The main functions of commercial banks are accepting deposits from the public and advancing

them loans. However, besides these functions there are many other functions which these banks
perform. All these functions can be divided under the following heads:

1. Accepting Deposits:
The most important function of commercial banks is to accept deposits from the public. Various sections
of society, according to their needs and economic condition, deposit their savings with the banks.

For example, fixed and low income group people deposit their savings in small amounts from the points
of view of security, income and saving promotion. On the other hand, traders and businessmen deposit
their savings in the banks for the convenience of payment .Therefore, keeping the needs and interests of
various sections of society, banks formulate various deposit schemes. Generally, their ire three

types of deposits which are as follows:

(i) Current Deposits:

The depositors of such deposits can withdraw and deposit money whenever they desire. Since banks
have to keep the deposited amount of such accounts in cash always, they carry either no interest or very
low rate of interest. These deposits are called as Demand Deposits because these can

be demanded or withdrawn by the depositors at any time they want .Such deposit accounts are highly
useful for traders and big business firms because they have to make payments and accept payments
many times in a day.

(ii) Fixed Deposits:

These are the deposits which are deposited for a definite period of time. This period is generally not less
than one year and, therefore, these are called as long term deposits. These deposits cannot be
withdrawn before the expiry of the stipulated time and, therefore, these are also called as time
deposits. These deposits generally carry a higher rate of interest because banks can use these deposits
for a definite time without having the fear of being withdrawn.

(iii) Saving Deposits:

In such deposits, money up to a certain limit can be deposited and withdrawn once or twice in awake.
On such deposits, the rate of interest is very less. As is evident from the name of such deposits their
main objective is to mobilize small savings in the form of deposits. These deposits are generally done by
salaried people and the people who have fixed and less income.

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2. Giving Loans:

The second important function of commercial banks is to advance loans to its customers. Banks

charge interest from the borrowers and this is the main source of their income .Banks advance loans not
only on the basis of the deposits of the public rather they also advance loans on the basis of depositing
the money in the accounts of borrowers. In other words, they create loans out of deposits and deposits
out of loans This is called as credit creation by commercial banks. Modern banks give mostly secured
loans for productive purposes. In other words, at the time of advancing loans, they demand proper
security or collateral. Generally, the value of security or collateral is equal to the amount of loan. This is
done mainly with a view to recover the loan money by selling the security in the event of non-refund of
the loan. At limes, banks give loan on the basis of personal security also. Therefore, such loans are
called as unsecured loan. Banks generally give following types of loans and advances:

(i) Cash Credit: In this type of credit scheme, banks advance loans to its customers on the basis of bonds,
in ventures and other approved securities. Under this scheme ,banks enter into an agreement with its
customers to which money can be withdrawn many time during a year. Under this set up banks open
accounts of their customers and deposit the loan money. With this type of loan, credit is created.

(iii) Demand loans:

These are such loans that can be recalled on demand by the banks. The entire loan amount is paid in
lump sum by crediting it to the loan account of the borrower, and thus entire loan becomes chargeable
to interest with immediate effect.

(iv) Short-term loan:

These loans may be given as personal loans, loans to finance working capital or as priority sector
advances. These are made against some security and entire loan amount is transferred to the loan
account of the borrower.

3. Over-Draft:

Banks advance loans to its customer’s upto a certain amount through over-drafts, if there are no
deposits in the current account. For this banks demand a security from the customers and charge very
high rate of interest.

4. Discounting of Bills of Exchange:

This is the most prevalent and important method of advancing loans to the traders for short-term
purposes. Under this system, banks advance loans to the traders and business firms by discounting their
bills. In this way, businessmen get loans on the basis of their bills of exchange before the time of their
maturity.

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5. Investment of Funds:

The banks invest their surplus funds in three types of securities—Government securities, other

approved securities and other securities. Government securities include both, central andstate
governments, such as treasury bills, national savings certificate etc. Other securities include securities of
state associated bodies like electricity boards, housing boards, debentures of Land Development Banks
units of UTI, shares of Regional Rural banks etc.

6. Agency Functions:

Banks function in the form of agents and representatives of their customers. Customers give
their consent for performing such functions. The important functions of these types are as
follows:
(i) Banks collect cheques, drafts, bills of exchange and dividends of the shares for their
customers.
(ii) Banks make payment for their clients and at times accept the bills of exchange: of their
cus-tomers for which payment is made at the fixed time.
(iii) Banks pay insurance premium of their customers. Besides this, they also deposit loan
installments, income-tax, interest etc. as per directions.
(iv) Banks purchase and sell securities, shares and debentures on behalf of their customers.
(v) Banks arrange to send money from one place to another for the convenience of their
customers.
7. Miscellaneous Functions:

Besides the functions mentioned above, banks perform many other functions of general utility
which are as follows:
(i) Banks make arrangement of lockers for the safe custody of valuable assets of their customers
such
as gold, silver, legal documents etc.
(ii) Banks give reference for their customers.
(iii) Banks collect necessary and useful statistics relating to trade and industry.
(iv) For facilitating foreign trade, banks undertake to sell and purchase foreign exchange.
(v) Banks advise their clients relating to investment decisions as specialist
(vi) Bank does the under-writing of shares and debentures also.
(vii) Banks issue letters of credit.
(viii) During natural calamities, banks are highly useful in mobilizing funds and donations.
(ix) Banks provide loans for consumer durables like Car, Air-conditioner, and Fridge etc.

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Causes of gaining popularity of Branch Banking in Bangladesh
Today branch banking is getting much more popularity in Bangladesh. The causes behind this popularity
as follow:

1. Large in size: the size of this type bank is large .so branch bank enjoy all types of
advantage which is provided in our country .that is why branch banking is gaining
popularity .
2. Large capital structure: branch bank processes a large amount of capital. large capital
helps to run any institution smoothly.
3. Easy renitence transfer: By branch banking renitence can be transfer any where
(where branch of that situated ) at any time easily . It is another reason of gaining
popularity.
4. Large scale credit : a branch bank can provide huge credit to its clients as its
process a huge capital
5. Risk distribution: Distribution of risk is another reason of gaining popularity of
branch banking in Bangladesh . It can share its risk easily will all other branch.
6. Sufficient deposits: commercial bank perform its function not only country wide but
also abroad that’s why its has to collect large deposits.
7. Investment: By collecting adequate capital and deposited money. A large investment
can be made by the branch bank.
8. More liquidity: It is mensioned earlier that branch bank process large capital It is
liquidity amount is also sufficient to meet the demand of the clients.
9. Creation of job opportunity: A huge amount of employment is credited by branch
banking.
10. Efficient management: In our country, Banking sectors are run by the company act
1994. So the management of this type of bank is very efficient.
11. Public faith and confidence: By providing more service to its customer and clients,
branch bank holds public faith and confidence.
12. Economic development: branch bank plays important role in case of economic
development in our countr.It is another reason of getting popularity.
So considering all the points it can be said that branch banking is gaining popularity
all over the country as well as outside the country.

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Unite banking Branch banking

1.Unite bank will be small 1. Branch bank will large

bank bank .
2. The area and capital of it 2. The area and capital of this
is small. So it can be easily bank is large. So it is
formed. difficult to form and time
consumed.
3.It can be found in USA but 3. It can be found in all over
the consistence of unit bank the world.
can not be found in
Bangladesh.
4.It may be a sole 4. It may be joint stock
proprictorship on partnership company.
organization.
5.It has only one office and 5. It has many branch office
all the acti8vities are and has a main office
performed by nthat office.
6.The administrative 6.the administrative expenses
expenses and other expenses and other expenses is higher
is than branch banking. than unit banking.
7. It takes any decision 7. But it can not take any
quickly. decision quickly .
8. The power of it to formate 8. The power of the
capital and provide loan is formation of capital and
lower than the branch providing loan is higher than
banking. the unite banking.
9. Its has less opportunities 9. It has much opportunities
to control credit. to control credit.
10. As, The loan providing 10. As, The loan providing
fuilities is less. So the profit facilities is high. So this

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of this bank is low.
11. The rate of interest of
unit bank is not similar to
other bank.
12.It has no opportunities to
transfer money one place to
another .
13.A few people get job to
this bank .
14.The relation between
owner and employer is better
than the branch banking.
15. The owner of it may
desolate this bank of any
time.
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profit of this bank is high.
11.The rate of interest is
similar to the other branch
banking.
12.It has much opportunities
to transfer money from one
place to another.
13.Many people get jobs in
this banking sector.
14. The relation between the
owner and the banker is not
better than unit banking.
15.The desolation of this
bank is complex and
consumed way.
 Features of Branch Banking

Extensive service: Branch Banking can provide extensive service to cover large area. They can open their
branches throughout the country and even in foreign countries.

Effective Central Branch Control: Under branch banking, the central bank has to deal only with a few big
banks controlling a large number of branches.

Easy transfer of Funds: Under branch banking, a bank has widespread branches therefore; it is easier
and economical to transfer funds from one branch for the other.

Formulation of policy: Branch bank does not formulate of policy and not decision of rules and regulation
of Branch Bank.

Equity in interest: Branch Bank Interest in the same percent of Bank same interest with loan and same
interest with collection of money of Branch Bank.

Nature of organization: Branch Bank spreads in large area and large Business, native and foreign
Business of Branch Banking.

Good Relationship with Central Bank: Branch Bank keeps good relation with Central Bank and it abides
by the Central Bank.

Branches by the same name: Branch Bank may be by the native and foreign with same name.

Contacts with the whole country: Under branch banking the maintains continual contacts with all parts
of the country.

Greater public confidence: A Bank with huge financial resources and number of branches spread
through-out the country, can command greater public confidence.

Now-a-days Branch Bank has become very popular all over the world specially in Bangladesh. Every bank
has many branches.

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 Advantages of Branch Banking

(A) Better Banking Services: Such banks, because of their large size can enjoy the economies of
large scale viz. division of work and specialization. These banks can also afford to have the
specialized services of bank personnel which the unit banks can hardly afford.
(B) Extensive Services: Branch Banking can provide extensive services to cover large area .They
can open their branches throughout the country and even in foreign countries.

(C) Decentralization of Risks: In branch banking system, branches are not concentrated at one
place or in one industry. These are decentralized at different places and in different industries.
Hence the risks are also distributed.
(D) Uniform Rates of Interest: In branch banking, there is better control and coordination of the
central bank. Consequently interest rates can be uniform.
(E) Better Cash Management: In branch banking there can be better cash management as cash
easily be transferred from one branch to another. Therefore, there will be lesser need to keep
the cash idle for meeting contingencies.
(F) Better Training Facilities to Employees: Under branch banking the size of the bank is quite
large. Therefore, such bank can afford to provide better training facilities to their employees.
Almost every nationalized bank in India has its separate training college.
(G) Easy and Economical Transfer of Funds: Under branch banking, a bank has a widespread of
branches. Therefore, it is easier and economical to transfer funds from one branch to the
other.
(H) Better Investment of Funds: Such bank can afford the services of specialized and expert staff.
Therefore, they invest their funds in such industries where they get the highest return and
appreciation without sacrificing the safety and liquidity of funds.
(I) Effective Central Bank Control: Under branch banking, the central bank has to deal only with a
few big banks controlling a large number of branches. It is always easier and more convenient
to the central bank to regulate and control the credit policies of a few big banks, than to
regulate and control the activities of a large number of small unit banks. This ensures better
implementation of monetary policy.
(J) Contacts with the whole country: Under branch banking, the bank maintains continual
contacts with all parts of the country. This helps it to acquire correct and reliable knowledge
about economic conditions in various parts of the country.
(K) Greater Public Confidence: A bank, with huge financial resources and number of branches
spread throughout the country, can command greater public confidence than a small unit bank
with limited resources and one or a few branches.

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 Disadvantages of Branch Banking

Following are the disadvantages of branch banking:

(A) Difficulties of Management, Supervision and Control: Since there are hundreds of
branches of a bank under this system, management, supervision and control became
more inconvenient and difficult. There are possibilities of mismanagement in
branches. Branches managers may misuse their position and misappropriate funds.
There is great scope for fraud. Thus there are great possibilities to fraud and
irregularities in the financial management of the bank.
(B) Lack of Initiative: The branches of the bank under this system suffer from a complete
lack of initiative on important banking problems controlling them. No branch of the
bank can take decision on important problems without consulting the head office.
Consequently, the branches of the bank find themselves unable to carry on banking
activities in accordance with the requirements of the local situation. This makes the
banking system rigid and inelastic in its functioning. This also leads to “red-tapism”
which means: official delay”.
(C) Monopolistic Tendencies: Branch banking encourages monopolistic tendencies in the
banking system. A few big banks dominate and control the whole banking system of
the country through their branches. This can lead to the concentration of resources in
the hands of a small number of men. Such a monopoly power is a source of danger to
the community, whose goal is a socialistic pattern of society.
(D) Regional Imbalances: Under the branch banking system, the financial resources
collected in the smaller and backward regions are transferred to the bigger industrial
centers. This encourages regional imbalances in the country.
(E) Continuance of a Non-profitable Branches: Under the branch banking, the weak and
unprofitable branches continue to operate under the protection cover of the stronger
and profitable branches.
(F) Unnecessary Competition: Branch banking is delocalized banking, under the branch
banking system, the branches of different banks get concentrated at certain places,
particularly in big towns and cities. This gives rise to unnecessary and unhealthy
competition among them. The branches of the competing banks try to tempt
customers by offering extra inducements and facilities to them. This naturally
increases the banking expenditure.
(G) Expensiveness: Branch banking system is much more expensive than the unit banking
system. When a banks opens a number of branches at different places, and then there
arises the problem of co-coordinating their activities with others. This necessitates the
employment of expensive staff by the bank.
(H) Losses by Some Branches Affect Others: When some branches suffer losses due to
certain reasons, this has its repercussions on other branches of the bank.

Thus branch banking system as well as unit banking system suffers from defects and drawbacks. But the
branch banking system is, on the whole, better than the unit banking system. In fact, the branch banking
system has proved more suitable for backward and developing countries like India. Branch banking is
very popular and successful in India.

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