Banker CRM

Banker Customer Relationship
Presentation by
Prof. Vighneswar
2/4/2013 Presentation by: Prof. VIGHNESWAR 1
Definition of Banker
Banking is defined (BR Act1949) as 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 (Section 5-b) Most essential functions of a banker: - Accepting of deposits - Lending or Investing the mobilised funds
Presentation by: Prof. VIGHNESWAR 2
2/4/2013
Definition of Customer
The term Customer of a bank is not defined by law Sir John Pagets view is that to constitute a customer there must be some recognisable course or habit of dealing in the nature of regular banking business Dr. Hart says a customer is one who has an account with a banker or for whom a banker habitually undertakes to act as such
2/4/2013
Definition of Customer ..
Kerala High Court ruling

others):
(CBI vs. V.Gopinathan Nair and
Broadly speaking a customer is a person who has the habit of resorting to the same place or person to do business. So far as banking transactions are concerned he is a person whose money has been accepted on the footing that banker will honour up to the amount standing to his credit, irrespective of his connection being of short or longstanding.
Thus, to constitute a Customer the following essential requisites: 1. a bank account 2. dealing between the banker and the customer should be of the nature of banking business
The Banker Customer Relationship is a contractual relationship and is governed by Law of Contract The Banker Customer Relationship is that of Debtor and Creditor. Once the customer deposits funds it constitutes a debt owed by the bank to the customer When the relationship is subject to special arrangements such as a joint account etc a special authority is taken as it is necessary to have written consent to vary the relationship.
2/4/2013
Special situations
are covered by the rules of:
Principal and Agent Trustee and Beneficiary These require separate documentation setting out the rules of the relationship
2/4/2013
Presentation by: Prof. VIGHNESWAR
Special Types of Customers
Minor
Married Woman
2/4/2013
Special Types of Customers..
Illiterate Persons
Lunatics
Trustees
2/4/2013
Special Types of Customers
Executors and Administrators
Joint Accounts
2/4/2013
Partnership Firms
Special Types of Customers.
Hindu Joint Family
Joint Stock Company
Clubs, Societies, charitable institutions

KYC Norms
KYC Policy "Know Your Customer (KYC) procedure should be the key principle for identification of an individual or corporate opening an account. The customer identification should entail verification through an introductory reference from an existing account holder/a person known to the bank or on the basis of documents provided by the customer. The Board of Directors of the banks should have in place adequate policies that establish procedures to verify the bonafide identification of individual /corporate opening an account. 2/4/2013 Presentation by: 11
Prof. VIGHNESWAR
KYC Norms
Customer identification
The objectives of the KYC framework should be two fold, (i) to ensure appropriate customer identification and (ii) to monitor transactions of a suspicious nature. Also refer to Report on Anti-Money Laundering Guidelines for Banks in India
"Know Your Customer" procedures for existing customers Ceiling and monitoring of cash transactions
Banks are required to issue travellers cheques, demand drafts, mail transfers, and telegraphic transfers for Rs.50,000 and above only by debit to customers accounts or against cheques and not against cash. The banks are required to keep a close watch of cash withdrawals and deposits for Rs.10 lakhs and above in deposit, cash credit or overdraft accounts and keep record of details of these large cash transactions in a separate register and the same has to be reported to RBI every month.
2/4/2013
KYC Norms
Internal Control Systems
Duties and responsibilities should be explicitly allocated for ensuring that policies and procedures Controlling offices of banks should periodically monitor strict adherence
Terrorism Finance
Banks to exercise caution if any transaction is detected with such entities.
Identification and Reporting of Suspicious Transactions

Banks should ensure that the branches and controlling offices report transactions of suspicious nature to the appropriate law enforcement authorities designated under the relevant laws governing such activities.
Adherence to Foreign Contribution Regulation Act (FCRA), 1976

Banks should also adhere to the instructions on the provisions of the Foreign Contribution Regulation Act, 1976 cautioning them to open accounts or collect cheques only in favour of association which are registered under the Act ibid by Government of India.
13
KYC Norms
EFFECTIVE IMPLEMENTATION LEADS TO RISK MANAGEMENT
Customer Acceptance Policy
Risk Management
Monitoring of Transactions
Customer Identification Procedure
2/4/2013
14
Termination of Banker Customer Relationship
Termination by mutual agreement

Termination by customer Termination by banker
2/4/2013
15
Termination of Banker Customer Relationship
Termination by mutual agreement Termination by mutual agreement is when both the customer and bank agree to close the account. In this case the bank will pay out any credit balances.
2/4/2013
16
Termination of Banker Customer relationship
Termination by Customer
The customer is not obliged to give notice to a banker where the account is in credit. The customer demands payment of the credit balance A credit balance is closed by paying the outstanding balance in full plus fees and charges owing provided they have satisfied all the terms and conditions of the account.
2/4/2013
17
Termination of Banker Customer relationship
Termination by banker The banker can terminate the bankercustomer relationship and close the customers account that has a credit balance provided notice is given allowing a reasonable time to set up to enable the customer to set up new banking arrangements. Ref: Prosperity Ltd v Lloyds Bank Ltd (1923)
2/4/2013
Bankers Duties
Duty of care Duty to issue statements Duty of confidentiality / Secrecy
2/4/2013
19
Bankers Duty of Care
Legally the duty of care is judged on what an ordinary reasonable person would do, or on what is normally done in similar circumstances.

Lloyds Bank Ltd v EB Savory & Co (1933) Saving Bank of South Australia v Wallman (1935) L Shaddock & Assoc Pty Ltd v Parramatta City Council
2/4/2013
Bankers Duty to Issue Statements
S 14.1 Code of Banking Practice states that personal customers must receive a statement of their account at least at six monthly intervals. (Except when it is a passbook account or that there have been no transactions on the account for the past six months.)
2/4/2013
21
Bankers Duty of Confidentiality
The duty of confidentiality relates to:
Details of the customers account Information derived from the customers account Information acquired in the course of the banker-customer relationship The duty of confidentiality extends beyond the duration of the account.
2/4/2013
22
Bankers Duty of Confidentiality
Exceptions to duty of confidentiality:

Where the disclosure is under compulsion of law Where there is a duty to the public to disclose Where the interests of the bank require disclosure Where the disclosure is made by express or implied consent of the customer Where disclosure is to the tax department Tournier v National Provincial & Union Bank of England (1924)
2/4/2013
23
Bankers Rights
Bankers Right of General Lien (Sec 171 of Indian Contract Act 1872) General Lien Particular Lien Right of set-off accounts Accounts must be in the same name and same right Only in respect of present debts due not for future debts The amounts of Debt must be certain Can be exercised even in the absence of an Agreement The banker may exercise this right at his discretion The banker has the right to exercise this right even before the Garnishee Order is made effective. Bankers right of Appropriation (Rule of Claytons) Right to charge fees and interest
Bankers Right of Set-Off
Banks tend to be cautious about combining accounts without notice and in the absence of the customers express authority to do so.
2/4/2013
25
Bankers Right to Charge Fees & Interest
The banks right to charge fees & Commission is based on universal custom and is an implied term of the banker-customer contract. The right to charge interest on unauthorised overdrafts and debit interest to the account is also an implied term of the contract. Bank of New South Wales v Brown (1982-3)
2/4/2013
26
Bankers Obligations
A bankers obligation to pay cheques to the value of the credit balance of the account or to the arranged overdraft limit of the account provided:
The cheque is an effective instrument drawn in proper form There are sufficient funds to meet the value of the cheque There are no legal impediments to the banks honouring the cheque
2/4/2013
Bankers Obligations (Owing to Statutes)
Disclosure of information required by law: Under I T Act 1961- Sec 131, 132 enable the IT authorities to require even banks to furnish information in relation to bank accounts. Under Companies Act 1956 Sec 235 to 237, the Central Govt. appointed Inspectors can seek the information about the bank accounts of the companies from the banks Under Bankers Books of Evidence Act 1891, Court can order the bank to disclose the information Under the RBI Act 1934, RBI can seek the information Under BR Act 1949, Banks are required to the information to the Govt.
2/4/2013
Bankers Obligations (Owing to Statutes)

Under Gifts Tax Act 1958 - Sec 36, Tax Authorities are conferred with the powers to seek information Under Criminal Procedure Code Sec 94(3) Disclosure to Police during investigations FEMA Act 1999 Sec 43 enables the Officers of the Directorate of Enforcements and Reserve Bank to investiogate the bank accounts
Bankers Obligations
Disclosure permitted by Bankers Practices and Usages With implied of Express consent To protect banks interest ( to guarantor) Bankers Reference
2/4/2013
30
Liability of the banker in case of wrongful dishonour of Cheques
Sec 31 of NI Act: the banker is liable to compensate the drawerfor loss or damage caused by default on his part in dishonouring the cheque without sufficient reason.
2/4/2013
31
N I Act 1881

2/4/2013
Definition of Negotiable Instrument Negotiable Instruments Act does not define Negotiable Instrument but merely states that a negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or bearer (Sec 13). Justice K.C.Willis defines Negotiable Instrument as one, the property in which is acquired by any one who takes it bona fide and for value notwithstanding any defect of title in the person from whom he took it Thomas in his Commerce, Its Theory and Practice states that an Instrument is negotiable when it is, by a legally recognised custom of trade or by law, transferable by delivery or by endorsement and delivery, without notice to the party liable in such a way that (a) the holder of it for the time being may sue upon it in his own name, and (b) the property in it passes to a bona fide transferee for value free from any defect in the title of the person from whom he obtained it.
Essentials of a Negotiable Instrument

Transferability:
Easily transferable from one person to other person Ownership of the property in the instrument may be passed on by mere delivery or by endorsement and delivery
Negotiability:
Confers absolute and good title on the transferee who takes it in good faith for value and without notice of the fact that the transferor had defective title thereto.
Special feature of Negotiable Instrument

A negotiable instrument is an exception to this general rule of law The privilege of the holder of a negotiable instrument in due course constitutes the main difference between a transferable instrument or article and a negotiable instrument (For example, X purchases a book from Y against full value. But Y had stolen the book from the house of Z. In case the thief Y is caught for this theft and since the stolen book is with X, then X is bound to loose the title over the book as Y had no valid title over the book. Whereas, in the case of Negotiable Instrument, it is an exception to the general rule of law. Given the above example, If X has taken a Cheque, he will have a good title therto and will not be responsible to the true owner Z. Z will have the right against Y. 33
Types of Negotiable Instruments
Negotiable Instruments by Statute

Cheque
Bill of Exchange Promissory Notes
Negotiable Instruments by Custom or Usage

Shah jog hundis, delivery orders and railway receipts
Exceptional Cases of Negotiable Instruments

The drawer of the instrument can take away or alter the essential characteristic of negotiability ( Not Negotiable )
Definitions of a Promissory Note
A Promissory Note is an instrument in writing ( not being a bank note or currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the certain person, or to the bearer of the instrument. (Sec 4) A Promissory Note is drawn and signed by the debtor, who promises to pay the creditor a certain sum of money. Specimen of Promissory Note:
Hyderabad
Rs. 50000
19.05.2008
Three months after date I promise to pay X the sum of Rupees Fifty Thousands for value received. Signed On a Revenue Stamp Presentation by:
Prof. VIGHNESWAR
2/4/2013
To X
35
Definitions of a Bill of Exchange

A Bill of Exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to order of, a certain person or to the bearer of the instrument. (Sec 5) A Bill of Exchange contains an order from the creditor to the debtor to pay a certain amount to a person mentioned therein. The maker of the bill is called the Drawer The person who is directed to pay is called the Drawee The person who is entitle to receive payment is called the Payee Specimen of A Bill of Exchange:
Hyderabad Rs. 100000 19.05.2008 Three months after date I pay to X or order the sum of Rupees One lakh for value received. Accepted Signed Stamped
Definitions of a Cheque
A Cheque is a Bill of Exchange drawn on a specified banker and not expressed to payable otherwise than on demand (Sec 6) A Cheque is a bill of exchange which is alsways

(i) drawn on a banker specified therein (ii) payable on demand
The author of the Cheque is called the Drawer The Bank who is directed to pay is called the Drawee bank The person who is entitle to receive payment is called the Payee The bank which pays the cheque is called the Payee bank Specimen of A Cheque:
19.05.2008 Pay..or Bearer .. .. Rs. 150000 A/ c No. . LF. .Intls. STATE BANK OF INDIA Signed KUKATPALLY, HYDERABD 2/4/2013 Presentation by:
Prof. VIGHNESWAR
37
Distinguishing features of Negotiable Instruments

1. 2.
3.
4.
5. 6. 7. 8.
9.
10.
Instruments should be in writing Unconditional order / promise The amount of the instrument should be certain The instrument must be payable either to order or bearer (sec 13) The payee must be a certain person (Sec 5) The payee may be more than on person (Sec 13-2) The time of payment (Sec 19) Signature of the drawer or promisor Delivery of the instrument is essential Stamping of Promissory Notes and Bills of Exchange is necessary
2/4/2013
Holder and Holder in Due Course
Holder: Holder of a Promissory Note, Bill of Exchange or Cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. (Sec 8) The Conditions: He must be entitled to the possession of the instrument in his own name and under a legal title. He must be entitled to receive or recover the amount from the parties concerned in his own name.
2/4/2013
Holder in Due Course:

Holder in Due Course means any person who, for consideration, became the possessor of a promissory note, bill of exchange or cheque, if payable to bearer, or became the payee or endorsee thereof if payable to order before the amount mentioned in it became payable, and without having sufficient cause to believe that defect existed in the title of the person from whom he derived his title. The Conditions: The instrument must be in the possession of the holder in due course The instrument must be regular and complete in all respects The instrument must have been obtained for full value and consideration The instrument must have been obtained before the amount mentioned therein becomes payable ( not applicable for Cheques) The Holder in Due Course should have obtained the instrument without having sufficient cause to believe that any defect existed in the title of the transferor. Holder in Due course must obtain an instrument after taking all possible care about the transferors good title.
40
Rights of a Holder
The Holder of Negotiable Instrument enjoys the following rights:

1.
2.
3.
4.
5.
2/4/2013
An endorsement in blank may be converted by him into an endorsement in full. He is entitled to cross a cheque generally or specially and also with the words Not Negotiable He can negotiate a cheque to a third person, if such negotiation is not prohibited by the direction given in the cheque He can claim payment of the instrument and can sue in his own name on the instrument. A duplicate copy of lost cheque may be obtained by a holder Presentation by: 41
Prof. VIGHNESWAR
Privileges of a Holder in Due Course
A Holder in Due Course enjoys the following privileges:

1. 2. 3. 4. 5. 6.
7.
8. 9.
He possesses better title free from defects (Sec 53) Liability of prior parties to Holder in Due Course (Sec 36) Right of the Holder in Due Course in case of Inchoate Instrument ( i.e. incomplete) (Sec 20) Right in case of fictitious bills (Sec 42) Right in case the instrument is obtained by unlawful means or for unlawful consideration (Sec 58) Estoppel against denying original validity of the instrument (Sec 120) Estoppel against denying capacity of payee to endorse (Sec 121) Estoppel against denying signature or capacity to prior party
2/4/2013
Payment in Due Course

Definition: Payment in Due Course means payment in accordance with
the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned. (Sec 10)
Essential Features:
1.
2.
3.
2/4/2013
The payment should be made in accordance with the apparent tenor of the instrument The payment should be made in good faith and without negligence The payment must be made to the person in possession of the instrument.
43
Negotiation
Meaning of Negotiation:
When a promissory note, bill of exchange or cheque is transferred to any

person, so as to constitute that person, the holder thereof, the instrument is said to be negotiated. (Sec 14) An instrument may be negotiated in any of the following two ways:
By Delivery A promissory note, bill of exchange or cheque payable to bearer is negotiable by delivery thereof. (Sec 47) By Endorsement and Delivery A promissory note, bill of exchange or cheque payable to order is negotiable by the holder by endorsement and delivery thereof. (Sec 48)
Endorsement
Definition:
When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto or so signs for the same purpose on a stamped paper intended to be completed as a negotiable instrument, he is said to have endorsed the same and is called endorser. (Sec 15)
Legal Provisions of Endorsements

Effect of Endorsement
The endorsement of a negotiable instrument followed by delivery transfers to the endorsee the property therein with the right of further negotiation. (Sec 50)
Endorser
Every sole maker, drawer, payee or endorsee or all of several joint makers, drawers, payees or endorsees, of a negotiable instruments may endorse and negotiate the same. (Sec 51)
Time
A negotiable instrument may be negotiated until its payment has been made by the banker, drawee or acceptor at or after maturity but not thereafter. (Sec 60)
Endorsement not for a part of the amount

The instrument must be endorsed for its entire amount. (Sec 56)
General Rules regarding the Form of Endorsements Signature of the endorser 2. Spelling 3. No addition or omission of initial of the name 4. Prefixes and suffixes to excluded
1.
2/4/2013
45
Types of endorsements
Endorsement in blank: If the endorser signs his name only the endorsement
is said to be in blank. (Sec 16) Endorsement in full: If in addition to his signature, the endorser adds a direction to pay the amount mentioned in the instrument to, or to the order of, a specified person, the endorsement is said to be endorsement in full. (Sec 16) Conditional Endorsement: If the endorser of a negotiable instrument, by express words in the endorsement, makes his liability, or the right of the endorsee to receive the amount due thereon, dependent on the happening of a specified event, although such event may never happen, such endorsement is called a conditional endorsement. (Sec 52) Restrictive Endorsement: The endorsement may, by express words restrict or exclude the right to negotiate or may merely constitute the endorsee an agent to endorse the instrument or to receive its contents for the endorser or for some other specified person, such an endorsement prohibits further endorsement and is called Restrictive Endorsement. (Sec 50) Endorsement Sans Recourse: An endorser may, by express words in the endorsement, exclude his own liability thereon (Sec 52) Facultative Endorsement: It is responsibility of the endorsee to give the notice of dishonour of the instrument to the endorser. But under this Facultative Endorsement the Notice of dishonour may be waived. The endorser remains liable to the endorsee for the non-payment of the instrument.
Bankers Right of Set-Off
The following conditions must apply:
The account must be held by the customer in the one capacity (i.e. cannot combine accounts if one is a personal account the other a trust account). There must be no contract precluding the right to set off The customers indebtedness must have been incurred to it as a banker not under some other service
2/4/2013
2/4/2013
48

Banker CRM

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Banker CRM

Uploaded by

Copyright:

Available Formats

Banker Customer Relationship

Kerala High Court ruling

(CBI vs. V.Gopinathan Nair and

Banker Customer Relationship

Banker Customer Relationship

Presentation by: Prof. VIGHNESWAR

Special Types of Customers

Presentation by: Prof. VIGHNESWAR

Special Types of Customers..

Special Types of Customers

Executors and Administrators

Presentation by: Prof. VIGHNESWAR

Special Types of Customers.

Hindu Joint Family

Joint Stock Company

Clubs, Societies, charitable institutions

Internal Control Systems

Identification and Reporting of Suspicious Transactions

Adherence to Foreign Contribution Regulation Act (FCRA), 1976

Customer Identification Procedure

Presentation by: Prof. VIGHNESWAR

Termination of Banker Customer Relationship

Termination by mutual agreement

Presentation by: Prof. VIGHNESWAR

Termination of Banker Customer Relationship

Presentation by: Prof. VIGHNESWAR

Termination of Banker Customer relationship

Presentation by: Prof. VIGHNESWAR

Termination of Banker Customer relationship

Duty of care Duty to issue statements Duty of confidentiality / Secrecy

Presentation by: Prof. VIGHNESWAR

Bankers Duty of Care

Bankers Duty to Issue Statements

Presentation by: Prof. VIGHNESWAR

Bankers Duty of Confidentiality

The duty of confidentiality relates to:

Presentation by: Prof. VIGHNESWAR

Bankers Duty of Confidentiality

Exceptions to duty of confidentiality:

Presentation by: Prof. VIGHNESWAR

Bankers Right of Set-Off

Presentation by: Prof. VIGHNESWAR

Bankers Right to Charge Fees & Interest

Presentation by: Prof. VIGHNESWAR

Bankers Obligations (Owing to Statutes)

Bankers Obligations (Owing to Statutes)

Presentation by: Prof. VIGHNESWAR

Liability of the banker in case of wrongful dishonour of Cheques

Presentation by: Prof. VIGHNESWAR

Essentials of a Negotiable Instrument

Special feature of Negotiable Instrument

Types of Negotiable Instruments

Negotiable Instruments by Statute

Bill of Exchange Promissory Notes

Negotiable Instruments by Custom or Usage

Exceptional Cases of Negotiable Instruments

Definitions of a Promissory Note

Definitions of a Bill of Exchange

(i) drawn on a banker specified therein (ii) payable on demand

Distinguishing features of Negotiable Instruments

Holder and Holder in Due Course

Holder in Due Course:

The Holder of Negotiable Instrument enjoys the following rights:

Privileges of a Holder in Due Course