Loans and Advances of IFIC Bank Limited

The focused subject of this report is to analysis the Loans and Advances Division of IFIC Bank Limited, Elephant road branch. Other objectives are identify the sectors the bank is giving loan and advance and identify the customer segment. This report provide different types of loan Secured Overdraft,Loan, House Building Loan, Term Loan, Staff Loan Against provident Fund, Consumer Credit scheme, Cash credit, Landing Risk Analysis and Loan against Trust Receipt.

Introduction

It has long been recognized that credit is an important tool in increasing productivity and thereby increasing the income of borrower. Adequate flow of credit can remove the financial constrains on the borrower. There has been phenomenal growth in the flow of credit after liberation due to government’s desire to increase productivity in the country. All the credit institutions were glared up through a dynamic credit policy to disburse both short term and long term credit. As a result, the flow of credit has increased significantly. As the volume of the loans has increased substantially over the years, the percentage of loan default increased gradually. This study is kind of analyzing the loan & advance of IFIC Bank. It is providing different types of loan Secured Overdraft (SOD),Loan (general), House Building Loan (Staff), Term Loan ( Industrial) Term Loan (Others), Staff Loan Against provident Fund, Consumer Credit scheme (CCS), Cash credit (Hypothecation & pledges), Landing Risk Analysis (LRA) & Loan against Trust Receipt (LTR).

Objective of the Report:

Objectives of this report are as follows:

• To identify the sectors the bank is giving loan and advance.
• To identify the customer segment.
• To have some practical exposure that will be helpful in the practical life.
• To gather knowledge about loan and advance.

Methodology

This report is based on primary & secondary data. For more clarification and better understanding, I have collected primary data in the form of depth interview and personal observation.

The primary sources:

• Conversation with the respective executives & officers of the Bank
• Informal conversation with the clients.
• Practical work exposures from the different desks of the various departments of the Branch covered.

The secondary sources:

• Annual Reports of IFIC Bank Ltd.
• Periodicals published by Bangladesh Bank.
• Various books, articles, compilation etc regarding general banking functions, foreign exchange operations and credit policies.
• Web site of IFIC bank limited.

Description of the IFIC Bank Ltd.

INTRODUCTION OF IFIC BANK LTD :

International Finance Investment & Commerce Bank Limited (IFIC Bank) is a banking company incorporated in the people’s Republic of Bangladesh with limited liability. International Finance Investment and Commerce (IFIC) Bank Limited started banking operation on June 24, 1983. It was set up at the instance of the Government in 1976 as a joint venture between the Government of Bangladesh and sponsors in the private Sector with the objective of working as a finance company within the country and setting up joint venture banks/financial institutions abroad. The Government held 49% shareholder & 51% were held by the sponsors & general public. In 1988 when the Government allowed banks in the public sector, IFIC was converted into a full-fledge commercial bank. The Government of the People’s Republic of Bangladesh now hold 35% of the share capital of the bank. Leading industrialists of the country having vast experience in the field of trade and commerce own 34 % of the share capital and the rest held by the general public. Oman International Exchange LLC (OIE), a joint venture between IFIC Bank Limited and Oman nationals, was established in 1985 to facilitate remittance by Bangladeshi wage earners in Oman. IFIC Bank holds 25% shares, and the balance 75% is held by the Omani sponsors. The exchange company has a network of 10 branches covering all the major cities/towns of Oman. The operations of the branches are fully computerized having online system.

Capital Structure of IFIC Bank Ltd.

Human Resource Development:

The Bank has a Human Resource Development & Research Department to develop human resources internally. The Academy is equipped with professional library, modern training aids professional faculty and other facility. It is now under Personnel & Human Resource Development & Research Division. The Academy conducts regularly foundation courses, specialized courses and seminars on different areas of banking to take care of the professional needs.

Missions Statement

Our Mission is to provide service to clients with the help of a skilled and dedicated workforce whose creative talents; innovative action and competitive edge make our position unique in giving quality service to all institutions and individuals that we care for.

We are committed to the welfare and economic prosperity of the people and the community, for we derive from them our inspiration and drive for onward progress to prosperity.

We want to be the leader among banks in Bangladesh and make our indelible mark as an active partner in regional banking operating beyond the national boundary.

In an intensely competitive and complex financial and business environment, we particularly focus on growth and profitability of concerned.

Loan and Advance of the IFIC Bank Ltd.

LOAN DOCUMENTATION

For all facilities, bank must obtain (as applicable) and not limiting to following documents before disbursement of loan can be made:

   1) Loan Application Form duly signed by the customer,

   2) Acceptance of the terms and conditions of sanction Advice.

   3) Trade License.

In case of Partnership firm:

Copy of Registered partnership Deed duly certified as true copy or a partnership Deed on non-judicial stamp of TK. 150 denomination duly notarized.

5) In case of limited company:

a) Copy of memorandum & articles of association of the company including Certificates of incorporation duly certified by Registrar joint stock companies (RJSC) and attested by the managing Director accompanied by an up-to-date list of directors.

b) Copy of Board Resolution of the company for availing credit facilities and authorizing Managing Director/ Chairmen/ Director for execution of documents and operation of the accounts.

c) An undertaking not to change the management of the company and the memorandum and articles of the company without prior permission of the bank.

d) Copy of list audited financial statement up to last 3 years.

e) Personal Guarantee of all the Directors including the Chairman and Managing Director.

f) Certificate of registration of charge over the fixed and floating assets of the company duly issued by RJSC.

g) Certificate of registration of memorandum of charges over the fixed & floating assets of the company duly issued by RJSC incase of repeat loan or charge I terms and condition of Sanction advice loan amount, securities etc.

 6) Demand promissory Note

7) Letter of hypothecation of stock and goods.

8) Letter of hypothecation of book debts & receivables.

9) Letter of hypothecation of plant & machinery.

10) Charge on fixed assets.

11) Personal Letter of Guarantee.

12) Wherever practical, insurance policy for 110% of the stock value covering all risks with banks mortgage clause in joint name of the bank client.

In the case of individual person:

• 2 (two) copy passport size photographs of intending borrower & guarantor.
• Letter of introduction from employer ( where required)
• Bank Statement ( for last 6 months)
• Personal Net worth Statement.
• Copy f passport/voter ID/Driving License (if any)
• Utility bill copy (Telephone/Gas/Electricity)-anyone
• Salary Certificate/ Trade License.
• T.I. Number.
• Copy of offer letter from recognized college/university for studying abroad.
• For local private university/Medical college submission of evidence related to admission and cost. CIB report on the borrows as required.

In the case of sol proprietorship firm:

• One copy passport size photograph.
• Copy of trade license.
• Personal net worth statement.
• Hypothecation of stock.
• Personal guarantee of a businessman having business at the same area or any person acceptable to the bank.

POLICY GUIDELINES FOR BANK.

1. Product Program Guidelines.
2. Segmentation of Duties.
3. Credit approval.
4. Credit Administration.
5. Risk Management.
6. Collection & Remedial Management.

GUIDELINES FOR BANK FOR GIVING LOAN.

These guidelines include objective / quantitative parameters for the eligibility of the borrowers and determining the maximum permission limit per borrower.

Fundamentally, credit policies and procedures can never sufficiently capture all the complexities of the product. Therefore, the following credit principles are the ultimate reference points for making SE financing decisions:

• Assess the entrepreneur’s character for integrity and willingness to repay.
• Only lend when the entrepreneur’s has capacity and ability to repay.
• Only extend credit if bank can sufficiently understand and manage the risk.
• Use common sense and past experience in conjunction with through evaluation and credit analysis.
• Do not base decision solely on customer’s reputation, accepted practice, other Lender’s risk assessment or the recommendation of other officers.
• Be proactive in identifying, managing and communicating credit risk.
• Be diligent in ensuring that credit exposures and activities comply with the requirement set out in product program

SMALL ENTERPRISE LOAN:

IFIC Bank gives loan in the following important sectors of Small Enterprise:

1. Easy commercial loan

2. Retailers loan

3. Transport loan

4. Commercial House Building loan

5. Possession Right loan

6. Contractor’s loan

7. Letter of Guarantee

8. Working Capital loan

9. Letter of credit

10. Loan against Imported merchandize (LIM)

11. Loan against Trust Receipt

12. Bidder’s loan

13. Project loan

Consumer Financing

Consumer Financing:

IFIC Bank introduces Consumer credit Scheme for its customer during 1999 duly approved by the board of Directors of the IFIC bank in their 251^st meeting held on 26.04.1999. Consumer financing means any financing allowed to individuals for meeting their personal, family or household needs.

Development Guideline:

The purpose of this section is to provide direct ional guidelines to the branches for providing consumer financing under consumer Finance Scheme. Guidelines under the prudential Regulation and Direction of Bangladesh bank have been formulated. These guidelines will assist the branches as to how the CCs loan port-folio should be managed.

The guidelines have been organized into the following section:

Policy Guidelines:

Product Program Guidelines.

1. Segregation of Duties.
2. Credit Approval.

Procedural Guidelines:

• Approval Process.
• Credit Administration.
• Risk Management.
• Collections & Remedial Management.

Product Program Guidelines:

These fundamental guidelines will be the key elements when dealing with customers and managing landing portfolio of such loans. Any deviations from these guidelines must in all cases, will require approval from the competent authority. Product Program guidelines has been developed for the following seven Consumer Financing Products for the IFIC Bank:

• Easy Loan (Secured Personal Loan).
• Consumer Durable Loan.
• ‘Parua’ (Education Loan).
• Thikana (House Building Loan).
• Flexi Loan (Personal Loan).
• Peshajeebi Loan ( loan for Professional)
• Auto Loan.

Types of Advance

The different types of advance are as follow:

CONTINUOUS LOAN:

Types of continuous Loan:

• Cash Credit Hypothecate (CC HYPO).
• Cash Credit Pledge (CC PLEDGE).
• Secured Overdraft (SOD).

Cash Credit Hypothecate (CC HYPO) :

1. Cash credit is given through the cash credit account.
2. Instrument hypothecation Deed.
3. 50% margin requires opening a CC account.
4. It is granted only the first class parties.

Cash Credit Pledge (CC PLEDGE):

a) The nature, operation work & characteristics of CC PLEDGE in as same CC HYPO.

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

c) Instrument pledge Deed.

Table: Cash Credit (Hypo & Pledge)

Secured Overdraft (SOD) :

Secured Overdraft (SOD) are those drawing which are allowed by the banks in access of the balance in the current account up to a specified amount for definite period as arranged for?

• Generally it given to the businessmen to increase their business activities.
• Usually provide against FDR, PSS, i.e. financial obligation or any primary securities.

• Balance of OD account is fluctuates.

TERM LOAN:

Types of term loan:

• Industries
• Staff loan: (a) Staff house building loan. (b) Staff loan against provident fund.
• Others Loan.
• Loan against PSS.
• House building loan
• Consumer Credit Scheme.

Industries Loan:

It is given for 3 (three) years at equal installment & 15.50% interest is charged to the loan amount.

Staff Loan:

(a) Staff House Building Loan – SHBL

(i) 120 times of the basic salary is provided as SHBL

(ii) Bank Rate + 1%, interest is charged to the employee

(iii) Repayment is adjusted from their monthly salary

(iv) Repayment is made at equal monthly installment

(b) Staff Loan against Provident Fund – SPF:

(i) 10% of basic is contributed by employee in every month

(ii) 10% of basic is also contributed to the PF by the Bank

(iii) Repayment is adjusted from their monthly salary

(iv) Maximum Sanction from PF

Others Loan:

Transport loan (It is given for 3 years at equal monthly installment), Cold storage, Service Industries, Other Non-manufacturing Industries, & Execution of work order interest rate are 15.50%.

Agricultural Loan : Actually Agricultural loan is not given from this branch of IFIC Bank but the all other items excluding the mentioned above will go under this head of term loans. Generally its interest rate is 12.00%.

Loan against PSS

This is 100% secured for the bank.

Table:: Total Advance of IFIC Bank Ltd. Elephant Road Branch.

Source: Monthly Statement of IFIC Bank Ltd. Elephant Road Branch.

Table: Term Loan (Consumer Credit) of IFIC Bank Ltd. Elephant Road Branch.

Source: Monthly Statement of IFIC Bank Ltd. Elephant Road Branch.

Table: Loan Against Trust Receipt:

Source: Monthly Statement of IFIC Bank Ltd. Elephant Road Branch.

Table: Growth in Advances:

Source: Yearly Statement of IFIC Bank Ltd. Elephant Road Branch.

SWOT Analysis

Strength of the organization:

• A Wide range of business, industries & sector constitutes the bank’s advance portfolio. Major sectors they have extended credit included textile and readymade garments, edible oil, telecom, media & technology shipping, steel & engineering, energy chemical etc. IFIC Bank developed smooth relationship with their clients and corporate business holders. Following the rules of Bangladesh Bank they have operated handsome banking activities throughout the country.
• In case of services offered by all private banks in our country, IFIC Bank Ltd, has maintained high quality.
• Since the govt. has imposed some new rules regarding private banking operation, IFIC Bank Ltd. easily cope up the given rules.
• Adopting Islamic Banking concept gives a new dimension in their services.
• Regarding contribution towards country’s GDP they have contributed a handsome amount per year.
• Experienced and competing workforce who have expertise knowledge about the bank
• Some loyal customers who always bring in new customers.
• Management consists of knowledgeable and authoritative personnel.
• Reputation of the management
• Interaction of the employees with the top management.
• The corporate culture of IFIC Bank Limited is very much interactive. The environment within the organization is very helpful, positive and informal. There is no barrier between superior and subordinate for their free interaction. As the environment is very informal and friendly, it encourages employees to put their best effort and show their best performance.

Weakness of the IFIC Bank:

Problem With General Banking

• To open an account some times people have given incomplete information which will become a very acute when any dispute arises.
• Because of good relationship some time branch manager authenticated the account with introducer, sometimes it is very difficult for the employee to void such circumstances, which in turn brings questions.
• There have error regarding advice.
• Sometimes title of the account holder differs.

Problem With Cash

• Because of unavailability of notes and coins they can’t give the proper service to the potential customers.
• Big parties or for big amount parties wouldn’t tk.100 notes but the Bangladesh Bank issues mix notes.

Problems with Advances

• In case of advances in different project, the interest rate is too high.
• Maximum parties have no financial strength.
• To liquidate the collateral when the party is unable to pay the debit.
• Most of the time parties are creating some sort of pressure to get the loan.
• There re some mortgage problem such as, acquisition & proprietorship, problem of asset.
• In the advance department they have the shortage of skilled manpower.
• Head office takes much time to sanction credit proposal as a result the parties do not get loan in a hurry.
• Sometimes the process of information transferring to the management is lengthy.
• Only a few number of 4 branches online banking facilities.
• On the counter service is sometimes unsatisfactory because of not having enough employees for the counter sector.
• Their ATM card division is not satisfactory to fulfill their commitment & ATM card is not also available.

Opportunity of the IFIC Bank:

Favorable in this climate by the commercial banking sector in our countries to comparison other business. high funding cost for lending is great  opportunity for the bank. Due to lack of poor performance of NCB’s in our country through they are grabbing an huge deposit from the market

Another mentionable opportunity of the PCB’s is high grades of services in regards of customer service. Besides the NCB’s services is very poor and so much traditional. As a result of which it has easily achieved public respond easily creating their positive approach day by day.

Another opportunity is the establishment of new banks is very vital point. Any body or organization cannot easily establish a commercial collecting paid-up capital and govt. Moreover, in our country there are no closing rules for commercial banks. As a result of which as an existing commercial banks IFIC Bank limited have a great opportunity and potential for its favourable business opportunity

Threat of the IFIC Bank:

• Recovery of loan:

This is a vital threat for IFIC Bank Limited because the financial market strength of our country is not so strong. As far to recover the lending money and great threat, because in our country; business chain is so difficult like other countries and depend to other. So, if the monetary flow faces any obstacle it hampers the functioning of full chains. As a result recovery face a great threat for commercial banks as well as IFIC Bank Limited is not out of this threat. However, this stagnant may cover up duly taking proper planning and implementation of the same in regards of loan sanctioning and proper monitoring for recovery of the same. But IFIC bank Limited yet doing well for recovery of its loan amount. It  is good news for all the stakeholders that the percentage of classified loan of the end less than 1% where this ratio is very high for similar types of banks prevailing in our country  especially for older banks of the country. Here remind that now IFIC Bank offered by the general loan interest rate is 14% and CCS loan is 16%

• Competitive Deposit collection of Fin Inst.

Another mentionable threat for IFC Bank limited is competitive deposit collection from the market. We know total fund of our country is limited and foreign earnings ate also not substantial. So as a old but new generation commercial bank of our country the bank is facing a very touch competition for collection of its deposit from the market. It has created new rule for taking deposit from government source. Due to these political hindrances IFIC Bank faced more toughed competition in the market for collecting its deposit like other same generation banks. How is a statistical data we see due to this hard competition banks deposit collection is substantial. We hope the bank will do better after crossing this bar period.

• Classification of Loan

Another major obstacle for banks is its classified loan. Through this picture is not new for this particular bank it is exists to all commercial banks throughout the world. But our country this bad culture created by the NCBs and its impacts comes to the PCBs also. But over viewing the bank’s performance we found that it is still in safe side in comparison with others but in future it should be careful to overcome this threat.

CONCLUSION

INTERNATIONAL FINANCE INVESTMENT AND COMMERCE BANK LIMITED (IFIC), which had been started its journey first at 1976 with the commitment of “Your Satisfaction First” still now is trying to fulfill its commitment.  By providing maximum  services to its customers it has been regarded a profitable business organization now. Now a day it has Sixty five branches in various places of the country.

All the branches of IFIC bank are providing the Small enterprise & Consumer Financing. Under Small Enterprise Financing the Bank is providing thirteen types of credit facilities like:  Easy commercial loan. Retailer’s loan. Transport loan. Commercial House Building loan. Possession Right loan. Contractor’s loan. Letter of Guarantee. Working Capital loan. Letter of credit. Loan against Imported merchandize (LIM). Loan against Trust Receipt. Bidder’s loan. Project loan. And under consumer financing it is providing seven types of credit facilities like: Easy Loan (Secured Personal Loan).Consumer Durable Loan. ‘Parua’ (Education Loan). Thikana (House Building Loan). Flexi Loan (Personal Loan). Peshajeebi Loan (loan for Professional). Auto Loan. Very recently the Bank has launched the CC loan for the employer that is special offer of the IFIC bank. By providing several types of credit facilities the Bank is playing vital role for the development of Bangladeshi Economy.  Other credit facilities of IFIC Bank are continuous Loan [Cash Credit Hypothecate (CC HYPO).Cash Credit Pledge (CC PLEDGE).Secured Overdraft (SOD).] Term loan [Industries, Staff loan:   (a) Staff house building loan. (b) Staff loan against provident fund. Others Loan. Loan against PSS. House, building loan, Consumer Credit Scheme.] Loan General. IFIC Bank expands its helpful hand for the customer by providing flexibility to pay their loan that is why all types of customers are very interested of IFIC Bank loan. As a result the Bank is earning more profit.

RECOMMENDATION

• IFIC Bank should reduce interest rate for given customer and small enterprise loan.

• IFIC Bank should reduce penal interest on overdue amount, which depends on the category of loan. Penal interest is burden for the customers.

• Loan processing fee of 1%, which is very high, should be reduced.
• Maximum loan limit size of the bank should increase.
• At the time of disbursement of loan Bank charges 0.50%-.25% as service charge that should be reduced.

• A vigorous and comprehensive orientation and training program should be launched to enhance the employee’s skill because sometime they fail to inform the customer about loan requirement without viewing company’s  book.

• “Down payment” that the customers have to pay to get a big amount of loan so Bank  should reduce the rate of payment.

• The Bank should launch new product/ new category of loan to satisfy the customer.

• The Bank takes more time to sanction loan that should be reduced.
• IFIC Bank Ltd. needs to advertise through various media about types of loan offers and other products.