Loan Operation & Management Of Bangladesh Development Bank Limited

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Loan Operation & Management Of

Bangladesh Development Bank Limited

1.1 Background of the study

Today’s business world is dynamic and competitive therefore organizations are looking for talent, extrovert graduates who belong to high degree of adaptability quality. Today’s business graduates will be the core part of business organization. So business graduates need to have both theoretical & practical knowledge to manage the business activity properly. In order to be familiarize with organizational culture and to gain some practical knowledge about an organization this report is the base.

1.2 Rationale of Study

We think BDBL being the prime development financing institution continued its effort to make an effective contribution towards expansion of industrialization process of Bangladesh.

1.3 Objectives of the Study

Broad Objective

• To gain insight knowledge about Project appraisal, Loan sanction and practices of BDBL and identifying problems regarding performance and providing some recommendations.
• To understand about various departmental activities and their key responsibilities.
• To become familiar with organizational culture.
• To find out contribution of BDBL towards the economy of Bangladesh.

Specific Objective:

· To identify the Cause and consequence of loan default of BDBL.

· To recommend necessary steps for overcoming such problems of BDBL

2. Methodology

2.1 Population parameters

The population is the aggregate of all the elements sharing common set of characteristics that comprise the universe for the purpose of research study. In case of my study the variable includesmanpower of the bank:

2.2 Sample Size

Sample is a subgroup of the elements of the population selected for participation the study. To accumulate the required data we have contacted with each departmental head along with other concerned executive of Bangladesh Development Bank. In case of industry diagnosis we have got in close with the responsible personnel of Project Implementation Department of BDBL to collect the information. The sample I have taken for the study consists of 21 personnel of head office of BDBL:

2.3 Variables covered

ü Loan Sanction

ü Loan Recovery

2.4 Methods of Collecting Data

In order to conduct the report, we have decided to collect various types of primary and secondary data. Data were also collected by oral interviewing the responsible officers. They also gave me annual report, annual budget granted through government of BDBL and other documents. Different form of statistical configurations such as table percentages rates and rations has been used to make the study meaningful and realistic. After collecting data from the interview and material, the data was first carefully scrutinized. Then the data was organized as required. In order to make the study effective and efficient, following two sources of data and information have been used widely.

2.5 Type of Research

In this study the descriptive research design has undertaken to gain insights and understanding of Project evaluation, Loan Sanction and Implementation of BDBL.

2.6 Statistical Tools Used

ü Graphical Presentation

ü Tabulation

ü Trend Analysis

3: Company profile

3.1 Brief History of Bangladesh Development Bank

The former Industrial Development Bank of Pakistan (IDBP) and the Equity Participation Fund (EPF) were established for the industrial development of Pakistan. Two institutions were working during pre-liberation period. After liberation both were converted into a single institution named Bangladesh Shilpa Bank (BSB). Bangladesh Shilpa Bank comes into existence on October 31^st, 1972 by the Promulgation of Bangladesh Shilpa Bank order 1972 (president’s order no 129 of 1972). The BSB order, 1972 was amended subsequently by the parliament to provide more operational autonomy to its management. Finally in 16^th November, 2009, the bank is incorporated in the name of “Bangladesh Development Bank Limited” as a public limited company resulting from the merger of formerly Bangladesh Shilpa Bank (BSB) and Bangladesh Shilpa Rin Shangstha (BSRS). The Bank obtained the Banking License from Bangladesh Bank in November 19, 2009.

Corporate profile of BDBL at a glance is given below:

3.2 Nature of Business

3.2.1 Functions of various departments of BDBL in Brief

Bangladesh Development Bank encompasses of various department and zonal offices through which it performs its activities. To perform efficient and effectively BDBL in its board meeting has determined the schedule activities of various departments and zonal offices and they supposed to perform the task accordingly and the respective employee have to repot according to organizational hierarchy. Among these Departments I worked in 8 Departments. Major activities of these 8 Departments are mentioned below in Department wise:

3.2.2 Activities of Loan Operation Department

Bangladesh Development Bank (BDBL) grants loan on the basis of certain criteria. The first Activities of loan granting are done by the loan operation department. Any entrepreneur who wants to borrow money, from BDBL must fulfill at first bank standard questionnaire form (BSQF) terms of Tk 1000.These processes are as follows:

• At first an application form is supplies to the entrepreneur.
• After filling up the application from it is submitted by the Entrepreneur.
• A project appraisal letter is supplied by the entrepreneur.
• After analyzing the project appraisal, the board decides the loan should be sanctioned or not.
• If the loan is sanctioned it is forwarded to the project implementation department.

3.2.3 Project implementation Department

When the loan is sanctioned by the loan operation department it is forwarded to project implementation department (PID) performs the following activities:­

• Undertaking necessary initiative after granting loan in favor of the project.
• Making necessary attempt to give the loan a stage by stage after the loan granting
• Monitoring the machinery of the project, inspection and taking any kind of advice regarding to any machine related problem from machinery department.
• Inspection and monitoring experimental production and extension of loan period.
• Making the final construction report (FCR) and transferring it to central recovery department (CRD) and concerned department/ authorities.

3.2.4 Documentation and Machinery Procurement Department

• After sanctioning loan by loan operation department, it issues a letter to documentation department, parties and after concerned departments. The documentation department issues a letter to the parties to produce necessary documents. Those documents are: ­ Memorandum of Association Articles of Association
• The land upon which the project will be established, document of this land must be produced.
• The document that reveal that the land were not sold within preceding two years.
• Receipts of rent
• Documentation fee
• Mouja Map

Then a form is filled up. These documents are sent to lawyer. If everything is ok it is transferred to project implementation department.

3.2.5 Central recovery Department

Project implementation department makes a repayment schedule and given it- to the borrower. Nominally the interval is 6 months. This department inspects the project after every 6 months to see whether there is any leakage. If the borrower fails to repay the loan as the application of the borrower it is rescheduled. Sometimes a portion or interest is exempted. If the borrower fails to repay the loan, than it is transfer to law department to take legal action. On the application of the borrower sometime the project is transferred to project rehabilitation department to restore the project.

3.2.6 Project Rehabilitation Department (PRD)

The objective of BDBL is to make industrialization of the country. But many of the projects, which are loaned by BDBL, become sick and cannot carry on their projects. There are many reasons, so government tries to revise the proposed project for greater advancement of the country.

The main activities and responsibility of Project Rehabilitation department are as follows:

1) When files are transferred to Project Rehabilitation department, it traces the cause of sickness and Recommend to take initiative to rehabilitate a project. The rehabilitation process starts after the recommendation of the advisory committee formed by the General Managers.

3) Verification of the proposal regarding rehabilitation recommendation preparing the implementation schedule and taking necessary initiatives to take care the project and deciding the single or joint management of the bank over the project if necessary.

5) Production of the rehabilitated project, making of the products analyzing the targeted loan recovery and actual situation and taking necessary initiates regarding these.

6) Retraction of bank participation stage by stage from the project, which is profitable.

3.2.7 Law Department

There are two law departments, such as Law Department-1 and Law Department-2. Law department-1 functions for the head office and Law department-2 functions for branch office outside of Dhaka. In the Bangladesh Development Bank fails to recover its loan in the normal way, it must under taken alternative action and file case in the court.

· To give medical facilities to the stuff.

· To maintain relationship with retired or dead stuffs and their families

· To maintain and grant leaves without regular leave.

3.2.8 Human Resource Management Department (HRD)

• To coordinate and evaluate the branch and regional stuff activities.
• To step and implement for opening new branch office.
• To maintain relationship with government and other institution
• To prepare and implement policy about human resources and related activities.
• To control the administration of human resources of the bank
• To give loan for house building, by cycle. Motorcycle, and ensure their proper utilization.
• To take program and implement for developing human resources.
• To make appointment, promotion and appraising skill of officer and stuff.

3.3.1 Organizational Overview

BDBL’s Network

Zonal and Branch Offices of BDBL

Financial Structure

Capital structure

Capital structure can be categorized into two types that is Authorized & Paid up Capital

3.3.2 Management Pattern of BDBL

The overall policy formulation and the general direction of Banks operation vest on a board of directors appointed by the government. The board of Directors consists of nine (11) members including the chairman and the Managing director. Non government shareholder subscribing to the capital of the Bank shall eventually elect four (4) Directors from amongst themselves. The Managing Director is the chief conducting the overall Banking business.

3.3.3 List of industrial sectors that BDBL can issue loan

BDBL mainly issue loans on the following sector-

• Food and related goods
• Fruits / vegetables processing industries.
• Textile industries
• Spinning industries
• Specialized textile
• Knit composite
• Leather and leather related goods:
• Leather shoes
• Other goods (Gloves, bag, jacket, luggage etc)
• Chemical and pharmaceuticals:
• Chemicals for leather processing
• Other chemicals
• Servicing industries:
• BSCIR developed technology dependent projects.

3.4 Company’s Mission and Vision

To emerge as the country’s prime Financial Institution for supporting private sector industrial and other projects of great significance to the country’s economic development. Also be active participant in commercial banking by introducing new lines of product and providing excellent services to the customers.

Vision:

· To emerge as the country’s prime Financial Institution for supporting private sector industrial and other projects of great significance to the country’s economic development.

· Also be active participant in commercial banking by introducing new lines of product and providing excellent services to the customers.

Mission:

• To be competitive with other Banks and Financial Institutions in rendering services ;
• To contribute to the country’s socio-economic development by identifying new and profitable areas for investment ;
• To mobilize deposit for productive investment ;
• To expand branch network in commercially and geographically important places ;
• To employ quality human resources and enhance their capability through motivation and right –type of training at home and abroad.
• To delegate maximum authority ensuring proper accountability ;
• To maintain continuous improvement and up-gradation in business policies and procedures ;
• To adopt and adapt to new technology ;
• To maximize profit by strong, efficient and prudent financial performance ; and
• To introduce new product lines according to market needs.

Values:

3.5 Analysis of Performance Indicators

Loan sanctioning

3.5.1 Introduction

After appraising the project, Project appraisal committee submits the project appraisal report, on the basis of that a project is approved. If the project is approved, loan is sanctioned to the proposed project. During FY-2009-10, the Bank sanctioned total long term loan of tk.1006 million to 39 projects and short term loan of tk.105 million to 15 projects and disbursed tk.534 million to 53 projects.

3.5.2 Loan Sanction Procedure

First of all, a client who wants to have a loan asks for an application form, which is known as Bangladesh Standard Questionnaire form (BSQE). He has to pay one eighth of one percent cash money 1/8th of 1% of the total loan amount with the filled form. The person is required to submit necessary papers and documents by the bank the information generally consist of:

• Name of the product
• Name & designation of the entrepreneur
• Types of Project
• Types of Products
• Site of the Project
• Amount of the Project
• Copy of memorandum, articles of association and other papers relating to legality of the projects.
• Site, production process flow diagram etc.

When all the required papers and documents are submitted along with the fee Tk. 1000 plus l/8^lh of 1% of total loan amount, the proposal is then under consideration of judging the project viability.

3.5.3 Sanction of long-term Loans

The Bank kept on sanctioning of term loans during FY 2009-2010 this year local currency loan of BDT 1006 million was sanctioned to 39 projects. Of the total sanctioned amount tk.928 million was for 37 new projects, and an additional loan of tk. million for 2 ongoing projects.

Table4.1- sanction of term loan

Source: Annual Report 2009-2010

3.5.4 Commitment and Disbursement of term Loans

During FY 2009-10, the bank made commitment of Tk.765 million in local currency to 36 projects. During the period, the bank disbursed term loans of Tk. 485 million in local currency to 43.

Table 3.5.2 Commitment and disbursement of term loan

Source: Annual Report 2009-2010

Table 3.5.3 Loan Sanction scenario of BDBL:

Here 10 years loan sanction of BDBL to various sectors has been shown in the table:

Table: Loan Sanction of BDBL in 10 Sectors

Sector-Wise Position of Bank’s Loan Portfolio (As On 30-06-2011)

Source: Annual Report 2009-2010

Loan Recovery

3.5.5 Loan Recovery Methods

BDBL usually follow a formal way to recover its loan. Normally before an installment falls due they issue many reminders to remind sponsor to prepare to pay loan. They use phone call, formal letter, and physical visiting to remind the sponsor to prepare for paying installment on due time. Formally, central recovery department perform this duty. The officers of central recovery department go for physical visit to project site twice in a year. By this visiting they try to understand the present condition of the project and predict future position of the project. By analyzing the condition of the project, they suggest sponsors to take necessary to measure to sustain project and increase the cash flow. Sometime they offer them additional credit to strengthen their cash generation, which is called cash credit. However, the recovery method of BDBL is not still modern and sophisticated one like the existing private lending and financial organization. The private and other financial institution analyze the financial statement of borrowers and require him to maintain some financial ratios at a certain rate. They always monitor the sponsors and predict the financial viability of the project and ability of cash generation and offers sponsors with various measures to strengthen their cash generation capacity so that any installments do not become default. Some Other Technique Which Are Applied By BDBL to Recover the Loan and Advances:

• BDBL ensures regular recovery of loans as per repayment schedule.
• BDBL reserves the right to nominate its officers to act as directors on the BOD of the company.
• The borrowers who pay their installments of the principal loan, interest, and other charges on or before due date as per repayment schedule may be allowed rebate at a rate of 5% on interest by BDBL Board.
• Personal properties of directors, managing directors are attached as collateral securities and law department-1 recovers it.
• Visit the project personally by BDBL concerned department officers.
• By communicating through telephone with the borrower who has given personal guarantee.
• Make loan free of interest of the project under legal action if the borrower agrees to repay the balance of principal and other charges.
• Rescheduling is the most important technique to recover the loan. It is done to reduce classified loan. It can be done with interest or without interest.
• Moral persuasion by the concerned officer to repay the loan. It is another important effective technique.
• Appointment of agent to settle the dispute between BDBL and the borrower.
• Personal communication with the borrower for balance due though there is no project. Even communication is made with the relatives of the borrower in the absence of the borrower to recover the loan.
• Communication with the guarantor of the loan.

Weekly, monthly statements of recovery department, law department are prepared by these departments and submitted it to the managing director, Board of Directors to inform about the latest recovery position. Thus it can be said that the officers of BDBL try hard and fast to recover the advances in any way.

3.5.6. Loan Recovered

Loan Recovered is a crucial index to measure the success of a lending organization. Like previous year, this year too, the Bank strengthened its recovery drive for realizing loan and dues from its borrowers and significant success was achieved. Total recovery target loans during financial year 2008-09 were Tk. 1400 million against which actual cash recovery was Tk. 1391.44 million.

Table: Recovery of loan

Source: Annual Report 2009-2010

Recovery of Term Loan (Major Sector) (Taka in Millions)

3.5.7 Loan Recovery Picture of BDBL

Table: 10 Years Loan Recovery Picture of BDBL (Amount in thousand BDT)

Source: Manual of BDBL

4. Trend Analysis: Sector-wise Loan Recovery of BDBL:

Loan Recovery of Bangladesh Development Bank followed by Loan Sanction of BDBL. Here sector-wise loan recovery performance of BDBL has been shown:

A. Textiles

Figure: Loan Recovered in Textiles

In the above figure, Textile sectors show an upward trend in case of recovery of loan. In the fiscal year 2009-2010 recovery of loan is BDT 797770 thousand which is the highest recovery among ten years.

Food & Allied sector:

Figure: Loan Recovered in Food & Allied sector.

From 2000-2001 to 2004-05 the recovery of loan from Food & Allied sector is in stable form. But in 2005-06 collection of loan money from the sponsors is goes upward. The highest recovery of loan is in fiscal year 2008-2009, Tk. 29370.

D. Jute & Allied sector:

Figure: Loan Recovered in Jute & Allied sector

Jute & Allied is in case of recovery loan money is fully an exception one. In year 2000-2001 was BDT 15523 thousand and in the next it declining year after year so that it considered as down ward trend. But in 2003-04 the recovery of loan from this sector went to a big amount of taka 377360 thousand. In 2009-2010 the recovered amount was BDT 9170 thousand.

E. Machinery & Metallic sector:

Figure: Loan Recovered in Machinery & metallic sector

This sector is in volatile position because increasing and decreasing pattern are existing in this sector. In the year 2009-2010 huge amount of money is recovered that amount is BDT 84300 thousand

G. Service sector:

Figure: Loan Recovered in Service sector

Service sector is in upward trend almost all the year. In the year 2000-2001 BDT 35189 thousand & 2009-2010 is BDT 48520 thousand which is much higher than the previous year.

H. Tannery sector

Figure: Loan Recovered in Tannery sector

Loan recovery in Tannery sector shows an upward trend. In the year 2009-2010, recovery of loan was the highest amount which was tk. 30010 thousand.

I. Water & Transport:

Figure: Loan Recovered in Water Transport

Loan Recovery in this sector shows decreasing trend. Highest recovery of loan was in the year 2000-01 which was Tk. 10819 thousand.

3.5.8 Legal actions taken for Loan Recovery

Bangladesh Development Bank initiated legal actions against those loans where the borrower do not paid their installment that means who are defaulter.

Legal Actions Taken:

In FY 2009-10, legal notices were issued against 10 defaulting companies for recovery of Banks dues while law suits were filed against 304 companies. Besides, 72 sale notices were published in the national dailies for action. At the same time efforts were made for settlement of disputes outside the court through negotiation. As a result, 9 litigated companies settled the disputes outside the court and assets of 4 projects were sold through auction during the year. Apart from this, during the year under review, sales of assets of 62 projects is under process and 5 projects with the loan amount of Tk. 0.92 million have been liquidated.

4 Problems Findings

Problems regarding smooth performance of BDBL

Introduction: In this section the focus will be on problems regarding smooth performance of BDBL on the basis of my ninety days Internship program in BDBL.

4.1 Summary of the Problems

4.2 Problems regarding Loan Sanction

During my Internship period, by observing and analyzing the Loan sanction procedure of Bangladesh Development Bank following problems have been noted out:

In most of the cases Loan sanction procedure of Bangladesh Development Bank is being politically biased. Sometimes, there is pressure groups’ involvement in sanctioning loan. Many viable projects do not get sanctioned loan due to absence of bribe and pressure from political and other pressure group. In case of sanctioning loan some high officials practice nepotism. Sometimes, the amount of loan sanction is more than that is required by the project because of over invoicing from the part of sponsors. BDBL grants normally four kinds of loans such as, continuous loans, demand loan, fixed term loans, and short term agriculture and micro finance credit. Sometimes, the amount of loan sanction is more than that is required by the project because of over invoicing from the part of sponsors.

4.3 Problems regarding loan recovery activities

In the case of loan recovery, Bangladesh Development Bank also faces the following problems-

• Sometimes bank has to provide loans and advances under political or bureaucratic pressure without conducting a proper credit analysis of the borrower. That’s why it also create problem in case of recovered of loan.
• Weak Recovery trend due to corruption, negligence and political pressure
• Sometimes inefficient allocations of resources have created a huge amount of bad debt.
• The procedure Bangladesh Development Bank follow is not suitable in present condition for recovery of loan.
• In case of sanctioning loan, sometimes the procedure of sanction of loan did not follow. For this reason sanction of loan go to the unproductive field and in next loan recovered will not possible

5 Conclusion & Recommendations

5.1. Recommendations regarding loan sanction

Considering the above findings, some recommendations regarding loan sanction have been given below to make the loan sanction procedure more viable:

• Loan sanction procedure should be free from political biasness.
• Experienced and motivated entrepreneur should be given priority in case of sanctioning the loan.
• The time of loan sanction should be reduced; it should not be more than 20-30 days.
• Practice of nepotism by high officials of BDBL should be totally stopped.
• For reducing time, the Bank should instruct the borrower to bring all the documents needed by the documentation department and the functions of loan operation department and documentation department should simultaneously be done.
• Over invoicing should be checked and detected by expertise. The real price of machinery should be found out by using various sources.
• Political pressure should be in lower interference in sanctioning loan for establishment of the project
• Sanctioning loan to the sponsors carefully through proper making feasibility report.

5.2 Recommendations regarding loan recovery activities

In respect of the above mentioned Findings regarding Loan recovery, some recommendations are given below:

• Loan recovery procedure should not be influenced by political interference.
• Corruption & negligence of responsible person in case of loan recovery should be reduced.
• Borrowers also need to be more responsible and give up their ill motive in case of loan recovery.
• Recovery drive should be reshuffled and strengthened.
• At least before 30-40 days of scheduled time of installments due, the borrowers should be reminded about the installments is falling due.
• The defaulting borrower should be monitored so that he cannot channel his fund to other business of firms.
• They should assist the sponsors if he requires continuing his business operation and generating cash to repay loan.
• Central observation committee can be established to analyze evaluate and solute proper loan recovery.

5.3. Conclusion

On the basis of my overall study on “Loan Operation & activities of Bangladesh Development Bank” it can be easily concluded that recent performance of Bangladesh Development Bank in respect of Loan performance is not so satisfactory. But the contribution of Bangladesh Development Bank after Liberation in accelerating the country’s economy & rehabilitation of Industrial sector can’t be ignored. So, the main reasons behind its recent poor performance are corruption of high officials of BDBL, political influence, inefficiency of the employees and last of all poor management system of Bangladesh Development Bank. So, Government should take some immediate steps to improve its overall management system and make this organization profitable. At present BDBL carefully takes steps for sanctioning loan because of a huge fund become irrecoverable due to sickness of various projects. It is indeed that sickness is the consequences of unconsciousness and lack of investigation in case of issue of loan. We know sick project is the burden of bank as well as the overall economy of Bangladesh. We think proper scrutinizing of project proposal and careful physical verification may make sure to be profitable of that industry as well as Bangladesh Development Bank. Bangladesh Development Bank should concentrate on loan recovery that is necessary for long-term profitability and sustainability. Although there are some drawbacks of BDBL activities nevertheless it plays an important role in the industrial sector of Bangladesh and will be able to overcome its problems and contribute more & more to accelerate the country’s industrial sector.

BIBLIOGRAPHY

Ahmed kamal The Role of Bangladesh Development Bank in Financing Private Sector Industries. (The Dhaka University Studies, Part- C. Vol.2, June, PP-96-107)

Annual report Bangladesh Development Bank Limited, 2009-2010

Annual report Bangladesh Development Bank Limited, 2008-2009

DR. M. Habibullah “Industrial financing and institutional arrangement for setting up of industries in the private sector”, , vol- 1, no-2, June 1980

Journal Industrialization of Bangladesh role of BSB: Published by BSB, 2007.

Manual “Different department of BDBL”

Md. Azizur Rahman khan. ” Why institutional loans are refused to small entrepreneurs”, vol-1, no-2, June 1980₁journal Dhaka university studies.

Websites www.bdbl.com.bd