Manarat International University

Assignment on : POSTAL BANKING

Subject:

Money and Banking

Course Code: FIN-401

Submitted To:

Md. Lecturer Department Of BBA

Submitted By: Zubair Ahmed ID: 1026BBA01335

Date: 04/ 02/ 2013

Postal Banking
The object of government to establish post office Saving Bank is to provide a ready means for the deposit of savings and so to encourage current account. Banking in post offices is not new. Many countries, including Germany, France, Italy, Japan, and New Zealand, have a long and successful history of it; and so does the United States. The Postal Savings Bank, a financial arm of the Bangladesh Post Office, is facing problems in expanding services to the grassroots level, despite the high demand for savings schemes, because of fund and manpower shortage. The Postal Service could step into the breach. They already located in communities across the country and offer a number of popular financial services, such as money orders. Banking is hardly a stretch from their existing capabilities as they handle cash, track accounts, and service customers as a matter of course. Whats more, they have a large reserve of public trust and would be filling a niche that the banks dont want to serve, which is providing simple, low-cost savings accounts. Some have called this the Public Option of Banking.

Background / History of Postal Banking

In 1861 the Palmerston Government set up the "Post Office Savings Bank" - a simple savings scheme aiming to encourage ordinary wage earners "to provide for themselves against adversity and ill health". "Post Office Savings Bank - State Security." In 1861 the Post Office Savings Bank Act enabled the General Post Office (GPO) to provide a simple savings scheme for ordinary wage earners. Thus the Savings Bank opened for business on Monday 16th September 1861 in two small rooms within the Post Office headquarters, (GPO East) St. Martins-le-Grand, London. By 1863 the Bank occupied a warehouse at 27 St Paul's Churchyard. With continuing growth these premises became too small and a new headquarters was built at 144 Queen Victoria Street. In 1880, a new headquarters of the Post Office Savings Bank was built at 144, Queen Victoria Street, London. From 1911 to 1967, the U.S. Postal Savings System provided a safe and efficient place for customers to save and transfer funds. It issued U.S. Postal Savings Bonds in various denominations that paid annual interest, as well as Postal Savings Certificates and domestic money orders. The U.S. Postal Savings System was set up early in the 20th century to attract the savings of immigrants accustomed to saving at post offices in their native countries,

provide safe depositories for people who had lost confidence in private banks, and furnish more convenient depositories for working people than were provided by private banks. (Post offices were then open from 8 a.m. to 6 p.m. six days a week, substantially longer than bankers hours.) The postal system paid two percent interest on deposits annually. The minimum deposit was $1 and the maximum was $2,500. Savings in the system spurted to $1.2 billion during the 1930s and jumped again during World War II, peaking in 1947 at almost $3.4 billion. The U.S. Postal Savings System was shut down in 1967, not because it was inefficient but because it was considered unnecessary after private banks raised their interest rates and offered the same governmental guarantees that the postal savings system had.

Functions of Postal Banking

Postal operations at the post office encompass the entire gamut of the basic postal services which include: Sl. No. i) ii) iii) iv) v) vi) vii) Functions of Postal Banking Sale of stamps and stationery Booking of registered articles Booking of insured articles Booking of value payable articles Remittance of money through money orders and postal orders Booking of Parcels Savings Bank and Savings Certificates

Traditionally, these services were being provided at manually operated counters. Considering the vital need for providing the benefit of technology to the customers, the counter operations are now being progressively computerized to provide a greater range of services to the customer from a single window leading to prompt and error free services. There are two types of savings accounts in post offices ordinary savings bank account and fixed deposit. The rate of interest is 7.5 per cent for ordinary savings. A person can deposit a maximum amount of Tk 30 lakh under one name and Tk 60 lakh under a joint account. The account holder can mention one or more persons as nominees. The flat rate of interest is 10 per cent for fixed deposit, but at the end of the first year the depositor will get 8 per cent and after 2 years 9 per cent and in the third year 10 per cent. If a depositor withdraws profit after every 6 months, the interest rate will be 7.5 per cent at the end of the first year, 7.75 after 2 years and 8 per cent after three years. The maximum limit of deposit for one person is Tk 30 lakh and Tk 60 lakh for the joint account.

Post Office Savings Bank-Ordinary Accounts

Rate of Profits: 7.50% in simple rate Investment Limit: a) Maximum Tk. 30,00,000/- can be deposited in single name. b) Maximum Tk. 60,00,000/- can be deposited in joint name. Other features:

Nominee can be nominated to one or more persons. Profit is calculated on monthly basis. Ordinary accounts may be opened only with Tk.100/-. At the time of open an Account it will be compulsory to show and entry the National Identity Card number in the form. Profit : liable to income-Tax

Post Office Savings Bank-Fixed Deposit Accounts

Rate of Profit: 13.24% (on maturity). Year-wise Profit rate: Table: Year-wise rate of profit Rate of profit* Rate of SSP** Total rate of profit (%) (%) (%) 2 3 4 (2+3) 1 10.40 0.00 10.40 Deposit for one year 11.40 0.00 11.40 Deposit for two year 12.40 0.84 13.24 Deposit for three year *Profit on which source tax deduction is applicable; **SSP= Social Security Premium

Period

Profit shall be allowed for each period of six months or over but not for a Period of less than six months and shall be calculated as shown below-

Period

Rate of profit* (%) 2 1 10.00 Deposit for one year 10.50 Deposit for two years 11.00 Deposit for three years *Profit on which source tax deduction is applicable;

Investment Limit: a) Maximum Tk. 30,00,000/- can be deposited in single name. b) Maximum Tk. 60,00,000/- can be deposited in joint name. Other features:

Available for auto-reinvestment facility. Nominee can be nominated. Fixed Deposit accounts may be opened only with Tk.100/- At the time of open an Account it will be compulsory to show and entry the National Identity Card number in the form. Profit: liable to income-Tax.

An Overview of Postal Banking in Bangladesh

The Postal Savings Bank, a financial arm of the Bangladesh Post Office, is facing problems in expanding services to the grassroots level, despite the high demand for savings schemes, because of fund and manpower shortage. Only 1,550 of more than 10,000 post offices in the country have the financial facility. Most of the people are not getting the facility as most of the offices, particularly in rural areas, have no savings bank services. Officials said that if the remaining post offices include the financial facility, the government can increase its revenue and boost savings in the rural areas.

According to the BPOs data, in the last eight months of the current fiscal year (July February) the number of the ordinary savings account depositors was 4,98,073 and the total deposits amounted to Tk 846 crore. About 2,82,441 depositors withdrew Tk 737 crore in total from their savings accounts in the same period.The number of people with term deposits was 3,99,721 and their total deposits amounted to Tk 2,564 crore, and 2,22,913 depositors withdrew Tk 2,795 crore from their accounts n the eight months of the current fiscal year.

Ordinary Savings Bank Account Rate of interest is 7.5% in simple rate. Maximum Tk. 30,00,000/- can be deposited in one name. Maximum Tk. 60,00,000/- can be deposited in joint name.

Can be nominated to one or more person. Fixed deposit At the end of 1st year At the end of 2nd year At the end of 3rd year Rate of Profit (%) 10.40% 11.40% 12.40% Rate of SSP (%) 0.00% 0.00% 0.84% Total Rate of Profit (%) 10.40% 11.40% 13.24%

If a depositor withdraws profit after every 6 months the interest rate would be Fixed deposit At the end of 1st year At the end of 2nd year At the end of 3rd year Rate of Profit (%) 10.00% 10.50% 11.00%

The BPOs data showed that the withdrawal of deposits decreased in February 39,326 depositors withdrew funds from their general saving accounts in January and the number fell to 34,833 in February. About 34,699 people withdrew funds from their fixed deposit accounts in January and 28,311 in February.

Conclusion
The Postal Banking, a financial arm of the Bangladesh Post Office, is facing problems in expanding services to the grassroots level, despite the high demand for savings schemes, because of fund and manpower shortage. Our plan to expand our financial services has not got off the ground due to lack of financial support and manpower. The logistical support was too limited to provide financial services to most of the people who wanted them. We have lots of plans, but the budget is grossly inadequate, he said, adding that the BPO can provide more services to people once it is fully automated. We are working on it. Day by day more and more people are coming to the post offices to get the facility of savings banks, but we cannot meet their demand due to limited manpower. The director of BPO (savings), Siraj Uddin, told New Age that people were very interested in opening accounts in the savings banks of the post offices. Both the amount of deposits and the number of depositors are increasing everyday, he said. But it is risky to introduce the service in some post offices in the rural areas for security reasons, he added. Mujibur Rahman, a client of a post office savings bank, said, Though the processing of deposit and withdrawal is slow, it is safe to keep funds in the schemes. If the government reduces the tax on interest obtained from deposits, more people will be encouraged to keep funds in the postal savings schemes, he added.

Reference
1) www.postalbank.gov.ph/ 2) assets.newamerica.net/node/61842 3) www.globalresearch.ca/...post-office...postal-banking 4) www.nsb.lk/Postal_banking.php 5) blogs.planetfinancegroup.org/tags/postal-banking 6) www.bangladeshpost.gov.bd/ 7) en.wikipedia.org/wiki/Postal_savings_system