Definition of Banker and Customer

Banker

There are three different definitions of Banker which covers essential and secondary functions of Banker.

1. Dr. Herbert L. Hart defines a Banker as, “one who in the ordinary course of business, honors cheques drawn upon him by persons from and for whom he receives money on current account”. As per this definition, the receiving of deposits of money from the public and repaying the same by honoring their cheques are their essential functions to be performed by a person to become a banker. But in the modern days a banker is performing a number of other functions.
2. Sir John Paget defines as, “no person or body corporate or otherwise, can be a banker who does not 1) take deposits accounts, 2) take current accounts, 3) issue and pay cheques and 4) collect cheques crossed and uncrossed, for his customers”. Though this definition covers all essential functions of a banker, it doesn’t consider subsidiary services provided by banks to their customers.
3. Accounting to the Banking Regulation Act, 1949 the term banking company means, “a company which transacts the business of banking in India”. In order to know the meaning of the term banking company, it is essential to define the term Banking. The term banking has been defined under section Section 5(b) of banking Regulation Act as “accepting, for the purpose of lending or investment, of deposits of money from the public repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise”

          The Important features of Banking Definition are as follows:

1.  Acceptance of Deposits from the Public
2.  Acceptance of deposits must be for the purpose of lending or investment
3.  Time of Repayment
4.  Mode of Repayment

The Banking Regulation Act specifies the various functions to be carried on by a banking company under Section 6. At the same time, the Act prohibits a banking company from undertaking trading activities (Section 8). According to Section 7 of the Act, every banking company must use as part of its name the words Bank, banking or banker. This same section prohibits the use of such words by companies other than those engaged in the business of banking.

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Customer

Ordinarily, Customer means a person who has an account with a banker. But Sir John Paget says that, “To constitute a customer there must be some recognizable course or habit of dealing in the nature of regular banking business”. This is popularly known as “Duration Theory”.

According to Dr. Hart, “a customer is one who has an account with a banker or for whom a banker habitually undertakes to act a such”. This definition has been confirmed by the Kerala High Court in the case of Central Bank of India Ltd., Bombay Vs. Gopinathan Nair and Others. In this case, the judge observes that,

“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 person whose money has been accepted on the footing that the banker will honor his cheques up to the amount standing to hid credit irrespective of his connection being of short or long standing”.

From the above definitions, it is clear that the following conditions must be satisfied by a person to become a customer:

1.  He must open an account in a bank.
2.  He must have dealing with a banker.
3.  The dealing must be in the nature of banking business. Here, the term banking business denotes only the essential business performed by a banker and not the subsidiary functions.
4. The dealing may be of short or long duration.

In brief, a single transaction is sufficient to constitute a customer. In other words, frequency of dealing with a banker in the past is not necessary for a person to become a customer. But he may be expected to have regular and continuous dealings with the banker in the future. A customer need not always be an individual. In other words, firms, companies, co-operative societies, trusts, statutory corporations, institutions and Government departments may also become customers of a bank.

Now you would be able to distinguish the difference between Banker vs Customer based on the above features and definition of Banker and Customer.

Categories: Banking Basics, Key Differences, Tutorials