PPT on bank customer relationship, types of customer and duties & rights of bank.

1. Session : 2015-17
Submitted to:
Dr. Sujata Parwani
Submitted By:
Ishwar Shree M (Ft2k15-19)
Priyanka Saluja (FT2k15-34)
Sahir Kingrani (FT2k15-44)
Shruti Soni (FT2k15-48)

2. Bank-Customer Relationship
• Today banks constitute an important segment
of the economy banks have become a part
and parcel of our life.
• The two important persons connected with a
bank are the “Banker and the Customer”.

3. Banker
Banking regulation act 1949 (section 5c) defines banker as
a person undertaking business of banking. No person or
corporate body or otherwise can be a banker, who does
not :
1. Take deposits accounts
2. Take current accounts
3. Issue and pay cheques
4. Collect cheques, crossed, and uncrossed for his
customers
5. Further, the banker must profess himself to be a
fulltime banker
6. The public must accept him as such
7. His main business must be that of banking from which
he should be able to earn his living

4. Customer
To constitute a person as a customer, the
following conditions must be fulfilled :
1. He must have some sort of an account with
the bank
2. Frequency of transactions is not essential,
but anticipated
3. Even a single transaction can constitute him
as a customer
4. The dealing must be of a banking nature

5. Forms of Bank-Customer Relationship
1. Bank as Debtor
2. Bank as Creditor
3. Bank as Trustee
4. Bank as Agent
5. Bank as Bailee

6. Bank as 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.

7. Bank as 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.

8. Bank as Trustee
• This relationship arises when a customer deposits
securities and valuables with the bank, for safe
custody.
• The customer continues to be the owner and the
bank is supposed to only deal with them as per
the customer’s instructions.
• Similarly when a bank is appointed as a Receiver
of an estate, the money realized by the bank and
deposited in its own account would not become
assets of the bank, but would only be held by its
as a trustee for the estate.

9. Bank as Agent
• The (agent-principal) relationship of bank-
customer arises when a bank collects
cheques/bills of exchange or other instruments of
behalf of its customer, or buys/sells securities on
its behalf, it is acting as an agent of its customer.
• In such cases bank is bound to conduct’s its
principal’s business as per the latter’s directions
and in the absence of such directions, as per the
customary practice for such business at that
place.

10. Bank as Bailee
• A bank acts as a bailee when it accepts a
sealed box item for safe custody from a
person.
• As a bailee the bank is bound to take as much
care of the goods bailed to it as a man of
ordinary prudence would do under similar
circumstances.

11. Types of Customers and their accounts
1. Individuals
2. Illiterate persons
3. Hindu Undivided Family (HUF)
4. Firms
5. Companies
6. Trusts
7. Clubs
8. Local Authorities
9. Cooperative societies

12. Individuals
• Accounts of individuals form a major chunk of the deposit
accounts in the Personal segment of most of the banks.
• Individuals who are major (18 years of age and above) and of
sound mind can open a bank account.
• Savings or fixed deposit accounts for the benefit of minor
child can also be opened and operated by the father / mother
/ guardian in one of the following modes :
i. In the single name of child through the father / mother /
guardian, or
ii. In the joint names of the father / mother / guardian and
the child (payable to either or survivor)

13. Illiterate persons
• Illiterate persons who cannot sign are allowed to open only a
savings account (without cheque facility) or fixed deposit account.
• They are generally not permitted to open a Current account
• Following additional requirements need to be met while opening
accounts for such persons:
i. The depositor’s thumb impression (in lieu of signature) is
obtained on the account opening form in the presence who
are known to the bank and who certify that they know the
depositor
ii. The depositor’s photograph is affixed to the ledger account
and also to the savings pass book for identification.
• Withdrawals can be made from the account when the passbook is
furnished, the thumb impression is verified and a proper
identification of the account holder is obtained.

14. Hindu Undivided Family (HUF)
• HUF is a unique entity recognized under the Hindu
customary law as comprising a ‘Karta’ (seniormost
male member of the joint family), his sons and grand
sons or even great grandsons in a lineal descending
order, who are ‘coparceners’ (who have undivied share
in the estate of the HUF).
• The right to manage to manage the HUF and its
business vests only in the hands of Karta and he acts on
behalf of all the coparceners.
• The Karta and other coparceners may possess self
acquired properties other than the HUF, but these
cannot be clubbed together for the HUF dues.

15. Hindu Undivided Family (HUF) contd
• The following special requirements are to be fulfilled by the banks, for
opening and conducting HUF accounts :
i. The account is opened in the name of the Karta or in the name of
the HUF business.
ii. A declaration signed by the Karta and all coparceners, affirms the
composition of the HUF, its Karta and names and relationships of
all the coparceners, including minor sons and their date of birth.
iii. The account is operated by the Karta or the authorized
coparceners.
iv. In determining the security of the family property for purposes of
borrowing, the self-acquired properties of the coparceners are
excluded.
v. On the death of a coparcener, his share may be handed over to his
wife, daughters and other female relatives as per Hindu Succesion
act, 1956

16. Firms
• The term ‘Firm’ indicated either a sole proprietary firm or a
partnership firm.
• A sole proprietary firm is wholly owned by a single person whereas
a partnership firm has two or more partners.
• The sole proprietary firm’s account can be opened in the owner’s
name or in the firm’s name.
• A partnership is defined as the relationship between persons who
have agreed to share the profits of business carried on by all or any
of them acting for all.
• In view of partnership firm, bankers comply with the following
requirements while opening its account :
i. The account is opened in the name of the firm and the account
opening form is signed by all the partners.
ii. Partnership deed executed by all the partners is recorded in the
bank’s books.
iii. Partnership letter signed by all the partners is obtained to ensure
their several and joint liabilities.

17. Companies
• A company is a legal entity, distinct from its shareholders or
managers, as it can sue and be sued in its own name.
• A company can be of 3 types :
i. Private Limited Company : having 2 to 51 shareholders.
ii. Public company : having 7 or more shareholders.
iii. Government company: having at least 51% share holdings of
Government (Central or State)
• Following requirements are to be met while opening an account in
the name of a company :
i. The account opening form meant for company accounts should be
filled and specimen signatures of the authorized directors of the
company should be obtained.
ii. Certified up-to-date copies of MOA and AOA should be obtained.
iii. Certificate of Incorporation (in original) should be perused and its
copy retained on record.
iv. In case of a public company, certificate of commencement and a
copy of the same should be obtained and recorded respectively
v. Certified copy of the resolution of the Board of Directors of the
company regarding the opening, execution of the documents and
conduct of the account should be obtained and recorded.

18. Trusts
• A trust is a relationship where a person (trustee) holds
property for the benefit of another person
(beneficiary) or some object in a way such that the real
benefit of the property accrues to the beneficiary or
the object of the trust
• The trust deed is carefully examined and its relevant
provisions, noted. A banker should exercise extreme
care, as follows, while conducting the trust accounts, to
avoid committing breach of trust :
i. A trustee cannot delegate his powers to other trustees.
ii. Funds in the name of the trust cannot be used for
crediting in the trustee’s account.
iii. The trustee cannot raise loan without permission of the
court, unless permitted by the trust deed

19. Clubs
• Account of a proprietary club can be opened like an
individual account.
• Clubs are collectively owned by several members and
are not registered under any act.
• While opening and conducting the account of clubs,
following requirements are to be met :
i. Certified copy of the rules of the club is to be submitted.
ii. Resolution of the Managing committee or General Body,
appointing the bank as their banker and specifying the
mode of operation of the account has to be submitted.
iii. The person operating the club account should not credit
cheques drawn favouring the club, in his personal
account.

20. Local Authorities
• Municipal corporation and Panchayat Board
are local authorities created by specific Acts of
the State legislature.
• Bankers should ensure that accounts of such
bodies are opened and conducted strictly as
per provisions of the relevant Act and
regulations framed thereunder.
• Precautions applicable for company or trust
accounts are also applicable in case of these
accounts.

21. Cooperative societies
• Cooperative societies are required to open
accounts only with the banks that are recognized
for the purpose .
• Following documents should be obtained while
opening their accounts :
i. Certificate of registration of the society under the
Cooperative Society Act.
ii. Certified copy of the by-laws of the Society.
iii. Resolution of the managing committee of the
Society prescribing the conditions for the conduct of
the account.
iv. List of the members of the managing committee
with the copy of the resolution electing them as the
committee members.

22. Duties of Bank
1. Duty of secrecy
2. Duty Of Reasonable Care
3. Garnishee or Attachment Order

23. Duty of secrecy
• The bank owes a contractual duty not to disclose
the customer’s affairs without his consent. It
must be secret and confidential.
• However the obligation of secrecy is not
considered essential on the following occasions:
i. Disclosure under compulsion of law.
ii. Duty to disclose in public interest.
iii. Disclosure with implied consent of the customer.
iv. Disclosure in interest of bank itself.

24. Duty Of Reasonable Care
• If a customer suffers loss due to improper care
or negligence of the bank, he may claim
specific damages from the bank for making
good the loss.
• To honor a customer’s cheque and make sure
that there is no wrongful dishonor of cheques
when there is sufficient balance in the
customers account.

25. Garnishee or Attachment Order
• Debtor who owes money is called “garnishee”
• It is the duty of the banker to abide by the
order of the court (garnishee order) and
attach the funds of the customer to the
creditors who has obtained the order in his
favor.

26. Rights of Bank
1. Right to Lien
2. Right of set-off
3. Right of appropriation of accounts
4. Right to charge interest/commission

27. Right to Lien
• Lien refers to the right of a creditor (bank) to retain the
property belonging to the customer until the debt has been
discharged (paid).
• Lien is of two kinds :
i. General Lien : banks may in the absence of a contract to the
contrary retain as security for general balance of account any
goods bailed to them.
ii. Particular Lien : the right to retain possession only of the
goods in respect of which the charges or dues have arisen.
• The following conditions should be satisfied under bank’s
lien:
i. The possession of the goods by the bank must be in the same
rights as the account of the customer.
ii. There should be no entrustment for special purpose.
iii. There should be no contract-expressed or implied-to exclude
the lien.

28. Right of set-off
• It is a right of the banker to adjust his outstanding loans in
the name of the customer from his credit balance of any of
the accounts he is maintaining with the bank.
• By adjusting the debit balance in one account with the
credit balance in other account the bank has right to set off
between two or more accounts maintained by a customer.
• This right can be exercised in following conditions:
i. The funds must in the same right and must prima facie
belong to the customer.
ii. There should be no agreement between the bank and the
customer to exclude the right to set off.
iii. The right to combine accounts can only be exercised in
respect of debts that are due and crystallised.

29. Right of appropriation of accounts
• The bank has the right of appropriation when
there are two or more debts owing from a
borrower and the latter makes a payment to
the bank.

30. Right to charge interest/commission
• It is the right of the banker to charge interest
commission etc according to the rates for the
services the banker has rendered to the
customer as agent, trustee etc
• Normally rate of interest on loans/overdraft,
and of commission for collection of
instruments or other services is chargeable by
a bank as per terms agreed by the customer
while granting the facilities.