Bangladesh has an agrarian economy with 32% of GDP coming from the Agriculture Sector. Major agricultural products are rice, jute, wheat, potato, pulses, tobacco, tea and sugarcane. . The country is the largest exporter of jute and jute goods in the world. Readymade garments are among the most exportable items. Tea, frozen shrimp, fish, leather goods and handicrafts are also major exportable commodities. The country has under gone a major shift in its economic philosophy and management in recent years. At Bangladesh’s birth, the country embraced socialism as the economic ideology with a dominant role for the public sector. But, since the mid-seventies, it undertook a major restructuring towards establishing a market economy with emphasis on private sector-led economic growth. During the nineties, the country has completed a major stabilization program which has reduced inflation as well as fiscal and current account deficits and established a healthy foreign exchange reserve position with low and sustainable debt-service liabilities. With modest economic growth, the basic indicators related to health, education and poverty have all shown sustained improvement. According to a World Bank estimate, Bangladesh has the 36th largest economy in the world in terms of GNP based on the purchasing power parity method of valuation, and the 55th largest in terms of nominal GNP in U.S. Dollars.
Bangladesh economy grew on an average at above 6.0 percent in the last four years up to FY07 . According to the provisional estimates of the Bangladesh Bureau of Statistics (BBS),real GDP recorded a strong growth of 6.5 percent in FY07,which is marginally lower than 6.6percent recorded in FY06 . This growth was commendable as it was achieved in challenging environment marked by high and volatile oil price ,phasing out of the MFA quota, labour unrest in the garment industry and confrontational political situation of the country in the first half of FY07.
With reasonable support from agriculture sector, the 6.5percent real GDP growth was underpinned mainly by industry sector and services sector. The expansion was broad based, registering positive growth by all sectors and sub-sectors of the economy. Spurred by a robust 9.5 percent growth in industry sector and 6.7 percent growth in services sector, GDP growth during the year was also aided by 3.2 percent growth in the agriculture sector.
The domestic savings-investment gap was met with net factor income from abroad which increased by 37.0 percent in FY07 from 4.4 percent in FY06 reflecting higher savings growth. The domestic savings investment gap was met with net factor income from abroad which increased by 37.0 percent in FY07.
The rising trend of inflation of FY06 as measured by CPI continued in FY07 mainly due to higher prices of oil and some other imported goods in the international market, distortion in the supply side factors and demand pressure generated from excess money supply .Slower import of consumer necessities pulling their domestic prices heightened the price pressures. Annual average CPI (base FY96) inflation as of end June 2007was 7.20 percent, compared to 7.16 percent as of end June 2006. There was notable increase of food prices component of CPI inflation from 7.8 percent as of end June 2006 to 8.1 percent as of end June 2007.
Maintaining a favorable investment environment and a sound macroeconomic management are important to strengthen private sector investment in the economy. In view of medium term outlook of sustainable economic growth and low inflation for world and south Asian economies and assuming continuation of prudent policies and progress in advancing structural reforms, the near and medium term economic prospects of Bangladesh appear favorable.
Bank plays an important role in this modern world. The development of industries and business sectors of a country mainly depends on good banking system. The industries and businessman are taking short and long term loan from banks. In the modern world international businesses are fully depended on banks. Without sound banking system no country can develop in international trade.
Bank constitutes an important segment of the financial infrastructure of any country. The economic history of many countries reveals that economic development and growth of financial infrastructure go hand in hand. Financial system of a country is the heart of a country’s economic system as it connects suppliers of the funds and demanders of fund, which is needed to produce economic goods. It also provides a large arena of employment opportunity. As Bangladesh is containing a bank base economy, its economic development is largely depended on the development of banking sectors.
Bangladesh appeared as a new nation on the world map in the year 1971. After independence financial institutions, especially banks played a vital role in re-constructing the war-torn economy of Bangladesh. Bangladesh Bank is the central bank of the country and is in charge of monetary policies of the Government and controls all commercial banks.” Development and growth of our banking system may be divided into three parts. The performance of our banking system during 1972 to 1982 was commendable in respect of expending network and providing easy credit to the socially desirable sectors but equally frustrating with regard to maintaining validity and customer services. The second phase from 1983 to 1989 was characterized by denationalization and privatization of banking system without broad-basing the prudential and information regulatory framework; however, these measures of denationalization and privatization could not bring the viability and operational efficiency of banking system.
Under the above circumstances and with the recommendation of World Bank, a Financial Sector Reform Project (FSRP) was undertaken in 1989 by the government, which can be identified with third phase of the development of our banking system. The government of Bangladesh has also enacted some important acts namely financial institutions act 1993, Securities and Exchange Commission act 1993, the companies’ act 1994 and recently Bankruptcy act 1997.
The present day banking structure has evolved over several decodes. The far-reaching program of economic reform is being carried out at present towards efficient utilization of scare resources and the development of private entrepreneurship. Banks are financial service firms, producing and selling professional management of the public’s fund as well as performing many other roles in the economy. Banks are those financial institutions that offer the widest rang of financial functions of any business firm in the economy.
Competition is strengthened by the entry of new and innovative provides of financial services, through the development of Money market and Capital market. Money market is designed for the making of short-term loans where individuals and institutions with temporary surplus of funds meet borrowers who have temporary cash shortages. Capital market is deigned to finance long-term loans where individuals and institutions with temporary surplus of finds meet borrowers who have temporary cash shortages. Capital market is designed to finance long-term investments. Private sector commercial banks are private companies operate under the legislative framework, which covers both Company Act, and Banking Company Act, under the ongoing financial liberalization, EXIM Bank emerges as a new Bank in private sector to operate at the Banking arena of Bangladesh It is committed to provide high quality financial services/ products to contribute to the growth of GDP of the country through stimulating trade and commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity for the educated youth , poverty alleviation, raising standard of living of limited income group and overall sustainable socio-economic development of the country.
4.1 HISTORICAL BACKGROUND OF THE EXIM BANK
EXIM Bank- Export Import Bank of Bangladesh Ltd. was named at first as BEXIM Bank BEXIM stands for Bengal Export Import of Bangladesh. This new commercial Bank was opened in August 03, 1999 with some new innovative visions in customer services. The Bank received the certificate of incorporate no.C-37864 (2164)/99 under the commencement of the business on the same day by the section 150(2) under companies Act. A part from the head office in Dilkusha C/A, it stared its first local branch in Motijheel C/A simultaneously in order to provide all kinds of Banking support to the clients. On December 02, 1999 the second branches both in Dhaka City and other cities. Now it has twenty-five branches in the country.
The gist of EXIM bank vision is ‘Together towards Tomorrow’. Export Import Bank of Bangladesh Limbed believes in togetherness with its customers, in its march or the road to growth and progress with services. To achieve the desired goal, there will be pursuit of excellence at all stages with a climate of continuous improvement, because, in EXIM Bank, they believe, the line of excellence is never ending. Bank’s strategic plans and networking will strengthen its competitive edge over others in rapidly changing competitive environments. Their personalized qualities services to the customers with the trend of constant improvement will be cornerstone achieve their operational success.
The bank has checked out the following corporate objectives in order to ensure smooth achievement of its goals-
To be the most caring and customer friendly and service oriented bank.
To create a technology base most efficient banking environment for its customers
To ensure ethics and transparency in ail levels
To ensure sustainable growth and establish full value of the honorable shareholders and
Above all, to add effective contribution to the national economy Eventually the bank also emphasize on:
Provide high quality financial services in export and import trade
Providing efficient customer service
Maintaining corporate and business ethics
Being trusted repository of customers’ money and their financial adviser
Making its products superior and rewarding to the customers
Display team spirit and professionalism
Sound Capital Base
Enhancement of shareholders wealth
Fulfilling its social commitments by expanding its charitable and humanitarian activities
Bangladesh is now integral part of global market. As such there is an urgent requirement for Bangladesh to place the traditional banking pretties in harness with the global trades of a free market economy by following international banking customs, practices and standards. Today clients of a bank in Bangladesh are exposed as well as international markets. They have to stay update with their practice and standards to meet the demands of achieving harmony in the high standards of a free economy.
EXIM Bank fully appreciates the importance and implication of the rapidly emerging competition in the banking and finance sector of Bangladesh. It intends financing its customer suited to his or her place in the market. In this regards EXIM Bank emphasizes in its employment the software aspects of human resource capability. It also emphasizes competence among its banking professional to cater to vary customer requirements to the modern time.
The objectives of EXIM BANK is not only to earn profit but also to keep the social commitment and to ensure its co-operation to the person of alt level, to the businessman, industrialist specially who are engaged in establishing large-scale industry by consortium and the agro-based export oriented medium and small scale industries by self inspiration.
EXIM BANK is always ready to maintain highest quality of services by upgrading banking technology prudence in management and by applying high standard of business ethic through its established commitment and heritage.
EXIM BANK is committed to ensure its contribution to national economy by increasing its profitability through professional and disciplined growth strategy for its customer and by creating corporate culture in international banking area.
In order to reach the goal it is important to build strategy and follow the policies. If it can select the appropriate strategy and choose the right policy, it will be very easy to touch its desired position. The distinguishing attribute of policy is to set the over all boundaries for activities. According to this system when the bank was started it has to decide what kind of business it is going to be in. The Bank also has to decide on its growth and communicate through am system of major objective of the business is to reach the goal, to reach the desired position from the current status. There might be a number of ways to reach there and its has to be decided which path would be easier to reach the objective. So the authority has no decided which path they select to proceed. The following figure can be explained clearly.
Slogan of the EXIM Bank: “Local Bank Global Network”
The world EXIM implies the meaning of its operation. Through it is a new type of Bank in Bangladesh; it is familiar with so many countries in the world such as Export Import Bank of the United States, Export Import Bank of Japan. Despite it is a local Bank, It has spread of its operation in the whole world through foreign Banking. To achieve the desired goal, it has intention to pursuit f excellence at stages with a climate of continuous improvement. Because it believes, the line of excellence is never ending. It also believes that its strategic plans and business networking will strength its competitive edge over in rapidly changing competitive environment. It motto I to provide quality service to the customers all over the world so, the slogan of the Bank “Local Bank Global Network” is completely adjustable with its operation.
THE GENERAL BANKING DIVISION
Internship has provided the opportunity to coordinate the theoretical knowledge that one has gathered in MBA Class with the practical field. Although three months is not a very long period to learn the whole thing that usually occurs in an organization. The supervisor divided this report into three parts. 1) The general banking department 2) The Investment department 3) The foreign Exchange department.
Learning experience from General Banking Division:
The main business of this Division is dealing with Deposit. There are two types of Deposit in this Branch and General Banking division as the following section:
- Deposit section
- Account Section
- Remittance section
- Clearing section
- Customer Service section
- Cash section and
- Information Technology section
Task I Handled in this Division is
- Opening Accounts
- Opening Monthly saving scheme,
- Modaraba Term Deposit Account Current
- Deposit foreign current Deposit Account
- Modarada short notice Deposit (STD).
- Fixed Deposit, Steady Money.
- Demand Draft (D.D)
- Telegraphic Transfer (T.T)
- Payment Order (P/O)
- Travelers Check (T.C)
- Issuing Check.
Pay Order (PO):
Pay order is one kind of unconditional promissory note or instrument that is issued by the Bank to the customer. The difference between check and pay order is the mode of encasement.
Demand Drafts are made for the transfer of money from one place to another in the form of cheques through a particular Bank, which can be ensued right way. The Bank issues DD for their outer district branches.
Telegraph/ Telephone Transfer:
When a certain amount of money is asked by the client to transfer from one branch to another than it is called telegraph/ telephone transfer. For TT, there is a particular from. When the form is filled up properly and deposits the amount by the applicant, the authorized officer issued a cost memo to the application for their confirmation.
lssuing cheques Books:
Checkbook issue is a very sensitive because most of the fraud occurs through this checkbook. Customer requiring check books to fill out requisition ship. For saving accounts 10 pages check book issued and CD/SOD/ CC accounts issued 25 and 50 pages checkbook.
In clearing section the work is to clear the cheques, DD’s and PO’s through
Bangladesh Bank that are submitted for cash collection. Everyday morning
House another in the evening called return house. In the hose all the Banks representative sit together and exchanges their money receive instrument of their particular bank to clear the paper and transfer to money the paper partlcular accounts.
Type of Clearing:
There is two type of clearing
2) Out –Ward
Those Cheques or instrument of EXIM, which are submitted to other banks for collections are called In – Ward Clearing.
The cheques of other banks that are submitted to the EXIM for collections are called out-ward Clearing.
Cash is the main element of all financial activities. The cash section of any branch plays very significant role. It’s very sensitive place of the branch, because it deals with most liquid assets. The EXIM Bank Mirpur Branch has an equipped cash section. This section receives cash from depositors/Client and pays cash against cheques draft, payment order and pay to slip over the counter This section deals with all type as of negotiable instruments and in includes volt. Used as the store of cash instrument, the main functions of the sections are cash receipt and cash disbursement.
Accounts Opening Section:
This section deals with opening of different types of accounts. It is also deals with issuing of books and different deposit boos to the different accounts opener. A customer can open different types of accounts through this department such as:
- Current Account
- Saving Account
- Fixed deposit account (FDR)
- Short term Deposit (STD)
- Monthly saving Scheme (Money Grover)
- Monthly income scheme (Steady money)
- Smart saver Scheme
- Multi plus saving Account
- Super saving scheme
- Education saving scheme
EXIM Bank gives special importance various deposit schemes are:
- Monthly saving Scheme (money Grower)
- Monthly income scheme (Steady Money)
- Multi plus savings A/C
4 Super saving scheme
- Double benefit Scheme
- Smart saver Scheme
- And Education saving Scheme
Types of Accounts with Terms and Conditions
Current (CD) Account:
Current account is purely a demand deposit account. There is no restriction on withdrawing money from the account. It is basically justified when funds are to be collected and money is to be paid at frequent interval. Some Important Points are as follows-
- Minimum opening deposit of TK.1000/- is required;
- There is no withdrawal limit.
- No interest is given upon the deposited money;
- Minimum Tk.1000/= balance must always maintain all the time.
Savings (SB) Account:
The bank provides savings account services for the ease of its clients. It offers both personal and corporate Savings Account to its clients in every branch. Hence, there is a restriction on withdrawals in a month. Heavy withdrawals are permitted only against prior notice. Some Important Points are as follows-
- Minimum opening deposit of Tk.5000/= is required;
- Minimum Tk. 1000/= balance must always maintain all the time;
- Withdrawal amount should not be more than 1/4th of the total balance at a time and limit twice in a month.
- If withdrawal amount exceed 1/4th of the total balance at a time no interest is given upon the deposited money for that month.
- The current rate on deposit amount is 6%.
- Closing of saving accounts will cost 300tk to a customer.
Short Term Deposit (STD) Account:
Normally various big companies, organizations, Government Departments keep money in STD account. Frequent withdrawal is discouraged and requires prior notice. The deposit should be kept for at least seven days to get interest. The interest offered for STD is less than that of savings deposit. Interest is calculated based on daily minimum product and paid two times in a year. Interest rate is 4.50%.
Call Deposits (Money at Call):
Sometime the banker secures funds from the money markets usually from other bankers against receipt to meet his purely tepmorary shortage of funds. These debts are repayable immediately at call. When the money market is tight such derosits attract higher rate of interst and then to be treated as banker’s borrowings as call loans.
To dill with the bank individuals need to have an account first. The particulars are essential for identification of the account holders individually so that the banker can discharge his obligations to every one correctly and to the extent due.
Documents required for opening account
□ Individual / Joint Account:
- Introduction of the account.
- Two photographs of the signatories duly attested by the introducer.
- Identity (copy of passport).
- Joint Declaration Form (For joint a/c only).
- Employee’s Certificate (in case of service holder).
□ Partnership account:
- Introduction of the account.
- Two photographs of the signatories duly attested by the introducer.
- Partnership letter duly signed by all partners (Sign should be similar as stated in Partnership Deed).
- Partnership Deed duly certified by Notary public.
- Registration (If any).
- Updated Trade license.
□ Proprietorship account:
- Introduction of the account.
- Two photographs of the signatories duly attested by the introducer.
- Valid copy of Trade License.
- Rubber stamp.
- TIN number certificate.
- Identity (Copy of passport).
- Permission letter from DC/ Magistrate (in case of newspaper)
- □ Limited company:
- Introduction of the account.
- Two photographs of the signatories duly attested by the Introducer.
- Valid copy of Trade License.
- Board resolution of opening A/C duly certified by the Chairman/Managing Director.
- Certificate of Incorporation.
- Certificate of Commencement (In case of Public limited company).
- Certified (joint stock) true copy of the Memorandum and Article of Association of the Company duly attested by Chairman or Managing Director.
- List of directors along with designation & specimen signature.
- Latest certified copy of Form – xii (to be certified by register of joint stock companies) (In case of Directorship change).
- Rubber Stamp (Seal with designation of each person)
- Certificate of registration (In case of Insurance Company – Obtained from department of Insurance from the Peoples Republic of BD).
□ Club / societies account:
- Introduction of the account.
- Two photographs of the Signatories duly attested by the introducer.
- Board Resolution for Opening A/C duly certified by President/ Secretary.
- List of Existing Managing Committee.
- Registration (if any).
- Rubber Stamp.
- Permission letter from Bureau of N.G.O. (In case of N.G.O. A/C)
- Monthly Income Scheme
- Multiplus Savings
- Smart saver
- Super Saving Scheme
- Monthly Savings Scheme (Money Grower)
- Hajj Scheme
- Corporate Finance
- Industrial Finance
- Lease Finance
- Hire Purchase Finance
- Commercial Loans
- Project Finance
- Syndicate Loans
- Retail Loans
- Mortgage Loans
- Loan against Share and Securities
- Account Opening Procedures:
The account should be properly introduced by Any one of the following:
An existing Current Account holder of the Bank.
Officials of the Bank not below the rank of an Assistant officer.
A respectable person of the locality well known to the Manager/Sub-Manager of the Branch concerned.
Receiving filled up application in bank’s prescribed form mentioning what type of account is desired to be opened.
The form is filled up by the applicant himself / herself
Two copies of passport size photographs from individual are taken, in case of firms photographs of all partners are taken
Applicants must submit required documents
Application must sign specimen signature sheet and give mandate
Introducer’s signature and accounts number – verified by legal officer
Authorized Officer accepts the application
Minimum balance is deposited – only cash is accepted
Account is opened and a Cheque book and pay-in-slip book is given
The routine daily tasks of the accounts department are as follows:
- Recording the daily transactions in the cash book
- Recording the daily transactions in general and subsidiary ledgers
- Preparing the daily position of the branch comprising of deposit and cash
- Preparing the daily statement of affairs showing all the assists and liability of the branch as per ledger and subsidiary leader separately.
- Making payment of all expenses of the Branch
- Recording inters branch fund transfer and providing accounting treatment in this regard.
- Checking whether all the vouchers are correctly passed to ensure the Conformity with the Activity Report; if otherwise making it correct by calling the respective official to rectify the voucher.
- Recording of the vouchers in the Voucher Register
- Packing of the correct vouchers according to the debit voucher and the credit voucher.
The routine periodical tasks performed by the department are as follows.
- Preparing the monthly salary statements for the employees
- Publishing the basic data of the branch
- Preparing the weekly position for the branch this is sent to the Head Office to maintain Cast Reserve requirement
- Preparing the monthly position for the branch, this is sent to the Head office to maintain statuary liquidity requirement.
- Preparing the weekly position for the branch comprising of the break up of sector wise deposit, credit etc.
- Preparing the weekly position for the branch comprising of the denomination wise statement of cash in tills.
- Preparing the budget for the branch by fixing the target regarding profit and deposit so as to take necessary steps to general and mobilize deposit
- Preparing an Extract’ which is a summary of all the transactions of the Head Office account with the branch to reconcile all the transaction held among the accounts of all the branches.
General account is important one, which has to be maintained by each branch. Indeed general account is are record of Oregonian and responding transactions among inter- branches of the same bank. All types of assets and liabilities of one branch with another one are settled through this account. Branch can know how much the bank is liable with Head Office. The debit and credit balance shows assets and liabilities of the respective branch.
Statement or Affairs:
Accounts section prepares the statement of affairs for finding the profit/ loss as well as amount of assets and liabilities of concerned branch per day
Theoretically, it is called financial statement and has tow parts:
- Income and Expenditure Account
- Statement of Assets and Liabilities
Amortization and Depreciation:
Amortization is the allocation of the cost of an intangible asset to expense for example, prepaid expenditure, prepaid insurance and good will etc Amortization schedule is determined by the decision of management.
This section deals with employee’s salary, much type of internal expenses such as purchase of pen, paper equipment, machinery and payment of labor Cost and employee conveyance. In cause of leave of absence employee collects prescribed from this section.
LOANS AND ADVANCES DEPARTMENT
Banking is essentially a business dealing organization with money and credit like all other business activates. Banks are profit-oriented organization. A bank invites its find many ways to earn more and more profit and most of its income is derived from loans and advances. Bank makes loans and advances to traders, Businesspersons, industrialists and many other persons against security of some cautions policy and sound lending principle in the matter of lending. EXIM Bank is a lending bank in loans and advances and it grant loans in various sectors especially in industry, trade and commerce.
Types of loans and advances:
There may be different types of loans and advance given from the commercial banks such as EXIM Bank Ltd. Of our country. Loans and advances may be in the following types:
- Cash credit
- House Building loan (General and Staff)
- Transportation (Car) loan (only for senior staff)
- Consumer credit Scheme
- Loan against Imported Merchandise (LIM)
- Loan Bills purchases Documentary (LBPD)
- Loan against Other Securities (LAOS)
- Term Loan
Brief Idea about the different types of loans and advance:
Cash Credit (CC):
Cash credit is an arrangement by which the customer is allowed to borrow May up to a creation limit. This permanent arrangement and the customers need not to draw the sanctioned amount of money at a time. The borrower can draw the money when required. The borrower can put back any surplus, amount, which he/she may he affect frequently. Intersect is charged only to the amount with drawn and not he whore amount sanctioned cash credit arrangement is usually divide into two ways such as:
- Cash credit pledge
- Cash credit hypothecation
Cash Credit Pledge:
In case of cash credit pledge possession of the goods dealings to bank and ownership of the of the goods belongs to borrower and bank the possessions of the goods as primary security. The goods storied in go down under lock and key by direct supervision of the bank. If the borrower wants to sell any potion of the pledged goods he/she permission of bank with returning the value of the loan amount. It is therefore regarded as the most secured type of advance.
Cash Credit hypothecation:
In case of cash Credit hypothecation possession of the goods not transferred to the bank and therefore such and advance is no better than a clean loan, such an advance can thus only be granted to a person in whose integrity the barked has full confidence cash credit in the form of Hypothecation is normally accompanied with mortgagee of immovable properties. The pray/ borrower possesses the lock and key of the down.
The Formalities of opening cash Credit:
There intending cash credit holder should submit the following documents and being fill up properly:
- Stock repot, rend receipt
- Trade license
- Up to date income tax clearings certificate
- Charge documents
- Letter of Continuity
- Letter of arrangement
- DP (Demand Promissory) note
- Letter of guarantee
- Letter lien
- Limit sanction advice
- Non-Encumbrance Certificate
Observing the documents the bank authority prepares a cc proposal from that contains the following information:
- Nature of business
- Banking with EXIM
- Transition with CD account by the client
- Allied deposit with SB/STD account.
- Number of adjustment (s) how many times the CC holder made his/her
Account nil that means debit balance equal to credit balance.
- Recycling it is ration of total credit summation to the limit. If the ratio is
Higher it is better from banker’s points of view.
- Turn over in the account
- By the encasement authority the bank holds the power to encase the FDR the encasement authority at any time in case borrower’s failure to repay the loan amount with interest in due time.
Based in the above-mentioned information the dealing officer of the loans and advances department prepares recommendation about the prospect of granting the CC loan to the client.
Overdraft is an arrangement between the banker and the customer by which the letter is allowed to withdraw over his/her credit balance in the current account up to an agreed limit. The borrower is permitted for draw and repays any number of times, provided he total amount overdrawn dose not exceeds the agreed limit. Here the interest is charged only for the amount withdrawn over the limit. Not for the whole amount. Overdraft is divided into tow categories:
■ Secured overdraft (SOD)
■ Temporary overdraft (TOD)
Secured overdraft: It is allowed against the full security (i.e. FDR, ICB unit
Temporary Overdraft: It is allowed to the customer for a very short period of time. But EXIM bank deals only secured overdraft.
This is a special type of loan, which is only provided for the staff of EXIM
Bank. Usually AVP and above level officers get this kind facility. This loan is reimbursed on instrument basis and repayable after each month.
House Building loan (General and Staff):
General house building loan is providing into two sectors:
Naturally house building loan is paid for the construction of commercial building, and owners etc, procedures for sanctioning house- building loan as follows:-
■ Application for sectioning loan
■ Application properly filled up for credit facilities supplied by the bank.
■ Personal net worth statement each director
■ Enquiry form Required papers for sanctioning HB loan:
■ Copy of general power of attorney
■ Copy of material certificate
■ Copy of engineer’s estimate
■ Copy of projected cash flow
In case of loan the banks sanction some of money for a certain period of time. The enter amount is one time disbursement and paid in cash or credit loan A/C.
The interest is charged on full sanctioned amount @16%. The bank generally sanctions loan to establish industry. These types of loan are granted for capital expenditure such as purchase of land, constriction of factory building, purchase of new machinery and modernization of plant. The borrower cannot withdraw this type of loan once repaid in full or in part again.
Formalities for extending project loan:
Loan application form:
After receiving the loan application from the borrower the branch scrutinizes the application whether it is viable or not. Loan application from contains the following particulars amongst other detail below:
■ Particular description of the Project.
■ Nature of the Project
■ Detail information about the borrower
■ Statements of assets and liabilities of the borrower with declaration
■ Detail information about proposed products, machinates and manpower etc
■ Project cost and source of fund.
■ Market for the proposed project.
This report is provided by the borrower, which includes the following aspects of the project:
■ Marketing aspect
■ Technical aspect financial aspect
■ Managing aspect
■ Socio-economic aspect
1) Classification Procedure
- Categories of Loans- At first all loans and advances will be grouped into four categories for the purpose of classification, such as- (a) Continuous Loans (b) Demand Loans (c) Fixed Term Loans and (d) Short Term and Agriculture & Micro Credit.
(a) Continuous Loans : The loan A/C in which transaction may be made within a certain limit and have an expiry date for full adjustment will be treated as continuous loan. Exp CC, OD etc.
(b) Demand Loans: The loan that becomes repayable by the party on demand by his bank will be treated as demand loans. If any contingent or any other liabilities are turned into forced loan will also be treated as demand loan. Exp. LIM, PAD, FBP, IBP etc.
(c) Fixed Term Loans: The loan which is repayable with in the specific time period under a pacific repayment schedule will be treated as Fixed Term Loans.
(d) Short Term Agriculture & Micro Credit: Short Term Agricultural Credit will be as per list issued by Agricultural Credit and Specialized Programmers Department (ACSPD) of Bangladesh Bank under the Agricultural Credit Programmed. Credit in the Agricultural sector repayable within 1(one) year will also be included herein. Short Term Micro Credit includes any micro credit not exceeding TK. 25,000.00 and repayable within 12 months.
2) Basis for Loan Classification:
(A) Objective Criteria
(1) Past due/ over due:
In this point we saw four factors those are;
- a) Any continuous loan if not repaid / renewed within the fixed expiry date for repayment be treated as past due/ overdue from the following day of the expiry date. any demands loan if not repaid/ rescheduled within the fixed expiry date will be treated as past due/ overdue from the following day of the expiry date.
- b) In case any installment of a fixed term loan (repayable within fives) is not repaid within the fixed expiry date, the amount of unpaid installment will be treated as past due/ overdue (defaulted instilment) from the following day of the expiry date of the particular installment.
- c) Incase of any installment or part installment of a Fixed Term Loan (repayable over five years) is not repaid within the fixed expiry date, the amount of unpaid installment will be treated as past due/ overdue after 6(six) months of the expiry date of that particular installment.
- d) The Short Term Agriculture & Micro Credit if not repaid within the fixed expiry date for repayment will be considered as past due/ over due (defaulted instilment) after 6(six) month of the expiry date.
(B) Qualitative Judgment;
If any uncertainty or doubt arises in respect of recovery of any continuous,
Demand or Term Loans the same will have to be classified as Sub- Standard or Doubtful or Bad/ Loss. Considering the merit of the A/C on the basis of qualitative judgment be it classified or not on the basis of objective criteria.
The Bank will classify on the basis of qualitative judgment and can be- classify loans if qualitative improvement does occur. But if a loan classified by Bangladesh Bank inspection Team, the same can be de- classified with the approval of the Board of Directors of the Banks.
Before making credit report to the head office the lending branch takes the credit information to the borrower from the CIB (credit Information Bureau) of Bangladesh Bank and other financial institutions. For obtaining this report the branch sends Inquiry form’ to CIB duly filled in particulars of the borrower. The report id divided into 5 segments.
It is the reinvestment analysis done by Banker before a project is approved. Project appraisal in the Banking sector is needed for following reasons:
■To ensue repayment of the Bank finance
■To achieve the organizational goals
■To establish industrialists in a country.
The main tasks of the project appraisal is to justify the soundness of an investment by the Banker by means of a capital and systematic of the different elements of the Project For this purpose Banks use two types of analysis:
■Lending Risk Analysis (LRA)
■Spread Sheet Analysis (SSA)
Lending risk analysis:
Lending risk analysis is modern methodologies, which describes how to access the risks that are inherent any credit extension and how to access the likelihood that the customer will repay a loan. The LRA form contains 16 pages to analysis different categories of Risks. The Financial Sector Reform project introduces the lending Risk analysis format in 1993. LRA is a standardize format for analyzing the credit worthiness of a borrower and the likelihood that the borrow will repay. Bangladesh bank issued a letter number BCD (p) 611/13/290 dated 17-07-1994, which now makes it mandatory for the commercial Banks to implement the LRA approach to credit analysis prior to extending credit facilities to a Borrower.
The modern concept of lending is purpose and production oriented and not security oriented. The emphasis should be given not any security rather on he likelihood of repayment, the credit worthiness of the customer soundness and viability of the business etc.
The Principle of lending is a collection of certain accepted time tested standards, which ensure the proper use of Investment fund in a profitable way and its timely recovery. Different authors describe different principles for sound lending.
- Adequate yield
Process of Investment
Application Applicant applies for the Investment in the prescribed form of the bank describing the types and purpose of Investment.
Sanction 1. Collecting credit information about the applicant to determine the credit worthiness of the borrower. Sources of information
- Personal Investigation, Confidential Report from other bank, Head Office/Branch/Chamber of Commerce.
- CIB (Central Information Bureau) report from Central Bank.
- Evaluation of compliance with its lending policy.
- Evaluating the proposed security.
- LRA is must for the Investment exceeding one crore – as ordered by Bangladesh Bank.
- If everything is in accordance the Investment is sanctioned
Documentation a. Then bank prepare a Investment proposal which contains terms and conditions of Investment for approval of H.O. or Manager.
- Takes the necessary papers and signatures from borrower
Disbursement An Investment Account is opened. Where customer A/C—————————————————————————————Dr.
Respective Investment A/C —————————————-Cr.