THEORY & PRACTICE OF
BANKING
C. P. MANSOOR S. AHMED.
M. COM, PGDBA
Origin
Derived from French words Bancus, Banco, Banc,
Banque
DEFINITION
Banker According to Sec 5(b) of Banking
Regulation Act.
Person doing Banking
Business “Accepting for the purpose of lending and
investment, of deposits of money from the
Earlier View: public, repayable on demand, order or
“Banker includes a body of otherwise and withdraw able by cheque, draft,
persons whether order or otherwise.”
incorporated or not who
carry on the banking
business.”
Expert’s View:
The essential business of a
banker is to buy money and
debts by creating other
debt. He is essentially a
dealer in debts or credit.
Requirements to become a
CUSTOMER:
Customer He must have some sort of an
Earlier Views:
There must be some sort of an account
account – either deposit or
current account or similar
relation – to make a man Even single transaction may
customer of a bank.
constitute him a customer.
Second View: Frequency of transaction is
To constitute a customer there
must be some recognizable
course or habit of dealing in the anticipated but not insisted upon.
nature of regular banking
business
The dealing must be of banking
Modern View: nature.
Even a single transaction can
constitute a person a customer.
Questions to be asked?
Relationship
between a
Is there a depositary relationship?
BANKER & A
CUSTOMER A banker as a bailee!
1. General Is there a trustee relationship?
Relationship Is there an agent relationship?
2. Special
Relationship
Banker-Customer Relationship
General Relationship Special Relationship
Debtor-Creditor Obligation to honour
cheques
Relationship Banker’s Lien
Express Demand by the Duty to maintain secrecy
creditor Right to claim incidental
Particular branch charges
Banking Hours Right to charges
Un-secured compound interest
Law of Limitation Exceptions from the law
Combine accounts
of limitation.
Overriding the OBLIGATION
Liability to the customer
Obligation to
Assessment of damages
honour Cheques
1. Availability of
money
2. Correctness of the
cheque
3. Proper drawing of
he cheque
4. Proper application
of funds
5. Proper presentation
6. Reasonable time for
collection
Grounds of Confrontation
Damages Breach of Contract
“the smaller the amount
Negligence
of cheque the greater Libel
the damage” – principle
Ordinary Damage
Implication of law:
Special Damage • Damage for breach of contract to pay cheques
• Damage to general drawer’s business
• Damage to general reputation and credit
• Damage for the negligence of the banker.
Obligation to PAY the BILLS!
Prior arrangements
Indemnity Bonds.
Precautions:
1. Particulars
2. Stamp
3. Due for payment
4. Signature
Lien cannot go beyond the
agreement.
Banker’s lien as an implied pledge.
Banker’s Lien
Lien on quasi & negotiable
Right to retain the goods
securities.
No general lien on Safe custody
Kinds of Lien:
[Link] Lien
deposits.
No lien on documents entrusted for
[Link] Lien
specific purpose.
No lien on articles left by mistake.
Circumstances of
Exercising a lien: Lien on securities taken back after
[Link] agreement in
consistent of lien
repayment of the loan.
[Link] in the capacity
Lien on Bonds & Coupons
of a banker No lien until the due date of a loan.
[Link] for specific purpose.
No lien on deposits.
General Acceptance
1. Disclosure under the
DISCLOSURES
compulsion of law
The disclosure of the
financial position of the 2. Disclosure in the interest of
customer may affect his
reputation and bring public.
considerable loss. If a
customer suffers any 3. Disclosure in the interest of
loss on account of the
unwanted disclosure of
bank.
his account the banker
will be compelled to
4. Disclosure under the express or
compensate for the loss implied consent of customer
suffered by his
customer.
Disclosure under the Compulsion of LAW!
Sec 4 – Bankers Book Evidence Act – certified copy of
customer’s account in his ledger.
Sec 285 – Income Tax Act – interest earned beyond Rs.
10000/-pa
Sec 45B – Reserve Bank of India Act – Collect Credit
Information
Sec 26 – Banking Regulation Act – Annual return of
deposits (unclaimed for 10 years)
Sec 36 – Gift Tax Act – Books of Account
Exchange Control Act
Garnishee Order Nisi
Disclosure in the Interest of the Public
Political Purpose
Unlawful association
Revolutionary body
Enemy at times of war.
Disclosure in the Interest of Bank
Disclosure of the account of the customer who failed
to repay the loan to the guarantor.
Disclosure to a fellow banker
Defend the past action
Disclosure under the Express or Implied Consent
of Customer
Trade Reference
To the guarantor
Negligent – Information
General Express Consent
Precaution
Bare Facts
1. Damage –
unreasonable Strict Confidence
disclosure
2. Loss – untrue &
Fellow banker
misleading
information.
Exact balance
LF Chg Rs. 500/-pa
Right to claim
incidental Computerized Branch & Rs.
Charges 200/- others
Service Charges Collection Charges
Processing Charges
Ledger Folio Charges
Appraisal Charges
Penal Charges
Handling Charges
Collection Charges
Right to charge compound interest
Compounding is prohibited
Quarterly/Half Yearly/Yearly
Exemptions from the Law of Limitation
3 years Vs 10 years
1 year – Dormant Account
2 year – Inoperative Account
5 year – Tfr to Central Office
