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On granting advances certain precautions are necessary.

Purpose of the loan: The repayment mostly depends upon the purpose for which the loan is obtained. To a borrower who is engaged in speculation, the chances of loss are greater. As such the loss will have to be shared by the banker. So, advances should not be allowed for speculative purposes.

The integrity of the borrower: The banker should ascertain that the borrower is trustworthy, honest and a man of sufficient experience in his business. Such a precaution is necessary to avoid fraudulent dealings. For example, when a customer offers 100 bags of paddy, as security it is impossible to inspect each and every bag. He has to rely on the honesty of the borrower.

Further, he should see whether the borrower has adequate practical experience in his business. An experienced businessman is conversant with risks and the profitable areas of the business. An inexperienced one may incur a loss and be a potential risk.

Nature of the commodity: The banker should have a working knowledge of some of the special features of the commodities offered as security. The commodities which could be disposed of easily, the quality of goods which are not subject to deterioration and price of goods which are almost steady should be preferred by a banker as security.

Knowledge of different markets: A banker should be conversant with the markets for different commodities. This is essential to regulate the margin for the goods according to the price prevailing in the market. Failure to have knowledge of the market will put him at the mercy of the borrower who may inflate the value to get more advances.

Ascertain the title of owner: Before accepting goods as security, the banker should ascertain the title of the borrower to the goods by inspection of the original invoice or cash memos.

Proper storage: The banker should select godowns which are pucca built and safe in every way for the storage of goods. The roof and flooring should be situated near the bank so that the bank’s representative can have direct and free access to them at any time. All goods stored in bags or bales should be so arranged as to facilitate inspection easily. A careful selection should be made of go down keeper and watchmen. They should be honest and possess a high sense of responsibility.

Creation of charge by Pledge and Hypothecation: A banker may create a charge over the goods either by pledge or hypothecation. In the pledge, the goods or title thereto is delivered to the banker. In hypothecation, neither possession nor goods are transferred to the banker. So, a written undertaking from the borrower should be obtained that the goods are not charged to any bank and will not be charged till the agreement continues with the bank.

Rented go down: If the borrower makes use of a rented go down, the bank must obtain an undertaking from the owner of the building stating that the bank has a prior lien. This is necessary because at times the building owner may have a prior claim for rent due and the position of the banker will be at stake.

Insurance up to the full market value: Goods should be insured against all known risks up to their full market value. The relative insurance policies should be held by the bank.

One of the first steps undertaken after incorporating a private limited company is opening of the current account in the name of the Company. A company can open one or more current account in any bank and is required to transact business. The procedure for opening private limited company bank or current account along with the documents required.

Current Account for Private Limited Company

Opening a current account for a private limited company is easier than the opening of the current account for a sole proprietorship firm as a company is a registered legal entity by law. Therefore, once a company is incorporated, a bank account can be opened in the name of the business with just a few documents, unlike proprietorship wherein the existence of the sole proprietorship must be established through various tax registrations. As per Reserve Bank of India’s KYC norms, the following are the documents necessary to open a current account in the name of the Company:

• Certificate of incorporation and Memorandum & Articles of Association;
• Resolution of the Board of Directors to open an account and identification of those who have authority to operate the account;
• Power of Attorney granted to its managers, officers or employees to transact business on its behalf (if applicable);
• Copy of PAN allotment letter;
• Copy of the telephone bill;

Documents Required for Opening Company Current Account

Based on the above RBI KYC norms, various banks have formulated procedures and list of documents required to open a company current account. The following is an extensive list of documents mandatory for opening a current account in the name of the Company:

• Certificate of Incorporation of Company
• Board resolution for opening a current account
• Memorandum of Association (MOA) & Articles of Association (AOA)
• Latest list of Directors as per the bank’s format
• Registered office address proof of the company (Only required if different from the address mentioned in the Certificate of Incorporation)
• Identity proof of all Directors / Authorized Signatories
  • PAN card of Director
  • Passport
  • Voter Identity Card
  • Driving License
  • Aadhaar card issued by Unique Identification Authority of India (UIDAI)
  • Senior Citizen Card issued by State/Central Govt
  • Fisherman Identity card issued by State/Central Government
  • Arms License
• Proof of appointment of current director/s (in case Board of Directors has changed over time)
• Proof of resignation of Director/s (in case Board of Directors has changed over time)
• PAN Card of the company or PAN Card Application Acknowledgement (for New Companies which are less than 90 days)
• Share Holding Pattern of the company as per the bank’s format

“Banker” and “Customer” are foundational, each carrying specific implications for rights, responsibilities, and expectations.

Definition of a Banker

A banker, in the traditional sense, is an individual or entity that is engaged in the business of banking. This involves accepting deposits from the public, granting loans for various purposes, and offering financial services that range from investment advice to asset management. Bankers operate within institutions such as banks, credit unions, or savings and loan associations.

The role of a banker extends beyond mere transaction processing; they act as financial intermediaries, advisors, and risk assessors. They play a critical role in the economy by facilitating the flow of capital, providing liquidity, and managing risk through diversified loan portfolios. Their decisions can influence lending rates, investment strategies, and even economic stability.

Definition of a Customer

A customer, in the banking context, refers to an individual or entity that engages the services offered by a bank. Customers can range from private individuals to businesses and other organizations that maintain deposits, borrow funds, or utilize other financial services provided by the bank. The relationship between a customer and a banker is contractual, governed by the terms and conditions stipulated in the opening and operation of an account or service.

Customers expect certain standards from their banks, including the safeguarding of deposited funds, the provision of fair and reasonable access to credit, and the respectful handling of their personal information. They rely on banks to provide financial services that are secure, efficient, and in line with their economic needs.

Legal Framework

The relationship between a banker and a customer is fundamentally a legal one, predicated on both statutory and common law. In many jurisdictions, this relationship is defined and regulated by a combination of banking regulations, financial oversight, and consumer protection laws.

At its core, the legal relationship is one of debtor and creditor. When a customer deposits money into a bank account, the bank typically becomes a debtor to the customer; conversely, when a customer borrows money, the customer becomes the debtor. This dynamic illustrates the fluidity and reciprocal nature of the banking relationship.

Rights and Responsibilities

Banker’s Rights and Responsibilities

• Confidentiality:

Bankers are required to keep customer information confidential, disclosing it only in circumstances that are legally mandated or where the customer has given permission.

• Duty of Care:

Bankers must exercise reasonable care and skill in their dealings with customers. This includes making prudent decisions in the management of accounts and providing advice.

• Compliance:

Bankers are bound to comply with all relevant laws and regulations, including those related to anti-money laundering (AML), know your customer (KYC) protocols, and financial reporting.

Customer’s Rights and Responsibilities

• Right to Fair Treatment:

Customers have the right to be treated fairly and ethically by their banks, which includes clear communication of terms, fees, and access to dispute resolution mechanisms.

• Responsibility to Provide Accurate Information:

Customers must provide accurate and timely information to their banks, including changes in their financial status or personal details.

• Obligation to Comply with Terms:

Customers are obliged to adhere to the terms and conditions of any accounts or services they use, which includes the timely repayment of loans.

Modern Dynamics

The evolution of technology has dramatically transformed the banker-customer relationship. Digital banking platforms, mobile apps, and online services have increased accessibility, allowing customers to perform many banking activities independently, without direct interaction with a banker. This shift has implications for the traditional roles of both parties. Bankers are now more focused on managing larger portfolios, developing fintech solutions, and maintaining cybersecurity. Customers, on the other hand, enjoy greater autonomy and convenience but also face new risks related to data security and electronic fraud.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

The following are the special relationships between banker and customer :

• Banker’s obligation to honor the cheques,
• Banker’s lien
• Banker’s duty to maintain secrecy of customer’s accounts and
• His right in respect of combining accounts
• Banker’s Right to Set-off

Explanation

1. Obligation to honor cheques: According to Sec. 31 of the Negotiable Instruments Act, 1881, every banker must honor the cheques drawn on it by a customer, provided:

• The customer has sufficient amount of balance to his account with the banker
• the funds are properly applicable to the payment of such cheque
• the banker has been duly required to pay
• the cheque has been presented to the banker within a reasonable time (i.e., within six months) after the apparent date and of its issue
• no prohibition order of the court or any other competent authority (e.g., income tax) is standing against the account of the customer.

2. Banker’s Lien: A lien may be defined as the right to retain property belonging to a debtor until he is discharged of his debt due to the retainer (creator) of the property. The banker’s lien refers to the right of banker over such of his customer’s securities as may come into his possession in the ordinary course of business. According to Sec.171 of the Contract Act, a banker has a general lien on cash, cheques, bills of exchange and securities deposited with him.

Conditions required for the banker to exercise general lien

• The securities and goods must come to his hands in his capacity as a banker.
• The banker should have obtained the possession of the securities and goods lawfully.
• The goods or securities should not have been entrusted to the bank for a specific or special purpose.
• The goods and securities, held by the bank shall stand in the name of borrower only and not jointly with others.
• There must be no arrangement either express or implied that is inconsistent with the banker’s right to lien.

3. Secrecy of Customer’s Accounts: It is an obligation on the part of a banker to maintain secrecy about the customer’s accounts. The banker must not disclose any information pertaining to the customer to anyone. But there are certain exceptions. They are,

• Where such disclosure is required by law
• Where such disclosure is in public interest to disclose
• Where the interest of the bank require such disclosure
• Where disclosure is made by the express or implied consent of the customer; and
• Where such disclosure is permissible on account of banking practices.

4. Banker’s Right to Combine Accounts: The banker has a right to combine several accounts kept by the customer at the same branch or different branches of the bank (Garnet V. Mc Kervan). The banker however, cannot combine the personal account of a customer with a joint account of a customer and some other person. Customer has no right to treat two accounts as one.
5. Banker’s Right to Set-Off: The banker can adjust a debit balance to a customer’s account with any balance standing to the customer’s credit. While doing so, the banker gives due notice to the customer. To exercise the right of set-off the following conditions should be fulfilled;

• The debts are certain and are due. The right cannot be exercised against future debt / or contingent debts.
• The debit and credit balances are of the same person in the same capacity.
• There should not be any express or implied agreement to the contrary.

6. Banker’s Right of Appropriation: As a part of ordinary banking business, the banker receives deposits of money from his customer. The customer has the right to dictate as to which account a particular amount is to be credited where he has more than one account and / or loan account. In case the customer has not appropriated, i.e., not indicated his account to which the said amount is to be credited, the creditor is at liberty to apply the payment to any debt owed by the debtor including to a debt barred by limitation.
7. Banker has a right to claim incidental charges: Every banker has a right to claim incidental charges on unremunerative accounts of a customer, e.g., collection charges, remittance charges for drafts, etc.

The relationship would come to an end under the following circumstances or conditions.

• If the customer dies;
• If the customer becomes an insolvent;
• If the customer becomes an insane;
• If the customer closes his account;
• If the banker closes the customer’s account
• If the court orders the bank to close the customer’s account

Institutional Savings account can be opened by the following classes of applicants.

• Agriculture produce market committees
• Village industries and khadi board
• Primary co-operative credit society which the bank is financing
• Farmer’s clubs and Vikas Volunteer Vahini (VVV)
• Registered or unregistered self-help groups (SHGs) which promote savings habits among people
• Development of Women and Children in Rural Areas (DWCRA)
• Government bodies, departments, agencies in respect of grants or subsidies granted for implementation of different schemes approved and sponsored by central or state government
• Trust, association, club, charitable hospital. NGO and section 25 companies eligible to open a savings account as per RBI guidelines.

A bank account is a financial account maintained by a bank or other financial institution in which the financial transactions between the bank and a customer are recorded. Each financial institution sets the terms and conditions for each type of account it offers, which are classified in commonly understood types, such as deposit accounts, credit card accounts, current accounts, loan accounts or many other types of account. A customer may have more than one account. Once an account is opened, funds entrusted by the customer to the financial institution on deposit are recorded in the account designated by the customer. Funds can be withdrawn from loan loaders.

The financial transactions which have occurred on a bank account within a given period of time are reported to the customer on a bank statement, and the balance of the accounts of a customer at any point in time is their financial position with the institution.

Account Structure

From the customer’s point of view, bank accounts may have a positive, or credit balance, when the financial institution owes money to the customer; or a negative, or debit balance, when the customer owes the financial institution money.

Broadly, accounts that hold credit balances are referred to as deposit accounts, and accounts opened to hold debit balances are referred to as loan accounts. Some accounts can switch between credit and debit balances.

Some accounts are categorized by the function rather than nature of the balance they hold, such as savings account, which routinely are in credit.

Financial institutions have an account numbering scheme to identify each account, which is important as a customer may have multiple accounts.

Steps

1. Decide what kind of account you need

Choose a savings account if you’re looking for a place to save money over a short period of time, but still keep it readily accessible. Choose a chequing account to keep money that you plan to use for day-to-day spending or to pay bills over the short term. You’ll earn less interest than with a savings account.

Generally, have a variety of account types and services to choose from, including:

• Checking accounts: Use these for making payments and receiving direct deposits.
• Savings accounts: These accounts allow you to earn interest.6
• Money market accounts: These products sometimes earn slightly more interest than savings accounts (while maintaining your access to cash).
• Certificates of deposit (CDs): These products can earn much more than savings accounts but require you to lock up your funds for a certain period.7
• Loans: You can take out one of several types of loans (auto, home, personal loans, for example).

2. Look for an account with the services you’ll use most

In particular, think about how you’re likely to put money in and take it out:

• Branch: Make deposits and withdrawals using a teller or ATM
• Debit card: Buy something or get cash at a store
• Cheques: Pay bills
• Direct debit: Pay bills automatically from your account each month
• Direct deposit: Have your pay put into your account
• Internet or telephone banking: For a range of transactions

3. Shop around to compare rates and fees

Understand the service fees you can be charged before you open an account. Look for accounts that charge the lowest fees for the services you need. And compare interest rates. They will vary across financial institutions.

4. Choose a financial institution and location

Choose one that has branches or bank machines located close to where you live or work.

5. Open your account

You’ll have to give personal information such as your address, date of birth, social insurance number, job title and phone numbers when you complete the account application. You’ll also need to show 2 pieces of acceptable identification. One of them must be from the government. Then make your first deposit.

Fund Your Account

If you’re opening a checking or savings account, you’ll often need to make an initial deposit into the account. Sometimes, this is required as part of the opening process, and other times, you can do it after the account is up and running. There are several ways to fund your account:

• Deposit cash: It should be available for spending with your debit card by the next day.13
• Deposit a check or money order: The funds should be available within a few business days after you make the deposit.14
• Set up direct deposit with your employer: Instead of getting a paycheck, your earnings will be sent directly to your new account.
• Transfer funds electronically: Move money from an external bank account to make your initial deposit.

Start Using the Account

If you followed all the steps, you should have a brand-new bank account in your name. It should be ready to use within a few minutes to a few days. For checking and savings accounts, keep an eye out for a debit card (or ATM card) in the mail. You might also get a checkbook so that you can write checks. To make the most of your account, sign up for (usually free) account features that help you manage your money:

• Online bill pay: This feature allows you to pay bills electronically.
• Remote check deposit: Your bank’s mobile app may allow you to deposit checks remotely so that you don’t have to make trips to a branch or fill out deposit slips.
• Alerts: Sign up for text or email alerts so that you know when your account balance is running low (or when large withdrawals happen).