Banker-Customer Relationship Explained in Detail
The relationship between banker and Customer are categorized into three; relationship as debtor and creditor, banker as a trustee and banker as an agent. Dr. Prashant Desai, Assistant Professor, National Law School of India University ( NLSIU) Part of course . Nature of relationship (between banker and customer). The relationship that exists between a banker and his customer is significant. . Reserve Bank of India has also permitted the banks to formulate fixed deposit.
It may do so only by sending a written intimation to the customer.
The most important duty of a banker is to help their clients with all their financial queries and needs. The banker may do so by meeting their clients in person or speaking with them over the phone. Following are the duties of a banker: The banker should assist and guide them to meet their financial goals.
Documents such as loan applications, bank statements and so on, must be reviewed and filed by the banker. A banker should gather financial information from both new and existing clients. A banker should speak with the clients and use the information gathered to prepare accounts, loans and determine their creditworthiness.
A banker must withdraw and deposit funds.
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This requires a lot of attention and accuracy. Be Wise, Get Rich. Did you find this article useful? This happens when customer pledges promises certain assets or security with the bank in order to get a loan.
The General Relationship between Banker and Customer
In this case, the customer becomes the Pledger, and the bank becomes the Pledgee. Under this agreement, the assets or security will remain with the bank until a customer repays the loan.
Relationship of Licensor and Licensee The relationship between banker and customer can be that of a Licensor and Licensee. This happens when the banker gives a sale deposit locker to the customer. So, the banker will become the Licensor, and the customer will become the Licensee. Relationship of Bailor and Bailee The relationship between banker and customer can be that of Bailor and Bailee.
Bailment is a contract for delivering goods by one party to another to be held in trust for a specific period and returned when the purpose is ended. Bailor is the party that delivers property to another. Bailee is the party to whom the property is delivered. So, when a customer gives a sealed box to the bank for safe keeping, the customer became the bailor, and the bank became the bailee. Relationship of Hypothecator and Hypothecatee The relationship between customer and banker can be that of Hypothecator and Hypotheatee.
This happens when the customer hypothecates pledges certain movable or non-movable property or assets with the banker in order to get a loan. In this case, the customer became the Hypothecator, and the Banker became the Hypothecatee. Relationship of Trustee and Beneficiary A trustee holds property for the beneficiary, and the profit earned from this property belongs to the beneficiary. If the customer deposits securities or valuables with the banker for safe custody, banker becomes a trustee of his customer.
The customer is the beneficiary so the ownership remains with the customer.
Relationship of Agent and Principal The banker acts as an agent of the customer principal by providing the following agency services: While granting advances banks take documents.
These documents confer right to convert general lien as an implied pledge. Banker's right of lien is not barred by the Law of Limitation. Exercising Right of Lien: Bank has the right of lien on goods and securities entrusted to him legally and standing in the name of the borrower. Bank can exercise right of lien on the securities in its possession for the dues of the same borrower, even after the loan taken against that particular security has been re-paid.
Right of lien can be exercised on bills, cheques, promissory notes, share certificates, bonds, debentures etc. Where right of lien cannot be exercised: Bank cannot exercise right of lien on goods received for safe custody, goods held in capacity as a trustee, or as an agent of the customer, SDV, or left in bank by mistake Right of set-off: The banker has the right to set off the accounts of its customer.
It is a statutory right available to a bank, to set off a debt owned to him by a creditor from the credit balances held in other accounts of the borrower. The right of set-off can be exercised only if there is no agreement express or implied to the contrary.
This right is applicable in respect of dues that are due, are becoming due i. It is not applicable on future debts.
Banking: LESSON 10 BANK CUSTOMER RELATIONSHIP: CONCEPT AND CASES
It is applicable in respect of deposits that are due for payment. The right of set off enables bank to combine all kinds of credit and debit balances of a customer for arriving at a net sum due.
The right is also available for deposits kept in other branches of the same bank. The right is also available for time barred debts. Deposits held in the name of a guarantor cannot be set off to the debit balance in borrowers account until a demand is made to the guarantor and his liability becomes certain.
Banks cannot set off the credit balance of customer's personal account for a joint loan account of the customer with another person unless both the joint accountholders are jointly and severally liable.
Banks exercise the Right of set off only after serving a notice on the customer informing him that the bank is going to exercise the right of set-off. Automatic right of set off: Depending on the situation, sometimes the set off takes place automatically without the permission from the customer. In the following events the set off happens automatically i. Conditions while exercising right of Set - Off: It is the right of the customers to direct his banker against which debt when more than one debt is outstanding the payment made by him should be appropriated.
In case no such direction is given, the bank can exercise its right of appropriation and apply it in payment of any debt. Section 59,60 and 61 of Indian Contract Act, lays down the rules of appropriation. Application of payment where debt to be discharged is indicated: Application of payment where debt to be discharged is not indicated: Application of payment where neither party appropriates.
Special Relationship between the Banker and Customer
Where neither party makes any appropriation the payment shall be applied in discharge of the debts in order of time, whether they are or are not barred by the law in force for the time being as to the limitation of suits. If the debts are of equal standing, the payment shall be applied in discharge of each proportionally.
Unless there is an agreement to the contrary, any payment made by a debtor is applied first towards interest and thereafter towards principal. The rule was laid down in famous Devayanas Vs. The rule states that each withdrawal in a debit account is considered as a new loan and each deposit as a repayment in that chronological order.
Banker's right to charge interest, commission, incidental charges etc.