Bank Draft

A bill of exchange is at times referred to as a draft. It is known as a bank draft when a bill of exchange drawn by one bank or another bank or by itself on its own branch, & is regarded as a negotiable instrument. It is similar to the cheque with certain points of difference. A bank draft can be drawn by a bank on another bank, generally its own branch. It cannot so easily be revoked. It cannot be made payable to the bearer.

In other words, the Bill of exchange drawn by a bank on itself, or on a correspondent bank in another country or city. Bank drafts are generally used by banks in dealings with other banks, or when a seller or creditor is reluctant to acknowledge an ordinary cheque from a buyer or debtor in another city or country. When a customer (the drawer) requests the draft, the bank withdraws the sum of the draft from his/her account & holds it to honor the draft on its presentment by the drawee. For the reason that, in normal circumstances, a draft is certain to be paid, it is normally accepted as a cash equivalent.

Source: http://nadfm.nic.in/