Internship Report On Credit Management System of IFIC Bank

Executive Summary : Economic history shows that development has started everywhere with the banking system and its contribution towards financial development of a country is highest in the initial stage. In 1996, World Bank published ‘Bangladesh: Agenda for action’ in which it has suggested a lot of recommendations for economic development of our country. International Finance Investment and Commerce (IFIC) Bank Limited started banking operations on June 24, 1983. Prior to that it was set up in 1976 as a joint venture finance company at the instance of the Government of the People’s Republic of Bangladesh. 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. According to the borrower need bank provide various types of loan. But the total loan is divided into two categories – Consumer Finance and Small and Medium Enterprise Finance. Credit activities are the risky step for any types of the bank especially commercial bank. For getting assurance to recover the loan bank critically examine the loan and loan borrower depending on the information. At the time of selection of the borrower credit management should consider five ‘C’s. In the time of loan appraisal credit management follow some steps like Collection of Application, Approval Process, Credit Administration, Security Types, Credit Documentation, CIB Report, Risk Measurement, Disbursement, Custodial Duties and Compliance Requirement. There should be formal procedures and a system in place to identify potential credit losses and remedial action has to betaken to prevent the losses. Beside that the systems should be in place to report the following exceptions to relevant executives in credit. Moreover, regular contact with customers will enhance the likelihood of developing strategies mutually acceptable to both the customer and the bank  The collection process for personal loans starts when the account holder has failed to meet one or more contractual payment (installment). IFIC bank Ltd. Dhanmondi branch mainly provides three types of credit, which are – Fixed term loan, Continuous loan and Micro credit. They avoid short term agriculture Loan. Performance in the field of deposit mobilization, credit disbursement, foreign Trade, remittance, and income has become positive then the previous year. In 2008, deposit mobilization was Tk. 2188975775.29. That is more than 2007 amounting Tk.1881112214.42. Among total deposit, Fixed Term deposit has the first position. In 2008, credit stood Tk. 2798893465.04. The loan has increased 1.44% than the previous year.

 INTRODUCTION: Economic history shows that development has started everywhere with the banking system and its contribution towards financial development of a country is highest in the initial stage. Keynes also emphasized the role of bank services in the process of economic development of a country, while he was addressing the House of Lords regarding International and Monetary System (quoted in Sharma 1985).

 Leaving aside the generalizations made above, the case studies of some particular developed countries also show the useful roles played by the banks in economic development process of those countries. Prior and after World War – II, Japan experienced very high rates of both industrial production and per capita income. Takeuchi (1970) credited Japanese banking system with making vital contributions to that growth.

 Modern banks play an important part in promoting economic development of a country. Banks provide necessary funds for executing various programs underway in the process of economic development. They collect savings of large masses of people scattered through out the country, which in the absence of banks would have remained ideal and unproductive. These scattered amounts are collected, pooled together and made available to commerce and industry for meeting the requirements. Economy of Bangladesh is in the group of world’s most underdeveloped economies. One of the reasons may be its underdeveloped banking system. Government as well as different international organizations have also identified that underdeveloped banking system causes some obstacles to the process of economic development. So they have highly recommended for reforming financial sector. Since 1990, Bangladesh Government has taken a lot of financial sector reform measurements for making financial sector as well as banking sector more transparent, and formulation and implementations of these reform activities has also been participated by different international organization like World Bank, IMF etc.

 In 1996, World Bank published ‘Bangladesh: Agenda for action’ in which it has suggested a lot of recommendations for economic development of our country. These recommendations include special presentation for reforming banking sector. In this agenda, World Bank has suggested to introduce bank management program as follows:

 “Professional sings the banking business will generate large, long term payoffs in the form of a more efficient banking system apart from functional and technology-related training required at Bangladesh Bank and the commercial banks.”

 After completion of the 11^th semester institutional course, I was placed in IFIC Bank Limited, for 12 weeks long Internship Program to acquire practical knowledge. This is an orientation to the entire banking procedures of IFIC Bank Limited and finally a study on a particular area. While working there, I had to select a point of concentration consulting with both of my supervisors in which I can make a detail research presented my understanding about that operational area in this report. The Credit Management Department was the area of my study. This internship program is a firsthand experience of the practices in banking and helped to develop a broad understanding about the detailed process of credit management system of IFIC Bank Limited. This practical operation is also having positive development in professional arena.

 1.2 Objectives of the Study

The primary objective of this study is to attend the course of Practical Orientation in Banks, which is required after the completion of B.B.A Program. But the objective behind this study is something broader. Objectives of the study are summarized in the following manner-
a.      To comply with the entire branch banking procedure

b.      To make a bridge between the theories and practical procedures of banking day to day operations
c.       To understand the practical difference that has been taught in the last four years in Finance courses.
d.      To analyze the performance of the branch as well as IFIC Bank Ltd. as a whole.
e.       To have some practical exposures that will be helpful for my career after completion of BB.A. Program.
 1.3 Methodology of the Study

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

 Primary sources of data

v  Conversation with the bank officers and staffs.
v  Informal conversation with the clients
v  Different manuals of IFIC Bank Limited.
v  Different circulars sent by Head Office of IFIC Bank Limited
Secondary sources of data
v  Annual report of IFIC Bank Limited
v  Different papers of IFIC Bank Ltd.
v  Unpublished data
v  Different text books
v  Different circular sent by Bangladesh Bank.

 1.4 Scope of the Report

 The study was conducted to evaluate and analyze the credit management system of IFIC Bank Ltd, its problem and probable solution were identified. This report contains the over all credit function performed by IFIC Bank Ltd, Dhanmondi Branch. The credit procedures were critically evaluated.

 1.5 Limitations of this Report

 The present study was not out of limitations. But as an intern it was a great opportunity for me to know the banking activities of Bangladesh especially IFIC Bank. Some constraints are as follows:

• First, one of the major limitations is the shortage of internship period. Since three month is not enough to know everything of a Bank, so this report does not contain all the area of IFIC bank Ltd.
• Second, limitation of the personal knowledge is another one. Since knowledge has knows no bound, so this report is incapable to represent all things with more depth.
• Third, because of the limitations of various sources of information the report doesn’t contain many important information and data.
• Every organization has their own secrecy that is not revealed to others. While collecting data they did not disclose much information for the sake of organizational confidentiality.
• Since banks personals were very busy they could provide me very little time.
• I carried out such a study for the first time so inexperience is one of the main constraints of the study.

1.6 Structure of the Report

 This is a short report covering all that I experienced while working at bank. The report has fifth parts. The first part is the “Introduction”. The second part contains information about IFIC Bank. The third part gives information about “Credit Management System” where I have worked. “Analysis” is described in the forth part. The last part named ‘Conclusions’ ends the report.

 ORGANIZATION  PROFILE

2.1 IFIC- a Sketch

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

 The objectives of the finance company were to establish joint venture Banks Finance Companies and affiliates abroad and to carry out normal functions of a finance company at home.

 When the Government decided to open up banking in the private sector in 1983, the above finance company was converted into a full-fledged commercial Bank. Along with this, the Government also allowed four other commercial Banks in the private sector. Subsequently, the Government denationalized two Banks, which were then fully Government-owned.

 2.2 Mission

 Our Mission is to provide service to our clients with the help of a skilled and dedicated workforce whose creative talents, innovative actions and competitive edge make our position unique in giving quality service to all institutions and individuals that we care for.

We are committed to the welfare and economic prosperity of the people and the community, for we drive from them our inspiration and drive for onward progress to prosperity.

We want to be the leader among banks in Bangladesh and make our indelible mark as an active partner in regional banking operating beyond the national boundary.

In an intensely competitive and complex financial and business environment, we particularly focus on growth and profitability of all concerned.

 2.3 Ownership Structure

 Ownership of the Bank is held by the sponsors in the private sector and Government of the People’s Republic of Bangladesh. Sponsors and individuals now own about 65% of the share capital and the Government own a little more than 35% of the shares.

 2.4 Capital

 The bank started with an authorized capital of Tk.100 million in 1983 and paid up capital at that time stood at Tk. 71.50 million. Over the last Twenty Fifth years the authorized capital has increased to Tk.1600 million and paid up capital increased toTk.1341.43 as on 31st December 2008.

 2.5 Human Resource Development

 Human Resources Development is focused on recruitment and in-house training for both on the job and off the job Bank staff members through the Bank’s Academy. IFIC Bank Academy – the oldest institution in the private sector – was conceived of as an in-house training center to take care of the training needs of the Bank internally. Academy is fully equipped with a professional library, modern training aids and professional faculty. Library has about 4941 books on banking, economics, accounting, management, marketing and other related subjects.

Main training activities consist of in-depth foundation programs for entry level Management Trainees. Specialized training programs in the areas like general banking, advance, foreign exchange, marketing and accounts etc. are also organized by the Academy depending on need.

During its 23 years of existence, Academy not only conducted courses, workshops and seminars as required by the Bank, but it also organized training programs for the Bank of Maldives, Nepal Bangladesh Bank Limited and Oman International Exchange LLC. In addition, Academy has also the credit of organizing system of Bank of Maldives.

 2.6 Milestone of the Development

 1976 – Established as an Investment & Finance Company under arrangement of joint   venture with the Govt. of Bangladesh.

1980 – Commenced operation in Foreign Exchange Business in a limited scale.

1982 – Obtained permission from the Govt. to operate as a commercial Bank.

1983 – Setup its first overseas joint venture (Bank of Maldives) on the Republic of Maldives.

 – Commenced operation as a full-fledged commercial Bank in Bangladesh.

1985 – Set up a joint venture Exchange Company in the Sultanate of Oman.

1987 – Set up its first overseas branch in Pakistan at Karachi.

1993 – Set up its second overseas branch in Pakistan at Lahore.

1994 – Set up its first joint venture in Nepal for banking operation.

1999 – Set up its second joint venture in Nepal for lease financing.

2003 – Bank celebrated its 20th founding anniversary.

– Overseas Branches in Pakistan amalgamated with NDLC, to establish a joint venture Bank: NDLC-IFIC Bank Ltd., subsequently renamed as NIB Bank Ltd

 2.7 Branch Network

The bank covers by its activities all the important trading and commercial centers of the country. As on January 01, 2009 it has 74 branches within Bangladesh.

 Figure 02.1: Branch Map

CREDIT  MANAGEMENT

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 itself 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 – Loan. Why the bank provides Loan to the borrowers –

a)      To earn interest from the borrowers and give the depositors interest back

b)      To accelerate economic development by providing different industrial as well as agricultural advances

c)      To create employment by providing industrial loans

d)      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.

This section has been analyzed in this report in the following manner-

1. Types Of Loan Provided By The Branch
2. Selection of the borrower
3. process of the loan
4. Recovery System
5. Regulation

 3.1 Types of Loan

 According to the borrower need bank provide various types of loan. But the total loan is divided into two categories. These are –

 3.1.1  Consumer Finance

       Easy Loan (Secured Personal Loan)

      Consumer Durable Loan

      Parua Loan (Education Loan)

      Thikana (HouseBuilding Loan)

      Peshajeebi Loan (Loan For Professional)

      Auto Loan

      Festival Loan

      Flexi Loan

ü  Any Purpose Loan

ü  Marriage Loan

ü  Home Decoration Loan

ü  CNG Conversation Loan

ü  Medical Loan

ü  Holiday Loan

 Requirements:

1. Age limit: Minimum age 25 years and maximum age 60 Years.
2. Loan size: Minimum Tk. 100000 and Maximum Tk.500000 ( Depend on the nature of the loan)
3. Disbursement Mode: Loan general/ overdraft/ Term Loan.
4. Rate of Interest: As prescribed or as revised form time to time.
5. Penal Interest: Additional 2% P.A on the overdue amount.
6. Repayment Method: Equal monthly installment.
7. Service Charge: 1% on loan amount to be realized before disbursement of loan
8. Required documents:

• 2 copy passport size photograph from the intending borrower.
• CIB Report on the borrower
• Letter of arrangement
• Letter of disbursement (for loan)
• Letter of installment (for loan)
• Letter of continuity (for SOD limit)
• Letter of lien on security
• Surrender form (for ICB unit certificate)
• Personal guarantee of spouse/parents
• Memorandum of deposit of claques
• Bank statement for minimum last 6 month

9. Legal Documents:

3.1.2  Small and Medium Enterprise Finance

      Easy Commercial Loan

      Retailer Loan

      Transport Loan

      CommercialHouseBuilding Loan

      Possession Right Loan

      Contractor’s Loan

      Letter Of Guarantee

      Working Capital Loan

      Letter Of Credit

      Loan Against Imported Machinery

      Loan Against Trust Receipt

      Bidder’s Loan

      Project Loan

      Woman Enterprise Loan

      Muldan Loan

      Phalphesali Rin

      Krashi Seranjam Rin

      Gabadi Poshu & Motso Rin

      Sech Saranjam Rin

Requirements:

1. Nature of loan: Overdraft or Loan General
2. Age limit: Minimum 21years and Maximum 65 years
3. Rate of interest: Basis on the nature of the security
4. Penal interest: Additional 2% per annum on the overdue amount.
5. Disbursement mood: overdrawing the CD account/credit to party’s CD account in the case of loan general.
6. Disbursement pre-condition:

• Acceptance of sanction terms
• Clean CIB report
• Payment of all charge
• Deposit of instrument duly discharged
• Execution of all charge document
• D.P Note
• Letter of arrangement
• Letter of disbursement (for loan)
• Letter of installment (for loan)
• Letter of continuity (for SOD limit)
• Letter of lien on security
• Surrender form (for ICB unit certificate)
• Pledge set up confirmed by CDBL

7. Legal document:

8. Tenor
9. Service charge

 On the basis of the nature loan in divided in to two categories:

 Term loan

• Industrial loan
• Agriculture loan
• House building loan
• Transport Loan
• Loan general (Easy Loan)
• Flexi Loan

 Continues loan

• Working capita loan
  • Cash Credit ( hypo)
  • Cash Credit ( pledge)
  • Secured Overdraft

 3.2 Selection of the Borrower

 Credit activities are the risky step for any types of the bank especially commercial bank. For  this riskiness the deposit are collected from the depositor that means the amount of money the bank giving as a loan is ready  to delivered it to depositor when he needs. On the other hand loan activities are the main source of banking earning. For getting assurance to recover the loan bank critically examine the loan and loan borrower depending on the information. This process is called borrower selection process or credit analysis. In 1975 Jack R Chigger the bank specialist describes the importance of 5 C’s in credit analysis and it’s a very popular process. The processes are PARSER, CAMPERI and 5R’s Model.

Figure 03.1: Processes of PARSER, CAMPERI and 5R’s Model

 As bank lends its depositors money, the employment of such fund is therefore, required to be made judiciously so that it comes back in the ordinary course of business. So right selection of the borrower mostly ensures repayment of the fund. Right selection needs a careful and systematic study of the affairs of the intending borrower. At the time of selection of the borrower credit management should consider the following five ‘C’s.

• Character
• Capacity
• Capital
• Collateral &
• Condition

Before forwarding and advance proposal there are some yardsticks to select the right borrower. These are:

a)   Borrower’s loan applications

b)   Reports obtained through friends or rivals especially from the borrower in same line of trade or business

c)   Borrower’s own mode of dealings

d)  Statement of accounts with other bank

e)   Statement of assets and liabilities

f)    Balance sheet, profit & loss statement of accounts for three years

g)   Income tax statement

h)   Trade and other report in the press

i)     Confidential reports from other banks

j)     Personal contact and interview

A banker must satisfy himself about the following before forwarding an advance proposal to the sanctioning authority with his recommendations:

a)         Date of opening of the account – nature of truncation – average balance – present balance.

b)         Business – its nature – dealing items – average turnover.

c)         Purpose of financial accommodation

d)        Nature of primary security

e)         Collateral security – if any

f)          Period for which the accommodation sought for

g)         Repayment method

h)         Personal characteristics of the borrower

i)           Business experience

j)           Credit worthiness of the applicant:

• Investment of the business
• Other source of income – if any
• Market reputation – goodwill
• Other investment – if any
• Financial obligation – if any
• Audited Balance Sheet, Profit and Loss account

k)         Location of the business

l)           Banker’s confidential status report

m)       CIB report

After studying the borrower’s documents, the credit manager is to take decision whether the borrower may be provided advance or not. If the analysis borrower selection is positive, the credit manager can give loan or credit to the selected borrowers.

3.3 Procedures of Loan Appraisal

3.3.1 Collection of Application

Applicant applies for the loan in the prescribed form of the bank describing the types and purpose of loan.

3.3.2. Approval Process

The responsibility for preparing the credit proposal would rest with the RM within the corporate/commercial banking department. Credit proposal shall be recommended for approval by the RM team and forwarded to the approval team within CRM and approved by individual executives.

The recommending or approving executives shall be responsible and accountable for their recommendations or approval.

Figure: APPROVAL PROCESS

1. Proposal forwarded by RM (Branch Manager) to Head of Credit (CRM).
2. HOC/CRM Executive advise the decision as per delegated authority to RM ( Branch Manager)
3. HOC supports & forwards to Deputy Managing Director.
4. Deputy Managing Director advises the decision as per delegated authority to HOC.
5. Deputy Managing director supports & forwards to Managing Director
6. Managing Director advises the decision to Deputy Managing Director/ HOC.
7. Managing Director presents the proposal to Board.
8. Board advises the decision to Managing Director.

Any decline credit may be re-presented to the next higher authority for reassessment/approval through HOCB. However there should be no appeal process beyond the Managing Director.

a)      De Duplication Check

All approved application must be checked against banks database to identify whether the applicant is enjoying any other loan in other account apart from the declared loans. It must also be checked that the applicant has a credit card (if the bank offers this product) and any payment default is made this should be mandatory for credit card approval. In such cases the application must be rejected.

b)      Maintenance of Negative Files

Two negative files – one listing the individuals and the other listing the employers – are to be maintained to ensure that individuals with bad history and dubious integrity and employers with high delinquency rate do not get personal loan from bank.

3.3.3 Credit Administration

The credit administration function is critical in ensuring that property documentation and approvals are in place prior to the disbursement of loan facilities. For this reason, it is essential that the function of credit Administration be strictly segregated from relationship management/marketing in order to avoid the possibility of controls being compromised or issues not being highlighted at the appropriate level.

3.3.4  Security Types

A big aeration of income of bank comes from advance. The success of bank and flow of its profit depend on how efficient and safely in makes best use of its available resources, capital and deposit by making advances to various types of borrowers. In allowing advance sound judgment of a banker is very much needed. The main factor for successful advance is ability to judge the character and credit worthiness of the borrower. The security offered for an advance is only a cushion an insurance to fall back upon in case of need. A banker would not normally like to recover the advance from the sale of the security. Security serves as a safely value for an unexpected emergency. If they are left out there are chances that the borrower may raise funds from elsewhere by charging them to other.

Forms of Securities

Charging a security means making it available as a cover for an advance. Security taken by a bank as cover of such advance may generally be classified as under.

a)      Personal / Movable

Personal security involves a personal right of action against the customer or third party. The following may be grouped under this type of security-

• Personal Bond
• Personal Guarantee
• Promissory Note

b)        Impersonal / Immovable

Impersonal security is something that can be realized by sale or transfer. The following grouped may be under this type of security-

• Land
• Stocks
• Shares
• Goods

c)         Direct / Indirect

Direct the customer himself deposits security. Third party to secure a customers account deposit indirect security. The following may be grouped under this type of security.

• Advance against FDR/Life polices in the name of the borrower himself
• Advance against FDR/Life polices in the name of person other than the borrower

d)        Primary

Primary security is that which is regarded as a cover for an advance. The following grouped may be under this types of security-

• Advance against pledge of Good/Stocks
• Advance against pledge of FDR
• Advance against hypothecation of Good/Stocks
• Demand Promissory Note

e)         Collateral   

Collateral securities mean those securities, which run parallel to or side by side with personal right of action against a debtor in respect of an advance. The following may be grouped under these types of security.

Share certificates, bearers bond, title deeds, life policies etc. deposited by a customer. Any instrument or instruments that secure the debt and personal guarantee from a third party government guarantee made by Bangladesh Bank.

Table 03.1: List of eligible securities with their percentage of value

3.3.5 Credit Documentation

Credit Documentation dept is responsible-

• To ensure that security document complies with the term of approval.
• To control loan disbursements only after all terms and conditions of approval have been met, and all security documentation as per the checklist of approved PPG is in place.
• To maintain control over all security documentation.To monitor borrower’s compliance with agreed terms and conditions, and general monitoring of account conduct/performance.
• Upon performing the above, documentation dept will forward the limit and other information to input into the bank’s main system.

 3.3.6  CIB Report

 The word CIB refers to the Credit Information Bureau.

For the purpose of financing a big project, lending institution should be assured about entrepreneur’s activities, Social status and financial conditions. To lower the loan risk, banks must collect information regarding borrower from CIB when the loan required is more than 50 Lac. The information may be –

• Whether any information about bankruptcy against applicants.
• Whether there is any sue against applicants.
• Whether they have took any loan, which is not repayment.

To collect information about applicant, the particular branch has to contact with Bangladesh Bank through the head office of the particular bank. It is notable the only the information of party is maintained in CIB.

Process to complete CIB Report

There are some prescribed forms to prepare a CIB report . the form of a CIB report can be divided into four segments,

Segment – 2

Segment – 3

Segment – 4

Segment – 5

Segments – 2

It contains the debtor’s information (owners only). Bank branches need not to require submitting segment-1 if the borrower is an individual. This segment contains two boxes. The left hand box contains a set of codes against appropriate owners. The right hand box contains branch serial number, Name of the bank and Name of branch.

Segments – 3

This segment contains debtor’s information (Group & affiliation).

a)      Group name and Address:

When a borrower belongs to a declared group of industries / companies, the name of the group should be reported against group name and its permanent business address.

b)      Affiliations:

There are four boxes under this head

3.4  Affiliation

3.5  Parent

3.6  Subsidiary

3.7  Sister / allied concern.

Segment – 4

It includes the credit information matrix. The columns of the matrix contain much important information of debtors, which are generally available at the end of scheduled banks. These are sanctioned limit, disbursement, outstanding, due for recovery, overdue, economic purpose, codes, security codes, classification etc.

On the other hand, loans or advances include cash credit, overdrafts, on current accounts, loans against imported merchandise, term loans etc.

Segments – 5

Guarantor’s information is reported in this segment. Bank branches should report the name of the guarantor along with his/her father’s name and addresses of the guarantors in the appropriate spaces provided in this segment

3.3.7  Risk Measurement

A.       Credit Risk

 The credit risk is managed by the consumer credit & collection unit (CCCU), which is completely segregated from sales. The following elements contribute to the management of credit risks:

• Loans will be given only after proper verification of the customer static data and after proper assessment & confirmation of income related documents, which will objectively ascertain customer’s repayment capacity.
• Proposals will be assessed by independent credit division (CCCU) completely separated from sales.
• There will be dedicated collection force that will ensure timely monitoring of loan repayment and its follow up.

Contact point verification is done for all applicants except for the high net worth (HNW) individuals or customers having account relationship with banks.

The external CPV include residence, office and telephone verifications. All verification is done to seek / verify / confirm the declared/undeclared information of the applicant.

B.        Third Party Risk

In case of other Banks deposit/security instrument, the branch shall send the instrument to the issuing office and also their head office, for verification and written confirmation on lien marking and encashment of the instrument.

C.       Liquidity and Funding Risk

This risk will be managed and the position monitored by the assets liability committee headed by the managing director/CEOs of the banks.

D.       Political Economical Risk

Political and economical environment of a country play a big role behind the success of business. Bank should always keep a close watch in these areas so that it is able to position itself in the backdrop of any changes in country’s political and economical scenario.

E.        Operational Risk

For the consumer loans, the activities of front line sales and behind the scene maintenance and support are clearly segregated. Consumer credit & collection unit (CCCU) will be formed.

CCCU will manage the following aspects of the product:

• Inputs, approvals, customer file maintenance, monitoring, collection;

• The operation jobs like disburse in the system including raising debit standing orders and the lodgment and maintenance of securities.

It will ensure uncompromising checks, quick service delivery, uncompromising management of credit risk and effective collection & recovery activities.

3.3.8 Disbursement

Security documents are prepare in accordance with approval terms and are legally enforceable. Banks standard loan facility documentation that has been reviewed by legal counsel should be based on authorization from an appropriate executive in CRM.

Disbursements under loan facilities are only be made when all security documentation is in place. CIB report should reflect/include the name of all the lenders with facility, limit & outstanding. All formalities regarding large loans & loans to Directors should be guided by Bangladesh Bank circulars & related section of Banking companies Act. All credit terms have been met.

3.3.9 Custodial Duties

• Storage of security documents shall be maintained at the branch jointly by two authorized officers within RM Team.
• Appropriate insurance coverage is maintained (and renewed on a timely basis) on assets as per sanctioned terms.
• Security documentation is held under strict control, preferably in locked fireproof storage.

3.3.10 Compliance Requirement

• All required Bangladesh Bank returns are submitted in the correct format in a timely manner.
• Bangladesh Bank circulars / regulation are maintained centrally, and advise to all relevant departments / branches to ensure compliance. Department / Branches shall also maintain the circulars/regulations and advise down the line to ensure compliance.
• All third party service providers (valuators, lawyers, insurers, etc) are approved and performance reviewed on an annual basis.

3.4 Recovery Management

3.4.1 Monitoring

Bank’s loan portfolio should be subject to a continuous process of monitoring. This will be achieved by regular generation of over limit and overdue reports, showing where facilities are being exceeded and where payments of interest and repayment of principal are late. There should be formal procedures and a system in place to identify potential credit losses and remedial action has to betaken to prevent the losses. Beside that the systems should be in place to report the following exceptions to relevant executives in credit / sales and branch marketing staff-

• Past due principal or interest payments
• Timely corrective action is taken to address finding of any internal, external or regulator inspection/audit.
• All loan facilities are reviewed annually
• Computer system should be able to produce the reports for central / head office as well as branch review.   

3.4.2  Early alert process

An Early Alert account is one that has risks or potential weakness of a material nature requiring monitoring, supervision, or close attention by management. An early alert report shall be completed by the RM and sent to the approving authority in CRM for any account that is showing signs of deterioration within seven days from the identification of weaknesses.

Moreover, regular contact with customers will enhance the likelihood of developing strategies mutually acceptable to both the customer and the bank

3.4.3  Recovery Process  

The collection process for personal loans starts when the account holder has failed to meet one or more contractual payment (installment). It therefore becomes the duty of the collection department to minimize the outstanding delinquent receivable and credit losses.

This procedure has been designed to enable the collection staff systematically recover the dues and identify / prevent potential losses, while maintaining a high standard of service and retaining good relations with the customers. It is therefore essential and critical, that collection people are familiar with the computerized system, procedures and maintain effective liaison with other departments within the bank.

To identify and manage arrears, the following aging classification is adopted-

 CONCLUSION

5.1 Findings

On the basis of analysis of credit management system following strengths of the system have been found-

v  According to the annual report published by the IFIC Bank Ltd in 2008, Recovery rate of loans and advances is satisfactory in comparison to the Industry. Recovery rate of Dhanmondi branch is more than 85%.

v  Credit officer are experienced and very much careful about their dealings.

v  Credit investigation is not conducted to cover almost all the associated credit risk. It is not possible to measure al the external variables affecting the credit.

v  Credit officer depends largely on the balance sheet and income statement figure supplied by applicants. Sometimes financial statements supplied by credit officer cannot be relied upon.

v  In many cases up to data like production, trade, total demand and supplies of different industries, industry performances are inadequate.

v  Borrowers are very much irregular in giving their installment of loan amount. But credit officer works hardly to collect the installment.

5.2 Conclusion

Banking sector in Bangladesh is playing a vital role by providing loan to business concern. Credit is one of the sources of their income. But granting loan is risky. Flexible interest rate can provide the incentive to improve their position. Some suggestion can be recommended to increase effectiveness of the system and to overcome the problem.

• Proper investigation should be done whether the loan is utilized as per the purposes. If necessary, legal steps may be enforced to ensure proper utilization.

• Financial statement of borrower must be revised and should be kept for future reference.

• The main reason for the failure of loan repayment is inadequate security. So credit division had to collect all types of security.

• Before sanction the loan credit division should analysis the economy position of borrower industry. Now in Bangladesh, some industry future economy condition will goes down.

• Provide updated training facilities to credit officer for increasing efficiency in dealing the all customer.

• The officer should carefully select borrower for all kinds of loan, especially for “Consumer Credit Scheme” based on their experience.

• Yet all branches are not fully computerized. So they should computerize their all transaction in the branch.

•  They should start online transaction and increase their ATM booth.

Finally, with all of its limitation IFIC, Dhanmondi Branch, real judgment and honesty of the authorized personnel can help the bank to increase their credit and to make them optimum safe and secured. The Early Alert report should be completed in a timely manner by the RM and forwarded to CRM for approval to affect any downgrade. After approval, the report should be forwarded to Credit Administration, who is responsible to ensure the correct facility.