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BANKER CUSTOMER RELATIONSHIP
BANKER CUSTOMER RELATIONSHIP
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Chapter 4

  1. 1. CHAPTER 4 CUSTOMER AND ACCOUNT HOLDER B.COM II SEM SUNITHA N (ASST.PROF) SOUNDARYA INSTITUTE OF MANAGEMENT AND SCIENCE
  2. 2. Types of bank account in India 1. Demand deposit 2. Time deposit 3. Other types 1. Demand deposit: In these types of account money is payable in demand. Customer can deposit amount and withdraw amount without any prior notice to the bank. It includes savings account and current account a. Savings account: A savings account is the most basic type of account at a bank, allowing public to deposit money, keep the funds safe, and withdraw funds as needed. Savings accounts typically pay interest on your deposits, which helps you grow your money, but rates are relatively low. b. Current account: It is generally used by business firms and people who makes huge transactions and there is no restriction on deposit and withdrawal of money. Bank charges incidental charges and interest on current account, as current account amount cannot be utilized by bank for profitable investment.
  3. 3. BASIS FOR DIFFERENCE SAVING ACCOUNT CURRENT ACCOUNT Meaning Saving bank account is an account meant for individuals who like to save for meeting their future financial requirements. Current account refers to a running account, in which there is no limit on the operation, during a working day. Objective To encourage savings of a person. To support frequent and regular transactions. Suitable for Individual Businessman or company Interest Paid Not paid Withdrawals Limited Unlimited Passbook Provided by banks Not issued by banks. Overdraft Not allowed Allowed Opening balance Less amount is required to open a savings bank account. High amount is required for opening a current account.
  4. 4. 2. Time deposits: A time deposit or term deposit is a deposit with a specified period of maturity and earns interest. It is a money deposit at a banking institution that cannot be withdrawn for a specific term or period of time (unless a penalty is paid). a. Fixed deposit: A time deposit is an interest-bearing deposit held by a bank or financial institution for a fixed term whereby the depositor can only withdraw the funds after the specified period of time, if he wants to withdraw the cash before the maturity period then the interest paid will be less. b. Recurring Deposit: Recurring deposit is a special kind of Term Deposit offered by banks in India which help people with regular incomes to deposit a fixed amount every month into their recurring Deposit account and earn interest at the rate applicable to Fixed Deposits. ... Minimum Period of RD is 6 months and maximum is 10 years. 3. Other types of account a. Demat Account: A Demat Account is an account which is electronically maintained by the banks or is provided by the broker agencies where u can keep money for transactions in Shares, Mutual Funds, Purchase of gold etc. it has to be tagged with your savings account from where the money will be paid if you purchase a share etc and receive money when you sell a share etc.
  5. 5. b. NRE Account: A Non Resident External account is a bank account opened by depositing foreign currency at the time of opening the bank account. This currency is tendered in the form of traveler’s cheque or notes. c. NRO Account: It is generally opened in India as a normal bank account by an Indian national before leaving the country to work abroad. A Non-Resident Ordinary or NRO Account allows Indian nationals working abroad to receive funds in Indian rupees or in foreign currency. The funds can be sent to the account from the country where the person is currently in residence, but only Indian rupees can be withdrawn. Funds received and repatriated in an NRO Account must be reported to the Reserve Bank of India. Procedure to open an bank account 1. Decide the Type of Bank Account you want to Open There are several types of bank accounts such as Saving Account, Recurring Account, Fixed Deposit Account and Current Account. So a decision regarding the type of account to be opened must be taken. 2. Approach any Bank of choice & meet its Bank Officer Once the type of account is decided, the person should approach a convenient bank. He has to meet the bank officer regarding the opening of the account. The bank officer will provide a proposal form (Account Opening Form) to open bank account.
  6. 6. 3. Fill up Bank Account Opening Form - Proposal Form The proposal form must be duly filled in all respects. Necessary details regarding name, address, occupation and other details must be filled in wherever required. Two or three specimen signatures are required on the specimen signature card. If the account is opened in joint names, then the form must be signed jointly. Now a days the banks ask the applicant to submit copies of his latest photograph for the purpose of his identification. 4. Give References for Opening your Bank Account The bank normally required references or introduction of the prospective account holder by any of the existing account holders for that type of account. The introducer introduces by signing his specimen signature in the column meant for the purpose The reference or introduction is required to safeguard the interest of the bank. 5. Submit Bank Account Opening Form and Documents The duly filled in proposal form must be submitted to the bank along with necessary documents. For e.g. in case of a joint stock company, the application form must accompany with the Board's resolution to open the account. Also certified copies of articles and memorandum of association must be produced.
  7. 7. 6. Officer will verify your Bank Account Opening Form The bank officer verifies the proposal form. He checks whether the form is complete in all respects or not. The accompanying documents are verified. If the officer is satisfied, then he clears the proposal form. 7. Deposit initial amount in newly opened Bank Account After getting the proposal form cleared, the necessary amount is deposited in the bank. After depositing the initial money, the bank provides a pass book, a cheque book and pay in slip book in the case of savings account. In the case of fixed deposits, a fixed deposit receipt is issued. In the case of current account, a cheque book and a pay in slip book is issued. For recurring account, the pass book and a pay in slip book is issued.
  8. 8. TYPES OF CUSTOMER ACCOUNTS 1. Minor account 2. Joint account 3. Joint Hindu family 4. Partnership account 5. Joint stock company account 6. Trustee account 7. Clubs and Associations account 8. Lunatics account 9. Illiterate account 10. Accounts of married women 11. Deceased customer account 12. Non- Resident account 13. Government department account
  9. 9. Definition of Minor: As per “The Guardian and wards act”, Minor means a person who, under the provisions of Indian Majority Act, 1875 is to be deemed not to have attained his majority. In other words Minor is a person who is under the age of 18years and he will be called as major when he attains his age of 18. Agreement with minor: minor cannot enter into the contract if he enters it becomes invalid contract but agreement can be made between minors guardian. Guardian: the guardian means a person having the care of the person of a minor or of his property or of both his person and property. Guardians are classified into three types: 1. Natural guardian: Father is a natural guardian after him mother will be the natural guardian of minor and after marriage husband is considered as guardian. Here guardian is considered as per the culture and religion of a person. 2. Testamentary guardian: is a person who is appointed by the will of minors father or mother i.e. by the will of natural guardian. 3. Guardian appointed by a court under the guardians and wards Act, 1890.
  10. 10. Problems in Minor account Contract made with the minor is not valid it has following problems: 1. Loans given to any minor by the bank does not backed by legal protection because minor is not a competent party for agreement and bank cannot recover loan by forcefully. 2. Any surety received by the minor cannot be sued if he fails to repay the loan and refuses to repay the loan. 3. Minor cannot be stated as an insolvent by the banker or any other third parties. 4. Securities pledged by the minor which belongs to other while taking loan cannot be executed by the bank if the minor refuse to pay loan. 5. Sec 26 of NI act allows minor to draw and endorse any cheque, Bills or Promissory note. It will be valid against all party except minor. Precautions to be taken at the time of opening minor account 1. Precaution while opening bank account: minor should be allowed to open savings account and fixed account but not current account because will not be in trouble until bank keeps minor account in the credit balance, if the banker allows the minor to overdraw from his account then banker does not get any legal protection to recover amount due from the minor. Banker can open account in the name of minor or joint name of minor and guardian. When bank opens account in the name of minor only, he should be atleast 14 years or more and be able to read and write only then he will permitted to withdraw and deposit money to the bank.
  11. 11. 2. Precautions for Date of Birth: while opening a minor account the banker should collect the birth certificate from the minor and should be retained with him when the minor attains his majority on that date bank should close the minor account and opens new account by getting a specimen signature and should not allow guardian to operate account. 3. Granting loans to Minor: Loans given to any minor by the bank does not backed by legal protection because minor is not a competent party for agreement and bank cannot recover loan by forcefully. As per law any if bank grants a loan to the minor it is a void. 4. Guarantees: While accepting guarantee against loan bank should not accept the guarantee of a minor and bank should not grant loan to minor against the guarantee of others. Minor is not a principal and not accepted as guarantee. 5. Minor as an agent: Minor can be permitted to acts as an agent on behalf of the principal for that the bank should get a prior written consent given by the principal should contain the powers of agent and banker should inform agent .i.e. minor to perform function upto the limit of that power not beyond the power. 6. Minor as a partner: Minor can enter into partnership with the permission of all the other partner. He can enter into the contract and operate a bank account but he can enjoy the benefits but does not bares losses and damages. Once he is major should imply whether he continues with the partnership if so then he will bare all the losses and damages.
  12. 12. 2. Joint Account: A joint account is a bank account shared by two or more individuals. Any individual who is a member of the joint account can withdraw from the account and deposit to it. Usually, joint accounts are shared between close relatives or business partners. Precautions to be taken at the time of opening joint account: 1. A banker must get clear instructions that who can with draw from the account. 2. survivorship: Bank should obtain the information relating to distribution of money to executor when the death of joint account holder. 3. The bank should have clear information that power is given to any of them to withdraw securities, assets and other items deposited for case custody. 4. Death of one of the Joint account holder: If the account is in credit the rule of survivors, applies. But the banker should obtain a fresh mandate, from the remaining survivors, this is because death cancels the mandate. If in case of debit account, the banker should close the account prevent the operation of rule in Clayton’s case to determine the liability of the deceased’s estate.
  13. 13. 5. When any one of the account holder become insolvent bank must close the account and operation immediately after the receipts of notice of insolvency. 6. Husband and wife joint account :- This account is opened by husband and wife. This account is different from an ordinary joint account. Precautions : i. The banker most study the purpose of opening this account. ii. In case of death of one, the survival is entitled to receive the balance of the account if the purpose of opening the account was economic. iii. If husband and wife has borrowed the money jointly then the bank must insist on their personal and joint liability. 3. Joint Hindu family or Hindu undivided family HUF is a body consisting of persons lineally descendant from a common ancestor including their wives and married daughters, who are together jointly, joint in food, estate and worship. The daughter on her marriage, ceases to be a member of her father’s HUF and becomes a member of her husband HUF. KARTA: The person who manages the affairs of the family is known as the Karta. The karta has to be the oldest male in the family. If he passes away, his wife cannot become the karta. His eldest son will take his place. If he chooses not to, he can give up his right and the next son in line can take his place.
  14. 14. Meaning of Coparcenary: This is what all the male members are referred to as. A Hindu coparcenary includes the sons, grandsons and great-grandsons of the holder of the joint family property. By virtue of their birth, they acquire an interest in the property. Precautions to be taken while opening HUF account: 1. The account should be in the name of Karta or in the name of family business. 2. The bank has to obtain two copies of the photographs of the Karta, one to be affixed on the account opening form and the other on the specimen signature card. 3. While opening HUF of Joint Family Account introducer is mandatory. 4. Bank has to take signature of all member and declaration by the all members by stating who is Karta and other coparceners. 5. If there is any minor coparceners in HUF, guardian has to sign on behalf of minor. 6. On attaining majority minor coparcener, bank allow them to operate account. 7. When any coparcener or member send notice to stop the payment, bank has to stop payment and bank has to clear further transaction after the confirmation of all the members or by the court.
  15. 15. Partnership Account: Partnership is a type of Business in which two or more individual invest money, skill and share profit or loss accordance with the terms of partnership agreement. Precautions to be taken by bank while opening partnership: 1. Number of partners: while opening partnership account bank must consider partnership deed which is the article of partnership firm. As per legal, incase banking firm there is maximum limit of partner 10 and any other firm maximum is 20, it should not exceed that, if exceeds it becomes illegal partnership firm and it is not allowed to enter into any contract or agreement. Incase any minor in partnership account there should be prior consent from all the partner and bank should record the date of birth of the minor partner. 2. Name of bank account: Incase of partnership account bank should open account in the name of firm but not in the name of any individual partners. 3. Opening of an account: Banker can open the account in the name of partnership firm and at the time of opening account banker should get specimen signature of all the partners and all the partners should agree to open the account in the name of firm if there is any objection to open account by any of the partner, bank should not open the account until all the parties agree. Hence bank should obtain the authority letter signed by all partners.
  16. 16. 4. Cancellation of authority to operate the account: when partnership account is opened any one or more partner will gain the authority to operate the account, i.e. who can withdraw and deposit amount from and to the account. In such case when bank receives any notice regarding cancellation of the authority of the partner, bank must stop the payment and operation of the account. Any partner including sleeping partner can give notice to bank regarding to stop payment or cancellation of authority. 5. Delegation of new partner: Delegation of authority refers to transferring power and right from one person to another person when he is not available or absent. Partner cannot delegate his authority to any other person without written consent of all the partners. If he has to appoint any person to work on behalf of him he should take permission from all the partners and prepare power of attorney to transfer powers from authorized partner to any other person by the signature of all partners. Bank should retain that power of attorney in case of delegation of authority. 6. Admission of new partner: On admission of any new partner to the partnership account bank must close the account, If there is any the overdraft facility and should open new account from the consent from all the partner including new partner. In case if the bank account shows debit balance at the time of admission of new partner, bank no need to close the account but written consent from all the partner should be obtained.
  17. 17. 7. Retirement of partner: At the time of retirement of any partner, a notice is to be served to the banker. With the absence of notice, retired partner will be liable for further transactions. When partner retires and bank balance shows credit amount, in such case no need to close bank account and when any debit balance at the time of retirement, bank must close the account and new account has to be opened by the consent of all the existing partner. 8. Incase of death of partner: when the partner dies the partnership firm may be dissolved or may not be dissolved. If it is dissolved then bank must close the account and if not bank can allow partners to operate account based on conditions. When partnership is not dissolved and account balance shows credit balance then banker no need to close the bank account and asks remaining partner to settle deceased partner’s net balance to his executors. In case if bank account shows any debit balance bank must close the account to avoid applicability of clayton’s case. 9. Insolvency of partner: In the event of insolvency of any partner, the remaining partner can be allowed to operate the account. If there is any cheque which is drawing by insolvent partner it must be stopped by the banker without paying the amount but if the cheque drawn prior to judgement of insolvent on that event bank can honour the cheque with prior permission by the remaining partners. In the event of insolvency, if there is credit balance in bank account, it is not a problem for bank the same account can be continued and in in other situation bank must close the account and fresh new account must be opened.
  18. 18. 10. Lunacy of partner: in case of lunacy if partnership firm is not dissolved, banker allow partner to continue account if there is credit balance in the account and if any debit balance in account bank must close the account and new account has to be opened. Illiterate Account: Illiterate refers to situation of a person who is unable to read and write. Bank can open a bank account in the name of illiterate person because he is competent person to enter in to a valid contract. Precautions are: 1. The account of an illiterate person may be opened provided he/she calls the bank personally along with a witness who is known by both banker and customer. 2. Passport size photographs for identification. 3. Bank has to take left Hand Thumb impression (LHT) of male & Right Hand Thumb impression (RHT) of female and is duly attested by any responsible person. 4. Collect few identification marks from the account holder and the same has to be noted down in account opening form. 5. An illiterate person has to be provided with pass book which should contain the attested photography.
  19. 19. 6. Banker should not provide the cheque book facility in order to avoid the misuse of cheque by some other person. 7. While withdrawing the amount from the bank, depositor should bring authorized person and with thumb impression. 8. It’s the responsibility of the banker to verify the correctness of information and the thumb impression of depositor. Lunatic account: lunatics are persons of unsound mind. Lunatics are not a competent party for contract but the disqualification does not apply to contract entered by lunatics prior to the period of lunacy. Precautions are: 1. The banker should not allow the lunatic person to open an account because he is not competent to enter into the contract. 2. When the customer becomes insane in that moment only bank should stop his banking activities and should not honour any cheques drawn by insane. 3. The banker must confirm the information about the fact and should not stop the bank activities on basis of rumors. 4. If the banker dishonor the cheque without confirming the lunacy, he will be liable for wrongful dishonor of cheque.
  20. 20. 5. After confirmation of lunacy bank should return all the cheques of customer with note of “refers to drawer” and not customer is insane. 6. If any authority is given by the insane to withdraw the cash by the insane before the insanity of the person bank should not allow the authorized person to draw amount. 7. In case of insanity, account can be operated by the person who is appointed by the court. 8. Incase insane proves that he is not insane by providing certificate by two doctors in that circumstances, banker should allow that person to operate account. Trustee Account: Trustee is a person to whom property is given for the usage of third party i.e. beneficiary in accordance with the direction given by the principal. Precautions are: 1. The banker should collect the trust deed and examine the deed concerning instructions regarding opening and the person who operate the account. 2. Bank should receive specimen signature of all trustee who operate the account. 3. Bank should note the limitation of withdrawal as per trust deed and allow operator to withdraw to that extent and restrict to withdraw more than that amount. 4. Bank should make sure that the trust fund should not be misused and should not allow trustee to utilize the amount other than specified purpose and make sure that amount should be utilized for the benefit of the beneficiary.
  21. 21. 5. Bank should be careful while pledging trust property against loan. When there is no provision provided in trust deed, it should not allow operators to pledge trust property and if there is provision in trust deed relating to pledging or mortgaging then banker can allow operator to use trust property as per trust deed. 6. A trustee has no individual power. They must all act together. All must join in signing of cheques. Unless expressly provided otherwise in the trust deed, no trustee can delegate his power to another. 7. The banker should note the objects for which the trust has been created so as to facilitate the passing of cheques. 8. Bank should see whether the trust is registered with right authority, if it is registered bank should obtain a copy of certificate. 9. If one of the trustee dies or retires, the bank on receiving of notice should suspend all operations in the account. However, if the trust deed is silent, it can let the operations to continue. 10. In case of breach of trust the bank must see that it does not become a party to the breach. The banker is justified in dishonoring the cheque drawn by the trustee, if intended for breach of trust. 11. If the trustee are authorized to borrow to discharge the functions of the trust, the banker must get specific assets of the trust as security.
  22. 22. Clubs and Association Account: Clubs, societies, charitable trusts normally do not function for the intention of making profit, but their intention may be to cater the services to fulfill social needs. Precautions: 1. Incorporated club and non-incorporated club: Normally there are two types of clubs i.e. registered and unregistered club. While opening bank account for clubs and society bank must see whether it is incorporated or not, if it is incorporated, bank should obtain incorporated certificate and then allow club to open account. If the club is not incorporated it is problem for bank to recover amount due by the clubs because bank can not able sue on unregistered club. 2. Rules and laws of club: If the club is registered one, it must formulate rule and regulation of its own. It will have its own constitution and own rules and laws. Bank has to obtain the copy of the same and retain with bank for further reference. 3. A resolution from managing committee: Managing committee should pass a resolution to open bank account and bank should receive a copy of resolution. The resolution should include the following information: a. Appointment the bank concerned as a banker of the club. b. Name of authorized person who operate the account and withdraw and deposit the funds.
  23. 23. 4. Borrowings: while borrowing the bank should confirm whether the club is eligible to borrow or not and clearly note the borrowing limit. Bank should get a copy of special resolution from the managing committee or board regarding borrowing fund until and unless bank should not allow club to borrow. 5. Special care should be taken incase of club and personal account: Bank should not club personal account of operator and club account in any reason and it is not applicable for right to set off of debit and credit balance of club account and personal account operator. 6. Death of operator: Incase any notice or information on death of operator bank must stop the activities of trust account and should not honour cheque until board appoint new person as operator and bank should obtain clear written consent from the board. Account of Married woman: The married women are governed by the Hindu Succession Act and other married women by Indian Succession act. Precautions: 1. While opening the bank account for married women banker should collect the information of her husband i.e. name, occupation, and address of him, his income status etc. 2. When any married women opens account with bank and ask for overdraft facility bank should examine whether she has any business and if she is having any business, bank should verify the position of business of business and as to be granted with overdraft.
  24. 24. 3. While granting any loan to married women banker must see the security against the loan because her husband cannot liable to pay the loan. 4. Banker must ensure to have credit balance in married women account. 5. When married women provides surety for any other person banker should accept the surety only when she ensure her own property otherwise not. 6. In case married women is illiterate banker must obtain her thumb impression on account opening form and identification of her. Government Department account: commercial bank will collect amount on behalf of the government and make payment on behalf of the government so it maintains account to the government. It maintains central government account and collect income tax and wealth tax and maintain state government account and collect service tax and sales tax.
  25. 25. REFERENCES: INTERNET (GOOGLE) TEXTBOOKS: HIMALAYA PUBLISHERS, skywards publishers.

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