Current Account

Current Account
Definition and Uses
Who Can Open?
Procedure for Opening
Credit Discipline
Operation of Current Account
Cheque books and Statements
Interest
Dormant Accounts and Charges
Nomination
Deceased Depositor
Closing an Account
Prohibitions
Current Account Retail Banking Chapter 04

Definition and Uses

A current account is defined by the Reserve Bank as, “ a
form of demand deposit wherefrom withdrawals are allowed
any number of times depending upon the balance in the account
or up to particular agreed amount and shall also be deemed to
include other deposit accounts that are not savings deposit nor
term deposit.” A current account is opened usually for
commercial or business purpose.


Who Can Open?
As stated earlier this account is opened for business or
commercial use. Normally Current account is opened by those who
have commercial interest and have need to issue many cheques.
These include;
•Individuals
•Sole Proprietorships
•Hindu Undivided Family
•Partnerships
•Trusts, Associations / Societies and clubs
•Limited Companies.

Procedure for Opening
RBI has advised banks to include certificate in accounting
opening forms confirming the identity, occupation and address of
the prospective customers signed by the introducer. Introduction
to account is very much important for banks, because in the event
of account not being introduced the bank will not get the
protection under Section 131 of the Negotiable Instrument Act. If
an overdraft is give by mistake, the bank bears the risk of loss if it
is unpaid. Several banks permit accounts to be opened by a “self
introduction.” However this does not give the banker any comfort
with regard to the moral standing of the person.


Credit Discipline

The RBI has stated that for maintaining credit discipline
banks should, insist on a declaration from the account holder.
Ascertain whether he/she is a member of any other cooperative
society/bank. If so the details should be produced. Banks may
open current accounts of prospective customers if no response is
received after a minimum period of fortnight. If due diligence is
carried out on the request of a prospective customer who is a
corporate or large borrower, banks may inform the consortium
leader.

At the time the account is opened, customer would
mention how the account should be operated.
The terms used are;
Single
Joint
Either or survivor – in this case, should one of the
account orders die, the survivor can draw the balance in the
account.
An account should not be opened, on a zero balance as
the banker in this instance has not taken on deposit any amount.
An account holder will deposit cash or cheques in two his
account by providing details entered in paying slip.


The RBI has stated that ‘No bank should refuse an
acknowledgement if the customer makes deposit at the counter of
the bank’.
There is no restriction on the amount that may be
deposited in a current account.
There are no restrictions on the number of withdrawals
that may be made in a period.
Customers make withdrawals from the account by
drawing cheques or withdrawal slips if they do not have a
cheque book.


Third party cheques and cheques with endorsement may
be deposited in current accounts.
If an individual or HUF withdraws Rs. 50,000/- or
more in cash in one day banking cash transaction tax is payable.
In case of companies and other bodies, the same is
payable if the withdrawal is Rs. 1,00,000/- or more.


Cheque books and Statements
When a cheque book is exhausted, the customer should
fill in a cheque requisition form.
Normally bank sends new cheque books to customer my
courier. The RBI has stated that Checkbook should be handed
over to customers/their representatives at the branch of the bank
where they bank.
Banks either give customers a pass book or a statement of
the account with the bank. To improve service RBI has asked
bank to ensure that full address and telephone number of the
branch is mentioned on the statements of accounts.


Interest
Banks do not pay interest on balances maintained in a
current account.
The RBI prohibits the payment of interest in the current
account. In addition, RBI also prohibits the payment of
countervailing interest.
Banks are permitted to pay interest on the current
account of a regional rural bank they have sponsored.
Since May 1983 banks have been permitted to pay
interest on the balances in the current account standing in the
name of deceased individual.


Dormant Accounts and Charges
If there has been no customer initiated transactions in
the account for 2 years, the account will be designated as the
“Dormant Account”
Many banks reduced this period to 6 months.
These accounts are subject to greater check, as they are
susceptible to fraud.
Bank often insist on a minimum averag
monthly/quarterly balance to be maintained in the account. If
the balance is not maintained a service charges is levied.
Client must be advised of any changes in the charges.

Nomination
The banking laws (Amendment) Act, 1983 inserted section
45ZA to permit the facility of nomination.
A single depositor can in the event of his death, nominate
who should be paid the balance lying on his account.
Nomination may be made in the favor of individuals only.
Incorporated entities and bodies cannot make nominations.
Nomination confers upon the nominee the right to receive the
deposit from the bank.
Nomination may be varied or cancelled at any time.
On making payment to the nominee the bank is fully
discharged, from its liability regarding the deposit.

Deceased Depositor
When a depositor has utilised nomination facility
payment of balance in the deposit account to the survivors of
deceased deposit account holder valid if
•Bank has exercised due care and caution in establishing
identity of survivor.
•There is no court order restraining bank.
•Where the deceased depositor has not made any nomination or
the account does not have survivor clause, banks are expected to
follow simplified procedure for repayment.
Banks should settle claims and release payment within fifteen
days, from receiving claim along with documents.

Closing an Account
To close an account all the account holders should write
to the bank stating that intent to close the account.
All unused cheques should be cancelled and return to the
bank.
The bank may also request the customer to close his
account if;
The customer is no longer a desirable person and the
account has not been operated for a long time.
If a customer cannot be traced, the balance placed in an
unclaimed deposit account.
It’s a statement or correspondence sent to the customer is
returned the balance and should be transferred to the “Dormant
Account”.

Prohibitions
Following are some of the prohibitions should be
followed by banks;
1. May not pay interest on current account other than by
sponsor banks.
2. Not to pay brokerage or gifts to agents/others for deposit
placed at the bank.
3. No bank should launch prize/lottery all other schemes to
attract deposits.
4. Banks should not pay interest on margin money held in
current account.


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