Process customer account

Who is a customer?
A person becomes a customer of a bank when he/she goes to the bank with money or
cheques and asks to have an account opened in his/her name and the bank accepts the money
or cheque and is prepared to open an account in the name of that person, after which he/she
is entitled to be called a customer of the bank. So, a customer is clearly someone who uses
the services of a bank
Definition of customer
     The term customer is not defined by law. Ordinarily, a person who has an account in a
bank is called a customer.
Acc 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
     Thus to constitute a customer, the following essential requisites must be fulfilled:
1)      He must have some sort of an account.
2)      Even a single transaction constitutes a customer.
3)      The dealing must be of a banking nature.
     A customer need not be a person. A firm, joint stock company, a society or any separate
legal entity may be a customer
Meaning of Commercial Banks:
A commercial bank is a financial institution which performs the functions of accepting deposits
from the general public and giving loans for investment with the aim of earning profit.
In fact, commercial banks, as their name suggests, are profit-seeking institutions, i.e., they do
banking business to earn profit.
They generally finance trade and commerce with short-term loans. They charge high rate of
interest from the borrowers but pay much less rate of Interest to their depositors with the result
that the difference between the two rates of interest becomes the main source of profit of the
banks. The two most distinctive features of a commercial bank are borrowing and lending, i.e.,
acceptance of deposits and lending of money to projects to earn Interest (profit). In short, banks
borrow to lend. The rate of interest offered by the banks to depositors is called the borrowing rate
while the rate at which banks lend out is called lending rate. The difference between the rates is
called ‘spread’ which is appropriated by the banks. Mind, all financial institutions are not
commercial banks because only those which perform dual functions of (i) accepting deposits and
(ii) giving loans are termed as commercial banks. For example post offices are not bank because
they do not give loans.
Special Customer of banks
Banks solicit deposit of money from the members of the public. Any person who is legally
capable of entering into a valid contract may apply in the proper way to deposit his money with
the bank.
A bank’s special customers are generally minors, married women, illiterate persons, lunatics,
blind people, drunkards, insolvents etc who are not competent to open such accounts. There are
also impersonal customers like schools, clubs, partnership firm, joint stock companies etc.
certain precautions are to be taken by banks while opening accounts in the name of the following
customers.
 
Minor
A minor is a person who has not attained the age of 18 and in case a guardian is appointed.
Minors are regarded “pet children of law
Some of the precautions to be taken by the banker on opening and operating account of a minor
are-
1) The banker may open a SB account but not a current account as it incurs no liability to
the minor.
2) At the time of opening of account of minor, the bank should record the genuine date of
birth of the minor. Banker should insist on to give some schooling record or date of
birth as entered in Births and Deaths Register.
3) Minors are allowed to open such accounts when they have completed a particular age
say twelve years in some banks and ten years in some others.
4) Banks should prudent to issue cheque books only to minors of, say sixteen or seventeen
years of age.
5)      Accounts for illiterate minors are not opened in their single name.
6)      As a measure of precaution, banks adopt a general rule not to accept deposit exceeding
a particular sum.
7)      Since a contract with a minor is void and cannot be enforced against him in Court of
 law, a minor’s account should never be allowed to be overdrawn.
8)      A guarantee obtained to secure the money borrowed by a minor is also of no avail.
However, if the guarantor undertakes to indemnify he will be held liable though
borrower is minor.
Lunatics
Lunatics are persons of unsound mind. Lunatics are disqualified from contracting but the
disqualification does not apply to contract entered by lunatics during their period of sanity.
Following are banker’s duty n case of lunatics
1. Since a lunatic has no capacity to contract, no banker knowingly opens an account in the
name of a lunatic
2. If an existing customer becomes insane, the banker must immediately stop the operation
of the account. It is so because, the banker has no right to debit his account for payment
made out of his account from the moment, the banker knows the fact of lunacy of
customer, the contract between them is void.
3. A banker must not be carried away by hearsay information or rumours. He must get
definite information about the lunacy of the customer.
4. If a banker dishonours a cheque in a hurry, without having any proof of lunacy, he will
be liable for wrongful dishonour of cheque.
5. It should return all cheques of customer’s account with the word ‘refer to drawer’ and
not ‘customer insane’. It should make careful note of lunacy order
Illiterates
An illiterate person is competent to contract and bank may open an account in his name, but
special care should be taken by the banker before opening an account.
1. The account of an illiterate person may be opened provided he/she calls the bank
personally along with a witness who is known both to the banker and the depositor.
2. A passport size photograph of the illiterate person is identified before the banker in
presence of the account holder. The photographs have to be attested by the bank
officer/ witness.
3. The left hand thumb impression in case of male illiterate and right hand thumb
impression in case of female illiterate are duly attested by some responsible person on
the account opening form.
 4. One or two identification marks of the depositor should be noted on the account
opening form.
5. The illiterate person should be provided with a passbook which should also contain
an attested photograph of the illiterate person.
6. Normally, no cheque book facility is provided on accounts in the name of illiterate
persons.
7.   At the time of withdrawal/repayment of deposit account the account holder should
attend personally with passbook and attest his/her thumb impression or mark in the
presence of an authorized person.
8. The thumb impression of illiterate person on the withdrawal form or cheque (if
provided), and on the back of the withdrawal form or cheque should be duly
compared with the specimen impression kept by the bank
1) Primary Functions of Banks

The primary functions of a bank are also known as banking functions. They are the main
functions of a bank. Thus the two essential functions that make banks as financial institutions are
accepting deposits from the public and lending.

a) Accepting Deposits

The most important activity of a commercial bank is to mobilize deposits from the public. People
who have surplus income and savings find it convenient to deposit the amounts with banks.
Depending upon the nature of deposits, funds deposited with bank also earn interest. Thus,
deposits with the bank grow along with the interest earned. If the rate of interest is higher, public
are motivated to deposit more funds with the bank. There is also safety of funds deposited with
the bank. These deposits can be of different types, such as: Fixed/Time Deposits, Saving
Deposits, Current Deposits and Recurring Deposits.

Fixed/Time Deposits
Fixed deposits or Time deposits are with the bank for a specified period of time and they can be
withdrawn only after the expiry of the said period. The interest rate depends on the time agreed
upon. The longer the maturity period, the higher the interest rate and vice versa. Form the point
of view of safety and interest, fixed deposits are preferable.
Saving Deposits
Savings deposits are those deposits received subject to certain restrictions. For instance, the
interest is normally lower on savings deposits; withdrawals may be made once or twice a week.
Current Deposits
Current deposit or demand deposits as they often called are those deposits withdrawable by the
depositor at any time without any prior notice by means of cheques. The banks do not pay any
interest on demand deposits, but in fact make a small charge on customers with current account.
Recurring Deposits
Recurring deposits are those deposits received by the banks in equal monthly premium for a
certain number of years the total of which will be paid to the depositor with interest due thereon
after the expiry of the date of maturity.

b) Granting of Loans and Advances

The second important function of a commercial bank is to grant loans and advances. Such loans
and advances are given to members of the public and to the business community at a higher rate
of interest than allowed by banks on various deposit accounts. The difference in the interest rates
(lending rate and the deposit rate) is its profit. The rate of interest charged on loans and advances
varies according to the purpose and period of loan and also the mode of repayment. The types of
bank loans and advances are: overdraft, cash credits, loans and discounting of bill of exchange.
Loans
A loan is granted for a specific time period. Generally commercial banks provide short-term
loans. But term loans, i.e., loans for more than a year may also be granted. The borrower may be
given the entire amount in lump sum or in installments. Loans are generally granted against the
security of certain assets. A loan is normally repaid in installments. However, it may also be
repaid in lump sum.
Advances
An advance is a credit facility provided by the bank to its customers. It differs from loan in the
sense that loans may be granted for longer period, but advances are normally granted for a short
period of time. Further the purpose of granting advances is to meet the day-to-day requirements
of business. The rate of interest charged on advances varies from bank to bank. Interest is
charged only on the amount withdrawn and not on the sanctioned amount.
Types of Advances
Banks grant short-term financial assistance by way of cash credit, overdraft and bill discounting.
i) Cash Credit
Cash credit is an arrangement whereby the bank allows the borrower to draw amount up to a
specified limit. The amount is credited to the account of the customer. The customer can
withdraw this amount as and when he requires. Interest is charged on the amount actually
withdrawn. Cash Credit is granted as per terms and conditions agreed with the customers.
ii) Overdraft
Overdraft is also a credit facility granted by bank. A customer who has a current account with the
bank is allowed to withdraw more than the amount of credit balance in his account. It is a
temporary arrangement. Overdraft facility with a specified limit may be allowed either on the
security of assets, or on personal security, or both.
ii) Discounting of Bills
Banks provide short-term finance by discounting bills that is, making payment of the amount
before the due date of the bills after deducting a certain rate of discount. The party gets the funds
without waiting for the date of maturity of the bills. In case any bill is dishonored on the due
date, the bank can recover the amount from the customer.

2) Secondary Functions of Banks

In addition to the primary functions of accepting deposits and lending money, banks perform a
number of other secondary functions, which are also called non-banking functions. These
important secondary functions of banks are explained below.
Agency Functions

The bank acts as an agent of its customers. The bank performs a number of agency
functions for its customers in return for a commission. The agency services
provided by the banks are:

(i) Transfer of funds – the bank provides facility for cheap and easy remittance of funds
from place to place via instruments such as the demand drafts, mail transfers,
telegraphic transfers, etc.
(ii) Collection of funds – the bank undertakes to collect funds on behalf of its customers
through instruments such as cheques, demand drafts, bills, etc.
(iii) Purchase and sale of shares and securities on behalf of customers.
(iv) Collection of dividends and interest on shares and debentures on behalf of customers.
(v) Payment of bills and insurance premium as per customer’s directions.
(vi) Acting as executors and trustees of wills.
(vii) Provision of income tax consultancy and acceptance of income tax payments of
customers.
(viii) Acting as correspondent, agent or representative of customers as well as securing
documentation for air and sea passage.

General Utility Functions

In addition to agency services, the modern banks provide many general utility services such as:
i) Locker Facility: Banks provide locker facility to their customers. The customers can keep
their valuables and important document in these lockers for safe custody.
ii) Traveler’s cheques: Banks issue traveler’s cheques to help their customers to travel without
the fear of theft or loss of money. With this facility, the customers need not take the risk of
carrying cash with them during their travels.
iii) Letter of Credit: Letters of credit statistics giving important information relating to
industry, trade and commerce, money and banking. They also publish journals and bulletins
containing research articles on economic and financial matters.
iv)Underwriting Securities: Banks underwrite the securities issued by the government, public
or private bodies (agreeing to partly or fully purchase the whole or the unsold portion
respectively of new issue of securities) and private placement of securities (selling securities not
through the open market, but privately to selected entities)
Requirement to open an account

For natural persons the following information should be obtained, where applicable:

 legal name and any other names used (such as maiden name);
 correct permanent address (the full address should be obtained; a Post Office box number
is not sufficient);
 telephone number, fax number, and e-mail address;
 date and place of birth;
 nationality;
 occupation, public position held and/or name of employer;
 an official personal identification number or other unique identifier contained in an
unexpired official document (e.g. passport, identification card, residence permit, social
security records, driving licence) that bears a photograph of the customer;
 type of account and nature of the banking relationship;
 Signature.

The bank should verify this information by at least one of the following methods:

 confirming the date of birth from an official document (e.g. birth certificate, passport,
identity card, social security records);
 confirming the permanent address (e.g. utility bill, tax assessment, bank statement, a
letter from a public authority);
 contacting the customer by telephone, by letter or by e-mail to confirm the information
supplied after an account has been opened (e.g. a disconnected phone, returned mail, or
incorrect e-mail address should warrant further investigation);
 Confirming the validity of the official documentation provided through certification by
an authorized person (e.g. embassy official, notary public).

Because of its full faith in banks, the public will not hesitate in buying securities carrying the
signatures of a bank.
v) Acting as Reference: Banks may be referred for seeking information regarding the financial
position, business reputation and respectability of their customers.
vi) Foreign Exchange Business: Banks also deal in the business of foreign currencies. Again,
they may finance foreign trade by discounting foreign bills of exchange.

Termination of the Agreement and Closure of the Bank Account

1. Either the Customer or the Bank may terminate the Bank Account Agreement by
providing a notice period of one month. The notice period of the termination commences
on the date on which the notice is delivered to one of the parties.
2. An Agreement that has been concluded for a definite period terminates on the deadline
until which it was concluded.
3. The Bank may terminate the Agreement in accordance with paragraph 1 for important
reasons, and in particular:
1/ a gross breach of the provisions of the Bank Account Agreement or these Regulations
by the Customer,
2/ use of the bank account contrary to generally applicable laws,
3/ no funds were paid into account for one month from its opening and a zero account
balance is maintained,
4/ the account shows no turnover for more than three months (excluding interest
accrual), where the account balance does not cover fees and commissions for holding
the account,
5/ unauthorized debit balance unpaid, with interest, on the date set by the Bank,
6/ the Customer provided untrue information when entering into the Bank Account
Agreement,
7/ the Customer takes action that are harmful for the Bank,
8/ a petition is filed for the Customer’s bankruptcy or liquidation, restructuring or
enforcement proceedings are instituted or the Customer’s solvency is at risk,
9/ when the Customer is entered in the list published on the official website of Polish
Financial Supervision Authority, containing the Authority’s public warning against
dishonest entrepreneurs (applies also when the Customer is entered in the list
published on the official website of Authority’s foreign counterpart, containing the
finance regulatory authority’s public warning against dishonest entrepreneurs).
4. In the case of joint accounts, a Customer who is one of the joint account holders cannot
terminate the Bank Account Agreement by sending an individual termination notice. In
such a situation, the termination document must be signed by all joint account holders. A
joint account holder may effectively terminate the Agreement only with a power of
attorney granted by all remaining joint account holders.

1. The termination of the Bank Account Agreement by either Party is made in writing and is
signed by persons authorized to make declarations of will regarding the property rights and
obligations of the parties. In the case of termination of Agreement by the Bank, the
Customer is notified of the reason for the termination.
2. At the moment of terminating the Agreement the Bank informs the Customer of the
balance of the account, requests for filing an instruction to settle it within
14 days from the day of receiving the letter from the Bank and requests the return of
payment cards and unused cheques issued by the Bank.
3. At the moment of terminating the Agreement, the Customer is obliged to return all
payment cards and unused cheques issued by the Bank, while the Bank may block the
payment cards issued to the Customer.
4. In the case of lack of return of:
 1/ payment cards – the Bank may block them immediately,
2/ unused cheques – the Customer presents the Bank with a written declaration providing
the reason for this along with the cheque numbers.
5. At the moment of terminating the Bank Account Agreement the Bank closes the
Customer’s account.
6. Before closing the account, the Bank calculates the interest due to the Customer and
collects the interest, commissions and fees due to the Bank.
1. If the Customer failed to provide instruction on administering the positive balance of the
closed account within the date specified in § 60 paragraph 2, this balance shall be posted
to a non-interest bearing interim account and placed at the Customer’s disposal.
2. If the account is closed by way of a court decision, the balance of the closed account shall
be transferred in accordance with the instruction contained in this verdict.
3. Claims under Bank Account Agreement expire after two years.

The Customer is responsible for the fulfillment of all liabilities that emerged during the Bank
Account Agreement and which are related to its performance.