General Banking Credit and Advance Section of IFIC Bank

Major objective of this report is to analysis and discuss General Banking, Credit and Advance Section of IFIC Bank Limited, lalmatia branch. Other objectives are to know the General banking function and to know the credit facilities process of the branch. Here also discuss on credit facilities and advance department. Also analysis overall idea and know about the financial condition of the bank. Finally find out the existing problem and get knowledge of the product and services of the bank.

Introduction

Banking system of Bangladesh has gone through three phases of development – Nationalization, Privatization and lastly Financial sector Reform. International Finance Investment and Commerce Bank Limited (IFIC Bank) has started its journey as a private commercial bank on 3^rd August, 1983.

The whole working process of principle branch, IFIC Bank Ltd. is divided into there sections.1.General Banking section 2.Credit and Advance .3.Foreign Exchange section. But in my branch there present only two section, General banking, Credit and Advance. This report has been presented based on observation from this two section. Formost I have tried to make acquainted with the bank and branch in this report.

General Banking is the starting point of all the banking operations. It is the department; which provides day to day services to the customers. It opens new accounts, remit funds, issue bank drafts and pay order etc.

Bank credit is an important catalyst for bringing about economic development in a country. Without adequate finance, there cab be no growth or maintenance of a stable economy. IFIC Bank Ltd.being one of the largest private commercial bank of the country, has some prejudice to finance directly on priority bases to agriculture, industry and commerce sector for strengthening the economic base of the country. Hence, it is very clear that, IFIC Bank plays an important role to move the economic wheel of the country. providing different sorts of credit and scheme like, loan against imported merchandise(LIM), Industry loan, SOD, House building loan, Flexi loan, Education loan, are the main spring  of the credit department.

Objectives of the Report

There are several types of objectives are involved in this report. These objectives are given below:

• To comply with the entire branch banking procedure.
• To know the General banking function of this branch.
• To acquire knowledge of practical operation.
• To know the credit facilities process of the branch.
• To know the credit facilities process of the branch.
• To know the advance department of the branch.
• To gain the overall idea and know about the financial condition of the bank.
• To find out the existing problem of the bank, Lalmatia branch.
• To acquire the knowledge of the product and services of the bank, lalmatia branch.

Methodology 

This report was fully exploratory in nature. Data has been collected from both primary and secondary sources.

Primary sources of data

• Informal conversation with the clients.
• Personal experience gained by visiting different desks.
• Face to face communication with employees of the IFIC Bank Ltd.

Secondary sources of data

• Annual reports of IFIC.
• Data collected from internal report.
• Bank records.
• Journals of the Bank.
• Official Website of the Bank.
• Different circular sent by Bangladesh Bank.

General Banking

General banking is the starting point of all the banking operations. It is the department which provides day –to- day services to the customers. Everyday it receives deposits from the customers and meets their demand for cash by honoring cheques.It opens new accounts, remit funds, issues bank drafts and  pay orders etc.since bank is confirmed to provide the services everyday, general banking is also known as “retail banking”.

Cash section:

Cash department is the most vital and sensitive organ of the branch as it deals with all kinds of cash transactions. This department starts the day with cash in vault. Each day some cash that is opening cash balance are transferred to the cash officers from the cash officers from the cash vault. Net figure of this cash receipts and payments are added to the opening cash balance. The figure is called closing balance. This closing balance is then added to the vault. And this is the final cash balance figure for the bank at the end of any particular day.

Functions of Cash Department:

Cash payments or Cheque cancellation process.

Books maintained by this section

In book 1 and book 5, notes and currency are recorded by mentioning their denominations and number of each denomination.

Account Opening:

This section opens accounts .Selections of customer is very important for the bank because banks success and failure largely depend on their customers. If customer is bad, they may create fraud and forgery by their customers. If customers are bad, they may create fraud and forgery by their account with bank and thus destroy goodwill of banks.So; this section takes extreme caution in selecting its customer base.

Accounts opening process

Special documents needed from the Account opener of the following types

Types of Account maintained by this branch- comparative discussion

Transfer of account:

Dormant account:

If any account is inoperative for more than one year is called dormant. To operate these accounts manager permission is necessary.

Cheque clearing:

This section receives all kinds of Cheques in favor of the client for as the part of their banking service. After receiving the Cheque it is necessary to endorse it and cross it specially. Basically the cheque for clearing is of following types:

Test arrangement

For all these techniques of remittance except telephone tranfers, Test is deployed. Test is security number by decoding which the paying bank can be sure that the DD/TT/MT is not forged one. Only authorized officers know the test number. Bank maintains secret code for each of its officers, date, week, year and amount to be transferred.

Local Remittance

Sending money from one place to another place for the customer is another important service of banks. And this service is an important part of country’s payment system.

For the service, people, especially businessmen can transfer funds from one place to another place very quickly. There are five kinds of techniques for remitting money from one place to another place.

FDR

This branch maintains a separate section for fixed deposit. FDR  is an important factor for the bank and volume of FDR determines the investment base of the bank. FDR is found to be 60% of the total deposit of this branch. Basically this is the mobilization unit of the bank. It is obvious to give due importance.

Types of FDR maintained by this branch along with their respective interest rate

Liquidation of FDR

1. Only the amount holder himself and the authorized person can liquid the FDR after maturity.
2. In case of joint name, authentication from both is necessary.
3. In case of ‘Either of Survivorship’ clause – any one can liquid.
4. In case of Death, the survivor cannot encase the FDR even if there exist the either or survivor clause-succession certificate from the court is needed.
5. If demanded before the maturity the last expired duration is considered to pay interest.

FDR section provides another service on behalf of the government. These services this bank issues and encash the following govt securities.

• 3month Bangladesh sanchay patea

This section of this branch is also fully computerized. No ledger, no other subsidiary books are maintained separately in this section. All entry is given directly in the computer and then necessary information is printed when required.

ESTABLISHEDMENT SECTION

This section deals with employee’s salary, many types of internal expenses such as purchase of pen, paper, equipment, machinery and payment of labor cost and employee conveyance. In case of leave of absence employee collects prescribed from this section.

ACCOUNT SECTION

This is obviously an independent and unique department, which works as the composition of all the departments of the branch, but it is under the In-Charge of the General Banking in this branch. This section in this branch is fully computerized. So the conventional large ledger and journals books not kept like the nationalized banks. Only four personnel maintain the entire accounts section. It receives the vouchers from all departments and prepare the subsidiaries and maintains accounts.

Total account of this Branch

Source: Affairs as on 2/9/2008

Credit and Advance

Banking is essentially a business dealing with money and credit. Like over other business activity, Banks are profit oriented. It depends mainly on how much profit they can make. Profit is the yardstick for the bank to move on. They work as reserves of “savings’ of the community and also as lenders or investors for trade business and industry. A bank invests its funds in many ways to earn income. The bulk of its income is derived from loans and advances.

Banks give loans and advances to traders, businesspersons and Industrialists against the security of some assets or on the basis of the personal security of the borrower. This is the survival unit of the bank because until and unless the success of this section the survival is a question to every bank. If this section is not properly working the bank may become bankrupt. This is important because this is the earning unit of the bank. Banks are accepting deposits from the depositors in condition of providing interest to them as well as safe keeping their interest. Now the question may gradually arise how the bank will provide interest to the clients and the simple answer is advance. Why the bank provides advances to the borrowers –

• To earn interest from the borrowers and give the depositors interest back
• To accelerate economic development by providing different industrial as well as agricultural advances
• To create employment by providing industrial loans
• To pay the employees as well as meeting the interest groups

Credit is continuous process. Recovery of one credit gives rise to another credit. In this process of revolving of funds, bank earns income in the form of interest. A bank can invest its fund in many ways. Bank makes loans and advances to traders, businessmen, and industrialists. Moreover nature of credit may differ in terms of security requirement, disbursement provision, terms and conditions etc.

Target Customer of the IFIC Bank

 The customers for loan and advances are categorized as follows:

1. Individual person
2. Sole proprietorship firm
3. Partnership firm
4. Private Limited Company
5. Public Limited Company
6. Government and semi Government Organization
7. Bank employee

Processing of loan and advances  

Applicant applies for the loan in the prescribed form of bank.

Getting Credit Information:

1. Personal investigation
2. Confidential report from other bank head office/ Branch/ Chamber of the Commerce.
3. CIB report from Central Bank

Analyzing the Information

Banks then starts examination that whether the loan applied for is complying with its    lending policy. If comply, then it examines the documents submitted and the credit   worthiness. Credit worthiness analyses, i.e. analysis financial conditions of the loan applicant are very important. If loan amount is more than 50 lac then bank goes for Lending Risk Analysis (LRA) and Spreadsheet Analysis (SA) which are recently introduced by Bangladesh Bank According to Bank rule. LRA and SA are must for the loan exceed one crore.

If these two analyses reflect favorable condition and documents submitted for the loan appear to be satisfactory, then bank goes for further action.

Information Collection

The loans and advance department gets a form filled by the party seeking a lot of information. The information is listed below:

1. Name and address (present and permanent)
2. Constitution or status of the business
3. Particulars of properties, partners and directors
4. Background and business experience
5. Particulars of personal assets, names of subsidiaries, percentage of share holding and nature of business
6. Details of liabilities in name of borrowers, in names of any directors
7. Financial statement for the last three years
8. Nature and details of business/ products
9. Details of requested credit facilities
10. Details of securities offered
11. Other relevant information
12. Proposed debt equity ratio.

Relevant matter of Document checked before sanctioning any Loan:

• There must be an account of the person want to take loan. The account must transact for not less than 3 months to 6 months. Otherwise the loan will not be sanctioned.
• After checking the duration of account than the transaction made by the account holder must be checked. The debit credit position must be also checked, because it is related with future dealings of the borrower.
• The purpose for what the loan is taken by the borrower is another important matter to see and check. Whether the purpose is business or else must be checked with its marketability. Because there is risk of fraud and forgery by the borrower by seeing one purpose in cash of ding any illegal business.
• The banker should check through security whether it is enough or not.

Proper Supervision of the Project:

If such provision is kept in the sanction contracts the bank officials go the project area and observe how loan is utilized. Of no such close to supervise the loan is added, even the bank can see the performance of the project.

Loan Recovery

In general the loans are repaid in installment. Some loans are repaid all at a time. If any loan is not repaid in usual cause to action legal procedure is following to recover the money.

Documentation of the loan

These are the most common documents for creation of above mentioned charges and for other formalities of sanctioning loan.

1. Demand promissory note: Here, the borrower promises to pay the loan as and when demand by bank to repay the loan.
2. Letter of arrangement.
3. Letter of continuity.
4. Letter of hypothecation of goods and capital machinery.
5. Stock Report: This report is used for CD and CC. In this report, information about the quality and quantity of goods hypothecated furnished.
6. Memorandum of deposit to title of property duly signed by the owners of the property with resolution of Board of Directors of the company owning the landed property.
7. Personal guarantee of the owners of the property.
8. Guarantee of the all directors of the company.
9. Resolution of the board of director to borrow fund to execute documents and completes other formalities.
10. Letter of Disclaimer: By this letter, the borrower withdraws his all claim on the claim of the property/ goods lined/ mortgaged.
11. Form no. 18/19 for filling charges with the register of joint stock companies under relevant section.
12. Tax paying certificate.
13. Letter of installment.

Advances

The total advances amounted to TK. million, including bills discounted and purchased as on 31.10.99. Continued emphasis on quality assets resulted in more than hundred percent increases in assets base for the bank, trade-related and working capital financing were the principal areas where lending activities were concentrated.

Loans:

In case of loan, the banker advances a lump sum for a certain period at an agreed rate of interest. The entire amount is paid an occasion either in cash or by credit in this current account, which he can draw at any time. The interest is charged for the full amount sanctioned whether he withdraws the money from his account of not. The loan may be repaid in installments or at expire of a certain period. Loan may be demand loan or a term loan. Advance made in a lump sum repayment either on fixed installment basis or in lump sum on subsequent debit except by way of interest, incidental charge, etc. is called a loan. After creation of loan there will be only repayment by borrower. The loan may be repaid in installment or at expire of a certain period. Loans are normally allowed to those parties who have either fixed source of income who desire to pay it in lump sum. Banks gives different types of loan to his party.

The different types of loan that banks give to his party are as following:

1. Industrial loan
2. Transport loan
3. House building loan
4. Staff house building loan
5. Loan against trust receipt
6. Staff loan against PF (Provident Fund)
7. Cash credit
8. LIM (Loan against Imported Merchandise)
9. Loan general/Demand loan

Before give loan credit department has to do certain functions. First they have to send CIB to Bangladesh Bank, Lending Risk Analysis, and Issuance of Bank Guarantee after completion of these jobs if the result is positive than officer can sanction loan. Every Bank has to send a quarterly CIB Report to the Bangladesh Bank for amounts due up to TK.50, 000/- mentioning the name of the borrower and the purpose for which loan has been sanctioned and a monthly statement for the amount due more 1 core Taka. Bangladesh Bank provides CF (Classification Form) to every bank for preparing this report. The procedure for loan classification is given by Bangladesh Bank under BRPD circular no 16, dated 06/12/1998.

Cash Credit (CC)

Cash credit is the favorite mode of borrowing by traders, industrialist etc. for meeting their working capital. Cash credit is a kind of continuous overdraft. For cash credit facilities Banks allow a limit for his customer. Cash credit facility is given for one year. In banking system cash credit is given for two purposes. The purposes are as following:

• Working capital
• Trading purpose

It is a favorite mode of advance for the customer. For cash credit facility bank allow a limit for his customer. The customer can make continuous transaction with in that limit. CC is given for one year. After one year the customer can renew his CC facility.

Interest

For CC facility interest is counted daily basis. That means customer has to only that amount of interest which is outstanding in his CC account. Interest is cut off from customer current in term wise.

Mode of security

For CC, banks take two type of security. These are as following:

• Pledge
• Hypothecation

In branch level bank cannot give more then 30 lac taka to his customer. But if bank want give more then 30 lacs. The branch has to get approval from head office of the bank.

For giving CC, bank takes following charge document:

1. DP note
2. Letter of arrangement
3. Letter of continuity
4. Letter of hypothecation of goods
5. Stock of goods report
6. Personal guarantee of all the director of the company
7. Deed on additional charge on the fixed assets of the company
8. Form for filling charge with register of joint stock companies
9. Resolution of board of directors
10. Insurance policy for stock

In CC facility bank only allow 50% credit facility of the stock that the customer has been pledge or -hypothecation. Bank gives CC only for one year. After one year customer has to renewal it.

Bills purchases and discounted.

Banks grant advances to their customers by discounting bill of exchange or pro-note.

Overdraft

Overdraft is that advance which is allowed on current account operated upon by check. The customer may be sanctioned a certain limit within which he can overdraw his current A/C within a certain period The customer can withdrawals or deposits any numbers of within his limit. Interest is calculated and charged only on the actual debit balances on daily product basis. Overdraft facility is generally given to businessman for expansion of their business.

Bank gives overdraft in following two ways:

• SOD (secured overdraft)
• Cash credit

Secured Overdraft (SOD)

Secured overdraft is a continuous credit facility to the customer of the bank. This kind of credit facility is given on following security:

• Various kind of Sanchay Patras
• Government security
• FDR (fixed deposit receipts)
• Shares
• Work order

If any customer wants to get SOD facility from the Bank, he has to submit an application to the Bank manager It must be done in prescribed form of the bank. In this has to submit details about his business. After getting application form bank made an office note. In this note bank officer write down the following things:

• Nature of limit
• Extent of limit
• Security
• Margin
• Rate of interest rate
• Validity

Then the Bank Authority marks the security as a lien in their register. For getting any credit facility from the Bank the customer must have a current account in that bank branch. Bank can give up to 80% credit facility of the security like FDR, BSB, PSS, unit certificate.

SOD limit for FDR, BSB, PSS, unit certificate:

• Two corer from branch label
• Above from head office

SOD limit for different kinds share:

• 20 lac from branch label
• If it is more then 20 lac, the branch has to take approved from head office

For share bank can sanction 70% credit facility for “A” grade share and 60% for “B” grade share. In case of SOD on share the last six months average value or present value, which one is higher, is considered.

Security against Advances

The different types of securities that offered to a banker are as follows:

1. Immovable Property
2. Movable Property.

Such As

1. Pratiraksha Sanchay Patra, Bangladesh Sanchay Patra, ICB unit certificates, wage earner development bond.
2. Fixed deposit receipt.
3. Shares quoted in the Dhaka Stock Exchange and Chittagong Stock Exchange.
4. Pledge of Goods, produce.
5. Hypothecation of goods, produce and machinery.
6. Fixed assets of manufacturing unit.
7. Shipping documents.

Modes of Charging Security:

A wide range of securities is offered by banks to cover for loan, in case of borrower’s inability to repay, the banker can full upon the securities. In order to make the securities available to the banker, in case of default by customer, a charge should be created on the security. Creating charge means marketing in available a cover for advance. The following modes of charging securities are applied in IFIC Bank.

1. Lien

A lien is right of banker to hold the debtor’s property until the debt is discharged, bank generally retain the assets in his own custody but sometimes this goods is in the hand of third party with lien marked. When it is in the hand of third party, the third party cannot discharge it without the permission of bank. Lien gives banker the right to retain the property not the right to sell. For sell, permission from the appropriate court is necessary. Lien can be made on movable goods only such as raw materials finished goods, shares, debentures etc.

2. Pledge

Pledge is also like lien but here bank enjoys more right. Bank can sell the property without the intervention of any court, in case of default on loan, but for such selling proper notice must be given to the debtor. To create pledge, physical of goods to the bank is must.

3. Hypothecation

In this charge creation method, physically the goods remained in the hand of debtor. But the documents of title of goods are handed over to the banker. The method is also called equitable charge. Since the goods are in the hand of borrower, bank inspects the goods regularly to judge its quality and quantity for the maximum safety of loan.

4. Mortgage

Mortgage is transfer of an interest in specific immovable property. Mortgage is created on the immovable property like land, building, plant etc. most common type of mortgage is legal mortgage in which ownership is transferred to the bank by registration of the mortgage deed. Another method called equitable mortgage is also used in bank for creation of charge. Here mere deposit of title to goods is sufficient for creation of charge. Registration is not required. In both the case, the mortgaged property is retained in the bank of borrower.

Advanced Against Approved Shares 

Credit facilities to be extended against shares will be called “Investment Scheme against Shares” Advance may be allowed against shares of companies listed with the Stock Exchange Ltd. Subject to margin or any other restrictions imposed by Bangladesh Bank/ Head Office of the bank from time to time. Value of shares and margin should be worked out as per guideline issue from time to time by Bangladesh Bank/ Head Office of the bank.

Advanced Against Fixed Deposit Receipts

Fixed Deposit Receipt

Advance against Fixed Deposit Receipt will be subject to credit restrictions imposed from time to time by Head Office/ Bangladesh Bank. Scrutinize the Fixed Deposit Receipts with regard to the following points:

1. The fixed Deposit Receipt is not in the name of a minor.
2. The depositor on revenue stamp of adequate value discharges in hand his signature is verified.
3. Creation of liability on Fixed Deposit issued in joint names by any one of the depositors is irregular.
4. It the deposit receipt is offered as a security for allowing advances, a letter of line shall be obtained from the depositors, on the appropriate form.
5. If the deposit receipt has been issued by the branch-allowing advance, line against that specific deposit receipt to be marked in the fixed deposit register of the branch.
6. The discharged receipt, the letter of lien duly verified by the issuing branch and the letter confirming registration of the lien on the deposit receipts shall be kept along with other documents under safe custody of the bank.

Total loan taker of IFIC Bank(lalmatia Br) :

Source: Affairs as on 1/9/2008

Findings:

• By the help of the report, we have to know that the number of current account holder is lower than the saving account holder. But for a bank the main benefit comes from the current account.

• For a bank another very important department is Remittance department. By the help of the report, we know that in 2007 the remittance income is very good. But in 2008 its amount is very poor.

• By the help of the report, we have seen that the loan department is very important for the bank. Because a large amount of income is collecting by loan. But the loan taking tendency is some time low and some time high in IFIC Bank.

• By the help of the profit and loss account, we finds that in 2006 the profit was 782596909 , in 2007 it was 511615898 and 2008 it’s amount is 1030801793. So basically we see that the profit contains fluctuating system.

• Sometimes clients open their accounts for loans if they are not granted for the loan then they immediately wants to close their account which is very troubling to the staffs , but this type of clients are few.

Analysis

Basically I have tried to Analysis on the base of findings. This are given below:

• At first, we will analysis the bank account. Because in findings we know that the current account is poor than savings. But its very important to increase the current account. For this reason the account opening officer must be careful and very polite for the customer. On the other hand account opening table may be separate.

• Secondly we will analysis the Remittance department. In findings we see that the remittance income is gradually poor. For this reason the remittance officer must be careful and providing better service though the customer back next time.

• Thirdly we will analysis the loan department .in findings we see that the loan taking is some time low and some time high. We see that the loan against provident fund amount was 5000000 and the demand loan amount was 150000 in 2007. But in 2008 it is 4695714 and o. so we analysis that the loan against PF and Demand loan amount is higher in 2007. Because in 2007 the interest rate is lower. On the other hand the other loan amount in 2008 is higher then 2007 because in 2008 the interest rate is lower. So the bank should be careful to the loan interest, though the general public taking any types of loan.

• Finally we will analysis the profit and loss account. Because in findings we see that the profit of 2006 is better than 2007. Because we follow that the total operating expanse is lower in 2006 than 2007. For this reason the 2006 profit is increases than 2007. On the other hand in 2008 profit is higher than 2007 and the operating expanse is higher in 2008 than 2007. But the total operating income is higher in 2008 than 2007. For this reason the 2008 profit is higher. So the IFIC Bank should minimize the operating expanse and maximize the total operating income.

SWOT Analysis

SWOT Analysis is the detailed study of an organizations and potentials in perspective of its strength, weakness, opportunity and threat. this facilitates the organization to update their existing line of performance and also forecast the future to improve their performance in comparison to their competitors. As through this tool, an organization can study its current position, it can also be considered as an important tool for making changes in the strategic management of the organization.

Strengths:

• IFIC Bank Ltd. has already established a favorable reputation in the banking industry of he country. It is one of the leading private sector commercial banks in Bangladesh.
• IFIC Bank is providing its banking service with a quality leadership and management position. The board of Directors headed by its Chairman Alhaz Md.Mosddeq Ali is a skilled person in business area. Mr. Mashiur Rahman as the Managing Director of the bank management team has a long experience in Banking sector.
• IFIC Bank Ltd. has already achieved a high growth rate accompanied by an impressive petit growth rate in 2006. The number of deposits bad the loans and advances are also increasing rapidly.

Weakness:

• The Bank failed to provide a string quality recruitment policy in the lower and some mid level position.
• The Bank must fix whether it wants to focus on retail banking to become a corporate bank. The path of the future should be determined now with a strong feasible strategic plan

Opportunity:

• In order to reduce the business risk, IFIC Bank has to expand their business portfolio. The management can consider options of starting merchant banking or diversify into leasing and insurance sector.
• A large number of private banks coming into the market in the recent time. in this competitive environment IFIC Bank must expand its product line to be sustainable in the competitive market.
• In addition to these things IFIC Bank can introduce special corporate scheme for the corporate customer who have higher income level.

Threats:

• All multinational banks and upcoming foreign banks posses’ enormous threats to IFIC Bank Ltd.
• The default risks of all term loans have to be minimized in order to sustain in the financial market. Because default risk leads the organization towards to bankruptcy.
• The low compensation package of the employee from mid level to lower level position threats the employee motivation. As a result good quality employees leave the organization and it affects the organization as a whole.