Sick Industry Rehabilitation- an overview on Bangladesh Shilpa Bank

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“Sick Industry Rehabilitation- an overview on Bangladesh Shilpa Bank”.

Chapter: 01

Introduction

1.1 Introduction:

Any academic course of the study has a great value when it has a particular application in the real life. Only a lot of theoretical knowledge will be little important unless it is applicable in practical field. So we need proper application of our knowledge to get some benefit from our theoretical knowledge to make it more fruitful. When we engage ourselves in such field to make proper use of our knowledge in our practical life only then we come to know about the benefit of the theoretical knowledge. Such an application is possible through internship as an integral part of MBA program of our university have been engaged in Bangladesh Shilpa Bank (BSB) Head Office, Motijheel Commercial Area Dhaka, to complete the same where my concentration is on “Sick Industry Rehabilitation- an overview on Bangladesh Shilpa Bank”.

As the level of industrial development increase in Bangladesh so banks give loan towards the advancement of various sectors for industrialization. It helps to manage all types of efforts from establishment to implement of its operation. They also help to accumulate of human capital and technological innovations and facilitate in the project implementation. Bangladesh is one of the countries of manifestation. Here industrial sector is very weak whereas, industrially developed countries are dominating the world. So Government has established Bangladesh Shilpa Bank to strengthen the industrial sector. Since Bangladesh is a developing country and the present economic situation of Bangladesh is of open market in nature. So, in this situation, the specialized bank like BSB can play necessary role towards the economic improvements.

1.2 Problem Statement:

Now a day there is an increasing trend in industrial sectors in Bangladesh but performance of the entire industrial sectors are not up to the standard. Many firms in different industries are becoming increasingly sick. Some of these firms are liquidated or closed and some are not on the verge of being closed. Shy firms are increasingly becoming sick and what action to be taken to ensure their survival and growths are yet to be discovered. This study addresses the issues pertains the above-mentioned problems.

1.3 Objective of the Study:

The study encompasses the overall activities of Bangladesh Shilpa Bank (BSB). However, the main objective of the study is to evaluate the ‘Sick Industries Rehabilitation by BSB. The objective of the study can be summarized as under:

-To gets an overall idea about the operation of BSB

-To examine the success status of loan recovery

-To identify status of sickness of enterprises financed by BSB

-To identify the causes behind sickness of enterprises

-To evolve measures for overcome the problem of sickness

-To determine the limitation of Bangladesh Shilpa Bank

-To criterion on the basis of which the industries are identified as a sick industry

-To understand the rehabilitation program

-To know which firms are rehabilitate and which are not

-To recommend some steps to overcome such problem

1.4 Rationale of the Study:

As a developing country, it is necessary to enrich the industrial growth of our country of compete with the global market and open market economy as now we are in a global village. To facilitate the industrial growth and strengthen out economy, the government of Bangladesh has established BSB immediately after liberation war in 1972. Whereas, BSB extends long and medium term loan facilities in local and foreign currencies, provides working capital loans to Industrial units, provides equity support, Involved in Capital market activities, also extends commercial banking service though it is a specialized bank for the development of the industries. There are so many industries, which have already been established as a pioneer industry of our country with the help of BSB finance. But our industrial growth has not yet reached at expected level. There are so many industries that are not operating in the market with profit. Why we have not yet reached at expected level of growth comparing with other countries with the same variables as Bangladesh belong to-it is my query. The study will help us to get the reasons of sickness and tools to overcome these complexities in sick industries in our country.

1.5 Methodology of the Study:

The report “Sick Industries Rehabilitation” has been prepared absolutely based on BSB. I have used some graphical presentation, growth rate, and trend analysis. In this study, the descriptive as well as some analytical types of research have undertaken to gain insight and to understand about the overall operations and mainly the sick industries rehabilitation by BSB In this study, I have relied on both primary and secondary sources of data the sources are as follows:

1.5.1 Primary Sources:

i. Oral and informal conversation with the different departmental heads of Bangladesh Shilpa Bank,

ii. Observations of banking operations in Head Office.

iii.Expert’s opinion.

1.5.2 Secondary Source:

i. Printed forms and documents supplied by the official of BSB.

ii. Relevant books/papers, etc,

iii. BSB website-

iv. Annual Reports.

v. Other published documents.

1.6 Limitation of the Study

This internship report is my first assignment outside our course curriculum in the particular life. To prepare the report we have faced divergent problems and among them main limitations are as follows.

• Lack of sufficient knowledge.

• Lack of previous practical experience in this concern.

• Lack of enough available data.

• Confidentiality is the main problem; as a result some confidential facts were not sufficiently disclosed by the respective personnel.

• Up-to-date information was not available and Most of the manual of BSB is maintained in Bengali

• Bangladesh Shilpa Bank is a large financial institution and it is very difficult to understand each and every aspect of its operation within a very short time (within three months)

1.7 Literature Review:

The main function of BSB is to extend financial assistance to the industrial project. According to the BSB project means the scheme for capital investment to develop facilities and to provide goods and services. To give a loan in a project, the project has to satisfy the overall viability. Consequently, the project appraisal covers five different aspects viz., Management and organization, technical, Market, Economic and Financial. Although the five steps are followed in case of implementation of a project, but these five steps cannot always ensure that a project would be successful because there are many uncertain events, which may cause a project sick or unsuccessful and in such a situation, BSB has nothing to do but rehabilitate the project Rehabilitation of a project means to reshape the existing projects that is diagnosis a weak or sick projects so that it may operate successfully in future.

All sick industries are not possible to rehabilitate. It is mainly depends on the nature of the sickness. BSB provides assistance in a predefined criterion to the sick industry that is probable to rehabilitate. The predefined creations are based on the perspective of management, technological, financial. The BSB also put realistic efforts to rehabilitate its sick, problem-ridden and stuck up projects. In this perspective BSB has taken three-dimensional measures comprising of debt relief, injection of additional funds and direct Management. The bank for the rehabilitation of the sick project takes three steps. It is mentionable that with a view to make such project profitable the bank applies a combination of measures including a financial package.

To identify and to rehabilitate the sick project, BSB has established a new department called project rehabilitation department. The responsibility of this department is to make a project capable of debt servicing through profitable operation. Under rehabilitation program BSB has undertaken so many measures to rehabilitate the sick industries. I have elaborately discussed these measures by chart and table in the report the success and failure of rehabilitation depend on present circumstances of the project.

Chapter: 02

Overview of BSB

2.1 Introduction:

The former Industrial Development Bank of Pakistan (IDBP) and Equity Participation Fund (EPF) both of which were established for the industrial development of Pakistan were converted into a single institution names Bangladesh Shilpa Bank (BSB) after-liberation war in 1971. BSB comes into existence on October31, 1972 by the promulgation of Bangladesh Shilpa Order 1972 (President Order no 129 of 1972). The BSB order, 1972 was amended subsequently by the parliament to provide more operational autonomy to its management

The main objective of BSB is to provide finance both in local and foreign currencies for establishment of new industrial project as well as to balancing, modernization, replacement and expansion (BMRE) of existing industrial units in Bangladesh both in public and private sectors. It also provides other types of financial assistance’s like guarantees for credit/loans, equity-support, and working capital loan to the BSB financed projects. BSB also provide banking business on limited scales.

2.2 Brief Overview on BSB:

Establishment : 31^st October, 1972

Organization : Head Office- Dhaka

Division : 5

Department : 21

Zonal Office : 3

Branch Office : 15

Personnel : 731

Ownership:

At least Government subscribed 51 percent of the authorized capital of BSB and local or foreign Financial Institutions subscribed by Bangladeshi nationals or the remaining 49 percent. Presently, 100 percent ownership of the Bank belongs to the Government.

2.3 Mission:

Accelerating the process of industrialization of the country by providing financial assistance and equity support;

2.4 Objectives of BSB:

Bangladesh Shilpa Bank as the prime Development Financing Institution (DFI) of the country extend financial assistance both in local and foreign currencies to setting up new industries. It accelerates the process of industrialization of the country by providing financial assistance equity support. It assists the existing industries and rehabilitation of sick industries to boost up the industrial development to the country in conformity with the industrial policy and financial reform programs of the government towards market economy.

2.5 Functions:

• Extend long and medium term loan facilities in local and foreign currencies
• For industrial projects (both new and BMRE) in the private and public sector as well as partnership and proprietorship concern. .
• Provide working capital loans to Industrial units.
• Provide equity support by way of participation in the equity of the company in the form of underwriting and bridge finance to public limited companies.
• Issues guarantees on behalf of borrowers for repayment of loan.
• Extends commercial banking service along with deposit mobilization, foreign Exchange business, L/C handling, foreign exchange remittances inland & Outland. sPurchases and sells shares/securities for BSB and on behalf of customers as a member of Dhaka Stock Exchange (DSE) Ltd. and Chittagong Stock Exchange (CSE) Ltd. for capital market development and Conducts project promotional activities along with preparation of various sector

2.6 Management:

The board of Directors of BSB consists of 9 (nine) members including the Chairmen and the Managing Director where the Board of Directors is selected by the Govt. Non-Government shareholders subscribing to the capital to the Bank shall eventually elect 4(four) directors from amongst themselves. The Managing Director is the chief executive often Bank. The General Managers assist the Managing Director in conducting overall business of the bank.

2.7 Operational Activities:

Bangladesh Shilpa Bank being the prime Development Financing Institution continued its efforts to make an effective contribution towards expansion of industrialization process of the county. It emphasis on long term lending to the viable new projects having comparative advantage, export prospects, forward and backward linkages and local technology as well as raw material based projects.

2.7.1 Profit and Loss:

The bank has made net profit (after adjustment) of Tk.248.38 million during FY2007-08as against 79.04 million (after adjustment) in the previous year. Where as total income of the bank in FY2005-06 was Tk.702.70 million as against Tk.715.20 million of the previous year.

2.7.2 Deposit Mobilization:

During FY2007-08, the bank tried to meet its fund requirement from various sources for lending and investment. The bank emphasized more on no cost and /or low cost deposit mobilization during the period. Total deposit was Tk.707.3 million on June 30, 2006 as against Tk.655.43 in the previous year.

2.7.3 Sanction of Term Loans:

The bank kept on sanctioning of term loans during FY2007-08. This year local currency Loan of Tk. 918 million was sanctioned to 20 projects & short loan of about tk.3 million to 3 projects. . Of the total sanctioned amount, Tk.538 million for new 12 projects and an additional loan of Tk.380 million for 8 -existing projects.

2.7.4 Commitment and Disbursement of Term Loans:

During FY 2007-08the bank made commitment of Tk.403 million in local currency to 13 projects. During the period the bank disbursed term loans of Tk.384 million in local currency to 45 projects. In FY 2006 2007, tk. 534 million term loan in local currency was disbursed to 53 projects.

2.7.5 Sanction of Working Capital/Commercial Loan:

During FY 2007-08, the bank sanctioned working capital /commercial loans of Tk3.37 million to 3 projects and disbursed Tk.32.67 million 9 projects. The bank sanctioned Tk.105 million to 15 projects and disbursed Tk.196 million to 13 projects in the previous year.

2.7.6 Project Implementation:

The bank intensively monitors and supervises implementation of its own financial project. During FY-2007-08, 27 Projects commenced commercial production till now amount of tk. 362 million has been disbursed and 31 projects were under different stages of implementation. Of these, 25 projects were under construction 24Projects completed loan agreements and 11 projects were awaiting documentation. In the below, we have given a chart of stages of project implementation for last three years.

Table: 01

j4431Documentation Completed241411Awaiting Documentation112424

Source: Annual Report

2.7.7 Loan Portfolio:

During FY 2007-2008, loan liabilities of 41 projects were liquidated and 14 new projects were receded in the Banks loan portfolio. As on 30 June 2005 total number of projects in the loan portfolio stood at 166 with a total loan outstanding of Tk.7441 91 million compared to that of 308 projects having a total loan outstanding of Tk. 13998.11 million in the preceding year. Out of 166 projects in the loan portfolio, 60 were export-oriented, 72 import substituting and 34 service / other industries.

2.7.8 Other Investments:

During FY 2007-08, the bank invested Tk.66.16 million to purchase shares from the primary and secondary market and the bank earned an amount of Tk. 14.47 million as Capital gain, dividend, and commission from share trading

2.7.9 Loan Recovered:

Loan recovery is a crucial index to measure the success of a lending organization. Like previous year, this year too, The Bank has strengthened its recovery drive for real realizing loans and dues from its borrowers and significant success was achieved. Total recovery target of loans during FY 2007-08was Tk.900 million, against which actual cash recovery was Tk. 981.20 million constituting 7 percent increase. During the reporting year outstanding loan of Tk. 423.00 million was regularized through rescheduling and replacement of bad and doubtful loan accounts.

2.7.10 Legal Action Taken for Recovery of Loans:

The Bank initiates legal actions under the BSB Order, 1972 against those defaulting and recalcitrant borrowers who fail to come up with any satisfactory settlement of Banks dues after all normal recovery efforts have been exhausted.

2.7.11 Loan Written off:

During FY 2007-08, The Bank has written off a total loan liability of Tk.5420.33 million of 7 projects. Out of which 116 for long term, 52 for bridge & 3 for short term loan.

2.7.12 Other Activities:

Apart from the tasks mentioned above, the bank assist the interested entrepreneurs in selecting industrial projects, upgrade the professional competence and skills of its employees, improve the working efficiency by providing better customer service, computerizing of banks activities.

2.8. Audit Committee:

An audit committee has been constituted by the Board of Directors of the Bank in its 400^th meeting held on 06 April, 2003 which position as on 30-06-2005 as under:

Name of the Directors and the entities in which they have interest as on 30 June, 2008:

2.9. BSB: AT A GLANCE:

Chapter -03

Brief Description of Various Departments of BSB

3.1 Introduction:

Bangladesh Shilpa Bank (BSB) as a development financing institution (DFI) provides various function s to make an effective contribution towards the process of expansion of industrialization of the country. It has emphasized on the long term lending to the viable new projects having comparative advantages, export prospects, forward, and backward linkage and local technology as well as raw material based projects. To perform efficient and effectively, BSB in its board meeting has determined the schedule of activities of various departments and zonal offices and they are supposed to perform the tasks accordingly and the respective employee has to report according to organizational hierarchy.

BSB operates its activities through 21 departments out of them; we inspected eight departments and tried to find out their details operations. These eight departments are as follows:

1. Loan Operation Department (TOD)

2 Documentation and Machinery Procurement Department

3. Project Implementation Department (PID)

4. Central recovery department (CRD)

5. Central Accounts Departments (CAD)

6. Project Rehabilitation Department (PRD)

7. Law Department

8. Human Resource Department

The main responsibilities and prime activities of these departments are mentioned below in details-

3.2 Loan Operation Department (LOD):

LOD is the starting department of sanctioning loan to the sponsors and in this department various analysis are made for making decision whether the proposed projects are viable or not Anyone who wants loan from BSB, at first, he has to fulfill a questionnaire, these Processes are as follows:

• At first an application form is supply to the entrepreneur.

• After filling up to the application form it is submitted by the entrepreneur.

• The entrepreneur supplies a project appraisal letter.

\ • After analyzing the project appraisal, the board decides the loan should be Sanctioned not.

3.2.1 Functions of Loan Operation Department:

1. At first application form is supplied to the entrepreneur, after filling up the application form, the entrepreneur supplies a project appraisal letter. Project appraisal letter includes:

– Name the project Location

– Types of the project

– Promoters

– Historical data and information of the project.

2. To give advice to the entrepreneur about industrial investment and to give loan. They like to appraise the propose project from various aspects: Management and organizational appraisal, technical appraisal, marketing appraisal, economic appraisal, and financial appraisal.

3. To evaluate project loan proposal, this department sent the proposal to the loan the sanction committee to sanction the loan and getting approval from respective authority and take recommendation from them;

4. To take clearance from privatization board for proposed, if necessary

5. To take necessary action to process and approve co-financing project; Loan sanction letter sent to subsequent department;

6. To take necessary action to implement the project; Re-evaluate the project on the basis of first evaluated loan agreement, if necessary, according to the updated information;

7. To evaluate the proposal of underwriting of shares as a member of ICB consortium;

8. To issue gazette notification about loan procedure on behalf of the government;

9. To sanction feasibility report of a loan project and sanction letter and memorandum

etc.

10. To examine and appraise the joint venture proposal of Bangladeshi and foreign

investors;

11. To advice about the preparation of loan application form for the non-resident people of

Bangladesh;

12. To encourage foreign lease-financing organization who provides equipment and new technology to set up business in out company;

13. To give advice about the advantage of loan;

14. To take respective steps about various governmental bodies approval to sanction of non-resident Bangladeshis loan proposal

15. To evaluate and give opinion about zonal office sanctioning loan and their activities;

16. Computerization of loan management activities;

3.3 Documentation and machinery Department activities:

• To prepare the schedule of machinery and approve for tender;
• To assist the promoters to invite tender and other formalities; ” To give necessary advice to investor’s /entrepreneur about tender invitation;” To evaluate the offered machinery and related documents and to give necessary information collected about the supplier;
• To analyze the tender price, quality of machinery among the bidders and taking approval from the authority;
• To prepare the list of pre-shipping investigator though notice and receive approval
• Arranging investigation procedure of importable machinery;
• To make the rules the procedures of machinery procurement and co-ordinate the activities of branch and zonal offices;
• To collect information about the different prices of different machineries of different capacities in industrial production;
• To give opinion about technical aspects of loan operation department and branch;
• To give recommendation about the various projects regulated by loan department and zonal office;
• Documentation of collateral and bank guarantee on behalf of directors;

3.3.1 Functions of Documentation Department:

· Documentation and contract completion with loan recover after loan sanction,

· Documentation given to bank by the company,

· Site conformation about project according to document:

· Examination of project memorandum and statements of affairs;

· Renewal of necessary documents in time;

· Conformation of Bank guarantee;

· Accidental investigation of document kept in register strong room;

· To collect actual document from register and act as custodian for that document and Other activities given by department head;

3.4 Project Implementation:

• When the loan is sanctioned and forwarded to document and Machinery Procurement department then the activities of project implementation ids started. This department helps to begin operation of estimated activates. Here, mainly to import the machinery installation, collection of raw material, hiring of experts training of employee for becoming experienced etc. are performed by the BSB in respect of sponsors for smoothing movement of the projects. Besides others are as follows:

1. To take necessary action to implement the project after sanctioning the loan for the project;

2. Taking necessary action to make the factory layout plan;

3. Making necessary adjustment in case of any change in the project plan;

4. To take steps to disburse sanctioned loan step by step according to the loan conditions;

5. To give necessary assistance in case of bridge finance;

6. To take action to implement the project construction timely according to construction time table;

7. Monitoring the machinery of the project, inspection and tacking any kind of action regarding to any machine related problem from the machinery department;

8. Re-adjusting the cost at the project completion stage and re-exarnining excess loan application and processing of loan application and sanctioning;

9. To ensure the project’s raw materials procurement policy and maintaining working capital according to the loan policy;

10. Inspection and maintaining experimental production and extension of loan period;

11. Making the final construction report (FCR) and transferring it to the Central Recovery Department (CRD) and to the concerned departments well;

12. Determination of construction period, Schedule preparation of loan repayment and taking necessary action regarding this;

13. Monitoring and inspecting the project to see whether the project is implementing according to time schedule;

14. To arrange insurance scheme against risk of assets of implementation of the project;

15. Time to time verification of latest rules and regulation about project completion and appropriate rule preparation;

16. To recover at least two installments from the borrower after preparation of final construction report and latter sent the file and document to the central recovery department from project implementation department;

17. Sending file to law department to take legal action of the loan recover who are unable to repay 2 (two) installments of a loan after reminding;

18. Conversion of the foreign currency into local currency if necessary;

19. Re-evaluation of loan agreement after sanction, if necessary;

20. Updating the sanction according to the necessity of the foreign lender;

21. Re-scheduling the construction period and taking authorization from the concern authority as well as taking necessary action relating to this;

22. Completion of duties given by supreme authority or departmental chief;

3.5 Central Recovery Department:

This department is engaged in collecting of loan amount with interest though there are some sorts of rescheduled and repayment facilities. Normally the collection of money in installment is having 6 or 4 months and these departments inspect the projects condition whether there is any leakage.

If the borrower fails to repay the loan, it is rescheduled and sometimes interest is exempted to the sponsor for surviving the project.

Sometimes they justify that for various reasons loan amount would not be paid, because of a variety of reasons such as:

1. With the passes of time;

2. Due to the change in fashion of human beings;

3. Due to the change in demand in consumer;

4. Strong competition among the same type of companies;

5. Due to change in technology;

The bank always try to survive the projects but if the authority thinks that the reasons are the willing fault of the sponsor then it is transferred to the Law Department to take legal action. Sometimes, the project is transferred to Project Rehabilitation Department to restore the project.

3.6 Central Accounts Department:

This department is usually involved in accounting of whole of the BSB. The central accounts department of BSB helps in the preparation of Balance Sheet. This Department keeps records of Payroll, day to day expenditure, Staff Loan, Employee Provident Fund, Pension Fund etc.

3.6.1 Functions of Central Accounts Department;

• Maintenance of accounts and keeping all banks records centrally.
• Preparation and finalization of yearly bank accounts and taking approval in the annual general meeting.
• Annual income and Expenditure of bank loan program and preparation of budget for maintenance and taking approval from Bangladesh Government.
• Cash Fund of Bank/Management of Fund;
• Collection of local fund of Bank, preserving and preparing the maintenance and confirmation of the investment.
• Preparation of check for approved the loan and sent to related subdivision after audit.

Transaction with Bangladesh Bank and interrelated Banks and records of related accounts. Investment and maintenance for general provident fund and fund for aged person, preservation and preparation of respective accounts, to prepare the annual accounts and finalization and approval from board of directors or committee , Fixation of Income Tax for income tax payee officers/staffs; Payments and preservation of respective accounts.

• Proper implementation of Government approved exchange fluctuation burden absorption scheme (EFAS) of 1990;
• Finalization of annual bank accounts;
• Prepare and distribute all kinds of accounts, rules and regulation of the bank;
• To maintain properly the accounts, investment of benevolent Fund, and gratuity and doing the function of collection;
• Maintaining the accounts of loan operations of Bangladesh Bank and Govt. regarding rigid and payments and arrangement of repayments and To send various weekly, monthly, quarterly, half-yearly, yearly and so required statement to Bangladesh Bank.
• To give the appointment of Bank Tax advisor
• To obey the Duty given by the Departmental Head time to time

3.7 Project Rehabilitation Department:

3.7.1Function of Project Rehabilitation Department (PRO):

1. This Dept. primarily selects a project, which become sick. PRD investigates the project and find out the reasons of sickness and forms rehabilitation committee to investigate the projects.

2. To take necessary action to rehabilitate the sick projects after appropriate investigation;

3. When there is no scope to rehabilitate a project, documents transferred to law department to take further steps;

4. To take necessary action about the production, marketing of the product and loan repayment of the project;

5. Managing and Directing and Recommendation about takeover the project;

6. To give confirmation about the projects profitability;

7. Duties give up to the third party or previous management after successful managing of the project;

8. To analysis and compare the production, marketing and recovery of the rehabilitated project and take appropriate action accordingly;

Rehabilitation Department is mainly deals with the sick industry after rehabilitation last 53 projects in 2000. BSB has made a crucial decision to monitor the project performance continuously by the other department and if these department find any symptoms they take initially measures considering the techniques used by the project rehabilitation Department as result this department does not take ^anymore sick projects and according to the personnel of this department, in near future this department will be obsolete

3.8 Law Department:

3.8.1 Functions of Law Department:

• Declaration of legal notices to the loan Defaulters and take legal action against the loan defaulters.

• Law suit against me loan defaulter and arranging the all necessary activities to final dismissal according to the bank ordinance;

• To take the case of the litigation by the bank and to file suit in the high court and Supreme

• Managing the cases that are filled by the loan-holder against bank with the help of

Lawyers;

• To invite auction to sale assets after receiving degree from the court and maintain relation with the courts and co-ordinate the activities;

• Managing case against advance defaulter and filling of the case against them and Preparation of banks special consultant/legal advisor and panel lawyers scheduled and making communication with them to supervise the law-suit and monitoring and coordinating their operation.;

• Recommendation to exchange existing law to the recovery of loan;

• To keep the interest of bank and provide legal advice.

3.9 Human Resources Management Department:

3.9.1 Functions of Human Resources Management Department:

” To control of administrative functions of Banks Human resources;

• To take different implementation program for he development of Human Resources;

• To give appointment, promotion and evaluation of officers staffs;

• Preparation of service Rules, correction, implement, administrative rules, sub-rules, notice etc. to control the officers/staffs;

• Proper implementation of labor law, co-operation with employees union, examines the demands, consultation, improvement of relation with administration;

• Sanction of house Building Advance, Bi-cycle Advance and confirmation of utilization;

• Fixation of service facilities and Payment before retirement of L.R.R.;

• Confirmation of Treatment facilities for the Officers/Staffs;

• Maintain all kinds of leave Accounts, Sanction Leave accounts, Sanction leave, except casual leave;

• Taking step and implementation for opening the new branch office;

• Arrangement of meeting of the chief of the branch and zonal offices;

• To communicate with the govt. & other organization about administrative affairs, and To take step for implementation of computer technology for controlling of bank human resources function.

-Provide scholarship policy;

– Assist the helpless personnel;

-Provide retirement benefit.

-Provide medical facility & allowance;

Chapter -04

Sick Industries

4.1 Introduction:

Bangladesh Shilpa Bank undertakes various projects by providing finance, machinery and other aids, some projects re-implemented and successful and some projects are failed to attain the goal and these firms are called sick firm. Sick industry means the industries, which either become stuck-up during construction or could not operate successfully after implementation. These projects could neither pay back the banks dues nor make any contribution to the national economy. These projects were identified as sick industries in Bangladesh, which has no specific statistical data. Here the main objective is to identify the causes of sickness of these industries.

4.2 Causes of Sickness:

Bangladesh Shilpa Bank undertakes various projects by providing fiance, machinery and other aids, some projects are implemented and successful and some projects are failed to attain the goal and these firms are called sick firm. There are various reasons of sick firm. But to discuss it easily we classify it in two categories, they are-

1. The reasons that are beyond dies control of the project owner.

2. The reasons that are control of the project owner.

The above causes are further divided into six causes. The causes are discussed below according to their importance though all of the causes are important.

4.2.1 Financial Problems/Shortcoming of Working Capital:

The shortage of working capital is the most acute problem of majority of the sick industries. Working capital is required to finance purchase of required raw materials and other term needs of a project after it is implemented. A survey shows that 17% of the projects suffer due to shortage of capital. The problems, which lead an industry towards sick, are as follows-

• • Loan application with insufficient amount of money that would not meet fixed and operation cost.
  • Economic problem comes from the social cost benefit analysis.
  • Higher fixed cost i.e., increases fixed cost as result of increasing of the price of machinery, land, or any other fixed items.
  • Measurement of investment outlay and cost of the project are not appropriate.
  • When the means of financing is not available.
  • When the project is not profitable.
  • When the Production is not reached at the break-even point.
  • When they cannot calculate appropriate risk level of sick.
  • Cash flow of the project is not available.
  • If actual cost of the project is more than the budgeted cost. Shortage of working capital
  • Lack of operating capital.
  • When variable cost is increasing.
  • Does not ensure sufficient mortgage.
  • Improper inspection of Bank financed project.
  • Insufficient insurance facility.
  • If market interest reat4e increase, cost of working capital will increase as a result the project may become in sick.

4.2.2 Technological Problems:

Machinery imbalance causing lower capacity utilization is the major technical problem of many projects. Some are also suffered for faulty technical design. A survey reveals that 13% of the projects are suffered due to technological problems. Which lead industries towards sick are as follows: –

• Whether the preliminary test and studies are not appropriate;

• Availability of raw materials, powers and other infrastructures facilities has not been established;

• The selected scale of operation is not optimal;

• The production process chosen is not suitable;

The equipment and machine chosen are not appropriate;

Lack of modem technology, like incapable to use the computer and modem machinery;

If the selection of machinery becomes faulty, it will not ensure the achievement of objectives;

Wrong or improper selection of the machinery;

Lower capacity of the machine resulting price will be higher i.e., production ,cost high, inconsistency between the origin of raw materials and the factory location, production of products and final consumption adversely affect the business;

Lack of communication system;

Lack of infrastructure facility;

Unavailability of gas supply, electricity etc.;

Selection of old and backdated technologies to be used in production;

Delay of supply of machinery procurement & rapidly change in technological environment.

4.2.3 Administrative and managerial problems:

There are also some internal conflict between the worker and manager. A survey reveals that 22% of the projects are suffered due to administrative and managerial problem. The administrative problems, which lead an industry towards sick, are as follows:-

• Success of the firm largely depends on management. When the management is not capable to manage all the managerial aspect, management should have proper planning, organizing, controlling, administrating, and monitoring;

” Weak management of the projects;

• Lack of efficiency of employment as well as management;

• Conflict and also death of management partner’s;

• Death of main entrepreneur of the project;

• Insufficient appointment of employee;

• Unskilled human resources;

4.2.4 Economic Problems:

The economic problems, which lead an industry towards sick, are as follows:-• Economic problem comes from the special cost benefit analysis; ” It does not impact on the distribution of the income in the society as well as the level savings and investments.

4.2.5 Political Problems:

The political problems, which lead an industry towards sick, are as follows:-

• Political pressure;

• Political instability, which adversely affect the production.

” Insufficient facilities provided by the govt. to industrialist like tax rebate etc.

• Political problem like worker unrest, strike etc.

4.2.6 Other reasons of Sickness:

Except the above problems there are also some other problems, which leads an industry towards sick. A survey reveals that 10% of the projects are suffered due to other problems, which are as follow:-

• Selection of in-appropriate industrial unit which is not financial and logically viable in concerned county;

• Delay of loan application;

• Internal delay of industries construction after loan sanction;

• If a portion of loan amount used for personal use;

4.3.1 Sick Situations:

Normally, BSB provides the long-term credit needs for implementation of the projects. BSB also provides working capital to its financed projects only to a limited -scale. While sanctioning loan by BSB, provision is made for commercial banks to provide 70% of the working capital needs But in most cases, it is found that the project management either can’t all raise the required working capital from the commercial banks, or they can’t raise required amount in due time. As a result these projects could not go into operation on schedule time and they were unable to pay the interest and the principal amount; at last they treat as a sick industry.

4.3.2 The Symptoms of sick Industries:

The symptoms of a sick industry are as follows:

• The initiator is unable to pay sufficient money at the implementation stage.
• The initiator is unable to pay sufficient money at the implementation stage
• The delay of implementation increases the project cost. It also creates many

• Problems and the burden of loan interest are also increased.
• The initiator is unable to pay the loan installment and other liability.
• Increase the tendency of undertaking unfair means in preparing the papers of stock materials.
• If profit from investment is decreasing gradually.
• If the project faces loss gradually.
• If the production level decreases considerably.
• To take loan from various sources at a high rate.
• Applied for a large amount of additional loan.
• Non-cooperation tendency with the loan providing bankers.
• Lacking of perfection in the market.

• Delay of operation start;
• Over estimation of mortgage value;
• Delay of documentation formalities in respect of loan;
• Causing of rehabilitation measure;
• Insufficient infrastructure facilities;
• Natural disaster that hampered production;
• Terrorism that hampered to establish an industry;
• And Delay of implementation.

4.3.3 Methods used by BSB to identify a sick industry:

There are some specific criteria to identify a sick industry. Two types of factors can be

considered to identify the sick industries. They are-

a) On the basis of Cost- Benefit Analysis:

For identifying a sick industries the following criteria may be consider by cost benefit analysis. If the cost of the project is more than the benefit then the industries is to be consider as sick industries. Sometimes industries can not recover the cost of the labor material, for this reason the industries goes into loss.

b) On the basis of Break even Analysis:

An industry should produce up to break-even point due to recover the fixed cost or

overhead cost. If they can’t recover fixed cost then this industry can be considered as a

sick industry.

c) On the basis of Financial Problems/Shortage of Capital:

The shortage of working capital is the most acute problem for majority of the sick industries. Working capital is required to finance purchase of required raw materials and other short term needs of a project after it is implemented. A survey shows that 28% of the projects suffer due to shortage of capital. The problems, which lead an industry toward sick, arc as follows-

• Measurement of investment outlay and cost of the project are not appropriate
• When the project is not profitable
• When the production is not reached at the break-even point
• Loan application with insufficient amount of money that would not meet fixed and operation cost
• Cash flow of the project is not available
• If actual cost of the project is more than the budgeted cost
• Shortage of working capital, i.e. if they do not manage the sufficient working Capital
• If interest rate increases the cost of working capital then the project may become sick
• Lack of adequate operating capital

• Higher fixed cost, i.e. increase the fixed cost as a result of increasing of the price, of machinery, land or other fixed items
• When variable cost increases
• When there is no sufficient mortgage
• Improper inspection of bank financed project
• Insufficient insurance facility

• Economic problem comes from the social cost benefit analysis

4.3.4 Sick Industries:

The sick industries concept is not he newest one in Bangladesh. It has been occurring from the pre-independence of Bangladesh and inherent some sick industries from its birth. After independence this is also continuing. The exact figure of sick industries is not identified. According to the statistics of a report of Project Rehabilitation Department, 274 sick projects were given loan before 80s and that time, the Govt Wanted balanced industrializ