Describe the role of Bangladesh Bank in developing the financial system of our economy

 One of the fundamental responsibilities of BB is to develop of the financial system of our country. To furnish this role BB is engaged with the following activities:

In order to broaden financial market and also to diversify the sources of credit, a lrge number of NBFIs have been allowed to operate. To regularize and supervise the activities of these institutions, a new department is set up.

In order to safeguard the interest of ultimate uses of the financial services, and to ensure the viability of institutions providing these services, BB has issued a comprehensive set of procedural regulations which prescribed guidelines relating to classification of short term and long term loan facilities, set criteria for management, prohibit criminal use of banking channels for the purpose of Money laundering and other unlawful activities.

In recent years, BB has been enjoying more freedom in manage the monetary policy through traditional banking tools including open market operations by its own treasury bills and instruments. It works for the overall financial system of our country.

describes the main functions of a central bank.

Central Bank: Functions

01. General Activities:

(a) Circulation & Issuance of Notes and Coins

(b) Credit Control / Inflation or Deflation Control

(c ) Stabilization of Local Currency Value in comparison to Foreign Currency

(d) Act as the bank of the Government

(e) Bank of the other Banks

(f) Lender of last resort for other banks

(g) Act as Clearing House

(h) Foreign Exchange Control

(i) CAMELS rating of Commercial banks

02. Agency Functions:

(a) Advisor & delegate of the government

(b) Guardian of the banks

(c ) Communication with other country's central banks

(d) Development of the banking sector

(e) Relationship with other international financial organizations (WB, IMF, ADB, IDB etc.)

03. Development Functions: (a) Employment Generation

(b) Research of Economy and banking sector

(c ) Economic Development

04. Other Functions:

(a) Government Bond-Security Purchase and Selling

(b) Important Information Providing to Local and Foreign Queries

(c ) Changing of Mutilated Notes

(d) Establishment of Foreign Branches of Banks

(e) Fund transfer as per instruction of the government 

Endorsement and its types

What do you mean by endorsement? What are its different types?

An endorsement is the mode of negotiating a negotiable instrument. A negotiable instrument payable otherwise than to a bearer can be negotiated only by endorsement  and delivery. An endorsement, according to sec. 15 of the NI Act is “when the maker or holder of a negotiable instrument signs the same, otherwise than as such marker. For the purpose of negotiation on the back or face thereof or on

 a slip of paper annexed thereto, he is said to endorse the same and is called the endorser. The person to whom the instrument is endorsed is called the endorsee.

“The  word  endorsement  is  said  to  have  been  derived  from  Latin  ‘en’  means  ‘upon’  and  ‘dorsum’ meaning ‘the back’. Thus usually the endorsement is on the back of the instrument though it may be even on the face of it. Where no space is left on the instrument, the endorsement may be made on a slip of paper attached to it. This attached slip of paper is called ‘Allonge’.

Types of Endorsement:

According to the N.I. Act, 1881 endorsement may take any of the following forms:

1.                Endorsement in blank or general endorsement.

2.                Endorsement in full or special endorsement.

3.                Restrictive endorsement.

4.                Partial endorsement.

5.                Conditional endorsement.

Endorsement in Blank or General Endorsement:

In case of an endorsement in blank, the payee or endorser does not specify an endorsee and he simply signs his name (S. 16 NIA).

Endorsement in Full or Special Endorsement:

When the payee or endorser specifies the person to whom or to whose order the instrument is to be paid, the endorsement is called special endorsement or endorsement in full. The specified person i.e. the endorsee then becomes the payee of the instrument.

Restrictive Endorsement:

An endorsement is restrictive when it prohibits further negotiation of a negotiable instrument. Sec. 50 of the NI Act 1881states. “The endorsement may, by express words, restrict of exclude the right to negotiable or pay constitute the endorsee an agent to endorse the instrument or to receive its contents for the endorser or for some other specified person.”

For example, if B endorses an instrument payable to barer as follows, the right of C to further

negotiate is excluded

•     Pay the contents to C only

•      Pay C for my use

Partial Endorsement:

If only a part of the amount of the instrument is endorsed, it is a case of partial endorsement. An endorsement which purports to transfer to the endorsee only a part of the amount payable, or which purports to transfer the instrument to two or more endorsees severally, is not valid.

Conditional Endorsement:

If the endorser of a negotiable instrument, by express words in the endorsement, makes his liability or the  right  of  the  endorsee  to  receive  the  amount  due  thereon,  dependent  on  the  happening  of  a specified  event,  although  such  event  may  never  happen,  such  endorsement  is called  a conditional endorsement (Section 52 of NI Act). Such an endorser gets the following rights:

He may make his liability on the instrument conditional on the happening of a particular event. He  will  not  be  liable  to  the  subsequent  holder  if  the  specified  event  does  not  take  place  to  the instrument even before the particular event takes place.

For example, “pay C if he returns from London”. Thus C gets the right to receive payment only on the happening of a particular event, i.e. if he returns from London.

Effect of Endorsement

 An unconditional endorsement of a negotiable instrument followed by its unconditional delivery has the effect of transferring the property therein to the endorsee. The endorsee acquires a right to negotiate the instrument further to anyone he likes.

Section 50 of NI Act also permits that an instrument may also be endorsed so as to constitute the endorsee an agent of the endorser.

•        To endorse the instrument further or

•        To receive its amount for the endorser or for some other specified person

Negotiable instrument

A “negotiable instrument” means a promissory note, bill of exchange or cheque payable either to order or to bearer.

 

 

 

 

Explanation (i) - A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable or which is expressed to be payable to a particular person, and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable.

 

 

 

 

Explanation (ii) - A Promissory note, bill of exchange or cheque is payable to bearer which is expressed to be so payable or on which the only or last indorsement is an indorsement in blank.

 

 

 

 

Explanation (iii) - Where a promissory note, bill of exchange or cheque either originally or by indorsement, is expressed to be payable to the order of a specified person, and not to him or his order, it is nevertheless payable to him or his order at his option.

 

 

 

 

(2) A negotiable instrument may be made payable to two or more payees jointly or it may be made payable in the alternative to one of two, or one or some of several payees.

Payment in due course

 “Payment in due course” means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned.

Holder, Holder in due course

 The “holder” of a promissory note, bill of exchange or cheque means the payee or indorsee who is in possession of it or the bearer thereof but does not include a beneficial owner claiming through a benamidar. “Holder”

 

 

 

 

Explanation - Where the note, bill or cheque is lost and not found again, or is destroyed, the person in possession of it or the bearer thereof at the time of such loss or destruction shall be deemed to continue to be its holder.

“Holder” in due course” means any person who for consideration becomes the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof, if payable to order, before it became overdue, without notice that the title of the person from whom he derived his own title was defective. 

“Holder in due course”

 

 

 

 

 

 

Explanation - For the purposes of this section the title of a person to a promissory note, bill of exchange or cheque is defective when he is not entitled to receive the amount due thereon by reason of the provisions of section 58.

“Drawer” “Drawee” “Drawee in case of need” “Acceptor” “Acceptor for honour” “Payee”

 The maker of a bill of exchange or cheque is called the “drawer;” the person thereby directed to pay is called the “drawee.”

 

 

 

 

When in the bill or in any indorsement thereon the name of any person is given in additional to the drawee to be resorted to in case of need, such person is called a “drawee in case of need.”

 

 

 

 

After the drawee of a bill has signed his assent upon the bill, or, if there are more parts thereof than one, upon one of such parts, and delivered the same, or given notice of such signing to the holder or to some person on his behalf, he is called the “acceptor”.

 

 

When a bill of exchange has been noted or protested for non-acceptance or for better security, and any person accepts it supra protest for honour of the drawer or of any one of the indorsers, such person is called an “acceptor for honour.” “Acceptor for honour”

 

 

 

 

 

 

The person named in the instrument, to whom or to whose order the money is by the instrument directed to be paid, is called the “payee”.

Cheque

 A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.

 A Cheque is a negotiable instrument having importance in the commercial world. It was originally spelt as ‘ check’. Later, the modern spelling ‘ cheque’ was introduced by Gilbart.

 A cheque is a written order to the bank given by an account holder to pay money from his account. It is a popular mode of payment which can be passed from one hand to another hand easily. The Negotiable Instrument Act, 1881, Sec 06 defines Cheque as: “ A bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.” Thus, cheque is an unconditional instruction by the customer on a specified banker to pay certain sum of money to the specified person or persons or order or bearer of the instrument. All cheques are bill of exchange  but all bills are not cheques.

Salient features of Cheque:

1. Instrument in writing: A cheque must necessarily be an instrument in writing. Oral orders donot constitute a cheque. Bankers in their own interest and in the interest of the customers, allow the cheques to be drawn only in ink.
2. An unconditional order: A cheque is an order to pay and it is not a request. This order must be unconditional.
3. Drawn on a specified banker: A cheque is always drawn only on a particular banker.
4. Payee must be certain: A cheque must be made payable to the order of a certain specified person or his agent or bearer thereof.
5. A certain sum of money: A cheque is usually drawn for a certain sum of money.
6. Payable on demand: A cheque is payable only on demand.
7. Signed by the drawer: A cheque must be signed by the drawer i.e. customer as per specimen signature. ( in case of illiterate person, left thump impression is required for male and right thump impression for female).
8. Printed form: All banks follow more or less common standard printed form.
9. Date: A cheque must be properly dated. An undated cheque can not be regarded as a valid instrument. A stale instrument and post dated instrument can not be paid. Ante-dated instrument may be paid if it has not become stale by that time.

Issue of Cheque:

a)  Branch shall supply cheque book to the Account-holders for withdrawing cash / transfer fund from their account. While issuing first cheque book to a new customer , branch shall use prescribed printed cheque requisition form duly filled in and signed by the account holder or authorized signatory. Subsequently, cheque book can be issued against their duly filled in cheque requisition slip extracted from the cheque book issued earlier.

b) Authorised Branch Official, on receipt of duly signed cheque requisition slip from the customer, shall verify his/her signature  and shall ensure that

i)   The account has been opened properly complying all required formalities.

ii)  Previous cheque book has been entirely utilized.

iii) The account is not inoperative.

iv) No legal bar has been imposed on transactions in the account.

v)  No restrictions i.e. cautionary note has been imposed.

c) Authorized Official , after obtaining permission from the Head of Branch  and Manager Operation, while issuing cheque book , shall observe the following formalities:

i)  Verify signature  on the requisition form.

ii) Note down series number of new cheque book in the specific space.

iii) Take out new cheque book from running stock.

iv) Make sure that all leaves of the cheque book are intact.

v) Write down the the Title of Account and Account Number on the cover page, requisition slip and account number on the cheque leaves.

vi) Affix seal with the name of the branch on each leaf of the cheque book.

vii) Affix round seal on perforated line of each leaf covering both part of counterfoil and the cheque.

viii)  Put initial on given space at right hand top corner of each cheque leaf.

ix)  Enter name of account holder, account number and series number of the particular cheque book  in the specified space.

x)   Put initial in the relevant column of requisition form to authenticate the entries.

xi) After satisfactory scrutiny and on completion of all formalities, the Authorized Official shall deliver the cheque book to the account holder.

d)  Issuance of cheque book against lost cheque / lost requisition slip:

i)   While cheque book or cheque requisition slip is lost , account holder  shall personally submit application to the branch for new cheque book. After satisfactory identification of the account holder, branch shall mark stop payment against lost cheque leaves and issue new cheque book after obtaining (i) written approval of HOB and an indemnity bond on prescribed form duly signed by the Account holder.

ii)   Maintenance of stock of cheque book: Stock of cheque book is to be stored in a steel Almirah which shall be placed inside vault/strong room under joint control of Cash –in-charge and In-charge of Deposit department.

iii)   Safe custody of cheque book and recording & filing: At the close of business , stock of unused cheque book are to be balanced and kept in security box which must be placed inside strong room. Cheque series should be properly recorded and Cheque requisition forms shall be retained in a separate file.

 Payment of Cheque:

Payment of cheque means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof, under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount mentioned therein.

Precautions before honoring a cheque:

1. Precaution regarding Form of the Cheque.
2. Precaution regarding Branch.
3. Precaution regarding Account.
4. Precaution regarding Date.
5. Precaution regarding Amount.
6. Precaution regarding Fund of the Customer.
7. Precaution regarding Drawer’s signatures.
8. Precaution regarding Material Alteration.
9. Precaution regarding Crossing.
10. Precaution regarding Endorsement.
11. Precaution regarding Legal Bar etc.

Cancellation of Cheque:

Before making payment, Branch Official shall have to verify apparent tenor of the instrument and signature of account holder as per record. Being satisfied he/ she will cancel the cheque complying with the Specimen Signature Card for placing it to the counter for payment. The Cancellation Officer has to ensure that the instrument is in order complying all required features of a cheque. The Officer has an obligation to comply countermanding instructions, stop payment instructions, court’s order, customer’s death notice etc.

The Branch Official has to identify/ verify  the following before cancellation of the instrument:

1. Drawn on an ordinary piece of paper.
2. Stale/ post dated instrument.
3. Mutilated.
4. Words and Figures differ.
5. Insufficient Funds.
6. Signature is forged.
7. Endorsement is irregular.
8. Crossed instrument presented at the counter.
9. Material alteration
10. printed Forms etc.

bill of exchange

 A “bill of exchange” is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay on demand or at fixed or determinable future time a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.

 A promise or order to pay is not “conditional”, within the meaning of this section and section 4, by reason of the time for payment of the amount or any instalment thereof being expressed to be on the lapse of a certain period after the occurrence of a specified event which, according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain.

 The sum payable may be “certain,” within the meaning of this section and section 4, although it includes future interest or is payable at an indicated rate of exchange, or is payable at the current rate of exchange, and although it is to be paid in stated instalments and contains a provision that on default of payment of one or more instalments or interest, the whole or the unpaid balance shall become due.

 Where the person intended can reasonably be ascertained from the promissory note or the bill of exchange, he is a “certain person” within the meaning of this section and section 4, although he is misnamed or designated by description only.