Role of Banks in the Economic Development

Topics: Bank, Central bank, Fractional-reserve banking Pages: 7 (2033 words) Published: February 8, 2013
An organization, usually a corporation, chartered by a state or federal government, which does most or all of the following: receives demand deposits and time deposits, honors instruments drawn on them, and pays interest on them; discounts notes, makes loans, and invests in securities; collects checks,drafts, and notes; certifies depositor's checks; and issues drafts and cashier's checks.

Features of Bank:
• Money Dealing
• Acceptance of Deposit
• Grant of loan and advances
• Payment and withdrawal of deposits
• Transfer of funds
• Portfolio management
• Foreign Exchange dealing

In general terms, the business activity of accepting and safeguarding money owned by other individuals and entity and then lending out this money in order to earn a profit. Banking is a business of accepting deposits and lending money. It is carried out by financial intermediaries, which performs the functions of safeguarding deposits and providing loans to the public. In other words, Banking means accepting for the purpose of lending or investment of deposits of money from public repayable on demand and can be withdrawn by checks, draft order and so on.

Banking Company:
Any company, which transacts the business of banking

Banking System:
Banking System is a principal mechanism through which the money supply of the country is created and controlled. The banking system enables us to understand Commercial Banks, Secondary Banks, Central Banks, Merchant Bank or Accepting Houses and Discount Houses but to exclude the Saving Banks and Investment and other intermediaries.

Number and types of Banks: The number of banks in all now stands at 49 in Bangladesh. Out of the 49 banks, four are Nationalized Commercial Banks (NCBs), 28 local private commercial banks, 12 foreign banks and the rest five are Development Financial Institutions (DFIs). Sonali Bank is the largest among the NCBs while Pubali is leading in the private ones. Among the 12 foreign banks, Standard Chartered has become the largest in the country. Besides the scheduled banks, Samabai (Cooperative) Bank, Ansar-VDP Bank, Karmasansthan (Employment) Bank and Grameen bank are functioning in the financial sector. The number of total branches of all scheduled banks is 6,038 as of June 2000. Of the branches, 39.95 per cent (2,412) are located in the urban areas and 60.05 per cent (3,626) in the rural areas. Of the branches NCBs hold 3,616, private commercial banks 1,214, foreign banks 31 and specialized banks 1,177. Bangladesh Bank (BB) regulates and supervises the activities of all banks. The BB is now carrying out a reform program to ensure quality services by the banks.

Commercial Bank:
A bank offering checking accounts, savings accounts, certificates of deposit, personal and business loans, and other, similar services. Commercial banks charge fees and/or interest for many of their services, though they may pay interest on other services. A retail bank is often an individual branch of a commercial bank where one may procure these services.

The main functions of commercial banks: The main functions of commercial banks are accepting deposits from the public and advancing them loans. However, besides these functions there are many other functions which these banks perform. All these functions can be divided under the following heads:

1. Accepting Deposits: The most important function of commercial banks is to accept deposits from the public. Various sections of society, according to their needs and economic condition, deposit their savings with the banks. For example, fixed and low income group people deposit their savings in small amounts from the points of view of security, income and saving promotion. On the other hand, traders and businessmen deposit their savings in the banks for the convenience of payment.

3. Over-Draft: Banks advance loans to its customer’s up-to a certain amount through over-drafts, if there are no deposits in the current...
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