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Banker Customer Relationship
Banker:
The term banking may define as accepting of deposit of money from the public for the purpose of
lending or investing investment of that money which are repayable on demand or otherwise and
with a draw by cheque, draft or order.
Customer:
A person who has a bank account in his name and for whom the banker undertakes to provide the
facilities as a banker is considered to be a customer.
Rights and Duties of Banker and Customer
It is very difficult to live without a bank account as it is required for many things. As more than
50% of Indians have bank accounts, it is very important for you to know the rights and duties of
both bankers and customers. In this blog, we will discuss the rights and duties of bankers and
customers.
Rights of a Banker
1. Right to charge interest
Every bank in India has the right to charge interest on the loans and advances sanctioned to
customers. Interest is usually charged monthly, quarterly, semiannually or annually.
2. Right to levy commission and service charges
Along with interest, banks also have the right to levy a commission and service charges for the
services rendered. The service rendered by the bank might be SMS notification service, retail
banking and so on. Banks can also debit these charges from the customer's bank account.
3. Right of Lien
Another important right enjoyed by banks is the Right of Lien. Banks have the right to keep goods
and securities belonging to the debtor as a security, until the loan is repaid by the debtor. Banks
have only the right to maintain the security of the debtor and not to sell.
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4. The Right of Set-off
The banker has the right to set off customer accounts. Banks can merge a couple of accounts which
are in the name of the customer and set off the debit balance in one account with the credit balance
in the other, provided the funds belong to the customer
5. Right of Appropriation
Let us consider that a customer has taken many loans from the bank and he deposits some money
in the bank without any instructions. If that amount is not sufficient to discharge all loans, the bank
has the right to appropriate the amount deposited to any loan, even to a time-barred debt. But the
customer should be informed on the same.
6. Right to Close the Account
If the customer’s account is not properly maintained, banks have all the right to close the account
by sending a notice to the customer. Bankers have no right to close the account, without sending a
written notice.
Rights of a Customer
1. Right to fair treatment
According to this right, banks cannot discriminate between customers on the basis of gender, age,
religion, caste, and physical ability while providing services. This does not mean that banks cannot
offer schemes which are designed for a particular set of people. Banks have all the right to offers
differential rates of interest or products to customers.
2. Right of transparent, fair and honest dealing
The contract between the banks and customers should be easily understood by the common man.
It is the responsibility of the bank to make the customer understand interest rates, the risk involved
and all other terms and conditions. Banks should not hide anything from the customer before the
signing of the agreement. Even if there are any short comings, they should be communicated to
the customer. The language in the contract should be simple and easily understood.
3. Right to suitability
You might have come across a lot of cases of miss-selling of financial products, especially life
insurance policies. Usually, customers are forced to buy the product which offers the highest
commission to an agent. As per this right, customers should be sold the product which is suitable
to them. So, banks should always keep customers’ needs in mind, before selling any product.
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4. Right to privacy
As per this law, the personal information provided by the customers to the bank, must be kept
confidential. Bankers can disclose only such information, which is required by law or only after
customers have given permission. Banks are not allowed to provide your details to telemarketing
companies or for cross-selling.
Obligations of Bankers
1. It is the duty of the bank to honor the cheque of its customers up to the amount standing to the
credit of the customer’s account. The bank is liable to pay the compensation to the customer, if it
wrongfully refuses to honor the cheque.
2. It is the duty of the bank to follow the instructions given by the customers. If the customer has
not given any instructions, the bank should act as per rules and regulations.
3. Bankers should not disclose personal information given by customers to any outsider.
4. Banks should maintain all details of transactions made by the customer.
Types of the Relationship between Banker and Customer
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The relationship between banker and Customer are categorized into three;
1. Relationship as debtor and creditor.
2. Banker as a trustee.
3. Banker as an agent.
4. Other special relationship with the customer, obligations of a banker
Relationship as Debtor and Creditor
On the opening of an account, the banker assumes the position of a debtor. A depositor remains a
creditor of his banker so long as his account carries a credit balance.
Relationship with the customer is reserved as soon as the customer account is overdrawn. Banker
becomes a creditor of the customer who has taken a loan from the banker and continues in that
capacity fills the loan is repaid.
Banker as a Trustee
A banker is a debtor of his customer in the report of the deposit made by the letter but in certain
circumstances, he acts as trustee also.
A trustee hold holds money or asset and performs certain functions for the benefit of some other
person called the beneficiary.
For example;
If the customer deposits securities or other values with the banker for the safe custody, the letter
acts as a trustee of his customer.
Banker as an Agent
A banker acts as an agent of his customer and performs a number of agency functions for the
conveniences of his customer. For example, he buys or sells securities on behalf of his customer,
collects cheques on his behalf and makes payment of various dues of his customer.
Special relationship with customer/obligation of a banker:
Through the primary relationship between a banker and his customer is that of a debtor and a
creditor or vice versa, the special features of this relationship as a note above impose the following
additional obligations on the banker.
Relationship of Debtor and Creditor
In case of Saving Account / Current Account/ Fixed Deposit Customer deposit their surplus
amount of money with bank. In other words, depositor lend money to bank and bank repay it on
demand as per contract of deposit. In this case, Customer is creditor of bank and bank is debtor.
In Case of Loan Account Bank not only accept deposit but also lend money further at an agreed
rate of interest to their customer for various business purpose, education, housing, vehicle purchase
etc. and customer repay it on due date. In this case, Banker Customer Relationship is of creditor
and debtor because the customer owes money to the banker.
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Relationship of Agent and Principal
Banker becomes agent of the customer (Principal) by rendering following services to customer
Bank Collects cheque, bills or promissory note, dividends etc on behalf of customer
Make Insurance Premium Payments, Phone Bill, Gas Bills, Tax Payments as per
mandate or SI received from customer
Buy or sell securities on behalf of customer
In such cases, relation between bank acts as an agent and customer is principal.
Relationship of Licensor (Lessor) and Licensee (Lessee)
When customer avail safe deposit locker facility from bank, relation between banker and customer
is Licensor and Licensee | Lessor-Lessee. Bank is Licensor (Lessor) and Customer who hirer the
locker is Licensee (Lessee).
Relationship of Bailor and Bailee
When Customer deliver goods to bank for purpose of safekeeping under a condition that goods
will be returned to depositor when purpose is completed. In this case, Customer becomes bailor
and bank becomes bailee. The process is known as Bailment. Example of Bailment is Articles,
Securities and valuables kept in safe deposit locker. In this case, relationship between banker and
customer is Bailee and Bailor.
Relationship of Pledger and Pledgee
Sometimes, bank pledges certain assets or security to secure the loan for payment of debt in case
of default by customer. In this case, customer becomes the pledger and bank becomes pledgee.
Under this agreement, asset or security will remain with the bank until a customer repays the debt.
Relationship of Hypothecation and Hypothecatee
When banker hypothecates certain movables or immovable assets or property of a customer for
securing the loan amount extended to customer. In this case, customer becomes the Hypothcator
and Banker becomes Hypothecatee.
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Relationship of Trustee and Beneficiary
A trustee hold the assets, property for the beneficiary and profit so earned belongs to beneficiary.
Suppose, customer deposits securities or valuables with the bank for safe custody, banker becomes
a trustee of his customer. The customer is the beneficiary so the ownership remains with the
customer.
Relationship of Assignor and Assignee
An Assignor is a customer who transfers his property or security rights to the bank (lender) as
collateral of the loan availed from bank. Example are transfer of LI Policies, NSC, and Shares etc.
in the name of lender bank to secure the loan. The bank on whose name security or property rights
are transferred is called assignee. After full payment of debt or loan, assignor can get the security
reassigned in his name. Here, Banker Customer Relationship becomes Assignee and Assignor.

Unformatted Attachment Preview

Banker Customer Relationship Banker: The term banking may define as accepting of deposit of money from the public for the purpose of lending or investing investment of that money which are repayable on demand or otherwise and with a draw by cheque, draft or order. Customer: A person who has a bank account in his name and for whom the banker undertakes to provide the facilities as a banker is considered to be a customer. Rights and Duties of Banker and Customer It is very difficult to live without a bank account as it is required for many things. As more than 50% of Indians have bank accounts, it is very important for you to know the rights and duties of both bankers and customers. In this blog, we will discuss the rights and duties of bankers and customers. Rights of a Banker 1. Right to charge interest Every bank in India has the right to charge interest on the loans and advances sanctioned to customers. Interest is usually charged monthly, quarterly, semiannually or annually. 2. Right to levy commission and service charges Along with interest, banks also have the right to levy a commission and service charges for the services rendered. The service rendered by the bank might be SMS notification service, retail banking and so on. Banks can also debit these charges from the customer's bank account. 3. Right of Lien Another important right enjoyed by banks is the Right of Lien. Banks have the right to keep goods and securities belonging to the debtor as a security, until the loan is repaid by the debtor. Banks have only the right to maintain the security of the debtor and not to sell. 4. The Right of Set-off The banker has the right to set off customer accounts. Banks can merge a couple of accounts which are in the name of the customer and set off the debit balance in one account with the credit balance in the other, provided the funds belong to the customer 5. Right of Appropriation Let us consider that a customer has taken many loans from the bank and he deposits some money in the bank without any instructions. If that amount is not sufficient to discharge all loans, the bank has the right to appropriate the amount deposited to any loan, even to a time-barred debt. But the customer should be informed on the same. 6. Right to Close the Account If the customer’s account is not properly maintained, banks have all the right to close the account by sending a notice to the customer. Bankers have no right to close the account, without sending a written notice. Rights of a Customer 1. Right to fair treatment According to this right, banks cannot discriminate between customers on the basis of gender, age, religion, caste, and physical ability while providing services. This does not mean that banks cannot offer schemes which are designed for a particular set of people. Banks have all the right to offers differential rates of interest or products to customers. 2. Right of transparent, fair and honest dealing The contract between the banks and customers should be easily understood by the common man. It is the responsibility of the bank to make the customer understand interest rates, the risk involved and all other terms and conditions. Banks should not hide anything from the customer before the signing of the agreement. Even if there are any short comings, they should be communicated to the customer. The language in the contract should be simple and easily understood. 3. Right to suitability You might have come across a lot of cases of miss-selling of financial products, especially life insurance policies. Usually, customers are forced to buy the product which offers the highest commission to an agent. As per this right, customers should be sold the product which is suitable to them. So, banks should always keep customers’ needs in mind, before selling any product. 1 4. Right to privacy As per this law, the personal information provided by the customers to the bank, must be kept confidential. Bankers can disclose only such information, which is required by law or only after customers have given permission. Banks are not allowed to provide your details to telemarketing companies or for cross-selling. Obligations of Bankers 1. It is the duty of the bank to honor the cheque of its customers up to the amount standing to the credit of the customer’s account. The bank is liable to pay the compensation to the customer, if it wrongfully refuses to honor the cheque. 2. It is the duty of the bank to follow the instructions given by the customers. If the customer has not given any instructions, the bank should act as per rules and regulations. 3. Bankers should not disclose personal information given by customers to any outsider. 4. Banks should maintain all details of transactions made by the customer. Types of the Relationship between Banker and Customer 2 The relationship between banker and Customer are categorized into three; 1. 2. 3. 4. Relationship as debtor and creditor. Banker as a trustee. Banker as an agent. Other special relationship with the customer, obligations of a banker • Relationship as Debtor and Creditor On the opening of an account, the banker assumes the position of a debtor. A depositor remains a creditor of his banker so long as his account carries a credit balance. Relationship with the customer is reserved as soon as the customer account is overdrawn. Banker becomes a creditor of the customer who has taken a loan from the banker and continues in that capacity fills the loan is repaid. • Banker as a Trustee A banker is a debtor of his customer in the report of the deposit made by the letter but in certain circumstances, he acts as trustee also. A trustee hold holds money or asset and performs certain functions for the benefit of some other person called the beneficiary. For example; If the customer deposits securities or other values with the banker for the safe custody, the letter acts as a trustee of his customer. • Banker as an Agent A banker acts as an agent of his customer and performs a number of agency functions for the conveniences of his customer. For example, he buys or sells securities on behalf of his customer, collects cheques on his behalf and makes payment of various dues of his customer. • Special relationship with customer/obligation of a banker: Through the primary relationship between a banker and his customer is that of a debtor and a creditor or vice versa, the special features of this relationship as a note above impose the following additional obligations on the banker. • Relationship of Debtor and Creditor In case of Saving Account / Current Account/ Fixed Deposit – Customer deposit their surplus amount of money with bank. In other words, depositor lend money to bank and bank repay it on demand as per contract of deposit. In this case, Customer is creditor of bank and bank is debtor. In Case of Loan Account – Bank not only accept deposit but also lend money further at an agreed rate of interest to their customer for various business purpose, education, housing, vehicle purchase etc. and customer repay it on due date. In this case, Banker Customer Relationship is of creditor and debtor because the customer owes money to the banker. 3 • Relationship of Agent and Principal Banker becomes agent of the customer (Principal) by rendering following services to customer – • • • Bank Collects cheque, bills or promissory note, dividends etc on behalf of customer Make Insurance Premium Payments, Phone Bill, Gas Bills, Tax Payments as per mandate or SI received from customer Buy or sell securities on behalf of customer In such cases, relation between bank acts as an agent and customer is principal. • Relationship of Licensor (Lessor) and Licensee (Lessee) When customer avail safe deposit locker facility from bank, relation between banker and customer is Licensor and Licensee | Lessor-Lessee. Bank is Licensor (Lessor) and Customer who hirer the locker is Licensee (Lessee). • Relationship of Bailor and Bailee When Customer deliver goods to bank for purpose of safekeeping under a condition that goods will be returned to depositor when purpose is completed. In this case, Customer becomes bailor and bank becomes bailee. The process is known as Bailment. Example of Bailment is – Articles, Securities and valuables kept in safe deposit locker. In this case, relationship between banker and customer is Bailee and Bailor. • Relationship of Pledger and Pledgee Sometimes, bank pledges certain assets or security to secure the loan for payment of debt in case of default by customer. In this case, customer becomes the pledger and bank becomes pledgee. Under this agreement, asset or security will remain with the bank until a customer repays the debt. • Relationship of Hypothecation and Hypothecatee When banker hypothecates certain movables or immovable assets or property of a customer for securing the loan amount extended to customer. In this case, customer becomes the Hypothcator and Banker becomes Hypothecatee. 4 • Relationship of Trustee and Beneficiary A trustee hold the assets, property for the beneficiary and profit so earned belongs to beneficiary. Suppose, customer deposits securities or valuables with the bank for safe custody, banker becomes a trustee of his customer. The customer is the beneficiary so the ownership remains with the customer. • Relationship of Assignor and Assignee An Assignor is a customer who transfers his property or security rights to the bank (lender) as collateral of the loan availed from bank. Example are transfer of LI Policies, NSC, and Shares etc. in the name of lender bank to secure the loan. The bank on whose name security or property rights are transferred is called assignee. After full payment of debt or loan, assignor can get the security reassigned in his name. Here, Banker Customer Relationship becomes Assignee and Assignor. 5 Name: Description: ...
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