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Banks After the independence, banking industry in Bangladesh started its journey with 6 Nationalized commercialized banks, 2 State owned Specialized banks and 3 Foreign Banks. In the 1980's banking industry achieved significant expansion with the entrance of private banks. Now, banks in Bangladesh are primarily of two types:
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Scheduled Banks: The banks which get license to operate under Bank Company Act, 1991 (Amended in 2003) are termed as Scheduled Banks. Non-Scheduled Banks: The banks which are established for special and definite objective and operate under the acts that are enacted for meeting up those objectives, are termed as Non-Scheduled Banks. These banks cannot perform all functions of scheduled banks.

There are 47 scheduled banks in Bangladesh who operate under full control and supervision of Bangladesh Bank which is empowered to do so through Bangladesh Bank Order, 1972 and Bank Company Act, 1991. Scheduled Banks are classified into following types:
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  



State Owned Commercial Banks (SOCBs): There are 4 SOCBs which are fully or majorly owned by the Government of Bangladesh. Specialized Banks (SDBs): 4 specialized banks are now operating which were established for specific objectives like agricultural or industrial development. These banks are also fully or majorly owned by the Government of Bangladesh. Private Commercial Banks (PCBs): There are 30 private commercial banks which are majorly owned by the private entities. PCBs can be categorized into two groups: Conventional PCBs: 23 conventional PCBs are now operating in the industry. They perform the banking functions in conventional fashion i.e interest based operations. Islami Shariah based PCBs: There are 7 Islami Shariah based PCBs in Bangladesh and they execute banking activities according to Islami Shariah based principles i.e. Profit-Loss Sharing (PLS) mode.   . Foreign Commercial Banks (FCBs): 9 FCBs are operating in Bangladesh as the branches of the banks which are incorporated in abroad.

There are now 4 non-scheduled banks in Bangladesh which are:
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Ansar VDP Unnayan Bank, Karmashangosthan Bank, Probashi Kollyan Bank,



Jubilee Bank

NBFIs Non Bank Financial Institutions (FIs) are those types of financial institutions which are regulated under Financial Institution Act, 1993 and controlled by Bangladesh Bank. Now, 31 FIs are operating in Bangladesh while the maiden one was established in 1981. Out of the total, 2 is fully government owned, 1 is the subsidiary of a SOCB, 13 were initiated by private domestic initiative and 15 were initiated by joint venture initiative. Major sources of funds of FIs are Term Deposit (at least six months tenure), Credit Facility from Banks and other FIs, Call Money as well as Bond and Securitization. The major difference between banks and FIs are as follows:
   

FIs cannot issue cheques, pay-orders or demand drafts. FIs cannot receive demand deposits, FIs cannot be involved in foreign exchange financing, FIs can conduct their business operations with diversified financing modes like syndicated financing, bridge financing, lease financing, securitization instruments, private placement of equity etc.

Type of Bank State owned Specialized Private Foreign Total * As of February, 2011

No. 4 4 30 9 47

No. of Branches 3,404 1,382 2,816 62 7,664

Source:Bangladesh Economic Review-2011 (Bangla version), Ministry of Finance .categorize the depository, 2. say the number of financial contractual, number of institutions in investment institutions in bd in 3 categories intermediary category

each

3.also define schedule and non-schedule banks and which banks are in those

4.and major difference between financial and non-financial institution in our country 5.also try to find out in which category the financial asset volume is highest 6.also sth about regulatory bodies According to Frederic Mishkin, the author of The Economics of Money, Banking and Financial Markets, financial institutions are subdivided into three broad categories: (1) depository institutions (commonly referred to as banks); (2) contractual savings institutions; and (3) investment intermediaries. The division of financial institutions into these three groups is based on the primary sources of funds and how they use these funds. DEPOSITORY INSTITUTIONS Depository institutions are generally referred to as banks. The term "depository institution" originates from the fact that a banking-type financial intermediary accepts deposits from individuals and businesses, and makes loans. Depository institutions are made up of four kinds of banking institutions: commercial banks, savings and loan associations, credit unions, and mutual savings banks. COMMERCIAL BANKS. Commercial banks are financial intermediaries that raise funds primarily by issuing (1) demand and other checkable deposits (deposits by businesses or individuals on which checks can be written to make payments); (2) savings account deposits (they carry interest payments, but can not be used to write checks on and are usually maintained by households and individuals); and (3) certificates of deposit (CDs) or time deposits (they earn interest and have fixed terms to maturity and are opened by both individuals and businesses). Commercial banks use the resources so raised (within limitations imposed by the nation's central bank, the Federal Reserve Bank) to make loans to consumers (for instance, to buy durable goods, such as automobiles), to businesses (for example, to invest in a plant expansion), and to home buyers (mortgage loans). They also investment funds in U.S. Treasury bonds and in state and local government bonds (municipal bonds). Commercial banks are like other businesses—they profit from the difference between the reward for lending and the cost of borrowing. SAVINGS AND LOAN ASSOCIATIONS (S&LS). Except for some minor differences, savings and loan associations (S&Ls) look like commercial banks. The main difference lies in the way S&Ls obtain funds and use these

funds to make loans. Like commercial banks, they also obtain funds by issuing checkable deposits, savings account deposits, and time deposits. Traditionally, however, savings deposits have played a greater role for savings and loan associations. The funds obtained through different kinds of deposits have traditionally been used to make mortgage loans— in contrast, business and consumer loans dominate commercial banks' loan portfolios. Also, there are some subtle differences between commercial banks and savings and loan associations. For example, savings deposits issued by S&Ls are often called shares. CREDIT UNIONS. Credit unions are also depository institutions, but they are structured as cooperative lending institutions—they are organized around a particular group, such as employees of a company or an institution, members of a labor union, or members of a particular branch of armed forces. Credit unions, like commercial banks and savings and loan associations, acquire funds by issuing different kinds of deposits (often called shares) and primarily make consumer loans. The 1980 Banking Deregulation Act also eased restrictions on credit unions—this act allowed them to issue checkable deposits, as well as to make mortgage loans in addition consumer loans. For all practical purposes, members of a credit union can consider it as a bank. Membership in the credit union is not, however, as open as commercial banks—one must belong to the particular group, in some way, to qualify for the membership of the relevant credit union. MUTUAL SAVINGS BANKS. Mutual savings banks are the smallest group of financial intermediaries among depository institutions. They are quite similar to savings and loan associations. Also, one can consider them as hybrid between a savings and loan and a credit union. Like savings and loan associations, they acquire funds by issuing different kinds of deposits and make, primarily, mortgage loans. Like credit unions, however, they are organized as cooperatives, known as mutuals, in which depositors own the bank. CONTRACTUAL SAVINGS INSTITUTIONS Contractual savings institutions are financial intermediaries that acquire funds periodically on a contractual basis and invest them (lend them out) in such a way that they have financial instruments maturing when contractual obligations have to be met. In general, they can predict their liabilities fairly accurately, and thus they (unlike depository institutions) do not have to worry as much about losing funds. As a result, they mainly invest resources in longer term securities, such as, corporate stocks and bonds, and mortgages. Three major categories of contractual savings institutions—life insurance

companies, fire and casualty insurance companies, and pension funds and government retirement funds—are briefly discussed below. LIFE INSURANCE COMPANIES. Life insurance companies sell life insurance policies that protect the beneficiaries of a policyholder against financial hazards that follow the death of the insured person. Life insurance companies also sell annuities in which an insurance company contracts to make annual income payments to the annuity buyer upon his or her retirement. These insurance companies acquire funds through payments of premiums by individuals who pay to keep their policies in force. Life insurance companies can calculate liabilities with a fair degree of accuracy using mortality tables. As a result, they use funds to buy longer term securities— primarily corporate bonds and mortgages. While corporate stocks are also long-term securities, life insurance companies are restricted in the amount of stocks they can hold. This government restriction is based on the perception that stocks are risky, and they may thus jeopardize the insurance companies' ability to meet liabilities. FIRE AND CASUALTY INSURANCE COMPANIES Fire and casualty insurance companies (also called property and casualty insurance companies) are in the insurance business like the life insurance companies. They insure policyholders against the risk of loss from a variety of contingencies, such as fire, flood, theft, or accidents. An individual buys car or home insurance, for example, from a property and casualty insurance company. Like life insurance companies, fire and casualty insurance companies acquire funds through payments of insurance premiums from policyholders. Unlike life insurance companies, however, the property and casualty insurance companies are subject to greater uncertainty with respect to their liabilities—there is no way to pinpoint as to when major disasters may happen. Due to this kind of uncertainty, these insurance companies buy more liquid assets (shorter-term securities) than life insurance companies. Municipal bonds constitute the largest fraction of total assets. They also, however, invest in corporate stocks and bonds, and Treasury securities. PRIVATE PENSION FUNDS AND GOVERNMENT RETIREMENT FUNDS Private pension funds and government retirement funds receive periodic payments of contributions from employers and/or employees that participate in the program. Employee contributions are either automatically deducted from pay or made voluntarily. The pension and retirement funds' liability is to provide retirement income, generally in the form of annuities, to individuals covered by these pension plans. As the liabilities of private pension and government retirement funds are fairly certain with respect to timing and are of a

long-term nature, they invest resources in long-term financial instruments, such as corporate stocks and bonds. INVESTMENT INTERMEDIARIES Most, though not all, investment intermediaries facilitate investments in financial assets by individuals and institutions by pooling resources and investing them according to stipulated objectives. The financial intermediaries included under this category are: mutual funds, money market mutual funds, and finance companies. MUTUAL FUNDS. Mutual funds are financial intermediaries that raise funds through sale of shares to many individuals and institutions, and pool these to buy a diversified portfolio of stocks, bonds, or a combination of stocks and bonds. At the present time, a specific mutual fund is organized around an investment philosophy. In selling shares to perspective participants, the mutual fund is expected to state its investment philosophy, and follow it (generally) in investing pooled resources. A mutual fund, for example, may be a broadly diversified stock fund that picks stocks from among all available domestic stocks. A stock fund may also, however, concentrate on a narrow range of stocks, such as small capitalization stocks, overthe-counter stocks, blue-chip stocks, depressed stocks, stocks that pay high dividends, or stocks of a particular sector of the economy. Thus, one must carefully interpret a mutual fund's investment into a diversified portfolio of, for instance, stocks—the diversified investment is subject to the investment philosophy of the relevant mutual fund. Also, different investment philosophies and levels of diversification carry different levels of investment risk. Even when a mutual fund specifies an investment philosophy, it may not be fully invested—it may keep, for example, some cash on hand for investment opportunities that may open in the future or to meet redemptions. Similar to stock mutual funds, there are bond mutual funds. Once again, a bond mutual fund follows an investment philosophy—it may invest its funds in, for example, a diversified portfolio of bonds, in long-term Treasury bonds, higher-quality corporate bonds, lowerquality corporate bonds (the so-called junk bonds), or bonds of state and local governments (called municipal bonds or munis). Bond mutual funds are generally considered less risky than stock mutual funds. As mentioned earlier, some mutual funds also invest funds in a combination of stocks and bonds. Also, mutual fund shares, unlike deposits at a depository institution, are not insured by a federal agency.

MONEY MARKET MUTUAL FUNDS. Money market mutual funds are like ordinary mutual funds with some added characteristics. The most important difference between mutual funds and money market mutual funds is that the latter invest in money market financial instruments (securities that have maturities of less than a year). Because of the kind of securities they invest in, assets of a money market fund are considered very liquid and are unlikely to generate losses to those that participate in these funds. Shareholders in a money market mutual fund receive investment income based on the earnings of the security holdings of the fund. A key characteristic of a money market mutual fund is that participants in these funds have limited check-writing privileges on their shareholdings—frequently, checks cannot be written for less than $500. FINANCE COMPANIES. Finance companies acquire funds by issuing commercial papers (short-term corporate debt instruments), stocks, and bonds. They use these funds to make loans to consumers to finance home improvements or to purchase a consumer durable (such as cars or furniture), and to small businesses for various purposes.

Contractual savings institutions, such as insurance companies and pension funds, are financial intermediaries that acquire funds at periodic intervals on a contractual basis. Because they can predict with reasonable accuracy how much they will have to pay out in benefits in the coming years, they do not have to worry as much as depository institutions about losing funds. As a result, the liquidity of assets is not as important as consideration for them as it is for depository institutions, and they tend to invest their funds primarily in long-term securities such as corporate bonds, stocks, and mortgages. Life Insurance Companies. Life insurance companies insure people against financial hazards following a death and sell annuities (annual income payments upon retirement). They acquire funds from the premiums that people pay to keep their policies in force and use them mainly to buy corporate bonds and mortgages. They also purchase stocks, but are restricted in the amount that they can hold. Currently, with $3.3 trillion in assets, they are among the largest of the contractual savings institutions. Fire and Casualty Insurance Companies. These companies insure their policyholders against loss from theft, fire, and accidents. They are very much like life insurance companies, receiving funds through premiums for their policies, but they have a greater possibility of loss of funds if major disasters occur. For this reason, they use their funds to

buy more liquid assets than life insurance companies do. Their largest holding of assets is municipal bonds; they also hold corporate bonds and stocks and U.S. government securities. Pension Funds and Government Retirement Funds. Private pension funds and state and local retirement funds provide retirement income in the form of annuities to employees who are covered by a pension plan. Funds are acquired by contributions from employers or from employees, who either have a contribution automatically deducted from their paychecks or contribute voluntarily. The largest asset holdings of pension funds are corporate bonds and stocks. The establishment of pension funds has been actively encouraged by the federal government, both through legislation requiring pension plans and through tax incentives to encourage contributions. This category of financial intermediaries includes finance companies, mutual funds, and money market mutual funds. Finance Companies. Finance companies raise funds by selling commercial paper (a short-term debt instrument) and by issuing stocks and bonds. They lend these funds to consumers, who make purchases of such items as furniture, automobiles, and home improvements, and to small businesses. Some finance companies are organized by a parent corporation to help sell its product. For example, Ford Motor Credit Company makes loans to consumers who purchase Ford automobiles. Mutual Funds. These financial intermediaries acquire funds by selling shares to many individuals and use the proceeds to purchase diversified portfolios of stocks and bonds. Mutual funds allow shareholders to pool their resources so that they can take advantage of lower transaction costs when buying large blocks of stocks or bonds. In addition, mutual funds allow shareholders to hold more diversified portfolios than they otherwise would. Shareholders can sell (redeem) shares at any time, but the value of these shares will be determined by the value of the mutual funds holdings of securities. Because these fluctuate greatly, the value of mutual fund shares will too; therefore, investments in mutual funds can be risky. Money Market Mutual Funds. These relatively new financial institutions have the characteristics of a mutual fund but also function to some extent as a depository institution because they offer deposit-type accounts. Like most mutual funds, they sell shares to acquire funds that are then used to buy money market instruments that are both safe and very liquid. The interest on these assets is then paid out to the shareholders. A key feature of these funds is that shareholders can write checks against the value of their shareholdings. In effect, shares in a money market mutual fund function like checking account deposits that pay interest.

Difference between NBFCs & Banks NBFCs perform functions similar to that of banks; however there are a few differences in that an NBFC cannot accept demand deposits; an NBFC is not a part of the payment and settlement system and as such, an NBFC cannot issue cheques drawn on itself; and deposit insurance facility of the Deposit Insurance and Credit Guarantee Corporation is not available for NBFC depositors, unlike banks. Banking and Non Banking Financial Institution’s Basic Differences Banks, usually a corporation, that accepts deposits, makes loans, pays checks, and performs related services for the public. The Bank Holding Company Act of 1956 defines a bank as any depository financial institution that accepts checking accounts (checks) or makes commercial loans, and its deposits are insured by a federal deposit insurance agency. A bank acts as a middleman between suppliers of funds and users of funds, substituting its own credit judgment for that of the ultimate suppliers of funds, collecting those funds from three sources: checking accounts, savings, and time deposits; short-term borrowings from other banks; and equity capital. A bank earns money by reinvesting these funds in longerterm assets. A Commercial Bank invests funds gathered from depositors and other sources principally in loans. An investment bank manages securities for clients and for its own trading account. In making loans, a bank assumes both interest rate risk and credit risk. The intermediary role: Transforming saving received primarily from household into credit for business firm and others in order to make investment in new building, equipment and other goods. The payment role: Carrying out payment for goods and services on behalf of their customers. The guarantor role: Standing behind their customers to pay off customer debts, when those customers are unable to pay. The risk management role: Assisting customer in preparing financially for the risk of lost to property and persons. The saving / investment advisers’ role:

Aiding customers in fulfilling their long rang goals for a better life by building, managing, and protecting savings. The safekeeping/certification of value role: Safeguarding a customer’s valuables and appraising and certifying their true market The agency role: Acting on behalf of customers to manage and protect their property or issue and redeem their securities. The policy role: Saving as a conduit for govt. policy in attempting to regulate the growth of the economy and pursue social goals. Non-bank financial institutions represent one of the most important parts of a financial system. In Bangladesh, NBFIs are new in the financial system as compared to banking financial institutions (BFIs). A total of 25 NBFIs are now working in the country. The NBFIs sector in Bangladesh consisting primarily of the development financial institutions, leasing enterprises, investment companies, merchant bankers etc. The financing modes of the NBFIs are long term in nature. Traditionally, our banking financial institutions are involved in term lending activities, which are mostly unfamiliar products for them. Inefficiency of BFIs in long-term loan management has already leaded an enormous volume of outstanding loan in our country. At this backdrop, in order to ensure flow of term loans and to meet the credit gap, NBFIs have immense importance in the economy. The basic difference may include:   



A Bank is an organization that accepts customer cash deposits and then provides financial services like bank accounts, loans, share trading account, mutual funds, etc. A NBFC (Non Banking Financial Company) is an organization that does not accept customer cash deposits but provides all financial services except bank accounts. A bank interacts directly with customers while an NBFI interacts with banks and governments A bank indulges in a number of activities relating to finance with a range of customers, while an NBFI is mainly concerned with the term loan needs of large enterprises A bank deals with both internal and international customers while an NBFI is mainly concerned with the finances of foreign companies



A bank's main interest is to help in business transactions and savings/investment activities while an NBFI's main interest is in the stabilization of the currency

Non-bank Financial Institutions financial intermediaries that accumulate funds by borrowing from the general public and lend the same to meet specialised financing needs, but are prohibited to accept such deposits payable either on demand or by cheque, draft, etc, and operate checking accounts for which their liabilities are not a part of the money supply. The first non-bank financial institution (NBFI) was a fire insurance company established in 1680 in London. Although all financial institutions have a common basis for their operations and some role with respect to lender-borrower relationships, there are some fundamental differences between the banks and NBFIs. The liabilities created by the banks are unique in that these liabilities are themselves 'spendable' i.e., the deposits in banks are used as money by the holders of the deposits whereas the liabilities of a NBFI, such as a building society cannot be used in this way. Banks can actually increase the total volume of spending in the economy by their capacity to add to the stock of credit in existence. But the non-bank financial institutions do not have that capacity and they are merely 'honest brokers' and transmitting funds, which have been created elsewhere, eg, by the BANKING SYSTEM. Banks now have less savings deposits and more demand deposits. The NBFI, such as a leasing company, receives additional funds and is capable of adding to its mortgage lending by withdrawing from its larger demand deposits kept with the deposit money bank. The leasing company thus adds to the volume of credit and enables additional spending (on house purchase) to take place. The combination of financial assets created by the banks and NBFIs for ultimate lender varies depending on the origin of the asset. The operations of NBFIs in Bangladesh are regulated by the BANGLADESH BANK. The non-bank financial sector has a wide diversity of institutions. Despite their importance as alternative sources of finance to the commercial banks, their liabilities may nevertheless be regarded as 'near money'. The most important NBFIs, among others, are the building societies, hire purchase companies, leasing companies, mortgage companies, insurance companies, saving banks, pension funds, investment companies, investment trusts, security dealer/brokers, pawn shops, central provident fund (CPF), post office saving banks, discount houses, securities companies, fund managers, venture capital companies, stock exchanges, and factoring companies. Bangladesh Bank is empowered to oversee and regulate the affairs of the NBFIs under the provisions of the Financial Institutions Act 1993 and the Financial Institutions Rules 1994. To improve the quality of financial intermediation and meet up the growing needs of funds

for financing investments in different sectors of the economy, the government intends to intensify the financial market by granting permission to establish private NBFIs in conjunction with the private commercial banks. At present, non-bank financial sector of the country comprises investment and finance companies, merchant bankers, leasing companies, mortgage banks, insurance companies, and the CAPITAL MARKET. Although small, the NBFI sector in Bangladesh is a growing component of the entire financial sector and NBFIs as a group create an opportunity to improve financial intermediation for the economy. NBFIs account for only 4% of the assets of the financial sector, compared to 70% accruing to the nationalised commercial banks (NCB) and 25% to the local private banks.

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