Explain about Banker.

Banker

A person who is doing the banking business is called a banker. A banker performs multifarious functions. First, a banker must be a man of wisdom. He deals with others‟ money but with his own mental faculties. Secondly, a banker is not only acting as a depository, agent, but also as a repository of financial advices.

Banker – Definition:

The Bill of Exchange Act of 1882 defines the banker as “Banker includes a body ofpersons whether incorporated or not who carry on the business of banking”.

Negotiable Instruments Act, Section 3 defines that the term „banker includes a person or a corporation or a company acting as a banker‟.

Customer – Meaning:

A person does not become a customer by virtue of the bank performing a casual service like accepting valuables for safe custody or giving change for a hundred rupee currency note for him. Hence the dealing must be of a banking nature. The following are the prerequisite to constitute a person as a customer:

(a)    He must have some sort of an account

(b)    Even a single transaction may constitute him as a customer

(c)    Frequency of transactions is anticipated but not insisted upon.

(d)    The dealings must be of a banking nature

Banker and Customer Relationship

1.  General Relationship

v Debtor and Creditor:

An essential relationship between a banker and a customer is that of a debtor and a creditor. Where the customer has a credit balance in his account, the customer is the creditor and banker is the debtor. Conversely where the customer has a debit balance in his account, the customer is the debtor and banker is the creditor.

v Trustee and Beneficiary

Trustee and beneficiary is another important type of relationship between the banker and the customer. Where the banker maintains the deposit balances of customers and allows them to use those deposit money as per their wish he is said to be acting as a trustee of the customer. Similarly, where the banker accepts securities and other valuables for safe custody, he becomes the trustee and the customer becomes the beneficiary.

v Agent and Principal

A banker essential acts as an agent of a customer as he carries out the agency functions such as collection of cheques, bill of exchange, payment of insurance premium etc.

2.  Special Relationship

v Assignor and Assignee

Whenever a bank gives loan against life insurance policy or book debts or supply bills, the banker is the assignee and the customers is the assignor. Thus assignment is done by customers when they take loan against insurance policy or book debts.

v Bailer and Bailee

The banker will act as a bailee only when goods are entrusted to him for a specific purpose. The customer

is the bailer. Any expenses incurred towards malignance of the security or goods have to borne by the customer. But the goods kept in the safe deposit value will not come under bailment.

v Banker as Agent and Advisor

When a banker or sells securities on behalf of his customer and renders other services, he is acting as an agent of his customer. Similarly when he collects cheques, dividends, bill or promissory notes on behalf of his customer the banker is acting as agent of the customer concerned.

v Pledger and Pledge

The relationship between customer and banker can be that of pledger and pledge. This happens when customer pledge (Promises) certain assets or security with the bank in order to get a loan. In this case, the customer becomes the pledger, and the bank becomes the pledge. Under this agreement, the assets or security will remain with the bank until a customer repays the loan.

Liabilities of a Banker

1.     Duty of Care:

·        Bankers have a duty to exercise reasonable care and diligence in their actions, particularly when handling customer accounts, transactions, and financial products.

2.     Confidentiality:

·        Bankers are obligated to maintain the confidentiality of customer information. Disclosing sensitive information without proper authorization can lead to legal consequences.

3.     Anti-Money Laundering (AML) Compliance:

·        Bankers must comply with AML regulations, which include verifying customer identities, reporting suspicious transactions, and implementing measures to prevent money laundering and terrorist financing.

4.     Know Your Customer (KYC) Compliance:

·        Bankers are responsible for verifying the identity of customers and ensuring compliance with KYC regulations to prevent fraud, financial crime, and unauthorized transactions.

5.     Prudent Lending Practices:

·        When extending loans, bankers are expected to follow prudent lending practices, assess creditworthiness, and ensure that borrowers have the ability to repay. Failure to do so can lead to financial losses for the bank.

6.     Accuracy of Financial Reporting:

·        Bankers are accountable for the accuracy and completeness of financial reporting. Providing false or misleading financial information can result in legal and regulatory consequences.

7.     Regulatory Compliance:

·        Bankers must adhere to various banking regulations and laws at local, national, and international levels. Non-compliance with these regulations can lead to legal actions, fines, and sanctions.

8.     Safekeeping of Customer Assets:

·        Bankers have a duty to safeguard customer deposits and assets. Failure to protect customer funds can result in financial losses and legal liabilities for the bank.

9.     Ethical Conduct:

·        Bankers are expected to maintain high ethical standards in their professional conduct. Unethical behavior, such as fraud or insider trading, can lead to legal and reputational consequences.

10.  Consumer Protection:

·        Bankers have a responsibility to protect the interests of consumers. This includes providing clear and accurate information about financial products and services, as well as addressing customer complaints and concerns.

11.  Data Protection and Privacy:

·        With the increasing reliance on technology, bankers must adhere to data protection and privacy laws to ensure the secure handling of customer information. Breaches of data protection can lead to legal and financial repercussions.

Duties of a Banker

1.     Customer Service:

·        Provide excellent customer service by assisting clients with their financial needs, addressing inquiries, and offering guidance on banking products and services.

2.     Deposits and Withdrawals:

·        Accept and process customer deposits and withdrawals accurately and efficiently.

 

 

 

 

3.     Loans and Credit:

·        Evaluate loan applications, manage credit risks, and facilitate responsible lending practices to meet the financial needs of customers.

4.     Financial Advice:

·        Offer financial advice and guidance to customers regarding investment options, savings, and other banking services.

5.     Account Management:

·        Manage customer accounts, ensuring accuracy in transactions, maintaining account security, and providing regular statements.

6.     Currency Exchange:

·        Facilitate currency exchange services for customers engaging in international transactions.

7.     Safe Deposit Boxes:

·        Provide safe deposit box services for customers to store valuable items securely.

8.     Investment Services:

·        Offer investment products and services, such as mutual funds, certificates of deposit, and other financial instruments.

9.     Risk Management:

·        Identify, assess, and manage various types of risks, including credit risk, market risk, and operational risk, to ensure the stability of the bank.

10.  Regulatory Compliance:

·        Adhere to local, national, and international banking regulations to maintain legal standing and comply with industry standards.

11.  Anti-Money Laundering (AML) and Know Your Customer (KYC):

·        Implement and adhere to AML and KYC procedures to prevent money laundering, terrorist financing, and fraudulent activities.

12.  Technology and Innovation:

·        Stay updated on technological advancements and implement secure and efficient technology systems for banking operations.

13.  Financial Education:

·        Educate customers on financial literacy, helping them make informed decisions about managing their finances.

14.  Ethical Conduct:

·        Uphold high ethical standards in all banking activities, promoting transparency, fairness, and integrity.

15.  Data Protection and Privacy:

·        Ensure the secure handling of customer information, complying with data protection and privacy laws.

Liabilities of a customer to Bank

1.     Repayment of Loans:

·        If a customer has taken a loan from the bank, they are obligated to repay the borrowed amount along with any agreed-upon interest and fees within the specified time frame.

2.     Account Maintenance:

·        Customers are responsible for keeping their account information accurate and up-to-date. They should inform the bank of any changes in personal details, contact information, or other relevant details.

3.     Overdrafts and Negative Balances:

·        Customers are liable for any overdrafts or negative balances in their accounts. They may be subject to overdraft fees and other charges as outlined in the bank's policies.

4.     Security and Fraud Prevention:

·        Customers are expected to take reasonable measures to secure their account information, such as protecting PINs and passwords, to prevent unauthorized access and fraud. Prompt reporting of lost or stolen items is also a customer responsibility.

5.     Timely Payment of Fees:

·        Customers are obligated to pay any fees associated with their accounts, such as monthly maintenance fees, transaction fees, or other charges as specified by the bank.

6.     Compliance with Account Terms and Conditions:

·        Customers are required to adhere to the terms and conditions outlined by the bank for their specific accounts. This includes following rules related to minimum balance requirements, transaction limits, and other account-specific guidelines.

7.     Avoiding Illegal or Prohibited Activities:

·        Customers are prohibited from using their accounts for illegal or fraudulent activities. Engaging in such activities may result in legal action and account closure.

8.     Credit Card Responsibilities:

·        For customers with credit cards, liabilities include making timely payments, staying within the credit limit, and complying with the terms and conditions of the credit card agreement.

9.     Notification of Discrepancies:

·        Customers are responsible for promptly notifying the bank of any discrepancies or unauthorized transactions in their accounts to facilitate investigations and resolution.

10.  Communication with the Bank:

·        Customers are expected to communicate with the bank in a timely and accurate manner, especially regarding changes in contact information, dispute resolution, and other account-related matters.

11.  Adherence to Loan Covenants:

·        For customers with business loans, adherence to loan covenants specified in the loan agreement is crucial. Failure to meet these covenants may result in penalties or other consequences.

Role of Customers in Bank

1.     Deposit Funding:

·        Customers provide banks with funds through various deposit accounts such as savings, current, and fixed deposits. These funds form a significant part of the bank's capital base, allowing it to lend to other customers and invest in various financial instruments.

2.     Borrowing and Loan Repayment:

·        By seeking loans and credit facilities, customers contribute to the bank's lending activities. Timely repayment of loans ensures the bank's financial health and the availability of funds for other borrowers.

3.     Generating Revenue:

·        Customers generate revenue for the bank through interest payments on loans, fees for various services, and other financial products. This revenue is essential for the bank's profitability and sustainability.

4.     Product and Service Utilization:

·        By utilizing a range of banking products and services, such as checking accounts, savings accounts, credit cards, and investment products, customers contribute to the diversification of the bank's offerings.

5.     Feedback and Communication:

·        Customers provide valuable feedback to the bank, helping it improve services and address any concerns. Open communication channels between customers and the bank foster trust and contribute to the overall customer experience.

6.     Technology Adoption:

·        Embracing technological advancements in banking services, such as online banking, mobile banking, and electronic payments, customers contribute to the efficiency and modernization of banking operations.

7.     Community Engagement:

·        Customers can engage with the bank in community-oriented initiatives and projects, supporting the bank's efforts to be socially responsible and contribute to the well-being of the local community.

8.     Compliance with Regulations:

·        Customers are expected to comply with banking regulations, including anti-money laundering (AML) and know your customer (KYC) requirements. This helps maintain the integrity of the financial system.

9.     Adoption of Responsible Banking Practices:

·        Customers who prioritize ethical and responsible banking practices encourage banks to align their operations with sustainability and environmental, social, and governance (ESG) principles.

10.  Promotion of Innovation:

·        Customers that embrace innovative financial products and services contribute to the evolution of banking practices and encourage banks to invest in technology-driven solutions.

 

 

Special Features of Banker and Customer Relationship

1.     Fiduciary Relationship:

·        The banker-customer relationship is often considered a fiduciary relationship, implying a high degree of trust and confidence. Banks are expected to act in the best interests of their customers, keeping their financial information confidential and providing sound financial advice.

2.     Confidentiality:

·        Banks have a legal and ethical obligation to maintain the confidentiality of their customers' financial information. This confidentiality extends to account details, transactions, and other sensitive information.

3.     Duty of Utmost Good Faith:

·        Both parties are bound by a duty of utmost good faith. Banks are expected to provide accurate information about their services, and customers are expected to provide truthful and accurate information about their financial situation.

4.     Right of Lien:

·        Banks often have a right of lien over the customer's assets held with them. This means the bank can retain possession of the customer's assets until the customer fulfills their financial obligations, such as repaying a loan.

5.     Right to Overdraw:

·        In certain circumstances, with prior agreement, a customer may be allowed to overdraw their account, giving them a short-term credit facility. However, this is subject to specific terms and conditions set by the bank.

6.     Customer's Duty to Repay:

·        Customers have a duty to repay any loans or credit extended by the bank within the agreed-upon terms. Failure to do so may result in legal action and the potential seizure of collateral.

7.     Agency Relationship:

·        Banks often act as agents for their customers in various financial transactions, such as collection of cheques, payment of bills, and other banking services. In such cases, the bank is acting on behalf of the customer.

8.     Special Relationship in Safe Custody:

·        In safe custody arrangements, where customers store valuables in bank vaults, a special relationship exists. The bank is responsible for the safekeeping of these items, and customers trust the bank to maintain security.

9.     Payment of Interest:

·        In certain deposit accounts, banks pay interest to customers. This payment is an acknowledgment of the customer's role in providing funds to the bank, and the terms are outlined in the deposit agreement.

10.  Joint Accounts:

·        In cases of joint accounts, where multiple individuals have ownership rights, each account holder has a special relationship with the bank. The bank may require the consent of all account holders for certain transactions.