INDIAN BANKS' ASSOCIATION

Enhancement of limit for grant of instant credit of cheques

RBI vide its directive DBOD No.BC.181.09.07/007/99-2000 dated 29.5.2000 enhanced the limit for immediate credit of outstation as well as local cheques from Rs.5000/- to Rs.7500/- subject to the customer maintaining a satisfactory operated account. According to the guidelines banks should not wait for the customer's request for the facility but should as a matter of normal course, provide the service.

October 13, 2000

Your Cheque Book

Here are a few things you should know if you hold a cheque operated account.

1> A cheque is a written instruction you give to your banker to make payment by debit to your account on demand.

2> Cheque is a valid payment instrument from the date shown on the face of it. By banking practice six months is treated as normal validity of a cheque.

3> A Bearer cheque is payable to the holder. An Order cheque is payable to the person on whose favour it is drawn or subsequent endorsees. So banks seek identification of the person receiving payment of an order cheque.

4> Banks verify the signature on the cheque with your specimen signature on record before making payment.

5> Take proper care of your cheque book. A signed bearer cheque getting into wrong hands would mean a loss!

6> Report loss of cheque to your bank immediately and give Stop Payment instruction to them.

7> Do not issue cheques without adequate balance in the account or arrangements to pay. Dishonour of cheque for insufficiency of funds or exceeding amount arranged to be paid, is a criminal offence punishable with imprisonment for a period upto one year or with fine which may extend to twice the amount of the cheque. Top

SAVINGS BANK ACCOUNT

What is a Savings Account ? A Savings bank account is the most common operating account for individuals and others for non-commercial transactions. A Savings account helps people to put through day-to-day banking transactions besides earning some return on the savings made. Banks generally put some ceilings on the total number of withdrawals permitted during specific time periods. Banks also stipulate certain minimum balance to be maintained in savings accounts. Normally a higher minimum balance is stipulated in cheque operated accounts as compared to non-cheque operated accounts.

Banks as a rule do not give overdraft facility in a saving account, but allow occassional overdrawings to meet contingencies.

Who can open a Savings Account ?

* by a person in his / her name;
* by two or more persons in their joint names payable to :
- both or all of them or the survivor or survivors of them; OR
- either or any more of them or the survivor or the survivors of them; OR
- former / latter or survivor of a particular person during his lifetime or survivors jointly or survivor.
* Certain non-profit welfare organizations are also permitted to open Savings bank accounts with banks.

What a bank asks for while opening an account ?

Banks are required to know true identity of the person wanting to open an account. Banks also seek introduction of the person from an existing account holder. Banks require photograph of the person to be kept on record for future identification purpose. In terms of government notification w.e.f. 01.11.1998, banks have to obtain PAN numbers (issued by Income Tax Dept.) of the account holder at the time of opening of the account. In the absence of PAN number customer should give a declaration in the prescribed format (form no.60 or 61 as the case may be).

Important Note :

Please fill nomination form while opening the account. It helps in settlement of dues in the event of death of the account holder. (See Nomination Facility for more details)

What the Customer needs to know while opening a Savings Account ?

Ask the bank officials about :
* Minimum balance requirements.
* Penal provisions if the balance falls below the minimum stipulated amounts or return of cheques issued or instruments sent on collection.
* Collection facilities etc. offered and charges applicable.
* Details of charges, if any for issue of cheque books and limits fixed on number of withdrawals, cash drawings, etc.

Interest :

Interest @ 3.5 % p.a. with effect from 1/3/2003 . The amount of interest will be calculated for each calendar month on the lowest balance in credit of any account between the close of the tenth day and the last day of each month. Most banks pay interest on a half yearly basis.

FIXED OR TIME DEPOSITS

Time deposits are deposits accepted by banks for a specified period of time. In terms of RBI directives the minimum period for which term deposits can be accepted is 15 days. The banks generally do not accept deposits for periods longer than 10 years.

1> Banks pay interest on term deposits based on the period of deposits and normally pay higher interest for longer term deposits.

2> Banks have full discretion to fix their interest rates on deposits and these rates are varied from time to time depending on market conditions.

3> Changes made in interest rates from time to time do not alter the interest paid on the existing deposits.

4> When banks quote a certain percentage of interest per annum for a given period it is understood that interest payments are made on a quarterly basis (see IBA Master Charts).

5> The depositor can collect interest on every quarter or its discounted value at monthly rests or avail quarterly compounding benefits and receive principal and interest on maturity.

6> RBI has now permitted banks to quote a higher rate of interest for individual deposits more than Rs.15 lacs.

7> Banks are allowed to levy a penalty for premature encashment of deposits at their discretion. Banks generally pay interest on such deposits as applicable for the period which deposit has been kept with the bank (less penalty if levied).

8> Bank allow loans against the fixed deposits on demand. Margin retained over the deposit outstanding and interest rate charged thereon are decided by the bank and may vary from bank to bank.

Opening of a time deposit Account

Normally the requirements as given under savings bank account apply to time deposits also. However, photographs are not insisted for deposits below Rs.10,000/-. Also the requirements regarding furnishing of PAN number applies only to time deposits over Rs.50,000/- made in cash.

To suit the needs of the customers banks have introduced innovative variations in the basic time deposit format. Flexible deposit is one such innovation. In this case a given deposit is split into units of smaller amounts for accounting purposes. This enables the customer to encash any number of units prematurely at any time during the currency of the deposit and earn the contracted rate of interest on the balance amount.

Please fill up nomination forms while placing a term deposit with your bank (please see nomination facility hyperlink)

Current accounts are cheque operated accounts maintained for mainly business purposes. Unlike savings bank account no limits are fixed by banks on the number of transactions permitted in the Account. Banks generally insist on a higher minimum balance to be maintained in current account. Considering the large number of transactions in the account and volatile nature of balances maintained overnight banks generally levy certain service charges for operating a Current account.

In terms of RBI directive banks are not allowed to pay any interest on the balances maintained in Current accounts.
However, legal heirs of a deceased person are paid interest at the rates applicable to Savings bank deposit from the date of death of the account holder till the date of settlement.