What is Bank

What is Bank ?

What is Bank :

Bank is a financial institution. It takes deposit from public, lending money to the people and make investment.

 

Main Functions of a Bank :

  1. Accept of Deposits from the public
  2. Lending money to the people
  3. Investment

 

Banks also function of various works :

  1. Collection and payment of cheques
  2. Payment on behalf of customers
  3. Purchase and sale of stock
  4. Acting as trustee, acting as correspondents
  5. Opening letter of credit
  6. Safe custody
  7. Dealing in foreign exchange
  8. Complete service in foreign trade
  9. Providing credit reports
  10. Providing remittance facilities
  11. Providing advisory services

 

Who is a Banker ?

Banker is a person transacting the business of accepting, for the purposes of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise and include any post office savings bank.

 

Who is a Customers?

A person who have some sort of account with the bank (may be fixed, current or savings). Frequency of transaction is in the account is not essential. One single transaction is good enough. Banker-customer relationship is a contractual. Availing of DD/TT facilities and depositing valuables for safe custody and other services occasionally without having any account with the bank are not enough to become a customer.

 

Banker-Customer : General Relationship.

A banker, in course of his day to day business, enters into different kinds of relationship with his customers and clients. These relationships may be broadly categorized as (a) General Relationship and (b) Special Relationship. The General Relationship between a banker and customer differs depending on the basis of types of dealing they undertake between themselves. Banker-customer is contractual relationship. Generally the following are the major forms of relationships between a banker and his customers :

(a) Debtor-Creditor,

(b) Principal-Agent,

(c) Trustee-Beneficiary,

(d) Bailor-Bailee and

(e) Lessor-Lessee.

 

Debtor-Creditor Relationship:

The general relationship between a banker and customer (account holder) is that of a debtor and creditor. If the customer’s account shows credit balance, the bank is debtor and customer is creditor. On the other hand, if the account of the customer is overdrawn, the relationship is just the reverse and here the customer is the debtor.

 

Principal-Agent :

All modern banks provide agency services to their customers. When a bankers buys or sells securities on behalf of his customer, he performs an agency function. Similarly, when he collect cheques, bills, interest and dividend etc. or when he pays insurance premium from the customers account, as per his instruction, he acts as an agent.

 

Trustee-Beneficiary :

Many times a banker is in the position of a trustee. A trustee is one who holds property for the benefit of a person or beneficiary. The banker is a trustee when a customer deposits his valuables and securities for safe custody. In this case, the customer continues to be the owner and is entitled to the same goods and valuables as he deposited. The banker can not use the articles kept for safe custody anyway he likes. He can not return equivalent goods in place of the original one. Here the legal position of a banker as a trustee is quite different from that of debtor and creditor. For example, in the event of bank’s liquidation, securities and valuables held by the bank as trustee are not available for distribution to the general creditors. Fund, if any, coming to the hands of the bank as a trustee must also be applied for specific purpose as the trust deed indicates.

 

Bailor-Bailee :

When a bank advances money to a borrower, the goods of the borrower may be brought under the control of a bank (pledge). Such goods are called pledged goods. In this case, the relationship between a customer and a banker in respect of the goods under pledge is that of a bailor and bailee.

 

Lessor-Lessee :

In case of locker operation, the relationship between the banker and customer is lessor-lessee. Here the banker is Lessor and customer is Lessee.

 

Banker-Customers : Special Relationship.

While discussing the general relationship, it has already been stated that one of the relationship between a banker and customer is the debtor-creditor (contractual). The rights of one party are the duties of other and vice-versa. These rights and duties are the subjects of special relationship between and bank and its customers.

  1. Banker’s obligation to customers
  2. Banker’s right on customer
  3. Customer’s obligation to banker and
  4. Customer’s right on banker

 

Banker’s obligation to customers

  1. Acceptance of deposit
  2. Honouring cheques
  3. Maintenance of secrecy of the accounts
  4. Notice to be given in case of closure of account
  5. Payment of interest
  6. Furnishing statement
  7. Providing services

 

Banker’s Rights on Customers :

  1. Banker’s Lien

A banker has the right of general lien in respect of the dues to him by the customer. Lien is the right to retain property belonging to another until a debt due from the latter is paid. In other words, it is the right of the creditor to retain the goods and securities in his possession, belonging to the debtor, until his debt due is paid. Lien, however, does not give right to sell unless such right is expressly conferred by statue or by custom or usage. The right of lien may be (a) Particular or (b) General.

  1. Right of Appropriation :

In case of several debts outstanding by the debtor(customer) to the bank, 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.

 

  1. Banker’s Right of Set-Off.

A banker has the right to set-off. This right entitles him to adjust a debit balance in some account of a customer against any credit balance in his other account(s). Accounts of a customer can be combined/set-off subject to the following conditions, namely

(a) If the different accounts are held by the same parties in the same right, debit balance in his own account can not be adjusted with the credit balance of trust account in his own name

(b) The debt must have become actually due. The right can not be exercised against further or contingent debt and

(c) There is no express or implied agreement to the contrary.

 

  1. Banker’s Right of Automatic Set-Off.

A banker has the automatic right of set-off in the following circumstances

(a) On death, insanity or insolvency of the customer

(b) On the insolvency of partner of a firm or on the winding up of a company.

(c) On receipt of a Garnishee Order. The banker on receipt of a garnishee order can exercise the  right of set-off and surrender only the surplus to the judgement creditor

(d) On receiving notice of assignment of a customer’s credit balance and

(e) On receiving notice of second mortgage over the security charged to the bank.

 

Although the banker has the statutory right of set-off, yet by way of caution he obtains from the customer a letter of set-off duly signed in the presence of a witness to protect the banker from any possible future objections to the exercise of his right of set-off.

 

  1. Right to Charge Interest and Commission :

A banker has an implied right on the customer to charges for various services rendered to them. Such charges are known as bank charges/commission. These are required to be reasonable.

 

What is General Banking ? :

General Banking is an operational function of the bank which consists the management of deposit, cash, clearing house, bills, account opening, security instruments handling, customer services, locker facilities and other ancillary services of the bank besides Advance and Foreign Trade.

 

What is Clearing House ? :

Clearing House is an arrangement of the member banks which settle their inter-bank claims/ liabilities due to transfer of deposits by the customers from one bank to another.

 

Banker’s clearing house is a common place usually located at the Central Bank or any other designated bank where officials of different banks settle their inter-bank claims daily through their accounts maintained by the Central Bank. This happens because each bank receives many cheques, drafts etc. drawn on other banks. Collection of those by sending officials to those bank is costly. So clearing/settling mutual claims and debts is done through clearing. In absence of Bangladesh Bank, Sonali Bank acts as the clearing house in our country.

 

What is Demand Draft ? :

An order to pay money, drawn by one office of a bank upon another office of the same bank for a sum of money payable to order on demand.

Bank/Demand Draft :

Also called Demand Draft. It is drawn by one branch of a bank on another of the same bank instructing the letter to pay a specified sum of money to a named payee or to his order. It is payable on demand and its payment can not be countermanded or stopped. Neither it is payable to bearer, because of these advantage, this instrument is used by the customers to make secured payment.

 

Pay Order :

A pay order is an order by the issuing office of a bank upon itself to make payment of the amount mentioned therein to the named payee or according to his order. Thus, it is different from the Bank Draft which is drawn by one branch of the bank on another. Pay Orders are issued only for local payments.

 

A Pay Order is not a negotiable instruments and therefore, its holder cannot acquire a better title than what the transferor had. Its payments also cannot be easily stopped or countermanded.

 

DD is a negotiable instruments ? :

DD is not a negotiable instruments as per N.I. Act-1881 but usually DD is a negotiable instruments.

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