Rights and Duties of a Banker

Banker refers to an individual or an institution engaged in banking activities such as accepting deposits, granting loans, and facilitating financial transactions. A banker acts as a financial intermediary, ensuring the smooth functioning of the economy by managing money supply, providing credit, and offering investment services. In legal terms, a banker maintains a fiduciary relationship with customers, safeguarding their funds while earning through interest and service fees. Modern bankers also provide digital banking, wealth management, and financial advisory services. With evolving technology, bankers play a crucial role in promoting financial inclusion and economic stability worldwide.

Rights of a Banker:

• Right of Lien

The right of lien allows a banker to retain a customer’s securities, assets, or goods until the repayment of outstanding debts. This right is exercised when a customer defaults on a loan, and no specific agreement contradicts this provision. General lien covers all dues, while particular lien applies to specific transactions. This ensures that banks have security against loans, minimizing the risk of financial losses due to bad debts and defaults.

• Right of Set-Off

The right of set-off enables a banker to adjust a customer’s debit balance with the available credit balance in another account within the same bank. If a customer has a loan due and maintains a deposit account, the bank can use available funds to settle liabilities. However, banks must provide prior notice before exercising this right. This protects the financial institution from risks associated with non-repayment while ensuring efficient fund management.

• Right to Charge Interest and Commission

Banker has the right to charge interest on loans and advances, as well as commissions on financial services such as fund transfers, trade finance, and foreign exchange transactions. The interest rate and commission fees are agreed upon at the time of the transaction and comply with regulatory guidelines. This right enables banks to generate revenue, cover operational costs, and maintain profitability while ensuring financial stability in banking operations.

• Right to Close an Account

Banker reserves the right to close a customer’s account if it is found to be engaged in fraudulent activities, illegal transactions, or has remained inactive for a prolonged period. The closure may also occur due to non-compliance with regulatory requirements or breach of contract. However, the bank must provide due notice before closing an account, ensuring that customers can address any concerns or withdraw their funds.

• Right to Appropriate Payments

If a customer has multiple liabilities towards the bank, the banker has the right to appropriate payments received based on outstanding dues. This means the bank can decide which debt or liability is settled first unless the customer has given specific instructions. This right helps banks manage repayments efficiently and reduce financial risks by prioritizing critical debt obligations, ensuring smooth financial operations.

• Right to Demand Timely Repayment

Banker has the legal right to demand repayment of loans and advances within the agreed timeline. This includes personal loans, business loans, overdrafts, and mortgages. In case of non-payment, the banker can initiate legal proceedings or take possession of collateral under secured loan agreements. This right ensures financial discipline among borrowers while reducing the risk of bad debts and non-performing assets (NPAs).

• Right to Refuse Payment of a Cheque

Banker has the right to refuse the payment of a cheque if there are insufficient funds, signature mismatches, or legal restrictions such as account freezes. If a cheque is post-dated, contains alterations, or exceeds the available balance, the bank can lawfully dishonor it. However, the refusal must comply with banking regulations, and the banker must notify the customer, ensuring transparency and compliance with legal banking procedures.

• Right to Recover Expenses and Legal Costs

When a bank incurs expenses due to legal proceedings, document processing, or debt recovery, it has the right to recover such costs from the customer. These may include attorney fees, court expenses, and administrative charges related to loan defaults or fraud cases. This right ensures that banks do not bear unnecessary financial burdens while maintaining financial stability and enforcing contractual obligations.

Duties of a Banker:

• Duty of Secrecy

Banker must maintain confidentiality regarding a customer’s account details, transactions, and financial records. Disclosure of information is strictly prohibited unless required by law, regulatory authorities, or customer consent. Unauthorized disclosure can damage a bank’s reputation and lead to legal consequences. However, in cases of fraud, court orders, or government investigations, banks must provide necessary information. This duty helps build customer trust and ensures privacy in financial transactions.

• Duty to Honor Cheques

Banker is obligated to honor cheques issued by customers as long as sufficient funds are available in the account. The cheque must meet legal requirements, including a valid signature, correct date, and proper endorsements. If a cheque is dishonored due to insufficient funds, signature mismatch, or legal restrictions, the bank must notify the customer. Ensuring timely processing of cheques helps maintain trust in banking operations and financial integrity.

• Duty to Follow Customer Instructions

Banker must act according to the customer’s instructions while managing their accounts and financial transactions. Whether processing fund transfers, standing orders, or investment decisions, banks must adhere to the given directives. Any deviation from instructions without valid reasons may lead to customer dissatisfaction and legal consequences. However, the banker can refuse to act on instructions if they are illegal, fraudulent, or against regulatory guidelines.

• Duty to Provide Proper Financial Advice

Banker should offer accurate and ethical financial advice to customers regarding loans, investments, and financial planning. Misleading or biased recommendations can lead to financial losses and damage customer trust. The advice should align with the customer’s financial goals, risk tolerance, and regulatory policies. Providing professional financial guidance enhances the bank’s reputation and helps customers make informed decisions regarding their finances.

• Duty to Exercise Due Diligence

Banker must conduct thorough verification and due diligence while opening accounts, processing loans, and handling financial transactions. This includes Know Your Customer (KYC) procedures, Anti-Money Laundering (AML) checks, and fraud prevention measures. Ensuring compliance with banking regulations minimizes risks related to financial crimes, money laundering, and fraudulent activities. Due diligence protects both the bank and its customers from potential financial risks.

• Duty to Maintain Fair and Transparent Practices

Banker must ensure transparency in financial dealings, including clear disclosure of interest rates, fees, and charges on banking services. Customers should be informed about loan terms, repayment schedules, and service fees upfront. Hidden charges or misleading information can lead to disputes and regulatory penalties. Fair banking practices enhance customer satisfaction, regulatory compliance, and long-term banking relationships.

• Duty to Ensure Proper Record Keeping

Banker must maintain accurate records of all transactions, customer details, and financial statements. Proper documentation helps track financial activities, resolve disputes, and comply with regulatory requirements. Well-maintained records also assist in auditing, fraud detection, and legal proceedings. Any discrepancies or mismanagement in records can result in financial losses and legal consequences for both the bank and customers.

• Duty to Act in Good Faith

Banker is expected to act honestly and ethically in all banking transactions. Whether dealing with deposits, loans, investments, or account management, integrity must be maintained. Exploiting customers through unfair charges, unauthorized transactions, or biased financial advice can lead to reputational damage and legal issues. Acting in good faith ensures a positive banking environment and strengthens customer confidence in financial institutions.