The Orange Paper » Banks

Banks Can Return Cheques Altered For Anything But The Date

Austin — Mon, 03 May 2010 15:38:21 +0000

A recent RBI Circular [1832/04.07.05/ 2009-10 dated 22nd February 2010] now clearly mandates that the branch/ clearing teams can return cheques which have alteration in the:

* Payee Name
* Amount in numbers
* Amount in words

Prohibiting alterations/ corrections on cheques:

No changes/ corrections should be carried out on the cheques (other than for date validation purposes, if required). For any change in the payee’s name, courtesy amount (amount in figures) or legal amount (amount in words), etc., fresh cheque forms should be used by customers. This would help banks to identify and control fraudulent alterations.

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Online Money Transfer (NEFT) to become Faster

Austin — Tue, 23 Feb 2010 03:10:56 +0000

The National Electronic Funds Transfer (NEFT) system has been successfully handling significant volumes, ever since its launch in November 2005. More than 6 million transactions were processed by the system during the month of January 2010 alone. The coverage has also increased substantially with the participation of over 63,000 bank branches spread across the length and breadth of the country.

With a view to further strengthen the NEFT system in terms of availability, convenience, efficiency and speed, the the Reserve Bank of India has mandated the following refinements to process-flow and enhancements to operational features to be implemented from March 1, 2010.

Tightening of Return Window

Presently, the NEFT procedural guidelines mandate banks to return NEFT transactions in the very next available batch. The NEFT system has, however, been designed to allow destination banks to return transactions on a T+1 basis. The traffic analysis has revealed that a major chunk of returns are effected by banks either in the last batch of the day or in the first batch of the next day, indicating that the transactions are processed by the destination batches only at the end of the day instead of batch-wise. In order to streamline the system and complete the processing cycle on a near-real-time basis, the concept of return within two hours of completion of a batch is being introduced. The B+2 return discipline would require banks to afford credit to beneficiary accounts immediately upon completion of a batch or else return the transactions within two hours of completion of the batch settlement, if credits are unable to be afforded for any reason.

Increase in Operating Hours

NEFT is currently available from 9 am to 5 pm on week days and from 9 am to 12 noon on Saturdays. There have been constant requests from various individual and business segments to elongate the operating hours. After examining the feasibility and customer benefits, it has been decided to extend NEFT operating hours from 9 am to 7 pm on week days and from 9 am to 1 pm on Saturdays.

Move to Hourly Settlements

On date, NEFT has six batches of settlement at 9 am, 11 am, 12 noon, 1 pm, 3 pm and 5 pm on week days and three batches of settlement at 9 am, 11 am and 12 noon on Saturdays. An analysis of daily data has shown that the volume of transactions processed in batches that have a gap of two hours between batches is double the volume of transactions processed in batches that have only an hour’s gap between them. With a view to evenly space out transactions across batches, as also to make the system near-real-time, it has been decided to introduce the concept of hourly settlements. Accordingly, there would be eleven hourly settlements starting from 9 am to 7 pm on all week days and five hourly settlements from 9 am to 1 pm on Saturdays.

Implementation of Positive Confirmation

At present, the un-credited NEFT transactions are returned by destination banks and it is presumed that credit for all other transactions have been afforded to beneficiary accounts. In order to remove any ambiguity and to introduce the element of positive confirmation, the NEFT outward message format is being modified to contain two additional fields, wherein mobile number and / or e-mail address of the originating customer can be populated. A new message format is also being introduced to relay to the originating bank an acknowledgement containing the date and time of credit, immediately after the credit is afforded to beneficiary accounts. This message would flow from the destination bank / branch to the originating bank / branch. The originating banks after receiving the positive confirmation from the destination banks shall have to initiate a mobile SMS or generate an e-mail to the originator to convey the fate of the transaction.

Photo: t3rmin4t0r

Go Green, SMS the Money

Austin — Mon, 22 Feb 2010 03:50:12 +0000

The State Bank of India is planning to quadrapule its branch network not by the conventional branch network manner but by using Mobile Banking. Yes, and the idea is to reach out to all those rural areas where it would be costlier to expand via the conventional branch network way.

The way this works is that the bank appoints a Banking Correspondent (‘BC’) in a village, say the kirana shop-owner, and villagers come and give their deposits to the BC. The BC services them in one of two ways. She has a phone on which the amount is entered and is wirelessly synced to the bank’s server — if the customer has a mobile phone, she gets as SMS receipt and, if not, the BC then prints out a receipt (such a printer-phone set-up, which includes a scanner for fingerprints, costs around Rs 30,000). The BC keeps the money and the bank, which has a deposit from the BC, debits this from that. When the money is withdrawn, another wireless sync gets done, another SMS/receipt gets generated and, this time around, the BC’s deposit account with the bank gets credited.

Photo: catmachine

Source: Business Standard

Payment of Interest on Savings Bank Account on a Daily Product Basis

Austin — Sat, 20 Feb 2010 14:13:06 +0000

Well, the party is (almost) over for banks in India. Seriously, with the kind of interest calculation method being currently used for saving account holders it indeed is a party for the bank to enjoy such an enormous amount of free float at the cost of the janta.

Hopefully if the banks don’t make some lame excuses to push the deadline, come April 2010 the deposits in our savings account should earn us more by way of interest. That’s because the Reserve Bank of India has asked banks to start calculating interest rates on these accounts on daily basis from April 1, 2010.

Checkout the RBI directive issued in April 2009.

Banks currently calculate interest on the lowest available balance, from 11th and the last date of a month. In the existing system, if one withdraws certain amount from his savings accounts on the last day of a month, he will lose interest on that amount for the whole month.

For example, if you have Rs 1,000 on say on December 10 and deposit say Rs 1 lakh on December 11, and withdraw Rs 1 lakh on January 30, then you will get interest on only Rs 1,000 for the entire period of 51 days. Similarly, if you deposit Rs 1,000 on say July 11 and withdraw it on August 31, then the bank enjoys the full amount of Rs 1,000 without paying any interest. You will get zero interest.

But, under the new system, even if he withdraws in the last day of the month, he will get the interest income on the first 29 days of the month.

It is told that some banks are resisting to the switchover to the rational system of paying interest on a daily balance basis from first April 1, 2010, by providing all types of excuses. And why not when they (banks) can enjoy the free float at the cost of the common man, who now sincerely hopes that the RBI would ensure that the banks comply with the directive from April 1, 2010.

Photo credit: net_efekt

Pay for withdrawals at other Bank ATMs

Austin — Sat, 17 Oct 2009 13:34:11 +0000

Barely six months since the usage of other bank ATM’s was allowed for free — the rules have now changed.

Effective 15th October, 2009 customers will be allowed to withdraw a maximum of Rs. 10,000 per transaction from non Bank ATMs. What this means is, savings Account customers will be allowed 5 free cash withdrawals per month on non Bank ATMs. A charge of Rs. 20 per transaction will be levied for additional ATM cash withdrawal on non Bank ATMs beyond the first 5 transactions.

So its clear that as long as the end customer was paying the per transaction charges earlier the banks were happy — but once they had to start paying the fee from their own pocket to the other bank (whose ATM was used to withdraw cash) it had begun to pinch them hard.

Latest ATM substitute

Austin — Fri, 31 Jul 2009 18:06:32 +0000

Although the Reserve Bank of India has allowed shops to act as ATMs, the people meant to serve as banks’ new touch points – the shopkeepers – will have to be convinced first.

On July 22, the Reserve Bank of India had issued a circular permitting cash withdrawals of up to Rs 1,000 per day from point-of-sales (PoS) terminals at merchant establishments. PoS terminals are machines where customers can swipe their credit or debit cards to pay for purchases. Says Jayesh Sangoi, a Mumbai-based clothes’ retailer, “Already, there have been many cases of credit fraud. What happens if a customers just walks in with a fake card, and leaves with cash?

Use Any Bank ATM for Free

Austin — Thu, 12 Feb 2009 04:21:08 +0000

photo by f-r-a-n-k

Currently banks charge Rs. 20 per transaction if you use an ATM of another bank. Come April 1, 2009 and you can use any ATM of any bank for any service free of cost; according to RBI.

The RBI has mandated that the ATMs should have unrestricted access for customers across banks. Be it the customer of a nationalised bank or a private bank, he will be able to access the bank account from any ATM without any additional charge. The RBI has provided the technology platform for this. This will also bring down the need for keeping large amounts of cash with oneself.

Banks can levy charges determined by themselves for withdrawals using credit cards and from ATMs located overseas. In a circular issued to all commercials banks, the RBI said customers should not be charged for even cash withdrawals at other bank ATMs with effect from April 1. It said a bank cannot charge its own customers for any ATM usage, with immediate effect. The guidelines are being issued to encourage customers to use ATM cards and ensure greater transparency in banking operations.

Bank Gone Bust? Don’t Worry, Your Account Is Insured*

Austin — Mon, 06 Oct 2008 08:10:47 +0000

photo by Gaeten Lee

You might be aware of the recent rumor on the street regarding ICICI Bank and how people queued up at the bank/ATM to withdraw their money.

Customers queue up at an ATM of ICICI Bank in Hyderabad in the wee hours.

There have been several instances of banks turning sick. As a result, it is the common man like you and me who despite having money in our account are unable to access it.

How much is insured?

In order to protect the small and marginal account holder, the Indian government has made it mandatory for banks to insure each account up to Rs. 1,00,000 (Rupees One Lakh).

Did you notice the asterix in the title? Yup, you got that – Conditions apply.

Here’s the condition – the insurance amount becomes payable ONLY when the bank goes into liquidation.

When does the bank go into liquidation?

Well, there’s no time frame for that because the Reserve Bank of India (RBI) tries to prevent the winding up of the bank and instead tries to revive it by granting protection, which often runs into years. So, this insurance protection does not really help and the account holder is left high and dry with neither his own money nor the insured amount.

Is this delay justified?

Certainly not, as per a recent ruling given by the National Consumer Disputes Redressal Commission on July 24, 2008, in the case of Reserve Bank of India v/s Eshwarappa & Anr. In Revision Petition No. 2528 of 2006 and other connected matters.

What happened in this case?

The Maratha Co-operative Bank Ltd. (MCB), Hubli, had run into trouble. The RBI granted protection to MCB by issuing a prohibitory under Section 35A of the Banking Regulation Act 1949. The order stated that from the close of business in 2004, MCB shall not, without prior approval in writing from the RBI, transact any business. Consequently, the account holders were not allowed to withdraw funds from their own accounts. Frustrated, several individual account holders filed separate complaints before the consumer forum against the MCB and the RBI.

The commission noted that the Deposit Insurance and Credit Guarantee Corporation Act (DICGC) provides insurance cover to small depositors, but this Act remains on paper because it is framed in such a way that the insurance cover would come into operation only in case of winding up or liquidation order. Since RBI neither permits the bank to operate nor does it pass a liquidation order, the whole purpose of extending insurance cover to small depositors is frustrated in the hope of reviving the bank.

The commission noted that while the RBI’s prohibitory order is binding on the bank, the pertinent question is whether it would be justifiable to continue the order beyond a reasonable time, given the hardship imposed on customers. The commission observed that the established law is that administrative powers are required to be exercised within a reasonable time so that they are not abused. The RBI has the duty to act as a watchdog of the finance and economy of the nation and act in the public interest and prevent the affairs of any bank being conducted in a manner detrimental to the interest of the depositors. A failure to do so would constitute a deficiency in service.

Relying on various decisions of the apex court, the commission held that where the law does not prescribe limitation, the court would import the concept of ‘reasonable time’.

If a bank cannot be revived within a reasonable time, the banking license should be cancelled and the bank should be ordered to be wound up. The DICGC must pay the amount covered by the insurance as soon as such liquidation order is passed without waiting further orders from the liquidator. Otherwise, it would be torturous to the poor depositors who may have to wait for years for the cumbersome procedure by which the liquidator crystallizes the amounts due to such depositor.

The commission directed that payment in accordance with the order of the consumer forum would have to be paid by the DICGC. However, if the bank is revived later, the amount paid by the DICGC may be recovered from the bank.

Bottom line…

This landmark judgement will help the small depositor to approach the consumer forum to recover claims of up to Rs. 1 lakh from the insurance coverage provided by DICGC. It is also hoped that the RBI will now do its duty so that depositors do not suffer.

3 Things Your ATM Will Soon Do

Austin — Tue, 26 Aug 2008 18:15:02 +0000

Your neighborhood ATM could soon boast several value additions to ease the banking chores. Some of these features have been launched on a trial basis, while others are used abroad and could soon find their way to India. Here are those features:

Instant Cheque Deposit

The cheque truncation solution, currently in place in most leading banks in the NCR, cuts short the time required to process a cheque. When this facility is shifted to ATMs, you can have the cheque scanned and the amount will be credited ‘instantly’ to your account and you will also get a copy of the cheque for your records. Wow, how cool is that? Faster than NEFT / RTGS …!

It would be interesting to know as to how the banks will deal with cases wherein the drawer does not have funds in his account? What if the drawer has put a ‘stop payment’ on this cheque? The plain vanilla ATM machine costs Rs. 8.4 lakhs but these new ATMs would cost around Rs. 12.6 lakhs per machine. Hmm, so it might be a case where we could see at least a few leading private banks getting these machines to the public first.

Nonetheless, this cheque scanning solution would really be a fantastic option available to bank’s customers, especially when currently a cheque takes 3 days to clear and a credit received in the account.

Instant Cash Deposit

Depositing cash in an ATM is nothing new — you put the money in an envelope, fill in the amount and feed it to the machine. The only problem is that the deposit is credited the next working day because the bank has to manually count the amount deposited. However, many banks have now installed machines that verify the amount you feed in and instantly credit the amount to your account. Most banks hope to shift the technology to ATMs soon.

Palm Vein Authentication for Secure Transactions

With identity theft and debit card skimming on the rise (see here how they do it), banks are considering biometric authentication as a secure solution. As finger print readers have limitations like not being able to respond accurately if the user has a cut or an abrasion on the finger, Japan (read ‘Fujitsu’) has taken the lead in introducing palm vein authentication. This technology uses the patterns of the blood vessel in the hand as an identifying factor. A user holds his palm a few centimeters above the scanner and it reads the unique vein pattern under the skin. As it does not scan the surface of the skin, the pattern is not easily defaced by dirt, cuts or abrasions, and it is very hard to read surreptitiously or steal it. This will also help do away with PINs; the system will compare the reading of the user’s hand taken by the scanner to an image stored on the card.