CHAPTER FOUR: BANK CUSTOMER RELATIONSHIP

3.1 INTRODUCTION
The relationship between a banker and a customer depends on the activities; products or
services provided by bank to its customers or availed by the customer. Thus the relationship
between a banker and customer is the transactional relationship. Bank’s business depends
much on the strong bondage with the customer. “Trust” plays an important role in building
healthy relationship between a banker and customer.
Who is a ‘Banker’?
A banker is an organization who:-
 Accepts deposits from public
 Lends or invests the money so collected by way of deposits
 Allows withdrawals of deposits on demand or by any other means
Accepting deposits from the ‘public’ in other word is that, a bank accepts deposits from
anyone who offers money for the purpose. Unless a person has an account with the bank, it
does not accept deposit. For depositing or borrowing money there has to be an account
relationship with the bank. A bank can refuse to open an account for undesirable persons. It is
banks right to open an account. Reserve Banks can stipulate a “Know Your Customer” (KYC)
guidelines for opening account and banks have to strictly follow them.
Who is a ‘Customer’?
It is generally believed that any individual or an organization, which conducts banking
transactions with a bank, is the customer of bank. However, there are many persons who do
utilize services of banks, but do not maintain any account with the bank. Thus bank customers
can be categorized in to four broad categories as under:
 Those who maintain account relationship with banks i.e. Existing customers
 Those who had account relationship with bank i.e. Former Customers
 Those who do not maintain any account relationship with the bank but frequently 
visit branch of a bank for availing banking facilities such as for purchasing a draft,
encashing a cheque, etc. Technically they are not customers, as they do not maintain
any account with the bank branch.
Prospective/ Potential customers who intend to have account relationship 
with the bank. A person will be deemed to be a 'customer' even if he had only 
handed over the account opening form duly filled in and signed by him to the bank 
and the bank has accepted it for opening the account, even though no 
account has actually been opened by the bank in its books or record.
The term 'customer' is used only with respect to the branch, where the account is maintained.
He cannot be treated as a ‘customer' for other branches of the same bank. However with the
implementation of’ ‘Core Banking Solution’ the customer is the customer of the bank and not
of a particular branch as he can operate his account from any branch of the bank and from
anywhere. In the event of arising any cause of action, the customer is required to approach the
branch with which it had opened account and not with any other branch.

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3.2 BANKER-CUSTOMER RELATIONSHIP
Banking is a trust-based relationship. There are numerous kinds of relationship between the
bank and the customer. The relationship between a banker and a customer depends on the
type of transaction. Thus the relationship is based on contract, and on certain terms and
conditions.
These relationships confer certain rights and obligations both on the part of the banker and on
the customer. However, the personal relationship between the bank and its customers is the
long lasting relationship. Some banks even say that they have generation-to-generation
banking relationship with their customers. The terms and conditions governing the
relationship is not be leaked by the banker to a third party.
3.3  CLASSIFICATION OF RELATIONSHIP
The relationship between a bank and its customers can be broadly categorized in to General
Relationship and Special Relationship.
3.3.1 General Relationship:
Debtor-Creditor: When a 'customer' opens an account with a bank, he fills in and signs the
account opening form. By signing the form he enters into an agreement/contract with the
bank. When customer deposits money in his account the bank becomes a debtor of the
customer and customer a creditor. The money so deposited by customer becomes bank’s
property and bank has a right to use the money as it likes. The bank is not bound to inform the
depositor 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, banker pays. Bank’s position is quite different from normal debtors.
Creditor–Debtor: Lending money is the most important activities of a bank. The resources
mobilized by banks are utilized for lending operations. Customer who borrows money from
bank owns money to the bank. In the case of any loan/advances account, the banker is the
creditor and the customer is the debtor. Borrower executes documents and offer security to the
bank before utilizing the credit facility.
            In addition to opening of a deposit/loan account banks provide variety of services,
which makes the relationship more wide and complex. Depending upon the type of services
rendered and the nature of transaction, the banker acts as a trustee, principal, agent, lessor, etc.
3.3.2 Special Relationship:
Bank as a Trustee: A "trust" is an obligation captured 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 trustee is the holder of
property on behalf of a beneficiary.
In case of trust banker customer relationship is a special contract. When a person entrusts
valuable items with another person with an intention that such items would be returned on
demand to the keeper the relationship becomes of a trustee and trustier. 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 fee
for safekeeping valuables
Bailee – 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 
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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 keeps articles,
valuables, securities etc., of its customers in Safe Custody and acts as a Bailee. As a bailee the
bank is required to take care of the goods bailed.
Lessor and Lessee: A lease of immovable property is a transfer of a right to enjoy such
property, made for a certain time, express or implied, or in perpetuity, in consideration of a
price paid or promised, or of money, a share of crops, service or any other thing of value, to be
rendered periodically or on specified occasions to the transferor by the transferee, who accepts
the transfer on such terms.
 The transferor is called the lessor
 The transferee is called the lessee
 The price is called the premium
Providing safe deposit lockers is as an ancillary service provided by banks to customers. While
providing Safe Deposit Vault/locker facility to their customers bank enters into an agreement
with the customer. The agreement is known as “Memorandum of letting” and attracts stamp
duty.
The relationship between the bank and the customer is that of lessor and lessee. Banks lease
(hire lockers to their customers) their immovable property to the customer and give them the
right to enjoy such property during the specified period i.e. during the office/ banking hours
and charge rentals. Bank has the right to break-open the locker in case the locker holder
defaults in payment of rent. Banks do not assume any liability or responsibility in case of any
damage to the contents kept in the locker. Banks do not insure the contents kept in the lockers
by customers.
Agent and Principal: “an agent” is 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”. Thus an agent is a person, who acts for and on behalf of
the principal and under the latter’s express or implied authority and the acts done within such
authority are binding on his principal and, the principal is liable to the party for the acts of the
agent.
Banks collect cheques, bills, and makes payment to various authorities’ viz., rent, telephone
bills, insurance premium etc., on behalf of customers. . Banks also sets by the standing
instructions given by its customers. In all such cases bank acts as an agent of its customer, and
charges for these services.
As a Guarantor: Banks give guarantee on behalf of their customers and enter in to their shoes.
Guarantee is a contingent contract. Contingent contract is a contract to do or not to do
something, if some event, collateral to such contract, does or does not happen.
It would thus be observed that banker customer relationship is transactional relationship.
3.4 TERMINATION OF RELATIONSHIP BETWEEN A BANKER AND A CUSTOMER
The relationship between a bank and a customer ceases on:
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  The death, insolvency, lunacy of the customer.
 The customer closing the account i.e. Voluntary termination
 Liquidation of the company
 The closing of the account by the bank after giving due notice
 The completion of the contract or the specific transaction