BANKER-CUSTOMER RELATIONSHIP

BANKER
DEFINITION 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.

J.W.Gilbert Principles & Practice of Banking

BANKER
DEFINITION
A person or a company carrying on the business of receiving moneys & collecting drafts, for customers subject to the obligation of honouring cheques drawn upon them from time to time by the customers to the extent of the amount available on their accounts.
Dr. Herbert L. Hart Law of Banking

BANKER
DEFINITION
That no person or body corporate or otherwise, can be a banker who does not: Take deposit accounts Take current accounts Issue & pay cheques Collects cheques crossed & uncrossed for his customers. Sir John Paget The Law of Banking

BANKER
DEFINITION Americans defined banker as: By banking we mean the business of dealing in credits, and by a bank we include every person, firm or company having a place of business where credits are opened by deposits or collection of money or currency, subject to be paid or remitted on cheque or order, or money is advanced or loaned on stocks, bonds, bullion, bills of exchange, promissory notes are received for discount or sale.

BANKER
DEFINITION British defined banker as: Any person who carries on the business of banking. Bills of Exchange Act, 1882 & The stamp Act, 1891

BANKER
DEFINITION In India & Pakistan
Banker means a person transacting the business of accepting, for the purpose of lending or investment, of deposit of money from the public, repayable on demand or otherwise and withdraw able by cheque, draft, order or otherwise, and includes any Post Office Savings Bank. The Negotiable Instruments Act, 1881

BANKER
DEFINITION Banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdraw able by cheques, draft, order or otherwise. Banking Companies Ordinance, 1962

FUNCTIONS OF THE BANKER

The bank undertakes to receive money and collect bills for its customers account. The proceeds so received are not to be held in trust for the customer, but the bank borrows the proceeds & undertakes to repay them. The promise to repay is to repay at the branch of the bank where the account is kept, and during banking hours.

Contd.
It included a promise to repay any part of the amount due against the written order of the customer addressed to the bank at the branch. The customer on his part undertakes to exercise reasonable care in executing his written orders so as not to mislead the bank or to facilitate forgery.

Contd.
Banking Companies Ordinance, 1962 defines Banking Company as any company which transacts the business of banking in Pakistan.

Contd.
Banking Companies Ordinance, 1962 authorizes banking companies to engage in various forms of business: Borrowing & lending of money Discounting bills of exchange & other negotiable instruments Collecting negotiable instruments on behalf of the customers Buying & selling bullion & foreign exchange

Contd.
Granting of letters of credit to the customers Receiving valuables for safe custody Underwriting & dealing in stocks, shares, debentures & other securities on behalf of the customers Acting as agent to customers, undertaking & executing trust Carrying on guarantees & indemnities

Contd.
Dealing with any property that may come to it as security in satisfaction of its outstanding claims Acting as Modarba company Undertaking the administration of estates as executors, trustee or otherwise

CUSTOMER
DEFINITION Customer is a person who has some sort of account, either deposit or current account or some similar relation Any person or corporate body is a customer when it is opening a current or deposit account, or when negotiates on advance on his account, or a loan account.

CUSTOMER
DEFINITION
A person becomes a customer of a bank when he goes to the bank with money or a cheque and asks to have an account opened in his name, and the bank accepts the money or cheque and is prepared to open an account in the name of that person. After that he is entitled to be called a customer of the bank. Justice bailhache, Judgment in 1914

CUSTOMER
DEFINITION A person whose money has been accepted by the bank on the footing that they undertake to honour cheques upon the amount standing to hid credit is, in the view of their Lordship, a customer of the bank in the sense of the statue, irrespective of whether his connection is of short or long standing. Lord Dunedin, Judgment in 1920

QUALIFICATIONS OF A CUSTOMER
He should not be a minor & must have attained the age of majority, because a minor is not competent to contract. However exception has been allowed. He should be a person of sound mind. If not so he is incompetent to contract. He shall not have been debarred from entering into a contract under any law, like un discharged bankrupt, proclaimed offender and alien enemy.

RIGHTS OF A CUSTOMER
To draw cheques against his credit balance, or an overdraft if there are accommodations made with the banker. To receive a pass book or a statement containing a copy of his account with the banker. To sue the bank for the cost, loss & damages when his cheque is wrongfully dishonored.

RIGHTS OF A CUSTOMER
To sue when the banker has not maintained the secrecy of hid account
To claim for & receive the profit/return on hid deposits as promised by the bank

DUTIES OF A CUSTOMER
Customer must present the cheques for payment & collection within the business hours of his banker The customer should see that the cheque & other instruments are presented for payment within a reasonable time from the date of their issue He should keep cheque book at a safe place. Failing to do so he is to be held responsible for leaving his cheques unprotected

DUTIES OF A CUSTOMER
He should draw the cheques very carefully & in such a way that there is no room left for any fraudulent alterations & additions.

GENERAL RELATIONSHIP
The relationship between banker & customer is in fact that of a debtor & creditor. When the banker receives money from customers he does not hold it in a fiduciary capacity, but it was generally believed that by accepting deposits from the depositor the banker assumed the responsibilities of his agent.

OTHER RELATIONSHIPS
1- BAILOR & BAILEE A bailment is delivery of goods by one person to another for some purpose, upon a contract. When the banker provides safe custody facilities to his customers for their valuables, the relationship becomes that of Bailor & Bailee.

OTHER RELATIONSHIPS
2- PRINCIPAL & AGENT When a banker performs agency services he becomes agent of his customer. These services include collection of cheques, other negotiable instruments, payment of premium, subscription & fee to clubs & associations etc.

SPECIAL FEATURES OF RELATIONSHIP

a. Obligation to honour cheques It is a statutory obligation to honour cheques drawn on him by his customer as long as his balance is sufficient, provided that the cheque is not stale or post dated and appears to be valid on the face of it and that there is no prohibiting order of any court against the account of the customer.

SPECIAL FEATURES OF RELATIONSHIP

b. Right of Lien

Lien is the right to retain the property belonging to another until the debt due from the later has been paid. A bankers general lien is of peculiar type, for it extends to all the securities placed with him by his customer.

SPECIAL FEATURES OF RELATIONSHIP

c. Right of set-off This means adjusting debit balance against credit balance in other account or accounts of the same borrower. Therefore, in order to establish an immediate right of set off in the operative account, the banker should obtain a written authority from his customer, giving banker the permission to transfer the credit balance of the account to the debit balance at any time without the necessity of giving notice.

SPECIAL FEATURES OF RELATIONSHIP

A credit balance in the customers account in one branch may, if not contrary to customs or agreement, be taken as a setoff against a debit balance by the same customer at another after giving a reasonable notice.

SPECIAL FEATURES OF RELATIONSHIP

Generally the right of set-off cannot be exercised between a customers individual account & any other account in which his name appears. However, if the parties to the joint account have agreed to joint & several liability of debt on that account, a credit balance in the personal account will be subject to a set-off.

SPECIAL FEATURES OF RELATIONSHIP

The right can be applied when:
1. The customer is running the account & that he has been issued the cheque book. Before using the right of set-off in this case, the banker must give an advance notice to this effect to his customer.

SPECIAL FEATURES OF RELATIONSHIP

2. When operation on an account is stopped, as in the case of death, bankruptcy etc., the banker need not give the notice in advance, for, the right accrues automatically. Moreover, in case of death of the customer having two accounts, the banker can transfer the credit balance o the account having a debit balance before paying the amount to the legal heirs of the deceased.

SPECIAL FEATURES OF RELATIONSHIP

d. Right to charge for their services
Bankers have the right to charge for the services they provide to their customers.

THE BANKERS DUTY OF SECRECY

The relationship between banker & his customer is obviously confidential, therefore, a banker must maintain secrecy about the state of his customers account.

THE BANKERS DUTY OF SECRECY

The obligation of secrecy, may not be considered essential on the following occasions: 1. 2. 3. 4. 5. Under Compulsion of Law Duty to Public to Disclose In the Interest of the Bank Express or Implied Consent of Customer Common Courtesy to other Bankers

TERMINATION OF RELATIONSHIP
1. Notice by a customer i. Due to change in address ii.A customer may not be satisfied with the services of his bank. iii. Account may be closed due to death of the customer or having zero balance in the account.

TERMINATION OF RELATIONSHIP
2. Notice by Banker
i. Insufficient funds. ii. Non maintenance of minimum balance. iii. Asking banking facilities after banking hours.

TERMINATION OF RELATIONSHIP
OTHER REASONS: 1. Obstinacy of the customer 2. Death of the customer 3. Customers insanity 4. Customers insolvency 5. Order of court 6. Assignment of account 7. Unsatisfactory operation