Overview of Bangladesh Shilpa Rin Sangstha
Historical Background:
Bangladesh Shilpa Rin Sangstha is one of the Development financing Institutions in Bangladesh. It is a specialized or development bank. It is a nationalized scheduled bank. Bangladesh Shilpa Rin Sangstha is working relentlessly for the industrial development of Bangladesh. Besides industrial baking it has also merchant and commercial banking.
The Bangladesh Shilpa Rin Sangstha came into existence under the Bangladesh Shilpa Rin Sangstha Order, 1972 known as Presidential Order No. 128 of 1972 by combining the assets and liabilities of three organizations-
Pakistan Industrial Credit and Invested Corporation Limited (PICIC), which was called Bangladesh Industrial Credit and Invested Corporation Limited from 16th December, 1972.
Investment Corporation of Pakistan (lCP), which was called Investment Corporation of Bangladesh from 7th January, 1972.
National Investment Trust Limited (NITL) in Bangladesh.
The order was promulgated on 31st October, 1972 and given immediate effected. Then at 16thMarch in 1987, Investment Advisory Center of Bangladesh (IACB) merged with BSRS.BSRS has one commercial branch and one corporate branch. Pursuant to Memorandum of Understanding(MOU) between The Government of Bangladesh(GOB) and the donor agencies (IDA, ADB, KFW, and UNDP) signed on March 02,1985 the activities of BSRS were limited to providing financial assistance mainly for Balancing, Modernization, Replacement and Expansion(BMRE)of the industrial units in the portfolio and recovery of loan. The Government subsequently lifted up in 1995 the embargo on the new financing allowing BSRS to carry on its activities as a full-fledged development financing institution with resumption of lending to new projects. BSRS has also been accorded permission to start commercial banking operation. BSRS has its own order which is the operational guideline for BSRS named “Bangladesh Shilpa Rin Sangstha Order1972”.
Objectives of BSRS:
BSRS is one of the important nationalized Development Financial Institutions in Bangladesh. Like all other Development Financial Institutions its main objective is to provide credit facilities and other assistance to industrial concerns and encourage and broaden the base of investment in Bangladesh. The major objectives of the Sangstha have been given bellow:
01.To stimulate the development of the country by providing credit facilities and other assistance for establishment of new industries as well as for balancing, modernizing, replacement and expansion of existing industries in the public & private sectors.
02. To provide financial assistance in both local & foreign currencies for projects which are economically viable, technically feasible and financially sound and socially desirable.
03. To assist prospective entrepreneurs in identification of projects and formulation of project proposals with a view to promoting export-oriented and import-substituting projects.
04. To accord priorities in the financing of projects in less developed areas of Bangladesh.
05. Participate in industrial development of the country by providing credit facilities to the public & private sector.
06. Make the base of investment in Bangladesh.
07. Give all types help, assistance and advice to industrial sectors.
08. Increase the investment at Bangladesh.
09. Give technical & financial facilities to the industrial sectors.
10. Try to set up industries in developed and non-developed areas in Bangladesh.
11. Help to eradicate unemployment from the society by creating entrepreneur ship
12. Play a great role in economic development.
13. Contribute to GDP of the country.
14. Modernizing the industrial sectors of Bangladesh.
Organizational Structure of BSRS:
The board of directors of BSRS is appointed by the government of Bangladesh which includes Chairman, Managing Director and Three Directors. The Managing Director (MD) and the General Managers (GM) who are also appointed by the government are responsible for running day to day activities of the bank. The MD acts as the Chief Executive Officer (CEO) of the bank and four GMs are in charge of four divisions:
Project Approval & Implementation Division
Recovery & Law Division
Finance & Accounts Division
Human Resources & Service Division.
These four divisions has 18 departments with 6 DGM .At present total number of employees stand at 239 of which 117 arc officers and 122 arc staffs/non officers.
Management Hierarchy of BSRS:
Chairman
General Managers
Deputy General Managers
Assistance General Managers
Senior Principal Officers
Principal Officer
Senior Officers
Joint Officers
Training of Personnel:
BSRS emphasizes on participation of its employees on various training program for the improvement of their skill and professional competence. During the FY 2004-2005, 22 officers and BSRS executives attained different courses organized by various local training institutions.
Committee and Group Decision Making Process:
There are two committees functioning in BSRS
Policy Committee
Executive Committee
Policy Committee:
Committee members are the Board of Directors. The general policy, direction and administration of the affairs and business of the Sangstha are vested in the Board of the Directors.
Executive committee:
The executive committee consists of the senior Executive of the Sangstha. The Managing Director is the Chief Executive Officer and conducts the day to day business of the Sangstha.
Functional Structure of BSRS:
BSRS has 17 operational departments under 4 divisions at its head office in Dhaka. It has one commercial banking branch at Motijheel Commercial area, Dhaka and a corporate branch in Karwan Bazar Commercial area at BSRS own building. Motijheel commercial branch has started its ooperation on May04 in 1997 and Karwan Bazar corporate branch has started its operation from October 29, 2000. However each operational department is headed by one Assistant General Manager. These departments are
Human Resource Department
Service and Real Estate Department
Project Approval Department
Project Implementation Department
Law Department-1
Law Department-2
Recovery Department-1
Recovery Department-2
Loan Classification cell
Loan Account Department
Investment Banking Department
Central Account Department
Audit and Inspection Department
Public Relation Department
Board Department
Management Information System and Computer Department
Branch Control and International Department
Operational Activities of Sangstha:
Bangladesh Shilpa Rin Sangstha is one of the specialized banks in Bangladesh. It is a Development Financial Institution(DFI). It was established on October31 in 1972 under the BSRS Order 1972 to provide credit faci1ities and other assistance to industrial concerns and encourage and broaden the base of investment in Bangladesh. This Sangstha is deemed to be a banking company.
At present Bangladesh Shilpa Rin Sangstha is dealing with major three activities as operation which are treat as three wings are mentioned below:
Industrial Banking
Merchant & Investment Banking
Commercial Banking
A. Industrial Banking:
Bangladesh Shilpa Rin Sangstha(BSRS), as state owned DFI, is guided by national policies likes Industrial policy. Main function of Bangladesh Shilpa Rin Sangstha is to give loan and other assistance to industrial concerns. BSRS gives term loan to the sponsors by different forms. The forms are –
Medium or Long Term Loan:
Bangladesh Shilpa Rin Sangstha gives medium and long term loan to the borrowers. Loan may be for five years or more than five years. If
Time of Loan ? 5 years then Long term Loan or
Time of Loan ? 5 years then Mid term Loan.
BSRS does not give short term loan to the sponsors. For these loan the terms & condition for sanction, disbursement and repayment are made between the sponsors and BSRS.
Giving Whole Amount or in Consortium:
From the beginning BSRS gives loan to the concerns alone. Here whole amount of loan is given by the bank. So the lending bank bears all the risks. To diversify the risk Bangladesh Bank gives permission to make Consortium Banking. BSRS is the pioneer of this Consortium Banking. According to Bangladesh Bank policy BSRS now is giving loan with other banks. This process is called Syndicate Financing / Club Financing / Consortium Banking. Here BSRS is co-financier with other Development Financial Institutions / Banks. Here one bank will be the lead bank and other banks & financial institutions will give loan to sponsors at a proportionate rate. They will get back the principal and interest at that proportionate rate.
In case of own financing agreement is made between the bank & sponsors. But in case of syndicate financing agreement is made between the banks & the lead bank and the sponsors: When the loan amount is more than tk.100.00 million, then banks may make consortium financing. For monitoring of all banks here risk is low for all the banks. At now BSRS has four(04) consortium projects.
New Loan or BMR&E Loan:
Bangladesh Shilpa Rin Sangstha gives loan for setting up a new concerns. With this it also gives Balancing, Modernization, Replacement and Expansion( BMR&E) loan to existing concerns on selective basis.
B. Merchant and Investment Banking:
To develop capital market by encouraging small investors and also by assisting the issuers of securities, the bank undertakes Merchant Banking Operation. By Investment Banking BSRS becomes an intermediary between the investor and the issuer.
The activities of this section are –
Direct underwriting of shares
Underwriting bridge loan
Debenture loan
Banker to public issue
Mutual fund
Investment Banking Activities:
BSRS is an active member of Dhaka Stock Exchange Limited. The Sangstha has been playing important role to develop the capital market in the country as an institutional investor. During 2005-06 the Sangstha invested tk.182.43 million by purchasing shares of 85 companies from Primary & Secondary market. At the same time the Sangstha sold shares of 10 listed companies amounting to tk.35.11 million in the secondary market and shares of one Non-listed company amounting to tk.1.11 million out of the stock exchange. The Sangstha earned tk.27.71 million as capital gains and dividend from investment.
Investment Portfolio:
At the beginning of the FY 2005-06 BSRS had securities of 196 companies costing tk.460.26million in its investment portfolio. As on 30th June, 2006 investment of the Sangstha in securities of 208 companies stood at tk.565.33 million. It is mentionable that the investment in shares of listed companies was tk.489.24 million as on June 30, 2006 the market value of which was tk.758.48 million indicating capital appreciation by tk.296.24 million.
Mutual Fund Activities:
BSRS floated a” closed end” Mutual Fund in 1996 with a paid-up capital of tk.50.00 million. The Fund is a regular source of steady income for the certificate holders. The Fund declared 7% dividend for the year 2004-05.
C. Commercial Banking:
Bangladesh Shilpa Rin Sangstha started its Commercial Banking Operation in May, 1997. With a view to mobilize funds to augment its income through a wide range of activities. Currently the commercial banking operation are directed towards
deposit mobilization
issue of pay order
fixed deposit receipt
sale and purchase of ICB Unit Certificates, Saving Certificates, prize bonds etc.
Moreover consumer credit and SOD facilities are provided through commercial banking branches. In addition to that foreign exchange business is carried out in a limited scale by Motijheel branch. It may be mentioned that customers deposit of the two commercial banking branches stood at tk.250.64 millions as on June 30, 2006 The Sangstha is playing its role as banker to the public issue through its commercial banking branches.
Current Deposit and other account for last two year are:
| Particulars | June30, 2006
(TK.) |
June30, 2005
(TK.) |
| Current deposit | 2270668 | 575021 |
| Deposit pension scheme | 6433062 | 8275085 |
| Security deposits | 3954542 | 3960791 |
| Sundry deposits | 268535 | 1890744 |
| L/C margins deposits | – | – |
| Margin on Bank guarantee | 412068 | 412060 |
| Investor’s deposits | 6877086 | 6646259 |
| Earnest money | 72200 | 343627 |
| Total | 20288161 | 22103587 |
Financial Position of BSRS
Capital and Resources:
At present the resources of BSRS consist of local currency funds only. Since 1985, BSRS has not received any foreign currency fund. Prior to 1985, foreign currency funds were the lines of credit channeled by the Government from various international and regional lending agencies. The foreign currency resources were also augmented by negotiating direct credit lines from different foreign countries and but borrowing foreign currency from the Government or any bank or financial institution. The local currency fund of BSRS consists of paid up capital, reserves created out of profit, customer’s deposits and borrowings from Government.
Authorized capital and paid up capital of BSRS are Tk.2000.00 million and Tk.700.00 million respectively. Total equity of BSRS as on June 30, 2006 stood at Tk.2382.59 million including reserves and surplus.
The resources position of BSRS as on June 30, 2006 is shown below:
Resources As on 30 June, 2006 (Tk. In million)
| Source | 2006 | 2005 | 2004 |
| Paid up Capital | 700.00 | 700.00 | 700.00 |
| Reserves | 1682.59 | 1566.70 | 1492.95 |
| Borrowings | 65.70 | 73.00 | 80.30 |
| Deposits | 317.87 | 393.78 | 153.94 |
| Total | 2766.16 | 2733.48 | 2427.19 |
Highlight of BSRS’ Activities:
( Tk. In million )
| Particulars | Year | Cumulative(since inception) | ||||
| 2005-06 | 2004-05 | 2003-04 | 2002-03 | 2001-02 | ||
| Approval | ||||||
| Term loan | 241.60 | 75.00 | – | – | 11.50 | 5511.68 |
| Underwriting Advance & Debenture Loan | – | – | – | – | – | 132.31 |
| Investment in Shares | 182.43 | 28.12 | 70.06 | 85.23 | 34.73 | 625.34 |
| Investment in Debenture | – | – | – | – | – | 51.97 |
| Disbursement | ||||||
| Term Loan | 74.20 | 51.50 | – | – | 46.40 | 5071.59 |
| Underwriting Advance & Debenture Loan | – | – | – | 2.25 | 5.00 | 123.10 |
| Investment in Shares | 182.43 | 28.12 | 70.06 | 85.23 | 34.73 | 625.34 |
| Investment in Debentures | – | – | – | – | – | 51.97 |
| Recovery | 313.21 | 289.48 | 298.01 | 468.93 | 322.38 | 9128.53 |
| Economics Highlights | ||||||
| Gross Investment | – | 598.64 | – | – | 29.70 | 11486.52 |
| Job creation | – | 223 | – | – | 73 | 31636 |
| Financial Highlights | ||||||
| Paid up Capital | 700.00 | 700.00 | 700.00 | 700.00 | 700.00 | 700.00 |
| Reserves | 1682.60 | 1566.70 | 1492.95 | 1313.20 | 1143.76 | – |
| Borrowing/Term Debt | 65.70 | 73.00 | 80.30 | 82.19 | 333.88 | – |
| Total Assets | 4493.21 | 4954.45 | 7725.20 | 8420.37 | 17724.28 | – |
| Total Income | 301.91 | 222.34 | 233.53 | 224.56 | 263.54 | 8450.94 |
| Total Expenses | 196.06 | 192.30 | 147.37 | 142.03 | 143.88 | 6329.18 |
| Net Income Before Tax | 105.85 | 30.04 | 86.16 | 82.53 | 119.66 | 2331.33 |
| Net Income After Tax | 85.85 | – | 86.16 | 82.53 | 92.66 | 1194.59 |
| Tax Paid | 35.41 | 6.94 | 16.97 | 22.44 | 47.95 | 1778.79 |
| DSL payment to Govt. | 10.27 | 10.11 | 21.68 | 288.61 | 174.03 | 5956.64 |
| DSL Payment to Other Loan giving Agencies | – | – | – | – | – | 350.07 |
| Dividend to Govt. | – | – | 10.00 | 10.00 | 10.00 | 198.18 |
| Debt Equity Ratio | 0.6:1 | 0.21:1 | 0.11:1 | 0.26:1 | – | |
| Debt Service coverage(times) | 21.56 | 8.67 | 8.39 | 1.78 | 1.73 | – |
| Capital Adequacy Ratio(%) | 119 | 97 | 84 | 24 | 10.98 | – |
Financial Highlights:
| Serial No | Particulars | 30.06.2006 | 30.06.2005 |
| 01. | Paid up capital | 700,000,000 | 700000000 |
| 02. | Total capital(as per capital adequacy | 1,800,723,000 | 1542133000 |
| 03. | Capital surplus | 800,723,000 | 542133000 |
| 04. | Total assets | 4,493,205,612 | 4954449356 |
| 05. | Total deposits | 317,868,307 | 393783696 |
| 06. | Total loan advances | 2,324,574,656 | 2951025764 |
| 07. | Total contingent liabilities and commitments | 33,974 | 4195599 |
| 08. | Loan deposit ratio(%) | N/A | N/A |
| 09. | Percentage of classified loan against total loans and advance | 54 | 61 |
| 10. | Profit after tax and provision | 85,854,425 | – |
| 11. | Amount of classified loan during the current year | 124,184,346 | 516031479 |
| 12. | Provision kept against classified loans | 417,989,000 | 535739000 |
| 13. | Provision surplus | 49,999,000 | 27000 |
| 14. | Cost of fund(%) | 7.48 | 5.35 |
| 15. | Interest earning assets | 2601295767 | 2195009610 |
| 16. | Interest non-earning assets | 1891909845 | 2759439746 |
| 17. | Return on Investment(ROI) | 3.98 | 6.31 |
| 18. | Return on assets(ROA) | 2.36 | 0.60 |
| 19. | Income from Investment | 22886633 | 31558614 |
| 20. | Earning per shares(Taka) | 122.65 | – |
| 21. | Net income per share(Taka) | 122.65 | – |
| 22. | Price earning ratio(times) | N/A | N/A |
Profit/Loss of BSRS:
During the FY2005-06 BSRS earned a pre-tax profit of tk.105.85 million as compared to tk.30.04 million in the preceding year. It may be mentioned that the profit was earned taking into account interest on project loans and dividend on cash realization basis. During the year no dividend was paid to the government as the entire amount of the pretax profit provided for the prior year’s tax purpose.
Total Income, Total Expenses and Total profit of last Five Tears:
(Taka. in million)
| Years | Total Income | Total Expenses | Total Profit |
| 2001-02 | 263.54 | 143.88 | 119.66 |
| 2002-03 | 224.56 | 142.03 | 82.53 |
| 2003-04 | 233.53 | 147.57 | 86.16 |
| 2004-05 | 222.34 | 192.30 | 30.04 |
| 2005-06 | 301.91 | 196.06 | 105.85 |
Figure 1: the graph shows total income, total expenses and total profit over five years
Figure 2: the graph shows the trends between profit and expenses over five year
swot analysis
SWOT Analysis of BSRS:
In order to develop marketing strategy SWOT analysis is very vital. In the process of making a SWOT, marketer identifies the Strengths and weaknesses of the organization and also the Opportunities and Threats of the organization. The SWOT analysis of BSRS is given below:
STRENGTHS
Strong employee bonding and belongings
Employees of BSRS are the major assets of the Sangstha, they also feel proud and have a strong sense of commitment towards the Sangstha. The strong Organizational culture of BSRS is the main reason behind this strength.
Efficient performance
BSRS provides hassle free customer service to its client comparing to the other Development Financing Institutions (DFI) in Bangladesh.
Young enthusiastic work force
The selection and recruitment of BSRS emphasizes on having the skilled graduates and postgraduates who have little or no previous experience. This type of work force stimulates the whole working environment of BSRS.
Good interpersonal relation
In BSRS there is no bossing relation between superior and the subordinates. A good interpersonal relation exists between the officers and staffs.
Companionable environment
The work environment of BSRS is sophisticated. The whole office is well furnished. It provides canteen facilities for lunch to its employees.
WEAKNESSES
Narrow operating span
Now BSRS has a very narrow operating span in the country. It has only two branches situated at Dhaka.
Absence of strong marketing activities
BSRS currently does not has any strong marketing activities through mass media e.g. Television. TV ads play a vital role in image building which is necessary for BSRS in its image crisis situation.
More innovative product must be offered
In order to sustain in the competitive environment, BSRS should come up with more new Attractive products. This is one of the weaknesses that the Sangstha is currently passing through.
Lack of customer confidence
BSRS is known to the public as a loosing concern. So, average customers lack the confidence in BSRS and judge the Sangstha as an average OFI.
Absence of foreign exchange service
BSRS does not provide foreign exchange service though it starts commercial banking activities. It should provide foreign exchange service as it is both a DFI and a commercial bank.
OPPORTUNITIES
Contribution to industrialization
As BSRS is a Government bank it has a wide area of opportunities to create base of industrialization in the country than private banks. Because through privatization industrialization is not possible nationally.
Experienced manager
One of the key opportunities of BSRS is it has efficient managers. They facilitate the operations of BSRS. These managers have already triggered the business of BSRS in the market.
Huge population
Bangladesh is a developing country. To satisfy the needs of huge population, a large amount of investment is required. On the other hand building EPZ areas and other government policies easing foreign investment in the country made it attractive to the foreigners to invest in our country. So BSRS has a large opportunity in this situation.
THREATS
Upcoming banks
The upcoming private, local and multinational bank posses a threat to BSRS.
Default culture
This is the major threat of BSRS. Because of loan default culture it is known to the public as a loosing concern by this time.
Similar product are offered by all banks
Nowadays different foreign and private banks are offering similar type of product with an almost similar profit margin which results decline in profit.
Industrial downward trend due to recession, inflation & unemployment
Bangladesh is economically unstable country. Flood, draught, cyclone and newly added terrorism have become an identity of our country. Along with inflation, unemployment also creates industry wide recession. These cause downward pressure on the capital demand for investment.
Chapter four: loans and types of laon
4.0 Definition of Loan:
According to Bangladesh Shilpa Rin Shagstha Order, 1972 “Loan” includes guarantee or indemnity which, the Shangstha may give on behalf of an industrial concern and any liability which the Sangstha may incur on behalf of an industrial concern. However BSRS provides loan and advances in all sectors which are given below:
Bangladesh Shilpa Rin Sangstha
Sector-wise Loan and Advances as on 30 June 2006
(Amount in ‘000 Tk)
| Industrial sector | Long Term Loan | Debenture & underwriting Loan | Total |
| Food and allied | 267394 | 5908 | 273302 |
| Jute and allied | 660527 | 9172 | 669699 |
| Textile and allied | 614906 | 12597 | 627503 |
| Paper and printing | – | – | – |
| Chemicals and pharmaceuticals | 385570 | 40404 | 425974 |
| Tannery, leather and rubber | 58125 | 8913 | 67038 |
| Transport | 35668 | 2 | 35670 |
| Services | 582 | 2889 | 3471 |
| Engineering | 1587 | 11340 | 12927 |
| Miscellaneous | 61680 | – | 61680 |
| 2086039 | 91225 | 2177264 | |
| Others | |||
| Commercial loan | – | – | 9319 |
| Loan under investors’ scheme | – | – | 2429 |
| Staff loan | – | – | 135563 |
| Sub-total | – | – | 147311 |
| Total | 2089039 | 91225 | 2324575 |
Types of Loan And Advance:
Depending on the various nature of financing, all the lending activities of Bangladesh Shilpa Rin Sangstha (BSRS) can be brought under following two heads:
1. Long Term Loan
2. Short Term Loan
1. Long term loan:
Loans, which are given for more than five years, are brought under this head. Loan and advance up to June30, 2006 as per geographical location-Division wise:
| Division | On June 30, 2006 (tk.) |
| Dhaka | 903059 |
| Chittagong | 740040 |
| Rajshahi | 608205 |
| Khulna | 43281 |
| Sylhet | 19657 |
| Barissal | 10333 |
Figure 3: pie chat shows division wise long term loan in 2006
a) Long term project loan:
Long term project loans in foreign currency and local currency is provided by BSRS for setting up of new industries and or for Balancing, Modernization, Replacement & Expansion (BMR&E) of enterprises on selective basis. In case of very large project, BSRS may co-finance with other DFls or Banks, local and/or foreign. BSRS has provided up to June 30, 2006 tk.2086039285 where as it was tk.2668213156 on June 30 in 2005. BSRS’ long term loan is in details for the last two years:
| Long Term Loan | June30, 2006 | June30, 2005 |
| Foreign currency loan | 415835409 | 550218133 |
| Local currency loan | 437366895 | 461106408 |
| Interest free loan | 132619303 | 142422097 |
| Working capital loan | ||
| Interest during construction period and deferred interest loans | 51266691 | 62918419 |
| Interest receivable | 1037289517 | 1419059355 |
| Others charge receivable | 7004342 | 6426038 |
| Penal interest receivable | 1590751 | 16495418 |
| Exchange risk premium and penal exchange risk premium | 3066377 | 9567288 |
b) Bridge loan and Debenture loan:
Bridge loans or underwriting advances may be made against the public issue of shares underwritten for enabling companies to go into commercial production before floating the shares for public subscription. Moreover BSRS issues debentures for giving loan facilities to industrial concern. On June 30, 2006 debenture and underwriting loan was tk.91224455 where as was tk.143517389 on June in 2005.
c) Staff loan:
BSRS gives its employees loan facilities. There are various loan programs for staffs of BSRS. These are
House building loan,
Motor cycle loan and
Loan against provident fund.
BSRS has sanctioned total tk.135562891 up to June 30, 2006 and this amount was tk.128580547 till 30.06.2005.
2. Short Term Loan
In addition with long term loans, BSRS may also provide short-term advances and loans for the purpose of working capital of industrial concerns as per BSRS Order. It also provides short term loans and advances under commercial banking operation. Short term loans are given for less than or up to five years. Commercial branches provide the following two loans:
a) Secured over draft (SOD):
Advances allowed against different financial obligations and it has increased to tk.682170 on June 30, 2006 from tk.462246 on 30.06.2005.
b) Consumer credit:
BSRS plays a vital role in providing necessary finance to the fixed income group for buying items that are necessary for raising the quality of living standard through the consumer credit scheme. Through this special scheme BSRS offer Necessity, Convenience and Comfort. There was an slight increase in consumer credit/cash credit amounting to tk.8636493 in 2006 from tk.7820837 in 2005.
project financing requirement
Project Financing Criteria:
In selection of projects, BSRS will be guided mainly by commercial considerations keeping however, in view the overall framework of government policies and socio-economic imperative of industrial development. In order to have financial support of BSRS, a project is required normally to meet the following criteria
It should be technically sound and technologically appropriate for Bangladesh and environment friendly.
It should be financially feasible and offer an Internal Rate of Return(IRR) not less than 15%.
It should be economically viable which would be measured by Economical Rate of Return (ERR) being not less than 15%.
In general it should give a minimum 15% per annum after tax return on paid up capital from the 3rd year of operation.
The project’s debt-service coverage should not be less than 1.50 times and the current ratio should not be bellow 1.5:1.
Total financing a project should be raise up maintaining a debt/equity ratio at a level of 60:40 in case of public limited companies while that of 65:35 in case of private limited companies. BSRS may require, as a loan condition, that the sponsors’ stake i.e. equity capital may vary corresponding to-
the degree of risk inherent in the project known debt-equity ratios for successful units in the same sector.
The experience, credit reports, track records/performance and competence of the sponsors to manage the project.
Fixed Assets Coverage Ratio (FACR) during the tenure of the loan will be at least 1.5 times. However, the Sangstha may claim additional collateral security to the extent which will be required to the FACR of 1.5times.
Ineligibility for Loans:
For ineligibility of loans BSRS will not consider loan proposal of applicants if-
The applicants for loan are in arrears or defaulting on payment of BSRS’s dues in respect of existing loans sanctioned for their earlier projects unless and until satisfactory arrangements are made by the sponsors with BSRS to repay the amount in default.
The applicants are already involved in any other projects financed by any other banks/DFIs whose loan accounts are in arrears.
The applicants are involved in any other banks or DFIs financed projects under implementation stage excepting where the projects are linkage projects and the sponsors have not adequate net worth and those sick or stuck-up cases have decided for rehabilitation where by the government.
The proposal relates to a sub-sector, where production capacity is in excess of market demand in the opinion of BSRS.
The applicants whose track records with regard to management of existing/other enterprises including repayment of loans to BSRS or to other institutions, if any, are not satisfactory.
Lending Limits:
BSRS’s total commitment (loans, debentures, equity-investment, bridge finance and guarantee) to a single enterprise whether in the public sector or in the private sector shall not ordinarily exceed 15% of BSRS’s total equity.
BSRS’s total exposure (loans, debentures, equity-investment, bridge finance and guarantee) to more than one enterprise where one or more sponsors is\are common will not ordinarily exceed 25% of BSRS’s total equity.
Concentration of loans & equity investments within a single industrial sub-sector shall not ordinarily exceed 20% of BSRS’s total loan portfolio.
BSRS’s equity investment (including bridge finance) in a single enterprise, whether in the public sector or in the private sector shall not ordinarily exceed 1% of BSRS’s total equity subject to a maximum of 20% of the paid up capital of such enterprise.
The above limits may be relaxed by the Board of Directors from time to time.
Lending Rates:
The rates of interest on the foreign currency loans and local currency loans will be determined by BSRS in line with lending rates prevailing in the country; interest spread would be sufficient to cover the operating expenses and creation of adequate reserves.
The interest on foreign currency loans provided out of various foreign loans/credits may be charged in accordance with the re-lending terms specified for each foreign credit line under which a particular industrial project is accommodated.
For the purpose of appraisal of industrial projects for sanctioning foreign currency loans, the rate of interest to be applied would not be less than the rates applicable to the local currency loans.
BSRS may establish a fund to be called the Special Assistance Fund (SAF) for providing concessional loans and advances to persons dealing with invention and innovations in such sectors and on such terms and conditions as BSRS may decide.
In case of rescheduling/ restructuring of loans, a new rescheduling agreement will be prepared and the rate of interest, mode of payment and all other conditions will also be changed or retained same as per the existing loan a will dependent on rescheduling agreement.
The rate of interest on the Interest During Construction Period (IDCP) of a project would be as per interest rates on the seed loans or the rate specialized in the re-lending terms of the credit line under which the foreign exchange loan and local currency loans will be accommodated.
BSRS will charge liquidated damage on the loans in arrears at such rates as may be determined from time to time by BSRS.
The rate of interest on underwriting -cum-bridge financing to the projects would be determined by BSRS from time to time.
The above lending rates are subject to change from time to time by the BSRS.
Security for Loans:
BSRS obtains adequate security for its loans to any project value of security against the loan is ordinarily 1.5 times of the loan. Loans will usually be secured by first mortgage and hypothecation of the existing and future assets of the project/company. In the case of co-financing first charge ranking pari passu may be acceptable to BSRS.
In case of project to be set up in rented premises and any transport project, additional collateral security in the form of bank guarantee, urban property or any other tangible assets acceptable to BSRS to the extent as may be determined by the Board is to be obtained.
Mortgage assets of the project/company shall be fully insured by the borrowers.
Repayment Period of Loan:
1) The repayment period of both local and foreign currency loans is 12.5 years including grace period. Repayment period of loans will vary depending on the debt-servicing capability and type of the projects.
2) The repayment of foreign currency, local currency and IDCP loans will start no later than thirty months of opening of first letter of credit or twelve months after the unit goes into commercial operation, whichever is earlier, in case of manufacturing projects & transport projects repayment would start after 30 months of opening of the first letter of credit or six months after the unit goes into commercial operation, whichever is earlier.
chapter six: loan sanction, disbursement, recovery, and program for recovery
Loan Sanction:
BSRS gives medium & long term loan to the industrial concerns. For sanctioning loan it has Project Approval Department. With a defined procedure,
Management Aspect
Technical Aspect
Financial Aspect
Economical Aspect and
Social Aspect
For example the Sangstha sanctions the loans to the sponsors. In brief the procedures are:
Loan Application from the Borrower with their Feasibility Report
Discussion at Top Management Committee for decision
Making Appraisal Report by BSRS & checking CIB report from Bangladesh Bank
Approved at Project Appraisal Committee
Sanction with terms & condition
For the last Ten years, statistics about loan sanction is below:
( Currency in million )
| Financial Years | Sanction | ||
| Local currency | Foreign currency | Total | |
| 1996-97 | 38.69 | 187.92 | 226.61 |
| 1997-98 | 39.93 | 182.82 | 222.75 |
| 1998-99 | 26.79 | 70.38 | 97.17 |
| 1999-00 | – | 47.70 | 47.70 |
| 2000-01 | 11.42 | 12.05 | 23.47 |
| 2001-02 | 11.50 | – | 11.50 |
| 2002-03 | 27.47 | – | 27.50 |
| 2003-04 | 10.20 | – | 10.20 |
| 2004-05 | 75.00 | – | 75.00 |
| 2005-06 | 241.60 | – | 241.66 |
| Total | 482.60 | 500.87 | 983.47 |
Loan Disbursement:
Disbursement of both foreign currency and local currency will be made as per terms and conditions of loans. Disbursement will be made as per draw down schedule of funds stipulated in the loan sanction latter. After documentation loan amount is disbursement. Close monitoring and supervision are undertaken to ensure that the projects are implemented on schedule.
Sanction
Documentation
Disbursement of loan
Loan Disbursement:
During the last Ten years ( currency in million )
| Financial Years | Disbursement | ||
| Local currency | Foreign currency | Total | |
| 1996-97 | 114.18 | – | 114.18 |
| 1997-98 | 45.46 | 185.15 | 230.61 |
| 1998-99 | 56.12 | 184.16 | 240.28 |
| 1999-00 | 72.24 | 78.83 | 151.07 |
| 2000-01 | 47.44 | 24.46 | 71.90 |
| 2001-02 | 11.43 | 40.00 | 51.43 |
| 2002-03 | 27.21 | – | 27.21 |
| 2003-04 | 10.20 | – | 10.20 |
| 2004-05 | 57.20 | – | 57.20 |
| 2005-06 | 74.20 | – | 74.24 |
| Total | 515.68 | 1028.32 | 1028.32 |
Loan Recovery:
From banker point of view recovery means the repayment of loan which is schedule to repay the due/overdue of loan within a specific time period. Repayment is done by the installment. Installment refers to the part of principal amount together with the interest and service charges become due for a particular date.
Due/overdue loans for recovery received priority during FY 2005-06 as it is done in the previous year. BSRS provided a number of incentives, rebates and wavers, concessions, for example to the borrowers for repaying the dues on or before scheduled dates. During the FY 2005-06 BSRS recovered a total amount of Tk.313.21 million in cash. It includes Tk.226.16 million from long term loans disbursed in foreign and local currency and tk.87.05 million on account of other operations like underwriting advance/debenture loan, staff advance, consumers credit etc.
Details of loan recovered during the FY 2005-06 are as follows:
| Category of loan | Amount recovered
(Tk. In million) |
|||
| 2005-06 | 2004-05 | 2003-04 | ||
| A) | Long term loan | |||
| Long term project loan | 226.16 | 207.93 | 254.10 | |
| Bridge/debenture loan | 71.71 | 70.67 | 25.14 | |
| Staff loan | 7.87 | 5.41 | 7.14 | |
| Sub total(A) | 305.74 | 284.01 | 286.38 | |
| B) | Short term loan | |||
| Secured overdraft(SOD) | 1.68 | 0.76 | 7.44 | |
| Consumers credit | 5.79 | 4.71 | 4.19 | |
| Sub total(B) | 7.47 | 5.47 | 11.63 | |
| Grand total(A+B) | 313.21 | 289.48 | 298.01 | |
Sector wise recovery position
(Tk. In million)
| Sector
Year |
Private | Public | Total amount | Target | ||
| Amount | Percentage | Amount | Percentage | |||
| 2005-06 | 313.21 | 100 | – | – | 313.21 | 280.00 |
| 2004-05 | 289.48 | 100 | – | – | 289.48 | 325.00 |
| 2003-04 | 298.01 | 100 | – | – | 298.01 | 400.00 |
For loan recovery BSRS has three departments. Recovery-l works for small amounted loan sectors like food, transport, cold storage, shipping, hotel & services etc. Recovcry-2 works for big amounted loan sectors like jute, carpet, textile, chemical etc. loan classification cell classified the loans according to Bangladesh Bank rules & regulation. By using different procedures, these departments make a team work to recover the loan amount. They make monitoring, supervision and a follow up of a project loan. Process are-
Disbursement of loan
Supervision & Follow Up
Recovery of Loan
Short summary of loan section, disbursement and recovery
(Currency in million)
| Financial Year | Sanction |