BANKER-CUSTOMER RELATIONSHIP.pdf

Details about various types of Relation between Banker and Customer.

2. BANKER-CUSTOMER RELATIONSHIP
Arelationshipbetweenabankerandacustomercomesintoexistence
whenthebankeragreestoopenanaccountinthenameofthecustomer.
Therelationshipbetweenabankerandacustomerdependsonthe
activities,products,orservicesprovidedbythebanktoitscustomersor
availedbythecustomer.
Thustherelationshipbetweenabankerandacustomerisatransactional
relationship.
Bank’sbusinessdependsmuchonstrongbondagewiththecustomer.
Trustplaysanimportantroleinbuildinghealthyrelationshipsbetweena
bankerandcustomer.

3. BANKING
TheBankingRegulationsAct1949,Sec.5(b)defines
thetermbankingas“Bankingmeansaccepting,for
thepurposeoflendingorinvestment,ofdepositsof
moneyfromthepublicrepayableondemandor
otherwiseandwithdrawablebycheque,draft,and
orderorotherwise."
Sec.5(c)ofBRActdefines"bankingcompany"asa
companythattransactsthebusinessofbankingin
India.

4. DEFINITION OF A CUSTOMER
ThetermCustomerhasnotbeendefinedbyanyact.Insimplewords,acustomer
isapersontowhomyouextendyourservicesinreturnofconsideration.
Acustomerisapersonwhomaintainsanaccountwiththebankwithouttaking
intoconsiderationthedurationandfrequencyofoperationofhisaccount.
Tobeacustomerofabanktheindividualshouldhaveanaccountwiththebank.
Theindividualshoulddealwiththebankinitsnatureofregularbanking
business.
Thosewhodonotmaintainanyaccountrelationshipwiththebankbut
frequentlyvisitbranchofabankforavailingbankingfacilitiessuchasfor
purchasingadraft,encashingacheque,etc.
Technicallytheyarenotcustomers,astheydonotmaintainanyaccountwiththe
bankbranch.

5. DEFINITION OF CUSTOMER
Asper‘KnowYourCustomerguidelinesissuedbytheReserveBankofIndia,the
customerhasbeendefinedas:
a)Apersonorentitythatmaintainsanaccountand/orhasabusiness
relationshipwiththebank;
b)Oneonwhosebehalftheaccountismaintained(i.e.thebeneficialowner);
c)Beneficiariesoftransactionsconductedbyprofessionalintermediaries,such
asStockBrokers,CharteredAccountants,Solicitorsetc.aspermittedunder
thelaw,and
d)Anypersonorentityconnectedwithafinancialtransaction,whichcan
posesignificantreputationalorotherriskstothebank,say,awiretransfer
orissueofahighvaluedemanddraftasasingletransaction.

6. BANKER-CUSTOMER RELATIONSHIP
Itobviouslymeansthattobecomeacustomeraccountrelationshipisamust.
Anaccountrelationshipisacontractualrelationship.Bankingisatrust-
basedrelationship.Therearenumerouskindsofrelationshipsbetweenthe
bankandthecustomer.Therelationshipbetweenabankerandacustomer
dependsonthetypeoftransaction.Thustherelationshipisbasedona
contract,andoncertaintermsandconditions.
Theserelationshipsconfercertainrightsandobligationsbothonthepartof
thebankerandonthecustomer.However,thepersonalrelationshipbetween
thebankanditscustomersisalong-lastingrelationship.Somebankseven
saythattheyhaveageneration-to-generationbankingrelationshipwiththeir
customers.

7. CLASSIFICATION OF RELATIONSHIP
Therelationshipbetweenbankerandcustomerisofutmost
importance.Therelationshipbetweenabankanditscustomerscan
bebroadlycategorizedintoGeneralRelationshipsandSpecial
Relationships.
GeneralRelationship
IfwelookatSec5(b)ofBankingRegulationAct,wewouldnotice
thatbank’sbusinessisacceptingofdepositsforthepurposesof
lending.Thus,therelationshiparisingoutofthesetwomain
activitiesareknownasGeneralRelationship.

8. DEBTOR AND CREDITOR
Whena'customer'opensanaccountwithabank,hefillsinandsignstheaccount
openingform.Bysigningtheformheentersintoanagreement/contractwiththe
bank.
Whencustomerdepositsmoneyinhisaccountthebankbecomesadebtorofthe
customerandcustomeracreditor.
Themoneysodepositedbycustomerbecomesbank’spropertyandbankhasa
righttousethemoneyasitlikes.
Thebankisnotboundtoinformthedepositorthemannerofutilizationoffunds
depositedbyhim.Bankdoesnotgiveanysecuritytothedepositori.e.debtor.
Thebankhasborrowedmoneyanditisonlywhenthedepositordemands,banker
pays.Bank’spositionisquitedifferentfromnormaldebtors.
WhileissuingDemandDraft,Mail/TelegraphicTransfer,bankbecomesadebtor
asitownsmoneytothepayee/beneficiary.

9. CREDITOR AND DEBTOR
Lendingmoneyisthemostimportantactivitiesofabank.
Theresourcesmobilizedbybanksareutilizedforlending
operations.Customerwhoborrowsmoneyfrombankownsmoney
tothebank.
Inthecaseofanyloan/advancesaccount,thebankeristhe
creditorandthecustomeristhedebtor.
Therelationshipinthefirstcasewhenapersondepositsmoney
withthebankreverseswhenheborrowsmoneyfromthebank.
Borrowerexecutesdocumentsandoffersecuritytothebank
beforeutilizingthecreditfacility.

10. SPECIAL RELATIONSHIP
Inadditiontothesetwoactivitiesbanksalsoundertake
otheractivitiesmentionedinSec.6ofBankingRegulation
Act.
Inadditiontoopeningofadeposit/loanaccountbanks
providevarietyofservices,whichmakestherelationship
morewideandcomplex.
Dependinguponthetypeofservicesrenderedandthe
natureoftransaction,thebankeractsasabailee,trustee,
principal,agent,lessor,custodianetc.

11. TRUSTEE AND BENEFICIARY
(BANK AS A TRUSTEE AND CUSTOMER AS A BENEFICIARY)
AsperSec.3ofIndianTrustAct1882,a"trust"isanobligationannexedtothe
ownershipofproperty,andarisingoutofaconfidencereposedinandaccepted
bytheowner,ordeclaredandacceptedbyhim,forthebenefitofanother,orof
anotherandtheowner.Thus,trusteeistheholderofpropertyonbehalfofa
beneficiary.
Incaseoftrust,bankercustomerrelationshipisaspecialcontract.
Whenapersonentrustsvaluableitemswithanotherpersonwithanintention
thatsuchitemswouldbereturnedondemandtothekeepertherelationship
becomesofatrusteeandtrustier.
Customerskeepcertainvaluablesorsecuritieswiththebankforsafekeeping
ordepositscertainmoneyforaspecificpurpose(Escrowaccounts)thebanker
insuchcasesactsasatrustee.Bankschargefeeforsafekeepingvaluables.

12. BAILEE AND BAILOR
(BANK-BAILEE AND CUSTOMER -BAILOR)
Sec.148ofIndianContractAct,1872,defines"Bailment""bailor"and"bailee".A
"bailment"isthedeliveryofgoodsbyonepersontoanotherforsomepurpose,upon
acontractthattheyshall,whenthepurposeisaccomplished,bereturned
orotherwisedisposedofaccordingtothedirectionsofthepersondeliveringthem.
Thepersondeliveringthegoodsiscalledthe"bailor".Thepersontowhomtheyare
deliverediscalled,the"bailee".
Bankssecuretheiradvancesbyobtainingtangiblesecurities.
Insomecasesphysicalpossessionofsecuritiesgoods(Pledge),valuables,bonds
etc.,aretaken.Whiletakingphysicalpossessionofsecuritiesthebankbecomes
baileeandthecustomerbailor.
Banksalsokeepsarticles,valuables,securitiesetc.,ofitscustomersinSafeCustody
andactsasaBailee.Asabaileethebankisrequiredtotakecareofthegoodsbailed.

13. LESSOR AND LESSEE
(BANK-LESSOR AND CUSTOMER -LESSEE)
Sec.105of‘TransferofPropertyAct1882’defineslease,Lessor,lessee,premiumand
rent.Asperthesection“Aleaseofimmovablepropertyisatransferofarighttoenjoy
thesuchproperty,madeforacertaintime,expressorimplied,orinperpetuity,in
considerationofapricepaidorpromised,orofmoney,ashareofcrops,serviceorany
otherthingofvalue,toberenderedperiodicallyoronspecifiedoccasionstothe
transferorbythetransferee,whoacceptsthetransferonsuchterms.”
DefinitionofLessor,lessee,premiumandrent:
(1)Thetransferoriscalledthelessor,
(2)Thetransfereeiscalledthelessee,
(3)Thepriceiscalledthepremium,and
(4)Themoney,share,serviceorotherthingtobesorenderediscalledtherent.

14. LESSOR AND LESSEE
(BANK-LESSOR AND CUSTOMER -LESSEE)
•Providingsafedepositlockersisasanancillaryserviceprovidedbybankstocustomers.
WhileprovidingSafeDepositVault/lockerfacilitytotheircustomers’bankentersintoan
agreementwiththecustomer.Theagreementisknownas“Memorandum ofletting”and
attractsstampduty.
•Therelationshipbetweenthebankandthecustomeristhatoflessorandlessee.
•Bankslease(hirelockerstotheircustomers)theirimmovablepropertytothecustomerand
givethemtherighttoenjoysuchpropertyduringthespecifiedperiodi.e.duringtheoffice/
bankinghoursandchargerentals.
•Bankhastherighttobreak-openthelockerincasethelockerholderdefaultsinpaymentof
rent.Banksdonotassumeanyliabilityorresponsibilityincaseofanydamagetothe
contentskeptinthelocker.Banksdonotinsurethecontentskeptinthelockersby
customers.

15. AGENT AND PRINCIPAL
(BANK-AGENT AND CUSTOMER -PRINCIPAL)
•Sec.182of‘TheIndianContractAct,1872’defines“anagent”asa
personemployedtodoanyactforanotherortorepresentanotherin
dealingswiththirdpersons.
•Thepersonforwhomsuchactisdoneorwhoissorepresentedis
called“thePrincipal”.
•Thusanagentisaperson,whoactsforandonbehalfofthe
principalandunderthelatter’sexpressorimpliedauthorityandthe
actsdonewithinsuchauthorityarebindingonhisprincipaland,the
principalisliabletothepartyfortheactsoftheagent.

16. Bankscollectcheques,bills,andmakespaymenttovarious
authorities’viz.,rent,telephonebills,insurancepremiumetc.,on
behalfofcustomers..
Banksalsoabidesbythestandinginstructionsgivenbyits
customers.Inallsuchcasesbankactsasanagentofitscustomer,
andchargesfortheseservices.
AsperIndiancontractActagentisentitledtocharges.Nocharges
areleviedinthecollectionoflocalchequesthroughaclearing
house.
Chargesareleviedinonlywhenthechequeisreturnedinthe
clearinghouse.
AGENT AND PRINCIPAL
(BANK-AGENT AND CUSTOMER -PRINCIPAL)

17. INDEMNITY HOLDER AND INDEMNIFIER
(BANK-INDEMNITY HOLDER AND CUSTOMER -INDEMNIFIER)
ThedictionarymeaningofthewordIndemnitymeans‘securityorprotectionagainstalossor
otherfinancialburden’.
AsperSection124oftheIndianContractAct1872thedefinitionoftheIndemnityisasfollows.‘A
contractbywhichonepartypromisestosavetheotherfromlosscausedtohimbythecontractof
thepromisorhimself,orbytheconductofanyotherperson,iscalleda"contractofindemnity".
Rightofindemnity-holderisdefinedinSection124oftheIndianContractAct1872.
Anindemnityisanobligationbyapersontoprovidecompensationforaparticularlosssuffered
byanotherperson.
Incaseofbanking,therelationshiphappensintransactionsofissueduplicatedemanddraft,TDR,
deceasedaccountpaymentetc.
Inthatcaseindemnifierwillcompensateanylossarisingfromthewrongorexcesspayment.In
thesecasebanksisIndemnityHolder(Promisee)andcustomerisIndemnifier(Promisor).

18. HYPOTHECATOR AND HYPOTHECATEE
(BANK-HYPOTHECATEE AND CUSTOMER -HYPOTHECATOR)
Therelationshipbetweencustomerandbankercanbe
thatofHypothecatorandHypothecatee.
Thishappenswhenthecustomerhypothecatescertain
movableornon-movablepropertyorassetswiththe
bankerinordertogetaloan.
Inthiscase,thecustomerbecametheHypothecator,
andtheBankerbecametheHypothecatee.

19. PLEDGER AND PLEDGEE
(BANK-PLEDGEE OR PAWNEE AND CUSTOMER -PLEDGER OR PAWNOR)
Therelationshipbetweencustomerandbankercanbethat
ofPledgerandPledgee.
Thishappenswhencustomerpledges(promises)certain
assetsorsecuritywiththebankinordertogetaloan.
Inthiscase,thecustomerbecomesthePledgerorPawnor,
andthebankbecomesthePledgeeorPawnee.
Underthisagreement,theassetsorsecuritywillremain
withthebankuntilacustomerrepaystheloan.

20. MORTGAGOR AND MORTGAGEE
(BANK-MORTGAGEE AND CUSTOMER -MORTGAGOR)
Aspersection58ofTransferofPropertyAct1882,mortgageistransferof
interestinspecificimmovablepropertyforthepurposeofsecuringthe
paymentofmoneyadvancedortobeadvancedbywayofloan,an
existingorfuturedebtortheperformanceofanengagementwhichmay
giverisetopecuniaryliability.
Themortgagoronlypatswiththeinterestinthepropertyandnotthe
ownership.Thetransferorofinterestinproperty,iscalledamortgagor
andthetransfereeiscalledamortgagee.
Inthiscase,thecustomerbecametheMortgagor,andtheBankerbecame
theMortgagee.

21. AS A CUSTODIAN
Acustodianisapersonwhoactsasa
caretakerofsomething.Bankstakelegal
responsibilityforacustomer’ssecurities.
WhileopeningaD-Mataccountbank
becomesacustodian.

22. AS A GUARANTOR
Banksgiveguaranteesonbehalfoftheircustomers
andenterintotheirshoes.Aguaranteeisa
contingentcontract.Aspersec31,oftheIndian
ContractActguaranteeisa"contingentcontract".
Acontingentcontractisacontracttodoornottodo
something,ifsomeevent,collateraltosuchcontract,
doesordoesnothappen.

23. ADVISOR AND CLIENT
(BANK-ADVISOR AND CUSTOMER -CLIENT)
Whenacustomerinvestsinsecurities,the
bankeractsasanadvisor.Theadvicecan
begivenofficiallyorunofficially.
Whilegivingadvicethebankerhastotake
maximum careandcaution.Here,the
bankerisanAdvisor,andthecustomerisa
Client.

24. VARIOUS TYPES OF RELATIONSHIPS
TYPE OF TRANSACTION BANK CUSTOMER
Deposit in bank Debtor Creditor
Loan from bank Creditor Debtor
Safe Deposit vault (SDV Locker) Lessor Lessee
Safe Custody Bailee Bailor
Issue of Draft Debtor Creditor
Payee of a Draft Trustee Beneficiary
Collection of Cheque Agent Principal
Pledge Pledgee (Pawnee) Pledger (pawnor)
Mortgage Mortgagee Mortgagor
Hypothecation Hypothecatee Hypothecator
Sale/purchase of security on behalf of customer Agent Principal
Money deposited, but no instructions for its disposal Trustee Beneficiary
Article/Goods left by mistake by customer Trustee Beneficiary

25. TERMINATION OF RELATIONSHIP
BETWEEN A BANKER AND A CUSTOMER
Itwouldthusbeobservedthatbankercustomerrelationshipis
transactionalrelationship.Therelationshipbetweenabankanda
customerceaseson:
(a)Thedeath,insolvency,lunacyofthecustomer;
(b)Thecustomerclosingtheaccounti.e.Voluntarytermination;
(c)Liquidationofthecompany;
(d)Theclosingoftheaccountbythebankaftergivingduenotice;
(e)Thecompletionofthecontractorthespecifictransaction.

26. BANKERS’ SPECIAL RELATIONSHIP
Normally,thecustomeroperateshisbankaccount.
Therearemanysituationsinone’slifewhereanindividual
possessingproperty,bankaccounts,etc.maynotbeinapositionto
performhisdutiesduetoreasonslikebeingabroad,ill,old,etc.In
suchsituations,ifthetransactionrequiresthepresenceofan
individualwhoisnotabletobepresentpersonally,thentheonly
wayoutistogivethepowerstoactonbehalfoftheindividualto
anotherperson.
ThisiswhenaPowerofAttorneydeedistobecreated.
Itisverycommonthesedaystogivethepowerstoatrustworthy
persontoconducttheregistrations,salesorrentout,etc.ifyouare
busywithyourotherschedules.

27. Forbankingoperations,thecustomermayauthorize,
forhisconvenience,anagentornomineetooperate
onhisaccount.
SuchauthorityisgiveneitherbywayofaMandate
LetterorPowerofAttorney.Bymandateletter,the
particularbankerisinformedthatcertainpowershave
beendelegatedwhereasapowerofattorneyactsasa
generalnoticeandauthority.
BANKERS’ SPECIAL RELATIONSHIP

28. MANDATE LETTERS
Aletterofmandateisaddressedbyacustomertothebank
informingthatpowerstooperatetheaccount(ordinarydeposit
account)havebeendelegatedbythecustomer(themandator)toa
particularperson(themandatory).Suchlettersofmandatedonot
attractstampduty.
Asfaraspossible,branchesshouldrequirecustomerstoexecute
powersofattorneywhentheydesiretoauthorisetheiragentor
nomineetooperateontheiraccountonamoreorlesspermanent
basis.Theprocedureofobtainingmandatelettersinsteadof
powersofattorneyshould,asfaraspossible,belimitedto
operationsonordinarycreditaccounts.

29. POWER OF ATTORNEY
APowerofAttorneyisalegaldocumentbywhichone
persongivestherighttoperformorpowersoftransacting
inmattersrelatingtoaproperty,banking,legalandjudicial
proceedings,taxpayments,etc.toanotherpersondueto
certainreasonslikebeingoutofthecountry,orgettingold,
ornotabletolookafterone’sdutiesinthosemattersetc.
ApowerofAttorneyisanauthoritygivenbyawritten
formalinstrumentwherebyonepersontermedthedonoror
principalauthorisesanotherpersontermedthedone,
attorneyoragenttoactonhisbehalf.

30. POWERS OF ATTORNEY ON
BANK ACCOUNTS
Apowerofattorneymaybespecialorgeneral.Aspecialpower
ofattorneyauthorisesapersontoactinasingletransaction
whereasauthoritytoactinmorethanonetransactionsuchasa
bankaccountorgenerally,isageneralpowerofattorney.
Thepowerofattorneyisastampeddocument.Thepowerto
operateanaccountwillnotinclude,byitself,thepowerto
overdraworborrowmoney.
Authorityorpowertoborrowbytheattorneyshould
definitely/explicitlybestated/embodiedintheinstrument.
Drawingonanoverdraftaccountisborrowing.

31. TYPES OF POWER OF ATTORNEY
PowerofAttorneycanbeofmainlytwotype;
1.GeneralPowerofAttorney:Apersoncangivetoanotherpersona
completegeneralrightorpowertoactlawfullywithrespecttohis
propertyorbankaccountsortaxpayments,orregistrationworkor
tosueathirdpartyetc.ItiscommonlytermedasGeneralPowerof
Attorney.
EitheryoucangiveaGeneralPowerofAttorneyforallyour
properties,bankingtransactions,taxmatters,registration,legal
disputesandcourtmattersetc.oryoucangiveageneralpowerto
anyonecategorylikeonlyforallpropertymattersoronlyforall
Bankingprocessesetc.Thistypeofpowerisverywideandhaslot
ofriskiftheattorneyisnotatrustworthyperson.

32. 2.SpecialPowerofAttorney:Theothertypeofpower
grantedisthespecialpowerwhichmeansitisgrantedfor
onlyaspecifictaskorwork.Aspecialpowerofattorneyis
tobemadebyapersonwhenanyparticularorspecifictask
oractistobedone.Oncetheparticularactiscompleted
thespecialpowerofattorneycomestoanend.
Thisisgenerallyusedwhenyouwanttorentoutyour
propertyorappearfortheregistrationofanypropertyor
appearinacourtonbehalfofthePrincipalortoappear
beforetheTaxauthoritiesetc.
TYPES OF POWER OF ATTORNEY