Describe Loan Classification and Provisioning

Loan Classification and Provisioning

Loan classification is required to have a real picture of the loan and advances provided by the Bank. It helps to monitor and take appropriate decision regarding each loan account like other Banks, all types of loans of BA fall into following four scales:

Unclassified : Repayment is regular
Substandard: Repayment is stopped or irregular but has reasonable prospect of improvement.
Doubtful debt: Unlikely to be repaid but special collection efforts may result in partial recover.
Bad/Loss: very little chance of recovery.

Loan Type	Unclassified(Month	Substandard (Month)	Doubtful (Month)	Bad(Month)
Continuous LoanDemand Loan	Expiry up to 5 month	6 to 8 month	9 to 11 month	12 month+
Term loan up to 5 year	0 to 5 month	6 to 11 month	12 to 17 month	18 month+
Term Loan more then 5 years	0 to 11 month	12 to 17 month	18 to 23 month	24 month+
Micro Credit	0 to 11 month	12 to 13 month	36 to 59 month	60 month+

Loan Provisioning:

A Certain amount of money is kept for the purpose of provisioning. This percentage is set following Bangladesh Bank rules.

Type of Classification	Rate of Provision
Unclassified	1%
Substandard	20%
Doubtful	50%
BAd debt	100%

Loan follow-up means the technique of supervision (of loan). The branch manager keep a close and constant watch on all their loans and advances to ensure that timely action is initiated in each case for adjustment of account or its renewal, if it is decided to continue the facility. For this purpose each branch maintain a diary or card in prescribed format in which the due date of expiry of loan facilities are noted down. At least thirty days before the date of expiry of any loan facility, a notice send to the borrower reminding him of the due date of repayment and making formal demand of repayment are renewal as the case may be. Vigorous follow up actions there after taken by issuing repeated reminders and putting pressures on the borrower by calling on him personall