When a customer opens an account with a bank, a unique legal and fiduciary relationship is established between the banker and the customer. This relationship is more than just a business arrangement it comes with specific rights, responsibilities, and privileges for both parties. Understanding the Bankers’ Special Relationship is crucial for JAIIB PPB aspirants, as it forms the foundation for topics like mandate, power of attorney, lien, set-off, and appropriation.
In this blog, we have provided detailed information about the Banker’s Special Relationship, its mandate definition, Power of Attorney (POA) definition, Banker’s Lien, Right of Set-off, and Right of Appropriation.
What is a mandate in banking?
A mandate is an instruction from a customer authorising another person to operate their bank account on their behalf. It is usually for a specific period and governs routine account operations.
- A mandate contract involves a mandatary performing tasks for the mandator, with payment as agreed.
- The customer formally notifies the bank about the mandate.
- Signatures of the mandatary are verified in the mandate letter.
- Mandates are generally time-bound.
- Institutional mandates are not acceptable.
- A Power of Attorney (POA) can be issued by institutions, unlike mandates.
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What is a power of attorney (POA)?
A power of attorney is a legal document that authorises an individual or legal entity to act on behalf of another in civil or financial matters. It can be general (universal) or special (limited to specific tasks).
- General/Universal POA: Grants broad authority to act on behalf of the principal.
- Special/Limited POA: Restricted to specific transactions or responsibilities.
- The POA holder can perform actions that the principal is legally permitted to do.
- Both mandate and POA allow a third party to operate the account, but POA usually has broader powers.
Also Check: JAIIB PPB Syllabus
What is a letter of authority and how does it differ from POA?
A letter of authority authorises someone to perform a specific task or access information, while a POA gives complete authority to act and make decisions on behalf of the principal.
- Used for disclosing confidential information or delegating limited responsibilities.
- Can be task-specific, e.g., collecting documents, paying bills, or accessing files.
- Unlike POA, a letter of authority does not require notarisation and grants partial authority.
In banking operations, both a Power of Attorney (POA) and a Letter of Authority (LOA) allow a third party to act on behalf of the customer, but their scope and legal implications differ. While a POA grants broader authority and can cover multiple legal or financial actions, a LOA is usually task-specific and provides limited authority. The following table provides the key differences:
| Basis | Power of Attorney | Letter of Authority |
| Type | Legal document | Legal document |
| Function | Delegates authority to act and take decisions | Delegates specific responsibilities |
| Purpose | To act on behalf of the principal in all matters | To carry out a specific task |
| Authority | Complete authority | Partial authority |
| Contents | Detailed information about parties and tasks | Detailed but less exhaustive |
| Power | More powerful | Less powerful |
| Task Complexity | Complex or specialised tasks | Simple or routine tasks |
| Directions | Outlines precise steps | Steps may or may not be specified |
| Notarisation | Required | Not required |
| Uses | Property purchase, business deals, medical decisions | Collecting papers, paying bills, accessing information |
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Why is understanding bankers’ special relationship important for JAIIB?
This knowledge helps candidates interpret legal rights, responsibilities, and scenario-based questions in the JAIIB PPB exam. Understanding concepts like mandate, POA, lien, set-off, and appropriation ensures accurate application in practical banking situations.
- It defines rights of the banker, including lien, set-off, and appropriation.
- Guides duties toward the customer, like confidentiality and proper execution of instructions.
- Forms the basis for scenario-based exam questions in JAIIB PPB.
Also Check:
| Study Plan | Study Plan |
| JAIIB IE And IFS Study Plan | JAIIB PPB Study Plan |
| JAIIB AFM Study Plan | JAIIB RBWM Study Plan |
FAQs
Answer: A mandate is a written instruction by a customer authorising another person to operate their bank account on their behalf.
Answer: A Power of Attorney (POA).
Answer: No, institutional mandates are not acceptable; institutions issue a Power of Attorney instead.
Answer: Banker’s Lien.
Answer: Right of Set-off.
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