Download VTU (Visvesvaraya Technological University) MBA 3rd Semester (Third Semester) 16MBAFM301-Principles and Practices of Banking PPB Notes Module 2 Important Lecture Notes (MBA Study Material Notes)
BANKER AND CUSTOMER
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MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
LEGAL STATUS OF NOMINEE
? The nominee cannot be the absolute owner of
the amount received by him.
? The nomination indicated that the hand which is
authorized to receive the amount.
? On the payment of which the banker will get a
valid discharge of his liability.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
LEGAL STATUS OF NOMINEE
? The nominee cannot be the absolute owner of
the amount received by him.
? The nomination indicated that the hand which is
authorized to receive the amount.
? On the payment of which the banker will get a
valid discharge of his liability.
CLOSURE OF A BANK ACCOUNT
1. Mutual agreement
2. Notice by the customer to the bank
3. Notice by the banker to the customer
4. Death / insolvency of the customer
5. Garnishee order by the court
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
LEGAL STATUS OF NOMINEE
? The nominee cannot be the absolute owner of
the amount received by him.
? The nomination indicated that the hand which is
authorized to receive the amount.
? On the payment of which the banker will get a
valid discharge of his liability.
CLOSURE OF A BANK ACCOUNT
1. Mutual agreement
2. Notice by the customer to the bank
3. Notice by the banker to the customer
4. Death / insolvency of the customer
5. Garnishee order by the court
SETTLEMENT OF DEATH CLAIMS
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MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
LEGAL STATUS OF NOMINEE
? The nominee cannot be the absolute owner of
the amount received by him.
? The nomination indicated that the hand which is
authorized to receive the amount.
? On the payment of which the banker will get a
valid discharge of his liability.
CLOSURE OF A BANK ACCOUNT
1. Mutual agreement
2. Notice by the customer to the bank
3. Notice by the banker to the customer
4. Death / insolvency of the customer
5. Garnishee order by the court
SETTLEMENT OF DEATH CLAIMS
INTRODUCTION
Banks?are?advised?to? settle?the? claims?in?respect?of?
deceased? depositors? and? release? payments? to?
survivor(s)?/?nominee(s)?within?a?period?from?the?
date? of? receipt? of? the? claim?subject? to? the?
production?of?proof?of? death?of?the?depositor?and?
suitable?identification?of?the? claim(s).?
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
LEGAL STATUS OF NOMINEE
? The nominee cannot be the absolute owner of
the amount received by him.
? The nomination indicated that the hand which is
authorized to receive the amount.
? On the payment of which the banker will get a
valid discharge of his liability.
CLOSURE OF A BANK ACCOUNT
1. Mutual agreement
2. Notice by the customer to the bank
3. Notice by the banker to the customer
4. Death / insolvency of the customer
5. Garnishee order by the court
SETTLEMENT OF DEATH CLAIMS
INTRODUCTION
Banks?are?advised?to? settle?the? claims?in?respect?of?
deceased? depositors? and? release? payments? to?
survivor(s)?/?nominee(s)?within?a?period?from?the?
date? of? receipt? of? the? claim?subject? to? the?
production?of?proof?of? death?of?the?depositor?and?
suitable?identification?of?the? claim(s).?
SETTLEMENT OF DEATH CLAIMS
? An announcement of death , production of a death
certificate or a report from a reliable source etc.,
will be sufficient notice to the Bank about the death
of the Account Holder.
? As soon as the Branch becomes aware of the death
of the A/C Holder, it will record the fact in the
relevant account in the system and stop operation in
the A/C.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
LEGAL STATUS OF NOMINEE
? The nominee cannot be the absolute owner of
the amount received by him.
? The nomination indicated that the hand which is
authorized to receive the amount.
? On the payment of which the banker will get a
valid discharge of his liability.
CLOSURE OF A BANK ACCOUNT
1. Mutual agreement
2. Notice by the customer to the bank
3. Notice by the banker to the customer
4. Death / insolvency of the customer
5. Garnishee order by the court
SETTLEMENT OF DEATH CLAIMS
INTRODUCTION
Banks?are?advised?to? settle?the? claims?in?respect?of?
deceased? depositors? and? release? payments? to?
survivor(s)?/?nominee(s)?within?a?period?from?the?
date? of? receipt? of? the? claim?subject? to? the?
production?of?proof?of? death?of?the?depositor?and?
suitable?identification?of?the? claim(s).?
SETTLEMENT OF DEATH CLAIMS
? An announcement of death , production of a death
certificate or a report from a reliable source etc.,
will be sufficient notice to the Bank about the death
of the Account Holder.
? As soon as the Branch becomes aware of the death
of the A/C Holder, it will record the fact in the
relevant account in the system and stop operation in
the A/C.
SETTLEMENT OF DEATH CLAIMS
? On receipt of notice of the death of the customer, the
banker must stop the operation of the account
because the authority of the customer terminates as
soon as he dies.
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MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
LEGAL STATUS OF NOMINEE
? The nominee cannot be the absolute owner of
the amount received by him.
? The nomination indicated that the hand which is
authorized to receive the amount.
? On the payment of which the banker will get a
valid discharge of his liability.
CLOSURE OF A BANK ACCOUNT
1. Mutual agreement
2. Notice by the customer to the bank
3. Notice by the banker to the customer
4. Death / insolvency of the customer
5. Garnishee order by the court
SETTLEMENT OF DEATH CLAIMS
INTRODUCTION
Banks?are?advised?to? settle?the? claims?in?respect?of?
deceased? depositors? and? release? payments? to?
survivor(s)?/?nominee(s)?within?a?period?from?the?
date? of? receipt? of? the? claim?subject? to? the?
production?of?proof?of? death?of?the?depositor?and?
suitable?identification?of?the? claim(s).?
SETTLEMENT OF DEATH CLAIMS
? An announcement of death , production of a death
certificate or a report from a reliable source etc.,
will be sufficient notice to the Bank about the death
of the Account Holder.
? As soon as the Branch becomes aware of the death
of the A/C Holder, it will record the fact in the
relevant account in the system and stop operation in
the A/C.
SETTLEMENT OF DEATH CLAIMS
? On receipt of notice of the death of the customer, the
banker must stop the operation of the account
because the authority of the customer terminates as
soon as he dies.
Intimation to the Nominee, if any:
? If the deceased A/C holder had appointed a
nominee, a letter will be issued to the nominee
informing him/her about the death of the account
holder.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
LEGAL STATUS OF NOMINEE
? The nominee cannot be the absolute owner of
the amount received by him.
? The nomination indicated that the hand which is
authorized to receive the amount.
? On the payment of which the banker will get a
valid discharge of his liability.
CLOSURE OF A BANK ACCOUNT
1. Mutual agreement
2. Notice by the customer to the bank
3. Notice by the banker to the customer
4. Death / insolvency of the customer
5. Garnishee order by the court
SETTLEMENT OF DEATH CLAIMS
INTRODUCTION
Banks?are?advised?to? settle?the? claims?in?respect?of?
deceased? depositors? and? release? payments? to?
survivor(s)?/?nominee(s)?within?a?period?from?the?
date? of? receipt? of? the? claim?subject? to? the?
production?of?proof?of? death?of?the?depositor?and?
suitable?identification?of?the? claim(s).?
SETTLEMENT OF DEATH CLAIMS
? An announcement of death , production of a death
certificate or a report from a reliable source etc.,
will be sufficient notice to the Bank about the death
of the Account Holder.
? As soon as the Branch becomes aware of the death
of the A/C Holder, it will record the fact in the
relevant account in the system and stop operation in
the A/C.
SETTLEMENT OF DEATH CLAIMS
? On receipt of notice of the death of the customer, the
banker must stop the operation of the account
because the authority of the customer terminates as
soon as he dies.
Intimation to the Nominee, if any:
? If the deceased A/C holder had appointed a
nominee, a letter will be issued to the nominee
informing him/her about the death of the account
holder.
Further operation in the Account:
? a) Individual A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
LEGAL STATUS OF NOMINEE
? The nominee cannot be the absolute owner of
the amount received by him.
? The nomination indicated that the hand which is
authorized to receive the amount.
? On the payment of which the banker will get a
valid discharge of his liability.
CLOSURE OF A BANK ACCOUNT
1. Mutual agreement
2. Notice by the customer to the bank
3. Notice by the banker to the customer
4. Death / insolvency of the customer
5. Garnishee order by the court
SETTLEMENT OF DEATH CLAIMS
INTRODUCTION
Banks?are?advised?to? settle?the? claims?in?respect?of?
deceased? depositors? and? release? payments? to?
survivor(s)?/?nominee(s)?within?a?period?from?the?
date? of? receipt? of? the? claim?subject? to? the?
production?of?proof?of? death?of?the?depositor?and?
suitable?identification?of?the? claim(s).?
SETTLEMENT OF DEATH CLAIMS
? An announcement of death , production of a death
certificate or a report from a reliable source etc.,
will be sufficient notice to the Bank about the death
of the Account Holder.
? As soon as the Branch becomes aware of the death
of the A/C Holder, it will record the fact in the
relevant account in the system and stop operation in
the A/C.
SETTLEMENT OF DEATH CLAIMS
? On receipt of notice of the death of the customer, the
banker must stop the operation of the account
because the authority of the customer terminates as
soon as he dies.
Intimation to the Nominee, if any:
? If the deceased A/C holder had appointed a
nominee, a letter will be issued to the nominee
informing him/her about the death of the account
holder.
Further operation in the Account:
? a) Individual A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
b) Joint A/Cs:
? If the balance is payable to the survivor(s), but it is
preferable that survivor(s) is/are advised to close the
a/c and transfer the balance to a new a/c in
his/her/their name(s).
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
LEGAL STATUS OF NOMINEE
? The nominee cannot be the absolute owner of
the amount received by him.
? The nomination indicated that the hand which is
authorized to receive the amount.
? On the payment of which the banker will get a
valid discharge of his liability.
CLOSURE OF A BANK ACCOUNT
1. Mutual agreement
2. Notice by the customer to the bank
3. Notice by the banker to the customer
4. Death / insolvency of the customer
5. Garnishee order by the court
SETTLEMENT OF DEATH CLAIMS
INTRODUCTION
Banks?are?advised?to? settle?the? claims?in?respect?of?
deceased? depositors? and? release? payments? to?
survivor(s)?/?nominee(s)?within?a?period?from?the?
date? of? receipt? of? the? claim?subject? to? the?
production?of?proof?of? death?of?the?depositor?and?
suitable?identification?of?the? claim(s).?
SETTLEMENT OF DEATH CLAIMS
? An announcement of death , production of a death
certificate or a report from a reliable source etc.,
will be sufficient notice to the Bank about the death
of the Account Holder.
? As soon as the Branch becomes aware of the death
of the A/C Holder, it will record the fact in the
relevant account in the system and stop operation in
the A/C.
SETTLEMENT OF DEATH CLAIMS
? On receipt of notice of the death of the customer, the
banker must stop the operation of the account
because the authority of the customer terminates as
soon as he dies.
Intimation to the Nominee, if any:
? If the deceased A/C holder had appointed a
nominee, a letter will be issued to the nominee
informing him/her about the death of the account
holder.
Further operation in the Account:
? a) Individual A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
b) Joint A/Cs:
? If the balance is payable to the survivor(s), but it is
preferable that survivor(s) is/are advised to close the
a/c and transfer the balance to a new a/c in
his/her/their name(s).
c) Proprietary A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
LEGAL STATUS OF NOMINEE
? The nominee cannot be the absolute owner of
the amount received by him.
? The nomination indicated that the hand which is
authorized to receive the amount.
? On the payment of which the banker will get a
valid discharge of his liability.
CLOSURE OF A BANK ACCOUNT
1. Mutual agreement
2. Notice by the customer to the bank
3. Notice by the banker to the customer
4. Death / insolvency of the customer
5. Garnishee order by the court
SETTLEMENT OF DEATH CLAIMS
INTRODUCTION
Banks?are?advised?to? settle?the? claims?in?respect?of?
deceased? depositors? and? release? payments? to?
survivor(s)?/?nominee(s)?within?a?period?from?the?
date? of? receipt? of? the? claim?subject? to? the?
production?of?proof?of? death?of?the?depositor?and?
suitable?identification?of?the? claim(s).?
SETTLEMENT OF DEATH CLAIMS
? An announcement of death , production of a death
certificate or a report from a reliable source etc.,
will be sufficient notice to the Bank about the death
of the Account Holder.
? As soon as the Branch becomes aware of the death
of the A/C Holder, it will record the fact in the
relevant account in the system and stop operation in
the A/C.
SETTLEMENT OF DEATH CLAIMS
? On receipt of notice of the death of the customer, the
banker must stop the operation of the account
because the authority of the customer terminates as
soon as he dies.
Intimation to the Nominee, if any:
? If the deceased A/C holder had appointed a
nominee, a letter will be issued to the nominee
informing him/her about the death of the account
holder.
Further operation in the Account:
? a) Individual A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
b) Joint A/Cs:
? If the balance is payable to the survivor(s), but it is
preferable that survivor(s) is/are advised to close the
a/c and transfer the balance to a new a/c in
his/her/their name(s).
c) Proprietary A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
d) Partnership A/Cs:
? The surviving partner(s) can, however, operate the A/C
for the purpose; and any cheques drawn by the surviving
partner(s) can be paid.
? Cheques drawn by the deceased partner and presented
after his death, should not be paid.
? The branches should request the surviving partner(s) to
close the a/c by drawing a cheque signed by all of them
and open a new a/c through which all further
transactions may be passed.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
LEGAL STATUS OF NOMINEE
? The nominee cannot be the absolute owner of
the amount received by him.
? The nomination indicated that the hand which is
authorized to receive the amount.
? On the payment of which the banker will get a
valid discharge of his liability.
CLOSURE OF A BANK ACCOUNT
1. Mutual agreement
2. Notice by the customer to the bank
3. Notice by the banker to the customer
4. Death / insolvency of the customer
5. Garnishee order by the court
SETTLEMENT OF DEATH CLAIMS
INTRODUCTION
Banks?are?advised?to? settle?the? claims?in?respect?of?
deceased? depositors? and? release? payments? to?
survivor(s)?/?nominee(s)?within?a?period?from?the?
date? of? receipt? of? the? claim?subject? to? the?
production?of?proof?of? death?of?the?depositor?and?
suitable?identification?of?the? claim(s).?
SETTLEMENT OF DEATH CLAIMS
? An announcement of death , production of a death
certificate or a report from a reliable source etc.,
will be sufficient notice to the Bank about the death
of the Account Holder.
? As soon as the Branch becomes aware of the death
of the A/C Holder, it will record the fact in the
relevant account in the system and stop operation in
the A/C.
SETTLEMENT OF DEATH CLAIMS
? On receipt of notice of the death of the customer, the
banker must stop the operation of the account
because the authority of the customer terminates as
soon as he dies.
Intimation to the Nominee, if any:
? If the deceased A/C holder had appointed a
nominee, a letter will be issued to the nominee
informing him/her about the death of the account
holder.
Further operation in the Account:
? a) Individual A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
b) Joint A/Cs:
? If the balance is payable to the survivor(s), but it is
preferable that survivor(s) is/are advised to close the
a/c and transfer the balance to a new a/c in
his/her/their name(s).
c) Proprietary A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
d) Partnership A/Cs:
? The surviving partner(s) can, however, operate the A/C
for the purpose; and any cheques drawn by the surviving
partner(s) can be paid.
? Cheques drawn by the deceased partner and presented
after his death, should not be paid.
? The branches should request the surviving partner(s) to
close the a/c by drawing a cheque signed by all of them
and open a new a/c through which all further
transactions may be passed.
e) Joint Hindu Family Firm A/c:-
? After?the?death?of?karta,?if?there?is?no?male?
member,?the?wife?of?karta?not?becomes?
a?karta.
? ?If?a?Karta,?leaving?behind?his?widow?and?
minor?son,?even?then,?wife?is?not?permitted?
to?become?a?karta.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
LEGAL STATUS OF NOMINEE
? The nominee cannot be the absolute owner of
the amount received by him.
? The nomination indicated that the hand which is
authorized to receive the amount.
? On the payment of which the banker will get a
valid discharge of his liability.
CLOSURE OF A BANK ACCOUNT
1. Mutual agreement
2. Notice by the customer to the bank
3. Notice by the banker to the customer
4. Death / insolvency of the customer
5. Garnishee order by the court
SETTLEMENT OF DEATH CLAIMS
INTRODUCTION
Banks?are?advised?to? settle?the? claims?in?respect?of?
deceased? depositors? and? release? payments? to?
survivor(s)?/?nominee(s)?within?a?period?from?the?
date? of? receipt? of? the? claim?subject? to? the?
production?of?proof?of? death?of?the?depositor?and?
suitable?identification?of?the? claim(s).?
SETTLEMENT OF DEATH CLAIMS
? An announcement of death , production of a death
certificate or a report from a reliable source etc.,
will be sufficient notice to the Bank about the death
of the Account Holder.
? As soon as the Branch becomes aware of the death
of the A/C Holder, it will record the fact in the
relevant account in the system and stop operation in
the A/C.
SETTLEMENT OF DEATH CLAIMS
? On receipt of notice of the death of the customer, the
banker must stop the operation of the account
because the authority of the customer terminates as
soon as he dies.
Intimation to the Nominee, if any:
? If the deceased A/C holder had appointed a
nominee, a letter will be issued to the nominee
informing him/her about the death of the account
holder.
Further operation in the Account:
? a) Individual A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
b) Joint A/Cs:
? If the balance is payable to the survivor(s), but it is
preferable that survivor(s) is/are advised to close the
a/c and transfer the balance to a new a/c in
his/her/their name(s).
c) Proprietary A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
d) Partnership A/Cs:
? The surviving partner(s) can, however, operate the A/C
for the purpose; and any cheques drawn by the surviving
partner(s) can be paid.
? Cheques drawn by the deceased partner and presented
after his death, should not be paid.
? The branches should request the surviving partner(s) to
close the a/c by drawing a cheque signed by all of them
and open a new a/c through which all further
transactions may be passed.
e) Joint Hindu Family Firm A/c:-
? After?the?death?of?karta,?if?there?is?no?male?
member,?the?wife?of?karta?not?becomes?
a?karta.
? ?If?a?Karta,?leaving?behind?his?widow?and?
minor?son,?even?then,?wife?is?not?permitted?
to?become?a?karta.
f) Trust A/cs.:-
? The Trustees have to act jointly unless there is an express
provision to the contrary in the Trust Deed.
? In case of death of any, trustee, the operation on the a/c
should be stopped unless the, relative Trust Deed confers
express powers on the surviving trustee to act.
? In the absence of any specific provision in the Trust
Deed, it is not safe for the Bank to assume that the
surviving trustees possess full powers to deal with the
A/C.
? Branches should, therefore, not allow the surviving
trustees to operate on the a/c or withdraw the balance. In
case of death of sole trustee, operation on the A/C should
be immediately stopped.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
LEGAL STATUS OF NOMINEE
? The nominee cannot be the absolute owner of
the amount received by him.
? The nomination indicated that the hand which is
authorized to receive the amount.
? On the payment of which the banker will get a
valid discharge of his liability.
CLOSURE OF A BANK ACCOUNT
1. Mutual agreement
2. Notice by the customer to the bank
3. Notice by the banker to the customer
4. Death / insolvency of the customer
5. Garnishee order by the court
SETTLEMENT OF DEATH CLAIMS
INTRODUCTION
Banks?are?advised?to? settle?the? claims?in?respect?of?
deceased? depositors? and? release? payments? to?
survivor(s)?/?nominee(s)?within?a?period?from?the?
date? of? receipt? of? the? claim?subject? to? the?
production?of?proof?of? death?of?the?depositor?and?
suitable?identification?of?the? claim(s).?
SETTLEMENT OF DEATH CLAIMS
? An announcement of death , production of a death
certificate or a report from a reliable source etc.,
will be sufficient notice to the Bank about the death
of the Account Holder.
? As soon as the Branch becomes aware of the death
of the A/C Holder, it will record the fact in the
relevant account in the system and stop operation in
the A/C.
SETTLEMENT OF DEATH CLAIMS
? On receipt of notice of the death of the customer, the
banker must stop the operation of the account
because the authority of the customer terminates as
soon as he dies.
Intimation to the Nominee, if any:
? If the deceased A/C holder had appointed a
nominee, a letter will be issued to the nominee
informing him/her about the death of the account
holder.
Further operation in the Account:
? a) Individual A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
b) Joint A/Cs:
? If the balance is payable to the survivor(s), but it is
preferable that survivor(s) is/are advised to close the
a/c and transfer the balance to a new a/c in
his/her/their name(s).
c) Proprietary A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
d) Partnership A/Cs:
? The surviving partner(s) can, however, operate the A/C
for the purpose; and any cheques drawn by the surviving
partner(s) can be paid.
? Cheques drawn by the deceased partner and presented
after his death, should not be paid.
? The branches should request the surviving partner(s) to
close the a/c by drawing a cheque signed by all of them
and open a new a/c through which all further
transactions may be passed.
e) Joint Hindu Family Firm A/c:-
? After?the?death?of?karta,?if?there?is?no?male?
member,?the?wife?of?karta?not?becomes?
a?karta.
? ?If?a?Karta,?leaving?behind?his?widow?and?
minor?son,?even?then,?wife?is?not?permitted?
to?become?a?karta.
f) Trust A/cs.:-
? The Trustees have to act jointly unless there is an express
provision to the contrary in the Trust Deed.
? In case of death of any, trustee, the operation on the a/c
should be stopped unless the, relative Trust Deed confers
express powers on the surviving trustee to act.
? In the absence of any specific provision in the Trust
Deed, it is not safe for the Bank to assume that the
surviving trustees possess full powers to deal with the
A/C.
? Branches should, therefore, not allow the surviving
trustees to operate on the a/c or withdraw the balance. In
case of death of sole trustee, operation on the A/C should
be immediately stopped.
g) Executor?s and Administrator?s A/C: -
? On the death of an executor or administrator unless
otherwise provided for the in the Will or Probate or Letter of
Administration, all the powers of the office bearers become
vested in the surviving executors or administrators.
? The a/c should be allowed to be operated by co-executor(s),
but the cheques signed by the deceased executor or
administrator and presented after notice of his death should
not be paid in the a/c.
? In case of death of a sole Executor or Administrator, it will
be necessary to obtain fresh order of the court appointing a
new Administrator.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
LEGAL STATUS OF NOMINEE
? The nominee cannot be the absolute owner of
the amount received by him.
? The nomination indicated that the hand which is
authorized to receive the amount.
? On the payment of which the banker will get a
valid discharge of his liability.
CLOSURE OF A BANK ACCOUNT
1. Mutual agreement
2. Notice by the customer to the bank
3. Notice by the banker to the customer
4. Death / insolvency of the customer
5. Garnishee order by the court
SETTLEMENT OF DEATH CLAIMS
INTRODUCTION
Banks?are?advised?to? settle?the? claims?in?respect?of?
deceased? depositors? and? release? payments? to?
survivor(s)?/?nominee(s)?within?a?period?from?the?
date? of? receipt? of? the? claim?subject? to? the?
production?of?proof?of? death?of?the?depositor?and?
suitable?identification?of?the? claim(s).?
SETTLEMENT OF DEATH CLAIMS
? An announcement of death , production of a death
certificate or a report from a reliable source etc.,
will be sufficient notice to the Bank about the death
of the Account Holder.
? As soon as the Branch becomes aware of the death
of the A/C Holder, it will record the fact in the
relevant account in the system and stop operation in
the A/C.
SETTLEMENT OF DEATH CLAIMS
? On receipt of notice of the death of the customer, the
banker must stop the operation of the account
because the authority of the customer terminates as
soon as he dies.
Intimation to the Nominee, if any:
? If the deceased A/C holder had appointed a
nominee, a letter will be issued to the nominee
informing him/her about the death of the account
holder.
Further operation in the Account:
? a) Individual A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
b) Joint A/Cs:
? If the balance is payable to the survivor(s), but it is
preferable that survivor(s) is/are advised to close the
a/c and transfer the balance to a new a/c in
his/her/their name(s).
c) Proprietary A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
d) Partnership A/Cs:
? The surviving partner(s) can, however, operate the A/C
for the purpose; and any cheques drawn by the surviving
partner(s) can be paid.
? Cheques drawn by the deceased partner and presented
after his death, should not be paid.
? The branches should request the surviving partner(s) to
close the a/c by drawing a cheque signed by all of them
and open a new a/c through which all further
transactions may be passed.
e) Joint Hindu Family Firm A/c:-
? After?the?death?of?karta,?if?there?is?no?male?
member,?the?wife?of?karta?not?becomes?
a?karta.
? ?If?a?Karta,?leaving?behind?his?widow?and?
minor?son,?even?then,?wife?is?not?permitted?
to?become?a?karta.
f) Trust A/cs.:-
? The Trustees have to act jointly unless there is an express
provision to the contrary in the Trust Deed.
? In case of death of any, trustee, the operation on the a/c
should be stopped unless the, relative Trust Deed confers
express powers on the surviving trustee to act.
? In the absence of any specific provision in the Trust
Deed, it is not safe for the Bank to assume that the
surviving trustees possess full powers to deal with the
A/C.
? Branches should, therefore, not allow the surviving
trustees to operate on the a/c or withdraw the balance. In
case of death of sole trustee, operation on the A/C should
be immediately stopped.
g) Executor?s and Administrator?s A/C: -
? On the death of an executor or administrator unless
otherwise provided for the in the Will or Probate or Letter of
Administration, all the powers of the office bearers become
vested in the surviving executors or administrators.
? The a/c should be allowed to be operated by co-executor(s),
but the cheques signed by the deceased executor or
administrator and presented after notice of his death should
not be paid in the a/c.
? In case of death of a sole Executor or Administrator, it will
be necessary to obtain fresh order of the court appointing a
new Administrator.
h) Limited Company?s A/Cs:
? Where notice of death is received in respect of a
person who is authorized to operate an A/C of a
Limited Co., outstanding cheques drawn by such
person of the Company can still be paid.
? The Board resolution submitted by the Company
regarding the operation of its A/C should be
examined by the branch to see whether any
amendment or new resolution is necessary.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
LEGAL STATUS OF NOMINEE
? The nominee cannot be the absolute owner of
the amount received by him.
? The nomination indicated that the hand which is
authorized to receive the amount.
? On the payment of which the banker will get a
valid discharge of his liability.
CLOSURE OF A BANK ACCOUNT
1. Mutual agreement
2. Notice by the customer to the bank
3. Notice by the banker to the customer
4. Death / insolvency of the customer
5. Garnishee order by the court
SETTLEMENT OF DEATH CLAIMS
INTRODUCTION
Banks?are?advised?to? settle?the? claims?in?respect?of?
deceased? depositors? and? release? payments? to?
survivor(s)?/?nominee(s)?within?a?period?from?the?
date? of? receipt? of? the? claim?subject? to? the?
production?of?proof?of? death?of?the?depositor?and?
suitable?identification?of?the? claim(s).?
SETTLEMENT OF DEATH CLAIMS
? An announcement of death , production of a death
certificate or a report from a reliable source etc.,
will be sufficient notice to the Bank about the death
of the Account Holder.
? As soon as the Branch becomes aware of the death
of the A/C Holder, it will record the fact in the
relevant account in the system and stop operation in
the A/C.
SETTLEMENT OF DEATH CLAIMS
? On receipt of notice of the death of the customer, the
banker must stop the operation of the account
because the authority of the customer terminates as
soon as he dies.
Intimation to the Nominee, if any:
? If the deceased A/C holder had appointed a
nominee, a letter will be issued to the nominee
informing him/her about the death of the account
holder.
Further operation in the Account:
? a) Individual A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
b) Joint A/Cs:
? If the balance is payable to the survivor(s), but it is
preferable that survivor(s) is/are advised to close the
a/c and transfer the balance to a new a/c in
his/her/their name(s).
c) Proprietary A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
d) Partnership A/Cs:
? The surviving partner(s) can, however, operate the A/C
for the purpose; and any cheques drawn by the surviving
partner(s) can be paid.
? Cheques drawn by the deceased partner and presented
after his death, should not be paid.
? The branches should request the surviving partner(s) to
close the a/c by drawing a cheque signed by all of them
and open a new a/c through which all further
transactions may be passed.
e) Joint Hindu Family Firm A/c:-
? After?the?death?of?karta,?if?there?is?no?male?
member,?the?wife?of?karta?not?becomes?
a?karta.
? ?If?a?Karta,?leaving?behind?his?widow?and?
minor?son,?even?then,?wife?is?not?permitted?
to?become?a?karta.
f) Trust A/cs.:-
? The Trustees have to act jointly unless there is an express
provision to the contrary in the Trust Deed.
? In case of death of any, trustee, the operation on the a/c
should be stopped unless the, relative Trust Deed confers
express powers on the surviving trustee to act.
? In the absence of any specific provision in the Trust
Deed, it is not safe for the Bank to assume that the
surviving trustees possess full powers to deal with the
A/C.
? Branches should, therefore, not allow the surviving
trustees to operate on the a/c or withdraw the balance. In
case of death of sole trustee, operation on the A/C should
be immediately stopped.
g) Executor?s and Administrator?s A/C: -
? On the death of an executor or administrator unless
otherwise provided for the in the Will or Probate or Letter of
Administration, all the powers of the office bearers become
vested in the surviving executors or administrators.
? The a/c should be allowed to be operated by co-executor(s),
but the cheques signed by the deceased executor or
administrator and presented after notice of his death should
not be paid in the a/c.
? In case of death of a sole Executor or Administrator, it will
be necessary to obtain fresh order of the court appointing a
new Administrator.
h) Limited Company?s A/Cs:
? Where notice of death is received in respect of a
person who is authorized to operate an A/C of a
Limited Co., outstanding cheques drawn by such
person of the Company can still be paid.
? The Board resolution submitted by the Company
regarding the operation of its A/C should be
examined by the branch to see whether any
amendment or new resolution is necessary.
i) Association, Society, club A/c.:
? The instructions given in respect of Limited
Company?s A/Cs shall also apply to A/Cs of
Association, Society, Club etc.
FirstRanker.com - FirstRanker's Choice
MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
LEGAL STATUS OF NOMINEE
? The nominee cannot be the absolute owner of
the amount received by him.
? The nomination indicated that the hand which is
authorized to receive the amount.
? On the payment of which the banker will get a
valid discharge of his liability.
CLOSURE OF A BANK ACCOUNT
1. Mutual agreement
2. Notice by the customer to the bank
3. Notice by the banker to the customer
4. Death / insolvency of the customer
5. Garnishee order by the court
SETTLEMENT OF DEATH CLAIMS
INTRODUCTION
Banks?are?advised?to? settle?the? claims?in?respect?of?
deceased? depositors? and? release? payments? to?
survivor(s)?/?nominee(s)?within?a?period?from?the?
date? of? receipt? of? the? claim?subject? to? the?
production?of?proof?of? death?of?the?depositor?and?
suitable?identification?of?the? claim(s).?
SETTLEMENT OF DEATH CLAIMS
? An announcement of death , production of a death
certificate or a report from a reliable source etc.,
will be sufficient notice to the Bank about the death
of the Account Holder.
? As soon as the Branch becomes aware of the death
of the A/C Holder, it will record the fact in the
relevant account in the system and stop operation in
the A/C.
SETTLEMENT OF DEATH CLAIMS
? On receipt of notice of the death of the customer, the
banker must stop the operation of the account
because the authority of the customer terminates as
soon as he dies.
Intimation to the Nominee, if any:
? If the deceased A/C holder had appointed a
nominee, a letter will be issued to the nominee
informing him/her about the death of the account
holder.
Further operation in the Account:
? a) Individual A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
b) Joint A/Cs:
? If the balance is payable to the survivor(s), but it is
preferable that survivor(s) is/are advised to close the
a/c and transfer the balance to a new a/c in
his/her/their name(s).
c) Proprietary A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
d) Partnership A/Cs:
? The surviving partner(s) can, however, operate the A/C
for the purpose; and any cheques drawn by the surviving
partner(s) can be paid.
? Cheques drawn by the deceased partner and presented
after his death, should not be paid.
? The branches should request the surviving partner(s) to
close the a/c by drawing a cheque signed by all of them
and open a new a/c through which all further
transactions may be passed.
e) Joint Hindu Family Firm A/c:-
? After?the?death?of?karta,?if?there?is?no?male?
member,?the?wife?of?karta?not?becomes?
a?karta.
? ?If?a?Karta,?leaving?behind?his?widow?and?
minor?son,?even?then,?wife?is?not?permitted?
to?become?a?karta.
f) Trust A/cs.:-
? The Trustees have to act jointly unless there is an express
provision to the contrary in the Trust Deed.
? In case of death of any, trustee, the operation on the a/c
should be stopped unless the, relative Trust Deed confers
express powers on the surviving trustee to act.
? In the absence of any specific provision in the Trust
Deed, it is not safe for the Bank to assume that the
surviving trustees possess full powers to deal with the
A/C.
? Branches should, therefore, not allow the surviving
trustees to operate on the a/c or withdraw the balance. In
case of death of sole trustee, operation on the A/C should
be immediately stopped.
g) Executor?s and Administrator?s A/C: -
? On the death of an executor or administrator unless
otherwise provided for the in the Will or Probate or Letter of
Administration, all the powers of the office bearers become
vested in the surviving executors or administrators.
? The a/c should be allowed to be operated by co-executor(s),
but the cheques signed by the deceased executor or
administrator and presented after notice of his death should
not be paid in the a/c.
? In case of death of a sole Executor or Administrator, it will
be necessary to obtain fresh order of the court appointing a
new Administrator.
h) Limited Company?s A/Cs:
? Where notice of death is received in respect of a
person who is authorized to operate an A/C of a
Limited Co., outstanding cheques drawn by such
person of the Company can still be paid.
? The Board resolution submitted by the Company
regarding the operation of its A/C should be
examined by the branch to see whether any
amendment or new resolution is necessary.
i) Association, Society, club A/c.:
? The instructions given in respect of Limited
Company?s A/Cs shall also apply to A/Cs of
Association, Society, Club etc.
j) Accounts operated by a holder of Power of
Attorney or Letter of Mandate:
? Upon the death of the principal, the authority of
Attorney or Mandate holder stands cancelled.
? The operation on the a/c should be immediately
stopped and no cheques signed by Attorney/Mandate
holder should be paid after receipt of notice of death
of the Principal.
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MODULE 2
BANKER AND CUSTOMER
OUTLINE:
Banker and Customer
1) Types of relationship between banker and customer
2) Bankers obligation to customers
3) Right of lean, set off, appropriation
4) Banker legal duty of disclosure and related matters
Customers accounts with banks
1) Opening- operation ? KYC norms and operation
2) Types of accounts and customers
3) Nomination
4) Settlement of death claims
The Negotiable Instrument Act 1881:
1) The paying Bank and The collecting Banker
2) Negligence
3) Bills of Exchange and Promissory Note
4) Discharge of Negotiable Instrument and Hundis
WHO IS A BANKER?
Accepts deposits from the public ( repayable on
demand or otherwise)
Uses deposits for lending
- As per section 5(b) of BR act 1949
WHO IS A CUSTOMER?
As for as banking transaction concerned,
- Customer is a person whose money has been
accepted on the footing that the banker will
honor drawings up to the amount standing to his
credit irrespective of his connection being short
or long standing.
Types of relationship between banker
and customer
? Commencement of primary general relationship
? The primary general relationship between a
banker and a customer starts from the time the
customer opens a bank account by depositing
money.
RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
The primary relationship, which flows from the essential function
of a bank is of debtor creditor or vice versa.
But depending on the other functions several other relationship
may also exist.
They are:
1) Debtor and Creditor
2) Trustee and Beneficiary
3) Agent and Principal
4) Bailee and Bailor
5) Lessor and Lessee
1) DEBTOR & CREDITOR
? When the bank accept the deposits, it becomes debtor and the
depositor a creditor irrespective of the fact the bank pays
interest or not.
? Some features:
? The customer cannot claim the same notes or coins back
? For repayment the creditor must raise demand.
? Demand must be made by the customer in a prescribed manner
only at the branch at which the account is maintained and also
within normal business hours on working day only.
? When the customer over draws his account, the customer
becomes debtor and banker becomes creditor.
2) TRUSTEE & BENEFICIARY
? Bank may also act as trustee.
? The position of bank will be that of a trustee when,
? 1) a person having no account with a bank, deposit a
money with instruction to retain it till further instruction.
? 2) the customer instruct a bank to debit his account or
deposit an amount for utilising it for a specific purpose
for remitting to other branch.
? A banker becomes the trustee of his customer,
when he is entrusted with some trust work. For
instance, when a customer deposits a certain sum
of money with the banker with specific
instructions to use the same for a specific
purpose, the bankers becomes the trustee of the
customer in respect of that money until that
purpose is fulfilled.
3) AGENT & PRINCIPAL
? When a banker undertakes agency services such as
collection cheques, drafts & bills, collection of
interest and dividends on securities, payment of
premium and subscriptions, purchase and sale of
securities, etc, for a customer, he becomes the
agent and the
? customer becomes the principal.
AGENT AND PRINCIPAL
? As an agent the banker owes some duties to
the customer they are:
? He is required to act in accordance with the
instruction of the principal, i.e. the customer.
? He is bound to return to the customer all the
incomes which he earns as an agents of the
customer.
4) BAILEE & BAILOR
? When the bank accepts article for safe custody, its legal
position is that of bailee, who is duty bound to take us much
care of duty bailed to him.
? Bailee has right of particular lien in terms of section 170
Indian contract act, which says that bank has right goods
bailed until he receives remuneration for his services rendered
in respect of them, unless there is no contract to the contrary.
In Simple words?
? When a banker accepts valuable and
documents form a customer for safe custody,
he becomes a bailee and the customer becomes
a bailer.
As a bailee, the banker owes some duties and liabilities to the
customer. They are:
a) He is required to safeguard the safe custody deposits of the
customer in his hands with reasonable care.
b) It he fails to take reasonable care in the preservation of the safe
custody deposits and the customers suffers loss as a consequence; he
becomes liable to compensate the customer for the loss.
In this context, it should be noted that the banker is liable only for
the losses arising out of his negligence and not for those losses
arising out of reasons beyond his control, such as fire, burglary, etc.
this is because, a banker is only a bailee and not an insurer of the
safe custody deposits left with him.
c) He is required to handover the safe custody deposits to the
depositor, whenever he demands them back.
Bailor And Bailee
5) LESSOR & LESSEE
? On hiring out of locker, bank becomes lessor and the
hirer a lessee and the relationship is that of landlord and
tenant.
? The lessor is not responsible for any loss or damage
suitable clause to the effect is also incorporated in the
lease deed and hireres are advised, in their own interest
to insure their valuables deposited in locker.
OBLIGATIONS/ DUTIES OF A BANKER
? Primary duty - Honour cheque of its customer subject to certain conditions. (
Under section 31 of NI act)
? An account cannot be closed unilaterally.
? Erroneous credit.
? Pass book/statement of accounts.
? A banker is obliged to maintain the secrecy of the state of accounts, even
after closure of the accounts, unless required to do so by,
1) by law
2) in bank?s interest
3) as per consent of the customer
? The bank is responsible for the fraud committed by its employees.
? An instrument with the forged signature is no mandate at all and hence bank
cannot debit its customer account in such case.
? While giving SI, the customer undertakes to maintain suffient balance in the
account, if not the bank should inform customer and discontinue the SI.
RIGHT OF BANKER:
? Bankers Lien
? Right of Set Off
? Right of Appropriation
? Right to charge the interest
? Right to charge the service charges.
BANKERS LIEN:
? In term of section 171 of Indian Contract Act, a banker may, in
absence of a contract to the contrary, retain as security for a
general balance of account any goods bailed to them.
? Lien means right to retain goods in possession (but not to sell)
until debit is discharged.
? Bankers right of general lien is applicable only over goods and
services received during normal course of business but not over
those goods received for a specific purpose as an agent or as a
trustee etc..
LIEN
? ?Lien,??a?right?to?keep?in?possession,?the?movable?
goods?belonging?to?another?person,?till?the?time?the?
debt?owed?by?that?person?is?realized.?
? It?can?be?classified?as?the?general?lien?and?particular?
lien.?When?one?party?is?entitled?to?retain?the?goods?
belonging?to?another?party,?until?all?the?dues?are?
discharged,?is?called?general lien.
? ?In?contrast,?particular lien?implies?the?right?of?
retention?of?specific?goods,?until?the?claims?related?to?
those?goods?are?realized.
RIGHT OF SET OFF:
? Banker has right to combine two or more
accounts.
? If one of them is in the debt of customer in the
same name and same right.
? Account really belonging to same persons, but in different
names can be combined. thus an account of sole
proprietorship concern can be combined with that in his
personal name.
? two accounts, of solicitor, one in his personal name and other
marked clients account cannot combined.
? Two accounts one belonging to an individual and other jointly
with someone, cannot be combined.
? The right can be exercised only when debt is due.
? The right can be exercised only after giving due notice.
? The right may be exercised before the garnishee order is made
effective.
Right of Appropriation
? If a customer has more than one account and
while making certain deposit does not instruct
as to how the deposit be appropriated, the
banker may appropriate the amount as per the
discretion.
? Thus, a deposit without specifying the account
which is meant, may be created to an account
of the customer showing debt balance.
CLAYTON?S RULE
? In case of multiple debts, credit will be
appropriated:
?To discharge of the particular debt as per the
instructions of the debtor.
?If the debtor does not intimate or the circumstances
do not indicate, as per the discretion of the creditor.
?When neither party indicates, to discharge of debts
in order of time.
?First to discharge of interest and then principal in
chronological order.
Right to charge interest, service charges etc
? When a banker grants an advance to a
customer, he becomes the creditor of the
customer.
? When he is creditor of the customer, the
banker has an implied right to charge
interest on the customer by virtue of
banking custom.
BANKERS LEGAL DUTY OF DISCLOSURE:
? Bankers books evidence act 1891
? Code of civil/criminal procedure
? Company act 1956
? Tax laws
? RBI Act
(Refer Introduction to Banking By Vijayaragavan
Iyengar Page no: 76)
CUSTOMERS ACCOUNTS
WITH BANK
GENERL PRECAUTIONS TO
OPEN AN ACCOUNT
? Application Form
? Specimen Signature
? Letter Of Introduction
? Interview
? Account in cash
? Mandate in writing
? Verification of documents
? Conversant with the provisions of special acts
? Pay-in-slip, cheque book and pass book
? Passport size photograph
? KYC
Different types of Accounts
? Savings Bank Account
? Current Deposit Account
? Fixed Deposit Account
? Recurring Deposit Account
Different types of Customers
1. Hindu undivided family
2. Married women
3. Pardanshin lady
4. Illiterate persons
5. Blind persons
6. Insolvent persons
7. Insane person
8. Intoxicated
9. Executors and administrators
10. Liquidator, receiver/assignee
11. Trusts
12. Societies and clubs
13. Minors
14. Agent/attorney
15. Joint accounts
16. Partnership firms
17. Joint stock companies
ACCOUNTS OF SINGLE INDIVIDUALS
? This is purely a personal account in the name of
an individual and is normally operated upon by
the individual account holder itself.
? He may authorise the another person to operate
by giving power of attorney.
? And in order to avoid legal complications after
the death it is desirable to obtain proper
nomination.
? Individual should be major.
? Should be of sound mind.
JOINT ACCOUNTS OF AN
INDIVIDUAL
? Joint accounts of more than one individual
is opened for operational convenience or to
avoid legal complication after death one of
the joint account holders.
KYC
KNOW YOUR CUSTOMER
MEANING:
? It is a process by which banks obtain
information about the identity and address of
the customers.
? This process helps to ensure that banks
services are not misused.
? The KYC procedure is to be completed by the
banks while opening accounts and also
periodically update the same.
? Reserve Bank of India has advised banks to
make the KYC procedures mandatory while
opening and operating the accounts and has
issued the KYC guidelines under section 35(A)
of the Banking Regulations Act, 1949
? RBI introduced KYC guidelines for all banks in
2002.
WHAT KYC MEANS?
? CUSTOMER: One who maintains an account,
establishes business relationship.
? YOU: who should know?
Branch Manager, Audit Officer, Monitoring
officials.
? KNOW: What you should know?
True identity, registered and administrative
address, source of funds, nature of business etc
WHEN DOES KYC APPLY?
? Opening a new account
? In respect of account where documents as per current
KYC standards have not been submitted while opening
the initial account.
? Opening a locker facility where these documents are not
available.
? When the bank feels it is necessary to obtain additional
information.
? When there are changes to signatories, mandate holders,
beneficial owners etc.
ADVANTAGES OF KYC
? Safety and soundness of banks
? Help to protect bank reputation and the integrity
? Essential part of sound risk management
KEY ELEMENTS OF KYC POLICY
? Customer Acceptance policy
? Customer Identification Procedure
? Monitoring of Transactions
? Risk Management
CUSTOMER ACCPTANCE POLICY
? No accounts is opened in anonymous
? Parameters are risk perception are clearly defined
? Documentation requirements and other information
to be collected
? Circumstances, in which a customer is permitted to
act on behalf of another person should be clearly
spelt out.
CUSTOMER ACCPTANCE POLICY
? The Bank will:
? Classify customers into various risk categories.
? Accept customer after verifying their identity as laid
down in Customer Identification procedure.
? Not open an account in the name of
anonymous/fictitious/benami persons.
CUSTOMER IDENTIFICATION PROCEDURES
? The policy approved by the Board of banks
should clearly spell out the customer
identification Procedure to be carried out
different stages:
? While establishing a banking relationship
? Carrying out a financial transaction
? When bank has doubt about the authenticity or
the adequacy of the previously obtained customer
identification data.
CUSTOMER IDENTIFICATION PROCEDURES
LEGAL NAME AND ANY OTHER NAMES USED Passport
PAN card
Voter identity card
Driving licence with photograph
Identity card
Letter from the recognized public authority to open
account
Confirmation/letter from employer
CURRENT PERMANENT ADDRESS Telephone bill
Bank account statement
Electricity bill
Ration card
ACCOUNTS OF COMPANIES
-NAME
-PLACE
-MAILING ADDRESS
-TELEPHONE
CERTIFICATE OF INCORPORATION AND MOA
AND AOA
COPY OF PAN
ACCOUNT OF PARTNERSHIP FIRMS
-LEGAL NAME
-ADDRESS
-NAMES OF ALL PARTNERS AND ADDRESS
TELEPHONE NUMBER
REGISTRATION CERTIFICATE
PARTNERSHIP DEED
POWER OF ATTORNEY
ANY OFFICIAL DOCUMENT
? Photograph
? Risk perception
? High risk category
? Medium risk category
? Low risk category
? Negligible risk category/ applicability of
reduced KYC procedure
MONITORING OF TRANSACTIONS
? Monitoring of transactions will be conducted by
taking into consideration the risk profile of the
account.
? Special attention will be paid to all complex,
unusually transactions.
? Which have no apparent logical or visible lawful
purpose.
? Branches would be maintaining a close watch on
cash transactions of Rs.10 lakhs and above.
RISK MANAGEMENT
? Internal audit shall specifically check and
verify the application of KYC procedures at
the branches and comment on the lapses
observed will be put up before the Audit
committee of the Board at quaterly intervals.
NOMINATION
MEANING
? Nomination is a facility that enables a deposit
account holder(s) (individual or sole proprietor)
or safe deposit locker holder(s) to nominate an
individual, who can claim the proceeds of the
deposit account(s) or contents of the safe
deposit locker(s), post the demise of the original
depositor(s) or locker holder(s).
NOMINATION ARE AVAILABLE FOR
? Nomination is available to safe custody articles,
bank deposits, bank safe locker facilities.
? There can be one nominee for the deposit
account held whether singly or jointly.
? There can be two nominees for jointly held
lockers.
? The nomination facility enables the bank to make
payment to the nominee of a deceased depositor of
the amount standing credit of the depositor.
I. Return to the nominee, the articles left in the
bank?s custody by a deceased person.
II. Release to the nominee of the hirer, the contents
of a safe deposit locker in the event of the death
of the hirer.
SILENT FEATURES OF NOMINATION
? Nomination is made only in favour of individual
not in favour of trust or societies.
? Nomination can be made in favour one person only.
? It can be made in existing or new accounts and it
can be cancelled or changed subsequently by the
depositor.
? Government deposit schemes allows more than one
nominee in their accounts, such as PPF, Sukanya
samruddi scheme , PF, Gratuity etc..
WHO CAN NOMINATE?
? Bank account holders having deposit accounts in their individual
names or in joint names of two or more individuals can appoint a
nominee to their accounts.
A sole proprietor can appoint a nominee to the sole proprietorship
account with the bank.
? In the case of a deposit account in the name of a minor, nomination
shall be made by a person lawfully entitled to act on behalf of the
minor in respect of a deposit account.
? Safe deposit locker holder(s) can appoint nominee(s) on their Safe
deposit locker(s).
? A nomination can be made only in respect of a deposit account which
is held in the individual capacity of the depositor, and not in any
representative capacity such as the holder of an office like Director of
a Company, Secretary of an Association, partner of a firm, or Karta of
an HUF.
HOW TO NOMINATE?
? Specific forms are provided for availing of
nomination facility.
? The account holder will have to fill in the
relevant form.
? The bank will acknowledge in writing to the
concerned account holder the receipt of
nomination form.
? And the nomination will be registered in the
books of bank.
FEATURES OF THE NOMINATION FACILITY:
? Nomination facility is available to a/c holders having current accounts,
savings account and all types of term deposits.
? Nomination can be made in favor of one person only.
? The depositor has the option to execute mandate authorizing the bank
to indicate the name of the person in the pass book.
? Nomination favoring the minor is permitted on the condition that the
a/c holder, while making the nomination, appoints another individual,
not being minor, to receive the amount of the deposit on behalf of the
nominee, in the event of the death of the depositor.
? A nomination will continue to be in force even on renewal of a term
deposit unless specially cancelled or changed.
? In case of joint accounts, on the death of one depositor, the surviving
depositor can change or cancel the nomination.
LEGAL STATUS OF NOMINEE
? The nominee cannot be the absolute owner of
the amount received by him.
? The nomination indicated that the hand which is
authorized to receive the amount.
? On the payment of which the banker will get a
valid discharge of his liability.
CLOSURE OF A BANK ACCOUNT
1. Mutual agreement
2. Notice by the customer to the bank
3. Notice by the banker to the customer
4. Death / insolvency of the customer
5. Garnishee order by the court
SETTLEMENT OF DEATH CLAIMS
INTRODUCTION
Banks?are?advised?to? settle?the? claims?in?respect?of?
deceased? depositors? and? release? payments? to?
survivor(s)?/?nominee(s)?within?a?period?from?the?
date? of? receipt? of? the? claim?subject? to? the?
production?of?proof?of? death?of?the?depositor?and?
suitable?identification?of?the? claim(s).?
SETTLEMENT OF DEATH CLAIMS
? An announcement of death , production of a death
certificate or a report from a reliable source etc.,
will be sufficient notice to the Bank about the death
of the Account Holder.
? As soon as the Branch becomes aware of the death
of the A/C Holder, it will record the fact in the
relevant account in the system and stop operation in
the A/C.
SETTLEMENT OF DEATH CLAIMS
? On receipt of notice of the death of the customer, the
banker must stop the operation of the account
because the authority of the customer terminates as
soon as he dies.
Intimation to the Nominee, if any:
? If the deceased A/C holder had appointed a
nominee, a letter will be issued to the nominee
informing him/her about the death of the account
holder.
Further operation in the Account:
? a) Individual A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
b) Joint A/Cs:
? If the balance is payable to the survivor(s), but it is
preferable that survivor(s) is/are advised to close the
a/c and transfer the balance to a new a/c in
his/her/their name(s).
c) Proprietary A/Cs:
? No further cheques should be paid even
though they be dated prior to the date of
death of the A/C holder.
d) Partnership A/Cs:
? The surviving partner(s) can, however, operate the A/C
for the purpose; and any cheques drawn by the surviving
partner(s) can be paid.
? Cheques drawn by the deceased partner and presented
after his death, should not be paid.
? The branches should request the surviving partner(s) to
close the a/c by drawing a cheque signed by all of them
and open a new a/c through which all further
transactions may be passed.
e) Joint Hindu Family Firm A/c:-
? After?the?death?of?karta,?if?there?is?no?male?
member,?the?wife?of?karta?not?becomes?
a?karta.
? ?If?a?Karta,?leaving?behind?his?widow?and?
minor?son,?even?then,?wife?is?not?permitted?
to?become?a?karta.
f) Trust A/cs.:-
? The Trustees have to act jointly unless there is an express
provision to the contrary in the Trust Deed.
? In case of death of any, trustee, the operation on the a/c
should be stopped unless the, relative Trust Deed confers
express powers on the surviving trustee to act.
? In the absence of any specific provision in the Trust
Deed, it is not safe for the Bank to assume that the
surviving trustees possess full powers to deal with the
A/C.
? Branches should, therefore, not allow the surviving
trustees to operate on the a/c or withdraw the balance. In
case of death of sole trustee, operation on the A/C should
be immediately stopped.
g) Executor?s and Administrator?s A/C: -
? On the death of an executor or administrator unless
otherwise provided for the in the Will or Probate or Letter of
Administration, all the powers of the office bearers become
vested in the surviving executors or administrators.
? The a/c should be allowed to be operated by co-executor(s),
but the cheques signed by the deceased executor or
administrator and presented after notice of his death should
not be paid in the a/c.
? In case of death of a sole Executor or Administrator, it will
be necessary to obtain fresh order of the court appointing a
new Administrator.
h) Limited Company?s A/Cs:
? Where notice of death is received in respect of a
person who is authorized to operate an A/C of a
Limited Co., outstanding cheques drawn by such
person of the Company can still be paid.
? The Board resolution submitted by the Company
regarding the operation of its A/C should be
examined by the branch to see whether any
amendment or new resolution is necessary.
i) Association, Society, club A/c.:
? The instructions given in respect of Limited
Company?s A/Cs shall also apply to A/Cs of
Association, Society, Club etc.
j) Accounts operated by a holder of Power of
Attorney or Letter of Mandate:
? Upon the death of the principal, the authority of
Attorney or Mandate holder stands cancelled.
? The operation on the a/c should be immediately
stopped and no cheques signed by Attorney/Mandate
holder should be paid after receipt of notice of death
of the Principal.
ASSIGNMENT 2:
? Explain briefly the Settlement of Death Claims.
? Briefly explain different types of Customers
accounts with banks.
? Explain the types of relationship between banker
and customer. June/July 2016 (10 marks)
? Discuss special types of Banker?s Customer.
(5marks)
? Explain the Know Your Customer. June/July
2016 (7 marks)
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This post was last modified on 18 February 2020