General Banking (Operations) of Pubali Bank Limited

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General Banking (Operations) of Pubali Bank Limited

Chapter -1

Origin of the study

Objective of the study

The objectives of the study are as follows:

• To earn practical knowledge.
• To apply theoretical knowledge in the real situations.
• To know the investment decision.
• To know the modes of investments.
• To know how loans are classified.
• To know the process of recoveries.
• To know about bank’s customers.
• To learn the organizational behavior of Pubali Bank Ltd.
• To learn the making process of the proposal for approval of the head office.
• To learn how the bank performs Lending Risk Analysis(LRA)
• To know the dealings process of the commercial bank with the Bangladesh Bank.
• Above all, to know the overall banking process.

Methodology

The information and the data have been collected by interviewing observing factors, which involves different department of Pubali Bank Ltd. Both primary and secondary sources of data is being used, these sources are as follows:

a) Primary source:

• Discussion with the employees Pubali Bank Ltd.
• Expert opinions.
• Oral and informal information provided by honorable Deputy General Manager and other officers of Pubali Bank Ltd..

b) Secondary sources:

• Annual report of Pubali Bank Ltd.
• Manual and directive of different department of Pubali Bank Ltd..
• Web site of Pubali Bank Ltd. (www.pubalibangla.com).
• Different journals and publication of Bangladesh.

Limitation of the study:

The problems, which are encountered in preparing the paper, are as follows:

• In spite of sincere efforts I could not have enough time to make an in-depth analysis of the topic.
• Main limitation is that some facts and figures are sensitive enough not to disclose publicly.
• Communication and financial problems were faced.

Chapter 2

• Overview of Pubali Bank Limited
• Introduction of Pubali Bank Limited
• History of “Pubali Bank Limited”
• Highlights
• Performance of Pubali Bank

OVER VIEW OF PUBALI BANK LIMITED

INTRODUCTION OF PUBALI BANK LIMITED

After liberation the government of the new born country being recognized as Bangladesh in the world society made all the existing banks nationalized by an ordinance named as “Bangladesh Bank (BB) Ordinance” dated the 26 march 1972. Later a government of the self declared president H.M.Ershad following a denationalization policy allowed establishment of banking institution in the private sector and released three of such nationalized banks in private sector. The policy seems to be contentiously followed by the present elected government of Bangladesh Nationalist Party being abbreviated as BNP.

In the world of modern age importance of banking business is immeasurable. Agricultural and industrial prosperity cannot be imagined without the existence of an expedient banking system in the country. Absence of a fair banking system is identified as prime cause of backwardness of any country in respect of its commerce and industry. Banks have been playing effective role in the capitalist as well as socialistic countries of the world in their internal distribution of wealth. Banking system of Bangladesh has not also remained less advanced in the above banking atmosphere.

Now-a -days banks play an important role in the economy development of a country. For executing various programs in the process of economic developments, banks provide necessary funds. They collect savings of large masses of people scattered throughout the country, which in the absence of banks would have remained idle, and unproductive. These scattered amounts are collected, pooled together and male available to commerce and industry for meeting their requirements. Without banking facilities, modern method of complicated large-scale production would have been a very difficult task.

Our business or industry requires two types of capital, namely short-term and long-term. We know, there is a gap between expenditure of production and the realization of income from the good produced. This gap is filled up by the supply of short-term capital by banks. This short-term capital enables the producers and traders to meet the expenses of raw materials, wages and salaries of their employees, marketing finished goods etc. the long-term capital is obtained by issues on the capital markets for setting up factories and purchasing machineries and equipments. The public subscription, which is raised, is not sufficient to meet the establishment and running costs of factories. For the successful operation of these factories banks assist them with short-term and long-term capital.

As a commercial based bank Pubali Bank Limited is always trying to develop the condition of the economy and society of Bangladesh. Pubali Bank Limited strongly believes that the interest free banking is only way to develop the economy and society of a developing country like Bangladesh because, this system is very convenient for our people.

The activities of Pubali Bank Limited are collect deposits from people which are scattered over the country and invest the deposited money in the profitable and less risky sector from where they will get return easily. It is providing assistance to the exporter and importer of our country. Another important activity of Pubali Bank Limited is that it is very conscious to create employment opportunities for the unemployed people of Bangladesh, which is the most significant demand of our young generation.

Analyzing today’s business world as the student of Business Administration need to survive in this complex situation with regards to acquire vast knowledge. We ought to know “ins and outs” of the present and future situations.

After passing four consecutive years in BBA, a practical program has been introduced to me as a essential part for the outgoing business students. Considering the matter an internship program is organized to give me an opportunity for enhancing my capabilities and assigned me to prepare a project specializing on “General Operations of Different Sections of “Pubali Bank Limited”

HISTORY OF “PUBALI BANK LIMITED”

The Bank was initially emerged in the Banking scenario of the then East Pakistan as Eastern Mercantile Bank Limited at the initiative of some Bengali entrepreneurs in the year 1959 under Bank Companies Act 1913. After independence of Bangladesh in 1972 this Bank was nationalized as per policy of the Government and renamed as Pubali Bank. Subsequently due to changed circumstances this Bank was denationalized in the year 1983 as a private bank and renamed as Pubali Bank Limited. The Government of the People’s Republic of Bangladesh handed over all assets and liabilities of the then Pubali Bank to the Pubali Bank Limited. Since then Pubali Bank Limited has been rendering all sorts of Commercial Banking services as the largest bank in private sector through its branch network all over the country.

HIGHLIGHTS

	As at 31s‘ December ( In Million Taka)
	2000	2001	2002	2003	2004
Authorized Capital	5000.00	5000.00	5000.00	5000.00	5000.00
Paid-up Capital	160.00	200.00	200.00	200.00	200.00
Reserve Fund and otherReserve	928.10	1338.29	1740.80	1931.76	2107.76
Deposits	30096.50	32291.00	33730.10	35852.60	39789.71
Advances	21572.40	23583.00	26189.50	26282.69	27542.33
Investments	3853.00	4165.80	4400.80	4938.86	5742.12
Import Business	16872.00	12573.00	10500.00	12141.30	18024.30
Export Business	11620.00	11228.00	10214.00	11648.20	13670.50
Bridge Finance	8.60	8.40	8.30	7.90	7.80
Total Income	3073.80	3660.20	3823.50	3569.30	3455.32
Total Expenditure	2225.60	2488.70	2575.70	2704.10	2830.41
Pre-tax Profit	497.80	626.50	724.00	345.20	244.90
Net Profit	323.50	407.20	398.20	189.80	134.70
Total Assets	36370.90	39068.30	41895.90	43502.25	46593.28
Fixed Assets	553.80	565.60	591.30	582.60	545.40
Other Information
Number of Employees	5032	5050	4987	4943	4797
Number of Shareholders	6826	6601	6563	6506	6562
Number of Branches	350	349	350	350	350
Earning per Ordinary Share( Taka )	124,83	203.61	199.11	94.92	67.35

PERFORMANCE OF PUBALI BANK

Share Capital

The authorized capital and paid-up capital of the bank stood at Tk.5000 million and Tk.200 million respectively in 2004. Out of total 6562 shareholders, 4 nationalized institutions including the Govt. of people Republic of Bangladesh held shares of Tk.6.64 million. Various institution and individuals held the remaining shares of Tk.193.36 million.

Statutory and other reserves

At the end of the year 2003, reserve and other reserves of the bank stood at Tk.1931.75 million, Out of which statutory reserve was Tk.1201.14 million, other reserve was Tk.730.61 million. The total reserve stood at Tk.2107.76 million at the end of the year 2004, due to increase of statutory reserve by Tk.48.98 million and increase of general reserve by Tk.85.72 million from current profit and 51.31 million from sale proceeds of property.

Deposit

The total deposit at the end of the year 2003, Tk.35852.60 million. During the year 2004, the amount stood at Tk.39789.71 million, which was 10.98% higher than the position of the previous year. Out of the total deposit, time deposit and demand deposit were Tk.29, 678.80 million and Tk. 10, 111.90 million i.e. 74.59% and 25.41% respectively.

Borrowings from other Banks

The borrowing from other banks for the business purpose was Tk.131.62 million as on 31.12.2004. Such borrowing during the previous year was Tk.320.48 million.

FOREIGN EXCHANGE BUSINESS

Import Business

During the year 2004, the Bank handled import business worth Tk.18024.30 million. During the previous year, the amount was Tk.12141.30 million. The amount of import business handled by the bank increased by Tk.5883 million during the year 2004, which was 48.45% higher than the previous year.

Export Business

The bank handled export business worth Tk.13670.50 million during the year 2004, as against Tk.11648.20 million in the previous year registering an increase of Tk.2022.30 million over the previous year.

Inward Foreign Remittance

Non resident Bangladesh sent foreign exchange equivalent to Tk.11753.90 million through the bank during the year 2004, which was Tk.31753.30 million during the previous year.

Investment

Total investment of the bank was Tk.4938.86 million during the previous year 2003. During the year 2004, total investment of the bank increased by 803.26 million and stood at Tk.5742.12 million at the end of year. The sectors of investment were mainly govt. bonds, treasury bills, approved debentures and shares and debentures of private institutions.

Earning from call Loan

As on 31.12.2004 call loans allowed by the bank stood at Tk.710 million which was Tk.440 million lower than the previous year. Due to active participation in the inter bank money market, total earning from call loans during the year 2004, amounted to Tk.286.45 million which was less by Tk. 8.13 million over the amount of previous year.

Advances

The total advances of the bank during the year 2003, amounted to Tk.26282.69 million, which was Tk.27, 542.33 million during the current year registering an increase of Tk.1259.64.

In the interest of national economic development, the bank made advances mainly in sectors such as commercial loan, import and export, term loan to large and medium scale Industries, house building loan, working capital loan, consumer’s credit etc.

Position of Profit and Loss

Total income and total expenditure of the bank during the year 2004, Tk.3455.32 million and Tk.2830.41 million respectively resulting in a profit of Tk624.91 million before making provision for bad and doubtful debts and income tax. During the year 2004, bank made a provision of Tk. 380 million against bad and doubtful debts and other provision of Tk.110.20 million for taxation. As such net profit of the bank stood at Tk.134.70 million, which the board of directors proposed to appropriate in the following manner.

Net Profit………………………………….. Tk.134.70 million

Transferred to statutory reserve fund…….. Tk.48.98 million

Transferred to General reserve fund……… Tk.85.72 million

Tk.134.70 million.

Human Resources and Training

The Pubali Bank Limited believes that professional development of manpower of the bank is vital to establish the bank as an institution rendering quality services to its clients. With this end in view we have arranged training. This year the number of officers and employee of the bank stood at 4797, twenty six course on different subjects were organized at the bank training institute and 603 officials of different levels received training. Beside these the bank utilized the training services rendered by other training institutions. In August 2004 a one day national workshop was held in Dhaka which was attended by all the 351 branch managers and senior executives of Head office of the bank. On the occasion 45 managers were rewarded as “Best Branch Managers” by giving crest for their outstanding performance.

Chapter -3

• Departments Of PBL
• General Banking Department
• Remittance Department
• Investment Department

DEPARTMENTS OF PUBALI BANK LIMITED

GENERAL BANKING (OPERATIONS) DEPARTMENT

It is a customer service section. Here two employees of the bank are always ready to serve their customers. In this section people come to open different kinds of accounts, and schemes. They advise their clients that how can they (clients) open an account. They are very friendly and cordial to their clients. Here the employees also issue new checkbooks, remit money from one place to another through DD, TT, Pay Order within the country, and clear the financial instruments. People can receive their foreign remittance from this section. They maintain different kinds of registers such as DD, TT, Pay Order register, account opening register, checkbook issue register, balance book, cheque-clearing register. They also use computer for posting purposes.

There are four types of accounts and they are,

a) Deposit Account/Saving Account.

b) Current Account.

c) Fixed Deposit Receipt Account.

d) Short Term Deposit Account.

The short discussion of each account is given below:

Deposit Account/ Saving Account

This is such kind of account that provides a rate of profit on the principal deposit. Saving account can be single or joint. Besides education institutions, clubs/societies, associations and financial institutions can also open the saving account. In the PBL saving account is denoted as SB. The interest rate of SB is usually 8%. There are some rules governing Deposit Account and they are as follow:

• It is opened on proper introduction with minimum initial deposit of Tk.500 (Five hundred) only for all cases. But initial deposit can vary with the relationship of the customer.
• The deposit is accepted on the basis of commercial rules and the fund is invested in accordance with business principles.
• 60% of income of the bank derived from investment (minus the investment out of capital of the Bank) is distributed among the depositors at present.
• If the amount of deposit at any time becomes less than Tk.500.00 (one thousand) only in any month it shall not be eligible for profit, until it again reaches the limit of Tk.500.00 (one thousand) only.
• The profit is credited to the account in the next period (June and December each year). If the profit is not withdrawn it will automatically be added to the principal amount and entire amount will earn profit/loss.
• Withdrawals from the account are allowed not more than two times in a week and for a total amount not exceeding one for the of total deposit on Tk.10,000.00 (ten thousands) only which ever is less. For withdrawals of large amounts, seven days notice in writing is required to be given. In the contravention of the rule, the depositors will not be given any profit in this account for that month.
• Alteration/addition of rules shall be ‘made with the consent of the depositors.
• Procedures of Opening Saving Account
• To open SB there are some responsibilities both the customers and bankers. The responsibilities are given below:
• Responsibilities of the Customers
• Customer will fill up the Account Opening form (AOF) properly.
• Customer should submit two copies passport size photograph attested by introducer.
• The introducer must have an account with the bank.
• The customer must select one or more nominee and give his/her/their two copies photograph.
• The customer must sign on a Specimen Signature Card (SSC) and the introducer must sign on the form.
• The signature must be that by which the customer operates his/her transactions.

• In case of joint account: the name of account must contains the name of both account holders, operational instructions are signed by all the joint account holders, and both of them must submit two copies of photograph.
• In case of club/society/cooperative society ltd.: customer must provide the up to date list of office bearers, resolution for opening and operating of account, and a copy of Bylaws/Regulation/Constitution.
• In case of Non-government College/School/Madrasha/Maktab: customer must provide up-to-date list of the Governing Body/Managing Committee, and copy of resolution of the Governing Body/Managing Committee authorizing opening and operation of the account duly certified by a Gazette Officer.
• In case of minor account: the word minor must be putted after the title of the account, the person operating the account on behalf of the minor will sing on the SSC, and the form must contain the date of birth of the minor.

Responsibilities of Bankers

• The specimen signature should be verified.
• The verification seal will be given on the form along with authorized officer’s signature.
• Acceptance of specimen signature seal will be given.
• Manager’s approval seal with signature of manager will be given on the form.
• A copy of photograph will be added to the form, and to the SSC.
• New account number will be given on the form and on SSC from the list of account number.
• Introducer signature should be verified.
• At least two signatures of the SSC are taken in front of responsible officer. The banker should check the introducer signature on the form.
• The banker should check the instruction of operation of account in case of
• Joint account.
• Checking and initiating the account opening register.
• Checking that account properly introduced as per Head Office (HO) instructions.
• Checking past transactions and present balance of introducer satisfactory.
• Signature card authenticated and filed
• Thanks giving letter should be posted to the account holder and introducer sent under registered post.

Current Account

This kind of account does not provide any interest on total balance; usually business persons/organizations open such kind of account because this account provides the facility of unlimited times of withdrawal of money. The current account is denoted as CD /CA. In the bank, there are seven kinds of current accounts. Each account requires some documents. The Table-1, given below will show the types of accounts and documents required for opening of a new account. There are also some responsibilities both the customers and bankers.

CUSTOMER RESPONSIBILITIES

• Two copies passport size photograph of each person who will operate the account duly attested by the introducer.
• The introducer must be current account holder.
• Signing on the SSC.
• If the account holder wants to give authority to other person to operate the account he must sign on the Mandate Form where the account holder will also attest the authorized person’s specimen signature. The authorized person will sign on the SSC as well.

Types of Current Account (A/C) and documentation of a new A/C

SI.No.		Types of Accounts (A/C)	Documents Required for Opening a NewA/C
01		Current A/C Individual	1. AOF 2. SSG
02		Current A/C (Jointly)	1. AOF 2. SSC 3. Special Instruction
03		Current A/C (ProprietaryConcern	1. AOF 2. SSC3. Municipal Trade License
04		Current A/C (Partnership)	1. AOF 2. SSC 3. Partnership Deed4. Partners Agreement to Open A/C 5. Municipal Trade License
05		Current A/C (Public Ltd. Co.)	1. AOF 2. SSC3. Memorandum and Article of Association 4. Certificate of Incorporation 5. List of Directors on the Company’s Letter Head Pad 6. Municipal Trade License 7. Board Resolution Regarding Opening of A/C and Authorization of the Same
06		Current A/C(Societies/Clubs/Association/ Others)	1. AOF 2. SSC3. Board Resolution Regarding Opening of A/C and Authorization of the Same 4. Certified True Copy of Bye­ Laws/Rules & Regulation/Constitution 5. List of Members of Executive Committee
07	Current A/C (Trust)		1. AOF
			2. SSC
			3. Trust Deed.

Banker’s Responsibilities

• Carefully check the AOF and signature card.
• Verify the introducer signature.
• All papers are checked carefully.
• Such account can become a loan account so bankers should be careful of the time of opening the account.
• Giving an account number on the AOF.

Fixed Deposit Receipt (FDR) Account

This account provides the different profit rates against deposited amount for different period of times. A person/organization can open numbers of accounts for different terms. 241,242,243,244 starts the account numbers for the term three months, six months, twelve months, and twenty-four months respectably. If the account holder allows the provision of auto renewal then the FDR account will be auto renewed after the maturity. Payment generally made by the Pay Order. A FDR account holder can get 90% loan provision against his FDR account. Here the TDRlFDR will be lien to the bank. The Table-2, given below will show the period and profit rate.

The Terms and Profit Rate

Terms	3 Months	6 Months	12 Months	24 Months	36 Months	5 Years
ProfitRate	8.25%	8.50%	9.25%	9.50%	10.50%	11.00%

RULES GOVERNING FDR

• The deposited money should not be less than Tk.5000.00 (five thousands) only.
• The bank preserves right to invest the deposited amount if it thinks fit.
• The profit credited on maturity in case of 3,6,12 months and in case of more than 12 months the profit adds to the principle amount annually.
• FD Receipt is not transferable instrument.
• FD Receipt issued by one branch can not be paid or renewed at another branch.
• Alteration/addition of rules shall be made with the consent of the depositors.

CUSTOMERS’ RESPONSIBILITY

• Dully fill up the AOF.
• Signing on SSC.
• Depositing the FDR amount through a simple credit voucher. Accepting the FDR block.

BANKERS’ RESPONSIBILITIES

• Properly check the AOF.
• Checking signature who secured the account.
• Giving account number and FDR number.
• Issuing date and maturity date properly written.
• Maintaining ledger for every FDR account.

The FDR Block

The FDR Block has two parts. The smaller part remains in the bank and the largest part remains to the account holder. Both the parts contain some information. The information is:

• Serial number of FDR.
• Issuing date.
• Received from (name of the Account holder).
• Sum of Taka.
• The rate of profit and period.
• Date of maturity.
• Authorized officer signature.

Short Term Deposit Account

This is a special type of term deposit. It is denoted as STD. Sometimes it is known as Special Notice Term Deposit. The profit rate on this account is 5.50%. It is just like CD except the profit.

Issuance of new cheque book

• The steps to issue a new cheque-book for both saving and current account are given below:
• The account holder will fill up the Cheque Requisition Slip and will be submitted.
• The authorized officer will match the signature on requisition slip with the signature on the SSC.
• Then the authorized officer will check whether all the leaves of the previous cheque book have been used or not.
• If in both case answer is positive then the officer can issue a new cheque book.
• The officer will take a new cheque book and seal the account number on every page.
• The issuing date and name of the account holder will also be written on the requisition slip of new cheque book.
• The officer must sign on every leaf of new cheque book.
• The serial numbers of the new cheque book are also written on the old requisition slip.
• Entry will be given in a cheque issuing register and take the initial of the account holder.
• New series will be posted on the computer against that account.

Dispatch

It is said that the banking activities begin from the dispatch section. This section is important because all inward and outward mails are recorded here. One person is working in this section. The letters of all sections come to this section. After giving entry in the registration book the letters are sending to the outside. There are some peons who bear the letters. Besides the letters send by courier service or by telex or by mail.

On the other hand when any letters come to this office, then this section received the letter fast and then gives entry in the registration book. After completion register he sends to the addressed person. The employee of this section also operates the telex machine and typing machine. He maintains inward and outward registration book.

REMITTANCE DEPARTMENT

Remittance of fund means transfer of money from one place to another place or one city to another city of the same bank within the country is called local remittance and fund transfer to outside the country through correspondent agent is called foreign remittance.

Issuance of Telegraphic Transfer (TT)

This is a modern process of transferring money. In this process money is remitted through telex, telephone, or mobile phone. In this process, a party can transfer money within short time. The desire person can get money instantly. The most important part of a TT is its Test Number. The Test Number is important to make payment. If the Test Number of the originating branch matches with responding branch, only then the TT payment occurs. The process of incoming and outgoing TT has been described below.

Incoming TT

• TT receives through telex or phone or mobile.
• A TT voucher is prepared then.
• If test agree then payment is given.

Accounting

Debit: PBL General Account-Originating Branch.

Credit: Bills Payable Account-TT Payable.

Debit: Bills Payable Account-TT Payable.

Credit: Party Account

Outgoing TT

• Party fills up the TT application form. The form contains the payee’s account name, responding branch name, amount in words, and in figure, commission charge, tele/telex charge, applicant name and signature and address.
• The party will deposit the TT amount along with commission and teleltelex/ mobile charges at the cash counter.

• A cost memo is given to the party.
• The voucher will be made and the authorized officer signed the voucher.
• The TT will be delivered the responding branch either telex/telephone.

Accounting

Debit: PBL General Account-Responding Branch.

Credit: Income Account Commission on Remittance Inland.

Credit: Income Account-Tele/Telex Charge.

Credit: Other liability Account-VAT on Commission.

Commission

• Minimum commission Tk.150.00 up to Tk.150000.
• More than Tk.150000 the commission will be counted as 1-% interest rate.
• Telex Charge Tk.40.00 only (fixed).
• Other Liability Account-15% VAT on Commission.

Payment Order (Pay Order)

The Pay Order is an instrument used as an alteration of physical cash. It is applicable only for Dhaka City. They use specific Pay Order Block. It has some special features and they are –

• It is an order to pay the account mentioned on the Pay Order Block.
• The issuing branch will make the payment.
• Pay Order must be Account Payee.

To issue a Pay Order the following steps are followed:

• The party will fill up the Pay Order form containing the favoring name, amount in figure and words, applicant’s name, address, signature and date.
• The authorized officer will fill up the commission voucher attached to the pay order form.
• The party will deposit the amount of the Pay Order along with the commission.

• Then the officer prepares a Pay Order Block. The block has three parts-one for the bank and the remaining parts belong to the applicant. The two small parts contains the beneficiary name, applicant name, amount in figure and date. The main Block contains the date, beneficiary name, and amount in words and in figure. Not Over Tk. ——— also be written on the top of the main Block.
• Signature of two Power of Attorney (PA) holders will be given on the Pay Order Block.
• Applicant will receive the Block signing on the backside of the office portion.

Commission

1. Commission fixed on Payment order Tk.50.00.

2. Other Liability Account-15% VAT on Commission.

Demand Draft (DD)

DD is a one kind of bill of exchange. DD is the most frequently used mode of inland remittance. DD is an unconditional order of the bank from one branch to another branch to pay certain amount of money to a certain person on demand. It is applicable out side the Dhaka City. The DD generally issued for party’s safety. If there is a huge amount to bear one place to another, then customer can do the DD and bear it to his destination instead of cash.

Commission

• Minimum Tk.50.00 only/ 10% of Purchase Amount.
• When the amount will be exceeded more than 50000.00 then the commission will be counted as 1 % interest rate.
• Postage Charge Tk.25.00 only.
• Other Liability Account-15% VAT on Commission.

Banker’s Cheque (BC)

BC is used only to make the payment of different kinds of bills like utilities bill of the bank. Some special features of BC are as follows:

• It should be Crossed Cheque and Account Payee Only.
• There is no commission for issuing a pay slip.
• Bank is the maker of the pay slip.
• A revenue stamp is required in case of payment.

• It has two parts; one part belongs to the account payee and the other to the bank. The first part contains the date, beneficiary, amount in figure and for which purpose the bank issue the BC and second part contains two date (issuing date and payment date), beneficiary, amount is figure and in words.

Accounting

Debit: Others Liability Adjusting Account Credit. Credit: Bills Payable Account-BC Issued.

Inter Branch Credit Advice (IBCA)

It is an advice written by originating branch to the responding branch to credit the general account of responding branch for the transaction mentioned on it. IBCA is issued to responding branch to pay. The responding branch makes payment.

Accounting

Debit: PBL General Account-Originating Branch.

Credit: PBL General Account Responding Branch.

Inter Branch Debit Advice (IBDA)

It is an advice written by originating branch to the responding branch to debit the general account of responding branch for the transaction mentioned on it. IBDA issued to collect money from other branch. The originating branch collects money.

Accounting

Debit: PBL General Account-Responding Branch.

Credit: PBL General Account- Originating Branch.

Outward Bills for Collection (OBC)

Collection of cheques of a bank outside the clearing zone is known as OBC. Suppose a party which have an account with the PBL, Motijheel Branch, submit a cheque of Sonali Bank of Tongi Branch. In this case the bank does not send the cheque to the Clearing House rather than they send OBC to the Sonali Bank, Tongi Branch to collect the amount.

System of OBC Lodgement

• Accepting the instrument with deposit receipt from the clients.
• Investigating the instrument and deposit carefully especially, date of cheque, amount, account number, name and sign of depositor.
• The following seals are applied on the instruments: Special Cross Seal.
• OBC Seal with OBC Number.
• Entry is given in the OBC register.
• Making two copies of schedule. One is enclosed with the instrument for collection and other is kept as office copy.

ACCOUNTING

Debit: Outward Bills-Lodged.

Credit: Outward Bills-Collection.

If the cheque honors then the accounting process would be:

Debit: Outward Bills-Collection.

Credit: Outward Bills-Lodged.

Debit: IBCA and Number.

Credit: Party Account and Number.

Commission

1. Tk.1.00 to Tk.15000.00——- Tk.25.00 only.
2. Tk.15001.00 to Tk.100000.00——- Tk.40.00 only and 15% VAT on Commission.
3. Tk.100000.00 to Tk.500000.00——- Tk.150.00 only and 10% VAT on Commission.
4. Over Tk.5000.00——- Minimum Tk.500.00 only & Maximum Tk.2500.00 only and 5% VAT on Commission.

Inward Bills for Collection (IBC)

When cheques of other branches that are situated out side the clearinghouse come to a branch of the same bank then the whole process is known as IBC. This time an BCA is send to the OBC sending branch.

Clearing the Cheque

Before clearing the cheque we will briefly know about the clearinghouse. A clearinghouse is an institution of credit where reciprocal liabilities of the local bands are counter-balanced against one another. In Bangladesh clearinghouse started about 1972. The clearinghouse sits in BB and covers only Dhaka City Corporation. Clearing House sit for two times in a day.

In course of its business each bank receives from its customers for collection a large number of cheque and drafts payable at other banks. The collection of these instruments presents a big problem. Similarly each bank may have to made payments to other bands in respect of cheque drawn on it and deposited with the other banks for the purpose of collection. Then everyday each bank has to make large payments in respect of cheque drawn on it and held by other banks. And each bank has to receive money in respect of cheque received for collection from its customers. Clearing House provides the mechanism for clearing such transactions between banks. Clearance involves offsetting reciprocal claims against one another and setting merely such balances of differences as remain outstanding.

A Clearinghouse ensures many advantages. In the absence of clearinghouse. each bank has to send its messenger to every other bank, present the cheque and drafts across the counter and collect amount of cash. Similarly, each bank has to pay cash every day for cheque presented across its counter by the other local banks. A clearinghouse prevents frequent and tedious walks by a bank’s employee for the collection of cheque and drafts, the payment of the instruments in cash, and the consequent danger of loss in transit. It thus ensures convenience and economy. Only the differences of the mutual claims are settled and hence the banks can carry lesser cash reserves.

Customers deposit cheque to the bank with the deposit slip. Bank accepts the cheque and gives the following seal­-

• Instantly give cross seal and check the cheque carefully.
• If there is bank name in the cheque then “received payment for the concern bank and branch” seal is given.
• If there is individual name then “payee’s account credit for the concern bank and branch” seal is given.

After the giving all entries into the computer a list of all cheque and bank print out the cheque list. With the print out sheet all cheque are sent to the representative of the bank who will go to the clearinghouse. The Principal Branch of PBL deals with the clearing cheque. That means the Principal Branch is representative of clearinghouse. In the house every representatives delivers to other the cheque and other claims that his bank holds against them. Similarly, he receives from others the claims that they hold against his bank. Cheque and other instruments dishonored are returned to the concerned representative. Each representative adds the amounts receivable and payable and the balance is stuck. Transferring balances kept at the central bank by the members of the clearinghouse makes the final settlement. The customer can get amount within two days after depositing the cheque.

PB presently started a new clearinghouse that is called the “Same Day clearing”. The special features of same day clearing are­

• The amount of cheque must be 5 (five) lacks or more.
• It is effective within the area of one kilometer of BB.
• The customer can get the amount within a day.

After getting the cheque from the Principal Branch the branch identifies the ^–ignored and dishonored cheque. For the honored cheque the branch make payment or credit party account. The dishonored cheques are returned to the ~a”~

Accounts Section

Account Section is the heart of a bank. Because it maintains all accounts of the bank. So, it is very important section. The employee of this section should have sound knowledge in accounting and should have patience. They should work with cool headed. In the Stadium Branch, there are six employees in the account section. All of them are very sincere regarding their tasks. In general they deal with the following three transactions:

1. Cash-cash receive or payment.

2. Clearing-clearing cheque, DD etc.

3. Transfer-transferring amount from one account to another.

After getting the vouchers from the all sections the account section starts its work. So we can say that the end of others sections is the beginning of the account section. Different sections create vouchers and those send to the account section. The employees of the account section firstly separate them into debit and credit. After separation they find out which for cash, which for clearing and which for transfer. Now they write them in the supplementary. They maintain supplementary for different head such as bills payable, banker’s liability, others liability, PBL general account etc. Each supplementary have cash, clearing transfer columns. There are two kinds of supplementary and the are­

1.Debit Supplementary—contains the debited cash, clearing and transfer.

2. Credit Supplementary— contains the credited cash, clearing and transfer.

The add all cash, clearing and transfer separately and transfer them in the rough cash-book or summary sheet. In the rough cash-book both clearing and transferring debit and credit must be equal. But debit and credit of cash may not be equal. One interesting thing is that after adding closing balance of previous day with credit cash balance of that day and adding closing of that day with debit balance then the cash balance of debit and credit must be equal. From that rough cashbook, they finally prepare Cash Cum-Day Book. The peculiar feature of cash cum-day book is that the debited amount of rough cash­book will be credited and credited amount of cash book will be debited in the Cash Cum-Day Book. Besides, from the rough cashbook they make daily affairs. In the meantime, they also are post the amount in the General Ledger and Subsidiary Ledger. The summaries of daily tasks are given below.

They also prepare some weekly, monthly, quarterly, half-yearly and yearly statements.

Weekly Statement:

1. Weekly Affairs.

2. Weekly Return Statement Submission to PB.

General Ledger Posting

Summary of Daily Tasks

Vouchers Come From Different Sections

CreatingSupplementary Separation of Debit and Credit Vouchers

PreparingRough Cash Book

Subsidiary Ledger Posting Preparing Cash cum­-Day Book

Monthly Statement

1. Deposit Statement:

a) Deposit Position.

b) Break Up of Deposit.

c) Deposit by Sector Corporation.

2. Monthly Account Statement:

a) Monthly Profit and Loss Account.

b) Monthly Balance Sheet.

3. Return on SBS-1 Submission to PB.

4. Financial Position Submission to HO.

5. Salary Statement:

a) Salary Statement Submission to Financial Control Division (HO)

b) Salary Statement Submission to Human Resource Division (HO) Statement of Provident Fund (PF).

INVESTMENT DEPARTMENT

The investment decision is the most important of any bank’s three major (investment, financing and asset management) decisions. But it is universally recognized that the most important problem in banking administration is that of investing its deposits and paid up capital in various forms of earning assets. This is also known as the portfolio policy. The bank’s portfolio is nothing but an arranged and digested scheme of its assets. The investment policy of the bank depends on the nature of its funds. If it can acquire funds of a more or less permanent nature, it can acquire more profitable assets. If the funds subject to wide fluctuations, it has to keep a large part of funds in liquid form. It is said that the soundness of a bank is reflected in the distribution of its funds on different types of assets. A good banker is one who follows a wise investment policy that brings maximum profits to shareholders and provides maximum security to the depositors.

No uniform rules can be laid down to determine the portfolio of a bank. The local conditions in which the bank operates will necessarily have a bearing on its investment policy. The nature and availability of funds as also assets differ widely from country to country and also from region to region within the same country. The banks in rural areas face certain problems that are materially different from those of the banks in the urban areas. In rural areas the demand for loans is usually loss. Those difference policy of the bank.

GENERAL PRINCIPLES OF GOOD INVESTMENT

The bank follows the following principles at the time of appraising an investment proposal:

1. Safety: “Safety First” is the most important principle of good investment. When they extend financial assistance they must feel certain that the money will definitely come back. The party is acceptable to the bank who is reliable trustworthy and who has character, capacity and adequate capital of his own. The bank must have confidence in his customers’ integrity and ability to run the business. The investment party must have adequate financial stake in the business. He should neither be over trading nor under trading, nor should he be indulging speculative activities.

Safety of an investment is directly related to the basis on which the decision to provide financial assistance is taken, the type and amount to be provided and the terms and conditions on which the investment will be made available. The bank ensures that financial assistance goes to the right type of entrepreneur and utilized in such a way that it will not only be safe at the time of making investment but will remain go throughout and after serving a useful purpose in the trade industry/agriculture where it is employed, is repaid with profit. The bank ensures the safety of each investment by adapting a two pronged approach­

a. Pre-sanction appraisal to determine the” bank ability” of each investment/financial assistance.

b. Post-sanction controls to ensure proper documentation (before disbursement) and follow-up and supervision of each investment.

2. Liquidity: It is not enough that the money will come back; it is also necessary that it must come back on demand or in accordance with agreed terms of repayment. The party must be in a position to repay within a reasonable time after a demand of repayment is made. This can be possible only if the party for short-term requirements employs the money and not cocked up in acquiring fixed assets. Bankers ensure liquidity of investment in their capacity to deploy the funds in quickly realizable assets and in realizing the funds as per stipulation. Liquidity depends upon the type of investment as to whether the investment is for short-term needs, viz., working capital or for long terms needs viz., term investments for acquiring fixed assets. Some times the bank invests a large portion of money from which return come in but slowly. In this situation the bank is affected seriously in spite of the safety of investment.

3. Profitability: In the commercial banking, profitability is more important because the bank thinks about the safety and commitment given by them to the honorable clients and there is no chance for the loser because the market is very much competitive and the clients will not continue their relationship with bank if they (The Depositors) face loss. For that reason the bank opts for a project that will pay back the investment with maximum profit within the shortage possible time. After meeting all these items of expenditure are reasonable profit must be made, otherwise, it will not be possible to satisfy the depositors, to carry anything to the reserve and pay dividend to the shareholders.

4. Purpose: The purpose should be productive and income generating so that the money not only remains safe but also provides a definite source of repayment. The purpose should also be short-termed so that it ensures liquidity. Bank should not finance for hoarding, speculation, over trading, over trading, antisocial, anti-national, illegal and immoral purposes. As fast as possible, parties are discouraged to take new financial assistance to clear off the old liability.

5. Amount: An important matter for consideration is whether the amount is likely to be sufficient for the given purpose. It should be reasonable in relation to the customer’s own resources. To verify customer’s own resources the bank investigates very carefully.

6. Source of Repayment: The next point upon which information will be required before the bank accedes to a request for recommendation is the source from which repayment is promised. Self-liquidation investments however give little or no trouble.

7. Diversification: Another important principle of good investment is the diversification of investment. An element of risk is always present in every investment, however secure it might appear to be. In fact, the entire banking business is on of taking calculated risks and a successful banker is an expert in assessing such risks. He is keen on spreading the risks involved in providing finance, over a large number of parties, over a large number of trade/industries and areas, and over different types of securities.

8. Security: Security is not only a sort of insurance against risks, but also serves as a hold on the investment parties. Security in excess of investment amount serves as a margin to cover up market falls of securities, storage losses, pilferage etc. Security is to be easily marketable and manageable. Security is to be of adequate value and such value is to be ascertainable.

9. National Interest: Even when an investment satisfies all the aforesaid principles, it may still be not acceptable. The investment may run counter to national interest. There may be credit restrictions imposed by PB. There also may have some of their own strategy of bank on investment decision that may follow during the investment.

Security Cover Risk – is the risk that the realized security/collateral value is less than the exposure. To assess the security risk they do the following things­

• Obtain the type of security.
• Then, they find out expected realizable value at liquidation.
• Then they assess the expected time (in year) taken to liquid this security.
• Next, they calculate the present value of the security.
• Then they identify the potential exposure (limit or outstanding whichever is higher).

• Finally they calculate the security cover in percentage and give comment on it.

Selection of Investment Party

Selection of investment party is very important. A good selection of investment party means the bank is going to get the return. On the other hand, a bad selection of investment party means the bank will not get the return on time. So the banker must be very careful to select the investment party. To select the investment party Lending Risk Analysis (LRA) is very important. Basically the banker depends on the LRA to select the investment party.

LRA is the analysis of different kinds of risks. LRA is the most important for every investment decision. The banker should be careful about LRA. Because, on the basis of LRA, they take decision whether they will invest or not. In the LRA form they analyze the different kinds of lending risks. They have a prescribed form to analyze the lending risk. The bank divided the lending risk mainly in two ways Business Risk and Security Risk. The Figure will show the all-lending risks at a glance.

Business Risk

There are two kinds of business risks – I. Industry Risk and

II. Company Risk.

Industry Risk:

In the industry risk, the bank mainly tries to assess the supply risk and sales risk.

Supply Risk – is the risk that the business suffers from external disruption to the supply of inputs. The price, quantity or quality of supplies may be disrupted. They measure the supply risk by the following ways:

a. First, they obtain cost breakdown (labors cost, raw material, equipment & power, premises and other).

b. Then assess the disruption risk of each item.

c. Next, comment on any significant risk of supply disruption.

d. Finally, assess the risk that the company will be damaged by disruption to its supplies.

Sales Risk – is the risk that the business suffers from external disruption to sales. Sales may be disrupted by changes of market size, increases in competition, switching on to the other competitors. Besides, sales also hamper by changing of regulations or the loss of a single large customer. They assess the sales risk by the following ways:

• To assess sales risk, they first analysis industry turnover for last three years. But in practice they do not do that.
• Secondly, they assess the competitive pressure by analyzing two major competitions (their turnover, profit, working capital, and market share percentage).
• Next, they measure the barriers to entry (in case of new co.).
• Then assess the risk that changes in regulations will damage sales.
• Now assess the risk that single customer responding a significant proportion of sales, switches to a competitor.
• Finally, give their overall assessment of s