Who is a customer, Nature and Types of Accounts, Relationship Banking system in India

between banker and customer, Obligations of a Banker

Technological Transformation in Banking Sector Banking system in India

Digital transformation in banking largely entails the shift to offering online and digital services, as
well as the massive number of backend changes required to support this transformation.digital
transformation (DT) means multiple changes in the banking industry performed to integrate
various fintech solutions in order to automate, optimize, and digitize processes, as well as
increase data safety.

Examples of Digital Transformation in Banking:

● Blockchain Technology
● Utilizing Artificial Intelligence (AI)
● Customer Data Collection, Management & Analysis

This digital banking transition has helped financial service providers improve efficiency,
generating growth and convenience with the opportunity to bring more prospective customers.
This brings us to our next point of discussion, the key factors that make digital transformation in
banking and financial services possible.

Key factors driving digital transformation in banking

Increasing usage of smart devices, increased connectivity, and demand for high end-user

experience are the key drivers of the digital transformation trend, taking banking solutions to

customers’ doorstep. Along with these aspects, six essential factors highly impact the success

of digital banking.

- Importance of customers
- Operating model -Today, customers are in need of a hybrid experience, a combination of speed
and convenience with personal attachment with the product.
- Modernized infrastructure - Today, the digital transformation in financial services has enhanced
due to underlying infrastructure that facilitates data to the front-end operations. Therefore,
modernizing the legacy infrastructure has played the most critical factor in driving digital
transformation in banking.
- The power of data - Banking and financial institutions are well aware of the power that consumer
data attains. This means implementing more data analytics practices to analyze and monitor
customer patterns.
 - Complete digitally-driven market -We cannot forget how not just banking but every sector such as

industrial, eCommerce, agriculture, IT, etc., are moving ahead with digital capabilities. This

includes business culture, technologies, strategies, and skills that contribute to a digital

transformation journey. Hence, the entire consumer market is on the edge of transforming

digitally, which is one of the driving reasons for digital banking transformation.

Digital technologies utilized by modern banks

Artificial intelligence (AI) and machine learning (ML)

AI in banking is leveraged by online assistants and chatbots that resolve customer issues by

providing necessary information. Along with this, artificial intelligence is used for the purpose of

data analysis and management, data security, and enhancing customer experience.

For instance, AI can detect repetitive patterns by analyzing consumer data within seconds.
Machine learning is another companion for banks that has the potential to gather, store and

compare user data in real-time. One of the biggest advantages of using Machine learning in the

banking sector is fraud detection. It is easier to detect any change in the user action and take a

timely preventive measure with machine learning.

Internet of Things (IoT)

IoT is super helpful with real-time data analysis, making the customer experience more personal

and tailored. Thanks to IoT and its smart connectivity among devices, customers can

seamlessly make contactless payments within seconds. Besides, the Internet of things has

transformed the financial ecosystem by introducing risk management, authorization processes

(biometric sensors), and access to multiple platforms.

Blockchain

Every discussion on digital implementation in banking is incomplete without blockchain. The

integration of blockchain in the financial sector has resulted in secured data transactions, more

accuracy, and an enhanced interface. Modern customers rigidly trust blockchain solutions and

believe that it has made transactions and other banking operations more transparent and

convenient. In fact, the fusion of blockchain and IoT (BIoT) has been one of the biggest digital

banking technology trends.

Cloud computing and APIs

Cloud computing is by far the most popular technology utilized by banks and financial sectors. A

cloud-driven service results in improved operations, better productivity, and instant delivery of

products and services.

With the integration of the cloud, banks are now more open to using banking APIs to promote

data sharing and enhance the overall experience.

Big data analytics

Modern customers don’t look at banks the same way they used to look a decade ago. All thanks

to big data technology that helps banks in analyzing customers’ expenditures, monitoring risk,

and managing feedback to increase customer loyalty. Data analytics solutions have brought new

prospects for banking development and have been prompt in responding to growing market

demands.

The above technologies have not only transformed the banking landscape but also brought

some significant benefits to the financial domain. What are these benefits?

Who is a customer, Nature and Types of Accounts, Relationship between banker

and customer, Obligations of a Banker.

A customer of a bank is a person who has an account with a bank is said to be the customer of

a bank. It is not possible to make a person a customer of a bank if he has made a single banking

transaction. A person to become a customer must satisfy two conditions one, that there must

be regular transactions or that the customer must have the habit of dealing with the bank and

the other, that the transaction between them must be of banking nature. Sir Joha Paget gave

these two conditions. But now this view has been discarded.

TYPES OF ACCOUNTS

1. Savings Account

2. Current Account

3. Recurring Deposit Account

 4. Fixed Deposit Account

5. DEMAT Account

6. NRI Account

Savings Account
As the name suggests, the savings accounts can be opened by an individual or jointly by two people

with an aim to save money.

The main benefit of opening a savings bank account is that the bank pays you interest for opening

this type of account with them.

Given below are a few features of the Savings account:

● There is no limit to the number of times the account holder can deposit money in this

account but there is a restriction on the number of times money can be withdrawn from this

account.

● The rate of interest that an account holder get varies from 4% to 6% per annum

● There is no minimum balance that needs to be maintained for this type of an account

● The savings account holders can get an ATM/Debit/Rupay Card if they want to

● Savings bank account is further divided into two types: Basic Savings Bank Deposit Account

(BSBDA) and the other one is Basic Saving Bank Deposit Accounts Small Scheme(BSBDS)

● The savings bank account is mostly eligible for students, pensioners and working

professionals

Current Account
The second type of bank account is the current bank account. These accounts are not used for the

purpose of savings.

Some important pointers related to the current bank account have been discussed below:
 ● This type of bank account is mostly opened by businessmen. Associations, Institutions,

Companies, Religious Institutions and other business-related works, the current account can

be opened

● There is no fixed number of times that money can either be deposited or withdrawn from

such accounts

● Internet banking is available

● This type of bank account does not have any fixed maturity

● Overdraft facility is available for current bank accounts

● There is no interest that is paid on such accounts

Recurring Deposit Account

Recurring Deposit account or RD account is a form of account wherein the account holder needs to

deposit a fixed amount every month until it reaches the fixed maturity date.

The features of the Recurring deposit account have been discussed below:

● Any individual or an Institution can open a recurring deposit account either separately or

jointly

● Periodic or monthly instalments that need to be added can be as low as Rs.50/- or may vary

from bank to bank

● The range of months for which an RD account can be opened varies from 6 months to 120

months

● The interest rate varies depending upon the bank you choose to open an account with

● Nomination facility is also available for RC accounts

● Passbook is issued for this type of bank account

● Premature withdrawal of the amount is permitted, provided a sum of amount is deducted as

penalty

Fixed Deposit Account

FD or a fixed deposit account is another type of bank account that can be opened in any Public or

Private sector bank.

The list of important things that need to be known with respect to the fixed deposit account has

been mentioned below:

● It is a one time deposit and one time take away account. Under this type of account, the

account holder needs to deposit a fixed amount of sum (as per their wish) for a fixed time

period

● The amount deposited in FD account can only be withdrawn all at once and not in

instalments

● Banks pay interest on the fixed deposit account

● The rate of interest depends upon the amount you deposit and for the time duration of the

FD

● Full repayment of the amount is available before the maturity date of FD

DEMAT Account
Shares and securities which can be held in electronic format constitute the DEMAT account. The

DEMAT account also stands for Dematerialized Account.

Given below the points that need to be known by a candidate regarding the DEMAT Account:

● There are only two depository organisations which manage this type of bank account in

India. This includes: National Securities Depository Limited and Central Depository Services

Limited

● This helps facilitate easy trade of bonds and shares

● Helps in conducting stress-free transaction of shares

● KYC is required for opening the DEMAT Account

● Transaction cost is reduced

● Traders can work from anywhere

 ● The transfer of securities can be done with reduced paperwork

NRI Account
To fulfil the bank requirements of a Non-Residential Indian or a Person of India Origin, the option of

NRI account is available.

The NRI Accounts are further divided into three types:

1. NRO ( Non-Resident Ordinary Rupees) Account – This shall allow you to transfer your

foreign earnings easily to India. It can be opened in the form of an FD/RD/Current/Savings

account. These accounts can be opened by an individual or jointly opened

2. NRE ( Non-Resident External Rupees) Account – When an Indian citizen moves abroad to

work there, his/her account needs to be converted into an NRE account. This account can be

jointly opened with an Indian resident

3. FCNR ( Foreign Currency Non-Resident ) Account – This type of account can be opened to

manage an international currency. It can only be in the form of Term deposit and can be

withdrawn after the maturity period only.

RELATIONSHIP BW BANKER AND CUSTOMER

General Relationship

a. Debtor and Creditor

b. Pledger and Pledgee

c. Licensor and Licensee

d. Bailor and Bailee

 e. Trustee and Beneficiary

f. Agent and Principal

g. Advisor and Client

1. Debtor and creditor relationship:-

When banker accepts deposits from the customer then bank becomes the

debtor and the customer is the creditor. If customer takes loans from bank then

the customer becomes debtor and banks becomes creditor .

2.Pledger and Pledgee relationship:–

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.

Under this agreement, the assets or security will remain with the bank until a customer

repays the loan.

3.Licensor (Lessor) and Licensee (Lessee) relationship:-

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.
4.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, the

banker becomes a trustee of his customer. The customer is the beneficiary so the

ownership remains with the customer.

5.Relationship of Bailor and Bailee:-

The relationship between banker and customer can be that of Bailor and Bailee.

A 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 safekeeping, the customer

became the bailor, and the bank became the bailee.

6.Relationship of Advisor and Client:- When a customer invests in securities, the

banker acts as an advisor. The advice can be given officially or unofficially. While giving
advice the banker has to take maximum care and caution. Here, the banker is an

Advisor, and the customer is a Client.

7.Relationship of Agent and Principal:- The banker acts as an agent of the customer

(principal) by providing the following agency services:

Buying and selling securities on his behalf,

Collection of cheques, dividends, bills or promissory notes on his behalf.

OBLIGATIONS OF A BANKER

1. The obligation of bankers to honor checks.

2. The obligation of bankers to maintain secrecy.

3. The obligation of bankers is to maintain proper records.

4. The obligation of bankers to follow customer’s instructions.

5. The obligation of bankers to give notice before closing the account.

1. Obligation of Banker to Honor Checks

The bank has a statutory obligation to honor the checks/cheques of its

customers up to the amount standing to the credit of the customer’s account.

2. Obligation of banker to Maintain Secrecy

The banker must not disclose to any outsider the details about the customer’s

account, as such disclosures may adversely affect the credit and business of

the customer.

3. Obligation of Banker to Maintain Proper Records

The banker is obligated to maintain an accurate record of all the

transactions(credits and debits) of the customers made with the bank.

4. Obligation of Banker to Follow Customer’s Instructions

The banker is under a legal obligation to follow the instructions of the

customer. This is so because there is a contractual relationship between the

bank and the customer.

5. Obligation of Banker to give Notice before Closing the Account

If a banker wishes to close the customer’s account, it must give reasonable

notice to this effect to the customer. Thus, a bank cannot close a customer’s

account on its own wish because it may have serious consequences to the

customer.