Banker CRM

7/29/2019 Banker CRM

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2/4/2013 Presentation by:Prof. VIGHNESWAR

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Banker Customer

Relationship

Presentation by

Prof. Vighneswar


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Definition of Banker

Banking is defined (BR Act1949) asaccepting, for the purpose of lending orinvestment, of deposits of money from thepublic, repayable on demand or otherwise,

and withdrawable by cheque, draft, orderor otherwise (Section 5-b)

Most essential functions of a banker:

- Accepting of deposits- Lending or Investing the mobilisedfunds


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Definition of Customer

The term Customer of a bank is not defined by

law

Sir John Pagets view is that to constitute a

customer there must be some recognisable courseor habit of dealing in the nature of regular

banking business

Dr. Hart says a customer is one who has anaccount with a banker or for whom a banker

habitually undertakes to act as such


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Definition of Customer .. Kerala High Court

ruling(CBI vs. V.Gopinathan Nair andothers):

Broadly speaking a customer is a person who has the habit of

resorting to the same place or person to do business. So far as

banking transactions are concerned he is a person whose

money has been accepted on the footing that banker will

honour up to the amount standing to his credit, irrespective ofhis connection being of short or longstanding.

Thus, to constitute a Customer the following essential

requisites:1. a bank account

2. dealing between the banker and the customer should

be of the nature of banking business


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Banker Customer Relationship

The Banker Customer Relationship isa contractual relationship and isgoverned by Law of Contract

The Banker Customer Relationship is

that ofDebtor and Creditor. Once thecustomer deposits funds it constitutes adebt owed by the bank to the customer

When the relationship is subject tospecial arrangements such as a joint

account etc a special authority is takenas it is necessary to have writtenconsent to vary the relationship.


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Banker Customer Relationship

Special situations

are covered by the rules of:

Principal and Agent Trustee and Beneficiary

These require separate documentation setting out the

rules of the relationship


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Special Types of Customers

Minor

Married Woman


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Special Types of Customers..

Illiterate Persons

Lunatics

Trustees


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Special Types of Customers

Executors and

Administrators

Joint

Accounts

Partnership

Firms


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Special Types of Customers.

Hindu Joint Family

Joint Stock

Company

Clubs, Societies,

charitable institutions


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KYC Norms

KYC Policy

"Know Your Customer (KYC) procedure should be

the key principle for identification of an individual or

corporate opening an account. The customer

identification should entail verification through anintroductory reference from an existing account holder/a

person known to the bank or on the basis of documents

provided by the customer.

The Board of Directors of the banks should have in

place adequate policies that establish procedures to

verify the bonafide identification of individual

/corporate opening an account.


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KYC Norms Customer identification

The objectives of the KYC framework should be two fold, (i) to ensure

appropriate customer identification and (ii) to monitor transactions of

a suspicious nature.

Also refer to Report on Anti-Money Laundering Guidelines for Banks

in India

"Know Your Customer" procedures for existing customers Ceiling and monitoring of cash transactions

Banks are required to issue travellers cheques, demand drafts, mail

transfers, and telegraphic transfers for Rs.50,000 and above only by

debit to customers accounts or against cheques and not against cash.

The banks are required to keep a close watch of cash withdrawals and

deposits for Rs.10 lakhs and above in deposit, cash credit or overdraft

accounts and keep record of details of these large cash transactions in a

separate register and the same has to be reported to RBI every month.


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KYC Norms Internal Control Systems

Duties and responsibilities should be explicitly allocated for

ensuring that policies and procedures

Controlling offices of banks should periodically monitor strict

adherence

Terrorism Finance

Banks to exercise caution if any transaction is detected with such entities.

Identification and Reporting of Suspicious Transactions

Banks should ensure that the branches and controlling offices report

transactions of suspicious nature to the appropriate law enforcement

authorities designated under the relevant laws governing such activities.Adherence to Foreign Contribution Regulation Act (FCRA),

1976Banks should also adhere to the instructions on the provisions of the

Foreign Contribution Regulation Act, 1976 cautioning them to open

accounts or collect cheques only in favour of association which arere istered under the Act ibid b Government of India.


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CustomerAcceptance

Policy

Monitoring ofTransactions

RiskManagement

CustomerIdentification

Procedure

KYC Norms

EFFECTIVE IMPLEMENTATION LEADS TO RISK

MANAGEMENT


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Termination of Banker Customer

Relationship

Termination by mutual agreement

Termination by customer

Termination by banker


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Termination of Banker

Customer Relationship

Termination by mutual agreement

Termination by mutual agreement is whenboth the customer and bank agree to close

the account. In this case the bank will pay

out any credit balances.


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Termination of Banker Customer relationship

Termination by CustomerThe customer is not obliged to give notice to a

banker where the account is in credit. The

customer demands payment of the credit balance

A credit balance is closed by paying the

outstanding balance in full plus fees and charges

owing provided they have satisfied all the termsand conditions of the account.


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Termination of Banker Customer

relationship

Termination by bankerThe banker can terminate the banker-

customer relationship and close the

customers account that has a credit balanceprovided notice is given allowing a

reasonable time to set up to enable the

customer to set up new banking

arrangements.

Ref:Prosperity Ltd v Lloyds Bank Ltd (1923)


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Bankers Duties

Duty of care

Duty to issue statements

Duty of confidentiality / Secrecy


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Bankers Duty of Care

Legally the duty of care is judged on what

an ordinary reasonable person would do, or

on what is normally done in similar

circumstances.

Lloyds Bank Ltd v EB Savory & Co (1933)

Saving Bank of South Australia v Wallman

(1935) L Shaddock & Assoc Pty Ltd v Parramatta City

Council


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Bankers Duty to Issue Statements

S 14.1 Code of Banking Practice states that

personal customers must receive a

statement of their account at least at six

monthly intervals.

(Except when it is a passbook account or

that there have been no transactions on the

account for the past six months.)


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Bankers Duty of Confidentiality

The duty of confidentiality relates to:

Details of the customers account

Information derived from the customers

account Information acquired in the course of the

banker-customer relationship

The duty of confidentiality extends beyond the

duration of the account.


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Bankers Duty of Confidentiality

Exceptions to duty of confidentiality: Where the disclosure is under compulsion of law

Where there is a duty to the public to disclose

Where the interests of the bank require disclosure

Where the disclosure is made by express or impliedconsent of the customer

Where disclosure is to the tax department

Tournier v National Provincial & Union Bank of

England (1924)


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Bankers RightsBankers Right of General Lien

(Sec 171 of Indian Contract Act 1872)General Lien

Particular Lien

Right of set-off accounts

Accounts must be in the same name and same right

Only in respect of present debts due not for future debts

The amounts of Debt must be certain

Can be exercised even in the absence of an Agreement

The banker may exercise this right at his discretion

The banker has the right to exercise this right even beforethe Garnishee Order is made effective.

Bankers right of Appropriation (Rule of Claytons)

Right to charge fees and interest


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Bankers Right of Set-Off

Banks tend to be cautious about combining

accounts without notice and in the absence

of the customers express authority to do so.


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Bankers Right to Charge Fees &

Interest

The banks right to charge fees & Commission

is based on universal custom and is an implied

term of the banker-customer contract.

The right to charge interest on unauthorised

overdrafts and debit interest to the account is

also an implied term of the contract.Bank of

New South Wales v Brown (1982-3)


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Bankers Obligations

A bankers obligation to pay cheques to thevalue of the credit balance of the account or

to the arranged overdraft limit of the

account provided:

The cheque is an effective instrument drawn in

proper form

There are sufficient funds to meet the value of

the cheque There are no legal impediments to the banks

honouring the cheque


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Bankers Obligations(Owing to Statutes)

Disclosure of information required by law:

Under I T Act 1961- Sec 131, 132 enable the ITauthorities to require even banks to furnishinformation in relation to bank accounts.

Under Companies Act 1956Sec 235 to 237, the

Central Govt. appointed Inspectors can seek theinformation about the bank accounts of the companiesfrom the banks

Under Bankers Books of Evidence Act 1891, Courtcan order the bank to disclose the information

Under the RBI Act 1934, RBI can seek theinformation

Under BR Act 1949, Banks are required to theinformation to the Govt.


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Bankers Obligations(Owing to Statutes)

Under Gifts Tax Act 1958 - Sec 36, Tax

Authorities are conferred with the powers to

seek information

Under Criminal Procedure CodeSec 94(3)

Disclosure to Police during investigations

FEMA Act 1999Sec 43 enables the Officers

of the Directorate of Enforcements and

Reserve Bank to investiogate the bankaccounts


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2/4/2013 Presentation by:Prof. VIGHNESWAR 30

Bankers Obligations

Disclosure permitted by Bankers Practicesand Usages

With implied of Express consent

To protect banks interest ( to guarantor)Bankers Reference


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Liability of the banker in case of

wrongful dishonour of Cheques

Sec 31 of NI Act:

the banker is liable to compensate the drawerfor

loss or damage caused by default on his part in

dishonouring the cheque without sufficient

reason.


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N I Act 1881 Definition of Negotiable Instrument

Negotiable Instruments Act does not define Negotiable Instrumentbut merely states that a negotiable instrument means a

promissory note, bill of exchange or cheque payable either toorder or bearer(Sec 13).

Justice K.C.Willis defines Negotiable Instrument as one, the

property in which is acquired by any one who takes it bona fideand for value notwithstanding any defect of title in the personfrom whom he took it

Thomas in his Commerce, Its Theory and Practice states that anInstrument is negotiable when it is, by a legally recognised

custom of trade or by law, transferable by delivery or byendorsement and delivery, without notice to the party liable insuch a way that (a) the holder of it for the time being may sueupon it in his own name, and (b) the property in it passes to a bona

fide transferee for value free from any defect in the title of theperson from whom he obtained it.


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Essentials of a Negotiable Instrument

Transferability:

Easily transferable from one person to other person

Ownership of the property in the instrument may be passed on by mere delivery

or by endorsement and delivery

Negotiability:

Confers absolute and good title on the transferee who takes it in good faith for value

and without notice of the fact that the transferor had defective title thereto.

Special feature of Negotiable Instrument

A negotiable instrument is an exception to this general rule of law The privilege of

the holder of a negotiable instrument in due course constitutes the main difference

between a transferable instrument or article and a negotiable instrument

(For example, X purchases a book from Y against full value. But Y had stolen the

book from the house of Z. In case the thiefY is caught for this theft and since the

stolen book is with X, then X is bound to loose the title over the book as Y had no

valid title over the book. Whereas, in the case of Negotiable Instrument, it is an

exception to the general rule of law. Given the above example, If X has taken a

Cheque, he will have a good title therto and will not be responsible to the true owner

Z. Z will have the right against Y.


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Types of Negotiable Instruments

Negotiable Instruments by Statute

Cheque

Bill of Exchange

Promissory Notes

Negotiable Instruments by Custom or Usage

Shah jog hundis, delivery orders and railway receipts

Exceptional Cases of Negotiable InstrumentsThe drawer of the instrument can take away or alter the

essential characteristic of negotiability ( Not Negotiable )


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Definitions of a Promissory Note

A Promissory Note is an instrument in writing ( not being a bank note or

currency note) containing an unconditional undertaking, signed by the maker,

to pay a certain sum of money only to, or to the certain person, or to the bearerof the instrument. (Sec 4)

A Promissory Note is drawn and signed by the debtor, who promises to pay the

creditor a certain sum of money.

Specimen of Promissory Note:

Hyderabad

Rs. 50000 19.05.2008

Three months after date I promise to pay X the sum of Rupees FiftyThousands for value received.

Signed

To X On a Revenue Stamp

Definitions of a Bill of Exchange


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Definitions of a Bill of Exchange A Bill of Exchange is an instrument in writing containing an unconditional

order, signed by the maker, directing a certain person to pay a certain sum of

money only to, or to order of, a certain person or to the bearer of the

instrument.(Sec 5) A Bill of Exchange contains an order from the creditor to the debtor to pay a

certain amount to a person mentioned therein.

The maker of the bill is called the Drawer

The person who is directed to pay is called the Drawee

The person who is entitle to receive payment is called the Payee

Specimen of A Bill of Exchange:

Hyderabad

Rs. 100000 19.05.2008

Three months after date I pay to X or order the sum of Rupees One lakh for valuereceived.

Accepted

Signed

Stamped

D fi i i f Ch


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Definitions of a Cheque A Cheque is a Bill of Exchange drawn on a specified banker and not

expressed to payable otherwise than on demand(Sec 6)

A Cheque is a bill of exchange which is alsways

(i) drawn on a banker specified therein

(ii) payable on demand

The author of the Cheque is called the Drawer

The Bank who is directed to pay is called the Drawee bank

The person who is entitle to receive payment is called the PayeeThe bank which pays the cheque is called the Payee bank

Specimen of A Cheque:

19.05.2008

Pay..or Bearer

..

.. Rs. 150000

A/ c No. . LF. .Intls.

STATE BANK OF INDIA Signed

KUKATPALLY, HYDERABD


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Distinguishing features of

Negotiable Instruments

1. Instruments should be in writing

2. Unconditional order / promise

3. The amount of the instrument should be certain

4. The instrument must be payable either to order or

bearer (sec 13)5. The payee must be a certain person (Sec 5)

6. The payee may be more than on person (Sec 13-2)

7. The time of payment (Sec 19)

8. Signature of the drawer or promisor9. Delivery of the instrument is essential

10. Stamping of Promissory Notes and Bills of Exchangeis necessary

i C


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Holder and Holder in Due Course Holder:

Holder of a Promissory Note, Bill of Exchangeor Cheque means any person entitled in his ownname to the possession thereof and to receive orrecover the amount due thereon from the partiesthereto. (Sec 8)

The Conditions:He must be entitled to the possession of theinstrument in his own name and under a legaltitle.

He must be entitled to receive or recover theamount from the parties concerned in his ownname.


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Holder in Due Course:Holder in Due Course means any person who, for consideration,

became the possessor of a promissory note, bill of exchange or cheque,if payable to bearer, or became the payee or endorsee thereof ifpayable to order before the amount mentioned in it became payable,and without having sufficient cause to believe that defect existed in thetitle of the person from whom he derived his title.

The Conditions:

The instrument must be in the possession of the holder in due course

The instrument must be regular and complete in all respects

The instrument must have been obtained for full value andconsideration

The instrument must have been obtained before the amount mentioned

therein becomes payable ( not applicable for Cheques)The Holder in Due Course should have obtained the instrumentwithout having sufficient cause to believe that any defect existed in thetitle of the transferor.

Holder in Due course must obtain an instrument after taking allpossible care about the transferors good title.

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Rights of a Holder

The Holder of Negotiable Instrument enjoys the

following rights:

1. An endorsement in blank may be converted by him

into an endorsement in full.

2. He is entitled to cross a cheque generally or specially

and also with the words Not Negotiable

3. He can negotiate a cheque to a third person, if such

negotiation is not prohibited by the direction given in

the cheque

4. He can claim payment of the instrument and can sue

in his own name on the instrument.

5. A duplicate copy of lost cheque may be obtained by a

holder


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Privileges of a Holder in Due Course

A Holder in Due Course enjoys the following

privileges:1. He possesses better title free from defects (Sec 53)

2. Liability of prior parties to Holder in Due Course (Sec 36)

3. Right of the Holder in Due Course in case of Inchoate

4. Instrument ( i.e. incomplete) (Sec 20)5. Right in case of fictitious bills (Sec 42)

6. Right in case the instrument is obtained by unlawful means or

for unlawful consideration (Sec 58)

7. Estoppel against denying original validity of the instrument

(Sec 120)

8. Estoppel against denying capacity of payee to endorse (Sec 121)

9. Estoppel against denying signature or capacity to prior party


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Payment in Due Course

Definition:

Payment in Due Coursemeans payment in accordance withthe apparent tenor of the instrument in good faith and without

negligence to any person in possession thereof under circumstances

which do not afford a reasonable ground for believing that he is not

entitled to receive payment of the amount therein mentioned.

(Sec 10)

Essential Features:

1. The payment should be made in accordance with the apparent

tenor of the instrument2. The payment should be made in good faith and without

negligence

3. The payment must be made to the person in possession of the

instrument.


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2/4/2013 Presentation by:

Prof. VIGHNESWAR

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Negotiation

Meaning of Negotiation:

When a promissory note, bill of exchange or cheque is transferred to anyperson, so as to constitute that person, the holder thereof, the instrument is

said to be negotiated. (Sec 14)

An instrument may be negotiated in any of the following two ways:

By Delivery

A promissory note, bill of exchange or cheque payable to bearer is

negotiable by delivery thereof. (Sec 47)

By Endorsement and Delivery

A promissory note, bill of exchange or cheque payable to order is

negotiable by the holder by endorsement and delivery thereof. (Sec 48)

Endorsement


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Prof. VIGHNESWAR

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Endorsement Definition:

When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for thepurpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto or so signs for thesame purpose on a stamped paper intended to be completed as a negotiable instrument, he is said to have

endorsed the same and is called endorser. (Sec 15)

Legal Provisions of EndorsementsEffect of EndorsementThe endorsement of a negotiable instrument followed by delivery transfers to the endorsee the propertytherein with the right of further negotiation. (Sec 50)

Endorser

Every sole maker, drawer, payee or endorsee or all of several joint makers, drawers, payees or endorsees,of a negotiable instruments may endorse and negotiate the same. (Sec 51)

TimeA negotiable instrument may be negotiated until its payment has been made by the banker, drawee oracceptor at or after maturity but not thereafter. (Sec 60)

Endorsement not for a part of the amountThe instrument must be endorsed for its entire amount. (Sec 56)

General Rules regarding the Form of Endorsements

1. Signature of the endorser

2. Spelling

3. No addition or omission of initial of the name

4. Prefixes and suffixes to excluded

Types of endorsements


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Prof. VIGHNESWAR

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Types of endorsements

Endorsement in blank: If the endorser signs his name only the endorsementis said to be in blank. (Sec 16)

Endorsement in full: If in addition to his signature, the endorser adds a

direction to pay the amount mentioned in the instrument to, or to the order of,a specified person, the endorsement is said to be endorsement in full. (Sec 16)

Conditional Endorsement: If the endorser of a negotiable instrument, byexpress words in the endorsement, makes his liability, or the right of theendorsee to receive the amount due thereon, dependent on the happening of aspecified event, although such event may never happen, such endorsement is

called a conditional endorsement. (Sec 52)Restrictive Endorsement: The endorsement may, by express words restrictor exclude the right to negotiate or may merely constitute the endorsee an agentto endorse the instrument or to receive its contents for the endorser or for someother specified person, such an endorsement prohibits further endorsementand is called Restrictive Endorsement. (Sec 50)

Endorsement Sans Recourse: An endorser may, by express words in theendorsement, exclude his own liability thereon (Sec 52)

Facultative Endorsement: It is responsibility of the endorsee to give thenotice of dishonour of the instrument to the endorser. But under thisFacultative Endorsement the Notice of dishonour may be waived. Theendorser remains liable to the endorsee for the non-payment of the instrument.


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Prof. VIGHNESWAR

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Bankers Right of Set-Off

The following conditions must apply: The account must be held by the customer in

the one capacity (i.e. cannot combine accounts if

one is a personal account the other a trust

account).

There must be no contract precluding the right

to set off

The customers indebtedness must have beenincurred to it as a banker not under some other

service


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