Commercial Banking Activities & Performance Evaluation of IFIC Bank Ltd.
CHAPTER-ONE Introduction 1.1.Introduction: Commercial Bank implies that banks devote most of their resources to meeting the financial needs of business firms. This institution offers the public both deposit and credit services as well as a growing list of newer and more innovating services, such as investment advice, security underwriting, and financial planning. In recent years however to consumers and units of government around the world. The result is the emergence of a financial institution that has been called a financial department store because it satisfies the broadest range of financial services needs in the global economy. The importance to commercial banks may be measured in a number of ways. Banks are still the principal means of making payments, through the checking accounts, credit cards, and electronic funds transfer services they offer. Banks are important because of their ability to create money from excess reserves made available from the public's deposits. The banking system can take a given volume of excess cash reserves and, by making loans and investment, generate a multiple amount of credit. Bangladesh is developing country. After liberalization, we achieve a poor economic growth in last three decades. This is because of number of micro and macro factors as density of people. Bangladesh is a ple; lack of proper education; we saw, what a poor political stability; Political instability in the major factor in Bangladesh that makes a vital hazard to achieve the economic growth. All of above, banking industry brings a little bit hope that can be a better flavor to accelerate the economic growth in our country. This is the only sector (especially private banking) that getting a continuous develops from last two decades. 1.2 Functions of Commercial Banks: The essential characteristics of the banking business may be described within the framework of a simplified balance sheet A bank's main liabilities are its capital. (including reserves and, often, subordinated debt) and deposits. The latter may be from domestic or foreign sources (corporations and firms, private individuals, other banks, and even governments).
They may be repayable on demand (sight deposits or current accounts) or repayable only after the lapse of a period of time (time, term, or fixed deposits and, occasionally, savings deposits). A bank's assets include cash (which may be held in the form of credit balances with other banks, usually with a central bank but also, in varying degrees, with correspondent banks); liquid assets (money at call and short notice, day-to-day money, short-term government paper such as treasury bills and notes, and commercial bills of exchange, all of which can be converted readily into cash without risk of substantial loss) investments or securities (substantially medium-term and longer term government securities- sometimes including those of local authorities such as states provinces, or municipalities and , in certain countries, participations and shares in industrial concerns); loans advances made to customers of all kinds, though primarily to trade and industry (in an increasing number of countries, these include term loans and also mortgage loans); and, finally, the bank's premises, furniture, and fittings(written down, as a rule, to quite nominal figures) All bank balance sheets must include an item that relates to contingent liabilities (e.g., bills of exchange "accepted" or endorsed by the bank), exactly balance by an item on the other side of the balance sheet representing the customer's obligation to indemnify the bank (with may also be supported by a form of security taken by the bank over its customer's assets). Most banks of any size stand prepared to provide acceptance credits (also called bankers acceptances); when a bank accepts a bill, it lends its name and reputation to the transaction in question and, in this way, ensures that the paper will be more readily discounted. 1.3. The Banking System in Bangladesh: The banking system at independence consisted of two branch offices of the former State Bank of Pakistan and seventeen large commercial banks , two of which were controlled by Bangladeshi interests and three by foreigners other the West Pakistan . There were fourteen smaller commercial banks. Virtually all banking services were concentrated in urban areas. The newly independent government immediately designated the Dhaka branch of the State Bank of Pakistan as the central bank and renamed it the Bangladesh bank. The bank was responsible for regulating currency, controlling credit and monetary policy, and administering exchange control and the official foreign exchange reserves. The Bangladesh government initially nationalized the entire domestic banking system and proceeded to reorganize and rename the various banks. Foreign-owned banks were permitted to continue doing business in Bangladesh. The insurance business was also nationalized and became a source of potential investment funds. Cooperative credit systems and postal savings offices handled service to small individual and rural accounts. The new banking system succeeded in establishing reasonably efficient procedures for managing credit and foreign exchange. The primary function of the credit system through out the 1970s was to finance trade and the public sector, which together absorbed 75 percent of total advances.
The government's encouragement during the late 1970s and early 1980s of agricultural development and private industry brought changes in lending strategies. Managed by the Bangladesh Krishi Bank, a specialized agricultural banking institution, lending to farmers and fishermen dramatically expanded. The number of rural bank branches doubted between 1977 and 1985, to more than 3,330. Denationalization and private industrial growth led the Bangladesh bank and the World Bank to focus their lending on the emerging private manufacturing sector. Scheduled bank advances to private agriculture, as a percentage of sect oral GDP, rose from 2 percent in FY 1979 to 11 percent in FY 1987, while advances to private manufacturing raised form 13 percent to 53 percent. The transformation of finance priorities has brought with it problems in administration. No sound project-appraisal system was in place to identify viable borrowers and projects. Lending institutions did not have adequate autonomy to choose borrowers and projects and were often instructed by the political authorities. In addition, the incentive system for the banks stressed disbursement s rather than recoveries. In addition, the incentive system for the banks stressed disbursements rather than recoveries, and the accounting and debt collection systems were inadequate to deal with the problems of loan recovery. It became more common for borrowers to default on loans than to repay them; the lending system was simply disbursing grant assistance to private individuals who qualified for loans more for political than for economic reasons. The rate of recovery on agricultural loans was only 27 percent in FY 1986, and the rate on industrial loans was even worse. As a result of this poor shoving, major donors applied pressure to induce the government and banks to take firmer action to strengthen internal bank management and credit discipline. As a consequence, recovery rates began to improve in 1987. The National Commission of Money, Credit, and Banking recommended broad structural change in Bangladesh's system of financial intermediation early in 1987, many of which were built into a three-year compensatory financing facility signed by Bangladesh with the IMF in February 1987. One major exception to the management problems of Bangladesh banks was the Grameen Bank, begun as a government project in 1976 and established in 1983 as an independent bank. In the late 1980s, the bank continued to provide financial resources to the poor on reasonable terms and to generate productive self-employment without external assistance. Its customers were landless persons who took small loans for all types of economic activities, including housing. About 79 percent of the borrowers were women, who were otherwise not much represented in institution finance. Collective rural enterprise also could borrow form the Grameen Bank for investments in tube wells, rice and oil mills, and power looms and for leasing land for joint cultivation. The average loan by the Grameen Bank in the mid 1980s was around Tk.2, 000 (US$65), and the maximum was just Tk 18,000 (for
construction of a tin-roof house). Repayment terms were 4 percent for rural housing and 8.5 percent for normal lending operations. The Grameen Bank extended collateral-free loans to 200,000 landless people in its first 10 years. Most of its customers had never dealt with formal lending institutions before. The most remarkable accomplishment was the phenomenal recovery rate; amid the prevailing pattern of bad debts throughout the Bangladeshi banking system only 4 percent of Grameen Bank loans were overdue. The bank had from the outset applied a specialized system of intensive credit supervision that set it apart from others. Its success, though still on a rather small scale, provided hope that it could continue to grow and that it could be replicated or adapted to other development-related priorities. The Grameen Bank was expanding rapidly, planning to have 500 branches throughout the country by the late 198s. Beginning in late 1985, the government pursued a tight monetary policy aimed at limiting the growth of domestic private credit and government borrowing from the banking system. The policy was largely successful in reducing the growth of the money supply and total domestic credit. Net credit to the government actually declined in FY 1986. the problem of credit recovery remained a threat to monetary stability , responsible for serious resource misallocation and harsh inequities. Although the government had begun effective measures to improve financial discipline, the draconian contraction of credit availability contained the risk of inadvertently discouraging new economic activity. Foreign exchange reserves at the end of FY 1986 were US$ 476 million, equivalent to slightly more than 2 months worth of imports. This represented a 20-percent increase of reserves over the previous year, largely the result of higher remittances by Bangladesh workers abroad. The country also reduced imports by about 10 percent to US$ 2.4 billion. Because of Bangladesh's status as a least developed country receiving confessional loans, private creditors accounted for only about 6 percent of outstanding public debt. The external public debt was US$ 6.4 billion, and annual debt service payments were US$ 467 million at the end of FY 1986. 1.4. Objective of the Study: The primary objective of this study is to attend the course of Practical Orientation in Banks, which is required after the completion of B.B.A Program. But the objective behind this study is something broader. Objectives of the study are summarized in the following manner. •
To comply with the entire branch banking procedures.
•
To make a bridge between the theories and practical procedures of banking day to day operations.
•
To understand the practical difference that, has been taught in the last four years in management courses.
•
To analyze the performance of the branch as well as IFIC Bank Ltd. as a whole.
•
To have some practical exposures that will be helpful for my career after completion of BB.A. Program.
•
To submit a report for the fulfillment of my BBA program
•
Find out the overall branch banking
•
To gather comprehensive knowledge on overall banking functions and the expectations of the customers regarding the service level of the bank.
•
To present an overview of IFIC Bank Limited .
•
To study existing banker-customer relationship.
•
To identify the problems of financing by IFIC Bank Limited.
1.5. Methodology The study methodology included observation of their work procedure, analysis of their information input forms and their output documents face-to-face communication with the clients, interview of relevant IFIC Bank officials. As per study objectives mentioned, the information used in this study has been received from the following sources: Sources : Primary Sources •
Conversation with the bank officers and staff
•
Informal conversation with the clients
•
Different manuals of IFIC Bank Limited
•
Different circulars sent by Head Office of IFIC Bank Ltd.
Secondary Sources •
Annual report of IFIC Bank Ltd.
•
Different papers of IFIC Bank Ltd.
•
Unpublished papers of IFIC Bank Ltd.
•
Unpublished Data
•
Different text books
•
Different circular sent by Bangladesh Bank.
1.6.Limitation of the Study: The objective of this study is to earn real life practical experience in Banking System. It requires long time to acquire to the real experience. Time limitation is the main constrain in this respect. The lack of
available of data is another limitation. Maximum of banking activities are practical. Just reading the manual is not enough. To earn such practical experience, it requires working with those events. The main limitations are as: •
Time constrain.
•
Banking people are very busy. Sometimes it seems hard to get their attention.
•
Lack of published relevant documents.
•
Some information is confidential-not open to public.
CHAPTER-TWO About IFIC Bank 2.1 Brief History of IFIC Bank Ltd.: The IFIC Bank came into existence in 1976 as a Finance Company under the name and style of INTERNATIONAL FINANCE AND INVESTMENT COMPANY LIMITED (IFIC) which was incorporated as public Limited company on October 08, 1976 with an Authorized capital of Tk.20.00 crore and paid up capital of Tk.10.00 crore. IFIC commenced its operation on February 28, 1977 with a Subscribed capital of Tk.5.00 crore, contributed by leading private sector entrepreneurs in the country; six nationalized banks and two state owned financial institutions, namely, Bangladesh Shilpa Bank and Bangladesh Shilpa Rin Shangstha. Mr. Jahurul Islam was elected as the first Chairmen of the Board of Directors of IFIC. The primary objectives of IFIC was to carry on banking business abroad through subsidiaries, affiliates and branches, investment and financial activities in the country. In 1983, the Government took the decision to allow establishment of banks in the private sector. In pursuance of this decision, private sector sponsors of IFIC decided to approach the character of IFIC from that of a finance company and merchant bank to that of a full fledged commercial bank. At that time, IFIC Bank got permission to start the Banking as a private commercial bank. The investment company has transformed into banking company in 13 June, 1983 and it starts its activities from 24 June, 1983 through Motijheel Branch, Dhaka (24/06/83). And its 2 nd and 3rd Branch is Narayanganj Branch, Narayanganj (25/11/1983) and Khatunganj Branch, Chittagong (23/12/1983). At the beginning stage, 60% share ware owned by private entrepreneur and 40% ware owned by Govt. At the end of 1984, the authorized capital was Tk.10 crore and the paid up capital was Tk.7.15 crore only. According to Annual Report as on 1983, the ownership of non Govt. sector was included as under: (1) Mr. Jahurul Islam, Chairman
(2) Mr. Salman F. Rahman, Vice-Chairman (3) Mr. A.M. Aga Usuf (4) Mr. Syed Mohsen Ali (5) Mr. Ahmedul Kabir (Owner of "Daily Sangbad�)
The total Deposit and Advance of IFIC Bank was Tk. 86 crore and Tk. 55 crore respectively at the end of 1984. The total number of Branches were 7 (seven) at that time. Up to December 2005 the paid up capital was Tk. 40.64 crore and the total Deposit and Advance were Tk.2250:51 crores and Tk.2169.49 crores. The total number of Branches were 65 excluding Head Office and the total Executive and Office Stuff were about 2000. 2.2
MISSION- STATEMENT Our Mission is to provide service to our clients with the help of a skilled and Dedicated workforce: whose creative talents, innovative actions and competitive edge make our position unique in giving quality service to all institutions and individuals that we care for. We are committed ton the welfare and economic prosperity of the people and the community, for we derive for them our inspiration and drive for onward progress to prosperity. We want to be the among banks in Bangladesh and make our indelible mark as an active partner in regional banking operating beyond the national boundary. In an intensely competitive and complex financial and business environment we particularly focus on growth and profitability of all concerned.
2.3 Objective of the Bank:
•
To establish and conduct all types of banking financial investment and trust business in Bangladesh and abroad.
•
To carry on any business relating to wage earners scheme as may be allowed by Bangladesh Bank from time to time including maintaining of foreign currency accounts and other matter related there to.
•
To contract or negotiate all kinds of loans and advance.
•
To form promote, organize, assist, participate or aid in forming, promoting or organizing any company or others.
•
To take part in the formation, management, supervision or control of the business or operations of any company.
•
To purchase or otherwise acquire, undertake the whole or any part in the business.
•
To encourage, sponsor and facilitate participation of private capital in financial industrial or commercial investment.
2.4 OWNERSHIP STRUCTURE: Ownership of the Bank is held by the sponsors in the private sector and Government of the People’s Republic of Bangladesh. Sponsors and individuals now own about 65% of the share capital and the Government own a little more than 35% of the shares. 2.5 OPERATION ABROAD: JOINT VENTURE a. Bank of Maldives - In 1983, IFIC Bank set up a joint venture bank names Bank of Maldives Limited (BML). It is the first bank of Maldives. In 1992, as per contract, IFIC Bank handed over the management of BML to Maldives. b. Oman-Bangladesh Exchange - To facilitate remittance by Bangladeshi in Oman, IFIC bank set up a money exchange company as a joint venture, named Oman-Bangladesh Exchange. BRANCH ABROAD a. Pakistan Branch - IFIC Bank opened its first overseas branch in Karachi, Pakistan. It opened its second branch at Lahore in Pakistan. Nepal Bangladesh Limited - In December 1993, the Bank got permission to establish a joint venture bank with 50% equity capital in Nepal. The Bank known as, Nepal Bangladesh Ltd. came into operation in June 1994 2.6 Overseas Branch: The bank opened a branch in Karachi in Pakistan which started operations in early 1987. Within the short span of its operations, the branch conducted a huge business subsequently. The bank opened its
second branch at Lahore in 1993. Both the branches enjoyed reputation and goodwill in Pakistan and operated profitably. But later on, due to some policies taken by the Government of Pakistan, the two Branches were abolished.
2. 7 BRANCH NETWORK: The bank covers by its activities all the important trading and commercial centers of the country. As on 1st December 2000, it had 52 branches within Bangladesh. Almost all the important branches are equipped with computer in addition to the modern facilities and logistics and professionally competent manpower.
2.8 CAPITAL: The bank started with an authorized capital of Tk.100 million in 1983 and paid up capital at that time stood at Tk. 71.50 million. Over the last thirteen years the authorized capital has increased to Tk.500 million and paid up capital increased by more than 290 percent. The paid up capital stood at Tk.279.40 million as on 31 st December 1999.
2.9 RESERVE AND SURPLUS: Reserve and surplus increased to Tk.683.73 million in 1999 from Tk.21.20 million only in 1983.Annual average growth rate for the period 1984-98 is around 25 percent. As against a profit of Tk.21.94 million in 1984, the bank earned a profit of Tk.150.18 million for the year ended 31 st December 1999.
2.10 Workforce: Total manpower stood at 1,990 as on December 31, 2005. Out of them 1,415 were officers and 575 were non-officer employees. The number of female employees in the Bank on the date was 273. Growth in workforce of the Bank from 1983 to 2005 is given below: Year
Officer
Staff
Total
Female Officers &
1983 1984 1985 1986 1987 1988 1980
61 152 264 303 334 369 465
35 89 168 322 404 458 480
96 241 432 625 738 827 945
Staff 16 21 26 29 38 50 63
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
512 506 617 600 912 964 1009 1088 1081 1124 1151 1189 1201 1266 1294 1415
480 556 626 720 513 601 540 526 543 535 549 548 554 602 601 575
992 1062 1243 1320 1425 1565 1549 1614 1624 1659 1700 1737 1755 1868 1895 1990
74 78 96 106 119 132 154 154 162 176 188 200 213 238 248 273
2.11 SPEACIALISED FINANCING: Besides carrying out conventional banking, the Bank over the past four years has been providing term finance to medium and small-scale industries. Both Asian Development Bank and World Bank have designated it to finance medium and small industries under a special program. At the moment, the bank is carrying out study to set up small branches in the rural areas to promote small-scale entrepreneurs to generate employment.
2.12 HUMAN RESOURCE DEVELOPMENT: The Bank has a Human Resource Development & Research Department to develop human resources internally. The Academy is equipped with professional library, modern training aids professional faculty and other facility. It is now under Personnel & Human Resource Development & Research Division. The Academy conducts regularly foundation courses, specialized courses and seminars on different areas of banking to take care of the professional needs.
2.13 HIERARCHY OF THE MANAGEMENT OF THIS BANK S e n io r E x e c u tiv e V ic e -P re s id e n t E x e c u tiv e V ic e -P re s id e n t S e n io r V ic e -P re s id e n t F irs t V ic e -P re s id e n t V ic e -P re s id e n t S e n io r A s s tt. V ic e -P re s id e n t F irs t A s s tt. V ic e -P re s id e n t A s s tt. V ic e P re s id e n t S e n io r S ta ff O ffic e r S ta ff O ffic e r O ffic e r G ra d e - I P ro b a tio n a ry O ffic e r O f fic e r G ra d e - II A s s ita n t O ffic e r O ffic e A s s is ta n t D riv e r S e c u rity S ta ff O ffic e A tte n d a n t
2.14 Board of Directors: Board of Directors of the Bank is a unique combination of both private and Government sector experience. Currently is consists of 13 Directors. Of them Eight represent the sponsors and general public and four senior officials in the rank and status of Additional Secretary joint Secretary represent of Government. Managing Director of the Board. Alhaj Mohammad Mosaddak Ali Chairman International Television Channel Ltd (NTV) Level No. 4,102 Kazi Nazrul Islam Avenue Kawran Bazar, Dhaka1215.
Chairman
Mr. Mohammad Lutfar Rahman Managing Director Dhaka Shanghai Ceramics Ltd. Level No. 4,102 Kazi Nazrul Islam Avenue Kawran Bazar, Dhaka-1215
ViceChairman
Mr. Abdul Hamid Chowdhury Director Chairman Hydroxide Ltd. House No. 33, Road No. 4 Block-5, Banani, Dhaka Mr. Hosain Al Masum Chairman, Jubok Housing & Real Estate, Development Ltd. 53/1, Purana Paltan Lane, Dhaka-1000
Director
Mr. Sabih-ul Alam Chairman, Communicants 40/3, Naya Paltan (2nd Floor), Dhaka1000
Director
Mr. Shahidul Hoque Level No. 4,102, Kazi Nazrul Islam Avenue Kawran Bazar, Dhaka-1215 Mr. Enayetur Rahman Managing Director NTV-international Television Channel Ltd. BSEC Bhaban (6th Floor) 102, Kazi Nazrul Islam Avenue Kawran Bazar, Dhaka-1215
Mr. Masud Reza Bhuiya Director House No. 31/A, Flat No. 2B Road No. 4, Sector-3, Uttara, Dhaka1213
Director
Mr. Md. Mokhles ur Rahman Joint Secretary Economic Relations Division ERD, Ministry of Finance Sher-e-Bangla Nagar, Dhaka
Director
Mr. Mahmudul Huq Bhuiyan Joint Secretary, Finance Devision (Budget-2) Ministry of Finance Bangladesh Secretariat, Dhaka
Director
Mr. Md. Manirul Islam Private Secretary-1 To the Hon'ble Prime Minister Prime Minister's Office Old Shangshad Bhaban Tejgaon, Dhaka Mr. Arastu Khan Joint Secretary, Finance Division Ministry of Finance Bangladesh Secretariat, Dhaka
Director
Mr. Mashiur Rahman Managing Director IFIC Bank Ltd., Dhaka
Managing Director
Director
Director
CHAPTER-THREE General Banking General banking is the starting point of all the banking operations. It is the department, which provides day-to-day services to the customers. Everyday it receives deposits from the customers and meets their demand for cash by honoring cheques. It opens new accounts, remit funds, issues bank drafts and pay
orders etc. Since bank is confined to provide the services everyday, general banking is also known as ‘retail banking’. FUNCTIONS OF THIS DEPARTMENT G
B
1
CASH SECTION
E
A
2
ACCOUNTS OPENING SECTION
N
N
E
K
3
CHEQUE CLEARING SECTION
R
I
4
REMITTANCE SECTION
A
N
5
FDR SECTION
L
G
6
ESTABLISHMENT SECTION
7
ACCOUNTS SECTION
This department maintains following schemes and special dealing a. Pension Savings Scheme (PSS) b. Monthly Savings Scheme (MSS) c. Protirakhya Sanchay Patra (PSP) d. Investment Corporation Of Bangladesh – Share and Dividend Dealings 3.1.CASH SECTION : Cash department is the most vital and sensitive organ of the branch as it deals with all kinds of cash transactions. This department starts the day with cash in vault. Each day some cash that is opening cash balance are transferred to the cash officers from the cash vault. Net figure of this cash receipts and payments are added to the opening cash balance. The figure is called closing balance. This closing balance is then added to the vault. And this is the final cash balance figure for the bank at the end of any particular day. Cash department in the IFIC Bank,Dhanmondi Branch is authorized dealer of foreign currency, so it can deal with buying and selling of foreign currency.
3.1.1 Functions of Cash Department Cash Payment
1. Cash payment is made only against cheque 2. This is the unique function of the banking system which is known as “payment on demand” 3. It makes payment only against its printed valid Cheque
Cash Receipt
1. It receives deposits from the depositors in form of cash 2. So it is the “mobilization unit” of the banking system 3. It collects money only its receipts forms
3.1.2 Cash payment or Cheque cancellation process
Step 1 Step 2
Receiving Cheque by the employee in the cash counter Verification of the followings by the cash Officer in the computer section 1. Date of the Cheque (it is presented within 6 month from issue date) 2. Issued from this branch 3. Amounts in figure and sentence written does not differ 4. Signature of the drawer does not differ 5. Cheque is not torn or mutilated
Step 3
Gives pay cash seal and sends to the payment counter
Step 4
Payment officer makes payment 3.1.3 Books maintained by this section
Vault Register
It keeps account of cash balance in vault in the bank.
Cash Receipt Register
Cash receipt in whole of the day is recorded here.
Cash Payment Register
Cash payments are made in a day are entered here.
Rough Vault –Register
Cash calculation for final entry in vault register is done here, as any error and correction here is not acceptable.
Cash Balance Book
Balance here is compared with vault register. If no difference is found, indicates no error.
In book 1 and book 5, notes and currency are recorded by mentioning their denominations and number of each denomination. Same set of these books is maintained separately for both local and foreign currency. 3.2. ACCOUNT OPENING SECTION This sections opens accounts. Selection of customer is very important for the bank because banks success and failure largely depends on their customers. If customer is bad, they may create fraud and forgery by their account with bank and thus destroy goodwill of banks. So, this section takes extreme caution in selecting its customer base. 3.2.1 Accounts opening process Step 1
Receiving filled up application in bank’s prescribed form mentioning what type of account is desired to be opened
Step 2
1. The form is filled up by the applicant himself / herself 2. Two copies of passport size photographs from individual are taken, in case of firms photographs of all partners are taken 3. Applicants must submit required documents 4. Application must sign specimen signature sheet and give mandate 5. Introducer’s signature and accounts number – verified by legal officer
Step 3
Authorized Officer accepts the application
Step 4
Minimum balance is deposited – only cash is accepted
Step 5
Account is opened and a Cheque book and pay-in-slip book is given 3.2.2 Special Caution or the documents from the Account opener of the following types
Partnership Firm
1. Partnership deed must be taken 2. Mandate from the partners is essential – indicating who will operate the account
Public Company
Limited 1. Certificate of Incorporation 2. Copy of Memorandum and Articles of Association 3. Certificate of Commencement 4. Copy of Resolution of the Board of Directors
Private Company
Limited Certificate of Commencement is not necessary 1. Certificate of Incorporation 2. Copy of Memorandum and Articles of Association 3. Copy of Resolution of the Board of Directors
3.2.3 Types of Account maintained by this branch – comparative discussion Types of Types
Demand
of A c c Characteristics o u n ts
Current Account ( C D )
Generally opened by businessmen No interest is provided for deposited amount Overdraft is Allowed in this account Minimum opening balance is TK.5000. If it falls below TK.1000 an incidental charge of TK.50 is charged
Any one except limited company can open 7.5% interest is provided to depositors Minimum balance is Tk.500 Twice withdrawal in a week is allowed, for more withdrawal depositors is not entitled any interest No name of depositor is necessary 8-9.5% interest is provided Bangladesh Bank has ordered to close all these accounts and not to open any further Can be opened by all 8-10.5% interest – discussed below In case of withdrawal before maturity the previous maturity period is considered to pay interest – it is known as Break Down Payment Generally opened by big business firm Interest depends on the amount deposited
Savings Account (SB)
Bearer Certificate of Deposit (BCD) Time Deposits
Fixed (FDR)
Deposit
Short Term Deposit (STD)
3.2.4 Types of Customer and the accounts they are allowed to open by this bank Types of customer
CA
SB
FDR
STD
Individual
√
√
√
X
Sole Proprietorship / Partnership firms
√
√
√
√
Private / Public Limited Company
√
X
√
√
Trustee / Liquidators / Executors
√
√
√
√
Clubs / Societies / Non–Trading Concern
√
√
√
X
Co-operatives / Non–Government Organizations
√
√
√
√
3.2.5 Transfer of account Step 1
Application in written to the Manager of the account maintaining branch
Step 2
Manager sends a request to the manager of the desired branch of depositors
Step 3
Sends original Account opening application and specimen signature sheet with the balance remained in the account at he sent Manger’s request
Step 4
New account is opened at desired branch. 3.2.6 Dormant account
If any account is inoperative for more than one year is called dormant account. To operate these accounts manager permission is necessary.
3.3. CHEQUE CLEARING SECTION This section receives all kinds of Cheques in favor of the client for clearing as the part of their banking service. After receiving the Cheque it is necessary to endorse it and cross it specially. Basically the Cheques for clearing are of following types:
Types
Explanation
Inward Clearing Cheque
Cheques received from the Clearing Party’s A/C ------------Dr. House, of our bank IFIC General Account ------------Cr.
Outward Clearing
OBC (Outward Bills for Collection) Clearing Cheque
Clearing Process
These Cheques are directly sent to the Cheques of other respective branch and request them to send branch of IFIC Bank IBCA. When IBCA comes, then within our clearing customer’s accounts are credited for the house area amount of the Cheque. Cheques of another These Cheques are sent to clearing house bank within our via the Motijheel Branch. When drawee clearing house area bank honor the Cheques, then the account of Cheque depositors are credited.
These Cheques are cleared in two ways: Firstly, if any branch of our bank exists within the clearinghouse area of drawee bank, then we send the Cheque to that OBC Cheques of another branch of our bank and that branch collects (Outward bank which is situated the proceeds through clearing house Bills for outside the clearing formalities and sends an IBCA to us. Collection) area In second way, if there is no branch of our bank, then we directly sends the Cheque to the drawee bank and request them to send the proceeds by TT, MT, or DD or by in any other means These Cheques are settled by sending From other branch of IFIC Bank IBCA, i.e. debiting depositor’s account and Inward crediting sender’s branch account. Bills for Collection These Cheques are settled debiting From another bank outside the (IBC) depositor’s account and sending DD, MT, clearinghouse TT in favor of sender’s bank
Unlike Cheque, there is no possibility of dishonoring of PO / DD / TT because Possibility of before issuing, issuing bank takes out the amount of the instrument in advance dishonor from the customer – common for all instruments 3.4. LOCAL REMITTANCE SECTION 3.4.1 TEST ARRANGEMEN For all these techniques of remittance except telephone transfers, Test is deployed. Test is security number by decoding which the paying bank can be sure that the DD/TT/MT is not forged one. Only authorized officers know the test number. Bank maintains secret code for each of its officers, date, week, year, and amount to be transferred Sending money from one place to another place for the customer is another important service of banks. And this service is an important part of country’s payment system. For this service, people, especially businessmen can transfer funds from one place to another place very quickly. There are five kinds of techniques for remitting money from one place to another place. These are: 1. Demand Draft 2. Pay Order 3. Telegraphic Transfer 4. Telephone Transfer 5. Mail Transfer – Time consuming and not frequently used Telegraphic and Telephone transfer are almost the same, both are them are known as TT in short. So the basic three types of local remittances are discussed below
Points
Explanation
Payment from
Pay Order
Demand Draft
TT
Pay Order gives the payee the right to claim payment from the issuing bank
Demand Draft is an order of issuing bank on another branch of the same bank to pay specified sum of money to payee on demand.
Issuing branch requests another branch to pay specified money to the specific payee on demand by Telegraph /Telephone
Payment from Payment from ordered branch Payment issuing branch only branch
from
ordered
Generally Within the Outside the clearinghouse Anywhere in the country used to clearinghouse area of area of issuing branch. Payee Remit fund issuing branch. can also be the purchaser. Payment is made 1.Confirm that the DD is not 1.Confirm issuing branch through clearing forged one. Payment 2.Confirm Payee A/C Process of 2.Confirm with sent advice 3.Confirm amount the paying 3.Check the ‘Test Code’ 4.Make payment bank 4.Make payment 5.Receive advice Charge
Only commission
Commission + telex charge
Commission + telephone
3.4.2 ACCOUNTING ENTRIES FOR THE PO, DD AND MT Cases
Against Cash Originating
–
PO / DD
TT / MT
Cash A/C------------------Dr.
Cash A/C-----------------Dr.
IFIC General A/C ----Cr.
IFIC General A/C ---Cr.
Commission A/C ----Cr.
Commission A/C ----Cr. Telex Charge A/C---Cr.
Against Transfer Originating
–
Party A/C------------------Dr.
Party A/C----------------Dr.
IFIC General A/C ----Cr.
IFIC General A/C ---Cr.
Commission A/C ----Cr.
Commission A/C ----Cr. Telex Charge A/C---Cr
Responding
IFIC General A/C -------Dr. Party A/C ---------Cr.
IFIC General A/C -------Dr. Party A/C ---------Cr.
When Advice Received - IFIC General A/C ------------------------------------------------Dr. for DD Bills Payable DD Payable A/C --------------------------Cr. When DD Placed Against Bills Payable DD Payable A/C ------------------------------- -Dr. Advice Party A/C --------------------------------------------------Cr. When DD Paid without Sundry Asset DD Paid without Advice A/C -----------------Dr. receiving Advice Party A/C -------------------------------------------------Cr. 3.4.3 Cancellation of DD / PO / TT
Step 1
Application in written to the Manager of the account maintaining branch
Step 2
Verification of the specimen signature
Step 3 Journal Posting
Incoming
Step 4
Outgoing
Bills Payable DD Payable ----------------------------------Dr. IFIC General A/C --------------------------------------Cr. FIC General A/C ---------------------------------------------Dr. Party A/C -----------------------------------------------Cr.
Send letter to the paying Bank.
3.5. FDR SECTION This branch maintains a separate section for maintaining Fixed Deposit. FDR is an important factor for the bank and volume of FDR determines the investment base of the bank. FDR is found to be 60% of the total deposit of this branch. Basically this is the mobilization unit of the Bank. It is obvious to give due importance.
3.5.1 Types of FDR maintained by this branch along with their respective interest rare Amount Deposited Up to TK.10, 00,000.
3 Month 6 Month 1 Year 8% 8.25% 8.50%
2 Year 9%
3 Year 9.50%
TK.10, 00,000. - TK.50, 00,000.
8.25%
8.50%
8.75%
9.25%
9.75%
TK.50, 00,000. - TK1, 00,00,000.
8.50%
8.75%
9%
9.50%
10%
Above TK.1, 00,00,000.
9%
9.25%
9.50%
10%
10.50%
3.5.2 Liquidation of FDR – 1. Only the account holder himself and the authorized person can liquid the FDR after maturity. 2. In case of joint name, authentication from both is necessary. 3. In case of ‘Either of Survivorship ‘ clause – any one can liquid. 4. In case of Death, the survivor cannot encash the FDR even if there exist the either or survivor clause – succession certificate from the court is needed. 5. If demanded before the maturity the last expired duration is considered to pay interest. FDR section provides another service on behalf of the government. These services – this bank issues and encash the following two government securities: 1. Five Years Bangladesh Sanchay Patra 2. Pratirakha Sanchay Patra
This section of this branch is also fully computerized. No ledger, no other subsidiary books are maintained separately in this section. All entry is given directly in the computer and then necessary information is printed when required.
3.6. ESTABLISHMENT SECTION This section deals with employee’s salary, many types of internal expenses such as purchase of pen, paper, equipment, machinery and payment of labor cost and employee conveyance. In case of leave of absence employee collects prescribed form from this section. This section of the bank is simply maintained by a single person
3.7. ACCOUNTS SECTION This is obviously an independent and unique department, which works as the composition of all the departments of the branch, but it is under the In-Charge of the General Banking in this branch. This section in this branch is fully computerized. So the conventional large ledger and journal books are not kept like the nationalized banks. Only four personnel maintain the entire accounts section. It receives the vouchers from all departments and prepares the subsidiaries and maintains accounts.
3.7.1 Books maintained by this section Daily Position
It shows the daily position of the branch
Clean Cash
It records all cash transaction of the day under different head
Extract
It keeps the vouchers from different department along with their summary sheet
General Ledger
There are different heads of the general ledger which are prescribed by the head office and the accounts are maintained through those heads
Statement of Affairs It is the balance sheet of the concern under periodic accounting system. It shows the daily profit of the concern along with the asset and liability of the respective day. 3.7.2 SCHEMES UNDER THIS SECTION Pension Saving This is a scheme to make the customer induced to the banking system. Scheme Under this scheme the customers are to pay a certain sum of money at monthly interval up to a period of 5 to 10 years and after the period (PSS) they will get the return along with the full interest earned during this period. Most of the clients under this scheme are housewives. Monthly Income This is another attractive scheme offered by this bank. Under this Scheme scheme the depositors are to deposit a fixed amount to the bank and for their fixed amount they are entitled to earn a monthly payment (MIS) from the bank. This is an attractive scheme for the retired person, because they can even earn after their retirement. This is also a kind of FDR, but here the interest is given monthly to the customer.
3.7.3 ANALYSIS OF THIS DEPARTMENT Types of Account Current Account Savings Account Short Term Deposit FDR PSS FDR (MIS)
No. Of Accounts 1943
Amounts (In Taka.) 53124838.98
3908 85 444 1498 2
117763791.63 77277094.94 392538521.29 20948745.63 250000.00
Source: General Ledger on 12 – 11 - 2004
4000
Current Account Savings Account
3000 2000 1000
Short Term Deposit FDR PSS FDR(MIS)
0
Number of Different Accounts Maintained by this Department
400000000 350000000 300000000 250000000 200000000
Current Account Savings Account Short Term Deposit
150000000
FDR
100000000
PSS
50000000 0
Amount Deposited in Different Accounts Maintained by this Department
FDR(MIS)
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Current Account
Savings Account
Short Term Deposit
FDR
PSS
FDR(MIS)
% Of Amount Deposited in Different Accounts Maintained by this Department CHAPTER-FOUR Loan & Advance 4.1Introduction: This is the survival unit of the bank because until and unless the success of this section the survival is a question to every bank. If this section is not properly working the bank itself may become bankrupt. This is important because this is the earning unit of the bank. Banks are accepting deposits from the depositors in condition of providing interest to them as well as safe keeping their interest. Now the question may gradually arise how the bank will provide interest to the clients and the simple answer is – advance. Why the bank provides advances to the borrowers – a. To earn interest from the borrowers and give the depositors interest back b. To accelerate economic development by providing different industrial as well as agricultural advances c. To create employment by providing industrial loans d. To pay the employees as well as meeting the interest groups Credit is continuous process. Recovery of one credit gives rise to another credit. In this process of revolving of funds, bank earns income in the form of interest. A bank can invest its fund in many ways. Bank makes loans and advances to traders, businessmen, and industrialists. Moreover nature of credit may differ in terms of security requirement, disbursement provision, terms and conditions etc.
We often use loans and advances as an alternative to one another. But academically this concept is incorrect. Academically Advances is the combination such items where loans is a part only. For this credit section of the banks is known as advance section. Academically Advance is the combined form of the following items
A dvances Loans
W o r k in g C a p it a l
C a s h C r e d it
O v e rd ra ft
B ills P u r c h a s e d A n d D is c o u n t e d
This section has been analyzed in this report in the following manner •
Types of advances provided by the branch
•
Procedures of loan appraisal
•
Types of security charged and their valuation
•
Documentation
•
Follow up and Reporting
•
Analysis of secondary data
4.2 TYPES OF ADVANCES A dvances S ta ff L o a n
S ta ff H o u s e B u ild in g Loan - SHBL
T e rm L o a n
S ta ff L o a n A g a in s t P r o v id e n t F u n d - S P F
O v e r d r a ft
A g r ic u ltu r a l L o a n o r O th e r s L o a n
H o u s e B u ild in g Loan - HBL
T ra n s p o rt L o a n
C a s h C r e d it o r W o r k in g C a p ita l
S e c u r e d O v e r d r a ft SOD
L o a n G e n e ra l LG
B a n k G u a r a n te e
B id B o n d
In d u s tr ia l L o a n
P e rfo r m a n c e B o n d
B ills P u r c h a s e d A n d D is c o u n te d
C C - H y p o th e c a tio n
C C - P le d g e
S chem e
C o n s u m e r C r e d it S c h e m e CCS I n v e s t o r 's A c c o u n t
It is not possible to discuss all these types of advances in details in this report but an attempt has been made to analyze the basic difference and characteristics of these advances all in the following manner
4.3 BANK GUARANTEE a. The bank is very often requested by his customer to issue guarantees on their behalf to a third party – committing to make an unconditional payment of certain amount of money to the third party, if the customer (on whose behalf it gives guarantee) becomes liable, or creates any loss or damage to the third party. b. It is a contingent liability for the bank. 3% commission is charged for this. After the expiry of the period bank is no longer liable to the third party. c. Generally issued by the banker for payment of tender. Paying customs duty, sales tax, insurance premium guarantees are also issued on behalf of his customer. Bid Bond
Generally issued while dropping tender for work.
Performance Bond
It is issued when customer gets a specific work-order. Here bank guarantees that his customer is willing and able to complete the required work, and bank takes the responsibility of completing the contracted work.
4.4 OVERDRAFT a. Overdrafts are those drawings, which are allowed by the banker in excess of the balance in the account up to a specified amount for definite period as, arranged for. b. Generally it is given to the businessmen to increase their business activities. c. Any deposit in the SOD account is treated as repayment of overdraft. d. Generally provided against FDR, PSP or any primary security SECURED OVERDRAFT – SOD
LOAN GENERAL – LG
a. Only Businessmen can open this
a. Anyone can open this account
b. Only CD Account Holder can open
b. CD/SB both Account holder can open
c. Interest rate is 16.50%
c. Interest rate is 16.50%
d. Interest starts from the date of first withdrawal
d. Interest starts from the date of sanction of the overdraft
4.5 CASH CREDIT / WORKING CAPITAL – CC / WC a. Cash credit is given through the Cash Credit (CC) account. b. Cash credit account is basically a current account, however a little different exist between them. The distinction between a current account a cash credit account is that the former is intended to be an account with credit balance and the latter an account for drawing of advances. c.
♦
Operation of cash credit is same as that of overdraft. The purpose of cash credit is to meet
Cash credit – when financing the trading concern; Working capital – when financing to the manufacturing concern;
working capital needs of traders, farmers, and industrialists. CC (HYPOTHECATION)
CC (PLEDGE)
a. It is a charge against a property for a debt
a. It is a charge against a property for a debt
where neither the ownership nor the
where the ownership remains to the
possession is passed to the Banker.
borrower but the possession is passed to
b. It is granted only to first class parties.
the Banker.
c. Instrument – Hypothecation Deed
b. Instrument – Pledge deed
d. Possession of goods is surrendered to the
c. In case of default, Bank may sell the
lender when called upon to do so. Charge
security on giving the debtor reasonable
is then converted to pledge.
notice of sale.
4.6 INLAND BILLS PURCHASED - IBP Bank purchase two types of Inland Bill – Clean Bill and Documentary Bill a. Clean Bill are those, which requires no document for payment like Cheques, Demand Draft, Pay Order, Telex Transfer, and Mail Transfer etc. b.
Documentary Bills are those, which require related documents for payments like Bill of Exchange, Railway Receipt, Calhan, and Invoice etc. This bill is often created in business and bank purchases these before their maturity. Thus Purchase of these bills is one kind of credit to these before their maturity. Thus purchase of these bills is one kind of credit to businessmen. After maturity bank presents it to the drawee for encashment.
4.7. STAFF LOAN 1. STAFF HOUSE BUILDING LOAN – SHBL a. 120 times of the basic salary is provided as SHBL b. Bank Rate + 1%, interest is charged to the employee c. Repayment is adjusted from their monthly salary d. Repayment is made at equal monthly installment
2. STAFF LOAN AGAINST PROVIDENT FUND – SPF a. 10% of basic is contributed by employee in every month b. 10% of basic is also contributed to the PF by the Bank c. Repayment is adjusted from their monthly salary d. Maximum Sanction from PF
1-5 years of confirmed service
50% Own Contribution
5-7 years of confirmed service
60% Total Contribution
7-10 years of confirmed service
70% Total Contribution
Above 10 years of confirmed service
80% Total Contribution
4.8. TERM LOANS Characteristics
Types of Loans Industrial Loans
a. It is given for 3 years at equal monthly installment b. Interest rate is 16.5% c.
Transport Loans
Grace Period is allowed depending on types of project
d. To facilitate the industrial growth this is given a. This is given to accelerate the transport facility nationwide b. Interest rate is 16.5% c. It is given for 3 years at equal monthly installment d. Others conditions are almost same as the Industrial Loans
House Building Loans
a. This Loan is give for the construction of dwelling house. b. It is given for 3 years at equal monthly installment c. Interest rate is 16.5% d. Term of this loan is only three years.
Others Loan – Including agricultural Loan
e. This Loan is not given frequently. Actually Agricultural loan is not given from this branch of IFIC Bank but the all other items excluding the mentioned above will go under this head of term loans.
4.9. PROCESS OF LOAN Heads Application
Characteristics Applicant applies for the loan in the prescribed form of the bank describing the types and purpose of loan.
Sanction
a. Collecting credit information about the applicant to determine the credit worthiness of the borrower. Sources of information i.
Personal Investigation, Confidential Report from other bank, Head Office/Branch/Chamber of Commerce.
ii.
CIB (Central Information Bureau) report from Central Bank.
b. Evaluation of compliance with its lending policy. c. Evaluating the proposed security
d. If loan amount exceeds 50 lakh then bank goes for LRA Analysis. e. LRA is must for the loan exceeding one crore – as ordered by Bangladesh Bank. LRA has described at the end of this chapter. f. Documentation
If everything is in accordance the loan is sanctioned
a. Then bank prepare a loan proposal which contains terms and conditions of loan for approval of H.O. or Manager. b. Takes the necessary papers and signatures from borrower
Disbursement
A loan Account is opened. Where customer A/C-------------------------Dr. Respective Loan A/C --------------------------------------------Cr.
4.10. CREATION OF CHARGES FOR SECURING LOAN For the safety of loan, bank requires security from the loanee so that it can recover the loan by selling security if borrower fails to repay. Creation of a charge means making it available as a cover for an advance. The method of charging should be legal, perfect, and complete. Importance of charging security a. Protection of interest b. Ensuring the recovery of the money lent c. Provision against unexpected change d. Commitment of the borrower
Security - An insurance or cushion to fall back upon in emergency Primary security
Security deposited by the borrower himself to cover the loan – FDR, Cash,
Collateral security
Narrow sense – security deposited by a third party to secure the advances for
PSP, PSS easily cashable item the borrower Wider sense – any types of security on which the creditor has a personal right of action on the debtor in respect of advance
Common methods of charging security and their nature of security Mode Lien
Nature of security & its characteristics a. Cash, cash collateral and documents of the title to the goods b. It is the right of banker to hold the debtor’s property until the debt is discharged – generally retained by the bank in its own custody or to the hands of third party with lien marked.
c. The third party cannot discharge it without the permission of the bank. d. In case of need bank needs the permission from the court to sell the property. Assignment
a. Borrower transfers the right of property or debt to the bank Life insurance policies, supply bills, book debt of the borrower can be assigned
Pledge
a. Moveable stock of raw materials, finished goods, merchandise b. Pledge is also lien but here bank enjoys more right. c. Physical transfer of goods to the bank is must. d. Bank can sell the property without the intervention of any court, in case of default on loan.
Hypothecation
a. Moveable stock of raw materials, finished goods, merchandise b. Goods remain in the hands of debtor, but documents of title to goods are handed over to the banker. This method is also called ‘equitable charge’. c. Bank inspects the goods regularly to judge it’s the quality and quantity for the maximum safety of its loan.
Mortgage
a. Mortgage is the transfer of specific immovable property - like land, building, plant etc. b. Most common type of mortgage is legal mortgage in which ownership is transferred to the bank by registration of the mortgage deed. c. Another method called equitable mortgage is also used in bank for creation of charge. Here mere deposit of title to goods is sufficient for creation of charge. Registration is not required. In both the cases, the mortgaged property is retained in the hand of borrower.
Trust receipt
a. Intangible asset (goodwill) b. It is used in foreign exchange business – it will be discussed thereon
4.11. DOCUMENTATION FOR THE LOAN A document is a written statement of facts of proof or evidence arising out of particular transaction, which on placement may bind the parties thereto answerable and liable to the court of law for satisfaction of the charge in question.
SPECIAL ACCOUNTS UNDER THIS SECTION Consumer
a. Under this scheme credit is given to the customer fro purchasing
Credit Scheme (CCS)
necessary and luxury commodities like – computer, Television, Sound System, Sewing Machine, Furniture etc. b. Other than the employee it is given to the valuable client c. It is a 24 installment system of 16.5% interest d. Credit allowed to the borrower - (Net withdraw per month / 3) * 24 e. Example - if someone having a net withdraws per month TK.10, 000. is entitled to a maximum credit of Tk80,000.(10,000/3*24)
Investor’s Account
a. Only this branch of IFIC Bank in Dhaka is permitted by Bangladesh Bank to do this. b. This is secondary security market related service by the bank, for the people who are willing to invest in the shares and debentures. For these account holders, bank Purchases and sells shares and debentures by their order. c. Here bank provides credit amounted to 50% of the face value of the share or the average market price of 6 month whichever is lower. d. Bank charge 16.5% interest on this account. e. Bank
requires
no
collateral
securities
for
this
service
and
shares/debentures bought and cash balance remained in the account are treated as security for the bank credit to the account. 4.12 LOAN CLASSIFICATION Every Bank has to send a quarterly CIB Report to the Bangladesh Bank for amounts due up to TK.50,000 mentioning the name of the borrower and the purpose for which loan has been sanctioned and a monthly statement for the amount due more 1 crore Taka. Bangladesh Bank provides CL (Classification Form) to every bank for preparing this report. The procedure for loan classification is given by Bangladesh Bank under BRPD circular no 16, dated 06/12/1998. According to Bangladesh Bank there are four types of loan If any borrower fails to repay his amount or installment within the following time period then it will fall under the following classification status. Types of loan Classification
Continuous loan (C/C; O/D.)
Unclassified
Less than 3 months
Less than 3 months
Less than 6 months
Less than 12 months
Substandard
3 months or more
3 months or more
6 months or
12 months or
Demand loan (LIM; Term loan up to Term loan above PAD; FBP; IBP) 5 years 5 years
but less than 6 months
but less than 6 months
more
more
Doubtful
6 months or more but less than 12 months
6 months or more but less than 12 months
12 months or more
18 months or more
Bad loan
12 months or more
12 months or more
18 months or more
24 months or more
Bank should preserve following provisions for continuous, forced, and term loan. a) For unclassified loan -------------------------------------1% b) For substandard loan-------------------------------------20% c) For doubtful loan-----------------------------------------50% d) For bad loan---------------------------------------------100% 4.13 LENDING RISK ANALYSIS - LRA LRA is a very important and vital analysis for deciding whether the loan proposal is potential or not. Many types of scientific, mathematical, statistical and managerial tools and devices are required to perform this analysis. Before LRA the following analysis were used to analyze the loan proposals. This branch maintains a prescribed format containing 14 pages for Lending Risk Analysis, which includes a spreadsheet to analyze a lot of things. It is not possible to discuss the entire LRA in this report but the entire framework under which it works has given in the following manner: Decision matrix from LRA Select overall risk from matrix Status
1
2
3
4
Criteria
A
A
A
A
B
B
B
B
C
C
C
C
D
D
D
D
Good
Acceptable
Marginal
Poor
Decision
1A - Indicates that the loan is least risky hence it should or could be given
From the LRA sheet we can calculate the following numbers and plotting them into the matrix we can arrive into the decision of lending. The calculated result criteria is as under Business Risk
1
2
3
4
13 – 19
20 - 26
27 - 34
34 ++
Security Risk
A
B
C
D
-20 ~ -15
-14 ~ 0
0 ~ 10
10 ++
4.14 ANALYSIS OF THIS DEPARTMENT Types of Account Term Loan (industrial) – TL Term loan (others) – TRL House Building Loan – HBL Staff House Building Loan – SHBL Staff Loan against P/F Transport Loan Loan General – LG Secured Overdraft – SOD Cash Credit – Hypo Cash Credit – Pledge Consumer Credit Scheme – CCS Investors Account Source: General Ledger on 12 – 11 - 2004
No. Of Accounts 3
Amounts (In Taka.) 89474935.55
3 2 4 52 2 7 62 40 16 90 217
21300560.70 24097403.00 8691785.00 3635253.00 43499014.00 6718937.00 161431061.42 537679915.00 207594128.31 40,00,000 457558.58
Term Loan (industrial) – TL Term loan (others) – TRL House Building Loan – HBL Staff House Building Loan – SHBL Staff Loan against P/F Transport Loan Loan General – LG Secured Overdraft - SOD Cash Credit – Hypo Cash Credit – Pledge Consumer Credit Scheme – CCS Investors Account
250 200 150 100 50 0
Number of Different Accounts Maintained by this Department
600000000 500000000 400000000 300000000 200000000 100000000 0 Term Loan (industrial) – TL
Term loan (others) – TRL
House Building Loan – HBL
Staff House Building Loan – SHBL
Staff Loan against P/F
Transport Loan
Loan General – LG
Secured Overdraft - SOD
Cash Credit – Hypo
Cash Credit – Pledge
Consumer Credit Scheme – CCS
Investors Account
Amount Advanced in Different Accounts Maintained by this Department
100% 80% 60% 40% 20% 0% Term Loan (industrial) – TL
Term loan (others) – TRL
House Building Loan – HBL Staff Loan against P/F
Staff House Building Loan – SHBL Transport Loan
Loan General – LG
Secured Overdraft - SOD
Cash Credit – Hypo Consumer Credit Scheme – CCS
Cash Credit – Pledge Investors Account
% Of Amount Advanced in Different Accounts Maintained by this Department CHAPTER-SEVEN Problems, Recommendations & Conclusion 7.1 SWOT ANALYSIS SWOT analysis is the detailed study of an organization's exposure and potential in perspective of its strength, weakness, opportunity and threat. This facilitates the organization to make their existing line' of performance and also foresee the future to improve their performance in comparison to their competitors. As though this tool, an organization can also study its current position, it can also be considered as an important tool for making changes in the strategic management of the organization. Strengths: •
IFIC Bank Limited has already established a favorable .reputation in the banking industry of the country. It is one of the leading private sector commercial banks in Bangladesh. The bank has already shown a tremendous growth in the profits and deposits sector
•
IFIC Bank has provided its banking service with a top leadership and management position. The Board of Directors headed by its Chairman Alhaz Md. Mcsaddeq A!i is a skilled person in business arena. Md. Moshiur Rahman as the Managing Director of the bank management team. The top management officials have all worked in reputed banks and their years of banking experience, skill, expertise will continue to contribute towards further expansion of the bank.
•
IFIC Bank Limited has already achieved a high growth rate accompanied by an impressive profit growth rate in 1990. The number of deposits and the loans and advances are also increasing rapidly.
•
IFIC Bank has an interactive corporate culture. The working environment is very friendly, interactive and informal. And, there are no hidden barriers or boundaries while communicate between the superior and the employees. This corporate culture provides as a great motivation factor among the employees.
•
IFIC Bank has the reputation of being the provider of good quality services 100 potential customers.
Weakness:
The main important thing is that the bank has no clear mission statement and strategic plan. The banks not have any long-term strategies of whether it wants to focus on retail banking or become a corporate bank. The path of the future should be determined now with a strong feasible strategic plan.
The bank failed to provide a strong quality-recruitment policy in the lower and some mid level position. As a result the services of the bank seem to be Deus in the present days.
Some of the job in IFIC Bank has no growth or advancement path. So lack of motivation exists in persons filling those positions. This is a weakness of IFIC Bank that it is having a group of unsatisfied employees
In terms of promotional sector, IFIC Bank has to more emphasize on that. They have to follow aggressive marketing campaign.
Opportunity :
•
A large number of private banks coming into the market in the recent time. In this competitive environment IFIC Bank must expand its product line to enhance its sustainable competitive advantage. In that product line, they can introduce the ATM to compete with the local and the foreign bank. They can introduce credit card and debit card system for their potential customer.
•
In addition of those things, IFIC Bank can introduce special corporate scheme for the corporate customer or officer who have an income level higher from the service holder/ At the same time, they can introduce scheme or loan for various service holders. And the scheme should be separate according to the professions, such as engineers, lawyers, doctors etc.
•
In order to reduce the business risk, IFIC bank has to expand their business portfolio. The Management can consider option of starting merchant banking or diversify into leasing and insurance sector.
Threats : •
All sustain multinational banks and upcoming foreign, private banks posse's enormous threats to IFIC Bank Limited. If that happens the intensity of competition will rise further and banks will have to develop strategies to compete against an on slough of foreign the banks.
•
The default risks of all terms of loan have to be minimizing in order to sustain in the financial market. Because default risk leads the organization towards to bankrupt. IFIC Bank has to remain vigilant about this problem so that proactive strategies are taken to minimize this problem if not elimination.
7.2 Findings: As an internship trainee I have collected data from its Finance & Accounts Division (FAD) related to the operations and performances of the Bank and also visited its Principal Branch Office at Motijheel. Besides, I was also worked at its Dhanmondi Branch of the Bank wherein I got immense ideas about business operation of the Bank. New Product : In the recent years, IFIC Bank Ltd, in comparison to other Banks, is not introducing attractive new products both in deposit collection and investment system. Other Banks have emphasized on the micro credit like personal loan, education loan, consumer credit, service holder's loan etc in their lending operation. On the basis of these types of micro credit, the other banks have made a huge
business and earned a lot of income. Unfortunately, the Bank did not concentrate on this sector and take initiative to increase the business. But, at present, the Bank has taken policies to invest in the micro credit sector and increase its income to a good position. Business Expansion: In the past few years, the volume of deposit and advance have not increased significantly. During the past five years, the operating profit of the Bank has not increased more than Tk.75 crore. But, the other Banks have made operating profit about two to three times of these volumes. Processing Loan Proposal : I have observed that processing of loan proposals takes a longer time than in other Banks. If the Bank delays in loan proposal, then the valuable time of the customers will be spoiled and they will be discouraged. The Bank should take a policy so that the maximum time to be taken for making a loan proposal will be specified. In this regard, the Bank's Head Office should take initiative so that the Branches follow the policy accordingly. Processing of Term Loan takes at least three to six months and short term loans take about one month in the Branches. Major portion of this time is spent for correspondence between Head Office and Branch. If the time of loan processing is lengthen, then the Bank will not get good borrowers. The Bank should speed up its loan processing system. For reducing loan processing time, branch manager should be given more power to sanction loan. Employee Relationship: I have found a sound and beautiful relationship among the employees of this bank. They are really good to each other. This is good for a bank or any undertakings. Employee Satisfactions: I have found that the officers and staff-members are quite happy and satisfied here. This is crucial for an organization to maintain this situation. The management should take care regarding this.
7.3 Problems of IFIC Bank Ltd. General Banking Department : •
In general Banking department they follow the traditional banking system. The enterer general banking procedure is not fully computerized.
•
I think the cash counter is congested and the procedure is also traditional
•
Lack of variety of services is also a back of the general banking department. The bank provides only some traditional limited services to its clients.
•
They are not using data base networking in the information technology department.
Loan & Advance Department: •
Political influence is one of the major problems in Bangladesh. Due to political intervention the bank becomes obligated to provide loans in most of the cases, which are rarely recovered. Bank has to face this inconvenience situation almost every year.
•
The Loans and Advances Department takes a long time to process a loan because the process of sanctioning loan is done manually.
•
Sometimes the securities taken against the loan are deliberately overruled by the employees to unlawfully help the client. As a result if the clients fails to repay the bank authority cannot collect even the principal money invested by the selling those assets. It is also a very important factor that leads to loan default.
•
CIS report is not readily available from Bangladesh Bank.
Foreign Exchange Department •
In Foreign Exchange Department it is required to communicate with foreign banks frequently and quickly. To make the process easily modern communication media for example e-mail, fax, Internet etc. should be used. But the bank has not so much practice of using these media.
•
Modern technical equipment such as computer is not sufficient in Foreign Exchange Department. As a result the exchange process makes delay and it is also complicated.
Other Problem: IFIC bank does not give their attention on advertisement. As a competition market it is too much important for any organization to increasing their advertisements procedure.
7.4 Recommendation It has a large portfolio with huge asset to meet up its liabilities and the management of this bank is accomplished with the expert bankers and managers in all level of management and with a little
knowledge about banking, it is not an easy job to find out the difficulties of this branch. Rather than recommending I would like to give my opinion to improve the banking service and make the customer more satisfied.
Renovation of customer service Since a number of new banks are coming to existence with their extended customer service pattern in a completely competitive manner. Customer services must be made dynamic and prompt. Now a days, people especially business people have very little time to waste. So the bank should make its service prompt so that people need not give more time in the banking activities.
Providing more industrial loans It seemed to me that the bank having a large amount of deposit is not simply encouraging the large scale of producers that is this bank is not providing that much of long term industrial loans to accelerate the economy as well as to help the economy to solve unemployment problem.
Speed up Processing of loan application If loan-processing time is lengthy, it will not get good borrower. Most of this time is spent for correspondence between Head Office and Branch. So the branch should speed up its loan processing time. For reducing loan-processing time, branch manager should be given more power to sanction loan. This power can eliminate the time. Branch should have independent appraiser for appraising term loan proposal.
L/C should be opened promptly This branch has no ‘Test Code’ arrangement for opening L/C and issuing foreign TT and foreign DD. For these services, this branch uses ‘Test Code’ facility from another branch (Motijheel Branch). For this reason, sending telex message takes 3-4 days on average after receiving L/C application from the opener. But in the branch where Test arrangement exists, this takes only one day. That is why no large company especially multinational company is interested to be the client of this branch.
This branch must create foreign currency fund for itself IFIC Bank, Dhanmondi Branch has no foreign currency funds of its own to provide L/C and remittance facility. For providing these services, it depends on Bangladesh Bank. But purchasing Foreign Currency from Bangladesh Bank requires prior permission and hence takes long time. As a licensed Authorized Dealer, it should have its own foreign currency funds so that it can open L/C and remits fund independently like foreign bank operating in Bangladesh. If it can create its own foreign currency fund, it is for sure that it can reduce operating time of L/C and remittance by at least two days.
Bank should be innovative and diversified in its services This branch provides only conventional services. Modern banking today is introducing various kinds of deposit account with different attractive features each of which may attract different groups of people. For example, Saving Certificate Scheme introduced by Islamic Bank is one of its unique services in the banking in Bangladesh. Even the bank does not provide any ‘Customer Loan’ facility, which has been found very much profitable for those banks who have introduced it in their banking services. Bank should diversify its banking services and add new features in its services so that it can attract customers from all groups of people. Financial Engineers of IFIC Bank should be innovative in developing new banking services, which will attract customers and reduce costs. It can introduce customer loan scheme, provide bridge loan, or can engage in lease financing. It can also underwrite shares of newly incorporated public companies.
Bank should immediately enter into the credit card market This bank does not have any plan to enter into the Credit Card Market. It is well versed that tomorrow’s payment will be consisted of only plastic money (Credit Card). A large part of business transaction will be done by credit card in near future. In western world, more than 50% of transactions are in credit card♦. If this bank does not prepare from now on, it cannot compete in the future market. So, the branch should give special attention to the introduction of Credit Card.
Introduce modern technology Without using modern technology no bank can even think of remaining in the business in near future. So the bank must decide right now how it can equip its branches with modern technology. Use of modern technology in one sense can increase cost but another sense it increases productivity highly and it attract big clients. It can introduce ATM services is branch. Use of automatic machine like cash counter machine, ATM brings speed in banking services.
Information System should be developed For information transfer, branch uses primitive ways of telex, messenger and personal visit. It makes correspondence with the head office by peon or orderly. For international correspondence the branch uses telex machine, which is very costly. And in the branch, manager has to visit specific desk for collecting information. Paper communication is too involved between manager and employees. But branch can use INTERNET for both local and international correspondence. E – mail can reduce the telex cost substantially. Bank should take urgent decision to create own WEB Page in INTERNET so that it can communicate with others very quickly.
Development of human resources Human resource is another sector for the branch to be developed urgently. Human resources, in the branch, are not equipped with adequate banking knowledge. Majority of the human resources are lack of basic knowledge regarding money, banking finance and accounting. Without proper knowledge in these subjects, efficiency cannot be optimized. Bank can arrange training program on these subjects.
Reduce classified loan on an emergency basis It is observed in the Loans and Advances department that classified loan is about to 36% of the total loan portfolio. Such a big share of classified loan indicates weakness in the lending policy of branch. Probably bank’s customer selection process is not right. Bank should take special action in order to reduce the amount of classified loan. Although branch is maintaining the required provision for its classified loan, branch should consider recovering classified loan on an emergency basis. For this bank
should motivate the defaulter for repaying. If motivation failed, then bank should be stringent about the defaulter and take legal action.
Bank should remove the time card system The oddest thing in this bank is that it maintains a time card system to maintain the attendance of the employee including manager of the branch. It is definitely effective system but it is simply used to record the work hour of the labors in any manufacturing concern in the western countries to make their payment effectively those who are hourly basis worker. This system cannot be employed to the high officials like Manger of the branch etc. this creates an inferior impact on the mind of the employees that they are ill treated which decrease their service providing quality.
Bank must try to be computerized There are computers almost in every branch in the IFIC Bank, but it does not mean that the bank is maintaining a network among them. The networking system obviously charges a high installation cost, but it will definitely reduce the overhead costs and an error free banking may be in progress. Moreover by adopting this system the bank can join in modern competition of along with e-commerce concept. The main problem is that the foreign banks and other private commercial banks have started providing these facilities, so introduction of these facilities will be added as modern facilities enhanced, rather it will be a question of survival in the next decade for the bank.
7.5 CONCLUSION During the three months internship program at Dhanmondi Branch, almost all the desks have been observed more or less. This internship program, in first, has been arranged for gaining knowledge of practical banking and to compare this practical knowledge with theoretical knowledge. Comparing practical knowledge with theoretical involves identification of weakness in the branch activities and making recommendations for solving the weakness identified. Though all departments and sections are covered in the internship program, it is not possible to go to the depth of each activities of branch because of time limitation. However, highest effort has been given to achieve the objectives the internship program.
During the internship, it is found that the branch provides all the conventional banking services as well as some specialized financing activities to the economy. Foreign exchange services department the largest department of the branch in terms of manpower and profit earned. In this year, it earned more than 60% of branch’s total profit. This department provides all the services related to international and disburse credit if the proposal is sound. As specialized financing, it provides term finance to medium and small-scale industries. The branch also provides house-building loan. Thus by providing this various services, Elephant Road Branch, IFIC Bank is playing an important role in the banking system and in the payment system of Bangladesh.
7.6
Annual Report 2002-2004, IFIC Bank Ltd. Banking Manuals of IFIC Bank Ltd(General & Advance) A text book on Foreign Exchange Business Of Banking
-L.R. Chowdhury -Dr. R.M. Debnath.
Reports on Practical Orientation in Banks, Several Issues. Theory & Practice Of Banking (B-101) -Bangladesh Institute 0f Bank Management. Gordon E.& Nataranjan K House.
- Banking Theory, Law & practice, Himalays Publishing
Research, brochures, and various publications of IFIC Bank Ltd. Web site of IFIC Bank Ltd(www.ificbankbd.com)