C. P. MANSOOR S. AHMED. M. COM, PGDBA THEORY & PRACTICE OF BANKING

Origin Derived from French words Bancus, Banco, Banc, Banque

Banker Person doing Banking Business Earlier View: “Banker includes a body of persons whether incorporated or not who carry on the banking business.” Expert’s View: The essential business of a banker is to buy money and debts by creating other debt. He is essentially a dealer in debts or credit. DEFINITION According to Sec 5(b) of Banking Regulation Act. “Accepting for the purpose of lending and investment, of deposits of money from the public, repayable on demand, order or otherwise and withdraw able by cheque, draft, order or otherwise.”

Customer Earlier Views: There must be some sort of an account – either deposit or current account or similar relation – to make a man customer of a bank. Second View: To constitute a customer there must be some recognizable course or habit of dealing in the nature of regular banking business Modern View: Even a single transaction can constitute a person a customer. Requirements to become a CUSTOMER: He must have some sort of an account Even single transaction may constitute him a customer. Frequency of transaction is anticipated but not insisted upon. The dealing must be of banking nature.

Relationship between a BANKER & A CUSTOMER 1. General Relationship 2. Special Relationship Questions to be asked? Is there a depositary relationship? A banker as a bailee! Is there a trustee relationship? Is there an agent relationship?

General Relationship Special Relationship Debtor-Creditor Relationship  Express Demand by the creditor  Particular branch  Banking Hours  Un-secured  Law of Limitation  Combine accounts Obligation to honour cheques Banker’s Lien Duty to maintain secrecy Right to claim incidental charges Right to charges compound interest Exceptions from the law of limitation. Banker-Customer Relationship

Obligation to honour Cheques 1. Availability of money 2. Correctness of the cheque 3. Proper drawing of he cheque 4. Proper application of funds 5. Proper presentation 6. Reasonable time for collection Overriding the OBLIGATION Liability to the customer Assessment of damages

Damages “the smaller the amount of cheque the greater the damage” – principle  Ordinary Damage  Special Damage Grounds of Confrontation Breach of Contract Negligence Libel Implication of law: Damage for breach of contract to pay cheques Damage to general drawer’s business Damage to general reputation and credit Damage for the negligence of the banker.

Obligation to PAY the BILLS! Prior arrangements Indemnity Bonds. Precautions: 1. Particulars 2. Stamp 3. Due for payment 4. Signature

Banker’s Lien Right to retain the goods Kinds of Lien: 1. General Lien 2. Particular Lien Circumstances of Exercising a lien: 1. Any agreement in consistent of lien 2. Acquired in the capacity of a banker 3. Not for specific purpose. Lien cannot go beyond the agreement. Banker’s lien as an implied pledge. Lien on quasi & negotiable securities. No general lien on Safe custody deposits. No lien on documents entrusted for specific purpose. No lien on articles left by mistake. Lien on securities taken back after repayment of the loan. Lien on Bonds & Coupons No lien until the due date of a loan. No lien on deposits.

DISCLOSURES The disclosure of the financial position of the customer may affect his reputation and bring considerable loss. If a customer suffers any loss on account of the unwanted disclosure of his account the banker will be compelled to compensate for the loss suffered by his customer. General Acceptance 1. Disclosure under the compulsion of law 2. Disclosure in the interest of public. 3. Disclosure in the interest of bank. 4. Disclosure under the express or implied consent of customer

Disclosure under the Compulsion of LAW! Sec 4 – Bankers Book Evidence Act – certified copy of customer’s account in his ledger. Sec 285 – Income Tax Act – interest earned beyond Rs /-pa Sec 45B – Reserve Bank of India Act – Collect Credit Information Sec 26 – Banking Regulation Act – Annual return of deposits (unclaimed for 10 years) Sec 36 – Gift Tax Act – Books of Account Exchange Control Act Garnishee Order Nisi

Disclosure in the Interest of the Public Political Purpose Unlawful association Revolutionary body Enemy at times of war.

Disclosure in the Interest of Bank Disclosure of the account of the customer who failed to repay the loan to the guarantor. Disclosure to a fellow banker Defend the past action

Disclosure under the Express or Implied Consent of Customer Trade Reference To the guarantor

General Precaution 1. Damage – unreasonable disclosure 2. Loss – untrue & misleading information. Negligent – Information Express Consent Bare Facts Strict Confidence Fellow banker Exact balance

Right to claim incidental Charges Service Charges Processing Charges Ledger Folio Charges Appraisal Charges Penal Charges Handling Charges Collection Charges LF Chg Rs. 500/-pa Computerized Branch & Rs. 200/- others Collection Charges

Right to charge compound interest Compounding is prohibited Quarterly/Half Yearly/Yearly

Exemptions from the Law of Limitation 3 years Vs 10 years 1 year – Dormant Account 2 year – Inoperative Account 5 year – Tfr to Central Office