The 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. Bank’s business depends much
on the strong bondage with the customer. “Trust” plays an important
role in building healthy relationship between a banker and customer.
Definition of a ‘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”.
According
to Sec. 2 of the Bill of Exchange Act, 1882, ‘banker includes a body of
persons, whether incorporated or not who carry on the business of
banking.’
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 a ‘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 manner’s .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.
Thus bank customers can be categorized in to four broad categories as under:
(a)Those who maintain account relationship with banks i.e. Existing customers.
(b)Those who had account relationship with bank i.e. Former Customers
(c)Those who do not maintain any account relationship with the bank but frequently
visit branch of a bank for availing banking facilities such as for purchasing a
draft, encashing a cheque, etc. Technically they are not customers, as they do
not maintain any account with the bank branch.
(d)Prospective/ Potential customers: Those who intend to have account relationship
with the bank. A person will be deemed to be a 'customer' even if he had only
handed over the account opening form duly filled in and signed by him to the bank
and the bank has accepted the it for opening the account, even though no
account has actually been opened by the bank in its books or record.
The
practice followed by banks in the past was that for opening account
there has to be an initial deposit in cash. However the condition of
initial cash deposit for opening the account appears to have been
dispensed with the opening of
‘No Frill’ account by banks as per directives of Reserve Bank of India.
‘No Frill’ accounts are opened with ‘Nil’ or with meager balance.
The
term 'customer' is used only with respect to the branch, where the
account is maintained. He cannot be treated as a ‘customer' for other
branches of the same bank. However with the implementation of’ ‘Core
Banking Solution’ the customer is the customer of the bank and not of a
particular branch as he can operate his account from any branch of the
bank and from anywhere. In the event of arising any cause of action, the
customer is required to approach the branch with which it had opened
account and not with any other branch.
‘Know Your Customer’ Guidelines and Customer:As per ‘Know Your Customer’ guidelines issued by Reserve Bank of India, customer has been defined as:
(i)A person or entity that maintains an account and/or has a business relationship
with the bank;
(ii)One on whose behalf the account is maintained (i.e. the beneficial owner);
(iii)Beneficiaries of transactions conducted by professional intermediaries, such as
Stock Brokers, Chartered Accountants, Solicitors etc. as permitted under the
law, and
(iv)Any person or entity connected with a financial transaction, which can pose
significant reputational or other risks to the bank, say, a wire transfer or
issue of a high value demand draft as a single transaction.
Banker-Customer Relationship:Banking
is a trust-based relationship. There are numerous kinds of relationship
between the bank and the customer. The relationship between a banker
and a customer depends on the type of transaction. Thus the relationship
is based on contract, and on certain terms and conditions.
These
relationships confer certain rights and obligations both on the part of
the banker and on the customer. However, the personal relationship
between the bank and its customers is the long lasting relationship.
Some banks even say that they have generation-to-generation banking
relationship with their customers.The banker customer relationship is
fiducial relationship. The terms and conditions governing the
relationship is not be leaked by the banker to a third party.
Classification of Relationship:The
relationship between a bank and its customers can be broadly
categorized in to General Relationship and Special Relationship.
If we look at
Sec 5(b)
of Banking Regulation Act, we would notice that bank’s business hovers
around accepting of deposits for the purposes of lending. Thus the
relationship arising out of these two main activities are known as
General Relationship. In addition to these two activities banks also
undertake other activities mentioned in Sec.6 of Banking Regulation Act.
Relationship arising out of the activities mentioned in Sec.6 of the
act is termed as special relationship.
General Relationship:Debtor-Creditor:
When a 'customer' opens an account with a bank, he fills in and 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 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. Bank does not give any security to the depositor i.e. debtor. The
bank has borrowed money and it is only when the depositor demands,
banker pays. Bank’s position is quite different from normal debtors.
Banker
does not pay money on its own, as banker is not required to repay the
debt voluntarily. The demand is to be made at the branch where the
account exists and in a proper manner and during working days and
working hours.
The debtor has to follow the terms and conditions
of bank said to have been mentioned in the account opening form. {Though
the terms and conditions are not mentioned in the account opening form,
but the account opening form contains a declaration that the terms and
conditions have been read and understood or has been explained. In fact
the terms and conditions are mentioned in the passbook, which is issued
to the customer only after the account has been opened.}
In the
past while opening account some of the banks had the practice of giving a
printed handbill containing the terms and conditions of account along
with the account opening form. This practice has since been
discontinued. For convenience and information of prospective customers a
few banks have uploaded the account opening form, terms and conditions
for opening account, rate charge in respect of various services provided
by the bank etc., on their web site.
While issuing Demand Draft, Mail / Telegraphic Transfer, bank becomes a debtor as it owns money to the payee/ beneficiary.
2. Creditor–Debtor: Lending
money is the most important activities of a bank. The resources
mobilized by banks are utilized for lending operations. Customer who
borrows money from bank owns money to the bank. In the case of any
loan/advances account, the banker is the creditor and the customer is
the debtor. The relationship in the first case when a person deposits
money with the bank reverses when he borrows money from the bank.
Borrower executes documents and offer security to the bank before
utilizing the credit facility.
In addition to opening of a
deposit/loan account banks provide variety of services, which makes the
relationship more wide and complex. Depending upon the type of services
rendered and the nature of transaction, the banker acts as a bailee,
trustee, principal, agent, lessor, custodian etc.
Special Relationship:1. Bank as a Trustee:As per
Sec. 3 of Indian Trust Act, 1882
‘
A "trust" is an obligation annexed to the ownership of property, and
arising out of a confidence reposed in and accepted by the owner, or
declared and accepted by him, for the benefit of another, or of another
and the owner.’ Thus trustee is the holder of property on behalf of a
beneficiary.
As per
Sec. 15 of the ‘Indian
Trust Act, 1882 ‘A trustee is bound to deal with the trust-property as
carefully as a man of ordinary prudence would deal with such property if
it were his own; and, in the absence of a contract to the contrary, a
trustee so dealing is not responsible for the loss, destruction or
deterioration of the trust-property.’ A trustee has the right to
reimbursement of expenses (Sec.32 of Indian Trust Act.).
In case
of trust banker customer relationship is a special contract. When a
person entrusts valuable items with another person with an intention
that such items would be returned on demand to the keeper the
relationship becomes of a trustee and trustier. Customers keep certain
valuables or securities with the bank for safekeeping or deposits
certain money for a specific purpose (Escrow accounts) the banker in
such cases acts as a trustee. Banks charge fee for safekeeping valuables
2. Bailee – Bailor: Sec.148 of Indian Contract Act, 1872, defines "Bailment" "bailor" and "bailee".
A "bailment" is the delivery of goods by one person to another for some purpose,
upon a contract that they shall, when the purpose is accomplished, be returned or
otherwise disposed of according to the directions of the person delivering them.
The person delivering the goods is called the "bailor". The person to whom they
are delivered is called, the "bailee".
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.
3.Lessor and Lessee: Sec.105 of ‘Transfer of property Act 1882’ defines lease, Lessor, lessee, premium and rent. As per the section
“A
lease of immovable property is a transfer of a right to enjoy such
property, made for a certain time, express or implied, or in perpetuity,
in consideration of a price paid or promised, or of money, a share of
crops, service or any other thing of value, to be rendered periodically
or on specified occasions to the transferor by the transferee, who
accepts the transfer on such terms.”
Definition of Lessor, lessee, premium and rent :
(1)The transferor is called the lessor,
(2)The transferee is called the lessee,
(3)The price is called the premium, and
(4)The money, share, service or other thing to be so rendered is called the rent.”
Providing
safe deposit lockers is as an ancillary service provided by banks to
customers. While providing Safe Deposit Vault/locker facility to their
customers bank enters into an agreement with the customer. The
agreement is known as “Memorandum of letting” and attracts stamp duty.
The
relationship between the bank and the customer is that of lessor and
lessee. Banks lease (hire lockers to their customers) their immovable
property to the customer and give them the right to enjoy such property
during the specified period i.e. during the office/ banking hours and
charge rentals. Bank has the right to break-open the locker in case the
locker holder defaults in payment of rent. Banks do not assume any
liability or responsibility in case of any damage to the contents kept
in the locker. Banks do not insure the contents kept in the lockers by
customers.
4. Agent and Principal:Sec.182 of
‘The Indian Contract Act, 1872’ defines “an agent” as a person employed
to do any act for another or to represent another in dealings with
third persons. The person for whom such act is done or who is so
represented is called “the Principal”.
Thus an agent is a person,
who acts for and on behalf of the principal and under the latter’s
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 theses 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.
5. As a Custodian:
A custodian is a person who acts as a caretaker of some thing. Banks
take legal responsibility for a customer’s securities. While opening a
dmat account bank becomes a custodian.
6. As a Guarantor: Banks
give guarantee on behalf of their customers and enter in to their
shoes. Guarantee is a contingent contract. As per sec 31,of Indian
contract Act guarantee is a " contingent contract ". Contingent contract
is a contract to do or not to do something, if some event, collateral
to such contract, does or does not happen.
It would thus be observed that banker customer relationship is transactional relationship.
Termination of relationship between a banker and a customer:The relationship between a bank and a customer ceases on:
(a) The death, insolvency, lunacy of the customer.
(b) The customer closing the account i.e. Voluntary termination
(c) Liquidation of the company
(d) The closing of the account by the bank after giving due notice.
(e) The completion of the contract or the specific transaction.
The relationship developed between a banker and customer involves some duties on the part of both.
Duties of a banker:A 'Banker' has certain duties vis-à-vis his customer. These are:
(a)Duty to maintain secrecy/confidentiality of customers' accounts.
(b)Duty to honour cheques drawn by customers on their accounts and collect cheque,
bills on his behalf.
(c)Duty to pay bills etc., as per standing instructions of the customer.
(d)Duty to provide proper services.
(e)Duty to act as per the directions given by the customer. If directions are not
given the banker has to act according to how he is expected to act.
(f)Duty to submit periodical statements i.e. informing customers of the state of the
account
(g)Articles/items kept should not be released to a third party without due
authorization by the customer
Duty to maintain secrecy:Banker
has a duty to maintain secrecy of customers' accounts. Maintaining
secrecy is not only a moral duty but bank is legally bound to keep the
affairs of the customer secret. The principle behind this duty is that
disclosure about the dealings of the customer to any unauthorized person
may harm the reputation of customer and the bank may be held liable.
The duty of maintaining secrecy does not cease with the closing of
account or on the death of the account holder.
As per
Sec. 13 of “Banking Companies Acquisition and Transfer of Undertakings Act 1970”-
“Every
corresponding new bank shall observe, except as otherwise required by
law, the practices and usages customary among bankers, and, in
particular, it shall not divulge any information relating to or to the
affairs of its constituents except in circumstances in which it is, in
accordance with law or practices and usages customary among bankers,
necessary or appropriate for the corresponding new bank to divulge such
information.”
Maintaining secrecy is implied terms of the
contract with the customer which bank enters into with the customer at
the time of opening an account.
Bank has not only to maintain
secrecy of transactions, but secrecy is also to be maintained in respect
of operations through ATM/ debit cards. Bank has also to maintain
secrecy of user ID pins with due care so that it does fall in wrong
hands.
Failure to maintain secrecy:Bank
is liable to pay damages to the account holder for loss of money and
reputation if it fails in its duty to maintain secrecy and discloses
information relating to a customer's account or conduct of the account
to any unauthorized person.
Bank can also be liable to the third
party if its wrongful disclosure harms the interest of the third-party.
If bank Knowingly furnishes wrong information
There has been a misrepresentation
Over estimation of favourable opinion
Circumstances under which banker can disclose information of customer's account:A bank can disclose information regarding customer's account to a person(s) under the following circumstances.
(a)Under compulsion of law.
(b)Under banking practices.
(c)For protecting national interest.
(d)For protecting bank’s own interest
(e)Under express or implied consent of the customer
Disclosure under compulsion of law:Banks
disclose information to various authorities who by virtue of powers
vested in them under provisions of various acts require banks to furnish
information about customer’s account. The information is called under:
(i)Section 4 of Banker's Book Evidence Act, 1891
(ii)Section 94 (3) of Code of Civil Procedure Act, 1908
(iii)Section 45 (B) of Reserve Bank of India Act, 1934
(iv)Section 26 of Banking Regulation Act, 1949
(v)Section 36 of Gift Tax Act, 1958
(vi)Sections 131, 133 of Income Tax Act, 1961
(vii)Section 29 of Industrial Development Bank of India Act, 1964
(viii)Section 12of Foreign Exchange Management Act, (FEMA) 1999
(ix)Section 12 of the Prevention of Money Laundering Act, 2002
Banks
are required to furnish only the called for information (no additional
information is to be furnished) on receipt of written request of the
person who is vested with the authority to call for such information
under the said acts. The customer is kept informed about the disclosure
of the information.
Disclosure under banking practices:In
order to ascertain financial position and credit worthiness of the
person banks obtain information from other banks with which they are
maintaining accounts. It is an established practice among bankers and
implied consent of the customer is presumed to exist. The opinion is
given in strictest confidence and without responsibility on the part of
the bank furnishing such information. Credit information is furnished in
coded terms to other banks on IBA format and without signatures.
2.Duty to provide proper accounts :Banks
are under duty bound to provide proper accounts to the customer of all
the transactions done by him. Bank is required to submit a statement of
accounts / passbook to the customer containing all the credits and
debits in the account.
3.Duty to honour cheques:As
'banking' means accepting of deposits withdrawable by cheque, draft,
order or otherwise, the banker is duty bound to honour cheques issued by
the customers on their accounts.
Sec. 31of Negotiable Instruments
Act, 1881 specifies the liability of drawee of cheque. As per Sec. 31
“The drawee of a cheque having sufficient funds of the drawer in his
hands properly applicable to the payment of such cheque must pay the
cheque when duly required so to do, and, in. default of such payment,
must compensate the drawer for any loss or damage caused by such
default.”
Therefore it is the duty of a bank to honour the cheques issued by the account holder if:
The
cheque has been properly drawn and is in order in all respects i.e. it
is properly dated, amount in words and figures have been expressed
properly, is neither stale nor post dated nor mutilated and the
signature of accountholder tallies with the specimen recorded with the
bank. The cheque should be drawn on the branch where the account is
maintained. (Due to implementation of technology and core banking
solution a customer can present cheques on any branch of a bank. RBI has
advised banks to issue
multi city cheques to account holders.)
(a)There is sufficient balance in the account and the balance is properly
applicable for payment of the cheque.
(b)The cheque is presented for payment on a working day and during the business
hours of the branch.
(c)Endorsements on the cheque are regular and proper.
(d)The payment of the cheque is not countermanded by the drawer
Duty to honour cheques ceases on receipt of:(a)Stop payment instructions from the account holder.
(b)Notice about the death of the drawer.
(c)A garnishee order attaching the balance in the account or an income-tax
attachment order received by the banker.
(d)Drawer of the cheque becoming insolvent and/or a lunatic at the time of drawing
the cheque.
Bank can refuse to honour the cheques if:There is in sufficient 1balance in the account to make payment of the cheque.
Cheque issued does not pertain to the account on which it has been drawn.
1.If the cheque is not in order (post dated, stale, payment countermanded, amount in
words and figure differs, etc.)
2.The balances held in account are earmarked for some specific purpose and the
remaining balance is not sufficient to honour the cheque.
Rights of a banker:It
is not that the bank has only duties to wards its customers, it too has
certain rights vis-à-vis his customers. The rights can broadly be
classified as:
Right of General Lien
a)Right of Set-Off
b)Right of Appropriation
c)Act as per the mandate of customer
d)Right to Charge Interest, Commission, Incidental Charges etc.
Lien:A
lien is the right of a creditor in possession of goods, securities or
any other assets belonging to the debtor to retain them until the debt
is repaid, provided that there is no contract express or implied, to the
contrary. It is a right to retain possession of specific goods or
securities or other movables of which the ownership vests in some other
person and the possession can be retained till the owner discharges the
debt or obligation to the possessor. The creditor (bank) has the right
to maintain the security of the debtor but not to sell it. There are two
types of lien viz.
1.Particular Lien and
2.Right of General Lien
(a) Particular Lien:A
'particular lien' gives the right to retain possession only of those
goods in respect of which the dues have arisen. It is also termed as
ordinary lien. If the bank has obtained a particular security for a
particular debt, then the banker's right gets converted into a
particular lien.
(
b) Right of General Lien:Banker
has a right of general lien against his borrower. General lien confers
banks right in respect of all dues and not for a particular due. It is a
statutory right of the bank and is available even in absence of an
agreement but it does not confer the right to pledge. A 'general lien'
gives the right to retain possession of any goods in the legal
possession of the creditor until the whole of the debt due from the
debtor is paid.
Section 171 of Indian Contract Act, 1872 confers
the right of general lien to banks. As per the section “ Bankers,
factors, wharfingers, attorneys of a High Court and policy-brokers may,
in the absence of a contract to the contrary, retain, as a security for a
general balance of account any goods bailed to them; but no other
persons have a right to retain, as a security for such balance, goods
bailed to them, unless there is an express contract to the effect.”
Bank
has a right of lien only when goods, securities are received in the
capacity as a creditor. While granting advances banks take documents.
These documents confer right to convert general lien as an implied
pledge. A banker’s lien is more than a general lien, it is an implied
pledge and he has the right to sell the goods in case of default Bank
has a 'Right of Sale' of goods under lien. Banker's right of lien is not
barred by the Law of Limitation.
Exercising Right of Lien:Bank has the right of lien on goods and securities entrusted to him legally and standing in the name of the borrower.
Bank
can exercise right of lien on the securities in its possession for the
dues of the same borrower, even after the loan taken against that
particular security has been re-paid.
Right of lien can be exercised on bills, cheques, promissory notes, share certificates, bonds, debentures etc.
Where right of lien cannot be exercised:Bank
cannot exercise right of lien on goods received for safe custody, goods
held in capacity as a trustee, or as an agent of the customer, SDV, or
left in bank by mistake
Right of set-off:The
banker has the right to set off the accounts of its customer. It is a
statutory right available to a bank, to set off a debt owned to him by a
creditor from the credit balances held in other accounts of the
borrower. The right of set-off can be exercised only if there is no
agreement express or implied to the contrary. This right is applicable
in respect of dues that are due, are becoming due i.e. certain and not
contingent. It is not applicable on future debts. It is applicable in
respect of deposits that are due for payment.
The right of set
off enables bank to combine all kinds of credit and debit balances of a
customer for arriving at a net sum due.
The right is also
available for deposits kept in other branches of the same bank. The
right can be exercised after death, insolvency, and dissolution of a
company, after receipt of a garnishee/ attachment order .The right is
also available for time barred debts.
Deposits held in the name
of a guarantor cannot be set off to the debit balance in borrowers
account until a demand is made to the guarantor and his liability
becomes certain. Banks cannot set off the credit balance of customer's
personal account for a joint loan account of the customer with another
person unless both the joint accountholders are jointly and severally
liable. Banks exercise the Right of set off only after serving a notice
on the customer informing him that the bank is going to exercise the
right of set-off.
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)On receipt of a notice of assignment of credit balance by the customer to the
banker.
e)On receipt of notice of second charge on the securities already charged to the
bank.
Conditions while exercising right of Set - Off:a)The account should be in the sole name of the customer.
b)The amount of debts must be certain and measurable.
c)There should not be any agreement to the contrary
d)Funds should not be held in trust accounts
e)The right cannot be exercised in respect of future or contingent debts.
f)The banker has the right to exercise this right before a garnishee order is received by it.
Right of Appropriation:It
is the right of the customers to direct his banker against which debt
(when more than one debt is outstanding) the payment made by him should
be appropriated. In case no such direction is given, the bank can
exercise its right of appropriation and apply it in payment of any debt.
Section 59,60 and 61 of Indian Contract Act, 1872 lays down the rules
of appropriation.
Sec.59.Application of payment where debt to be discharged is indicated: (i.e.– As per borrowers instructions)
Where
a debtor, owing several distinct debts to one person, makes a payment
to him, either with express intimation, or under circumstances implying
that the payment is to be applied to the discharge of some particular
debt, the payment, if accepted, must be applied accordingly.
Sec.60. Application of payment where debt to be discharged is not indicated: (i.e. in the absence of express or implied intention of debtor)
Sec.60
of the Indian Contract Act states that if the debtor does not intimate
or there is no circumstance of indicating how the payment is to be used,
the right of appropriation is vested in the creditor.
According
to the Act, “Where the debtor has omitted to intimate and there are no
other circumstances, indicating to which debt the payment is to be
applied, the creditor may apply it at his discretion to any lawful debt
actually due and payable to him from the debtor, whether its recovery is
or is not barred by the law in force for the time being as to the
limitation of suits.”
Sec.61.Application of payment where neither party appropriates.Where
neither party makes any appropriation the payment shall be applied in
discharge of the debts in order of time, whether they are or are not
barred by the law in force for the time being as to the limitation of
suits. If the debts are of equal standing, the payment shall be applied
in discharge of each proportionally.
Unless there is an
agreement to the contrary, any payment made by a debtor is applied first
towards interest and thereafter towards principal. If a customer has
only one account and he deposits and withdraws money from it regularly,
the order in which the credit entry will set off the debit entry is in
the chronological order, this is known as Clayton’s rule.
Rule in Clayton’s case: The
rule was laid down in famous Devayanas Vs. Noble. The rule applies to
running accounts like CC/ OD with debit balance. The rule states that
each withdrawal in a debit account is considered as a new loan and each
deposit as a repayment in that chronological order.
Banker's right to charge interest, commission, incidental charges etc. :
Banker
has an implied 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, incidental charges 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 the prescribed
amount. Usually the bank informs such charges to the customer by various
means.
Nomination Facility:Nomination
is expression of wish of a person about transfer of his assets after
his death to a named person. Nomination is not a will but it serves the
purpose of will. In terms of Sections 45ZA to 45 ZF of the Banking
Regulation Act, 1949, Banking Companies (Nomination) Rules, 1985 have
been framed. Nomination facility simplifies the procedure for settlement
of claims of deceased depositors and locker holders. In an unfortunate
event of the death of a depositor, nomination enables the bank to make
payment to the nominee of a deceased depositor, of the amount standing
to the credit of the depositor, return the articles left by a deceased
person in the bank's safe custody to the nominee without asking for
succession certificate or verifying claims of legal heirs.
Nomination
does not take away the rights of legal heirs on the estate of the
deceased. The nominee receives the money from the bank as a trustee of
the legal heirs. In the case of a joint deposit account the nominee's
right arises only after the death of all the depositors. Nomination
facility is intended for individuals and sole proprietary concerns.
Where
the nominee is a minor, the depositor making the nomination appoints
any person to receive the amount of deposit in the event of his death
during the minority of the nominee. A person legally empowered to
operate a minor's account can file a nomination on behalf of the minor.
Nomination
can be made in account opening form itself or on a separate form
indicating the name and address of the nominee. The account holders can
change the nomination any time. There can be only one Nominee for a
deposit account whether held singly or jointly. There can be two
nominees for a jointly held locker.
Availability of the Nomination facility:Nomination
facility is available for all types of bank deposits, safe deposit
lockers, and safe custody articles. This is also applicable to deposits
having operating instructions "Either or Survivor".
Nomination can be made in favour of one person only.
In case of a joint account, nomination is to be made by all depositors jointly.
Nomination
cannot be made in accounts where deposits are held in a representative
capacity e.g. trust accounts etc. and in accounts of partnership firms,
H.U.F., companies, associations, clubs etc.
Nomination can be made
in favour of a minor. However while making the nomination, the nominee
has to appoint another person (not a minor), to receive the amount of
the deposit on behalf of the nominee in the event of the death of the
depositor during the minority of the nominee. Date of birth of minor be
obtained and noted.
A nomination will continue to be in force even on renewal of term deposit, unless specifically cancelled or changed.
Banks obtain separate nomination form for each term deposit receipt
A non-resident can be nominated as a nominee in a resident account
In
case of non-resident nominees, the amount entitled to him from the
account(s)/ deposits(s) of a deceased person, will be credited to his
NRO account. The amount so credited cannot be remitted outside India.
Insurance of Bank Deposits:The
Deposit Insurance and Credit Guarantee Corporation of India, a public
limited company promoted by Reserve Bank of India, insure bank deposits.
The authorised capital of the Corporation is Rs.50 crore, which is
fully issued and subscribed by the Reserve Bank of India (RBI). The
management of the Corporation vests in a Board of Directors of which a
Deputy Governor, Reserve bank of India, is the Chairman.
The
Corporation protects the interest of depositors and infuses confidence
by providing deposit insurance on account of failure of banks. All
commercial banks including the branches of foreign banks functioning in
India, local area banks, regional rural banks, all eligible co-operative
banks are covered under the Deposit Insurance Scheme. The insurance
covers the loss of all or part of their deposits in all branches of a
bank to a maximum of Rs.1, 00,000. It insures all deposits such as
savings, fixed, current, recurring, etc except the following types of
deposits.
(i) Deposits of foreign Governments,
(ii) Deposits of Central/State Governments,
(iii) Inter-bank deposits,
(iv) Deposits of the State Land Development Banks with the State co-operative bank;
(v) any amount due on account of and deposit received outside India
(vi) any amount, which has been specifically exempted by the corporation with the previous approval of Reserve Bank of India.
The
Corporation charges insurance premium from banks on deposits @10 paisa
per Rs.100of assessable deposits per annum. The premium is charged twice
a year on the assessable deposits as at 31st March and 30th September.
Though the premium is charged on the full amount of deposit kept by
depositors in a bank is insured up to a maximum of Rs.1,00,000 (Rupees
One Lakh) only for both principal and interest amount.
The
corporation pays to each depositor through the liquidator, the amount of
his deposit up to Rupees one lakh within two months from the date of
receipt of claim list from the liquidator. If a bank is reconstructed or
amalgamated / merged with another bank, it pays the bank concerned, the
difference between the full amount of deposit or the limit of insurance
cover in force at the time, whichever is less and the amount received
by him under the reconstruction / amalgamation scheme within two months
from the date of receipt of claim list from the transferee bank / Chief
Executive Officer of the insured bank/transferee bank as the case may
be.
In the second report of
Narasimham Committee (April 1998) on “Banking Sector Reforms”
recommendations have been made for reforming scheme of Deposit
insurance. The committee has recommended that instead of “flat’” rate
premium, it should be ‘ risk based’ or ‘variable rate’ premium.
Know Your Customer Norms and Cash transactions: The
objective of KYC guidelines is to prevent banks from being used,
intentionally or unintentionally, by criminal elements for money
laundering activities. KYC procedures enable banks to know/understand
their customers and their financial dealings better, which in turn help
them, manage their risks prudently. Necessary checks before opening a
new account ensures that the identity of the customer does not match
with any person with known criminal background or with banned entities
such as individual terrorists or terrorist organizations etc. and that
no account is opened in anonymous or fictitious/ benami name(s).
Banks
are supposed to adopt due diligence and appropriate KYC norms at the
time of opening of accounts. The objectives of the KYC are to ensure
appropriate customer identification and to monitor transactions of a
suspicious nature. While opening an account a bank is supposed to obtain
all information necessary for establishing the identity/legal existence
of each new customer by taking and verifying the introductory reference
from an existing account holder/a person known to the bank or on the
basis of documents provided by the customer. The means of establishing
identity can be passport, driving license etc. In respect of existing
customers banks are required to complete customer identification at the
earliest.
Ceiling and monitoring of cash transactionsAs per RBI guidelines issued under Section 35 (A) of the Banking Regulation Act, 1949:
(i)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.
While purchasing travellers cheques, demand drafts, mail transfers, and
telegraphic transfers for Rs.50, 000 and above purchaser has to mention
his Permanent Income Tax Account Number (PAN) on the application.
(ii)
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. Branches of banks are required to report all cash
deposits and withdrawals of Rs.10 lakhs and above as well as
transactions of suspicious nature with full details in fortnightly
statements to their controlling offices.
Bankers’ Fair Practice Code:Indian
Banks’ Association has prepared a code, which sets standards of fair
banking practices. This document is a broad framework under which the
rights of common depositors are recognized. It is a voluntary Code that
promotes competition and encourages market forces to achieve higher
operating standards for the benefit of customers. The Code applies to
current, savings and all other deposit accounts, collection and
remittance services offered by the banks, loans and overdrafts,
foreign-exchange services, card products and third party products
offered by banks.
Money-laundering:The
concept of Money Laundering can be traced back to the "Hawala"
transactions. Hawala mechanism facilitates the conversion of black money
to white. Money laundering has become the centre of focus for criminals
and governments alike.
As per
sec.3 of Prevention
of Money Laundering Act, 2002(PMLAct) money laundering has been defined
as an offence. The main objective of this Act is to prevent, combat and
control money laundering in India, and to confiscate, seize the property
obtained from the laundered money. Money laundering is defined as the
conversion of illegally acquired currency i.e. from drug trafficking,
terrorist activity or other serious crimes as appearing to have been
obtained from a legitimate source into legitimate funds. It is
disguising of illegally obtained financial assets.
Sec.12
of the PMLAct requires every banking company, financial institution and
intermediary to verify and maintain a record of all transactions of a
prescribed value and to furnish information whenever sought within a
prescribed time period. Under Section 35A of the Banking Regulation
Act, 1949, Reserve Bank of India has issued guidelines to banking
companies, financial institutions and intermediaries to maintain a
record of all transactions. The RBI has said that every bank should set
key indicators for accounts, taking note of the background of the
customer, such as the country of origin, sources of funds, the type of
transactions involved and other risk factors.
According to PML Act, 2002, whoever:
(a) Acquires, owns, possesses or transfer any proceeds of crime; or
(b) Knowingly enters into any transaction which is related to proceeds of crime either directly or indirectly; or
(c) Conceals or aids in the concealment of the proceeds of crime,
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12/01/2010 Good day!
The relationship between BOD and COD that your site gave is very useful!
I would like to know your reference book about this relationship, that is, the name of the book, its author, and its copyright date.
I would greatly appreciate your help.
Hoping to hear from you very soon.
With much hope and gratitude,
Liza
6/25/2011 I think that a typo error is present at the paragraph where it is written :
0.90 = BOD5/BODu as per ---1
0.77 = BODu/ThOD as per ---2