Basic Principles of Bank Business
Bank runs its business by taking the money of others so it is a risky business organization. Avoiding all risk to establish strong, dependable and skilled banking business otherwise, the economic developments will be hampered of the country. To set up a strong and dependable banking business it should have to follow some basic principles. These are given below:
- Principles of adequacy or solvency: Principles of profitability: Solvency means financial capability or sufficiency in the capital. To stay in these competitive market commercial banks must have sufficient capital. If the funds are not sufficient the bank cannot run his business.
The main objective of the commercial bank is to earn a profit. For earning profit commercial bank have to make the investment by providing short-term loan, before providing loan commercial bank have to compensate a certain amount of money as liquidity.
The main source of fund of the commercial bank is the deposited money by the depositors’ through the different type of account.
Depositors keep cash in the bank, especially for safety. So commercial bank must ensure the safety of deposited fund.
2. Principles of safety:
3. Principles of liquidity: The principle of liquidity is very important for the commercial bank. Liquidity refers to the ability of an asset to convert into cash without loss within a short time. Paying the deposited money on demand of’ customers is called liquidity in sense of banking.
4. Principles of honesty and reliability:
5. Principles of efficiency: The commercial bank should operate their business efficiently. So that they can succeed at the objective. In this competitive market, there is no alternative way without efficiency in management. So commercial bank must train their employees to increase the efficiency in management.
6. Principles of economy:
7. Principles of services: Commercial bank ensures best services to their customers. The success of a bank depends on the services provided by the bank. Customer chooses those banks that provide improved services.
8. Principles of publicity:
9. Principles of secrecy: Customers want to keep secret about their valuable assets and money. So banks must have to keep secret about their customer’s account. If a commercial bank does not maintain secrecy the customer will be dissatisfied.
10. Principles of localization:
11. Principles of be awareness:
12. Principles of specialization:
13. Principles of management:
14. Principles of goodwill:
15. Principles of investment: The main source of profit of bank is granting loans to any individual or organization. Investment is a profitable and sound source of income. Commercial banks invest in business and investment sector.
The principle of technology.
The principle of publicity.
These are the basic principles of the commercial bank. The commercial bank must follow these principles.