National Credit and Commerce Bank Limited

CHAPTER - ONE

General Introduction

1.1 ORIGIN OF THE REPORT

This report is prepared as partial requirement of the three-month internship program for the BBA

Program. National Credit and Commerce Bank Limited (NCCBL) has given me the opportunity

to complete internship program. In the report I have mainly given concentrate on “Loan

Disbursement and Recovery System of National Credit and Commerce Bank Limited”, which is

to be submitted on June 15, 2010. Basically this report highlights about evaluation and assessment

of NCCBL banking products. Information has taken from bank’s website, Annual report and

different banking oriented books.

1.2 BACKGROUND OF THE REPORT

Economy of Bangladesh is the of world's most underdevelopment economics. One of the reasons

may be its underdeveloped banking system. Modern Banking system plays a vital role for a

nation's economic development. Over the last few years the Banking world has been undergoing a

lot of change due to deregulation, technological innovations, globalization etc. These changes also

made revolutionary changes of a country's economy. Present world is changing rapidly to face

challenge of competitive free market economy. It is well recognized that there is an urgent need

for better-qualified management and better-trained staff in the dynamic global financial market.

Bangladesh is no expecting of this trend. Banking sector in Bangladesh is facing challenges from

different angles though its prospect is bright in the future. Money and Banking is the center

around which all-economic science clusters. So this report is carried on to find out the problem

faced by NCC Bank and recommend some measures to overcome these problems for economic

development of Bangladesh.

National Credit and Commerce Bank Limited is a scheduled commercial bank. Though financial

intermediation the bank seeds avenues for employment of its funds where ' (a) there is profit (b)

risk minimal' and the cost of administrating loan is low. While "profit motivation" remains the

prime consideration for viable operation and growth of the bank, the bank would also respond

adequately to the socio-economic objectives formulated by the government from time to time for

accelerating pace of economic development of the country.

The goal of the bank is to build up a balanced portfolio mix. The focus is on an effective and

responsive financial intermediation will thus vest on one hand on channeling funds to a set of

clientele having proven track record and on the other hand on socially and economically desirable

activities for which finance is sought.

The investment options shall be chosen through skillful and prudent evaluation by the bank

officials of feasibility of the proposed ventures including measures to minimize risk factors. The

entrepreneurs themselves would provide or hire managerial skill, technology for production,

marketing and servicing thereby diminishing the risk of investment.

The bank will put reliance on market forces via increased inducement to savers to mobilize saving

and via profitability potential to allocate funds to the users of such sectors of trade, commerce,

and industries as are consistent with the socio-economic objectives of the nation. The free market

economy policy of the government of Bangladesh will indeed facilitate healthier and efficient

lending activities of the bank.

1.3 OBJECTIVES OF THE REPORT

The internship experience is meant to serve as a bridge between the theoretical learning of

students and the practical application of the same.

The core objectives of the study are as follows:

To apply theoretical knowledge in the practical field.

To have exposure to the functions of credit section.

To know investment and credit management of NCC Bank Limited.

To observe the working environment in commercial bank.

To study existing banker-customer relationship.

To examine the overall performance of NCC Bank Limited in terms of loans

disbursement and recovery.

To point out the positive aspects and problems encountered by the Loan department

and recovery Unit of NCC Bank Limited and the ways to overcome the problems.

To examine the recent strategies and initiatives taken by NCC Bank Limited for

further development of its recovery systems.

To get a brief idea about recovery policies and practices followed by some other

major banking and non-banking financial institutions and thus getting a comparative

overview with NCC Bank Ltd.

To identify financial constraints associated with the growth of Loan sector in

Bangladesh.

To compare the financial performance among several years of theBank and with other banks.

1.4 RATIONALE OF THE REPORT

Theoretical knowledge is not enough for a student. Because there lies a far difference between

theoretical knowledge and practical knowledge. Theoretical knowledge applied in practical field.

So, these two may be synchronized. Our internship program is launched mainly for this purpose.

Other purpose that may be is to know about the rules, regulations, management, and environment

of an organization before getting a job. To gather some experience that will help a student to get a

good job or may also be another purpose of the study.

1.5 & 1.6 METHODOLOGY OF THE REPORT & SOURCES OF INFORMATION

In order to make the report more meaningful and presentable, two kinds of sources of data and

information have been used:

1) Primary sources:Among the primary sources, the main sources are:

i) Face to face conversation of the employees of the NCC Bank Ltd.

ii) Official record of related section of the NCC Bank Ltd.

iii) Direct interaction with the customers.

iv) Practical work exposures on different desks of the branch covered.

2) Secondary sources:

i) Annual Report of the NCC Bank Ltd.

ii) Relevant Books of the NCC Bank Ltd.

iii) Different publications regarding Banking functions, foreign exchange operation

and credit policies. and

iv) NCC Bank Ltd. website.

1.7 SCOPE OF THE REPORT

The NCC Bank Ltd. is a private Ltd Bank where all types of financial transaction took place. It

contains separate functioning division that furnished all types of activities. I have the opportunity

to do everything practically, which is helpful to gather experience. I have got the opportunity to

work at all the important desk of the NCC Bank Moghbazar Branch. It also helped me to acquire

a fast hand perspective of a leading private bank in Bangladesh.

The report gives a general overview of Loan and Recovery sector of Bangladesh as well as that of

the neighboring countries. The general overview includes how loan disbursed and how the

recovery system is occurred through a comparative analysis. The report develops a function &

Doing work in different department of NCCBL

process Involved in Loan Disbursement and Recovery System of NCC Bank Limited of

Bangladesh. This part provides an extensive idea about how the bank defines Loan, what are the

different Loan products offered how and why they are different from other products, what are the

constraints to obtain required finance, and what is the overall performance of the bank in terms of

loans disbursement and recovery. The report also provides a brief idea about Loan policies and

practices followed by some other major banking and non-banking financial institutions of the

country. Thus, it tries to identify the problems faced by the financial institutions in disbursement

of loan and recovery of the loan.

1.8 LIMITATION OF THE REPORT

Like other study, my study has some limitations also. The organization on which I have studied is

a Branch of NCC Bank Ltd. at Moghbazar. It is a private Bank in Bangladesh. The main

limitations are:

o The main limitation that I faced during conducting the study was lack of access to

information considered confidential by employees of Head Office due to

strategies.

o Shortage of time: I could not get into the depth of the Study due to time

limitation.

Field practice varies with the standard practice that also created problem.

Large-scale research was not possible due to constraints.

The information regarding the competitors is difficult to get.

And it is my first work, and inexperience was a problem.

Framework of the overall structure of the total work:

CHAPTER – TWOOrganizational Overview2.1 INTRODUCTION

National Credit and Commerce Bank Ltd bears a unique history of its own. The organization

started its journey in the financial sector of the country as an investment company back in 1985.

Appointing as an intern

Selecting the topic of the study

Preparing outline

Collecting secondary information

Analysis of collected data n information

Collecting information from NCCBL

Dividing the study work

Preparation of the Final Report

The aim of the company is to mobilize resources from within and invest them in such way so as to

develop country's Industrial and Trade Sector and playing a catalyst role in the formation of

capital market as well. Its membership with the browse helped the company to a great extent in

this regard. The company operated unto 1992 with 16 branches and thereafter with the permission

of the Central Bank converted in to a full fledged private commercial bank as National Credit and

Commerce Bank Limited in the country on 17th May 1993 out of a great turbulent situation. The

company raised its authorized capital to Tk. 750 million as per guidelines set out by the

Bangladesh Bank. The paid up capital was fixed at Tk.390 million of which 50% i.e. Tk.195

million has been paid up in cash by the sponsor and the balance 50% for public.

2.2 HISTORICAL BACKGROUND OF NCC BANK

The banking system plays a critical role in underpinning economic development. Against the

background of Financial Sector Reform Policies in Bangladesh, National Credit and Commerce

Bank Ltd. has resulted in great success in all areas of operation with a view to improve the socio-

economic development of the country. Subsequently NCL converted into a full fledge commercial

Bank on 17.05.1993 after obtaining license from Bangladesh Bank under the name & style

“National Credit & Commerce Bank Ltd.” However, the institution survived the ordeals and came

out as full-fledged commercial bank. The company raised its authorized capitals to tk.750

millions as per guidelines set out by the Bangladesh Bank. The paid up capital was fixed at tk.390

million of which 50% the sponsor and the balance 50% of public have paid up i.e. tk.195 million

in cash. The sponsors of the new bank consisted of 26 (Twenty six) Members, who comprised the

first Board of Directors.

2.3 VISION

To become the Bank of Choice in serving the Nation as a progressive and Socially Responsible

financial institution by bringing credit & commerce together for profit and sustainable growth.

And also to be in the forefront of national development by providing all the customers

inspirational strength, dependable support and the most comprehensive range of business

solutions, through our team of professionals who work passionately to be outstanding in

everything we do.

2.4 MISSION

“To mobilize financial resources from within and abroad to contribute to Agricultures, Industry &

socio-economic development of the country and to play a catalytic role in the formation of capital

market.”

2.5 CORPORATE CULTURE

NCC Bank is one of the most disciplined Bank with a distinctive corporate culture. In this bank, it

believes in shared meaning, shared understanding and shared sense making. The people of bank

can see and understand events, activities, objects and situation in a distinctive way. They mould

their manners and etiquette, character individually to suit the purpose of the Bank and the needs

of the customers who are of paramount importance to them. The people in the Bank see

themselves as a tight knit team/family that believes in working together for growth. The corporate

culture they belong has not been imposed. It has rather been achieved through their corporate

culture.

2.6 MANAGEMENT HIERARCHY :

Chairman

Vice Chairman

Director

Managing Director

Senior Executive Vice President

Executive Vice President

Vice President

Senior Assistant Vice President

Assistant Vice President

Senior Principal Officer

Officer Gr -1

Officer

Junior Officer

Principal Officer

Senior Officer

Senior Vice President

Assistant Officer

2.7 BRANCHES OF NCC BANK LTD

2.8 OBJECTIVES AND NATURE OF THE NCC BANK LTD.

NCC Bank Ltd is a progressive commercial bank in private sector in Bangladesh. With 17 years

of experience adaptation of modern technology both in terms of equipment and banking practice

ensures efficient service to clients. 68 branches at home and 500 affiliates worldwide create

efficient networking and reach capability. NCC is a Bank that serves both clients nationally and

internationally.

2.9 FUNCTIONAL ASPECT

NCC Bank Limited is a commercial bank, which has to abide by the rules and regulations,

prescribed by Bangladesh Bank for scheduled commercial banks. The functions of the bank cover

a wide rang of banking and financial activities to individuals firms, corporate bodies and other

multinational genies. Present operation areas are as follows:

2.9.1 DEPOSIT

All kinds of deposits like savings, current, short-term, fixed, Certificate of deposits are accepted

from resident and non-resident customer. Non-resident customers can deposit their money in

foreign currency account both in convertible and non-convertible account.

2.9.2 CREDIT

Banks loan greatly emphasized that we can call this as the "Heart" of the banking, because they

are a major source of bank income. Loans are very important for country's economy as a whole

because the expansion and contraction of bank loan affect the level of business activity through

their effect of the nation money supply. The extended credit facilities to different sector to

diversify its credit portfolio in compliance with credit policies of Bangladesh Bank as given

below:

Industrial, Housing, Transport, and Contract work, Working Capital for traders, manufacturing

processing plants and export oriented industries, and other business.

2.9.3 IMPORT FINANCE

NCC Bank finance Import by way of opening irrevocable documentary letter of credit granting

post import finance such as BLC, LIM, and Advance against T/R etc.

2.9.4 EXPORT FINANCE

Pre-shipment and post-shipment/export Finance by way of negotiate/purchase discount of export

bills, packing credit, back-to -back L/C etc.

2.9.5 NON-FUNDED (GUARANTEE) BUSINESS

Issuing of letter of guarantee (L/G), shipping guaranties, indemnities, performance guaranties, Bid

Bond, Stand by L/C etc.

2.9.6 REMITTANCE

NCC Bank remits money of the clients both within the country and out side the country by telex

transfer, telephone transfer, mail transfer, pay order, demand drafts etc. It also receives remittance

from Middle Eastern and Western countries.2.9.7 PLATFORM SERVICES

NCC Bank provides safe deposit, locker services and other miscellaneous services for safety of

valuables of the customers. It also provides agency services and acts as trustee for the customers.

2.9.8 ONLINE BANKING

To render better services to its customers, NCC Bank limited, introduce online computer systems

within the year of its inspection and all the branches of NCC bank are equipped with telex

services. NCC bank has also introduced ATM services for 24 hours a day in collaboration with.

2.9.9 PERFORMANCE OF THE BANK

Bank’s performance during the year 2009 was modestly satisfactory, despite two years of

uncertainty and gloomy global economy. During the year, Bank could mobilize Deposit of

Tk.53900.15 Million and earned Operational Profit to the tune of

Tk.3, 137.70 Million, Advance figure as on date stood at Tk.50, 387.68 Million.

The Authorized Capital of the Bank stood at Tk.5, 000.00 Million as on dates whereas Paid-Up

Capital rose to Tk.2, 284.90 Million as against Tk.1, 757.62 Million of 2008. The Reserved Fund

increased to Tk.4, 371.62 million which increase over last year’s Tk.2, 863.63 Million.

2.10 FUNCTIONS OF MOGHBAZAR BRANCH

For the purpose of observing branch level function, Moghbazar branch of NCC bank limited was

depicted. In this part the functional area of the branch is described. The different

departments/divisions of the branch are:

General Banking Division

Cash

Remittance

Loans and advance Department

Foreign Exchange Department

2.11 Financial Report of NCC Bank for the Year 2009

2.12 GRAPHICAL PRESENTATION OF INVESTMENT-2009

Figure: Distribution of Investment Portfolio-2009

In this chart, we can see that, in 2009, the highest sector of investment is in Government Treasury

Bonds which is 92%.and the lowest investment in prize bonds and debentures which is 0.1% and

0.06%.

Figure: Investment (2005-2009)

In this chart, we can see that, the ratio of investment is increasing year by year. In 2005, the

investment was 3010.45 million, in 2006, 3552.45 million, in 2007, 6526.82 million, in 2008,

6526.82 million, and in 2009, it was 9671.53 million.

CHAPTER - THREE

General Banking

3.1 INTRODUCTION

General banking department is the “Heart” of the all-banking activities. It performs the core

functions of bank, operates the day to day transactions. It is the storage point for all kinds of

transaction of foreign exchange department, loans and advances department &itself.

3.2 CUSTOMER SERVICES

Customer services are one of the most talked about subject now a day. In banking, it is a major

rule to earn a comparative edge. Customer service means to meet customer needs in a prompt and

efficient way. In service-oriented organization like, quality means customer satisfaction. And

customer satisfaction depends on the services provided by the organization. So, customer service

section is the most important section in NCC Bank Ltd. First of all customer want to collect

information before taking services if he/ she satisfied with the information given by the customer-

service section, then he/she come to take services. In the sense, it is very sensitive section in

NCCBL. To satisfy the customer by giving better services all staff and officers of this section

have to take responsibility, be cordial, frank and smiling appearance.

Functions of Customer Service Section:

Account opening Remittance

Clearing Collection Cash Others

3.3 CONCEPT OF DEPOSIT

Deposits are the foundation on which banks thrive and grow. They are a unique item in a bank’s

balance sheet that distinguishes it from other types of business firms. Deposits provide most of

the raw material for bank loans and, thus, represent the ultimate source of bank profits and

growth. Deposits generate legal reserves, and it is out of the excess legal reserves a bank holds

that new loans are created. Important indicators of management effectiveness in any bank are

whether or not deposited funds have been raised at the lowest possible cost and whether enough

deposits are available to fund those loans the bank wishes to make.

Figure: Deposit (2005-2009)

In this Chart, we see that, the ratio of deposit is increasing year by year. In 2005, the deposit was

21478.22 million, in 2006, 28147.34 million, in 2007, 34901.77 million, in 2008, 46904.66

million, and in 2009 it was 53900.15 million.

Figure: Sectoral Distribution of Deposit-2009

In this chat, we see that, in 2009, the highest sector of deposit was fixed deposit and the lowest

sector is in Bearer Certificate of Deposit which is 0.02% and Instant Earning Term Deposit which

is 0.07%.

3.4 CLASSIFICATION OF BANK ACCOUNT

Bank has two type of deposit account, this are-

Demand deposit

Time deposit

A. Demand deposit

There are mainly two types of demand deposit accounts, this are-

1. Savings account

2. Current account

Both these accounts can be opened jointly or individually. Again current account can be for

personal, partnership and proprietorship.

Savings Account

To encourage savings habit amongst the general public, bank allows depositors to open savings

account. As the name indicates, these accounts are opened for the purpose of savings. Interest is

awarded on the balance of the account.

□ The minimum balance requires to be maintained at all times is Tk. 1,000.00. And the

bank reserves the right to change the minimum balance requirement and/or to close such accounts

without prior notice if the balance falls below this amount.

□ The maximum interest bearing amount allowed on any Saving Bank account

Tk.50,00,000.00 interest is payable on collected funds.

□ The Bank reserves to itself the right not to pay any Cheque presented that contravenes the

rules. In the event of a Cheque being returned for want of funds a penalty change of Tk.50.00 for

each presentation will be made.

Special Savings Scheme:

Two types of Account can open under this scheme.

1) 5 years

2) 10 years

Monthly installments start from 100 to 2500 tk during the period of scheme. This is fixed at the

time of opening Account. There are remaining 5000 & 10,000 schemes only for 10 years.

The depositors to be paid on the basis of their installments amount and time period as

follows:

Monthly Installments(Tk.)

AMT. after 5 Years(Tk.)

AMT. after 10 Years(Tk.)

Term Revised Rate of Interest

Saving Deposit 5.00% (No restriction on withdrawal)

100 8000 22500200 16000 45000300 24000 67500400 32000 90000500 40000 112500

1000 80000 2245001500 120000 3375002000 160000 4500002500 200000 5625005000 …… 112500010000 …… 2250000

A person is allowed to open more than one account for different installments in the same branch

or in the same Bank. No withdrawal shall usually allow before five years. If any one withdraws

before five years s/he will get interest at prevailing rate on Savings account along with the

principle. No interest will be paid on the deposited amount if the Account is closed before Six

months. Installment must be deposited by 10th day of each month. In case of holidays, Deposit can

be paid on next working day.

If any one fails to pay installment in time, s/he will have to pay Tk. 10 for each installment with

subsequent deposit.

Current Account:

Current account is an account where the account holder within the funds can make numerous

transactions available in its credits. No interest is paid on those deposits. Requirements to open an

account are almost same to that of savings account except the initial deposit and the introducer

must be the current account holder. Requirement for different types of current account holder are

given below:

Limited company

A separate account opening form is used for Limited company. The bank should be cautious

about opening account for this type of customer. Requirements to open an account are as follows:

Articles of association

Two copies of attested photograph

Letter of commencement

Letter of incorporation

List of directors, their number of shares and status

Memorandum of Association

Registration-which the company is registered and certificate relating to this issue, is

obtained from the registration office of Joint Stock Company.

Partnership firm

Same account opening form for partnership firm is used. Instruction of account is given in this

form. Documents required to open this type of account are as follows:

Two copies attested photograph of those who will operate the account.

Partnership deed.

Resolution of the firm regarding account opening should be given.

Trade license.

Personal Current Account

Same account opening form for partnership firm is used. Instruction of account is given in

this form. Document required to open personal current account are given below:

Two copies photograph of who will operate the account.

The guarantor who is already maintaining an account introduces personal.

Photocopy of National ID Card.

Current Proprietorship Account

Requirements for opening this type of account are as follows:

The guarantor attests two copies photograph of who will operate the account.

Photocopy of trade license.

Photocopy of National ID Card.

Banks are maintained a signature card and different types of register to open every types of

accounts. An account number is given for each account and the description of the account entered

in the computer. According to rules of the bank a letter of thank should be given to the account

holder and to the introducer but in practice it is not done.

B. Time deposit

There are mainly two types of time deposit:

1. Short Term Deposit (STD)

Sl. No.

TERM Revised Rate of Interest

1 Short Term Deposit

4.00% (No restriction on minimum balance)

2. Fixed Deposit receipt (FDR

Short Term Deposit (STD )

In short term deposit, the deposit should be kept for at least seven days to get interest. The interest

offered for STD is less than that of savings deposit. In NCCBL, various big companies,

organization, Government Departments keep money in STD account. Frequent withdrawal is

discouraged and requires prior notice.

Fixed Deposit Receipt (FDR)

This type of deposit should be kept for a fixed term or period. NCC Bank Limited deals with

the following terms deposit.

3.5 REMITTANCE

Demand Draft (DD):

This is an instrument through which customers money is remitted to another person /firm

/organization in outstation from a branch of one bank to another outstation branch of the same

bank or to a branch of another bank (with prior arrangement between that bank with the issuing

bank).

Issuing procedure of D.D

Obtain demand draft application form duly filled in and signed by the purchaser /applicant.

Receive the amount in case/ transfer with prescribed commission and postage amount.

Insert test number.

Enter in the D.D. register.

Issue advice to the payee branch.

Payment procedure of DD

Examine generally of the D.D. viz. Amount, verify signature, test, series, etc.

Enter in the DD payable register.

Verify with the ICBA /test etc.

Pass necessary vouchers.

Telephonic Transfer (TT)

This is a mode of transfer / remittance of customer money from a branch of one bank to another

branch of the same bank or to a branch of another bank with prior arrangement between the banks

with the TT issuing branch through telephonic message. Characteristics of TT are:

Issued by one branch to other branch and message is tele- communicated.

Remittance / transfer of money are done through tested tele-messages.

Remittance is affected on the basis of tested message.

Test key apparatus required.

TT issuing procedure

Obtain TT application form duly filled in and signed by the purchaser/ applicant with

full account particulars of the beneficiary.

Term Revised Rate of Interest

3 months 8.00%

6 months 8.25%

12 months 8.50%

Receive the amount in cash/ transfer with prescribed commission, postage,

telephone/telex etc.

Prepare TT message inserting code number.

Enter in TT issue register.

Issue advice to the payee branch.

TT payments procedure:

Note the TT message and verify the test number and confirm if TT serial no. Etc. is

OK.

If ok, enter into TT payable register.

Pass necessary voucher for payment.

The procedures are as follows:

Payment order (PO)

This is an instrument issued by the branch of a bank for enabling the customer/ purchaser to pay

certain amount of money to the order of a certain person/ firm/ organization/ department/office

with in the same clearinghouse area of the pay order-issuing branch. Pay order has different

characteristics:

The issuing branch and the paying branch are same.

Application for payment with in the clearing house area of the issuing branch.

This may be open or can be crossed.Procedure of P.O. issue

Receive TT paper

Entry register book

Responding

Debit Paper

Credit Advice

Debit Paper (Principal + Rest Amount)

Debit Voucher (Rest Amount)

Credit Paper (principal Amount)

Obtain PO application form duly filled in and signed by the applicant.

Receive the amount in cash/transfer with commission amount.

Issues pay order.

Enter in pay order register.

Procedures of pay order payments

Examine genuinely of the pay order.

Enter in to pay order register and give contra entry.

Debit if fund ok for payment.

Processing of Pay Order:

Money Gram

Money Gram is one of the innovative products of the bank. This has been functioning satisfactory

and rendering prompt and efficient services to the wage earners. Money Gram is represented in

over 115 countries and is available at more than 25,000 locations worldwide. In the USA alone

Money Gram is available at more than 15,000 locations. All one has to visit a conveniently

situated Money Gram agent anywhere in the world and handover the money where they want to

send their relatives or friends along with the one-off transaction fee.

Pay order Cheque

Entry register book

Responding (Call deposit slip)

Credit slips (charge on pay order)

Figure: Remittance (2005-2009)

In this Chart, we see that, the ratio of Remittance is increasing year by year. In 2005, the

Remittance was 2492 million, in 2006, 3856 million, in 2007, 7444 million, in 2008, 12098

million, and in 2009 it was 13392 million.

3.6 CLEARING

Generally speaking, clearing means settlement but from Banker’s point of view it refers to the

procedure of receipts & payments of proceeds of cheques and other instruments through banks.

Clearing House is a place where the representatives of all member banks meet together and settle

mutual obligations of banks arising out of cheques & other instruments drawn on one bank and

deposited with another bank for collection, under a special arrangement. The characteristic of the

clearing house is that at the time of coming to this place the representative of very bank brings

with him all cheques etc drawn on other banks along with schedules and delivers the cheques to

the clearing house and receives cheques etc drawn on his bank and on the basis of cheques etc.

delivered & received the mutual obligations between banks is ascertained and settled through

their respective bank accounts maintained with the Central Bank or any other bank which

conducts the clearing house.

Types of Clearing

There are two types of Clearing, such as (a) Internal or Inter-branch Clearing and (b) Inter-Bank

Clearing. Under the 1st type all branches of the same bank situated in a particular city settle their

mutual obligations through the main branch of the bank. In some banks the term “Transfer

Delivery” is used to mean internal clearing. In the other case, in one city the obligations between

all banks are settled. In this case Bangladesh Bank or Sonali Bank performs the function of the

Clearing House in Bangladesh.

Kinds of Clearing :

The Clearing House activities may be grouped into two types, (1) Outward clearing and (2)

Inward Clearing.

1) Outward Clearing Procedure

Receipt of instrument with paying in slip.

Checking of instrument & paying in slip.

Affixing of seal

Special Crossing seal.

Clearing Seal (Instrument & Paying in slip)

Endorsement Seal with signature.

Singing of counterfoil and returning it with seal to the depositor.

Separation of instrument from paying in slip.

Sorting of instrument bank wise and branch wise.

Preparation of schedule- branch wise.

Preparation Bank wise schedule.

Preparation of clearing House sheet.

Tallying of totals of paying in slips with the totals of Clearing House sheet.

Making of entries in Clearing Register (Outward).

Preparation of vouchers.

Sending of instruments to main branch with schedule.

Collection of credit advice from Main Branch.

2) Inward Clearing Procedure

Receipt of instruments with schedule

Checking of instruments.

Sending of instruments to different Departments/Sections for posting

Preparation of Vouchers and sending of credit advice to main branch.

Clearing Return Procedures

Outward clearing Return

Preparation of return memo.

Making of entry in clearing return Register.

Preparation of schedule.

Sending of instruments to main branch before second clearing.

Inward Clearing Return

Receipt of instrument with return memo.

Preparation of Party debit Voucher.

Making of entry in cheque return Register.

Sending of instrument with return memo and party debit advice to party by post or through peon.

3.7 COLLECTION

The collecting banker is who on his customer’s behalf, presents to the paying banker, either

directly or through the clearing channels, the cheques paid into credit by his customers, or

obtained payment from the paying banker of the cheques so presented. However, the law has not

imposed any duty on the bank to collect the cheque, dividend warrants and other allied

instruments. When a banker collects his customer’s cheques, he acts either;

A. As an agent of the customer

B. As a holder of value

3.8 CASH AND OTHERS

Procedure of cash Receipts

While receiving cash the receiving cashier should see that the paying in slip has peen

properly filled in

The paying in slip does not bear the name of another branch or the customer has not

mentioned the name of another branch.

The title and number of account have been mentioned on the paying in slip and the

counterfoil.

The amount in words and figures are the same.

The particulars and amount on the pay-in slip and the counterfoil are same.

The Cashier should receive money, count it and mention the denomination of notes

on the back of the paying in slip and see that the total tallies with the amount of the

paying in slip.

He should count the notes again and verify the amount from that mentioned on the

paying in slip.

He should enter the particulars as to the name of the party, account number and

amount in the Receipt Register.

He should sign on both the parts of the paying in slip i.e. voucher and the counterfoil.

He should then hand over the paying in slip and the Receipt Register to the authorized

person, Officer in Charge/Head Cashier.

For the amount received on account of commission, Telegram and postal charges

where no separate voucher is passed he should maintain record in a separate book or

enter the same in Receipt Register immediately. He should prepare relevant vouchers

and hand over the same to the authorized person for affixing the “CASH

RECEIVED” stamp and obtain counter signature from the officer.

After the close of business hours, he should balance the cash receipts from the

register, and should keep the cash ready for checking by the authorized person.

Procedure of Cash Payments

For Payment of Cheques

Payment Cashier should see that the cheque is in order i.e. the amount in words and

figures is same. The cheque is neither post dated nor state.

He should then request the presenter of the cheque to sign on the back of the cheque.

The paying cashier sees that the signature of the ledger keeper and in case of big

amount cheques, the signature of the officer and the Manager are there on the cheque

as a token of having posted and supervised the cheque.

If the cheque is payable to the order of payee, the payee or the endorsee (if endorsed)

has been properly identified.

Then he should take out cash and call out the name of the party and ask him about the

amount of the cheque and his token number. If the amount stated by the party differs

from the amount of the cheque, he should tally the token number, if the token number

is the same and the amount differs, he should report the matter to the Officer in

charge/ Manager.

He should obtain another signature of the party on the back of the cheque. He should

now see that the second signature tallies with the first one already on it.

In case the signatures do not tally, he should not make the payment and report to the

Officer in charge.

Before making the payment he should obtain the token from the party and see that the

amount and token number are the same.

He should, once again, ask the party about the amount of his cheque and count the

cash for the second time before making payment. When satisfied in all respects he

should make payment.

He should affix the “CASH PAID” stamp bearing the date of payment.

He should put his full signature under the cash paid stamp.

He should enter the particulars of the cash payment in his payment Register.

He should keep the cheques so paid in his safe custody till the Officer in

charge/Manager checks his payment register.

For Cash Payment of other instruments

In case of cash payment of Drafts, Pay Orders and Pay Slips, he should see that the

payee has been properly identified, and in case of Pay Slips, the beneficiary has

signed on proper revenue stamp.

The Officer/ Officers has/ have signed under the stamp “PAY CASH”

In other respects, so far as applicable, the same procedure is to be followed as in

payment of cheques.

For Payment on Cash Debit Vouchers

For payment on cash debit voucher he should see that two persons holding “Power of Attorney”

have signed the voucher.

The Manager has singed on the cash debit voucher giving his assent.

The proper Account has been charged.

The recipient has signed on the back of the voucher

If the amount is TK. 20/= (twenty) and above the recipient has signed on proper

revenue stamp.

If the payment is being made to a person other than a staff member, the “payee” must

have been properly identified.

Procedure of Cash Handling

The Cashier should know to differentiate defective, Mutilated, Burnt, Torn etc. notes from

good notes. As a matter of rule such notes should not be accepted over the counter as deposits

or in exchange of good notes. These notes, under special circumstances, may be accepted only

on “collection basis”. These notes should

immediately be sent to Bangladesh Bank/ Sonali Bank for receiving payment of exchange

value.

3.9 FLORA BANKING

Flora Banking is specialized online banking software which is helpful to maintaining customer’s

accounts. The operation of Flora banking starts from Moghbazar branch.

CHAPTER – FOUR Foreign Exchange Operation

4.1 INTRODUCTION

Banks play a very vital role in affecting foreign exchange transaction of a country. Mainly

transactions with overseas countries are respect of –import; export and foreign remittance come

under the purview of foreign exchange transaction. Central bank records all sort of foreign

exchange transactions and therefore, transaction affected by the banks other authorized quarters

are to be reported regularly to the Bangladesh Bank.

4.2 FOREIGN EXCHANGE

It is a process of system of conversion of one nation currency to another and of transforming

money from one country to another.

Foreign Exchange Business means-1) Import Business 2) Export Business 3) Foreign

Remittance.

4.3 IMPORTANCE OF FOREIGN EXCHANGE BUSINESS IN OUR ECONOMY

International trade gives exchange opportunity of goods.

Consumers get privilege through international trade.

International trade helps to produce domestic production as well as Global

Production.

Natural assets of a country are to be utilized property.

Authorized Dealership:

The bank, which is authorized by Bangladesh bank for dealing foreign exchange business on

transaction under the FER Act, 1947 is called Authorized Dealership. NCCBL, Kawran Bazar

Branch is one of the Authorized Dealership Branch of NCCBL.

4.4 FUNDAMENTALS OF FOREIGN EXCHANGEThere are three fundamentals of foreign exchange: -

i. Every country has it own currency legal tender.

ii. Banks effect the conversion of one currency to another by booking keeping entry carried out

in the two centers concerned.

iii. These exchanges are affected by means of credit instruments viz. Draft, mail transfer,

telegraphic transfer etc.

4.5 FOREIGN EXCHANGE DEPT. OF NCC BANK

NCC bank foreign exchange dept. plays a vital role to earn the bank’s maximum profit. The dept.

is classified according to their activities. The foreign exchange dept. consists of three sections: -

Import section,

Export section,

Foreign remittance section

4.6 IMPORT PROCEDURE

Import:

Import means goods and services purchased from foreign sources. These imports may be used for

consumption, investment or government. Whatever their use, imports represents purchase of

goods and services that not even produced or purchased but insufficient in a country.

Procedure for obtaining IRC:

As per Import & Export control Act, 1950 no person can indent, import or export any goods in to

Bangladesh except incase of exemption issued by the government of the Peoples Republic of

Bangladesh. So for doing import business at first every importer should obtain Import

Registration Certificate. Through public notice or import policy the chief controller of import and

exports invites application usually for registration of importers. The following papers / documents

are required for submission to CCI & E for Import Registration Certificate.

Application form.

Nationality Certificate.

Income tax registration certificate with GM.

Trade license.

Membership Certificate.

Partnership Deed (For partnership firm)

Certificate of Registration with the Register of Joint Co. & Articles and memorandum of

Association in case of Limited Company.

Bank Certificate.

The nominated of the applicant will examine the papers/documents and verify the signature of the

applicant and forward the same to the concerned office of the CCI & E with a ford wing schedule

in duplicate though bank representative. The duplicate copy of the same bearing the

acknowledgement of CCI & E office of the receipt of the document is received by the bank and is

preserved.

Import: Basis of

Performa invoice

Indent.

Special trade agreement,

Sales Contract,

Barter system.

Figure: Import (2005-2007)

In this Chart, we see that, the ratio of Import is increasing year by year. But in 2009, it was fall

down compare to 2008. In 2005, the import was 16296.30 million, in 2006, 17646.80 million, in

2007, 28779.21 million, in 2008, 38796.88 million, and in 2009 it was 33078.44 million.

Import Procedure:

4.7 DEFINITION OF L/C

Letter of credit is an undertaking giving by the issuing Bank on behalf of its customers to pay a

certain some of money to a certain person (beneficiary) on the fulfillment of certain terms of

conditions as laid down in the letter.

4.8 CLASSIFICATIPN OF L/C

Revocable L/C, Red clause L/C Irrevocable L/C,

Confirmed L/C, Transferable L/C, Devisable L/C,

Revolving L/C Restricted L/C, Green clause L/C,

Back-to-Back L/C, Stand by L/C, Circular L/C,

Straight L/C.

4.9 THE CLAUSES CONTAINED IN A L/C

A clause authorizes the beneficiary to draw bills of exchange up to certain on the opener.

List of shipping document, which are to accompany the bills.

Description of the goods to be shipped

An undertaking by the issuing bank that bills drawn in accordance with the conditions

will be duly honored.

Instructions to the negotiating bank for obtaining reimbursement of payments under the

credit.

4.10 PARTIES INVOLVED IN A LETTER OF CREDIT Importer/Buyer

Opening Bank Exporter/Beneficiary

Negotiating Bank

Advising bank

Confirming/Reimbursing Bank

Importer/Buyer

Importer/Buyer is the party who opens L/C on behalf of exporter by issuing bank.

Opening/Issuing Bank

The opening/issuing bank is the bank which opens/issues a L/C on behalf of the importer. It is

also called the importer's /buyer's bank.

Exporter/Beneficiary

Exporter/Beneficiary is the party in whose favor the L/C is established. Advising /Notifying Bank

The advising/Notifying bank is the bank through which the L/C is advised to the exporting

country & it may be a branch of the opening bank or a correspondent bank. It may also assume

the role of confirming and /or negotiating bank depending upon the conditions of the credit.

Negotiating Bank

Negotiating bank is the bank that negotiates the bill & pays the amount to the beneficiary. It has

to carefully scrutinize the documentary credit before negotiation in order to see whether the

documents apparently are in order or not. The advising bank & the negotiating bank may or may

not be one & the same.

Reimbursing

Bank reimbursing bank is the bank, which would reimburse the negotiating bank. It is to be

nominated by the issuing bank.

4.11 L/C APPLICATION

NCCBL provides a painted form for opening of L/C to the importer. A special stamp is attached

on the form. While opening, the stamp is cancelled. The importer gives the following information

is that form:

Full name & address of importer.

Date & place of expiry of the credit.

The mode of transmission of document (courier/mail/telex)

Whether the confirmation of the credit is requested by the beneficiary or not.

Whether the partial shipment is allowed or not.

The type of loading (loading on boarding).

Brief description of the goods to be imported.

Availability of the credit by sight payment acceptance/deferred payment.

The time bar within which the document should be presented.

Sales terms (FOB/CIF/C & F).

Account number.

L/C amount.

Shipping mark.

H.S. code number of the goods to be imported.

IRC number.

LCA number Insurance cover note. Country of origin.

The above information is given along with the following documents.

Proforma Invoice, which gives description of the goods including quantity, Unit price etc.

Four set of IMP form.

The insurance cover note, Issuing Company &the insurance number.

4.12 TRANSMISSION OF L/C

The ways of transmission of L/C are as follows

i) Through SWIFT

ii) Through Telex

iii) Through DHL or FEDEX

iv) Through Emergency Mail Service (EMS)

4.13 AMENDMENT OF LETTER OF CREDIT

Parties involved in a L/C cannot always satisfy the terms & conditions in full as expected due to

some unexpected reason. In such a situation, the credit should be amended. NCCBL transmits the

amendment by tested telex to the advising bank. In case of revocable credit, it can be amended or

cancelled by the issuing bank at any moment & without prior notice to the beneficiary. But in case

of irrevocable L/C, it can neither be amended nor cancelled without the agreement of the issuing

bank, the advising bank & the beneficiary. If the L/C is amended, service & telex charge is

debited from the party account.

4.14 PRESENTATION OF THE DOCUMENTS

After the exporter /seller is being satisfied with the terms & conditions of the credit, he/she then

proceeds to dispatch the required goods to the importer. Then he/she has to present the documents

evidencing dispatching of goods to the negotiating bank within the stipulated expiry date of the

credit. After receiving the documents, the negotiating bank checks them against the credit. If the

documents are found in order, the bank will negotiate to the issuing bank, in our case with

NCCBL. NCCBL also checks the documents.

The usual documents in a Letter of Credit are the following: Bill of exchange. Commercial Invoice. Packing List. Bill of Lading.

Certificate of Origin. Pre-shipment Inspection report. Insurance Cover Note. Shipment Certificate.

4.15 COMMON DISCREPANCIES OF THE IMPORT DOCUMENTS

Most common discrepancies that are found 'in import documents are giving below:

Wrong tenor shown in the bill of exchange.

Partial shipment is beyond L/C limited /terms.

Insufficient number of Commercial Invoice.

Unsigned document.

Description of the goods is not consistent with that of L/C.

Submission of documents after expiry of Letter of Credit.

Some important documents are not presented.

If any major discrepancy found in the document it is immediately informed the Importer for his

opinion.

After repairing the necessary vouchers, endorsement is made on the bank of the B/F- as Received

Payment & the B/L is endorsed as Please delivery to the order of M/S--------" under two

authorized signatures of NCCBL's officers (P.A. holders). Then the documents are given to the

Importer.

4.16 BACK-TO-BACK LETTER OF CREDIT

A back-to-back letter of credit is a new credit. It is different from die original credit based on

which the bank undertakes the risk under the back-to-back credit. In this case, the bank's main

security is the original credit (selling credit) and the back to back credit (buying credit) is separate

instruments independent of each other, although both are part of the same business operation. The

supplier (beneficiary of the back to back credit) ships goods to the importer or supplies goods to

the exporter and presents documents to the bank as if specified in the credit. It is intended that the

exporter would substitute his own documents and ships the goods to the importer, if necessary,

and present documents for negotiation under the original credit, his liability under the back-to-

back credit would be adjusted out of these proceeds. Export L/C is marked lien and no margin is

taken. Documents that are required to submit for opening a back-to-back L/C are given below:

Master L/C.

Valid Import Registration Certificate (IRC) & Export Registration Certificate (ERC).

L/C application & LCA form duly filled up & signed.

Proforma Invoice or Indent.

Insurance cover note with money receipt.

Duly singed IMP form.

4.17 VARIOUS STEPS INVOLVED IN THE OPERATION OF LETTER OF CREDIT

1. The importer and exporter have made a contract before a L/C is issued.

2. Importer applies for a letter of credit from his banker known as the issuing batik. He may

have to use his credit lines. If lie is a new customer, margin deposit may be required: e.g.

20% deposit on credit amount.

3. Issuing bank opens the L/C, which is channeled through its overseas corresponding bank,

known as advising bank.

4. Advising bank informs the exporter (the beneficiary) of the arrival of the L/C.

5. Exporter ships the goods to the importer or other designated place as stipulated in the

L/C.

6. Meanwhile, he prepares his own documents and collects transport documents or other

documents (e.g. insurance policy) from relevant parties. All these documents will be sent

to his banker, which is acting as the negotiating bank.

7. Negotiation of export bills happens when the banker agrees to provide him with finance.

In such case, he obtains payment immediately upon presentation of documents. If not, the

documents will be sent to the issuing bank for payment or on an approval basis as in the

next step.

8. Documents are sent to issuing bank (or reimbursement bank which is a bank nominated

by the issuing bank to honor reimbursement from negotiation bank) for reimbursement or

payment.

9. Issuing bank honors it's undertaking to pay the negotiating bank condition that the

documents comply with L/C terms and conditions.

10. Issuing bank releases documents to importer when the letter makes payment to the former

or against the latter's trust receipt facility.

4.18 EXPORT PROCEDURE OF NCCBL

Export is one of the most important activities that can increase economic and social well being

through transaction of goods and services from domestic economic agent to foreign economic

agent for which domestic economic agents receive payments, preferably in valuable foreign

currency. The import and export trade in our country is regulated by the Imports & Exports

(Control) Act, 1950. There are some formalities, which an exporter has to fulfill before & after

shipment of goods

The export procedure follows the following steps:

Registration of Exporters

Under the export policy of Bangladesh, the exporters have to get valid export registration

certificate (ERC). For obtaining Export Registration Certificate Bangladeshi exporters are

required to apply to die controller of Import & Export in the prescribed from along with the

following documents:

Nationality and assets Certificates,

Memorandum and Articles of Associates and Certificate of incorporation in case of

Limited company;

Bank Certificate;

Income Tax Clearance Certificate;

Trade License issued by the Municipal Authority.

Payment of Registration fees and renewal fees in a Treasury Chalan.

Obtaining EXP

After getting ERC the export applies to NCCBL (or any other commercial Bank) with trade

license & if the bank is satisfied, an EXP issued to the exporter.

Securing of Order

After getting the ERC the exporter may proceed to secure the export order. He can do this by

contacting the buyers directly through correspondence. In this purpose exporter can get help from:

Liaison Offices;

Buyer's Local Agent;

Export Promoting Organization'

Bangladesh Mission Abroad;

Chamber of Commerce (Local & Foreign);

Trade Fair etc.

Signing the Contract

While making a contract, the following points are to be motioned:

Price of the goods

Describe of the goods

Quantity of the goods

Export Letter of Credit

After getting the contract for sale, exporter should ask the buyer for letter of credit (L/C) clearly

stating terms and conditions of export and payment. The following are die main points to be

looked into for receiving/ collecting export proceeds by means of Documentary Credit:

The L/C is an irrevocable one, preferably confirmed by the bank,

The L/C allows sufficient time for shipment and negotiation,

Procuring the materials

After making the deal and on having the L/C opened in his favor, the next s for the exporters is to

set about the task of procuring or manufacturing contracted merchandise.

Shipment of goods

The following are the documents normally involved at the stage of shipment.

EXP Form

ERC (valid)

L/C copy

Customs duty certificate

Shipping instruction

Shipping instruction

Transport Documents

Insurance Documents

Invoice

Bill of Exchange (if required)

Certificate of origin

Inspection Certificate

Quality Control Certificate

Now exporter submits all these documents along with a Letter of Indemnity NCCBL for

negotiation. An officer scrutinizes all the documents. If documents are clean, NCCBL purchase

the documents on the basis of bad customer relationship. This is known as Foreign Documentary

Bill Purchase (FDBP).

Forwarding Foreign Bills for Collection

If the documents have discrepancies.

If the banker is in doubt.

If the exporter is a new customer.

Foreign Documentary Bills of collection signifies that the exporter will receive payment

only when the issuing bank gives payment

Export Procedures:

Figure: Export (2005-2009)

In this Chart, we see that, the ratio of Export is increasing year by year. But in 2009, it was fall

down compare to 2008. In 2005, the export was 7776.30 million, in 2006, 8557.00 million, in

2007, 9577.92 million, in 2008, 12522.04 million, and in 2009 it was 11903.72 million.

4.19 COMMON DISCREPANCIES

NCCBL officials usually find the following discrepancies while checking the above-mentioned

documents:

On board nation of in Bill of lading undated/ unauthenticated.

Shipment effected from port other than that stipulated in the credit.

Full set of bill of lading not presented.

Certificate of country of origin not provided.

Wightman certificate not presented,

Cuttings/alternations in documents not authenticated.

Documents inconsistent with each other.

Description of goods on invoice differs from that in the credit.

Credit (L/C) amount exceeded.

Credit (L/C) expired.

Documents not presented 'in timed / stale bill if lading.

Late shipment.

Absence of signature, where required, on documents presented.

Bill of Lading does not evidence whether freight is paid or not.

Packing list not submitted.

Notify party differs /not as per L/C stipulation.

Inspection certificates not submitted.

Unit price not mentioned in invoice.

Health certificate (fit for human consumption) not submitted.

CHAPTER – FIVE

Loan and Advance

5.1 INTRODUCTION

Banks are principal source of credit for borrowers. Banks provide loan able funds for millions of

households (individuals and families), for most local units of government and for agricultural,

commercial and industrial activities of a nation. Worldwide, banks grant more installments loans

to consumers than any other financial institution. Bank credit is a catalyst for bringing about

economic development. Without adequate finance there can be no growth or maintenance of a

stable output. Bank lending is important to the economy, for its makes possible the financing of

different sectors. At the same time, a bank will, therefore, distribute its funds among various

businesses in a manner as to derive sufficient income. But as liquidity and profitability are

conflicting considerations. NCC Bank Limited as a bank, while employing the funds pays due

regard to both profitability and liquidity.

5.2 CREDIT

“Credit is a promise of future payment in kind or in money given in exchange for present money,

goods or services”

In general credit means the granting of a period of time by a creditor to a debtor at the expiration

of which the latter must pay the debt due.

One of the primary functions of commercial banks is sanctioning of credit to the potential

borrowers. Bank credit is an important catalyst for bringing about economic development in a

country. Without adequate finance, there is no growth or maintenance of a stable economy. Bank

lending is important for the economy, because it makes possible the financing of agriculture,

commercial and industrial activities of a nation. At the same time, a bank, therefore, distribute its

funds among various sectors in a manner as to derive sufficient incomes.

National Credit and Commerce Bank, being one of the largest private commercial bank of the

country, has some prejudice to finance directly on priority basis to agriculture, industry and

commerce sector for strengthening the economic base of the country.

Hence, it is very clear that, NCCBL plays an important role to move the economic wheel of the

country.

Importance of Advance towards the Nation

Loan & advance is an important part of a bank. Deposit extraction & credit extension is the basic

function of a Bank. Proper credit management is the crying need for a Bank. So every Bank

follows some policy of direction, monitor, smooth approval & review of lending operation for the

proper credit management. NCCBL extent it credits facilities to trade & commerce, small &

medium enterprises within the policy guidelines of the Bank & Bangladesh Bank.

5.3 CREDIT INVESTIGATION

Credit Investigation refers to the assessment of the loan proposal/venture/project/ enterprise from

different angles with a view to justifying soundness of the same.

Who shall get credit?

It is easier to find out a depositor than finding out a good borrower. Public money, in the hands of

bad borrower, is never saved and secured. Then, whom to lend? In short, the answer is to lend to

an entrepreneur. Who is an entrepreneur? An entrepreneur may be defined as a person who, for

attaining his own pecuniary interest as well as mental satisfaction together with offering

additional services and well being to the society at large, under takes efforts to collect together

various types of necessary goods, labor materials, other wealth etc. and by means of application of

his wisdom, foresight, creativity, devotion and self confidence, takes initiative to add additional

utility and value to the collected materials and wealth by bringing change and or modification in

their form. He manages affairs and loan sanctioning authorities must be acquainted with technique

to take correct lending decision so far borrowers attribute is concerned.

Sources of Credit Information:

Broadly, a banker collects the required information about a prospective borrower from the

following sources:

Loan Application

When a loan proposal has to be processed a banker first studies the loan application made by the

borrower. A loan application usually contains information pertaining to the name of the concern,

constitution, nature and place of business, year of establishment, borrower’s experience in the

line, particulars of assets and liabilities, purpose of advance, amount required, the period of

advance applied for, nature of security offered, sources of repayment etc.

Market Reports

After receiving the loan application form, NCCBL sends a letter to Bangladesh Bank of obtaining

a CIB (Credit Information Bureau) report. The purpose of this report is to being informed that

borrower has taken loan from any other bank, if ‘yes’ then whether these loans are classified or

not. After receiving CIB report if the bank thinks that the prospective borrower will be a good

borrower, then the bank will scrutinize the documents. If all the documents are properly filled up

and signed then comes processing stage. In this stage, the bank will prepare a credit proposal.

Study of Account

If the borrower is the customer of the bank, a study of the borrower’s account and his /her past

dealings will throw light on the aspect of keeping up commitments, borrowing else-where etc.

which will assist a banker in judging about creditworthiness of the borrower. If the account shows

a good turnover, and the cheques were never returned for want of funds, which will give an

impression about the volume of business of the borrower as well as his/her honest dealings. If

some of the parties to whom cheques are issued are known to the bank, further independent

enquiry would be possible. If he/she is having account with other bank, he/she may be requested

to show the relative passbook and/or statement accounts so that all accounts can be studied side

by side. A confidential opinion about the customer from his/her pray bankers should be obtained.

Financial Statements etc

The borrower should be requested to supply the statement in regard to his/her assets and

liabilities. It is always preferable to have audited statements for the last three years. In addition,

the lending banker must arrange to obtained a copy of the latest income tax statement of the

borrower from which it will be possible to estimate his/her income. Similarly his/her sales tax

return will give an idea about the sales. In case of limited companies, the audited balance sheet

and profit and loss account for the last three years must be obtained to assess the financial

position of the company and various financial aspects of the borrower’s business.

Other Sources

Other sources of information about the borrower include press reports regarding purchase and

sales of property, Auctions and decrees, registration, revenue and municipal records can also be

referred to with advantage to verify the properties owned by the borrower and charges thereon, if

any. If the borrower happens to be a limited company, a search of the records of the registrar of

the joint stock companies should be made for finding out if there are any prior charges or

mortgage on the company’s assets.

Personal Interview

After having collected all the information from outside sources, it is advisable to arrange for a

personal interview with the borrower. The questions must be suggestive and helpful to put

him/her at ease so that he/she gives all information required by the bank. The banker should be

able to know from the interview the customer’s specific requirements, the prospects of his/her

employing the funds prudently, his/her capacity to repay and the suitability of the security offered,

if any. Enquires may be made to verify the information given by the customer.

5.4 MODERN CONCEPT OF GOOD LENDING

Modern concept of lending presupposes a well-developed loan proposal/loan case/project. It will

cover as many as six pertinent aspects like:

Managerial aspect- Character, Capacity, Capability of management.

Organizational aspect- whether proprietorship or partnership.

Technical aspect- Location of project, power, construction.

Marketing aspect- Marketability of the product.

Financial aspect- cost of project, sources & uses of funds profit.

Economic aspect- Socio economic benefit and cost analysis.

How much to lend:

Over financing and under financing are vary common phenomenon in credit portfolio; neither of

which is desirable as a sound principle of advance. For a going concern, widely accepted principle

of calculating working capital need is already and established factor of sound credit policy

deviation from which may lead to catastrophic result and so, it is better to reject proposal instead

of under financing. At the same time, over financing will create opportunity to divert fund. The

highest priority of consideration is that bank credit must not be extended for speculative purpose

and sound credit policies always find out actual credit need depending on nature, volume, and

turnover of business as well as capability of the prospective borrower. The most important aspect

for consideration is how much a bank can lend taking in consideration its liquidity position, loan

able fund and commitment already made. Moreover contingent liability must be taken in to

consideration very wisely in sanctioning new loan and enhancing old limits as contingent liability.

Purpose of Lending:

The recommending as well as sanctioning authority must ascertained and satisfy himself that all

advances are for productive purpose, genuine business and tread-need based and neither for

speculative nor for unproductive purpose. Here production is to be construed as creation of

additional utility for the society. Thus, if advance is canalized for productive purpose, it will

broaden economic activity, augment trade and commerce, production will rise, open the door off

new economic activity, create employment opportunity, encores young energetic millions to

engage themselves in innovative

remunerative activity, and increased movement of goods and flow of cash i.e., velocity of

circulation of money will automatically be increased which, in banking concept, is known as cash

generation. Bank cannot afford a loan turning bad to the detriment of institution and the society

and for this purpose, the recommending and sanctioning officer must be acquainted with sound

principles of advance, and the ways and means to analyze the risks involved with the proposal

processes and the limit sanctioned.

5.5 TYPES OF LOANS AND ADVANCES

Loans and Advance in banking deals with different types of loan. The NCC Bank performs

various functions, lending of money to different kinds of borrowers based on the nature of their

activities, the location of business, financial stability, earning and repayment capacity, purpose of

advance, securities all differ and their degree of risk also.

5.5.1 FUNDED CREDIT AND NON –FUNDED CREDIT:

Funded Credit:

Any type of credit facility which involves direct outflow of Bank’s fund on account of borrower is

termed as funded credit. Over draft and most of the loan comes under this section. By taking

collateral from the borrower bank allow to take over draft facility is a continuous process. Borrow

has to pay interest on the withdrawn money.

Non- Funded Credit:

There is no cash amount involved in this kind of loan. BLC (bill for L/C) and bank guarantee falls

in this kind of loan. In case of BLC foreign exchange department mainly deals with it.

5.5.2 TERM LOANS AND WORKING CAPITAL FINANCE:

Term Loans Finance:

NCC Bank Ltd. considers the loans, which are sanctioned for more than one year as term loan.

Under this facility, an enterprise is financed from the starting to its finishing, i.e. from installation

to its production. NCCBL offers this facility only to big industries.

Under term loan there are three categories:

Short term loan- loans having maturity less than one year fails under this category.

Midterm Loan –this loan facility is extended for loans having maturity more than one

year but less than three years.

Long term loan- loans having maturity more than three years.

Working Capital finance:

Loans allowed to the manufacturing units to meet their working capital requirement, irrespective

of their size and nature of business.

5.5.3 SECURED OVERDRAFT (SOD), CASH CREDIT, OVERDRAFT AND BILLS

PURCHASED:

The overdraft is a kind of advance always allowed on a current account operated upon by

cheques. It is a continuous advance facility. By this agreement, the banker allows his customer to

overdraft his current account up to his credit limits sanctioned by the bank. The interest is charged

on the amount, which he withdraws, not on the sanctioned amount. Type of secured over draft

are:

SOD (General):

Advances allowed to the individuals/firms against financial obligations i.e. lien of FDR or defense

savings certificate, ICB unit certificate etc and against work order of government departments,

corporations, autonomous bodies and reputed multinational organization.

SOD (FO):

Advance is granted to a client against financial obligations. The security of advance is granted to

the person to whom the instrument belongs. The discharged instrument is surrendered to the bank

along with a letter signed by holder authorizing the bank to appropriate the proceeds of the

instrument on due date towards the repayment of the advance. The bank’s lien is prominently

noted on the face of the instrument under the signature of an authorized bank official. Another

branch of NCCBL or any branch of some other bank issues the instrument, than the concerned

branch is intimated to lien mark the instrument.

SOD (Export):

Advance allowed to purchasing foreign currency for payment against L/Cs (BTB) here the

exporter can not materialize before the date of import payment. This is also an advance for a

temporary period.

Cash credit:

Cash credit is an arrangement by which a banker allows his customer to borrow money up to a

certain limit. CC is a favorite mode of borrowing by traders, industrialists etc. for meeting their

working capital requirements. It is operated like overdraft account. Depending on the needs of the

business, the borrower can draw on his cash credit account at different time and when he gets

money can adjust the liability. NCCBL charges interest on the daily balance in the account.

Depending on charging security there are two forms of cash credit.

Cash credit(Hypothecation):

SOD (General)

Secured Over Draft (SOD)

SOD export

SOD (FO)

It is a short term arrangement by which a customer is allowed to borrow money up to a

certain limit sanctioned by the bank for a certain time. Under this condition, the borrower

has to submit the stock fortnightly in the bank. It is granted to parties of undoubted means

with the highest integrity.

Cash credit(Pledge):

It is also a continuous loan allowed against pledge of goods as primary securities fall

under this head of advance. In case of pledge, the goods are placed in custody of the bank

with its name on the godown where they are stored. The borrower has no right to deal

with them without the concern of bank.

Overdraft:

A customer having current accounts is accommodated by overdraft facility against security.

Permission is given to overdue current account up to sanctioned limit. The borrower may operate

any number of times within sanctioned limit up to validity period of limit. The interest is charged

on his debit balance.

Bills Purchased:

Local Documentary bills purchased (LDBP):

Payment made against documents representing sell of goods to local export oriented

industries which are deemed as exports and which are denominated in local

currency/foreign currency falls under this head. The bill of exchange is held as the primary

security.

Foreign Documentary bills purchased(FDBP):

Payment made to a party through purchase of foreign documentary bills fall under this

head. This temporary advance is adjustable from the proceeds of negotiable

shipping/export documents. It falls category Export credit.

5.5.4 IMPORT FINANCING:

Loan against imported merchandise (LIM):

The temporary loan, which is allowed to the importer against their imported goods, is

called Loan against Imported Merchandise (LIM). Validity of the LIM will be allowed as

per sanction letter. LIM is generally disbursed once. Interest rate of this loan is higher and

it is charged on monthly basis. Control over the imported goods to be absolutely maintain

by the bank.

Loan against trust receipt (LTR):

The temporary loan, which is allowed to the customer against their application on the

basis of trust. It is call loan against trust receive. Validity of LTR will be allowed for

30/60/90/120 days etc. Adjustment of LTR may be made partially or fully. Interest rate of

this loan is higher. Interest rate on LTR is charged on monthly basis. It is allowed against

security.

Payment Against Documents (PAD):

When Issuing bank gets the original shipping discontents from Negotiating bank against a

letter of credit (L/C), then issuing bank goes through that shipping discernment for

scrutiny. After scrutiny of the shipping documents, if the issuing bank finds the shipping

documents in order, i.e. as per L/C terms, then issuing bank open a loan account on

account of importer. This total process may be defined as PAD.

5.5.5 EXPORT FINANCING:

Continuous loan are involved in export financing. It can be two ways:

Pre-shipment credit financing:

Pre-shipment credit is given to finance the activities of an exporter prior to the actual

shipment of goods. It is essentially a short term credit and liquidated by negotiation or

purchase of export bills covering the merchandise. It may be followings:

1. Packing Credit (P.C.):

In this case, credit facilities are extended against security of master L/C. the amount of

loan is ten to fifteen percent of FOB value of master L/C. interest rate of PC is seven

percent as per Bangladesh bank which is followed by NCC bank Ltd.

2. Export cash credit against trust Receipt:

In this case, credit limit is sanctioned against trust receipt. Here, exporter is required to

execute a stamped trust receipt in favor of the bank, wherein a declaration is made that

receiving bill from buyer bank adjust the liability.

3. Back to Back Letter of Credit:

Under this arrangement, the bank finances export by opening a letter of credit on behalf

of the exporter who has received a letter of credit from the overseas buyer. As the

exporter is required to purchase raw material for producing exportable, this new letter of

credit is opened in favor of the supplier of raw materials within or outside the country.

Since the second letter of credit is opened on the strength of master letter of credit, it is

called back-to- back letter of credit.

Post- Shipment Export Credit:

Post shipment credit refers to the credit facilities extended to the exporter by the bank after

shipment of the goods against export documents. Necessity for such credit arises, as the

exporter can not afford to wait for a long time without paying manufactures/suppliers.

1. Negotiation of Export Bills:

Under this arrangement, after the goods are shipped, the exporter submits the concerned

document to the negotiating bank for negotiation. The documents should be negotiated strictly in

accordance with the terms and conditions and within the period mentioned in the letter of credit.

Purchase of Export Bills:

In such case the bank purchased the export bills under the payment method of documents

separately and clear instructions have to be obtained from the drawer of the bills in regarded to all

important issues related to the negotiation of the bills.

Payment Against Document Sent for Collection:

Bank generally accepts export bills for collection of proceeds when they are not drawn under

against an L/C contain some discrepancies. Without any discrepancy in the documents the bank

generally negotiates bills drawn under L/C and the exporter gets the money from the bank

immediately.

5.5.6 CONSUMER CREDIT SCHEME:

Consumer credit scheme in various head to extend credit facility to the people of fixed income

bracket to improve their standard of living. Under this scheme the bank extends its credit facilities

to its honorable customer in the following forms:

Small Business Loan

Personal Loan

House Renovation Loan

Small Business Loan (SBLS):

It has been observed that small business enterprises generally cannot provide collateral securities

to avail loan facilities. Genuine business having enterprises quality and honest will come under

the preview if this scheme.

Conditions of Small Business Loan:

Qualification : 1. Honest and vigorous entrepreneur who

Has five years experience in business.

2. The customer of the NCCBL who has his current

account in the branch of the bank from where he would

like to get loan.

Quantity of loan

amount : Tk. 5.00 lac (maximum)

Interest Rate : 17% (Three months installment basis)

Application Fee : Tk. 500/-- (Non refundable)

Personal Loan (PLS):

NCCBL also offers personal loan facility to its customers for buying household appliances. No

securities are kept for such type of credit facility but a guarantee from third party is required who

ought to be a prominent person or government service holder. Anyone with continuous

employment for a reasonable length of time in an organization is entitled to enjoy this facility. A

quotation needs to be submitted on the office pad from where the goods will be purchased. Limit

of personal credit ranges from tk.3 Lac to tk. 5 Lac and interest rate is 16%, which is subject to

change

The objective of this loan is to provide essential Household durables to the fixed income group

(Service holder) and other eligible under the scheme.

Conditions of Personal Loan

Age Limit : 20-50 yr.

Qualification : Permanent employee of Semi Government, autonomous,

corporation, bank, insurance, Educational Institution, multinational company and

renowned institutions, which is recognized to the bank

Quantity of Loan : Tk. 1 Lac.

Term of Loan : 6 months but not more than three years.

Interest Rate : 17%

Application Fee : Tk. 500/-- (Non Refundable)

Housing Loan:

House Renovation Loan Scheme (HRLS)

National Credit and Commerce Bank Limited also offers HRLS to its customers for repairing of

dilapidated houses. The target groups for this scheme or owners who are unable to meet up

repairing / renovation expenses at a time from their own sources. Its limit is maximum tk. 5 Lac

and interest rate is 17% with quarterly rest.

Conditions of House Renovation Loan

Age Limit : 30-50 yr

Qualification : 1. Real Owner of dwelling property.

2. The person who is able to repayment the

Loan and interest.

3. Not over 20 year old property which is going to be

renovated and repaired.

Quantity of loan amount : Tk. 5.00 lac (maximum)

Interest Rate : 17% (Three months installment) (changeable)

Application Fee : Tk. 500/-- (Non refundable)

HBL

National Credit and Commerce Bank Limited also offers HBL to its customers for Buying

residential apartments or houses. The target groups for this scheme are customers who want to

buy a flat for residential purpose. Its limit is maximum tk. 50 Lac and interest rate is 13% with

quarterly rest. The loan is given for maximum 15 years of validity.

HLS

National Credit and Commerce Bank Limited offers this housing loan for Commercial purpose.

Its maximum limit is 200.00 Lac. And the validity of the loan is for 5 years. The interest rate of

this loan is 13% with quarterly rest.

5.5.7 Lending Interest rate of NCC Bank Ltd.:

Category/ Head of Advance:

Existing Rate(Mid): Revised Rate:

Agriculture(Subject to Bangladesh bank norms)

12.50% 13.00%

Loan (G)/Term LoanLarge and medium scale Industry

14.50% 13.00%

Working Capital to industry(Large and Medium scale)

14.50% 13.00%

Small Scale Industry:a)Loan(G)/Term Loanb) Working Capital

14.50% 16.00%

Exports:Packing CreditECC

7.00% 7.00%

Commercial LoanPledgeHypothecation

14.50% 14.50%

13.00% 13.00%

PADLIMLTR

14.50% 13.00%

IBPFBPLDBPFDBP & Bills Discounted

14.50% (For Over due Period)

13.00% (For Over due Period)

Housing Loan:Commercial

15.00% 13.00%

Consumer Finance:Small Business LoanFSBLSHRLSPersonal LoanConsumer Finance Scheme

17.00% 17.00%

Credit Cards 2.00% Per Month 2.00% Per Month

NBFI 14.00% 14.00%

Others

Against FDR/FO OF NCCBL 3% above relative FDR rate. 3% above relative FDR rate.

Against FDR/FO of NCCBL, ICB Units, WEDB Shares etc

14.00% 14.00%

Housing Loan-Residential (HBLS)

15.00% (Fixed) 15.00%

Against Work/Supply order 16.00% 16.00%

Transport 16.00% 16.00%

Lease Finance 16.00% 16.00%

5.6 GRAPHICAL PRESENTATION OF LOANS &ADVANCE OF NCCBL

Figure: Loans and Advance (2005-2009)

In this Chart, we see that, the ratio of Loans and Advance is increasing year by year. In

2005, the loans and advance was 20533.13 million, in 2006, 24678.36 million, in 2007,

32687.75 million, in 2008, 46332.69 million, and in 2009 it was 50387.68 million.

Figure: Sectoral Distribution of Advances-2009

In this chart, we see that, in 2009, the highest sector of distribution of advances is in

industry sector which is 42% and the lowest sector of advances was Agriculture, storage and

transport and Communication which is 1%.

CHAPTER - SIX

Loan Disbursement, Monitoring & Recovery

6.1 INTRODUCTION

Lending is the main profit generating activity of National Credit and Commerce Bank Limited.

Every bank should posses a lending procedure that provides correct borrower selection, quick

processing, assurance of repayment and effective monitoring and supervision. NCCB is yet to

develop its operational lending procedure.

The lending procedure followed by NCCBL of a set of sequential activities. In this sequential

activity, both bank officials and potential borrowers play significant role.

6.2 LENDING PRINCIPLES FOLLOWED BY NCCBL

The principle lending is a collection of certain accepted time tested standards, which ensure the

proper use of loan fund in a profitable way and its timely recovery. NCCBL follows the following

principles in its lending activity.

a) Safety:

Safety should get the prior importance in the time of sanctioning the loan. At the time of maturity

the borrower may not or may unable to pay the loan amount. Therefore, in the time of sanctioning

the loan adequate securities should be taken from the borrowers to recover the loan. Banker

should not sacrifice safety profitability.

NCC Bank limited specially Moghbazar branch exercises the lending function only when it is safe

and that risk factor is adequately mitigated and covered. Safety depends upon:

The quantum of own equity in business and capability to run business efficiently

The repaying capacity willingness of the debtor to repay the loan with interest and

The security offered by the borrower

b) Liquidity:

Banker should consider the liquidity of the loan in the time of sanctioning it. Liquidity is

necessary to meet the consumer need.

c) Security:

Banker should be careful in the selection of security to maintain the safety of the loan. They

should properly evaluate the proper value of the security. If the estimated value is bigger than or

equal to loan amount, the loan may be given. The more the cash near item the good the security.

In the time of valuing the security, the Banker should be more conservative.

d) Adequate Yield:

As a commercial origination, Bankers should consider the profitability. So they should consider

the interest rate when go for lending. Always Bankers should fix such an interest rate for its

lending which should be higher than its savings deposits interest rate.

e) Diversity:

Bankers should minimize the portfolio risk by putting its fund in the different fields. If Bank put

its entire loanable fund in one sector it will increase the risk. Bankers should distribute its

loanable fund in different sectors. So if it faces any problem in any sector it can be covered by the

profit of another sector.

f) A Productive Purpose:

NCCBL exercises its lending function only on productive purpose.

g) National or Social Interest:

NCCBL also considers national aspect of any project while financing. They take utmost care so

that the project can not be determined to the society s well as to the nation.

h) Profitability:

Commercial banks obtain funds from Shareholders and if dividend is to be paid on such Shares it

can only be paid by earnings profits. This is not possible unless funds are employed profitably. So

the banker should not enter into a transaction unless affair return from it is assured.

6.3 SELECTION OF THE BORROWER

Selection of the borrower is vitally important step for the sanction loan. Due to the symmetric

information and moral hazard, banks have to suffer a lot due to the classified loans and advances,

which weakens the financial soundness of the bank. If the selection of borrower is correct, that is,

the borrower is of good character, capital and capacity or of reliability, resourceful and

responsible, the bank can easily get the return from lending. Consequently, monitoring is made

much easier for the banker. From this point of view, NCCBL followers the following procedure-

a) Studying past track record:

After getting an application for a loan, NCCBL Official studies the past track record

of the applicant. Generally the study includes:

a) Account balances and the past transaction

b) Credit report from the banks

c) Information of the industry by studying market feasibility

d) Financial statements

e) Report from Credit Information Bureau of Bangladesh Bank if the amount

is more than tk.10 Lac.

b) Report from the Bangladesh Bank:

Report from Credit Information Bureau (CIB) of Bangladesh Bank if the amount is

more than tk.10 Lac.

6.4 BORROWER ANALYSIS

Borrower analysis is done from the angle of 3-C (character, capital, capacity) or 3-R (reliability,

resourcefulness, responsibility). It follows that the bank forms a rationale judgment about the

integrity of the borrower, which should be undoubted.

The human skill, conceptual skill, operational skill is qualitatively analyzed. And the business

skill is done from two angles-terms, conditions, and collateral securities.

6.5 CREDIT APPROVAL PROCEDURE

After receiving the application from the client, NCCBL official prepares a Credit Line Proposal

(CLP) (Annexure- 1, 2, and 3) and forwards the same to the Head Office Credit Committee

(HOCC) for approval. It includes-

a) Request for credit limit for customer

b) Project profile / profile of business

c) Copy of trade license duly attested

d) Copy of TIN certificate

e) Certificate copy of Memorandum & Articles of Association, certificate of

incorporation, certificate of commencement of business, Resolution of Board,

Partnership Deed(where applicable)

f) 3 years Balance sheet and profit and loss account

g) Personal net worth statement of the owner/directors/partners etc.

h) Valuation certificate of the collateral security in Bank’s from with photograph of the

security.

i) CIB Inquiry form duly filled in (for proposal of above 10 Lac)

j) Credit report from another banks

k) Stock report dully verified (where applicable)

l) Indent/Proforma/Quotation

m) Price verification report

n) Statement of accounts

o) Declaration of the name of the sister concern and their liability

p) In case of L/C detailed performance of L/C during the last year

Therefore, the steps in lending can be sum up as follows:

a) Entertainment of application for loan proposal

b) Preliminary screening of credit proposal

c) Feasibility study & Appraisal of loan personal for Credit Investigation

d) Sanction of loan or advances

e) Documentation

f) Supervision and follow up of loans and advances

6.6 CREDIT RISK GRANTING (CRG)

Bank internally grade the organization that it issue loan and justify that it has the capability to

repay the loan of not. CRG is a quantitative judgment instructed by Bangladesh Bank that before

issuing loan. Every bank has to done the grading internally and after that, a credit rating agency

will rate the company or organization in favor of Bangladesh Bank for the cross-verification with

the internal rating of the bank with 5-10% margin.

6.7 SECURITIES

To make the loan secured, charging sufficient security on the credit facilities is very important.

The banker can not afford to take the risk of non-recovery of the money lend. NCCBL charges the

following two types of securities:

a) Primary Securities: These are the security taken by the ownership of the items for

which bank provides the facility.

b) Collateral Security: Collateral Securities refer to the securities deposited by the

third party to secure the advance for borrower in narrow sense. In wider sense it

denotes any type of security on which the bank has a personal right of action on the

debtor in respect of the advance.

6.8 MODES OF CHARGING SECURITY

There are different modes of charging securities are exercised by the bank:

a) Pledge:

Pledge is the bailment of the goods as security for payment of a debt or performance

of a promise. Here, title and ownership are not transferred. Pledge goods may be sold

out and proceeds thereof may be appropriated towards adjustment of Liability in case

of failure of the borrower to repay or fulfill the terms and conditions. In case of

pledge the pledge delivers the goods the pledge (Bank) in the godown under lock and

key. The delivery may be actual or constructive. The goods remain under the bank

control until the client repays the loan amount. Goods can be sold out without the

intervention of the court if the pledge fails to repay.

b) Hypothecation:

In case of hypothecation, the possession and the ownership of the goods both rest the

borrower. The borrower to the banker creates an equitable charge on the security. The

borrower does this by executing a document known as Agreement of Hypothecation

in favor of the lending bank.

c) Lien:

Lien is the right of the banker to retail the goods of the loan is repaid. The banker’s

lien is general lien. A banker can retain all securities in his possession till all claims

against the concern person are satisfied.

d) Mortgage:

According to section (58) of the Transfer of Property Act, 1882 mortgage is the

“transfer of an interest in specific immovable property for the purpose of securing the

payment of money advanced or to be advanced by way of loan, existing or future debt

or the performance of an engagement which may give rise to a pecuniary liability”. In

this case the mortgagor does not transfer the ownership of the specific immovable

property to the mortgagee only transfers some of the as an owner. The banker

exercises the equitable mortgage.

e) Assignment:

An assignment means a transfer by one person of a right, property, or debt (existing

or future) to another person. In banking, the usual subject of assignment is

“actionable claims”. Actionable claim means a claim to any debt other than a debt

secured by mortgage of immovable or by hypothecation of pledge of movable

property not in possession of the claimant, which the civil court recognize as

affording grounds for belief.

f) Set Off:

Set off means the total or partial margin of a claim of one person against in a counter-

claim by the letter against the former. It is in effect the combining of accounts

between a debtor and a creditor so as to arrive at the rest balance payable to one or

the other.

Ingredients of set off:

1. Manual debt must be sums certain

2. Two accounts of same person

3. Debts to be due immediately

4. Debts in same right

5. No agreement to the contrary

g) Guarantee:

A contract of guarantee has been defined under section 126 of the contract Act as “a

contract to perform a promise or discharge the liability of a third party in case of his

default. The person giving the guarantee is called “Surety” or “Guarantor” and the

person on whose account the guarantee is given is called the “Principal Debtor” and

the beneficiary of the guarantee is called the “Creditor”.

h) Insurance:

Insurance is a written and definite contract between two parties (who are capable to

enter into a valid contract) under which one party (the insured) pays the other party.

The insurer, a definite sum of money called premium in consideration of which the

insurer agrees to indemnify the losses, under agreed terms and conditions that the

insured may suffer due to specified causes and mutually agreed upon and stated in the

cover note / Insurance policy.

6.9 CREDIT INFORMATION BUREAU (CIB)

Bangladesh Bank has established within itself a Credit Information Bureau, which collects credit

information from the banks. Banks are required to furnish such information in respect of credit

limit of tk.500000/- and over. They mention the Name of facility, security and charge along with

outstanding balance. After considering such information in respect of each customer, the central

bank supplies to the total limit sanctioned to the number of banks dealing with a party. Thus the

banks can find out if any if any of their customers is having excessive borrowings from the

banking system at any particular time.

CIB inquiry for borrower (charge required) of NCCBL:

Inquiry Form CIB-1A ( In case of individual borrower or Institution, Borrower information are given in this form )

Inquiry Form CIB-2A ( In case of institutional borrower owner’s information

are given in these forms )

Inquiry Form CIB-3A (In case of borrowers having sister concerns/Group of Business, Group information are given in this form )

Undertaking-KA stating the declaration of other business concerns of the borrower/owner is also to be submitted along with inquiry form CIB-1A ( Ifborrower is individual ) & inquiry form CIB-2A ( if borrower is institution )

CIB inquiry required for Tk.50,000/- to aboveCIB inquiry statement monthly for Tk.1.00 crore and aboveRest amount for Quarterly statement including all

6.10 DOCUMENTATION

Documentation can be described as the process or technique of obtaining the relevant documents.

In spite of banker lends credit to a borrower after inquiring about the character, capacity and

capital of the borrower, he must obtain the borrower to protect him against willful defaults.

Moreover, when money is lend against some security of some assets, the documents 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 of

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 as

required by the different types of advances are mentioned bellow:

a) Loan (General):

a. DP Notes signed on revenue stamp

b. Letter of arrangement

c. Letter of disbursement

d. Letter of partnership(partnership firm) or Board of resolution(in case of limited

companies)

e. Letter of pledge

f. Letter of hypothecation

g. Letter of lien and ownership/share transfer form(in case of advance against share)

h. Letter of lien for packing credit

i. Letter of lien(in case advance against FDR)

j. Letter of lien and transfer authority(in case of advance against PSP, BSP)

k. Legal documents for mortgage of property(as draft by the legal adviser)

l. Copy of sanction letter mentioning details of terms and conditions duly acknowledge

by the borrower.

m. Trust receipt

b) Overdraft:

a. D P Note

b. Letter of partnership

c. Letter of arrangement

d. Letter of continuity

e. Letter of lien

f. Letter of lien and ownership/share transfer form(in case of advance against share)

g. Letter of lien and transfer authority

h. Legal documents for mortgage of property

c) Cash Credit:

a. D P Note

b. Letter of partnership(partnership firm) or Board of resolution(in case of limited

company)

c. Letter of arrangement

d. Letter of continuity

e. Letter of hypothecation [in case of cash credit (hypothecation)]

f. Legal documents for mortgage of property

g. Letter of pledge or Agreement of pledge[in case of cash credit (pledge)]

d) Bill Purchased:

a. D P Note

b. Letter of partnership(partnership firm) or Board of resolution(in case of limited

company)

c. Letter of arrangement

d. Letter of acceptance, where it calls for acceptance by the drawer

e. Letter of hypothecation of bill

6.11 CREDIT DISBURSEMENT

Having completely and accurately prepare the necessary loan documents, the loan officer ready to

disburse the loan to the borrower’s loan account. After disbursement, the loan needs to be

monitored to ensure whether the terms and conditions of the loan fulfilled by both bank and client

or not.

6.12 CREDIT MONITORING, FOLLOW-UP AND SUPERVISION

Credit monitoring implies that the checking of the pattern of use of the disbursed fund to ensure

whether it is used for the right purpose or not. It includes system and communication arrangement

between the borrower and lending institution and within department, appraisal, disbursement,

recoveries, follow-up etc.

NCCBL Officer checks on the following points:

a) The borrower’s behavior of turnover

b) The information regarding the profitability, liquidity, cash flow situation and trend in

sales in maintaining various ratios.

The review and classification of credit facilities starts at Credit department of the Branch with

Branch Manager and finally with Head office credit division.

6.13 LOAN CLASSIFICATION

Loan classification is the process by which the risk or loss potential associated with the loan

accounts of a bank on a particular date is identified and qualified to measure accurately the level

of reserves to be maintained by the bank to provide for the probable loss on account those risky

loan. All types of loans of a bank are fall into following four scales:

a) Unclassified: Repayment is regular

b) SMA: It’s a Special Mentioned Account. When the repayment is due for 3 months.

c) Substandard: Repayment is stopped or irregular but has reasonable prospect of

improvement

d) Doubtful: Unlikely to be repaid but special collection efforts may result is partial

recovery

e) Bad/Loss: Very little chance of recovery.

Loan Classification Rule of NCCBL

SMA SS (Sub Standard)

DF(Doubtful) BL (Bad & Loss)

Types

3 6 9 12 Continuous

3 6 9 12 Demand

3 6 12 18 Term 5

3 12 18 24 Term 5+

3 12 24 60 Agriculture

Source: CIB.

Provision Requirements

Classification

Status

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

Unclassified 1% 1% 1% 1%

SMA 5% 5% 5% 5%

Substandard 20% 20% 20% 20%

Doubtful 50% 50% 50% 50%

Bad/Loss 100% 100% 100% 100 %

Source: CIB

6.14 CLASSIFICATION PROCEDURE

The classification procedure is done as peer the Central Bank’s instruction in B C D circular

No.34 of 1989, B C D circular No. of 1994. The loans are classified based on following criteria.

Overdue Criteria (OD):

Terms loans become overdue whenever an installment is not received within 3 months of the

normal date of repayment for private sector loans and 6 months in case of public sector loans.

Continuous type of loans, if not renewed, becomes overdue on the date of expiration of the loan.

Classification status of a loan account is determined based on the length of overdue period.

Qualitative Criteria:

Qualitative criteria loans can also be classified on the basis of qualitative judgment taking into

consideration the factors such as borrowers performance, available securities etc.

Special Condition:

There certain special conditions set out in this circular which require classification even though a

loan may not be overdue.

Inspecting Department Instruction:

Regardless of the above Bangladesh Bank’s inspecting department may change the bank’s

classification of any loan

6.15 LOAN RECOVERY PROCEDURE

After being classified, if the borrower is disabling to adjust the loan then the bank starting

recovery procedure to get back the repayment. In NCC Bank, there are some procedures of

recovery. The bank has a task force team of recoveries which consist of 7 members. This team is

created by the head office. All branches are classifying among them. Their main task is Off-site

supervision of all branches. Each branch has its own recovery cell with its own officers including

these one or two task force team members. If the borrower is failed to repayment the loan, the

recovery cell of the branch takes some action as follows:

1. Telephonic Contact: When the installment of any loan account is getting due for 1st month,

the branch firstly contacts with the borrower over phone and inform him/her to repayment the

due installment.

2. Issuing reminder: After contact, if the borrower is failed to repayment installments and the

loan account is classified, the branch will issuing 1st reminder letter to the borrower.

3. Spot Contact: With issuing reminder letter, the recovery cell of the branch also doing spot

contact to the borrower. They are doing this by contacting physically in his/her residence,

office or in his/her shop.

4. Legal Action: After spot contacting, issuing 1st to 4th reminder letter, if the number of

overdue installment exceed 4th quarter, then the account will be marked as Bad & Loss (BL).

After this, branch will issued a Final notice with 15 days of limit to regular the account and

send it to the borrower. If the borrower is failed to regular his/her loan account within this 15

days, the branch will take legal action against the borrower.

Legal Framework for Loan Recovery

After being classified, if the borrower is disabling to adjust the loan then the bank can take the

following legal actions filling suit:

a) Filing certificate cases under Public Demand Recovery Act-1913.

b) Filing money suit cases under Artha Rin Adalat-1990

c) Filing Bankruptcy cases under Bankruptcy Act-1997

d) Filing cases under Negotiation Instrument Act-1881 section 138 to 141 for

insufficient fund (in case of term loan).

Reschedule Criteria:

Reschedule Criteria On Overdue AmountContinuous Loan 15% Up to 1 Crore

10% (not less than 15 Lac) Over 1 Crore to 5 Crore5%( not less than 50 Lac) Over 5 Crore

Term Loan 15% OD Installments 10% on total outstanding30% OD Installments 20% on total outstanding50% OD Installments 30% on total outstanding

Converted Loan (from continuous or demand loan to term loan)

30% OD Installments 20% on total outstanding

50% OD Installments 30% on total outstanding

Impact of Recovery:

There are some impacts of recovery in which the bank can be benefited. They are as follows:

1. Profit Maximization: By doing recovery, bank earn profit. The over due amount can be

back. So the bank will be benefited from this.

2. Marketing: When bank doing recovery, people can know about the bank. So bank marketing

is happening here.

3. Networking: By doing recovery, banks network will be increased day by day.

4. Highlighting of Bank Reputation: When bank doing recovery in the market, the reputation

of the bank is auto flashed. As a result, bank’s reputation will be increased.

Problems of Recovery:

There are also some problems in conducting recovery. They are as follows:

1. Time Constraint: Recovery is a long term process. So, it takes so much time for

conducting recovery for an account.

2. Man to Man follow up: In a big branch, there are more than 200 loan accounts. It’s quite

tough to follow up the entire loan account in which bank have to contact every borrower. It

is very time consuming.

3. Expenditure: Expenditure is also a problem of conducting recovery. Banks have to spend

money for contacting with the borrower.

Graphical presentation of Recovery:

Figure: Classified a/c of Moghbazar Branch of NCCBL (2005-2009)

Here, we present the amount of 5 years classified accounts. In 2005, it was 295.35 million, in

2006, 323.45 million, in 2007, 501.49 million, in 2008, 438.53 million and in 2009 it was

141.94 million. From this chart, we see that in 2005 and in 2009 the amount of classified

account was low compare to other years.

Figure: Settled/write-off A/c of Moghbazar Branch (2005-2009)

Here, we present the amount of 5 years write-off/settled accounts. In 2005, it was 109.12

million, in 2006, 135.42 million, in 2007, 109.56 million, in 2008, 413.06 million and in 2009 it

was 224.61 million. From this chart, we see that in 2008 and in 2009 the amount of classified

account was high compare to other years.

Figure: Recovery Growth of Moghbazar Branch (2005-2009)

Here, we present 5 years recovery growth. In 2006, the amount of recovery was 0.134

million, in 2007, 0.331 million, in 2008, 0.394 million and in 2009 it was -0.56 million.

Figure: % of Recovery against Stuck-up Loan (2005-2009)

Here, we present the amount of 5 years recovery of moghbazar branch against stuck-up

loan accounts. In 2005, it was 2073.95 million, in 2006, 2212.05 million, in 2007, 1612.68

million, in 2008, 1310.52 million and in 2009 it was 985.35 million.

6.16 GUARANTEE

According to the Section 126 of Contract Act, 1872, guarantee can be defined as a contract to

perform the promises or discharge of liability of a third person in cases of his default. The person

who gives the guarantee is called the “surely”, the person in respect of whose default the

guarantee is given is called is called ‘the principal debtor’ and the person to whom the guarantee

is given is called the ‘creditor’. It is an irrevocable undertaking to pay in case of a certain

eventuality.

There different types of guarantee that NCCBL offers are as follows:

a) Tender or bid bond guarantee:

The tender guarantee assures the tenderee that tenders shall uphold the conditions of his tender

during the period of the as binding and that he/she will also sign the contract in the event of the

order being granted.

b) Performance Guarantee:

A performance guarantee expires on completion of the delivery or performance. Beneficiary finds

that as a guarantee, the contract will be fulfilled in every respect and can retain the guarantee as

per provision for long time. This can be counteracted by including a clause stating that the

supplier can claim under the guarantee, by presenting an acceptance certificate signed by the

buyer.

c) Advanced payment guarantee:

This type of guarantee is given against work order

d) Security guarantee:

This type of guarantee is given when security is required.

Issuance procedure of guarantee:

Bank guarantee is a contractual relationship between the account (client) and the beneficiary. The

account party requests to the bank to issue the guarantee with the terms and conditions specified

by him. Normally the bank prepares format of the guarantee. At the request of the account party

the bank issues the guarantee in favor of the beneficiary.

a. Beneficiary (name and address)

b. Amount

c. Expiry

d. Delivery object

e. Information relating to a guarantee issued under a documentary

credit (in case of a foreign guarantee)

f. Special conditions

g. Handing over to principal/beneficiary/representative/third party. After that, the bank

official scrutinizes the application and takes the guarantee margin, commission, postage

charge from the customer.

Precaution

Before issuance, the specimen of the guarantee should be thoroughly examined to ascertain that is

has no ambiguity. The points like (1) the extent of liability (guarantee amount/ interest/charges of

extension etc.) should stand clearly defined. It should also be ascertained before issuance of the

guarantee whether the client would need further credit facility to enable him to discharge his

obligation under the proposed guarantee particularly for bid bond, performance bond or advance

payment guarantee for execution/ completion of any work order project should it be allotted to

him. Possibilities of such eventuality should be explored and examined very carefully before

issuing guarantee.

Essentials of a valid Guarantee:

It must satisfy all essentials of a valid contract.

Must be three parties (a) Creditor (b) Principal (c0 Surety all must join in the

contract.

Primary liability is of principal debtor – surety’s liability is secondary i.e. in case of

default of the primary debtor.

Principal debtor may be a minor—contract enforceable between creditor and

guarantor—minor may not pay nor enforceable against him.

Determination of Security

As the bank has to remain prepared for eventuality of issuing a guarantee, payment of guarantee

and creation of forced loan, it is essential that the aspect of security is considered in its truest

perspective.

Application

As and when approached for a bank guarantee by a customer, Manager should ask for submission

of the following papers/information:-

A written request specifying the purpose, amount, period and the security

offered with supporting papers.

The details of security other than cash margin.

Specimen of the guarantee. In case a prescribed specimen does not exist, a

specimen may be drafted to suit the requirement incorporating the amount, tenor

and purpose with bank’s obligation clearly spelled out.

Formalities

While deciding to issue a guarantee, the following should be obtained prior to issuance:

Cash margin as may be determined.

Counter guarantee/ Indemnity signed by the client, duly drafted by the bank’s

lawyer.

Specimen of the guarantee duly approved by the customer.

Incase the Guarantee is covered by any other security other than cash margin which generally be

of following types jointly or severally:

Fixed Deposit Receipt.

Any other financial obligation.

Mortgage of immovable properties.

Bangladesh Bank Rule

As per directive of central bank, in force, besides margin fixed on the basis of banker-customer

relation, the uncovered portion of the guarantee is to be got covered by readily realizable security.

6.17 SWOT ANALYSIS

By doing the SWOT analysis it is possible to find out the strengths, Weaknesses, opportunities,

and threats of the NCCBL. From the SWOT analysis we can figure out on going scenario of the

Bank. In the competitive area of marketing are SWOT analysis is based on product, price, place

and promotion of a financial institution like private Bank.

SWOT Analysis

In SWOT analysis two factors act as prime movers:

Internal factors which are prevailing inside the concern which include Strength and

Weakness.

On the other hand another factor is external factors which act as opportunity and threat.

Strengths:

Competitive Salary: NCCBL provides satisfactory salary to their employees. This is the

reason why the switching rate is very low among the employees of NCCBL.

Wide network coverage:

NCCBL has more than 50 branches throughout the country. At present NCCBL has 53

branches operating the banking services around the country efficiently.

Proactive in nature:

NCCBL experienced huge ups and downs in the banking arena so that they are confident

enough to be proactive rather than reactive.

Training institute:

NCCBL has its own training institute through which their employees get trained and

gather knowledge. This is to train their employees throughout the year.

Strong Financial Position:

Internal Factors External Factors

Threats Strength Opportunity Weakness

NCCBL is a sound company backed by the enormous resource base of the mother

concern Rangs group. As a result customers feel comfortable in dealing with the

company.

Good banker-customer relationship:

NCCBL has good relation with their customers. They give service to their regular

customers after 3 PM, though the bank is closed after 3 PM.

Efficient management:

All the levels of the management of NCCBL are solely directed to maintain a culture of

the betterment of the quality of the service and development of a corporate brand image

in the market through organization wide term approach and open communication system.

State of the art technology:

NCCBL utilizes state of the art technology to ensure consistent quality and operation. The

corporate office is equipped with SWIFT (SWIFT is a banking software used by

NCCBL). All other branches are also equipped with SWIFT system.

Weakness:

Limited workforce:

NCCBL human resources compared to its financial activities. There are not many people

to perform most of the tasks.

Reluctance to advertisement campaign:

NCCBL is avoiding the marketing campaign for their new services. This is why the

customers do not know about them fully what they are offering.

Lack of modern technology:

NCCBL is in the backward position because they are not adapting modern technology.

They do not yet adapt online services towards their customers while most of the local

banks are giving services through online. Since they have lacking of pc based services,

officers have to make manual vouchers which take hours after hours.

So many areas in the country are still out of their network like whole Barishal Division as

well as Greater mymensingh.

Opportunities:

Huge business area:

NCCBL has large scope of banking operation throughout the country and it is widening

day by day. NCCBL is still to cover huge business area including SME sector.

Evaluation of E-Banking:

Emergence of E-banking will open more scope for NCCBL to reach the clients not only

in Bangladesh in Bangladesh but also in global banking arena. Introducing any branch

banking through online is great opportunity to them.

Launching Credit Card Division:

Since NCCBL deals mostly with credit commerce related business, Credit card division

would allow them to make a huge profit in near future.

Threats:

Political unrest:

The country faces lot of unrests and turmoil in the recent times, so the banking operation

is in the trouble position.

Emergence of competitors:

Due to high customer demand, more and more financial institutions are being introduced

in the country. There are already 52 banks of various types are operating in the country.

Many banks are entering the market with new and lucrative products. The market for

banking industries is now a buyer dominated market. Unless NCCBL can come up with

attractive financial products in the market .it will have to face steep competition in the

days to come.

Poor telecommunication infrastructure:

As previously mentioned world is advancing e-technology very rapidly. Through NCCBL

has taken effort to join the stream of information technology, it is not possible to

complete the mission due to poor technology and infrastructure of our country.

Merger and acquisition:

The worldwide trend of merging & acquisition in financial institution is causing

concentration. The industry and competitors are increasing in power their respective

areas.

Future Prospect of NCCBL:

The world economy is trying to recover from the trauma of the 9/11 Twin tower attack in 2001.

In such situation economic condition of the country does not seem very bright and will take some

time for recovery. Moreover with the opening of the branch of newly opened private bank and

foreign banks, the competition will be intensified. The bank will go for immediate automation of

all branches through computer network and a tight control of cost so as to minimize the overall

operational cost. The bank will hope to achieve a satisfactory level of progress in all areas of its

operation.

6.18 SPECIAL SERVICES

ATM service:

The bank has joined the shared ATM network Bangladesh with a pool of 7 banks. The client of

any member bank will have access to any ATM situated at different location of Dhaka city. This

banks client will get 24 hours cash withdrawal and utility bills payment facility. 16 ATMs will be

installed gradually in Dhaka city and the network will be extended to other cities if the country in

the near future.

Credit Card:

To provide best possible customer services to its clients, the bank is going to launch Master Credit

card shortly.

Swift:

The bank has become a member of SWIFT and is providing a fast and accurate communication

network for financial transactions to their valued clients through uninterrupted connectivity with

thousands of user’s institutions in 150 countries around the world. Money Gram is one of the

innovative products of the bank. This has been functioning satisfactory and rendering prompt and

efficient services to the wage earners.

CHAPTER - SEVEN

Credit Risk Management

7.1 INTRODUCTION

National Credit and Commerce Bank Limited implemented Credit Risk Management Techniques

for remove from loss of bank’s interest. Credit Risk is the risk that a customer or counterparty of

the group will be unable or unwilling to meet a commitment that it has entered into. It arises from

lending, trade finance, treasury, and leasing activities. The primary and most important risk

associated with loan is default risk or the failure of borrower to repay the loan with interest. To

protect loan assets from being non performing assets effective supervision and monitoring is done

by NCCBL both in the pre-sanction and in the post-sanction stage or for ongoing credit. In simple

words, supervision and monitoring of a loan denotes continuous checking and assessing the

borrower, his business and his willingness to repay the loan based on some predetermined

manners. Supervision generally starts immediately after the selection of the borrower and

monitoring starts when the project/activity enters implementation although these terms are also

interchangeably used.

7.2 PURPOSE OF CREDIT RISK MONITORING IN NCCBL

The purposes of credit risk monitoring are pointed out bellow:

Top relevant loan classification

To return flow of fund

To ensure compliance of terms and conditions

To obtain feedback from the borrowers

To take timely corrective action regarding a particular loan

7.3 CREDIT RISK MANAGEMENT AND ITS IMPLICATION IN RISK ANALYSIS

Credit Risk Management (CRM) is one of the new management and operational tools for

improving the operational efficiency of all banks. It focuses on internal changes to the lending

process to improve the loan portfolio banks. According to FSRP international consultant, in a

successful country (in terms of lending), all applications for credit are thoroughly analyzed to

assess the risk that the bank will not fully recover the loan. Though the CRM, the banking system

will channel the scare financial resources into those opportunities that will have maximum return.

That is profitable enterprises will get fund and grow but loss making enterprises will be refused

funding and will go out of business. Though the better practice of CRM all the banks will be

benefited as well as the economy will grow and the people will be benefited.

CRM is simply non-processing manual. By going through the manual the lending bankers can

assess the credit worthiness of their prospective borrowers. Therefore, CRM is such an

instrument, which is definitely and directly related with lending information to analyze the

borrower’s financial, marketing, and organizational aspects subjectively and objectively. It also

facilitates the analyst to know the security risk of the credit.

Credit Risk Management involves assessing the likelihood of repayment of loans to the bank as

per agreement on the basis of analysis of certain risk. CRM, first of all, has divided the various

risk into five groups mainly, financial risk, business/industry risk management risk, security risk,

and relationship risk.

7.4 ANALYSIS OF RISK FACTORS OF THE CREDIT RISK MANAGEMENT

There are some risks factors of the credit risk management which are discussed in the following

way:

a) Financial Risk:

Financial risk concerns with the financial condition of the organization. It measures the financial

strength, capability to repay the loan of the debt holders, liquidity, profitability and the mode of

interest payment of the organization. Total point of financial risk is 50 out of 100. So, it has the

most important risk factor of the credit risk management.

b) Business/Industry Risk:

Business/Industry risk concerns with the structural condition of the business. It shows the

physical position of the business. This risk consists of the size of business, age of business,

business outlook, industry growth, market competition and entry exit barriers. This factor has total

of 18 out of 100.

c) Management Risk:

It the management of a company fails to exploit the company’s position effectively, the company

can fail to and this risk of failure is called management risk. The factors of the management are

experience, second line/succession, team work. Total score of the management risk is 12 out of

100.

d) Security Risk:

Security risk is the risk that the realized value if the security does not cover the exposure of loan.

Exposure means principal plus outstanding interest. Security risk can be divided into three:

security coverage (primary), collateral coverage (property location) and support (guarantee). The

total score of the security risk is 10 out of 100.

e) Relationship Risk:

Relationship risk concerns with the relationship between company and the financial institution

which are the financial partners of the business. An organization cannot go along without the help

of the financial institution or banks. These factors show the conditions of the relationship with the

financial institutions with the company. The factors of the relationship risk are account conduct,

utilization of limit (actual/projection), compliance of covenants/conditions, personal deposits. The

total score of this risk is 10 out of 100.

All the risks are measured by the auditors and the financial analyst of the bank and if any

company wants to get the credit, it has to gain minimum 75 out of 100. This stage is called

Acceptable. And if the score is between 65 and 74, the bank will monitor the situation and give

advice to recover the problems to get the credit from them. This stage is called Margin/Watch list.

And if any company gets below 65 out of 100, it has no change to get the loan from bank.

7.5 RISK ACCOMPANIED WITH SHORT-TERM VS LONG-TERM LOANS

The loans disbursed to the various sectors in Bangladesh are of mainly two types. These are-a.

Short term or working capital loans, for meeting the day to day operational expenditure of a firm

and b. medium and long term or fixed asset loans, for the purpose of purchasing of the fixed

assets while setting up of a new firm or BMRE (balancing, modernizing, reconstruction, and

expansion) which is for extension purpose of an existing firm. The typical short-term loans are

provide for 1 to 3 years while the mid term and long term loans are provided for the term ranges

from 3 to 15 years. There are many factors specially the environment factors of a bank can caused

industrial credit risk levels to increase over the years, which can be classified into 3 sets as under-

a) Structural change in lending

b) Increasing fund cost

c) Volatility in collateral values

a) Structural change in lending:

As the share of medium and shall business in bank lending increases, quality of a loan portfolio

tends to decline. The increase in the share of less quality lending requires closer credit analysis to

determine the credit rating a wide variety of industries under disparate financial and real growth

conditions. A necessary concomitant of raising share of medium and small business borrowing is

a similar trend in the term lending for banks to minimize problem loans. In term lending, bank’s

exposure to credit risk will increase due to increase in the scope for changes in business

conditions and the consequent for the creditworthiness of borrowers during their term of credit. In

all, credit risk grows more diverse and complex against the background of a structural change

over the years.

b) Increasing fund cost:

Though loan portfolio risk gets diversified and return from lending improves, nevertheless the

financial climate will be prone to increasing credit risk due to increased funding costs. Interest

rate deregulation portends more market rate of funding by banks. As the share of purchases fund

trends upward, banks face narrower profit margins. In response, if banks enter high-risk high-

return business to maintain their profit margins, loan quality deteriorates and credit risk levels rise

especially if banks mismanage such ventures.

c) Volatility in collateral values:

Deregulation breeds change and turbulence in the financial environment. This change and

turbulence bring about visible volatility in bank collateral values especially of stocks and real

estate. As a result, price risk of credit collateral increases requiring more attention to be paid to

credit analysis and risk management of lending.

7.6 LIMITATIONS IN IMPLEMENTING CRM TECHIQUES

Traditionally, it has been observed that banks in Bangladesh used to operate funds business i.e.,

lending activities under security-oriented principle. Before 1989, Banks used to give more

emphasis to the security without considering the business risk of the borrowers at the time of

sanctioning loan. But CRM, does not give more emphasis on the security rather it gives more

emphasis on the business risk of the borrowers CRM’s unique system of scoring and various

analysis give the bankers an opportunity to scrutinize the capable borrowers with due

consideration regarding their competence, integrity, repayment capacity and cash flow projection

of the project. While the bankers of Bangladesh are going to does lending risk analysis through

‘CRM Form’. They are facing various problems in implementing the same. The criteria specified

in the CRM manual are very much appropriate and pragmatic to minimize the risks of lending.

But in some causes it becomes very difficult to the bankers of the following reasons-

a) Inadequate Data:

To apply CRM financial data relating to performance of a firm is very important to assess its

existing or projected strength. In many cases up-to-date and data like production, trade, business

raw-materials, industry growth, sales turnover, performance data of different competitors are

inadequate, which are necessary for assessing sales risk. Beside this, the collection of company’s

positional data in a given industry is also cumbersome. So company’s rank in industry (in terms

of turnover), and competitor’s financial position is difficult to ascertain in analyzing performance

risk.

b) Inaccurate Data:

CRM calls for submission of financial statements by the borrowers. Most of the prospective

borrowers are observed not to prepare financial statements. But the lending officer has to depend

largely in the Balance Sheet and Income Statement figures. As the business concern of

Bangladesh, so they fail to provide accurate data. Experience shows that even the financial

statements submitted by the applications can not be relied upon. Inconsistencies are observed in

the information provided by applicants. Collection and compilation of these data are very

laborious and in many cases problematic. So analysis of performance risk and resilience risk are

becoming cumbersome.

c) Lack of auditor’s performance:

To minimize chance of unfair presentation of financial statement, lending officers have to rely

much on too sometimes help the business concerns in providing false and fictitious statements.

With few exceptions, audited balance sheets and profit & loss statements follow client

instructions.

d) Unwillingness to disclose information:

Generally, competitors do not have the habit of disclosing their business information. They

always lend to maintain secrecy for their business interest. But CRM calls for submission of

competitor’s performance.

e) Non-cooperation between assessors:

CRM techniques require information regarding exposure to other banks. Though credit bureau

report has an important role in this regard, the non-cooperation between different banks is a real

difficulty.

f) Lack of experienced assessor:

In most cases, the value of security actually realized is less than what a bank estimate. Sometimes,

security also loses value before it is realized. Due to lack of experienced, qualified and reliable

surveyor institutions to assess value of security along with its quality and market demand are very

scarce in Bangladesh.

g) Lack of skill and knowledge of the personnel:

Human resources are the most valuable resources of an organization. The trained and skilled

manpower is an important factor for effective and efficient handling of CRM. Preparing CRM

requires special skill and knowledge in risk management and knowledge in national and

international economy is also required for successful analysis of CRM. But most of the banks are

facing the actual problem regarding the skilled and knowledgeable personnel who know the

modern tools and techniques of analyzing the financial statements, trend and dynamism of

market.

h) Insufficient independence:

Banks and financial institutions are not apart from any type of political influence or pressure

group in respect of loans and advances. Besides, independence of credit analysis/risk management

section at branch level is not fully ensured.

i) Economic factors:

The various components at the macro and micro level of our national economy are not yet

enough. As a result, the analysis of demand, supply, sales forecast etc. do not contribute enough

to the credit risk grading.

j) Legal environment:

Analysis of security risk often does not become accurate because of lengthy and complicated legal

proceedings. However, the law of the country does not make auditing compulsory for all the

enterprises accept the joint stock company. In such a situation analysis of lending risk on the basis

of un-audited financial statements may become useless.

k) Biasness and Irregularities:

In the credit risk grading manual the degree of risk of the borrowers are measured subjectively

and as such the question of biasness and irregularities of the concerned personnel can not be

avoided. If they do not apply their judgment ethically, the result of credit risk grating may be

misleading.

CHAPTER - EIGHT

Findings, Recommendation, And Conclusion

8.1 FINDINGS

While working at NCC Bank Ltd., Moghbazar Branch, I have attained to a newer of experience.

After the collection and analysis of data, I have got some findings. These findings are completely

from my personal point of view. Those are given below:

NCC Bank Limited has already achieved a high growth rate accompanied by an

impressive profit growth in 2009. The number of deposit and investment are also

increasing rapidly.

NCC Bank has an interactive corporate culture. The working environment is very

friendly, interactive and informal. And there are no hidden barriers or boundaries

while communication between the superior and the subordinate. This corporate

culture provides as a great motivation factor to the employees.

NCC Bank Limited has already established a favorable reputation in the banking

industry of the country. It is one of the leading private sector commercial banks in

Bangladesh. The bank has already shown a tremendous growth in profits and deposits

sector.

From the client view introducer is one of the problems to open an account. It is

general problem to all commercial bank.

They face troubles with those clients who have not any knowledge in banking

transactions and banking rules.

8.2 LIMITATION OF NCC BANK

1. NCC Bank has insufficiencies of Authorized Dealer Branch in respect of total foreign exchange

business. As a result it total foreign exchange business is very small in respect of total market.

2. NCC Bank’s numbers of customers are also very small in compared to other banks in the

market. This is because of small number of branches.

3. The number of branches is not sufficient to cover the country most.

8.3 RECOMMENDATION

For the probable solutions of the identified problems ensure better progress to NCC Bank in

future, some necessary steps are recommended bellow on the basis of collected data, observation,

expert staffs opinion and my knowledge and judgment.

If the entire banking system is fully online on computerized system then they satisfy the customer

by providing fast service with minimum service charge.

NCC Bank should ensure networking system with its branches then it could easily transfer data

within short time.

NCC Bank should ensure give more attention to advertisement for creating more

attraction among its customers, which is helpful to collect more deposits and increase

investment scope. That’s why bank should give emphasis on advertisement in various

media like TV, News Paper, Internet and Billboard.

The entire department should be well informed regarding their goals and objectives. It is essential

to execute company objective into individual target.

A philosophy of working for the customer instead of working for boss must be introduced. And

job description should be clarified and proper training facilities should ensure to improve the

performance of bottom line management.

It was observed that officers of NCC Bank have to spend more time in preparing vouchers; this

can be avoided by automation.

NCC Bank should develop online banking system to compare with other commercial

banks.

The bank has the provision of internship but there is no organized program for internship.

Credit Card and Automated Teller Machine (ATM) should be introduced in every branches of

NCC Bank as soon as possible because of present market demand of the customer and the

educated customer now wants technology based banking.

Attractive incentive packages for the exporters will help to increase the export and accordingly it

will diminish the balance of payment gap of NCC Bank.

NCC Bank is to be concentrating in always monitoring the performances of its

competitors in the field of foreign trade.

Bank can provide foreign market reports that will enable the exporter to evaluate the demand for

their products in foreign countries.

Due to lack of proper knowledge about the operation procedure and services provide to the

customers by SWIFT certain customers are facing problem as they have to wait for certain time to

get service. And sometimes personnel are not being able to operate SWIFT without any

confutation. They are not fully independent handling SWIFT. Official training is the solution of

this problem.

Bangladesh Bank should take initiative to form a high-powered committee consisting scholars and

experts from different disciplines and professions such as academicians, economists’ bankers, and

lawyers etc. to design an appropriate and useful legal framework for Islami Shariah based

Banking. This type of committee may be helpful for the necessary correction of government

policies in Islami Banking.

NCC Bank will have to encourage entrepreneurs, businessmen, rich people and government to

come forward to established ancillary organizations.

Branches of NCC Bank are not sufficient as per demand of the people. So NCC Bank should set

up new branches.

8.4 CONCLUSION

There are a number of Private Commercial Banks, Nationalized Commercial Banks and Foreign

Banks operating their activities in Bangladesh. The NCC Bank Limited is one of them. For the

future planning and the successful operation for achieving its prime goal in this current

competitive environment this report can be a helpful guideline.

From the practical point of view I can declare boldly that I really have enjoyed my internship at

NCC Bank from the first day. Moreover, internship program that is mandatory for my BBA

program, although it is obviously helpful for my further thinking about my career.

The working environment of Moghbazar Branch of NCCBL is so friendly. Here, each and every

officer is so much co-operative and helpful which help me to complete my report successfully. As

my topic is “Loan Disbursement And Recovery System of NCC Bank”, I have to work more

days in Loan department compare to other departments. Here I face such a good environment that

I can give my best here and the officer of loan department help me their best.

Banks always contribute towards the economic development of a country. Compared with other

Banks NCC Bank is contributing more by investing most of its funds in fruitful projects leading

to increase in production of the country. It is obvious that right channel of Banking establish a

successful network over the country and increases resources; will be able to play a considerable

role in the portfolio of development in developing country like ours.

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

inception NCC Bank has been rendering its Banking services with the needs of the nation to cope

with the demands of people in the county. By doing many other works for state & society, NCC

Bank emerged as the pioneer of playing key role in the country.

CHAPTER - NINE

ACRONYMS

A/C Account

AD Authorized Dealer

BB Bangladesh Bank

BIC Branch Investment Committee

CIB Credit Information Bureau

CC H Cash Credit Hypothecation

CRM Credit Risk Management

DP Drawing Power

EOL Excess over Limit

FDR Fixed Deposit Receipt

FO Financial Obligation

HRLS House Renovation Loan Scheme

IBC Inter Bank Clearance

IBCA Inter Bank Credit Advice

L/C Letter of Credit

L/G Letter of Guarantee

LIM Loan against imported merchandise

LRA Lending Risk Analysis

LTR Loan against Trust Receipt

OD Over Draft

PAD Payment against Documents

PC Packing Credit

PSI Pre Shipment Inspection

SOD Secured Over Draft

SWIFT Society for Worldwide Inter bank

Financial

TIN Tax Identification Number

BIBLIOGRAPHY

1. Bedi, H.L. “Practical Banking Advances” UBS Publishers Distribution Ltd.

New Delhi.

2. Edward W. Reed and Edward K Gill “Commercial Banking” Practice Hall,

New Jercy, 1989.

3. Frederic S. Miskhin, “The Economics of Money Banking & Financial Market”

Sixth Edition, 2003, Boston.

4. Chowdhury, L.R., “A Text Book on Foreign Exchange” Fair Corporation,

Dhaka.

5. C.R. Kotheri, “Research Methodology” Second Edition, 2003-2004, Wishwa

Prakashan, Calcutta, India.

6. NCC Bank Report 2009.

7. “Investment Policy and Control Guidelines, Lecture Materials, Official

Record.”

8. NCC Bank Web Site: www.nccbank-bd.com