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Banker and Customer
Relationship
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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#,
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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#
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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
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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#
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C!assifcation oRe!ationshi"
#enera!
Re!ationshi"$"ecia!Re!ationshi"
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#enera! Re!ationshi"
Debtor%Creitor
Creitor&Debtor
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$"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*#
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$"ecia! Re!ationshi"•
Bailee : Bailor – "ec#147 o% 6ndian -ontract Act 17;8 A ,bailment, is the
delier* o% goods b* one !erson to another %or some
!ur!ose u!on a contract that the* shall when the
!ur!ose is accom!lished be returned or otherwisedis!osed o% according to the directions o% the !erson
deliering them#
– The !erson deliering the goods is called the ,bailor,#
–
The !erson to whom the* are deliered is called the,bailee,#
– Banks secure their adances b* obtaining tangible
securities# 6n some cases !h*sical !ossession o% securities
goods (3ledge) aluables bonds etc# are taken#
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$"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
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$"ecia! Re!ationshi"Agent and 3rinci!al
"ec#178 o% ‘The 6ndian -ontract Act 17;8’defnes &an agent? as a !erson em!lo*ed to doan* act %or another or to re!resent another indealings with third !ersons#
The !erson %or whom such act is done or who isso re!resented is called &the 3rinci!al?#
Banks collect che+ues bills and makes
!a*ment to arious authorities i@# renttele!hone bills insurance !remium etc# onbehal% o% customers
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$"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#
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$"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 #,
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'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#
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')"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
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')"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#
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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#
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$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#
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$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#
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.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#
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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#
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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
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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#
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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#
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-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#
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-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#
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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#