An Overview of Prime Bank Banking System (Part-2)

CONSUMER CREDIT SCHEMES OF PRIME BANK LIMITED

3.1 INTRODUCTION:

Prime bank is committed to play a vital role in overall socio economy development of our country. As per its commitment, it launched “consumer Credit Scheme” in the year 1995 to enhance the living standard of the people of limited and fixed income group.

Prime Bank tries to establish the concept of “Relationship Banking”. It treats clients as its “financial Partner” and always intends to be a friend of rainy days by means of proving financing assistance in those days. It provides financing for the following purposes.

†  To purchase different home appliances

†  To purchase equipment for medical services

†  To purchase motor vehicles

†  To meet up emergency or sudden needs

†  To arrange Wedding ceremony

†  To enjoy vacation

†  To bear edu8cational expenses of children

†  To convert the vehicle engine into CNG.

3.2 OBJECTIVE OF THE SCHEME:

Prime Bank Limited started the Consumer Credit Scheme program with a view to fulfill its benevolent institutional objectives through financing the middle class limited income group.

†    To ensure the credit facility to the both middle class Limited income group and upper class income group.

†    To improve the living standard of limited income group through financing in purchasing necessary goods.

†    To participate in the socio-economic development of the country.

3.3 ELIGIBILITY OF THE CUSTOMER:

Any interested person within the range of 25 to 60 and having a permanent job or the permanent employees of the following organization can apply for the CCS loan of Prime Bank.

†    Government Organizations.

†    Semi-Government and Autonomous Bodies.

†    Banks, Insurances Companies or any other financial institutions.

†    Armed Forces, B.D.R, Police and Ansar.

†    Private Organizations having corporate structure.

†    Teachers of Universities, Colleges and Schools.

†    Permanent employees of locally established and renounced Public Limited Companies.

†    Permanent employees of Multinational Companies.

†    Permanent employees of Bank acceptable companies

†    Professionals such as Doctors, Engineers, Lawyers, Architects, Chartered Accountants, Journalists, and self employed person etc.

3.4 DISCOURAGE LIST OF THE CUSTOMER:

The following are the people who should be discouraged in extending credit facilities under this scheme:

†    The employees of frequently transferable services.

†    The employees of enterprises which are not of good reputation.

†    Employees having take home salary less than taka 10,000 per month.

3.5 PRODUCTS OF PRIME BANK LIMITED:

The products of Prime Bank with their financing items under CCS loan are given below:

Household Durable Loan: Motor Cycle, Personal Computer, Photocopier, Fax machine, Small PABX system, Television, Mobile Phone set, Refrigerator, Audio-video equipment, Other home electric appliances, Furniture and any other household items.

Car Loan: Car, Jeep, Station Jeep, Pick up Van, Cover Van, Bus, Truck, Abulance and any other vehicle for own use.

Doctors Loan: For the Doctors only.

Advance Against Salary: Any qualified person

Education Loan: For Study purpose only

Travel Loan: For traveling purpose,

Wedding loan: For wedding only.

CNG Conversion Loan: To convert into CNG

Any Purpose Loan: For emergency need

Hospitalization Loan: For treatment in hospital

3.6 CREDIT LIMIT, PERiOD OF LOAN, DOWN PAYMENT:

Under CCS program of Prime Bank Limited a borrower can get maximum of taka 40,00,000 and minimum taka 10,000. The down payment is 10% of the loan for each product.

3.7 INTEREST AND OTHER CHARGES:

The interest rate is 15% for the all products. And Prime Bank charges 1% service charge and 1% risk fund for all products other than for Car loan, Doctor’s loan, Advance against salary and CNG Conversion loan.

3.8 APPLICATION PTOCDURE:

The intending client will have to apply for the credit in Bank’s printed application form, which is available in respective Branch on payment of Taka 10 only. Customers will submit the application form dully filed-in with 2(two) photograph and signed along with quotation for purchase of desired article or any other relevant documents.

The customers’ name/other name(s) including nickname, if any should be mentioned in every loan application.

3.9 PROCESSING OF APPLICATION:

On proper scrutiny of the application, branch will inform the initial decision (acceptable for processing /decline) to the applicant within 3(three) working days from the date of receiving application.

Applicant will submit the above dully filed-in with the following additional papers.

†    Salary certificate for service holders.

†    Trade license and TIN Certificate (if any) for businessperson.

†    TIN Certificate of applicants for vehicle loan (compulsory)

†    Bank statement of last six month.

†    Attested photocopies of current tax receipt, electric bill etc & lease agreement (if any) when the source of income is house rent as a land lord.

Branch will inspect the given information with respect to eligibility, feasibility and security. After completion of all necessary formalities, Branch shall disburse the loan or refuse the proposal within 7(seven) working days from receiving the additional papers. Price of the items (Down payment + loan amount) should be given to the respective supplier through Payment order (PO) after completion of necessary documentation.

3.10 DOCUMENTS:

For execution of CCS loan, Bank usually uses two types’ documents. One is application from and other one is charge document. Details of these documents are given below.

Application Form:

The contents of application form for CCS loan of different banks are almost the same and these are as follows.

• Personal Details of Applicant (s): The applicant’s personal information is written down here.
• Employment Details: In this section, applicant has to specify the details about his employment (Name of the Company where he belongs, designation, years of service, salary etc.)
• Loan Details: Amount of Loan, Period, Interest, Equity, Mode of Repayment, Security and Other charges are to be mentioned.
• Financial Details: Total assets, Total liabilities, Monthly income, Monthly expenses and all other financial details of the applicant have to be mentioned.
• Particulars of Guarantors: Details of Guarantors with their Job details are to be stated here.
• Quotation: Quotation contains the details descriptions of the goods, brand, model, size, manufacturer, price and details of supplier.
• Letter of assurance: This is the assurance of the working organization of the client to pay the installment on behalf of the client in case of the client fails to repay.
• Declaration: This the declaration of the borrower that all the information regarding the quotation of goods is correct and s/he agrees with all terms and conditions of the Bank.
• Certification of the organization: In this section the working organization will certify that the borrower is the employee of the organization.
• Photograph: Two copies of photograph are required for each client.

Charge Documents:

Charge documents are set for documents that contain different rules, terms and conditions. If the borrower of CCS loan agrees with all tese terms and conditions regarding the loan s/he needs to sign all the documents. If any disagreements or irregularity occurs in future, these documents will be exercised to suit against the borrower.

Before the disbursement of CCS loan, the following documents must be signed by clients.

The stamps needed for these documents are paid by the clients.

• Letter of Guarantee: This letter of guarantee is two sided. One is borrower side guarantee and another one is guarantor side guarantee. Borrower side guarantee consists of agreement of all terms and conditions of Bank as well as assurance of proper repayment of installment. Guarantor side guarantee is the undertaking by the guarantor to pay the installments is case of failure of the client.
• Letter of Hypothecation: It signifies that the goods/items are hypothecated to the Bank.
• Demand Promissory Note: It is the promise of borrower to pay on demand to the Bank the overdue or total outstanding if necessary.
• Letter of Installment:In this documents borrower promise to pay all regular and irregular installments in due tme.
• Letter of Disbursement:This is the declaration of disbursement of Loan to the borrower.
• Letter of agreement: This is the agreement that the borrower is bound to pay all dues together with all other charges and the borrower gives the bank the authority to discharge the agreements any time due to the fault in borrower side.
• Letter of Authority: This is the letter the borrower gives the Bank the Authority to debit the account if necessary.

3.11 MODE OF REPAYMENT:

Repayment of loans including accrued interest will be made by equal monthly installments, which will start from the following month of the disbursement of loan. Before disbursement of loan, the customer will deposit crossed cheque covering the total number of monthly installments in favor of Bank which will have to be presented for collection on the due date. Installment will be paid within 7^th day of each month. However, prepayment is allowed.

3.12 OTHER CONITIONS:

• Customer will bear the license fee, registration fee, insurance charge etc, if any, in respect of the articles.
• Customer will bear the expenses for necessary repair and maintenance of the articles during the period loan.
• After delivery for the articles, the respective customer shall remain responsible if the articles are broken, stolen or damaged. The articles shall be used by the customer with optimum care, caution and prudence and he will be liable for compensation or replacement etc. for any damaged caused due to this negligence, carelessness and inefficient handling. In the event of the articles being lost or totally damaged and become irreparable due to his negligence, careless ness and inefficient handling, he will be liable to adjust Bank’s due i.e. outstanding principal, interest and other charges on demand.
• Customer will inform the Bank of any Change of his address immediately after the change.
• The articles shall remain in sole control and custody of the customer who will not let out, lend, resell or transfer the possession or rights of the same to a third party under any circumstances.
• Customer will keep available all the articles supplied to him for inspection by the Bank officials or supervising agency as and when required.
• Default in payment of 3(three) consecutive installments shall render the customer liable to handover the articles of the Bank.
• In case of loan for purchase of Car loan, the registration of the vehicle loan shall be made in the sole name of the Bank/joint name of the Bank and the customer until full adjustment of the loan.
• The Registration, Blue book, Tax token, Fitness Certificate, etc for vehicles must always be kept up to date at the cost of the customer.
• The vehicles must be covered by comprehensive insurance policy to be taken by the customer on his own expenses.
• No additional amount will be paid by bank for repairing or any other purpose for which credit was allowed.

3.13 JUDGEMENT PROCESS OF CREDIT PROPOSAL UNDER THE CCS:

Loan and Advances are the main form of asset of a bank. I is very crucial for any bank because it generates the greatest part of revenue for a bank. Within the total credit portfolio consumer credit is the most popular form of credit because it is easily recoverable. To disburse the loan, the credit officer has to verify the potential borrower’s income, expenditure pattern, type of service etc to select the appropriate borrower. The factors which are considered in this process are stated below:

Borrower’s income:

It is the vital factor for selecting a borrower. To gather required information in his regard, the borrower is requested to allow the credit officer to verify the following subject matters:

•   Place of employment

•   The stated Salary

•   The continuity of Existing job

•   Income from part time employment

•   Spouse’s income

•   Income from rentals

•   Dividend or interest

•   Children’s support

Besides these the credit officer also verifies borrower’s income from the TIN certificate, tax return and salary statement etc.

Estimated Housing Expenses:

The credit officer tries to evaluate the expenditure pattern as well as monthly living expenditure with the help of the following information:

•   Children’s educational expenses

•   House rent

•   Interest payment on previous borrowing

•   Interest payment for the loan which is under consideration

Location:

The location of the borrower is an important factor for selecting any borrower. If the location of the borrower is far from the bank, the physical communication becomes though for the bank. So bank likes to provide loan to those who stay near to the bank’s branch.

Assessment of credit History:

The credit officer evaluates the credit history of a potential borrower with the help of the CIB report and with the inquiry of his or her Business community.

Social Status:

Social status of a borrower is to be verified from the following information:

•   Ownership of a car

•   Ownership of a House in the metropolitan area

•   Holding a land phone in residence

•   Holding a passport, TIN certificate

•   Membership of a first club

•   Marital status

Guarantors status:

Under the CCS, credit is offered by taking personal guarantors from a third party. The guarantor will be liable for the default of loan. So guarantor’s designation, type of job, monthly salary, period of service, office address, and the consent of the guarantors regarding the matters are evaluated.

3.14 MONITORING AND RECOVERY:

The credit under this scheme is fully supervised and as such, the success of the scheme depends on proper and persistent supervision, follow up, persuasion and monitoring of the credits by the Branches. Branches shall maintain proper records of the applications received, loan sanctioned, disbursement and recovery made. It is worthwhile to mention here that optimum recovery can be ensured by developing relationship with the customers and the beneficiaries and maintaining supervision thereon without filing any suit/case. The mechanism of supervision and monitoring are as follows:

†    Regular checking of the balance of the clients account

†    Regular communication with the defaulting customer and guarantors physically/over telephone.

†    Issuance of letter to customers immediately after dishonor of cheque.

†    Issuance of letter to defaulting customers and respective guarantors.

†    Contacting the employers of the defaulting customers (after there overdue installments)

†    Issuance of legal notice to the customers and guarantors prior classification of loans.

†    Issuance of application/greeting letter  to the regular customers.

†    Periodical visit to the customer to maintain relationship and supervision of supplied goods/items.

†    Legal actions to be taken after all possible efforts to recover the Bank’s dues have in vain.

3.15 STEPS AGAINST DEFAULTERS:

If a borrower fails to pay 3(three) installments consecutively s/he consider as a defaulter. Prime Bank Limited usually follows the following guidelines for treatment of its overdue installments.

†    Telephone contact

†    Cheque bounce Letter

†    Overdue recover Letter

†    Letter of guarantors

†    Letter to authority

†    Legal notice to borrower and guarantor

†    Suit notice

3.16 LOAN AMORTIZATION:

Prime Bank uses the most common loan amortization method that is “Capital Recovery Method”. Under this method constant monthly payment is calculated on an original loan amount at affixed interest for a given term.

Example:

Loan Amount: BDT 100,000 (PV)

Interest rate: 15%(r)

Number of Installments (montly): 24

So monthly install will be: PV/*MPVIFA@15%,  24months)

So Monthly installment: 100,000/20.62423451=BDT 4848.66/Month

*MPVIFA=Monthly Present Value Annuity Factor.

Amortization Schedule:

Table 1: Amortization schedule

3.17 PREPAYMENT

Customer can repay the loan before the maturity of the loan. Prime usually welcomes the early payment of loan and no prepayment penalty is to be charged. Prime bank always try to avoid classified loan even at a cost of losing profit and receiving risk just to maintain its credit history and good CAMEL rating.

3.18 DIFFERENT CREDIT SCHEMES OF PBL

More parts of this post-
An Overview of Prime Bank Banking System (Part-1)

An Overview of Prime Bank Banking System (Part-2)

An Overview of Prime Bank Banking System (Part-3)

An Overview of Prime Bank Banking System (Part-4)