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Closing of Bank Account
Closing of Bank Account
Bank
Finance is the life blood of trade, commerce and industry. Now-a-days,
banking sector acts as the backbone of modern business. Development of
any country mainly depends upon the banking system.
The term bank is either derived from old Italian word banca or from a
French word banque both mean a bench or money exchange table. In olden
days, European money lenders or money changers used to display (show)
coins of different countries in big heaps (quantity) on benches or tables for
the purpose of lending or exchanging.
A bank is a financial institution which deals with deposits and advances and
other related services. It receives money from those who want to save in the
form of deposits and it lends money to those who need it.
A bank is a financial intermediary that accepts deposits and channels those
deposits into lending activities, either directly by loaning or indirectly
through capital markets. A bank links together customers that have capital
deficits and customers with capital surpluses.
2. Bank Account
In deposit terminology, the term bank account refers to a financial
arrangement between a depositor or debt holder and a bank. Bank Accounts
are usually made up of various types of deposit accounts and loan accounts.
An account held by an investor at a financial institution. The financial
institution holds the money for the investor, leading to a positive or credit
balance, or loans money to the investor, leading to a negative or debit
balance. Unlike a brokerage account, which allows an investor to buy and
sell securities, a bank account is used for savings. Types of bank accounts
include savings accounts and checking accounts.
For example, a bank account where a credit is maintained is called a deposit
account, while an account to which a customer pays back a debt with the
bank is called a loan account. The most familiar type of deposit account is a
checking or savings bank account, while a loan account is best represented
by a mortgage held by the bank. In addition to mortgages, car loans, business
loans and other types of loans, others include Negotiable Order of
Withdrawal or NOW bank accounts. This pays depositors interest on credit
balances, with the interest rate paid being contingent upon the amount of
money deposited by the account holder.
3. Types of Bank Account-
was regulared by RBI and it was fixed at 4.00% on daily balance basis.
However, wef 25th October, 2011, RBI has deregulated Saving Fund
account interest rates and now banks are free to decide the same within
certain conditions imposed by RBI. Under directions of RBI, now
banks are also required to open no frill accounts (this term is used for
accounts which do not have any minimum balance requirements).
Although Public Sector Banks still pay only 4% rate of interest, some
private banks like Kotak Bank and Yes Bank pay between 6% and 7% on
such deposits. From the FY 2012-13, interest earned upto Rs 10,000 in a
financial year on Saving Bank accounts is exempted from tax.
4. Banker-Customer RelationThe relationship between a banker and a customer depends on the activities;
products or services provided by bank to its customers or availed by the
customer. Thus the relationship between a banker and customer is the
transactional relationship. Banks business depends much on the strong
bondage with the customer. Trust plays an important role in building
healthy relationship between a banker and customer.
Who is Banker?
The Banking Regulations Act (B R Act) 1949 does not define the term
banker but defines what banking is?
As per Sec.5 (b) of the B R Act Banking' means accepting, for the purpose
of lending or investment, of deposits of money from the public repayable on
demand or otherwise and withdrawable by cheque, draft, order or
otherwise."
As per Sec. 3 of the Indian Negotiable Instruments Act 1881, the word
banker includes any person acting as banker and any post office savings
bank.
Sec.5(c) of BR Act defines "banking company" as a company that transacts
the business of banking in India. Since a banker or a banking company
undertakes banking related activities we can derive the meaning of banker or
a banking company from Sec 5(b) as a body corporate that:
(a) Accepts deposits from public.
(b) Lends or
(c) Invests the money so collected by way of deposits.
(d) Allows withdrawals of deposits on demand or by any other means.
Accepting deposits from the public means that a bank accepts deposits
from anyone who offers money for the purpose. Unless a person has an
account with the bank, it does not accept deposit. For depositing or
borrowing money there has to be an account relationship with the bank. A
bank can refuse to open an account for undesirable persons. It is banks right
to open an account. Reserve Bank of India has stipulated certain norms
Know Your Customer (KYC) guidelines for opening account and banks
have to strictly follow them.
In addition to the activities mentioned in Sec.5 (b) of B R Act, banks can
also carry out activities mentioned in Sec. 6 of the Act.
Who is customer?
The term Customer has not been defined by any act. The word customer
has been derived from the word custom, which means a habit or tendency
to-do certain things in a regular or a particular manners .In terms of Sec.131
of Negotiable Instrument Act, when a banker receives payment of a crossed
cheque in good faith and without negligence for a customer, the bank does
not incur any liability to the true owner of the cheque by reason only of
having received such payment. It obviously means that to become a
customer account relationship is must. Account relationship is a contractual
relationship.
It is generally believed that any individual or an organisation, which
conducts banking transactions with a bank, is the customer of bank.
However, there are many persons who do utilize services of banks, but do
not maintain any account with the bank.
The relationship between a banker and his customer depends upon the nature
of service provided by a banker.
In addition to its primary functions(Accepting deposits and lending and/or
investing), Bank deals with various customers by providing other services
like safe custody services, safe deposit lockers, and assisting the clients by
collecting their cheques and other instruments as an agent and trustees for
them.
So, based on the above a banker customer relationship can be classified as
under:
(i) Debtor/Creditor
On the opening of an account the banker assumes the position of a debtor.
He is not a depository or trustee of the customers money because the money
over to the banker becomes a debt due from him to the customer.
The money deposited by the customer with the banker is, in legal terms, lent
by the customer to the banker, who makes use of the same according to his
discretion. The creditor has the right to demand back his money from the
banker, and the banker is under and obligation to repay the debt as and when
he is required to do so.A depositor remains a creditor of his banker so long
as his account carries a credit balance. But he does not get any charge over
the assets of his debtor/banker and remains an unsecured creditor of the
banker
(ii) Creditor/Debtor
Bankers relationship with the customer is reversed as soon as the
customers account is overdrawn. Banker becomes creditor of the customer
who has taken a loan from the banker and continues in that capacity till the
loan is repaid. As the loans and advances granted by a banker are usually
secured by the tangible assets of the borrower, the banker becomes a secured
creditor of his customer.
(iii) Bailee/Bailer
Banks secure their advances by obtaining tangible securities. In some cases
physical possession of securities goods (Pledge), valuables, bonds etc., are
taken. While taking physical possession of securities the bank becomes
bailee and the customer bailor. Banks also keeps articles, valuables,
securities etc., of its customers in Safe Custody and acts as a Bailee. As a
bailee the bank is required to take care of the goods bailed.
(iv)Trustee
Ordinarily, a banker is a debtor of his customer in respect of the deposits
made by the latter, but in certain circumstances he acts as a trustee also. A
trustee holds money or assets and performs certain functions for the benefit
of some other person called the beneficiary. For example, if the customer
deposits securities or other valuables with the banker for safe custody, the
latter acts as a trustee of his customer.
(v) Agent/Principal
Thus an agent is a person, who acts for and on behalf of the principal and
under the latters express or implied authority and the acts done within
such authority are binding on his principal and, the principal is liable to
the party for the acts of the agent.
Banks collect cheques, bills, and makes payment to various authorities
viz., rent, telephone bills, insurance premium etc., on behalf of
customers. . Banks also abides by the standing instructions given by its
customers. In all such cases bank acts as an agent of its customer, and
charges for these services. As per Indian contract Act agent is entitled to
charges. No charges are levied in collection of local cheques through
clearing house. Charges are levied in only when the cheque is returned in
the clearinghouse.
The customer has a right to close his demand deposit account because of
change of residence or dissatisfaction with the service of the banker or for
any other reason. A customer directs the banker in writing to close his
account, the banker is bound to comply with such direction or request.
The banker also may decide to close an account, due to an unsatisfactory
conduct of the account or because it finds the customer undesirable for
certain reasons. However, a banker can close an account only after giving
a reasonable notice to the customer such cases of closure of an account at
the instance of the banker are quite rare.
b. If banker desire to close the account
If an account remains un-operated for a very long period, the banker may
request the customer to withdraw the money. Such step is taken on the
presumptions that the customer no longer needs the account. If the
customer could not be traced after reasonable effort, the banker usually
transfers the balance to an Unclaimed Deposit Account, and the
account is closed.
The balance is paid to the customers as and when he is traced.
The banker should take the following steps for closing such an account.
The banker should give to the customer due notice of his intention to
close the account and request him to withdraw the balance standing to
his credit. This notice should give sufficient time to the customer to
make alternative arrangements. The banker should not, on his own,
close the account without such notice or transfers the same to any
other branch.
If the customer does not close the account on receipt of the aforesaid
notice, the banker should give another notice intimating the exact date
by which the account be closed otherwise the banker himself will
close the account. During this notice period the banker can safely
refuse to accept further credits from the customer and can also refuse
to issue fresh cheque book to him. Such steps will not make him liable
to the customer and will be in consonance with the intention of the
notice to close account by a specified date.
c. Termination by law
Acknowledgment
Submitted by
Gurpreet Singh
A11911111029,
Section A
Semester 7
Table of Content
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2.
3.
4.
5.
6.
7.
Bank
Bank of account
Types of bank account
Banker-Customer relationship
Procedure of closing account
Termination of banker-customer relation
Bibliography
Bibliography
1. Deposit.org
2. Scribd..com/doc
3. Slideshare
4. Class notes by Dr Bhupendra Gautam