Chapter 3

Banking System
Course: Fin-209
Law & Practice of Banking
 Banking System Banks and FIs in Bangladesh
After the independence of Bangladesh, Banking Industry started it’s
journey with 6 Nationalized Banks, 3 State Owned Specialized Banks
Financial System
and 9 Foreign Banks. In 1980, banking industries achieved significant
The Financial System is the mechanism through which
expansion with the entrance of private banks. Now, banks in
loanable fund reach borrowers. Through the operation of the
Bangladesh are primarily of two types:
financial markets, money is exchanged for financial claims in
1. Scheduled Banks: The banks that remain in the list of banks
the form of stocks, bonds and other securities.
maintained under the Bangladesh Bank Order, 1972.
2. Non-Scheduled Banks: The banks which are established for
Banking System special and definite objective and operate under any act but
A Banking System is a group or network intuitions that are not Scheduled Banks. These banks can not perform all
provide financial services for individuals and organizations. functions of Scheduled Banks.
These institutions are responsible for operating a payment
system, providing loans, talking deposits and helping with Scheduled Banks
investments. Scheduled banks are licensed under the Banks Company Act, 1991.
Top There are 61 scheduled banks in Bangladesh who operate under full
management
control and supervision of Bangladesh Bank which is empowered to do
Customer Stakeholder so through Bangladesh Bank Order (1972) and Bank Company Act
(1991). Scheduled banks are classified into following types:
Banking
1. State Owned Commercial Banks (SOCBs): There are 6 State
Financial
System Owned Commercial Banks which are fully or majorly owned
Accounting
Community
by the Government of Bangladesh-
• Agrani Bank Limited • Janata Bank Limited
Government Competitor • Bangladesh Development Bank • Rupali Bank Limited
• BASIC Bank Limited • Sonali Bank Limited
2. Specialized Banks (SDBs): 3 Specialized banks are
now operating which ere established for specific
objective like agricultural or industrial development.
These banks are also fully or majorly owned by the
Government of Bangladesh.
• Bangladesh Krishi Bank.
• Rajshahi Krishi Bank.
• Probashi Kallyan Bank.
3. Private Commercial Banks (PCBs): There are 43
private commercial banks which are majorly owned by
individuals/the private entities. PCBs can be categorized
into two groups:
a) Conventional PCBs: 33 conventional PCBs are
now operating. They perform the banking
function in conventional fashion i.e. interest
based operations.
b) Islami Shariah based PCBs: There are 10
Islami Shariah based PCBs in Bangladesh and
they execute banking activities according to
Islami Shariah base principals.
4. Foreign Commercial Banks (FCBs): 9 FCBs are
operating in Bangladesh as the branches of the banks
which are incorporated in abroad.
There are now 5 non-scheduled banks in Bangladesh which are:
1. Ansar VDP Unnayan Bank.
2. Karmashangoshtan Bank.
3. Grammen Bank.
4. Jubilee Bank.
5. Palli Snachay Bank.
FIs
Non Bank Financial Institutions (FIs) are those type of financial
intuitions which are regulated under Financial Intuition Act (1993) and
controlled by Bangladesh Bank. Now, 34 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 SOCB, 15 were
initiated by private initiative and 15 were initiated by joint venture
initiative. Major sources of funds of FIs are Term Deposit (at least 3
months tenure), Credit Facility from Banks and other FIs, Call Money as
well as Bond.
Major difference between Banks and FIs are as follows:
• FIs can not issue cheques, pay orders or demand drafts.
• FIs can not receive demand deposits.
• FIs can not involve in foreign exchange financing.
• FIs can conduct their business operations with diversified
financial models like syndicated financing, bridge financing,
lease financing, securitization instruments etc.
Classifications of Banks
The following are the figures that indicate the banking
structure:
1. Central Bank:
Bangladesh Bank is the Central Bank of Bangladesh and
it is fully owned by the Government of Bangladesh. It is
governed by a central board and headed by a Governor,
who is appointed by the Central Government. It issues
guidelines for the functioning of all banks operating
within the country.
4. Cooperative Banks: The cooperative sector banks are related
with rural areas and serve rural people mainly. The cooperative
banking sector is divided into the following categories:
a) State Cooperative Banks.
b) Central Cooperative Banks.
c) Primary Agriculture Credit Societies.

2. Public Sector Banks:

a) The State-owned Banks: The State Bank of
Bangladesh and it’s associate banks.
b) Nationalized Banks.
c) Regional Rural Banks: They are sponsored by
Public Sector Banks.
3. Private Sector Banks:
a) Private Banks.
b) Foreign Banks Operating in Bangladesh.
c) Scheduled Cooperative Banks.
d) Non-scheduled Banks.