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Short Assignment-1

Submitted To: D.R. KARMAKER MD. ZAKIR HOSSAIN Bangladesh Institute of Bank Management

Submitted By:

Date of Submission: 16th February, 2014.

Central Bank: The Guardian of Scheduled Banks. Bangladesh Bank (BB), as the central bank, has legal authority to supervise and regulate all scheduled banks and non-bank financial institutions. It performs the traditional central banking roles of note issuance and of being the banker to the government and banks. Given some broad policy goals and objectives, Formulates and implements monetary policy, Manages foreign exchange reserves and Lays down prudential regulations and Conduct monitoring thereof.

For the banks, Central Bank is the Primary regulator, who governs the activities of banks. In addition Tax authority, Registrar of Joint Stock Company, Ministry of Finance etc. are different types of regulatory bodies whose directives have significant impact of banks business. Whereas, it is necessary to establish a central bank in Bangladesh to manage the Monetary and credit system of Bangladesh with a view to stabilizing d domestic- monetary value and maintaining a competitive external par value of the Bangladesh Taka towards fostering growth and development of countrys productive resources in the best national interest. Now, therefore, in pursuance of the proclamation of independence of Bangladesh, read with the Provisional Constitution of Bangladesh Order, 1972, and in exercise of all powers Banks in one form or another have been subject to the following non exhaustive list of regulatory provisions: 1) restrictions on branching and new entry; 2) restrictions on pricing (interest rate controls and other controls on prices or fees); 3) line-of-business restrictions and regulations on ownership linkages among financial institutions;

4) restrictions on the portfolio of assets that banks can hold (such as requirements to hold certain types of securities or requirements and/or not to hold other securities, including requirements not to hold the control of non financial companies); 5) compulsory deposit insurance (or informal deposit insurance, in the form of an expectation that government will bail out depositors in the event of insolvency); 6) capital-adequacy requirements; 7) reserve requirements (requirements to hold a certain quantity of the liabilities of the central bank); 8) requirements to direct credit to favored sectors or enterprises (in the form of either formal rules, or informal government pressure); 9) expectations that, in the event of difficulty, banks will receive assistance in the form of lender of last resort; 10) special rules concerning mergers (not always subject to a competition standard) or failing banks (e.g., liquidation, winding up, insolvency, composition or analogous proceedings in the banking sector); 11) other rules affecting cooperation within the banking sector (e.g., with respect to payment systems). In recent years regulation in banking has become less pervasive and has shifted from

structural regulation to other more market oriented forms of regulation. As a consequence competition has come to play a very important role in the allocation of credit and in the improvement of financial services. The capital requirements framework created in the context of the Basel committee paved the way to the development of stronger competition in banking. It is unquestionable that all over the world banks now face greater competition both from new entrants in the banking sector and from other financial companies.

. Competition authorities have not been much involved in the process of liberalization of banking. Moreover, in several countries the enforcement of antitrust rules until very recently has not been applicable to banking because of sectored exceptions. . In this light, the purpose of this report is: to assist policy makers and enforcement authorities (in their competition advocacy function) in their efforts to promote competition oriented regulatory reform in banking; to assist policy-makers and enforcement authorities (in their competition advocacy function) in promoting an environment where competition law is fully applicable to banking and where there is an appropriate institutional setting to that end; and to assist competition enforcement authorities in the enforcement of competition law in this sector, with a special emphasis on merger control.

Issuance of Cheque Book. Issuance of Cheque Book: Cheque Book is issued only after opening an account with a bank. As a practice, cheque book is generally issued after depositing mandatory minimum balance in the account. Cheque books shall only be issued at the request of the account holder through banks prescribed requisition slip. Precautions/Steps to be taken for Issuance of Cheque Book: a) The signature of the account holder in the cheque requisition slip must be verified with the specimen signature held with the bank; b) First cheque book should preferably handed over to the account holder; c) Cheque book may also be handed over to persons other than the account holder only upon proper authorization by the account holder;

d) All subsequent cheque books will only be issued against centerfold; e) Particulars of cheque issued must be entered into the Cheque Issue Register and recipient of cheque book should acknowledge such receipt in the space provided for the same. The issuance has to be authenticated in the register by the issuing official and Manager/SubManager jointly; f) The running un-issued cheque books and cheque books issued but not delivered, should be handeled very carefully by the concerned department and must balance at the end of days work. During days work such cheque books shall be kept under lock and key in a small steel box and the box be kept at a place not easily visible from outside. At the end of days work, the box must be sent to the vault; g) Cheque series of all issued cheque book shall be entered into the computer system against the respective account. Upon entry, cheque requisition slip shall be marked posted and initialed by concerned official. The printout should be checked and authenticated.

Stop Payment against Lost/Stolen Cheque Book. Normally the payment of a leaf of Cheque Book cannot be stopped by the bank as it goes against its own commitment in favor of a third party. However stop payment instructions can only be issued by the issuing branch in special circumstances at the request of the Account Holder in case of a lost or stolen Cheque only. In such cases extreme caution should be exercised both by the issuing and the drawee branch. To stop payment of a Cheque the Account Holder has to come up with a written application to inform the respective branch about the lost/stolen Cheque Book. But if he/she cannot come up immediately with the written application then he/she must inform the respective branch over phone or by mail and the branch officials mark Caution Mark to that particular account so that any sort of transaction with that Cheque Book could be prevented. But the Account Holder must come as soon as possible with the written application to settle down the issue. Loss of Cheque Book:

Upon clients written information regarding loss of cheque book, new cheque book may be issued after obtaining proper indemnity (as per Head Office proforma) from the client. Following steps must be taken before issuing new cheque book in lieu of lost one: a) Clients notification letter regarding loss of cheque book should be stamped with time & date seal immediately after its receipt; b) Unused cheque series of the lost cheque book must be marked with Stop Payment in the computer system against the respective account; c) Stop Payment should be marked in the appropriate register; d) Cash department should be notified regarding the lost cheque series of the respective account; If any cheque from the lost cheque series is presented over the counter, it should be immediately notified to the Manager. If a cheque from the lost cheque series is honoured/paid before clients notification of loss of the same is received, bank will not be held liable for doing so. But in case of reverse scenario, bank will be held liable for making payment. Note: Stop Payment Order can only be revoked by the account holder in writing.

Principles of Sound Lending. Sound lending is the process of evaluating credit risk and the principles of sound lending are: 1. Safety: Lending function will be exercised only when it is safe and that the risk factor is adequately mitigated and covered. 2. Security: Since risk factors are involved, security coverage has to be taken before a particular lending. 3. Liquidity: While lending, adequate care has to be taken so that the liquidity is not compromised. 4. Profitability: From the commercial point of view, all loans and advances must have sufficient yield or return.

5. Diversity: The loan portfolio should be diverse and concentration of lending in one particular sector should be avoided. 6. Productive purpose: Lending function will only be used for productive purpose or sector. End use of the fund to be ensured. 7. National / Social interest: While lending, the national and social aspects must be taken care of. No loan is to be given for a purpose which is detrimental to the society.

Handling of Deceased Accounts. Following points must be followed in case of Handling of a Deceased Account; The death of account holder terminates the contractual relationship between his/her and the Bank. The Bank may receive a formal notice of the account holders death but if, in the meantime, an announcement of the account holders death appears in the newspaper or information is received from any other reliable source, it should be considered sufficient notice. A notation Deceased A/C should be prominently made a top of the AOF and Specimen Signature Card, indicating the source of information and the date of death. The account of the deceased account holder should not be operated upon or the balance transferred to any other branch under the instructions of any executor or administrator or any claimant, until all the formalities have been complied with and head Office permission is obtained. On receipt of probate/letter of administration /succession Certificate along with the death certificate, the balance may be paid by issuing payment order(s) in favor of the Beneficiaries and the account should be closed. Upon the death of one of the a/c holder of a joint a/c, the balance of which is repayable to the survivors, the operation of a/c will continue but the survivor or the survivors should be requested to transfer the balance into a new a/c in his/her or their own names and fresh a/c opening form etc. should be obtained.

When the balance is not repayable to the survivor(s), the operation of the a/c must be stopped.

Payment of balance to the nominee of the deceased a/c: Savings Bank A/C: Interest on the balance of savings bank a/c will be paid upto the date of withdrawal/closing of the accounts as admissible under savings bank a/c rules, irrespective of the date of expiry of the depositor. Term Deposit A/C: Premature Encashment: In such cases deposit should be deemed to have been made upto the date of withdrawal and not upto the date of death. Interest should be paid and recovery of penal interest made in accordance with prevalent instructions regarding premature encashment. Encashment at Maturity: Interest should be paid upto the date of Maturity at the rate applicable for the relevant FDR. Encashment beyond Maturity: Interest upto to the period of maturity should be paid at the rate applicable for the relevant FDR. Interest for the period beyond the date of maturity upto the date of withdrawal should be paid at the rate applicable for the savings Bank A/C with checking facility. Loan A/C:

Banks may charge interest on loan a/c till liquidation of outstanding bank dues. The banks are advised to pursue with the successors to adjust the loan a/c at the earliest to avoid accumulation of interest burden. Documents Required: The following documents are required to release fund to the successors/nominees of the Deceased A/C holder: The death certificate issued by the hospital authority. The Certificate issued by the police station. The certificate issued by the chairman of Union Council or Ward Commissioner with or without citing the name of the successors. Death Certificate issued by any other competent authority. Graveyard Certificate. Succession Certificate issued by the Court. Selection of payee out of present successor by the court. Passport of the successors or National ID Card or any other proof their respective identity. Affidavit or Notary Public submitted by the successor. Marriage certificate issued from Marriage registers Office (in case of spouse). Indemnity from the successors or Guarantee from third party. The payment order any be issued in favor of the successor. Others, if any.