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HISTORY OF BANK
According to some economists, the word Bank has been derived from the German word
Banc which means a joint stock firm while others say that it has been derived from the
Italian word Branco which means a heap or mound. Perhaps the word Banc or Branco was
used to denote the accumulation of securities or money with a joint stock firm which later
on with the passage of time come to be known as Bank
There is still another group of people who believe that the word Bank has been derived
from the Greek word BANQUE which means a bench.
Bank is a financial institution or body, which accepts money through different types of
deposit accounts and schemes and allocates credit to borrowers and influence interest
rates and engages in international finance & trade.
The International Accounting Standard Committee (IASC) in its IAS-30 defines the term
Bank as follows:
Bank includes all financial institutions, one of whose principal activities is to take deposit &
borrow with the objective of lending & investing & which are within the scope of banking or
similar legislation.
Like other business organizations it also aims to earn profit as its ultimate goal. Unlike
others, bank doesnt produce goods for sale, it produces services in exchange of which it
earns several service charges & fees. The more a country is enriched with its smoother
banking services the more the country is economically developed. Skilled Bank Personnel can
enhance bank services & thus can create confidence among the people

BANK

A bank is a business that provides banking services for profit. Traditional banking services
include receiving deposits of money, lending money & processing transactions. Some banker
issue bank drafts as legal tender. Many bank offer ancillary financial services to make
additional profit, for example: selling insurance products, investment products or stock
broking.
Dictionary definition
A bank is an institution for the custody and investment of money.
--- Samsad Dictionary
Encyclopedic definition
Establishment for custody of money, which it pays out on customers order.
--- The New Oxford Encyclopedic Dictionary
Definitions of Acts and ordinances
A bank is a person or corporation carrying on bonafide banking business.
--- English Finance Act 1915

Definition of authors
Bank is a real financial institution which receives deposit from a group of people and lends
it to other group of people.
--- Bar Bari Block
Bank is the trader of money and loan.

--- J.C. Wood

A bank is a firm or institution doing a bonafide banking business.
--- G. Crowther
From the above we can write, a bank is an economic institution whose main aim is to earn
profit through exchange of money and credit instruments.

BANKING
The term Banking is defined as accepting for the purpose of lending or investment, of
deposits of money from the public, repayable on demand or otherwise, and withdrawable by
cheque, draft, order or otherwise.
The salient features of this definition are as followsI. A banking company must perform both of the essential functions
a. Accepting of deposits, and
b. Lending or investing the same.
If the purpose of accepting of deposits is not to lend or invest, the business will not be
called banking business.
II. The phrase deposit of money from the public is significant. The banker accepts
deposits of money and not of anything else.
III. It also specifies the time and mode of withdrawal of deposits. The deposited money
should be repayable to the depositors on demand made by the latter or according to
the agreement reached between the two parties.
Banking is the business of a banker, the keeping or management of a bank.
--- The Oxford English Dictionary.

BANKER

Banker means a person transacting the business of accepting for the purpose of lending or
investment of deposits of money from the public, repayable on demand or otherwise and
withdrawable by cheque, draft, order or otherwise, and includes any post office saving Bank.
Any person carrying on the business of banking is a banker.
--- British Stamp Act 1881
Banker includes a body of persons whether incorporated or not, who carrying on business
of banking.
--- English Bills of Exchange Act, 1882

Banker includes any person acting as banker and any post office savings Bank.
--- Negotiable Instrument Act, Section 3(d)
A banker is a dealer indebts of his own and of other people.
--- Professor Crowther

CUSTOMER
There is no statutory definition of a customer and one must turn to case low if any legal
guidance is required as to what features need to be present to constitute a person being
considers a customer of a bank.
In common practice the term customer means a person who has an account with the bank.
More recently, however, where a bank gave investment advice to a person who was not in an
account at the time, the court held that nevertheless the bank had incurred responsibilities
to him as to a customer.
A customer is one which has an account with a banker of or whom a banker habitually
undertakes to act as such.
--- Dr. Hart
Broadly speaking, a customer is a person who has the habit of restoring to the same place or
person to do business.
It may be said, therefore, that a person becomes a customer as soon as a business
relationship is established. It is not necessary for the account to have been open for a long
period of time, or for the business to be conducted over a regular period. In fact, two
conditions seem to be important for becoming a customer of a bank. These are as follows:
I. A bank account-savings, current or fixed deposit-must be opened in his name by
making necessary deposits of money, and
II. The dealing between the banker and the customer must be of the nature of banking
business.
A customer of a banker need not necessary be a person. A firm, joint stock company, a
society or any legal separate legal entity may be a customer.

CLASSIFICATION OF BANK
Bank

On the basis of
Ownership
Structure

1. Govt. Bank.
2. Private Bank

On the basis of
Function
Structure

1. Central Bank.
2. Commercial Bank
3. Industrial Bank.
4. Investment Bank.
5. Exchange Bank.
6. Co-operative Bank.
7. Savings Bank.
8. Mortgages Bank.
9. Merchant Bank.
10. National Bank.
11. State Bank.
12. Monitory Bank.

On the basis of
Organizational
Structure

1. Unit Banking.
2. Branch Banking.
3. Group Banking.
4. Chain Banking
5. Mixed Banking.

On the basis of
Scheduling
Struxture

1. Scheduled Bank.
2. Non-scheduled Bank.

On the basis of ownership

There are two types of bank on the basis of ownership.

Government bank: The bank which is made by Government. Governor is the head of
the bank. Who regulates banking activities properly. Exam: Central or Bangladesh
Bank.
Private Bank: Private bank is made by public share. It is controlled by Government
Bank.

On the basis of ownership

Actually there are huge types of bank are in the basis of function. Some are as:

Central bank: Central bank is the main bank. Guardians of all bank. Central bank is
the controller of all commercial or financial institution. Bangladesh bank is the
central bank in our country.
Commercial bank: Commercial bank which is established commercial views, activities.
It collects money, provide money, and give money. Exam: One Bank.
Industrial bank: It is actually invest there money in various sector for long security
share. Exam: ICB bank.
Exchange bank: It is doing only foreign exchanges only. All banks have another
branch for foreign exchange. Exam: Exim bank.

Co-operative: Actually established from co-operation or helping there members for

given facilities. Exam:: Bangladesh co-operative bank.
Savings bank: This type of bank influenced lower class or lower earning people. This
book help lower public people to increase there income. Exam: Bangladesh postal
savings bank.
Mortgage: This type of bank is providing loan & extend also loan.

On the basis of organizational structure

Unit Banking: The banking system in which the bank has only a central office and has
no branches is called unit banking.
There is no unit banking system in Bangladesh. It was first created in U.S.A.
Branch Banking: The banking system, in which the banks are operated in different
countries or different cities in one central bank name, is called branch banking.
Example: Sonali Bank.
Group Banking: The banking system in which a bank purchases the ownership of
several small banks which are in some business and has the managing to manage and
operate the small banks is called group banking.
Chain Banking: This banking system is established in systematically in chain system.
There is no chain banking system in Bangladesh. But now-w-days in U.S.A. this
banking system is developed.
Mixed Banking: The bank which performs of the sometime the function of
specialized bank and commercial bank is called mixed banking. Example: Bangladesh
Shilpa Bank.

FUNCTION OF MODERN BANK

Banks perform the following two types of functions:

Micro Function
1. Receiving deposit.
2. Allowing interest.
3. Extension of credit and receiving interest.
4. Creation of credit deposit.
5. Creating medium of exchange.
6. Giving cheques.
7. Formation of capital.
8. Circulation of money.
9. Issuing notes.
10. Act as a trustee.
11. Exchanging negotiable instruments.
Macro
1.
2.
3.
4.
5.

Function
Investment of capital.
Role in the economic development.
Transmission of money.
Safe custody of money.
Employment.

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6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.

Consultancy.
Controlling money market.
Credit control.
Agricultural development.
Industrial development.
To set up relation.
Regional development.
Formulation of money market.
Help in import and export.
Acts as treasurer of the Government.
Discounting of bill of exchange, bank draft.

OBJECTIVES OF BANK

A bank establishes with various objectives. The objectives are stated bellow:
1. Objectives
a)
b)
c)
d)
e)

from the view points of bank owners.

Earning profits.
Goodwill.
Raising efficiency.
Rendering services.
Investment of capital.

2. Objectives from the view points of the Government

a) Issue of notes & currencies.
b) Capital formation.
c) Capital investment & industrialization.
d) Money market control.
e) Employment.
f) Advice on financial matters.
3. Objectives from the view points of banks clients
a) Deposits.
b) Safety.
c) Advisor & consultants.
d) Representative or trustee.
e) Raising living standard.

CHARACTERISTICS OF BANKING BUSINESS

A bank has different characteristics. Some characteristics are similar to other business
which is regarded as general characteristics. On the other hand, some characteristics are
different from the other business which is regarded as unique characteristics. They are
given below:
General characteristics like other business
1. Ownership
2. Formation

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3. Legal entity
4. Profit earning
Unique
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.

characteristics as banking business

Service selling agencies
Sources of investment
Trader of interest
Work with confidence
Maintain secrecy
Intermediation between surplus savers & deficit savers
Business inventory
Trader of credit
Money transfer
Agent of client
Safe of keeper
Financial solvency
Source of credit for Government
Capital formation

GARNISHEE ORDER
The obligation of a banker to honor his customers cheques is extinguished on receipt of an
order of the court, known as the Garnishee Order, issued under Order 21, Rule 46 of the
Code of Civil Procedure, 1908.
In case a debtor fails to pay the money due to his creditor, the creditor may apply to the
court to issue a Garnishee Order on the debtors bank. As a result of this order, the
debtors account with bank is to be frozen ^ the bank cannot make any payment out of the
account defying the order of the court.

BARTER SYSTEM
The direct exchange for goods and services without intervention of money is called the
barter system.

BANKERS & CUTOMERS RELATIONSHIP

The relationship arises between a banker and a customer with the opening of an account by
the customer with a banker. The application for opening an account is considered as a letter
of agreement for establishing the banker-customer relationship. The general view is that
the banker-customer relationship is mainly that of a debtor and a creditor with certain
special features.
Debtor and creditor relationship
The relation between a banker and his customer is primarily that of a debtor and a creditor,
with the added obligation on the part of the banker to honor the customers cheques up to
the amount of his credit balance on current account or up to the limit of any overdraft
which the banker may have agreed to follow.

Trustee in case of safe custody deposit

With regard to securities and valuables deposited for safe custody, the bankers position is
different. The property in them remains with the customer who can claim them bank.
Agent of customer
When a banker buys or sells securities on behalf of his customer, he performs an agency
function. Similarly when he collects cheques, dividends, bill or promissory notes on his
customers behalf, he acts as his agent. Beside he may also act in various other agency
capacities. For example: as a trustee, attorney, executor, correspondent or representative.
Promissor and promisee
A banker promises to pay the money against the written orders of the customers by way of
cheques and that too are payable only at the branch where the account is maintained by the
depositor.
Power to exercise lien
Another feature of relationship between a banker and customer is that the former has a
right to exercise general lien on all the negotiable instruments deposited by his customer
unless there is an agreement or contract otherwise.
Claim of incidental charge
As a matter of banking practice a baker has the right to claim incidental charges on certain
accounts which are unremunerative or remain inoperative.
Referce of the customer
A bank serves as a referee as to the financial standing, business reputation and
respectability of its customers.

RESPONSIBILITES OF BANKERS TO CUSTOMER

Both parties in this relationship, both banker & customer have certain responsibilities to
one another. The Bankers responsibilities to his customers are as follows:

Negotiable Instruments Act-1881, Section-31 indicates that a banker must pay the
customers cheque which has been drawn duly on his account subject to the
availability of money in the account.
Maintenance of secrecy of a customers account is the legal & moral responsibility of
a banker both while the account is open & even after it has been closed. Of course,
secrecy may be disclosed:
Against the order of the court of law or to the police & income tax authority;
To serve the public interest; and
Against the request of the customer in black & white
Collection of cheque and depositing the proceeds to the customers account is the
general banking duly of a banker. If these negotiable instruments are returned back
without clearance, the bank should quickly inform the customer.

The bank is entitled to a charge and or commission, except where special

arrangements have been made. It is entitled to debit the customer account with
charges, usually quarterly, or semi-annually without specific advice to the customer.
A charge for an item such as the stop payment of a cheque or rejection of a cheque
would usually be allowed.
A bank must always follow its usual course of business when acting for its customers
who can expect transactions to be dealt within a consistent manner.
A bank acquires a general lien over its customers negotiable documents, which come
into its possession, unless an express contract has been made which would be
inconsistent with a lien (Brandoa V. Branett, 1846)
The bank must give reasonable notice to its customer before closing an account that
is maintained on credit. However, overdrafts are repayable on demand, unless there
is an implied or actual agreement to the contrary.
Supply of Pass Book or Statement of account is the duly of a banker.
If any fraudulent cheque comes to the hand of a banker, he should inform the
customer immediately.
The bank must repay the whole or part of the balance, if and when there is demand
by the customer during banking hours, provided the demand is made at the branch
where have been made, such as under credit-opened encashment facilities.
A bank has no obligations to third parties, arising out of the duly to pay its
customers cheque, and the payee of cheques issued by a customer cannot sue the
paying banker.

RESPONSIBILITIES OF CUSTOMERS TO BANKERS

On other hand, there are certain responsibilities of the customers. These are given below:

The ensure safety and security of the cheque book.

To issue cheque duly neither being careful to ensure that neither words nor figures
can be altered.
If a cheque or cheque book is lost, the customer should inform the banker
immediately; and
Negotiable Instruments Act-1881, Section-65 and 68 indicate that a cheuque must
be drawn upon the bank branch where the money was deposited, during regular
banking hours.

TERMINATION OF BANKER-CUSTOMER RELATIONSHIP

As the banker-customer relationship can be established, so it can also be terminated. It
arises between a banker & a customer with the opening of an account by the customer with
a banker. So, the relationship terminates if the account is closed for any reason.
Banker-customer relationship may be terminated due to the following reasons:
1.

If a banker does not pay the cheque of a customer, which has been drawn duly on his
account, not withstanding the availability of deposited money in account.

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2. If the secrecy of the customers account is not maintained legally and normally by
the banker.
3. If any fraudulent cheque comes to the hand of a banker and if he makes payment
without information the customer. If the banker makes any charge on transactions
which is not permissible in Islamic Shariah. For example, if interest is charged or a
bride is alleged.
4. If the customer is declared bankrupt by the court.
5. If the customer going to mentally imbalanced or insance.
6. On the death of the customer.
7. No transaction for long time.
8. If any agreement is otherwise violated either by the banker or by the customer.
9. If the customer defaults on a loan.
10. Decision by the customer himself.
11. Decision by the banker itself.
12. If the banker fraudulently embezzles the customers money.
13. If the banker does not provide banking services to the customer properly. For
example, if cheques, bills etc are not collected without informing the customer.
14. If the banker does not supply Pass Book or Statement of account to the customer.

Created by, Russel (DIIT)

&
Composed by, Sojib (DIIT)