Loan Recovery System of Bangladesh Development Bank

Executive Summary

Banking is now one of the fastest growing and potential industries in all over the world. Bangladesh Development Bank Limited (BDBL) is a fully state owned financial institution of Bangladesh which came to effective at 3^rd January 2010. Bangladesh Shilpa Bank (BSB) and Bangladesh Shilpa Rin Songstha (BSRS) (both were established on 31^st December, 1972) were merging into Bangladesh Development Bank Limited (BDBL). In addition commercial banking, BDBL provides financial and technical assistance to broaden the private as well as public sector especially, export oriented/export linkage industrial units, efficient import substitution, joint ventures, commercialization of local technology, setting up new industries, expanding new investment and promotion of agro-based industry.

This report contains seven chapters. Chapter one describes the origin, rational, objectives and scope & limitation. Chapter two describes population parameters, data sources, methods of data collection and instruments data collection, data processing and analysis.

In chapter three, I tried to describe the brief overview of banking in Bangladesh and overview of Bangladesh Development Bank Limited (BDBL). It covers detailed information about BDBL. Here I also present corporate information about BDBL.

Chapter four tells about the sick industry financed by BDBL. It also describes the method used to identify a sick industry, impact of sick industry in Bangladesh & BDBL, and a clear picture of loan portfolio and loan recovered.

In chapter five, I present a case study about a sick industry named M/S J.K.K. Industries Limited, 11 Darus Salam, Mirpur, Dhaka. Where I tried to show the details about this project which was financed by BDBL,  the project execution and implementation, its securities against BDBL’s loan, credit information & types of loan, provision including cash credit, steps taken by BDBL to recover the loan, rebate facilities, statement of outstanding loan, loan repayment schedule and conditions for repayment. And I also have given a recommendation to resolve this sickness.

Chapter six represents the rehabilitation of sick industries  including rehabilitate policy, steps taken to rehabilitate, facilities provided under rehabilitation program, relationship between appraisal practices, monitoring and sickness, rehabilitation program and measure taken by BDBL and also a list of a few successful rehabilitated industries.

And in last and seventh chapter I have drawn the conclusion in the light of overall discussion and also given recommendations on the base of given findings.

Introduction

Financial institutions of a country play an important role in mobilizing the unutilized savings and guiding their way through to useful investment projects. The banking sector in Bangladesh comprises of four categories of schedule banks. These are, nationalized commercial banks (NCBs), government owned development finance institutions (DFIs), private commercial banks (PCBs) and foreign commercial bank (FCBs). From these the government owned development finance institutions (DFIs) go a long way in building the financial backbone of the country’s economy. Through capital rising, loan providing, lending support to venture new entrepreneurs with their concerns, the DFIs is driving the nation towards financial solvency.

Significance and Rationale of the Study

The rationale of the study is to know more about the course in practical life. This study also helped me to know the banking system. From this study I learned about the different functions in the bank like loan appraisal process, loan sanction, documentation procedure, procurement and implementation, loan recovery procedure, finding out sick project, causes to become sick, steps of the rehabilitation of sick project. When I worked in that section I also have known when the project is needed to visit, how to meet the director of the project, what steps should be taken so that the project should not be sick. Above all I have learned how the bank provides their services to the clients for industrialization and economic growth of Bangladesh.

Objective of the Study

Main Objective:

The main objective of the report is to know the overall operations of the Loan Operation Department and also the Loan Recovery Department of Bangladesh Development Bank Limited (BDBL)

Specific Objectives:

• To get a brief overview of Banking sector in Bangladesh
• To get a brief overview of Bangladesh Development Bank Limited (BDBL).
• To know about various services of this bank.
• To know the role of BDBL in stimulating industrial sector.
• To know about the loan operation and recovery process.
• To find out the reason of sick project.
• To find the strengths of BDBL.
• To determine the limitations and problem practically involved in operation of BDBL.
• To recommend probable ways to minimize the problem.

 Scope and Limitation of the Report

Following are the main limitations of the report:

• It is very different to collect the information from various personnel for the job constrain.
• Bank policy is not going to disclose some data and information for obvious reasons.
• Because of the limitation of information some assumption may be made. So there may be some personal mistake in the report.
• The time 3 months only, which is insufficient to know all activities of the branch are prepare the report

Methodology

 Population Parameters

This report has been prepared on the basis of experience gathered during the period of internship and by oral interviewing the responsible officers. For preparing this report, I have also get information from annual report and website of the Bangladesh Development Bank Limited (BDBL). I have presented my experience and finding by using different charts and tables, which are presented in the analysis part.

 Sampling Design

As the topic of my internship report is ‘Rehabilitation of Sick Industries of Bangladesh Development Bank Limited (BDBL)’and so I was going to prepare my report in the head office of BDBL, BDBL Bhaban, 8, Rajuk Avenue, Dhaka-1000. So the sample size will be limited only within the respective departments of this bank.

 Data Sources

The information and data for this report have been collected from both the primary and secondary sources.

            Primary Sources

• Personal observation by investigations of different records, papers, documents, etc.
• Formal and informal conversation with bank officers and staff.
• Relevant documents, different manuals, register and brochures maintained by the bank.

Secondary Sources

• Annual report of BDBL
• Different papers and document of BDBL
• Monthly performance report of BDBL
• BDBL website.

Methods of data collection and data collection instruments used

There are so many methods of data collection which was relevant and important for the study. Basically two methods has been used in this report, these are as follows:

• Interview Method
• Observation Method

Relevant data for this report has been collected primarily by direct investigations of different records, papers, documents, operational process and different personnel. The interviews were administered by formal and informal discussion. No structured questionnaire has been used. Information regarding office activities of the bank has been collected through consulting bank records and discussion with bank personnel.

Data processing and analysis

Data collected from secondary sources have been processed manually and qualitative approach has been used through the study. Qualitative approach has been adopted for data analysis and interpretation taking the processed data as the base. So the report relies primarily on an analytical judgment and critical reasoning.

Profile of BDBL

Overview of Bangladesh Development Bank Limited

Non- Bengali entrepreneurs and the public sector nearly monopolized economic activity in Pakistan era. Of the very few business professionals are active in East Pakistan fewer yet survived after the war. Post independence Bangladesh therefore presented a unique set of opportunities and the problems for the private sector. The good news was that without the stranglehold of the elite Pakistan business family the field was wide open for the development of a homegrown Bengali private sector, but that both a capital base and an entirely new entrepreneurial class would have to be development out of an economic vacuum.

Capital formation rapidly occurred and the newly nationalized banks found themselves with serious asset management problem because there were few professional entrepreneurial risk takers with business skills and proven track records to which this capital could be made available under normal and prudent banking practice.

Under this sort of circumstances, the former Industrial Development Bank of Pakistan (IDBP) and the Equity Participation Fund (EDF) both of which were established for the industrial development of Pakistan were converted into singles institution named Bangladesh Shilpa Bank   come to existence on October 31, 1972 by the promulgation of Bangladesh Shilpa Bank order 1972 (president’s order no 129 of 1972). The BSB order, 1972 was amended subsequently by the parliament to provide more operational autonomy to its management.

BSB & BSRS have played an important role for industrializing the country from 1972 to 31 November 2009. At present in rival banking sector, there is no substitute way without making versatility in the customer service along with long term loan facilities. It is hoped that by joining this two institutions via lending activity by making BDBL to achieve Economies of scale to spread market boundary to increase rivalry & liquid State of money will be sustainable.

BDBL has been established to give short term & long term loan for the development of communication & utility, to develop infrastructural facilities & to keep role in international business according to company’s act 1991. It is not only a development bank but also a commercial bank. So it would execute its activities under the company’s law &banking companies act.

Bangladesh Development Bank Limited (BDBL) is fully state owned commercial Bank of Bangladesh. BDBL has been created through the merger Bangladesh Shilpa Bank (BSB) & Bangladesh Shilpa Rin Songstha (BSRS), signing vendor’s agreement among the Government & Government nominated executive board of directors at 21 December 2009. The assets, manpower and loan of dissolved institutions have been assigned to new organization of BDBL. BDBL has been enlisted to the register of joint stock companies and certificate of incorporation and certificate of commencement of business has been issued by the register of joint stock companies. Bangladesh Bank has issued a banking license to BDBL.

Vision of BDBL

To emerge as the country prime financial institution for supporting private sector industrial and other projects of great significance to the country’s economic development. Also be active in commercial banking by introducing new lines of product and providing excellent services to the customers.

Mission of BDBL

• To be compete with other banks &Financial institutions in rendering services
• To contribute to the country’s socio economic development by identifying new profitable areas for investment.
• To mobilize deposit for productive investment.
• To expand branch network in commercially & geographically important places.
• To employ quality human resources &enhance their capability through motivation & right type of training at home &abroad.
• To delegate maximum authority ensuring proper accountability.
• To maintain continuous improvement & up gradation in business polices & procedures.
• To adopt &adapt new technology.
• To maximize profit by strong, efficient & prudent financial performance &
• To introduce new product lines according to new market needs.

Strategic priorities of BDBL

• Bangladesh Development Bank Limited invest in Eco-friendly industries that help mitigate environment degradation by lending more for renewable energy and effluent treatment plants another project that employ energy efficient low-emission technologies including agro- based industries, small power project, ICT , transport and infrastructure projects.

• BDBL select and invest industrial projects where locating advantages like local availability of raw material, good infrastructural facilities (road construction, road communication and transport facilities) and utilities (power, gas, water etc.) shall be available.

• Project loans of BDBL are restricted to TK.15 core maximum and TK. 2 core minimum (for large Project). It arranges and participates in syndicated loan for projects above TK.15 core.

• BDBL identify prospective and potential entrepreneurs and investors or clients and motivate, guide and help them select profitable industrial ventures for investment.

• Economic and research department publish financial disclosures regularly.

• It undertakes from time to time SWOT analysis for reviewing bank’s market position.

Management of BDBL

The overall policy formulation and the general direction of Banks operation is vested in a board of directors appointed by the Government. This Board of Directors consists of Managing Director and the Deputy Managing Director. The Managing Directors is the chief executives of Bank. The Deputy Managing Director assists the Managing Director in conducting the overall banking business.

Functions of BDBL:

BDBL extends term loan facilities in local and foreign currencies to industrial projects (both new and BMRE) in the private and public sectors. Besides Bank also performs the following activities:

• Provides working capital loans to industrial projects;
• Provides equity support in the form of underwriting and bridge finance to public limited companies
• Issues guarantees on behalf of borrowers for repayment of loan;
• Extend commercials banking services along with deposit mobilization;
• Purchases and sales shares/securities for BDBL and on behalf of customers as member of Dhaka Stock Exchange (DSE) Ltd. and Chittagong Stock Exchange (CSE) Ltd. for capital market development; and
• Conducts projects promotional activities along with preparation of various sub-sector study reports.

Sick Industry

 What Do We Mean by Sick Industry

Industrialization is the concern of all the economic, especially in developing countries. Since the independence numerous political and effects have been made to accelerate the pace of industrialization in Bangladesh. Bangladesh government has established specialized financial institution named Bangladesh Development Bank Ltd. on 31^st October 1972 with the view to providing long term and intermediate term loan to the entrepreneurs for assistance and equity support.

At the very beginning Bangladesh Development Bank Ltd, it was the only institution without whose support industrial project was impossible to build up. About the entire industrial unit established up to 1991is the output of development bank. It is the bank whose main objective is to encourage and motivate the potential entrepreneur to set up the new industry in the various part of the country. Although some commercial banks are providing short as well long term industrial support to potential entrepreneurs, but still, Bangladesh Development Bank Ltd, is on the contributes of BDBL is incomparable.

Bangladesh Development Bank Ltd undertakes various project by providing finance, machinery and other aids, some projects are implemented successfully and some projects are failed to attain the goal and these firms are called sick industries according to the BDBL language. Sick industries mean the industries, which become stuck –up during construction or could not operate successfully after implementation. This project could either pay back the banks dues or make any contribution to the national economy. These project identified as sick industries due to there inability to generate sufficient fund for debt servicing. There are so many sick industries in Bangladesh, which has no specific statistical data. Here the main objective is to identify the causes of this industry

 Sick Situation of an Industry

Normally BDBL meets the long-term credit needs for implementation of the projects. BDBL charter provides for extending working capital to its financed project only to a limited scale. While sanctioning loans by BDBL provision is made for commercial banks to provide 70% of the working capital needs. But in most cases it is found that the project management either can’t raise the required working capital from the commercial banks, or they can’t raise required amount in due time. As a result this project could not go into operation on schedule time and they become unable to pay the interest and the principal amount. At last they are treated as sick industry

Method used to Identify a Sick Industry

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

• Quantitative factors
• Qualitative factors

A) Quantitative factors

To identify a sick industry the following quantitative factors are considered-

(a)   On the basis of cost-Benefit Analysis

For identifying a sick industry the following criteria may be considered by cot-benefit analysis. If the cost of the project is more than the benefit then the industry is to be considered as a sick industry. Sometimes the industry can’t recover the cost of labor, material. For this reason the industry goes into loss.

(a)   On the basis Break Even Analysis

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

(b)   On the basis of Financial Problems/Shortage of Working Capital

The shortage of working capital is the most acute problem for majority of the sick industries. Working capital is required to finance purchase of required raw materials and other short term

needs of a project after it is implemented. A survey shows that 28% after project suffer due to shortage of capital. The problems, which lead an industry toward sick, are as follows-

• Measurement of investment outlay and cost of the project are not appropriate
• When the means of financing in not available
• When the project is not profitable
• When the production in not reached at the break-even point
• When they can’t calculate appropriate risk level of sick
• Loan application with insufficient amount of money that would not meet fixed and operation cost
• Cash flow of the project is not available
• If actual cost of the project is more than the budgeted cost
• Shortage of working capital, i.e. if they do not manage the sufficient working capital
• If interest rate increases the cost of working capital then the project may become sick
• Lack of adequate operating capital
• Higher fixed cost, i.e. increase the fixed cost as a result of increasing of the price of machinery, land or other fixed items
• When variable cost increases
• When there is no sufficient mortgage
• Improper inspection of bank financed project
• Insufficient insurance facility
• Economic problem comes from the social cost benefit analysis.

B) Qualitative Factors:

To identify a sick industry the following qualitative factors can be considered-

(1)   The symptoms of Sick Industry

Sick industry is difficult to define. Nonetheless the symptoms of sick industry are as follows-

• The initiator is unable to pay sufficient money at the implementation stage
• The delay of implementation increases the project cost. It also creates many problems and the burden of loan interests increased.
• Lack of full production or frequent obstruction of industry
• The imitator is unable to pay the loan installment and other liabilities
• The failure of payment o loan installment in time increases the burden of loan amount
• Inability to submit the financial statement in time
• Increase the tendency of undertaking unfair means in preparing the papers of stock materials
• Goods of the stock increase of unsatisfactory sale
• Profit from investment decrease gradually
• Taking loan from various sources at a high rate
• Applied for a large amount of loan

• Non-cooperating tendency with the loan providing bankers
• Lacking of perfection in the market.

(2) Technological Problems

Machinery imbalance causing lower capacity utilization is the major technical problem of many projects. Some also suffer from faulty technical design.

• Whether the preliminary test and studies are not appropriate
• Availability of raw materials, powers and other infrastructural facilities are not established.
• The selected scale of operation is not optimal
• The production process chosen in not suitable
• The equipment and machine chosen are not appropriate
• Lack of modern technology like incapable to use the computer and modern machinery
• If the selection of machinery becomes faulty, it will not ensure the achievement of objectives
• Wrongly or inappropriate selection of the machinery
• Lower capacity of the machine resulting price will be higher, i.e. production cost higher
• Inconsistency between the origin of raw materials and the factory location
• Production of products and final consumption adversely affect the business
• Lack of infrastructure facility
• Selection of old backdated technologies to be used in production
• Delay of machinery procurement & rapidly change in technological environment
• unavailability of supply of gas, electricity and water etc

C) Administrative and Managerial Problems

Success of a firm largely depends on management. There are some internal conflict between the workers and managers. A survey reveals that 30% of the projects suffer due to administrative and managerial problems. The administrative problems, which lead an industry towards sick, are follows-

• When the management is not callable to manage all the managerial aspects; management should have proper planning, organizing, controlling, administrating and monitoring.
• Wake management of the project
• Lack of efficiency of employment as well as managements
• Conflict and also death of management’s partner
• Death of main entrepreneur of the project
• Insufficient employees
• Unskilled human resources
• Corruption and intentional misuse of organizational assets
• Lack of proper planning, organizing, controlling, administrating, and monitoring.

1) Marketing Problems

• If the aggregate demand of products of proposed project is not possible to fill up.
• If due to national financial crises product demand decrease
• Introduction of new brand product
• Wrong forecasting about the market
• When change the consumption trends in the past and present consumption level
• If change occurs in the Import and export policy
• When market share of the project is under low appraisal
• Smuggling of substitute goods
• If the raw material of the product is not purchased at appropriate time
• Improper market justification
• If production cost is high resulting selling price high which ultimately decreases the demand
• Lack of market expansion and production diversification
• Shortage of raw material supply
• High competition in the market
• Cheap price of the foreign product

2) Economic Problems

The economic problems, which lead an industry toward sickness, are as follows-

a)      Economic problem comes from the special cost benefit analyses

b)      It does not impact of the project on the distribution of the income in the society as well as the level of saving and investment.

3) Political Problems

The political problems, which lead an industry to ward sick, are as follows-

• Political pressure
• Political instability, which hampers the production
• Insufficient facility provided by govt. to industrialist like tax rebate
• Political problem like worker unrest, hartal
• Political pressure to loan procurement
• Inappropriate action taken by govt. to protect smuggling
• Political terrorism.

(D) Other Reasons of Sickness

Except the above problems there are also some problems, which lead an industry to wards sickness A survey reveals that 13% of the project suffers due to other problems, which are as follows-

• Selection of inappropriate industrial unit, which is not financial and logically bitable in concerned country
• Delay of loan application
• Internal delay of industries construction after loan sanction
• If a portion of loan amount used for personal use
• Delay of operation start
• Over estimation of mortgage value
• Delay of loan procurement and sanctioning process
• Delay of documentation formalities in respect of loan
• Causing of rehabilitation measure
• Insufficient enforcement of law for recovery of loan
• Inappropriate location of industries
• Natural disaster that hampered production
• Terrorism that hampered to establish an industry
• Delay of implementation

Impact of Sick industry in Bangladesh & BDBL.

• Increase of non-performing assets in organizational level as well as national level
• Decrease contribution in GDP and GNP
• Decrease in productivity at national level
• Average effect in banks profitability
• Increases the classified loan
• Increase the lending rate of interest, which adversely affect the new and regular borrowers
• Affects adversely in the economic growth rate of the country
• Create adverse psychological impact on the prospective entrepreneurs.

 Loan Portfolio

During FY 2009-10 loan liabilities of 41 projects were liquidated and 14 new projects were included in the Bank’s loan portfolio. As on 30^th June, 2010 total number of projects in the loan portfolio stood at 166 with a total loan outstanding of TK 7441.91 million compared to that of 308 projects having a total loan outstanding of TK 13998.11 million in the preceding year. Out of.166 projects in the loan portfolio, 60 were exported-oriented, 72 import-substituting and 14 services-other industries.

SECTOR-WISE POSITION OF BANKS

LOAN PORTFOLIO

(AS ON 30-06-2007)

Lone Recovery

Loan recovered is a crucial index to measure the success of a lending organization. Like previous years, this too, the bank has strengthened its recovery drive for realizing loans and dues from its borrowers and significant success was achieved. Total recovery target of loans during the FY 2009-10 was TK. 1400.00 million against which actual cash recovery was TK. 1391.44 million constituting 99 per cent of the target During the reporting year, outstanding loan of TK. 259.48 was regularized through rescheduling and replacement of bad and doubtful loan accounts. The amount regularized through cash recovery and rescheduling were TK 1124.20 million and TK. 149.40 million respectively in FY 2008-09. During FY 2009-10, the recovery drive was affected to some extent, among others, due to the ever memorable serious flood the country experienced. During 2009-10 the percentage of classified loan stood at 41% with a 21% decrease overthe62% of the preceding year. In other words with a decrease of TK. 6359.69 million during reporting year, the classified amount of loan stood at TK. 3664.71 million from TK. 10042.40 million in the previous. 

Legal Actions Taken Recovery of Loan:

The Bank initiates legal actions under the BDBL order 1972 and Author Rin Adalat Aien-2003 against those defaulting and recalcitrant borrowers who fail  to come up with any satisfactory proposal for settlement of Banks dues after all normal recovery efforts have been exhausted.

In FY 2009-2010, legal notices were issued against 33 defaulting companies for recovery of Bank’s dues while law suits were filed against 11 companies. Besides, 79 sale notices were published in the national dailies for auction. At the same time efforts were made for settlement of disputes outside the court through negotiation. As a result, 23 litigated companies settled the disputes outside the court and assets of 11 projects were sold through auction during the year.

Risk Management

The bank is primarily subject to interest rate, credit and currency risks. The policies and procedures for managing these risks are outlined in the notes below. The bank has designed and implemented a framework of controls to identify, monitor and manage these risks, which are as follows:

Credit Risk Management

Credit risk is the risk that one party to a financial instrument will fail to discharge and obligation and cause the other party to incur a financial loss. Concentration of credit risk arises when a number of counter parts are engaged in similar business activities or activities in the same geographical region or have similar economic features that would cause their ability to met contractual obligations to be similarly affected by changes in economic, political or other conditions.

Concentraton Of Credit Risk (Crm)

Out of the total financial assets of TK.8911 million, the financial assets that were subject to credit risk associated to total credit. The bank’s major credit risk is concentrated in textile sector. To manage credit risk, the bank applies credit limits to its customers and obtains adequate collaterals.

Credit risk is the risk the one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Credit risk in the Bangladesh Development Bank Limited portfolio is mentored, reviewed and analyzed by the Credit Risk Management (CRM).

CRM determines the quality of the credit portfolio and assists in minimizing potential losses. To achieve this objective, CRM formulates appropriate credit policies and procedures for the bank to ensure building and maintaining quality credits and an efficient credit process.

Bangladesh Development Bank Limited has formed Asset Liabilities Committee (ALCO) to screen out the banks / financial institutions and determine and controls cross border / country risk.

To manage the Non-perfuming Loans (NPLs), Bangladesh Development Bank Limited has in place comprehensive remedial management policy, which includes a framework of controls to identify weak credits and monitoring of these accounts.

Intrerst Rate Risk Management

Interest risk is the risk that the value of a financial instrument will fluctuate due to changes in the market interest rates. The risks are inherent on deposits, liabilities, loans/advances and investment of the Bank.

The Assets and Liabilities Committee of Bangladesh Development Bank Limited regularly reviews the total portfolio of the bank to ensure that risks are minimized and remain within acceptable limits.

Liquidity Risk Management

Liquidity risk is defined as potential loss arising from the Bank’s inability to meet its contractual obligations when due. Liquidity risk arises in the general funding of the Bank’s activities and in the management of its assets. Bank maintains sufficient liquidity to fund its day to day operations, meet customers deposit withdrawals either on demand or at contractual maturity meet customers demand for new loans participate in new investments when opportunities arise and repay borrowing they mature. Hence liquidity is maintained to meet knows as well as unanticipated cash funding need.

Important factors in assuring liquidity are funded on the Band’s good reputation, the strength of its strong financial position and credit rating. Liquidity risk is managed in accordance with a framework of liquidity polices, contracts and limits approve by ALCO. These polices controls and limits to ensure that Bank maintains well diversified sources of funding as well sufficient liquidity to meet all its contractual obligations when due.

The bank can meet the liquidity crisis by taking call loan, short term deposit from other Bank and Financial Institutions.

Recommendations:

The recommendation to various behind the sickness from my point of view is as follows

(1) There are various reasons behind the sickness of the project. To identify the reasons why the project is sick.

(2) Some employees are involved to sanction the loan to the entrepreneur. To identify employee who is liable for this sick project.

(3) Proper punishment should be given to the liable person. Otherwise they could not change their nature.

(4) Properly cheek the feasibility report before issuing loan.

(5)  There are various politics, rules and regulations are exciting in the BDBL. proper policy to be adopted and implemented.

(6) Project must be scrutinized in and appropriate manner.

(7)  Political pressure should be ignored.

(8)  BDBL should give more consideration physical investigation before issuing loan.

Rehabilitation of Sick Industry 

Introduction

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

Programs Taken to Rehabilitate the Sick Industries

BDBL has taken the following programs during the year 2009-2010

• Deferred payment of IDCF (Interest during construction period) after some moratorium period in installments.
• Regular lone repaying projects are honored with special certificates and BDBL crests.
• Problem project are given waiver of interest. Replacement/rescheduling block account Injections for easy repayment of banks lone.
• Injection of additional funds.
•  Balancing and modernizing of machinery
• Product diversification
• Strengthening or changing the project management
• Restructuring of lone accounts with transferring part of loans/Interest feed block account.

Rehabilitation Policies

All sick industries are not rehabilitated because all the sick industry has not all possibilities to rehabilitate. Its mainly depends on the nature of the sickness. The sick industries that is probable to rehabilitate by providing and assistant some predefined criterion. The predefining criterions are based particularly on:

1. Management perspective

2.  Technological perspective and

3. Financial perspective

In the case of rehabilitating sick and industries the bank take different polices on situation which are given as bellows.

Management Perspective  

Management of the project should measure the aggregate demand of product or the project and also maintain the market share. Consumption trends and production are to measure for rehabilitation a sick Industry. If the bank through that a little change in the managing committee would reestablish the project then they make a change in the managing committee.

Technological Perspectives

Whether the raw materials and technological is available or not that must be measures in the form of price quantity. If they through that some technological change would reestablish the project they make some technological change.

Financial Perspective

In the financial measurement the project should compute the cost of capital and maintain budgeting. The present value of the net cash inflow should be higher than the present value of the outflow. In such re-phased or providing consulting service, i.e.

         1. Success about the proper way

          2. Inspiration by providing motivation

after considering an industry as sick, then the industry is the into rehabilitation by aiding above additional support of those sick Industry that can recovers the additional investment then it seems terrible decision because of some political pressure.

Role of Management of Rehabilitation Department of BDBL

Bangladesh Development Bank Limited was established to stimulate industrialization in the country. So, it financed in various types of industries. The industries on which it financed, all are not a successful one. Some of them have failed to gain success and identified as a sick industry. Sickness of particular project. Sometimes they reschedule lone according to the capabilities of run the business more effectively; sufficient return may gain and contribute to the economy. If the project is to rehabilitate, send to the law department and finally sued against the project. The main activates of rehabilitation department are as follows-

• The department primarily selects a sick project. PID investigates the project and find out cause of sickness and formed a committee to investigate the project. Then it is taken to be considered for rehabilitation. After considering it as a rehabilitation consultant.
• Take necessary action to rehabilitate sick project after appropriate investigation.
• Take steps about rehabilitation document examination, recommendation preparation implementation and activation of plane.
• Confirmation about project profitability
• Take necessary steps about production marketing of product and loan repayment.
• Duties give up to the third party or previous management after successful managing of the project.
• Managing and directing recommendation preparation about take over project.

• Analyze and compare the production marketing and recovery of the rehabilitation project and take appropriate action according.
• When there is scope to rehabilitate a project, document Tranter to law department to take further.

Relationship between Appraisal Practices Monitoring and Sickness.

 These three things are very much interrelated. A project goes into sickness due to inappropriate appraisal practice and monitoring. The linkage among them is discussed below-

(A) Appraisal Practice

Appraisal practice that are done from the five aspects such as

1. Management aspect
2. Technical  aspect
3. Financial aspect
4. Economic aspect

Where the project is feasible or not form the above mentioned perspective of aspects.

(B) Monitoring

Monitoring is supervising and control after the implementation of during the implementation of the project. The monitoring from the viewpoint of the bank is to proper utilization of loans and recover the loan payment with due time.

(C) Sickness

When monitoring and appraisal is not accomplished properly then the project fall in sickness. So project implementation that depends on appropriate monitoring and appraisal practice.

Finding of the Report  

During the internship program the following findings have been found out from my study.

• Sometimes improper feasibility reports are submitted by sponsors, which do not contain adequate and reliable information.

• The employee’s are divided into two sides of BSB & BSRS
• The former employees of BSRS Think that they had more asset and less liabilities than BSB
• Sometimes pressure group involvement in sanctioning loan
• Lack of business experience of entrepreneurs. So when they start business they may be failure in business and they may become loan defaulter.
• Lengthy procedure and long time (More than three months) involved in the appraisal of project.
• Lack of adequate, updated and accurate information from the Management information system (MIS)
• Unstable policy of the government due to political changes over time.
• Sometimes inefficient allocations of resources created a huge amount of bad debt.
• Lack of financial commitment on the part of the borrower, the result being the failure of mobilization of equity by them in future means they divert their equity in other purpose after getting the loan amount.
• Lack of effective monitoring in projected work.
• Management conflict is one of another important problem in the situation of sickness

Lack of motivation and team speed

Lack of proper \ scheduling in projected work

• Absence of an-up-to-date project appraisal manual, because the present manual was designed 18 years ago. So many aspects should consider which do not cover by the exciting manual.
• Dependence on imported technology and non-availability of adequate information about that from local source. Lack of adequate, updated and accurate information in the country. Both primary and secondary data are not readily available.
• Inadequate attention is paid to analyze risk and an uncertainty associated with the projects, means only sensitivity analysis is done to analysis the risk.
• There is no system of accountability of the project appraisal team if the approved project fails due to their improper appraisal.
• Most of the personal are not as much experienced and skilled to operate banks activities in proper way.
• Shortage of working capital is another problem because some industry may sick for this problem.
• Inefficient project cost estimation, not considering inflation, different changes in the cost factors, waste and spoilage, personnel replacement cost etc. As a result sometimes project become sick.
• Because of country’s existing political instability, unstable tariff and fiscal policy some industries may become sick.
• No use of latest technology and permanent IT specialist.
• Poor quality of local machinery, equipment and \ construction materials is another cause for sickness.
• Lack of co-ordination among various financial institutions in exchange is another cause for sickness.
• Delay in settlement of case.
• Project rehabilitation is one of the criteria of BSB revives the risk project.

Finally contribution of BSB is the highest in the industrializations of Bangladesh through there are some problems.

Recommendations  

BDBL is one of the prime development financing institutions in Bangladesh to accelerate the pace of industrialization of the country. It plays significant role in the industrial development of Bangladesh. As a finance institution it has both strength and weakness. Though, it is said that the continuation of BDBL is below the expansion & if fails to achieve the target, at present BDBL has taken so many steps for the expansion of industrial sector development. Today’s base of industrial development is totally based on Bangladesh Development Bank Limited, so by any means we cannot deny the generous contribution of BDBL in the industrial development sector. Since Rehabilitation of sick industries department is the crucial and most important department because this department should be made out of political telephone calls surrenders every rule and policy. If this department could be made separate in performing its job, give this department in private sector, and is paid as per its performance, a good result may come out and the rate of sickness of projects will go down.

Rehabilitation of sick industries department should be made fully computerized and each of the engineers should have a personal computer to do their job promptly and make decision accurately.

Some more technicians and expert engineers should be there to judge project viability accurately Fresh and young generation employee should be appointed in this department who are familiar with the latest technology and literacy.

A regular training program should be launched for each employee from the training department so that the employees keep themselves updated with any change occurred in the field of innovation, technology and edge.

A proper and prompts co-ordination and cooperation environment should be launched so that they work as a team and make the appraisal report promptly to prevent the project to be obsolete. The BSOF from should be more concise and easy for the client to fill it up. A sample of questionnaire is given to the annexure.

Sanctioning of loan to the sponsors should be made through making feasibility report properly.

Loan appraisal procedure is time consuming and to some extent project plan become irrelevant after getting the loan. Since all the process is completed, he is bound to take this loan because some expenditure has already been incurred (sunk cost). As a result loan recovery may slow and sometimes difficult. My suggestion is that BDBL should rearrange appraisal procedure so that the entrepreneurs can take loan within short period of time.

Experienced and motivated entrepreneurs should be allowed for sanctioning the loan.

• BDBL should avoid unnecessary political interferer. If political problem influences the baking activity must create new problem, no doubt.
• BDBL should avoid unnecessary political interfere. If political problem influence the baking activity must create new problem, no doubt.
• BDBL should give more consideration on physical investigation before issuing loan. However project appraisal should be strict so that nobody cal use its loopholes.
• Some times real entrepreneur does not get bank loan. So actual entrepreneurs should be identified and give loan.
• The projects/industries, which are profitable, should be identified and sanctioned loan to those projects/industries.
• Risk adjusted discount rate method; program evaluation and review technique (PERT) and probability analysis should be introduced.
• Market Research Institution should be established for proper market survey.
• A co-ordination cell should be established for sharing information among various institutions.

Some Other Important Recommendation:

On the basis of interest rate  

• No Collateral
• Tolerable interest rate
• No bureaucratic problem

Encouraging existing entrepreneurs

• Awarding the good entrepreneur’s
• Incentives such as lowering interest rate for the existing customer for three better repayment behaviors.

Conclusion:

Bangladesh Development Bank limited is a well-known specialized bank of our country. We cannot think industrialization our country without meaningless contribution of Bangladesh Development Bank Limited. BDBL as the prime Development Financing Institution (DFI) of the country extended financial assistance both the local and foreign currencies for setting up new industries BMRE of exciting industries rehabilitation of sick industries. The bank had five division and twenty one departments in its had office located in Dhaka at Motijheel named BDBLBuilding it prioritizes, especially. Export Oriented/Export Linkage industrial units, Efficient Import Substitution, Bangladesh Development Bank Limited (BDBL) is fully state owned Bank of Bangladesh which came to effective at 3^rd January 2010. Bangladesh Shilpa Bank (BSB) and Bangladesh Shilpa Rin Songstha (BSRS) were merging into Bangladesh Development Bank Ltd (BDBL) at 16^th November 2009 and come to effective at 3^rd January 2010. In additional commercial banking, BDBL provides financial and technical assistance to broaden the private as well as public sector industrial base of the country. Joint Ventures, Commercial banking. BDBL provides financial and technical assistance to broaden the private as well as public sector industrial base of the country. Joint Ventures Commercialization of local technology and promotion of agro-based industry. At present BDBL carefully takes steps for industry essential for employment generation. At present BDBL carefully takes steps for sanctioning loan because of a huge fund become irrecoverable due to sickness of various projects. It is indeed that sickness is consequences of unconscious of unconscious and lack of investigation in case of issue of loan. We know sick project is burden of bank as well as overall economy of Bangladesh. So, now-a-days BDBL is reducing rehabilitation of sick industries. Because those industries, which are unable to pay their previous loan amount, if they are rehabilitation of sick industry and work of this department is decreasing day by day. So I think BDBL will close their rehabilitation to reduce their loss. I think proper scrutinizing of project proposal and careful physical verification may make sure to be profitable of that industry as well as Bangladesh Development Bank limited. Bangladesh Development Bank limited should concentrate on loan recovery that is necessary for long-term profitable and should concentrate on loan recovery that is necessary for long-term profitability. Without pross and cons everybody should to confess of BDBL contribution. We expect continue their operation without influence and contribute more and more to our industry that brings good luck to the nation.