Ever wondered how banks adjust balances across different accounts to recover dues? Imagine having an overdue loan while your savings account holds funds—can the bank debit your savings to recover the loan? The answer lies in the Right of Set-Off, a legal banking concept that every professional must understand!
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- The meaning and application of the Right of Set-Off
- When banks can and cannot apply this right
- Differences between Set-Off and Banker’s Lien
- Real-life case studies and exam-relevant insights
This video is a goldmine for JAIIB/CAIIB aspirants, banking professionals, and finance enthusiasts who want a strong grip on banking regulations. Whether you’re preparing for exams or working in the industry, this knowledge is crucial!
👉 Watch the full video to master this concept and drop your queries in the comments!
📺 Watch the Complete Breakdown:
📝 Understanding the Right of Set-Off in Detail
What is the Right of Set-Off?
The Right of Set-Off is a statutory right that allows banks to adjust a customer’s credit balance (like savings/current accounts) against their outstanding dues (like loans/overdrafts) without prior consent.
Example: If a customer has a loan overdue of ₹50,000 and a savings balance of ₹60,000, the bank can debit ₹50,000 from the savings account to settle the loan.
When Can Banks Exercise the Right of Set-Off?
- There is a legally recoverable due
- The amount is certain and determined
- The bank and customer share a dual relationship (both debtor & creditor)
- The bank has informed the customer beforehand
When is the Right of Set-Off NOT Applicable?
- Amount is uncertain or not yet payable
- On trust accounts or fiduciary accounts
- On joint accounts where only one party has a loan
- Against future EMIs or contingent debts
- When dealing with deceased customer accounts
📌 Case Studies for Better Understanding
Case 1: Customer Has a Loan and Savings Account
Loan Due: ₹40,000
Savings Balance: ₹50,000
✅ The bank can use ₹40,000 from the savings to clear the loan.
https://learningsessions.in/bankers-special-relationship-jaiib-ppb-unit-7-part-1-free-epdf/
🏆 Key Takeaways
- The Right of Set-Off is a powerful tool banks use to recover dues.
- It applies only when the due amount is legally payable & determined.
- It does not apply to future debts, trust accounts, or deceased accounts.
- Banker’s Lien vs. Set-Off: Lien allows holding & selling securities, whereas Set-Off adjusts balances.
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