Discuss different types of relationships between a banker and a customer. What additional obligations come with this special relationship?

The relationship between a banker and a customer is based on mutual trust, confidence, and good faith. This is known as a fiduciary relationship.

When a person opens an account, a legal relationship is created between the bank and the customer. Both the banker and the customer enjoy certain rights and are bound by specific duties and obligations.

Relationship between banker and customer

The relationship between banker and customer is discussed below:

Debtor and Creditor

The debtor-creditor relationship is the most common relationship between a banker and a customer.

When a customer deposits money, the bank becomes the debtor because it owes the money to the customer.
The customer becomes the creditor because the bank must repay the deposited amount on demand or according to the account terms.
When the bank grants a loan, the relationship is reversed.
The customer becomes the debtor because he has to repay the loan.
The bank becomes the creditor because it has the right to recover the loan with interest.

Principal and Agent

Sometimes the bank performs various services on behalf of the customer. In such cases, the bank acts as an agent, and the customer acts as the principal.

Examples include:

Collecting cheques, bills, or dividends.
Paying insurance premiums, utility bills, or subscriptions.
Purchasing or selling securities on behalf of the customer.

Trustee and Beneficiary

A bank may act as a trustee when it receives certain items on behalf of a customer.

For example, when a customer deposits a cheque for collection, the bank holds the cheque as a trustee until it collects the money.
After collection, the bank credits the proceeds to the customer’s account.
The customer is the beneficiary of this arrangement.

Bailor and Bailee

This relationship arises when a customer leaves valuables with the bank for safe custody.

The customer is the bailor because he delivers the goods.
The bank is the bailee because it accepts and protects the goods.
Examples include gold ornaments, jewellery, important documents, and share certificates.
The bank does not pay any interest on items kept in safe custody.

Lessor and Lessee

This relationship exists when the bank provides a safe deposit locker.

The bank is the lessor because it rents out the locker.
The customer is the lessee because he uses the locker by paying rent.
The customer keeps valuables in the locker, while the bank provides the facility and security.

Additional Obligations of the Banker

The special nature of the banker-customer relationship creates the following additional obligations on the banker:

Obligation to Honour Cheques

One of the most important duties of a banker is to honour the customer’s cheque. The bank must make payment if all legal requirements are fulfilled.

A bank is bound to honour a cheque when:

The customer has sufficient funds in the account.
The cheque is properly drawn and signed.
The cheque is presented within its validity period.
There is no legal restriction or stop-payment instruction.

This duty is imposed on banks under Section 31 of the Negotiable Instruments Act, 1881.

Obligation to Maintain Secrecy

A banker must keep all information relating to a customer’s account confidential. This duty continues even after the account is closed.

However, the bank may disclose customer information in the following situations:

When disclosure is required by law or a court order.
When the customer gives express or implied consent.
When disclosure is necessary in the public interest.

Credit Operations & Management, Module A, 7th Exam Q1(a), 5th Exam Q1(b), 97th Exam Q1(c), 98th Exam Q1(a)