Banking Law and Practice

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Banking Law and Practice Special Focus On Foreign Remittance of NCC Bank Introduction For any business school student only curriculum activities are not enough for handling the real business situation. So it is an important opportunity of the students to know about the field of business through the internship program. Internship program is a perfect blend of the theoretical and practical knowledge. This report is originated to fulfill the requirement of the assign project internship report on “Banking laws and practices: Special focus in foreign remittance-a NCC Bank view” In this regard, I have been working as an internee in NCC Bank Limited, Jatrabari Branch, Dhaka from august to October. During this period I have learned how the host organization works with the help of the internal supervisor. On the basis of working experience for this period I have prepared this report and I have tried my best to relate the theoretical knowledge with the practical working situation.

Organizational History National Credit and Commerce Bank limited emerged as Bank in the country on 17 th May 1993 out of a great turbulent situation encountered by erstwhile National Credit Limited .However; the institution survived the ordeals and came out as full-fledged commercial bank.

At present, the Authorized Capital of the Bank remained at TK.2500.00 million during the year as before but paid-up Capital raised to TK. 1201.80 million against TK. 975.04 million against 2005. The reserve fund increased to TK. 1215.58 million during the year by registering 37.37% increase over last years’ TK.884.90 million.

Conversion of NCL into NCCBL Prior to the conversion into a schedule bank, the institution started its function back in 1985 as an Investment Company in name & style of National Credit Limited. Paid up Capital of the company was Tk 5.00 core only at that time. NCL performed well for near about 7 years.

The core objective of the Company was to play a catalyst role in the capital market of the country by way of participating in security trading, underwriting, etc. however, in 1992 in the backdrop of closure of BCCI and BCI, another Investment Company, NCL faced a severe setback in respect of business. With active initiative taken by the members of the Board and the Management team, the company could overcome the problem and get it converted into a full-fledged Commercial Bank on 17.05.1993.

Vision To establish NCCBL as a role model in the banking sector in Bangladesh and to be a part of the national development by providing the needs of customers, to give customers

inspirational strength, dependable support and the most comprehensive rang of business solutions, through the team of professional who work passionately to be outstanding on everything to do .

Mission To constantly seek to better serve the customers.

Setting industry benchmarks of world class standard in delivering customer value through comprehensive product range. Customer service and other activities.

Building an exciting team-based working environment that will attract, develop and retain employees of exceptional ability who help celebrate the success of our business, of our customers and of national development.

Maintaining the highest ethical standards and a community responsibility worthy of a leading corporate citizen.

Continuously improving productivity and profitability, and thereby enhancing shareholder value.

Organogram Keeping in view the key responsibilities and assignments of the organs and the segregation of marketing relationship management function from approval risk management / administration, NCCBL organogramme should be set up in such a way so that: Credit approval can be centralized within the credit risk management function.

Regional credit centers as per bank’s policy can be established.

However, all applications must be approved by the head of credit and risk management or managing director/CEO/ Board or delegated head office credit executive.

Major activities NCCBL is a progressive commercial bank in private sector in Bangladesh. It creates new opportunities for its clients. It gives customized services and maintains harmonious bankerclients relationship. It contributes toward formation of national capital, growth of savings and investment in trade, commerce and industrial sectors.

NCCBL provides different types of commercial banking services to the customers of all strata in the society within the stipulation laid down in the Bank Company Act 1991 rules and regulation framed by the Bangladesh bank from time to time.

NCCBL is a commercial bank, which has to abide by rules and regulations, prescribed by Bangladesh Bank for schedules commercial banks. The major activities of the bank cover a wide range of banking and financial activities to individuals firms, corporate bodies and multinational genies. Present operation areas are as follows:

Deposits All kind of deposits like savings, current, short-term, fixed, Certificate of deposits are accepted from resident and non-resident customer. Non-resident customers can deposit their money in foreign currency account both in convertible and non-convertible account.

Credit Banks loan is greatly emphasized that we can call this as the “Heart” of the banking, because they are a major source of bank income. Loans are very important for country’s economy as a whole be because the expansion and contraction of bank loan affect the level of business activity through their effect on the nation money supply.

The extended credit facilities to different sectors to diversify its credit portfolio in compliance with credit policies of Bangladesh Bank as given below: Industrial, Housing, Transport, and Contract work, Working Capital for traders, manufacturing processing plants and export oriented industries, and other business.

Import Finance: NCCBL finance Import by way of opening irrevocable documentary letter of credit granting post import finance such as BLC, LIM, and Advance against T/R etc.

Export finance: Pre-shipment band post-shipment/export Finance by way of negotiate/purchase discount of export bills, packing credit, packing credit, back to back L/C etc.

Non- Funded (Guarantee) Business: Issuing of letter of guarantees (L/G), shipping guaranties indemnities, performance guaranties, Bid Bond, Stand by L/C etc.

Remittance NCC Bank remits money of the clients both within the country and out side the country by telex transfer, telephonic transfer, mail transfer, pay order, demand drafts etc. It also receives remittance from Middle Eastern and western counties.

Platform Services: NCC bank provides safe deposit, locker services and other miscellaneous services for safety of valuables of the customers. It also provides agency services and acts as trustee for the customers.

Online Banking To render services to its customers, NCC Bank Limited, introduce online computer systems within the year of its inception and all the branches of NCC Bank are equipped with telex services. NCC Bank has also introduces debit card in its product line.

Banking system of Bangladesh Banking is the business of providing financial services to the private individuals, corporations, Government agencies and business and industries. The main service of a bank is mobilizing deposits and lending these to those people to finance their consumption or business activities. Banks also render services like issue of letter of credit and guarantee, remittance or money, collection of utility bills, underwriting of capital issues, portfolio management as well as locker’s services and custodian of valuables, indeed, a modern bank endeavors to provide all the financial services of a client. Without trying to circumspect our description of their services it would perhaps be correct to say ‘a bank is what bank does’.

A broader definition of a bank is ‘any financial institution that receives, collects, transfers, pays, exchanges, lends, invests, or safeguards money for its customers.

Commercial Bank Commercial banks are so named because they specialize in loans to commercial and industrial businesses. Commercial banks may be owned by private investors, called stockholders/ shareholders, or by companies called bank holding companies.

Commercial banks are the oldest financial institutions. They occupy an important position in the financial landscape of nearly every country. This is more so in the relatively underdeveloped countries like Bangladesh where the commercial banks accounts for more than 90%of the financial assets.

Number and Types of Banks Transformation in the financial sector in terms of number and variety of financial institutions as well as growth of their financial assets can be called dramatic: Starting off with only 6 nationalized commercial bank (NCBs) , a few development financing institutions (DFIs) and a handful of foreign bank branches, the number of banks escalated to 54 by the end of June, 2009.the branch network of the banks has also increased from a mere 1238 to 7886 by the end of February 2009. .

Nationalized Commercial Banks (NCBs) 1. Sonali Bank 2. Janata Bank 3. Agrani Bank 4. Rupali Bank Privet Commercial Banks (PCBs) 1. Pubali Bank

2. Uttara Bank 3. National Bank Ltd. 4. The City Bank Ltd. 5. United Commercial Bank Ltd. 6. Arab Bangladesh Bank Ltd. 7. IFIC Bank Ltd. 8. Islami bank Bangladesh Ltd. 9. Al Baraka Bank Bangladesh Ltd. 10. Eastern Bank Ltd. 11. National Credit & Commerce Bank Ltd. 12. Prime Bank Ltd. 13. South East Bank Ltd. 14. Dhaka Bank Ltd. 15. Al-Arafah Islami Bank Ltd. 16. Social Investment Bank Ltd. 17. Dutch-Bangla Bank Ltd. 18. Mercantile Bank Ltd. 19. Standard Bank Ltd. 20. One Bank Ltd. 21. EXIM Bank 22. Bangladesh Commerce Bank Ltd. 23. Mutual Trust Bank Ltd. 24. First Security Bank Ltd. 25. The Premier Bank Ltd. 26. Bank Asia Ltd. 27. The Trust Bank Ltd. 28. Shah Jalal Bank Limited (Based on Islamic Shariah) Foreign Banks 1. American Express Bank 2. Standard Chartered Grindlays Bank 3. Habib Bank Ltd. 4. State Bank of India 5. Credit Agricole Indosuez (The Bank) 6. National Bank of Pakistan 7. Muslim Commercial Bank Ltd. 8. City Bank NA 9. Hanvit Bank Ltd. 10. HSBC Ltd. 11.Shamil Islami Bank Of Bahrain EC 12. Standard Chartered Bank Development Banks 1. Bangladesh Krishi Bank 2. RajshahiKrishiUnnayan Bank 3. Bangladesh Shilpa Bank 4. Bangladesh Shilpa Rin Sangstha 5. Bank of Small Industries & Commerce Bangladesh Ltd. Other

1. Ansar VDP Unnayan Bank 2. Bangladesh Samabai Bank Ltd. (BSBL) 3. Grameen Bank 4. Karmasansthan Bank Capital Adequacy The ability of the banks to discharge successfully their increasing responsibilities depends critically on the success with which they are able to sustain and increase the confidence of their depositors and protect their interests. The bank are required to compulsorily appropriate to the reserve funds and transfer to reserves not less than 20 percent of their profits. This was intended to strengthen the capital base of the banks over time. However, with the passage of time the liabilities of the banks started to rise sharply and the ratio of paid up capital to deposits of scheduled commercial banks steadily declined. the ratio going further down Bangladesh Bank has raised the minimum capital requirement to tk.400 Crores. At the same time Bangladesh has changed over to the capital adequacy norms of the Bank for international settlement.

In 1994, Bangladesh switched to the International system of capital adequacy as per recommendation of the Basle Committee on Banking Supervision. Prior to that, bank in Bangladesh were required to maintain capital equivalent to 6% of deposit liabilities. Under the revised system, a bank is required to maintain a ratio of capital to risk weighted asserts of not less than 9% with at 4.5% in core capital or tk. 1.00 billion, whichever is higher. The revised system also captures the off-balance sheet risks. These are, however, converted to balance sheet equivalent before allocating a risk weight.

Capital adequacy focuses on building adequate cushion in the form of risk weighted capital with a view to absorb the shocks from unforeseen circumstances. The risks include, inter alia, credit risks, foreign exchange risks, interest rate risks as well as risks arising from off balance sheer exposures.

Loan Classification Policies One of the major reforms initiated by Bangladesh Bank involved replacement of the age old loan classification system by new system conforming to the international standard. Under the revised system (a ) the banks themselves are responsible the classify the loans as per guidelines given by Bangladesh Bank, the later being responsible to recheck the correctness in the course of routine inspection, (b) linking of the classification criteria to the repayment behavior on the basis of length of over dues (c) maintenance of provision against substandard and unclassified loans and (d) suspending computation of interest income and restricting that the income can be booked as income only on cash basis.

Interest Rate Structures In 1990 administered interest rates on deposits and advances were replaced by market determined interest rates. Gradually, the Bangladesh Bank has withdrawn all restriction on fixing the interest rates by the banks. The central balk has also allowed the banks to differentiate interest rates by 3 percentage points considering the comparative risks involved among borrowers in the same lending category. The central bank has also been addressing the need for maintaining interest rates at lower levels to promote investment and economic

activities. Firstly, the central bank has lowered its own Bank Rate. The central bank throughout most part of 2004 repeatedly exhorted the banks to reduce the interest rates in phases to eventually bring it to single digit. Simultaneously, at the behest of the IMF the Government of Bangladesh has drastically slashed the interest rates in its savings instruments. This had salutary effects on the interest rates which are getting increasingly competitive. The fall in the interest rates made a modest contribution to regeneration of activities in the bourses and other economic activities. However, the reduced rates of interest in early part of 2005 increased demand for credit with its consequential effects on money supply and foreign exchange reserve. Alarmed at the free fall of foreign exchange reserve the central bank has again asked the banks to raise the interest rates.

Assets Structure of Banks in Bangladesh An ideal distribution of assets of a joint stock bank is governed by certain cardinal principles, viz, liquidity, profitability and security. The nature of the money market, seasonal pattern of demand for money and the economic outlook have all important bearing on the structure of the assets. What follows is an examination of the assets structure of Bangladesh joint-stock bank.

Cash in Hand and Balances with Bangladesh Bank After the liberation the percentage of cash reserves to aggregate deposits was relatively high.

This was mainly owing to the uncertainly prevailing in the country during those years and the communication bottlenecks that hampered quick movement of funds to the branches. But with the return of normalcy banks relaxed their policy of keeping very large cash in their tills.

Cash ratio of Bangladesh scheduled commercial banks stood around 16.33% of their deposit liabilities as at the end of FY 1993-94. the present cash ratio has come down to around 10% due to emergence of an active interbank market and availability of outlets for shout term investment, especially creation of a Repo market by Bangladesh Bank with opportunity reversal of the Repo.

Loans on Call and Short Notice The item “loans at call and short notice� acts as the second line of defense of commercial banks to meet unforeseen emergencies. But the existence depends on the extent of the call loan market. In case there is a well developed call loan market, banks can lend out idle excess cash to earn interest instead of having too much of it in tills, and yet at the same time they an lend it out in such a fashion that it can easily be converted back into cash at a very short notice, for the borrowers in the call loan market borrow from the banks on a day-to-day basis or, at the most for a week. Thus such loans provide an outlet for and a return of surplus funds which the banking institutions may have available at any given at any given time.

Bills Discounted Discounted bolls are also an important asset of commercial bank from the point of view of liquidity and profitability. It is an ideal asset to invest a bank’s temporary surplus not only because it is legal evidence of indebtedness but also because of its self liquidating nature.

Further, the repayment of the amount is guaranteed by the drawer, acceptor and endorsers.

However, in Bangladesh the volume of bills discounted is insignificant. The reasons for this are manifold. The defective forms of local bills of exchange, lack of adequate warehouse

facilities, high discount charges, the reluctance of the indigenous moneylenders to shed their non-banking business and the system of cash credits under which the commercial banks give accommodation to their clients, lack of standardization in the form of bills, etc...Adversely affect the popularity of bills of exchange among the banks. Nevertheless, the recent trends are encouraging. Compared to 1992-93 when the banks discounted and purchased bills amounting to tk 745.4 Crores the amount reached 6915.9 Crores in 1993-94.

Loans and Advances In pursuit of securing the interest of the banks credit operation the banks always try to ask for securities or other forms of collaterals and guarantees against the loans and credits. The security could be in the form of Government securities, shares and debentures of industrial concerns, goods and documents of title to goods , gold bullion and given on the personal credit worthiness of the borrowers. They are either cash advances against personal credit of the borrower supported by a second signature. Bankers generally do not favour a clean advance against the personal credit of the borrower only.

General Observations The above analysis of the asset structure of Bangladesh joint-stock banks gives rise to certain conclusions which may be summarized as under: Although the percentage of cash to aggregate deposits was relatively high during the immediate post-liberation years, the present trend shows that banks do not generally keep very large cash balances. This has increased the dependence of commercial banks on the Bangladesh Bank. ‘Loans at call and Short Notice’ and Bill Discounted which constitute two ideal assets of commercial banks have not assumed much importance in Bangladesh because of the undeveloped nature of call loan and bill market.

Banks in Bangladesh invest about 95% of their total investment in Government securities.

Advances occupy very commercial banks. Most of the advances and secured.

Bangladesh Bank, Banking Legislations and Practies: Bangladesh Bank Bangladesh Bank is a typical central bank of a third world country with a medley of tasks on its agenda. These agenda include not merely issuing notes Mid controlling .supply of money out also the responsibility to act; is the holder of gold and currency reserves, banker to the government, lender of the last resort, .supervisor of the banking system, overseer of national credit policy, promoter of credits to agricultural and other important socio-economic sector and administrator of exchange control.

Bangladesh Bank was born amidst chaos and great uncertainty following the nine month war with Pakistan army. The end of war on December Id. 1971 saw the country's leadership in the midst of an immediate need to reorganize the country's banking system which lay in shambles. The Central Directorate of the erstwhile State Bank of Pakistan was in Karachi. It

had only a few branches in the former East Pakistan and operated strictly under the guidance of the Central Directorate. These branches did not take part in framing policy concerning monetary policy, credit control, exchange control, issue of notes etc. Bangladesh, when it was born, did not have experienced manpower to attend to these critical issues.

Since then several amendments have been made from time to time to facilitate the bank's operation and to provide it some degree of autonomy to perform its responsibilities. By and large, however, Bangladesh Bank continues to operate in accordance with the wishes of the government; the Bank's chief executive, the Governor and his deputies — Deputy Governors — as well as the hank' policy making body, Board of Directors are all appointed by the government. The salary and other conditions are mainly determined by the Ministry of Finance.

Salient Features of Bangladesh Bank Order, 1972 Objectives: To manage the monetary and credit system of Bangladesh with a view to stabilizing domestic monetary value and maintaining a competitive external par value of the Bangladesh Taka towards fostering growth and development of country's productive resources in the best national interest.

Main Functions are to formulate and implement monetary policy; to formulate and implement intervention policies in the foreign exchange market; to give advice to the Government on the interaction of monetary policy with fiscal and exchange rate policy, on the impact of various policy measures on the economy and to propose legislative measures it considers necessary or appropriate to attain its objectives and perform its functions; to hold and manage the official foreign reserves of Bangladesh; to promote, regulate and ensure a secure and efficient payment system, including the issue of hank notes: to regulate and supervise banking companies and financial institutions.

Bank Legislations: The Banking Companies Act. 1991, has been the most important piece of legislation enacted in Bangladesh to define all aspects of operation of banking institutions and regulations of their activities by regulatory authorities. This important landmark was preceded by a medley of laws passed by the parliament and Presidential Ordinances and Orders enacted or promulgated during the British and later Pakistan eras. Of the previous laws from which Bangladesh drew heavily the Banking Companies Ordinance, enacted in 1962 in what was then greater version of Pakistan. After the liberation of the country this Ordinance was adapted in Bangladesh and remained in operation until the enactment of the Banking Companies Act. 1991. The Banking Companies Act. 1991 assigns important role to Bangladesh Bank to regulate as well as supervise the activities of the banks in Bangladesh.

Bangladesh Bank Order, 1972 In addition to the Banking Companies Act 1901, Bangladesh Bank Order. 1972 also contains a few provisions about regulating some aspects of banking operation. One is about what is commonly known as Cash Reserve Ratio. Section 36 of the Order reads as follows.

*36. (1) Every scheduled bank shall maintain with the Bank a balance the amount of which shall not be less than such portion of its total demand and time liabilities as may be prescribed by the Bank pursuant to the monetary policy objectives of the Bank, by notification in the official Gazette. Another important role assigned to the Bangladesh Bank is scheduling the banks i.e. declaring banks as schedule banks on the basis of criteria set out in the Act. Section 37 of the Act read as follows.

"37. (1) The Bank shall maintain at all its offices and branches an up-to-date list of banks declared by it to be scheduled banks under sub-clause(a) of clause (2).

(2) The Bank shall, by notification, in the Official Gazette (a) declare any bank to be scheduled bank which is carrying on the business of banking in Bangladesh and which (i) is a banking company or a co-operative bank, or a corporation or a company incorporated by or established under any law in force in any place in or outside Bangladesh; (ii)-has a paid-up capital and reserves of an aggregate value of an amount not less than that required to be maintained under Section 13 of the Banking Companies Act 1991 (Act 14 of 1991).

Capital and Reserve The Act lays down certain important provisions regarding minimum paid up capital and reserves, Section 13 provides the minimum capital reserve required to carry on the banking business in Bangladesh. Several amendments have been made in the Act to progressively increase the minimum capital required to continue or start a banking business.

As per latest amendments the banks are required to maintain capital at the level determined

by Bangladesh Bank on the basis of the respective bank's risk weighted assets [Section13 (2)]. Bangladesh Bank has also set a minimum of TK 100 Crores as capital and reserve of each bank subject. Again, to a minimum 9 percent of a bank's risk weighted assets.

For the purpose of supervision, capital is categorized into two tiers: Tier 1 i.e.. Core Capital comprises the highest quality capital elements Tier 2 i.e.. Supplementary Capital represents other elements which are a little inferior to those in Tier I but contributes nevertheless to the overall strength of a bank. The principal constituents of Tier 1 Core Capital are paid up capital, statutory reserve, general reserve, and retained earnings. Tier 2 Supplementary Capital includes general provision (1% of unclassified loans), assets revaluation reserves, perpetual subordinated debt and exchange equalization account.

Core Capital must be equal to or more than 4.5% of the risk-weighted assets. Reserves created by periodic revaluation of banks' assets can be included as a component of Ticr-2 capital only if the revaluation is formally conducted by professionally qualified valuation firm. Such reserves will be eligible up to 50% for the treatment as Supplementary Capital provided that the external auditors of the bank duly certify the rationale of the re-valued amount. Such revaluation may be done once in a year.

NCC Bank operated up to 1992 with 16 branches and thereafter with the permission of the central bank converted onto a full fledged scheduled private commercial bank in May 1993 with paid capital of Tk. 39.00 Crore to serve the nation from a broader platform. The initial authorized capital of the bank was Tk. 75.00 crore and Paid up capital was Tk. 19.520 crore

at the time of conversion. The present authorized capital is Tk.250.00 crore and Paid up capital is Tk. 135.00 crore . Required Capital equal to 10% of Risl Weighted Assets 2008(TK) 2007(TK) Core Capital (tier-I) Supplementary Capital (Tier-ii)

3,646,755,001 793,500,204

2764477168 562052013

Corporate Management in Banking Apart from regulating the operational aspects Bangladesh Bank has lately addressing issues concerning administration and management of banks.

The banking system in Bangladesh has had an inauspicious start after the liberation of Bangladesh. The nationalised banks were in disarray from .the beginning due to poor management government interference for dispensation of loans and formulation of policies and politicisation of the banks administration and Board of Directors. Inducted from the beginning of 1980s, the banks in the private sector did not fare well either. The grant of licenses to set up the new banks was influenced largely by political consideration in favour of party activists and financiers; their integrity, experience and ability had neither been properly scrutinised nor played any part in considering their suitability. As a result corporate culture did not develop and most of the entrepreneurs enjoyed a hay day. They siphoned a huge amount of resources of the banks particularly in the form insider lending, award of contracts for decoration or purchase of land building and other requisites. The country's central bank Bangladesh bank did its best to salvage the situation by enacting new laws and prescribing various sets of prudential regulations. The last of these steps reflects their anxiety to introduce corporate culture in the banking system, beginning with the composition of the Board of Directors, experience and qualifications of the Directors, and their tenure.

According to Bangladesh bank's prescription, Board of directors and management of a bank should comprise of the competent and professionally skilled persons with a view to ensuring good and corporate governance in the bank management.

The specific demarcation of responsibilities and authorities among the board of directors its chairman Chief Executive Officer (CEO) of and adviser to the private bank in respect of its overall financial, operational and administrative policy making and executive affairs including overall business activities, internal control, human resources management and development thereof, income and expenditure etc, along with lending and risk Management issues, is outlined as follows;Internal control management The board shall be vigilant on the internal control system of the bank in order to attain and maintain satisfactory qualitative standard of its loan/investment portfolio. It shall review at quarterly rots the reports submitted by its audit committee regarding compliance of recommendations made in internal and external audit reports and the Bangladesh Bank inspection reports.

Human resources management and development Policies relating to recruitment, promotion, transfer, disciplinary and punitive measures, human resources development etc. and service rules shall be framed and approved by the

board. The chairman or the directors shall in no way involve themselves or interfere into or influence over any administrative affairs including recruitment, promotion, transfer and disciplinary measures as executed under the set service rules. No member of the board of directors shall be included in the selection committees for recruitment and promotion to different levels. Recruitment and promotion to the employees’ immediate two tiers below the CEO shall, however, rest upon the board. Such recruitment and promotion shall have to be carried out complying with the service rules i.e., policies for recruitment and promotion NCC Bank Human Resource policy: For achieving short and long term goals of any organization, quality human resources are essential. The banks must ensure recruiting manpower to deliver personalize service to its clients and thereby to earn good profit and its goodwill. Motivating the employees to keep themselves conversant with the change in competitive environment of the sector is also of utmost important. The management of the bank is aware of this and organizing workshops/seminars on issues having contemporary relevance on regular basis. During the year 2007 they have trained 483 employees of different grades, which is 37% of total employees. Recently a computer lab has been e3stablished in the institute to train up the employee with basic computer knowledge.

Financial management The annual budget and the statutory financial statements shall finally be prepared with the approval of the board. It shall at quarterly rests review/monitor the positions in respect of bank's income, expenditure, liquidity, non-performing asset, capital base and adequacy, maintenance of loan loss provision and steps taken for recovery of defaulted loans including legal measures.

The board shall frame the policies and procedures for bank’s purchase and procurement activities and shall accordingly approve the distribution of power for making such expenditures. The maximum possible delegation of such power shall res: on the CEO and his subordinates. The decision on matters relating to infrastructure development and purchase of land building, vehicles etc. for the purpose of bank's business shall, however, .be adopted with the approval of the board. Formation of supporting committees: For decision on urgent matters an executive committee, whatever name called, may be formed with the directors.

There shall be no committee or1 sub-committee of the board other than the executive committee and the audit committee. No alternate director shall be included in these committees Responsibilities and authorities of the CEO The CEO of the bank, whatever name called, shall discharge the responsibilities and execute the authorities as follows: In terms of the financial, business and administrative authorities vested upon him by the board, the CEO shall discharge his own responsibilities. He shall remain accountable for achievement of financial and other business targets by means of business plan, efficient implementation thereof and prudent administrative and financial management.

The CEO shall ensure compliance of the Bank Companies Act, 1991 and/or other relevant laws and regulations in discharge of routine functions of the bank.

The CEO shall report to Bangladesh Bank of issues violative of the Bank Companies Act. 1991 or of other laws/regulations and, if required, may apprise the board post facto.

The recruitment and promotion of all staff of the bank except those in the two tiers below him shall rest on the CEO. He shall act in such cases, in accordance with the approved service rules on the basis of the human resources policy and sanctioned strength of employees as approved by the board. The board or the chairman of any committee of the board or any director shall not get involved or interfere into such affairs. The authority relating to transfer of and disciplinary measures against the staff, except those at one tier below the CEO, shall rest on him, which he shall apply in accordance with the approved service rules. Besides, under the purview of the human resources policy as approved by the board, he shall nominate officers for training etc.

Restriction on Lending to Bank Directors The Bangladesh Bank has issued instructions to the banks under -Section 45 of Bank Companies Act. 1991 as follows: Any loan facility or guarantee or security provided to a Director of a bank or to his relations must be sanctioned by the Board of Directors of the bank and approved in the general meeting and has to be specifically mentioned in the Balance sheet of the bank. However the total amount of the loan facilities extendable to a Director or to his relatives should not exceed 50% of the paid-up value of the shares of that bank held In Director's own name.

Audit Committee of Hoard of Directors Audit Committee of the Board of a bank can play an effective role in providing a bridge between the board and management, shareholders, depositors and stake-holders and help in ensuring efficient, safe and sound banking practices. Role of the audit committee is also important in evolving an effective procedure for financial reporting disclosure, developing a suitable internal control system and maintaining liaison with internal and external auditors to minimize various business risks. Moreover, new business opportunities and increased competition due to globalisation of markets, increased use of electronics and information technology, increased complexity of transactions, accounting standards and regulatory requirements are " contributing to essentiality and. expansion of the role of audit committee.

Under the above circumstances, as part of the best practices, banks are advised to constitute Board's Audit Committee and the following regulations have been issued by Bangladesh Bank for compliance by the banks:Payment of Dividend Subject to compliance of the provisions of Section 22 of Bank Companies Act, 1991, Banks generally apply to Bangladesh Bank for obtaining no-objection prior to allowing their dividend.

Decision has been adopted after reviewing the issue that from now on in terms of the provisions incorporated in Bank Companies Act, 1991, banks can declare their dividend without prior approval of Bangladesh Bank subject to compliance of the following conditions: -

No dividend in cash or in bonus share (keeping in consideration the order issued on 11.09.01 by the Securities and Exchange Commission in respect of issuance of bonus share) can be declared with short-fall in capital of the bank.

Banks shall have to comply with the following conditions in respect of maintenance of provision: Provision against adversely classified loans shall have to be maintained at the rate(s) specified by Bangladesh Bank; General provision @1% against unclassified loans shall have to be maintained; Provision against 'Investment' and ‘other Assets' shall have to be maintained rate(s) specified Bangladesh Bank.

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Prior to declaration of dividend, the concerned bank shall have to obtain specifically a certificate from the external auditor to this effect that provisions have been properly maintained having followed/complied with the rules, regulations and norms issued by Bangladesh Bank and there is no short-fall in respect of maintenance of capital adequacy and provision.

In case of declaring dividend in cash at higher rate i.e., beyond 20%, a sum equal to the amount of dividend in excess of 20% shall have to be kept deposite4d in the Dividend Equalization Account which shall be treated as ‘Core Capital’ of the bank.

If any post-facto review during on-sight inspection by Bangladesh Bank reveals any deviation in compliance of the above conditions in declaring dividend of any year, prior permission from Bangladesh Bank shall have to be obtained before declaration of dividend for the next year.

Power of Bangladesh Bank to control advances by banking companies: Bangladesh Bank may determine the policy relation to advances to be followed by banking companies generally or by any banking company in particular. It may give directions to banking companies either generally or to any banking companies with regard to the: Credit ceilings to be maintained The minimum ration of small loans or other loans to the total advance-to- be maintained; The purpose for which advances may or may not be made; The limit up to which advances may be given to any banking company or group of banking companies, a person or a group of persons; Secured advance and ceiling of interest on advance; The rates of interest to be charged on advances, Auditor of NCC Bank Being eligible, Bank’s external Auditor M/S Rahman Mostafa Alam & CO. Chartered Accountants, Paramunt Heights (7th floor, D-2), 65/2/1, Box Cuvert Road. Purana Paltan,

Dhaka-1000 has been recommended by the Audit Committee of the Board as well as by the Board of Directors of the Bank for appointment as external auditor for 2009 at a remuneration of TK. 1,20,000/- (Taka one lac twenty thousand)only for approval of the Shareholders in 24th AGM of the Company.

Si. No. 1.

2.

3.

Name Mr. Abdus Salam Alhj Md. Nurun Newaz Mr. Khondkar Zakaria Mahmud

Status with the Bank Director Director Director

Status with the Educational committee Qualifications Chairman b.sc. Engg.

Member B.A Member B.A

Foreign Exchange Regulation and NCC Bank Limited Foreign Exchange Regulation and NCC Import policy List of restricted items.

Unless otherwise specified the items banned for import in this list shall not be importable.

But those items which are importable on fulfillment of certain conditions specified in the list shall be importable on fulfillment of those conditions.

Freely Importable Items:Unless otherwise specified, any item, which does not appear either in the restricted list or which has been mentioned as importable subject to certain condition shall be freely importable; In addition to the conditions mentioned in the “Control List” the conditions., restrictions and procedures for import of various items mentioned else where in the text portion of this Order, shall as usual apply in case of import of those items; If, while determining the import status of an item mentioned in the “Control List”, the description of goods does not conform to the H.S. Code mentioned against the item or any discrepancy arises between the H.S. Code and the description of goods, in that case the description of goods shall prevail; General Conditions of Import of GoodsH.S. Code Numbers- For import purpose, use of H.S. Code with at least eight digits corresponding to the classification of goods as given in the first Schedule of the Customs Act, based on the Harmonized Commodity Description and Coding System, shall be mandatory.

But in case where a particular item has been classified under an H.S. Code Number with more than eight digits that specific Code Number (having more than eight digits) to be used.

No bank shall issue LC Authorization form or open L/C without properly mentioning H.S. Code Number for the item(s) correctly.

The Export Processing Zone (EPZ) Import into and export from the EPZ shall remain outside the purview Of this Order. The banking and customs procedure relating to export from or import into the Export Processing

Zone to or from any country outside Bangladesh shall be regulated in accordance with the instructions issued in that behalf by the Bangladesh Bank and the National Board of Revenue respectively from time to time; All statistics regarding import into and export from Export Processing Zone shall be maintained by the Customs Authority concerned; All movement of goods between the Export Processing Zone and any other area in Bangladesh outside the Zone shall be regulated in accordance with the existing Imports and Exports Control regulations; EPZ Authority shall prepare a list of items (on the basis of NOC from the NBR) required to be bought from the Bangladesh Customs area for use in the EPZ area and get the same may be made in accordance with the same procedure. Industrial units situated in the EPZ area shall pay in convertible currency, out of their own foreign currency accounts, the cost of goods bought from the Bangladesh Customs area as per the said list.

EPZ Authority shall issue Pass Books in favour of industrial units situated in the EPZ area indicating therein the amount in Taka up to which goods can be procured locally on a yearly, half yearly or quarterly basis. The EPZ Authority shall determine the preformed of the aforesaid Pass Book and the requisite Accounting System in consultation with the Customs Authority.

EPZ Authority shall issue necessary “In Pass” and “out-Pass” for machinery and equipment which are required to be brought out of EPZ area for the purpose of repair. On the basis of such passes the Customs Authority, after making necessary entries in appropriate register, shall allow movement of machinery and equipment out of the EPZ area for the purpose of repair and into the EPZ area after repair. However the documentation and accounting procedure for such outward and inward movement of machinery and equipment shall be determined by the EPZ Authority in consultation with the Customs Authority.

Guideline by Bangladesh Bank Basic regulations under the FER Act are issued by the Government as well as by the Bangladesh Bank in the form of Notifications, which are published in the Bangladesh Gazette. Notifications issued by the Bangladesh Government and the erstwhile Government of Pakistan and the Bangladesh Bank and the erstwhile State Bank of Pakistan is reproduced at Appendices 2 and 3. Directions having general application are issued by the Bangladesh Bank in the form of notifications, foreign exchange circulars and circular letters.

Authorized Dealers (ADs) in foreign exchange are required to bring the foreign exchange regulations to the notice of their customers in their day –to- day dealings and to ensure compliance with the regulations by such customers. The ADs should report to the Bangladesh Bank any attempt, direct or indirect, of evasion of the provisions of the Act, or any rules, orders or directions issued there under.

The ADs must maintain adequate and proper records of all foreign exchange transactions and furnish such particulars in the prescribed returns for submission to the Bangladesh Bank.

They should continue to preserve the records for a reasonable period for ready reference as also for inspection, if necessary, by Bangladesh Bank’s officials.

This publication summarizes the instructions issued under and FER Act as well as the prudential instructions issued by Bangladesh Bank(as of 30th September, 1996) to be followed

by Ads in their day-to-day foreign exchange transactions.

Ads, on their own, are free to by and sell foreign currencies forward in accordance with tile internationally established practices however, in all cases the Ads must ensure that the cover is intended to neutralize the risks arising from definite and genuine transactions.

All forward contracts should be treated as firm and should be closed out on expiry. In such cases the Ads should charge the difference between the contracted (booked) rate and the TT clean spot buying or TT spot selling rate, as the case may be, ruling on the date the contract is closed out. The forward contract should be closed without charging any difference if the rate moves in of the customer on the date of the closure. In other words, in case of a forward purchases by Authorized Dealer no difference will be charged if the TT spot selling rate on the date of closure is at par or lower (i.e. inferior from the point for closing out a forward sale contract if the TT clean spot buying rate on the date of closer is at par or higher than the booker rate. No forward contract should be renewed at the old rate. All purchase- sales of forward contracts on the date of renewal should be applied.

All documents (copy of LC, contracts etc) relating to forward contracts and Swap transactions must be, preserved for subsequent inspection by the Bangladesh Bank.

Foreign Exchange Regulation Act, 1947 Foreign exchange regulation (FER)act, 1947enaceted on 11th March, 1947 in the then British India, provide for the regulation of certain payments, dealing in Foreign exchange and securities and the import and export of currency and bullion. This Act was first adapted in Pakistan and then in Bangladesh. Bangladesh Bank is responsible for a administration of regulations under the Act. It extends to the whole of Bangladesh and applies to all citizens of Bangladesh and persons in the service of the Republic wherever they may be. It shall come into force on such date as the Government may, by notification in the official Gazette, appoint in this behalf. Directions having general application are issued by the Bangladesh Bank in the form of notifications, Foreign exchange circular letters.

Foreign Exchange Department of NCC Bank Ltd The NCC Bank deals with foreign exchange with goodwill for a long time. It is handling of foreign exchange closer to the beginning. Now a day 28 branches of this bank are authorized to deal foreign exchange by Bangladesh Bank. It facilitates international trade through its various modes of services. It bridges between importers and exporters. This department mainly deals in foreign currency, that’s why it is called Foreign exchange department.

As usual, bank’s Foreign Exchange Business contributed largely to its profitability in 2008 also. The Management of Bank is careful in catering to the Banking needs of the exporters and importers and as such always try to depute competent officers having required expertise in the field. As a result, Bank’s foreign trade witnessed impressive development during last few years.

During 2008, the Bank handled export & import business for tk. 12,522.04 million & Tk. 38,796.88 million respectively .number of Bank’s AD (Authorize Dealer) Branches is 28 (twenty eight).

Modes of the Foreign Exchange Department : NCCBL started fully its commercial banking activities on the 17th May 1993. On the basis of the various services regarding the foreign exchange provided by the NCCBL can be segregated into three board categoriesImport Export Foreign remittance

Export Opening Bank

Advising Bank

Import Remain Authority Reimbursing Bank

Negotiating Bank Reimbursement Claim

Flow

Chart

of

Export

&

Import

Procedure

ImportOpening L/C Loan Against Trust Receipt(LTR) Loan against Imported Merchandise(LIM) Payment Against Document(PAD) Payment Against Trust Receipt(PTR) ExportExport L/C Advising Pre-shipment Finance Post-shipment Finance Foreign Bill for Collection RemittanceThere are two types of remittances: Local Remittance Foreign Remittance Procedures of Opening the L/C The importer after receiving the proforma invoice from the exporter, by applying for the issue of a documentary credit, the importer request his bank to make a promise of payment to the supplier. Obviously, the bank will only agree to this request if it can rely on reimbursement by the applicant. As a rule accepted as the sole security for the credit particularly if they are not the short of commodity that can be traded on an organized market, such an arrangement would involve the bank in excessive risk outside its specialist field. The applicant must therefore have adequate funds in the bank account or a credit line sufficient to cover the required amount.

Banks deal in documents and not in goods. Once the bank has issued the credits its obligation to pay is conditional on the presentation of the stipulated documents with in the prescribed time limit. The applicant cannot prevent a bank from honouring the documents on the grounds that the beneficiary has not delivered goods on redder reissues as contracted.

The importer submit the following documents before opening of the L/C:

a. Tax Identification Number (TIN) b. Valid Trade License. c. Import Registration Certificate (IRC) The Bank will supply the following documents before opening of the L/C: a. LCA form. b. Application and Agreement form. c. IMP form d. Necessary charge documents for documentation.

The above documents / papers must be completed duly signed and filled in by the party according to the instruction of the banker.

Foreign remittance Foreign Remittance Means purchase and sale of freely convertible forging currencies as admissible under exchange control regulation of the Country. We can say foreign remittance as the means of fund transfer from one place to another in foreign currency. This bank is authorized dealer to deal in foreign exchange business. As an authorized dealer, a bank must provide some services to the clients regarding foreign exchange and this department provides these services.

The basic function of this department is outward and inward remittances of foreign exchange from one country to9 another country. In the process of providing this remittance service, it sells and buys foreign currency. The conversion of one currency into another takes place an agreed rate of exchange, which the banker quotes, one for buying and another for selling. In such transactions the foreign currencies are like an other commodities offered for sales and purchase, the cost(convention value) being paid by the buyer in home currency, the legal tender.

Types of foreign Remittance There are two types of foreign remittanceIn ward foreign remittance Out ward foreign remittance.

In ward Foreign Remittance: Remittance comes from foreign countries to our country is called inward remittance. To the bankers or Ads inward remittance means purchase of foreign currency by authorized dealers.

Generally, inward remittances are received by Draft, Mail Transfer, TT, Purchase of Foreign Bills & Travelers Cheque, and Export Bills. Basically, these are the formal channels of receiving inward remittance.

Outward foreign Remittance All remittance from Bangladesh to as foreign country or local currency credited to nonresident take accounts of foreign banks or convertible Taka A/C constitutes “Outward foreign remittance” Modes of foreign Remittance: Inward Remittance In Ward Remittance Draft Mail

Telegraphic Transfer

Out ward Remittance Out Ward Remittance Demand Draft Mail Transfer

Purchase of Export Proceed Foreign Bills & Travelers Cheque

Telegraphic

L/C Payment

Telegraphic Transfer (TT)Telegraphic Transfer refers to the payment instruction by tested telex/cable or authenticated fax by bank in abroad on an inland bank(local/foreign bank). No9rmally foreign banks, with which corresponding banking relationship/ drawing prevails, send T.T. Foreign Demand Draft (FDD)The foreign bank/exchange company on local bank usually issues Foreign Demand Draft. It is an order to pay a certain sum to a certain person or as his instruction, issued by the bank on its overseas branch or on its correspondent bank. The demand draft is handed over to the purchaser who sends it to the beneficiary. The beneficiary obtains payment on presentation to the bank on which the draft is drawn.

Encashment of FDD may take place in two waysPurchase, Sending for collection.

Process of outward Foreign Remittance Fund transfer from home country to abroad is generally called outward foreign remittance.

Authorized dealers must exercise utmost caution to ensure that foreign currencies remitted or released by them are used only for the purpose for which they are realized.

Banks should also maintain returns to Bangladesh bank as also for the latter’s inspection from time to time.

In all cases of purchase of foreign currencies an application must be made to an AD and wherever necessary to Bangladesh bank.

For payment against import into Bangladesh the prescribed application form is IMP from and for other types of remittance from TM(travel and miscellaneous purposes)

Outward foreign remittance may be done through FTT(Foreign Telegraphic Transfer), MT,FDD, Sale of Bills, SALE OF TC & CURRENCY NOTES ETC. Education Prior approval of the Bangladesh bank is required to release foreign exchange for study of Bangladeshi students abroad at school level. However, Ads are allowed to release foreign exchange for admission and study by Bangladesh nationals in regular courses such as undergraduate, post graduate, language courses pre-requisite to degrees and professional diploma/ certificate course in recognized institution aboard subject to verification of bonafides according to the drill.

Medical Treatment Ads may limit foreign currency up to US$ 10000 for medical treatment abroad on the basis of recommendation of medical board constituted by the health directorate and cost estimate from the foreign medical institutions. Bonafide requirements in excess of US$ 10000 are accommodated by Bangladesh bank on written request supported by satisfactory documentation.

Private Travel Quota Bangladeshi nation as are entitled to take foreign currency in a calendar US$ 410000 per person for visi9t to SAARC members countries and Myanmar and US$ 3000 per person for visit to the other countries out of US$ 3000 for annuals quota US$ 1500 in cash and rest amount in TC. Process of Inward Foreign Remittance Fund coming from abroad to home country is calls foreign remittance. Money/remittance sent by expatriate Bangladeshi is one of the significant sources of inward flow of foreign exchange which plays and important role in the economy of the country. Like other banks, IFIC bank limited, facilitates two ways for rendering inward foreign remittance business.

Through banks Through exchange houses Process of Inward Foreign Remittance Through Banks Foreign remittance through banks includes TT, MT, FDD, purchase and collection of bills, purchase of drafts, traveler’s cheques and currency notes etc. Authorized dealers may freely purchase foreign currency but if the amount is equivalent US$ 42000 and above form C is required AND FOR BELLOW US$ 2000 form C is not required. In form C purpose of remittance should be certified and reported on EXP form.

Retention quota for merchandise exporters In general exported can retain in retention quota 7.00% but merchandise exporter may retain up to 40% of realized FOB value of their export in foreign currency account IN US$, UKP, DEM, YEN for export item with high import content. Fund can be drawn from this account to meet expense for bonafide business expense.

Student file open As we know that Bangladesh- Taka is not fully convertible. Only current account not capital account of our currency is convertible. But in case of students who studied abroad can take any amount for their study cost. Thus IFIC Bank Federation Branch opens student file to remit the costs to the respective institutes on behalf of the student subject to scrutinizing the appropriate documents issued from the registrar.

Process of Inward Remittance through Exchange Houses Now IFIC Bank provides all types of inward foreign remittance services under drawing arrangement to eater the need of the Customers; vizDemand Draft Service AC Credit Service under EFT basis Instant Cash Payment Service Draft Services -------------- Can not be ensured under pre-funded system as the branches make payment first to the debit of Motijheel Branch. The IBDAs are subsequently reversed to the debit of exchange House’s Ac with Motijheel Branch.

A/c Credit & Cash Credit Services---------------Are conducted under pre- funded system i.e. payment is made upon prior debit of exchange house’s Ac with Motijheel Branch.

Chapter Six Special Focus on foreign remittance-a NCC Bank View Remittance Business For last few years, in order to inspire the Non-Resident Bangladeshis (NRB) residing abroad to remit their hard earned foreign currency through legal Banking channel, NCC Bank has taken a number of steps. As part of this, agreement with various exchange companies tcover the globe has been made, which brought result beyond expectation. Last year, the Bank entered into a joint venture with TMSS- an NGO working for empowerment of women folks of the country under DFID funded propjet called RPCF and could reach even remote areas by using its 250 outlets. This is a unique idea of extending maximum service at minimum cost to the beneficiaries. Apart from this bank is regularly participating in various fairs around the world to motivate potential remittance senders. In 2008 the Bank received more than BDT 12098.18 million recording 62.53%

Workers’ Remittances The foreign exchange remittances from Bangladeshi nationals working abroad increased by US$ 105.42 million or 13.99% to US$ 859.00 million during January, 2009 as against US$ 753.58 million at the end of June, 2008. During July, 2008 to January, 2009 remittances increased by US$ 1212.48 million or 29.21% to US$ 5363.73 million compared to US$ 4151.25 million during the same period of last year.

Foreign Exchange Reserves Foreign Exchange Reserves held by the Bangladesh Bank stood at US$ 5577.10 million at the end of January, 2009 compared to US$ 6148.80 million at the end of June, 2008. This was higher by US$ 190.60 million or 3.54% compared to US$ 5386.50 million at the end of January, 2008.

Finding and Recommendation Findings 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 NCC Bank doesn’t give their attention on advertisement. As a competition market it is too much important for any organization to increasing their advertisements procedure.

Recommendations 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 we would like to give our 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 us 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.

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.

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.

Conclusion There are a number of Private Commercial Banks, Nationalized Commercial Banks and foreign Banks operating their activities in Bangladesh. The NCCBL is one of them. For the future planning and the successful operation for achieving its prime goal in this current competitive environment this report can be a helpful guideline.

From the practical point of view I can declare boldly that I really have enjoyed my internship at NCCBL from the first day. Moreover, internship program that is mandatory for my BBA program, although it is obviously helpful my further thinking about my career.

Banks always contribute towards the economic development of a country. Compared with other Banks NCCBL is contributing more by investing most of its funds in fruitful projects leading to increase in production of the country. It is obvious that right channel of Banking establish a successful network over the country and increases resources; will be able to play a considerable role in the portfolio of development in developing country like ours.

NCC Bank is now playing its leading role in the socio-economic development of the country.

NCC Bank has been rendering its Banking services with the needs of the nation to cope with the demands of the people in the country. By doing many other works for the state & the society, NCC Bank has been emerged as the pioneer of playing key role in the country.

Bibliography Books & Articles-------------NCC Bank Annual Report 2008 ‘Banking law and Practice ‘by SYED ASHRAF ALI & RA HOWLADER Foreign Exchange manual of NCC Bank Ltd. Web Sites-----------www.nccbank-bd.org www.bangladesh-bank.org www.dsebd.org