Definition of Bank:
Different Authors and Economists have given some structural
and functional definitions on Bank from different angles:
1.
Bank is a financial
intermediary institution which deals in loans and advances”--- Cairn Cross
2.
“ Bank is an institution
which collects idle money temporarily from the public and lends to other people
as per need.”---- R.P. Kent.
3.
“ Bank provides service
to its clients and in turn receives perquisites in different forms.”--- P.A.
Samuelson.
4.
“ Bank is such an
institution which creates money by money only.”-----W. Hock.
5.
“ Bank is such a
financial institution which collects money in current, savings or fixed deposit
account; collects cheques as deposits and pays money from the depositors‟
account through cheques.”-----Sir John Pagette.
6.
Indian Company Law
1936 defines Bank as “ a banking company which receives deposits through a current account or any other forms and allows withdrawal through cheques or
promissory notes.”
Objectives of Bank:
1. To establish as an institution for maximizing profits and
conducting overall economic activities.
2. To collect savings or idle money from the public at a
lower rate of interest and lend this public money at a higher rate of
interest.
3. To create a propensity of savings amongst the people.
4. To motivate people for investing money with a view to
bringing solvency in them.
5. To create money against money as an alternative for
enhancing the supply of money.
6. To build up capital through savings.
7. To expedite investments.
8. To extend services to the customers.
9. To maintain economic stability by means of controlling the money market.
10. To extend co-operation and advice to the Govt. on
economic issues.
11. To assist the Govt. for trade& business and
socio-economic development.
12. To issue and control notes and currency as a central
bank.
13. To maintain and control exchange rates as a central
bank.
Meaning and Origin of Bank:
The word „Bank‟ is widely and extensively used and
circulated. The „Bank‟ in English carries the same meaning in Bengali. The
origin of the English word „Bank‟ came into being (when, where, and how) which could
not be specifically identified. The history regarding the origin of „Bank‟,
even after the twelfth century, is not also clear which has been based on
guesses. According to some writer, the word „Bank‟ was derived from „Banco‟,
„Bancus‟, „Banque‟ or „Banc‟ all of which means a bench upon which the medieval
European Money-lenders and Money –Changers used to display their coins. Anyhow
this word has been in use from the middle ages in connection of a bank. In the
words of German writer W. Frankace, a long stool or bench was said to be
replaced by Bank, Bangke etc. in the Scandinavian and Mid-European countries.
Again, Dutch and French words „Banque‟, and „Bangko‟ were used to mean stool or
bench and in course of time the word „Bank‟ came into effect.
In the Mediaeval age Italian states were sound and solvent
economically and commercially. At that time a group of people used to conduct the business of transaction of money sitting on a stool or bench which was replaced
by „Banco,‟ „Banko‟ „Banca‟, „Bangk‟, „Bancus‟, „Banc‟ etc.It is assumed that
the word „Bank‟ was originated from these words.
In a later age, an English writer Maclead challenged the
above concepts.
His contention was that the money-lenders and money-changers
used to display their coins which were not termed as„Banco‟, „Banque‟, „Banke‟, or „Banca‟. However, Banco in Italy and Banke in German and Australia were
understood as public debt or issue of paper money. In his opinion, these words
were used for the purpose of economic activities of different countries of
Europe. Another British writer Chamber,in his Twentieth Century Dictionary,
very clearly stated that the word „Bank‟ is derived from Banca and Banque. The
French still uses „Banque‟ in place of the word „Bank‟.
In the mid of twelfth-century Italian states were under political
turmoil and in 1150 Venice was afflicted with enemies.
Brief History of the Banking system of Bangladesh and
Indo-Pak Subcontinent.
For the growth and development of modern banking, Indo-Pak
Subcontinent has a positive role. With the gradual evolution of ages banking
activities have got momentum
(a) The Ancient Era:
Many Economists and Experts have expressed their opinion
that the banking business have been going on since the ancient era. Much evidence are
found with the archaeological symbols of Harappa and Mohenjodaro. From
different religious scriptures, we find a lot of information regarding modern
banking activities.
(b) The Moghal Era:
The banking system has been extensively developed during the
Moghal Era. During that time government treasury was formed.The Govt.
introduced gold and silver coins of different denominations named „Ashrafi‟.
Thus banking system has been developed. During that period „Seth Family‟ was
world famous. They used to conduct business through an agency house. Among the
local bankers marwari, multani, kabuliwala, sharaf,chetti etc.worth mentioning. In
the seventeenth century , English Tradesmen were involved with them. In 1700
The Hindustan Bank was established as a joint venture bank.
(c) The British Era:
The expansion program of the modern bank started when the
English took over India. In 1784 the Bengal Bank introduced paper
currency notes and gold coins of different denominations. Later, in 1787
General Bank of India, in 1806 Bank of Bengal, in 1840 Bank of Bombay
and in 1843 Bank of Madras were established. With the merging of three banks,
the Imperial Bank of India was established in 1920 and in 1935 the Reserve Bank
of India came into being.
(d) The Pakistan Era:
In 1947 during the separation of India, 639 branches of
different banks were the parts of Pakistan. Besides, Head Offices of Habib Bank
Limited and Muslim Commercial Bank Limited were transferred to Karachi. In 1948
the State Bank of Pakistan was established.
(e) The Bangladesh Era:
Bangladesh came into being in 1971. Since then a branch of
state bank of Pakistan stationed at Dhaka was declared the Central Bank of
Bangladesh named as Bangladesh Bank under Special Act. Excepting other banks, the Head Offices of two banks e.g. Eastern Mercantile Bank Limited(1959) and
Eastern Banking Corporation Limited(1965) were at Dhaka which were renamed as
Pubali Bank Limited and Uttara Bank Limited respectively. In this country of 14
crores people about 57 banks ( Govt. bank 4; Local private 30; Foreign 12;
specialized 7 and others 4) with about 5500 branches and about 1,10,000
officers/staff; are functioning for socio-economic development.
With two banks as above many branches of more than 10 banks
were located in Bangladesh. When the Non- Bangali owners had left the country
the disastrous condition of banks in Bangladesh knew no bounds. The fact
remains that most of the bankers and staff were non-bangalies. Consequently,
the management and control of all such banks were reposed on Bangladesh
Government. In 1972 Government, pursuant to Presidents‟ Order 26, had
nationalized all banks. The banking system of Bangladesh came to a standstill.
Functions of Central Bank:
The functions of the central bank are different from other
banks. The following functions of the central bank are stated below:
- A. Traditional or general functions:
- B. Purposeful functions:
- C. Expansion and Development Functions:
- D. Other Functions:
Traditional
or general functions:
1. Issue of notes and coins:
The first and foremost function of the central bank is to issue
notes and coins as per the needs of the public and requirements of business and
commerce. As per rules, notes are issued against gold, silver and foreign
currency. Bangladesh Bank
(Central Bank) keeps foreign currency reserves as security
against the issuance of notes. Bangladesh Bank unilatarilly reserves the right to
issue notes. The arguments in its favor are as follows:
(a) To maintain equilibrium in quality between notes and
currency issue
(b) To maintain equilibrium in size, types and values of
notes and currency
© To maintain stability in rates of exchange both inland and
foreign
(d) To create confidence on the people
(d) To control the money market.
2. Government Bank:
Central Bank acts as a banker and economic adviser of the
Government. The central bank conducts and maintains Government accounts for all
Government receipts and payments.
3. Banker’s Bank:
Central Bank acts as a banker‟s bank. As a rule, all scheduled
and commercial banks have to maintain Statutory Liquidity Reserve(SLR) 18% with
Bangladesh Bank(CRR: 5% and Bonds & Securities 13%).
4. Lender of the last Resort:
In case of a financial crisis of the commercial banks, the central
bank acts as a lender of the last resort through lending against first-class
securities, bill of exchange etc.
5. Reservoir of foreign currency:
Central Bank maintains Foreign Currency Reserve. For the
purpose of control of foreign currency, the following factors are responsible:
(a) For issuance of notes
(b) For payments of liabilities
(c) For payments of debts.
6. Clearing House:
Central Bank acts as a Clearing House for the settlement of
interbank transactions.
7. Credit Control:
Credit Control is one of the major functions of the central
bank. The following are the ways of controlling credit:
(a) Change in bank rates
(b) Open market operation
© Change ( increase or decrease) in reserve- ratio
(d) Selective credit
(e) Direct influence
(f) Moral suasion
(g) propaganda.
Purposeful functions:
(a) Control Currency Market:
Central Bank acts as a controller and guardian of the
currency market. For the purpose of formation, control and maintenance of the currency market and for its overall development, the central bank is the pioneer.
(b) Stabilize Exchange Rate:
Central Bank maintains the stability of the foreign currency
exchange rates by means of controlling credit. Stable exchange rates position
helps create favorable balance of trade and the acceptability of stable currency
gets momentum in the international market.
(c) Maintain Gold Standard:
Central Bank is responsible for the maintenance and control of the gold reserve.
(d) Stabilize Price-Level:
Fluctuations and frequent changes of price-level affect
economic growth. With a view to making good of the economic imbalances and
crisis situations, the central bank takes necessary measures for stabilizing price level.
(e) Stabilize business activities:
Central Bank formulates credit policy and with this spirit, the central bank takes necessary steps to protect economic depression for
stabilizing business activities.
(f) Employment opportunities:
Central Bank takes initiatives to create employment
opportunities by means of a credit-control mechanism.
Expansion
and Development Functions:
(a) Development of Agriculture Sector:
Central Bank formulates policy for expansion of the Agri-sector
for the purpose of economic upliftment in the country.
(b) Development of Industry Sector:
(c) Development of natural resources:
Central Bank plays a vital role in tapping natural resources
which may lead to economic growth.
Other
Functions:
(a) Adviser and Representative of Government:
Central Bank advises Government on economic issues and
sometimes acts as a representative of the Government.
(b) Economic Research:
Central Bank conducts various economic research works and
formulates policies for economic development. Central Bank conducts surveys on
different economic issues for the knowledge of the general public of the country
Distinguish
between Central Bank and Commercial Bank:
Role
of Bangladesh Central Bank
There is no doubt that the Central Bank has also played an
important role in the development of Islamic Banking in Bangladesh. After
granting license to the Islami Bank Bangladesh Limited to carry out banking
business as per Islamic Shari'ah, several clauses were incorporated in the
Banking Company Act. Necessary amendments were also made possible in the
country’s Income Tax Law allowing the amount of profit shared by the investment
clients and the profit paid on Mudaraba deposits by the Islamic banks as an expenditure. Special provision has been made for the Statutory Liquidity Reserve
requirement of Islamic banks. In case of need, Bangladesh Bank as the lender of
last resort, may place fund in Mudaraba accounts with Islamic Banks and share the profit as per principles of distribution of profit to Mudaraba depositors.
`Bangladesh Bank also organized many seminars and symposia
on Islamic banking. Issues related to Islamic banking are included in the training
courses in its academy. The Bangladesh Bank at Dhaka also organized an
International Seminar on the development of Islamic financial instruments.
It has also set up an Islamic Economics Division under its
Department of Research. The formation of a Shari'ah Supervisory Board is presently
under active consideration, while the introduction of the Mudaraba Bond in the money
market is almost at a mature stage. Source: Experiences in Islamic Banking: A
Case Study of Islami Bank Bangladesh, Institute of Policy Studies. Republished
with permission.
Kinds of
bank
There three types
1.
Central Bank
2.
Cooperative Bank
3.
Commercial Bank
Central Bank
The Reserve Bank of India is the central bank of our
country. Each country has a central bank that regulates all the other banks in
that particular country.
The central bank's main function is to act as the
Government’s Bank and guide and regulate the other banking institutions in the
country. Given below are the functions of the central bank of a country:
·
Guiding other banks
·
Issuing currency
·
Implementing the monetary
policies
·
Supervisor of the financial
system
In other words, the central bank of the country may also be
known as the banker’s bank as it provides assistance to the other banks of the
country and manages the financial system of the country, under the supervision
of the Government.
Cooperative
Banks
These banks are organized under the state government’s act.
They give short-term loans to the agriculture sector and other allied
activities.
The main goal of Cooperative Banks is to promote social
welfare by providing concessional loans
They are organized in the 3-tier structure
·
Tier 1 (State Level) –
State Cooperative Banks (regulated by RBI, State Govt, NABARD)
·
Funded by RBI, government, and NABARD. Money is then distributed to the public
·
Concessional CRR, and SLR
applies to these banks. (CRR- 3%, SLR- 25%)
·
Owned by the state
government and top management is elected by members
·
Tier 2 (District Level) –
Central/District Cooperative Banks
·
Tier 3 (Village Level) –
Primary Agriculture Cooperative Banks
Commercial Banks
·
Organised under the Banking
Companies Act, 1956
·
They operate on a
commercial basis and its main objective is profit.
·
They have a unified
structure and are owned by the government, state, or any private entity.
·
They tend to all sectors
ranging from rural to urban
·
These banks do not charge
concessional interest rates unless instructed by the RBI
·
Public deposits are the
main source of funds for these banks
The commercial banks can be further divided into three
categories:
1.
Public sector Banks – A
bank where the majority stakes are owned by the Government or the central bank
of the country.
2.
Private sector Banks – A
bank where the majority stakes are owned by a private organization or an
individual or a group of people
3.
Foreign Banks – The banks
with their headquarters in foreign countries and branches in our country, fall
under this type of bank
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