The scope of banking refers to the extent to which it deals with the receipts of deposits and advancing loans. The scope of banking covers all the forms of business coming within the legitimate limits of a banker. The scope of banking can be described with the help of:
The scope of banking can be described with the help of the following points:
Bank accepts deposits from its customers. The customers are allowed to draw their money by cheques. Deposits are the basis of bank’s activities. The deposits are of four kinds.
- Saving Deposits
- Fixed deposits
- Current or demand deposits
- Foreign currency deposits
The deposits received from customers are not kept idle by the banks. The banks advance loans to their customers maintaining safety and profitability. The banks advance loans in the following ways.
- Cash credit
- Over draft
- Call loans
- Discounting bills of exchange
Financing Foreign Trade:
A bank finances foreign trade by accepting foreign bills of exchange and collecting foreign bills of exchange from foreign banks. Bank also issue letter of credits to the businessman to facilitate international trade.
Remittance Of Funds:
Modern commercial banks facilitate transfer of money from place to place and from country to country by drawing bank drafts on their branches.
Safe Custody Of Valuable:
Banks provide facility of safe custody of valuables, important documents, ornaments, etc of their customers
Banks make investment by purchasing shares, bonds and securities. The purchase of securities and shares and security can be pledged by the bank for securing loan in times of need.
Acts As Trustee:
Bank acts as a trustee on behalf of its customer in any kind of business settlement.
Purchase And Sale Of Securities:
Sometimes bank purchases and sells securities on behalf of its customers. The securities may include shares, bonds and government securities. Banks can do it well because they are aware of market conditions.
Acts Upon Standing Instructions:
Sometimes customer may issue instructions in writing to his bank to do something on his behalf regarding the conduct of his account. These written instruction are called standing instructions. These instructions are usually given in payments. The bank acts upon these instructions.
Collects Dividend Or Interest:
The customers may ask the bank to collect dividend on shares or interest on investment. The bank acts upon the instructions of his customers and collects dividend and interest on investment made by customers.
Issue Of Traveler’s Cheque:
Bank issues traveler’s cheques to the customers for traveling in and outside the country.
Commercial banks deal in foreign exchange. This enables the individuals and business to obtain foreign currency in exchange of their home currency. For dealing in foreign exchange, commercial banks have to obtain permission from central bank of the country.
Accepts Utility Bills:
Bank receives utility bills from customers on behalf of government bodies.
Banks provide trade information and tender advice to its customers about financial matters.
Issue Credit Cards:
Bank issue credit cards to their trustworthy and valued customers. This facilitates the customers to pay for their necessities of life.
Acts as an agent:
Bank sometimes acts as an agent on behalf of its customers.
The commercial banks provide free Hajj services to the intending pilgrims. Banks receive Hajj applications. Banks also facilitate to form Hajj Groups. Training of intending Hajj Pilgrims is also arranged by the commercial banks.
The commercial banks provide Qarz-e-Hasna to deserving patients for medical treatment and to students for higher education within the country and abroad. The Qarz-e-Hasna is refundable in easy installments when the students complete their education and join service. The borrower students are allowed a grace period of two years after completion of studies to repay the loan.
Commercial banks collect Zakat from their account holder and deposit the same into central Zakat fund according to Zakat and Usher Ordinance 1980.
The commercial banks act as Modaraba and leasing companies under the provisions of Modaraba Companies Ordinance 1980.
Purchase of PTCs:
Commercial banks underwrites or purchase Participation Terms Certificates (PTCs). Term Finance Certificates (TFCs) and Modaraba Certificates.
Electronic Banking has enlarged the scope of banking. At present banks offering electronic services to the customers are under:
- ATM Cards.
- Credit Cards.
- Electronic Transfer of Money.