Page 74 - DCOM208_BANKING_THEORY_AND_PRACTICE

Unit 5: Banker Customer Relationship

4. Bailee-Bailor: When a bank accepts article for safe custody, its legal position is that of Notes
bailee, who is duty-bound to take us much care of the goods bailed to him as man of
ordinary prudence would, under similar circumstances, take of his own similar goods.
Sec. 152 of the same act says that the bailee, in absence of any contract to the contrary is not
responsible for any loss if the bailee has taken care as required in terms of sec. 151 of the
Act (as narrated in the immediately preceding sentences). Bailee has right of particular
lien in terms of sec. 170 of Indian Contract Act, which says that bank has right goods bailed
until he receives remuneration for his services rendered in respect of them, unless there is
a contract to the contrary.

Example: When someone drops a car off with a mechanic for a tune up. In this case, the
driver is the bailor, as the car legally belongs to the driver while the mechanic has the car in
physical custody for the agreed upon service.

5. Lessor-Lessee: On hiring out of locker, bank becomes lessor and the hirer a lessee and the
relationship is that of landlord and tenant. The lessor is not responsible for any loss or
damage suitable clause to the effect is also incorporated in the Lease Deed and hire are
advised, in their own interest, to insure their valuables deposited in locker.

5.2 KYC Norms

“Know your Customer” is a term used for customer identification which involves making
reasonable efforts to determine true identity and beneficial ownehip of accounts, source of
funds, the nature of customer’s business, fairness of operations in the account in relation to the
customer’s business, etc. so as to help the banks to manage their risks cautiously.

5.2.1 Objectives

The objectives of the policy are to prevent criminal elements from using the bank for money
laundering activities by enabling the bank to know/undetand the custome and their financial
dealings better, which, in turn, would help the bank to manage risks prudently and to lay in
place appropriate controls for accounting and spotting of wary activities in accordance with the
established operations so as to abide by with applicable laws and regulatory guidelines.
KYC has two components - Identity and Address. The banks need to periodically change their
records since although the identity remains the same, but the address may change.
The framework of KYC norms mainly incorporates the following four key elements:

Customer Acceptance Policy;
Customer Identification Procedures;
Monitoring of Transactions; and
Risk Management.
1. Customer Acceptance Policy: The Bank will:

i. classify custome into various risk categories and based on risk perception decide on
acceptance criteria for each category of custome;
ii. accept custome after verifying their identity as laid down in Customer Identification
Procedures;
iii. not open accounts in the name of anonymous/fictitious/benami peon(s); and

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