CBO

BANKING PRACTICE
 BANKING & ACCOUNT OPENING ACCOUNT CLOSURE
COMMERCIAL BANKS
Learning
Objective
INTRODUCTION TO NEGOTIABLE
MONEY LAUNDERING INSTRUMENTS

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Learning
Objective
CHEQUES

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 Objective:
BANKING &
COMMERCIAL INTRODUCTION TO BANKING

BANKS FUNCTIONS OF COMMERICAL

BANKS

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 BRANCH BANKING

Banking Business carried over a

large network of business.

Operations are large scale in nature

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 Universal Banking

Engaged in diverse kind of business

Investment services, savings and loans

Financial conglomerate functioning as

financial supermarkets

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 Commercial Banks

PRIMARY FUNCTION:
ACCEPT DEPOSTIS AND GIVE LOANS

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8
 Types of Deposit Accounts
Current Account/Checking Account:
Withdraw the money on demand
Account preferred by businessman

Savings Account:
Encourage the habit of small saving among people

Fixed Deposit Account:

Money Accepted for a fixed period of time.
Premature withdrawal the bank takes interest penalty

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 Credit Creation

Deposits of the banks

which circulate as money
leading to net increase in
Process of credit
the money
creation

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 Review Questions
• What is meant by universal banking?
• What are the primary function of commercial banks?
• What are the various functions of commercial banks?
• What are the types of deposit accounts?
• What is meant by credit creation?

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 CBO
BANKING PRACTICE
 Objectives:
ACCOUNT • Know your customer

OPENING • Types of Accounts

 KYC
Comply with UAE Central
bank requirements on
AML

Develop Qualitative long

Combat the spread of
lasting banking
money laundering
relationship

Make Future
Identify cross selling
Transactions trouble KYC opportunities
free

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Account Opening Considerations

Authority

Major Considerations Identity

Respectability

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 Authority: Identity: Respectability:
Current & valid
Accountholder should passport Bankers should get an
give authority to open Identity Card introduction or a credit
account Utility Bills reference
Statement from other
Meet the customer banks along with a
while opening an letter attesting the
account customers signature
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Types of Accounts
Current

Savings

Accounts

Fixed Deposits

Call Deposits

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Special Accounts

Illiterate
Accounts

Minor Accounts

Joint Accounts

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 Illiterate Accounts
A person who cannot read or write

Photo Identity required in specimen

Thumb Impression

A photograph attested by the opening officer is attached to the specimen

card

No cheque Books or 3rd party Mandate

No current account without authorization from head office

Transaction must take place:

In front of atleast two bank officials
Counter signed by officer
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 Minor Accounts
Minor is a person :

Below 21 years according to Hijra calendar or 20 years 5 months by

Gregorian calendar

Limited Contractual Capacity

Admitted into contract only for benefit

Presence of guardian required for all transactions

Accounts for minor will be opened with operations restricted to the parent
or guardian in the style “ PARENT A/C MINOR”

Guardian by Islamic law is father, after death of father, grandfather may

become natural guardian
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 Joint Accounts
Joint Accounts in UAE:

On equal basis between holders unless agreed otherwise

Any freeze applied on the balance of one account holder it will apply only to his
share

The bank will stop withdrawals only up to the share

When collecting cheques between different accounts of a joint holder,

permission of all holders required

No concept of survivorship as per UAE law, so share of deceased (dead person) will
go to legal heirs.

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Bank must stop withdrawals from a joint account
as soon as it receives information of death/loss of
legal competence of a joint account holder to
the extent of share of the deceased

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 Father & Son
Account

Husband & Wife Account of

Account partners

Types of Joint
Accounts

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 Review Questions
• How KYC helps the banks?

• Major considerations for account opening.

• Types of Accounts

• What are special types of accounts?

• Who is known as an illiterate person?

• Who is a minor?

• Who all can open joint accounts?

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 CBO
BANKING PRACTICE
 Objectives:
ACCOUNT • Account Closure Considerations

CLOSURE
 Considerations
At the When required by
Discretion of the law
bank

At the request of the Unsatisfactory Conduct

customer (Money Laundering)

Account
Closure

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 Moving out of the country

Customer Request

Not satisfied with the bank

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 Frequent return of cheques

Bank Discretion

Inactive/Dormant Account

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 Mental Incapacity of the customer

Account closure by law

Death of the customer

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Unsatisfactory Conduct:

Closure of accounts due to money

laundering concerns, which require prior
approvals from regulatory authorities
though Head Office

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 Review Questions
• When does customers close account?

• When does banks close accounts?

• When are the accounts closed by laws?

• What is known an unsatisfactory conduct?

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 CBO
BANKING PRACTICE
 Objectives:
• Main Stages of Money
Money Laundering

Laundering • Anti Money Laundering

 Money Laundering

Process by which criminals conceal

the original source of illegally
gained money to make it appear as
legitimate

Changing “DIRTY” money to

“CLEAN MONEY”

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Main Stages

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 Placement Layering Integration
Illegal funds are placed Series of repeated Final stage where illegal
into the financial system transaction funds are integrated into
One to another account the financial system as
true legitimate funds
Separating the identity One bank to another
from the illegal source bank
One country to another
country

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6
 Anti Money Laundering
Set of procedures, laws or
regulations designed to stop the
practice of generating income
through illegal actions

AML helps to detect and report

suspicious activity

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 Review Questions
• What is Money Laundering?

• Explain the various stages of Money Laundering.

• What is meant by AML?

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 CBO
BANKING PRACTICE
 Objectives:
• Features Of Negotiable
NEGOTIABLE Instrument

INSTRUMENT • Types of Negotiable Instrument

Negotiable Instrument

Instruments of credit that are transferrable

from one person to another

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Features of Negotiable Instrument
Good Title:
The title of the holder is
not affected by the
defective title of transferor

Transferability: Right to Sue:

Easily transferred by Holder in due course has the
endorsement or right to sue the person who
delivery is liable to make payment

Features

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 Parties to Negotiable Instrument
Drawer Maker of the instrument

Maker The person who promises to pay the amount stated in the instrument

Drawee The person directed to make the payment of the instrument

Payee The person entitled to receive the payment

Acceptor The person who signs and accepts to make payment of an instrument

Endorser The person who transfers an instrument

Endorsee The person to whom the instrument is transferred

Holder The person who is entitled to have possession of an instrument in his

own name and receive payment
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Types of Negotiable Instrument
Bills Of Exchange

Promissory Notes

Cheques

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 Bills Of Exchange
An Instrument in writing containing
unconditional order.

Signed by the maker.

Directing a certain person to pay a certain sum

of money only to or to the order of a certain
person or bearer of the instrument

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 Promissory Notes
An Instrument in writing containing
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
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9
 Cheques
An The name
unconditional of the
order to pay a person who
specific of in should pay
money (Drawee)

The name of
the person
The cheque shall to whom or
The place of
contain the following whose order
payment payment
particulars
should be
made
The
signature of
The date and the person
place of who made
drawing of the cheque
the cheque
(drawer)

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11
 Review Questions
• What is meant by negotiable instrument?

• What are the features of negotiable instrument?

• Who is the Drawer ,Drawee and Payee in negotiable instruments?

• What are the types of negotiable instrument?

• Explain Promissory Notes

• Explain Bills of Exchange

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 CBO
BANKING PRACTICE
 Objectives:
• Types Of Cheques
CHEQUES • Cheque Crossing
 Types Of Cheques
Order Cheques
When the words
“or bearer” is
cancelled and in
place “or order” is
Bearer Cheques written Crossed Cheques
When the words “or In such a cheque,
bearer” appearing two lines are drawn
on the face of the on the left hand
cheques is not upper corner of the
cancelled cheque

CHEQUES

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 Parties to the cheque
Drawer: Who makes the cheques

Drawee : Always a banker

Payee: Whom the amount is payable

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Features of Bearer Cheques
It can be drawn in favor of person , for the
time being in possession of the cheque

Payee need to be named and payable to

the bearer of the cheque

Can be transferred from one person to

another by delivery

Can be encashed without endorsement

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Features of Order Cheques
Payable to a certain person or his order

Bank makes the payment to the specified

person whose name is mentioned on the
cheque

Such person may make further

endorsement on such a cheque

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Types of Crossing Cheques

General Crossing

Types of Crossing

Special Crossing

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Requirements to Cross Cheques
Bearer Cheques are payable to the holder of the
cheques at the counter of the paying banker

In case of order cheques, the paying bank has to

satisfy himself about the true identity of the
presenter of the cheque

In spite of these precautions the money can be

paid to a wrong person. To prevent this, crossing
of cheques are suggested

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 General Crossing
 The cheque bears across its face two parallel transverse lines without any words written between them.

 When a cheque is crossed, the cash payment cannot be made.

 The amount will be credited to a bank account in the payee’s name, or holder in due course.

 A cheque can be crossed either by the drawer or the payee.

 A cheque which is not crossed is called an open cheque

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 Special Crossing
 When the name of the specific bank is written in the space between the 2 parallel line
sites special crossing

 The drawee bank should pay it only to the bank to which it is specially crossed ( or his
agent for collection).

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 Not Negotiable

If the word “Not negotiable” is added to a

general or special crossing :

Removes the most important characteristics of a

negotiable instrument named negotiability

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Persons Eligible For Crossing Cheques
Drawer

Holder

Eligible for Crossing Cheques

Banker: Who may cross a
cheque to another banker to
work as agent for collection

Though special crossing is allowed

once it can be done more than once
for a banker who acts as agent

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 Review Questions
• How many types of cheques are there?

• Who are parties to the cheque?

• How many types of cheque crossings are there?

• What is meant by general crossing cheques?

• What is meant by special crossing cheques?

• Who are the parties eligible of cheque crossing?

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 CBO
BANKING PRACTICE
 Objectives:
CHEQUE • Types Of Endorsement
ENDORSEME
NT
 Endorsement
Act of writing a person’s name on the
back of the instrument for the purpose of
negotiation

Endorser: The person who transfers an

instrument

Endorsee: The person to whom the

instrument is transferred

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 Types of Endorsement

General or Blank Endorsement: Signing on the back of the

instrument only and no mention of endorsee’s name.

Special or In-Full endorsement : Signing on the back of the

negotiable instrument with a direction to pay the amount or to
the order of a specified person

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 Review Question

• Explain what are the types of Endorsement

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 CBO
BANKING PRACTICE
Precautionary Objectives:
measures & • Precautionary Measures
Material
• Material Alteration
Alteration of
Cheques
 Precautionary measures for Cheques
Dates To be mentioned

Amount Properly written

Balance in the Account Enough Balance

Banking Hours Only presented during Banking Hours

Signature Signed by the Drawer or agent

Material Alteration Must be confirmed by the Drawer

Mutilation No mutilation and guaranteed by the bank

Crossing Check the crossing of cheques

Endorsements Check for endorsements

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 Cheque Date
Why date a cheque?

Date of issue to be Undated cheques are

shown on the not invalid but banks Shows how long it
cheque not bound to pay has been in
circulation and
Paying a cheque Order of the drawer whether it has
before that date is becomes effective become stale or not
not permitted then only

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 UAE Laws for Stale Cheques
To protect drawers from being
committed to cheques for an
unlimited period of time

To protect banks from

signature changes and change
in signing authorities
Bank can pay a stale cheque
only in case of lost cheques
Any cheques which are
more than 6 months old are
called stale cheques

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 Post Dated Cheques

Bank Liability if post dated cheques

are issued:
A cheque paid before the
Drawer gives a stop payment date shown as the date of
before the date shown issue

Becomes bankrupt, dies or

becomes mentally unsound

Another cheque which is due for

payment returned because the post
dated cheque was paid

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Material Alteration
Any change made on the
cheque in the –

Amount; date; payee’s name;

crossing cancellation; overwriting
MUST be confirmed by the
drawer’s full signature.

If this confirmation is
missing the bank should
not pay the cheque.

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Cheque Mutilation

Cheque torn or damaged

Banker can insist on a

confirmation from the
drawer or a guarantee of the
presenting bank.

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 Review Question
• Define Stale cheques.

• What is meant by post dated cheques?

• What is the bank liability for issuing post dated cheques?

• What are the features of material alteration?

• What is cheque mutilation?

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 CBO
BANKING PRACTICE
 Objectives:
• Various reasons for dishonor of
CHEQUES cheques

DISHONOUR
 Cheque Dishonour

On receipt of notice Receipt of notice of

of death of the Drawer’s bankruptcy
drawer

Receipt of notice of
Customer stops Drawers mental
payment of cheques incapacity
CHEQUES
DISHONOUR
When the paying
banker does not
pay it

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 Other Reasons
Only lost or stolen cheques can be stopped

Paying bank stops payment only when it receives the instructions

in writing; signed by the drawer

All details of the cheque and reasons with police report

AA garnishee or court order is served on the banker attaching the

drawer’s funds

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 Other Reasons

Bank receives prohibitory order from any governmental authority

Bank is aware of defective title to the cheque

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Paying Bank Dishonoring Cheques
Funds not sufficient

Drawer’s signature differs from specimen signature

Amount in words and figures differ

Presented outside the banking hours

Stale Cheque

Cheque is undated/impossible date/ incomplete date

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Paying Bank Dishonoring Cheques
Endorsement is incomplete or irregular

Mutilated Cheques

Material Alterations

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 Review Questions
• When does cheques get dishonored?

• When does paying bank dishonors the cheque?

• When can customer stop payment of cheques?

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 CBO
BANKING PRACTICE
BANKER Objectives:
• Liabilities of banker
LIABILITY &
CHEQUE
CLEARING
Types of Bankers for cheque processing

Paying Bank Collecting Bank

Drawee bank or the bank Agent of the customer
on whom cheque is when he collects
drawn cheques

Banks

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 Liability Paying Bank

Any damages suffered as result of cheque

payments containing forged signature or clever
alteration as long as it is proved no gross
negligence by the drawer.

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Liability of Collecting Banker
Customer suffers loss due to banks negligence , bank must pay the
amount of loss

Collects a cheque that is a forged endorsement, defective title.

Need to compensate the true owner of the cheque under “principle of

conversion”

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Negligence by Collecting Banker
Doesn’t meet acceptable standards by its actions or
omissions

No proper introduction, identification or reference while

opening an account

Collecting a cheque payable to the company into the

private account of the partner or director

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 Image base clearing : Cheque Truncation
system

It is a system of cheque
Cheque Truncation is a clearance and settlement Bank customers would
new system introduced in between banks based on get their cheques realized
UAE Banking Scenario. electronic data and/or faster
images

Importantly this would

Quick realization helps in In the long run, it would assist banks’ in
better cash management reduce the administrative reconciliation and also
(receivables/payables) costs for bank reduction in clearing
frauds.

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 Review Question
• Who is a paying Bank?

• Who is a collecting bank?

• What are the liabilities of a collecting banks?

• What is meant by image based clearing of cheques?

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 Learning Objective

BANKING & ACCOUNT OPENING ACCOUNT CLOSURE INTRODUCTION TO

COMMERCIAL BANKS MONEY LAUNDERING

NEGOTIABLE CHEQUES
INSTRUMENTS

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