BANKING SYSTEM OF BANGLADESH
In the world of modern ages importance of banking business is immeasurable. Agricultural and industrial prosperity cannot be imagined without the existence of an expedient banking system in the country. Absence of a fair banking system is identified as a prime cause of backwardness of any country in respect of its commerce and industry. Banks
have been playing effective role in the capitalistic as well as socialistic countries of the world in their internal distribution of wealth. Banking system of Bangladesh has not also remained less advanced in the above banking atmosphere.
have been playing effective role in the capitalistic as well as socialistic countries of the world in their internal distribution of wealth. Banking system of Bangladesh has not also remained less advanced in the above banking atmosphere.
After liberation the then government of the new born country being recognized as Bangladesh in the world society made all the existing banks nationalized by an ordinance named as "Bangladesh Bank Ordinance" dated the 26 March,
1972.
1972.
Structural from of Banking system :
Later on government of the self declared President H.M. Er shad following a denationalization policy allowed establishment
of banking institution in the Private sector and released three of such nationalized banks in the private sector. |
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structure of Bangladeshi banking system is somewhat identical with that of British system. Bangladesh Bank occupies the central position in the banking sector of Bangladesh. Whole Banking Sector is controlled and run by central Bank. All scheduled banks including their foreign correspondent branches, private banks, some financial Institutions are under the control of Bangladesh Bank. Many branches of commercials banks and that of the Krishi Bank arre in operation throughput the country. Commercial banks
enjoy the advantages of branch system of Banking in this country. But as the number of branches here are less as against the actual
need banks of this country could not take the fuller advantage of the above system.
enjoy the advantages of branch system of Banking in this country. But as the number of branches here are less as against the actual
need banks of this country could not take the fuller advantage of the above system.
Role of banks in the Economic development :-
There should be no anonymity as about the importance of Banking in the Economic development of a developing country like
Bangladesh. Banks performs some vital role that are conducive to economic development are as follows:-
(i) To create generate capital market.
(ii) To play effective role in the Economy by supplying capital.
(iii) To persuade quench, bill of exchange etc. for easy mode of exchange
(iv) Financing of industries.
(v) Financing of Trade and Commerce and rendering services to its chants.
(vi) Financing of Agriculture.
Bangladesh. Banks performs some vital role that are conducive to economic development are as follows:-
(i) To create generate capital market.
(ii) To play effective role in the Economy by supplying capital.
(iii) To persuade quench, bill of exchange etc. for easy mode of exchange
(iv) Financing of industries.
(v) Financing of Trade and Commerce and rendering services to its chants.
(vi) Financing of Agriculture.
(vii) To maintain balance of foreign trade and to check price hike in the market by controlling credit.
Classification of banks based on operation:
Human needs are diversified and unlimited. Therefore it will not be so unlikely if banks of various nature or
type exist in the country. On the basis of activities and operation banking institutions of our country may be
classified as follows.
(a) Central Bank or Bangladesh Bank :- In consultation with the Govt. it maintains and controls the total
banking sector of the country. Owing to its position, importance and guardianship controlling role over the
scheduled bamks it is also named as Central Bank. It determines priority sector for investment, rate of interet
on loans and deposit, controls, monitory system, designs policy regarding foreign currency, foreign trade &
commerce andabove all it acts for and on behalf of the govt. to assist it achieving the goal of economent
development of the country.
(b) Nationalized Commercial Banks :- Bankers those are performing role in the development and expansion
of trade & commerce in the country are recognized as commercial banks. Sonali, Jana ta, Ag-rani banks are the typical examples
of the above kind. All these banks collect deposit from their clients and advances credit for developing trade, &
industries in the country.
(c) Private Sector Commercial Banks :
Establishment of eommercial banks in the private sector was envisaged and allowed by the govt. of President H.M. Ershad
which seems to be ostentiously followed by the present elected government of
Classification of banks based on operation:
Human needs are diversified and unlimited. Therefore it will not be so unlikely if banks of various nature or
type exist in the country. On the basis of activities and operation banking institutions of our country may be
classified as follows.
(a) Central Bank or Bangladesh Bank :- In consultation with the Govt. it maintains and controls the total
banking sector of the country. Owing to its position, importance and guardianship controlling role over the
scheduled bamks it is also named as Central Bank. It determines priority sector for investment, rate of interet
on loans and deposit, controls, monitory system, designs policy regarding foreign currency, foreign trade &
commerce andabove all it acts for and on behalf of the govt. to assist it achieving the goal of economent
development of the country.
(b) Nationalized Commercial Banks :- Bankers those are performing role in the development and expansion
of trade & commerce in the country are recognized as commercial banks. Sonali, Jana ta, Ag-rani banks are the typical examples
of the above kind. All these banks collect deposit from their clients and advances credit for developing trade, &
industries in the country.
(c) Private Sector Commercial Banks :
Establishment of eommercial banks in the private sector was envisaged and allowed by the govt. of President H.M. Ershad
which seems to be ostentiously followed by the present elected government of
Bangladesh National Party being abbreviated as BNP.
Bangladesh National Party being abbreviated as BNP.
These commercial banks have the ideals, aims and objectives as same as fostered by the nationalized commercial
banks. Now six commercial banks are prevaling in the country. These are-Arab Bangladesh Bank. National Bank,
Islamic Bank, The city Bank, UCBL,IFIC, the objectives of establishing such Commercial Bank in the private sector are to
facilitate competetive banking services to the people, to give rise an expedient banking system being indispensable for
economic development of the country.
These commercial banks have the ideals, aims and objectives as same as fostered by the nationalized commercial
banks. Now six commercial banks are prevaling in the country. These are-Arab Bangladesh Bank. National Bank,
Islamic Bank, The city Bank, UCBL,IFIC, the objectives of establishing such Commercial Bank in the private sector are to
facilitate competetive banking services to the people, to give rise an expedient banking system being indispensable for
economic development of the country.
(c) Specialized Financial Institutions : A number of financial institutions are in operation in our country which aim at alleviating or resolving some identified major problems, or strengthening some sector for overall development of the country. Following are the major financial institutions: Bangladesh Krishi Bank, Bangladesh Shilpa Bank (BSB), HBFC, Grameen Bank BASIC etc.
(d) Saving Banks : The Bank which collects small, fragmented and idle savings from the poor, & neglected section of the country's population is considered as Saving Bank. Activities of such banks motivates, people of poor income toward savings.
Postal saving bank is an ideal example of this kind.
(e) Foreign Bank : These banks perform all the usual bankimg functions as are performed by other commercial banks. As the ownership lies with the foreign entrepremeur such banks is named as foreign Bank. American Express Bank, ANZ Grindleays
Bank are the example of such kind.
Management of Commercial Banks :
Bangladesh Bank ordinance. 1972 and recent Banking company law '91 ratify for each banking institution in the government sector a Board of Directors Comprising altogether six members for overall management & operation of such institution. All the members including chairman of the board are appointed by the government. Of the six members one is the Managing Director who cats as the chief executive of the bank. Managing Director should not be necessary the chairman of the Board of Directors of the bank concerned. All the important banking decisions and policies & persuaded by the Board and the same are executed by M.D. as
the chief executive of the bank.
the chief executive of the bank.
Limitation of Nationalized Banks :
Bangladesh Bank ordinance, 1972 and Para 9,27, & 28, of Banking Company Law, 1991 Prohibits the following acts by the banks in
the Govt. sector:-
(i) Violating the existing laws of the country or the order of the Bangladesh Bank no one shall be facilitated with any advance, loan or
any other such advanrage by the bank.
(ii) Without having adequate security no director shall be given sanction of any advance or loan. Similarly without having prior permission
from Bangladesh Bank. no loan amount shall be remitted in favour of any such director of the bank.
(iii) A banking institution under order no. 7 of Banking Company Law, 1991 shall have the right except the busniess ractified by the above
law, neither
the Govt. sector:-
(i) Violating the existing laws of the country or the order of the Bangladesh Bank no one shall be facilitated with any advance, loan or
any other such advanrage by the bank.
(ii) Without having adequate security no director shall be given sanction of any advance or loan. Similarly without having prior permission
from Bangladesh Bank. no loan amount shall be remitted in favour of any such director of the bank.
(iii) A banking institution under order no. 7 of Banking Company Law, 1991 shall have the right except the busniess ractified by the above
law, neither
to purchase/sell nor to undergo any business negotiation with any person or organization.
Problems of Banking System in Bangladesh and Possible remedial measures : Establishment of Commercial Banks in
the private sector was allowed in order to create a competative atmosphere in the country's banking world. But intead
of resulting in a auspicious effect it yielded negative result on the banking sector of the country.
Following are the noteworthy problems :-
(a) A wide discrepancy arose between the salary structure of nationalized commercial banks and that of thr other
banks in the private sector.
Problems of Banking System in Bangladesh and Possible remedial measures : Establishment of Commercial Banks in
the private sector was allowed in order to create a competative atmosphere in the country's banking world. But intead
of resulting in a auspicious effect it yielded negative result on the banking sector of the country.
Following are the noteworthy problems :-
(a) A wide discrepancy arose between the salary structure of nationalized commercial banks and that of thr other
banks in the private sector.
(b) Difference of salary structure resulted in frustration in the officers & Staff of the banks in the Govt. sector.
As a result service quality in this sector has been deteriorated. (c) Banking sector has not remained isolated from the country's overall norm less situation of the country. (d) Most of the banking institutions have been facing acute fund crisis problem mainly due to the undersigned political and administrative interference on investment and recovery of loan. (e) Internal administrative problems of the banking institutions have been deepening/increasing rapidly. As a result amount of overdue & irrecoverable loan has been incresing. Incidences of money defaleation fraud, forgeries and other such offences are increasing so alarmingly that the entire govt. sector banking is apprehended to be collapsed. Mismanagement & disorganization resulted in a poor, customer services |