3-Banker Customer Relationship

8/4/2019 3-Banker Customer Relationship

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Banker Customer Relationship

Dr.S.C.Bihari

Presented by


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Banker and Customer Relationship

The Primary

relationshipbetween

Is that of Debtorand

creditor

A Banker and

A Customer


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Banker Customer Relationship

The position is either a creditor or a debtordepending upon whether the bank has lent

money or accepted deposits.

Various transactions gives rise to differentrelations.


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TRANSACTION-RELATIONSHIP

Transaction Bank Customer

Deposits in the bank Debtor Creditor

Loan from bank Creditor Debtor

Locker Lessor Lessee

Safe custody Bailee Bailor

Purchase of draft Debtor Creditor


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Payee of draft Trustee Beneficiary

Cheque Collection Agent Principal

Pledge Pawner Pawnee (Pledger)

Mortgage Mortgagee Mortgagor

Standing instruction Agent Principal


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Sale / purchase of securities on behalf of

customer Agent Principal

Money deposited but instructions not given

for its disposal Trustee Beneficiary

Shares given for sale Agent Principal

Assignment Assignee Assignor

Hypothecation Hypothecatee Hypothecator


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Bankers Obligation

Banks have an obligation to honor cheques

drawn on it if the customer has sufficient

funds.

The obligation is extinguished by a garnishee

order from the court.

If a cheque is dishonored without

justification, banks are liable to compensate

the customer for injury to his credit.

The bank is obliged to return dishonored

cheque to the customer.


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Bankers Obligation contd.

Banker is bound to act according to thedirections given by the customer.

Banks are liable for thefts or embezzlement

by employees committed during the courseof banks business.

Banks are obliged to provide service to itscustomers (even if the customer has not paiddues).

Banks are obliged to maintain secrecy ofclient accounts.


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The banker may give information:

When he is statutorily required to do so.

Where disclosure is under compulsion oflaw.

With express or implied consent of thecustomer.

To other banks. This is known ascommon courtesy between banks.

In this case apart from making generalstatements no specific information aregiven.


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The banker may give information:

If it is in the banks interest.

If the disclosure is in public/national

interest.

There is a duty to the public to

disclose.

Only facts that are evident arerevealed, avoiding opinions.


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Customers Obligations

Repay amounts drawn from bank.

Pay bank charges.

Take due care in drawing cheques.

Inform bank without delay if he/shediscovers that another person has forged

his/her signature.

If he/she does not do so, he/she is estoppedin future from claiming cheques as forgeries

if the bank paid them in good faith and

without negligence.


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Bankers Rights

Combine Accounts A banker can combine one or more accounts

kept by a customer .

However, a banker cannot combine acustomers personal account with a joint

account.

The right to combine two or more accounts isnot applicable to contingent or future debts.


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Bankers Lien

The bankers lien gives him the right to sellto realize his dues in case of default.

The right can be exercised on the customers

property only and not on joint accounts thedebtor has.

The bankers right of lien extends over goods

and securities handed over to the banker. The Banker can draw upon them to liquidate

a general balance due from the customer.


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Right of set off

This enables the banker to set off a debt owned tothem by a customer before the latter recovers a debt

due to him from the bank.

There is an automatic right of set-off on:

Death of the customer.

When a customer becomes insolvent.

Garnishee order issued on the customers

account by court.

But, the accounts must be in the same name

and in the same right.


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Right of Appropriation

If customers have more than one a/c or loan, the

customer can direct the banker against which

debt the payment should be appropriated.

If the customer does not advise the bank, the

bank can exercise the right and apply it in

payment of any debt.

The banker can even apply it against time barred

debts.

However, once an appropriation has been made

it cannot be reversed.


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Right to charge interest

As a creditor the banker has the implied right tocharge interest on the advances granted to the

customer.

Bankers normally charge interest monthly now-a-

days.

Right to charge service charges

Banks charge customers if their balance is

below a stipulated amount, for the usage of

ATM (Automated Teller Machines) and

withdrawals.


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Right to charge service charges

Banks are required to display details of thevarious service charges on their website andat their offices / branches .

Bank should advise customers at least amonth before it proposes to change its rates.

Banks charge lower charges for individuals,senior citizens, pensioners, rural customers

and special customers as compared tocompanies and institutions.

C d f B k C i


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Code of Banks Commitment to

Customers

The Banking Codes and standardBoard of India (BCSBI) is anindependent watch dog to monitor and

ensure the adherence of BankingCodes and Standards by the banks .

This is a voluntary code, which sets

minimum standards of bankingpractices for banks to follow whiledealing with customers.


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Termination of Relationship

The banker customer relationshipterminates on:

Voluntary termination;

Death of the customer;

Bankruptcy of the customer;

Liquidation of the company;

Insanity of the customer;

Garnishee order.


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TYPES OF A/Cs

Minors

S.B.A/Cs (not C/As) may be opened in the name of

minors. This may be:

In the name of the minor to be operated upon

by the guardian (both father and mother).

In the name of the minor to be operated by

himself if he is 10 years old or more. Two minors above the age of 10 can operate a

joint account.

Illit t P


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Illiterate Persons

Accounts may be opened for illiterate persons.

As they cannot sign their thumb impressions areusually taken.

These should be attested by a person known tothe bank.

Normally illiterate persons are not given chequebooks.

To withdraw money the a/c holder is expected tocome in person .

There is no legal bar in two illiterate persons

having a joint account.

L ti


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Lunatics

Under the Indian Contract Act, 1872, lunatics andpersons of unsound mind are not competent to enterinto a valid contract.

Drunkards Any contract made by a person in a drunken state is

void.

Insolvent

No account should be opened in the name of aninsolvent .

Balances in an insolvents account vest with the

official receiver.


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Trustee

A trustee is a person on whom confidence isreposed.

Trusts are formed by a document called the trustdeed.

Bankers examine the trust deed thoroughly anddetermine the powers vested in the trustees.

If there are two or more trustees, there must beclear instructions on who may operate the account.

If one or more trustees die or retire, the authorityvested in the remaining trustees will be as stated inthe trust deed.

When all the trustees are dead, new trustees may

be appointed by court.


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Executors and Administrators

Executors are persons appointed by the will of aperson to manage his/her estate after his/herdeath.

The powers and authority of an executor isderived from the will.

Administrators are appointed by the court tomanage the estate of a deceased person.

The administrator is appointed by the courtthrough a letter of administration, which willdetail his/her authority.


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Power of Attorney Holder

A customer may give another his/her powerof attorney to operate his/her bank account.

It is a general notice and an authority.

The power of attorney holder is an agent of

the account holder and acts in his/hername.

The power of attorney should be stampedand registered with the Registrar of

Documents or attested by a notary public. It must be in force at the time the bank

account is operated.


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Joint Account

A joint account is in the name of more

than one person. The application for the joint account must

be signed by all the persons opening the

account. Banks should examine every request to

open joint accounts carefully.

The purpose, the nature of business andthe financial status of the holders shouldbe ascertained.


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Joint Account

Clear instructions must be procuredregarding the manner of operation

which may be;

By all the depositors jointly;

By either or survivor;

By former or survivor;


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Proprietorships

A proprietorship, though the account of an

individual-

Is the account he maintained for a

commercial enterprise that he/she owns.

It is not necessary that the proprietor alone

operates the account.

He/she can permit / authorize others to do

so too .


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Partnership

A partnership a/c is opened in the name of thefirm and not in the name of the individual

partner/partners. At the time of opening a bank account, the

application form is signed by all the partners orby those authorized by the partners.

In the latter case there should be a resolutionsigned by all the partners.

Specimen signatures of all the partners must beprocured.


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Clubs Societies

and Charitable

Institutions

When clubs, societies and charitable institution

open accounts with banks, it is ensured that theyare incorporated.

These organizations are governed by their

byelaws which will detail how they are to operate.

A resolution of the managing committee is

required to open a bank account.

Before permitting a society or club to borrow it

should be ensured that borrowing is permitted.


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Limited Companies

Along with an application to open a bank account- The company must furnish a board resolution for

opening and operations in the a/c.

Banks must examine the companys memorandumand articles of association to determine what it may

or may not do.

The certificate of incorporation and certificate of

commencement of business must be examinedasthese provide conclusive proof that the company is

incorporated and is permitted to do business.


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HUF a/c

Only male members by birth or adoption get right

to become coparcener.

Senior most member is a karta or manager andalone is empowered to handle the affairs of HUF.

When the karta expires or is declared personally

insolvent or becomes insane,the next senior male

coparcener becomes the Karta.

HUF is different from partnership and is not

governed by the Indian Partnership Act.

HUF also cannot become partner in a firm

3-Banker Customer Relationship

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