Relationship between Banker and Customer
by The relationship between a banker and a customer depends on the type of transaction. In this banker and customer relationships; both parties have some obligations and rights.
The relationship between banker and customer is not only that of a debtor and creditor.
Banker
The term banking may define as accepting of deposit of money from the public for the purpose of lending or investing investment of that money which are repayable on demand or otherwise and with a draw by cheque, draft or order.
Features of Banking
The definition of banking describes the following features of banking.
(i) A banking company must perform both of the essential functions.
(ii) Accepting of deposit.
- Lending or investing the same: The phrase deposit of money from the public is significant. The bankers accept a deposit of money and not of anything else. The world public implies that a banker accepts a deposit from anyone who offers his/her money from such purpose.
- The definition also implies the time and made to withdraw the deposit. The deposit money should be repayable to the depositor on demand made by the letter or according to the agreement reached between the two parties.
Customer
A person who has a bank account in his name and for whom the banker undertakes to provide the facilities as a banker is considered to be a customer.
To constitute a customer the following requirements must be fulfilled;
- The bank account may be savings, current or fixed deposit must be operated in his name by making a necessary deposit of money.
- The dealing between the banker and customer must be of the nature of the banking business.
Relationship between Banker and Customer
The relationship between a banker and a customer is a legal, contractual, and service-oriented relationship that arises when a person opens an account with a bank. This relationship defines the rights, duties, and obligations of both parties. It is dynamic in nature and varies according to the type of transaction undertaken. The relationship is not limited to one form but takes several forms depending on circumstances.
Banker is a financial institution that accepts deposits, lends money, and provides various banking services. A customer is a person or entity that has an account with the bank or engages in regular banking transactions. The relationship begins as soon as an account is opened and continues as long as banking transactions exist between them.
- General Nature of the Relationship
The relationship between banker and customer is primarily contractual. It is governed by the terms and conditions agreed upon at the time of opening the account and by banking laws and customs. Mutual trust, confidentiality, and good faith form the foundation of this relationship. Both parties are legally bound to fulfill their obligations.
- Banker as Debtor and Customer as Creditor
When a customer deposits money in a bank, the banker becomes the debtor and the customer becomes the creditor. The deposited money becomes the property of the bank, and the bank is obliged to repay it on demand or as per agreed terms. The banker must honor withdrawal instructions provided there are sufficient funds and proper compliance with banking rules.
- Customer as Debtor and Banker as Creditor
When a bank provides loans, overdrafts, or advances, the roles reverse. The customer becomes the debtor, and the banker becomes the creditor. The customer is legally bound to repay the borrowed amount along with interest within the stipulated time. The bank has the right to recover dues through lawful means in case of default.
- Banker as Trustee and Customer as Beneficiary
In certain situations, the banker acts as a trustee of the customer. For example, when a bank is entrusted with funds for a specific purpose or manages trust accounts, it must use the money strictly according to the customer’s instructions. The bank must act honestly, carefully, and in the best interest of the beneficiary.
- Banker as Agent and Customer as Principal
A banker often acts as an agent of the customer. In this role, the bank performs various services such as collecting cheques, paying bills, remitting funds, purchasing securities, and handling foreign exchange transactions. The bank must follow the instructions of the customer accurately and exercise reasonable care and skill.
- Banker as Bailee and Customer as Bailor
When customers deposit valuables, documents, or securities with the bank for safe custody or locker services, the banker becomes a bailee and the customer becomes a bailor. The banker is responsible for taking reasonable care of the goods entrusted and returning them upon demand. Any negligence can make the bank liable for loss or damage.
- Banker as Lessor and Customer as Lessee
In the case of locker facilities, the banker acts as a lessor and the customer as a lessee. The bank provides space (locker) for a fee, while the contents remain the property of the customer. The bank must ensure safety of the locker premises, but it is not aware of the contents stored inside.
- Banker as Advisor
Banks often act as financial advisors to customers by providing guidance on investments, loans, insurance, and savings schemes. Though advice is generally given in good faith, the bank must exercise due care. Wrong or misleading advice may affect the trust relationship and, in some cases, attract legal liability.
- Obligation of Banker to Honor Cheques
One of the primary duties of a banker is to honor cheques drawn by customers, provided there is sufficient balance and no legal restriction. Wrongful dishonor of a cheque can damage the customer’s reputation and make the bank liable for compensation.
- Obligation of Banker to Maintain Secrecy
The banker has a legal and moral duty to maintain secrecy of customer accounts and transactions. Information can only be disclosed under specific circumstances such as legal compulsion, public duty, bank’s interest, or customer consent. Breach of secrecy can lead to legal action and loss of public confidence.
- Rights of the Banker
The banker enjoys certain rights, including the right to lien, right to set-off, right to charge interest, and right to close accounts under valid reasons. These rights protect the financial interests of the bank while maintaining fairness in dealings with customers.
- Duties of the Customer
Customers must maintain sufficient balance, follow banking rules, repay loans on time, and provide accurate information. Misuse of banking facilities or failure to comply with contractual obligations can weaken the relationship and lead to legal consequences.
- Termination of Relationship
The banker-customer relationship may be terminated due to account closure, death, insolvency, insanity of the customer, or order of a court. After termination, the bank must act according to legal provisions and settle accounts responsibly.