Course Title: Theory and practices of

Banking
Course Code:BNKG4101

Presenter:
Manjurul Alam Mazumder
Assistant Professor
DBA,IIUC

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 Chapter:5(Relationship between Banker
and Customer)
Chapter contents:
Meaning of Banker and Customer.
General Relationship of Banker and
Customer.
Obligation of a Banker.
General rule about the secrecy of
customer’s accounts.
Right of Banker.
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 Meaning of Banker and Customer.
• Banker: According to Dr. A.C. Hart: A banker
or a bank is a person or company carrying on
the business of receiving moneys, and
collecting draft from customers subject to the
obligation of honouring cheques drawn upon
them from time to time by the customers to the
extent of the amounts available on their
accounts.
• According to this definition ,the essential
function of a banker is the acceptance of
deposits of funds withdrawanable on demand.
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 Banker:
According to Sir John Paget: No one can
be a banker who does not –
i. Take deposit accounts
ii. Take current accounts
[Link] and pay cheques
iv. Collect cheques crossed and uncrossed
for his customers.
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 Banking Company:
Before 1949, there was no statutory definition of
banking. The Banking Companies Act. Passed in
1949,define the term banking in section 5 as
follows:
“A banking company means any company which
transacts the business of banking.”
“Banking means the accepting ,for the purpose of
lending or investment, of deposits of money from
the public, payable on demand or otherwise, and
withdraw able by cheque, draft or otherwise.
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 Meaning of Customer:
Customer: Ordinarily , a person who has an account
in a bank is considered its customer.
According to Dr. Hart, “a customer is one who has
an account with a banker or for whom a banker
habitually undertakes to act as such.”
 It is not essential that the account must have been
operated upon for sometime.
 Single deposit in the account will be sufficient to
designate a person as customer of the banker.

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 Meaning of Customer:
• Without having a bank account remittance made
through a demand draft, encashment of a cheque
received by him from others or deposit of his
valuables for safe custody, is not called a customer of
the banker.
• Thus to constitute a customer the following essential
requisites must be fulfilled:
i. A bank account-savings, current or fixed-must be
opened in his name by making necessary deposit of
money.
ii. The dealings between the banker and the customer
 Meaning of Customer:
• A “Customer” of a banker need not necessarily be a
person. A firm, joint stock company, a society or any
specific legal entity may be a customer.
• In view of world wide anti-money laundering drive,
Bangladesh Bank laid down special emphasis,
“Know Your Customer (KYC)”.
• Before opening an account, a banker must
thoroughly know the customer by personal
interview .

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 General Relationship of Banker and
Customer:
• The relationship between banker and customer is
mainly that of a debtor and creditor. However, they
also share other relationships.
Some of the important relationships they share are
depicted below:
i. Relationship as Debtor and Creditor.
ii. Relationship of Trustee and Beneficiary.
iii. Relationship of Agent and Principal.
iv. Relationship of Advisor and Client.
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 Obligation of Banker
The obligations of Bankers are as
follows:
i. Obligation to honour cheques.
ii. Obligation to maintain secrecy of
customer’s accounts.

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 General rule about the secrecy of
customer’s accounts:
The general rule about the secrecy of customer’s
accounts related with the following circumstances:
i. Where discloser is under compulsion of law.
ii. Where such disclosure is in public interest.
iii. Where such disclosure is permissible on account
of banking practices.
iv. Where the disclosure is made in accordance
with an express or implied consent of the
customer.
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 Discloser under compulsion of law:
a. By order of the Court to disclose information
relating to a customers account the banker is
bound to do so.
b. The income tax authorities have been given
power under various section of the Income
Tax Act. to ask the banker to furnish
information about their clients for assessment
purposes or any other information in relation
to such matter.
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 Discloser under compulsion of law:
c. Disclosure to police.
d. Disclosure under the companies Act
e. Disclosure under the Banking Regulation
Act.
f. Disclosure under the Foreign Exchange
Regulation.

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 Disclosure is in public interest
Banker may justifiably disclose any
information relating to his customer’s account
when it is his duty to the public to disclose
such information:
a. When a bank is asked for information by a
government official concerning the
commission of a crime.
b. When a bank considers that the customer is
involved in activities prejudicial to the
interest of the country.
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 Disclosure is in public interest
c. Where the bank’s books reveal that the
customer is contravening the provision
of any law.
d. Where sizeable funds are received from
foreign countries by a constituent and it
is apprehended that the funds are
acquired from criminal activity.

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 Disclosure is permissible on account of banking
practices.
The practices and usages customary amongst
bankers permit the disclosure of certain
information under the following
circumstances:
a. With express or implied consent of the
customer.
b. Disclosure in his own interest.
c. Banker’s opinion.
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Consequences of wrongful disclosures:
If a banker discloses information unjustifiably, he
shall be liable to his customer for improper
disclosure:
I. Liability to customer: The customer may sue
the banker for the damages suffered by him as a
result of such disclosure.
II. Liability towards the third parties: If it is
proved that banker furnished the wrong or
exaggerated information to the third parties he will
have to compensate to the third parties.
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 RIGHTS OF A BANKER

[Link] of General lien.

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 Right of General lien:
Lien means the right of the creditor to retain the
goods and securities owned by the debtor until the
debt due from him is paid.
 It confers upon the creditor the right to retain the
security of the debtor and not the right to sell it.
 Such right can be exercised by the creditor in
respect of goods and securities entrusted to him by
the debtor with the intention to be retained by him
as security for a debt due from him(debtor).

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 Special features of a banker’s right of general
lien:
i. A banker’s lien is tantamount to an implied
pledge.
ii. The right of lien is conferred upon the banker by
the Contract Act: Contract Act,1872,Section 171.
iii. The right of lien can be exercised in the name of
borrower only.
iv. The banker can exercise his right of lien on the
securities remaining in his possession after the
loan, for which they were lodged.
v. Right to charge interest and commission.
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 Exception to the right of general lien
The banker does not have the right of lien on the
following properties
i. Safe custody deposit: Valuable securities, documents,
ornaments etc.
ii. Bill of exchange or other documents entrusted for a
special purpose.
iii. Money deposited for a special purpose.
iv. Security left with the banker negligency.
v. A banker cannot exercise his right of lien over the
securities lodged with him for securing a loan, before
such loan is actually granted to him.
vi. Amount not due.manjurulm4@[Link];[Link]
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 Right of Set Off
 The right of set off is also known as the right
of combination of accounts .A bank has a right to
set off a debt owing to a customer against a debt
due from him.
 A banker like other debtors possesses this right of
set-off which enables him to combine two accounts
in the name of the same customer and to adjust a
debit balance in a customer’s account with any
balance standing to the customer’s credit.

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 Right of Appropriation
When there are several debts outstanding between
the creditor and debtor the question arises as to
which of the debts is to be discharged when
payment is made by the debtor and the amount is
not sufficient to discharge all the debts. The
general rule in such a case is that the debtor has
first choice and can appropriate the payment to any
debt he [Link] he should advise the bank about
his desire to appropriate the amount at the time of
payment.
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Thank You
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