Demand Draft

A Demand Draft (DD) is a financial instrument used primarily for the transfer of funds from one location to another. Issued by a bank, it serves as a guaranteed way to make payments, commonly used in business transactions, educational fees, and personal remittances. This instrument is widely used in countries like India, where the traditional banking system is still prevalently used.

Key Features

Guaranteed Payment

Unlike personal checks, a DD is a secure instrument as it is issued by a bank and is hence guaranteed. Once a DD is issued, the funds are immediately debited from the account of the issuer, ensuring that the receiver (the beneficiary) gets the payment without any risk of the instrument bouncing due to insufficient funds.

Non-Negotiable

Demand drafts are generally non-negotiable. This means that the person to whom the DD is made out can only deposit it into their account and cannot endorse it to someone else. This feature ensures that the payment reaches the intended beneficiary and adds an extra layer of security to the transaction.

Requirement for Issuance

To issue a DD, the applicant needs to fill out a requisition form, provide details of the beneficiary, and pay the amount to be transferred, along with applicable fees. This can be done at a bank branch, and increasingly, through online banking portals.

Fixed Amounts

The amount specified in a demand draft is fixed and cannot be altered. This ensures that the beneficiary receives the exact amount intended by the issuer without any discrepancies.

Types of Demand Drafts

Sight Demand Draft

A sight demand draft is payable upon presentation or ‘at sight’. The beneficiary needs to present the DD at a bank branch to receive the payment.

Time Demand Draft

A time demand draft has a specific date on which it will be payable. The beneficiary can present the DD on or after the specified date to claim the payment.

Advantages and Disadvantages

Advantages

1. Security: DDs are safe as they do not involve cash transactions and are less prone to theft or fraud.
2. Reliability: Since the bank guarantees the payment, it assures the beneficiary of receiving the funds.
3. Widely Accepted: DDs are an accepted mode of payment for various transactions including educational fees, business payments, and more.
4. Record Keeping: Issuing a DD creates a record in the banking system, providing a clear trail of the transaction.

Disadvantages

1. Fees: Issuing a demand draft involves paying a fee which can be higher compared to other forms of fund transfers like NEFT or RTGS.
2. Inconvenience: Requiring physical presence at a bank branch for issuance or encashment can be inconvenient.
3. Time-Consuming: The process of issuing and clearing a DD can be time-consuming compared to electronic fund transfers.

Process of Issuing a Demand Draft

Step-by-Step Issuance

1. Filling the Form: The applicant needs to fill out the DD application form providing essential details like the beneficiary’s name, amount, and reason for the transfer.

2. Payment of Amount: The applicant must pay the amount to be transferred either from their account or in cash, along with the bank’s commission for issuing the DD.

3. Bank Verification: The bank verifies the details and ensures that the account has sufficient funds.

4. Issuance of DD: Upon verification, the bank issues the DD which includes details such as the bank’s name, branch, date of issuance, and amount.

5. Handover to Applicant: The DD is handed over to the applicant who can then send it to the beneficiary.

Cancellation and Reissuance

1. Cancellation: If a DD needs to be canceled, the applicant must submit an application for cancellation along with the original DD. The bank will then verify the details and upon approval, refund the amount after deducting cancellation charges.

2. Reissuance: If a DD is lost or damaged, the applicant can request for a duplicate DD by submitting an application along with an indemnity bond.

Uses of Demand Drafts

Business Transactions

Businesses often use DDs for transactions as they are a secure and reliable method of payment. Suppliers and service providers accept DDs as they guarantee payment.

Educational Institutions

Universities and colleges accept DDs for payment of tuition fees, examination fees, and other charges. The guaranteed payment ensures that the institution receives the funds without delay.

Personal Remittances

Individuals often use DDs to send money across long distances. This is useful especially in areas where electronic transfer facilities are limited.

Government Payments

Certain government transactions require payments to be made through DDs. For example, application fees for government services or job applications are often paid via DDs.

Demand Draft vs Other Payment Methods

Demand Draft vs Cheques

• Security: Unlike cheques which can bounce if there are insufficient funds, a DD guarantees payment as the amount is deducted at the time of issuance.
• Convenience: Cheques can be conveniently written and given to the beneficiary instantly while a DD requires a visit to the bank.
• Endorsement: Cheques can be endorsed to another party whereas DDs are non-negotiable.

Demand Draft vs Electronic Transfers

• Speed: Electronic transfers like NEFT, RTGS, and IMPS are faster compared to the process of issuing and clearing a DD.
• Cost: The cost associated with issuing a DD can be higher compared to the fees for electronic transfers.
• Accessibility: In areas with limited banking infrastructure, DDs are more accessible as they do not require internet connectivity or electronic devices.

Popular Banks Offering Demand Drafts

State Bank of India (SBI)

SBI is one of the largest banks in India that offers demand draft services across its extensive network of branches. More information can be found on their official website: SBI Official Site.

HDFC Bank

HDFC Bank provides demand draft services both through its branches and online platforms, facilitating easy and secure fund transfers. More details are available at: HDFC Bank.

ICICI Bank

ICICI Bank also offers DD services, ensuring secure and reliable payments across different purposes including business transactions and educational fees. Visit their site for more: ICICI Bank.

Axis Bank

Axis Bank provides demand draft facilities via its branches and online services, catering to both businesses and individual needs. More information is available at: Axis Bank.

Conclusion

Demand Drafts remain a vital financial instrument in the modern banking system, providing a secure method for transferring funds. Despite the advent of numerous electronic payment methods, DDs continue to be widely used due to their reliability and guaranteed payment feature. Whether for business transactions, educational fees, or personal remittances, DDs offer a tried and tested mechanism ensuring the safe and effective transfer of funds. As banking technology evolves, banks are also integrating online facilities for DD issuance, blending traditional methods with modern convenience.