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Introduction to Banking Unit 4 Methods of Remittances
Introduction to Banking Unit 4 Methods of Remittances Notes cover all the exercise questions in UGC Syllabus. Introduction to Banking Unit 4 Methods of Remittances provided here ensures a smooth and easy understanding of all the concepts. Understand the concepts behind every Unit and score well in the board exams.
Methods of Remittances
INTRODUCTION TO BANKING
|(A) VERY SHORT TYPES QUESTION & ANSWERS|
(A) Multiple choice Questions:
1. NEET refers to __________.
(a) National Economic Fund Transfer.
(b) National Economic Fund Transfer.
(c) National Electronic Fee Transfer.
(d) none of these.
Ans: (d) none of these.
2. IFSC stands for _________.
(a) Indian Financial System Code.
(b) International Financial System Code.
(c) Indian Fund Service Code.
(d) None of these.
Ans: (a) Indian Financial System Code.
3. RTGS stands for __________.
(a) Real Time Gross Settlement.
(b) Real Term Gross Settlement.
(c) Real Tour Goal Settlement.
(d) Real Term Goal Settlement.
Ans: (a) Real Time Gross Settlement.
4. SWIFT stands for ________.
(a) Society for Worldwide Interest Financial Telecommunications.
(b) Solution for Worldwide Interbank Financial Telecommunications.
(c) Society for Worldwide Internet Financial Telecommunications.
(d) Solution for Worldwide Interbank Financial Telecommunications.
Ans: (d) Solution for Worldwide Interbank Financial Telecommunications.
5. CBS stands for ________.
(a) Code Banking Solutions.
(b) Core Banking Solutions.
(c) Common Banking Solutions.
(d) Credit Banking Solutions.
Ans: (b) Core Banking Solutions.
6. CTS refers to _________.
(a) Cheque Truncation System.
(b) Cheque Transaction System.
(c) Cheque Truncation Solution.
(d) Cheque Transaction Solution.
Ans: (a) Cheque Truncation System.
7. Which one is not the means of means of electronic fund transfer from one bank to another?
(e) None of these.
Ans: (b) NPA.
8. What is the minimum limit for an RTGS transaction?
(a) Rs. 2 Lakhs.
(b) Rs. 1 Lakhs.
(c) Rs. 3 Lakhs.
(d) Rs. 4 Lakhs.
Ans: (a) Rs. 2 Lakhs.
9. When National Electronic Fund Transfer (NEFT) started in India?
Ans: (d) 2005.
10. What are NEFT and RTGS about.
(a) Check transaction process.
(b) Electronic fund transfer from bank to bank.
(c) Electronic payment products within a bank.
(d) Various deposit products.
Ans: (b) Electronic fund transfer from bank to bank.
(B) Fill in the Blanks:
1. If the NEFT transaction fails, the destination banks are required to return the fund to the originating branch within __________.
Ans: 2 hours.
2. The RTGS service window for customer’s transactions is available to banks from _______ to _______ on Saturdays for settlement at the RBI end.
Ans: 9 am, 2 pm.
3. The minimum amount to be remitted through RTGS is __________.
Ans: 2 lakhs.
4. EFT stands for __________.
Ans: Electronic Fund Transfer.
5. SWIFT stands for ___________.
Ans: Society for Worldwide Internet Financial Telecommunications.
6. A promissory note, bill of exchange or cheque payable to bearer is negotiable __________.
Ans: by delivery thereof.
7. A demand draft is a prepaid __________.
8. Cheques are also called __________ instruments.
9. ACH stands for ___________.
Ans: Automated Clearing House.
10. Cheque truncation is a mode of clearing cheques _________.
SHORT TYPE QUESTION & ANSWERS:
1. What is the Real-Time Gross Settlement Fee?
Ans: The fee for real-time gross settlement will vary depending on the institution/ country in which the settlement occurs as well as the size of the transfer. There are times when the fees can be waived by the institution.
2. Which banks in India provide RTGS facility?
Ans: Only RTGS-enabled banks offer the option of transferring funds using the said service. Popular Indian banks such as HDFC Bank, Axis Bank, RBL Bank, State Bank of India, etc., offer the RTGS service. However, before you opt for the service, you should take a look at the RTGS transfer process along with the RTGS fees and charges of the specific bank.
3. What is the minimum and maximum limit for RTGS transactions?
Ans: Remember that all RTGS transactions are mainly for larger value transactions. The minimum amount for RTGS transactions is Rs. 2 lakh. There is no maximum limit.
4. What is a Demand Draft?
Ans: A demand draft, often known as a DD, is a mechanism through which a person or a bank transfers cash from one financial institution to another. Demand drafts are distinct from cheques. Only the banks can issue demand drafts and no individual can issue it. Demand drafts are also considerably safer and pose less danger of fraud than checks because the banks only issue them if the drawers have adequate cash in their accounts, and that is not the same scenario with cheques. Whenever there’s a big sum of money at stake, the bank issues the demand draft using funds from the user’s account who requested it. A drawer is a person or client that demands the demand draft, whereas the institution that pays the cash is the drawee. A demand draft or DD is a payment method that is used to facilitate transactions from one bank to another. This method guarantees the payment of a specified amount to a payee whose name is mentioned on the DD.
5. What are the features of demand draft?
Ans: Here are some notable features of a demand draft:
(i) A demand draft is a way to initiate a bank transfer that does not require a signature, as is the case with a check.
(ii) A demand draft is a prepaid instrument, therefore, you cannot stop payment on it in the case of fraud or mis-intended recipient.
(iii) Because demand drafts can be used to defraud people, there are regulations now in place that allow victims to recover funds from the holding bank.
(iv) Demand drafts are less flexible compared to other payment methods but may offer greater security compared to electronic payments or online payment systems.
(v) Unlike a cheque, it is a pre-paid fund transfer instrument, and it does bot bounce due to insufficient funds in the account since the payment is already collected when issuing a demand draft.
(vi) A DD is only payable to the recipient whose details are mentioned in the draft. Since it is a pay-on-demand service, the amount is immediately credited to the recipient when they submit the draft.
(vii) No signature or authorisation is required to initiate the payment. Instead of verification, it says “authorised by depositor.”
(viii) It is only payable to the demand draft, and it is payable on demand. It means the payee can immediately be paid the specified amount and cannot be stopped from payment once he/she presents it to the bank to be cashed out.
6. How does a demand draft work?
Ans: When a bank prepares a demand draft, the amount of the draft is deducted from the customer’s account and transferred to another bank’s account. The drawer is the person who requests the demand draft, the drawee is the bank that pays the money, and the payee is the person who receives the money. Apart from providing the agreed-upon funds to the drawee upon presentation, the demand draft makes no other promises, such as earning interest. Each demand draft has a unique code written on it to complete each transaction, which is known as the demand draft number.
7. How to cancel a demand draft?
Ans: Since you did not issue the DD directly, you cannot cancel a DD on your own. You need to visit the issuer bank and follow the procedure to cancel a DD if it has not been cleared. If you paid by cash, you need to submit the original DD, receipt of cash payment, and DD cancellation form to request cancellation of DD. You will receive a refund after the deduction of the cancellation charges levied by the bank.
If you made the payment using your bank account, you can submit the original DD and the cancellation form. The amount will be refunded to your bank account after deducting the cancellation charges.
8. What will happen if I lose my demand draft?
Ans: If you lose your DD, you need to sign an Indemnity Bond in stamp paper for the issuing bank. A copy can be helpful to present when you visit the bank. The bank will take sometime to process the payment. Some banks clear payments for lost demand drafts in one week while others wait until the expiry date of the DD. In any case, they will deduct charges before issuing you a refund.
9. How to encash a demand draft?
Ans: It is not possible to encash a DD anymore. Banks have stopped paying a drawee in cash to avoid fraudulent transactions. If you are the payee, when your bank receives a DD, they will make the payment to your bank account only. If you have a bank account in the same bank that issues the DD, the payment will be cleared in one business day. In the case the banks are different, it can take upto three business days.
10. What to do if the DD expires before I encash it?
Ans: Demand drafts have a validity period of 3 months from the date of issue (printed on DD). If it is not presented within its validity period, the DD becomes invalid. However, the amount is not refunded to the drawer automatically even if he made a payment from his bank account. Only the drawer can submit the application to the issuing bank for the revalidation of the DD. The issuing bank will verify the records and details before revalidating the DD for another 3 months. If the revalidated DD is not presented, it cannot be revalidated again.
11. Write a note on Demand Draft Validity.
Ans: The Reserve Bank of India (RBI) has issued a new guideline according to which negotiable financial instruments such as demand drafts, pay orders, and cheques will remain valid for 3 months only. The validity period has been reduced to prevent anyone from misusing these instruments and circulating them in the market. According to RBI’s mandate, no financial institution can proceed with the necessary payments. If anyone comes to them with a DD which is expired by 3 months. However, a person can apply for revalidation of the Demand Draft by submitting the necessary application at the bank branch if the validity expires.
12. Is a fee charged from payee at the time of encashment?
Ans: No, no fee is charged from the payee at the time of encashment by the bank.
13. How to issue a Demand Draft?
Ans: Following are the steps of demand draft:
Step 1: Fill the DD form with all details mentioned above.
Step 2: Make the payment either through cash or from your bank account.
Step 3: The bank verifies all details mentioned in the DD form.
Step 4: After successful verification and receipt of money, the bank issues the demand draft to the applicant.
Step 5: The applicant has to submit this DD to the payee and complete the transaction.
14. What are the things to consider while issuing a Demand Draft?
Ans: Things to consider while issuing a Demand Draft are:
(i) If you intend to pay for the DD in cash, complete the DD form and pay in cash to obtain the DD.
(ii) You must provide your PAN details to the bank for amounts exceeding Rs. 50,000.
(iii) If you intend to pay with a bank account, you must also provide those details before receiving the DD. The bank will deduct the funds and issue you the DD right away.
(iv) Before leaving the bank, double-check the details on your DD, including the drawee’s information.
(v) Make a copy (photocopy or photo) of the DD before handing it over to the payee. This will be useful if there are any issues with the DD.
(vi) You only need to present your ID and address proof to the bank for smaller amounts.
15. What is a Cheque?
Ans: A cheque is a document you can issue to your bank, directing it to pay the specified sum mentioned in digits as well as words to the person whose name is borne on the cheque. Cheques are also called negotiable instruments. In banking terms, a negotiable instrument is a document that promises its bearer a payment of the specified amount either on furnishing the document to the banker or by a given date. We offer a variety of current/cheque accounts, fixed deposits and savings account designed to suit your personal banking needs. The issuing party is called the drawer of the cheque, and the one it is issued to or put simply, whose name is mentioned on the cheque is the drawee.
16. What is a Banker’s Cheque?
Ans: A banker’s cheque involves a bank writing a cheque on your behalf. You provide the cash to the bank or allow the bank to debit your account (if you hold an account with the bank). The bank issues a cheque for the specified amount of cash you pay to it. You can then forward this to the recipient. These cheques involve money transfers within a limited territory, e.g., a town or city. The recipient can get the cheque cleared in any other branch of the same bank which has issued it. This type of cheque is valid for 90 days from the date it is issued. If the cheque is not cleared within three months, it becomes invalid.
17. Can you encash a banker’s cheque immediately?
Ans: Yes, visit any branch of the bank which has issued it (within the same city). Approach the department for clearance of cheques and give them the cheque. Once the details are validated, you will receive the cash instantly.
18. What are the components of a Cheque?
Ans: The major components involved in a what we call a cheque are:
(i) Drawer: The person who signs and instructs the bank to pay the amount on the cheque.
(ii) Drawee: The person who signs and instructs the bank to pay the amount on the cheque. The drawee is the bank on which the cheque is drawn or the person instructed to pay the amount mentioned on the cheque.
(iii) Payee: The person to whom the money is to be given or the beneficiary.
(iv) Amount: The amount required needs to be provided clearly in the designated box.
19. What are the features of Banker’s cheque?
Ans: The features of Banker’s cheque are:
(i) This cheque is issued by a bank on behalf of either an account holder or a person who gives the bank a specific amount of money based on which the bank issues the cheque. This type of payment is limited to the territorial region of one city or town only.
(ii) A banker’s cheque is a non-negotiable financial instrument.
(iii) All banker’s cheques come printed with the words, non-negotiable.
(iv) You can get a banker’s cheque cleared in any branch of the bank which has issued it but of that specific city or town.
(v) This monetary instruments is valid only for a time frame of 90 days (3 months).
(vi) It include a prepayment clause which leaves no room for them to be dishonoured.
(vii) It involve making payments towards financial obligations.
20. What are the advantages of Banker’s Cheques?
Ans: Advantages of Banker’s Cheques:
(i) They are convenient in settling accounts with foreign partners. Banker’s cheques can be used for making payments for goods and services to foreign partners, i.e. to pay for subscription of books and publications, lotteries, goods, training in foreign schools, embassies for issue of visas and, to make gifts in cash, etc.
(ii) Banker’s cheques are very convenient for making payments when there is no need to make urgent money transfer.
(iii) It is cheap. A banker’s cheque is the cheapest international way of money transfer (payment).
(iv) Fits if there is no enough information about the payee. A banker’s cheque is the most convenient way of payment if there is no enough information about the payee: e.g. when a firm that has submitted only its address and name is requested to pay. In which case international payment order is not possible.
21. What are the disadvantages of Cheque?
Ans: Disadvantages of Cheque are:
(i) A cheque is not a legal tender. As a result, creditors may choose not to accept them.
(ii) Cheques may not be ideal for small amounts.
(iii) They become deceitful and valueless when the drawer has no money in his or her account.
(iv) Banks levy the drawer for cheque books and dishonoured cheques.
(v) Having a cheque in hand does not guarantee payment since they may be dishonoured.
(vi) Cheque takes time to write. The process of writing a cheque can lead to a wastages of precious time especially if done regularly. The payee may also waste sometime during the process of cashing out a cheque.
(vii) The bank personnel who handles a cheque will have easy access to the drawer’s account number, name and possibly his or her residential address. This may present some opportunities of carrying out fraudulent activities and (even unauthorised deductions) from their account.
22. What is Cheque Truncation?
Ans: Truncation is the method of stopping the flow of the physical check issued at some point by a drawer with the presenting bank on its way to the branch of the drawee bank. In its place, the clearing house transmits an electronic picture of the cheque to the drawee branch along with relevant information, such as MICR band details, date of presentation, bank presentation, etc.
Cheque truncation, thus, obviates the need to transfer the physical instruments through branches, rather than for clearing purposes in exceptional circumstances. The electronic transfer of information eliminates the cost associated with the transfer of the physical cheques, reduces the time required for their collection, and speeds up the entire activity of cheque processing.
23. How Cheque Truncation works in India?
Ans: Cheque truncation speeds up the process of collecting checks resulting in improved service to customers, decreases the risk for clearing-related frauds or loss of instruments in transit, lowers the cost of collecting cheques, and avoids issues related to reconciliation and logistics, thereby helping the system as a whole. With the other major products being RTGS and NEFT, the Reserve Bank has developed the ability to allow interbank and customer payment electronically and in almost real-time.
Since cheques are still the country’s prominent mode of payment, the Reserve Bank of India has decided to concentrate on improving, the efficiency of the cheque clearing cycle, providing an alternative to the Cheque Truncation System (CTS). As pointed out earlier, CTS is a more secure method vis-a-vis physical document exchange. In addition to the operational efficiency, CTS offers banks and customers many advantages, including rationalisation of human resources, cost-effectiveness, re-engineering of business processes, improved service, implementation of the new technology, etc. CTS has, thus, emerged as a significant efficiency improvement initiative undertaken by RBI in the field of payment systems.
24. What are the advantages of Cheque Truncation?
Ans: Advantages of Cheque Truncation:
(i) The main advantage of cheque truncation is it reduces the delay that is the availability of required funds and beneficiaries on time.
(ii) Quick clearing cycles. It takes a maximum of three days to clear the cheques as compared to a physical one which takes almost a week to process.
(iii) Time, money and manpower expended on physical transfer of cheques from banks to clearing house are eliminated.
(iv) Reduces the physical movement of paper cheques furthermore it offers a potential reduction in the settlement process.
(v) Additionally, CTS also offers banks and customers many other advantages too like cost-effectiveness, improved services, and rationalisation of human resources and technologies.
(vi) Saving time, money and resources spent on the cheques’ physical transfer from banks to clearing houses.
(vii) There are no extra charges for collecting cheques written on a bank inside the grid.
(viii) Clearing-related fraud becomes less likely.
25. What are the risks of Cheque Truncation?
Ans: The process of CTS may seem easy and technology advanced but is also comes with several risks involved.
Some of the risks are discussed below:
(i) With respect to banks, the clearing house should accept that the data given by the local branch of the bank is the data meant for the day’s clearing.
(ii) In some cases, truncation cheques involve various operational risks so in this case, banks must take sufficient measures to reduce this kind of risk.
(iii) The drawee should verify the image of the signature as this also may confront a comparable issue.
26. What is EFT?
Ans: An electronic funds transfer (EFT) is a transaction that takes place over a computerised network, either among accounts at the same bank or to different accounts at separate financial institutions. Electronic funds transfer (EFT) are electronic transfer of money from one bank account to another, either within a single financial institution or across multiple institutions, via computer-based systems, without the direct intervention of bank staff. An EFT (Electronic Funds Transfer) payment is a form of electronic payment that allows money to be processed between bank accounts directly. EFT payments are the most common way to transfer money and include credit card payments, online payments and automatic bill payments.
27. Does EFTA require withdrawal limits?
Ans: Yes. The EFTA requires banks to limit the amount of money that can be withdrawn from your account during any given time period. Most banks set the limit at $200 or $300 each day, meaning you cannot electronically withdraw more than this amount in cash within a 24-hour period.
28. Explain the benefits of Electronic funds transfer.
Ans: As you can see, the technology around EFT is always evolving. But what is EFT payment’s main benefit? Well, there are a few.
(i) Speed of transactions: Instantly pay for items online, in-store or by phone.
(ii) Security: Keep less cash on premises, and carry less cash when doing your business banking.
(iii) Record Keeping: There’s a record of all EFT payments. Plus, when using a quality POS system, all sales are instantly recording for accounting purposes.
(iv) Convenience for customers: It’s safe, easy and convenient to make EFT payments.
(v) More revenue: The more payment options you offer, the more chance you have of increasing sales.
(vi) Accuracy: You can’t be accidentally (or deliberately) short-changed when paying electronically.
29. What’s the difference between an EFT and an ACH?
Ans: ACH stands for Automated Clearing House. The ACH is a network of financial institutions whose intent is to provide security in the transfer of funds. So in an ACH transaction, the request will stop through the ACH between the initiation and the bank itself. That means that ACH transactions add an extra day or two, but if speed is less important than security, this is a desirable option.
EFT is a blanket term for all digital transactions, and an ACH is just one type of EFT. As noted above, there are many types of electronic transfers, so it’s up to the business and the consumer to decide what kind of EFT is best for their needs.
30. Are Electronic Fund Transfers safe?
Ans: One of the best features of the EFT is its security. While transmitting over the internet always involves an element of risk, EFT is generally considered a safer method of payment than a traditional paper check. Some types of EFT, like the ACH, are more secure than others. The best way to ensure a tamper-free EFT is to use companies that you know and trust, or come from a reliable source in the case of a recommendation. Using third party entities, like EBANX, can help make the right decisions when it comes to navigating EFT for your own business.
31. Explain the types of EFT payments.
Explain the services protected under the Electronic Fund Transfer Act (EFTA).
Ans: There are actually several forms of EFT payments out there. We probably do them on a daily basis without really thinking about it.
(i) Credit and debit cards: Every time you use a credit or debit card, you’re making an EFT payment. This includes using cards to buy products in a store, online, or even over the phone. While the funds transferred might take a few days to clear, the EFT payment system automatically confirms that funds are available, essentially making the transfer/purchase valid instantly.
(ii) ATMs: Using an ATM is a form of electronic funds transfer, even though you receive cash in your hand. This is because the ATM talks to your bank, confirming funds are available before disbursing the cash.
(iii) Wire transfers: Wire transfers are also electronic, even though the sender may provide cash over the counter at a bank or wire transfer facility. The funds are still transferred electronically so they are available to the recipient, who could be anywhere in the world.
(iv) Direct deposit/bank transfer: Electronic bank transfers can be used for a wide range of things. Many businesses allow you to pay invoices using direct deposit. Most employers pay their staff using direct deposit. You can even just use it to transfer money to friends and family, or between your own accounts. The process isn’t instant, though, and usually takes 2-3 business days for funds to transfer.
(v) Online payment systems: You can use credit and debit cards to purchase products online, but there are other methods as well. Essentially, online payment systems allow for transactions to take place over a secure connection. This might be for online purchases, or even paying invoices online. Square Online Payments is one of these systems making it easier for businesses to get paid faster.
(vi) Electronic checks: Similar to traditional, paper-based checks, but entirely electronic. You simply need to enter your routing number and bank account number to make a payment.
(vii) ACG payments: The Automated Clearing House is a major network for moving money between bank accounts across the US. ACH debit and credit payments move through the ACH network, which is overseen by NACHA and operated partially by the Federal Reserve (as opposed to conventional credit card networks, which are owned and operated by for-profit companies). ACH payments settle in about two to three business days. ACH transactions can happen as a credit or a debit. Importantly, all ACH payments are a type of EFT, but not all EFTs are ACH payments.
32. How do EFT payments work?
Ans: Like most things that we take for granted in our technologically advanced world, there is a lot that happens behind the scenes when making a simple EFT payment in Australia. Plenty of infrastructure and technology supports every type of electronic payment, but mostly it comes down to one key function.
EFT payments require two parties to talk to each other electronically through a designated system. Wherever you have an electronic funds transfer, you have one source sending the money and another one receiving it. During this process, there is also a connection with the sender’s bank or financial institution to confirm availability of funds.
The confusion arises because EFTPOS is also an abbreviation for Electronic Funds Transfer at Point of Sale. This describes a process, rather than an actual system- which EFTPOS is.
33. What is RTGS?
Ans: RTGS or Real Time Gross Settlement is a fund transfer method through which money is sent in real time basis without any delays. This electronic fund transfer system allows the money sent by the remitter to immediately reach the payee/ beneficiary as and when the money transfer transaction is initiated. Here, Gross Settlement refers to the processing of transactions on an individual basis and not in a batch wise system. Money can be sent using RTGS through net banking. To initiate such a transaction, it is important to collect some details from the payee such as account number, bank name, IFSC code, and account holder name. Another interesting features about this wire transfer method is that transactions can be scheduled in advance. The RTGS payment system is maintained by the Reserve Bank of India (RBI) and hence is a safe and reliable method of sending and receiving money at any given point of time in the country. In fact, RTGS is one among the fastest ways to send money to anyone. It is much faster than the NEFT method of payment.
33. How to make an RTGS transaction?
Ans: RTGS transactions can be carried out online as well as offline. Depending on the mode you opt for, you would need to follow the steps mentioned below:
(i) RTGS through net banking: To transfer funds instantly, you must first register yourself for RTGS services online through your net banking portal. Once that is done, you need to enter the RTGS details for the beneficiary, the amount you would like to transfer and authenticate the payment.
(ii) RTGS through Bank: If you do not have access to RTGS net banking, you can still transfer money from one account to another using the Real-Time Gross Settlement system offline. All you need to do is visit your nearest bank branch, fill in the RTGS form with the beneficiary details, and pay the amount in cash or cheque.
35. What to keep in mind when using RTGS?
Ans: Here are a few things that you should consider before you proceed to transfer funds using the Rea-Time Gross Settlement facility.
(i) The beneficiary’s bank account must first be added as a payee in your internet banking account before you can transfer funds via RTGS.
(ii) To add the beneficiary’s bank account, you need a few details such as the bank account number, branch and IFSC.
(iii) The minimum amount of transfer that you can make via RTGS is 2 Lakhs.
(iv) There is no maximum transfer limit for RTGS.
For every RTGS online transaction, you will receive a 22-digit code known as the UTR number which serves as a unique reference number.
36. What is NEFT?
Ans: National Electronic Funds Transfer (NEFT) is a country-wide payment system that facilitates one-to-one funds transfer. This Scheme allows individuals, firms and corporates to electronically transfer funds from any branch of bank to any individual, firm or corporate who have an account with any different bank branch in the country which also participates in the Scheme. For being able to undertake the NEFT funds transfer, a bank has to be NEFT-enabled. The Reserve Bank of India provides the list of such bank branches.
Individuals, firms or corporates that maintain accounts with an enabled bank branch can transfer funds using National Electronic Funds Transfer (NEFT). This scheme also allows walk-in customers of bank branch, who do not have a bank account to deposit cash at the NEFT-enabled branches with a restricted amount of a maximum Rs. 50,000/- per transaction. Ofcourse, such customers are required to furnish their full details including complete address, telephone number, etc. Therefore, NEFT, facilitates originators/remitters to transfer funds through transactions even without having a bank account.
37. Who is eligible to transfer money via NEFT from one bank to another?
Ans: Any individual, corporation or firm which has a current or savings account will be eligible to transfer money via NEFT. It is used to transfer funds from one account to another banks. However, to complete a transaction successfully, you must enter the required details correctly. Any errors in the information might cause a transaction to fail.
38. What is the transfer limit on NEFT?
Ans: NEFT fund transactions can start from Rs.1 onwards. However, the RBI hasn’t established a limit for this, you can send up to Rs.50,000 in cash per transaction. Additionally, there is no restriction on the total sum transferable, though few banks have established their maximum limits. For instance, Rs. 25 lakhs daily in HDFC Bank.
39. What are the importance of NEFT?
Ans: Importance of NEFT are:
(i) The process entirely depends on electronic fund transfer against physical fund transfer, which takes time and much more effort.
(ii) Processing charges applicable in NEFT transactions are very less.
(iii) NEFT method is highly dependable for making payments or receiving funds online since banks have to follow RBI norms.
(iv) Time-saving: Unlike other payment methods, NEFT helps in quick settlements in accounts, which helps in efficiency for individuals and many businesses.
40. What are the disadvantages of NEFT?
Ans: Disadvantages of NEFT are:
(i) Cannot be used for real-time or urgent fund transfers.
(ii) Requires a minimum amount to be transferred (usually Rs. 5000).
(iii) Despite the bank taking proper steps to ensure the security of NEFT transactions using an unsecured one makes your information prone to be hacked or passed onto a hacker.
(iv) NEFT is the highly technical alternative of transferring funds which might not be easy for everyone to operate. A person having little computer knowledge might find it difficult to operate and access this method.
41. What are the benefits of NEFT?
Ans: Benefits of NEFT are:
(i) Accessibility: NEFT online transfer can be accessed 24 x 7 through ICICI Bank Internet Banking and iMobile Pay App.
(ii) Minimal Charges: This is the most cost-effective mode of online transfer of funds as you don’t have to incur much transaction charges.
(iii) Transfer Funds across India: Through ICICI Bank’s NEFT, you can initiate fund transfer pan India with a large network of branches.
(iv) Free Charges: ICICI Bank savings account customers do not have to face any charges for online NEFT transactions.
(v) Receive Confirmation: There is quick confirmation of the transaction to both parties via SMS.
(vi) Easy payments: You can use NEFT for payment of loan EMIs, credit card dues, among others.
(vii) NEFT saves a lot of time and effort: To make an NEFT transaction, all you have to do is log in to your net banking account, select your beneficiary or add one, enter the amount of money you’d like to send, and authenticate the online transaction. As simple as that.
(viii) NEFT provides high security: Payments done via NEFT are processed over a secure mode. There are multiple authentication steps in place to make sure there is no fraudulent activity while payments are made.
42. How to make an NEFT transfer?
Ans: To make a successful NEFT transfer, all you need to do is follow these easy steps:
Step 1: Log in to your internet banking account. Sign up for an online banking account on your bank’s webpage, if you don’t already have one.
Step 2: Set up the receiver as a payee. To accomplish this, you must fill out the beneficiary’s information in the “Add New Payee” section using a few essential details:
(i) Name of the recipient.
(ii) Account number.
(iii) IFSC code of the recipient’s bank.
(iv) Type of account.
Step 3: Select NEFT as the mode of Money Transfer after the payee has been added.
Step 4: Choose the account you want to send funds from, select the recipient, and enter the transfer amount with a description.
Step 5: The sum will be sent from your account to the others after you click “Confirm.”
43. What is the Society for Worldwide Interbank Financial Telecommunications (SWIFT)?
Ans: Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a member-owned cooperative providing secure messaging for international transfers of money between participating banks. Started in 1973 by 239 banks from 15 countries, SWIFT began providing messaging services in 1977. Its SWIFT net messaging system lets banks share information about financial transactions. Financial institutions use SWIFT to securely exchange information including payment instructions. SWIFT has grown rapidly over the years to serve more than 11,000 institutions operating in over 200 countries. In 2022, SWIFT processed 44 million messages a day, up 6% from 2021. SWIFT is a vast messaging network used by financial institutions to quickly, accurately, and securely send and receive information, such as money transfer instructions.
44. What are the features of SWIFT?
Ans: Features of SWIFT are:
(i) SWIFT is the global messaging software and is headquartered in Brussels, Belgium. It is a global member-owned cooperative.
(ii) It allows financial entities to send and receive messages about financial transactions in a secure, standardised and reliable environment.
(iii) It was founded in 1973 to develop a secure electronic messaging service and common standards to facilitate cross-border payments.
(iv) The messages are encrypted to protect confidentiality.
(v) Society for Worldwide Interbank Financial Telecommunications (SWIFT) provides a secure messaging system for financial transactions between participating banks.
(vi) Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a member-owned cooperative that provides safe and secure financial transactions for its members.
(vii) This payment network allows individuals and businesses to take electronic or card payments even if the customer or vendor uses a different bank than the payee.
45. What are the product SWIFT provide?
Ans: Along with services, SWIFT also offers a host of hardware, software, and network-related products:
(i) SWIFT Cloud and Connectivity Solutions: Ensures secure and seamless transfer of files, financial information, and helps establish a direct connection between multiple players.
(ii) SWIFT gpi: Facilitates real-time tracking of cross-border payments and wire transfers.
(iii) SWIFT Standards MT: A unified code or text standard developed to transfer messages within the SWIFT messaging ecosystem.
(iv) SWIFT Net: A single-window, application-agnostic platform that allows financial institutions to exchange documents and messages with each other.
(v) SWIFT Analytics: All participating members can rely on these analytics data to scale and optimise their financial solutions and products.
(vi) SWIFT KYC Registry: A global platform for exchanging KYC information between participating organisations in a safe environment.
46. What are the functions of SWIFT?
Ans: Functions of SWIFT are:
(i) Offers a secure network for exchange of financial information.
(ii) Helps exchange financial information by issuing passcodes and payment orders, which are then used picked up by the participating banks to complete the transactions.
(iii) Creates a unified messaging format for secure exchange of information.
(iv) Provides a robust, low-cost, and highly efficient RTGS recovery site.
(v) Helps to analyse and identify global money transfer compliance loopholes and alerts the participating organisations about possible risks.
47. Who uses SWIFT?
Ans: Today SWIFT provides its services to a wide range of users, such as:
(i) Banks and financial institutions.
(iv) Various asset management companies (AMCs).
(v) Treasury markets.
(vi) Foreign currency exchange service providers.
(vii) Clearing houses.
(viii) Security brokers.
(ix) Businesses and individuals, who want to remit money using international wire transfers.
(x) Trading houses and corporates.
48. Write a note on disadvantages of SWIFT.
Ans: Working in the system has some drawbacks. Small organisations may have certain difficulties, because they need to rebuild internal processes, adjust work to high requirements, and solve a number of technical issues. Small institutions will face burdensome costs.
Due to the fact that the processing time of transactions is significantly reduced, the bank must abandon the possibility of using a payment credit. Significant disadvantages include the fact that with the help of such a system they exert sanctions pressure on some countries. In order to transfer money, you need to provide a lot of documents.
49. Write a short note on Electronic Clearing Service (ECS).
Ans: Electronic clearing service is an electronic mode of funds transfer that can be repetitive and periodic in nature. It is used by organisations for making bulk payment of amounts towards distribution of dividend, salary, pension, etc., or for bulk collection of amounts towards dues, tax collections, loan installment repayments, etc. It basically facilitates bulk transfer of funds from one bank account to many bank accounts or vice versa. This service includes transactions processed under National Automated Clearing House (NACH) operated by National Payments Corporation of India (NPCI) under Payment and Settlement Systems Act 2007.
Electronic clearing service is of two types:
(a) ECS Credit: ECS credit is used for affording credit to a large number of beneficiaries (for instance, employees, investors etc.) by an organisation having accounts with bank branches at various locations within the jurisdiction of a ECS Centre by raising a single debit to the bank account of the user institution. ECS Credit facilitates payment of amounts towards distribution of dividend, interest, salary, pension, etc., of the user institution. Furthermore, there is no amount limit in individual transactions.
(b) ECS Debit: It is used by an organisation/ institution for raising debits to a large number of accounts (for instance, consumers of utility services, borrowers, investor.
LONG TYPE QUESTION & ANSWERS:
1. Explain the features of Demand Draft.
Ans: There are various features of a demand draft that you should know. I have explained the major ones below:
(i) Being bank’s customer is not mandatory: This means even if you don’t have an account with a bank you can get a demand draft from it. All you have to do is walk into the branch of the bank, complete the formalities, pay the money and get the demand draft from the bank.
(ii) It is a prepaid instrument: Demand draft is a prepaid instrument which is the biggest reason that makes it a negotiable instrument of money. When a person steps into any bank he or she has to pay the money to the bank. And then the DD will be issued.
(iii) Demand Draft can not be paid to the bearer: If a bearer is carrying the DD to the bank, then the bank will not pay him the money in any situation. Here it is important for us to understand the meaning of the term “Bearer.” A person or thing that carries, upholds or brings.
(iv) Demand Draft is not transferable: The DD is not transferable from one person in any situation. If you want to change the person’s name in which the DD has been issued. Then you will have to cancel the current DD and get a new one in the new name. But the bank will not change the name of the name of the person on the DD which has already been issued.
(v) DD is payable at branch of same bank or other bank too: The demand draft is paid to the payee at the branch of the bank that has issued the draft and also at the branch of any other bank.
(vi) Demand Draft can not be stopped, until the court orders: A demand draft can not be stopped once issued in normal circumstances. But if the court orders then the payment will be stopped.
(vii) Both the parties are Banks: In the case of a Demand Draft both the parties that are involved in the transaction are considered to be the banks. The one which is issuing the draft and the other which is paying the money to the payee.
(viii) A Duplicate DD can be issued: If the issued DD is lost somewhere then the drawer can ask the bank to issue a duplicate demand draft. But again there is a strict procedure that has to be followed. And here the drawer has to show the proof to the bank that the DD was issued to him or her. There will be a form that has to be filled, signed, and submitted by the drawer to the issuing bank.
2. What are the types of Demand Drafts?
Ans: Types of Demand Drafts are:
(i) Sight Demand Draft: A Sight demand draft is payable quickly and is commonly used when acquiring items on the foreign market is known as a site demand draft. For instance, if a merchant sends items to a purchaser, the seller retains ownership of the products until the customer gets them. The purchaser can employ a sight demand draft to promptly transfer money to the seller, allowing the vendor to transfer ownership to the purchaser swiftly.
(ii) Time Demand Draft: A time demand draft has a predetermined pay time in the future and is not payable right away. It is only fully payable once a specified time has passed after the payee got the items. Certain shipping companies may opt to employ a time-demand draft in international commerce. For instance, importers may release a time demand draft to exporters; however, the release of the final payment is only after 15 days following the receipt of the shipment, products, and the transfer of ownership to the importers.
(iii) Safety Regulations: You can issue it remotely (like through mobile, fax, or electronically) as a signature is not compulsory. Signatures are vulnerable to fraud, as thieves only require your banking details to drain your funds. On the other hand, banks will reject illegitimate demand drafts if they identify questionable behaviour. After placing a demand draft to the payee’s account, you will have roughly 90 days to challenge the transaction, based on your bank. Depending on the region, there may be some restrictions to ensure your security.
3. What are the benefits and drawbacks of using Demand draft?
Ans: There are several benefits to using a demand draft for financial transactions. These include:
(i) Security: Demand drafts are guaranteed by the issuing bank, meaning that the recipient can be confident that the payment will be honored.
(ii) Reliability: Demand drafts offer a more reliable alternative to wire transfers, which can sometimes be delayed or lost in transit.
(iii) Convenience: Demand drafts can be obtained from any bank, making them a convenient option for transferring funds.
(iv) Guaranteed availability of funds: Unlike a personal check, a bank draft is guaranteed by the bank. It means that the payee is guaranteed the availability of funds. In such a way, bank drafts are safer than personal checks, which might bounce if there are no sufficient funds in the payer’s account.
(v) Can be used for cross-border purchases and investments: Bank drafts can also provide funds in most currencies and are commonly used for cross-border purchases and investments in foreign countries.
Drawbacks of Using a Demand Draft:
(i) Cost: Banks typically charge a fee for issuing a demand draft, which can be higher than the cost of other payment methods.
(ii) Time: Demand drafts can take a few days to clear, which can be a disadvantage for transactions that require immediate payment.
(iii) Fraud: Like any other payment method, demand drafts can be subject to fraud, so it is important to ensure that the draft is issued by a reputable bank and that all the information is accurate.
(iv) Cannot be canceled after delivery: Since bank drafts represent a transaction that has already taken place, it cannot be canceled once it is delivered to the payee.
4. What are the features of RTGS transaction?
Ans: The Features of RTGS Transaction are as follows:
(i) Strong technical support: The RTGS solution aims at being state-of-art solution with the use of INFINET (Indian Financial Network) as the dedicated and secured communication backbone, SFMS (Structured Financial Messaging System) as the secured messaging and a mainframe system as the robust platform at the back-end for implementation Quaestor, a product from solution developer.
(ii) Message Flow Structure: The solution provides a single gateway interface (Participant Interface or PI) to the RTGS system for each participant. All encrypted payment message of the participant emanate from the PI and message emanating from the PI will ensure confidentially, integrity and non-repudiation.
(iii) Dedicated Settlement Account: Each participant of the RTGS system will be required to open a dedicated settlement account for putting through its RTGS transactions. This account is for outward and inward RTGS payment. It enables the participants to have easy monitoring, tracking and reconciliation of the transactions as well as more efficient liquidity management.
(iv) FIFO processing / transaction priority: Payment transaction emanating from a participant’s payment system gateway are processed by the RTGS system strictly in first-in-first-out basis. However, to take care of urgent or time critical payments, by passing a queue is permitted to the participant.
(v) Transactions: The RTGS system provides a wide array of transaction types (with code words) which can be flexibly of Inter-bank transactions and also separate transaction types for customer payment.
(vi) Schedule your transactions: You can schedule your transactions a few days in advance with this system. This helps both individuals and organisations to transfer high-value funds easily.
(vii) Minimum and Maximum fund transfer value: It is used for both inter-bank and customer-bank transactions. All the transactions made using RTGS are of high value. Therefore, there is no upper limit on the fund value. Although, the minimum transaction amount needs to be equal to or higher than INR 2 lakh.
5. What are the benefits of RTGS?
Ans: The benefits of RTGS are as follows:
(a) Speed: The beneficiary branch is expected to receive the funds in real time, soon after the funds are transferred by the remitting bank.
(b) Quicker settlement: It ensures quicker settlement of the transaction taken place between the banks. It cuts across inter-bank and clearing house settlement issues.
(c) Wide boundaries: There is no geographical limitation for participating banks in the RBI’s RTGS System.
(d) Safe and secure: As RTGS is maintained by the Reserve Bank of India, it is a risk-free method of funds.
(e) Convenient: Transfer of funds from your home or office.
(f) Immediate clearing: RTGS is a quick settlement method and immediately clears the payment from the consumer’s end, taking up to 2 hours to reflect at the beneficiary’s end. The payment is cleared immediately and is irrevocable, making it completely settled as soon as the consumer completes the transaction on his end.
(g) RTGS operates 24×7: Governed by RBI, the fund transfer method will be available 24×7 on all days from December 2020 onwards.
(h) Used for high-value transactions: The most important advantages of the RTGS fund transfer method is that it is used for high-value transactions. The minimum amount that can be transferred using this method is Rs 2 Lakhs. This method is the most reliable and safest choice among consumers who must make such transactions.
6. How to do RTGS? Explain the Step-wise guide to RTGS online Process.
Ans: In order to transfer money through RTGS, you must first add a beneficiary. Thereafter, you can make a funds transfer.
The steps to add a beneficiary to your account are:
Step-1: Log into your respective bank’s net banking account by entering the user name and password.
Step-2: Go to Funds Transfer tab.
Step-3: Select “Add a beneficiary” and then click on “Select Beneficiary Type” to select “Transfer to Another Bank.”
Step-4: Enter the beneficiary account details including name, bank name, IFSC code and account number.
Step-5: Click on “Add” and confirm.
Step-6: Wait for the confirmation message.
Once you add the beneficiary, follow these simple steps to transfer money using RTGS.
Step-1: Go to the Funds Transfer tab after logging to your Net banking account.
Step-2: Select RTGS option and then choose the beneficiary / payee you wish to send the money.
Step-3: Add the amount that is to be transferred.
Step-4: Review all the documents before submission of the request. The funds will be credited within 30 minutes of the request.
7. How to transfer money through RTGS in account offline?
Ans: In order to Transfer Money Through RTGS or NEFT Offline from Account, you need to follow below mentioned step by step process to Transfer Funds Through RTGS or NEFT Offline i.e. by visiting the bank branch:
Step 1: Approach your home branch of Account from where you want to transfer the funds: Please visit the Account Home Branch along with necessary documents such as remitter’s account details, beneficiary’s account details, bank branch & IFSC of the beneficiary, etc.
Step 2: Obtain RTGS / NEFT Transaction Request Form: Meet Relationship Manager or Bank Executive and obtain RTGS/ NEFT Transaction Request Form for fund transfer.
Step 3: Fill up RTGS / NEFT Transaction Request Form: Fill up RTGS/ NEFT Transaction Request Form thoroughly. You need to mention following details:
(i) Fill in the date.
(ii) Tick one of the options, RTGS or NEFT.
(iii) Mention amount to be remitted/ transferred (both in figures and words).
(iv) Mention Beneficiary Details: Write the name, account number, IFS Code, bank name and branch name of the beneficiary.
(v) Mention Remitter / Applicant Details: Write the name and account number of the remitter. You also need to mention the reason of fund transfer (usually in 150 characters).
Step 4: Tick the mandatory declaration given in the bottom of the form: You need to tick the mandatory declaration given in the bottom of the RTGS/ NEFT Transaction Request Form.
Step 5: Sign the RTGS/ NEFT Transaction Request Form: You need to sign at the provided space given in the bottom of the RTGS/NEFT Transaction Request Form. If you are a non individual then you need to put the stamp and sign of the authorised signatories at that space.
Step 6: Submit RTGS/ NEFT Transaction Request Form: Submit the duly filled up RTGS/NEFT Transaction Request Form to the Bank Executive.
Step 7: Take acknowledgement of your request: Bank Executive will verify your form, signature and other details. If he finds the form complete in all respect, he will give you an acknowledgement of your request.
Step 8: Processing of your request of Transfer Funds Through RTGS or NEFT: After due validation, Account will Transfer the Funds Through RTGS or NEFT from your account to the beneficiary’s account.
Step 9: Verification of processing of your request of Transfer Funds Through RTGS or NEFT: You will be sent a notification by Account either through SMS on your new mobile number or email about processing of your request of Transfer Funds Through RTGS or NEFT from your account as soon as the transaction takes place. In case, you do not receive any intimation, you may contact your branch and confirm, if the transaction is processed.
8. What are the features of NEFT? Explain.
Ans: Features of NEFT are:
(i) Availability: In accordance with the RBI guidelines, the NEFT transfer facility is available round the clock.
(ii) No transaction charges: No transaction charges are applicable if the payment is initiated through internet banking or mobile banking app like ICICI Bank iMobile Pay app.
(iii) Minimum transaction limit: The minimum transaction limit is Rs.1, and the maximum transaction limit is Rs. 10 to Rs.25 Lakh (based on customer segment) if you are doing it between 01.00- 19.00. At ICICI Bank, if you are doing in 2nd & 4th Saturday, Sunday & RTGS Holidays, the maximum transfer of funds is Rs. 2 lakhs.
(iv) Nominal Charges: If you are doing the NEFT transaction by visiting the brand at ICICI Bank, the following nominal charges are applicable.
(v) Saves time and effort: With NEFT payments, all a sender must do is log into their net banking account and select the right beneficiary. He/she must enter the correct amount to be transferred and then verify the transaction. That is all it takes. The sender or the remitter does not have to send a demand draft or cheque of any kind to the beneficiary. The process of transferring funds via NEFT is quite simple and efficient.
(vi) Payments occur over a secure mode: Another great feature of NEFT is that payments occur over a secure mode. Banks often place multiple authentication steps to verify the sender’s identity, which ensures that issues of theft and fraud are not applicable. NEFT is managed by the Reserve Bank of India, which further adds to the overall security of this mode of payment.
9. Difference between RTGS and NEFT.
Ans: NEFT and RTGS can be differentiated on the basis of minimum limit, the maximum limit, settlement time, additional charges, transfer timing, service availability and so on.
(i) Minimum limit: The minimum limit for NEFT is Rs. 1000, whereas the same for RTGS is Rs. 200000.
(ii) Maximum limit: The maximum limit for NEFT is Rs. 200000, whereas the same for RTGS is Rs. 2000000.
(iii) Settlement time: The settlement time for NEFT is 12 hours, whereas the same for RTGS is almost instantaneous.
(iv) Additional charges: No additional charges are levied for NEFT, whereas there are charges levied for RTGS. For RTGS, Rs. 30 is charged for every transaction.
(v) Transfer timing: The transfer timings for NEFT and RTGS are different- NEFT operates from Monday to Friday and timings are half-hourly slots between 09:00-20:00. On Saturday, NEFT operates between 09:00 – 13:30 GMT. RTGS, on the other hand, operates round-the-clock on weekdays.
(vi) Service availability: NEFT is available on all days except Sundays, whereas RTGS is available 24×7.
(vii) Suitable For: NEFT is suitable for small money transactions and RTGS is used for large money transactions.
(viii) Mode of Payment: NEFT and RTGS are both modes of payment.
10. What are the services offered by SWIFT?
Ans: SWIFT offers many services to businesses and individuals that facilitate accurate and seamless business transactions.
Some of the services provided by the SWIFT network are:
(i) Applications: SWIFT network offers access to several applications such as real-time instruction tally for forex and treasury transactions, security market infrastructure, and banking market infrastructure.
(ii) Compliance Services: SWIFT connections also aim to provide services related to financial crime compliance. It offers Know Your Customer (KYC), Anti-Money Laundering (AML) and Sanctions.
(iii) Business Intelligence: Recently, SWIFT has introduced reporting utilities and dashboards, which help the clients to receive a real-time view of tracking the activities, messages, reporting, and trade flow.
(iv) Messaging and Connectivity: The fundamental business of SWIFT aims at providing a reliable, secure, and scalable network that enables a seamless movement of messages. It achieves that with its various network connections, hubs, and software.
(v) Payment Data Quality and Control: Offers a cost-effective way to identify the quality of originator and beneficiary information in a bank’s network.
(vi) Global Electronic Trade Confirmations: Helps automate the confirmation of fixed income and equity trades while ensuring full compliance with international security standards.
(vii) Integration of various financial messaging platforms and networks: Helps decode and convert proprietary messages into SWIFT standard codes and vice versa in a simple and efficient manner.
11. Why is the SWIFT system important?
What are the benefits or advantages of SWIFT?
Ans: The SWIFT System is crucial in today’s world of globalisation for several reason.
These reasons are highlighted here under:
(i) Security of transactions: The SWIFT network uses high data encryption techniques for the security and authenticity of transactions between the sender and the receiver. This secured network is crucial in maintaining the confidentiality and integrity of financial messages and transactions.
(ii) Standardisation of transactions: With the increasing globalisation, SWIFT acts as a standardised payment gateway that connects banks and financial institutions of different countries through a standardised process removing routine hassles in the form of language barriers, currency differences, and geographical location.
(iii) Efficiency: The process of transfer of funds through the SWIFT network is done efficiently through the standardised process. SWIFT network ensures that the funds are transferred in a timely manner at minimal costs between its members.
(iv) Global network: SWIFT network has been crucial in bringing the world to a single platform for the efficient and timely transfer of funds in a secure manner. This network is instrumental in bringing the benefits of globalisation and international trade to many countries across the world.
(v) Ease of compliance: Global trade is full of complexities and requires optimum security tools for enabling it. SWIFT network through its standardisation brings optimum compliance with regulatory requirements enabling the smooth transfer of funds and combating financial crime across the globe.
(vi) Transparency: SWIFT provides details about exactly how much you’re going to pay for your transaction.
(vii) Popularity: SWIFT makes payments across the globe in almost 150 different currencies. This means that anyone you need to pay is most likely signed up for the network, which makes payments easier.
12. Explain the features of a Cheque.
Ans: Its features are as follows:
(i) Must be written: The cheque must be written by hand using ink or a ballpoint pen, but the customer should not use a pencil to fill out the cheque form. Although other columns may be typed or printed, the signatures must be written by hand with ink or ballpoint pen.
(ii) Must be unconditional: The payment order must be given without any conditions. It will not be regarded as a cheque if there is any condition that the money is paid to the person holding the cheque.
(iii) Must draw on a specific banker: A cheque must draw on a specific banker to be valid. A cheque would not be considered genuine if the banker’s name was not mentioned. Additionally, it should include the terms of the Drawer, Drawee, and Payee.
(iv) Must have a date mentioned: A cheque must be signed by the drawer and have a date to be considered valid. A ballpoint pen or ink must be used to write the date.
(v) Must have correct amount: The amount is always a certain sum of money in one’s account. Any significant amount written in the cheque which is more than the amount in the involved bank account will make the cheque invalid and will be dismissed by the bank.
(vi) Must be paid in money: One of the fundamental requirements of a cheque is that it must only be payable in Money or Cash. The cheque will be considered invalid if it is not in terms of money.
13. Describe the types of Cheques.
Ans: Type of cheque are described below:
(i) Order cheque: These are used to transfer finances to a payee. The payee of these cheques will be the one who receives the payments. Banks perform inquiries before issuing the funds. Then, before payment release, they verify that all the information is correct.
(ii) Bearer Cheque: The person carrying said cheque will receive the funds, as the name implies. You must look for the word “or bearer” to find the bearer cheques. Then, you can take it to the bank and receive the money without inquiries.
(iii) Open Cheque: Cheques that have not been crossed are called open cheques. Any bank will allow you to cash it. The payee must carry it to a bank. Sometimes, the payee might obtain the funds and transfer them to another payee. Here, both faces of the document must bear the drawer’s signature.
(iv) Post-dated Cheque: Post-dated cheques are only cashed post the issue date. If you visit the bank to cash a cheque before the date of issue, you will not succeed.
(v) Blank cheque: A blank cheque is one in which the issuer signs in a decided space and leaves it blank to be filled by the receiver. These cheques carry more risk. If a deceptive person obtains said cheque, they may misuse it.
(vi) Banker’s Cheque: This cheque is given on a customer’s behalf. The bank issues such cheques for remittances. Here, the specified money is deducted from the client’s account before the bank issues the cheques.
(vii) Stale cheque: Contrary to post-dated cheques, it is a stale cheque. The stale cheque is cashed before the due date, unlike the post-dated cheque that must be claimed beyond the date of issue. If such cheques are now more than three months old and not cashed by the payee, they will be treated as stale cheques.
(viii) Self Cheque: Self-cheques are only for personal use. You must enter your name. Self-cheques can only be cashed at your bank branch. You will be unable to withdraw cash from any other branch.
(ix) Cancelled Cheque: The term “cancelled” is printed across a cancelled cheque with two lines crossed. A cheque can be cancelled with just the word “cancelled” It is not possible to withdraw funds from the account using it. A cancelled cheque serves as verification that a person has a bank account.
14. Explain the key differences between Cheque and Demand Draft.
Ans: Key Differences Between Cheque and Demand Draft are:
|BASIS FOR COMPARISON||CHEQUE||DEMAND DRAFT|
|Meaning||A cheque is a written document which contains an order to the bank, to pay a certain sum of money to a specified person.||Demand Draft is a nego tiable instrument, issued by the bank in favour of a certain person or entity, to transfer of money from one place to another.|
|Order of payment||By the account holder to the bank. Same bank.||By the branch of a bank to another branch of the.|
|Payment||Payable either to order or to bearer.||Always payable on demand to a specified party.|
|Issuance||The cheque is issued by a customer of the bank.||Demand Draft is issued by a bank.|
|Bank Charges for issuance||No.||Yes.|
|Signature.||It must be signed by the party issuing it, be it an individual or authorised signatory of a firm.||It contains seal and signature of the authorised officer and the rubber stamp of the bank.|