CHANAKYA NATIONAL LAW UNIVERSITY

ANCILLARY SERVICES
PROVIDED BY BANKERS
BANKING LAW

FACULTY- Dr. AJAY KUMAR

ANKIT ANURAG
ROLL-717
8TH SEMESTER
SESSION 2012-17

ACKNOWLEDGMENT
I am feeling highly elated to work on under the guidance of my Banking law faculty Dr.
AJAY KUMAR. I am very grateful to him for the exemplary guidance. I would like to
enlighten my readers regarding this topic and I hope I have tried my best to bring more
luminosity to this topic.
I also want to thank all of my friends, without whose cooperation this project was not
possible. Apart from all these, I want to give special thanks to the librarian of my
university who made every relevant materials regarding to my topic available to me at the
time of my busy research work and gave me assistance.

RESEARCH METHODOLOGY
The method used for research is the doctrinal method and involves research in the library and on
the internet.

AIMS AND OBJECTIVES

The main aim here is to understand the ancillary services provided by bankers

HYPOTHESIS
The ancillary services are provided by bankers to the customers whose main part is providing
locker services and other banking facilities to the customers.

CONTENTS
INTRODUCTION .......................................................................................................................... 5
BANKING SERVICES IN INDIA ................................................................................................. 6
ANCILLARY SERVICES OF BANKS ......................................................................................... 9
LIABILITY OF BANKS FOR BANK LOCKERS ..................................................................... 11
CONCLUSION ............................................................................................................................. 16
BIBLIOGRAPHY ......................................................................................................................... 17

INTRODUCTION
Commercial banks provide banking services to businesses and consumers through a network of
branches. These banks are in business to make a profit for their owners and they are usually
public limited companies managed by shareholders. In India, however, most of the top
commercial banks are owned by the government. But many private commercial banks have been
established in the recent years.
Commercial banks are all-purpose banks that perform a wider range of functions such as
accepting demand deposits, issuing cheques against saving and fixed deposits, making short-term
business and consumer loans, providing brokerage services, buying and selling foreign exchange
and so on.
The primary functions of commercial bank are accepting deposits from the public and granting
credit to all sectors of the economy after making provisions for reserves as per the RBI
regulations.
Apart from receiving and lending functions, commercial banks undertake various secondary or
incidental functions such as agency services and general utility services.
All the services and facilities provided by the commercial banks play important role for
measuring the level of the customer satisfaction and quality of services. In this research,
researcher has tried to investigate the expectation and perception of the customer of State Bank
of India, who avail the services of commercial banks by using the services quality model. The
whole study is carried out using SERVQUAL on the basis of the five dimension viz., assurance,
reliability, responsiveness, physical facilities and empathy.
This academic project is focused majorly on the ancillary services provided by banks.

BANKING SERVICES IN INDIA

Banking in India is not a new. It has always been prevalent in India in various forms. For
the last few years it has become synonymous with mainstream banking for many banks.
The typical products offered in the Indian banking segment are housing loans, consumption loans
for purchase of durables, auto loans, credit cards and educational loans. The loans are marketed
under attractive brand names to differentiate the products offered by different banks. Loan values
of these lending typically range between Rs.20,000 to Rs.100 lakh1. The loans are generally for
duration of five to seven years with housing loans granted for a longer duration of 15 years.
Credit card is another rapidly growing sub-segment of this product group.
In recent past lending has turned out to be a key profit driver for banks with portfolio
constituting 21.5 per cent of total outstanding advances as on March 2004. The overall
impairment of the loan portfolio worked out much less then the Gross NPA ratio for the entire
loan portfolio. Within the segment, the housing loans had the least gross asset impairment. In
fact, ing make ample business sense in the banking sector.
While new generation private sector banks have been able to create a niche in this regard,
the public sector banks have not lagged behind. Leveraging their vast branch network and
outreach, public sector banks have aggressively forayed to garner a larger slice of the pie. By
international standards, however, there is still much scope for banking in India. After all, loans
constitute less than seven per cent of GDP in India vis--vis about 35 per cent for other Asian
economies South Korea (55 per cent), Taiwan (52 per cent), Malaysia (33 per cent) and
Thailand (18 per cent). As banking in India is still growing from modest base, there is a
likelihood that the growth numbers seem to get somewhat exaggerated. One, thus, has to exercise
caution is interpreting the growth of banking in India.
Drivers of business in India
What has contributed to this growth? Let me briefly highlight some of the basic reasons.
First, economic prosperity and the consequent increase in purchasing power has given a fillip to
a consumer boom. Note that during the 10 years after 1992, India's economy grew at an average
rate of 6.8 percent and continues to grow at the almost the same rate not many countries in the
world match this performance.
1

the Report on Trend and Progress of India, 2003-04

Second, changing consumer demographics indicate vast potential for growth in consumption
both qualitatively and quantitatively. India is one of the countries having highest proportion
(70%) of the population below 35 years of age (young population). The BRIC report of the
Goldman-Sachs, which predicted a bright future for Brazil, Russia, India and China, mentioned
Indian demographic advantage as an important positive factor for India.
Third, technological factors played a major role. Convenience banking in the form of
debit cards, internet and phone-banking, anywhere and anytime banking has attracted many new
customers into the banking field. Technological innovations relating to increasing use of credit /
debit cards, ATMs, direct debits and phone banking has contributed to the growth of banking in
India.
Fourth, the Treasury income of the banks, which had strengthened the bottom lines of banks for
the past few years, has been on the decline during the last two years. In such a scenario, business
provides a good vehicle of profit maximisation. Considering the fact that s share in impaired
assets is far lower than the overall bank loans and advances, loans have put comparatively less
provisioning burden on banks apart from diversifying their income streams.
Fifth, decline in interest rates have also contributed to the growth of credit by generating the
demand for such credit.
In this backdrop let me now come two specific domains of lending in India, viz., (a)
credit cards and (b) housing.
Credit Cards in India
While usage of cards by customers of banks in India has been in vogue since the mid1980s, it is only since the early 1990s that the market had witnessed a quantum jump. The total
number of cards issued by 42 banks and outstanding, increased from 2.69 crore as on end
December 2003 to 4.33 crore as on end December 2004. The actual usage too has registered
increases both in terms of volume and value. Almost all the categories of banks issue credit
cards. Credit cards have found greater acceptance in terms of usage in the major cities of the
country, with the four major metropolitan cities accounting for the bulk of the transactions.
In view of this ever increasing role of credit cards a Working Group was set up for regulatory
mechanism for cards. The terms of reference of the Working Group were fairly broad and the
Group was to look into the type of regulatory measures that are to be introduced for plastic cards
(credit, debit and smart cards) for encouraging their growth in a safe, secure and efficient
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manner, as also to take care of the best customer practices and grievances redressal mechanism
for the card users. The Reserve Bank has been receiving a number of complaints regarding
various undesirable practices by credit card issuing institutions and their agents. Some of them
are:

Unsolicited calls to members of the public by card issuing banks/ direct selling agents
pressurising them to apply for credit card.

Communicating misleading / wrong information regarding credit cards regarding

conditions for issue, amount of service charges/ waiver of fees, gifts/prizes.

Sending credit cards to persons who have not applied for them / activating unsolicited
cards without the approval of the recipient.

Charging very high interest rates /service charges.

Lack of transparency in disclosing fees/charges/penalties. Non-disclosure of detailed
billing procedure.
The Working Group deliberated a number of major issues relating to: a) to customer grievances
and rights: a) Transparency and Disclosure, b) Customer Rights Protection, and c) Code of
Conduct. The Group recommended that the Most Important Terms and Conditions should be
highlighted and advertised and sent separately to the prospective customer. These terms and
conditions include various issues relating to: a) fees and charges, (b) drawal limits, (c) billing, (d)
default, (e) termination / revocation of card membership, (f) loss / theft / misuse of card, and (g)
disclosure.
These recommendations are being processed within the RBI and a set of guidelines would be
issued which are going to pave the path of a healthy growth in the development of plastic money
in India. The RBI is also considering bringing credit card disputes within the ambit of the
Banking Ombudsman scheme. While building a regulatory oversight in this regard we need to
ensure that neither does it reduce the efficiency of the system nor does it hamper the credit card
usage. 2

http://www.importantindia.com/12392/functions-of-commercial-banks-in-india/

ANCILLARY SERVICES OF BANKS

he important types of Secondary Functions performed by the commercial bank are given below:
1. Agency Functions:
Banks act as agents to their customers in different ways:
(i) Collection and Payment of Various Items:
Banks collect cheques, rent, interest etc. on behalf of their customers and also make payment of
taxes, insurance premia etc. on their behalf.
(ii) Purchase and Sale of Securities:
Banks normally are more knowledgeable with regard to stock and share business. As such they
buy, sell and keep in safe custody the securities on behalf of their customers.
(iii) Trustee and Executor:
Banks also act as trustees and executors of the property of their customers on their advice.
(iv) Remitting of Money:
Banks also remit money from one place to the other through bank drafts.
(v) Purchase and Sale of Foreign Exchange:
Banks buy and sell foreign exchange and thus promote international trade. This function is
mainly discharged by Foreign Exchange Banks.
(vi) Letter of References:
Banks also give information about economic position of their customers to domestic and foreign
traders and likewise provide information about economic position of domestic and foreign
traders to their customers.
2. General Utility Services:
Commercial banks also provide certain services of general utility to the society:

(i) Locker Facilities:

Banks provide locker facilities to their customers. People can keep their gold or silver jewellery
or other important documents in these lockers. Their annual rent is very nominal. This is
considered one of the most sought after ancillary services so it has been discussed in detail
further on in the project.
(ii) Travellers Cheque and Letters of Credit:
Banks issue travellers cheque and letters of credit to their customers so that they may be spared
from the risk of carrying cash during their journey.
(iii) Business Information and Statistics:
Being familiar with the economic situation of the country, the banks give advice to their
customers on financial matters on the basis of business information and statistical data collected
by them.
(iv) Help in Transportation of Goods:
Big businessmen or industrialists after consigning goods to their retailers send the Railway
Receipt (Consignment Note) to the bank. The retailers get this Receipt from the bank on payment
of the value of the consignment to it. Having obtained the Railway Receipt from the bank they
get delivery of the consignment from the Railway Goods Office. In this way banks help in the
transportation of goods from the production centres to the consumption centres.
3. Developmental Functions:
In modern times, banks also perform following significant functions relating to economic
development and social welfare of the country.
1. Banks collect idle savings of the people and invest the same in productive activities. Thus,
they help in accelerating the rate of capital formation.
2. Banks are also taking part in capital market. They have been giving long-term advances to
industry, agriculture, small-scale industry, traders, transporters etc. They also finance export
trade.
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3. Banks give loans to weaker sections of the society on low rate of interest. Small artisans,
landless agricultural labourers and poor classes get cheap loans from the banks.
4. Commercial banks have opened their branches in rural areas and small towns to provide
banking facilities to the people living therein.
5. Since banks do not give loans for speculative and unproductive activities, bank credit can be
used productively.
6. Banks also give credit at low rate of interest to finance such programmes as are meant for rural
development and removal of unemployment.
7. The commercial banks either of their own or through their subsidiaries perform several
financial functions. These include mutual funds, Merchant banking, Housing Finance, Factory
Leasing factoring, Stock Investment etc.
In short, a modern bank performs several functions which are of great significance to the
economic growth of a country. A bank is no longer an institution required to accept deposits and
advance loans. It plays a significant role in the economic development and social welfare of a
country.

LIABILITY OF BANKS FOR BANK LOCKERS

Lockers are a general tendency now days in every Bank. Almost every Bank offers this facility
to its customers. It has become a vogue among general people to have locker in Banks. Many
Banks offer safe deposit locker facility to the Customer to deposit their personal belongings,
mainly gold ornaments, cash and other important documents in lockers. The facility is provided
in exchange of a particular annual charge based on size of the locker. The Customers generally
feel safe while depositing their valuables in the Bank Locker, considering the level of security
and vigil ensured by the Bank. But question arises: Is your Bank Locker Really Safe or not?

RECENT INCIDENTS HIGHLIGHTING THEFT OF BANK LOCKERS IN

LIGHT1

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A major fire broke out at the Punjab National Bank headquarters in New Delhi recently, trapping
hundreds of people inside and triggering panic across the capital.
Daring heist in Punjab National Bank, Branch Office Sonepat, Haryana where thieves dug up a
125 feet long tunnel and broke into the 77 lockers decamping with cash, jewellery and other
valuables have shocked customers.
In another case, in a daring robbery at a Central Bank of India branch in UP some time ago, at
least 45 lockers are claimed to have been emptied out.
In another daylight bank heist in Chennai, armed men made away with Rs 14 lakhs from the
Keelkattalai branch of Indian Overseas Bank, triggering panic among customers and forcing
many of them to clear out their lockers and close their accounts.
These are not lone incidents, but just the tips of an iceberg!
So if you thought that a bank locker is the safest place to keep your cash and valuables in, think
again.Worse, if any of your valuables is lost or stolen in such incidents, banks are not bound to
entertain your claims.

WHO ALL ARE ENTITLED TO HAVE LOCKER FACILITY IN BANK

Safe Deposit Locker Facility is one of the ancillary services facilitated by Banks at its branches.
Bank Lockers will be available to any person having contractual capacity i.e. Capacity to Enter
into contract. Thus locker can be hired by:

Any single individual;

by two or more individuals jointly,

Firms,

Limited Companies,

Societies,

Associations &
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Clubs etc.

WHAT IS THE RELATIONSHIP OF A BANK AND A CUSTOMER

Relationship between the Bank and the locker hirer is in the nature of a Bailor and Bailee and
not Landlord and Tenant though the Bank has no knowledge of the contents of the locker.

FIX DEPOSIT AS SECURITY FOR LOCKERS

To ensure prompt payment of lockers rent at time of allotment, a minimum fixed deposit is
obtained which would cover rent and the charge for breaking open of lockers in case of any
eventuality.

GENERAL DOUBTS IN MIND OF CUSTOMERS

1. Is the Bank Liable for the contents of the Locker?

2. Is the Bank liable for theft of its Articles?
3. How much liability a bank incurs regarding the articles kept in the locker?
4. Whether the Bank Security is a key question while taking lockers in a bank?

LIABILITY OF BANK IN CASE OF LOCKER THEFT

Banks are not responsible for your Bank Locker for any unforeseen event which are beyond the
control of Bank provided everything is done with due diligence on the part of the Bank. Banks
are not 100% liable in case of theft or robbery because you customers can never define how
much loss took place with certainty. The risk is always there with the lockers, but it is not an
extreme eventuality. Banks are unaware of the fact that what is kept inside the locker. The
Locker can only be opened by the Locker Holder along with the master key of the Bank.

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Therefore the Bank cannot be held responsible for the alleged loss. Bank is liable to compensate
to customer as it amounts to deficiency in service.

GUIDELINES OF RBI ABOUT LOCKERS

As per the policy of RBI:

The Bank will, in no way, be responsible/liable for the contents kept in the locker by the hirer.
In case of theft, burglary or similar unforeseen events, no action will be initiated as per law
The RBI has also said that even if the Banks do not know about the contents of the Lockers, they
should take necessary steps to protect the contents in the locker. There have been a few cases in
the past where customers have received compensation for loss or damage to locker contents.

STEPS TO ENSURE THE SAEFTY OF LOCKER CONTENTS

The important aspects to be considered are the terms and conditions regarding the locker hiring
process. Read the documents carefully. Make a list of all things you are planning to keep in your
locker. This will help you calculate the value of the contents and will help you claim your
compensation in case any item goes missing. Always open your locker after the bank employee,
who accompanies you to the vault, leaves the place. Also ensure the locker is properly locked
before you leave the vault. Important measures to curb locker theft are as under:
1. CCTV Cameras Please check that the Bank where you intend or have kept your locker
should have facility of proper CCTV camera so that in case of any theft, Accused persons
can be traced out easily by the Investigation Agency.
2. Receipt of Belongings A proper receipt of belongings should be held with the
customer. The receipt will be beneficial for the customer at the time of seeking
compensation from the concerned bank in case f any theft or robbery.3

http://www.vakilno1.com/slider/bank-locker-safe-liability-banks-case-locker-theft.html

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3. Security Check The customer should ask from the Bank Manager that whether he has
complied with the Security Guidelines as proposed by the Reserve Bank of India from
time to time.
4. Regular Area Check The Bank should conduct a proper security check of the locality
from time to time in order to curb conspiracies for robbery and theft.
5. Frequent Locker Visit The Customer should visit the locker frequently and check the
articles in the locker in order to be sure of security of the locker.

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CONCLUSION
With the introduction of various innovative services, products and delivery channels, the Bank
Customers are enjoying Quick and Quality Service from the Banks in an uninterrupted way with
the international standards. Thus the customers are facilitated to carry out most of the
transactions without visiting the branch premises. The technology development in Banking is yet
to reach the rural areas in a big way, since such centre have substantial population utilizing the
banking services. And the need of the hour is to implement Biometric Technology for ATM Card
Payments, for more security. Virtual Branches, with minimum infrastructure, can be made
available to provide all information to the customers who can use the Touch-Screen Technology.
On the whole, these inventions of Innovative Banking Services and Products increases
Operational efficiencies and reduce costs, besides giving a platform for offering Value Added
Services to the customers, thereby fulfilling all the essential prerequisites for Universal
Banking. Further, the focus of attention and effort should be on employees and their response
rather than on the change. Timely management of the transitional problems, which are bound to
arise when an important change is brought about, is crucial. The key message of the study results
is that technology led innovation has been a key factor in growth and value creation in the
banking industry. While Banks in India are treading the path of growth, there has been a
heightened regulatory and business led focus on risk management. Banks are deploying
technology for implementing differentiated strategy and risk management frameworks.
Increasing IT investments in these areas will also bring a proactive and transparent monitoring
and compliance environment within Banks.

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BIBLIOGRAPHY
BOOKS
1. Valarie A Zeithamal and Mary Jo. Bitner, services marketing, 3rd edition Tata
McGraw-Hill Publishing.
2. Y. Chandra Shekhar Indian banking challenging ahead Chartered financial analyst.
3. M. Y. khan (2001), Financial Services Tata McGraw-Hill publishing.

INTERNET SOURCES
1. http://www.iibf.org.in/documents/reseach-report/Report-14.pdf
2. http://www.importantindia.com/12392/functions-of-commercial-banks-in-india/

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