Clearing in Banking

MEANING OF CLEARING:

The word clearing has been derived from the word clear and is defined as: “A system by which banks exchange cheques and other negotiable instruments drawn on each other within a specific area and thereby secure payment for their clients through the Clearing House at specified time in an efficient way.”

EXPLANATION:

By clearing means sometimes the account holder of Habib Bank Limited present cheques, which is not drawn on Habib Bank but the person, has an account in Habib Bank Limited. In this case bank accepts this cheque in clearing department and later on collects the amount from bank on which cheques is drawn through clearing house. This function is called clearing.

CLEARING HOUSE:

Initially state bank of Pakistan provides the facility of clearing in its clearing house where representatives of all banks sit together and interchange their claims against each other. But now state bank of Pakistan has assigned this responsibility to National Institute of Facilitation Technologies (NIFT). It is one of the services provided by NIFT to other commercial banks. NIFT acts as a clearinghouse. Different banks are the members of the clearinghouse. A representative of each bank represents his bank in the clearing house .Each bank has collected cheques as behalf of their customer but these cheques are not drawn on their own bank so in the clearinghouse, they hand over these cheques to respective banks on which these cheques are drawn. Similarly each bank receives cheques from other banks if any.

INSTRUMENT TO BE PRESENTED

 1. Cheques

2. Demand Drafts

3. Pay Orders

TYPES OF CLEARING:

 There are four types of clearing:-

1. Inward Clearing

2. Outward Clearing

3. Intercity Clearing

4. Same Day Clearing