BANKER-CUSTOMER

RELATIONSHIPS

S.clement
 Who is a customer ?
• Generally speaking, anyone conducting a
banking transaction with a bank is a bank
customer.
• It could be an individual, a group, a firm, a
company, a trust, an institution or a
government/semi-government/local self-
government organization.
 Types of customers
• Individual • Institutions
• Senior citizens • Corporates
• House wives • Trusts
• Students • Hindu Undivided
• Professionals Family
• Sole proprietorship • Partnership
• Clubs
• Societies
 DIFFERENT TYPES OF BANKER-CUSTOMER
RELATIONSHIP

• Banker-customer relationship arises from the above services

rendered by banks to its customers. The relationship varies
depending on the services.
• A. Debtor-Creditor (Bank as the Debtor and Customer, the
Creditor)
• When a customer deposits money with the bank, the customer
becomes a lender and the bank becomes borrower. As such, the
relationship is that of a Debtor and Creditor..
• B. Creditor-Debtor (Bank is a Creditor and Customer Debtor)
• When the bank lends money to the customer, the customer is the
borrower and the bank is the lender.The relationship, therefore, is
that of a Creditor and Debtor. The Customer/Borrower executes
• documents and offers security to the Bank before utilising the loans.
 Bailee- Bailor Relationship

• When a customer deposits certain

valuables, bonds, securities or other
documents with the bank, for their safe
custody, the bank besides becoming a
trustee , also becomes a bailee and the
customer is the bailor..
 Agent-Principal Relationship (Bank is Agent and
Customer is Principal)

• One of the ancillary services rendered by

the bank is remittances, collection of
cheques,bills, etc., on behalf of the
customers. It further undertakes to pay
regularly electricity bills, telephone bills,
insurance premia, club fees, etc. In all
such cases, the bank acts as an agent, his
principal being the customer.
Lessor and Lessee (Bank is a Lessor and Customer is
a Lessee)

• The banks provide safe deposit lockers to

the customers who hire them on lease
basis. The relationship, therefore, is that of
lessor and lessee..
Trustee and Beneficiary (Bank – Trustee and Customer
– Beneficiary

• When a trust is created appointing the

bank as a trustee, the relationship is that
of a trustee and a beneficiary.
• BANK’S OBLIGATION TO MAINTAIN
SECRECY OF ACCOUNTS
 BANK’S OBLIGATION TO MAINTAIN SECRECY OF ACCOUNTS

• A)When a person opens an account in a bank he is

entitled to a reasonable assurance thatinformation
regarding the account remains a matter of knowledge
only between the banker and account holder. This is so
because, it is one of the principal duties of the banker to
maintain complete secrecy of the status of his customer’s
account.
• This obligation of the Bank to maintain secrecy continues
even after the customer’s account is closed. If the banker
makes an unwarranted disclosure of the status of
account of his customer, he becomes liable to
compensate the customer.
• (B) However, the bank’s obligation of keeping the secrecy
of the status of the customer’s account is qualified and
not absolute. There are certain circumstances in which
thebanker is entitled or required to make disclosures
about a customer’s account.
 DISCLOSURES PERMITTED BY LAW AND PRACTICE
• Under law: A Banker is justified to disclose any information about the
customer’s account when he is statutorily required to do so under (a)
income Tax Act, 1961(Section 131 & Section 133(6), (b) Companies
Act, 1956 (Section 235 and Section 237), (c) Bankers Book Evidence
Act, 1891 (Section 4), (d) Reserve Bank of India Act, 1937 (Section26),
(f) Foreign Exchange Management Act 1973 (Section 11)
• (g) Gift Tax Act, 1958 (Section 36).
• (ii) Under express or implied consent of the customer: When an
account is opened with the bank, there is an implied contract between
the customer and the Bank that the latter will not disclose information
relating to his account without his consent.
• If however, a customer permits, this information can be disclosed. For
example, the customer may permit giving information about his account
to his prospective guarantor, or, customer. It is necessary to obtain the
customer’s consent before disclosing the information. The consent can
be expressed or implied.
 DISCLOSURES PERMITTED BY LAW AND PRACTICE
• 1.Common courtesy among bankers: Under the practices/usages in the banking
• system (business) it is customary among the bankers, that whenever a bank makes
• inquiries with another bank, such as, about proposed sureties or acceptors, such
• information is shared. An implied consent of the customer is presumed to exist
• therefor.
• 2.However, such information is kept confidential at both the ends and
• adequate precautions should be taken while furnishing such information.
• 3.Disclosure in the bank’s interest: A banker can disclose information when it is
• essential to protect his own interest, legally. For instance, if there is any dispute
• between the customer and a banker, regarding balance standing in the account of
• the customer or if there is a loan default, then the bank will be justified in revealing
• the information to the guarantor or to a solicitor for initiating legal proceedings in
• the court of law.
• 4.Disclosure in Public/National interest: Banker may be required to make
disclosure in the interest of the nation and public at large. Public interest may be
reckoned only according to the prevailing circumstances
 PRECAUTIONS TO BE ADOPTED WHILE DISCLOSING
THE INFORMATION
• customers. Undue or irrelevant information can, not only make the banker liable for
• compensation but also the third party which makes use of such information may suffer
• loss thereby. It is, therefore, necessary to note the following points:

• 1. Only facts should be revealed. Only such facts as are evident from the customer’s
• account to be revealed. In other words, the disclosure should not be based on
• rumours.
• 2. It should be a statement in general. The banker should give the information about
the customer’s financial position in a general form. Terms commonly used and
• understood in the banking fraternity like ‘ordinary’, ‘fair’, ‘good’, ‘excellent’,
• ‘unsatisfactory’, ‘in the ordinary course of business’, etc., may be used for describing
• the means, credit of a customer.
• 3. Secrecy should be maintained by the recipient also. The banker should clearly state
• while giving the information that the recipient should maintain at his end absolute
• secrecy of information furnished.
PRECAUTIONS TO BE ADOPTED WHILE DISCLOSING
THE INFORMATION

• 4. Disclosure of secrecy: It is the practice among

bankers to state while sharing information about
customers with other bankers that the information was
being furnished in strict secrecy and that the banker
giving the information was not responsible and would not
be liable for the information so given and further that the
recipient authority should also treat it as confidential.
• 5. Information should not be given to persons out of
context and without proper justification. If a person who
is not at all directly concerned with a customer of the
bank, asks for information about the customer’s account,
the request from such a person is out of context and
hence the banker should not make disclosure.
 FURNISHING OF OPINION: IMPORTANT ASPECTS
• 1.An implied authority of customer is available to the
bank to disclose information about the customer to the
other bank since the customer would be undertaking
some liability direct or contingent, like has requested
for credit facilities, or would be accepting bills, or
would be a guarantor, etc.
• 2. The report should be based on factual records at
the bank. No special efforts should be made to obtain
more information about the customer for merely
submitting the report on the basis of available
information, if possible.
• 3. No personal opinion of the bank official should be
given. Bank should not volunteer information which is
not asked for.
 FURNISHING OF OPINION: IMPORTANT ASPECTS

• 4.One of the important duties of a bank is to

submit an opinion report on his customer if asked
for by fellow banker. He is also required to obtain
such report from other banks before processing
any application for credit facilities.
• 5.The bank invariably obtains opinion reports
before sanctioning credit facilities to a new
person who is maintaining deposit/advance
accounts with other banks. While obtaining
guarantees from a third party, not known to bank
or while sanctioning bills purchase/discount/book
debts facility, etc.
• 6.Banks invariably call for opinion report from
other agencies. The bank should consider the
following aspects at the time of submission of the
report.
 FURNISHING OF OPINION: IMPORTANT ASPECTS
• 7.The opinion should be given in general terms only. The
bank should not misguide/misrepresent the other bank. It
(bank) should give true opinion of the customer as held by
the bank. While indicating worth of the customer, it is
customary not to give it in figures but to couch it in certain
conventional terms used in the bank.
• 8While furnishing opinion report, the bank should stipulate
that the report is submitted without any responsibility on
the part of the bank and its officers and should also
indicate that all information so furnished should be treated
as confidential.
• 9.If the bank furnishing such report, had any bad
experience about the customer in the past, the
report should invariably convey the signal to the
fellow banker about the bad feature of the
account.