Tag: Corporate Banking Services

Account opening refers to the formal process through which a customer establishes a banking relationship with a bank. It involves submitting an application along with necessary personal or business details and complying with regulatory requirements such as Know Your Customer (KYC) norms. The concept of account opening is based on mutual trust, where the customer agrees to follow the bank’s rules and the bank undertakes to safeguard deposits and provide banking services. Account opening creates a legal relationship between the banker and the customer, usually that of debtor and creditor. It enables customers to deposit, withdraw, and transfer money while availing various banking facilities.

Procedure of Account Opening

Step 1. Application for Opening an Account

The first step in the account opening procedure is submitting an application to the bank. The customer must fill out the prescribed account opening form, which contains personal details such as name, address, date of birth, occupation, and type of account to be opened. For business accounts, details of the firm or company are required. The application form acts as a formal request to establish a banking relationship. It also helps the bank collect basic information necessary to assess the customer and comply with regulatory requirements.

Step 2. Submission of Know Your Customer (KYC) Documents

After filling out the application form, the customer must submit KYC documents as required by banking regulations. These include proof of identity (such as Aadhaar card, PAN card, passport, or voter ID) and proof of address (such as utility bills, Aadhaar card, or driving license). KYC norms are mandatory to prevent money laundering, fraud, and illegal activities. Proper verification of customer identity ensures transparency and security in banking operations and helps banks comply with legal and regulatory guidelines.

Step 3. Introduction or Reference (If Required)

In some cases, especially for certain types of accounts, banks may require an introduction or reference from an existing account holder or a reliable person known to the bank. This introduction helps the bank verify the credibility and background of the new customer. Although modern KYC norms have reduced the importance of introductions, this step still exists in specific situations. The objective is to minimize risk and establish trust between the bank and the customer.

Step 4. Verification of Documents and Details

Once the application form and documents are submitted, the bank verifies the information provided by the customer. This includes checking the authenticity of documents and matching details with official records. In some cases, banks may conduct field verification or video KYC to confirm the customer’s address and identity. Proper verification ensures compliance with legal requirements and protects the bank from future risks. Only after successful verification does the bank proceed with account approval.

Step 5. Initial Deposit of Money

After verification, the customer is required to make an initial deposit to activate the account. The amount of initial deposit depends on the type of account and bank rules. Some accounts, such as basic savings accounts, may not require any minimum deposit. The initial deposit marks the formal commencement of the banking relationship. It also enables the bank to generate the account number and start providing banking services to the customer.

Step 6. Allotment of Account Number

After completing all formalities, the bank allots a unique account number to the customer. This account number serves as the customer’s identification within the bank’s system. It is used for all transactions, correspondence, and record-keeping purposes. The account number ensures systematic handling of customer accounts and helps in maintaining accurate financial records. At this stage, the bank officially recognizes the customer as an account holder.

Step 7. Issuance of Cheque Book, ATM/Debit Card

Once the account is opened, the bank issues banking instruments such as a cheque book, ATM or debit card, and provides access to net banking and mobile banking facilities. These tools enable the customer to operate the account conveniently. Some facilities may require separate requests or activation. This step ensures that the customer can fully utilize banking services for deposits, withdrawals, and payments.

Step 8. Activation and Commencement of Operations

The final step in the account opening procedure is the activation of the account. After activation, the customer can start operating the account for various banking transactions. The bank provides necessary guidelines regarding account usage, charges, and rules. From this point, the legal relationship between the banker and the customer comes into effect. The account is now fully functional and ready for regular use.

Objectives of Account Opening

• Establishing a Banker–Customer Relationship

One of the primary objectives of account opening is to establish a formal relationship between the banker and the customer. Once an account is opened, a legal relationship is created, generally that of debtor and creditor. This relationship defines the rights, duties, and obligations of both parties. It enables the bank to provide services such as accepting deposits, honoring cheques, and facilitating payments. For the customer, it ensures recognition and access to banking facilities in a lawful and organized manner.

• Safe Custody of Money

Another important objective of account opening is to provide safe custody for customers’ money. Instead of keeping cash at home, customers can deposit their funds in a bank, where they are protected against risks such as theft, loss, or damage. Banks follow strict security measures and are regulated by statutory authorities. This objective builds public confidence in the banking system and encourages people to entrust their money to banks for safekeeping.

• Facilitation of Financial Transactions

Account opening aims to facilitate smooth and convenient financial transactions. Through a bank account, customers can easily deposit and withdraw money, make payments, and transfer funds using cheques, ATM cards, net banking, and mobile banking. This reduces the use of cash and ensures speed, safety, and accuracy in transactions. For businesses, account opening supports efficient management of receipts and payments.

• Promotion of Saving Habit

Promoting the habit of saving is a key objective of account opening. Savings and deposit accounts encourage individuals to save regularly and earn interest on their surplus funds. Systematic saving helps customers plan for future needs such as education, emergencies, and retirement. This objective contributes to financial discipline and long-term economic security.

• Access to Banking and Credit Facilities

Opening an account enables customers to access various banking and credit facilities. Banks generally require an account relationship before granting loans, overdrafts, credit cards, and other financial services. This objective supports personal and business financial growth and strengthens the relationship between the bank and the customer.

• Compliance with Legal and Regulatory Requirements

Account opening also helps banks comply with legal and regulatory requirements such as KYC and anti-money laundering norms. By collecting customer information at the time of account opening, banks ensure transparency, prevent misuse of banking services, and maintain the integrity of the financial system.

Types of Customers Eligible for Account Opening

Banks allow a wide range of customers to open accounts, depending on the type of account and banking services required. Understanding the eligibility helps in proper documentation and compliance with legal norms.

1. Individuals

Individuals are the most common customers who open savings, current, fixed, or recurring deposit accounts. This includes salaried employees, professionals, students, and pensioners. They must provide proof of identity and address to meet KYC requirements.

2. Minors

Minors can open accounts under the guidance of a parent or guardian. Such accounts are usually operated by the guardian until the minor attains the legal age. Special accounts like minor savings accounts encourage early financial literacy.

3. Hindu Undivided Families (HUFs)

HUFs can open accounts in the name of the family for business or investment purposes. The eldest male member, known as the Karta, generally operates the account on behalf of the family.

4. Companies and Firms

Business entities, including private and public companies, partnerships, and limited liability firms, can open current or specialized accounts to manage business transactions. Proper incorporation and registration documents are required.

5. Government and Semi-Government Bodies

Government departments, local authorities, and semi-government organizations are eligible to open accounts to handle salaries, taxes, and public funds. These accounts facilitate transparent financial management.

6. Trusts and Societies

Trusts, charitable organizations, clubs, and societies can open accounts to manage donations, fees, and operational expenses. Legal registration certificates and authorization documents are mandatory.

7. Non-Resident Indians (NRIs)

NRIs can open NRE (Non-Resident External), NRO (Non-Resident Ordinary), and FCNR (Foreign Currency Non-Resident) accounts to manage foreign income, remittances, and investments in India. Specific documentation related to residency is required.

Significance of Account Opening in Banking Operations

• Foundation of Banking Relationship

Account opening is the first and most important step in establishing a formal relationship between the bank and the customer. It creates a legal and contractual link, enabling banks to provide various services such as deposits, withdrawals, fund transfers, and credit facilities. Without account opening, the customer cannot fully access banking operations, making it the foundation of all banking activities.

• Facilitates Financial Transactions

A bank account allows customers to conduct safe, convenient, and efficient financial transactions. Cheques, ATM/debit cards, online banking, and UPI transfers are all possible only after opening an account. This enhances the speed and accuracy of payments for both personal and business purposes.

• Supports Credit and Loan Facilities

Banks generally provide loans, overdrafts, and other credit facilities only to account holders. Maintaining an account helps the bank assess the customer’s financial behavior and transaction history, which is critical for risk evaluation and loan approvals.

• Ensures Regulatory Compliance

Opening an account ensures compliance with legal and regulatory requirements, including Know Your Customer (KYC) and anti-money laundering norms. This helps banks maintain transparency, prevent fraud, and contribute to the integrity of the financial system.

• Encourages Savings and Financial Discipline

Accounts encourage systematic savings through savings, fixed, and recurring deposit accounts. They promote financial discipline, helping customers plan for future expenses, emergencies, and investments.

• Enhances Operational Efficiency

Account opening allows banks to maintain accurate records of deposits, withdrawals, and balances. This record-keeping improves operational efficiency, reduces errors, and facilitates audits, reporting, and effective fund management.

• Promotes Financial Inclusion

By opening accounts for individuals, businesses, and organizations, banks bring people into the formal financial system. This enables access to government benefits, digital payments, and modern banking services, contributing to broader economic development.

Bank account is a formal financial arrangement between a bank and a customer in which the customer deposits money with the bank for safekeeping, transactions, and other banking services. The concept of bank accounts is based on the principle of trust, where the depositor entrusts funds to the bank, and the bank, in return, ensures safety, liquidity, and regulated use of those funds. Bank accounts serve as the foundation of the modern banking system, enabling individuals, businesses, and institutions to participate in financial activities such as saving, investing, borrowing, and making payments. Through bank accounts, money flows smoothly within the economy, supporting trade, commerce, and economic development.

Meaning of Bank Accounts

Bank account refers to an account maintained by a customer with a bank in which money can be deposited, withdrawn, or transferred according to the terms and conditions set by the bank. It represents a legal relationship between the bank and the account holder, generally that of a debtor and creditor. The bank becomes the debtor and the account holder the creditor for the amount deposited. Bank accounts provide customers with facilities such as cash withdrawals, cheque payments, electronic transfers, and interest earnings in certain cases. In simple terms, a bank account is a safe and systematic way of managing money while availing various banking services.

Features of Bank Accounts

• Safety of Money

One of the most important features of a bank account is the safety of money deposited by customers. Banks provide a secure place to keep funds, protecting them from risks such as theft, loss, or damage that may occur if money is kept at home. Deposits in banks are safeguarded through strong internal controls, vault security, insurance mechanisms, and regulatory supervision by authorities like the Reserve Bank of India. This assurance of safety builds public confidence in the banking system and encourages people to save regularly. As a result, bank accounts play a vital role in promoting financial stability and disciplined money management.

• Liquidity and Easy Withdrawal

Bank accounts offer high liquidity, meaning the account holder can withdraw money whenever required, subject to the rules of the specific account. Facilities such as cash withdrawals at branches, ATMs, debit cards, and online transfers make access to funds quick and convenient. This feature ensures that money deposited in a bank is not locked away and can be used to meet daily expenses, emergencies, or business needs. Easy withdrawal enhances the usefulness of bank accounts as they combine the benefits of safety with immediate availability of funds, making them superior to many other saving options.

• Facility of Deposits

Another key feature of bank accounts is the flexibility they provide in depositing money. Customers can deposit funds in various forms such as cash, cheques, drafts, or electronic transfers. Depending on the type of account, deposits can be made daily, periodically, or in lump sums. This feature encourages systematic saving habits among individuals and helps businesses manage their cash flows efficiently. Regular deposits strengthen financial discipline and help account holders build financial security over time. Banks also accept deposits from a wide range of customers, including individuals, firms, institutions, and government bodies.

• Interest Earning Capability

Many types of bank accounts provide interest on the balance maintained by the account holder. Savings accounts and fixed deposit accounts, in particular, allow customers to earn a return on their idle funds. Interest acts as an incentive for saving and encourages people to keep their money within the banking system rather than holding it in cash. The rate of interest may vary depending on the type of account, deposit amount, and tenure. This feature helps account holders grow their savings gradually while maintaining liquidity and safety, making bank accounts an attractive financial instrument.

• Payment and Transfer Facilities

Bank accounts offer various payment and transfer facilities that make financial transactions smooth and efficient. Account holders can make payments through cheques, demand drafts, debit cards, credit cards, net banking, UPI, and mobile banking. Funds can be transferred easily within the same bank or to other banks, both domestically and internationally. This feature reduces the need for cash transactions and enhances convenience, speed, and transparency. Payment and transfer facilities support business activities, personal transactions, and government payments, contributing significantly to the growth of a cashless and digital economy.

• Record of Transactions

A bank account provides a systematic and reliable record of all financial transactions made by the account holder. Banks maintain detailed statements showing deposits, withdrawals, transfers, and balances. These records help customers track their income and expenditure, plan budgets, and monitor financial behavior. Transaction records are also useful for legal purposes, audits, tax filings, and loan applications. This feature ensures transparency and accountability in financial dealings. By maintaining accurate transaction histories, bank accounts assist individuals and businesses in making informed financial decisions and maintaining financial discipline.

• Legal Recognition

Bank accounts enjoy legal recognition and are governed by banking laws and regulations. The relationship between the banker and the customer is legally defined, usually as that of debtor and creditor. This legal framework protects the rights and interests of both parties. Account holders have legal proof of ownership of funds, while banks are obligated to honor withdrawals and payments as per agreed terms. In case of disputes, bank account records serve as valid legal evidence. This feature ensures trust, reliability, and fairness in banking operations and strengthens confidence in the financial system.

• Support for Financial Inclusion

Bank accounts play a crucial role in promoting financial inclusion by bringing people from all sections of society into the formal banking system. Special accounts such as basic savings bank deposit accounts and zero-balance accounts enable low-income groups to access banking services. Through bank accounts, individuals can receive salaries, pensions, subsidies, and government benefits directly. This feature reduces dependence on informal money systems and promotes economic empowerment. By encouraging widespread access to banking facilities, bank accounts contribute to inclusive economic growth and improved living standards.

Types of Bank Accounts

1. Savings Account

A savings account is the most common type of bank account opened by individuals to save money while earning interest. It encourages regular saving habits by allowing customers to deposit and withdraw money as per their needs, subject to certain limits. Savings accounts offer moderate interest rates and provide high liquidity. Facilities such as ATM cards, cheque books, net banking, and mobile banking are usually available. This type of account is ideal for salaried persons, students, and households who want to keep their money safe, earn interest, and access funds easily for day-to-day expenses.

2. Current Account

A current account is mainly opened by business firms, traders, companies, and institutions to carry out frequent and large-value transactions. Unlike savings accounts, current accounts generally do not earn interest. However, they offer unlimited deposit and withdrawal facilities, making them suitable for business operations. Overdraft facilities are often available, allowing account holders to withdraw more than the balance, subject to bank approval. Current accounts help businesses manage cash flows smoothly and support commercial activities by providing easy payment, collection, and fund transfer facilities.

3. Fixed Deposit Account

A fixed deposit account is an account in which money is deposited for a fixed period at a predetermined rate of interest. The depositor cannot withdraw the amount before maturity without paying a penalty. Fixed deposits offer higher interest rates compared to savings accounts, making them a popular investment option for risk-averse individuals. The tenure may range from a few months to several years. This type of account is suitable for those who want assured returns, capital safety, and do not require immediate liquidity.

4. Recurring Deposit Account

A recurring deposit account is designed to encourage regular and systematic saving. Under this account, the customer deposits a fixed amount every month for a specified period. At the end of the tenure, the depositor receives the total amount along with interest. The interest rate is usually similar to that of fixed deposits. This account is ideal for salaried employees, students, and small savers who wish to accumulate a lump sum over time for future needs such as education, marriage, or travel.

5. Basic Savings Bank Deposit Account

A basic savings bank deposit account is introduced to promote financial inclusion, especially among low-income groups. It can be opened with zero or minimal balance and provides basic banking facilities such as deposits, withdrawals, and ATM access. Limited free transactions are allowed. This account enables people from economically weaker sections to access formal banking services and receive government benefits directly. It plays a significant role in bringing unbanked populations into the mainstream financial system.

6. Salary Account

A salary account is a special type of savings account opened by employers for their employees to credit monthly salaries. These accounts usually require no minimum balance and offer additional benefits such as free ATM withdrawals, online banking, and debit cards. Salary accounts simplify salary payments and provide convenience to employees in managing their income. Once salary credits stop, the account may be converted into a regular savings account as per bank rules.

Legal Aspects of Bank Accounts

• Relationship Between Banker and Customer

The legal relationship between a banker and a customer is primarily that of debtor and creditor. When a customer deposits money in a bank account, the bank becomes the debtor and the customer the creditor for the amount deposited. The bank is legally bound to repay the money on demand or as per agreed terms. This relationship is governed by banking laws and contractual obligations. Understanding this legal aspect ensures clarity of rights and responsibilities for both the banker and the customer.

• Contractual Nature of Bank Accounts

Opening a bank account creates a contractual relationship between the bank and the account holder. The terms and conditions agreed upon at the time of opening the account form the basis of this contract. These include rules regarding deposits, withdrawals, interest, service charges, and account operation. Both parties are legally bound to follow these terms. Any violation may lead to legal consequences. This contractual aspect ensures transparency, mutual consent, and legal enforceability of banking transactions.

• Rights and Duties of Banker

Banks have certain legal rights and duties in relation to bank accounts. They have the right to charge service fees, close dormant accounts, and refuse payments under specific legal conditions. At the same time, banks have duties such as honoring cheques, maintaining secrecy of customer information, and providing accurate statements. Failure to fulfill these duties may result in legal liability. These rights and duties maintain balance and discipline in banking operations.

• Rights and Obligations of Customers

Customers also possess legal rights and obligations while operating bank accounts. They have the right to withdraw funds, receive account statements, and expect confidentiality from the bank. However, customers are obligated to maintain minimum balances, follow banking rules, and ensure proper use of cheques and digital facilities. Misuse of account facilities or providing false information may attract legal action. This legal framework protects both the customer and the bank from misuse and disputes.

• Secrecy of Bank Accounts

One of the most important legal aspects of bank accounts is the obligation of secrecy. Banks are legally required to keep customer information confidential and not disclose account details to third parties. However, secrecy is not absolute and may be breached under certain conditions such as court orders, government requirements, or customer consent. This legal duty builds trust between banks and customers while balancing the need for lawful disclosure.

• Nomination and Joint Accounts

Legal provisions relating to nomination and joint bank accounts are significant aspects of banking law. Nomination allows the account holder to appoint a person to receive the account balance in case of death. Joint accounts define the rights and liabilities of multiple account holders regarding operation and survivorship. These provisions reduce legal complications and ensure smooth settlement of claims. They provide clarity and protection to both banks and customers.

• Banker’s Lien and Right of Set-Off

Banks enjoy certain legal rights such as lien and set-off in relation to customer accounts. Banker’s lien allows the bank to retain customer securities for unpaid dues. The right of set-off permits the bank to adjust debit balances against credit balances of the same customer. These rights are exercised under specific legal conditions and protect the bank’s financial interests. They play an important role in credit management and risk control.

• Closure of Bank Accounts

The closure of bank accounts is also governed by legal rules. An account may be closed at the request of the customer or by the bank under valid reasons such as misuse, inactivity, or legal orders. Proper notice and settlement of balances are required during closure. In case of death, insolvency, or insanity of the account holder, special legal procedures apply. These rules ensure fairness and legal compliance in account termination.

Advantages of Maintaining a Bank Account

• Safety and Security of Funds

One of the major advantages of maintaining a bank account is the safety and security it provides for money. Depositing funds in a bank protects them from risks such as theft, fire, or accidental loss that may occur when cash is kept at home. Banks use strong security systems, insurance mechanisms, and are regulated by authorities like the Reserve Bank of India. This ensures that customers’ money is protected. The assurance of safety builds confidence and encourages people to use banking services for managing their finances.

• Encourages Regular Saving

Maintaining a bank account helps individuals develop the habit of regular saving. Savings and recurring deposit accounts motivate people to deposit money systematically, even in small amounts. Interest earned on deposits further encourages saving rather than unnecessary spending. Over time, these savings accumulate and help in meeting future financial needs such as education, medical emergencies, or retirement. Thus, bank accounts promote financial discipline and long-term financial stability among individuals and households.

• Convenience in Transactions

A bank account offers great convenience in carrying out financial transactions. Account holders can easily deposit or withdraw money and make payments using cheques, ATMs, debit cards, net banking, UPI, and mobile banking. This reduces the need to carry cash and saves time and effort. For businesses, bank accounts simplify the process of receiving and making payments. The convenience provided by bank accounts makes financial management smoother and more efficient.

• Earning Interest on Deposits

Another important advantage of maintaining a bank account is the opportunity to earn interest on deposited money. Savings, fixed deposit, and recurring deposit accounts offer interest on balances, allowing idle money to grow over time. Interest income acts as an additional source of earnings without any extra effort from the account holder. This feature makes bank accounts attractive compared to keeping cash idle and helps individuals increase their financial resources gradually.

• Access to Banking and Credit Facilities

Maintaining a bank account provides easy access to various banking and credit facilities. Account holders can avail loans, overdrafts, credit cards, lockers, and investment services based on their banking relationship. Banks generally prefer customers with active accounts for providing credit facilities. This advantage is especially useful for businesses and individuals who require financial assistance for personal or professional needs. A bank account thus serves as a gateway to multiple financial services.

• Record and Proof of Transactions

Bank accounts help in maintaining a proper record of all financial transactions. Bank statements provide detailed information about deposits, withdrawals, and balances. These records are useful for budgeting, tax filing, audits, and legal purposes. They also act as proof of income and expenditure when applying for loans or other financial services. This advantage ensures transparency, accountability, and better financial planning.

• Facilitates Digital and Cashless Payments

Maintaining a bank account enables customers to participate in digital and cashless payment systems. Facilities such as online transfers, UPI, debit cards, and mobile banking promote quick and secure transactions. This reduces dependence on cash and supports the growth of a digital economy. Digital payments are safer, traceable, and more convenient, making bank accounts essential in the modern financial system.

• Supports Financial Inclusion and Government Benefits

A bank account helps individuals access government schemes, subsidies, pensions, and direct benefit transfers. Maintaining an account ensures that financial assistance reaches beneficiaries directly without intermediaries. This reduces leakage and corruption while promoting financial inclusion. Bank accounts empower economically weaker sections by providing access to formal financial services and improving their economic participation.

Challenges of Maintaining a Bank Account

• Minimum Balance Requirement

One of the major challenges of maintaining a bank account is the requirement to maintain a minimum balance. Many banks impose penalties if the account balance falls below the prescribed limit. This can be difficult for low-income groups, students, and small earners who may not be able to maintain a fixed balance at all times. Failure to do so results in service charges that reduce savings. This challenge sometimes discourages people from actively using bank accounts or continuing their banking relationship.

• Service Charges and Hidden Costs

Banks often levy various service charges such as account maintenance fees, ATM usage charges, cheque book fees, and penalties for non-compliance with rules. These costs may not always be clearly understood by customers. Over time, such charges can reduce the actual balance in the account, especially for small depositors. This challenge affects customer satisfaction and creates a perception that banking services are expensive, particularly for those with limited financial literacy.

• Limited Access in Rural and Remote Areas

Access to banking facilities remains a challenge in rural and remote areas. Lack of bank branches, ATMs, and reliable internet connectivity makes it difficult for people to operate their bank accounts efficiently. Customers may have to travel long distances to access banking services, resulting in loss of time and money. This challenge restricts the effective use of bank accounts and slows down the goal of complete financial inclusion.

• Complex Procedures and Documentation

Opening and maintaining a bank account often involves complex procedures and extensive documentation. Requirements such as identity proof, address proof, and compliance with Know Your Customer (KYC) norms may be difficult for some individuals to fulfill. Illiteracy and lack of awareness further increase the difficulty. This challenge discourages certain sections of society from opening bank accounts or fully utilizing banking services.

• Risk of Fraud and Cybercrime

With the increase in digital banking, the risk of fraud and cybercrime has become a major challenge. Phishing attacks, identity theft, unauthorized transactions, and online scams threaten the security of bank accounts. Many customers, especially elderly and less tech-savvy individuals, are vulnerable to such risks. Fear of losing money due to fraud sometimes discourages people from using digital banking facilities linked to their accounts.

• Limited Financial Literacy

Lack of financial literacy is another significant challenge in maintaining a bank account. Many account holders are unaware of banking rules, charges, interest calculations, and digital banking features. This leads to misuse of accounts, penalties, or missed benefits. Poor understanding of banking services prevents customers from making informed decisions and fully utilizing the advantages of maintaining a bank account.

• Dependence on Technology

Modern bank accounts rely heavily on technology such as internet banking, mobile apps, and electronic payment systems. Technical failures, server downtime, or poor network connectivity can disrupt banking services. Customers may face difficulties in accessing funds or completing transactions during such situations. This dependence on technology creates inconvenience, especially during emergencies when immediate access to money is required.

• Account Dormancy and Inactivity Issues

Accounts that remain inactive for a long period may become dormant or inoperative as per bank rules. Reactivating such accounts requires additional verification and procedures. Customers who do not regularly operate their accounts may face inconvenience when they suddenly need banking services. This challenge highlights the importance of regular account usage and awareness of banking regulations.

Bank’s customer is any individual, firm, company, or institution that maintains an account or engages in financial transactions with a bank. Customers form the core of banking operations, as banks operate primarily to provide financial services to them, including deposits, loans, payments, and investments. The concept of a bank’s customer is not limited to account holders alone but also includes individuals using banking services such as overdrafts, credit facilities, or digital banking platforms. Customers may be categorized based on their relationship with the bank, such as depositors, borrowers, or service users.

Meaning of Bank’s Customer

The meaning of a bank’s customer refers to a person or entity that establishes a formal relationship with a bank for financial purposes. This relationship involves opening accounts, making deposits, obtaining loans, or using other banking services. A customer is recognized legally when the bank accepts their application and records them in its books. The customer has rights, such as access to funds, banking services, and privacy, as well as responsibilities like maintaining balances, following account rules, and providing accurate information. Essentially, a bank’s customer is the primary stakeholder for whom banks deliver financial services.

Types of Bank Customers

1. Individual Customers

Individual customers are single persons who open accounts for personal financial needs such as savings, deposits, or loans. They may use bank services like ATM/debit cards, internet banking, mobile banking, and payment facilities. Individuals can be salaried employees, self-employed persons, or retirees, and they often prefer accounts with easy access, low charges, and security. The bank maintains records of their deposits, withdrawals, and loan obligations. Individual customers form the largest category in banking operations and influence the bank’s product development, customer service, and digital banking offerings. They are critical for the bank’s revenue through interest income, fees, and cross-selling of services.

2. Joint Customers

Joint customers involve two or more individuals who open and operate a single account together. Joint accounts may follow operational modes such as “either or survivor” or “former or survivor,” allowing flexibility in transactions. Such accounts are common among family members, business partners, or organizations. Banks require signatures of all account holders for certain transactions, depending on the operational instructions. Joint customers share rights and responsibilities, including maintaining balances, repaying loans, and ensuring compliance with account rules. Proper documentation and clear instructions prevent disputes and ensure smooth operation. Joint accounts offer convenience for shared finances, household management, or partnership business operations.

3. Minor Customers

Minor customers are individuals below the legal age of majority, usually under 18 years. Since minors cannot legally operate accounts independently, guardians or parents manage these accounts. Banks allow opening of savings accounts for minors with guardian consent, ensuring financial security and early financial literacy. Minor accounts have restrictions on withdrawals and loans and are designed to encourage savings habits. Banks follow strict procedures, including submission of identity proofs of both guardian and minor, along with operational instructions. Upon reaching legal age, the minor can operate the account independently. Minor accounts are vital for introducing children to formal banking and fostering long-term customer relationships.

4. Senior Citizen Customers

Senior citizen customers are individuals above a specified age, often 60 years and above, who maintain accounts for pensions, savings, or retirement benefits. Banks offer them special facilities such as higher interest on deposits, lower charges, and priority service. They may also have easy access to digital banking, doorstep services, and dedicated counters. Senior citizens often prefer low-risk investments and fixed deposits. Banks maintain separate record-keeping, provide periodic statements, and assist in financial planning. Catering to senior customers ensures loyalty and trust. Their accounts contribute to deposit stability and support the bank’s social responsibility by providing safe, convenient, and accessible financial services tailored to their needs.

5. Corporate Customers

Corporate customers include companies, businesses, and firms that maintain accounts for operational, transactional, or investment purposes. Banks provide corporate customers with specialized services such as cash management, bulk payments, trade finance, loans, and working capital facilities. These customers require customized solutions, including corporate accounts, overdrafts, term loans, and electronic payment services. Corporate accounts may have higher transaction limits and complex operational requirements. Banks maintain detailed records and compliance documentation for corporate accounts, including KYC and legal verification. Serving corporate customers is crucial for the bank’s profitability, reputation, and long-term business partnerships, as these accounts handle large volumes of funds and generate significant revenue through interest and fees.

6. Institutional Customers

Institutional customers are government bodies, NGOs, trusts, and other organizations that maintain bank accounts for public or organizational purposes. They use accounts for receiving grants, donations, salaries, or operational funds. Banks provide institutional customers with specialized services such as bulk payments, payroll management, and compliance reporting. Institutional accounts are monitored closely for transparency and regulatory adherence. These customers require detailed documentation, board approvals, and operational guidelines. Institutional accounts strengthen the bank’s portfolio and public credibility. They also contribute to social and economic development by ensuring smooth fund management for organizational activities, government schemes, and public service operations.

7. Non-Resident Customers

Non-resident customers include individuals or entities residing abroad who maintain accounts in the domestic banking system. These accounts, often called NRE (Non-Resident External) or NRO (Non-Resident Ordinary) accounts, facilitate remittances, foreign currency deposits, and investment transactions. Banks follow strict regulatory guidelines for non-resident accounts, including FEMA compliance and identity verification. Non-resident accounts help in foreign exchange management and bring inward remittances into the country. These customers often require online access, fund transfer facilities, and currency conversion services. Serving non-resident customers expands the bank’s global reach, enhances foreign exchange income, and strengthens the international customer base for cross-border banking services.

8. Small Business and Self-Employed Customers

Small business and self-employed customers are individuals or proprietorships running micro, small, or medium enterprises. These accounts cater to operational transactions, payments to suppliers, and loans for working capital. Banks provide specialized services such as business loans, overdraft facilities, digital payment solutions, and cash management. Small business accounts require proper record-keeping, KYC compliance, and often integration with GST or tax systems. Serving this customer segment supports entrepreneurship, generates revenue for the bank, and ensures the financial inclusion of small-scale businesses. These accounts often develop into long-term relationships, with banks offering tailored financial products to meet evolving business needs.

Rights of Bank Customers

• Right to Safety of Deposits

Every bank customer has the right to the safety and security of their deposits. Banks are legally obliged to protect deposited funds against fraud, mismanagement, or unauthorized access. Deposits in recognized banks are insured up to specified limits under deposit insurance schemes. Customers can trust that their money is secure and available when needed. Banks must follow proper operational procedures, including verification of withdrawals, secure electronic transactions, and compliance with KYC and anti-money laundering regulations. Ensuring deposit safety builds trust, encourages savings, and forms the foundation of the banking relationship.

• Right to Privacy and Confidentiality

Bank customers have the right to privacy regarding their financial transactions and personal information. Banks are required to keep account details, transaction records, and personal data confidential unless disclosure is mandated by law or regulatory authorities. Unauthorized disclosure of customer information is considered a breach of trust and may attract legal consequences. Confidentiality ensures customers feel secure while conducting transactions, encourages the use of digital banking services, and protects against identity theft or misuse of sensitive information. Maintaining privacy is a fundamental aspect of the customer-bank relationship.

• Right to Fair Treatment

Customers have the right to be treated fairly and without discrimination. Banks must provide services impartially regardless of a customer’s gender, age, religion, nationality, or socio-economic status. Fair treatment includes transparent information about charges, interest rates, and loan terms, as well as courteous and efficient service. Customers should not be subjected to unfair practices, hidden fees, or undue harassment. Fair treatment promotes trust and ensures that customers can confidently access banking services. Regulatory bodies often monitor banks to ensure adherence to fair practices, protecting customer rights and fostering ethical banking standards.

• Right to Information

Bank customers have the right to accurate and timely information about their accounts, banking products, and services. This includes interest rates, charges, fees, account balances, and the status of loan applications. Banks must provide clear communication through account statements, notices, or digital alerts. Customers can request explanations or clarifications regarding any banking activity. Access to information allows customers to make informed decisions, compare products, and manage finances effectively. Transparency in information builds trust, reduces misunderstandings, and strengthens the relationship between the customer and the bank.

• Right to Choose Banking Products

Customers have the right to select banking products that suit their needs, such as savings accounts, current accounts, fixed deposits, loans, or investment schemes. Banks must offer a variety of options and provide details about features, risks, and benefits. Customers can choose services based on convenience, interest rates, or financial goals. This right ensures that banking services are customer-centric rather than imposed. It also encourages competition among banks, improving quality, innovation, and service standards while empowering customers to manage their financial planning efficiently.

• Right to Redress and Grievance Handling

Every bank customer has the right to lodge complaints and seek redress for grievances. Banks are required to have an effective grievance handling mechanism to address issues such as delayed transactions, unauthorized withdrawals, service deficiencies, or unfair practices. Customers can approach bank branches, ombudsman offices, or regulatory authorities for unresolved issues. Timely and fair resolution of complaints ensures accountability and enhances trust in banking operations. Proper grievance redressal mechanisms are essential for protecting customer rights, maintaining service standards, and fostering transparency and reliability in the banking system.

• Right to Access Banking Services

Customers have the right to access banking services without undue restrictions. This includes opening accounts, withdrawing or depositing funds, applying for loans, and using digital banking platforms. Banks should ensure accessibility for all, including senior citizens, differently-abled individuals, and rural customers. Access also involves availability of ATMs, online banking, mobile apps, and branch services. Ensuring broad access promotes financial inclusion, helps customers manage their finances efficiently, and strengthens the overall customer-bank relationship by making banking convenient and equitable.

• Right to Transparency in Charges and Interest

Customers have the right to clear and transparent information about interest rates, fees, and charges applicable to their accounts or services. Banks must provide details in account agreements, periodic statements, and official communications. Hidden charges, misleading terms, or sudden changes without notice violate customer rights. Transparency allows customers to make informed decisions, plan financial transactions effectively, and avoid disputes. It also ensures ethical banking practices and regulatory compliance. Upholding this right strengthens trust, reduces conflicts, and fosters long-term relationships between the bank and its customers.

Duties and Responsibilities of Bank Customers

Bank customers have not only rights but also duties and responsibilities toward the bank to maintain a healthy and lawful banking relationship. These responsibilities ensure smooth operations, reduce risk, and help both the bank and customer avoid disputes. By fulfilling these duties, customers contribute to the security, efficiency, and reliability of banking services. Responsibilities cover areas such as providing accurate information, maintaining minimum balances, operating accounts according to rules, timely repayment of loans, and adherence to KYC and regulatory requirements. Understanding these duties is essential for fostering trust and cooperation between customers and banks.

• Providing Accurate Information

Customers are responsible for providing accurate and complete information while opening and operating accounts. This includes personal identification, contact details, income sources, and documentation for KYC compliance. Accurate information helps the bank verify identity, prevent fraud, and comply with regulatory requirements such as anti-money laundering (AML) norms. Providing false or misleading information may result in account suspension, legal action, or termination. Customers must also update the bank with any changes, such as a change of address or phone number, to ensure smooth communication and uninterrupted access to banking services.

• Maintaining Minimum Balances

Many bank accounts require customers to maintain a minimum balance as per the account type and bank policy. Customers are responsible for ensuring that their accounts do not fall below this limit to avoid penalties or service restrictions. Maintaining minimum balances ensures operational efficiency for the bank and allows uninterrupted use of services such as cheques, ATM withdrawals, and online banking. Regular monitoring of balances and timely deposits help customers avoid fees and maintain a good standing with the bank. It also contributes to the bank’s liquidity and financial planning.

• Following Account Operating Rules

Customers must operate their accounts according to the bank’s rules and regulations. This includes adhering to authorized transaction limits, correct use of cheque books, debit/credit cards, online banking, and other facilities. Misuse of banking instruments, such as issuing fraudulent cheques or exceeding overdraft limits, is a breach of responsibilities. Following operational rules ensures smooth banking, reduces errors, and protects both the customer and the bank from financial loss. Customers are also responsible for safeguarding passwords, PINs, and account-related information to prevent unauthorized transactions.

• Timely Repayment of Loans and Obligations

Customers availing of loans or credit facilities have the responsibility to repay the principal and interest within the agreed timeframe. Delays or defaults can lead to penalties, legal action, or damage to credit ratings. Timely repayment ensures a healthy credit history, helps maintain a good relationship with the bank, and enables continued access to financial services. Customers should carefully plan finances, keep track of repayment schedules, and communicate with the bank in case of difficulties to avoid complications.

• Safeguarding Banking Instruments and Information

Bank customers are responsible for protecting their passbooks, cheque books, debit/credit cards, account statements, passwords, and PINs. Loss or misuse of these instruments can lead to financial loss and fraudulent transactions. Prompt reporting of lost or stolen instruments to the bank is essential to prevent unauthorized access. Customers must also avoid sharing sensitive information with third parties. Protecting banking instruments and personal data ensures the safety of funds, reduces the risk of fraud, and contributes to secure banking operations.

• Compliance with Legal and Regulatory Requirements

Customers must comply with legal and regulatory norms, including submitting valid KYC documents, following AML guidelines, and adhering to foreign exchange rules if applicable. Non-compliance may result in account suspension, penalties, or legal action. Regulatory compliance ensures transparency, security, and lawful operations. Customers are also responsible for disclosing any material changes in their financial status or business activities that may affect account operations. By following these requirements, customers support the integrity of the banking system and maintain trust in their relationship with the bank.

• Prompt Communication with the Bank

Customers are responsible for timely communication with the bank regarding changes in personal information, account discrepancies, or suspicious transactions. Prompt reporting of issues, such as errors in statements or unauthorized debits, allows the bank to take corrective action quickly. Regular communication ensures smooth account operations and prevents misunderstandings or disputes. Customers should also respond to bank notifications, updates, or requests for documentation to maintain a valid and active banking relationship. Effective communication strengthens trust and supports efficient banking services.

• Avoiding Misuse of Accounts

Customers should not misuse their accounts for illegal purposes, such as money laundering, fraud, or financing unlawful activities. Accounts must be used only for legitimate financial transactions and in accordance with the law. Misuse can result in closure of the account, legal action, or penalties. Customers have a responsibility to ensure that funds in the account are lawful, transactions are transparent, and all activities comply with banking regulations. Responsible account usage protects both the bank and the customer from legal and financial risks.

Importance of Customers to Banks

• Source of Deposits and Liquidity

Customers provide the primary source of funds for banks through savings, current, and fixed deposit accounts. These deposits form the basis for banks to lend money, invest in financial instruments, and maintain liquidity. A large, diverse customer base allows banks to meet withdrawal demands, provide loans, and ensure financial stability. The inflow of deposits enables banks to expand operations and fund economic activities. Without customers, banks would lack operational resources. Therefore, customers are essential for maintaining liquidity, managing cash flow, and supporting credit creation, which are critical for banking profitability and effective participation in the financial system.

• Revenue Generation

Customers contribute directly to a bank’s income through interest on loans, service fees, penalties, and transaction charges. Loan repayments, overdraft interest, credit card usage, and account maintenance fees are key revenue streams. Banks also earn through cross-selling of investment, insurance, and financial products. A larger customer base ensures steady income and financial growth. Satisfied and loyal customers promote repeated usage and referrals, increasing profitability. Customer engagement and trust directly impact the bank’s financial performance. Therefore, banks view customers not only as clients but also as critical partners in revenue generation and long-term business sustainability.

• Feedback and Product Development

Customers play a crucial role in shaping banking products and services. Feedback, usage patterns, and suggestions help banks improve digital banking platforms, loan schemes, deposit products, and customer service processes. Understanding customer needs ensures services are convenient, relevant, and competitive. Engaged customers guide innovation and technological adoption. Personalized offerings, loyalty programs, and customized services are developed based on customer insights. Banks that respond to customer feedback can retain clients, enhance satisfaction, and maintain a competitive edge. Customer input is therefore critical for designing effective, efficient, and customer-friendly banking solutions.

• Building Trust and Reputation

A bank’s reputation depends largely on customer satisfaction and trust. Loyal customers act as advocates, enhancing the bank’s credibility through word-of-mouth and referrals. Repeat business and long-term relationships strengthen public confidence. Conversely, dissatisfied customers can harm the bank’s image and financial prospects. Banks invest in customer relationship management, grievance redressal, and personalized services to maintain trust. A strong reputation attracts new customers, investors, and partners. Therefore, customers are integral not only for operational performance but also for sustaining public trust and the bank’s competitive position in the financial market.

• Supporting Financial Inclusion

Customers play a key role in financial inclusion, helping banks reach underserved populations, including rural, minor, senior, and non-resident customers. By providing access to credit, savings, and investment products, banks promote economic growth and equitable financial participation. Serving diverse customers fulfills social responsibility goals and government directives. Expanding customer reach strengthens the bank’s market presence, increases deposits, and enhances financial literacy. Customers are thus central to bridging gaps in access to formal financial services, contributing to community development, and ensuring that banks play a critical role in national and local economic development.

• Customer Loyalty and Retention

Loyal customers contribute to long-term sustainability and stability of banks. They provide continuous deposits, regular business, and referrals. Retaining existing customers is more cost-effective than acquiring new ones, as loyal clients engage in multiple banking services, increasing profitability. Banks monitor satisfaction, provide rewards, and offer personalized services to enhance loyalty. Long-term customer relationships reduce risks, ensure recurring revenue, and strengthen the institution’s financial position. Loyal customers also act as advocates, improving brand reputation. Therefore, banks consider customer loyalty as a strategic asset essential for competitive advantage, operational stability, and sustained growth.

• Expanding Market Reach

Customers help banks expand their market presence by increasing the number and diversity of account holders. Each new customer represents potential deposits, loans, and transaction activity, enabling banks to grow geographically and across market segments. Serving varied customers, such as individuals, corporates, institutions, and non-residents, allows banks to diversify risk and revenue sources. A broad customer base also provides opportunities for cross-selling products, increasing overall business. Banks rely on customer expansion to enhance market share, strengthen competitiveness, and build brand recognition. Without customers, banks cannot scale operations or sustain long-term growth effectively.

• Enhancing Innovation and Technology Adoption

Customers drive banks to adopt innovative products, services, and technologies. The demand for online banking, mobile apps, digital wallets, and contactless payment solutions comes directly from customer needs and preferences. Feedback from customers encourages banks to develop user-friendly platforms, secure transaction systems, and personalized financial products. Engaged customers promote digital adoption, which reduces operational costs, improves efficiency, and enhances convenience. Banks that leverage customer insights for technological innovation can maintain competitiveness in the fast-evolving financial sector. Customers, therefore, are catalysts for modernization, digital transformation, and innovative service delivery, ensuring the bank remains relevant in changing market dynamics.

Challenges Faced by Bank Customers

• Risk of Fraud and Cybercrime

Bank customers are increasingly exposed to fraud, phishing, and cybercrime in both physical and digital banking. Fraudulent calls, fake websites, unauthorized online transactions, and ATM scams can lead to financial loss. Customers must be vigilant about sharing personal information, account details, or OTPs. Banks implement security measures like two-factor authentication and encryption, but awareness and caution on the customer’s part are critical. Fraud not only results in financial loss but also damages trust in the banking system. Customers must adopt safe practices, report suspicious activity promptly, and follow bank guidance to minimize these risks.

• Digital Banking Challenges

While digital banking offers convenience, customers may face technical issues such as failed transactions, login problems, or app errors. Elderly customers or those unfamiliar with technology may struggle to use mobile banking, internet banking, or digital wallets. Network failures, system downtime, and software glitches can disrupt access to accounts and funds. Lack of technical literacy can lead to errors in fund transfers or bill payments. Banks must provide training, guidance, and user-friendly platforms to assist customers. Awareness and careful operation are necessary for customers to fully benefit from digital banking while minimizing errors or risks.

• Hidden Charges and Fees

Many bank customers face challenges due to hidden or unclear charges, including service fees, ATM withdrawal limits, late payment penalties, and maintenance charges. These charges are sometimes not clearly communicated, leading to dissatisfaction or disputes. Customers may unknowingly incur penalties for overdrafts, minimum balance violations, or excess transactions. Transparency in charges and clear communication from banks are essential to prevent misunderstandings. Customers should review account terms, statements, and fee schedules carefully to avoid unexpected deductions. Understanding bank charges enables better financial planning and protects customers from unnecessary losses.

• Accessibility and Convenience Issues

Accessibility is a major challenge, especially for rural, differently-abled, or elderly customers. Limited branch networks, distant ATMs, or insufficient support for physically challenged customers can hinder banking operations. Timings, lack of digital literacy, or dependence on intermediaries further restrict access. Poor accessibility may delay deposits, withdrawals, or payments. Banks must enhance infrastructure, provide digital solutions, and implement inclusive facilities such as assistive technology, mobile banking vans, or priority services. Customers must also proactively adopt available solutions and communicate difficulties to the bank for improvements in convenience and accessibility.

• Complex Procedures and Documentation

Bank customers often face difficulties due to complex procedures for account opening, loans, or other banking services. Extensive documentation, verification processes, and legal requirements can be time-consuming and confusing. Minor mistakes in forms, incorrect information, or missing documents can delay approvals or transactions. Customers need to be aware of procedural requirements, maintain proper records, and submit accurate information. Simplification of procedures by banks and better guidance for customers can reduce delays, errors, and frustration. Understanding the processes is key for customers to efficiently use banking facilities without unnecessary obstacles.

• Customer Grievances and Delayed Resolution

Sometimes, customer complaints or grievances are not addressed promptly by banks. Delays in resolving issues such as transaction errors, disputed charges, or service deficiencies can frustrate customers. Lack of awareness about grievance channels or ineffective complaint handling mechanisms exacerbates the problem. Customers may approach bank branches, customer service, or ombudsman offices to resolve disputes. Banks must strengthen grievance redressal systems, provide clear communication, and ensure timely resolution. Customers should also maintain records of complaints and follow up systematically to protect their interests and ensure accountability.

• Lack of Financial Literacy and Awareness

Many customers face challenges due to limited understanding of banking products, services, interest rates, fees, and digital platforms. Financial illiteracy can lead to misuse of accounts, missed opportunities, or susceptibility to fraud. Customers must educate themselves about banking procedures, regulatory requirements, and financial planning. Banks play a role by offering awareness programs, training sessions, and informative resources. Improving financial literacy empowers customers to make informed decisions, manage funds efficiently, and use banking services safely.

• Regulatory and Compliance Burdens

Bank customers must comply with regulatory requirements such as KYC, PAN submission, FATCA declarations, and anti-money laundering norms. Frequent updates or procedural changes can be challenging, especially for non-resident or senior customers. Failure to comply may lead to account restrictions, service disruptions, or penalties. Customers must remain informed and provide accurate, timely documentation. Banks assist by communicating requirements clearly and providing guidance. Understanding and following regulations ensures smooth banking operations and protects both the customer and bank from legal and financial risks.

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. 

A charge is a legal right or interest created over the assets of a borrower in favour of a bank to secure repayment of a loan or advance. It does not transfer ownership but gives the bank the right to recover dues from the charged asset in case of default. Charges may be created on movable or immovable property depending on the nature of lending. Banks create charges to reduce credit risk and ensure safety of funds. The charge acts as a secondary source of repayment after the borrower’s income. Common modes of creating charge in banking include lien, pledge, hypothecation, and mortgage.

While lending money, the bank has to keep three principles in mind viz., liquidity, safety and profitability. In order to minimise risks in advancing money, banks usually insist on good security and would like to create a charge on the tangible assets of the borrower in favour of the bank. When a charge is created, the bank gets certain rights on the tangible assets. In case the borrower fails to repay the advance, the bank can recover its money by disposing of those assets in the market.

The important methods of creating a charge are:

• Lien
• Pledge
• Hypothecation
• Mortgage

Let us now study them briefly.

1. Lien

Lien refers to the legal right of a bank to retain possession of goods, securities, or assets belonging to a customer until the dues payable by the customer are fully settled. It does not transfer ownership of the goods to the bank; ownership remains with the customer. Lien acts as a protective measure for banks by ensuring recovery of outstanding amounts. In banking, lien is commonly exercised over fixed deposits, securities, and valuable documents that come into the lawful possession of the bank.

A banker enjoys the right of general lien under Section 171 of the Indian Contract Act, 1872. This allows the bank to retain any goods or securities of the customer for the recovery of a general balance due, unless there is a contract to the contrary. The right of general lien applies to all accounts of the customer and covers present as well as future liabilities. This right arises automatically and does not require any special agreement between the bank and the customer.

For a valid lien, the goods must be in the lawful possession of the bank. The lien can be exercised only for lawful debts and not for illegal or uncertain claims. It applies only to movable property and not to immovable assets. The bank cannot exercise lien over goods deposited for a specific purpose, such as safe custody. Lien comes into existence automatically and ends once the dues are fully paid.

Lien provides security to banks without requiring formal documentation or transfer of ownership. It helps banks recover dues efficiently and reduces credit risk. The simplicity and legal backing of lien make it a widely used mode of charge in banking operations, especially for advances against deposits and securities.

2. Pledge

Section 172 of the Indian Contract Act defines pledge as “a bailment of goods as security for payment of a debt or performance of a promise”. So, a pledge is a contract whereby a borrower delivers his movable property to the lender as a security for the loan on the understanding that the property pledged will be returned to the borrower on repayment of the debt. The borrower who pledges the property is called the ‘pledged’ or ‘pawner’ and the person with whom the property is pledged is known as ‘pledgee’ or ‘pawnee’. From the above, you must have understood that delivery of goods and return of goods are the two essential features of pledge. Delivery of goods may be either physical delivery or constructive (symbolic) delivery. When the pledgee puts his own lock on the godown or when the keys of the lock are handed over to the bank, it amounts to delivery of goods. Similarly, handing over the duly endorsed documents of title to goods like railway receipt, bill of lading, etc., amount to delivery of goods. While accepting a pledge as a charge, the bank should ensure that the contract is in writing to minimise the misunderstanding of the terms. The contract should be complete in all respects and should incorporate all the usual clauses of pledge. It is advisable for the bank to get a declaration from the borrower to the effect the goods deposited with the bank are left as a security for the advance. The bank should see that the borrower has a valid title to the property pledged. The bank should ensure that the goods are kept safely in the godown. It is desirable that the bank should ensure goods against theft, fire, riot, etc. You must remember that when goods are pledged, only the possession over the goods is given and not the ownership. The pledger or the borrower continues to be the owner of the property. If the borrower fails to repay the loan in time, the bank has a right to file a suit against the borrower for the recovery of the amount, and retain the goods as collateral security. But since this is a lengthy process, the banks are given the right to sell the pledged goods and recover their money. But before selling the goods, the bank must give a reasonable notice to the borrower about his intention to sell the goods. If the proceeds of sale are less than the amount due, the borrower is still liable to pay the balance. But if the proceeds of sale is in excess of the amount due, the bank has to pay the surplus amount to the borrower. In case the goods are sold without giving a reasonable notice to the borrower, the sale cannot be set aside, but the bank will become liable to the borrower for damages.

From the above, it must be clear to you that for securing a charge on the property, the method of pledging is very simple and therefore, it is very popular. It should also be noted that the right to retain the goods pledged is applicable only in case of a particular debt for which the goods are pledged. The bank has no right to retain the security, as security for other debts owned by the borrower.

3. Hypothecation

Hypothecation is a mode of creating charge on goods or related document surrender of possession of goods. According to Prof. Herbert Hart, “Hypothecation is a legal transaction whereby goods may be made available as security for a debt without transferring either the property or the possession to the lender”. Hypothecation is resorted to such cases where transfer of possession of the property from the borrower to the creditor is either impracticable or inconvenient. For example, if the borrower wants to borrow on the security of motor vehicle, which is being used as a taxi, it shall not be advisable to pledge the vehicle with the bank, as it will deprive him of his livelihood. In the case of hypothecation, an equitable charge is created on the goods for the amount of debt but the hypothecated goods actually remain in the physical possession of the borrower. The borrower who hypothecates the goods is known as ‘hypothecator’ and the lender is termed as ‘hypothecatee’. Generally, hypothecation is done by the borrower by executing a document called a ‘letter of hypothecation’ in favour of the lender. In this letter it is stated that the said goods or property are at the order and disposition of the lender until the debt is cleared. It also empowers the lender to sell the hypothecated property in the event of default or repayment by the borrower.

As the hypothecated goods remain in the possession of the borrower, there is considerable scope for fraud. The same goods may be hypothecated with another person. It is a risky method no doubt. That is why this facility is granted to parties of unquestionable integrity and honesty. Even then the banker should obtain a declaration from the borrower to the effect that the goods are not hypothecated earlier with some other lender and that the borrower has a clear title to the property hypothecated. The bank should carry out regular inspection and physical verification of the hypothecated goods.

4. Mortgage

When immovable property like land and building is offered as security for debt, a charge is created thereon by means of a mortgage. A mortgage is the transfer of the interest in a specific immovable property by one person to another for the purpose of securing an advance of money. The transferor is called ‘mortgagor’ and the transferee is known as ‘mortgagee’. The advance of money in respect of which the mortgage is effected is called the ‘mortgage money’ and the instrument by which the mortgage is effected is called the ‘mortgage deed’. In a mortgage, the possession of the property need not always be transferred to the mortgagee. Usually, it remains with the mortgagor. Since the mortgagee gets the interest in the property, he has a right to sell of the property and recover his loan. When the borrower repays the amount of loan together with interest, the interest in the property is re-conveyed to the mortgagor.

While accepting a mortgage as a charge, the bank should ensure that the borrower has a valid title to the property and this can be done by examining the original title deeds. The bank must not part with the title deeds to the borrower when the mortgage is pending. If the advance against mortgage is given to a joint stock company, then the charge should be registered with the Registrar of Companies within 30 days of the creation of the charge. The mortgaged property should be inspected periodically to ensure that it is in good condition. If the property mortgaged is building, the bank should ensure that it is insured against fire, riot etc. There are several forms of mortgage. They are

• Simple mortgage
• Usufructuary mortgage
• English mortgage
• Mortgage by conditional sale
• Equitable mortgage or mortgage by deposit of title deeds
• Anomalous mortgage