Along with interests, the banks also have the right to levy commissions for the services they are rendering for their customers like SMS notification service, multi-city cheque service, retail banking etc.
After sending a written intimation to the customer, the banker has the right to close an account if it is found to be not operated properly.
A customer is a person or a company who has an account in the bank. And the activities anticipated by the customer should be valid and lawful. Any person or entity connected with a financial transaction can pose significant reputation or other risks to the bank, say, wire transfer or issue of a high-value demand draft as a single transaction.
Beneficiaries of transactions conducted by professional intermediaries, such as stockbrokers, chartered accountants, solicitors, etc. The customer has the right to a grievance redressal system if the bank fails to adhere to its basic norms.
The bank is obliged to respect the privacy of the customer by keeping the personal information of the customer confidential. Bankers can only disclose such information in matters of law or with the permission of the customer.
Under this right, the banks should always sell the products by taking into consideration the needs of the customer. The contract between the bank and the customer should be easily understood by the common man. The bank should make the customer aware of the major aspects like interest rates and risk involved etc. It is the responsibility of the bank not to hide anything from the customer before signing the agreement. The customers have the right to not be discriminated against based on caste, creed, gender, sex, religion, etc.
But, the bank can offer schemes which are designated for a particular set of people. There are two main relationships between the banker and customer, they are:. General relationship: it consists of the possible services the banker provides to the customer. And when the customer deposits money in their account, the customer becomes a creditor and the bank becomes a debtor.
The bank can utilise the amount in the way they want. The banks are liable to give the amount back when the depositor demands. Lending money by providing loans is one of the major aspects of banks. They provide loans by charging a particular amount of interest by utilizing the resources mobilized by them.
In this case, the bank becomes a creditor and the customer becomes a debtor. But here, the bank requires security and documents for providing loans. Here the relationship between the bank and the customer is based on trust. When the bank receives a valuable asset or document for security in exchange for the loan provided by the bank, the bank is considered to be a trustee and the customer is considered to be a beneficiary. An agent is a person who acts as the one who is employed to do any act for another or to represent another in dealings with the third person.
The person for whom the work is done or to whom it is represented is called the principal. Bank carry payments to various authorities by collecting cheques, bills on the behalf of the customers. Here bank acts according to the guidelines of the customer and charges for the services rendered to them.
The important term that comes under Section is:. A bailment is a contract where the customer provides a valuable asset or any specific good for a specific period of time to the banker. The customer who entrusts the asset to the banker is a bailer. And the banker to whom the asset is entrusted for a specific time is called a bailee. It is difficult to handle cash. The cheque facility removes this difficulty i. There is no restriction on the number of cheques or on the amount to be drawn at a time by on cheque.
As the reserve at the bank increases, its credit creation power also increases. The banks allow overdraft facilities to the current account holders. Although demand deposit accounts have the above stated advantages, it also initials the following disadvantages A bank should be very careful in entertaining a new customer.
It will be taking great risk if it opens an account of a customer without knowing the where about of the latter. The bank will also a number of other services to the customer like collection of cheques, dividends etc.
When the bank does not adequately know the customer, it may result in wrong payment or encashment of forged cheques. Hence, it is essential that the bank should make a through enquiry regarding the customer before opening an account with him. For this purpose, the bank may follow the procedure given below:. The applicant should fill in the prescribed form for opening of an account form available from the concerned bank.
Banks keep different forms for individuals, partnership firms, companies, etc. The applicant should fill in the relevant form and mention his name, occupation, full address, specimen signature, and other particulars required by the bank.
The banks follows the practice of opening the account only when an existing customer of the bank properly introduces the applicant. This is not, however, practical in Ethiopia at this time. The idea behind proper introduction is that the bank should entertain a person only who is honest, reliable and responsible-such a proper enquiry will prevent fraud and overdraw of money by forged means. The answer is that if the introduction is not taken properly, the banker will invite many risks, which can be discussed as follows.
The applicant is required to give his specimen signature on a card meant for this purpose. This will help to protect the bank against forgery because whenever the cheque is presented at the counter of the bank for payment the signature will be tallied with those on the card.
When the above formalities are completed, the bank will agree to open an account in the name of the applicant. Before opening the account the customer must deposit the minimum initial deposit in cash as per rules framed by the respective bank. The bank issues a chequebook to the customer after the account has been opened and an account number has been allocated. The name of the customer and the account number written on the cheque and delivered to the customer after being registered on the cheque delivery book.
A Chequebook contains a number of blank forms, which can be used by the customer to withdraw money from his account. The blank cheques in the chequebook are serially numbered and designed in such a manner so as to distinguish them from the cheque forms of other banks. Cheques have their counterfoils also which indicate to the customer the amount he has taken or withdrawn from his account.
Every chequebook contains one requisition slip also to facilitate the customer to obtain a new chequebook when the old chequebook has been exhausted or is about to exhaust. To present the misuse of cheques, the bank enters the account number on each cheque and the numbers of cheques in the chequebook are recorded in the bank ledger.
Demand deposits are operated through different types of cheques, which can be discussed as follows:. Deposits to current account can be made in different forms: cash deposits, cheque deposit either local or foreign and transfers local or foreign. Here the customer complete the standard cash deposit voucher. The relevant information such as: namr, account number, branch's name, cash denomination etc. The cheque will be handed over to signature verifier who will in turn check the genuineness of the cheque and pass it to the machine operator to deduct the face value of the cheque from the account.
Before accepting cheque for deposit, check the following After all these formalities are completed the customer's account will be created against the voucher. The customer's account will always be credited after clearance. The clearing procedure is done through head office when the cheque is drawn on another branch of the same bank or clearing house- at national bank when the cheque is drawn on another bank.
All these cheques are normally drawn against accounts maintained with foreign transfers. Transfer of money either local or foreign could be in the form of telegraphic, mail or drafts. The staff responsible should authenticate the genuine of the transfer before proceeds credited to the account.
However, there are times when payments are effected without cheques by customers written instruction and correct order.
In such cases, the bank should ascertain that the instructions given are genuine and made by an authorized person or body. After checking the correctness of the cheque a token is given to the customer.
The cheque will be handed over to the machine operator Accountant to debit deduct the customer's account. Savings deposit account is meant for small businesspersons and individuals who wish to save a little money out of their current incomes to safe guard their future and also to earn some interest on their savings.
A savings account can be opened with a small sum and small amounts can be withdrawn. There are restrictions on the maximum amount that can be deposited in this account and also on the withdrawal from this account. The bank may not permit more than one or two withdrawals during a week and may lay down a limit on the amount that can be withdrawn at one time. This is always described on the inside part of the outer part of the passbook.
Savings account holders are allowed to deposit cheques, drafts, dividend warrants, etc, which stand in their name only. However, the bank does not accept cheques or instruments payable to third party for deposit in the saving deposit account. Banks allow interest on deposits maintained in savings account according to the rates prescribed by the National Bank of Ethiopia. Savings deposit account is very popular among the general public because of the following advantages.
The banker should be very careful in entertaining a new customer as he opens a saving account. The necessary precautions should be taken here like that of the opening of current deposit accounts. The bank may follow the following procedures, in this regard, as given below,. This is a standard format designed by the bank, which replaces personal application. The prospective customers should complete this form. This form is designed to obtain customers signatures at the time of opening account.
Before opening the account the customer must deposit the minimum initial deposit required by the respective banks. The bank issues a passbook to the customer after the account has been owned and an account number has been allocated. The passbooks contain the record of transactions between the bank and the customer.
It is a copy of the account in the bank's ledger as on a particular date. It is written by the bank from its records and is meant for the use of the customer. It is called a pass book because it frequently passes between the bank and the customer. The pass book helps the customer to know the position of his account and know certain items like interest, incidental charges, dividends collected, bills paid, etc.
This will also enable the customer to reconcile his records with that of the banker-used as 'Bank Reconciliation statetment'. Deposits to saving deposit accounts can be made in different forms; cash deposits, cheque deposits and transfers. All other procedures are the same as that of current account deposits. However, the standard cash deposit voucher is unique to savings accounts- a different deposit voucher is prepared- refer to deposits to current account.
Withdrawals made from savings deposit accounts are made against the standard withdrawal voucher. The customer fills the withdrawal voucher, which may include, the following information:. After checking the correctness of the withdrawal voucher, the counter clerk gives a token to the customer. The counter clerk should check the amount in words and figures to be the same, the name of the account holder, the date to be full, and the account number, the signature of the customer against the specimen signature and the genuineness of the presenter through proper identification.
The withdrawal voucher with the passbook is transferred to the journal keeper to check the sufficiency of the credit balance of the customer's account. The journal keeper then transferred the voucher with the passbook to the cashier. The cashier after checking the token number written on the voucher with the token disc, count cash and handover the demanded requested to the customer. The term ' Fixed deposit' means the deposit repayable only after the expiry of a specified period, which ordinarily varies from fifteen days to five years.
Since it is to be repayable only after a fixed period of time, which is to be determined at the time of opening the account, it is also known as time deposit. Deposit: - People, who can afford to keep their money with banks for a certain period without withdrawing it, meanwhile go in for fixed deposits.
Fixed deposits are the most suitable form of raising resources for a commercial bank. Since they are repayable only after a fixed period of time, the bank need not keep cash reserves more than the statutory requirement against these liabilities.
It may employ these funds more profitably by lending at higher rates of interest and for relatively longer periods. It is because of this reason that banks offer higher rates of interest on such deposits. The rate of interest on fixed deposits depends upon the length of the time of the deposit and the amount of deposit.
The longer the period, the higher is the rate of interest offered and vise versa. The principal types of bank time deposits are: savings certificates, money market certificates and certificates of deposits. They are bank liabilities issued in a designated amount, specifying a fixed rate of interest and maturity date.
The interest rate is generally higher than on savings accounts. The main purpose of these accounts is to generate income to the depositor. They are important sources of funds for small, consumer-oriented banks. They are held primarily by consumers or other small depositors. They are designed primarily to service consumers and small businesses.
They help commercial banks to compete effectively with money market funds. The minimum amounts, maturity date and interest rates are determined by bank regulators. Certificates of deposit commonly referred to as CDs, are very large unsecured liabilities of commercial banks issued in verity of denominations to business firms and individuals. They have a fixed maturity date, pay an explicit rate of interest, and are negotiable if they meet certain legal specifications-Negotiable CDs are issued by large, well -known commercial banks of the highest credit standing and are traded actively in a well-organized secondary market;.
CDs are attractive both to holders of large funds and commercial banks. They can be redeemed at any time in the secondary market without loss of deposit funds to the bank. Fixed deposits, after the following benefits to those who have surplus funds to be deposited for a certain period of time without being withdrawn. The rate of interest on fixed deposits is higher than that is higher than that allowed on savings deposit account.
Even though, it is not withdrawn on demand, depositors are allowed to encash their deposit receipts before maturity by foregoing a part of the interest accrued on the deposit, with the agreement of the bank. In order to open a fixed deposit account, depositor is required to fill in an account from available from the bank.
He will also give his specimen signature. After the deposit of the money, the bank will issue a 'fixed deposit receipt ' acknowledging the receipt of the amount specified in the document to be repaid at the expiry of the period mentioned in along with interest at a specified rate per determined. The terms and condition of the fixed deposit are printed on the receipt. If payment under a term deposit is requested before the completion of the period of deposit agreed up on at the time of making of the deposit, the rate of interest payable in respect of such term deposit shall be the one applicable to the period for which the deposit remained with the bank less one percent penalty for a premature withdrawal.
However, in the event of premature withdrawal of a deposit under reinvestment plan, which provided for reinvestment of the interest, as permissible shall be paid on a compounded basis with quarterly or longer rests for the period during which the deposit remained with the bank. Renewal of a deposit before the date of its maturity shall not be regarded as involving premature payment of the deposit provided the deposit is held by the bank after the date of the renewal for a period longer than the remaining period of the original contract.
Requirement or procedures of opening and operation of fixed deposit account can be depicted as follows. Interest rate may be included.
It is usually paid on maturity of the fixed deposit. Relationship of Trustee and Beneficiary :- A trustee holds property for the beneficiary, and the profit earned from this property belongs to the beneficiary.
If the customer deposits securities or valuables with the banker for safe custody, banker becomes a trustee of his customer. The customer is the beneficiary so the ownership remains with the customer. Relationship of Bailor and Bailee :- The relationship between banker and customer can be that of Bailor and Bailee. Bailment is a contract for delivering goods by one party to another to be held in trust for a specific period and returned when the purpose is ended.
Bailor is the party that delivers property to another. Bailee is the party to whom the property is delivered. So, when a customer gives a sealed box to the bank for safe keeping, the customer became the bailor, and the bank became the bailee. Relationship of Advisor and Client :- When a customer invests in securities, the banker acts as an advisor. The advice can be given officially or unofficially.
While giving advice the banker has to take maximum care and caution. Here, the banker is an Advisor, and the customer is a Client. Relationship of Agent and Principal :- The banker acts as an agent of the customer principal by providing the following agency services: Buying and selling securities on his behalf, Collection of cheques, dividends, bills or promissory notes on his behalf.
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