Banker Customer Relationship

Relationship between a banker and customer comes into

existence when the banker agrees to open an account in
the name of customer. The relationship between bank and
customer is based on simple contract.

Meaning of a banker

A banker is a dealer in capital or more properly a dealer

in money. He is an intermediate party between the
borrower and the lender. He borrows from one party and
lends to another.

According to H.L.Hart, “A banker or bank is a person

carrying on the business of receiving money and
collecting drafts for customers subject to the obligation
of honouring the cheques drawn upon them from time
to time by the customers to the extent of the amounts
available on their current accounts”.

According to G.Crowther, “A banker is a dealer in debt

of this own and other people”. A banker is a dealer in
capital or more properly a dealer in money. He is an
intermediate party between the borrower and the lender.
He borrows from one party and lends to another.
According to Doctor Herbert Hart, a banker or a bank is a
person carrying on the business of receiving money and
collecting data for customers subject to the obligation of
honouring available on their current accounts. According
to the banking company's ordinance 1962 banking has
been defined as accepting for the purpose of lending or
investment of deposits of money from public repayable
on demand or otherwise and withdrawals by cheques,
draft or order
Meaning of a Customer

The word customer has not been defined in English or

Pakistan’s law. In simple words a customer is such a
person to whom you extend your services in return of
consideration. A customer is a person who maintains an
account with the bank without taking into consideration
the duration and frequency of operation of his account. A
customer is a person who maintains a regular account
with the bank without taking into consideration the
duration and frequency of operation of his account. To be
a customer for any bank the individual should have an
account with the bank. The individual should deal with
the bank in its nature of regular banking business. He
should deal with the bank without consideration of the
duration and frequency of operation of his account. The
relationship between banker and customer is of utmost
importance. If is generally studied under the following
two heads one is general relationship and special
relationship

Relationship between banker and customer

The relationship between banker and customer is of

utmost importance. Now we can define the nature of
relationship that exists between a banker and customer.

According to John Paget, “The relation of a banker and

a customer is primarily that of debtor and creditor the
respective position been determined by the existing state
of the account.”

General Relationship

Debtor and Creditor

The customer becomes a creditor and the banker

becomes debtor when money is deposited in the bank.
The relationship becomes opposite i.e. a customer
become debtor and bank creditor when loan is advanced.
BANKER AND CUSTOMER. When a customer
deposits money in a bank the relationship of debtor and
creditor is established

When a customer pays in money to the credit of his

account, the banker becomes the debtor and When a bank
grants loan or other credit facilities to the customer,
relationship is reversede customer the creditor, but when
the banker makes a loan to a customer the position is
reversed, as the customer is then the debtor and the
banker the creditor. The money which a banker receives
from a customer is at the free dis posal of the banker ; he
may preserve it in his till, invest it in some security, or
lend it out to another customer ; but the customer retains
the right to demand back a similar amount, or to draw
cheques upon the banker up to that sum, the cheques
being payable either to the customer himself or to some
other person. The customer may also accept bills and
arrange with the banker that they be charged to his
account at maturity, or he may, in certain cases, make
arrangements for the banker to accept bills on his behalf.
In order to constitute a person a customer, Lord Davey
said, in Great Trestern Railway v. London and County
Bankin; Co. (1901, A.C. 414) : " I think there must be
some sort of account, either a deposit or a current account
or some similar relation." When money has lain dormant
with a banker for six years, the Statute of Limita tions no
doubt applies, as in an ordinary case of debtor and
creditor, but a banker never takes advantage of the
statute, and is always ready to repay the money upon the
demand of the customer or of his legal representatives.
(See STATUTE OF LIMITA TIONS, UNCLAIMED
BALANCES.) If a customer leaves with his banker a
parcel of securities for safe custody, the banker's position
is that of a bailee, and his liability depends. to a certain
extent, upon whether he undertakes the duty gratuitously
or for reward. The difference between a hanker as a
debtor to his customer and as a bailee may be illustrated
as follows :-1 t John Brown pays in 120 to the credit of
his account, the banker becomes Brown's debtor and is
liable to repay to Brown on demand, but until the demand
is made the banker can do what he likes with the money,
and the 120 which is ultimately repaid to Brown is not, of
course, the same coins as were originally handed by
Brown to the banker ; but if Brown gives to the banker a
sealed bag containing, say, coins to the value of 120 and
leaves it for safe custody, the hanker becomes a bailee
and must take care of the bag, as entrusted to him, and
return it, with the contents un touched, to the customer
when required. (See SAFE CUSTODY.) The position
between banker and customer may also be that of
mortgagee and mort gagor, as where a customer grants a
mort gage, for a fixed amount, to the banker. In such a
case the banker can charge simple interest only upon the
loan account. A banker and his staff are bound to secrecy
regarding the business and accounts of the customers, but
a hanker may, in certain cases, be compelled to give
evidence in a court of law

Special relationships

Principal and Agent

This relationship arises only in certain cases. When a

customer deposits draft, cheques, dividends, certificates
etc., for collection, he becomes the principal and bank
acts as his agent. In other words when a bank is
performing agency services for his customers he is acting
as their agents.

Principal & Agent Relation

In certain situations, the banker serves as agent of the
customer ( principal) some of these situations are
enumerated
below:
Collection of cheques on behalf of the .customer
Collection of dividends and bills of exchange
Acting as attorney, executor

Duties of the Agent:

Duties of agent are contained in sec 211 to 218 of the
Contract Act. Some of the important duties are
given below:
iv.To follow principal’s instructions
v.To show required skill and diligence
vi.Agent to render proper accounts
vii. Agent to pass on any benefits derived by him
Duties of the Agent:
Sec 211: Agent’s duty in conducting principal’s
business: an agent is bound to conduct the business of his
principal according to the
directions given by the principal, or, in the absence
of any such directions, according to the custom
which prevails in doing business of the same kind
at the place where the agent conducts such
business. When the agent acts otherwise, if any
loss be sustained, he must make it good to his
principal, and , if any profit accrues, he must
render accounts for it to the Principal.
Duties of the Agent:
Sec 212: Skill and diligence required from
agent
An agent is bound to conduct the business of the
agency with as much skill as is generally
possessed by persons engaged in similar business,
unless, the principal has notice of his want of skill.
The agent is always bound to act with reasonable
diligence, and to use such skill as he possesses;
and to make compensation to his principal in
respect of the direct consequences of his own
neglect, want of skill or misconduct, but not in
respect of loss or damage which are indirectly or
remotely caused by such neglect, want of skill, etc
Duties of the Agent:
Sec 213: Agent’s Duty to Render accounts:An
agent is bound to render proper accounts to his
principal on demand.
Sec 214: Agent’s duty to communicate with
principal : it is the duty of an agent, in cases of
 difficulty, to use all reasonable diligence in
communicating with his principal, and in seeking
to obtain his instructions.

Duties of the Agent:

Sec 215: Right of principal when agent deals,
on his own account in business of agency
without principal’s consent: if an agent deals on
his own account in the business of the agency,
without first obtaining the consent of his principal
and acquainting him with all material
circumstances which have come to his own
knowledge on the subject, the principal may
repudiate the transaction, if the case shows either
that any material fact has been dishonestly
concealed from him by the agent, or that the
dealings of the agent have been disadvantageous
Duties of the Agent:
Sec216: principal’s right to benefit from any
gains by agent dealing on his own account in
business of agency: if an agent, without the
knowledge of his principal, deals in the business
of the agency on his own account instead of on
account of his principal, the principal is entitled to
claim from the agent any benefit which may have
resulted to him from the transaction
Duties of the Agent:
Sec 218: agent’s duty to pay sums received for
principal:subject to such deductions, the agent is
bound to pay to his principal all sums received on
his account.
Duties of Principal
1. Payment of remuneration to the agent
2. not to prevent his agent from performing the
duties/ acts assigned to him under the contract and
for which remuneration is payable.
3. Any legitimate expenses which have been incurred
by the agent in the course of performance of his
duties are to be indemnified by the principal.
Pawner and Pawnee

A pawner is a person who pledges the goods. A pawnee is

a person to whom goods are pledged. Pawner and
Pawnee Relationship.

-- When credit facility is provided by a bank to its

customers against security
(Collateral of movable property) the
Relationship of Pledger and Pledgee is
established.
In this case:
Pledger—Customer

Bailor and bailee

Bailment means delivery of goods by one person to

another for some purpose upon a contract. When a
customer places his valuable with the bank for safe
custody he becomes bailor and the bank becomes bailee.
Bailor and Bailee Relationship:
In banker customer relationship, bailment is also an
important type of relations. It may arise in the
following situations:
Availing safe custody services ( lockers)
Pledge of stocks as security for availing credit from
bank

Mortgagor and mortgagee

When a customer takes loan from the bank and

mortgages his property with the bank, he becomes
mortgagor and bank mortgagee. Mortgagor and
Mortgagee Relationship
When credit facility is provided by the bank to a
customer against the
security(collateral) of immovable
property, the relationship of
Mortgagor and Mortgagee is
established. In this situation:
Mortgagor— Customer

Banker as executor, Trustee, Attorney

When a bank is asked to take care of any property or

investment in a particular way after the death of the client
then bank becomes executor and the client becomes
testator. When power of attorney is assigned by the court
then bank becomes attorney and client is called
executants. When a banker is asked to manage a property
under a trust the banker becomes trustee and the client
becomes author.

Financer and Fiancée

We all know that bank give loans to their clients after

accepting appropriate security. When a loan is grated or
finance is provided, bank becomes financer and client
becomes financee.

Termination of contract between a customer and

banker

The following are the circumstances under which the

relationship between the two is terminated.

Termination of relationship by a customer

A customer due to change of place, may like to close the

account with the bank.
  If the customer is not satisfied with the working of
the bank, he may then close his account the bank.
 The account is also closed on the death of a
customer. The outstanding balance is paid to the
nominee of the customer.

Termination of relationship by a banker

 If a customer keeps a very small amount in his

account which may be deemed un-remunerative by
banker.
 If customer does not responded to notice served on
him by the banker and he continuously ignore
them, then banker can close his account
 In case of the death of the customer the banker will
close his account.
 In case the customer goes mad insane, the
relationship of customer and banker automatically
terminates and the banker will close his account.
 When banker receives the notice about insolvency
of the customer, all his duties comes to an end and
the will close the account of the customer
transferring any balance in it to the official
assignee or liquidator.
 When bank receives a garnishee orders his
relationship to the customer comes to an end.
 Assignment of accounts means that customer
directs the bank to pay all his balance to any other
party. When the banker executes such an
instructions, the account is closed and relationship
comes to an end.

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State Bank of India (SBI) (NSE: SBIN, BSE: 500112,

LSE: SBID) is the largest Indian banking and financial
services company (by turnover and total assets) with its
headquarters in Mumbai, India. It is state-owned. The
bank traces its ancestry to British India, through the
Imperial Bank of India, to the founding in 1806 of the
Bank of Calcutta, making it the oldest commercial bank
in the Indian Subcontinent. Bank of Madras merged into
the other two presidency banks, Bank of Calcutta and
Bank of Bombay to form Imperial Bank of India, which
in turn became State Bank of India. The government of
India nationalized the Imperial Bank of India in 1955,
with the Reserve Bank of India taking a 60% stake, and
renamed it the State Bank of India. In 2008, the
government took over the stake held by the Reserve Bank
of India.

SBI provides a range of banking products through its vast

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$285 billion in deposits, it is a regional banking
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The State Bank of India is the 29th most reputed

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The State Bank of India is the largest of the Big Four

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Bank and HDFC Bank—its main competitors.[5] .