JAIIB PPB Paper-2 Module-A Unit-4 : Opening Accounts of Various Types of Customers

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JAIIB Paper 2 (PPB) Module A Unit 4:Opening Accounts of Various Types of Customers (New Syllabus) 

IIBF has released the New Syllabus Exam Pattern for JAIIB Exam 2023. Following the format of the current exam, JAIIB 2023 will have now four papers. The JAIIB Paper 2 (Principles and Practices of Banking) includes an important topic called “ Opening Accounts of Various Types of Customers”. Every candidate who are appearing for the JAIIB Certification Examination 2023 must understand each unit included in the syllabus. In this article, we are going to cover all the necessary details of JAIIB Paper 2 (PPB) Module A Unit 4: Opening Accounts of Various Types of Customers.
Aspirants must go through this article to better understand the topic, Banker Customer Relationship and practice using our Online Mock Test Series to strengthen their knowledge of Banker Customer Relationship.

Personal Account

Accounts of Individuals

  • An individual should be major by age, of sound mind and should not be un-discharged insolvent or disqualified from contracting by any law which he is subjected to.
  • The account opening form should be signed by the individual(s) in whose name(s) the account is to be opened.
  • In situations when an individual is not of sound mind or is a minor the form may be signed by her court appointed guardian or natural guardian.

Joint Account Holders

  • A joint account is an account opened in the names of two or more individuals.
  • The relationship among the joint holders, the purpose of having a joint account and nature of expected funds inflows in the account should be ascertained.
  • Joint accounts are generally opened with all the account holders being resident in India. Joint accounts of residents with a non-resident Indian (NRI) is permitted only where the NRI is a close relative of all the resident account holders.
  • The account opening form should be signed by all the account holders. It should also contain instructions regarding the mode of operations on the account.

Accounts of Illiterate Persons

  • The rules relating to the account have to be clearly explained to an illiterate person in a language understood by him/her
  • He/she should be advised that for withdrawing money from the account, he has to personally come to the bank with the Pass Book.
  • No current account should be opened in the name of an illiterate person.
  • No cheque Book should not be issued.
  • Left hand thumb impression of the account holder is obtained on the account opening form in the presence of an authorized bank officer. A person well known to the bank who will attest her thumb  impression on the account opening form.
  • Passport size photographs of the customer have to be obtained – one to be attached to account opening form and another to the pass book.
  • Every withdrawal should be orally confirmed by the account holder to the authorized official.
  • If the illiterate depositor intends to allow a literate person to operate his account, he has to submit an authorization cum indemnity letter in the prescribed format, with the condition that it can be operated only jointly by both.
  • No illiterate persons’ account should be opened with operation facility of E or S or by “literate person only”.

Accounts of Blind Persons

  • There is no legal bar for a blind person to open a bank account.
  • Due care must be exercised in accounts of blind persons as there may not be consistency in their signature.
  • Passport size photographs of the blind person have to be obtained — one to be attached to the account opening form and another to the pass book.
  • The signature/ thumb impression of the blind person has to be attested by a person well known to the bank.
  • Where the Branch Manager is satisfied, he may allow a blind person to operate the account by herself, or by a next of kin of the blind customer after taking proper ‘letter of authority’ from the  blind customer.
  • Whenever inconsistency in the signature of a blind customer is noticed, her left hand thumb impression also may be obtained.
  • Entries and the balance must be made up to date in the passbook at the time of each transaction and should also be read out to her, when no other person is in hearing distance.

Accounts of Minors

  • The minor’s account can not be overdrawn.
  • Section 26 of the N.I. Act provides that a minor may draw, endorse, deliver and negotiate a negotiable instrument and as such, a minor can draw a cheque.
  • On the minor attaining majority, the guardian is not allowed to operate the account any further, without confirmation from the minor.
  • Banks are free to fix the minimum age at which they will allow minors to operate savings bank accounts independently, .
  • Balances in such accounts are subject to a maximum amount, as decided by the bank.
  • In the event of death of the minor, the guardian has to close the account.
  • On attaining majority, fresh operating instructions and fresh specimen signature of erstwhile minor should  be obtained and kept on record.
  • If the guardian dies during the minority of the account holder, then the balance can be paid to the minor after his attaining majority.

Accounts Of Other Customers

Hindu Undivided Family

  • Where a Hindu dies, leaving a business, it passes on to the legal If he leaves male children, it descends to them and the property becomes a HUF property.
  • The members of the family are called coparceners and the eldest male child is the manager or the Karta
  • Since 2005 amendment to Hindu Succession Act daughters whether married or unmarried are recognized as
  • When an account is opened in the name of a HUF, all the adult members have to sign even though the Karta would operate on the account.
  • When the business is ancestral, the coparceners are liable to the extent of their share in the family property and have no personal liability.

Rules for Opening & Operation – Hindu Undivided Family

  • The Karta has an implied authority to avail loan and execute the necessary documents.
  • Tt is advisable to obtain declaration from all the adult members of the HUF specifying the Karta.
  • The Karta has the power to transfer an asset, provided it is made for a legal necessity or for the benefit of the estate.
  • Names of all minor coparceners should be kept on record and their guardians must sign the documents on their behalf.
  • Withdrawal of one of the coparceners does not put the existence of the firm in jeopardy.

Documents for Opening of a HUF’s Account

  • Account opening form signed by all the adult members of the HUF.
  • Specimen signature card signed by the Karta.
  • Joint Hindu Family letter signed by all the adult members of the HUF.
  • In case HUF has a minor member, the natural guardian should sign on her behalf.
  • The account is operated by the Karta (Head of the family). If it consists of various branches, the other major coparceners are allowed to operate on the accounts.

Sole Proprietorship Firm

The law does not distinguish between a Proprietor and her Proprietary Concern. Therefore, accounts of  a proprietorship firm can be treated as an account of an individual.

  • All documents for opening an account of a proprietorship firm are signed by the proprietor.
  • The proprietor also has to submit a declaration.
  • The Proprietor must sign all the documents in the name of the Proprietorship Firm.
  • The cheques should also be signed in the name of the proprietorship firm.

Documents Required

  • Current account opening form signed by the proprietor
  • Specimen signature card signed by the proprietor
  • Proprietorship declaration/ letter as per the bank’s format.

Partnership Firm

  • 4 of the Indian Partnership Act, 1932 defines a partnership as a relationship subsisting between persons who have agreed to share the profits of a business carried on by all or all or any of them acting for all.
  • Registration of a partnership is optional except in the states of Gujarat and Maharashtra.

Partnership Firm-Rules for Opening and Operations

  • In case of registered partnerships a copy of the registration certificate should be obtained.
  • The partners should sign for and on behalf of the firm and not as an individual.
  • Cheques payable to the firm should not be credited to the account of any partner/employee.
  • In case of any dispute among partners, if any partner gives notice of stoppage of operation, all operations must be stopped under intimation addressed as a joint letter sent to all the partners as well as the firm. Then the account would be operative only by all partners jointly.
  • Partners are mutual agents and can bind the firm by their acts. It applies to a sleeping or secret partner also.
  • Even when the powers of management restricts the rights of other partners and is entrusted in one partner, it is a partnership.
  • When there is an addition to partnership, the old account can be continued, if the balance is in credit. But if there is a debit balance, the old account should be freezed and a new account should be opened.
  • Where two of the partners of a firm executed a promissory note in favour of a third partner, agreeing to pay him a certain sum due to him, it was held that the remaining partners are not bound.
  • Death of a partner dissolves the partnership firm automatically. The operations in the account should be stopped. In order to determine the liability of the deceased partner, the banker should close the account of the firm and secure a letter of administration from the court.
  • No partner has powers to do the following: Open a bank account on behalf of the firm in his own name; Withdraw a legal suit filed by the firm; Admit any liability in a suit or proceed against the firm; and Acquire or transfer immovable property on behalf of the firm.
  • Any partner can countermand the payment of a cheque drawn by another partner.

Documents for Opening of a Partnership Firm’s Account 

  • Current account opening form signed by all the partners.
  • Specimen signature cards signed by all the partners.
  • Partnership letter signed by all the major partners in their personal capacity and not under the seal of the Firm, stating the nature of business, names and addresses of all partners along with instructions  for mode of operations in the account.
  • Original Partnership Deed (for verification & return) with a certified copy.
  • Certificate of Registration, in case of a registered partnership firm.
  • Complete instructions regarding the person(s) authorised to operate the account with specimen signatures of the authorised persons with their designation or capacity in which they will operate  the account.
  • Permanent Account Number of the partnership firm.

Limited Liability Partnership

  • Limited Liability Partnership (LLP) is formed under the Limited Liability Partnership Act, 2008.
  • A “limited liability partnership” agreement means any written agreement which determines the mutual rights and duties of the partners and their rights and duties in relation to that limited liability
  • A LLP has at least two Designated Partners. Designated Partners have to obtain a Designated Partner Identification Number (DPIN).
  • A designated partner is responsible for the doing of all acts, matters and things as are required to be done by the LLP and as may be specified in it.
  • A “small limited liability partnership” means a LLP – the contribution of which, does not exceed Rs.25 lac and the turnover of which, as per the Statement of Accounts and Solvency for the immediately preceding  financial year, does not exceed Rs.40 lac.

Rules for Opening and Operations – LLP’s Account

  • Resolution by the Designated Partners is required.
  • LLP is a corporate person; hence it is not affected by changes in partners due to any reason, including resignation or death. So the existing account can be continued, even if in debit balance.
  • It will be necessary to obtain a Resolution in respect of authorised signatories, if there is any change.
  • The partners will not be personally liable for any dues that may occur.

Documents for Opening of a LLP’s Account 

  • Current account opening form signed by all the partners.
  • Specimen signature cards signed by designated partners and authorised signatories.
  • Certificate of Incorporation of LLP.
  • LLP Agreement (for verification & return) with a certified copy.
  • Resolution by the Designated Partners of LLP for opening bank account and designating authorised signatories.
  • Complete instructions regarding the person(s) authorised to operate the account with specimen signatures of the authorised persons with their designation or capacity for operating the account.
  • Permanent Account Number of the LLP.

Limited Companies

(a)Public Ltd. –It is not a private company. This requires a minimum of seven members for incorporation  and there is no upper limit. A subsidiary company of another company that is not a private company  is deemed to be public company, even if registered as a private company. – Section 2 (71) of the  Companies Act, 2013.

(b)Private Ltd. – It has to have a minimum of 2 members and maximum of 200 members, with a minimum paid- up share capital as may be prescribed. It restricts the right to transfer its shares and does not permit invitation  to public to subscribe for any of its securities – Section 2 (68) of the Companies Act, 2013.

A company in which fifty one per cent or more of the shares are held by any one or more of the Central/  State Governments, including a subsidiary of such a company is called a Government Company. The  word ‘limited’ is not required to follow the company’s name in such companies. – Section 2 (45) of  the Companies Act, 2013.

(c)One Person Company – is a company which has only one person as a member, and another person named as a Nominee.

Rules for Opening and Operations – Company’s Account 

  • Cash withdrawals from the company’s account should be permitted only against specific authorization by the company.
  • In order to avoid frauds, usually operations on a company’s account are permitted under instructions of two or more authorised signatories jointly.
  • Death of an authorised signatory does not require stopping of the payment of cheques signed by such signatory, since the company is in existence.
  • A limited company in trading activity has implied powers to borrow, while a non-trading company is required to specify it in its Memorandum and Articles of Association.
  • A cheque payable to the company should never be deposited in the personal account of any director or any employee, as it would amount to negligence under Sec. 131 of N.I. Act 1881.
  • A company incorporated after the commencement of the Companies (Amendment) Act, 2019 and having a share capital shall not commence any business unless a declaration is filed by a director within a period of 180 days of the date of incorporation of the company, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making of such declaration.

Documents for Opening of Company’s Account 

  • Certified copy of Memorandum and Articles of Association
  • Certified copy of Certificate of incorporation.
  • Names of directors of the company as stated in the Articles/ Forms filed with the Registrar of Companies.
  • List of beneficial owners
  • Copy of resolution appointing the bank as company’s bank and names of the persons authorised to operate the account with the mode of operation.
  • Specimen signatures of all authorised officials who would operate the account.
  • PAN of the company

Clubs/Associations/Unregistered Bodies

  • These are bodies formed by a group of individuals for certain common objectives or purpose of any nature viz. social, cultural, religious, charitable, professional, etc.
  • These may be created through some type of Memorandum of Understanding or similar document. These would usually have  a set of bye-laws or Rules with which the affairs of these bodies are managed, and a Committee to look  after their management

Rules for Opening and Operations

  • Copy of the bye laws/ rules of the organization
  • Rules regarding the powers to operate bank accounts should also be noted.
  • Operations in the accounts, especially the debits should be only for the activities of the organisation.
  • Payments to any managing committee member or any other member in their individual capacity should be inquired into carefully.

Documents for Opening of Club/ Unregistered Account 

  • Current account opening form signed by all the Managing Committee members.
  • Specimen signature cards signed by authorised signatories. Copy of Bye Laws/ Rules.
  • Resolution of the Managing Committee, regarding opening the account and authorised signatories.
  • List of beneficial owners (If any).
  • Memorandum of Understanding or similar documents,
  • Documents required from KYC perspective

TRUSTS 

A trust is an obligation annexed to the ownership of a property, arising out of confidence reposed in and accepted by a person for the benefit of another or of the owner. The person who reposes or declares confidence is called the author of the trust. The person who accepts the confidence is called the trustee.  The person for whose benefit, the confidence is accepted is called the beneficiary. The instrument by  which the trust is created is called the ‘Trust Deed’. 

Rules for Opening and Operations – Trust’s Account 

  • Copy of the trust deed is to be examined to ascertain the powers and functions of the trustees.
  • In the case of two or more trustees, all the trustees will operate the account jointly.
  • On the death of one or more trustee(s), the authority is vested in the remaining trustees. When all the trustees are dead or retired, new trustees are appointed by the court.
  • The insolvency of a trustee does not imply insolvency of the trust.
  • Trustee(s) cannot delegate his/their powers, unless specifically authorised by the trust deed.
  • Charitable trusts are required, in several states in India, to be registered with the charity commissioner or such authority under the Public Trust Act.
  • It should always be ensured that all payments in the Trust account are made only in accordance with the provisions of the Trust Deed.
  • Cheques payable to the Trust should not be collected for credit of private accounts of Trustees.
  • Bank has no right to set off against the Trust Fund for debts owed by Trustees in their individual capacity.

Documents for Opening of a Trust’s Account 

  • Current account opening form signed by all the trustees.
  • Specimen signature cards signed by authorised signatories
  • Trust Deed.
  • A copy of the Registration Certificate.
  • Trust Letter and resolution adopted by the Trustees should be obtained with regard to operation of the account signed by all the trustees.
  • Permanent Account Number of the Trust or Form No. 60.

Executors and Administrators

  • An Executor is a person named in the will and derives title immediately after the date of death of Testator for the purpose of administration of the property of the deceased. He must obtain a Probate from a court of law before acting as an Executor.
  • An Administrator is a person appointed by the Court to manage the property of the deceased who had died without leaving any will.
  • An Executor or an Administrator cannot delegate her power to a third party.

Rules for Opening and Operations – Account of Executor/ Administrator 

  • The account of an Executor/ Administrator should be opened strictly in accordance with the Probate or a Letter of Succession or Letter of Administration or the Administrator General’s Certificate issued by a competent court or authority.
  • The account is to be used only for the funds related to the Estate of the deceased.
  • The account is opened in the name of the individual with the words “Executor” and “Administrator” suffixed.
  • The funds in the account are to be disposed in accordance with the Probate of Letter of Succession.

Documents for Opening of an Account of an Executor/ Administrator

  • Current account opening form signed by the Executor/ Administrator, and in case there are more than one by all the Executors/ Administrators.
  • Specimen signature card signed by the Executor(s)/ Administrator(s).
  • Will of the Deceased (if there is one).
  • Letter of Execution/ Administration.

Co-operative Societies

  • Rules and bye laws of the co-operative society are to be examined to ascertain if there are any restrictions on opening of a bank account with the commercial banks.
  • Some states have restrictions as to opening a bank account other than with the co-operative banks.
  • Investment of funds can be made with any bank or person carrying the business of banking – approved for this purpose by the Registrar.
  • Resolution to open a bank account with the signatures of three persons, viz., president/secretary/ treasurer out of these three, signatures of the president and one of the others are essential.

Documents for Opening of a Co-operative Society’s Account 

  • Current account opening form signed by the Managing Committee Members.
  • Specimen signature card signed by the authorised signatories
  • Resolution of the Managing Committee, authenticated as per the Bye-laws, for opening the bank account, and details of the authorised signatories
  • Registration Certificate.
  • A copy of the Bye-laws.
  • the documents required from KYC perspective

  Accounts Of Govt And Public Bodies

Rules for Opening of Account and Operations for a Government Department/ Public Body

  • The account is to be used only for the purpose for which it has been permitted.
  • The receipts in the account should be only from the specified sources.
  • The payments from the account should be only to the recipients as per the purpose specified.
  • Title of the Account should clearly indicate the nature of the account especially that it relates to government funds.
  • In case of change in incumbency of the Authorised Officer, fresh documentation based on suitable notifications to be done. The same account will be continued.

Documents for Opening of an Account for a Government Department/ Public Body

  • Account opening form signed by the Authorised Officer.
  • Specimen signature card signed by the Authorised Officer.
  • Government Order and/ or Notification authorising opening of the account, its purpose and sources and uses of funds.

Norms For Opening Current Accounts

  • For persons not having borrowing arrangement with any scheduled commercial bank or payment bank, there is no restriction on opening current accounts by any bank, subject to necessary due  diligence as per their Board approved policies.
  • There are restrictions on persons who have any borrowing arrangement or facility of any nature with a scheduled commercial bank or a payment bank.
  • The system of obtaining ‘No Objection Certificate’ from lending banks has been replaced with the new regime.
  • The nature of restrictions is different depending on the extent and nature of borrowing facilities.

Borrowers Having CC/OD Facility

  • Borrowers, where the exposure of the banking system is less than 5 crore: There is no restriction on opening current accounts or on providing CC/OD facility, subject to obtaining an undertaking  that they shall inform the bank(s), as and when the credit facilities availed by them from the banking  system reaches 5 crore or more.
  • Borrowers where exposure of the banking system is 5 crore or more: Such borrower can maintain current account with any one of the banks with which it has CC/OD facility, provided that the bank  has at least 10 per cent of the exposure of the banking system to that borrower.
  • Borrowers, where the exposure of the banking system is 50 crore or more: Banks shall put in place an escrow mechanism. Current account of such a borrower can only be opened/maintained by the  escrow managing bank. Other lending banks can open ‘collection accounts’ but the funds will be  remitted from these accounts to the said escrow account at the frequency agreed between the bank  and the borrower.
  • Borrowers where exposure of the banking system is 5 crore or more but less than 50 crore: There  is no restriction on opening of current accounts by the lending banks. Non- lending banks may open  only collection accounts.
  • Borrowers where exposure of the banking system is less than 5 crore: Banks may open current accounts subject to obtaining an undertaking from such customers to the effect that customers shall  inform the bank(s), if and when the credit facilities availed by them from the banking system becomes  5 crore or more.
  • Borrowers with no exposure to bank: Banks are free to open current accounts of prospective customers who have not availed any credit facilities from banking system, subject to due diligence as per their Board approved policies.

Monitoring Of Other Guidelines

  • Banks maintaining collection accounts are permitted to debit fee/charges from such accounts before transferring the funds to the escrow account/CC/OD account of the borrower.
  • Banks shall monitor all accounts regularly, at least on a half-yearly basis, specifically with respect  to the exposure of the banking system to the borrower. If there is a change in exposure of banks or aggregate  exposure of the banking system to the borrower which warrants implementation of new banking  arrangements, such changes shall be implemented within a period of three months from the date of  such monitoring.
  • Term loan drawals should be made directly to the suppliers instead of routing through current account (or CC/OD account)
  • Day to day expenses should be routed through CC/OD account, if there is one, else through current account.
  • For computing exposure, all fund-based and non-fund based facilities are to be included.
  • In case of proprietorship firms, all the borrowings in the name of the firm (i.e. for business purposes) and in the name of the proprietor (i.e. for personal purposes) should be counted together.

List Of Accounts In Exempted Category

Obtaining Photographs Of Account Holders

  • Banks, Local Authorities and Government Departments are exempt from this requirement. This may not be insisted for accounts of bank’s own staff members only (Single/Joint).
  • Photographs of all persons authorised to operate an account are requried.
  • The photographs should be recent and the cost may be borne by the customers.
  • Photocopies of an OVD with photograph would not suffice in place of photographs.
  • Only one set of two photographs should be taken from a customer for all types of accounts in her name, even if opened subsequently.
  • For joint accounts/ partnership accounts, a set of photographs of each joint depositor/ partner is needed.
  • For institutions, a set of photographs of each official authorised to open and operate the account must be obtained.
  • For Savings bank account of a minor aged 10 years and above, the minor’s photograph is needed.
  • For minor’s account, operated by the Guardian, latter’s photograph is also to be obtained.
  • For HUF, photograph of the “Karta” has to be obtained.
  • For NRE, NRO, FCNR accounts photographs of the account holder, and the POA/ mandate holder are needed.
  • During the operations, if a change is noticed in the photograph and the customer appearance, a recent photograph should be obtained from the customer, duly attested and affixed at all appropriate places.

Legal Entity Identifier

  • (LEI) is a 20-digit alpha-numeric code used to uniquely identify parties to financial transactions worldwide. Entities can obtain LEI from any of the Local Operating Units (LOUs) accredited by the Global Legal Entity Identifier Foundation (GLEIF)
  • In India, LEI code may be obtained from Legal Entity Identifier India Ltd. (LEIL) (a subsidiary of the Clearing Corporation of India Limited (CCIL)), accredited by GLEIF as LOU.
  • LEI system has been implemented for all participants in Over the Counter (OTC) markets for Rupee Interest Rate derivatives, foreign currency derivatives and credit derivatives in India.
  • Banks including Scheduled Commercial banks (Other than RRBs), Local area Banks, Small Finance banks are required to make it mandatory for corporate borrowers having aggregate fund-based and non-fund-based exposure of 5 crore and above from any bank to obtain Legal Entity Identifier (LEI) registration and capture the same in the Central Repository of Information on Large Credits (CRILC ).
  • This has been implemented to borrowers, the exposure of whom to scheduled commercial banks is Rs 50 Cr or more.

  • The guidelines on LEI stand extended to Primary (Urban) Co-operative Banks (UCBs) and Non-Banking Financial Companies (NBFCs).
  • Borrowers who fail to obtain LEI codes from an authorized Local Operating Unit (LOU) shall not be sanctioned any new exposure nor shall they be granted renewal/enhancement of any existing exposure.
  • Departments/Agencies of Central/ State Governments are exempted from this provision.
  • All participants the net worth of which is Rs. 2000 million or more, shall obtain Legal Entity Identifier (LEI) codes. Non-resident entities undertaking financial transactions in the relevant markets shall also require LEI.
  • All non-individual customers initiating or receiving transactions of Rs. 50 crore and above through RTGS and/ or NEFT must obtain LEI.
  • RBI has decided that AD Category I banks, with effect from October 1, 2022, shall obtain the LEI number from the resident entities (non-individuals) undertaking capital or current account transactions of Rs. 50 crore and above (per transaction) under FEMA, 1999.
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