Evaluate the Sick Industries Rehabilitation by Bangladesh Shilpa Bank

The main objective of this report is to evaluate the Sick Industries Rehabilitation by Bangladesh Shilpa Bank. Other objectives are  examine the success status of loan recovery and identify status of sickness of enterprises financed by BSB and also identify the causes behind sickness of enterprises. Report also discuss to evolve measures for overcome the problem of sickness and determine the limitation of Bangladesh Shilpa Bank. Finally analysis the rehabilitation program and recommend some steps to overcome such problem.

Objective of the Study:

The study encompasses the overall activities of Bangladesh Shilpa Bank (BSB). However, the main objective of the study is to evaluate the ‘Sick Industries Rehabilitation by BSB. The objective of the study can be summarized as under:

• To gets an overall idea about the operation of BSB
• To examine the success status of loan recovery
• To identify status of sickness of enterprises financed by BSB
• To identify the causes behind sickness of enterprises
• To evolve measures for overcome the problem of sickness
• To determine the limitation of Bangladesh Shilpa Bank
• To criterion on the basis of which the industries are identified as a sick industry
• To understand the rehabilitation program
• To know which firms are rehabilitate and which are not
• To recommend some steps to overcome such problem

Methodology of the Study:

The report “Sick Industries Rehabilitation” has been prepared absolutely based on BSB. I have used some graphical presentation, growth rate, and trend analysis. In this study, the descriptive as well as some analytical types of research have undertaken to gain insight and to understand about the overall operations and mainly the sick industries rehabilitation by BSB In this study, I have relied on both primary and secondary sources of data the sources are as follows:

Primary Sources:

• Oral and informal conversation with the different departmental heads of Bangladesh Shilpa Bank,
• Observations of banking operations in Head Office.
• Expert’s opinion.

Secondary Source:

1. Printed forms and documents supplied by the official of BSB.
2. Relevant books/papers, etc,

BSB website-

1. Annual Reports.
2. Other published documents.

Overview of BSB

The former Industrial Development Bank of Pakistan (IDBP) and Equity Participation Fund (EPF) both of which were established for the industrial development of Pakistan were converted into a single institution names Bangladesh Shilpa Bank (BSB) after-liberation war in 1971. BSB comes into existence on October31, 1972 by the promulgation of Bangladesh Shilpa Order 1972 (President Order no 129 of 1972). The BSB order, 1972 was amended subsequently by the parliament to provide more operational autonomy to its management

The main objective of BSB is to provide finance both in local and foreign currencies for establishment of new industrial project as well as to balancing, modernization, replacement and expansion (BMRE) of existing industrial units in Bangladesh both in public and private sectors. It also provides other types of financial assistance’s like guarantees for credit/loans, equity-support, and working capital loan to the BSB financed projects. BSB also provide banking business on limited scales.

Brief Overview on BSB:

Establishment                     : 31^st October, 1972

Organization              : Head Office- Dhaka

Division                               : 5

Department                        : 21

Zonal Office                       : 3

Branch Office                    : 15

Personnel                           : 731

Ownership:

At least Government subscribed 51 percent of the authorized capital of BSB and local or foreign Financial Institutions subscribed by Bangladeshi nationals or the remaining 49 percent. Presently, 100 percent ownership of the Bank belongs to the Government.

Mission:

Accelerating the process of industrialization of the country by providing financial assistance and equity support;

Objectives of BSB:

Bangladesh Shilpa Bank as the prime Development Financing Institution (DFI) of the country extend financial assistance both in local and foreign currencies to setting up new industries. It accelerates the process of industrialization of the country by providing financial assistance equity support. It assists the existing industries and rehabilitation of sick industries to boost up the industrial development to the country in conformity with the industrial policy and financial reform programs of the government towards market economy.

Functions:

• Extend long and medium term loan facilities in local and foreign currencies
• For industrial projects (both new and BMRE) in the private and public sector as well as partnership and proprietorship concern.                             .
• Provide working capital loans to Industrial units.
• Provide equity support by way of participation in the equity of the company in the form of underwriting and bridge finance to public limited companies.
• Issues guarantees on behalf of borrowers for repayment of loan.
• Extends commercial banking service along with deposit mobilization, foreign Exchange business, L/C handling, foreign exchange remittances inland & sPurchases and sells shares/securities for BSB and on behalf of customers as a member of Dhaka Stock Exchange (DSE) Ltd. and Chittagong Stock Exchange (CSE) Ltd. for capital market development and Conducts project promotional activities along with preparation of various sector.

Operational Activities:

Bangladesh Shilpa Bank being the prime Development Financing Institution continued its efforts to make an effective contribution towards expansion of industrialization process of the county. It emphasis on long term lending to the viable new projects having comparative advantage, export prospects, forward and backward linkages and local technology as well as raw material based projects.

Profit and Loss:

The bank has made net profit (after adjustment) of Tk.248.38 million during FY2007-08as against 79.04 million (after adjustment) in the previous year. Where as total income of the bank in FY2005-06 was Tk.702.70 million as against Tk.715.20 million of the previous year.

Deposit Mobilization:

During FY2007-08, the bank tried to meet its fund requirement from various sources for lending and investment. The bank emphasized more on no cost and /or low cost deposit mobilization during the period. Total deposit was Tk.707.3 million on June 30, 2006 as against Tk.655.43 in the previous year.

Sanction of Term Loans:

The bank kept on sanctioning of term loans during FY2007-08. This year local currency Loan of Tk. 918 million was sanctioned to 20 projects & short loan of about tk.3 million to 3 projects. . Of the total sanctioned amount, Tk.538 million for new 12 projects and an additional loan of Tk.380 million for 8 -existing projects.

Commitment and Disbursement of Term Loans:

During FY 2007-08the bank made commitment of Tk.403 million in local currency to 13 projects. During the period the bank disbursed term loans of Tk.384 million in local currency to 45 projects. In FY 2006 2007, tk. 534 million term loan in local currency was disbursed to 53 projects.

Sanction of Working Capital/Commercial Loan:

During FY 2007-08, the bank sanctioned working capital /commercial loans of Tk3.37 million to 3 projects and disbursed Tk.32.67 million 9 projects. The bank sanctioned Tk.105 million to 15 projects and disbursed Tk.196 million to 13 projects in the previous year.

2.7.6 Project Implementation:

The bank intensively monitors and supervises implementation of its own financial project. During FY-2007-08, 27 Projects commenced commercial production till now amount of tk. 362 million has been disbursed and 31 projects were under different stages of implementation. Of these, 25 projects were under construction 24Projects completed loan agreements and 11 projects were awaiting documentation. In the below, we have given a chart of stages of project implementation for last three years.

Table: 01

Source: Annual Report

Loan Portfolio:

During FY 2007-2008, loan liabilities of 41 projects were liquidated and 14 new projects were receded in the Banks loan portfolio. As on 30 June 2005 total number of projects in the loan portfolio stood at 166 with a total loan outstanding of Tk.7441 91 million compared to that of 308 projects having a total loan outstanding of Tk. 13998.11 million in the preceding year. Out of 166 projects in the loan portfolio, 60 were export-oriented, 72 import substituting and 34 service / other industries.

Other Investments:

During FY 2007-08, the bank invested Tk.66.16 million to purchase shares from the primary and secondary market and the bank earned an amount of Tk. 14.47 million as Capital gain, dividend, and commission from share trading

Loan Recovered:

Loan recovery is a crucial index to measure the success of a lending organization. Like previous year, this year too, The Bank has strengthened its recovery drive for real realizing loans and dues from its borrowers and significant success was achieved. Total recovery target of loans during FY 2007-08was Tk.900 million, against which actual cash recovery was Tk. 981.20 million constituting 7 percent increase. During the reporting year outstanding loan of Tk. 423.00 million was regularized through rescheduling and replacement of bad and doubtful loan accounts.

Legal Action Taken for Recovery of Loans:

The Bank initiates legal actions under the BSB Order, 1972 against those defaulting and recalcitrant borrowers who fail to come up with any satisfactory settlement of Banks dues after all normal recovery efforts have been exhausted.

Loan Written off:

During FY 2007-08, The Bank has written off a total loan liability of Tk.5420.33 million of 7 projects. Out of which 116 for long term,  52 for bridge & 3 for short term loan.

Other Activities:

Apart from the tasks mentioned above, the bank assist the interested entrepreneurs in selecting industrial projects, upgrade the professional competence and skills of its employees, improve the working efficiency by providing better customer service, computerizing of banks activities.

Project Rehabilitation Department:

Function of Project Rehabilitation Department (PRO):

1. This Dept. primarily selects a project, which become sick. PRD investigates the project and find out the reasons of sickness and forms rehabilitation committee to investigate the projects.
2. To take necessary action to rehabilitate the sick projects after appropriate investigation;
3. When there is no scope to rehabilitate a project, documents transferred to law department to take further steps;
4. To take necessary action about the production, marketing of the product and loan repayment of the project;
5. Managing and Directing and Recommendation about takeover the project;
6. To give confirmation about the projects profitability;
7. Duties give up to the third party or previous management after successful managing of the project;
8. To analysis and compare the production, marketing and recovery of the rehabilitated project and take appropriate action accordingly;

Rehabilitation Department is mainly deals with the sick industry after rehabilitation last 53 projects in 2000. BSB has made a crucial decision to monitor the project performance continuously by the other department and if these department find any symptoms they take initially measures considering the techniques used by the project rehabilitation Department as result this department does not take ^anymore sick projects and according to the personnel of this department, in near future this department will be obsolete

Law Department:

 Functions of Law Department:

• Declaration of legal notices to the loan Defaulters and take legal action against the loan defaulters.

• Law suit against me loan defaulter and arranging the all necessary activities to final dismissal according to the bank ordinance;
• To take the case of the litigation by the bank and to file suit in the high court and Supreme
•  Managing the cases that are filled by the loan-holder against bank with the help of Lawyers;

• To invite auction to sale assets after receiving degree from the court and maintain relation with the courts and co-ordinate the activities;
• Managing case against advance defaulter and filling of the case against them and Preparation of banks special consultant/legal advisor and panel lawyers scheduled and making communication with them to supervise the law-suit and monitoring and coordinating their operation.;
• Recommendation to exchange existing law to the recovery of loan;
• To keep the interest of bank and provide legal advice.

Human Resources Management Department:

Functions of Human Resources Management Department:

• To control of administrative functions of Banks Human resources;
• To take different implementation program for he development of Human Resources;
• To give appointment, promotion and evaluation of officers staffs;
• Preparation of service Rules, correction, implement, administrative rules, sub-rules, notice etc. to control the officers/staffs;
• Proper implementation of labor law, co-operation with employees union, examines the demands, consultation, improvement of relation with administration;
• Sanction of house Building Advance, Bi-cycle Advance and confirmation of utilization;
• Fixation of service facilities and Payment before retirement of L.R.R.;
• Confirmation of Treatment facilities for the Officers/Staffs;
• Maintain all kinds of leave Accounts, Sanction Leave accounts, Sanction leave, except casual leave;
• Taking step and implementation for opening the new branch office;
• Arrangement of meeting of the chief of the branch and zonal offices;

To communicate with the govt. & other organization about administrative affairs, and To take step for implementation of computer technology for controlling of bank human resources function.

• Provide scholarship policy;
• Assist the helpless personnel;
• Provide retirement benefit.
• Provide medical facility & allowance;

Sick Industries

Bangladesh Shilpa Bank undertakes various projects by providing finance, machinery and other aids, some projects re-implemented and successful and some projects are failed to attain the goal and these firms are called sick firm. Sick industry means the industries, which either become stuck-up during construction or could not operate successfully after implementation. These projects could neither pay back the banks dues nor make any contribution to the national economy. These projects were identified as sick industries in Bangladesh, which has no specific statistical data. Here the main objective is to identify the causes of sickness of these industries.

Causes of Sickness:

Bangladesh Shilpa Bank undertakes various projects by providing fiance, machinery and other aids, some projects are implemented and successful and some projects are failed to attain the goal and these firms are called sick firm. There are various reasons of sick firm. But to discuss it easily we classify it in two categories, they are-

1. The reasons that are beyond dies control of the project owner.
2. The reasons that are control of the project owner.

The above causes are further divided into six causes. The causes are discussed below according to their importance though all of the causes are important.

Financial Problems/Shortcoming of Working Capital:

The shortage of working capital is the most acute problem of majority of the sick industries. Working capital is required to finance purchase of required raw materials and other term needs of a project after it is implemented. A survey shows that 17% of the projects suffer due to shortage of capital. The problems, which lead an industry towards sick, are as follows-

• Loan application with insufficient amount of money that would not meet fixed and operation cost.
• Economic problem comes from the social cost benefit analysis.
• Higher fixed cost i.e., increases fixed cost as result of increasing of the price of machinery, land, or any other fixed items.
• Measurement of investment outlay and cost of the project are not appropriate.
• When the means of financing is not available.
• When the project is not profitable.
• When the Production is not reached at the break-even point.
• When they cannot calculate appropriate risk level of sick.
• Cash flow of the project is not available.
• If actual cost of the project is more than the budgeted cost. Shortage of working capital
• Lack of operating capital.
• When variable cost is increasing.
• Does not ensure sufficient mortgage.
• Improper inspection of Bank financed project.
• Insufficient insurance facility.
• If market interest reat4e increase, cost of working capital will increase as a result the project may become in sick.

Technological Problems:

Machinery imbalance causing lower capacity utilization is the major technical problem of many projects. Some are also suffered for faulty technical design. A survey reveals that 13% of the projects are suffered due to technological problems. Which lead industries towards sick are as follows: –

• Whether the preliminary test and studies are not appropriate;
• Availability of raw materials, powers and other infrastructures facilities has not been established;
• The selected scale of operation is not optimal;
• The production process chosen is not suitable;
• The equipment and machine chosen are not appropriate;
• Lack of modem technology, like incapable to use the computer and modem machinery;
• If the selection of machinery becomes faulty, it will not ensure the achievement of objectives;
• Wrong or improper selection of the machinery;
• Lower capacity of the machine resulting price will be higher i.e., production ,cost high, inconsistency between the origin of raw materials and the factory location, production of products and final consumption adversely affect the business;
• Lack of communication system;
• Lack of infrastructure facility;
• Unavailability of gas supply, electricity etc.;
• Selection of old and backdated technologies to be used in production;

Administrative and managerial problems:    

There are also some internal conflict between the worker and manager. A survey reveals that 22% of the projects are suffered due to administrative and managerial problem. The administrative problems, which lead an industry towards sick, are as follows:-

• Success of the firm largely depends on management. When the management is not capable to manage all the managerial aspect, management should have proper planning, organizing, controlling, administrating, and monitoring;
• Weak management of the projects;

• Lack of efficiency of employment as well as management;
• Conflict and also death of management partner’s;
• Death of main entrepreneur of the project;
• Insufficient appointment of employee;
• Unskilled human resources;

Economic Problems:

The economic problems, which lead an industry towards sick, are as follows:-

Economic problem comes from the special cost benefit analysis; ” It does not impact on the distribution of the income in the society as well as the level savings and investments.

Political Problems:

The political problems, which lead an industry towards sick, are as follows:-

• Political pressure;
• Political instability, which adversely affect the production.
• Insufficient facilities provided by the govt. to industrialist like tax rebate etc.

• Political problem like worker unrest, strike etc.

Other reasons of Sickness:

Except the above problems there are also some other problems, which leads an industry towards sick. A survey reveals that 10% of the projects are suffered due to other problems, which are as follow:-

• Selection of in-appropriate industrial unit which is not financial and logically viable in concerned county;
• Delay of loan application;
• Internal delay of industries construction after loan sanction;
• If a portion of loan amount used for personal use;

Sick Situations:

Normally, BSB provides the long-term credit needs for implementation of the projects. BSB also provides working capital to its financed projects only to a limited -scale. While sanctioning loan by BSB, provision is made for commercial banks to provide 70% of the working capital needs But in most cases, it is found that the project management either can’t all raise the required working capital from the commercial banks, or they can’t raise required amount in due time. As a result these projects could not go into operation on schedule time and they were unable to pay the interest and the principal amount; at last they treat as a sick industry.

The Symptoms of sick Industries:

The symptoms of a sick industry are as follows:

• The initiator is unable to pay sufficient money at the implementation stage.
• The initiator is unable to pay sufficient money at the implementation stage
• The delay of implementation increases the project cost. It also creates many

• Problems and the burden of loan interest are also increased.
• The initiator is unable to pay the loan installment and other liability.
• Increase the tendency of undertaking unfair means in preparing the papers of stock materials.
• If profit from investment is decreasing gradually.
• If the project faces loss gradually.
• If the production level decreases considerably.
• To take loan from various sources at a high rate.
• Applied for a large amount of additional loan.
• Non-cooperation tendency with the loan providing bankers.
• Lacking of perfection in the market.

• Delay of operation start;
• Over estimation of mortgage value;
• Delay of documentation formalities in respect of loan;
• Causing of rehabilitation measure;
• Insufficient infrastructure facilities;
• Natural disaster that hampered production;
• Terrorism that hampered to establish an industry;
• And Delay of implementation.

Methods used by BSB to identify a sick industry:

There are some specific criteria to identify a sick industry. Two types of factors can be
considered to identify the sick industries. They are-

On the basis of Cost- Benefit Analysis:

For identifying a sick industries the following criteria may be consider by cost benefit analysis. If the cost of the project is more than the benefit then the industries is to be consider as sick industries. Sometimes industries can not recover the cost of the labor material, for this reason the industries goes into loss.

On the basis of Break even Analysis:

An industry should produce up to break-even point due to recover the fixed cost or overhead cost. If they can’t recover fixed cost then this industry can be considered as a sick industry.

On the basis of Financial Problems/Shortage of Capital:

The shortage of working capital is the most acute problem for majority of the sick industries. Working capital is required to finance purchase of required raw materials and other short term needs of a project after it is implemented. A survey shows that 28% of the projects suffer due to shortage of capital. The problems, which lead an industry toward sick, arc as follows-

• Measurement of investment outlay and cost of the project are not appropriate
•  When the project is not profitable
• When the production is not reached at the break-even point
• Loan application with insufficient amount of money that would not meet fixed and operation cost
•  Cash flow of the project is not available
•  If actual cost of the project is more than the budgeted cost
• Shortage of working capital, i.e. if they do not manage the sufficient working Capital
• If interest rate increases the cost of working capital then the project may become sick
•  Lack of adequate operating capital

• Higher fixed cost, i.e. increase the fixed cost as a result of increasing of the price, of machinery, land or other fixed items
• When variable cost increases
• When there is no sufficient mortgage
• Improper inspection of bank financed project
• Insufficient insurance facility

• Economic problem comes from the social cost benefit analysis

Sick Industries:

The sick industries concept is not he newest one in Bangladesh. It has been occurring from the pre-independence of Bangladesh and inherent some sick industries from its birth. After independence this is also continuing. The exact figure of sick industries is not identified. According to the statistics of a report of Project Rehabilitation Department, 274 sick projects were given loan before 80s and that time, the Govt Wanted balanced industrialization. Consequently, SBS has to give loan to many poor projects and most of the entrepreneurs did not have enough experience about the business and product demand. Moreover, most of the projects location did not have infrastructure facilities. As the entrepreneurs did not have enough experience about the industry and to have appropriate machineries, they has information asymmetry as a result, many of the above identified sick projects used inappropriate machineries, which afterwards became sick. Projects of Food and allied has a great shortage of working capital which caused them to be sick. During 80s most of the textile industries were based on synthetic but later on demand of synthetic was empty because consumer rushed to cotton products. So to rehabilitate them BSB helped them to convert into cotton textile as a result they have successfully continued their operation but the others, which could not convert them, BSB liquidated them. So, there were a number of reasons to be sick. I have tried to classify these projects into five different categories and to prepare this; I took the help to personnel of the project Rehabilitation Department

Causes of Sickness in a Chart:

Source: Project Rehabilitation Department, BSB.

From the above classification we could observe that major problems like management, marketing and working capital caused the project to be sick and the percentage were approximately 22%, 20% and 23% accordingly. Around 71 and 61 projects of Food & Allied and textile were become sick projects respectively and the reasons behind this discussed in the above.

In 2008, BSB has rehabilitated 53 projects, which were given loan before 1998s. I discussed the reasons behind sickness of this projects and I have found that as there were influence of pressure groups to sanction a loan before and after getting the loan most of the borrower diverted their money into another asset as a result, the projects became sick. Again, for lack of adequate experience and efficiencies most of he entrepreneurs of textile sector failed to succeed and around 23 projects were liquidated and BSB recovered their principal money and remaining 30 projects file was sent to he Law Department.

Precautions about the sick Industries:

In the period of stagnation or in abnormal period some firms fail to continue and become as sick industry but if the rate of sickness is devastating then it becomes a matter of fact. So before providing loan importance must be given on the evaluation of future growth of the sector. If the evaluation procedure is correct, sick industry situation may avoid quite easily. So at pre-investment stage the following things must be considered:

1. To examine the project appropriately.
2. To calculate the project cost in a proper way.
3. To identified whether the proper place is selected.
4. Proper observation must be given at the time procurement of machineries.
5. Ensure that skilled and experienced personnel are easily found.
6. Proper steps are taken to protect uneven breakdown of electricity.
7. Ensure mat proper people are involved in managing the committee.
8. Ensure the financial capability of the initiator.
9. Ensure the procedure of makeup the preliminary cost and the doubtful loss.
10. Ensure the quality of the produced product.
11. Ensure the proper way to marketing the produced product.
12. Considering the change of test of customer and analysis the changes of customer behavior
13. Proper plan is taken to implement the project.
14. Steps are taken to avoid the potential conflict.

Impact of Sick industries on BSB and County as a whole:

• Increase of non-performing assets in organizational level as well as national level;
• Decrease in productivity at national level; ” Decrease the contribution in GDP and GNP;”    Average effect in banks profitability;
• Increases the classified loan;
• Increase the lending rate of interest, which adversely affects the new and regular borrowers;
• Affects adversely in the economic growth rate of the county;

Rehabilitation of Sick Industries

Introduction:

Rehabilitation means to reshape the existing industries or projects so that may operate successfully in future Keeping it mind I tried my best to find the appropriate way rehabilitate a sick industry.

Rehabilitation policy:

All sick industries are not rehabilitated because the all-sick industries have not all possibilities to rehabilitate. It depends mainly on the nature of the sickness. The sick industry that is probable to rehabilitate BSB provides and assists the projects in a predefined framework. The predefined criterions that are taken at the time of rehabilitation are as follows:

1. Financial measurement
2. Marketing measurement, and
3. Technical measurement

In the case of rehabilitating a sick industry, the bank takes different policy in different situation, which are as follows:

Financial measurement

In the financial measurement the project should compute the cost of capital and maintain capital budgeting. The present value of net cash inflow should be higher than the present value of cash out flow In such a case, the bank provides some financial treatment that the amount of interest is to be waived or providing consulting service, i.e.

• Success about the proper way
• Inspiration by providing motivation

After considering an industry as a sick, then the industry is taken into rehabilitation by aiding above additional support of that sick industry that can recovers the additional investment after that it seems to be as rehabilitated industry otherwise not. In some extraordinary cases they bound to take some terrible decision because of some political pressure.

Marketing Measurement:

Management of the project should measure the aggregate demand of the product or the project and also maintain the market share. Consumption trends and production are to measure for rehabilitation a sick firm.

Technical Measurement:

Whether the raw material and technology are available or not that must be measured in the form of price and quantity. If they thought that some technological change would reestablish the project they make some technological changes.

Rehabilitation program:

The BSB also puts realistic effort to rehabilitate its sick, problem-ridden and stuck-up projects. In this respective BSB has taken three dimensional measures comprising of

1. Debt relief
2. injection of additional funds
3. direct management

The bank for rehabilitation of the sick projects took these three steps. It is mentionable that with a view to making such projects capable of debt servicing through profitable operation, the bank tried to solve their problems through a combination of measure including a financial package.

The bank has so far rehabilitated 53 such projects. The list of these projects is already mentioned in the sick industry chapter of this report. A summarized position of the facilities extended under its rehabilitation program is shown below-

The bank also makes a program of taking over management of the sick projects directly where the above measures were not considered sufficient due to inefficient management /mismanagement. So they created a department called “sick project management department” for ensuring efficient management of such sick projects. The responsibility of this department is to make such projects capable of debts servicing through profitable operation. So the bank continued sanctioning of term loan during FY 2003-2004. This year local currency of loan of tk 989 million, which was sanctioned to 27projects. Of the total sanctioned amount tk 687 million was for 21 new projects and an additional loan of taka 302 million was for on-going projects including 3 for BMRE purposes.

Rehabilitation Management:

To stimulate industrialization in the county, Bangladesh Shilpa Bank was established in 1972. So, it finances in different types of industries. The industries on which it finances, all are not become successful one. Some of them are foiled to succeed and are identified as sick industries. They find out the causes of sickness of a particular project. Some time they reschedule loan according to the capacities of the project. Moreover more information and advises may be given so that the entrepreneur may run the business more effectively, sufficient return may gain and contribute to the economy. If the project is not rehabilitate, the file is sent to the law department and finally sued against the project. The main activities of rehabilitation department are as follow:

This department primarily selects a project, which become sick. FDD investigates the project, find out the causes of sickness, and formed a committee to investigate the project. Then it is taken under the consideration for Rehabilitation. After considering it as a rehabilitate industry, it is taken into consideration under Rehabilitation program after the approval of rehabilitation consultant committee.

• To take necessary action to rehabilitate sick project after appropriate investigation.
• Taking steps about the rehabilitation document examination, recommendation preparation, implementation, and activation of plain.
• To take confirmation about the project profitability.
• Taking necessary steps about the production, marketing of product and loan repayment.
• Duties give up to the third party or previous management, after successful managing of the project.
• Managing and directing recommendation preparation about take over project.
• Analyze and compare the production, marketing, and recovery of the rehabilitated project and take necessary action accordingly.
• When there is no scope to rehabilitate a project, document transfer to

Rehabilitation of Sick Industries:

All the sick industries are not possible to rehabilitate for a number of reasons. It is mainly depends on the nature of the sickness. The sick industry that is probable to rehabilitate, PRD provides and assists it according to predefined criterion Sick Industry, which are rehabilitated PRD provides:

• Assisting for replacement of machine and aiding additional machinery; Financial treatment that the amount of interest is to be waived or rephrased;
• Providing additional loan;
• Making changes in the management structure;
• Providing consulting service.

 The Sick Industry which seems to continue profitably in future if they have some additional loans or some specific assistance from the BSB then the project is undertaken in rehabilitation program if the committee suggests that the project is no longer continue because of insufficient demand of its product or the industry is failed because of the ill motive of the entrepreneur of diversify the fund into another asset in such cases thePDR, normally sends the file in the law department.

Relationship between appraisal practices, monitoring and sickness:

These three things are very much inter-related; a project goes into sickness due to the inappropriate appraisal practice and monitoring. The linkage amount them is discussed below: –

Appraisal Practices:

Appraisal practices are done from the five aspects. Such as –

a) Managerial aspect

b) Technical aspect

c) Financial aspect

d) Economical aspect

Whether the project is feasible or not from the above mentioned perspective of aspects.

Monitoring:

Monitoring is to supervise and control during the implementation of the project from the viewpoint of the BSB is to proper utilization of loans and recover the installment of loan payment in due time.

Sickness:

When monitoring and appraisal practice is not accomplished properly then the projects are considered as sick. So project implementation depends on the appropriate monitoring and appraisal practice.

Legal Action Taken for Recovery of Loan:

The Bank initiates legal actions under the BSB order 1972 against those defaulting and recalcitrant borrowers who fail to come up with any satisfactory settlement of bank dues after all normal recovery effort has been exhausted. In the following a trend analysis is given to understand the scenario.

Rehabilitation Procedure:

The success and failure of rehabilitation is dependent on how many projects they are       rehabilitated and amongst the rehabilitated projects from how many they would able to recollect this money back.

In 2008, Review Committee of ministry of Industry identified 53 projects as sick industries, which were sanctioned loan before the year of 1995 and this committee also suggested that these 53 projects could not continue in near future and to forgive overdue interest this committee, sent the files to the ministry of Finance. BSB collected principal loan from 23 projects by liquidating them and remaining 30 projects file have been sent to the law department. In rehabilitating these industries, Bangladesh Government provided 50% of the rehabilitation cost and the bank itself provided the rest of the portion.

• Loans are given to sponsors through preparing the appraisal report where adequate analysis is made and helps BSB to minimize the risk. *6. The nature of credit shows that it mainly grants term loan.
• Lack of financial commitment on the part of the borrower, the result is being the failure of mobilization of equity by them in future that is, they divert their equity in other purpose after getting the loan amount.

Before the FY 1996-97 the Internet was not so available as a result there was huge information asymmetry about the machines and manufacture which caused many projects to become sick, but after the mentioned period BSB has become very careful to sanction loan. Proper attention was not given to social costs and  benefit .  BSB helps borrower by giving not only by loan but also gives additional technical support and continuously monitor as well as supervise the project performance that helps to succeed. Some borrowers often do not give enough consideration in terms and conditions of loan agreement as a result they do not get loan during the implementation stages. Oil Loan recovery is mainly depended upon the borrower desire ness. It means that in some cases, the borrowers willingly do not pay the installment rather use the installment amount of money for any other speculative motive to get return which is higher than the penalty interest payment 12. Project rehabilitation is the criteria of BSB that revive the sick project.  BSB in case of rehabilitation of any project forgive penalty interest up to 100%, which is imposed for any default installment. BSB also forgive overdue interest. A complex judiciary system is an obstacle to settle down any case as a result BSB often faces prompt efficient recovery.  Most of the time the govt. appoints inefficient Board of Directors who do not have technical skills to formulate effective policy. 616. BSB is now using LAN (Local Area Network) to have prompt information but unfortunately there is only one computer in each department, which is a hindrance to have benefits of LAN.

• Lacks of eagerness of employees to devote themselves for bank because of lower benefits are given to them.
• Despite BSB’s problem in financial condition, it helps in various social.
• Political interruption in sanctioning loan is the major problems for BSB. Sometimes inefficient allocations of resources have created a huge amount of bed debt.
• Contribution of BSB is remarkable in the industrialization of Bangladesh.
• Unstable policy of management due to political changes over time.
• High educated, efficient and skilled personnel are in the management.

Findings:

As a developed financial institution, BSB plays a vital role for industrialization. BSB is continuing its bolstering endeavor for up graduation of our country, although there are a lot of favorable and strengthen position of BSB in respect of its activities. Nevertheless BSB has some drawbacks that are responsible for huge amount of losses each year. BSB should overcome such problem as early as possible to become a profitable one. One important problem of BSB is that it is a decentralized organization and each department is responsible for particular activities but they have a lack of co ordination to achieve the central objectives. We observed a large number of projects are sick and they are loan defaulter. For that reason I criticize the loan appraisal procedure because it is the vital documents for loan issue. During my internship program, the following findings are obtained:

1. Lengthy procedure and long time (more than three months) involved in the appraisal of project but in case exiting borrower they sanction the loan within 15 days because management appraisal is not required in this regard.
2. Manual of project appraisal was designed 18 years ago.
3. The main aim of BSB is to stimulate industrialization throughout the country as a result they sometimes sanction loan in those projects where infrastructure facilities in not available which cause a project to be sick.
4. BSB gives most of its loan to those entrepreneurs who have enough business experience or have family business except the influence of political and pressure group and they do not encourage the young entrepreneurs.
5. Loan is given to sponsors through preparing the appraisal report where adequate analysis is made and helps BSB to minimize the risk.
6. The nature of credit shows that it mainly grants term loan.
7. Lack of financial commitment on the part of the borrower, the result is being the failure of mobilization of equity by them in future is they divert their equity in other purpose after getting the loan amount.
8. Before the FY 1996-97 the internet was not as available as result there was huge information asymmetry about the machines and manufactures, which caused many projects to become sick, but after the mentioned period BSB has become very careful to sanction loan. Proper attention was not given to social costs and benefits.
9. BSB helps borrower by giving not only by loan but also gives additional technical support and continuously monitor as well as supervise e projects performance that helps to succeed.
10. some borrowers often so not give enough consideration in terms and condition so loan agreement as a result they do not get lain during the implementation stages.
11. Loan recovery is mainly depended upon the borrower desire ness. I means that in some cases, the borrower willingly do not pay the installment rather use the installment amount of money for any other speculative motive to get return which is higher than the penalty interest payment
12. Project rehabilitation is the criteria of BSB that revive the sick project.
13. BSB in case of rehabilitation of any project forgive penalty interest up to 100% , which is imposed for any default installment . BSB also forgive overdue interest.
14. A complex judiciary system is an obstacle to settle down any case as result BSB often faces prompt efficient recovery.
15. Most of the time the govt. appoints inefficient Board of Directors who do not have technical skills to formulate effective policy.
16. BSB is now using LAN (Local Area Network) to have prompt information but unfortunately there is only one computer in each department, which is a hindrance to have benefits of LAN.
17. Lacks of eagerness of employees to devote themselves for bank because of lower benefits are given to them.
18. Despite BSB problem in financial condition, it helps in various social, cultural developments for the county.
19. Political interruption in sanctioning loan is the major problems for BSB.
20. Some times inefficient allocations of resources have created a huge amount of bed debt.
21. Contribution of BSB is remarkable in the industrialization of Bangladesh.
22. Unstable policy of management due to political changes over time.
23. high educated , efficient and skilled personnel are in the management

Recommendations:

Considering the contribution towards accelerating the industrialization process I have given the following the following recommendations:

1. Loan appraisal procedure is time consuming and to some extent project plan become irrelevant after getting the loan. Since all the process is completed so he is bound to take this loan because some expenditure already been incurred (sunk cost). As a result loan recovery may slow and some time default. My suggestion is that BSB should rearrange appraisal procedure so that the entrepreneur can take loan within a short period of time.
2. BSB should avoid unnecessary political interference. To resolve this acute problem my recommendation is to reduce the interference of Govt. and the bank should appoint and select its own directors. Moreover, professional body must be appointed so that effective policy can be formulated.
3. BSB should give more consideration on physical investigation before issuing a loan. However project appraisal should be strict so that nobody can use its loopholes. Sometime real entrepreneur and young entrepreneur should be identified and young entrepreneur should be encouraged to get loan.
4. Employees who are directly involved with loan recovery should be motivated.
5. Bangladesh Shilpa Bank should introduce modern communication system so that every department or unit can get information in his or her desk. Now one department must have to go to other departments for information and has one computer in each department, which is an obstacle to get prompt information. My suggestion is that to make available computer for each employee so that they can make best utilization of computer technology.
6. Encouraging the borrower to repay the loan in time. Special arrangements should be introduced in this respect Legal steps should be dynamic so that default loan recovery is accelerated. And security against the loan should be sufficient to recover the loan.
7. Project must be scrutinized in and appropriate manner as well as the sponsor taking in to consideration on the changing environment and economic reforms and globalizations

Conclusion:

Bangladesh Shilpa Bank is a well- known special bank of our country. We cannot think industrialization in our country without meaningful contribution of Bangladesh Shilpa Bank. Although there are some drawbacks of BSB’s activities nevertheless it plays an important role in the industrial sector of Bangladesh. We get clear idea about this contribution through the analysis of the BSB activities from 1972 to till now. Although some unexpected political pressure hamper such activity but BSB always tries to overcome these sorts of problems by his own policy and procedure. We observed that BSB able to continue to GDP through their industrialization. It is clear that industrialization the base of the economy of the country. Bangladesh Shilpa Bank is now among concern but it tries to overcome such problem. I have observed that the loss of BSB is 220 million in FY 2007-08. Another notable thing is that BSB reduce their loan sanctioning area. We think it is not good news for our economy because new industries are essential for employment generation. At present BSB carefully takes steps for sanctioning loan because of a huge fund become irrecoverable due to sickness of various projects. It is indeed that sickness is the consequences of unconscious and lack of investigation in case of issue of loan. We know sick project is the burden of bank as well as overall economy of the Bangladesh. We also think proper scrutinizing of project proposal and careful physical verification may make sure to be profitable of that industry as well as for Bangladesh Shilpa Bank. Bangladesh Shilpa Bank should concentrate on loan recovery that is necessary for long-term profitability and sustainability. Without pros and cons everybody should to confess of BSB contribution. We expect continue their operations without influence and contribute more and more to out industry that brings good luck to the nation.