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CHAPTER IV
BANKING - CUSTOMER RELATIONSHIP
Broadly, a customer can be defined as a user or a potential user of bank services. So defined,
a Customer may include:
a person or entity that maintains an account and/or has a business relationshipwith the
bank;
one on whose behalf the account is maintained (i.e. the beneficial owner);
beneficiaries of transactions conducted by professional intermediaries, such as
Stock Brokers, Chartered Accountants, Solicitors, etc., as permitted under the law,
and
any person or entity connected with a financial transaction which can pose significant
reputational or other risks to the bank, say, a wire transfer or issue of a high value
demand draft as a single transaction.
Relationship between the bank and the customer
The main relationship between a bank and a customer is that of debtor and creditor
Relationship for various transactions
Nature of transaction
Depositing
Borrowing

Customer
Creditor
Debtor

Banker
Debtor
Creditor

Debtor is the person to whom the other person owes the money. When a customer opens a
deposit account, the bank owes him the money.
Creditor is the person who owns the money. In the above case the customer owns the money.
The reverse is the case in the matter of loans.
Nature of transaction
Customer
Depositing valuables and securities for safe Bailor
keeping or deposits for specific purpose

Banker
Bailee
&Trustee

Bailor delivers the goods including securities to the bailee for some purpose and when it is
accomplished the goods / securities will be disposed of according the directions of the bailor.
In such cases courts have held that the banks are also acting as trustees.
Nature of transaction
Collections of cheques , bills etc.

Customer
Principal

Banker
Agent

When banks collect cheques for a customer or transfer funds, pay telephone bills etc on their
behalf bank is acting as an agent for them.
Nature of transaction
Providing safe deposit lockers

Customer
Lesser/ Licenser

Banker
Lessee/Licensee

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In the case of lockers, banks lease out space for their customers. Some banks consider it as
only as a grant of license to use the space.
Nature of transaction
Issuing duplicate drafts and deposit receipts

Customer
Indemnifier

Banker
Indemnified

It means in case any loss is occurred to the bank by issuing a duplicate of an instrument, the
customer has to make good of that loss.
Duties of the banker
(i) To maintain secrecy of customers dealings.
The scope of the secrecy law in India has generally followed the common law
principlesbased on implied contract. The bankers' obligation to maintain secrecy arises out of
thecontractual relationship between the banker and customer, and as such no
informationshould be divulged to third parties except under circumstances which are well
defined.
The following exceptions to the said rule are normally accepted:
(i) Where disclosure is under compulsion of law
(ii) Where there is duty to the public to disclose
(iii) Where interest of bank requires disclosure and
(iv) Where the disclosure is made with the express or implied consent of the customer.
Examples
If ordered by courts.
If ordered in writing by the officer in charge of a police station in connection with trial
or investigation
By RBI under RBI act.
By Enforcement authorities under FEMA
By income tax authorities under Income Tax Act.
Collecting Information from customers for cross-selling purposes
At the time of opening of accounts of the customers, banks collect certain information.While
complying with the above requirements, banks also collect a lot of additionalpersonal
information.
In this connection, the Committee on Procedures and Performances Audit on PublicServices
(CPPAPS) observed that the information collected from the customer wasbeing used for cross
selling of services of various products by banks, their subsidiariesand affiliates. Sometimes,
such information was also provided to other agencies.
The information provided by the customer for KYC compliance while opening an account is
confidential and divulging any details thereof for cross selling or any other purpose would be
in breach of customer confidentiality obligations. Banks should treat the information

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collected from the customer for the purpose of opening of account as confidential and not
divulge any details thereof for cross selling or any other purposes.
Wherever banks desire to collect any information about the customer for a purposeother than
KYC requirements, it should not form part of the account opening form. Suchinformation
may be collected separately, purely on a voluntary basis, after explainingthe objectives to the
customer and taking his express approval for the specific uses towhich such information
could be put.
(ii)To honour cheques properly drawn by the customer
It is the duty of the banks to honour properly drawn cheques of the customers failing which
bank will be liable for dishonouring of such cheques.