Types of Banker’s Funds & Banker Customer Relationship

Learning ObjectivesLearning Objectives

Students will be able to:Students will be able to: Understand forms of bank capitalUnderstand forms of bank capital Know the different types of accounts a bank Know the different types of accounts a bank

can offer.can offer. Understand how banks maintain Understand how banks maintain

relationship with its customers.relationship with its customers. Comprehend duties & responsibilities of Comprehend duties & responsibilities of

bank and customersbank and customers Describe termination conditions of bank and Describe termination conditions of bank and

customer.customer.

Banker’s FundsBanker’s Funds

Bank’s CapitalBank’s Capital

The Reserve The Reserve FundFund

Liquid AssetsLiquid Assets

Current Deposits

Fixed & Term Deposits

Saving Deposits

Bank’s CapitalBank’s Capital

Nominal & Authorized Capital

Paid Up Capital

Subscribed Capital

The Reserve FundThe Reserve Fund

Section 21 of the Banking Companies Ordinance, 1962, has made it obligatory for every banking incorporation in Pakistan in Pakistan to create a reserve fund in the following manner:

At least 20% of the balance of Profit in each year

Liquid AssetsLiquid Assets

According to the section 29(1) of the Banking Companies Ordinance, 1962, every bank in Pakistan is under legal obligation to maintain liquid assets in Pakistan.

This amount should be such percentage of the total demand & time liabilities of the bank as may be notified by the State Bank of Pakistan from time to time.

Liquid assets are all cash on hand & balances.According to State Bank of Pakistan the liquid asset

requirement should be maintain at 15%.

Nature of Deposits

Fixed & Term Deposits

Current Deposits

Savings Deposits

Current Deposits Current Deposits Current account is a running account which is continuously in operation. Who is interested to open Current account?

Wish to have working capital in their custody Interested in keeping their money liquid & safeLike to receive & make payment usually through chequeUtilize the agency services of banks frequentlyTake full advantage of other services provided by the bank

Facilities provided to the current account holderThe bank collects properly indorsed cheque, bills etc on behalf of

the current account holders.The bank may allow the facility of overdraft on prior arrangements

to the trustworthy customers.Loans & advances may be sanctioned to the credit worthy current

account holders with ease.A depositor can withdraw sums from the account by means of

cheque and ATM cards supplied by the Bank.Current account is opened with a minimum initial deposit as

prescribed by the bank from time to time.

Fixed & Term Deposits Fixed & Term Deposits

The deposits that can be withdrawn after a The deposits that can be withdrawn after a specified period of time are referred to a fixed specified period of time are referred to a fixed or term deposits.or term deposits.

Period for which bank kept money is three Period for which bank kept money is three months to five years.months to five years.Payment of Fixed/Term deposits before maturity Payment of Fixed/Term deposits before maturity Law of LimitationLaw of LimitationAttachment by CourtAttachment by CourtTerm Deposits account in Joint NamesTerm Deposits account in Joint Names

Saving DepositsSaving Deposits Introduced In England In Pakistan Saving Deposit account with very small

amount & issued a cheque book. No restrictions on withdrawals

Profit & Loss Sharing Profit & Loss Sharing AccountAccount

Rules for Profit and Opened by sharing account Opened with initial minimum deposit It may be opened in the name of individual or jointly in the names two

or more persons All money to be deposited that should be accompanied by a pay-in-

slip showing the name and the number of account Withdrawal from the account by cheque Application for cheque book should be made on printed requisition

book Bank have right to make investment of credit balances and deposited Profit payable and loss recoverable on PLS The joint account may be operated singly by anyone of them Accountholder wishing to close the account must be present pass

book and unused cheque

Foreign currency accountForeign currency account Salient features Salient features

Only designated branches authorized to deal Only designated branches authorized to deal Foreign currency can be accepted Foreign currency can be accepted Deposit can be accepted from residence and non residence Deposit can be accepted from residence and non residence Minimum requirements 1000 US dollarsMinimum requirements 1000 US dollars Monthly rate of return givenMonthly rate of return given It enjoy protection It enjoy protection of economic reform act 1992 Foreign currency or Pakistan rupee at the discretion of the depositor Foreign currency or Pakistan rupee at the discretion of the depositor Exemption from the account as levy of wealth tax for 6 years, income Exemption from the account as levy of wealth tax for 6 years, income

tax, dedication of zakattax, dedication of zakat Gov. of Pakistan will not make inquiries about there sources Gov. of Pakistan will not make inquiries about there sources

Use of Funds Use of Funds

The bankers in Pakistan use their funds The bankers in Pakistan use their funds profitably in the following categories:profitably in the following categories: Short Term loans repayable at short noticeShort Term loans repayable at short notice Investment in Government & other stock Investment in Government & other stock

exchange securitiesexchange securities Loans & advance to trade, commerce and industryLoans & advance to trade, commerce and industry Purchase & Discounting of BillsPurchase & Discounting of Bills Financing imports & Exports tradeFinancing imports & Exports trade

Opening a Bank Account

Formal Application

Introductory Reference

Specimen Signature

Opening the Account

Closing of the Account

Banker-Customer Relationship

Meaning of Banker Meaning of Banker

Dealer in CapitalDealer in Capital Dealer in MoneyDealer in Money Intermediary party b/w Borrower & LenderIntermediary party b/w Borrower & LenderAccording to the Banking ordinance 1962, According to the Banking ordinance 1962,

Banking has been defined as Banking has been defined as “ “ Accepting Deposits for the purpose of Accepting Deposits for the purpose of lending or investment of deposits of money lending or investment of deposits of money from the public, repayable on demand or from the public, repayable on demand or otherwise & withdrawals by Cheque, Draft, otherwise & withdrawals by Cheque, Draft, Order or otherwise.Order or otherwise.” ”

Meaning of Customer Meaning of Customer

Should have an account with the Bank Deal with the bank in its nature Deal with the bank without consideration of

the duration & Frequency of operation of his account

A customer is a person who maintains an account with the bank without consideration of the duration & frequency of operation of his account.

Relationship Between

Banker & Customer

General Relationship Special Relationship

Debtor &

Creditor

Principle & Agent

Bailer & Bailment

Pawner & Pawnee

Mortgager & Mortgagee

Trustee & Agent

Executor, Attorney & Guarantor

Rights & Duties of a Customer to Towards Banker

Rights a customer

Duties of a customer

Rights & Duties of Rights & Duties of a Banker to a Banker to Towards Towards CustomerCustomer

Duties or obligation of a banker towards customer

Rights of banker

Termination of Contract Between Termination of Contract Between a Customer & a Bankera Customer & a Banker

Termination of relationship by a customerChange of PlaceNot satisfied with operationsDeath of Customer

Termination of relationship by a Banker If customer Repeatedly present s cheque after the business

hours Intimation of the death of a customer Insanity of CustomerOn receipt of notice of insolvencyCompany is wound up by the order of the CourtAssigns his total credit balance to third partyGarnishee order for the whole accountChanges in constitution of the Firm

Reasons for Dishonoring a Reasons for Dishonoring a Cheque by a BankCheque by a Bank

A cheque is not in Proper FormA cheque is not in Proper FormWhen a Banker is Justified in When a Banker is Justified in

refusing Paymentsrefusing Payments

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