Topics:
Banker Customer relations, Types of Customer,
KYC guidelines, deposit products and Services,
Garnishee order and other attachment orders.
Study Materials:
Introduction to Banking- Vijayaragavan
Iyengar Chapters 4, 5, 6,7 , 9, 15
Banker – Customer relationship
1.
2.
3.
4.
5.
6.
A Person opened an account only yesterday.
Today, he deposits Rs. 5000/- in his account.
He gives instructions to remit to the Telephone
department for payment of his Telephone Bill.
He gives a Bill of exchange for collection and crediting
to his account.
You accept a Fixed deposit receipt issued by another
Bank in his name for collecting the money and crediting
to his account after two months when the deposit
matures.
He keeps his gold ornaments in the Bank Locker.
Customer – Definition
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Definition important in view of S. 131 of NI Act.
“To constitute a customer there must be some recognizable
course or habit of dealing in the nature of regular banking
business”
- Sir John Paget
This is is known as “Duration theory”, which is not acceptable
now.
According to judicial pronouncements :
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Customer should have some sort of an account with the Bank
Even a single transaction may make him a customer.
Frequency of transaction is anticipated but not insisted upon.
The dealing must be of banking nature.
Banker – Customer
 Debtor
and creditor.
 Trustee and beneficiary.
 Agent and Principal
 Baillie and Bailor
 Lessor and Lessee.
Debtor - Creditor relationship:
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Depositor cannot demand same notes and coins.
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Depositor is an unsercred creditor.
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He has to demand repayment of deposits, payable on working
days during business hours. S. 85 of NI Act.
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Relationship reverses when the account is overdrawn.
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Bank has certain obligations
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duty to honour cheques.
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Appropriation of Payments – Rule in Claytons case.
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Maintenance of Secrecy.
Right of Banker
1. Right of lien:

General lien subject to conditions.
2. Right of Set Off:
 Capacity of the customer must be same in all the a/c’s.
 A/cs belonging to same person under different trade names
can be combined.
 Formal notice to the customer.
 Different branches of bank will constitute one entity.
 Banker has the option (customer can’t compel the banker).
 Right even after the receipt of garnishee order.
 The debt must be due.
3. Right of appropriation
4. Right to charge interest, service Charges etc..
Termination of Banker customer relation
1.
Customer Closes the account
2.
Death of the Customer
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All the debits to be stopped.
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No cheque to be honoured after information of death of
customer.
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Credits can be allowed except when banker knows that the
credit is not due the customer.
3.
Closure by Bank after reasonable notice.
4.
Insolvency of customer.
5.
Lunacy of customer.
Attachment Orders
Garnishee Order
1.
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Order Nisi freezes the account as it stands at the time of receipt of the order.
Subsequent credits are not attached.
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Bank to inform the court about the balance and amount for which right of
set off is available to the Bank.
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If amount is specified, keep the amount separately.
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When order absolute is received, the amount is to be remitted to the court.
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Order in case of joint names also attaches their individual accounts. but not
vice versa.
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Order in the name of Partnerships firm or joint Names, attaches the
individual accounts.
Income Tax Attachment Order
1.
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Amount will be specified in the order.
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Attaches subsequent credits also
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Order on individual account attaches his share in the joint a/c, presumed
(rebuttable) to be proportional.
Maintain Secrecy - exceptions
1. Disclosure under compulsion of Law: –
 Order
of the court
 Companies
 Income
act – inspector appointed by Central govt.
tax act
 RBI
2. Disclosure in public interest
3. Disclosure in Bank’s own interest
4. Disclosure with customer’s consent
5. Disclosure of request by other banks
Wrong disclosure attract damages.
Types of Customers
1.
Minor
2.
Illiterate person
3.
Blind Person
4.
Joint accounts
5.
Trusts
6.
Executors & Administrators
7.
HUF
8.
Attorney
9.
Partnership firm
10.
Joint Stock Company
11.
Society & Clubs
Money Laundering
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It is a process of making dirty money clean.
Money is moved around the financial system again and again in such
manner that its origin gets hidden.
Money generated from illegitimate source is converted as if derived
from legitimate source
Process:
1. Placement
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Entry of funds in banking system
2. Layering
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Distancing of funds from point of entry
3. Integration
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Usage of funds
Symptoms of ML
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Number of cash deposits in same a/c / numerous accounts
Increase in turnover in dormant a/c
Receipt & payment of cash from / to unrelated to business
/ relationship or with no justification
Providing fictitious or Reluctance in providing minimal /
normal information
Deposit of third party cheques
Sudden increase in cash deposit in a/c from abroad
Providing misleading information / information not easily
verifiable while opening an Account
Large cash withdrawals from a dormant or inactive account
or account with unexpected large credit from abroad
Employees leading lavish lifestyles that do not match their
known income sources
AML Measures
Customer acceptance policy
 Accept only legitimate and bona fide customers.
2. Customer identification Procedure
 Properly identify the customers to understand the risks
they may pose.
3. Monitoring of Transactions and
 Monitor customers accounts and transactions to
prevent or detect illegal activities.
4. Risk Management.
 Implement processes to effectively manage the risks
posed by customers trying to misuse facilities.
1.
What is KYC
Know? What you should know?
True identity and beneficial ownership of the accounts
 Permanent address, registered & administrative address
Your? Who should know?
 Branch manager, audit officer, monitoring officials,
Principal Officer
Customer (for the purpose of PMLA)
 One who maintains an account, establishes business
relationship, on who’s behalf account is maintained,
beneficiary of accounts maintained by intermediaries,
and one who carries potential risk through one off
transaction
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KYC means
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Making reasonable efforts to determine the true identity
and beneficial ownership of accounts;
Sources of funds
Nature of customers’ business
What constitutes reasonable account activity?
Who your customer’s customers are?
But does not mean:
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Denial of Service to the Common Person
Intrusive Behaviour
Use of information for Cross Selling
Harassment of customers- threatening to close down the
accounts arbitrarily
Bank Staff - do’s & don’ts
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Exercise constant vigilance right from opening of new
accounts
Know your customer & know your colleagues
Separate legitimate business & illegitimate /irregular/
suspicious business
Always think of bank’s reputation/clean image
Develop risk awareness culture- – a good customer today
may not be good tomorrow
Do not exercise willful blindness
Involve in public awareness of KYC issues
Suspicious transaction
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Suspicious transaction means a transaction whether or
not made in cash which, to a person acting in good faith:
 gives rise to a reasonable ground of suspicion that it
may involve the proceeds of crime; or
 appears to be made in circumstances of unusual or
unjustified complexity; or
 appears to have no economic rationale or bonafide
purpose
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Cash Transaction Report
Suspicious Transaction Report
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Types of Deposit Accounts
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Fixed Deposit – Cumulative/ Non cumulative
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Saving Bank Deposit
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Current Deposit
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Recurring Deposit
Customer Service
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Nomination facility
Immediate credit of outstation cheques,
without the request of the customer, if cheque
amount does not exceed Rs.15,000/Payment of interest for delay in collection of
outstation cheques.- 10/14 days.
Banking ombudsman Scheme.
Banking codes and Standards Board of India.
details of service charges to be displayed.
Do not call registry.
Nomination facility
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Banking Companies (Nomination) Rules 1985 permits banks to pay
dues to nominees in the event of death of depositor(s).
This simplifies settlement. Nominee is accountable to legal heirs.
for bank deposits, safe deposit lockers, safe custody articles.
There can be only one Nominee for a deposit account (also joint a/c)
There can be two nominees for a jointly held locker.
A person legally empowered to operate a minor's account can file a
nomination on behalf of the minor.
No other persons can nominate in the representative capacity.
Variation/cancellation of a subsisting nomination by all the surviving
depositor(s) acting together.
Nominees right arises only on death of the depositor or death of all
the depositors in case of joint Accounts.
Banking ombudsman Scheme
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Revised Banking Ombudsman Scheme 2006
Enlarged in extent and scope to cover redressal of
grievances against:
 Deficiency in banking product / services including
loans and advances, credit cards,
 delay in payment or collection of cheques, nonadherence to banking hours
BO works as an arbitrator in respect of any dispute
between the bank and its constituents or between
two Banks.
Procedure of filing complaint.
Redressal by
BCSBI
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Banking Codes and Standards Board of India (BCSBI)
An industry watch dog to oversee compliance of the
Bank’s code of commitment to customers,.
Applicable to Banks who are members of this society.
Objectives
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Promote good and fair banking practices by setting
minimum standards in dealing with customers
Increase transparency Encourage competition to
achieve higher operating standards
Promote fair and cordial relationship between
customer and its Bank
Foster confidence in the banking system