Agency functions of Bank: Agency functions are those services that banks provide to their customers for which they receive some income. Thus, these functions add to the income of banks. Another advantage is that they know the financial position of their customers better and thus, have correct idea of their creditworthiness. Close relations are established between the banks and the customers. Following services are provided by the bank :
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1) Payment and Collection of Cheques :
Apart from transferring money from one place to another, banks are also in the business of collecting the client’s money from other places. For instance, if you have received a payment by way of a cheque or DD drawn or payable at any station other than your own, you can deposit it in your account with your local banker, and request for collection of the amount.
The bank will send the cheque to its branch at that centre and get the amount collected for a small fee. The amount of cheque / draft will be deposited in your account, and the fee will be deducted separately from the account. Banks also undertake collection of bills of exchange – both usance and demand – for their business clientele.
There are RBI norms for the time expected to be taken for collection business, and these norms are prominently displayed in all banks. If your collection is delayed beyond this period, the bank is expected to pay interest on the amount. Retain the counter foil of all deposits made in the bank as this is the only proof of deposit made till your amount is credited.
If your business involves a number of such payments, it is advisable to open an account with a bank which has a large network of branches. Charges for each of these activities differs from bank to bank. While selecting a bank for opening an account, these charges are an important parameter which one should keep in mind.
Bills and Promissory Notes :
A bill of exchange is a written order by the drawer to the drawee to pay money to the payee. The most common type of bill of exchange is the cheque. A cheque is a term of a bill of exchange drawn on a banker and payable on demand. Bills of exchange are written orders by one person to his bank to pay the bearer a specific sum on a specific date may be sometime in the future.
These are primarly used in international trade. Prior to the advent of paper currency, bills of exchange were a significant part of trade. A promissory note is a contract detailing the terms of a promise by one party (the maker) to pay a sum of money to the other (the payee).
The obligation may arise from the repayment of a loan or from another form of debt. For example, in the sale of a business, the purchase price might be a combination of an immediate cash payment and one or more promissory notes for the balance. The terms of a promissory note typically include the principal amount, the interest rate if any, and the maturity date. Sometimes there will be provisions concerning the payee’s rights in the event of a default, which may include foreclosure of the maker’s interest.
Demand promissory notes are notes that do not carry a specific maturity date, but are due on demand of the lender. Usually the lender will only give the borrower a few days notice before the payment is due. For loans between individuals, writing and signing a promissory note is often considered a good idea for tax and record-keeping reasons.
Execution of Standing Instructions :
A standing order is an instruction an account holder gives to his bank to pay a set amount at regular intervals to another account. The instruction is sometimes known as a banker’s order. It is typically used to pay rent, mortgage or other fixed re+, but there is a potential risk that unscrupulous or inefficient beneficiaries might claim money that is not due to them.
Acting as a Trustee :
Under Section 3 of the Indian Trusts Act, 1882, a trust is an obligation annexed to the ownership of property, arising out of a confidence reposed in and accepted by the owner or declared and accepted by him for the benefit of another or of the owner. Banks also act as trustees for various requirements of the corporate, government and accepted by him for the benefit of another or of the owner. Banks also act as trustees for various requirements of the corporate, government and the general public.
For example, whenever a company wishes to issue secured debentures, it has to appoint a financial intermediary as trustee who takes charge of the security for the debenture and looks after the interests of the debenture holders.
Such entity necessarily has to have expertise in financial matters, and should be of sufficient standing in the market / society to generate confidence in the minds of potential subscribers to the debenture. Banks are the natural choice. For general public also, the banks normally have a facility called “safe custody” they act as trustees. They also act as bankers to trustees appointed under the above act. A banker has a few special obligation in such accounts and accordingly special care is taken in such accounts.
Executor OR Attorny :
The administration of a will or a settlement requires specialised knowledge. A bank undertakes these complicated duties of such customers who may desire to nominate bank in such capacities. A bank charges a small fee for this act or function. The customers desire to bank to do this on behalf of them because banks are impersonal and have no personal reasons to be dishonest.
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