Banker Customer Relationship
The relationship between the banker and customer is of two types: (i) general Relationship and, (ii) Special Relationship
General Relationship
- Debtor and Creditor: The basic relationship between banker and customer is primarily that of a debtor and creditor. When customer deposits money in a bank, Bank becomes the debtor and customer is the creditor. The position is reversed when the banker advances loan to the customer, Banker becomes creditor and Customer a debtor.
Special Relationship
There is various special relationship between the banker and customer, these are:
- Principal and Agent: Customer deposits cheques, drafts, dividends warrants for collection with the bank is called principal. Customer (principal) also gives written instructions to the bank to purchase securities, pay insurance premium, instalments of loans etc on his behalf. When the bank performs such agency services, bank becomes an agent of his customer.
- Pledger and Pledgee: When the customer pledges (promises) certain assets or securities with the bank in order to get a loan, customer becomes the Pledger, Bank becomes the Pledgee. Under this agreement, the assets or security will remain with the bank until the customer repays the loan.
- Lessor and Lessee: When the banker hires a safe deposit locker to the customer, banker becomes the Lessor and customer the Lessee.
- Bailor and Bailee: Bailor is the party that delivers the goods to another. Bailee is the party to whom the goods are delivered. Like when a customer gives a sealed box to the bank for safe keeping, the customer becomes the Bailor, and the bank the Bailee. A bank may accept the valuables of his customer such as jewellery, documents, securities etc for safe custody. The bank (Bailee) charges a small amount as service charges for safe custody of the valuables from his customer (bailer).
- Hypothecator and Hypothecatee: When the customer hypothecates certain movable property or assets with the banker in order to get a loan, the customer becomes the Hypothecator, and Banker the Hypothecatee.
- Trustee and Beneficiary: A trustee holds property for the beneficiary. 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 remains the beneficiary and ownership remains with the customer.
- 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, Banker is an Advisor, and Customer is a Client.
See… BANKING SYSTEM IN INDIA- AN OVERVIEW
Miscellaneous Relationships
- As a Custodian: A custodian is a person who acts as a caretaker of something. Banks take legal responsibility for a customer’s securities. While opening a demat account bank becomes a custodian.
- As a Guarantor: Banks give guarantee on behalf of their customers. Guarantee is a contingent contract. As per Section 31, of Indian Contract Act, guarantee is a contingent contract to discharge the liability of the principal debtor if the later fails to do so.
Read also…
FINANCIAL INSTITUTION IN INDIA
TYPES OF BANKING IN INDIA