Banker customer relationship

BANKER-CUSTOMER
RELATIONSHIP
BY
ABDUL QADIR BHAMANI

Banker
A banker is the one who gets into
debts and creates debts.
• H.L. HART – the banker is one who
receives money, collects cheques
and drafts, for customers, with an
obligation to honour the cheques
drawn by customers from time to
time subject to availability of
amounts in the account.

Banker
• Section 3 of NI ACT 1881, and Section 2 of BILL
OF EXCHANGE ACT 1882. state that the term
banker includes person or corporation or a
company acting as banker.
• Under Section 5 (1) of Banking Regulations of
1949, a banking company is defined as any
company which transacts banking business.
• Under Section 5 (1) B , banking business means
accepting for the purpose of landing or
investment, deposits of money from the public,
repayable on demand or otherwise withdrawable
by cheque , draft or otherwise.

Function of bank
• According to above definations fpllowing are the main of bank
1. Dealing in Money
Bank is a financial institution which deals with other people's money i.e. money given by
depositors.
2. Individual / Firm / Company
• A bank may be a person, firm or a company. A banking company means a company
which is in the business of banking.
3. Acceptance of Deposit
• A bank accepts money from the people in the form of deposits which are usually
repayable on demand or after the expiry of a fixed period. It gives safety to the
deposits of its customers. It also acts as a custodian of funds of its customers.
4. Giving Advances
• A bank lends out money in the form of loans to those who require it for different
purposes
5. Payment and Withdrawal
A bank provides easy payment and withdrawal facility to its customers in the form of
cheques and drafts, It also brings bank money in circulation. This money is in the
form of cheques, drafts, etc.

Functions of Bank
6. Agency and Utility Services
A bank provides various banking facilities to its customers. They include general
utility services and agency services.
7. Profit and Service Orientation
A bank is a profit seeking institution having service oriented approach.
8. Ever increasing Functions
Banking is an evolutionary concept. There is continuous expansion and
diversification as regards the functions, services and activities of a bank.
9. Connecting Link
A bank acts as a connecting link between borrowers and lenders of money. Banks collect money from those who
have surplus money and give the same to those who are in need of money.
10. Banking Business
A bank's main activity should be to do business of banking which should not be subsidiary to any other business.
11. Name Identity
A bank should always add the word "bank" to its name to enable people to know that it is a bank and that it is
dealing in money.

Customer
• A person who buys goods or services from a shop
or a business entity.
• A person you deal with as a business entity.
• There is no statutory definition
• A person/ company/entity who has an account
with a bank is a customer.
•
• There is no unanimity as regards to the time
period of the dealings.

Customer
• A casual transaction like
encashment of a cheque does not
entail a person to be customer.
• The duration of association of the
customer with the bank is of no
essence.
• A customer is one who has an
account with the bank and to
whom the banks undertakes to
extend business of banking.

Customer
• Under the LAW of contract
person are able in ‘‘section 11: of
contract act’’
• Person have maturity aged (+18)
• Person is sound mind
• Person is not disqualified in
contract by court.

General Relationship
CREDITOR-DEBTOR
• Relationship between the customer
having a deposit account and the
banker.
• Depositor is the lender and the banker
is the borrower.
• Depositor is the creditor and the banker
is the debtor.
• The money handed over to the bank is a
debt.
• The money once deposited in the bank
becomes the money of the bank and it
is prerogative of the bank to use that
money as it deems fit. The depositor
remains a creditor that too an
unsecured creditor

DEBTOR-CREDITOR
• When the customer avails a loan or an
advance then his relationship with the
banker undergoes a change to what it
is when he is a deposit holder.
• Since the funds are lent to the
customer , he becomes the borrower
and the banker becomes the lender.
• The relation is the debtor- creditor
relation, the customer being a debtor
and the banker a creditor.

PRINCIPAL-AGENT
• Banks provide ancillary services such as
collection of cheques, bills etc.They also
undertake to pay regularly the electricity
bills, phone bills etc.
• The relationship arising out of these
ancillary services is of principal-agent
between the customer and the bank.
• The relationship seizes once the customer
dies, becomes insane or becomes
insolvent.
• The proceedes of the cheques sent for
collection,which are in transit, not created
to the customer account are not the
moneys of the banker till such time as they
are credited into the customer account.

Special Relationship
 Bailer Bailee
• A bailment is the delivery of goods in trust. A
bank may accept the valuables of his customer
such as jewellary, documents, securities for
safe custody.
• In such a case the customer is the Bailer and
the bank is bailee.
• If a customer keeps certain valuables or
securities with the bank for safe-keeping or
deposits a certain amount of money for a
specific purpose, the banker, besides
becoming a bailee, is also a trustee. The
money or the securities so kept are not at the
disposal of the bank. The banker cannot utilize
those moneys or securities as he desires since
the money does not belong to him.

• Pawner and Pawnee:
• When a customer Pledge goods and
documents as security for an advance
he then become Pawner (Pledger) and
the bank becomes the pawnee
(pledgee).
• The pledged goods are to be returned
intact to the pawner after the debt is
repaid by him.

• Mortgager and Mortgagee :
• Mortgage is the transfer of an interest in
specific immovable property for the
purpose of securing the payment of
money advanced or to be advanced by
way of loan.
• When a customer pledges a specific
immovable property with the bank as
security for advance, the customer
becomes mortgager and banker is the
mortagee.

LESSEE-LESSOR
• The banks provide safe deposit
lockers to the customers who hire
them on lease basis. The
relationship therefore, is that of
lessee and lessor. In certain banks,
this relationship is termed as
licensee and licensor. The bank
leases out the Assests to clients for
their use on lease the customer
become lessor and Bank become
lessee

INDEMNIFIER- INDEMNIFIED
• The customer is indemnifier and the
bank is indemnified.
• A contract by which one party promises
to save the other from loss caused to
him by the conduct of the promisor
himself or the conduct of any other
person is called a contract of indemnity
– section 124 ( Indian Contract Act,
1872). In the case of banking, this
relationship happens in transactions of
issue of duplicate demand draft, fixed
deposit receipt etc. The underlying point
in these cases is that either party will
compensate the other of any loss arising
from the wrong/excess payment.

Special Relations
Banker and trustee
• When banker appointed as receiver by court in proceeding, money is
deposited in bank and bank act as trustee because in this case bank is
receiver of money for specific propose.
• A banker becomes a trustee under special circumstances. When a
customer deposits securities or other valuables with the banker for safe
custody, the banker acts as trustee of customer.
Advisory relationship
• When bank advises the customer to make their investment in particular
business, trade , project etc.this advice either given officaily or
unofficaily.While given advice customer has to take maximum care and
caution

OBLIGATIONS OF THE BANK
• OBLIGATIONS OF THE BANK
Obligation to honour the cheque
• Under section 31 of NI Act 1881, the banker
is obliged to make payment of the cheque
,with mandate, properly presented, provided
there is balance in the account.
• However, when a garneshee order is served
on the banker, the banker may seek refuse
under order 21 of code of civil procedure
1908 and the banker may not pay the
cheque when such order is served.If a
debtor fails to pay the debt to the creditor,
the latter may approach a court of law to
issue a garneshee order on the banker of
his debtor.

OBLIGATIONS OF THE BANK
Obligation to maintain secrecy
• Section 13 of banking companies Act
1970 stipulates the banks to maintain
secrecy of their customers accounts
and dealings with them.
• However there are exceptions.The
exceptions are :
 When law requires
 When the practices and usages among
bankers warrants exchange of
information.

OBLIGATIONS OF BANKS
• Secrecy of the customer’s account
• The bank owes a contractual duty not to disclose
the customer’s financial position without his
consent.
• However the obligation of secrecy is not
considered essential on the following occasions.
– When a banker is required to give evidence in the
court.
– When there is national emergency and disclosure is
essential in the public interest.
– When there are clear proofs of treason to the state
– When a consent is given by the customer to provide
information for the preparation of balance sheet.

OBLIGATIONS OF BANK
• Garnishee order
(order of the court)
• It is the duty of the banker to
abide by the order of the court
(garnishee order) and attached
the funds of the customer to the
creditors who has obtained the
order in his favor.

OBLIGATIONS OF THE
BANKS
• Standing orders
• It is the duty of the bank to abide
by the standing orders of the
customers in making periodical
payments on his behalf such as
club, library, insurance premium
etc.

RIGHTS OF BANKS
• Right of general lien- Lien is the right of
the creditor to retain the goods and
securities owned by the debtor untill the
debt due from him is paid.
• It conferes upon the creditor to retain
the securities of the debtor.
• It does not confer the right to sell.
• There are two types of liens – General
lien and particular lien.
• Section 171 of Indian contract Act 1872
conferes general lien on bankers.
• Bankers lien is tantamount to implied
pledge. The reason being the banker is
bestowed with a right even to sell
securities without the intervention of
the court.
• Pledge – Section 172 of Indian contract
Act 1872- bailment of goods as security
for payment of a debt or performance.

RIGHTS OF BANKER
• Right of set off – The mutual claims of a
debtor and a creditor are adjusted
together and only the remainder amount
due is payable.
• Right of appropriation - If the customer
has more than one loan account , the
customer can direct the repayment of
the loan as credit into any other
accounts. If there is no specific
directions from the customers the
banker has a right to appropriate as per
his choice.
• Right to charge interest- As a creditor
the banker has right to charge interest
on the funds he lends as per the norms
and as per the contract.

BANKER BOOK EVIDANCE
ACT
Despite the fact the banker has to
maintain secrecy he has to disclose
the accounts and an order from the
court.
Earlier the books of accounts were
required to be produced in court of
law as evidence.
However on the advent of bankers
books evidence act 1891.The banker
can produce certified copies of the
records of the accounts as evidence
which are tenable as evidence in
court of law.

RIGHTS OF THE
CUSTOMER TOWARDS THE
BANKER
• The main rights and duties of a customer towards the
banker in brief are as under:
• Rights of a customer:
– A customer who has deposited money can draw check on
his account up to the extent of his credit balance or
according to overdrawing limit sanctioned by the bank.
– A customer has the right to receive statement of
accounts from the bank.
– A customer has the right to sue the bank for
compensation of a wrongful dishonor of his check.
– A customer has a right to sue and demand compensation
if the bank fails to maintain the secrecy of his account.
– To claim for and receive the profit/ return on his deposits
as promised by bank
–

• Duties of a customer
– It is the duty of the customer to present
checks and other negotiable instruments
during the business hour of the bank.
– The instruments of credit should be
presented by the customer with in due time
from their dates of issue.
– A customer must keep the check books
issued by the bank in safe custody. In case
of theft or loss, it is the duty of the
customer to report the matter immediately
to the bank.

Termination of relationship
• Banker and customer relationship is
established when customer is open
the account and both parties are
able to terminate the relationship by
closing the account.

• Account close by customer:
 When customer shift some where & it is not feasible and
convenient to maintain the account in particular branch.
 When customer is dissatisfied the branch service.
 When bank not offer the particular service which is
required by customer.
 When customer not receive the periodically account
statement.
 When customer find improper behaviour of bank staff.

• Account close by bank:
 When customer pass habitual cheque for payment without
having sufficient balance in A/C.
 When customer account balance is nil more then 6 months.
 When customer regularly present the cheque for payment
after counter hours of bank.
 When customer not maintain minimum balance in account.
 When customer involve in money laundering.
 When customer is insolvent
 When customer id declared as insane.

•Deceased Account:
When customer is die/ death, banker is
terminated the account which is called
deceased account. Amount of account paid
to his legal beneficiary.
If persons is death
(Deceased Account)
Indemnity bond Succession certificate

Banker customer relationship

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