A CUSTOMER :
The term ‘customer’ of a bank is not defined by law. Ordinarily, a person who has an account in a bank is considered is customer. Banking experts and the legal judgments in the past, however, used to qualify this statement by laying emphasis on the period for which such account had actually been maintained with the bank. In Sir John Paget’s view “to constitute a customer there must be some recognizable course or habit of dealing in the nature of regular banking business.” This definition of a customer of a bank lays emphasis on the duration of the dealings between the banker and the customer and is, therefore, called the ‘duration theory’. According to this viewpoint a person does not become a customer of the banker on the opening of an account; he must have been accustomed to deal with the banker before he is designated as a customer. The above-mentioned emphasis on the duration of the bank account is now discarded. According to Dr. Hart, “a customer is one who has an account with a banker or for whom a banker habitually undertakes to act as such.” Supporting this viewpoint, the Kerala High Court observed in the case of Central Bank of India Ltd. Bombay vs. V.Gopinathan Nair and others (A.I.R.,1979, Kerala 74) : “Broadly speaking, a customer is a person who has the habit of resorting to the same place or person to do business. So far as banking transactions are concerned he is a person whose money has been accepted on the footing that banker will honour up to the amount standing to his credit, irrespective of his connection being of short or long standing.”
For the purpose of KYC policy, a ‘Customer’ is defined as :
– a person or entity that maintains an account and/or has a business relationship with the bank;
– one on whose behalf the account is maintained (i.e. the beneficial owner);
– beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors etc. as permitted under the law, and
– any person or entity connected with a financial transaction which can pose significant reputational or other risks to the bank, say, a wire transfer or issue of a high value demand draft as a single transaction.
Thus, a person who has a bank account in his name and for whom the banker undertakes to provide the facilities as a banker, is considered to be a customer. It is not essential that the account must have been operated upon for some time. Even a single deposit in the account will be sufficient to designate a person as customer of the banker. Though emphasis is not being laid on the habit of dealing with the banker in the past but such habit may be expected to be developed and continued in figure. In other words, a customer is expected to have regular dealings with his banker in future.
An important consideration which determines a person’s status as a customer is the nature of his dealings with a banker. It is evident from the above that his dealings with the banker must be relating to the business of banking. A banker performs a number of agency functions and tenders various public utility services besides performing essential functions as a banker. A person who does not deal with the banker in regard to the essentials functions of the banker, i.e.. accepting of deposits and lending of money, but avails of any of the services rendered by the banker, is not called a customer of the banker. For example, any person without a bank account in his name may remit money through a bank draft, encash a cheque received by him from others or deposit his valuables in the Safe Deposit Vaults in the bank or deposit cash in the bank to be credited to the account of the Life Insurance
Corporation or any joint stock company issuing new shares. But he will not be called a customer of the banker as his dealing with the banker is not in regard to the essential functions of the banker. Such dealings are considered as casual dealings and are not in the nature of banking business.
Thus, to constitute a customer the following essential requisites must be fulfilled:
(i) a bank account – savings, current or fixed deposit – must be opened in his name by making necessary deposit of money, and
(ii) the dealing between the banker and the customer must be of the nature of banking business.
A customer of a banker need not necessarily be a person. A firm, joint stock company, a society or any separate legal entity may be a customer. Explanation to Section 45-Z of the Banking Regulation Act, 1949, clarifies that section “customer” includes a Government department and a corporation incorporated by or under any law.
Since the banker-customer relationship is contractual, a bank follows that any person who is competent to contract can open a deposit account with a bank branch of his/her choice and convenience. For entering into a valid contract, a person needs to fulfill the basic requirements of being a major (18 years of age or above) and possessing sound mental health (i.e. not being a lunatic). A person who fulfils these basic requirements, as also other requirements of the banks as mentioned below, can open a bank account. However, minors (below 18 years of age) can also open savings account with certain restrictions. Though any person may apply for opening an account in his name but the banker reserves the right to do so on being satisfied about the identity of the customer.
By opening an account with the banker, a customer enters into relationship with a banker. The special features of this relationship impose several obligations on the banker. He should, therefore, be careful in opening an account in his name but the banker reserves the right to do so on being satisfied about the identity of the customer. Prior to the introduction of “Know Your Customer (KYC)” guidelines by the RBI, it was the practice amongst banks to get a new customer introduced by a person who has already one satisfactory bank account with the Bank or by a staff member who knows him properly. Most of the banks preferred introduction to be given by a current account holder. Different practices of various banks were causing confusion and sometimes loss to the bank on not opening “properly” introduced account when any fraud took place in the account. A new customer was also facing difficulty in opening an account if he was a new resident of that area. To overcome all these problems and streamline the system of knowing a customer, RBI has directed all banks to adopt KYC guidelines.