Course title: Bank management

lecturer: Mohamed Hussein Aden(shibiin)

Educational background
Master of economics and master of Bank
management
The term bank apparently owes its origin to the
“bank” or bench used by the moneychangers during
the middle ages.
Historically, some banks were called banks of
deposit, and mainly held -deposits of foreign and
domestic currencies and arranged payment in
foreign trade transactions.
 Other banks created deposits that acted as a
circulating medium of money in a society.
One of the earliest banks in this category, the Bank
of Venice, was formed when a group of the
government’s creditors combined and began using
government debt as a means of payment in trade.
Define bank, banking and bank management
Banking Industry is a service industry. It provides
various services to its customers. Traditionally the
services were restricted to deposits and loans.
Banks started by taking deposits from people who had a
surplus of money and lending this money to others who
wanted money for different reasons. Banks charged
interest from those who borrowed and gave back a
portion of the interest earned to those who deposited.
The difference in the rate of interest between deposits
and lending constituted the major source of revenue for
banks. Hence, banking is a service industry, which
provides services to those who want to lend, borrow, or
invest.
 Distinction bank and banking
Bank is an organization or a company like any other
company, which sells and buys goods and services in
the market.
The main difference between other companies and
banks is that, other companies are trading goods and
services for money, but in the case of bank the trading
item itself is MONEY, instead of tangible goods or
intangible services.
 How a bank works can simply be explained as
accepting deposits from customers by paying interest
to their deposits, while lending this money deposited
to required parties for an interest rate, which is higher
than that paid to depositors.
The oxford dictionary defines bank as “an
organization offering financial services, especially
loans and safe keeping of customers money”.
Banking is the business activity of a bank. Simply,
any activity carried out by a bank for business
purposes is called banking.
Accepting savings, Lending money, leasing
properties to needy people, paying for cheques,
providing mortgage facilities, acting on to standing
orders, statement of instructions, providing safety
locker facilities for valuable things, providing over
draft facilities to current account holders
acting as institutional investors in financial market,
issuing ‘letter of credit’ in the business of import
and export, act as money changer, issuing travelers’
cheques are some of the activities carried out by
modern banks in the banking industry.
Nowadays, banking can be done via the internet,
which is called on line banking.
Bank management: Bank management governs
various concerns associated with banks in order to
maximize profits and minimize risks. This is a basic
tutorial that explains the methodologies applied in
the rapidly growing area of bank management in
commercial Indian banks.
What factors or qualities to be considered of testing
the efficiency of an ideal bank?
Efficient and effective utilization of resources are
key objectives of every banker.
These topics have always been important in
banking, but a number of recent events are helping
to bring even greater emphasis to banking
efficiency.
Increasing competition for financial services,
technological innovation, and banking
consolidation, for example, are all focusing more
attention on controlling costs in banking and
providing services and products efficiently.
Increasing competition from nonbank institutions
and from banks expanding into new markets is
putting strong pressure on banks to improve their
earnings and to control costs.
Efficiency is clearly a critical factor in remaining
competitive, and a number of recent statistical
studies have shown that the most efficient banks
have substantial cost and competitive advantages
over those with average or below average efficiency.
Technological innovation, in the form of
improvements in communications and data
processing, is also bringing added emphasis to
efficiency.
Such improvements are giving banks and other
financial institutions opportunities to dramatically
raise productivity and begin delivering many
services through electronic means.
Even the smallest banks are automating more and
more of their operations, and banks and nonbank
firms of all sizes are finding cost-effective ways to
introduce new products and compete more directly
with each other.
Much of the consolidation movement is also being
spurred by the hope of increasing efficiency.
 What do the banks do( functions of bank)
Important Functions of Bank
There are two types of functions of banks:
1.Primary functions – being primary are also called
banking functions.
2.Secondary Functions
Both the types of functions of bank are explained below
in detail:
Primary Functions of Bank
• All banks have to perform two major primary
functions namely:
A. Accepting of deposits
B. Granting of loans and advances
 Accepting of Deposits
A very basic yet important function of all the
commercial banks is mobilizing public funds,
providing safe custody of savings and interest on
the savings to depositors. Bank accepts different
types of deposits from the public such as:
Saving Deposits:  encourages saving habits among the
public. It is suitable for salary and wage earners.
The rate of interest is low.
Fixed Deposits: Also known as Term Deposits. Money
is deposited for a fixed tenure. No withdrawal
money during this period allowed.
Current Deposits: are opened by businessmen. The
account holders get overdraft facility on this account.
These deposits act as a short term loan to meet urgent
needs. Bank charges a high-interest rate along with
the charges for overdraft facility in order to maintain
a reserve for unknown demands for the overdraft.
Recurring Deposits: A certain sum of money is
deposited in the bank at a regular interval. Money can
be withdrawn only after the expiry of a certain
period. A higher rate of interest is paid on recurring
deposits as it provides a benefit of compounded rate
of interest and enables depositors to collect a big sum
of money. This type of account is operated by salaried
persons and petty traders.
Secondary Functions of Bank
Like Primary Functions of Bank, the secondary functions are
also classified into two parts:
1.Agency functions
2.Utility Functions
Agency Functions of Bank
Banks are the agents for its customers, hence it has to
perform various agency functions as mentioned below:
Transfer of Funds: Transferring of funds from one
branch/place to another. 
Periodic Collections: collecting dividend, salary, pension,
and similar periodic collections on the clients’ behalf. 
Periodic Payments: making periodic payments of rents,
electricity bills, etc on behalf of the client.
Collection of Cheques: Like collecting money from the
bills of exchanges, the bank collects the money of
the cheques through the clearing section of its
customers.
Portfolio Management: banks manage the portfolio of
their clients. It undertakes the activity to purchase
and sell the shares and debentures of the clients
and debits or credits the account.
 Utility Functions of Bank
• Issuing letters of credit, traveller’scheque, etc.
• Undertaking safe custody of valuables, important
documents and securities by providing safe deposit
vaults or lockers.
• Providing customers with facilities of foreign
exchange dealings
• Underwriting of shares and debentures
• Dealing in foreign exchanges
• Social Welfare programmes
• Project reports
• Standing guarantee on behalf of its customers, etc.
Types of banks and their functions
Primarily all banks gather temporarily idle money for
the purpose of lending to others and investments
which bring gain in the form of return, profit and
dividends etc.
However, due to the variety of resources of money
and the diversity in lending and investment
operations, banks have been placed in various
categories.
such as commercial banks, savings banks, merchant
banks, mortgage banks, consumer banks,
investment banks, development banks, cooperative
banks, exim banks and central banks etc.
 Commercial Banks
The commercial banks receive deposits from the general
public which are repayable on demand upon written orders of
the depositors. As their most distinctive feature the commercial
banks maintain chequing accounts for the constituents.
The commercial banks are also distinguished for providing
short term finance to trade, commerce and industry to enable
these sectors to expand their productive activities.
Merchant Banks
Merchant banks are those which have been mainly financing the
domestic and international trade in United Kingdom.
During the late eighteenth and early nineteenth centuries the
trade between countries was financed by bills of exchange by
well reputed merchant houses for which they would charge a
commission for their service.
 Savings Banks
The basic purpose of these banks is to inculcate the
habit of savings in the people. The savings bank
deposits are not repayable upon only the written
orders of the depositor but the depositor
Mortgage Banks
These banks mainly deal in loans for the acquisition
or construction of real estate against the security of
mortgages. Quite a few such banks are operating in
developed part of the world. Savings, and Loans
associations and farm-loan associations are some of
the well-known forms of the mortgage banks.
 Consumer Banks
These banks provide finance for purchasing
consumption goods for the use of the borrowers.
Consumer finance companies, sales finance
companies and credit unions are some of the
popular forms of consumer banks.
Investment Banks
The investment banks assist business houses and the
governmental bodies to raise money through the sale
of stocks and bonds for usually long term purposes.
These banks perform the usual functions of raising
deposits of idle money from the public and finance
the business houses and other bodies.
 Development Banks
These banks have been established to provide long
term development finance to the trade, commerce,
and industry. Generally government owned banks,
established under a specially promulgated law.
Agricultural Development Bank and Industrial
Development Bank are every well-known
development banks. 
Cooperative Banks
These are the banks established and registered as a
cooperative venture to provide banking facilities to
the members of the cooperative. The Federal Bank
of Cooperatives is well known such bank.
Exim Banks
These are the banks which provide finance for promotion
of imports and exports to trade, commerce and industry,
these bank arc contributing greatly towards the
expansion of international trade of developed countries,
where they function mainly in private sector
Central Banks
Central banks occupy unique position in the banking
structure of a country because they have been entrusted
with the responsibility of controlling the money supply,
interest rates and financial market of the country for the
purpose of economic development. Bank of England and
Federal Reserve Bank of U.S.A. are well known central
banks.
Role of Bank in the economic development
Banks are one of the most important parts of any
country in this modern time money and its
necessity is very important.
Developed financial system of the country can
ensure scope for attaining economic development.
Modern bank provides valuable services to a
country .
To a attain development there should be a good
financial system to support not only the economic
but also the society. So a modern bank plays a vital
role in the so economic matters of the country.
Some of the role of banks in the development of a
country briefly mentioned below.
1. Promote saving habits among people: bank attracts
depositors by introducing attractive deposit schemes
and providing rewards or return in the form of
interest.
2. collection of saving: banking system collects small
saving from various part of an economy and
mobilizes it in business sector.
3. Capital formation and promoting industries: capital is
one of the most important parts of any business and
industry. It is the life blood of business. Banks are
helpful to increase capital formation by collecting
deposits from depositors.
4. Easiness of trade and commerce functions : this
modern era trade and commerce plays vital role
between any countries. So, the money transaction
should be user friendly. A modern bank helps its
customers to sent funds to any where and receive
funds from anywhere of the world.
5. Money mobilization: the main role of the bank is to
mobilize the money market. Bank accepts the
saving money of public utilizes it as loan, overdraft,
cash credit
6. Implementation of monetary policy: banking
system helps to develop the money market. Banks
are creators as well as distributors of money
7. Remittance of money: the bank helps to transfer the
money from one place to an other and from one
country to an other country.
8. Promotion of trade and industry: banks systems
encourage specialization and accelerate the pace
of industrialization by bringing revolution in the
internal and external trade.
9. Agricultural development: agricultural sector is
one of the integral parts of any economy food self
sufficiency is major challenge and goal of any
country.
10. Employment opportunities: banking system
increases the economic activities and promotes
employment opportunities by providing loans to
business entrepreurs and farmers in different forms.
Banks also helps investing in various business sector.
11. Regional development: banking system transfers
surplus from the developed regions to the less
developed nations.
12. Balanced development: A balanced development
in the economy is achieved in different sectors and
regions through the resources of bank funds. It
helps a country spread banking activities in rural
and semi urban areas.
Part One is end
Thank you