Indian Banking Terms

By Team Legal Helpline India, December 26, 2014

IMPORTANT: Indian banking terms explained by our experts.

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Important Indian Banking Terms-Explained and Illustrated.

ACCOUNT PAYEE: These are the words added to the crossing on a cheque which means that the cheque be collected and proceeds deposited in the payee account only. These words, however, do not affect the negotiability of a cheque.

AGRICULTURAL CREDIT SOCIETIES The short-term agricultural credit structure is a three-tier type. At the village level, there are Primary societies; at district level, there are Central Co-operative Banks and at the state level, there are State Co-Operative banks. As regards long term Credit Co-Operative Societies, it has two-tier structure. At the village level, there are primary land development co-operative societies and there are central land development banks which grant long-term loans through the village level societies.

AIR WAY BILL (AWB) An Air Way Bill is a receipt for the goods issued by Airlines or their authorized agents for dispatch by air. Air Way Bill should also bear carrier’s stamp indicating the flight and the date of its departure/dispatch.

AMALGAMATIONThe term is used for merging of two or more organizations into one in order to improve efficiency and increase profits. According to Weinberg, an amalgamation is an arrangement whereby the assets of two companies becomes vested in, or come under the control of one company (which may or may not be one, of the original two companies), which has as its shareholders all, or substantially all the shareholders of the two companies. Under the English Law, a merger takes place when two enterprises by or under the control of a body corporate cease to be distinct enterprise.

ANNUAL ACCOUNT Every business enterprise prepares annual accounts which include profit/loss and balance sheet statements at the close of the financial year. These accounts give an idea as to how a business enterprise has performed during the year and its latest financial standing giving the position of its assets and liabilities.

ANNUAL AUDITED REPORT All public limited companies are required to send an annual audited report giving their financial position to all its shareholders. It also gives the year’s trading and profit/loss results after these have been audited by a qualified auditor.

ANNUAL GENERAL MEETING (A.G.M.) Every company is required to hold an annual general meeting once in every calendar year, and not later than 15 months after the last meeting. (Reference Section 165 of the Companies Act, 1958). This is a statutory requirement and gives an opportunity to the shareholders to discuss the affairs of the company, to give suggestions and seek any clarifications. In this meeting, the annual accounts and director’s report are presented to the shareholders for adoption. Dividends are also declared depending upon the profits generated by the company.

ANTE-DATED CHEQUE An antedated cheque is that which is presented after six months from the date of cheque. It is an also called State Cheque and is not payable till a confirmation from the drawer is obtained for its payment.

ASSETS CLASSIFICATIONS The Reserve Bank of India has advised banks to classify all their borrowal accounts under four categories, namely 1) Standard Assets; 2) Sub-Standard Assets; 3) Doubtful Assets; and 4) Loss Assets. The above classification is to be done on the basis of clear and objective criteria advised by RBI which takes into account broadly the factors like-since how long the account has remained non-performing; whether the value of assets has been written off, wholly or partly (In other words, whether these are considered as uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value, etc.). RBI has also given guidelines on the amount of provisions to be made for various type of assets which has direct linkage with their classification. Please also refer to Non-Performing Assets.

AUDIT An audit is a systematic examination of the financial records of a business enterprise which is done to ensure that all the transactions are correctly recorded and the statements and reports given by the enterprise are true and fair. The audits are of the various types annual financial audit; concurrent audit; income and expenditure audit; stock audit, etc. These should preferably be got done from persons who are authorized and qualified for the purpose.

AUDITOR An auditor is a qualified person appointed to check and verify the accuracy of the books of accounts and other records of financial transactions kept by a business enterprise. He also comments on the adequacy of the systems and procedures followed for maintaining the accounts.

AVERAGE DAILY BALANCE It is a balance of an account which is recorded daily for a given period and then totaled. The total figure so arrived is divided by the number of days in the period to arrive at an average daily balance.

BAD DEBTS A debt is the amount of money recoverable by a person for the sale of goods or for the rendering of some service. The debt is called bad if it is not recoverable and is treated as the loss and is to be written off.

BALANCE SHEET Abalance sheet is a statement of assets and liabilities which gives financial position of an enterprise as on a particular date, normally at the end of a financial year. It tells us as to what an enterprise owns (its assets) and what it owes (its liabilities). The assets generally include items like cash in hand and at bank, debtors, investments, land, building, plant/machinery, stock, etc. while liabilities are paid-up capital, bank borrowings, trade creditors, loans received from any source etc. A study of balance sheet, prima facie, reveals financial health of an enterprise.

BANKS ACCOUNT Banks offer various types of accounts for deposits as well as loans designed to suit the needs of their different customers. The deposits accounts include Savings bank, Recurring, Fixed deposit account etc. while loan accounts are Cash Credit (Hypothecation or pledge), Overdraft, Term loan, Demand loan, etc.

BANK BALANCE Bank balance is the amount of money standing to the credit or debit of a bank account.

BANK CHARGES This term is used for the charges recovered by a bank for the various services rendered by it to its customers. These may relate to the collection of outstation cheques, bills of exchange and hundies, fees charged for safe custody deposits, incidental charges on current accounts, etc.

BANKERS BOOK OF EVIDENCE A banker is bound to disclose the state of his customer account if he is asked to do so by a Court of Law.

BANKING REGULATIONS ACT Banking business has its own distinctive features as compared to any other trade and business and, therefore, arose a need for a separate suitable legislation. Keeping in view the above, Banking Regulations Act, a main piece of Central Legislation in India, came into force on March 16, 1949. The Act embodies various provisions relating to banking business and defines the role and functions of a banking company. Since its enforcement in 1949, the Act was amended many a time to insert new provisions and to amend the existing ones to suit the needs of changing circumstances and to plug the loopholes and weaknesses in the main legislation. This Act is administered by the Reverse Bank of India.

BANK STATEMENT A Bank Statement is a record of all transactions, giving date wise, each debit and credit entry, whether in the form of cash or cheque, transfer, etc.

BILL OF EXCHANGE (Drawer, Drawee, Payee, Holder and Acceptor)- A bill of exchange is an instrument which can be defined in legal term as a written unconditional order addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed determinable future time a certain sum of money to or to the order of a specified person or to the bearer. A bill may be inland (drawn and payable in India) or a foreign bill.
There area three parties involved in a bill of exchange, viz., Drawer, Drawee and Payee. The person who gives the order and makes the bill is called the Drawer. The person who is directed to pay is called Drawee. The person to whom the payment is to be made is called Payee. The Drawer or the Payee who is in possession of the bill is called the Holder. The Holder must present the bill to the Drawee for his acceptance and after it is accepted, the Drawee is called Acceptor.

BILL OF LADINGA Bill of lading is a receipt given by the shipping company for shipment of the goods and established a contract of carriage and delivery of goods. It is a document of title to goods and is required by the importer to clear the goods at the port of destination. Such bills on their reverse bear the terms and conditions of the contract.

BOOK VALUE Book value is the value of assets reflected in the holder’s books of accounts/balance sheet which is usually the written down value. Such a value is arrived at after subtracting the depreciation from the original cost of the assets.

BORROWER An individual or an institution which raises funds and in return enters into an agreement to repay the funds together with interest as per agreed repayment program or schedule is called a Borrower.

BUSINESS OR MARKET DAY OR OPEN DAY This is the day on which foreign exchange contracts can be settled, e.g. a foreign exchange contract covering the sale of US Dollars against Sterling can be finalized only on a day when both New York and London are open for normal banking business.

CAPITAL GOODS Capital goods are the items of plant, machinery, equipment or other long-lasting fixed assets required for the production of goods or for rendering services.

CASH BOOK It is a basic book of accounts for recording all cash transactions of receipts (debits) and payments (credits). It gives the position of cash balance in hand at the close of the business transactions at the end of the day.

CERTIFICATE OF COMMENCEMENT OF BUSINESS After a Public Ltd Company has been incorporated and has received a certificate of incorporation, it would also require a certificate from the Registrar of companies for the commencement of business. No public limited company can commence business or exercise borrowing powers unless such certificate is issued to it. This certificate is not required in the case of private limited companies.

CERTIFICATE OF INCORPORATION The Registrar of Companies issues this certificate after being satisfied that all requirements of the Companies Act in respect of the registration of a company have been complied with.

CHEQUE ANTE-DATED The drawer (person issuing the cheque) may mention a date earlier to the date of writing a cheque. For example, a cheque issued on 19th of August, 2011 may bear the date of 5th August, 2011. The banker shall have no objection in making payment till it has become stale, i.e., it is over 6 months old.

CHEQUE CROSSED Such cheque have the mark of crossing, an instruction given by the payer to the paying banker to pay the amount of the cheque through payee’s bank account only and not directly to the person presenting it at the counter. The crossing on a cheque is intended to ensure that its payment is made to the right payee.

CHEQUE DISHONOUREDA banker has the statutory obligation to honor and make the payment against his customer’s cheques unless there are valid reasons for dishonoring the same. By dishonor, we mean nonpayment of a cheque at the counter or when received in the clearing.

CHEQUE POST-DATED A post-dated cheque is that where a drawer mentions a date which is subsequent to the date on which it is drawn. A banker does not make payment of a post-dated cheque as it is deemed as payment made without the authority of the drawer.

COLLATERAL SECURITY Borrowers offer some securities to the banks as a cover for sanctioning loans to them. These are broadly of two types) Primary and ii) Collateral. The primary security is the principal or direct security against which loan is sanctioned. On the other hand, a collateral security is an additional security provided by the borrower. For instance, the borrow may offer security of stock (raw-materials, stock-in-process, finished goods, etc.) for availing of Working Capital loan in the form of Cash Credit (Hypothecation) limit, which is called primary security Sometimes, they may also offer additional security of some immovable property of land or building, which is called collateral security to further secure the working capital loan.
In the case of a default by the borrower, a banker would try to recover his dues from the primary security and for the shortfall, if any, he will resort to collateral security.

CONSORTIUM/PARTICIPATION LOANS Consortium or participation loans area those which are sanctioned to the borrowers jointly by more than one financial institution. For such advances, financial institutions appoint a leader of the consortium who takes the initiative for processing, appraisal, and review of the loan account. Such loans have several advantages like spreading and sharing of risk, making use of collective wisdom and expertise, providing better service and taking care of the unit’s complete financial requirements, etc.

CONTINGENT LIABILITIES Contingent liabilities of any business enterprise may include all those transactions for which it is not immediately liable but the liability could arise at a later date. Contingent liabilities would include guarantees issued on behalf of third parties, disputed tax liabilities, and other liabilities or obligations, the amount of which is uncertain. The liabilities are shown in the balance sheet in the form of descriptive footnotes.

COST AUDIT Cost audit involves checking up the arithmetical accuracy of cost accounts and verifying whether the principles laid down have been followed for costing. Such an audit becomes essential in case of a business where cost accounting is required to be carried out properly and on scientific lines.

CREDITOR A creditor is one who has lent some money or is awaiting payment for supply of goods or services rendered to an organization or individual. An individual or an organization who owes the money is a debtor.

CURRENT ACCOUNT This is a type of account which can be opened in a bank by any individual, business enterprise, company, Government/Semi-Government Organisation, etc., whose transactions happen to be numerous on every working day. Banks do not pay any interest but levy some incidental charges depending upon the number of transactions as these are considered as unremunerative accounts.

DEBIT Adebit entry reflects the negative balance in the account. A debit entry in a customer’s account means that he owes the certain sum of money for the services or goods received by him.

DEBIT ADVICE/NOTEIt is a document sent by a seller to his buyer informing him that his or her account has been debited with the amount shown in the debit note. It may be issued by a seller when the buyer has been undercharged for goods or services supplied and by the buyer if he is over-charged or the goods/services rendered are shorts.

DEBIT RECOVERY ACT Under the Debt Recovery Act which has been introduced by some State Governments, the bank dues are treated as arrears of land revenue and are recoverable with the help of the state Government machinery. The banks file recovery certificate with an appropriate State Government authority in loan accounts which are difficult to recover. The banks also initiate legal action as the limitation is not extended by merely resorting to action under the Debt Recovery Act by filing the recovery certificate.

DORMANT ACCOUNT Dormant account is the one, in which no operations or transactions are effected by the account holder.

DRAWEEThe person on whom the bill is drawn upon is the drawee. When he signs on the bill giving an undertaking to pay it on maturity, he also becomes the acceptor.

DRAWEE IN CASE OF NEED In a particular bill where the name of any person is given in addition to the drawee, such a person is called a Drawee in case of need. Such a bill is not considered as dishonored until the same is refused by not only the drawee but also the i.e. drawee in need.

DRAWER The person who signs a bill of exchange giving an order to another person (the drawee) to pay the amount mentioned therein is called a drawer.

ENCUMBRANCE A property which is mortgaged or charged to someone is said to be encumbered and a property which is free of any charge is said to be unencumbered or free from any encumbrance.

EQUITABLE MORTGAGE A mortgage is defined under section 58 of the Transfer of Property Act, 1882, as the transfer of an interest in specific immovable property for the purpose of securing the payments of money advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability?. The instrument by which the transfer is effected is called a mortgage deed.

While sanctioning loan a banker may obtain the mortgage of some immovable property. For valid mortgage, a banker creates a charge which could either be in the form of i) Legal Mortgage or ii) Equitable Mortgage. A legal Mortgage is affected in the court and entails expenses in the form of stamp duty. The transferee (Banker) acquires legal title to the securities. As regards Equitable Mortgage?, it is affected by simple deposit of the title deeds by the borrower with the banker and giving a memorandum of deposit which indicates the purpose for which title deeds have been deposited. Such a mortgage does not attract any expenses on stamp duty but can be created at places notified by the state governments.

ESCROWIt is a written document evidencing obligations between two or more parties which is kept with a person who is not a party to it.

FIXED DEPOSIT ACCOUNT Broadly speaking, the bank deposit accounts are of two types i) Fixed or Term Deposits and ii) Demand Deposits. Fixed Deposits are for a fixed or specified period chosen by the depositor and are repayable on expiry of that period. Such deposits carry a comparatively higher rate of interest depending on the time span. Demand deposits are withdrawable any time and carry a comparatively lower interest rate.

FIXED EXCHANGE RATEIt is the official rate set for one or more currencies by monetary authorities. In most of the cases, even fixed exchange rates are allowed to fluctuate between definite upper and lower levels.

FLOATING CHARGE Under cash credit loan facility, the borrower provides security of current assets (stocks) to an Institution sanctioning such loan. The securities, however, remain in the possession of the borrower and only the floating charge is given to the financing institution.

FLOATING EXCHANGE RATE It is the rate of currency which may vary or change depending upon its demand and supply.

F.O.B. CONTRACTS F.O.B. stands for Free on Board. Under FOB contract of sale involving sea routes, it is the seller’s responsibility to put the goods on board a ship for transmission to the buyer and to bear all expenses and risks till that time. Once the goods are loaded in a ship, these are then at the risk of buyer provided other terms of the contract are in order.

FOREIGN BANKS Foreign banks are those which are incorporated outside India and have paid-up capital and reserves equivalent to the amount as specified by Reserve Bank of India. They are also required to deposit either in cash or in the form of unencumbered approved securities or both, a sum equal to the amount as specified with RBI.

FOREIGN BILLS NEGOTIATED UNDER LETTER OF CREDIT (FOBNLC)Exporters can obtain finance by tendering export bills for supplies made by them against the letter of credit established by the importers in their favour. While granting such financial facility banks should ensure that the documents tendered are in conformity with all the terms of credit as contained in the letter of credit.

GROSS PROFIT Gross Profit is the amount by which sales revenue exceeds the cost of goods and services sold. The cost of goods sold is the amount worked out by adding opening stock, net purchases, and direct expenses and from this figures subtracting the closing stock.

HEALTHY ACCOUNTThis term is used generally for a borrower account whose conduct is satisfactory and where all terms & conditions of sanction are complied with. The unit is making a profit and financial position is satisfactory. In brief, the accounts are in order and bank’s funds are safe.

HINDU UNDIVIDED FAMILY (HUF) An HUF consists of all the male descendants from a common ancestor. The sons, grandsons and great-grandsons are all coparceners of HUF family. A HUF property is jointly owned by all the members as ancestral property which is distinct from the self-acquired property of the members. The right to manage the HUF property vests only in the Karta of the family, who is either father or senior-most members. The karta has the authority to borrow money for the family business.

HIRE-PURCHASEUnder such a purchase contract, the goods are bought by making the payments gradually on installments basis. However, the ownership right on goods will pass only after all the installments are paid. In the event of default, the seller reserves the right to take back the goods and the installments amount so received is taken as hire charge. The purchaser, during the period when he is in possession of goods is supposed to take all such care of goods as a prudent person does in his own case. He cannot damage, destroy, pledge or sell such goods.

HOLDER IN DUE COURSEA negotiable instrument is transferable from person to person. A person is called holder in due course when he acquires the instrument in a bonafide manner and for consideration and has the right to possess good title to the instrument. If an instrument falls into wrong hands, the holder thereto cannot enjoy the privileges of a holder in due course.

HOT MONEY Hot money is a vast sum of international money which moves from one center to another in order to obtain the benefit of higher interest rates. Such money helps to bolster the country’s foreign exchange reserves when these are running low.

HUNDI Hundi is an indigenous Negotiable Instrument written in a vernacular language. The term hundi is said to be derived from the Sanskrit word hund which means to collect. The hundies are like bills of exchange in form and substance. These are governed by local usages and customs and when there are no customary rules on certain points, the provisions of the Negotiable Instruments Act would apply.

IMPORT LETTER OF CREDIT Foreign Letter of Credit is a mechanism of payment which is widely used all over the world for settlement of trade payments between the importer and exporter. In case of import letter of credit, importer’s bank gives an undertaking to pay a certain sum of money to the exporter, on presentation of stipulated documents and fulfillment of all the terms and conditions incorporated in the letter of credit. All Letters of Credit operate subject to certain rules and regulations as given in i) Uniform Customs and Practices for Documentary Credit (UCPDC), ii) Exchange Control Regulations, iii) Government’s Import & Export Policy, iv) Public Notices issued by the Chief Controller of Imports & Exports from time to time etc.

INSOLVENT A person or a company is insolvent or in a state of insolvency if he is unable to pay his debts and discharge his liabilities.

INSTRUMENT It is a formal or written document such as a promissory note, bill, cheque, deed, contract or any document by means of which some right or contract is expressed or created.

JOINT ACCOUNTA Joint Account is one which is opened by two or more persons jointly. A banker should ensure that a joint account must be signed by all the persons intending to open such an account. There should also be a clear mandate giving names of the persons who are authorized to operate the account.

JOINT VENTURE ACCOUNT A Joint Venture Account is the name given to a temporary partnership account formed by two or more persons for the purpose of undertaking a particular job or trading operation with a view to sharing the profit/loss thereof in an agreed proportion. Such a partnership gets automatically terminated or dissolved after completion of the joint venture.

LEAD BANK SCHEME The Lead Bank Scheme was introduced by RBI in December, 1969 to make banks an important instrument of local development by entrusting individual banks with the lead role to locate growth centers, assess deposit potential, identify credit gaps, and to evolve a coordinated program for development of each district allotted to them in consultation with other banks and other credit agencies. The Lead Bank Scheme can be regarded as a part of the institutional support for regional credit planning and development.

LEDGER After all the transactions of a business enterprise are recorded in the journal, the next step is to classify these entries according to the nature of accounts. These classified entries of accounts are recorded in an account book called the Ledger. A ledger is a book in which all the account of a trader (may be personal, real or nominal) are kept for permanent record. Each separate account is allocated a separate page and each page is divided into two halves-Left hand side represents Debit (Dr) side and Right hand side as credit (Cr) side.

LEGAL MORTGAGE -A mortgage is defined under section 58 of the Transfer of Property Act, 1882, as the transfer of an interest in specific immovable property for the purpose of securing the payments of money advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability?. The instrument by which the transfer is effected is called a mortgage deed.

While sanctioning loan a banker may obtain mortgage of some immovable property. For valid mortgage, a banker creates a charge which could either be in the form of i) Legal Mortgage or ii) Equitable Mortgage . A legal Mortgage is affected in the court and entails expenses in the form of stamp duty. The transferee (Banker) acquires legal title to the securities. As regards Equitable Mortgage ?, it is affected by simple deposit of the title deeds by the borrower with the banker and giving a memorandum of deposit which indicates the purpose for which title deeds have been deposited. Such a mortgage does not attract any expenses on stamp duty but can be created at places notified by the state governments.

LETTER OF CREDIT This is a non-fund facility provided by banks to its customer. It is a document issued by a banker authorizing another bank to which it is addressed to honour the cheques/bills of a specific amount of a person named (beneficiary) provided these are in conformity with the terms and conditions stipulated therein. These letters are mainly of two types, i.e. i) Foreign Letter of Credit and ii) Inland Letter of Credit. The former is required for import, and the latter for local purchase of raw materials, components, stores/spares, etc. The letter of credit can be further classified into various categories like Recoverable and Irrevocable, Documentary or Clean, Revolving, etc. While issuing letters of credit on behalf of the customers, the following points should be kept in view by bankers:

  • This facility should normally be extended to the units which are dealing with bank and are enjoying other limits also.
  • Applications for opening a credit should be taken in the form of an agreement properly stamped in accordance with the Stamp Act.
  • The bank has a security interest in the goods covered under the letter of credit for which it has to make payment to the beneficiary till reimbursement of the amount by the party for which letter of credit was opened. Various Types of Letter of Credit are discussed separately.

LIMITED LIABILITY A limited liability is a term used for the liability of a company’s shareholders. It means that a shareholder has a limited liability with regard to the company’s debts i.e. only to the extent of his shareholdings in that company.

MAGNETIC INK CHARACTER RECOGNITION (MICR) CHEQUESLately all banks have started issuing MICR chequebooks. These cheques have highly stylized printed letters in ink containing magnetizable particles. Such MICR cheques can be easily sorted out & processed with a speed on machines.

MULTINATIONAL COMPANY These are large scale commercial organizations with whole or majority ownership of interests or subsidiaries in various countries. The commercial strategy of such an organization is international in its approach.

OFFICIAL RECEIVERAn official receiver is a person appointed by the Government or Court to supervise the winding up of a business enterprise, which has gone bankrupt. He has wide powers and can sell the assets or allow the enterprise to run with a hope to collect enough money to pay the creditors.

OPEN CHEQUE It is a cheque which is not bearing any crossing on its face and is, therefore payable across the counter of a bank.

ORDER CHEQUEThis is a cheque which is payable to a person named in the cheque or as per his order. A paying banker is granted protection if he makes payment of an order cheque having forged endorsement on behalf of the payee.

OVERDRAFTWhen an account holder is permitted by a banker to draw more amount than what stands to his credit or the sanctioned limit, such a situation is called an overdraft. A banker may also sanction overdraft advance by obtaining some security in the form of LIC policy, fixed deposit or even some property, or may even grant such an advance on the personal guarantee of a person. The customer is allowed to withdraw the amount as and when he needs and may deposit when he has some surplus. Interest is charged on the exact amount drawn by the customer (debit balance) and for the period of its utilization. An overdraft is called Clean if it is not backed by any security.

PASS BOOK It is a small handy book issued by a banker to his customer to record all the dealings/transactions between them. In fact, it is an authenticated copy of the customer’s account in the account books of the banker. The purpose of issuing such a book is to acquaint the customers with the state of affairs of his account.

PAY-IN-SLIPThese have printed paper slips with perforated counter-foils, to be filled in by the depositor himself or by his agent at the time of depositing cash, cheques, drafts, bills, etc., to the credit of his account.

PAYMENT IN DUE COURSE This term is used for making payment against negotiable instruments. The payment in due course means that the same has been made in accordance with the apparent tenor of the instrument, in good faith and without negligence to any person in possession thereof, under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive the payment of the amount mentioned therein. Any payment made against irregular or incomplete instrument cannot be considered as payment made in the Due course.

PAY ORDER A Pay Order is a Cash Order issued by a bank branch at the request of their constituent, drawn on the issuing branch itself. It is used for making local payments only and is valid for 3 months. It is non-transferable and only payee can receive the payment by the pay-order. In case the payment is to be made to some other person, a letter of request from the payee must be accompanied with the Pay Order.

PETTY CASH BOOKIn every business there are a large number of small payments of petty nature and to record them all in cash book would mean the recording of unnecessary details. A separate book called as Petty Cash Book ?is maintained for recording numerous payments of small amounts to prevent the overloading of the Cash Book.

PROFORMA INVOICE It is a document which indicates the specifications, price, delivery period and other terms of sale of a product. It is an offer by the seller and is not intended to obtain any payment. This may form a legal contract after the offer is accepted by the buyer.

PROMISSORY NOTE A Promissory Note is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. The person who signs the promissory note and promises to pay is called the debtor and the person to whom the payment is to be made is called the creditor.

RECALLED LOAN ACCOUNTS This category of accounts which include those where the repayment of loans is highly doubtful and nursing is not considered worthwhile because of lack of viability and/or malafides on the part the borrowers. In such cases, the bankers serve notice on the borrowers to pay back and adjust the loan amount. Such accounts are called ?Recalled Accounts.

RECONCILIATION STATEMENTIt is a statement which helps to reconcile any discrepancies observed in a firm cash book and banks statement. The discrepancies may arise due to certain entries such as cheques issued but not yet presented for payment or cheques deposited but not yet collected, etc.

REFER TO DRAWERA banker may refuse payment of cheque when the funds in the account of a drawer are insufficient. While returning the cheque the banker may use the words Refer to drawer?.

RESERVE FUND The term Reserve Fund covers any amount of money set aside by a business enterprise out of profits and another surplus which are not earmarked for any liability or contingency. It is divided generally into two classes, namely i) Capital Reserve and ii) Revenue Reserve. Capital Reserve is the amount which is not free for distribution while Revenue Reserve is utilized for paying dividends. A general reserve also belongs to the category of Revenue Reserve.

SPECIMEN SIGNATURE SLIPAny person opening an account with a bank is required to give his specimen signature on a prescribed form, generally a card for the purpose of bank record. Such signatures are preserved by the banks for comparing the same when cheques are received for withdrawals of the money or recording any other instructions given by the account holders. In case the signatures differ, the bankers may refuse to honor the cheque.

SUBORDINATED LOAN A Subordinated Loan is the one which is payable only after another loan is settled or paid in case of liquidation of a company.

SUNDRY CREDITORSIt is one of the items or heads appearing on the liability side of a balance-sheet of any enterprise which indicates the amount of money owed by the enterprise to the trade and other creditors on the balance-sheet day.

SUNDRY DEBTORS?It is one the items or head appearing on the assets side of a balance-sheet of any enterprise which indicates the amount of money which is owed by the trade and other debtors to the enterprise on the balance-sheet day.

SURETYA person giving surety for someone takes on legal responsibility for the latter’s actions and undertakes to make good the loss in case of default. It can be compared with the issuance of a guarantee. A banker can exercise his right of lien on the balance in the account of the surety in case of default by the principal debtor.

SYNDICATED LOANSyndicated loan is that loan which is sanctioned by two or more banks to one borrower.

TELLER SYSTEMTo out down delay in withdrawal of money by the depositors, some banks have introduced a Teller System in bigger branches in cities. A Teller is a senior clerk selected on the basis of seniority who is required to make immediate cash payment on the basis of withdrawal slips cheques up to a specified amount after ensuring that there is adequate balance in the account and instrument is in order.

TERM DEPOSITBanks receive mainly two types of deposits i.e. 1) repayable on demand and 2) repayable after a pre-determined time. The former is called Savings Fund Deposit while the latter is known as Term Deposit.

TERM LOANA type of loan which is of longer duration, say, for more than one year and is repayable often by installments. Loans can be broadly categorized under ?i) Term Loan and ii) Working Capital Loan. The term loans are sanctioned for acquisition of fixed assets like land, building, plant/machinery, office/factory equipment and to meet the cost incurred on insurance, transportation, octroi, packing preliminary and pre-operative expenses, etc. Such loans are repayable over a fixed period of time, say, 3-7 years, depending on profit generation capacity of a unit.
As regards working capital loans, these are sanctioned to finance current assets like raw materials, stock-in-process, finished goods, stores/spares, credit sales and for meeting day-to-day expenses. Such loans are basically self-liquidating in nature, and are not repayable like term loans.

TRAVELLER CHEQUE A traveler cheque is an instrument issued by banks for the remittance of money from one place to another. It is used by the persons who do not want to take risk of carrying cash during their travel and journeys.

TRIAL BALANCE A Trial Balance is a list of balances of all ledger accounts real, personal and nominal. It is prepared after the posting in the ledger is completed in order to check the arithmetical accuracy of the books. The agreement of the trial balance is a prima facia evidence of the accuracy of the books; it is, however, not a conclusive proof that the books are absolutely correct because there are certain errors which are not disclosed even by agreement.

UNSECURED LOANS Most of the loans granted by banks in India are generally secured by the tangible securities. An unsecured loan is one which is not backed by any tangible security but is given on the personal guarantee or credit-worthiness of the customer.

WAYBILL It is a statement or list of the articles/goods in a shipment together with the shipping instructions. An Air Way Bill is a receipt for the goods issued by Airlines or their authorized agents for dispatch by air. Air Way Bill should also bear carrier’s stamp indicating the flight and the date of its departure/dispatch.

WORKING CAPITAL It is that part of the capital employed in a business enterprise which is circulating in nature and is readily available for its day-to-day running. The amount of working capital can be arrived at by deducting current liabilities from the current assets. The working capital is financed partly by the credit available from the suppliers of the materials/goods and the remaining amount from internal cash accruals or short-term borrowings.

WRITE OFF It is a method employed to reduce periodically the value of an asset due to wear and tear. This term is also used for reducing or canceling debts which are considered bad or whose recovery is doubtful.

NOTE: As a Law Firm Delhi we provide all services of Indian Banking Laws, call our board No. 9-11-2335 5388 or mail us through contact us page of our website for any such requirements.

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