Foreign Exchange Practice of BASIC Bank Ltd.
Chapter One: Introduction
1.3 Origin of the Report:
The report has been prepared as a requirement of the thesis program which is based on the financial organization BASIC Bank Ltd. This report will definitely increase the knowledge of other students to know the banking industry of Bangladesh, and various services BBL is providing to sustain as leading bank in Bangladesh.
A bank is a government-licensed financial institutionwhose primary activity is to lend money. Many other financial activities were allowed over time. For example banks are important players in financial markets and offer financial services such as investment funds. In some countries such as Germany, banks have historically owned major stakes in industrial corporations while in other countries such as the United- States banks are prohibited from owning non-financial companies.
Banks have influenced economies and politics for centuries. Historically, the primary purpose of a bank was to provide loans to trading companies. Banks provided funds to allow businesses to purchase inventory, and collected those funds back with interest when the goods Were sold. For centuries, the banking industry only dealt with businesses, not consumers. Banking services have expanded to include services directed at individuals, and risk in these much smaller transactions is pooled.
Banks today are under great pressure to perform towards achieving the objectives of their stockholders, employees, depositors and borrowing customers, while somehow keeping government regulators satisfied that the bank policies, loans and investment are sound. But the principal reason banks are chartered by state and federal authorities is to make loans to their customers. Indeed, making loan is the principal economic function of banks to fund consumption and investment spending by individuals and businesses. How well a bank performs its lending function has a great deal to do with the economic health of its origin, because bank loan support the growth of new business and jobs within the bank’s trade territory and promote economic vitality. As banking organizations have grown in recent years in Bangladesh, many of them have been forced to turn to the money and capital markets to raise funds by selling stocks and bonds. Banks entry into the open market to raise funds means that their financial statements are increasingly being scrutinized by investors and by the general public. This development has placed management under great pressure to set and meet bank performance goals.
At the same time, competition for banks traditional loan and deposit customers has increased dramatically. Bankers are dealing with risk—especially the risk of loss due to changing interests rates. Today banks are highly complex organizations. Bankers have been called upon to continually reevaluate their loan and deposits policies, review their plans for expansion and growth, assets their returns and risk in the light of this new competitive environment. Thus the effective management tools can be marshaled in a coordinated fashion to handle many of the risks banks face.
1.4 Rationale of the study:
With the rapid growing competition (due to free market economy) among nationalized, foreign and private commercial banks as to how the banks operates its banking and how customer service can be made more attractive, the expectations of the customers have immensely increased. Reciprocating the sentiment, commercial/private banks are trying to evaluate their traditional banking service to a better standard. Under the above circumstance, it has focused its attention towards the improvement of the customer service. That’s why it is quite justified to make improvement .The study may help formulating policy regarding the ideas relating to the feeling of the customers and banks. Furthermore, BASIC Bank Ltd. actually executes the policies undertaken by the top management will have a chance to communicate their feelings and will have the feedback about their dealings with the customers.
1.5 Objectives of the Study:
The general objective of the study is to get an on-the-job experience to practical business world and an opportunity for translation of theoretical concept into real life situation. However the specific objectives of the study are as follows:
· To present theoretical aspects of BASIC Bank Ltd.’s Foreign Exchange mechanism.
· To achieve Practical idea about overall activities of Bank regarding Foreign Exchange, Credit Dept. and General Banking.
· To study the Foreign Exchange mechanism of BASIC Bank Ltd.
· To familiarize with practical job environment.
· To observe banker-customer relationship.
· To find out some problems and limitations of BASIC Bank Ltd. and it’s Foreign Exchange mechanism.
· To suggest some possible remedial measures to overcome the problems of Foreign Exchange Division.
· To have an exposure on the financial institutions such as banking environment of Bangladesh.
· To relate the theories of banking with the practical in banking.
1.6 Scope of the Study:
In twenty-first century’s world without banking, any organization can’t run in any moments. Basically my topic is “Foreign Exchange Practice of BBL”. Here knowing scope is available but time is very short. There are many things, which are not invented yet. So there are many scopes for further analysis & thesis.
1.7.1 Data Collection Procedure:
The thesis gathered data from the customers and bankers. When they (customers) came for service to this Bank, The thesis provided questionnaire to those customers who were interested in participating in the survey. As well as thesis asked questionnaire to the bankers, when they were free.
1.7.2 Data Analysis Procedure:
After collecting the data, it was analyzed by Microsoft Word & Excel. Then the findings Were made. Based on the findings, the present situation was explained and recommendation was made.
1.7.3 Data Collection:
This thesis paper is prepared on the basis of mixed methodology. Both the primary and secondary data have been used in this thesis. So the report was based on both the secondary and primary data.
1.8 Sources of Data: The sources of data were of two types-
1.8.1 Primary Sources–
- Discussion with employees (unstructured questionnaire)
- Keen observation
- Conversation with clients.
1.8.2 Secondary Sources/ External Sources-
- Official papers of BASIC Bank Ltd.
- Web site of BASIC Bank Ltd. and other bank’s Web site.
- Annual report of BASIC Bank Ltd. and other banks.
- Various journals of various Banks.
- Various Thesis reports of various Banks.
- Various leaflet of BASIC Bank Ltd.
- The archive of the BASIC Bank Limited
- Bangladesh Bank Report.
- Newspaper, magazines
1.9 Limitations of the study:
There are many limitations; the thesis tries to mention some of them as below;
- Convenience sampling created sampling error.
- The sample size was small.
- The survey was made at Shantinagar Branch office of the Foreign Exchange Department of Basic Bank Limited.
- The main constraint of the study was insufficiency of information, which is highly required for the study. It was unable to provide some formatted documents and data for the study.
- Since the bank personnel were very busy, they have no ability to give me enough time to complete the report.
- The clients were very busy. So, they were unable to give me much time for interview.
- Such a study was carried out by me for the second time. So, inexperience is one of the main factors that constituted the limitation of the study.
- The employees couldn’t maintain their schedule / time due to their business, as well as busyness.
Chapter Two: Profile of Basic Bank Limited
2.1 Banking Sector in Bangladesh:
The Jews in Jerusalem introduced a kind of banking in the form of money lending before the birth of Christ. The word ‘bank’ was probably derived from the word ‘bench’ as during ancient time Jews used to do money -lending business sitting on long benches. First modern banking was introduced in 1668 in Stockholm as ‘Savings Pis Bank’ which opened up a new era of banking activities throughout the European Mainland. The number of banks in all now stands at 49 in Bangladesh. Out of the 49 banks, four are Nationalized Commercial Banks (NCBs), 28 local private commercial banks, 12 foreign banks and the rest five are Development Financial Institutions (DFIs). Sonali Bank is the largest among the NCBs while Pubali is leading in the private ones. Among the 12 foreign banks, Standard Chartered has become the largest in the country. Besides the scheduled banks, Samabai (Cooperative) Bank, Ansar-VDP Bank, Karmasansthan (Employment) Bank and Grameen bank are functioning in the financial sector.
The number of total branches of all scheduled banks is 6,038 as of June 2000. Of the branches, 39.95 per cent (2,412) are located in the urban areas and 60.05 per cent (3,626) in the rural areas. Of the branches NCBs hold 3,616, private commercial banks 1,214 foreign banks 31and specialized bank 1,177. Bangladesh Bank (BB) regulates and supervises the activities of all banks. The BB is now carrying out a reform programmed to ensure quality services
- Specialized bank
2.2. Bank Profile:
BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank Limited) registered under the Companies Act 1913 on the 2nd of August, 1988, started its operations from the 21st of January, 1989. It is governed by the Banking Companies Act 1991. The Bank was established as the policy makers of the country felt the urgency for a bank in the private sector for financing small scale Industries (SSIs). At the outset, the Bank started as a joint venture enterprise of the BCC Foundation with 70 percent shares and the Government of Bangladesh (GOB) with the remaining 30 percent shares. The BCC Foundation being nonfunctional following the closure of the BCCI, the Government of Bangladesh took over 100 percent ownership of the bank on 4th June 1992. Thus the Bank is state-owned. However, the Bank is not nationalized; it operates like a private bank as before.
BASIC Bank Limited is unique in its objectives. It is a blend of development and commercial banks. The Memorandum and Articles of Association of the Bank stipulate that 50 percent of loanable funds shall be invested in small and cottage industries sector.
2.3 Vision of BBL:
To establish BASIC Bank Ltd. as a Role Model in the Banking Sector of Bangladesh. To meet the needs of our Customers, Provide fulfillment for our People and create Shareholder Value.
2.4 Mission of BBL
To constantly seek to better serve our Customers.
Be pro-active in fulfilling our Social Responsibilities.
To review all business lines regularly and develop the Best Practices in the industry. Working environment to be supportive of Teamwork, enabling the Employees to perform to the very best of their abilities.
2.5 Core values of BBL:
Basic Bank has established their objectives to achieve their strategic and financial targets to have strong competitive advantage in the banking sector. Their core values or the principles are given below:
- Insight and Spirit
- Enthusiasm for Work
- Business Ethics
The performance of BASIC Bank Limited has been satisfactory since its inception in respect of all the measurement parameters. The total assets of the Bank increased to Taka 45,308.31 million at the end 2009 from Taka 46,651.53 million in the previous year registering a decrease by 2.87 percent. Total deposit of the Bank at the end of 2009 stood at Taka 34,501.70 million (75.50% of Total liabilities) compared to Taka 38,368.23 million (82.24% of Total liabilities) in 2008. Total amount of deposit declined by 10.07%. Loans and advances stood at Taka 27,269.13 million as on December 31, 2008 against Taka 22,263.35 million at the end of 2007, recording a growth rate of 22.48 percent compared to 23.86 percent in the previous year. All out efforts Were made to improve the recovery rate and control non-performing loans and advances. Although the recovery rate of project loans remained stable in the neighborhood of 96 percent the proportion of non-performing loans to total loans increased to 3.25 percent in 2008 from 3.70 percent in 2007. Emphasis on the maintenance of quality of assets remained the centerpiece of the Bank’s business strategy.
Year 2008 was a period of high growth in loans and advances with 22.48 percent increase compared to 23.86 percent increase in 2007. Growth of industrial finance was moderate and loans to small and medium industries was 23.91 percent of total loans and advances. The industrial loan of TK. 17226.40 million was distributed among 13 sectors. Textile sector registered the highest concentration being 36.24 percent of industrial loans and 23.59 percent of total loans. Textile sector is followed by: food & allied industries – 13.73 percent of industrial loans and 8.94 percent of total loans, chemical & allied industries – 12.97 percent of industrial loans and 8.44 percent of total loans and engineering – 11.44 percent of industrial loans and 7.45 percent of total loans.
2.7 BBL Services:
2.7.1 General Banking Services:
· Accounts Opening
· Account maintaining.
· Account closing
· Issuing Pay order.
· Bank draft.
· Demand draft.
· Opening of Fixed Deposit.
· Clearing of Bank cheques.
2.7.2 Foreign Exchange Business Services:
- Letter of credit
- Parties to Letter of Credit
- Operations of Documentary Letters of Credit
- L/C Application
- Scrutiny of Documents
- Scrutiny of L/C Application
2.7.3 Investment Services:
- Investment Scheme for Doctors
- Small Business Investment Scheme
- Housing Investment Scheme
- Small Transport Scheme
- Car Loan Scheme
- Transport Investment scheme.
- Agriculture Implements Investment Scheme Rural Development Scheme
2.7.4 Other Consumer Savings Schemes:
- Pension Savings Scheme (PSS)
- Education Savings scheme (ESS)
- Marriage Savings Scheme (MSS)
2.7.5 Sanchaypatra schemes:
- Eight years Protirakha Sanchaypatra ( PSP)
- Five years Bangladesh Sanchaypatra (BSP)
- Sanchaypatra Interest on half yearly rest (SP)
- Sanchaypatra Interest on quarterly rest (SP)
At present, all banking transactions of BASIC Bank Ltd. are fully automated. Moreover, all activities of trade and operations are being done through computers and other automation tools Such as ATM, SWIFT. The bank is the member of the shared ATM Network provided by Electronic Transaction Network ltd. (ETN). At present 25 ATM booths are available all over Dhaka city and in the cities of Chittagong and Sylhet.
In order to provide round-the-clock and correct information on the bank to the business community all over the world, the bank has a Web page which can be accessed under the domain name: www.basicbank-bangladesh.com. Bank has made an agreement with Square Informatics Ltd to have real time on-line transaction facility. The bank facilitates its clients to deposit, draw or remit funds from their accounts from one branch to another by providing on-line banking services.
2.9 Management of BASIC Bank Ltd.:
For any financial and non-financial organization, management are the most valuable and important resources of any kind of organization. And, an Ill-organize management provides the organization to reach its ultimate goal. Management means planning, organizing, staffing, directing and controlling of all financial and non- financial recourses of an organization. Different aspects of manage4menat practice in BBL are discussed below.
BBL has done its planning within the preview of the corporate plan. The overall planning approach in BBL is top-down. Each branch can plan according to the goal imposed by the corporate level. It doesn’t plan independently. And, BBL has a planning division. This is mainly responsible for the overall planning.
BBL is organized as per the existing business locations. It has thirty seven branches, each of which is a separate entity. Each unit is responsible for its performance and each is headed at least by a Assistant General Manager (AGM) in designation followed by manager (operations). He is directly responsible for the performance of their unit. Within each branch, it is organized functionally.
The recruitment in BBL is done in two ways. One as a “provisional officer” for the management program and it has a probation period of two years. Another one is non-management level as “trainee officer”. Provisional officers are recruited in officer category and their career path is headed towards different managerial jobs.
The management approach in BBL is top-down or authoritative. Each information just seeks through lower management layer. Works are designed in such a way that one cannot leave without clearing the task as he is assigned for a day. Sitting arrangement in all office is done in way that the superior can monitor the subordinate all time. Management (HOB) and manager operation all time watch the operation of the bank through CC camera. Security is maintained properly. Budgeting, rewarding, punishing etc are also practice as control program.
BBL doesn’t believe in the traditional banking. It tries to increase and maintain its market share in the private banking sector through two types of control techniques:
- Feed forward control
- Feedback control
Feedback control technique monitor output of a process and feed into the system to obtain desired outputs. On the other hand feed control technique monitors inputs into a process to ascertain whether these are as planned; if they are not, the inputs are changed in order to get the desired result.
2.10 Operation Strategy:
Presently the bank uses bank Ultimus branch banking software developed by leads C Corporation developed on SQL on windows platform. The head office and some branches use the software for book keeping, automatic interest calculation, daily transaction listing and audit trails, auto maturity and auto renewal of FDRs, automatic integration of customers ledger position including balance of subsidiaries, monthly income and expenditure position etc. the bank has joined the shared ATM Network Bangladesh offered by ETN along with eight other member banks. This service is presently available in Dhaka, Chittagong and Sylhet. BBL is member of SWIFT. It has also installed Reuter System at the Head Office to have live access to information from international money market for dealing in Foreign Exchange. But from the viewpoint of ideal requirement for modern bank, competing with international banks, the IT facilities of BBL need further improvement.
2.11 Board of Directors:
|Mr. Sheikh Abdul Hye Bacchu
BASIC Bank Ltd.
Mr. Jahangir Akhand Salim
Director , BASIC Bank Ltd. &
Chandpur Chamber of Commerce and Industries
Mr. Fakhrul Islam
Director, BASIC Bank Ltd. &
Chairman, BSCIC, Dhaka
Mr. Shubhashish Bose
Director, BASIC Bank Ltd. &
Joint Secretary, Finance Division, Ministry of Finance, Govt. of the People’s Republic of Bangladesh, Bangladesh Secretariat, Dhaka
Ms. Neelufar Ahmed
BASIC Bank Ltd. &
DG, Prime Minister’s Office, Dhaka
Mr. Shakhawat Hossain
BASIC Bank Ltd. &
Former Commissioner of Customs
Prof. Dr. Kazi Akhtar Hussain
BASIC Bank Ltd. & Chairman
Department of Accounting and Information Systems
Islami University, Kushtia
Mr. Md. Anwarul Islam, FCMA
BASIC Bank Ltd. & Managing Director
ARS Lube Bangladesh Ltd.
Mr. Kazi Faqurul Islam
BASIC Bank Ltd.
Table 1: Board of Directors
Table 2: Organogram
2.13 Network of the Branches:
BASIC Bank Ltd. has 37 existing branches and some other proposed branch all over Bangladesh to provide better services to their valuable customer. The objective of BBL is not only to earn profit but also keep the social commitment and to ensure its co-operation to the persons of all levels, to the businessmen, industrialists-specially who are engaged in establishing large scale industries by consortium and the agro-based export oriented medium and small scale industries by self inspiration. BBL as the largest private bank is committed to continue its endeavor by rapidly increasing the investment of honorable shareholders into asset. The network of this bank is centralized.
2.14 Human Resource Department of the Bank:
The Human resource department of BASIC Bank Ltd. performs many different roles and responsibilities. They take full responsibility for human activities like employment are recruiting, training and development, employee services, employee and community relations, personnel records, rewarding employees etc. The HR officers of this bank are very much concern to design and deliver efficient and effective HRM system, process and practices. They spend a lot of time to ensure employee’s satisfaction. They work on finding creative ways to ensure a positive and encouraging work environment.
2.14.1 Recruitment Policy:
The goal of an organizational recruitment program is to ensure that the organization has a number of reasonably qualified applicants to choose from when a vacancy occurs. As BASIC Bank Ltd. is concern to bring about their long- term objectives so that they accomplish the recruiting process cautiously. The process for the recruitment of Management Trainee and Provision Officer is:
- Circular / Advertisements placed in notice boards of different educational institutions and news dailies.
- Written test
- Checking the test scripts.
- Call for interview
- On the job training
- Outside training (e.g., foundation training at BIBM)
Whole process takes maximum of one to two months. The incumbents are appreciated who have practical experience and knowledge in the relevant fields.
The bank is very much conscious for the training of their employees to make them master in knowledge, skill and behaviors in their day-to-day activities. It the bank retains and motivates employees. Generally, BASIC Bank Ltd. United arranges training for junior level officers at BIBM, Mirpur, Dhaka to enhance their skill and efficiency. Executive officers are also required for training attending seminars in abroad to develop their managerial and operational proficiency. Every year, officers attended training courses at BIBM whereas this executives or officers Were sent abroad for training o” international Trade, Credit management and other areas of banking and financial services.
2.14.3 Job Evaluation:
Job evaluation is very much necessary to measure internal job worth of an organization BBL follows a performance evaluation strategy to evaluate their employees as well as to make them more effective and efficient in their responsibilities. The branch managers monitor their employees to give performance feedback to the Head Office. They complete a “Performance AppraisalForm” to rate their employees. Generally it is conducted at the end of each year. BBL encourages the industrious and active employees by giving promotion or bonus to make them more productive.
2.14.4 Rating is mainly done on following factors:
Professional knowledge: Knowledge of assigned, current trends and developments in functional area.
Planning: Ability to plan activities in advance and to accomplish by setting priorities.
Analytical Ability: Ability to analyze, assimilate and present facts clearly and concisely.
Judgment: Ability to take decisions and the quality of the decisions taken.
Attitude: How does he/she look upon his/her job and his/her associates? Can he/she make positive effect on others?
Communication: The force and felicity with which thoughts are expressed /conveyed in writing are to be considered.
Innovation: Extent of imagination and the practicability of the ideas as applicable to the job.
Leadership: Ability to inspire subordinates and to develop them.
Interpersonal relationship: Ability to get along with superiors, equals, subordinates and customers.
Resourcefulness: Reaction towards difficulties and the drive and initiative displayed to overcome them.
2.14.5 Pension Policy:
The employees are provided the following benefits during their pension:
- Provident fund
2.14.6 Other Facilities:
BBL also provides the following facilities to their employees:
- House building loan
- Marriage leave
- Maternity leave
- Festival bonus
- 10 days as core leave
- 24 days as privileged leave
- 14 days of sick leave
- Specially approved leave-without-pay.
2.15 Financial Highlights on the overall activities of the Bank
Progress at a Glance (2006-2010)
Table 3: Financial Highlights on the overall activities of the Bank
Paid-up Capital: From year 2006 to year 2010 Paid-up Capital is increased by 1,954.55 Million Taka.
Total Assets: From year 2006 to year 2010 total asset is increased by 32,152.2945 Million Taka.
Deposit: From year 2006 to year 2010 deposit is increased by 25,174.9534 Million Taka.
Loans and Advances: From year 2006 to year 2010 loans and advances are increased by 27,341.51 Million Taka.
Gross Income: From year 2006 to 2010 gross income is increased by 3,250.21 Million Taka.
Profit after Tax: From year 2006 to 2010 profit after tax106.79 is increased by 3,250.21 Million Taka.
Import Business: From year 2006 to 2010 import business is increased by 24,401.63 Million Taka.
Export Business: From year 2006 to 2010 export business is increased by 8535.06 Million Taka.
Capital Adequacy Ratio: From year 2006 to 2010 capital adequacy ratio is decreased by 2.57.
Number of branches: From year 2006 to 2010 number of branches is increased by 4 branches.
Number of employees: From year 2006 to 2010 number of employees is increased by 313 employees.
Chapter Three: Foreign Exchange
3.1 Foreign Trade:
The foreign trade department deals with the export and import business of various clients. The clients open L/C for importing and exporting goods from and to abroad through this division. In the case of import, the bank usually works as the issuing bank and in the case of export the bank works as advising bank or negotiating bank or as both. In importing goods from abroad the clients have to give a percentage of total cost of goods, as advance. The clients also have to flay a certain amount of commission to the bank. After receipt of the goods in .ports, the clients have to pay the rest or me money to the banks to clear the goods from the ports. Foreign trade mainly deals with various kinds of documents and papers. These documents and papers work as claim of the credits.
International and Foreign Exchange Business:
One of the major businesses of the International Division is Foreign Exchange dealing. Basic Bank Limited, Shantinagar Branch earned substantial amount from this wing’s operation.
Basic Bank Limited, Shantinagar Branch has already established correspondent banking relationship with many important countries of the world to facilitate cross border trade and payment.
Below the thesis present the FORIGEN EXCHANGE SECTION of Basic Bank Limited, Shantinagar Branch.
Fig: – 1: Foreign Exchange
3.1.1 Import Section:
Import of merchandise involves two things: bringing of goods physically into the country and remittance of foreign exchange towards the cost of merchandise and services. In case of Import, the importers are asked by their exporters to open a letter of credit .So that their payment against goods is ensured. Documentary credit has emerged as a vital system of trade payment. It is a key player of foreign trade. This Department is mainly done two tasks, i.e.
3.1.2 Export Section:
According to Foreign Exchange Regulation Act, 1947, nobody can export by post and otherwise than by post any goods either directly or indirectly to any place outside Bangladesh, unless a declaration is furnished by the exporter to the collector of customs or to such other person as the Bangladesh Bank may specify in this behalf that foreign exchange representing the full Export value of the goods has been or will be disposed of in a manner and within a period specified by Bangladesh Bank. Payment for goods exported from Bangladesh should be received through an Authorized Dealer in freely convertible foreign currency or in Bangladeshi Taka from a Non-Resident Account. The Export section deals with two types of Letter of credit that are as follows-
1. Export Letter of Credit
2. Back-to-Back Letter of Credit
3.2 Remittance Section:
Remittance means transfer of fund. If I pronunciations of the word “Remittance” I understand transfer of fund through a Bank from one place to another place which may be executed the country or between two countries. Remittance which is affected within the country is called Local Remittance and which is affected between two countries is called Foreign Remittance. Remittance plays a vital role in the development of the country. Without effect of remittance no country can develop her. Bangladesh is rich enough in respect of human resources. So Inward Remittance has great importance in our country. Below discuss in shortly.
3.2.1 Inward Remittance:
The remittances, which are received from abroad and paid to the beneficiary, are Inward Remittance. In ward remittance are mainly received in US Dollar, pound sterling and Taka Currency. Very few remittances in miscellaneous currencies are also received.
Mode of inward Remittance:
1. T.T ———- Telegraphic Transfer.
2. M.T ——— Mail Transfer.
3. D.D ——— Demand Draft.
4. P.O ———- Payment Order.
5. I.M.O ——– International Money Order.
5. T.C ———- Traveler’s Cheque.
3.2.2 Outward remittance:
The Remittance in Foreign Currency which is affected from our country to abroad is called outward remittance. Form remitter’s point of view is called outward Remittance and from payee’s point of view is called Inward Remittance.
Mode of outward remittance:
The Remittance may be made by means of T.T, D.D& T.C, etc. Ideation to these the sale of Foreign Currency under letter of credit against retirement of bill is including as outward remittance.
3.2.3 Procedure of payment:
To make payment the points mentioned below are to be observed.
1. The D.D must be in original
2. The name of bank, name of Branch, Date, name and A/C number of the payee, amount in word and figures must be mentioned.
3. The D.D must be as per prescribed format or specimen copy supplied earlier.
4. The amount is protecting graphed.
5. Payment is not stopped.
6. Draft is not reported lost.
7. Verification of drawer’s signature.
8. Telex confirmation from the issuing Bank, if the amount exceeds the limit as per agreement made earlier.
1. The message must be in original.
2. It must be authenticated under test, Test must be decoded and found correct.
3. T.T. must contain the name of Bank, name of Branch, name and A/C number of the beneficiary.
If the above points are Okay, payment made to the beneficiary as soon as possible.
1. Capital Area 24 hours.
2. Major Cities 48 hours.
3. Other Towns 72 hours
4. Remote Areas 120 hours.
Settlement of claims:
As the remittance is received from abroad or remote places, some claim, may occur for non receipts of fund. These claims may arise by the Beneficiary or remittance through issuing/Remitting Bank. As such the claims are to the settled.
If the TT is lost or stolen, remitter will report to the remitting bank. R/B will ask / advise the Beneficiary. Bank to mark stop payment or not to make payment. Beneficiary bank
Will confirm the stop payment to the Remitting Bank if the DD is not paid earlier. If the DD is paid earlier the mode of payment is to be confirmed to the Remitting, Bank. If necessary a duplicate DD is to be issued to make payment to the beneficiary for settlement of the claim.
If the TT contains any wrong information, Beneficiary Bank is to contact with the issuing / Remitting Bank for correct information. On getting the correct information payment is to be made accordingly.
Above Remittance Section’s all works Were done by General Banking (GB) Section in BBL; Shantinagar Branch. The thesis doesn’t discuss this section in broadly in another Chapter; so, the thesis discusses this section in here shortly, because this Report’s topic is “Foreign Exchange Practice of BBL”
Chapter Four: Foreign Exchange Mechanism: A Conceptual Framework
4.1 Letter of Credit:
Letter of credit (L/C) can be defined as a ‘Credit Contract’ whereby the buyer’s bank is committed (on behalf of the buyer) to place an agreed amount of money at the sellers disposal under some agreed conditions since the agreed conditions include amongst other things, the presentation some specified documents the letter of credit is called documentary letter of credit the uniform customs & practices for documentary credit (UCPDC) published by international chamber of commerce (ICC) (193) revision publication No. 500 defines documentary:
Any arrangement, however harmed or described, whereby where by a bank (the “Issuing Bank”), acting at the request and on the instructions (the “Application”) or on its own behalf,
1) Is not make a payment to or to the order of third party (the beneficiary) , or is to accept and pay bill of exchange (Drafts) drawn by the Beneficiary, or
2) authorizes another bank to effect such payment , or to accept and such bills of exchange (Draft),
3) Authorized another bank to negotiate, against stipulated document(S), provided that the terms and conditions are compiled with.
Documentary credits either:
1) Revocable or,
4.1.1 Revocable Letter of Credit:
According to Foreign Exchange Regulation Act, A Revocable Credit is one which can be amended or cancelled by the issuing Bank at any moment and without prior notice to the beneficiary, but the issuing bank is bound to reimburse the negotiating bank for any payment made prior to receipt of notice of cancellation, against shipping documents which are apparently in accordance with the terms of L/C. So this is clear that Revocable L/C can be amended any time without prior notice to the beneficiary.
4.1.2 Irrevocable Letter of Credit:
As per Foreign Exchange Act, an Irrevocable unconfirmed L/C cannot be cancelled or amended without the consent of all the parties, particularly that of the beneficiary. It is a definite and absolute undertaking of the issuing bank to make payment for goods supplied on presentation of stipulated shipping documents, if all the terms and conditions of the credit are complied with. Of any indication, it will be deemed as an irrevocable Letter of Credit.
Sometimes, Letter of credits is marked as either,” With recourse to drawer” or” without recourse to drawer”.
4.1.3 Forms of Documentary Credit:
The Letter of Credit can be either Revocable or Irrevocable. It needs to be clearly indicated whether the L/C is revocable or irrevocable. As per Uniform Customs and Practice for Documentary Credit (UCPDC) ICC Publication No 500, 1993, in the absent.
4.1.4 Types of Letter of credit According to Payment Method:
On the basis of time of payment, Letter of Credit can be of two types-
i) Sight L/C: In case of Sight L/C, the bank makes payment against presentation sight Draft and documents drawn strictly as per terms under the letter of credit. Here issuing bank release fund immediately on presentation of stipulated documents.
ii) Deferred L/C: Deferred Payment means delayed payment against L/C. The amount availed of, is not put at the seller’s disposal immediately on presentation of documents, but only after a specified period. The credit wording always specifies duration of the period and time at which the payment will be effected against presentation of documents drawn under the letter of credit.
4.1.5 Special Documentary credits:
1) Revolving credit: The revolving credit is one which provides for restoring the creditor the original amount after it has been utilized. How many times it will be taking place must be specifically mentioned in the credit. The revolving credit may be either cumulative or non-cumulative.
2) Transferable credit: A Transferable credit is one that can be transferred by the original beneficiary in full or in part to one or more subsequent beneficiaries are not prohibited.
3) Back to Back Credit: The back to back credit is a new credit opened on the basis of an original credit in favor or another beneficiary. Under to back to back concept the seller as the beneficiaries of the first credit offer it as “security” to the adducing bank for the issuance of the second credit .The beneficiary of the back to back credit may be located inside or outside the original beneficiary’s country.
4) Anticipatory Credits: The anticipatory credits make provision for pre-shipment payment, to the beneficiary in anticipation of his effecting the shipment as per L/C conditions.
5) Red Clause: When the clause of the credit authorizing the negotiating bank to provide pre-shipment payment to the advance to the beneficiary is printed/ typed in red, the credit is called ‘Red Clause Letter of Credit’.
Under the above mentioned clause, the opening bank is liable for the pre-shipment advances made by the negotiated bank, in case the beneficiary fails to repay or deliver the documents for negotiation.
4.2 Parties to Letter of Credit:
A letter of credit is issued by the bank at the request of an importer in favor of an exporter from whom he has contracted to purchase some commodities or services. Generally the letter of credit is transmitted to the beneficiary through a bank in the beneficiary’s country. Therefore, parties of letter of credit are mainly:
4.2.1 Obligatory Parties:
a) Importer / Buyer/ Applicant
b) Opening Bank / Issuing Bank
c) Advising Bank / Notifying Bank
d) Exporter /Seller / Beneficiary
Besides, there are one or more than one banks who are involved in various capacities and various stages to play an important role in the total operations of credit which are as follows:
4.2.2 Optional Parties:
a. Negotiating Bank
b) Confirming Bank
c) Transferring Bank
d) Reimbursing / Paying Bank
4.2.3 Involved Parties:
Importer is the person who requests/instructs the opening bank to open a L/C. He is also called opener of Applicant of the credit.
b) Opening/Issuing Bank
Opening Bank is the bank which opens/issues a L/C on behalf of the importer. It is also called the importer’s/buyer’s bank. Exporter / Seller / Beneficiary is the party in whose favor the L/C is established.
c) Advising / Notifying Bank
Advising Bank is the bank through which the L/C is advised to the exporter. It is a bank situated in the exporting country and it may be a branch of the opening bank or a correspondent bank. It may also assume the role of confirming and/or negotiating bank depending upon the conditions of the credit.
d) Exporter/ Seller/ Beneficiary
Beneficiary of the L/C is the party in whose favor the letter of credit is issued. Usually they are the seller or exporter.
e) Negotiating Bank
A Negotiating Bank is the bank nominated or authorized by the issuing bank to negotiate the documents and to pay the amount to the beneficiary, to incur a deferred payment liability, to accept draft. If the negotiation of the documents is not restricted to a particular bank in the L/C, normally the negotiating bank is the banker of the beneficiary.
f) Confirming Bank
The Bank, which under the instruction in the letter of credit, adds guarantee to the credit, thereby undertaking the responsibility of payment/ negotiation/ acceptance under the credit in addition to that of issuing bank. A confirming bank does so if requested by the issuing bank having arrangement with them.
g) Transferring Bank
Original beneficiary may transfer the L/C to second beneficiary as per clause of the L/C. transfer may be made once only. The bank of the original beneficiary authenticates the transfer and the bank is known as transferring bank. Normally transferring bank authenticate the transfer and keeps record of transfer without any engagement on their part.
h) Reimbursing Bank / Paying Bank
A reimbursing Bank nominated or authorized by the issuing bank to make payment against stipulated documents, complying with the credit terms. Normally issuing bank maintains an account with the reimbursing bank to make the payment.
Details regarding the rights and obligations of the different parties involved in the documentary credit operations may be had from UCPDC (Article Nos. 13 to 19).
4.3 Operations of Documentary Letters of Credit:
The following five major steps are involved in the operation of a documentary letter of credit:
· Amendment (if necessary);
· Presentation; and
4.3.1 Issuing a Letter of Credit:
Before issuing a L/C, the buyer and seller located in different concludes a ‘sales contract’ providing for payment by documentary credit. As per requirement of the seller, the buyer then instructs the bank the issuing bank-to issue a credit in favor of the seller (beneficiary). Instruction/Application for issuing a credit should be made by the buyer (importer) in the issuing bank’s standard form. The credit application which contains the full details of the proposed credit, also serves as an agreement between the bank and the buyer. After being convinced about the ‘necessary conditions’ contained in the application form and ‘sufficient conditions’ to be fulfilled by the buyer for opening a credit, the opening bank then proceeds for opening the credit to be addressed to the beneficiary.
4.3.2 Advising a Letter of Credit:
Advising through a bank is an apparent authenticity of the credit to the seller. The process of advising a credit consists of forwarding the original credit to the beneficiary to whom it is addressed. Before forwarding, the advising bank has to verify the signature (s) of the officer (s) of the opening bank and ensure that the terms and conditions of the credit are not in violation of the existing exchange control regulations and other regulations relating to export. In such act of advising, the advising bank does not undertake any liability.
4.3.3 Amendment of Credit:
Parties involved in a L/C, particularly the seller and the buyer, can not always satisfy the terms and conditions in full as expected due to some obvious and genuine reasons. In such a situation, the credit should be amended.
In case of revocable credit, it can be amended or canceled or canceled by the issuing bank at any moment and without prior notice to the beneficiary. But in case of irrevocable credit, it can neither be amended nor canceled without the agreement of the issuing bank, the confirming bank (if any) and the beneficiary.
4.3.4 Presentation of Documents:
The seller being satisfied with the terms and conditions of the credit proceeds to dispatch the buyer and after that, has to present the documents evidencing dispatching of goods to the negotiating bank on or before the stipulated expiry date of the credit. After receiving all the documents, the negotiating bank then checks the documents against the credit. If the documents are found in order, the bank will pay, accept or negotiate to the issuing bank. The issuing bank also checks the documents and if they are found as per credit requirements, either.
a) Effects payment, or
b) Reimburses in the pre-agreed manner
Settlement means fulfilling the commitment of issuing bank in regard to effecting payment subject to satisfying the credit terms fully. This settlement may be done under three separate arrangements as stipulate in the credit. These are:
a) Settlement by Payment: Here the seller presents the documents to the paying bank and the bank then scrutinizes the documents. If satisfied, the paying bank makes payment to the beneficiary and in case this bank is other than the issuing bank, then sends the documents to the issuing bank. If the issuing bank is satisfied with the requirements, payment is obtained by the paying bank from the issuing bank.
b) Settlement by Acceptance: Under the arrangement, the seller submits the documents evidencing the shipment to the accepting bank accompanied by the draft drawn on the bank (where credit is available) at the specified tenor. After being satisfied with the documents, the bank accepts the document and the draft and if it is a bank other than the issuing bank, then sends the documents to the issuing bank stating that it has accepted the draft and at maturity the reimbursement will be obtained in the pre-agreed manner.
c) Settlement by Negotiation: This settlement procedure starts with the submission of documents by the seller to the negotiating bank accompanied by a draft drawn or the buyer or any other draw, at sight or at a tenor, as specified in the credit. After scrutinizing that the documents meet the credit requirements, the bank may negotiate the draft. This bank, if other than the issuing bank, then sends the documents and the draft to the issuing bank. As usual, reimbursement will be obtained in the pre agreed manner.
4.4 L/C Application: