BANKER - CUSTOMER RELATIONSHIP

BANKER - CUSTOMER BANKER - CUSTOMER RELATIONSHIPRELATIONSHIP

Banker Customer Banker Customer RelationshipRelationship

What is a Banking?What is a Banking?“ “ Banking means the accepting, for the Banking means the accepting, for the

purpose of lending or investment, of purpose of lending or investment, of deposits of money from public, deposits of money from public, repayable on demand or otherwise, and repayable on demand or otherwise, and withdrawable by cheque, draft, order or withdrawable by cheque, draft, order or otherwise”otherwise”

Any company doing banking business on Any company doing banking business on these lines will be termed as a bank and these lines will be termed as a bank and individuals involved are the bankers. individuals involved are the bankers.


Different activities undertaken by Different activities undertaken by a bank.a bank.

Borrowing and lending of money.Borrowing and lending of money. Collecting Negotiable instruments on Collecting Negotiable instruments on

behalf of the customer.behalf of the customer. Dealing in foreign exchange.Dealing in foreign exchange. Granting Letter of Credit to customers.Granting Letter of Credit to customers. Providing Safe custody facility / lockers.Providing Safe custody facility / lockers.


Acting as an agent on behalf of the Acting as an agent on behalf of the customer.customer.

Underwriting & dealing in stocks, shares Underwriting & dealing in stocks, shares on behalf of the customer.on behalf of the customer.

Issuance of Guarantees.Issuance of Guarantees. Dealing with property that may come to it Dealing with property that may come to it

as security in satisfaction of its as security in satisfaction of its outstanding claims.outstanding claims.

Offering different value added services like Offering different value added services like ATM, Online banking and internet banking.ATM, Online banking and internet banking.

Issuance of currency notes.Issuance of currency notes.


Qualification of a Customer.Qualification of a Customer. He should not be a minor.He should not be a minor. He should be a person of a sound mind He should be a person of a sound mind

(he understands the contract at the time (he understands the contract at the time of making it).of making it).

He shall not have been debarred from He shall not have been debarred from entering into any contract under any entering into any contract under any law.law.

He deposits money and bank accepts it. He deposits money and bank accepts it.


Rights & Duties of the Rights & Duties of the Customer.Customer.

RIGHTS.RIGHTS. To draw cheque against his credit balance.To draw cheque against his credit balance. To get passbook, cheque book, and periodic To get passbook, cheque book, and periodic

account’s statement.account’s statement. To make bank liable to correct any over To make bank liable to correct any over

crediting or over debiting.crediting or over debiting. To sue the bank for the cost, loss, and To sue the bank for the cost, loss, and

damages when his cheque is wrongfully damages when his cheque is wrongfully dishonored.dishonored.

To sue the bank if the secrecy of his account To sue the bank if the secrecy of his account was not maintained.was not maintained.


DUTIES.DUTIES. To present the cheque for payment or To present the cheque for payment or

collection with in the banking hours.collection with in the banking hours. To insure that cheques should not be To insure that cheques should not be

Stale or Post dated.Stale or Post dated. To keep his cheque book / ATM in safe To keep his cheque book / ATM in safe

custody.custody. He should draw the cheque in a manner He should draw the cheque in a manner

that no alteration can be done for fraud.that no alteration can be done for fraud.


Different types of Banker Different types of Banker Customer Relationships.Customer Relationships.

As Creditor and Debtor.As Creditor and Debtor. When customer deposit money, he When customer deposit money, he

becomes creditor and bank as debtor by becomes creditor and bank as debtor by accepting and then further utilizing it.accepting and then further utilizing it.

As Bailor and Bailee.As Bailor and Bailee. When a person gives goods to some one for When a person gives goods to some one for

some purpose.some purpose. When banks provide safe custody facility to When banks provide safe custody facility to

customers to keep their valuable customers to keep their valuable belongings.belongings.

Customer is bailor and bank is baileeCustomer is bailor and bank is bailee


As Principal and Agent.As Principal and Agent. When a banker performs Agency When a banker performs Agency

service he becomes Agent of his service he becomes Agent of his customer.customer.

This may include collection of This may include collection of cheques and other instruments or cheques and other instruments or payments on behalf of the customer payments on behalf of the customer with his standing instructions.with his standing instructions.


As Pawner/Pawnee, Mortgagor As Pawner/Pawnee, Mortgagor and Mortgagee.and Mortgagee.

When a customer pledges goods and When a customer pledges goods and documents with the bank as security for documents with the bank as security for an advance, he becomes the Pawner and an advance, he becomes the Pawner and the bank becomes Pawnee. Similarly, the bank becomes Pawnee. Similarly, when advance to the customer is made when advance to the customer is made against security of immovable property, against security of immovable property, the relationship becomes that of the relationship becomes that of Mortgagor and Mortgage. Mortgagor and Mortgage.


Special feature of Relationship.Special feature of Relationship.The following are special features of The following are special features of this relationship.this relationship.

Obligation to honor cheque.Obligation to honor cheque.It is obligation on the bank to honor It is obligation on the bank to honor the cheques drawn on him by his the cheques drawn on him by his customer as long as his balance is customer as long as his balance is sufficient, provided the cheque is not sufficient, provided the cheque is not Stale or Postdated and that there is no Stale or Postdated and that there is no prohibiting order of any court against prohibiting order of any court against the account of the customer.the account of the customer.


Right to Lien.Right to Lien.““Lien means right to retain the property Lien means right to retain the property belonging to another until the debt due belonging to another until the debt due from the latter has been paid”from the latter has been paid”

Bank has a right of Lien on any kind of Bank has a right of Lien on any kind of securities deposited by the customer.securities deposited by the customer.

Following conditions do apply for Following conditions do apply for exercising right of Lien:exercising right of Lien:

1.1. The property of the customer must come The property of the customer must come into the hands of the banker.into the hands of the banker.

2.2. There should not be any entrustment for There should not be any entrustment for special purpose.special purpose.


3.3. Banker should obtain possession Banker should obtain possession lawfully.lawfully.

4.4. There should be no agreement There should be no agreement inconsistent with the right of Lien.inconsistent with the right of Lien.


Right of Set – Off.Right of Set – Off.“ “ Set-off means adjusting debit balance Set-off means adjusting debit balance

against credit balance in other account or against credit balance in other account or accounts of the same borrower”accounts of the same borrower”

It is a legal right of the banker.It is a legal right of the banker. Normally, banks get written authority Normally, banks get written authority

from the customer in advance for this so from the customer in advance for this so that there is no need of notice.that there is no need of notice.

Credit balance of one account of the Credit balance of one account of the customer can be used to adjust the debit customer can be used to adjust the debit balance in another branch.balance in another branch.


For partnership, the personal account of the For partnership, the personal account of the partner cannot be used to set-off the firm partner cannot be used to set-off the firm account but for sole proprietor it can be account but for sole proprietor it can be used.used.

The balance of the single account cannot be The balance of the single account cannot be set-off for any joint account un till otherwise set-off for any joint account un till otherwise agreed by the joint account holders.agreed by the joint account holders.

Individual account can be used for set-off Individual account can be used for set-off for Trust account but Trust account cannot for Trust account but Trust account cannot be used.be used.


The Banker’s duty of Secrecy.The Banker’s duty of Secrecy. The banker customer relation is a The banker customer relation is a

confidential agreement/contract so it is confidential agreement/contract so it is the duty of the banker not to disclose the duty of the banker not to disclose any kind of information to third party any kind of information to third party who so ever he/she may be.who so ever he/she may be.

It include both personal information It include both personal information and the information of the status of the and the information of the status of the account.account.


Banks can disclose information in the Banks can disclose information in the following cases.following cases.

1.1. Under Compulsion of Law.Under Compulsion of Law.

2.2. Duty to public to disclose.Duty to public to disclose.

3.3. In the Interest of the bank.In the Interest of the bank.

4.4. Express or Implied Consent of the Express or Implied Consent of the customer.customer.

5.5. Common courtesy to the other banks.Common courtesy to the other banks.


Termination of Relationship.Termination of Relationship. Since banker-customer relationship is a Since banker-customer relationship is a

contractual one, it may be terminated contractual one, it may be terminated by any one of the two by serving a by any one of the two by serving a notice to other.notice to other.

Notice by the customer.Notice by the customer. The following are reasons when The following are reasons when

customer serves notices to the bank for customer serves notices to the bank for termination of the contract. termination of the contract.


1.1. Due to the change in residence.Due to the change in residence.

2.2. Unsatisfactory services by the bank.Unsatisfactory services by the bank.

3.3. Death of the customer.Death of the customer.

4.4. Shifting of account to the other Shifting of account to the other branch/bank.branch/bank.

5.5. Changing of account nature.Changing of account nature.

6.6. To close accounts for special To close accounts for special purposes like salary accounts.purposes like salary accounts.


Notice by the Banker.Notice by the Banker. Banks normally serve notice to the Banks normally serve notice to the

customer before closing their accounts customer before closing their accounts for any reason.for any reason.

This notice can be served due to many This notice can be served due to many valid reason like:valid reason like:

1.1. Insufficient balance in the account.Insufficient balance in the account.2.2. Presenting cheques after business hours.Presenting cheques after business hours.3.3. Having very less balance for a long time.Having very less balance for a long time.

Documents

BANKER - CUSTOMER RELATIONSHIP