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CLEARING AND TRANSFER

Branch Functional Structure

General Banking
Foreign Trade
Advances

Branch Functional Structure


General Banking
Branch Operations
Deposits
Remittances
Cash

History - Clearing
Started in Florence by A.D. 800
Perfected in Lyons by 1463
Use was widespread in 18th-century Europe

The first modern clearinghouse was formed at:


Edinburgh (1760) or
London (1773)

History & Types of Clearing


Such an institution involves frequent meetings of local bank
representatives to settle the balances among member banks.
In the United States, the balance (debit or credit) for each
bank at the close of a meeting is forwarded to the Federal
Reserve bank, which adjusts the individual accounts
accordingly.
Intercity balances are settled on the books of the Federal
Reserve banks daily by electronic transfers. Clearing is also
practiced by stock and commodity exchanges. The Stock
Clearing Corp. started in 1920.

Types of Clearing:
a) Outward Clearing:
Collection of funds of local cheques deposited by the
customer drawn on other Banks.

b) Inward Clearing:

Clearing
Any instruments which are drawn on
our branches and other banks in
same city thats instruments are
called clearing.
We affix clearing and date stamp on
these instruments.

Clearings are two types:


Inward clearing
Outward clearing

Section 58 provides
That no person is entitled to receive the
amount of the instrument for following cases:
A person is finder of instrument lost by
another
Has obtained it from the maker, drawer,
acceptor, or holder thereof by means of an
offence or fraud or for an illegal
consideration.
Any person who claims it through such
person who is not entitled to receive its
amount.

Overview:
Clearing of Bank Instruments includes collection and payment of:

Cheques,
Demand Draft,
Payment Order,
Dividend Warrants etc.

Collection and Payment of cheques are known as Outward and


Inward Clearing respectively.

Deposit & Withdrawal through Clearing

Instruments for Clearing:


i.
ii.
iii.
iv.

Cheques
Demand Draft
Payment Order
Dividend Warrants etc.

Parts of a cheque?
Drawer, the person or entity who makes the
cheque

Payee, the recipient of the money


Drawee, the bank or other financial institution
where the cheque can be presented for payment

Amount, the currency amount

Demand Draft (DD)


A draft is a three-party instrument similar to a
check.

A draft is an order signed by one party (the

drawer, or drafter) that is addressed to another


party (the drawee) directing the drawee to pay
to someone (the payee) the amount indicated
on the draft.

The payment may be at sight or at some defined


time.

Demand Draft (DD)


It is a written order, drawn

by one branch of a bank


upon another branch of the
same bank, or upon other
bank
under
special
arrangements to pay a
certain sum of money to or
to the order of a specified
person.

A Pay Order is a written

authorization for payment,


made in a receipt form issued
& payable by the bank, to the
person named & addressed
therein on giving proper
discharge thereon.

Inward & Outward Clearing means?

Collection and Payment of cheques


are known as Outward and Inward Clearing

Deposit & Withdrawal through Clearing

A bank can clear checks


issued by any bank in
Pakistan

Deposit & Withdrawal through Clearing

Clearing means?
debiting payer's account & crediting
payee's account.

The banking function in which negotiable instrum

Kinds of Clearing

NORMAL CLEARING
SPECIAL CLEARING
INTER CITY CLEARING THROUGH NIFT

Outward Clearing - NIFT Branches

Receives deposit slip and

instrument(s) from customer.


Checks deposit slip.
Scrutinizes Instruments.

Affix banks Clearing Stamp, sign-off

deposit slip and return customer copy


to depositor.
Endorse and sign off on the reverse

of instrument as per requirement.

Inward Clearing - NIFT Branches

NIFT Representative delivers Inward

Clearing instruments Branches


Branches receives Inward Clearing

instruments from NIFT


Representative.

Segregate cheques and Payment

Orders/ Demand Draft/ CDRs etc


branch wise.
Check Clearing and Endorsement

stamp on cheques/instruments.
Scrutiny of cheques/instruments.
Signature Verification on cheques.

Branch receive details of

discrepant inward clearing


instruments from HO
Branch checks the status of

account and provide their


feedback accordingly.
Note down detail of returns &

prepares the Returns Memos as


per instructions from branches.

Delivers the same to NIFT representative.


Hand-over the Paid instruments /Advices

along with relevant Reports to the


designated courier for onward delivery

to the respective branches.

Outward Clearing - NIFT Branches

Enter detail on Register or Excel Sheet.

Make list of 50 instruments and attach with the stack.

Make a summary along with bundle cover.

Deliver the instruments to NIFT rider in the evening.

Outward Clearing NIFT

NIFT receives instruments from the branch.


Process them for onward delivery to the concerned

banks for clearance of funds next day.


In second half of next day, NIFT rider delivers Cheques

Returns and also deliver HO (difference amount


voucher) along with Scroll Summary.

Same Day Outward Clearing

Same Day Clearing is categorized as


under:
Amount 500k and above.
Both Receiving and Paying Banks/Branches are

members of "Same day clearing - NIFT.


Cheque is received before 9:30AM.

Types of Clearing

Outward Clearing?
Collection of funds of local cheques deposited by the
customer drawn on other Banks.

Types of Clearing

Inward Clearing?
Payment of cheques of our customers drawn on us

Clearings
The banking function in which
negotiable instruments of the other
member banks are collected in customer
accounts.

Collections
Collection of funds among cities.

Transfers
Collection of funds with in same
bank/same branches

Cheque Deposit & Withdrawal


through Clearing
Clearing of Bank Instruments includes collection and payment of
Cheques, Demand Draft, Payment Order, Mail Transfer, Telegraphic
Transfer and Dividend Warrants etc. Collection and Payment of
cheques are known as Outward and Inward Clearing respectively:
A commercial bank that is part of a network of banks that can clear
checks for its clients regardless of whether or not the check originates
from the same commercial bank. Clearing a check means processing it
so that funds are deducted from the payer's account and put into the
payee's account.
Clearing, in banking, the periodic settling of bankers' claims against
each other, for which local banks establish clearing house associations.
Clearing houses are said to have existed in Florence by A.D. 800. They
were certainly perfected in Lyons by 1463, and their use was
widespread in 18th-century Europe. The first modern clearinghouse
was either at Edinburgh (1760) or at London (1773).

ROLE Of SBP/NBP
SBP/NBP (where SBP is not
available) act as the clearing
agent.
All banks have their accounts
with SBP/NBP
The clearing process is carried
out by NIFT on approval
organization by Govt./SBP.

NIFT
National Institutional facilitation
Technology.

Clearing House
In the big town of Pakistan many commercial

banks operate.
As there are various banks so are there

customers find the use of cheques are drawn


very convenient for making payments. These
cheques are drawn on the different banks by
the different customers of the banks.

Clearing House
Mr. Zaid has an account in the ABC Bank

Ltd. He gives a crossed cheque to Mr. Hamid


who pays it into the HBL where, he has an
account, and the amount is credited after
the cheque is cleared.
The question of how, the HBL gets the funds

from the ABC is the essence of Clearing


System.

Clearing House
The bankers clearing house therefore, is an

institution set up for the purpose of settling


quickly claims by one bank against the others.
Representatives

from each bank which


operates in the same town will meet once
daily. They will exchange instruments drawn
on them by their various customers.

Clearing House
Here, banks compare debts which are in the

first place settled by means of set off. If after


clearing their cheques one bank is still owing
another, the debtor bank will have to issue a
cheque one bank is still owing another, the
debtor bank will have to issue a cheque to that
amount in full settlement of the indebtedness.

Collection means?

Collection of funds among cities.

Collecting Banker:
Collecting Banker:
A collecting banker is the one who has assumed duty of collecting the
proceeds of an instrument for the customer or for himself. When Bank
collects the proceeds for the customer, he acts as his/her agent, whereas
in case of collecting for himself, he is holder for value by virtue of the fact
that:
He either has already made the payment before collection of
proceeds or,
The Cheques are received for adjustment of any liabilities.
A collecting banker has no legal obligation to collect cheques drawn on
other bank for the customers. Negotiable Act Section 181 relating to
crossed cheques (Account Payee) says that where a banker in good faith
and without negligence receives payment for a customer of a cheque
crossed generally or specially to himself, and the customer has no title or
defective title thereto, the bankers shall not incur any liability to true owner
of the cheque by reason only of having received such payment.

COLLECTION OF INSTRUMENTS
WHEN INSTRUMENTS PERTAIN TO
THE DIFFERENT CITIES, THESE ARE
COLLECTED/PROCESSED IN THE
COLLECTION.

Which Instruments are collected


Cheques
Pay Order
Demand Drafts
Telegraphic transfers.
Mail Transfers
Dividend Warrants

Collection of funds within same bank/same branches

Transfer
Any instruments which are drawn on same

branch.
We affix

transfer and date stamp on that


instruments.

Transfer Delivery
Any instruments which are drawn on other

branches of same bank is called transfer


delivery.
We affix transfer delivery and date stamp on

these instruments.
In which cities where NIFT works there is no

concept of transfer delivery.

Transferability
In simple transferability, even an innocent

transferee, who has no knowledge of any


defect in the transferors title and despite
having paid the consideration, gets a
defective title if the transferor has any defect
in his title.

Coverage

3
NIFT & ITS FUNCTIONS

a) National Institute Of Financial Transactions


b) National Institute Funds Transfernational
c) National Institutional Facilitation Technologies
d) Network Interbank Funds Transfer

a) National Institute Of Financial Transactions


b) National Institute Funds Transfernational

c) National Institutional Facilitation Technologies


d) Network Interbank Funds Transfer

NATIONAL INSTITUTIONAL
FACILITATIONAL TECHNOLOGIES

Established in 1996 at Karachi


The automated cheque processing service is

provided by NIFT, a private company


authorized by SBP
NIFT uses modern technology for clearing of

financial instruments

Automated System of

The automated cheque processing service is operated by


National Institutional Facilitation Technology (Private)
Limited (NIFT), a private company.

In this system different banks and their branches will directly


approach the NIFT and send their outward clearing
instruments. At NIFT these instruments will be processed
automatically. NIFT will prepare sets of inward clearing
instruments to be sent directly to payee branches and report
of net clearing positions of all banks to be sent directly to SBP
for settlement. So the NIFT will replace both clearing
departments of commercial banks and clearing houses of the
SBP. Thus the NIFT system is more efficient and quick in terms
of time and accuracy as compared to the manual system of
cheque clearing. NIFT is introducing modern techniques for
clearing of financial instruments by duly realizing the future
problems and prospects of the payments system in Pakistan.
The automated system, installed by NIFT, is not only quick and
efficient but also flexible to accommodate various types of
instruments and expected increase in their volumes.

NIFT has installed automatic cheque-sorters that can sort


32,000 cheques per hour.

The automated system is flexible to accommodate

various types of instruments and able to handle


large volumes.
NIFT uses cheque sorting machines that sorts

32,000 cheques per hour.

Banks and their branches send their outward

clearing instruments to NIFT


NIFT processes instruments automatically
NIFT prepares sets of inward clearing instruments

and send them to payee branches

NIFT Reports the net clearing positions of

banks to SBP for settlement.


NIFT has replaced both clearing departments

of banks and clearing houses of SBP.


NIFT system is efficient & accurate in terms

of time as compared to the manual system of


cheque clearing.

NIFT Providing Services

A. NIFT providing services to 32 Commercial Banks.


B. NIFT providing services to 34 Commercial Banks.
C. NIFT providing services to 36 Commercial Banks.
D. NIFT providing services to 38 Commercial Banks.

NIFT Providing Services

NIFT Providing Services


A.

NIFT providing services to

5300 banks branches of all

over in Pakistan

B.

NIFT providing services to

6565 banks branches of all

over in Pakistan

C.

NIFT providing services to

7365 banks branches of all

over in Pakistan

D.

NIFT providing services to

8365 banks branches of all

NIFT Providing Services

NIFT Providing Services

A. NIFT covering 239 cities of


Pakistan

B. NIFT covering 249 cities of


Pakistan

C. NIFT covering 259 cities of

NIFT Providing Services

NIFT Providing Services


--Overnight clearing Including Return Cheque

Processing (24 hour Clearing Cycle)


--Same Day / High Value Clearing including

return cheque Processing (3 hour Clearing


Cycle)
--Inter City clearing including Return Cheque

Processing (48 hour Clearing Cycle)


--Countrywide Local US Dollar Clearing (5 day

Clearing Cycle)

NBP (where SBP is not available) acts as clearing agent.


All banks have accounts with SBP/NBP

PAYMENT SYSTEM, &


KINDS OF CLEARING

a set of instruments, banking procedures and,


typically, inter-bank funds transfer systems

that ensure the circulation of money.

The Clearing Process


1

Customer
Customer
Sends
Sends
Cheque
Cheque

Supplier
Supplier(payee)
(payee)
.
receives
receives
check
check

Supplier
Supplier
deposits
deposits
check
check

Check
Check
forwarded
forwarded

Suppliers
Suppliersbank
bank
isis
credited
credited

Suppliers
Suppliers
account
accountis
is
credited
credited

Check
Checkis
is
presented
presentedfor
for
payment
paymentto
to
customers
customers
bank
bank

Customers
Customers
bank
bankaccount
accountisis
debited
debited

Clearing
Clearingagent:
agent:
on-us,
on-us,
or
orcorrespondent,
correspondent,
or
orclearinghouse
clearinghouse

Kinds of Clearing

NORMAL CLEARING
SPECIAL CLEARING
INTER CITY CLEARING THROUGH NIFT

Outward Clearing - NIFT Branches

Receives deposit slip and

instrument(s) from customer.


Checks deposit slip.
Scrutinizes Instruments.

Affix banks Clearing Stamp, sign-off

deposit slip and return customer copy


to depositor.
Endorse and sign off on the reverse

of instrument as per requirement.

Inward Clearing - NIFT Branches

NIFT Representative delivers Inward

Clearing instruments to the Central


Processing Unit (CPU).
CPU receives Inward Clearing

instruments from NIFT


Representative.

Segregate cheques and Payment

Orders/ Demand Draft/ CDRs etc


branch wise.
Check Clearing and Endorsement

stamp on cheques/instruments.
Scrutiny of cheques/instruments.
Signature Verification on cheques.

Branch receive details of

discrepant inward clearing


instruments from CPU.
Branch checks the status of

account and provide their


feedback accordingly.
Note down detail of returns &

prepares the Returns Memos as


per instructions from branches.

Delivers the same to NIFT representative.


Hand-over the Paid instruments /Advices

along with relevant Reports to the


designated courier for onward delivery

to the respective branches.

Outward Clearing - NIFT Branches

Enter detail on Register or Excel Sheet.

Make list of 50 instruments and attach with the stack.

Make a summary along with bundle cover.

Deliver the instruments to NIFT rider in the evening.

Outward Clearing NIFT

NIFT receives instruments from the branch.


Process them for onward delivery to the concerned

banks for clearance of funds next day.


In second half of next day, NIFT rider delivers Cheques

Returns and also deliver (difference amount voucher)


along with Scroll Summary.

Scrutiny of the Deposit Slip

Deposit slips and the cheques/instruments should be


properly scrutinized before accepting them.

i.

Title and Account number are mentioned.

ii. Amount tallies with that of cheque(s).


iii. The amount in words and figures are
same.

iv. There are no unauthorized alterations.


v. The amount, account number and the
title of account in the customer copy are
same as in the original /pay-in-slip.
vi. The pay-in-slip bears the depositors
signature and contact no. (Mandatory)
at the specified place.

i. The cheque is not post dated or undated or


stale dated or invalid dated or incomplete
dated.
ii. There is no unauthorized alteration on the
cheque.
iii. Payee name and Drawee Signatures is
Present.
iv. Particulars of a cheque should be written
with Permanent Ink.

v. The amount in both words and figures is


required and both should match.
vi. Any endorsement and special crossing are in
order.
vii. Nothing on the cheque indicates that the
depositor is not entitled to receive the amount
viii.The cheque payable to a firm, company or
institution should not be accepted for credit to
the account of partner, director, agent,
attorney, manager or any employee.

ix. If the payee is a Government Department / Official


or a Trust, a cheque should not be collected for a
person other than the payee.
x. Cheque Crossed / Marked Payee Account Only
must be deposited in customers account ONLY
and should not be deposited in another the Payee
account
xi. Order cheque being deposited in other account is
properly endorsed by the Payee in favor of
depositor and also signed by the depositor.

Resolution of Discrepancies

Account Related Discrepancies:


i.

Cheque drawn against Dormant, Inactive or Deceased


accounts.

ii. Insufficient balance in the account


iii. Cheque series not found/updated in the system
iv. Account not found

Resolution of Discrepancies

Account Related Discrepancies:


v. Debit or Credit turnover limit exceeds
vi. Stop Payment marked against the cheque.
vii. Amount exceeding RF limit
viii.Restraint marked: officer not authorized for the
transaction

ix. CNIC not updated, new CNIC copy required.

Resolution of Discrepancies

Instrument Related Discrepancies:


i.

Signature Differ

ii. Operating instructions required


iii. Signature not tagged with the account
iv. Cheques drawn on Photo Account
v. Call back confirmation required: Transaction
amount of PKR 1 Million and above

Resolution of Discrepancies

Other cases:
All Call Deposit Receipts - CDRs issued by

branches
Speed Cash, Remit Express Drafts
Foreign DDs drawn on Global Transaction Banking

Branch
Un-signed/singly signed bank drafts
Revalidation required: stale dated bank drafts

i. Used for informing the beneficiary of the cheque, if it is returned unpaid.


ii. Mention Account and cheque Number.
iii. Mention the amount of cheque.

iv. Mention the Name of the collecting Bank to whom branches will return the
cheque.

v. Mention the return reason (should be as per approved return reason list by
SBP )

As per the SBP directives banks are not allowed to give ambiguous reasons like Refer to
Drawer when a cheque is returned unpaid by them for insufficient funds or for any other
reason. As a result, the beneficiary of the cheque is not in a position to take action against the
issuer of the cheque under the provisions of relevant laws. Hence, branches must give
definite and clear reasons while returning the cheques to the beneficiary (Whether on Cash
Counter or Clearing/Collection).

Common Irregularities

Cheques returned in clearing not delivered to the


customers.

Returned cheque register not properly maintained.

Returned Cheques entered into the register at the time of


delivery of cheque to the customer.

Cheques accepted for clearing having special crossing


A/c Payees only for credit of funds into another account
instead of in payees A/c.

Returned cheques handed over to the customers without


obtaining signature on the register.

Inward cheque return charges not deducted as per SOC.

The letter not sent to customer on SB-20 with the copy of

cheque in case the customer not collect the cheque within


5-working days of cheque returned.
Not informed the customer over phone regarding his / her

cheque return in clearing.


Cheques not properly scrutinized before lodgment. Cheques

returned with reason which can be identified before


lodgment (such as Post Dated, Amount in words & figure
differ, Not drawn on us, etc.)

Intercity cheque return charges / intercity cheque realization

charges not deducted as per SOC.


Cheques received in inward clearing returned without

giving specific reason for dishonoring the cheque.


Inward clearing cheque returned after clearing return hour

due to that branch debited Banking Adjustment Account


(Debit). Credit received from NIFT with delay.

Types of Funds Transfer

Types of Funds Transfer

Domestic Fund Transfer Products

Demand Draft
Pay Order
Internal Funds Transfer
Rupee Travelers Cheques
ATMs
Virtual Banking

Internal Funds Transfer

Fund Transfer Application (FTA) used to


transfer funds from:
a.

one account to another account or

b.

to another branch of any Bnak/ABC.

Complete Information on FTA


Signed by the account holder(s)/ authorized signatory,
Verify signatures

Ensure funds are available before processing FTA


Always obtain Valid Cross Cheques of equivalent

amount with FTA

CROSSING OF CHEQUES

Crossing: When a cheque bears across its


face two parallel lines with or without the
words And Company or any abbreviation
thereof, the cheque is said to be crossed.
Section 126,127 and 129 of the Negotiable
Instruments
Act, 1881, prohibit the payment of crossed
cheques in
Cash. These cheques can be paid only to a
collecting
The crossings are of two
types of crossing:
banker.
Cheque Crossed Generally
Cheque Crossed Specifically

Definition of General Crossing:


General Crossing: Under Section 123 of the Negotiable
Instrument
Act,1881, General Crossing has been defined as under:

Where a cheque bears across its face


and addition of the words and
company or any abbreviation thereof
between two parallel ransverse lines or
of two parallel lines simply either with
or without the words not negotiable
that addition shall be deemed a
crossing and the cheque Shall be

Specimen of General Crossing:

(a) Definition of General Crossing:

Essentials of General Crossing:


a) Two

parallel transverse lines, drawn


across the face of the cheque either with
or without the words and company or
any abbreviation of it written between
these two parallel transverse lines;

b) Two parallel transverse lines drawn across

the face of the cheque either with or


without the words Not Negotiable
written in between them.

Section 123-A of the Negotiable Instruments


Act, 1881, defines that, Where a cheque
crossed generally bears across its face an
addition of the words Account Payee
between the two parallel transverse lines
constituting the general crossing, the
cheque, besides being crossed generally, is
said to be crossed Account Payee.
When a cheque is crossed Account Payee:
a) It shall cease to be negotiable; and
b) It shall be the duty of the banker collecting
payment of the cheque to credit the proceeds
thereof only to the account of the payee named
in the cheque.

This crossing gives a very clear indication to the


collecting banker that the proceeds of the
cheque should go only to the account
specified in the cheque, and that they should
not be collected for any other person. It is
also implied that:
a)

It renders the instrument not negotiable;

b) If the collecting banker contravenes the

provisions of this clause and credits the


amount to some other account, he will do so
at his own risk;
c) If he does not keep the payees account he

b) Definition of Special Crossing:


Section 124 of the Negotiable Instruments Act, 1881, in

the following terms:Where a cheque bears across its face


an addition of the name of a banker, either with or without
the words Not Negotiable, that addition shall be deemed a
special crossing, and the cheque shall be deemed crossed
special; and to be crossed to that banker.
It is evident from this definition that:
a) In case of a special crossing the two parallel transverse
lines are not essential;
b) The name of the banker written across the face of the
cheque is sufficient to constitute a special crossing;
c) After the cheque has been crossed specially, the holder
cannot receive payment except through the banker
named on the cheque;
d) If a crossed cheque is lost or stolen, there is no risk of
wrong payment.

Conversion of CC into OC
Conversion of a Crossed Cheque into Open Cheque:
A crossed Cheque can be converted into an open cheque by writing,
Please pay Cash near the crossing with full signature of the drawer.
The drawer can cancel the crossing. However, the banker can cancel
the special crossing.
Who can cross the cheque?
1. The drawer.
2. Holder, where the cheque is uncrossed.
3. Holder may cross a cheque especially where the cheque is
crossed generally.
4. A cheque crossed specially to one banker may be crossed specially to
another banker.
5. Where an uncrossed cheque or cheque crossed generally is sent to a
banker for collection may cross it especially to himself.

Not Negotiable Crossing


Section 130 of the Negotiable Instruments Act, 1881, reads: A

person taking a cheque crossed generally or specially, bearing


in either case the words Not negotiable shall not have and
shall not be capable of giving a better title to the cheque than
that which the person from whom he took it had.

It is, therefore clear that not negotiable crossing does


not restrict in any way the transferability of a cheque.
However, the holder in good faith, and for value, takes the
instrument free from any defect in the title of his
transferor, authorized to sue on the instrument in his own
name.
If a bearer cheque crossed not negotiable is stolen or
lost and thereafter presented for encashment, the person
cashing it will have no title to the cheque, and is liable to
refund the money to the true owner. Since he had no title
to the cheque, he shall not be able to sue the drawer in

Advantages of Crossing
Crossing has the following advantages:
1)Minimize the risk of loss or forgery.
2)Direction to the paying banker to pay the money generally

to a bank or to a particular bank, as the case may be.


3)Only a banker can secure payment of a crossed cheque,

as such it is easy to compel the holder to present it


through a quarter of known respectability, and credit.
4)Since only a banker secures payment of a crossed cheque,

it can easily be traced for whose use the money was


received.
5)Mere crossing of a cheque does not effect its negotiability.

Duties of a Paying Banker as to Crossed

i. Section 126 of the Negotiable Instruments Act lays


down that cheques crossed generally be paid only to a banker.
ii.

A cheque crossed specially should be paid only to the banker to


whom it is crossed or is an agent for collection.

iii. Section 127 of the Negotiable Instruments Act,

1881, allows a Second Special crossing in favor of the banker


who would be acting as the agent of the first banker for
collection. Therefore, it is necessary to specify in the Second
Special crossing that the banker in whose favour it is made is
the agent for collection on behalf of the first banker.
iv. A banker must not pay a cheque y ignoring the crossing, as he is
not legally justified in making cash payment over the counter to
the payee.

Crossing is a material part of a

Section 125-A of the Negotiable Instruments Act,


1881, runs:A crossing authorized by this act is a
material part of the cheque; it shall not be lawful
for any person to obliterate, or except as
authorized by this Act, to add or alter the
crossing.
This definition makes crossing a material part of the
Cheque. Therefore, any alteration in it amounts to
material alteration, which should be authorized only by
the drawer, as every unauthorized material alteration is
unlawful.

ENDORSEMENT

Definition of Endorsement:
When the maker or holder of a negotiable instrument
signs the same otherwise than as such maker for the
purpose of negotiation on the back or face thereof or on
a slip of paper annexed thereto, or so signs for the same
purpose a stamped paper intended to be completed as
a negotiable instrument, he is said to endorse the same
and is called the Endorser.

Endorsement means the writing of a persons name on the back

of a negotiable instrument.
Can be given also on the face of an instrument.
Has no particular form of words.
Can also be given on a piece of paper annexed to a negotiable
instrument. The annexed piece of paper is called Alonge.
Should be given for the purpose of negotiation, which has been

defined
in the Section 14 of the Negotiable Instrument Act 1881 as under:

When a promissory note, a bill of exchange or cheque is transferred


to any person, so as to constitute that person the holder thereof, the
instrument is said to be negotiated.

Classification of Endorsement:
There are mainly five kinds of endorsement:

a) Endorsement in Blank: If the endorser signs his name only, the


endorsement is said to be In Blank. It is also called as General
Endorsement. It consist of the bare signature of the endorser and the
instruments endorsed becomes payable to bearer. As long as the
endorsement continues in blank, the instrument may be negotiated by
mere delivery, in the same manner as any instrument payable per bearer.
b) Endorsement in Full: If endorser adds a direction to pay the amount
mentioned in the instrument to or to the order of a specified person, the
endorsement is said to be in full and the person so specified is called
the Endorsee of the instrument. It is also known as General
Endorsement. It specifies in addition to the signature of the endorser, the
person to whom or to whose order the instrument is payable.
c) Restrictive Endorsement: This is the endorsement, which prohibits
the further negotiation of the instruments for instance; if a cheque is
endorsed pay A only or pay B for the account of X etc. In this type of
endorsement the endorsee has no power to transfer his rights to any one
further.

Classification of Endorsement:
d) Partial Endorsement: It is an endorsement, with purpose to
transfer to the endorsee a part of the amount payable on a Bill of
Exchange or promissory Note. It is not valid endorsement.

e) Conditional Endorsement: It is an endorsement which


makes the transfer of the instrument from the endorser to the
endorsee after the fulfillment of stated condition, for instance, if the
holder of the bill endorsee Pay account or order with resources to me
Or pay or order at his own risk.

Principals of Endorsement:
1. The name of the endorser must appear exactly in the
same spellings as written in the instrument as payee.

2. Endorsement in pencil is legally valid but it should be


discouraged. Banker must insist on endorsement in
ink.

3. Endorsement made by an imprest stamp or in any


other form is not treated as valid unless, the payee
gives satisfactory evidence about its genuineness.

Principals of Endorsement:
4. Endorsement made in type writing or printed form is not
treated as valid unless, the payee gives satisfactory
evidence about its genuineness

5. An endorsement made in language not spoken in the


area and which the paying banker also does not
understand should not be accepted without a certified
translation. However, in the presence of a collection
bankers confirmation, certified translation is not
necessary.

6. It is not essential that the endorsement, if more than one,


should appear in the same serial order in which they
were made.

Collecting Banker:
A collecting banker is the one who has assumed duty of collecting the
proceeds of an instrument for the customer or for himself. When Bank
collects the proceeds for the customer, he acts as his/her agent, whereas
in case of collecting for himself, he is holder for value by virtue of the fact
that:
He either has already made the payment before collection of
proceeds or,
The Cheques are received for adjustment of any liabilities.
A collecting banker has no legal obligation to collect cheques drawn on
other bank for the customers. Negotiable Act Section 181 relating to
crossed cheques (Account Payee) says that where a banker in good faith
and without negligence receives payment for a customer of a cheque
crossed generally or specially to himself, and the customer has no title or
defective title thereto, the bankers shall not incur any liability to true
owner of the cheque by reason only of having received such payment.

Electronic Payment Systems

Overview
Advantages of EPS
efficient

fast cost saving

effective

less human errors

Current E-payment
methods
Fedwire
small volume,banks
Clearing House Interbank Payments System

(CHIPS)
small volume, large amount for corporations

Automated Clearing House(ACH)


automate payment between corporation and
suppliers
high volume, low value

Reasons why checks are used by large


corporations (200 million checks a day)
Generate interest while checks are being

cleared (3.6 days)


Delay of check-clearing is called float
GM asks its supplier to accept a 3-day
delay for E-payment.

Conventional payment
process
Seller transfer goods or services to buyer and

buyer transfer to seller using


cash transaction
non-cash transaction (credit card or check)

Cash transaction (cash flow)


buyer withdraw from his account
transfer of cash to the seller
seller deposit cash

Seller

Seller bank
Deposit cash or
payment
information
Payment

goods

Info flows for notational


changes

Withdraw cash or
payment information
Buyer bank

Buyer

Non-cash transaction (use payment

information)
intermediaries required(credit card company

or check clearing company)

Payment information needed


information identities of seller and buyer
Financial information such as credit card or
bank account numbers
Actual values represented by digital currency

Problems with traditional payment


methods
Lack of convenience
Lack of security
provide credit card info by phone or mail
Lack of coverage
does not support individual-individual or bus to
bus transactions
Lack of eligibility: not all potential buyers can

get credit card


Lack of support for micro
transactions(micropayment)

Characteristics of Epayment
Lack of face to face interaction
lack of trust
require intermediaries to provide security,

identification, authentication and payment


support

Types of E-payment
Non-sensitive Transfer system
no sensitive info is passed over the network
only seller /buyer id, amount, item
intermediary is the centralized commerce
enabler, verify seller/buyer id and do the rest
maintain membership and payment info

Settlements
Payment requests and confirmation
Seller bank
seller

Intermediary

Buyer bank

Non-sensitive Transfer system

ID number

buyer

Goods

Notational funds transfer system (NFT)


sensitive info is passed over the network
no intermediary is needed

Settlements
Payment information

seller

Seller bank

Payment clearing
services(PCS)

goods

Payment info

Buyer bank

offline

buyer

online
Notational Funds Transfer System

Digital currency payment system


transfer digital product representing values

Settlements
Inside money flow
Seller bank
seller

Intermediary

ID number

Buyer bank

Digital currency payment system

buyer

Goods

Properties of digital
currencies
Monetary value
exchangeable for payment
storable and retrievable
not be easy to copy
provide convenience
provide Security
adequate protection standards are needed

Authentication
can not be physically examed
use digital signature

Non-refutability
cash: receipt is good for non-refutability
E-cash: append all transaction record

Accessibility and Reliability


can be accessed from anywhere in the world
transported
Anonymity
cash: anonymous
protection to provide anonymity

Two types of Digital


Currencies
E-cash
online transactions
open two accounts/ one regular one Ecash mint
user can transfer outside money from regular
account to Ecash account (not insured by FDIC)
user can download Ecash from Ecash account
to his hard drive
user can spend e-cash on any stores which
accept Ecash
Receiver of Ecash will present the Ecash to the
bank or Ecash server for verification

Mondex
smart card
peer to peer
offline -such as prepaid phone card, copy
card
online like Ecash
like a portable hard drive with a build in
Ecash Mint
unlike debit card: just in time pay card

Thank you