Banking instruments include cheques, demand drafts, letters of credit, and debit/credit cards. Cheques are orders to a bank to pay a specified amount to a payee and come in various types like bearer, order, crossed, and post-dated cheques. Demand drafts are similar but always payable to order and issued by a bank with charges. Electronic funds transfer systems like NEFT and RTGS facilitate domestic transfers in batches or real-time respectively, identified by IFSC or MICR codes. Core banking solutions allow banks to store customer information centrally for real-time access across branches.

1. Banking Instruments
Banking instruments include cheques, drafts, bills of exchange, credit notes etc. It is a
document guaranteeing the payment of a specific amount of money, either on demand, or at
a set time, with the payer named on the document.
Cheques: It is an instrument in writing containing an unconditional order, addressed to a
banker, sign by the person who has deposited money with the banker, requiring him to pay
on demand a certain sum of money only to or to the order of certain person or to the bearer
of instrument.
Sample of a cheque:
There are various types of cheques:
A. Bearer Cheque or open Cheque: When the words "or bearer" appearing on the face of the
cheque are not cancelled, the cheque is called a bearer cheque. The bearer cheque is payable
to the person specified therein or to any other else who presents it to the bank for payment.
B. Order Cheque: When the word "bearer" appearing on the face of a cheque is cancelled and
when in its place the word "or order" is written on the face of the cheque, the cheque is
called an order cheque. Such a cheque is payable to the person specified
C. Crossed Cheque: Crossing of cheque means drawing two parallel lines on the face of the
cheque with or without additional words like "& CO." or "Account Payee" or "Not
Negotiable". A crossed cheque cannot be encashed at the cash counter of a bank but it can
only be credited to the payee's account.

2. D. Multi-City Cheque: A Multi-City Cheque (MCC) is one that can be written by the customer
in favour of his client and is payable at par at all branches of the Bank. These are issued as
Order Cheque
E. Payable at Par: Cheque payable at par means that you can get the full value of the cheque
credited to your account without deduction of any kind of bank charges, when presented for
collection.
F. Ante-Dated Cheque: If a cheque bears a date earlier than the date on which it is presented
to the bank, it is called as "ante-dated cheque". Such a cheque is valid up-to 3 months from
the date of the cheque.
G. Post-Dated Cheque: If a cheque bears a date which is yet to come (future date) then it is
known as post-dated cheque. A post dated cheque cannot be honoured earlier than the date
on the cheque.
H. Stale Cheque: If a cheque is presented for payment after 3 months from the date of the
cheque it is called stale cheque. A stale cheque is not honoured by the bank.
I. A self cheque: A self cheque is written by the account holder as pay self to receive the
money in the physical form from the branch where he holds his account.
J. Truncated cheque: A cheque which is truncated during the course of a clearing cycle, either
by the clearing house or by the bank whether paying or receiving payment, immediately on
generation of an electronic image for transmission, substituting the further physical
movement of the cheque in writing.
K. Traveller’s Cheque: Traveller’s checks are often used by individuals who are travelling on
vacation to a different state or foreign countries. The checks were first introduced by
American Express back in 1891.
There are three parties to the cheque
 Drawer or Maker
 The bank - on whom the cheque is drawn (i.e. the bank with whom the account is
maintained by the drawer)
 Payee – Payee is the person whose name is mentioned on the cheque to whom or to
whose order the money is directed to be paid.
Demand Drafts: A demand draft (DD) is a negotiable instrument similar to a bill of
exchange. A bank issues a demand draft to a client (drawer), directing another bank (drawee)
or one of its own branches to pay a certain sum to the specified party (payee).
The difference between a cheque and demand draft is given below:

3. Basis for
Comparison
Cheque Demand Draft
Meaning
Cheque is a negotiable instrument which
contains an order to the bank, signed by the
drawer, to pay a certain sum of money to a
specified person.
Demand Draft is a negotiable
instrument used for the transfer
of money from one place to
another.
Payment Payable either to order or to bearer.
Always payable to order of a
certain person.
Issuance Cheque is issued by an individual.
Demand Draft is issued by a
bank.
Bank Charges No Yes
Drawer Customer of the bank. Client
Parties
Involved
Three Parties- Drawer, Drawee, Payee. Two Parties- Drawer, Payee.
Dishonour
Yes, due to insufficient balance or other
similar reasons.
No
Demand Draft/Payment Order/Travellers Cheques for Rs.50,000/- and above can be issued
only by way of debiting the customer's account or against cheques.
Letter of Credit: The buyer of goods requests his bank to give guarantee that the payment
for the goods will be paid to the seller. In such case the bank issues Letter of Credit.
A. Commercial Letters of Credit
 Commercial letters of credit are mainly used as a primary payment tool in
international trade such as exporting and importing transactions.
 These are import letters of credit or export letters of credit
B. Revocable Letters of Credit
 Revocable letters of credit give issuer the amendment or cancellation right of the
credit any time without prior notice to the beneficiary.
C. Irrevocable Letters of Credit
 Irrevocable Letters of Credit cannot be amended or cancelled without the agreement
of the credit parties. Unconfirmed irrevocable letters of credit cannot be modified
without the written consent of both the issuing bank and the beneficiary.

4. Voucher: Vouchers are bonds with a certain monetary value, entitling the bearer to redeem
them for specific goods or services. Vouchers are tokens which entitle the bearer to redeem
them for the goods or services specified by the voucher.
Bills of Exchange: A non-interest-bearing written order used primarily in international
trade that binds one party to pay a fixed sum of money to another party at a predetermined
future date. It is a promissory note.
Debit Card:
 A card used to make an electronic withdrawal
from funds on deposited in a bank account or in
purchasing goods through EDC (Electronic Data
Capture) machine.
 Debit card number is usually of 16 digits.
 There are transaction charges beyond 5
numbers of transactions in a month.
Credit Card:
 A card issued by a financial company giving the holder an option to borrow funds,
usually at point of sale. Credit cards charge interest and are primarily used for short-
term financing.
 Interest usually begins one month after a purchase is made and borrowing limits are
pre-set according to the individual's credit rating. There are annual fee, service
charges, late payment charges and other charges attached to a credit card.
International Debit Card:
 Banks authorised to deal in foreign exchange are permitted to issue International
Debit Cards (IDCs) which can be used by a resident for drawing cash or making
payment to a merchant establishment overseas during his visit abroad.
 IDCs can be used only for permissible current account transactions and the usage of
IDCs shall be within the LRS (Liberalised Remittance Scheme) limit.
International Credit Card:
 Resident individuals maintaining a foreign currency account with an authorised dealer
in India or a bank abroad, as permissible under extant Foreign Exchange Regulations,
are free to obtain International Credit Cards (ICCs) issued by overseas banks and other
reputed agencies.

5.  The charges incurred against the card either in India or abroad, can be met out of
funds held in such foreign currency account/s of the card holder or through
remittances
Forex Card:
 A Forex card is a type of prepaid debit
card. Forex cards are useful financial
instruments for anyone who is travelling
abroad. Forex cards are safe, convenient
and cost-effective.
ATM:
 Automated Teller Machine is a computerized machine that provides the customers of
banks the facility of accessing their account for dispensing cash and to carry out other
financial & non-financial transactions without the need to actually visit their bank
branch.
 With effect from November 01, 2014, Savings bank account holders can do a minimum
of three transactions (including both financial and non-financial transactions) free of
charge in a month at other bank ATMs in case of ATMs located in six metro locations,
viz. Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad. At other
locations, the savings bank account holders can transact a minimum of five
transactions (including both financial and non-financial transactions) free of charge in
a month at other bank ATMs.
 BSBDA holders will continue to get five free transactions (including both financial and
non-financial transactions) in a month at other bank’s ATM at all locations including
the above six metro locations, subject to other conditions associated with such
accounts.
 In case of failed ATM transaction, the customer should file a complaint with the card
issuing bank at the earliest. This process is applicable even if the transaction was
carried out at another bank’s/non-bank’s ATM.
 As per the RBI instructions, banks have been mandated to resolve customer
complaints by re-crediting the customer’s account within 7 working days from the
date of complaint.
White Label ATMs (WLAs):
 ATMs set up, owned and operated by non-banks are called White Label ATMs. Non-
bank ATM operators are authorized under Payment & Settlement Systems Act, 2007
by the Reserve Bank of India.

6. NEFT:
 National Electronic Funds Transfer (NEFT) is a nation-wide payment system facilitating
one-to-one funds transfer. Under this Scheme, individuals, firms and corporates can
electronically transfer funds from any bank branch to any individual, firm or corporate
having an account with any other bank branch in the country participating in the
Scheme.
 There is no limit – either minimum or maximum – on the amount of funds that could
be transferred using NEFT. However, maximum amount per transaction is limited to
Rs.50,000/- for cash-based remittances within India and also for remittances to Nepal
under the Indo-Nepal Remittance Facility Scheme.
 Presently, NEFT operates in hourly batches - there are twelve settlements from 8 am
to 7 pm on week days (Monday through Friday) and six settlements from 8 am to 1 pm
on Saturdays.
RTGS:
 Real Time Gross Settlement means the continuous (real-time) settlement of funds
transfers individually on an order by order basis (without netting). 'Real Time' means
the processing of instructions at the time they are received.
 The RTGS system is primarily meant for large value transactions. The minimum
amount to be remitted through RTGS is Rs. 2 lakhs. There is no upper ceiling for RTGS
transactions.
 The RTGS service window for customer's transactions is available to banks from 9.00
hours to 16.30 hours on week days and from 9.00 hours to 14:00 hours on Saturdays
for settlement at the RBI end.
Difference between NEFT & RTGS:
NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS)
basis which settles transactions in batches. Contrary to this, in the RTGS transactions are
processed continuously throughout the RTGS business hours.

7. IFSC:
 Indian Financial System Code is an alpha-numeric code that uniquely identifies a bank-
branch participating in the NEFT system. This is an 11 digit code with the first 4 alpha
characters representing the bank, and the last 6 characters representing the branch.
The 5th character is 0 (zero).
 IFSC is used by the NEFT systemto identify the originating / destination banks /
branches and also to route the messages appropriately to the concerned banks /
branches.
MICR:
 Magnetic Ink Character Recognition is a 9 digit numeric code that uniquely identifies a
bank branch participating in electronic clearing scheme.
 It is used to identify the location of a bank branch.
SWIFT:
 It stands for Society for Worldwide Interbank Financial Telecommunication.
 This code is used particularly in international transfer of money between banks. Most
of the Forex related messages are sent to correspondent banks abroad through SWIFT.
 India was 74th Nation to join SWIFT Network.
 Code consist 8 or 11 character when code is 8 digits.
 4 – bank code
 2 – country code
 2 – location code
 3 – branch code (optional).

8. Internet Banking:
Online banking or Internet banking is an electronic payment systemthat enables customers of
a financial institution to conduct financial transactions on a website operated by the bank.
Online banking was first introduced in the early 1980s in New York. Four major banks—
Citibank, Chase Manhattan, Chemical and Manufacturers Hanover—offered this service.
Mobile Banking:
Mobile banking refers to the use of a cell-phone or other cellular device to perform online
banking tasks. Mobile banking services are usually limited to electronic movement of funds
and data retrieval.
Core Banking Solution:
This is a process in which the information is stored in a centralized server of the bank, which is
available to all network branches.
The advantages of core banking are:
 Information is available to all branches at real time.
 Professional Manpower to be utilized more effectively.
 Transparency.
 Reducing duplication of work.
 Information availability for decision support.
 Cost effective.
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