Duties of a Banker
A banker has two primary and legally binding duties towards its customers. These are the most important part of this topic.
1. Obligation to Honor Cheques
This is the core duty of a bank. A bank must pay a cheque drawn by its customer if certain conditions are met.
- What it means: When you write a cheque, you are ordering your bank to pay money from your account. The bank must follow this order.
- Conditions for Payment:
- There must be sufficient funds in the customer’s account.
- The cheque must be properly drawn (correct date, no alterations, etc.).
- The cheque must be presented for payment within 3 months of its date.
- Example: You have ₹20,000 in your savings account, and you write a cheque for ₹5,000 to your landlord. As long as your signature matches and the cheque is correctly filled out, the bank is legally obligated to pay your landlord.
- Wrongful Dishonour: If a bank fails to pay a cheque without a valid reason, it is called wrongful dishonour. The bank is liable to the customer for any loss or damage to their reputation.
2. Obligation to Maintain Secrecy of Accounts
A bank must keep all information about its customers’ accounts and financial dealings strictly confidential. This is a fundamental principle of the banker-customer relationship.
- What it means: A bank cannot tell anyone about your account balance, transactions, or personal details without a valid reason.
- Example: Your neighbour cannot walk into your bank and ask for your account statement. The bank must refuse.
Exceptions to the Duty of Secrecy
A bank can disclose information only under these four conditions:
| Exception Category | Simple Explanation | Real-Life Example |
| Under Compulsion of Law | When the law requires the bank to share information. | An Income Tax authority or a Court sends a legal notice to the bank demanding a customer’s account details. |
| In the Interest of the Public | When disclosing information is necessary to protect the public from crime or danger. | If a bank has strong reason to believe an account is being used to fund terrorist activities. |
| In the Bank’s Own Interest | When the bank needs to protect its own interests. | If a customer defaults on a loan, the bank can disclose this information to its lawyers to sue the customer. |
| With Customer’s Consent | When the customer gives permission. | When you apply for a loan, you sign a form that allows the bank to share your credit information with a credit bureau like CIBIL. |
Rights of a Banker
A bank also has certain special rights to protect its own interests.
1. Right of General Lien
- The right of the bank to retain goods and securities belonging to a customer until a debt owed by the customer is paid.
- Example: A customer has defaulted on a business loan. The same customer also has some share certificates in the bank’s possession (not for any specific purpose). The bank can exercise its right of lien and refuse to give back the share certificates until the loan is cleared.
2. Right of Set-off
- The right of the bank to combine two or more accounts of the same customer to settle a debt.
- Example: A customer has an overdue personal loan of ₹15,000 with the bank. The same customer has a savings account with a balance of ₹40,000. The bank can use its right of set-off to take ₹15,000 from the savings account to close the overdue loan.
3. Right to Charge Incidental Charges
- The right of the bank to charge a reasonable commission, interest, or other fees for the services it provides.
- Example: Charging an annual fee for a debit card, a processing fee for a loan, or a penalty for not maintaining a minimum balance.
Rights of a Customer
The RBI has outlined five fundamental rights for bank customers in its Charter of Customer Rights.
| Right | What it Means for You (The Customer) |
| Right to Fair Treatment | The bank cannot discriminate against you based on your gender, age, religion, etc. |
| Right to Transparency, Fair and Honest Dealing | The bank must provide all information clearly and honestly. There should be no hidden charges. |
| Right to Suitability | The bank must sell you products that are appropriate for your needs. |
| Right to Privacy | Your personal and financial information must be kept confidential (linked to the bank’s duty of secrecy). |
| Right to Grievance Redressal and Compensation | You have the right to complain and get your issues resolved in a timely manner. You can also approach the Banking Ombudsman if the bank does not resolve your complaint. |
Summary
The relationship between a banker and a customer is a two-way street built on trust. Banks have a primary duty to honour their customers’ payments and protect their information, while also having rights like Lien and Set-off to protect themselves. Customers, in turn, are protected by the RBI’s Charter of Rights, ensuring they are treated fairly and transparently.
Quick Revision Points
Grievance Redressal: If a bank doesn’t resolve a complaint, a customer can approach the Banking Ombudsman.
Banker’s Two Main Duties: 1) Honour Cheques, 2) Maintain Secrecy.
Four Exceptions to Secrecy: Law, Public Interest, Bank’s Interest, Customer’s Consent.
Banker’s Main Rights: 1) General Lien, 2) Right of Set-off.
Lien vs. Set-off: Lien is the right to retain assets, while Set-off is the right to combine accounts.
Customer Rights: The five rights are defined by the RBI’s Charter.
Wrongful Dishonor: When a bank wrongly refuses to pay a cheque, it is liable for damages.