Unit 4

CUSTOMERS AND ACCOUNT HOLDERS

Q1) What is customer? State the special types of bank customer.  4

A1) Customer is the person who has an account with the banker. According to John Paget, “a Customer constitutes a person who has an account with a bank, whether fixed or savings, and has dealing of banking nature”. Dealings of banking nature refer to those transactions of deposit and withdrawal of money at frequent intervals. The above definition is popularly known as the ‘Duration Theory’.

A bank opens accounts for various types of customer’s like,  Individual/s- either singly or jointly with other individuals

  Sole relationship

  Hindu Undivided Family

  Limited Liability Partnership firm

  Limited Company (Joint Stock Company)

  One – Person Company Ltd.,

  Club and Association, Institution, Society

  Trust

  Executor and Administrator

  Official Liquidator

  Co-operative Society

Q2) Who can open an account?                     2

A2) As the banker- customer relationship is a contractual relationship, all the essential features of a valid contract must be present when a banker opens an account. Even though the actual formalities will differ depending on the type of the customer, certain formalities are common to all. The common formalities are: The banker must ensure that the customer is competent to contract. For entering into a valid contract, a person needs to fulfil the basic requirements of being a Major (18 years of age or above) and possessing sound mental health (ie., not being a lunatic). A person who fulfils these basic requirements, as also other requirements of the banks as mentioned below can open an account. However, minors (below 18 years of age) can also open SB accounts with certain limitations. A person who wants to open a deposit account has to fill up and sign the prescribed account opening application form and furnish:  Acceptable proof of his/her identity and residential address,

  His/her photographs, and

  Initial deposit not less than the prescribed minimum (varies from bank to bank according to the types of deposit accounts)

Q3) Who is minor? State the issues related with opening of account by an minor.  5

A3) According to Section 3 of Indian Majority Act, a person attains majority at the age of 18, except in cases where a guardian is appointed by a Court where the age of majority is 21. According to the Indian Contract Act, a minor is not under a legal capacity to enter into a contract and therefore any contract with a minor is void. Thus, the minor has a guardian to maintain his / her property. Section 6(a) of Hindu Minority and Guardianship Act, 1956 recognizes that either of the parents, father or mother, can be the natural guardian. Normally, bankers do not open accounts in the name of the minor individually, but open accounts in the joint name of the minor and the natural guardian.

The account opening form should contain details, 

• Name of the Minor
• Age of the Minor

  Date of birth of the Minor

  Date of attaining majority

  Name of the Guardian

  Signature of the Guardian

When the minor attains the age of majority, he/she alone can operate the account and the guardian should not be allowed to operate the account.

Other Issues in Opening Account in the Minor’s Own Name:

a) A minor of any age can open a SB/FD/RD account through his /her natural or legally appointed guardian.

b) Minors above the age of 10 years may be now allowed to open and operate savings bank accounts independently, if they so desire. Keeping in view their risk management systems, banks may fix limits in terms of age and amount up to which minors may be allowed to operate the deposits account independently. Banker can also decide, in his own discretion, as to what minimum documents are required for opening of accounts by minors.

c) On attaining majority, the minor should confirm the balance in his account and if the account is operated by the natural guardian / legal guardian, fresh operating instruction and specimen signature of the minor should be obtained and kept on record for all operational purposes.

Q4) State the precautions related to opening of account in bank  by an illiterate person.     5

A4) A person who cannot read or write is considered as an illiterate person. The banker while opening an account in favour of an illiterate person, should adopt the following procedures: 

• The illiterate person will have to be introduced by an existing literate account holder of the branch. 
• The left hand thumb impression has to be attested by a judicial officer or by any witness who is also the account holder of the bank.
• The illiterate person should not be given cheque book. 
• Three passport size photographs should be obtained. One will be affixed in the passbook, the other in the ledger and the third in the account opening form. 
• While withdrawing money from the account, the withdrawal slip should be accompanied by the pass book. 
• The left hand thumb impression affixed in the withdrawal slip should carry the sign of a witness. 
• While endorsing any cheque, the thumb impression should carry the signature of witness. 
• No bank employee should fill up the withdrawal slip for the illiterate customer and he can be assisted by any other customer of the bank. 
• In the account opening form the banker should obtain two identification marks from the illiterate person.
• If the illiterate person is unable to come to the bank in person for withdrawal of cash, he can send a messenger with an authorization letter which should contain the signature of two witnesses authorising his left hand thumb impression.

Q5) Write small note on joint account holder of a bank.    5

A5) A Joint Account is an account opened by two or more persons. Opening of Joint Account. The Account Opening Forms should be signed by all the joint account holders. The names, addressed and other details of all of them should be obtained on the Account Opening Form. The account – holders should also indicates how the account is to be operated the banker should obtain specific directions as to one or more of them will operate on the account. When a joint account is in the name of two persons, the operations may be by,

a. Both survivor

b. Both jointly

c. Either or survivor

d. Former or survivor

e. Latter or survivor In case the account is a term deposit, upon death of any one of the joint holder, balance can paid to survivor in the following cases. 

a) All of them or survivors

b) Any one or more of them or survivor or survivors. In the absence of such explicit instructions, the operations will be by all the persons jointly. Since all the instructions are given by the account – holders jointly at the time of opening the account, they cannot be revoked by any one of them singly. All fresh instructions and changes in the existing instructions must be given in writing signed by all the account holders. However, any one of them can stop payment of a cheque issued by any other joint account holder. Any request for granting of an advance should be made by all parties jointly.

Q6) Define joint stock company. Also state the procedure for opening account in bank by a joint stock company.                  8

A6) Limited Companies (also known as Joint Stock Companies) are governed by the Companies Act 1956. While a company is normally incorporated under the Companies Act, a company can also be brought into existence by means of a statue by the Parliament or the State Legislature. While the company consists of share- holders, its entity is separate from that of the share- holders. For all practical purposes, the company is just like a person and can sue or be sued in its own name. In the case of a limited company, the liability of a share – holder is limited to the amount remaining unpaid on the shares held by him. The word “limited” is required to be part of the name of the company, unless it is a government company licensed under Section 25 of the Act. Companies can be broadly divided into three categories:

i) Public Limited Company: Should have a minimum of at least 7 members (Share holders), but there is no maximum limit.

Ii) Private Limited Company: Must have at least 2 members (share holders), but not more than 200 members excluding those who are in the employment of the company at the time of share allotment.

Iii) Government Company: These are companies where at least 51% of the total number of shares are held by the Government. Opening of Accounts of Limited Companies:

a. The banker should obtain Certificate of Incorporation, Certificate of commencement of business, Memorandum of Association and Articles of Association as amended up to date. These documents govern the working of the company. The Memorandum of Association lays down the objects of the company and limits the scope of its operations to specific areas. The Articles of Association deals with the rules and regulations governing the internal management of the company- it defines the powers of the directors, officials and share holders. These documents can be amended or altered by passing a resolution at a general meeting of the share holders and having it confirmed by the Company Law Board.

b. The directors of a company have to function within the limits of the power conferred by the Articles of Association and when they do so, these acts are binding on the company. If the directors act in excess of the power conferred, but within the purview of the objectives and functions laid down in the Memorandum of Association, such acts can be ratified by a general meeting of the share – holders. But, if the acts are outside the scope laid down in the Memorandum of Association, they will be ultra virus of the company and will not be binding on the company. The directors will be personally liable for such acts.

c. A company comes into business only after the issue of the certificate of incorporation by the Registrar of Companies. The banker should also verify the original of this certificate. In the case of Public Limited Companies, the banker, should also obtain a copy of the certificate of commencement of business issued by the Registrar of Companies (this is not necessary in the case of private companies). If the account is opened before the issue of this certificate, the banker should not issue the cheque book and should not permit withdrawals until it is obtained. Deposits into account can, however, be accepted.

d. Proof of Identity (POI) and proof of Address not only for the limited company, but also for every authorized signatory are to be obtained. e. The banker should also obtain a certified copy of the resolution passed by the board of Directors authorizing the opening of the account, execution of documents and conduct of the accounts. The copy of the resolution should be under common seal of the company and duly attested as per requirements in Articles of Association. In case there is a change of such authorized signatories, a fresh resolution has to be passed. A resolution will remain in force until it is revoked by a fresh resolution.

e. The account opening form should be filled in and signed by the authorized signatories.

f. The POI and POA besides specimen signature of the directors and the authorized signatories should be obtained.

g. A list of directors is to be obtained. The list should be signed by the chairman and updated.

h. Every limited company is expected to maintain, at its register office, the following registers promptly updated. a) Register of Charges b) Register of Guarantees c) Register of Resolution d) Register of Directors.

Q7) State the precautions related to opening of bank account by an executor.  5

A7) Executors and Administrators are allowed to open bank accounts. Following formalities are to be observed while opening the account in the name of executor/administer at or: 

1. An executor should submit a probate, and an administrator should submit the “letter of administration” to the bank as a proof of his authority to operate the account of a deceased person. 
2. The banker should thoroughly examine the probate/letter of administration to acquaint himself with the powers and functions of executors/ administrators. 
3. An account may be opened in the name of executor/administrator in the following style: ABC executors (or Administrators) of the estate of X, the deceased. 
4. In case of joint executor/administrator a mandate signed by all of them should be obtained regarding the operation of the account.  The insolvency or lunacy of the executor/administrator will terminate his authority to operate the account (unless it has been overdrawn).

Q8) State the procedure for opening account by clubs and associations.  4

A8) Clubs and Associations, Committees, Funds etc. are non – trading organizations. They have no legal entity, unless they are incorporated under the Companies act. As they have no contractual powers, they cannot be used. The individual members of such organizations are not liable for any overdraft as long as the members are signing the cheques in their representative capacity and not in their personal capacity. Opening of Accounts in the name of Clubs & Associations:

1. If the society or club is registered under the Societies Registration Act 1960 or Companies Act, a copy of the Registration Certificate or the Certificate of Incorporation should be obtained.
2. The bank should obtain a certified copy of the by-laws, rules and regulations.
3. A list of the members of the Managing committee is to be obtained. Iv. A certified copy of the resolution passed by the committee to open a bank account together with the details of authorized signatories and instruction regarding the operation of the account should be obtained.
4. The account must be properly introduced.
5. POI+ POA not only for the constituent but also for every authorized signatory are to be obtained.

Q9) State the rules regarding bank account by a married women.   2

A9) An account can be opened in the name of a married woman. She has the power to draw cheques and give discharge. But if a loan is given to a married woman, the banker will have no remedy against her if she has no separate means. Bank must insist for the guarantee of her husband, because the married woman can plead for and get validated that her debts to the bank are void if the explicit written consent of the husband is not recorded by the lending bank. This is possible by virtue of provisions in Married Women’s Property Act.

Q10) Write a note on capacity of opening a bank account by a lunatic.   4

A10) Under Section 1 of the Indian Contract Act, persons of unsound mind are disqualified from contracting. But the disqualification does not apply to contracts entered into during the periods of sanity. However, no banker would knowingly open an account in the name of a person of unsound mind because he then would have to face the difficulty of choosing whether cheque was made during a period of sanity and pay it or it was made during a period when it was not and so dishonour it. If a banker receives notice and is sure that an account – holder has become a lunatic, he should stop all operations in the account till such time the customer becomes normal. The banker should obtain a Certificate of Sanity from a competent authority after which such a person is allowed to operate on the account. Lunatics are the people who are unsound in mind. They are incapable of entering into valid contracts. Hence, a banker cannot open an account in the name of lunatic. In the same manner, a customer who subsequently becomes a lunatic loses his capacity to contract and therefore cannot continue to be the customer of the bank. In such a situation where a banker honours the cheque issued by a customer who subsequently becomes lunatic cannot be held liable unless it is proved that the banker had knowledge of the unsound mind of the customer. The banker has to take the following precautions on coming to know of the insanity of the customer.

Q11) Explain the procedure of opening a new Bank account      5

A11) Procedure of opening Bank account Following procedure is followed to open a new Bank account:

1. Filling up of account opening form: First of all the banker asks the applicant to fill up the account opening form. The prospective customer should fill up all details such as name, address, type of a/c he wants to open, nominee details, pan card no. Etc. He should also give address proof and pan card zerox copy and passport size photograph to open a new bank a/c.

2. Obtaining introduction or reference: Secondly, the bank asks for proper introduction of respectable person known to the banker. This introduction is necessary to open S.B. a/c and Current a/c only and not for F.D. a/c and R.D. a/c. This introduction helps the banker to open a/c in the name of genuine persons and prevents to open falls a/c.

3. Obtaining Specimen signature: If the banker is satisfied with introduction, he permits the prospective customer to open an a/c by obtaining 3 specimen signature on a specimen signature card. This specimen signature helps banker for cross verification of customer signature at the time of withdrawal of cash by cheque.

4. Obtaining Mandate: If the customer wants to operate his a/c through his representative (agent), the bank take written authority from the customer which is known as ‘Mandate.’ The banker should also obtain specimen signature of that agent.

5. Receiving initial Deposit and open a/c in the ledger: After observing all above formalities the banker receives initial deposits from the customer and opens an a/c in the name of customer by writing details in the ledger of the bank.

6. Supply of pay-in-slips, cheque book and pass book: Finally, the banks supplies payin-slip book for deposit of cash or cheque into bank, cheque book for withdrawal of cash 8 from the bank and pass book showing the details of deposits, withdrawals and available balance. At the time opening a new bank a/c, the customer may request the bank for supply of ATM card and online transaction facility.

Q12) State any two features of Savings Bank account.           2

A12)

1. Low interest rate:- Banks provide lower interest rate on this type account. Usually, the interest rate ranging from 3% to 4% and it may vary from Bank to Bank.

2. Deposits and withdrawals: Pay-in-slips are used to deposit money or cheques into the bank. Similarly, cheques or debit card are used to withdraw money from the bank.

Q13) State any two features of Current account.   2

A13)

1. No interest: Bank do not provide any interest to this type of account. Instead of providing interest, Bank collects some charges to these account holders for providing various services.

2. Deposits and withdrawals: Pay-in-slips are used to deposit money or cheques into the bank. Similarly, cheques or debit card are used to withdraw money from the bank.

Q14) State any two features of Fixed deposit account.   2

A14)

1. High interest rate: This type of account carries high rate of interest ranging from 4% to 10%. The longer the period of deposits, the higher the rate of interest is the basic principle to provide interest.

2. Deposits and withdrawals: One time deposit and one time withdrawal is rule of this type of a/c. Deposits are made into bank by using pay-in-slips and withdrawals are made after certain period by producing fixed deposit receipts.

Q15) State any two features of Recurring deposit account.   2

A15)

1. Interest rate: RD account carry higher rate of interest than SB account but lower than Fixed Deposit account

2. Deposits and withdrawals: Deposits are made regularly every monthly and a fixed amount is given to the customers in lump sum at the end of certain period along with interest.