Banker and Customer Relationship

The opening of an account with a banker, and the banker’s acceptance for such opening of account gives rise to a ‘contractual relationship‘. The relationship between the banker and customer is, generally, like a ‘Commercial Transaction‘. The relationship between a banker and a customer is the foundation on which mutual duties, liabilities and privileges are being built. An understanding of these terms is essential.

1. Debtor-Creditor Relationship

When a customer (debtor) deposits money with a bank (creditor), the customer becomes a lender and the bank becomes borrower. As such, the relationship is that of a debtor and creditor. It is a general relationship between banker and his customer. Some important points to note in Debtor-Creditor Relationship are,

The banker is the debtor of the customer with the obligation to honor his customer’s cheque drawn upon his balance.

When the banker lends money to his customer, the customer becomes the debtor and the banker, the creditor.

2. Banker as an agent

Generally, bankers render agency services for their customers. They pay insurance premium, electricity bills, taxes, etc. They collect interest on investments, dividends on shares, collect cheques, etc. Bankers act as per the ‘Standing instructions’ of their customers. For these services, the banker charges a nominal commission from the customer. The banker, by providing these services acts as an agent and the customer who gives the standing instructions, acts as a principal. Hence, the relation of banker and customer is that of agent and principal as far as these services are concerned.

3. Creditor (i.e., customer) demanding payment

Under a commercial debt, the liability of the debt arises only at the maturity of the debt i.e., on the due date. The debtor i.e., the banker is to pay the debt on the maturity date. The customer must demand in writing for repayment, only then, will the payment be made to the customer.

4. Banker as a bailee

Bailee is one who posses goods or articles on behalf of the owner (called bailor) of the goods. According to the Sec. 148 of Indian Contract Act. 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 deposited off according to the directions of the person delivering them. In other words, when customer leaves with the banker some valuables for safe custody in the safe deposit vaults or lockers, the banker performs the functions of the bailee and the relationship between the banker and the customer in such a case is that of a bailee and the bailor.

5. Banker as a Trustee

A trust is a relation between two persons by virtue of which one of them (called trustee) holds property vested in him for the benefit of the other (called beneficiary). For example. if a customer deposits securities or other valuables with the banker for safe custody, he acts as a trustee of his customer. The customer continues to be the owner of the valuables deposited with the banker. The legal position of the banker as a trustee differs from that of a debtor of his customer. In the event of bank’s liquidation, such trust properties held by the banker are not available for the distribution to general creditors of the bank.

6. Proper place and time of demand

The demand by the creditor (i.e., depositor) must be made at the proper place and in proper time. A commercial bank has a large number of branches. His / her demand for withdrawal of amount from the deposited funds must be made at the branch where the account has been opened in his / her name during the business hours.

7. Not time barred

The deposits with a bank are not time – barred on the expiry of three years as the case with ordinary debt. The Law of Limitation Act does not apply to a banking debt.

8. Bank as an executor

Where a customer appoints a banker as his executor and leaves property through a will, the banker has to administer the property according to the terms of the will after the death of such customer. Where no will is written by the deceased, the court may appoint the banker as administrator. In such a case the banker has to distribute the property of the deceased according to the suggestion laws applicable.

9. Banker as an Attorney

The customer may grant a special power of attorney to his banker to transact certain dealings on his behalf. The banker is the attorney of the customer in such cases.

10. Banker has a right to combine accounts

If a customer has two or more accounts in his / her name at the same branch and in the same capacity, a banker as a debtor can exercise his right to combine those accounts into one.

11. A banker has no right to close the account

A banker as a debtor has no right to close the account of its creditor (depositor-customer) at any time without the prior permission from him / her.

12. A banker as a creditor

If a banker disburses loan and overdraft, it assumes the role of a creditor and the customer assumes the role of a debtor.