Opening and operating bank accounts

Meaning and definition of customer

Generally, a person who has an account in a bank is considered as a customer According to sir john paget, to constitute a customer there must be some recognizable course or habit of dealing in the nature of regular banking business In order to constitute a person as a customer, he must satisfy the following conditions:
He must have an account with the bank The transactions between the banker and the customer should be of banking nature Frequency of transaction is not quite necessary

 The most important function of a bank is to accept deposit from public Customers deposit their account for safety and earning interest Mainly four categories
Current accounts Fixed deposit accounts Saving deposit accounts Recurring deposits

1. Savings bank account

Meant for small businessmen and individuals who wish to save a little out of their current incomes Salaried class of small and middle income group, farmers, small traders mainly open such accounts There are restrictions on the maximum number of withdrawals from this account

 These accounts are opened for the purpose of encouraging the savings habit. It cannot be opened for trading/business concerns/limited companies/government departments, etc. Features Balance lying in the savings bank earns some interest. The money lying with the bank is safe Money can be withdrawn conveniently from the savings account Customer gets the cheque book facility It can be opened with a very small deposit. But a minimum account of rs.1000 is required to open an account with cheque facility

Opening a savings bank account

Customer has to fill in the prescribed account opening form Provide an acceptable introduction to the bank Customer has to provide proof of address along with photograph and specimen signatures of the persons authorized to open the account Interest is allowed on the balance maintained in the account @ 3.5%

Current accounts
It is an active account opened for the purpose of business This account will be operated upon any number of times during a working day No interest is paid for the credit balance in this account Customer is provided with cheque books for the drawing cheques to draw money from the account or to make payment to third parties

Features Meant for commercial establishments who have to handle numerous cash transactions. No restrictions are imposed on the amount and the number of withdrawals made each day No interest is allowed on current deposits Account holder is allowed the facility of sending bills and cheques for collections including third party cheques

Opening an current account

Customer has to fill in the prescribed amount opening form Provide an acceptable introduction to the bank Customer has to provide proof of address along with photograph and specimen signatures of the persons authorized to open the account Customer is required to deposit the prescribed initial amount to open the account and always maintain the minimum required credit balance

Fixed deposit account

Deposits with a bank for a fixed period which is specified at the time of making the deposit Carry a specified rate of interest Deposits are repayable on the expiry of the specified period. Interest on this account is higher than that on other accounts Also known as time deposits

Features Suitability chosen by people who have surplus money and do not require for some time. Rate of interest Banks pay higher interest on FD. RBI regulate the rate of interest. Restrictions on withdrawal withdrawal of interest or principal amount through cheques is not permitted. Payment before due date banks also permit encashment of fixed deposit even before the due date.. But the interest agreed upon on such deposit shall be reduced.

Opening of fixed deposit account

Can be opened with placement of cash or by cheque. Customer has to fill the application form contains all details regarding amount, terms of deposit etc. Specimen signature also to be obtained Bank will issue fixed account receipt to the depositor

Recurring deposit
The depositor is required to deposit a fixed amount of money every month for specified period of time. Increase savings habit of people on regular basis Offers higher rate of interest than the savings account It can be opened for any period ranging from 12 months to 120 months

Special types of customers

Types of customers

minors lunatics

Joint Hindu family Co-operative society

drunkards

clubs

Married women

Joint stock companies

minor
A person who has not completed 18 years of age A minor is recognized as a highly competent party to enter into legal contracts and any contract entered into with a minor is not only invalid but voidable A minor is not bound to repay any money borrowed by him

Precautions to be taken by banker in dealing with a minor

It is advisable for the baker not to open current account in name of minor Banker should open a minors account in the name of his natural guardian. If no natural guardian , the court may appoint legal guardian for the benefit of minor On the attainment of majority, the account on the name guardian should be closed and balance paid to the new major In case minor dies, the balance in the account is allowed to be withdrawn by the guardian A minor can draw, endorse or negotiate a cheque or a bill, but he cannot held liable on such cheque or bill

Married women
Married women is competent to enter into a valid contract A banker can open savings and current accounts in name of a married women While opening in the name of a married women, she should be required to furnish not only her details but also details of her husband A banker should not grant a loan or overdraft considering the property of her husband. Before granting a loan or overdraft, the banker should examine her own assets or property to ensure that it will be sufficient to cover her debts

Lunatic
Lunatic is a person who lacks understanding power and rational judgment According to Indian contract act, a person of unsound mind is not competent to enter into a valid contract When a banker receives a notice of customers lunacy, he must stop the entire operation of the account until the court issues proof of customers recovery When customer becomes insane, court appoints a receiver to take care of his property.

Drunkard
Person who is so intoxicated to be incapable of understanding the nature and effect of a contract. A contract entered into by a drunken person is void Banker should not allow a person to open an account in the name of a person when he is fully drunk If a drunken person presents a cheque, it should be honored only in presence of a responsible person

Joint stock companies

Is an association of persons registered under companies act Artificial person created by law with perpetual succession and common seal They can enter into a valid contract The banker should analyze the following documents
Certificate of incorporation Certificate of commencement of business Memorandum of association Articles of association Resolution passed by members

Illiterate persons
Person who doesnt know to read and write No current account should be opened in the name of illiterate persons Only savings bank account The bank should obtain his thumb mark in the presence of two persons known to the bank and the depositor

Clubs, associations and educational institution

The banker should an analyze the,
Certificate of incorporation Copy of resolution Rules ad laws framed by the organization Ensure Transfer of funds not for other purpose

Insolvents
When a person is unable to pay his debts in full, his property in certain circumstances is taken possession of by official receiver or official assignee, under orders of court He realises the debtors property and distribute the proceeds amongst his creditors When an account holder becomes insolvent, his authority to the bank to pay cheques drawn by him is revoked and the balance in the account vests in the official receiver

Partnership firm
relation between persons who have agreed to share the profits of the business, carried on by all or any of them acting for all There should be an proper agreement with partners regarding the earnings and sharing profits Banker should consider following factors,
Application form Partnership deed Transfer of funds not for personal use

Trustees
A trustee is a person to whom the management of a property is entrusted by one in trust for the benefit of another Trust is usually formed by means of documents called trust deed. The banker should examine the powers and duties of trustees mentioned in the trust deed In case of two or more trustees the banker should ask for clear instructions regarding the person who shall operate the account The banker should not allow the transfer of funds from trust account to the personal account