Justify the following statements.
1) The secretary has to correspond with the Banks under certain circumstances.
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.
2) The secretary should observe certain precautions while corresponding with the Banks.
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.
3) The Primary functions of Commercial Banks include-Accepting deposits and leading
4) The Bank accepts two types of deposits from the public i.e. Demand and Time Deposits.
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.
5) There is a difference between Loans and Advances given by the Bank.
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.
6) Overdraft facility is given only to current depositors.
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.