SBI and Central Bank of India returned a DD saying that it is a "cancelled instrument". What these banks forgot is that the DD cannot be cancelled without the original instrument, which was in their possession at the time of clearing
Strange as it may sound, but two state-run lenders, State Bank of India (SBI) and Central Bank of India (CBI) had created a new record of bouncing a demand draft (DD). In this particular case, both these banks returned the DD drawn by CBI saying, “Instrument is cancelled”.
As we all know, a DD is much safer and certain method of payment compared with cheques. In case of cheques, an individual is the drawer and hence the cheque can be dishonoured by the drawee bank due to various reasons, like insufficient funds. However, in case of DD, the drawer is a bank and hence the payment is certain and the instrument cannot be dishonoured.
Central Bank of India's branch at Colaba Causeway in Mumbai, on 23 April 2013 issued a DD (no93323) for Rs21,878 on the name of Aditya Rahul Talavliker. The DD was presented in SBI's Erandwana branch at Pune by Aditya Talavliker. However, to his surprise, Central Bank (being the local clearing branch) returned the DD saying that the “instrument is cancelled, contact branch”.
Interestingly, a DD can be cancelled, provided the original instrument is presented to the drawee bank. In this case, while the DD was with the banks in Pune, how can the drawee bank branch (at Colaba, Mumbai) cancel the instrument?
There are two possibilities. One the bank employee failed to distinguish between a cheque and a DD. And two, he may not have consulted with his/her seniors before labelling the DD as a “cancelled instrument”.
Moneylife has sent a mail to the SBI chairman and would post his response as and when it comes.
Clearance of a DD
Normally demand drafts are used to pay on demand certain amount to a specified beneficiary from one branch to another branch of same bank. However, since DDs are a kind of cheque, the basic principles of cheque clearing also apply to drafts. This means, if the payee does not have account with the same branch, he/she can deposit the DD in his bank. The bank in turn would send the DD for outward clearing (similar to cheque clearing) to the local clearing house.
Cancellation of DD
A DD can be cancelled at the same branch from where it was issued. The applicant needs to give a letter along with the original DD for cancellation. The bank, in turn would cancel the DD after deducting certain charges and credit the amount in the account of the applicant (if he have one with the same branch) or give him a pay order. Only the person, who has filled the application form for the original DD, can cancel it.
Credit growth for the banking sector as on 17 May 2013 stands at 14.7% y-o-y and deposit growth stands at 13.5% y-o-y. LDR for the banking sector remains high at 77.5% (74.3% as of May 2012).
Strong growth in tractor volumes are driven by improved customer sentiment on expectations of a good monsoon this year and improved Rabi crop realizations, says Nomura Equity Research in its Quick Note on the automobile industry
Most of the auto companies have reported May 2013 sales volumes. Overall, volumes were below expectations for cars and MHCVs, while tractor volumes surprised positively. “Mahindra & Mahindra’s (M&M) volumes were up by 24% y-o-y as compared to our estimate of 8% growth. As well, tractor volumes for Escorts were strong and increased by 18% y-o-y. We believe that strong growth in tractor volumes are driven by improved customer sentiment on expectations of a good monsoon this year and improved Rabi crop realizations,” said Nomura Equity Research in its Quick Note on the industry. The brokerage prefers to watch for volume growth over the next 1-2 months to see if FY14F could see a strong turnaround in the sector.
As per Nomura’s calculations, domestic volumes for the car industry fell by 12% y-o-y as against its estimate of a 7% decline. Maruti Suzuki’s (MSIL) domestic volumes fell by 13% while Nomura was expecting a 4% decline. As per its discussions with the management MSIL’s retail volumes were flat y-o-y in May 2013 and wholesale volumes were impacted by inventory reductions to some extent. “MSIL is confident of achieving its full-year volume growth target of 6% (versus our estimate of 6.5% growth),” said Nomura.
Amongst unlisted companies, Toyota and Ford have seen 30%+ declines. Honda’s volumes were up 10% led by the launch of Amaze. GM volumes increased by 40% y-o-y led by launch of new MPV Enjoy and continued good customer response for its Sail sedan, according to Nomura.
Nomura estimates that volumes in the MHCV industry declined by around 17% y-o-y as compared to its estimate of 9% decline. Both Tata Motors’ (TTMT) and Ashok Leyland’s (AL) volumes were weaker than the brokerage’s expectations. TTMT reported a 19% fall in volumes while AL’s volumes were down 22% y-o-y. Eicher’s total CV volumes increased by 2% y-o-y.
Domestic two-wheeler industry volumes were up 2% y-o-y in May-13, which was in line with Nomura’s estimates. Hero MotoCorp’s (HMCL) volumes were flat y-o-y; above the brokerage’s forecast of 5% decline. Honda Motorcycle & Scooter’s (HMSI) volumes were up only 3% y-o-y at around 230,000 units (around 260,000 units in April 2013); bike volumes fell by 4% y-o-y. Bajaj Auto’s domestic bike volumes increased by 3%, while TVS’ volumes were down 8% y-o-y.
Nomura adds that production from HMSI’s new plant (1.2mn annual capacity) will begin from June 2013; thus, volumes over the next 2-3 months will be critical as incumbents (HMCL and Bajaj Auto) might face further market share pressures.
Strong improvement in tractor volumes is quite positive for M&M, says Nomura. If the current trend continues we can see strong double-digit growth in FY14F. The brokerage is currently looking at 8% volume growth for tractors in FY14F. In terms of sensitivity, 5% higher tractor volumes can increase its core EPS estimates (M&M + MVML) by around 3%. For M&M, volume growth in passenger vehicles was 5% in May 2013 and LCV volumes were up 12% which is marginally ahead of Nomura’s estimates. Further, strong growth in Ssangyong volumes (up 25% in May) also augurs well for M&M, says Nomura.
For Maruti, Nomura expects earnings growth to remain strong over the next two years driven by margin improvement and recovery in car industry volumes in FY15F. Therefore, any decline in stock price should be used as a buying opportunity, opines Nomura.