[sbinews] Internet and Banking - Article on how Truncated Cheques work(Financial Express)

Internet And Banking
(Financial Express)
DINESH SINGH

Internet has been constantly penetrating the lives of common men and the same
has been revolutionised over the years. It holds within its ambit unfathomable
avenues, innumerable have been discovered and infinite remain to be explored.
The opportunities internet could bring in the future are enormous, from
communication to entertainment. Banking services is one sector that has
enormous potential and it is already knocking down the traditional means of
doing business. The latest to join the league is the electronic means of
payment. With the invasion of hand held computers and instant access to
internet, electronic cheques might even replace the preferred way of payment,
besides cash and plastic. As the volume of payments continues to rise, the cost
to banks and business and ultimately to customers is also increasing. Various
other methods of payment have been considered and tried, but nothing seems to
be as simple and efficient as an electronic cheque.


The paper cheque has long been established as the main instrument of payment.
It is used as a means of paying bills between individuals and organisations,
between businesses, and between individuals. In Singapore last year, the banks
cleared over $600 billion worth of cheques. In the United States, the banks
handled more than 70 billion cheques and in Mumbai and Delhi approximately
1,400,000 cheques are cleared every day.

Electronic cheque is an electronic end-to-end payment instrument that works
just like a paper cheque and is eligible for legal treatment as a paper cheque.
It is modelled on the lines of a paper cheque, except that it is initiated
electronically, uses digital signature for signing and endorsing and digital
certificates to authenticate the payer’s bank and the bank account. Following
the technological advancement globally, the Negotiable Instruments Act, 1881
(the ’Act’) has been amended to incorporate e-commerce aspects.

The amendment has brought in two concepts of digital cheques. One is a ’mirror
image’ of a cheque digitally signed. Second is the concept of ’truncated
cheque’ where the physical cheque carrying a physical signature of the drawer
is killed and replaced with an image of the signed cheque. Power to create a
truncated cheque lies with the clearing house or by the paying or collecting
banks.

Accordingly, Section 6 of the Act has been amended to include electronic
cheques, which means a cheque that contains the exact mirror image of a paper
cheque and is generated, written and signed in a secure system ensuring safety
standards with the use of digital signature (with or without biometrics
signature) and asymmetric crypto system. Closely linked to the concept of
electronic cheque is the process of cheque truncation, which has been given
legal backing by the Act. It is a process, which avoids the problem of physical
movement and transportation of cheques.

In the cheque truncation process, the cheque is halted at some stage during the
clearing cycle. It is not returned for final payment to the bank on which it is
drawn. The truncation is made where the physical movement of the cheque will be
halted and an electronically transmitted image of the cheque would be passed
on, for further processing and payment. At present, the drawee bank has the
right to be shown the instrument on presentment and to have the instrument
delivered to it on payment.

In cheque truncation, the instrument remains with the collecting bank and a
certificate is issued on the foot of the printout of the electronic image of a
truncated cheque by the banker who paid the instrument, which shall be prima
facie proof of such payment. Accordingly, Section 81 of the Act has been
amended and even after the payment, the banker who received the payment shall
be entitled to retain the truncated cheque.

Section 89 of the Act has also been amended and where the cheque is the
electronic image of a truncated cheque, any difference in apparent tenor of the
electronic image and the truncated cheque will be a material alteration and it
shall be the duty of the bank or the clearing house, as the case may be, to
ensure the exactness of the apparent tenor of the electronic image of the
truncated cheque while truncating and transmitting the image. In consonance
with the amendment of the Act, Information Technology Act, 2000 (the ’IT Act’)
has also been amended to give legal sanction to the electronic cheque
transactions. Consequently, as per section 13 of the IT Act, in the electronic
payment system the finality of irrevocable nature takes place when the payment
is made. It is so because dispatch of electronic record occurs when it enters
the computer resource outside the control of the sender. Since, in electronic
systems actions are instantaneous and there is no time lag, the prese
nt concept of stop payment has to be brought in consonance with the system and
usage. Also, there will remain concerns pertaining to hacking and manipulations
of electronic records, which can only be perfected over a period of time with
advancement of technology. The initiation of the electronic transaction process
in the banking sector would have far reaching results in terms of cost and
speed of transactions. Nevertheless, in the present scenario, internet banking
is in the earliest stages of development and an electronic cheque has its own
limitations in India.

Internet banking restricts access only to internet users and the density of
internet users in India is dismal. Consumers’ unfamiliarity with the basic
mechanics of internet working and data flow creates additional obstacles. But,
this is a significant beginning and over time electronic payment will
proliferate to masses.



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Citigroup shares slide despite Alwaleed move

Reuters – Saudi billionaire Prince Alwaleed bin Talal in a file photo. (Ahmed Jadallah/Reuters)

NEW YORK (Reuters) – Citigroup Inc lost more than one-quarter of its market value on growing worries over whether it has enough capital to withstand billions of dollars of potential losses and despite new support from its largest individual investor.

Saudi Prince Alwaleed bin Talal said he plans to increase his stake in Citigroup, the No. 2 U.S. bank by assets, to 5 percent from less than 4 percent, calling its shares "dramatically undervalued."

Alwaleed expressed "full and complete support" for bank management, including Chief Executive Vikram Pandit, who said this week the bank will slash 52,000 jobs and 20 percent of expenses.

Investors were unimpressed, and on Thursday drove the bank's shares down below $5, a level not seen since 1994. The market value of Citigroup has fallen $48.7 billion this month alone.

Citigroup is not seeking any government financial aid, and is not seeing any unusual business activity, a person close to the bank said.

Analysts said the bank could face more than $20 billion in losses in 2009 on commercial real estate, credit cards and emerging markets, as the world economy sinks into recession.

Some investors have said the government might have to step in, perhaps augmenting the $25 billion it injected last month from a $700 billion industry rescue package. The bank has raised another $50 billion since the middle of 2007.

"How much capital is Citi going to need?" said Keith Davis, a bank analyst at Farr, Miller & Washington in Washington, D.C. "I don't think anyone knows, and so the knee-jerk reaction is to sell first and ask questions later."

Citigroup shares closed down $1.69, or 26.4 percent, at $4.71, with volume topping 723 million shares. A Citigroup spokeswoman declined to comment on the share price.

The bank has asked the U.S. Securities and Exchange Commission to reinstate a ban on the short-selling of financial stocks in an attempt to arrest their downward spiral, a person familiar with the matter said Thursday. A prior ban expired Oct 8.

Other banks' shares also tumbled on Thursday, with JPMorgan Chase & Co falling 17.9 percent and Bank of America Corp closing down 13.9 percent. Along with Citigroup, the banks are components of the Dow Jones industrial average, which shed 5.6 percent.

JPMorgan is eliminating about 3,000 investment banking jobs, or 10 percent of that unit, to cope with the deteriorating economy, people familiar with the matter said. Bank of New York Mellon Corp announced 1,800 job cuts.

And KeyCorp, a Midwest regional bank, reduced its common stock dividend for the second time in six months.

STABILITY 'TOP PRIORITY'

Citigroup's market value, which once topped $270 billion, fell to $25.7 billion on Thursday. The bank was overtaken in market value this week by U.S. Bancorp and Bank of New York Mellon, despite being more than four times larger by assets than those companies combined.

Five-year credit default swaps for Citigroup rose to 395 basis points, meaning it would cost $395,000 annually to protect $10 million of debt, according to Phoenix Partners Group. That's up from $357,000 of annual payments on Wednesday, according to Markit.

Earlier this year, the government has rescued giant insurer American International Group Inc and mortgage giants Fannie Mae Freddie Mac.

Citigroup "will get bailed out, and that's another unfortunate strain on the U.S. government," said Saj Karim, an investment adviser at Cannacord Capital in Waterloo, Ontario.

U.S. Treasury Secretary Henry Paulson declined to comment on Citigroup.

Despite its troubles, Citigroup is one of three final bidders, along with JPMorgan and Capital One Financial Corp for Chevy Chase Bank, a Bethesda, Maryland, lender with $11.4 billion in deposits, sources said.

Pandit suffered a setback last month when Wells Fargo & Co agreed to buy Wachovia Corp, trumping Citigroup's bid to buy much of the Charlotte, North Carolina-based bank and add $418.8 billion of deposits.

'LONG-TERM WINNER'

Alwaleed said the bank is "taking all the necessary steps to position the company to withstand the challenges facing the banking industry and the global economy."

The Saudi billionaire, a nephew of Saudi King Abdullah, said he is "fully confident that Citigroup's universal banking model and global franchise will make it a long-term winner in the financial services industry."

Alwaleed also came to the bank's aid in 1991, when he invested $590 million in Citigroup predecessor Citicorp, which at the time needed cash as it struggled with Latin American loan losses and a collapse in U.S. real estate prices.

Citigroup has lost $20.3 billion in the last year and taken tens of billions of dollars in write-downs on mortgage and other toxic debt. Analysts expect it to lose money in the fourth quarter, and some don't see any profit in 2009.

"We don't see anything wrong from the point of view of liquidity," said Standard & Poor's credit analyst Tanya Azarchs. "We can see a fourth-quarter loss that could be getting worse because of events in the marketplace, but they are not alone."

Citigroup's potential losses could include a write-down tied to ailing bond insurer Ambac Financial Group Inc, which said Wednesday it ended two insurance contracts on collateralized debt obligations, paying 28 cents on the dollar. That could imply a $2 billion write-down at Citigroup.

(Additional reporting by Elinor Comlay, Kristina Cooke and Jonathan Spicer in New York; Gina Keating in Simi Valley, California; and Emily Kaiser in Washington, D.C.; writing by Christian Plumb and Jonathan Stempel; editing by John Wallace and Jeffrey Benkoe)

Bank Negara Malaysia Raided Four Companies on Suspicion of Conducting Illegal Deposit Taking & Money Laundering Activities

On 13 October 2008, Bank Negara Malaysia raided Buluhmas Enterprise Sdn. Bhd., Jazmeen (M) Sdn. Bhd, Noradz Travel & Services Sdn. Bhd., and Eastana Farm Industries Sdn. Bhd. under Section 25(1) of the Banking and Financial Institutions Act (BAFIA) 1989 and Section 4(1) of the Anti-Money Laundering and Anti-Terrorism Financing Act (AMLATFA) 2001. Section 25(1) of BAFIA 1989 prohibits any person from receiving, taking, or accepting deposits without having a valid license, whereas Section 4(1) of AMLATFA 2001 prohibits any person from engaging in, or attempting to engage in, or abetting the commission of money laundering activities.

The raids were conducted at the premises of the companies in Kuala Lumpur, Selangor and Negeri Sembilan following complaints received from members of the public. Relevant assets and documents of the companies were seized for purpose of the investigation.

Any person or company who commits an offence under Section 25(1) of BAFIA 1989 shall, on conviction, be liable to a fine not exceeding RM10 million or to imprisonment for a term not exceeding 10 years or to both. Any person or company who commits an offence under Section 4(1) of AMLATFA 2001 shall on conviction, be liable to a fine not exceeding RM5 million or to imprisonment for a term not exceeding 5 years or to both.

Members of the public are advised to be cautious of investment schemes promoted on the internet, through phone calls or through seminars conducted by individuals or companies that are not licensed or authorized by Bank Negara Malaysia to accept deposits or to conduct foreign currency dealings. A list of all licensed institutions that accept deposits is available on Bank Negara Malaysia's website at www.bnm.gov.my.

For further enquiries, members of the public can contact Bank Negara Malaysia at the following contact points: