Banking law and operations

1. Collecting Banker
Collecting Banker is one which undertakes the
responsibility to collect money in favor of its clientfrom
other banker

2. 1. Duties & Responsibilities of
Collecting Banker
Due care & diligence in collection of draft
(cheque)
Acts as an agent
Present of cheque with in stipulated time
Serve notice for dishonor of cheque
Collection of Bill of Exchange
Settlement of proceeds

3. 2. Precautions to be taken by
collecting banker
Collects cheque of its customer
Verify the title of customer
Verify the validity
Confirm the information of cheque
Confirm crossing of cheque
Verify the place of clearing
Collect amount early aspossible

4. 3. Statutory Protections of
collecting Banker
Protection for crossed cheque only
Protection for credit of amount after
actually collected.
The cheque should be collected for
customer only
Must act in good faith & without
negligence.

5. 4. Negligence
Failure to obtain introduction for anaccount
Irregularity of endorsement
Crediting cheque to pvt. account of an authorized person of Co.,
Crediting cheque to agent than Principal &vice versa
Crediting cheque to Trustee’s Pvt. account oftrust
Crediting cheque to partner’s Pvt. accountof
partnership
Collecting cheque having No Endorsement
Crediting cheque wronglyto another Co., account

6. 5. Collecting banker as Holder for
value
If collecting banker pays draft money to
customer before the draft has been
collected then banker becomes holder for
value.
In such circumstances bank collects
money for himself & not for client.

7. Banker becomes Holder For
value in following cases
bank pays draft amount or part
bank deliver the cash over the
When
before
When
counter
When bank grants advance payment
against bill
When bank allows the customer to
withdraw before it cleared.

8. Rights of Collecting
Banker
Right to collect cheque amount for
himself
Right to recover money incase of
dishonour
Right to recover money incase of
illegal title
Right to recover money incase of
defective title

9. Holder in due course
Holder in due course a person who has taken a
bill of exchange in good faith and for value
with no suspicion that it might be no good,
claimed by another, overdue, or previously
dishonored.
Who receives an instrument innocently
Who has paid value for thesame
Who has received the instrument before its
maturity

10. Paying Banker
Paying banker means “on whom a
cheque is drawn or the banker who
required to pay the cheque drawn on
him by acustomer

11. Precautions to be taken by paying
banker
Proper form of the cheque
Dateof the cheque
Amount of the cheque
Fundsmust be sufficient in
account
Useof loan or overdraft granted
Useof minimum balance
Chronological order of receipts

12. Continue
….
Presenting 2cheques at atime
Material alterations
Forgery of drawer’ssignature
Facsimile signature (stamp or print)
Acheque should not Mutilated
Acheque must be presented within banking
hours

13. Statutory Protections of paying
Banker
Protection in case of an order cheque
Protection in case of an bearer cheque
Protection in case of crossed cheque

14. Dishonour of cheque is an act of paying
banker refusing to pay the amount of
cheque due to certain definite reason.
Reasons:
Notice to stop payment
Notice of death, insolvency, insanity
Notice incase of winding up of business
Notice of Assignment of balance

15. Continue
Garnishee order
Breachof trust
Defective title of the party
Incase post-dated or stalecheque
Incaseof material alteration

16. Loans & Advances (lending
banker)
Principles of banklending
Safety or security
Liquidity
Profitability
Purposeof lending
Sourcesof repayment
Diversification of risk

17. Forms of Advances
Loans
Cashcredit system
Overdraft
Billspurchased & discounted

18. Letters of credit (LOC)
LOC issued by the importer’s bank in
favour of exporter on behalf of
importer.
Parties of LOC
Applicant (importer)
Issuing bank (importer’s bank)
Beneficiary (exporter)
Advising bank

19. Types of LOC
Documentary & clean LOC
Revocable & Irrevocable LOC
Fixed & Revolving LOC
Confirmed & Unconfirmed LOC
With or without RecourseLOC
Transferable & non-transferable LOC
Back-to-back LOC
Red clause LOC
Green clause LOC
Travellers LOC