Evaluation of Credit Management in IFIC Bank Ltd

8/12/2019 Evaluation of Credit Management in IFIC Bank Ltd

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CHAPTER 1

INTRODUCTION

1.01 Background of Industrial Tour

The industrial tour is an integral part of BBA program., which all students undergo

organized by Faculty of Business Studies, the students are sent to various organizations

where they are assigned to take one of more proects. The students work closely with the

organization and with the people of institutions that are concerned with theorganizational

operations..

1.0 O!"#cti$# of T%# &tud'

! started my work with some specified obectives. The obectives acted as a bridge

between the starting point and the goal of the study. The report on (E$aluation of Cr#dit

)anag#)#nt of T%# I*IC Bank +td., has been written as a partial re"uirement for

obtaining the #egree of Bachelor of Business Administration. The basic obective of the

report is to be ac"uainted with the practical aspects of the dealings of the !F!$ Bank. Thus

the report has been prepared for serving the academic purposes only, and not for taking

decisions by the !F!$ Bank%s &anagement or any other organization. But ! have an

obective regarding why ! started my work on such topic. The main obective is to evaluate

and analysis of credit management of !F!$ Bank 'td.

In !ri#f t%# o!"#cti$#s of )' stud' ar# )#ntion#d !#lo-

i( To identify the main obectives of !F!$ Bank $redit #isbursement.

ii( To find out the sector in which !F!$ Bank provides credit.

iii( To find out a time series analysis of $redit #isbursement.

.

1.0/ Rational# of t%# &tud')rivate Banks have of course a vital role in promoting and accelerating the economic

development process as per the demand of time through the implementation of finance for

industrial * agricultural proect, domestic and foreign trade and allocating the fund to

various off+farm employment and self+employment generation proects. Focusing the light

and considering the every pros and cons on available statistical data it has been apparently

accepted that !F!$ Bank continued to register its steady progress in the field of deposits,

advances * foreign echange business. !n view of the sluggish nature of the economic


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activities over the years the deposit performance of !F!$ Bank is more or less satisfactory.

The !F!$ Bank gain maimum advantages of foreign echange related business, the !F!$

Bank policy aims at the integrated operation of all which outlet at home and abroad.

The low rate of economic growth, high rate of unemployment, illiteracy, growth rate of

population, low rate of credit recovery etc. are the impediment factor of economic

development of a country.

!nspired of the above obligations rather in a most favorable situation !F!$ Bank have been

flourishing efficient and endeavoring to the maimum of efficiency of its capacity to catch

up with slow growing development of our country.


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1.0 &co# of t%# stud'

!F!$ Bank 'td. is one of the largest private commercial bank, which provide its banking

services through almost seventy si branches all over Bangladesh and thirty si branches

of affiliates. This bank is a reputed and leading one in our banking sector for its

performance. ! was assigned to learn practical knowledge from !F!$ Bank 'td., Terri

Bazar branch. ! covered three departments during the period in my practical orientation

and ! tried to portrait the area of organizational overview, -valuation of credit

management, conclusion * recommendation.

CHAPTER

R#s#arc% 2#t%odolog'

.01 2#t%odolog'

The report has been prepared mainly on the basis of secondary data, furnishing by the

!F!$ Bank officials who have also been incorporated in the report wherever it was


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considered necessary to maintain the singleness and lucidity of the report. )ersonal

eperience has been gained by visiting different desks. The collected data are taken from

various sources which are mentioned in the below

i( Pri)ar' sourc#s3 ! collected some information from primary sources regarding

Accounts #ivision, Terri Bazar Branch of !F!$ Bank.

ii( condar' sourc#s3 The maor part of information was collected from the secondary

sources such as

/ Annual report of !F!$ Bank.

/ 0ffice files and documents

/ Study related books and ournals.

/ )rocedure manual published by the !F!$ Bank, head office.

iii( Discussion -it% conc#rn#d #rson3 As study related current data were not available, !

had to discuss with concerned persons for getting up to date information

.0 +i)itation of t%# &tud'

!t may agree to by the readers of the report that of such a report especially to enrich with

empirical findings, wherever necessary, is a time to consuming matter. As the report was

prepared with a short span of time, the report could not be made comprehensive and

conclusive. &ainly the report could be made descriptive. Some usual constraints ! did face

during the course of my investigation. These are as follows

/ The main limitation of the study was availability of literature and data and in many cases

the up+to date information had not been yet published.

/ Time constraints impeded me to make in depth study.

/ -ntrance to every corner of the bank was not possible to me.

/ 1elevant paper and documents were not available sufficiently which could aid mywriting this paper.

/ ! had to depend on secondary data for preparing this report.


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CHAPTER

+ENDIN4 DECI&ION

The principle function of a bank is to lend. 'ending is a dynamic activity. Through the

medium of lending, the banking industry promotes economic activity instill and

encourages, at the individual level, the principle of self+reliance, and yields earnings for

the bank. !t is lending alone that brings banking into amore meaningful and purposeful

contract with public and therefore, has the greatest impact upon them.

!t is a fundamental precept of banking everywhere that advances are made to customers in

reliance on his promise to repay, rather than the security held by the banker. Security is

re"uired by the banker as a protection against unepected default in repayment by the

customer. Thus, the obect of both eternal and internal controls is to ensure the

employment of bank funds in a profitable manner without undue risk of loss to the capital.

Although all lending involves some degree of risk, it is necessary for any bank to develop

sound and safe lending policies and new lending techni"ues in order to keep the risk to a

minimum. The principles of sound lending may, therefore, be summarized on below

2( &af#t' Safety is the first guiding principle of a prudent banker. A bank is in business to

make money. !t mainly uses depositor%s fund as a means of its earnings. The money of the

depositor%s being repayable on demand or, after a short notice, determines the capacity of a

bank as to the period for which he can safely lend it out without an uncalculated risk.

Safety should never be sacrificed for profitability.

3( +i5uidit' 'i"uidity is the availability of bank funds on short notice. !t is not enough

that the money will come back, it is also necessary that it must come back on demand or inaccordance with agreed terms of repayment. The borrower must be in a position to repay

within a reasonable time after a demand for repayment is made4 otherwise, the li"uidity

position of the bank is endangered.

5( Profita!ilit' $ommercial bank has to distribute its resources in a manner that they

meet the twin re"uirements of li"uidity and profitability. A banker has4 therefore, to see

that maor portion of the assets owned by it are not only li"uid but also aim at earning a

good profit.


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6( Puros# A banker would not throw away money for any purpose for which the

borrower wants. The purpose should be productive so that the money not only remains

safe but also provides a definite source of repayment. The banker should study the purpose

for which loan is re"uired and the resources from which the borrower is epected to repay.

7( curit' !t is the practice of banks not to lend money without any security. The

security offered for an advance is insurance or a cushion to fall back upon in case of need.

A banker would normally like to recover the advance from the sale of the security. They

would prefer an advance to come back from the normal source. The importance of an

ade"uate and acceptable security can, however, be hardly over emphasized. Security

serves as a safety value for an unepected emergency. An element of risk is always present

in every advances however securities are not insisted upon, there are chances that the

borrower may raise funds elsewhere by charging them to others and thereby the banker%s

position is eopardized.

8( Disosal The advances should be as much broad+based as possible and must be in

keeping with the deposit structure. The advances must not be in one particular direction or

to one particular industry4 because any adversity faced by that particular industry will have

serious repercussions on the bank.

9( National Int#r#st Banking industry has significant role to play in the economic

development of a country. The banker would lend if the purpose of the advance is for

overall national development plans necessitating flow of credit to priority sector in the

larger national interest. Sometimes the need of the borrower may be considered so

essential for the benefit of the national economy that despite heavy risks involved the

advance may be granted. !n the changing concept of banking, national interest for

financing in some areas, especially in advances to agriculture, small industries, smallborrowers, and eport+oriented industries, are assuming great importance.


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CREDIT PO+IC6

7.01 2#aning of Cr#dit Polic'

)olicy entails proected course of action. -ach bank should have its own policy of granting

credit although credit is always a matter of udgment applying common sense in the light

of one%s own eperience.

A sound credit policy includes among other things safety of funds invested vis+a+vis

profitability of the bank. -ncouraging maimum number of small loans is better than

concentration in a particular type of advances which ensures sufficient li"uidity with least

incidence of bad debts.

!t has to be borne in mind that a good loan allowed to a properly selected borrower is half

collected. !n order to make a good loan there should have a good loan policy.

7.0 O!"#cti$# of Cr#dit Polic'

There are some obectives behind a written credit policy that are as follows

/ To provide a guideline for giving loan.

/ To )rompt response to the customer need.

/ To Shorten the procedure of giving loan.

/ To 1educe the volume of work from top level management.

/ #elegation of authority to the middle level management.

/ To check and balance the operational activities.

7.0/ I)ortanc# of Cr#dit Polic'

The necessity of a written credit policy is to provide a framework of standards and points

of reference within which individual lending personnel can operate with confidence,relative uniformity, and fleibility. 'ending officers will then be able to make their own

decisions within delegated authority, without the necessity for constant referral to higher

management.

:ithout such a written policy, there is a tendency to concentrate all decision making in

one or two people at or near the top, with the obvious disadvantages of slower decisions

and the inability of loan officers to develop their full potential. The other tendency is to

foster a dangerous diversity of lending practices and philosophies within the organization,


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probably leading ultimately to an in+ordinate number of problem loans. !n addition to

establishing uniform guidelines for loan officers and satisfying the regulator agencies, a

written credit policy can aid bank management in defining the obectives of the bank. 'ike

any other business, the commercial banks establish particular obectives to be met.

7.0 *or)ulation of Cr#dit Polic'

0ne of the "uestions that should arise in a discussion of credit policy is who should

formulate the policy. Although the ultimate responsibility lays at the highest level in the

organization i.e. the board of directors, yet the actual drafting shall have to be done by the

senior lending officer in consultation with the chief eecutive officer and with

contributions from senior officers, associates and subordinates. 0bviously, the level of

origin will vary with the size and structure of the organization. The matter than be referred

to the board for approval after careful eamination, consideration and discussion.

7.08 D#cision fro) $arious studi#s

-ssential $omponents of A Sound $redit )olicy

There can be some variations based on the needs of a particular organization, but at least

the following areas should be covered in any comprehensive statement of credit policy

1. +#gal consid#ration The bank%s legal lending limit and other legal constraints should

be set forth to avoid inadvertent violation of banking regulations.

. D#l#gation of aut%orit' -ach individual authorized to etend credit should know

precisely how much and under what conditions he or she may commit the bank%s funds.

These authorities should be approved, at least annually, by written resolution of the board

of directors and kept current at all times.

/. T'#s of cr#dit #9t#nsion 0ne of the most substances parts of a loan policy is adelineation of which types of loans are acceptable and which type are not.

. Pricing !n any profit motivated endeavor, the price to be charged for the goods or

services rendered is of paramount. :ithout it, individuals have few guidelines for "uoting

rates or fees, and the variations resulting from human nature will be a source of customer

dissatisfaction.

8. 2ark#t ar#a -ach bank should establish its proper market area, based upon, among

other things, the size and sophistication of its organization, its capital standpoint, defining


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one%s market area is probably more important in the lending function than in any other

aspect of banking.

7. +oan standards This is a definition of the types of credit to be etended, wherein the

"ualitative standards for acceptable loans are set forth.

:. Cr#dit granting roc#dur#s This subect may be covered in a separate manual, and

usual is in larger banks. At any rate, it should not be overlooked because proper

procedures are essential in loan establishing policy and standards. :ithout proper

procedures for granting credit and constant policing to ensure that these procedures are

meticulous carried out, the best conceived loan policy will not function and, inevitably,

problems will develop.

7.07. +#nding 4uid#lin#s Bas#d On Diff#r#nt R#s#arc% Points

As the Bank have a high rate of non performing loans. Banks risk taking applied should be

contained and our focus should be to maintain a credit portfolio keeping in mind of Banks

capital ade"uacy and recovery strength. Thus Banks strategy will be invigorating loan

processing steps including identifying, measuring, containing risks as well as maintaining

a balance portfolio through minimizing loan concentration, encouraging loan

diversification, epanding product range, streamlining security, insurance etc. as buffer

against unepected cash flow.

$onsidering the above few 'ending guidelines are elaborated below

:.071 Industr' and !usin#ss s#g)#nt focus.

Industr' *ocus Trading ;Busin#ss *ocus

i. Tetile i. #istribution

ii. )harmaceuticals ii. Brick field

iii. Agro+based iii. 1ice &ill;Flour &ill;0il &ill.

iv. Food and allied iv. :ork order

v. Telecommunication v. rocery

iii. 'inkage industries iii. :holesale;retails

iv. !nformation Technology iv. 0thers as decided from time to time

v. $eramics

vi. 0thers as decided from time to time


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7.07 T'#s of cr#dit faciliti#s

Bank will go for

/ Term financing for new proect and B&1- of eisting proects ?'arge, &edium,

S&-, S$!(

/ :orking $apital for industries, trading, services and others ?'arge, &edium,

S&-, S$!(

/ Trade finance for import and eport +

/ 'ease Finance.

/ Small loan for Traders, &icro enterprise and other productive small venture.

/ $onsumer Finance

/ Fee business

/ !slamic mode of finance

7.07/ ctor -is# +#nding cas

Sector wise 'ending caps of the !F!$ Bank as given below

?Amount in $rore Taka(

ctor3-is#

Ad$anc#s as on

/1.1.0:

Sectors;Sub+sectors Amount @ of TotalAdvance

2. Agriculture 3623CCC C.

3. Dute industries 33632CCC C.

5. Tetile industries 368C2C2CCC .89

6. >arments industries E 76C27CCCC 2.C7

7. $hemical and chemical products 25899CCCC C.6

8. Transport 586978CCC 2.3

9. $onstruction firms 3872926CCC .57

. $ements industries 2963CCCCC C.82

. Bricks and ceramic 28938CCC C.7

2C.>lass industries 6C678CCC C.2622. Food products and processing 2385978CCC 6.68

23. -ngineering and metal 3558CCCCC .36

25. #rugs and pharmaceutical 28269CCC C.79

26 'eather industries 2765CCC C.C8

27. )aper and paper product industries 2355CCC C.66

28.0ther small industries 2779C6CCC C.77

29. !T sector 396C3CCC C.

2.0ther service industries 2C32CCC C.86


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2.$ommerce and trades EE 8C9755CCC 32.63

3C. =ousing societies ; companies 972C7CCCC 3.87

32. $old storage 3C529CCC C.93

33. on banking financial institutions 2358CCC C.6635. $onsumer finance 2652CCC o.88

36. -nergy 3797CCC C.2

37. Tele communication 535638CCC 2.26

38. 0thers 6C7889337 26.52

Total 3582678337 2CC

&ourc# Annual r#ort 00: of I*IC Bank +i)it#d

Anal'sisSector wise lending caps collected from annual report 3CC9 shows that the bank

provides the highest loans in commerce and trade and garments industry sectors

respectively. The reasons of such priority are that commerce and trade and garments

industry provide immediate recovery of loan granted and in easy ways.


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CHAPTER :

+OAN& < AD=ANCE&

:.01 Introduction

Banking business is like all other profit+oriented business. !t depends mainly on how much

profit they can make. )rofit is the yardstick for the bank to move on. Banking is a business

that deals only with money and credit. They work as reserves of GsavingsH of the

community and also as lenders or investors for trade business and industry. Banks are

profit oriented. They invest their funds in many to earn income. =uge amount of income

derives from loans and advances. $redit is continuous process. 1ecovery of one credit

gives rise to another credit. !n this process of revolving of funds, bank earns income in the

form of interest. A bank can invest its fund in many winces to traders, businessmen, and

industrialists against the security.

:.0 Targ#t Custo)#rs of T%# I*IC Bank +td.

The customers for the loan services are categories as follows

/ !ndividual person.

/ Sole proprietorship firms.

/ )artnership firms.

/ )rivate limited company.

/ )ublic limited company.

/ >overnment and semi government organization.

/ Bank employees.

.

>%' t%# !ank ro$id#s ad$anc#s to t%# !orro-#rs

/ To earn interest from the borrowers and give the depositors interest back./ To accelerate economic development by providing different industrial as well as

agricultural advances.

/ To create employment by providing industrial loans.

/ To pay the employees as well as meeting the interest groups.

:e often use loans and advances as an alternative to one another. But academically this

concept is incorrect. Academically advance is the combination of such items where loan is

a part only. For this credit section of this bank is known as advance section.


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:.08 T'#s of Ad$anc#s

!t is not possible to discuss all types of advances in details in this report but an attempt has

been made to analyze the basic difference and characteristics of these advances all in the

following

Advances

Staff 'oan

Staff =ouse

Building 'oanStaff 'oan against

)rovident Fund

0verdraft

Secured

0verdraft

'oan

>eneral

$ash $redit

$$+=ypo $$+)ledge

Term 'oan

!ndustrial 'oan 0thers 'oan

=ouse Building

'oan+=B'

Transport 'oan

Bank >uarantee

Bid Bond )erformanceBond

Bills )urchased

and #iscounted

Scheme

$onsumer $reditScheme

!nvestors Accounts


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:.081 O$#rdraft

E 0verdrafts are those drawings, which are allowed by the banker in ecess of the

balance in the account up to a specified amount for definite period ?normally 2

year( as arranged for.

E 0verdraft facility is generally given to the businessmen for epansion of their

business.

E Any deposit in the S0# account is treated as repayment of overdraft.

E >enerally it is provided against F#1, )S) or any primary security.

E ormally it is provided with 7@ for personal 0# but 2C@ for institute 0#

margin, but it may vary.

cur#d O$#rdraft3&OD +oan 4#n#ral3+4

2.

3.

5.

6.

0nly businessmen can open this. 0nly

$# Account holder can open this.

!nterest rate is 27.7@ with

"uarterly rest and 3@ above F#1

1ate.

!nterest starts from the date of first

withdrawal.

2.

3.

5.

6.

Anyone can open this account. Both

$#;SB account holder can open this.

!nterest rate is 27.7@ with

"uarterly rest and 3@ above F#1 1ate.

!nterest starts from the date of sanction

of the overdraft.

:.08 Cas% Cr#dit ; >orking Caital3 CC;>C

/ $ash credit is given through the $ash $redit ?$$( account.

/ $ash $redit account is basically a current account4 however a little difference

eists between them. The distinction between a current account and a cash credit

account is that the former is intended to be an account with credit balance and the

letter is an account for drawing of advances.

/ 0peration of cash credit is same as that of overdraft. The purpose of cash credit is

to meet working capital needs of traders, farmers, and industrialists.


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Cas% Cr#dit ?H'ot%#cation@ Cas% Cr#dit ?Pl#dg#@

2.

3.

5.

6.

!t is a charge against a property for a

debt where neither the ownership northe possession is passed to the

Banker.

!t is granted only to first class party.

!nstrument+=ypothecation deed.

)ossession of goods is surrendered to

the lender when called upon to do so.

$harge is then converted to pledge.

2.

3.

5.

6.

!t is a charge against a property for a

debt where the ownership remains tothe borrower but the possession is

passed to the Banker.

!t is granted to all types of parties.

!nstrument+ )ledge deed.

!n case of default, Bank may sell the

security on giving the debtor

reasonable notice of sale.

:.08/ T#r) +oans

T'#s of T#r) +oans C%aract#ristics

1. Industrial +oans E !t is given for 5 years at e"ual monthly installment

E !nterest rate is 25.CC@.

E >race period is allowed depending on types of proect.

E This is given to facilitate the industrial growth.

. Transort +oans E This is given to accelerate the transport facility

nationwide.


E !t is given for 7 years at e"ual monthly installment.

E 0thers condition are almost same as the industrial

loans.

/. Hous# Building +oans E This is given for the construction of dwelling house.




E This loan is not given fre"uently.

. Ot%#rs +oan3Including

Agricultur# +oan

E Actually Agricultural loan is not given from this branch

of The !F!$ Bank but all other items ecluding the

mentioned above will go under this head of term loans.

:.08 &TA** +OAN&

1. &taff Hous# Building +oan3&HB+

Staff house building loan is provided to the employees having 7 years continuous

confirmed service in the bank. $eiling of this loan is 27C times of basic salary. Security of

the loan is the legal mortgage of the land. 1ate of interest is 2@ more than Bank rate that

is 8.CC@ simple rate ?no compounding rate(. 1epayment procedure is 36C e"ual monthly

installments. !t is started after 8 months from the date of 2 stdisbursement of the loan.

1epayment is adusted from their monthly salary. )rinciple amount is adusted first, and

then interest is adusted.


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. &taff +oan Against Pro$id#nt *und3&P*

This loan facility is provided only for The !F!$ Bank staff. !n the provident fund, 2C@ of

basic salary is contributed by employee in every month and also 2C@ of basic salary of the

employee is contributed by the bank. Any continuous confirmed staff can apply for this

loan. The rate of interest is @ ?simple rate(. 1epayment is adusted from their monthly

salary.

H#ad offic# allo- loan to staff against t%#ir ro$id#nt fund as #r t%# follo-ing

crit#rion

&+.

No.

Crit#rion P.*. +oan

C#iling

R#a')#nt P#riod

?2a9.@

3. -mployees having 7 years but less than 9

years continuous confirmed service in thebank.

8C@ of both

contributions.

6 e"ual monthly

installments.

5. -mployees having 9 years but less than 2C

years continuous confirmed service in the

bank.

9C@ of both

contributions.

6 e"ual monthly

installments.

6. -mployees having 2 C years and above years

continuous confirmed service in the bank.

C@ of both

contributions.

6 e"ual monthly

installments.

:.088 Bank 4uarant##

The bank very often re"uested by his customer to issue guarantees on their behalf to a

third party+ committing to make an unconditional payment of certain amount of money to

the third party, if the customer ?on whose behalf it gives guarantee( becomes liable, or

creates any loss or damage to the third party. !t is a contingent liability for the bank. Bank

is charged 2@ or 3@ commission for this guarantee. After the epiry of the guarantee

period Bank is no longer liable to the third party. Bank guarantee is generally issued by the

banker for payment of tender.

T'#s of Bank

4uarant##

C%aract#ristics

1. T#nd#r or

Bid Bond

E !t is issued on behalf of contractor in favor of firms, giving a

sort of guarantee for payment of money where tender has been

approved but the contractor is not willing to proceed with it.

E !t is normally issued for a period of 5 to 8 months against

higher cash margin.

. P#rfor)anc#

4uarant##

E !f a contract is awarded to the contractor he would be

re"uired to furnish a guarantee whereby his eecution ofcontract as per terms and conditions agreed is guaranteed. This


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is known as performance guarantee.

E !t would re"uire high cash margin in addition to collateral

security with power of attorney to collect bills.

/. Ot%#rs

4uarant##

E 0thers guarantee which is issued by the bank include+

Shipping guarantee, !nvestment bank guarantee, $ustoms and-cise guarantee, >uarantee on account of foreign

correspondent, and #eferred payment guarantee.

:.087 Bill Purc%as#d < Discount#d

Sometimes banks are to purchase bills of echange of businessmen to facilitate

commercial transactions. )urchasing of inland bill of echange arising out of commercial

transaction is called inland bill purchased. Bank purchase two types of inland bill which

are as follows

1. Cl#an Bill $lean bills are that bill which re"uires no document for payment like

$he"ues, #emand #raft, )ay 0rder, Tele Transfer, and &ail Transfer.

. Docu)#ntar' Bill :hen the drawer of a bill encloses the documents of title to

goods, such as, Bill of 'ading, 1ailway 1eceipt, Steamer 1eceipt, to be deliveredto the drawee of the bill on payment or against acceptance of bill, as the case may

be, the bill is called #ocumentary bill. This is often created in business and the

Bank purchases these before their maturity.

!n case of G#iscounting of BillH the charges are more because the bank, besides charging

for the service rendered, will also charge for interest from the date of discounting the bill

till the date of maturity.

!n all the cases of purchasing and discounting of bills, the bank is granting advance to the

customers and, therefore, GBills )urchased and #iscountedH are shown as advances by a

bank in its balance sheet.

:.08: Consu)#r Cr#dit &c%#)#

The obective of this loan is to provide credit to the customer ?Service =older( for

purchasing of essential =ousehold durable like+ computer, Television, Sound System,

Sewing machine, Furniture etc. The borrower eecuted the following documents in the

Bank%s favor to secure the loan

/ #emand )romissory ote ?Single(.


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/ 'etter of Arrangement.

/ 'etter of !nstallment.

/ 'etter of #isbursement.

/ 'etter of =ypothecation.

/ )ersonal guarantee signed by the 5rd party with particulars of guarantee form+$.

/ Assets and 'iability position of the borrower.

/ &onthly income of the borrower.

By considering those documents Bank provides loan to borrower under the following

terms and conditions

2argin 3C@ on the value of the household items to be purchased.

R#a')#nt 1epayment procedure is 36;58;6 e"ual monthly installments.

curit' =ypothecation of the purchased assets.

Rat# of int#r#st 28@ ?1evised from time to time(.

E9t#nt of li)it The loan amount sought can not eceed C@ of the purchased price.

:.07 Di$#rsification of Cr#dit

As per Bangladesh Bank rule on credit, !F!$ Bank can etended C@ of its deposits. !F!$

Bank etends credit in four sectors which are organized under a broad sector

:.071 Agricultural Cr#dit

About 7@ people of rural area are engaged in agricultural activities. But most of them do

not have enough money to cultivate their land. Inder this category !F!$ Bank provides

credit in various agricultural activities such as crops, fisheries, and live stocks, ute * ute

goods eport etc.

:.07 Industrial Cr#dit

Bangladesh is a developing country. :e have to develop industry for the economic growth

of the country. But most of the people of our country do not have sufficient capital todevelop industry. Inder this category !F!$ Bank provides credit in various industrial

activities such as small * cottage industry, big and medium industry.

:.07/ Co))#rcial Cr#dit

!F!$ Bank gives credit to purchase commercial goods. As a result the producers of goods

can sale their outputs and the traders can do their business efficiently. Inder this sector

!F!$ Bank provides credit for various activities such as trade, eport, import, working

$apital etc.


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:.07 Ot%#r Cr#dit

&any of our country want to organize some productive activities. But they do not achieve

their goal for lack of capital to meet up their needs for capital, !F!$ Bank helps to improve

the socio+economic condition of the country. Inder this sector Bank provides credit for

various activities such as =ousing, $onsumption, $onstruction, Transportation, and

-"uipment ?&edical( etc.

:.0: 4#n#ral Proc#dur# *or +oans And Ad$anc#s

The following procedure is applicable for giving loans to the customer. These are

:.0:01 Alication for loan

The borrower applies for the loan in the prescribed form of the bank describing the types

and purpose of loan.

:.0:0 4#tting Cr#dit Infor)ation

The bank collects credit information about the applicant to determine the credit worthiness

of the borrower. Bank collects the information about the borrower from the following

sources

/ )ersonal investigation.

/ $onfidential report from other bank =ead 0ffice;Branch; $hamber of the

$ommerce.

/ $!B 1eport from $entral Bank.

:.0:0/ Infor)ation Coll#ction

The loans and advance department gets a form filled by the party seeking a lot of

information. The information%s are listed below

/ ame and address of the borrower ?present and permanent(.

/ $onstitution or status of the business./ #ate of establishment and place of incorporation.

/ )articulars of properties, )artners, and #irectors.

/ Background and business eperience of the borrowers.

/ ature and details of business;products.

/ #etails of re"uested credit facilities.

/ #etails of securities offered.

/ )roposed debt e"uity ratio.


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/ 0ther relevant information.

.

+#nding Risk Anal'sis3+RA

'1A is a very important and vital analysis for deciding whether the loan proposal is

potential or not. &any types of scientific, mathematical, statistical and managerial tools

and devices are re"uired to perform this analysis.

The !F!$ Bank Terri Bazar Branch maintains a prescribed format containing 26 pages for

'ending 1isk Analysis, which includes a Spreadsheet to analyze a lot of things. !t is not

possible to discuss the entire '1A in this report, but the entire framework under which it

works has given in the following manner

+#nding Risk Anal'sis+RA

a( !ndustry 1isk

i( Supply 1isk+ :hat is the risk of failure to disruption in the supply

of inputJ

ii( Sales 1isks+:hat is the risk of failure due to disruption of salesJ

b( $ompany 1isk

2. $ompany )osition 1isk

i( )erformance 1isk+:hat is the risk that the company position is so weak that it

can not perform well enough to repay the loan, given epected eternal conditionJ

ii( 1esilience 1iskKwhat is the risk of failure due to lack of resilience to

unepected eternal conditionsJ

3. &anagement 1isk

i( &anagement $ompetence 1iskKwhat is the risk of failure due to lack of

management competenceJii( &anagement !ntegrity 1iskKwhat is the risk of failure due to lack of

management integrityJ

$. Security 1isk

i( Security $ontrol 1iskKwhat is the risk that the bank fails to realize the securityJ

ii( Security $over 1iskKwhat is the risk that the realized security value is less

than the eposureJ

:.0:08 R#l#$ant 2att#r of Docu)#nt C%#ck#d B#for# &anctioning an' +oan


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/ There must be an account of the person want to take loan. The account must have

a transaction for not less than 5 months to 8 months4 otherwise the loan will not be

sanctioned.

/ After checking the duration of account then the transaction made by the account

holder must be checked. The debit credit position must be also checked, because it

is related with future dealings of the borrower.

/ The purpose for what the loan is taken by the borrower is another important

matter to see and check. :hether the purpose is business or else must be checked

with its marketability. Because there is risk of fraud and forgery by the borrower

by seeing one purpose in cash of doing any illegal business.

/ The banker should check through security whether it is enough or not.

:.0:07 Proosal Anal'sis

The proect proposal is analyzed and decision about the proect is taken. Bank evaluates a

loan proposal by considering few predetermined variables. These are

/ Safety.

/ 'i"uidity.

/ )rofitability.

/ Security.

/ )urpose of the loans.

/ Sources of repayment.

/ #iversification of risks etc.

:.0:0: Collat#ral E$aluation

The !F!$ Bank, Terri Bazar Branch is very cautious about valuation of the collateral. The

bank officials and simultaneously evaluate the collateral the party offers by private firm.

This two way valuation of the collateral increases the accuracy of its value estimated.

Three types of value of the collateral are assumed

/ $urrent market price.

/ #istress price.


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/ )rice after five years.

The legal officers of the bank check the documents ascertain their impurity.

:.0:0 *inal D#cision A!out t%# Pro"#ct

!f the loan decision remains with the branch level, branch sanctions the loan and if the

approving authority is head office then the decision comes to the branch by tele or fa.

:.0:0 Pro#r &u#r$ision of t%# Pro"#ct

!f such provision is kept in the sanction contracts, the bank officials go to the proect area

and observe how the loan is utilized. !f no such clause to supervise the loan is added, even

then the bank can see the performance of the proect.

:.0:10 Docu)#ntation of t%# +oan

These are the most fre"uently used and common documents for creation of above

mentioned charged and for other formalities for sanctioning the loan

/#emand promissory note =ere the borrower promises to pay the loan as and

when demanded by the bank to repay the loan.

/'etter of Arrangement =ere the written amount of the loan sanctioned to the

borrower is specified.

/'etter of $ontinuity !t is used to take continuous facilities as providing

continuous securities.

/'etter of =ypothecation !t is the written document of the goods hypothecated

thus to put in case of need.

/Stock 1eport This report is used for S0# and $$. in this report, information

about the "uality and "uantity of goods hypothecated furnished.

/&emorandum of deposit of title deed of property duly signed by the owners of the

property with resolution of board of directors of the company owning the landed

property.

/)ersonal guarantee !t is the additional confirmation of the borrower to repay.

/>uarantee of all the directors of the company.

/1esolution of the board of directors !t is used to borrow the fund to eecute

documents and complete other documents.

/'etter of disclaimer By this letter, the borrower withdraws his all claim on theproperty;goods liened;mortgaged.

/Form no. 2;2 for filling charges with the register of oint stock companies under

relevant section.

/'etter of Acceptance 'etter indicating the acceptance of the sanction proposal by

the borrower.

/'etter of )ledge !t is the written document of the goods pledge thus the legality

of holding the goods.

/'etter of #isbursement This is the document through which the payment of

sanctioned loan indicates.

/'etter of )artnership !n case of partnership firm, the partnership deeds are to be

provided.


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/'etter of !nstallment The amount of installment that is to be paid at certain

intervals.

/!nsurance )olicy !t shows the up+to+date insurance profile of the customer.

/Ta )aying $ertificate.

/Any document if described, as essential in the sanctioned advice sanctioned by thehead office.


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E9isting Proc#ss of Handling +oans

-isting loan !nformation -valuating proect

)roposal $ollection and proposal

About About Branch 'evel

)roect )arty -valuation

'egal -valuating $ollateral

Assessment

-valuating

By Agent

Isual Branch

1ecovery 'evel

1ecovery of Supervision Sanctioning * #ecision

the loan of loan disbursing loan

'egal =ead 0ffice

1ecovery 'evel

:.0:11 E9#cution of Docu)#nts

-ecution of documents should be done with stamping a re"uired under stamps act. There

are three kinds of stamp which is used for eecution of documents

i( udicial3T%#' are of special mark used in the courts.

ii( Non udicial3It is printed on special paper in different denominations and used for

eecution of agreements. !ndemnity bond, sale deed, mortgage deed etc. are also called

impressed stamp.


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iii( Ad%#si$#+1evenue stamps, Special adhesive stamps and affied as re"uired on

documents like promissory note. !t is receipt on standard printed form such as 'etter of

continuity, 'etter of pledge, 'etter of hypothecation, 'etter of lien, Supplementary

agreement, 'etter of guarantee, Trust 1eceipt etc. such stamp are needed to be canceled in

an effective manner so that the same can not be used again.

#ocuments to be eecuted ?signed( by parties concerned competent to do so either in

official capacity or in personal capacity as the case may be. !n some cases such documents

are re"uired to be eecuted in presence of witness.

The following precautions are to be taken at the time of eecution of documents.

#ocuments to be filled in and are eecuted in the presence of the manager or an authorized

officer of the bank. =e must put his initial in pencil so that in future it can be ascertained

in whose presence the documents were eecuted. =e may have to depose in a court in

future. The client should sign in accordance with the specimen signature recorded with the

bank. !f documents consist of more than one page, all the pages are to be signed by the

epectant at the end of the form and also at the end of the schedule of securities. &ention

of date and place of eecution on a document is mandatory.

:.0:1 Cr#ation of C%arg#s for curing +oan

T%# co))on )#t%ods of c%arging s#curit' and t%#ir natur# ar# d#scri!#d !#lo-

2od# of curit' Natur# of s#curit' < its c%aract#ristics

'ien E $ash, cash collateral and documents of the title to the

goods.

E !t is the right of the banker to hold the debtor%s properly

until the debt is discharged+generally retained by the bank

in its own custody or to the hands of third party with lien

marked.

E The third party cannot discharge it without the permission

of the bank.

E !n case of need bank needs the permission from the courtto sell the property.

Assignment E Borrower transfers the right of property or debt to the

bank.

E 'ife insurance policies, supply bills, book debt of the

borrower can be assigned.

)ledge E &oveable stock of raw materials, finished goods,

merchandise.

E )ledge is also lien but here bank enoys more right.

E )hysical transfer of goods to the bank is must.

E Bank can sell the property without the intervention of any

court, in case of default on loan.


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=ypothecation E &oveable stock of raw materials, finished goods,

merchandise.

E >oods remain in the hands of debtor, but documents of

title to goods are handed over to the banker. This method is

also called Le"uitable chargeL.E Bank inspects the goods regularly to udge its "uality and

"uantity for the maimum safety of its loan.

&ortgage E &ortgage is the transfer of specific immoveable property+

like land, building, plant etc.

E &ost common type of mortgage is legal mortgage in

which ownership is transferred to the bank by registration

of the mortgage deed.

E Another method called e"uitable mortgage is also used in

bank for creation of charge. =ere mere deposit of title to

goods is sufficient for creation of charge. 1egistration is not

re"uired. !n both the cases, the mortgaged property is

retained in the hand of borrower.

Trust 1eceipt E !ntangible asset ?goodwill(

E !t is used in foreign echange business.

CHAPTER

RECO=ER6 O* +OAN& AND AD=ANCE&

To lend money is an easy matter. To be sure of recovery of the loan is not that easy. o

banker whatsoever careful and diligent he is in granting advances succeeds on getting all

the money that has been advanced. :ith the outcome of social responsibilities of the

commercial banks to make advances to the priority sectors the situation has been

becoming more and more comple. The most serious problem that affects the entire

banking industry today is the problem of recovery of bank advances.

From the bank%s point of view, this is important for at least two reasons

i( !f the borrower has no or has indefinite plans for repayment of the advance, it

may indicate that the loan is too risky or is too speculative for the bank to handle.

ii( !f the borrower has a plan for the repayment of the loan, the banker is placed in

a position to consider the source from which the funds will come for repayment

and to analyze the risk involved more intelligently.

.01 *indings for non3r#co$#r' of loans;ad$anc#s


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a( /ot careful about the weak points while preparing credit proposal.

/ egligence in carefully implementing terms of sanction letter, as a result, loans

remain faulty.

/ Borrowers take advantage of the situation.

/ Failure of the controlling office in monitoring the recovery.

b( Selection of borrower%s essential pre+re"uests of good loan not properly done.

/ =is 5 $Ms 5 1Ms or 7 $Ms or 8 $Ms not properly assessed, hence recovery becomes

difficult.

c( Feasibility study not properly done, proect not properly implemented leading to loan

becoming undue.

d( All important re"uired papers not obtained before disbursement, law officer not

consulted legal actions become difficult.

e( :rong valuation of pledged goods mortgaged properly over valuation. Branch

managers in some cases not aware that goods actually pledged.

.0 Proc#dur# *or R#co$#r'

!f a borrower fails to make repayment of the dues the bank has to consider what steps need

to be taken to recover the debt. Banker will eventually have to take the following steps to

recover the stuck up advances.

a( -isting loans ?all categories(

/ #iarizing due dates of repayment.

/ 1egular follow+up.

/ )eriodical inspection.

/ Surprise visits.

b( 0verdue loans;advances

/ )reparation of "uarterly lists Branch copy, controlling office copy and headoffice copy.

/ Attempts made for adustment of loans before application of "uarterly interest.

/ &ust be adusted before being classified.

c( $lassified loans;advances ?Substandard, doubtful and bad.(

/ Targets for recovery.

/ Steps for declassification.

d( !nterest eemption


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/ Nuick decision.

/ $ommunication of decision "uickly.

.0/ R#)#dial 2#asur#s of +oan R#co$#r'

/ Ascertain reasons for non+payment.

/ )ersuasion.

/ egotiation.

/ 'itigation.

/ Training and motivating of staff.

/ $lassification of Borrowers to A, B, $ * #.

/ &anager handles L#L type customer.

.0 &trat#gi#s *or R#co$#ring of +oan

Following are some strategies that yield appreciable results

/ Tailor+made strategies for different problems must be prescribed.

/ Timely wisdom alone works as timely strategy.

/ 1ecovery often proves effective when follow+up done with co+

obligates.

/ 0ld loans cleared to secure new loans to be taken advantage.

/ $lean loans not recovered are regularized by taking some sort of security to

have some hold on borrowers.

/ Friendship and echange of courtesies with dites of the place like #$, S),

elected representatives credit moral impact on borrowers.

.0: Corr#cti$# 2#asur#

/ 'egal review of documents * situation.

/ :orkout strategy * action.

/ 'oss evaluation versus security cover./ Stay or leave decision * reclassification.

.0 Diff#r#nt T'#s of +#gal Actions

:hen the banks fail to recover the loans through pursuance, they file suit against the

defaulting borrowers in competent courts of law through banks approved lawyers to

ensure recovery through legal course of action

/ Filling certificate cases under public demand recovery act. 225.


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/ 1ecovery of loans through sale of mortgaged property or taking over

management of the defaulting concern.

/ Filing criminal cases for breach of trust under 6C8;63C B)$.

/ Filing money suit cases under Artha 1in Adalat Act 2C.

/ Filing Bankruptcy cases under Bankruptcy Act 29.


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CHAPTER

PER*OR2ANCE AN+6&I& O* I*IC BAN

.01 PO&ITION O* THE I*IC BAN AT A 4+ANCE *OR THE +A&T 7 6EAR&.

?in 2illion Taka@

Particulars 00/ 00 008F 007 00: 00

C2 Authorized $apital 7CC.CC 7CC.CC 7CC.CC 7CC 7CC 28CC

C3 )aid+up $apital 6C8.5 6C8.5 6C8.5 6C8.5 89C.93 2562.65

C5 1eserves and

Surplus

893.9 959.2 C.2C 25C.27 28C.5C 2268.7C

C6 Share =olders

e"uity

2C9.2 2265.7 2327.6 2927.76 3852.C3 537.36

C7 #eposit 2252.7 29.9 3C996.69 383C.2 3CC.C7 58C3.29C8 $ounter Finance

from $entral Bank

38.2 253.65 7.9 52.3 27.36 5.75

C9 $redit 3C78.7 3C67C.C 323C. 376C.88 3582.6 55C2.5

C >uarantee Business

0utstanding

3C.76 33C8.65 2388.26 322.79 395.33 3772.7

C !mport Business

=andled

26C9.3C 37623.3C 3697.3C 5898C.83 66575.66 7C558.3

2C -port Business

=andled

3292.C 362C.3C 3756.C 6CC.83 7687.6 88778.75

22 Foreign 1emittance

=andled

523.C 5589.2C 65C3.CC 873.7 8999.63 23398.93

23 Total !ncome 3258.85 3765.5 389.C8 589.5 728.7C 529.8C

25 Total -penditure 28.3 232.98 28.2 337.C6 563C.3C 2779.3

26 et )rofit Before

Ta

26.92 229.C 25C.97 8C9.9 2998.5C 2833.52

27 et )rofit After Ta 9.5C 86.5 92.2 556.3 232.C 9C3.52

28 #ividend and

Bonus Share

5C.6 + 66.9C + 89C.93 +

29 Total Assets 37.C 392C2.5C 3797.5 58CC.6 526.27 67937.6

2 Fied Assets 573.8 57.6 29.2 529.66 55.C 722.5

2 umber of

Shareholders

8358 8283 832C 7936 + +

3C umber of

Branches ?domestic(

78 83 83 87 8 96

32 umber of

Branches ?overseas(

C3 + + + + +

33 umber of A C5 C6 C6 C6 + +


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affiliates

35 Branches of

Affiliates

35 37 58 68 + +

36 umber of -mployees

2977 28 27 3C26 29 322C

)rovisional Figures

?The Above information is furnished up to 3CC because after that time, there have no

annual >eneral meeting of the !F!$ Bank held.(

Source !F!$ Bank Academic $alender+3CC.

&ourc#Annual 1eport 3CC9 and Academic $alendar 3CC of !F!$ Bank 'td.

Anal'sisThe above diagram shows that for economic stability and favorable govt. policy,

total income of the bank is high in 3CC9 but low in 3CC because the govt. spent its time

for election rather than economic activities in that year.


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&ourc#Annual 1eport 3CC9 and Academic $alendar 3CC of !F!$ Bank 'td.

Anal'sisThe diagram shows that total assets have decreased in 3CC6, 3CC7 for economic

instability of the country and increased again in 3CC9 * 3CC because of political stability

and eistence of indifferent caretaker govt.


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.08 EGECUTI=E &U22AR6


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classification procedure. !n inth chapter of the report ! have discussed about the

)rocedure of 1ecovery of loans. !n Tenth chapter of the report ! have presented the

"uantitative data about the !F!$ Bank at a glance, $omparison of performance, Summary

of the branch, )osition of $lassified loans, clearing house report, )resent position of the

credit department of the branch etc. ! have also showed graphical presentation in this

chapter.

!n -leventh chapter of the report ! have discussed about the observations, conclusion and

recommendations for the bank from myself. And the report ends with a bibliography.


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CHAPTER 10

CONC+U&ION AND RECO22ENDATION&

10.01 Conclusion

#uring the three months internship program at Terri Bazar Branch, almost all the desks

have been observed more or less. This internship program, in first, has been arranged for

gaining knowledge of practical banking and to compare this practical knowledge with

theoretical knowledge. $omparing practical knowledge with theoretical involves

identification of weakness in the branch activities and making recommendations for

solving the weakness identified. Though all departments and sections are covered in the

internship program, it is not possible to go to the depth of each activities of branch because

of time limitation. So, the obectives of this internship program have not been fulfilled

with complete satisfaction. =owever, highest effort has been given to achieve the

obectives the internship program.

#uring the internship, it is found that the branch provides all the conventional banking

services as well as some specialized financing activities to the economy. Foreign echange

services department the largest department of the branch in terms of manpower and profit

earned. !n this year, it earns more than 8C@ of branch%s total profit. This department

provides all the services related to international and disburse credit if the proposal is

sound. As specialized financing, it provides term finance to medium and small+scale

industries. The branch also provides house+building loan. Thus by providing this various

services, !F!$ Bank, Terri Bazar Branch, is playing an important role in the banking

system and in the payment system of Bangladesh.


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10.0/ R#co))#ndations

Although this branch is making huge amount of profit and generating large volume of

deposit, a number of problems have been detected while working this branch. These

problems along with the recommendations for solving them are stated here

a( Branch should increase its "uality of customer services.

b( Speed up processing of loan application.

c( ';$ should be opened promptly.

d( Bank should be innovative and diversified in its services.

e( Bank should immediately enter into the credit card market.

f( Bank should introduce modern technology.

g( !nformation system should be developed.

h( #evelopment of =uman 1esources.

i( $hain of doing ob in the branch should be made clear.

( &arketing for selling the services should be encouraged.

k( #etail &anual should be prepared for accurate credit operation.

l( Some discretionary power should be given to the branch management.

m( 1educe classified loan on an emergency basis.


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BIB+IO4RAPH6

2( $ommercial Bank &anagement

By+ )eter 1ose, Third -dition, !1:!

3( !F!$ Bank credit &anual+3CC9

5( !F!$ Bank G)olicy >uide lines on credit 1isk &gt.+3CCH

6( Annual 1eport+3CC9, !F!$ Bank 'td.

7( Statement Affairs+3CC6, !F!$ Bank 'td.

8( !F!$ Bank )rospectus.

9( A Tet Book on bankerMs advances.

By+ '.1. $howdhury

( !F!$ Bank Academy calendar+3CC

( )ractical Banking Advances

By+ =.'. Bedi * O.P. =ardikar

FFFFFFFFFFF

Dat# of &u!)ission Octo!#r 1801

+#tt#r of &us!)ission

Octo!#r 1801.

2r. A'u! Isia).


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I*IC Bank +i)it#d.

T#rri Baar Branc%

C%ittagong.

&u!"#ct &u!)ission of Tour R#ort.

D#ar &ir

! have the pleasure to submit my tour report on the (E$aluation of Cr#dit 2anag#)#nt

in I*IC Bank +td. ?Banglad#s%@,in a complete form. This report is an integrated part of

my BBA program. ! have strived hard for making it as subective as possible. !t was

indeed great pleasure for me to eperience the real life working environment which ! am

sure very much would enrich my academic background as well as the professional field.

! shall be highly encouraged if you are kind to receive this report. A call for clarification

on any of the points will be my pleasure.

Thanking you

Sincerely yours

&d.Al+Amin

BBA,Session3CC8+3CC9

!# 0C95C2C5

D#art)#nt of AI&

Uni$#rsit' of C%ittagong

.


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Evaluation of Credit Management in IFIC Bank Ltd

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