knowledge

skills

technology

innoventures

www.globsyn.com

Before We Start
It is assumed that after going through the earlier session
you are now able to:
State the definition of endorsement
List the different types of endorsements

State the definition of paying and collecting banker

Explain the duty of a Paying Banker and Collecting
Banker
Explain material alteration
State the statutory protection for both the paying and the
collecting banker

www.globsyn.edu.in

22

www.globsyn.com

Session 4
Banking & Insurance Management
Topics to be covered in this session:
Deposits
Different types of accounts
Banker and Customer Special Types of
Customers

www.globsyn.edu.in

33

www.globsyn.com

Session Learning Objectives

At the end of this session you should be able to:
Understand the various types of deposits and accounts
Explain the Banker and Customer Relationship along
with Special Customers
Understand the obligations of a Banker

www.globsyn.edu.in

44

www.globsyn.com

Deposits

The banker takes deposits from the public from

various walks of life, engaged in numerous
economic activities and having different financial
status. The banks therefore have different types
of accounts with various facilities and privileges.
The different types of deposit accounts are as
follows:
Demand Deposits
Fixed or time deposits

www.globsyn.edu.in

55

www.globsyn.com

Demand Deposits

These are the deposits where the money

deposited is available to the depositor on
demand. Two types of demand deposits are as
follows:
Current Accounts
Savings Accounts

www.globsyn.edu.in

66

www.globsyn.com

Current Accounts
A current account is a running and active account
which may be operated upon any number of times
during a working day. There is no restriction on the
number and the amount of withdrawals from a
current account. As the banker is under an
obligation to repay these deposits on demand, the
banker has to keep sufficient cash reserves against
such deposits. Current accounts are meant for big
businessmen, joint stock companies, institutions,
public authorities etc. whose banking transactions
are numerous on a particular working day.

www.globsyn.edu.in

77

www.globsyn.com

Opening of a Current Account

As per the advice of RBI, banks have to
incorporate a certificate in the account
opening form confirming the identity,
occupation and address of the prospective
customer signed by the introducer.
If the account is not properly introduced and
opened, the banker cannot avail the statutory
protection under Section 131 of the Negotiable
Instruments Act.

www.globsyn.edu.in

88

www.globsyn.com

Closing of a Current Account

Account holder(s) should write to the bank
stating their intent to close the account.
All unused cheques should be submitted to the
bank after cancelling the same.
Incorporated entities and associations should also
submit a copy of the resolution wherein it was
agreed upon that the account should be closed.
The bank can also request the customer to close
the account if:
The customer is no longer a desirable person
The account has not been operated for a long
time.

www.globsyn.edu.in

99

www.globsyn.com

Savings Accounts

A savings bank account is meant for the people

who wish to save a part of their current incomes
to meet their future needs and also intend to earn
an income from their savings. The banks,
therefore, impose certain restrictions on savings
accounts and also offer a reasonable rate of
interest. The need of keeping cash reserves
against such deposits is comparatively larger
than that required for Fixed Deposits and smaller
than that of current account.

www.globsyn.edu.in

10
10

www.globsyn.com

Opening a Savings Account

Another account holder who has been subject
to full Know Your Customer (KYC) procedure
can introduce somebody to open a savings
account. The introducers account must be at
least 6 months old and satisfactorily operated.
Photograph and address of the person
opening the account must be certified by the
introducer or there must be some other
acceptable evidence of identity and address.

www.globsyn.edu.in

11
11

www.globsyn.com

Closing of a Savings Account

All account holders should write to the bank
their intent to close the account. All the
unused cheques should be submitted to the
bank at the time of closure.
The bank can also request the customer to
close his account if:

www.globsyn.edu.in

The customer is no longer a desirable person.

The account has not been operated for a long
time.

12
12

www.globsyn.com

Recurring Deposit

This account is intended to inculcate the habit of

savings on a regular basis. This is an inducement
as it gives a slightly higher rate of interest. A
depositor is required to deposit a certain amount
at a certain interval of time selected by him. The
period of recurring deposit varies from bank to
bank. However, if the depositor closes his
account within three months no interest is paid.

www.globsyn.edu.in

13
13

www.globsyn.com

Fixed Deposit Account

Fixed Deposits are the deposits with the bank
for a fixed period of time which is specified at
the time of making the deposit. It is repayable
only on the expiry of that period. The rates on
these are higher than that of savings accounts.
The rates and other terms and conditions on
which the banks accept such deposits are
regulated by RBI.
RBI has also permitted the banks to formulate
schemes for senior citizens on which higher
rates are offered compared to normal
deposits.
www.globsyn.edu.in

14
14

www.globsyn.com

Opening a Fixed Deposit Account

An application form has to be filled up
mentioning the amount and period of the
deposit along with the specimen signature.
A Fixed Deposit Receipt is issued thereafter
acknowledging the receipt of the sum of
money specified to be repaid at the time of
expiry of the period mentioned by the
depositor along with the interest rate.

www.globsyn.edu.in

15
15

www.globsyn.com

Definition of a Banker and a Customer

Dr. Herbert Hart, in his book says, a banker
is one who in the ordinary course of his
business, honours cheques drawn upon him
by persons from and for whom he receives
money on current account.
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.

www.globsyn.edu.in

16
16

www.globsyn.com

Requisites for a Bank Customer

A single transaction with the bank will

constitute a customer.
The customer has to have an account.
Some frequency in banking transactions is
also expected.
The dealing should be in the nature of
banking activity.
The customer may not be an individual. It
could be a company, a society or other legal
entity.

www.globsyn.edu.in

17
17

www.globsyn.com

General relationship - A Banker and a Customer

Relationship as Debtor and Creditor On

opening an account, the banker assumes the

position of a debtor and a depositor remains a
creditor. Bankers relationship with the customer
gets reversed as soon as the customers account is
overdrawn.

Banker as Trustee A trustee holds money or

assets and performs certain functions for the

benefit of some other person called beneficiary.
Hence, if the customer deposits securities or other
valuables with the banker for safe custody, the
latter acts as a trustee of his customer.

www.globsyn.edu.in

18
18

www.globsyn.com

General relationship - A Banker and a Customer

Banker as an Agent - The banker is an agent

of the customer for remittances, collections of
cheques and making payments on his behalf.
Banker as a Lessor the banker is a lessor
when he leases safe deposit lockers to the
customers.
Banker as a Consultant the banker is a
consultant when he advises the customers on
banking and investment-related issues.

www.globsyn.edu.in

19
19

www.globsyn.com

Obligations of a Banker
Obligation to honour cheques Banks are
obliged to honour cheques drawn on it, provided
the customer has sufficient funds. It is also
obliged to honour cheques upto the overdraft
limit of the customer. However this obligation is
extinguished by a Garnishee Order, issued under
Order 21, Rule 46 of the Code of Civil Procedure,
1908.

www.globsyn.edu.in

20
20

www.globsyn.com

Obligations of a Banker
Obligation to maintain secrecy of customers
account A banker has a record of all the
financial dealings of a customer. If any of these
facts is made known to others, the customers
reputation may suffer. However, the banker can
give information in the following situations:

www.globsyn.edu.in

When statutorily required

With express or implied consent from the
customer
To other banks but only general statements can
be made
If it is in the banks interest
If the disclosure is in public/national interest
21
21

www.globsyn.com

Special Type of Bank Customers

Minors Savings account can be opened in the

name of a minor to be operated by the guardian if

the minor is 12 years old or more.

Married Woman A married woman is

competent to enter into a valid contract.

Pardanashin Woman As the identity of such a

woman cannot be ascertained, the banker
generally refuses to open an account in her name.

Illiterate persons Illiterate persons can open a

bank account using their thumb impressions and
a photograph attested by an approved witness.

www.globsyn.edu.in

22
22

www.globsyn.com

Special Type of Bank Customers.contd.

Lunatics According to the Indian Contract Act,
1872, a person of unsound mind is not competent
to enter into a valid contract.

Trustee Bankers should examine the trust deed

thoroughly and determine the powers vested in

the trustees before opening their account.
Executors and Administrators These are the
people who are appointed to conduct the affairs
of a person after his death. The executor is
allowed to operate the account of a deceased
account holder after he gets the probated will.
The administrator can operate the account after
receipt of letter of administration.
www.globsyn.edu.in

23
23

www.globsyn.com

Special Type of Bank Customers.contd.

Customers Attorney a customer may
appoint an attorney to deal with his bank
account. It is a general notice and an
authority.
Joint Account a Joint Account is usually in
the name of more than one person. A joint
account can be operated in any of the
following modes:
All the depositors jointly
Either or Survivor
Former or Survivor
www.globsyn.edu.in

24
24

www.globsyn.com

Special Type of Bank Customers.contd.

Proprietorship In Proprietorship, even though
it is the account of an individual, it is treated as if
the account is for a commercial purpose. He can
authorize others also to use this account.

Hindu Undivided Family A bank account is

opened in the name of the karta or in the name of

the HUF business. The account is either operated
by the karta himself or by his authorized
coparceners.

Partnership An account is opened in the name

of the partnership firm and not in the names of
individual partners.
www.globsyn.edu.in

25
25

www.globsyn.com

Special Type of Bank Customers.contd.

Joint Stock Companies Banks can open

accounts of Joint Stock companies after

examining their Memorandum and Articles of
Association,
Certificate
of
Incorporation/Certificate of Commencement. A
certified copy of the Board Resolution and how
the account needs to be operated and by whom
along with the application needs to be furnished
to the bank to open an account.

Clubs, Societies and Charitable Institutions

When clubs, societies and charitable institutions
open bank accounts, it should be ensured that
they are properly incorporated.
www.globsyn.edu.in

26
26

www.globsyn.com

Before We End
It is assumed that after going through the earlier session
you are now able to:
Understand the various types of deposits and accounts
Explain the Banker and Customer Relationship along
with Special Customers
Understand the obligations of a Banker

www.globsyn.edu.in

27
27

THANK YOU

All information, including graphical representations, etc provided in this presentation is for exclusive use of current GBS
students and faculty. No part of the document may be reproduced in any form or by any means, electronic or otherwise, without
written permission of the owner.