CLEARING OPERATIONS IN A CO-OPERATIVE BANK

A PROJECT REPORT AT

Samata Bank
S a m a t a
Submitted by KAVITA SINGH (Batch 2010-12)

S a h a k a r i

B a n k

L t d .

in partial fulfillment for the award of the degree Of MASTER OF MANAGEMENT STUDIES (MMS)

Under the Guidance of Prof. JYOTI NAIR

THAKUR INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH KANDIVILI MUMBAI

ACKNOWLEDGEMENT
Undertaking Projects is one of the key components in the education of a management student. This helps the student to appreciate the theory learnt in the classroom through lectures, case studies and projects with the exposure to ground realities and help the process of assimilation with practical training and experience. I have been fortunate to undertake a project under the guidance of Prof. Jyoti Nair without whom, the successful and timely completion of this project would not have been possible. I would not forget to appreciate the precious time and the information provided by respondent I am indebted to Mr Prabhat Sharma (Branch Manager) who has guided and Supervised me through this study. I have no words to express my gratitude to him. I would also like to thank the entire staff of Samata Bank for the facilities & steps provided, which helped me in the efficient completion of the project. Last but not the least; I express my heartfelt gratitude towards our Institute Director, Dr. Mrunalini Kohajkar for enabling me to take up a Summer Internship Program as a part of our course curriculum and has always been a pillar of strength, guiding me on all matters and having unalloyed faith in my capabilities.

BONAFIDE CERTIFICATE

This is to certify that this project report Clearing Of Cheques is a bonafide work of Miss. KAVITA SINGH in part completion of the MASTER OF MANAGEMENT STUDIES has been done under my guidance.

The project is in nature of original work that has not so far been submitted for any degree of this university. References of work and relative sources of information have been given at the end of the project.

Signature of the candidate

(Miss. KAVITA SINGH)

Forwarded through the research guide

Signature of the guide

Name of the guide : Prof. Jyoti Nair Designation: HOD Finance

EXECUTIVE SUMMARY

The Co-operative banks are an important constituent of the Indian Financial System, judging by the role assigned to them, the expectations they are supposed to fulfill, their number, and the number of offices they operate.This report highlights the operations and functions of CLEARING DEPARTMENT of Samata Sahakari Bank ltd. Samata Bank is a co-op bank and sub-member of MDCC bank hence the entire clearing process runs through the MDCC bank. The cheques is called as MICR which is punched in the Daily transaction Entry System which heads under the CLEARING module. Clearing operations consist of Micr (Outward Clearing), Outward Return, Inward Clearing, Inward Return, Cheque Return Charges. The clearing process begins with the deposit of a cheque in a bank. The cheque (along with other cheques) is delivered to the bank/branch where it is drawn. The cheque is passed for payment if the funds are available and the banker is satisfied about the genuineness of the instrument. The cheques that are unpaid are returned to the presenting bank through another clearing called the Return Clearing. The realisation of the funds occurs after the completion of return clearing and by the absence of an unpaid cheque. The vouchers made after the clearing is sent for collection is a manual as well as automated process. It consist of vouchers related to The entries related to O/W clg n I/W Clg is reflected automatically in the accounts respectively only the entry for the total amount needs to be made. But the manual vouchers are made and verified by the officers in the bank for every head to avoid ambiguity. This internship has enabled me to improve my analytical, technical and most importantly my technological skill sets. I feel more comfortable working on spreadsheets now. My soft skills were also enhanced due to the corporate interaction and the culture within the organization.

TABLE OF CONTENTS
ACKNOWLEDGEMENT...02 EXECUTIVE SUMMARY..04 HISTORY OF CO-OPERATIVE BANKS06 OVERVIEW- SAMATA BANK.07 PRODUCT PORTFOLIO- SAMATA BANK...10 BANKS CHEQUE COLLECTION POLICY..17 CLEARING PROCESS...21 SCRUTINY OF CHEQUES24 RETURN OF CHEQUES26 ELECTRONIC CLEARING SERVICE (ECS).28 BIBLIOGRAPHY AND REFERENCES30 ANNEXURES31

HISTORY OF CO-OPERATIVE BANKS

The Co-operative banks have a history of almost 100 years. The Co-operative banks are an important constituent of the Indian Financial System, judging by the role assigned to them, the expectations they are supposed to fulfill, their number, and the number of offices they operate. The co-operative movement originated in the West, but the importance that such banks have assumed in India is rarely paralleled anywhere else in the world. Their role in rural financing continues to be important even today, and their business in the urban areas also has increased phenomenally in recent years mainly due to the sharp increase in the number of primary co-operative banks. While the co-operative banks in rural areas mainly finance agricultural based activities including farming, cattle, milk, hatchery, personal finance etc. along with some small scale industries and self-employment driven activities, the co-operative banks in urban areas mainly finance various categories of people for self-employment, industries, small scale units, home finance, consumer finance, personal finance, etc. Some of the co-operative banks are quite forward looking and have developed sufficient core competencies to challenge state and private sector banks.

According to NAFCUB the total deposits & lending of Co-operative Banks is much more than Old Private Sector Banks & also the New Private Sector Banks. This exponential growth of Co-operative Banks is attributed mainly to their much better local reach, personal interaction with customers, and their ability to catch the nerve of the local clientele.

Though registered under the Co-operative Societies Act of the Respective States (where formed originally) the banking related activities of the co-operative banks are also regulated by the Reserve Bank of India. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

OVERVIEW
Samata Sahakari Bank Ltd. was founded in the year 1983 by our founder Late Shri. Amarnath Singh. The Bank is governed by Board of Directors and Shri. Sunil N. Singh is the Chairman of the Bank. The Bank was founded to motivate the people for developing small savings habits, to help the small business people and also to encourage self-employment. The bank has grown to 4 Branches and more branches expected to be opened in the near future. The bank upgraded itself with the computerization and provides across the counter services and has extended working hours.

HIERARCHY Management
Chairman Managing Director Directors Shri. Sunil N Singh Mr Rajesh B Singh Mr. Murji R. Chheda Dr. Bhagwan N. Singh Mr. Ashok A. Singh Mr. Pramod Basrur Mr. Manvendra S. Singh Mrs. Anisha A Singh Mr. Subhod Joshi Mr. Yogendra N Singh Dr. Kantaprasad L. Mourya Mr. Shivnath Jaiswal

General Manager (Dev)

Shri. A. Sameer Siddiqui

Staff Representative

Mr Girish Deorukhkar Mr Vijay T. Garud

COMPANY OPERATIONS

Name of the Bank Registered Office

SAMATA SAHAKARI BANK LTD. Singh Sadan, T.P.S, 6, Amarnath Singh Marg, Santacruz (W), Mumbai - 400 054.

Date of Registration Date & No. of RBI Licence Jurisdication No. of Branches Membership Regular Nominal Position Paid up Share Capital Total Reserves & Funds Deposits Advances Secured Unsecured Total Borrowings Investment Profit / Loss For the Year Total Staff Working Capital CR AR

BOM / BNK / 172 / 1983 dt. 30-6-83 DBOD / UBD / MH / 349 dt. 30-7-83 Greater Mumbai (Urban and Suburban) 4 12350 As on 31st March 2011 395.31 * 1595.48 * 14841.38 * 9479.27* 3.61*

9482.88*
329.89 6954.25 * Net Profit 64.12 * 75 17932.35* 15.37% *Fig in Lacs

PRODUCT PORTFOLIO
PERSONAL BANKING
SAVINGS BANK ACCOUNT y y y y
Savings bank A/c can be opened with minimum of Rs.500. Account opening is a simple process and it can be opened through an introducer along with proof of residence (Ration card copy / Voters-id / Driving license / Passport,Pancard or memorandum). Saving bank A/c offers withdrawal through cheque leaves and withdrawal slips, computerized passbook is provided on free of charge.Earn 4.00% interest on your savings A/c. Half-yearly interest earned by your A/c is directly credited to the A/c.

DHANASHREE y y y
Samata offers Dhanashree deposits scheme, meant for daily collections. Our agents come to your door steps to collect the deposits. Our trusted agents come at your door steps at your convenient timing to collect your savings for the day. Passbook filled up on the spot. Regular pass book verification is an additional security measure. No penalty for non-payment of deposits. Your deposits earns interest on daily basis and credited to your A/c on half-yearly basis. This unique scheme is very convenient for small traders, hawkers and petty shop-owners.

y y

BUSINESS BANKING CURRENT BANK ACCOUNT y y y y y

Samata offers Current A/c for Business community. The Current A/c facilitates large no. of withdrawal transactions. Monthly statement of A/c is provided on free of charges. Current A/c can be opened with minimum of Rs.2500. Account opening is a simple process and it can be opened through an introducer along with proof of residence (Ration card copy / Voters-id / Driving license / Passport/Pancard or memorandum).

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DBCA
y
Samata offers a Unique scheme for business community called DBCA (Double Benefit Current A/c) Scheme. The depositor deposits in multiples of 10,000 and operate the DBCA A/c like a Current A/c. Utilized portion of the deposit would be charged additional nominal interest, so that the depositor need not block the money in the Current A/c which earns nothing. Monthly Computerized statement. No Special charge for availing this scheme.

y y y y

BILLS COLLECTION y y
Samata offers facilities to the customers for the collection of bills. The bank charges very nominal service & exchange charges and provides efficient service to the customers.

DEPOSITS RE-INVESTMENT y y y y y y
Samata offers attractive investor friendly packages in the Re-Investment. Our deposit schemes offer secured high returns up to 9.25% for General public and 9.75% for Sr. citizen. Interest is credited periodically on cumulative basis and paid on maturity .Maturity amount has an option to be Transfer to SB A/c,Current A/c. Registered Co-operative Housing Society and Co-Operative Credit Society can earn 2% extra on term deposit. All deposits insured with DICGC. Investor friendly renewal policy and across the counter services

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Current Interest Rates (w.e.f 07/05/2011) PERIOD GENERAL PUBLIC SR. CITIZEN 5.00% 6.00% 7.00% 7.50% 9.00% 9.25% 10.00% 9.50% 5.50% 6.25% 7.25% 7.75% 9.50% 9.75% 10.50% 9.50%

15 Days to 30 Days 31 Days to 45 Days 46 Days to 90 Days 91 Days to180 Days 181 Days to 365 Days 366 Days to 998 Days 999 Days to 5 Years Above 5 Years

RECURRING DEPOSITS
y y y y y y Samata offers Recurring Deposits for various denominations right from Rs.100 onwards for the flexible periods ranging from 12 months onwards. Computerized passbook is provided free of charge. Automatic instalment transfer from your respective deposit account to recurring accounts. Earn Interest up to 10.00% for General public and 10.50% for Sr. citizen. Registered Co-operative Housing Society and Co-Operative Credit Society can earn 2% extra on term deposit. All deposits insured with DICGC.

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ADVANCES TERM LOAN

y y y y y Samata Bank offers various loans to the needy and customized plans for every customer needs. We offer low interest bearing loans for various schemes recommended by the Govt. Minimal formalities, Flexible terms, Reducing balance interest, Low processing fees. Special Schemes for Share holders, Priority sector and Weaker section Industry / Segment. Above all quick disbursements and across the counter services.

CASH CREDIT A/C

y y y y y y Samata offers CashCredit A/c for Business community aganinst stock. The CashCredit A/c facilitates large no. of withdrawal transactions. Monthly statement of A/c is provided on free of charges. Multiple limits are permissible with varying Interest rates. CashCredit A/c can be on the Current Account and the Current Account can be opened with minimum of Rs. 2500. Account opening is a simple process and it can be opened through an introducer along with proof of residence (Ration card copy / Voters-id / Driving license / Passport/Pancard or memorandum).

BILL DISCOUNTING
y y Samata offers Bill discounting facilities to the business account holders. The bank offers an attractive discounting rates and charges very nominal service & exchange charges and provides efficient service to the customers with minimal documentation. Customers sales bills are discounted at on acceptance of the bills by the reputed parties. Flexible limits are provided to the customers depending on the credit worthiness of the customers. The Bank extend the facilities for the Purchase bill discounting also.

y y y

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SAFETY VAULTS

y y y y y y

Samata Bank offers secured lockers of various sizes at a lower rentals with state of art security systems and traditional customer services. We offers Low Rental Rates starting from Rs. 240 per year with minimum deposits of Rs 10000 for 3 years. Lockers are available at all our branches except malad to suit your requirements. Low annual rentals and extended timings for the locker access. Client friendly services. Standing instructions for rental transfers. Vaults are available in various sizes ranging from Type A B C E F H H1 Height x Width x Depth 4 1/2" x 5 7/8" x 19 3/4" 5 7/8" x 7 1/4" x 19 3/4" 4 1/2" x 13 7/8" x 19 3/4" 5 7/8" x 15 13/16" x 19 3/4" 10 1/2" x 13 7/8" x 19 3/4" 12 3/8" x 15 13/16" x 19 3/4" 12 3/8" x 7 1/4" x 19 3/4"

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BRANCHES
Santacruz: Singh Sadan, A.S.Marg, Off. S.V.Road, T.P.S. 6, Santacruz (W), Mumbai - 400 054. Ph.: 2611 0615, 2614 4244, 2617 2256. Email- [email protected] Bandra: 4, Marian Terrance, 68, Chapel Road, Bandra Reclamation, Bandra (W), Mumbai - 400 050. Ph.: 2651 5110, 2651 5111, 2651 5112. Email- [email protected] Oshiwara: 717/718 Adarsh Nagar, New Link Road, Oshiwara, Mumbai - 400 102. Ph.: 2674 2228, 2674 2229, 2674 2230. Email- [email protected] Malad: #32, Vishal Complex, S.V.Road, Malad (W), Mumbai - 400 064. Ph.: 2861 6156, 2861 6362, 2863 8305. Email- [email protected]

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CHEQUE
"Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign by the person who has deposited money with the banker, requiring him to pay on demand a certain sum of money only to or to the order of certain person or to the bearer of instrument." Different Kinds / Types of Cheques Bearer Cheque When the words "or bearer" appearing on the face of the cheque are not cancelled, the cheque is called a bearer cheque. The bearer cheque is payable to the person specified therein or to any other else who presents it to the bank for payment. However, such cheques are risky, this is because if such cheques are lost, the finder of the cheque can collect payment from the bank. Order Cheque When the word "bearer" appearing on the face of a cheque is cancelled and when in its place the word "or order" is written on the face of the cheque, the cheque is called an order cheque. Such a cheque is payable to the person specified therein as the payee, or to any one else to whom it is endorsed (transferred). Uncrossed / Open Cheque When a cheque is not crossed, it is known as an "Open Cheque" or an "Uncrossed Cheque". The payment of such a cheque can be obtained at the counter of the bank. An open cheque may be a bearer cheque or an order one. Crossed Cheque Crossing of cheque means drawing two parallel lines on the face of the cheque with or without additional words like "& CO." or "Account Payee" or "Not Negotiable". A crossed cheque cannot be encashed at the cash counter of a bank but it can only be credited to the payee's account. Anti-Dated Cheque If a cheque bears a date earlier than the date on which it is presented to the bank, it is called as "anti-dated cheque". Such a cheque is valid upto six months from the date of the cheque.

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Post-Dated Cheque If a cheque bears a date which is yet to come (future date) then it is known as post-dated cheque. A post dated cheque cannot be honoured earlier than the date on the cheque. Stale Cheque If a cheque is presented for payment after six months from the date of the cheque it is called stale cheque. A stale cheque is not honoured by the bank.

BANKS CHEQUE COLLECTION POLICY

OBJECTIVE:
y

Keeping in view the technological progress in payment and settlement systems and the qualitative changes in operational systems and processes that have been undertaken by a number of banks it has been imperative for our Bank to frame Cheque collection Policy. To improve efficiencies in collection of cheques and other instruments. This collection policy of the Bank would be reflection of our on-going efforts to provide better service to our customers and set higher standards for performance.

y y

BACKGROUND:
y

The policy is based on principles of transparency and fairness in the treatment of customers. The bank is committed to increased use of technology to provide quick collection services to its customers.

This policy document covers the following aspects:

y

Collection of cheques and other instruments payable locally, at centers within India and abroad. Our commitment regarding time norms for collection of instruments. Our policy on dealing with collection instruments lost in transit.

y y

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ARRANGEMENTS FOR COLLECTION

Local Cheques
y

All cheques and other Negotiable Instruments payable locally would be presented through the clearing system prevailing at the center. Cheques deposited at branch counters before the specified cut-off time will be presented for clearing on the same day. Cheques deposited after the cut-off time and will be presented in the next clearing cycle. As a policy, bank would give credit to the customer account on the same day clearing settlement takes place. Withdrawal of amounts so credited would be permitted as per the cheque return schedule of the clearinghouse. Wherever applicable, facility of high-value clearing (same day credit) will be extended to customers. Bank branches situated at centers where no clearinghouse exists, would present local cheques on drawee banks across the counter and it would be the bank's endeavor to credit the proceeds at the earliest.

y y

Outstation Cheques
y

Cheques drawn on other banks at outstation centres will normally be collected through bank's branches at those centres. Where the bank does not have a branch of its own, the instrument would be directly sent for collection to the drawee bank or collected through a correspondent bank. The bank would also use the National Clearing services offered by the Reserve Bank of India at centres where such collection services exist. Cheques drawn on bank's own branches covered under CBS network at outstation centres will provide same day credit to its customers. The bank would debit the customer's account with applicable service charge as per the tariff schedule notified by the bank. The charges notified are all inclusive and no additional charges such as courier charges, out of pocket expenses, etc, would be recovered from the customers.

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Speed Clearing
y

Speed Clearing refers to collection of outstation cheques through the local clearing. It facilitates collection of cheques drawn on outstation core banking enabled branches of banks, if they have a net worked branch locally. With Speed Clearing any outstation cheques and other instruments (except demand drafts, pay orders) drawn on CBS enabled branches of member banks are presented in local clearing at MICR centres. The criteria for instrument to be eligible for speed clearing: 1. Cheque should be in MICR format 2. Drawee branch should be on CBS platform.3. Drawee bank must participate in local clearing. The Bank participates in outward as well as Inward Speed Clearing. All outstation cheques drawn on the branches, eligible to be covered under the Speed Clearing Scheme of the RBI would be presented through the Speed Clearing and not be sent as outstation cheques for collection.

y y

Purchase of local/outstation cheques

y

Bank may, at its discretion, and as permitted by the regulatory authorities purchase local/outstation cheque tendered for collection at the specific request of the customer or as per prior arrangement. Besides satisfactory conduct of account, the standing of the drawer of the cheque will also be a factor considered while purchasing the cheque.

Time Frame for Collection of Local / Outstation Cheques / Instruments

y

For local cheques presented in clearing credit will be afforded as on the date of settlement of funds in clearing and the account holder will be allowed to withdraw funds as per return clearing norms in vogue. Cheques / Instruments presented in high value clearing (with the minimum value of Rs.1 lac) shall be credited on the same day (applicable only in areas covered by high value / same day clearing). For cheques and other instruments sent for collection to centres within the country the

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following time norms shall be applied: a) Cheques presented at any of the four major Metro Centres(New Delhi, Mumbai, Kolkata and Chennai) and payable at any of the other three centres : Maximum period of10 (working) days. b) State Capitals (other than those of North Eastern States and Sikkim): Maximum period of 15 (working) days. c) In all other Centres : Maximum period of 20 (working) days. d) In case of cheques sent for collection through Correspondence banks 10 working days from the day of lodgment.

Cheques / Instruments lost in transit / in clearing process or at paying banks branch

In the event a cheque or an instrument accepted for collection is lost in transit or in the clearing process or at the paying bank's branch, the bank shall immediately on coming to know of the loss, bring the same to the notice of the accountholder so that the accountholder can inform the drawer to record stop payment The bank would provide all assistance to the customer to obtain a duplicate instrument from the drawer of the cheque. The bank will compensate the accountholder for any reasonable charges he/she incurs in getting duplicate cheque/instrument upon production of receipt, in the event the instrument is to be obtained from a bank/ institution who would charge a fee for issue of duplicate instrument.

Force Majeure
The bank shall not be liable to compensate customers for delayed credit if some unforeseen event (including but not limited to civil commotion, sabotage, lockout, strike or other labour disturbances, accident, fires, natural disasters or other "Acts of God", war, damage to the bank's facilities or of its correspondent bank(s), absence of the usual means of communication or all types of transportation, etc beyond the control of the bank preventing it from performing its obligations within the specified service delivery parameters.

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CLEARING PROCESS
Most of us have deposited cheques in our bank account to collect amount from somebody or from a business. And bank collected the amount from issuer bank and credited your account. Lets see what are the processes involved in it. Before knowing the clearing procedure you should know what a local cheque is? It is a cheque issued by a person or company in the same city where receiver bank located. Since issuer bank and receiver bank is located in the same city cheque realization done within the city. Now let us see the clearing procedure. Consider scenario State bank of India gets thousands of cheques for clearing each day from its customers. These cheques may be drawing on different banks; say Indian bank, axis bank, Indian overseas bank etc. In this case State bank has to go each bank for collecting amounts which is a bit difficult and time consuming process.

To simplify this process each bank will send a representative to a central place and exchange cheques drawn on each other This centralized place is called clearing house. Reserve bank of India is act as clearing house. SBI or some other banks acts as clearing house in cities where RBIs office is not exists. Suppose SBI brings 1000 cheques for Rs 50 Lacks drawn on axis bank and axis bank brings 500 cheques for Rs 45 lacks drawn on SBI. So axis bank should give 50 lacks to SBI and SBI should give 45 lacks to axis .instead of giving full amount consider net difference which is 5 lacks payable by axis bank to SBI account. The settlement bank; that is RBI passes an entry by debiting axis bank and crediting SBI in their books. This means that Axis bank should give 5lacks to RBI for paying SBI. And RBI will settle this amount. This kind of settlement is net settlement. The clearing process begins with the deposit of a cheque in a bank. The cheque (along with other cheques) is delivered to the bank/branch where it is drawn. The cheque is passed for payment if the funds are available and the banker is satisfied about the genuineness of the instrument. The cheques that are unpaid are returned to the presenting bank through another clearing called the Return Clearing. The realisation of the funds occurs after the completion of return clearing and by the absence of an unpaid cheque (Figure 1.4).

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Figure 1.4 - The movement of cheques in local clearing

Return Clearing: Realisation of a cheque i.e. payment occurs after the cheque that is returned unpaid takes place in this clearing. The aggregate of all items unpaid is debited to the original presenting bank and credited to the drawee bank. The same process is mirrored in the inter-branch settlement at the service branch of a bank. The credit given to the payee on account of the cheque is reversed. Inter-branch clearing: Cheques presented by customers drawn on different branches of the same bank need not be sent to the clearing house as the transfer of funds is internal to the bank. The service branch usually acts as a settlement branch for the branches and the instruments are sent to the drawee branches while the inter-branch accounts are credited or debited internally. Time lag: The total clearing cycle including the return clearing introduces a time lag in the payments process. The need for physical presentment of the cheque at the branch where it is drawn on, requires the movement of cheques from one place to another. As a result, the recipient of payment has to wait until the collecting banker is fully satisfied
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that the cheque has been paid. This time lag will continue irrespective of the level of technology and improvements in process, so long as the physical presentment of the cheque is necessary as per the banking law.

Settlement of Funds: The settlement of funds in clearing occurs at several levels. The aggregate amount or value of cheques presented by a bank on other banks represents the claim by that bank on other banks. Similar claims are made by all the banks on every other bank in the clearing. A net settlement is arrived at the clearing house and the debit or credit position of the bank is determined. These are booked in their current accounts maintained by the settling bank. This represents the inter- bank settlement. The settlement of funds between the service branch and the branch concerned represents the transfer of funds to the branch level. The payment process is completed only when the funds are debited from the drawer's account and credited to the payee's account. This occurs after the completion of the return clearing mentioned earlier (Figure 1.5).

Fig. 1.5. Settlement Process in Clearing

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SCRUTINY OF CHEQUES
On a cheque being presented for payment, the following need to be checked to confirm that the cheque is in order: The cheque should not be mutilated, cancelled or torn. If the cheque is mutilated or torn by accident, the drawer has to confirm in writing that the cheque can be paid. The bank can be held responsible for negligence for paying a mutilated cheque that bears evidence that the customer had intended to destroy the cheque Crossing When a cheque is crossed, the payee banker cannot pay cash across the counter. The cheque can only be credited to the bankaccount of the payee. If a cheque is crossed to more than one banker , the paying banker will refuse payment unless the stamp is cancelled. Date Undated cheque cannot be paid. The holder of the cheque can write the date on the cheque and present it but not the bank. A post dated cheque can be deposited by the holder but the bank can present the cheque only on the date mentioned. Stale cheques cannot be paid. A cheque dated more than six months prior to the date of presentment is considered a stale cheque. Payee Payee of the cheque should be a certain person. It can be a person, or more than one person(joint payees) or a legal entity. Amount in words and figures should tally Consider an example where the amount in words says rupees Ten thousand only whereas the amount in figure is Rs.1000. Hence the practice is to return the cheque with the remark amount in words and figures differ. Alteration of the cheque The banker should check that there is no material alteration of the cheque. If there is a material alteration it has to be authenticated by the drawers full signature.

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Available balance There should be sufficient balance available for payment of the cheque. For instance if the balance available in the account is Rs. 30000 and there are two cheques for Rs. 5000 and Rs. 26000 presented for payment then in such a case the cheque with the smaller value should be paid first unless customer gives alternate instructions. Signature of the customer The cheque should hold proper signature of the account holder as mentioned in the specimen with the bank. If the sign is not the same then the practise is to return the cheque . In case of a joint account, both the partners signature should be present on the cheque. Cheque stopped by drawer Bank cannot make payment of a cheque that has been stopped by the drawer. Customer can stop payment of a single cheque or a series of cheques by giving a written request. Payment of High value Cheques Additional precaution has to be taken for payment of high value cheques. Anti money laundering guidelines specify that the cash payments of Rs. 10 lakhs and above, the bank have to obtain a letter from the customer stating the purpose of the withdrawal. The bank also needs an identity proof of the person withdrawing cash in case the account holder has not come in person.

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RETURN OF A CHEQUE
Many a times, banks have to return unpaid cheques of customer due to financial and technical reasons as mentioned below:

Financial Reasons:
Insufficient funds The customer must have sufficient funds in his account when he issues a cheque. In case of insufficient funds for payment, the cheque is returned with the reason Insufficient Funds. Exceeds arrangement Consider a situation where the bank has given overdraft limit of Rs. 50000 in an account of ABC Ltd.. the balance in the account is Rs. 40000 (debit). The cheque of Rs. 15000 is presented for payment in clearing. The overdraft limit is only upto Rs. 50000. A payment of Rs. 15000 would mean exceeding the limit by Rs. 5000. Hence the cheque is returned with reason Exceeds arrangement. Effects not cleared Consider a situation where the balance in the account is Rs. 32000 and a cheque of Rs. 45000 is deposited and credited but not cleared. Hence the total balance is Rs. 77000 and available balance is Rs. 32000. A cheque of Rs. 40000 is presented for payment. Hence at this time the presented cheque will be returned with the reason Effects not cleared. At times the banks use the legend Effects not clear, present again which implicated that there is a possibility of cheque getting cleared when represented. Technical Reasons Bank have to return cheques of customer if it is not in order. y y y y y y y Postdated or stale Amounts in words n figure differ Not drawn on us. (outstation cheques presented in clearing) Payment stopped by drawer Alteration requires authentication Mutilated cheque Cheque crossed to two banks
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y Drawers signature differs y Account Closed y Refer to Drawer a(dormant account or account frozen by tax authorities or attached by court)

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Electronic Clearing Service (ECS)

ECS is a mode of electronic funds transfer from one bank account to another bank account using the services of a Clearing House. This is normally for bulk transfers from one account to many accounts or vice-versa. This can be used both for making payments like distribution of dividend, interest, salary, pension, etc. by institutions or for collection of amounts for purposes such as payments to utility companies like telephone, electricity, or charges such as house tax, water tax, etc or for loan installments of financial institutions/banks or regular investments of persons. There are two types of ECS called ECS (Credit) and ECS (Debit).

ECS (Credit) is used for affording credit to a large number of beneficiaries by raising a single debit to an account, such as dividend, interest or salary payment. ECS (Debit) is used for raising debits to a number of accounts of consumers/ account holders for crediting a particular institution.

WORKING OF ECS CREDIT SYSTEM

ECS payments can be initiated by any institution (called ECS user) who have to make bulk or repetitive payments to a number of beneficiaries. They can initiate the transactions after registering themselves with an approved clearing house. ECS users have also to obtain the consent as also the account particulars of the beneficiary for participating the ECS clearings. The ECS user's bank is called as the sponsor bank under the scheme and the ECS beneficiary account holder is called the destination account holder. The destination account holder's bank or the beneficiary's bank is called the destination bank.

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ECS DEBIT SYSTEM

It is a scheme under which an account holder with a bank can authorise an ECS user to recover an amount at a prescribed frequency by raising a debit in his account. The ECS user has to collect an authorisation which is called ECS mandate for raising such debits. These mandates have to be endorsed by the bank branch maintaining the account. .

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BIBLIOGRAPHY AND REFERENCES

The following websites have been accessed: http://www.howbankswork.com/15.2.html http://rbidocs.rbi.org.in/rdocs/ECS/DOCs/19631.doc http://www.infibeam.com/Books/info/IIBF/Co-operative-BankingOperations/9780230632615.html http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/80045.pdf www.sbici.com/chqclgpolicy-memotomsd.doc

BOOKS REFERRED

M.N. Gopinath, (2009). Banking Principles & Operations. Mumbai: Snow White T N Ramakumar,(2008). Co-operative Banking Indian and global perspectives. Hyderabad: the icfai university

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