INWARD CLEARING: means the cheques received by the bank from other banks.

These - Inward clearing - cheques are the cheques drawn by the bank/branch customers on their account in favour of other parties. On receipt of the inward clearing, the cheques are posted to the various accounts on which they are drawn - meaning the accounts of the cheque issuer or drawer with the bank is debited to the account and the payment is made to the bank presenting the cheque. OUTWARD CLEARING: means the cheques sent for collection. When a particular branch receives instruments drawn on the other bank within the clearing zone and sends those instruments for collection through the clearing arrangement is considered as Outward Clearing for that particular branch. This branch is known as collecting branch. In other words, inward clearing is for our branch and outward clearing is for other banks or branches. When we receive inward clearing we have to debit our customer account and when we receive outward clearing we have to send it to relevant bank for payment. Cheques Returned in Outward Clearing The cheques which are sent for local clearing may be returned for the following reasons: Fund reasons Funds Insufficient Stop Payment by the Drawer etc Payment stopped by attachment order Payment stopped by court order Withdrawal stopped owing to death of account holder Withdrawal stopped owing to lunacy of account holder Withdrawal stopped owing to insolvency of account holder Exceeds arrangement (normally applicable to Overdraft accounts, the cheque amount exceeds the Overdraft limit for the debit account) Effects not cleared; present again (cheques in debit account are in clearing cycle, fate is still unknown)

Technical reasons Signatures Differs Drawers signature incomplete Drawers signature illegible Drawers signature required Drawers signature not as per mandate Dormant Account

Instrument post dated (E.g. Todays date is 23/04/2013, and the cheque date is after 23/04/2013) Instrument out-dated / stale (E.g. Todays date is 23/04/2013, and the cheque date is prior to 22/01/2013) Instrument undated / without proper date (Date column on cheque is blank) Instrument mutilated; requires banks guarantee Cheque irregularly drawn / amount in words and figures differ Clearing House stamp / date required Wrongly delivered / not drawn on us

FIRST HOUSE IN CLEARING: In the first house of the clearing the banks present their respective cheques for their counter parties so as to the settlement of the payments take place and the bank receive its payment for the cheques it presents and pays for the cheques it receives.

HDFC

KASHMIR MERCANTILE BANK

J&K BANK

PSB

SBI

J&K GRAMEEN BANK

PNB

Thus in first house HDFC bank will give instruments it received of other banks to the respective banks for receiving payment and in return the banks will give HDFC its own instruments so as they receive their payments and reach at the settlement state.

SECOND HOUSE IN CLEARING: While in the first house the banks present the instruments for the clearing to the respective banks for their settlement the second house is conducted for the presentation of the instruments that cant be cashed due to fund and technical reasons and is returned to the presenting bank again. Thus when the instruments are presented for the clearing in the clearing house the bank can have either the adverse clearing or favourable clearing and the bank needs to take further course of action accordingly. Thus in second house clearing the banks returns the cheques they received in inward clearing and could not be enchased due to fund and technical reasons. For a bank when it presents its instruments in the clearing house the bank may be facing the case of either favourable or adverse clearing conditions. Favourable clearing: clearing is said to be favourable for a bank when its cheques it presents to other banks have larger amount then what other banks present to it as such the payments are less than the receipts the clearing is said to be favourable for the bank. As such when the clearing is favourable the bank fills the Credit slip in the bank and provides it to the clearing managing bank where all banks have their respective account in which the amount is credited for the concern bank account. Favourable Clearing = Payments Less Than Receipts

Adverse clearing: clearing is said to be adverse for a bank when its instruments it presents to other banks have lesser amount then what other banks present to it as such the payments are more than the receipts and hence the clearing is said to be adverse for the bank. As such when the clearing is adverse the bank fills the debit slip in the bank and provides it to the clearing managing bank and the respective amount is debited from the concern bank account. Adverse Clearing= Payments More Than Receipts

If the bank has insufficient funds in the account it needs to borrow from the RBI and while its balance exceeds the 5lacs it needs to deposit the excess amount in the RBI account and can have a maximum balance of 5lacs in the account managed by the clearing house.