2.8.11 UTILITY SERVICE
Sonali Bank offers multiple special services with its network of branches throughout the country in addition to its normal banking operations.
3.1 DEFINATION OF BANK ACCOUNT
Bank account is a contractual agreement between a bank and its customer, allowing the customer to use bank services for a fee. Account may be established in the name of individuals or firms.
3.2 GENERAL BANKING
3.2.1 TYPES OF BANK ACCOUNT
There can be many types of accounts that can be maintained in a branch of Sonali Bank, they are: -
Fixed Deposit Account
Short Term Deposit Account
Deposit Pension Scheme Account
Sonali Bank Special Deposit and Pension Scheme Account
Call Deposit Account
Sundry Deposit Account
3.2.2 Current Account
Current accounts mean any account from which the customer can withdraw money as many times as he wants in a working day. The customer also can deposit money to his account as many times as he wants in a working day. Generally businessman or business firm, who need frequent withdrawal of money, opens current account. Two types of current account are usual. One is personal current account and the other is institutional current account.
The important features of current account are as following:
No interest is paid on this account.
No passbook is given for this account.
3.2.3 Savings Account
A savings account is meant for the people of the lower and middle classes who wish to save a part of their current income to meet their future needs and also intend to earn an income from their savings.
The important features of savings account are as following:
The account holder can deposit money to his account as many times as he wants in a working day, but he cannot withdraw money from his account more than two times a week and he has to withdraw minimum Tk. 50 in cash withdrawal.
Without notice, the account holder can withdraw 25% of his deposited amount minimum (but not more than Tk. 20,000). If the account holder withdraws more than 25% of his deposited amount or more than Tk. 20,000, he will have to give prior notice before 7 days of withdrawal. Otherwise no interest will be given to this account in that month.
On the basis of minimum balance of each month, interest will be given to savings account in June and December in each year.
If a savings account holder wants to close his account, then Tk. 25 will be deducted for his account as a cost of closing account.
3.2.4 Fixed deposit account
In this type of account, a certain amount of money is deposited for a fixed period of time. The bank repays the amount on the expiry of that specified period, or subject to a notice.
The important features of fixed deposit account are as following:
Principle amount and interest is given after maturity.
No interest is paid if one withdrawals his money before 3 months.
The duration of fixed deposit account is 3 months to 5 years.
According to Bangladesh Bank, 20% margin is required for taking loan against fixed deposit receipt (FDR).
FDR may be renewed after maturity. If anybody does not renew his FDR after maturity, the bank will not pay any interest on that deposited amount after the maturity date.
3.2.5 Short term deposit account
By giving a special notice, depositors can withdraw money from short-term deposit account. Its interest rate is 3% per annum. It has less restriction than savings account regarding withdrawal of money.
3.2.6 Deposit pension scheme (DPS) account
Deposit pension scheme was introduced in 1983. New account opening of deposit pension scheme has been stopped by Bangladesh Bank from February 28, 1999.
The important features of DPS are as follows:
The monthly installment of DPS may be in the denomination of Tk 100, Tk 200, Tk 300, Tk 400 or Tk 500. This should be deposited in by the first week of each month.
Its interest rate is 5% (compounding).
The term of DPS is either 10 years or 20 years.
Amount payable at the time of maturity is given in the following table.
Maturity Period (years)
Amount Payable at the time of maturity (Taka)
3.2.7 Sonali Bank special deposit pension scheme (SDPS) account
Special deposit pension scheme was introduced in 1996. The important features of this account are as follows:
Its interest rate is 10% (compound interest) for 5 years term and 12% (compound interest) for 10 years term. From Octaber/2005 the interest rate is 10%( compound interest).
The monthly installment may be Tk 100, Tk 200, Tk 300, Tk 400 or Tk 500. This should be deposited from 11th to 20th day each month.
3.2.8 Call deposit account
As a security, earnest money for various tender is deposited in this type of account. Earnest money remains in this account until tender is opened. After opening of tender, the tender giving institution can withdraw the deposited fund from that account. No interest is paid on this account.
3.2.9 Sundry deposit account
The following types of deposits are maintained in sundry deposit accounts:
Margin on letters of credit
Margin on letters of guarantee
Employees contribution provident fund
Employees general provident fund
Sonali bank employees pension fund
Sonali bank employees pension and death cum retirement benefit fund
Interest rates of various types of deposits:
Interest rates of various types of deposits are shown in the following table:
Types of deposit
|Short term deposit|
|Fixed deposit:i. 3 months or more but less than 6 monthsii. 6 months or more but less than 1 year|
iii.1 year or more but less than 2 years
iv.2 years or more but less than 5 years
|Deposit pension scheme (DPS)|
|Sonali bank special deposit and pension scheme:i. 5 years termii. 10 years term|
Sonali bank like most other commercial banks generally lends money on short or long-term basis, as advances of different types, are repayable on demand. The advances may be clean i.e., without any security or secured primarily or collaterally by authorized securities.
3.3.2 Types of advances or loans:
Sonali bank deals with different types of lending, such as –
3.3.3 Short-term loans:
Cash credit (pledge, hypothecation)
Agriculture loans (crop hypothecation)
Rural transportation etc.
3.3.4 Mid and long term loans
Agro based industries
Computer Software and information technology
Export oriented finished leather and jute goods
Export oriented spinning, textile and garments industries
CNG (compressed natural gas) filling stations
Commercial house building loans
Paper Industries etc.
Bankers ascertain the loan proposal of above sectors/sub sectors and screening/ scrutiny the proposals with the norms of its internal and government policies. If the manager of a branch finds the proposal in order then he processes for sanctioning and disbursement with the consent of the management. After disbursement of loan, the banker takes necessary steps to recover the loan in time.
3.4 SECTION THERR FOREIGN EXCHANGE BUSINESS
Sonali bank like other commercial banks also deals with the following foreign exchange activities through its branches having authorized dealer license:
3.4.1 Foreign Exchange activities
- Foreign trade and foreign currency
- Payment against documents
- Advance Against Merchandise
- Foreign Currency Accounts and Wage Earners Scheme
- Packing Credit
- Foreign exchange: Imports
- Foreign bill collection
- Bank guarantee
- Non residence accounts
- Travelers’ cheques etc.
3.4.2 Foreign Trade and Foreign Exchange
- Foreign trade and foreign exchange deals with the following:
- Foreign trade and foreign exchange
- Licensing authority
- Function of Bangladesh Bank
- Function of custom authority
- Authorized dealers
- Agency agreement
- Types of accounts
3.4.3 Sonali Bank’s authorized branches 39 branches in Bangladesh including Local Office
- 2 outside (foreign) branches.
3.4.4 Foreign Currency Accounts and Wage Earners Scheme
Foreign currency accounts are those accounts, which are allowed to be maintained in foreign currency with authorized dealers in Bangladesh. Such accounts cannot, however, be maintained in any foreign currency but is to be opened and maintained either in Pound Sterling or U.S. Dollar at the option of the prospective account holder. Such accounts can be opened under normal program or under “Wage Earner’s Scheme”. When opened under Wage Earner’s Scheme such accounts enjoy some special facilities and benefits.
SECTION FOUR: PERFORMANCE ANALYSIS OF GENERAL BANKING
3.5.1 Deposit Collection : The amount of deposit position of Sonali bank for the last five years is given in the following:
Amount (core taka)
Table 1: Yearly deposit of Sonali Bank Limited
3.5.2 loan Disbursement:
Amount (core taka)
Table 1: Yearly Loan Disbursement of Sonali Bank Limited
3.5.3 Analysis between deposit and loan:
Amount (core taka)
Amount (core taka)
Source: Central account and fund management department.
3.5.4 FOREIGN REMITTANCE OF SONALI BANK LIMITED:
Amount in US dollar
Source: Central account and fund management department.
3.5.5 Operating Profit of Sonali Bank Limited
|Year||Amount (creore taka)|
Source: Central account and fund management department.
3.5.6 Loan & Advance mix as on 31.12.2007
Source: Central account and fund management department.
Foreign remittance, in simple terms, means money remitted in foreign currency. More precisely, it is termed as remittances in foreign currency that are received in & made out abroad. Conceptual Issues International remittances are defined as the portion of migrant workers’ arnings sent back from the country of employment to the country of origin (ILO, 2000). Remittance can also be sent in kind. Transfers that take place in kind is quite difficult to measure. Remittances can be individual and it can also be collective. When individuals send remittance to his/her household or kith and kin that can be termed as individual remittance. When a group of migrants, their associations or professional bodies mobilize resource together and send for collective or community programmes, that can be termed as collective remittance. Individual remittances are mostly geared towards the family whereas collective remittances are generally used for community development.
Transfer of remittances takes place through different methods. 46% of the total volume of remittance has been channeled through official sources, around 40% through hundi, 4.61% through friends and relatives, and about 8 percent of the total was hand carried by migrant workers themselves when they visited
Two types of Foreign remittance:-
- Foreign Inward Remittance.
- Foreign Outward Remittance.
4.1.2 FOREIGN INWARD REMITTANCE
The remittance of freely convertible foreign currencies which we are receiving from abroad against which the Authorized Dealers making payment in local currency to the beneficiaries may be termed as Foreign Inward Remittance.
4.1.4 MODE OF INWARD REMITTANCES (Also Outward Remittance):
The following are the mode of Inward/Outward Remittances.
i) TT = Telegraphic Transfer.
ii) MT = Mail Transfer.
iii) FD = Foreign Drafts.
iv) PO = Payment Order.
v) TC = Travellers Cheque.
vi) EFT = Electronic Fund Transfer
4.1.5 Foreign Currency Notes (On line Remittances)
A remitter abroad simply has to approach a bank branch there with certain amount to be deposited beneficiary in Bangladesh either in foreign currency or in equivalent Taka currency. The Branch so approached abroad usually should have agency arrangement with the paying banks in Bangladesh. However, in the absence of any such agency arrangement, remittance may also be made by transferring cover value of the remittance to the paying bank’s account abroad by the remitting bank.
4.1.6 SOURCE OF INWARD REMITTANCE
- Expatriate Bangladeshis.
4.1.7 PURPOSE OF REMITTANCE
In short, remittances are being sent from abroad for the following purposes:-
- Family maintenance
- Indenting Commission
- Recruiting Agents Commission
- Realization of Export Proceeds
- Export broker’s Commission etc.
4.1.8 FOREIGN OUTWARD REMITTANCE
The remittances in foreign currency which are being made from our country to abroad is known as foreign outward remittance.
4.1.10 PURPOSE OF OUTWORD REMITTANCE
- To settle Import Payment.
- To meet Travel Expenses/Medical Expenses/Educational Expenses etc.
4.1.11 APPROVAL OF BANGLADESH BANK
Bangladesh is always in a scarcity of foreign exchange and foreign exchange business is restricted and controlled by the Central Bank of the country. For this reason Bangladesh Bank’s prior permission is required for any remittance to be made to outside the country.
Bangladesh Bank provides permission/approval for outward remittances to the applicants who are to lodge an application for the purpose on the following prescribed forms with an Authorized Dealer who forwarded the same to Bangladesh Bank for approval.
4.1.12 MAIN FLOW OF FOREIGN REMITTANCE
- Saudi Arabia
- South Korea
- Hong Kong
These are some ofthe major countries of destination. Saudi Arabia alone accounts for nearly onehalf of the total number of workers who migrated from Bangladesh. Labour market of Bangladeshi workers is not static. During the 1970s Saudi Arabia, Iraq, Iran and Libya were some of the major destination countries. While theposition of Saudi Arabia remains at the top, Malaysia and UAE became important receivers. In mid-1990s, Malaysia became the second largestemployer of Bangladeshi workers. However, since the financial crisis of 1997,Bangladeshis migrating to Malaysia dropped drastically . Now UAE has taken over its place.
Over the past 25 years labour migration from Bangladesh has registered a steady increase. From 1990 onwards on an average 3,25,000 Bangladeshis are migrating on short-term employment, mostly to 13 countries. In the past the bulk of the migrants consisted of professional and skilled labour. However, the recent trend is more towards semi- and unskilled labour migration. Due to increase in the flow of unskilled and semi- skilled labour, remittance is increasing at a much lower rate than the labour flow. Remittance is crucial for Bangladesh’s economy. It constitutes almost one-third of the foreign exchange earning. About 25 percent of remittance senders were students when they went abroad and another 25 percent were living off their own land. A large segment of them were working as construction labourers overseas, another group worked as agricultural labourers. UAE, Saudi Arabia and Singapore constituted the most of important destinations of these migrants.
One survey comments that if the migrant workers’ total income abroad and the present family income from other sources is combined and then compared with the pre- migration family income, it registers an increase in total income by 119 percent. On an average, the interviewee households annually received about Tk.72,800 as remittance. This means that a typical migrant remits 55.65 percent of his income. Remittance constitutes 51.12% of the total income of these families. Transfer of remittances takes place through different methods. 46% of the total volume of remittance has been channeled through official sources, around 40% through hundi, 4.61% through friends and relatives, and about 8 percent of the totalwas hand carried by migrant workers themselves when they visited
4.1.13 Contribution of Remittance to the National Economy
Labour migration plays a vital role in the economy of Bangladesh. Bangladesh has a very narrow export base. Readymade garments, frozen fish, jute, leather and tea are the five groups of items that account for four-fifths of its export earnings. Currently, garments manufacturing is treated as the highest foreign exchange earning sector of the country (US $ 4.583 billion in 2003). However, if the cost of import of raw material is adjusted, then the net earning from migrant workers’ remittances is higher than that of the garments sector. In 2003, net export earning from RMG should be between US$2.29-2.52 billion, whereas the earning from remittance is net US$3.063 billion. In fact, since the 1980s, contrary to the popular belief, remittances sent by the migrants played a much greater role in sustaining the economy of Bangladesh than the garments sector.8 For the last two decades, remittances have been at levels of around 35% of export earnings, making it the single largest source of foreign currency earner for the country. This has been used in financing the import of capital goods and raw materials for industrial development. In the year 1998-99, 22 percent of the official import bill was financed by remittances (Afsar, 2000; Murshed, 2000 and Khan, 2003). The steady flow of remittances has resolved the foreign exchange constraints, improved the balance of payments, and helped increase the supply of national savings (Quibria 1986). Remittances also constituted a very important source of the country’s development budget. In certain years in the 1990s remittances’ contribution rose to more than 50 percent of the country’s development budget. Government of Bangladesh treats Foreign aid (concessional loan and grants) as an important resource base of the country. However, remittances that Bangladesh received last year was twice that of foreign aid. Remittances have played a major role in reducing the extent of the country’s dependence on foreign aid. The contribution of remittance to GDP has also grown from a meagre 1 percent in 1977-1978 to 5.2 percent in 1982-83. During the 1990s the ratio hovered around 4 percent. However if one takes into account the unofficial flow of remittances, its contribution to GDP would certainly be much higher. Murshed (2000) finds that an increase in remittance by Taka 1 would result in an increase in national income by Tk 3.33. Following the expiry of multi-fiber agreement (MFA), Bangladesh will face steep competition in export of RMG. The country will cease to enjoy any special quota. It is apprehended that Bangladesh’s RMG export will decline sharply. This will result in loss of job of many workers and shortfall in foreign exchange earning. Potential of retaining employment and export earning through export of frozen fish, jute, leather and tea seems rather bleak. It is in this context labour migration has become key sector for earning foreign exchange and creating opportunities for employment. Therefore, the importance of migrant remittance to the economy of Bangladesh can hardly be over emphasized.
4.1.14 ROLE OF DIFFERENT INSTITUTES CONSIDERING FOREIGN REMITTNCE
4.1.15 Ministry of Finance
Ministry of Finance (MoF) is the prime policy making body regarding banking and remittance. Macro-economic policies that affect exchange rate, monetary and fiscal mechanisms, foreign exchange reserve etc. are regulated by this ministry.
4.1.16 Bangladesh Bank
Bangladesh Bank (BB) is the central bank of Bangladesh. Among other powers and functions, BB regulates scheduled bank activities, acts as a clearing-house, maintains foreign exchange reserves and monitors floating exchange rate mechanism in the current accounts. Bangladesh Bank encourages the nationalised and private banks to link up with foreign banks and exchange houses in the destination countries. It has a separate department for regulating and monitoring remittance entitled Foreign
4.1.17 Exchange Policy Department (FEPD).
It also generates, analyses, interpretsand distributes data on inflow of remittance.
4.1.18 Nationalised Commercial Banks
Nationalised Commercial Banks (NCBs) of Bangladesh make direct banking facilities available at the doorsteps of Bangladeshi emigrants specially in those countries where a large number of Bangladeshis are employed. Five NCBs are deeply involved in remittance transfer. These are Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank Ltd. and Bangladesh Krishi Bank (BKB). Among the NCBs, BKB is solely targeted towards agricultural development in rural areas. Within Bangladesh these five NCBs have 2945 branches. Through them they can disburse remittances even in distant areas. Besides their own branches, NCBs have opened exchange houses in joint collaboration with different banks and financial institutions in different countries of the world.
4.1.19 Private Commercial Banks
Private Commercial Banks (PCBs) are also involved in remittance transfer. Of the PCBs, Islami Bank of Bangladesh Ltd. has been found to be most proactive in the area of migrants’ remittace. National Bank, International Finance and Investment Corporation (IFIC), Prime Bank and Uttara Bank are other private banks involved in remittance transfer. Most of their activities are in the Middle East. Saudi Arabia is the major working area of Islami Bank along with Qatar, Bahrain and UAE. National Bank is operating in Oman, Kuwait, UAE, Qatar, Bahrain and Saudi Arabia. IFIC has curved out a major niche in Bangladeshi community in Oman and has its largest share with 41% of the market. It also has brances and exchange offices in Nepal and someother Middle Eastern countries. Uttara Bank runs exchange house in Qatar in collaboration with a local financial institution. Corresponding Relationships In almost all countries of the world, both NCBs and PCBs have corresponding relationships with banks through which Bangladeshi migrants may easily send their money to their beneficiaries’ accounts with any branch of any bank in Bangladesh.
4.1.20 Performance analysis of Foreign Exchange:
Performance of Foreign Exchange on the basis of L/C. Services:
The amount of letter of credit (L/C.) position of Sonali Bank for the last five years is given in the following table:
L/C. Amount (in thousand taka)
Table5.2.1: Yearly L/C. of Sonali Bank
Comment: The amount of L/C. of Sonali bank is Tk. 2643, 2940, 4121, 4117 and 6500 crores for the years 2000, 2001, 2002, 2003 and 2004 respectively. Among the last five years, the L/C. increased quite drastically in five years specially 2004, it increased to a sharp 6500 crore which is pretty good.
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