banker and customerrelationship

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Banker and Customer

Relationship



Defnition o a ‘BANKER’• The Banking Regulations Act (B R Act) 1949

does not defne the term ‘banker’ but defnes

what banking is• As !er "ec#$ (b) o% the B R Act &Banking'

means acce!ting %or the !ur!ose o% lending

or inestment o% de!osits o% mone* %rom the

!ublic re!a*able on demand or otherwise andwithdrawable b* che+ue dra%t order or

otherwise#,



Who is a ‘Customer’?•

The term -ustomer has not been defned b*an* act#

• The word ‘customer’ has been deried %rom theword ‘custom’ which means a ‘habit or

tendenc*’ to.do certain things in a regular or a!articular manner’s#

• The term 'customer' is used onl* with res!ectto the branch where the account is maintained#

/e cannot be treated as a ‘customer' %or otherbranches o% the same bank#



Bank customers can be

categorize in to ourbroa categories• Those who maintain account relationshi! with

banks i#e# 0isting customers#

• Those who had account relationshi! with bank i#e#

2ormer -ustomers• Those who do not maintain an* account

relationshi! with the bank but %re+uentl* isitbranch o% a bank %or aailing banking %acilities

such as %or !urchasing a dra%t en.cashing ache+ue etc# Technicall* the* are not customersas the* do not maintain an* account with thebank branch#

• 3ros!ectie 3otential customers



Banker an a Customer

Re!ationshi" The relationshi! between a banker and acustomer de!ends on the t*!e o% transaction#

These relationshi!s con%er certain rights andobligations both on the !art o% the banker and

on the customer#



C!assifcation oRe!ationshi"

#enera!

Re!ationshi"$"ecia!Re!ationshi"



#enera! Re!ationshi"

Debtor%Creitor

Creitor&Debtor



$"ecia! Re!ationshi"

Bank as a TrusteeAs !er "ec# 5 o% 6ndian Trust Act 1778 A ,trust,

is an obligation anneed to the ownershi! o%!ro!ert* and arising out o% a confdence

re!osed in and acce!ted b* the owner ordeclared and acce!ted b* him %or the benefto% another or o% another and the owner#’

Thus trustee is the holder o% !ro!ert* on behal%

o% a benefciar*#



$"ecia! Re!ationshi"•

Bailee : Bailor – "ec#147 o% 6ndian -ontract Act 17;8 A ,bailment, is the

delier* o% goods b* one !erson to another %or some

!ur!ose u!on a contract that the* shall when the

!ur!ose is accom!lished be returned or otherwisedis!osed o% according to the directions o% the !erson

deliering them#

– The !erson deliering the goods is called the ,bailor,#

–

The !erson to whom the* are deliered is called the,bailee,#

– Banks secure their adances b* obtaining tangible

securities# 6n some cases !h*sical !ossession o% securities

goods (3ledge) aluables bonds etc# are taken#



$"ecia! Re!ationshi"<essor and <essee

"ec#1=$ o% Trans%er o% !ro!ert* Act 1778 Alease o% immoable !ro!ert* is a trans%er o% aright to en>o* such !ro!ert* made %or a certain

time e!ress or im!lied or in !er!etuit* inconsideration o% a !rice !aid or !romised#

"a%e de!osit lockers

Bank : lessor

-ustomer . lessee



$"ecia! Re!ationshi"Agent and 3rinci!al

"ec#178 o% ‘The 6ndian -ontract Act 17;8’defnes &an agent? as a !erson em!lo*ed to doan* act %or another or to re!resent another indealings with third !ersons#

The !erson %or whom such act is done or who isso re!resented is called &the 3rinci!al?#

Banks collect che+ues bills and makes

!a*ment to arious authorities i@# renttele!hone bills insurance !remium etc# onbehal% o% customers



$"ecia! Re!ationshi"As a -ustodian

A custodian is a !erson who acts as a caretakero% some thing#

Banks take legal res!onsibilit* %or a customer’ssecurities#

hile o!ening a emat account bank becomesa custodian#



$"ecia! Re!ationshi"As a Cuarantor

Banks gie guarantee on behal% o% theircustomers and enter in to their shoes#

Cuarantee is a contingent (conditional)contract#

As !er sec 51 o% 6ndian contract Act guaranteeis a &contingent contract #,



'ermination o

re!ationshi" bet(een abanker an a customer• The death insolenc* lunac* o% the customer#

• The customer closing the account i#e#

Doluntar* termination#• <i+uidation o% the com!an*#

• The closing o% the account b* the bank a%tergiing due notice#

• The com!letion o% the contract or the s!ecifctransaction#



')"es o Bank Accounts in

*nia-urrent de!osits accounts

"aing bank saing %und de!osits accounts

Recurring de!osits accounts

2ied de!osits accounts or term de!osits



')"es o Bank Accounts in

*nia•

Traditionall* banks in 6ndia hae %our t*!es o%de!osit accounts namel* -urrent Accounts "aingBanking Accounts Recurring e!osits and 2iede!osits#

•

/oweer in recent *ears due to eer increasingcom!etition some banks hae introduced new!roducts which combine the %eatures o% aboe twoor more t*!es o% de!osit accounts#

•

These are known b* diFerent names in diFerentbanks e#g 8.in.1 de!osits "mart e!osits 3ower"aing e!osits Automatic "wee! e!osits etc#

• /oweer these hae not been er* !o!ular among

the !ublic#



Current Account+Who uses current accounts?,• -urrent Accounts are basicall* meant %or businessmen and are

neer used %or the !ur!ose o% inestment or saings#

• These de!osits are the most li+uid de!osits and there are no limits%or number o% transactions or the amount o% transactions in a da*#

• Gost o% the current account are o!ened in the names o% frm com!an* accounts#

• -he+ue book %acilit* is !roided and the account holder cande!osit all t*!es o% the che+ues and dra%ts in their name or

endorsed in their %aour b* third !arties#• Ho interest is !aid b* banks on these accounts#

• In the other hand banks charges certain serice charges on suchaccounts#



$a-ings Bank Account+Who uses $a-ing Bank Accounts?,

• These de!osits accounts are %or indiidual accounts#

• These accounts not onl* !roide che+ue %acilit* but also hae loto% Jeibilit* %or de!osits and withdrawal o% %unds %rom theaccount#

• Gost o% the banks hae rules %or the maimum number o%withdrawals in a !eriod and the maimum amount o% withdrawalbut hardl* an* bank en%orces these#

• /oweer banks hae eer* right to en%orce such restrictions i% it

is %elt that the account is being misused as a current account#

•

Till 841=8=11 the interest on "aing Bank Accounts wasregulared b* RB6 and it was fed at 4#==K on dail* balancebasis#

• /oweer we% 8$th Ictober 8=11 RB6 has deregulated "aing2und account interest rates and now banks are %ree to decide thesame within certain conditions im!osed b* RB6#



$a-ings Bank Account+Who uses $a-ing Bank Accounts?,

• Lnder directions o% RB6 now banks are also re+uiredto o!en no %rill accounts (this term is used %or

accounts which do not hae an* minimum balance

re+uirements)#

• Although 3ublic "ector Banks still !a* onl* 4K rate o%

interest some !riate banks like Motak Bank and Nes

Bank !a* between OK and ;K on such de!osits#

• 2rom the 2N 8=18.15 interest earned u!to Rs 1====in a fnancial *ear on "aing Bank accounts is

eem!ted %rom ta#



.i/e De"osit Accounts or'erm De"osits• All Banks oFer fed de!osits schemes with a wide

range o% tenures %or !eriods %rom ; da*s to 1=

*ears#

• 6n case o% need the de!ositor can ask %or closing

(or breaking) the fed de!osit !rematurel* b*

!a*ing a !enalt* (usuall* o% 1K but some banks

either charge less or no !enalt*)#

•

Dariable interest fed de!osits the rate o% intereston such de!osits kee!s on ar*ing with the

!realent market rates i#e# it will go u! i% market

interest rates goes and it will come down i% the

market rates %all#



Recurring De"osit Accounts+Who use Recurring De"osit Accounts?,

•

"uitable %or !eo!le who do not hae lum! sum amount o%saings but are read* to sae a small amount eer* month#

• Hormall* such de!osits earn interest on the amount alread*de!osited (through monthl* installments) at the same ratesas are a!!licable %or 2ied e!osits Term e!osits#

• "ome Banks besides oFering a fed installment R haealso introduced a Jeible ariable R#

• Lnder these Jeible Rs the !erson is allowed to de!ositeen higher amount o% installments with an u!!er limit fed%or the same e#g# 1= times o% the minimum amount agreedu!on#

• Recurring e!osit accounts are normall* allowed %ormaturities ranging %rom O months to 18= months#



0b!igations1Duties o a

bankera) ut* to maintain secrec*confdentialit* o% customers'

accounts#b) ut* to honour che+ues drawn b* customers on their

accounts and collect che+ue bills on his behal%#

c) ut* to !a* bills etc# as !er standing instructions o% the

customer#d) ut* to !roide !ro!er serices#

e) ut* to act as !er the directions gien b* the customer# 6%directions are not gien the banker has to act according tohow he is e!ected to act#

%) ut* to submit !eriodical statements i#e# in%ormingcustomers o% the state o% the account

g) Articlesitems ke!t should not be released to a third !art*without due authori@ation b* the customer



Right o set o2

6n the right o% set oF the banker combinesthe two accounts o% the customer one inwhich customer is the creditor i#e# the de!ositaccount and the other the loan account in

which the banker is the creditor and thecustomer is debtor#

The banker recoers the mone* %rom the

de!osit account and settles the loan accountand then re!a*s the balance amount to thecustomer#



0am!leA banker has allowed an oerdra%t to Gr# P

amounting to Rs 8$=== and Gr# P’s saingsbank account shows a credit balance o% Rs1====# 6n case P %ails to !a* the oerdra%t thebanker can eercise his right o% set oF b*combining both accounts b* which the bankercan claim the net diFerence o% Rs 1$=== %rom

his customer#



-onditions The ca!acit* o% the !arties both in the debit

and credit account should be one and thesame# i#e# the same customer should haethe de!osit account and loan account in thesame ca!acit*#

The loan must be outstanding and oer duewhere a loan amount is not oer dueQ right o%set oF cannot be eercised#



-ont There should not be an* agreement between

the banker and customer b* which the bankeris !reented %rom eercising the right o% setoF#

Thus %or the !ur!ose o% eercising the right o%

set oF the banker will take a !rior letter %romthe customer so that the banker can eercisethe right o% set oF#



A banker has theautomatic right o set o2

in the %ollowing cases

In the death insolenc* or insanit* o% thecustomer#

In the insolenc* o% the frm#

In winding u! o% the com!an*#

In recei!t o% the garnishee order#

As a general rule a banker can eercise his

right o% set oF but it must gie the customerreasonab!e notice o% his intention to do so#

Date post:	13-Apr-2018
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