Credit Policy of Pubali Bank Limited

Credit Policy Of PUBALI BANK LIMITED

When a prospective customer requests a loan, bankers analyze all available information to determine whether the loan meets the bank’s risk-return objectives. Credit analysis is essentially default risk analysis in which a loan officer attempts to evaluate borrower’s ability willingness to repay. Therefore, bankers need to perform qualitative analysis, which has been classified according to the five Cs of credit as under

a) Character

b) Capital

c) Capacity

d) Condition

e) Collateral

Principles of Sound Lending

a) Safety

PUBALI Bank exercises the lending function only when it is safe and the risk factor is adequately mitigated and covered. Safety depends upon: The security offered by the borrower. The repaying capacity and willingness of the borrower is to repay the advance.

b) Liquidity

The liability of a Bank is repayable of demand or at a short notice. So the Bank has to maintain its liquidity at a sufficient level. Investment on building, plant, machinery, land etc. cannot be recovered quickly, so it is less liquid.

c) Profitability

Profit is needed to pay interest to depositors, depreciation, and maintenance, declare dividend to share holders, provide or reserve against bad and doubtful debts etc. so like all other Banks PUBALI Bank also disburse advances to earn profit.

d) Security

To ensure safety of advances, Banks takes different types of securities like MTDR, Sanchaypatra, land, work order etc. Banker should ensure that the securities are adequate, marketable and free from encumbrances.

Categories of Loans and Advances:

All loans and advances may be grouped into 4(four) categories, namely (a) Continuous Loan (b) Demand Loan (c) Fixed Term Loan and (d) Short-term Agricultural and Micro Credit.

a) Continuous Loan:

The loan Accounts in which transactions may be made within certain limit and have an expiry date for full adjustment will be treated as Continuous Loans. Examples are: CC, OD etc.

b) Demand Loan:

The loans that become repayable on demand by the bank will be treated as Demand Loans. If any contingent or any other liabilities are turned to forced loans (i.e. without any prior approval as regular loan) those too will be treated as Demand Loans. Such as: Forced LIM, PAD, FBP, and IBP etc.

c) Fixed Term Loan:

The loans, which are repayable within a specific time period under a specific repayment schedule, will be treated as Fixed Term Loans.

d) Short-term Agricultural and Micro Credit:

Short-term Agricultural Credit will include the short-term credits as listed under the Annual Credit Program issued by the Agricultural Credit Department of Bangladesh Bank. Credits in the agricultural sector repayable within less than 12 months will also be included herein. Short-term Micro-Credits will include any micro-credits for less than Tk.25, 000/= and repayable within less than 12 months, be those termed in any names such as Non-agricultural credit, Self-reliant Credit, Weaver’s Credit or Bank’s individual project credit.

The loans product through which PUBALI Bank is serving to its customers:

a. Continuous Loan:

Secured Over Draft Against Financial Obligation {(SOD) (FO)}
Secured Over Draft Against Work Order/Real State etc. {(SOD) (G)}
Cash Credit (Hypothecation)
Cash Credit (Pledge)
Export Cash Credit (ECC)

b. Demand Loan:

Loan General.
Demand Loan against Ship breaking.
Payment Against Documents (PAD)
Loan Against Imported Merchandise (LIM)
Loan Against Trust Receipt (LTR)
Forced Loan
Packing Loan
Secured Over Draft Against Cash Incentive
Foreign Documentary Bills Purchased (FDBP)
Local Documentary Bills Purchased (LDBP/IDBP)
Festival Business Loan.

c. Term Loan:

Project Loan.
Transport Loan.
HouseBuilding Loan.
Small business Loan.
Consumer Finance Scheme.
Lease Finance
Personal Loan.
Staff Loan

General procedure for sanctioning loans & advances

The following procedure is applicable for giving advance to the customer. These are:

A. Duly fill-up first information sheet

B. Application for Loans/Advances

C. Credit Risk Grading

C. Collecting CIB report from Bangladesh Bank

D. Making proposal to Head Office

E. Project appraisal

F. Head office approval

G. Sanction letter

H. Documentation

I. Charges on Securities

J. Recovery

A. First Information Sheet

First information sheet is the prescribed form provides by the respective branch contains following particulars: –

· Name of the concern with its factory location, Office address & Phone number,
· Name of the main sponsors with their educational qualification and experience,
· Details of past and present business, it achievement and failures,
· Name of all the concerns wherein the sponsors have involvement,
· Income tax registration number with the amount of tax paid for the last

three years,

· Details of unencumbered assets personally owned by the sponsors,
· Details of liabilities with other Banks and financial institutions,
· Estimated cost of the project & means of finance.

B. Application for Investment

After receiving the first information sheet from the borrower Bank official verifies all the information carefully. He also checks the account maintains by the borrower with the Bank. If the official becomes satisfied then he gives application or Investment form to the prospective borrower.

C. Collecting CIB Report from Bangladesh Bank

After receiving the application for advance, PUBALI Bank sends a letter to Bangladesh Bank for obtaining a report from there. This report is called CIB (Credit Information Bureau) report. Pubali Bank generally seeks this report from the head office for all kinds of Investment. The purpose of this report is to being informed that whether the borrower has taken loan from any other Bank; if yes then whether the party has any overdue amount or not.

D. Making Investment Proposal

After receiving CIB report, concern branch prepare an Investment proposal, which contains terms, and conditions of Investment for approval of Head Office or Head of the concerned branch. Following documents are necessary for sending the Investment proposal:

Loan application
Declaration of the borrower
Photograph of the borrower duly attested
Bio data of the borrower
Limit sanction
Credit report
Legal opinion
Memorandum of article
Trade license
Copy of title deeds
Tax clearance certificate

If the officer thinks that the project is feasible then he will prepare a proposal. PUBALI Bank prepares the proposal in a specific form called Investment proposal. It contains following relevant information:

Borrower, Date of establishment, constitution, Main sponsor/director with background,
Capital structure, address,
Account opening date, introduced by type of business, particulars of previous
sanctions,
Security (existing and proposed),
Movement of accounts,
Components on the conduct of the account,
Details of deposit, liabilities of allied concerns, liabilities with other Banks,
CIB report,
Rated capacity of the project (item wise),
Production/purchase during the period,
Sales during the period,
Earning received for the period,

E. Project Appraisal

It is the pre-investment analysis done by the officer before approval of the project. Project appraisal in the Banking sector is needed for the following reasons:

To justify the soundness of an investment,
To ensure repayment of Bank finance,
To achieve organizational goals,
To recommend if the project is not designed properly.

Techniques of Project Appraisal

An appraisal is a systematic exercise to establish that the proposed project is a viable preposition. Appraising officer checks the various details submitted by the promoter in first information sheet, application for Investment and Investment proposal. PUBALI Bank considers the following aspects in appraising a proposal.

Technical viability
Commercial viability
Financial viability
Economic viability

The Head Office (HO) mainly checks the technical, commercial and financial viability of the project. For others HO is dependent on branch s information. But when the investment size is big, then the HO verifies the authenticity of information physically.

F. Head Office Approval

Upon receipt of the Investment proposal from the branch, the Head Office aging appraises the project. If it seems to be a viable one, the HO sends it to the Board of Directors for the approval of the Investment. The Board of Directors (BOD) considers the proposal and takes decision whether to approve the Investment or not. If the BOD approves the Investment, the HO sends the approval to the concerned branch. The respective officer of Head Office appraises the project by preparing a summary named Top Sheet or Executive Summary. Then he sends it to the Head Office Credit Division for the approval of the Loan. The Head Office Credit Division considers the proposal and takes decision whether to approve the Investment or not. If the committee approves the Investment, the HO sends the approval to the concerned branch with some conditions. These are like:

Drawing will not exceed the amount of bill receivables.
All other terms and conditions, as per policy and practice of the Bank for such advance to safeguard the Banker s interest shall also be applicable for this sanction also.
Bank may change/alter/cancel any clause (s) of the sanction without assigning any reason whatsoever and that shall be binding upon the client unconditionally.
Branch shall not exceed the sanctioned limit.
Required charge documents with duly stamped should be obtained.

Drawing shall be allowed only after completion of mortgage formalities and other security arrangement.

G. Sanction Letter

After getting the approval of the HO the branch issues sanction letter to the borrower. A sanction letter contains the following particulars amongst other details:

Name of borrower
Facility allowed
Purpose
Rate of interest
Period of the Investment and mode of adjustment
Security
Others terms and condition

H. Documentation

If the borrower accepts the sanction letter, the Documentation starts. Documentation is a written statement of fact evidencing certain transactions covering the legal aspects duly signed by the authorized persons having the legal status. Following are the most common documents used by the PUBALI Bank for sanctioning different kinds of Investment: