Chapter 11: Correspondence with Banks
Select the correct answer from the options given below and rewrite the statement.
A company usually opens _____________ account in a bank.
OPTIONS
Current
Saving
Recurring
SOLUTION
A company usually opens Current account in a bank.
Bank is a _______ institution
OPTIONS
financial
social
cultural
SOLUTION
Bank is a financial institution
The appointment of banker is usually made by the _______.
OPTIONS
Board of Directors
Secretary
Chairman
SOLUTION
The appointment of banker is usually made by the Board of Directors.
Resolution for opening Bank Account is passed in the _________ meeting.
OPTIONS
Board
Statutory
Annual General
SOLUTION
Resolution for opening Bank Account is passed in the Board meeting.
Bank provides overdraft facility to ___________ account holder.
OPTIONS
Current
Saving
Fixed Deposit
SOLUTION
Bank provides overdraft facility to Current account holder.
__________ is used for depositing cash into a bank account.
OPTIONS
Pay-in-slip
Withdrawal slip
Cheque
SOLUTION
Pay-in-slip is used for depositing cash into a bank account.
Borrowing/Accepting and lending money are considered as _______ functions of bank.
OPTIONS
Primary
Secondary
Agency
SOLUTION
Borrowing/Accepting and lending money are considered as Primary functions of bank.
Withdrawals are not permitted from the ____________ deposit account.
OPTIONS
Fixed
Current
Savings
SOLUTION
Withdrawals are not permitted from the Fixed deposit account.
State whether the following statement is true or false :
It is necessary to instruct the bank to stop payment of a cheque which is lost.
OPTIONS
True
False
__________ account is suitable to salaried people.
OPTIONS
Savings
Current
Fixed
SOLUTION
Savings account is suitable to salaried people.
Generally Interest is not paid on ___________ deposit account
OPTIONS
Current
Saving
Fixed
SOLUTION
Generally Interest is not paid on Current deposit account
Match the pairs.
SOLUTION
Write a word or a term or a phase which can substitute the following statement:
A slip used for depositing cash and cheque in the Bank account.
SOLUTION
Pay-in-slip
Permission to withdraw excess amount from Current Account.
SOLUTION
Overdraft
Separate loan account under which the short term loan facility given by bank to the business
SOLUTION
Cash credit
The short term credit facility given by bank to current account holder.
SOLUTION
Overdraft
The account which is generally opened by business organization.
SOLUTION
Current account
Request of Secretary to the bank not to make the payment of cheque.
SOLUTION
Stop payment request
The type of account for which higher rate of interest is paid to bank depositors.
SOLUTION
Fixed deposits account
The slip which is used for withdrawing money from Savings Account.
SOLUTION
Withdrawals slip
Negotiable Instrument which can be discounted with the bank.
SOLUTION
bill of exchange
State whether the following statement is true or false :
Joint Stock Company opens Current Account.
OPTIONS
True
False
Generally no interest is paid by bank on Current Account.
OPTIONS
True
False
In cash credit, customers account is credited by bank with sanctioned amount
OPTIONS
True
False
Board resolution is not required to open the Current Account with the bank.
OPTIONS
True
False
Bank account of company is operated by shareholder.
OPTIONS
True
False
Overdraft facility is granted to Savings account holders.
OPTIONS
True
False
Bank correspondence should be brief and to the point.
OPTIONS
True
False
Bank overdraft facility is a long term facility.
OPTIONS
True
False
Banks grant long term loans only.
OPTIONS
True
False
Find the odd one:
OPTIONS
Saving Deposit
Recurring Deposit
Cash Credit
Fixed Deposit
OPTIONS
Overdraft
Fixed Deposit
Discounting of Bills
Cash Credit.
Complete the sentence:
A financial institution which receives deposits and lends money is called as __________
SOLUTION
A financial institution which receives deposits and lends money is called as Bank
Accepting deposits and lending money are the primary functions of ______
SOLUTION
Accepting deposits and lending money are the primary functions of Commercial bank
A facility under which a customer can overdraw money from his account is called as ___________.
SOLUTION
A facility under which a customer can overdraw money from his account is called as Overdraft facility
Select the correct option from below
OPTIONS
Accepting Deposits
Current Account
Letter of Credit
Businessman
OPTIONS
Accepting Deposits
Current Account
Letter of Credit
Businessman
OPTIONS
Accepting Deposits
Current Account
Letter of Credit
Businessman
OPTIONS
Accepting Deposits
Current Account
Letter of Credit
Businessman
Complete the sentence:
Overdraft facility is given to __________.
SOLUTION
Overdraft facility is given to Current account holder
Answer in one sentence:
What is a Letter of Credit?
SOLUTION
A Letter of Credit is a payment or method, generally used for an international trade transaction.
Which facility is given to Current Account holder?'
SOLUTION
Overdraft facility is given to Current Accountholder.
What do you mean by stop payment of cheque?
SOLUTION
A cheque in respect of which the account holder requests the bank not to make payment or stop payment on it is called stop payment cheque.
Correct the underlined word and rewrite the following sentence:
Accepting deposits is the secondary function of Banks.
SOLUTION
Accepting deposits is the Primary function of the bank.
Businessman opens Fixed Deposit Account.
SOLUTION
Businessman opens Current account
Under Cash Credit facility businessman /Accountholder can overdraw from his account.
SOLUTION
Under Overdraft facility businessman /Accountholder can overdraw from his account.
Explain the following term/concept:
Bank
SOLUTION
1) Bank is a financial institution that deals in money. It is an institution which accepts money as deposits and lends money in different forms. It accepts money as deposits repayable on demand with interest, through cheques, draft, and order or otherwise. Bank earns a margin of profit by the lending amount collected as deposits at a higher rate of interest to trade and industry. It is a financial institution in which those people who have surplus and idle funds deposit in it and those who need funds borrow from it.
(2) Bank is an important institution in the money market where money itself is a commodity. It provides various types of services by performing two types of functions viz. Primary functions and secondary functions. The primary function of the bank includes accepting deposits and lending funds. Section 5 (c) of the Banking Regulation Act, 1949 defines a Banking Company “as any company which transacts the business of banking in India.”
Demand Deposits
SOLUTION
1) The deposits which are repayable on demand is called demand deposits. The demand deposits include saving deposits and current deposits. A saving deposits account aims at promoting the habit of saving among the fixed income earners. Interest at certain rates is paid on the minimum balance in this account. There are restrictions on the number of withdrawals. A passbook is issued to the depositor. E-statement issued to depositor only on demand.
2) A current deposit account is meant for businessmen and institutions. There are no restrictions on the number and amount of withdrawals from this account. Interest is not payable on the balance standing in this account. Overdraft facility is granted only to current account holders after following the prescribed procedure of the bank.
Time Deposits.
SOLUTION
1) Any deposit which is not repayable on demand is called time deposit. Time deposits are repayable after a specified period of time. Time deposits may be classified as fixed deposit and recurring deposit. Under Fixed deposit account certain amount is deposited for fixed period (minimum 45 days or more). Usually a higher rate of interest is paid depending on the period. Interest is paid either at a regular time interval or on the maturity of deposits. Fixed Deposit Receipt (FDR) is issued to the depositor. Loan is given to depositor on the security of FDR.
2) Under Recurring deposit account, depositor is required to deposit with the bank a fixed sum of money every month for 12, 24, or 60 months. To encourage saving habit among the people bank allows depositors to open this account. 0n maturity, the depositor gets the total amount deposited plus interest accrued on it. Passbook is issued to the depositor. E-statement is issued to the depositor only on demand.
Savings Deposits
SOLUTION
A current deposit account is meant for businessmen and institutions. There are no restrictions on the number and amount of withdrawals from this account. Interest is not payable on the balance standing in this account. Overdraft facility is granted only to current accountholders after following the prescribed procedure of the bank.
Current deposits
SOLUTION
A current deposit account is meant for businessmen and institutions. There are no restrictions on the number and amount of withdrawals from this account. Interest is not payable on the balance standing in this account. Overdraft facility is granted only to current accountholders after following the prescribed procedure of the bank.
Recurring deposits
SOLUTION
Under Recurring deposit account, depositor is required to deposit with the bank a fixed sum of money every month for 12, 24, or 60 months. To encourage saving habit among the people bank allows depositors to open this account. 0n maturity, depositor gets the total amount deposited plus interest accrued on it. Pass book is issued to the depositor. E-statement is issued to the depositor only on demand.
Fixed deposits
SOLUTION
Any deposit which is not repayable on demand is called a time deposit. Time deposits are repayable after specified period of time. Time deposits may be classified as fixed deposit and recurring deposit. Under Fixed deposit account certain amount is deposited for fixed period (minimum 45 days or more). Usually higher rate of interest is paid depending on the period. Interest is paid either at regular time interval or on maturity of deposits. Fixed Deposit Receipt (FDR) is issued to the depositor. Loan is given to depositor on the security of FDR.
Loans
SOLUTION
1) Loan is an arrangement by which the bank advances an amount against securities like shares and debentures, government bonds insurance policies or valuables like gold ornaments, jewelers, etc. This amount is either paid in one sum or is credited to a separate loan account in the name of the customer. It is granted for a fixed period. Interest is payable on the entire amount sanctioned irrespective of the amount actually withdrawn by the borrower.
2) Short term loans are provided for the period of not more than 1 year. It is required by businessman to meet the need of working capital. Bank charges interest at the rate higher than is charged on overdraft. Medium term loans are provided for a period from 1 year up to 5 years. Interest charged on this type of loan is higher than interest rate charges on short term loan. Long term loans are provided by the bank for the period more than 5 years. It is given for growth and development of the business. Interest charged on the long term loans is higher than that is charged on Medium term loans.
Advances
SOLUTION
(1) A credit facility provided by the bank to its customers for a shorter period is called advances. Advances are usually granted by the bank to the business to meet the day-to-day requirements of a business. Interest is charged only on the amount actually withdrawn and not on the amount sanctioned.
(2) The amount received by the bank by way of deposits through various accounts is utilized for granting advances or loans to trade and industry. The bank adopts the following devices to advance short term finances:
i) Bank overdraft, (ii) Cash credit, and (iii) Discounting Bills of Exchange.
Cash Credit.
SOLUTION
(1) Under this arrangement, a banker asks the borrower to open a separate account. Then bank places sanctioned loan amount to the credit of this account. The customer is allowed to withdraw from this account as and when he needs money and is allowed to deposit in his account any surplus that he has.
The customer is charged interest on the actual am0unt utilised by him.
(2) Cash credit arrangement is for a longer period than an overdraft. The customer can save interest by depositing the excess amount not needed and withdrawing the amount as and when he needs it. This system of lending is very popular only in India among traders, industrialists, etc. Bank demands some tangible securities such as stock of raw material, finished goods, etc
Overdraft
SOLUTION
(1) A bank overdraft is an arrangement by which a customer, usually a current account holder, is allowed to overdraw, Le. Withdraw money in excess of his own balance, up to a certain limit sanctioned by the bank for a specified period.
(2) Bank charges interest on the actual amount overdrawn every day. This facility is extended on the basis of collateral security of goods, raw materials, shares, bonds, Government promissory notes. Fixed Deposit Receipt (FDR). LIC policies. etc. Businessmen meet their temporary working capital requirements by taking advantage of overdraft facility.
Discounting of Bills
SOLUTION
(1) Banks offer financial assistance to commerce and industry through discounting bills of exchange and promissory notes. A creditor holding a bill of exchange duly accepted by his debtor can discount it at a bank. The bank pays the amount of the bills after deducting some nominal amount as a discount. This discount represents the interest on the amount for the unexpired or the remaining period of the bill.
(2) On maturity, the bank collects the proceeds of the bill from its acceptor. If the bill of exchange is dishonored, the customer of the bill of exchange along with interest expenses, etc. Sometimes, a banker who discounted the bill of exchange is liable to pay to the bank the whole amount themselves accept hundies on behalf of the customers and arrange to pay for the bill of exchange on maturity. This facility helps traders in securing ready money for their day-to-day business.
Letter of Credit
SOLUTION
(1) A Letter of Credit is ‘an undertaking given by the importer’s bank stating that the payment for the goods imported will be made to the exporter if the required documents of title are presented to the bank’. Issuing a Letter of Credit is a method of making payment to the exporter by the importer for the goods imported Under this method the importer maintains a bank account with a banker and purchases a Letter of Credit (L/C) from the banker.
(2) In the Letter of Credit, the banker of the importer writes to the banker of the exporter to make the payment of a certain amount to the exporter on the delivery of certain specified export documents by the exporter. The Letter of Credit is sent to the exporter after complying with the shipment formalities the exporter submits this letter to his bank along with necessary documents and can secure the payment in his own country and in his own currency. Thereafter, the exporter’s bank sends these documents to the importer’s bank. The importer’s bank delivers them to the importer. The importer can produce these documents to the Port authorities and get his goods.
Stop payment of cheque
SOLUTION
(1) Businessmen and commercial organisations issue cheques to various parties in settlement of their dues or bills. These cheques may be sent by post or may be collected by hand delivery. Sometimes cheques may be lost during transit or misplaced and so cannot be traced. It is possible that the finder of such a cheque may fraudulently encase it from the bank.
(2) If any cheque issued by the company is lost or misplaced, the Company Secretary must inform the bank immediately by telephone about the loss of cheque with a request to stop payment on such lost cheque. Subsequently, he is required to write a letter to the bank giving details of the lost cheque such as cheque number, date of issue, amount of cheque, name of the party in whose favour cheque is drawn, etc. This helps the bank to stop or deny the payment on the lost cheque.
Distinguish between the following:
Current account and saving account:
SOLUTION
Loan and overdraft
SOLUTION
Fixed deposit account and recurring deposit account
SOLUTION
What are the points to be kept in mind by a Secretary while corresponding with Banks?
SOLUTION
The points to be kept in mind by a Secretary while corresponding with banks:
(1) Prompt reply: In certain cases such as loss of a cheque, mistakes or wrong entries in the passbook, etc. communication to the bank must be prompt. Replies to letters from the bank must be sent promptly.
(2) Brevity/Conciseness: The letter/correspondence with the bank should be brief, compact, and to the point. The letters should not contain unnecessary details. I
(3) Courtesy: The letter drafted to the bank should be courteous and polite. Secretary should not use harsh or rude, offending words in the correspondence.
(4) Clarity: The wording and the construction of the letter must be clear and understandable to the reader. The Secretary should provide true, factual clear, and update the information of his organisation to the banker.
(5) Accuracy: The letter to a bank must be accurate in all respects. The facts, figures, statistical data, amounts, names of the parties, etc. mentioned in the letter must be properly verified before mentioning them in the letter.
(6) Secrecy: As far as possible confidential information should not be communicated in writing as it may harm the interests of the company.
(7) Legal procedure: Wherever applicable, the Secretary must endure that the statutory provisions and requirements are complied with white drafting letters to the bank. The Secretary must ensure that the enclosures referred to in the body of the letter tally with those actually enclosed.
Under what circumstances will a Secretary correspond with the Banks?
SOLUTION
The circumstances under which a Secretary correspond with the bank:
(1) Letter for opening the current account in the name of the company. Separate accounts may be opened for receiving application money, allotment money, call money, distribution of dividend, etc.
(2) Letter requesting the bank to stop the payment of a cheque issued but reported lost. In the case of wrong payment against a cheque issued by the company, either the banker or the company may be put to loss. In such a case, therefore, the Secretary first instructs the bank by telephone to stop the
Payment of such a cheque and then subsequently sends a letter confirming the instruction.
(3) Letter requesting the banker to grant an overdraft facility or cash credit or loan for meeting the financial needs of the company. It is a short term credit facility, which a bank gives to current account holders. Bank fixes the overdraft limit against securities given by the borrower.
(4) Letter requesting the banker to issue Letter of Credit. Letter of Credit is generally used for an international trade transaction. It is issued by the bank on behalf of his client promising to pay certain amount of money to the seller in case buyer fails to pay.
State the Agency functions of Banks.
SOLUTION
The bank performs some functions on behalf of its customers. These agency functions are:
(1) Collecting the amount of the cheques and bills deposited by its customers.
(2) Collecting dividend, interest, salary, pension, etc. on behalf of the customers.
(3) Making periodic payments such as annual subscriptions, rent, interest, taxes, Insurance premium, electricity bill, etc. as per standing instructions.
(4) Buying and selling securities such as shares, debentures, and other securities on behalf of customers. Bank also plays the role of Depositor Participant (DR).
(5) Remitting funds from one place to another by means of bank drafts, mail transfer, telegraphic transfer, etc.
(6) Carrying out or fulfilling standing instructions of depositors.
(7) Acting as an administrator, trustee, executor of W111, and attorney on behalf of its customers.
(8) Act as Banker to the issue. Lead manager, etc behalf of the Companies.
State the utility Function of banks
SOLUTION
Utility functions of the Banks :
(1) Providing safe deposit vaults to the customers for keeping their valuables like gold ornaments, securities, valuable documents, etc. in safe custody.
(2) Issuing Letter of Credit to the clients for making payment in international trade transactions.
(3) Dealing in foreign exchange and assisting in the Completion of formalities in foreign trade transactions.
(4) Providing the facility of withdrawing cash anytime through ATM (Automated Teller Machine). Issuing credit cards to their customers. Issuing debit cards to their customers for buying goods and services.
(5) Acting as a referee for the financial position and business standing of their customers Bank also draft financial position status report by considering frequency of banking transactions of its clients.
(6) Underwriting for shares and debentures issued by companies providing consultancy services in the matter of issuing of shares, taxation, etc, to the companies.
(7) Issuing travelers’ cheques to the tourists.
(8) Performing functions like RTGS (Real Time Gross Settlement), a system generally employed for large value interbank funds transfer, NEFT (National Electronic Funds
Transfer), NACH (National Automated Clearing House), and ECS (Electronic Clearing Service).
Explain the different types of deposits
SOLUTION
The bank accept two types of deposits via
a) Demand deposits: (1) The deposits which are repayable on demand is called ‘demand deposits’. The demand deposits include saving deposits and current deposits. A saving deposits account aims at promoting the habit of saving among the fixed income earners. Interest at certain rates is paid on the minimum balance in this account. There are restrictions on the number of withdrawals. Passbook is issued to the depositor. E-statement issued to depositor only on demand.
(2) A current deposit account is meant for businessmen and institutions. There are no restrictions on the number and amount of withdrawals from this account. Interest is not payable on the balance standing in this account. Overdraft facility is granted only to current account holders after following the prescribed procedure of the bank.
b) Time deposit:
(1) any deposit which is not repayable on demand is called a time deposit. Time deposits are repayable after a specified period of time. Time deposits may be classified as fixed deposit and recurring deposits. Under Fixed deposit account certain amount is deposited for fixed period (minimum 45 days or more). Usually higher rate of interest is paid depending on the period. Interest is paid either at regular time intervals or on the maturity of deposits. Fixed Deposit Receipt (FDR) 1s issued to the depositor. Loan is given to depositor on the security of FDR.
(2) Under the Recurring deposit account, the depositor is required to deposit with the bank a fixed sum of money every month for 12, 24, or 60 months, To encourage saving habit among the pe0ple bank allows depositors to open this account. On maturity, depositor gets the total amount deposited plus interest accrued on it. Passbook is issued to the depositor. E-statement is issued to the depositor only on demand.
Justify the following statement
The secretary has to correspond with bank under certain circumstances?
SOLUTION
The circumstances under which a Secretary correspond with the bank:
(1) Letter for opening the current account in the name of the company. Separate accounts may be opened for receiving application money, allotment money, call money, distribution of dividend, etc.
(2) Letter requesting the bank to stop the payment of a cheque issued but reported lost. In the case of wrong payment against a cheque issued by the company, either the banker or the company may be put to loss. In such a case, therefore, the Secretary first instructs the bank by telephone to stop the
Payment of such a cheque and then subsequently sends a letter confirming the instruction.
(3) Letter requesting the banker to grant an overdraft facility or cash credit or loan for meeting the financial needs of the company. It is short term credit facility, which a bank gives to current account holders. Bank fixes overdraft limit against securities given by the borrower.
(4) Letter requesting the banker to issue a Letter of Credit. Letter of Credit is generally used for an international trade transaction. It is issued by the bank on behalf of his client
Promising to pay certain amount of money to the seller in case buyer fails to pay.
The secretary should observe certain precautions while corresponding with the bank?
SOLUTION
The points to be kept in mind by a Secretary while corresponding with banks:
(1) Prompt reply: In certain cases such as loss of a cheque, mistakes or wrong entries in the passbook, etc. communication to the bank must be prompt. Replies to letters from the bank must be sent promptly.
(2) Brevity/Conciseness: The letter/correspondence with the bank should be brief, compact, and to the point. The letters should not contain unnecessary details. I
(3) Courtesy: The letter drafted to the bank should be courteous and polite. Secretary should not use harsh or rude, offending words in the correspondence.
(4) Clarity: The wording and the construction of the letter must be clear and understandable to the reader. The Secretary should provide true, factual clear and update the information of his organisation to the banker.
(5) Accuracy: The letter to a bank must be accurate in all respects. The facts, figures, statistical data, amounts, names of the parties, etc. mentioned in the letter must be properly verified before mentioning them in the letter.
(6) Secrecy: As far as possible confidential information should not be communicated in writing as it may harm the interests of the company.
(7) Legal procedure: Wherever applicable, the Secretary must endure that the statutory provisions and requirements are complied with white drafting letters to the bank. The Secretary must ensure that the enclosures referred to in the body of the letter tally with those actually enclosed.
The primary function of commercial banks include-Accepting deposits and leading funds?
SOLUTION
The primary functions of Commercial banks include:
(1) Accepting deposits: A bank accepts deposits from the public and business organisation under the following heads, viz.
(1) Demand deposits and (2) Time deposits.
(a) Demand deposits include saving deposits and current deposits. A saving deposit account aims at promoting the habit of saving among the fixed income earners. Interest at certain rates is paid on the minimum balance in this account. There are restrictions on the number of withdrawals. A current deposit account is meant for businessmen and institutions. There are no restrictions on the number and amount of withdrawals from this account there is sufficient balance in the account. Interest is not payable on the balance standing in this account. Overdraft facility is granted only to current account holders.
(b) Time deposits: Any deposit which is not repayable on demand is called time deposit. Time deposits may be classified as fixed deposit and recurring deposit. Under Fixed deposit account, certain amount is deposited for fixed period (minimum 45 days or more). Usually higher rate of interest is paid depending on the period. Under Recurring deposit account depositor is required to deposit with the bank a fixed sum of money every month for 12, 24, or 60 months. On maturity, depositor gets the total amount deposited plus interest accrued on it.
(2) Lending money: The deposits accepted by banks are used for lending money to the people who need it for different periods. Short-term loans are advanced in the form of overdrafts, cash credits, and discounting of bills. The bank also advances medium-term and long-term loans to businessmen and industrialists. In an overdraft facility, the bank allows the current account holder to overdraw from his existing current account up to a specified limit. Under cash credit, the borrower is required to open a separate account where the bank credits the sanctioned loan amount. Besides, the bank discounts bills and hundies and provides ready money to the traders. The bank charges interest on the amount it lends.
The bank accept two types of deposits from the public i.e. demand and time deposit
SOLUTION
1) Demand Deposits.
The deposits which are repayable on demand is called ‘demand deposits’. The demand deposits include saving deposits and current deposits. A saving deposits account aims at promoting the habit of saving among the fixed income earners. Interest at certain rates is paid on the minimum balance in this account. There are restrictions on the number of withdrawals. Pass book is issued to the depositor. E-statement issued to depositor only on demand.
(2) A current deposit account is meant for businessmen and institutions. There are no restrictions on the number and Amount of withdrawals from this account. Interest is not payable on the balance standing in this account. Overdraft facility is granted only to current account holders after following the prescribed procedure of the bank.
(2) Time Deposits.
Any deposit which is not repayable on demand is called time deposit. Time deposits are repayable after specified period of time. Time deposits may be classified as fixed deposit and recurring deposit. Under Fixed deposit account certain amount is deposited for fixed period (minimum 45 days or more). Usually higher rate of interest is paid depending on the period. Interest is paid either at regular time interval or on maturity of deposits. Fixed Deposit Receipt (FDR) is issued to the depositor. Loan is given to depositor on the security of FDR.
(2) Under Recurring deposit account, depositor is required to deposit with the bank a fixed sum of money every month for 12, 24, or 60 months. To encourage saving habit among the people bank allows depositors to open this account. On maturity, depositor gets the total amount deposited plus interest accrued on it. Passbook is issued to the depositor. E-statement is issued to the depositor only on demand.
There is a difference between Loans and Advances given by the Bank.
SOLUTION
The difference between Loans and Advances:
(1) A loan is an arrangement under which a certain amount is advanced to the borrower for a certain fixed period. An advance is a credit facility provided by the bank to its customers. Loans are granted for a longer period of time, but advances are usually given for a shorter period of time.
(2) The purpose of granting loan is to meet long term financial needs of the business organisations such as working capital need, fund for growth and development, funds for modernisation, etc. The purpose of granting advances is to meet the day-today financial requirements of a business.
(3) In the case of loan interest is charged by the bank on the entire amount sanctioned and credited to the account of the borrower. However, in case of advances bank charges interest only on the amount actually withdrawn from the bank and not on the amount sanctioned.
(4) The rate of interest charged on the loan depends on the period of time for which loan is given. Usually it is a little higher than the rate of interest charged on the advances.
Overdraft facility is given only to current depositors?
SOLUTION
1) A bank overdraft is an arrangement by Which a customer, usually a current account holder, is allowed to overdraw, i.e. withdraw money in excess of his own balance, up to a certain limit sanctioned by the bank for a specified period. By an agreement, the banker undertakes to honors cheques up to a certain limit. This is a kind of temporary loan for which the bank charges interest on the actual amount overdrawn and only for the period for which it is used.
(2) This facility is extended only to current account holders on the basis of collateral (additional) security of goods, raw materials. Shares, bonds, etc. or sometimes even on the personal guarantee of the customer. Businessmen meet their temporary working capital requirements by taking advantage of this facility. The overdrawn amount gets reduced as and when the deposits are made by the account holder. If required, the overdraft facility can be renewed from time to time because every time it is granted for a short duration like a couple of months, or so.
Attempt the following:
Write a letter to bank for opening a current account
SOLUTION
NEW STAR COMPANY LTD.
Registered office: 24/B, Ready money Terrace, Vidyanagar Road,
Worli Naka, Mumbai 400 018.
CIN: L40408MH2001PLC246065
Tel no. (022) 6662 6379
Fax no. (022) 4264 8274
Ref no. N/BK/14/19-20
Website: www.newstarltd,com
E-mail: newstar07@gmail.com
Date: 30th June, 2019
The bank manager,
Bank of India,
42, Dr.E.Moses Road, Worli Naka,
Mumbai – 400 018
Sub: Request to open a current account:
Dear Sir,
The Board of Directors of this Company at its meeting held on 20th June, 2019, passed a resolution to open a Current Account in the name of the Company in your bank.
In accordance with the rules for opening a Current Account in your bank, we enclose herewith the following documents:
(1) The prescribed Current Account opening application form duly filled in, signed, and dated
(2) Certified copy of Certificate of Incorporation of the Company.
(3) Certified copies of the Memorandum and the Articles of Association of the Company.
(4) Certified copy of the list of the present Directors of the Company.
(5) Specimen signature cards containing signatures of two Directors: Mr. Yuvraj and Ms. Archana and the Company Secretary: Mr. Ashok officially authorised to operate the Account.
(6) A certified copy of the Board’s Resolution dated 20th June 2019, authorising the Company to open a Current Account with your bank.
(7) Duly filled up Pay-in-slip along with Rs 5,000 (Rupees Five Thousand Only) cash being the initial deposit.
(8) Copies of PAN and TAN cards.
We undertake to abide by the rules and regulations of your bank in respect of opening and operating the bank account. You are, therefore, requested to open a current account in the name of our company. I.e. New Star Company Ltd. and oblige us.
Thanking you,
Yours faithfully,
For New star company Ltd.
Sd. /
Company secretary
Write a letter to the bank to stop payment of cheque.
SOLUTION
ATLAS INDIA CO.LTD.
Registration office: 24, Atlas House, MIDC Colony, Mirjore, Ratnagiri,
CIN: L34378MH2004PLCI56725
Tel no. (022) 2498 2516
Fax no. (022) 484 42163
Ref no. A/SP/15/19-20
Website: www.atlasindialimited.com
Email: atlas06@gmail.com
Date: 30th June 2019
The branch manager,
The bank of India,
MIDC Colony, Mirjore branch,
Ratnagiri – 415 612
Sub: Stop payment of cheque no 010181 Dated 20th June 2019- current A/C No 2307
Dear Sir,
This is to confirm our telephonic instructions to you this morning regarding the withholding of the payment of one cheque issued by us.
We have been informed by one of our suppliers Messrs. Sal Auto Services, Sawantwadi, Sindhudurg, that our Cheque No. 010181 Current No. 2307 dated 20th June 2019 for 1‘25.000, drawn on your bank in favour of M/s Sal Auto Services, Sawantwadi, Sindhudurg has not reached them till 30th June, 2019. The said cheque seems to have been lost in transit. The cheque was sent to their Sawantwadi address under Certificate of Posting on 22nd June, 2019. We have issued a fresh cheque to them today itself.
In the meantime, as a precautionary measure, we request you to stop the payment of the said Cheque No. 010181 Current NC No. 2307 dated 20th June. 2019. If presented to you for payment. Kindly acknowledge receipt of this letter and comply.
Thanking you
Your faithfully,
For Atlas India Co.Ltd
Sd./
Company secretary
Write a letter requesting the bank to issue a letter of credit.
SOLUTION
M/S USHA ELECTRONIC INDIA CO. LTD.
Registered Office: 45 1, Usha House, MG. Road,
Nashik: 422 002.
CIN: L212208MH2001PL0129644
Tel. No. (022) 2422 2848
Fax No. (022) 4613 0202
Ref. No. UEI /421 /15 /18-19
Website: www.ushalimited.com
Email: ushaelectronic@gmail.com
Date: 1st July 2019
The Bank Manager,
The Union Bank of India,
M.G. Road Branch,
Nashik 422 002.
Sub: Issue of letter of credit
Dear Sir,
We are pleased to inform you that we have secured an import license from the Central Government for the import of a variety of electronic goods from the United States.
After going through the quotations received from six leading exporters of the U.S. we have decided to place an order with M.K. Electronics, New York for the supply of different electronic goods worth 20,000 US dollars. We have been asked by them to send a Letter of Credit for the said amount.
We, therefore, request you to issue a Letter of Credit in favour of M.K. Electronics. New York for 20,000 US dollars. The said amount may be debited to our Current Account No. 4450 in your bank.
Thanking you,
Your faithfully,
For M/S USHA ELECTRONIC INDIA CO. LTD.
Sd./
Company secretary
Write a letter requesting the bank for granting overdraft facility
SOLUTION
SURAJ STAR COMPANY LIMITED
Registered Office: 2 1, Sea View, Marine Drive,
Mumbai - 400 020.
CIN: L20209MH2011PLC234186
Tel. No. (022) 259 6950
Fax No. (022) 259 7002
Ref. No. SSC/248/R/19-20
Website: www.Surajstarltd.com
Email: surstltd07@gmailcom
Date: 1st July, 2019
The Bank Manager,
The Bank of India,
Marine Drive Branch,
Mumbai 400 020.
Sub: Overdraft facility against our current account no. 3764
Dear Sir,
As you are aware, our Company has a current account in your bank for the last ten years (Current A/c No. 3764). The Board of Directors in its Board meeting held on 25th June, 2019 has decided to request you to grant us an overdraft facility of 3 lakh for a period of three months from August to October 2019. This facility is required for meeting the financial needs of the Company during the ensuing Diwali festival season.
As you know, we are the manufacturers of plastic goods and toys. Our experience in this field for the last ten years tells us that the festival season creates a heavy demand for the products of our Company. In view of this, we have started placing orders for the supply of raw materials required for the production of plastic goods and toys.
As the suppliers in this line generally do not extend fairly long-term credit facilities, we have to request you to grant us an overdraft facility as stated above. We offer stock in trade worth Rs 4 lakh and personal guarantee of two directors as security for the proposed overdraft. We shall complete other formalities after hearing from you.
An early reply will be appreciated.
Thanking you
Your faithfully,
For SURAJ STAR COMPANY LIMITED.
Sd./
Company secretary
Balbharati Solutions for Secretarial Practice 11th Standard HSC Maharashtra State Board Chapter-wise List - Free
Chapter 2: Joint Stock Company
Chapter 3: Formation of a company
Chapter 4: Documents related to formation of a company
Chapter 5: Members of a company
Chapter 6: Directors and Key Managerial personnel of a company
Chapter 7: Company Meetings - 1
Chapter 8: Company Meetings - 2
Chapter 9: Business Communication Skills of Secretary
Chapter 10: Correspondence with Directors
Chapter 11: Correspondence with Banks
Chapter 12: Correspondence with Statutory Authorities
