Ancillary Service Sofa Banker

Ancillary Services of a Banker Remittance of Funds This service is available to both customers as well as noncustomers of the bank. The following are some of the important modes of transferring funds from one place to another Bank Draft – A bank draft is “an order to pay money drawn by one office of the bank upon other office of the same bank for a sum of money payable to order on demand”.  it is drawn by one office of a bank upon some another office of the same bank  it is payable on demand  its payment is to be made to the person whose name is mentioned therein

Legal Status of a Bank Draft Its legal status has, therefore been a subject of controversy. The Punjab National Bank Ltd. Held that a bank draft is a bill of exchange because it fulfils all essential requisites of a bill i.e. it is an instrument in writing directing a certain person to pay a certain sum of money Another vs. Jyoti Ranjan Majumdar , where it was observed “ordinarily different branches of a bank and their head office constitute one legal entity”. It is to be noted that the Calcutta High Court declared a bank draft as a bill of exchange on the basis of taking the two branches of the bank as two different entities.

Difference between a Cheque and a Bank Draft i. A draft cannot be made payable to the bearer while a cheque can be so drawn ii. A banker is under a legal obligation to pay the money of the draft. Its payment cannot be stopped except in cases where loss or theft of the draft has been reported iii. The purchaser of the draft has already paid the consideration to the drawer bank and there is a clear direction from drawer bank to the drawee bank for payment of the money to the payee named therein Pay order A pay order is an order by the issuing office of a bank upon itself to make payment of the amount mentioned therein to the named payee or according to his order.

Stopping payment of the draft The payment of the draft cannot be stopped by the banker even on receiving instructions from purchaser of the draft. The Lahore High Court held in the case of Malik Barket Ali vs. Imperial Bank of India that the purchaser of the draft had no right to countermand the payment of a draft after it had been delivered to the payee. Loss of the draft. A banker can stop payment of a draft in those cases where either the purchaser of the draft or the payee of the draft has reported about the draft being lost or stolen A banker should refuse to cancel the draft, if it finds that the draft has been delivered to the payee.

Travellers’ Cheques Travellers’ Cheques are issued by banks to avoid the risk of loss or inconvenience in having to carry large amount of cash while traveling. Loss of the Travellers’ Cheque  The bank should satisfy itself that the cheques were not endorsed by the purchaser before they were lost  A letter of indemnity together with sureties should be obtained for the amount involved

Collection and payment of pension i. by accepting the valuables from the customers for safe custody ii. by hiring out safe deposit vaults or lockers to the customers

Liability of a Banker The liability of a banker in respect of the goods accepted by it for safe custody is that of a bailee and, therefore, it is subject to the provisions of Section 151 and 152 of the Indian contract Act. (i) Negligence by the banker (ii) For conversion (iii) Fraud by its own employees

Hiring of safe deposit vaults Banks provide safe deposit vaults facilities to the public at selected branches. The banks for this purpose have strong rooms generally under the ground floor which are equipped with safe deposit lockers. The lockers are of different sizes and they are hired out to the public. New services and instruments Merchant banking – Merchant banking is basically a service banking, concerned with providing non-fund based services of arranging funds rather than providing them. The services of a merchant banker can be summarized as follows:

1.

2.

3.

Project counseling. A merchant banker helps an entrepreneur in conception of idea, identification of projects, preparation of projects feasibility reports, fixing locations, obtaining money, sanctions from state an central government departments. Sponsor of issue. Merchant bankers act as sponsor of issues rather than sources of finance. Credit syndication. Merchant bankers undertake preparation of project files, loan applications for financial assistance on behalf of promoters from different financial institutions

2. Servicing of issues. Merchant bankers keep register of shareholders and debenture holders of their clients, companies, act as paying agents for the dividends, debentures interest 3. Investment management. Merchant bankers render advice in matters pertaining to investment decisions, effects on taxation and inflation on filt-edged and other securities. 4. Arrangement for fixed deposits. Merchant bankers help companies to raise finance by way of fixed deposits from the public.

7. Other specialist activities (a) Corporate counseling for financial institutions, rehabilitation and reconstruction (b) services to NRIs for suitable investment opportunity in India (c) Assistance in negotiations of foreign collaboration (d) Arranging technology, finance and risk capital

Mutual Funds A mutual fund is an institutional device through which the investors poor their funds to invest in a diversified investment portfolio. (a) Open-end mutual funds – the fund itself is ready to buy back the shares surrendered and sell new shares. (b) Close-end mutual funds – The shares of such mutual fund are purchased and sold in the secondary markets. The mutual fund scheme offers the advantages of high return, easy liquidity, safety and tax benefits to the investor while it offers the bank an opportunity to collect funds from untapped areas.

Factoring Factor is a continuing arrangement between a financial institution and a business concern selling goods and services to trade customers. i.

ii. iii.

Reduction in the cost of maintenance and collection of book-debts Saving in time, manpower etc. needed for collection and Monitoring of book debts and prevention of bad debts, since the debtors would not like to be looked down in the eyes of factoring credit institution.

Functions. i. Credit Recording ii. Credit administration iii. Credit protection iv. Credit financing v. Finance and business information

Types of factoring. 1.

Recourse factoring

2.

Non-recourse factoring

3.

Advance factoring

4.

Maturity factoring

5.

Bank participation factoring

6.

Supplier guarantee factoring

7.

Disclosed factoring

8.

International factoring

Factoring services in India. The working procedure involved in the factoring services as adopted by SBI Factors and Commercial Services Ltd. Can be summarized as follows: 1.

The supplier invoices his customers in the usual way only adding the notification

2.

The supplier offers assigned invoices to the SBI Factors with a schedule of offer

3.

The SBI Factors provide pre-payment to the supplier

4.

The SBI factors sends an official notification and personalized statement

5.

The SBI Factors pays the remaining 20 per cent of the invoice value to the supplier

6.

The SBI factors send monthly statement of accounts to the supplier

Leasing Leasing has become a growing activity in India. Leasing may be defined as “a method of acquiring right to use an equipment or asset for consideration”.

Types of lease agreements 1. Finance Lease – A finance lease is a long term arrangement which is irrevocable during its primary lease period. a. The lessor transfers ownership of the asset to the lessee b. The lessee has the option to purchase the asset at a price which is expected to be sufficiently lower than the fair value c. The lessee term is for the major part of the economic life of the asset is not transferred

d. The present value of the leased minimum lease payments amounts to at least substantially equal to the fair value of the least asset e. The leased asset is of a specialized nature 2. Operating Lease A lease which does not satisfy any of the conditions as give above for Finance Lease is termed as “Operating Lease”. It does not give lessee all the benefits and riks that are associated with the asset. (a)

Where there is possibility of rapid obsolescence of the asset

(b) Where the lessees is interested in tiding cover a temporary problem

3. Sale and Lease Back A firm sells an asset to another person who in turn leases it back to the firm. The sale and lease back arrangement is beneficial both for the lessor and the lessee. The lessor gets the benefit in terms of tax credits due to depreciation. Leveraged Leasing This form of leasing has become very popular in recent years. The position of the lessee under a leveraged leasing agreement is the same as in case of any other type of lease. The lessee agrees to make periodic payments over the basis lease period and gets the right to use the asset over the agreed period of time.

Difference between hire purchase and lease financing The goods are delivered by the owner to another person on the agreement that such person pays the agreed amount in periodical installments. The buyer can claim depreciation on the cost of the asset and interest as an expense for tax purpose. In case of lease financing, the lease rent is deducted as an expense for tax purposes. In case of a hire purchase, on completion of the contract, the residual value of the asset goes to the buyer. While in case of a lease financing, the residual value goes to the lessor.

Certificate of Deposit The certificate of deposit is a document of title similar to time deposit receipt issued by a bank. i.

The banker is not required to encash the deposit before the date maturity

ii.

The investor is assured of ready liquidity.

The maturity period of CD is between 15 days and one year for scheduled commercial banks Underwriting Undertaking the responsibility by a person or firm or an institution that if the shares or debentures offered to the public for subscription are not fully subscribed for, the underwrite will subscribe for such unsubscribed shares.

Bid bonds and performance guarantees Guarantee issued by a bank on behalf of its clients in favour of a third party that if the contract is entered into with its customer named therein he will be able to execute the same. It is guarantee where the bank gives an undertaking to the third party that its client shall complete the job as per terms of tender. Without any proof or condition, the bank cannot be restrained from making payment to the beneficiary of the guarantee by the customer unless there is a clear fraud to the notice of the bank.