Banker & Customer Relationship

(i)        Relationship as Debtor and Creditor. When a customer deposits money into the bank account, the depositor becomes a debt customer. This amount is due from bank to the customer. The bank becomes a debtor and customer becomes a creditor. This relationship changes when a customer's account is in debit balance or is over drawn.   Between a banker and a customer, creditor must demand payment, that too, at proper place, in proper time and in proper manner (by cheque or otherwise).

(ii)       Banker as Trustee: As a  ‘trustee’, banks hold money or assets and perform certain functions for the ‘beneficiary’. When customer deposits securities or valuables with banker for safe custody, banker is a trustee for customer, ownership of securities or valuables remaining with customer only.

(iii)      Banker as Agent: A banker acts as an ‘agent’ of his customer and performs a number of agency functions like buying and selling of securities on behalf of  the customer, collecting cheques on his behalf and making various payments   such as insurance premium, etc.

(iv)     Banker as Lessor: When banker leases out safe deposit lockers to the customer, their relationship is that of a ‘lessor’ and ‘lessee’.

Duties of a Banker

Banker customer relationship has serious obligations on the part of the Banker. Apart from the basic relationship of a debtor and creditor for deposit accounts and the reverse for loan accounts, these are some responsibilities of the bankers to customers.

Both parties in this relationship, i.e., both banker and customer have certain responsibilities to one another. Banker’s responsibilities to his customers are as follows:

(a) Negotiable Instruments Act-1881, Section-31 indicates that a banker must pay the customer’s cheque, which has been drawn duly on his account subject to the availability of money in his Account;

(b) Maintenance of secrecy of a customer’s Account is the legal and moral responsibility of a banker, both while the account is open and even after it is closed. Of course, secrecy may be disclosed:

l        Against the order of a court of law or to the police and Income Tax authority;

l        To serve the public interest; and

l        Against the request of the customer in writing  

(c) Collection of cheque, and depositing the proceeds to the Customer’s Account is the general duty of a banker. If these negotiable instruments are returned back without clearance, the bank should quickly inform the customer.

(d) Bank is entitled to a charge and or commission, except where special arrangements have been made. It is entitled to debit the customer account with charges, monthly, quarterly, or semi-annually without specific advice to the customer. A charge for an item such as the stop payment of a cheque or rejection of a cheque would usually be allowed.

(e) A bank must always follow its usual course of business when acting for its customers who can expect transactions to be dealt within a consistent manner.

(f) A bank acquires a general lien over its customer’s negotiable documents, which come into its possession, unless an express contract has been made which would be inconsistent with a lien (Brandao v. Barnett, 1846).

(g) The bank must give reasonable notice to its customer before closing an account that is maintained on credit. However, overdrafts are repayable on demand, unless there is an implied or actual agreement to the contrary.

(h) Supply of Pass Book or Statement of Account is the duty of a banker.

(i) If any fraudulent cheque comes to the hands of a banker, he should inform the customer immediately.

(j) The bank must repay the whole or part of the balance, if and when there is a demand by the customer during banking hours, provided the demand is made at the branch where the amount is kept, or at a branch where prior alternative arrangements have been made, such as under credit-opened encashment facilities.

(k) A bank has no obligations to third parties, arising out of the duty to pay its customer’s checks, and the payee of checks issued by a customer cannot sue the paying banker.

Responsibilities of Customers to Bankers

On the other hand, there are certain responsibilities of the customers. Those are given below:

• To ensure safety and security of the cheque book;
• To issue a cheque duly neither being careful to ensure that neither words nor figures can be altered; (words to be removed)
• If a cheque or cheque book is lost, the customer should inform the banker immediately; and

·         Negotiable Instruments Act-1881, Sections-65 and 68 indicate that a cheque must be drawn upon the bank branch where the money was deposited, during regular banking hours.

Termination of a Banker-Customer Relationship

As the banker-customer relationship can be established, so it can also be terminated. It arises between a banker and a customer with the opening of an account by the customer with a banker. So, the relationship terminates if the account is closed for any reason.

Banker-customer relationship may be terminated due to the following reasons:

i) If a banker does not pay the cheque of a customer, which has been drawn duly on his account, not withstanding the availability of deposited money in the account;

ii) If the secrecy of the customer’s account is not maintained legally and morally by the banker;

iii) If the banker does not provide banking services to the customer properly. For example, if cheque, bills etc. are not collected without informing the customer;

iv) If the banker does not supply Pass Book or Statement of Account to the customer;

v) If any fraudulent cheque comes to the hand of a banker and if he makes payment without informing the customer).

vi) If the banker makes any charge on transactions which is not permissible. For example, if interest is charged or a bribe is alleged;

vii) If the customer defaults on a loan; and

viii) If any agreement is otherwise violated either by the banker or by the customer.