Bankers’ Rights in India

In our previous article, we understood CUSTOMER RIGHTS POLICIES FOR BETTER BANKING. At the same time, the obligations between Banks and their customers are reciprocal. Commercial Banks in India also enjoy the following six rights;

• Right to charge interest

The banks in India have the right to charge interest on the loans and advances sanctioned to customers. Interest is usually charged monthly, quarterly, semiannually or annually. The borrowers shall promptly pay the interest charged by the bank along with repayment of the principal loan or advance as per sanction terms.

•  Right to levy commission and service charges

Besides charging interest on loans and advances, banks also have the right to levy a commission and service charges for the services rendered. The service rendered by the bank might be an SMS notification service, retail banking, and so on. Banks can also debit these charges from the customer’s bank account. This includes Service Charges for Prepaid Cards, Outward RTGS and NEFT, ECS outward and inward charges, Penal Charges for non-compliance of terms of sanction of credit facilities, Foreign Exchange Related Services Charges, Safe Deposit Locker / Safe Custody maintenance charges, ATM fees, Debit card and credit card charges etc.

• Right of Lien

Another important right enjoyed by banks is the Right of Lien. Bankers in the absence of a contract to the contrary, retain the security for the general balance of an account, any goods bailed to them; but no other persons have a right to retain the security for such balance, goods bailed to them unless there is an express contract to that effect.

Section 171 of the contract act provides that Banker’s lien will extend to all other pledges with the bank and the banker can retain the pledged goods, even if the debtor has not cleared his amount in connection with another loan. Thus, Banks are entitled to exercise a general lien or right of retention over securities belonging to the customer whom the bank holds until all the dues from the customer are fully paid. To know more read: MEANING OF BANKER’S LIEN, NEGATIVE AND OTHER TYPES OF LIENS EXPLAINED.

• The Right of Set-off:

The banker’s right to combine different accounts of a person against the debt it holds against the same person is called the right to set off. The right of set-off is available to the bank only when the money owed to the bank is a certain sum, which should be due at the time of set-off and there shall not be an agreement, express or implied to the contrary. To know more Read: RIGHT OF SET-OFF AND THE IMPORTANT REQUIREMENT TO INITIATE THE SAME

• Right of Appropriation:

 Appropriation means the ‘application’ of payments. In the case of a creditor and a debtor, Sections 59 to 61 of the Indian Contract Act, of 1872, lay down certain rules regarding the appropriation of payments. When a debtor pays an amount to the creditor, the creditor is to take note of these sections before applying the payment to a particular debt, because the creditor would be inclined to appropriate payments to the debt which is not likely to be realized easily. If both parties do not specify the appropriation then the law would take responsibility and appropriate accordingly. If that set-off amount is insufficient to discharge all loans, the bank has the right to first appropriate the amount deposited to any loan, even to a time-barred debt. But the customer should be informed on the same.

To learn more read: RIGHT OF APPROPRIATION AND THE RULE IN CLAYTON’S CASE?

• Right to Close the Account

If the customer’s account is not properly maintained, banks have all the right to close the account by sending a notice to the customer. Without sending a written notice, bankers have no right to close the account.

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