Role and duties of Paying & Collecting Banks

A bank is a financial institution that deals with money and money-related services, such as accepting deposits and providing loans. The term “banking” as defined in Section 5 means “the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawal by cheque, order or otherwise”.

Banks also offer other services like facilitating financial transactions and offering various types of accounts, such as savings accounts, current accounts, and fixed deposits. Bankers provide financial advice to clients and help them with investments, loans, and other financial services. Bankers should have a good understanding of financial markets, banking regulations, and accounting principles.

Duties of paying banker:

A Paying banker is a banker, who pays a cheque to his customer or to the order of his customer. The banker holds the cheque from the drawer and is obliged to make the payment if the funds of the customer are sufficient to cover the amount his cheque has drawn. Before payment of a cheque, the paying banker must check that the check is in the proper format and location and that the date is correct. They should also check for any alterations or overwriting, and ensure that the amount written in words and figures matches.

A paying banker must keep their customer’s account information and transaction details confidential unless required by law or regulatory authorities. A paying banker should have systems and procedures in place to detect and prevent fraudulent activity, such as counterfeit cheques or forged signatures. The banker must comply with legal requirements and follow all relevant laws, regulations, and guidelines, including anti-money laundering (AML) and Know Your Customer (KYC) requirements.

A collecting banker is a bank that collects bills, checks, drafts, and pays orders on behalf of a customer. The Collecting Banker should undertake the collection of cheques, drafts, bills, etc., only for his customer.

The duties of collecting Banker:

Acting as an agent: A collecting banker acts on behalf of the customer.

Scrutinizing instruments: A collecting banker examines the instruments they are collecting.

Checking endorsements: A collecting banker verifies the endorsements on the instruments.

Presenting instruments on time: A collecting banker presents the instruments for collection within the required time frame.

Collecting proceeds: A collecting banker collects the proceeds from the instruments and deposits them into the payee’s account.

Notifying dishonour: A collecting banker notifies the customer if the instrument is dishonored.

Returning instruments: A collecting banker returns the instruments to the customer if they are dishonored.

Acting with responsibility: A collecting banker must act with responsibility towards their customers, protecting their interests and acting quickly.

Where a cheque is crossed specially to more than one banker except when crossed to an agent for collection being a banker, the banker on whom it is drawn shall refuse payment thereof.

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