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Banking Operations Manual

1

Banking Operations Manual

THE A.P. STATE CO.OPERATIVE BANK LTD

TROOP BAZAR :: HYDERABAD

_________________________________________________

Vol. I

Banking Operations Manual

2

P R E F A C E

This Banking Operations Manual is prepared with a view to provide a

ready guide to the officers and staff of the Bank – Andhra Pradesh State

Cooperative Bank (APCOB) - in day-to-day banking operations. The Manual is

prepared based on the extant banking law, practices and is an attempt to

provide guidance to the front office functionaries in the Banking operation of

the Bank. It is compiled in January - March 2008 and mainly covers the aspects

which are currently relevant to the Andhra Pradesh State Co-operative Bank

(APCOB). The Manual is to be used keeping in view any changes in rules and

practices over time. This is also not a document to provide any full fledged

legal framework of banking operations and is in the nature of a guide to

operatives and not a rigorous substitute for extant circular instructions,

directives etc. The language used is also one to facilitate understanding rather

than being legalistic.

Throughout this Manual, based on the context, the reference to Masculine

gender is to be read as reference to Feminine gender also and similarly the

usage of singular be read contextually to include the plural. In compiling this

document, use has extensively been made of the Operational Manual for Co￾operative Banks [2004 edition] brought out by the National Federation of State

Co-operative Banks, Mumbai, which is gratefully acknowledged.

This Manual has been gone through in detail and vetted by various senior

officers of Head Office and the Co-operative Training Institute of the Bank.

The final version is brought out after detailed consultations with well￾experienced officers at the Head Office and Branches.

Over a period of time it is expected that this manual will be vastly

improved based on inputs from the functionaries at different levels based on

their active feedback. Further volumes of this Manual are expected to be

brought out covering various other areas in due course.

It is hoped that this volume will be useful as a basic guide for the Front

Office operations in Banking in the Bank.

M.S. Rama Rao

Chief General Manager

Centralised Monitoring, Inspection

& Audit Dept

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FOREWORD

A Banking Operations Manual for the Head Office main branch and

branches of the Bank has been a long felt need. The present ‘Banking

Operations Manual’ is a team effort by the senior officers of the Bank in

consultation with the front office functionaries. The effort has been co￾ordinated by the Centralised Monitoring, Inspection & Audit Department of

the Bank. The present volume attempts to bring at one place the important

aspects of Banking operations for reference of the functionaries at the

delivery point of the customer services in the Bank. It is also an effort to

streamline and standardize the procedures to usher in the various systems,

procedures and controls and the first of a series of such initiation planned by

the Bank.

Apart from incorporating up-to-date instructions on Banking

operations and the latest guidelines of NABARD on Safe Deposit Lockers

and Settlement of Claims of deceased depositors, the volume provides the

customer relationship policy of the Bank and also the customer service

norms of the Bank. It is also envisaged that this Manual would be updated

and revised from time to time based on the experience and feedback of the

staff at various levels and to incorporate the changes that take place in the

practices in Banking. I wish that the Manual will be put to successful use to

improve management of the Bank and provide better services to the

customers and would pave the way for greater codification and publication

of the functions and services of the Bank.

T.S. Appa Rao,

I.A.S.,

Managing Director

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CONTENTS

CHAPTER

No. TITLE PAGE No.

1 Introduction 01

2 Customer Identification &

Introduction – Opening of Accounts 04

3 Nomination 25

4 Current Accounts 34

5 Savings Bank Accounts 46

6 Maintenance of Accounts &

Operational Procedures

56

7 Cash and it’s custody 72

8 Clearing 78

9 Term Deposits - General 84

10 Fixed Deposits 91

11 Reinvestment Deposit Gruhalakshmi

scheme

100

12 Recurring Deposits 104

13

Local Cheques / Demand Drafts &

Outstation Cheques – Purchase /

Instant Credit

109

14 Demand Drafts & Pay Orders 112

15 Safe Deposit Lockers 119

16 Settlement of Claims of Deceased

Depositors

133

Appendix - A Customer Relationship Policy 153

Appendix - B Customer Service Norms 158

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CHAPTER - 1

Introduction

General:

This Manual mainly deals with the Banking operations and is intended as a

guide for staff functioning in Banking department and branches of the Andhra

Pradesh State Co-operative Bank (APCOB).

The operations of the Bank are fully computerized under a Core Banking

System (CBS). As such, this Manual does not attempt to detail the accounting,

calculation processes, vouchering etc., as would be relevant to the Manual

environment. The procedures involved in handling the various types of accounts

of customers are dealt with in this Manual for giving a better understanding and

background reference to the front office functionaries in the Branches and Banking

wing of the Bank. The current volume deals with the customer relationship

aspects of Banking in the Bank and focuses on the handling of deposit accounts.

Salient features of deposit schemes:

CURRENT ACCOUNT: Accounts under this type can be opened by Individuals, Sole

Proprietary Concerns, Partnership Firms, Companies, Clubs, Associations, Trusts,

Govt./Local Bodies, Cooperative Societies etc. This Account is meant for

Individuals / Institutions having large number / volume of transactions, mainly for

meeting their day-to-day business and operational requirements for parking their

operational fund balances.

No interest is provided on the balances in Current Account as the Bank renders a

considerable service in operation and maintenance of the Account. These

Accounts are operated only through the cheques provided by the Bank drawn

either in individual or representative capacity, either singly or jointly. The

Cheques, Bills, DDs etc of parties are collected through the Current Accounts and

cash/clearing payments are made in respect of cheques issued by the Account

holders. Over Drafts, secured or otherwise, are provided as per the separate loan

rules in this regard. For Accounts of individuals facility of withdrawal from ATM is

also provided.

SAVINGS BANK ACCOUNT: The Savings Bank Accounts are meant for individuals

operating singly or jointly with other individuals, Associations, Clubs etc. The

Savings Bank accounts can be operated either with cheque book facility or without

cheque book facility. Where cheque book facility is not provided or not opted for,

remittances in cash and withdrawals through withdrawal slip are allowed. There is

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a limit on the number of transactions allowed in Savings Bank account and these

accounts are not meant for business or trading activities etc. Interest at the rate

as prescribed by RBI (presently 3.5% p.a.) is paid on the monthly minimum

balance maintained in the account between 10th and last day of the month. The

interest is computed for the full month on the above basis and credited once in 6

months to the account. Where cheque book facility is extended, the party can

draw cheques on the account which can be collected by 3rd parties through the

clearing office. Deposits in cash and cash withdrawals by way of cheque or

through ATM is allowed. Cheques / DDs etc., favouring the account holder are

collected into the account.

A special No Frills Savings Account called Abhyudaya S.B. A/c is made

available by the Bank to facilitate financial inclusion of persons of lower economic

standing, getting access to banking facilities. Under this, account can be opened

with Rs. 25/-. There is no minimum balance stipulated. Ten withdrawals are

allowed per quarter. Maximum balance at any point of time is stipulated at Rs.

25,000/-. There is no service charge or incidentals for these accounts and interest

will be paid at the rate applicable for normal Savings Bank Accounts. No cheque

book or ATM cards are issued for these accounts and collection of cheques and

DDs are not undertaken through these accounts.

FIXED DEPOSITS: These are deposits of specified sum of money permitted to be

made in multiples of Rs. 100/- for a specified period. For example, a Fixed

Deposit of Rs. 5000/- for 12 months period. Fixed Deposits may be accepted for

Days, Months, Years or their combination, as per request of customer. If the

deposit is for a minimum period of 12 months, then interest may be paid monthly,

quarterly, half-yearly or yearly. Minimum period of deposit is 7 days for Rs. 1.00

lakh or more and 15 days for deposits of below Rs. 1.00 lakh. Maximum period of

deposit is 120 months or 10 years. These deposits are repayable to the customer

on expiry of the period for which the deposit is made. However, the account

holders are permitted to make premature encashment of such deposits in case of

exigency / need – in such an event the principal amount is paid along with interest

as applicable for the period for which the deposit was actually with the Bank, less

penalty of 1 percentage points on the applicable rate of interest.

The interest is normally paid at quarterly rests for credit of the customer’s

Savings / Current account as per standing instructions or allowed to be withdrawn

in cash by the customer or paid to him by way of Bankers Cheque / Pay Order and

by way of D.D. for out-location customers. The Bank will pay interest at monthly

rests also if the customer so desires by duly discounting the interest for such

monthly payment.

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Loans against the Fixed Deposit may be issued to the customers on

surrender of duly discharged Fixed Deposit receipt with a letter of lien through a

separate Depositor Loan A/c for which interest is charged at 2% over the rate

provided on the deposit. In the event of foreclosure of deposit, the depositor loan

is also foreclosed with the rates of interest charged at 2% over the rate allowed on

the foreclosure of the deposit. [For foreclosure of deposit, the rate of interest

extended is applicable rate on date of deposit for the period for which the deposit

remained with the Bank minus 1% ].

GRUHALAKSHMI DEPOSIT: This deposit is essentially a term deposit which is

accepted for a minimum period of 6 months and for a maximum period of 120

months in multiples of Rs. 100/-, wherein the quarterly interest payable on the

deposit is cumulated and the total cumulative interest earned during the currency

of the deposit is paid in full along with the principal on the expiry of the period of

deposit. Deposits, as also Depositor loans, under this Head are also subject to the

norms of foreclosure as mentioned under Fixed Deposit.

RECURRING DEPOSIT: Deposits under this category are in the nature of fixed

amounts being paid in by the depositor every month subject to a minimum of Rs.

50/- and in multiples of Rs. 10/- thereafter for a specified period of years involving

monthly payments ranging from 12 to 120 months. Under this deposit scheme,

interest is cumulated at quarterly rests based on month-end balances in the

account and pre-determined amount is fixed as payable at the end of the period of

deposit. The rules relating to foreclosure and grant of loan against this deposit are

similar to that under Fixed Deposit except that in the event of foreclosure of a

Recurring Deposit, interest is paid based on monthly balances without cumulation

for the incomplete quarter. In computerized environment, the basic procedures of

interest calculation etc., are inbuilt in the Core Banking Solution (CBS) and as

such the users are fully guided by the system. However, the necessary

verification and checking as required in respect of various operations are essential

and need to be performed by the concerned functionaries.

~~~

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CHAPTER - 2

Customer Identification and Introduction: Opening of Accounts

Know Your Customer (KYC) Norms:

It is imperative that while opening accounts, the authorized officer must be

satisfied about the proper identity, standing and residential proof of the prospective

customer. It is only after furnishing of proper proof of identity through photo

identity card and acceptable address proof that accounts are to be opened.

The following is the customer verification and identification procedure:

Customer Identification Procedure

Features to be verified and documents that may be obtained from customers

Features Documents ( latest / valid )

Accounts of individuals

- Legal name and any other names used

- Correct permanent address

(i) Passport (ii) PAN card

(iii) Voter’s Identity Card (iv) Driving

Licence (v) Identity Card (subject to

the bank’s satisfaction) (vi) Letter

from a recognized public authority or

public servant verifying the identity

and residence of the customer to the

satisfaction of bank.

(i) Telephone bill (ii) Bank account

statement (iii) Letter from any

recognized public authority (iv)

Electricity Bill (v) Ration Card (vi)

Letter from employer (subject to

satisfaction of the bank) (any one

document which provides customer

information to the satisfaction of the

bank will suffice).

Accounts of companies

- Name of the company

- Principal place of business

- Mailing address of the company

- Telephone / Fax number

(i) Certificate of incorporation and

Memorandum & Articles of Association (ii)

Resolution of the Board of Directors to

open an account and identification of those

who have authority to operate the account

(iii) Power of Attorney granted to its

Managers, officers or employees to

transact business on its behalf (iv) Copy of

PAN allotment letter (v) Copy of the

telephone bill.

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Accounts of partnership firms

- Legal name

- Address

- Names of all partners and their

addresses

- Telephone numbers of the firm

and partners

(i) Registration certificate, if registered

(ii) Partnership Deed (iii) Registered

Power of Attorney granted to a partner

or an employee of the firm to transact

business on its behalf (iv) Any officially

valid document identifying the partners

and the persons holding the Registered

Power of Attorney and their addresses

(v) Telephone bill in the name of

firm/partners.

Accounts of Trusts & Foundations

- Names of Trustees, Settlers,

Beneficiaries and Signatories

- Names and addresses of the

Founder, the Managers/ Directors

and the Beneficiaries

- Telephone / Fax numbers

(i) Certificate of Registration, if

registered (ii) Registered Power of

Attorney granted to transact business on

its behalf (iii) Any officially valid

document to identify the Trustees,

Settlers, Beneficiaries and those holding

Power of Attorney,

Founders/Managers/Directors and their

addresses (iv) Resolution of the managing

body of the foundation/association (v)

Telephone bill.

The original documents are to be verified, copies taken and duly authenticated by

the officer of the Bank stating ‘verified with the original’.

Introduction of Customer Accounts:

Salient features:

a. It is important that every prospective customer who wants to open

any type of deposit account in the branch must be properly

introduced to the Bank by a respectable person known to the Bank

(who may not necessarily be a constituent of the bank) or by an

existing customer of the Bank with satisfactory conduct of

transactions in deposit account (SB/C/a). The introducer must

normally call on the Bank and sign in the column specifically

provided for the purpose in the account opening application form.

Introduction is obtained primarily to get protection under Section 131

of the ‘Negotiable Instruments Act’ and all the members of the staff in

the branch must be made aware of the importance of a proper

introduction.

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b. The legal protection given to bankers in respect of cheques collected

“in good faith and without negligence” is available only if the account

is opened with proper introduction.

c. Once a party has been properly introduced to the Bank for opening

an account that party need not bring fresh introduction at the time of

opening another type of account (e.g. Current Account Holder

opening a SB/FD/RD/CC or a Savings Bank Account Holder opening

a CA/FD/RD/CC etc.)

d. However, if a party has Term Deposit with the Bank and such

investment has been made without any introduction and he wants to

open a Savings Bank or Current Account proper introduction is

necessary to open such Savings Bank / Current Account.

e. The need for introduction in the case of limited companies (unless

they are old and well known) is greater as they may form a

convenient medium for questionable transactions.

2. Who can introduce a customer?

Introduction of a new customer by an existing Current / Savings Bank

Account Holder is considered to be the best form of introduction. However, a

respectable person well known to the bank or a staff of the bank can also

introduce a new customer (except in case of opening Current Account).

3. Who cannot introduce a customer?

a. A Term Deposit holder who has no Current / Savings Bank Account

cannot introduce another person to open a Current / Savings Bank

Account.

b. A minor Account Holder cannot introduce.

c. It is desirable that there should be a reasonable time gap of at least

six months for a new Account Holder of the bank to introduce

another new customer to the bank. This will enable the bank to

assess whether the operations by the existing Account Holder are in

order or not.

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4. Method of obtaining introduction

a. The bank must insist that the Introducer must come to the Bank in

person and sign the document before the Officer.

In case the Introducer does not come in person, then the introduction

may be got confirmed by an official of the Bank by contacting the

Introducer and recording the same in the opening form or by issue of

letter.

b. In the case of newly opened Branch it may be difficult to rigidly

enforce this rule that new accounts must be opened only with proper

introduction. Hence, accounts may be opened at new branches duly

following the Know Your Customer (KYC) Norms.

5. Verification of Introduction

a. It is to be clearly understood that introduction is treated as a

substantive step having real significance and not merely as a

formality and any lapse in this regard will be viewed seriously.

Hence, proper care is to be exercised in obtaining and verifying the

introduction. Establishing the bonafides of a new customer is the

main purpose of introduction and is to be handled accordingly.

b. Even though the constituent is well introduced, it is still

essential to enquire and record the name of his employer, change in

employment, if any, should also be noted in Ledger Account.

c. Due customer identification under KYC norms is mandatory

even for accounts being introduced by parties well known to the

Bank.

Opening of Accounts

Important: Accounts are opened by the Bank at its discretion and upon

satisfaction of the Authorised official of the Bank as to the bonafides of the

prospective customer and subject to the fulfillment of the various requirements

stipulated in this regard including satisfaction as to veracity of introduction.

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Salient features:

i. All new Current Accounts (C.A.), Savings Bank Accounts (S.B.), Fixed

Deposits (FD), Term Deposits and Recurring Deposit Accounts (R.D.)

shall be opened only with the authorisation of authorized officers in the

branch.

ii. All applications for opening Current Accounts, Savings Bank Accounts,

Term Deposits and R.D. Accounts etc. must be made in writing in the

Bank’s printed application forms only.

iii. The prospective customer should affix the signatures at all the relevant

places on the forms prescribed in the presence of the Authorized official.

iv. In the Account Opening Form the residential address, office address

and alternative addresses (if the customer is employed / businessman)

with phone numbers (residence/office/mobile/fax and alternative

telephone numbers, if any) and e-mail id must be furnished.

v. The customer also has to record nomination of the account at the

relevant portion in the account opening application forms.

vi. The bank has to obtain Permanent Account Number (PAN) of the

customer while opening any type of accounts. In case, the PAN is not

available, a declaration in Form No. 60 / 61 under Rule 114-B of I.T.

Rules is to be obtained from the customer in duplicate.

vii. The particulars furnished by the prospective customer, after due

verification and satisfaction must be entered in the relevant fields of the

customer Id form and Account opening form in the system and duly

authorized.

viii. The customer identification number (C Id No.) and the Account No.

which are automatically generated by the system for the Current

Accounts, S.B. Accounts and R.D. Accounts, must be written in the

Passbook, Specimen Signature Card, Account Opening Forms and also

the Account Opening Register which is specially maintained for the

purpose to record the details of the accounts opened.

ix. There is a provision in the system to generate, print out and send to the

customers and also to the introducers, an acknowledgement or a letter

of thanks for having opened / having introduced the account, which

must be sent.

x. The requests of the customer for issue of cheque book, ATM card must

be recorded in the relevant form and authorized. Whenever Cheque

Books are issued, the details must be recorded in the system and duly

authorized. The account number of the customer must be written /

stamped on each cheque leaf and on the cheque requisition slip in the

cheque book.

xi. The cheque book issued to the customer must be acknowledged by the

customer or his representative (duly authorized for the purpose) in the

register of ‘cheque books issued’. The cheque books should be issued

in the serial number order and if for any reason the continuous serial

number is skipped, such missing numbers should be recorded with the

reasons and attested by the authorized officer.

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xii. Requisite number of copies of photographs of the Account Holder, and

all the Joint Account Holders in case of Joint Accounts have to be

obtained while opening of accounts and affixed on appropriate forms,

after due authentication of the authorized officer, as indicated for each

type of account.

b. Photographs:

i. Branches should obtain recent passport size photographs of the

customers at the time of opening of new accounts. The photographs

submitted at the time of opening of account should be compared with

the prospective customer / account holder to satisfy about the

resemblance and then only accepted. Recent passport size photographs

of the prospective customer / account holder/s (in case of joint accounts)

are to be obtained and affixed at the appropriate places in the account

opening forms, specimen card and pass book.

ii. In respect of Current and Savings Bank Accounts, one copy of the

photograph each is to be affixed to the application form, the Passbook

and the Specimen Signature Card.

iii. In respect of Term Deposits, the photograph of the customer has to be

attached to the application form.

iv. In the case of joint accounts, i.e., account being opened in the names of

more than one person / partnership accounts, separate set of

photographs of all joint depositors / partners have to be obtained.

v. In the case of institutional customers, a set of photographs of all the

officials authorized to open and operate the account must be obtained.

vi. Name of the account holder and the account number have to be written

on the back of the photographs and the officer authorizing the opening

of the account has to affix his signature on the reverse of the

photographs with date before stapling the same to the application form.

vii. The officer authorizing the opening of Current and Savings Bank

Accounts has to authenticate the same by affixing the round stamp of

the branch and his signature with date at the bottom corner on the face

of the second copy of photograph before affixing the same to the Pass

Book.

viii. In the case of Savings Bank accounts opened by minors of age 12 years

and above, photographs of the Account Holder has to be obtained.

ix. In the case of minor’s account, operated by the Guardian, photograph

of the Guardian is also to be obtained.

x. In the case of Hindu Undivided Family (HUF) accounts, photographs of

the “Karta” has to be obtained.

xi. In the case of Non-Resident Depositor, photographs of the depositor /

account holder has to be obtained.

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xii. In respect of accounts opened by illiterate persons and blind persons

three copies of recent passport size photographs have to be obtained.

Further, passport size photograph of the depositor must be affixed on

the specimen signature/thumb impression card, the pass book and the

account opening form duly authenticated by the authorized officer. The

signature of the Attesting Officer should be partly on the photos and

partly on the account opening form / specimen signature / thumb

impression card.

xiii. A declaration shall be taken from the illiterate depositor on the account

opening form to the effect that the contents of the account opening form

as also the rules governing the deposit account have been explained to

him, that he has fully understood the rules and that he had affixed his

thumb impression after fully knowing the rules. This declaration should

be authenticated by the depositor by affixing his thumb impression and it

should be countersigned by a witness.

xiv. In respect of accounts opened prior to 01.04.1994 photographs were not

required to be obtained. However in all such accounts in which names

have been either added or deleted after 1.4.1994, photographs of all the

Account Holders have to be obtained. However, it is advised to obtain

photographs of all Account Holders who had opened accounts

previously also, as and when they visit the branch for operation of their

accounts.

xv. In the case where the same customer has more than one type of

account separate photographs for each category of account need not be

insisted. However, the account opening form to which the photo is

tagged is to be mentioned in the application form of all other accounts.

xvi. During the operations in the accounts whenever the passing officer or

authorized official or the counter clerk notices a visible change in the

resemblance of the photograph and the customer, particularly in the

case of illiterate customers, a recent photograph should be obtained

from the customer, duly attested and affixed at all appropriate places.

This should be done at least once in every 3 years.

c. Eligibility to open accounts:

The following persons / institutions are eligible to open accounts with the Bank:

i. Individuals in single name.

ii. Two or more persons in joint names in any of the following forms:

- Either or Survivor (E or S)

- Former or Survivor

- Jointly / Jointly or Survivors (J or S)

- Any one or Survivor / Survivors (A or S)

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iii. In the names of Sole Proprietary Concerns, Companies, Associations,

Partnership firms, Clubs, Religious & Charitable Institutions, Educational

Institutions, Social Organizations, Co-operative Society etc.

iv. Minor above 14 years can open and operate Savings Bank account.

However, Minor student (i.e. literate) of age 12 years and above can

open Savings Bank account and operate by himself.

v. Bank should not open more than one Savings Bank account for the

same person in his individual name.

vi. At the time of opening joint accounts (in the name of more than one

person) instructions regarding operations and survivorship should be

obtained from all the account holders and properly recorded duly

authenticated by an officer.

d. Prohibition against opening of Savings Bank accounts in the name

of certain Bodies / Organizations:

i) Savings Deposit account cannot be opened by banks in the name of:

a) Government Departments

b) Bodies depending upon budgetary allocations for performance of

their functions.

c) Municipal Corporations or Municipal Committees

d) Panchayat Samitis

e) State Housing Boards

f) Water and Sewerage / Drainage Boards

g) State Text Book Publishing Corporations

h) Societies

i) Metropolitan Development Authority

j) State / District Level Housing Co-op. Societies etc.

k) Any trading business or professional concern (e.g. firms of

Chartered Accountants, Lawyers, etc.) whether such concern is a

proprietary or a partnership firm or a company or in association

l) Political Party

ii) The above prohibition will not apply in the case of the following

organizations / agencies:

a) Primary Co-operative Credit Society which is being financed by

the bank.

b) Small Farmer’s Development Agency (SFDA) / Fish Farmers

Development Agencies (FFDAs).

c) Marginal Farmers’ and Agricultural Labourers’ Agencies (MFAL).

d) Drought Prone Areas Programme (DPAP).

e) District Development Authority (DDA).