Collecting Banker, Meaning, Duties and Responsibilities of Collecting Banker

Collecting Banker is a banker who undertakes the responsibility of collecting cheques, drafts, bills, or other negotiable instruments on behalf of a customer from other banks. The banker acts as an agent for the customer and credits the amount to the customer’s account once the instrument is realized. The collecting banker must exercise due diligence, ensure proper endorsements, and act in good faith to avoid legal liabilities. If the banker collects a cheque for someone not entitled to it, they may lose statutory protection under the Negotiable Instruments Act. Their role is vital in facilitating smooth banking transactions.

Duties  of Collecting Banker:

• Duty to Act as an Agent

A collecting banker acts purely as an agent of the customer when collecting cheques and bills from other banks. The banker does not own the instrument but merely facilitates its collection. As an agent, the banker must act honestly and follow the customer’s instructions. Any deviation from the prescribed duty or negligence in collection may make the banker liable to the customer for any loss or damage suffered.

• Duty to Exercise Reasonable Care and Diligence

The collecting banker must handle the collection process with reasonable care, skill, and diligence. The banker should verify endorsements, detect any irregularities, and avoid collecting cheques for customers with suspicious conduct. Failure to do so could result in legal consequences, including the loss of statutory protection under Section 131 of the Negotiable Instruments Act, making the banker liable for conversion or negligence.

• Duty to Present the Cheque Promptly

The banker must present the cheque or other instrument for payment within a reasonable time. Delay in presentation may cause financial loss to the customer, especially if the drawer’s account has insufficient funds later. Prompt presentation ensures timely credit to the customer’s account and avoids dishonor or loss of legal recourse due to lapse of time.

• Duty to Credit the Customer’s Account Promptly

Once the cheque is realized, the collecting banker must promptly credit the proceeds to the customer’s account. Delayed crediting may cause inconvenience and dissatisfaction to the customer. However, if the banker provides credit before realization (i.e., on a collection basis), they do so at their own risk and may exercise lien or reversal in case of dishonor.

• Duty to Protect Customer’s Interest

The collecting banker is expected to safeguard the interests of their customer. This includes verifying the instrument’s authenticity, ensuring proper documentation, and avoiding collection of suspicious or forged instruments. The banker must also maintain confidentiality and not disclose customer information unless legally required.

• Duty to Provide Notice of Dishonor

If a cheque or instrument is dishonored by the drawee bank, the collecting banker must promptly inform the customer about the dishonor. This allows the customer to take appropriate legal or recovery action. Delay in notification may prevent the customer from suing the drawer, thus affecting their legal rights.

• Duty to Maintain Proper Records

The collecting banker must maintain detailed records of all instruments collected, including copies, dates of receipt, presentation, realization, or dishonor. Proper record-keeping helps in resolving disputes, audits, and customer queries. It also acts as a safeguard for the banker in case of legal proceedings.

• Duty to Follow Regulatory Compliance

Collecting bankers must adhere to banking laws, RBI guidelines, and internal compliance protocols while collecting cheques or instruments. This includes following KYC norms, anti-money laundering checks, and maintaining transaction transparency. Violation of these norms can lead to penalties and legal consequences.

Responsibilities of Collecting Banker:

• Acting in Good Faith

A collecting banker must act in good faith and without negligence while collecting cheques or other negotiable instruments. This includes ensuring the instrument is genuine, properly endorsed, and belongs to the customer. If the banker knowingly or carelessly collects a fraudulent instrument, they lose legal protection and become liable for damages to the true owner. Acting honestly safeguards both the bank and the customer’s interests.

• Verifying the Endorsement

One of the vital responsibilities is verifying that the cheque or instrument is correctly endorsed by the payee. The banker should ensure that the endorsement is not forged or irregular. Failure to do so may make the banker liable for conversion. By verifying endorsements, the banker ensures the instrument is in proper order for collection and reduces legal and financial risks.

• Avoiding Collection for Strangers

The collecting banker must not collect cheques for non-customers or individuals with whom they do not have a banker-customer relationship. Doing so increases the risk of fraud and legal liability. If the banker collects a cheque for a stranger, they may be held responsible for any fraudulent transaction. It is crucial to establish a verified relationship before proceeding with collection.

• Ensuring Timely Presentation

The collecting banker must present the instrument for payment within a reasonable time. Delays can result in the drawer’s account being closed or lacking funds, thereby causing loss to the customer. Timely presentation is essential for preserving the legal rights of the customer and ensuring a smooth transaction. It also demonstrates the banker’s efficiency and reliability.

• Handling Dishonored Instruments

If a cheque or instrument is dishonored, the banker must immediately inform the customer. This responsibility ensures the customer can take timely action, such as contacting the drawer or initiating legal proceedings. Additionally, the banker should return the dishonored instrument with reasons for non-payment. Timely communication builds trust and enhances service quality.

• Maintaining Secrecy

The banker is duty-bound to maintain the confidentiality of the customer’s financial transactions, including details about cheques or instruments collected. Information should not be disclosed to third parties without the customer’s consent or a legal obligation. Breach of confidentiality can damage the banker’s reputation and lead to legal action.

• Observing Legal and Regulatory Norms

The collecting banker must comply with legal provisions like the Negotiable Instruments Act and guidelines issued by the Reserve Bank of India (RBI). This includes adherence to KYC norms, reporting suspicious transactions, and following internal compliance protocols. Non-compliance can result in regulatory penalties and reputational damage.

• Keeping Accurate Records

The banker must maintain proper records of collected instruments, including their date of receipt, presentation, realization, and dishonor if any. Proper documentation helps resolve disputes, supports audits, and protects the bank in case of legal issues. It is a core aspect of responsible banking operations.