Nandinirg (3)

1
Unit-3BANKING OPERATIONS

• NRG
• Dept Commerce and Management

2
Collecting Banker

• INTRODUCTION
• Banker acting as a paying banker and collecting
  banker is also one of the important service
  provided by the bank.
• There is no alternative method to collect crossed
  Cheque but if it is open Cheque it can be
  collected by customer himself at counter of
  paying bank.
• Here banker is essential to collect customer
  Cheque specially crossed Cheque.

3
Definition

• Collecting banker is one which undertakes the
  responsibility to collect money in favor of the
  client from other banker(who is called paying
  banker) is called as collecting banker.
• In simple words, collecting is a bank which
  collects the payment in accordance with the draft
  submitted by client.

4
Duties and Responsibilities of Collecting Banker

1. Due care and diligence in collection of draft
2. Act as agent
3. Present of Cheque within stipulated time
4. Serve notice for dishonor of Cheque
5. Collection of Bill of Exchange
6. Settlement of proceeds

5
Precautions to be taken by a collecting banker
while collecting Draft

• The collecting banker should collect draft of his
  customer and for his customer only and should not
  collect any other third party draft.
• Before accepting it for collections the banker
  should verify the title of customer and proper
  validity of Cheque
• The banker should confirm form of Cheque i.e.
  conditions of the Cheque and information of the
  Cheque
• Banker must confirm that it is crossed or not if
  it is crossed , again should consider type of
  crossing because collecting banker will not any
  legal protection in case of open Cheque
• Bank should verify whether Cheque if Country
  clearing or Foreign clearing, if it is country
  clearing the collection period will be less and
  it has to be credited to customer account as soon
  as possible
• Bank should collect Cheque amount as early as
  possible because any delay in collection cause
  damages for customer and banker can be sued by
  customer

6
RBI Guidelines regarding collection of Cheque

• The commercial banks are instructed to give
  immediate credit upto 7500 to its customer
  account for local as well as outstation Cheques
  subjected to satisfactory operation of the
  customers account
• Bank should not hesitate to accept outstation
  Cheques deposited by its customers for collection
• For local Cheque credit should be made on the
  same day or next day of the deposit.
• Time frame for collection of Cheque drawn on
  state capitals/major cities/other locations to be
  7/10/14 days respectively.
• Bank should reframe their Cheques collection
  policy. And give wide publicity to the policy so
  that customer can aware of it
• when bank collects any Cheque crossed with the
  words account payee should be credited to
  customer account only and banker should not
  accept any third party Cheque

7
Statutory Protection of Collecting Banker

• Sec 131 of Negotiable Instruments Act, 1881
• Protection is for crossed Cheque only
• Protections are available for banker in his
  capacity as agent of the customer
• The Cheque should be collected for his customer
  only
• He must act in good faith and without negligence

8
Negligence-careless of banker while performing
its duties

• Examples of negligence
• Failure to obtain introduction for an account
• Irregularity of endorsements
• Crediting company Cheque to private account of
  an official of the company
• Crediting Cheque payable to the holder of a
  public office to his personal Account
• Collecting Cheque having no endorsement

9
Banker acts in 2 capacities

• When client submits the Drafts for collection

1. HOLDER FOR VALUE
2. AGENT OF THE CUSTOMER
10

• Collecting banker as a Holder for value
• When client submit any draft to bank, it may
  takes time to convert draft into cash. Incase if
  collecting banker pay draft money to customer
  before the draft has been collected then bank
  becomes holder for value and such circumstances
  bank collects money for himself and not for
  client.
• Collecting banker as an agent of customer
• Banker act as an agent for customer and collects
  the Cheque for him and credits the same to his
  account after it is collected from paying banker.

11
Banker become holder for value in the following
situation

• When bank pays the draft amount or a part of
  amount before it is collected from paying banker
• When bank grants advance payment against bill and
  takes title of the bill
• When bank allows the customer to withdraws before
  it is cleared and reducing the existing overdraft
  
• When bank deliver cash over the counter for the
  Cheque at the time it is presented for the
  collection
• By lending further on the strength of the Cheque

12
Rights of collecting banker as a holder for value

• Right to collect Cheque amount for himself
• CB can recover money from all the endorsers of
  the Cheque, incase the Cheque which is sent for
  collection id dishonoured
• Right to recover amount incase the title of the
  Cheque is illegal
• If the Cheque has defective title and credited
  amount before it is collected by the banker

13
Liabilities of collecting banker as a holder for
value

• He should not receive any open Cheque. If he
  receive open Cheque and if it is forged or
  defective titled Cheque then he should be liable
  to the real owner of the Cheque
• In the event of crossed and defective titled
  Cheque i.e, forged Cheque banker become liable to
  the true owner. When customer deposit Cheque for
  collection banker will pay before it is actually
  collected and here banker failed to ensure the
  owner of the Cheque. Its pure negligence of the
  banker

14
Precautions to be taken by collecting banker as a
holder for value

• Banker must see worthiness of the customer while
  acting as a holder for value
• Acting as a holder for value banker should
  confirm title of the Cheque
• Banker should examine the state of Cheque and
  essential contents of the Cheque to avoid
  dishonor of the Cheque
• Collecting banker should advise customer to repay
  money or damage caused by the dishonor
• The banker should collect amount from paying
  banker with in stipulated time or as soon as
  possible.

15
Rights of collecting banker as an agent of
customer

• Right to acts as an agent of customer
• Right to follow the instructions of the customer
• Right to collect amount and credits it to his
  customer

16
Liabilities of collecting banker as an agent of
customer

• He should collect the Cheque amount within
  stipulated time and credit same to the customer
  account
• Incase of dishonor, must serve notice to customer
  with reason
• Banker must function in good faith without
  negligence
• He should show his skill efficiency to collect
  Cheque as soon as possible
• He should serve notice within reasonable time
  otherwise he is liable for damages

17
Distinguish between holder for value and agent of
customer

• BASIS
• Collect Cheque Amount
• Credit Cheque Amount
• Ownership of Cheque
• Legal Protection
• Notice
• Risk

18
Holder in due course
19
Rights and privileges of a holder in due course

• He obtains a better title to the instrument than
  that of a true owner
• The defective title of the previous endorsers(if
  any) will not adversely affect his rights
• He can pass on a better to others
• Until the instrument is finally discharged, every
  party to that instrument is liable to him
• The principle of estoppels is applicable against
  the endorse to deny the capacity of previous
  parties

20
Conversion

• Conversion is the usage of goods or property of
  true owner illegally and without knowledge of
  him.
• Definition
• Conversion refers to unlawful taking, using or
  destroying of goods or property which is
  inconsistent with the owners right of
  possession.
• The following are the common circumstances under
  which collecting a collecting banker become
  liable for conversion
• Forged instrument
• Defective title
• Defective endorsement
• Title of the customer defective
• When banker delivers property which is there with
  him as safe custody to other party who is not
  actual owner of the assets.
• When bank credit amount to person who is not true
  owner of the cheque.

21
Process involved in Collecting of Cheque
22
Paying banker

• Definition
• Paying banker is defined as the banker
• Whom a cheque is drawn or the banker
• Who is required to pay the cheque drawn on him by
  a customer.

23
Precautions to be taken by Paying Banker

• Proper form of the cheque
• Advantages of using printed form
• Convenient for the drawer
• Serve the purpose of record
• Instruction to the banker more conveniently
• Chance of forgery can be minimized
• 2. Date of the cheque
• Stale cheque/Outdated cheque
• Post dated cheque

24

• Conti
• 3. Amount of the cheque
• The following are the other precautions to be
  observed regarding Amount of cheque
• Funds in the account must be sufficient
• Use of loan or overdraft granted
• Use of minimum balance
• Chronological order or receipts
• Presenting two cheques at a time