PPB Unit AChapter Notes3–4 Marks Expected

Duties & Rights of a Banker and Customer Rights

Principles & Practices of Banking | Unit A · Chapter 18

Covers the banker's duty of secrecy and its 4 exceptions, garnishee orders, 5 bank rights, BCSBI history and its 2 codes, and customer obligations — essential for legal-framework MCQs.

By Bankopedia.co.inUpdated 2026JAIIB PPB · Module A

📌 Why This Chapter Matters in JAIIB

Expect 3–4 questionsfrom this chapter every attempt. The duty of secrecy, garnishee order mechanics, BCSBI dissolution date, and the "what is NOT a bank right?" trap appear regularly. Customer obligations are a rising MCQ source.

Section 1

Duty of Secrecy & Confidentiality

The duty of secrecy arises from the implied contractual relationship between the bank and customer — not from any specific banking secrecy statute. It is not absolute but qualified: banks are protected only when disclosure falls within one of four legally permissible circumstances.

Not absolute — qualified dutyBasis: implied contractDuty is contractual & legal

🧠 Mnemonic — CDIP ("Courts Demand Instant Permission")

C — Compulsion of Law

D — Duty to Public

I — Interest of Bank

P — Permission (consent)

"Courts Demand Instant Permission" — the 4 situations where disclosure is protected.

#	Exception	Key Details
C	Compulsion of Law	Banker's Books Evidence Act 1891 (Sec 4 & 6): certified copies = prima facie evidence, no original books needed. Civil/Criminal Court Summons: must comply; produce only what is called for. Income Tax Act 1961 (Sec 133): IT officer can call for books; intimation to customer required. Others: Companies Act 2013, RBI Act 1934, FEMA, Gift Tax Act.
D	Duty to Public	Customer dealing in terrorism, drug trafficking, smuggling, anti-national activities. "Public interest" is deliberately vague — must be carefully considered.
I	Interest of Bank	Disclosure to guarantors/their solicitors for recovery. General info to co-bankers about default accounts (protected by banking custom). Under CIC (Regulation) Act 2005, Sec 15(1): every credit institution must join at least one CIC within 3 months; all must join ALL CICs.
P	Permission (Consent)	At the request or explicit instruction of the customer. Express or implied consent.

⚠️ MCQ 2 Trap

Telling an IT officer balance over a telephone inquiry = NOT authorised (no formal written order). Telling a wife the husband's balance = NOT authorised. Teller speaking balance aloud = NOT authorised. Attachment order in writing under IT Act + advice to customer = authorised (answer: b).

Section 2

Duty of Reasonable Care & Garnishee / Attachment Orders

Duty of Reasonable Care

Bank acts as agent / bailee / trustee depending on the service. It must exercise reasonable care and diligence. If the customer suffers loss due to bank's negligence, the customer may claim specific damages from the bank.

18.3

Garnishee / Attachment Order — Key Rules

Who is a garnishee? A debtor who owes money. A bank is the garnishee in respect of its deposit accounts (it owes the depositor).

On receipt of an order: Immediately stop debit operations in the attached account + intimate the customer.

If the order is for a limited amount < credit balance: Two options —

→Transfer the attached amount to a sundry deposit account; then resume operations in the rest of the balance.
→Open a fresh account for the customer — garnishee order has no prospective operation (only applies to existing balance at time of order), until the new account is freshly attached.

Order issued in	Applies to
Single name of debtor	That individual account only — does NOT apply to joint accounts of that debtor with others
Joint names of debtors	Applies to joint account AND to individual accounts of those same debtors

Section 3

Bank's Rights

🧠 Mnemonic — LSAIC ("Lenders Secure Assets In Contracts")

L — Lien (General & Particular)

S — Set-Off

A — Appropriation of Accounts

I — Interest / Commission

C — Close / Terminate Relationship

18.4.1

Bank's Lien

A bank holds a general lien over all assets of the customer in its possession (in the absence of a contract to the contrary) — e.g., fixed deposits, securities left for safe custody. It does NOT extend to contents of a safe deposit locker (since the bank has no possession of the contents).

⚠️ MCQ 4 — Lien on Locker Contents?

Mr. Z has a clean overdraft, fixed deposit AND a locker. Answer: (a) bank has general lien only on the fixed deposit — NOT on locker contents (bank does not possess the contents). Safe deposit locker contents are outside general lien.

18.4.2–3

Right of Set-Off & Right of Appropriation

Set-Off: Bank may apply a customer's credit balance to discharge a debt owed by that customer to the bank. Both debts must be in the same name, certain, and due.

Appropriation: When a customer pays money without specifying how to appropriate it, the bank may appropriate it to any debt — including a time-barred debt. If the bank makes no choice, the law applies it to the earliest debt (Clayton's Rule).

18.4.4

Right to Charge Interest or Commission

Normally, charged as per the agreed terms at the time of granting the facility. If no agreement exists, the bank is entitled to charge interest/commission as per prevailing market practice.

Section 4

Termination of Bank–Customer Relationship

Mode	Trigger	Bank's Action
Voluntary (customer)	Customer requests closure (change of residence, dissatisfaction, etc.)	Bank must comply with request
Voluntary (bank)	Unsatisfactory account conduct or undesirable customer	Give reasonable notice before closing
Death	Notice/information of customer's death	Stop debits; credits permitted. Pay balance to nominee OR legal rep (letters of administration / succession certificate / indemnity bond)
Bankruptcy / Liquidation	Individual declared bankrupt; company wound up	No drawings permitted; balance to Receiver / Liquidator / Official Assignee
Garnishee Order	Court or IT Authority attachment	Stop debit operations; intimate customer; close as one option after required steps
Insanity	Customer declared lunatic / unsound mind (Sec 11, Indian Contract Act 1872)	Stop honouring cheques; close account after notice + medical report confirmation

⚠️ Exam Trap — Insanity

An insane person is not competent to contract under Sec 11, Indian Contract Act 1872 — not the Banking Regulation Act. The bank needs both: a notice of insanity AND a confirmation via medical report before closing.

Section 5

Banking Codes and Standards Board of India (BCSBI)

BCSBI Timeline (all dates are MCQ-ready)

November 2003
RBI constitutes CPPAPS under S.S. Tarapore (former Deputy Governor) — recommends setting up BCSBI on the model of UK's Banking Codes and Standards Board.
18 February 2006
BCSBI registered as a society under the Societies Registration Act, 1860. An independent banking industry watchdog.
1 July 2006
Code of Bank's Commitment to Customers issued (in collaboration with IBA). Revised August 2009, 2014, and 2018.
31 May 2008
Code of Bank's Commitment to Micro and Small Enterprises (MSE Code) released. Revised 2015 and 2022.
1 April 2019
BCSBI discontinued operations (dissolved). RBI set up Consumer Education and Protection Department (CEPD) + issued Charter of Customer Rights (CoCR) + strengthened Ombudsman mechanism.
Post 2019 — Codes remain applicable
BCSBI is gone but both Codes continue to apply. RBI evaluates customer service compliance against these Codes in its monitoring and supervision.

Dimension	Code 1 — Commitment to Customers	Code 2 — Commitment to MSEs
Issued	1 July 2006	31 May 2008
Revised	Aug 2009, 2014, 2018	2015, 2022
Target customers	Individual customers	Micro and Small Enterprises (as defined under MSMED Act 2006)
Products covered	Deposits, Lockers, Deceased accounts, Forex, Remittances, Loans/guarantees, Credit cards, Internet banking	All Code 1 products PLUS: Letters of Credit, Bills, Factoring services, Merchant Services
Nature	Voluntary acceptance by member banks; unilateral commitment; minimum standards; not legally enforceable but RBI monitors compliance

7 Key Commitments Under the BCSBI Codes

1.Act fairly and reasonably in all dealings with target customers
2.Help customers understand how financial products and services work
3.Help customers use their account or service
4.Deal quickly and sympathetically with things that go wrong
5.Treat all personal information of customers as private and confidential
6.Publicise the Code
7.Adopt and practice a non-discrimination policy

⚠️ MCQ 5 Trap

"To sanction loan facility as per the customer's request" is NOT a BCSBI commitment — answer: (b). The bank commits to fairness and help, not to granting whatever the customer asks for.

BCSBI Grievance Redressal Structure

• Help desk / helpline at each branch.

• Display at each branch: name and contact number of the Code Compliance Officer.

• Code Compliance Officer (CCO) at each controlling office above branch level.

• Display name and address of the Banking Ombudsman at each branch.

• Escalation path: Branch help desk → CCO → Banking Ombudsman.

• Information transparency: clear info on interest rates, tariff, T&C; "Do not call" registered when relationship starts.

Section 6

Obligations on the Customer

BCSBI Codes impose no obligations on customers — acceptance is voluntary and unilateral by the bank. However, customers using banking services have independent duties arising from legal/regulatory requirements and IT security obligations.

#	Customer Obligation
1	Provide required documents and information including personal info for KYC
2	Keep passbook, cheque book, and debit card safely
3	Keep User ID and password for all channels confidential
4	Inform bank promptly about any unauthorised transaction noticed in the account
5	Not allow any third party to use own bank account for its transactions
6	Not provide personal/account info, User ID, password, OTP to anyone purporting to call on behalf of the bank
7	Not click on any link received through emails, SMS, etc. for accessing the bank's website
8	Sign all cheques, forms, and letters to the bank as per the specimen signature provided
9	Use non-home branches only for permitted transactions and only when essential
10	Register own mobile number and email ID with the bank to get instant alerts
11	Not store important banking data in mobile, email, or in purse / wallet
12	Change online banking password and PIN regularly
13	Use debit/credit cards only at authorised ATMs or merchant establishments
14	Request to block ATM Card, Debit Card, Credit Card, or Prepaid Card if lost / stolen
15	Use only verified, secure, and trusted websites for online banking transactions

Section 7

Master Summary & Exam Strategy

#	Concept	Key Fact
1	Basis of duty of secrecy	Implied contractual relationship — NOT a specific statute
2	4 exceptions (CDIP)	Compulsion of law / Duty to public / Interest of bank / Permission
3	Banker's Books Evidence Act	Sec 4 & 6 — certified copies as prima facie evidence
4	IT Act disclosure	Sec 133 — intimate customer; no info to be volunteered
5	CIC membership	All credit institutions must join ALL CICs; within 3 months of Act commencement
6	Garnishee — single name	Does NOT apply to joint accounts
7	Garnishee — joint names	Applies to individual accounts of those same debtors too
8	Limited garnishee amount	Transfer attached amount to sundry deposit A/c OR open fresh account
9	Garnishee prospective?	NO — order has no prospective operation; new account safe until freshly attached
10	Lien on locker contents	NO — bank does not possess the contents; general lien = fixed deposits etc.
11	Insanity — legal basis	Sec 11, Indian Contract Act 1872
12	Insanity — bank action	Stop cheques; close after notice + medical report confirmation
13	Death — credits permitted?	YES — only debit transactions are stopped on death notice
14	Bankruptcy balance goes to	Receiver / Liquidator / Official Assignee
15	Bank closing account	Must give reasonable notice to customer first
16	BCSBI set up on recommendation of	SS Tarapore Committee (CPPAPS), constituted Nov 2003
17	BCSBI registered	18 February 2006 under Societies Registration Act 1860
18	Code 1 issued	1 July 2006; revised Aug 2009, 2014, 2018
19	Code 2 issued	31 May 2008; revised 2015, 2022
20	BCSBI dissolved	Effective 1 April 2019
21	Replaced by	RBI's CEPD + Charter of Customer Rights (CoCR)
22	Codes after dissolution	Still applicable; RBI monitors compliance
23	Code 2 extra products vs Code 1	Letters of Credit, Bills, Factoring, Merchant Services
24	Code compliance officer — display	Name + contact number at each branch; CCO at each controlling office above branch
25	"Do not call" service	Registered when relationship with customer starts
26	BCSBI codes — obligations on customer?	NONE — codes are unilateral commitment by bank only

Check Your Progress — Answers Explained

Q1 — (c) contractual relationship

No specific banking secrecy law exists in India. The duty arises from the implied contract between banker and customer.

Q2 — (b) IT attachment order under advice to customer and IT Dept

A formal written attachment order under Income Tax Act, advised to the customer, is legally permissible. A telephonic inquiry, a wife asking for husband's balance, or a teller speaking aloud are all impermissible disclosures.

Q3 — (d) giving details to an informal recovery firm

Sharing loan details with a guarantor, informing CIBIL, or the bank's own lawyer issuing a legal notice are all protected disclosures in the bank's interest. Sharing with an informal recovery service that is not the customer's legal representative is NOT appropriate.

Q4 — (a) general lien only on the fixed deposit

Bank has general lien over assets in its possession — fixed deposits qualify. Safe deposit locker contents are in the customer's custody inside the bank's locker, so the bank has no possession of the contents and hence no lien.

Q5 — (b) to sanction loan facility as per the customer's request

BCSBI commits to fairness, help, information, and grievance redressal — not to approving every loan. Sanctioning is a credit decision, not a customer service commitment.

✅ Exam Strategy — Chapter 18

1.Secrecy duty = contractual, not statutory. Four exceptions = CDIP. One question almost guaranteed.
2.IT Act Sec 133 needs a written order + customer intimation. Telephonic inquiry = not valid.
3.Garnishee single name → only individual account. Joint name → individual accounts of those debtors too.
4.Garnishee order has NO prospective operation — new account is safe until freshly attached.
5.Lien does NOT extend to locker contents (bank has no possession of what's inside).
6.Insanity = Sec 11 Indian Contract Act 1872 (not Banking Regulation Act). Medical report needed to close.
7.BCSBI dates: Registered 18 Feb 2006; Code 1 = 1 Jul 2006; Code 2 = 31 May 2008; Dissolved = 1 Apr 2019.
8.BCSBI succeeded by CEPD + Charter of Customer Rights. Codes still apply.
9.Code 2 covers everything in Code 1 PLUS: L/C, Bills, Factoring, Merchant Services.
10.BCSBI Codes impose zero obligations on customers — bank's voluntary unilateral commitment only.

Duties & Rights of a Banker and Customer Rights

Duty of Secrecy & Confidentiality

Duty of Reasonable Care & Garnishee / Attachment Orders

Garnishee / Attachment Order — Key Rules

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