Meaning of Banker–Customer Relationship
The banker–customer relationship refers to the legal and contractual relationship that arises when a person opens an account with a bank or avails any banking service. This relationship is not limited only to deposit of money but extends to various services such as lending, agency services, locker facility, collection of cheques, remittance of funds, and safe custody of valuables.
Once a person opens an account and the bank accepts it, a mutual relationship is created. The banker has certain duties towards the customer, and at the same time, the customer also has obligations towards the bank. The nature of this relationship changes depending on the type of service or product availed by the customer.
It is important to understand that the banker–customer relationship is not uniform. It varies based on the transaction and is governed by contract law, banking practices, and statutory regulations.
Types of Banker–Customer Relationship
The banker–customer relationship can take different legal forms depending on the nature of the transaction. The major types of relationships are explained below.
Debtor and Creditor Relationship
The most common and fundamental relationship between a banker and a customer is that of debtor and creditor.
When a customer deposits money in a bank account, the bank becomes the debtor and the customer becomes the creditor. This is because the bank owes the money to the customer and is under an obligation to repay it on demand (in case of demand deposits) or after a specified period (in case of time deposits).
Key points:
- Money deposited becomes the property of the bank
- The bank can use the money for lending and investment
- The bank must repay the amount as per the terms of the account
- The customer cannot demand repayment of specific currency notes deposited
In case of a loan or overdraft, the relationship is reversed:
- The customer becomes the debtor
- The bank becomes the creditor
Banker as Trustee
A trustee relationship arises when the bank holds money or assets on behalf of the customer for a specific purpose.
Examples include:
- Safe custody of valuables
- Holding security deposits
- Managing trust accounts
In this relationship:
- The bank does not have ownership of the asset
- The bank must act in good faith and for the benefit of the customer
- The bank cannot use the assets for its own purpose
This relationship requires a high degree of care, and failure may lead to legal liability.
Banker as Agent
In many transactions, a banker acts as an agent of the customer.
Examples:
- Collection of cheques, bills, and dividends
- Payment of insurance premiums or utility bills
- Standing instructions and ECS mandates
Here:
- The bank performs services on behalf of the customer
- The bank earns commission or service charges
- The ownership of funds remains with the customer
The banker must act as per the customer’s instructions and within the scope of authority.
Banker as Bailee and Customer as Bailor
When a customer deposits valuables such as documents, jewellery, or sealed boxes for safe custody, the relationship becomes that of bailor and bailee under the Indian Contract Act, 1872.
- Customer = Bailor (gives goods)
- Bank = Bailee (receives goods for safekeeping)
The bank is responsible for taking reasonable care of the goods. However, it is not an insurer unless negligence is proved.
Banker as Lessor and Lessee (Locker Facility)
In case of safe deposit lockers, the relationship is generally considered as lessor and lessee.
- Bank = Lessor
- Customer = Lessee
The bank provides space for a locker and charges rent. The contents of the locker are not known to the bank, and hence the bank is not responsible for the contents unless there is negligence.
Banker as Indemnifier
A banker acts as an indemnifier in cases such as:
- Issuance of bank guarantees
- Letters of credit
Here, the bank undertakes to compensate a third party in case the customer fails to fulfill contractual obligations.
Meaning of Deposit Products and Services
Deposits are funds placed by customers with banks for safekeeping and earning interest. Deposit products are a major source of funds for banks and are classified based on withdrawal flexibility, tenure, and purpose.
For customers, deposit products provide:
- Safety of funds
- Liquidity
- Interest income
- Convenience in transactions
Types of Deposit Products in Banks
Savings Bank Deposit
Savings bank account is designed to encourage habit of saving among individuals.
Main features:
- Interest is paid on daily balance
- Limited number of withdrawals allowed
- Suitable for salaried persons, students, and households
- ATM, cheque book, internet banking, and UPI facilities available
Savings deposits are demand deposits, meaning money can be withdrawn on demand.
Current Deposit
Current account is mainly meant for business entities, firms, and institutions.
Key characteristics:
- No interest is paid
- Unlimited deposits and withdrawals
- Overdraft facility may be provided
- High transaction volume
Current accounts support commercial activities and help in smooth business operations.
Fixed Deposit (Term Deposit)
Fixed deposits are deposits made for a fixed period at a fixed rate of interest.
Important points:
- Tenure ranges from 7 days to 10 years
- Higher interest than savings accounts
- Premature withdrawal allowed with penalty
- Loan or overdraft can be taken against FD
FDs are popular among risk-averse customers seeking assured returns.
Recurring Deposit
Recurring deposit is suitable for customers who want to save small amounts regularly.
Features:
- Fixed amount deposited monthly
- Fixed tenure
- Interest similar to fixed deposits
- Encourages disciplined saving
It is commonly used by salaried employees and small savers.
Demand Deposits
Demand deposits include:
- Savings accounts
- Current accounts
These deposits are payable on demand and provide high liquidity.
Time Deposits
Time deposits include:
- Fixed deposits
- Recurring deposits
These deposits are repayable after a specific period and offer higher interest.
Special Deposit Schemes and Services
Banks also offer specialized deposit schemes to meet different customer needs.
Examples:
- Salary accounts
- Pension accounts
- Senior citizen deposits (higher interest rate)
- Tax-saving fixed deposits (Section 80C)
- Basic Savings Bank Deposit Account (BSBDA)
Importance of Banker–Customer Relationship in Banking
A strong banker–customer relationship is essential for:
- Customer trust and loyalty
- Stable deposit base
- Growth of banking business
- Cross-selling of products
- Compliance with regulatory norms
For banks, maintaining this relationship involves confidentiality, honesty, prompt service, and legal compliance.
Conclusion
The banker–customer relationship is a dynamic and multifaceted relationship that changes with the nature of banking transactions. Deposits form the backbone of banking operations, and different deposit products cater to varied customer needs.