Performance Evaluation of Pubali Bank Limited.

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Performance Evaluation of Pubali Bank Limited.

EXECUTIVE SUMMARY

Banking Industry in Bangladesh is highly competitive and controlled sector. With more than nine foreign banks and forty eight local commercial banks, the industry is getting even more competitive day by day. Commercial banks are now looking ahead to develop innovative banking and financial products and services to attract new customers and retain the exiting ones. Customer relationship management, customer orientation and customer satisfaction through better services are the motto of nowadays successful banking.

This Practical research report attempts to assess or review the state of services as well as gives an overview of the Performance Evaluation of Pubali Bank Limited. So the report covers three parts which are:

· General Banking

· Loans and Advances

· Foreign Exchange

The study revealed that General Banking is the core banking facilities provided by the bank to its customers. Therefore the quality of the services of this department would create good impression on the bank in the customers mind. This department comprises of accounts opening section, cash section, local remittance and clearing section. Account opening section deals with opening of various types of accounts. Cash section is very sensitive section. In this section the concerned officer must take care while paying cash in the counter. Remittance section involves transferring money from one place to another through different instruments such as D.D, T.T, Pay Order etc.

Loans and Advance department is basically one of the main sources of earning of the bank. In this section, bank disburse credit through different accounts named CC (hypo), CC (pledge), Overdraft (SOD, TOD), house building loan, project loan, personal credit scheme etc. During disbursement of loans through these schemes, bank must take some documents from the party such as DP note, Letter of Declaration, Valuation Certificate and Letter of Lien which gives protection to the banker in any awkward situation.

Foreign Exchange Department is the most profitable avenue of a branch. This department has two distinct sections. One is Import Section and another is Export Section. Import section deals with Letter of Credit operation and Export section deals with export and back to back L/C. Foreign Exchange department also deals with the foreign remittance. At the time of opening L/C bank has to scrutinize various documents such as pro-forma invoice, insurance cover note, genuineness of the beneficiary etc.

Conclusions and some recommendations have been drawn on the basis of my experience of practical research work in various departments of Pubali Bank Limited.

CHAPTER ONE

1.1 Background of the study:

Banking, being the most sophisticated and organized business is an attractive sector for modernization. Just like other sectors of the economy, banking sector is also facing various challenges and competitions. That’s why a banker should enrich himself in every moment with various knowledge of banking, what are existing in the theory and what are actually in the practice.

Basically, bank collects deposit from the customers at lower rate of interest and lends it to the borrowers at higher rate of interest considering the cost of fund.

The advised to prepare a research work on “An Overview of General Banking, Loans & Advances, Foreign Exchange and the Performance Evaluation of Pubali Bank Limited.” This report has been prepared in the light of practical as well as theoretical knowledge. strongly believe that, this experience will help me in professional life.

1.2 Objectives of the study:

The primary objectives of this study are:

· To gather knowledge about the functions of different departments of the bank.

· To give an overview of Banking System in Bangladesh specially of PBL.

· To make a bridge between the theories and practical procedures of banking in day- to- day operations.

· To have some practical exposures that will be helpful for professional life.

1.3 Scope of the study:

Pubali Bank Ltd. is one of the leading bank in Bangladesh. The scope of the study is confined to overall functions and practices of General Banking, Loans & Advances & Foreign Exchange of PBL. The report covers the organizational structure, background, functions and the performance of the bank.

1.4 Limitations of the study:

Time constraint is one of the major limitations, because one month is not sufficient to prepare such a huge type of research work. Hesitation and refusal of the respondents/officers was another major limitation. Reaching to the right respondents was also a limitation. Moreover, some officers in some desks were unwilling to co-operate. Organization surveyed did not reveal some of their confidential documents. Therefore a perfect organizational picture could not be drawn.

1.5 Methodology of the Report:

Methodology includes direct observation, face-to-face discussion with employees of different departments, study of files, circulars, etc. and practical work. Both primary and secondary sources of information have been used.

For collecting primary data, had to consult with various relevant officers for different quarries and also –

• Directly communicate with the clients
• Exposure on different desk of the bank
• Files and Documents study
• The secondary sources are –
• Annual Report of Pubali Bank Ltd.
• PBL Website
• Different documents, forms, papers and books of the branch.
• Different circulars sent by Head Office and Bangladesh Bank.
• Other books and publications of ‘Banking Law and Practice.

CHAPTER TWO

General Banking

2.1 Introduction:

General Banking is one of the most important aspects of a bank. Banker-Customer relationship starts with General Banking. General Banking Department performs the core functions of the bank. The Department takes the deposit from the customers and meets their demand for cash by honoring their cheque. Bank is nothing but a middleman between lenders (surplus unit) and borrowers (deficit unit). To provide loan, a bank needs a huge amount of money from the depositors. General banking is the area where banks offer different attractive alternatives to the clients to deposit and remit their money. To encourage the clients, bank offers different options in front of their clients. Most of these options are very much similar between the banks, but the customer services and facilities may not be the same. Every branch of every bank has to maintain the General Banking department. It is the introductory department of the Bank to its customers.

After working there almost 15 days learned the daily general banking activities and also helped them to perform their daily affairs.

2.2 Functions of General Banking:

In General Banking section the PBL performs the following tasks:

1. Check Receiving & Payment Services
2. A/C Opening
3. Opening & Payment of FDR.
4. Check Clearing, Collection, Transfer
5. Issuing DD & Pay Order ( Both General & Non Resident Transfer or NRT)
6. TT Receive & Transfer (Both General & NRT)
7. Receive Refund Warrants.

2.2.1 Cheque Receive & Payment:

2.2.1.1 Issue of Token:

In the cash section when a customer comes with a cheque for payment first, the cash officer gives a token to that person and asks to wait for some time for getting the payment. In the mean time the cash officer looks the cheque whether it is properly drawn and everything is right or not. If any discrepancy is present like amount in figures and words is not same, post dated cheque or without presence of signature then he calls the client for clarification. On the other hand when everything is ok then he passes it to the next officer who looks the account information in the computer. When the account is insufficient for making payment the officer returns the cheque as a NSF (Not Sufficient Fund) cheque. If every thing is alright then the officer passes it to the next officer who finally checks all things, record it to the book and also match the specimen signature. When every thing is accurate then he passes it to the cash counter for payment.

2.2.1.2 Cheque Scrutinizing:

For scrutinizing the printed cheque of the branch a banker should take the following steps:

· Date of the cheque (it is presented within 6 month from issue date).

· Issued from this branch.

· Amounts in figure and words do not differ.

· Signature of the drawer does not differ.

· Cheque is not torn or mutilated.

2.2.2 Account Opening;

The relationship between the banker and the customer begins with the opening of an account by the customer. A person becomes customer of a bank when the bank opens an account for him. A contractual banker-customer relationship is established through opening of the account. Initially all the accounts are opened with a deposit money by the customer and hence these accounts are called deposit account. Usually a person needs to open an account for taking different services form it. So the banking begins actually by opening an account.

When a customer steps into the bank premises for opening deposit account with the bank, he/she will have to go the account opening section to know the formalities for opening an account.

Following formalities are required to be completed before a current or a savings account is opened in the bank.

2.2.2.1 Application on the prescribed form:

The person who desires to open a current or a savings account with the bank has to make application with his full signature in the prescribed form. There are various types of account opening forms for opening of different types of accounts. Usually there are separate forms for opening a current account and a savings account. The account opening form is supplied by the banks free of charge. The account opening form generally asks for information about:

(a) The name of the customer

(b) His/her fathers name (or husband’s name in case of married woman)

(c) His/her residential address

(d) His/her permanent address (if residential address and permanent address differ).

(e) His/her occupation or profession (including address of the employer)

(f) His name and signatures of referee (s).

(g) The name and address of the nominee (where applicable).

(h) Filling the KYC (Know Your Customer) form.

( i ) Either or survivor instruction (in case of joint account)

(j) Photocopies of National ID Card.

(k) In case of minor, his photograph.

2.2.2.2 Introducer:

The applicant also required to furnish in the application form the names of the referees from whom the banker may make inquires regarding the character, integrity and respectability of the applicants. In most cases the introduction is done by the customer of the bank or some other person knows to the bank by signing on the application form with his/her account number (if any).

2.2.2.3 Specimen signature

Every customer is required to supply to his banker with one or more specimens of his/her signature. These signatures are taken on cards, which are preserved by the banker, and his signature of the account holder on the cheque is compared with the Specimen signatures.

2.2.2.4 Opening and Operating the account

After the above formalities are over, the banker opens an account in the name of applicant. Generally the minimum amount to be deposited initially is Tk. 1000/- for opening a current account. Then the bank provides the customer with:

2.2.2.5 KYC (Know Your Customer):

Filling up the KYC form given by the Bangladesh Bank to prevent money laundering. KYC form helps to asses the customer. Clear instructions with regard to operations are found in KYC. If the transaction of a customer is suspicious or not matched with the KYC than Bank branch should report it to Bangladesh Bank.

2.2.2.6 Photographs:

As per recent rule/practice the applicant is required to submit at least two (recent) photographs -one to be pasted on the account opening application form and the other on the specimen signature card.

2.2.2.7 Opening and Operating the Account:

After the above formalities are over, the banker opens an account in the name of applicant. Generally the minimum amount to be deposited initially is Tk. 500/- for opening a Saving A/C and Tk.2000/- for individual Current A/C, Tk.5000/- for business firm.

2.2.2.7.1 Current Account;

Current account is purely demand deposit account because the bank is bound to pay the amount to the account holder on demand at any time. It is running and active account, which may be operated upon any number of times during a working day. There is no restriction on the number and the amount of withdrawals from a current account. The special characteristics of a current account are as follows:

The primary objective of current is to serve big customers such as businessmen, joint stock companies, private limited companies, public limited companies etc. from the risk of handling cash by themselves.

The cost of providing current account facilities is considerable to the bank since they undertake to make payments and collects the bills, drafts, cheques for any number of times in a particular day. The bank therefore does not pay any interest on current deposit while on the other hand some banks charge for incidental charges on such account.

# Formalities for opening a Current A/C:

Proprietorship Firm:

• Up-to-date copy of trade license
• Introducer of a CD account holder
• Name of authorized persons, designation, specimen signature card.
• Two copies of passport size photographs of account holder
• Seal
• TIN
• VAT certificate

Partnership Firm:

• Up to date copy of trade License
• Introducer of a CD account holder
• Two copies of passport size photographs of account holder.
• Photocopy of partnership Deed, notarized by Notary Public
• Account agreement (MF-06) and letter of partnership (MF-07)
• Seal
• TIN & VAT certificate

Private Limited Company:

• Up-to-date copy of trade license
• Two copies of passport size photographs of account holder
• Certified copy of Memorandum and Articles of Association, signed and sealed by the managing Director
• Photocopy of the certified of Incorporation
• List of directors as per return of joint stock company with signature
• Seal of each operating persons
• Particulars of Directors
• Resolution for opening account with the bank

Public Limited Company:

• Up-to-date copy of trade license
• Two copies of passport size photographs of account holder
• Certified copy of Memorandum and Articles of Association, signed and sealed by the managing Director
• Photocopy of the certified of Incorporation
• Seal of each operating persons
• Particulars of Directors
• Resolution for opening account with the bank
• Certificate of commencement of business
• List of directors as per return of joint stock company with signature

Societies, Clubs, Associations:

• Up-to-date copy of trade license
• Registration from the concerned authority
• By laws/ rules and regulations/ constitutions duly signed and sealed by chairman
• Resolution for opening account with the bank
• Introducer of a CD account holder
• Seal of each operating persons]

2.2.2.7.2 Savings Bank (SB) Account:

Banks main function is to collect deposit from the surplus unit and deploy it to deficit unit. Saving Bank Deposit Account is primarily for small-scale savers. The main objective of this account is to facilitate the small savers money those who are neither want to withdraw frequently nor want to keep money for a fixed and long period. Hence there is restriction on withdrawal more than two in a week. Heavy withdrawals are permitted only against prior notice. The PBL gives interest at the range of 5 to 6 % per annum in SB A/C.

Requirements:

• Minimum amount of TK.500.00 is required as initial deposit.
• Frequent withdrawal is not possible. A person can withdraw only 2 times in a week and at least Tk. 50.00 or more.
• It is not possible to open different accounts in different branches of the bank using same name.
• Normally withdrawal not allowed more than ¼ of the balance.
• 7 days notice is required for withdrawal of large amount
• The rate of interest is 6 % per annum.
• If a person wishes to transfer his account from one place to another then the bank transfer his account by taking the cost.
• If the pass book is lost then the person need to pay Tk 10.00 for getting the new pass book.

Documents Provided by the Bank:

After all the account opening formalities have been completed, PBL opens an account in the name of applicant. Bank then provides its customer –

· Deposit Slip.

· A cheque Book.

· A thank giving letter to the customer’s present address.

# A Pay in Slip/Deposit Book

With a view of facilitate the receipt of credit items paid in by a customer, the bank will provide him/her pay in slip either loose or in a book forms. The customer has to fill up the pay in slip at the time of depositing the money with the bank. The cashier with his/her initials and stamps will return the counter foil to the customer on the receipt of the money.

# Cheque Book

To facilitate withdrawals and payments to third parties by the customer, the bank will also provide a cheque book to the customer. But it is noted that to get a cheque book, the customer has to dully fill up the cheque requisition slip to the banker.

2.2.2.7.3 STD Account:

There are people and organization who want liquidity and some return simultaneously on there deposit. They want to keep funds in a bank so that it can be withdrawn without any restriction. In PBL, limited companies, corporate groups and organizations keep money in STD accounts. STD Account opening procedure is similar to that of the saving account. In Short Term Deposit account, the deposit should be kept for at least seven days to get interest. The interest offered for STD is less than that of savings deposit. The PBL gives 4.25 % annual interest on the deposit. The bank is benefited because they have to pay less interest and the customers are also benefited because anytime they can divert money.

# Closing of an Account:

An account holder can close his account any time he wants in order to terminate banker-customer relationship. He must make an application mentioning his intention to close his accounts and he must also deposit the unused leaves of the cheque book. After verifying the genuineness of the application bank closes the account but Tk.50/- for savings and Tk.100.00 for current account is charged as closing fees.

The operation of the account might be ceased by the bank side also due to the following reasons:

1. Notice given the customer himself.
2. Death of customer.
3. Customer insanity or insolvency.
4. Order of the court / Injunction of the court.
5. Garnishee Order

2.2.2.7.4 Monthly Profit Deposit

This is a new deposit scheme introduced by the Bank in 1998

The salient feature of the scheme are as under:

2.2.2.7.5 Pubali Pension Scheme /PPS:

Amount Payable at Maturity:

Loan facility:

Loan Limit: 80 % of the deposited amount in PPS account.

Interest: 3% above the rate allowed on PPS account.

2.2.2.7.6 Child’s Education Care & Maturity Deposit Account“ Scheme

This is a benevolent scheme to serve the genuine needs for education of the children of a depositor. The scheme will serve as a long term source of deposit for the bank also.

The salient features of the scheme are as under:

2.2.3 Fixed Deposit Receipts (FDR)

These are the deposits, which are made with the bank for fixed period specified in advance. It is purely a time deposit account. The bank doesn’t maintain cash reserves against these deposits and therefore the bank offers higher rates of interest on such deposits. It is not transferable. At present the rate of interest for fixed deposit Receipt (FDR) of PBL are as follows:

Rate of interest for fixed deposit Receipt (FDR)

• FDR for 1 year, ——–the interest will be @ 12 %
• FDR for 2 years or more than it will be @ 12.5 % interest.
• If it is for 3 or 6 months than it will be @ 11.5 % interest.
• After 6 years the money will be double @ 12.5 % compound interest.

Payment of FDR:

Interest increased as maturity increased. If the FDR is for 5 years then the depositor can withdraw the interest monthly. FDR can be renewed after the maturity period. If FDR will encash even one day before the maturity then the total interest payment of one quarter (3 months) will not be given to the depositor. After the maturity the payment will be made with interest as well as principal amount.

Loss of FDR

In case of a lost FDR, the customer is asked to record a GD (General Diary) in the nearest Police Station. After that, the customer has to furnish an Indemnity Bond to PBL. A duplicate FDR is then issued to the customer by the bank.

2.2.4 Check Clearing, Collection, Transfer:

In the GB section of PBL there is a separate desk for receiving the crossed cheque, send it to Clearing House in BB and transfer the payment of the customer.

Normal Clearing: When the A/C holders of PBL deposit the other banks cheque in his/her A/C of PBL then the money will be come within 1 or 2 days in his/her A/C.

Same day Clearing: By same day clearing the customer will get the payment in one day. For same day clearing there are two conditions –

· Minimum 5 lac Tk cheque

· Within the clearing range (The paying bank should be within 2 kilometers of Motijheel )

IBC Send: IBC stands for Inter Branch Clearing Schedule. By using this mechanism the PBL ForEx branch brings the money of its customer from other PBL’s branch to this branch.

IBC Payment: The PBL sends the payment of its other branch using TRV (Transfer Receipt Voucher) or IBCA (Inter Branch Cr. Advice).

SC: SC stands for Short Collection. By using this mechanism the PBL For Ex branch brings the money of its customer from other banks and also other branches of PBL outside the clearing circle in Dhaka city.

LSC: LSC stands for Local Short Collection. By using this mechanism the PBL ForEx branch sends the money of other banks and also other branches of PBL outside the clearing circle in Dhaka city through TRV.

Clearing House:

Clearing House is an assembly of the locally operating scheduled banks for exchanging of cheques, drafts, pay orders and other demand instruments drawn on each other and received from their respective customers for collection. The house meets at appointed hour on all working days under the supervision of two central bank officers or its agents. In our country the Clearing House stands every working day in Bangladesh Bank. Where there is no any branch of BB there the Sonali Bank is the representative of this activity.

The entire number banks representative’s daily meet in two meetings at a fixed time. In the first meeting they handover cheques, drafts, pay orders etc. which has drawn upon them. In case there are certain cheques, which could not payments in the second meeting at the clearing house.

2.2.5 Issuing Pay Order & DD:

2.2.5.1 Pay Order:

Pay order is issues when an account holder or a customer applies to issue a pay order favoring a person or institution. Customer’s need to be pay the amount by cash/cheque, the commission and the VAT of commission with the help of a deposit slip. Payment of pay order is made only on account. The actual holder of the pay order submits it along with a filled deposit slip to his bank for collection. The pay order ultimately comes to the same branch for collection. Pay order is used for payment usually when the payee’s has an account with a bank in the jurisdiction of same clearing house. Payment of pay order requires clearing. When pay order is issued, bills payable (pay order) account is credited and when this pay order returns for collection then payment is made by debiting bills payable (pay order) account and crediting the general account with the corresponding branch with an IBCA. If pay order is presented in a bank which is situated in different clearing house, the paying bank send the instrument directly to the drawer’s branch requesting to send a DD favoring the paying branch. Then the payee’s branch collects the proceeds through local clearing house.

2.2.5.2 Demand Draft /DD:

A customer favors DD (Demand Draft) when he/she wants to pay someone whose bank account is maintained with a branch, which is not situated in the jurisdiction of same clearing house. DD is usually issued favoring another branch of a same bank outside the clearing house. When a DD is issued an IBCA also is issued equivalent to the amount applied for favoring that branch. If the payee holds an account with the same branch, he/she can get it paid to his account after submitting the pay order. But if he has a bank account with another bank branch, the payment of DD requires local clearing. A test no. is to be given on the draft of Tk.50,000/- and above and the drawee’s branch is to be intimated over telephone.

When a branch receives a DD Advice, then DD payable account is credited and when Instrument is presented DD payable account is debited and customer account is credited. If the instrument is presented before the advice comes, then party’s account is credited by debiting suspense account.

2.2.6 Telegraphic Transfer /TT:

TT is the most popular method for remitting money because it is fast and quick and very easy process. The fund transfer take place within the time of a phone call. The special feature of TT is that this message contains test number, which is unique for every bank and only branch manager or the officer who is delegated with the duty. By decoding the test number the authenticity of the message is tested. If the message is found okay than the payee’s account is credited instantly.

To send money urgently banks may be requested for telegraphic transfers on payment of a nominal charge & telegram (postage) charges. This facility is available when a customer wishes to transfer a certain amount of funds from his one account to another account maintained with the same bank at different location/branch. Like Demand draft, the client has to fill up a form for such fund transfers mentioning the amount to be sent & the account to be credited. Afterwards, a TT advice is send by phone to the branch where the customer wishes to transfer his fund. The branch issuing the TT also sends an IBCA to the responding branch via mail.

In PBL ForEx branch there are two types of TT are practicing one is NRT (Non Resident Transfer) or foreign TT and another is local TT.

2.2.7 Receive Refund Warrants.

In PBL there is a separate desk for receiving Crossed Cheque, DD, Pay Order etc. This desk also receives the Refund Warrant of IPO or primary share. After the declaration of IPO lottery there is a rush of coming the refund warrants in this branch.

CHAPTER THREE

Loans and Advances

3.1 Introduction:

Major source of income of a bank is the earning from credit. Borrower selection is the main and prime task of this department. Advancing loans is the primary function of the commercial banks. Without loans country’s industrial and commercial development is not possible. Therefore, smooth loan system in banking sector is a catalyst for economic development of a country.

3.2 Credit Manager’s Concern

Manager’s in Credit section has to ensure three things:

1. How to locate purpose
2. How to locate security
3. How to locate borrower

3.2.1 How to locate purpose:

Manger has to ensure that the loan will generate adequate cash. For that matter the loan should be engaged in productive activities. Such an employment will increase economic activities, promote trade and commerce, create employment avenues and increase movement of goods and flow of cash. This flow of cash is known in the banking concept as cash generation. If there is enough cash generation, funds will automatically flow into the borrowers accounts with the bank and will show a satisfactory turnover in accounts which the lending bank always demands. This is why the manager’s speculation should be making the highest cash through the employment of the advances.

3.2.2 How to locate security:

As soon as the evaluation of purpose is done the manager will examine and evaluate in the following manner the securities offered by the prospective borrower:

a) Security is the source of information on the prospective borrower. If securities are valuable properties like land, building, inventories, shares of stocks or pledged goods, these will offer adequate information about the borrower as to his financial position.

b) The branch Manager’s responsibility as to security is also to see how much control he will be in a position to exercise on the entire stocks of the borrower.

3.2.3 How to locate borrower:

In appraising a loan process, the selection of the prospective borrower is the most vital point. The borrower is the real actor and must be in position to achieve the purpose for which the loan has been requested. In selecting ideal borrower, the branch manager thus assumes the greatest responsibility. Capital is another point to indicate the borrower’s position. He should be given loan in proportion to this own investment as working capital. As a general rule a bank should not sanction loan more than the investment of the borrower.

In order to locate a borrower, a banker should consider the borrowers 5 C’s: –

1. Character – Borrower’s Integrity, honesty, intention to repay the loan money, commitment, credit record, dependability etc.
2. Capacity – Borrower’s business ability, cash flow, debt service coverage, COGS, business experience, technical knowledge, age, profitability etc.
3. Capital – Financial strength to cover a business risk, stake in business, solvency, retention of earning etc.
4. Condition – It is general business condition. Economic trends, industry growth, competitive & regulatory environments, working condition etc.
5. Collateral – Borrower’s ability to produce additional securities, asset quality, type, location, title, forced sales value etc.

The Pubali Bank Limited offers both funded and non-funded credit facilities. These are described below.

# Necessary Papers for Loan Proposal (in general):

· Board Resolution

· Audited Balance Sheet for the last 3 years

· Valid Trade License

· TIN & VAT Certificate

· Liability with other banks (if any)

· Angikarnama in triplicate for each Director

· Personal Net Worth Statement in duplicate for each Director

· Application for Loan & Advances

· Statement of Stocks

· Up to date Rent Receipt/ Khazna Rashid

3.3 Funded Credit Facility:

Funded loan facility means direct fund involvement of bank, the funded facilities of loans and advances are:

3.3.1 Over Draft:

Over draft facility is also a continuous loan arrangement on a customers’ current account permitting him to overdraw up to a certain approved limit for an agreed period. Here the withdrawal of deposits can be made any number of times at the convenience of the borrower, provided that the total overdrawn does not exceed the agreed Limit over his zero balance in the account.

Customer can return any amount at any time within the pre-fixed time of the facility. Overdraft facility is given to the businessman for financing working capital requirement and high net worth individual to overcome temporary liquidity crisis.

This type of facility is for short-term period and maximum for one year. It is a ‘need basis loan’. Bank’s lending in the form of Overdraft is always allowed on the Current Account of the Customer, which is operated upon by cheque. The Overdraft has a limit and expiry date but it is renewable also.

Generally securities required for OD are Fixed Deposit Receipt, Government Bonds, Shares, Debentures, Immovable Properties, Life Insurance Policies, DPS etc.

But in case of PBL the only security needed for OD is FDR and the interest they charge is 14 %.

3.3.1.1 Secured Over Draft:

This is a type of over draft facility given by keeping sufficient collateral from the customer. This facility provides specific right to a client to over draw within a pre-fixed limit for a certain period of time. SOD is normally granted against the security of tangible asset such as lien of FDR, Bonds, DPS, Shares, Life Insurance Policy, Sanchaya Patra etc. Interest charge on SOD is calculated on the basis of the security liened.

3.3.1.2 Unsecured Over Draft /Clean OD:

Clean OD is granted for short periods after taking into consideration the net liquid resources of the borrowers. In case of clean OD no securities are taken as collateral. Clean OD is given only the reliable parties those are credit worthy and good business performer.

3.3.2 Cash Credit:

Cash credit is a continuous credit facility usually provided for working capital fund requirements purpose of the customer. It is a drawing account in the form of Bank’s Credit extended to the Borrower. It is similar to that of Overdraft except insofar as overdraft is allowed against a Current Account. But in case of Cash Credit separate account is opened in the name of the Borrower and cheque book is issued. Cash Credit is an operative account subject to the limited sanctioned by the Bank for a specified period. Cash credit is generally given to traders, industrialist and business concerns for meeting up their working capital requirements. Cash credit can be given on Hypothecation of goods or pledge. For getting the loan the borrowers need to submit the financial statement and trade license into the bank. PBL practices Cash Credit on both Hypothecation and pledge.

Interest is calculated and charged on the daily outstanding debit balances on daily product basis. The borrower can withdraw or deposit any number of times provides the amount overdrawn does not at any time exceeds the agreed limit. Generally Pledge or Hypothecation of goods, merchandise, plant and machinery etc secure the Cash Credit Accounts. Generally the Cash Credit is allowed to the customer for a period of one year and continues for years together subject to the satisfactory performance in the account. The Cash Credit limit may be increased or decreased depending upon the business requirements of the borrower and time-to-time review of the account by the Bank. The securities needed for CC A/C may be in the form of Fixed Deposit Receipt, Government Bonds, Shares, Debentures, Immovable Properties, Life Insurance Policies, and Goods/Merchandise etc.

3.3.2.1 Cash Credit (Hypothecation):

It is the bank sanctions a short-term arrangement by which a customer is allowed to borrow money up to a certain limit for a certain time against hypothecation of borrower’s merchandise stocks, book-debts or imported goods etc. Under the condition the borrower is required to submit the stock time to time in the bank specimen form. It is allowed for a maximum period of one year.

· It is a charge against a property for a debt where neither the ownership nor the possession is passed to the Banker.

· It is granted only to first class parties.

· Instrument – Hypothecation Deed

• Possession of goods is surrendered to the lender when called upon to do so. Charge is then converted to pledge.

3.3.2.2 Cash Credit (Pledge):

It is also a continuous loan allowed against pledge of goods as primary securities fall under this head of advance.

· It is a charge against a property for a debt where the ownership remains to the borrower but the possession is passed to the Banker.

· It is granted to all business parties.

· Instrument – Pledge deed

• In case of default, Bank may sell the security on giving the debtor reasonable notice of sale.

3.3.3 CLS Loan:

CLS stands for Consumer Loan Scheme. CLS is one kind of personal loan which improves the lifestyle of the consumer. The other names of this CLS are Personal Loan or Any Purpose Loan. Different banks use different names. The PBL provides this loan through agents. The agent gets commission for it. The CLS loan is as like as any purpose loan and lifestyle loan. PBL offers this loan for-

· House hold goods

· Car purchase

· Flat purchase

In this loam mechanism the bank purchase the goods and the ownership are belongs with bank until the repayment is not completed. In case of CLS loan the interest amount will charged before the disbursement of loan and the rest amount will be given to the borrower.

PBL provides CLS Loan as follows:-

· For Household Goods —- Tk 3.00 lac

· For Car Loan —— Tk 20.00 lac

· For Flat Purchase —— Tk 50.00 lac

For Car and Flat Loan the customer should give 30 % margin amount to himself upon its price. In all the cases those goods are mortgaged to the bank.

The interest rate of CLS is 16 %.

# CLS Loan Documentation:

• Application of the party
• Loan sanctioning letter (contains- limit, period, purpose, security, rate of interest, mode of payment, disbursement process, conditions, other documents etc.)
• Balance confirmation certificate
• Promissory note
• Letter of continuity, undertaking, hypothecation, guarantee.
• Hire purchase agreement

3.3.4 PPS Loan:

As I mentioned earlier the PPS is similar as DPS and the PPS A/C holders get the loan benefit against their PPS. The maximum loan limit is 80 % and the loan must be used for a productive purpose. Interest is @ 15 % and period is for one year. The mode of repayment is monthly basis. One significant thing is, if two installments consecutively become due, the bank may adjust the loan A/C with the PPS A/C.

# PPS Loan Documentation:

• Application of the party
• Loan proposal ( proposal is signed by the Cr. Committee members of PBL like GM, DGM level people.)
• Loan sanctioning letter (contains- limit, period, purpose, security, rate of interest, mode of payment, disbursement process, conditions, other documents etc.)
• Balance confirmation certificate
• Promissory note
• Letter of continuity and guarantee.
• Lien letter
• Letter of authority for encashment

3.3.4 Term Loan:

Term loans are given to finance the acquisition of capital asset. Loan agreements often contain restrictive covenant and loan is repayable in accordance to amortization schedule. Collateral is must for term loan.

In PBL under term loan there are three categories:

· Short-term loan: Less than one year falls within this category.

· Midterm loan: This loan facility is extended for more than one but less than three years. PBL encourages midterm loans.

· Long-term: Long term loan is for more than five years.

Term loans are providing for small, medium and large scale industries. Interest will increased as time period increased.

3.3.5 Demand Loan:

Demand loans are those loans which are payable on demand. If contingent or any other debt becomes forced loan, then those are also termed as demand loan.

PBL offers the demand loans against:-

• Against PF (Provident Fund)
• HBL – General
• HBL – Staff
• Against PPS
• Against Other Securities

# PBL Demand Loans are as follows:

1. House Building General

2. House Building Commercial

3. House Building / Construction Apartment Project Loan (CAPL)

4. Machinery Purchase

The bank considers the security against the DL and gets the legal opinion for that purpose. The CC loan becomes DL when it wad defaulted.

# Demand Loan Proposal:

The DL proposal papers contains the following things –

• Customer name
• A/C No.
• Address present , permanent & phone number
• Business address /Factory address
• Legal status
• Establishment date
• TIN /VAT No.
• Name of the Proprietor /Partners /Directors
• Nature of business
• Credit limit
• A/C information & last 3 years statements
• CIB Report
• Other banks information
• Fixed asset valuation
• Recommendation

3.3.7 Personal Credit (PC):

PBL also offers personal credit facility to its customer for buying household appliances. No securities are kept for this credit facility but a guarantee from third party is required who ought to be a prominent person or government service holder of appropriate designation. Any one with continuous employment for a reasonable length of time in an organization can have this facility. A quotation needs to be submitted on the office pad from where the goods will be purchased.

Limit of PC is from Tk.50000/- to Tk.300000/- and interest rate for P.C is 16.25%.

3.3.8 Loan Against Trust Receipt (LATR):

PBL gives the LATR to its valued clients in the form of releasing the Import documents without Payment. After releasing the merchandise from the Customs Authority the client holds the commodity or their sale proceeds in Trust for the Bank. The client shall pay off the Bank’s due from the sales proceeds of the imported merchandise within the stipulated time. The LATR is allowed for a period of 30, 60, or 90 days and the loan must be adjusted within this period. The Head Office sanctions LATR. The Trust Receipt is a document, which creates the Banker’s lien on the goods. In PBL the interest of LATR is @ 15 %.

# Necessary Documents:

The following charge document shall be obtained before allowing the Loan:

1. Demand Promissory Note.

2. Trust Receipt.

3. Letter of Indemnity.

4. Letter of Arrangement.

5. Letter of Disbursement.

6. Letter of partnership along with Registered Partnership Deed in case of Partnership Accounts.

7. Resolution along with Memorandum & Articles of Association of company in case of accounts of Limited Company.

3.3.9 Loan Against Imported Merchandise (LIM):

Advances allowed for retirement of shipping documents and release of goods imported through L/C taking effective control over the goods by pledge fall under this type of advance. When the importer failed to pay the amount payable the exporter against import L/C, then PBL gives loan against the warehouse charge, insurance fees, etc. and the ownership of the goods is retain to the bank. This is also a temporary advance connected with import, which is known as post import finance. In most of cases the importer does not come forward to retire the documents in spite of repeated reminders, in that case the bank is forced to clear the consignment form the Customs Authority to avoid high demurrage at he port which adds more to the burden of commitment. Sometimes there may be arrangement of such facility with the Bank. When the importer fails to retire the Documents or requests the bank for clearance of goods, the outstanding under PAD along with up-to-date interest is transferred to Loan Against Imported Merchandise (LIM) Account. The LIM is a loan account and the interest; clearing charges such as custom duty, sales taxes etc are debited in the account. After clearance, consignments are taken delivery by the importer on full payment of Bank’s liability. Normally, part delivery is not allowed while on LIM account. When the party desires part delivery, the LIM is converted into Cash Credit retaining proper margin and executing charge documents.

3.3.10 Payment Against Document (PAD):

It is a forced loan, created against Sight L/Cs. Banks open Letter of Credit in favor of the importer for importing Goods/Merchandise from abroad. The Negotiating Bank negotiates the documents as per L/C terms and debit the NOSTRO Account of the L/C opening Bank and the amount thus becomes an advance on behalf of the Importer. On receipt of documents from the exporter’s bank the same is lodged in the banks of the L/C opening bank and will respond to the debit advice originated by its Foreign Correspondent to the debit of Payment Against Document (PAD) and advise the importer for retirement. The importer retires the Import Bill by adjusting the PAD outstanding and until the PAD is retired the amount outstanding thereon is a credit extended to the importer. The L/C Opening Bank is bound to honor its commitment to pay against import bills if these are presented for payment as per Letter of Credit (L/C) terms.

In PBL the Import Section handles with LATR, LIM and PAD loan. They are processing all the necessary documents and handle over the files to the credit division for the next processing.

3.3.11 Some Other Credits:

PBL also offers some other credits like –

Working Capital Loan:

· For Jute Mills

· For other Industries

Export Financing:

· Ready made garments / others

· Jute products and other export goods

Commercial Loan:

· Financing towards the agro based businesspeople

· Loans to agricultural inputs traders

· Fertilizer dealers / distributors

· Jute trading

· Other commercial loans

Others:

· Loan against FDR of Pubali Bank Limited

· Loan against FDR of other banks

· Loan against DPS account balance

· Loan against Sanchaya Patra, Wage Earner Bond, Surrender Value of Life Insurance Policy etc

· Loan against Share Certificate

· Special program and any other loans not covered in the loan categories

3.4 Non-Funded Credit Facilities

Non-funded facilities also known as contingent facilities are those where banks fund is not required directly. A non-funded facility can be turned to a funded facility as per situation is created. The following non-funded facilities are provided by Pubali Bank Limited:

3.4.1 Letter of Credit (L/C):

A letter of credit is a credit line given by a bank to an importer to facilitate both foreign and inland transactions. This is a contingent liability which can be converted to a funded facility incase bank makes the payment on behalf of the importer. A letter of credit can be revocable or irrevocable, restricted or negotiable so on. L/C will discuss later elaborately.

3.4.2 Guarantee:

Pubali Bank Limited offers guarantee for its reliable and valuable customer as per requirements. TITAS Gas demands bank guarantee to its customer who are going to establish the Gas Station for vehicles. This is also a credit facility in contingent liabilities from extended for participation in development work like supply of goods and services.

# Features of Bank Guarantee:

• Irrevocable
• Margin ( it may be 100 % or other limits)
• It has a validity period
• In case of open bank guarantee five years advance bank charged will be payable by the party in advance.

• It is a written document on non-judicial stamp.

# Documents for Bank Guarantee:

• DP Note
• Letter of continuity
• Letter of Authority for encashment
• Letter of Lien
• Letter of pledge of security
• Counter guarantee

3.4.3 Others:

· Bid Bond

· Performance Bond

· Advance Payment Guarantee

· Foreign Counter Guarantee —etc

# CIB (Credit Information Bureau ):

In every types of loan the CIB report is essential for ensuring whether the customer took loans from any other banks at a time. In PBL if anybody demands loan more than Tk.50,000/- the bank then send CIB report in Bangladesh for the purpose of knowing in details about the customer. If the customer doesn’t take any loan then the CIB report will be nil.

# CIB Format:

· Branch Code

· Bank Name

· Name of Branch

· Borrower’s Code

· Borrower’s Name

· Father’s Name

· Mother’s