Relationship between Banker and Customer

Relationship between banker and customer

The relationship between banker and customer is a legal relationship that starts after the formation of a contract. When a person who opens a bank account in the bank and banker gives his acceptance for the account, it binds banker and costumer in the contractual relationship. The person who holds the bank account in the bank and uses its services is called a bank customer. The contractual relationship between bank and customer creates more types of banker and customer relationships.

The bank and customer are two different terms that are related to the bank. The person doing the banking business is called a banker and the person who is connected with the bank, either depositing his money or taking a loan from the bank is called a bank customer. The relationship between banker and customer can be of various types because it totally depends upon the activities, products and services provided by the banker to the customer. Although the relationship is totally based on contact, trust is an important part of the relationship between bankers and customers.

Section 5 (b) of the Banking Regulations Act 1949 defines the bank as a financial institution. According to the section “The bank accepts, lending money or invest the money from the public repayable on demand or otherwise and withdraw through online, cheques, drafts or any other way.” It is a licensed institution to receive deposits of its costumer and make the loan.

The main work of the bank is depositing and lending money. The bank encourages people to save their money into the bank accounts to earn some interest on the money. The bank uses this money to give loans to needy people with an interest rate. In simple words, the bank works as the intermediary between two people where one wants to save his money and others need money.  This process also helps the bank to gain some profit and make the relationship between banker and customer. This process creates different rights and duties of bankers against the customer and rights and duties of customers against the bank which make the banker and customer relationship stronger.

So now, lets us discuss all the legal relationships between banker and customer in detail.

Relationship between banker and customer

The banker and customer relationship are based on trust. This relationship is divided into two important parts to understand clearly:

  • The general relationship between banker and customer
  • The special relationship between banker and customer

The general relationship between banker and customer

The services provided by a banker to its customer comes under a general relationship between banker and customer. The general relationships between banker and customer are:

Relationship as Debtor and Creditor

The opening of a bank account in the bank of a banker by the person who has the capacity to contract is the basis of the debtor and creditor relationship between banker and customer. By filling the form for opening a bank account bind the banker and customer in the written contract. The customer when deposits his money into his bank account, becomes a creditor because he is giving his money to the bank indirectly. The money deposited by the customer in the bank account becomes the bank’s property. The bank can use your money as it likes. By using your money, the bank becomes a debtor because he will take that money into his account to make further transactions with other bank customers. The bank is not liable to inform the customer about the utilization of his money.

This relationship gets opposite at the time when a bank customer takes the loan from the bank, the bank becomes the creditor and the customer becomes a debtor. It means the debtor and creditor relationship works both ways depending on the condition of the transfer of money. The bank usually takes the money of customers to use it to provide loans for other bank customers and it is the most important activity of a bank.

Almost in all types of bank accounts, the customer can withdraw his saved money into the bank account at any time because there are no restrictions imposed by the bank on the customer. Some bank accounts like fixed deposits etc. impose minor penalties if a person wants to withdraw his money before the expiration period.

Relationship as Trustee and Beneficiary

The bank performs the relationship as a trustee with his customer when the bank customer deposited his property or other assets. In this case, the bank holds the property of other documents of bank customers in exchange for the loan provided by the bank. The person who is depositing the property or other document is known as the beneficiary.

It can be done in two conditions:

  • When a person deposited his important document in the bank locker.
  • The person took the loan and deposited his property document as security.

This relationship is based on trust. The document deposited in the bank is a secured document and the bank never share these document with any other person. Also, the ownership of the property will remain with the person, not the bank. In the situation of bank liquidation, the property secured in the bank by the beneficiary is not subject to distribution to the general creditors of the bank.

Relationship as principal and Agent

The bankers provide agent services to their customers. The agent is defined under section 182 of the Indian contract act as the agent is the person who is employed by a person by giving him the power of attorney to work or deal on his behalf. The banker pay taxes, electricity bills, insurance premium etc. at the command of the bank customer who acts as principal.  The bank usually charges for these services provided by the bank to its customer.

Relationship as Lesser and Lessee

Section 105 of the transfer of property act deals with the contract of lease. It is a transfer of a right to enjoy the immovable property for a certain time with consideration. This happens in the relationship between banker and customer when the bank provides a safe deposit locker to the customer of the bank to save his important property for a certain period of time. The bank changes its customer who is taking the benefit of the locker for a certain period of time.

Relationship as Pledger and Pledgee

The banker performs the relationship of Pledger and Pledgee when the customer took the loan from the bank and deposits some security to the banker. The customer becomes a pledger and the bank is pledgee.  The security of the customer will remain in the custody of the bank until the person repays the money of loan taken by him from the bank.

Relationship as Bailor and Bailee

The banker can perform the relationship of bailor and bailee with its customer. There are many types of bailment under which the person delivers his goods to another party for a specific period of time and take the goods back when the purpose of bailment has been done.

The relationship of bailor and bailee between banker and customer arises when the customer gives his security document of any other goods to the bank for a specific period of time for security. The customer is a bailor and the bank becomes bailee.

Relationship as Advisor and Client

The relationship between banker and customer can be as advisor and client in a case when the customer invests in securities. The bank gives advice to his customer for investing. For example, if you are planning to take any kind of loan, but you are not sure that which loan you should take. Here, the bank can advise you officially or unofficially to take the right decision. In that case, the banker will be your advisor and you will be his client.

Relationship as Mortgagor and Mortgagee

Section 58(a) of the Transfer of Property Act, 1882 defines the mortgage as “A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced by way of loan, etc.”

When the banker provides the credit facility to his customer against the security of immovable property, the customer becomes a mortgagor and the bank is a mortgagee.

Relationship as Indemnity holder and Indemnifier

There are various types of indemnity given under the Indian contract act. Indemnity is one of the types of contracts in which one person promise to save another party by paying his loss occurred due to the person who is making the contract or by the act of any other person.

In the relationship between banker and customer, the banker act as indemnity holder if any wrong transaction is done while making the payment by the customer.

For example, if you make an online transaction with another person but the transaction failed and your money is deducted. The bank will repay the loss that occurred due to fault occurred in the transaction. Though, it requires all the necessary written evidence to prove this in litigation.

Relationship as Hypothecator and Hypothecatee

The relationship between banker and customer converts into Hypothecator and Hypothecatee when the bank customer hypothecates some movable or immovable property or any other assets into the bank to take the loan from the bank. In this case, the bank customer is a hypothecator and the banker is Hypothecatee.

Special Relationship between Banker and Customer

The duties and instruction to the banker come under a special Relationship between Banker and Customer.

Maintain records

It is the duty of the banker to maintain every record of the transaction, loan and investment done by the bank customer. These records must be clear, genuine and authorized. The bank customer has the right to check his transaction details whenever he needs them. In a case where the transaction details are needed, the banked has the duty to provide the true details to its customer with the stamp and signature of the authorized person. Any mistake in the records can bring the bank into trouble.

Maintain confidentiality

A banker is responsible for the safety of the documents, records or any other property which is deposited by the bank customer in the bank. The information must remain confidential. Though there are some conditions when the banker can disclose these confidential documents saved in the bank account.

Obligation to honour cheques

The bank is responsible to accept the Cheque of the customer that is equivalent to the amount present in the account. There are some necessary conditions which must be fulfilled by the Cheque. Lack of these conditions can lead to the dishonour of cheques. Some important conditions are:

  • Proper format of the Cheque
  • Correctly signed by the person
  • Properly presented in the bank
  • There must be an available balance in the bank account.

Termination of Relationship between the Banker and the Customer

The relationship between the Banker and the Customer can be terminated on some conditions which are:

Liquidation of the company

The banker and customer relationship can be terminated at the time of:

Death or lunacy of a customer

If the bank customer dies and becomes a lunatic, the banker and customer relationship will terminate.

Completion of contract

It can be done if:

  • The loan taken by the bank customer is repaid
  • The bank guarantee has been completed

Voluntary termination

The banker cannot close the account of the customer. If the person wanted to close his account with his free consent, then the relationship between banker and customer can be terminated.

Closing the account after bank notice

It is the right of the banker that if he found and illegal activity with the account or any other reasonable ground, the bank can close the account after giving proper notice to the customer.

Conclusion

Due to the invasion of the internet, we use our bank account to make hundreds of transactions every month. Internet is making a special bond in the relationship between bankers and customers. Now, we can take the help of an E-contract to take a loan from the bank which is an easy way to get the loan even without going to the bank. It is the relationship of trust. We can see more changes in the bank sector as it is one of the major branches which is growing fast.


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