Overall banking activities of ific bank limited

Overall Banking Activities of IFIC Bank Limited

1.1 Introduction to the topic in Hand The commercial banks have been playing a commendable role in achieving the economics of growth Bangladesh. Default culture in many of the banks is a chronic problem. With the recent market economy concept, introduction of modern technology of banking sectors, there is severe competition in the world – banking environment. This also requires prudent use of bank fund through developing strategic plans & policies based on modern information technology & global knowledge. The most significant achievement of the financial sector reforms has been the marked improvement in the financial health of commercial banks in term of capital adequacy, profitability and asset quality as also greater attention to risk management. Further, deregulation has opened up investment banking, insurance credit cards, depository services, mortgage financing etc. At the same time, liberalization has brought greater competition among banks, both domestic and foreign. Positive fallout of competition is the greater choice available to consumers, and the increased level of sophistication and technology in banks. As banks increase in disclosures and transparency in bank balance sheets as also greater focus on cooperate governance.

1.2 Brief Introduction to the Organization International financial investment and commerce (IFIC) bank limited started banking operations on June 24, 1983. Prior of that it was set up in 1976 as a joint venture finance company at the instant of the government of the peoples republic of Bangladesh. Government then held 49 percent shares while the sponsors and general public held the rest. The objectives of the finance company were to establish venture banks finance companies and affiliates abroad and to carry out normal functions of a finance company at home. When the government decided to open up banking in the sector in 1983 the above finance company was converted a full-fledged commercial bank. Along with this the government also allowed four other commercial banks in the private sector. Subsequently the government denationalized two banks which were then fully government-owned. while in all these banks government is holding nominal 5 percent shares, an exception was made in the case of the bank. It retained 40 percent shares of the bank. The decision by the government to retain 40 percent shares in IFIC bank was in pursuance of the original Objectives, Namely, Promotion of the participation of government and private sponsor to establish joint venture banks shares is owned by the people republic of Bangladesh. Moreover 11.42% is owned by the board of directors and rest is owned by the share holders human resource development.

The bank human resource development & research division. The academy conducts regularly foundation courses specialized courses and seminars on different areas of banking to take care of the professional needs.

All kind of situations, internal and external, related to human resource is monitored through the HR department. Eventually this bank uses all the basic internal functions of HR to run the entire organization.

1.3 Organizational Philosophy The philosophy at IFIC is to lead the way everything they do, ranging from the commitment to the people, customers and the community to working in harmony with investors and regulators. Five values followed by IFIC are described below:  Responsive: IFIC is good on their word. They are accessible whenever and wherever the customers need them. Not only do they strive to deliver solutions, they also aim to exceed customer’s expectations.  Trustworthy: They respect the customers, and the life customers live. By understanding customers’ needs and tailoring the right financial solutions for customers, they earn trust.  Creative: Creative thinkers are not limited by convention. They allow their minds to soar beyond predictable solutions. That’s how IFIC approaches each challenge posed to the bank, which is why they base their products and services on ideas that are innovative, perceptive, and instinctive.  International: IFIC understand the balance between global and local. Customers trust them to be established and internationally-networked, while at the same time sensitive to the customer individual needs. Their strong network across cultures helps customers build stronger relationship based on ideas.  Courageous: A commitment to being there for customers, in good times and bad. They help customers achieve their aspirations by guiding them towards the right choice, not just the easy one.

2.1 Historical Background of the Organization International Finance Investment and Commerce Bank Limited (IFIC Bank) is banking company incorporated in the People’s Republic of Bangladesh with limited liability. It was set up at the instance of the Government in 1976 as a joint venture between the Government of Bangladesh and sponsors in the private sector with the objective of working as a finance c company within the country and setting up joint venture banks/financial institutions aboard. In 1983 when the Government allowed banks in the private sector, IFIC was converted into a full fledged commercial bank. The Government of the People’s Republic of Bangladesh now holds 35% of the share capital of the Bank.

Directors and Sponsors having vast experience in the field of trade and commerce own 11.42% of the share capital and the rest is held by the general public.

All types of commercial banking services are provided by the Bank within the stipulations laid down by the Bank Company Act, 1991 and directives issued by Bangladesh Bank from time to time.

Branches of the Bank at the end of 2009 stood at 82 (eighty two) and 05 (five) SME Service Centers all over Bangladesh. The Bank is listed with Dhaka and Chittagong Stock Exchange Limited as a publicly quoted company for its “A Class� ordinary shares.

2.2 Industry Scenario: Banking system plays a very important role in the economic life of the nation. The health of the economy is closely related to the soundness of its banking system. In a developing country like Bangladesh the banking system as a whole play a vital role in the progress of economic development.

A bank as a matter of is just fact like a heart in the economic structure and the Capital provided by it is like blood in it. As long as blood is in circulation the organs will remain Sound and healthy. If the blood is not supplied to any organ then that part would become useless. So if the finance is not provided to agriculture sector or industrial sector, it will be destroyed. Loan facility provided by banks works as an incentive to the producer to increase the production. Banking is now an essential part of our economic system. Modern trade and commerce would almost be impossible without the availability of suitable banking services. First of all, banking promotes savings. All manner of people, from the ordinary laborers and workers to the rich land owners and businessmen, can keep their money safely in banks and Saving centers. Secondly, banking promotes investments. Banks easily invest the money they get in industry, agriculture and trade. They either invest it directly or advance loans to other investors. Thirdly, it is most through banks that foreign trade is carried on. Whether we export or import, it is through banks that money is transferred from one country to another. For example, bills of exchange and letters of credit are the regular ways banks use to transfer money. A number of recent studies, however, indicate that the banking sector plays a more important role than it was believed earlier (World Bank, 1996; Almeyda) In Bangladesh Sonali Bank is the largest among the Nationalized Commercial Banks (NCBs) while Pubali is leading in the private ones. Among the 12 foreign banks, Standard Chartered has become the largest in the country.

2.3 Banking Sector Performance The banking sector of Bangladesh comprises of four categories of scheduled banks. These are stateowned commercial banks (SCBs), state-owned development finance institutions (DFIs), private commercial banks (PCBs) and foreign commercial banks FCBs). The number of banks remained 51. Bangladesh Bank (BB) continued to focus on strengthening the financial system and improving functioning of the various segments. The broad parameters of the reforms undertaken during the year comprised ongoing deregulation of the

operation of institutions within the BB's regulatory ambit, tightening of prudential regulation and improvement in supervisory oversight, expanding transparency and market disclosure, all with a view to improving overall efficiency and stability of the financial system.

Scheduled banks, Samabai (Cooperative) Bank, Ansar-VDP Bank, Karmasansthan (Employment) Bank and Grameen bank are functioning in the financial sector. In Bangladesh the number of total branches of all scheduled banks is 6,038. Of the branches, 39.95 per cent (2,412) are located in the urban areas and 60.05 per cent (3,626) in the rural areas. Of the branches NCBs hold 3,616, private commercial banks 1,214, foreign banks 31 and specialized banks1, 177. (International Journal of Business and Management 2009).

During the year 2009, the Banking Sector of Bangladesh witnessed significant growth in terms of deposits, advances, foreign exchange business and inflow of foreign remittances. Most of the banks were able to generate substantial operational profits.

Total deposits in the banking sector stood at Tk. 2,866,092 million at the end of the December, 2009 as against Tk. 2,343,147 million in 2008 marking a growth of 22.32%. total loans and advances stood at Tk. 2,401,649 million at the end of December, 2009 as against Tk. 1,995,304 million of 2008 registering a growth of 20.37%. like preceding years, PCBs retained the leadership both in procuring deposits and disbursing loans and advances. This performance of banking sector was due to adaptation of effective policies and measures by the concerned banks as well as Central Bank. During the year, IFIC Bank showed positive growth in all business indicates except foreign exchange business and made operational profit of Tk. 2070.00 million, registering a growth of 16.85% over the previous year.

3.1 The objectives of the study may be articulated as follows— 1.

To present a historical background of the organization, that is, the historical background of the IFIC Bank Limited.

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To make a review of the banking industry as a whole in the context of Bangladesh.

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To make an extensive literature review encompassing the classifications of financial institutions and the functions of commercial banks.

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To enumerate the functions performed by IFIC Bank Limited as a scheduled commercial bank.

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To put forward some suggestions for the purpose of improving the service quality of the IFIC Bank Limited.

4.1 The methodology of the study can be briefly described in terms of the following components — 1. Nature of Data: The data collected for the purpose of this study are basically secondary in nature. Data were collected from different internal sources of the IFIC Bank limited.

The author of this report was placed as an internship student in the aforementioned bank.

Therefore different observational methods were also used to generate the useful insights regarding the functions of this very bank.

2. Sampling: As it has already been mentioned, the author of this report worked as an internship student in the IFIC Bank limited. The sample was confined to the Elephant Road Branch of the IFIC Bank Limited and this very branch was used as the sampling unit for this study. Since no primary data were collected, additional sampling issues are not relevant.

3. Area and Scope of the Study: The area covered and scope of this study can be clarified as follows: a. Area: Elephant Road Branch of IFIC Bank Limited, Dhaka, Bangladesh. b. Scope: The entire study was confined to the aforesaid branch in particular and to the IFIC Bank Limited in general. The time of the study was 13 th October, 2010 to 20th January, 2011.

5.1 Functions of Commercial Banks: A. Introduction: You have studied in the earlier lesson about different types of banks and their nature. It may be of interest to you now to know about the various services/functions performed by commercial banks. In this lesson, you will study about the various services provided by commercial banks to the business community in particular and the public in general.

B. Objectives: After studying this lesson, you will be able to •

l describe the various functions of commercial banks;

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l differentiate between primary and secondary functions of commercial banks;

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l classify and discuss the primary functions of modern commercial banks;

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l enumerate the various modes of acceptance of deposits;

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l identify various methods of granting loans;

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l describe agency and general utility services of modern commercial banks.

C. Functions of Commercial Banks: The functions of a commercial banks are divided into two categories: i) Primary functions, and ii) Secondary functions including agency functions. i) Primary functions: The primary functions of a commercial bank include: a) Accepting deposits; and b) Granting loans and advances; a) Accepting deposits: The most important activity of a commercial bank is to mobilize deposits from the public. People who have surplus income and savings find it convenient to deposit the amounts with banks.

Depending upon the nature of deposits, funds deposited with bank also earn interest. Thus, deposits with the bank grow along with the interest earned. If the rate of interest is higher, public are motivated to deposit more funds with the bank. There is also safety of funds deposited with the bank. b) Grant of loans and advances: The second important function of a commercial bank is to grant loans and advances. Such loans and advances are given to members of the public and to the business community at a higher rate of interest than allowed by banks on various deposit accounts. The rate of interest charged on loans and advances varies depending upon the purpose, period and the mode of repayment. The difference between the rate of interest allowed on deposits and the rate charged on the Loans is the main source of a bank’s income.

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Loans:

A loan is granted for a specific time period. Generally, commercial banks grant short-term loans. But term loans, that is, loan for more than a year, may also be granted.

The borrower may withdraw the entire amount in lump sum or in installments. However, interest is charged on the full amount of loan. Loans are generally granted against the security of certain assets. A loan may be repaid either in lump sum or in installments.

The loan can be granted as: •

Demand loan, or

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Term loan •

Demand loan:

Demand loan is repayable on demand. In other words it is repayable at short notice. The entire amount of demand loan is disbursed at one time and the borrower has to pay interest on it.

The borrower can repay the loan either in lump sum (one time) or as agreed with the bank. Loans are normally granted by the bank against tangible securities including securities like N.S.C., Kisan Vikas Patra, Life Insurance policies and U.T.I. certificates.

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Term loans:

Medium and long term loans are called ‘Term loans’. Term loans are granted for more than one year and repayment of such loans is spread over a longer period. The repayment is generally made in suitable installments of fixed amount. These loans are repayable over a period of 5 years and maximum up to 15 years.

Term loan is required for the purpose of setting up of new business activity, renovation, modernization, expansion/extension of existing units, purchase of plant and machinery, vehicles, land for setting up a factory, construction of factory building or purchase of other immovable assets. These loans are generally secured against the mortgage of land, plant and machinery, building and other securities. The normal rate of interest charged for such loans is generally quite high.

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Advances:

An advance is a credit facility provided by the bank to its customers. It differs from loan in the sense that loans may be granted for longer period, but advances are normally granted for a short period of time. Further the purpose of granting advances is to meet the day to day requirements of business. The rate of interest charged on advances varies from bank to bank. Interest is charged only on the amount withdrawn and not on the sanctioned amount. Modes of short-term financial assistance Banks grant short-term financial assistance by way of: o

Cash credit:

Cash credit is an arrangement whereby the bank allows the borrower to draw amounts upto a specified limit. The amount is credited to the account of the customer. The customer can withdraw this amount as and when he requires. Interest is charged on the amount actually withdrawn. Cash Credit is granted as per agreed terms and conditions with the customers. o

Overdraft:

Overdraft is also a credit facility granted by bank. A customer who has a current account with the bank is allowed to withdraw more than the amount of credit balance in his account. It is a temporary arrangement. Overdraft facility with a specified limit is allowed either on the security of assets, or on personal security, or both. o

Discounting of Bills:

Banks provide short-term finance by discounting bills, that is, making payment of the amount before the due date of the bills after deducting a certain rate of discount. The party gets the funds without

waiting for the date of maturity of the bills. In case any bill is dishonored on the due date, the bank can recover the amount from the customer. ii) Secondary functions: Besides the primary functions of accepting deposits and lending money, banks perform a number of other functions which are called secondary functions. These are as follows a) Issuing letters of credit, travelers cheques, circular notes etc. b) Undertaking safe custody of valuables, important documents, and securities by providing safe deposit vaults or lockers; c) Providing customers with facilities of foreign exchange. d) Transferring money from one place to another; and from one branch to another branch of the bank. e) Standing guarantee on behalf of its customers, for making payments for purchase of goods, machinery, vehicles etc. f) Collecting and supplying business information; g) Issuing demand drafts and pay orders; and, h) Providing reports on the credit worthiness of customers.

D. Different modes of Acceptance of Deposits: Banks receive money from the public by way of deposits. The following types of deposits are usually received by banks: i) Current deposit ii) Saving deposit iii) Fixed deposit iv) Recurring deposit v) Miscellaneous deposits i) Current Deposit: Also called ‘demand deposit’, current deposit can be withdrawn by the depositor at any time by cheques. Businessmen generally open current accounts with banks. Current accounts do not carry any interest as the amount deposited in these accounts is repayable on demand without any restriction. The Reserve bank of India prohibits payment of interest on current accounts or on deposits upto 14 Days or less except where prior sanction has been obtained. Banks usually charge a small amount known as incidental charges on current deposit accounts depending on the number of transaction. ii) Savings deposit/Savings Bank Accounts: Savings deposit account is meant for individuals who wish to deposit small amounts out of their current income. It helps in safe guarding their future and also earning interest on the savings. A saving account can be opened with or without cheque book facility. There are restrictions on the withdrawals from this account. Savings account holders are also allowed to deposit cheques, drafts, dividend warrants, etc. drawn in their favour for collection by the

bank. To open a savings account, it is necessary for the depositor to be introduced by a person having a current or savings account with the same bank. iii) Fixed deposit: The term ‘Fixed deposit’ means deposit repayable after the expiry of a specified period. Since it is repayable only after a fixed period of time, which is to be determined at the time of opening of the account, it is also known as time deposit. Fixed deposits are most useful for a commercial bank. Since they are repayable only after a fixed period, the bank may invest these funds more profitably by lending at higher rates of interest and for relatively longer periods. The rate of interest on fixed deposits depends upon the period of deposits. The longer the period, the higher is the rate of interest offered. The rate of interest to be allowed on fixed deposits is governed by rules laid down by the Reserve Bank of India. iv) Recurring Deposits: Recurring Deposits are gaining wide popularity these days. Under this type of deposit, the depositor is required to deposit a fixed amount of money every month for a specific period of time. Each installment may vary from Rs.5/- to Rs.500/- or more per month and the period of account may vary from 12 months to 10 years. After the completion of the specified period, the customer gets back all his deposits along with the cumulative interest accrued on the deposits. v) Miscellaneous Deposits: Banks have introduced several deposit schemes to attract deposits from different types of people, like Home Construction deposit scheme, Sickness Benefit deposit scheme, Children Gift plan, Old age pension scheme, Mini deposit scheme, etc.

5.2 The Classification of Financial Institutions: During recent years there has been a great growth in both the number and the varieties of institutions of a financial nature. Especially has this been true during the war. The growth has been both progressive and cumulative. To use a well-recognized illustration referring to a somewhat earlier period, the trust company had its inception in connection with insurance business, particularly in connection with such kinds as title insurance. As the years went by, insurance and fiduciary business were increasingly recognized as separate and distinct, so that roughly by the time of the Civil War they were fairly well separated. Subsequently too, a change became noted in the character of the fiduciary business of the trust company. Whereas the earlier trusts had been largely individual in nature, with the rise of the corporation various corporate trusts developed and became of increasing importance. Particularly of course was this the case in the larger centers, so that in a considerable number of cases the corporate trust business has come to overshadow the individual trust business. At the same time, moreover, it has been found that banking is a kind of natural adjunct to trust business and in all but a few states

banking-including the reception of both time and demand deposits-is now combined with trust business. Commercial banks likewise have added trust departments, so that the modern department store of finance is now definitely with us. While this movement of integration has been taking place, a movement toward specialization has developed in certain directions. Particularly is this the case with the newer financial institutions. Institutions conducting business of one kind or another which is related to finance have multiplied. The result is that the field at present presents a very complex appearance. In particular the problem arises of classifying the newer institutions and determining exactly where they "fit into" the existing financial structure. It is well illustrated in considering the ordinary discussions of the field of banking. The older tendency has been to neglect these institutions entirely and confine the discussion to the traditional banking field, discussing very largely commercial banking and mentioning savings banking incidentally. On the other hand those writers who have attempted to envisage the newer institutions also have been confining their efforts largely to mere enumeration and description of the operations of these institutions. Little attempt has been made to definitely relate them to other banking institutions or to consider their exact place in the realm of finance. In considering the great number of organizations in the general field at the present time, it is important to remember that the significant thing is the type of operation or operations in which they are engaged, not the total business which any given organization does. One organization may do several types of business which fundamentally are unrelated.

In short, attention should be directed not to structure, but to function. We should pay attention to each type of operation, for only in this way is it possible to obtain a clear understanding of the field.

Considering the matter from this point of view, we may suggest a definite method of classifying these institutions. At present the classification is largely according to whether the institution is, (i) public or private in nature, and (2) whether it belongs in the commercial or the investment field. From the point of view of understanding the variety of institutions which have arisen, a third classification is highly desirable, namely, according to method of operation. By this means we also are enabled to see definitely the relation which the financial institutions bear to the traditional banking field and at what points they touch upon that field. In considering the method of operation, we must, however, exclude trust or fiduciary business. This is essentially a purely legal category, which is auxiliary to and aids the financial aspect. Bearing this in mind there are three general methods of operations. The first is by means of deposits. That is to say, funds are assembled by an agency, generally called a bank, from a series of individuals or enterprises, whose interest as depositors is continuous, and these assembled deposits are applied by the agency in various directions. The agency or organization stands as intermediary between those from whom it receives deposits and those to whom it makes loans or in whose obligations it invests, but it itself continues at all times to have dealings with both classes.

Distinct from this is operation by means of mediation. Certain institutions are engaged entirely in

merely purchasing and selling. Each purchase and sale is distinct and the relation between the purchaser and the seller closes at once. The third method is operation by means of the application supplied and no obligations are dealt in, but credit is merely guaranteed or insured. In case the original debtor fails to make payment, the organization which guarantees or insures the credit, agrees in his place to make good. This may be done in one of several ways, but the essential principleis the same in all cases. Further description of each of these three fields is desirable. The deposit principle is, of course, applicable in a number of ways. The ordinary bank provides the major illustration, but, on the other hand, the co-operative feature may be introduced. This is illustrated in the case of the mutual savings bank, in which there is lenders' or savers' co-operation. This may be carried one step further and co-operation among borrowers may be introduced. In other words, the building and loan association, the savings and loan association and the credit union all fall within this general field. It should not be forgotten, of course, that the commercial banks, in operating by means of the deposit principle, creates deposit currency, at the same time that it serves as an agency for the supply of funds. Operation by means of the mediation principle is of several distinct classes. Most simple is pure brokerage, in which the securities, paper, or other obligations are merely sold on commission. In this case the institution supplies no funds. Purchase of obligations and resale of them, but without endorsement, constitutes a second class. Here of course, the institution does supply funds. The commercial paper dealer or the ordinary investment banker well illustrates this method of operation.

The institution may go one step farther. It may purchase obligations and resell them with its own endorsement as, for example, in the case of the cattle loan company. Finally, the organization may purchase securities and resell, not these obligations, but its own obligations instead, perhaps using the other obligations which it has purchased as collateral. This last type is illustrated by the discount company which purchases receivables, as well as by the real estate mortgage banker and by the Edge Law corporations. The obligations which it resells may be in the nature, for example, either of collateral trust notes or of debenture bonds. It should be noted that the deposit method of operation and the mediation method of operation (including the four subtypes) may be applied either in the commercial or in the investment sphere or in both. The cattle loan company, for example, makes feeder loans which fall definitely in the commercial sphere, while at the same time it makes stocker loans which fall within the investment sphere. Similarly the commercial paper house in many respects, perhaps in most, is the counterpart in the commercial sphere of the investment banker in the investment sphere. Furthermore any single house may operate by means of two methods, conducting part of its business by one means and part by another. The investment trust, for example, may either purchase securities and resell these with endorsement, or it may sell its own obligations instead.

Likewise an organization financing sales on the installment plan, such as in connection with retail sales of automobiles, furniture, and pianos, may obtain part of its funds by means of collateral trust notes and part through the issue of debenture bonds. Finally, it should be borne in mind that the growth of these financial institutions has been in considerable measure along the line of specialization

of industries. Thus we have, for example, automobile finance companies, real estate mortgage bankers, cattle loan companies, etc. Some further specialization exists according to type of business.

Thus we have commercial paper dealers, acceptance dealers, and investment bankers. The third method of operation is by means of the principle of surety ship. This is a more recent development, in the United States at least, and is more in process of development than is the case with certain of the other methods indicated above. As already indicated, it is applied in several distinct ways. The acceptance house abroad, or in the United States the bank which accepts and thereby creates bankers' acceptances, well illustrates one method. It does not in itself supply funds, of course, but merely creates its own obligation to pay, for which it expects to be put in funds, however, by the borrower prior to maturity. Surety ship may also be accomplished in another way. The credit insurance company stands ready to insure the accounts of merchants and to make good abnormal losses which occur. The difference from acceptance will, of course, readily be perceived, but at heart the two methods illustrate the application of the surety ship principle to the financial field. The following table illustrates the classification suggested above of financial institutions according to method of operation. For the sake of convenience, commercial banking has been regarded as typified by the commercial bank and similarly with the other operating methods. It should be borne in mind, however, as indicated above, that the essential distinction is one of method of operation or function and not one of structure.

CLASSIFICATION OF FINANCIAL INSTITUTIONS ACCORDING TO METHOD OF OPERATION

6.1 The Bank in a Sketch: International Finance Investment and Commerce Bank Limited (IFIC Bank) is a banking company incorporated in the People’s Republic of Bangladesh with limited liability. It was set up at the instance of the Government in 1976 as a joint venture between the Government of Bangladesh and sponsors in the private sector with the objective of working as a finance company within the country and setting up joint venture banks/financial institutions abroad. The Government held 49 per cent shares and the rest 51 per cent were held by the sponsors and general public. In 1983 when the Government allowed banks in the private sector, IFIC was converted into a fullfledged commercial bank.

6.2 Bank’s Mission: The Bank’s Mission is to provide service to its clients with the help of a skilled and dedicated workforce whose creative talents, innovative actions and competitive edge make its position unique in giving quality service to all institutions and individuals that the bank cares for.

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The bank is committed to the welfare and economic prosperity of the people and the community, for it drive from them it’s inspiration and drive for onward progress to prosperity.

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The bank want to be the leader among banks in Bangladesh and make it’s indelible mark as an active partner in regional banking operating beyond the national boundary.

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In an intensely competitive and complex financial and business environment, the bank particularly focuses on growth and profitability of all concerned.

6.3 Ownership Structure: Previously IFIC Bank Ltd was Government owned bank. Now the government of the Peoples Republic of Bangladesh holds 35% of shares of the bank. Leading industrialists of the country own 34% of the shares and the rest is held by the general public. The founder of IFIC Bank Ltd was Jahurul Islam of Islam Group of Industries. He was the first Chairman and A.S. F. Rahman was first Vice Chairman. Board of Directors of the Bank is a unique combination of both private and Government sector experience. Currently it consists of 10 Director. Of them eight represent the sponsors and general public and four officials in the rank and status of Additional Secretary/Joint Secretary represent the Government 6.4 Objectives of the Bank: The objectives of the bank are to promote joint participation of Government and private sponsors to establish joint venture banks, financial companies, branches and affiliates abroad to satisfy their customers.

It conveys its objective via their motto: “Your Satisfaction First.”

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To form, establish and organize any bank, company, institution or organization, singly and/or in joint-collaboration for partnership with any individual, company, financial institution, bank, organization, or any Government and/or Government agency for- the purpose of carrying on banking, financial, investment and trust business and/or any other business as provided hereafter.

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To carry on any business relating to Wage Earner's Scheme as may be allowed by Bangladesh Bank from time to time including maintaining of Foreign Currency Accounts and any other matter related thereto. To contract or negotiate all kinds of loan, and or assistance, private or public, from any source, local or foreign, and to take all such steps as may be required to complete such deals.

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To form, promote, organize, assist, participate or aid in forming, promoting or organizin any company, bank, syndicate, consortium, and institute or any holding or subsidiary company in Bangladesh or abroad for the purpose of undertaking any banking, financial, investment or trust g business.

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To take part in the formation, management, supervision or control of the business or operations of any company or undertaking and for that purpose to render technical, managerial and administrative services and act as administrator, manager and secretary.

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To purchase, or otherwise acquire, undertake, the whole or any part of or any interest in the business, goodwill, property, contract, agreement, right, private assets and liabilities of any other company, bank, corporation, partnership, body person or persons carrying on, or having ceased to carry on, any business which the company is authorized to carry on, upon such terms and may be deemed expedient.

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To encourage, sponsor and facilitate participation of private capital in financial, industrial or commercial investments, shares and securities and in particular by providing finance in the form of long, medium or short term loans or share participation by way of subscription to the promoter shares or underwriting support or bridge finance loans and/or by any manner.

6.5 Strategies: IFIC Bank Limited mainly follows top down approach to take necessary decisions for the company.

Basically they follow the centralize strategy where the Head Office of the Bank control and monitor all the activities of its branches. In case of marketing strategy they basically depend on ‘word of mouth’ as they are already well reputed for its long-term service in the banking industry.

6.6 Capital and Reserves IFIC bank has been consistently maintaining the ‘Capital Adequacy Ratio’, as prescribed by Bangladesh Bank. This has been made possible by a policy of building up both capital and reserves. It started with an Authorized and Paid up capital of Tk.100 million and Tk.63.20 million respectively in 1983. Authorized and paid up capital increased to Tk.500 million and Tk.406.39 million respectively in 2006.

6.7 Strength & Performance With the active support and guidance from the Government, Central Bank, clients and patrons, the Bank has been maintaining sound financial strength and showing a steady and impressive business performance. IFIC Bank is one of the few mentionable banks which maintains Capital Adequacy ratio and has more than required provision as per Bangladesh Bank criteria.

6.8 Organization Structure & Responsibilities The thirteen members of the Board of Directors are responsible for the strategic planning and overall policy guidelines of the Bank. Further, there is an Executive Committee of the Board to dispose of urgent business proposals.

There is an Asset Liability Committee comprising member of the Senior Executives headed by CEO and Managing Director to look into all operational functions and Risk Management of the Bank. The workflow of the organizational structure is given below:

6.9 Hierarchy of the Management of IFIC Bank Ltd:

Senior Executive Vice-President Executive Vice-President Senior Vice-President First Vice-President Vice-President Senior Asstt. Vice-President First Asstt. Vice-President Asstt. Vice-President Senior Staff Officer (SSO) Staff Officer (SO) Officer Grade-I Probationary Officer Officer Grade-II Assistant Officer Officer Assistant Driver Officer Attendant Security Staff

6.10 Products & Services

Remittance Services

SWIFT for Foreign Trade

ATM Services

Asset MGMT

Retail Banking Corporate Banking Trade Finance Project Finance Small Enterprise Finance Consumer Finance Syndications

Collection Services

Cash MGMT Service

Payment & Clearings

Treasury Services

Employee Benefits

Safe Deposit Locker Services

6.11 Information Technology Structure Present information technology structure of IFIC Bank Since the beginning of its journey as a commercial bank in 1983, IFIC Bank has been giving great emphasis on the adoption of modern technology. It became the pioneer in the field of automation by introducing computerized branch banking right in the same year. Subsequently, all the branches were brought under similar automated platforms with upgraded software applications to offer all the critical banking features. At present all 65 domestic branches are fully computerized under networked environment.

The Bank has taken up a new project with Misys International Banking System Inc. (UK) to further upgrade its banking operation to state-of-art world class on-line banking solutions to provide faster and even more convenient centralized services to the clients.

Besides, the Bank is also operating fully on-line Automated Teller Machine (ATM) services under the banner Q-Cash at a number of locations in Dhaka and Chittagong. The ATM facilities are available to the customers at Q-Cash booth.

Since the importance of Web presence in the Internet is absolutely critical, IFIC Web Site www.ificbankbd.com has long been launched for the convenience of the customers, where all the activities and information are constantly being posted and updated. A Central Mailing System is operational at the Head Office to let the customers have direct electronic access to the selected staff.

A. Computer System B. Computerized Services C. Future Computerization

6.12 Milestones in the Development of IFIC Bank 1976 - Established as an Investment & Finance Company under arrangement of joint venture with the Govt. of Bangladesh.

1980 - Commenced operation in Foreign Exchange Business in a limited scale.

1982 - Obtained permission from the Govt. to operate as a commercial Bank.

1983 - Setup its first overseas joint venture (Bank of Maldives) on the Republic of Maldives.

- Commenced operation as a full-fledged commercial Bank in Bangladesh.

1985 - Set up a joint venture Exchange Company in the Sultanate of Oman.

1987 - Set up its first overseas branch in Pakistan at Karachi.

1993 - Set up its second overseas branch in Pakistan at Lahore.

1994 - Set up its first joint venture in Nepal for banking operation.

1999 - Set up its second joint venture in Nepal for lease financing.

2003 - Bank celebrated its 20th founding anniversary.

- Overseas Branches in Pakistan amalgamated with NDLC, to establish a joint

venture Bank:

NDLC-IFIC Bank Ltd. subsequently renamed as NIB Bank Ltd. 2008 – Bank celebrated its 25th founding anniversary.

6.13 Management Structure The thirteen members of the Board of Directors are responsible for the strategic planning and overall policy guidelines of the Bank. Further, there is an Executive Committee of the Board to dispose of urgent business proposals.

Besides, there is an Audit Committee in the Board to oversee compliance of major regulatory and operational issues.

The CEO and Managing Director, Deputy Managing Director and Head of Divisions are responsible for achieving business goals and overseeing the day to day operation.

The CEO and Managing Director are assisted by a Senior Management Group consisting of Deputy Managing Director and Head of Divisions who supervise operation of various Divisions centrally and co-ordinates operation of branches.

Key issues are managed by a Management Committee headed by the CEO and Managing Director.

This facilitates rapid decisions.

There is an Asset Liability Committee comprising member of the Senior Executives headed by CEO and Managing Director to look into all operational functions and Risk Management of the Bank.

6.14 Risk Management In view of the global recognition towards need of an effective risk management and control systems in financial sector, IFIC Bank being cognizant of the importance of the subject, has prepared and implemented the following policy guidelines on Risk Management: • Credit Risk Management • Asset Liability Management • Foreign Exchange Risk Management • Internal Control & Compliance • Prevention of Money Laundering

6.15 New Products Besides providing traditional services in the areas like, deposit, advance, import-export financing, remittance and collection, treasury operations and lockers, the Bank has in the recent years introduced a good number of new products to meet the increasing demands of the clients and the members of the public. Some of them are Visa Credit cards, ATMs (Automated Teller Machine), Phone Banking, Pension Savings Scheme, Death Risk Benefit Scheme, Monthly Income Scheme and Consumer Credit Scheme, Education Assistance Plan (Deposit Scheme).

6.16 Joint Ventures Abroad Bank of Maldives Limited IFIC is the first among the banks in the private sector to have operations abroad. In 1983, the Bank set up a joint venture bank in Maldives known as 'Bank of Maldives Limited' (BML) at the request of the Government of the Republic of Maldives.

This is the only national bank in that country having branches throughout that country. IFIC Bank managed the affairs of BML from 1983 to 1992. IFIC Bank sold its shares in 1992 to the Government of the Republic of Maldives and handed over the Management of BML to Maldives Government.

NIB Bank Ltd., Pakistan: IFIC Bank had two branches in Pakistan, one in Karachi and the other in Lahore. Karachi Branch was opened on 26th April 1987, while Lahore Branch was opened on 23rd December 1993.

To meet the Minimum Capital Requirement (MCR) of the State Bank of Pakistan, the Overseas Branches in Pakistan have been amalgamated with a reputed leasing company in Pakistan named National Development Leasing Corporation Ltd. Therefore, the existence of our above Overseas Branches has ceased w.e.f. 2nd October 2003 and a new joint venture bank entitled NDLC - IFIC Bank Ltd. emerged in Pakistan w.e.f. 3rd October 2003. The Bank was subsequently renamed as NIB Bank Ltd. IFIC Bank presently holds 7.31% equity in the Bank.

Nepal Bangladesh Bank Ltd. (NB Bank) Nepal Bangladesh Bank Ltd. (NB Bank), a joint venture commercial bank between IFIC Bank Ltd. and Nepal nationals, started operation with effect from June 06, 1994 in Nepal with 50% equity from IFIC Bank Ltd. The Bank has so far opened 17 (seventeen) branches at different important locations in Nepal. IFIC Bank presently holds 25% shares in NB Bank.

Nepal Bangladesh Finance & Leasing Limited (NB Finance): Nepal Bangladesh Finance & Leasing Co. Ltd. (subsequently renamed as Nepal Bangladesh Finance & Leasing Ltd.), another joint venture leasing company between IFIC Bank Ltd. and Nepali Nationals, started its operation on April 18, 1999 in Nepal. IFIC Bank presently holds 15% share in the company.

Oman International Exchange LLC (OIE) Oman International Exchange LLC (OIE), a joint venture between IFIC Bank Limited and Oman nationals, was established in 1985 to facilitate remittance by Bangladeshi wage earners in Oman. IFIC Bank holds 25% shares, and the balance 75% is held by the Omani sponsors. The exchange company has a network of 10 branches covering all the major cities/towns of Oman. The operations of the branches are fully computerized having online system.

The affairs and business of the company is run and managed by the Bank under a Management Contract. •

BANK’S MAJOR FUNCTIONAL DEPARTMENTS & THEIR ACTIVITIES

All this products and services are implemented properly with the help of many departments. The functions of those departments are: GENERAL BANKING DIVISION A wide range of products and services different type of deposits such as SB, CD, FDR etc are offered by this department. Local private banks is biggest threat a they offer higher interest rate and better services.

A. Account Opening Department: IFIC bank has maintained different types of account for different purposes.

The last two accounts are created in loan purpose. Other types of account are usual purpose. The different account opening producers will be discussed in detail in the forward topics. i) Current Account: Most business current deposit accounts in order to make their daily business activities. This account funds change most frequently than any other accounts because customers use to withdraw and deposit funds in regular basis. i.a) Opening Current Accounts:

• Filling up the application form of CD account • 2 (Two) copies of photographs.

• Introducers who has account on that particulars branch.

• For clubs requires regulations & by laws, registration of the club.

• For partnership account requires partnership deed.

• For private limited company requires articles • For public limited company requires articles, memorandum, certificate of commencement certificate of incorporation, resolution, list of directors etc i.b) Facilities of Current Account

• Minimum required balance Tk. 2,000/•

Debit card facility

• ATM facility •

Online banking facility

• SMS banking facility • Utility payment service • Transfer of fund from one branch to another • Opportunity for availing locker facility ii) Saving Bank Deposit (SB): Saving bank deposit is another popular account maintains a bank. Saving deposit are suitable for savers who want to save for meeting future needs. These deposit accounts are for people who do not want to keep money for fixed long period. It is a midway between current deposits and fixed deposits.

The different matters relating SB account are described in the following discussion: ii.a) Opening Saving Accounts:

• Filling up the application form of SB account • 2 (Two) copies of photographs.

• Introducers who has account on that particulars branch.

• An initial amount of money Tk. 2010.

• For clubs requires regulations & by laws, registration of the club.

• For partnership account requires partnership deed.

• For private limited company requires articles.

•

For public limited company requires articles, memorandum, certificate of commencement certificate of inco0rporation, resolution, list of directors etc.

ii.b) Facilities of Savings account:

• Initial Deposit: Tk. 500.00 at rural branches & Tk. 1000/- for urban branches which should be considered as minimum balance.

• Competitive Interest Rate • Debit Card facility • SMS Banking Facility • ATM facility • Online banking facility • Utility payment service • Transfer of fund from one branch to another • Opportunity for availing locker facility iii) Opening Short Term Deposit (STD) Account: The account may be opened in current individual/ proprietorship/ partnership/ limited co. account forms as the case may be, depending and the nature of the constituent. Specimen signature shall be obtained in CD specimen signature card. iii.a) Operating of the Accounts:

•

Withdrawal form the account will be made by cheque/amount may be transferred as per request letter of the customer.

•

The date of withdrawal given in the notice shall be recorded in the relative account.

•

If an account is required to be operated like a CD, then the same is closed immediately and the customer be requested to open a CD account instead.

iii.b) Payment of Interest: No interest shall be allowed if due notice are not received for withdrawal from the account. Any Exception will require prior approval of the head office. Interest will be allowed on the daily at all credit of the STD account. The amounts are being calculated and applied half-yearly, at the end of June and December on when an account is closed. iii.c) No Interest will be given if:

• Any withdrawal made over Tk. 50,000/- without notice.

• Two times withdrawal within a week. One over Tk. 25,000/- withdrawal.

• Any day balance below Tk. 1000/• If withdrawal is 25% of total balance.

• More then two withdrawals in a week.

iv) Fixed Deposit Receipt (FDR): iv.a) Category of FDR Accounts: IFIC offers the following category of FDR accounts FDR (3 Months & above) Less than Tk. 1.00 crore Tk. 1.00 crore and above but less than Tk. 5.00 crore.

Tk. 5.00 crore and above FDR (6 Months & above) Less than Tk. 1.00 crore Tk. 1.00 crore and above but less than Tk. 5.00 crore.

Tk. 5.00 crore and above FDR (1 Year) Less than Tk. 1.00 crore Tk. 1.00 crore and above but less than Tk. 5.00 crore.

Tk. 5.00 crore and above

8.25% 8.50% 9.00% 8.25% 8.50% 9.25% 8.00% 8.25% 9.50%

iv.b) Different Provision For FDR minimum period is one month and maximum period 1 year. But after 1 year if client not withdraw the amount then FDR automatically renew. FDR may be joint or individual. iv.c) Payment on Maturity:

• After maturity period the customers gets the interest plus principal back.

• If customer wants to withdrawal money from FDR account before maturity then interest will be changed as penalty.

• If customer wants to withdrawal money from FDR account before maturity then they will get only saving interest rate. iv.d) Renewal of FDR: If the customer not withdraws the FDR amount then it renewal for next period. The renewed period shall be count as FDR rate of those times. iv.e) Payment on Death: It is critical process when FDR holder dies. The rest of the family members must have to submit the following documents:

1) Succession Certificate of Court mentioning, who get & what portion.

2) Death Certificate: The payee must make an application including the above documents. The branch forwards it to the head office. It is very important to note that in these cases, the bank have to be very careful.

Some FDR mention either or survivor, in this case survivor will get the amount of FDR. iv.f) Duplication: If the customers lost the FDR receipts, then he has to make application to the bank by filling up an indemnity bond. For duplicate FDR IFIC charges will be applicable. iv.g) FDR Block: A receipt, given to the applicant after opening the FDR account, will show it after maturity to take his money back. iv.h) Closure: After payment at maturity period the FDR account is closed. The EDR account holder must surrender his FDR receipt during the payment. It is also notifying that in case FDR, the bank entries the full amount at maturity date in advance when a customer opens a FDR account. After the maturity FDR receipt and FDR from are attached together and on the front page of the FDR from bank authority writers “close of FDR account” and gives entry in the ledger. v) Pension Saving Scheme (PSS): This scheme is specially designed for the benefit of the limited income group members. This helps to accrue small monthly savings into a significant sum at the end of the term. So, after the expiry of the term period the depositor will have a sizeable amount to relish on.

Monthly Installment

Return of the 3 years

Return after 5 years

(TK)

(TK)

(TK)

8%

7.5%

500/-

20,322/-

36,266/-

1000/-

40,645/-

72,532/-

2000/-

81,290/-

1,45,064/-

5000/-

2,03,225/-

3,62,661/-

•

Local Remittance Section:

Remittance is another best medium to serve fund from one place to another. Remittance facility is available to both customer as well as non customers of the bank and in fact this is the third major area of operation of a bank. Against deposit of the requisite funds and payment of the remittance charges, bank undertakes to make the equipment amount available to a particular person or his order in a particular branch of the same bank or on other banks with agency arrangement.

Money transmission / remittance are effected by way of issue

• Demand Draft (DD) • Telegraphic Transfer (TT) • Payment Order (PO) o DEMAND DRAFT (DD): According to the section 85 (A) of the negotiable instruments Act, a bank draft / demand draft is “an order to pay money drawn by one office of the bank upon other office of the same bank for the sum of money payable to order on demand.

A Payment of DD:

• After issuing a bank draft to the purchaser, the issuing branch sends an Inter Branch Credit Advice (IBCA) to the Drawee branch, intimating about the issue of the Draft.

• On receipt of the Draft for payment, the Drawee branch verifies the signature of the authorized officials on the draft with the specimen signature maintained with them and if other wise in order pays the amount in cash or by transfer to account, as the case may be.

• The Draft may be paid in two ways, if the advice is received before presentation of DD it would be paid from “Bills Payable A/C DD payable” and if the DD is presented before receipt of the Advice it would be paid from suspense A/C DD PAID W/A. Feature of Draft:

• It is drawn by one office of a bank upon another office of the same bank.

•

It is payable on demand.

• Its payment is to be made to the person whose name is mentioned therein or according to his order. In other words it cannot be made payable to the bearer.

Issue of the Demand Draft: •

A standard DD application from duly completed and signed by the applicant with his full address is required. After receipt of cash, the application is treated as credit voucher for head office account. Concerned voucher is delivered to Remittance Department for issue of DD.

•

The Draft is prepared by the concerned Dep’t and entered in the Draft Issue Register.

•

Branch wise serial number is given on the draft after the printed number putting an oblique in between.

•

The Draft number is written on the voucher and Draft block, voucher an register are sent to the Officer-in-Charge/ Manager for signature.

•

After signature the draft is handed over to the purchaser against acknowledgement on the voucher or on the back of the counter-foil.

•

The Draft may be marked crossed it the purchaser desires and a cost memo is issued.

•

After close of business branch wise ICBA are prepared for all the draft issued during the day and dispatched to the respective branches.

Issue of Duplicate demand draft:

• The signature of the applicant is to be verified from the original filled in DD application form.

• The drawee branch is to be informed about the loss of the draft so that caution is exercised by them.

• On receipt of confirmation from the drawee branch that the draft is still outstanding in their book and that caution is being exercised by them, a duplicate draft is issued to the purchaser after obtaining an indemnity Bond.

• The draft is issued with mark “DUPLICATE” in red ink without altering the printed no and repeating the original serial number. A note to this effect is made in the original DD application form and DD issued register and the Drawee branch is to be advised of issue of the duplicate draft.

Stop Payment of DD: The Issuing Branch instructs for stop payment of a DD when the purchaser approaches the issuing branch to do the same through an application.

Cancellation of Demand Draft: The purchaser can request the issuing branch to the DD. After getting instructions from the issuing branch to cancel the DD. o

TELEGRAPHIC TRANSFER (TT):

It is an order of the Issuing Branch to the paying Branch to pay a certain sum of money to the beneficiary. TT transaction is done in between the two branches of the same Bank only. The beneficiary should maintain an account with the IFIC Bank to get facility. Before sending the massage, the issuing Branch must be sure that there is a test arrangement for authenticating the Telegraphic / Telex message with the branch designed to make payment.

Issuance of the Telegraphic Transfer (TT): The procedure of issuing TT massage are as follows:

• The customer asked to complete TT application form.

• Commission @ 1.5 per thousand with minimum charge Tk. 25 and telephone charge tk 50 along with the fund are realized from the customer.

• Entries are given to the register to maintain the controlling number and records.

• Out going Test number is prepared for any amount of money and TT no is allocated on the basis of controlling no.

• Out going Test No. TT no. amount in wards and figures, name of the beneficiary and name of the remittance in charge with P.A no are sent over the telephone.

• If the paying branch is not reached by the telephone, the coded TELEX / FAX MESSAGE IS SEND to the end.

• Two copies of ICBA are prepared in which one copy is sent to the Head Office for reconciliation through the account department and another copy is preserved as an office copy.

Payment of TT:

• The procedure of the payment of TT is as follows: • Remittance in charge receives incoming Test No. TT No amount in words and figure, name of beneficiary and name of the remittance in charge of the issuing Branch with P.A. no.

• An authorized officer verifies incoming Test & TT no with the controlling no and A/C no of the beneficiary whether he has an A/C with the paying Branch or not.

• If Test No. agrees and TT No supports the serial no, particulars are given posting to the TT payable register.

• Debiting IFIC General A/C and crediting Bills Payable A/C TT payable entries are passed.

• Party A/C is credited by debiting Bills Payable A/C TT Payable.

• IBDA is prepared in duplicate the original is sent to the reconciliation department of Head Office through account department and true copy is kept as an office document.

Payment Order (P.O) Pay order is an undertaking of a certain branch to pay a certain sum of money in favor of a customer.

Issuing Branch order itself to pay the amount containing by the amount containing by the instrument.

Banker can sell it in exchange of commission. It is issued as a means of local remittance. It may be called as the Cheque of the Bank because bank pays house rent, electricity bills, telephone bill, and borrowing from other banks, and shortage of clearing house and other necessary cots through P.O. It can be negotiated through endorsement and delivery. It has the following characteristics1. Serial no and date.

2. Name of the branch 3. Payee’s name 4. Amount in words and figure 5. Signature of two authorized officer.

Issuance of pay order: For issuing a pay order, the following procedures are maintained•

Client is to submit an application to the remittance department in the prescribed from properly filled and duly signed.

•

The client pays the equivalent amount of pay order plus interest on it in cash or by chaque.

•

The issuing branch gives posting to pay-order register.

•

Debiting Cash and crediting Bills Payable A/C, Pay order issued & income A/C commission on pay order entries are passed.

•

Finally, it is prepared and delivered to the customer.

Payment of Pay order: As the pay order crossed A/C payee, the presents it with deposit slip to the issuing Branch for payment through the clearing house or for credit to clients account. On presentation the Pay-Order is verified and marked for transferred. The authorized officer cancels the P.O and separates it from the deposit slip. P.O is sent to the issuing Branch through clearing house and proceeds are credited to the concerned account. The party is allowed to withdraw the amount after getting clearance the originating branch.

FOREIGN EXCHANGE SECTION: Foreign Exchange business of IFIC Bank has been divided into three sections:

Figure: Function of foreign Exchange (An overview) A. The Function of Foreign Exchange: The bank action as a media for the system of foreign exchange policy. For this reason, the employee who is related of bank of foreign exchange, especially foreign business should have knowledge of this following function.

•

Rate of exchange.

•

How the rate of Exchange works.

•

Forward and spot rate.

•

Methods of quoting Exchange rate.

•

Premium and discount.

•

Risk of exchange rate.

•

Causes of Exchange rate.

•

Exchange control.

•

Convertibility.

•

Exchange position.

•

Intervention money.

•

Foreign exchange transaction.

•

Foreign exchange trading.

•

Export and import letter of credit.

•

Non commercial letter of trade.

•

Financing of foreign trade.

o

Import section:

To import, a person should be competent to be and importer. According to Import and export control act, 1950, the Office of Import and Export provides the registration (IRC) to the importer. Bank gives export guarantee that it will pay for the goods on behalf of the buyer if the buyer does not pay. This guarantee is called Letter of Credit. Thus the contract between importer and exporter is given a legal shape by the banker by ‘Letter of Credit’. o

Documentary Credit/ Letter of Credit (LC):

Documentary Credit is an arrangement whereby a bank (issuing bank) acting at the request and on the instruction of a customer (the applicant) or on its own behalf undertakes to make payment to or to the order of a third party (the beneficiary) or to accept and pay bills of exchange (draft) drawn by the beneficiary, or authorize another bank to negotiate against stipulated documents provided the terms and conditions to the credit are complied. Thus documentary credits are akin to bank guarantees. In popular language, they are known as Letter of Credit.

Sales contract The seller

The buyer

The Buyer

The Issuing Bank

Reimbursing Agreement

Documentary Credit Agreement The Issuing Bank

The Beneficiary

Figure: Triangular contractual Agreement under the documentary credit system.

o

Uses:

A letter of credit is an essential element for conducting world today. It ensures beneficiary to get price of his consignment consigned to an unknown buyer. So it acts as a bridge between buyer and seller of two different countries that helps foreign trade to a great extent.

o

Parties to L/C: •

Importer / Buyer / Applicant

•

Exporter / Seller / Beneficiary / Supplier

•

Issuing Bank / Opening Bank

•

Advising Bank / Notified Bank

•

Confirming bank

•

Negotiating Bank / Nominated Bank

•

Paying Bank / Reimbursing Bank

•

Notify party

Importer / Applicant : The L/C applicants are the party on which request the L/C issuing bank issues L/C. The customer is normally obligated to reimburse the issuing bank for any payment made under the L/C & the customer often provides collateral to source the reimbursement authorization.

Beneficiary / Exporter: The beneficiary is the party entitled to drawn or demand payment under the L/C. the beneficiary will have to present the require documents in compliance with the L/C terms when payments is demanded though the nominated bank.

Issuing Bank: The L/C issuing bank issues L/C at the request of their customers. The L/C issuing bank undertakes absolute obligation to pay upon presentation of proper documents stipulated in the L/C. Advising Bank: After verification of authority of the L/C advising bank gives notification to the beneficiary that a L/C has been issued by the bank. The advising does it self under take any obligation to know the beneficiary claims. Its obligation is limited to accurately advising of the credit

Issuing Bank (Bangladesh)

Advising Bank (Singapore )

Reimbursing bank (New York)

Confirming Bank:Bank Negotiating At the request of the L/C issuing bank, confirming bank may add their confirmation to a L/C. The (Singapore) bank becomes directly obliged to honor the claim of the negotiating bank provided all terms and condition of the credit has been complied with. The confirming bank is normally a bank in the beneficiary locations.

Reimbursing Bank: If the L/C issuing bank nominates a third bank (The Reimbursing Bank) in the L/C to honor the claim of negotiating bank, the reimbursing bank may honor the claim accordingly. If the reimbursing bank fails to honor the claim of negotiating bank, L/C issuing bank is obligated to honor the claim of negotiating bank.

Negotiating Bank: Negotiating means giving values of credit confirm documents to the beneficiaries. Negotiating bank means, the bank specially authorized in the credit to negotiate document drawn under the credit. In the case of a freely negotiation credit any bank may negotiating bank if it is expressly consented to by such bank.

Types of Letter of Credit: Letters credits are classified in to various types according to method of settlement employed. All credit must clearly indicate in majored category.

•

Red close credit

•

Revolving credit

•

Stand by credit

•

Transferable credit

Types of Importer:

Import is the3 flow of goods and services purchased by economic agents located in one country from economic agents located in another. It involves two things: bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with its dispatch to the importer.

Importer

Private Sector

Public Sector (Govt.

Org & Corp.)

Commercial (Finished Product)

Industrial (raw materials, Machineries etc. )

Actual Users

Figure: Types of Importers Some Important Documents of L/C: Bill of exchange: According to the section 01 Negotiable instruments (NI) Act- 1881, A “bill of exchange� is an instrument in writing containing an unconditional order signed by the maker directing a certain person to pay (on demand or at fixed or determinable future time) a certain sum of money only to or to the order of a certain person or to the bearer of the instruments. It may be either at sight or certain day sight. At sight means making payment whenever documents will reach in the issuing bank Invoice: Invoice is the price list along with quantities. Several copies of invoice are given. Two copies should be given to the client and the other copies should be kept in the bank. If there is only one copy, then its photocopy should be kept in the bank and the original copy should be given to the client.

Packing List:

Packing list is the letter describing the number of packets and there sizes. If there are several copies, then two copies should be given to the client and the remaining should be kept in the bank. But if there is only one copy, then the photocopy should be kept in the bank and original copy should be given to the client.

Bill of Landing: Bill of landing is the bill given by shopping company to the client only one copy of bill landing should be given to the client and the remaining copy should be kept in the bank.

Certificate of Origin: Certificate of origin is a document describing the producing country of the goods. One copy of the certificate of origin should be given by to the client and the remaining copy should be kept in the bank. But if there is only one copy, then the photocopy should be kept in the bank and the original should be given to the client.

Shipment Advice: The copy mentioning the name of the insurance company should be given to the client and remaining copies should be kept in the bank. But if only one copy is given, then the photocopy should be kept in the bank and the original copy should be given to the bank.

IMP- Form: This form is prepared for maintaining account of the money, which goes out side the country for the purposes of payment. This form is required by Bangladesh bank. It is an application for permission under 4/1 of the foreign exchange regulation Act, 1947 to purchase foreign currency for the payment of the import.

•

Original copy goes to Bangladesh Bank.

•

Duplicate copy for authorized dealers. It is issued for processing exchange control copy of bill of entry or certificate invoice.

•

Triplicate copy for authorized dealer’s record.

•

Quadruplicate copy for submission to the bank in case of imports where documents are retired.

Procedures of Opening L/C: •

Applicant has to apply for opening L/C in a prescribed form.

•

Applicant has to submit Letter of Indent or Letter of Pro-forma Invoice (PI).

•

Applicant has to submit IRC (Import Registration Certificate).

•

Applicant has to submit LACF (Letter of Credit Authorization Form). This is not required for local L/C.

•

Applicant has to submit Insurance documents.

•

Applicant has to prepare IMP-Form.

Amendment of L/C: L/C can amend by the L/C issuing bank. For amended importer has to write an application favoring the manager and also give charge for it. o

Export Section:

The goods and Service sold by Bangladesh to foreign households, businessmen and Government are called export. The export trade of the country is regulated by the Imports and Exports (control) Act. 1950. The exports from Bangladesh are subject to export trade control exercised by the Ministry Of commerce through Chief Controller of Imports and Export (CCE & E). No exporter is allowed to export any commodity permissible for export from Bangladesh unless be is registered with CC & E and holds valid Export Registration Certificate (ERC). Number is to be incorporated on EXP form and other documents connected with exports.

Parties involved in export L/C:

• L/C issuing bank • Importer • Exporter L/C advising bank • Negotiating bank • The paying/reimbursing bank Export Procedures: The import and export trade in our country regulated by the Export Import Policy 2006-2009. Under the export policy of Bangladesh the exporter has to get valid Export Registration Certificate (ERC) from Chief Controller of Import and Export (CCI & E). The ERC is required to renew every year. The ERC number is to incorporate on EXP-Form and other papers connected with exports.

Registration of Exports: For obtaining ERC, intending Bangladeshi exporters are required to apply in the prescribed from along with the following documents.

a.

Nationality and Assets certificate

b.

Memorandum and Article of Association and certificate of in case of limited company.

c.

Bank certificate.

d. Income Tax Certificate. e.

Securing the order:

Trade License etc.

incorporation

After getting ERC Certificate the exporter may proceed to secure the export order. He can do this by contracting the buyers directly or though agent.

In this purposes the exporter may get help from:

• License Officers.

• Buyer’s local agent • Export promoting organization • Bangladesh Mission Abroad • Chamber of Commerce ( local & foreign ) • Trade Fair etc.

Signing the contract: After communication with the buyer, exporter has to get contracted (writing or oral for exporting exportable items from Bangladesh detailing commodity, quantity, price, shipment, insurance and marks inspection and arbitration etc.

Receiving latter of credit: After getting contract for sale, exporter should ask the buyer of latter for L/C clearly starting terms and condition of export and payment. The following are the main types of International trade payment mode•

Cash in advanced

•

Open account

•

Collection basis

•

Documentary Credit

•

Factoring (not in practice)

Procuring the materials: After making the deal and having the L/C opened in his favor, the next step for the exporter is to set about task of procuring or manufacturing the contracted merchandise. If the exporter has to procure the raw materials from another supplier (local or abroad) he may open Back-to Back L/C. Back-to-Back L/C: Back to Back L/C is one type of L/C which is opened against lien on a valid export L/C. It is opened for inland and abroad as well. Bank will supply the following papers/documents for opening BTB L/C•

L/C Application Form

•

LCA Form

•

IMP Form

•

Charge Document Papers.

The above papers must be completed, filled and signed by the party there to. The party will submit the entire document along with application in printed form of the party, which is also an agreement between applicant and the bank.

Procuring the materials: After making the deal on having the L/C opened in his favor, the next step is to set about the task of procuring or manufacturing the contracted merchandise.

Shipment of goods: Then the exporter should take preparation for export arrangement for deliver of goods as per L/C and terms, prepare and submit shipping documents for payment / Acceptance/ Negotiation in due time.

Documents for shipment: 

EXP from



ERC (valid)



L/C copy



Customers duty certificate



Shipping instruction



Transport documents



Insurance documents



Bill of Exchange



Certificate of origin



Inspection certificate



Quality control

Export Financing: Financing exports constitutes an important part of a bank’s activities. Exporters require financial services at different stages of their export operation. During each of these phases exporters need different types of financial assistance on the nature of the export contract 

Pre-shipment credit



Post–shipment credit

General Credit Division A wide range of products and services, such as different type of loans are offered by this department.

It faces continuous challenge from the local private banks, which mainly specializes in the consumer banking. As a result, it has to develop new products and services to ease the competition on a continuous basis. The approval is mainly based on the risk analysis of the corporate clients done by the Corporate Banking division.

CREDIT AND LOAN SECTION What is Credit?

The word “credit” is derived from the Latin word “credere”, which means to trust. The fundamental nature of credit is that an element of trust exists between buyer and seller-whether of goods or money.

The right to receive or an obligation to pay a certain sum of money including a mark-up agreed

thereon on demand or at determinable time in exchange of goods and services may be termed as credit.

WHAT IS CREDIT MANAGEMENT? Bank is a financial intermediary whose prime function is to move scarce resources in the form of credit from savers to those who borrow for consumption and investment. The main use of bank fund is to collect money form surplus unit and lend it to deficit economic unit as credit. A bank’s main earning source is interests on different credits. In order to ensure the effectiveness and efficiency of utilization of bank fund in the form of credit, the bank has to carry out a certain course of action that is known as credit management.

CREDIT MANAGEMENT OF IFIC: IFIC has been established with the objective of providing efficient and innovative banking services to the people of all sections of our society. Towards attainment of its goals and objectives, the bank pursues diversified credit policies and strategic planning in credit management. Bank has extended micro credit, consumers durable scheme loans, house building loans etc. to cater to the needs of the individuals, which turn has helped thousands of families. The bank also extends loan in the form of trade finance, industrial finance, and project finance, export & import finance etc. The bank’s credit policies aimed at balanced growth and harmonious development of all the sectors of the country’s economy with top most priority to ensure quality of lending by averting growth of non-performing assets.

CREDIT POLICY OF IFIC BANK LIMITED: The credit policy pursed by Bangladesh Bank is to be aimed at ensuring development of scare Bank resources in the best possible manner for increasing production, employment and Real income within its objective and justice need for containing money supply within a safe limit.

IFIC takes the policies, which help the development of several sectors of the country under general credit division. For achieving the proposed goals of the principles of development of a number of sectors such as Agricultural, Economical, Industrial and Trade the bank follow the guidelines of Bangladesh Bank; this is the credit policy of IFIC Bank. This policy is changeable. If Bangladesh Bank resists providing credit in any sector IFIC Bank does not provide any credit in those sectors.

CREDIT PORTFOLIO OF IFIC BANK: Credit portfolio of the Bank consists of Trade financing, Project Loans for new projects and BNRE of the existing projects, Working Capital financing and Small Scale Industries financing. Besides, the Bank is financing the need of individual borrowers under Consumer Credit scheme. The Bank is also involved in financing in Agriculture sector.

Credit portfolio recorded a growth of 11.26% in 2008. But side-by-side write-off of classified loans and advances amounted to tk 953.14 million. The total outstanding loans and advances stood at tk.

28361.46 million at the end of December 2008.

Particular

Amount

Percent

Agriculture

23.29

0.82

Large & medium industry (TL)

548.89

19.35

Working capital

303.13

10.68

Export finance

150.84

5.32

Import financing

488.87

17.24

Transport

59.81

2.11

Commercial lending

616.55

21.74

House building loan

484.52

17.08

Consumer credit scheme

111.29

3.92

Others

48.96

1.73

Others 2% Consumer credit scheme 4% House building loan 17%

Agriculture 1%

Agriculture Large & medium industry (TL) 19%

Large & medium industry (TL) Working capital Export finance Import financing

Commercial lending 22%

Working capital 11% Transport 2%

Export finance 5% Import financing 17%

Transport Commercial lending House building loan Consumer credit scheme Others

DOCUMENTATION OF LOAN AGREEMENT: Documentation can be described as the process or technique of obtaining the relevant documents. In spite of the fact that banker lends credit to a borrower after inquiring about the character, capacity and capital of the borrower, he must obtain proper documents executed from the borrower to protect him against willful defaults, Moreover, when money is lent against some security of some assets, the document must be executed in order to give the banker a legal and binding charge against those assets. Documents contain the precise terms of granting loans and they serve as important evidence in the law courts if the circumstances so desire. That’s why all approval procedure and proper documentation shall be completed prior to the disbursement of the facilities.

Charge Documents: Following charge documents are compulsory while giving loans.

Letter of guarantee: This is a document given by the proprietor, directors or the third party in favor of the principal debtor.

The beneficiary of this document is the bank. Surety is bound to pay the guaranteed amount if such situation arises.

Counter guarantee: This is a document given by the proprietor, directors or the third party in favor of the principal debtor.

The beneficiary of this document is the bank. Surety is bound to pay the guaranteed amount if such situation arises.

Counter guarantee: The principal debtor agreeing that if the guarantor pays any amount, the principal debtor is bound to pay this amount gives this guarantee.

Letter of authority: By this letter, the principal debtor gives the authority to the bank to debit the current account or investment account of the principal debtor for the following cases: I. Wages of the go-down keeper and go-down guard.

II. Rent of the go-down.

III. Insurance premium and IV. Any other expenses regarding these functions.

Letter of recall the loan: This letter is given to the bank by the borrower, giving the bank the right of recalling the loan amount at any time if the borrower fails to repay any one of the installments and the borrower cannot protest such recalling.

Letter of continuity: By this letter, the borrower agrees that the promissory note given by the bank will be act as security for the repayment of the ultimate balance or sum remaining unpaid on account of the overdraft or advance.

Letter of revival: By this letter, the borrower agrees that he will be liable to bank for payment of the promissory note with interest in respect of all present and future indebtedness liabilities secured thereby which promissory note is to remain in force with all relative securities, agreements and obligations.

Joint promissory note: This promissory note is given to the bank by the borrower if the borrowers are more than one person.

Single promissory note: The borrower to the bank gives this promissory note if the borrower is a single person.

Letter of undertaking: This document is given to the banker by the borrower acknowledging the right to cancel the facility at any time with or without intimation to the borrower.

Loan disbursement letter: By this letter, the borrower request to disburse the loan sanctioned in his favor by the bank. All the persons, in whose names the account is opened, should sign the letter.

Charge over bonds or certificate of shares etc: It is a document given by the borrower to the banker declaring that the stocks, shares, debentures, securities and investments which are now deposited to the bank and which may from time to time be deposited by the borrower shall stand charged and hypothecated to bank as security for the payment to bank on demand of the balance of the loan amount and of any other indebtedness and liability to the bank of any kind whether mature or accruing and whether incurred alone or jointly with others and whether as principal or surety including all interest document, commission, expenses, charges and costs incurred by the bank in relation any such indebtedness or liability.

Letter of lien against fixed deposit receipt: By this letter, the borrower gives the right to the bank to hold the Fixed Deposit Receipt (FDR) if the borrower fails to repay or adjust the loan on demand or discharge the liabilities to bank. In this letter, FDR number, issuing branch, name of the favoring person and amount are writer.

Letter of authority to en-cash FDR: By this letter, the borrower gives the right to bank to encash the FDR in case of need. Here the amount and address of the bank of issue and the signature of the holders are given.

Memorandum of deposit of title deeds: It is a deed that is necessary in case of mortgage by deposit of title deed or equitable mortgage. Here the mortgagor agrees that he has deposited necessary documents of the property to the bank.

Hypothecation of goods to secured a demand cash credit or overdraft or loan account: Here the amount of loan, interest, and the name of the borrowers are written. Here the bank and the borrowers agree on the following terms: o

Security

o

Sale of goods

o

Balance due to the Bank

o

Deficiency

o

Surplus

o

Insurance

o

Borrowers not to the encumber

o

Statement of account

o

Or parts of the goods

o

Continuing security

o

Inspection

o

Saving

o

Sale

o

Change of borrowers

o

Margin

o

and notices

o

Repayment

o

Interest rate

Guarantee by third party: Sometimes third party guarantee is needed for allowing loan. Here third party gives the guarantee that of the principal debtor fails to repay the loan, and then the guarantor will be bound to repay the loan to bank.

Hypothecation of vehicle: This document is necessary in case of transport loan. Here the borrower hypothecated the vehicle to the bank. In case of failure of repay the loan, bank will sell the vehicle to collect the money.

Information About the loan Customers: The bank relies principally on outside information to assess the character, financial position, and collateral of a loan customer. Such an analysis begins with a review of information supplied by the borrower in the loan application. The bank may contact other lenders to determine their experiences with this customer regarding the following information: o

Were all scheduled payments in previous loan agreements made on time?

o

Were deposit balances kept at high enough levels?

o

How much was borrowed previously and how well were those earlier loans handled?

o

Is there any evidence of slow or delinquent payments?

o

Has the customer ever declared bankruptcy?

Sources of Information about the Loan customers: o

Physical Investigations

o

Customer financial statements

o

Experience of other lenders with this customer

o

Customer Annual Report

o

Local or regional credit bureaus

o

Local Newspapers

o

Local chamber of commerce.

Mechanism of Credit Distribution of the IFIC Bank: The primary factor determining the quality of the bank’s credit portfolio is the ability of each borrower to honor, on a timely basis. All credit comities made to the bank. The authorizing credit personnel prior to credit approval must accurately determine this. If the report of the project appraisal is very satisfactory to approve the loan proposal, than the following steps furnish the approval procedure: o

Make a proposal by the client to the bank

o

Give all the necessary documents

o

Bank will send the parties statement to the Bangladesh Bank, their CIB (Credit Information Bureau) will inquiry that whether this party is defaulter or a new one.

o

Bank will take the collateral from the party and analysis that how much it will cover the total loans.

o

Bank will send this proposal to the head office. In the head office the Board of Directors and Managing Director will approve the loan.

o

Head Office will send the approval to the branch office.

o

Branch office will give the sanction letter to the party.

o

Bank will take the security and make it in their favor.

Disbursement: After completing all the necessary steps for sanctioning loans bank will create a loan account by the name of the party and deposit the money to that account. Bank will give cheque books to the party and advice f\them to draw the money and use it as soon as possible, because whenever the money will transfer to the account interest will count from that time LOAN-PRICING METHOD USED BY THE IFIC BANK: In pricing a business loan, Bank management must consider the cost of raising loan able funds and the operating costs of running the Bank. This means that Banks must know what their costs are in order to consistently make profitable, correctly priced loans of any type. There is no substitute for a welldesigned management information system when it comes to pricing loans.The IFIC Bank Limited is generally used the simplest loan-pricing model which assumes that the rate of interest charged on any loan includes four components. (1) the cost to the Bank of raising adequate funds to lend, (2) the Bank’s non-funding operating costs (including wages and salaries of loan personnel and the cost of materials and physical facilities used in granting and administering a loan), (3) necessary compensation paid to the Bank for the degree of default risk inherent in a loan request, (4) Bank’s desired profit margin.

LOAN CLASSIFICATION OF THE IFIC BANK: Signs for Classification: First and foremost requirement for any credit managers is to identify a problem credit in its earliest stages by recognizing the signs of deterioration. Such signs include but not limited to the following: 1. Non-payment of interest or principal or both on due dates or past dues beyond a reasonable period or recurring past dues.

2. In case of overdraft no movement in the account beyond a reasonable period.

3. Deterioration in financial condition of the client, as gathered from client’s latest financial statement.

4. A shortfall in collateral coverage, particularly if the collateral was a key factor in the decision-making.

5. Death or withdrawal of key owner or management personnel 6. Company filing for bankruptcy or voluntary dissolution.

7. Adverse market report about the company itself or its principal owners.

Finance and Accounts Division This department performs the following activities:

•

Sources of finance

•

Administration, audit and back office operation.

•

Salary & Provident Fund

•

Taking care of taxation and financial control of the Bank.

•

Decision making related to administrative activities

From the learning and experience point of view the author can say that the author really enjoy the internship at IFIC Bank of Bangladesh Ltd. From the very first day, was confident that this 3 months internship program at IFIC Bank Ltd. of Bangladesh will definitely help me to realize my future carrier in the job market. But it is a great opportunity for me to get use to with the operational environment of commercial banking of IFIC Bank.

Elephant Road branch personnel should train up about all sort of information regarding SWIFT and its service. Due to lack of proper knowledge about the operation procedures and services provided to the customers by SWIFT, certain customers are facing problem, as they have to wait for certain time to get service as there was one officer know about the procedure of SWIFT. He is not fully independent of handling SWIFT. Official training is the solution to this problem. For customer’s convenience in Foreign Exchange Department of IFIC Bank Ltd. should provide more personnel to deliver faster services to their honorable customer.

On the other hand IFIC Bank Ltd. Is facing several competition from other key players Like Islami Bank Bangladesh Ltd., Prime Bank Ltd., Social Investment Bank Ltd., Mercantile Bank Ltd., AlArafah Islami Bank Ltd. And Shahajalal Bank Ltd. Playing its leading role in socio-economic development of the country. Since inception IFIC Bank Ltd. Had been rendering its Banking services with the needs of the nation to cope with the demands of people in the country. By doing many other works for community & society, IFIC Bank Ltd. has emerged as the pioneer of playing key role in the country.

Thus, the IFIC Bank Ltd. is growing fast and its contribution in our economy is also considerable. I hope that IFIC Bank will always take care of their employees needs assessment training needs and employees satisfaction and also it will wide its services by expending more branches and innovating new policies all over the country.

REFERENCES •

Andley, K. K & Mattoo, V. J., Foreign Exchange Principles and Practices

•

Different prospectus of IFIC Bank Ltd.

•

Kotler Philip (1997); Marketing Management, Ninth Edition, Prentice Hall of India Pvt. New Delhi

•

Robbinson; The Management of Bank Funds, Second Edition

•

Scall Lawrence D. Charles Halley W.(1999); Introduction to Financial Management, McGraw-Hill, Inc., Singapore

Supportive Websites: http://www.ific.bd.com http://www.google .com http://www.weekpedia .com