UNIT – I

BANK – MEANING

Banks have become a part and parcel of our life. Banks cater to the needs of agriculturists,
industrialists, traders and are all the other sections of the society. They accelerate the growth of
economy.

The word, „Bank‟ is said to have derived from the French word„ Banco, or Bancus or
Banc or Banque which means a bench.
According to Banking Regulation Act,-1949,therm banking means accepting for the
purpose of lending or investment of deposits of money from the public repayable of demand (or)
order (or) other ways.

BANKER – MEANING AND DEFINITION:

A person who in doing the banking business is called a banker. But, it is not at all easy to
define the term „banker‟ precisely because a banker performs multifarious functions.

Bill of Exchange act of 1882 defines,

“The term banker thus, banker includes a body of persons whether

incorporated or not who carry on the business of banking”

SECTION 3 of the Negotiable instrument act defines that “the term banker includes a
person or a corporation or a company acting as a banker”

CUSTOMER – MEANING AND DEFINITION:

There is no exact definition or meaning for customer. But Sir. John Paget defines
that, “to constitute a customer there must be some recognizable course or habit of dealing in
nature of regular banking business.”

The following are the requisites to constitute a person and a customer,

He must have some sort of an account

Even a single transaction may constitute him as a customer Frequency

of transaction is anticipated but not insisted upon. The dealings must be
of a banking nature

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RELATIONSHIP BETWEEN BANKER AND CUSTOMER:

The relationship under two broad categories, namely

1. General relationship
2. Special relationship

1. General relationship:

I) Primary Relationship
II) Subsidiary Relationship

I) PRIMARY RELATIONSHIP (Debtor and creditor relationship)

 If customer’s account shows a credit balance, the banker becomes a debtor and the
customer becomes a creditor.

 If customer account shows a debit balance, the banker becomes a creditor and the
customer becomes a debtor.

 The banker is under an obligation to repay the debt as and when demanded by the
customer. The banker may use of deposited money of customer according to his
discretion.

The following are the aspects in which the relationship between banker and customer
differs from the ordinary debtors and creditor relationship.

1) DEMAND FOR REPAYMENT:

Banker, being a debtor, has to repay the deposits whenever there is a demand from
the customer. Hence a banker is considered to be privileged debtors.

2) DEMAND AT PROPER TIME AND PLACE:

A. Time for making demand: Payment must be made by customer during the normal
working hours on any working day of the bank. Otherwise banker will be liable.

B. Place for making payment: The demand for repayment must be made by the
customer at the branch of the bank where he is keeping the account.

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3) DEMAND IN PROPER MANNER:

The demand for repayment must be made through a cheque or any other written
order as commonly used among the bankers.

II) SUBSIDIARY RELATIONSHIP:

Trustee and beneficiary relationship: A trustee is people who holds assets and
perform certain services for the benefits of another person called the beneficiary. Points
regarding relationship are as follows;

 Ownership of the articles of deposited for safe custody.

 Such articles are not available for distribution
 Position of banker as a trustee and debtor

a) If special instructions given, banker will be trustee and debtor.

b) If special instructions are not given, the banker will be a debtor and not trustee
c) When a cheque or bill is deposited for collection, before collection the banker will be trustee.
d) When a cheque or bill is deposited for collection, after collection the banker will be debtor.

2. Agent and Principal Relationship:

In all cases, the customer is the principal and the banker is the agent. Collection of
cheques and bills, purchase and sale of securities, payment of customer’s dues like insurance
premium etc. are the service done by banker.
Nominal charges are provided by banker and a customer cannot compel a banker to
provide these services.

Special Relationship:
[I] Obligations of a Banker:

a. Obligation to honour cheque:

The banker has the obligation to honor cheques drawn on him by the customer. The following
conditions subjects to obligations.

b. Sufficiency of Funds:
There must be sufficient funds of the customer in the hands of the banker for honouring

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the cheques drawn by the former.

c. Applicability of Funds:

The funds in the account must be properly applicable to the payment of a cheque.
d. Proper requirement for payment:

The banker must honour the cheque only when he is duly required to pay.

e. No Garnishee of Attachment order:

A banker may refuse payment on a customer’s a/c when a Garnishee order has been
issued against that account.

2. Obligation to maintain secrecy of accounts:

The banker has the obligation to maintain secrecy of customer’s account otherwise
customer may to have supper loser. The following circumstances are those the banker is justified
in disclosing secrecy of customer’s account.

[i] Legal Necessity:

A banker may disclose the secrecy of customer’s account when required by low.

[ii] Banking practices:

The practices and customer aiming the bankers may also permit the disclosure of
information about the customer’s account under the following circumstances.

[a] Disclosure with customer’s consent:

A banker is justified in disclosing any information relating to his customer’s

account with the consent of the customer. Such consent may be express or implied.

[b] Disclosure with banker’s own interest:

A banker may disclose the customer’s a/c in order to protect his own interest legally.

[c] Disclosure on request by other banks:

The exchange of information [ie] credit information to other banks must be confidential.

[d] Disclosure with public interest:

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 A Banker is justified to disclose info mating relating to his customer’s a/c for public interest
in some specific cases.
[ii] Rights of a Banker:

1. Right of Lien:

Lien is a right of a person who can retain the goods of another in his possession until a
debt due to his is paid it is of two kinds:
Particular Lien: Particular property retail.
General Lien: Any property retains.

2. Right of set off:

It means that a debtor has the right to set off any amount due to his by a creditor making
payment on the creditor’s claim.

3. Right of Appropriation:
It arisen when a customer owes several debts to a banker and makes a payment which is
not sufficient to discharge all his debits.

Provisions regarding payments of appropriations are as follows:

[i] Appropriation by the debtors [sec.59]:

The creditor must apply the money received from a debtor according to his choice
when the debtor falls to exercise his option.

[ii] Appropriation by the creditor [sec.60]:

The creditor may apply the money received from a debtor according to his choice
when the debtor Falls to exercise his option.

[iii] No option of appropriation by the debtor and creditor:

If neither party has given the option to appropriate the money, the appropriation
shall be made to discharge debts in the order of time.

3. Right to charge interest, incidental charges, etc.

A banker has the right to charge interest on the advances made by his. The banker
may collect some amount from their customers as incidental charges an current accounts.
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