Banking Terminologies

Banking

Banking in India in the modern sense originated in the last decades of the 18th century. Among the first banks were the Bank of Hindustan, which was established in 1770 and liquidated in 1829-32; and the General Bank of India, established in 1786 but failed in 1791.

The largest bank, and the oldest still in existence, is the State Bank of India (S.B.I). It originated as the Bank of Calcutta in June 1806. In 1809, it was renamed as the Bank of Bengal. This was one of the three banks funded by a presidency government, the other two were the Bank of Bombay and the Bank of Madras. The three banks were merged in 1921 to form the Imperial Bank of India, which upon India's independence, became the State Bank of India in 1955. For many years the presidency banks had acted as quasi-central banks, as did their successors, until the Reserve Bank of India was established in 1935, under the Reserve Bank of India Act, 1934.

In 1960, the State Banks of India was given control of eight state-associated banks under the State Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate banks. In 1969 the Indian government nationalised 14 major private banks. In 1980, 6 more private banks were nationalised. These nationalised banks are the majority of lenders in the Indian economy. They dominate the banking sector because of their large size and widespread networks.

The Indian banking sector is broadly classified into scheduled banks and non-scheduled banks. The scheduled banks are those which are included under the 2nd Schedule of the Reserve Bank of India Act, 1934. The scheduled banks are further classified into: nationalised banks; State Bank of India and its associates; Regional Rural Banks (RRBs); foreign banks; and other Indian private sector banks. The term commercial banks refers to both scheduled and non-scheduled commercial banks which are regulated under the Banking Regulation Act, 1949.

Generally banking in India is fairly mature in terms of supply, product range and reach-even though reach in rural India and to the poor still remains a challenge. The government has developed initiatives to address this through the State Bank of India expanding its branch network and through the National Bank for Agriculture and Rural Development with facilities like micro-finance.

The Negotiable Instruments Act, 1881

Negotiable Instruments Act, 1881 is an act in India dating from the British colonial rule, that is till in force largely unchanged. Date Enacted: 9 December 1881 read more

Prime Lending Rate

Prime lending rate is the interest rate at which banks lend to its most credit worthy customers. But, over the course of history, banks have come to lend to customers at interest rates below and above the prime lending rate. Watch this quick video to know more about Prime lending Rate.

Cheques

An order to a bank to pay a stated sum from the drawer's account, written on a specially printed form.

Order Cheque:

A cheque which is payable to a particular person or his order is called an order cheque.

This is a cheque whereby the printed word “Bearer” on the cheque is cancelled. The cancellation of the word “Bearer” automatically makes the cheque an “order” cheque.
An order cheque can be paid to the named payee across the bank’s account if so presented.
Identification must be insisted on by the bank when encashing the order cheque for the presenter. The ID number and the named payee’s signature will be asked for on the back of the cheque.

Bearer Cheque :

A cheque which is payable to a person whosoever bears, is called bearer cheque.

The cheque sometimes can be made payable to “Cash” or bearer or made payable to a specific name, for example, “bujji sekhar or Bearer”.
This cheque is payable by the drawee bank over the counter to the Bearer or presenter of the cheque.
A Bearer cheque can be negotiated or pass to another person by mere delivery. In other words, the holder (or the Transferer), when giving it to another person need not endorse the cheque.
No identification is needed when a bearer cheque is presented for encashment. However, in normal banking practice, where the amount of the cheque is substantial, the identity of the encasher is insisted on.
A bearer cheque can be collected by the bank for the credit of anyone’s account
In banking practice, the need for the encasher’s signature on the back of the cheque is merely to evidence that the encasher has received the money from the bank.

Blank Cheque:

A cheque on which the drawer puts his signature and leaves all other columns blank is called a blank cheque.

A check that is signed by the payer but with no specific amount indicated, leaving this determination up to the drawee.

More generally, a term used for any situation in which an usually high level of trust is afforded by one party to another.

“ My wife must have a high level of trust for her sister, because when she asked to borrow some money my wife gave her a blank check. ”

4. Counter cheque:

Blank cheque was also commonly used as a synonym for counter cheque. requiring that cheque be MICR encoded in order to be handled by their clearing houses, it was fairly common for banks, especially in small towns, to issue cheque to customers which were not personalized other than the name of the bank.

Businesses would have pads of counter cheque which did not even have the bank specified on them – the customer had to not only fill in the value of the cheque, the date, and their signature, but also had to designate the bank on which funds were to be drawn.

Stale Cheque:

Check presented at the paying bank after a certain period (typically six months) of its payment date. A stale check is not an invalid check, but it may be deemed an ‘irregular’ bill of exchange. A bank may refuse to honor it unless its drawer reconfirms it payment either by inserting a new payment date or by issuing a new check. Also called stale dated check.

*NOW __The cheque which is more than three months old is a stale cheque.

Eg. If Mr.CooL issues cheque to Miss. Bujji, if Mr. CooL has issued cheque from his SBI A/c then SBI is a drawee bank.

The banking regulation Act has not define specific period after which the instrument (cheque) becomes stale. Some of the banks write specific instruction on the cheque where the validity period is mentioned. In such case the cheque will become stale after expiry of the period from the date of issue (date on the instrument)

Multilated Cheque:

If a cheque is torn into two or more pieces such cheque is Mutilated Cheque. If it presented for payment, such a cheque the bank will not make payment against such a cheque without getting confirmation of the drawer. In case, if a cheque is torn at the corners and no material fact is erased or cancelled, the bank may make payment against such a cheque.

If the payee is clear, signature and the MICR line intact – they can process it. There are sealable plastic carriers used to put such cheques through the high speed transports used in Clearing.

Post Dated Cheque:

If a cheque bears a date later than the date of issue, it is termed as post dated cheque.

Any check or draft that has a future date written upon it by the user. The amount of the check will not be drawn from the account until the date written on the check. For example, a check written on the 14th of the month but dated for the 28th will not be cashed for another two weeks.

Open Cheque:

A cheque that is not a crossed cheque. The person whose name appears on the cheque can write the name of another person on it, and the money will be paid to them.
An open cheque is a cheque that is not crossed on the left corner and payable at the drawee bank on presentation of the cheque.
The words ‘OPEN’ should not be struck off and the person issuing the cheque should sign on the reverse of the cheque also before giving it to another person; otherwise the bank may refuse payment. The latter can collect the money from any branch of the bank nowadays, depending on the bank. S/he should also sign at the back of the cheque while receiving the amount.

Crossed Cheque

A crossed cheque is one which has two short parallel lines marked across its face.

A cheque which carries too parallel transverse lines across the face of the cheque with or without the words “I and co”, is said to be crossed.
Crossed cheques are of two types. By simply crossing a cheque or with the words ” & Co”, by the payer, the payee can either deposit it in his/her account or endorse it in favour of another person on the reverse. This practice is nowadays not accepted by the banks.
The advantage of crossing is that it reduces the danger of unauthorised persons getting possession of a cheque and cashing it. A crossed cheque can only be cashed through a bank of which the payee of the cheque is a customer.
A cheque crossed generally will be paid to any bank through which it is presented.
A cheque crossed specially will be paid only when it is presented for collection by the bank named between the parallel lines. Such crossing affords a greater measure of protection against loss.

Gift Cheques

Gift cheque, it is a cheque forirted in decorative form issued for a small extra charge by the banks for use by customers who wish to give presents of money on special occasions.

Gift cheques may be purchased in unlimited numbers from every branch of the ‘X’ Bank.

Gift cheques may be used to give presents of money as

Birthday Gift
Wedding Gift
Honour Gift
EASI SMART Gift

Gift cheques are used for offering presentations on occasions like birthday, weddings and such other situations. It is available in various denominations.

Features and Benefits

Convenient
Pre-denominated
Elegant – Improve promotional impact with packaging customization and personalization options
Flexible – Provide redemption flexibility by offering the reward with no expiration date
Replaceable – Protect your investment and offer Reward Earners increased security and peace of mind with lost and stolen Cheque protection
Simple – Order and administer rewards easily for timely reinforcement
Reliable – Feel at ease with the American Express brand name — it conveys reliability, security and prestige

Traveller’s Cheques:

It is an instrument issued by a bank for remittance of money from one place to another.

Travelers Cheques are accepted almost everywhere and are available in many denominations. Plus, the no-expiration feature allows you to cash in leftover cheques or retain them for the next time you travel.

benefits

Convenience : Easy to use. Secured to protect your money when on the move.
Choice : Available in United States Dollars (USD), Great Britain Pounds (GBP), EURO, Japanese Yen (JPY), Australian Dollars (AUD) and Canadian dollars (CAD).
Acceptance : Accepted worldwide in over 400,000 locations spread across 200 countries. TCs can be encashed or used at Exchange bureaus, Banks, Hotels Shops, Restaurants and other establishments.
Security : Signature based security. If your cheques are lost or stolen, the 24 hour Call Centre is just a phone call away. Replacement of lost TCs is attended to on priority across the world.
Buy-Back : When you return back to India, you can encash any unused TCs issued by us, at any of the Axis Bank Branches.
Expiry : Valid forever! You can save any unused Travellers Cheques for future trips.

12. Self cheques:

A self cheque is written by the account holder as pay self to receive the money in the physical form from the branch where he holds his account.

If your friend wants to pay YOU the amount of 10000/-, he/she should have written YOUR NAME in the space provided for PAYEE on the cheque. If he/she has written SELF in that area, it is supposed to be used by him (or the bearer as written on the cheque) and whoever possess that cheque can go to the same branch and bank of the account holder to cash the cheque.

Some banks may honour cheques in their other branches than the account holder branch. However, this cannot be encashed in any other BANK.

You can either encash it by visitng the bank and the branch of your friend’s account or should return or tear this cheque off (If lost, the person who finds it can get it cashed from the bank and branch mentioned on the cheque) and ask for another cheque in your name that you can deposit in your account.

13. Bankers Cheque:

The banker’s cheque is an instrument issued by the bank on behalf of customer containing an order to pay a certain sum to a specified person within the city. The validity period of the Banker’s cheque is 3 months, however it can be re-validated subject to some legal formalities.

In Banker’s cheque the chances of dishonor is not possible because it is always prepaid. It is always pre-printed with the words ‘not negotiable’ which means it cannot be further negotiated.
Banker’s Cheque or Payment Order is a cheque issued for making payments within the same city.
Banker’s cheque is valid up to 3 months from the date of issue.
All banker’s cheque are pre-printed with “NOT NEGOTIABLE”.
It can be cleared in any branch of the same city.

14. Outstanding cheque:

A cheque which has been written and therefore has been entered in the company’s ledgers, but which has not been presented for payment and so has not been debited from the company’s bank account.

NEFT, RTGS, IMPS

Cheque Truncation System

Magnetic ink character recognition

Magnetic ink character recognition (MICR) is a character-recognition technology used mainly by the banking industry to ease the processing and clearance of cheques and other documents. The MICR encoding, called the MICR line, is at the bottom of cheques and other vouchers and typically includes the document-type indicator, bank code, bank account number, cheque number, cheque amount, and a control indicator. The technology allows MICR readers to scan and read the information directly into a data-collection device. Unlike barcodes and similar technologies, MICR characters can be read easily by humans. The MICR E-13B font has been adopted as the international standard in ISO 1004:1995, but the CMC-7 font is widely used in Europe.