CHAPTER6

BANKER CUSTOMER
RELATIONSHIP
DEFINITION OF BANKER AND CUSTOMER
RELATIONSHIP BETWEENBANKER
AND CUSTOMER
RIGHTS AND DUTIES OF CUSTOMER
RIGHTS AND DUTIES OF BANKER
TERMINATION OF RELATIONSHIP
KINDS OF BANK'S CUSTOMER AND THEIR
CHARACTERISTICS

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 PRINCIPLES OF BANKING 135

BANKER:
(1) Negotiable Instrument Act 1881, De nes:
"Banker means a person transacting the business of
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, and
includes any Post Of ce Saving Bank".

(2) J.W. Gilbert Says:

"A banker is a dealer in capital or, more properly, a
dealer in money. He is an intermediate party between the
borrower and the lender. He borrows from one party and lends
to another".
(3) According to Dr. Hart:
"A person carrying on the business of receiving money
and collecting drafts for customers subject to the obligation .of
honouring of cheques drawn upon them from time to
the customers to the extent of the amount available on their
current account".
CUSTOMER:
(1) John Paget States:
eTOCOnstitute a customer there must be Some
recognizable course or habit of dealing in the nature of regular
banking business". J
(2) According to Dr. Hart:
"A customer is one who has an account with a banker or
for whom a banker habitually undertakes to act as such".

(3) Justice Lindlcy Says:

"Customer is a person who has some sort of account
either deposit or current account or some similar relation with a
banker".

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 136 BANKER AND CUSTOMER RELATIONSHID

RELATIOÔNSHIP BETWEEN BANKER

AND CUSTOMER
The main kinds of relationship between banker. and
customer are as follows:

BASICRELATION
1. Relation of Debtor and Creditor:
The relation between a banker and his customer
primarily that of a debtor and creditor, which can be explained
in following ways.

) Bank (Debtor) & Customer (Creditor):

When a customer deposits money in his account, the
money is to be considered as the money of depositor, so he has
the right to withdraw it at any time as per rules of bank. Here
the bank is the debtor and customer is the credito.

(i) Bank (Creditor) & Customer (Debtor):

When a customer takes loan from bank or avails
overdraft from bank then the bank is a creditors and customer
is a debtor in this relation.

OTHER RELATIONS
2. Relation of Bailer and Bailee:
When a baiker takes charge of his customer's valuable
goods, he becomes a bailee. The customer who deposits
property in this way is a Bailer. This relation of bailer and
bailee is the oldest relation between a banker and customer.
3. Relation of Mortgager and Mortgagee:
When a banker accepts real estate like land and building
etc. as security of loan by way of mortgage, the relationship
becomes that of mortgager and mortgagee. In this relation, the
custemer is a mortgager and the bank is mortgagee.

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 PRINCIPLES OF BANKING 137
4. Relation of Principal and Agent:
When a banker acts according to the instructions or on
the behalf of its customer then their relationship of principal
(customer) and agent (bank) exists. When the bank buys or
sells securities on behalf of its customèr, it performs an agency
function. Similarly, when it collects cheques, drafts, bills and
other, instruments and pays fee, rent etc. on behalf of its
customer, it acts as his agent
5. Relation of Aamal and Zarib:
When a banker provides nance to customer under the
agreement of Modaraba, the relationship becomes that of Zarib
and Aamal. The banker being a nancer is Zarib (Rab-ul-Mal)
and the customer having skill is Aamal (Modarib).
6. Relation of Purchaserand Seller:
Under deferred payment sale on mark up mode of nancing,
the banker is the seller of goods nanced and the customer is
purchaser of the same.
7. Relation of Lesser and Lessee:
When a banker provides nance to a customer on the
basis of lease nancing the relationship becomes that of a
lessee and lesser. In this case the banker is lesser and the
customer is lessee.

8. Relation of Trustee and Bene ciary:

When a bankreceivessecurities,andvaluablegoodsfor .
the custody, the banker's position is that of a trustee. On the
other hand, when a banker receives money and uses it in
various sectors for his bene t, he then becomes bene ciary.
9. Relation of Pledger andPledgee:
When a customer pledges an article (goods and
documents) with the banker as a security for payment' of debt
or performance of promise the relation between customer and
banker exists. The customer becomes pledger (pawnor) and the
banker becomes pledgee (pawnee).

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 138 BANKER AND CUSTOMER RELATIONSHIP

10. Relation of Hirer and Owner:

In' case of hire purchase nancing the banker is the
owner of the asset and the customer is hirer of the same. Under
this system, the bank purchases the required good at the request
of client and hires those good to the client.
11. Cordial Relation between Banker and Customer:
Sometimes the banker is in a position to establish
cordial relation with his customer by providing reliable and
con dential information about the general standing of people.

RIGHTS AND DUTIES OF CUSTOMER

(DUTIES)
1. Banking Hours:
A customer must present cheques for payment and
collection during banling hours.
2. Over-Dated Cheque:
A customer is required to present cheques for payment
before they become stale or over-dated.
3. Unauthorised Person:
customer should keep his Cheque Book under lock
and key, so that it may not go into the hands of an unauthorized
person.
4. Warning:
If acustomer knows or has reasonable grounds for
believing that his signature is being forged on a cheque, it is his
duty to warn the banker of the fact at the earliest opportunity.
5. Careful Draw of Cheque:
A customer should draw the cheques in such a careful
way that there is no room left for raising the amount.
(RIGHTS)
1. Right to Draw a Cheque:
The customer has the right to draw cheques against his
credit balance or when there is previous agreement to allow
him Running Finance (old name Oyerdraft).

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 PRINCIPLES OF BANKING 139

2. Right to Receive Pass Book:

A customer has the right to receive a Pass Book or a
Statement of Account.
3. Right of Correction:
In a case there is over-crediting or over-debiting a
customer has a right to get it corrected.
4. Right to Sue:
A customer has the right to sue a bank if it fails to
maintain the secrecy of his account or dishonours the cheque
bymistake.
5. Right of Receiving Deposit:
The customer has right to. withdraw his -deposited
amount in bạnk at aný time even he can withdraw from xed
deposit.
6. Right of Receiving Pro t:
It is the, right of customer that he will receive pro t or
interest from bank on his deposited amount according to the
decided rates.

RIGHTS AND DUTIES OF BANKER

(DUTIES)
1. Secrecy:
It is the duty of banker to keep all the information and
transaction about his customer secrete, otherwise the customer
can sue for any loss due to this reason.
2. Payments:
When a banker has to makę payments on behalf of his
customer, he must act in conformity with the instructions of the
customer.
3. Collections:
While collecting bills, salaries, dividends et., a banker
must take due care so as to protect the interest of the customer.
4. Trustee:
While acting as a trustee, a banker must act in
accordance with the terms and conditions contained in the
Trust Deed.

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 140 BANKER AND CUSTOMER RELATIONSHIP

5. Purchase and Sale of Securities:

In case of the purchase and sale of securities on behalf
of his customer, it is the duty ofa banker to obey the
instructions of the customer.
6. Opening Letter of Credit:
The opening banker must comply strictly with the ter
and conditions laid down in the application form for opening a
letter of credit. If the banker is negligent then he will haveno
right to claim' any indemnity from the customer.
7. .Safe Deposits:
It is the duty of a banker to take care of the safe
deposits as a man of ordinary prudence would do in case of his
wn articles in similar conditions.
8. Dealing in Foreign Exchange:
A banker must follow strictly the Exchange Control
regulations and instructions of the State Bank while dealing in
foreign exchange.
(RIGHTS)
1. Right of Compound Interest:
The banker has a right to charge compound interest
overdrafts, calculated on half yearly balances. It may change
due to agreeimentmade between the banker and the customer.
2. Right to ClaimCharges:
The bank has a right to claim bank charges and
commission as compensation for the services provided. The
services include collection of cheques, bills of exchange and
dividends etc.

3. Right of Lien:
The bank has a lien on the goods and securities of the
customer to retain until he pays his dues. The bank can sell
such items after giving proper notice. The bank has no lien on
safecustody deposits and trust funds..

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 PRINCIPLES OF BANKING 141

4. Right to Adjust Debit Balance:

It is the legal right of the bank to adjust the debit
balance against the credit balance of the same borrOwer.

TERMINATION OF RELATIONSHIP
The customer änd. banker both can terminate their
relationship on account of following reasons.
(BY BANKER)
1. Death of Customer:
The Banker refuses to make payment if he receives
intimation about the death of a customer. It should be noted,
however, that it is the notice of death. of a customer, not the
death itself, which terminates his relationship with the banker.
2. Customer'sInsanitly:
If thecustomerbecomesof unsoundmind, thebanker-
customer relationship is terminated. As son as the banker
receives notice of insanity of the customet, he. refuses to
honour the cheques drawn by him.
3. Customer's Insolvency:
Insolvency is called 'civil death'. The bank terminates
the payment ofchegques,if he receives the notice of insolvency
of his customer or a petition led for adjudging the customer
solvency.
4. Order of the Court:
The banker refuses to pay the cheques drawn by a
customer, if he receives an order from the court of law
restraining his cùstomer from operating on the account.
5. Insuf cient Balance:
If the banker feels that the character of the customer is
unsatisfactory or the áccount balañce is very small, he may
serve a notice to the customer to close his account.
6. Notice of Assignment:
The customer can transfer his credit balance to any one
else. He should inform the banker by notice of assignment.
After the receipt of the notice the relationship comes to an end.

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