Traditionally, only an account holder who deals with the bank in the nature of regular banking business was supposed to be a customer of a bank, which was known as Duration Theory. Over the time the product and services offered by bank was enlarged to such extent that the traditional view can't capture all the relationship that are established with the person with whom banks deal. Hence the duration theory of customer is now exploded. In short a customer may be defined as an individual or entity connected with the bank for a financial transaction or intending to avail any other services offered by the bank.
When a customer opens an account in a bank, a banker- customer relationship is established. An account is a contract between the bank and the customer. Up on opening of bank account by a customer the bank agrees to provide banking services as per the terms and conditions specified on account opening form. The account holder (customer) is supposed to have agreed to avail of the services and conduct the account according to the terms and conditions and also the law of landing, regulations of the banking regulator and its internal guidelines.
The legal relationship between a bank and a customer varies with the nature of service rendered by the bank. The various legal relationships can be summarized as follows:
Services | Relationship | |
Bank | Customer | |
granting Loans | Creditor | Debtor |
Deposits of money | Debtor | Creditor |
Deposit of money/ valuables | Trustee | Beneficiary |
Remittance/ collections | Agent | Principal |
Banking service selling | Trader | Consumer |
Hiring safe deposit Locker | Lessor | Lessee |
Advise granting | Adviser | Advisee |
Mortgage of security | Mortgagee | Mortgager |
Bailment | Bailee | Bailor |
Pledge of security | Pledgee | Pledger |
Creditor – Debtor
When a loan is given by the bank to its customer, the customer becomes the debtor and the bank becomes creditor.
Debtor - Creditor
The opening of account with a bank by a customer and deposit of amount creates debtor and creditor relation between bank and customer. The banks is debtor of the customer as bank has borrowed money in the form of deposit with an assurance to repay it as per the term of the contract, on demand in case of saving and current account and on maturity date in case of fixed deposit.
Trustee – Beneficiary
Ordinarily, a banker is a debtor of his customer in respect of the deposit made by the customer, but in a certain circumstances the relation between bank and customer is as trustee and beneficiary. The customer deposits valuables even money with the bank with trust as there is always an element of trust between bank and its customer. If a customer deposits money with a bank or other valuables for safe custody, the bank acts as a trustee and the customer is supposed beneficiary.
Agent - Principal
A bank acts as an agent of its customer and performs a number of agency functions for the convenience of the customers. Remittance services, collection of bills /cheques functions etc. are few examples of agency services of a bank.
Trader - Consumer
Undoubtedly, banking is a trading which sells its various products like deposit product, credit product, e-banking services, cards, locker facility, remittance business, bill collections etc. Hence, the bank is trader and the customers who enjoy any bank service are consumer.
Lessor - Lessee
When a customer hires a safe deposit locker from a bank, it is very similar to a person taking a house on rent. The owner of the house is called lessor and the person taking it on lease the lessee. While ownership remains with the lessor, the lessee has the right to use the property as per the terms of the contract. Similarly, the customer can use the locker for keeping valuables have access as per the terms specified under locker application.
Advisor - Advisee
The bank provides investment advisory services to its customers to help them choose the right kind of investment, bonds and other deposit products. A bank can't guarantee the success of any investment, the relationship managers or banks are not responsible for the outcome of the advice. The customer has freedom to accept or reject the advice and is responsible for anything done by him on the basis of such advice.
Mortgagee -Mortgager
If a customer of a bank takes loan from the bank under the mortgage of immovable property as security, the customer is mortgager and the bank is mortgagee.
Pledgee – Pledger
If a customer of a bank takes loan from the bank under the pledge of movable property as security, the customer is supposed pledger and the bank is pledgee.
Bailee – Bailor
A bailment is the delivery of goods by one person to another for some purpose up on a contract, when the purpose is accomplished such goods are returned or otherwise dispose according to the direction to the person delivering them. The person delivering the goods is called the bailor and the person to whom they are delivered is called bailee. If a customer takes loan under the security of gold, securities etc., directly delivers the goods to the bank as security. In such case it is the duty of bank to return these goods to the customer after repayment of the loan. Here bank is supposed to be bailee and the customer is bailor.
-Utsav Dhakal
