The main functions of a specialized bank are to extend credit to the deficit economic unit that comprises borrowers of all types

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“The Main Functions of a Specialized Bank are to Extend Credit to the Deficit Economic Unit that Comprises Borrowers of all Types”

Chapter 01

1. Introduction:

The main functions of a specialized bank are to extend credit to the deficit economic unit that comprises borrowers of all types. Bank credit is essential for economic development. Adequate finance, important for the economy in the sense that it can simultaneously finance all the sub sectors of financial area, which comprises agricultural, commercial and industrial activities of a nation.

1.1 Rationale/Justification of the Study:

The main objective of the study is to examine the lending program of RAKUB, Godagari branch for the period of 2001-02 to 2005-06. To achieve this objective, the study seeks to realize the following:

• To assess an overview of RAKUB how it contributes in agricultural development at Rajshahi division.
• To assess the loan disbursement position of RAKUB, Godagari branch during 2001-02 to 2005-06.
• To assess the condition of credit management system of RAKUB, Godagari branch.
• To assess the loan recovery position of RAKUB, Godagari branch during 2001-02 to 2005-06.

1.2 Technique of the Study:

The study is concerned with the analysis of credit management system of the RAKUB, Godagari branch. The approach adopted is basically analytical and interpretation in nature considering the objectives of the study.

This study uses primary and secondary sources of data. The sources are:

• Direct interview
• Personal communication
• Web site browsing
• Annual report of RAKUB
• Statement of affairs of RAKUB, Godagari branch.

To prepare this report I used the following methods of data collection.

(i) Direct Interview Method:

The collected data and information are by direct interviewing of the executives and officers of the RAKUB, Godagari branch. For the purpose of interview prepared a set of questionnaire at the direction of supervisor.

(ii) Personal Communication:

The collected data through personal discussion with the officers of different level employees of the Godagari branch. They provide information about banking operations. Other information has been collected by personal communication with the officers, account officers. Also have gathered data by communicating with the personal department of RAKUB head office.

(a) Time Lags:

There was very short time to complete this study program. So, had to conduct all functions within short time.

(b) Time Utilized and Covered:

Utilized my time properly and sincerely. But it was very limited time for proper observing and surveying every sector of RAKUB, Godagari branch. So, could not able to interview with more respondent and cover survey area.

Chapter 02

2. An Overview of RAKUB

2.1 Establishment:

Rajshahi Krishi Unnayan Bank (RAKUB) was established by the President’s Ordinance No. 58 of 1986 with the aim of providing institutional agricultural credit for optimum utilization of agricultural potentials of Rajshahi division. Taking over the branches and offices along with assets and liabilities of the Bangladesh Krishi Bank within Rajshahi division, the bank started functioning on 15 March, 1987.

2.2 Objectives of RAKUB:

The main objects of RAKUB are as follows:

• To provide credit facilities for all kinds of agricultural and agro-based economic activities keeping in view the needs of small and marginal farmers.
• To earn a normal profit for meeting the operational expenses, building of reserve and expansion of activities to cover wider geographical area.
• To extend counseling and advisory services to the borrowers/ entrepreneurs etc. in utilizing credit facilities of the bank.

2.3 Functions of RAKUB:

As the largest development partner in the northwest region Rajshahi Krishi Unnayan Bank aims at overall development of farmers and all the sectors and sub-sectors of agriculture in this region. Besides catering to agricultural credit, the bank performs ancillary functions as financing agribusiness and agro-based industries and poverty alleviation programs.

2.4 Capital:

Authorized capital of the bank amounts to Tk 1500 million. At present paid-up capital amounts to Tk 1500 million and reserve Tk 208.49 million.

2.5 Sources of Capital:

RAKUB is a governmental banking institute. So the main sources of capital are government fund, details are as follows:

• Authorized capital : Tk.150 million.
• Paid up capital : Tk.150 million (up to 30 June, 2004)
• Reserve capital : Tk.208.49 million (as at June, 2005)

2.6 Regulatory Body:

The board is vested with the responsibility of formulation of policy in line with attainment of growth in agriculture and economic development of the region through agricultural credit support. The board of directors is constituted by seven members, all appointed by the government. Besides, for emergency decisions there is an executive committee constituted of the Chairman of the board and two other members- the managing director and one of the directors elected by the board. The managing director is the Chief Executive of the bank.

2.7 Organizational Structure:

The head office is stationed at divisional headquarter city of Rajshahi. The branches network of the bank comprises 363 branches including one in Dhaka. Eighteen zonal offices stationed in district headquarters control branches under them. The General Manager’s office at Rangpur oversees activities of 12 zones of greater Rangpur, Dinajpur and Bogra districts. There are 18 independent regional audit offices for conducting regular audit in branches and zonal offices. The only training institute of the bank is situated at Rajshahi. There are 4,171 employees of the bank of which 1,111 are first class officers, 897 are officers and 2,163 are other staffs.

Organizational Structure:

Board of Directors

Managing Director

Public Relation Secretariat of M.D

Deputy Managing Director

DMD’s Secretariat

General Manager

Loan and Advances Dept. 1

Loan and Advances Dept. 2

General Manager

Audit, A/Cs and Recovery Division

Central Accounts Dept. 1

Central Accounts Dept. 2

Loan Recovery Dept. 1

Loan Recovery Dept. 2

Divisional Audit Office

Source: Personnel Department of RAKUB head office.

2.8 Branch Network:

Table No. 1

Table showing the zonal office/ regional audit office/ branches office (up to November, 2006):

Zonal office	No. of regional audit office	No. of branches office	Total branches
Rajshahi	1	23	24
Naogaon	1	28	29
Natore	1	20	22
Chapai Nawabgonj	1	16	18
Bogura (North)	1	20	22
Bogura (South)	1	14	16
Pabna	1	24	24
Shirajgang	1	22	24
Jaipurhat	1	15	17
Rangpur	1	26	28
Gaibandha	1	24	26
Nilphamari	1	20	22
Kurrigram	1	21	21
Lalmonirhat	1	17	19
Dinajpur (North)	1	17	19
Dinajpur (South)	1	18	20
Thakurgoan	1	18	20
Panchagarh	1	18	20
Dhaka	–	1	1
L.P.O (Rajshahi)	–	1	1
Total	18	363	393

Source: Personnel department of RAKUB

2.9 Employee Summary:

Table No. 2

Table showing the employee summary of RAKUB (up to November, 2006):

Designation	Authorized	Exist
1.Managing Directors (MD)	01	01
2.Deputy Managing Directors (DMD)	01	01
3.General Manager (GM)	03	03
4. Deputy General Manager(DGM)	25	15
5.Assistant General Manager(AGM)	48	29
6.Senior Principal Officer(SPO)	120	77
7.Principal Officer(PO)	319	211
8.Senior Officer(SO)	594	412
Total First Class Officer’s	1111	749
Total Second Class Officer’s (Data Entry/Control/ Supervisor)	897	744
Employee	2163	1826
Total	4171	3319

Source: Personnel Department of RAKUB.

2.10 Office Automation:

The bank has been pursuing a five-year plan (2006-2010) of computerization through its computer department which inaugurated on 8 September, 2005. Training programs have been taken up for increasing computer literacy especially among juniors and mid-level bank officials. The reform programs aim at raising the level of efficiency through increased use of computers.

2.11 Audit & Inspection:

Internal audit and inspection plays an important role in establishing transparency and accountability of the bank’s accounting system. Besides there are commercial audit, Bangladesh Bank inspection and external audit for detecting and checking repetition of irregularities, frauds and forgeries, if any, at different levels.

The government appointed M/s Zoha Zaman Kabir Rashid & Company, Chartered Accountants and M/s Khan Wahab Shafiq Rahman & Company, Chartered Accountants for conducting audit for the financial year 2003-2004. The audit report submitted by them on 13-01-2005 was sent to the ministry of finance on 26-02-2005 after approval of the Board of Directors.

2.12 RAKUB Perspective Plan (2001-2010):

This was the third year of the RAKUB perspective plan. Bank’s operational activities tracked the directives of the perspective plan throughout the year. On the backdrop of negative impact upon overall income and profit earning of the bank due to reduced interest rates of deposit and advance, the bank took precautionary measures of counter balancing the shortfall by enhancing disbursement of new loans, recovery and rescheduling of classified loans and raising income from commercial banking activities. In addition, measures were taken to curtail expenditure on controllable items. The bank plans to undertake a midterm evaluation on the RAKUB perspective plan as per demand of the changed scenario.

Table No. 3

Table showing the estimated income under perspective plan (million Tk.):

Sources of income	2003-04	2005-06	2007-08	2009-10	Average
					Amount	%
Interest on unclassified loan	760	840	920	1000	840	48
Interest on fresh loan	110	120	130	140	120	7
Recovery from classified loan
• By adjusting deferred income	200	220	230	250	230	13
• By rescheduling	30	30	40	50	40	2
Interest income on deposit	130	140	140	150	140	8
Income from loan provisioning	260	290	310	330	280	16
Interest on staff loan	40	40	50	50	40	3
Commercial income	10	10	10	20	10	1
Miscellaneous	30	30	50	50	30	2
Total income	1570	1720	1880	2040	1730	100

Source: Internet (www.rakub.org.bd)

Chapter 03

3. RAKUB, Paba Branch at a Glance

3.1 Establishment:

Paba branch as one of an ideal branchs of Bangladesh Krishi Bank (BKB) was established on 19 December, 1983. But it started its operation as a branch of RAKUB on 15 March, 1987. Its initial capital was only Tk. 80,000. After its establishment till to date it has passed 19 years of its operation.

3.2 Location of the Study:

Paba branch, Rajshahi Krishi Unnayan Bank is situated under the Rajshahi City Corporation. It is situated at west side of Rajshahi to Nowgoan Road on the first floor of its own building and wastern side of Paba post office is Paba Upazilla, about 10 km. from Rajshahi town.

3.3 RAKUB, Paba Branch at a Glance:

Table No. 4

Table showing the Paba branch at a glance:

Sl. No.	Chapter head	Requirement
1.	Establishment date	19th December, 1983.
2.	Starting date	15th March, 1987.
3.	Total population (2005)	15,800
4.	Number of unions	A union and a ward of Rajshahi City Corporation
5.	Numbers of village	32
6.	Numbers of loanee	2100
7.	Total deposit account	2124
8.	Current account	76
9.	Saving account	1247
10.	Fixed deposit account	44
11.	DPS	4
12.	RPS	151
13.	RGPS	59
14.	STD	111
15.	Others	543

Source: Manager, Paba branch, Rajshahi.

3.4 Organizational Structure of RAKUB,Paba Branch:

Source: Manager, Paba branch, Rajshahi.

3.5 Employee Summery of Paba Branch:

There are 13 employees of RAKUB, Paba branch, Rajshahi. Their designation is given below:

Table No. 5

Table showing the employee summery of Paba branch:

S.L. No.	Designation	No. of Personnel
1.	Manager	1
2.	Second Officer	1
3.	Officer	1
4.	Supervisor	6
5.	Cashier	2
6.	Peon	1
7.	Guard	1
Total		13

Source: Manager, Paba branch, Rajshahi.

3.6 Accounting Procedure:

The main objectives of maintaining the accounting procedure of RAKUB, Paba branch are to achieve the following goals:

• To record day-to-day transactions.
• To reflect the financial position periodically.
• To supply necessary information for monitoring the bank activities.

In this cash transaction, other transactions are recorded in the books of accounts under the double entry system. In this bank, generally two types of books are used.

(a) Control Books:

It represents the immediate accounting picture of the bank at any time and it includes:

(i) Cash scroll book

(ii) Clean cash book

(iii) General ledger abstract

(iv) Supplementary ledger book

(b) Subsidiary Books:

Subsidiary books are used to affiance the total particulars in general ledger and it includes:

(i) Saving account ledger

(ii) Fixed deposit ledger

(iii) Income ledger

(iv) Expenses ledger

(v) The general ledger of RAKUB

Chapter 04

4. General Banking Activities of RAKUB, Paba Branch

4.1 Introduction:

Bank continuing its activities for human welfare, Rajshahi Bangladesh Krishi Bank was established for the agricultural development of Rajshahi division. It is a nationalized bank. But like other commercial banks, the bank will have to operate general commercial activities.

4.2 The Main Activities of RAKUB:

 (a) Disbursement of Loans:

Major items of Loan Disbursement:

• Crops loan
• Live stock
• Agro based industrial loan
• Fishery
• Continuous
• Poverty alleviation
• Irrigation equipment & firm machinery
• Cottage industry

Table No. 6

Table showing the interest on credit:

Particular’s	Rates (in %)
Crops	8%
Exports	9%
Working capital	10%
Commercial	14%
Others of firm	14%
Cottage industry	12%

Source: Manager, Paba branch, Rajshahi.

b) Recovery of Loan:

When a bank or other financial institutions distribute a loan to other organization or people and then regains the amount from loanee, it is called loan recovery. RAKUB, Paba branch, distributes loan to loanee and recovers this money. RAKUB, Paba branch, recovers loan under two basis –

• Unclassified loan and Classified loan
• Deposit Mobilization

Deposit is the most important source of ready to invest fund. The bank initiated a special drive for collecting low cost deposits. A significant number of people in northwestern region are underemployed with near to zero marginal income. Out of total 349 branches 208 are located at union level. As such, the bank continued small savings schemes suitable for this section of people and tried hard for hunting institutional deposits.

4.3 General Banking Activities:

4.3.1 Opening an Account:

To its customers RAKUB gives opportunity to open an account like other banks.The following things are considered to open an account:

• Observing whether the application form is properly filled in.
• Getting a preserving specimen signature of a customer.
• Taking initial deposits in cash.

(i) Special types of account:

Basically a person whose age is 18 years or more can be competent to open an account with the bank. But there are some special types of account holders like joint account, minor account, illiterate person account, blind person account, deaf and dumb account etc.

(ii) Who cannot open an account:

The following parties can never open an account with the bank:

• The person who is still bankrupt.
• The person whose mind is unsound.
• The person who is totally mad.

4.3.2 Different Types of Deposit Accounts:

The different types of clients mentioned above can open different types of deposit accounts. These deposit accounts have different features and phenomenon. The deposits that are taken by the Paba branch can be classified into two heads- Demand Deposit and Time Deposit.

(a) Demand Deposit:

This type of deposit is payable on demand. It includes current and savings account. The whole amount of current account and 16% of savings account is termed as Demand Deposit.

(i) Current Account:

This account is normally opened by businessman or business organization No interest is given on it. The initial deposit of RAKUB, in this account is Tk. 1000 and balance must be maintained at least at this amount. In this case, the account holder can withdraw or deposit his or her money at his or her wish within the office hour. There are 76 current accounts in this branch. Basically a person whose age is 18 years or more can open this account.

(ii) Savings Account:

This account is opened for the individual customer without the companies or firms or co-operative society. The minimum initial deposit of savings account is Tk 200 and this amount must always be maintained. RAKUB provides interest @ 4% per annum. There are 1247 savings accounts in this branch. Minimum 18 years man can open this account.

(iii) STD (Short Term Deposit Account):

This account is opened for companies, firms, governments or the administrative bodies like the TNO, WDP etc. This account is operated like the current account. If 7 days written notice is placed before the bank, it gives interest @ 2.50% per annum.

(b) Time Deposit:

Time deposit is not repayable on demand. This is repayable after the expiration of a certain period. Time deposit is classified into four deeds namely- DPS, RPS, FDR and RGPS.

(i) Deposit Pension Scheme (DPS):

It is one kind of program circulated by the government. Under this savings scheme, a person receives the opportunity to build up savings by contributing monthly installments to get an attractive fixed amount at the end of a specified period. The size of the monthly installments is Tk. 100, Tk. 200, Tk. 300, Tk. 400 which is to be deposited within the first week of each month in this case and compound rate of interest is charged. But this DPS has not been operating in RAKUB rather the old accounts have been continuing. There is only 4 DPS accounts in this branch . RAKUB provides interest @ 15% for this account.

(ii) FDR (Fixed Deposit Receipt):

It is a deposit scheme where a receipt is issued for the full amount which is payable after a specified period of time against deposits of certain amount.

Table No. 7

Table showing the term and interest rates of FDR:

Term	Rate of interest
3 months to less than 6 months	6%
6 months to less than 1 year	6.25%
1 year to less than 2 years	6.50%
2 years to less than 5 years	7%

Source: Manager, Paba branch, Rajshahi.

If any depositor whishes to withdraw his or her money before maturity he or she is allowed to do so but in this case interest will be given according to the prescribed rate for that term. This instrument is also accepted as primary security or collateral security against any advance or loan subject of the bank.

(iii) RPS (RAKUB Person Savings Scheme)

RAKUB has some savings schemes to motivate the people for savings. In this case RPS is regarded as the special product of this bank. The RPS is same as DPS. But the terms of savings of RPS are 5 years and 10 years. Interest is credited to the accounts of the depositors in June every year. The rate of interest is 10% and 12% for 5 and 10 years respectively.

(iv) RGPS (RAKUB Grameen Pension Scheme)

This scheme was lunched to support the liquidity problem arising from maturing of RPS. The interest rate of RGPS is 6% for both 5 and 10 years.

4.3.3 Remittance:

The Paba branch of RAKUB transfers money from one branch to another in following ways:

(i) Demand Draft (DD):

DD is the most popular instrument of remitting fund. It is an order to pay money drawn by one branch payable to another branch on demand. DD is issued in against Tk.15 commission up to Tk.1000. When the limit exceeds, commission amount increases at a certain rate.

(ii) Mail Transfer (MT):

This branch transfers money to another branch of this bank in another place against of commission money of this security paper . Here the bank commission is Tk.1.5 per Tk.1000 and the postal charge is Tk.10.

(iii) Telegraphic Transfer (TT):

It is the quickest method of remitting fund from one place to another. In this procedure no instrument is sent to the paying branch. Only message is sent over telephone or telex and the paying branch makes payment after getting message. Due to lack of technology this branch cannot operate TT.

(iv) Payment Order (PO)

It is a written document. This PO can be encased on that branch from where it is issued. Several supplier organizations use this PO and here no account is needed to open with bank. It is issued locally.

RAKUB becomes popular by following the above ways.

4.3.4 Pure or Clean Cash Book:

When the vouchers are closed, the accounts are written in the Pure Cashbook. It may be either deposit or expense. The transactions of each bead, which have been occurred, are written in the specific age of the cashbook under a specific head and debit and credit total are determined. Thereafter, total of the each head is written in the right page of the clean pass book. But in the cash book the closing balance of the previous day is shown as initial balance for the next day. Then the closing balance is determined for that day.

4.3.5 General Ledger:

The transaction is carried out in the general ledger to find out the mistake of the clean cashbook. General ledger is not carried out in different name but comes in main head. Ledger’s credit and debit balance must be equal.

4.3.6 General Ledger Abstract:

The debit and credit balance of various accounts make general ledger abstract. The debit and credit balance of the accounts are maintained in the abstract’s debit and credit side respectively. Since the double entry system is maintained therefore its debit and credit balance are equal.

4.3.7 Voucher:

Voucher is a kind of document, which as a proof of accuracy Paba branch of RAKUB treats it as a journal. The following vouches are used in RAKUB:

• Debit voucher: It’s used for expenditure. Its color is white.
• Credit voucher: It is used for receiving. Its color is green.
• Transfer voucher: This voucher is used for transfer taka from one account to another in case of inter banking. Its color is yellow.

Debit and credit voucher is used to file or in books.Transfer voucher is used in the bank.

4.3.8 Cash Scroll:

At first those transactions are maintained in this cash scroll by the authorized officer, which occurres every day. Thereafter the cashier maintains those transactions in daily transaction register. For this official members are allowed.

4.3.9 Loan and Advances:

RAKUB was established mainly on the objective of the development of agriculture. But RAKUB not only delivers agricultural loan but also disburses different loan such as:

(i) Agriculture Credit:

RAKUB is a specialized bank and its main objective is to improve the agricultural production. For this reason it provides basically agricultural credit.

(ii) Cash Credit:

It is a common lending with this arrangement the drawn is allowed to borrow money up to a certain limit. But the borrower is not required to withdraw the sanctioned amount at once.He can withdraw money when he requires and also can put back money anytime. Interest is charged only on the amount withdrawn not on the total amount sanctioned.

(iii) Advance against Deposit:

This bank provides credit to the depositors under the following program:

• Advance against fixed deposit
• Deposit pension scheme
• Short term over draft

The bank imposes some conditions in giving those loans. The required conditions are:

• Land ownership
• Fixed margin
• Necessary deposit etc

4.4 Special Programs:

Some special programs introduced in the previous years continued in 2002-2003. Those programs and some area based special programs undertaken by the bank are cited below.

• Expanded maize cultivation
• Nursery for medicinal plant and orchid
• RAKUB milk village
• Small scale poultry

4.4.1 Poverty Alleviation Program:

• RAKUB self help credit program (RSCP).
• Potato seeds production program.
• Cotton production program.
• Fresh water shrimp culture.
• Fisheries & live stock department of RAKUB joint program.
• Poverty alleviation through goat rearing program.
• Credit for small scale tea plantation project.

4.4.2 Foreign Aided Projects:

Two foreign aided credit programs namely SECP (Small Enterprises Development Credit Project) & NCDP (North-West Crop Diversification Project) were introduced during the year 2000-2001.

4.5 Some Other Activities:

• Long-term fund management.
• Human resource development program.
• Main objectives of HRD program were-

.Enhancing self-motivation of the bank employees.

.Creating congenial working atmosphere.

.Increasing professional skill through effective training programs.

.Introducing need-based and output oriented training.

Chapter 05

5. Credit Management

5.1 What is Credit?

A credit may be defined as money lend at interest or on profit. It is nothing but temporary parting with one’s [an individual or an institution] resources in order to augment the purchasing power of the receiver of such facility with a promise to return the same with interest profit or otherwise as mutually agreed upon.

“Formal agreement between a bank and borrower provide a fixed amount of credit for a specified period.” Timothy W Koch.

5.2 Importance of Credit:

Bank credit is very much important for socio-economical development of our country. Most of the people in our country are poor or marginal farmer. Bank credit makes possible for the financing of the agricultural, commercial and industrial activities of the nation. The importance of bank credit is also recommended as follows:

• To produce capital goods which are used later in the production of consumable goods.
• Bank loans also make possible production for inventory.
• Availability of bank loans makes the farmer able to purchase seed, feed, fertilizer.

5.3 Types of Credit:

As a partner of agricultural development, RAKUB generally deals with agro-base credit business. Credit is the main source to earn income. RAKUB, Paba branch provides three terms of credit:

(a) Short term loan: A short-term loan is the loan, which is fully repaid within one year or below one year.

(b) Medium term loan: Medium term loan is the loan, which is fully repaid within more than one year to five years.

(c) Long term loan: Long-term loan is the loan, which is fully repaid in more than five years.

RAKUB, Paba branch provides the terms of credit under the following sectors:

• Crop credit
• Cash crop credit
• Horticulture credit
• Warehouse credit
• Rural housing credit
• Poultry & fisheries
• Small & cottage industries credit
• Agro mechanization credit
• Improved seed Credit
• Other tools machines credit.

5.4 Overdrafts:

In the case of advances sanctioned by way of overdrafts, the customer is sanctioned a limit up to which he can overdraw his current account within a stipulated period. In case where the customer can not offer any kind of security excect his personal security, the facility is termed as a clean overdraft. On the other hand, where the customer offers a security acceptable to the bank facility is treated as a secured overdraft.

5.5 Doubtful Loans:

Doubtful loans are those that are considered by bank examines to be doubtful of repayment, such loans are considered to contain some loss but the amount cannot be ascertained.

5.6 Credit Management:

Lending is the one function of specialized banking. The successful banker is a successful lender. The tools used to manage lending are credit analysis, budgeting and supervision. Lending also has to be enlightened by a competitive but reasonable policy for interest charges on loans.

Banks are major financial institutions, which coordinate between borrowers and lender. They mobilize funds from one group of people at low rate and lend the same to another group of people at the highest rate of return to maximize profit. Unless the fund’s functions are efficiently planned and executed, the bank can not achieve its maximum potential profit. The specific objectives of credit management as well as the bank management in a specialized bank are:

• To provide service in special sector.
• To maximize earnings.
• To provide adequate liquidity and cash.
• To manage the loan and investment portfolios in the best possible manner so as to ensure profitability.
• To maintain reserve for contingencies.

Credit management in banking is mainly liable to its concerned authority. At any cost they have to bind to keep its funds in safety and returnable with maximum profit from the investment.

5.7 Main Credit Portfolio of RAKUB, Paba Branch:

Table No. 8

Table showing the main credit portfolio of RAKUB, Paba branch:

(i) Food crops	Paddy, wheat, potato, sugarcane, master seed, sunflower seed, ginger, onion, water motor, winter/ summer vegetables, banana, mango etc.
(ii) Cash crops	Jute, cotton, tobacco, betel leaf etc.
(iii) Processing and marketing	Small and cottage industries, marketing capital etc.
(iv) Agro-based industries project	Rice mills, flour mills, dal (pulses) mills, fruit processing industries, light earning work shops, ice plants etc.
(v) Commercial loan	Loan against fertilizer and pesticide, cash credit loan for agro- products and small enterprises etc.
(vi) Live stock	Draft animals, dairy, poultry, goatery, beef fattening etc.
(vii) Transport	Rickshaw-van, rickshaw, bullock cart, country boat etc.
(viii) Farm machineries	Power tiller, tractor and other machineries.
(ix) Micro credit	RSCP, SECP.
(x) Special agricultural activities	Fishery, orchard, nursery etc.
(xi) Others	Loan against fixed deposits.

Source: Manager, Paba branch, Rajshahi.

5.8 Rate of Interest on Credit:

Bank usually determines various rates of interest in different sectors. The rate of interest changes overtime and becomes effective from prescribed date. But rate of interest can not be changed when the disbursed loan is funded from the foreign aids. The variation of interest rate hinges upon credit program and tenure of the loan.

The rates of interest, which exists at present, are as follows:

Table No. 9

Table showing the rate of interest on credit:

Loan heads	Rate of interest
Crop (Without security)	16%
Continuous	14.50%
Poverty alleviation	12% & 8%
Fishery	10%
Live stock	10%
Irrigation equipment & firm machinery	10%
Agro-based industry	10%
Others agricultural loan	14%
Export credit	10%
Commercial	15%
Other off firm	15%
Cottage industries	15%
Large and medium scale industries	13%-14%
RSCP	12%
SWANIR VAR	11%
MSFSCIPA	15%
Others special program	10.50%-17%

Source: Manager, Paba branch, Rajshahi.

Chapter 06

6. Loan Disbursement

6.1 Introduction:

The strong base of RAKUB, Paba branch is totally dependent on sound investment. As interest on loan is the main source of income that is why qualitative loan disbursement is so much important as well as quality to increase total income of the bank.

6.2 Loan Sanction Procedure:

Based on information available in the appraisal report or credit report, needs of the farmer client should be carefully analyzed by the sanctioning authority. Before approving sanction, analysis of status of application, credit worthiness, liabilities, project viability from technical, financial, economical and marketing and managemental point of view is important. As soon as the security is finalized and the sanctioning authority is satisfied, he should proceed for sanction of loan advance.

6.3 Selection of Borrowers:

Borrower selection is an important factor for distribution of loan. The following factors  considered in selecting a borrower are as below:

•  Borrower must be Bangladeshi.
• Borrower must be matured.
• Borrower must have ability to repay the loan and he must be a possessor of goodwill in economic transaction.
• Borrower must not be loan defaulter.
• Borrower must be registered with Joint Stock Company if it is limited company.
• Borrower must be registered with the register of the co-operative if it is a co-operative society.
• Borrower must not be insane.

4p may be mentioned in the loan selection procedure. Here 4p means:

• P=Person
• P= Purpose
• P= Profitability
• P= Property/ Security

6.4 Loan Handling Diagram:

Source: RAKUB Paba branch, Rajshahi.

6.5 Documentation:

After the loan or advance become effective, the manager should ask the borrowers promptly to comply with the loan covenants stipulations and execute the documents. Correct documentation is essential for securing safe repayment of loan and advances.

6.6 Security:

RAKUB maintains the security listed below in recovering the loans without risk:

(i) Lien:

It’s a right to retain the property or goods of the borrower as security until the debit are adjusted. In this case the banker can only hold the possession of the goods but  he cannot sell them. A banker’s lien is a general hen. He can sell the securities under lien after giving reasonable notice to the borrower.

(ii) Pledge:

Pledge is created only for movable property like goods, document etc. In case of pledge the ownership of the goods remains with pledge but the possession of the goods vests with pledge until the loan is recovered. Pledge does not occur until the goods are transferred. The pledged goods are returned to the owner after the loan is adjusted. If the borrower fails to repay the loan, the banker can sell the pledged goods after giving reasonable notice to him.

(iii) Mortgage:

Only the immovable properties are kept under mortgage. It is a method of creating charge on immovable properties.

(iv) Hypothecation:

Hypothecation is nothing but the mortgage of movable property. It is an extended idea of pledge. In this case both possession and ownership remains with the borrower by the hypothecation agreement he has undertaken to transfer possession whenever required. Here the lender possesses the right of a pledge. Hypothecation is very much risky and RAKUB does not want to utilize this method for creating charges.

6.7 Disbursement of Loan:

Before release of sanctioned loan or advance, all terms and conditions as laid down in the sanction letter are to be fully complied with. To that effect, the following basic requirements are needed:

• Loan affectivity terms and conditions as to collateral security and equity of the borrower shall be fully met.
• Specified documentations as specified in the sanction letter must be completed.
• Verification of encumbrances of security properties:

(i) Non-encumbrances certificate.

(ii) Execution of Halapnama.

• Creation of charge on the collateral security. In case of limited company, the charges on the company assets should be limited.
• Within 21 days from the date of creation of charge, by registered post to the register, Joint Stock Company.
• Insurance for:

(i) Security properties, as applicable.

(ii) Assets create or to be created out of a loan fund or with two equity.

(iii) Stock of goods pledged with the bank as collateral shall be taken with appropriate risk cover.

• Any other stipulations as per sanction letter.

6.8 Supervision and Monitoring of Loan:

Under its charter, the bank is required, as far as possible, to ensure that a loan is spent on the purpose for which it is made and if this requirement is not complied with by the borrower, the bank may require the repayment of the loan forthwith.

(i) Primary responsibility of the manager is to supervise and monitor the cash loan/WCL project and term loan stage by stage, ensure project constriction work, acquire kind items and project goods as per approved arrangement specified in the sanction letter.

(ii) Bank finance project should be inspected by the regional manager and manager periodically, to assess physical condition of the project’s facilities and the level of the project’s capacity utilization.

(iii) Cash loans are liable to misuse for non-productive process. Special attention must, therefore, by given on borrowers past antecedents when releasing cash loans.When substantial cash amount is required to be drawn by a borrower for civil works of a project, WCL for requiring goods, the managers must be particularly vigilant on the usage of loan. Total responsibility for credit super vision of cash credit/WCL lies with the manager.

(iv) The manager should deploy a project supervision officer after documentation is released of first loan installment with the assignment of overall project supervision. The duties of the PSO have been laid down in Ch: 25.07. The PSO should be stationed in the project site or nearby and see for himself the project developmental work and inform the progress to the manager through progress report predictably.

(v) After inspection, the manager/authorized officer should countersign the borrower’s acknowledgement receipt under his signature and seal. Only after such counter-signature in the borrower’s acknowledgment receipt, supplier’s bill can be processed for payment. The branch should complete the verification of goods supplied by a supplier within a week and process payment of supplier’s bill promptly when the same is in order.

(WCL= Working capital loan)

6.9 Loan Disbursement Methods and Various Types of Application Forms:

Loan application written in specific form of bank must be submitted by the borrower in the bank.

Various kinds of loan application forms are given below:

Table No. 10

Table showing the various kinds of loan application forms:

Serial No.	Description	Amount loan in Tk.	No. of necessary copy	Form No.	Charge per copy
1	Crops loan	Upto 5000	1	L.F.6	10
2	Crops loan	5001 to 10,000	1	L.F.6	20
3	Crops loan	5001 to 10,000 above	1	L.F.6	40
4	Any loan	Upto 10,000	1	L.F.1	20
5	Any loan beyond crops loan	Above 10000	½	L.F.2	40
6	Project loan	–	2	L.F.4	250
7	Working capital	–	2	L.F.8	100

Source: RAKUB, Paba branch, Rajshahi.

At that time of submitted application, the loan should give fee at various rates. The various types of loan application fees are as follows:

Table No. 11

Table showing the loan application fees:

Amount of loan	Rate of fee (in taka)
Upto 6,000	No. need
6001 to 7500	Tk.1.50 per thousand
7501 to 10,000	Tk.2.00 per thousand
1,00,000	Tk.1.00 per thousand.

Source: RAKUB Paba branch, Rajshahi.

6.10 Loan Disbursement Scenario Paba Branch of RAKUB

Table No. 12

Table showing the position of loan disbursement on last five year:

(Amount in lakh Tk)

Financial year	Loan  disbursement target	Total loan achievement disbursement against target	Achievement rate (%)
2001-02	141.00	141.19	100.14
2002-03	761.77	167.39	21.97