Credit Appraisal and Recovery Procedure of IFIC Bank

Loan Processing, Credit Appraisal, Follow-Up &Recovery
Procedure of IFIC Bank Limited

Banking system of Bangladesh has through three phases of development Nationalization, Privatization and lastly Financial Sector Reform. IFIC Bank Limited has started its journey as a private commercial bank on June 24, 1983.As a part of my under graduation program, have completed my internship in this organization. Throughout the period of my internship, I had been working in several departments. However, I was officially appointed to work in the credit department. The report will reveal the background of the company, description of the loans, findings and recommendations based on the experience gathered.

The report is based on my critical observation while working in the credit division of IFIC Bank. Lending is one of the principal functions of the bank. Sound lending practice therefore, is very important for profitability and success of a bank. For the sake of sound lending, it is necessary to develop a sound policy and modern credit management techniques to ensure that loans/ advances are safe and the money will come back within the time set for repayment. For this purpose, proper and prior analysis of credit proposals is required to assess the risk. The comparative analysis shows that IFIC is in better position, but there are some obstacles it faces to sustain the position. However, the continuous improvement of the services will certainly place the bank in the best position in one decade.

Objective of the Report:

Broad Objective:

To acquire knowledge about the entire credit policy and credit risk process of IFIC Bank Ltd.

Specific Objective:

To plot a clear image of the credit Division and its sub-divisions;
To know the Credit Risk Management (CRM), Credit Administration Department (CAD).
To know different Governmental and IFIC policies, terms and conditions regarding the Credit Policy.
To know about the Documentation process of credit division.

Methodology of the Report:

To find out objectives I have followed some methodologies include;

Direct observation
Face-to-face discussion with employees of different departments
Study of files, circulars and practical work
Annual Report of 2012 and 2013 etc.
This study will include both quantitative and qualitative data. However, this report is basically qualitative in nature.

Data Sources:

To carry out the proposed study, I have utilized both primary and secondary data sources.

Primary Data Sources:

For the proposed study, I have collected primary data by taking Interviews of some bank officials in order to get the information regarding Loan Processing, evaluation as well as the real picture of the bank.

Secondary Data Sources:

I collected the internal secondary data from the bank itself.
External secondary data had been collected from the website of the bank.
Study of files, circulars and practical work
Annual Report of 2012 and 2013 etc.

This study included both quantitative and qualitative data. There are 25 respondents who gave me their opinion regarding loan & credit procedure of the Bank. I used SPSS software to analyze the data which I collected through a questionnaire.

Background of IFIC Bank Limited:

International Finance Investment and Commerce (IFIC) Bank Limited started banking operations on June 24, 1983. Prior to that it was set up in 1976 as a joint venture finance company at the instance of the Government of the People‟s Republic of Bangladesh. Government then held 49 percent shares while the sponsors and general public held the rest.

The objectives of the finance company were to establish joint venture Banks Finance Companies and affiliates abroad and to carry out normal functions of a finance company at home. When the Government decided to open up banking in the private sector in 1983, the above finance company was converted into a full-fledged commercial Bank. Along with this, the Government also allowed four other commercial Banks in the private sector. Subsequently, the Government denationalized two Banks, which were then fully Government-owned.

Credit Risk Management: A Theoretical Framework

In general, a banking system aggregates a high number of low value deposits to fund enterprises with a smaller number of high value loans. This intermediation through a wellfunctioning bank helps to achieve some economic benefits for the depositors, the borrowers and above all the economy in the following ways:

The Depositors

Higher return
Lower risk
Greater liquidity

The Borrowers

Availability of fund for all credit worthy Borrowers.
Thus allow to enterprises grow and expand.

The Economy

Economic growth is maximized as the Bank channels the country‟s scarce financial resources into those opportunities with maximum return
Thus, profitable enterprises receive funding, grow, and expand
Loss making enterprises are refused funding and allowed to go out of the business thus saving the economy from drainage of resources.

The Bank must allocate loans effectively for achieving these broad objectives of the Economy and the prerequisites are:

Banks are able to identify reliably those enterprises that can repay their loans.
Banks allows loan to those enterprises likely to yield high return and deny loan to those likely to yield low or negative returns. While identifying profitable enterprises, the Bank in fact identifies risks of the borrower and business in order to allow loan in the context of its risk return profile. In other words, Banks are in the business of risk taking; as such risk management is viewed as a core function of banking.

Credit Risk:

(a) Credit risk arises from the bank‟s dealing with or lending to Corporate / Individual and Financial institutions. For most banks, loans are the largest and most obvious source of credit risk; though, credit risk may arise from both on and off balance sheet activities. Besides accounting loss, credit risk is to be viewed in the context of economic exposure of the Bank which encompasses opportunity cost, transaction cost and expenses associated with non performing loans. .

(b) In a Bank‟s portfolio, losses stem from the outright default due to inability or unwillingness of a customer or a counter party to meet commitments in relation to lending, trading, settlement and other financial transactions.

Identifying, measuring, monitoring and controlling credit risks in order maintaining a manageable and quality loan portfolio.
Ensuring that expected returns compensate for the risks taken.
Ensuring credit risk decisions are explicit, clear and well calculated.
Maintaining the overall credit exposure of the Bank at prudent levels consistent with the available capital
Ensuring top management as well as individual responsible for credit risk management has sound expertise and knowledge to take credit risk and accomplish risk management functions.

(d) Credit Risk Management (CRM) is a dynamic process which enables banks to proactively manage loan portfolios. Four major areas of CRM are:

Policy — Lending guidelines
Procedure — Evaluating viability and associate risks of business enterprises.
Organizational structure — segregation of risk taking and risk approving authority
Responsibility — Decision making and accountability

A clear understanding of the four areas are crucial for maximizing Bank‟s earning by carefully evaluating credit risks and attempting to minimize those risks.

As a financial enterprise, IFIC Bank is also in business and maximizing stake holders‟ value (share holders, depositors, borrowers, employees and the public) is Bank‟s prime objective. The loan portfolio of the Bank is primary source of earnings. It generates most of the interest income, and it also consumes most of resources i.e. deposits. But it may also be Bank‟s great concern for survival and sustainable growth in an ever changing environment.

Credit Risk Management Policy will be reviewed annually to accommodate necessary changes in respect of risk mitigation. Thus Bank‟s endeavor shall be to maintain a manageable loan portfolio which is rewarding by taking calculated risk and ensuring quality of loans.

OBJECTIVES OF CRM (Credit Risk Management)

(i) Maximize Bank‟s earning from loan portfolio.

(ii) Improve quality of loan portfolio to maximize earnings by:

To keep non-performing assets below 5%
Arresting new loans to become classified

(iii) Utmost emphasis on loan sanctioning is to be given in order to improve quality of the loan portfolio. Credit facilities are to be considered solely on viability of business/enterprises / project / undertaking having adequate cash flows to adjust the loans, and management capacity of the borrower to run the business profitably.

(iv) Evaluate credit risks before sanctioning, which may hamper generation of the projected cash flows of the borrower and might delay or hinder repayment of Bank‟s loan.

(v) Monitor continuously performances of the financed projects/ business / enterprises will be Bank‟s main thrust for ensuring repayment of the loan, and receiving early warning (EL) for taking timely corrective measures.

(vi) Price the loans on the basis of loan pricing module of the Bank focusing on risk rating of the borrower.

(vii) Strict adherence to Bangladesh Bank‟s policy guidelines.

Credit Risk Management Process:

Credit risk management process covers the entire credit cycle starting from the origination of the credit in a financial institution‟s books to the point the credit is extinguished from the books (Morton Glantz, 2002). It is provided for sound practices in:

Credit Processing or appraisal
Credit approval or sanction
Credit documentation
Credit administration
Disbursement
Monitoring and control of individual credits
Monitoring the overall credit portfolio (stress testing )
Credit classification and
Managing problem credits /recovery

Loan Processing, Credit Appraisal And Follow-up Recovery Process Of IFIC

Credit flow of IFIC:

Credit Risk Management is basic to risk management and controlling, as it is the major risk factor in most bank business. Therefore, a bank should assess the degree of risk associated with each loan and its profitability. Bangladesh bank has undertaken a project to install a core risk management system in every bank. IFIC Bank Ltd has also installed the same system in respect to asset liability management, foreign exchange management, internal control & compliance, anti money laundering. The bank prudently controls asset allocation through limiting exposure to industry sector & setting client limit. Moreover, the bank approved a new organization structure to accommodate core risk management perspective. In this connection prior assessment of and follow up on a loan transaction constitute essential ingredients of the credit risk control process. An in-depth analysis of the borrower financial conditions, expected usage of funds, ability to repay, willingness to repay and sources of repayment all together constitute step one in the risk control processes. The overall success in credit management depends on the banks credit policy, portfolio of credit, monitoring, supervision and follow-up of the loan and advance.

Types of Advance on the basis of Security

Secured Advances

Secured loan or advance means a loan or advance made on the security of assets, the market value of which is not at any time less than the amount of such loan or advance.
Where the advance is secured the security can be enforced in case of default by the borrower, i.e. the security can be sold and adjusted against the loan account after giving proper notice or taking action through a court.

Unsecured Advances

An unsecured or clean advance is one, which is granted to a borrower without obtaining any security subject to restriction imposed from time to time.
It shall not be granted unless the sanctioning authority has full confidence in the ability of the customer to repay it on demand or at its maturity if it is a loan. Definite arrangements for repayments, whether by installments or otherwise, must as a rule be made.

Types of advance as per Bangladesh Bank Criteria for classification

Loans and Advances have been categorized into four different categories by Bangladesh Bank:

(a) Continuous Loan:

The loan which has no particular repayment schedule, but contains date of expiry, credit limit etc. will be termed as Continuous Loan e. g. CC, SOD etc.

(b) Demand Loan:

The loan which is considered repayable only after it is claimed by the banks, will be termed as Demand Loan. If contingent or any other liability is converted to Compulsory loan or Forced Loan (i. e. the loan without having prior approval as a regular loan) then it will be termed as Demand Loan e.g. Forced LIM, PAD, FBP, and IBP etc.

The loan which is repayable within particular period of time as per repayment schedule will be termed as Fixed Term Loan.

(d) Short Term Agricultural and Micro-Credit:

Those credits which are enlisted as Short Term Credit under the annual credit program declared by ACD of Bangladesh Bank will be termed as short term Agricultural Credit. It will also include credit extended to agricultural sector and repayable within a period not exceeding 12 months. The short term Micro-Credit will be that which will not exceed an amount of Tk. 10,000.00 and will be repayable within a period not exceeding 12 Months. Such loans may be Non-Agricultural Credit, Swanirvor Credit, Weaving Credit or Bank‟s self financed Project Loan and whatsoever.

Continuous Loan:

Secured Overdraft (SOD)

It is a continuous advance facility by this agreement; the banker allows his customer to overdraft his current account he withdraws, to his credit limits sanctioned by the bank. The Interest is changed on the amount, which not on the sanctioned amount. IFIC Bank sanctions SOD against different security.

Types of Secured Overdraft:

Secured Overdraft General SOD (General):

Advance is granted to a client against the work order of government of departments, corruptions, autonomous bodies and reputed multi-national / private organization. The clients‟ managerial capability, equity strength, nature of the scheduled work is judged to arrive at a logical decision. Disbursement is made after completion of documentation formalities. Besides usual charge, documents like a notarized irrevocable power of attorney to collect the bills from the concerned authority and a letter from the concerned authority confirming direct payment to the bank is also obtained. The work is strictly monitored to review the progress at each interval.

SOD (FO):

Advance is granted to a client against financial obligations. The security of advance is granted to the person to whom the instrument belongs. The discharged instrument is surrounded to the bank along with a letter signed by holder /holders authorizing the bank to appropriate the proceeds of the instrument on due date towards the repayment of the advance. The bank‟s lien is prominently noted face of the instrument under the signature of an authorized bank official.

The instrument is issued by another branch of IFIC Bank limited or any branch of some other bank, and then the concerned branch in each intimated to lien mark the instrument.

SOD (Export):

Advance allowed to purchasing foreign currency for payment against L/Cs (Back-to –Back) where the exporter cannot materialize before the date of import payment.

Cash credit:

Cash credit (CC) is an arrangement by which a banker allows his customer to borrow a money up to a certain limit.CC is a favorite mode of borrowings by traders, industrials etc. for meeting their working capital requirements.

Cash credit or continuous credit are those, which forms continuous debits and credits up to a limit and have an expiration date. A service charge that in effect of an interest charge is normally made as a percentage of the value of purchases.

Cash credit is generally allowed against hypothecation or pledge of goods. Hence cash credits are two types:

Cash credit hypothecation
Cash credit pledge.

Cash Credit (Hypothecation)

Cash Credit (Hypothecation) is a separate account by itself in nature and opened on sanction and cancelled on adjustment. It is operated in a same way as an overdraft account. It is generally allowed against current assets such as stocks of goods, inventories and receivables, etc at a fixed rate of interest for a period of maximum one year. The limit may be renewed upon satisfactory performance. The stocks held against the credit facility remains under the possession of the borrower and the transactions in the account are allowed on the basis of drawing power. Drawing power is assessed by applying margin on the value of stock subject to maximum of sanctioned limit.

Interest is calculated on the outstanding amount on daily product basis and charged quarterly. Balance on Cash Credit (Hypo) account may fluctuate. It may increase by withdrawals by the customer and may decrease in payment into the account is made by the customers.

Purpose:

Cash credit (Hypo) is generally given to traders, business houses, industries and farmers for meeting working capital requirements.

Cash Credit (Pledge)

Pledge is the bailment of goods given as security. In other words, there is actual and constructive delivery of goods to the banker with the intention of being treated as security. Under this agreement, Banks reserve the possession of the goods and the customer can only take out the goods from the godown on exclusive permission of the Bank .The Borrower is sanctioned with a limit with certain percentage of margin against pledge of goods.

The account is opened and operated as Cash Credit (Hypo) account but no cheque book to be issued. The drawing in the account is allowed as per request of the borrower to his CD account.

Export Cash Credit

Export cash credits are extended to an exporter to facilitate the export of goods & commodities for which there is export letter of credit or contract on demand. It is a pre-shipment and short-term credit to be liquidated out of the proceeds of export documents which include negotiation or purchase of export documents.

Purpose

ECC is allowed as pre-shipment financing against export LC/confirmed contract for timely execution of export orders.

Demand Loan:

Inland Documentary Bills Purchased (IDBP)/ Inland Bill Purchased (IBP)

Purchasing of inland bill of exchange arising out of commercial transaction is called inland documentary bill purchased.

When the drawer of a bill encloses the documents of title to goods (Bill of Lading, Railway Receipt, Steamer Receipt) with the bill to be delivered to the drawee of the bill on payment or against acceptance of bill, as the case may be, the bill is called a documentary bill. In the absence of such documents it is termed as a clean bill.

In case of purchase and discounting of bills, the banker credits the customer‟s account with the amount of the bill after deducting his charges or discount. Demand bills have no maturity and repayable on demand. The banker is entitled to demand their payment immediately on presentation before the drawee. This practice, adopted in case of demand bill, is known as purchase of the bills. In case of a usance bill maturing after a period of time, the banker retains the bill for that period and realizes the amount of the bill from the drawee on its due date. This practice is called discounting of bills.

In case of purchase of cheques, amount of the cheque is credited to the party‟s account after keeping margin to the debit of bills or cheque purchased account and on receipt of the proceeds of the cheques, after collection, bill or cheque purchase account is liquidated.

Purpose:

Sometimes banks are to purchase bill of exchange of businessmen to facilitate commercial transactions. Besides bills, banks also purchase cheques drawn by Govt. Semi-Govt. institutions, local authorities, or any first class parties for extending accommodation to the parties requiring funds.

Payment against Documents (PAD)

The importers are to open letter of credit through any bank for importing goods. Most of the time, the banks are to extend credit to the importers, if not prohibited by Bangladesh Bank, for buying required foreign exchange. This loan, on receipt of shipping documents from the negotiating bank, is transferred and lodged to PAD.

Interest is calculated on the outstanding amount on daily product basis and charged at the time of delivery of documents/quarterly.

Purpose:

PAD is associated with import and import financing. The Bank opening letter of credit is bound to honor its commitment to pay for import bills when these are presented for payment provided that it is drawn strictly in terms of the letter of credit.

The foreign correspondent, who negotiates the documents, debits the account of the opening bank and in fact, the amount thus stands advanced on behalf of the importer.

The opening bank on receipt will lodge the shipping documents to their books and will respond to the debit advice originated by foreign correspondent to the debit of “Payment Against Documents (PAD)” account or “Bill of Exchange (B/E) account” and present the bill to the importer for payment/ acceptance.

Loan against Imported Merchandise (LIM)

Opener of the Letter of Credit sometimes request the Bank to clear the goods and store the same at Bank’s go down due to temporary financial constrains. When the opener of the credit is not coming forward to retire the import bill, arrangements are also made to clear the goods on payment of import duties, sales tax and other charges through bank‟s enlisted clearing agent and goods are stored at Bank’s godown under forced circumstances. This type of advance is called Loan against Imported Merchandise or LIM in short as financing is made against imported goods.

Purpose

LIM is associated with import of merchandise and allowed to the borrower as post import financing.

Sometimes Bank creates LIM in order to release the consignment under forced circumstances where the applicant does not come forward to clear the consignment.

Foreign Documentary Bill Purchased (FDBP)

Purchasing of bills of exchange denominated in foreign currency drawn in conformity with the terms of export LC is called Foreign Documentary Bill Purchased (FDBP). Documents drawn under a letter of credit governed by UCPDC in force duly authenticated by the advising bank and freely negotiable is purchased to provide financial support to the exporters.

Purpose

This is a post-shipment financing provided to exporters for meeting their working capital need.

Term Loan

Short Term Loan: up to and including 12 months.

Medium term: more than 12 months up to and including 60 months.

Long term: more than 60 months.

Unsecured Loan:

Trust Receipts

This is an arrangement under which credit is allowed against trust receipts and imported or exportable goods remain in the custody of the importer or exporter but he is to execute a stamped Trust Receipt (ADVF-17) in favor of the Bank wherein a declaration is made that goods imported or bought with the bank‟s financial assistance are held by him in trust for the bank.

Purpose:

Trust Receipt is a post import financing allowed to the most trusted importer of the bank.

Credit Assessment

The main objective of the Bank is to earn profit by investing its available investable funds remaining within the norms to generate income along with the expectation of getting the principal back within the stipulated period.

Emphasis on appraisal of the loan appraisal process and its administration by the IFIC Bank Management during evaluation of a Loan recognizes that loans comprise the major portion of bank’s assets; and, that it is the asset category, which ordinarily presents the greatest credit risk and potential loss exposure to the bank. Moreover, pressure for increased profitability, liquidity considerations, regulatory compliance and a competitive business environment have produced great innovations in credit instruments/Loan products and approaches to lending.

Credit Analysts therefore find it necessary to devote a large portion of time and attention to review a loan proposal.

Personnel involved in the loan appraisal function is qualified based on level of education, experience, and extent of formal training. They are knowledgeable of both sound lending practices and Bank‟s lending guidelines. In addition, they are knowledgeable of pertinent laws and regulations that affect lending activities.

At the time of processing credit proposals the following points are considered IFIC BANK Limited for proper assessment:

Sponsors: IFIC Bank takes into consideration the borrowers‟ integrity, financial position and status before sanctioning the loan. Besides, identification of the present and business addresses of the sponsors is vital to sanction of loan particularly with regard to tracing out the borrower in case of any eventuality. A responsible officer of the branch is assigned to verify the present and business address of the sponsors/clients and submit report.

Purpose: Purpose of the loan is very important for ensuring proper utilization of fund and maintaining quality of the assets.

Liquidity: It is foundthe credit analyst of IFIC Bank considers whether the proposal will generate adequate cash flow to repay the loan within the stipulated period.

Profitability: Profit is the main purpose of a commercial bank. Therefore, while considering the proposal the credit analyst considers the profitability of the proposal, which will in turn, ensure the profitability of the bank.

Security: Security is another important principle of Credit. No matter how attractive the interest income or rate is, there is always the possibility of loan default. Security means any form of guarantee that ensures recovery of bank‟s finance in case of any eventualities in business. In other words, Security is considered as insurance or a cushion to fall back in case of emergency. Apart from the above fact, taking of security serves as a safety valve for an unexpected emergency

Credit Risk Grading (CRG)

Bank has already introduced credit risk grading technique in line with the guideline provided by Bangladesh Bank as a uniform approach for assessing the risk grade of an exposure. Bank shall undertake risk grading of the proposed borrower other than loans related to Consumer Finance, Small Enterprise Finance, and Short Term Agriculture & Micro Finance through a number of qualitative techniques following the CRG Manuals.

While assessing a loan proposal, the CRM in all level should identify and evaluate the following key risks, among others, which may inherit or arise during a life cycle of a loan.

(i) Financial Risk

Risk that counter parties will fail to meet obligation due to financial distress. This typically entails analysis of financials i.e. analysis of leverage, liquidity, profitability & interest coverage ratios. To conclude, this capitalizes on the risk of high leverage, poor liquidity, low profitability & insufficient cash flow.

(ii) Industry Risk

Risk that adverse industry situation or unfavorable business condition will impact borrowers‟ capacity to meet obligation. The evaluation of this category of risk looks at parameters such as business outlook, size of business, industry growth, market competition and barriers to entry/exit. To conclude, this capitalizes on the risk of failure due to low market share and poor industry growth.

(iii) Management Risk

Risk that counterparties may default as a result of poor managerial ability including experience of the management, its succession plan and team work.

(iv) Security Risk

Risk that the bank might be exposed due to poor quality or strength of the security in case of default. This may entail strength of security and collateral, location of collateral and support.

(v) Relationship Risk

These risk areas cover evaluation of limits utilization, account performance, conditions/covenants compliance by the borrower and deposit relationship.

Loan proposal of Small Enterprise & Consumer Finance

IFIC bank has already introduced Product Programmer Guideline (PPG) for Small Enterprise Financing& Consumer Financing prepared in accordance with the prudential regulations provided by Bangladesh Bank in this regard. The credit analyst prepares loan proposals as per terms and conditions stipulated in the PPGs and use the prescribed format devised for preparation of loan proposals.

Approval Process

The Branch Manager of IFIC BANK acts as Relationship Manager (RM). The responsibility for preparing the Credit Proposals is rest with the Credit Officers at Branch level. Credit Proposals is approved/ declined by the Branch Manager under authority delegated to him/her.

The relationship manager recommends credit proposal beyond delegation and send it to Head of Corporate Banking and Marketing Division who will, upon analyzing the proposal, forward the same with recommendation to Head of CRM for approval or decline the proposal and refer it back to the Relationship Manager. Head of CRM Division will distribute the proposals to the Managers of respective departments who will either sanction/decline within their delegated powers or recommend the same to the next higher authority for approval.

Credit Administration

Upon approval, branch will send for disbursement/ activation authority to the Credit Administration Department, which will perform the following responsibilities:

Ensure execution of necessary documentation in accordance with approved terms and conditions of the sanction advice.
Ensure that disbursement is made only after completion of all documentation formalities.
Ensure continuous monitoring of the performance of the borrower which include compliance of credit terms identifying early signs of irregularity, conducting periodical valuation of collateral, monitoring timely repayment, etc.

Appeal

The proposal which is declined by CRM may be presented for review to the next higher authority through Head of Corporate Banking & Marketing Division. However, such review is not applicable when the proposal is declined by the Managing Director.

Early Alert Process

If any symptom of deterioration of the loan account are identified/ noticed branch should immediately start Early Alert Process and report as per CRM Policy Guidelines to Head Office. It is a continuous process to monitor and supervise the accounts having potential weaknesses of a material nature and is prime responsibilities of all Relationship Managers.

Loan Procedure:

I furnished below the house building loan processing system of IFIC bank LTD which is one of the products under consumer finance as an example:

House Building Loan(THIKANA)

House Building Loan is a Term Loan provided for construction of building for commercial/Residential purpose. The Loan is also provided to Developers for completion of their project and construction of factory Building of different industries, purchase of floor space for commercial use. The loan is also provided to purchase readymade flats / completed building for residential/commercial purpose.

Features

Loan is disbursed in phases with progress of construction work and utilization of equity portion.
Full disbursement of loan at a time is also allowed in case of purchasing of Flat/ commercial spaces/ completed building.
Upon completion of disbursement only repayment is allowed in the account
Grace period may be allowed in the account depending on the cash flow
Interest is calculated and charged quarterly on the drawn amount on the daily product basis.
Interest rate is fixed based on the rate published from time to time Points to be considered before initiating the proposal

While initiating the proposal for allowing House Building Loan, the following points are to be considered:

Ownership of the land should be undisputed. Which is determined by legal opinion from bank‟s law division or bank‟s panel lawyer.
Approval for construction and clearance for mortgage from appropriate authority is to be obtained.
Financial strength of the borrower for repayment of the loan
Realistic cost estimation by a competent engineer
Cash flow of the borrower and from the building.
Clean CIB Report
While purchase of house only construction cost with necessary depreciation to be considered.
Approval of plan for construction of building from competent authority as per existing rules of government.

Security

Primary security against the House Building Loan is the land and the building to be constructed on the land. In case of purchase of floor spaces, the security will be the respective floor along with proportionate land.

In case of financing to the Developers, security will be the project land along with building as per power of attorney given by the owner of the land to the Developer.

House Building Loan may be collaterally secured by pledge of financial obligation and/or landed property apart from land as primary security.

Approval

The relationship manager shall recommend credit proposal and send it to Head of Corporate Banking and Marketing Division who will, upon analyzing the proposal, forward the same with recommendation to Head of CRM for approval or decline the proposal and refer it back to the Relationship Manager. Head of CRM Division will distribute the proposals to the Man-agers of respective departments who will either sanction/decline within their delegated powers or recommend the same to the next higher authority for approval.

Follow –Up & Recovery Process:

In case Borrower fails to come forward or shows reluctance, Bank is to take various steps to recover its assets, safeguard its possible losses and overcome crisis of the situation due to nonrecovery. IFIC Bank follows some guidelines and procedure to recover its losses and overcome the obstacles. Like followings –

Close monitoring during validity/repayment period of loan.
Gear up persuasion right from initial stage of its default/non-payment of installments.
Understanding reasons of non-payment to obviate the problem.
Constant follow-up with defaulting borrowers.
Take effective steps to save the loan from turning it to NPL.

Relationship Manager (RM) must try to identify reasons of default of loan non-payment and find out ways to get the loan recovered/regularized.

Policy objectives of IFIC BANK for recovery of loans and advances are to:-

(i) Ensure normal flow of income by taking appropriate measure so that loans are not converted to Non-Performing Loans (NPL).

(ii) Recover stuck-up loans and advances entirely.

(iii) Maximize Bank‟s earning by converting Non-Performing Loans (NPL) to regular loans through re-schedulement.

(iv) Reach to an amicable settlement duly protecting interest of the Bank.

(v) Take timely legal steps as per law in enforce to avoid law of limitation.

(vi) Extract maximum benefits from newly enacted ArthaRinAdalatAin for recovery of loans.

(vii) Adhere to Bangladesh Bank‟s policy guidelines.

Credit Recovery:

The Remedial Asset Management (RAM) directly manages accounts which sustained deterioration a Risk Relating to Sub-Standard or worse). Whenever an account is handed over from Relationship Manager to RAM, a Handover/Downgrade Checklist (Appendix-2) shall be completed.

The RAM‟s primary functions are:

To determine account Action Plan/Recovery Strategy.
To pursue all options to maximize recovery, including placing customers into receivership or liquidation as appropriate.
To ensure adequate and timely loan loss provisions are made based on actual and expected losses.
To conduct regular review of Sub-Standard or worse accounts.

The management of Non-Performing Loans (NPLs) must be a dynamic process, and the associated strategy together with the adequacy of provisions must be regularly reviewed. A process should be established to share the lessons learned from the experience of credit losses in order to update the lending guidelines.

Findings And Recommendation based on survey:

Findings:

The credit risk management is quite commendable, systematic and timely monitoring and appropriate documentation are tried to be maintained.
Customer satisfaction level is quite good .Informal conversation with some customers reveals that they are quite satisfied with the service in regards to disposals of credit proposals
Bank Follow the overall credit assessment and risk grading process according to Bangladesh bank.
Filing procedure is not maintained in a definite and clear manner .It is difficult to locate the documents in a chronological and sequential manner. A definite practice, though mentioned in the credit policy is not always maintained by the credit officials.
Though IFIC Bank is a first generation private bank and enjoys highest reputation in the market while profitability is also commendable .It is observed that the bank could not yet fully equipped with all types of online facilities .However ,it is found that the bank recently developing in this area .
Credit processing and disbursement procedure is comparatively delayed due to non utilization of modern technology which is followed by multinational bank.

Recommendation:

Respective personnel should be trained to overcome the deficiency in regards to increase productivity of employees. The Bank can organize more training program and workshop to make the employees more efficient in their sector.
An uninterrupted network system has to be ensured. It will save the officials from much hassle and will save time.
The credit sanction procedure should be made quicker since competition is very hard in today‟s business world .People do not want to wait for three to four weeks on an average to get a loan which is even protected by security .
Decision making process can be made more decentralized .participative approach should be adopted to gain prompt and effective result.
Filing is very important component of proper documentation .It has to be dealt with importance

Conclusion:

Banking sector of Bangladesh consists of several nationalized and private banks. They are doing their activities and highly contribute to the national economy. Among them IFIC Bank Limited also makes significant contribution to the economy. They are performing their activities, as a result not only the bank but also the economy is benefited. The bank is performing general banking, Loan-advance, foreign exchange activities etc, as a result they are mobilizing the money and do well for the economy. Although they have some limitations in their services, they are doing tremendous job for the economy. If they can reduce their limitation and introduce new ideas, they can do better in the banking sector of Bangladesh.