Non-State Institutions: Banks, Corporations, Trade Unions

SH1661 Non-state Institutions Banks are institutions that conduct business purely on profit motive. I. Primary Functions These are also known as banking functions. These functions pertain to the execution of the following tasks: A. Accepting Deposits –...

SH1661 Non-state Institutions Banks are institutions that conduct business purely on profit motive. I. Primary Functions These are also known as banking functions. These functions pertain to the execution of the following tasks: A. Accepting Deposits – The bank collects deposits from the public. These can be classified into four (4) types: · Savings – This encourages saving habit among the public. The rate of interest is low. At present, it is about 5% per annum. Withdrawals of deposits are allowed, subject to certain restrictions. This account is suitable to salary and wage earners. This account can be opened in single name or in joint names. · Fixed – Lump sum amount is deposited at one (1) time for a specific period. Higher rate of interest is paid, which varies with the period of deposit. Withdrawals are not allowed before the expiry of the period. Those who have surplus funds go for fixed deposit. · Current – This type of account is operated by businessmen. Withdrawals are freely allowed. No interest is paid. In fact, there are service charges. The account holders can get the benefit of overdraft facility. · Recurring – This type of account is operated by salaried persons and petty traders. A certain sum of money is periodically deposited into the bank. Withdrawals are permitted only after the expiry of a certain period. A higher rate of interest is paid. B. Granting of Loans and Advances – Bank advances loans to the business community and other members of the public. The rate charged is higher than what it pays on deposits. The difference in the interest rates, including the lending rate and the deposit rate, is its profit. There are four (4) types of loans and advances: · Overdraft – These advances are given to current account holders. No separate account is maintained. All entries are made in the current account. A certain amount is sanctioned as overdraft, which can be withdrawn within a certain period of time, say three (3) months or so. Interest is charged on actual amount withdrawn. An overdraft facility is granted against a collateral security. It is sanctioned to businessman and firms. · Cash Credits – The client is allowed cash credit up to a specific limit fixed in advance. It can be given to current account holders as well as to others who do not have an account with bank. Separate cash credit account is maintained. Interest is charged on the amount withdrawn in excess of limit. The cash credit is given against the security of tangible assets and/or guarantees. The advance is given for a longer period and a larger amount of loan is sanctioned than that of overdraft. · Loans – It is normally for short term (a period of one year) or medium term (a period of five years). These days, banks do lend money for long term. Repayment of money can be in the form of installments spread over a period of time or in a lump sum amount. 07 Handout 1 *Property of STI Page 1 of 5  SH1661 Interest is charged on the actual amount sanctioned, whether withdrawn or not. The rate of interest may be slightly lower than what is charged on overdrafts and cash credits. Loans are normally secured against tangible assets of the company. · Discounting Bill of Exchange – The bank can advance money by discounting or by purchasing bills of exchange, both domestic and foreign bills. The bank pays the bill amount to the drawer or the beneficiary of the bill by deducting usual discount charges. On maturity, the bill is presented to the drawee or acceptor of the bill and the amount is collected. II. Secondary Functions These are also called as non-banking functions. These are responsible for the following tasks: A. Agency Functions – The bank acts as an agent of its customers such as trustees, executors, advisers and administrators on behalf of its clients. They also act as representatives of clients to deal with other banks and institutions. These include the following transactions: · Transfer of Funds – The bank transfer funds from one branch to another or from one place to another. · Collection of Cheques – The bank collects the money of the cheques through the clearing section of its customers. The bank also collects money of the bills of exchange. · Periodic Payments – On standing instructions of the client, the bank makes periodic payments in respect of electricity bills, rent, etc. · Portfolio Management – The banks also undertakes to purchase and sell the shares and debentures on behalf of the clients and accordingly debits or credits the account. This facility is called portfolio management. · Periodic Collections – The bank collects salary, pension, dividend, and such other periodic collections on behalf of the client. B. General Utility Functions – The bank also performs the following tasks: · Issue of Drafts and Letter of Credits – Banks issue drafts for transferring money from one place to another. It also issues letter of credit, especially in case of, import trade. It also issues travelers’ cheques. · Locker Facility – The bank provides a locker facility for the safe custody of valuable documents, gold ornaments, and other valuables. · Underwriting of Shares – The bank underwrites shares and debentures through its merchant banking division. · Dealing in Foreign Exchange – The commercial banks are allowed by Reserve Bank of India (RBI) to deal in foreign exchange. · Project Reports – The bank may also undertake to prepare project reports on behalf of its clients. · Social Welfare Programs – It undertakes social welfare programs, such as adult literacy programs, public welfare campaigns, etc. 07 Handout 1 *Property of STI Page 2 of 5  SH1661 Corporations are the most common form of business organizations. These are chartered by a state and given many legal rights as an entity separate from its owners. According to Cornell Univers ity, they are viewed as legal persons, which means they can be sued for not carrying out certain functions or responsibilities. This form of business is characterized by the limited liability of its owners, the issuance of shares of easily transferable stock, and existence as a going concern. The process of becoming a corporation, called incorporation, gives the company separate legal standing from its owners and protects those owners from being personally liable in the event that the company is sued, a condition known as limited liability. Incorporation also provides companies with a more flexib le way to manage their ownership structure. In addition, there are different tax implications for corporations, although these can be advantageous and disadvantageous. In these respects, corporations differ from sole proprietorships and limited partnerships. It has several key responsibilities and functions, which are as follows: I. Selecting a CEO – The board of directors of a small corporation is responsible for selecting a chief executive officer (CEO). The CEO then ensures that the management team and employees adhere to all policies and procedures instituted by the board of directors, lawyers , and himself. Corporate CEO's typically select management teams or executives to help them run their organizations. It is also the responsibility of the corporation to create an organizatio na l structure that allows it to function most effectively. The management team then develops certain strategies to get the corporation headed in the right direction. II. Providing Continuity – Small corporations are formed to stay in business on a permanent basis. Therefore, another corporate function is continuity of business. This essentially means that a corporation must continue to function when people are fired, leave the company or pass away. Executives, including the CEO, must be replaced by other competent and talented individuals. Directors and lower-level managers also have the responsibilities of hiring and training enough workers to keep the company running. III. Managing Resources Effectively – A small corporation is also responsible for managing its resources effectively. Those involved in manufacturing must procure the necessary raw materials to create products. Small wholesale companies must find suppliers for their products. Corporations must then keep products flowing to ensure they are in stock when customers need them. The objective of most corporations is to minimize waste. Therefore, many managers order supplies and products as they are needed, accounting for the time it takes to ship products. IV. Increasing Profits – All corporations are in business to earn a profit. However, corporations are also responsible for increasing profits to maximize those of their shareholders. The shareholders have ownership in a corporation. They earn profits on their initial and additiona l investments. These are called "earnings per share," which a small corporation has the responsibility of maximizing each quarter or year. Corporations maximize shareholders' earnings by selling more products and keeping major costs in line: Production, labor, inventory, supplies, and overhead like rent and utility expenses. V. Social Responsibilities – Corporations are also responsible for giving back to their communities. Many sponsor events or organizations such as symphony orchestras in their community. They may also have employees who collect monies for various diseases or illnesses, donating to local charities and foundations. Another social responsibility is keeping residences safe from environmental issues. Therefore, corporations may install certain filters 07 Handout 1 *Property of STI Page 3 of 5  SH1661 or protective barriers at plants. Corporate officers may also apprise the community when accidents occur that may be detrimental to peoples' health. Some small corporations may even use greener or environmentally safe substances during the manufacturing process. Cooperatives are autonomous associations of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically- controlled enterprise. Trade Unions, on the other hand, are organizations based on membership of employees in various trades, occupations, and professions, whose major focus is the representation of its members at the workplace and in the wider society. These particularly seek to advance its interest through the process of rule-making and collective bargaining. These perform a number of functions, which can be classified into four (4) categories: I. Militant Functions · To achieve higher wages and better working conditions · To raise the status of workers as a part of industry · To protect labors against victimization and injustice II. Fraternal Functions · To generate self confidence among workers · To encourage sincerity and discipline among workers · To provide opportunities for promotion and growth · To protect women workers against discrimination III. Social Functions · Welfare activities provided to improve the quality of work life, including organization of mutual fund, cooperative credit societies for providing housing, cooperative stores, cultura l programs, banking and medical facilities, and training for women in various crafts to help them to supplement their family income. · Education of members in all aspects of their working life, including improvement of their civic life, awareness in the environment around them, enhancement of their knowledge particularly about issues that concern them, their statutory and other rights and responsibilities, and workers’ participation in management. · Scheme and procedure for redressing their grievances. Some central union organizatio ns are also assisting the Government in implementing the Workers’ Education Scheme. · Publication of periodicals, newsletters, or magazines for establishing communication with their members, making the latter aware of union policy and stand on certain principa l issues and personnel matters concerning members such as births, deaths, marriages, promotions, and achievements. · Research provides updated information to union negotiators at the bargaining table. Such research is to be more practical than academic, concerning problems relating to daily affairs of the union and its activities, and union and management relations. Some of the research activities are: (i) collection and analysis of wage data including fringe benefits, and other benefits and services through surveys of comparative practices, data on working conditions and welfare activities; (ii) preparation of background notes for court cases and also position papers for union officials; (iii) collection and analysis of macro data relating to the 07 Handout 1 *Property of STI Page 4 of 5  SH1661 economy, industry sectors etc. All the above mentioned activities and services are considered normal activities of unions in the Trade Unions Act, which stipulates the objectives on which general funds of the union can be spent. IV. Political functions These include affiliating the union with a political party, helping the political party in enrolling members, collecting donations, and seeking the help of political parties during the periods of strikes and lockouts. International Organizations are entities established by formal political agreements between their members who have the status of international treaties. Their existence is recognized by law in their member countries; and they are not treated as resident institutional units of the countries in which they are located. It plays a central role in defining and reinforcing how the global economy works. The three (3) principal bodies responsible for regulating international economic affairs are the following: I. World Bank – It was set up to help the so-called underdeveloped world to help integrate the poor countries into the international economy. II. International Monetary Fund (IMF) – It was created to help stabilize currency exchange rates between nations; and to come to the aid of countries with temporary liquidity needs. III. World Trade Organization (WTO) – It determines and enforces the rules regulating international trade. Transnational Advocacy Groups are advocates of principled causes, ideas, and values such as human rights or the environment. They do not work alone nor are they limited by national boundaries. The last several decades have witnessed significant growth in the number loose coalitions or networks of advocates building bridges across borders to bring about social change. Development Agencies establish and support sustainability programs for the community. Example: Economic Development Agency - Its goals are to help create and support economic growth within a specified city, region, or state by providing necessary resources and assistance. References: CECOP. (2006-2014). Cooperatives. European Cooperative House. Retrieved from http://www.cecop.coop/What- is-a-cooperative Center on Law and Globalization. (2014). How do transnational advocacy network work?. Retrieved from https://clg.portalxm.com/library/keytext.cfm?keytext_id=114 Houston Chronicle. (2014). Functions and responsibilities of a corporation. Hearst Newspaper, LLC. Retrieved from http://smallbusiness.chron.com/functions -responsibilities-corporation-34641.html Investor Word. (2014). Corporation. Web-finance, Inc. Retrieved from http://www.investorwords.com/1140/corporation.html Patil, M. (2008-2014). Functions of banks. Kalyan City Life. Retrieved from http://kalyan- city.blogspot.com/2011/04/functions-of-banks-important-banking.html Banks. (n.d.). Retrieved from http://www.business -science-articles.com/articles/business/76-functions-of-banks-i- primary-and-secondary Functions of trade unions. (n.d.). Retrieved from http://www.whatishumanresource.com/functions -of-trade-unions Role of international organizations. (n.d.). Retrieved from http://www.selba.org/EngTaster/Economics/GlobalEconomy/RolInternOrganizations.ht ml 07 Handout 1 *Property of STI Page 5 of 5