|Posted by man13ish on June 23, 2009 at 3:52 AM|
Branch as a business unit
• To understand the importance of branch as a Business Unit
Oldest delivery channel
• Different services (Financial super market) under one roof
Mutual funds etc
• Personal Banking branch/ Retail banking branch
• Commercial Banking branch
• Overseas Branch /forex business branch / international banking branch
• SME (Small & Medium Enterprises) branch
• Service Branch (centralised clearing office)
• Industrial Finance Branch (Corporate Finance)
• Agriculture Development Branch
• Operational Efficiency
• High level of skills
• Reduction in overheads
• Present day clients and their need for multiple products
Two different activities
• The branch is the contact point to the customer - Front office.
• All the processing work - Centralised Processing centres - Back Office
Important desks at Retail branch
• Deposit Accounts: Savings Bank account, Current account, term deposits etc.
• Remittances :Issue of Demand draft , Telephone Transfer, EFT and RTGS
• Collection of instruments - local clearing and outstations cheques.
• Lockers - account opening and operations, access slips and attendance records
• Cash department- Receipts and payments, storing of cash, security of the stored cash.
• Sale of Gold coins and bars - preservation of the stock of gold coins
• Sale of life insurance, general insurance, Mutual funds
• Demat accounts
• Sale of Third party products
• Tax collections and other government transactions
• Financial education & Financial counseling
• Wealth management consultation.
• Retail loans
Preservation of records
• Voucher register
• Cash and transfer scroll
• Cashier’s receipt scroll
• General ledger
• Day book
• Suspense account register
• Cash balance book
• Sundry creditors register
• Account opening forms
• Proof of address
• ID proof
• Preservation for 10 years
To be preserved for 60 years
Letters of indemnity
Legal claim settlement records
Other important things
• On site ATM
• Stationery consisting of challans, various forms, agreement forms etc
• Cleanliness of the branch premises
• Record room and Maintenance of records
• Safe keeping of cash and other securities
• Punctuality of the staff
• Uniform and Photo ID card for the employees
• Late transactions
• Non cash transactions
• Entertaining customers’ queries
• Suggestion box
• Complaint register
Automated Teller Machines
• To learn how the ATM has changed the face of banking in providing 24x7 service to customers
• Automated Teller Machine was originally introduced as a simple cash dispensing machine.
• Development of technology enabled 24x7 and 365 days banking delivery channel
• Self service concept.
Benefits to customers
• What are the benefits to customers?
• Participants to enumerate the advantages
• Clean ( issuables) currency can be withdrawn by customers
• Fast cash facility
• Balance enquiry and statement
• Check out last ten transactions in customer’s bank account with real time balance
• Client can check out past transactions from the date of opening the account
Transfer of funds
• Transfer of funds from one account to another within the bank’s network. Fund transfer from one account to any account maintained with other banks through the EFT and RTGS
• Card to card fund transfer- money can be remitted to millions of Visa card holders of and Credit card holders too
• Recharge his pre paid mobile online anywhere, any time in just a few minutes
• Payment of utility bills like electricity, telephone and post paid mobiles.
• Payment of Insurance premium
• Customer can send a money order any time and get it door delivered to any destination in India
• Customer can apply on line to open fixed deposits and Recurring deposits
• Demand draft / Pay order can be ordered through ATM and the customer can receive the same at the registered address
• Subscribe for mobile banking
• Request for a cheque book which shall be delivered at home
• Stop payment (countermanding) order
• Client can apply for a debit / credit card on line
• Subscribe to monthly bank account statement to be delivered to the customer’s e- mail address
• Get the lost ATM / Debit card re issued or upgrade the current ATM/ Debit card
• Linking of multiple bank accounts to a single ATM / Debit card
• Debit, credit and smart cards
• Cash replenishment - outsourced – advantages of outsourcing this job
• Servicing and maintenance of the ATM- outsourced
Sharing of ATM networks
Networks with other Banks
Euronet facilitating inter-operability
National Financial Switch [NFS] of the Institute for Development and Research in Banking Technology [IDRBT], Hyderabad for sharing of ATMs of various Banks.
• GCAS- Global Customer Assistance Service
• Prescribed services in different countries will apply charges:
valuable document delivery assistance
lost luggage assistance
temporary replacement of a lost card
emergency cash advances
emergency ticket replacement assistance
emergency translation service,
emergency medical assistance
emergency legal assistance
• RBI’s call to banks not to charge for withdrawals made through other banks’ ATM’s- wef 1.4.2009
• On site and off site ATM’s, Touch screen facility, safety of pass words
• Biometric ATM’s
It is a marketing rendezvous!
• Ensuring availability of brochures containing information about various retail banking products.
• Challans and envelopes for deposit of cheques and cash.
• Advantages of Kiosk as a marketing tool
• Fraudulent withdrawals by miscreants
• Safety measures
• Educating customers about not parting with the cards or passwords
Session 4 & 5
• To learn the advantages of internet banking for banks as well as clients
Who can avail this service?
This service is available to the holders of Savings Bank, Credit card, Demat accounts, Loan accounts.
Joint account holders can also apply for the service.
Internet banking application to be filled and submitted at the bank branch
• Experience of shopping extravaganza
• Buy an amazing array of products ranging from apparels, Consumer Electronics, Jewellery, Home Appliances etc.
• These products are also available to the customers at never-before prices
• How does it happen?
Because the bank has a tie up with the merchant establishment
Shopping at fingertips
The bank facilitates clients to buy a variety of products online from many shopping websites
Payment can be made conveniently using Bank Account
Client can choose his product and pay using Internet Banking Facility
• Recharging the mobile
• Fund transfer from one account to another account of the same bank and even across the banks with the help of EFT and RTGS
• No more hassles of personally visiting the Biller to pay the bills.
• Pay bills for Utility Companies (Electricity and Telephone), Credit Card, Mobile bills, Insurance Premiums and lot more. They can avail Free bill payment services through Internet Banking Account.
Reservation of Rly tickets
• Customer need not visit booking Reservation centres any more
• They can now buy their train tickets online and pay using Internet Banking Facility
• Banks have tied up with IRCTC for this purpose
Ticket booking through SMS
• Banks have launched the facility for Railway Ticket Booking via SMS, in association with Indian Railway Catering and Tourism Corporation Ltd (IRCTC).
• This unique facility gives the client the power to book long distance railway tickets by just sending SMS. All they need to do is a simple one-time registration with the Bank and IRCTC.
Smart Money Order
• Innovative services :ICICI Bank launched Smart Money Order, in partnership with India Post (The Department of Posts, Ministry of Communication and Information Technology, Government of India).
• Smart Money Order is a unique service that allows client to send a money order anytime and to any destination in India.
Similarities of services
• Many of the facilities extended through the ATM/ debit cards are also available through internet banking.
• Towards the end of the session, Participants shall share their experiences about the internet banking facility extended by various banks
Point of Sales
• To learn about the importance of Point of Sales facility, the process and the advantages to the customers as well as the bank
• What is Point of Sales?
• Any one from the participants may describe how the whole process works
What is POS?
• POS can mean a retail shop, a checkout counter in a shop, or the location where a transaction occurs.
• It refers to the process as well as hardware and software used for checkouts - the equivalent of electronic cash register.
• POS systems are used in supermarkets, restaurants, hotels, stadiums, and casinos as well as almost any type of retail establishment
• What banks have to do with this?
• Banks play the role of intermediaries in settling the payments.
• Debit card, credit card and smart card
• POS terminal ( hardware) is supplied to the merchant establishments so that when the card holder buys a product from them, the card is swiped in the machine.
• On line connectivity is established between the bank account and the merchant establishment
• Credit balance in case of debit card
• Revolving limit in case of credit card
• E- stored value in case of smart card,
• The payment is settled on line.
• A payment slip is also generated for evidence.
• POS terminal is a compact, economical but powerful payment device. It is connected to the bank server through a high speed modem or Ethernet (TCP/IP) for faster communication.
• Security: Bankers must educate the card users not to part with the cards to avoid any malpractice.
• Ask the participants about any case which they have heard or read in news papers about frauds played by miscreants. Prevail on the participants the need to caution the clients about the probable losses
• The customer has to verify the card number, name and the bill amount before signing on the payment slip generated.
Branch Banking – Collection of Cheques
• To learn the ancillary services of collection of cheques
• One of the vital services provided by a bank branch is collection of cheques
• Two kinds of collection instruments
• Local cheques and out station cheques
• Cheques are Negotiable instruments
• Customer receives cheques and demand drafts from others
• He tenders (deposits) the cheques received by him/ her by filling the challan for credit to account.
Traditional way of deposit of cheques for collections
Account holder has to:
visit the branch premises
Obtain a challan
Fill it with the details of the instrument
Submit it to the collection department
Obtain the counterfoil with the bank stamp embossed and the initials of the officer in charge of the department
• What is to be verified?
Date of the cheque / Demand draft
Post dated cheques
Ante- dated cheques
• Crossing : only crossed cheques can be collected for a customer
• Legal aspects of crossing of a cheque
• Various kinds of crossings and their implications
• Various Endorsements
Time for the process
• How much time does it take for the customer to visit the branch premises every time a cheque has to be deposited?
• Is there any way out?
Cheque Deposit Machine
• Why cheque deposit machine?
• What are the advantages to the customers?
• What are the benefits to the bank?
• Raise a discussion
• A customer insists that the instrument should be accepted at the branch counter and counterfoil to be issued – Will you oblige?
• Bank must oblige the customer: RBI guidelines
Centralisation of Operations
• To understand concept of centralisation of operations
• To Learn the advantages and risks in centralisation of operations
• What is decentralisation?
• Why decentralisation of operations is preferred by customer?
• Any advantages?
• What are the Risks?
Some areas of operations
• Account opening / KYC verification
• Call centre - product information, queries, enquiries about account related information, grievances etc
• Retail assets / retail loan hubs
• Credit cards processing centre
• SME loan processing hubs
• Rural loans processing hubs
• Integrated cash management hubs
• Service branch - hub for collection of cheques through clearing operations
• ARMB: Asset recovery management hub
Advantages to Banks
• Standardisation of the process
• Best practices
• Cycle time / TAT -Turn Around Time is collapsed
• Benefits of specialisation -Development of skills and specialised expertise in one area
• Optimal utilisation of space through pooling and shifts
• Focussed functioning and delivery of the product
• Risk assessment of loans can be made very rationally and scientifically
• Optimum utilisation of operations staff and higher leverage of senior management
• Smoother workflows: volume fluctuations even out over a large number of branches. Optimal utilisation of space through pooling and shifts
• Savings on the infrastructure
• Centralised clearing would eliminate physical movement of cheques thereby savings in transport and conveyance
• Productivity improvements: sharing of best practices and benefits of specialisation
The idea runs against the spirit of financial supermarket
• Customers can not have the informal relationships with the decision makers
• There is no direct contact between the customer and the centralised hub
• Customers presume structural realignment may result in delay in processing
Benefits to customers
• Qualitative services
• Transparency in collection of information and decision making
• Objectivity / standardisation
• Process becomes faster
• Enhanced level of customer service
Models in centralisation
• To learn different models in centralisation of operations
• Simplification of the processes
• Standardisation of the processes
• Automation of the processes
• Various steps involved in the processes must be simple, standardised and automated, so that the customers shall understand them easily and the service promise is fulfilled as per the benchmarks set
• Automation through the Core Banking solutions helps banks to achieve standardisation and perfection.
Process mapping for outward clearing centralisation
-courier picks up cheques from branches and cheque drop boxes at ATM’s to the hub
– centralised data entry
– system based debits and credit from hub
– storage facility at hub
Process map for inward clearing
• Service branch representative receives all the instruments handed over by different banks
• Brings the instruments to the service branch
• Sorting cheques - SB, Current, OD, CC
• Sorting out the DDs and Pos
• Debiting the accounts of various branches through the CBS
• Cheques payable to the corporates by dealers spread over various centers
• Picked up by couriers at each center to the service branch
• Service branch processes and presents the cheques in the clearing house
• Proceeds are pooled in a centralised account of the corporate maintained at the pooling branch
• Pooling takes place through the CBS
• Proceeds are collected with minimum TAT
Process mapping for Home loan sanctioning
– Customer contact / referral from the branch
– Application form submitted
– Legal / technical verification - due diligence exercise
– Site visit
– Credit appraisal note put up
– Credit sanction letter generated with the terms and conditions
– PDC ( Post dated cheques) management
Centralised retail assets
• Dedicated for retail assets business
• Appraisal, sanctioning, repayment and follow-up exclusively through these dedicated retail asset centers
• Marketing ( lead generation) by branches and outsourced agents operating as a “Hub and spoke” model
• National/ regional operations centers for documentation, repayment ( both for standing instructions and PDC’s), scanning and archives etc.
SBU ( Strategic Business Unit)
• ICICI bank’s aggressive build up of market share in retail assets, through SBU model
• Different components:
DSA model for acquisition of customers
Branch net work for lead referrals
Tie ups with leading builders / contractors
Loan fairs ( melas)
Aggressive pricing and DSA commissions
Centralisation of operations : Necessity, advantages, risks and mitigants
• To learn the necessity, advantages, risks and mitigants in centralisation of operations
• Severe competition
• Reduce the TAT
• Increasing Costs
• Smoothness in operations
• Standardisation in processes
• Customer satisfaction
• Capture market share
• Mobilising huge number ( high volume) of low value transactions
• Establishment expenditure ( employee cost, premises cost and technology cost) has gone up, resulting in operational inefficiency.
• Transaction costs (like cash withdrawal or processing a collection cheque) in the traditional banking ( manual branch banking environment) reached alarming levels.
• Hence the need for innovation in Transaction processing
BPR – Business Process Reengineering
• BPR – Business Process Reengineering enabled banks to identify areas where Operational efficiency could be improved
• Turn Around Time could be drastically reduced
• Costs can ruthlessly be brought down
• Ultimately bottom line is substantially improved
• What are the advantages ?
• Raise a discussion
• List out the advantages which have already been discussed in the previous session
• What are the risks?
• Participants to list out the risks on account of centralisation
• Formal decisions. Processing is more objective. In case of retail asset hub, the back office officials take decisions basing on papers.
• No relationship based decisions. In case of centralised clearing operations, cheques are bounced if there is no balance. In case of HNI clients relationship may get affected
• Customers feel that Branch employees are easily accessible. When the processes are shifted to centralised back office, customers may feel alienated
• How can we mitigate the risks?
• List out Mitigants
• More reliance on customer profiles with detailed data bases will help to analyse client’s Customer Profitability analysis and help him with temporary over drawings in case of emergency. This may avoid the risk of cheque bouncing in case of deserving customers – cheque return or ECS return
• Transparency in risk rating and weightages to different parameters and updation of customer value helps bring in more relationship based decisions in loan sanctions
• To remove the feeling of alienation, the mechanism of regular interaction between the branch employees and customers must be improvised for speedier disposal of the needs of the customers
• To understand the concept of outsourcing operations -BPO
What is outsourcing?
• Participants to discuss what they know about Business Process Outsourcing
• Instances and examples of outsourced operations which they have observed or studied
• It is one of the biggest buzzwords in business
• Banks are not immune to its charms either
• However, with banks handling sensitive financial issues, outsourcing is not that easy in this sector.
What is it?
• Outsourcing is contracting with an external firm for the ongoing management and delivery of a defined set of services to a prescribed level of performance
• What do you know about the concept of “Core competency” propounded by the great management guru – C.K.Prahlad
• Participants to express their views on the concept
Outsourcing in Banking industry
• Outsourcing is not totally new to the banking industry
• But the number of processes which are outsourced today is mind boggling
• Let us examine some of the areas
• Computer hardware and software hosting, management of data centers, outsourcing of data center operations, application support, facilities management, network management and monitoring
• Computer hardware AMC’s ( Annual Maintenance contract)
• Maintenance and management of ATM’s
• Replenishment of cash in ATM’s
• Call centers, help desk support, customer complaints, credit card processing and printing, bill printing, cheque processing
Clearing operations and recovery
Cheque drop box clearance and collection
Handling and processing of day to day clearing instruments like drafts and dividend warrants and payment and reconciliation
Payroll and pensions
Recovery of loans through recovery agents
• Marketing of retail liability and asset products
• DSA’s ( direct selling agents) are popular among new gen. Pvt sector and foreign banks
• These are external sales agencies with exclusive tie ups, contracted on a commission basis for customer acquisition
Guiding principles of outsourcing
The guiding principles of outsourcing as a business strategy may relate to :
Flexibility and agility
Quality of customer service
Human Resource Development
Speed of decision making
• The different steps involved in selecting service providers are:
• Preparation of a detailed statement of the work and the contract
• Sending the list to relevant providers ( pre qualified providers or selected through reference)
• Receiving detailed responses, including price, from the providers
• Evaluating the responses and inviting two or three providers for presentations
• Negotiating the final contract
Monitoring and evaluating
• Service levels and quantity on which the provider has to be paid
• Quality of service and the level of trust
• Measures of service quality would depend upon the nature of service and expectations, both of which can be determined during contract negotiation
Trust can be measured by assessing
Capability - technical, financial and management
mutuality - shared commitment
Sourcing is an integral element of business. Competition is becoming more and more intense as time passes and it is imperative for banks to seek the most efficient way of doing business. Outsourcing is an important option to source services and to added value to the client and bank.
It is all about team work. Both the provider and the recipient are in the same boat and it does not matter where the boat leaks. Both will sink if they do not collaborate to solve the problem and row the boat together
Centralized activities – retail & corporate banking, chests
• To learn the centralisation activities of retail & corporate banking, currency chests
Centralisation of retail banking
• Retail banking - Core Banking solutions and ABB ( Any branch banking ) have enabled centralisation of retail banking activities: the following processes are centralised in many banks.
• Account opening: account opening for SB and Current accounts
• Account closure
• Term deposits origination, renewals, maturity
• Retail asset: retail asset centres dedicated for retail assets business. The model is called hub and spoke model. Activities taken up at the centres are-
• Documentation ( storage at the hub)
• PDC management
• Creation of asset
• Follow up
Centralisation of Clearing operations
• Agents appointed for the purpose pick up the instruments from the check drop boxes and deposit them with the hub
• Centralised data entry, encoding and scanning
• System based debits / credits from the hub
• Storage of instruments at the hub
Corporate banking -deposit accounts
• Customer Offerings are built around two products.
• Current account: with overdraft facility
• The add on offerings are:
Cash Management Services
Corporate banking assets
• Channel finance
• Term loans
• Inventory finance
• Export credit – FC loans, LC’s and guarantees, forex hedging
• Preventive monitoring tool
• Portfolio credit monitoring
Corporate banking services
• Corporate banking services can best be delivered at highly centralised offices.
• Proposals and data processing is done through a highly sophisticated risk rating model software (RAM - Risk assessment module) and risk based pricing guidelines
• Expert Chartered accountants having high level of risk assessment skills and business domain knowledge conduct the financial analysis of the corporate, industry analysis and managerial appraisal on scientific lines
• Relationship managers take care of the total needs of the corporate by developing structured products which are tailored to suit the client’s financial needs.
• Hub and spoke model
• Branches remit their surplus cash on day to day basis to the currency chest
• Branches can draw money whenever liquidity problems arise
• The cash balance in the currency chest is treated as balance with RBI for CRR purposes
• Sorting of cash into issuables and soiled is done centrally at the currency chest
• Preservation of cash in bins
• Cash replenishment in the ATMS is undertaken by currency chests
Structure , measuring efficiency
• To discuss the structures in centrallisation
• To learn the methods of measuring the efficiency of the outsourced activities
Structure of RPC
The RPC ( Regional Processing Centre) is divided into teams based on the functions handled
Each group has a team leader who is responsible for ensuring smooth flow of operations, compliance with procedures and ensuring quality in the group
There are different teams in RPC - account opening team, Clearing team, Transaction team, Regional Response centre and Regional Mailing room
RPC – Functions of teams
The functions of account opening team are – opening of accounts, account modification and transfer of accounts
Clearing team is responsible for Inward clearing, Out clearing, Outward cheques for collection and Cash Management Services (CMS)
The transaction team looks after - salary, retained cards, ATM cash envelopes, TDS, Transfer cheques, unresponded entries, fixed deposits, interest pay orders and administration, payment of bills
The regional response team has the responsibility of resolution to queries raised by branches
The Regional Mailing Room (RMR) looks after dispatch of statements, cheque books, returned cards
• Quality is measured through feedback received from the customers
• Introduction of welcome kit and digitized account opening has reduced the TAT ( Turn Around Time) from 20 days to 4 days
• Customer service levels enhanced
Structure of retail asset hub
The structure for centralisation of operations in retail assets is of three tier
LOPS – Local operations at the branch
ROPS – Regional Operations and
COPS- Central operations.
Functions of local branch office
The three major functions at the local branch office are
Regional and central
The operations that are done at the regional and central operations office are -
Customer account detailed data entry
Repayment instruction processing
Customer request processing,
Quality control and
Issues in centralisation -1
There are several issues to be considered in centralisation of activities and outsourcing
Moving data processing to the centralised hub should not affect the service query handling capabilities of the bank
Personnel shifted to back office hubs must be trained in mass processing so that they deliver the expected efficiency levels
The hubs must work on 24x 7x 365 basis by having multiple shifts, so that cycle time for processing drastically comes down
The hubs must work on a highly specialised basis instead of multipurpose functions
Operating costs can be reduced by locating back office hubs away from the highly concentrated urban and metro areas
Robust I.T systems to handle the volumes
Information Security systems have to be put in place so that the centralised data does not get corrupted nor it is stolen by mischievous elements
Issues in outsourcing
Banks must work out the cost benefit analysis
Risk transfer is at a cost
If the price offered by the vendor is lower than the incremental cost of providing the function in house, then outsourcing is certainly favoured
Training to the agent’s personnel so that they acquire the knowledge and skills required for the job. All the knowledge gaps must be totally removed
Continuous monitoring and Quality control are the prerequisites for the success of the hub. The bank which out sources the activities, should keep a vigil over the style of operations of the agent.
Case study on risk in outsourcing
The hired employees of a firm engaged by a reputed bank for collecting cheques from the drop boxes located at different places in Mumbai city were caught by media persons
Sorting the cheques on the road side, before taking them to the Service branch for presentation in the clearing.
The news was flashed on the front page of the news paper along with the photograph
Case study on recovery agents
• Outsourcing the activity of recovery of loans
• Can you recollect any instance of wrong handling of recovery process?
• How can the process be improvised?
• How will it make a difference if the employees of the outsourcing agency are trained?
Opening and operations in the accounts
• To learn the process of opening accounts and operations in different kinds of accounts
Opening of accounts
• There are different kinds of customers
• Opening of accounts – bank has to be careful in dealing with different kinds of accounts
• We must know the legal status of different customers and follow the right guidelines for different customers
• Why should we obtain introduction of the account holder at the time of opening a new account?
• Importance of introduction
• The introducer shall sign the account opening form with an introduction clause “I know Mr/Ms _____ for the last ______ years
• Application of Section 131 of NI act
• No legal protection to the banker in case of negligence in obtaining introduction
• Obtaining photographs of account holder ( Ghosh committee recommendations)
• KYC guidelines and documents in proof of Photo ID and address proof
Consequences of negligence
Consequences of negligence in not following guidelines
Precautions against fraud or inadvertent overdraft in the account
Banker’s obligation to depositors: secrecy of the account
Which are the cases where disclosures can be made? Exceptions –garnishee order, Income Tax attachment order
Importance of nomination
Problems in the absence of nomination
Secrecy of the information
Registration of nomination
Who can be a nominee?
Settlement of claim by nominee only on identification
Nomination vis a vis demands from different legal heirs, will, court order to settle the amounts
• Important things to verify
• issue of cheque books and noting the cheque numbers in the system
• mandate for operation of account by the agent
• Payment of cheques and protection to paying banker
• Duty of banker to pay cheques
• material alteration
Dishonor of cheques-1
Dishonour of cheques for various reasons and preparation of cheque returning memo
Post dated cheque
Refer to drawer
Words and figures differ
Dishonor of cheques -2
Over writing requires authentication
No account/ account closed
Crossed to two banks
Not drawn on us
Drawer deceased/ bankrupt
Cheque is crossed, please present through a bank
Wrong payments and claims from the customers
Countermanding/stop payment instructions – by phone , electronic mode and letter
Joint accounts: instructions for operations
Either or survivor
Number one or survivor
Former or survivor
Any one or survivor
Closing of account
• At the request of the customer
• Premature closure of a term deposit
• Closure of an unremunerative account
• Transfer of an account from one branch to another
Accounts of individuals
• To learn about various kinds of accounts opened and maintained in the names of individuals
Accounts of individuals
• The simplest form of accounts is of the individuals
• But there are some special types of individual customers in whose case, bankers must take some precautions
• Minor is not competent to enter into contracts. All agreements with a minor are void ab-initio.
• Hence minor’s account is opened in the style of “ Minor represented by guardian father or mother”
Legal aspects of minors
• Definition as per the Hindu Minority, guardianship act, and Indian Majority act
• Who is a natural guardian under Hindu law, Mohammedan law and in the Christian and other religions?
• SB and Term deposit Account in minor’s own name is permitted provided the minor has completed the age of at least 10 years and is able to read and write.
• What are the precautions to be taken while operating the accounts?
• Bank shall not issue cheque book, no cheque purchase facility and no overdraft.
• No current account can be opened in the name of Minor. If the minor is illiterate, even SB account can not be opened.
• Account in the name of minor represented by the guardian, Loans against the deposits in the name of minors
• Nomination facility: nominee being minor, nomination in case of joint accounts
• Illiterate persons, like others, are fully competent to enter into contracts.
• But since it is difficult to identify the thumb impressions every time, cheque book is not issued. Only self withdrawals are permitted on identifying the person with the photograph obtained at the time of opening the Savings Bank account.
• No current account is opened in the name of illiterate person
• Since blind persons are fully competent to into contracts, there is no legal bar in opening accounts in their name. but since there is chance of blind persons disputing the transactions , banks take certain precautions in opening these accounts.
• Current account should not be opened
• Joint account in the name of two blind persons not to be opened
• No cheque book is issued
• The person should come in person for self withdrawal
Bank should obtain the employment particulars and occupation of her husband.
• Cheques issued in favour of the company, where her husband is employed and endorsed in her favour should not be collected in her account as this may make bank liable for conversion
• A husband can not be made liable for payment of loans taken by his wife except when the debt is incurred for the purpose of necessities suited to her life and the loan is given with his consent
• Change of name after marriage. Bank must insist for records to prove the fact of marriage and the change of the name
• As per section 56 of CPC, a woman can not be arrested or imprisoned for non payment of judgement debt. Further, a married woman can not be adjudged an insolvent
• No account should be opened in the name of a purdanashin lady who is illiterate
• No current account should be opened in her name
• Photograph must be obtained
• To learn about the process of opening and operating accounts in the name of sole proprietorship
• Firm and the proprietor are not different
• Hence at the time of opening the current account, proprietorship letter must be obtained
• Proprietorship letter states that the proprietor is running his business in the name and style of M/s……….., and he is the sole proprietor of the firm.
• Whenever cheques are issued, they must be signed by the drawer ( the proprietor) with the property seal.
Transfer of balance
• Bank can transfer balance from the individual account to proprietorship account and vice versa
• The loan dues in the name of proprietorship can be recovered from the balance in the individual account
• To learn various aspects of operations in partnership accounts
• Section 4 of Indian Partnership act
• Partnership is the 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
• To enter into a partnership, there has to be a contract which may be oral or in writing called partnership deed
• The deed is required to be stamped as per the state govt notification
Where there is no deed
• The rights and liabilities of the partners shall be as per partnership act
It is a legal contract
• Persons having legal capacity to contract only can enter into a partnership
• Minors and insolvents do not have legal capacity to contract
Number of partners
• Maximum number of partners in a partnership
• Banking business: 10
• Other business : 20
Relationship of partners
• Partnership firm has no separate legal entity
• Rights and liabilities of the partners are the rights and obligations of the firm
• The partners have the status of both the agents and principal and they act as agent for each other
• Partners and the firm are separate entity for commercial purposes only
Liability of the partners
• Unlimited liability
• Mutual liability
• Joint and several liability
• On dissolution of a firm, its assets are first used to pay its debts and surplus if any is used for payment of individual debts of the partners
• Similarly, the partner’s assets are first used for his personal liability and if there is surplus, it is used to repay the debts of the firm
Minor as partner
• A minor can be admitted only for the benefits of an existing partnership firm
• He can not be personally liable for any acts as an agent of the firm or its partners
• His liability is limited to his share in the firm and not beyond that
Minor attaining majority
• On attaining majority, he can opt out of the firm by giving a public notice - to the registrar of firms and publication in a vernacular newspaper circulating in the district
• He should decide this within 6 months from the date of attaining majority or from the date when he first came to know about his interest in the firm, whichever is later
• In case he fails to decide so, he will be deemed to be a partner from the date of his admission to the firm for taking benefits
• Is Registration compulsory?
• What are the effects of non-registration?
• Registration with – Registrar of firms Registration is not mandatory but optional
• But a registered firm can sue others to enforce a right arising out of a contract or from the partnership act
• Suits filed by unregistered firm are not maintainable even with subsequent registration
• Rights of third parties to proceed against the firm are not affected due to non registration
• Account must be in the name of the firm and not in the name of the partners
• Account opening form (AOF) must be signed by all the partners
• In case of a minor who is admitted for the benefits: Minor or his guardian need not sign the AOF
• Operation clause: who will operate the account and how will it be operated? Jointly or singly
• Authorised signatory will sign on behalf of the firm: in the style of “For ABC sons – partner”
• Third party Mandate for operation/ Power of attorney: authority to operate can be given in favour of a third party, who is not a partner. POA should be signed by all the partners
• Revocation of mandate: any partner singly can revoke the mandate
• Stop payment of cheques :any partner can stop payment of a cheque issued by other partners
Operations – precautions
• Death/Insolvency /Retirement of partners
• Operations in the account should be stopped, if the balance is in debit and a fresh account be opened after sanction of fresh limits
• Cheques signed by insane, insolvent and dead partner should not be paid
• By mutual agreement among the partners to dissolve
• Death / insolvency / retirement of a partner
• Operation of law ( insolvency of all partners but one, business becoming unlawful or dissolution by a court)
• Automatic dissolution ( in case of partnership for specific time)
Operations after …..
• Credit balance: remaining partners can operate the account on the basis of a fresh mandate
• Debit balance: bank should stop withdrawals to avoid application of rule in Clayton’s case and to determine the deceased partner’s liability
• Can a cheque issued by the deceased partner ( prior to his death) presented after bank’s receiving notice be paid by you?
• Can a cheque issued by an insolvent partner be paid by you?
• Because his estate is not liable for ay act after date of adjudication as insolvent
• Can you pay a cheque issued by a retired partner?
• It can be paid from the new account
• Only after obtaining proper letter from all the partners including the retired partner
• To learn about the process of operations in company accounts
Indian Companies act 1956
• Companies come into existence as per the guidelines of Indian Companies act
• Company is a legal person
• Types of companies: public limited, private limited and government companies
• They enjoy a unique status in law
• They are created by law as artificial persons.
• They are governed by companies act 1956
• Limited company by law can acquire and enforce rights and incur obligations like a natural person.
• Its legal personality is signified by a common seal and its perpetual succession
• Liability of the members is limited to the extent of the uncalled capital
• Company is distinct from its shareholders and directors
• Members: min.2 max: 50
• Min. no. of directors : 2
• Public can not subscribe to shares
• Not required to issue prospectus
• Transfer of shares restricted
• Not required to hold a statutory meeting and submit a statutory report
• Can commence its business on getting the certificate of incorporation
• Company must write the word ‘ pvt’ as part of its name
• Min.7. No max.
• Min. No. of directors: 3
• Public can subscribe to shares
• Must issue prospectus
• Can be freely transferred
• Certificate of commencement of business required
• No addition of public required
Limitation on directorship
• Sec.275 of Indian Companies act
• A person can not be director of more than 15 companies at a time
Opening of accounts
• Opening of accounts - documents required:
– certificate of incorporation
– memorandum of association
– articles of association
– certificate of commencement of business
– board resolution copy
Certificate of incorporation
• It is the birth certificate
• It is issued by Registrar of companies
• It is conclusive evidence that all formalities in formation of the company are duly complied with
Memorandum of Association
• Constitution of the company / charter of the company/ document of outdoor management
• It lays down the objectives of the company and its powers
• It can do only such things as are expressly empowered to do so by its memorandum
• Banker should know the powers and limitations of the company through the memorandum
• Borrowing powers of a company arise from MOA
• A loan given for an activity which is not stated in objects clause is unauthorised ( ultra vires) and can not be recovered from the company
Articles of Association
• Document of indoor management
• Rules and regulations for the day to day management of the company
• Powers of the directors, rules of conducting meetings, use of common seal, use of borrowing powers, nature of business etc
• The manner and the form in which the business of the company is to be carried on etc. are provided in the articles
• Copies of Memorandum and articles duly certified by the chairman of the company to be obtained
• Borrowing powers of the BOD are stated in this document
• Shareholders are owners but a company functions through its BOD
• Only BOD is authorise to take decisions on behalf of the company
• A resolution saying that the board has decided to open an account with the bank and gives the names of the persons to open and operate the account
• It is certified by the chairman and countersigned by the secretary of the company
• Omnibus resolution – authority to open account with any bank
• Specific resolution – authority to open account or raise funds from a particular bank
The resolution normally covers:
Names of the authorised persons
Scope of their authority
Details about any change in the office bearers
Certificate of commencement of business
• It is required by public limited companies
• The registrar of companies issues the certificate after ensuring that the minimum capital required by the company is subscribed by the public
• While opening account, complete address of the registered office to be noted
• Legal notice or recall notice can only be served on registered office of the company
Operations in the account
• Is Introduction required for a company account? not required
• Cheques favouring company accounts to be credited to the account only – even though they are bearer cheques
Payment of cheques
• Cheque signed by an authorised person can be paid even after his death or insolvency
• Cheques payable to a ltd company should not be collected in personal account of any director, employee, official of the payee company or any other party without proper enquiry
• Cheques issued by a company in favour of a third party and endorsed by the payee in favour a director / employee of the company should not be collected without proper enquiry
• Newly formed public limited companies
• Account can be opened for the purpose of collection of subscription money for its share / debentures
• But permission to use the money to be allowed when certificate of commencement of business is produced
• No cheque book can be issued in such account
• Banks can transfer the amount or part thereof for investing in short term deposits
• To learn various legal aspects of operations in accounts in the name of government bodies
Accounts of Government bodies
Government bodies consist of
1) Government departments
2) Public sector Undertakings and
3) Semi government bodies
• While opening account, bank should verify the genuineness of the person representing the department.
• The copies of the official order requiring the opening of bank account must be verified
Public sector undertakings
• In case of PSU’s and their branch offices, the original POA ( Power of Attorney) issued by the Board of directors in favour of the authorised person, has to be verified.
• Photo copy is obtained and preserved along with the account opening application.
Change of authorised person
• Whenever there is a change of the authorised signatory, bank should obtain the relevant order, along with the new incumbent’s specimen signature