1

SEMINAR REPORT

ON

PRACTICAL BANKING

SUBMITTED TO

SWAMI RAMANAND TEERTH MARATHWADA

UNIVERSITY,
SUBCAMPUS, PETH, LATUR

ACADEMIC YEAR 2023 - 24

MBA II (SEM III)

SUBJECT: BANKING

GUIDE
Dr. H. S. Patil Sir

SUBMITTED BY:

Bahule Shivam

(Roll No: 01)

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Index
➢ Types of Bank Deposits
➢ Computation of Interest on Deposits
➢ Deposit Schemes
➢ Composition of Bank Deposits.
➢ Banker & Customer
➢ Paying Banker
➢ Collecting Banker
➢ Cheques & Crossing Of Cheques
➢ Endorsement & Its Significance
➢ Passbook
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INTRODUCTION

Practical banking refers to the day-to-day operations and services provided by banks
to their customers. It bridges the gap between theoretical banking concepts and their
real-world applications. Through practical banking, customers can manage their
finances efficiently, access various deposit schemes, and utilize services like cheque
handling, endorsements, and account management.
Banks play a crucial role in fostering economic growth by mobilizing savings and
channeling them into productive investments. Services such as accepting deposits,
offering loans, and facilitating payments make banking indispensable for individuals,
businesses, and governments alike.
This seminar explores key aspects of practical banking, such as types of bank
deposits, interest computations, deposit schemes, banker-customer relationships,
cheque management, and the significance of passbooks, providing a comprehensive
understanding of banking operations.

TYPES OF BANK DEPOSITS

Introduction:
Bank deposits are the foundation of a bank’s operations, providing the financial
resources needed for lending and investments. They are categorized based on the
purpose and duration of holding the funds.
1. Savings Deposit
Purpose: Encourages individuals to develop saving habits.
Features:
• Interest is earned on the balance maintained in the account.
• There are restrictions on the number of withdrawals allowed per month to
ensure the account is used primarily for savings.
• Accounts often come with additional features like debit cards, passbooks, and
internet banking.
Target Customers: Salaried employees, pensioners, and small savers.
Advantages:
• Provides liquidity with moderate returns.
• Low minimum balance requirements.
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2. Current Deposit
Purpose: Designed for businesses and professionals requiring frequent
transactions.
Features:
• No limit on the number of deposits or withdrawals.
• These accounts typically do not offer interest.
• Overdraft facilities are commonly available.
• Requires maintaining a higher minimum balance compared to savings
accounts.
Target Customers: Businesses, firms, and institutions managing high-volume daily
transactions.
Advantages:
• Facilitates smooth business operations.
• Overdraft feature helps manage temporary cash shortages.

3. Fixed Deposit (FD)

Purpose: Allows customers to deposit money for a fixed period to earn higher
interest rates.
Features:
• The tenure ranges from a few days to several years.
• Offers guaranteed returns based on pre-determined interest rates.
• Premature withdrawal is possible but incurs penalties.
Target Customers: Individuals and organizations seeking safe investment options.
Advantages:
• Higher returns compared to savings accounts.
• Acts as a secure investment option for future needs.
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4. Recurring Deposit (RD)

Purpose: Ideal for those looking to save a fixed amount regularly over a period.
Features:
• Fixed monthly deposits are made for a specific tenure.
• Earns a fixed interest rate similar to FDs.
• Encourages disciplined saving habits.
Target Customers: Salaried individuals and small business owners with consistent
cash inflows.
Advantages:
• Suitable for goal-based savings like education, travel, or weddings.
• Returns are predictable and assured.

5. Hybrid Deposit
Purpose: Combines the features of different deposit types to offer flexibility.
Features:
• Examples include sweep-in accounts where excess funds in a savings
account are automatically transferred to an FD.
• Customers can enjoy the liquidity of a savings account while earning higher
interest on surplus funds.
Target Customers: Customers seeking a balance between liquidity and returns.
Advantages:
• Provides flexibility in fund management.
• Ensures idle funds are put to productive use.
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COMPUTATION OF INTEREST ON DEPOSITS

Interest is the income earned on funds deposited in a bank. Banks compute this
interest based on the type of account and the applicable rate of interest. The method
of computation varies depending on the deposit type, and it directly impacts the returns
customers receive.
Key Factors in Interest Computation
1. Principal Amount: The amount of money deposited in the account.
2. Rate of Interest (R): The percentage at which the interest is calculated annually.
3. Time Period (T): The duration for which the deposit is held in the account.
4. Compounding Frequency: Determines how often the interest is added to the
principal (e.g., annually, quarterly, monthly).

Methods of Interest Computation

1. Simple Interest (SI)
• Used for fixed deposits or recurring deposits when the interest is not compounded.
• Formula:

Example:
A deposit of ₹10,000 at an annual interest rate of 5% for 3 years:

2. Compound Interest (CI)

• Applies to savings accounts, fixed deposits, and other deposits where interest
is reinvested.
• Formula:

Where n is the number of times interest is compounded annually.

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Example:
A deposit of ₹10,000 at a 5% annual interest rate, compounded annually for 3 years:

3. Daily Balancing Method

• Interest is calculated on the closing balance of the account every day.
• Commonly used for savings accounts.
• Formula:

Example:
If the closing balance on a particular day is ₹50,000 with an annual interest rate of 4%:

4. Quarterly Compounding
• Often used for fixed deposits where interest is compounded every three
months.
• Formula: Same as CI but n=4n = 4n=4.

Savings Account Interest

• Calculated based on the daily balance and credited quarterly or monthly.
• Helps customers maximize returns by maintaining higher balances.

Fixed and Recurring Deposit Interest

• Higher interest rates compared to savings accounts.
• Interest may be payable monthly, quarterly, or at maturity.
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DEPOSIT SCHEMES
Deposit schemes are financial products offered by banks to help individuals and
organizations save, invest, or manage their funds effectively. These schemes cater to
diverse financial needs by providing options with varying tenures, interest rates, and
withdrawal flexibility.
1. Savings Deposit Scheme
• Purpose: Encourages individuals to save while maintaining liquidity.
• Features:
o Earns interest on the balance maintained.
o Limited withdrawals allowed to promote saving.
o Facilities like ATM cards, passbooks, and online banking are included.
• Target Group: Salaried individuals, students, and pensioners.

2. Fixed Deposit (FD) Scheme

• Purpose: Provides a safe investment option with higher returns.
• Features:
o Money is deposited for a fixed period, ranging from a few days to several
years.
o Premature withdrawals may attract penalties.
o Interest can be paid periodically or at maturity.
• Target Group: Risk-averse investors looking for guaranteed returns.

3. Recurring Deposit (RD) Scheme

• Purpose: Enables individuals to save a fixed amount regularly.
• Features:
o Monthly deposits are made for a predetermined tenure.
o At the end of the period, the accumulated amount, along with interest, is
paid to the depositor.
• Target Group: Individuals with regular incomes aiming to save for specific
goals.
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4. Current Deposit Scheme

• Purpose: Designed for businesses to facilitate frequent transactions.
• Features:
o Unlimited deposits and withdrawals.
o No interest is provided on the balance.
o Overdraft facility is often available.
• Target Group: Businesses, traders, and professionals with high transactional
needs.

5. Senior Citizen Deposit Scheme

• Purpose: Offers higher interest rates to individuals aged 60 and above.
• Features:
o Fixed deposits with added benefits such as tax exemptions.
o Flexible tenure options.
• Target Group: Retired individuals seeking stable and enhanced returns.

6. Tax-Saving Deposit Scheme

• Purpose: Helps depositors save taxes under applicable sections of the Income
Tax Act.
• Features:
o Usually has a lock-in period of 5 years.
o Provides tax benefits up to a specified limit.
• Target Group: Taxpayers looking to reduce their taxable income while earning
returns.

7. Hybrid Deposit Scheme

• Purpose: Combines features of savings and fixed deposits for greater flexibility.
• Features:
• Automatic transfer of surplus funds to an FD to earn higher interest.
• Withdrawals from the FD portion as needed.
• Target Group: Customers seeking both liquidity and better returns.
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8. Child Savings Schemes

• Purpose: Encourages savings for a child’s future expenses like education.

• Features:
o Long-term saving plans with compounded interest.
o Funds can be accessed when the child reaches a specific age.
• Target Group: Parents and guardians planning for their child’s future.

COMPOSITION OF BANK DEPOSITS

The composition of bank deposits refers to the categorization and distribution of
funds deposited with banks by individuals, businesses, and institutions. These
deposits form a significant portion of a bank's liabilities and are essential for its
operations, including lending and investments. Understanding the composition helps
analyze customer preferences and banking trends.

Major Components of Bank Deposits

1. Demand Deposits
• Definition: Deposits that can be withdrawn by the account holder without prior
notice.
• Types:
o Savings Deposits: Earn interest and promote saving habits while providing
limited liquidity.
o Current Deposits: Allow unlimited withdrawals, mainly used for business
transactions, and usually do not earn interest.
• Features:
o High liquidity.
o Low or no interest rates (especially for current deposits).
o Crucial for meeting short-term cash needs.
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2. Time Deposits
• Definition: Deposits made for a fixed period, which cannot be withdrawn
prematurely without penalty.
• Types:
o Fixed Deposits (FDs): Offer higher interest rates for a locked-in period.
o Recurring Deposits (RDs): Regular deposits over a fixed tenure with
assured returns.
• Features:
o Higher interest rates than demand deposits.
o Stable source of funds for banks, as withdrawals are restricted.

3. Hybrid Deposits
• Definition: Deposits that combine the features of demand and time deposits.
• Example:
o Sweep Accounts: Automatically transfer surplus funds from a savings
account to a fixed deposit to earn higher interest.
• Features:
o Flexibility to maintain liquidity while maximizing returns.

BANKER AND CUSTOMER

The relationship between a banker and a customer forms the foundation of the banking
system. It is a contractual and professional relationship defined by mutual trust,
obligations, and services. Each party has specific roles and responsibilities, which vary
based on the type of account or service involved.
Who is a Banker?
• A banker is a financial institution or an individual engaged in accepting deposits
from the public, providing loans, and offering various financial services such as
fund transfers, investments, and insurance.
• A banker acts as a custodian of funds and a facilitator of financial transactions.
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Who is a Customer?
• A customer is an individual, business, or organization that uses the services of a
bank.
• To be considered a customer:
o There must be regular or one-time interactions with the bank.
o An account may or may not exist (e.g., a one-time remittance service can
also create a banker-customer relationship).

Nature of the Banker-Customer Relationship

1. Debtor and Creditor
• When a customer deposits money:
o The banker becomes the debtor (borrower).
o The customer becomes the creditor (lender).
• When the customer withdraws money or takes a loan:
o The banker becomes the creditor.
o The customer becomes the debtor.
2. Agent and Principal
• The banker acts as an agent for the customer by performing services such as:
o Collecting cheques or bills.
o Paying insurance premiums.
o Making investments.
• The customer is the principal who authorizes the bank to act on their behalf.
3. Trustee and Beneficiary
• When the customer entrusts valuables (e.g., documents, jewelry) to the banker,
the banker acts as a trustee, safeguarding these assets.
4. Bailer and Bailee
• If the customer deposits goods or valuables in a bank locker, the relationship is
that of a bailer (customer) and bailee (banker).
5. Lessor and Lessee
• In case of safe deposit lockers, the bank is the lessor (owner), and the
customer is the lessee (user).
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Obligations of a Banker
1. Maintain Secrecy:
o Confidentiality of the customer’s financial information.
o Exceptions include legal orders or fraud investigations.
2. Honour Cheques:
o The bank must honour valid cheques if sufficient funds are available.
3. Provide Statements:
o Deliver regular account updates via passbooks or electronic statements.
4. Act with Due Diligence:
o Verify signatures, ensure security, and safeguard funds.

Rights of a Banker
1. Right to Charge Interest:
o The bank can levy interest on loans and other credit facilities.
2. Right to Lien:
o The banker can retain goods or securities until the customer’s dues are
cleared.
3. Right to Set-Off:
o Adjust the customer’s credit balance against any outstanding loan.

Obligations of a Customer
1. Maintain Minimum Balance:
o Ensure sufficient funds in accounts, as per bank terms.
2. Provide Accurate Information:
o Update the bank with correct details, such as address and identification.
3. Use Services Responsibly:
o Avoid fraudulent activities or misuse of banking facilities.
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PAYING BANKER
A Paying Banker refers to a banker who is responsible for making payments against
cheques or other financial instruments drawn by their customers. This role is critical
as it ensures that the bank fulfills its obligation to honor valid instructions while
safeguarding itself against fraud or errors.
Functions of a Paying Banker
1. Honoring Cheques
o The primary function of a paying banker is to honor cheques presented for
payment, provided they meet all legal and procedural requirements.
2. Ensuring Sufficient Balance
o Payment is made only if the customer's account has sufficient funds or an
authorized overdraft limit.
3. Verifying Validity
o Before making payment, the banker must check:
▪ Signature authenticity.
▪ Date validity (cheques should not be post-dated or stale).
▪ Proper endorsement.
4. Avoiding Errors
o Careful scrutiny of cheque details (amount in words and figures, crossing,
etc.) is done to prevent mistakes or fraudulent payments.

Precautions Taken by a Paying Banker

1. Proper Authorization
o Ensure that the cheque is properly signed and matches the customer’s
recorded signature.
2. No Overdrafts Without Permission
o Avoid paying cheques that exceed the account balance unless an overdraft
arrangement exists.
3. Crossed Cheques
o Pay crossed cheques only to the bank mentioned or to the account holder.
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4. Legal Compliance
o Follow all legal rules, such as those under the Negotiable Instruments Act,
1881.
5. Stale or Post-Dated Cheques
o Refuse to pay cheques that are older than six months (stale) or dated in the
future (post-dated).

Rights of a Paying Banker

1. Right to Refuse Payment
o The banker can refuse payment for invalid, altered, or fraudulent cheques.
2. Right to Debit Customer’s Account
o After making a valid payment, the banker can debit the corresponding
amount from the customer’s account.
3. Right to Seek Indemnity
o In case of uncertain or disputed transactions, the banker can ask for
indemnity from the customer.

Risks and Liabilities of a Paying Banker

1. Wrongful Dishonor
o If a valid cheque is dishonored due to a bank error, the banker may face
legal action or reputational damage.
2. Payment on Altered Cheques
o Paying a cheque with unauthorized alterations can lead to losses for the
bank.
3. Negligence
o Failure to verify signatures, endorsements, or other details could result in
financial loss.

Importance of a Paying Banker

• Ensures smooth financial transactions for customers.
• Builds trust and confidence between the bank and its clients.
• Plays a key role in preventing fraud and safeguarding customer funds
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COLLECTING BANKER

A Collecting Banker refers to the bank that is responsible for collecting payments on
behalf of its customers through instruments like cheques, drafts, or bills of exchange.
The collecting banker receives these financial instruments from the customer (the
drawer) and processes them to ensure the funds are credited to the customer's
account or transferred as per the instructions.

Functions of a Collecting Banker

1. Collection of Cheques
o The primary responsibility of a collecting banker is to collect funds on behalf
of its customer by presenting cheques or other negotiable instruments for
payment at the paying bank.
2. Endorsement and Depositing
o The collecting banker deposits cheques into the customer’s account and
endorses them to verify that the instruments belong to the customer.
3. Verification of Instruments
o Before collecting funds, the banker ensures the instrument is in proper
order. This includes checking:
▪ Signature authenticity.
▪ Proper endorsements.
▪ Date validity and the presence of any alterations.
4. Presentation of Instruments
o The collecting banker presents the cheque or instrument to the paying bank
for payment, either physically or electronically (in case of electronic
payments).

Steps in the Collection Process

1. Receipt of Cheques
o The customer submits cheques or other instruments to the bank for
collection.
2. Endorsement
o The banker endorses the cheque with the appropriate signatures to ensure
it is processed correctly.
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3. Depositing in the Customer's Account

o Once endorsed, the banker deposits the cheque into the customer’s
account or credits the payment through other mechanisms (e.g., RTGS,
NEFT).
4. Forwarding for Payment
o The banker then forwards the instrument to the paying bank or the bank's
clearing system for payment.
5. Clearing and Settlement
o The paying bank clears the cheque or instrument, and funds are transferred
to the collecting bank. Once the payment is received, the banker credits the
customer's account.

Rights of a Collecting Banker

1. Right to Collect Funds
o The collecting banker has the right to collect the payment of the cheque or
negotiable instrument from the paying bank on behalf of the customer.
2. Right to Retain Commission
o The banker may charge a commission or fee for the collection service,
based on the agreement with the customer.
3. Right to Indemnity
o If the cheque or instrument is dishonored, the collecting banker may seek
indemnity from the customer for any losses caused due to the collection.

Duties of a Collecting Banker

1. Proper Endorsement
o Ensure that the cheque or bill is properly endorsed by the customer before
processing.
2. Prompt Presentation
o Present cheques and instruments promptly to ensure they do not become
stale (i.e., older than six months).
3. Exercise Care and Diligence
o The banker must exercise reasonable care to avoid collecting fraudulent,
forged, or altered instruments.
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4. Ensure Due Process

o The banker must follow the legal process and due diligence while collecting
cheques to avoid any mistakes or disputes.

Risks and Liabilities of a Collecting Banker

1. Dishonor of Cheques
o If the paying bank dishonors the cheque, the collecting banker may be held
liable for any losses unless they prove due diligence was exercised.
2. Forgery or Fraud
o The collecting banker could face legal consequences if they collect
fraudulent or forged cheques due to a lack of proper verification.
3. Loss from Stale Cheques
o If a cheque is presented after six months and is not honored by the paying
bank, the collecting banker cannot claim the amount and may suffer
reputational damage.

Importance of a Collecting Banker

• Customer Service: By collecting payments and depositing them into the
customer's account, the collecting banker simplifies the financial transaction
process.
• Facilitates Business Transactions: It ensures that businesses and individuals
can efficiently collect payments from customers or clients, supporting smooth
business operations.
• Risk Mitigation: A diligent collecting banker minimizes the risk of dishonor, fraud,
and error, thereby protecting both the customer and the bank.
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CHEQUES & CROSSING OF CHEQUES

A cheque is a written order by a bank account holder (the drawer) directing their bank
(the drawee) to pay a specific sum of money to a designated person or entity (the
payee). It is a popular instrument for transferring funds from one party to another.
Crossing of a cheque refers to the practice of marking two parallel lines on the face
of the cheque, usually with or without additional words like "Account Payee" or "Not
Negotiable." Crossing helps ensure that the cheque is deposited directly into a bank
account and is not cashed over the counter.
Types of Cheques
1. Bearer Cheque

• A bearer cheque is payable to the person who presents it at the bank (the
bearer).
• The payee does not need to be specified, and the cheque is transferred by
simple delivery.
• Example: If the cheque says "Pay to bearer," anyone holding it can encash
it.
2. Order Cheque

• An order cheque is payable to the person named on the cheque or their

order.
• The payee’s name is specified, and the cheque can be transferred by
endorsement.
• Example: If it says "Pay to John Doe or order," John can endorse it to
someone else.
3. Post-Dated Cheque

• A post-dated cheque is written with a future date.

• The bank will not honor the cheque until the date specified on the cheque
has arrived.
4. Stale Cheque

• A stale cheque is one that is presented for payment more than six months
after the date written on it.
• Banks do not honor stale cheques.
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5. Crossed Cheque

• A cheque that has two parallel lines drawn across its face.
It can be further categorized into two types:
• General Crossing: Two parallel lines, without any words in between. This
indicates that the cheque must be deposited directly into a bank account
and cannot be cashed over the counter.

• Special Crossing: Two parallel lines with the name of a bank written
between them (e.g., "Bank of XYZ"). This means the cheque is to be
deposited in the account of the bank mentioned.

What is Crossing of a Cheque?

Crossing a cheque involves drawing two parallel lines on the face of the cheque, either
on the top-left corner or across the entire cheque. This action restricts the cheque's
negotiability and provides a measure of security for the payee. There are two main
types of crossing:
1. General Crossing

• The cheque is crossed with two parallel lines.

• It directs that the cheque must be deposited into a bank account and cannot
be cashed directly over the counter.
• No specific bank is mentioned, so the cheque can be deposited into any
bank account.
2. Special Crossing

• The cheque is crossed with two parallel lines, along with the name of a
specific bank written between them (e.g., "Pay to Bank XYZ").
• This restricts the cheque to being deposited only into an account with the
bank mentioned in the crossing.
3. Account Payee Crossing

• This type of crossing is often added in addition to the general or special

crossing.
• It includes the words "Account Payee" between the lines.
• It means that the cheque must be deposited directly into the payee’s
account and cannot be transferred to others. This provides extra security by
limiting the negotiability of the cheque.
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4. Not Negotiable Crossing

• This crossing has the words "Not Negotiable" written between the two lines.
• It restricts the transferability of the cheque, meaning that it cannot be
transferred or endorsed to another party. However, unlike "Account Payee,"
the payee can still deposit it into their account.

Importance of Crossing Cheques

1. Prevents Fraud
• Crossing a cheque ensures that it cannot be cashed by an unauthorized
person. It can only be deposited into the account of the payee or the bank
specified, thus reducing the chances of misuse.
2. Increases Security
• A crossed cheque is more secure because it can only be deposited in a
bank account, reducing the possibility of someone cashing the cheque after
theft or loss.
3. Ensures Proper Payment Process
• By crossing the cheque, the drawer ensures that the payment goes through
the proper banking channels and is credited to the payee’s account, as
intended.
4. Prevents Unauthorized Transfer
• If a cheque is crossed and endorsed with "Account Payee," it cannot be
transferred to another person. This gives the payee greater protection
against losing the cheque.

ENDORSEMENT & ITS SIGNIFICANCE

Endorsement refers to the act of signing the back of a negotiable instrument, such as
a cheque or bill of exchange, by the payee or holder to transfer its ownership or to
guarantee its payment. It is a legal procedure through which the holder of a cheque or
bill of exchange transfers the right to receive payment to another party. Endorsement
also ensures the validity of the instrument and is commonly used in financial
transactions.

Types of Endorsements
1. Blank Endorsement
• In this type, the payee signs their name on the back of the cheque without
specifying a new payee.
• This makes the cheque payable to anyone who holds it (the bearer).
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• Example: If John Doe writes his name on the back of a cheque, anyone can
cash or deposit it.
2. Special Endorsement
• This endorsement specifies the name of the person to whom the cheque is
being transferred.
• It directs that the cheque be payable only to the named endorsee.
• Example: "Pay to Mary Smith" written on the back of the cheque.
3. Restrictive Endorsement
• A restrictive endorsement limits the transferability of the cheque.
• It may include conditions such as “For Deposit Only” or “Payable to Account
No. 123456.”
• This ensures that the cheque can only be deposited into the specified
account and cannot be transferred further.
• Example: "For Deposit Only" written along with the signature of the
endorser.
4. Conditional Endorsement
• A conditional endorsement includes a condition that must be met before the
cheque can be paid.
• Example: "Pay to John Doe upon receiving goods" means the cheque can
only be cashed once the goods are received.
5. Partial Endorsement
• A partial endorsement refers to an endorsement made for part of the sum of
money on the cheque.
• For example, a cheque for ₹10,000 might be endorsed for ₹5,000, but partial
endorsements are generally not accepted by banks.
6. Prohibited Endorsement
• An endorsement that violates the rules of endorsement (e.g., without a
proper signature or endorsement for a non-negotiable instrument) is
considered prohibited.

Significance of Endorsement
1. Transfer of Ownership
• The primary significance of endorsement is that it allows the transfer of
ownership of the cheque or bill of exchange from one person (the payee) to
another person (the endorsee).
• This is particularly useful in business transactions or when money needs to
be passed to a third party.
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2. Negotiability
• Endorsement makes a negotiable instrument transferable and negotiable in
the open market.
• It ensures that the instrument can be passed on from one party to another
as long as the endorsement is valid.
3. Legal Proof of Transaction
• The endorsement provides legal proof that the holder of the instrument has
agreed to transfer the instrument to another party.
• It also gives the endorsee the right to receive payment or claim the amount
stated on the instrument.
4. Safety and Security
• Through restrictive endorsement, the endorser can ensure that the cheque
is deposited into the correct account, thereby preventing fraud or theft.
• This is particularly important when large sums of money are involved.
5. Facilitates Payments
• Endorsement allows the payee to convert a cheque into cash or deposit it
into their account. It simplifies the payment process, especially in business
transactions where goods or services are exchanged for cheques.
6. Protection to the Payee
• Endorsement ensures that the cheque cannot be misused after being
transferred. By using special or restrictive endorsements, the endorser can
protect themselves and ensure that the cheque is only used in the intended
way.

Risks Associated with Endorsement

1. Forgery
• Endorsement can be forged, and if the signature is not checked carefully,
the cheque could be cashed fraudulently by unauthorized parties.
2. Loss of Rights
• Once a cheque is endorsed and transferred to another party, the original
holder loses all rights to it, including the right to claim payment.
3. Irregular Endorsements
• If an endorsement is made improperly or in violation of the rules (e.g., blank
endorsement without proper identification), it can render the instrument
invalid.
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4. No Return of Funds
• Once an endorsed cheque is deposited or cashed, the original endorser
cannot reclaim the funds if there is a dispute or if the cheque is dishonored.

PASSBOOK
A passbook is a small, bound booklet that records the transactions made in a bank
account. It is provided by the bank to account holders and serves as a physical record
of deposits, withdrawals, and other banking activities. The passbook acts as a ledger
or journal for the customer’s account, helping them track the balance and history of
their transactions over time.
Passbooks are typically used for savings accounts and current accounts but are
less common in the digital age due to online banking. However, they are still used in
some traditional or rural banking systems.

Key Features of a Passbook

1. Transaction Record
• The passbook records all deposits, withdrawals, interest credits, and any
other banking activity, including charges or fees.
• Each transaction is recorded with the date, amount, and a running balance
after the transaction.
2. Deposits and Withdrawals
• When you deposit or withdraw money from your account, the transaction is
entered in the passbook by the bank staff.
• Some modern passbooks have been digitized, allowing account holders to
print updates through ATM machines or bank branches.
3. Account Balance
• The passbook reflects the current balance in your account after every
transaction.
• This helps you keep track of how much money you have and monitor your
financial activities.
4. Bank's Seal and Signature
• The bank provides an official stamp or seal on the passbook along with the
signature of an authorized bank officer to authenticate the entries.
5. Interest Details
• For savings accounts, the passbook also reflects interest earned, showing
the interest credited by the bank periodically (e.g., monthly, quarterly).
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6. Transaction Details
• The passbook lists key details such as the type of transaction (deposit,
withdrawal, transfer, etc.), the date, and the transaction reference number.
• This is useful for keeping track of all activities in the account.

Types of Passbooks
1. Savings Passbook
• A savings passbook is used for savings accounts where the account holder
deposits money and earns interest over time.
• It keeps a record of all transactions, including deposits, withdrawals, and
interest credited.
2. Current Account Passbook
• A current account passbook is used for business or personal accounts that
are more frequently accessed.
• It records transactions, but current accounts typically do not earn interest.
3. Fixed Deposit Passbook
• A fixed deposit passbook is used for fixed deposit accounts.
• It records details of the fixed deposit, such as the principal amount, the
interest rate, the maturity date, and interest payments.

Benefits of Using a Passbook

1. Physical Record of Transactions
• A passbook provides a tangible, easy-to-use record of all your banking
transactions. It helps track your balance and monitor the status of your
account.
2. Easy Account Monitoring
• You can easily check the balance and transaction history without needing to
log into an online banking system or use a mobile app.
3. No Need for Internet
• Passbooks can be checked or updated offline, making them useful in areas
where internet banking is not easily accessible.
4. Proof of Transactions
• The passbook serves as proof of deposits, withdrawals, or any other activity
that may be required for legal or financial purposes.
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Disadvantages of Using a Passbook

1. Limited Accessibility
• You have to physically visit the bank or ATM to update your passbook, which
can be inconvenient compared to digital banking systems.
2. Not Suitable for Large Transactions
• Passbooks are not ideal for accounts with a large number of transactions,
as the manual process of updating them can be time-consuming.
3. Risk of Loss or Damage
• If you lose your passbook, it may be difficult to recover the information
without the proper bank documentation.
• It can also be easily damaged due to its physical nature.
4. Not as Common in Digital Banking
• As digital banking grows in popularity, passbooks are becoming less
commonly used. Many banks now prefer electronic statements and apps for
easier access to transaction records.
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CONCLUSION
In conclusion, the study of Practical Banking provides a comprehensive understanding
of the vital aspects that form the backbone of the banking industry. It emphasizes the
core components such as types of bank deposits, computation of interest on deposits,
deposit schemes, and the composition of bank deposits, which all contribute to the
functioning and growth of banks.
The relationship between banker and customer is fundamental to the success of any
banking institution. Understanding the roles and responsibilities of both parties helps
ensure smooth transactions and legal compliance. The concepts of paying banker and
collecting banker further clarify the operational processes in banking, ensuring that
customers' payments are processed efficiently and securely.
The study of cheques and their crossing provides insight into the various types of
cheques and their significance in secure payments. Endorsement, with its different
types, demonstrates the importance of transferring ownership of negotiable
instruments and highlights the protections and risks associated with such transfers.
Passbooks, though a traditional method of account-keeping, remain valuable for many
account holders as they provide a tangible record of banking transactions and ensure
that account holders can track their balance and history.
By understanding these key components, individuals can navigate the banking system
with greater confidence, ensuring that they can manage their finances effectively and
securely. As we move into the digital era, many of these concepts are evolving, but the
fundamental principles of banking, including customer relationships and secure
financial transactions, will continue to play a crucial role in shaping the future of
banking.
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REFERENCES
Book - Banking Theory and Practice – K.C. Shekhar, Lekshmi
Types of Bank Deposits
• Investopedia: https://www.investopedia.com/articles/personal-
finance/042216/types-bank-accounts.asp
• Reserve Bank of India (RBI):
https://www.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx
Computation of Interest on Deposits
• Investopedia: https://www.investopedia.com/articles/financial-
advisors/040216/how-banks-calculate-interest-savings-accounts.asp
• Bankrate: https://www.bankrate.com/banking/savings/how-interest-is-
calculated/
Deposit Schemes
• The Economic Times:
https://economictimes.indiatimes.com/wealth/borrow/deposit-schemes-to-
maximize-your-investment/articleshow/65096816.cms
• State Bank of India (SBI): https://www.sbi.co.in/web/personal-
banking/investments-deposits/fixed-deposit
Composition of Bank Deposits
• Reserve Bank of India:
https://www.rbi.org.in/Scripts/BS_SpeechData.aspx?head=Bank%20Deposits
Banker & Customer
• Legal Services India: https://www.legalservicesindia.com/article/2396/Banker-
and-Customer-Relationship.html
Paying Banker & Collecting Banker
• The Law Dictionary: https://thelawdictionary.org/paying-banker/
• Britannica: https://www.britannica.com/topic/collecting-banker
Cheques & Crossing of Cheques
• Legal Service India: https://www.legalserviceindia.com/article/l314-Cheque-
crossing.html
• RBI: https://www.rbi.org.in/Scripts/FAQView.aspx?head=Cheque%20Clearing
Endorsement & Its Significance
• Investopedia: https://www.investopedia.com/terms/e/endorsement.asp
• Legal Services India:
https://www.legalserviceindia.com/article/1631/Endorsement-of-Commercial-
Paper.html
Passbook
• Investopedia: https://www.investopedia.com/terms/p/passbook.asp
• Bank of America: https://www.bankofamerica.com/deposits/learn/online-
banking-vs-passbook/