Rehabilitation of Sick Industry Financed by Bangladesh Development Bank Ltd
CHAPTER ONE INTRODUCTION 1.1 Background of the Study: With a view to acquiring in-depth knowledge about practical aspect of modem business I was attached with Bangladesh Development Bank Ltd for the purpose of internship program. The academic program of Accounting Department requires every MBA Student to undergo an Internship Program. Keeping this view in consideration, students of MBA are advised to visit Organizations/Institutions and discuss with management personnel for gathering practical knowledge. After completion my study and field work. I would write up an internship report under supervision of the Assistant Professor Rumana Ahmed, Department of Accounting & Information Systems, University of Dhaka. I have made this report under his guidance and supervision on the rehabilitation of sick industries financed by Bangladesh Development Bank Ltd. Bangladesh Development Bank Ltd was setup for the purpose of industrialization of our country after liberation. Our economic growth rate is very low. So for the economic development, industrial growth is obligatory. More or less Bangladesh is an agricultural country. But now a day Bangladesh is trying to shift this philosophy, and wanted to enter a new dimension. This dimension is industrialization. To become an industrialized country, Bangladesh Govt. set up many types of industries e.g. large-scale jute, textile, spinning and packaging, non-metal products. etc. If these industries run well, then it will provide great contribution to develop the country. But we can see that all these industries are not contributing well. Even they are not profitable and became burden for the country in the form of sick industry. Sick industry does not bring good result for the developing country like Bangladesh. 1.2 Statement of the problem: There are different industries in Bangladesh. Performance of the entire industrial sector is not satisfactory. Many firms in different industries are becoming increasingly sick. Some of these firms were liquidated or closed and some are on the verge of being closed. Why firms are
increasingly becoming sick and what action to be taken to ensure their survival and growth are yet to be discovered. This study addresses the issues pertaining to the above-mentioned problems. 1.3 Objectives of the study: The main objectives of my studies are to find out how the overall operation of BSB is performed and to examine the sick industries. To what extent it is successful to achieve its goals and why many of its industries are become sick. The prime objectives of this report are • To get an overall idea about the operation of BSB • To examine the success status of loan recovery • To know how they identify a sick firm. • To identify the causes behind sickness of enterprises. • To know what types of measurement are taken to rehabilitate the sick industries? • To know which firms are rehabilitate and which are not. • To observe the existing rules, regulation, theories and practices for BSB. • To recommend some steps to overcome such problem 1.4 Rational of the study: Industrialization is the main indicator to develop a country, so Govt. has established Bangladesh Development Bank Ltd (BDBL) to dispense the loan and other technical facilities among the entrepreneurs to develop industry. Since Bangladesh is a developing country, and the present economic situation of Bangladesh is of open market in nature so in this situation the specialized Bank like BSB can play necessary role toward the economic improvement. The types of organizations in which BSB finance are - large-scale jute, textile spinning and weaving, composite textile, cinema halls, water transport (both passenger and cargo), computer software, fish processing, etc. Many of the sponsoring borrowers of BSB financed projects have now become the most successful entrepreneurs of the country. In working with the BSB I found that some of its financed industry is unable to operate in the market. These industries are recognized as sick industry. So, at once I determined to find out the reasons of sickness and how to overcome this. That's why I select this topic “Rehabilitation of Sick Industry" financed by BSB. 1.5 Scope of the Study: This report will mainly focus on the rehabilitation of sick industry financed by Bangladesh Development Bank Ltd. This study covers the causes of sickness, different aspects of sickness, habilitation policy; management of rehabilitation; rehabilitation between appraisal
practices, monitoring & sickness, sector-wise loan outstanding position, loan portfolio and success & failure of rehabilitation. My study is mainly related with practical oriented case, I have studied on the Faridpur Textile Mills Limited, Khulna. Flow it went into sick and how it rehabilitated. 1 .6 Methodology of the Study: The area of my study has been encompassed the operation area of Bangladesh Shilpa Bank, Dilkusha, Motijheel, Dhaka. The report is based on both primary and secondary data and interviewing the mangers and officers if the bank, employees of the related parties have provided the primary sources of information. Further more the secondary sources of information are the 1ifferent annual reports, guide about activities of bank and financial institution. The sources of primary data are: • Official records & documents of BSB. • Face to face interview. • Communication with other respective personnel of BSB. The sources of secondary data are: • Annual report & rehabilitation manual of BSB • Project rehabilitation documents of Faridpur Textile Mills Limited • Journals and relevant books. • Website of BSB 1.7 Justification of the Study: This study will have both practical and academic value. It will help to get a clear idea about the rehabilitation procedure of sick industry of BSB. On the other hand, the findings of this study will help to take appropriate actions and steps for the betterment of the existing practice, which basically help the industrial development of the country. 1.8 Limitation of the Study: This Internship Report is my first assignment outside our course curriculum in the practical life. I, the students of “Department of Accounting & Information Systems”, just have completed our formal education stage. After completing the institutional experience, Practical
performance in the formal stages become difficult. So in performing this report our lack of practical knowledge greatly influenced in this performance. Besides above, other limitations that were faced are: 1. Lack of availability of data 2. Many personnel of BSB were reluctant to provide useful information. 3. They are in government employee so have no eagerness to supply more because of extra hardness. 4. Up-to-date information was not available. 5. Sufficient records, publications, facts and figures are not available. 6. For the reason of confidentiality, some useful information cannot be expressed in this report. 7. Limitation of time. 8. No hypothesis has been drawn for this report. CHAPTER TWO OVERVIEW OF BAGLADESH SHILPA BANK 2.1 Introduction 2.2 Vision, Mission & Prime Coal 2.3 Institutional overview of BSB 2.4 Capital structure and sources of fund 2.5 Ownership of BSB 2.6 Management 2.7 Operational Activities of BSB 2.8 Steps Taken to Gear-up the Bank’s Activities 2.9 Bangladesh Development Bank Ltd: At a glance 2.1 Introduction: The Bangladesh economy is confronted with the stiff competitive challenge in the context of the free market economy and present globalization. The economic crisis is further aggravated by the persistent hike of oil price and some other necessary importable items in the international market as well as political unrest along with many other internal shocks. Accommodating the challenges alongside for maintaining macro economic stabilization as well as moderate CPI inflation and for achieving desired economic growth, various measures are undertaken by the Government and the Central Bank like, cautious and restrained
Monetary Policy, reality based Fiscal Policy, strong participation of private sector in the manufacturing sub-sector aided by continued growth of the Ready Made Garments industry despite phasing out of global Multi Fibre Arrangement, highest growth in the remittance flow has made possible to achieve a sustainable economic stabilization for the country. Industries play a pivotal role in the economic development of every country. This is why industrialization has been adopted as a vital instrument of economic development in many developing countries. The former Industrial development Bank of Pakistan (IDBP) and The Equity Participation Fund (EPF) both of which were established for the industrial development of Pakistan were converted into a single institution named Bangladesh Development Bank Ltd (BDBL). I3SB comes into existence on October 31, 1972 by the promulgamation of BSB order 1972 under the president Order No. 129 of 1972 with a mission of “accelerating the process of industrialization of the country by providing financial assistance and equity support to the enthusiastic and skilled entrepreneurs “The BSB order, 1972 was amended subsequently by the parliament to provide more operational autonomy to its management. It has been extending long and medium term loan facilities in local and foreign currencies to industrialize projects, both new and Balancing, Modernization, Replacement and Expansion (BMRE), in the private and public sectors. The main objective of BSB is to provide finance both in local and foreign currencies for establishment of new industrial projects as well as to Balancing, Modernization, Replacement and Expansion (BMRE) of existing industrial units in Bangladesh both in private and public sectors. It also provides other types of financial assistances like guarantees for credit/loans, equity-support, underwriting of shares for other parties and working capital loans to the BSB financed projects. BSB also provide banking business of limited scales. 2.2 Vision, Mission & Prime Goal: Vision: To broaden the country’s industrial base for enhancing the contribution of industrial sector to Gross Domestic Product (GDP) in congruence with the national policies. Mission: Accelerating the pace of industrialization of the country by providing financial assistance and equity support to the enthusiastic and skilled entrepreneur. Prime Goal: Like the glorious past, Bangladesh Development Bank Ltd is committed to fulfill customers’ needs and satisfaction as the trusted partner in industrial financing.
2.3 Institutional overview of BSB: Established
October 31, 1972
Organization Head office
Dhaka
Division
5
Department
21
Zonal Office
3
Branch Office
15
Personnel
725
2.4 Capital structure and sources of fund: Authorized capital
: Tk 2000 million
Paid up capital
: Tk 2000 million
The sources of bank’s fund are the government, Bangladesh Bank, Commercial Bank, Local/Overseas financial institution and suppliers’ credit. 2.5 Ownership of BSB: At least 51 percent of the Authorized capital of BSB be subscribed by Bangladesh government and remaining 49 percent be subscribed by Bangladeshi nationals or by financial institutions local or foreign. Presently, 100 percent ownership of the Bank belongs to the government. 2.6 Management: The overall policy formulation and the general direction of Banks operation vest on a board of directors appointed by the government. The board of Directors consists of nine (9) members including the chairman and the Managing director. Non- government shareholder subscribing to the capital of the Bank shall eventually elect four (4) Directors from amongst themselves. The Managing Director is the chief conducting the overall Banking business. 2.7 Operational activities of BSB: Bangladesh Development Bank Ltd being the prime development financing institutional continued its effort to make on effective contribution towards expansion of industrialization process of the country. It emphasized on long term lending to the viable new projects having comparative advantages, export prospects, forward and backward linkage and local
technology as well as raw materials based projects. Fop priority has been given for realization of its loans towards augmenting and recycling of the invertible funds and maintaining satisfactory loan portfolio for increasing profitability. With this end in view the Bank has undertaken some realistic steps towards replacement. Rescheduling and liquidating of loan accounts of sick / closed / stuck-up projects with waiver facilities where deemed appropriate.
2.8 Steps taken to Gear-up the bank’s activities: To make the bank a vibrant one, a pragmatic business Program is now under implementation. The main features of the plan are as under: • Gear-up recovery through setting up of pragmatic recovery targets. • Expansion of new area of investment. • Cleaning of loan ledger with exit facilities. • All out efforts for deposit mobilization. • Undertake need-based training Program including computer training to all officers & develop a computerized data-base system and • Full computerization of bank’s activities. 2.9 Bangladesh Development Bank Ltd : At a glance 2003-04
2004-05
2005-06
2006-07
2007-08 No. of
83
96
51
Projects 47
34 1 3 38 23 3
45 2 5 52 43 9
37 2 39 53 15
12 8 20 45 3
sanctioned Start of commercial 4
7
12
8
27
operation Inclusion
14
23
31
14
/ 17
23
16
13
16
loan 22
41
20
20
21
166 281 447
164 283 447
179 278 457
177 321 498 Million
Loan
application 51
received Term loan sanctioned: New BMRE Additional Total Term loan disbursed Working capital loan
in
loan 6
portfolio Rephasement Rescheduling Liquidation of
21 3 3 27 14 5
liablilities Loan Portfolio Write-off ledger No. of total projects
308 308
Taka
Term Loan Sanctioned 989 Term Loan Disbursed 297 Working Capital Loan 19
1009 144 14
1311 485 232
1006 534 105
918 384 3
Sanctioned Working Capital Loan 28
21
32
196
33
Disbursed Loan Recovered 1124 Rephased/Rescheduled 149
1391 259
1159 790
1065 280
981 423
CHAPTER THREE LITERATURE REVIEW 3. 0 LITERATURE REVIEW Bangladesh Development Bank Ltd was established to stimulate industrialization in the country. So, it financed in various types of industries. The industries on which it financed, all are not a successful one. Some of them are fail to gain success and identified as a sick industry. Rehabilitation Department is mainly deals with this sick industry. They find out the causes of sickness of a project. Some time they reschedule loan according to the capabilities of the project. Moreover more information and advices may be given so that the entrepreneur may run the business more effectively; sufficient return may gain and contribute to the economy. It basically needs to be satisfied about the overall viability of a project to be financed. For this purpose, an objective assessment of the viability of the project is required to be examined by BSB from various points of view. Project appraisal cover five different aspects of a project: Management and Organization, Technical, Market, Economic, and Financial. Although, the above five steps are followed in case of implement a project or to finance a project, hut these five steps cannot always ensure that a project should be successful. There are many odd or uncertain situation may happen, which can make a project sick or unsuccessful. If the project is not rehabilitable, then send it to the Law Department and finally sued against the project. Sick industries mean the industries, which either become stuck-up during construction or could not operate successfully after implementation. These projects could neither pay back
the bank’s dues nor make any contribution to the national economy. These projects were identified as sick due to their inability to generate sufficient fund for debt servicing. The Ministry of Finance and the Ministry of Industries co-operate to provide debt relief and other financing assistance to bail out failing firms in a specific industry that has been identified by the government as a “Sick Industry”. Assistance may include waiver of interest, reduction in principal, repeated rescheduling of overdue loans, of combinations of these. There are some specific criteria’s to identify a sick industry. They are a) On the Basis of Cost Benefit Analysis b) On the basis of Break Even Analysis There are various reasons of sick firm. But to discuss it easily I classify it in two classes. They area) The reasons that are beyond die control of the project owner; and h) The reasons that arc under control of the project owner The above causes are further divided into seven (7) causes such as financial, marketing, technological, administrative & managerial, economic, political and other causes of sickness. Rehabilitation of a project means to reshape the existing industries or project that is diagnosis a weak or sick project, so that it may operate successfully in future. All sick industry is not rehabilitated because all sick industry has not all possibilities to rehabilitate. It’s mainly depends on the nature of the sickness. The sick industry that is probable to rehabilitate by providing and assisting some predefined criterion. The predefined criterion are based particularly on a. Management Perspective b. Technological Perspective c. Financial Perspective. After considering a industry as sick, then the industry are taken into rehabilitation by aiding additional support of those the sick industry that can recovers the additional investment then it seems to he as rehabilitated industry otherwise not. in some extraordinary case they were bound to take some terrible decision because of sonic political pressure.
Under recommendation of Govt’s special committee for waiver of interest the bank’s Board of Director approved liquidation of 53 Bank-financed sick, problem rider and stuck-up projects. The BSB also puts realistic efforts to rehabilitate its sick, problem-ridden and stuckup projects. In this perspective BSB has taken three-dimensional measures comprising of debt relief, injection of additional funds, and direct management The bank for the rehabilitation of the sick project took these three steps. The compensation amount of Tk. 29.06 crores (in the form of bond) was obtained from Government against waiver of interest. Under this scheme 23 projects liquidated their loan, 30 projects are LD1 and remaining 3 in LD2. It is mentionable that with a view to making such projects capable of debt servicing through profitable operation, the bank tried to solve their problems through a combination of measures including a financial package. The bank also made a program of taking over management of the sick projects directly where the above measures were not considered sufficient due to inefficient management/ mismanagement. So they created a department called “Sick Project Management Department” for ensuring efficient management of such sick projects. The responsibility of this department is to make such projects capable of debt servicing through profitable operation. So the bank continued sanctioning of term loans during FY 2007-2008. This year local currency loan of TK. 918 million has been sanctioned to 20 projects and short-term loan (C.C. loan) of TK 3 million to 3 projects. Of the total sanctioned long-term loan, TK 538 million is for 12 new projects and an additional loan of TK. 380 million for 8 existing projects. Under rehabilitation program BSB has taken so many measures to rehabilitate the sick industries. I have elaborately discussed these measures by chart and table in the report. The success and failure of rehabilitation is depends on how many projects the bank are rehabilitated and amongst the rehabilitated projects from how many it would able to recollect its money back. According to some records BSB has already rehabilitated some of 53 projects that are identified by the Govt. of Bangladesh. The lists of these projects are given in details by table in the report. CHAPTER FOUR SICK INDUSTRY
4.1 Introduction 4.2 Method used to identify a Sick Industry 4.3 Precautions about Sick Industry 4.4 The Symptoms of Sick Industry 4.5 Sick Industry Classification 4.6 Causes of Sickness 4.6.1 Financial Problems/Shortage of Working Capital 4.6.2 Marketing Problem 4.6.3 Technological Problem 4.6.4 Administrative and Managerial Problem 4.6.5 Economic Problem 4.6.6 Political Problem 4.6.7 Other reasons of sickness 4.7 Sick Situation 4.8 Sick Industries 4.9 Impact of Sick Industry in Bangladesh or BSB 4.1 Introduction: Sick industries mean the industries, which either become stuck-up during construction or could not operate successfully after implementation. These projects could neither pay back the bank’s dues nor make any contribution to the national economy. These projects were identified as sick due to their inability to generate sufficient fund for debt servicing. 4.2 Method used to identify a Sick Industry: There are some specific criteria’s to identify a sick industry. They are — a) On the Basis of Cost Benefit Analysis: For identifying a sick industry the following criteria may be considered by cost benefit analysis. If the cost of the project is more/greater than the benefit then the industry is to be considered as a sick industry. Some time the industry can’t recover the cost (labor, material) for this reason the industry goes into loss. b) On the basis of Break-Even Analysis:
An industry should produce up to break-even point because to recover the fixed cost or overhead cost. If they can’t recover fixed cost then we can consider this industry as a sick industry. 4.3 Precautions about Sick Industry: Sick situation arises in an industry in some abnormal period. But if the rate of sickness is overwhelming then it becomes a matter of fact. So before providing loan importance must be given on evaluation. If the evaluation procedure is correct, sick industry situation may avoid quite easily. So at pre-investment stage the following things must be considered•
Examine the project is done appropriately.
•
The project cost is calculated in a proper way.
•
The proper place is selected.
•
Defect machineries must not be purchased.
•
Ensure that skilled and experienced personnel are easily found.
•
Proper stapes are taken to protect uneven breakdown of electricity.
•
Ensure that proper people arc involved in the managing committee.
•
Ensure the financial capability of the initiator.
•
Ensure the procedure of makeup the preliminary cost and the doubtful loss.
•
Ensure the quality of the produced product.
•
Ensure the proper way to marketing the produced products.
•
Consider the change of test of customer.
•
Proper plan is taken to implement the project.
•
Steps are taken to avoid the potential conflict
4.4 The Symptoms of Sick Industry: The symptoms of sick industry are as follows: •
The initiator is unable to pay sufficient money at the implementation stage.
•
The delay of implementation increases the project cost. It also creates many problems and the burden of loan interest is increased.
•
Lack of full production or frequent obstruction of industry.
•
The initiator is unable to pay the loan installment and other liability.
•
The failure in payment of loan installment in time increases the burden of loan.
•
Inability to submit the financial statement in time.
•
Increase the tendency of undertaking unfair means in preparing the papers of stock materials.
•
Profit from investment is decrease gradually.
•
The project faces loss gradually.
•
The production level decreases gradually.
•
Taking loan from various sources at a high rate.
•
Applied for a large amount of loan.
•
Non-cooperating tendency with the loan providing bankers.
•
Lacking of perfection in the market.
4.5 Sick Industry Classification: The Ministry of Finance and the Ministry of Industries co-operate to provide debt relief and other financing assistance to bail out failing firms in a specific industry that has been identified by the government as a “Sick Industry”. Assistance may include waiver of interest, reduction in principal, repeated rescheduling of overdue loans, of combinations of these. A ‘Sick Industry” classification may be purchased with a suitable bribe to the appropriate ministry, Ministries, the PMO, and the Standing committee of Parliament on Finance may be lobbied and bribed to obtain such a classification. Billions of BDT of NCB loans are written down using this technique. 4.6 Causes of Sickness: Bangladesh Development Bank Ltd undertakes various projects by providing finance, machinery and other aids, some projects are implemented and successful and some projects are failed to attain the goal and these firms are called sick firm. There are various reasons of sick firm. But to discuss it easily I classify it in two classes. They are•
The reasons that are beyond die control of the project owner; and
•
The reasons that arc under control of the project owner
The above causes are further divided into seven (7) causes. The causes are discussed below according to their importance though all of the causes are important. 4.6.1 Financial Problems/Shortage of Working Capital:
The shortage of working capital is the most acute problem for majority of the sick industries. Working capital is required to finance purchase of required raw materials and other short term needs of a project after it is implemented. A survey shows that 17% of the projects suffered due to shortage of capital. The problems, which lead an industry towards sick, are as follows•
Measurement of investment outlay and cost of the project are not appropriate.
•
When the means of financing is not available.
•
When the project is not profitable.
•
When the production is not reached at the break-even point.
•
Loan application with insufficient amount of money that would not meet fixed and operation cost.
•
When they can’t calculate appropriate risk level of sick.
•
Cash flow of the project is not available.
•
If actual cost of the project is more than the budgeted cost.
•
Shortage of working capital, i.e. if they do not manage the sufficient working capital.
•
If market interest rat increase, cost of working capital increase as a result the project may become in sick.
•
Lack of operating capital.
•
Higher fixed cost. i.e. increase fixed cost as a result of increasing of the price of machinery, land or any other fixed items.
•
When variable cost increase.
•
Does not ensure sufficient mortgage.
•
Improper inspection of Bank financed project.
•
Insufficient insurance facility.
•
Economic problem comes from the social cost benefit analyses.
4.6.2 Marketing problem: Marketing problems are the next serious problem. This problem occurs due to a large number of similar industries and the availability of the products in the secondary market by unauthorized import of such products. A survey reveals that 24% of the projects are suffered due to marketing problem. The marketing problems, which lead an industry towards sick, are as follows:
•
The aggregate demand of the proposed project is not possible to till up.
•
When the market share of project is under low appraisal
•
When change the consumption trends in the past and present consumption level
•
If the changes occurred in the import and export policies
•
Change of customer behavior, intention, attitude, motivation, preferences, requirements, distribution channel and marketing policy.
•
Administrative problems and legal constrains.
•
Introduction of new brand of product
•
Wrong forecasting about the market. Smuggling of substitute goods
•
If the raw material of the product is not purchase at appropriate time
•
If the market is not monitor properly
•
Improper market justification
•
Lack of market expansion and product diversification
•
Hugh competition in the market
•
If income level of the people in a society is decrease then demand of the product will be decrease
•
Cheap price of the foreign product
•
Cost of production is high.
4.6.3 Technological Problem: Machinery imbalance causing lower capacity utilization is the major technical problem of many projects. Some are also suffered for faulty technical design. A survey reveals that 13% of the projects are suffered due to technological problem. The technological problems, which lead an industry towards sick, are as follows: •
Whether the preliminary lest and studies are not appropriate.
•
Availability of raw materials, powers and other infra-structural facilities have not been established.
•
The selected scale of operation is not optimal.
•
The production process chosen is not suitable.
•
The equipment and machine chosen are not appropriate.
•
Lack of modem technology, like incapable to use the computer and modem machinery.
•
If the selection of machinery becomes faulty, it will not ensure the achievement of objectives.
•
Wrongly or inappropriate selection of the machinery.
•
Lower capacity of the machine resulting price will be higher, ie. Production cost high.
•
Inconsistency between the origin of raw materials arid the factory location, production of products and final consumption adversely affect the business.
•
Lack of communication system.
•
Lack of infrastructure facilities.
•
In availability of supply of gas, electricity and water etc.
•
Selection of old and backdated technologies to be used in production.
•
Delay of machinery procurement & rapidly change in technological environment.
4.6.4 Administrative and Managerial Problem: There are also some internal conflict between the worker and manager. A survey reveals that 22% of the projects are suffered due to administrative and managerial problem. The administrative problems, which lead an industry towards sick, are as follows•
Weak management of the project.
•
Lack of efficiency of employment as well as management.
•
Conflict and also death of management partner’s.
•
Death of main entrepreneur of the project.
•
Insufficient appointment of employee
•
Unskilled human resources
•
Corruption and intentional misuse of organizational assets.
•
Lack of proper planning, organizing, controlling, administrating and monitoring.
4.6.5 Economic Problem: The economic problems, which lead an industry towards sick, are as follows: •
Economical problem comes from the social Cost Benefit Analysis.
•
It does not impact of the project on the distribution of the income in the society as well as the level of saving and investment.
4.6.6 Political Problem: The political problems, which lead an industry towards sick, are as follows: •
Political pressure
•
Political instability which disrupt the production
•
Insufficient facilities provided by govt. to industrialist like tax rebate etc.
•
Political problem like unrest, hartal etc.
•
Political pressure to loan procurement
•
In appropriate action taken by govt. to protect smuggling
•
Political terrorism
4.6.7 Other reasons of sickness: Except the above problems there are also some problems, which lead an industry towards sick. A survey reveals that 10% of the projects are suffered due to other problem. They are as follows: •
Selection of in appropriate industrial unit which is not financial and logically viable in concerned country
•
Delay of loan application
•
Internal delay of industries construction after loan sanction
•
If a portion of loan amount used for personal use
•
Delay of operation start
•
Over estimation of mortgage value
•
Delay of loan procurement and sanctioning process
•
Delay of documentation formalities in respect of loan
•
Causing of rehabilitation measures
•
Insufficient enforcement of law for recovery of loan
•
Inappropriate location of industries
•
Insufficient infrastructure facilities
•
Natural disaster that hampered production
•
Terrorism that hampered to establish an industry
•
Delay of implementation
4.7 Sick Situation:
Normally, BSB meets the long-term credit needs for implementation of its projects. BSB charter provides for extending working capital to its financed projects only to a limited scale. While sanctioning loans by BSB, provision is made for commercial banks to provide 70% of the working capital needs. But in most cases, it is found that the project management either can’t al all raise the required working capital from the commercial banks, or they can’t raise required amount in due time. As a result these projects could not go into operation on schedule time and they were unable to pay the interest and the principal amount. At last they are treated as sick industry. There are 53 projects which are named as sick by the BSB. 4.8 Sick Industries: In Bangladesh there are so many sick industries. The sick industry concept is not the newest one. It is occurring from the pre-independence of Bangladesh and Bangladesh inherent some sick industries from its birth. After independence this is also continuing. The exact figure of sick industry is not identified. There 53 sick industries that are financed by BSB. Some of them are stated below: G.M.K.Textile Ltd. Meraj Fabrics Ltd Nima Corporation Ltd. Jahan Group of Printing & Packaging Al-Amin Printing & Packaging Hossain Electric Corn. Padma Tyer Retrading Industry Pvt. Ltd. Khan & Khan Industry Pvt. Ltd. Mohadevpur Auto Rice Mill Lakshani flour Mills Noor Cold Storage Allama Nails Allied Industry Pvt. Ltd. Jahanara Moulding & Engineering Workshop Brick Linker Ltd. Tas Toys Pvt. Ltd. Agro Producer Ltd. Micro Aliment Manufacturing Co. Ltd.
United Company Malik Auto Rice Mill Au & Sons Ltd Al-Amin ice Factory
J.K.K. lndustiy Ltd. Mitaly Enterprise Pvt. Ltd. Shardar Textile Mills Ltd. Riad Products Pvt. Ltd.
Helal Engineering Pvt. Ltd. Bancharampur Textile Hotel Konic Pvt. Ltd.
Grand Dhaka Hotel Pvt. Ltd National Cold Storage Quick Canier Ltd.
North Bengal Silicate Industry Pvt. Ltd. Mocca Mills Ltd. Rangpur food Company Rangpur Poly corn. Coxesbazer Aqua Resources
Uttaran Engineering Complex D&S Auto Rice Mill Altaf Rice Mills Noor Rice Mills Oriental Foundry
Nakko Ice Mill Ltd.
South East Enterprise
Shovo Auto Rice Industry Toronodoy Water Ways Pvt. Tito Textile Ltd. Hasan Agro Engineering Workshop Ltd. Table-1
Diamond Industry Pvt. Ltd Companygonj Rubber Industry Tempkul Ltd. Pionear Iron Foundry & Engineering
From the above statistics it is clear that there are so many projects in Bangladesh are sick. An analytical discussion makes it clear to us that the reasons of their sickness and which projects are sick for which causes although the general causes of sickness are stated earlier. Causes of Sickness SL.
Sectors
No. of
No. 1 2 3 4 5 6
Food & allied Textile Metal products Jute Engineering Paper &
Projects 71 61 17 19 14 11
7 8 9 10 11 12 13 14
Printing Service Electrical Petro-chemicals Non-metallic Chemicals Pharmaceuticals Tannery Transport Total Percentage
13 10 11 9 9 10 13 6 274
Technical Management Marketing Working Others 15 11 3 4 1 5
14 9 5 3 5 3
13 30 2 1 -
Capital 24 6 13 6 3
17 7 1 11 -
1 3 2 1 2 48 18%
5 3 11 1 59 22%
2 1 5 1 1 56 21%
2 2 1 2 5 64 24%
1 2 1 6 46 17%
Table- 2 If we further analyze it we will find a clear picture of the sick projects and their relevant causes. These things are explained below under a table.
Others
Mgt + Mkt. + W/C
Tech + Mkt. + W/C
Tech + Mgt + Mkt.
Mkt. + W/C
Mgt + W/C
Mgt + Mkt.
Tech + W/C
Tech + Mkt.
Tech + Mgt
Working Capital ( W/C)
Marketing (Mkt.)
Sickness
Management (Mgt.)
Causes of
Technical (Tech)
Causes of Sickness of BSB Financial Projects
Food & allied Textile Metal products Jute Engineering Paper &
3 9 4 1
8 3 5 3 3 1
9 33 -
19 3 2 7 4
3 3 1
1 2 -
6 7 2 2 -
5 1 3
3 1 1 1
1 3 -
3 1 1
7 1 1 -
3 -
13 3 1 1 -
Printing Service Electrical Petrochemicals Non-metallic Chemicals Pharmaceutical Tannery Transport Total No. of
2 2 1 3 25
1 2 1 1 3 31
3 2 1 2 1 51
1 4 1 2 3 46
1 2 1 11
2 1 1 7
1 18
1 2 1 13
1 1 8
3 1 1 7
2 1 8
1 1 11
1 1 5
11 ----1 5 4 33
Problems Table- 3 4.9 Impact of Sick Industry in Bangladesh or BSB: •
Increase of non-performing assets in organizational level as well as national level.
•
Decrease in productivity at national level.
•
Decrease contribution in GDP and GNP.
•
Adverse effect in banks profitability.
•
Increases the classified loan.
•
Increase the lending rate of interest, which adversely affect the new and regular borrowers.
•
Affects adversely in the economic growth rate of the country.
•
Creates adverse psychological impact on the prospective entrepreneurs.
CHAPTER FIVE REHABILITATION OF SICK INDUSTRY 5.1 Introduction 5.2 Rehabilitation Policy 5.3 Management of Rehabilitation 5.4 Rehabilitable Sick industries
5.5 Relationship between appraisal practices, monitoring and sickness 5.6 Rehabilitation Program 5.7 Measurement taken at the time of rehabilitation 5.1 Introduction: Rehabilitation means to reshape the existing industry or projects so that it may operate successfully in future. Keeping it in mind I tried my best to find the appropriate way to rehabilitate a sick industry. 5.2 Rehabilitation Policy: All sick industry is not rehabilitated because all sick industry has not all possibilities to rehabilitate. It’s mainly depends on the nature of the sickness. The sick industry that is probable to rehabilitate by providing and assisting some predefined criterion. The predefined criterion are based particularly on a) Management Perspective b) Technological Perspective c) Financial Perspective In the case of rehabilitating sick industry the hank takes different policy in different situation. They are a) Management Perspective: Management of the project should measure the aggregate demand of the product or the project and maintain the market share. Consumption trend and production are to measure for rehabilitating a sick industry. If the band thought that a little change in the managing committee would reestablish the project then they make a change in the nmnaging committee. b) Technological Perspective: Whether the raw material and technology is available or not, that must be measured in the form of price and quality. If they thought that some technological change would reestablish the project they make some technological change. c) Financial Perspective: In the financial measurement the project should compute the cost of capital and maintain capital budgeting. The present value of net cash inflow should be higher than the present
value of cash outflow. In such a case, the bank provides some financial treatment that the amount of interest is to be waived or rephrased or providing consulting service, i.e. • Success about the proper way • Inspiration by providing motivation. After considering a industry as sick, then the industry are taken into rehabilitation by aiding above additional support of those the sick industry that can recovers the additional investment the it seems to be as rehabilitated industry otherwise not. In some extraordinary case they were bound to take some terrible decision because of some political pressure. 5.3 Management of Rehabilitation: Bangladesh Development Bank Ltd was established to stimulate industrialization in the country. So, it financed in various types of industries. The industries on which it financed, afl are not a successful one. Some of them are fail to gain success and identified as a sick industry. Rehabilitation Department is mainly deals with this sick industry. They find out the causes of sickness of a project. Some time they reschedule loan according to the capabilities of the project. Moreover more information and advices may be given so that the entrepreneur may run the business more effectively; sufficient return may gain and contribute to the economy. If the project is not rehabilitable, then send it to the Law Department and finally sued against the project. The main activities of rehabilitation department are the following: •
The department primarily selects a project that becomes sick. Project Implementation Department investigates the project and find out the causes of sickness and formed a committee to investigate the project. Then it is taken to he considering for rehabilitation. After considering it as a rehabilitable industry, it is taken to the implementation after the approval of rehabilitation consulting committee.
•
Take necessary action to rehabilitate sick project after appropriate investigation.
•
Take steps about rehabilitation document examination, recommendation, preparation, and implementation schedule preparation and activation of plan.
•
Conformation about project profitability.
•
Take necessary steps about production, marketing of product and loan repayment.
•
Duties give up to the third party or previous management, after successful managing of the project.
•
Managing and directing recommendation preparation about take over project.
•
Analyze and compare the production, marketing and recovery of the rehabilitated project and take appropriate action accordingly.
•
When there is no scope to rehabilitate a project, documents transfer to law department to take steps.
5.4 Rehabilitable of Sick Industries: All sick industries are not rehabilitated because all the sick industry has not all possibilities to rehabilitate. It’s mainly depends on the nature of the sickness. The sick industry that is probable to rehabilitate by providing and assisting some predefined criterion. Sick industry, which are rehabilitable• Providing financial aids or loan • Assisting for replacement of machine and aiding additional machinery • Changing of management structure • Financial treatment that the amount of interest is to be waived or rephrased • Providing consulting service •
Success about the proper way
•
Inspiration by providing motivation.
Sick industry, which are not rehabilitableAfter considering a industry as sick, then the industry are taken into rehabilitation by aiding above additional support of those the sick industry that can recovers the additional investment then it seems to be as rehabilitated industry otherwise not. 5.5 Relationship between appraisal practices, monitoring and sickness: These three things are very much inter-related. A project goes into sickness due to inappropriate appraisal practice and monitoring. The linkage among them is discussed belowa) Appraisal practice: Appraisal practices that are done from the five aspects. Such asi.
Managerial aspect
ii.
Technical aspect
iii.
Financial aspect
iv.
Economic aspect
v.
Market aspect
b) Monitoring: Monitoring is to supervise and control after the implementation of during the implementation of the project. The monitoring from the viewpoint of the bank is to proper utilization of loans and recover the loan payment with due time. c) Sickness: The project fall in sickness when monitoring and appraisal practice are not accomplished in proper way. So, project implementations that depend on appropriate monitoring and appraisal practice. 5.6 Rehabilitation Program: Under recommendation of Govt’s special committee for waiver of interest the bank’s Board of Director approved liquidation of 53 Bank-financed sick, problem rider and stuck-up projects. Tk. 29.06 crores (in the form of bond) was obtained as compensation from Government against waiver of interest. Under this scheme 23 projects liquidated their loan, 30 projects are LD1 and remaining 3 in LD2. The BSB also puts realistic efforts to rehabilitate its sick, problem-ridden and stuck-up projects. In this perspective BSB has taken three-dimensional measures comprising of • Debt relief • Injection of additional funds, and • Direct management The bank for the rehabilitation of the sick project took these three steps. It is mentionable that with a view to making such projects capable of debt servicing through profitable operation, the bank tried to solve their problems through a combination of measures including a financial package. The bank has so far rehabilitated 53 such projects. The lists of these projects are already mentioned in the sick industry chapter of this report. A summarized position of the facilities extended under its rehabilitation program is shown below in table: Types of Facilities
Amount involved
(Million Taka) 880 456 258 273
Interest waived Block account facility provided Loans rephrased Sanction of Loan Table-4
The bank also made a program of taking over management of the sick projects directly where the above measures were not considered sufficient due to inefficient management. So they created a department called “Sick Project Management Department� for ensuring efficient management of such sick projects. The responsibility of this department is to make such projects capable of debt servicing through profitable operation. So the bank continued sanctioning of term loans during FY 2007-2008. This year local currency loan of TK. 918 million has been sanctioned to 20 projects and short- term loan of Tk.3 million to 3 projects. Of the total sanctioned amount TK. 538 million for 12 new projects and an additional loan of TK. 380 million for 8 existing projects. 5.7 Measurement taken at the time of Rehabilitation: There arc various measurements for rehabilitating a sick industry. a) Financial Measurement: In the financial measurement the project should compute the cost of capital and maintain capital budgeting. The present value of net cash inflow should be higher than the present value of cash outflow. b) Technical Measurement: Whether the raw material and technology is available or not that must he measured in the form of price quality. c) Marketing Measurement: Management of the project should measure the aggregate demand of the product or the project and also maintain the market share. Consumption trends and production are to measure for rehabilitating a sick industry. CHAPTER SIX A CASE STUDY OF FARIDPUR TEXTILE MILLS LTD. 6.0 Case Study about Sick Industry: 6.1 Location of the Project:
Faridpur Textile Mills Ltd. Khulna 6.2 Board of Directors: Board of director & Explanation of share of the company are given below: SL No. 1 2
Name Designation Mr. M.A. Quasem Chairman Mr. K.M. Aminul Managing Director
% of shares 40% 20%
3 4
Akber Mr. Nawab Kabir Director Mrs. Nurun Nahar Director
20% 20%
Begum Table – 5 6.3 Project Execution & Implementation: Bangladesh Development Bank Ltd distributed TK 53.54 lacks from 1983 to 1986 in a cotton weaving project having 18 looms at Kaligang of Jinaydaha districts. The project wanted to go in production in November 1983. The loan was sanction and distributed in this project with the objective of manufacturing cotton textile. But because of non-availability of sizing machine in adjacent areas the entrepreneur fails to manufacture cotton textile. According to the loan receivers this project become a sick industry because of one way production, increase in the price of raw materials, decrease in the selling price of manufacturing goods, etc. Therefore in 1993 the project was refinance under the rehabilitation scheme and on 29-08-1995 in response to the application of the loan receiver the permission was granted to shift the industry from the Jinaydaha to Khulna. According to the terms of loan sanction a period of ten-month time from the date of opening of LC was approved for implementation of the projects. LC was open on 29-03-1995 for importing machinery! import of machinery under the rehabilitation scheme. Accordingly the project was supposed to be implemented by January 1996. But the project, after installing the newly imported and partly old machineries, wanted to go in production on 01-07-1997. The implementation of the project was delayed because of the shifting of the project to the present site of Khulna from Kaligang of Jinaydaha, shifting of the niachineries and reinstallation, installation of the imported new machineries, reconstruction of the industry, failure of the entrepreneurs to provide timely supplying of capital, and failure to supply the workings capital, etc.
According to the information provided by the company, although being able to go for commercial production, the company was not successful to export their goods for not being of export quality and they failure to sales their products in local market because of limited market opportunity. SL No. A
B
Nature of Loans Term Loan Local currency
Sanctions
Payments
Date
Amount
Date
Amount
31/08/1981
5.00
08/02/1983 To 12/08/1986 14/04/1983 09/08/1995 To 20/12/1995
13.49
Foreign currency 31/08/1981 Local currency 19/01/1993 allotted under rehabilitation scheme Total Working Capital 19/01/1993 Loan Total = A+B
32.27 163.00
40.05 149.81
210.27 26.56 236.83 Table-6
203.35 14
20335
6.5 Capacity of the Project: Company produced finished cloths. But the market of finished product mainly was in Dhaka. The existing production capacity of the project was: Dying : 30 Lac yard (300 working days as per 16 hours per day). Weaving: 5.40 Lac yard (300 working days as per 16 hours per day). Printing: 15 Lac yard (300 working days as per 16 hours per day). Merchandising: 15 Lac yard (300 working days as per 16 hours per day). 6.6 Mortgage against Loan: a) Assets of the Protect: SL No. 1 2 3
Explanation
Market price in Lac Sales value in Lac
Land Building Machinery
(Taka) 50 30 150
(Taka) 49 27 145
4 5
Others Total
10 240
7 228
b) Co-mortgage Assets: Mortgage against Long-Term Loan: Land
45 Lac(Taka)
6.7 Steps taken to recover the loan by BSB: •
To recover the loan hank will exert continues pressure on all companies director.
•
The old discarded machineries of this project were sold under the bank’s approval and the sale price amounting to Tk. 5 lacks was directly deposited by the purchase to the hank as the company’s debt.
•
On the recommendation of the special committee constituted by the bank am bank’s authority directed the loan receiving company to make a down payment Tk 12.95 which is 10% of the time expired loan. The company paid Tk 4.80 Lac on 2904-2001, as down payment. The company also promised to pay the remaining Tk 7 lacks within 30-05-2002 by selling the land and building a Kaligang of the project. But despite constant pressure the company fails to refund the promised amount.
•
Because the loan receiving company was not sincere the refunding loan a notice was serving on the company on 21-12-2003 under Article 12 of the Artho Rin Adalot 2003. After the service of the notice the loan receiving company submitted a proposal for compromise.
6.8 Refund of Loan: Out of Tk 203.35 lack the loan receiving company refunded Tk 16.36 lack as term loan. Out of the refunded amount Tk 2.86 lack has been adjusted and the remaining Tk 13.50 lacks is deposited in sundry accounts. 6.9 Down Payment: The loan receiver’s company paid Tk 13.5() lack against Uk 21.50 lacks as down payment that is 10% of total loan. They proposed to pay the remaining Tk 8.0() lack by selling the discarded land and building of the project at Kaligang. 6.10 Statement of Outstanding Loan: The loan receivable amount till 31-12-2002 is Tk 513.00 lack as in temporary accounts. The division of which is given as follows.
Types Long Term Loan:
Amount (Tk.in Lac)
Non expired Loan Expired Loan:
144.92
Principal
168.55
Interest
199.50
Others Total
0.03 513.00 Table- 7
Out of the above assets and liabilities the amount of distributed loan is Tk 203.35 lack. If the loan rescheduling is violated, then the amount of interest will stand and Tk 309.62 Lac. 6.11 Provision for Loan Account: Types Postponed Interest Provision for bad debt Total
Amount (Tk. in Lac) 195.88 181.05 376.93
6.12 Appeal/Application from Loan Receiving Company: The loan receiving company in their letter dated 12-01-2004 stated that although as per the govt. decision a 1 8 loomed textile weaving factory was established at kaligang of Jhenaidah district in 1 980, the project become a sick industry because of Electricity Problem, unskilled labor and no access in the market wooing to the availability of tax free garments cloth in the market, etc. Under the rehabilitation scheme, the industry was shifted from kaligang to Rupgang of Khulna. But unfortunately a robbery was committed and yarn amounting to Tk 15 Lac was stolen immediately after implementation / inauguration of the company at Rupgang. In addition the factory was damaged by flood water during 1998. The project could not overcome the sickness for non-procurement of loan of working capital despite repeated effort. Stating the above mention problems the loan receiving company made the following proposal•
Exemption of 100% interest and penalty interest on up to date loan receipt.
•
Supply of working capital or supply of NOC for procurement of working capital and to allow interest free six monthly installment for the refunded of the principal loan amount so that the loan can he refunded with in seven years time.
•
To take into consideration the already deposited Tk 15 Lac in different accounts. For loan rescheduling and to allow the company to sell the discarded land and building of the project at kaligang at a price specific by the bank (BDBL). In order to arrange the remaining sum.
•
To stop/ withdraw all legal step taken against the company.
6.13 Causes of Sickness: According to the recommendation of special committee and to the Loan receiver company, this project became a sick industry because of the following reasons•
Insufficiency of working capital
•
Delay of implementation of the project
•
Actual production cost is greater than the expected budgeted production cost.
•
Weak management f the project.
•
Per unit production cost is greater than per unite selling price.
•
Lack of electricity. gas and other power.
•
Unskilled labor of the project.
•
Available access of tax-free garments cloth in the local market.
•
Unfortunately a robbery was committed and yam amounting to Tk 15 Lac.
•
High rate of gas and electricity.
•
The factory was damaged by floodwater during 1998.
•
Producing the one-way product.
•
Increasing the price of raw material.
•
Decreasing the selling price of the manufacture goods.
6.14 Advantage Provided by BSB under Rehabilitation Program: In addition to Tk 163.00 Lac as long-terns loan and Tk 25.56 Lac as working capital loan in favor of the company under the rehabilitation scheme, the following benefit they also provide to loan Receiver Company.
•
In addition to Tk 25.41 lack of the accumulated penalty interest of the existing loan up to 30-06-1992 and 50%, i.e. Tk 71.94 lacks of simple interest and interest during construction totaling Tk 97.35 lack have been exempted and remaining 50%, i.e. Tk 71.94 Lacs of the simple interest and construction period interest have been transferred and reschedule as interest free block.
•
The remaining portion of expired loan up to 30-06-1992, Tk.42.67 Lac and unexpired local currency loan of the 11096 Lac totaling Tk 54.60 Lac and the interest on it from 01-07-1992 to 31-12-1993 amounting to Tk 11.47 Lac. The total figure being Tk 66.10 Lac with this amount an interest hearing account is to open which is to be refunded by 20th equal six monthly installments from six monthly after the commencement of the commercial production till 10 years period.
•
The Board of Director of BSB approved the shifting of the project from one place to another under self-financing and initiative by the entrepreneur under the following terms and conditions among others. “After shifting the project the existing land and building shall remain mortgage under the hank.’
After shifting of the project from kaligang, Jhenaidah the existing land and building shall remain mortgage under the bank. In favor on approval of the bank the said land and building will be sold and the amount received will be adjusted against the long- term loan from the bank. 6.15 Recommendation of the Special Committee of BSB: •
The loan account may be reschedule subject to the acceptance of the following terms by the company 50% interest of loan may be exempted according to the Govt. roles and regulation and the remaining 50% interest may be transferred as block and the total liability is to he refunded within 10 years.
•
In order to increase the income of the company, it may directly export its gods for which it may avail hack-to-back L.C. facilities from any hank or financial institution for which the BSB will give NOC.
•
The loan receiving company has to pay 10% of the total loan receipt as down Payment
•
No additional charge shall create on the properties mortgage with the BSB in regards to the NOC provided by BSB for back-to-hack L.C. facilities.
•
The machinery, which the entrepreneur's installed later, shall have to be mortgage with the hank.
•
If the loan receivers do not agree to the above proposal than as an alternative arrangement the loan account may he closed down alter refund of the total loan with exemption of the total interest.
•
If the above mentioned proposal are not complied with by the entrepreneur, arrangement has to he made for taking legal action against the entrepreneur’s and sell the properties of the project in order to realized the loan.
6.16 Recommendation to Resolve Sickness from my point of view: •
Profitable project should be identified and loaned.
•
Proper policy to e adopted and implemented.
•
Real entrepreneur should be given loan.
•
Political pressure should be ignored, if not possible, should communicate with respective higher authority.
•
Encouraging the borrower to repay the loan in proper time.
•
Preserving documents need to be computerized instead of tiling.
•
National observation committee can be established to analyze, evaluate and solute proper loan recovery.
•
Employees who are directly involved in loan recovery should be motivated. 5Cs must be considered when selecting borrower, i.e. Capital, Capacity, Character, Condition and collateral.
•
Proper communication should be established with the clients.
•
Number of trained supervisor to be revised.
CHAPTER SEVEN FINDINGS, RECOMMENDATIONS & CONCLUSION As a developed financial institution BSB plays a vital role for industrialization. BSB is continuing its holstering endeavor for up-gradation of our economy. Although there are a lot of favorable and strengthen position of BSB in respect of its activities. Nevertheless BSB has some drawbacks that are responsible for huge amount of losses each year. BSB should
overcome such problem as early as possible to become a profitable one. One important problem of BSB is that it is a decentralized organization and each department is responsible for particular activities hut they have lack of coordination to achieve the central objectives. We observed a large number of projects are sick and they are loan defaulter. For that reason, I criticize the loan appraisal procedure because it is the vital documents for loan issue. 7.1 Findings: During my internship program, the following findings are obtained: •
Sometimes improper feasibility reports are submitted by sponsors, which do not contain adequate and reliable information.
•
Lack of business experience of the entrepreneurs.
•
Lengthy procedure and long time (more than three months) involved in the appraisal of project.
•
Lack of financial commitment on the part of the borrower, the result being the failure of mobilization of equity by them in future means they divert their equity in other purpose after getting the loan amount.
•
Manual of project appraisal should be up to date because it was designed 18 years ago.
•
Dependence on imported technology and non-availability of adequate information both primary and secondary data.
•
Inadequate attention is paid to analyze risk and uncertainties associated with the projects; means only sensitivity analysis is done to analyze risk.
•
Lacking of co-ordination among various financial institutions in exchange of information.
•
Inadequate attention to social cost and benefits.
•
Unstable tariff and fiscal policy, political instability of the country.
•
The main aim of BSI3 is to stimulate industrialization throughout the country.
•
Loans are given to sponsors through preparing appraisal report.
•
The nature of credit shows that it mainly grants term loan.
•
Sometimes inefficient allocations of resources have created a huge amount of bad debt.
•
Political interruption in sanctioning loan.
•
Unstable policy of management due to political changes over time.
•
If bank make the procedure of keeping up-do-date information but in some case there some case of rescheduling the total procedure is reversed so it’s high to maintain current and updated system of accounting.
•
Lacking of co-ordination among the various departments.
•
Lacks of eagerness to devote themselves for bank because of lower benefits are given to employees.
•
In spite of BSB’s problem in financial condition, it helps in various social, cultural development of the country.
•
Sometimes BSB helps more by giving more additional financing to project.
•
Project rehabilitation is the criteria of BSB that revive the sick project.
•
Complex judiciary systems.
•
Contribution to the GDP is remarkable through industrialization process. 25) Help in implementing the projects.
•
Giving advice about the projects function for their future success.
•
Contribution of BSI3 is highest in the industrialization of Bangladesh though there’s some problem.
7.2 Recommendations: In this situation I recommended some points that will help BSB to overcome some their problems. The recommendations are as follows: •
Loan appraisal procedure is time consuming and to some extent project plan become irrelevant after getting the loan. Since all the procedure is completed so he is hound to take this loan because some expenditure already been incurred (sunk cost). As a result loan recovery may slow and some time difficult. My suggestion is that BSB should rearrange appraisal procedure so that the entrepreneur can take loan within short period of time.
•
BSB should avoid unnecessary political interfere that becoming outside the bank. Political problem of our country is a major problem now. If it influences the banking activity then it must create new problem no doubt.
•
BSB should give more concentration on physical investigation before issuing loan. However project appraisal should be strict so that nobody can use its loopholes.
•
Some time real entrepreneur does not get bank loan. BSB must have to identify profitable project and actual entrepreneur for issuing loan. And employees who are directly involved with loan recovery should also be motivated.
•
BSB should introduce modern communication system so that every department or unit can get information in its desk. Now one department must have to go other department for information. It is also time consuming. Preserving documents also need to he computerized instead of tiling.
•
Encouraging the borrower to repay the loan in time. Special arrangement should be introduced in this respect. Legal steps should be dynamic so that default loan recovery is accelerated. And security against the loan should he sufficient to recovery the loan.
•
Project must he scrutinized and in appropriate manner as well as the sponsor taking in to consideration on the changing environment and economic reforms and globalization.
•
National observation committee can he established to analyze, evaluate and solute proper loan recovery.
•
In selecting borrower, 5 Cs must be considered. They are Capital, Capacity, Character, Condition and Collateral.
•
Proper communication should be established with the clients.
•
Number of trained supervisor to be revised.
7.3 Conclusion: The bank from its establishment to till now financed about 2000 projects, amongst them 1289 projects are stuck up. In FY 2007-08, the total number of projects in the loan portfolio stands at 177 with total loan liabilities of taka 5699.74 million for keeping the written-off loan in separate as per the guidelines of Bangladesh Bank. Among these projects, 57 are exportoriented, 79 import-substitute and 41 are service / other industries. In FY 2007-08, loan liabilities of 21 projects are liquidated and 14 new projects have entered into the loan portfolio with loan liabilities of Tk. 182.28 million. The bank has also write-off 321 projects. From the above discussion it is clear that from its establishment to till today about 274 projects are became sick, which is approximately 15.41% of the total projects. It is a threat for the organization. BSB is not able to recover according to its expectation. But in the last year this rate was highest. BSB always tries to ensure that the projects in which they provide loan, the loan money must recover. But in some cases they were unable to recover their loan
money though they tried their best. In this situation those industries are declared as sick. At this stage they tried to rehabilitate those projects in which they can collect their loan money and its profit portion. REFERENCES 1. Bangladesh Development Bank Ltd, Annual Report, 2005 2. Bangladesh Development Bank Ltd, Annual Report. 2006 3. Bangladesh Development Bank Ltd, Annual Report, 2007 4. Bangladesh Development Bank Ltd. Annual Report, 2008 5. Bangladesh Development Bank Ltd Ordinance 1972. President’s Order No. 129 of 1972, Government of People’s Republic of Bangladesh. 6. Official website of Bangladesh Development Bank Ltd. 7. Gupta, Narayan “Various Aspects of Rehabilitation of Sick Industry”, Bangladesh Development Bank Ltd Guideline, Dhaka. 8. Brochures of Bangladesh Development Bank Ltd. 9. Manuals of activities of different departments of Bangladesh Development Bank Ltd supplied by respective departments. 10. Guide Book that is related with the activities of Banks & Financial Institution. 11. Official records supplied by various sections of BSB. 12. 1-3. N. Ghosh, (2002) ‘Scientific Methods and Social Research”, Sterling Publishers Ltd. 13. Zikrnand, William G. (2002) Business Research Methodology”. Tata McGraw Hill, India.