BANKING PRACTICE

UNIT 3
OPENING ACCOUNTS OF VARIOUS TYPES OF CUSTOMERS
1. Indian Majority Act 1875 defines the age of majority to be 18 years.
2. Section 26 of the NI Act provides that a minor may draw, endorse, deliver and negotiate a negotiable
instrument and as such, a minor can draw a cheque. The minor’s age should be above 13 years and should
be literate. No overdraft is allowed in these accounts.
3. Two minors cannot open a joint account.
4. In an HUF, the members of a family are called coparceners and the eldest male child is called Karta
(Manager), the Karta operates the account.
5. All the adult members have to sign account opening form while opening HUF account.
6. Registration of a partnership is optional (except in states of Gujarat and Maharashtra where it is
compulsory).
7. When there is an addition into the partnership, the old account can be continued ifthe balance is in
credit, else old account should be closed and a new one should be opened. This process avoids Clayton’s
Rule.
8. Death of a partner dissolves the partnership firm.
9. A public limited company – minimum 7 members, maximum unlimited members. Minimum paid up
capital of Rs 5 Lakh.
10. A private limited company – minimum 2 members, maximum 50 members. For banking business
maximum number is 20. Minimum paid up capital of Rs 1 Lakh.
11. A government company – minimum 51% of the shares are held by the government.

TYPES OF BANK DEPOSIT CUSTOMERS

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

01.Individual and Joint:

 When an account is opened in individual name, it is called as individual account. For example- an
account opened in the name of “A”
 When an account is opened in joint names, the account is called as joint account. Example – the
account in the name of “A” and “B”.
 While opening a joint account, a maximum of four individuals can jointly open an account
 In the case of joint accounts, the depositors should record the operation conditions with the bank
namely – E or S (Either or survivor); Former or survivor and Jointly
 In the case of joint account with operation condition – “E or S”, anyone of the customers can
operate the account and there is no requirement for getting concurrence of the remaining parties
 In the case of joint account with operation condition – “Jointly”, all parties should sign the
cheques or authorize the payment for withdrawal of money from the account
  In the case of joint account with operation condition – “Former or survivor”, only the first person
can operate the account and the other parties can have the right to operate the account only on the
death of the first person (former)
 Individuals can open all types of deposit accounts with the bank
02. Clubs/Associations/Charitable Institutions/Trusts:
 Clubs are bodies where like minded people join together for some specific purpose. Example –
Chess club, Ladies club, Children’s club etc., Clubs are managed by authorized persons namely;
the president, secretary and treasurer. Such persons are elected by the members of the club
through a resolution.
 Like clubs, associations are bodies formed by persons pertaining to a specific group – example:
Teachers’ association, students’ association etc., The associations are also managed by authorized
persons and the authorized persons are elected by the members through a resolution
 Trusts and charitable institutions are bodies formed with an intention to serve the public and they
are also managed by authorized persons
 At the time of opening an account with the bank by the abovementioned bodies, the copy of
resolution has to be submitted to the bank and the bankers allow operation in the accounts as per
the conditions stipulated in the resolutions in regard to banking operations.
 Clubs, associations, charitable institutions and trusts can open all types of accounts with the bank
03. Hindu Undivided family:
 Hindu Undivided family is one where more than one family exist. For example in a joint hindu
family, there can be twenty family members including children
 The family members may be having accounts in their individual names
 Apart from the individual accounts, the family as a whole can have one account in the name of
the family. These types of accounts are opened for the purpose of saving income tax
 The hindu undivided family is managed by karta and the seniormost male member in the family
occupies the position of karta
 When an account is opened in the name of hindu undivided family, the karta operates the account
 Hindu undivided family can open all types of accounts with the bank
04. Proprietorship firms:
 When business is done by one single individual it is called as a proprietorship concern
 The business firm is called as proprietorship firm and when the individual who conducts the
business is a male member, he is called as a proprietor and when the individual is a female
member, she is called as proprietrix.
 Proprietorship firms can open current account and all types of term deposits with the bank
 They are not permitted to open savings deposit account
05. Partnership firms:
 Partnership firm is one where more than one individual join together for a common business
purpose
 The do business for the purpose of earning a profit
 In a partnership firm, there can be minimum of two partners and maximum of twenty partners
 However, when the partnership firm is engaged in doing banking business, there can be
maximum of ten partners only
  Partners enter into the contract of partnership by means of an agreement called as partnership
agreement
 The partnership agreement contains the entire details about the contract between the partners in
all respects
 At the time of opening an account in the name of partnership firm, the copy of partnership deed
has to be produced to the bankers
 The partnership deed can be either registered or not registered
 It has to be registered with the Registrars of firms
 Bankers do not demand registration of the partnership deed at the time of opening a deposit
account; however, at the time of availing loan facilities with the banks, the deed has to be
registerered and such intimation has to be communicated to the bankers
06. Companies:
 Companies are perpetual bodies. They exist by means of collective efforts of different individuals
called as shareholders.
 Shareholders provide capital to the organization and they are the owners of the organization
 However, the organizations are managed by board of directors representing the body of
individuals elected by the shareholders specially for the purpose of management of the
organisation
 Companies are formed according to the terms and conditions as prescribed in Indian Companies
act 1956
 The companies are classified into private limited company and public limited company
 In the case of private limited company, the minimum members permitted are two and the
maximum members permitted are fifty
 According to the recently amended Indian Companies act 2013, the maximum members
permitted are 200
 At the time of opening an account with the bank, they have to produce the copies of the following
to the bankers – Memorandum of association, articles of association, certificate of incorporation,
certificate of commencement of business and board resolution
 Memorandum of association is termed as the parent document for the company and it consists
vital details about the company
 Articles of association contains details about the internal management of the company
 At the time of formation of the company, it has to be registered with the Registrar of companies
and it is called as the certificate of incorporation
 At the time of commencement of the company, it has to be registered with the Registrar of
companies and it is called as the certificate of commencement of business
 Decisions taken during the course of board meeting are recorded in the board resolution
07. Minors:
 Deposit accounts can be opened in the names of minors
 The accounts in the names of minors can be classified into two categories
 The account operated by the minor himself – self operated account
 The account operated by the natural guardian on behalf of the minor
 Minor is a person who has not attained the age of eighteen years as on the date of opening an
account
  When a minor is ten years and above, he can open an account with the bank without represented
by the natural guardian provided the minor is literate and is able to sign the cheques and read the
rules and regulations of the deposit account
 He is provided with a pass book and debit card
 In the case of other minors, the account is opened on behalf of the minor by the natural guardian
(Father or mother) and when the minor attains the age of eighteen he is permitted to operate the
account duly informing the bank
 Minors should not be granted any loans and the bank cannot recover any loans granted to the
loans since the minor is incompetent to enter into a contract with any person
 However, in the case of deposits held in the names of minors, when a loan has to be availed
against the security of the deposit, the natural guardian has to execute loan documents on behalf
of the minor while obtaining such loans and the proceeds should be necessarily spent for the
benefit of minor only.
08. Blind persons:
 Blind persons are also permitted to open deposit accounts with the banks
 However, as and when the blind persons are willing to do any transaction, he should be
accompanied by a literate witness
 The witness should sign the relevant forms along with the blind person
09. The illiterate persons:
 Illiterate persons are permitted to open deposit accounts with the bank
 In the case of illiterate persons, instead of signature, left hand thumb impression is obtained while
they are withdrawing funds from the accounts
 The illiterate persons are provided with pass book

TYPES OF BANK ACCOUNTS IN INDIA

1. In India, banks usually have four major types of deposit accounts – Current Account, Savings Account,
Recurring Deposit and Fixed Deposit. Recently banks have also introduced combining features of these
accounts as per customer and market requirements. But still these accounts are not popular among the
public and the traditional four accounts are considered above all.
2. CURRENT ACCOUNT Current accounts are usually for businessmen and daily transactions. It doesn’t
serve a purpose of saving your investments. The transaction facility to this account is so flexible that you
can make innumerable transactions in a day. Hence, the banks don’t pay any interest on your invested
amount but it charges certain service charges on such accounts.
3. SAVINGS ACCOUNT Savings Accounts are the most popular kind of individual accounts for personal
purpose of saving your investments and getting interest rates. Savings account provides cheque facility
along with flexibility for deposit and withdrawal of funds from your account.
4. RECURRING DEPOSIT Recurring deposits also known as RD accounts who wish to invest an
average amount of their savings on a monthly basis. These accounts gain interest on the amount available
in your account. This account is specially designed for the working public who don’t want to invest a
large amount at one instance.
5. FIXED DEPOSIT Fixed Deposits popularly known as FD are available at various schemes with a
tenure from 7 days to 10 years. This account is specially designed who want to deposit their savings for a
long term to gain good rate of interest. But the interest rate on these accounts varies from bank to bank.
Term ‘Fixed’ denotes the period of maturity or tenure.
6.What is a Demat account?
A Demat Account is an account that allows investors to hold their shares in an electronic form.
Stocks in Demat account remain in dematerialized form. Dematerialization is the process of converting
physical shares into electronic format. A demat account number is required to enable electronic
settlements of all the trades. Demat account functions like a bank account, where you hold your money
and respective entries are done in bank passbook. In a similar form, securities too are held in electronic
form and are debited or credited accordingly. A demat account can be opened with no balance of shares.
You can have a zero balance in your account.