TYPES OF ACCOUNTS AND
CUSTOMERS
IN
COMMERCIAL BANKING
1. INTRODUCTION – FIELD STUDY REPORT
In this field study report I have discussed about my topic “TYPES OF ACCOUNTS AND CUSTOMERS IN COMMERCIAL BANKING”. For the purpose of field study I visited the Habib Bank Limited and in light of its functioning I have prepared this report. In the first step I have discussed about my theoretical part of topic and then practical view.2. TYPES OF ACCOUNTS
Banks open the following types of accounts for them.1) Current Accounts
2) Savings Bank Accounts
3) Fixed Deposit Accounts
4) Short-term Deposit Accounts
5) Call Deposit Accounts
CURRENT ACCOUNTS
The essential features of these accounts are that a customer can pay in money, cheques, dividends, warrants and so on, and demand payment for a part or the entire credit balance at any time during business hours. In Pakistan, according to the All Pakistan Inter-Bank Agreement no interest or share of profit or loss is allowed on these deposits and customers are required to maintain a minimum balance. Although, this requirement is not insisted upon because if a minimum balance is not maintained incidental charges are recovered at half yearly intervals. This is because a banker is not able to invest such funds due to the current nature of the accounts. Before the partition, current deposits used to contribute the funds of a bank much less than the fixed deposits. But in recent years position has considerably changed and deposits in current accounts have shown a remarkable growth in proportion to fixed deposits although the ratio between the two varies from bank to bank and branch to branch.This type of account is suitable for those customers whose funds have to be collected and payments made very frequently. Moreover, it is also suitable for those who do not want to handle large sums of money at home. A current account-holder may be allowed to over-draw his account under special arrangements at the time of need.
SAVINGS BANK ACCOUNTS
Savings deposits were introduced to inculcate and encourage saving habit among people of small means. Deposits of this type first were introduced in England through the Trustee Savings Bank Act, 1863. In the Indo-Pak Sub-Continent, savings deposits were initiated in the presidency towns of Calcutta, Madras and Bombay between 1833 and 1835. Subsequently, District Savings Banks were opened in certain selected treasuries in 1870. In 1882, Post Offices Saving Bank started to function. To meet the needs of small account-holders, in due course, the commercial banks also started accepting such deposits. The following are the main features of savings accounts:i. Interest is paid on minimum monthly balances in case of foreign currency accounts. All the other accounts are on the basis of non-interest banking system wherein the bank and depositors share profits or loss.
ii. The facility of collection of cheques, Bills and Warrants is provided to the account-holders.
FIXED OR TIME DEPOSIT ACCOUNTS
When a customer places money with a banker for a fixed period and promises not to draw his money before that period is over, the deposit is termed Fixed or Time. Deposit. Ordinarily, this period varies from three months to five years but now in Pakistan under the Cumulative Deposit Scheme and All Time Savings Scheme funds can be kept with a bank as long as for twenty years or in some case unlimited time period in accordance with the terms and conditions of the schemes. In cases of foreign currency accounts, the rate of interest is determined by the length of the period for which the deposit is made subject to a maximum. Longer the period of deposits, the higher is the rate of interest. As an acknowledgement of fixed deposit a receipt is issued to depositor/depositors.The receipt is usually marked "Not Transferable" and is also not negotiable. Its payment can be made either to the beneficiary or to a banker to credit its proceeds in the payee's account. To third party, payment is made only when the receipt duly discharged by the Payee is presented along with his express written authority favouring the party. The acknowledgement of receipt of money is taken on the letter of authority after its proper identification. If a deposit receipt is lost or stolen, a duplicate receipt is issued after obtaining an indemnity. It is necessary to obtain a duplicate receipt if original is lost because it is so worded that the banker undertakes to repay the amount on the presentation of duly discharged receipt. The deposit can be placed in the name of a minor. The party so placing the money can get the payment before the minor attains maturity or the minor when he becomes major. Deposits on joint names are payable subject to conditions agreed at the time of their acceptance.
Legally, a depositor cannot demand payment of his fixed deposit before the expiry of the stipulated period but generally to oblige the customers, bankers allow them to withdraw their fixed deposits before their maturity. In these cases, customers are asked to forego interest or profit whichever is applicable.
SHORT-TERM DEPOSIT ACCOUNTS
This term generally applies to deposits placed with a bank for a period of 30 to 90 days. These deposits are in fact for a period of 30 to 90 days. These deposits are, in fact, of a nature similar to fixed deposits. Interest/profit is paid on them depending upon the actual period and amount. The bank issues a receipt called "Short Term Deposit Receipt". For payment at maturity and before maturity and issuance of a duplicate receipt in case original is lost, or stolen the procedure is the same as that of fixed Deposit receipt.CALL DEPOSIT ACCOUNTS
These are deposits lodged by the public and by banks. These deposits are repayable on demand. The depositors are issued receipts called the "Call Deposit Receipt". On deposits lodged by the public (including banks which have not signed the lnter-Bank Agreement) no Interest/profit is paid. The business classified under this nomenclature at branch level mostly accrues on accounts of contractors and others who have to deposit earnest moneys along with their quotations for tenders Issued by Government and other agencies. These Call Deposit Receipts are drawn in favour of the agency concerned. Thus the amount of the receipt becomes payable to the agency. In case tender quotations are not accepted, the receipts are returned to the contractors concerned for their repayment to them. When a banker finds himself short of liquid funds and borrows from another bank, then in that case the borrowing bank issues a Call Deposit Receipt in favour of the lending bank. Such receipts are redeemable at a very short notice or on demand. Interest is paid on these funds based on the current market conditions. This type of borrowing is generally handled at the level of Head Offices.
3. TYPES OF CUSTOMERS
There are various types of account-holders who can legally maintain account with a bank in their private or official capacity. These are discussed in the following lines.BANKER-CUSTOMER RELATIONSHIP
As soon as a person opens an account with a bank, a banker-customer relationship is established.LADIES ACCOUNTS
Married ladies are as capable of contracting and incurring liabilities as her husband. She has the right to acquire, hold and dispose of her property. Therefore, account of a married lady may be opened-and operated in the same manner as any other private account. But when entertaining her request for a loan it should be ensured that securities or properties believed to belong to her are in fact her own assets. In case of her default, a banker has remedy only against her own property. Her husband will not incur any liability unless it is proved that she acted on his behalf as his agent or be guaranteed in any way her debts.
MINOR'S ACCOUNT
A minor is a person who has not attained his age of maturity. In Pakistan, according to Maturity Act, 1875 (as adopted) every person under the age of 18 years is a minor. If a competent court appoints a guardian of his person or property or both before he reaches age of maturity, the minority extends up to the age of 21 years. Section 11 of the Contract Act has made it clear that a- minor is incompetent to enter into a contract. All contracts made with a minor are, therefore, void. However, Pakistani bankers allow minors to open joint accounts in the name of the minor and his guardian at the request of the latter who signs the account opening forms himself and gives his own specimen signature to operate the account. The title of the account is in the name of the minor and his guardian such as ‘A’ (Minor) ‘B’ (Guardian). The guardian may operate such accounts even after the minor attains the maturity provided a mandate to this effect is obtained from him at the time of opening the account. To inculcate the habit of savings in children and make them familiar with the benefit of banking special schemes, like School Banking Scheme, have been introduced by some banks. Under this scheme, school-going children are allowed to deposit their small savings in the banks in non-cheqing saving accounts. Fixed deposit accounts are also opened in the names of minors.While dealing with a minor's account the banker is guided by the simple rule that no advance is to be made to an infant customer in any circumstances because be is not legally liable for a debt to the bank and if he deposits any security, it can neither be retained nor realized by the banker.
LUNATICS
Section 11 of the Contract Act, 1872 lays down that all contracts entered into by lunatics during the period of their sanity or contracts ratified during such periods do not come under this disqualification. Because of this provision a banker should not open account of a person of unsound mind. If a banker opens such an account inadvertently or the customer loses his balance of mind after opening an account, the banker stops all operation of account until 'Manager in Lunacy' Is appointed by a competent court.JOINT ACCOUNTS
A joint account is that which is opened by two or more individuals. In such cases, it is very necessary for the banker to get clear instructions not only in regard to how the account is to be operated, whether by any one or more of them or survivors, but also in regard to advances, bills, transactions, securities, etc. In the absence of obtaining such directions, the banker should honour cheques signed by all the joint account-holders. Instructions regarding the withdrawals from the joint account should include whether any one or both or more of they will sign cheques. There is one important thing to note that any one of the joint account-holders may stop payment of a cheque drawn by another or others but its removal should be signed by all the parties or in accordance with the terms of the authority or mandate. It is preferable that the authorized person should issue a new cheque.However, there is no bar on depositing sums of money in a joint account. Any person can deposit any amount in the account.
SURVIVORSHIP
The banker ascertains beforehand what will happen in case of death of one of the joint account-holders. The mandate should clearly mention who is entitled to the balance on the account. In case of clear instructions, the Law of Devolution comes into operation under which survivors’ is/or entitled to the balance in case of death of one or more joint account-holders.HUSBAND AND WIFE
In case of a joint account in the names of a husband and wife, mandate is very helpful to determine the intention of the deceased regarding vesting of balance in the survivor.ACCOUNTS OF JOINT STOCK CONIPANIES
The following documents are required for joint stock companies1. Memorandum of Association.
2. Articles of Association.
3. Certificate of Incorporation.
4. Certificate of Commencement of Business.
5. Resolution of the Board of Directors.
6. Balance Sheet.
ACCOUNTS OF GOVERNINIENT AND MILITARY OFFICIALS
Government officials’ accounts in their official capacity are opened in accordance with the Account Code (Volume 1) of the Government of Pakistan. They are treated, as accounts of individuals for the purposes of opening of accounts and the formalities applicable to individual accounts are also applicable to them. The head of a Government department is authorized to open and operate; other subordinate officers can also do so with the prior permission of competent authority.4. INTRODUCTION – FIELD STUDY
For the purpose of study, I have selected Habib Bank Limited, and visited its Branch situated at Corporate Centre, 3-Habib Bank Tower, Blue Area, Islamabad.Habib Bank limited is incorporated in Pakistan and is engaged in commercial banking and related services in Pakistan and overseas. The Bank operates 1,708 (1997: 1,773) branches inside Pakistan and 65 (1997: 65) branches outside the country.
STUDY RELEVANT TO THE TOPIC
RULES & REGULATIONS
CURRENT ACCOUNT
1. Current Accounts are opened, on proper introduction and submission of required documents along with initial deposit prescribed from time to time. Current Accounts are opened for individuals (single or joint), firms, joint stock companies, local bodies, autonomous bodies, associations, educational institutions etc. and all other cases where the accounts are to be opened under the order of a competent Court of Law.2. No profit is paid on the balances of current accounts.
3. The bank is authorized to honour, whether the account is in credit or not, cheques, bill of exchange, Notes or other orders drawn, accepted, accept endorsement, act on any instructions and accept any receipts or other documents relating to the account signed or made by authorized person(s) on behalf of the firm/company/association.
FOREIGN CURRENCY ACCOUNT
1. Foreign Currency Accounts are opened, on proper introduction and submission of required documents along with an initial deposit prescribed from time to time.2. Rates of return on Foreign Currency Deposits are subject to fluctuation as determined in accordance with State Bank of Pakistan Directives. The bank shall have no responsibility for or liability to the account holders for any diminution due to taxes or imports or depreciation in the value of funds credited to the account whether due to devaluation or fluctuation in the exchange rate or otherwise.
3. The return on Foreign Currency Saving Accounts will be paid on six monthly basis during June & December; where as the return on Term Deposit/SNTD will be paid on maturity or as prescribed by State Bank of Pakistan.
4. Term Deposits will be automatically renewed for a like period and amount including or excluding return as per instruction by the depositor. 6. Premature withdrawal of term deposit is allowed but the rate of return payable will be of immediate preceding period prevailing at the time of issue and will be paid for completed months only.
PROFIT & LOSS SHARING SYSTEM
1. PLS Special Saving Deposit (PLS-SSD) & PLS Saving Accounts are opened, on proper introduction, and submission of required documents along with an initial deposit prescribed from time to time for each category. PLS saving accounts are opened for individuals (single or joint), Charitable institution, Provident and other funds of benevolent nature of local bodies, autonomous corporations, companies, associations, educational institutions, firms etc. and in all other cases where the accounts are to be opened under the order of a competent court of law whereas PLS Term Deposit and PLS SSD accounts can be opened by all who are allowed to open CD & PLS Saving Accounts.2. There is no restriction on maintaining the upper limit of deposit and withdrawals of amount and numbers of cheques from PLS-SSD/PLS saving account.
3. The proportion of profit or loss shall be determined by the bank in its sole discretion and the bank's-decision would be final and binding on the account holders/depositors.
4. (a) Eligibility, Computation and Payment of Monthly Profit for PLS-SSD Accounts.
i. Profit will be calculated on daily product basis.
ii. Payment of profit will be on monthly basis subject to adjustments on declaration of actual profit rates after six monthly closings.
iii. In case the average balance during a calendar month falls below the minimum required level under a slab, the profit for that month will be paid at the rate applicable to that relevant deposit slab.
iv. Deposit in PLS SSD A/c shall not qualify for earning profit during the month if the average balance falls below the minimum prescribed amount.
v.
(b) Eligibility, Computation and Payment of six Monthly Profit for PLS Saving Accounts.
The profit will be paid on the minimum balance, between the first and last day of the month to be taken as the profit earning products for that month.
5. Zakat where ever applicable shall be deducted on valuation dates from accounts having balance in excess of the exempted limit as declared for that particular Zakat year.
6. Declaration on prescribed proforma for exemption of deduction of Zakat will be registered with the bank at least one month prior to the valuation date or as per Zakat rules applicable from time to time.
7. Withholding Tax shall be recovered on the profit amount as per Income Tax laws in force.
8. The bank would be within its right to make investment of credit balance/deposits in any manner at its sole discretion and to make use of fund to the best of its judgement in the banking business under the PLS-system.
9. The account holders undertake to reimburse the bank with any claims in respect of losses/charges on the basis of half yearly/yearly closing of bank's books of account. The bank would be within its rights to debit their accounts for the amount(s) of such claim/charges in settlement of business accounts of the bank.
10. The profit or loss, earned/incurred on PLS accounts will be credited/debited as determined by the bank at its sole discretion on the basis of its net working results at the end of each half year/year, within a reasonable time from the date of close of half yearly/yearly Books of Accounts of the bank under intimation to the account holders.
11. PLS Term Deposits are accepted by the bank with minimum sums as prescribed by the bank from time to time.
12. The PLS Term Deposits are accepted for period of one month and above. Weightage on the rate of return will be given to deposits of longer maturity. On expiry of the deposit period, the deposit will cease to be eligible for sharing in the profit and loss at the term deposit rate; It will be transferred to overdue PLS Terms Deposits Account and depositor will be advised accordingly. Provided, however, if within a period of one month after the expiry date the depositor requests for renewal, the PLS term deposit will be renewed for the desired period from the date immediately following the expiry date. In case, the depositor fails to give renewal instructions within the said period the overdue deposit will be eligible of payment of profit at PLS Savings Account Rate.
13. The PLS term deposits will be eligible for participation of profit and loss on the condition that they will not be withdrawn from the bank before maturity. In thin event any depositor wishes to withdraw the funds earlier than one month, he will forego his right to share profit and be absolved of his obligation to share loss on his deposit for the period the deposit remained with the bank. PLS term deposits withdrawn after completion of I month but before maturity will be eligible for sharing of profit, it any, at the rate determined for PLS Savings Accounts.
14. On the maturity of a PLS Term Deposit the depositor shall have the option either to withdraw the deposit and the amount of his share of profit, if any, or renew the deposits, with or without the amount of accumulated profit.
15. Profit and loss will be distributed on half yearly basis Profit and Loss for the period beyond the closing of the half year will not be out-rightly settled at the time of encashment of a term deposit on maturity and the depositor will be asked to leave his/her instructions for the receipt/payment of profit/loss pertaining to the unaccounted for period which will be settled after the closing of the relevant half year.
16. The profit on PLS term deposits determined by the bank at the end of each halt year on the basis of its net working result, shall be disbursed to the depositors through the account or bank's pay slip/payment order which shall be dispatched to the depositor at his postal address within a reasonable time.
17. The holders of term deposit receipt must keep the receipt under lock and key. Any loss of receipt must be notified immediately to the issuing branch. In the event of such loss, the bank would not accept any responsibility for encashment of the receipt if proper intimation of the loss is not communicated to the bank immediately or where it is found that no proper safeguard were exercised by the depositor for safe keeping/security of the PLS deposit receipts.
18. The bank reserves the right of refusing to accept deposit from any person in PLS term deposit account without assigning any reason.
PLS KHAS TERM DEPOSIT
1. PLS KHAS TERM DEPOSITS are accepted for a period ranging from one and half year to five years in multiples of six months.2. Profit declared form time to time will be paid only once at the time of encashment/redemption of the receipt on maturity.
3. Zakat shall be deducted only once on encashment before or after maturity.
SPECIAL NOTICE TIME DEPOSIT
1. Profit/return is paid on daily product basis.2. Profit on PLS SNTD is payable at the rate declared on preceding half yearly/yearly closing.
3. No profit/return will be paid after expiry of notice period if the deposit is not withdrawn.
4. No profit/return is paid for pre-mature encashment before seven days or thirty days notice, as the case may be, from the date of notice or date of issue.
GENERAL RULES
1. Not more than one account of each category i.e. current F.C. Saving, PLS Saving & PLS SSD may be opened in any one name in one and the same branch except joint account with any other individual(s) and account in the name of minor children in the capacity of Guardian.2(a) In the event of death of an account holder(s) and in the absence of a contract to the contra, the credit balance, in any account, in the name of an individual will be payable to the legal heirs of the deceased individual account holder and if the account is in the name of two or more persons, the credit balance will be payable to the legal heirs of the deceased account holders along with the remaining account holder(s) (b) In case of operating instruction "Either or Survivor', in the event of the death of either of account holder(s). The credit balance in the account will be payable to the surviving account holder(s).
3. 'SERVICE CHARGES" will be deducted periodically as prescribed from time to time on those accounts where the average credit balance has been less than prescribed limit during that period. Such accounts will also not qualify for payment of profit, as the product would be treated as NIL.
4. SERVICE CHARGES" will not be applicable on those accounts, which are declared as EXEMPTED by the bank from time to time.
5. The bank in its sole discretion shall be constrained to close those accounts whose average balance during the half-year is less than prescribed minimum balance and they show NIL balance after deduction of service charges as mentioned in clause-3 above at the time of half yearly closings. Besides the bank reserve to itself the right to close without prior notice, any account which in its opinion is not satisfactorily operated upon, or for any other reasons whatsoever which shall not be incumbent on the bank to disclose to the account holder.
6. A distinctive number will be allotted to each account, which shall be quoted in all correspondence relating to the account and at the time of making deposit or withdrawals.
7. Any sum to be deposited in the account should be accompanied by paying-in-slip showing the name and number of the account to be credited. Such deposits must be tendered at the cash counter only. The entry of the transactions will be verified by signatures of two officials of the bank, and stamp of the bank affixed on the counter foil of the paying-in-slip. In case of unit branches, signature of one official will be sufficient. The depositor should satisfy himself that he has received proper receipt for the deposit duly signed and bank's stamp affixed on it.
8. Account holder can only withdraw sums from his account by means of cheques supplied to him by the bank for that particular account.
9. Cheques should be signed by the account holder as per specimen signature supplied to the bank and any alteration(s) thereon must be authenticated by drawees full signature.
10. Post-dated stale and defective cheques shall not be paid.
11. The account holders are requested not to make any entries or alteration(s)/corrections in the statement of account. Any discrepancy found should at once be brought into the notice of bank.
12. It statement of account is lost or spoilt, a duplicate statement of account would be provided at a cost in force.
13. The bank will register instructions from the drawer of a cheque to stop its payment, but it accepts no responsibility in case such instructions are overlooked.
14. The bank may accept for collection cheques and other instruments payable to the account holder himself at his risk. All cheques and other instruments should be crossed before they are deposited for crediting in the account.
15. The bank shall endeavor to collect cheques and other instruments as promptly and carefully as possible but it accepts no responsibility in case of any delay or loss.
16. Unclear instruments, though credited in the account, shall not be drawn against. Even it such instruments are credited and/or allowed to be drawn against, the bank shall have the right to debit the customer's account, if these are not realized.
17. The bank will take care to see that the credit and debit entries are correctly recorded in the accounts of the account holders but in case of any error, the bank shall be within its right to make the correct adjusting entries without notice and recover any amount due from the account holders. The bank shall not be liable for any damages, losses etc. consequent upon such errors.
18. Any change in the address or constitution of the constituent should be immediately communicated to the bank. The post office and other agents for delivery shall be considered agents of the account holders for delivery of letters, remittances, etc. and no responsibility shall be accepted by the bank for delay, non-delivery etc. including any shortage of cheque leaves of cheque book sent by post at the request of the account holder.
19. The account holder wishing to close the account must surrender unused cheques, if any, to the bank in order to draw the balance amount by paying the account closing charges as in force.
20. Account may be transferred from one branch to another branch of the bank free of charge, without affecting the profit accruing position of the account as the concerning accumulated products of credit balances in such accounts for unaccounted period would also be transferred to the receiving branch along with the credit balance on the date of transfer.
21. The bank reserves to itself the right to add or alter any or all of the holes after advertisements in the newspapers or otherwise, and such altered or additional rules shall immediately thereafter be deemed to be binding on a I account holders.
5. CONCLUSION
Ø Despite a slow down in the economy and an increasing competition in the Banking Industry significant growth trends were made possible by the Bank.
| 1998 | 1997 (Rs. in billion) | |
| Net Revenue from customers | 11.4 | 7.5 |
| Deposit | 239.0 | 211.4 |
| Advances | 136.8 | 119.5 |
Ø Focusing to improve customer services.
Ø Increasing ATM network.
