General Banking Procedures at NCC Bank

Main objective of the report is to analyze the general banking system of the National Credit and Commerce Bank Limited. Moreover, this report focus on the existing operations/activities of General Banking Section and activities of foreign exchange section. Report also focus on activities of loans and advance section and existing banker-customer relationship. Finally find out some problems related on general banking and give some recommendation to solve this problems.

Introduction

Whoever, being an individual firm, company or corporation generally dealing in the business of money and credit is called a bank. In our country any institution that accepts for the purpose of lending or investment deposits of money from public, repays on demand or transfers by checks, draft orders & other means is called a bank.  Banking is the backbone of national economy. All sorts of economic and financial activities revolve round the axis of the bank. As industries produce goods and commodities, the banks create and control money market and promote formation of capital. From this point of view, banking-a technical profession- can be termed as industry. Services to its customers are the products of banking industry besides being a pivotal factor in promoting capital formation in the country. As all economic and fiscal activities revolve round this important Industry, the role of banking can hardly be over emphasized.

The present day bank structure has evolved over several decades. The far reaching program of economic reform is being carried out at present towards efficient utilization of scarce resources and the development of private entrepreneurship. In the ever changing business environment, financial intermediaries are gradually guided by market forces and regulation. Competition is strengthened by the entry of new and innovative providers of financial services through the development of Money Market and Capital Market. Under the ongoing financial liberalization program, The NCC Bank Limited emerges as a fast growing, leading and prominent bank in the private sector to operate on the commercial arena of Bangladesh. The NCC Bank Limited has already occupied a challenging position among its competitors after achieving success in all areas c business operation.

General Banking Department is considered as the direct customer service center. It is the starting point of all the banking operation. It opens new accounts, remits funds, honor cheque, takes deposits, issues bank draft and pay order etc. general Banking is also known as retail banking. Following are the major banking: Account opening section, clearing section, Cash section, Remittance.

It is the duty of the recovery department of the Bank to recover the landed fund within the stipulated time and if the borrower fails to repay the money within the said period Bank will declare him as a defaulter and recover the fund by selling the securities given by the borrower or by freezing his account or make a suit against him.

Although the approach of NCCBL is proactive in finding good customers but their advertising are limited. Still there are a lot of good small enterprises companies that are in good ground in their respective field of operations- ‘This seems to be conservative to me and will not be much helpful for small entrepreneurs, who arc not well known at his moment. I think that NCCBL should change their approach so that small entrepreneurs and businessmen can get their services without many hassles.

Bank should introduce new short-term schemes like micro-credit for the poor and small Entrepreneurs. Our Bangladesh is a poor country so most of the people has got no enough money to start new own venture. Through the expansion of small business opportunity country can grow. Small business are very easy to handle and manage and also less risky for the Investment as a Banker.

Bank should be more proactive to listen and should put more attention to the customer’s problem and for their help. This kind of human approach, some times create kinds of happiness among the customer’s mind regarding Bank.

National Credit Commerce Bank Limited (NCCBL) is serving the market with almost full range of services. As the number of branches implies, still Bank has limited operation in our country, but it should also be noted that within the next few years from its establishment, no bank could make as good standing as NCCBL has now.

The Bank is run by a group of professionals who are well organized and committed to the bank. Now it is gradually moving towards automation and which will not allow any sort of discrepancies. Bank now aggressively looking and establishing Foreign partners at abroad, to make easier and shorter the time for the remit of NRB. All the above implies that they are successful in gaining the trust of the people and business entities of our country.

Objectives of the report

Main objective of the report is to analyze the general banking system of the National Credit and Commerce Bank Ltd (NCCBL). Moreover, the study also embodied the following specific objectives:

• To study the existing operations/activities of General Banking Section
• To study the existing operations/activities of foreign exchange
• To study the existing operations/activities of loans and advance section.
• To study existing banker-customer relationship.

NATIONAL CREDIT AND COMMERCE BANK LTD.

NCC Bank Limited is a new generation bank. It is a scheduled bank under private sector established under ambit of Bank Company Act, 1991 and incorporated as Public Limited company act, 1994 on 17^th May 1993.Prior to conversion into a scheduled commercial bank, National Credit Limited (NCL) was incorporated as public limited investment company in Bangladesh on 18^th November 1985. It made its journey with a modest beginning on 25^th November 1985 at its registered office and first branch at 7-8 Motijheel Commercial Area, Dhaka-1000. The initial Authorized Capital of the company was 30 (Thirty) crore consisting of 30 (Thirty) lac. Ordinary share of Tk. 100/- each. A new opportunity in this field of financial activities was opened for the business. NCL made a careful journey and maintained its successive growth for few years with its qualified professional management under most unpredictable, unregulated, uncertainties and limitations.

The emergence of NCC Bank Limited at the Juncture of liberalization of global economic activities, after the URUGUAY round has been an important event in the financial sector of Bangladesh. The experience of the prosperous force and the strategic operational policy option of the bank. The company philosophy, “A Bank with vision” has been precisely the essence of the legend of Bank’s success.

NCC Bank- At Present

Like clothes shops, candy shops, bake shops, food shops, NCCBL is not a “debt shop” the term being used by many to call the present say banks. It is now been called a modern bank that undertakes all its operation at international standard.

Having standard its operation as a commercial bank in 1993, recording from some primary difficulties, NCC bank has now emerged as a major player in the financial sector. Listed in both Dhaka and Chittagong bourses since late 1999 with an IPO that raised the paid-up capital of the bank to Tk. 39 crore.

Banks are the pillars of the financial system. Specially, in Bangladesh, the health of the banking system is very vital because the capital market is little developed here. As the banks are still the major sources of credit and exercise great influence on the financial system, it is extremely important that the country’s banking systems should be in good health in the interest of investment activities, meeting the needs of all kinds of finance and related matters.

Over the years, NCC bank has built itself as one of the pillars of Bangladesh’s financial sector and is playing a pivotal role in the extending the role of the private sector of the economy. The bank has a strong branch network nation wide with 32 branches.

Mission of NCC bank

We shall be the forefront of national economic development by:

• Anticipating business solutions required by all our customers everywhere and innovative supplying them beyond expectation.
• Setting industry benchmarks of world class standard delivering customer value through our comprehensive product range, customer service and all our activities building an exciting team-based working environment that will attract, develop and retain employees of exceptional ability who help celebrate the success of our business, of our customer and of national development.
• Maintaining the highest ethical standards and a community responsibility worthy of a leading corporate citizen.
• Continuously improving productivity and profitability, and thereby enhancing shareholder value.

Vision

To be in the front of national development by providing all the customers inspirational strength, dependable support and the most comprehensive range of business solution through our team of professional that work passionately to be outstanding in everything we do.

Goal of the Bank     

To share a significant portion of the banking sector’s by utilizing available manpower and also state of the art technology for maximizing the shareholders wealth.

• Long Term Goal

To maximize the wealth of the shareholders.

• Short Term Goal

To earn satisfactory rate of return on investment by providing wide range of banking service.

Corporate Culture

This bank is one of the most disciplined Banks with a distinctive corporate culture. Here we believe in shared meaning, shared understanding and shared sense making. Our people can see and understand events, activities, objects and situation in a distinctive way. They mould their manners and etiquette, character individually to suit the purpose of the Bank and the needs of the customers who are of paramount importance to us. The people in the Bank see themselves as a tight knit team/family that believes in working together for growth. The corporate culture we belong has not been imposed; it has rather been achieved through our corporate conduct.

SWOT Analysis

SWOT analysis is the detailed study of an organization’s exposure and potential in perspective of its strength, weakness, opportunity and threat. This facilitates the organization to make their existing line of performance and also foresee the future to improve their performance in comparison to their competitors. As though this tool, an organization can also study its current position, it can also be considered as an important tool for making changes in the strategic management of the organization.

Strengths:

• NCC BANK Limited has already established a favorable reputation in the banking industry of the country. It is one of the leading private sector commercial banks in Bangladesh. The bank has already shown a tremendous growth in the profits and deposits sector.
• NCC BANK has provided its banking service with a top leadership and management position.
• NCC BANK Limited has already achieved a high growth rate accompanied by an impressive profit growth rate in 2001. The number of deposits and the loans and advances are also increasing rapidly.
• NCC BANK has an interactive corporate culture. The working environment is very friendly, interactive and informal. And, there are no hidden barriers or boundaries while communicate between the superior and the employees. This corporate culture provides as a great motivation factor among the employees.
• NCC BANK has the reputation of being the provider of good quality services too its, potential customers.

Weaknesses:

• The main important thing is that the bank has no clear mission statement and strategic plan. The bank doesn’t have any long-term strategies of whether it wants to focus on retail banking or become a corporate bank. The path of the future should be determined now with a strong feasible strategic plan.
• The bank failed to provide a strong quality-recruitment policy in the lower and some mid level position. As a result the services of the bank seem to be Deus in the present days.
• The poor service quality has become a major problem for the bank. The quality of the service at NCC BANK is higher than the Dhaka Bank, NCC BANK or Dutch Bangla Bank etc. But the bank has to compete with the Multinational Bank located here.
• Some of the job in NCC BANK has no growth or advancement path. So lack of motivation exists in persons filling those positions. This is a weakness of NCC BANK that it is having a group of unsatisfied employees.
• In terms of promotional sector, NCC BANK has to more emphasize on that. They have to follow aggressive marketing campaign.
• The default risks of all term loans have to be minimized in order to sustain in the financial market. Because of default risk the organization may become bankrupt. NCC BANK has to remain vigilant about this problem so that proactive strategies are taken to minimize this problem if not eliminate.

Opportunities:

• In order to reduce the business risk, NCC BANK has to expand their business portfolio. The management can consider options of starting merchant banking or diversify into leasing and insurance sector.
• The activity in the secondary financial market has direct impact on the primary financial market. Banks operate in the primary financial market. Investment in the secondary market governs the national economic activity. Activity in the national economy controls the business of the bank.
• Opportunity in retail banking lies in the fact that the country’s increased   population is gradually learning to adopt consumer finance. The bulk of our population is middle class. Different types of retail lending products have great appeal to this class. So a wide variety of retail lending products has a very large and easily pregnable market.
• A large number of private banks coming into the market in the recent time. In this competitive environment NCC BANK must expand its product line to enhance its sustainable competitive advantage. In that product line, they can introduce the ATM to compete with the local and the foreign bank. They can introduce credit card and debit card system for their potential customer.
• In addition of those things, NCC BANK can introduce special corporate scheme for the corporate customer or officer who have an income level higher from the service holder. At the same time, they can introduce scheme or loan for various service holders. And the scheme should be separate according to the professions, such as engineers, lawyers, doctors.

Threats:

• All sustaining multinational banks and upcoming foreign and private banks pose significant threats to NCC BANK Limited. If that happens the intensity of competition will rise further and banks will have to develop strategies to compete against these local and foreign banks.

• Other commercial banks are offering higher salary that may create problem for NCCBL to retain their experienced managers and executives.

PRODUCTS OF NCC BANK

Before discussion about products of NCC Bank, we have to understand what bank’s products are. Bank is a service oriented industry and deals with various financial products and services for financial gains.

Financial products and services products that a bank offers to its customers are mainly classified as under:

1. Deposit Products to generate funds.
2. Lending products for financial gains
3. Money Transmission products
4. International business products
5. Special fee earning service3s
6. social services products

Products that are marketing by NCC Bank are as under

Deposit Products

Deposit is the lifeblood of a bank. From the history and origin of the banking system we know that deposit collection is the main function of a bank.

Accepting deposits

Procedures of collecting deposit procedure are almost same in the entire bank and the branches as well. The deposits that are accepted by NCC BANK like other banks may be classified into:

• Current Deposit
• Short term deposit
• Saving Deposit
• Fixed deposit
• Special Saving Scheme Deposit (SSS)

Lending Products

Bank has its own principle about the credit sanctioned or loan to the customers, but lending product of a bank or of a branch is equal important to verify the outstanding at the end of any fiscal year. Every bank pays special attention about their lending products, because these products are handed over on a regular basis.

Continuous Loan

• Secured Overdraft against Financial Obligation {SOD (FO)}

Advances allowed to individual /firms against financial obligation (i.e lien of FDR/PSP/BSP/Insurance Policy etc.) and against assignment of works order for execution of contractual works fall under this head.  It is a continuous advance facility. By this agreement, the banker allows his customer to overdraft his current account up to his credit limits sanctioned by the bank. The interest is charged on the amount, which he withdraws, not on the sanctioned amount. NCC BANK sanctions SOD against different security.

• Secured Overdraft against Work order/ Real Estate etc [SOD (G)}

Advances allowed against assignment of work order or execution of contractual works falls under this head. This advance is generally allowed for a definite period and specific purpose i.e. it is not a continuous credit. It falls under the category “others”.

• Cash Credit (Hypothecation)

Advances allowed to individual /firm for trading as well as wholesale purpose or to industries to meet up the working capital requirements against hypothecation of goods as primary security fall under this type of lending. It is a continuous credit. It is allowed under the category (i) “Commercial Lending” when the customer is other than a industry and (ii) Working Capital when the customer is an industry.

• Cash Credit (Pledge)

Financial accommodations to individual / firm for trading as well as sole- sale purpose or to industries as working capital against pledge of goods as primary security fall under this head of advance. It is also a continuous credit and like the above allowed under the categories (i)”Commercial Lending” and (ii) “Working Capital”.

• Export Cash Credit (ECC)

Financial accommodation allowed to a party for export of goods falls under this head and is categorized as “Export Credit,” The advances must be liquidated out of export proceeds within 180 days.

Money transmission Product

Carrying cash money is troublesome and risky. That’s why money can be transferred from one place to another through banking channel. This is called remittance. Remittances of funds are one of the most important aspects of the Commercial Banks in rendering services to its customers.

• Payment order/security deposit receipt (PO/SDR): This term will be discussed in the overall activities section under remittance department.

• Demand Draft (DD): This term will also been discussed in the overall activities section under remittance department.

• Telegraphic Transfer (TT): This is also a common term that in the remittance section as well. .

FUNCTIONS OF NCC BANK LIMITED

GENERAL BANKING

General banking department is the heart of all banking activities. This is the busiest and important department of a branch, because funds are mobilized, cash transactions are made; clearing, remittance and accounting activities are done here.

Since bank is confined to provide the services everyday, general banking is also known as ‘retail banking’. In NCC BANK LTD Principal Branch, the following departments are under general banking section:

A) Account opening section

B) Deposit Section

C) Cash Section

D) Remittance section

E) Clearing section

ACCOUNT OPENING SECTION

Account opening is the gateway for clients to enter into business with bank. It is the foundation of banker customer relationship. This is one of the most important sections of a branch, because by opening accounts bank mobilizes funds for investment. Various rules and regulations are maintained and various documents are taken while opening an account. A customer can open different types of accounts through this department. Such as:

1. Current Deposit.
2. Savings account.
3. Short notice deposit (SND)

Types of Accounts with Terms and Conditions

Current Deposit

Current account is purely a demand deposit account. There is no restriction on withdrawing money from the account. It is basically justified when funds are to be collected and money is to be paid at frequent interval. Some important points have been discussed in the project part.

Savings Bank Account

This deposit is primarily for small-scale savers. Hence, there is a restriction on withdrawals in a month. Heavy withdrawals are permitted only against prior notice. Some Important Points have been discussed in project part.

 SND (Short Notice Deposit) Account

Normally various big companies, organizations, Government Departments keep money in STD account. Frequent withdrawal is discouraged and requires prior notice.  The deposit should be kept for at least seven days to get interest. The interest offered for STD is less than that of savings deposit. Interest is calculated based on daily minimum product and paid two times in a year. Interest rate is 6.00%.

Account Opening procedure

Documents required for opening account

Individual / Joint Account

1. Introduction of the account.
2. Two photographs of the signatories duly attested by the introducer.
3. Identity (copy of passport).
4. Joint Declaration Form (For joint a/c only).
5. Employee’s Certificate (in case of service holder).

Partnership account

1. Introduction of the account.
2. Two photographs of the signatories duly attested by the introducer.
3. Partnership letter duly signed by all partners (Sign should be similar as stated in Partnership Deed).
4. Partnership Deed duly certified by Notary public.
5. Registration (If any).
6. Updated Trade license.

Proprietorship account

Introduction of the account.

1. Two photographs of the signatories duly attested by the introducer.
2. Valid copy of Trade License.
3. Rubber stamp.
4. TIN number certificate.
5. Identity (Copy of passport).
6. Permission letter from DC/ Magistrate (in case of newspaper)

Limited company

1. Introduction of the account.
2. Two photographs of the signatories duly attested by the Introducer.
3. Valid copy of Trade License.
4. Board resolution of opening A/C duly certified by the Chairman/Managing Director.
5. Certificate of Incorporation.
6. Certificate of Commencement (In case of Public limited company).
7. Certified (joint stock) true copy of the Memorandum and Article of Association of the Company duly attested by Chairman or Managing Director.
8. List of directors along with designation & specimen signature.
9. Latest certified copy of Form – xii (to be certified by register of joint stock companies) (In case of Directorship change).
10. Rubber Stamp (Seal with designation of each person)
11. Certificate of registration (In case of Insurance Company – Obtained from department of Insurance from the Peoples Republic of BD).

Club / societies account

1. Introduction of the account.
2. Two photographs of the Signatories duly attested by the introducer.
3. Board Resolution for Opening A/C duly certified by President/ Secretary.
4. List of Existing Managing Committee.
5. Registration (if any).
6. Rubber Stamp.
7. Permission letter from Bureau of N.G.O.(In case of N.G.O. A/C).

Closing of an account

The closing of an account may happen,

• If the customer is desirous to close the account,
• If the NCC BANK finds that the account is inoperative for a long duration.
• If the court of NCC BANK issues garnishee order.

A customer may close his/her account any time by submitting an application to the branch. The customer should be asked to draw the final check for the amount standing to the credit of his/her account less the amount of closing an other incidental charge and surrender the unused check leaves. The account should be debited for the account closing charge etc. and the authorized officer of the bank should destroy unused check. In case of joint account the application for closing the account should be signed by the joint account holder. The fee for closing of an account is Tk.50.

B) LOCAL REMITTANCE

Carrying cash money is troublesome and risky. That’s why money can be transferred from one place to another through banking channel. This is called remittance. Remittances of funds are one of the most important aspects of the Commercial Banks in rendering services to its customers.

Types of remittance:

• Between banks and non banks customer
• Between banks in the same country
• Between banks in the different centers.
• Between banks and central bank in the same country
• Between central bank of different customers.

The main instruments used by the NCC BANK of remittance of funds are

• Payment order (PO)
• Demand Draft (DD)
• Telegraphic Transfer (TT)

So the basic three types of local remittances are discussed below:

Table-

Term Deposit Receipt

The Local Remittance section of NCC BANK Motijheel Branch also issues TDR. They are also known as time deposit or time liabilities. These are deposits, which are made with the bank for a fixed period, specified in advance. The bank need not maintain cash reserves against these deposits and therefore, the bank offers higher of interest on such deposits.

Term Deposits: These rates are not negotiable. In this table we can find out the percentage that is given by the bank for specific period of time to the customer.

C) CLEARING SECTION

The amount of Cheques, Pay Order (P.O), and Demand Draft (D.D) Collection from other banks on behalf of its customer is a basic function of a Clearing Department.

• Clearing:  Clearing is a system by which a bank can collect customers fund from one bank to another through clearing house. 

• Clearing House:  Clearing House is a place where the representatives of different banks get together to receive and deliver Cheques with another banks.

• Normally, Bangladesh Bank performs the Clearing House in Dhaka, Chittagong, Rajshahi, Khulna & Bogra. Where there is no branch of Bangladesh Bank, Sonali bank arranges this function.

• Member of Clearing House:  NCC BANK limited is a scheduled Bank. According to the Article 37(2) of Bangladesh Bank Order, 1972, the banks which are the member of the clearinghouse are called as Scheduled Banks. The scheduled banks clear the cheque drawn upon one another through the clearinghouse.

Types of Clearing

• Outward Clearing: When the Branches of a Bank receive cheques from its customers drawn on the other Banks within the local clearing zone for collection through Clearing House, it is Outward Clearing.
• Inward Clearing: When the Banks receive cheque drawn on them from other Banks in the Clearing House, it is Inward Clearing.
• Who will deposit cheque for Clearing:  Only the regular customers i.e. who have Savings, Current, STD & Loan Account in the bank can deposit cheque for collection of fund through clearing house.

Responsibility of the concerned officer for the Clearing Cheque and being work with department, following are the issues

• Crossing of the cheque.
• (Computer) posting of the cheque.
• Clearing seal & proper endorsement of the cheque.
• Separation of cheque from deposit slip.
• Sorting of cheque 1st bank wise and then on branch wise.
• Computer print 1^st branch wise & then bank wise.
• Preparation of 1^st Clearing House computer validation sheet.
• Examine computer validation sheet with the deposit slip to justify the computer posting

Copy of computer posting in the floppy disk.

Bills Collection:  In modern banking the mechanism has become complex as far as smooth transaction and safety is concerned. Customer does pay and receive bill from their counterpart as a result of transaction. Commercial bank’s duty is to collect bills on behalf of their customer.

Types of Bills for Collection

1. Outward Bills for Collection (OBC).
2. Inward Bills for Collection (IBC).

What is OBC?

OBC means Outward Bills for Collection .OBC exists with different branches of different banks outside the local clearinghouse. Normally two types of OBC:

• OBC with different branches of other banks

• OBC with different branches of the same bank

Procedure of OBC:

• Entry in the OBC register.
• Put OBC number in the cheque.
• “Crossing seal” on the left corner of the cheque & “payees account” will be credited on realization “seal” on the back of the cheque with signature of the concerned officer.
• Despatch the OBC cheque with forwarding.
• Reserve the photocopy of the cheque, carbon copy of the forwarding and deposit slip of the cheque in the OBC file.

Inward bills for collection (IBC)

When the banks collect bills as an agent of the collecting branch, the system is known as IBC. In this case the bank will work as an agent of the collection bank. The branch receives a forwarding letter and the bill.

Procedure of IBC:

1. IBC against OBC: To receive the OBC cheque first we have to give entry in the IBC Register .The IBC number should put on the forwarding of the OBC with date.
2. Deposit of OBC amount: OBC cheque amount is put into the “sundry deposit-sundry Creditors account”, prepare debit & credit voucher of it. If the OBC cheque is honored, send credit advice (IBCA) with signature & advice number of the concern branch for the OBC amount.
3. If the OBC cheque is dishonored, the concerned branch is informed about it.
4. Again place in the clearing house or send the OBC cheque with Return Memo to the issuing branch according to their information.

D) ACCOUNTS SECTION

Accounts Department is called as the nerve Centre of the bank. In banking business, transactions are done every day and these transactions are to be recorded properly and systematically as the banks deal with the depositors’ money. . Improper recording of transactions will lead to the mismatch in the debit side and in the credit side. To avoid these mishaps, the bank provides a separate department; whose function is to check the mistakes in passing vouchers or wrong entries or fraud or forgery. This department is called as Accounts Department. If any discrepancy arises regarding any transaction this department report to the concerned department.

Besides these, the branch has to prepare some internal statements as well as some statutory statements, which are to be submitted to the Central Bank and the Head Office. This department prepares all these statements.

Workings of this department:

• Packing of the correct vouchers according to the debit voucher and the credit voucher
•  Recording the transactions in the cashbook.
• Recording the transactions in general and subsidiary ledger
• Preparing the daily position of the branch comprising of deposit and cash
• Preparing the daily Statement of Affairs showing all the assets and liability of the branch as per General Ledger and Subsidiary Ledger separately
• Making payment of all the expenses of the branch
• Recording inters branch fund transfer and providing accounting treatment in this regard.
• Preparing the monthly salary statements for the employees
• Preparing the weekly position for the branch which is sent to the Head Office to maintain Cash Reserve Requirement (C.R.R)
• Preparing the monthly position for the branch which is sent to the Head Office to maintain Statutory Liquidity Requirement (S.L.R)
• Make charges for different types of duties
• Preparing the budget for the branch by fixing the target regarding profit and deposit so as to take necessary steps to generate and mobilize deposit.
• Checking of Transaction List
• Recording of the vouchers in the Voucher Register

E. FOREIGN EXCHANGE

Foreign exchange is the means and methods by which rights to wealth in a country’s currency are converted into rights to wealth in another country’s currency. In banks when we talk of foreign exchange, we refer to the general mechanism by which a bank converts currency of one country into that of another. Foreign Exchange Department (FED) is the international department Bangladesh Bank issues license to scheduled banks to deal with foreign exchange. These banks are known as Authorized Dealers.  If the branch is authorized dealer in foreign exchange market, it can remit foreign exchange from local country to foreign countries.  So   NCC BANK, Principal branch is an authorized dealer.

There are three kinds of foreign exchange transaction:

1. Import
2. Export

A) IMPORT

To import, a person should be competent to be an importer’. According to Import and Export Control Act, 1950, the Office of Chief Controller of Import and Export provides the registration (IRC) to the importer. In an international business environment, buyers and sellers are generally unknown to each other. So seller of goods always seeks security for the payment of his exported goods. Bank gives export guarantee that it will pay for the goods on behalf of the buyer if the buyer does not pay. This guarantee is called Letter of Credit. Thus the contract between importer and exporter is given a legal shape by the banker by ‘Letter of Credit’.

Letter of Credit

Definition

A letter of credit is a letter issued by a bank (know as the opening or the issuing bank) at the instance of its customer (known as the opener) addressed to a person (beneficiary) undertaking that the bills drawn by the beneficiary will be duly honored by it (opening bank) provided certain conditions mentioned in the letter gave been complied with.

Table

Parties to the L/C

Steps for import L/C Operation – 8 steps operation

Step 1 – Registration with CCI&E

• For engaging in international trade, every trader must be first registered with the Chief Controller of Import and Export.
• By paying specified registration fees to the CCI&E. the trader will get IRC/ERC (Import/Export Registration Certificate), to open L/C with bank, this IRC is must.

Step 2 – Determination terms of credit

• The terms of the letter of credit are depending upon the contract between the importer and exporter. The terms of the credit specify the amount of credit, name and address of the beneficiary and opener, tenor of the bill of exchange, period and mode of shipment and of destination, nature of credit, expiry date, name and number of sets of shipping documents etc.

Step 3 – Proposal for Opening of L/C

To have an import LC limit an importer submits an application to department to NCC BANK. The proposal contains the following particulars:

• Full particulars of the bank account
• Nature of business
• Required amount of limit
• Payment terms and conditions
• Goods to be imported
• Offered security
• Repayment schedule

Step 4 – Application by importer to the banker to open letter of credit

• For opening L/C, the importer is required to fill up a prescribed application form provided by the banker along with the following documents:

Table-

Step 5 – Opening of L/C by the bank for the opener:

• Taking filled up application form from the importer.
• Collects credit report of exporter from exporter’s country through his foreign correspondence there.
• Opening bank then issues credit by air mail/TELEX/SWIFT followed by L/C advice as asked by the opener through his foreign correspondent or branch as the case may be, at the place of beneficiary. The advising bank advises the L/C to the beneficiary on his own form where it is addressed to him or merely hand over the original L/C to the beneficiary if it is so addressed.

Step 6 – Shipment of goods and lodgment of documents by exporter:

• Then exporter ships the goods to the destination of the importer country.
• Sends the documents to the L/C opening bank through his negotiating bank. Generally the following documents are sent to the Opening Banker with L/C:

Table-

Step 7 – Lodgment of Documents by the opening Bank from the negotiating bank:

After receiving the documents, the opening banker scrutinizes the documents. If any discrepancy found, it informs the importer. If importer accepts the fault, then opening bankers call importer retiring the document. At this time many thing can happen. These are indicated in the following:

• Discrepancy found but the importer accepts – no problem occurs in lodgment.
• Discrepancy found and importer not agreed to accept – In this case, importer protest and send back all the documents to the exporter and request his to make in the specified manner. Here banker is not bound to pay because the documents send by exporter is not in accordance with the terms of L/C.
• Documents are OK but importer is willing to retire the documents – In this case bank is obligated to pay the price of exported goods. Since importer did not pay for bill of exchange, this payment by bank is one kind of credit to the importer and this credit in banking is known as PAD.
• Everything is O.K. but importer fails to clear goods from the port and request bank to clear – In this case banks clear the goods and takes delivery of the same by paying customs duty and sales tax etc. So, this expenditure is debited to the importer’s account and in banking it is called LIM.

Step 8 – Retirement

The importer receives the intimation and gives necessary instruction to the bank for retirement of the import bills or for the disposal of the shipping document to clear the imported goods from the customs authority. The importer may instruct the bank to retire the documents by debiting his account with the bank or may ask for LTR (Loan against Trust Receipt).

Accounting Procedure in case of L/C Opening

When the officer thinks fit the application to open a L/C, giving the following entries- creates the following charges-

Table-

Amendment of L/

After opening of L/C some time’s alteration to the original terms and conditions become necessary. These amendments involve changes in

1. Unit price
2. Extension of validity o the L/C
3. Documentary requirements etc.

Such amendments can be affected only if all the concerned parties agree i.e. the beneficiary, the importer, the issuing bank and the advising bank.

For any amendment the importer must request the issuing bank in writing duly supported by revised indent/ Proforma invoice. The issuing bank then advises the required amendment to the advising bank. L/C amendment commission including postage is charged to the clients A/C.

Loan against Trust Receipts (LTR)

• Advance against a Trust Receipt obtained from the Customers are allowed to only first class tested parties when the documents covering an import shipment or other goods pledged to the Bank as security are given without payment. However, for such advances prior permission/sanction from Head Office must be obtained.

• The customer holds the goods or their sale-proceeds in trust for the Bank, till such time, the loan allowed against the Trust Receipts is fully paid off.

• The Trust Receipt is a document that creates the Banker’s lien on the goods and practically amounts to hypothecation of the proceeds of sale in discharge of the lien.

Loan Against Imported Merchandise (LIM)

Advance (Loan) against the security of merchandise imported through the Bank may be allowed either on pledge or hypothecation of goods, retaining margin prescribed on their Landed Cost, depending on their categories and Credit Restriction imposed by the Bangladesh Bank. Bank shall also obtain a letter of undertaking and indemnity from the parties, before getting the goods cleared through LIM Account.

Payment Procedure of Import Documents

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

• Date of Payment

Usually payment is made within seven days after the documents have been received. If the payment is become deferred, the negotiating bank may claim interest for making delay.

• Preparing Sale Memo

A sale memo is made at B.C rate to the customer. As the T.T & O.D rate is paid to the ID, the difference between these two rates is exchange trading. Finally, an Inter Branch Exchange Trading Credit Advice is sent to ID.

• Requisition for the Foreign Currency

For arranging necessary fund for payment, a requisition is sent to the International Department.

• Transmission of Message

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

B) EXPORT

Understanding

The goods and services sold by Bangladesh to foreign households, businessmen and Government are called export. The export trade of the country is regulated by the Imports and Exports (control) Act, 1950. There are a number of formalities, which an exporter has to fulfill before and after shipment of goods. The exports from Bangladesh are subject to export trade control exercised by the Ministry Of Commerce through Chief Controller of Imports and Exports (CCI & E). No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI & E and holds valid Export Registration Certificate (ERC). The ERC is required to be renewed every year. The ERC number is to be incorporated on EXP forms and other documents connected with exports.

The formalities and procedure of Export L/C

• Obtaining exports LC: To get export LC form exporter issued by the importer.
• Submission of export documents: Exporter has to submit all necessary documents to the collecting bank after shipping of goods
• Checking of export documents:  After getting the documents banker used to check the documents as per LC terms
• Negotiation of export documents:  If the bank accepts the document and pays the value draft to the exporter and forward the document to issuing bank that is called a negotiating bank. If the bank does buy the LC then the bank normally acts as collecting bank.
• Realization of proceeds: This is the period when the issuing bank has realized the payment.
• Reporting to the Bangladesh bank:  As per instruction by Bangladesh bank the bank has to report to respective department of Bangladesh bank by mentioning latest payment.
• Issue to proceeds realization certificate (PRC):  Bank has to issue proceed realization certificate of export LC to the supplier / exporter for getting cash assistance

Back-To-Back L/C

It is simply issued to the clients against an import L/C. Back-to-Back mechanism involves two separate L/C. One is master Export L/C and another is Back-to-Back L/C. On the strength of Master Export L/C bank issues bank to Back L/C. Back-to-Back L/C is commonly known as Buying L/C. On the   contrary, Master Export L/C is known as Selling L/C.

Features of Back to Back L/C

• An Import L/C to procure goods /raw materials for further processing.
• It is opened based on Export L/C.
• It is a kind of Export Finance.
• Export L/C is at Sight but back to Back L/C is at Usance.
• No margin is required to open Back to back L/C
• Application is registered with CCI&E
• Applicant has bonded warehouse license.
• L/C value shall not exceed the admissible percentage of net FOB value of relative Master L/C.
• Usance period will be up to 180 days.
• The import L/C is opened for 75% of the value of Export L/C.
• Here L/C issued against the lien of export L/C.
• Arrangements are such that export L/C matures first then out of this export profit, import L/C is paid out.

Documents Required for Opening a Back-to-back L/C

In NCC BANK Principal Branch, following papers/ documents are required for opening a back-to-back L/C-

1. Master L/C
2. Valid Import Registration Certificate (IRC) and Export Registration Certificate (ERC)
3. L/C Application and LCAF duly filled in and signed
4. Proforma Invoice or Indent
5. Insurance Cover Note with money receipt
6. IMP Form duly signed

In addition to the above documents, the followings are also required to export oriented garment industries while requesting for opening a back-to-back L/C –

1. Textile Permission
2. Valid Bonded Warehouse License
3. uota Allocation Letter issued by the Export Promotion Bureau (EPB) in favor of the applicant for quota items.

Payment of back to back l/c:

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

LENDING AUTHORITY

As sure proper and orderly conduct of the business of the Bank, the Board of Directors’ will empower the Managing Director and other Executives of the Bank to lend up certain amount under certain terms and conditions at their discretion. The lending officer is broadly categorized as follows:

• Managing Director
• Deputy Managing Director
• Executive vice President Asst.
• Senior vice President
• Vice President
• Senior Asst. vice President
• Vice President.

It must be emphasized that an Officer will not be delegated lending authority only on the basis of his position. Specified lending authority will be delegated by the Managing Director to various Executives after taking into consideration his proven credit judgment, knowledge and experience. The amount of lending authority approved by the Board for various Executives form the upper limits of the authority that may be delegated to an officer holding corporate title. Each individual lending authority will be delegated to him in writing. The managing Director with the Executive Committee/ Board will review all lending authorities periodically.

CIB

Bangladesh Bank has established within itself a Credit Information Bureau (CIB), which collects credit information from the banks. Banks are required to furnish such information in respect of credit limit of Tk.50000 and over. They mention the Name of facility, security and charge along with outstanding balance. After consolidating such information in respect of each customer the central bank supplies to the total limits sanctioned to and the number of banks dealing with a party. Thus the banks can find out if any of their customers is having excessive borrowings from the banking system at any particular time.

LOAN CLASSIFICATION

Loan classification is a process by which the risk or loss potential associated with the loan accounts of a bank on a particular date is identified and quantified to measure accurately the level of reserves to be maintained by the bank to provide for the probable loss on account those risky loan.

Like other banks, all types of loans of NCC BANK fall into following four scales:

• Unclassified: Repayment is regular.
• Substandard: Repayment is stopped or irregular but has reasonable prospect of improvement.
• Doubtful debt: Unlikely to be repaid but special collection efforts may result in partial recovery.
• Bad/ Loss: Very little chance of recovery.

 SECURITIES

1. Primary security: These are the security taken by the ownership of the items for which bank provides the facility.
2. Collateral security: Collateral securities refer to the securities deposited by the third party to secure the advance for the borrower in narrow sense. In wider sense, it denotes any type of security on which the bank has a personal right of action on the debtor in respect of the advance.

DOCUMENTATION

Documentation can be described as the process or technique of obtaining the relevant documents. In spite of the fact that banker lends credit to a borrower after inquiring about the character, capacity and capital of the borrower, he must obtain proper documents executed from the borrower to protect him against willful defaults. Documents contain the precise terms of granting loans and they serve as important evidence in the law courts if the circumstances so desire. That’s why all approval procedure and proper documentation shall be completed prior to the disbursement of the facilities.

CREDIT DISBURSEMENT

Having completely and accurately prepare the necessary loan documents, the loan officer ready to disburse the loan to the borrower’s loan account. After disbursement, the loan needs to be monitored to ensure whether the terms and conditions of the loan fulfilled by both bank and client or not.

ADMINSTRATION/MONITORING

The administration of the loan process shall ensure. Compliance with all laws and regulations at both local and global levels including bank policy as set out in this document and the Banks credit manual/ circulars.

Proper analysis of credit proposal is complex and requires a high level of numerical as well as analytical ability and common sense to ensure effective understanding of the concepts and thus common sense. Bank healthy proper staffing of the credit departments shall be done through placement of qualified officials who have got the right aptitude, formal training in finance, credit risk analysis, Bank credit procedures as well its required experience. Where repayment and interest servicing performance of a credit deteriorates shall be identifies at an early state and closely monitored to avoid low losses.

SWOT ANALYSIS ON GENERAL BANKING OF NCCBL

In the further studies of overview of NCC Bank we have identified the Strength, Weakness, Opportunities and Threats of NCC Bank, but identifying the SWOT analysis of General Banking relates to the activities of General Banking Section. Following are some outcomes:

Strength

1. Using up to date software in all the subsection of general Banking Section that will reduce time and labor of employee.
2. Introduced different types of schemes and services that are available in multinational banks to compete in market and clients satisfactions as well.
3. Skilled manpower and efficient employees are being involved in busy subsection of this section to meet the client’s satisfaction.
4. Promotional activities of (such as advertising) of different schemes and services are being encouraged to stay in the competition.
5. Good customer base services are being provided as per recent informal meeting with customer those who are receiving day to day services.

Weakness

1. Using of Data Base networking in information Technology from one branch to another is a major problem of general banking section, resulting time consuming, manual work and delay in day to day execution.
2. Being not fully computerized it follows traditional system while executing day to day operations.
3. According to some clients, variety of services not practiced and this is the reason of falling behind in competition.
4. According to some clients, introducer in account opening procedures are very much emphasized due to this those who does not have the reference may not be part of this bank.

Opportunities

1. Being advertised of present schemes and services, clients are likely to enjoy the competition and this section of the bank has the opportunity to be more competitive in near future.

2. New ideas have to find out from experts or from fresher towards the effective execution of the daily general banking activities for taking this more competitive.

Threats

1. Though it is local non-government bank, it has not on-line banking system. It’s become a threat for the department and for the bank to stay in the competition.

2. Providing different new schemes and services compared to other banks, it has not attracting its clients by providing fast and fully customized way, it’ll become a threat for this section to retain customers.

PROBLEM IDENTIFICATION REGARDING GENERAL BANKING

• In general banking department they follow the traditional banking system. The entire general banking procedure is not fully computerized.
• The cash counter I think is congested and the procedure is also traditional.
• Lack of variety of services is also a drawback of the general banking area of the NCC BANK Bangladesh Limited. The Bank provides only some traditional limited services to its client. As a result the bank is falling behind in competition.
• They are not using Data Base Networking in Information Technology (IT) Department. So they have to transfer data from branch to branch and branch to head office by using floppy disk and sure it is not a good system.
• According to some clients opinion introducer is one of the problems to open an account. If a person who is new of the city wants to open account, it is a problem for him/her to arrange an introducer of SB or CD accounts holder.
• Employees are not so efficient those who are in the cash section, due to this, customers have to wait a lot when they pay the money and receive the money as well.

• Advertisement about their present schemes and services are not reaching to the entire concern client because of they are not likely to encourage to peruse its marketing executives.

• Where computer leads every sphere of lives including general banking activities, NCC bank does not have experts in computer.

• Though it is local non-government bank, it has on-line banking system. But most of the employees are not expert to run online system.

• Finally new ideas have to find out from experts or from fresher towards the effective execution of the daily general banking activities.

RECOMMENDATION REGARDING GENERAL BANKING SECTION

• Nearly every bank follow traditional system in general banking activities but bank should introduce computerized system it will reduce time, labor and cost also.
• Cash payment section and cash received sectioned should be separated by using data based software.
• New service policy was about a drawback but NCCBL now introduced 12 new services for the client so that it may make a difference.
• They should use Data Base Networking in Information Technology (DBNITD) Department so that they transfer data from one branch to another and branch to head office.
• The problem with account introducer may concern regarding to business purpose only but not for general clients those who maintain only accounts with that branch.
• Employees have to be very careful when they accepts are pays money they have to be very fast and responsible for goods customer base service and always have money checker machine with them.
• At present NCCBL has the 16 different sachems are available but clients are not concerned about that, have to create the awareness among the client, perfectly advertised about the advantages of the schemes only then clients will came to know.

• The bank kills enough time of their clients in providing services as it lacks in expert computer operators. To remove this lacking, I think, bank should arrange some sorts of training programs in this sector.

• Now a day, On-line banking system is very much popular in the world. So, the bank should appoint some efficient people in this sector.

• Experienced consultant may need to discover new ideas, and students with entrepreneurial sprit may also concerned in this matter.

Conclusion

From the practical implementation of customer dealing procedure during the whole period of my practical orientation in NCC BANK limited I have reached a firm and concrete conclusion in a very confident way. I believe that my realization will be in harmony with most of the banking thinkers. It is quite evident that to build up an effective and efficient banking system to the highest desire level computerized transaction is a must.

Success in the banking business largely depends on effective lending. Less the amount of loan losses, the more the income will be from Credit operations. The more the income from Credit operations the more will be the profit of the NCC BANK Limited and here lays the success of Credit Financing.

Though there are some drawbacks in implementing Credit facilities in NCC BANK Limited as per manual, it can be further developed in light of the recommendations being discussed above. Finally it can be argued that though the results achieved so far are not satisfactory, Credit Financing is a modern scientific technique for enhancing NCC BANK’s strength and there lies the opportunities to make it more effective in the future for our own benefit.