Rights and Duties of Bankers
The rights protect the bank's money. The duties protect the customer. Recovery work uses both.
A bank has rights that protect its money and duties that protect its customer. The rights let it hold a defaulter's goods, adjust one account against another and decide which debt a payment clears. The duties make it keep the customer's affairs secret, pay cheques when there is money and look after anything left in its care.
Recovery agents use the rights every day, often without knowing their names. The duties matter just as much, because breaking them while collecting a debt exposes the bank and the agent to complaints.
You save ₹200
- Full 100-question mocks
- Recovery law coverage
- Module-wise practice
One payment, no subscription · Valid for 2 months
Rights of a Banker
- General lien
- The right to keep a customer's goods or securities, which came to the bank in its role as banker, until the customer's dues are paid. Section 171 of the Indian Contract Act, 1872 gives bankers this right for a general balance of account, unless a contract says otherwise. It is a right to hold, not to sell.
- Right of set-off
- The right to combine two accounts of the same customer in the same capacity and use a credit balance in one to reduce a debit in another. Example: a borrower's personal loan is overdue and the same person has money in a savings account at that bank. Banks usually give notice before exercising it.
- Right of appropriation
- The rule on which debt a payment clears when a customer owes more than one. Sections 59 to 61 of the Contract Act set the order: the customer chooses first; if the customer does not, the bank may choose; if neither does, the payment clears debts in order of time.
- Right to charge interest and fees
- A bank may charge interest on loans and fees for services, as agreed in the loan papers and disclosed in its schedule of charges.
Duties of a Banker
- check_circleDuty of secrecy: a bank must keep a customer's account details confidential. Banking practice recognises limited exceptions: when the law requires disclosure, when there is a duty to the public, when the bank's own interest requires it (for example, suing to recover a loan), and when the customer consents.
- check_circleDisclosure under law in practice: the Prevention of Money-laundering Act, 2002 requires banks to keep records and report prescribed transactions to the Financial Intelligence Unit. That is a lawful disclosure, not a breach of secrecy.
- check_circleDuty to honour cheques: section 31 of the Negotiable Instruments Act, 1881 says a bank holding enough of the customer's money must pay a properly drawn cheque, and must compensate the customer for loss if it wrongly refuses.
- check_circleDuty of care for things left with it: goods in safe custody must be returned, and the bank must take care of them.
- check_circleDuty to follow the customer's instructions: for example a stop-payment instruction on a cheque.
Secrecy Applies to Recovery Agents Too
An agent learns a borrower's loan amount, address and phone number. Telling a neighbour, employer or relative about the debt breaks the bank's duty of secrecy and RBI's recovery rules, which forbid acts meant to humiliate a borrower publicly or intrude on the privacy of their family and friends. Discuss the debt only with the borrower, or with a guarantor or co-borrower who signed.
Quick practice on banking basics. No signup.
Example: Appropriation in Action
A borrower owes the bank on two loans and pays ₹5,000 without saying which one.
| Situation | Which debt the ₹5,000 clears |
|---|---|
| Borrower says "this is for the two-wheeler loan" | The two-wheeler loan (section 59) |
| Borrower says nothing | The bank may choose any debt lawfully due (section 60) |
| Neither side chooses | The older debt first, in order of time (section 61) |
How the DRA Exam Tests This
Expect definition questions: "The right of a banker to retain goods for a general balance is called..." (general lien), or "Which Act gives bankers a general lien?" (section 171, Indian Contract Act). Appropriation questions ask who chooses first; the answer is the debtor.
The trap is confusing lien with pledge. Under a lien the bank may only hold the goods; selling pledged goods is a different right that comes from a pledge. Another trap: thinking the bank chooses first in appropriation. The customer does.
FAQs
Can a bank take money from my savings account to pay my loan?expand_more
Under the right of set-off a bank can adjust a credit balance against an overdue debt of the same customer in the same capacity, subject to the loan terms. Banks usually give notice. A joint account or a trust account is a different capacity.
What is banker's lien?expand_more
The bank's right to keep a customer's goods or securities that came to it as banker until dues are paid, under section 171 of the Indian Contract Act. It allows holding, not selling.
Can a recovery agent tell my family about my loan?expand_more
No. The bank owes you a duty of secrecy, and RBI's recovery rules forbid humiliating a borrower or intruding on the privacy of family, friends or referees. The debt should be discussed with you, or with a co-borrower or guarantor who signed the loan papers.
If I pay part of my dues, which loan does it go to?expand_more
The one you name when you pay. If you don't name one, the bank may choose. If neither side chooses, it clears the oldest debt first.
Next steps
Take a full IIBF DRA mock test100 questions, 2 hours, scored instantly.