Specialized bank definition

What is a specialized bank? A bank that conducts banking activities for the development and expansion of a particular aspect of the economy is called a Specialized Bank.

Specialized banks in Bangladesh

There are 3 Specialized banks now operating in Bangladesh which are:

1. Bangladesh Development Bank
2. Krishi Bank
3. Pravasi Kalyan Bank

Functions of a specialized bank

A specialized bank performs the following functions.

• A specialized bank adopts a fixed plan for its operations, sets standards and formulates financial policies.
• Paying loans to its client business organizations, building capital, formulating liquidity policies, and setting future goals.
• Being equally responsible in financial management
• Conduct cash control activities on account holder business organizations
• Supervise and control salaries and wages of account holder organizations as per regulations.

Types of specialized banks

There can be different types of specialized banks. The types of specialized banks currently seen in different countries are explained below according to type.

1. Agricultural Bank

Banks established for the financing of farmers for the development of the country’s agricultural sector are a type of specialized bank. These banks can be called agricultural banks.

These banks mainly provide loan assistance to the farmers for the capital required for purchase of agricultural machinery, fertilizers, seeds etc. Bangladesh Agricultural Bank and Rajshahi Agricultural Development Bank can be examples of such banks.

2. Industrial Bank

Industrial banks are also a type of specialized bank. A bank established to develop the industrial sector of a country is called an industrial bank.

Industrial banks provide short-term and long-term loans to industrial entrepreneurs. Bangladesh Development Bank Limited is an example of such a bank in Bangladesh.

3. Pravasi Kalyan Bank

This bank was originally established to provide loans to workers who go abroad for employment.

The Government of Bangladesh established Pravasi Kalyan Bank in 2010 to provide loan assistance to migrants.

4. Employment Bank

Employment Bank is the special bank that is established to help the unemployed youth of the country with loans for various initiatives.

The main objective of these banks is to provide loans on easy terms to the unemployed and self-employed entrepreneurs with the aim of eliminating unemployment and poverty in the country. Employment Bank’ is one such specialized bank in Bangladesh.

5. Savings or Deposit bank

A bank that works with the objective of building capital by collecting the savings lying with the people as deposits is called savings or deposit bank.

The main task of this bank is to build capital by encouraging people to save. Bangladesh Postal Savings Bank is a bank formed for this purpose.

6. Investment bank

A specialized bank established to provide long-term capital for the expansion of trade in the country’s business is called an investment bank. Apart from providing loans, the bank plays the role of observer and borrower for the purpose of cooperation in the establishment of new companies or industries.

For this, in addition to taking responsibility for selling shares, it can also purchase a lot of shares itself if necessary. Investment Corporation of Bangladesh (ICB) is an investment bank.

7. Exchange bank

Exchange Banks are established to finance foreign trade and facilitate foreign currency exchange and transactions. These banks mainly provide loans to companies engaged in import-export business, issue certificates, settle foreign debt.

8. Co-operative Bank

A bank formed and managed under the Co-operative Act for the economic welfare of the members of the association accepts savings from the members, forms capital and lends to them at low interest.

The main objective of cooperative banks is financial welfare and development of members. Bangladesh Cooperative Bank Ltd. can be an example of this type of bank.

9. Merchant bank

Banks established for exchange banking and investment banking activities are merchant banks. Such banks carry out the activities of exchange banks and investment banks as described above.

10. Import-export bank

Import-Export Bank is a specialized bank established for the purpose of financing and supporting foreign trade. This bank provides loans to import and export enterprises, issue of foreign trade certificates, recognition of foreign exchange bills and settlement of transactions. There are practically no such banks in our country, but commercial banks fulfill this duty to a large extent.

11. Small and cottage industries bank

Banks formed to provide loans, and advice to small-scale industries of a country are called small and cottage industry banks. These banks assess, profile, and provide loans and advice to small-scale industries.

An example of such a bank would be Bangladesh Small and Cottage Industries Bank (BASIC).

12. Housing Bank

We see that housing problems are more pronounced in urban areas. The Housing Bank is formed for the special purpose of alleviating the public housing problem of the country.

Such banks provide long-term loans for house construction, renovation, flat purchase etc. and collect the amount in monthly installments. Bangladesh House Building Finance Corporation (HBFC) is one such institution.

13. Consumer Bank

Specialized banking institutions formed to help common consumers in purchasing essential goods are called consumer banks. Such banks issue credit cards to facilitate consumer purchases.

In addition, such banks are various consumer goods; Eg – Fridge, TV, Car etc. supplies on an installment basis.

14. Transportation Bank

Transportation Bank is established to provide loans to various business organizations for the expansion of the country’s transport sector.

This bank mainly provides loans for vehicle construction, import, purchase, repair, and purchase of retail equipment. There is no such specialized bank in Bangladesh till now.

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Today I will tell you about some basic differences between small-scale industry and cottage industry. Which many of us don’t know.

Small-Scale Industries: Small-scale industries are established on a sole proprietorship, partnership, or cooperative basis with less capital and fewer employees. In these industrial establishments, the cost of land and other fixed assets like factories and buildings including replacement costs is not more than 1.50 crore rupees.

Cottage Industry: The industry which takes place in a small house or small shop is called the cottage industry. These products are produced manually by the labor of family members in a family environment without the help of any electricity or heavy machinery.

Difference Between Small and Cottage Industries

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On the other hand, there is an institution to regulate the money and banking system, print and control currency and regulate the overall economic structure of a country which is the central bank. Although it is a bank, it does not perform any banking activities like opening accounts, or depositing customer’s money.

Let’s first briefly know what are central banks and commercial banks.

What is Central Bank?

The central bank is the regulatory agency that governs the monetary policy of a country, forms the economic structure, controls, prints currency, controls the currency and above all controls the banking system of the country.

The central bank of Bangladesh is Bangladesh Bank. It was established on 16 December 1971 through the Bangladesh Bank Order, 1972. Its executive head is called the Governor.

The central bank is essentially the bank of banks. It is the job of the central bank to register and regulate new commercial banks.

It preserves the country’s foreign exchange reserves. Besides, it fixes the exchange rate of it’s currency against foreign currencies. Printing of banknotes and the introduction of currency in the market is also one of the responsibilities of this bank. It also serves as the treasury of the government.

What is a commercial bank?

A bank that accepts deposits from customers (public) and distributes loans for profit is called a commercial bank.

The banks that we see in our area, where we deposit money by opening an account, withdraw money, receive money from abroad and take loans, are commercial banks.

Difference between Central Bank and Commercial Bank

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What is Time Value of Money Concept?

Think, I will give you $100 Dollars today or 1 $100 Dollars the next year. Which one will you take?

Of course, you’ll want to take $100 Dollars today. Because you don’t want to wait for the next 1 year. Why wait if you get $100 Dollars today?

Here, you love the present that we all do. But what if you were given an extra price or reward for waiting for the next 1 year?

For example, If I would give you $100 Dollars today or give you  $120 Dollars after 1 year, which would you accept?

Here, you would want to accept the second option, that is, take  $120 Dollars. Because for your waiting 1 year, you can get more $20 Dollars

This extra  $20 Dollars is time value of money. This is universally known as Interest.

Khan & Jain- “Time value of money means that a sum of money received today is more than its value received after some time.”

Current or time preference for money

In the sense of time value in money, we like the present more. Why do we like the present more? There are some reasons. For example:

• Uncertainty of the future
• Currently, the opportunity to enjoy
• Investment opportunities
• Avoid the risks
• Inflation: The value of money may decrease in the future

Factors Considered in Time Value of Money

Present Value

Future Value

The present value of a certain amount of money is called future value. For example, after 3 years how much will the amount you deposited today be adding interest? Suppose $1050. This is the future value of $ 1000 today.

Interest Rate

Interest rates have a direct or indirect effect on the time value of money. Without interest rates or discounted rates, the present or future value of money cannot be determined.

Type of Interest

If simple interest is used, the present value varies. Again, if the compound interest is used then the present value will change to another variation.

Number of Compounding / Multiplication

If compound interest is applied once a year, the value of time varies. Again if it is applied multiple times, the time value varies relatively high. Example: Yearly compounding, Half-yearly compounding, Monthly Compounding, etc.

Risk Free Rate of Return

In each country, the interest rate paid on banks, government bonds, bonds, and various deposits and investments of insurance is called the risk-free reimbursement rate.

Please ask any questions you may have about the value of money over time, in the comment box below.

At next lesson, I’ll share Time Value of Money Formula with Example. Till then, good bye. Have a nice day.

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