Banker

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BANKER-CUSTOMER RELATIONSHIP
The relationship between banker and customer is mainly that of a debtor and creditor.
However, they also share other relationships.
Some of the important relationships they share are depicted below.
1) Debtor and Creditor,

2) Pledger and Pledgee,
3) Licensor and Licensee,
Banker- 4) Bailor and Bailee,
Customer 5) Hypothecator and Hypothecatee,
Relationship 6) Trustee and Beneficiary,
7) Agent and Principal,
8) Advisor and Client, and
9) Other Miscellaneous Relationships
Relationship of Debtor and Creditor

When a customer opens an account with a bank and if the account has a credit balance,
then the relationship is that of debtor (banker / bank) and creditor (customer).
In case of savings / fixed deposit / current account (with credit balance), the banker
is the debtor, and the customer is the creditor. This is because the banker owes money to
the customer. The customer has the right to demand back his money whenever he wants it
from the banker, and the banker must repay the balance to the customer.
In case of loan / advance accounts, banker is the creditor, and the customer is the
debtor because the customer owes money to the banker. The banker can demand the
repayment of loan / advance on the due date, and the customer has to repay the debt.
A customer remains a creditor until there is credit balance in his account with the banker.
A customer (creditor) does not get any charge over the assets of the banker (debtor). The
customer's status is that of an unsecured creditor of the banker.
The debtor-creditor relationship of banker and customer differs from other
commercial debts in the following ways:
1) The creditor (the customer) must demand payment. On his own, the debtor (banker)
will not repay the debt. However, in case of fixed deposits, the bank must inform a
customer about maturity.
2) The creditor must demand the payment at the right time and place. The depositor
or creditor must demand the payment at the branch of the bank, where he has
opened the account. However, today, some banks allow payment at all their branches
and ATM centres. The depositor must demand the payment at the right time
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(during the working hours) and on the date of maturity in the case of fixed
deposits. Today, banks also allow pre-mature withdrawals.
3) The creditor must make the demand for payment in a proper manner. The demand
must be in form of cheques; withdrawal slips, or pay order. Now-a-days, banks allow
e-banking, ATM, mobile-banking, etc.
Relationship of Pledger and Pledgee

The relationship between customer and banker can be that of Pledger and Pledgee. This
happens when customer pledges (promises) certain assets or security with the bank in
order to get a loan. In this case, the customer becomes the Pledger, and the bank becomes
the Pledgee. Under this agreement, the assets or security will remain with the bank until a
customer repays the loan.
Relationship of Licensor and Licensee
The relationship between banker and customer can be that of a Licensor and Licensee.
This happens when the banker gives a sale deposit locker to the customer. So, the banker
will become the Licensor, and the customer will become the Licensee.
Relationship of Bailor and Bailee
The relationship between banker and customer can be that of Bailor and Bailee.
1) Bailment is a contract for delivering goods by one party to another to be held in
trust for a specific period and returned when the purpose is ended.
2) Bailor is the party that delivers property to another.
3) Bailee is the party to whom the property is delivered.
So, when a customer gives a sealed box to the bank for safe keeping, the customer became
the bailor, and the bank became the bailee.
Relationship of Hypothecator and Hypothecatee
The relationship between customer and banker can be that of Hypothecator and
Hypotheatee. This happens when the customer hypothecates (pledges) certain movable or
non-movable property or assets with the banker in order to get a loan. In this case, the
customer became the Hypothecator, and the Banker became the Hypothecatee.
Relationship of Trustee and Beneficiary
A trustee holds property for the beneficiary, and the profit earned from this property
belongs to the beneficiary. If the customer deposits securities or valuables with the
banker for safe custody, banker becomes a trustee of his customer. The customer is the
beneficiary so the ownership remains with the customer.
Relationship of Agent and Principal
The banker acts as an agent of the customer (principal) by providing the following agency
services:
1) Buying and selling securities on his behalf,
2) Collection of cheques, dividends, bills or promissory notes on his behalf, and
3) Acting as a trustee, attorney, executor, correspondent or representative of a
customer.
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Banker as an agent performs many other functions such as payment of insurance premium,
electricity and gas bills, handling tax problems, etc.
Relationship of Advisor and Client
When a customer invests in securities, the banker acts as an advisor. The advice can be
given officially or unofficially. While giving advice the banker has to take maximum care
and caution. Here, the banker is an Advisor, and the customer is a Client.
Other Relationships
Other miscellaneous banker-customer relationships are as follows:
Obligation to Honour Cheques : As long as there is sufficient balance in the account of
the customer, the banker must honour all his cheques. The cheques must be complete and
in proper order. They must be presented within six months from the date of issue.
However, the banker can refuse to honour the cheques only in certain cases.
Secrecy of Customer's Account : When a customer opens an account in a bank, the
banker must not give information about the customer's account to others.
Banker's right to claim Incidental Charges : A banker has a right to charge a commission,
interest or other charges for the various services given by him to the customer. For e.g.
an overdraft facility.
Law of limitation on Bank Deposits : Under the law of limitation, generally, a customer
gives up the right to recover the amount due at a banker if he has not operated his
account since last 10 years.
So, these were some important banker-customer relationships.
ANTI-MONEY LAUNDERING
INTRODUCTION
Money laundering is a term used to describe a scheme in which criminals try to disguise
the identity, original ownership, and destination of money that they have obtained through
criminal conduct. The laundering is done with the intention of making it seem that the
proceeds have come from a legitimate source. A simpler definition of money laundering
would be a series of financial transactions that are intended to transform ill-gotten gains
into legitimate money or other assets.
DEFINITION
The act of disguising the source or true nature of money obtained through illegal means.
WHAT IS MONEY LAUNDERING

When money is obtained from criminal acts such as drug trafficking or illegal gambling, the
money is considered dirty in that it may seem suspicious if deposited directly into a bank
or other financial institution. Because the moneys owner needs to create financial records
ostensibly showing where the money came from, the money must be cleaned, by running it
through a number of legitimate businesses before depositing it, hence the term money
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laundering. Because the act is specifically used to hide illegally obtained money, it too is
unlawful.
STEPS IN MONEY LAUNDERING
Steps in Money Laundering
Placement Stage Layering Stage Integration Stage
PLACEMENT STAGE
The placement stage represents the initial entry of the "dirty" cash or proceeds of crime
into the financial system. Generally, this stage serves two purposes: (a) it relieves the
criminal of holding and guarding large amounts of bulky of cash; and (b) it places the money
into the legitimate financial system. It is during the placement stage that money
launderers are the most vulnerable to being caught. This is due to the fact that placing
large amounts of money (cash) into the legitimate financial system may raise suspicions of
officials.
The placement of the proceeds of crime can
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tNVEw/view?usp=drivesdked to a country, or the launderer could use smurfs to defeat
reporting threshold laws and avoid suspicion. Some other common methods include:
1) Loan Repayment
2) Gambling
3) Currency Smuggling
4) Currency Exchanges
5) Blending Funds
LAYERING STAGE
After placement comes the layering stage (sometimes referred to as structuring). The
layering stage is the most complex and often entails the international movement of the
funds. The primary purpose of this stage is to separate the illicit money from its source.
This is done by the sophisticated layering of financial transactions that obscure the audit
trail and sever the link with the original crime.
During this stage, for example, the money
launderers may begin by moving funds electronically from one country to another, then
divide them into investments placed in advanced financial options or overseas markets;
constantly moving them to elude detection; each time, exploiting loopholes or discrepancies
in legislation and taking advantage of delays in judicial or police cooperation.
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INTEGRATION STAGE
Returning the money back into the financial world so that it appears legitimate.
MONEY LAUNDERING TECHNIQUES

There are many forms of money laundering though some are more common and profitable
than others. Some of the more popular money laundering techniques include:
Bulk Cash Smuggling involves literally smuggling cash into another country for deposit into
offshore banks or other type of financial institutions that honor client secrecy.
Structuring, also referred to as smurfing, is a method in which cash is broken down into
smaller amount, which are then used to purchase money orders or other instruments to
avoid detection or suspicion.
Trade-based Laundering is similar to embezzlement in that invoices are altered to show a
higher or lower amount in order to disguise the movement of money.
Shell Companies and trusts are used to disguise the true owner or agent of a large amount
of money.
Bank Capture refers to the use of a bank owned by money launderers or criminals, who
then move funds through the bank without fear of investigation.
Real Estate Laundering occurs when someone purchases real estate with money obtained
illegally, then sells the property. This makes it seem as if the profits are legitimate.
Casino Laundering involves an individual going into a casino with illegally obtained money.
The individual purchases chips with the cash, plays for a while, then cashes out the chips,
and claims the money as gambling winnings.
ANTI-MONEY LAUDERING
DEFINITION
Anti-money laundering (AML) refers to a set of procedures, laws or regulations designed
to stop the practice of generating income through illegal actions. In most cases, money
launderers hide their actions through a series of steps that make it look like money that
came from illegal or unethical sources was earned legitimately.
ANTI-MONEY LAUNDERING REGULATIONS

The Financial Action Task Force (FATF)
The Financial Action Task Force (FATF) is an inter-governmental policymaking body that
has a ministerial mandate to establish international standards for combating money
laundering and terrorist financing. India joined the Financial Action Task Force (FATF) as
its 34th member in June 2010. The FATF has developed recommendations to combat
money laundering, and the agency has three functions in regards to this criminal activity:
1) Monitoring the progress of member countries in their anti-money laundering
measures
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2) Reviewing trends and techniques in money laundering, reporting these, as well as

new countermeasures, to member countries
3) Promoting FATF anti-money laundering measures and standards globally
Bank Secrecy Act - BSA

Government legislation that was created in 1970 to prevent financial institutions from
being used as tools by criminals to hide or launder their ill-gotten gains. This is achieved
by requiring banks and other financial institution to provide documentation (such as
currency transaction reports) whenever clients deal with transactions that involve
substantial sums of money ($10,000 or more) that appear to be suspicious. This way,
authorities have the ability to easily reconstruct the entire situation.Also known as
"Currency and Foreign Transactions Reporting Act".
Know your Customer (KYC)

Know your customer (KYC) is a bank regulation that financial institutions and other
regulated companies must perform to identify their clients and ascertain relevant
information pertinent to doing financial business with them.
What are Objectives of KYC?
Money laundering is a growing menace and it not only poses serious threat to the stability
and integrity of the financial system but also to the sovereignty and safety of nations
worldwide. In the coming days, challenges before banks would primarily lie in saving
themselves from the growing threat of money laundering.
1) In India, prevention of money laundering act (PMLA) was passed in 2002 and it has
been aligned with the financial action task force (FATF) recommendations in 2009.
Further, India has become a member of FATF in 2010.
2) Banks are being extensively sensitised about money laundering and KYC norms.
3) In India Banks were advised to follow certain customer identification procedure for
opening of accounts and monitoring transactions of a suspicious nature for the
purpose of reporting it to appropriate authority. These Know Your Customer
guidelines have been revisited time to time in the context of the Recommendations
made by the Financial Action Task Force (FATF) on Anti Money Laundering (AML)
standards and on Combating Financing of Terrorism (CFT).
These standards have become the international benchmark for framing Anti Money
Laundering and combating financing of terrorism policies by the regulatory authorities.
Compliance with these standards both by the banks/financial institutions and the country
have become necessary for international financial relationships.
Other Anti-Money Laundering Regulations

Since the BSA was created, many other legislative acts and money laundering regulations
have came about to strengthen the movement. These include:
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1) The Money Laundering Control Act of 1986, which prohibits engaging in any
transactions involving proceeds generated from illegal activities.
2) The 1988 Anti-Drug Abuse Act, which expanded the definition of financial
institution to include car dealers and real estate personnel, requiring them to file
reports on transactions involving large amounts of currency.
3) The 1992 Annunzio-Wylie Anti-Money Laundering Act, which requires more
strict sanctions for violations of the BSA, and requiring additional verifications,
recordkeeping, and reporting for wire transfers.
4) The Money Laundering Suppression Act of 1994 requires banks to develop and
institute training in anti money laundering examination procedures.
5) The Money Laundering and Financial Crimes Strategy Act of 1998 requires
banking agencies to develop training for examiners.
Unfortunately, as these money laundering
regulations are put into place, criminals work to find new methods to prevent their activity
from becoming detected or considered suspicious.
The Role of Financial Institutions in combating Money Laundering

In this age of electronic transactions to and from financial institutions around the globe,
anti money laundering laws attempt to quell money laundering by requiring these
institutions to identify and report suspicious activities. Technology has also paved the way
for anti-money laundering software, detects large increases in account balances or large
withdrawals, and which filters data and classifies it according to levels of suspicion.
Software is also used to detect transactions with banking institutions in blacklisted or
hostile countries. When such transactions are identified, the program alerts bank
managers who then study the information and decide whether it should be reported to the
government.
Penalties for Money Laundering
The penalties for money laundering vary greatly depending on the circumstance and the
amount of funds involved. The penalties may also vary if the acts occurred in more than
one jurisdiction. In addition to imprisonment, punishment for money laundering may include
large fines, restitution, and community service. Typically, the more money involved, the
harsher the punishment.
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NEGOTIABLE INSTRUMENTS ACT,1881
INTRODUCTION
What is a Negotiable Instrument?
A Negotiable Instrument is that document that includes a promise to pay a certain
amount of money to the bearer of the document. Its a mode of transferring a debt from
one person to another. Negotiable Instruments are always in written form.
Examples - a cheque, a promissory note, a bill of exchange.
DEFINITION
Documents of a certain type which are used in commercial transactions and monetary
dealings, are known Negotiable instruments.
1) Negotiable means transferable by delivery and
2) instrument means a written document by which a right is created in favor of some
person. Thus, negotiable instrument means a document which is transferable by
delivery.
According to Section 13(i) of negotiable instrument Act, 1881 a negotiable instrument
includes and means a promissory note, bill of exchange or cheque.
CHARACTERISTICS
Freely Transferrable: The property in a negotiable instrument gets transferred by a
simple process of mere delivery if it is payable to bearer, endorsement and delivery or
payable to order.
Recovery: One can sue upon the instrument in his own name.
Presumption as to Considerations: These instruments are presumed to have been
1. made,
2. drawn,
3. accepted,
4. endorsed,
5. negotiated
6. or transferred for consideration.
Payable to Order or Bearer: It must be payable either to order or bearer.
Holders title free from all defects: The holder (one who acquires the instrument in good
faith and for consideration) in due course gets title free from all defects.
Presumption as to Holder-:Every holder of negotiable instrument is presumed to be
holder in due course.
KINDS OF NEGOTIABLE INSTRUMENTS
KINDS
Promissory Note Bills of Exchange Cheques Hundis
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PROMISSORY NOTE
Promissory note is defined by Section 4 of the Negotiable Instruments Act.
A promissory note is a financial instrument that contains a written promise by one party
(the note's issuer or maker) to pay another party (the note's payee) a definite sum of
money, either on demand or at a specified future date. A promissory note typically
contains all the terms pertaining to the indebtedness, such as the principal amount,
interest rate, maturity date, date and place of issuance, and issuer's signature.
FORMAT
FEATURES /CHARACTERISTICS
1) The promise must be in writing.
2) The promise must be signed by the maker or payer.
3) The promise must be unconditional.
4) The amount to be paid must be definite in terms of money.
5) It must be payable on demand or at a fixed or determinable future date.
6) It must be payable to a definite person. The Payee must be certain.
7) Promissory note must bear stamp at the rate prescribed by law of a country.
PROMISSORY NOTE PARTIES

1) Maker or Drawer
2) Drawee or Payee
Maker or Drawer is the person who makes or draws the promissory note. He is also called
the promisor.
Drawee or Payee is the person in whose favour the promissory note is drawn. He is called
the promisee
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BILL OF EXCHANGE
According to Section 5 of the Negotiable Instruments Act,
A bill of exchange is an instrument in writing containing an unconditional order, signed by
the maker, directing a certain person to pay a certain sum of money only to, or to the
order of, a certain person or to the bearer of the Instrument.
FORMAT
A bill of exchange normally includes the following information:

1) Title. The term "bill of exchange" is noted on the face of the document.
2) Amount. The amount to be paid, expressed both numerically and written in text.
3) As of. The date on which the amount is to be paid. Can be stated as a certain
number of days after an event, such as a shipment or receipt of a delivery.
4) Payee. States the name (and possibly the address) of the party to be paid.
5) Identification Number. The bill should contain a unique identifying number.
6) Signature. The bill is signed by a person authorized to commit the drawee to pay
the designated amount of funds.
FEATURES
1) The order to pay a bill must be unconditional one.
2) The order to pay must be made in writing on the bill.
3) The bill must be signed by the drawer of the bill. Without signature of the drawer
the bill will not be genuine one.
4) The order to pay under a bill must be addressed to a certain person which, of
course, includes individuals, firm, company, corporation etc.
5) The amount to be paid under a bill must be certain one.
6) The money under a bill must be paid in legal tender currency.
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7) The amount should be payable to or to the order of a specified person or to the

bearer of the instrument.
8) The amount should be payable either on demand or at a fixed determinable future
time.
9) The bill must be duly stamped.
10) The other formalities like dating, stating the names of the parties concerned etc.
must be observed.
BILLS OF EXCHANGE PARTIES

1) Drawer This is the person who writes and signs the bill.
2) Drawee This is the person on whom the bill is drawn.
3) Acceptor This is the person who accepts the bill. In practice, the drawee is the
acceptor but a third person may accept a bill on behalf of the drawee.
4) Payee This is the person to whom the money stated in the bill is payable. He may be
the drawer or any other person to whom the bill has been endorsed.
5) Holder This is the person who is in the possession of the bill, after being drawn.
He/She may be the original payee, endorsee and bearer in case of a bearer bill.
6) Endorser The person, either the drawer or holder, who endorses the bill to any one
by signing on the back of it is called an endorser.
7) Endorsee He/She is the person in whose favor the bill is endorsed.
TYPES OF BILLS OF EXCHANGE

Inland Bills : Inland bill means the bill which is drawn and payable within the same country.
Thus, the bill which is drawn in Pakistan and will also be paid in Pakistan is termed as an
inland bill.
Foreign Bill: The bill which is drawn in one country and accepted and payable in another
country is known as a foreign bill.
Accommodation Bill: The bill which is drawn and accepted by the parties concerned for
their mutual accommodation with a view to raise money by negotiating it, is known as an
accommodation bill. The parties concerned bind themselves as the drawer and the
acceptor without any valuable consideration.
Demand Bill: The bill which is payable on demand or on presentation or at sight is
known as demand bill.
Time Bill: The bill which is payable at a fixed or a determinable future time is known as
time bill. The time bill may further be classified as following:
a) After Date Bill: The bill whose tenure is counted from the date of drawing it is
known as after date bill.
b) Sight Bill: The bill whose date of payment is counted from the date of acceptance
is known as after sight bill.
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DIFFERENCE BETWEEN PROMISSORY NOTE AND BILLS OF EXCHANGE

Basis for
Comparison Bills of Exchange Promissory Notes
Bill of Exchange is an instrument A promissory note is a written
in writing showing the promise made by the debtor to pay
Meaning indebtedness of a buyer towards a certain sum of money to the
the seller of goods. creditor at a future specified date.
Defined in Section 5 of Negotiable Section 4 of Negotiable Instrument

Instrument Act, 1881. Act, 1881.
Drawn by Creditor Debtor
A bill of exchange requires an promissory note does not require
Acceptance acceptance of the drawee before any acceptance since it is signed by
it is presented for payment. the persons who is liable to pay.
Parties Three parties, i.e. drawer, Two parties, i.e. drawer and payee
drawee and payee.
Liability of a drawer of bill of Liability of the maker of a
exchange is secondary and promissory note is primary and
Liability conditional. It is only when the absolute.
drawee fails to pay that the
drawer would be liable as a
surety.
Copies A bill of exchange can be drawn Promissory Note cannot be drawn in
in sets sets.
CHEQUE
Cheque is an instrument in writing containing an unconditional order, addressed to a
banker, sign by the person who has deposited money with the banker, requiring him to pay
on demand a certain sum of money only to or to the order of certain person or to the
bearer of instrument."
FORMAT
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DIFFERENT KINDS / TYPES OF CHEQUES

1) Bearer Cheque
2) Order Cheque
3) Uncrossed / Open Cheque
4) Crossed Cheque
5) Post-Dated Cheque
6) Anti-Dated Cheque
7) Stale Cheque
Bearer Cheque: When the words "or bearer" appearing on the face of the cheque are
not cancelled, the cheque is called a bearer cheque. The bearer cheque is payable to the
person specified therein or to any other else who presents it to the bank for payment.
However, such cheques are risky, this is because if such cheques are lost, the finder of
the cheque can collect payment from the bank.
Order Cheque: When the word "bearer" appearing on the face of a cheque is cancelled
and when in its place the word "or order" is written on the face of the cheque, the cheque
is called an order cheque. Such a cheque is payable to the person specified therein as the
payee, or to any one else to whom it is endorsed (transferred).
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Uncrossed / Open Cheque: When a cheque is not crossed, it is known as an "Open

Cheque" or an "Uncrossed Cheque". The payment of such a cheque can be obtained at the
counter of the bank. An open cheque may be a bearer cheque or an order one.
Crossed Cheque: Crossing of cheque means drawing two parallel lines on the face of the
cheque with or without additional words like "& CO." or "Account Payee" or "Not
Negotiable". A crossed cheque cannot be encashed at the cash counter of a bank but it can
only be credited to the payee's account.
Anti-Dated Cheque: If a cheque bears a date earlier than the date on which it is
presented to the bank, it is called as "anti-dated cheque". Such a cheque is valid upto
three months from the date of the cheque.
Post-Dated Cheque: If a cheque bears a date which is yet to come (future date) then it
is known as post-dated cheque. A post dated cheque cannot be honoured earlier than the
date on the cheque.
Stale Cheque: If a cheque is presented for payment after three months from the date
of the cheque it is called stale cheque. A stale cheque is not honoured by the bank.
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Hundis
An age-old tradition of business transactions, peculiar to India, Hundis are negotiable
instruments written in various vernacular local languages in the country. The term is
derived from the Sanskrit word hundi which means to collect. These are generally in the
form of bills of exchange but may sometimes look like promissory notes in shape and
contents.
In other words, a hundi, though a negotiable instrument, is not necessarily a bill of
exchange as defined in the Act per se. Hundis are popular among Indian merchants,
especially those operating in sub-urban areas, even today, and are governed by the
Negotiable Instrument Act,1881 unless there is a local usage to the contrary.
Forms or Types of Hundis
1) Darshani hundi
2) Shahjog hundi
3) Dhanijog hundi
HUNDIS 4) Jawabee hundi
5) Firmanjog hundi
6) Miadi hundi
7) Namjog hundi
8) Jokhmi hundi
9) Zikri hundi
DarshaniHundi: A hundi payable at sight is called darshani hundi. It is negotiable and is

like a demand bill. It may be sold at par or at premium or at discount. A darshani hundi
should be presented for payment within a reasonable time of its receipt by the holder. If
the drawer suffers a loss due to delay in presentment, holder shall be responsible for it.
Miadi Hundi: Also known as muddati hundi, miadi hundi is one which is payable after a
specified period of time like a time bill. Banks usually provide loans against the security of
such hundis.
ShahjogHundi: This is a hundi made payable only to a Shah (a respectable person of
financial worth and substance in the market). It may be miadi or darshani and can be
transferred freely from one person to another by mere delivery but it is not payable to
bearer. In some respects it is similar to a crossed cheque.
NamjogHundi: It is a hundi payable to the party named in the hundi or his order. Such a
hundi is similar to a bill of exchange payable to order.
Dhanijog Hundi: Dhani in vernacular language means owner. Thus, a dhanijog hundi is one
which is made payable to the owner, or a holder or bearer-owner. It is just like a bearer
cheque and the holder of it becomes holder in due course if he takes it bona fide and for
value.
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JawabeeHundi: A hundi, which is in the form of letter or recommendation to a banker for

payment of a certain sum of money to a specified person, is termed as jawabi hundi.
ZikriHundi: This is a hundi accepted for honour in writing on a Zikri chit (letter of
protection) without being protested. It is drawn in the name of a specified person residing
in the town or city where the hundi is payable. In case, acceptance is refused by the
drawee or when a refusal is likely to occur, the hundi is furnished to the holder by some
prior party to it.
FirmanjogHundi: The term Firman refers to order in vernacular language and therefore, a
firmanjog hundi is made payable to the order of payee. It is just opposite of dhanijog
hundi which is payable to the bearer only.
JokhmiHundi: The term Jokhmi has been derived from the Hindi word jokhim meaning
risk. Such a hundi is usually drawn against goods shipped on a vessel and implies a certain
risk involved in the shipment of goods. Jokhmi hundi, in fact, is a combination of bill of
exchange and insurance policy and payable only when the goods arrive in safe and sound
condition. If the goods are lost in transit, the consignor cannot claim payment of the hundi
from the consignee, i.e., the drawee.
TYPES OF ACCOUNTS
1) Savings Accounts
2) Current Accounts
3) Recurring Deposits Accounts
4) Fixed Deposit Account
5) Joint Account
6) DEMAT Account
7) NRI Account
SAVINGS ACCOUNTis an interest-bearing deposit account held at a bank or another
financial institution that provides a modest interest rate. Banks or financial institutions
may limit the number of withdrawals you can make from your savings account each month,
and they may charge fees unless you maintain a certain average monthly balance in the
account. In most cases, banks do not provide checks with savings accounts.
CURRENT ACCOUNT - Current Accounts are basically meant for businessmen and are
never used for the purpose of investment or savings. These deposits are the most liquid
deposits and there are no limits for number of transactions or the amount of transactions
in a day. Most of the current account are opened in the names of firm / company accounts.
Cheque book facility is provided and the account holder can deposit all types of the
cheques and drafts in their name or endorsed in their favour by third parties. No interest
is paid by banks on these accounts. On the other hand, banks charges certain service
charges, on such accounts.
RECURRING DEPOSITSFixed amount is deposited at regular intervals for a fixed term
and the repayment of principal and accumulated interest is made at the end of the term.
These deposits are usually targeted at persons who are salaried or receive other regular
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income. A Recurring Deposit can usually be opened for any period from 6 months to 120
months.
Further, banks also provide a combination of demand and time deposits in the form
of various products. Examples of such products include Recurring Deposits, Flexible RDs,
Multiplier FDs, Special Term deposit accounts etc
FIXED DEPOSIT ACCOUNT is an investment account and a type of savings account in
which money is deposited for a stated period of time and a fixed interest rate is paid at
the end of that period. It is a safer investment option when compared to other investment
types such as shares or the money market
JOINT ACCOUNTA joint account is an account that belongs to more than one person.
Joint accounts are often set up by couples that are living together or people who have
finances that are closely linked. Both current and savings accounts can be opened jointly.
Joint accounts can be set up so each individual account holder can use the account or so
that all account holders have to authorize transactions. With a joint account, you are liable
for any debts run up by other account holders.
DEMAT ACCOUNT Stocks in Demat account remain in dematerialized form.
Dematerialization is the process of converting physical shares into electronic format. A
demat account number is required to enable electronic settlements of all the trades.
Demat account functions like a bank account, where you hold your money and respective
entries are done in bank passbook. In a similar form, securities too are held in electronic
form and are debited or credited accordingly. A demat account can be opened with no
balance of shares. You can have a zero balance in your account.
NRI ACCOUNT In India banking terminology, the term NRI Account refers to funds
deposited by a Non-Resident Indian or NRI with a financial institution authorized by the
Reserve Bank of India to provide such services.A Non-Resident Indian is an Indian citizen
who primarily resides outside of India.
1) Non Resident Ordinary Accounts: (NRO): Any person resident outside of India can
open this account. Normally, when a resident becomes a non resident, his domestic
rupee account gets converted into the NRO account. This helps the NRI to get his
credits which accrue in India, for example rent or interest from investments.
2) Non-Resident (External) Rupee Account: (NR(E)RA This account was introduced as
NRE scheme in 1970. Its a Rupee account and the NRI can remit money to India
from the funds abroad. This means that depositor is exposed to the Currency rates
risk.
3) Foreign Currency Non-Resident Account: (FCNR): Foreign Currency Non-Resident
Account Bank or FCNR (B) was first introduced in 1993. It replaced the existing
FCNR (A) scheme. This account is opened by the NRIs in 6 designated currencies as
follows:US Dollar (USD) For Example: -Great Britain Pound (GBP),Euro
(EUR),Japanese Yen (JPY),Canadian Dollar (CAD),Australian Dollar (AUD)
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TYPES OF LOANS AND ADVANCES
LOAN
A loan is an arrangement in which a borrower takes money from a lender or a financial
institution and promises to return it within a fixed period of time and at a fixed rate of
interest, which is determined at the time the loan is granted. In most of the cases, a loan
is returned in fixed installments and each installment is a fixed amount of money.
Secured Loan: A secured loan is one in which you get loan against an asset that you
possess. For example, you can take a loan against your property, a vehicle that you own,
your jewelry etc. If by any chance you are unable to pay back the money you have taken as
loan, the financial institution will sell that asset and recover the amount. The interest
rates may be lower for secured loans as compared to unsecured loans. The financial
institution from which you take a secured loan usually estimates the market value of the
asset you keep as security.
Unsecured Loan: If you do not have an asset to keep as security, you can get an unsecured
loan. However, in order to qualify for this loan you would have to have a good record of
credit history and have a good income. The interest rates for unsecured loans are usually
higher as compared to secured loans.
Letter of Credit: A letter of credit (LC) is type of credit facility wherein the bank
guarantees that the seller will receive payment on certain conditions. In the event that
the buyer is unable to make payment on the purchase, the bank will cover the outstanding
amount. Letter of credit is used in international and domestic trade transactions to ensure
that payment will be received where the buyer and seller may not know each other and are
operating in different countries.
Bank Guarantee: A Bank guarantee is a promise from a bank that the liabilities of a debtor
will be met in the event that the debtor fails to fulfill contractual obligations.
Priority Sector Lending: The overall objective of priority sector lending program is to
ensure that adequate institutional credit flows into some of the vulnerable sectors of the
economy, which may not be attractive for the banks from the point of view of profitability
Example :- MSMEs Credit ,Rural and Agricultural Loans.
Retail Loans: The banks offer an array of various retail loan products such as home loans,
automobile loans, personal loans (such as loans for marriage, medical expenses etc. ), credit
cards, consumer loans (for TV sets, personal computers etc) and loans against time
deposits and loans against shares. All of them come under the umbrella of retail loans. The
target market for retails loans are the consumers in the middle and high income segment,
salaried or self employed. Banks participate in the credit scoring programme to judge the
credit worthiness of individuals. While granting such loans, banks use reports from
agencies such as the Credit Information Bureau (India) Limited (CIBIL).
Cash Credit is a short-term cash loan to a company. A bank provides this type of funding,
but only after the required security is given to secure the loan. Once a security for
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repayment has been given, the business that receives the loan can continuously draw from
the bank up to a certain specified amount.
Overdraft is an extension of credit from a lending institution when an account reaches
zero. An overdraft allows the individual to continue withdrawing money even if the account
has no funds in it or not enough to cover the withdrawal. Basically, overdraft means that
the bank allows customers to borrow a set amount of money.
DIFFERENCE BETWEEN LOANS & ADVANCES

BASIS FOR
COMPARISON LOAN ADVANCE
Funds borrowed by an entity Funds provided by the bank to an
Meaning from another entity, repayable entity for a specific purpose, to be
after a specific period carrying repayable after a short duration is
interest rate is known as Loans. known as Advances.
What is it? Debt Credit
Term Long Term Short Term
Security May or may not be secured Primary security, collateral security
and guarantees
PROCEDURE FOR OPENING AND CLOSING OF AN ACCOUNT

Today Banks have emerged as important financial institutions. Banks provide a safe
environment and helps us manage our financial transactions. To avail professional banking
service it is mandatory for every individual to open a bank account. Opening a bank account
is not a difficult task. It takes only seven easy steps to open a bank account. This article
will help you understand these seven simple steps or procedure to open a bank account.
OPENING PROCEDURE
1) Decide the Type of Bank Account you want to Open: There are several types of
bank accounts such as Saving Account, Recurring Account, Fixed Deposit Account
and Current Account. So a decision regarding the type of account to be opened
must be taken.
2) Approach any Bank of choice & meet its Bank Officer:Once the type of account
is decided, the person should approach a convenient bank. He has to meet the bank
officer regarding the opening of the account. The bank officer will provide a
proposal form (Account Opening Form) to open bank account.
3) Fill up Bank Account Opening Form - Proposal Form: The proposal form must be
duly filled in all respects. Necessary details regarding name, address, occupation
and other details must be filled in wherever required. Two or three specimen
signatures are required on the specimen signature card. If the account is opened in
joint names, then the form must be signed jointly. Now a days the banks ask the
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applicant to submit copies of his latest photograph for the purpose of his
identification.
4) Give References for Opening your Bank Account: The bank normally required
references or introduction of the prospective account holder by any of the existing
account holders for that type of account. The introducer introduces by signing his
specimen signature in the column meant for the purpose The reference or
introduction is required to safeguard the interest of the bank.
5) Submit Bank Account Opening Form and Documents: The duly filled in proposal
form must be submitted to the bank along with necessary documents. For e.g. in
case of a joint stock company, the application form must accompany with the
Board's resolution to open the account. Also certified copies of articles and
memorandum of association must be produced.
6) Officer will verify your Bank Account Opening Form: The bank officer verifies
the proposal form. He checks whether the form is complete in all respects or not.
The accompanying documents are verified. If the officer is satisfied, then he
clears the proposal form.
7) Deposit initial amount in newly opened Bank Account: After getting the proposal
form cleared, the necessary amount is deposited in the bank. After depositing the
initial money, the bank provides a pass book, a cheque book and pay in slip book in
the case of savings account. In the case of fixed deposits, a fixed deposit receipt
is issued. In the case of current account, a cheque book and a pay in slip book is
issued. For recurring account, the pass book and a pay in slip book is issued.
CLOSING PROCEDURE
1) Account Closure Form: First of all you need to collect Savings/Current Bank
Account Closure Form from bank. Once you have the Account Closure Form, you
need to fill it up completely.
Usually the Account Closure Form in bank will ask you for the following information:
1) Name of Account Holder,2) Account Number, 3)Mobile Number.
You have the option to receive your balance amount by (1) Cash (2) Cheque/Draft
(3) Balance transfer to any other Bank account (4) Signature of Authorized
Signatory of the respective Savings/Current Account.
2) Returning your Debit Card, Cheque Book & Passbook: Once you have the duly
filled Account Closure Form, you need to make sure that you gather all what you got
from your Branch like your Debit Card, Cheque Book &Passbook.You need to
surrender all of these at the bank while closing your Savings/Current Bank Account.
3) Submitting ID & Address Proof Documents: To make sure that you are the same
account holder, you need to provide the photostat copies of the Address Proof and
ID Proof Documents associated with your Account.
Once you have followed these 3 steps to close Bank Account, your request
will be processed and your Bank Account will be closed.
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PRINCIPLES OF LENDING
INTRODUCTION
Lending involves elements of risks. The element of risk, in the main operations of a bank,
leads to the necessity ofcredit investigation. It presupposes right selection of borrower,
which needs complete and comprehensiveinvestigation of all the facts. As a matter of fact,
much of the worries of the lending banker is over if correct typeborrowers can be
selected. To arrive at a decision about selection of a borrower the banker needs to collect
a longchain of information about the borrower. Usual loan application forms when filled in
by the applicant provide thebanker with almost all the required particulars pertaining to
the advance. The bankers responsibility is to verifyand correlate those statements and to
prepare a credit report, which is expected to give a complete, clear, correctand reliable
record of the character, means and business integrity of the borrower. On the basis of
creditinformation and credit report, the banker may arrive at a reasonably correct
decision about the proposed advance.
PRINCIPLES OF LENDING
Safety: Before granting Loans and Advances banker must know5 Cs of the borrower:
Character Willingness to repay honesty, integrity, responsibility and attitude /
commitment of the borrower to repay
Capacity Success of the borrowers business as reflected in financial condition and
ability to repay through cash flow and earnings
Capital The borrowers stake in business as also his intrinsic financial strength as
reflected in his equity capital or net worth
Collateral The borrowers ability to offer quality assets to provide adequate protection
to the bank against default in repayment
Conditions Recent trends in borrower's line of activity and changing economic conditions
that might impact his financial conditions and thereby the ability to repay
Purpose: The purpose should be productive so that the money not only remain safe but
also provides a definite source of repayment. The purpose should also be short termed so
that it ensures liquidity. Banks discourage advances for hoarding stocks or for speculative
activities. There are obvious risks involved therein apart from the anti-social nature of
such transactions. The banker must closely scrutinize the purpose for which the money is
required, and ensure, as far as he can, that the money borrowed for a particular purpose is
applied by the borrower accordingly. Purpose has assumed a special significance in the
present day concept of banking.
Profitability- A commercial bank by definition is a profit hunting institution. The bank has
to earn profit to pay salaries to the staff, interest to the depositors, dividend to the
shareholders and to meet the day-to-day expenditure. Since cash is the least profitable
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asset to the bank, there is no point in keeping all the assets in the form of cash on hand.
The bank has got to earn income. Hence, some of the items on the assets side are profit
yielding assets. They include money at call and short notice, bills discounted, investments,
loans and advances, etc. Loans and advances, though the least liquid asset, constitute the
most profitable asset to the bank. Much of the income of the bank accrues by way of
interest charged on loans and advances. But, the bank has to be highly discreet while
advancing loans.
Liquidity- Liquidity is an important principle of bank lending. Banks lend money for short
periods only because they lend public money (money accept as deposits from people) which
can be withdrawn at any time by depositors. They, therefore, advance loans on the
security of such assets which can be easily converted into cash at a short notice. A bank
chooses such securities because if the bank needs cash to meet the urgent requirements
of its customers, it should be in a position to sell some of the securities at a very short
notice without disturbing their price much. There are certain securities such as central,
state and local government bonds which are easily saleable without affecting their market
prices.
Viability
Economic Feasibility- ensuring capacity, demand and supply position, cost of production,
sale prospects and price level.
Technical Feasibility raw materials supplies, government licensing, import policies,
transport bottlenecks, wage levels, labour situation, power and water supply, availability of
machineries and other civic facilities.
Financial Feasibility cost of production, and profitability, cash flow, estimated sources of
funds.
Managerial competence and availability of needed personnel both technical and skilled.
Spread/ Diversity: The advances should be as much broad-based as possible and must be
in keeping with thedeposit structure. The advances must not be in one particular direction
or to one particular industry. Again,advances must not be granted in one area alone.
National Interest: Bank has significant role to play in the economic development of a
country. The bankerwould lend if the purpose of the advance is for overall national
development.
Lalithchandra.B.N.
RBI BANK RATES IN INDIAN BANKING - 2017
Cash Reserve Ratio [CRR] 4%

Statutory Liquid Ratio 20%
Repo Rate 6%
Reverse Repo Rate 5.75%
Marginal Standing facility 6.25%
Term Deposits
General Public 4.20%-6% per Annum
Senior Citizens 4.70%- 6.50% per Annum
Savings Bank a/c (Both General Pulic and 4% per Annum
Senior Citizens)
NRO and NRE (Both General Pulic and 4% per Annum
Senior Citizens)
Recurring Deposit Interest Rates 4.5% and 7.90% per Annum

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1) Debtor and Creditor,

Relationship of Debtor and Creditor

Relationship of Pledger and Pledgee

WHAT IS MONEY LAUNDERING

STEPS IN MONEY LAUNDERING

Steps in Money Laundering

Placement Stage Layering Stage Integration Stage

MONEY LAUNDERING TECHNIQUES

ANTI-MONEY LAUNDERING REGULATIONS

2) Reviewing trends and techniques in money laundering, reporting these, as well as

Bank Secrecy Act - BSA

Know your Customer (KYC)

Other Anti-Money Laundering Regulations

The Role of Financial Institutions in combating Money Laundering

NEGOTIABLE INSTRUMENTS ACT,1881

Promissory Note Bills of Exchange Cheques Hundis

PROMISSORY NOTE PARTIES

A bill of exchange normally includes the following information:

7) The amount should be payable to or to the order of a specified person or to the

BILLS OF EXCHANGE PARTIES

TYPES OF BILLS OF EXCHANGE

DIFFERENCE BETWEEN PROMISSORY NOTE AND BILLS OF EXCHANGE

Defined in Section 5 of Negotiable Section 4 of Negotiable Instrument

DIFFERENT KINDS / TYPES OF CHEQUES

Uncrossed / Open Cheque: When a cheque is not crossed, it is known as an "Open

Forms or Types of Hundis

DarshaniHundi: A hundi payable at sight is called darshani hundi. It is negotiable and is

JawabeeHundi: A hundi, which is in the form of letter or recommendation to a banker for

TYPES OF LOANS AND ADVANCES

DIFFERENCE BETWEEN LOANS & ADVANCES

PROCEDURE FOR OPENING AND CLOSING OF AN ACCOUNT

RBI BANK RATES IN INDIAN BANKING - 2017

Cash Reserve Ratio [CRR] 4%

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