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    IX

    INTRODUCTION

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    IntroductionIX.01 Background (THE INTERNSHIP)

    I am the student of Bachelor of Business Administration (B.B.A) study the subject's related tobusiness including Accounting, Management, Finance, Marketing, Mathematics, Social and

    cultural status and little about science and technology. The schools of business at home andabroad try to familiarize each student as they move comfortably in the business environment.But only the theoretical study in the class rooms is not enough rather a practical experienceand the only means of practical experience is internship program.

    In the business environment at home & abroad there are lots of financial institution, businessfirms, and industries which provide this facility towards us. If we could not get this facility ofinternship then a wide gaps will take place between our study and experience. I think this is anextremely valuable asset for us.

    We the students of business do this usually for there

    months. In our country there are many banksparticularly the esteemed private sector banks, andelite business firms provide this. In this respect Ihave done my internship at IFIC bank ltd. the one ofthe most renowned private bank in Bangladesh.I am thankful to IFIC Bank for this.IX.02 Objectives

    The objectives of the reports is to provide

    A general description of the banking

    An exposure of practices of different banking activities in IFIC Bank Ltd..

    Relevant rules, regulations, theories and practices for banking.

    IX.03 Significance

    IFIC BANK LTD. is one of leading private commercial banks of the country. Through it has62 branches all over the country, it is performing banking activities very successfully. Tomobilize funds from surplus units and deploy funds to deficit units, the bank is playing a greatrole in the economic development of the country. IFIC BANK LTD. is one of the key playersof countrys economic development.

    IX.04 ScopeThe report covers different departments of IFIC BANK LTD., Mirpur Branch like GeneralBanking, Loans and Advance & Foreign Exchange etc. It also presents a brief scenario ofIFIC BANK LTD in total.

    IX.05 Time Schedule:I have worked in different desks of IFIC BANK LTD., Mirpur Branch. This branch did notgive any hard and fast schedule for me. I have maintained the following self-preparedschedule in this bank.

    DEPARTMENT TIME

    1. General Banking About 1 (one) month.2. Foreign Exchange About 1 (one) month.

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    3. Loan & Advance About 1/2

    (half) month.

    IX.06 Methodology:

    I interviewed the branch incumbent, department in charges, officers and clients. I have

    observed the activities of the people of different desks, I did also observed the practice of the

    branchs Management. I have reviewed the Annual Reports 2004, 2005, 2006, 2007 & 2008,

    2009 of IFIC BANK LTD., Bank Companies Act-1991, Negotiable Instrument Act-1881. I

    have also reviewed Different Publications regarding banking functions, foreign exchange

    operation, credit policies, and Practical Orientation Dairy Maintained by me.

    -This report is formatted into five segments

    (a) The Introduction(b) The Organizational Profile(c) Overall Banking Operation(d) Human Resource Function In IFIC Bank.(e) Performance Measurement(f) Analytical Study and Recommendation

    -In this report the banking operation has been looked into as far as possible and a performancemeasurement has been done by using different ratios and diagrams.

    IX.07 The limitations of the report

    This is my first report. I am not aware of the format and writing style of the report. I think"this is the main reason why some limitations have been recognized here. But the reportssubmitted to IFIC Bank academic section's library by the internees student of variousuniversitys worked as guideline to prepare this report. I have also used reliable sources ofinformation by using some text book, the manual etc. I have tried to do the performancemeasurement by using the data published in annual report 2009.

    So I think the main limitations of this report are - Lack of experience to prepare a report.

    -Lack of clear knowledge of different ratios.

    -Lack of information.

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    X

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    I F I C B A N K A T A S K E T C H

    HISTORICAL BACKGROUND OF IFIC BANK LTD.

    International Finance Investment and Commerce Bank Limited "IFIC Bank"came in to existence In 1976 as a joint venture between the Government ofBangladesh and sponsors In the private sector with the objective of working asa finance company within the country and setting up joint venturebanks/financial Institutions abroad. IFIC was Incorporated as a public limitedcompany with an authorized capital of Tk. 20 core and paid up capital ofTk.10 core. IFIC commenced Its operation on February 28,1977 with a

    Subscribed capital of Tk.5 core, contributed by leading private sectorentrepreneurs In the country. the Government held 49 percent shares and therest 51 percent were held by the sponsors and general public.

    But, In 1983 when the Government allowed banks In the private sector IFICwas converted Into a full-fledged commercial bank. the Investment companyhas transformed Into banking company In June 13,1983 and started activitiesfrom June 24,1983 through Its Motijheel Branch.

    At the very beginning the 60 percent share are owned by private entrepreneur

    and 40 percent are owned by Govt. at the end of 1984 the authorized capitalwas 10 core and the paid up capital was 7crore 15 lacs Taka only.Annual report as on 1983. the ownership of non Govt. sector is included-

    1. Mr. Jahurul Islam, Chairman. 2. Salman F. Rahman, Vice-Chairman. 3. A.M. Aga Usuf. 4. Syed. Mohsen Ali. 5. Mr. Ahmadul Kabir. Owner of "Dainic Shangbad".

    PRESENT OWNERSHIP STRUCTURE

    The government of the peoples' Republic of Bangladesh now holds 35 percent ofshare capital of the bank. Leading Industrialists of the country having vastexperience In the field of trade and commerce own 34 percent of the share capitaland the rest Is held by the general public.

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    MISSION OF IFIC BANK

    To establish and conduct all types of banking financial investment andtrust business in Bangladesh and abroad.

    To carry on any business relating to wage earners scheme as may be

    allowed by Bangladesh Bank from time to time including maintainingof foreign currency accounts and any other matter related there to.

    To contract or negotiate all kinds of loan.

    To form, promote, organize, assist, participate or aid in forming,

    promoting or organizing any company or others.

    To encourage, sponsor and facilitate participation of private capital in

    financial, industrial or commercial investment.

    To purchase or otherwise acquire, undertake the whole or any part in

    the business.

    To take part in the formation, management, supervision or control of

    the business or operations of any company.

    PRESENT CAPITAL AND RESERVE

    IFIC Bank has been consistently maintaining the Capital Adequacy Ratio, asprescribed by Bangladesh Bank. This has been possible by a policy of building upboth capital and reserves. It started with an Authorized and Paid-up Capital of Tk.100 million and Tk. 63.20 million respectively in 1983 which stand at Tk. 500million and Tk. 406.39 million respectively in 2003.

    CREDIT POLICY AND PORTFOLIO

    IFIC Bank follows the credit policy within the framework of three main objectivesnamely, maintenance and improvement of quality assets, recovery on time andbuilding up an efficient customer oriented credit delivery system..

    The portfolio includes working capital financing, project financing, import-exportfinancing and domestic trade financing etc. the continued to extend working capitalfacilities to customers to ensure smooth and uninterrupted operation of theirbusiness. At the same time, it expanded project financing portfolio to meet the

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    growth demands of the economy for long term finance in a depressed capitalmarket.

    So far the Bank has financed 295 projects. Among them 48 projects were financedduring 2003 amounting to Tk. 1205.60 million. The Bank also participates in

    Syndicate Financing and so far has disbursed Tk. 1000 million in 10 projects. Thebank successfully handled two credit lines viz-IDA credit No.2340 and ADB loanNo.1070 BAN (SF) with recovery rate of 100% and 87% respectively. Under theseprograms the Bank sanctioned loans of Tk.428.00 million to as 53 units.

    NEW PRODUCTS

    IFIC Bank has been successfully providing in the recent years a good number of

    new products besides so called traditional services to meet the increasing demandsof the clients and the members of the public. Some of them are: Visa Credit cards,ATMs, Phone Banking, Pension Saving Scheme, Death Risk Benefit Scheme,Consumer Credit Scheme, Education Plan.

    JOINT VENTURE ABROAD

    Bank of Maldives limited (BML)

    IFIC Bank limited has established a joint venture in the name of Bank of Maldiveslimited at Male in the republic of Maldives right in 1983 i.e. 20 years ago. This isthe first National Bank of Maldives. The ownership composition is 60:40 percent.The Government of Maldives own 60% sharer and the 40% sharer are owned byIFIC Bank limited.

    Oman-Bangladesh exchange company (LLC)

    To help remittance of more the 30,000 Bangladesh wage Earners living in Omen.

    The bank has established an exchange house-OMAN BANGLADESHEXCHANGE COMPANY (LLC) in the Sultanate of Oman in collaboration withOmani nationals OBEC has seven branches.

    Nepal Bangladesh bank Ltd.

    _,This is the first joint venture bank between two countries. In December 1993 thebank establish a joint venture with 50% equity in Nepal. The bank comes into

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    operation in June 1994.

    OVERSEAS BRANCHThe bank has a branch in Karachi in Pakistan which has started operations in early1987. Within the short span of its operations the branch procured sizeable businesssubsequently. The bank opened its second branch at Lahore in 1993. Bath thebranches enjoy reputation and good will in Pakistan and have been operatingprofitably.

    BRANCH NETWORK (DOMESTIC)

    The branches of the Bank cover all the important trading and commercial centers in

    Bangladesh. As of date, it has 62 branches within Bangladesh. All the branches areequipped with computers in addition to modern facilities, logistics andprofessionally competent manpower.

    BOARD OF DIRECTORS

    Unlike others bank in the private sector, Board of directors of this bank is an uniquecombination of both private and Govt. sector experience. Currently it consist nine(9) directors, of them four represent the sponsors and general public and four seniorofficials in the rank and status of Join secretary/ Additional secretary represent thegovernment. The Managing Director is the ex-officio director of the board.

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    Management Hierarchy

    MANAGING DIRECTOR (MD)

    DEPUTY MANAGING DIRECTOR (DMD)

    EXECUTIVE VICE PRESIDENT (EVP)

    SENIOR VICE PRESIDENT (SVP)

    VICE PRESIDENT (VP)

    SENIOR ASSISTANT VICE PRESIDENT (SAVP)

    ASSISTANT VICE PRESIDENT (AVP)

    SENIOR PRINCIPLE OFFICER (SPO)

    PRINCILE OFFICER (PO)

    SENIOR OFFICER (SO)

    OFFICER

    CHAPTER-03

    ORVERALL BANKING OPERATIONS OF IFIC BANK LTD.

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    SL.NO PARTICULARS PAGE NO.

    1 GENERAL BANKING 12-27

    2 LOAN & ADVANCE 28-38

    3 FOREIGN EXCHANGE 39-58

    4 HR Function 59-64

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    GENERAL BANKING

    SI. No. PARTICULARS PAGE

    XI-01 Introduction 13

    XI-1.02 Functions 13

    XI-1.03.1 Accounts Opening Section 13

    XI-01.03.02 Types of Accounts 13

    XIII-01.03.03 Operational nature of Accounts 14-16

    XIII-01.03.04 Accounts Opening Process 16

    XIII-01.03.05 Issuing Cheque Book 17

    XIII-01.03.06 Dormant A/C 18

    XIII -01. 03.07 Transfer A/C 18

    XIII.01.03.08 Closing of A/C 18

    XIII-01.03.09 Portrait of Deposits of IFIC Mirpur Br. 18

    XIII -01. 03.10 Kinds of Account holders 19

    XIII-01.04 Cash Section 19

    XIII-01.04.01 Functions of cash section 19

    XIII-0 1.04.02 Books maintains by this section 20

    XIII-01.05 Local remittance 20

    XIII-01.05.01 Demand draft (DD) 21-22

    XIII-01.05.02 Pay Order (PO) 23

    XIII -01. 05.03 Telegraphic foreface (TT) 24-26

    XIII -01.06 Test Arrangement 26

    XIII -01.07 Clearing Section 26

    XIII-01.07.01 Types of Cheques for Clearing 27

    XIII-01.08 Accounts Section 27

    XIII-01.09 Establishment Section 27

    XIII-01.10 Locker Facility 27

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    1 Introduction

    During my practical orientation I was placed in IFIC Bank Limited. First I was placed inMirpur Branch. I have completed General Banking and some exposure in Advance in thisbranch. General Banking is the starting point and main function of all the banking operationsit is the department which provides day-to-day service to the customers. Everyday it collectsdeposit from the customers by allowing broking interest rate, meets their demand for cash byhonoring Cheques and lend it to the customers against ending interest rate. Lending interestrate in higher than borrowing interest rate, this is the profit for the bank.

    1.2 Functions of this department

    This department maintains following functions.Accounts opening section.Cash section Remittance section.Clearing section.Accounts section.Establishment.

    1.3.1 Accounts Opening Section

    This section opens different types of account fortheir valued customers. Selection of customeris very important for the bank because banks success and failure largely depends on theircustomers. If customers are bad they creates fraud and forgery by their account with bank and,this destroys the good will of the banks. So, this section takes extreme caution in selecting itsvalued customer.

    1.3.2 Types of Accounts

    Accounts can be classified into two types:

    Operative Account Non-Operative Accounts

    PSSAlCCurrent Deposit Account

    MIS A/C

    Savings Deposit Account

    FDRAlCSOD AlC

    STD AlC

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    1.3.3 Operational Nature of Accounts

    Current Deposit Accounts (CD account)- A current account may be opened by any individual, firm, company, club, associates, etc.Bank: may, however, refuse without assigning any reasons to open current account to any

    body.- Minimum balance of Tk. 5000 while open.- No current account will be opened with Cheques.- Fund in the current deposit account shall be payable on demand.- Minimum balance to be maintained of Tk. 1000.- If minimum balance falls then incidental charges of Tk. 50 will be realized half is early.- No interest is payable on the balance of CD.

    - In case of closing of current account Tk. 100 is to be realized against incidental charges.

    Saving Deposit Accounts (SB account)- 6.5% interest is provided to depositors.- The minimum amount of balance to be maintained with this type of account is Tk. 2000- A depositor can withdraw two times in a week for more withdrawal depositors are notentitled for any interest.- To withdraw above Tk. 20,000 the depositors has to notice.- No savings account will be allowed to be overdrawn.

    Short term deposit (SID A/C)

    . . -Generally opened by big business firm.- Interest depends on the amount deposited.- Minimum amount of balance has to be maintained with STD account is Tk 2 lacs, whileopen

    - Interest is given at a rate of 4%- Minimum amount is Tk 5000 must be maintained.

    Pension Savings Scheme (PSS)- This is a scheme to make the customer introduced to the banking system under this schemesthe customers are to pay a certain of money at monthly interval up to a period of 5 to 10 yearsand after the period they will get the returns along with the full interest earned during theperiod and the principal amount. Most of the clients under this scheme are middle crass andlower middle class people

    - Generally opened by small sever.- Minimum Amount Tk 500 and minimum Tk 2000

    - Interest rate 9.00%- Maturity 5 to 10 years.

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    PSS 5 years

    Monthly installment Principal amount Bonus With Bonus500 36,265 1500 37,7651000 72,530 3000 75,5302000 1,45,060 6000 ' 1,51,060

    Liquidation of PSS

    -In case of premature encashment if the period is below 1 year then no interest will beprovide.-ff above 1 year interest will be given @ Savings.

    Monthly Income Scheme (MIS)- This is another attractive scheme offered by this bank under this scheme the depositors an:to deposit a fixed amount to the bank' and for their fixed amount they are entitled to earn :;monthly payment from the bank. This is an attractive scheme for the retired person. This i_also a kind of FDR, but here the interest is given monthly to the customers the deposit will b_50,000, 10,00,000, 1,50,000 respectively.- The rate of interest is 10.80%- Maturity is 05 years.

    Liquidation of MIS

    - 200 bank charge for premature encashment as out access duty.- Closing before 6 months no benefit will be providing.-Preen casement between 6 months to 1 year interest are provide according to savings rate. -Preencashment between 1 to 3years savings interest are provide 0.50 +saving rate-Pre encashment between 3 to 5years. Interests are providing 1.00+saving rate.

    Fixed Deposit Reserve (FDR)

    - FDR is neither transferable nor negotiable.- It can be opened by all.- Provided 7.50% - 8.25% interest.- Interest rate very on principal amount.

    - The deposited principal amounts have not fixed by the Bank.- One can deposit any sum of amount under fixed deposit reserve.- In case of with drawl before maturity the previous maturity period is considered to pa:interest according to savings interest rate 6.5% it is known as pre matured en-casement.

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    Interest rate have been rated by the Management of IFIC Bank on FDR have given below

    Maturity period Rate of interest

    3 months 7.5%6 months 8.00%

    1 year 8.25%2 year 8.25%3 year 8.25%

    Liquidation of FDR

    - Only the account holder himself and the authorized person can liquid the FDR after maturity.-In case of joint name authentication from both is necessary.-If demand before maturity the last expired duration is considered to pay interest.

    1.3.4 Account opening process

    Step l- Receiving filled up application in bank's prescribed form mentioning what type ofaccount is desired to be opened.

    Stop 2- The form is failed up by the applicant.Step 3-Two copies of passport sized photographs for individual and in case of firm's

    photographs of all partners are necessary.Step 4-Applicant must submit required document.Step 5-Applicant must sign specimen signature sheet and give mandate.Step 6-Introducer's signature and accounts number verified.Step 7- Authorized officer accepts the applicationStep 8- Minimum balance is deposited only cash is acceptable.Step 9- Account is opened and deposit slip and a cheque book has given.

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    He/she is required to fill up the specimen signature cardt application form in the prescribed manner.For individual introduction is needed by an account holder

    The authorized officer scrutinizes the introduction and examine the documen

    Account is opened

    Issuance of deposit slip and the deposit must be made in cash. No cheque or draft is a

    epositing the cash one cheque book is issued

    Account Opening Procedure in a flow chart :

    1.3.5 Issuing Cheque books to the customers

    The bank issues 10 leaves cheque book for savings account and 20, 50 and 100 leaves chequebooks for current account. To complete the issuing of cheque books a customer has to fill upthe requisition form for cheque books. Then a new cheque book will be filled up by theaccount number of the customer. The requisition slips are maintained and recorded in aregister as voucher.

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    1.3.6 Dormant account

    If any account is inoperative for more then one year is called dormant account. To operate thisaccounts manager's permission is necessary.

    1.3.7 Transfer of Account

    Account holder may transfer his account from one branch to another branch. For this he mustapply to the manager of the branch where he is maintaining his account. Then the managersends a request to the manager of the branch where the account holder wants to transfer hisaccount for opening the account.

    1.3.8 Closing of Account

    To close an account parties may be request to send an application along with the unusedleaves of the cheque book. On receipt of the application the following steps are taken.

    i) The signature of the account holder is verified.ii) The number of the unused cheque leaves shall be noted therefore.iii) Debiting the incidental charges to the account.iv) The account holder is advised to draw the remaining balance.

    1.3.9Portrait of Deposits of IFIC Mirpur Br.

    (Fig. in Thousand)

    Type of account No. of account Amount in Tk.CD 521 22,349

    SB 2090 10,0,144

    STD 13 279FDR 204 1,20,109PSS 745 32,618MIS 01 100

    Portrait of Accounts Portrait of Deposits

    P o r tr a i t o f D e

    0

    2 0 0 0 0

    4 0 0 0 0

    6 0 0 0 0

    8 0 0 0 0

    1 0 0 0 0 0

    1 2 0 0 0 0

    1 4 0 0 0 0

    C D S B S T D F D R P S S

    A m o u n t i n

    P o r t ra i t o f A c c

    0

    5 0 0

    1 0 0 0

    1 5 0 0

    2 0 0 0

    2 5 0 0

    C D S B S T D F D R P S S M IS

    N o . o f A c c o

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    1.3.10Kinds of Account Holders

    Branch may open accounts of the following categories of depositors:1) Individuals - Individuals are adult persons of 18 years age or more who are competent to

    enter into contracts.

    2) Joint accounts - More than one adults jointly or adult with minor(s) may constitute jointaccounts.3) Sole Proprietorship concern - A business trading concern owned by a single adult person

    is sole proprietorship concern.4) Partnership firms - A business concern owned and managed by more than one persons

    which may be registered or not registered is a partnership firm.5) Private limited - A body corporate formed and registered under companies Act 1994,

    with limited members.6) Public limited - A body corporate formed & registered under companies Act 1994 with

    limited liability of the shareholders and with no upper ceiling of shareholding bothcertificate of incorporation and certificate of commencement has given by registrar.

    7) Trusts - Trusts are created by trust deed in accordance with the law.8) LIQUIDATORS - Liquidators are appointed by court of law for companies going intoliquidation.

    9) EXECUTORS - Executors are appointed by a deceased himself before his death by"with" to settle the accounts of the person after his death.

    10) Club/Associations/Societies - There are organizations created & registered or notregistered under societies registration act.

    11) Co-operatives - There are corporate bodies registered under societies registration Act orcompanies Act or the co-operative societies Act.

    12)Non-Govt. Organization - NGOs are voluntary organizations created & registered andsociety's registration Act or co-operative societies Act.

    13) Non-Trading concern - These are organization registered under societies registration Actor companies Act or co-operative societies Act.

    1.4 Cash Section

    Cash department is the most vital and sensitive organ of a branch as it deals with all kinds ofcash transactions. This department starts the day with cash in vault. Each day some cash i.e.opening cash balance are transferred to the cash officers from the cash vault. Net figure of thiscash receipts and payments are added to the opening cash balance. The figure is called closingbalance. This closing balance is then added to the vault. And this is the final cash balancefigure for the bank at the end of any particular day.

    1.4.1 Functions of cash department

    -Cash payment-Cheque cancellation process-Cash receipt

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    Cash paymentCash payment is made only against cheque.This is the unique functions of the backing system which is known as "payment on demand" .It makes payment only against its printed valid cheque.

    Cheque cancellation processReceiving cheque by the employee in the cash counter and verification of the following by thecash officer in the computer section:i) Date ofthe cheque. (it is presented within 6 month from issue date)ii) Issued from this branch.iii) An amount in figure and in word does not differ.iv) Cheque is not torn or mutilated. Then gives pay cash seal and sends to the payment counterand payment office makes payment.

    Cash receipt .Another important function of this department is receipt of cash. Depositors deposit money in

    the account through this section by deposit slip.i) It receives deposit from depositors in from of cash.ii) So it is the "mobilization unit" of the banking system.iii) It collects money only its receipts from.iv) It receives cash for issuing pay order TT, DD.

    1.4.2 Books maintained by this section:

    i) Vault register: It keeps accounts of cash balance in vault at the bank.ii) Cash receipt register: Cash receipt in whole of the day is recorded here.iii) Cash payment register: Cash payments are made in a day are entries here.

    iv) Rough vault register: Cash collection for final entry in vault registers done here, asany error and correction is not acceptable.v) Cash balance book: Balance here is compared with vault register. If no deference is

    found, indicate no error and omission.

    1.5 Local Remittance

    Sending money from one place to another place for the customer is another important serviceof the bank. This service is an important part of transaction system. In this service system,people, especially businessman can transfer funds from one place to another place easily.There are three kinds of technique for remitting money from one place to another these are

    -Demand draft (DD)-Pay order (PO)-Telegraphic Transfer (TT)

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    to the Bank on which it is drawn, the Bank honors it.

    ocopy of DD is sent to the paying Bank (An advice to paying Banker)

    here paying Bank is mentioned and payment will be made from another Bank

    Applicant fills up the relevant form with a credit voucher (income A/C) for the BankThe applicant should have A/C with IFIC1.5.1 Demand Draft (DD)

    DD is an order of issuing branch on another branch of the same bank to pay specified sum ofmoney to payee on demand. It is generally issued when customer wants to remit money in anyplace i.e. outside or the clearing house area of issuing branch. Payee can be the purchaser

    himself or another mentioned in the DD. It is safe technique of transferring money from oneplace to another.

    Payment process of the paying bank:

    -Test confirmation if the DD value is more then Tk. 25,000.00

    -Confirm that the DD is not forged one.

    -Confirm with sent advice.

    -Make paymen

    Commission and charges of DD:

    Postal charge Tk. 15.00 + commission 0.10% + 15% Vat on commission.

    How DD Works :

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    Cancellation of DD:

    Step -I : Application is writing to the manager of the account maintaining branch.Step - 2 : Verification of specimen signature.Step - 3 : Journal posting for incoming:

    -Bills payable DD payable Dr.- IFIC General AIC Cr

    Journal posting for outgoing:-IFIC general A/C Dr.

    -Party A/C Cr.

    Step - 4 : Send a letter to paying bank

    1.5.2 Pay Order (P.O)

    Pay order gives the right to claim from the issuing ban1e A payment is an instrument from one

    branch the another branch of the bank to pay a specific sum of money. Unlike cheque there isno possibility of dishonoring because before issuing pay order the bank takes money inadvance. There are three reasons behind use of P.O:

    Remitting PurposeAdvice to PayPayment against bill submitted to the bank.

    Pay Order consists of three parties:

    - Beneficiary- Applicant- Counter Part.

    Commission and charges of P.O:

    Amount of P.O Commission on Remittance 15% VAT on CommissionUp to TK. 100,000 25 4

    100,001 to 500,000 50 8Above 500,000 100 25

    Payment Process of Paying Bank:

    Payment is made through clearing.

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    deposits it to his Collecting BankerPayment is given and is registered in incoming payment of P.O Book.o the issuing Bank through clearing house arrangementThe Pay Order is passed and cancelled in the deposit section.

    Payment of Pay Order :

    An the PO issued by the bank is crossed one it is not paid over the counter. On the contrarythe amount is transferred to the payees account. To transfer the amount the payee must duly

    stamp the PO.

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    He purchased the P.O. in favor of a person or companyPurchaser has an account

    up the relevant from with a credit voucherThe beneficiary deposits the PO in his account with IFIC or another Bank

    cting Banker sendsan IBDA

    The collecting Banker presents the PO to paying Banker through clearing house

    s credited with collecting BankerPayees account credited with collecting Banker

    Cancellation of P. 0:

    Step-I: Application writes to the manager of the account maintaining branch.Step-2: Verification of specimen signature.

    Encasement of P.O: To encashment of that P.O. the payee of the instrument deposits the P.O.to his bank. The bank sends the pay order to the issuing bank through clearing. Then the P. O.is passed through the deposit section and the P. O. is send back to the clearing house againand later the amount of P.O. credited to payees account.

    Flow Chart of P.O.-How It Works :

    If any A/C withIFIC BANK(the collectingBanker)

    1.5.3 Telegraphic Transfer (TT)

    Issuing branch requests to another branch to pay specified sum of money to a specific personon demand by telegraph or telex or telephone. Transfer of fund by TT is the rapid andConvenient but expensive method.

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    Applicant fills up the relevant form with a credit voucher (Income A/C) for the Bankas an account with IFIC BankText of telex is written or the relevant information along withTest code is sent to the payee Bank through fax or telephone

    Another 2 copies of the text are sent through courier to the Payees Bank.

    oncile two copies and detect the fraud or forgery if anycopy from drawers Bank and another from Payees Bank are sent to the reconciliation depart

    Before that the PayeesBank decode the test and if test is agreed

    yees account credited

    TT (Issue):

    Customer fills up the TT form and pays the amount along with commission in cash orby cheque.

    The respected officer issues a cost memo after receiving the TT form with paymentseal, then sign it and at last give it to the customer.

    Next a TT confirmation slip is issued and its entry is given in the TT issue register.

    A test number is also put on the face of the slip. Two authorized officer signs this slip.

    The respective officer transfers the message to the drawee branch mentioning theamount, name of the payee, name of the issuing branch, date, test number and his herpower of attorney (P.A.) number.

    The confirmation slip is send by post.

    How TT Works (Outward) :

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    Payment Process of TT:

    Step-I: Test confirmationStep-2: Confirm issuing branchStep-3: Confirm payee's account.

    Step-4: Confirm amountStep-5: Make paymentStep-6: Advice sends to the Head Office for reconciliation.

    Commission and Charges of TT:

    -Telephone or Telex charge TK.30.-Commission of Principal amount.-15% VAT on commission.

    Entry for TT

    a) On Issuing of TT :

    1. Cash / Respective A/C (issuer) -------------- Dr.

    IFIC BANKGeneral A/C ---------------------------- Cr.(Principal amount)Income A/C-postage -------------------------- -------Cr.Income A/C-Commission on TT ---------------- --Cr.

    2. IFIC BANKGeneral A/C -------------------------- Dr.

    Bills Payable A/C-TT Payable ------------------- Cr.

    b) On Payment of TT

    Bills Payable A/C TT Payable ---------------------- Dr.

    Party A/C --------------------------------------- Cr.

    1.6 Test Arrangement of TT & DD

    Test is the security code by decoding which any branch can be sure that the TT or DD is notforged one. Only the authorized officers know the test code. Each bank maintains secret codefor this. That is the test arrangement is the combination of different secret codes.

    1.7 Clearing Section

    This section receives all kinds of cheque in favor of the valued client for clearing on the partof their banking services. After receiving cheque it is necessary to endorse it and cross itspecially. Clearing of cheque is done through the clearing house in Bangladesh Bank.

    - 1 st clearing- 2nd clearing

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    1.7.1 Types of cheque for clearing

    There are four types of cheque for clearing:1) Inward clearing cheque.2) Outward clearing cheque.

    3) Inward bills for collection.4) Outward bills for collection.

    Inward clearing chequeIt refers the instruments drawn on IFIC bank received by other banks in the clearing housefrom the representative of other bank. Outward bills for collectionWhen our branch sends Cheques to other branch ofIFIC bank is called OBC. Accountingtreatment of this process:

    IFIC general (Sender's Branch) Dr.Depositor's A/C Cr.

    Inward bills for collection (lEC)There are two types ofclearing, firstly cheque collects from the other branch ofIFIC banleThese Cheques are settled by sending mCA i.e. debiting depositors account and creditingsender's branch account. .

    Secondly cheque collects from another bank outside the clearing house. These cheque aresettled debiting depositors account and sending DD orTT in favorofsenders bank.

    Outward Clearing ChequeCheque drawn of another branch of IFIC bank are called Outward Clearing Cheque. These

    types of cheque are directly sent to the respective branch and request them to send IBCA.

    1.8 Accounts section

    This is obviously an independent and unique department, which works as the composition ofall the departments of the branch. This section is fully computerized. So the conventional largeledger and journal books are not kept like the some nationalized bank. It receives the vouchersfrom all departments and prepares the subsidiaries and maintains accounts.

    1.9 Establishment section

    This section deals with employees salary, many types of internal expenses such as purchases

    of stationary, equipment, machinery, payment of labor cost and convence. In case of leave ofabsence employee collects prescribed form from this section.

    1.10 Locker facilities

    Locker facility is available in this branch. Generally people keep their valuable ornaments inthe locker. Lockers are three sizes one are small and other are middle and big. If any bodywant to open a locker s/he has to pay rent Tk. 1800 for big size, Tk. 2500 for large and Tk.1200 for small size annually. Any individual can open a locker.

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    LOAN & ADVANCE

    SL.NO PARTICULARS Page No.

    XII-02.01 Introduction 29

    XII-02.02 Types of Advance 29

    XII-02.03 Nature of Different Types of Advance 30-32

    XII-02.04 Securities Against Advance 33

    XII-02.05 Which Advance Against which Securities 33

    XII -02.06 Process of Loan Sanction 34

    XII-02.07 Portrait of Advance Division of IFIC BANK, Mirpur Br. 35

    XII-02.08 Classification of Loan 36-37

    XII-02.09 Lending Risk Analysis (LRA) 38

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    2.1 Introduction

    This is the survival unit of a bank because until and unless the success of this section is aquestion to every bank. If this section is not properly working, the bank it self may becomebankrupt. This is important because this is the earning unit of the bank. Banks are accepting

    deposits from the depositors in condition of providing interest to them as well as safe keepingtheir deposits. Now the question may gradually arise how the bank will provide interest to theclients and the simple answer is advance.

    We often use loans and advances as an alternative to one another. But academically thisconcept is incorrect. Advance is the combination of such items where loan is a part only forthis credit section of the bank.

    2.2 Types of Advance

    All loan and advance that are provided by this bank can be categorized into there heads

    according to the nature and characteristics of each product:

    Figure shows the different types of advances

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    2.3 Nature of Different Types of Advance

    Cash Credit HYPOTHECATION (CC HYPO)

    Cash credit is given through the cash credit account. Cash credit is an active and

    running account where deposit and withdrawals may be made frequently. The debitbalance of the account on any day can not exceed the agreed limit.

    Instrument HYPOTHECATION DEED.

    50% margin requires to open a CC account. (varies)

    Operation of cash credit is same as that of overdraft the purpose of cash credit is tomeet working capital needs of traders, farmers, and industrialist.

    It is granted only the first class parties.

    It is charged against a property where neither the ownership nor the possession ispassed to the bank.

    Cash Credit PLEDGE

    The nature, operational work, and characteristics of CC- PLEDGE in as same as CC-HYPO.

    CC.PLEDGE in different from CC-HYPO only from the securities or business goodsagainst the loan amount.

    It is charged against properties where the ownership may remain to the borrower butthe possession is passed to the bank.

    Instrument - Pledge Deed.

    Secured Overdraft (SOD)

    Overdrafts are those drawings, which are allowed by the banks in excess of thebalance in the current account up to a specified amount for definite period as arrangedfor.

    Generally it is given to the businessmen to increase their business activities.

    Usually provide against FDR, PSS, i.e. financial obligation or any primary securities.The interest charges from the date of first withdraw.

    Interest is calculated and charged only on the actual debit balance on daily productbasis.

    Balance of OD account are fluctuates

    The interest rate of SOD is 3% above of FDR interest rate if the FDR is in our Bank.

    If the FDR is in other bank then the interest r1te is 14.50%

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    Industries LoanIt is a term loan.It is given for three (3) years at equal installment.Grass period is allowed of this types of loan.Grass period is the period that require to earn visible returns.

    Others loanLoan provided for other purpose which is productive and less risk rather industrial sector aretreated as others loan.The terms and conditions of these types of loan are same as industry loan.

    House Building LoanThis loan is give for the construction of building house. It is gives for three (3) years at equalmonthly installment. This loan is not provides frequently.

    Staff House Building Loan (SHBL)

    120 times of BASIC salary is provided as SHBL. Bank rate + 1 % interest is charged to theloan amount. Repaymeilt adjusted from their monthly salary. Repayment is made at equalmonthly installment.

    Consumes Credit SchemeUnder this scheme credit is given to the customer to purchase necessary and luxurycommodities like computer, motor vehicle, television, refrigerator, music system sewingmachine, furniture etc.Other then the employee it is given to the valuable client.It is a 24,36,48 installment system @ 15.50% interest.

    Stuff loan against Provident Fund (SLPF)10% of basic in contributed by employee Repayment is adjusted from their on they salary.Maximum sanction from PF.

    Loan against PSSThis loan is provides against PSS fund. 80% are given of the PSS fund.This is 100% secured for the bank.

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    Payment Against Document (PAD)

    The importers are to open letter of credit through any bank for importing goods. Most of thetime they are to extend credit to the importers if not prohibited by Bangladesh bank. This loancreates, on receipt of shipping documents from the negotiating bank, is transferred and lodged

    to PAD.

    PAD is associated with import and import financing. The bank opening letter of credit isbound to honor its commitment to pass for import bills when these are presented for paymentprovided that it is drawn strictly in terms of the letter of credit, in fact the amount their sendsadvanced on behalf of the importer.

    Loan against imported Merchandise (LIM)

    In many cases, a bank has to clear the goods imported under letter of credit at the request ofthe borrower. When the importer does not come forward to retire the documents inspire of

    repeated reminders bank has on forced circumstances to clear the imported consignment onarrival of the same to avoid demurrage at the port which adds to the burden of commitment.When the importer fails to retire the documents or request for clearance of goods, theoutstanding under PAD is transferred to LIM account.

    After clearance, consignments are taken delivery by the importer on full payment of bank's

    liability. Normally part delivery is not allowed while on LIM A/C. when the delivery in part isdesired by the importer, the LIM is converted into cash credit account retaining propermargin and executing charge documents, the delivery is effected themselves on obtaining prorate payment.

    Trust Receipts (TR)

    This is an arrangement under which credit is allowed against trust receipts and imported orexportable goods remain in the custody of the importer or exporter but he is to execute astamped trust receipt in favor of the bank where a declaration is made that goods imported orbought with the bank's financial assistance are held by him in trust for the bank. .

    Export Cash Credit (ECC)

    ECC are extended to an export to facilitate the export of goods & commodities for which thereis export letter of credit or contract on hand. It is a pre-shipment & short term credit to be

    liquidated out of the proceeds of export documents which include negotiation or purchase ofexport documents.

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    2.4Securities against Advances

    The following securities are to be obtained by the branches depending on the nature of

    advances while allowing secured advances to the parties.

    - Pratirakshya Sanchay Patra, Bangladesh Sanchay Patra, ICB unit certificates,

    Wage Earner Development Bond- Fixed Deposit Receipt issued by any branch of IFIC Bank Limited.

    - Shares quoted in the Dhaka Stock Exchange Limited

    - Pledge of goods and produce

    - Hypothecation of goods, produce and machinery

    - Immovable property

    - Fixed assets of a manufacturing unit

    Cheques, Drafts, Pay Order, Railway Receipts, Steamer Receipts, Burge Receipts of the Govt.

    or Corporations

    Shipping document

    2.5 Which Advances Against Which Securities

    All securities are not suitable for all types of advances. Each security has its own suitability.

    Specific securities to be obtained by the branches while allowing advance are shown below

    against the types of advances:

    Types of advances Securities

    Loans Lien of various kinds of Sanchay Patras, Govt. Securities, andShares quoted in the Stock Exchange, Debentures, Fixed

    Deposit Receipts, Pledge of gold/Gold ornaments,hypothecation of vehicles. Collateral of immovable properties.

    Overdraft Sanchay Patra, Non-resident for deposit (NFCD), shares, debt.Promissory notes, fixed deposit, insurance policies, gold etc.

    Cash Credits Pledge or hypothecation of stock, produced merchandise.

    Inland bills purchase (IBP) The bill itself.

    PAD Shipping document for imports.

    IM Pledge of imported merchandise.

    TR Trust receipt obtained in lieu of trustees.

    ECC Pledge or hypothecation of goods receipts.

    Foreign Bills Purchase Shipping document for exports.

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    2.6 Process of Loan Section

    Step-1 : Sanctioning by the competent authority

    A secured advance may be grant to a party only after getting a limit sectioned

    from the competent authority.

    Step-2 : Loan/Advance Proposal

    For obtaining a loan/advance the party must make an application in standardform in writing to the branch where he maintains his operative account. Afterreceiving the application from the party, the branch manager will take immediatesteps to compile report regarding the party based on the following sources ofinformation:

    Personal investigation

    Confidential supports from Other banks,

    Chamber of commerce

    CIB from Bangladesh bank as the earnable.

    Treading account P/C, B/S. M/A if' any and otherdocuments submitted by the party.

    The average balance and the present maintained in theaccount.

    The nature of operations during the last six months and thedate of opening account.

    Step-3 : Preparation of limit proposals

    The branch, may prepare a limit proposal after being fully satisfied with thefollowing points:

    The financial position of the party.

    Purpose for which advance is required.

    Nature of securities offered.

    The payment arrangement.

    Step-4 : Renewal Proposal.

    Step-5 : Approval by Head Office and Branch responsible.

    Limit proposal sent to HO.

    Sanction/reject

    Receive the limit section advice.

    Step-6 : Disbursement of loan.

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    Step-7 : Loan monitoring and administration.

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    2.7Portrait of advance division of IFIC Mirpur Branch

    Tk. In Thousand

    Particulars No. of Acc Amount in Tk.

    Term loan (industries) 10 123737

    Term loan (other) 05 101208

    SHBL 11 9697

    House Building Loan 03 1694

    SOD 18 64848

    CCS 96 9184

    CC (HYPO) 23 181466

    CC (PLEDGE) 07 220446

    ECC 04 18400

    Loan against PF 46 6423

    Loan against PSS 80 1961

    FDBP 131 80046

    IDBP 19 3111

    LIM 48 486922

    PAD (Cash) 06 12188

    PAD (Force) 10 11443

    PAD Inland 18 16748

    PAD EDF 12 48940

    Loan against TR 586 96780

    Grand Total 1439670

    As per Statement of affairs as on Nov, 10, 2009.

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    2.8Classification of Loan (CL)

    Advance may classified or unclassified are determine on the basis of regularity of loanrecovery.

    Figure:Shows the Classification or 1oan

    Unclassified Loan: the repayment of advance which have regularity are called unc1assifiec

    advance. This is a clean loan that is these is no overdue installment or not the expire due date.

    Classified: The repayments of advance which have no regularity are classified. That meanswhich are irregular in nature, overdue installment of payment, and expire the due date. Thereare three standards of classification:

    - Sub Standard- Doubtful- Bad Loan

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    As per summery sheet as at 09.11.2004 IFIC Bank, Mirpur Branch.

    Nature No of Amount in TK. Interest Eligible Base for Required

    Of CL Account Outstanding Suspense Security Provision Provision

    UC 322 39887 Not applicable 937732 NIL 1%

    BL NIL NIL NIL NIL NIL 100%

    DF 05 522 48 NIL NIL 50%

    SS 49 2555 _ NIL NIL 20%

    Total 376 42964 48 937732

    CL 54 3077 48 NIL,

    Eligible security- For land and building 50%.- Financial obligation 100%.

    Interest suspense

    - Total balance of interest against classified loan.

    Base for provision- Formula: Outstanding - Interest surpasses - Eligible security- In case of unclassified advance the base for provision should kept 1 % of the total

    outstanding amount.- In case of bad loan the base for provision should kept 100% of the total outstanding

    amount

    - In case of doubtful loan the base for provision should kept 50% of the totaloutstanding amount.

    - In case of sub standards loan the base for provision should kept 20% the totaloutstanding amount.

    Basically this standards of classification are depends on the expansion of time. There are separate

    systems of classification for each type of loan. Each banking institution have develop there own

    system of loan classification.

    At !FIC Bank Ltd. Mirpur branch, what I have seen in the advance division that classification of loanis a system of observation rather to measure of classify the credits which has provided by this bank.

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    2.9 Lending Risk Analysis (LRA)

    LRA is the combination of analysis of various types of risks that may occur while a loan havesanctioned. This is an analysis of the measurement of performance of a company orindividuals. When a loan have been provided by the bank then all types of risks have to

    calculate. This is not easy to express all the pros and corns of LRA are not possible in thisreport. Before sanctioning a loan it is necessary to analyze the LRA. IFIC Bank has formattedthis analysis which contains several sheets of analysis to identify the strength and weaknessand the repayment probability of the lending.

    Here shows the simple flow chart of LRA where considering the business risk, company risk,industry and management risk in the following:

    Figure: Shows the Components that analyzed in the LRA

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    FOREIGN EXCHANGE

    SL. NO. PARTICULARS PAGE

    XIII-03.0 1 Introduction 40

    XIII-03.02 Administration of foreign exchange in bangle 40

    XIII-03.03 Authorized Dealers 40

    XIII-03.04 Handling of foreign exchanges of IFIC Bank 40-41

    XIII-03.05.01 Types of Letter of credit 42

    XIII-03.05.02 Nature of different types of L/C 42-44

    XIII-03.06 Import Section 45

    XIII-03.06.01 Import Procedures 45

    XIII-03.06.02 Proposal for Opening L/C 46XIII-03.06.03 The L/C Application form 46

    XIII-03.06.04 The Letter of Credit Authorization form 47

    XIII-03.06.05 The IMP form 47

    XIII-03.06.06 Securitization of L/C Application 48

    XIII-03.06.07 Accounting Treatment in case of L/C Opening 48

    XIII-03.06.08 Amendment of L/C 49

    XIII-03.06.09 Adding Confirmation 49

    XIII-03.07 Export Section & Export Financial 50

    XIII-03.07.01 Back to Back L/C 51

    XIII-03.07.02 Payment for Back to Back L/C 52

    XIII-03.07.03 Export L/C 52

    XIII-03.07.04 Formalities of Export L/C 53

    XIII-03.07.05 Procedure for FDBP 54

    XIII-03.07.06 Settlement of Local Bill 54

    XIII-03.07.07 Modes of Payment for Export Bills Under L/C 55

    XIII-03.07.08 Test key arrangement 56

    XIII-03.08 Foreign Remittance 56

    XIII-03.08.01 FDD 57

    XIII-03.08.02 Endorsements of US$ in passport 58

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    03.01: Introduction

    A person living in Dhaka city can make payment to another in Chittagong with money or byCheques on any bank of the country. Such payments do not present any problems. But thingsare different when the debtor and the creditor live in different country. When a trader from

    Dhaka city imports goods from New York, the payment involves certain complication. TheDhaka man can pay in taka but taka is of no use to New York exporter. There must be somemeans of changing taka into dollar. Obviously the intervention of a third party is required. Sothere is a need for a foreign exchange mechanism.

    Foreign exchange refers to the process or mechanism by which the currency of one country is

    converted into the currency of another country. Foreign exchange is the means and methods

    by which rights to wealth in a country's currency are converted into rights to wealth inanother country's currency.

    -L.R. CHOWDHURY

    In terms of foreign exchange regulation Act 1947, as adapted in Bangladesh,foreign exchange means foreign currency and includes all deposits. credits and balancespayable in foreign currency as well as all foreign currency instruments such as, drafts,travelers Cheques, and bills of exchange in any foreign country.

    03.02: Administration of Foreign Exchange in Bangladesh

    The statute for administration of foreign currency in Bangladesh is the foreign exchangeregulation Act, 1947 as adapted in Bangladesh. Under this Act, the responsibility andauthority of administration of foreign exchange is vested by the government with theBangladesh bank.

    While the Bangladesh bank has full authority to administer foreign exchange in Bangladesh, itcannot do so by itself. This is not possible for Bangladesh bank to deal with a large number ofexporters and importers individually. Therefore, provision has been made in the act, enablingthe Bangladesh bank to delegate its powers of functions to authorized dealers.

    03.03: Authorized Dealers (AD)

    In administering exchange control and foreign trade, Central Bank of the country (BangladeshBank) authorizes few branches of commercial banks to deal in foreign exchange. Thesebranches are known as Authorized Dealers. They act as an agent of the Central Bank andwork under the Foreign Exchange Regulations Act-1947 and Guidelines for ForeignExchange Transactions-Volume 1 & 2 prescribed by Bangladesh Bank.

    03.04: Handling of Foreign Exchange at IFIC Bank

    The IFIC Bank deals with foreign exchange with goodwill for a long time. It is handling offoreign exchange closer to twenty (20) years. Nowadays 16 branches of this bank areauthorized to deal foreign exchange by Bangladesh Bank.

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    IFIC BANK offers two types of credit facilities to its customers. Such as-

    a) Funded Credit andb) Non Funded Credit

    a) Funded Credit :

    The credit facilities in which the fund of the bank is directly invested is known as fundedcredit. Such as-Cash Credit, Secured Overdraft act.

    b) Non Funded Credit:

    The credit facilities in which banks funds are not directly invested are known as non-fundedcredit. Such as-Letter of Credit (L/C), Guarantee etc.Letter of Credit / Documentary Credit (L/Cs) is the key player in the foreign exchangebusiness. With the globalization of economy. International trade has become quitecompetitive. Timely payment for exports and quicker delivery of goods is, therefore, a pre-requisite for successful international trade operation. Growing complexity of international

    trade, separation of commercial parties across the globe etc. underlined the need for evolving asystem that balances between the expectations of the seller and the buyer. Documentary Credithas emerged as a vital system of trade payment, and fulfilled the requisite commercial need.This system substantially reduces payment-related risks for both exporter and importer. Thusthe letter of credit is the classic form of international export payment, especially in tradebetween distant partners. Payment, acceptance or negotiation of the credit is made by the bankupon presentation by the seller of stipulated documents (e.g., bill of lading, invoice, inspectioncertificate).

    DOCUMENTARY CREDIT / LETTER OF CREDIT (L/Cs):

    Documentary Credit or letter of credit is nothing but an arrangement whereby a bank (issuingbank) acting at the request and on the instruction of a customer (the applicant) or on its ownbehalf undertakes to make payment to or to the order of a third party (the beneficiary) or toaccept and pay bills of exchange (draft) drawn by the beneficiary, or authorize another bank tonegotiate against stipulated documents provided the terms and conditions to the credit arecomplied. Thus, Documentary Credits are akin to bank guarantees. In popular language, theyare known as Letters of credit (L/Cs). Bank guarantees are, however, issued to cover situationof non-performance whereas documentary credits are issued on behalf of the buyer to coversituation of performance, i.e., the issuing bank agrees to make payment to the beneficiary onehe surrenders the requisite complying documents.

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    03.05.1: Types of Letter of Credit

    The figure shows the different types of L/C

    03.05.02: Nature of Different types of L/C

    Revocable Credits : A revocable credit is one which can be amended or cancelledby the issuing banker at any time without prior notice.

    Irrevocable Credits : An irrevocable letter of credit contains an absolute undertakingon the part of the issuing bank to accept.

    Transferable Credit : The main theme of this type of credit is transferable i.e. if theexporters can not able to supply the goods then. they cantransfer it to others.

    Non-transferable Credit : These types of credit can not be transferable.Sight L/C : In international business this types of credit is most preferable.The main theme of this credit is the payment is properlysecured.

    Deferred L/C : A maturity period specified there. The payment is made onbetween the maturity periods.

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    he Buyerhe Buyer The Issuing Bank The SellerThe Beneficiary

    egotiating Bank

    (Singapore)

    Reimbursing

    Bank(Japan)

    e Issuing

    nk

    Sales Contract

    Reimbursing Agreement

    Documentary Credit Agreement

    Law of L/C

    BANK AS A PARTY OF DOCUMENTARY CREDIT :

    Parties to the documentary credit are-an issuing bank, an advising bank, a confirming bank, areimbursing bank or a negotiating banks.

    Issuing Bank :The Issuing Bank or the Opening Bank is one which issues the credit,i.e., undertakes, independent of the undertaking of the applicant, to make paymentprovided the terms and conditions of the credit have been complied with. The paymentmay be at sight if the credit provides for sight payment, or at maturity dates if thecredit provides for deferred payment. Especially the issuing bank should satisfyhimself on the credit worthiness of the applicant. The credit application must be inaccordance with the Uniform Customs and practices for Documentary Credit(UCPDC)- ICC publication no. 500 edition of 1993.

    Advising Bank: The Advising Bank advises the credit to the beneficiaryauthenticating the genuineness of the credit. The advising bank is generally situated inthe country/place of the beneficiary.

    Issuing Bank

    (Bangladesh)

    Advising Bank(Singapore)

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    Export SectionImportSection

    RemittanceSection

    Foreign ExchangeDepartment

    IFIC BANK LIMITED

    Confirming Bank :A Confirming Bank is one which adds its guarantee to the creditopened by another bank, thereby undertaking the responsibility of payment /negotiation / acceptance under the credit in addition to that of the issuing bank. Aconfirming bank normally does so if requested by the issuing bank. When thecreditworthiness of the issuing bank is in doubt, beneficiarys bank may request the

    issuing bank to give additional confirmation by another bank. It is said, AddConfirmation in practice.

    Negotiating Bank :A Negotiating Bank is the bank nominated or authorized by theissuing bank to pay, to incur a deferred payment liability, to accept drafts or tonegotiate the credit.

    Reimbursing Bank : A Reimbursing Bank is the bank authorized to honor thereimbursement claims in settlement of negotiation / acceptance / payment lodged withit by the negotiating bank or accepting bank. It is normally the bank with which theissuing bank has account from which payment is to be made. Reimbursement claims in

    foreign exchange business is settled by the Uniform Rules for Reimbursement (URR)-ICC publication no. 525.

    The Foreign Exchange Department is mainly divided into three sections. Such as-

    1. Import Section

    2. Export Section &

    3. Remittance Section

    The import Section deals with L/C in the perspective of the importers and the Export Section

    deals with L/C in the perspective of the exporters.

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    ImporterPublic SectorGovt. Organs. &

    Corpns.

    PrivateSectorActual Users

    Commercial (finished

    products

    Industrial (raw materials, machinerys

    03.06: Import Section

    Import is the flow of goods and services purchased form one country to another. Hence,import of merchandise essentially involves two things: bringing of goods physically into the

    country and remittance of foreign exchange towards the cost of the merchandise and servicesconnected with this to the importer. In case of import, the importers are asked by theirexporters to open letters of credit so that their payment against goods is ensured.

    Fig : Types of Importers

    03.06.01: IMPORT PROCEDURES :

    An importer is required to submit the following documents in order to get a license to importthrough IFIC BANK Mirpur Br.

    A bank account with the branch

    Import Registration Certificate (IRC)

    Tax Payers Identification Number (TIN)

    Performa Invoice / Indent

    Membership certificate from a recognized Chamber of Commerce & Industry or TownAssociation or registered Trade Association.

    Letter of Credit Authorization (LAC) Form properly filled in quintuplicate signed bythe importer.

    L/C Application duly signed by the importer.

    One set of IMP Form.

    Insurance Cover Note with money receipt.

    VAT Registration Certificate (for Commercial Importers)

    In case of public Sector, attested photocopy of allocation letter issued by the allocation

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    authority, Administrative Ministry or Division specifying the source, amount, purpose,validity and other terms and conditions against the imports.

    Any such documents as may be required as per instruction issued/to are issued by theChief Controller of Imports & Exports (CCI&E) from time to time.

    On receipt of the LCA Form and the other documents, the branch officials carefully

    scrutinize the documents and lodge the same in their respective registration books andduly verify the signature of the importer put on the LCA Form.

    To import, a person should be competent to be an importer. The office of the ChiefController of Imports & Exports (CCI&E) provides the registration (IRC) to the importer.After obtaining the IRC, the person has to secure a Letter of Credit Authorization (LCA)registration from the Registration Unit of Bangladesh Bank. After getting the LCAregistration, a person becomes a qualified importer. He is the person who requests or instructsthe opening bank to open an L/C. He is also called the Opener or Applicant of the credit.

    03.06.02: Proposal For Opening Of L/C

    In case of an L/C of a small amount only the prescribed application form, i.e., the LCA Formis enough to open an L/C. But when the L/C amount is reasonably high or where the partyintends to avail a credit facility, then the importer needs to submit an application to theForeign Exchange Department for getting a limit of the L/C amount.

    The salient features of the application are

    Full particulars of the bank account

    Nature of business

    Required amount of limit Payment terms and conditions

    Goods to be imported

    Offered security

    Repayment schedule

    03.06.03: The L/C Application Form :

    L/C Application form is a sort of an agreement between customer and bank on the basis ofwhich the letter of credit is opened. IFIC BANK Mirpur Branch provides a printed form foropening of L/C to the importer. A special adhesive stamp of value Tk. 150 is affixed on theform in accordance with Stamp Act in force. While opening, the stamp is cancelled. Usuallythe importer expresses his decision to open the L/C quoting the amount of margin inpercentage (Some L/Cs are opened for 100% margin).

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    Requirements of L/C Opening

    . Applicant must hold a current deposit (CD) account in the Bank.

    He must have a trade license of import

    Tax Identification number (TIN)

    Vat certificate.Membership certificate.

    Import registration certificate (IRC) for industrial or commercial.An importer must ensure the above requirements while he is going to issue a L/C with anybank to import some thing form another country.

    03.06.04: The Letter Of Credit Authorization Form (Lcaf)

    The Letter of Credit Authorization Form (LCAF) is the form prescribed for the authorizationof opening letter of credit/payment against importer and used in lieu of import license. Theauthorized dealers are empowered to issue LCA Forms to the importers as per basis oflicensing of the import Policy Order in force to allow import into Bangladesh. If foreignexchange is intended to be bought from the Bangladesh Bank against an LCAF, it has to beregistered with Bangladesh Banks Registration Unit located in the concerned area office ofCCI&E. The LCA Forms available with authorized dealers are issued in set of five (05) copieseach. First Copy is exchange control copy, which is used for opening of LC and effectingremittance. Second Copy is the custom purpose copy, which is used for clearance of importedgoods from custom authority. Triplicate and Quadruplicate Copy of LCAF are to be sent toconcerned area of CCI&F office by authorized dealer/Registration Unit of Bangladesh Bank.Quintuplicate Copy is kept as office copy by authorized dealer/Registration Unit.

    The Letter of Credit Authorization Form (LCAF) contains the following details-

    (1)Name and address of the importer.(2) IRC no. and year of renewal.(3) Amount of L/C applied for (both in figure and in word).(4) Description of item(s) to be imported.(5) Import Trade Certificate (ITC) Number / Harmonized System of Code (HS

    Code Number.

    03.06.05: The imp form :

    The IMP Form contains the followings

    Name and address of the Authorized Dealer.

    Amount of remittance to be permitted (i.e., L/C amount).

    LCA Form number, date, value in Tk.

    Description of goods, quantity.

    Invoice value in foreign currency (i.e., L/C amount)

    Country of origin.

    Port of shipment.

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    Name of steamer/airline (i.e., by road/by ship/by air etc.)

    Port of importation.

    Indentors name and address.

    Indentors registration number with CCI&E and Bangladesh Bank.

    Full name and address of the applicant.

    Registration number of the applicant with CCI&E

    Type of LCF i.e. Commercial or Industrial.

    03.06.06: Scrutinization of l/c application :

    On receipt of L/C application, the branch officials scrutinize the same very carefully givingemphasis to the following points-

    1. L/C application is stamped (as per Govt. Stamp Rule) as it is a guarantee of

    payment.2. All information mentioned in different columns have been furnished;3. The items to be imported are eligible according to import entitleemnt;4. If L/C is opened against indent, Bangladesh Banks permission, valid registration,

    authority to issue indent by indentor are to be checked;5. The terms and conditions stipulated in the L/C application are consistent with the

    Bangladesh Bank Foreign Exchange Guidelines, Import Trade Regulations,UCPDC etc;

    6. The amount and description of merchandise are relevant to LCAF and proformainvoice/ indent / purchase order;

    7. Survey Report or Certificate in case of old machinery;

    8. Carrying vessel is not of Israel or Serbia, Montenegro, Iraq, Israel & Afghanistan;9. Certificate declaring that the item is in operation not more than 5 years in case of

    car.

    03.06.07: Accounting Treatment in Case of L/C Opening

    As soon as L/C is opened, the bank accepts a liability on behalf of the importer to makepayment against the credit. Provided that the shipment is made within the period and otherterm, and conditions as per L/Care complied with, naturally, bank has to pass an entry in L/Cliability ledger and also in the general ledger to show its actual liability accepted on L/C. Aliability voucher in passed as under:

    Contingent liability voucher

    Customer's liability on L/C Dr.

    Bank's liability on LIC Cr.

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    Margin and bank chargeMargin, Commission, Postage and Cable Charge are recovered from the party by passing

    entries as under:Parties AIC Dr.

    Margin AlC on LIC. Cr.

    All charges on LIC Cr.

    Transmission of L/C

    In international trade, receipt of L/C by cable, telex, fax is preferred by all. In that case thewhole text of L/C is to be transmitted to the advising bank.

    Transmission Process of IFIC BankThe transmission process of L/C of IFIC Bank are much more advance. They are sending allforeign L/C to the advising bank through SWIFT.SWIFT-Society forWorldWideInterBankTale Communication. This is a system of inter

    bank transaction. Every bank or other financial institutions must get the membership ofSWIFT to share the information. This is a system of communication where further

    confirmation will not require.

    03.06.08: Amendment of l/c :

    The letter of credit opened by a bank may need to amendment. If the supplier finds. that theterms of the credit cannot be complied with in full, he would arrange for necessaryamendments by the opener before the goods have shipped. These amendments must beadvised by the opening bank to the supplier through advising bank. Some time the opener alsomay like to amend the credit after it has been advised.

    03.06.09: Adding confirmation :

    Sometimes beneficiary or supplier of the goods insists the importer for adding confirmation toL/Cs or to issue L/Cs with add confirmation. In that case, at the request of the importer, theIssuing Bank requests the Advising Bank or any third bank to add their confirmation to theL/C. Normally, add confirmation charge is borne by the beneficiary and the confirmationcharge differs from bank to bank.

    03.06.10: Lodegment & retirement of shipping documents:

    On scrutiny, if it is found that the document drawn in conformity with the terms of the credit,i.e., the documents are in order, this Branch lodges the documents in PAD (Payment AgainstDocuments) and the following accounting treatments are given-

    PAD A/C --------------------------------------------------- Dr.IFIC BANK General A/c (at HO prescribed rate) ---Cr.Exchange A/C ---------------------------------------Cr.

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    The reversal entries are as follow

    Bankers Liability --------------------------------- Dr.Customers Liability ------------------------------ Cr.(When lodgment is passed)

    After passing the lodgment vouchers, the shipping documents are then stamped with PADNumber and entered in the PAD Register. Intimation is given to the customer calling on thebanks counter requesting retirement of the shipping documents. The retirement vouchers are

    as follows

    L/C Margin A/C ------------------------------------------------ Dr.Partys A/C ----------------------------------------------------- Dr.

    PAD A/C -------------------------------------------------------- Cr.Interest / Commission A/C ----------------------------------- Cr.

    P & T Charges A/C -------------------------------------------- Cr.

    After passing the retirement vouchers, endorsement is made on the back of the Bill ofExchange as Received Payment and the Bill of Lading endorsed to the effect Please deliverto the order of M/S -----, under two authorized signatures of the banks officers (P.A.Holder). Then the documents are delivered to the importer.

    03.07: Export Section & Export Financing :

    In the Export Section, two (02) types of L/Cs are handled in this branch-

    1) Back-to-Back L/C; and2) Export L/C

    Export financing can be done in two ways. These are:

    1) Pre-shipment Financing;2) Post-shipment Financing.

    Pre-shipment financing can be done by opening of back-to-back L/C and Packing Cash Credit(PCC). In case of pre-shipment financing, about 90% is financed by the bank. Of that portion,about 75% is for back-to-back L/C and 10% is for packing cash credit. Financing in Back toBack L/C changes according to the products i.e. Normal fabric, Flannel fabric, Woven fabricetc. Example of post-shipment financing by bank is Foreign Documentary Bills for Purchase(FDBP).

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    03.07.01: Back to Back L/C:

    In case of a Back-to-Back letter of credit, a new L/C (an import L/C) is opened on the basisof an original L/C (an export L/C). Under the Back-to-Back concept, the seller as thebeneficiary it as a security to the Advising Bank. The beneficiary of the back-to-back L/C

    may be located inside or outside the original beneficiarys country. In case of a back-to-backL/C, no cash security (no margin) is taken by the bank; bank liens the first L/C (the masterL/C). In case of a back-to-back L/C, the drawn bill is usage/time bill.

    Papers/documents required for opening of back-to-back L/C are as follows

    Master L/C

    Valid Import Registration Certificate (IRC) and Export Registration Certificate (ERC)

    L/C Application and LCAF duly filled in and signed

    Proforma Invoice or Indent Insurance Cover Note with money receipt

    IMP Form duly signed

    In addition to the above documents, the following papers/documents are also required

    to export oriented garment industries while requesting for opening of back-to-back

    letter of credit -

    Textile Permission

    Valid Bonded Warehouse License Quota Allocation Letter issued by the Export Promotion Bureau (EPB) in favor of the

    applicant for quota items.

    A permission from Bangladesh Garments Manufacturers & Exporters Association

    (BGMEA).

    In case the factory premises is a rented one, Letter of Disclaimer duly executed by the ownersof the house / premises to be submitted. A checklist to open back-to-back L/C is as follows-

    Applicant is registered with CCI&E and has bonded warehouse license.

    The master L/C has adequate validity period and has no defective clause

    L/C value shall not exceed the admissible percentage of net FOB value of relative

    Master L/C

    Usage Period will be up to 180 days.

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    Check the credit limitepare offering sheet if regular credit line is not availableMark lien on the Master L/CIssue the L/C

    Flow Chart for back-to-back L/C

    03.07.02: Payment for back to back L/C:

    In case of back-to-back L/C for 30,60,90,120 & 180 days of maturity period, deferredpayment is made. Payment is given after realizing export proceeds from the L/C Issuing Bank.For Garments Sector, the duration can be maximum 180 days. For importing machinery itemsor capital goods for 360 days Back to Back L/C can be opened.

    03.07.03: Export L/C :

    The other type of L/C facility offered by this Branch is Export L/C. Bangladesh exports alarge quantity of goods and services to other countries. Readymade garments (both knitted and

    woven), jute, jute-made products, frozen shrimps, tea are the main goods that Bangladeshiexporters export to foreign countries. Garments Sector is the largest sector that exports thelion share of the countrys export. Bangladesh exports most of its readymade garmentsproducts of USA and European Community (EC) countries. Bangladesh exports about 40% ofits readymade garments products to USA. Most of the exporters who export through thisBranch are readymade garment exporters.

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    03.07.04: Formalities for export L/C

    The export trade of the country is regulated by the Imports & Exports (Control) Act, 1950.There are a number of formalities that an exporter has to fulfill before and after shipment ofgoods. These formalities or procedures are enumerated as follows

    Export Registration Certificate (ERC) : The exports from Bangladesh are subject toexport trade control exercised by the Ministry of Commerce through Chief Controllerof Imports & Exports (CCI&E). No exporter is allowed to export any commoditypermissible for export from Bangladesh unless he is registered with CCI&E and holdsvalid ERC. The ERC is required to be renewed every year. The ERC number is to beincorporated on EXP Forms and others documents connected with exports.

    The EXP Form: After having the registration, the exporter applies to this Branch withthe Trade License, ERC and the Certificate from the concerned Government

    Organization to get the EXP Form. If the branch is satisfied, an EXP Form is issued tothe exporter.

    Securing the Order : Upon registration, the exporter may proceed to secure theexport order. This can be done by contracting the buyers directly throughcorrespondence.

    Signing of the Contract : While making a contract, the following points are to bementioned: (a) description of the goods, (b) quantity of the commodity, (e) price of thecommodity, (d) shipment, (e) insurance and marks, (f) inspection, and (g) arbitration.

    Procuring the Materials : After making the deal and on having the L/C opened inthis favor, the next step for the exporter is set about the task of procuring ormanufacturing the contracted merchandise.

    Registration of Sale : This is needed when the proposed items to be exported are rawjute and jute-made goods.

    Shipment of Goods : The following documents are normally involved at the stage ofshipment: (a) EXP From, (b) photocopy of registration certificate, (c) photocopy ofcontract, (d) photocopy of the L/C, (e) customs copy of ERF Form for shipment ofjute-made goods and EPC Form for raw jute, (f) freight certificate from the bank in

    case of payment of the freight if the port of lading is involved, (g) railway receipt, bergreceipt or truck receipt, (h) shipping instructions, and (i) insurance policy.

    The following points should be looked for

    The terms of the L/C are in conformity with those of the contract.

    The L/C is an irrevocable one, preferably confirmed by the Advising Bank.

    The L/C allows sufficient time for shipment and a reasonable time for registration.

    If the exporter wants the L/C to be transferable, advisable, he should ensure those

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    stipulations are specially mentioned in the L/C.

    At last, the exporter submits all these documents along with a Letter of Indemnity to thisbranch for negotiation. An officer scrutinizes all the documents. If the documents are cleanone, the branch purchases the documents on the basis of banker-customer relationship. This is

    know as Foreign Documentary Bills for Purchase.

    03.07.05: Procedure for FDBP :

    After purchasing the documents the following entries are made

    FDBP A/C ------------------------------------------------- Dr.

    Liabilities A/C ------------------------------------------------- Cr.

    Charges A/C --------------------------------------------------- Cr.

    Exporters A/C ------------------------------------------------ Cr.

    (Before realization of proceeds)

    IFIC BANK General A/C (ID, Head Office) ------------------------------- Dr.

    FDBP A/C ----------------------------------------------------- Cr.

    Charges A/C --------------------------------------------------- Cr.

    Exporters A/C ----------------------------------------------- Cr.

    (Adjustment after realization of proceeds)

    The FDBP Register is maintained for recording all the particulars.

    03.07.06: Settlement of local bill :

    The settlement of local bills is done in the following ways

    The customer submits the L/C to the branch along with the documents to negotiate.

    The branch officials scrutinize the documents to ensure the conformity with the terms

    and conditions.

    The documents are then forwarded to the L/C Opening Bank.

    The L/C Issuing Bank gives the acceptance and forwards an acceptance letter.

    Payment is given to the customer on either by collection basis or by purchasing the

    document.

    The following accounting treatments are made for the purchasing of local bill

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    At Sight PaymentCredit

    Deferred PaymentCreditt methods under L/C

    Negotiation PaymentCreditAcceptance PaymentCredit

    Local Bill Purchase ---------------------------------------------------- Dr.

    Partys A/C -------------------------------------------------------------- Cr.

    Commission ------------------------------------------------------------- Cr.

    Interest A/C ------------------------------------------------------------- Cr.

    A local bill purchase register is maintained to record the acceptance of the Issuing Bank. Untilthe acceptance is obtained, the record is dept in a Collection Register.

    03.07.07: Modes Of Payment For Export Bills Under L/C:

    The most common methods of payment under a L/C are as follows-

    At Sight Payment : In At Sight Payment, the bank pays the stipulated sumimmediately against the exporters presentation of the documents.

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    Deferred Payment : In deferred payment, the bank agrees to pay on a specified futuredate or event, after presentation of the export documents. No bill of Exchange isinvolved. In this branch, the payment is given to the party at the rate of30,60,90,180,360 days rate as the case may be. But the Head Office is paid under T.T.Clean Rate. The difference between the two rates is the exchange margin for the

    branch.

    Negotiation Credit: In Negotiation Credit, the export has to present a bill of exchangepayable to him in addition to other documents that the bank negotiates.

    Acceptance Credit: In Acceptance Credit, the exporter presents a bill of exchangepayable to him and drawn at the agreed tenor (that is, on a specified future date orevent) on the bank that is to accept it. The bank signs its acceptance on the bill andreturns it to the exporter. The exporter can then represent it for payment on maturity.Alternatively he can discount it in order to obtain immediate payment.

    03.07.08: Test key arrangement :

    Test Key Arrangement is a secret code maintained by the banks for the authentication for theirtelex messages. It is a systematic procedure by which a test number is given and the person towhom this number is given can easily authenticate the same test number by maintaining thatsame procedure. IFIC BANK Mirpur Branch has test key arrangements with so many banksfor the authentication of L/C messages and for the transfer of funds.

    03.08: FOREIGN REMITTANCE :

    Foreign remittance means purchase and sale of freely convertible foreign currencies asadmissible Foreign Exchange Regulations Act-1947 and Guidelines For Foreign ExchangeTransaction-VOL. 1 & 2 of the country. Purchase of foreign currencies constitutes inwardforeign remittance and sale of foreign currencies constitutes outward foreign remittance.

    So we see that there are two types of Foreign Remittance:

    Foreign Outward Remittance.

    Foreign Inward Remittance.

    Mode of Outwards Remittance :

    Foreign Telegraphic Transfer (FTT).

    Foreign Mail Transfer (FMT).

    Foreign Demand Drafts (FDD).

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    Travelers Cheque (TC).

    Foreign Currency Notes.

    Mode of Inward Remittance

    Telegraphic Transfer (TT).

    Mail Transfer (MT).

    Mail Transfer (MT).

    Foreign Demand Drafts (FDD).

    Payment Order (PO).

    Travelers Cheque (TC).

    Foreign Currency Notes.

    Telegraphic Transfer (TT)

    Telegraphic Transfer refers to the payment instruction by tested telex/cable or authenticatedfax by bank in abroad on an inland bank (local/foreign bank). Normally foreign banks, withwhich corresponding banking relationship / drawing prevails, send T.T.

    03.08.01: Foreign Demand Draft (FDD)

    The foreign bank/exchange company on local bank usually issues Foreign Demand Draft. It isan order to pay a certain sum to a certain person or as his instruction, issued by the bank on itsoverseas branch or on its correspondent bank. The demand draft is handed over to thepurchaser who sends it to the beneficiary. The beneficiary obtains payment on presentation tothe bank on which the draft is drawn.

    Encashment of FDD may take place in two ways-

    Purchase,

    Sending for collection.

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    03.08.02: Endorsements of us$ in passport :

    IFIC BANK endorses US Dollars (USD), Great Britain Pound (GBP) in passports. To endorseUS Dollar, the client has to apply in the prescribed form (TM Form). The following entries aregiven in this regard, -

    Cash or Customer A/C Dr.

    Foreign Currency on Hand Cr.(Dollar Special)

    03.09: Student file open :

    As we know that Bangladesh Taka is not fully convertible. Only current account not capitalaccount of our currency is convertible. But in case of students who studied abroad can take

    any amount for their study cost. Thus IFIC BANK Mirpur Branch opens student file to remitthe costs to the respective institutes on behalf of the student subject to scrutinizing theappropriate documents issued from the registrar.

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    Human Resource Management:Human resource management involves all management decisions and practices that directlyaffect or influence the people, or human resources, who work for the organization. In recentyears, increased attention has been devoted to how organizations manage Human Resources.This increased attention comes from the realization that an organizations employees enable

    an organization to achieve its goals and the management of these human resources is criticalto an organizations success.

    Functions of HRM:

    1. Planning for Organization, Jobs and People

    Strategic Human Resources

    Human Resources Planning

    Job Analysis

    2. Acquiring Human Resources

    EEO (Equal Employment Opportunity)

    Recruiting

    Selection