1. Cheque: It is an agreement between two contracting parties which promises payment by one party to another. It instructs the bank to pay the given amount from the drawer’s account to the payee account.
2. Demand Draft: It is a type of financial instrument for fund transfer through cashless means. Until net banking, mobile banking, credit cards, etc. had become popular, people used to make loan and other payments by DD. Demand draft is only issued by the bank and one cannot issue a DD on an individual level. It is majorly issued in cases where parties are unknown to each other. The bank (drawee) issues demand draft to a client (drawer) to pay the specified amount of money to the specified person (payee).
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Important Acts I. Negotiable Instrument Act, 1881: A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer. The negotiable instrument act governs the usage of these negotiable instruments between two parties. However, no section of this act affects the usage of paper currency, which is governed by the Indian paper currency act of 1871. II. Banking Regulation Act, 1949: The Act provides a framework under which commercial banking and some categories of cooperative banks in India are supervised and regulated. The Act gives the Reserve Bank of India (RBI) the powers to:
III. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002: The SARFAESI Act allows banks and other financial institutions for auctioning commercial or residential properties to recover a loan when a borrower fails to repay the loan amount. Thus, the SARFAESI Act, 2002 enables banks to reduce their Non-Performing Assets (NPAs) through recovery methods and reconstruction. It provides that banks can seize the property of a borrower without going to court except for agricultural land. It is only applicable for secured loans. It also deals with the registration and regulation of Asset Reconstruction Companies (ARCs) by the Reserve Bank of India. IV. Payment and Settlement Systems Act, 2007: The Act to provide for the regulation and supervision of payment systems in India (not involving cash payment/settlement) and to designate the Reserve Bank of India as the authority for that purpose and all related matters. Various modes of payments and settlements in India:
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3. White Label ATMs (WLAs): Those ATM which are operated by an NBFCs are called as They are authorised under the Payment & Settlement Systems Act, 2007 by the RBI. The concerned NBFC sources cash from the sponsor bank to operate the respective White Label ATM.
4. Brown Label ATMs (BLAs): Those ATMs which are owned and managed by outsourcing firms whose services are implemented under contracts with sponsor banks. The RBI is not directly involved in this.
5. Indian Financial System Code (IFSC): It is an 11-digit alpha-numeric code to uniquely identify a branch of any bank. It has been developed by RBI to enable safe and secure fund transfer.
6. Magnetic Ink Character Reader (MICR) Code: It is a technology that uses a 9-digit code printed at the bottom of a cheque. It is used to identify banks and branches participating in the Electronic Clearing System (ECS). It includes bank-specific information such as the bank code, account details, cheque number, and amount. Unlike IFSC codes, MICR codes are widely accepted for cross-border fund transfers.
7. The Society for Worldwide Interbank Financial Telecommunication (SWIFT) Code: It is a standard format of Bank Identifier Code (BIC) used to specify a particular bank or branch. These codes are used when transferring money between banks, particularly for international wire transfers. Banks also use these codes for exchanging messages between them. SWIFT codes comprise of 8 or 11 characters.
8. Legal Entity Identifier (LEI): It is a 20-character alpha-numeric code which acts as a global reference number to identify legal entities participating in financial transactions.
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