Banking explained-Money and credits
The bank is an organization where the people of a country deposit money who have excess amounts of money and to give the loans to the businessmen who need credit.
Banking is a process of depositing money and investing in clients in a systematic way.
Dr. Md. Makhluk Hasan says,” Banking is the activities of a banker. Banking is what is done by the banker.”
There seems no uniformity amongst the economist about the origin of the word Bank. According to some authors the word “ Bank”, itself is derived from the word “Bancus” or – Banque that is a bench. The early bankers, the
Jews in Lombardy, transacted their business on benches in the market place, when, a banker failed, his
‘Banco’ was broken up by the people; it was called Bankrupt. This etymology is, however, ridiculed by mcleod on the ground that “The Italian Money changers as such were never called Banchier in the middle ages.”
It is generally said that the word “Bank” has been originated in Italy. In the middle of 12th century, there was a great financial crisis in Italy due to war. To meet the war expenses, the government of that period forced subscribed loans on citizens of the country at the interest of 5% per annum.
Such loans were known as ‘Compare’, ‘Minto’ etc. The most common name was “Monte’. In Germany, the word ‘Monte was named as ‘Bank’ or ‘Banke’. According to some writers, the word ‘Bank’ has been derived from the word bank.
It is also said that the word ‘bank’ has been derived from the word ‘Banco’ which means a bench. The Jews money lenders in Italy used to transact their business sitting on benches at different market places. When any of them used to fail to meet his obligations, his ‘Banco’ or banch or bench would be broken by the angry creditors. The word ‘Bankrupt’ seems to be originated from broken Banco. Since the banking system has been originated from the money lending business; it is rightly argued that the word ‘Bank’ has been originated from the word “Banco’. Whatever be the origin of the word ‘Bank’ as Professor Ram Chandra Rao says, ―It would trace the history of banking in Europe from the Middle Ages.
Today the word bank is used as a comprehensive term for a number of institutions carrying on certain kinds of financial business. In practice, the word ‘Bank’ means which borrows money from one class of people and again lends money to another class of people for interest or profit.
In this changing scenario, the role of banks is very important for the growth and development of customers as well as the economy. Banking Sector is offering traditional and other services as under:
Regular Saving and current accounts
Regular fixed deposits
Special NRI Services
Home loan, Vehicle loan
Tele and internet banking
Business multiplies A/Cs
Relief bonds & mutual fund
Loans against shares
Special deposit scheme
Senior citizen – special deposit scheme
Other facilities for customers.
BANKS & CREDIT UNIONS
|SL.||TRADITIONAL BANKS||CREDIT UNIONS|
|01.||A traditional financial institution that issues stock and is owned by its stockholders.
|A credit union (or Caisse Populaire in
Quebec) is a not-for-profit, co-operative financial institution owned by its members.
|02.||Banks and Trust Companies are for-profit entities whose interests include earning a return on their investments.||Credit unions are not-for-profit.
|03.||Traditional banks serve customers from the general public. Most anyone can use a bank, subject to its policies.||Credit unions exist solely to serve their members. A person must be within the credit union’s field of membership, as defined by its charter, in order to join, although this common bond requirement has been loosened in recent years.|
|04.||Like other for-profit businesses, banks must pay taxes to the government.||Like other not-for-profit institutions, credit unions are exempt from paying federal income tax|
|05.||Most bank deposits are federally
insured up to $100,000 per depositor, per institution by the CDIC, a Crown Corporation.
|Most credit union deposits are provincially insured by provincial stabilization funds and/or deposit insurance corporations, with the amount of coverage varying by
Role of the central bank of a country
Issue of the Currency Note
Banker to the Banks
Banker to the Government
Exchange Rate Management
Credit Control Function
Development of the financial System
Development of Agriculture
Provision of Industrial Finance
Provision of Training
Collection of Data
Publication of the Reports
Promotion of Banking Habits
Promotion of Export through Re-Finance
Granting Licenses to the Banks
Control over NBFIS
Implementation of the Deposit Insurance System
Receiving of Money on Deposit
Lending of Money
Transferring Money From Place to Place
Miscellaneous Functions: Safe custody of valuables, issue of various forms of credits e.g. letters of credit, traveler‘s cheques and furnishing guarantees on behalf of customers and providing fee based services are also important functions performed by banks.
Functions of Commercial Banks:
Acceptance of deposits
Challenges in Banking Sector
Improving Risk Management System
Corporate Governance: Banks not only accept and deploy a large amounts of uncollateralized public funds in a fiduciary capacity, but they also leverage such funds through credit creation. Banks are also important for the smooth functioning of the payment system. The profit motive cannot be the sole criterion for business decisions. It is a significant challenge to banks where the priorities and incentives might not be well balanced by the operation of sound principles of Corporate Governance. If the internal imbalances are not re-balanced immediately, the correction may evolve through external forces and may be painful and costly to all stakeholders. The focus, therefore, should be on enhancing and fortifying the operation of the principles of sound Corporate Governance.
Problem and Prospect of Banking:
During the post-reform period and due to the situation of Liberalization, Privatization, and Globalization, the banking sector is facing some problems and challenges. These are as under:
Low Profitability and Productivity
Lack of Integrity
Increase of Administrative Expenses
Survival of loss-making branches
Lack of Professional Behavior
Lack of professional and friendly approaches with customer
The problem of customer satisfaction
Depression period running over the country
Management of technological advancement