Closing of Bank Account

Published on May 2016 | Categories: Documents | Downloads: 48 | Comments: 0 | Views: 306
of 15
Download PDF   Embed   Report

bank closing account

Comments

Content

1. Bank
Finance is the life blood of trade, commerce and industry. Now-a-days,
banking sector acts as the backbone of modern business. Development of
any country mainly depends upon the banking system.
The term bank is either derived from old Italian word banca or from a
French word banque both mean a ‘bench or money exchange table’. In olden
days, European money lenders or money changers used to display (show)
coins of different countries in big heaps (quantity) on benches or tables for
the purpose of lending or exchanging.
A bank is a financial institution which deals with deposits and advances and
other related services. It receives money from those who want to save in the
form of deposits and it lends money to those who need it.
A bank is a financial intermediary that accepts deposits and channels those
deposits into lending activities, either directly by loaning or indirectly
through capital markets. A bank links together customers that have capital
deficits and customers with capital surpluses.

2. Bank Account
In deposit terminology, the term bank account refers to a financial
arrangement between a depositor or debt holder and a bank. Bank Accounts
are usually made up of various types of deposit accounts and loan accounts.
An account held by an investor at a financial institution. The financial
institution holds the money for the investor, leading to a positive or credit
balance, or loans money to the investor, leading to a negative or debit
balance. Unlike a brokerage account, which allows an investor to buy and
sell securities, a bank account is used for savings. Types of bank accounts
include savings accounts and checking accounts.
For example, a bank account where a credit is maintained is called a deposit
account, while an account to which a customer pays back a debt with the
bank is called a loan account. The most familiar type of deposit account is a
checking or savings bank account, while a loan account is best represented
by a mortgage held by the bank. In addition to mortgages, car loans, business
loans and other types of loans, others include Negotiable Order of
Withdrawal or NOW bank accounts. This pays depositors interest on credit
balances, with the interest rate paid being contingent upon the amount of
money deposited by the account holder.
3. Types of Bank Account-

Traditionally banks in India have four types of deposit accounts, namely
Current Accounts, Saving Banking Accounts, Recurring Deposits and, Fixed
Deposits. However, in recent years, due to ever increasing competition,
some banks have introduced new products, which combine the features of
above two or more types of deposit accounts. These are known by different
names in different banks, e.g 2-in-1 deposits, Smart Deposits, Power Saving
Deposits, Automatic Sweep Deposits etc. However, these have not been
very popular among the public.
a. Current Account
Current Accounts are basically meant for businessmen and are never used
for the purpose of investment or savings. These deposits are the most
liquid deposits and there are no limits for number of transactions or the
amount of transactions in a day. Most of the current accounts are opened
in the names of firm / company accounts. Cheque book facility is
provided and the account holder can deposit all types of the cheques and
drafts in their name or endorsed in their favour by third parties. No
interest is paid by banks on these accounts. On the other hand, banks
charge certain service charges, on such accounts.
Features of Current Accounts(a) The main objective of Current Account holders in opening these
account is to enable them (mostly businessmen) to conduct their business
transactions smoothly.
(b) There are no restrictions on the number of times deposit in cash /
cheque can be made or the amount of such deposits;
(c) Usually banks do not have any interest on such current accounts.
However, in recent times some banks have introduced special current
accounts where interest (as per banks' own guidelines) is paid
(d) The current accounts do not have any fixed maturity as these are on
continuous basis accounts.
b. Saving Account
These deposits accounts are one of the most popular deposits for
individual accounts. These accounts not only provide cheque facility but
also have lot of flexibility for deposits and withdrawal of funds from the
account. Most of the banks have rules for the maximum number of
withdrawals in a period and the maximum amount of withdrawal, but
hardly any bank enforces these. However, banks have every right to
enforce such restrictions if it is felt that the account is being misused as a
current account. Till 24/10/2011, the interest on Saving Bank Accounts

was regulared by RBI and it was fixed at 4.00% on daily balance basis.
However, wef 25th October, 2011, RBI has deregulated Saving Fund
account interest rates and now banks are free to decide the same within
certain conditions imposed by RBI. Under directions of RBI, now
banks are also required to open no frill accounts (this term is used for
accounts which do not have any minimum balance requirements).
Although Public Sector Banks still pay only 4% rate of interest, some
private banks like Kotak Bank and Yes Bank pay between 6% and 7% on
such deposits. From the FY 2012-13, interest earned upto Rs 10,000 in a
financial year on Saving Bank accounts is exempted from tax.

c. Recurring Deposit Accounts
These are popularly known as RD accounts and are special kind of Term
Deposits and are suitable for people who do not have lump sum amount
of savings, but are ready to save a small amount every month.
Normally, such deposits earn interest on the amount already deposited
(through monthly installments) at the same rates as are applicable for
Fixed Deposits / Term Deposits. These are best if you wish to create a
fund for your child's education or marriage of your daughter or buy a car
without loans or save for the future.
Under these type of deposits, the person has to usually deposit a fixed
amount of money every month (usually a minimum of Rs,100/- p.m.).
Any default in payment within the month attracts a small penalty.
However, some Banks besides offering a fixed instalment RD, have also
introduced a flexible / variable RD. Under these flexible RDs the person
is allowed to deposit even higher amount of instalments, with an upper
limit fixed for the same e.g. 10 times of the minimum amount agreed
upon.
These accounts can be funded by giving Standing Instructions by which
bank withdraws a fixed amount on a fixed date of the month from the
saving bank of the customer (as per his mandate), and the same is
credited to RD account.
Recurring Deposit accounts are normally allowed for maturities ranging
from 6 months to 120 months. A Pass book is usually issued wherein
the person can get the entries for all the deposits made by him / her and
the interest earned. Banks also indicate the maturity value of the RD
assuming that the monthly instalents will be paid regularly on due dates.

In case instalment is delayed, the interest payable in the account will be
reduced and some nominal penalty charged for default in regular
payments. Premature withdrawal of accumulated amount permitted is
usually allowed (however, penalty may be imposed for early
withdrawals). These accounts can be opened in single or joint names.
Nomination facility is also available.
d. Fixed Deposit Accounts
All Banks in India (including SBI, PNB, BoB, BoI, Canara Bank, ICICI
Bank, Yes Bank etc.) offer fixed deposits schemes with a wide range of
tenures for periods from 7 days to 10 years. These are also popularly
known as FD accounts. However, in some other countries these are
known as "Term Deposits" or even called "Bond". The term "fixed" in
Fixed Deposits (FD) denotes the period of maturity or tenor. Therefore,
the depositors are supposed to continue such Fixed Deposits for the
length of time for which the depositor decides to keep the money with the
bank. However, in case of need, the depositor can ask for closing (or
breaking) the fixed deposit prematurely by paying paying a penalty
(usually of 1%, but some banks either charge less or no penalty). (Some
banks introduced variable interest fixed deposits. The rate of interest on
such deposits keeps on varying with the prevalent market rates i.e. it will
go up if market interest rates goes and it will come down if the market
rates fall. However, such type of fixed deposits have not been popular till
date).
The rate of interest for Fixed Deposits differs from bank to bank (unlike
earlier when the same were regulated by RBI and all banks used to have
the same interest rate structure. The present trends indicate that private
sector and foreign banks offer higher rate of interest.
The earlier trend that private sector and foreign banks offer higher rate of
interest is no more valid these days. However, now a day’s small banks
are forced to offer higher rate of interest to attract more deposits.
Usually a bank FD is paid in lump sum on the date of maturity. However,
most of the banks have also facility to pay/ credit interest in saving
account at the end of every quarter. If one desires to get interest paid
every month, then the interest paid will be at a marginal discounted rate.
In the changed computerized environment, now the Interest payable on
Fixed Deposit can also be easily transferred on due dates to Savings Bank
or Current Account of the customer.

4. Banker-Customer RelationThe relationship between a banker and a customer depends on the activities;
products or services provided by bank to its customers or availed by the
customer. Thus the relationship between a banker and customer is the
transactional relationship. Bank’s business depends much on the strong
bondage with the customer. “Trust” plays an important role in building
healthy relationship between a banker and customer.
Who is Banker?
The Banking Regulations Act (B R Act) 1949 does not define the term
‘banker’ but defines what banking is?
As per Sec.5 (b) of the B R Act “Banking' means 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."
As per Sec. 3 of the Indian Negotiable Instruments Act 1881, the word
“banker includes any person acting as banker and any post office savings
bank”.
Sec.5(c) of BR Act defines "banking company" as a company that transacts
the business of banking in India. Since a banker or a banking company
undertakes banking related activities we can derive the meaning of banker or
a banking company from Sec 5(b) as a body corporate that:
(a) Accepts deposits from public.
(b) Lends or
(c) Invests the money so collected by way of deposits.
(d) Allows withdrawals of deposits on demand or by any other means.
Accepting deposits from the ‘public’ means that a bank accepts deposits
from anyone who offers money for the purpose. Unless a person has an
account with the bank, it does not accept deposit. For depositing or
borrowing money there has to be an account relationship with the bank. A
bank can refuse to open an account for undesirable persons. It is banks right
to open an account. Reserve Bank of India has stipulated certain norms
“Know Your Customer” (KYC) guidelines for opening account and banks
have to strictly follow them.
In addition to the activities mentioned in Sec.5 (b) of B R Act, banks can
also carry out activities mentioned in Sec. 6 of the Act.

Who is customer?
The term Customer has not been defined by any act. The word ‘customer’
has been derived from the word ‘custom’, which means a ‘habit or tendency’
to-do certain things in a regular or a particular manner’s .In terms of Sec.131
of Negotiable Instrument Act, when a banker receives payment of a crossed
cheque in good faith and without negligence for a customer, the bank does
not incur any liability to the true owner of the cheque by reason only of
having received such payment. It obviously means that to become a
customer account relationship is must. Account relationship is a contractual
relationship.
It is generally believed that any individual or an organisation, which
conducts banking transactions with a bank, is the customer of bank.
However, there are many persons who do utilize services of banks, but do
not maintain any account with the bank.
The relationship between a banker and his customer depends upon the nature
of service provided by a banker.
In addition to its primary functions(Accepting deposits and lending and/or
investing), Bank deals with various customers by providing other services
like safe custody services, safe deposit lockers, and assisting the clients by
collecting their cheques and other instruments as an agent and trustees for
them.
So, based on the above a banker customer relationship can be classified as
under:
(i) Debtor/Creditor
On the opening of an account the banker assumes the position of a debtor.
He is not a depository or trustee of the customer’s money because the money
over to the banker becomes a debt due from him to the customer.
The money deposited by the customer with the banker is, in legal terms, lent
by the customer to the banker, who makes use of the same according to his
discretion. The creditor has the right to demand back his money from the
banker, and the banker is under and obligation to repay the debt as and when
he is required to do so.A depositor remains a creditor of his banker so long
as his account carries a credit balance. But he does not get any charge over
the assets of his debtor/banker and remains an unsecured creditor of the
banker

(ii) Creditor/Debtor
Banker’s relationship with the customer is reversed as soon as the
customer’s account is overdrawn. Banker becomes creditor of the customer
who has taken a loan from the banker and continues in that capacity till the
loan is repaid. As the loans and advances granted by a banker are usually
secured by the tangible assets of the borrower, the banker becomes a secured
creditor of his customer.
(iii) Bailee/Bailer
Banks secure their advances by obtaining tangible securities. In some cases
physical possession of securities goods (Pledge), valuables, bonds etc., are
taken. While taking physical possession of securities the bank becomes
bailee and the customer bailor. Banks also keeps articles, valuables,
securities etc., of its customers in Safe Custody and acts as a Bailee. As a
bailee the bank is required to take care of the goods bailed.
(iv)Trustee
Ordinarily, a banker is a debtor of his customer in respect of the deposits
made by the latter, but in certain circumstances he acts as a trustee also. A
trustee holds money or assets and performs certain functions for the benefit
of some other person called the beneficiary. For example, if the customer
deposits securities or other valuables with the banker for safe custody, the
latter acts as a trustee of his customer.
(v) Agent/Principal
Thus an agent is a person, who acts for and on behalf of the principal and
under the latter’s express or implied authority and the acts done within
such authority are binding on his principal and, the principal is liable to
the party for the acts of the agent.
Banks collect cheques, bills, and makes payment to various authorities’
viz., rent, telephone bills, insurance premium etc., on behalf of
customers. . Banks also abides by the standing instructions given by its
customers. In all such cases bank acts as an agent of its customer, and
charges for these services. As per Indian contract Act agent is entitled to
charges. No charges are levied in collection of local cheques through
clearing house. Charges are levied in only when the cheque is returned in
the clearinghouse.

5. Procedure for closing of bank account
Maintaining a bank account involves keeping a minimum balance, ensuring
that there are frequent transactions, and paying maintenance and other
charges for the services it offers. It is a challenge to retain multiple savings
accounts, both operationally as well as economically.
Hence, it is advisable to close a bank account unless you expect a banking
relationship in the near future. The common reasons for closing an account
are change in residence or employer, dissatisfaction with the services or an
alteration in the residential status of the account holder.
Procedure
Banks prescribe a standard form for closing a bank account, which needs to
be filled up citing the reason for closure. All the account holders must also
sign the closure form.
Documents
The account closing form should be accompanied by unused cheques and
cheque books, as well as debit and ATM cards associated with the account.
Alternatively, the bank may ask the account holder to destroy the debit/ATM
cards instead of returning them to the bank.
Balance payment
The account holder can specify the mode of refund of the balance lying in
the account that is being closed. The options typically include cash,
manager's cheque, demand draft or a credit to another account with the same
bank.
Points to note
Banks may impose a charge for closing an account.
As per the current rules, if the account balance at the time of account closure
exceeds Rs 20,000, the payment is made by manager's cheque.
The banks that provide 3-in-1, linked, depository, trading or investment
accounts linked to the savings account also provide a combined account
closure form for ending all the linked accounts.
6. Termination of Banker Customer relationshipBanker-customer relationship is a contractual relationship between two
parties and it may be terminated by either party on voluntary basis or
involuntarily by the process of law.

Modes of termination of banker-customer relationshipa. Voluntary Termination

The customer has a right to close his demand deposit account because of
change of residence or dissatisfaction with the service of the banker or for
any other reason. A customer directs the banker in writing to close his
account, the banker is bound to comply with such direction or request.
The banker also may decide to close an account, due to an unsatisfactory
conduct of the account or because it finds the customer undesirable for
certain reasons. However, a banker can close an account only after giving
a reasonable notice to the customer such cases of closure of an account at
the instance of the banker are quite rare.
b. If banker desire to close the account
If an account remains un-operated for a very long period, the banker may
request the customer to withdraw the money. Such step is taken on the
presumptions that the customer no longer needs the account. If the
customer could not be traced after reasonable effort, the banker usually
transfers the balance to an ―Unclaimed Deposit Account, and the
account is closed.
The balance is paid to the customers as and when he is traced.
The banker should take the following steps for closing such an account.
 The banker should give to the customer due notice of his intention to
close the account and request him to withdraw the balance standing to
his credit. This notice should give sufficient time to the customer to
make alternative arrangements. The banker should not, on his own,
close the account without such notice or transfers the same to any
other branch.
 If the customer does not close the account on receipt of the aforesaid
notice, the banker should give another notice intimating the exact date
by which the account be closed otherwise the banker himself will
close the account. During this notice period the banker can safely
refuse to accept further credits from the customer and can also refuse
to issue fresh cheque book to him. Such steps will not make him liable
to the customer and will be in consonance with the intention of the
notice to close account by a specified date.

c. Termination by law

The relationship of a banker-customer can also be terminated by the
process of law and by the occurrence of the following events:
 Death of customer: On receiving notice or information of the death of
a customer, the bank stops all debit transactions in the account.
However, credits to the account can be permitted. The balance in the
account is given to the legal representative of the deceased after
obtaining the letters of administration, or succession certificate, or
indemnity bond as per the prescribed procedure, and only then, the
account is closed.
 Bankruptcy of customer: An individual customer may be declared
bankrupt, or a company may be wound up under the provisions of law.
In such an event, no drawings would be permitted in the account of
the individual/company. The balance is given to the Receiver or
Liquidator or the Official Assignee and the account is closed
thereafter.
 Garnishee Order: After receiving a garnishee order from a court or
attachment order from income tax authority, the account can be closed
as one of the options after taking the required steps.

 Insanity of the customer: A lunatic/person of unsound mind is not
competent to contract under Section 11 of the Indian Contract Act,
1872. Since banker-customer relationship is contractual, the bank will
not honour cheques and can close the account after receiving notice
about the insanity of the customer and receiving a confirmation about
it through medical reports.


PROJECT WORK SUBMITTED ON BEHALF OF
PARTIAL FULFILMENT OF REQUIREMENT OF THE
DEGREE OF B.A. L.L.B(H)

BANKING LAW PROJECT WORK
“CLOSING OF BANK ACCOUNT; TERMINATION OF BANKERCUSTOMER RELATIONSHIP”

Submitted toDr Bhupendra Gautam
Banking Law faculty

Acknowledgment

Submitted by
Gurpreet Singh
A11911111029,
Section A
Semester 7

I Gurpreet Singh student of Amity Law School-2, Noida semester 7,
section-A want to express my special thanks and gratitude to Dr
Bhupendra Gautam for entitling me this project work on “Closing of a
Bank Account - Termination of Banker-Customer Relationship”. While
researching on this topic I came to know about so many new things.
Secondly I would also like to thank my parents and friends who helped
me a lot in finalizing this project within the limited time frame.
Thank you.

Table of Content
1.
2.
3.
4.
5.
6.
7.

Bank
Bank of account
Types of bank account
Banker-Customer relationship
Procedure of closing account
Termination of banker-customer relation
Bibliography

Bibliography
1. Deposit.org
2. Scribd..com/doc
3. Slideshare
4. Class notes by Dr Bhupendra Gautam

Sponsor Documents

Or use your account on DocShare.tips

Hide

Forgot your password?

Or register your new account on DocShare.tips

Hide

Lost your password? Please enter your email address. You will receive a link to create a new password.

Back to log-in

Close