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					Bank & Banking

  Rashedul Hasan
                 What is it?
• Bank is a Financial Institution which can accept
  money from people as a deposit and lend or make
  loan from that deposited money.
• "banking business" means the business of
  receiving money on current or deposit account,
  paying and collecting cheque drawn by or paid in
  by customers, the making of advances to
  customers, and includes such other business as the
  Authority may prescribe for the purposes of this
  Act; (Banking Act (Singapore), Section 2,
  Interpretation).
             Types of Bank
           Based on Ownership


• Nationalized/Public
  Bank
• Private Bank
• Co-Operative Bank
              Types of Bank
            Based on Objective

• Central Bank
• Commercial Bank
• Islamic Bank
  The Islamic Banks perform their business
  operations as per the Sharia law, the Islamic code
  of law. In particular, this means that they operate
  sans interest.
               Types of Bank
             Based on Functions
• Retail Banking
  Retail banks deal directly with consumers and small
  business owners. They focus on mass market products
  such as current and savings accounts, mortgages and
  other loans, and credit cards.
• Corporate Banking
  Corporate banks provide services to businesses and
  other organizations that are medium sized. The clients
  of corporate banks are usually major business entities.
• Investment Banking
  Investment banks provide services related to financial
  markets, such as mergers and acquisitions.
• Merchant Banking
  Deals with Stock, Bond and other financial securities and
  performs trade-financing activities.
• Postal savings banks
  Are basically savings banks that operate in conjunction
  with the national postal systems of that country.
   Functions of a Commercial Bank
         Receiving Deposits:
• This is the main function of commercial banks to collect
  savings of individuals and firms. They offer different types
  of deposits for the facility of the customers.
• Current Account or Demand Deposits:
  Any amount can be withdrawn from this account any time
  without any notice. No interest is allowed on this type of
  account.
• Saving Account:
  This type of deposit account which is usually held by the
  middle class group. The
  saving account carries lower rate of interest.
• Fixed Deposit:
  Amount cannot be withdrawn before the fixed future date
  in this type of deposit. High interest is allowed in fixed
  deposit which is different according to period.
Functions of a Commercial Bank
       Advancing Loans:
This is the important function of the commercial bank.
Credit is given to the people in different ways.
(a.): Making Loans:
There are three types of loans given to borrowers.
i. Short Term Loans:
These loans are advanced for the period of six months to
one year. High Interest rate is charged on this type of
accounts.
ii. Medium Term Loans:
Loans from one to five years are called medium term
loans.
Functions of a Commercial Bank
• iii: Long Term Loans:
  Loans which are advanced for the period, more than ten
  years are long term loans.

• (b.): Bank Overdraft: Banks allows their trustful
  customers to draw more than the deposit they have in the
  Bank. Bank charges interest on overdraft.

• (c.): Cash Credit: Bank also gives credit against
  immovable property and interest is charged by the
  bank.

• (d.): Discounting of Bills: This is income source of bank
  to discount bills of exchange. They charge nominal
   Functions of a Commercial Bank
     Agency and General Utility Services

• Collection and payment of cheque and bills on behalf of
  the customers;
• Collection of dividends, interest and rent, etc. on behalf of
  customers, if so instructed by them;
• Purchase and sale of shares and securities on behalf of
  customers;
• Payment of rent, interest, insurance premium,
  subscriptions etc. on behalf of customers, if so instructed;
• Acting as a trustee or executor;
• Acting as agents or correspondents on behalf of customers
  for other banks and financial institutions at home and
  abroad.
Functions of a Commercial Bank
• Issuing letters of credit, travelers cheque, circular notes etc.
• Undertaking safe custody of valuables, important
  documents, and securities by providing safe deposit vaults
  or lockers;
• Providing customers with facilities of foreign exchange.
• Transferring money from one place to another; and from
  one branch to another branch of the bank.
• Standing guarantee on behalf of its customers, for making
  payments for purchase of goods, machinery, vehicles etc.
• Collecting and supplying business information;
• Issuing demand drafts and pay orders; and,
• Providing reports on the credit worthiness of customers.
     Functions of a Central Bank
• The important functions of Central Banks are as follows:-

  1-Sole right of note issue
  The Central Bank in every country, now, has the monopoly
  note issue. The issue of notes is governed by certain
  regulation which is enforced by the state.
  2-Banker to the state
  A Central Bank acts as a banker to the government. It
  holds cash balances of the government free of interest.
  3-Banker's bank.
  The central bank acts as a banker to the commercial banks.
  Functions of a Central Bank
4-Banker's clearing house
The Central Bank acts as a clearing house for the
settlement of mutual obligations of different commercial
banks. If a difference exists, it is paid by a cheque drawn
on the banks accounts carried at the Central Bank.
5-Lendor to the last resort
The Central Bank helps the member banks in times of
crisis.
6-Financial agent
The Central Banks act as financial agents for the
government. It is an agent for the government in
purchasing and selling of gold and foreign exchange.
 Functions of a Central Bank
7-Effective monetary policy
The aim of the government is to create
employment in the country, resist undue
inflation and achieve a favorable balance of
payment.
8-External functions
The Central Bank also performs a number
of external functions.
             Wider commercial role
•   However the commercial role of banks is wider than banking, and includes:
•   issue of banknotes (promissory notes issued by a banker and payable to bearer
    on demand)
•   processing of payments by way of telegraphic transfer, EFTPOS, internet
    banking or other means
•   issuing bank drafts and bank cheque
•   accepting money on term deposit
•   lending money by way of overdraft, installment loan or otherwise
•   providing documentary and standby letters of credit (trade finance),
    guarantees, performance bonds, securities underwriting commitments and
    other forms of off balance sheet exposures
•   safekeeping of documents and other items in safe deposit boxes
•   currency exchange
•   sale, distribution or brokerage, with or without advice, of insurance, unit trusts
    and similar financial products as a 'financial supermarket'
          Economic functions
• Issue of money, in the form of banknotes and
  current accounts subject to cheque or payment at
  the customer's order. These claims on banks can
  act as money because they are negotiable and/or
  repayable on demand, and hence valued at par and
  effectively transferable by mere delivery in the
  case of banknotes, or by drawing a cheque,
  delivering it to the payee to bank or cash.
• netting and settlement of payments -- banks act
  both as collection agent and paying agents for
  customers, and participate in inter-bank clearing
  and settlement systems to collect, present, be
  presented with, and pay payment instruments. This
  enables banks to economise on reserves held for
  settlement of payments, since inward and outward
  payments offset each other. It also enables
  payment flows between geographical areas to
  offset, reducing the cost of settling payments
  between geographical areas.
• credit intermediation -- banks borrow and lend back-to-
  back on their own account as middle men
• credit quality improvement -- banks lend money to
  ordinary commercial and personal borrowers (ordinary
  credit quality), but are high quality borrowers. The
  improvement comes from diversification of the bank's
  assets and the bank's own capital which provides a buffer
  to absorb losses without defaulting on its own obligations.
  However, since banknotes and deposits are generally
  unsecured, if the bank gets into difficulty and pledges
  assets as security to try to get the funding it needs to
  continue to operate, this puts the note holders and
  depositors in an economically subordinated position.
• maturity transformation -- banks borrow more on demand
  debt and short term debt, but provide more long term
  loans. In other words; banks borrow short and lend long.
  Bank can do this because they can aggregate issues (e.g.
  accepting deposits and issuing banknotes) and redemptions
  (e.g. withdrawals and redemptions of banknotes), maintain
  reserves of cash, invest in marketable securities that can be
  readily converted to cash if needed, and raise replacement
  funding as needed from various sources (e.g. wholesale
  cash markets and securities markets) because they have a
  high and more well known credit quality than most other
  borrowers.
                 Banking channels
• A branch, banking centre or financial centre is a retail location where a
  bank or financial institution offers a wide array of face-to-face service
  to its customers.
• ATM is a computerized telecommunications device that provides a
  financial institution's customers a method of financial transactions in a
  public space without the need for a human clerk or bank teller. Most
  banks now have more ATMs than branches, and ATMs are providing a
  wider range of services to a wider range of users. For example in Hong
  Kong, most ATMs enable anyone to deposit cash to any customer of
  the bank's account by feeding in the notes and entering the account
  number to be credited. Also, most ATMs enable card holders from
  other banks to get their account balance and withdraw cash, even if the
  card is issued by a foreign bank.
            Banking channels
• Mail is part of the postal system which itself is a
  system wherein written documents typically
  enclosed in envelopes, and also small packages
  containing other matter, are delivered to
  destinations around the world. This can be used to
  deposit cheques and to send orders to the bank to
  pay money to third parties. Banks also normally
  use mail to deliver periodic account statements to
  customers.
            Banking channels
• Telephone banking is a service provided by a
  financial institution which allows its customers to
  perform transactions over the telephone. This
  normally includes bill payments for bills from
  major billers (e.g. for electricity).
• Online banking is a term used for performing
  transactions, payments etc. over the Internet
  through a bank, credit union or building society's
  secure website.

				
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