Prime Bank Limited emphasized on Retail credit or Consumer Credit

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Prime Bank Limited emphasized on Retail credit or Consumer Credit

Executive Summary

In the new competitive business era, Private banking sector is getting more competitive in Bangladesh. Besides this, as the number of salaried individuals are increasing day by day, they are also becoming more aware about the utilization of their money while fulfilling their personal needs. To consider these needs of people, Prime Bank Limited has recently emphasized more on “Retail credit” or “Consumer Credit” Therefore, to find out the possibility of establishing the leading position of Prime Bank Limited in terms of credit, this report has been conducted to find out the Status of Credit Related Activities and Recovery of Prime Bank Limited Hajiganj Branch. In this report, the total credit portfolio of Prime Bank Limited has been shown that indicated a positive growing trend in the credit amount disbursed. One of the crucial parts of this report is that, Prime Bank Limited Credit has been compared with City Bank Limited in some aspects to understand the current position in the market. The credit disbursement procedure is also described. From the comparison with City Bank Limited, some problems and prospects are found in Prime Bank Limited Credit. The most important prospects of Prime Bank Limited credit are that, it has diversified product portfolio and lowest rates in different charges of credit which is the strength of Prime Bank Limited to proceed further in credit business. Again, Prime Bank Limited has a few problem regarding target client segments and promotional activities that should be rectified. If Prime Bank desires to keep in balance of its reputation compared to other well-reputed private commercial banks, it should consider more of its credit business.

Chapter-1

Introduction & Background to the Study

1.1 Introduction:

Banking concept has been evolved since the rapid development of Information Technology. Nowadays almost all over the world banking concept is a well-orchestrated name which has indeed added a new feather to the gamete of banking lexicon. The primary activities of any bank are to collect deposit and invest in different areas to earn profit. Beside this, the asset value maximization of the shareholders and maintaining strong clientele are another two important duties for any bank. To maintain these, Prime Bank Limited (PBL) has reached a vast amount of Tk. 106956.27 million balances during 2009 with a 22% growth rate over the year 2009 (Annual Report, 2009).This large amount has been invested in different purpose to provide industry loan, export-import finance, commercial lending, house-building finance and others. From the very beginning, the credit exposure of PBL has been focused on commercial lending that is international trade Finance, domestic trade finance, contractor/supply finance etc. But from the annual report (2009) of PBL, it has been revealed that the total loan amount Tk. 89252.22 million . One of the prudent conditions of ensuring profit is to minimize risk. Such defaults by one of the corporate clients and the adverse effect of political situation at the end of 2009 have made the bank management to rethink about its existing credit portfolio with an emphasis on credit.

1.2 Back Ground of the Study:

have been servicing Prime Bank Limited Hajiganj Branch since December, 2009. For preparation of intern report collected different data from my Branch for 03 month duration. The report covers the Branch credit related activities and loan recovery. So the report covers credit activities and loan recovery of Hajiganj Branch. In the backdrop of economic liberalization and financial sector reforms, a group of highly successful local entrepreneurs conceived an idea of floating a commercial bank with different outlook. For them, it was competence, excellence and consistent delivery of reliable service with superior value products. Accordingly, Prime Bank Ltd. was created and commencement of business started on 17th April 1995.

This report gives a narrative overview of the credit related activities and recovery of Prime Bank Limited of Hajiganj Bra

1.3 Objectives of the study:

1.3.1 Specific Objectives:

  • the portfolio of credit disbursed
  • the current credit product portfolio
  • the credit assessment , approval and disbursement procedure and
  • the current position of PBL(Hajiganj Br) in comparison with other similar private commercial banks.

1.4 Methodology:

The study requires a systematic procedure from selection of the topic to preparation of the final report. To perform the study, the data sources were to be identified and collected, to be classified, analyzed, interpreted and presented in a systematic manner and key point were to be found out. The over all process of methodology has been given as below:

1.4.1 Sources of data, data collection procedure:

This study is mainly based on secondary data available from the credit division of Hajiganj Branch, in addition to these other necessary information have been colleted from the Daily news paper, relevant journal, annual report of Prime Bank.

1.4.2 Primary sources of data:

  • Face to conversation with the bank officer and staffs
  • Conversation with the clients
  • Different manual of Prime Bank Limited
  • Different circulars of Prime Bank Limited

1.4.3 Secondary sources of data:

· Procedure manual published by the Prime Bank Limited

· File and documents of the branch

· Annual report of the Prime Bank Limited 2009

· Different papers of Prime Bank Limited

· Different text book

1.4.4 Limitations

Although it has been tried on the level best to make this report based on facts and complete information available, there are some limitations that are inevitable. They are following:

· The main constrain of the study is insufficient of information, which was required for the study

· There are various information the bank employee can not provide due to security and other corporate obligation.

· There was a time limitation many of the aspect could not be classified in the present report.

· Since the bank personals were very busy, they could provide me very little time.

· carried out such a study for the first time, so inexperience is one of the main constrains of the study.

Chapter-2

Bank Profile

2.1 A Brief Profile of Prime Bank Limited (PBL)

Prime Bank Limited, a scheduled bank, was incorporated under the Companies Act 1994, and started its operation on April 17, 1995 with the target of playing the vital role in the socio-economic development of the country as well as earning profit. It was registered as a banking company under the Bank Company Act 1991 from the Bangladesh Bank on February 12, 1995. The bank started making profit from the year of its inception. The first Managing Director, Mr. Lutfar Rahman Sarkar, Ex-Governor, Bangladesh Bank, provided required leadership for a newly established bank.

Prime Bank Limited is a second – generation private commercial bank has been working for stimulating trade and commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity, alleviating poverty, raising standard of living of the people etc and thereby contributing to the sustainable development of the country. At present, the bank has a network of 89 branches with around 2280 employees stationed in both rural and urban areas of the country. Since inception, the Bank has been making significant profit every year and positioning itself as second highest profit-making bank in the country for last five consecutive years. This has been possible due to significant growth of the bank. This has also been possible due to minimize the risks of the bank successfully.

The bank serves its customers with the following motto—

‘A Bank with a difference’

2.2 Vision:

To be the best Private Commercial Bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management and profitability having strong liquidity.

2.3 Mission

· To build Prime bank limited into an efficient, market driven, customer focused institution with good corporate governance structure.

· Continuous improvement in our business policies, procedure and efficiency through integration of technology at all levels.

2.4 Strategic Priority

To have sustained growth, broaden and improved range of products and services in all areas of banking activities with the aim to add increased value to shareholders investment and offer highest possible benefits to the customers.

2.5 Core Values

2.5.1 For the customers

To become most caring Bank- by providing the most courteous and efficient service in every area of business.

2.5.2 For the Employee

By promoting the well – being of the members of the staff

2.5.3 For the Shareholders

By ensuring fair return on their investment through generating stable profit.

2.5.4 For the Community

By assuming the role as a socially responsible corporate entity in a tangible manner through close adherence to national policies and objectives.

2.6 Products and Services

The bank serves its huge clientele with a variety of services apart from the traditional ones. Its continual improvement and introduction of new products and services has given it an edge over the competitors.

2.6.1 Depository Services

The bank provides the following depository services and collects a huge amount of its deposits. The services are

Table-1: List of Depository services provided by PBL

1. Contributory Savings Scheme
2. Monthly Benefit Deposit Scheme
3. Special Deposit Scheme
4. Education Saving Scheme
5. Fixed Deposit Receipt
6. Savings Deposit Account
7. Special Notice Deposit
8. PBL-Insured Fixed Deposit Scheme
9. Prime Bank Money Scheme
10. Multi Currency Account
11. Foreign Currency Deposit Account
12. Non Resident Taka Account
13. NFCD (Non Resident Foreign Currency) Account
14. Non Residents Investors Account

2.6.2 Loan Services

Loans and advances have primarily been divided into two major groups:

a) Fixed term loan:

These are the loans made by the Bank with fixed repayment schedules. Fixed term loans are categorized into three based upon its tenure which is defined as follows:

Short term: up to 12 months

Medium term: More than 12 and up to 36 months

Long term: More than 36 months

b) Continuing Loans

These are the loans having no fixed repayment schedule but have an expiry date at which it is renewable on satisfactory performance of the customer

2.6.3 Types of Credit Facilities:

Depending on the various nature of financing, all credit facilities have been brought under two major groups: (a) Funded Credit and (b) Non-funded credit. Under non-funded credit, there is basically two major products namely letter of Credit and Letter of Guarantee. Under Funded Credit, The bank offers the following services to the client to meet the demand as well as making a profit. The loan and advance products are:

Table-2: List of loan services provided by PBL

Name of the Products/services
1. Loan (General)
2. Housing Loan (Commercial)
3. Home Loan
4. House Building Loan (Staff)
5. Other Loans to staff
6. Cash Credit (Hypo)
7. Cash Credit (Pledge)
8. Hire Purchase
9. Lease Financing
10. Consumer Credit Scheme (CCS)
11. SOD (Financial Obligation)
12. SOD (General)
13. SOD (Work Order)
14. SOD (Export)
15. PAD
16. LIM
17. LTR
18. IBP
19. Export Cash Credit (ECC)
20. Packing Credit (P.C.)
21. FDBP
22. IDBP
23. FBP
24. Prime Bank Master and Visa Credit card

2.6.4 Other Services

The bank firmly believes that technology based product and services will play significant role in the performance of the bank as people are getting more conscious about their service they receive from a bank. For delivering faster service the bank has introduced online banking service. The bank has introduced other products and services to serve the ever-changing market. These are—

I. SWIFT services

II. L/C Delivery Services

III. Locker Services

IV. Merchant Banking Services

V. ATM services

Chapter-3

Analysis & Discussion

3.1 Credit:

Credit is the provision of resources by one party to another party where that second party does not reimburse the first party immediately (thereby generating a debt), but instead arranges either to repay or return those resources (or other materials of equal value) at a later date. The resources provided may be financial (e.g. granting a loan), or they may consist of goods or services (e.g. consumer credit). Credit encompasses any form of deferred payment (Sullivan et al, 2003). Credit is extended by a creditor, also known as a lender, to a debtor, also known as a borrower

3.2 Recovery:

When a loan has been taken by a person from a bank then he has to repay it according to the EMI fixed by the bank.

3.3 Recovery system of Prime Bank Limited:

Recovery of advances is one of the most important activities of the bank. Bank can not sit ideal after sanctioning advances. First of all, secure the advances by obtaining suitable securities followed by constant supervision and follow up. if necessary, they also nurse sick project and business. All thinks are done in order to recovery to ensure recovery.

Deposit all conceivable efforts; recovery remains a constant worry for the banks. This worry forces the bank to ensure regular repayment of both the principle and interest. If it is an one time loan, bank’s worry is over as soon as the repayment is made in full. But if it is a continuous loan like Castle credit or over draft, repayment is often followed by regular renewal of the sanctioned limits. In such cases bank even enhance the limits, if need. So far good.

But the problem start as the borrower became unable to pay either regular installments or suspends payment as required. At such happening starts the second stage of recovery. This is normally done by rescheduling the payment schedule. Rescheduling is, however, subject to deposit of a specified amount of the advance and various other Central Banks’ restrictions.

Rescheduling is not in the truest sense of the term cash recovery. It is in fact lengthening the contracted period of repayment. Normally banks reschedule advance of problematic nature even by waving a part of interest. This is done with a view to giving chance to the industry and business to improve so that the advance becomes regularized and banks can avoid keeping provision because of classification.

Despite all this steps, advances become stuck up showing no signs of normal recovery. As per rules of the central bank advances at this stage automatically become classified banks, therefore, have to file court cases for recovery in terms of the money lone court cases for recovery in terms of the money loan court act-2003 as per provisions of this act they can sell of the securities for realization of the dues and go to the court of recovery of the residue if any. There may, however be mutual settlement between the borrowers and bank through the court. There may even be settlement between them under intimation to the court.

In view of the huge classified loans and court cases numbering thousands in this regard, the problem of recovery has in the meanwhile become acute. Banks have been facing too many problems in tackling the issue with normal administrative and legal set up. Considering the inadequacy of the recovery arrangement within the banks and inadequacy of skill, Central Bank has recently allowed the banks to avail of the services of specialized institutions called `asset management company` or recovery agency. These are the institutions recently set up with specialized knowledge in handling recovery cases either through administrative or legal steps.

3.4 Credit related activities of Prime Bank Limited:

Prime Bank Limited is one of the fast growing banks in terms of satisfying individual clients’ need. For the clients’ convenience, Prime Bank has offered following credit facilities. Those are following:

· Loan (General)

· Housing Loan (Commercial)

· Home Loan

· House Building Loan (Staff)

· Other Loans to staff

· Cash Credit (Pledge)

· Cash Credit (Hypo)

· Hire Purchase

· Lease Financing

· Consumer Credit Scheme (CCS)

· SOD (Financial Obligation)

· SOD (General)

· SOD (Work Order)

· SOD (Export)

· SOD (Export)

· PAD

· LIM

· LTR

· Export Cash Credit (ECC)

· IBP

· Packing Credit (P.C.)

· FDBP

· IDBP

· FBP

· Prime Bank Master and Visa Credit card

· Car loan

· Household Durable Loans

· Any purpose Loans

· Doctor’s Loan

· Marriage Loan

· Education Loan

· Loan against Salary

· Travel Loan

· Hospitalization Loan

· CNG conversion Loan

· Swapna Neer

Brief details of the loan products which provide from Hajiganj Branch:

3.4.1 Car Loan:

For purchasing of non-commercial, new and reconditioned vehicles, this loan is given for personal use of the individual.

Table-3: Features of Car Loan

Features Description
Loan Amount(Min) Tk. 4,00,000(For both new and reconditioned car)
Loan amount(Max) Tk 20, 00,000 or 90% of the vehicle price.
Rate of Interest 17%
Tenor 6 years (max) for brand new cars and 5 years (max) for reconditioned car.
Down payment 30% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Pay order directly issued in the name of respective car company.
Other charges 1% on the loan amount or Tk. 1000 whichever is higher+15%VAT
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 475
Early Settlement At any time with no penalty charge
Criteria for application(Age limit) Any Bangladeshi citizen of 25-60 years at the time of maturity of loan.
Minimum Monthly Income Tk. 20,000 for salaried individuals

Tk. 40,000 for businessman

Guarantors Two persons.

3.4.2 Household Durables Loan

For purchasing household durables like television, refrigerator, air-conditioner, washing machine, computers and other household furniture for personal use, any individual can apply for this loan.

Table-4 : Features of Household Durables Loan

Features Description
Loan Amount(Min) Tk. 50,000
Loan amount(Max) Tk 5, 00,000 or 90% of the vehicle price.
Rate of Interest 17%
Tenor 4 years (max).
Down payment 20% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Pay order directly issued in the name of respective company of purchase.
Other charges 1% on the loan amount or Tk. 1000 whichever is higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 470
Early Settlement At any time with no penalty charge
Criteria for application(Age limit) Any Bangladeshi citizen of 21-60 years at the time of maturity of loan.
Minimum service length Minimum service length of 1 year and must be a confirmed employee (For salaried individual)

A business record of minimum 3 years(For self-employed person)

Minimum Monthly Income Tk. 10,000 for salaried individuals and

Tk. 15,000-25,000 for businessman

Guarantors Two persons.

3.4.3 Any purpose Loan

For miscellaneous personal financial purposes such as, house renovation, marriage in the family, rental payments, trips abroad, purchasing of different household items etc., any individual can get this type of loan. The features of the loan are following:

Table-5: Features of any Purpose Loan

Features Description
Loan Amount(Min) Tk. 50,000
Loan amount(Max) Tk 3,00,000.
Rate of Interest 17%
Tenor 3 years(max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Savings account of clients or sometimes cash disbursement.
Other charges 1% on the loan amount or Tk. 1000 whichever is higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for application(Age limit) Any Bangladeshi citizen of 25-65 years at the time of maturity of loan.
Minimum service length Minimum service length of 2 year and must be a confirmed employee(For salaried individual)
Minimum Monthly Income Tk. 10,000 for salaried individuals

Tk. 25,000 for businessmen

Guarantors Two persons

3.4.4 Doctors Loan

In case of purchasing small scale of different medical equipments, machineries, tools or other relevant items to support professional needs, generally doctors are encouraged to apply for this loan. Features of doctors’ loan are given below:

Table-6: Features of Doctors Loan

Features Description
Loan Amount(Min) Tk. 1,00,000
Loan amount(Max) Tk 5, 00,000 for general practitioners.

Tk. 10,00,000 for specialist doctors that is , holding post graduation degree

Rate of Interest 17 %
Tenor 5 years (max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Clients’ savings account or sometimes cash disbursement
Other charges 1% on the loan amount or Tk. 1000 whichever is higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 475
Early Settlement At any time with no penalty charge
Criteria for application(Age limit) Any Bangladeshi citizen of 25-65 years at the time of maturity of loan.
Minimum service length For salaried individuals, must be confirmed of an established organization.

For self employed person, a professional experience of minimum 2 years is required.

Minimum Monthly Income Tk. 10,000 for salaried individuals and

Tk. 25,000 for self- employed

Guarantors Two persons.

3.4.5 Marriage Loan

To meet the financial purposes of marriage, this loan is given. The features are given below:

Table-7: Features of Marriage Loan

Features Description
Loan Amount(Min) Tk. 10,000
Loan amount(Max) Tk 3,00,000.
Rate of Interest 17%
Tenor 3 years(max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Clients’ savings account or sometimes cash disbursement
Other charges 1% on the loan amount or Tk. 1000 whichever is higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for application(Age limit) Any Bangladeshi citizen of 25-65 years at the time of maturity of loan.
Minimum service length Minimum service length of 1 year and must be a confirmed employee(For salaried individual)
Minimum Monthly Income Tk. 10,000 for salaried individuals

Tk. 25,000 for businessmen(For rented people)

Guarantors Two persons.

3.4.6 Education Loan

For educational purposes like study in abroad or within the country, this loan is given.

Table-8 : Features of Education Loan

Features Description
Loan Amount(Min) Tk. 1,00,000
Loan amount(Max) Tk 5, 00,000.
Rate of Interest 17%
Tenor 4 years (max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Clients savings account or sometimes cash disbursement
Other charges 1% on the loan amount or Tk. 1000 whichever is higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for application(Age limit) Any Bangladeshi citizen of 25-65 years at the time of maturity of loan.
Minimum service length Minimum service length of 2 year and must be a confirmed employee(For salaried individual)
Minimum Monthly Income Tk. 12,000 for salaried individuals and Tk. 25,000 for businessmen (For rented people)

Tk. 10,000 for salaried individuals and

Tk. 15,000 for businessmen(for those who are residing in his/her own or family residence)

Tk. 10,000 for Govt., Semi-Govt and autonomous bodies employees.

Guarantors Two persons.

3.4.7 Loan against salary

To meet the financial needs for any acceptable purpose, this loan can be given

Table-9: Features of Loan against Salary

Features Description
Loan Amount(Min) 8 times if gross salary where the organization of the applicant would have Memorandum of Understanding with PBL subject to highest Tk. 3, 00,000.
Rate of Interest 17%
Tenor 3 years (max).
Down payment N/A
Repayment method Monthly equal installment
Disbursement mode Clients savings account or sometimes cash disbursement.
Other charges 1% on the loan amount or Tk. 1000 whichever is higher+15%VAT
Risk fund N/A
Penalty Charge N/A
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for application (Age limit) Any Bangladeshi citizen of 21-65 years at the time of maturity of loan.
Minimum service length Minimum service length of 1 year and must be a confirmed employee (For salaried individual)
Minimum Monthly Income N/A
Guarantors N/A

3.4.8 Travel Loan

To meet the financial needs for travel purpose, this loan can be given. Features of this loan are following:

Table-10: Features of Travel Loan

Features Description
Loan Amount(Min) Tk. 20,000
Loan amount(Max) Tk 2, 00,000.
Rate of Interest 17%
Tenor 3 years (max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Clients’ savings account or sometimes cash disbursement.
Other charges 1% on the loan amount or Tk. 1000 whichever is higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for application(Age limit) Any Bangladeshi citizen of 25-65 years at the time of maturity of loan.
Minimum service length Minimum service length of 2 year and must be a confirmed employee(For salaried individual)
Minimum Monthly Income Tk. 12,000 for salaried individuals and Tk. 25,000 for businessmen(For rented people)

Tk. 10,000 for salaried individuals and

Tk. 15,000 for businessmen( for those who are residing in his/her own or family residence)

Tk. 10,000 for Govt., Semi-Govt and autonomous bodies employees.

Guarantors Two persons.

3.4.9 Hospitalization Loan

To meet the financial needs for treatment purposes in well-reputed hospitals/clinics of Dhaka and Chittagong, any individual can get this loan under the following criteria:

Table-11: Features of Hospitalization Loan

Features Description
Loan Amount (Min) 90% of the total treatment cost
Loan Amount (Max) Tk 5,00,000.
Rate of Interest 17%
Tenor 2 years (max).
Down payment N/A
Repayment method Monthly equal installment
Disbursement mode Clients’ savings account .In case of salaried individuals, sometimes cash disbursement may happen.
Other charges 1% on the loan amount or Tk. 1000 whichever is higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for application(Age limit) 25-65 years at the time of maturity of loan.
Minimum service length Minimum service length of 2 year and must be a confirmed employee(For salaried individual)
Minimum Monthly Income Tk. 10,000 for salaried individuals

Tk. 25,000 for businessmen

Guarantors Two persons.

3.4.10 Swapna Neer

The purpose of giving this loan is to purchase apartment/house(if old, not older than 10 years), constructing new house and taking over of house-building loans from other banks/non banking financial institutions.

Table-12: Features of Swapna Neer or Home Loan

Features Description
Loan Amount(Min) Tk. 10,00,000
Loan Amount(Max) Tk. 50,00,000
Loan to price ratio 40% of total cost for construction of home

30% of purchase price of new apartment

50% of purchase price of old apartments/home subject to maximum Tk. 50, 00,000.

Rate of Interest 13%
Disbursement mode Issuing pay order to the name of respective company
Tenor 15 years (max).
Repayment method Monthly equal installment
Early Settlement At any time with no penalty charge
Other Charges 1% on loan amount
Risk fund 0.50% on loan amount
Criteria for application(Age limit) Any Bangladeshi citizen of up to 60 years (repayment age)
Minimum Monthly Income The quantum of loan shall be such to ensure monthly installment size would not exceed 40% of the gross income or 80% of the residual income after deducting all expenses except present rental expenses whichever is lower.
Guarantors One person

For any retail loan application, Tk. 500 is taken as a fee.

To apply for any of the above retail loan of PBL, a client needs his/her photographs, copy of passport/ID card, last one year’s bank statement, copy of TIN, trade license(for businessmen), personal net worth statement etc.

One of the special criteria of retail credit or consumer credit is that, it is an unsecured loan as there is no requirement for collateral except letter of guarantee.

Besides these, following legal documents are needed to get any retail credit from PBL.

• Duly filled in loan application form with terms and condition signed

• Demand Promissory Note

• Letter of Set-Off

• Irrevocable Letter of Authority to repossess the vehicle(for car loan)

• Ownership transfer form signed by customer(for car loan)

• Letter of Introduction(for salaried person) and

• Letter of offer with full terms and conditions stated therein and duly accepted.

3.5 Credit Assessment, Approval and Disbursement Procedure

3.5.1Credit Assessment

The prior condition for any credit disbursement is to critically assess and approve the credit proposal that is the client selection and assessment. In case of retail credit it should be done more crucially as retail lending is one of the types of unsecured individual lending without collateral. The primary factor determining the quality of the Bank’s credit portfolio is the ability of each borrower to honor, on timely basis, all credit commitments made to the Bank that is, repayment of loan installment on time.

In PBL, more emphasis is given on repayment potential of loans out of funds generated from borrower’s business (cash flow) instead of realization potential of underlying securities while assessing a retail credit proposal. Following are the steps that are maintained in PBL for assessing any retail credit proposal.

3.5.2 Application

The first stage of retail credit assessment and approval process is a client application that contains the following information:

• Telephone and address contact details

• Employment/business details

• Income Details

• Income and Expenditure Statement

• Personal Net worth Statement

• Residence details

• Credit references and guarantors details

Basically, branches receive the client application with other required papers necessary for different retail loans.

3.5.3 Contact Point Verification (CPV)

Verification is a key part of application process. Contact point verification is done for all applicants except for the High Net Worth individuals or the clients having good account relationship with Bank. The objective of this process is to check the declared/undeclared information of the applicants. CPV includes:

• Applicant’s Residence, business/office address, phone, status

• Guarantors Information Verification

• Bank statement and other income documents verification.

In most of the times, CPV is done by branch managers. CPV is done by third party agency also to enable the client selection of better accounts for accelerated processing and quick rejection of those having negative/inadequate information. Retail credit officers then verify data collected by third part.

3.5.4 Guarantee

One of the fundamental perquisites for securing credit is to obtain guarantee acceptable to the bank by way of social status and perceived creditworthiness. Credit officers at branch level check the guarantors’ information very carefully. In case of guarantors, following are the rules that are maintained:

• Existing guarantor of any other loan of the bank will not be accepted as other guarantor for other loans.

• Any existing borrowers will not be taken into account as a guarantor for any other loan.

• Guarantee from the Chairman, Managing Director and Directors of Corporate facility clients and obtaining will be allowed after the prior approval of Head Office.

• All guarantors will be verified whether they have any relationship with banks earlier with either positive or negative status.

3.5.5 De duplication check

All approved applicants are checked against Bank’s database to identify whether the applicant is enjoying any other loan in other accounts part from the declared loans. Whether the client has any other loan with any other bank is also important to know for client selection. In this case, CIB (Credit Information Bureau) are sent in a specific form to Bangladesh Bank.

Within the time of the CIB returned back to the branch, the retail credit officers of the branch make a credit proposal for further assessment and approval CIB reports are requested for any amount equivalent to Tk. 50,000 and above that. After returning the CIB information, the credit proposal along with documents is sent to Retail Credit Head Office (RHO).Up to this point at branch level, almost seven to ten days are required for processing.

3.5.6 Assessment Method

Assessment of credit proposal and credit approval are done by Head office

The assessment method can be divided in two steps.

The first step is known as “Credit Scoring” which is done to predict the creditworthiness of applications. A prior designed excel sheet is there to score in point values of some important aspects of clients such as occupation, residence status, income details etc. The total of these point values in 100 points represents the repayment probability of that particular client. The higher the value, the probability of getting approval for credit is higher.

The second step is known as “Judgmental Decision”. Application meeting the minimum cut-off score and meeting other criteria is further reviewed for judgmental decision. After credit-scoring method is completed, all the credit proposals are presented in the board meeting for approval. The judgmental approval involves the assessment of an applicant’s character, capacity and collateral.

3.5.7 Credit Approval Process

There is a credit approval authority to finally decide whether the loan should be sanctioned or not. The authority includes

• The Board of Directors

• The Executive Committee of the Board

• The Managing Director

• The Deputy Managing Director

• Retail Credit Committee

After presenting the credit proposals, the authority critically analyze the aspects and after that, the authority finally decides about the credit sanction. The members of the authority have some individual delegation power of credit, which is limited by Tk. amount. Up to this point, three to four days are required for processing.

3.5.8 Credit Disbursement

After the credit proposal has been approved, the credit officers of Head Office check whether all the security components are collected properly. If all requirements are there, documentation and arrangements are prepared for credit sanction. A sanction advice for every particular credit is sent to the branches for final disbursement. This branch level disbursement is called “Decentralized Disbursement System”

Branches, after getting the sanction advice, make a signing event with agreed terms and conditions between bank and individual client. After that, credit is disbursed to the client’s account. The total process requires fifteen, in special cases, twenty days from receiving client’s application up to disbursement.

Without completion of any of these steps including credit assessment, approval and proper documentation, credit will not be disbursed.

Sanction advice sent to branch for disbursement

Credit disbursed by branch to client

Documents in order?

Application sent to credit dep. for arrangement of credit sanction & disbursement procedure.

Credit approved?

CHO receives & assesses the credit proposal with papers and sends to credit committee for approval

Branch send credit proposal with application & papers to Head Office.

Application filled up with required papers correctly?

Branch scrutinizes the application

Application Received from client at branch level

3.6 Retail Credit Practices in Prime Bank Limited (PBL)

The Prime Bank Limited started to provide retail credit informally from the year 1999 as a part of its core business. It was then one of the negligible parts of total credit and advance and was provided to few number of individuals under the name of “Others” sector. From 2009, PBL started to expand its retail credit activities far more than the previous years as a part of risk diversification strategy. Since then, retail credit has been targeted for significant further growth.

3.7 Credit Portfolio of Prime Bank Limited (2009)

Table-13: Credit Portfolio of Prime Bank Limited (2009)

SL No Area of Financing Amount (Fig in Taka)
1 Chief Executive & Others Senior Executives 589,213,656.00
2 Commercial lending 16,350,124,011.00
3 Export Financing 6,312,646,658.00
4 House Building Loan 2,680,883,273.00
5 Retail Loan 6,629,671,400.00
6 SME 3,593,916,717.00
7 Special Program Loan 62,941,052.00
8 Staff Loan 19,840,155.00
9 Industrial Loan 37,593,714,199.00
10 Others Loans & Advances 15,419,271,368.00
Total 89,252,222,489.00

Source: Annual Report-2009, PBL

Chapter-4

Results & Findings

4. 0 Credit activities of Prime Bank Limited Hajiganj Branch:

Though Prime Bank Limited provides lots of credit facilities but due to rural Branch, Hajiganj Branch does not provide all types of credit facilities. Prime Bank Limited, Hajiganj Branch provides the following types of credit facilities:

Table-14: List of loan services provided by PBL Hajiganj Branch

Name of the Products/services
1. Doctors Loan
2. HHD
3. House Loan
4. Any purposes
5. Staff loan
6. Car loan
7. Cash Credit (Hypo)
8. SOD (Financial Obligation)
9. SOD (General)
10. SOD (Work Order)
11. Bank Guaranty

The process, procedures and policies maintained by the Prime Bank Ltd. is also fallowed by its Hajigong Branch for the allocation, distribution and disbursement of loans. But the volume of transaction in these aspects is little compared to other branches in the capital and other divisional and district-level branches.

4.1 Status of Credit activities of PBL Hajiganj Branh:

Figure-1: Corporate credit status of Prime Bank Limited Hajiganj Branch:

Description: Corporate credit status of Prime Bank Limited Hajiganj Branch is shown in the above figure. According to the figure, highest number of clients was found in SOD (EM) and a lowest number of clients were found in Bank guaranty.

Figure-2: Status of loan amount

which provided through

Prime Bank Limited Hajiganj Branch

Description: Status of loan amount which provided through Prime Bank Limited Hajiganj Branch is shown in the above figure. According to the figure, highest amount of loan was found in SOD (General) and a lowest amount was found in SOD (EM).

Figure-3: Status of Retail Credit Prime Bank Limited Hajiganj Branch

Description: Status of retail credit Prime Bank Limited Hajiganj Branch is shown in the above figure.

The figure revel that, the highest number of retail loan was found in HHD and the lowest number of retail loans was found in car loan.

Figure- 4: Status of Retail Credit amount of Prime Bank Limited Hajiganj Branch.

Description: Status of Retail Credit amount of Prime Bank Limited Hajiganj Branch is shown in the above figure. From the figure shown the highest amount of retail loan was found in House loan and a lowest amount was found in Staff loan.

Table-15: Overdue status of Retail loan in context of PBL Hajiganj Branch

SL No. Loan category No. of Clients Amount (Fig in lac)
1 HHD 8 0.93
2 Any purposes 1 0.15
3 Car loan 0 0.00
4 Doctors Loan 0 0.00
5 House loan 2 0.92
6 Staff 0 0.00

Description: Present overdue status of Retail loan in context of PBL Hajiganj Branch shown in the above table. According to the table, highest number of overdue clients and amount was found in HHD and the lowest overdue client and amount was found in Car loan, Doctors Loan and Staff loan respectively.

Table-16: Comparison between Prime Bank Limited and City Bank Limited, Hajiganj Branch in context of corporate credit:

Sl No. Prime Bank Limited City Bank Limited
Loan Category Amount (Fig in lac)