BANKING AFFAIRS

Detailed explanation-1: -When the bank lends money to the customer, the customer is the borrower and the bank is the lender. The relationship between the banker and the customer is therefore that of a creditor and a debtor.

Detailed explanation-2: -The legal relationship between a customer and the bank is based on contract and is generally classified as a debtor-creditor relationship. This means that when a bank or other type of ADI accepts money from a customer it does so as a borrower on terms that may be implied.

Detailed explanation-3: -A bank owes money to its depositors-that is why it is called debtor. On the other hand, a bank grants loans and all those who have taken loan owe money to banks. That is why a bank is also called creditor. A bank is a debtor for its depositors and creditor for its loan holders.

Detailed explanation-4: -When a customer deposits money in his account the bank becomes a debtor of the customer and the customer a creditor. The money so deposited by the customer becomes the bank’s property and the bank has a right to use the money as it likes.

Detailed explanation-5: -Then the bank takes the position as a creditor of the customer and the customer becomes a debtor of the bank. Borrower executes documents and offer security to the bank before utilizing the credit facility. Therefore, the general relationship between bank and its customer is that of a debtor and a creditor.