Overall Banking System of National Credit and Commerce Bank Ltd.

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Overall Banking System of National Credit and Commerce Bank Ltd. (NCCBL)”

Executive Summary

This work reports on the “Overall Banking System of National Credit and Commerce Bank Ltd. (NCCBL)” and highlights the wide range of banking and financial activities to individuals, firms, corporate bodies and other multi national agencies as well as products and services offered by the bank to its customers in order to maintain quality of service.

Bank activities can be divided into three categories. These are general banking activities, credit or loan advance activities and foreign exchange activities. General banking does the most important and basic works of the bank. It also plays a vital role in deposit mobilization. The efficiency of the general banking activity that provides by each bank reflects the whole service given by that bank. Credit division is the heart of the banking system as is in NCC which is responsible for allowing all the credit facilities given to the potential customers. Lease financing, Micro credit, and cash credit are the most given credits of this bank which plays an important role in expanding lending base and in increasing income. Foreign exchange activities is one of the important and major sources of income of the bank, which gives proper care to serve the importers and exporters of various goods with officers having expertise in the field.

The expressed observation and personal experience on the banking systems. The made necessary recommendation to be adjusted to maintain the organization journey to the excellence according to my viewpoint. To summarize the whole situation, The would like to mention that this organization is trying their best and putting a lot of efforts to standardize the banking system and as per my understanding this bank will definitely progress with the modernization of business environment as time progresses.

In short this report covers all the basic and functional activities about the Overall Banking System of National Credit and Commerce Bank Ltd, (Elephant Road Branch).

INTRODUCTION

1.1 Background of the report:

Academic knowledge is far away from the practical knowledge. It is quite out of reach to practice all the academic aspects in the reality. Sometimes institution is more effective for managerial decision or to continue with the on going global business trend rather than theoretical aspects which are learned in the institution or university. Considering the previous ideas internship is really a praise-worthy program. On the other hand as the would is becoming abridged with the passes of time due to alarming innovation of modern technology and at the same time people are getting radically changed. For security and business reason, it is quite impossible to deal with the day-to-day transaction without extending help of the banking sector. In order to survive in the tremendously competitive banking arena all the banking organizations are looking for better services providing to their clientele.

1.2 Objectives of the report:

Though the main objects of our is to prepare ourselves in such manner as though we can equip ourselves with the practical field and as well as we will be able to know the different aspects of the banking sector & to evaluate how bank is performing in Export and Import sector. Without this we have various objectives that are follows:

• To know the work environment & organizational behavior of the bank.
• To know about the organizational framework of the bank.
• To gather comprehensive knowledge on general banking system.
• To acquire the knowledge about the primary forms of entrance in the international trade i.e., the export-import.
• To acquire the knowledge about the credit system of NCCBL.
• To observe the bank’s involvement in the foreign exchange business, formalities, and activities of the letter of credit (L/C).
• To focus the growth and development of NCCBL.

1.3 Methodology of the study:

The primary data had been collected in various ways. The different sources were:

1.3.1 Primary data sources—

· Face to face conversations with the employees and opportunities were given by the management to work in relevant fields in NCC Bank Ltd.

· By interviewing and interacting customers at NCC Bank Ltd, Dilkusha Branch.

· Practical deskwork.

· Observing various organizational procedures.

1.3.2 Secondary data sources—

· Annual report of the bank

· Newspapers and Internet.

· Bulletin published by the bank

· Previous research books and journals

· Different books about banking

1.4 Scope of the study:

The study was kept limited to Dilkusha Branch, Dhaka. This report focuses on the overview of Management & Organizational structure on the branch. It also covers the overall performance i.e. general credit and foreign exchange department of NCCBL.

1.5 Limitation of the study:

Although I have got co-operation form employee of NCCBL & they also gave me much time to make this report properly in the way of my study, have faced many problems that may be terms as the limitation / shortcoming of the study.

a) Large-scale study was not possible due to time constraints

b) Relevant data and document collection were difficult due to the organization confidentiality.

c) The study was conducted only within the customers of the NCCBL, Dilkusha Branch.

d) The study was limited to the customers of Foreign Exchange Division & general banking division and does not cover the organizational or corporate customers of NCCBL due to the time constraints.

2.1 GENERAL OVERVIEW OF NATIONAL CREDIT AND COMMERCE BANK LIMITED (NCCBL)

National Credit and Commerce Bank Limited is one of the fastest growing bank among all the Private Commercial Banks (PCBs) in Bangladesh. Prior to conversion into a schedule commercial bank, National Credit Limited (NCL) was incorporated as public limited investment company in Bangladesh on 18^th November 1985. It made its journey with a modest beginning on 25^th November 1985 at its registered office and first branch at 7-8 Motijheel commercial area, Dhaka-1000. The initial authorized capital of the company was Taka 30 cores. A new era of opportunities in the field of financial activities was opened for the business. NCL made a careful journey and mentioned its successive growth for new years with its qualified processional management under most unpredictable, unregulated uncertainties and limitations.

The company operated up to 1992 with 16 branches and thereafter with the permission of the Central Bank converted in to a full fledged private commercial bank in 1993 with paid up capital of taka 39 cores to serve the nation from a broader platform.

NCC bank is a progressive commercial bank is private sector in Bangladesh. It creates new opportunities for its clients. It gives customize services and maintains harmonies banker-client relationship. It contributes towards formation of national capital, growth of saving and investment in trade, commerce and industrial sector. It provides different types of commercial banking services to the customers of all strata in the society within the stipulation laid down in the Bank Companies Act-1991, rules and regulations framed by Bangladesh Bank from time to time.

National Credit and Commerce Bank Limited emerged as bank in the country on 17^th May 1993 out of great turbulent situation encountered by erstwhile National Credit Limited. However, the institution survived the ordeals and came out as full-fledge commercial bank.

During last 12 years of its operation NCCBL has acquired commendable reputation by providing sincere personalized service to its customers in a technology-based environment.

2.3 HIERARCHY OF NCCBL

Branch Network:

With the opening of (05) new Branches during the year total number of branches raised to 41 as on 31.12.2005. It is expected that 07 more Branches will be opened within 2006. Necessary steps have already been taken in this end.

2.5 Mission of NCCBL:

They aspire to be the most admired financial institution in the country, recognized as a dynamic, innovative and client focused company, that offers an array of products and services in the search for excellence and to create an impressive economic value.

2.6 Vision of NCCBL:

To be the bank of 1st choice by creating exceptional value for our clients, investors and employees. To become the best Bank of the lead in respect of service, profitability and strength.

2.7 Major Functions of NCCBL

NCCBL is a service original financial institution. The main objective of NCCBL is to satisfy the customer by serving various facilities they as possible. The bank offers different types of quality services to the clients. NCCBL performs the following functions, which are given below:

2.7.1 Deposit services:

Current Deposit Account (CD):

§ No interest is paid against this deposit.

§ Depositor may withdraw money as and when required. Notice is not required.

§ Client is to pay incidental charge twice in a year as per bank prescribed rate.

Savings Bank Deposit Account (SB):

§ SB deposit attracts interest.

§ Client is not at large to withdraw deposit without prior notice.

§ Interest is suspended if withdrawal rule is broken.

§ Withdrawal rule is consisted of number of withdrawal per week/ month and percentage of balance.

Special Notice Time Deposit Account/ Short Term Deposit Account (STD):

§ By nature this deposit is not featured with issuance of chequebook.

§ Depositor requires serve 7 days prior notice to transfer fund to his checking deposit account.

§ STD account allows interest on daily product basis.

Fixed Deposit Account (FDR):

§ This product is very much popular in banking arena for surplus spending unit.

§ This deposit is one way trafficking system i.e. deposit is received for once for specific period and refunded with up-to-date interest on maturity.

§ Premature encashment may resultant loss of interest.

Consumer Banking

NCCBL aim to satisfy all clients, regardless of how big or small they may be. Individuals are counseled on the best type of accounts suitable to them such as Current, Savings, Short Term Deposits, Fixed Deposits, Consumer Asset and Liability Products, etc.

Some of Consumer Products

Apart from the conventional banking operations NCCBL strives to introduce an array of products and services and already launched a number of consumer banking products with the aim of popularizing consumer banking operations and offer higher return to its clients.

Consumer Credit Scheme

In order to make a significant contribution in the living standards of the people of medium and low-income category, NCC Bank has introduced a scheme called “Consumer Credit Scheme”. With a view to materialize the dreams of those who are unable to make one time investment from their own savings, one can now afford to buy necessary household equipments and thus improve the standard of living.

All sorts of household durables e.g. Television, Refrigerators, Computers, Air Conditioners, Video Cameras, Washing/ Drying Machines and Furniture are allowed under this scheme. One can buy Motorcycle too under this programmed.

The collateral security is minimum and the interest rates are one of the lowest in the market.

2.7.2 Credit Service

Banking business essentially involves lending. In fact deposits are accepted for lending or investment. It interest rate ranges from 10% to 15%. NCCBL provides loans and advances in the following sectors:

· Staff Loan HB (House Building)

· Staff Loan Car

· Security Over Draft (SOD) against Financial Obligations (FO)

· SOD General

· Loan against Trust Receipt (LTR)

· Packing Credit

· Lease Financing Scheme (LFS)

· Hire Purchase

· Payment against Document (PAD)

· Cash Credit Hypothecation

· Loan General

· Foreign Documentary Bill purchase (FDBP)

· FDBP (Clean)

· Export development Fund (EDF)

· House Building (Res.)

Secured Overdraft (SOD):

§ Client may get bank credit in the form of SOD against FDR/ Savings Certificate/ ICB Unit Certificate.

§ Loan process time is very negligible.

§ Interest rate is very much competitive. SOD against FDR is allowed @ 12.00% in some of the cases.

§ Client requires arrange necessary lien mark on the instruments in favor of the bank.

§ SOD facility is continuing nature. Client may transact freely within the limit and validity of the credit.

Loan General-Secured:

§ This is one-way trafficking system i.e. client is allowed credit once within the availability of the limit against financial instruments as security.

§ Financial instruments include FDR/ Savings Certificate/ ICB Unit Certificate etc.

§ Disbursement against loan general limit ceases once the debit summation stands equal to the limit.

Cash Credit-Hypothecation:

§ This type of facility is allowed to trading/ manufacturing enterprises against stock-in-trade or account receivables.

§ Stock is maintained under the custody of the borrower.

§ Bank creates hypothecation only on the stock against which credit is allowed.

§ For comfort bank may obtain landed property as collateral security.

Cash Credit-Pledge:

§ This type of facility is allowed to trading/ manufacturing enterprises against stock-in-trade or account receivables.

§ Stock is maintained under the custody of the bank.

§ Bank creates charge in the form of pledge on the stock against which credit is allowed.

Term Loan-Industrial:

§ This type of credit is allowed to facilitate an entrepreneur to set up an industry or undertake BMRE scheme of the existing unit.

§ This facility is allowed usually for 3 to 5 years.

§ Repayment is made by the loanee through number of installments as per agreed repayment schedule.

Letter of Credit-Cash:

§ This type of facility is allowed to assist towards import/ procure raw materials/ trading goods.

§ Bank undertakes to pay the L/C value to the exporter/ supplier on behalf of its client.

§ This type of credit has made the world trade easier.

Letter of Credit-Back to Back:

§ This is one of the convenient types of the credit for Readymade Garments Industries.

§ Back-to-Back L/C is opened against export L/C for importing/ procuring fabrics and accessories.

§ Back-to-Back L/C payment is settled from export proceeds on due date.

Clean Bill Purchased:

§ The client having exceptionally good track record is allowed bank credit for a temporary period in the form of Clean Bill Purchased against DD/ PO/ Gov’t Cheque under collection.

Documentary Bill Purchased-Inland:

§ The documents presented under Inland Back to Back L/C and duly accepted by the issuing bank are purchased under the head of Documentary Bill Purchased-Inland towards financing the deemed exporter.

Documentary Bill Purchased-Foreign:

§ The documents presented under Export L/C may be financed in the form of Documentary Bill Purchased-Foreign if the documents are inconformity with the terms and conditions of the L/C.

2.7.3 Customer Service

NCCBL is always busy in serving to the customer in the best way. One of their greatest assets is the trust of its customers. NCCBL has the following arrangement of remittance with in the country-

· Informing information provided by the bank in every desk

· Account Opening

· On Line Banking Facilities

· Pay order issue

· Telephonic Transfer (TT)

· Demand Draft (DD) issue

· Account Transfer Facilities

· Solvency Certificate issuing

· Locker Service

· Letter of Credit (L/C)

· Traveler cheque issue

· Capital Formation

Locker Service:

§ The clients are in anxiety with their valuables may take the service of Locker Facility from NCC Bank Ltd.

§ Clients may safely deposit/ keep their valuables say, property deeds, ornaments etc. under Locker Service arrangement.

Foreign Trade:

§ Foreign trade department is dedicated to serve the people engaged in importing and exporting. Foreign trade service includes L/C opening, Export Documents negotiation/ purchase, counseling etc.

Remittance-Local:

§ Bank renders its services to its clients transferring fund from one place to another around the country in the form of TT/ MT/ DD/ PO etc. to subside the risk of carrying cash.

Remittance-Foreign:

§ Foreign remittance includes FTT/ FDD/ TC etc. This type of service enables the client to receive fund from outside the country or vice-versa.

2.7.4 Organogram of Dilkusha Branch:

Foreign Exchange

b. Post Import Financing (LIM, LTR etc)

c. Import collection services & Shipping Guarantees

Export Business

b. Pre-shipment Export Financing

c. Export documents negotiation

d. Letters of Credit confirmation

Foreign Exchange may be defined as the system or process of converting one national currency with another and to transfer money to one country to another. Though there is a general concept of foreign exchange, which means the exchange of currencies but the term foreign exchange has various meaning. “Something of it in a more or less abstract sense as process of setting obligation between individuals and firms residing in different countries: other things of it comprising the facilities available for the settlement of such obligation: and still others regard it as a synonym for transaction in foreign money.”

In terms of section 2 (d) of the Foreign Exchange Regulation Act, 1947 as adapted in Bangladesh, Foreign Exchange means foreign currency and includes all deposits, credits and balances payable in foreign currency instruments such as draft, T.Cs, Bills of Exchange, Promissory notes and letter of Credit payable in any foreign currency.

3.1 Exchange Control and its objectives

Exchange control was first introduced at the out-break of the world war 2 in 1939 in the then British India with the intention of controlling dealings in foreign securities, gold and silver bullion. Exchange control as web now understand it, is used as a weapon for acquisition by the government of all foreign exchange earned by its residents for its accumulation into a Central Pool and rationing of these holdings in the pool for such purpose as the government may consider essential in the larger interests of the country.

The main objectives behind the introduction of exchange control were for the purpose of conserving and directing to the best uses the limited supplies of foreign exchange available. The preamble to the Act provides that it was

“expedient in the economic and financial interests of Bangladesh to provide for the regulation of certain payments, dealing in foreign exchange and securities and import & export of currency and bullion.”

3.2 Foreign Exchange Regulation Act, 1947

In Bangladesh Exchange Control is administered by Bangladesh Bank in accordance with the provisions of F.E.R. Act, 1947 through its exchange control department. All foreign exchange transactions in Bangladesh are therefore; subject to exchange control regulations issued from time to time by the exchange control depart of Bangladesh Bank. The principal office of the department is situated at Dhaka having branch offices at Chittagong, Khulna, Rajshahi, Bogra and Sylhet. All these exchange control offices have their respective jurisdictions and the A.D branches of the bank falling within the jurisdiction of each exchange control office, are required to report their foreign exchange transactions to the concerned area office of the exchange control department.

3.3 Importance of foreign exchange business in our country

q International trade gives exchange opportunity of goods.

q Consumers get privilege through international trade.

q International trade helps to produce domestic production as well as global production.

q Natural assets of a country are to be utilizing property.

3.4 Authorized Dealership

The bank, which is authorized by Bangladesh bank for dealing foreign exchange business on transaction under the FER Act-1947, is called Authorized Dealership. NCCBL, Dilkusha Branch is one of the Authorized Dealership Branch of NCCBL.

3.5 Letter of Credit (L/C):

Letter of Credit (L/C) is an agreement between an importer and a bank (issuing). The bank to the importer provides letter of credit in order to purchase goods from the exporter. The bank acts on behalf of the clients to deal with the exporter and clients make the payment after receiving the goods accordingly. It is one of modern credit facility that provides assurance, that exporter of goods will receive his payment from importer. Subject to the condition that the beneficiary exporter submits documents conforming to the term of L/C. It contains a brief description shipping date and the expiration date after which the payment will no longer be made. This type of letter is issued by commercial bank.

3.6 Types of Documentary Letter of Credit:

3.6.1 Revocable credit:

This type of credit can be revoked or cancelled at any time without the consent of, or notice of the beneficiary. As per article 8 (a) of UCPDC 500 “A revocable credit may be amended or cancelled by the issuing bank at any moment and without prior notice to the Beneficiary”.

3.6.2 Irrevocable credit:

The Irrevocable credit is a commonly used type of documentary credit. The credit which cannot be revoked, varied or changed/amended without the consent of all parties- buyer (applicant), seller (Beneficiary) Issuing Bank and confirming Bank (in case of confirmed LC).

3.7. Types of Special Letter of Credit (L/C):

· Revolving L/C:

· Transferable L/C.

· Confirmed L/C.

· Back-to-Back L/C.

· Red clause L/C.

· Green clause L/C.

Transferable L/C:

The Original beneficiary when request the banker in writing to effect transfer the L/C to the secondary beneficiary, the signature of the original beneficiary on the letter of request must be verified by his banker. The L/C can be transferred only the terms and conditions specified in the original credit.

Red Clause L/C:

A red clause credit is a credit with a special clause incorporated into it that authorizes the advising bank or confirming bank to make advances to the beneficiary before presentation of documents. A red clause is used, for example, by a wool importer in England to enable a wool shipper in Australia to obtain funds to pay the actual suppliers by direct purchase by obtaining a loan from the Australian bank.

Green Clause L/C:

A green Clause Credit is a credit with a special clause incorporated it to it that which not only authorizes the advising bank to grant pre-shipment advances but also storage cost for storing the goods prior to shipment. It is useful in situations where shipping space is not readily available, i.e. some African countries. It is so called because the clause was originally written in green ink to draw attention to the unique nature of this credit. At present this type of credit is not in use.

3.8 The Clauses Contained in a L/C:

– A clause authorized the beneficiary to draw bills of exchange up to a certain on the opener.

– List of shipping documents, which are to accompany the bills.

– Description of the goods to be shipped.

– An undertaking by the issuing bank that drawn in accordance with the conditions will be duly honored.

– Instructions to the negotiating bank for obtaining reimbursement of payments under the credit.

3.9 Parties involved in a Letter of Credit:

Importer/Buyer

Opening Bank

Exporter/Beneficiary

Advising Bank

Negotiating Bank

Conforming/reimbursing Bank

3.9.1 Importer/Buyer

Importer/Buyer is the party who opens L/C on behalf of exporter by issuing bank.

3.9.2 Opening/Issuing Bank

Opening/Issuing Bank is the bank which opens or issues a L/C on behalf of the importer. It is also called the importer’s /buyer’s bank.

3.9.3 Exporter/Beneficiary

Exporter/Beneficiary is the party in whose favor the L/C is established.

3.9.4 Advising Bank

Advising Bank is the bank through which the L/C is advised to the exporting country & it may be a branch of the opening bank or a correspondent bank. It may also assume the role of conforming and/or negotiating bank depending upon the conditions of the credit.

3.9.5 Negotiating Bank

Negotiating Bank is the bank that negotiates the bills & pays the amount to the beneficiary. It has to carefully scrutinize the documentary credit before negotiating in order to see whether the documents apparently are in order or not. The advising bank & the negotiating bank may or may not be one & the same.

3.9.6 Reimbursing Bank

Reimbursing Bank is the bank, which would reimburse payment/claim to the negotiating bank. It is to be nominated by the issuing bank.

3.10 IMPORT SECTION

3.10.1 Import procedure of NCCBL:

As per Import & Export control Act-1950 no person can indent, import or export any goods in to Bangladesh except incase of exemption issued by the government of the Peoples Republic of Bangladesh. So for doing import business at first every importer should obtain Import Registration Certificate.

3.10.2 Procedure for obtaining IRC:

Through public notice or import policy the chief controller of import and exports invites application usually for registration of importers. The following papers/documents are required for submission to CCI & E for Import Registration Certificate.

· Application form.

· Nationality Certificate.

· Income tax registration certificate with TIN.

· Trade license.

· Membership Certificate.

· Partnership Deed (for partnership firm).

· Certificate of Registration with the register of joint Co. & Articles and Memorandum of Association in case of limited company.

· Bank Certificate.

The nominated of the applicant will examine the papers/documents and verify the signature of the applicant and forward the same to the concerned office of the CCI & E with a ford wing schedule in duplicate though bank representative. The duplicate copy of the same bearing the acknowledgement of CCI & E office of the receipt of the document is received by the bank and is preserved.

3.10.3 Basis of Import:

– Proforma Invoice.

– Indent.

– Special trade agreement.

– Sales Contract.

– Barter system.

3.10.4 Role of Letter of Credit in the Import Procedure of NCCBL:

A letter of credit is a letter is issued by a bank (issuing bank) at the request of its client addressed to a person (beneficiary) under taking that the bills drawn by the beneficiary will be duly honored by the issuing bank providing certain conditions mentions in the letter.

3.10.5 Importer’s Application for L/C limit/margin:

To have an import L/C limit, an importer submits an application to NCCBL. In that application he/she gives full detail of the following:

· Full particulars bank accounts.

· Nature of business.

· Required amount of limit.

· Payments terms & condition.

· Goods to be imported.

· Offered security.

· Repayments schedule.

A credit officer scrutinizes this application & accordingly prepares a proposal & forward it to the head office credit. The committee, if satisfied, sanctions the limit & returns back to the branch. In this manner the importer is entitled for the limit.

3.10.6 The L/C Application:

NCCBL provides a painted form for opening of L/C to the importer. A special stamp is attached on the form. While opening the stamp is cancelled. The importer gives the following information is that form:

• Full name and address of importer.
• Data and place of expiry of the credit.
• The mode of transmission of document (courier/mail/telex)
• Whether the conformation of the credit is requested by the beneficiary or not.
• Whether the partial shipment is allowed or not.
• The type of loading (loading on boarding).
• Brief description of the goods to be imported.
• Availability of the credit by sight payment acceptance/differed payment.
• The time bar with in which the document should be presented.
• Sales terms (FOB/CIF).
• Account number.
• L/C amount.
• Shipping mark.
• H.S code number of the goods to be imported.
• IRC number.
• LCA number.
• Insurance cover note.
• Country of origin.

The above information are given along with the following documents:

· Proforma Invoice, which gives description of the goods including

· Quantity, unit price etc.

· Four set of IMP form.

· The insurance cover note, issuing company & the insurance number.

3.10.7 Scrutinizing of L/C application

The officials of NCCBL scrutinize the application for the following reason:

• The terms and conditions of the L/C must be complied with exchange control & Import trade regulation.
• Officers examine whether the goods to be imported are legal.
• The L/C must not be opened in favor of the importer.
• Radioactivity report in case of good item.
• Survey report or certificate in case of old machinery.
• Goods and carrying vessel form all the countries in the world except is real.
• Certificate declaring that the item is in operation not more than five years in case of vehicles.
• To see whether the application is signed by the importer.
• Indenting registration number.
• Insurance cover note with date of shipment.
• Whether IRC updated or not.
• Whether IMP form dully signed or not.

After scrutinizing the application if the officer(s) agrees to open a letter of credit, the following entries are given to realize the L/C commission, charge, postage, L/C margin:

Client’s a/c ———————————————Dr.

Sundry deposit margin on L/C ——————————-Cr.

Sundry deposit margin foreign currency clearing a/c——Cr.

Income a/c commission —————————————Cr.

Income a/c (postage telex) ————————————-Cr.

After that, L/C number & above entries are given in the L/C register. The contra entries stating the liability of the bank & the clients are as follows:

Client’s liability ————————-Dr.

Banker’s liability————————Cr.

This entry constitutes contra (asset & liability simultaneously) on the banks balance sheet.

3.10.8 Transmission of L/C:

The way of transmission of L/C are as follows:

I. Through SWIFT

II. Through Telex

III. Through DHL or FEDEX

IV. Through Emergency Mail Service (EMS)

3.10.9 Amendment of Letter of Credit:

Parties involved in a L/C, particularly the exporter & cannot always satisfy the terms & conditions in full as expected due to some unexpected reason. In such a situation, the credit should be amended. NCCBL transmits the amendment by tested telex to the advising bank. In case of revocable credit, it can be amended or cancelled by the issuing bank at any moment & without prior notice to the beneficiary. But in case of irrevocable L/C, it can neither be amended nor cancelled without the agreement of the issuing bank, the advising bank & the beneficiary. If the L/C is amended, service & telex charge is debited from the party account.

3.10.10 Presentation of the documents:

After the exporter/seller is being satisfied with the terms & conditions of the credit, he/she then proceeds to dispatch the required goods to the importer/buyer. Then he or she has to present the documents evidencing dispatching of goods to the negotiating bank within the stipulated expiry date of the credit. After receiving the documents, the negotiating bank checks

them against the credit. If the documents are found in order, the bank will negotiate to the issuing bank, in our case with NCCBL also checks the documents. The usual documents in a letter of Credit are the following:

· Bill of Exchange.

· Commercial Invoice.

· Packing List.

· Bill of lading.

· Certificate of Origin.

· Pre-shipment Inspection Report.

· Insurance Cover Note.

· Shipment Certificate.

3.10.11 Examination of Documents:

The documents generally include the following & the main point of checking by NCCBL is:

3.10.11.1 Letter of Credit

· Whether the documents have been negotiated or presented before expiry of the credit.

· Whether the amount drawn exceeded the amount available under the credit.

3.10.11.2 Bill of Exchange/Draft

· Whether the draft bears the current reference number or not.

· Whether the signature and the name of the Drawer Corresponds with the beneficiary.

· Whether it is drawn on the correct Drawee.

· Whether the amount in figures corresponded exactly with the amount in word.

· To see whether the Draft properly prepared according to the credit

· Conditions (on the site or time basis) & drawn on the specified bank.

· Whether it is properly dated or not.

· Whether the amount in the Draft is same as that of the Invoice amount.

3.10.11.3 Commercial Invoice

· Whether the beneficiary of the credit issues it.

· To ensure it is not titled proforma or provisional invoice.

· Whether it is made out in the name of the buyer with the same address specified on the credit or not.

· Whether the details of the goods, prices & terms as mentioned in the L/C are included in the invoice.

· To see other information supplied in the invoice, such as marks, members, transportation information etc. is consistent with that of the other documents.

· Whether the currency of the invoice is the same as that of the L/C.

· Whether the value of the invoice correspondent with that of the draft.

· To see whether the value of the invoice has exceeded the available balance of the L/C or not.

· Whether the invoice covers the complete shipment as required by the L/C.

· To ensure the correct number of original & copy is presented.

3.10.11.4 Certificate of origin

· To ensure it is a unique document & not combined with any other document.

· To check whether it is signed & notarized as required by the L/C or not.

· To ensure the country of origin is specified & it meets the requirements of the letter of credit.

· Checking whether the data on its consistent with that of the other documents or not.

3.10.11.5 Packing List

· To ensure that it is a unique documents & not combined with any other document.

· Whether it corresponds with the requirements of the L/C. A detailed packing list required a listing of the contents of each package, carton etc & other relevant information.

· To check whether the data on it is consistent with that of the other documents.

3.10.11.6 Bill of Lading

· Whether the provision of the UCPDC been observed.

· To ensure the bill of leading has been made out in the prescribed form.

· Whether it is enclosed (if required)

· Whether the detail of the package units (B/L number, marks and weight) are consistent with the other documents.

· Whether the B/L is properly signed.

· To ensure there is no contradiction between the notation on freight payment & the payment terms (Freight prepaid, CFR, CIF etc)

· To ensure the shipped on board notation is present on the B/L.

3.10.11.7 Insurance cover note

· Whether the insurance documents specified in the credit submitted.

· Does the insurance cover the risk mentioned in the credit the currency of the credit & of the prescribed amount not less than CIF value.

· To ensure that the insurance documents dated not later than the shipping documents.

· To check whether the insurance policy agree with other document as regards description, weight & marks of the goods, mode of transport & the route.

3.10.12 Common discrepancies in Import Documents:

Most common discrepancies that are found in import documents are given below:

I. Wrong tenor shown in the Bills of Exchange.

II. Partial shipment is beyond L/C limited /terms.

III. Insufficient number of Commercial Invoice.

IV. Unsigned document.

V. Description of the goods is not consistent with that of L/C.

VI. Submission of documents after expiry of Letter of Credit.

VII. Some important documents are not presented.

Any major discrepancy found in the document it is immediately informed to be Importer for his opinion. If discrepancies are not that fatal, then they are over looked.

3.10.13 odgment & Retirement of Shipment Documents

Documents must be lodged within 7 days and examine the same whether document in order or not.

The exporters of Bangladesh follow the whole procedure. Necessary papers that the exporter sends with the shipment are:

a) Commercial Invoice

b) Packing list

c) Bill of Lading

d) Certificate of original goods

e) Weight and measurement list

f) Other paper that the importer asked.

It is found that the documents have consistency with the terms written in L/C, then the documents are lodged in PAD & the following vouchers are prepared:

1. Sundry deposit L/C margin a/c —————Dr

PAD a/c —————Cr

(Margin amount transferred to PAD a/c)

2. Customer a/c————————————Dr

PAD a/c ————————————Cr

(Customer accounts debited for the remaining amount)

3. PAD a/c ————————————-Dr

H/O general a/c ———————————Cr

Interest a/c ————————————-Cr

(Amount given to head office ID & Interest credited)

Reverse entry:

Banker’s liability a/c ————————–Dr

Customer’s liability a/c————————–Cr

(After the lodgment is given)

After realizing the telex charge, service, interest & the shipping document is then stamped with PAD no. & entered in the PAD register. After repairing the necessary vouchers, endorsement is made on the bank of the B/E as received payment & the B/L is endorsed as please delivery to the order of M/S—– under two authorized signature of NCCBL’s officers (P.A. holders). Then the documents are given to the Importer.

3.10.14 Payment Procedure of Import Documents:

Payment procedure of NCCBL involves the following tasks:

3.10.14.1 Date of Payment

Usually payment is made within seven days after the documents have been received. If the payment is deferred, the negotiating bank may claim interest for making delay.

3.10.14.2 Preparing Sale Memo

As sales memo is made at B.C rate to the customer. As the T.T & O.D rate is paid to the ID, the difference between these two rates is known as Exchange Trading. Then an Inter Branch Exchange Trading Credit advice is sent to Inter ID.

3.10.14.3 Requisition for the Foreign Currency

For arranging necessary fund for payment, a requisition is sent to the ID.

3.10.14.4 Transmission of Telex

A telex is transmitted to the correspondent bank ensuring that payment is being made.

3.10.15 Processing of L/C proposal:

1. Name and Address of the party.

2. Name and Address of the government.

3. TIN and IRC Number.

4. Date of opening of accounts.

5. Turnover in CD account.

6. Amount of L/C applied.

7. Commodity to be imported.

8. Branch’s total exposure on the proposal item.

9. Branch’s total exposure (Total outstanding on account of the party).

10. Name and Address of the beneficiary.

11. Status reports on the beneficiary.

12. Country of origin.

13. Mode of shipment.

14. Shipment Validity.

15. Margin proposed by the party.

16. Margin recommended by the branch manager.

17. Past performance of the party.

18. Present liabilities position of the party in its own name and on account of sister concerns:

– L/C Liabilities

– PAD Liabilities

– LIM Liabilities

19. Landed cost (of the item to be imported)

20. a) Landed cost per unit

b) Market price per unit

21. Retirement of documents.

22. Business worth / ability of the applicant.

23. Branch manager recommendation.

3.10.16 Approval / Sanction of L/C Proposal:

1. Name of Importer and address.

2. Name of Guarantor and address.

3. Amount of L/C Approved.

4. Margin to be retained in cash

5. Import finance (Amount)

6. Item (Goods to be imported)

7. Commission.

8. Other term & condition:

a) Approval valid for 1 month.

b) Security i.e. B/L & charge documents to be obtained.

c) Interest on PAD/LTR/LIM @ 15% per annum.

d) 15% Vat to be realized on L/C commission.

e) Fluctuation in exchange rate will be borne by importer

3.10.17Various steps involve in the operation of letter of credit:

1. The importer and exporter have made a contract before a L/C is issued.

2. Importer applies for a letter of credit from his banker known as the issuing bank. He may have to use his credit lines. If he is a new customer, margin deposit may be required: e.g. 20% deposit on credit amount.

3. Issuing bank opens the L/C, which is channeled through its overseas corresponding bank, known as advising bank.

4. Advising bank informs the exporter of the arrival of the L/C.

5. Exporter ships the goods to the importer or other designated place as stipulated in the L/C.

6. Meanwhile, he prepares his own documents and collect transport documents or other documents from relevant parties. All these documents will be sent to his banker, which is acting as the negotiating bank.

7. Negotiation of export bills happens when the banker agrees to provide him with finance. In such case, he obtains payment immediately upon presentation of documents. If not, the documents will be sent to the issuing bank for payment or on an approval basis as in the next step.

8. Documents are sent to issuing bank (or reimbursement bank which is a bank nominated by the issuing bank to honors reimbursement form negotiating bank ) for reimbursement or payment.

9. Issuing bank honors it’s undertaking to pay the negotiating bank on condition that the documents comply with L/C terms and conditions.

10. Issuing bank releases documents to importer when the letter marks payment to the former or against the letter’s trust receipt facility.

11. The importer takes delivery of goods upon presentation of the transport documents.

3.10.18 Diagrammatic explanation of various

Steps in the operation of a letter of credit

3.10.19 Import Financing:

3.10.19.1 PRE- IMPORT FINANCING:

Secured Overdraft (SOD): Advance allowed in foreign currency for opening L/C to import goods, fall under this type of lending. This is also an advance of temporary period, which is also known as pre-import finance.

PAD (Payment Against Document):

Payment against lodgment of shipping documents of goods, imported through L/C falls under this head. It is a term advance connected with import and is generally liquidate shortly against payment, usually made by the party for retirement of documents to release goods from customer authority as payment has to be made within 7 days after the documents have been received and negotiating bank may claim interest for making delay.

3.10.19.2 POST-IMPORT FINANCING:

If there is no available in cash in importer’s hand