Relationship between Banker and Customer

·       Banker: According to Sir John Paget “No person or body corporate or otherwise can be a banker who does not:

o   accept deposit account

o   accept current accounts

o   issue and pay cheques and

o   collect cheques crossed or uncrossed for his customers.

·       From these definitions, we can arrive at a common concept of banking. Accordingly, a banker is one who

o   accepts deposits

o   grants loan and undertakes investments.

·       Banking: In India, ‘banking’ has been defined by Banking Regulation Act, 1949 (vide Sections 5b, c) as follows: -

o   Accepting, for the purpose of lending (or)

o   Investment of deposits of money received from the public

o   Repayable on demand and

o   Withdrawable by cheque, draft, order or otherwise

·       Customer: According to Sir. John Paget “to constitute a customer, there must be some recognizable course or habit of dealing in the nature of regular banking business”. So,

o   A customer is one who deals with the bank

o   The dealing of the customer must be in the nature of regular banking business

·       "A customer is a person who has some sort of account, either deposit or current account or some similar relations with a bank. From this, it follows that any person may become a customer by opening a deposit or current account or similar relation with a bank".

·       The above judgement has been also followed by Indian Courts as regards the meaning or essential elements of a customer. By opening a Bank account Current, Savings, Fixed Deposit etc., in one's name and by depositing required money in such an account, a person becomes the customer of that particular branch of the bank.

General Relationship

If we look at Sec 5(b) of the Banking Regulation Act, we would notice that the bank’s business is accepting deposits for lending. Thus, the relationship arising out of these two main activities is known as General Relationship.

1.       Debtor and Creditor: When a ‘customer’ opens an account with a bank, he fills in and signs the account opening form. By signing the form, he agrees/contracts with the bank. When a customer deposits money in his account the bank becomes a debtor of the customer and the customer a creditor. The money so deposited by the customer becomes the bank’s property and the bank has a right to use the money as it likes. The bank is not bound to inform the depositor of the manner of utilization of funds deposited by him. Bank does not give any security to the depositor i.e. debtor. The bank has borrowed money, and it is only when the depositor demands, the banker pays. Bank’s position is quite different from normal debtors.

2.       Creditor and Debtor: Lending money is the most important activity of a bank. The resources mobilized by banks are utilized for lending operations. Customer who borrows money from the bank own money to the bank. In the case of any loan/advances account, the banker is the creditor, and the customer is the debtor. The relationship is the first case when a person deposits money with the bank reverses when he borrows money from the bank. Borrower executes documents and offers security to the bank before utilizing the credit facility. 

Special Relationship

In addition to these two activities banks also undertake other activities mentioned in Sec.6 of the Banking Regulation Act.  In addition to opening a deposit/loan account banks provide a variety of services, which makes the relationship wider and more complex. Depending upon the type of services rendered and the nature of the transaction, the banker acts as a bailee, trustee, principal, agent, lessor, custodian, etc.

1.       Trustee and Beneficiary: As per Sec. 3of Indian Trust Act 1882, a “trust” is an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner. Thus, the trustee is the holder of property on behalf of a beneficiary. Customers keep certain valuables or securities with the bank for safekeeping or deposits certain money for a specific purpose (Escrow accounts) the banker in such cases acts as a trustee. Banks charge fees for safekeeping valuables.

2.       Bailee and Bailor: 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 disposed of according to the directions of the person delivering them. The person delivering the goods is called the “bailor”. The person to whom they are delivered is called, the “bailee”. Banks secure their advances by obtaining tangible securities. In some cases, physical possession of securities goods (Pledge), valuables, bonds, etc., are taken. While taking physical possession of securities the bank becomes bailee and the customer bailor. Banks also keep articles, valuables, securities, etc., of their customers in Safe Custody and act as a Bailee. As a bailee, the bank is required to take care of the goods bailed.

3.       Agent and Principal: Sec. 182 of ‘The Indian Contract Act, 1872’ defines “an agent” as a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done or who is so represented is called “the Principal”. Banks collect cheques, bills, and makes payment to various authorities’ viz., rent, telephone bills, insurance premium, etc., on behalf of customers. . Banks also abides by the standing instructions given by their customers. In all such cases bank acts as an agent of its customer, and charges for these services.

4.       Hypothecator and Hypothecatee: The relationship between customer and banker can be that of Hypothecator and Hypothecatee. This happens when the customer hypothecates certain movable or non-movable property or assets with the banker to get a loan. In this case, the customer became the Hypothecator, and the Banker became the Hypothecatee.

5.       Pledger and Pledgee: The relationship between customer and banker can be that of Pledger and Pledgee. This happens when the customer pledges (promises) certain assets or security with the bank to get a loan. In this case, the customer becomes the Pledger or Pawnor, and the bank becomes the Pledgee or Pawnee. Under this agreement, the assets or security will remain with the bank until a customer repays the loan.