as well as permanent address,
issued by the Hostel Warden of the University/Institute, where the student resides, duly
countersigned by the Registrar/Principal/Dean of Student Welfare. Such accounts shall however, be
required to be closed on completion of education/leaving the University/Institute provided the
constituent does not give any other acceptable proof of residence to the Bank.
15 For students residing with relatives, address proof of relatives, along with their identity proof, can
also be accepted provided declaration is given by the relative that the student is related to him/her
and is staying with him/her.
16 In respect of officials of Central/State Governments and Public Sector undertakings, who are low
risk customers for Bank, Branch Heads may verify the photo/identity and confirm residential address
of such officials from independently verifiable sources, to their satisfaction, and permit opening of
General Banking Laws: Page 67 of 116
accounts. This facility is extended only to the Gazetted officers of Central/State Government and
Senior Management and above functionaries of Public Sector Undertakings.
17 Latest telephone bills from any telephone service providers and mobile service providers not more
than 2 month old, postpaid.
18 Consumer gas connection card/book/Pipe gas bill
19 Certificate from ward/equivalent rank officer, maintaining election roll certifying address.
20 Post Office Savings Pass Book
21 Domicile Certificate with communication address and photograph
22 Certificate by Village Extension Officer (VEO) / Village Head or equal or higher rank officer.
Branch to confirm the authenticity of the certificate.
23 Court divorce order Marriage annulment order issued by Court
24 A Rent Agreement indicating the address of the customer duly registered with State Government
or similar registration authority may also be accepted as a proof of address.
25 The letter issued by UIDAI containing details of name, address and Aadhaar number. In case the
address provided by the account is the same as that of Aadhaar letter, it may be accepted as a proof of
both identity and address.
# Not more than 3 months old.

Accounts of Proprietorship concerns:
In addition to KYC documents of the Proprietor, any two of the following in the name of the
firm:
1. Registration Certificate (in the case of registered concern);
2. Certificate/licence issued by the Municipal authorities under Shop & Establishment Act;
3. Sales and Income Tax Returns
4. CST/VAT Certificate
5. Certificate/registration document issued by Sales Tax/Service Tax/Professional Tax
authorities
6. Licence issued by the Registering authority like Certificate of Practice issued by Institute of
Chartered Accountants of India, Institute of Cost Accountants of India, Institute of Company
Secretaries of India, Indian Medical Council, Food & Drug Control Authorities,
registration/licensing document issued in the name of the proprietary concern by the Central
Government or State Government Authority/Department, etc.
7. IEC (Importer Exporter Code) issued to the proprietary concern by the office of DGFT, etc.,
as an identity document for opening of the Bank account etc.
8. The complete Income Tax Return (not just the acknowledgement) in the name of the sole
proprietor where the firms income is reflected duly authenticated/acknowledged by the Income
Tax Authorities.
9. Utility bills such as electricity, water and landline telephon

Accounts of Partnership firms:
In addition to KYC documents of all partners/ authorized persons of the concern, the following
documents be obtained:
1. Registration Certificate, if registered.
2. Partnership Deed.
General Banking Laws: Page 68 of 116
3. Power of Attorney granted to a partner or an employee of the firm to transact the business on
its behalf.
4. Any officially valid documents identifying the partners and the persons holding the Power of
Attorney and their addresses.
5. Telephone bill in the names of the firm/ partners.
6. PAN Allotment letter/GIR No./Form 60/61.
7. Names & Address of the Partners/Authorised Signatories and Recent Passport Photographs
duly self attested.

Accounts of trusts/clubs/ Societies/Associations/foundations
In addition to KYC documents of the Managing Trustees/Founders/Managers/ Directors and
their addresses, the following documents of Trust/ Club/ Society/Association are to be obtained:
1. Certificate of Registration, if registered
2. Trust Deed
3. Copy of Bye Laws
4. Resolution of the Managing Body of Trust/Club/Society/Association/Foundation
5. Power of Attorney to transact business on its behalf.
6. Any officially valid documents identifying the trustees, settlors, beneficiaries and those
persons holding the Power of Attorney, founders/ managers/directors and their addresses and
their addresses.
7. Telephone Bill in the name of the Trust/Club/Society/Association
8. PAN allotment letter/GIR No./Form 60/61
9. Names & Addresses of the Trustees/Managing Committee Members/Authorised signatories
10. Recent Passport Photographs of Managing Trustees/Members/Directors duly self attested.
Accounts of Companies
In addition to KYC documents of the Directors of the company, the following documents
should be obtained
1. Certificate of Incorporation
2. Certificate of Commencement of Business (in case of Public Ltd Co.)
3. Memorandum & Articles of Association duly certified by a Director/Secretary as true copy.
4. A copy of the latest Audited Balance Sheet & Profit and Loss Account in case of Public Ltd.
Company.
5. Duly certified Resolution passed by its Board of Directors to open an account and
identification of those who have authority to open and operate the account.
6. Power of Attorney granted to its Manager/s, officer/s or employees to transact business on its
behalf.
7. Copy of PAN/Allotment Letter
8. Copy of Telephone Bill

Accounts of Hindu Undivided Family
In addition to KYC documents of Karta and Major Co-parceners, the following documents should be
obtained:
1. Declaration of HUF and its Karta
2. Telephone Bill in the name of the HUF.
3. Recent Passport Photographs duly self attested by Karta and major co-parceners.
4. PAN Allotment letter/GIR No./ Form60/61.
General Banking Laws: Page 69 of 116
5. Names and addresses of Karta and Major Co-parceners.

The customer identification data (including photograph(s) is to be updated after the account is
opened. The periodicity of such updation should not be less than once in five years in case of Low
Risk Customers and not less than once in two years in case of High & Medium Risk Customers.
For legal persons, the Bank is required to obtain the proof of the existence of entity.

CUSTOMER DUE DILIGENCE
a. Basic Due Diligence
This implies collection and verification of identity proof, address proof and photograph to
establish the identity of the customer.

b. Simplified Due Diligence
Any due diligence applied to establish the identity of the customer, which involves measures
less stringent than basic due diligence can be termed as Simplified Due Diligence. [SDD].
SDD can be applied to accounts of people belonging to low income group, both in urban and
rural areas and can also be applied to Small Accounts.

c. Enhanced Due Diligence
Any additional measures undertaken over and above the Basic Due Diligence can be
termed as Enhanced Due Diligence, necessitating additional information on the
customer/transactions. This is applicable for all High Risk Customers.

3. MONITORING OF CUSTOMER TRANSACTIONS:
Monitoring of Customer Transactions involves the following steps:
Policy and procedures should clearly help the parametersing of the type and size of normal
transactions in customers accounts and the quick identification, for further enquiry, of an
abnormal transactions.
Special attention should be paid on all complex, unusually large transactions and suspicious
patterns that indicate violation of the laws of the country threatening its financial well being.
Transactions just below the

threshold

limit that need to be reported to the


regulators/monitoring authority.
Transactions that involve large amounts of cash inconsistent with the customers
normal/expected activity should receive special attention.
Very high account turnover, inconsistent with the balance maintained, income declared, may
indicate washing of illegal funds.
Record should be maintained of all transactions, deposits or withdrawal involving Rs. 10 lac
& above.
Internal monitoring system to report such transactions as Suspicious Transactions.
Based on the AML risk classification of the customers, the transactions in the accounts are to be
monitored in the light of PML guidelines so as to find out any transaction which is inconsistent
with the known profile of the customer. Any suspicious transaction coming to light through
scrutiny of above reports or otherwise, is to be reported as per guidelines.
It is pertinent to mention that while reporting a transaction/activity as suspicious, this fact
should not be disclosed to the party and the transactions in the account must not be stopped.
General Banking Laws: Page 70 of 116
Reporting should not result into any harassment to the customer.

SMALL ACCOUNTS:-
(a) Small account means a saving account where :
i. the aggregate of all credits in a financial year does not exceed Rs. 1,00,000/-;
ii. the aggregate of all withdrawals and transfers in a month does not exceed Rs.10,000/-;
and
iii. the balance any point does not exceed Rs. 50,000/-.
(b) Foreign remittances are not credited to a small account.
(c) Small Accounts shall remain operational initially for a period of twelve months, and
thereafter for a further period of twelve months in case such account holder provides evidence
to the bank of having applied for any of the officially valid documents within twelve months
of the opening of the said account, with the entire relaxation provisions to be reviewed in
respect of the said account after twenty four months
WHAT IS MONEY LAUNDERING
~ Money laundering is the process whereby proceeds of crimes such as drug trafficking,
smuggling, etc. are converted into legitimate money through a series of financial
transactions making it impossible to trace back the origin of funds.
It is the process used by criminals through which they make

dirty money appear

clean
or the profits of criminal activities are made to appear legitimate.
Money laundering refers to washing of the proceeds or profits generated from Drug
trafficking, People smuggling, Arms, antique, gold smuggling, Prostitution rings,
Financial Frauds, Corruption and Illegal sale of wild life products and other specified
predicate offences
MODUS OPERANDI OF MONEY LAUNDERING Money Laundering consists of three
stages:
1. The first stage involves the Placement of proceeds derived from illegal activities the
movement of proceeds, frequently currency, from the scene of the crime to a place, or
into a form, less suspicious and more convenient for the criminal.
2. The second stage is called Layering. It involves the separation of proceeds from illegal
source through the use of complex transactions designed to obscure the audit trail and
hide the proceeds. The criminals frequently use shell corporations, offshore banks or
countries with loose regulation and secrecy laws for this purpose.
3. The third stage is called Integration. It represents the conversion of illegal proceeds
into apparently legitimate business earnings through normal financial or commercial
operations. Integration creates the illusion of a legitimate source for criminally derived
funds and involves techniques as numerous and creative as those used by legitimate
businesses e.g false invoices for goods exported, domestic loan against a foreign deposit,
purchasing of property and co-mingling of money in bank accounts.

General Banking Laws: Page 71 of 116
LEGAL PROVISIONS
The Prevention of Money-laundering Act, 2002 was enacted to prevent money-laundering. The
enactment of this Act had become necessary to implement the political declaration adopted by the
Special Session of the United Nations General Assembly held in June, 1999 which called upon
Member-States to adopt national money-laundering legislation and programme.
Prevention of Money Laundering Act, 2002
The Prevention of Money Laundering Act, 2002 (PMLA 2002) forms the core of the legal
framewor put in place by India to combat money laundering. PMLA 2002 and the Rules notified
there unde came into force with effect from July 1, 2005 . PMLA 2002 defines money laundering
offence and provides for the freezing, seizure and confiscation of the proceeds of crime.

Maintenance & Preservation of records:
In terms of Section 12 of PMLA Act Rule 3, Banks should maintain for at least 10 years from the
date of cessation of transaction between the bank and the customer, all necessary records of
transaction both domestic and international, in addition to cash transaction of Rs. 10 lac and above.

REPORTING UNDER PMLA
The Prevention of Money-laundering Act, 2002, and the rules there-under require every banking
company, financial institution and intermediary, to furnish to FIU-IND information relating to : -
Cash transactions of the value of more than rupees ten lacs or its equivalent in foreign currency;
- Series of cash transactions integrally connected to each other which have been valued below
rupees ten lacs or its equivalent in foreign currency where such series of transactions have taken
place within a month;
- Cash transactions where forged or counterfeit currency notes or bank notes have been used as
genuine or where any forgery of a valuable security or a document has taken place facilitating
the transactions;
- Suspicious transactions whether or not made in cash.
DEFINITION OF SUSPICIOUS TRANSACTION
WHAT CONSTITUTES A SUSPICIOUS TRANSACTION UNDER PMLA 2002?
Suspicions transaction means a transaction whether or not made in cash which, to a person acting
in good faith
a) gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; or
b) appears to be made in circumstances of unusual or unjustified complexity; or
c) appears to have no economic rationale or bona fide purpose; or
d) gives rise to a reasonable ground of suspicion that it may involve financing of the activities
relating to terrorism
Broad categories of reason for suspicion and examples of suspicious transactions for a bank/
intermediary are indicated as under:
Identity of Client

- False identification documents
- Identification documents which could not be verified within reasonable time
General Banking Laws: Page 72 of 116
- Non-face to face client
- Doubt over the real beneficiary of the account
- Accounts opened with names very close to other established business entities
Suspicious Background
- Suspicious background or links with known criminals
Multiple Accounts
- Large number of accounts having a common account holder, introducer or
authorized signatory with no rationale
- Unexplained transfers between multiple accounts with no rationale
Activity in Accounts
- Unusual activity compared to past transactions
- Use of different accounts by client alternatively
- Sudden activity in dormant accounts
- Activity inconsistent with what would be expected from declared business
- Account used for circular trading
Nature of Transactions
- Unusual or unjustified complexity
- No economic rationale or bona fide purpose
- Source of funds are doubtful
- Appears to be case of insider trading
- Investment proceeds transferred to a third party
- Transactions reflect likely market manipulations
- Suspicious off market transactions
Value of Transactions
- Value just under the reporting threshold amount in an apparent attempt to avoid
reporting
- Large sums being transferred from overseas for making payments
- Inconsistent with the clients apparent financial standing
- Inconsistency in the payment pattern by client
- Block deal which is not at market price or prices appear to be artificially inflated/deflated
COUNTERFEIT CURRENCY NOTES OR BANK NOTES
Cash transactions where forged or counterfeit currency notes or bank notes have been used
as genuine or where any forgery of a valuable security or a document has taken place
facilitating the transactions.

INDICATIVE LIST OF VARIOUS TYPES OF INDICATORS I.E. CUSTOMER
BEHAVIOUR AND RISK BASED TRANSACTION MONITORING, HIGH & MEDIUM
RISK: CUSTOMERS/ PRODUCTS & SERVICES/ GEOGRAPHIES/ LOCATIONS/ALERTS
FOR BRANCHES/ DEPARTMENTS
1. INDICATIVE LIST OF CUSTOMER BEHAVIOUR & RISK BASED TRANSACTION
MONITORING

General Banking Laws: Page 73 of 116
i. Customers who are reluctant in providing normal information while opening an account,
providing minimal or fictitious information or when applying to open an account,
providing information that is difficult or expensive for the institution to verify.
ii. Customer expressing unusual curiosity about secrecy of information involved in the
transaction.
iii. Customers who decline to provide information that in normal circumstances would make the
customer eligible for banking services.
iv. Customer giving confusing details about a transaction.
v. Customer reluctant or refuses to state a purpose of a particular large / complex transaction/
source of funds involved or provides a questionable purpose and / or source.
vi. Customers who use separate tellers to conduct cash transaction or foreign exchange
transactions.
vii. Customers who deposit cash / withdrawals by means of numerous deposit slips / cheques
leaves so that the total of each deposits is unremarkable, but the total of all credits / debits
is significant.
viii. Customers representatives avoiding contact with the branch.
ix. Customers who repay the problem loans unexpectedly.
x. Customers who appear to have accounts with several institutions within the same locality
without any apparent logical reason.
xi. Customers seeks to change or cancel a transaction after the customer is informed of currency
transaction reporting / information verification or record keeping requirements relevant to
the transaction.
xii. Customer regularly issues large value cheques without balance and then deposits cash.
xiii. Sudden transfer of funds from unrelated accounts through internet (or such other electronic
channels) and subsequent quick withdrawal through ATM.

A. Transactions Involving Large Amounts of Cash

i. Exchanging an unusually large amount of small denomination notes for those of higher
denomination;
ii. Purchasing or selling of foreign currencies in substantial amounts by cash settlement despite
the customer having an account with the bank;
iii. Frequent withdrawal of large amounts by means of cheques, including traveller's cheques;
iv. Frequent withdrawal of large cash amounts that do not appear to be justified by the
customer's business activity;
v. Large cash withdrawals from a previously dormant/inactive account, or from an account
which has just received an unexpected large credit from abroad;
vi. Company transactions, both deposits and withdrawals, that are denominated by unusually
large amounts of cash, rather than by way of debits and credits normally associated with
the normal commercial operations of the company, e.g. cheques, letters of credit, bills of
exchange etc.;
vii. Depositing cash by means of numerous credit slips by a customer such that the amount of
each deposit is not substantial, but the total of which is substantial.

B. Transactions that do not make Economic Sense
i. A customer having a large number of accounts with the same bank, with frequent transfers between
different accounts;
ii. Transactions in which assets are withdrawn immediately after being deposited, unless the
General Banking Laws: Page 74 of 116
customer's business activities furnish a plausible reason for immediate withdrawal.

C. Activities not consistent with the Customer's Business

i. Corporate accounts where deposits or withdrawals are primarily in cash rather than cheques.
ii. Corporate accounts where deposits & withdrawals by cheque/telegraphic transfers/foreign
inward remittances/any other means are received from/made to sources apparently
unconnected with the corporate business activity/dealings.
iii. Unusual applications for DD/TT/PO against cash.
iv. Accounts with large volume of credits through DD/TT/PO whereas the nature of business
does not justify such credits.
v. Retail deposit of many cheques but rare withdrawals for daily operations.

D. Attempts to avoid Reporting/Record-keeping Requirements

i. A customer who is reluctant to provide information needed for a mandatory report, to have the
report filed or to proceed with a transaction after being informed that the report must be filed.
ii. Any individual or group that coerces/induces or attempts to coerce/induce a bank employee not
to file any reports or any other forms.
iii. An account where there are several cash deposits/withdrawals below a specified threshold
level to a avoid filing of reports that may be necessary in case of transactions above the threshold
level, as the customer intentionally splits the transaction into smaller amounts for the purpose of
avoiding the threshold limit.

E. Unusual Activities

i. An account of a customer who does not reside/have office near the branch even though there
are bank branches near his residence/office.
ii. A customer who often visits the safe deposit area immediately before making cash deposits,
especially deposits just under the threshold level.
iii. Funds coming from the list of countries/centers, which are known for money laundering.

F. Customer who provides Insufficient or Suspicious Information
i. A customer/company who is reluctant to provide complete information regarding the purpose of
the business, prior banking relationships, officers or directors, or its locations.
ii. A customer/company who is reluctant to reveal details about its activities or to provide financial
statements.
iii. A customer who has no record of past or present employment but makes frequent large
transactions.
G. Certain Suspicious Funds Transfer Activities
i. Sending or receiving frequent or large volumes of remittances to/from countries outside India.
ii. Receiving large TT/DD remittances from various centers and remitting the consolidated amount to
a different account/center on the same day leaving minimum balance in the account.
iii. Maintaining multiple accounts, transferring money among the accounts and using one account as
a master account for wire/funds transfer.
H. Certain Bank Employees arousing Suspicion
i. An employee whose lavish lifestyle cannot be supported by his or her salary.
ii. Negligence of employees/willful blindness is reported repeatedly.
General Banking Laws: Page 75 of 116
I. Bank no longer knows the true identity
When a bank believes that it would no longer be satisfied that it knows the true identity of the
account holder.

J. Some examples of suspicious activities/transactions to be monitored by the operating staff-
i. Large Cash Transactions
ii. Multiple accounts under the same name
iii. Frequently converting large amounts of currency from small to large denomination notes
iv. Placing funds in term Deposits and using them as security for more loans
v. Large deposits immediately followed by wire transfers.
vi. Sudden surge in activity level.
vii. Same funds being moved repeatedly among several accounts.
viii. Multiple deposits of money orders, Banker's cheques, drafts of third
Parties
ix. Multiple deposits of Banker's cheques, demand drafts, cross/ bearer.
x. Cheques of third parties into the account followed by immediate cash
withdrawals.
xi. Transactions inconsistent with the purpose of the account.
xii. Maintaining a low or overdrawn balance with high activity

Check list for preventing money-laundering activities:

a. A customer maintains multiple accounts, transfer money among the accounts and uses one
account as a master account from which wire/funds transfer originates or into which
wire/funds transfer are received (a customer deposits funds in several accounts, usually in
amounts below a specified threshold and the funds are then consolidated into one master
account and wired outside the country).
b. A customer regularly depositing or withdrawing large amounts by a wire transfer to, from, or
through countries that are known sources of narcotics or where Bank secrecy laws facilitate
laundering money.
c. A customer sends and receives wire transfers (from financial haven countries) particularly if
there is no apparent business reason for such transfers and is not consistent with the
customer's business or history.
d. A customer receiving many small incoming wire transfer of funds or deposits of cheques and
money orders, then orders large outgoing wire transfers to another city or country.
e. A customer experiences increased wire activity when previously there has been no regular wire
activity.
f. Loan proceeds unexpectedly are wired or mailed to an offshore Bank or third party.
g. A business customer uses or evidences or sudden increase in wire transfer to send and receive
large amounts of money, internationally and/ or domestically and such transfers are not
consistent with the customer's history.
h. Deposits of currency or monetary instruments into the account of a domestic trade or business,
which in turn are quickly wire transferred abroad or moved among other accounts for no
particular business purpose.
i. Sending or receiving frequent or large volumes of wire transfers to and from offshore institutions.
j. Instructing the Bank to transfer funds abroad and to expect an equal incoming wire transfer from
other sources.
k. Wiring cash or proceeds of a cash deposit to another country without changing the form of the
General Banking Laws: Page 76 of 116
currency
l. Receiving wire transfers and immediately purchasing monetary instruments prepared for payment
to a third party.
m. Periodic wire transfers from a person's account/s to Bank haven countries.
n. A customer pays for a large (international or domestic) wire transfers using multiple monetary
instruments drawn on several financial institutions.
o. A customer or a non-customer receives incoming or makes outgoing wire transfers involving
currency amounts just below a specified threshold, or that involve numerous Bank or
travelers cheques
p. A customer or a non customer receives incoming wire transfers from the Bank to 'Pay upon
proper identification' or to convert the funds to bankers' cheques and mail them to the
customer or non-customer, when
q. The amount is very large (say over Rs.10 lakhs) o The amount is just under a specified threshold
. o The funds come from a foreign country or o Such transactions occur repeatedly.
r. A customer or a non-customer arranges large wire transfers out of the country which are paid for
by multiple Bankers' cheques (just under a specified threshold)
s. A Non-customer sends numerous wire transfers using currency amounts just below a specified
threshold limit.

2. INDICATIVE LIST OF HIGH RISK CUSTOMERS

i. Individuals and entities in various United Nations' Security Council Resolutions (UNSCRs) such as
UNSC 1267 & 1988 [2011] linked to Al Qaida & Taliban.
ii. Individuals or entities listed in the schedule to the order under section 51A of the Unlawful
Activities (Prevention) Act, 1967 relating to the purposes of prevention of, and for coping
with terrorist activities
iii. Individuals and entities in watch lists issued by Interpol and other similar international
organizations
iv. Customers with dubious reputation as per public information locally available or commercially
available.
v. Individuals and entities specifically identified by regulators, FIU and other competent authorities
as high-risk
vi. Customers conducting their business relationship or transactions in unusual circumstances, such
as significant and unexplained geographic distance between the institution and the location of
the customer, frequent and unexplained movement of accounts to different institutions,
frequent and unexplained movement of funds between institutions in various geographic
locations etc.
vii. Customers based in high risk countries/jurisdictions or locations as identified by FATF from time
to time.
viii. Politically exposed persons (PEPs) of foreign origin, customers who are close relatives of PEPs
and accounts of which a PEP is the ultimate beneficial owner;
ix. Non-resident customers and foreign nationals
x. Accounts of Embassies / Consulates;
xi. Off-shore (foreign) corporation/business
xii. Non face-to-face customers
xiii. High net worth individuals [HNIs]
xiv. Firms with 'sleeping partners'
xv. Companies having close family shareholding or beneficial ownership
General Banking Laws: Page 77 of 116
xvi. Complex business ownership structures, which can make it easier to conceal underlying
beneficiaries, where there is no legitimate commercial rationale
xvii. Shell companies which have no physical presence in the country in which it is incorporated. The
existence simply of a local agent or low level staff does not constitute physical presence
xviii. Investment Management / Money Management Company/Personal Investment Company
xix. Accounts for "gatekeepers" such as accountants, lawyers, or other professionals for their clients
where the identity of the underlying client is not disclosed to the financial institution.
xx. Client Accounts managed by professional service providers such as law firms, accountants,
agents, brokers, fund managers, trustees, custodians, etc
xxi. Trusts, charities, NGOs/NPOs (especially those operating on a cross-border basis) unregulated
clubs and organizations receiving donations (excluding NPOs/NGOs promoted by United
Nations or its agencies)
xxii. Money Service Business: including seller of: Money Orders / Travelers Checks / Money
Transmission / Check Cashing / Currency Dealing or Exchange
xxiii. Business accepting third party checks (except supermarkets or retail stores that accept payroll
checks/cash payroll checks)
xxiv. Gambling/gaming including Junket Operators arranging gambling tours
xxv. Dealers in high value or precious goods (e.g. jewel, gem and precious metals dealers, art and
antique dealers and auction houses, estate agents and real estate brokers).
xxvi. Customers engaged in a business which is associated with higher levels of corruption (e.g.,
arms manufacturers, dealers and intermediaries.
xxvii. Customers engaged in industries that might relate to nuclear proliferation activities or
explosives.
xxviii. Customers that may appear to be Multi level marketing companies etc.

3. INDICATIVE LIST OF MEDIUM RISK CUSTOMERS
i. Non-Bank Financial Institution
ii. Stock brokerage
iii. Import / Export
iv. Gas Station
v. Car / Boat / Plane Dealership
vi. Electronics (wholesale)
vii. Travel agency
viii. Used car sales
ix. Telemarketers
x. Providers of telecommunications service, internet caf, IDD call service, phone cards, phone
center
xi. Dot-com company or internet business
xii. Pawnshops
xiii. Auctioneers
xiv. Cash-Intensive Businesses such as restaurants, retail shops, parking garages, fast food stores,
movie theaters, etc.
xv. Sole Practitioners or Law Firms (small, little known)
xvi. Notaries (small, little known)
xvii. Secretarial Firms (small, little known)
xviii. Accountants (small, little known firms)
xix. Venture capital companies

General Banking Laws: Page 78 of 116
4. LIST OF HIGH / MEDIUM RISK PRODUCTS & SERVICES
i. Electronic funds payment services such as Electronic cash (e.g., stored value and payroll cards),
funds transfers (domestic and international), etc
ii. Electronic banking
iii. Private banking (domestic and international)
iv. Trust and asset management services
v. Monetary instruments such as Travelers Cheque
vi. Foreign correspondent accounts
vii. Trade finance (such as letters of credit)
viii. Special use or concentration accounts
ix. Lending activities, particularly loans secured by cash collateral and marketable securities
x. Non-deposit account services such as Non-deposit investment products and Insurance
xi. Transactions undertaken for non-account holders (occasional customers)
xii. Provision of safe custody and safety deposit boxes
xiii. Currency exchange transactions
xiv. Project financing of sensitive industries in high-risk jurisdictions
xv. Trade finance services and transactions involving high-risk jurisdictions
xvi. Services offering anonymity or involving third parties
xvii. Services involving banknote and precious metal trading and delivery
xviii. Services offering cash, monetary or bearer instruments; cross-border transactions, etc.

5. INDICATIVE LIST OF HIGH / MEDIUM RISK GEOGRAPHIES/ LOCATIONS/
COUNTRIES
Countries/Jurisdictions
i. Countries subject to sanctions, embargoes or similar measures in the United Nations Security
Council Resolutions (UNSCR).
ii. Jurisdictions identified in FATF public statement as having substantial money laundering and
terrorist financing (ML/FT) risks (www.fatf-gafi.org)
iii. Jurisdictions identified in FATF public statement with strategic AML/CFT deficiencies
(www.fatf-gafi.org)
iv. Tax havens or countries that are known for highly secretive banking and corporate law practices
v. Countries identified by credible sources1 as lacking appropriate AML/CFT laws, regulations and
other measures.
vi. Countries identified by credible sources as providing funding or support for terrorist activities that
have designated terrorist organisations operating within them.
vii. Countries identified by credible sources as having significant levels of criminal activity.
viii. Countries identified by the bank as high-risk because of its prior experiences, transaction history,
or other factors (e.g. legal considerations, or allegations of official corruption).

Locations
i. Locations within the country known as high risk for terrorist incidents or terrorist financing
activities (e.g. sensitive locations in Jammu and Kashmir, North east, Naxal affected districts)
ii. Locations identified by credible sources as having significant levels of criminal, terrorist, terrorist
financing activity.
iii. Locations identified by the bank as high-risk because of its prior experiences, transaction history,
or other factors.

6. Indicative List of High Risk Countries:
General Banking Laws: Page 79 of 116
The countries identified by Financial Action Task Force [FATF] as high risk countries which
continue to show deficiencies in their Anti Money Laundering and Combating of Financing of
Terrorism framework will be circulated from time to time.

OPENING OF NEW ACCOUNTS
The main points in opening of an account as per the compliance of policy guidelines are as
under:
INTRODUCTION: --
Introduction can be obtained from an existing account holder / respectable member of a local
community. If the prospective account holder is not in a position to offer the above for
ntroduction than passports / postal identification cards / pay books / Identity cards of armed
forces / police and Govt. departments may also be accepted for the purpose of introduction.
Criteria for proper introduction
It is necessary that the person introducing the prospective customer to the Bank must himself be a
respectable person of the local community who is known to the bank or he should be a customer of
the bank for minimum six months and conduct of his account must be satisfactory. Branch
Manager or any other official of the bank may also introduce an account provided he has sufficient
knowledge about the person introduced.
The introducer should know the prospective customer well.
The introducer should sign bank's prescribed form(s) in token of his having verified the identity,
address and occupation of the prospective customer.

Liabilities of the Introducer
While introduction is not a guarantee by the introducer for the prospective customer's
transactions with the Bank, he should be in a position to identify / trace the account holder in case
of need. Therefore, the intending introducers shall be advised that they should not introduce any
account unless they know the prospective account holder well.

PAN / GIR NUMBER:--
The customer is required to quote his / her permanent account holder / General index number for
opening an account. If he / she has neither of these numbers a declaration on form no. 60 or 61 is
to be obtained. However PAN /GIR no. or furnishing of declaration on form no. 60/61 is NOT
required for opening of time deposits of Rs. 50000/- or less.
While opening a joint account if both / all the account holders have PAN / GIR they may quote the
same or if they want to give form No. 60 / 61, they can give the same, but if for any reason both or all
do not want to give their number, the first named person has to give it necessarily. In case of FD it
should be obtained with each transaction exceeding Rs. 50000.
There is no need to send PAN / GIR no. quoted by the depositor to any designated authority the same
should be retained by the branch. Declaration on Form No. 60 /61, obtained in SF / CA accounts is
also to be retained by the branch along with the AOF.
Quoting of PAN/GIR or furnishing of declaration on form no.60 or 61 is not required where time
deposit account is opened for an amount of Rs. 50000/- or less. This is applicable even when a
depositor desires to put his deposit in different schemes for less then Rs. 50000/ in each scheme but
total amount exceeds Rs. 50000/. This is due to the fact that every deposit is treated as a separate
transaction.
In case of joint accounts at least the first named person has necessarily to quote his PAN/GIR number
General Banking Laws: Page 80 of 116
or submit form no.60/61. PAN/GIR /Declaration is to be obtained at the time of every transaction
exceeding Rs. 50000/. For issue of draft to the debit of accounts amounting to Rs. 50000/- or above
PAN/GIR Number will not be required if once obtained at the time of a/c opening.
It is applicable in all cases i.e. sole proprietorship/ Partnership firms/Ltd. companies/clubs etc.
Quoting of PAN/GIR or submission of Form 60/61 is not required if the amount is deposited by a
crossed cheque or bank credit card, but is required in case of bank drafts/bankers cheque.
As SF/CA is opened with cash, PAN/GIR or Form 60/61 is mandatory.
Declaration on form 60/61 obtained at the time of opening SF/CA is to be retained at the branch
along with AOF. However declaration on form60/61 obtained in case of term deposits is to be sent to
the concerned Director of Income tax (Investigation) in two instalments:-
Forms received up to 30 Sept. to be sent latest by 31
st
October.
Forms received up to 31st.Mar to be sent latest by 30
th
April.
PHOTOGRAPH
Two recent photographs of the account holder should be obtained for all categories of accounts. For
this purpose accounts of local bodies / Banks / Govt. departments (Excluding public sector
undertakings or quasi govt. bodies) are exempted. Separate Photographs for each category of
accounts need not be obtained. The cost of photograph shall be borne by the customer. This
stipulation is applicable to both resident and non-resident account.
Photograph of the person who is authorized to operate the account should always be obtained. In case
of joint accounts photographs of all depositors in whose names the deposit stands should be obtained
except in case of deposit s in the name of minors where guardian

s photograph should be obtained.


MAINTENANCE OF MINIMUM BALANCE
Minimum balance for opening deposit account; the stipulations prescribed by RBI for opening
deposit account stands withdrawn vide marketing division circular no. 59/95. Individual banks are
given liberty to fix the minimum balance to be maintained by depositors. Our bank has stipulated
the following minimum balance / QAB to be maintained. However, for opening of a/c at any
branch the initial deposit requirement is Rs. 500/-
Area SAVING FUND CURRENT ACCOUNT
CBS BRANCH Non- CBS NON-CBS CBS
QAB MIN.BAL. MIN.BAL. QAB
Rural 500 500 1000 1000
Semi-Urban 1000 1000 3000 3000
Urban 1000 1000 5000 5000
Metro 1000 1000 5000 5000
Note : The minimum balance to be maintained in SF a/c of SHG and by students belonging to
SC/ST categories (without Cheque Book facility) is Rs. 100/- at all paces.
In case of Savings A/c opened under the PNB MITRA Scheme (no frill a/c) initial deposit
required for opening the a/c and the minimum balance to be maintained is nil.
INDEPENDENT VERIFICATION OF ADDRESS:

The address shown by the account holder should invariably be verified independently in all
categories of accounts as an additional precaution. This can well be done from any of the
General Banking Laws: Page 81 of 116
documents mentioned for address proof.
Where the current address mentioned by a prospective customer in the account opening form
is different from the address mentioned in the document submitted by him / her, the branch
should conduct independent verification of address of the said prospective customer by
deputing an employee to the address provided by the applicant in the account opening form.
The said employee shall submit a certificate, as per prescribed proforma, with regard to
correctness of the address and the said certificate shall be attached with the account opening
form. A letter of authority should be obtained from the customer at the time of opening the
account for recovery of out of pocket expenses either in cash from the said prospective
customer or debited to his / her account.
If the permanent address of a prospective customer is different from his / her current address
(i.e. outside the city / town / village) where the applicant is presently residing but he / she is
unable to provide documentary proof of his / her current address, letter produced by him / her
from a recognized public authority (where he / she is serving) verifying his / her identity and
local residential address be accepted to the satisfaction of the branch official authorized to
open the account.
Where the prospective customer resides at a place other than the place of work / employment,
letter produced by him / her from a recognized public authority (where he / she is serving)
verifying his / her identity and residential address be accepted to the satisfaction of the branch
official authorized to open the account.
The account should not normally be opened without meeting the customer at the branch. The
purpose of maintaining the account, the party

s PAN / GIR, details of his previous bank


account and the likely amount / kind of transactions intended may also be appended in the
AOF as a footnote.
In case an employee of another bank opens an account with us the address of his employer is
to be ascertained and recorded in the column for "occupation" in addition to his residential
address. A letter should be sent to his employer under certificate of posting and office copy
thereof should be filed with relative AOF. The same fact should be recorded in the particulars of
the account.

LETTER OF THANKS/CONFIRMATION.
The bank should send a letter by post both to the customer (account holder) and the introducer and
seek their confirmation for opening the account/giving introduction. Cheque book may be issued
after receipt of confirmation from both.
MONITORING OPERATIONS IN NEWLY OPENED ACCOUNT:
A newly opened account shall remain under close watch at least for an initial period of three
months or any period which may be decided by the bank all the cheques issued must be
branded as

New Account

.
All withdrawals in such new accounts above a certain specified limit (which at present is Rs.
25,000/-) shall be put through the account with the concurrence of the incumbent incharge in
case of Small and Medium branches and by Sr. Manager/Manager (Routine) in case of ELB /
General Banking Laws: Page 82 of 116
VLBs to guard against any fraudulent or doubtful transactions.
Branches should not establish a business relationship until all relevant parties to the relationship
have been identified and the nature of the business they expect to conduct has been established.
However, where it is not possible to verify the identity of the customer at the time of opening
the account, the branches should ensure that the identification of the customer is established
within 15 days of opening the account. During this period, no debit, except for payment of
utility bills, insurance premium, statutory liabilities through cheque, should be allowed.
In case of joint accounts, the applicants, who are not closely related to each other (as can be
inferred from the information given in the account opening form), should be subjected to
establishment of their independent identity and address.
ACCOUNTS OF NON-FACE-TO-FACE CUSTOMERS:
In case of non-face-to-face customers, in addition to the usual customer identification procedures,
enhanced due diligence will be ensured. The prospective customers will be required to submit
certified copies of all the documents presented for the purpose of identification to the satisfaction of
the Bank. [If necessary, additional documents may be called for]. As an additional precaution, in
such cases, the first payment is to be effected through the customers account with another bank
which, in turn, adheres to similar KYC standards.
In the case of cross-border customers, the Bank will ensure that the third party certifying the
supporting documents is regulated and supervised entity and has adequate KYC systems in place.

Introduction of telephone and electronic communication is playing a vital role in day-to-day banking.
At times, requests are received telephonically or electronically to open accounts of those persons who
are stationed at centres other than the branch locations. In case the branches are required to open the
accounts of non-face-to-face customers, i.e. of the customers with whom the branch officials have
not had direct interaction (with the prime holder of individual account or one of the signatories of
non-individual / joint account) at the time of opening the account, the following instructions should
be followed.
Apart from applying usual customer identification procedures, the branches should follow one of the
following methods of opening accounts in case meeting of the prospective customers (resident
Indians) with the authorized branch officials is not possible:
(i) The prospective customers, who are having accounts with our branches, be advised to get the
Account Opening Form attested from the branch concerned which should also complete
the required KYC norms. On receipt of such AOF, complete in all respects, directly from
the branch concerned in a sealed envelope, the accounts may be opened after observing usual
safeguards.
(ii) In other cases, i.e. where there is no branch of our Bank at the centres where the prospective
customers are stationed or they are not having accounts with our branches at that centre, they
should be advised to get themselves introduced on our prescribed AOF from their bankers.
The said AOF, containing full particulars of the prospective customer and signatures (duly
attested by the banker of the party) of the persons authorized to operate the account be got
dispatched through their bankers to the branches where accounts are to be opened.
Besides, an introductory letter from the banker of the party should also be obtained as an
additional safeguard. On receipt of such AOF, directly from the bank concerned in a sealed
envelope, duly complete in all respects, the branch shall get the signatures of the officials
General Banking Laws: Page 83 of 116
verified from the local branch of the banker which has attested the same. In case there is no
such branch of the said banker at the centre where account is to be opened, the branch
concerned shall send a letter by the quickest means of communication to the banker
concerned who has introduced the prospective customer seeking confirmation about the
introduction given in the AOF. On receipt of confirmation from the introducing bank and
being satisfied with the introduction, the accounts may be opened by the branch after
observing usual safeguards. In no case the letter seeking confirmation from the banker of the
party and the return letter containing confirmation of the banker be delivered / received from
the representative of the party.
In case requests for opening such accounts in the name of non-residents come from persons residing
outside the country, the branches should, besides being guided by the guidelines issued by the
International Banking Division with regard to information and documents to be obtained from such
persons, abide by the following instructions:
i) AOF and the required documents of such persons be duly certified by our correspondent
banks situated in the country in which such persons are residing.
ii) Photographs of the prospective customers and their signatures must be attested by the
correspondent banks.
iii) The correspondent banks, which are attesting the AOF and documents, should be fully
KYC compliant.
iv) Accounts of persons residing in High Risk and Medium Risk countries should not be
opened at all.
v) Accounts of individuals / entities, which are in the banned list of the Reserve Bank of
India / Government of India / Security Council Committee of the UNO, should not be
opened at all.
APPLICABILITY OF REDUCED KYC PROCEDURE:
Persons, who are not in a position to produce documents for the purpose of verification of their
identity and address but intend to keep balances not exceeding Rs. 50,000/- in all their accounts
taken together and total credit in all the accounts taken together not expecting to exceed Rs. 1
lac in a year, may be allowed to open accounts with the following conditions:
Introduction from another account holder who has been subjected to full KYC procedure. The
introducer

s account with the branch should be at least six months old and should show satisfactory
transactions. Photographs of the customer as well as his / her address, who proposes to open the
account, should be certified by the introducer. OR
Any other evidence as to the identity and address of the customer together with his / her photograph
to the satisfaction of the Incumbent Incharge.
While opening accounts of such persons, the customer should be made aware that if, at any point of
time, the balances in all his / her accounts with the Bank taken together exceed Rs. 50,000/- or total
credit in all the accounts exceeds Rs. 1 lac, no further transaction will be permitted until full KYC
procedure is completed. An undertaking to this effect be obtained from the customer at the time of
opening the account itself. But in order to avoid any inconvenience to the customers, the branches
should notify to the customer when the balances reach Rs. 40,000/- or the total credit in a year
reaches Rs. 80,000/- that appropriate documents for conducting the KYC must be submitted
otherwise operations in the account will be stopped when the total balances in all the accounts taken
together exceed Rs. 50,000/- or the total credit in all the accounts exceeds Rs. 1 lac in a year. The
General Banking Laws: Page 84 of 116
amount of one-time payments from government or other agencies on exceptional circumstances
(death claims, grant of relief, etc.) be excluded from the threshold limit of Rs. 50,000/- or Rs.
1,00,000/-, as the case may be.
SAFE DEPOSIT VAULTS - KYC GUIDELINES
In terms of the RBI Directives, locker hirers will be classified into two categories only, i.e. Medium
Risk Locker Hirers and High Risk Locker Hirers. Accordingly,
a) Due diligence for both new and existing locker hirers will be carried out at least to the levels
prescribed for customers classified as medium risk. In case of locker hirer classified as high risk,
customer due diligence as per KYC norms applicable to such high risk category will be carried out.
b) The person authorized to operate the locker by lessee(s) will also be subjected to full KYC
Norms. It will be mandatory for the locker-hirers to operate locker at least once in a year in case of
High Risk Lessee or once in 3 years for Medium Risk Lessee.

Non-operation of locker within the stipulated period may lead to breaking open of the locker,
irrespective of the fact that rent is paid by the locker-hirer, regularly.
In respect of all existing hired lockers, list of high risk locker hirers will be prepared and rest of the
locker hirers will be treated as medium risk locker hirers. The lockers not operated for the last one /
three years, as the case may be, will be segregated and following steps should be taken:

The lessee whether, residing locally or outside, will be contacted over telephone / mobile
by any other mode of communication (if such information is available on record). The
lessee will be informed of the last operation made in the locker and reasons for not operating
the locker during the intervening period will be ascertained. He will further be advised to
operate the locker within seven days. In case, the lessee could not be contacted on telephone
/ Mobile / by any other means of communication, he / she should be contacted personally
and informed of the consequences of non-operating the locker. In case, the lessee is not
available at the local address, person who introduced him/ her should be contacted in order
to ascertain his / her (lessees) where about. A record of the action taken shall be recorded in
the remarks column of the respective locker records.

In case efforts as per (i) above fail, a letter will be sent to the lessee(s) advising either to
operate the locker or submit the reasons for not operating or surrender the locker.

Letter as per (ii) above will be sent through Regd. AD, giving 15 days time to operate the
locker or surrender the same or submit reasons for non operation. It will also be made clear
that in case of lessee not operating the locker / not submitting satisfactory reply, the locker
can be broken open by the Bank at the lessees cost, irrespective of the fact that the rent is
being deposited regularly.

If no reply is received or locker is not operated within 15 days, a reminder referring the
earlier letter will be sent by Regd. AD post, giving 15 days time to operate, surrender or
submit satisfactory reply for non-operation.

In case the locker hirer submits a reply expressing genuine reasons as in the case of NRIs or
persons who are out of town due to transferable job etc., the same shall be considered by the
Branch Manager.
General Banking Laws: Page 85 of 116

In case the reasons are found satisfactory, the locker hirer will be advised to indicate the
expected date by which the locker may be operated. In case of non-operation of locker
within time given, the lessee will be advised to surrender the locker failing which Bank will
be within its rights to cancel the allotment of the locker and break open the locker.

Where no response is received or locker hirer fails to operate the locker within the time
sought, final notice will be sent.

Where still no response is received nor the locker is operated, branch will act as per extant
guidelines applicable to breaking open the locker.

As mentioned above, the guidelines will be applicable for both existing as well as new
locker hirers.

The branches will prepare a list of all lockers not operated for one year and three years, for High
Risk and Medium Risk locker hirers respectively, as on 30th June and 31st December every year

Types of customers Description of Documents

Accounts of
Individuals
Individuals - Identity Document - Any of the following documents
with authenticated photograph thereon. [Copy verified from the
original will be kept on record with AOF]
1 Passport
2 PAN card
3 Voters Identity Card
4 Driving licence
5 Job card issued by NREGA duly signed by an officer of the State
Government
6 The letter issued by UIDAI containing details of name, address and
Aadhaar number
7 Identity card issued by following authorities (subject to the banks
satisfaction)
a. Government/Defence ID card
b. ID cards of reputed Public Sector employers
c. Pension Payment Orders issued to the retired employees by
Central/State Government Departments, Public Sector Undertakings
d. Photo ID cards issued by Post Offices
e. Photo identity cards issued to bonafide students by a University,
approved by the University Grants Commission (UGC) and/or an
Institute approved by All India Council for Technical Education
(AICTE).
f. Photo identity issued by any public authority having proper record of
issuance of identity proof which is verifiable from records
g. Ex-Servicemen Card with photograph
h. Bar Council/ Medical Association/ Institute of Chartered
Accountants of India/ Institute of Cost Accountants of India / Institute
General Banking Laws: Page 86 of 116
of Company Secretaries of India, Card with photograph
i. Student Identity Card with photo issued by reputed colleges with
validity during the course period.
j. Defense Dependents Card with photograph.

8 Letter from a recognized public authority or public servant verifying
the identity and residence of the customer to the satisfaction of bank.
9 Married woman identity proof with maiden name, if supported with a
verified true copy of marriage certificate
10 Credit card with photo together with statement of such card, not
more than three months old.
11 Registered Property document with photo identity
12 Arms License issued by State / Central Government of India.
13 Freedom fighters pass issued by Ministry of Home Affairs,
Government of India with photograph of applicant.
14 Employee State Insurance Card (ESIC) with photograph supported
by latest months pay slip..
15 Talati / Patwari (a local govt. official) attestation by way of putting
rubber stamp and signature. Gram Sarpanch / Mukhiya attestation by
way of putting rubber stamp and signature [For Small Accounts]
NOTE:
a) If the address on the document submitted for identity proof
by the prospective customer is same as that declared by
him/her in the Account Opening Form (AOF), the
document may be accepted as a valid proof of both identity
and address.
b) If the address indicated on the document submitted for
identity proof differs from the current address mentioned
in in the AOF, a separate proof of address should be
obtained.

Correct address Any of the following latest documents:
[Copy verified from the original will be kept on record with AOF]:
1 Ration Card
2 Electricity Bill #
3 Telephone Bill #
4 Bank account statement#
5 Letter from employer (to the satisfaction of the Bank)

6 Letter from any recognized public authority (to the satisfaction of the
Bank)
7 Credit Card Statement #
8 Income/Wealth Tax Assessment Order
9 Letter from Public Sector employer
10 Letter from any recognized public authority having proper and
verifiable record of issuance of such certificates.
11 Voter ID Card (only if it contains the current address)
12 Pension Payment Orders issued to retired employees by
General Banking Laws: Page 87 of 116
Government Departments/Public Sector Undertakings, if they contain
current address.
13 Copies of Registered Lease & License agreement/Sale Deed/Lease
Agreement.
14 Certificate and also proof of residence, incorporating local address
as well as permanent address, issued by the Hostel Warden of the
University/Institute, where the student resides, duly countersigned by
the Registrar/Principal/Dean of Student Welfare. Such accounts shall
however, be required to be closed on completion of education/leaving
the University/Institute provided the constituent does not give any
other acceptable proof of residence to the Bank.
15 For students residing with relatives, address proof of relatives, along
with their identity proof, can also be accepted provided declaration is
given by the relative that the student is related to him/her and is staying
with him/her.
16 In respect of officials of Central/State Governments and Public
Sector undertakings, who are low risk customers for Bank, Branch
Heads may verify the photo/identity and confirm residential address of
such officials from independently verifiable sources to their
satisfaction, and permit opening of accounts. This facility is extended
only to the Gazetted officers of Central/State Government and Senior
Management and above functionaries of Public Sector Undertaking.17
Latest telephone bills from any telephone service providers and mobile
service providers not more than 2 month old, postpaid.

18 Consumer gas connection card/book/Pipe gas bill

19 Certificate from ward/equivalent rank officer, maintaining election
roll certifying address of the applicant.

20 Post Office Savings Pass Book

21 Domicile Certificate with communication address and photograph

22 Certificate by Village Extension Officer (VEO) / Village Head or
equal or higher rank officer. Branch to confirm the authenticity of the
certificate and that it has been issued by the person who is holding the
said office.

23 Court divorce order Marriage annulment order issued by Court

24 A Rent Agreement indicating the address of the customer duly
registered with State Government or similar registration authority may
also be accepted as a proof of address.

25 The letter issued by UIDAI containing details of name, address and
Aadhaar number. In case the address provided by the account is the
same as that of Aadhaar letter, it may be accepted as a proof of both
General Banking Laws: Page 88 of 116
identity and address.
#Not more than 3 months old

In addition to KYC documents of the Proprietor, any two of the
following in the name of the firm:

rtificate/licence issued by the Municipal authorities under Shop &
Establishment Act;

Tax/Professional Tax authorities


Accounts of
Proprietorshi
p concerns

Proof of the name,
address and activity of
the concern

In addition to KYC documents of the Proprietor, any two of the
following in the name of the firm:

ate/licence issued by the Municipal authorities under Shop &
Establishment Act;

Tax/Professional Tax authorities



Licence issued by the Registering authority like Certificate of Practice
issued by Institute of Chartered Accountants of India, Institute of Cost
Accountants of India, Institute of Company Secretaries of India, Indian
Medical Council, Food & Drug Control Authorities,
registration/licensing document issued in the name of the proprietary
concern by the Central Government or State Government
Authority/Department, etc.

the office of DGFT, etc., as an identity document for opening of the


Bank account etc.

the name of the sole proprietor where the firms income is reflected
duly authenticated/acknowledged by the Income Tax Authorities.

the name of the proprietary concern.




Accounts of
partnership
firms:
In addition to KYC documents of all partners/
authorized persons of the concern, the following documents be
obtained:
registered.

General Banking Laws: Page 89 of 116

-Legal name
-Address
-Names of all
partners and
their
addresses
-Telephone numbers of
the firm and partners

transact the business on its behalf.

persons holding the Power of Attorney and their addresses.



Passport Photographs duly self attested.


Accounts of trusts/clubs/
societies
Associations/foundations

- Name of trustees,
settlers,beneficiaries and
signatories
-
Name and address of the
founder, the
managers/directors and
beneficiaries
Telephone/fax numbers
In addition to KYC documents of the Managing
Trustees/Founders/Managers/ Directors and their addresses, the
following documents of Trust/ Club/ Society/Association are to be
obtained:


Trust/Club/Society/Association/Foundation

Any officially valid documents identifying the trustees, settlors,
beneficiaries and those persons holding the Power of Attorney,
founders/ managers/directors and their addresses and their addresses.





ustees/Managing Committee
Members/Authorised signatories

Trustees/Members/Directors duly self attested.




Accounts of Companies:
- Name of
company
- Principal place of
business
- Mailing address
of the company
Telephone/Fax number

In addition to KYC documents of the Directors of the company, the
following documents should be obtained


ssociation duly certified by a
Director/Secretary as true copy.

Account in case of Public Ltd. Company.

account and identification of those who have authority to open and


operate the account.

transact business on its behalf.


General Banking Laws: Page 90 of 116


Accounts of Hindu
Undivided Family
In addition to KYC documents of Karta and Major Co-parceners, the
following documents should be obtained:


ed by Karta and major
co-parceners.

-parceners.


NOMINATION ENACTMENT
The Banking Regulation Act was amended in 1984 and sections 45ZA to 45ZF were added to
the Act for providing nomination facility in Banks.
In 1985, the Central Govt. made the

Banking Companies (Nomination) Rules (As per powers


conferred on it in section 52 of the BR Act 1949) which was notified in official Gazette of India
on 29
th
March 1985. Nomination facility was introduced in banks with effect from this date.
SCOPE
Banks can provide nomination facility for deposit accounts, safe custody of articles and safe
deposit lockers.
Sec. 45ZA and 45ZB deal with the provisions for nomination deposit accounts section 45ZC
and 45ZD for safe custody and section 45ZE and 45ZF for safe deposit lockers.
Banks cannot provide nomination facility in respect of Jewel Loans, Cash Credit Account or
any such account other than the three mentioned above.
NOMINATION FACILITY FOR DEPOSIT ACCOUNTS
What Type of Accounts: Nomination facility is available only in respect of a deposit account
held in individual capacity (including sole prop. CA account) of the depositor(s) and not in any
representative capacity. As such no nomination can be made in case of accounts in the name of
a company, firm HUF, association trust, etc.
Minors Account: Where the deposit is the name of a minor, the nomination will be made by
his legal guardian. In case of self operated minor accounts no nomination can be accepted.
Non-resident Accounts: Nomination facility is available.
Joint Account: Nomination should be made jointly by all joint account holders even if the
account is operated by either or survivor or former or survivor.
Who can be appointed as nominee?
Only Individuals can be appointed as nominee. Nomination cannot be made in favour of
firms/companies/H U F or any representative body.
In case of deposits,only one person can be appointed as nominee; for a particular account .
(This provision is different in safe deposit locker accounts).
General Banking Laws: Page 91 of 116
A minor can be appointed as nominee. However in such cases another adult (not necessarily
his/her guardian or relative) must be named to receive the deposit on behalf of the minor, in case
of the death of depositor(s) during the minority of the nominee.
Nonresidents including foreign nationals can be appointed as nominee. However, on the death
of depositor the deposit proceeds cannot be repatriated without obtaining prior permission from
Reserve Bank.
A lunatic cannot be appointed as nominee.
How to Nominate
In case of joint accounts all depositors must join together to nominate.
Nomination is required to be made in Form DA1 (PNB-819 A) must be attested by one witness
and in case the depositor(s) is illiterate the thumb impression (in form DA1) must be attested by
two witnesses.
Separate nominations need be obtained in respect of different deposit accounts.
The bank should brand the pass book/receipt and relative ledger folio with the stamp

NOMINATION OBTAINED

.
RBI has advised that at the written request of a customer the bank may mention the name of the
nominee in SB pass book/term deposit receipt.
Cancellation and Variation of Nomination
An existing nomination can be cancelled by the sole depositor (or by all the depositors in a joint
account). The form to be used is DA 2(PNB-819 B)
The variation of nomination can be made by all depositors, by using form DA3 (PNB-819 C)
In case of the death of one of the joint depositors, the cancellation or variation can be made
under the signature of all surviving depositors/depositor.
Renewal of Deposit Account
No fresh nomination need be made when a deposit account is renewed. The existing nomination
does not cease to operate merely by reason of the renewal of the deposit.
Change in the style of the account
Where the style of the account is changed, or some addition/deletion in the name of depositors
is made, the nomination stands cancelled.
Payment to Nominee
Nominees right to receive payment arises only on the death of the sole depositor or on the
death of all depositors in a joint account.
Nominee has the only right to receive the deposit proceeds on the depositor

s) death. He has no
right to operate the account, to renew the same or to avail loan against it or to substitute his
name in place of depositor or to add his name in the deposit.
A term deposit can be paid (at the request of the nominee) before its maturity. No penalty (1%)
need be charged in case of such foreclosure.
Before paying the amount to the nominee the bank must ask for the Death Certificate and take
General Banking Laws: Page 92 of 116
identification of nominee on the prescribed form (PNB- 831).and must ensure that there is no
restraint order from court.(IAD cir 28/11 dated 8.6.11)
Legal position on Payment to Nominee
On the death of the depositor(s) the nominee is entitled to receive the balance. The bank need not
take into account any other notice or claim except the order of a competent Court.
The nominee does not become the owner of the proceeds by virtue of his right to receive the
payment. Any person having a right over the balance can claim it from the nominee.So, nominee
will receives the payment as trustee of legal heirs.
Miscellaneous
The formats for nominations; alteration of nominations, and variation of nomination are
prescribed in Banking Companies (Nomination) Rules 1985
A depositor can be allowed to split his deposit for the purpose of appointing different nominees.
This will not be considered as a premature closure.
In case of deposit accounts under Capital Gains Accounts Scheme 1988 a maximum of three
nominations under both schemes Account- A (Savings Fund), Account-B (Term Deposit) is
permitted.
In case of pension accounts there should be two types of nominations; one for payment of
pension arrears which is made under

Arrears of Pension (Nomination) Rule 1983. The other is


made under Banking Companies Nomination Rules 1985.
If the nominee does not turn up even after 6 months from the death of the depositor/locker holder,
a notice should be sent by the bank to the nominee.
NOMINATION FACILITY FOR ARTICLES KEPT IN SAFE CUSTODY
Nomination facility is available only where the articles are held in single name of individuals. In
other words Safe Custody (Account) in Joint Names is not eligible for nomination. (Note the
differences from deposit account and lockers where nomination is acceptable in account in joint
names). Like deposit accounts nomination is also not available on safe custody deposits made in
representative capacity.
Where a minor delivers the goods for safe custody, the nomination will be made by his lawful
guardian.
Only one individual can be appointed as nominee. Where the nominee is a minor, any other adult
should also be appointed to receive the articles in the event of the death of the depositor during
the minority of the nominee.
The nomination will be made by using form SC-I (PNB-820 A) while cancellation and variation
of nomination are to be made by using form SC-2 and SC-3 (PNB-820 B, 820-C) respectively.
Separate nomination form should be obtained for each lodgement.
All other terms and conditions of nomination in safe custody account are same of those
applicable to deposit accounts.


General Banking Laws: Page 93 of 116
NOMINATION FACILITY IN SAFE DEPOSIT LOCKER ACCOUNTS
The main points of difference between nomination facility in deposit account and that of Safe
Deposit Locker Account are the following:
Number of Nominees
In case of safe deposit locker account in joint names more than one person can be appointed as
nominee.Each hirer can have its own nominee. However, the maximum number of nominees
will be restricted to the number of joint account holders.
Others:
Nomination is a rule rather than exception.
BM has full powers to make payment, release articles and handover contents of locker to
nominee after death of depositor/locker hirer.
Acknowledgement must be sent to the customer.
Guardian will sign Nomination forms in the account of Minor.
Pass book must contain remarks Nomination Registered(IAD cir 28/11 dated 8.6.11)
Forms to be Used
Form SL 1 (PNB-821 A) is to be used by a sole hirer for making nomination.
Form SL 1A (PNB-821 B) is to be used where the locker is hired in joint names.
Form SL 2 (PNB-821 C) is to be used for cancellation of nomination.
Form SL 3 (PNB-821 D) is to be used for variation of nomination by a sole hirer.
Form SL 3A (PNB-821 E) is to be used for variation of nomination by joint hirer.
Delivery of Locker Content in Case of Joint Accounts
In the event of the death of one or more joint hirers the contents of the locker are deliverable to
the nominees along with the surviving joint hirer/hirers.
In case of lockers with either or survivor clause or former or survivor clause, on the event of
death of one of the hirers the survivor can take delivery of goods only along with the
nominee(s). In other words, where there is a nomination, the survivors have no right to take
delivery of the contents without the consent of nominees.
They also cannot change the nominations unlike deposit accounts.
Preparation of an Inventory of the contents of the Locker
Before permitting the removal of the content of a locker by the nominee (or by nominees along
with surviving hirers) an inventory of the content of the locker must be prepared.
Sealed/closed packets, if any, need not be opened.
It should be signed by the nominee(s) surviving heirs.
The nominee(s) and survivors are entitled for a copy of the inventory.
Particulars Deposit accounts Safe custody Safe deposit vault (locker)
Section 45ZA 45ZC 45ZE,45ZF
Nomination 819A 820A 821A ,821B*
General Banking Laws: Page 94 of 116
Cancellation 819B 820B 821C
Substitution/
Variation
819C 820C 821D
821 E*
* To be used for nomination/variation for more than one person.
CUSTOMER SERVICE AND GRIEVANCE REDRESSAL

CUSTOMER SERVICE
The most crucial measure of performance of a service industry is the level of satisfaction of its
customers.
Some of the important measures, pursuant to the recommendations of the working group on
Customer service in Banks (Talwar Committee recommendations, 1977 {176 recommendations},
Goiporia committee recomedations, 1991, 97 recommendations and S.S.Tarapore committee on
Procedures and performance audit on Public services) are as under:
The important recommendations of the working groups/ committees on customer service in the
banks are as under: looked in to the aspect of customer service
Opening & Closing of bank counters in time and prompt commencement of customer
service: It must be ensured that all counters begin their work in time and no counter is left
unattended during the customer hours. Incumbent Incharge may consider starting of office
hours 15 minutes prior to banking hours, at theirs. This would facilitate the staff to settle on
counters well in time and cash would also be available to the cashiers/SWO

s. All the
customers who enter the banking hall before the close of business hours should be attended
to.
Cleanliness & Upkeep of premises & provision of adequate facilities to make the
customer
'
s waiting time comfortable.
Sitting plan and uninterrupted service to the customers: Sitting plan of the office should
be functional and designed to facilitate smooth and speedy flow of work. Work allocation in
such a way that no counter is closed during the working hours and uninterrupted service is
rendered to the customers.
MAY I HELP YOU
'
counters/Display of indicator boards: display of indicator e
Boards at all the work counters, enabling the customers to be guided about the actual work
being transacted.
MAY I HELP YOU
'
counters, in the branches with a staff strength of 10 or above , to be
manned by suitable persons. At smaller branches, provision must exist for an enquiry
window for attending to the enquiries and help the customers.
Display of time norms and adherence thereto: The poster of norms for important services
must be conspicuously displayed in the banking hall for guidance of customers. Endeavour
must be made to provide services to clientele within the time norms prescribed given below.
The time norms prescribed for various important services may be taken as a guiding factor
and our endeavour should be to complete the transactions as speedily as possible and taking
the norms as a maximum limit. In this regard, particular care must be exercised in rendering
more common services like encashment of cheques and issuance of drafts etc.
Norms for important services at the branch: (1) For encashment of a cheque: (a) through
SWO/Teller -- 3 to 8 minutes; (b) through Cashier -- 8 to 15 minutes. (2) Receipt of cash
(depending upon the denomination --10 to 20 minutes (3) For issuance of demand draft/
remittances/traveller cheques/ term deposit receipt --- 15 to 25 minutes. (4) Payment of
demand drafts -- 10 to 20 minutes. (5) Payment of term deposit receipts -- 15 to 20 minutes.
General Banking Laws: Page 95 of 116
(6) Opening of an account -- 20 to 25 minutes (7) Retirement of bills --20 to 30 minutes (8)
Completion of pass books (for a few entries) -- 5 to 15 minutes. (9) Statement of accounts -
Within 7 days from due date. (10) Collection of Cheques (a) Local - 1 to 3 days (b)
Outstation -- 10 to 14 days. (11) Issuance of cheque book -- Within 15 minutes
Customer Service Committee
Customer Service Committee is to be set up at branches for reviewing the quality of customer
service on an ongoing basis; their constitution will be as under:
1. CM/Manager : Chairman
2. Sub Manager/AM/Officer : Member (Convener)
3. Other Officer(s) : Member
4. Clerical Cadre : Member
Members under 3 & 4 category will be rotated after an interval of 6
months. Minimum 2 required to hold meetings.
Periodicity at least monthly
Bank union representative may be included.
Customers to be invited once in quarter.
Minutes to be recorded & copies be sent to CO.

BANKING OMBUDSMAN SCHEME -2006
- Scheme has been framed and notified under Sec 35A of Banking Regulation Act 1949
- It is applicable to all banks (as defined in Part I of BR Act 1949) throughout India,
whether incorporated in or outside India.
OBJECTIVE :-To enable resolution of complaints relating to provision of Banking Services and to
resolve disputes between a bank and its constituent as well as between one bank and another.
APPOINTMENT:-RBI may appoint one or more persons to carry out the functions entrusted
under the scheme.
JURISDICTION:- As specified by RBI from time to time
QUALIFICATION:-A person of high-standing in legal/banking/financial services/ public
administration/ management sector. If such person is a civil servant he should be in the rank of
Joint Secretary or above in Govt. of India.
POWERS & DUTIES
To receive complaints relating to provision of banking services.
To facilitate satisfaction or settlement by agreement, through conciliation and mediation or
by passing award in accordance with this scheme.
To resolve by away of arbitration such disputes between banks or between bank and its
constituents as may be agreed upon by the contesting parties provided the value of the claim
General Banking Laws: Page 96 of 116
in such disputes is within Rs. 10 lacs.
PROCEDURE OF FILING THE COMPLAINT
The consumer should first give a written representation to the bank, in question. If the bank
rejects the claim or does not reply or the reply is unsatisfactory, the complainant is free to
write to the banking Ombudsman, but after 1 month and before one year since lodgement
of the complaint with the bank.
The complaint should not be in respect of the same subject matter which was settled or dealt
with on merits by the Banking Ombudsman in any previous proceedings whether or not
received from the same complainant or along with one or more complainants or one or more
of the parties concerned with the subject matter.
The complaint should not pertain to the same subject matter, for which any proceedings
before any court, tribunal or arbitrator or any other forum is pending or a decree or Award
or order has been passed by any such court, tribunal, arbitrator or forum.
The complaint is not frivolous or vexatious in nature.
The complaint can be made in electronic mode too.
DISPOSAL OF THE COMPLAINT
1. SETTLEMENT OF COMPLAINT BY AGREEMENT
After a complaint is received by the ombudsman he shall be referring it to the branch or office of
the bank and try to amicably settle the complaint through agreement/ conciliation/ mediation.
2. AWARD BY OMBUDSMAN
If not settled by agreement within a period of one month from the date of receipt of the complaint
the Ombudsman may pass an award after affording reasonable opportunity to present their case.
The award shall state the direction/s if any, to the bank for specific performance of its obligations in
addition to the amount to be paid by the bank to the complainant by way of compensation for the
loss suffered by him.
The Banking Ombudsman may pass an award directing payment of an amount not exceeding the
actual loss suffered by the complainant as a direct consequence of the act of omission or
commission of the bank, or ten lac rupees whichever is lower.
In the case of complaints arising out of credit card operations, the Banking Ombudsman shall, while
determining the amount of compensation payable, take into account the loss of the complainant

s
time, expenses incurred by the complainant, financial loss, harassment and mental anguish suffered
by the complainant. Maximum award Rs. 1 lac.
A copy of the Award shall be sent to the complainant and the bank. An Award shall not be binding on
a bank against which it is passed unless the complainant furnishes to it, within a period of 30 days
from the date of receipt of copy of the Award, a letter of acceptance of the Award in full and final
settlement of his claim in the matter. If the complainant does not accept the Award passed by the
Banking Ombudsman or fails to furnish his letter of acceptance within the said period of 30 days
the Award shall lapse and be of no effect.
The rejection of an award by the complainant does not affect any other recourse and/or remedies
available to him as per the law.
General Banking Laws: Page 97 of 116
The bank shall within one month from the date of receipt by it, of the acceptance in writing of the
award by the complainant or within such time not exceeding a period of fifteen days that may be
granted by the Banking Ombudsman, comply with the award and intimate compliance to the
ombudsman.
APPEAL
Any person aggrieved by the Award or rejection of the complaint may, within 30 days of the date of
receipt of the Award / rejection of complaint, may prefer an appeal against the Award before the
Appellate Authority i.e. Dy. Governor of RBI. In case of appeal by the bank, the period of 30 days
for filing an appeal shall commence from the date of receipt of acceptance of the award by the
complainant.
The Appellate Authority may, if he is satisfied that the applicant had sufficient cause for not
making the appeal within time, allow a further period not exceeding 30 days.
The appeal may be filed by the bank only with the previous sanction of the Chairman or, in his
absence, the Managing Director or the Executive Director or the Chief Executive Officer or any
other officer of equal rank.
The Appellate Authority shall, after giving the parties a reasonable opportunity of being heard
(a) dismiss the appeal; or
(b) allow the appeal and set aside the Award; or

remand the matter to the Banking Ombudsman for fresh disposal in accordance with such
directions as the Appellate Authority may consider necessary or proper; or
modify the Award and pass such directions as may be necessary to give effect to the Award so
modified; or
pass any other order as it may deem fit.

The order of the Appellate Authority shall have the same effect as the Award passed by Banking
Ombudsman under clause 12 or the order rejecting the complaint under clause 13, as the case may
be.
TYPE OF COMPLAINTS TO OMBUDSMAN.
The Banking Ombudsman can receive and consider any complaint relating to the following
deficiency in banking services:
non-payment or inordinate delay in the payment or collection of cheques, drafts, bills, etc.;
non-acceptance, without sufficient cause, of small denomination notes tendered for any
purpose, and for charging of commission for this service;
non-acceptance, without sufficient cause, of coins tendered and for charging of commission
for this service;
non-payment or delay in payment of inward remittances ;
failure to issue or delay in issue, of drafts, pay orders or bankers cheques;
non-adherence to prescribed working hours;
failure to honour guarantee or letter of credit commitments ;
failure to provide or delay in providing a banking facility (other than loans and advances)
promised in writing by a bank or its direct selling agents;
General Banking Laws: Page 98 of 116
delays, non-credit of proceeds to parties' accounts, non-payment of deposit or non-
observance of the Reserve Bank directives, if any, applicable to rate of interest on deposits in
any savings, current or other account maintained with a bank ;
delays in receipt of export proceeds, handling of export bills, collection of bills etc., for
exporters provided the said complaints pertain to the bank's operations in India;
refusal to open deposit accounts without any valid reason for refusal;
levying of charges without adequate prior notice to the customer;
non-adherence by the bank or its subsidiaries to the instructions of Reserve Bank on
ATM/debit card operations or credit card operations;
non-disbursement or delay in disbursement of pension to the extent the grievance can be
attributed to the action on the part of the bank concerned, (but not with regard to its
employees);
refusal to accept or delay in accepting payment towards taxes, as required by Reserve
Bank/Government;
refusal to issue or delay in issuing, or failure to service or delay in servicing or redemption
of Government securities;
forced closure of deposit accounts without due notice or without sufficient reason;
refusal to close or delay in closing the accounts;
non-adherence to the fair practices code as adopted by the bank;
any other matter relating to the violation of the directives issued by the Reserve Bank in
relation to banking or other services;
non-observance of Reserve Bank Directives on interest rates;
delays in sanction, disbursement or non-observance of prescribed time schedule for disposal
of loan applications;
non-acceptance of application for loans without furnishing valid reasons to the applicant; and
non-observance of any other direction or instruction of the Reserve Bank as may be
specified by the Reserve Bank for this purpose from time to time.

The Banking Ombudsman will consider complaints even from Non-Resident Indians having accounts
in India in relation to their remittances from abroad, deposits and other bank-related matters. The
adjudication of pending complaints and execution of the awards (already passed before coming into
operation of the Banking Ombudsman Scheme 2006), will continue to be governed by the
provisions of the earlier Banking Ombudsman Schemes, 1995 and 2002.
CONSUMER PROTECTION ACT 1986
EXTENT/COVERAGE:
All goods & services including Banking, insurance, transport, processing, electricity, physicians
etc. All sector - private, public & cooperative. The act extends to whole of India except J&K. J&K
has a separate act on similar lines.

WHO CAN FILE A COMPLAINT?
A consumer, individually or jointly, representative or legal heir of the consumer.
Any voluntary consumer organization.
Central & State Government.
General Banking Laws: Page 99 of 116

WHO IS A CONSUMER?
A person who buys goods for a consideration, which has been paid or promised to be paid or partly
paid and partly promised to be paid or a person who buys under any system of deferred payment;
and includes any user of such goods who uses the goods with the approval of the purchaser.
Persons buying for resale or for any commercial purposes are not consumer.
One who hires services for consideration.
The Complaint means any allegation in writing made by a complainant alleging adoption of any
unfair trade practice or restrictive trade practice by any service provider or deficiency in service
hired or availed of or excess charging for any services with a view to obtaining any relief under the
Act.
WHAT IS THE LIMITATION PERIOD FOR FILING COMPLAINT?
Two years from the date of cause of action (Sec 24A). Cause of action arises on the date on which
the consumer comes to know of the deficiencies in service or the defect in goods or the thing
complained of.
WHAT IS THE JURISDICTION FOR COMPLAINT?
OFFICE VALUE/COMPENSATION
National Consumer Disputes Redressal Commission
(National Commission)
More than Rs. 100 Lac
State Consumer Disputes Redressal Commission
(State Commission)
More that Rs. 20 Lac & upto Rs. 100 Lac
District Consumer Disputes Red ressal Commission
(District Forum)
Upto Rs. 20 Lac

WHAT IS THE TIME LIMIT FOR DECIDING COMPLAINTS/APPEALS?
Without analysis/testing of commodities : 3 months
With analysis/testing of commodities : 5 months
National & State Commissions : 3 months
WHICH IS THE OFFICE FOR APPEAL?
DECISION OF WHOM TO APPEAL
District Forum State Commission
State Commission National Commission
National Commission Supreme Court
Appeals are to be made within 30 days of receipt of decree from lower forum/commission.
WHAT IS THE PROCEDURE FOR FILING COMPLAINTS?
Send written complaint, in duplicate, with the following:
a) Name & address of complainant and opposite party.
b) Facts of the complaint.
c) Copies of supporting documents.
General Banking Laws: Page 100 of 116
d) Relief Sought.
Complaint can be handed over personally or sent by post. At the time of hearing, case can be
explained by complainant personally or through authorized agent. No court fee is payable.
WHAT RELIEF IS AVAILABLE TO CONSUMERS UNDER THE ACT?
Removal of defect from goods.
Removal of deficiencies in services.
Replacement by new goods free from defect.
Refund of price/charges.
Award of compensation for loss or injury suffered.
Discontinuance/non-repetition of unfair/restrictive trade
practices. Prohibition of sale of goods of hazardous
nature.
Providing for adequate cost to parties.
IS THERE ANY PENALTY FOR NON-COMPLIANCE OF ORDERS OF THE
FORUM/COMMISSION OR FOR COMPLAINTS OF FRIVOLOUS NATURE?
Imprisonment for not less than one month and up to three years OR fine not less than Rs. 2000/-
and up to
Rs. 10000/-OR Both.
SETTLEMENT OF CLAIM CASES
To provide prompt and efficient customer service, early settlement of deceased claims in deposit
accounts is very much important. On receipt of information that a depositor has died, a note may be
made on the ledger sheet in writing/system with date and source of information, a line should be
drawn below the last debit entry and operation in the account be stopped. The information should
be noted under the initials of the official.
As part of efficient customer service, steps should be taken to ensure expeditious settlement of claim
cases in deceased accounts. As per the recommendations of Goiporia Committee on Customer
service in view of avoiding difficulties in disposal of claim cases, nomination should be
encouraged.
With the view of minimizing the hardship to the legal heirs of the deceased, as per the new
guidelines, bank should not insist upon the legal representation (succession certificate, letter of
administration etc.). No limit is prescribed below or beyond which legal heirs be asked to
produce succession certificate (refer Law Divn.Cir.3/2000 dated 28.4.2000).
Therefore, if Incumbent is satisfied that legal heirs are identifiable and there is no dispute in respect
of claim with bank, amongst legal heirs, there is no necessity of requiring production of legal
representation.
Chapter II: Settlement of claim in nominated accounts.
Chapter III: Whenever it comes to the notice of the branch that a depositor has died, caution should
be maked on the following documents:
- AOF
- Ledger sheet/Teller Card
- Specimen Signatures Slip
General Banking Laws: Page 101 of 116
The operation in the account should be stopped immediately. Nominee should be advised to
produce following documents:
1. Death Certificate (issued by competent authority)
2. Claim form PNB 831 Annex.E
3. Claim form should be verified by Magistrate or Notary Public or Gazetted Officer or
Bank Officer
4. Pass Book and/or FDR
5. Acknowledgement of nomination (if any)
After the identification of nominee balance in account may be paid. The Incumbents have
full powers to sanction of payment/delivery of articles in accounts where nomination is
available including lockers. ( For details refer the chapter of nomination)
Settlement of claim in Non-nominated Accounts
On receipt of the information that depositor has died the caution should be marked on AOF,
Ledger Sheet, Teller Card, Specimen Signatures lip/system. The operation in the account
should be stopped (if nothing contrary to it is there in case of partnership accounts).
List of documents
- Death certificate (issued by competent authority)
- PNB 46-47 claim form (claim form can be signed by one major legal heir)
- PNB 46-47 should be duly verified by Magistrate or Notary Public
- Power of Attorney in case of more than one claimants, duly verified by Magistrate or Notary
Public
- Indemnity bond by claimant (if required)
- Will/succession certificate (if required)
- Stamped full and final receipt
- Probate letter in case of will
Other guidelines
Value of claim not exceeding Rs. 5000/-: In far flung rural areas and where settlement of claim
cases involving small amount, claimant may find it difficult to get the claim form attested by a
Notary or Magistrate. In such cases where total amount does not exceed Rs. 5000/- and no legal
representation is produced, attestation of claim form need not be insisted upon. Instead claimant be
asked to obtain certificate from Sarpanch verifying the legal heirs.
Value of claim not exceeding Rs. 25000/-
In claim cases where the total amount does not exceed Rs. 25000/-, as per the present guidelines of
Govt. of India, succession certificate should not be insisted upon.
In such cases, payment may be made to legal heirs, relying on the declaration made in claim form
duly attested by Magistrate/Notary Public.
Payment can be made to the legal heirs on the execution of indemnity bond
Gold ornaments or other security held against advances may be released on adjustment of advances
No confidential enquiry is needed.
Value of claim exceeding Rs. 25000/-
General Banking Laws: Page 102 of 116
In claim cases involving amount exceeding Rs. 25000/-, confidential enquiry be made by the
Incumbent Incharge about the legal heirs of the deceased as disclosed in the form. Claim may be
settled and paid to the legal heirs of the deceased against indemnity bond and surety to the
satisfaction of the Incumbent.

Legal representation
No limit is prescribed below or beyond which legal heirs be asked to produce legal representation.
So, if the Incumbent is satisfied that legal heirs are identifiable and there is no dispute amongst the
legal heirs, there is no need of asking succession certificate. Claim may be settled on the basis of
indemnity bond and surety to the satisfaction of the bank. As a rule surety worth double the amount
of claim need not be insisted.
Death, Insolvency and Insanity of a customer : Notice or knowledge of death, insolvency or
insanity of a customer precludes the bank from paying further cheques on his account even though
these are dated prior to death, insolvency or insanity.
Joint Accounts
In case of joint accounts where operation is allowed by way of Either or survivor/Former or
survivor, the account will continue to run and payments can be made to survivors, unless at or
before the time of payment, order of court or other competent authority has been received prohibiting
the payment to the survivors. The survivor should be requested to transfer the balance into a new
account in his own name, singly or jointly.
When due to any reason if payment has been prohibited by competent authority, the balance in
account is not payable to survivor, the operation in the account must be stopped and treated as claim
case.

Partnership accounts:
Upon the death of a partner in a partnership, the operation in the account will be stopped. However, if
there is contract contrary to it (in the account opening form PNB-38 and/or partnership deed), the
account will continue to run. In case of termination of operations, the account will be treated as claim
case and legal heirs/partners will be asked to settle the claim.

Joint Hindu Family: In case of Joint Hindu Family account, when a death of a major co-parcener
occurs, the operation in the account will be stopped and dealt with as a claim case.
Power of Attorney
It happens many a time that all the legal heirs are not able to join in for execution of documents and
receiving payments. In such circumstances, those legal heirs who cannot join may execute power of
attorney in favour of one of the prescribed proforma for deposit accounts or locker accounts. The
Power of Attorney should be stamped as per the Stamp Act in force and duly notarized.
Power of Attorney if executed abroad, is required to be stamped in India within three months after
the same is received in India.
In case of Power of Attorney, the holder will sign execute the receipt and indemnity on behalf of self
and on behalf of the legal heirs who have authorized him. The name of executors should be
General Banking Laws: Page 103 of 116
specified.
Any modification in the Performa, if required, may be got done in consultation and
banks counsel/Law Officer at CO.
Settlement of Claim cases of the deceased customers of the Bank Further simplification of
the procedure
As per the extant guidelines the claims of the deceased customers may be settled in favour of one of
the legal heirs of the deceased if the other legal heirs execute a Power of Attorney (duly notarised) in
his favour on the basis of which such authorized legal heir can sign the Claim Application Form for
himself and for and on behalf of other legal heirs as also execute Indemnity Bond / Letter and give
valid discharge to the bank by signing the Receipt in token of having received the proceedis of the
claim / contents of the locker. This facilitates smooth settlement of the claims as all the legal heirs
need not to join the claim settlement process and visit the branch. The purpose of obtaining the
duly notarized Power of Attorney is that there is a presumption in law that such a Power of
Attorney has been duly executed and the chances of raising dispute in respect of its due
execution are minimized.
However, pursuant to the

Review Meeting of Banking Sector

held at Directorate of Public


Grievances on 27.01.2010, the Authorities desired that the process of settlement of deceased claims
should be further simplified in terms of execution of docuemnts.
Accordingly, it is advised that in respect of claims upto the value of Rs. 2.00 lac in place of existing
requirement of execution of Power of Attornery, a Power of Attorney or a Letter of Consent-
cum-Relinquishment, duly notarized /attested, may be executed by the legal heirs in favour of one
of the major legal heirs to lodge claim, to execute documents, to receive claim amount, etc.
However, the Branch Manager will verifiy the identity of the executants of the Letter to his
satisfaction before acting on the Letter of Consent-cum-relinquishment..
Claim in respect of contents of locker
In respect of claim to a locker, succession certificate should not be asked for as it is not a debt. If
claim is to be settled on the title being legally established, the claimant be advised to bring

Letter
of administration

from the competent court.


- Proper inventory of the contents inside locker be taken in the presence of two independent
witnesses and all the claimants and incumbent incharge/custodian.
- A copy of inventory duly signed by two independent witnesses, claimants, Incumbent
Incharge be placed in the locker.
- Claim case in respect of contents of lockers may be disposed off against execution of
indemnity bond on form as prescribed.
- Procedure of lockers will be applicable for safe custody also
Valuation for the purpose of exercise of powers
In deposit accounts
Saving Fund Balance outstanding
Fixed Deposits Deposit amount
General Banking Laws: Page 104 of 116
Recurring deposits amt. deposited till date of
claim In respect of lockers
Currency, gold, silver be valued alone
For documents like FDR, NSCs, KVPs, Govt. securities sanction should be obtained from Circle
Office for its release.
In case sanction falls under power of Circle Head/GM depending upon the valuation of contents of
lockers, then release of documents such as FDR, NSCs etc. will be done by Circle Head/GM.

CHEQUE COLLECTION POLICY

Background

On the recommendations of IBA and BCSBI and directives of RBI, bank
formulated a policy on cheque collection and placed the same on website so the
public in general can have of the policy



formulated a policy on cheque collection and placed the same on website so the
public in general can have of the policy



Objectives

Our commitment to provide better customer service
Set higher standards of performance
Transparency and fairness in treatment of customers
Quick collection service to customers.


formulated a policy on cheque collection and placed the same on website so the
public in general can have of the policy


Coverage

Collection of cheques payable locally
Time norms for collection of instruments
Payment of interest in cases of delay beyond time norms
Dealing with collection instruments lost in transit


Local cheques

Cheques/Negotiable instruments deposited at the counter or put in the boxes within
branch premises before cut-off time will be presented on the same day and other
cheques received after cut-off time will be presented in next clearing cycle..
Credit will be afforded on the day clearing settlement takes place.
Withdrawals will be permitted as per Cheque Return Schedule of the Clearing
House. Wherever applicable Facility of same day credit can be provided to High
Value customers.

Outstation
Cheques
Collection will be made through bank

s own branches at the center. But in


case there is no branch, the cheque will be collected through other banks
branches.
Bank will also use National Clearing Service offered by RBI at specified
centers.
Branches connected on CBS network will pay the cheques on the same day.
Outstation
Cheques

Speed clearing of RBI is available in all MICR centres. Cheques payable at any
CBS branches of any banks of any centres to be collected through local clearing
and not through outstation collection.
Collection will be made through bank

s own branches at the center. But in case


there is no branch, the cheque will be collected through other banks branches.

General Banking Laws: Page 105 of 116

Collection of third
Party cheque

Bank will also use National Clearing Service offered by RBI at specified centers.
Bank will not collect account payee cheques for any person othr than the payee
constituents.However,
1. Banks may consider collecting account payee cheques drawn for an amount
not exceeding Rs.50,000/- to the account of their customers who are Co-
operative Credit Societies, if the payees of such cheques are the constituents
of such Co-Operative credit societies.
2. While collecting the cheques as aforesaid, Banks should have a clear
representation in writing given by the Co-operative Credit Societies
concerned that upon realization, the proceeds of the cheques will be credited
only to the account of the member of the Co-operative Credit Society, who is
the payee named in the cheque.
3. This shall , however be subject to the fulfillment of the requirements of the
provisions of Negotiable Instruments Act 1881, including section 131.






Cheques payable
in Foreign
Countries
In case the bank has branch at the foreign center, cheque will be collected through
that office.
The services of correspondent banks will be utilized in countries/centers where
correspondent bank has presence.
Otherwise cheques will be sent directly to the drawee banks for collection. The
proceeds will be received through Nostro account of the bank maintained with one
of the correspondent banks.


For purchase of foreign clean instrument,conversion to be done at applicable buying
Rate as on the date of purchase. For instruments sent on collection, rate applicable on
date of conversion of foreign currency to apply.


Speed Clearing
Branches situated at the center where there is no clearing house will present the
cheque across the counter and credit will be afforded at the earliest.

Immediate Credit
Up to 15000/-
All branches and Extension Counters are authorized to consider providing
immediate credit for 3rd party cheques up to aggregate value of Rs.15000/-
(Outstanding at any given point of time) tendered by:
Individual account holders
Staff members are also allowed.
NRIs are excluded
Minors are excluded
The facility is available for SF/CA & CC accounts of the customers.
Pre-Requisites:
The account should be opened at least 6 months earlier
KYC norms have been complied with
Conduct of account has been satisfactory.
No cheques returned unpaid for which immediate credit was afforded during
past 3 months.
There was no difficulty in recovery on account of cheques returned in the
past.
Bank to charge normal collection charges and out of pocket expenses
Bank shall levy normal collection charges and out of pocket expenses while
providing immediate credit against outstation instruments tendered for collection.
Exchange charges applicable for cheque purchase will not, however be charged.
General Banking Laws: Page 106 of 116
Charging of Interest on
cheques returned
unpaid where Instant
Credit was given
Interest on cheques retuned unpaid
SF/CA: No interest will be payable on the amount so accounts credited. Returning
charges and interest @ Clean overdraft rate will be charged on per day basis from
the date of return till date of re-imbursement to the bank/liquidation of OD.
CC/OD. The interest applicable to the account will be accounts recovered from the
date of affording such credit till date of return of the cheque. Further returning
charges and interest @ clean overdraft rate or applicable rate to the account
whichever is higher will be charged till the reimbursement of the amount or
liquidation of Overdraft.
Time Frame for
Collection of Local
Cheques
Credit arising out of local cheques shall be given to the customers accounts
immediately after closure of the relative return clearing and withdrawal shall be
allowed on the same day or maximum within an hour of commencement of
business on the next working day, subject to usual safeguards.


The time frame for
collectio of outstation
cheques
Drawn on CBS branch and presented in Instant credit
CBS branch
Drawn on branches/other banks in Within 7 days
Metro/state capitals
Drawn on branches in Other areas Within 10 days
Drawn on other banks at other areas Within 14 days
For delay over above periods interest to be paid.

Cheques drawn on
foreign countries
Such instruments are drawn on best of efforts basis. Bank may enter into specific
collection arrangement with correspondent bank for speedy collection.
Bank would give credit to the party on credit of proceeds to the
banks Nostro Account with the correspondent bank after taking into account
cooling periods as applicable to countries concerned







Delayed
Collection
Payment of
interest
Interest on delayed collection will be paid without any demand from the customer
in all types of accounts.
Saving/Current accounts
SF rate for the period of delay beyond 7/10/14 days as the case may
be.
FD rate as applicable for the period if delay is beyond 14 days but up
to 90 days.
2% above FD rate if there is delay exceeding 90 days.
Overdraft/Loan accounts
Interest at rate applicable to loan account if delay is up to 90 days.
2% above loan rate if delay is beyond 90 days
Interest to be paid if it amounts Rs. 10/- or more and instruments

Sent for collection in India.
Non CTS cheques:
Customer should be notified that in case of Non CTS cheques, there may be
delay in realization .

General Banking Laws: Page 107 of 116
Instruments Lost
in Transit
The instrument can be lost in transit or during clearing process or at the payee
bank/branch, the bank shall take following steps:
The loss will be brought to the notice of account holder immediately to
enable him to get the payment stopped.
All assistance will be provided to the customer to obtain duplicate cheque
from the drawer.
Compensation
In case intimation of loss is given to the customer beyond stipulated
period of 7/10/14 days, interest will be paid for the period in excess of
stipulated period.
In addition, interest will be paid for further period of 15 days to provide
for further delay in obtaining duplicate cheque and collection thereof.
The bank will also compensate to the customer any reasonable Charges
incurred in recording of Stop Payment instructions and getting a duplicate
cheque upon production of receipt.

Other Provisions Bank will not pay any compensation if delay is due to reasons beyond
Control e.g lockouts, strikes, disturbances, accidents, natural disasters or any
other event.
Customer need not make request for compensation.
Incumbent In charge has full powers to pay compensation.

COMPENSATION POLICY OF PNB

Objective To establish a system, whereby the customer is compensated for the financial loss
due to deficiency in service or an act of omission or commission directly
attributable to the Bank


Coverage The customer as far as possible will be compensated without having to ask
for it. The policy covers compensation only for financial losses which can be
measured directly


Areas and Level of
Compensation
1.
2.
3.
4.
5.
6.
7.
8.
Unauthorized Debit
Payment of cheques after stop payment instructions
Standing Instructions not compiled for
Delay in Remittance
Delay in issuance of duplicate draft
Delay in collection of cheques
Instruments lost in transit
ATM Failure to dispense cash/short cash

General Banking Laws: Page 108 of 116
Unauthorized
Erroneous Debit

Bank will reverse the entry immediately on being informed, after verifing the
position, maximum within 7 days (within 1 month if third party is involved.
Any financial loss due to returning of cheque or interest loss or charging of
penalty for not maintaining minimum balance on this account will be
compensated.
Incase, where neither bank nor customer is at fault, but fault lies
elsewhere(hacking/phishing) the compensation will be limited upto Rs. 5000/-
only.
Erroneous transactions reported by customers in respect of Credit Card
operations which require specific reference to a merchant establishment will
be handled as per rules laid down by card association.

Where it is established that bank had issued and activated a credit card
without written consent of the recipient, the bank would not only reverse the
charges immediately but also pay a penalty without demur to the recipient
amounting to twice the value of charges reversed as per regulatory
guidelines in this regard.

Payment of
cheques after stop
payment
instructions
The bank will reverse such debit within 2 days of error coming to notice.
Besides, any financial loss due to returning of cheque or charging of penalty
for not maintaining minimum balance on this account will be compensated
ECS Directo
debits/other debits to
a/c
The bank will compensate the customer to the extent of financial loss incurred
on account of delay in carrying out the standing instructions. In such case,
charges debited in account will also be reversed.
Delay in Collection
of Outstation Cheques
in India
Interest for delayed collection shall be paid at the following rates without any
demand from customers:
If the proceeds to be credited to Savings Bank or Current account:
i. SF rate for delay up to 14 days.
ii. TD rate for applicable period if delay is beyond 14 up to 90 days.
iii. 2% above TD rate if delay is beyond 90 days.
If proceeds were to be credited to OD/loan account:
i. Interest at rate applicable to loan account.
ii. 2% above loan rate if delay is beyond 90 days.
Interest will be paid only if the amount calculated is Rs. 10/- or more.
Rounding of up to the nearest rupee.



iii.

It may be noted that interest payment as given above would be
applicable only for instruments sent for collection within India and
when the amount calculated is Rs 10/- and above. Interest amount will
be rounded off to the nearest rupee.

Delay in Collection of
Cheques /
Instruments/Bills
(Payable Outside
India)

The compensation on account of delays in collection of instruments would be
as per the FEDAI Rules

Delay in payment of
Inward Remittance
Banks are liable to compensate the beneficiatry for delayed payment of inward
remittance in terms of FEDAI guidelines.
Instruments lost in
Transit/in clearing
house
Bank will compensate the account holder in a way as indicated in Cheque
Collection Policy. Further 15 days interest on the amount at SB rate to provide
for likely further delay in obtaining duplicate instrument. Compensate any
reasonable charges in getting duplicate instrument upon production of receipt.
General Banking Laws: Page 109 of 116
Delay in issuance
of duplicate draft
Duplicate draft will be issued within 15 days from date of receipt of request
from the applicant. In the event of delay, interest @ FD rate of the
corresponding period will be paid.
ATM Failure to
dispense cash/short
cash
Bank to reimburse the customer, the amount wrongfully debited on account of
failed ATM within a maximum period of 7 working days from the receipt of
the complaint. For any failure to re-credit the customers account within 7
working days from the date of receipt of the complaint, bank shall pay
compensation of
Rs.100/- per day. This compensation shall be credited to the customers
account, on the same day when bank affords the credit for the failed ATM
transactions. Customer is entitled to receive such compensation only if claim is
lodged within 30 days of the date of transaction. Further, this is applicable for
domestic ATM transactions only. Details of charge back in case of ATM
transaction by a customer of the bank when he uses other bank ATM may be
included.
Delay in disbursement
of revised pension and
arrears
All the pensioners are compensated for the delayed period, if delay is on the
part of the bank, beyond the due date at the bank rate + 2% penal interest.
Compensation shall be credited automatically without any claim from the
pensioner on the same day when the bank affords the credit.

Violation of the Code
by banks agent

Matter to be investigated and informed the finding to customer within 7 days
from the date of complaint and if justified, compensation to be paid for any
inancial loss to customer.
Transaction of at Par
instruments Of
cooperative banks
Without prior arrangement, bank will not honour cheques drawn on current
accounts maintained by cooperative banks for funding cheques issued. Issuing
bank is liable to compensate the cheque holder for non payment/ delayed
payment.


GRIEVANCE REDRESSAL POLICY
Background On the recommendations of IBA and BCSBI and directives of RBI, bank
formulated a Grievance Redressal policy and placed the same on website
www.pnbindia.in so the public in general can have view of the policy.
Principals of
policy
Fair treatment to customers
Prompt redressal of customers complaints
Information about avenues to escalates grievances by customers within the
organization.
Rights of customers to alternative remedy
Complaint A complaint is expression of dissatisfaction with regard to products/services
offered by the organization. The complaint may arise due to :
Attitudinal aspects in dealing with customers.
Deficiency of service
General Banking Laws: Page 110 of 116
Internal
Machinery to
handle
complaints
1. Customer Service Committee of Board
Customer Service Committee of Board will be ultimately responsible for
rendering compliant free customer service in the bank to both depositor and
borrower. The sub-committee would formulate different policies, conduct surveys
and audit of customer service at branch level. This committee will also review
functioning of Standing Committee on customer service.
2. Standing Committee on Customer Service
This committee will be chaired by ED of the bank. The committee would include
2-3 senior executives of the bank besides 2-3 public representatives. The
committee will perform the following functions:
Evaluation of feedback on quality of customer service
Implementation of commitments in Code of Banks commitment to
Customers
Ensuring that all regulatory instructions regarding customer service are
being followed.
Consideration of un-resolved complaints and offering advice.
Submission of report on its performance to Customer service Committee of
Board on quarterly basis.
Nodal Officer
and other
Officers
A nodal officer appointed at HO/Circle level is responsible for implementation of
customer service and handling of complaints. The names, addresses and e-mail
contact numbers of all nodal officers will be made public.
Code
Compliance
Officer
Our bank has adopted BCSBI

s code of bank

s commitment The copy of code is


being provided to each customer and displayed at website. Bank has designated
a GM as Principal Code Compliance Officer at HO level and code compliance
officer at each controlling office. The name and address of code compliance officer
will be displayed at each branch.
Registration of
Compliant
A customer may lodge complaint either in writing or over telephone or through e -
mail. The record of the complaint will be kept for 3 years and due
acknowledgement will be sent to the complainant.
Written complaint
The complaint may be made in writing on simple paper or on complaint form
(available with branches). The complaint forms have also been provided at banks
website www.pnbindia.in. The customer can also obtain complaint book from the
BM and record its grievances. The complaint-cum suggestion box can also be used
by the customer.
Telephonic complaint: The customer can ring the BM or the Chief Host of
controlling office whose name, address and phone no. will be displayed at the
branch.
Customer Relationship Center: The customer can approach the Customer
Relationship Center of the bank in Gurgaon over Toll Free Number 1800 180 2222
assessable over landline BSNL 24 hours a day. The contact number for Mobile
Users as well as for Landline users other than BSNL is 0120-2490000 which is a
paid number.
E-mail complaints: The customer can submit complaints on e-mail also to Nodal
Officer whose e -mail address is displayed at each branch.

General Banking Laws: Page 111 of 116
Resolution of
Grievances &
Education to
the customer
The BM is ultimately responsible for resolution of the complaint. Consequent upon
his failure to do so, next higher authority will be will find suitable solution to
address the issue within a reasonable time. The acknowledgement will be sent
within maximum period of 1 weeks. Bank

s endeavor will be to resolve the issue at


earliest possible. However if it requires some time to examine the matter, final
response will be submitted within 6 weeks of receipt of the complaint. In case, the
customer is not satisfied with the remedial action taken by the bank, he will be
informed to adopt any of the following recourse.
1. Directorate of Public Grievances, Govt. of India located at Cabinet
Secretariat, Sansad Marg, New Delhi
2. Banking Ombudsman located in state capitals. The customer may
approach if his grievances are not redressed by the bank and 1 month has elapsed
since lodging of complaint with the bank.

Interaction
with the
Customer
The bank will arrange personal interaction with the customers to remove their
misgivings as under:
1. Personal Hearings
On 15
th
of every month between 3 to 5 PM, any customer can meet BM without
any prior appointment.
2.Customer Service Committees
The customer service Committees have been set up at branch level, Circle level
and HO level. Customer meets are arranged once in a month and customers are
invited therein once in a quarter.
3. Customer Relationship Programmes
Customer Relationship programs are held twice a year at Circle level wherein
customers are invited to know their grievances and have suggestions.



CODE OF BANK

S COMMITMENT TO CUSTOMERS BY BCSBI


Concept
The Banking Codes and Standard Board of India ( BCSBI) has been established as
an independent and autonomous body to watch, monitor and ensure that banking
code and standards adopted by different banks in India are in accordance with the
prescribed standards and these are being adhered to in true spirit.
Objectives
To promote fair banking practices by setting minimum standards in dealing
with the customers.
To enhance transparency so that better understanding between banker and
customer can be achieved.
To encourage market forces through competition.
To promote air and cordial relationship with the customers.
To create confidence of the customers in the system.
1. Applicability Although it is a voluntary code, yet PNB has adopted it for implementation so that
higher standards of Customer Service can be attained. This code underlines the
rights of a customer and their reasonable expectations from the bank. Our
GM(OPSD) is principal Code Compliance Officer. The branches have been
provided with sufficient copies of the Code for distribution thereof
among the customers. The code is also available on website
www.pnbindia.in In the code,

you

denotes the customers and

we

denotes the
bank.
General Banking Laws: Page 112 of 116
2.Commitments To act fairly and reasonably in all our dealings with the customers.
To help the customers understand how our financial products and services
work.
To help the customers use the accounts and services.
To deal quickly and sympathetically with things those go wrong.
To treat all personal information as private and confidential.
To publicize the code.
To adopt and practice a non-discriminatory policy.
3. Information The customer can get information on Notice Board, Telephone, Website or
from branch officials regarding:
Interest rates
Tariffs, fees and charges
Changes in fees and charges
Terms and conditions and changes therein.
The persons who intend to become customers are also welcome to get information
about our products and services.
For the existing customers, if bank has made any change without notice, the same
will be notified within 30 days. If such change is to the disadvantage of the
customer, he/she may close the account within 60 days without notice or switch it
without having to pay any extra charges or interest.
4.Advertising,
Marketing and
Sales
The bank will ensure that all the advertising material for promotion of business is
clear, understandable and not misleading. A separate code for Direct Selling
Agents (DSAs)
5. Privacy And
Confidentiality
The information relating to customers accounts will be treated as private and
confidential except in the cases where the disclosure is compulsory under law or
where bank

s interest is involved e.g. in fraud. The information can be passed on to


credit information agencies provided there is written consent from the customer
and there is due intimation to the customer.
6.Collection Of
Dues And
Repossession Of
Security
Whenever a loan is given to the customers, repayment process and schedule is
intimated to the customers. If a customer does not adhere to the schedule, bank will
follow the procedure of recovery as per law of land. But the recovery process will
be courteous and fair with privacy. Sufficient notices will be served before taking
any legal action. Security Repossession policy will be followed in consonance of
law.
7.Complaints,
Grievances and
Feedback.
There is proper procedure of lodging complaint over telephone to Call Center, by
post to branch/administrative office or through website. The grievances will be
redressed quickly and fairly. Final response will be sent to the customer without
delay. In case the issue is not addressed within 30 days, the
complainant will be free to approach the Banking Ombudsman of the area whose
name and address will be displayed on the Notice Board.
8.Products and
Services.
There is complete information with regard to different products of the bank as
under:
Types of deposit a/cs such as Current, Savings, FD & RD.
Mode of Operation i.e. Single, Joint or other.
Procedure regarding opening of accounts and operation thereof.
Changing and transfer of account of the customers
Minimum balances charges and Statement of accounts.
Pre-mature withdrawal and renewal of Overdue FDs.
General Banking Laws: Page 113 of 116
Advance against deposits
Accounts of Minors and other special accounts
No Frills accounts and accounts of Senior Citizens.
Inoperative and Dormant accounts and Closure thereof.
Clearing Cycle and Collection services.
Cash Transactions.
Standing Instructions and Stop Payment Facility.
Branch Closure and shifting of premises.
Settlement of deceased claims
Safe Deposit Lockers & Forex services
Lending, Loan Products , Guarantees and Credit Cards
If customer is not happy about choice of current or saving account within 14 days,
bank will help him switch to another of bank

s accounts or money will be returned


with interest applicable and without levying any charges. Under normal
circumstances, the account will not be closed without giving notice of 30 days.
Examples of circumstances, which are not normal include improper conduct of the
account. In such cases, the customer will be required to make alternative
arrangement for cheques already issued and desist from issuing further cheques in
the account.
Notice of 3 months will be given if bank plans to close the branch. However
notice period will be reduced to 2 months if any other bank/branch is
operating in the area.
Time limit for settlement of claims is 15 days from date of submission of claim
forms.
9. Protecting
Accounts of
Customers
Bank will take all reasonable steps to protect the accounts of the customers
through reliable banking and payment system. The customer is also required
to adopt following precautions.
Keep the bank Up-to-date with regard to name, address, phone no. and E-
mail address.
Check Statement of Account/ Passbook regularly and inform the bank about
any discrepancy.
Not to keep cheque book and cards together and refrain from keeping blank
cheque leaves signed.
Not to write down any PIN, password or security information.
Choosing of PIN carefully and keeping them secret.
Inform the bank immediately about any loss of Card/Cheque book.
Take care of Cheque books/cards and Passbooks and other security
information.
Visit Internet Banking site directly and do not use any other link site to
open IBS. Ignore any E-mail asking PIN/password. Also do not use Cyber
Cafe for IBS.
Change Password frequently and log off PC when not in use.
10. Monitoring
BSBI having directors from the Governing Council will monitor implementation of
the Code in different banks. The BCSBI is situated in RBI Building at Mumbai.
11. Getting Help The customers having any enquiry may call at toll free number 1800-180-2222 of
Call Center Noida or IBA office situated at Mumbai.
General Banking Laws: Page 114 of 116
12.Review of
Code
The code will be reviewed by BCSBI with in a period of 3 years in a transparent
manner.
13. Lockers Lockers shall be issued to the customers to the extent of 80% of total on the basis
of First Come First Serve and the remaining 20% would be issued as per discretion
of the BM. All the applications received for issuance of lockers will be
acknowledged. Waiting list will be prepared and waiting list number be allocated
to the applicants as per the code approved.
Closure of
Deposit account
The customer will be at liberty to continue the account with the branch/bank at his
will. However, if he requests for closure of account, the same will be complied
immediately. In case, the request for closure of the account through any other
branch of the bank or other bank, the account will be closed within maximum 5
working days.
Transfer of
Account
If the customer makes request to transfer the account to another branch of our
bank, the bank will do so and ensure that the account may be
operationalised within 2 weeks.

RIGHT TO INFORMATION ACT 2005
Right to information Act(RTI) , 2005 has come into force in India (except J&K) w.e.f. October, 13,
2005. This law places India among 55 countries in the world to have such legislation and is expected
to usher India into a modern era of transparency and accountability. It empowers the Central
Information Commission (headed by Chief Information Commissioner) or State Information
Commission to received complaints if a Public Information Officer( PIO) does not provide correct
and timely information.
What is RTI: U/s 2-j, It is right to information available to Indian citizens to access the
information (including inspection) under control of the public authorties.
Who can get the information: Only citizens of India can get information from Public
authorities. Hence, the information seeker will have to give his citizen status while seeking the
information.
Information (Sec2-f): It means the material in any form i.e. records, documents, memos, e-mail,
opinions, advices, press releases, circulars, orders , log books, contracts, reports, papers, samples,
models, data material held in any private body that can be accessed by a Public Authority under any
law for the time being, in force, Sections 8 & 9, provide for certain categories of information that is
exempt from disclosure.
Coverage/Public Authority (Sec 2-h): Public Authority under RTI Act, means any authority or
institution established under the Constitution, law made by Parliament/ State Legislature or by
notification issued or order made by the appropriate Government. It includes large departmental
undertakings including Railways, Telecom, Postal Services, Passport and Banking.
Obligations to maintain and publish information (Section 4): Every Public Authority is required
to maintain all its records duly catalogued and indexed in a manner and in the form which facilitates
the right to information under this Act and ensure that all records that are appropriate to be
computerized are, within a reasonable time and subject to availability of resources, computerized
General Banking Laws: Page 115 of 116
and connected through a network all over the country on different systems so that access to such
records is facilitated.
Who is to provide information: Each organization will have Public Information Officer to provide
this information who is to route the requests to the relevant departments.
Banks obligation under the Act: Reserve Bank of India and public sector Banks are a pubic
authority as defined in the Right to Information Act, 2005. As such, they are obliged to provide
information to members of pubic.
How to make an application under the Act: Citizens of India will have to make the request for
information in writing, clearly specifying the information sought under the RTI Act, 2005. The
application for request should give the contact details (postal address, telephone number, fax
number, email address) so that the applicants can be contacted for clarifications or the information.
Fee for seeking information: A request for obtaining information under Section 6(1) is to be
accompanied by an application fee of Rs. 10.
Reply: Requests for information will be way of letters or eMail to be sent to PIO. Response must
come in 30 days. For cases concerning life and liberty, it must come within 48 hours.
Rejections: Rejection has to be in writing, giving reasons.
IMPORTANT CHANGES

INACTIVE ACCOUNTS
In terms of extant guidelines, Current Accounts, in which there are no Customer-induced
transactions for a period of 6 months (12 months for Saving Fund Accounts) become dormant
(Inactive under CBS) and if there is no transaction for a further period of 30 months (24 months for
savings a/c) the accounts become Inoperative (Dormant in CBS).
An Inactive Account continues to be maintained along with the Operative Accounts, the Dormant
Accounts are transferred to a separate Accounting Head. The classification of an account as
Inactive / Dormant is done through a Batch-job run from the Data Center at Head Office, with
reference to the date of last Customer-induced transaction taken place in the account.
The guidelines on transfer of deposit accounts to in-operative accounts, their maintenance and
related procedures, are contained in Book of Instructions (Routine) and subsequent circulars, issued from
time to time.

Further, vide IAD Circular No. 77/2010 dated 08.10.2010, branches were advised about the types of
transactions which are treated as Customer Induced Transaction.
Vide the above referred IAD Cir. dated 08.10.2010, branches were also advised that they should
extract Report on transactions posted in Inactive Account at Service SOLs by invoking
Menu Option EXCPRPT and take steps for changing the status of account from Inactive to
Active.

As a measure to further improve the customer service and allow them to avail uninterrupted
transactions in their accounts, a report (PNBRPT 9/126b, MIS Server) has been customized in CBS. The
report would list out the accounts which have not been operated upon for 11 months (5 months in case of
Current Account).
REVISED SYSTEM OF MAINTENANCE, CUSTODY AND PHYSICAL VERIFICATION OF
SECURITY FORMS
General Banking Laws: Page 116 of 116
Detailed guidelines relating to custody and physical verification of security forms are contained in Chapter
XII of the Book of Instructions (Operation) as also in the circulars / circular letters issued from time to
time.

2. Since the issue of existing guidelines, following changes have been circulated in the matter
of maintenance of Security Forms:
2.1 Rupee Traveler Cheques, Transfer Payment Orders, Fixed Deposit Receipts Security Forms
have since been discontinued,
2.2 All our branches are now migrated to CBS. Under CBS, particulars of the draft issued are
displayed over the Computer Monitor. Hence the risk on account of chances for payment of Fake draft are
reduced to a greater extent,
2.3 Cash Orders are now issued by those branches only which are located at a station where no other
branch is functioning. Moreover, the particulars are displayed over the Monitor, as in the case of
Drafts,
2.4 Bank has started issuing Personalised Cheque Book. These Cheque Books are dispatched at the
registered address of the account holders. Sometimes the Cheque Book so dispatched is received
GBR Chapter 2Page 102 of 103 back as undelivered due to various reasons. Transaction Banking
Division, HO, has circulated guidelines interalia advising branches that these chequebooks would be
preserved like stock of blank security forms.
2.5 TBD has also issued guidelines that the Debit Cards (both personalized and non-personalized), the
related PIN Mailers and the PIN Mailers for customers applying for Internet Banking Service would be
kept under dual custody as applicable to security forms.
3. Further, increase in the cheque related frauds has been observed where fraudsters are
successful in getting payments of fake / fabricated cheque, the original of which is in the possession
of the account holders.
4. In view of the above noted changes and also on the basis of feedback received from the field,
the guidelines on maintenance, custody and physical verification of Security Forms have been
reviewed and amended by Executive Committee vide Resolution No. 7, EC Meeting dated
17/18.02.2011. The salient changes made are listed hereunder:
(i) Classification of security forms as High Risk / Low Risk has been done away with,
(ii) Stock of all Security Forms, Debit Cards, PIN Mailers for Debit Cards, Pin Mailers for
IBS Customers would be kept in the custody of two officials. Branches where only one officer
(Incumbent Incharge) is posted, the security forms may be kept in the single custody of
Incumbent Incharge.
(iii) The Debit Cards & related PIN Mailers and IBS PIN Mailers shall be recorded in a
separate register as prescribed by TBD.
(iii) Personalised Cheque Books received back as undelivered shall be treated at par with the stock of
blank security forms with the branch. These Cheque Books would be entered in a separate Security Form
Register, to be maintained manually at the branches.
(iv) Stock of Security Forms, Debit Cards & related PIN Mailers, PIN Mailers for IBS
Customers would be kept in a fireproof cabinet / safe in the strong room. The fireproof cabinet /
safe must have double locking arrangement.
(v) The existing system of surprise physical verification of Security Forms by Incumbent of
the branch / Circle Office / Concurrent Auditors would continue. Such surprise verification
would include verification of Debit Cards, PIN Mailers.

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