LPB-Module: 2 CUSTOMERS & ACCOUNT HOLDERS

Introduction:

Customer

Customer is a person who has an account either savings account, current account, term deposit account or maintains any similar relationship with a banker such as deposit cash to others account, makes DD, deposits cheques to others account etc.

Account Holder:

Account Holder is any person designated and authorized to perform business on behalf of an account. Each account holder’s signature needs to be on file with the bank. The signature authorizes that person to conduct business on behalf of the account.

A deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder.

Types of Bank Deposit Account

Bank deposit accounts may be classified as follows:

i) Savings Bank Account

ii) Current Deposit Account

iii) Fixed Deposit Account

iv) Recurring Deposit Account

v) No Frills Saving Account

i) Savings Bank Account

A Savings bank account is the most common operating account for individuals and others for non-commercial transactions. A Savings account helps people to put through day-to-day banking transactions besides earning some return on the savings made.

Characteristics of Savings Bank Accounts

1. Best suited for all classes of persons.

2. Internet Banking/ATM/Mobile Banking Facilities are available.

3. Liberal withdrawal facilities.

4. No Income Tax deduction at source on interest.

5. Minors above 10 years can open and operate the account.

6. Nomination facility is available

7. Quarterly Average Minimum Balance to be maintained in SB accounts is Rs.1000/- with Cheque Book facility and Rs.500/- without Cheque Book facility.

ii) Current Deposit Account

Current Account is the type of deposit account which facilitates the unlimited transactions. The current account holder gets the overdraft facility. Opening of current account is restricted to businessmen, companies or institutions.

Characteristics of Current Accounts

1. Current account with unlimited banking transaction facilities.

2. Minimum balance to be maintained is Rs. 3000/- for rural branches and Rs.5000/- for others.

3. Monthly statement of accounts made available.

4. Standing instructions for remittances of insurance premium, rent and similar payments carried out.

5. Internet Banking Facility is available.

6. Opening of current account is restricted to businessmen, companies or institutions.

iii) Fixed Deposit Account

The term fixed deposit means that the fixed amount of money deposits in a bank for a fixed period of time by considering a fixed interest rate. This is a type of investment of money for long period.

Characteristics of Fixed Deposit Account

1. Term of FD can range from 15days to 5years.

2. The interest can be compounded quarterly, half-yearly or annually and varies from bank to bank.

3. Minimum deposit amount is Rs 1000/- and there is no upper limit.

4. One can get loans up to 75- 90% of the deposit amount from banks against FD receipts.

5. One can break the FD in case of emergency monetary requirement but it involves loss of interest.

6. Tax will be deducted at the source, if the interest exceeds Rupees 10,000 per year.

iv) Recurring Deposit Account

The Recurring deposit account is an account in the bank where an investor deposits a fixed amount of money every month for a fixed tenure (mostly ranging from one year to five years). This scheme is meant for investors who want to deposit a fixed amount every month, in order to get a lump sum after some years.

Characteristic of Recurring Deposit Accounts

1. Recurring deposit for periods ranging from 12 to 120 months with fixed monthly remittances.

2. No Income tax deducted at source.

3. Premature withdrawal is permitted.

4. Minors above 10 years can open accounts in their name independently subject to the maturity value not exceedingRs.2,00,000/-.

v) No Frills Saving Account

No Frills Savings Account allows to bank with a zero minimum balance requirement. No Frills’ Savings Account which offers all the basic banking facilities with no additional charge.

Characteristic of No-Frills Saving Account

i) Individuals of 18 years and above earning a gross income of Rs.5000/- p. m. or less.

ii) Mode of operation is single or joint.

iii) Initial deposit amount is Rs.50/- to open the account.

iv) Minimum balance is NIL.

v) Maximum balance/ amount is Rs.10,000/-, being the total value of business connection of the account holder, including other deposit accounts.

vi) Cheque book and Debit Card facilities are available.

Procedure in opening Bank Accounts

The various steps to be followed in opening bank account are:

Step-1: Decide the Type of Bank Account you want to open

There are several types of bank accounts such as Saving Account, Recurring Account, Fixed Deposit Account and Current Account. So, a decision regarding the type of account to be opened must be taken.

Step-2: Approach any Bank of choice & meet its Bank Officer

Once the type of account is decided, the person should approach a convenient bank. He has to meet the bank officer regarding the opening of the account. The bank officer will provide a proposal form (Account Opening Form) to open bank account.

Step-3: Fill up Bank Account Opening Form – Proposal Form

The proposal form must be duly filled in all respects. Necessary details regarding name, address, occupation and other details must be filled in wherever required. Two or three

specimen signatures are required on the specimen signature card. If the account is opened in joint names, then the form must be signed jointly. The banks ask the applicant to submit copies of his latest photograph for the purpose of his identification.

Step-4: Give the details of Introducer for Opening your Bank Account

The bank normally required introduction of the prospective account holder by any of the existing account holders for that type of account. The introducer introduces by signing his specimen signature in the column meant for the purpose.

Step-5: Submit Bank Account Opening Form and Documents

The duly filled in proposal form must be submitted to the bank along with necessary documents such as documents for identity proof and address proof. In case of a joint stock company, the application form must accompany with the Board’s resolution to open the account. Also, certified copies of articles and memorandum of association must be produced.

Step-6: Officer will verify your Bank Account Opening Form

The bank officer verifies the proposal form. He checks whether the form is complete in all respects or not. The accompanying documents are verified. If the officer is satisfied, then he clears the proposal form.

Step-7: Deposit initial amount in newly opened Bank Account

After getting the proposal form cleared, the necessary amount is deposited in the bank. After depositing the initial money, the bank provides a pass book, a cheque book and pay in slip book in the case of savings account. In the case of fixed deposits, a fixed deposit receipt is issued. In the case of current account, a cheque book and a pay in slip book is issued. For recurring

Types of Account Holders

The various types of Account holders are:

1. Minor

2. Joint Account Holder

3. Partnership Firm

4. Joint Stock Company

5. Executor and Administrator

6. Trustees Account

7. Clubs and Associations

8. Joint Hindu Family or Hindu Undivided Family(HUF)

Definition of Minor

According to Section 3 of the Indian Majority Act 1875 “Minor is a person who has not completed the age of 18 years.”

Precautions to be taken by the Banker while opening an account for Minor is a person who has not completed the age of 18 years. The Banker has to take certain precautions while opening and maintaining an account with a minor:

i) It is not advisable for a banker to open a current account in the name of minor since it is likely to be overdrawn, in which case, the minor will not be personally liable for such overdraft. Therefore, the banker can open a savings bank account in the name of a minor either in the name of the minor himself or in the joint names of the minor and the guardian or in the name of the guardian.

ii) When the banker opens an account in the name of a minor or in the joint names of the minor and his guardian, he should consider the followings: a) He should make sure that the minor has attained the age of judgment. It is the age at which the minor is able to understand what he does.

b) He should make sure that the minor is able to read and write English, Hindi or any regional language. c) He should allow the minor to operate his account so long as it shows a credit balance.

iii) It is always advisable for a banker to open a minor’s account in the name of his natural or legal guardian. In case the natural guardian is not available the court may appoint somebody connected to the minor as his guardian, and such a guardian is called the legal guardian.

iv) The banker should obtain the specimen signature of the guardian who is to operate the account. He should take down the birth date of the minor in the account opening form, and note down the same in the ledger and in the passbook.

v) In the event of the death of the minor, the money will be paid to his guardian. In the event of the death of the minor on his attaining majority or to any other person appointed by the Court as his guardian.

vi) A minor can be appointed as an agent and authorized to operate the account of his principal.

Joint Account Holder

A Joint Account is an arrangement where an account is opened in the name of two or more persons such as father and son, husband and wife, trustees, executors etc. Persons who open an account jointly are called as Joint Account Holders.

Precautions to be taken while opening an account in the name of Joint Account Holder

(i) The application form must be signed by all who wish to open an account.

(ii) A mandate containing name or names of persons authorized to operate an account.

(iii) If all the persons are operating the account, then banker must see that any cheque drawn on him is duly signed by all.

(iv) Banker must stop operating an account as soon as a notice of death, insolvency, insanity etc., of any one account holder is received.

(v) A mandate containing the name or names of survivor must be obtained.

(vi) A mandate stating the name of person authorized to overdraw account is to be obtained.

(vii) Banker must stop making payments as soon as letter of revocation is obtained,

(viii) If such a letter is received, then banker must obtain the specimen signatures and names of new people authorizing for operation of an account.

(ix) Banker must see that no loan or overdraft is granted without proper security.

Partnership Firm

Partnership Firm is a firm which is established and operated by two or more persons and shares profit and loss with an agreed ratio. The persons who establish the business are called partners.

Precaution to be taken a banker while opening an account for Partnership Firm

i) A partnership account must always be opened in the name of the firm and not in the name of the individual partner/partners.

ii) When a partner retires, his liability to outside parties ceases in respect of all transactions entered into after his retirement. If the banker is not informed, the retiring partner will continue to be liable.

iii) If a partner does something which is not related to the kind of business carried on by the firm, other partners will not be liable for losses/ debts incurred.

iv) At termination the debts of the firm shall be settled out of the assets of the firm and the surplus is to be applied to paying the debts of the partners.

v) If a cheque payable to the partnership is endorsed by a partner and is deposited by him to be credited to his personal account, the transaction should be done only after checking with all the other partners.

vi) If the documents are signed by the partners individually as well as jointly creditors of the firm can recover their debts all together.

Joint Stock Company

Joint Stock Company is defined as an artificial person, recognized by law, with a common capital, common seal comprising of shares of fixed value, having limited liability and carrying perpetual existence.

Precautions to be taken while opening an account in the name of Joint Stock Company

i) The certificate of incorporation which is often termed birth certificate must be obtained by the banker.

ii) In case of Public Limited Company, a certificate of commencement issued by the Register of Joint Stock Company must be obtained.

iii) Banker must also obtain Memorandum of Association which contains important clauses and Articles of Association which contains rules and regulations for internal management.

iv) In case of existing company, the banker must obtain the recent copies of profit and loss account and balance sheet to judge the financial position of the company.

v) An application form for opening an account with the signatures of all Board of directors must be obtained.

vi) Names and signatures of directors authorised to operate the account must be obtained.

vii) Banker must see that company’s funds are not misappropriated by Directors of the company for their personal benefit.

viii) In case the directors want to raise any loans, the banker must verify the borrowing powers of the directors by consulting the Articles o f Association.

ix) Banker must accept the securities which are registered with Registrar.

Executor

Executor is a person for whom testator (owner of the property) makes a will. The certified copy of the final will is called Probate. Probate is granted only to an executor appointed by a will.

Administrator

Administrator is a person for whom court makes a certificate of ownership of property. When a person dies without making any will, the court makes a letter of administration for the beneficiary. The beneficiary is called an administrator.

Precautions to be taken by Banker

i) The banker must verify the Probate of will in the case of executor and letter of administration in the case of the Administrator.

ii) The banker must be careful to ensure there is no misappropriation.

iii) The banker should not permit transfer of amount to the personal accounts of executors/ administrators.

iii) If an executor/administrator dies and he is one of the joint signatories of an account, cheques issued should not be Dishonored because his powers are vested in the surviving executors/administrators.

iv) Bankers cannot exercise their right to set off of the debit balance against the credit balance in the executor’s personal account.

(v) If the executor requires a loan to make payments before receipt of the probate, the advances are made on the personal security of the executor.

(vi) If a loan is given all the executors should sign.

Trustees Account

Trustee is a person who take care of others property. He/She is appointed to administer or manage the trust property for the benefit of beneficiaries. A banker can open an account in the name of such trustee.

Precautions to be taken while opening an account in the name of Trustee

a) A trust deed which states the powers and functions of trustees must be obtain by the banker

b) In case of death or retirement of one or more trustees, banker must see the provision of the trust deed.

c) In case of insolvency of trustee, trust property is not to be touched for making payment to the creditors of trustee.

d) The banker should not allow the transfer of funds from trust account to the personal account of trustee.

e) The banker must thoroughly examine the trust deed as certain to the borrowing powers of the trustee.

f) In case of charitable trust, a banker should open an account only after its registration.

Clubs and Associations

Clubs or associations are the organization composed of people who voluntarily meet on a regular basis for a mutual purpose other than educational, religious or financial activities. Club or association is any kind of group that has members who meet for a social, literary or political purpose such as health clubs, country clubs, book clubs and women’s associations.

Precautions to be taken while opening an account in the name of Clubs or Associations

(i) Banker must verify that the club is incorporated under a Legal Act and obtains separate legal entity.

(ii) An application form with the signatures of all committee members must be obtained.

(iii) Names and address of persons authorized to operate an account must be obtained.

(iv) Banker must obtain the regulations of the institution.

(v) Banker must see that members do not use money for their personal benefit.

(vi) Banker must take care while debiting or crediting the personal account of committee members.

(vii) If any overdraft is asked for, banker must see that borrowing powers of members are as in the charter of club.

(viii) Banker must see that change in authorized person to operate the account is immediately notified to them.

Joint Hindu Family or Hindu Undivided Family (HUF)

Hindu Undivided Family is an extended family arrangement, consisting of many generations living under the same roof. The family is headed by a person, usually the oldest male called “Karta”, who makes decisions on economic and social matters on behalf of the entire family.

Precautions to be taken by the Banker while opening an account for HUF

i) The Banker should take all the details of the Karta and the family and take the signatures of all the concerned.

ii) The Banker should insist on the instructions about the persons who are authorized to operate the account of the family.

iii) The Banker has to be very cautious and must take all the necessary undertakings before granting a loan or advance to either Karta or the coparceners.

iv) A HUF declaration that has been signed by all the persons affirming the composition of the HUF, its karta and names and relationship of all persons including minor sons and their dates of birth;

v) A HUF deed (if any)

vi) The account is opened in the name of the karta or in the name of the HUF business;

vii) Certified true copies of the IT Returns for the last two/ three years.

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