Internship Report on the Overall Activities and Performance of Commercial Bank


Linguistics (the science of language) and etymology (the study of the origin of words) suggest an interesting story about banking’s origins. Both the Old French word “banque” and Italian word “banca” were used centuries ago to mean a “bench” or “money changer’s table”. This describes quite well what historians have observed concerning the first bankers, who lived more than 2000 years ago. They were money changers, situated usually at a table or in a small shop
in the commercial district, aiding travelers who came to town by exchanging foreign coins for local money or discounting commercial notes for a fee in order to supply merchants with working capital.

The first bankers probably used their own capital to fund their activities, but it wasn’t long before the idea of attracting deposits and securing temporary loans from wealthy customers became an important source of bank funding. Loans were then made to merchants, shippers, and landowners at rates of interest as low as 6 percent per annum to as high as 48 percent a month for the riskiest ventures. Most of the early banks of any size were Greek in origin.

The banking industry gradually spread outward from the classical civilizations of Greece and Rome into northern and western Europe. Banking encountered religious opposition during the middle ages, primarily loans made to the poor often carried very high interest rates. However, as the middle ages drew to a close and the Renaissance began in Europe, the bulk of bank loans and deposits involved relatively wealthy customers, which helped to reduce religious opposition to banking practices.

The development of new overland trade routes and improvements in navigation in the 15th, 16th, and 17th centuries gradually shifted the center of world commerce from the Mediterranean region toward Europe and the British Isles, where banking became a leading industry. During this period were planted the seeds of the Industrial Revolution, which demanded a well-developed financial system. In particular, the adoption of mass production methods required a corresponding expansion in global trade to absorb industrial output, requiring new methods for making payments and credit available. Banks that could deliver on these needs grew rapidly, led by such institutions as the Medici Bank in Italy and the Hochstetter Bank in Germany.

When colonies were established in North and South America, Old World banking practices were transferred to the New World. At first the colonists dealt primarily with established banks in the countries from which they had come. As the 19th century began, however, state governments in the United States began chartering banking companies. Many of these were simply extensions of other commercial enterprises in which banking services were largely secondary to sale; for example, the farm equipment business. The development of large, professionally managed banking firms was centered in a few leading commercial centers, especially New York. The federal government became a major force in U. S. banking during the Civil War. The Office of the Comptroller of the Currency (OCC) was established in 1864, created by Congress to charter national banks. This divided bank regulatory system, with both the federal government and the states playing key roles in the control and supervision of banking activity, has persisted in the United States to the present day. (1)

Banking during the British Period

In the history of India, for the first time, in 1770, Alexander and Company, an agency house, established a bank in Calcutta. Hindustan Bank was the first European bank in Calcutta. It closed its operations in 1832 after its parent company was dissolved. However, after 15 to 16 years of the establishment of Hindustan Bank another two banks, i.e. Bengal Bank (1785) and General Bank of India (1786) were established. But these two banks were closed shortly after their inception. In 1806, Bank of Calcutta and Presidency Bank of Bengal were established. In the year 1809, Bank of Calcutta adopted its new name Bank of Bengal. In 1819, Srirampur Savings Bank and Commercial Bank were established. Commercial Bank terminated its operation in 1833. Calcutta Bank was established in 1824. An agency house named Paner and Company established it. Calcutta Bank terminated its operations in 1829. In the year 1829, Union Bank was established with the joint collaboration of the Bengalis and the English. But in the year 1842, Union Bank fell into economic depression and as a result the bank terminated its operations in 1850. In the year 1833, Government Savings Bank was established upon being influenced by the success of Srirampur Savings Bank.

In 1840, Presidency Bank of Bombay and in 1843, Presidency Bank of Madras was established. The merger of the three Presidency Banks gave birth to Imperial Bank of India in 1920 which is now known as State Bank of India. In the year 1844, Delhi and London Bank was established and in the year 1853, Chartered Bank of India, Australia and China was established. The year 1860 was the transition period as in this year; it was imposed on banks to act as limited liability Company. In the year 1863, Calcutta Banking Corporation was established. After one year, Calcutta Banking Corporation adopted its new name National Bank of India. A good number of banks were established from the year 1906 to 1914. Bank of India Limited (1906), Bank of Boroda Limited (1908), Eastern Bank (1910), Central Bank of India Limited (1911) and Indian Space Bank (1914) were among them.

During the beginning of the twentieth century, in the then undivided Bengal, several banks were established. Comilla Banking Corporation, New Standard Bank, Comilla Union Bank, Pioneer Bank, Bengal Central Bank, Hugli Bank, Nath Bank, Islamabad Town Bank of Chittagong, Comrede Bank and Indian Crecent Bank were among them. Bengal central Bank was established in 1918. Comilla Union Bank and Pioneer Bank were established in 1922. Hugli Bank and Nath Bank were established in 1932. New Standard Bank merged itself with Comilla Banking Corporation in 1946. Properties and liabilities of all branches of Nath Bank was transferred to Eastern Banking Corporation in 1950. In the same year, Comilla Banking Corporation, Comilla Union Bank, Bengal Central Bank and Hugli Bank merged into United Bank of India which is now a nationalized bank of India. In 1963, Prabartak Bank and Bank of Bakura merged with United Industrial Bank. (2)

Banking during the Pakistan Period

In 1947, there was only one modern bank named Australasia. “Habib Bank” that was established in 1941 in Bombay shifted its head office from Bombay to Karachi immediately after the emergence of Pakistan. Muslim Commercial Bank and Bank of Bhaowalpur were established in 1948. Since then, many banks were being established in Pakistan gradually. Entrepreneurs of those banks were either from West Pakistan or immigrant from India. In 1959, Eastern Mercantile Bank was established in the East Pakistan, which was a joint venture of Bengalis and non-Bengalis with its head office in Chittagong. That was the first schedule Bank in East Pakistan. State Bank of Pakistan contributed to the capital of the bank. At the beginning of the 1970s one of the influential director Mr. Aga Hasan Abedi quited himself from Habib Bank and established United Bank Limited. He started offensive banking from the very beginning. Issues and wards of East Pakistani bureaucrats, political leaders, land lords and influential persons were being recruited in the bank. He gave priority to the East Pakistan and opened new branches in rural areas. In the face of stiff competition, other banks including “Habib Bank” and “Muslim Commercial Bank” started to open their branches in the rural areas. All of those events did not appease dissatisfaction accumulated in the mind of the people of East Pakistan. Those banks based on West Pakistan did not appoint Bengalis as manager or general manager whereas to appoint as a managing director was beyond of thinking. Bengalis were being used for collecting deposits. They were not trained to work in credit and foreign Exchange division. Necessity of a bank of Bengali community emerged amid those obscured dissatisfaction. In that perspective Eastern Banking Corporation was created on the 28th January, 1965 with wholly Bengali ownership. Eastern Banking Corporation started its activities as a scheduled bank on the 22nd June, 1965. Paid up capital of the bank were 14 lakhs and 21 thousands taka only at the time of inception.

During the liberation war, there were only two banks owned by Bangalis. One was Eastern Banking Corporation and another was Eastern Mercantile Bank. Those banks were comparatively small in size and wealth. Thirty percent deposits of Bangladesh were under control of the banks owned by Bengalis and seventy percent deposits were under control of Pakistani banks. (3)

Banking after the emergence of Bangladesh:

Nationalization of banks was included in the 11-point charter demands placed at the time of mass-upsurge in 1969. At that time, 22 families of West Pakistan were exploiting different business and industry including banks and insurance. After the emergence of Bangladesh the process of nationalization of banks began. At that time, 22 banks and financial institution were in operation. The ownership scenario of banks and financial institutions is shown below:

Private Banks in Bangladesh

In 1976, the then government approved the establishment of a finance company in the private sector with joint collaboration of private and public sector. Following that decision, International Finance Investment and Commerce Limited started its operations. In 1982, the government approved for banking operations in private sector. To make a competitive environment in the banking sector, implementation of privatization process of banks and approval for new banks were going simultaneously.