Objectives of Nationalization of Commercial Banks in Bangladesh

There are some certain objectives of nationalization of commercial banks in Bangladesh which are described in detail below:

Commercial Banks are the greatest mobilizer of domestic savings and suppliers of working capital to trade, commerce, industry, and agriculture. Since a major portion of their fund is either payable on demand or after a short period, they are not in a happy position to indulge in long term advances although they are now taking to medium and long term financing.

Soon after the liberation of the country, all the banks were nationalized with a view to utilizing the services of the banks in conformity with Government policy for achieving the socialistic pattern of society.

Therefore, the objectives of banks have been changed from class banking to mass banking, and from urban banking to rural banking and keeping in view of diversified activates, the outlook of the nationalized banks has been changed.

Objectives of nationalization of commercial banks

The main objective of nationalization of banks was to ensure that the banking system serves a much wider section of the community by dispensing credit to the poorest and weaker sections of the society and also to remove the regional disparities and help in the development of the economy in conformity with national policy and objectives formulated by the government.

With these objectives in view, the nationalized banks were asked to open branches at a quicker pace all over the country. Banks had particularly to speed up the expansion of their branch network in rural areas.

They had also to endeavor to lead development in economically backward areas to reduce regional imbalances. Financing activates had to be made in favor of priority sectors, such as, agriculture, a small loan to retail traders, self-employed persons and small scale and cottage industries, housing, transport, non-traditional exports which were neglected so long and to which commercial banks previously paid very little attention.

The philosophy and techniques in the spheres of bank lending have, therefore, been changed to suit the needs of priority sectors and weaker sections of the community.

Within the neglected sectors, there had to be an increasingly greater emphasis on extension of credit to borrowers of the lower-income group by way of a special scheme at a lower rate of interest.

Banks are also required to assist public sector enterprises in meeting their requirements of working capital. Export trade constitutes a vital sector of the nation’s economy. Liberal credit facilities had, therefore, to be made available to exporters at subsidized reties as part of the overall scheme for expert promotion.

Commercial banks have also been called upon by Bangladesh Bank to extend their activities for the development of agriculture as the lending agencies. Agriculture, being our major activity providing subsistence to about 85 percent of our population, all the resources and energies of the Government are being directed to this field.

Commercial banks with comparatively larger resources and a network of branches can take up the challenge in the right earnest as is being done by commercial banks in other developing countries. Bangladesh’s economy is predominantly rural, adequate arrangement for institutional credit facilities for crop raising, and increasing its yield and intensifying the same has become imperative.

Commercial banks have, therefore, placed much emphasis on improving our rural economy for socio-economic upliftment by boosting up production activities in the rural sectors so as to raise the income level and living standard of the rural inhabitants.

On the evaluation of the activates of commercial banks. It has been observed that the progress made by the banking sector industry since nationalization was not impressive. Hence a trend of de-nationalization of banks started from mid-eighty. The Pubali Bank and Uttara Bank have been transferred to the private sector. Rupali Bank has also been placed under the process of transferring to the private sector.

The policy of the Government regarding economic management has changed since 1976 from which year private sector has been entrusted to play a bigger role in the economy than before. Accordingly, to encourage the private sector and to create competition in the banking sector, the Government decided to allow the setting-up  of local private banks and to create competition in the banking sector in addition to four nationalized commercial banks operating in the country.

Few private commercial banks were allowed to operate in the country in 1981 and thereafter more local private banks have been allowed to function. There are 30 private banks at present including few Islami banks on the principles of interest-free and shariah-based banking business on profit and loss sharing systems operating in the country.

Islami bank is one concept in national banking. Banks participate in the borrower’s profit/loss as per the agreed contract. This system is meant to encourage and develop entrepreneurial instincts in a borrower.

Private banks in foreign collaboration have also been allowed to function in the country only where such collaboration is considered helpful in attracting substantial foreign investment in the country and also introducing new areas of banking activity.

As many as 11 foreign banks including a few in foreign collaboration are also operating in Bangladesh. These banks, besides financing foreign trade, undertake normal banking business within the country.

In addition to commercial banks and foreign banks, eight specialized banks are now in operation in the country to channelize agricultural, industrial, and other credits to the various sectors to put our economy on a sound footing.

Banking in Bangladesh has been progressing fast with the changing horizon of the financial system. In order to meet the growing needs of the economy, commercial banks have been resorting to functional diversification in a big way through their subsidiaries.

New non-congenital service based on customer convenience and preferences has been added to the banking arena.

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