Consumer Banking of Prime Bank Limited (Part 2)

g. L/C Opening:

If an importer wants to import some goods from outside the country, at first he has to apply to a bank for opening a L/C. Letter of Credit (L/C) is a written undertaking of a bank written to the seller and issued at the request of the buyer to pay at site or a determinable future date. According to Import Policy, unless or otherwise specified, all import is to be made by opening irrevocable letter of credit (amendment or cancellation with the agreement of the opening bank, advising bank, beneficiary, and importer). L/C can be opened against Proforma invoice if the exporter has no agent and L/C can be opened against Indent if the foreign supplier has indenting agent.

g.1. Documents Require for Opening a L/C:

For opening letter of credit an importer is required to have some documents, which are to be submitted to the L/C issuing or popularly known as opening bank.

      A valid Import Register Certificate (IRC)

      Membership Certificate from the registered local Chamber of Commerce and Industry or valid trade license

      TIN

      Letter of Credit Authorization form (LCA)

      Insurance cover note for L/C amount

      Indents for goods issued by indenter or Proforma Invoice issued by foreign supplier

      Charge Documents duly signed

      IMP form duly signed

      The opener has to have a current account with the bank

 g.2. Scrutinized of L/C Application:

The Prime bank Official scrutinizes the application in the following manner: –

      The terms and conditions of the L/C must be complied with UCPDC 500 and Exchange Control & Import Trade Regulation.

      Eligibility of the goods to be imported.

      The L/C must not be opened in favor of the importer.

      Radioactivity report in case of food item.

      Survey report or certificate in case of old machinery

      Carrying vessel is not of Israel or of Serbia- Montenegro

      Certificate declaring that the item is in operation not more than 5 years in case of car.

g.3. Procedure involved in L/C opening:

There are few steps involved in L/C opening process. These are: –

      At first the L/C opener is required to fill up the prescribed application form for requesting to open a L/C for him.

      After receiving the application form with other required documents submitted by the opener they are to be thoroughly scrutinized. The points, which shall be scrutinized, are describing bellow–

1. The amount and description of goods in the application should be relevant with the indent or Proforma invoice or import contract.
2. The amount is covered by the insurance amount.
3. The item is not a banned one.
4. The indent produced has the Import Registration Certificate number and the indenter’s registration number. The indent has indenting agent’s signature and importer’s signature.
5.  Whether transshipment and partial shipment is allowed.

     If all the documents along with the application are in order, the financial position and credit worthiness of the importer, market demand of the good is assessed. Margin for letter of credit will also be determined. The rate of margin depends on the financial condition of the banker, Importers previous performance, status of relationship with the importer, nature of goods etc. This margin is to be retained from the importer either in cash or debiting the importer’s current account with the bank. The importer is also required to pay the other concerning charges like foreign corresponding charge, telex charge (if any), handling charges, and commission etc.

After all these steps of letter of credit is opened and forwarded to the advising bank.

g.4. Accounting Procedure Involved in L/C opening:

There are two types of accounting procedure involved in L/C. One is L/C opening, and another is Liability Register, which includes Liability amount, Margin, Foreign correspondent etc. While opening L/C there are few accounting entries.

      For Margin importer account with bank is debited and Margin A/C is credited.

      For contingent liability (L/C amount) Customer’s liability on L/C cash is debited and Banker’s liability on cash is credited.

      For other charges customer’s current account is debited and commission A/C, income A/C, Foreign correspondent charge A/C and other related A/C is credited.

Advising a Letter of Credit:

The advising or notifying bank is the bank through which the L/C is advised to the exporter. It is a bank situated in the exporting country and it may be a branch of the opening bank. It becomes customary to advise a credit to the beneficiary through an advising bank.

i. Adding Confirmation:

The confirming bank does adding confirmation. Confirming bank is a bank, which adds its confirmation to the credit, and it is done at the request of the issuing bank. The confirming bank may or may not be the advising bank.

j. L/C Transmitting:

Letter of credit can be transmitted to the advising bank through three methods. They are in Telex, Courier, or SWIFT (Society for Worldwide Inter-bank Financial Telecommunication). L/C is send to advising bank in three copies. The advising bank authenticates the original copy of L/C and delivers it to the exporter. The duplicate copy is kept with the advising bank.

k. Negotiating:

The beneficiary (exporter) receives the letter of credit from advising bank. After proper shipment of goods as per terms and conditions of the L/C, required documents like Commercial Invoice, Bill of Lading, and bill of exchange are presented to the negotiating bank by the beneficiary for negotiation. If the documents are in order as per L/C then the negotiating bank negotiates the drafts making payment to the beneficiary. Then the negotiating bank forwards the drafts along with the shipping documents to the L/C opening bank. The negotiating bank reimburses the amount paid against the draft from reimbursement bank.

 l. Amendment:

Parties involved in a L/C, particularly the seller and the buyer cannot always satisfy the terms and conditions in full as expected due to some obvious and genuine reasons. In such a situation, the credit should be amended. Prime bank transmits the amendment by tested telex to the advising bank .In case of revocable credit it can be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary. But in case of irrevocable letter of credit, it can neither be amended nor cancelled without the consent of the issuing bank, the confirming bank (if any) and the beneficiary. If the L/C is amended, service charge and telex charge is debited from the party account accordingly.

m. Examination of Documents:

Prime bank officials check whether these documents have any discrepancy or not. Here, Discrepancy means the dissimilarity of any of the documents with the terms and conditions of L/C.

n. Adding Confirmation:

Add the confirming Bank gives confirmation. An Add confirmation letter contains the followings,

1)      L/C No.

2)      L/C amount

3)      Items to be imported, etc.

 o. Lodgment:

The opening bank receives import bills, which have been negotiated. After receiving the documents, they are to be thoroughly scrutinized before lodgment.

 p. Scrutiny of the Documents:

First of all it must be ensured that full set of documents as mentioned in the L/C has been received.

      Documents have been negotiated within the negotiation period.

      The Bill of Lading/Air-Way Bill/ Railway receipt is not dated later than the last date of shipment mentioned in the L/C.

      The L/C has not been amended or subjected to any special instructions, which might alter the value of L/C

      Import bills include following documents, which are to be scrutinized.

      Bill of Exchange

      Commercial Invoice

      Bill of Lading

      Certificate of Origin

      Others

q. Bill of Exchange:

      It has to be verified that the bill of exchange has been properly drawn and signed by the beneficiary according to the terms and conditions of L/C.

      The amount in the Bill is identical with that mentioned in the invoice.

      The amount drawn does not exceed the amount mentioned in the L/C.

      The amount in words and figures should be same.

      The bill of exchange should be properly endorsed.

 r. Commercial Invoice:

      It has to be verified that the commercial invoice has been properly drawn and signed by the beneficiary according to the terms and conditions of L/C.

      The beneficiary should properly invoice the merchandise.

      The merchandise is invoiced to the importer on whose account the L/C is opened.

      The description of merchandise and the unit price correspond with that given in the L/C.

      The import license or IRC number of the importer, indenter’s registration number and number of Letter of Credit Authorization number are incorporated in the Invoice.

 s. Bill of Lading:

First of all it has to be cleared that the Bill of Lading is showing “Shipped on Board” and it has to be properly endorsed to the bank.

      The B/L should include the description of the merchandise according to invoice.

      The port of shipment and destination, date of shipment and the name of the consignee are in agreement with those mentioned in the L/C.

      The shipping company or their authorized agents properly sign the B/L.

      The date on the B/L is not ‘stale’ which means it is not dated in unreasonably long time prior to negotiation.

 t. Certificate of Origin:

The Merchandise described in the Certificate is in accordance with the L/C.

 u. Others:

There are some other documents, which are also attached, with the shipping documents like packing list, pre-shipment inspection certificate etc. These documents are also verified carefully before lodgment.

 v. Steps Involved in Lodgment:

When the scrutiny of import bills is over the steps should be taken for lodgment.

      At first all the particulars of the documents are entered in the PAD (Payment against Document) register and PAD No. Seal is given on all the copies of the received documents.

      Convert the foreign currency into Bangladeshi currency.

      Reverse the contingent liability and entry in the liability register.

      Prepare lodgment voucher.

      Prepare other voucher.

      Send IBCA to the head office.

      Make intimation to the importer.

v.1. Accounting Effect:

For reversing contingent liability contra voucher is debited by Banker’s Liability A/C and credited with Customer’s Liability A/C.

For PAD, income on exchange there is few credit vouchers and one debit voucher. In the debit voucher the debit head is PAD and income and head office is credited. In the credit vouchers the opposite of these entry is made. Now if the respective officer thinks that the application is fit to open a L/C, the following accounting treatments are given: –

Accounting Treatment:

Client’s Account                                             Debit

Margin on L/C                                                            Credit

Commission on L/C                                                   Credit

VAT (15% of Commission) on L/C                            Credit

F.C.C (Foreign Currency Clearing) A/C                     Credit

Registration Fee A/C                                      Credit

Telex/ Postage charges A/C                            Credit

Miscellaneous Charges A/C                                        Credit

After that, L/C number and the above entries are given in the L/C Register. The contra entries stating the liability of the bank and the client are as follows,

Accounting Treatment:

Customer’s Liability                                       Debit

Banker’s Liability                                                       Credit

Then the transmission of L/C is done through tested telex or fax to advise the L/C to the beneficiary.

If the amount of L/C exceeds US$10,000, Prime bank takes the credit report of the beneficiary (CIB report) to ensure the worthiness of the supplying goods.

w. Retirement of Shipping Documents:

The importer receives the intimation and gives necessary instruction to the bank for retirement of the import bills or for the disposal of the shipping document to clear the imported goods from the customs authority. Following steps are to be taken for retirement of documents.

w.1. Steps Involved in Retirement:

The following steps are involved in Retirement: –

      Calculation of interest if any.

      Calculation of other charges.

      Passing vouchers.

      Entry in the register.

      Endorsement in the Bill of Lading or other transport document and in the bill of exchange.

 w.2 Accounting Effect:

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 Prime bank lodges the documents in PAD and the following vouchers are passed,

Accounting Treatment:

L/C Margin A/C                                              Debit

PAD A/C                                                                    Credit

(Margin amount transferred to PAD A/C)

Customer A/C                                     Debit

PAD A/C                                                                    Credit

(Customer’s account debited for the remaining amount)

PAD A/C                                                        Debit

Prime bank General A/C                                             Credit

Exchange gain A/C                                                     Credit

(Amount given to Prime bank General A/C and interest credited)

Reversal Entries:

Banker’s Liability                                           Debit

Customer’s Liability                                                   Credit

(When lodgment is given)

After realizing the Telex charge, service charge, interest (if any), the shipping documents is then stamped with PAD Number & entered in the PAD Register. Intimation is given to the customer calling on the bank’s counter requesting retirement of the shipping documents. After passing the necessary vouchers, endorsements is made on the back of the Bill Of Exchange as “Received Payment” and the Bill Of Lading is endorsed to the effect “Please deliver to the order of M/S———”, under two authorized signatures of the bank’s officers (P.A. Holder). Then the documents are delivered to the importer.

x. Payment Procedure of the Import Documents:

This is the most sensitive task of the Import Department. The Officials have to be very much careful while making payment. This task constitutes the following,

1. Date of payment: Usually payment is made within seven days after the documents have been received. If the payment is become deferred, the negotiating bank may claim interest for making delay.
2. Preparing sale memo: A sale memo is made at B.C rate to the customer. As the T.T & O.D rate is paid to the ID, the difference between these two rates is exchange trading. Finally, an Inter Branch Exchange Trading Credit Advice is sent to ID.
3. Requisition for the foreign currency: For arranging necessary fund for payment, a requisition is sent to the International Department.

x.1 Transmission of telex:

A telex is transmitted to the correspondent bank ensuring that payment is being made.

x.2 Back-to-Back L/C:

Back to Back letter of credit may be defined as a credit which is opened at the instruction and request of the beneficiary of the original Export L/C on the basis of strength of that L/C. Ready-made garment industries and specialized textile units are allowed the facility of importing fabrics and other materials needed for manufacture of garments/ specialized textiles against back to back L/C arrangement.

Back-to-Back L/C is of two types: –

1. Foreign back letter of credit
2. Inland back-to-back letter of credit

A back-to-back L/C is opened against an irrevocable L/C opened bank having reasonable period of validity to cover shipment of merchandise after completion of validity to cover shipment of merchandise after completion of the manufacturing process. The export L/C is lien marked with the back-to-back L/C issuing branch. Import L/C is opened on issuance basis covering since of not more than 180 days. The import L/C is opened for 75%-85% of the value of Export L/C. the payment is normally made form the proceeds of export bills negotiated after shipment.

x.3.Procedure for Opening Back-to-Back L/C:

The following papers/documents are required to submit by the exporter to the bank for opening foreign back-to-back L/C.

      L/C Authorization forms duly filled and signed.

      Indent/ pro forma invoice

      Imp-form.

Along with the above papers / documents, original export L/C is to be submitted by the exporter. On receipt of these documents the bank scrutinizes the terms and conditions of the export L/C. after getting approval from head office through Credit Section, The particulars of the L/C are entered in the L/C opening register.

3.10.5 Export Department

1. Understanding:

In the Export section, two types of L/C s are opened-

  Back to Back L/C

  Export L/C

2. Things done here:

The following things are done in this department:

      Scrutiny of Export Shipping Documents.

      Follow-up for realization of Export Proceeds.

      All Correspondence relating to Export Department.

      Compliance of Audit & Inspection.

      Advising of Export L/Cs to the beneficiary.

      Authentication of L/C and Amendments from other Correspondent Bank.

      Transfer of Export L/C to the 2nd Beneficiary & issuance of notice of transfer to L/C issuing Bank.

      Recording of Export L/C particulars in Export L/C Transfer Register.

      Realization of transfer changes.

      Issuance of precedes realization certificates.

      And other works as & when directed by the manager and Sub-Manager.

      Certificate of EXP Forms.

      Posting of Tickets.

      Lodgment of Export Bills (FBP, FDBC, IBP & IBC).

      Preparation of tickets elating to negotiation of documents.

      Negotiation of Inland Bills.

      Maintenance of all records related to FBP, FDBC and Inland Bills.

      Balancing of FBP, FDBC, and IPB & A/R Export A/Cs.

      Preparation of statement and all returns to Bangladesh Bank and Head Office (Weekly/ Monthly/ quarterly).

 3. Export Bill Scrutiny:

Scrutinizes the export bill on the following points,

A. General:

      Late shipment.

      Late presentation.

      L/C expired.

      L/C overdrawn.

      Partial shipment or transshipment beyond L/C terms.

B. Bill Of Exchange:

      Amount of bill differs with Invoice.

      Not drawn on L/C issuing bank not signed.

      Tenor of B/E not identical with L/C

Full set not submitted Invoice:

      Not issued by the beneficiary

      Not signed by the beneficiary

      Not made out in the name of the Applicant

      Description, Price, quantity, sales terms of the goods not corresponds to the credit.

      Not marked one fold as original Shipping marks differs with B/L & packing list.

  C. Packing List:

      Gross weight, net weight, & measurement, number of cartoons/ packages differs with B/L.

      Not marked one fold as original.

      Not signed by the beneficiary.

      Shipping marks differs with B/L.

D. Bill of Lading/Air Way Bill:

      Full set of bill not submitted.

      B/L is not drawn or endorsed to the Order Of Prime bank.

      “Shipping On Board”, “Freight Prepaid” or “Freight Collect” etc. notations are not marked on the B/L.

      B/L not indicate the name and capacity of the party i.e. carrier or master, on whose behalf the agent is signing the B/L.

      Shipped on Board Notation not showing name of pre-carriage vessel/ intended vessel.

      Shipped on Board Notation not showing port of loading and vessel name (In case B/L indicates a place of receipt or taking in charge different from the port of lading).

      Short Form B/L.

      Charter party B/L.

      Description of goods in B/L not agrees with that of Invoice, B/E & P/L.

      Alterations in B/L not authenticated.

      Loaded on deck.

      B/L bearing clauses or notations expressly declaring defective condition of the goods and / or the packages.

E. Others:

      Non-Negotiable documents not forwarded to buyers or forwarded beyond L/C terms.

      Inadequate number of Invoice, Packing List, & others submitted.

      Short shipment certificate not submitted.

4. Export Finance:

4.1. Pre-shipment credit:

Pre-shipment credit usually takes the following forms:

      Overdraft against hypothecation of exportable commodities.

      Overdraft against Trust Receipt (T.R.)

      Packing Credit (P.C.)

 Post shipment Credit:

Post shipment credit refers to credit facilities extended to export after actual shipment of goods against shipping documents. It is usually provided in the following ways.

      Bill negotiation / purchase.

      Bill for collection.

Bill Negotiation / Purchase:

The most usual method of financing exporters at the post-shipment stage is negotiation of documents under L/C. Here the bank acts as negotiating bank. After the shipment of the goods, the exporter submits the relative documents to the branch for negotiation. The documents generally include a) Bill of Exchange b) Bill of Lading, c) Insurance policy d) Invoice e) Certificate of origin etc. The documents are to submit within the period mentioned in the L/C. The documents are sent to the L/C opening branch with a forwarding letter. Then the branch claim reimbursement from the issuing bank or from the reimbursing bank.

On negotiation/ Purchase of the export bills, the exporter is paid the value of the bill (converted into Bangladeshi Tk at the ruling bill buying rates).

 Documents on Collection Basis:

The documents, which are not negotiable by the branch due to some discrepancies, are sent to

L/C opening bank on collection basis. The bank mentions the discrepancies on their forwarding schedule. On receiving the documents, the L/C opening bank will further scrutinize the document with the L/C and inform the importer regarding discrepancies found in the documents. If these are acceptable to the importer and or permissible with the exiting Exchange control regulation, the documents will be lodged and L/C opening bank will send the payment instruction to the collection bank.

5. 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 basis of an original L/C (an Export L/C). Under the ‘Back to Back’ concept, the seller as the Beneficiary of the first L/C offers it as a ‘security’ to the advising Bank for the issuance of the second L/C. The Beneficiary of the Back-to-Back L/C may be located inside or outside the original Beneficiary’s country. In case of a Back-to-Back L/C, no cash security (no margin) is taken by the Bank; Bank liens the first L/C. In case of a Back-to-Back L/C, the drawn bill is an Issuance/ Time bill.

In Prime bank, papers/documents required for submission for opening of back-to-back L/C:

a)      Master L/C

b)      Valid Import Registration Certificate (IRC) & Export Registration Certificate (ERC)

c)      L/C application & LCA form duly filled in signed.

d)     Pro forma Invoice or Indent.

e)      Insurance Cover Note with money Receipt

f)       IMP- form duly signed

In addition to the above the following papers/documents are also required for export oriented garment industries while requesting for opening of back-to-back letter of credit,

1)      Textile permission

2)      Valid Bonded Warehouse License

3)      Quota allocation letter issued by Export Promotion Bureau (EPB) in favor of the applicant in case of quota items.

In case the Factory premises is a rented one, Letter of Disclaimer duly executed by the owner of the house/premises to be submitted.

6. Payment of Back-to-Back L/C:

In case back to back as 60-90-120-180 days of maturity period, deferred payment is made. Payment is given after realizing export proceeds from the L/C issuing bank.

7. Account Treatment for Back-to-Back L/C:

When the document is arrived, the following vouchers are passed

Customer’s A/C                                              Debit

Commission on acceptance                                         Credit

In case of payment, if the fund is at hand, the accounting entries are-

Sundry Deposit Margin on Acceptance          Debit

Customer’s A/C                                                          Credit

If the party is paid in foreign currency, B/C. rate is applied in this regard. International Department takes the T.T. O/D. rate. If the payment is made to ID in local currency in notional rate, ID follows T.T. Clean Rate. When the party is to be paid, OD Sight rate is followed.

If the fund is not available to make the payment, the following vouchers are to be passed,

OAP                                                                Debit

Customer’s A/C                                                          Credit

8. Reporting to Bangladesh Bank:

At the end of every month, the reporting regarding the following information is mandatory,

1. Filling of E-2/P-2 schedule of S-1 category; which covers the entire month amount of import, category of goods, currency, country etc.
2. Filling of E-3/P-3 schedule for all charges, commission with T/M form.
3. Disposal of IMP form, which includes,

Ä  Original IMP is forwarded to Bangladesh Bank with invoice and Indent.

Ä  Duplicate IMP is kept with the Bank along with the bill of entry/ Certified Invoice.

Ä  Triplicate IMP is kept with the Bank for office record.

Ä  Quadruplicate is kept for submission to Bangladesh Bank in case of imports where documents are retired.

9. Export L/C:

The other type of L/C facility offered by Prime bank is Export L/C. Bangladesh exports a large quantity of goods and services to foreign households. Readymade textile garments (both knitted and woven), Jute, Jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters exports to foreign countries. Garments sector is the largest sector that exports the lion share of the country’s export. Bangladesh exports most of its readymade garment products to U.S.A and European Community (EC) countries. Bangladesh exports about 40% of its readymade garment products to U.S.A. Most of the exporters who export through Prime bank are readymade garment exporters. They open export L/Cs here to export their goods, which they open against the import L/Cs opened by their foreign importers.

10. Formalities for Export L/C:

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

1. ERC: The exports from Bangladesh are subject to export trade control exercised by the Ministry Of Commerce through Chief Controller of Imports and Exports (CCIE). No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI & E and holds valid Export Registration Certificate (ERC). The ERC is to be renewed every year. The ERC number is to be incorporated on EXP forms and other documents connected with exports.

Obtaining EXP:   After having the registration, the exporter applies to Prime bank with the trade license, ERC, and the Certificate from the concerned Government Organization to get EXP. If the bank is satisfied, an EXP is issued to the exporter.

2. Securing the Order: Upon registration, the exporter may proceed to secure the export order. Contracting the buyers directly through correspondence can do this.

3. Signing of the Contract: While making a contract, the following points are to be mentioned,

      Description of the goods

      Quantity of the commodity

      Price of the commodity

      Shipment

      Insurance and marks

      Inspection

      Arbitration

The following points are to be looked for,

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

ii)      The L/C is an irrevocable one, preferably confirmed by the advising bank.

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

iv)    If the exporter wants the L/C to be transferable, divisible and advisable, he should ensure those stipulations are specially mentioned in the L/C.

4. Procuring the Materials: After making the deal and on having the L/C opened in his favor, the next step for the exporter is to set about the task of procuring or manufacturing the contracted merchandise.

5. Registration of Sale: This is needed when the items proposed to be export, are raw jute and jute goods.

6. Shipment of Goods: The following are the documents normally involved at the stage of shipment-

      EXP Form

      Photocopy of registration certificate

      Photocopy of the contract

      Photocopy of the L/C

      Customs copy of ERF Form for shipment of jute goods and EPC Form for              raw jute.

      Freight certificate from the bank in case of payment of the freight at the port of lading is involved.

      Railway receipt, Berg Receipt or Truck Receipt.

      Shipping instructions.

      Insurance policy.

After those, exporter submits all these documents along with a Letter of Indemnity to Prime bank for negotiation. An officer scrutinizes all the documents. If the document is a clean one, Prime bank purchases the documents on the basis of banker- customer relationship. This is known as Foreign Documentary Bill Purchase (FDBP).

11. Procedure for FDBP:

After purchasing the documents, Prime bank gives the following entries: –

FDBP A/C                                             Debit

Customer A/C                                                    Credit

(Before realization of proceeds)

Head Office A/C                                   Debit

FDBP A/C                                                         Credit

(Adjustment after realization of proceeds)

A FDBP Register is maintained for recording all the particulars. The salient contents of a FDBP register are Date, Ref. No. (FDBP), Name of the Party (Drawer), Drawee, Name of collecting Bank, EXP Form no., Export L/C no., and etc.

12. Foreign Documentary Bills for collection:

Prime bank forwards the documents for collection due to the following reasons,

i)           If the documents have discrepancies.

ii)         If the exporter is a new client.

iii)       The banker is in doubt.

Foreign documentary bills for collection signify that the exporter will receive payment only when the issuing bank gives payment. The exporter submits duplicate EXP Form and Commercial Invoice. Subsequently, the value of the bill is calculated and the following accounting entries are given,

Head Office A/C                                Debit               @ T.T. Clean

Client’s A/C                                                    Credit  @ O/D sight

Government Tax A/C                         Credit  @ 0.25% of Invoice value

Postage A/C                                                    Credit

Income A/C profit on Exchange                     Credit

After passing the above vouchers, an Inter Branch Exchange Trading Debit Advice is sent for debiting the NOSTRO account. Prime bank has  NOSTRO accounts with its reimbursing bank. An FDBC Register is maintained, where first entry is given when the documents are forwarded to the issuing bank for collection and the second one is done after realization of the proceeds.

 13. Export Bill Scrutiny Sheet:

By the Export Bill Scrutiny Sheet the banker scrutinizes the details of a L/C before make the payment. Here the details refer as Exporter’s name, Presentation date of documents, L/C no., Expiry date, L/C amount available. Moreover the banker also look after the date within which the documents to be presented, Bill of lading, Shipment date in the L/C, Invoice number and date, Export L/C no, date, issued by, Liability position, Discrepancies, and Calculation of Bill amount (Exporter’s Retention Quota, Commission, and Margin).

14. Settlement of local Bill:

The settlement of local bills is done in the following ways,

1. The customer submits the L/C to Prime bank along with the documents to negotiate.
2. Prime bank official scrutinizes the documents to ensure the conformity with the terms and conditions.
3. The documents are then forwarded to the L/C opening bank.
4. The L/C issuing bank gives the acceptance and forwards an acceptance letter.
5. Payment is given to the customer on either by collection basis or by purchasing the document.

15. Accounting Treatment for purchase of local Bill:

Local Bill Purchase Documentary                              Debit

Party A/C                                                                                Credit

Commission                                                                            Credit

Interest A/C                                                                            Credit

A LBPD Register is maintained to record the acceptance of the issuing bank. Until the acceptance is obtained, the record is kept in a collection register.

16. Mode of Payment of Export Bills under L/C:

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

1. Sight Payment Credit: In a Sight Payment Credit, the bank pays the stipulated sum immediately against the exporter’s presentation of the documents.

1. Negotiation Credit: In Negotiation credit, the exporter has to present a bill of exchange payable to him in addition to other documents that the bank negotiates.

1. Deferred Payment Credit: In deferred payment, the bank agrees to pay on a specified future date or event, after presentation of the export documents. No Bill of Exchange is involved. In Prime bank, payment is given to the party at the rate of D.A 60-90-120-180 as the case may be. But the Head office is paid at T.T. clean rate. The difference between the two rates is the exchange trading for the branch.

1. Acceptance Credit: In acceptance credit, the exporter presents a bill of exchange payable to him and drawn at the agreed tenor (that is, on a specified future date or event) on the bank that is to accept it. The bank signs its acceptance on the bill and returns 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.

17. Advising L/C:

When export L/C is transmitted to the bank for advising, the bank sends an Advising Letter to the beneficiary depicting that L/C has been issued.

18. Test Key Arrangement:

Test key arrangement is a secret code maintained by the banks for the authentication for their telex messages. It is a systematic procedure by which a test number is given and the person to whom this number is given can easily authenticate the same test number by maintaining that same procedure. Prime bank has test key arrangements with so many banks for the authentication of L/C messages and for the transfer of funds.

19. Inland Letter of Credit (ILC):

ILC means L/C within the same country. This type of L/Cs are opened when the seller does not believe the buyer though they are of the same country and also in the cases where the sales contract is of a big amount.

CHAPTER 04

ANALYSIS OF THE MAIN TOPIC

HISTORY OF CCS OF PRIME BANK LIMITED

Consumer credit is the credit which is provided to people having fixed but regular income for acquiring consumer durables and other assets for personal use to service from their monthly income. Consumer Credit is a collateral free credit and backed by the monthly income of the loanees and guarantors acceptable to the bank.­

Consumers Credit Scheme(CCS) is very helpful to limited income group. Prime Bank Limited want sustainable growth and continue to meet social obligations. For this they introduce Consumers Credit Scheme(CCS).Prime Bank Limited started Consumers Credit Scheme(CCS) since its inception in the year 1995.

The above graph shows last five years allocation in Consumer Credit Scheme of Prime Bank Limited. It evident that day by day the number of consumers loan in Prime Bank limited is increasing. It is a clear indication of popularity and potentiality of this scheme. It becomes very popular to people especially to limited income group. It has been possible to reach this height of the market image and reputation of the bank because of this CCS. This covers wide range of people belonging to fixed income group.

 BJECTIVES OF THE SCHEME

      To broaden the base of credit portfolios.

      To ensure access to credit by mass people as far as possible.

      To introduce and carry on collateral free credit operation.

      To diversify the credit portfolio so as to minimize the extent of delinquency.

      To improve the standard of living of the fixed income bracket people.

      To take part in the socio-economic development of the country.

      To enhance the purchasing power of the people by providing credit.

      To arrest delinquency rate which is one of the major problems in the banking sector of the country?

      To establish a participatory economic system in the country

      To enhance the base of beneficiaries of banking services.

SALIENT FEATURES OF CCS

      This is the loan which is provided to people to acquisition of goods for personal use

      This is collateral free loan

      This is loan which is based on personal guarantee against collateral security in case of general loan.

      This loan is provided to fixed income group of people.

      Security against this loan is personal guarantee and post dated cheques.

      This is a term loan repayable in installments convenient to customers.

TARGET CUSTOMERS:

The following are customers who are targeted to be marketed for CCS

      The officers of different public bodies.

      The executives and officers of nationalized commercial banks.

      The officers and executives of private commercial banks.

      The officers and executives of non-banking financial institutions and insurance companies.

      The officers and executives of multinational companies.

      The officers and executives of public limited companies, conglomerates of good repute acceptable to bankers.

      The self-employed persons acceptable to bankers.

      The professionals namely doctors, engineers, accountants, lawyers etc. However, Accountants and lawyers should be discouraged as far as possible.

ELIGIBILITY OF CONSUMER  

The above people who have fixed and regular monthly income with sufficient take home salary to repay the loan.

Following employees can get loan under CCS if he/she is within the age limit :

      Self employed persons who have regular and monthly fixed income with repayment capacity.

      Non-officers are also considerable on case to case basis to get CCS loan.

Consumer or personal credit is comprised of advances made to individuals to enable them to meet expenses or to purchase, on a deferred- payment basis, goods or services for personal consumption.

Such credit may be used not only to obtain consumer goods or services but to refinance debts which originated when such purchases were made. Consumer credit includes all credit granted for these purposes, whether it is extended by various financial, institutions, retail merchants, manufacturers, or by other service organizations.

This definition does not include mortgage credit on real estate or other types of investment credit which may be retired by regular investment payments.

AGE LIMIT FOR BEING A CONSUMER OF CCS

• Minimum Age  : 25 years
• Maximum Age : 60 years

DISCOURAGED LIST OF LOANS:

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

      The employees whose jobs are frequently transferable.

      The employees of enterprises which are not of good repute.

      Employees having take home pay less than Tk.10, 000 per month.

      Lawyers should be avoided.

SCOPE OF CONSUMER CREDIT OPERATION:

Consumer credit scheme is limited to the Section of people which has a fixed but regular monthly income to service the loan there from in easier installments. As a matter of fact, the people who are in the employment in public and private organizations having salary and allowances sufficient to service the loans in monthly installments are provided consumer credit. However, self-employed people are also provided this credit facility as per judgment of the bankers.

ELIGIBLE ITEMS

Prime Bank Limited gives loan under Consumer Credit Scheme (CCS) to buy following items:

    Car Loan

    Doctors Loan

    Household Durable Loans

    Marriage Loan

    Any Purpose Loan

    Education Loan

    Hospitalization Loan

    Advance Against Salary

    Travel Loan

    CNG Conversion Loan

CREDIT LIMIT

Loan amount is different for different people. Loan is given for 80% of the given quotation. Amount of credit shall be allowed keeping in view the repayment capability of the customer. The amount of credit shall be determined in such a manner that monthly installment does not exceed 50% of the disposable income (take home salary/ income) of the customer. The monthly installment size will not exceed one third of the take home salary for non- officers only so as to enable the customer to repay the loan easily. Installment size also depends on the loan amount of concerned consumer.

Loan limit, down payment and period of loan of different items are presented in the following table:

Table 17: Loan limit, down payment and period of loan of different purpose

 FURTHER LOAN

After repayment of 75% of the credit allowed to a customer, he/she will be eligible for fresh credit under the scheme but the total amount of credit shall not exceed the ceiling under any circumstances.

RATE OF INTEREST & CHARGES:

Simple interest rate is 16% and service charge is 1%. Apart from these, there is risk fund on total amount of loan at the time of disbursement of loan. Though simple interest rate is 16% effective interest rate is lower than this. As installment is paid interest rate reduces because interest is charged on the residual amount. So, higher interest rate is charged at initial stage and lower interest rate at later stage.

In following table rates of interest, service charge, risk fund and cost of stamp are present

Table 18: Interest rate

Service charge, risk fund and stamp charges have to be paid at the time of disbursement of loan. Monthly installment has to be paid within 7^th day of each month. All branches transfer their entire outstanding balance in risk fund on regular basis to Financial Administration Division, Head Office at the end of every month through IBCA along with a statement as per existing practice.

If there is any license fee, registration fee, insurance charge etc. then customer will bear those. Customer will bear the expenses for necessary repair and maintenance of the articles during the period of loan. 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.

 MODE OF REPAYMENT

Repayment will start from the following month of the disbursement of loan. Repayment of loans including accrued interest will be made by equal monthly installments. Before disbursement of loan, the customer will deposit crossed cheque covering the total number of monthly installments in favor of the bank which will have to be presented for collection on the due dates. Installments will be paid within 7^th day of each month. Default in payment of 3(Three) consecutive installments shall render the client liable to handover the articles to the bank. Pre-payment is allowed. The client may repay the entire outstanding amount in lump sum before expiry of validity period of the loan.

REBATE

If customer repays the loan installments regularly as per schedule of payments of loan then he is allowed to get 5% rebate on the interest charged. Branch may refund the calculated rebate amount at the time of adjustment of the loan.

 RULES FOR APPLICATION

Interested clients will have to apply for the credit in bank’s printed application form, which will be available in respective branch or any other authorized agent on payment of fifty taka only. Clients will submit the application form duly filled-in with one photograph and signed along with quotation(s) for purchase of desired articles.

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

PROCESSING OF APPLICATION

First Phase:

Branch examines the credibility of the customer. On proper scrutiny of the application, branch will take the initial decision. Customers have to give a quotation of the product from the supplier. This initial decision is to be informed to the applicant within 3(Three) working days from the date of receiving application by branch CCS cell.

After this second phase comes.

Second Phase:

In second phase branch will provide additional papers to the applicants whose applications are accepted for processing as following:

Particulars of Guarantor form ;

    Letter of Guarantee ;

    Personal Net-Worth Statement for Businessman/Professionals.

Applicants will submit the above forms duly filled-in with the following additional papers

1.                     i.     Salary Certificate for service holder ;
2.                   ii.     Trade license and TIN Certificate(if any) for Businessman ;
3.                 iii.     TIN Certificate of applicants for vehicle loan ;
4.                 iv.     Attested photocopies of current Tax Receipt, Electric bill etc. & lease agreement (if any) when the source of income o house rent as a landlord.

For proper scrutiny, branch will inspect the given information. This is needed to find out eligibility, feasibility and security. After completion of all necessary formalities, branch shall disburse the loan or decline the proposal within 7(Seven) working days from receiving the additional papers.

Customers have to give a quotation of the product to the branch. 20% have to be borne by the customer and 80% is given as loan under CCS. Price of the items (Down payment + Loan amount) should be given to the respective supplier through payment order after completion of necessary documentation.

SECURITY MEASURES

Before disbursement of loan, the customer will deposit crossed cheque covering the total number of monthly installments in favor of the bank which will have to be presented for collection on the due dates. For security purpose customers have to give some personal guarantee/Bank guarantee/ Insurance guarantee.

The customer will provide following personal guarantee/Bank guarantee/ Insurance guarantee according to the Bank’s prescribe forms/financial instruments:

 Table 19: personal guarantee/Bank guarantee/ Insurance guarantee according to the Bank’s prescribe forms/financial instruments

After that the bank/insurance guarantee should be authenticated to the satisfaction of the Branch Manager and financial instruments (FDR, PSP etc.) shall be duly discharged by the holder in favor of the bank. The articles procured under the scheme shall remain hypothecated to the bank as security.

To avoid embarrassment where the guarantor is the Head of the institution/office, his particulars shall be verified solely by an officer of the bank. The fact & circumstances should be recorded in the file.

Guarantor’s photograph will be obtained from each guarantor. If the guarantor is a senior government official/company executive, the condition for collection of photographs from such official/executive be relaxed and reasons therefore should be noted in file.

DOCUMENTS TO BE OBTAINED

At the time of disbursement of loan, customer will have to execute some documents.

The documents are:

      Demand Promissory Note ;

      Letter of Authority ;

      Letter of Guarantee ;

      Loan Agreement under Consumer Credit Scheme ;

      Letter of Hypothecation ;

      Letter of Disbursement ;

       Agreement/Arrangement ;

      Undertaking ;

      Declaration;

      Insurance Policy (Applicable for Car)

CENTRAL CCS UNIT

Consumers Credit Scheme (CCS) becomes very popular to people especially to limited income group. It is comparatively more remunerative to the bank. There is ample scope to expand the credit under the scheme. CCS becomes very much beneficial to certain people, for which it is not possible to buy goods at a time. If they can get loan they can buy the product on installment basis and can increase their standard of living. For this reason the number of consumers increases day by day. In order to boost up the Credit portfolio under “Consumers Credit Scheme(CCS)” , it has been necessitated  to re-organize the “CCS” activities and reconstitute a “ Central CCS Unit ” at Head Office with a view to ensure the following :

      Prompt decision/approval of loan under CCS ;

      To reduce the burden of the branches for marketing and    sanctioning CCS loan ;

      To make special efforts for recovery of stuck up loans and

      To strengthen the monitoring drive as well as supervision for recovery of Bank’s dues and thereby strengthen the Credit Portfolio.

FORMATION OF CENTRAL CCS UNIT

A central CCS unit will be established at Head Office. The unit will have a separate office. A Vice President or Senior Assistant Vice President will be the head of this unit. A team consisting with senior officers, principal officers will support to the unit head.

RESPONSIBILITIES OF THE CENTRAL CCS UNIT

      It will act as a separate profit earning unit of Head Office ;

      It will be an operating organ of Credit Division, Head Office ;

      The Head of CCS unit shall be under administrative control of the Senior Executive Vice President, Credit Division.

      Initially the Central CCS Unit will operate CCS loans of the following 14(Fourteen) Branches :

1.                                                i.   Motijheel Branch ;
2.                                              ii.   IBB Branch ;
3.                                            iii.   Mohakhali Branch ;
4.                                            iv.   Gulshan Branch ;
5.                                              v.   Elephant Road Branch ;
6.                                            vi.   Mouchak Branch ;
7.                                          vii.   Kawran Bazar Branch ;
8.                                        viii.   New Eskaton Banch ;
9.                                            ix.   Dhanmondi Branch ;
10.                                              x.   Uttara Branch ;
11.                                            xi.   Moulavi Bazar Branch ;
12.                                          xii.   Bangshal Branch ;
13.                                        xiii.   Foreign Exchange Branch;
14.                                        xiv.   Banani Branch;

All other Branches of the Bank shall report to the central CCS unit for their business result and submit CCS related returns regularly for MIS.

 JOB DESCRIPTION OF THE PROPOSED UNIT

Central CCS unit will perform many duties. To identify the potential customers, and, to focus the features of the scheme to create demand for purchasing household durable availing loan under the scheme. After receiving loan applications the central CCS unit shall make preliminarily scrutiny.

The following responsibilities will be vested with the unit :

      Marketing

      Loan Sanctioning

      Recovery of CCS loans of Dhaka City branches

      Follow up, monitoring and supervision

There will be 3(Three) teams consisting of 2(Two) officers in each team who will perform the above mentioned activities on rotational basis. They will keep record of their daily activities/performance in a separate register.

JOB DESCRIPTION OF THE CENTRAL CCS UNIT

According to responsibilities the job description of the Central CCS Unit, Head Office shall be as under:

• Marketing :

Officers have to identify the potential customer for consumer credit. For this and to focus the features of the scheme, to create demand for purchasing household durable availing loan under the scheme. The respective officers of the unit will go to different Offices, Schools, Colleges, Universities(Government & Private), Insurance Companies, Private companies, Private Clinics professionals, well established businessman and pursue the officials/employees of the above institutions/offices/companies, businessman and professionals for availing CCS loan from Prime Bank Limited. They will also work for a possible arrangement with the institutions/ offices/companies to accommodate CCS loans to their employees under the Corporate Guarantee of the concerned institutions/offices/companies. The marketing officers will pursue their solicited customers to submit their loan applications either direct to the central CCS unit or to any other nearest branch of Prime Bank Limited. The branches shall forward the applications so received to the central CCS unit immediately. In the loan application the borrower shall mention the name of the branch of the Prime Bank Limited through whom they want to took the loan. Loan will be given from that branch and officers of that branch will process the loan.

• Loan Sanctioning:

After receiving loan applications the central CCS unit shall make preliminarily scrutiny. If found feasible and bankable, the customer shall be advised for submission of further necessary papers/ information, if any.

If found not feasible, they shall decline the proposal at that stage and politely advise the applicant accordingly .The customer should be advised at one time for required papers/information instead of piecemeal advice creating dissatisfaction of the customer. They shall arrange for necessary inception, spot verification of the applicants/Guarantors addresses/offices immediately.A Committee shall be formed in the CCS unit consisting of Head of the Unit(Chairman) and other six officers(Members). The respective loans will be disbursed through the branch mentioned by the customer. The central CCS unit complete documentation and obtain post dated cheques before issuing sanction advice to the branches. They shall maintain a sanctioning and declining register in the computer. They shall keep the document and post dated cheques in the safe under joint custody making entry in the safe-in and safe-out register.

The delegation of business power for sanction/approval of CCS loan by the Credit Committee and the CCS Committee is fixed. The limit is different for different things.

To decide whether approved or declined a meeting is held. There will be a regular meeting in every working day presided by the head of CCS unit. After detailed discussion based on the papers and inspection report the committee will sanction or decline CCS loan as per delegated authority and refer to Head Office Credit Committee for approval /decision beyond the delegated authority of the CCS Committee. The head of CCS unit will attend the Credit Committee Meetings along with the proposals and specific recommendations for approval of loan cases beyond the delegated authority of the unit. The Credit Committee will approve or decline the proposals based on the merit. After deciding whether accepted or declined it is informed to the applicant with in very short time. If approved then documentation is prepared.

FOLLOW UP, MONITORING AND SUPERVISION

The credit under the scheme is fully supervised and the success of the scheme will depend on proper and persistent supervision, follow up, persuasion and monitoring of the credits by the branches. CCS unit shall monitor and supervise the CCS loan portfolio of all the branches.

Branches shall maintain proper records of the applicants received, loans sanctioned, disbursed and recovery made thereon. Branches shall send the statements of CCS loan and the overdue list to the CCS Unit within the first week of every month. The CCS unit shall properly utilize the MIS(Management Information System) available in the existing computer program for Consumer Credit Scheme of the bank to closely monitor and supervise the scheme.

 STEPS TAKEN IN CASE OF DEFAULT INSTALLMENT

Before disbursement of loan, the customer will deposit crossed cheque covering the total number of monthly installments in favor of the bank which will have to be presented for collection on the due dates. Installments will be paid within 7^th day of each month. If one installment is not paid then it has become overdue. Actions are taken on the basis of default installment.

Steps taken are described below:

      If one month installment is due then concerned officer will call a phone to the client ;

      In case of installment due for two months letter is given to the client and phone is also called ;

      In case of three months phone and letter to client as well as visit is done ;

      If installment is not given within four months then letter is given to the guarantor ;

      If installment is not given within five months then legal notice is send to the client

      In spite of all these steps if installment is not given then case is sued against the client.

In case of installment due for six months the loan is treated as classified loan.

Prime Bank Limited is one of the leading banks who are offering Consumers Credit Scheme (CCS) for the people. It started Consumers Credit Scheme (CCS) since its inception in the year 1995. Under Consumers Credit Scheme (CCS) people can take loan from banks and can buy their necessary goods. For limited income group Consumers Credit Scheme (CCS) is very helpful. Under this scheme people can take loan to buy household goods. By installment basis they can repay the loan. As total loan amount is repaid on installment basis it puts less pressure on consumer.

CONSUMERS CREDIT SCHEMES (CCS) OF PBL

Prime Bank Ltd is the pioneer of CCS in Bangladesh. Considering the demand, popularity of the customer Finance products and to diversify the risk portfolio of the management of PBL reviewed and amended some of the then existing terms and conditions of Consumer Loan Products at 8^th February 2005. The re-engineering consumer financing guidelines with its features, terms and conditions are discussed below:

• Personal Loan (Secured)
• Personal Loan (Unsecured)

1. Eligibility: Any person having a Current Deposit (CD), Short Term Deposit (STD), or Savings (SB) account.
2. Margin: Best effort basis. Accrued interest to be serviced quarterly.
3. Limit: As per delegation of power circulated by the Bank from time to time.
4. Security: Lien on FDR and any other saving instruments duly discharged with letter of authority to encase of default.
5. Rate of Interest: In case of FDR 2-3% above FDR interest rate. In case of other deposit 15% p.a. with quarterly interest rate.
6. Period: Maximum 12 (Twelve) months.

The Consumer Credit Schemes that PBL provides are of following categories:

1. Household durable loan.
2. Car loan.
3. Doctors loan.
4. Advance against salary.
5. Any purpose loan.
6. Travel loan.
7. Education loan.
8. Marriage loan.
9. CNG loan.
10. Hospitalization loan.

HOUSEHOLD DURABLE LOAN:

Interest Rate: 16%

Service charge: 1%

Risk Fund: 1%

Down Payment: 25%

Income: Minimum 10,000 for salaried individuals and 40,000 for businessman.

Stamp: TK. 600.

Features: Under this head, loans are sanctioned against guarantee of third parties acceptable to the bank or pledge of FDR, Savings instrument of banks and assignment of salary where applicable.

Disburse Mode: One time disbursement, but through issuing Pay order toward the seller of the household products to the customer who is getting loan from the bank.

Repayment Method: The repayment method is installment basis. The customer has to pay equal monthly installment within the loan period.

CAR LOAN:

Interest Rate: 16%

Service charge: 1%

Risk Fund: Nill

Down Payment: 25%

Income: Minimum 10,000 for salaried individuals and 40,000 for businessman.

Stamp: TK. 600.

Features: Under this head, loans are sanctioned against Registration of the vehicle in the name of the Bank. Instead of down payment, the customer have option to avail loan against their FDR or any other savings instrument up to 90% of the loan amount.

Disburse Mode: One time disbursement, but through issuing Pay order toward the seller of the automobile retailer

Repayment Method: The repayment method is installment basis. The customer has to pay equal monthly installment within the loan period.

 DOCTORS LOAN:

Interest Rate: 16%

Service charge: 1%

Risk Fund: 1%

Down Payment: 25%

Income: Minimum 10,000 for salaried individuals and 25,000 for self employed.

Stamp: TK. 600.

Features: Under this head, loans are sanctioned against Registration of the vehicle in the name of the Bank. Instead of down payment, the customer have option to avail loan against their FDR or any other savings instrument up to 90% of the loan amount.

Disburse Mode: One time disbursement, but through issuing Pay order toward the seller of the Medical equipment..

Repayment Method: The repayment method is installment basis. The customer has to pay equal monthly installment within the loan period.

ADVANCE AGAINST SALARY:

Interest Rate: 16%

Service charge: 1%

Risk Fund: 1%

Down Payment: Nill.

Income: Minimum 10,000 for salaried individuals and 25,000 for businessman.

Stamp: TK. 600.

Features: Under this head, if loans to be sanctioned, a letter of introduction including name, father’s name, designation, date of birth, date of joining, place of posting, date of last promotion, date of retirement, basic salary, total emolument, total in PF, take home salary etc. will be required.

Disburse Mode: One time disbursement.

Repayment Method: The repayment method is installment basis. The customer has to pay equal monthly installment within the loan period.

 ANY PURPOSE LOAN:

Interest Rate: 16%

Service charge: 1%

Risk Fund: 1%

Down Payment: Nill.

Income: Minimum 10,000 for salaried individuals and 25,000 for businessman.

Stamp: TK. 600.

Features: This scheme is to meet the emergency need for fund by fixed income group of salaried person in Bangladesh. Under this head, if loans to be sanctioned, a letter of introduction including name, father’s name, designation, date of birth, date of joining, place of posting, date of last promotion, date of retirement, basic salary, total emolument, total in PF, take home salary etc. will be required.

Disburse Mode: One time disbursement of money.

Repayment Method: The repayment method is installment basis. The customer has to pay equal monthly installment within the loan period.

 EDUCATION LOAN:

Interest Rate: 16%

Service charge: 1%

Risk Fund: 1%

Down Payment: 10%.

Income: Minimum 12,000 for salaried individuals and 25,000 for businessman.

Stamp: TK. 600.

Now –a-days, to build a career for us, we need the best education or to get higher degree either at home or abroad. and this requires a substantial amount of finance. To relieve the customers this burden, PBL offers “Education Loan” that uninterrupted study flow of cash.

Disburse Mode: The sanctioned loan amount is deposited to the client’s account with the bank from where the client can withdraw money according to his requirement.

Repayment Method: The repayment method is installment basis. The customer has to pay equal monthly installment within the loan period.

TRAVEL LOAN:

Interest Rate: 16%

Service charge: 1%

Risk Fund: 1%

Down Payment: 10%.

Income: Minimum 12,000 for salaried individuals and 25,000 for businessman.

Stamp: TK. 600.

When planning an overseas vacation or making trip to a chosen exotic location, financing may be the key issue. PBL has taken over that worry of their customers by offering “ Travel Loan “.

Disburse Mode: The sanctioned loan amount is deposited to the client’s account with the bank from where the client can withdraw money according to his requirement.

Repayment Method: The repayment method is installment basis. The customer has to pay equal monthly installment within the loan period.

MARRIAGE LOAN:

Interest Rate: 16%

Service charge: 1%

Risk Fund: 1%

Down Payment: 10%.

Income: Minimum 10,000 for salaried individuals and 25,000 for businessman.

Stamp: TK. 600.

Tying the marital knot is an event of a life time, and its celebration and memories should last forever. With this view PBL has tailored Marriage loan that enable its customers to organize and celebrate the marriage in style. This loan is only for the Bangladeshi citizens.

Disburse Mode: The sanctioned loan amount is deposited to the client’s account with the bank from where the client can withdraw money according to his requirement.

Repayment Method: The repayment method is installment basis. The customer has to pay equal monthly installment within the loan period.

CNG CONVERSION LOAN:

Interest Rate: 16%

Service charge: 1%

Risk Fund: Nill

Down Payment: 10%.

Income: Minimum 12,000 for salaried individuals and 25,000 for businessman.

Stamp: TK. 600.

Through CNG Conversion Loan, PBL provides its environment conscious customers an easy financing to convert their vehicles into CNG driven vehicles.

Disburse Mode: One time disbursement, but through issuing Pay Order toward the CNG Conversion Station.

Repayment Method: The repayment method is installment basis. The customer has to pay equal monthly installment within the loan period.

 HOSPITALIZATION LOAN:Interest Rate: 16%

Service charge: 1%

Risk Fund: 1%l

Down Payment:

Income: Minimum 12,000 for salaried individuals and 25,000 for businessman.

Stamp: TK. 600.

Disburse Mode: One time disbursement, but through issuing Pay Order toward the Hospital authority.

Repayment Method: The repayment method is installment basis. The customer has to pay equal monthly installment within the loan period.

RECOVERY OF CCS LOANS

After disbursement of loans, CCS unit shall diaries the date of payment of monthly installment. Before 10 days of due date of installment, they shall give reminder to the customers. If any customer fails to deposit on due date 2^nd reminder shall be given. After 7 days 3^rd reminder shall be given. If installment is not deposited, CCS unit shall arrange for visit the customer personally. The unit shall sanction loan very judiciously and shall maintain very effective & strong follow-up and persuasion to ensure that no new loan sanctioned by them is defaulted. The unit shall also take necessary step to recover the stuck-up old loans of different branches. The chronic defaulter loans classified Bad and Loss shall be referred to Recovery Agent for recovery. They shall ensure 100% recovery of new loans. Old classified loans should also be recovered so that the portfolio under old loan is fully liquidated within 2007.

CCS OF OTHER PRIVATE SECTOR BANK

The other private sector banks are:

• Dhaka Bank
• BRAC Bank
• First Security Bank
• Standard Chartered Bank

We dream a lot of dreams those we can’t fulfill easily. Dhaka Bank Ltd (DBL) provides its customers Consumer Credit under the scheme of Any Purpose Loan to make its customers dreams come true. DBL maintain single Consumer Credit Scheme.

Eligibility of Customers to Apply:

Any Bangladeshi citizen can apply for their loan if he or she fulfills criteria:

      At least 21 years old.

      Family income exceeds the minimum amount fixed by Dhaka Bank.

      Permanent employee of an established company with confirmed 1 year service ahead.

      Self-employed person with at least 3 years professional association.

      Business person with experience of 3 years business administration and adequate cash flow.

Loan Limit:

The loan limit under Any Purpose scheme is from Tk. 25,0000 to 5,00,000.

Loan fee:

The customer has to pay 1% processing fee of the total loan amount at the time of taking the loan. Except this, when applying for the loan, the customer has to pay Tk. 500 as application fee, which is non refundable.

Disbursement Mode:

Payment is made directly by the Bank to the vendor or to the customer, as determined by the Bank, depending upon the purpose of the loan.

Repayment Method:

The repayment method is installment basis. The customer has to pay equal monthly installment within the loan period. The customer can also choose his repayment duration (12, 24, 36 or 48 month’s installment) at his convenience.

Amount of Monthly Installment:

The number of installments and the amount that the customer has to pay at each installment against the loan amount is given in the following table:

Table 20: Amount of Monthly Installment

Documents to be obtained:

a. Common documents required from Application:

    Application fees receipt

    Passport size photo (3 copies)

    Photocopy of passport

    Income Tax receipt or TIN Certificate

    One personal guarantee from spouse and another from other spouse with photograph

    Accepted quotation from a reputed dealer in favor of Dhaka Bank

 b. Additional Documents Required from Salaried Person:

      Salary Certificate

      Latest Bank Statement for last six months

c. Additional Documents Required from Professional- Self Employed:

      Professional Certificate

      Latest Bank Statement

      Proof of Professional Association Membership

 d. Additional Documents Required from Business Person:

     Personal & Company Bank Statement- last 12 months

      Copy of Median and latest trade license

      MOA latest form X11.

      Certificate of Incorporation & personal latest bank statement- 12 months

      Partnership Deed (For Partnership Concern)

e. Additional Documents Required for Additional Income:

      For Spouse income – Spouse’s salary Certificate

      For Spouse income – Latest Bank Statement of Spouse

      For Property income – Copy of Lease deed or Rent Payment copy

      For Interest income – Copy of Bond and FDR Certificate

f. Additional Documents required for Car Loan:

      Accepted Quotation from a required car dealer in favor of Dhaka Bank

 Security:

      Personal Guarantee by third party

      Undated Cheque

      Post- dated Cheque

BRAC Bank Ltd.(BBL) provides 7 (seven) types of unsecured personal loans under CCS.

Types Of CCS:

1. Salary Loan
2. Credit Card Loan
3. Teachers Loan
4. Top Up Loan
5. Travel Loan
6. Study Loan
7. Aroggo Loan

Other Loans:

1. Car Loan
2. Any Purpose Loan

Eligibility of Customers to Apply:

Any Bangladeshi citizen can apply for their loan if he or she fulfill criteria:

      At least 21 years old.

      Any person who has the monthly income 10,000 to 40,000 Taka.

      Family income exceeds the minimum amount fixed by Dhaka Bank.

      Self-employed person with at least 3 years professional association.

      Business person with experience of 2 years business administration and adequate cash flow.

Loan Limit:

The loan limit under Any Purpose scheme is from Tk. 20,0000 to 10,00,000.

Loan fee:

The customer has to pay 1% processing fee or minimum Taka 2000, of the total loan amount at the time of taking the loan

Disbursement Mode:

Payment is made directly by the Bank to the vendor or to the customer, as determined by the Bank, depending upon the purpose of the loan.

Repayment Method:

The repayment method is installment basis. The customer has to pay equal monthly installment within the loan period. The customer can also choose his repayment duration (12, 24, 36 or 48, 60 months installment) at his convenience.

Documents to be Obtained:

a. Common documents required from Application:

    Application fees receipt

    Passport size photo (3 copies)

    Photocopy of passport

    Income Tax receipt or TIN Certificate

    One personal guarantee from spouse and another from other spouse with photograph

    Accepted quotation from a reputed dealer in favor of Dhaka Bank

b. Additional Documents Required from Salaried Person:

      Salary Certificate

      Latest Bank Statement for last six months

c. Additional Documents Required from Professional- Self Employed:

      Professional Certificate

      Latest Bank Statement

      Proof of Professional Association Membership

d. Additional Documents Required from Business Person:

      Personal & Company Bank Statement- last 6 months

      Copy of Median and latest trade license

      MOA

      Certificate of Incorporation & personal latest bank statement- 6 months

      Partnership Deed (For Partnership Concern)

e. Additional Documents Required for Additional Income:

      For Spouse income – Spouse’s salary Certificate

      For Spouse income – Latest Bank Statement of Spouse

      For Property income – Copy of Lease deed or Rent Payment copy

      For Interest income – Copy of Bond and FDR Certificate

 f. Additional Documents required for Car Loan:

      Accepted Quotation from a required car dealer in favor of Dhaka Bank

 Security (When applicable):

      Personal Guarantee by third party

      Undated Cheque

      Post- dated Cheque

First Security Bank Ltd. grants only short term advances under its Consumer Credit Scheme. The bases of types of CCS of this bank are the various Nature of Financing rather than the purpose of providing the loan.

Therefore, the types of Consumer Credit provided by FSBL are:

1. Secured Overdraft (SOD)- FDR
2. Hire Purchase
3. Consumer Finance Scheme

CHAPTER 04

ANALYSIS OF THE MAIN TOPIC

ecured Overdraft (SOD) – FDR:

a. Eligibility of Customer:

Any person having a Fixed Deposit with FSBL is eligible to take the loan.

b. Loan Limit:

Loan limit is 10% to 25% on the FDR value.

c. Rate of Interest:

3% above than the FDR rate.

d. Loan Period:

Loan is sanctioned for maximum 1 (One) year.

 e. Repayment Method:

Lump Sum cash deposit within the validity.

f. Security:

      Lien on FDR

      Charge Document

      D.P. Note

      Letter of Agreement

      Letter of Lien

      Letter of Authority

      Letter of Continuity

      Letter of Guarantee

Hire Purchase:

under this scheme of FSBL the customer has to make down payment and the rest of the purchase price are spread over the loan period. The article is regarded as the property until the final payment has been made.

 a. Eligibility of Customer:

Any person having a fixed source of income or desires to pay the loan amount in lump sum is eligible to take this loan.

b. Rate of Interest:

16% on the loan amount d. Loan Period:

c. Loan Period:

Loan is sanctioned for 6 (Six) months to 2 (Two) years.

d. Repayment Method:

Lump Sum cash deposit within the validity.

e. Security:

      Charge Document

      D.P. Note

      Letter of Agreement

      Letter of Authority

      Letter of Continuity

      Letter of Guarantee

Consumer Finance Scheme:

FSBL provides this credit to finance purchase of consumer durable to the fixed income group to raise their standard of living.

 Eligibility of Customers to Apply:

Any Bangladeshi citizen can apply for their loan if he or she fulfills criteria:

• Government, Semi- Government, & Autonomous bodies.
• Banks, Insurance, & other Financial Institutions.
• Permanent employee of an established company with confirmed 1 year service ahead.
• Self-employed person with at least 2 years professional association.
• Firms and Corporate bodies.

 b. Loan Limit:

The amount of credit is determined in such a way that the monthly installment does not exceed 50% of the disposable income of the customer, with an maximum limit of Tk. 10 lac.

 c. Repayment Method:

The customer can repay the loan amount by equal monthly installments over the loan period.

d. Rate of Interest & Other Charges:

• Application Fee           : Tk. 500
• Interest Rate                : 16%
• Security Charge          : 1%
• Risk Fund                    : 1%
• Down Payment            : 30%

Security:

      Charge Document

      D.P. Note

      Letter of Agreement

      Letter of Authority

      Letter of Continuity

      Letter of Guarantee

      Undated Cheque

Terms And Conditions:

1. For hire purchase the durable is covered by first party comprehensive insurance policy throughout loan period and the premium for the policy of each year is to born by the client.
2. Retailed facility report containing marketing, financial, technical, socio-economic aspects showing detailed break-up of project cost and other usual financial analysis duly supported by its assumption.

Although SCB is a foreign bank, operating in our country as a local bank. For its local operation the bank is competing with the private sector banks of our country. SCB provides CCS to its customer under the head of “Personal Loan” and with the slogan of “ We Believe in Living Our Dreams”.

Types of CCS:

SCB provides 5 (Five) types of Consumer Credit. These are:

      Marriage Loan

      Medical Loan

      Education Loan

      Travel Loan

      All Purpose Loan

Eligibility of Customers to Apply:

Any Bangladeshi citizen can apply for their loan if he or she fulfill criteria:

• Government, Semi- Government, & Autonomous bodies.
• Banks, Insurance, & other Financial Institutions.
• Person who is working in any Multinational Companies.
• Self-employed person with at least 2 years professional association.
• Firms and Corporate bodies.
• Education Institute.

Loan Limit:

Based on the purpose of the loan and the client’s requirement loan limit varies from Tk. 25,000 to 5 lac.

Repayment Method:

The customer can repay the loan amount by equal monthly installments over the loan period.

Disbursement Mode:

For any purpose loan payment is made directly by the bank to the vendor, as determined by the bank, depending upon the purpose of the loan. For rest of the schemes the loan amount is deposited to the customer’s account with the bank. The client withdraw the amount according to his need.

Rate of Interest & Other Charges:

• Applicable Fee     : Tk. 1,000
• Interest Rate         : 18%
• Service Charge    : 1%
• Down Payment      : 10%

Penalty Charge:

Prepayment penalty of 3% is charged on outstanding amount. For delayed payment a penal interest @ 24% is charged.

Documents to be Obtained:

      Charge Document

      D.P. Note

      Letter of Agreement

      Letter of Authority

      Letter of Continuity

      Letter of Guarantee

      Original Certificate of Professional Degree

      Employer Certificate for employer

      Tin Certificate

      Tax Return of last period

Security:

      Personal Guarantee by third party

      Undated cheque

      Post dated cheque

Terms and Conditions:

      For hire purchase the durable is covered by first party comprehensive insurance policy throughout loan period and the premium for the policy of each year is to born by the client.

      Retailed facility report containing marketing, financial, technical, socio-economic aspects showing detailed break-up of project cost and other usual financial analysis duly supported by its assumption.

      The bank reverses the right to withdraw the facility and demand repayment if there has been any default in repayment of the loan.

      Interest rate is floating and can be revised at the bank’s sole discretion.

      The loan must be utilized for the specific purpose for which it has been sanctioned.

findings

      Lack of cross Employee.

      There is no training activities for the junior officers, which will hectic them.

      There is no customer complain desk for this reason it is sometime occur as a irritate mater.

      Frequent fluctuations of domestic currency worth against US dollar.

      Unavailability and shortage of foreign currency.

      Economic stagflation and economic break down of a country.

      Political crisis & lack of faithfulness to the foreign respondents.

      Lack of favorable environment, government restrictions and the unfavorable balance of trade.

      Insufficient port and /or harbor facilities.

      Lack of employee sustainability.

      Shortage of harmony between each dept. to other dept.

      Very small limit of credit card.

CHAPTER 05

CONCLUDING PART

RECOMMENDATION

Prime Bank Limited (PBL) should consider the following recommendations:

1)PBL can pursue to Government high officials and can make a better relationship with them to get government fund in order to keep cost of fund low. Moreover, the Bank should attract more short-term deposits from the depositors against which it can provide CCS to the clients at a lower interest rate.

2) PBL can open some more branches in strategically important place and by doing that they can achieve more geographical coverage and enhance their business volume under CCS.

3)PBL has 5 (five) Islamic Banking Branch (IBB). All of these 5 branches are doing very good business and have public acceptability. Consumer Credit Schemes involve Interest that the clients are to pay to the Bank. As Bangladesh is an Islamic country and Islamic Banking is a popular concept PBL can go for more Islamic Banking Branches through which it can operate its CCS activities with less doubt in the mind of people.

4) The Bank should diversify its loan portfolio and client portfolio. PBL should launch new schemes under CCS that will be affordable for lower income group of the society. Moreover the Bank should launch special schemes under CCS for teachers and for Health & Treatment Facility of people.

5) PBL should take some marketing officer and an Executive in marketing Division who has some experience regarding marketing of Consumer Credit Products. PBL also should go for some promotional activities through its Public Relation Department and use advertising and field level personal selling for its CCS products.

6)PBL should concentrate on bringing extra features considering other Banks similar schemes. These are:

      Interest under CCS should be half yearly compound.

      Upper loan limit of CCS should be fixed at Tk. 10 lac.

      Lower loan limit of CCS should be fixed at Tk. 10,000.

 7)  Choice of repayment should be made flexible up to 60 months under each scheme of CCS.

CONCLUSION

Consumer Credit is a type of loan provided by banks to its customers. Where Credit is an important input in the production process of a country as well as in the income generation activities of an individual, Consumer Credit improves the standard of living of individuals. The demand for Consumer Credit in a developing country like Bangladesh is much higher than its supply.

The word ‘Credit’ comes from the Latin word “CREDO” meaning ‘I believe’. Consumer Credit is lender’s (i.e. the Bank’s) trust in a person’s ability to repay the loan amount, which the client takes to purchase consumer goods / services, at some specified time in the future.

Credit is power. For a Bank, Consumer Credit is a significant source of profit and on the other hand, wrong use of Consumer Credit would bring a disaster not only for the Bank but also for the economy as a whole. Wright or wrong judgment while extending Consumer Credit under any Scheme means success or failure of a Bank.

All the Private Banks those I’ve observed provide CCS to their clients within the policy guidelines of the respective Banks and the Bangladesh Bank.

Prime Bank Ltd. is the pioneer of and a leading Bank in Consumer Credit Scheme in Bangladesh. The CCS of the Bank aims to help the fixed income group in raising standard of living and has been widely appreciated. The rate of recovery under the Scheme is 96%.

The main purpose of this report is to study the CCS of PBL and some other Private Sector Banks and to make a comparison between CCS of PBL and those of other Banks. Considering all the Consumer Credit operations of the five banks, performance of PBL appears to be encouraging. Compared to other Banks, PBL will definitely show much better performance in the near future. But it requires amendment of some terms of CCS of the Bank such as documentation, client portfolio, interest rate, quality of service etc.

BIBLIOGRAPHY:

BOOKS:

1. Block. Stanley. B & Hirt. Geoffrey. A, Foundation of Financial Management, 11^th Edition, McGraw-Hill.
2. Gordon. E & Natarajan. K, Banking Theory, Law and Practice, 11^th Edition.
3. Prof. Shahjahan Mina, Financial Management, 6^th Edition, S. N. Publications.
4. Annual Report of Prime Bank Limited, 2005-2009.

Website:

1. 1.       www.prime-bank.com
2. 2.      www.bangladesh-bank.org

Some are parts:

Consumer Banking of Prime Bank Limited (Part 1)

Consumer Banking of Prime Bank Limited (Part 2)