Product and services of cb

© The McGraw-Hill Companies, Inc., 2001. All Rights Reserved.Irwin/McGraw-Hill
Bangladesh Bank Training Academy, BBTA
Products and Services of
Commercial Banks
Amatur Rab, DD

Functions of Commercial Banks
Primary function functions :
A) Accepting of Deposit
B) Lending of Money
- Bank product definition: It is every product or service produced by bank no
matter if it is a debtor or a creditor and no matter if that is done in its own name
and account or for somebody else’s name and account;
- Traditional bank task is to collect money and to invest money in
different parts of the economy;
- General opinion: Bank has only mediator role in collecting money
and extending credits;

Modern Banking
 Banks now a days , depending on customer baseor
particular groups of customers , Locations
 Different systems of Banking services …
 Wholesale Banking ( Corporate Banking). Banking for Large
entities , corporate, Governments etc. Money market, Foreign Trade,
 Retail Banking . Mass market banking focused mainly on individual
customers.
 Virtual Banking ( Large banks operate through a large numbers of
branches, direct relationship between banker and customers).
 Offshore Banking (EPZ). Specialized zones, Low or no Taxation
5-2

Services of Banks in modern times
 Teller System .
 Deposit of money, encashment of cheques, purchase of drafts, pay order
 Core Banking.
 Central database for banking transactions are done centrally, online . Single
software is used for all the branches and is operated on WAN infrastructure.
 MICR, ATM, POS, BEFTN
 E- Banking . Transactions via internet, Tele Banking, Remote Banking
 Online Banking. Any branch banking
 Others
 Phone Banking, Internet Banking, Mobile Banking
 Credit Card, Debit Card, Premier Banking
5-3

Primary Functions
 Accepting Deposits .
Deposit is the life blood of a bank. Mobilization of deposit is made by the banks by
opening different deposit accounts and introducing new and innovative saving
schemes with attractive interest/profit
 Current Deposit (CD) or Demand Deposit
 Savings Deposit
 Short Notice Deposit (SND)
 Fixed Deposit or Time Deposits
 Schemes and Recurring Deposits
( DPS, CSS, LDS, MDS, Double Benefit, monthly Benefit, Laksma puron, etc)
5-4

Primary Functions
 Lending Money : Different forms of lending are
( Secured or unsecured) :
 Loans, Overdrafts, Cash Credit
 Bill purchase and discounting
 Lease Financing
 SME Financing
 Factoring Services
 Bank Guarantee
 International Trade Finance ( Import & Export)
 Call market

Secondary Functions :
In addition to the basic functions , perform a large
number of other functions to provide 02 types services
1. Agency Services
2. General Utility Services
Category of Functions :
General Banking
Credit / Advance
International Trade and Foreign Exchange Business

Agency Services
Banks act agent of their customers
Collection of Cheques, Drafts, Bills
Execution of Standing Instructions
Collections of Interest, Dividends of Share and
securities, IPO collections , Sock related Tasks
Remittance of Funds - DD, MT, TT
Receiving Utility Bills ( gas, Electricity, T&T, Water, Internet )
Providing Income Tax services
Foreign exchange business
Acting as executors and trustee

General Utility Services
 Locker Services
 Issues of L/C, Guarantee and TC, FDD
 Arranging Corresponding relationship with
foreign counterparts for trade realted
services and information
 Consultancy, suitable investment advice
 Student file for study abroad
 Travel related services etc.

General Banking Services
 Deposit Department- Account Opening, Cheque Book
issue, Stop Payment, providing account statement, closing of
Account, Balance Confirmation, transfer of Cheques & Vouchers,
Collection of Cheques and instruments .
 Cash Department- All cash receipts through deposit pay in
slip and payment by cheques
 Clearing Dept. - Clearing Department receives all cheques ,
drafts, Pay order etc for collection through Clearing house ( Bangladesh
Automated Clearing House, BACH)
 Bills Dept. - Collect cheques , drafts, pay order beyond the
jurisdiction of Clearing House

General Banking
 Remittance Dept. - Local Remittance are handled by
Remittance dept. Demand Draft(DD), pay Order, Pay Slip, Telegraphic
Transfer (TT), Mail Transfer (MT) are issued by the remittance Department .
 Treasury Dept. - Centralized in Bank’s Head Office operate as a
very effective manner to efficient FUND management taking into consideration
of all market risks as well as earning profit .
Functions- Money Market, foreign Exchange, Asset Liability
Management, Fixed Income
 Accounts Dept.- All works of Bank branch are compiled by the
accounts dept. All vouchers with supplementary sheet/ summary position are
checked and kept by this dept. Accounts prepare salary sheet, PF position,
Bonus , Increment, deductions etc.

CREDIT ( Loan and Advance)
Credit Products and Services
Project Loans, Agriculture and agrobased projects
Cash Credit ( Hypo and Pledge)
Secured Over Draft {SOD(FO)}
Home Loans/ House repair and renovation
SME loans
Lease Finance
Guarantee
Factoring
Consumer Financing
Personal Loans
Real Estate and Civil Constructions
Bills Purchase and Discounting ( Negotiation)
Over Drafts (OD)

International Trade ( Foreign Trade)
 Import Dept.- L/C opening, Post Import Financing
LTR- Loan against Trust Receipt, LIM- Loan
against Imported Merchandise
 Export Dept. - Pre Shipment Financing ( BTB L/C
opening , Packing Credit(PC), CC(Export) etc
 Post Export Financing – Foreign Documentary Bill Purchase
(FDBP), Inland Documentary Bill Purchase ( IDBP)

Pre Import Finance
 Opening /establishment of Letter of Credits /
Documentary Credit : A Bank’s ( issuing Bank) written definite and
irrevocable undertaking to the beneficiary ( Exporter) promising to pay (honor )
certain sum of money against complied presentation of specified documents
within a stipulated period to the issuing Bank
 Honor means – to pay by the issuing bank at sight if the L/C is available at
sight,
- to incur a deferred payment undertaking and pay at maturity if the credit (L/C)
is available by deferred payment
- to accept a Draft ( Bill of Exchange) drawn by the beneficiary and pay at
maturity if the Credit is available by acceptance ( BTB L/C)
 Negotiation means the giving of value to the beneficiary by the nominating
bank ( authorized to negotiate) on or before payment by the issuing bank
against complied presentation of documents

Post Import-
Loan against Imported Merchandise (LIM)
 When importer (Applicant) is not in a position to
release the imported goods from own sources , LIM
facilities are allowed as per request of the party for
meeting immediate requirements of clearing goods
from the port. The goods for LIM under lock and key
are kept in the warehouse as pledge under effective
and legal control of Bank. It is a short term credit
allowed maximum for 45 days.
 Delivery of LIM goods are made against Delivery
Challan after proportionate payment by the party as
per Delivery Order.

Post Import-
Loan against Trust Receipt (LTR)
 It is a usual practice that a bank allows advance LTR
facility to the proven customer with highly
satisfactory track records obtaining Letter of Trust
Receipt from the Customer.
 Short term credit usually allowed for 30 days to 120
days as per arrangement with the bank.
 Goods are kept under the control of the Importer

Export Financing
Pre Shipment Credit
 Pre –shipment credit is required by the exporter to procure raw
materials,process,manufacture , pack and for shipment for the finished
goods to the importer abroad.
 Pre – shipment credit is extended in the form of CC(Hypothecation),
CC(Pledge)/Packing credit(PC) and opening Back to Back L/C (BTB
LC)
 These types of credit facilities are extended to the regular exporters
for a particular period against Export Letter of Credit (Master L/C) from
a first class foreign bank.
 The genuineness of the export L/C must be ensured and terms and
conditions of the L/C must be acceptable to the bank and should not
contain any clause as may jeopardize bank’s /borrower’s interest
 Value, quality , quantity etc. of the raw materials /goods
procured under Back to back L/C must be in conformity with
the Export L/C.

BTB L/C
 (Master L/C). The export L/C is kept under lien of the bank and raw
materials /goods procured are hypothecated or pledged , as the case
may be , under supervision of the bank to ensure timely shipment as
per terms of Export L/C.
 Such advances are adjustable within advances are adjustable within
the stipulated time as per terms of sanction of the bank.
 Export Credit Guarantee from Sadharan Bima Corporation is obtained
covering possible perils for pre-shipment and post-shipment period.
 To minimize risk, collateral security , sometimes, also is obtained by
the bank where necessary

Electronic Banking Services
 Obtain cash.
 Check account balances.
 Transfer funds.
 Point-of-sale payments.
 Direct deposit of paychecks
and other regular income.
 Preauthorized payments.
 Web “cyberbanking.”
5-5

Cyberbanking
 Banking through the
telephone, personal
computer, and on-line
services.
 “Cyber” branches to do
business on the Web.
 Access 24 hours a day,
7 days a week.
 Privacy and security
are concerns. 5-6

Automated Teller Machines
 A computer terminal that allows customers to
conduct banking transactions.
 Debit card or cash card activates transactions.
 Linked to a bank account. Requires a PIN.
 Liability if debit card is lost or stolen.
 To reduce ATM fees you can...
 Compare ATM fees before opening an account.
 Use your own bank’s ATM when possible.
 Withdraw larger cash amounts as needed.
 Use personal checks, traveler’s checks, credit
cards, and pre-paid cash cards when traveling.
5-7

Plastic Payments
 Point-of-sale transactions.
 Online card requires a PIN to authorize, and
includes instant transfer from your account.
 Offline card transactions are
processed like credit card charges.
 Stored-value cards.
 For long distance, tolls, library fees.
 Smart cards have a microchip for prepaid goods
and services and for data, such as your medical
history.
 Electronic cash, ex. www.cybercash.com 5-8

Opportunity Costs
of Financial Services
 Higher rate of return may
be obtained at the cost
of lower liquidity.
 Convenience of a 24-hour ATM
must be weighed against service fees.
 The “no fee” checking account that requires a
$500 non-interest-bearing minimum balance
means lost interest of nearly $400 at 6
percent compounded over 10 years.
5-9

Changing Interest Rates and Decisions
Related to Financial Services
The prime rate is what banks charge large corporations.
See www.federalreserve.gov.
 When interest rates are rising...
 Use long-term loans to take advantage of current
low rates.
 Select short-term savings instruments to take
advantage of higher rates when they mature.
 When interest rates are falling...
 If you refinance loans, use short-term loans.
 Select long-term savings instruments to
“lock in” earnings at current high rates. 5-10

Types of Financial Institutions
 Deposit type institutions
 Commercial banks are corporations that
offer a full range of services including
checking, savings and lending.
 Savings and loan associations specialize in
savings accounts and mortgage loans.
 Mutual savings banks are like traditional
savings and loan associations, but they are
owned by their depositors.
 Credit unions are user-owned and nonprofit.
5-11

Types of Financial Institutions
 Non-deposit type institutions.
 Life insurance companies offer insurance plus
investment and retirement planning.
 Investment companies offer a money market fund.
You can write limited checks on your account.
 Finance companies make personal loans.
 Mortgage companies lend for home purchase.
 Pawnshops make loans on possessions.
 Check-cashing outlets change 2-3%.
 Title and payday loan companies - high interest.
 Cyberbanking via phone and on-line, such as
bankamerica.com or wellsfargo.com.
(continued)
5-12

Comparing Financial Institutions
 Basic concerns of a financial services customer.
 Where can I get the best
return on my savings?
 How can I minimize the
cost of checking and
payment services?
 Will I be able to borrow
money when I need it?
 Cost of convenience and personal service.
 Consider safety and interest rates. 5-13

Types of Savings Plans
 Regular savings accounts.
 Club accounts.
 Certificates of deposit.
 Several types to chose from.
 Managing by looking at earnings and costs.
 Interest earning checking accounts.
 Money market accounts and funds.
 Money market accounts are covered by the
FDIC, but money market funds are not.
 U.S. savings bonds (see www.savingsbonds.gov).
5-14

Evaluating Savings Plans
 Rate of return or yield.
 Percentage increase in value due to interest.
 Compounding - interest on interest.
 Inflation - compare return with inflation rate.
 Liquidity.
 Safety via FDIC and NCUA.
 FDIC insures up to $100,000 per person per
financial institution (see www.fdic.gov).
 Restrictions and fees.
 Tax considerations. 5-15

After Tax Rate of Return
 (1 - tax rate) x yield on savings
 (1 - .28) x .06
 .72 x .06
 4.32%
 So even if you are earning 6%, after
you pay taxes on the interest you earn
you are actually earning only 4.32%
after you pay taxes on the interest.
5-16

What is “Truth in Savings?”
 Requires Disclosure of...
 Fees on deposit accounts.
 The interest rate.
 The annual percentage rate.
 Interest must be compounded on the full
principal amount in the account each day.
 Sets formulas for computing the APY.
 Establishes rules for advertising accounts.
5-17

Selecting Payment Methods
 Ninety percent of business transactions are
conducted by check, making it a necessity for
most people.
 Types of checking accounts include...
 Regular.
Usually have a monthly service charge.
 Activity account.
Charge a fee for each check written.
 Package account - a variety of services for a
set monthly fee. 5-18

Selecting Payment Methods (continued)
 Interest-earning .
Usually require a minimum balance.
Sometimes called NOW accounts.
Share draft - interest earning checking
account in a credit union.
 Evaluating checking accounts.
 Restrictions, such as a minimum balance.
 Fees, which are increasing, and charges.
 Interest.
 Special services, such as home banking.
 Overdraft protection.
5-19

Other Payment Methods
 Certified check.
 Personal check with guaranteed payment.
 Cashier’s check.
 Check of a financial institution you get by paying
the face amount plus a fee.
 Money order.
 Purchase at financial institution, post office, store.
 Traveler’s check.
 Sign each check twice.
 Electronic traveler’s checks - prepaid travel card
with ability to get local currency at an ATM. 5-20

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