BANKING LAW AND OPERATIONS

OBJECTIVE: To familiarize the students with the operations and innovations in Banking
Sector

UNIT 1: BANKER AND CUSTOMER 16 Hrs.

A. Banker and customer relationship: Introduction – Meaning of
Banker & Customer, General and Special relationships between
Banker & Customer, (Rights and Obligations of Banker &
Customer).
B. Customers and account holders: Types of Customer and
Account Holders – Procedure and Practice in Opening and
Operating Accounts of different Customers – Minor, Joint
Account Holders, Partnership Firms, Joint Stock Companies,
Clubs, Non-Resident Account – NRI & NRE Accounts.
Unit 2: COLLECTING BANKER 08 Hrs.
Meaning – Duties and Responsibilities of Collecting Banker,
Holder for Value, Holder in Due Course, Statutory Protection to
Collecting Banker
Unit 3: PAYING BANKER 12 Hrs.
Meaning, Precautions, Statutory Protection to the Paying Banker;
Cheques, Crossing of Cheques – Types of Crossing; Endorsements -
Meaning, Essentials and Kinds of Endorsement; Dishonor of Cheque -
Grounds for Dishonor.
Unit 4: LENDING OPERATIONS 12 Hrs.
Principles of Bank Lending; Kinds of Lending - Loans, Cash Credit,
Overdraft, Bills Discounting, Letters of Credit; Types of Securities and
Methods of Creation of Charge, Secured and Unsecured Advances;
Procedure--Housing, Education and Vehicle loans; Non-Performing
Asset (NPA) - Meaning, Circumstances & Impact; Government
Regulations on Priority Lending for Commercial Banks.
Unit 5: BANKING INNOVATIONS 08 Hrs.
New Technology in Banking, Core Banking, Universal Banking and
Offshore Banking; E-Services – Debit and Credit Cards, Internet
Banking, ATM, Electronic Fund Transfer (NEFT, RTGS, IMPS),
DEMAT, E Wallet – Meaning, Types of E-Wallet’s & Procedure of
making E-Payments: BHIM, PAYTM, GOOGLE PAY (TEZ) and
PHONE PE (Concepts only)

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 Unit 1- Banker and Customer
A. Banker and Customer Relationship: Introduction – Meaning of Banker &
Customer, General and Special relationships between Banker & Customer,
(Rights and Obligations of Banker & Customer).

B. Customers and Account Holders: Types of Customer and Account

Holders – Procedure and Practice in Opening and Operating Accounts
of different Customers – Minor, Joint Account Holders, Partnership Firms,
Joint Stock Companies, Clubs, Non-Resident Account – NRI & NRE
Accounts.

Meaning of Bank OR Banker:

“Banker is an institution which borrows money by accepting deposits
from the public for the purpose of lending to those who are in need of money.”
Definition of Bank OR Banker:
According to section 5(b) of the banking regulation act, 1949, “Banking
means the accepting for the purpose of lending or investment of deposits of
money from the public for the purpose of lending to those who are in need of
money.

To sum up a Banker is one who:

1. Takes deposit account
2. Takes current accounts
3. Issues & pay cheques
4. Collects cheques, crossed & open for his customers,
5. Lends money

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Meaning of Customer :-
A customer means a person who seeks to open account which banker
accepts with proper introduction OR a customer is a person who has some sort
of account, either deposit or current account or some similar relation with the
banker.
To constitute a customer of the bank:

➢ One should have an account with the bank.

➢ One should deal with the bank in its nature of regular banking transactions.
➢ One should deal with the bank without consideration of the duration &
frequency of operation of his account.

Features of Bank:
1. Dealing in money: Bank is a financial institution which deals
with other people's money i.e. money given by depositors.

2. Individuals / Firm / Company: A bank may be a person firm or a

company. A banking company means a company which is the
business of banking.

3. Giving advances: A bank lends out money in the form of loans to

those who require it for different purpose'.

4. Acceptance of deposit: A bank accepts money form the people in

the form of deposits, which are usually repayable on demand or after
the expiry of a fixed period. It gives safety to the deposits and acts a
custodian of funds of its customers.

5. Payment and withdrawal: A bank provides easy payment and

withdrawal facility to its customers in the form of cheques and Cash.

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 6. Agency and utility service: A bank provides various banking
facilities to its customers. They include general utility services and
agency services.

7. Connecting link: A bank acts as a connecting link between

borrowers and lenders of money. Banks collect money from those
who have surplus money and the same to those who are in need of
money.
8. Profit and service orientation: A bank is a profit seeking
institution having service oriented approach.

9. Name identity: A bank should always add the word "Bank" to its
name to enable people to know that it is a bank and that it is dealing
in money.

BANKER-CUSTOMER RELATIONSHIP:

A. General relationship. B. Special relationship.

1. Rights of Banker
2. Obligations of a Banker.

A. General Relationship
1. Relationship as Debtor and Creditor
2. Relationship as Creditor and Debtor
3. Relationship as Trustee and beneficiary
4. Relationship as Agent and principal
5. Relationship as Bailee and Bailor.
6. Relationship as Pledgee and Pledger
7. Relationship as Advisor and Client.

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The General Relationship between Banker and Customer as follows:

1) Relationship as Debtor and Creditor- The general relationship between

banker & customer is that of a debtor & a creditor i.e., borrower & lender.
When a customer opens an account with a bank, he fills in & signs the
account opening form. By signing the form he enters into an
agreement/contract with the bank. When customer deposits money in his
account the bank becomes a debtor of the customer and customer as a
creditor.
The money so deposited by customer becomes bank’s property and
bank has a right to use the money as it likes. The bank is not bound to inform
the depositor the manner of utilization of funds deposited by him.

2. Relationship as Creditor and Debtor- Lending money is the primary

activity of a banker. The resources mobilized by banks are utilized for lending
operations. Customer who borrows money from the banks in form of loans
advances, they (Customers) become debtor and the banker becomes creditors.

3. Relationship as Trustee and beneficiary- When a banker accepts items

like securities or documents for safe custody or maintains
accounts of the customers, the relation between the banker and customer is
a Trustee and the Beneficiary. The bank is the Trustee and the customer is
the beneficiary.

4. Relationship as Agent and principal- Banker also acts as an agent of his

customer. Bank performs a number of agency functions like buying and
selling of securities on behalf of the customers, collection of cheque and
makes payment of various dues on behalf of his customer. Hence, a banker
performs as agent of his customer who becomes principal while rendering an
agency function.

5. Relationship as Bailee and Bailor- The legal relationship that arises in

case of safe custody/deposit of any Security/Documents. The customer, who
deposits the things in the box for safe custody with the bank, becomes the
'bailor', and the bank becomes the 'bailee'. If the customer suffers any loss
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due to the negligence of the banker in protecting the valuables, the banker is
liable to pay such loss.

6. Relationship as Pledgee and Pledger –The relationship between customer

and banker can be that of Pledger and Pledgee. This happens when customer
pledges (promises) certain assets or security with the bank in order to get a
loan. In this case, the customer becomes the Pledger, and
the bank becomes the Pledgee.

7. Relationship as Advisor and Client- The bank acts a advisor when a

customer invest in securities. While giving advice the banker has to take
maximum care. Hence, banker becomes an advisor and the customer becomes
the client.

B. Special relationship.

1. Rights of Banker 2. Obligations of a Banker.

1. Rights of Banker
A. Right to lien
B. Right to Set-off
C. Right to Charge Interest, Commission etc
D. Right not to produce the Books of Accounts
E. Right under Garnishee Order.

A. Right to lien- A lien is the right of a creditor in Control or

Occupancy of goods or any other assets belonging to the debtor to
retain them until the loan i s repaid, provided that there is no
contract.
Two types of lien.
a. Particular lien: - A particular lien gives the right (to a creditor) to
retain Occupy only of those goods in respect of which dues of the
Debit not paid. If the bank has obtained a particular security for

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 particular debit.

b. General lien: - A General lien gives the right to retain / Occupy

of any type of goods in the legal terms of the creditor (banker) until the
whole of the Debit due from the debtor (customer) is paid.

B. Right to Set-off – The right to set off is the process of combining (join or
merge) two or more accounts of a customer. It is a statutory (Legal) right
available to a bank to set off from the credit balances held in other accounts.

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.e. without the permission
from the customer.
a) On the death of the customer.
b) On customer becoming insolvent.
c) On receipt of a Garnishee order on customer’s account by court.
d) The account should be in the sole name of the customer.

C. Right to Charge Interest, Commission etc – Banker has an right to

charge for services rendered and sold to a customer. Bank charges interest on
amount advanced, processing charges for the advance, charges for non-
utilization of credit facilities sanctioned, charges commission, exchange etc.
depending on the terms and conditions of advance banks charge interest at
monthly, quarterly or semiannually or annually. Banks charge customers if
the balance in deposit account falls below. Usually the bank informs such
charges to the customer by various means.

D. Right not to produce the Books of Accounts-The banker need not

produce the original books of Accounts as evidence in the cases in which the
banker. He (Banker) can issue only an attested copy of the required portion of
the account which can be utilized as evidence before the court. When the
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court is not satisfied with the certified copy, the Bank can produce the original
books.

E. Right under Garnishee Order- A garnishee order is an order issued by a

court addressed to banker instructing to stop or withhold payment of money
belonging to a specified person who has an account with the banker and who
has committed a default in satisfying the claim of his creditors.
The creditor on whose request the order is issued is called judgment
creditor and the person to whom it is issued is known as the garnishee.

2. Obligations of a Banker.

BANKER'S OBLIGATION:- Apart from the rights enjoyed by a banker,

certain obligations have to be fulfilled towards the customer. The various
bankers' obligations are as follows:

1. Obligations to honour the customer cheques.

2. Obligation to maintain secrecy of customer account.
3. Obligation to honour the cheques and other instruments for
collection.
4. Obligation to honour the cheques of customers across the counter.
5. Obligation to give reasonable notice before closing the customers
accounts.

1.Banker's obligation to honour customer's cheques: The basic

contract between the banker and the customer is that whenever the
customer demand payment needs to be made. A banker must honour
customers cheque drawn on him provided. There is
*Sufficient of funds
*Banker duty required to pay
*Presented within a reasonable Time

2. Banker's obligation to maintain secrecy of customer account: - The

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banker has an obligation to maintain secrecy of the Customer’s account. He
should not disclose matters relating to the customers financial position.
Since, it may adversely affect the customer's credit and business. The
obligation continues even after the account of the customer is closed.

Disclosure in The public Interest: - The bank should be required to give

information regarding the financial position of their customers in the
public interest in the following cases.
• When a bank is asked for Information by a Govt. official
concerning the commission of a crime.
• When bank considers that the customers is involved in activities
like illegal the interests of the country.
• Where sizeable funds are received from foreign counties.

3.Obligation to honour other instruments like promissory notes,

certificates of deposit for collection.

4.Obligation to Honour the cheque of customers across the counter.

5.Obligation to give reasonable notice before closing the customer's

account.

……………………………………………………………………………….

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 B - Customers and account holders:

Types of Customer and Account Holders – Procedure and Practice in Opening and
Operating Accounts of different Customers – Minor, Joint Account Holders, Partnership
Firms, Joint Stock Companies, Clubs, Non-Resident Account – NRI & NRE Accounts.

CUSTOMERS AND ACCOUNT HOLDERS

Customer Meaning :-
A customer means a person who seeks to open account which
banker accepts with proper introduction OR a customer is a person who has
some sort of account, either deposit or current account or some similar relation
with the banker.
Bank Account: -
Bank account is a contractual agreement between a bank and its
customer, allowing the customer to use bank services for a fee, Accounts may
be established in the name of individuals or firms. There are various types
of bank account. These are Current account, Savings account and
fixed account.

Types of Bank Accounts or Deposit Accounts

1. Current Account
2. Savings Bank Account
3. Fixed Deposit Account
4. Recurring Deposit Account

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1. Current Account: Current bank account is opened by businessmen who
have a higher number of regular transactions with the bank. It includes
deposits, withdrawal transactions. In current account, amount can be
deposited and withdrawn at any time without giving any notice.
Features:
a. It’s opened with a minimum deposit of Rs 2000 to Rs 3000.
b. It is an active or a running account because a customer can deposit into
a account any amount of money and any number of times. Similarly. A customer
can withdraw from account any amount and any number times as there are
sufficient funds to his credit.
c. These deposits are repayable on demand, hence it is demand deposit and
banker has to keep a major portion Cash in the liquid form.
d. Internet banking Facility is available.
e. Opening of Current account is restricted only for businessmen, Companies or
Institutions.

2.Saving Bank Account: Saving bank accounts are meant for middle and low
income groups who can deposit only small sums for the purpose of saving a part
of their income for future needs and for earning a fair interest on their deposits.
Features:
a. It can be opened with a very small deposits of Rs 100, Rs 500 and Rs 1000/-
b. A customer can deposit any amount of money and any number of times
c. Restrictions are made on withdrawals of deposits to promote of saving habit
among the depositors. E.g. 5 times a day and Rs 25.000/- per day only.
d. A fair interest is allowed by the banker on saving bank deposits on daily
credit balances with the banker e.g. 4% pa according RBI directions.
e. Internet banking Facility is available.
f. Proper introduction is necessary for opening Saving Account.

3.Fixed Deposit Account: FD means deposits repayable after the expiry of a

certain period of time, which varies from 1 month to 10 years which is also
known as Time or Term deposits.
Features:
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 a. It is opened with an intention of investing their money on safe bank
deposits and to earn a high and interest on their deposits i.e 6 to 9%
b. No introduction is necessary for opening FD Account.
c. In a FD account, a fixed amount of money is deposited by a customer for a
fixed period of time at a fixed rate of interest.
d. It can be opened with a minimum deposit of Rs 50 and maximum no limit.
e. A FD can be withdrawn by returning the FD receipt which is given by bank at
the time of depositing money.
f. It cannot be withdrawal before maturity, if so, prepayment charges are made.
4. Recurring Deposit Account: A Recurring deposit is a special kind of term
deposit offered by banks which help people with regular incomes to deposit a
fixed amount every month into their recurring deposit account and earn interest
at the rate applicable to fixed deposits.

Features:
a. No introduction is necessary for opening RD Account.
b. It can be opened with a minimum deposit of Rs 50 and maximum no limit.
c. A RD can be withdrawn by returning the RD book which is given by bank at
the time of depositing money.
d. It cannot be withdrawal before maturity, if so, prepayment charges are made.
e. It is meant for people who gets regular income and to save their income.

PROCEDURE TO OPEN AN ACCOUNT WITH THE BANKER.

i. Application form: The person wants to open a current account or a
saving bank account must apply to the bank concerned on the prescribed
form. Printed application forms are available in the bank free of cost. The
application form contains various information relating to the name of the
applicant, his occupation, full address, and specimen signatures. Banks
provide different application forms for opening a savings or current
account.
ii. Introduction: The bank may also ask for references and introduction
from Current Customer. The bank insists on such person or business
enterprise being introduced to the bank by an existing customer of the
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 bank or a reputed businessman. Introduction and references reduce the
scope for fraud and risk. Though any person may apply for opening an
account in his name but the bank reserve the right to do so on being
satisfied about the identity of the customer.

iii. Specimen signature: When the bank is satisfied with the introductory
references it proceeds with the opening of the account. The applicant is
asked to give his two or three specimen signatures on a prescribed form,
generally card, for the purpose bank’s record. These specimen signature
cards are preserved by the bank and are alphabetically filed for ready
reference to verify the signatures whenever the need arises. The specimen
signatures are compared with the signatures on the cheques of the
customer. If the two signatures differ, the bank can refuse to honour the
cheque.

iv. Photographs: Banks require four copies of photographs of the account

holders. These photographs are required for all types of account opening.
If a customer has a savings account or current with a bank’s branch, he
may open fixed deposit account without photographs. When a customer
comes to a branch he can be easily identified. The identity of the customer
is very clearly established with the help of photographs.

v. Initial deposit: After the above formalities are fulfilled, the applicant
deposits the initial amount and the banker opens an account in the name of
the applicant. The minimum amount to be deposited initially differs from
bank to bank.

vi. Address Proof:- Voter ID/ Utility bill (electricity, gas, water, telephone)
Passport/ Driving license/ Ration card/ Aadhaar card.

OPERATION OF BANK ACCOUNTS.

When the banker opens the account in the name of the applicant, it
provides him with –

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 • Pay-in-slip books: A pay-in-slip book contains several printed slips.
This slip is to be filled in by the depositor or by his agent at the time of
depositing cash or cheque etc. The pay-in-slip contains information
relating to the date of deposit, the name of the depositor, the amount to be
deposited, the name and account number to be credited, and the details of
currency notes in case of cash, cheque number and name of the drawee in
case of cheques. After filling the pay-in-slip, the depositor hands over the
same to the counter along with cash or cheques to be deposited.

• Cheque book: A cheque book contains blank forms of cheque. Cheques

are used to withdraw money from bank. When a customer wants to
withdraw money or to make payments to others, he must fill in the cheque
and sign it.

• Passbook: This is a book issued by the bank to the customer in which all
transactions between them are recorded. The main aim of issuing a
passbook to the customer is to acquaint him periodically with the state of
affairs of his account with the bank.

• ATM: ATM stands for Automated Teller Machine. Similarly, ATM

card is a PIN-based card issued by a bank to account holders to use it for
various purposes at the ATM. In addition to using it at ATMs, account
holders can use it to make purchases by entering the Personal
Identification Number (PIN).

Special Types of Customers Meaning: The persons or customers in

respect of whom a banker is required to take certain special precautions
while opening and operating an account with the legal restrictions are
called special types of customers’. Special Types of Customers are as
follows
1. Minor
2. Joint account holders
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 3. Partnership firms
4. Joint stock companies
5. Executors and Administrators
6. Trustees
7. Clubs and associations
8 . Joint Hindu families
9.NRI/NRE

1. Minors: A minor is a person who has not completed 18 years of age. If

a guardian is appointed by a court before a person completes 18 years,
he remains minor till he completes his 21 years.
According to the Indian Contract Act, 1872 – “A minor is not
capable of entering into a valid contract and a contract entered into by
a minor is void”.
Risk in a contract with a minor:
⮚ As a minor’s contract is void, money advanced to him cannot be
recovered.
⮚ A minor’s advance cannot be recovered even after he attains his
majority.
⮚ Even the creditor cannot pledge or mortgage the security of the minor

Precautions taken by the banker in operation of minor’s account:

a) Style of account: It is advisable to open only a savings bank account
for a minor. In case, if current account is opened, banker cannot have any
personal liability for an overdraft. The account may be opened in the
following ways:
* In the name of minor himself, if he has attained the age of 12 years.
* In the name of minor, operated by the natural or guardian appoint by
court.
* In the joint name of minor and guardian, operated by jointly.

b) Date of birth: Banker should record the D.O.B of minor as disclosed

by the guardian along with date of attaining the majority.
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 c) Death: In the event of death of minor, the money will be payable to his
guardian. If guardian dies before majority of minor, money will be
payable to the minor after attaining majority or guardian appointed by the
court.
d) Partner: A minor can be a partner if all the partners agree and his
liability is only to the extent of his share in profit and property of the firm.
e) Negotiable instruments: Minor may draw, endorse or negotiate a
cheque or bill. Banker must be care full in dealing with that negotiable
instrument.
g) Guardian’s liability: If advance is granted to minor on the third party
guarantee, such advances cannot be recovered from guarantor.
a) Natural guardian: According to Hindu minority and guardianship act
1956, the father of a minor is N.G. In his absence or death, the mother is
N.G.
b) Testamentary Guardian: Testamentary Guardian is
a guardian who is appointed by way of will. It is done to ensure that the
child will have a guardian even after the death of the
natural guardian who may require supervision over themselves or their
estate. A testamentary guardian cannot act as a guardian if the natural
guardians are alive.
c) Guardian appointed by court: The court may appoint a guardian if
the father or Mother of a minor person is unfit to be guardian of the
minor.

2. Joint Account Holders: A joint account is an account opened in the

names of two or more persons jointly i.e. may be husband and wife,
father and sons, friends etc.,
Precautions taken by the banker in operation of joint account:
a) The joint account should be opened in the names of only
young adult’s members, can enter into contracts.
b) The application for opening a joint account must be signed by all the
persons interested to open a joint account.

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 c) The banker should obtain clear instruction in writing signed by all
regarding the operation of the account like by both jointly or either of
them.
d) The holder who is authorized to operate the account himself alone
cannot appoint an agent to operate. Such agent may be appointed with
the consent of all the joint account holders.
e) Any joint account holder can stop payment of a cheque issued on
joint account. Banker must honor such order even agent has been
appointed to operate.
f) The authority given to authorized person to operate the account can
be revoked or cancelled by any joint account holder. Banker should act
accordingly and stop the operation on the joint account on receipt of
that notice.
g) In case of death, insolvency of any joint account holders, the banker
should stop operation.
h) The joint account can be operated by both or any one holder. If a
cheque is drawn and signed by one of them, any alteration should also
be done by the same person and not the other one.

3. Partnership Firms: Section 4 of Indian partnership act of 1932

defines a partnership as a “the relation between persons who have
agreed to share the profits of a business carried on by all or any of
them acting for all”.
Precautions taken by the banker in operation of partnership firm
account:
a) Account should be opened in the name of the firm only and all
partners should sign on the opening form
b) Banker should obtain a copy of partnership deed to be recorded in
the bank book. To ascertain the name of the firm, names and address of
partners, nature of business, capital structure, right and liabilities etc,..
c) If there is no partnership deed, banker should obtain partnership
letter signed by all Partners.

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 d) Partners, while operating on the account will always sign for an on
behalf of the firm and not as individual.
e) A cheque payable to the firm cannot be endorsed by a partner in his
own name and credited to his personal account.
f) On the admission of a new partner, the banker should close the
account of the firm and open a new account in the name of
reconstituted firm. Further, he should obtain a new mandate from the
partners of reconstituted firm stating the mode of operation on the new
account in the future.
g) In case of insolvency of a partner, the banker should not honor the
cheque drawn by the insolvent partner unless confirmed by remaining
partners and he should close the account of the firm after receipt of
notice of insolvency of the partner and open a new account in the name
of reconstituted firm..
h) If a minor partner is there, the date of his attaining majority is to be
taken and has to give confirmation for all acts on behalf of the firm in
the past.

4. Joint Stock companies account: A joint-stock company is a

business entity in which shares of the company's stock can be bought
and sold by shareholders. Each shareholder owns company stock in
proportion. Shareholders are able to transfer their shares to others
without any effects to the continued existence of the company

Documents required for Opening and Account:

For opening an account of a joint stock company bank obtains
following the documents:
a. Certificate of Incorporation: The Registrar of Joint Stock
Companies issue this certificate. It is a proof that all
requirements under the Companies Act have been complied
with.

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 b.Certificate of Commencement of Business: This certificate is
essential in the case of public limited companies. A public
limited company cannot borrow until this certificate is obtained.
c. Memorandum and Articles of Association: The bank obtains
a certified copy of the Memorandum and Articles of Association
of the company to satisfy that the conduct of the account is in
conformity with the provisions.
d. Board Resolutions: A copy of the resolution of the Board of
Directors of the company, certified as true by the Chairman of
the meeting, requesting the Bank to open an account in its name
and specifying the instructions regarding the conduct thereof,
obtained.
e. List of the present directors: A list of the present directors of
the company is obtained under the signature of the Chairman,
accompanied by a certified copy of the resolution of the general
body of the shareholders appointing them as directors.
f. Mandate: Along with the resolution, the banker must call for a
mandate from the company. The names of persons who are
authorized to operate the account and their specimen signatures
must be specifically given.
g. Borrowing powers: A banker will look into the borrowing
powers of a company before lending money. Every trading
company has an implied power to borrow and mortgage its
property. This power is exercised by the Board of Directors.
Generally, the Articles of Association of the company puts a
limit on the borrowing powers of the directors as well as the
company.
5.Executors and Administrators;- Executors and administrators are persons
appointed by a person through a will to manage the affairs of his estate after his
death. The person appointing an executor in his will is known as testator( It is
any "person who makes a will). There can be more than one executors or
administrators. If the person has not appointed any one to manage the affairs of
his estate after his death court appoints administrator for the purpose.
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 Opening of Account of Executors and Administrators:
1. Bank obtains account opening form duly signed by all the executors
or administrators and obtains clear instructions as to the manner in
which the account will be operated.
2. Bank also obtains copy of probate or letters of administration in
original for registration in their books.
3. Bank ascertains identity of executors or administrators for their
satisfaction.
4. An executor or administrator has no right to delegate his authority to
an outside party, not being co-executor or administrator. Any one of
the executors or administrators can countermand the actions of the
others.
5. Cheques drawn or payable to the executor or administrator’s account
are not collected for credit of their personal accounts.

Precautions to be taken in Opening and Operating A/c of

executors and Administrators:
1. The banker should stop the operation of the testator’s account, when
he receives the message of the death of testator.
2. The banker should insist an official letter issued by the court called
“ Letter of Administration’’ to ascertain whether he is the person
appointed to execute the property o f the deceased. A copy of the letter
of probate should be filled for future reference.
3. The banker should close the account of the deceased and transfer the
funds to the newly opened account of administrator or executor.
4. If two or more executors and administrators are appointed, they
should follow the rules of the joint accounts and mandate should be
obtained for the operation of the account.
5. The banker should insist the signatures of all the executors to the
cheque drawn on executors account.

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 6. Whenever the bank lends to the executors or administrators, it
should ensure that such borrowing is authorized in the will and the
fund so borrowed is utilized for the purpose for which it is borrowed.
7. The property of the deceased cannot be given as Surety for the
personal borrowings of the executor.

6.Trustees: A Trustee is one who manages a trust. A Beneficiary is the person

for whose benefit the trust is created. A Trust deed is a document by which the
trust is formed or created the trust. Bank opens trust accounts for good parties.
A trust can be public or private. All public trusts are required to be registered
with the Charity Commissioner under Public Trust Act of the respective state .
While opening account of a trust bank obtains:
1. Trust deed if available
2. Certificate of registration and or a certified copy of the entry of the public trusts register
3. Public Trust Register Number
4. A list of the current trustees and the authority appointing them as trustees
5. The necessary resolution passed by the trustees for opening the account with the bank.
6. Certified copy of the resolution signed by all the trustees in regard to the conduct of the
account.

Precautions taken by the banker in operation of Trustee account:

a) Study of Trust deed which gives details about the names of trustees, their
powers, trust property and other terms.
b) In the interest of the banker should keep a duly certified copy of trust deed
under his custody for future reference.
c) In case of Death or retirement of one or more trustees, the future operation
depends up on as per the provisions in the trust deed.
d)The banker should get the account opening form duly singed by the trustee
authorized to open and operate the trust account.
e) In the event of death or retirement of all trustees, the new trustees may be
appointed by the court.
f) The insolvency of one or more trustees in no way affect trust account.
g) The trust money should not be transferred to the private account of any
trustee .
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h) In case of charitable trust, the banker should examine the registration
certificate issued by the charitable commissioners.

7. CLUBS & ASSOCIATIOS: These are social institutions which are run to
render service to the people at large. These institutions are registered
organizations and have their own rules and regulations.
precautions to be taken by the banker in opening and operation of
accounts of clubs and associations:
They are the clubs and associations which are registered under the companies
act or the society’s registration act 1860.
a) Banker should examine the registration certificate of the association and
satisfy himself that the association is properly registered.
b) Banker should obtain a copy of bye-laws of the association and examine
the provisions related to the bank account.
c) The banker should obtain a certified copy of resolution for appointing the
bank as their banker and name and designation of those who operate the
account.
d) Any advance or overdraft granted to associations, he should ensure that
proper security is given and also obtain personal security of one or more
persons.
e) When the authorized person dies the operation of the account should be
stopped and can be restarted when new person is authorized.

8. joint Hindu Family/ Hindu undivided Family :- The account is opened

in the name of the Karta and family business. The Karta and all the adult
members of the HUF are required to sign the account opening form.

Precautions taken by the banker in operation of JHF account:

1.The account may be opened in the name of Karta or in the name of family
business and should be duly introduced.
2. The operations in the account are normally restricted to Karta of the family.
3. The account opening form should be signed by all adult Members, even
though the Karta would operate the account.
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 4. The declaration signed by all the members as to who is the Kartha.
5. If there are minor members, the other adult members should sign for self and
as guardians of minors.
6. Before opening an account, the banker should ask for the names of all
Family Members both major and minor and other relevant particulars of family.
7. Banker should verify the declaration and about the particulars made by the
karta and other major members.
8. The account can be opened either in the name of karta or in name of family
itself. Banker should know about the style and title of the account.
9. Banker should get clear instruction about the persons to operate the account.
10. It is true that kartha has the right to operate the account. However, it is
better to get a mandate given by all members to operate the account.
11. The banker should ascertain the purpose for which the loan is obtained by
karta.

9. Non-Resident Accounts :-
An NRE account is a bank account opened in India in the name of
an NRI, to park his foreign earnings; whereas, an NRO account is a
bank account opened in India in the name of an NRI, to manage the
income earned by him in India. These incomes include rent, dividend,
pension, interest, etc.
Basis NRE Account NRO Account
Acronym Non Resident External Account Non Resident Ordinary Account
Meaning It is an account of an NRI to transfer It is an account of an NRI to manage the income
foreign earnings to India earned in India
Taxability tax free taxable
Joint Account Can be opened by two NRIs Can be opened by an NRI along with an Indian
citizen or another NRI
Deposits and Can deposit in foreign currency, and Can deposit in foreign as well as Indian
Withdrawals withdraw in Indian currency currency, and withdraw in Indian currency

A. NRA accounts are maintained in INR. It means that whatever Non

Resident deposit the foreign money in the NRA account, the same will
be convert in India Rupee.

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 B. NRA accounts maybe opened maintained in the form of Current,
Saving, RD or Fixed Deposit Accounts.
C. Banks are free to determine the interest rates. Interest rates offered by
banks on NRO deposits cannot higher than domestic deposits.
D. NRI may remit from the balances held in NRO account not execceding
USD one Million per Financial Year, Subject to payment of Applicable
taxes.
E. The accounts maybe held jointly with residents and or with nonresident
Indian.
F. The NRO account holder may opt for nomination facility.
G. Lending facilities also provided for NRI Account holders up to 100
lakes .
H. Balance held in NRE Accounts freely transferable.
I. also Provided Internet Facility for NRI Account holders.

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