Bill Discounting

Topics: Interest rate, Cheque, Money Pages: 12 (2433 words) Published: January 22, 2011
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Project of omdar datar sir
By: Amit dange
College : k.v.pendharkar dombivli
Bill discounting, as a fund-based activity, emerged as a profitable business in the early nineties for finance companies and represented a diversification in their activities in tune with the emerging financial scene in India. In the post-1992 (scam) period its importance has substantially declined primarily due to restrictions imposed by the Reserve Bank of India. DEFINITION:

Bill discounting is a major activity with some of the smaller Banks. Under this type of lending, Bank takes the bill drawn by borrower on his(borrower's) customer and pay him immediately deducting some amount as discount/commission. The Bank then presents the Bill to the

borrower's customer on the due date of the Bill and collect the total amount. If the bill is delayed, the borrower or his customer pay the Bank a pre-determined interest depending upon the terms of transaction.

In other words, Cashing or trading a bill of exchange at less than its par value and before its maturity date. The cash thus realized varies according to the number of days until maturity and the risk involved.

According to the Indian Negotiable Instruments Act, 1881: “The bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of that instrument.” The bill of exchange (B/E) is used for financing a transaction in goods which means that it is essentially a trade-related instrument. TYPES OF BILLS

There are various types of bills. They can be classified on the basis of when they are due for payment, whether the documents of title of goods accompany such bills or not, the type of activity they finance, etc. Some of these bills are: Demand Bill: This is payable immediately “at sight” or “on presentment” to the drawee. A bill on which no time of payment or “due date” is specified is also termed as a demand bill. Usance Bill: This is also called time bill. The term usance refers to the time period recognized by custom or usage for payment of bills.

Documentary Bills: These are the B/Es that are accompanied by documents that confirm that a trade has taken place between the buyer and the seller of goods. These documents include the invoices and other documents of title such as railway receipts, lorry receipts and bills of lading issued by custom officials.

Documentary bills can be further classified as: (i) Documents against acceptance (D/A) bills and (ii) Documents against payment (D/P) bills.

D/ A Bills: In this case, the documentary evidence accompanying the bill of exchange is deliverable against acceptance by the drawee. This means...
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