Topics: Banker Customer relations, Types of Customer, KYC guidelines, deposit products and Services,

Garnishee order and other attachment orders.

Study Materials: Introduction to Banking- Vijayaragavan Iyengar Chapters 4, 5, 6,7 , 9, 15

Banker – Customer relationshipBanker – Customer relationship

1.1. A Person opened an account only yesterday. A Person opened an account only yesterday.

2.2. Today, he deposits Rs. 5000/- in his account. Today, he deposits Rs. 5000/- in his account.

3.3. He gives instructions to remit to the Telephone He gives instructions to remit to the Telephone department for payment of his Telephone Bill. department for payment of his Telephone Bill.

4.4. He gives a Bill of exchange for collection and He gives a Bill of exchange for collection and crediting to his account.crediting to his account.

5.5. You accept a Fixed deposit receipt issued by You accept a Fixed deposit receipt issued by another Bank in his name for collecting the another Bank in his name for collecting the money and crediting to his account after two money and crediting to his account after two months when the deposit matures.months when the deposit matures.

6.6. He keeps his gold ornaments in the Bank Locker.He keeps his gold ornaments in the Bank Locker.

Customer – DefinitionCustomer – Definition

Definition important in view of S. 131 of NI Act.Definition important in view of S. 131 of NI Act. “ “To constitute a customer there must be some recognizable To constitute a customer there must be some recognizable

course or habit of dealing in the nature of regular banking course or habit of dealing in the nature of regular banking business”business” - Sir John Paget - Sir John Paget

This is is known as “Duration theory”, which is not This is is known as “Duration theory”, which is not acceptable now.acceptable now.

According to judicial pronouncements :According to judicial pronouncements :

Customer should have some sort of an account with the Customer should have some sort of an account with the BankBank

Even a single transaction may make him a customer.Even a single transaction may make him a customer. Frequency of transaction is anticipated but not insisted Frequency of transaction is anticipated but not insisted

upon. upon. The dealing must be of banking nature.The dealing must be of banking nature.

Banker – CustomerBanker – Customer

Debtor and creditor.Debtor and creditor.Trustee and beneficiary.Trustee and beneficiary.Agent and PrincipalAgent and PrincipalBaillie and BailorBaillie and BailorLessor and Lessee.Lessor and Lessee.

Debtor - Creditor relationshipDebtor - Creditor relationship:

Depositor cannot demand same notes and coins.Depositor cannot demand same notes and coins.

Depositor is an unsercred creditor.Depositor is an unsercred creditor.

He has to demand repayment of deposits, payable on He has to demand repayment of deposits, payable on working days during business hours. S. 85 of NI Act.working days during business hours. S. 85 of NI Act.

Relationship reverses when the account is overdrawn.Relationship reverses when the account is overdrawn.

Bank has certain obligations Bank has certain obligations

duty to honour cheques.duty to honour cheques.

Appropriation of Payments – Rule in Claytons case.Appropriation of Payments – Rule in Claytons case.

Maintenance of Secrecy.Maintenance of Secrecy.

Right of BankerRight of Banker1. Right of lien:1. Right of lien:

General lien subject to conditions.General lien subject to conditions.

2. Right of Set Off:2. Right of Set Off: Capacity of the customer must be same in all the Capacity of the customer must be same in all the

a/c’s.a/c’s. A/cs belonging to same person under different trade A/cs belonging to same person under different trade

names can be combined.names can be combined. Formal notice to the customer.Formal notice to the customer. Different branches of bank will constitute one entity.Different branches of bank will constitute one entity. Banker has the option (customer can’t compel the Banker has the option (customer can’t compel the

banker).banker). Right even after the receipt of garnishee order.Right even after the receipt of garnishee order. The debt must be due.The debt must be due.

3. Right of appropriation3. Right of appropriation

4. Right to charge interest, service Charges etc..4. Right to charge interest, service Charges etc..

Termination of Banker customer Termination of Banker customer relationrelation

1.1. Customer Closes the accountCustomer Closes the account

2.2. Death of the CustomerDeath of the Customer All the debits to be stopped.All the debits to be stopped.

No cheque to be honoured after information of death No cheque to be honoured after information of death of customer.of customer.

Credits can be allowed except when banker knows Credits can be allowed except when banker knows that the credit is not due the customer.that the credit is not due the customer.

3.3. Closure by Bank after reasonable notice.Closure by Bank after reasonable notice.

4.4. Insolvency of customer.Insolvency of customer.

5.5. Lunacy of customer.Lunacy of customer.

Attachment OrdersAttachment Orders

1.1. Garnishee OrderGarnishee Order Order Nisi freezes the account as it stands at the time of receipt of Order Nisi freezes the account as it stands at the time of receipt of

the order. Subsequent credits are not attached.the order. Subsequent credits are not attached.

Bank to inform the court about the balance and amount for which Bank to inform the court about the balance and amount for which right of set off is available to the Bank.right of set off is available to the Bank.

If amount is specified, keep the amount separately.If amount is specified, keep the amount separately.

When order absolute is received, the amount is to be remitted to When order absolute is received, the amount is to be remitted to the court.the court.

Order in case of joint names also attaches their individual accounts. Order in case of joint names also attaches their individual accounts. but not vice versa.but not vice versa.

Order in the name of Partnerships firm or joint Names, attaches the Order in the name of Partnerships firm or joint Names, attaches the individual accounts.individual accounts.

1.1. Income Tax Attachment OrderIncome Tax Attachment Order Amount will be specified in the order. Amount will be specified in the order.

Attaches subsequent credits alsoAttaches subsequent credits also

Order on individual account attaches his share in the joint a/c, Order on individual account attaches his share in the joint a/c, presumed (rebuttable) to be proportional.presumed (rebuttable) to be proportional.

Maintain Secrecy - exceptionsMaintain Secrecy - exceptions

1. Disclosure under compulsion of Law: – 1. Disclosure under compulsion of Law: – Order of the courtOrder of the court Companies act – inspector appointed by Central Companies act – inspector appointed by Central

govt.govt. Income tax actIncome tax act RBIRBI

2. Disclosure in public interest2. Disclosure in public interest

3. Disclosure in Bank’s own interest3. Disclosure in Bank’s own interest

4. Disclosure with customer’s consent4. Disclosure with customer’s consent

5. Disclosure of request by other banks5. Disclosure of request by other banks

Wrong disclosure attract damages.Wrong disclosure attract damages.

Types of CustomersTypes of Customers

1.1. MinorMinor

2.2. Illiterate personIlliterate person

3.3. Blind PersonBlind Person

4.4. Joint accountsJoint accounts

5.5. TrustsTrusts

6.6. Executors & AdministratorsExecutors & Administrators

7.7. HUFHUF

8.8. AttorneyAttorney

9.9. Partnership firmPartnership firm

10.10. Joint Stock CompanyJoint Stock Company

11.11. Society & ClubsSociety & Clubs

Money LaunderingMoney Laundering It is a process of making dirty money clean.It is a process of making dirty money clean. Money is moved around the financial system again and Money is moved around the financial system again and

again in such manner that its origin gets hidden.again in such manner that its origin gets hidden. Money generated from illegitimate source is converted as if Money generated from illegitimate source is converted as if

derived from legitimate sourcederived from legitimate source

Process:Process:

1. Placement1. Placement Entry of funds in banking systemEntry of funds in banking system

2. Layering2. Layering Distancing of funds from point of entryDistancing of funds from point of entry

3. Integration3. Integration Usage of fundsUsage of funds

Symptoms of MLSymptoms of ML Number of cash deposits in same a/c / numerous Number of cash deposits in same a/c / numerous

accountsaccounts Increase in turnover in dormant a/cIncrease in turnover in dormant a/c Receipt & payment of cash from / to unrelated to Receipt & payment of cash from / to unrelated to

business / relationship or with no justificationbusiness / relationship or with no justification Providing fictitious or Reluctance in providing minimal / Providing fictitious or Reluctance in providing minimal /

normal information normal information Deposit of third party chequesDeposit of third party cheques Sudden increase in cash deposit in a/c from abroadSudden increase in cash deposit in a/c from abroad Providing misleading information / information not Providing misleading information / information not

easily verifiable while opening an Accounteasily verifiable while opening an Account Large cash withdrawals from a dormant or inactive Large cash withdrawals from a dormant or inactive

account or account with unexpected large credit from account or account with unexpected large credit from abroadabroad

Employees leading lavish lifestyles that do not match Employees leading lavish lifestyles that do not match their known income sourcestheir known income sources

AML MeasuresAML Measures

1.1. Customer acceptance policyCustomer acceptance policy Accept only legitimate and bona fide customers.Accept only legitimate and bona fide customers.

2.2. Customer identification ProcedureCustomer identification Procedure Properly identify the customers to understand Properly identify the customers to understand

the risks they may pose.the risks they may pose.

3.3. Monitoring of Transactions and Monitoring of Transactions and Monitor customers accounts and transactions to Monitor customers accounts and transactions to

prevent or detect illegal activities. prevent or detect illegal activities.

4.4. Risk Management.Risk Management. Implement processes to effectively manage the Implement processes to effectively manage the

risks posed by customers trying to misuse risks posed by customers trying to misuse facilities.facilities.

What is KYC What is KYC

Know? What you should know?What you should know? True identity and beneficial ownership of the True identity and beneficial ownership of the

accountsaccounts Permanent address, registered & administrative Permanent address, registered & administrative

addressaddress

Your? Who should know?Who should know? Branch manager, audit officer, monitoring officials, Branch manager, audit officer, monitoring officials,

Principal OfficerPrincipal Officer

Customer (for the purpose of PMLA) (for the purpose of PMLA) One who maintains an account, establishes One who maintains an account, establishes

business relationship, on who’s behalf account is business relationship, on who’s behalf account is maintained, beneficiary of accounts maintained maintained, beneficiary of accounts maintained by intermediaries, and one who carries potential by intermediaries, and one who carries potential risk through one off transactionrisk through one off transaction

KYC meansKYC means

Making reasonable efforts to determine the true Making reasonable efforts to determine the true identity and beneficial ownership of accounts; identity and beneficial ownership of accounts;

Sources of fundsSources of funds Nature of customers’ businessNature of customers’ business What constitutes reasonable account activity?What constitutes reasonable account activity? Who your customer’s customers are?Who your customer’s customers are?

But does not mean:But does not mean: Denial of Service to the Common PersonDenial of Service to the Common Person Intrusive Behaviour Intrusive Behaviour Use of information for Cross SellingUse of information for Cross Selling Harassment of customers- threatening to close Harassment of customers- threatening to close

down the accounts arbitrarilydown the accounts arbitrarily

Bank Staff - do’s & don’tsBank Staff - do’s & don’ts

Exercise constant vigilance right from opening of Exercise constant vigilance right from opening of new accountsnew accounts

Know your customer & know your colleaguesKnow your customer & know your colleagues Separate legitimate business & illegitimate Separate legitimate business & illegitimate

/irregular/ suspicious business/irregular/ suspicious business Always think of bank’s reputation/clean imageAlways think of bank’s reputation/clean image Develop risk awareness culture- – a good customer Develop risk awareness culture- – a good customer

today may not be good tomorrowtoday may not be good tomorrow Do not exercise willful blindness Do not exercise willful blindness Involve in public awareness of KYC issuesInvolve in public awareness of KYC issues

Suspicious transactionSuspicious transaction

Suspicious transaction means a transaction Suspicious transaction means a transaction whether or not made in cash which, to a person whether or not made in cash which, to a person acting in good faith:acting in good faith: gives rise to a reasonable ground of suspicion gives rise to a reasonable ground of suspicion

that it may involve the proceeds of crime; orthat it may involve the proceeds of crime; or appears to be made in circumstances of unusual appears to be made in circumstances of unusual

or unjustified complexity; oror unjustified complexity; or appears to have no economic rationale or appears to have no economic rationale or

bonafide purposebonafide purpose

Cash Transaction ReportCash Transaction Report Suspicious Transaction ReportSuspicious Transaction Report

Types of Deposit AccountsTypes of Deposit Accounts

Fixed Deposit – Cumulative/ Non cumulativeFixed Deposit – Cumulative/ Non cumulative

Saving Bank DepositSaving Bank Deposit

Current DepositCurrent Deposit

Recurring DepositRecurring Deposit

Customer ServiceCustomer Service

Nomination facilityNomination facility Immediate credit of outstation cheques, Immediate credit of outstation cheques,

without the request of the customer, if without the request of the customer, if cheque amount does not exceed Rs.15,000/-cheque amount does not exceed Rs.15,000/-

Payment of interest for delay in collection of Payment of interest for delay in collection of outstation cheques.- 10/14 days.outstation cheques.- 10/14 days.

Banking ombudsman Scheme.Banking ombudsman Scheme. Banking codes and Standards Board of India.Banking codes and Standards Board of India. details of service charges to be displayed.details of service charges to be displayed. Do not call registry.Do not call registry.

Nomination facilityNomination facility Banking Companies (Nomination) Rules 1985 permits banks to Banking Companies (Nomination) Rules 1985 permits banks to

pay dues to nominees in the event of death of depositor(s). pay dues to nominees in the event of death of depositor(s). This simplifies settlement. Nominee is accountable to legal This simplifies settlement. Nominee is accountable to legal

heirs.heirs. for bank deposits, safe deposit lockers, safe custody articles.for bank deposits, safe deposit lockers, safe custody articles. There can be only one Nominee for a deposit account (also There can be only one Nominee for a deposit account (also

joint a/c) joint a/c) There can be two nominees for a jointly held locker.There can be two nominees for a jointly held locker. A person legally empowered to operate a minor's account can A person legally empowered to operate a minor's account can

file a nomination on behalf of the minor. file a nomination on behalf of the minor. No other persons can nominate in the representative capacity.No other persons can nominate in the representative capacity. Variation/cancellation of a subsisting nomination by all the Variation/cancellation of a subsisting nomination by all the

surviving depositor(s) acting together. surviving depositor(s) acting together. Nominees right arises only on death of the depositor or death Nominees right arises only on death of the depositor or death

of all the depositors in case of joint Accounts.of all the depositors in case of joint Accounts.

Banking ombudsman SchemeBanking ombudsman Scheme

Revised Banking Ombudsman Scheme 2006Revised Banking Ombudsman Scheme 2006 Enlarged in extent and scope to cover redressal Enlarged in extent and scope to cover redressal

of grievances against:of grievances against: Deficiency in banking product / services Deficiency in banking product / services

including loans and advances, credit cards, including loans and advances, credit cards, delay in payment or collection of cheques, delay in payment or collection of cheques,

non-adherence to banking hoursnon-adherence to banking hours BO works as an arbitrator in respect of any BO works as an arbitrator in respect of any

dispute between the bank and its constituents dispute between the bank and its constituents or between two Banks.or between two Banks.

Procedure of filing complaint.Procedure of filing complaint. Redressal by Redressal by

BCSBIBCSBI Banking Codes and Standards Board of India (BCSBI) Banking Codes and Standards Board of India (BCSBI) An industry watch dog to oversee compliance of the An industry watch dog to oversee compliance of the

Bank’s code of commitment to customers,.Bank’s code of commitment to customers,. Applicable to Banks who are members of this Applicable to Banks who are members of this

society.society.

ObjectivesObjectives Promote good and fair banking practices by Promote good and fair banking practices by

setting minimum standards in dealing with setting minimum standards in dealing with customerscustomers

Increase transparency Encourage competition to Increase transparency Encourage competition to achieve higher operating standardsachieve higher operating standards

Promote fair and cordial relationship between Promote fair and cordial relationship between customer and its Bankcustomer and its Bank

Foster confidence in the banking systemFoster confidence in the banking system