noteson banking
TRANSCRIPT
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COLLATERAL OR SECURITY
Very easy definition of Collateral or Security as Something to fall back upon
This means that when banker provides loans or other financing facility, the banker
need some tangible or intangible to be provided by the borrower to secure it, and if
that loan or facility is not adjusted than banker may adjust them by disposing thosetangibles and intangibles
Those tangibles and intangibles in brief are!
"and and #uilding $Tangible%
&lant and 'achinery $Tangible%
Vehicles $Tangible%
Stocks and inventories $Tangible%
(uarantees and #onds $)ntangible%
*eposit certificates, Credit balances in accounts $Tangible%
#ills of e+change and promissory notes $)ntangible%$)n above stated categories there are some items where it should be better that
banker must take a letter of intent that the security has been willfully provided by
the borrower and it could prove that the borrower has provided them under
#anker Customer elations%
Qualities of a Good Security:
- &referably it should be tangible
. The owner should have absolute title
/ The ownership not be undivided or disputed
0 )f ownership rests with third party then the intention of third party must be
obtained
1 )ts market and forced sale price can be ascertained2known
3 )t should have demand in market
4 )ts price should not be subject to drastic change
5 )t should not pertain to fashion or season
6 )t should be easily saleable
-7)t should not be contra banned item
--)t should not be perishable
-.)f it is agricultural crop, it must be of current season and loan2finance mustbe adjusted before ne+t season
-/Consumer loans are given without any tangible or intangible but only and
only on repayment capacity of the borrower 8or salaried persons on the
basis of salary and for small and medium class business, the base is turn
over appearing in statement of account )n this situation the most important
thing is re9verification of the information
-0)n case of finance against receivable or sale proceeds, proper recovery of
sale proceeds must be done
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RIGHTS AND DUTIES OF BANKER
:nder #anker Customer relations there are some rights of bankers towards their
customers and they have to abide by the duties those are legally to be performed bythem Similarly there are some rights and duties of customers too
These rights and duties would be discussed in detail in our coming sessions, but
now we would start with one of the most important right of banker and this right is
known as Right to lien.
Right to lien. "ien is the right to retain the property belonging to another until the
debt due from the latter has been paid ;ccording to section -4- of contract act,
-54., a banker
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FORMS OF SECURITY/COLLATERAL
Securities are of following types!
Tangible! those have physical e+istence? can be seen touched and felt
)ntangible! those do not have physical e+istence? cannot be seen touched of felt
$angibles are: land building, machinery, lants, goods, stocks, in!entories
agric%roducts etc.&ntangibles are: Guarantee and &ndemnity.
8urther more tangibles have been subdivided into moveable and immovable
"and and #uilding are immovable )mmovable property cannot go in the custody
or possession of lender, it remains with the borrower but the lender
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8or borrower point of view, such security is availed for their short term financing
known as working caital.
The borrower cannot have access to them nor sell them unless the facility is
adjusted
Hypothe!t"o#
This is the form where the security is moveable and it remains in the custody ofborrower, but bank has got legal charge on them, meaning by that in case of default
by the borrower bank can take possession of them and can dispose them to adjust
the loan2facility provided
:nder hypothecation there are two situations!
- &roperty remains in the custody of borrower? he can use it but cannot sell it
)t happens in the case where financing is given against plant, machinery and
vehicles $:nder current consumer financing%
. &roperty remains in the custody of borrower and he can sell it also, with the
condition that the over all value of those items should not decrease than the
value declared at the time of taking loan 8or e+ample if a departmentalstore has been granted loan against the hypothecated goods worth s -7
million, and items include! fabrics, garments, grocery, cutlery, shoes,
electronic items etc, than borrower is free to sell them, but also responsible
to replace the sold items to match the value of these items worth s-7
million
These items are also insured at the cost of borrower
Mo$tg!ge
Ahere banker charge is created against immovable property, whereby theborrower can use it but cannot sell it is termed as mortgage "and and #uilding
could be the e+ample #anker creates its charge in a way that in case of default
from the borrower bank can have access to the property and can adjust the loan
by selling that property )n any case borrower cannot sell it without getting
clearance from the bank
'ortgage could be commercial and non9commercial )f an enterprise borrows
against land and building being used for business or the funds are utiliBed for
running business, it is termed as commercial mortgage >n the other hand if
some one avails loan for buying land or for constructing house for his personal
use and that land or building has been mortgaged as security it would beconsumer mortgage
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FORMS OF SECURITY/COLLATERAL %Co#td&
'ien on (ccounts
;nother form of security is that borrower provides the banker to mark lien on the
accounts in the bank? those could either be his own but of third party
The ;ccounts being maintained are!
Current ;ccount
Saving #ank ;ccount
otice *eposit ;ccount
Term deposit or fi+ed deposit ;ccount
8oreign Currency ;ccounts? and those are also in the shape of current,
saving or fi+ed deposit accounts
$Dust for the knowledge of students, it is being informed that in &akistan 8oreignCurrency ;ccounts can be maintained in Dapanese yen, (reat #ritain &ound, :S
*ollar and Euro *eposit in these accounts must be in foreign currency but
withdrawal can be done both in foreign and local currency depending upon the
choice of customer 8urther more deposit of funds in these accounts could be either
by cash or through Che=ue%
Sometime customer offers his balance of his account as security? and bank accepts
it by marking lien on those accounts )n case of current or saving account the
amount offered as security is blocked by the bank and customer would not be
allowed to withdraw to that e+tent )n case of otice deposit or term2fi+ed deposit
the original receipt or certificate is given to the bank and bank keeps it under thecustody until the repayment or adjustment of loan
Same is the case with foreign currency accounts Customer would either allow the
bank to block his current or saving account to the e+tent of the money offered as
security, or would surrender his fi+ed deposit certificate with the bank to remain
under the custody of bank till the adjustment of loan
)n these entire situations if the customer fails to repay the loan? bank would debit
his account if it is current or saving and if it fi+ed deposit the bank would en cash
that certificate, adjust the loan and if there is any remaining balance it would be
given to the customer;nother thing to be noted is that customer would continue to receive the agreed
profit on that deposit and is bound to pay )nterest2'ark up on the finance2loan
availed
8or further clarification of the students following illustrations are given!
; customer is having is his current account which is his business account and also
has deposited s177, 77729 with the bank in the shape of fi+ed deposit for ten
years and is availing profit of -.F per annum To meet his short term commitment
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he needs s -77, 77729 Ge has got two options? first to get his fi+ed deposit to get
it encashed, but would loose rate of profit as five are remaining to mature, or the
second option is to re=uest the bank to lend him loan of s -77,77729 for a period
of one month and as security would surrender that fi+ed deposit certificate to the
bank so that bank may keep it as security Second option is beneficial for him and
he would surrender it to the bank The bank would allow him loan and it would be
the most secured loan as the money is already with the bank in the shape of fi+eddeposit )n this position both of them have advantages? for customer the interest or
mark9up paid on s -77,77729 would be much lesser than the loss, had he got it en
cashed before maturity 8or the bank it is good that it would not loose deposit and
would further earn on loan of s-77, 77729 which is secured in all respect $This
illustration is given for a small amount but practically it could be in millions%
;nother illustration is "ien of 8oreign currency account The situation is that
customer has got E: -77,77729$which is almost e=uivalent to s5 million% with
the bank, and needs s . million for a period of si+ months to meet his business
commitments or other wise 8or him the first option is to withdraw from hisforeign currency account and meet his needs? but he feels that the rate would Euro
would rise in future and within ne+t si+ months its local value might rise to s 5.
million, and does not want to loose the gain due to e+change rate rise Customer
would like to go for ne+t option and which is that he should borrow s . million
from the bank by allowing the bank to mark lien in his account to the e+tent of s
. million $ E=ual to 8oreign Currency%
The customer would be financed but his foreign currency account would be
blocked to the e+tent of Euro .177729
)(RG&*
Ae have now come to know that what collateral2 security and why it is taken by
the bank or why offered by the borrower #ut the =uestion lies that to what e+tent a
bank can allow to borrow against a security 'eaning by that if the value of
security is s 1million can a bank allow loan for s 1 million or less and if less
than how much less, and what would we call the difference of between the value of
security offered and why that difference is maintainedH
>ne thing is for sure that bank would never allow a customer to avail loan either
more than the value of security or even e=ual to the value of security8or e+ample the value of security is s1 million? bank would not allow loan for
s 1 million or more against the same security #ank must allow below s 1
million? either 0 million / million or . million
So there is difference between the value of security and amount of loan that can be
availed The amount of loan that can be availed against a specific security is
termed as *rawing &ower of the borrower )t means that how much power has
borrower got to draw loan against specific security, and what would we term the
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difference between the value of security and amount of loan $drawing power% The
term is known as margin.
+e can say that difference between !alue of security and drawing ower is
termed as )argin-
Value of Security -7 million
*rawing &ower 4 million
*ifference is million /it is known as margin0
Value of Security 177,777
*rawing &ower 077,777
'argin 122,222
Value of Security 177,777
*rawing &ower .17,777
'argin 3#2,222
)n first situation the margin amount is / million? which is /7F of value of security,in second situation the value of margin is -77,77729 which is .7F of the value of
security, and in last case the value of margin is .17,77729 which is 17F of value of
security
So =uestion arises that why there is variation in the value or percentage of margin
and why this margin is retained )ts simple answer is that it depends upon the
nature of security )f the nature of security is such that it holds all the =ualities of
goods security the lesser would be the margin, and if the security is very week and
does not hold =ualities of good security the higher would be the margin
'argin is retained so that the loan could be secured in a way that if the security isto be sold it must have so much value that it could adjust the loan and e+penses to
be incurred
Gere under the first situation where the margin is /7F it might be inventories
having risk of loosing price to the e+tent of /7F :nder second situation the
security could be land or building which might loose price not above .7F and
under the last situation where the loan amount and margin amount is 17F the
security is very week and might be agricultural crop which might get destroyed if
not adjusted
4R(+&*G 56+7RThe amount or value which the borrower is allowed to avail against a security is
termed as drawing power or *&
)t very simple definition is!
*ifference between value of security and margin is drawing power )n the above
stated situations the drawing power is!
Value of Security -7 million
'argin / million
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*rawing &ower 8 million
Value of security 177,777
'argin -77,777
*rawing &ower 922,222
Value of Security 177,777'argin .17,777
*rawing &ower 3#2,222
FORMS OF FINANCING
#asically we have two forms!
F'#d B!(ed
No#)F'#d B!(ed
Fund ased:Gere the banker provides finance by involving their funds
physically >r we can say under fund based financing banks funds are involved in
a way that it has to part from their funds and those are at disposal of borrower$s%
Types of fund based financing!
"oan ame in &akistan $*emand 8inance%
>verdraft ame in &akistan $Cash 8inance%
#ill &urchased and discounted
#ridge 8inancing
Consortium "oans or 8inancing
'oan or 4emand Finance"
)t is the form under which the entire sanctioned2approved finance amount is
credited in the account of borrower The total funds are put at his disposal by
crediting his account )ts accounting entry is?
*ebit "oan or *emand 8inance ;ccount
Credit Customer
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The amount adjusted in this type of financing cannot be re9availed under the
same loan Either it is re9structured or a fresh loan is granted
Gere is illustration?
*emand 8inance ;ccount?
*ate *ebit Credit #alance
7-7-74 177,777 $177,777%
/-/-74 17,777 $017,777%/77374 17,777 $077,777%
/77674 17,777 $/17,777%
/--.74 17,777 $/77,777%
Gere loan was debited with s 177,77729 and was adjusted with installments of
s17, 77729 per =uarter $three months% ;mount in bracket indicates debit balance
6!erdraft or ;ash Finance"
:nder this form of financing a limit is approved in favour of borrower? and he is
allowed to overdraw his account within that limit The entire approved amount
may be utiliBed in single day or as much as he needs in peace meals Suppose a
customer has got approved facility for s 177,77729 under Cash 8inance? at the
time of approval of this type of facility s 177,77729 would not be given to him
nor credited to his account, but he would be allowed to overdrawn his account for
s 177,77729 This facility is unlike demand finance is on revolving basis )t
means that the amount once availed and adjusted can be re9availed multiple times
Gere is illustration!
Cash 8inance ;ccount $8acility was allowed2approved on Dan7-.774 and on
that date there were s 17,77729 his own balance in his account%*ate *ebit Credit #alance
7-7-74 17,777 Gis own balance
7-7-74 41,777 $.1,777% ;ccount overdrawn by .1777
-17-74 -41,777 $.77,777% ;ccount overdrawn by .77,777
-47-74 -77,777 $-77,777% ;ccount overdrawn by -77,777
7.7.74 -17,777 17,777 Gis own balance
.47.74 .17,777 $.77,777% ;ccount overdrawn by .77,777
707/74 -17,777 $/17,777% ;ccount overdrawn by /17,777
737/74 -17,777 $177,777% ;ccount overdrawn by total limit..7/74 /77,777 $.77,777% ;ccount overdrawn by .77,777
7.7074 077,777 .77,777 Gis own balance
.77074 /77,777 $-77,777% ;ccount overdrawn by -77,777
)n this illustration it has been noted that this type of finance is running finance and
is operated like a current account? sometime credit balance $his own money% and
sometime debit balance? account overdrawn ;lso it shows that twice the facility
was adjusted and again re9availed
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ill 5urchased
)f a customer deposits a che=ue in his account which is drawn on other bank and
usually out of city and country and account holder needs to be financed against that
che=ue so that later on bank may adjust after that che=ue is credited? the finance
thus made is known as finance against bill purchased Gere bill means che=ue
ill discounted.
Sometime customer has got post dated che=ue2che=ues? those are payable on futuredate and needs funds currently Ge would deposit those che=ues to the bank and
bank would pay him by creating finance and also would charge )nterest2'ark up
for the remaining period? this finance is termed as finance against bill discounted
B$"dge F"#!#"#g
)t is a short term financing and is for a temporary period The term can be well
understood with the term bridge, as bridge means a link between two ends This
type of financing maintains a link between current financing which is to be
adjusted with immediate e+pectation of funds
Ill'(t$!t"o#
; person wants to buy a house and he intends to buy after selling his house where
he is residing presently >ne option is to sell his house first and then buy new one
#ut in this situation he would not have any house to reside )f he contacts banker
for a very short term and temporary loan whereby the banker would lend him to
buy new house first, would shift there and would sell his house and adjust the loan
taken from the bank
;nother illustration is about corporate body $&ublic "imited Company% whichwould start its business after getting funds in shape of share subscription #efore
the shares are offered and subscribed company need funds to establish office and to
meet preliminary e+penses Such e+penses are met from the funds borrowed from
the banker for a short and temporary period? and those would be adjusted as soon
as funds are received in shape of share subscription
#ut one thing is clear that while allowing bridge financing the lending bank are
sure for the receipt of funds for its adjustment
)n case of bridge financing allowed for purchase of house, banker gets authority toget the sale proceed of house )n case of allowing financing to corporate body the
bank which lends to the company underwrites or we can say gets authority to get
the funds in the shape of subscription of share
Co#(o$t"'* F"#!#"#g
)t is joint financing by two or more financial institution )f a heavy project where
huge financing is needed that cannot be met by single institution then two or more
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financial institution gets together and share their lending )n simple words when
more than one lending institution is involved in lending to a person or project the
financing is termed as consortium financing
>n )nternational level when group of countries are lending loan to a country for its
development? it is also consortium financing
*on%Fund ased! Gere banker
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case the person on whose behalf guarantee is issued fails to perform? the bank
issued guarantee would compensate the party to whom the guarantee is issued
$=57S 6F (*> (;;6
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U#l!"*ed Depo("t(
)n &akistan it is compulsory for every bank to surrender balances of every type of
accounts where there is not any operation for the last -7 years? declaring them as
unclaimed deposits )t includes balances of current accounts, saving accounts, term
and fi+ed deposits These balances are surrendered to State #ank of &akistan withcomplete information of the account and account holders
These balances also include funds lying with the bank in any sector of account or
deposit where no one has claimed them for the last -7 years >ther balances
include funds not clamed under demand draft, payment order, security deposit
receipt or any such type of accounts
Dee!(ed Ao'#t
)n case of )ndividual and Doint account either current, saving or fi+ed deposit?when account holder or any of the account holder dies the account becomes
deceased account
Ho, !o'#t "( *!$-ed !( Dee!(ed Ao'#t.
Ahen banker comes to know from any authentic source of news that account
holder has died? it becomes the duty of banker to declare and mark that account as
deceased account Gere the important thing is that banker would mark it as
deceased only after receiving information from any authentic source or by the legalheirs of the deceased )nformation may come from any known person of account
holder, printed or electronic media, even in small villages such information might
comes from the loud speaker of mos=ue, but important thing is to confirm and
verify it
)t is very much possible that the account holder might have died long ago and
banker has not come to know about it, nor any of the legal heirs has contacted the
bank to inform? so the account would be declared dormant on the date when banker
has come to know about the death of account holder
;s soon as information is received changes are made in the system in such a way
that amount is blocked and information is noted on account opening form about the
date and time of information received and also source is noted )n case the
information has been brought by the legal heirs, than it must be in written form and
is kept as record
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+hat haens when account is marked as 4eceased@-
'oney can be deposited
There cannot be any withdrawal, other than bank
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with different way as compared to the person
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>ther way is that a major known as (uardian opens account in the name of
minor, but the opening of account and operation is done by major >nly name of
minor is used as account holder
)n this case any person known as major can open account in the name of minor?
male or female $obviously his or her age must be below -5%
The title of account would be?'aster Iubair 'inor
'r Shahid (uardian
$#oth names would appear in account opening form in the same manner%
This account will be totally operated by the person 'r Shahid known as guardian
but the owner of the balances in the eyes of law would be Iubair, the minor
The purpose of maintaining such account is to give legal right of succession to the
minor in case of death of 'ajor
)f Shahid opens his account in his name and he dies, in this case the balance would
be given to the heirs as per Sharia but if he opens an account in the name of anyof his son or daughter, naming him or her as ')>, then the total sum would be
paid to the minor
Ahen an account is opened in the name of person known as minor, he or she
would be entitled to operate that account after attaining the age of .- and not -5
2o"#t Ao'#t
Ahen two or more person open one account jointly, and it is non9commercial or
not pertaining to business the account is known as Doint ;ccount)f any business or commercial account is opened by two or more person, it is not
termed as joint account but &artnership ;ccount
Ahen joint account is opened, all the account holders would sign account opening
form, but its operation depends on the instructions given by all jointly
:sually such account is maintained within the family members as? husband and
wife, father and son or daughter, mother and son or daughter, father with mother
and daughter or mother with son and daughter #ut it can be opened by two or
more friends or ac=uaintances also
This account can be operated by any one, two of them or by all of them, but the
condition is that such instructions must be given by all of the accounts holders
jointly either at the opening of account The operational instructions can be
changed or revoked even after opening of account any time in future but conditions
rests that all of them would write to the banker jointly
Co$po$!te Ao'#t(
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;ccounts of &rivate and &ublic "imited Companies are termed as corporate
accounts
These are routine accounts and are basically current accounts and are operated like
any other regular current account, but the difference lies that they have to provide
some additional documents before opening the account
Re0'"$e*e#t 3o$ Co$po$!te !o'#t(
)n addition to account opening form they have to provide the followings
- 'emorandum of ;ssociation
. ;rticles of ;ssociation
/ Certificate of )ncorporation
0 Certificate of Commencement of business
1 esolution from board of directors
3 "ast years balance sheet or projected financial statements
For 5ri!ate limited comanies, they need not to ro!ide letter of
commencement of business.
Me*o$!#d'* o3 A((o"!t"o#
)t is charter of company stating name, address, nature and scope of business
A$t"le( o3 A((o"!t"o#
)t contains rules, laws, salaries and authorities of directors
Ce$t"3"!te O3 I#o$po$!t"o#
)t is permission letter from Corporate "aw authority to confirm that the company
has been legally established
Ce$t"3"!te O3 Co**e#e*e#t O3 B'("#e((
)t is permission from Corporate law ;uthority to start business, and it is given by
them when the company gets subscription from the share holder This is not
needed in case of &rivate "imited Company
Re(ol't"o# F$o* Bo!$d O3 D"$eto$()n this resolution board of directors resolve and confirm that they can open account
with the one or more banker :nless resolution is passed by the board of directors
that ay which bank they intend to open account, directors are not authoriBed to
open or operate account
L!(t Ye!$ B!l!#e Sheet O$ P$o4eted F"#!#"!l St!te*e#t(
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)t is mandatory for every banker to know and maintain the ma+imum information
about source and utiliBation of funds of account holders The term is known as
JKC J>A K>: C:ST>'E and it can be known by the financial
documents of the corporate body and the best available one is #alance Sheet or
&rojected financial documents
anker ;ustomer Relations#efore we come to #anker Customer elation, we must know about #anker and
Customer
B!#-e$
#anker is a legal person who accepts deposit from one customer and lends it to
another customer The customer depositing money is known as depositor and
person to whom bank lends is called borrower #anker pays to the depositor and
earns from borrower Ahat banker pays to depositor is known as &rofit and what
earns from borrower is mostly 'ark9up $)n &akistan% ate of mark9up is always
much higher than the rate of profit, and the difference of this mark9up and profit is
spread or &rofit of the bank
C'(to*e$
; person who maintains his account is customer )rrespective of the fact that the
person is maintaining Current, Saving, Term and 8i+ed *eposit and whether
maintains heavy or petty deposit all are e=ual and respectable as customer of bank
&erson who borrows money from the banker is also customer )t is very obvious
that banker would not lend to any person who is does not maintain any accountwith bank
'ost of the bank
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under principal and customer relation Gere the Customer is &rincipal and #anker
is ;gent
$o elaborate it an illustration is gi!en"
; Customer Saleem has his account with :nited #ank "imited, and Iubair gives
him a che=ue of s 1777729 ;ccount of Iubair is at Gabib #ank "imited and
would be paid by the same bank Saleem who has received the che=ue has to go toGabib #ank to get cash from there, but it might be difficult for him due to distance,
cost and time involved >ther available option is that Saleem deposits this che=ue
to his banker, :nited #ank to present it on his behalf to Gabib #ank, get payment
from that bank and give credit to his account
Ahen bank would do this act? it would be done under the relation of &rincipal and
;gent
B!"lo$ !#d B!"lee
Ahen movable property which a person gives in the custody of banker for purpose
of safe custody? the relations so established are #ailor and #ailee Gere Customeris #ailor and banker is #ailee E+ample can be given for hiring of Safe *eposit
"ockers where a customer keeps his valuables in the bankther than
Safe *eposit Vault customer can hand over any valuable items or documents to the
banker to keep it in its own safe
P!,#e$ !#d P!,#ee
Ahen any borrower provides his movable property to banker to be kept as security
against borrowing? the relation so established are &awner and &awnee )nstance can
be given when goods are pledged with the borrower to the banker Customer wouldbe &awner and banker would be &awnee
Mo$tg!go$ !#d Mo$tg!gee
:nder the situation when borrower offers his immovable property as security
against borrowing the relations so established are 'ortgagor and 'ortgagee
)llustration can be given as 'ortgage of property of borrower by the banker
Stop P!y*e#t I#(t$'t"o#
;ccount holder has right to instruct his banker to Stop &ayment of his che=ueeither issued in favour of some one or it is blank Some time account holder can
instruct his banker to stop payment of full che=ue book or remaining che=ues after
utiliBation
)f a che=ue is issued in favour of some one, customer would write to banker to stop
payment of che=ue giving following information?
Che=ue umber
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*ate of issuance
;mount of che=ue
ame of person to whom issued
Customer may or may not write the reason for stopping the payment? he could
simply write that he intends not to pay the che=ue
;s stated earlier, customer may instruct to stop payment of numerous che=ues )tusually happens when the che=ue book is either lost or stolen )n such situation
customer would write that che=ues from this number to that number have been lost
or stolen and if any of these che=ues are presented should not be paid
>n receipt of such instructions bank verifies signature of account holder from
specimen signature card and if found genuine would accept and entertain this
instruction
#anker would feed that che=ue number in system $Computer% and block its
payment ;ny time that che=ue is presented to the banker? system would not accept
it and payment would not be made
;s already discussed, whenever che=ue is returned, banker must state reason for
returning it and that too in writing )n this case the true and genuine reason would
be written and it would be &;K'ET ST>&&E* #K *;AE Same would
be the case when instructions are to stop payment of numerous che=ue
STOP PAYMENT INSTRUCTIONS ON PHONE OR E)MAIL)n rare cases customer is in such an awkward position that he cannot come to bank
to instruct stop payment of che=ue and informs bank not to pay the che=ue )t
happens only when the che=ue has been lost, misplaced or looted and has been
issued asBEARER. 'ain reason is that the customer is afraid that by the time he
reaches the bank? che=ue may be presented and paid Therefore he gives phonic
instruction or could send e9mail The problem with the banker would be that bank
accepts and accommodate only instructions those are in writing ;pprehension for
the bank is that if it acts on verbal instruction the customer might say later on that
he did not instruct so? and if such situation arise banker might face allegation of
Arongful *ishonour of Che=ue
>n other hand if banker refuses to accept such instruction, its customer may face
loss of money due to wrong or false payment
This situation is handled in a way that both ends are saved #anker accepts this
instruction from customer with the condition that banker would not honour and pay
che=ue for a limited period and in between that period customer must come and
give instruction in writing
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8/13/2019 Noteson Banking
22/22
So payment would not be made between these periods and if che=ue comes during
that period, che=ue would be returned with following reason?
PAYMENT PENDING RE6UIRE DRA1ER7S CONFIRMATION
"ater on customer would come and give instruction in writing and then banker
would have genuine ground to return it with reason as &ayment Stopped by*rawer )f during this time customer does not come and give instruction in
writing then banker has no option but to pay it The condition would be that che=ue
is otherwise in order
Re*o+!l o3 Stop P!y*e#t I#(t$'t"o#
Customer has right to cancel or revoke his stop payment instructions, but he would
do it by giving such cancellation instruction in writing )n that case he would write
to banker and banker would release this che=ue or numerous che=ues from system
and if che=ue is presented would be paid
STOP PAYMENT IN 2OINT ACCOUNT AND PARTNERSHIP ACCOUNT
)n Doint account any one of joint account holder can stop payment of che=ue
whether he or she is authoriBed signatory or not, but in account opening form
appear as one of the joint account holder Same would apply in &artnership account
where any partner can give instruction to stop payment of che=ue issued and
signed by other partner2partners )n both cases banker is bound to accept and act on
such instruction
;s far as Cancellation of Stop &ayment is concerned? it must be done by all the
Doint account holders in case of joint account and all partners in case of partnershipaccount