Banker-Customer relationship

The relationship between banker and his customer depends upon the nature of
service provided by a banker. Accepting deposits and lending and/ or investing
are the core banking business of the bank. In addition to its primary functions it
deals with various customers by providing other services like safe custody
services, safe deposit lockers and assisting the clients by collecting their
cheques and other instruments as an agent and trustees for them.

In general, bank or banker means a financial institution that accepts deposits

and lends money to the needy people. It deals in money. A banker is one who in
the ordinary course of his business, honors cheques drawn upon him by persons
from and for whom he receives money on their account.

A person who has an account with a bank is a customer. Customer can be any
person for whom the bank agrees to conduct an account. The relation of a
banker and customer begins as soon as the first cheque is paid in and accepted.

Definition of Banker
A person who is doing the banking business is called a banker. But it is not
easy to define the term ‘Banker’ because a banker performs multifarious
functions.

First: a banker must be a man of wisdom, he deals with others money but,
with his own mental faculties.

Second: a banker is not only acting as a depositor, agent but also as a

financial advice.

The bill of exchange Act of 1882 defines the banker “Banker includes a
body of persons whether incorporated or not who carry on the business of
banking”.

According to section-3 of the Negotiable instruments act state that “The

term banker includes a person or a corporation or a company acting as a
banker”.
 Definition of Bank
According section-5(B) of Banking Regulation Act banking has been
defined as “Accepting for the purpose of lending and investment of deposits
of money from the public, repayable on demand order or otherwise and with
drawable by cheque, draft order or otherwise”.

Features of Banking

1. The definition of banking describes the following features of banking.

 A banking company must perform both of the essential functions.

 Accepting of deposit.

2. Lending or investing the same: The phrase deposit of money from the public is
significant. The bankers accept a deposit of money and not of anything else.
The world public implies that a banker accepts a deposit from anyone who
offers his/her money from such purpose.

3. The definition also implies the time and made to withdraw the deposit. The
deposit money should be repayable to the depositor on demand made by the
letter or according to the agreement reached between the two parties.

Customer

A person who has a bank account in his name and for whom the banker
undertakes to provide the facilities as a banker is considered to be a customer. It
is not possible to make a person a customer of a bank if he has made a single
banking transaction. A person to become a customer must satisfy two conditions
one, that there must be regular transactions or that the customer must have the
habit of dealing with the bank and the other, that the transaction between them
must be of banking nature.

A person can become a customer of a bank as soon as he opens

an account in a bank and starts the transaction i.e. the first transaction takes
place. If a person doesn’t have a bank account and he makes casual transactions
through a bank, he will not be regarded as a customer of the bank, even if
transactions are carried by him for a long duration.

To constitute a customer the following requirements must be fulfilled;

1. The bank account may be savings, current or fixed deposit must be operated in
his name by making a necessary deposit of money.
2. The dealing between the banker and customer must be of the nature of the
banking business. The general relationship between banker and customer:

Definition of Customer
According to Sir John Paget’s view “To constitute a customer there must be
some recognizable course or habit of dealing in the nature of regular
banking business”.

According to him a person a customer of a bank have to satisfy the two

conditions.

First condition: (Duration theory)

“There must be some recognizable course or habit of dealing
between the person and the banker” means that there must be some
duration of dealings between the person and the banker. In other
words, a single banking transaction will not make a person a
customer of a bank. He must maintain his account with the bank for
a reasonable duration or period. This condition is commonly known
as the duration of dealing or duration theory”.

Second condition:

“The transaction or dealing between the person and the bank must be in the
nature of regular banking business” mean that the dealings or transaction
must be regular banking business and not casual transaction.

Types of Bank deposit customers

Banks open accounts for various types of customers like individuals,

partnership firm, Trusts, companies, etc. While opening the accounts, the
banker has to keep in mind the various legal aspects involved in opening and
conducting those accounts, as also the practices followed in conducting those
accounts. Normally, the banks have to deal with following types of deposit
customers.

1. Individuals
2. Joint Hindu Families
 3. Partnership Firms
4. Limited Liability Companies
5. Clubs and Associations
6. Trusts

1. Individuals
The depositor should be properly introduced to the bank and KYC norms are to
be observed. Introduction is necessary in terms of banking practice and also for
the purpose of protection under section 131 of the Negotiable Instruments Act.
Usually, banks accept introductions from the existing customers, employee of
the bank, a locally well-known person or another bank.
A joint account may be opened by two or more persons and the account opening
form etc., should be signed by all the joint account holders. When a joint
account is opened in the name of two persons, the account operations may done
by

a. Either or survivor
b. Both jointly
c. Both jointly or by the survivor
d. Former or survivor
When the Joint account is in the names of more than two person, then the
following operations are made:

a. all of them jointly or by survivors

b. any one of them or by more than one of them jointly

An individual can be a person holding a bank account for personal use.

Such customers must comply with existing regulations and bankers must
ensure that they do not open and use bank accounts for illegal purposes.
The customer should be properly introduced to the bank. The introduction
is necessary for terms of banking practice and also for the purpose of
protection.

2.Non-resident individuals (NRIs)

Non-Resident Indian means, a person, being a citizen of India or a person of
Indian origin residing outside India. A person is considered Indian Origin when
he or his parents or any of his grand parents were Indian National. If at any time
held an Indian passport, (nationals of Bangladesh and Pakistan are not deemed
to be of Indian origin), a spouse (who is not a Bangladeshi or Pakistan national),
of a person of Indian origin shall also be deemed to be of Indian origin. Non-
resident falls generally into the following two categories:
 a. A person who stay abroad for the purpose of employment or to carry on
business activities or vocation or for any other purpose for an indefinite
period of stay outside India and
b. Indian National working abroad for a specific period.
Facilities for maintaining bank accounts are available in India to Indian
National or origin, living abroad. The exchange control procedures relating to
these facilities have been simplified. The details of various deposit schemes
available to NRI’s are as follows:

Various Types of NRI Accounts

 Ordinary Non-resident Rupee Accounts (NRO Accounts);
 Non-Resident (External) Rupee Accounts (NRE Accounts);
 Non-resident (Non-Repatriable) Rupee Deposits (NRNR Accounts); and
 Foreign Currency (Non-Resident) Accounts (Banks) Scheme (FCNR (B)
Accounts).
While NRO and NRE accounts can be kept in the form of current, savings bank,
recurring deposit or term deposit accounts, deposits under NRNR and FCNR
(B) schemes can be kept only in the form of term deposits for periods ranging
from six months to three years.

3.Minors:
A minor is a person who has not completed eighteen years of age. Any contract
entered by minor is void and is not enforceable by law. This prevents minor to
acquire property, dispose property or enter into any type of agreement.

Guardian means a person having the care of the person of a minor or of his
property or both person and property. Guardians may be categorised into
following three types:

o Natural guardian
o Testamentary Guardian
o Legal Guardian appointed by a court
Joint account:
A joint account is an account which is opened by two or more persons jointly.
It’s simply a joint debt such an account is opened by them for the convenience
of the operation of the account as well as for the withdrawal of money after the
death of any one of them.
Married Woman:
A married woman is competent to enter a valid contract. Therefore banker
opens an account in the name of a married woman. In the case of a debt taken
by a married woman her husband shall not be liable except in the following
circumstances:

o If she borrows money for the necessities of her life

o If she borrows for the necessaries of her household
o If she acts as an agent of her husband.
Pardanasheen Women:
A paid ana sheen woman observes complete seclusion in accordance with the
custom of her own community. She does not deal with the person other than the
members of her own family. As she remains completely secluded as the
presumption in law. The banker should take due precaution in opening an
account in the name of a park ana sheen woman. As the identity of such a
woman cannot be ascertained, the banker generally refuses to open an account
in her name.

Illiterate Person:
Illiterate persons cannot sign their names and hence the bankers take their
thumb impression as a substitute for signature and a copy of their recent
photograph. The application form and photograph should be attested by an
approved witness. For withdrawing money he must attend personally and affix
his thumb impression in the presence of an official of the bank for
identification.

2. Joint Hindu Family (JHF):

Joint Hindu Family (JHF) (also known as Hindu Undivided family) is a legal
entity and is unique for Hindus. It has perpetual succession like companies; but
it does not require any registration. The head of JHF is the Karta and members
of the family are called co-parceners. The JHF business is managed by Karta.
3. Partnership firms
A partnership is not a legal entity independent of partners. It is an association of
persons. Registration of a partnership is not compulsory under Partnership Act.
However, many banks insist on registration of a partnership. In any case, ie
stamped partnership deed or Partnership letter should be taken when an account
is opened for a partnership. The partnership deed will contain names of the
partners, objective of the partnership, and other operational details, which
should be taken note of by the bank in its dealings.
4. Joint stock companies (Limited Liability Companies)
A company is registered under companies Act has a legal status independent of
that of the share-holders. A company is an artificial person which has perpetual
existence with limited liability and common seal. Memorandum and Articles of
Association, Certificate of Incorporation, Resolution passed by the Board to
open account, name and designations of persons who will operate the account
with details of restriction placed on them are the essentials documents required
to open an account.
5. Clubs, Societies and Associations
The clubs, societies, association etc., may be unregistered or registered.
Account may be opened only if persons of high standing and reliability are in
the managing committee or governing body. Copy of certificate of registration
and Copy of bye-law, certified to be the latest, by the Secretary/President are
required to be obtained and also a certified copy of the resolution of the
Managing Committee/Governing body to open the bank account and giving
details of office bearers etc., to operate the account.

6. Trust Account:
Trusts are created by the settler by executing a Trust Deed. A trust account can
be opened only after obtaining and scrutinizing the trust deed. The Trust
account has to be operated by all the trustees jointly unless provided otherwise
in the trust deed. A trustee cannot delegate the powers to other Trustees except
as provided for in the Trust Deed. A cheque favoring the Trust shall not be
credited to the personal account of the Trustee.
Termination of relationship between a banker and a customer:
As a rule, as long as an account (either deposit or loan) exists, the relationship
between a banker and a customer would continue. The relationship would come
to an end under the following circumstances or conditions.

The relationship between a bank and a customer ceases on:

 The death, insolvency, lunacy of the customer.
 The customer closing the account i.e. Voluntary termination
 Liquidation of the company
 The closing of the account by the bank after giving due notice.
 The completion of the contract or the specific transaction