Banker and Customer

Relations between Banker and Customer

 The relationship between a banker and his customer depends upon the nature of service
provided by a banker.
Banking

 The term Banking is defined as ‘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.
 A banking company must perform both the essential functions
1. accepting of deposits and
2. Lending or investing the same.
If the purpose of deposits is not to lend or invest, the business will not be called
banking business.
According to sec 6, following business may be
undertaken by a banking company

 The borrowing, raising or taking of money

 The lending or advancing of money either upon security or without security
 The drawing, making , accepting , discounting, buying, selling, collecting and
dealing in bills of exchange, hundis, promissory notes, coupons, debentures,
certificates , securities
 The buying and selling of foreign exchange
 Purchasing and selling of bonds or other form of securities
 Receiving all kinds of bonds or valuables on deposit or for safe custody
Banker

 According to Halsbury Banker is “ an individual, partnership or corporation whose

sole predominating business is banking, that is, the receipt of money on current or
deposit account and the payment of cheques drawn by and the collection of
cheques paid in by a customer”.

 In India, till the passing of Banking Companies Act, 1949 , no restriction were
imposed on the use of the term ‘bank or ‘banker’ by money lenders.
customer

 A customer is a person with whom the banker has some regular and
formalized banking business. The important feature in this regard is the
nature of the transactions and not the frequency of transactions. The
dealings with the banker should be of a banking nature and regular in order to
make a person a customer of the banker.
Customer –old view Duration theory

 habit of dealing
 Frequency of transaction
 Modern view : rejection of the duration theory
 BANKER-CUSTOMER RELATIONSHIP

GENERAL RELATIONSHIP Special relationship

Debtor and Creditor Principal and agent

overdraft Trustee and beneficiary

Banker as adviser

Bailor and bailee

Others
Special features of banker-customer
relationship
RIGHTS Bankers OBLIGATION
Right of General Lien To honour cheque

Set off To maintain secrecy

Right of appropriation Not to close the account of customer

without proper notice
Law of limitation

Right to charge compound interest

Right of incidental expenses