What is Collecting bank?

 Collecting bank means the bank which collects the cheques and bills on behalf of the customers. In other words, every crossed cheque is necessarily to be collected through any bank, which is known as Collecting bank or collecting banker.

While collecting the cheques of a customer, the banker may act in the capacity of either(a) as a holder for value, or (b) as an agent of the customer.

 What’s the Duties and Responsibilities of a Collecting Bank?

The duties and responsibilities of a collecting banker are discussed below:

1. Due care and diligence in the collection of cheque.

2. Serving notice of dishonour.

3. Agent for collection.

4. Remittance of proceeds to the customer.

5. Collection of bill of exchange.

 1. Due Care and Diligence in the Collection of Cheques:

The collecting banker is bound to show due care and diligence in the collection of cheques presented to him.In case a cheque is entrusted with the banker for collection, he is expected to show it to the drawee banker within a reasonable time. According to Section 84 of the Negotiable Instruments Act, 1881, “Whereas a cheque is not presented for payment within a reasonable time of its issue, and the drawer or person in whose account it is drawn had the right, at the time when presentment ought to have been made, as between himself and the banker, to have the cheque paid and suffers actual damage, through the delay, he is discharged to the extent of such damage, that is to say, to the extent to which such drawer or person is a creditor of the banker to a large amount than he would have been if such cheque had been paid.” In case a collecting banker does not present the cheque for collection through proper channel within a reasonable time, the customer may suffer loss. In case the collecting banker and the paying banker are in the same bank or where the collecting branch is also the drawee branch, in such a case the collecting banker should present the cheque by the next day. In case the cheque is drawn on a bank in another place,it should be presented on the day after receipt.

 

2. Serving Notice of Dishonour:

When the cheque is dishonoured, the collecting banker is bound to give notice of the same to his customer within a reasonable time. It may be noted here, when a cheque is returned for confirmation of endorsement, notice must be sent to his customer. If he fails to give such a notice, the collecting banker will be liable to the customer for any loss that the customer may have sufferedon account of such failure. Whereas a cheque is returned by the drawee banker for confirmation of endorsement, it is not called dishonour. But in such a case, notice must be given to the customer. In the absence of such a notice, if the cheque is returned for the second time and the customer suffers a loss, the collecting banker will be liable for the loss.

 

3. Agent for Collection:

In case a cheque is drawn on a place where the banker is not a member of the ‘clearing-house’, he may employ another banker who is a member of the clearing-house for the purpose of collecting the cheque. In such a case the banker becomes a substituted agent. According to Section 194 of the Indian Contract Act,1872, “Whereas an agent, holding an express or implied authority to name another person to act in the business of the agency has accordingly named another person, such a person is a substituted agent. Such an agent shall be taken as the agent of a principal for such part of the work as is entrusted to him.”

 4. Remittance of Proceeds to the Customer:

In case a collecting banker has realized the cheque, he should pay the proceeds to the customer as per his (customer’s) direction. Generally, the amount is credited to the account of the customer on the customer’s request in writing, the proceeds may be remitted to him by a demand draft. In such circumstances, if the customer gives instructions to his banker, the draft may be forwarded. By doing so, the relationship between principal and agent comes to an end and the new relationship between debtor and creditor will begin.

 5. Collection of Bills of Exchange:

There is no legal obligation for a banker to collect the bills of exchange for its customer. But, generally, bank gives such facility to its customers. In collection of bills, a banker should examine the title of the depositor as the statutory protection under Section 131 of the Negotiable Instruments Act, 1881.Thus, the collecting banker must examine very carefully the title of his customer towards the bill. In case a new customer comes, the banker should extend this facility to him with a trusted reference. From the above discussion, there is no doubt to say that the banker is acting as a mere agent for collection and not in the capacity of a banker. If the customer allows his banker to use the collecting money for its own purpose at present and to repay an equivalent amount on a fixed date in future the contract between the banker and the customer will come to an end.

Differences between Bearer Cheque and Order Cheque

 There are many differences between bearer cheque and Order Cheque. These are

 Order cheque -:

1. Order cheque is payable to the person named in the cheque or his order. For e.g., " Pay to X or order.", such cheque is payable either to X or to any person whom he orders the payment of the cheque.

2. Order cheque is paid by the bank only when the bank is satisfied about the identity of the payee.

3. Order cheque is not transferable merely by delivery. It cannot be tranfered without the signatures of the transferor.

Bearer cheque -:

1. Bearer Cheque is payable to the person named in the cheque or to the bearer thereof.  For e.g., "Pay to X or bearer.", such a cheque may be paid to X at the counter os the bank when he present it for payment. X can either go to bank for getting payment or simply he may or may not sign at the back side of the cheque and hand it over to any person for collection.

2. The drawee bank need not take any pains to get the identification of the person to whom the payment is being made.

3. A bearer cheque is transferable merely by delivery.

Difference between cheque and bill of exchange

 A cheque differs from a bill of exchange in the following respects:

1. Drawee:

A cheque is always drawn on a bank or a banker while a bill of exchange can be drawn on any person including a banker.

2. Acceptance:

A cheque does not require any acceptance while a bill must be accepted before the drawee can be made liable upon it.

3. Payment:

A cheque is payable immediately on demand without any days of grace, but a bill of exchange is normally entitled to three days of grace unless it is payable on demand.

4. Crossing:

A cheque may be crossed but there is no such provision in the case of a bill of exchange.

5. Notice of dishonor:

When a cheque is not met, notice of dishonor is not necessary. Want of assets in the hands of the banker is sufficient notice. It is necessary to give a notice of dishonor in order to make the drawer of a bill liable.

6. Payable to bearer on demand:

A cheque can be drawn payable to bearer on demand. But a bill of exchange cannot be so drawn.

7. Stamp:

A bill of exchange must be stamped, whereas a cheque does not require any stamp.

8. Countermanding payment:

A cheque may be revoked by countermand of payment. The payment of a bill, however cannot be countermanded.

9. Noting and protesting:

A cheque is not noted or protested for dishonor and is generally inland.

10. Presentment:

A bill of exchange must be duly presented for payment otherwise the drawer will be discharged. The drawer of a cheque is not discharged by failure of the holder to present it in due time unless the drawer has sustained damage by the delay.

11. Protection:

A banker is given statutory protection with regard to payment of cheques in certain circumstances. No such protection is available to the drawee or acceptor of a bill of exchange.

Difference between money market and capital market

 Money market is distinguished from capital market on the basis of the maturity period, credit instruments and the institutions:

 1. Maturity Period:

The money market deals in the lending and borrowing of short-term finance (i.e., for one year or less), while the capital market deals in the lending and borrowing of long-term finance (i.e., for more than one year).

 2. Credit Instruments:

The main credit instruments of the money market are call money, collateral loans, acceptances, bills of exchange. On the other hand, the main instruments used in the capital market are stocks, shares, debentures, bonds, securities of the government.

 3. Nature of Credit Instruments:

The credit instruments dealt with in the capital market are more heterogeneous than those in money market. Some homogeneity of credit instruments is needed for the operation of financial markets. Too much diversity creates problems for the investors.

 4. Institutions:

Important institutions operating in the' money market are central banks, commercial banks, acceptance houses, nonbank financial institutions, bill brokers, etc. Important institutions of the capital market are stock exchanges, commercial banks and nonbank institutions, such as insurance companies, mortgage banks, building societies, etc.

 5. Purpose of Loan:

The money market meets the short-term credit needs of business; it provides working capital to the industrialists. The capital market, on the other hand, caters the long-term credit needs of the industrialists and provides fixed capital to buy land, machinery, etc.

 6. Risk:

The degree of risk is small in the money market. The risk is much greater in capital market. The maturity of one year or less gives little time for a default to occur, so the risk is minimised. Risk varies both in degree and nature throughout the capital market.

 7. Basic Role:

The basic role of money market is that of liquidity adjustment. The basic role of capital market is that of putting capital to work, preferably to long-term, secure and productive employment.

 8. Relation with Central Bank:

The money market is closely and directly linked with central bank of the country. The capital market feels central bank's influence, but mainly indirectly and through the money market.

 9. Market Regulation:

In the money market, commercial banks are closely regulated. In the capital market, the institutions are not much regulated.

Differences between shares and mutual funds

 There are many differences between shares and mutual funds. From the following discussion we can differ one from another:

 Shares

Investing in shares gives an individual the opportunity to invest in a specific company since a share is a literal piece of a company. In a share purchase, an investor pays the stock price of a company's stock as it has been set by the current stock market conditions. An investor typically retains the shares until the stock price rises to a level at which selling at a profit would benefit the investor. Some investors repeat this process over and over, buying at a lower price and selling at a higher price for a profit. Shares of stocks can be unreliable as a consistent money maker since some company shares decrease in value and cause investors to lose money until a rebound of the share price occurs.

 Mutual Funds

A mutual fund is essentially a collection of investments. A mutual fund is comprised of investments in a variety of company stocks or in any combination of stocks, bonds, government funds and securities both at home and abroad. With mutual funds, an investor is offered the chance to invest in a number of carefully chosen opportunities to create an automatically diverse investment portfolio without spending the time researching and investing in individual stocks, bonds and certificates.

Difference between Shares & Debenture

Shares are uniform parts of the share capital. Debentures are uniform part of the loan capital of a company.  Rights, privileges and the liabilities accompanying these instruments are different from one another.  The main differences are as follows:

       1. Share holders are owners of the company whereas the debenture holders are creditors of the company.  Therefore, while the shareholders have a multi-faceted interest in the welfare of the company, the debenture holders have a very limited interest in the company. i.e. limited to receiving interest on time.

 2.  A shareholder is entitled to receive dividend when there are profits.  The rate of dividend varies from year to year depending upon the amount of profit.  On the other hand, the debenture holders are entitled to interest at a fixed rate which the company must pay whether or not there are profits.

 3.  A shareholder enjoys the rights of proprietorship of a company whereas a debenture holder can enjoy the rights of a lender only.

 4.  A shareholder has a right of control over the working of the company by attending and voting in the general meeting.  They are able to decisively influence the composition of Board of directors and other senior management positions.  The debenture holders do not have any voting right, and they are unable to exercise any such influence.

 5.  A debenture holder gets a fixed rate of interest per annum payable on fixed dates whereas a shareholder gets a dividend far higher if the company earns good profits.

 6.  Dividend on shares is not a charge against profit.  Interest on debentures, on the other hand, is a charge against profits and is deducted from profits for the purpose of calculating tax liability.

 7.  In respect of shares, dividend is payable only when the proposal to pay dividend is passed by the shareholders at the annual general meeting of the company.  There is no need of such approval in the case of payment of interest on debentures.

 8.  A company can purchase its own shares from the market under certain condition whereas it can purchase its own debentures and cancel them or re issue them.

 9.  A shareholder has a claim on the accumulated profits of the company and is normally rewarded with bonus shares whereas a debenture holder has no such claims whatsoever after he has been paid the interest amount.

 10. In the event of winding up, shareholders cannot claim payment unless all outside creditors have been paid in full.  Debenture holders being secured creditors get priority in payment over the shareholders.

Define Consortium Financing

 Consortium is a Latin word, meaning 'partnership, association or society' and derives from censors 'partner', itself from con- 'together' and sores 'fate', meaning owner of means or comrade.

Under consortium financing, several banks (or financial institutions) finance a single borrower with common appraisal, common documentation, joint supervision and follow-up exercises, these banks have a common agreement between them, the process is somewhat similar to loan syndication.

 Advantages of consortium financing

There are many advantages of consortium financing. The main advantages are mentioned below:

• Allows the borrower to access from a diverse group of financial institutions.
• Borrowers can raise funds more cheaply in the syndicated loan market than by borrowing the same amount of money through a series of bilateral loans. This cost saving increases as the amount required rises
• Each bank needs to come to an understanding of the business and how its financial activities are conducted.
• A comfort level must be established on both sides of the transaction, which requires time and effort.
• Negotiating a document with one bank can take days. To negotiate documents with four to five banks separately is a time-consuming, inefficient task.
• Staggered maturities must be monitored and orchestrated.
• Multiple lines require an inter-creditor agreement among the banks, which takes additional time to negotiate.
• Under consortium financing, several banks (or financial institutions) finance a single borrower with common appraisal, common documentation, joint supervision and follow-up exercises, these banks have a common agreement between them, the process is somewhat similar to loan syndication.

What role does a commercial bank play in the development

 Introduction

Commercial banks are considered not merely as dealers in money but also the leaders in economic development. They are not only the store houses of the country’s wealth but also the reservoirs of resources necessary for economic development. They play an important role in the economic development of a country. A well-developed banking system is essential for the economic development of a country. The “Industrial Revolution” in Europe in the 19th century would not have been possible without a sound system of commercial banking. In case of developing countries like India, the commercial banks are considered to be the backbone of the economy. Commercial banks can contribute to a country’s economic development in the following ways :

 Accelerating the Rate of Capital Formation:

Capital formation is the most important determinant of economic development. The basic problem of a developing economy is slow rate of capital formation. Banks promote capital formation. They encourage the habit of saving among people. They mobilize idle resources for production purposes. Economic development depends upon the diversion of economic resources from consumption to capital formation. Banks help in this direction by encouraging saving and mobilizing them for productive uses.

 Provision of Finance and Credit:

Commercial banks are a very important source of finance and credit for industry and trade. Credit is a pillar of development. Credit lubricates all commerce and trade. Banks become the nerve center of all commerce and trade. Banks are instruments for developing internal as well as external trade.

 Monetization of Economy:

An underdeveloped economy is characterized by the existence of a large non-monetized sector. The existence of this non-monetized sector is a hindrance in the economic development of the country. The banks, by opening branches in rural and backward areas can promote the process of monetization (conversion of debt into money) in the economy.

 Innovations:

Innovations are an essential prerequisite for economic development. These innovations are mostly financed by bank credit in the developed countries. But in underdeveloped countries, entrepreneurs hesitate to invest in new ventures and undertake innovations largely due to lack of funds. Facilities of bank loans enable the entrepreneurs to step up their investment on innovational activities, adopt new methods of production and increase productive capacity of the economy.

 Implementation of Monetary Policy:

Economic development need an appropriate monetary policy. But a well-developed banking is a necessary pre-condition for the effective implementation of the monetary policy. Control and regulation of credit by the monetary authority is not possible without the active co-operation of the banking system in the country.

 Encouragement to Right Type of Industries:

Banks generally provide financial resources to the right type of industries to secure the necessary material, machines and other inputs. In this way they influence the nature and volume of industrial production.

 Development of Agriculture:

Underdeveloped economies are primarily agricultural economies. Majority of the population in these economies live in rural areas. Therefore, economic development in these economies requires the development of agriculture and small scale industries in rural areas. So far banks in underdeveloped countries have been paying more attention to trade and commerce and have almost neglected agriculture and industry. Banks must provide loans to agriculture for development and modernization of agriculture. In recent years, the State Bank of India and other commercial banks are granting short term, medium-term and long-term loans to agriculture and small-scale industries.

 Regional Development:

Banks can also play an important role in achieving balanced development in different regions of the country. They transfer surplus capital from the developed regions to the less developed regions, where it is scarce and most needed. This reallocation of funds between regions will promote economic development in underdeveloped areas of the country.

 Promote Industrial Development:

Industrial development needs finance. In some countries, commercial banks encouraged industrial development by granting long-term loans also. Loan or credit is a pillar to development. In underdeveloped countries like India, commercial banks are granting short-term and medium-term loans to industries. They are also underwriting the issue of shares and debentures by industrial concerns. This helps industrial concerns to secure adequate capital for their establishment, expansion and modernization. Commercial banks are also helping manufacturers to secure machinery and equipment from foreign countries under instalment system by guaranteeing deferred payments. Thus, banks promote or encourage industrial development.

 Promote Commercial Virtues:

The businessmen are more afraid of a banker than a preacher. The businessmen should have certain business qualities like industry, forethought, honesty and punctuality. These qualities are called “commercial virtues” which are essential for rapid economic progress. The banker is in a better position to promote commercial virtues. Banks are called “public conservators of commercial virtues.”

 Fulfillment of Socio-economic Objectives:

In recent years, commercial banks, particularly in developing countries, have been called upon to help achieve certain socio-economic objectives laid down by the state. For example, nationalized bank in India have framed special innovative schemes of credit to help small agriculturists, self-employed persons and retailers through loans and advances at concessional rates of interest. Banking is thus used to achieve the national policy objectives of reducing inequalities of income and wealth, removal of poverty and elimination of unemployment in the country.

 Promote Commercial Virtues:

The businessmen are more afraid of a banker than a preacher. The businessmen should have certain business qualities like industry, forethought, honesty and punctuality. These qualities are called “commercial virtues” which are essential for rapid economic progress. The banker is in a better position to promote commercial virtues. Banks are called “public conservators of commercial virtues.”

 Fulfillment of Socio-economic Objectives:

In recent years, commercial banks, particularly in developing countries, have been called upon to help achieve certain socio-economic objectives laid down by the state. For example, nationalized bank in India have framed special innovative schemes of credit to help small agriculturists, self-employed persons and retailers through loans and advances at concessional rates of interest. Banking is thus used to achieve the national policy objectives of reducing inequalities of income and wealth, removal of poverty and elimination of unemployment in the country.

 Conclusion

Thus, banks in a developing country have to play a dynamic role. Economic development places heavy demand on the resources and ingenuity of the banking system. It has to respond to the multifarious economic needs of a developing country. Traditional views and methods may have to be discarded. “An Institution, such as the banking system, which touches and should touch the lives of millions, has necessarily to be inspired by a larger social purpose and has to subservice national priorities and objectives.” A well-developed banking system provides a firm and durable foundation for the economic development of the country.

From the above discussion, undoubtedly, we can say that, commercial banks form the most important part of financial intermediaries. It accepts deposits from the general public and extends loans to the households, firms and the government. Banks form a significant part of the infrastructure essential for breaking vicious circle of poverty and promoting economic growth.

Briefly discuss the main Functions of Commercial banks

Commercial banks have to perform a variety of functions which are common to both developed and developing countries. These are known as ‘General Banking’ functions of the commercial banks. The modern banks perform a variety of functions. These can be broadly divided into two categories: (a) Primary functions and (b) Secondary functions.

A. Primary Functions

Primary banking functions of the commercial banks include:

1. Acceptance of deposits

2. Advancing loans

3. Creation of credit

4. Clearing of cheques

5. Financing foreign trade

6. Remittance of funds

1. Acceptance of Deposits:

Accepting deposits is the primary function of a commercial bank mobilise savings of the household sector. Banks generally accept three types of deposits viz., (a) Current Deposits (b) Savings Deposits, and (c) Fixed Deposits. 

           2. Advancing Loans:

The second primary function of a commercial bank is to make loans and advances to all types of persons, particularly to businessmen and entrepreneurs. Loans are made against personal security, gold and silver, stocks of goods and other assets. The most common way of lending is by: 1. Overdraft Facilities, 2. Cash Credit 3. Discounting Bills of Exchange, 4. Money at Call, 5. Term Loans, 6. Consumer Credit 7. Miscellaneous Advances.

3. Creation of Credit:

A unique function of the bank is to create credit. Banks supply money to traders and manufacturers. They also create or manufacture money. Bank deposits are regarded as money. They are as good as cash. The reason is they can be used for the purchase of goods and services and also in payment of debts. When a bank grants a loan to its customer, it does not pay cash. It simply credits the account of the borrower. He can withdraw the amount whenever he wants by a cheque. In this case, bank has created a deposit without receiving cash. That is, banks are said to have created credit. Sayers says “banks are not merely purveyors of money, but also in an important sense, manufacturers of money.”

 

4. Promote the Use of Cheques:

The commercial banks render an important service by providing to their customers a cheap medium of exchange like cheques. It is found much more convenient to settle debts through cheques rather than through the use of cash. The cheque is the most developed type of credit instrument in the money market.

 5. Financing Internal and Foreign Trade:

The bank finances internal and foreign trade through discounting of exchange bills. Sometimes, the bank gives short-term loans to traders on the security of commercial papers. This discounting business greatly facilitates the movement of internal and external trade. 

6. Remittance of Funds:

Commercial banks, on account of their network of branches throughout the country, also provide facilities to remit funds from one place to another for their customers by issuing bank drafts, mail transfers or telegraphic transfers on nominal commission charges. As compared to the postal money orders or other instruments, bank drafts have proved to be a much cheaper mode of transferring money and has helped the business community considerably.

 B. Secondary Functions

Secondary banking functions of the commercial banks include:

1. Agency Services

2. General Utility Services

These are discussed below.

 Agency Services:

Banks also perform certain agency functions for and on behalf of their customers. The agency services are of immense value to the people at large. The various agency services rendered by banks are as follows:

 (a) Collection and Payment of Credit Instruments: Banks collect and pay various credit instruments like cheques, bills of exchange, promissory notes etc., on behalf of their customers.

 (b) Purchase and Sale of Securities: Banks purchase and sell various securities like shares, stocks, bonds, debentures on behalf of their customers.

 (c) Collection of Dividends on Shares: Banks collect dividends and interest on shares and debentures of their customers and credit them to their accounts.

 (d) Acts as Correspondent: Sometimes banks act as representative and correspondents of their customers. They get passports, traveller’s tickets and even secure air and sea passages for their customers.

 (e) Income-tax Consultancy: Banks may also employ income tax experts to prepare income tax returns for their customers and to help them to get refund of income tax.

 (f) Execution of Standing Orders: Banks execute the standing instructions of their customers for making various periodic payments. They pay subscriptions, rents, insurance premia etc., on behalf of their customers.

 (g) Acts as Trustee and Executor: Banks preserve the ‘Wills’ of their customers and execute them after their death.

 2. General Utility Services:

In addition to agency services, the modern banks provide many general utility services for the community as given.

 (a) Locker Facility: Bank provide locker facility to their customers. The customers can keep their valuables, such as gold and silver ornaments, important documents; shares and debentures in these lockers for safe custody.

 (b) Traveller’s Cheques and Credit Cards: Banks issue traveller’s cheques to help their customers to travel without the fear of theft or loss of money. With this facility, the customers need not take the risk of carrying cash with them during their travels.

 (c) Letter of Credit: Letters of credit are issued by the banks to their customers certifying their credit worthiness. Letters of credit are very useful in foreign trade.

 (d) Collection of Statistics: Banks collect statistics giving important information relating to trade, commerce, industries, money and banking. They also publish valuable journals and bulletins containing articles on economic and financial matters.

 (e) Acting Referee: Banks may act as referees with respect to the financial standing, business reputation and respectability of customers.

 (f) Underwriting Securities: Banks underwrite the shares and debentures issued by the Government, public or private companies.

 (g) Gift Cheques: Some banks issue cheques of various denominations to be used on auspicious occasions.

 (h) Accepting Bills of Exchange on Behalf of Customers: Sometimes, banks accept bills of exchange, internal as well as foreign, on behalf of their customers. It enables customers to import goods.

 (i) Merchant Banking: Some commercial banks have opened merchant banking divisions to provide merchant banking services.

 C. Fulfillment of Socio-Economic Objectives

In recent years, commercial banks, particularly in developing countries, have been called upon to help achieve certain socio-economic objectives laid down by the state. For example, the nationalized banks in India have framed special innovative schemes of credit to help small agriculturists, village and cottage industries, retailers, artisans, the self employed persons through loans and advances at concessional rates of interest. Under the Differential Interest Scheme (D.I.S.) the nationalized banks in India advance loans to persons belonging to scheduled tribes, tailors, rickshaw-walas, shoe-makers at the concessional rate of 4 per cent per annum. This does not cover even the cost of the funds made available to these priority sectors. Banking is, thus, being used to subserve the national policy objectives of reducing inequalities of income and wealth, removal of poverty and elimination of unemployment in the country.

 Conclusion:

It is clear from the above that banks help development of trade and industry in the country. They encourage habits of thrift and saving. They help capital formation in the country. They lend money to traders and manufacturers. In the modern world, banks are to be considered not merely as dealers in money but also the leaders in economic development.

Functions of a central bank

 The primary function of a central bank is to manage the nation's money supply (monetary policy). The basic functions of the Central Banks are:

1. Monopoly of Note-Issue:

Note-issue primarily is the main function of a central bank in every country. These days, in all the countries where there is a central bank generally it has got the monopoly or the sole right of note-issue.

In the beginning this was not the function of Central Bank but gradually all the central banks have acquired this function. First of all, Central Bank of England got the right of note-issue in the year 1844. In actual practice, upto the beginning of twentieth century, generally central banks were recognized as the banks of note-issue. In India, R.B.I., the central bank of India has got the right of note-issue.

 2. Banker, Agent & Adviser to the Government:

As banker to the government, central bank provides all those services and facilities to the government which public gets from the ordinary banks. It operates the accounts of the public enterprises. It manages government departmental undertakings and government funds and when there is a need gives loans to the government. It looks after the manage­ment of public debt. It accepts the payment of taxes from the public on behalf of the government and makes payment for the cheques issued by the government. It also undertakes transactions relating to foreign currencies on behalf of the government.

 3. Custodian of Cash Reserves of Commercial Bank:

Central bank is the bank of banks. This signifies that it has the same relationship with the commercial banks in the country which they have with their customers. It provides security to their cash reserves, gives them loan at the times of need, gives them advice on financial and economic matters and works as clearing house among various member banks.

A definite percentage of deposits of commercial banks are kept as reserve with the central bank. This leads to centralization of cash reserve and facilitates working of credit control. These funds are of great significance during the time of emergency.

 4. Custodian of Nation's Reserves of International Currencies:

Central bank is the custodian of the foreign currency obtained from various countries. This has become an important function of central bank, these days, because with its help it can stabilize the external value of the currency. This function has become highly important after the World Depression of 1929 and the establishment of the International Monetary Fund.

 5. Lender of the Last Resort:

Central bank works as lender of the last resort for commercial banks because in the times of need it provides them financial assistance and accommodation. Whenever a commercial bank faces financial crisis, central bank as lender of the last resort comes to its rescue by advancing loans and the bank is saved from being failed. Central bank helps commercial banks by discounting their bills and securities.

 6. Clearing House Function:

All the commercial banks have their accounts with the central bank. Therefore, central bank settles the mutual transactions of banks and thus saves all banks contacting each other individually for setting their individual transactions, in this way; the unnecessary cash transactions between individual banks are avoided.

 7. Credit Control:

This is a very important function. These days, the most important function of central bank is to control the volume of credit for bringing about stability in the general price level and accomplishing various other socio-economic objectives. There are number of methods which a central bank may use for controlling the volume of credit such as bank rate, open market operations, change in reserve ratio and various selective controls.

 Other Functions:

Besides the 7 functions explained above, central banks perform many other functions that are as follows:

 8. Collection of Data:

Central banks in almost all the countries collects statistical data regularly relating to economic aspects of money, credit, foreign exchange, banking etc. from time to time, committees and commission are appointed for studying various aspects relating to the aforesaid problem.

 9. Central Banking in Developing Countries:

The basic problem of underdeveloped countries is the problem of lack of capital formation whose main causes are lack of saving and investment. Therefore, central bank can play an important role by promoting capital formation through mobilizing saving s and encouraging investment.

 

What Is Cheque, Characteristics Of Cheque

 What Is Cheque?

Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign by the person who has deposited money with the banker, requiring him to pay on demand a certain sum of money only to or to the order of certain person or to the bearer of instrument.

Whats Are The Characteristics Of Cheque?

1. Cheque is an instrument in writing

A cheque must be in writing. It can be written in ink pen, ball point pen, typed or even printed. Oral orders are not considered as cheques.

 2. Cheque contains an unconditional order

Every cheque contains an unconditional order issued by the customer to his bank. It does not contains a request for payment. A cheque containing conditional orders is dishonoured by the bank.

 3. Cheque is drawn by a customer on his bank

A cheque is always drawn on a specific bank mentioned therein. Cheque drawn by stranger are of no meaning. Cheque book facility is made available only to account holder who are supposed to maintain certain minimum balance in the account.

 

4. Cheque must be signed by customer

A cheque must be signed by customer (Account holder) . Unsigned cheques or signed by persons other than customers are not regarded as cheque.

 5. Cheque must be payable on demand

A cheque when presented for payment must be paid on demand. If cheque is made payable after the expiry of certain period of time then it will not be a cheque.

 6. Cheque must mention exact amount to be paid

Cheque must be for money only. The amount to be paid by the banker must be certain. It must be written in words and figures.

 7. Payee must be certain to whom payment is made

The payee of the cheque should be certain whom the payment of a cheque is to be made i.e. either real person or artificial person like joint stock company. The name of the payee must be written on the cheque or it can be made payable to bearer.

 8. Cheque must be duly dated by customer of bank

A cheque must be duly dated by the customer of bank. The cheque must indicate clearly the date, month and the year. A cheque is valid for a period of six months from the date of issue.

 9. Cheque has 3 parties : Drawer, Drawee & Payee

1. Drawer : A drawer is a person, who draws a cheque.
2. Drawee : A drawee is a bank on whom a cheque is drawn.
3. Payee : A payee is a person in whose favour a cheque is drawn.

Conflict Resolutions

 What is conflict?

Conflict is any situation in which two or more parties feel themselves in opposition.

Conflict is an interpersonal process that arises from disagreement over the goals to attain.

In addition to conflict over goals or methods, conflicts also arise due to task interdependency, ambiguity of roles, policies, and rules, personality deference, ineffective communication, competition over scarce resources and underlying differences in attitudes, beliefs and experiences.

Levels of Conflict:

01. Intrapersonal Conflict

02. Interpersonal conflict

03. Inter group conflict

Sources of conflict:

01. Organizational conflict

02. Different set of values

03. Threats to status

04. Contrasting perceptions

05. Lack of trust

06. Personality clashes

 

Conflict resolution strategies:

01. Avoiding

02. Smoothing

03. Forcing

04. Compromising

05. Confronting

 

Guidelines for conflict resolution through Confrontation/problem

Solving / integrating:

01. Agree on common Goal

02. Commit yourself to fluid, not fixed

03. Clarify the strengths and weakness of both party’s positions

04. Recognize possible need for face saving

05. Be candid and up-front, don’t hold back key information.

06. Avoid arguing or using ―yes-but‖

07. Strive to understand the other person’s viewpoint, needs and bottom line

08. Ask question to elicit needed information

09. Make sure that both parties have a vested interest in making the outcome succeed

10. Give the other party substantial credit when the conflict is over.