Current deposits or accounts
Current account is an account with minimum amount of boundaries. Most individuals do not need this account, one need this account only if he makes a number of deposits and withdrawals in a single day and many of the deposits are drawn on outstation banks. Banks accept deposits in current account and allow unlimited withdrawals subject to a minimum balance. This minimum balance differs from Bank to Bank. Banks will not pay any interest on a current account. On the other hand, banks charge service charges, on such accounts. Opening of a current account is meant for a business enterprise or high worth individuals who deal with a lot of third party cheques, drafts etc. or who may at times need to borrow money from the Bank against some security. Current accounts are mainly used by businessmen and are not generally used for the purpose of investment. These deposits are the most liquid deposits and there are no limits for number of transactions or the amount of transactions in a day. Most of the current account are firm / company accounts. Cheque book facility is provided in this type of accounts and the account holder can deposit all types of the cheques and drafts in their name or endorsed in their favour by third parties.
According to Reserve Bank, Current account is " a form of demand deposit wherefrom withdrawals are allowed any number of times depending upon the balance in the account or up to a particular agreed amount and shall also be deemed to include other deposit accounts that are neither savings deposit nor term deposit."
Who can open a current account?
Current accounts are opened by those who have commercial interests and have the need to issue many cheques. These include :
- Sole Proprietorships
- Hindu Undivided Families (HUF)
- Associations / Societies and Clubs
- Limited Companies.
Opening of a current account
The RBI has asked banks to incorporate a certificate in account opening forms confirming the identity, occupation and address of the prospective customer signed by the introducer.
Consequences of improper introduction :
- The banker cannot avail of the statutory protection under Section 131 of the Negotiable Instruments Act, if the bank collects a cheque, bill and the likes on behalf of a customer who has no title to it or whose title is defective.
- If an overdraft has been given by mistake and it is not repaid, the bank bears the risk of loss.
- A deposit received from an undischarged insolvent, who is not properly introduced carries the risk of attachment.
- If a cheque book is issued to an undesirable customer, the bank faces the risk of cheques being issued without sufficient balance.
Several banks permit accounts to be opened by “self introduction.” This can be done by the person opening the account depositing a cheque drawn by him on another bank where he maintains an account. Banks consider this as acceptable risk.
The RBI has stated that to maintain credit discipline banks should do the following :
- Insist on a declaration from the account holder to the effect that he/she is not enjoying any credit facility with any other commercial bank or should obtain a declaration giving particulars of credit facilities enjoyed with any other commercial bank.
- Determine whether he/ she is a member of any other cooperative society/ bank. If so the details should be obtained.
- If the prospective customer is enjoying credit facility from any other commercial or co-operative banks, the bank opening the current account should inform the respective lending bank and insist on a no objection certificate. If it is a co-operative bank, it is essential for the bank to comply with the requirements of the co-operative societies act/ rules of the state regarding membership and borrowings.
- On the request of a prospective customer who is a corporate or large borrower accepting facilities from more than one bank, the banks may inform the consortium leader, if under consortium and the respective banks, if under multiple banking arrangement.
- Banks may open current accounts of prospective customers if no response is received after a minimum period of a 15 days. If a response is received within the period, banks should assess the situation with reference to the information provided on the prospective customer by the bank concerned and are not required to ask for a formal no objection, consistently with true freedom to the customer of banks as well as needed due diligence on the customer of the bank.
At the time the account opening, the customer could mention how the account should be operated. This is very important for joint accounts or accounts with multiple holders.
Two types of account operations are :
- Either or Survivor - In this case if one of the account holders die, the survivor can draw the balance in the account.
At the time the account is opened, the customer must ideally open the account with a cash deposit. An account should not be opened on a zero balance as the banker in this case has not taken on deposit any amount.
Current Accounts operations
- An account holder may deposit cash or cheques into his account. The details are entered in a paying in slip and then the slip along with the cheques/ cash is handed over to the cashier.
- The cashier verifies the amount and stamps the customer’s copy confirming receipt.
- The Reserve Bank (RBI) has stated that no bank should refuse an acknowledgement if the customer makes a deposit at the counters of the bank.
- Customers can also deposit cheques or cash in drop in boxes/ ATMs but they do so at their risk as they would not be given a confirmation of the deposit.
- There is no restriction on the amount that can be deposited in a current account.
- Third party cheques and cheques with endorsements can be deposited in current accounts.
- A banker is expected to check the end use of funds, if a partner or an authorized signatory is transferring funds from the partnership/ company’s account to his personal account, the banker should determine and be satisfied with the reason.
- Customers can make withdrawals from the account by drawing cheques
- The banker will compare the signature on the cheque and the amount, whether the customer has sufficient balance in that date. If all are in order payment will be made.
- With regard to customers who are too ill to sign a cheque or cannot be physically present - they can put their thumb impression on the cheque and this must be identified by two independent witnesses known to the bank.
- There are no restrictions on the number of withdrawals that can be made in a period.
While issuing a cheque book, the customer must fill in a cheque requisition form contained in the cheque book and hand it over to the bank. Usually banks send new cheque books to customers by courier. The RBI has declared that cheque books should be handed over to customers/ their representatives at the branch of the bank where they bank if they want it given to them at the bank.
Banks either give customers a passbook which details their account or a statement of their account with the bank at the end of a month. The Reserve Bank has stated that entries in passbooks should not be unreadable and that brief understandable particulars must be entered.
Operations in an account will be stopped in the following cases :
- On the receipt of notice of death of a customer
- On the receipt of notice of the insanity of a customer
- On the being advised that the customer is insolvent
- On the receipt of a garnishee order from the court
- On the receipt of notice of assignment of the credit balance in the account of a customer to a third party.
- Banks will not pay interest on balances maintained in a current account.
- The Reserve Bank (RBI) prohibits the payment of interest in a current account. Apart from that the Reserve Bank prohibits the payment of countervailing interest
Countervailing means any benefit or interest allowed on current account maintained with the bank”. In short if a depositor is getting a free holiday for a current account maintained, the free holiday would be viewed as countervailing interest. Banks are allowed to pay interest on the current account of a Regional Rural Bank (RRB) they have sponsored. The rate that can be paid is half a percent lesser than the borrowing rate of RRB. Since May 1983 banks have been allowed to pay interest on the balances in the current account standing in the name of a deceased/dead individual depositor/ sole proprietorship concern from the date of the depositor’s death till the date the account is closed at the rate applicable to savings deposits.
Tips to remember while going for a current account
- Select a relatively larger branch of a Bank for your current account which can give additional services.
- To open an account, one should submit a photograph and an introduction from a current account holder of the Branch.
- Select a Bank which asks for the least amount of minimum deposit amount and other conditions being the same.
- Demand for a cheque book in the first instance itself and count the cheque leaves.
- Keep your cheque book carefully.
- Some Banks impose service charges on activities like issue of cheque book. Try to get a bank that offers least charges.
- Avoid the Banks which demands service charges on transactions.
Additional precaution for current account
Banks must insist on a statement from the account holder to the effect that he is not enjoying any credit facility with any other bank or get a declaration giving particulars of credit facilities enjoyed by him with any other bank.
- The account opening bank must determine all the details and should inform the concerned lending bank.
- The account opening bank must obtain a no-objection from lending banks.
- If there is a consortium, the bank must inform the consortium leader or if there is a multiple banking arrangement, he should inform all the banks in the arrangement.