Banker and

Customer
Relationship
MGT-404
The relationship between the banker and customer is very important. Both serve the
society to grow and the economy to expand. Before we discuss the relationship
between the banker and the customer, it seems necessary that the two terms banker
and customer are made clear.
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. A banker is the one who gets into debts and creates debts.
According to H.L. HART – the banker is one who receives money, collects cheques
and drafts, for customers, with an obligation to honor the cheques drawn by
customers from time to time subject to availability of amounts in the account.
Banker

 A banker performs multifarious functions.

 A banker essentially be a man of wisdom.
 He deals with others money but with his own faculties.
  A banker is not only acting as a depository, agent, but also as a repository of
financial advices.
 To be a banker, company’s main functions will have to be ‘business of banking’.
Customer

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.
To constitute a customer of the bank:
–One should have an account with the bank.
–One should deal with the bank in its nature of regular banking business.
–One should deal with the bank without consideration of the duration and frequency
of operation of his account.
Relationship between Customer and
Bank:
 Relationship between banks and their clients is fiduciary one.
 It is based on trust and bank has to carry out their duties to the customer in utmost
good faith and due diligence.
 Bank’s supreme responsibility lies in protecting customers deposit and secrecy
about customers.
 Banks shall be impartial and non-discriminatory in their dealings with the
customers.
 Any favor or indulgence to any one client or group of client will considered
violation of fiduciary relationship.
The relationship between the banker and customer is very important. It is generally
studied under the following two heads.
–General Relationship
–Special Relationship
General Relationship
Debtor and Creditor:

 The true relationship between banker and customer is primarily of a debtor and creditor.
 When a customer deposits money with a bank, the bank then is the debtor and the
customer is the creditor.
 The position is reversed if the customer is advanced loan then the banker becomes
creditors and the customer is debtors.

The customer expects from the bank that,

–His money will be kept safe by the bank.
 – It will be returned on demand within business hours.
 – The money will be intact and safe and will give some thing by the way of return
(interest).
Principal and Agent:

When the banker collects cheques, bills, dividend warrants, pays insurance premium,
subscriptions etc. on behalf of his customer then the agent– principal relationship
exists between a banker and his customer.
Trustee and Beneficiary:
 

A banker becomes a trustee only under certain circumstances, for example, when a
cheque is given for collection, till the proceeds are collected, he holds the cheque as a
trustee.
Bailor and Bailee:

A banker becomes a bailee when he receives gold ornaments and important

documents for safe custody. A banker does not allow any interest on these articles.
Lessor and lessee:

A banker becomes a lessor when he allows a safe deposit locker. It is only the
customer who has to pay rent for the lockers.
Mortgager and Mortgagee relationship:

Mortgage is the transfer of an interest in specific immovable property for the purpose
of securing the payment of money advanced or to be advanced by way of loan.
When a customer pledges a specific immovable property with the bank as security for
advance, the customer becomes mortgager and banker is the mortagee.
Executer, attorney, guarantor:

The bank also acts as executor, attorney and guarantor for his customer.
Special Relationship
Statutory obligation to honor cheque

When a customer opens an account there arises a contractual relationship between the banker and the
customer by virtue of which the banker undertakes an obligation to honor his customers’ cheques.
This obligation is a statutory obligation under N. I. Law.

There are some circumstances where the banker must refuse payment of the cheques if otherwise as
under:
a) When the customer countermands payments

b)  On receipt of garnishee order

c)  Receipt of notice of customer’s death.
d) Customer’s insolvency.
e) Breach of trust
f) Defective title of the party etc.
Garnishee order (order of the court)

It is the duty of the banker to abide by the order of the court (garnishee order) and
attached the funds of the customer to the creditors who has obtained the order in his
favor.
 Obligation to maintain secrecy of
accounts
This obligation continues even after the customer has closed his account with the bank and even after the
death of the customer.
Exceptions are-
a)  Legal Binding (under compulsion of law)
i) The Income Tax Act.
ii) Companies Act
iii) Banker’s Book of Evidence Act
iv) Banking regulation Act
v)  Foreign Exchange Act
vi) Bank Company Act
b)   Consent of the customer
c)   Banker’s own interest
d)   In the interest of the public.
Rights of the Banker
Right to claim incidental charges interest
etc.
Another special relationship exists between banker and customer is that the banker
may claim incidental charges including service charges, processing charges, appraisal
charges, penal charges, handling/collection charges, interest on loan and so on.
Rights of general lien

Banker has the right of general lien in respect of the amount due to him by the
customer.
Lien is a right of a person to retain that which is in his possession and which belongs
to another, until the demands of the person is possession are satisfied. Lien gives to a
person only a right to retain the possession of the goods and not the power to sell
unless such a right is expressly conferred by the statute or by custom or usage.

There are two kinds of lien: a) Particular lien

b) general lien
A particular lien confers a right to retain the goods in respect of a particular debt
involved in connection with a particular transaction.
A general lien confers a right to retain goods not only in respect of debts incurred in
connection with a particular transaction but also in respect of any general balance
arising out of the general dealing between the two parties.
Right of Set-off

A banker, like other creditors, possesses the right of set-off, which enables him to
combine two accounts in the name of the same customer and adjust the debit balance
in one account with the credit balance in the other. This right to combine two
accounts is known as the right of set-off.
Right of appropriation

If the customer has more than one loan account , the customer can direct the
repayment of the loan as credit into any other accounts. If there is no specific
directions from the customers the banker has a right to appropriate as per his choice.
Relationship Banking
A strategy used by banks to enhance their profitability. They accomplish this by
cross-selling financial products and services to strengthen their relationships with
customers and increase customer loyalty.
Relationship banking involves offering customers a broad array of financial products
and services that go beyond simple checking and savings accounts.
Relationship banking emphasizes on managing relations among depositors,
borrowers, and regulatory bodies with an ultimate object to earn sustainable growth
in banking business. It enables banks to provide a cost-effective, win-win service to
the valued customers.
Relationship manager

An employment position with the main responsibility of improving the relationship

between an organization and its clients using methods such as efficient
communication means and implementing measures to improve customer services
provided.
Customer service- A few fundamental
principles
 The best asset of a bank is a satisfied customer.
 Customer goes where it is invited and stays where it is treated well.
 The one who progresses is the one who gives a little more service, a little better
service.
 He profits most who serves best.
Customer service mantra/Myths

 The customer deserves the most courteous an attentive treatment we can give him.
 Listen more than you speak; smile more than you frown.
 Temper is luxury and a costly too; it never pays.
 Let the words ‘Thank you’, ‘ If you please’, etc. come from your heart and not
only from your mouth.
 Let courtesy, efficiency and personalized service is ever your watchwords.
 Always remember and endeavour to live up to to the bank’s ideal: ‘The Bank with
a Personal Touch’.
 Be a LEADER, not a BOSS.
Expectation of Today’s Customers

 Safety of money and investments, Regular standard income against investment and
receiving payment against account promptly at lowest cost;
 Courteous behavior and respectful replies to the queries however stupid the
questions may be. Replies should quick and may be from any distance.
 Appreciation for being good client of long standing and incentives;
 Availability of loans in times of need and speedy decision in this respect at
competitive rate of interest; - Consumer credit, credit cards etc.
 Personal Proximity cum intimacy with the banks through contacts at personal level.
 As many Types of new service facilities are offered by modern bank e.g.
withdrawal though ATM, internet, computer transactions etc. customers also expect
these facilities.
Service management myths:
How to make every Customer a Special Customer?

 S peed
 P ersonalise
 E xceed exceptions
 C ompetence
 I nformation
 A ttitude – ‘Can do’
 L ong-term relationship
Termination of relationship between a
banker and a customer
 The death, insolvency, lunacy of the customer.
 The customer closing the account i.e. Voluntary termination.
 Liquidation of the company.
 The closing of the account by the bank after giving due notice.
 The completion of the contract or the specific transaction.
 Order issued by the income Tax authorities.
 On receipt of Garnishee Order.