The relationship between banker and customer is mainly that of a debtor and creditor. However, they also share other relationships.
Some of the important relationships they share are depicted below.
The banker-customer relationship is that of a:
- Debtor and Creditor,
- Pledger and Pledgee,
- Licensor and Licensee,
- Bailor and Bailee,
- Hypothecator and Hypothecatee,
- Trustee and Beneficiary,
- Agent and Principal,
- Advisor and Client, and
- Other miscellaneous relationships.
Discussed below are important banker-customer relationships.
1. Relationship of Debtor and Creditor
When a customer opens an account with a bank and if the account has a credit balance, then the relationship is that of debtor (banker / bank) and creditor (customer).
In case of savings / fixed deposit / current account (with credit balance), the banker is the debtor, and the customer is the creditor. This is because the banker owes money to the customer. The customer has the right to demand back his money whenever he wants it from the banker, and the banker must repay the balance to the customer.
In case of loan / advance accounts, banker is the creditor, and the customer is the debtor because the customer owes money to the banker. The banker can demand the repayment of loan / advance on the due date, and the customer has to repay the debt.
A customer remains a creditor until there is credit balance in his account with the banker. A customer (creditor) does not get any charge over the assets of the banker (debtor). The customer's status is that of an unsecured creditor of the banker.
The debtor-creditor relationship of banker and customer differs from other commercial debts in the following ways:
- The creditor (the customer) must demand payment. On his own, the debtor (banker) will not repay the debt. However, in case of fixed deposits, the bank must inform a customer about maturity.
- The creditor must demand the payment at the right time and place. The depositor or creditor must demand the payment at the branch of the bank, where he has opened the account. However, today, some banks allow payment at all their branches and ATM centres. The depositor must demand the payment at the right time (during the working hours) and on the date of maturity in the case of fixed deposits. Today, banks also allow pre-mature withdrawals.
- The creditor must make the demand for payment in a proper manner. The demand must be in form of cheques; withdrawal slips, or pay order. Now-a-days, banks allow e-banking, ATM, mobile-banking, etc.
2. Relationship of Pledger and Pledgee
The relationship between customer and banker can be that of Pledger and Pledgee. This happens when customer pledges (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 Pledgee. Under this agreement, the assets or security will remain with the bank until a customer repays the loan.
3. Relationship of Licensor and Licensee
The relationship between banker and customer can be that of a Licensor and Licensee. This happens when the banker gives a sale deposit locker to the customer. So, the banker will become the Licensor, and the customer will become the Licensee.
4. Relationship of Bailor and Bailee
The relationship between banker and customer can be that of Bailor and Bailee.
- Bailment is a contract for delivering goods by one party to another to be held in trust for a specific period and returned when the purpose is ended.
- Bailor is the party that delivers property to another.
- Bailee is the party to whom the property is delivered.
So, when a customer gives a sealed box to the bank for safe keeping, the customer became the bailor, and the bank became the bailee.
5. Relationship of Hypothecator and Hypothecatee
The relationship between customer and banker can be that of Hypothecator and Hypotheatee. This happens when the customer hypothecates (pledges) certain movable or non-movable property or assets with the banker in order to get a loan. In this case, the customer became the Hypothecator, and the Banker became the Hypothecatee.
6. Relationship of Trustee and Beneficiary
A trustee holds property for the beneficiary, and the profit earned from this property belongs to the beneficiary. If the customer deposits securities or valuables with the banker for safe custody, banker becomes a trustee of his customer. The customer is the beneficiary so the ownership remains with the customer.
7. Relationship of Agent and Principal
The banker acts as an agent of the customer (principal) by providing the following agency services:
- Buying and selling securities on his behalf,
- Collection of cheques, dividends, bills or promissory notes on his behalf, and
- Acting as a trustee, attorney, executor, correspondent or representative of a customer.
Banker as an agent performs many other functions such as payment of insurance premium, electricity and gas bills, handling tax problems, etc.
8. Relationship of Advisor and Client
When a customer invests in securities, the banker acts as an advisor. The advice can be given officially or unofficially. While giving advice the banker has to take maximum care and caution. Here, the banker is an Advisor, and the customer is a Client.
9. Other Relationships
Other miscellaneous banker-customer relationships are as follows:
- Obligation to honour cheques : As long as there is sufficient balance in the account of the customer, the banker must honour all his cheques. The cheques must be complete and in proper order. They must be presented within six months from the date of issue. However, the banker can refuse to honour the cheques only in certain cases.
- Secrecy of customer's account : When a customer opens an account in a bank, the banker must not give information about the customer's account to others.
- Banker's right to claim incidental charges : A banker has a right to charge a commission, interest or other charges for the various services given by him to the customer. For e.g. an overdraft facility.
- Law of limitation on bank deposits : Under the law of limitation, generally, a customer gives up the right to recover the amount due at a banker if he has not operated his account since last 10 years.
So, these were some important banker-customer relationships.