BANK DEPOSIT PRODUCTS
KYC - Know Your Customer Strict government guidelines for KYC introduced in 2002 RBI guidelines call for Identity Proof, Address Proof and Signature Proof All Foreign Remittances and Domestic Remittances above Rs. 50000 be subject to KYC guidelines www.educen.org
Four Elements of KYC Customer Identification Establish and verify true identity with original documents Customer Acceptance Ensure no fictitous accounts are opened Transaction Monitoring Regular monitoring of transactions especially where huge amounts are involved General practice to monitor every new account for the first six months www.educen.org
Four Elements of KYC Risk Management: Undertaken through generation of 2 reports: Cash Transaction Report (CTR): Contains all cash transactions above Rs. 50000 Also contains integrally connected cash transactions upto Rs.10 lacs and above Suspicious Transaction Report (STR): Records all transactions which gives rise to reasonable ground of suspicion Transactions that appear to have no economic rationale Transactions made in unusual circumstances www.educen.org
KYC Other guidelines PAN to be quoted CompulsoriIy, if not available fill form 60/61 PAN mandatory for cash transactions above Rs. 50000 PAN mandatory for purchase of third party transactions above Rs. 50000 www.educen.org
KYC for Small Accounts Eased KYC norms for small accounts Small accounts where aggregate annual credits don t exceed Rs. 1lac and monthly withdrawals don t exceed Rs. 10000 Account balance not to exceed Rs. 50000 at any time Account can be opened by submitting 2 self attested photos and thumb impression in presence of branch official KYC documents can be submitted in six months www.educen.org
KYC Documentation Savings Account: One ID, Address and Signature proof of each Photocopy to be attested by the customer Latest colour photograph www.educen.org
KYC Documentation Current Account: Documents vary for different types of business Proprietorship: Individual KYC of the proprietor KYC of proprietorship Documents like Gumasta, Sales/Service Tax Returns, Utility bills etc. www.educen.org
KYC Documentation Partnership: Individual KYC of all partners PAN Card and Partnership deed of the firm Address proof of the firm HUF: KYC of Karta Photos of all coparceners Any change in membership to be informed to banks
KYC Documentation Private Limited Company: Individual KYC of all directors PAN and address proof of company MoA and AoA of the company Board Resolution to open the account Certificate of Incorporation Public Limited Company: All documents required for Private Limited Company Certificate of Commencement of Business
KYC High Risk Areas Cash intensive businesses Import export businesses Politically exposed persons (PEPs) Correspondent banking Non face to face businesses Charitable institutions
Deposit Products Deposit Products also known as Liability Products Demand Deposits include Savings and Current Accounts Time/Term Deposits comprise of Fixed Deposits and Recurring Deposits Different variants of Demand and Time Deposits introduced by various banks as per changing trends
Savings Deposits - Features Opened in an individuals name or in joint names Purpose of the account is savings Minors too can open savings account Restrictions on the number of transactions Effective 25 th October 2011, RBI permitted banks to offer better rate of interest to customers
Current Deposits - Features Opened for business purposes by firms, companies etc. Individuals too can open current account No restrictions on the number of transactions Service charges are applicable and no interest is paid Overdraft permitted on current account at the bank s discretion
CASA Ratio CASA ratio is the ratio of CASA deposit to total deposits CASA deposit is lent at a higher interest resulting in a higher Net interest margin (NIM) CASA is cheapest source of funds as bank pays no interest on current account and very low interest on savings account deposits. High CASA ratio reflects the bank s ability to raise money with low costs (CASA ratio over and above 40% is considered healthy).
Term Deposits Features Deposits kept for a fixed period are time deposits varying from 7 days to ten years Interest rates are compounded on a quarterly basis as per RBI directives If the deposit is withdrawn before expiry date, the depositor receives lower rate of interest due to application of penalty Recurring Deposit is a scheme wherein the amount is regularly deposited by account holder, say every month On maturity the account holder gets a lump-sum amount comprising the principal, together with interest
Term Deposits Features Term deposits can be opened by individuals as well as business entities Interest on Fixed deposits is de-regulated TD can be closed before maturity, else a customer can avail loan/overdraft against the Term deposit Sweep in and sweep out facility can be enabled to earn a higher interest
Tax Deducted at Source -TDS Banks deduct income tax at source if total interest earned by a customer on TDs in a bank is >10,000 in a FY The TDS slabs are as follows Interest earned upto Rs. 2.50 in a FY is exempted from TDS by submitting 15G Senior Citizens can claims exemption up to Rs. 3 lacs in a FY on submission of form 15H
Nomination Facility Nomination facility available in respect of- All deposit A/cs, Safe custody Safe deposit locker contents etc. One account one nomination is the policy Nomination can be made/changed and cancelled at any time during the continuance of the account In the case of joint accounts, all joint accounts holders should jointly modify/cancel the nomination
Nomination Facility When both the nominee and the legal heir, make a claim the legal heir should be advised to produce a court injunction prohibiting the bank from effecting payment to the nominee Minor can be nominee and should be nominated by a person who is lawfully entitled to act on behalf of the minor In case of locker a/c in which 2 or more locker holders operate the account jointly, each of the locker holder can name his nominee. In case of death of one of the locker holders, the contents will be delivered to the nominee and survivors jointly as per procedure
Mandate and Power of Attorney Activities permitted by a POA or Mandate holder on behalf of the main account holder are draw cheques on the Account for local payments deposit foreign currency cheques in the NRE account on behalf of the account holder make NRE deposits from balances available in the Account in Account Holder(s) names under the same Customer ID renew such deposits for such periods as may be given in writing by the Mandate Holder
Mandate and Power of Attorney operate the account and to facilitate investments in India use the ATM Card issued in respect of the mentioned Account within the permissible limit request for cheque book for self, change address for self To activate an account from inactive / dormant status to active Remittance to the account of the account holder held outside India
Mandate and Power of Attorney Mandate Holder cannot open new Accounts, which has to be done by the NRI himself, except for transferring funds to a TD account in the name of the account holder make payment by way of gift to a resident on behalf of the Account Holder close the Account or premature close a TD Account change his/her own signature in the system without the signature being attested and verified by the Account Holder request for re-issue of ATM card, PIN and request for change of address and has not access to Internet Banking deposit foreign currency into NRE account
Bankers Right- Lien Bankers lien is the right of the banker to retain possession of goods owned by debtor till the debt due from the customer are paid It is an implied pledge Lien cannot be applied for a joint account Safe Custody Articles Stolen goods Articles left inadvertently by the customer and When right to set off is available lien cannot be applied
Bankers Right- Set off Under Set off a banker can adjust any debit balance in the customers account with any balance outstanding to his credit thus adjusting any claim that is payable to the customer Accounts should be in the same right Conditions required for a Set off are that There should be mutual debts Debts should be for certain sums Claim & cross claim should be for certain sums accounts in the same name at all the branches of a bank can be considered as one applicable to those debts which are due and recoverable on the date of set off
Garnishee and Attachment Order Garnishee means a judgment debtors debtor. The judgment debtor is the person who is financially indebted to someone and bankers are debtors due to customer s deposits held with bank It is issued under Section 60 of the Code of Civil Procedure 1908 A Garnishee Order is a Court order instructing a garnishee (a bank) that funds held on behalf of a debtor (bank s customer) should not be released until directed by the Court Since the order is issued to the Garnishee i.e. the Bank it is known as a Garnishee Order
Garnishee and Attachment Order Garnishee order is issued in two stages i.e. Order NISI and Order ABSOLUTE NISI means not final and absolute. It is a show cause notice for execution. Order NISI specifies the time by which the debtor has to respond or settle Order Absolute. This is the final stage in the garnishee order process. On receipt of this order bank needs to make payment of the amount specified Accounts of deceased persons cannot be attached. Margin monies, unutilized balances in overdraft/cash Credit account cannot be attached
Garnishee and Attachment Order
Negotiable Instruments Acts 1881 Section 13 (1) of the Act, A negotiable instrument means a Promissory Note, Bill of Exchange or Cheque payable either to order or to bearer The possessor of the negotiable instrument is presumed to be the owner of the property which can be freely transferred and the transferee is not affected by any defect to the title If dishonored the transferee can sue in his own name
Negotiable Instruments Acts 1881 Always certain presumptions apply to all Negotiable instruments Bill of Exchange, Promissory Note and a cheque are the negotiable instruments. Examples of a NI are Hundis, Share Warrants, Dividend Warrants, Banker s Drafts, Circular Notes, Bearer Debentures, Railway Receipts, Delivery Orders. Money order, Deposit receipts, Share Certificates, Postal orders, Dock warrants are non-negotiable Insts
Negotiable Instruments Acts 1881 Promissory note is an instrument in writing (not a currency note) containing an unconditional undertaking signed by the maker to pay a certain sum of money only to or to the order of a certain person or bearer of the instrument, it must be properly signed under Indian Stamps 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 or to the order of a certain person or to the bearer of the instrument. A cheque is a Negotiable instrument drawn on a specified banker payable on demand.
Features of a Cheque Bearer instrument A cheque which is expressed to be payable to a particular person, and not prohibiting transfer of such instrument Cheques are always payable on demand (Sec 19) and Promissory note and bill of exchange are payable after sight or after date (Sec 21)
Features of a Cheque As per section 31 of NI Act, a banker is expected to honor a cheque presented if the following conditions are fulfilled Drawee s account has sufficient balance Cheque is presented within its validity ie., 3 months Cheque is duly dated No stop payment instruction exists and cheque is duly drawn No attachment order is received in the account If there is a prior agreement to honour the cheque by granting a temporary overdraft customer must be informed about it
Collecting and Paying Banker A collecting banker must be held liable to the true owner of an instrument, for conversion/loss if banker collects cheques improperly in order to get protection under section 131 of NI Act The cheque should have been collected for a customer It should have been crossed generally or specially. With a crossing on the cheque the banker collects the isntrument in good faith and without negligence In big amount cheques banker should note that there is no material alteration and also watch for unusual big deposits while collecting
Collecting and Paying Banker Paying Banker-Responsibilities: Protection is available to the paying banker in crossed forgery of endorsement in an order cheque (sec85(2)), in case of a materially altered cheque (sec89). & of a crossed cheque (sec128), provided payment is made in due course. When payment of a cheque with forged endorsement is paid by a banker, NI Act gives protection, but no protection is available if a banker pays a cheque with forged signature
Collecting and Paying Banker Maturity of a Negotiable instrument Section 23 and 25 states that when a bill or promissory note is payable on a due date, a grace period of 3 days is allowed and on instruments with installments, grace is allowed for each installment A holder is a person who is entitled to receive payment/or to recover money in his own name from the parties as per Section8 A holder in due course is one who possesses an instrument before it is overdue and is legally entitled to receive the money as a holder in due course A holder for value is one who is entitled to receive the money on behalf of the original holder after he gets a due title
Negotiation and Endorsement While an instrument is paid to the bearer it is negotiated by delivery thereof. This negotiation by delivery A promissory note or Bill of exchange payable to order can be negotiated only through endorsement and delivery This requires the holder s signature on the instrument before delivery An endorsement means, writing one s name on the back of the instrument or to a paper attached therein
Negotiation and Endorsement Various types of endorsements are Blank or general endorsement no name is mentioned Full or special endorsement signature and name are contained Partial endorsement- Transfers only a part of the amount Restrictive endorsement- prohibits further negotiation Conditional or qualified endorsement- Endorsement made with a condition or a qualification
Endorsement and Discharge Legal effect of negotiation by endorsement and delivery (Sec 50) is to transfer property in the instrument from the endorser to the endorsee vest in the latter the right of further negotiation; and A right to sue on the instrument in one s own name against all the other parties When the parties are discharged? Cancellation of the name of a party discharges all parties Payment of instrument by a person discharges the party Delay in presentment for payment discharges parties By making payment to the bearer of an instrument DD drawn by one branch on another Any altered instrument paid discharges parties
Material Alteration Any alteration which gives a person a cause of action which he would not have had but for such change is a material alteration. Any alteration in an instrument which causes to speak a different language in legal effect from that which it originally spoke is a material alteration Alternation in date, amount, addition of a new party, alteration of rate of interest etc all amount to material alteration
Material Alteration Alternation authorized by the Act are Filling blanks in inchoate (incomplete) instruments (Section 20); Conversion of blank endorsement into endorsement in full (Section 49); Making acceptance conditional (Section 86); Crossing of an uncrossed cheque (Section 125).
Payment in due course Section 10 The payment of a negotiable instrument is said to be in due course when the following requirements are satisfied The payment should be in accordance with the apparent tenor of the instrument. This means that the person paying should conform to what appears on the instrument in regard to time of payment, mode of payment etc. The payment should be made in good faith and without negligence under circumstances which do not afford a reasonable ground for believing that the person paid has no title to receive payment The payment should be made to a person who is in possession of the instrument. So it should be made to a holder who can give a valid discharge
Types of Crossing Crossing is a direction to the banker not to pay the cheque across the counter but to pay to a bank only or to a particular account with the bank There are normally four types of crossing in practice General Crossing Two traverse lines, & Co are the types of such crossings Not negotiable: Endorsee does not get a better title than the endorser Account payee: Amount to be credited to the payee s account only Special Crossing: Adds the name of the banker to whom it is paid
Protection to bankers When a cheque is crossed generally, the paying banker shall not pay it other than to a bank When a cheque is crossed specially, the paying banker shall not pay it other than to the banker to whom it is crossed or his agent for collection Protection to a paying banker is available when a bearer cheque is paid, an order cheque when paid under valid endorsement, when crossing is not clear and appears as if it is uncrossed
Protection to bankers Protection to a collecting banker is available when payment is received for a bank s own customer, crossed generally or specially to the banker, and when it is a provisional credit to the account Issuing a cheque without sufficient balance is an offence and is punishable with imprisonment or fine twice the amount of cheque or both
Amendment to N I Act As per the Banking Public Financial Institution and Negotiable Instrument Laws (Amendments) Act 1988, section 80 and 117 of Negotiable Instruments Act, have been amended By virtue of the amendment of Section 80, when no interest is specified in the negotiable instrument, interest shall be calculated at 18% instead of 6% at which interest was chargeable By virtue of amendment to section 117, the endorser who being liable, has paid the amount due on the same is entitled to the amount so paid with interest at 18% p.a. from the date of payment till tender or realization thereof together with all expenses caused by dishonor and payment. A new chapter XVII has been added containing Section 138 to Section 142, as per the amendment Act 1988