Opening accounts of various types of customers: An Overview

Opening accounts of various types of customers: Jaiib Paper 1 (Module B) Unit 6

Dear bankers,

As we all know that  is Opening accounts of various types of customers for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are providing the Opening accounts of various types of customers(Unit-6), FUNCTIONS OF BANKS (Module B), Principle & Practice of Banking JAIIB Paper-1.

♦Opening accounts of various types of customers

A banker deals with different types of customers like Individuals, Partnership firms, Companies, co- operative societies etc. While opening and in the conduct of accounts of these persons, the banker has to comply with the law application to each of them. Bankers also open current accounts for proprietory concerns, partnership firms, Companies, limited liability partnership firm etc.

♦Personal Accounts

Accounts of Individual

  • An individual can be a person holding a bank account for personal use. Such customers must comply with existing regulations and bankers must ensure that they do not open and use bank accounts for illegal purposes. The customer should be properly introduced to the bank. The introduction is necessary for terms of banking practice and also for the purpose of protection.

Joint Account Holder

A joint account is an account opened by two or more persons. Instruction for opening the account may be any one of the following:

  • Either or Survivor
  • Both Jointly
  • Former or Survivor
  • Anyone or Survivor

Rules for Claim of Joint Account

  • On the death of any of the joint account holders, the survivors are entitled to the  whole account.
  • No right of set off can be exercised in the case of a joint account for the amounts due to the bank in the an individual capacity.
  • A deposit made by a Hindu of his money jointly with his wife or any other person, payable to either or survivor, does not, on his death, constitute a gift by him to the other person. The deposit amount in the absence of anything to the country, should be presumed to belong to the husband and should therefore pass on the legal heirs of the husband, including the wife who is the survivor.

Accounts of Minor

  • A minor is a person who has not completed eighteen years of age. Any contract entered by minor is void and is not enforceable by law. As per section 11 of the Indian Contract Act 1872, “when the age of maturity has been provided by law to be 18 years, any person less than that age, even by a day, would be a minor in law”. This prevents minor to acquire property, dispose property or enter into any type of agreement.
  • Guardian means a person having the care of the person of a minor or of his property or both person and property. Guardians may be categorised into following three types:
  • Natural guardian
  • Testamentary Guardian
  • Legal Guardian appointed by a court

♦Accounts of other Customer

Hindu Undivided Family (HUF)

  • Hindu Undivided Family (HUF) is not defined under the Income Tax Act but is covered under the Hindu Law. By definition, HUF consists of all individuals who are lineally descended from a common ancestor and also comprises of unmarried daughters. HUF is not formed by a contract but by the status of a family i.e., it is created automatically in any Hindu Family. Having a common ancestor is a pre-requisite to form a HUF.

Create HUF

There are 3 steps involved in creating a HUF. They are mentioned below:

Step 1: Create A HUF Deed

  • It is a formal legal document on a stamp paper which clearly states the names of the ‘Karta’ and the co-parceners (other members). In addition to this, another declaration is provided by each family member where they declare the name of ‘Karta’ and agree that
  • the ‘Karta’ has the right to monitor all the transactions of the HUF account on their behalf
  • the members declared in the deed are the only members of the HUF
  • the ‘Karta’ has the authority of the HUF account

Step 2: Apply For HUF PAN Card

  • The HUF is considered as a separate entity for tax purposes, it needs to have a separate PAN card. You need to fill the form 49A to apply for the PAN Card. It can be done both offline as well as online.

Step 3: Open HUF Bank Account

  • A HUF needs to have a separate bank account which will get all the payments. It can be opened in any bank.

Partnership Firm Account

  • Section 4 of the Indian Partnership Act, 1932 defines a partnership as a relationship subsisting between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

How should be the agreement between partners formed?

  • Partnership deed is an agreement between the partners in which rights, duties, profits shares and other obligations of each partner is mentioned.
  • Partnership deed can be written or oral, although it is always advisable to write a partnership deed to avoid any conflicts in the future.

Following details are required in a partnership deed:

(A)General Details:

  1. Name and address of the firm and all the partners
  2. Nature of business
  3. Date of starting of business Capital to be contributed by each partner
  4. Capital to be contributed by each partner
  5. Profit/loss sharing ratio among the partners

(B)Specific Details:

Apart from these, certain specific clauses may also be mentioned to avoid any conflict at a later stage:

  1. Interest on capital invested, drawings by partners or any loans provided by partners to firm
  2. Salaries, commissions or any other amount to be payable to partners
  3. Rights of each partner, including additional rights to be enjoyed by the active partners
  4. Duties and obligations of all partners
  5. Adjustments or processes to be followed on account of retirement or death of a partner or dissolution of firm.
  6. Other clauses as partners may decide by mutual discussion

Limited Companies

  • Company is legal entity and can open accounts in the same way as any other person. There are three types of Limited Companies:
  • Public Ltd
  • Private Ltd
  • Government Companies: Where 51% of the share are held by the government. The word “limited” is not required to follow the company’s name in such companies.
Features Public  limited company Private limited company
Minimum members 7 2
Minimum directors 3 2
Maximum members Unlimited 200 Section 2(68)
Minimum capital 5 lakhs(Section 3,(i),(iv) of the company Act, 1956) 1 lakh
Invitation to public Yes No
Issue of prospectus Yes No
Quorum at AGM 5 Members 2 Members
Certificate for commencement of Business ( Mandatory) Yes No
Term used at the end of name Limited Private Limited
Managerial remuneration No restriction Can not exceed more than 11% of Net Profits
Statutory meeting (Mandatory) Yes No

Note: For Banking in Private limited Maximum number allowed is 20-Section 3 (i) (iii)of the companies act 1956.

Trusts

  • Mr X wants to pass his bungalow (property) to Mr Y for the benefit of his minor granddaughter. Mr X passes his property to Y, because he reposes(has) confidence on Y. This is nothing but the essence of a trust.
  • In simple words, a trust is nothing but transfer of property by the owner (Mr X) to another person on whom the owner has confidence (Mr Y) for the benefit of a third person (Granddaughter of X).

Who are the Parties in a Trust?

  • Author/Settlor/Trustor/Donor (Mr X): The person who wants to transfer his property and reposes confidence on another for the creation of the trust.
  • Trustee (Mr Y): The person who accepts the confidence for the creation of the trust
  • Beneficiary (Mr X’s granddaughter): The person who will benefit from the trust in the near future.

What are the objectives of a trust in general?

  • The main objective is that the trust should be created for a lawful purpose.
  • For example, if Mr X had stolen money from a bank and given it to Mr Y with the intention of giving the money to poor children then, in this case the trust itself is void as the very main purpose* is unlawful.
  • So how do we actually understand as to whether the purpose is lawful or unlawful? The answer to it lies in Section 4 of the Act.

As per Section 4, all purposes are said to be lawful unless it:

  • Is forbidden by law
  • Defeats the provisions of law
  • Is fraudulent
  • Involves injury to another person or his property
  • Immoral or against to public policy

Who can create a Trust?

A trust may be created by:

  • Every person who is competent to contracts: This includes an individual, AOP, HUF, company etc
  • If a trust is to be created by on or behalf of a minor, then the permission of a Principal Civil Court of original jurisdiction is required.
  • Further, it also depends on the law in force that is prevailing at that particular point of time and the extent to which the author of the trust may intend to dispose of his property.

Which are the types of trusts that can be created?

  • Private Trusts: A private trust is for a closed group. In other words, the beneficiaries can be identified. Eg: A trust created for the relatives and friends of the author.
  • Public Trusts: A public trust is created for a large group ie. the public in large.   Eg: Non-Profit NGO’s Charitable Institutions for the general public.

What are the registration mandates for a Private Trust?

Section 5 of the Act states that with respect to:

  • Immovable property: A private trust must be created by a non-testamentary instrument in writing. Further, the non-testamentary instrument needs to be signed by the author of the trust or the trustee and has to be registered. However, if the non-testamentary instrument is created by a will, registration is not necessary.
  • Movable property:  A trust in relation to movable property can be declared as in the case of immovable property or by transferring the ownership of the property to the trustee. Hence, registration is not mandatory.

♦Nomination Facility

  • The Banking Regulation Act, 1949 has been amended by section 37 of the Banking law (Amendment) Act, 1983 by introducing new section 45 ZA to ZF which provide, inter alia, for information facilities to Banks customer in respect of deposit account, safe deposits, safe vault lockers. The relevant rules framed by the central government with reference to the above sections are termed “the banking companies (nominations) rules 1985” These rules  have come in force with effect from 29 march 1985.

Nomination should be made by the depositor or all depositors in the prescribed format.

  • Form DA-1– for making nominations by the depositors,
  • Form DA-2–  for cancellation of the said nominations to be made by the depositors.
  • Form DA 3- for variations of the said nominations to be made by the depositors.

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