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1.

1 MEANING:As soon as we open an account in a bank or the banker issue a draft or we deposit our
valuables in a bank, a relationship is created with the bank at that moment. However, the
relationships are not the same in all the cases. It means that for the different functions of
banks, the nature of relationship between the banker and the customer varies. The commercial
banks, their functions, different types of banks and the role played by the banks in the
economic development of a country. Now it will be appropriate to focus on the relationship
that exists between the banker and the customer in providing the different services to the
customers.
The word customer means a person who has bank account in his name and for whom the
banker undertakes to provide the facilities, which are enormously provided by banks. It must
also be remembered that all customers do not require all the services, i.e., an ordinary saver
does not require more sophisticated financial services but his banking needs are very much
limited.
Further, a customer needs banking services in that area which he lives or works for his
livelihood. Therefore, the aim of the banks should be to bring new areas and new
classes of people within their fold in order to tap potential deposits to optimum level
by providing wide range of banking services to the needs of different classes and
sectors of society and also by improvement in the quality and efficiency of services.
Efficiency and quality can be maintained not necessarily through automation alone
but through personal approach also. Thus in providing all these services, emphasis should be
laid on the quality of services rather than the quantity or variety of services. Banks
should try to understand the psychology of their customers while dealing with them. They
should satisfy their customers well so that not only their relationship with the banks
may continue but it will also become beneficial and pay dividends in the form of attracting
new customers to the banks. Thus, the relationship between the banker and customer is
not merely of debtors and creditors but it should also embrace the super added obligation
on the part of banker to honour the customers need effectively and efficiently.
The functions and services provided by banks to their customers give rise to certain
relationship between them, with the opening of an account by the customer with a banker.the
application for opening an account is considered as aletter of agreement for establishing the
banker-customer relationship. The application for opening an account is considered as aletter
of agreement for establishing the banker-customer relationship. Deposits are lifelines of
banks. The general view is that the banker-customer relationship is mainly that of a debtor

and a creditor with certain special features.


However, today the range of banking services is more extensive and indeed is expanding all
the time. So it must be expected that other relationships will arise besides that of debtor and
creditor. For instance, the relationship of principal and agent is present when the customer
instructs his bank to buy or sell stocks on his behalf and when items are held in safe-custody
the relationship is that of bailer and bailee. Where the banks executorships service takes on
the administration of a deceaseds estate, the relationship is that of trustee and beneficiary.
Duties akin to a trusteeship might also happen when a branch comes in to possession of funds
or property that belong to a third party, as when the bank has sold property in mortgage and
has a surplus to pass to the subsequent mortgage. Obviously, the relationship with the
customer in that situation is that of a mortgagor with a mortgagee on the customer.
The roads to progress and prosperity can easily be made through friendly behavior with the
customers. If the bankers wish to develop their organizational image, they have to offer better
services and cooperation, coupled with courteous service to gain a competitive edge. So the
relationships depend on the nature of transaction and changes from customer to customer. A
bank customer may be a creditor, a beneficiary and a bailor simultaneously when he/she
deposits money, remits money by mail transfer and/or forgets a document in the bank
inadvertently(not for security of any loan/advances).
Our primary concern will be to analyse the relationship that is created between a banker and
a customer on different occasions.
This unit will be interesting as you are going to learn the different aspects of the relationships
between the banker and the customer.
Banking is a trust-based relationship. There are numerous kinds of relationship between the
bank and the customer. The relationship between a banker and a customer depends on the
type of transaction. Thus the relationship is based on contract, and on certain terms and
conditions.
These relationships confer certain rights and obligations both on the part of the banker and on
the customer. However, the personal relationship between the bank and its customers is the
long lasting relationship. Some banks even say that they have generation-to-generation

banking relationship with their customers. The banker customer relationship is fiducial
relationship. The terms and conditions governing the relationship is not be leaked by the
banker

to

third

party.

1.4 LIMITATION
Banker, businessman and even common man and women are dealing with loans and
advances. As the provisions of the limitation act,1963, a debt will become a bad debt after the
expity of 3 years from the date of the debt. The implication is that the debtor need not legally
pay the debt once 3 years are over provided there was no contract between the debtor and
creditor. But the banker is exempted from the limitation act. According to Article 122 of the
part II of the schedule to the limitation act 1963, the period of limitation for the refund of
bank deposits is 3 years with effect from the date of a customer making a demand for his
money. Sec 26 of the banking regulation act, 1949, has prescribed a period of 10 years to
consider a banking debt as bad debt. In the case of fixed deposit, a period of 10 years will be
calculated from the date of expiring of such fixed deposit. This is an advantage to the
customer. However, in the case of overdraft, the period of 3 years will commence from the
date on which it is made use of by the customer. In the case of safe custody deposit, the law
of limitation period commences from the date of demand.
The main problems is customer, services is to identify customers, expectations
and devising ways and means of meeting the reasonable ones.
banker has no general lien
1)

On safe custody deposits.

2)

On securities or bills of exchange entrusted for specific purpose.

3)

On articles lefty by mistake or negligence.

4)

On deposit account.

5)

On stolen bond.

6)

Until due date of the loan.

7)

On trust account.

8)

On title deeds of immovable properties.


Every times, a customer goes to a banker and casts a vote of confidence in him or

her. It is now up to the banker to keep faith with him.


There may be certain amount of risk involved in some of the service
expectations of customers, which can be reduced if the working of banks is based on trust,
character and capacity of the customers and staff. Lack of effective communication is also a
major problem.
There must be a two-way communication among customers, employees and will
motivate them to render satisfactory services to the customer.

CHAPTER NO.2 REVIEW OF LITERATURE


The significance of banks in modern market economies cannot be underestimated. Like any
other economy, banks have a very crucial role to play in the functioning of the markets.
Generally, the term bank and banker are used interchangeably. The bank is used strictly to
refer to the corporate body while the term banker may mean both the institution and the
individuals that work within the corporation. The relationship between a banker and a
customer depends on the activities, products or services provided by the bank to its
customers. Thus the relationship between a banker and its customers is a transactional
relationship. Banks business depends much on the strong bond with its customers. Trust
plays an important role in building healthy relationship between a banker and customer. Dr
H.L Hart, in the book, Law of Banking defines a bank/banker:
As a person or company carrying on the business of receiving money and collecting drafts for
customers subject to the obligation of honoring cheques drawn upon them from time to time
by customers to the extent of the amount available on their current account.
Section 2 of the UK Bill of Exchange Act 1882 provides that a banker is any person whether
corporate or not who carries on the business of banking. Similarly Section 258 (the
interpretation section) of the Nigerian Evidence Act 2011 defines Bank/Banker to mean a
bank licensed under the Banks and Other Financial Institutions Act Cap. B3LFN. 2004 and
includes anybody authorized under an enactment to carry on banking business.
A person becomes a customer of a bank when he goes to the bank and has an account opened
in his name, the bank accepts the money or cheque from him after which such a person
becomes entitled to be called a customer of the bank. A customer is also any person having an
account with a bank or for whom a bank has agreed to collect items and it includes a bank
having an account with another bank. This definition was held in the Court of Appeal case of
Oku V. Banigo (2003) FWLR (Pt. 175).
In Afribank Nigeria Plc V. Aminu Ishola Investment Ltd (2002) 7 NWLR (Pt. 765) 40, it was
held that the role or predominant business of bankers is the business of banking which
consists mainly in the receipt of monies on current or deposit account and the payment of
cheques issued by a customer. Therefore, the receipt of money from or on account of his
customer by a banker constitutes the banker as the debtor of the customer and the banker
undertakes to pay the money thus due from him to the customer against written orders of the

customer. Accordingly, the relationship so constituted is that of principal and agent and
therefore a cheque drawn on the banker by the customer represents the order of the principal
to his agent to pay, out of the principal's money in his hands, the amount stated on the cheque
to the payee endorsed on the cheque. See also the case of Balogun v. NBN (1978) 11 NSCC
135
Today in the economy of any country banks play a vital role. One cannot think of
the development of any nation without active assistance rendered by the banking and
financial institutions. Banking is a service industry and the bankers are expected to
give top priority to provide satisfactory service to their customers. Whether anyone is a
depositor, a borrower or any other person using other services provided by the banks,
the motto should be Customer Satisfaction.
The main thing, which a bank is providing, is service and the product of banks work
and its success depends on the range and the quality of the services it can provide to
the customers. To find out the present state of affairs and to suggest further new ways for the
next millennium, a survey of the city of certain banks in the city of Udaipur has been
undertaken. The researcher is of the opinion that there is indeed a need for proper
legislation to deal with the distinctive feature of banking business.
Prior to nationalization of the banks in July 1969, banks were very much market friendly
and even guiding the customers by giving personalized service by acting as their philosopher
and guide. But now the position is reverse and the table is turned. Thats why the public is
clamoring for the privatization of the banks to see at least the personalized service period of
the pre-nationalization era when the bankers were hearing the customers and were marketing
friendly.
Following are the instances when the bankers are unfriendly:
1. When parties go to bank, even on their own request for opening account no body helps
them.
2. There is no attitude of advance market friendliness in most of the branches and the
customers are neither even aware of the advance schemes nor do they know how to
prepare their projects or fill up the application forms.

3. Now-a-days, bankers are treating entry of customers into branch premises as a


nuisance.There who come for cash drafts are turned away. Even small notes brought by the
customers are not accepted by the banks.
If the bankers do not mend their ways and become market friendly as during the
prenationalization days, the days are not far off, the bank customer to form an association of
their own in their districts, states and at the national level to resist and control high handed
dis-service imparted across the counters to the customers in particular and at the public at
large. The banker-customer relationship is contractual. The relationship should not be merely
be of debtors and creditors, but it should also embrace the super-added obligations on the part
of the banker to humor the customers need effectively and efficiently. In this era smooth
functioning of banks depends too much on the relations between the banker and the
customers.

CHAPTER NO.3 BANK ACCOUNT AND SPECIAL TYPE OF CUSTOMERS


The relationship between a banker and a customer is of great significance. It depends upon
the services rendered by the banker to the customer. The relationship between a banker and a
customer depends on the activities; products or services provided by bank to its customers or
availed by the customer. Thus the relationship between a banker and customer is the
transactional relationship. Banks business depends much on the strong bondage with the
customer. Trust plays an important role in building healthy relationship between a banker
and customer.
Definition of banker
The Banking Regulations Act (B R Act) 1949 does not define the term banker but defines
what banking

is?

As per Sec.5 (b) of the B R Act Banking' means accepting, for the purpose of lending or
investment, of deposits of money from the public repayable on demand or otherwise and
withdrawable by cheque, draft, order or otherwise."
According to section 3 of the NI Act, 1881, banker includes any person acting as a banker
and any post office savings bank.
To sum up a banker is who
1)

Take deposit account

2)

Take current accounts

3)

Issue and pay cheques

4)

Collect cheques crossed and uncrossed for his customers.


Money lender is not considered as a banker as mere lending does not constitute banking
business. Banker is an institution which borrows money by accepting deposits from the
public

for

the

purpose

of

lending

to

those

who

are

in

need

of

money.

According to Sec. 2 of the Bill of Exchange Act, 1882, banker includes a body of persons,
whether

incorporated

or

not

who

carry

on

the

business

of

banking.

Sec.5(c) of BR Act defines "banking company" as a company that transacts the business of
banking in India. Since a banker or a banking company undertakes banking related activities
we can derive the meaning of banker or a banking company from Sec 5(b) as a body
corporate
(a)

that:

Accepts

(b) Lends
(c)

from

public.

or

Invests

(d)

deposits

Allows

the

money

withdrawals

of

so
deposits

collected
on

demand

by
or

way
by

any

of

deposits.

other

means.

Accepting deposits from the public means that a bank accepts deposits from anyone who
offers money for the purpose. Unless a person has an account with the bank, it does not
accept deposit. For depositing or borrowing money there has to be an account relationship
with the bank. A bank can refuse to open an account for undesirable persons. It is banks right
to open an account. Reserve Bank of India has stipulated certain norms Know Your
Customer (KYC) guidelines for opening account and banks have to strictly follow them.
In addition to the activities mentioned in Sec.5 (b) of B R Act, banks can also carry out
activities mentioned in Sec. 6 of the Act.
Definition of customer
The term customer is not defined by law. Ordinarily, a person who has an account in a bank
is called a customer.
The term Customer has not been defined by any act. The word customer has been derived
from the word custom, which means a habit or tendency to-do certain things in a regular
or a particular manners . In terms of Sec.131 of Negotiable Instrument Act, when a banker
receives payment of a crossed cheque in good faith and without negligence for a customer,
the bank does not incur any liability to the true owner of the cheque by reason only of having
received such payment. It obviously means that to become a customer account relationship is
must.

Account

relationship

is

contractual

relationship.

It is generally believed that any individual or an organisation, which conducts banking


transactions with a bank, is the customer of bank. However, there are many persons who do
utilize services of banks, but do not maintain any account with the bank.
Thus bank customers can be categorized in to four broad categories as under:
(a)Those who maintain account relationship with banks i.e. Existing customers.
(b)Those

who

had

account

relationship

with

bank

i.e.

Former

Customers

(c)Those who do not maintain any account relationship with the bank but frequently
visit branch of a bank for availing banking facilities such as for purchasing a
draft, encashing a cheque, etc. Technically they are not customers, as they do
not

maintain

any

account

with

the

bank

branch.

(d)Prospective/ Potential customers: Those who intend to have account relationship


with the bank. A person will be deemed to be a 'customer' even if he had only
handed over the account opening form duly filled in and signed by him to the bank
and the bank has accepted the it for opening the account, even though no
account

has

actually

been

opened

by

the

bank

in

its

books

or

record.

The practice followed by banks in the past was that for opening account there has to be an
initial deposit in cash. However the condition of initial cash deposit for opening the account
appears to have been dispensed with the opening of No Frill account by banks as per
directives of Reserve Bank of India. No Frill accounts are opened with Nil or with meager
balance.
The term 'customer' is used only with respect to the branch, where the account is
maintained. He cannot be treated as a customer' for other branches of the same bank.
However with the implementation of Core Banking Solution the customer is the customer
of the bank and not of a particular branch as he can operate his account from any branch of
the bank and from anywhere. In the event of arising any cause of action, the customer is
required to approach the branch with which it had opened account and not with any other
branch.

According to Dr. Hart, a customer is one who has an account with a banker or for whom
a banker habitually undertakes to act as such.
Thus to constitute a customer, the following essential requisites must be fulfilled:
1) He must have some sort of an account.
2) Even a single transaction constitutes a customer.
3) The dealing must be of a banking nature.
A customer need not be a person. A firm, joint stock company, a society or any separate
legal entity may be a customer. Explanation to section 45-Z of the BR Act clarifies that a
customer includes a Government department and a corporation incorporated by or under any
law.
Types of Customers Account
Introduction of the prospective customer and preliminary investigations (know your customer
KYC)
Obtaining specimen Signatures
Mandate regarding operation of Account
Allocating Account number
Preliminary investigations /Introduction of Account
Introduction of a new account refers to proper investigations about the credentials of
prospective account holder by the banker. If proper introduction not obtained it would
tantamount to negligence on the part of banker. Retention of photo copy of CNIC of Account
Holder as well as introducer of account after verifying

from originals.

Why Introduction & Preliminary Investigation:


(a). To avoid frauds
(b).Safeguard against unintended/inadvertent credits to an account by mistake, in case banker has
conducted proper preliminary investigations and obtained introduction it would be help in
follow up process

Negligence in seeking proper introduction & making necessary preliminary investigations


leads to deprivation of banker from seeking protection of law U/S 131 of Negotiable
Instruments Act 1881.
Inquiries about client (credit Reports/status inquiries) furnished by banks. In case
account opened by a banker without proper inquiriesthe bank furnishing status inquiries
/etc. may at times launch itself into trouble.

Specimen Signatures:
If forged signatures on a Cheque entertained & Cheque passed by bank--bank shall be legally
responsible to make good the loss to Account Holder
Opening of Account of an Illiterate Person:
Photograph on S.S Card
Thump impression in the presence of bank officer to be affixed.
L.T.I (Gents)
R.T.I (Ladies)
Type of Accounts:
Individuals Account
Joint Account
Minors Account
Legal Issues with respect to individuals Account:
A bankers authority to pay cheques is revoked in the following situations as per provisions
contained in section 122-A of Negotiable Instruments Act, 1881:
Countermand of payment (stop payment)
Notice of customers death
Notice of Adjudication of the Customer as insolvent
Joint Accounts
These accounts are not to be treated as partnership accounts. These are the accounts opened
in the name of two or more persons who are not partners

Operations of Joint Account:


--The mandate must bear the signatures of all the account holders.
Can be operated jointly by all the account holders
Can be operated by any one or more persons authorized to operate the account
Either or Survivor /s mandate.
Stop Payment Instructions in a Joint Account
Any one of the joint account holders can give stop payment instructions of any cheque to the
bank; however, for reinstatement of the payment of such cheque, such instructions must bear
signatures of all the account holders.
Minors Account
Minor does not have legal capacity to enter into a contract. As we know that legal
relationship between banker and his customer is a contractual relationship, as such minor is
not qualified under law to open an account. However, an account in the name of minor can be
opened when guardian of the minor shall operate this account. According to law, minor is a
person who has not attained the age of 18 years. Furthermore under section 3 of majority Act
1875, if a guardian is appointed by the court in respect of a person before he attains the age of
18 years, the majority extends to the age of 21 years.
Classified Accounts of the Customers
Partnership Account
Companies Account
Account of Clubs, Societies & Associations.
Agents Account
Trust Account
Executors & Administrators Account
Accounts of Local Bodies
Partnership Account:
Partnership is the relation between persons who have agreed to share the profits of a
business carried on by all or any of them acting for all Right to sue vests in registered firm.
Partner is treated as an agent of firm (Section 18 of Partnership Act. 1932) however; partner
has no authority to open an account on behalf of the firm (Section 19-2B)

Survivorship mandate
Joint and several mandates
Admission of new partnerresponsibilities of incoming partner start from the date of
admission unless not otherwise agreed.
Bankruptcy of a partner-- ordinarily partnership stands dissolved.
Insolvency of firmbusiness of partnership vests in official receiver appointed by court,
operations in account are stopped, personal accounts of partners are also declared inoperative.
Accounts of Companies
Documents Required:
Resolution passed by Board of Directors for opening the account
Copy of Memorandum of Association
Copy of Articles of Association
Certificate of Incorporation
Certificate of commencement of business
Balance Sheet.
Operation of the account in line with the instructions contained in the board of directors
resolution, authorized directors to operate the account.
In case of winding up of a company, bank should stop operations in the account.
Accounts of Clubs, Societies & Association
Resolution passed by managing committee/executive committee/Governing body etc.
Certified copy of by- laws/rules
Signatures of the persons authorized to operate account.
Agent Account
Agent acts on behalf of the principal.
Agent can open an account under the authority of principalbased on power of attorney.
On revocation of power of attorney operation in the account will stand inoperative.
In case death of the agent operations should be stopped immediately however, Principal can
sign the cheques and the same are honored by the banks.
Account of Trusts:

Trusts are governed by Trust Act-1882


Any person who is competent to contract may create a trust.
Opening of Account
Account is opened in the name of the Trust.
All trustees to sign account opening form.
Executors & Administrator's Account
Executor is a person who is entrusted responsibilities of executing WILL.
An administrator is a person appointed by a court to look after the estate of a person who died
without leaving a WILL or the person appointed as executor is not competent to perform the
contract (for example minors, insolvent, lunatics)
The banks must carefully study the contents of the WILL before opening an account of
Executor/Administrator.
Accounts of Local Bodies:
The accounts must be in conformity with local bodies law/rules.
The request for opening an account must be made by competent authority.

Know

Your

Customer

Guidelines

and

Customer:

Let us discuss another important aspect of banker- customer relation i.e. certain guidelines
that the banker has to follow when a customer opens accounts in the bank.. You are aware
that the relationship between the banker and the customer is created as soon as the customer
opens an account in the bank.

The RBI has issued certain guidelines for the management of the commercial banks. These
guidelines that bankers follow are known as Know Your Customer (KYC) Guidelines.
The Reserve Bank of India has issued these guidelines with the objectives of

Identifying depositors;

controlling financial frauds;

identifying money laundering and suspicious activities;

monitoring of large value cash transactions; and

preventing misuse of banking system for committing frauds.


The RBI has issued KYC guidelines for various aspects like, guidelines for new accounts,
existing customers, risk management and monitoring procedures, record keeping etc. In this
unit we will discuss the KYC Guidelines in respect of new customers and existing customers.

KYC

Guidelines

for

new

accounts-

The banker must comply with these guidelines when an individual or a corporation applies
for

opening

account

in

the

bank-

The banker must verify the identity of a customer while opening an account. The new
customer while opening an account in a bank may give reference of an existing accountholder
or the person known to the bank as reference for his identification. The banker can also verify
the identity of the customer on the basis of the documents, such as passport, driving license
etc.

supplied

by

the

new

customer.

The Board of Directors of the banks should establish proper procedure to verify the
identification of the new customer and to monitor the suspicious nature of transactions in
accounts.
KYC

Guidelines

for

existing

accounts-

In case of existing customers, it is expected that bank had adopted appropriate KYC norms
while opening the accounts. In case of any default, the required norms should be completed at
the earliest.

Ceiling and monitoring of cash transactions


As per RBI guidelines issued under Section 35 (A) of the Banking Regulation Act, 1949:
(i)Banks are required to issue travellers cheques, demand drafts, mail transfers, and
telegraphic transfers for Rs.50, 000 and above only by debit to customers accounts or against
cheques and not against cash. While purchasing travellers cheques, demand drafts, mail

transfers, and telegraphic transfers for Rs.50, 000 and above purchaser has to mention his
Permanent Income Tax Account Number (PAN) on the application.
(ii) The banks are required to keep a close watch of cash withdrawals and deposits for Rs.10
lakhs and above in deposit, cash credit or overdraft accounts and keep record of details of
these large cash transactions in a separate register. Branches of banks are required to report
all cash deposits and withdrawals of Rs.10 lakhs and above as well as transactions of
suspicious nature with full details in fortnightly statements to their controlling offices.
Bankers Fair Practice Code:
Indian Banks Association has prepared a code, which sets standards of fair banking practices.
This document is a broad framework under which the rights of common depositors are
recognized. It is a voluntary Code that promotes competition and encourages market forces to
achieve higher operating standards for the benefit of customers. The Code applies to current,
savings and all other deposit accounts, collection and remittance services offered by the
banks, loans and overdrafts, foreign-exchange services, card products and third party
products offered by banks.
DUTIES OF BANKER
1) The banker should receive the customers money and credit his account.
2) He should receive cheques and bills sent by his customer for collection and the credit his
customers account without delay.
3) He should return the deposit as per the contract; he should honour customers cheques to
the extent of his balance in the account. He should use reasonable care in paying cheques
drawn upon him by his customers, to refrain from any action likely damage his customers
reputation.
4) He should maintain the secrecy of his customers account.
5) He should observe the customers instruction as mentioned in the mandate.
6) He should give reasonable notice before combining the accounts of his customer or closing
his account.

RIGHTS OF BANKER
A banker has certain obligations to the customers. At the same time banks enjoy certain rights
also. Now we will discuss some rights of the banker in relation to the bank accounts
maintained in a bank.

Bankers lien: In sub section 11.4.2 we have discussed the creditor and debtor

relationship between the banker and the customer, where the banker is the creditor and the
customer is the debtor. This relationship arises when an amount remains due by the customer
(debtor) to the banker (creditor). The banker can exercise his right of general lien by retaining
the properties of the customer till all the dues are paid by the customer. In the absence of any
agreement to the contrary, the banker can retain any goods and securities for general balance
of accounts. However, the banker cannot exercise this right over the goods or securities
which he has received in the capacity of agent or trustee of the customer.

Rights of set- off: The right of set-off is a right to adjust the accounts between two

parties- creditor and the debtor. On the basis of right of set- off, the banker can adjust the
credit balance in the customers account against the amount due to the banker i.e. any debit
balance in the customers account. When a customer maintains two accounts in the same
capacity, the right of set- off enables the banker to combine the two accounts and adjust the
amount due from the customer. The banker can exercise this right if there is no agreement to
the contrary between them. In exercising this right, the banker must serve a notice to the
customer.

Right of appropriation: When a debtor (customer) makes payment to a creditor

(banker), the debtor can instruct the creditor to adjust the amount for discharge of a particular
debt. If the debtor does not give any instruction to the creditor regarding the adjustment, the
creditor has the right to appropriate the amount against any debt. The creditor must inform
the debtor regarding such appropriation.
.Right to charge interest, commission, incidental charges etc. :Banker has an implied right to
charge for services rendered and sold to a customer. Bank charges interest on amount
advanced, processing charges for the advance, charges for non-utilization of credit facilities
sanctioned, charges commission, exchange, incidental charges etc. depending on the terms
and conditions of advance banks charge interest at monthly, quarterly or semiannually or
annually. Banks charge customers if the balance in deposit account falls below the prescribed
amount. Usually the bank informs such charges to the customer by various means.

Rights under Garnishee Order: Generally a banker has the obligation to honour the

cheques of his customer. But in case a garnishee order is issued by the court, the banker
cannot make any payment from the account of the customer. The obligation of the banker to
honour the cheques stand suspended in that case.
Let us see how a garnishee order can affect the relationship between the banker and the
customer. Suppose Mr. A is the customer of SBI. He has taken a loan from his friend Mr. B.
But Mr. A fails to repay the loan to Mr. B and as a result Mr. B files a case against Mr. A.
Now Mr. B requests the court to issue an order on the bank of Mr. A directing the banker
(SBI) not to make any payment from the available balance in the account of Mr. A. If the
court issues such an order, it is known as Garnishee Order. Here, Mr. A (debtor) is known as
judgement debtor, Mr. B (creditor) is known as judgement creditor and the SBI is known
as garnishee
General obligations of banker towards customer
Obligation to honour cheques- banker accepts the deposits from the customer with an
obligation to repay it to him on demand or otherwise. The banker is therefore under a
statutory obligation to honour his customers cheques because, it is recognized under section
31 of the NI Act, 1881The drawee of a cheque having sufficient funds of the drawer in his hands properly
applicable to the payment of such cheque must pay the cheque when duly required so to do,
and, in default of such payment, must compensate the drawer for any loss or damage caused
by such default.
Thus the banker is bound to honour his customers cheques provided the following
conditions are fulfilled(a) Sufficient balance in customers account
(b) Presentation of cheques within working hours of business
(c) Presentation of cheques within reasonable time after ostensible date of its issue
(d) Cheques should be presented at the branch where account is kept

(e) Fulfilment of requirements of law


Obligation to maintain secrecy and disclosure of information required by law- the banker is
under an obligation to take utmost care in keeping secrecy about the accounts of the
customers since it may affect his reputation, credit-worthiness and business. It was firmly laid
down in Tournier v. National Provincial and Union Bank of England Ltd. in India it was
made compulsory after 1970. The duty to maintain secrecy will be continuing even after the
account is closed or the death of the customer. This obligation is subject to certain exceptions.
Obligation to keep a proper record of transactions- the banker must keep a proper record of
transactions of the customer. If he wrongly credits the account of the customer and intimates
him with the same and the customer acts upon the intimation bonafide and withdraws cash
the banker cannot contend that the entries were wrongly made. He shall not succeed in
recovery of money from the customer.
Obligation to abide by the instructions of the customer- the banker must abide by any
express instructions of the customer provided it is within the scope of their banker-customer
relationship. In the absence of any express instructions, the banker must according to
prevailing usages at the place where the banker conducts his business.
Customers obligations to his bank
The main customers obligations to his are:
-The customer is under the duty to exercise reasonable care when drawing his cheques, to
help prevent fraud or forgery,
-The customer must go to his bank when he requires payment; it is not the incumbent on the
banker to seek out the customer,
-Before drawing the cheques, the customer must ensure his account is put in funds to meet it,
-A customer must pay reasonable interest and commission and other charges for banking
services and this is implied when he/she opens an accout.

CHAPTER NO.4 RELATIONSHIP BETWEEN BANKER AND CUSTOMER


Classification

of

Relationship:

The relationship between a bank and its customers can be broadly categorized in to General
Relationship and Special Relationship.
If we look at Sec 5(b) of Banking Regulation Act, we would notice that banks business
hovers around accepting of deposits for the purposes of lending. Thus the relationship arising
out of these two main activities are known as General Relationship. In addition to these two
activities banks also undertake other activities mentioned in Sec.6 of Banking Regulation Act.
Relationship arising out of the activities mentioned in Sec.6 of the act is termed as special
relationship.
General Relationship:
1.Debtor-Creditor:
When a customer deposits money with his bank, the customer becomes a lender and the bank
becomes a borrower . the money handed over to the bank is a debt. The relationship between
the banker and the customer is that of a debtor and a creditor. The features of this relationship
are:a)the money is lent to the bank and the bank is free to use it in a way most beneficial to it.
The bank is not bound to keep such money intact. It is not bound to return the notes and coins
of the same denomination as it was deposited.
b)demand of payment should made by the customer. The banker is not required to repay the
debt voluntarily, unlike in the case of commercial debt.
c)demand should be made at the branch where the account exists. Except in the case of drafts,
travellers cheque, ATM/credit card etc., the bank is not required to make the payment to the
customer elsewhere (at other centres), although all the branches of a bank are constituents of
the same bank .in the above case. It was held that although the branches were agencies of one
principal bank, they were distinct for payment of customers cheques.

d)the demand should be made in a proper manner. The customer should demand payment not
verbally or by a mere telephone call but by cheque, draft, withdrawal form, order or
otherwise, further, Negotiable Instruments Act,1881,respectively.
2. CreditorDebtor
Overdrawing the account: you have come across that that the current accountholders get
overdraft facility from the bank. Under this facility the accountholder can overdraw his
account i.e. withdraw more money than the balance available in the account. In case the
accountholder overdraws the account, the relationship between the banker and the customer
gets the shape of creditor and debtor relationship- the banker is the creditor and the
accountholder (customer) is the debtor. Till the overdrawn amount is returned by the
customer, the relationship between the two continues to be of creditor and debtor. As soon as
the overdrawn amount is returned by the customer, the relationship gets its original shape i.e.
banker becomes the debtor and the accountholder becomes the creditor.
Lending money to the customer:
Lending money is the most important activities of a bank. The resources mobilized by banks
are utilized for lending operations. Customer who borrows money from bank owns money to
the bank. In the case of any loan/advances account, the banker is the creditor and the
customer is the debtor. When a bank sanctions a loan to a customer, the relationship between
the two is that of the creditor and the debtor. The creditor (banker) charges interest on the
loan till it is paid back by the customer. When the loan is paid back fully, the relationship
reverses and gets the original shape of debtor (banker) and creditor (customer).
Special

Relationship:

1.Relationship of Trustee and Beneficiary:Besides the debtor- creditor relationship between the banker and the customer, some other
types of relationships also exist between the two, depending on the services provided by the
bank.

One

of

such

relationships

is

that

of

trustee

and

beneficiary.

Perhaps you are aware that banks provide some services under which the customers can
keep their valuables like jewellery, share certificate etc. in safe custody of the bank. A trustee

holds property for the beneficiary, and the profit earned from this property belongs to the
beneficiary. If the customer deposits securities or valuables with the banker for safe custody,
banker becomes a trustee of his customer. The customer is the beneficiary so the ownership
remains with the customer.The customer remains the owner of such valuables though they are
in the custody of the banker. In this case the banker acts as trustee and the customer is the
beneficiary.
2. Relationship of Bailor and Bailee
The relationship between banker and customer can be that of Bailor and Bailee.
1.

Bailment is a contract for delivering goods by one party to another to be held in trust

for a specific period and returned when the purpose is ended.


2.

Bailor is the party that delivers property to another.

3.

Bailee is the party to whom the property is delivered.

So, when a customer gives a sealed box to the bank for safe keeping, the customer became
the bailor, and the bank became the bailee.
Banks also keeps articles, valuables, securities etc., of its customers in Safe Custody and acts
as a Bailee. As a bailee the bank is required to take care of the goods bailed.
When the customer keeps his valuable in the safe custody of the banker, the banker besides
acting as trustee also acts as bailee. In that case the customer becomes the bailor. If the
customer (bailor) suffers any loss due to the negligence of duty on the part of the banker
(bailee), the customer can file a case in the court of law for the recovery of such loss.
3. Relationship of Agent and Principal
Thus an agent is a person, who acts for and on behalf of the principal and under the latters
express or implied authority and the acts done within such authority are binding on his
principal and, the principal is liable to the party for the acts of the agent
The banker acts as an agent of the customer (principal) by providing the following agency
services:

Buying and selling securities on his behalf,

Collection of cheques, dividends, bills or promissory notes on his behalf, and

Acting as a trustee, attorney, executor, correspondent or representative of a customer.

Banker as an agent performs many other functions such as payment of insurance premium,
electricity and gas bills, handling tax problems, etc. The banker (agent) performs the
functions according to the instructions of the customer (principal) and for this the banker is
entitled to get commission from his principal.
4. Relationship of lessor and lessee
Providing safe deposit lockers is as an ancillary service provided by banks to customers.
While providing Safe Deposit Vault/locker facility to their customers bank enters into an
agreement with the customer. The agreement is known as Memorandum of letting and
attracts

stamp

duty.

The relationship between the bank and the customer is that of lessor and lessee. Banks lease
(hire lockers to their customers) their immovable property to the customer and give them the
right to enjoy such property during the specified period i.e. during the office/ banking hours
and charge rentals. Bank has the right to break-open the locker in case the locker holder
defaults in payment of rent. Banks do not assume any liability or responsibility in case of any
damage to the contents kept in the locker. Banks do not insure the contents kept in the lockers
by customers. In certain banks, this relationship is termed as licensor and licensee.
5. Relationship of Indemnifier and Indemnified
A contract by which one party promises to save the other from loss caused to him by the
conduct of the promisor himself or the conduct of any other person is called a contract of
indemnity. In the case of banking, this relationship happens in transactions of issue of
duplicate demand draft, fixed deposit receipt etc. here the bank is indemnified or indemnity
holder and customer is indemnifier. The underlying point in these cases is that either party
will compensate the other of any loss arising from the wrong/excess payment.
6. Relationship of Guarantor and guaranteeBanks give guarantee on behalf of their customers and enter in to their shoes. Guarantee is a
contingent contract.

As per sec 31,of Indian contract Act guarantee is a " contingent contract ". Contingent
contract is a contract to do or not to do something, if some event, collateral to such contract,
does or does not happen. A bank as guarantor gives guarantee to its customer by issuing a
letter of credit. It is a kind of credit facility to its customer to facilitate international trade. A
bank guarantee contains an undertaking to pay the amount without any demur on mere
demand of the principal amount on the ground for non-performance or breach of contract.
7. Relationship of Pledger and Pledgee
The relationship between customer and banker can be that of Pledger and Pledgee. This
happens when customer pledges (promises) certain assets or security with the bank in order to
get a loan. In this case, the customer becomes the Pledger, and the bank becomes the Pledgee.
Under this agreement, the assets or security will remain with the bank until a customer repays
the loan.
8. Relationship of Advisor and Client
When a customer invests in securities, the banker acts as an advisor. The advice can be given
officially or unofficially. While giving advice the banker has to take maximum care and
caution. Here, the banker is an Advisor, and the customer is a Client.
9.Relationship of Hypothecator and Hypothecatee
The relationship between customer and banker can be that of Hypothecator and Hypotheatee.
This happens when the customer hypothecates (pledges) certain movable or non-movable
property or assets with the banker in order to get a loan. In this case, the customer became the
Hypothecator, and the Banker became the Hypothecatee.
10. Other Relationships
Other miscellaneous banker-customer relationships are as follows:

Obligation to honour cheques : As long as there is sufficient balance in the account of

the customer, the banker must honour all his cheques. The cheques must be complete and in
proper order. They must be presented within six months from the date of issue. However, the
banker can refuse to honour the cheques only in certain cases.

Secrecy of customer's account : When a customer opens an account in a bank, the

banker must not give information about the customer's account to others.

Banker's right to claim incidental charges : A banker has a right to charge a

commission, interest or other charges for the various services given by him to the customer.
For e.g. an overdraft facility.

Law of limitation on bank deposits : Under the law of limitation, generally, a

customer gives up the right to recover the amount due at a banker if he has not operated his
account since last 10 years.
Rules and regulations
1. The banker-customer relationship once established it is often a long term one.(it may even
continue after the customers death, when the bank acts in the capacity of executor or trustee
of the deceased customers wealth)
2. It should always be remembered that the bank is not under legal obligation to accept every
applicant as a customer.
3. The banker must be satisfied with the responses to all inquiries before agreeing to open an
account for a prospective customer.
4. Banks will satisfy themselves about the identity of a person seeking to open an account, in
order to protect themselves, their customers and general public.
5. All banks should institute effective procedures for obtaining identification from new
customers.
Termination of the Banker Customer Relationship
The relationship between a bank and a customer ceases on:
Termination by the Customer by closing the account i.e. Voluntary termination
The customer may at any time demand full repayment of his credit balance. It is suggested
that if the customer reduces the account to a nil balance, the account should not be closed
without confirmation from the customer that this is his intention.

It would seem that a customer with an overdrawn account may not terminate the bankercustomer contract without repaying the debt. The Banking Code and the Business Banking
Code,

however,

state

that

bank

must

close

an

account

when

asked to do so.
Termination by the bank by closing of the account after giving due notice:It was stated in Joachimson that a bank may only close an account after giving reasonable
notice and making provision for outstanding cheques. In Prosperity Ltd v Lloyds Bank,19m it
was held that one month's notice was insufficient, but here the customer's banking
arrangements were unusually complex. The Banking Code and the Business Banking Code
declare that under normal circumstances a customer should be given at least 30 days' notice
before his account is closed - and this appears to include overdrawn accounts.
It has been observed that a bank's duty of secrecy survives the termination of the
contract. The customer may make claims arising from unauthorized debits (such as forged
cheques), which the customer raises for the first time after termination of the contract.
Termination by Law:
a) Death of the customer;
b) Mental incapacity of the customer
c) Bankruptcy or insolvency of bank or customer.
d) The completion of the contract or the specific transaction
The contractual relationship will generally seize to exist upon the closure of the account.
However, it should be noted that some of the obligations may still exist after the account
has been closed. As a result of the increase in electronic banking, the legal nature of the
bank-customer relationship is constantly changing. English courts and financial regulators
have had to strive for a high level of flexibility in order to keep up with the introduction
of new systems and products by financial service providers.

Banks currently operating in the UK are taking steps to do away with cheques as a result of
the introduction of Electronic Funds Transfer at Point of Sale, Faster Payments, Direct
Debits and Telegraphic Transfers among others. The flexibility of English Law is
reflected in the recent Financial Services Act 2010 which has provided for the amendment
of the Financial Services and Markets Act (FSMA) 2000. Most of the amendments by the
Financial Services Act 2010 on consumer protection provisions in the FSMA 2000 have
come about as a result of the recent global financial crisis.
Banks in Africa also seem to be emulating these trends as weve seen in Europe and America.
For instance Nigeria is working on the cashless project which hopefully will reduce the
high usage of cash and accelerate electronic transfers. The changes that have been
brought about by these new technologies would certainly have an impact on the legal
nature of the bank-customer relationship. It then follows that as long as the business of
banking keeps changing, the legal nature of the bank-customer relationship will continue
to be adapted

1. You are a customer of which bank?


SBI

ICICI

HDFC

Bank
SBI
ICICI
HDFC
OTHER

OTHER

Number of Respondents
20%
15%
0%
65%

BANK

20%

SBI

ICICI

HDFC

OTHER
15%

65%

CONCLUSION:From the above table and chart, this can be seen that out of the total respondents
every respondent having account in the OTHER bank but SBI has more
customers than ICICI and HDFC. The ICICI is also has more customers than
HDFC.

2. What is your occupation?


Self-Employed

Employee

Employer

Corporate Business

Occupation

number of respondents

self-employed

45%

employee

40%

employer

0%

corporate business

0%

others

15%

OCCUPATION
number of respondents

45%

40%

15%

0%
self-employed

employee

employer

0%
corporate business

others

Others

CONCLUSION:So it is concluded that the self-employed occupation is more than others and it
is 45%. The next occupation is employee is of 40% is also more than other three
and others occupation is of 15% are also more than other two.

3. Which type of account holder you are?


Individual

Partnership

Joint A/C

type of account holder


individual
partnership
joint a/c
other

Other

number of respondents
70%
0%
25%
5%

TYPE OF ACCOUNT HOLDER


80%
70%

70%

60%
50%
number of respondents

40%
30%
25%

20%
10%
0%

0%
individual

partnership

joint a/c

5%
other

CONCLUSION:As per the survey is concerned the individual account holder is of 70% and it is
more than the others. The joint account holder is of 25% and the other type of
account holder is of 5%.

4. Which type of account do you have with bank?


Saving
Recurring
Current

type of account

number of respondents

saving

85%

recurring

0%

current

0%

fixed

15%

Fixed

type of account

fixe d; 15%
saving

CONCLUSION:-

recurring

current
saving; 85%

fixed

From the total number of respondents is of 20 people the number of respondents


in the saving account is of 85% and it is more than the other type of account.
The fixed account is of 15% and is more than the other two account type.

5. Do you feel that the procedure to open an account with the bank was
difficult?
Yes, to a certain extent

No, it was easy

open an account

number of respondents

yes

15%

no

85%

90%
80%
70%
60%
50%

number of respondents

40%
30%
20%
10%
0%
yes

CONCLUSION:-

no

The procedure to open an account with the bank is easy, it was not difficult the
number of respondents feel. The 85% of number of respondent answered that
the procedure is easy.

6. Do you agree that minimum account limit is not high and easy to maintain?
Strongly Agree

Agree

Somewhat Agree

minimum account limit


strongly agree
agree
somewhat agree
disagree

Disagree

number of respondents
5%
80%
10%
5%

number of respondents
5%

5%

10%
strongly agree
agree
somewhat agree
disagree

80%

CONCLUSION:The total number of respondents answered that the minimum account balance is
easy to maintain. From the total number of respondents is of 20 people and 80%
number of respondents said that it is not difficult to maintain the minimum
account balance.

7. How satisfied are you with the services provided by the bank?
Very satisfied

Satisfied

Somewhat satisfied

Services
very satisfied
satisfied
somewhat satisfied
dissatisfied

number of respondents
15%
70%
15%
0%

15%

15%

70%

very satisfied

satisfied

somewhat satisfied

dissatisfied

Dissatisfied

CONCLUSION:From the above table and chart, this can be seen that out of total respondents
70% respondents have satisfied with services provided by bank. The 15%
respondents have very satisfied and 15% of respondents have somewhat
satisfied.

8. Describe the overall relationship between you and bank?


Poor

Very poor

relationship
poor
very poor
good
excellent

Good

Excellent

number of respondents
5%
0%
90%
5%

90%
80%
70%
60%
90%

50%
40%
30%
20%
10%
0%

5%
poor

5%

0%
very poor

good

number of respondents

excellent

CONCLUSION:The number of respondents answered that their relationship with bank is good.
The 5% respondents answered that their relationship is excellent and 5%
respondents answered that their relationship is poor.

9. How many times have you faced a problem related to your banking account
in the last 1 year?
Once

1-5 times

More than 10 times

Never

problems

number of respondents

once

40%

1-5 times

5%

more than 10 times

5%

never

50%

number of respondents
60%
50%
40%

50%
40%

number of respondents

30%
20%
10%
0%

once

5%
5%
1-5 times more than 10 times

never

CONCLUSION:The 50% respondents never faced a problem related to a banking account in the
last one year. The 40% respondents faced a problem at once in the last one year.
The remaining 5% respondents faced a problem one to five times and 5%
respondents faced a problem more than 10 times in the last one year.

10. Is your business handled by banking executives in a timely and efficient


manner?
Always

Sometimes

business handled
always
sometimes
rarely
never

Rarely

Never

number of respondents
25%
50%
15%
10%

50%
45%
40%
35%
30%

50%

25%
20%
15%

25%

10%

15%

5%
0%

always

sometimes

rarely

number of respondents

10%

never

CONCLUSION:The 50% respondents answered that their business handled by banking


executives in a timely and efficient manner. The remaining respondents
answered that 25%, 15% and 10% respondents business handled by banking
executives is always, rarely and never in a timely manner.

11. How long have you had these accounts in the bank?
Less than a year

1-3 years

3-8 years

More than 8 years

long accounts

number of respondents

less than a year

15%

1-3 years

20%

3-8 years

35%

more than 8 years

30%

number of respondents
40%
35%

35%

30%

30%

25%
20%
15%
10%
5%
0%

20%
15%

number of respondents

CONCLUSION:The 35% of the total number of respondents has account with the bank for 3-8
years. The 30% number of respondents has more than 8 years with the bank.
The 20% respondents have 1-3 years account with the bank. The remaining 15%
respondents have account with the bank for less than a year.

12. How would you rate your bank on a scale of 4?


Excellent

Good

bank rated
excellent
good
neutral
poor

Neutral

number of respondents
15%
75%
10%
0%

number of respondents
excellent

good

10%

75%

neutral

15%

poor

Poor

CONCLUSION:From the survey concluded that 75% total number of respondents rated that
bank is good. The 15% respondents rated excellent and remaining 10% rated the
bank is neutral.

13. Would you recommend to your acquaintances (friends, families, colleagues,


etc) to open an account with your
bank?
Yes

No

recommend to acquaintances

number of respondents

yes

80%

no

20%

number of respondents

20%
yes
no

80%

CONCLUSION:From the above chart and table, the 80% number of respondents answered yes
they will recommend to their acquaintances to open an account with their bank.
The remaining 20% respondents answered no.

14. Which of the following associations do you have with the bank?
Banking

80%

Credit cards

Loans

Investing

associations

number of respondents

banking

75%

credit cards

5%

loans

10%

investing

5%

others

5%

Others

75%

70%
60%
50%
40%
30%
20%

10%
5%

10%
0%

banking

credit cards

5%

loans
number of respondents

investing

5%

others

CONCLUSION:The 75% numbers of respondents have their banking associations with their
bank. The 10% respondents have their loan associations. The remaining 5%
each is of investing, credit cards and others associations with their bank.

15. Would you like suggest any changes or improvement in any service or any
feature of the bank

changes or improvement

number of respondents

yes

45%

no

55%

number of respondents

45%
55%

yes
no

CONCLUSION:From the above table and chart we can see that the 45% of the respondents answered yes and
the remaining 55% answered no for suggestion related to the changes or improvement in

any service or any feature of the bank.

CHAPTER NO.6 FINDINGS, SUGGESTIONS AND CONCLUSION


Suggestions
According to this report on banker customer relationship reveals various shortfalls and
suggestions from various customers. The following gives the problems are critically dealt
with and suggestions have been given which may prove fruitful in solving them, if not all,
some of problems of the customers in the banks.
1. Firstly, the commercial banks are a bit reluctant to co-operate the customers and pay less
attention to the small customers. This discourages the small customers to deposit their small
savings in banks. The mobilization of small savings is very useful for the economic
development of the nations. Hence, small customers should not be discriminated against
by the bankers and specific facilities should be provided for these so called small customers.
2. The next thing, which the customers expect from the bankers, is the quick and fair
service. The customers mainly grumble about the delay in services and the unfriendly
attitude of the employees. For this purpose highly qualified, more experienced and creative
staff that can work with complete sense of responsibility and involvement is required that can
create banking habit with the customers.
3. Customers prefer to take advances from their provident funds rather than from banks due
to high rate of interest and complicated formalities. Providing advances easily and
reducing the formalities included in getting them can solve this. At least commercial
banks should give reasonable overdrafts to their clients in turn of special need.
4. Customers get annoyed when bank employees discriminate them against by the bank
employees. Employees chat with each other while customer at the counter waiting to be
served. All this causes unnecessary delays. These drawbacks cannot be removed until and
unless inner conscience of the employees is changes. Creating and developing interest in the
employees towards their jobs and providing proper training can do it.
5. Some of the customers are not satisfied with the banking hours because the present bank
hours are colliding with their office hours. This causes inconvenience to them. This
problem can be solved by increasing the working hours of the bank or by automation of
the whole of work as done by ICICI Bank.
6. Many customers give complaints and their complaints are not being taken into
consideration, wherever the customers lodge a complaint the same should be treated
sympathetically and proper time should be taken into such complaints. Pahwa, Manvinder
Singh (2000), Customer Banker Relationship, Indian Banking in the New Millennium,
RBSA Publishers, pp 19-27
7. As previously discussed, many customers feel troubled by the bank strikes in the present
times when banks have become indispensable such irresponsible activities should end
and bank strikes should be discouraged.

Conclusions

The commercial banks play a very important role in economic development of all nations
and customers services of commercial banks play yet another very important role for
prosperity
of banks. The entire business of banking rests a harmonious relationship and mutual trust
between these two parties. It starts the moment an account is opened and ends immediately
on
the closure of the account. Further, The sound relations maintained between the two persons
are
always fruitful and beneficial for both of them.
This study of banks of Udaipur has been undertaken to assess the quality of bank service
or we can say to study the affairs regarding customer services of commercial banks with
hypothesis the qualities of the customers service in commercial banks is not satisfactory.
Quick and fair services to all the customers at all the time and is the dealing should be the
norms for the efficient customers services by banks and then only the Indian Sanskrit saying
Grahaka: Devo Bhava (Customer is God) will be satisfied.