Banking Practices and Obligations

Duties of a bankera) Duty to maintain secrecy/confidentiality of customers' accounts.

b) Duty to honour cheques drawn by customers on their accounts and collect cheque, bills on his behalf.

c) Duty to pay bills etc., as per standing instructions of the customer.

d) Duty to provide proper services.

e) Duty to act as per the directions given by the customer. If directions are not given the banker has to act according to how he is expected to act.

f) Duty to submit periodical statements i.e. informing customers of the state of the account

g) Articles/items kept should not be released to a third party without due authorization by the customer

Clayton’s Rule• To discharge of the particular debt as per the

instructions of the debtor.• If debtor does not intimate or the circumstances

do not indicate, as per the discretion of the creditor.

• When neither party indicates, to discharge of debts in order of time.

• First to discharge of interest and then principal in chronological order.

Contd…

Clayton’s Rule• The rule in Clayton’s Case is generally

described as the "first in, first out" rule.

• It holds that where a trustee mixes money from two or more trusts in one account and then removes money from it, the trustee is deemed to have taken out the money that was first deposited in the account.

Contd…

Clayton’s Rule• At the conclusion of these transactions, $10,000

remains in the account.

• In this scenario, the rule would not permit trust A to recover anything from the account, trust B would recover $5,000 and trust C would recover $5,000.

• Trust A and trust B would have claims against the trustee personally for amounts not recovered from the account.

Contd…

Clayton’s Rule• For example, assume that a trustee deposits

$20,000 belonging to trust A in a bank account.

• One week later, the trustee deposits $10,000 belonging to trust B into the same account.

• Two months later, a deposit of $5,000 belonging to trust C is made to the same account.

• The following week, the trustee withdraws $25,000 from the account.

Cheque Writing• The banking system fully adopted the Cheque Truncation

System (CTS) standards from 2010 .

• This means your cheque will not travel physically from one location to another, but an electronic image will be transferred for the bank where the cheque is deposited to the drawee bank.

• This also means even a small mistake on your cheque will result in your cheque not getting cleared.

• Most banks have started to charge for extra cheques you order.

Contd…

• Writing the cheque properly also prevents the risk of frauds on your cheques.

• Not to mention that banks charge a few hundred rupees as a fine, for cheques that get bounced due to non-financial reasons.

Cheque Writing

Cheque Writing Rules

• Always move from left to right: While it’s not necessary to move from left to right direction, it just helps your cheque writing task, some method.

• This helps you cover all details on the cheque in a structured manner.

• If you randomly fill in the cheque details, you might just miss filling something.

• That could lead to bouncing of cheque due to non-financial reasons.

Step 1: Date• Without a date your cheque will just not be cleared, period. • You will be surprised to know, how many actually forget to

write the date, at times the correct date. • If you want the cheque to be cleared right away, write the

current date. • If you plan to give a post-dated cheque ensure you give the

right date. • If by mistake you put in a prior date and there aren’t

sufficient funds in your account, your cheque might bounce.

Step 2: Gaps

• Leaving space on them increases the risk of frauds and cheque tampering.

• After the printed word “Payee” on the cheque, write the name of the person/entity to whom you want to give the cheque.

Step 3: Bearer beware• If you are addressing a cheque to a person in particular, write

the name accordingly.

• Keep in mind that unless you are addressing the cheque to a particular person, cancel the printed word “bearer” from the cheque.

• Usually it is in the word “bearer” on the right hand side of the cheque, somewhere under the date.

• Having the word bearer means, anyone who presents (bears) the cheque, the amount will be payable to him.

• If you don’t cancel the word bearer and your cheque gets lost, it’s an invitation to risk of fraud.

Step 4: Cross• The customer wants the cheque to be encashed over the

counter in any branch of the bank, do not cross the cheque.

• Crossing of cheque simply means, when you draw two parallel lines on the left corner of the cheque and write the words “Account Payee” between those lines.

• Some even write it as “A/C payee”.

• Keep in mind that when you cross a cheque, the funds reach the account of the person, and cannot be encashed at a branch counter.

Step 5: Box

• In the box where you have to write the amount in numbers, ensure you write in the correct manner.

• Don’t write Rs.999, instead write Rs.999/-. The sign /- ensures that no one adds another digit to the amount.

Step 6: Figures• Also when it comes to writing the amount, do not

leave space. • For instance, if you want the amount to be Rs.5,000

don’t leave space before the number 5000 or anyone can simply add the number 3 before the number 5000 and make it 35000.

• Same applies when you write the amount in words. • Five thousand can be easily made into thirty five

thousand, if you leave space before the word five.

Step 7: Signature• After filling all the above mentioned details, you

need to check actually sign in the cheque or not. • Remember that going forward; you will need to

use darker ink to sign the cheque.• Sign the cheque above your name, which is

printed on the cheque.• Never sign blank cheques in the cheque book. If

you lose the cheque book, you know what will happen next.

Source: http://www.firstpost.com/investing/new-cheque-norms-know-how-to-write-the-cheques-correctly-516041.html

Banking Ombudsman Scheme, 2006

What is the Banking Ombudsman Scheme?

– The Banking Ombudsman Scheme enables an speedy and inexpensive forum to bank customers for resolution of complaints relating to certain services rendered by banks.

– The Banking Ombudsman Scheme is introduced under Section 35 A of the Banking Regulation Act, 1949 by RBI with effect from 1995.

Banking Ombudsman Scheme, 2006

• Who is a Banking Ombudsman?– The Banking Ombudsman is a senior official appointed by

the Reserve Bank of India to redress customer complaints against deficiency in certain banking services.

• As on date, fifteen Banking Ombudsmen have been appointed with their offices located mostly in state capitals.

• All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks are covered under the Scheme.

When can one file a complaint?

• One can file a complaint before the Banking Ombudsman if the reply is not received from the bank within a period of one month after the bank concerned has received ones representation, or the bank rejects the complaint, or if the complainant is not satisfied with the reply given by the bank.

Procedure for filing the Complaint

• One can file a complaint with the Banking Ombudsman simply by writing on a plain paper. One can also file it online or by sending an email to the Banking Ombudsman.

• There is a form along with details of the scheme in RBI website.

• However, it is not necessary to use this format.

Where can one lodge his/her complaint?

• One may lodge his/ her complaint at the office of the Banking Ombudsman under whose jurisdiction, the bank branch complained against is situated.

• For complaints relating to credit cards and other types of services with centralized operations, complaints may be filed before the Banking Ombudsman within whose territorial jurisdiction the billing address of the customer is located.

Cost

• The Banking Ombudsman does not charge any fee for filing and resolving customers’ complaints.

Details required for complaint

• The complaint should have the name and address of the complainant.

• The name and address of the branch or office of the bank against which the complaint is made.

• Facts giving rise to the complaint supported by documents, if any, the nature and extent of the loss caused to the complainant, the relief sought from the Banking Ombudsman and a declaration about the compliance of conditions which are required to be complied with by the complainant.

References

– http://rbi.org.in/scripts/FAQView.aspx?Id=24