Overall Banking System of NCCBL

Origin of the Report

 The internship program is itself an attempt to provide graduates an orientation to a real life situation in which they can observe and evaluate the use and applicability of theoretical concepts, which were taught in the classroom. As per norm, this report is the requirement of fulfillment of the internship program as well as of BBA program.

The objective of this report is to provide a general description of the initial and present status of National Credit & Commerce Bank Ltd. its individual department set up, key activities and to draw a picture of employee profile and management style and the organization culture.

The scope of the report is very focused. The scope of the report is to identify the basic functions of NCCBL and marketing aspects of consumers’ credit scheme. It is an organization that is committed to building resplendent future establishments for its prospective customers. This report deals with primary marketing activities performed for the excellence of the organization and also the report covers various departments of National Credit & Commerce Bank Limited (NCCBL). This report is mostly about what I learnt, observed and felt during the period of my internship program in NCCBL

The areas focused in the report are like the followings:

• The management of the Products and Services of NCCBL.
• The process of Segmentation, Targeting and positioning for its offerings.
• The overall Pricing strategies and tactics followed by NCCBL authority.
• An Intricate analysis of Strengths and Weaknesses of the NCCBL in comparison to its competitors.

Both primary and secondary sources are used in collecting information for preparing this report. During internship in NCCBL, I was routed through each of the departments and spent few days in department according to the schedule given at the beginning of the internship program. I interviewed managers and officers of the relevant departments and observed their activities. Every now and then I engaged in conversation with the management. This is basically how I gathered information through primary sources. I also met through relevant manuals and reports of NCCBL for collection information.

Top management of NCCBL could not able to provide me time for discussion most of the times because of their busyness. Since the employees were always under tremendous work pressure, so they could not able to extend their proper cooperation. Another limitation of this report is Bank’s policy of not disclosing some data.

ORGANIZATION: AN OVERVIEW   

Historical perspective

“To serve the nation through our excellent customer service” is the mission of National Credit and Commerce Bank Limited trough a contemplation of assuring ‘A professional term of Bankers is running the day to day operation of the bank’.

The journey of National Credit and Commerce Bank for Excellence in Banking as a scheduled Commercial Bank begun in 17 May 1993 as a public limited company incorporated in Bangladesh under the Companies Act 1994 and listed in Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited. It was the time when a rapid economic development in the country concurrent with urbanization and life style changes created demands for new banking products and services.

The institution started its function back in 1985 as an investment company in the name and style of National Credit Ltd. Paid-up capital of the company was Tk. 5.00 crore only at that time. NCL performed well for near about 7 years. The core objective of the company was to play a catalyst role in the capital market of the country by way of participating in security trading, underwriting, etc. However, in 1992 in the backdrop of closure of BCCI and BCI, another investment company, NCL faced a severe setback in respect of business. With active initiative taken by the members of the board and the management team, the company could overcome the problem and get it converted into a full-fledged Commercial Bank on 17.05.1993 after obtaining license from Bangladesh Bank as National Credit and Commerce Bank Limited. The authorized capital of the bank was fixed at Tk.75.00 crore and paid capital at Tk.39.00 crore of which 19.50 crore was subscribed by the Sponsors at that time. Present paid capital stands at Tk.48.05 crore. At present the bank is operating through 31 Branches and 1 Booth at most key point of the country.

Nature of the Business

NCCBL is a progressive commercial bank in private sector in Bangladesh. It creates new opportunities for its clients. It gives customized services and maintains harmonious banker-clients relationship. It contributes toward formation of national capital, growth of savings and investment in trade, commerce and industrial sectors. It provides different types of commercial banking services to the customers of all strata in the society within the stipulation laid down in the Bank Company Act 1991 rules and regulation framed by the Bangladesh bank from time to time.

NAME OF THE BRANCHES

 DESCRIPTION of the Branch:

NCCBL Moghbazar branch started its business on 10/06/1987.It serves all types of banking business like general banking, foreign exchange, credit and advance. At present, there are 42 employees in Moghbazar branch.

It is located at 382, Moghbazar, Tongi Diversion Road, Dhaka.

 PERFORMANCE of NCCBL, Moghbazar Branch as on 30-11-2003

Source: Balance Sheet of NCCBL Moghbazar Branch 

Source: Quarterly Balance Sheet of NCCBL Moghbazar Branch.

Source: Balance Sheet of NCCBL Moghbazar Branch

Hierarchy OF NCCBL MOGHBAZAR Branch   

GENERAL BANKING DEPARTMENT:

All business concerns earn a profit through selling either a product or a service. A bank does not produce any tangible product to sell but does offer a variety of financial services to its customers. General banking is the starting point of all the banking operations. It is the department, which provides day-to-day services to the customers. Everyday it receives deposits from the customers and meets their demand for cash by honoring cheques. It opens new accounts, remit funds, issue bank drafts and pay orders etc. Since bank is confined to provide the service everyday, general banking is also known as ‘retail banking’

The following things done in this department:

1. Accepting of deposit
2. Opening of account
3. Check book issue
4. Transfer of account
5. Closing of account

ACCEPTING DEPOSITS:

Accepting deposits is one of the two classic functions of commercial banks. The relationship between a banker and his customer begins with the opening of an account by the former in the name of the latter. Initially all the accounts are opened with a deposit of money by the customer and hence these accounts are called deposits accounts. Banker solicits deposits from the members of the public belonging to different lifestyles, engaged in numerous economic activities and having different financial status. There is one officer performing various functions in this department.

The deposits those are accepted by NCCBL may be classified in to:

a) Demand Deposits

b) Time Deposits.

 DEMAND DEPOSITS:

The amount in accounts are payable on demand so it is called demand deposit account.

NCCBL accepts demand deposits through the opening of—

a) Current account

b) Savings account

CURRENT ACCOUNT:

Both individuals and business open this type of account. Frequent transactions are (deposits as well as withdrawal) allowed in this type of account. A current a/c holder can draw checks on his account, any amount, and any numbers of times in a day as the balance in his account permits

Criteria of current account followed by NCCBL—

• Generally opened by businessmen, government and semi-government organizations; with proper introduction
• No interest is provided for deposited amount;
• Overdraft is Allowed in this account;
• Minimum opening balance is TK.1000;
• A minimum balance of Tk.25000/- has to be maintained

 SAVINGS BANK ACCOUNT:
Individuals for savings purposes open this type of account. Current interest rate of these accounts is 8.5% per annum. Interest on SB account is calculated and accrued monthly and credited to the account half yearly. Interest calculation is made for each month based on the lowest balance at credit of an account in that month. A depositor can withdraw from his SB account not more than twice a week up to an amount not exceeding 25% of the balance in the account.

Criteria of savings account followed by NCCBL:

An appropriate introduction is required for opening the A/C;

Frequent withdrawal is not encouraged;

A depositor may withdraw money from his/her account twice in a week;

7 days notice is required for withdrawal of large amount;

Minimum amount of TK.5000 is required as initial deposit;

Depositor may withdraw his/her deposited money up to 25% of the Balance in his/her account without notice. The bank may realize service charge in its discretion;

Depositor will get interest on the amount deposited in his/her account irrespective of any limit;

TIME DEPOSITS:

A deposit which is payable at a fixed date or after a period of notice is a time deposit. NCCBL accepts time deposits through—

a) Fixed Deposit Receipt (FDR)

b) Special Savings Scheme (SSS)

c) Short Term Deposit (STD)

d) Bearer certificate deposit (BCD)

While accepting these deposits, a contract is done between the bank and the customer. When the banker opens an account in the name of a customer, there arises a contract between the two. This contract will be a valid one only when both the parties are competent to enter contracts. As account opening initiates the fundamental relationship & since the banker has to deal with different kinds of persons with different legal status, NCCBL Officials remain very much careful about the competency of the customers.

Fixed deposit Account

These are deposits, which are made with the bank for a fixed period specified in advance. The bank needs not to maintain cash reserve against these deposits and therefore, bank gives high rate of interest on such deposits. A FDR is issued to the depositor acknowledging receipt of the sum of money mentioned therein. It also contains the rate of interest and the date on which the deposit will fall due for payment.

NCCBL is now opening fixed deposit account only for 3 (Three) years.

 Procedure of Opening Fixed Deposit Account

Before opening a Fixed Deposit Account a customer has to fill up an application form, which contains the followings:

a)     Amount in figures

b)     Beneficiary’s name and address

c)     Period

d)     Rate of interest

e)     Date of issue

f)      Date of maturity

g)     How the account will be operated ( singly or jointly)

h)     Signature(s)

i)       F.D.R. no.

j)       Special instructions (if any)

After fulfilling the above information and depositing the amount, FDR account is opened and a FDR receipt is issued and it is recorded in the FDR Register, which contains the following information:

a)     FDR account no.

b)     FDR (Fixed Deposit Receipt) no.

c)     Name of the FDR holder with address

d)     Maturity period

e)     Maturity date

f)      Interest rate

Payment of Interest

In case of Fixed Deposit Account the bank does not have to maintain a cash reserve. So NCCBL offers a high interest rate in Fixed Deposit accounts.

It is usually paid on maturity of the fixed deposit. NCCBL calculates interest at each maturity date and provision is made on that “Miscellaneous creditor expenditure payable accounts” is debited for the accrued interest.

 Interest Rate

Rate of Interest varies depending on the period of maturity date.

 PRE-MATURE ENCASHMENT OF TERM DEPOSIT 

 Accounting treatment for FDR:

On the encashment of FDR, the following entries are made,-

FDR A/C——————————————         Dr.

Interest on FDR A/C—————————– Dr.

Excise Duty on FDR———————————Cr.

10% Income Tax on interest————————Cr.

Cash A/C———————————————–Cr.

 Payment of Interest:

If the depositor wants to draw the interest only, the following entries are made:

Interest on FDR——————————Dr.

Cash A/C——————————————Cr.

 Loss of F.D.R.:

In case of a lost FDR, the customer is asked to record a GD (General Diary) in the nearest Police Station. After that, the customer has to furnish an Indemnity Bond to NCCBL. A duplicate FDR is then issued to the customer by the bank.

 Renewal of FDR:

The FDR becomes automatically renewed for like periods and amounts, unless this are withdrawn by the depositor or, the bank notifies the depositor in writing at least 15 days in advance of the original Or, any renewed maturity date (s) of its desire to terminate the account or change any term and condition of the account.

 SPECIAL FIXED DEPOSIT SCHEME:

It is popularly known as “Time Deposit”. Because these deposits are not repayable on demand but they are, withdraw able subject to a period of notice. The prospective fixed deposit holder is expected to fill an application form prescribed for the purpose, stating the amount and the period of deposit. The application itself contains the rules and regulations of the deposit including the space for specimen signature.

 Criteria of Special Fixed Deposit Scheme (SDR) followed by NCCBL:

Minimum Tk 1,00,000 or multiple amounts are acceptable under this Scheme. Deposit of Tk 50,000/- is included as an exception in this scheme;

The duration of the Scheme shall be 3(Three) years after which depositors can take back the principal amount, if not renewed;

The duration of time between deposit and payment of first profit must be minimum one month;

No profit/interest shall be due for payment if the deposit is enchased before one year;

No withdrawal of principle shall usually be allowed before three years.

Rate of Interest:

STD Account:

In Short Term Deposit account, 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. In NCCBL, various big companies, organizations, Government Departments keep money in STD accounts. Frequent withdrawal is discouraged and requires prior notice. STD Account opening procedure is similar to that of the saving account

Interest rate for STD account———6.00% per annum

In NCCBL, usually customers give an instruction to the Bank that their current account will be debited whenever its deposited amount crosses a certain limit and this amount will be transferred to the STD account. So Bank follows this instruction by giving following entries:

Customer’s Current A/C————————Dr.

Customer’s STD A/C———————————Cr.

Special Saving  scheme (SSS):

 Special saving scheme (SSS) is more familiar as Deposit Pension Scheme. NCCBL offer it to its customer to deposit fixed amount of money each month for a definite period of time, normally for 5 to 10 years.

In NCCBL, a Depositor can open any SSS account for deposit of TK.500/-, TK.1000/-, TK.1500/-, TK.2000/-, and TK.2500/- in each month. The depositor will have to deposit the fixed amount of money by the 8^th day of each month. Customer may deposit his money either in cash or in cheque. The depositor can select more than one nominee for this account.

A Depositor can withdraw the total amount of deposit with interest at a time after a specific period of 5 or 10 years.

The depositor(s) will get following figure after maturity of SSS a/c.

Bearer Certificate of Deposit (BCD):

Bearer Certificate of Deposit account is almost same as Fixed Deposit account. But in case of BCD account, no name and address are mentioned. The customer opens this type of account as a bearer but it is negotiable. Whoever presents it to the bank has the right to get the money.  There is no prescribed interest rate on such funds but NCCBL offers same interest rate of the term deposit of different maturity. 

The face value of the instrument is the future value. The face value is the sum of the principal amount and the interest. It is beneficial to both NCCBL and the investor because of the following reasons:

¨      The banker is not required to encash the deposit before the date of maturity;

¨      The investor is assured of ready liquidity. In case of need he can sell the certificate in the secondary market.

¨      As the identification of the owner is not given in the instrument, it is very much popular. During the encashment of the instrument, the excise duty and income tax (10%) is deducted.  In case of premature encashment, the principal amount is only paid to the customer.

Interest Rate on BCD account is same FDR account :

For 3 months & above              @ 9.25 %

 Accounting treatment of issuing and encashment of BCD

The following accounting treatments are given,

BCD A/C———————————————————Cr.

Customer’s A/C———————————————Dr.

Or, if cash is given,

Cash ———————————————————–Dr.

(Issuing of BCD)

Privileged Creditor Excise Duty on deposit—————–Cr.

Privileged Creditor 10% tax on interest———————Cr.

BCD A/C—————————————————–Dr.

(Encashment of BCD)

After giving necessary entries, party A/C is credited or Pay Order is issued following encashment.

 Account opening Section:

 It is said that, there is no banker customer relationship if there is no a/c of a person in that bank. By opening an a/c banker and customer create a contractual relationship. However, selection of customer for opening an account is very crucial for a Bank.

Before opening of a current or savings account, the following formalities must be completed

a) Application on the prescribed form;

b) The customer information is filled up with the form;

c) Introduction:

The following persons can introduce an a/c opener:

i.    An existing current/savings account holder of that branch;

ii.   An officer of that branch (not below the rank of an Assistant Officer.);

iii. A respectable person of the society or locality who is well known to the Manager/2^nd man of the branch concerned;

d)             Furnishing photographs;

e)   Banker will supply a set of printed forms required for opening the account, which will normally include:

i)       Specimen Signature Cards (SSC);

ii)  Deposit Slip Book;

ii)    Check Book Requisition slips;

f)     Customer should carefully read and full-fill the application form;

g)    Putting specimen signatures in the specimen card.

h)    Any special instructions with regard to operation of the account should be       noted on the relevant signature card boldly duly authenticated by the a/c holder should be obtained;

i)     The required Account Number for the new Account from the Account Opening Register should be obtained;

j)     Obtain the signature and a/c number of the Introducer on the advice of new accountant the placemeant for the purpose and gets the signature properly verified by an Authorized official of the Bank;

k)     The Deposit slip properly filled in and signed by the customer;

l)     Then the new a/c number should be written at the appropriate place of the Deposit slip and mark new Account on both the copies of the deposit slip and request the customer to deposit the money at the cash counter;

m)   Place the signature cards, Advice of new account, a copy of Deposit slip, photographs and other necessary papers/documents etc. in a file;

n)    Obtain approval of the Authorized officer for opening the new account on all relevant papers while giving approval for opening an account the Authorized official should be satisfied about the of the Introducer;

o)    The Authorized officer on the advice of new A/c and on the specimen signature cards should also attest the signature of the new a/c holder;

p)    After approval of the opening of the a/c, get the Cheek book requisition slip signed by the customer;

q)    Deliver the checkbook to the customer after properly marking the Account number name and place of the branch on each leaf of the checkbook;

r)      On completion of account opening open a file for the new a/c holder and file all relevant papers forms etc. Signature cards, copies of Advice, Deposit slip Debit ticket etc. is distributed to concerned departments;

 Application form for current/savings account

 Following are the contents of the application form for opening Savings/current A/C

Name of the Applicant

Father’s name/Husband’s name

Mother’s name

Date of Birth

Present address

Permanent address

Occupation

Nationality

Phone No.

Special instruction for operation of the account

Nominee

Specimen Signature

Introducer’s Name

Introducer’s Signature

Ammount deposited

Classification of customers

a)     Individual (personal);

b) Proprietorship (Sole traders);

c)   Partnership firms (Registered or unregistered);

d) Joint stock Companies (Private Limited companies/Public ltd.);

f)   Public Sector Corporations;

g)   Municipalités/Municipal Corporations /Local Bodies etc. ;

h) Clubs/Societies/Associations/Schools/Colleges/ Universities etc;

i)   Executors/Administrators;

j)   Trustees;

k) Illiterate persons;

l)   Constituted Attorney;

m)       Wage Earners;

 Documents required for all types of Accounts & Customers:

1.   Advise of New Account (in duplicate)

2.   Specimen signature cards (in duplicate)

3.   Account Opening Agreement Form

4.   Photographs of Account Holders (in duplicate)

5.   Deposit Slips Book

6.   Cheque book Requisition slips

7.   Letter of mandate authorizing another person/s to operate the A/c on behalf of the Account holder, where necessary.

Additional documents are to be obtained for opening some special accounts

1) Proprietorship Firm:

Name of authorized persons, designation, specimen signature card.

Trade licence.

Tax Receipt ( For export/ import )

Declaration of Proprietorship

Mandate if operation by third party is to be allowed.

2)  Partnership Firm:

Account must be opened in the name of the firm.

The firm should describe the names and addresses of all partners.

Partnership deed is required which duly attested by Notary Public

Trade licence from city corporation is needed.

Tax receipt ( For import/ export )

Photocopy of Registration Certificate duly attested by Notary Public in case of a Registered Firm.

Letter of Partnership duly signed by all the partners, in case of non-Registered Firm.

Resolution signed by all the partners to open the a/c.

Mandate as to operation of the a/c.

3)    Clubs/Societies/Trustee/Associations/Non-trading Institutions etc:

Certified copy of Resolution for opening and operation of account

Up to date list of office bearers

Certified copy of Bye-laws & Regulations/ Constitution.

Copy of Government approval (if registered).

In case of death, a/c. should be stopped until the club nominates another person.

Trust deed is needed-for trustee.

 4) Joint Accounts of two or more persons

Mandate for Operation of Accounts

A clear authority signed by all the joint A/C holders containing instructions as to who will operate the account and how the account is to be operated should be obtained. The mandate should mention the name of the persons authorized to draw check. In case of death /insanity/insolvency of one or more of the joint a/c holders, the authority will cease to operate.

             Executor

• Probate:  From a court of law along with a certified copy of the will duly attested by a notary public.
• A mandate in case if there is more than one Executor, signed by all the executors, as to how the a/c will be operated.

            Administrator:

• Letter of Administration from a court of Law along with a certified copy duly attested by a Notary Public appointing him as an Administrator of the Estate of the deceased. The operation of the a/c is to be allowed as per instructions of the letter of administration.

 5) Minor’s Account

         Putting the word “MINOR” after the title of the account.

Recording special instruction of operation of the account.

The account opening form is to be filled in and signed by either of the parents or the legal guardian appointed by the Court of Law & not by the Minor.

 6) Private Limited Joint Stock Company

         Memorandum of Association and Articles of Association duly certified by Chairman or Secretary.

Resolution of the Board duly certified by chairman /Secretary authorizing to open the a/c with the Bank and naming the persons who will operate the a/c, as per provisions of Articles of Association.

Corporate Agreement Form.

Certificate of Incorporation duly certified by Chairman/Secretary.

List of Directors duly certified by Chairman/Secretary.

7)   Public Limited joint Stock company

Memorandum and Articles of Association duly certified by Chairman /Secretary.

Certificate of Incorporation duly certified by Chairman /Secretary.

Resolution of the Board duly certified by Chairman/Secretary authorizing to open the a/c with the Bank and naming the persons who will operate the a/c as per provisions of Articles of Association.

Corporate Agreement Forms

Certificate of commencement of business

List of Directors duly certified by Chairman /Secretary.

8) Non-Government College/ School/ Madrasha/ Muktab

Up to date list of the Governing Body/ Managing Committee.

Copy of Resolution of the Governing Body/ Managing Committee authorizing opening and operation of the account duly certified by Gazetted Officer.

 9) Municipal Corporation /Local Bodies

Copy of the Municipal Act/charter duly certified by the chairman /Administrator.

Resolution of Municipal committee authorizing the opening of the a/c in the Bank and naming the persons who will operate the a/c duly certified by the Chairman/Administrator.

Accounts of constituted Attorney: Certified copy of power of Attorney duly verified with the original by the concerned Bank official under seal and signature.

10) Co-operative Society/ societies Limited

Copy of Byelaw duly certified by the Co-operative officer.

Up to date list of office bearers.

Resolution of the Executive Committee as regards of the account.

Certified copy of Certificate of Registration issued by Registrar, Co-operative Societies.

11)  Trustee Board

Prior approval of Head Office of the Bank.

Certified copy of Deed of Trust, up to date list of members of the Trustee Board and Certified copy of the Resolution of Trustee Board to open & operate the account

  12) NGO

The account opening procedure is same but in exception is that the Registration Certificate from the Social Welfare Department of Government must be enclosed with the application.

ISSUING CHEck BOOK TO THE CUSTOMERS:

(A) Issue of fresh checkbook

Fresh checkbook is issued to the account holder only against requisition on the prescribed requisition slip attached with the checkbook issued earlier, after proper verification of the signature of the account holder personally or to his duly authorized representative against proper acknowledgment.

Procedure of issuance of a fresh checkbook:

A customer who opened a new a/c initially deposits minimum required money in   the account.

The account opening form is sent for issuance of a cheque book

Respected Officer first draws a cheque book

Officer then sealed it with branch name.

In-charge officer enters the number of the cheque Book in Cheque Issue Register.

Officer also entry the customer’s name and the account number in the same Register.

Account number is then write down on the face of the Cheque book and on every leaf of the Cheque book including Requisition Slip.

There is a special technique to sign every leaf of the cheque book with the help of carbon paper. So officer’s signature prints the reverse side of the leaf.

The name of the customer is also written down on the face of the Cheque book and on the Requisition slip.

The word “Issued on” along with the date of issuance is written down on the requisition slip.

Number of Cheque book and date of issuance is also written on the application form.

Next, the customer is asked to sign in the Cheque book issue register.

Then the respected Officer signs on the face of the requisition slip put his initial in the register and hand over the cheque to the customer.

Issue of Duplicate checkbook

Duplicate checkbook instead of lost one should be issued only when an A/C holder personally approaches the Bank with an application Letter of Indemnity in the prescribed Performa agreeing to indemnify the Bank for the lost checkbook. Fresh check Book in lieu of lost one should be issued after verification of the signature of the Account holder from the Specimen signature card and on realization of required Excise duty only with prior approval of manager of the branch. Check series number of the new checkbook should be recorded in ledger card and signature card as usual. Series number of lost checkbook should be recorded in the stop payment register and caution should be exercised to guard against fraudulent payment.                

 Issue of New Chequebook (FOR OLD ACCOUNT)

All the procedure for issuing a new Chequebook for old account is same as the procedure of new account. Only difference is those customers have to submit the requisition slip of the old Cheque book with date, signature and his/her address. Computer posting is then given to the requisition slip to know the position of account and to know how many leaf/leaves still not used.  The number of new Cheque book is entered on the back of the old requisition slip and is signed by the officer.

 Procedure of issuance of a new cheque book

If the cheque is handed over to any other person then the account holder the bank addressing the account holder with details of the Cheque book issues an acknowledgement slip. This acknowledgement slip must be signed by the account holder and returned to the bank. Otherwise the bank will not honor any cheque from this cheque book.

At the end of the day all the requisition slips and application forms are sent to the computer section to give entry to these new cheques.

 TRANSFER OF AN ACCOUNT:

         The customer submits an application mentioning the name of the branch to which he wants the account to be transferred.

His signature cards, advice of new account and all relevant documents are sent to that branch through registered post.

The balance standing at credit in customer’s account is sent to the other branch through Inter Branch Credit Advice (IBCA).

No exchange should be charged on such transfer.

Attention is also given in this connection.

CLOSING THE ACCOUNT:

Upon the request of a customer, an account can be closed. After receiving an application from the customer to close an Account, the following procedure is followed by a banker. The customer should be asked to draw the final cheque for the amount standing to the credit of his a/c less the amount of closing and other incidental charges and surrender the unused cheque leaves. The a/c should be debited for the account closing charges etc. and an authorized officer of the Bank should destroy unused cheque leaves.

In case of joint a/c, the application for closing the a/c should be signed by all the joint holders.

A banker can also close the account of his customer or stop the operation of the account under following considerable circumstances:

Death of customer.

Customer’s insanity and insolvency.

Order of the court (Garnishee order)

Specific charge for fraud forgery.

 Stop payment of cheque:

A banker can stop payment of cheque of his customer under following considerable circumstances

Firstly the account holder will apply to stop the payment of his cheque

There is a register for this purpose. It is kept by the authorized officer.

The officer will see the condition of account and verify everything.

In the ledger book, the officer will marked with red ink and the cheque will not be paid.

 Dishonor of Cheque:

If the cheque is dishonored, NCCBL sends a memorandum (cheque return memo) to the customer stating the reason in the following way:

Refer to drawer.

Not arranged for.

Effects not cleared May be present again.

Exceed arrangements.

Full cover not received.

Payment stopped by drawer.

Payee’s endorsement irregular/illegible/required.

Payee’s endorsement irregular, require Bank’s confirmation.

Drawer’s signature differs/ required.

Alterations in date/figures/words require drawer’s full signature.

Cheque is post dated/out of date/mutilated.

Amount in words and figures differs.

Crossed cheque must be present through a bank.

Clearing stamps required/requires cancellation.

Addition to the discharge of Bank should be authenticating.

Cheque crossed “Account Payee Only”

Collecting Bank’s discharge irregular/required.

If the cheque is dishonored due to insufficiency of funds, NCCBL inform the a/c holder immediately.

CLEARING & BILLS SECTION:

 NCCBL Moghbazar Branch receives different types of instruments, such as cheque, PO, DD etc. from its customers for collection. It also pays on behalf of its customers for those instruments that come to it through clearinghouse. When instruments of NCCBL are sent for collection or received for payment through clearinghouse it is called Inter Branch Collection or IBC. These are treated in a little different manner than instruments of other banks.

Outward clearing bills

It refers the instruments drawn on the other Banks received by the NCCBL. They are of three kinds.

1. Cheques drawn on another branch of NCCBL. The settlement process:

Accounting entry

Party a/c—————          Dr.

IBTA—————————Cr.

Checks drawn on another Bank, which is situated within clearing house area.

Accounting Entry

Party A/C ——————Dr.

IBTA——————————Cr.

Outward bills for collection

Checks drawn on another Bank or a branch of NCCBL, which is situated outside the clearinghouse area. These bills are called OBC. The process of collection is described below.

Accounting Entry

Party A/C—————————————Dr.

Suspense clearing adjustment———————Cr.

If the bills are collected by the drawer’s bank, the drawer’s branch sends a D.D. to the collecting bank. The customer’s A/C is debited for the DD charge. The following entries are given for sending the D.D.:

Clearing A/C—————Dr.

Customer  A/C ——————Cr.

And the following entries are given for the charges:

Customer A/C ——————Dr.

Income A/C Commission ———Cr.

Postage ——————————Cr.

In either case, OBC number is given.

PROCEDURE

Depositing the cheque alongwith deposit-slip;

Officer checks the essential features of the instrument and whether the deposit in slip is filled accordingly or not;

Crossing of the cheques are done indicating Principal Branch as collecting bank;

Endorsement “Payee’s A/C will be Credited on realization” is given;

Entries are given in the Outward Clearing Register;

Then the officer separates the instrument from the deposit in slip. Deposit in slip is kept in the bank and the instrument is sent for clearing;

Messenger sends these instruments to the clearinghouse;

Commission for outward bill collection:

Respective A/C ——————————— Dr.

Head office A/C (Main  Br.) ———————— Cr.

If cheques are returned –

MOGHBAZAR Branch sends an IBDA to Principle Branch.

Necessary entry:

Head office A/C (Main  Br.) ……………Dr.

Respective A/C ………………………….. Cr.

Procedure

Firstly the instrument is entered into the clearing register, when it is sent to the bank via clearinghouse;

The officer verifies the instruments thoroughly before it sent to the computer section for posting;

If any kind of error is found in any instrument it is dishonored and sent back with appropriate reason for doing so;

Instruments may dishonor for insufficiency of fund;

The information is then send to the clearinghouse for taking appropriate action;

 Endorsement:

Endorsement is done by putting signature of the drawer on the back of the negotiable instrument for the purpose of negotiation. By ‘blank endorsement’, an order instrument is made as ‘bearer’.

National Credit and Commerce Bank Ltd. endorses the instrument in the following way:

DISPATCH SECTION:

 Those documents that are enter in the branch or exit of the branch must go through this section.

The main objective of this section is

Keeping records of the documents send to other branches or banks;

Letters are send to their respective destination;

Send these documents safely and correctly;

Receives documents come through different medium, such as postal service, courier service, via messenger etc;

Dispatch section of Moghbazar branch performs another duty. It enters the transfer instruments in the Scroll Book and then sends those to the computer section;

Two types of letters are continuously received. These are:

Inward (Registered/Unregistered)  letters

Outward (Registered/ Unregistered) letters

At first recording is required whether it is Inward or Outward Registered/Unregistered letters. Then letters are disbursed to their respective destination. Inward letters are firstly segmented according to their different sections and after that an entry is given to the Inward Register book.

Books Maintained

Local Dispatch Khata (including Peon Book).

Register Dispatch Khata (For Registered Letters).

Ordinary Register Khata (For Unregistered letters).

Inward Register Books.

Outward registered books.

 Cash section:

The cash section of NCCBL deals with all types of negotiable instruments, cash and other instruments and treated as a sensitive section of the bank. It includes the vault, which is used as the store of cash, instruments. If the cash stock goes beyond this limit, the excess cash is then transferred to Bangladesh Bank. Keys to the room are kept under control of cash officer and branch in charge. The amount of opening cash balance is entered into a register. After whole days’ transaction, the surplus money remains in the cash counter is put back in the vault and known as the closing balance. Money is received and paid in this section.

Cash Payment

First of the entire client comes to the counter with the check and give it to the officer in charge there. The officer checks whether there are two signatures on the back of the cheque and checks his balance in the computer. After that the officer will give it to the cash in charge.

Then the cash in charge verifies the signature from the signature card and permits the officer in computer to debit the client’s account by giving posting. A posted seal with teller number is given

Then the cheque is given to the teller person and he after checking everything asks the drawer to give another signature on the back of the cheque.

If the signature matches with the one given previously then the teller will make payment keeping the paying cheque with him while writing the denomination on the back of the cheque.

If the instrument is free of all kind of error the respected officer will ask the bearer to sign on the back of it.

He will then put his/her initial beside the bearers’ signature. S/he will also sign it on its face, will write down the amount by red pen and will put on a scroll number from his/her scroll register.

Then the cheque will be sent to the cash counter. At the cash counter bearer will be asked again to sign on the back of the instrument.

The cash officer will then enter the scroll number in his/her register and will pay the money to the bearer.

At the end of the day these scroll numbers of the registers will be compared to ensure the correctness of the entries.

 Cash Receipt

At first the depositor fills up the Deposit in Slip. There are two types of deposit in slip in this branch. One for saving account and another for current account.

After filling the required deposit in slip, depositor deposits the money.

Officers at the cash counter receives the money, count it, enter the amount of money in the scroll register kept at the counter, seal the deposit in slip and sign on it with date.

Then this slip is passed to another officer who enters the scroll number given by the cash counter in his/her register along with the amount of the money, sign the slip and keep the banks’ part of the slip. Other part is given to the depositor.

In this branch, i.e., Moghbazar Branch, two different officers maintain two different scroll books for entering such entries. But cash counter maintains one scroll book.

All deposits of saving account are maintained by one officer and other accounts by another officer.

At the end of the day entries of both of these registers are cross checked with the register kept at the cash counter to see whether the transactions are correct or not.

  MY OBSERVATIONS:

1. The volume of operational activities of this department is very high, but number of employees is adequate. As for example in one desk an officer in-charged for A/C opening, DD, TT, PO operating as well as cheque receiving. Though he is skilled enough to do those job but very often it creates bothering situation for customer
2. The computer removes the token system. It is very much appreciable, but the computer operator or programmer should be conversant with the system for quick and better quality services to the customers.
3. Account opening procedures are very much relaxed. The officer or introducer of the account holder should follow rules and formalities for opening the account.
4. In case of account opening, Letter of thanks is not sent to the introducer though it is a formality to be maintained by the bank. I think, if a letter of thanks is sent to an introducer, he is encouraged to send more depositors to the Bank that will be helpful for the bank to increase its deposits.
5. In busy day, it sometimes impossible for the officer to check every signature on cheque with specimen signature card as to ensure prompt service. The officer in charge some times has to honor some cheques only depending upon his familiarity with the customer’s signature, which is very risky.
6. The costly Time and Saving Deposit occupy maximum portion of total deposit. Therefore, cost of fund is increased which decreased its profit level.
7. The bank does not have online computer facility, which could improve the service quality.
8. There is a rule to deposit at least an amount of money in case of opening an account. However, it is not strictly followed. Sometimes more money is asked from a new customer that who discourages him to open an account in the bank. I think the amount should be fixed at a level that is not altered from customer to customer.

 REMITTANCE

 LOCAL REMITTANCE:

NCCBL has its branches spread throughout the country and therefore, it serves as best mediums for remittance of funds from one place to another. This service is available to both customers and non-customers of the bank lot of cash handling from one place to another are risky. Therefore, Bank remits funds on behalf of the customers to save them from any awkward happening through the network of their branches.

These services are providing in between country.

There are four (4) modes of remitting money from one place to another. These are –

q Pay Order (PO)

q Demand Draft (DD)

q Telegraphic Transfer (TT)

q Mail Transfer (MT)

Moghbazar Branch of NCCBL is practicing 3(Three) modes of remitting funds, These are:

Pay order (PO).

Demand Draft (DD).

Telegraphic/Telephone Transfer (TT)

PAY ORDER:

A pay order is an instrument from one branch to another of the same Bank to pay a certain sum of money to the person thereon or to his order. Unlike cheque, there is no possibility of dishonoring pay order because before issuing P.O Bank takes out money of the pay order in advance.

For issuing a pay order the client is to submit an Application to the Remittance Department in the prescribed form (in triplicate) properly filled and duly signed by the applicant. The processing of the pay order Application form, deposit of cash/cheque at the Teller’s counter and finally issuing an order etc, are similar to those of processing of L.D. Application.

As in case of L.D, each branch should use a running control serial number of their own for issuance of a pay order. This control serial number should be introduced at the beginning of each year, which will continue until the end of the year. A fresh number should be introduced at the beginning of the next calendar year and so on.

Pay Order (Issue)

Following procedure is maintained for the issuance of PO:

Customer collects a PO form.

After filling the form, the customer deposits the money in cash or by cheque.

The authorized officer then issues PO on its specific block. That block has three parts, one for bank and other two for the customer.

‘A/C Payee’ crossing is sealed on all Pay Orders issued by the bank.

The officer then put number of the PO block on the PO form.

Two authorized officers sign the block.

At the end customer is provided with the two parts of the block after signing on the back of the part of the Bank.

The commission is 0.15%

Entry for Pay Order

By cash

Cash/party  A/C ———————————Debit

Pay order A/C———————————————Credit

Income on commission A/C—————————–Credit

Payment of Pay order

The payee deposited to his collecting banker.

The collecting bank sends the PO to the issuing bank through clearing house for arrangement.

The Pay order is passed and cancelled in the deposit section

Payment is given and is register in incoming payment of PO book.

As the PO issued by the bank is crossed one it is not pay over the counter. On the contrary, the amount is transfer to the payees’ account. To transfer the amount the payee must duly stamp the PO.

Refund of pay Order 

The following procedure should be followed for refund of pay order by cancellation

1. The purchase should submit a written request for refund of pay order by cancellation attaching therewith the original pay order.

2. The signature of the purchaser will have to be verified from the original application form on record.

3. Manager/ Sub-manager’s prior permission is to be obtained before refunding the amount of pay order cancellation.

4. Prescribed cancellation charge is to be recovered from the applicant and only the amount of the pay order less cancellation charge should be refunded. Commission recorded for issuing the pay order should not be refunded.

5. The pay order should be affixed with a stamp ”cancelled” under proper authentication and the authorized officer’s signature of the pay order should also be cancelled with RED ink but in no case should be torn. The cancelled pay order should be kept with the relevant Ticket.

6. The original entries are to be reversed with proper narration.

1. Cancellation of the pay Order should also be recorded in the pay order Issue Register.

Charges:

A commission of 0.15% is charged on a pay order.

 Telegraphic/Telephone TRANSFER (TT):

Telegram, telephone or telex transfer is another widely used mode for remittances of funds. In case of TT the message for transfer of funds is communicated through tested telephone or telegraph. TT is issue against cash, cheque, and letter of instruction. . The drawer and the payee should have accounts with NCCBL.

Commission

Tk. 30 or 0.15% of the principle, which is higher, is, charged.

T.T issue process

The Applicant fill up the relevant part of the prescribed Application form in triplicate duly signs the same and gives it to the Remittance Department.

Remittance Department will fill up the commission part meant for Bank’s use and request the Applicant to deposit necessary cash or check at the Teller’s Counter.

The Teller after processing the Application form, Cash or check will validate the Application form .The first copy is treated as Debit Ticket while the second copy is treated as Credit Ticket and sent to Remittance Department for further processing. The third copy is handed over to the applicant as customer’s copy.

Remittance Department will prepare the Telex/Telegram in appropriate form, sign it and send it to the telex Operator/Dispatch Department for transmission of the message.

Remittance Department will prepare the necessary advice

Debit Advice is sent to the client if client’s a/c is debited for the amount of T.T

Debit ticket is used to debit the client’s account if necessary.

T.T Confirmation Advice is sent to the Drawee Branch.

Credit Ticket (2nd copy of the Application Form) is used to credit the ABBL General Accounts.

Entry for TT

Cash /party A/C  —————–         Dr.

IBTA                  —————–            Cr.

Commission     —————–            Cr.

Tele.Charge      —————–            Cr.

TT (Payment)

            When a TT arrives through telex it is sent to the respected officer for the verification of the test number. If the test number is OK, the officer write down “Test Agreed” on it and sign it. Otherwise a message is sent back to the issuing branch for the correction of the test number.

After agreeing the test the branch issues a debit voucher and a credit voucher

NCCBL, General A/C ——     Debit

Payees A/C                 ———- Credit

Branch also issues a credit advice slip addressing the payee informing him/her about the arrival of the money.

Later, when the confirmation slip arrives the contra date, on which the payment was made, is put on it and the officer sign it.              DEMAND DRAFT:

Demand Draft is an instrument containing an order of the Issuing branch upon another branch known as Drawee branch, for payment of a certain sum of money to the payee or to his order on demand by the beneficiary presenting the draft itself. DD is issued in favour of a customer who maintains an A/c with this branch. It can be issued against Cash.

Commission

15% charge is taken and postal charge is taken.

Issuance of Demand Draft

1.   Get the Application form properly filled up and signed by the applicant.

2.   Complete the lower portion of the Application Form meant for Bank’s use.

3.   Calculate the total Taka amount payable including Bank’s commission /charges etc.

4.   If a cheque is presented for the payment of the D.D officer should get the check duly passed for payment by the competent authority and record the particulars of L.D on the back of the cheque.

5.   If the purchaser desires his account with the branch to be debited for the amount of D.D the officer should get the A/C. holder’s signature verified properly, from signature card on record of the branch and debit client’s a/c for the total amount including commission/ charges etc.

6.   If cash deposit is desired, request the purchaser to deposit the money at the Teller’s Counter.

7.   The Teller, after processing the Application Form, Cash or Cheque, will validate the Application form.

1. The first copy of the Application form is treated as Debit Ticket while the second copy is treated as Credit Ticket and sent to Remittance Department for further processing. The third copy is handed over to the Applicant as customer’s copy.
2. Each branch maintains a running control serial number of their own for issuance of L.D. on each drawee branch. This control serial number should be introduced at the beginning of each year, which will continue until the end of the year.

 Payment of Demand Draft

1.   On receipt of Credit Advice (IBCA) from the Issuing branch the following responding entries are then be passed by the Drawee branch.

NCCBL General A/c Branch.…………………………. Dr.

Remittance Awaiting Disposal L.D payable A/c……….Cr.

Extracts of Responding entries are to be sent to HORC on the same day.

2.   When a D.D is presented for payment at the paying branch its details are to be carefully examined with references to the following points

a.   Whether the draft is drawn on their branch.

b.   Whether the draft is crossed or not Amount of a crossed draft is not paid in cash to the payee but to be paid to his account with a bank.

c.   Two authorized officials of the Issuing branch must have signed draft. Their signatures are to be verified from specimen signature book let to be sure that the draft is genuine. The verifier should put his initials in red ink against the authorized signatures in the draft.

d.   Endorsement on the back of the draft must be regular in case the draft is presented through clearing.

e.   The amount of the draft should not exceed the amount protect graphed /written in red ink on the top of the draft.

f.    The payee is to be properly identified in case of cash payment.

1. The particulars of the draft i.e. the draft number date amount and the name of payee, should be verified from the D.D payable Register.

3.   On payment the D.D is affixed with the branches Paid stamp and signatures there on are cancelled with red ink. The date of payment is recorded in the D.D payable

Register necessary accounting entries are also passed and recorded in the books of Accounts.

 Accounting entry:

With IBCA:  

Remittance Awaiting Disposal D.D payable a/c                 Dr.

Client’s Account/Teller’s Cash                                               Cr.

Without IBCA:

A.  L.D paid without Advice A/c                                                    Dr.

Client’s A/c Teller’s Cash                                                         Cr.

B.  After receiving the IBCA

I.    NCCBL General A/c                                                             Dr.

Remittances Awaiting Disposal – D.D payable A/c         Cr.

ii.   Remittances Awaiting Disposal – D.D payable A/c        Dr.

D.D Paid without Advice A/c                                               Cr

Stop payment of Demand Draft:

As the Issuing branch issues the draft, the payee or purchaser of the draft cannot give stop payment instructions to the Drawee branch. If a paying branch receives any request from the payee/endorsee or the purchaser of a draft for stopping payment of the draft, it will ask them to approach the issuing branch for the purpose. The paying branch should however exercise necessary precaution in this regard. Only the Issuing branch can issue instructions for stop payment of draft under special circumstances. However, if a stop payment order is received from a court of law the same should be carried out. If a draft on which stop payment order has been issued buys, account is presented for payment the same should be returned unpaid with the answer court prohibited payment quoting court order number and date.

 FOREIGN REMITTANCE:

 These remittance services are providing for exchange foreign currency. These services are as follows: 

Foreign Demand Draft

Endorsements of US$ in passport

Traveler’s Cheque

Money gram

 Foreign Demand Draft (F.D.D):

NCCBL accepts the charges for TOEFL, SAT, GMAT etc. through Foreign Demand Draft. NCCBL opens Student Files to issue Foreign Demand Draft following the permission of Bangladesh Bank. Before issuance of FDD, NCCBL asks the students to fill up the TM Form, which contains the following particulars—

a)     Name of the student

b)     Full address of the student

c)     Amount of FDD in Foreign Currency

d)     Purpose of Remittance

e)     Address of the Institution to which the FDD will be favored

f)      Country receiving payment

g)     Passport no. of the student with date of issue

h)     Signature of the student

Endorsements of US$ in passport:

NCCBL endorses US$ in passports. To endorse US Dollar, the client has to apply in the prescribed form (TM Form). The following entries are given in this regard:

Cash or Customers’ A/C—————————————Dr.

Foreign Currency on Hand < Dollar Special>————- Cr.

Traveler’s Cheque:

Traveler’ cheques are issued by banks to avoid the risk of loss or inconvenience in having to carry large amount of cash while traveling. The salient features of T.C. are:

i)       The buyer of T.C. needs not to be a customer of NCCBL.

ii)    The buyer has to deposit money with the branch of NCCBL equivalent to the amount of the T.C. he wants to buy.

iii)  Each T.C. is signed by the buyer at place marked “when countersigned below with this signature”, before the NCCBL Officer.

iv)  T.C. is issued in single name .It is not issued in joint names or names of clubs, societies and companies.

v)     There is no expiry period for the T.C.

Accounting treatment:

Accounting treatment for the issuance of T.C. is as follows:

Cash or Customers’ A/C—————————-Dr

MISC. Creditor <Issuing Bank>——————-Cr

Money Gram:

It is the new concept of transferring foreign remittance to Bangladesh. Any person residing in the abroad can remit his money through the process of Money gram. There are more than 22,000 Money gram agents in over 100 countries are linked worldwide. Only NCCBL is authorized to do this kind of business with their 27 branches. This kind of business is permitted by Bangladesh Bank because of foreign remittance is coming to our country.

There are some features of Money Gram:

Fast:

When a person transfers money with the money gram service his money gets there fast, usually in 10 minutes or less. Other services often take day or even weeks.

Convenient

There are more than 22000 Money Gram agents over 100 countries. Therefore, a person can easily transfer his fund.

Secured

People use the money gram service thousands of time a day all over the world. It is a trusted guaranteed and reliable thoroughly personal way to transfer money.

Easy

Just one simple form and computerized money transfer network will speed a person’s funds to destination throughout the world quickly, effortlessly and with his peace of mind priority.

How Money Gram works

PROCESS:

1) Sender goes to the Money Gram agent location to transfer his money to Bangladesh.

2) Sender initiates transfer by completing “Send” format at Money Gram agent location.

3) Sender gets receipt and notifies recipients of the transaction reference number.

4) Recipients goes to the Money gram agent (in Bangladesh it NCCBL) location, fill out a “Receive” form to request funds and shows proper identification.

5) Receiving Agent contact the Money gram transaction center (Head office of NCCBL) to obtain authorization to pay recipient.

6) Recipients receive the funds.

Additional information:

A person needn’t maintain any account in the NCCBL. Commission is taken Tk. 0.07 per Dollar amount. This amount is very low and now NCCBL is trying to impose the fixed amount limit.

LOCKER SERVICES:

NCCBL Moghbazar branch is providing facility of locker service for the purpose of safe guarding the valuable property of customers.

The person or organization that has any account in bank branch can enjoy this service. They keep their valuable assets in banker’s custody. Customers have right to look after with a key of their individual lockers provided by bank.

The service charge is yearly Tk. 1500.

 Terms and Conditions:

The safe vault will open during the banking hour unless otherwise changed by the bank.

All fees and other charges in respect of the lockers will be payable in advance.

The banker will not incur any liability or responsibility for any loss or destruction or damage of any article, document, securities, or valuable in or otherwise the contents of the locker/vault.

Either party can terminate this agreement on giving to the other seven days notice in writing expiring prior to the date.

If the hirer loses the key of the locker, the bank should be notified without delay.

It is hereby agreed that the relation of the hirer and the bank is that of a bailer and bile respectively and not that of a customer and bank.

E-CASH  {ATM (AUTOMATED TELLER Machine):

Automated teller machine (ATM) is one of the modern financial services provided by bank. This is providing customer collection of money any time he desires. Now a day life is to fast. To consider this bank creates this service where s/he needs not to follow the banking hour to collect money from his deposit .It is a debit card. Customer firstly deposit money against this a/c then gets ATM service.

NCCBL is introducing ATM service from October 2001 with the seven other Banks. Those Banks are:

1. Dhaka Bank,
2. National Bank Ltd.
3. Credit Agricole Indosuez,
4. Islami Bank Bangladesh Ltd.,
5. South-East Bank Ltd.,
6. Al-Baraka Bank Ltd.
7. Bank Asia Ltd.

 Procedure:

         A person who desires to get an ATM card should open an ATM account in those bank.

An ATM form supplied to the customer specifying the account Name of the account, Account number, address, and telephone No etc.

After filling the form the officer verifies the form.

Jointly an ATM account can be opened.

Then he is supplied a deposit slip to deposit the cash.

Then he gets an ATM/Debit card.

Terms and Condition

At the applicant request the Bank may issue the cardholder a card and PIN if the applicant is a depositor of the Bank and remains an account at any bank.
The cardholder will pay such charges and fees for the provision of the card and /or PIN as the Bank may prescribe from time to time.

Holders of Valid E-Cash ATM/Debit are eligible to enroll for the utility bill payment service using the card and/or PIN, POS or other payment terminal.

All transactions including utility bill payment initiated by the use or purported use of the card shall be debited from the cardholder.

A cardholder can withdraw from his account Tk 20,000 per day. But by inserting a card at a time no cardholder can withdraw more than Tk 2000.

A cardholder can withdraw his money from anywhere in Bangladesh from any Bank Mentioned above if there is an ATM Machine.

 Charges:

Tk. 1500 annual fees for each Card

Tk    200 for replacement of each lost, stolen or damaged card.

Tk.  500 annual fee per card for bill payment to the first 3 utility bills

Tk.   100 annual fees per card for any additional utility bill payment.

 CREDIT MANAGEMENT

 Credit Department:

One of the primary functions of commercial banks is sanctioning of credit to the potential borrowers. Bank credit is an important catalyst for bringing about economic development in a country. Without adequate finance, there can be no growth or maintenance of a stable economy. Bank lending is important for the economy, because it makes possible the financing of agriculture, commercial and industrial activities of a nation. At the same time, a bank will, therefore, distribute its funds among various sectors in a manner as to derive sufficient incomes.

National credit and commercial Bank, being one of the largest private commercial bank of the country, has some prejudice to finance directly on priority basis to agriculture, industry and commerce sector for strengthening the economic base of the country. Hence, it is very clear that, NCCBL Bank plays an important role to move the economic wheel of the country.

What is Loan?

When an advance is made in a lump sum repayable either in fixed monthly installments or in lump sum and no subsequent debit is ordinarily allowed except by way of interest and incidental charges. Etc, it is called a Loan. Loan is allowed for a single purpose where the entire amount may be required at a time or in a number of installments within a period of short span. After disbursement of the entire loan amount, there will be repayment by the borrower in installment. A loan once repaid in full or in part cannot be drawn by the borrower. Entire amount of loan is debited to the loan account in the name of the customer and is paid to him/her through his/her SB/CD/Loan account. Some times loan amounts are disbursed in cash.

 Commercial Banks generally make loans for the following purposes.

For purchasing bus, trucks, launches, for construction of building and for capital financing of industrial projects, export finance, import finance, import finance etc. Now a day, commercial banks, specially the nationalized commercial bank, in our country, are to make loans under different schemes viz. Agricultural Loans, and loans under self-employment scheme etc. Depending upon the purpose, loans may be repayable within a few months or the repayment period may extend upon a few years. Agricultural loans are generally repayable within a period of 3(three) months to 1(one) year. But repayment of transport loans & house building loans may take longer period comprising a number of years.

Loans are generally secured by lien on fixed/term deposits, shares, debenture, Protirakhsha Sanchay Patra, insurance policy, pledge of gold, mortgage of real estates and hypothecation of crops, vehicles, machineries etc, depending upon the nature & purpose of the loan.

Lending principles followed by NCCBL:

The Principle of lending is a collection of certain accepted time tested standards, which ensure the proper use of loan fund in a profitable way and its timely recovery.

Different authors describe different principles for sound lending.

NCCBL follows the following five principles in its lending activity:

1.   Safety

2.   Security

3.   Liquidity

4.   Adequate yield

5.   Diversity

6.   Productive purpose

7.   National interest    

 1. Safety

Safety should get the prior importance in the time of sanctioning the loan. At the time of maturity the borrower may not will or may unable to pay the loan amount. Therefore, in the time of sanctioning the loan adequate securities should be taken from the borrowers to recover the loan. Banker should not sacrifice safety for profitability.

NCC Bank Ltd. exercises the lending function only when it is safe and that the risk factor is adequately mitigated and covered.  Safety depends upon:

The security offered by the borrower; and

The repaying capacity and willingness of the debtor to repay the loan with interest.

2.   Liquidity

Banker should consider the liquidity of the loan in time of sanctioning it. Liquidity is necessary to meet the consumer need.

3.  Security

Banker should be careful in the selection of security to maintain the safety of the loan. Banker should properly evaluate the proper value of the security. If the estimated value is less than or equal to loan amount, the loan should be given against such securities. The more the cash near item the good the security. In the time of valuing the security, the Banker should be more conservative.

4.   Adequate Yield

As a commercial origination, Banker should consider the profitability. So banker should consider the interest rate when go for lending. Always Banker should fix such an interest rate for it’s lending which should be higher than its savings deposits interest rate. To ensure this profitability Banker should consider the prospect of the project.

 5.   Diversity

Banker should minimize the portfolio risk by putting its fund in the different fields. If Bank put its entire loan able fund in one sector it will increase the risk. Banker should distribute its loan able fund in different sectors. So if it faces any problem in any sector it can be covered by the profit of another sector.

6.      A Productive Purpose:

NCC Bank exercises its lending function only on productive purpose.

7.      National or social interest:

NCCBL also considers national aspect of any project while financing. They take utmost care so that the project cannot be detrimental to the society as well as to the nation.

 Reason for loan default:

 Different Types of Loans and Advances:

 OVERDRAFTS

The overdrafts are generally allowed on a Current account operated upon by cheques. The customer may be allowed a certain limit up to which he can overdraw within a stipulated period of time. In an overdraft account withdrawals & deposits can be made any number of times within the limit and prescribed period. Interest is calculated and charged only on the actual debit balances on daily product basis or may be decided by the competent authority.

1. Temporary Over Draft (TOD)
2. Clean Over Draft (COD)
3. Secured Over Draft (SOD)

TOD

TOD is allowed to honor an important cheque of a valued client without any prior arrangement. As this facility is allowed for a very short period, it is called Temporary Overdraft.

COD

Sometimes Overdrafts are allowed with no other security except the personal guarantee of the borrowers. These types of overdrafts are called Clean Over Draft.

SOD

When Overdrafts are allowed against securities they are called Secured Overdrafts. Overdrafts are generally granted to contractors & supplies for carrying on construction works and supply orders and to businessmen for expansion of their business. SOD is generally allowed against securities of fixed & term deposits shares/debentures, PSP, Insurance Policy, real estates, etc: depending on the nature & purpose of advance.

CASH CREDIT

Cash Credit is allowed to the businessmen, traders and industrialists etc. for meeting their working capital requirements. Cash Credit is always allowed against hypothecation or pledge of goods. Hence, Cash Credits are of two types (1) Cash Credit (Hypothecation) (2) Cash Credit (Pledge).

CASH CREDIT (HYPO)

Cash Credit allowed against hypothecation of goods is known as Cash Credit (Hypo) limit. In cash of hypothecation, the borrower retains the ownership & possession of goods on which charge of the landing bank is created. Holden says, Hypothecation is legal transaction, whereby goods may be made available as security for a debit without transferring either the property or the possession to the lender.

The documents which cerate charges of the lending Bank on the hypothecated goods is called letter of hypothecation. By signing this letter hypothecation, the borrower binds himself to give possession of the hypothecated goods to the lending Bank when called upon to do so. As the hypothecated goods remain under the possession of the borrower, such advance is more or less clean.

 As such, the banker should take the following precaution:

1. The Banker should carefully verify the stocks of hypothecated goods and their market price.
2. Periodical statement of stock duly signed by the borrower should be obtained.
3. Stocks should be duly insured against fire, burglary, R.S.D. with Bank clause.
4. Banker should try to obtain sufficient collateral security.
5. The borrower should be trustworthy & prudent customer.
6. The goods are readily saleable and have good demand in the market.
7. The price of the goods, offered as security, is to be calculated as per following principle. Purchase price or market price whichever is lower.
8. The prices of the goods are steady etc.

CASH CREDIT (PLEDGE)

Cash Credit allowed against pledge of goods known as Cash Credit (Pledge) limit. In cash of Cash Credit (Pledge) limit, the borrower pledges his goods to the Banker as Security against the credit facility; Pledge has been defined as “a bailment of goods as security for payment of a debt or performance of a promise”. The ownership of the pledged goods remains with the pledgee.

Banks retain the effective control of the pledged goods. Pledged goods may be stored in a go down of the borrower but under lock and key of the bank. Bank’s guards are posted round the clock to protect the go down. Sometimes, pledge goods are stored in Bank’s go down.

Bank makes delivery of the pledged goods to the party against payment.

Following points should be taken into consideration when allowing Cash Credit (Pledge) limit.

1. The quantity of the goods is ascertained.
2. The goods are readily saleable and have a constant & effective demand in the market.
3. The quality of the goods is ensured. The goods are not perishable and will not deteriorate in quality as a result of long short duration storage.
4. Goods are stored in pucca go down to save them from deterioration and to guard them against risks of pilferage.
5. The borrower has as absolute title to the goods.
6. The prices of goods should be steady and are not subject to violent changes.
7. The valuation of the goods should be made very carefully. Exmill price/purchase price/market price/whole sale price “whichever is lower” is the general principal for assessing the valuation of the goods.
8. The goods should be stored in the presence of a responsible bank official.
9. The goods are insured against all risks, such as fire, theft, R.S.D. etc. and the insurance policy bears “Bank Mortgage Clause”.
10. The stock report is obtained duly signed by the borrower.
11. Stocks must be inspected regularly by the Branch-in-charge.
12. Stock cards are indicating the quantity of stocks, their value and rate is placed in the go down.
13. The locks of the go down are sealed and keys are deposited in the branch etc,

CHARGE DOCUMENTS TO BE OBTAINED (IN LOAN, OD, CASH CREDIT)

01.       D.P. Note.      (ii) DP Note Delivery Letter.

1. Letter of Disbursement (In case of loan)
2. Letter of Arrangement
3. Letter of Continuity (for OD & CC)
4. Letter of Hypothecation for Cash Credit (Hypo)
5. Letter of Pledge for Cash Credit (Pledge)
6. Letter OF Partnership along with Registered Partnership Deed and personal guarantees from the partners in case of Partnership Account.
7. Resolution along with Memorandum & Articles of Association and the personal Guarantees from the Directors in case of Limited Co.
8. Other documents to be obtained depending upon the nature of securities offered.
9. Any other document as per rule or the competent authority desires.

DRAWING  POWER:

Both in cases of hypothecation & pledge, the banker should find the Drawing power. Advance is allowed against hypothecation/pledge of goods after deduction of the margin. For advance against stock of “Cotton Yarn” is 30% (say) then bank can advance Tk. 70/- is the Drawing Power. DP + Value of Securities-Margin.

Credit Operation of the Bank is of paramount importance as the greatest share of total revenue of the Bank is generated from it, maximum risk is centered in it and even the very existence of Bank depends on prudent management of its credit portfolio. The failure of a commercial Bank is usually associated with the problem in credit portfolio and is less often the result of shrinkage in the value of other assets. As such, credit portfolio not only features dominant in the assets structure of the Bank, it is critically important to the success of the Bank also.

Types of advances in: Depending upon the nature of financing in respect of purpose, security as well as repayment terms, credit facilities have been put under the following broad categories:

1)     Overdrafts: These are the credits where a limit is set in client’s account with an expiry period usually not exceeding one year. This type of facility is applied in client’s current account. In this type of facility client is at liberty to deposit and withdraw money within the validity of limit subject to drawing power of the account, where applicable.

Overdraft limit: In allowing overdraft a limit is set in client’s account within which the client is at liberty to operate on the account subject to other terms and conditions of the facility.

Drawing power (DP): When an advance is made in consideration of tangible assets such as stocks in trade, financial obligation etc. usually a cushion is retained as margin in respect of the assets valued at lower of cost or market. Usually margin is fixed as percentage of asset value. The drawing power represents extent of client’s drawing rights to be applied subject to limit set in the account. To arrive at the drawing power the margin is deducted from the value of assets under consideration.

In operation of account, client’s effective withdrawal right is determined at the lower of DP or limit.

If it is found at a subsequent calculation that client’s DP fell short of the amount already withdrawn, necessary arrangements shall immediately be made either to bring down the outstanding within DP or to raise the DP by furnishing additional acceptable assets as security.

The overdraft accounts are sub-divided into following categories in respect of security held as well as purpose of the facility.

ii)  Overdrafts- financial obligations: These are the overdraft facilities secured by financial obligation such as FDR, Sanchyapatras, wage earner’s development bond, deposits held, in client’s account, life insurance policies etc. In valuing these securities usually annualized interest/interest accrued and payable for the completed period as per premature terms of the instruments are often consideration. In this type of facility often a margin is set depending upon banker-customer relationship, subject to terms of lending authority of the approving authority, if any, of which 20% margin on the present value of financial obligation is regarded ideal.

No instrument standing in the name of minor is acceptable. And advances against the instruments held in other then borrower’s name is generally discouraged.

Advances against life insurance policies: In case of advances against life insurance policies, the standing of the issuing company shall be taken into consideration and be satisfied with. Besides following, among others, shall be considered:

a)   The policy is an endowment policy

b)  The borrower has an insurable interest in the life of the insured if the policy does not stand in his own name.

c)   The surrender value is to be ascertained from the issuing company (it shall be borne in mind that policies for less than three years have no surrender value). On the basis of surrender value advance is granted and ideally 20% margin is retained.

d)  The policy does not beat any restrictive or qualifying condition likely to affect its value as security

e)   It shall be ensured that the policy is in force, usually by obtaining and examining last premium paid receipt.

ii)  Overdrafts-shares: This category is a variation of overdrafts against financial obligations. These are the overdrafts secured by shares and debentures of publicly traded companies listed with both or either of Dhaka and Chittagong stock exchanges. The security is valued at lower of cost or 69six) months average of market.

However, in this type of advances the standing of the company as well as the track record in declaring dividend etc. shall be of important consideration. Only shares without any trading restriction shall be accepted. Besides it shall be ascertained that the shares are fully paid up. Further more, the scrip which are regularly being traded shall only be considered and those shall consist of shares/debentures of at least 3(three) companies. Moreover, the value of securities of a particular should not exceed 40% of value of all the securities furnished.

Margin may be determined as per banker-customer relationship and the same shall not be lower than 20% of the estimated value of the security.

iii) Overdrafts- others: These are the overdrafts not covered by as stated in (i) and (ii) above. These facilities are usually extended to meet client’s various financial requirements of continuous nature including execution of different work orders and granted against personal guarantee, charge on assets of the company etc. that may or may not be accompanied by the collateral security. These facilities may also be secured by stock in trade, inventory or plant and machinery but usually no margin is fixed on those and as such drawing power always equals the limit of the facility.

Since in this category of advance bank is fully exposed, obtaining of collateral security is of particular importance.

Besides under this category, work order financing requires certain special elements to consider.

Work order financing: In providing finance to execute work order(s) followings, among others, shall be considered:

a)         That the work order is issued by Govt. department, cooperation, semi- government, autonomous bodies, reputed multinational companies as well as reputed local private organizations

b)        Borrower’s management experience, ability, structural facilities etc. in respect of nature of the work shall be taken into account

c)         All the terms and conditions of work order as well order as well as details of work schedule shall be carefully examined to evaluate the merit of the proposal

d)        The tide up amount shall be worked out considering terms of the work order

e)         The provision of running bills shall be carefully noted and be taken into consideration in setting repayment terms of the facility

f)         Obtaining of collateral security is of particular importance in this type of advance.

2)        Cash credits: These are also the facilities where, like overdrafts, a limit is set in the account not exceeding one year. However difference is that the bank where limit is applied instead of client’s account opens a separate ‘cash credit’ account. This type of credit’ account is opened by the bank where limit is applied instead of client’s account. This type of facility is again sub-divided into following categories as regards nature of holding of primary security.

i)         Cash credit-hypothecation: In this category primary subsists of stocks in trade, inventories etc., possession of with the borrower rather a charge upon those is created in bank’s favor. The stock is valued at lower of cost or market and on the valuation of the stock a margin is set on the basis of which DP is determined. However such stock should not preferable consist of perishable items and the same is subject to bank’s inspection as and when required. It shall also be ascertained that the borrower has an absolute title to the goods and not already encumbered. In this category of advance usually suitable collateral security is obtained.

The margin shall be set as per banker-customer relationship, subject to terms of lending authority of the approving authority, if any, of which 50% margin on the value of the hypothecated stock is regarded ideal.

Monthly stock reports shall be obtained from the client and an authorized officer of the credit department shall periodically inspect the stock.

ii)        Cash credit- pledge: In this category primary security also consists of stocks/inventories and is held by the bank instead of the borrower as in the cash credit- hypothecation. In cash of borrower’s non-repayment bank retains the right to adjust the account through selling of the pledged goods after giving proper notice of the borrower to that effect. The excess sale proceeds, if any, over the adjustment of liability with interest, shall be deposited to client’s account. Requirement of collateral security covering the facility fully or partially depends on the banker-customer relationship.

In this type of advance, it shall be ascertained at first that the borrower’s title to the goods is absolute and those are not already encumbered. Perishable items are strictly avoided and considerations are made, among others, which the goods are readily saleable and prices are not subject to drastic change.

The goods are valued at lower of cost or market and margin and margin may be determined as per banker-customer relationship, however the same shall not be lower than 20% of the estimated value of the pledged goods.

3) Demand loan: These are the loans with fixed repayment terms repayable within one year. The essential difference of this type of lone from overdrafts or cash credit facilities is that this type of facility dose not permit the mutuality of operation in the account i.e. the amount once deposited /adjusted is not available for further withdrawal and goes to permanently reduce borrower’s liability to that extent.

4) Term loan: These are the loans sanctioned for repayment in period more than one year. This type of loan is again sub-divided as follows in consideration of sector of finance:

1)        Term loan- industrial: These are the term loans awarded to the industrial to the industrial concerns. This facility is usually provided to set up a new industrial project or to modernize and restructure an existing one. Since the time frame of this type of lending do not correspond to the duration of bank’s prime source of funding, generally bank predetermines the optimum extent of global exposure in this sector. As such, consideration of bank’s existing policies and positions in this sector are of great importance in considering a credit request in this sector.

Besides an array of considerations are involved in this type of financing, some of those are:

a)         Government policies such as fiscal, monetary, industrial, import, export etc.

b)        Borrower’s standing

c)         Borrower’s past track record in the proposed line of operation as well

as in other business activities, if any

d)        The suitability of the project under consideration viewed in the broader perspective of its viability etc.

e)         Seasonal fluctuation and business cycle.

Financing these types of activities demands a far sight to visualize and quantify and quantify a distant future specially up to the period covering the repayment of financing. Since the concerns shall project the business through different financial statements, an expertise to analyze different financial statements is a must on the part of the appraiser of the project.

In this type of finance terms of repayment shall be carefully set and analyzed. Those including the moratorium/gestation period shall be commensurate with the project’s very nature. These will go a long way in guiding successful liquidation by of obligations by the borrower.

Term loan- others: These are the term loans made to other than industrial concerns. It this case also, a through analysis of the required.

5)        House building loan: These loan are a variant of term loan and are the loans made to finance borrower’s house building requirements foe both commercial and non-commercial purposes. Being a variant of term loan, in this cash too bank usually have predetermined optimum exposure level which shall always be kept in mind in considering financing under this category. Besides borrower’s standing is thoroughly checked and only fairly cleared clients are entertained.

House building finance for commercial purposes shall ideally be liquidated, within the time frame of repayment, through the income to be generated from the project. However, client’s resourcefulness is of paramount importance, the sector being highly sensitive to economic shocks.

Entire gamut covering location, nature of the property whether freehold or lease hold (if lease hold, conditions of lease as well as confirmation of up to date payment of installment etc. shall be considered), estimated cost vis-à-vis borrower’s stake, suitability of building’s proposed use, duly passed plan/clearance from the competent authority etc. are the consideration, inter area, in this respect, Like industrial term loan, the repayment schedule and moratorium carry a great weight in this type of finance too. These types of loans are again sub-divided into two categories in respect of the borrower’s identity:

i) House building loan- general: These are the houses building loan made to other than an employee of the bank.

ii) House building loan-staff: These are the houses building loan made out to the employee of the bank.

6) Transport loan: This type of loan is made to facilitate purchase of all types such as: road transports, watercrafts, aircrafts etc. However, commonly financed transports are road transports. Only brand-new and 100% reconditioned transports are eligible for financing. In cash of importation of the vehicle total landed cost is to be calculated and retirement arrangements shall be determined before hand. This category of finance may be of short term or long term depending upon the nature of particular advance. Nevertheless, in this sector also bank usually has a predetermined global level of stake to be under taken.

For providing finance for commercial purposes, apart from borrower’s stake at the proposal his creditworthiness, resourcefulness etc. are thoroughly determined. An extensive analysis is made to ascertain different aspects of the proposed credit such as: borrower’s experience, managerial ability, that the proposed route/purpose has adequate room for the proposed entrant etc. In this type also the repayment period and terms including gestation period should reflect the reality of the finance.

7) Consumer credit: This type of facility is extended to finance purchase of consumer durables, usually at a certain margin. In this sector also bank usually have a set level of warranted global exposure. Financing of land transport for personal use, under this category shall attract the considerations of transport finance stated above excluding the commercial elements.

Officials of government, semi- government, autonomous, semi-autonomous, reputed multinational corporations, locally reputed private organizations, banks and other financial institutions etc. are eligible to avail the facilities under the scheme. However in extending credit, the approving authority should exercise the discretion very creatively so as to assure proper monitoring and repayment. The standing of the organization the official belongs to, be of great importance in extending credit under the scheme. The articles under this type of facility are not booked as asset of the bank.

8) Hire purchase: This is bailment of goods at certain agreed terms condition. Under this facility, the hirer may have the option either to return those goods and terminate the hiring or alternatively purchase the goods upon the terms set out in the agreement of hire purchase. The hirer may have to affect an agreed sum as down payment and although ownership of articles under this type of facility remains with the bank, it is not booked as asset of the bank.

The term of hire purchase may be of short or long term and in this category also usually bank sets an optimum level of global exposure. The setting of terms of hire purchase agreement is of particular important.

9) Lease finance: These type of finance are made to acquire the assets selected by the borrower (lessee) for hieing of the same at a certain agreed terms and conditions with the bank (lessor). In this case bank retains ownership of the assets and borrower possesses and used the same on payment of rental as per contract. In this case no down payment is required and usually and usually purchase option is not permitted. The articles under this type of facility are booked as assets of the bank.

10) Syndicated loan: These are the loans usually involving huge amount of credit and as such to reduce a particular bank’s stake a number of banks / financial institutions participate in such credit, known as loan syndication. The bank primarily approached / arranging the credit is known as the lead or managing bank.

11) Underwriting: When public limited companies float shares / debentures to raise money from the capital market, bank may undertake to subscribe the same at an agreed terms and conditions in the event of non-subscription of shares/ debentures. Thus it is a commitment on the part of the bank and as such not included in the bank’s loans and advances portfolio. However, in case of inadequate subscription within stipulated date bank buys the same as investment in its own portfolio. The decision to underwrite essentially demands expertise of credit appraisal.

12) Foreign Document Bills Purchased (FDBP): This type of finance made out to purchase foreign clean bills such as foreign currency draft, cheque etc. The facility is generally allowed to a very well known client with good standing save in the case of encashment of Traveler’s chares.

Usually commission and other charges are realized on FBP and no interest is charged.

13) Inland bills purchased (IBP) / discounted (IBD): This type of finance is used to purchase/discount local clean bills such as local currency drafts, chaque, trade bills etc. Again this type of facility is generally to a very well known client with good standing. The prime concern in this type of advance is client’s integrity and resourcefulness. Unless the bank is satisfied that the borrower will liquidate the liabilities with interest from his own resources in the event of dishonor of the bill, the facility should not be awarded.

Usually trade bills are discounted which are interest bearing. In case of discounting of such bill interest is first computed on the principal amount of the bill and than discount is computed on the amount resulting from the principal amount of the bill plus interest.

For IBP generally commission, charges etc. are realized and for IBD bank collects discounts at a prescribed rate to reimburse themselves to cover the cost of fund. In both the cases suitable collection charges are recovered.

In all practical purposes the purchase and discount of bills are essentially same essentially same and there exists only are discounted.

14) Import finance: Banks also undertakes import finance both in the form of pre-import and post-import finance. Since in pre-import finance bank’s is not involved it is not included in the total loans and advances position of the bank and conversely as bank’s fund is involved in post-import finance, the same is included in the over all loans and advances position of the bank. These two categories of import finances include:

i)         Letter of credit (L/C): This is a pre-import finance which is made in the from of commitment on behalf of the client to pay an agreed sum of money to the beneficiary of the L/C upon fulfillment of terms and conditions of the credit. Thus at this stage bank does not directly assume any liability, as such the same is termed as contingent liability. For this type of facility credit worthiness of both the importer and supplier, estimation of total landed cost as well as selling price of the merchandise, ready marketability of the merchandise etc. are of great importance> In granting this type of credit it shall be invariably decided whether the client will require any post import finance and if so same shall be ascertained and decided beforehand.

Financing of commercial imports under this category demands credit personnel’s through knowledge about the marketing aspects of the commodity specially evaluated in terms of its demand, domestic as well as county’s import situation of the same.

Besides the anticipated demand-supply situation at the estimated date(s) the imported merchandise are expected to reach the market foe sale shall also have to be carefully evaluated.

For L/Cs usually bank retains margin in respect of value of thee credit and the same is fixed depending on the banker- customer relationship as well as the nature of item. Usually 100% margin is retained in cash of importation of perishable items.

In case of forced LIM branch should be satisfied that the forced sale value of the merchandise covers the bank liabilities with interest, if not possibilities are to be checked to recover the liabilities through sale of the documents.

The clearance of the goods shall be arranged through bank’s approved C & F agent.

iv)       Loan against trust receipt (LTR): This is also a post- import finance facility awarded to retire import bills directly or under PAD as the case may be. Like LIM in this case too bank may or may not realize margin on the total landed cost, ending upon banker customer relationship. However, unlike LIM, in this category of finance possession of the goods remains with the borrower and the borrower executes’ letter of trust receipt’ in acknowledgement of debt and its repayment along with interest within agreed period in acknowledgement of debt and its repayment along with interest within agreed period of time.

In this type of advance, proceeds of every sale must be deposited with the bank irrespective of validity of the facility.

Since goods are held in trust, any misappropriation of the same will entail the borrower to be liable for initiating ‘criminal’ charge against him.

15) Export finance: Like importing trade, DBL advances in export trade at both pre and posting shipment stages. In this type of advance, standing of both opener and beneficiary of export L/C as well as standing of the L/C issuing bank etc. is of important consideration. The terms of export L/C are examined very carefully so as to ascertain the terms of the finance.

The pre-shipment facilities are usually required to finance the costs to execute export orders, such as: processing and processing of raw materials, packaging and transportation, payment of various fees and charges insurance premium etc. While post-shipment facilities are directed to finance exporter’s various requirements that are required to be settled immediately on the back drop that usually, settlement of export proceeds takes some time to complete. The facilities under both the categories are:

i)         Back to Back letter of credit (BBL/C): BBL? C is a type of pre-shipment finance by way of opening L/C in favor of a local or foreign supplier for purchase of raw materials or the finished merchandise, as the case may be, to execute export order. This type of L/C is only opened on the strength of an export order received by way of an L/C or firm contract with or without realization of case margin or collateral security depending upon banker-customer relationship.

Since for opening BB L/C, no fund of the bank id immediately involved, the same is not included in the total loans and advances position of the bank. This type of credit is usually opened on identical terms of the export L/C are retired from the export proceeds of the relevant exports usually within 180 days from the date of credit.

In awarding this type of facility particular care shall be taken to see that there remains adequate time to process the raw materials / intermediary or finished products imported under BB L/C to execute the work order.

ii)        Packing Credit (PC): To execute export orders under L/C or firm contract the bank awards packing credit facility to meet client’s working capital requirement. In this case also bank may or may not retain collateral security depending upon banker -customer relationship. The facility is to be adjusted, usually, within 180 days from the date of disbursement from the relevant export proceeds.

iii)       Export Cash Credit (ECC- hypothecation / pledge): These are the facilities awarded of the noted export oriented concerns with good standing which usually have different export orders round the year. Because of the continuous overwhelming nature of export orders it is often preferred to set export cash credit hypothecation of stocks, plant and machineries etc. or against pledge of stocks. In this category usually collateral security is obtained. The facilities are availed like the facilities under cash credit – hypothecation/pledge.

iv)       Foreign Documentary Bills Purchased (FDBP): This is a post-shipment finance allowed to the customer through the purchase/negotiation of foreign documentary bills adjustable from the relevant export proceeds. Bills that are drawn as per the L/C terms accompanied by all the required documents shall only be taken consideration. No discrepant bills are purchased.

16) Inland documentary bills purchased (IDBP): This facility is accommodated both for export and local trade.

The payments made by negotiation/purchase of documentary bills against sale of goods to local export oriented industries which are deemed as exports and which are denominated in local or foreign currency are included in this category. Besides local documentary bills purchased in respect of sale to a local purchaser is also included in this category of financing. Bills that are drawn as per the L/C terms accompanied by all the required documents shall only be taken into consideration. No discrepant bills are purchased.

Concept one obligor: It is usually found that a person does have interest in a number of business organizations. In such cases, concept of one obligor shall be applied to take into account all credit facilities being availed at different branches of the bank by the concerned business so as to determine the ultimate level of stake. All funded and non-funded facilities shall be taken under the concept.

In extending credit application of one obligor concept is mandatory.

DIFFERENT TYPES OF LOANS AND ADVANCES THAT NCCBL OFFERS:

The different types of loans and advances that NCCBL offers are as follows:

1)                  Secured Overdraft (SOD)

2)                  Loan against Imported Merchandise (LIM)

3)                  Cash Credit.

4)                  Working Credit.

5)                  House Building Loan

6)                  Local Documentary Bill Purchased (LDBP)

7)                  Term Loan.

8)                  Loan against Trust Receipt (LTR).

9)                  Loan against Other Securities (LAOS).

10)              Export Credit.

11)              Over Draft.

12)              Consumer Credit Scheme

13)               Staff Loan

a)     Secured Overdraft (SOD):

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. NCCBL sanctions SOD against different security.

b) SOD (FO):

Advance is granted to a client against financial obligations. The security of advance is granted to the person to whom the instrument belongs. The discharged instrument is surrendered to the bank along with a letter signed by holder/ holders authorizing the bank to appropriate the proceeds of the instrument on due date towards the repayment of the advance. The Bank’s lien is prominently noted on the face of the instrument under the signature of an authorized bank official. The instrument is issued by another branch of NCCBL or any branch of some other bank, and then the concerned branch is intimated to lien mark the instrument.

c) S O D (General):

Advance is granted to a client against the work order of government departments, corporations, autonomous bodies and reputed multinational/ private organization. The client’s managerial capability, equity strength, nature of the scheduled work is judged to arrive at a logical decision. Disbursement is made after completion of documentation formalities. Besides usual charge, documents like a notarized irrevocable power of attorney to collect the bills from the concerned authority and a letter from the concerned authority confirming direct payment to the bank is also obtained. The work is strictly monitored to review the progress at each interval.

 d) S O D (Export):

Advance allowed to purchasing foreign currency for payment against L/Cs (Back-to- Back) where the exporter cannot materialize before the date of import payment.

The processes of extending SOD are as follows:

i)                   The party must have a current A/C with the branch.

ii)                If the ownership of the firm is proprietorship, then a trade license must be submitted and in case of a limited company, all the documents required to open a current A/C should be submitted. The financial statements of the concerned firm should also be submitted.

iii)              The party must maintain a good transaction with the branch and have a good turnover rate.

iv)              The party will apply to the officer in charge of credit department of the branch for SOD arrangement.

v)                 The concerned officer of the branch will give him a Credit Application Form and the party will have to fill this form. In this form he discloses all the information about his concern, purpose of the loan, description of security, etc.

vi)              The concerned officer will prepare a “Credit Line Proposal”, where he writes about the business concern, details of proprietors/directors of the concern, management structure, the existing credit facilities, the particulars about the facilities that asked for – such as margin limit, date of expiry, details of security, and any other relevant information. Then the proposal is sent to the Head Office.

vii)            The responsible Department of the General Advances Division will appraise the proposal and if it seems to a viable then the loan will be sanctioned.

viii)         After the loan is sanctioned, the branch will issue two copies of a sanction advice, where all the terms and conditions set by the bank is mentioned. The borrower is advised to write, “accepted” on the original copy if he is satisfied with the terms and conditions of the bank and retain the duplicate one as record.

 2) L I M (Loan against Imported Merchandise):

Advances allowed for retirement of shipping documents and release of goods imported through L/C taking effective control over the goods by pledge fall under this type of advance. When the importer failed to pay the amount payable to the exporter against import L/C, then NCCBL gives loan against imported merchandise to the importer. The importer will bear all the expenses i.e. the godown charge, insurance fees, etc. and the ownership of the goods is retain to the bank. This is also a temporary advance connected with import, which is known as post import finance.

  3) Cash credit:

Cash Credit (CC) is an arrangement by which a banker allows his customer to borrow money up to a certain limit. CC is a favorite mode of borrowing by traders, industrialists etc. for meeting their working capital requirements. It is operated like overdraft account. Depending on the needs of the business, the borrower can draw on his cash credit account at different time and when he gets money can adjust the liability. NCCBL charges interest on the daily balance in the account.

Depending on charging security there are two (02) forms of cash credit:

a) Cash Credit (Hypothecation)

The mortgage of movable property for securing loan is called hypothecation. Hypothecation is a legal transaction whereby goods are made available to the lending banker as security for a debt without transferring either the property in the goods or either possession. The banker has only equitable charge on stocks, which practically means nothing. Since the goods always remain in the physical possession of the borrower, there is much risk to the bank. So, it is granted to parties of undoubted means with the highest integrity.

b) Cash Credit (Pledge)

Bailer in this case is called the “Pawnor” and the bailer is called the “Pawnee”. In a contract of pledge, Pawnor must deliver the goods pledged to the Pawnee either actually or constructively. Transfer of possession in the judicial sense is essential in the valid pledge. In case of pledge, the bank acquire the possession of the goods or a right to hold goods until the repayment for credit with a special right to sell after due notice to the borrower in the event of non-repayment.

After getting the cash credit arrangement, the banker will issue a checkbook for withdrawing cash from the account. Whenever the CC account holder wants to withdraw cash from the account, the cash officer will scrutinize the amount of cheque in order to make sure that the total drawings does not exceed the sanctioned limit.

The charge documents required for opening a CC account are as follows:

Demand Promissory Note (DP Note)

Letter of Agreement

Revival Letter

Letter of Continuity

Letter of Hypothecation/Pledge

Letter of Guarantee

Memorandum of Deposit of Title Deed (in case of CC hypothecation arrangement)

Stock Report

Letter of Disclaimer

4) Working Capital:

Loans allowed to the manufacturing units to meet their working capital requirement, irrespective of their size big, medium or large, fall under the category.

5) Export credit:

Credit facilities allowed facilitating export against L/C fall under this category. It includes Loan Against Packing Credit (LAPC), Foreign Documentary Bills Purchased (FDBP) etc.

6) L T R (Loan Against Trust Receipts):

Advance against a TR obtained from the customer is allowed when the documents covering an import shipment are given without payment. The customer holds the goods or their sale proceeds in trust for the bank until the LTR is fully paid off. TR is a document, which creates the banker’s lien on the goods. The period of TR may be 30-45-60 or 90 days. The sale proceeds of goods held in trust must be deposited to the bank by the borrower irrespective of period of TR.

7) Local Bills Purchased Documentary (LBPD):

Payment made against documents representing sell of goods to local export oriented industries, which are deemed as exports, and which are denominated in Local currency/ foreign currency falls under this head. The bill of exchange is held as the primary security. The client submits the usance bill and the bank discounts it. This temporary liability is adjustable from the proceeds of the bills.

8) Loan Against Other Securities (LAOS):

       Loan against Other Securities is a 100% secured advance, which requires no sanction from the Head Office. Marking lien on FDR, ICB Unit Certificate etc, sanctions it.

9) Term Loan:

NCCBL considers the loans, which are sanctioned for more than one year as term loan. Under this facility, an enterprise is financed from the starting to its finishing, i.e. from installation to its production. NCCBL offers this facility only to big industries.

10) Overdraft:

Customers having current account are accommodated by overdraft facility against security. Permission is given to overdue current account up to sanctioned limit is continuous revolving credit and the borrower may operate any number of times within sanctioned limit up to validity period of limit interest is charged on debit balance of daily products. A short-term credit arrangement and renewable.

11) Consumer Credit Scheme:

This scheme is aimed to attract consumers from the middle & upper middle class population with limited income. The borrower should have an account (SB or CD) with the bank.  Minimum 25% of the purchase cost of the product is to be deposited by the borrower with the bank as equity before the disbursement of the loan. The rest 75% is to be kept as cash collateral (FDR, Sanchey patra etc.) with the bank. The purchased items are hypothecated with the bank. The disbursement of the loan is effected by debiting time loan / term loan account to be opened in the name of the borrower. Loan amount is disbursed through A/C payee pay order / Demand Draft directly to the seller after submission of the indent, deposit of client equity & completion of documentation formalities. The bank obtains post dated A/C payee checks drawn in favor of the bank for the monthly installments covering the lending period from the borrower & the loan amount is adjusted on the due date of installments.

 12) Staff Loan:

Bank official from senior officer and above is eligible for this loan. The maximum amount disbursed is Taka.50, 000/- for a period of 2 years. The rate of interest is 8% per annum.

13) House Building Loan:

This loan is provided against 100% cash collateral. Besides, the land & building are also mortgaged with the bank. Rate of interest is 15.5%. (Old rate 16.5%)

 SELECTION OF THE BORROWER:

Selection of borrower is vitally important step for sanction loan.  Due to lack of information and moral hazard, banks have to suffer a lot due to the classified loans and advances. If the selection of borrower is correct, that is, the borrower is of good character, capital and capacity or of reliability, resourceful and responsible the bank can easily get the return from the lending. Consequently, monitoring is making much easier for the banker. From this point of view, NCCBL follows the following procedures:

Obtaining first information

      A   Studying past track record:

After getting an application for a loan, an NCCBL Official studies the past track record of the applicant. Generally the study includes:

a)     Account balances and the past transactions;

b)     Credit report from other banks;

c)     Information of the Industry by studying market feasibility;

d)     Financial statements (balance sheet, cash flow statement, and income statement). If the borrower is a sole- proprietor, then the single entry accounting treatment is converted to double entry system.

B.     Report from Bangladesh bank:

Report from Credit Information Bureau of Bangladesh Bank if the amount is more than TK.10 Lac.

1. Borrower analysis:

Borrower analysis is done from the angle of 3-C (character, capital, capacity) or 3-R (reliability, resourcefulness, responsibility). It follows that the bank forms a rational judgment about the integrity of the borrower, which should be undoubted. The human skill, conceptual skill, operational skill is qualitatively analyzed.

1. Business analysis:

Business analysis is done from two angles-terms, conditions, and collateral securities.

INTEREST RATE ON LOANS AND ADVANCE:

Imported Merchandize (LIM)15.5%16.5%

 PROCEDURE FOR GIVING ADVANCE:

The General Advances Department of Moghbazar Branch NCCBL usually follows the below-mentioned procedures and steps for sanctioning any kind of advances as available with the branch:

      First, step

The prospective borrower has to apply to Moghbazar Branch for loan by filling up of a specific Application form. The Application form (Request for Credit Limit) contains following particulars –

a)     Name of the Applicant——

Firm/company—–

b)     Address:

i)   Present—–

ii) Permanent—

iii) Factory/Show Room—

c)     Nature of A/C and No —-

d)     Telephone/Fax No

i) Office —

ii) Resident —-

iii) Factory / Show Room

e)   Particular of Proprietor’s/partners’/directors’ name, Father’s/ Husband’s/ Mother’s Name, permanent Address, age, Designation.

f)      Nature of Business/Industry.

g)     Date of Establishment/ Incorporation

h)     Nature and Amount of Limit—–

i)       Purpose —

j)       Period —

k)     Mode of Repayment—

j) Trade license number, date and expiry date (Photocopy of trade license enclosed)-

Securities

Primary

i)                   Value of Stock of Pledge/Hypo —– Tk.

ii)                Value of Work Order ——————Tk.

iii)              Value of Construction/Purchase (For HBL /Transport loan)

iv)              Financial Obligation  (FO) in the form of FDR/ Sanchay  Patra)

v)                 Margin

Collateral

Area of land

i)       Name and address of the owner of the property with father/husband and mother’s name.

iii)  Valuation of the property by any professional value.

Name and address of the guarantor with father’s/husband’s/mother’s name:

i)   Present address

ii)    Permanent address

iii)  Telephone number

Signature of the Applicant—-

Second step

After receiving the loan application form, Moghbazar. Br. sends a letter to Bangladesh Bank for obtaining a report from there. This report is called CIB (Credit Information Bureau) Report. This report is essential if the loan amount exceeds Tk.50 Lac. But Moghbazar. Br. usually collects this report if the loan amount exceeds Tk.10 Lac. The purpose of this report is to being informed that whether the borrower has taken loan from any other bank or not if ‘yes’, then whether these loans are classified or not.

CIB report contains the following contents:

Name of the Borrower

Fathers name

Permanent address

City

Sector code

Nature of ownership

Third step

After receiving CIB report if the Bank thinks that the prospective borrower will be a good borrower, then the bank will scrutinize the documents. In this stage, the branch will look whether the documents are properly filled up and signed.

 Fourth step

Then comes processing stage. In this stage, the Bank will prepare a proposal. A proposal contains following relevant information:

Branch incumbent (L/O) has the discretionary power to sanction loan (SOD) up to Tk.50 Lac against financial obligations by informing Head Office. But in that case, the Branch Manager has to give attention to the following matters:

The interest rate of the loan must not be less than 15.5% and

The borrower must maintain 20% margin based on banker’s customer’s relationship.

Except this case, the branch has to send the proposal to the Head Office. Head Office will prepare a minute and submit it before the Executive Committee (EC). The minute has to be passed by EC.

Fifth step

After getting the approval of Bangladesh Bank, it will again come to the Head Office. After the sanction advice, Bank will collect necessary documents (Charge documents). These documents are:

Joint Promissory Note

Single Promissory Note

Letter of Undertaking

Loan Disbursement Letter

Debit Figure Confirmation Sheet

Letter of Continuity

Letter of Authority

Letter of Revival

Right of Recall the Loan

Letter of Guarantee

Letter of Indemnity

Trust Receipt

Hypothecation of Goods

Hypothecation of Vehicles

Counter Guarantee

Letter of Lien

Letter of Lien in case of advance against FDR

Letter of Lien And Authority for advances to third parties against Fixed Deposit/ Call Deposit/ Special Deposit or margin or margin deposits

Letter of Authority to encash FDR

Letter of Agreement for Packing Credit

Letter of Guarantee for opening L/C

Charges over Bonds or Certificates or Shares etc. by third person, firm or company to secure specific and general liability

Memorandum of Deposit of Title Deeds

Hypothecation of goods to secure a Demand Cash Credit or Overdraft/ Loan amount

Guarantee by Third party.

Sixth step

DOCUMENTS AND DOCUMENTATION:

DOCUMENTATION:

Documentation is a very important aspect of loans and advances. It may be described as the process or technique of obtaining the relevant documents/papers for securing advances. A banker must obtain proper documents to be executed by the borrower to protect the Bank’s interest. Moreover, when money is lent against security of some assets, the document must be got executed in order to give to the banker a legal and binding charge against those assets. The documents for loans and advances can be classified into the two categories namely charge documents and security documents. Charge Documents are a set of printed and prescribed forms, which are executed by the borrowers to protect Bank’s interest while bank is providing loan/advances. Different types of advances are allowed to the customers against different types of securities.

Charge documents as required by the different types of advances are mentioned bellow:

A)   LOAN (General)

• D P NOTE signed on revenue stamp;
• Letter of arrangement;
• Letter of disbursement;
• Letter of partnership (partnership farm) or Board of resolution (limited companies)
• Letter of pledge;
• Letter of hypothecation;
• Letter of lien and ownership / share transfer form (in case of advance against share);
• Letter of lien for packing credit;
• Letter of lien (in case of advance against F D R);
• Letter of lien and transfer authority. (In case of advance against FDR, B S P);
• Legal documents for mortgage of property (As draft by legal adviser);
• Copy of sanction letter mentioning details of terms and condition duly acknowledge by the borrower;
• Trust receipt;

B) OVERDRAFTS

• D P Note.
• Letter of partnership
•  Letter of arrangement.
• Letter of continuity
• Letter of lien
• Letter of lien and ownership /share transfer form (in case of advance against share)
• Letter of lien and transfer authority
• Legal documents for mortgage of property

C)   CASH CREDIT (Pledge)

• Letter of pledge;
• Letter of authority empowering the bank to deduct/realize godown, staff salary and other incidental expenses for inspection, maintenance of the goods etc;
• Letter of declaration handing over the possession of goods stored/ to be stored in the godown against the facility;
• Letter of Disclaimer in case of Hired godown signed by the owner of the godown.
• Sufficient insurance cover inserting the name of the Bank as mortgage with bank mortgage clause.
• Invoice /cost memo of the goods pledged;
• Stock report duly signed by the borrower;

D)   Cash credit (Hypothecation)

• Letter of hypothecation;
• Letter of authority empowering the bank to inspect the goods and take possession of the goods in case of duly drafted by the lawyer of the bank.;
• Stock report duly signed by the borrower on fortnightly basis or after every deposit in the loan account or before realizing fund against limit;
• Letter of declaration duly signed by the party clearly stating that the goods hypothecated are not in any case encumbered elsewhere;
• Sufficient insurance cover inserting the name of the Bank as mortgage with bank mortgage clause;
• Letter of Disclaimer signed by owner of the godown in case of 3^rd party godown. Third party Guarantee if required as per sanction advice;
• Statements of other immovable property of the borrower stating those are not encumbered;

Mortgage

Equitable mortgage

• Certificate from pourosava authority that the concerned property is situated within pourasava area;
• Original title deed of property;
• Memorandum of title deed of property;
• Registered irrevocable power of attorney duly drafted by bank’s lawyer and executed by the owner of the property;
• Latest CS, RS, SA, parcha together with latest receipt showing payment of land, tax wasa , gas, electric bills etc.
• Bia-deeds/ parcha showing chain of transfer of title
• Non-encumbrance certificate by Engineer and branch manager. Forced sale value is acceptable;
• Lawyer’s certificate regarding genuineness of title on the property of the mortgage and stating in clear term weather the property can be accepted as security against advances to be allowed;
• Letter of guarantee of the owner of the owner of the property in case of third party property;

 Legal mortgage

Mortgage deed duly drafted by bank’s legal advisor and registered with competent authority duly stamped.

• Original title deed of property;
• Letter of guaranty in case of 3^rd party ‘s property;
• Latest CS, RS, SA, parcha land revenue /tax payment, gas, wasa, electric bill payment;
• Receipt, bia /chain deeds site map duly approved plan in case of building;
• Non encumbrance certificate for last 12 years;
• Valuation certificate (by engineer and branch manager forced sale value to be considered;
• Lawyer’s certificate regarding valid title title of the property and acceptability of the property, as security in clear terms .No vague opinion should be accepted.
• Letter stating relation of the owner of the property with the borrower  (in case of 3rd party property) (in case of rural property HOMESTEAD upto one standard bigha not acceptable).

 Against transport

• Hire-purchase agreement for hypothecation of the vehicle (STAMPED and duly NOTARISED);
• Purchased documents;
• Registration of the vehicle in the joint name of bank and borrower  (copy of the blue book to be retained in the branch);
• Road permits jointly in the name of bank and borrower;
• Insurance cover against all possible perils inserting name of bank as Mortgage with bank mortgage clause;
• Certificate signed by the borrower that he has received the vehicle in good condition and that he will exercise due care for maintenance of the vehicle;
• Letter of installment;
• Undertaking by the party that he will keep the vehicle always ready for inspection by bank officials;
• Bank’s name must be written in the body of the vehicle in BOLD LETTERS;

BILLS PURCHASED:

• DP Note;
• Letter of partnership. (In case of partnership farm) or Board of resolution (in case of limited company);
• Letter of arrangement;
• Letter of acceptance, where it calls for acceptance by the drawee;
• Letter of hypothecation of bill;

 Seventh step

For withdrawing the loan amount, the customer creates a CD account and the loan is transferred to the CD A/C. Afterwards, the customer can withdraw the money.

Eighth step

CREDIT DISBURSEMENT:

After verifying all the documents, the branch disburses the loan to the borrower. The loan officer disburses the loan to the borrower’s loan account .A “Loan Repayment Schedule” is also prepared by the branch and is given to borrower.

Ninth step

After the disbursement of the loan the bank follows the borrower in the following manner

• Constant supervision.
• Working Capital assessment.
• Stock report.
• Break Even analysis
• Rescheduling of repayment.

Tenth step

The loans are repaid in installment. This installment is according to bank directives. Some loans are repaid all at a time. If any loan is not repaid then notices are served to the customer. Sometimes legal actions are also taken for recover the loan.

LENDING RISK ANALYSIS (LRA):

Lending Risk Analysis (LRA) is a technique by which the risk of the loan is calculated. Experienced people of General Advance Department do this analysis. It is a ranking whose total score are 140. Among this score, 120 is for Total Business Risk and 20 for Total Security Risk.

It is a four-scale rating.

In case of business risk, if the score falls:

Between 13-19, then——- Poor risk

Between 20-26, then——- Acceptable risk

Between 27-34, then——- Marginal risk

Over 34, then—————- Good risk.

In case of security risk, if the score fall:

Between -20 to -15,then———– Poor risk

Between -14 to 0, then————- Acceptable risk

Between 0 to 10, then————– Marginal risk

Over 10, then————————- Good risk.

In LRA, following aspects are analyzed –

1)     Supplies risk

2)     Sales risk

3)     Performance risk

4)     Resilience risk

5)     Management ability

6)     Level of Managerial teamwork

7)     Management competent risk

8)     Management integrity risk

9)     Security control risk

10) Security covers risk.

CREDIT SCORING SYSTEM:

The main purpose of credit scoring system is as follows:

A credit scoring system uses a combination of financial ratios to produce a rating, which is an indication of a company’s management ability and financial strength. Under credit scoring system two scores are calculated namely ‘Y’ score and ‘Z’ score.

A)   ‘Y’ score should be applied to all companies.

B)    ‘Z’ score should be applied to the large manufacturing companies;

Public companies quoted on the Dhaka stock exchange

Government owned or Quasi government companies

Other companies with a sale of over Tk. 30 cores.

The bank branches are required to report the scores in the mentioned spaces in segment-4 of CIB-01 FORM.

RISC GRADING

The bank branches are required to pick up the grading from the scoring Matrix such as 1A, 1B, 2B, etc. and put the grading in the space provided in segment-4 of CIB –01 Form. They should not use tick mark.

Scoring Matrix

Business risk

Source: Credit manual of NCCBL.

 SECURITIES:

NCCBL charges the following two types of security:

1. Primary security
2. Collateral security.

Modes Of Charging Security

NCCBL exercises following modes of charging security:

1. Pledge
2. Hypothecation
3. Lien

4.    Mortgage.

There are different modes of charging security are exercised by the bank:

PLEDGE:

Pledge is the bailment of goods as security for payment of a debt or performance or promise. Here, title and ownership are not transferred. Pledge goods may be sold out and proceeds thereof may be appropriated towards adjustment of Liability in case of failure of the borrower to repay or fulfill the terms and conditions.

HYPOTHECATION:

This is mortgage of movables by an agreement and here neither possession nor ownership is transferred. Hypothecated goods cannot be sold out/disposed off without notice and court’s order. However, if a special power of attorney is taken in that case can be disposed off without going to the court.

LIEN:

Lien is the right to retain possession and not right of ownership. Bank’s lien is general lien over its own financial obligation to clients. Property under lien cannot be realized/sold and proceeds thereof cannot be appropriated without notice to the owner and sometimes without the order of court.

MORTGAGE

Mortgage is the transfer of interest in immovable property to secure the repayment of money advanced. Ownership remains with the mortgagor. In case of equitable mortgage, Court Order is necessary and in case of registered mortgage, the order of court is not necessary for sale/disposal of the mortgaged property for adjustment of advance.

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 and provitioning:

 With the initiation of FSRP Bangladesh Bank introduced a new system of loan classification and provisioning to strengthen credit discipline and improve the recovery position of loans and advances. General features of this system:

Responsibility- Each bank will be responsible for its own loan classification according to the guidelines issued by the Bangladesh Bank form time to time.

Inspection- Bangladesh Bank will inspect the classification, interest suspense and provisioning carried out by the banks.

Branch level Action- each brach will carry out oan classification on case by case so that it si available at branches as well as Head Office.

Classifications of loan in no way lessen the responsibility of the borrowers to repay.

The Procedure for Loan Classification & Provisioning

For Classification purposes loans have been categorized under four heads. These are:

Continuous Loan– the loan, which have no particular repayment schedule, but contains date of expiry, credit limit etc. will be termed as continuous credit e.g. CC, OD etc.

Demand Loan– The loan, which is considered repayable, only after the banks claim it will be termed as Demand Loan. If contingent or any other liability is converted to Compulsory Loan or Forced Loan (i.e. Loan without having prior approval as regular loan) then it will be termed as Demand Loan e.g. Forced LIM, PAD, and IBP etc.

Fixed Term Loan– The Loan, which is repayable within a particular period of time as per repayment schedule, will be termed as Fixed Loan.

Sort term Agriculture and Micro-credit– Those credit which are enlisted as short tem credit under the annual agricultural credit program of the Bangladesh Bank will be termed as agr. Credit. It will also include credit extended to agriculture sector and repayable with in a period nit exceeding 12 months. The short-tem Micro-Credit will be that which will not exceed an amount of taka 10,000 and will be repayable within a period not exceeding 12 months. Such credit may be Non-Agricultural, Swanirvar, Weaving credit or bank’s self financed Project Loans or whatsoever.

Basis for loan classification

A) Objective Criteria:

Any agricultural loan will be tuned into irregular credit just after it is not repaid/ rescheduled within the prescribed time period. If the aforesaid credit lies irregular for three months and above but below six months then the credit will be classified as Sub-Standard, if it lies irregular for 6 months and more but less than 12 months then the credit will be classified as bad loan.

When demand loan is left un-recovered for 3 months an above but less than 6 months form the date of the loan is clamed or from the date of compulsory credit creation, then the loan will be classified as Sub –Standard, it is i.e. irregular for 6 months and more but less than 12 months then it will be Doubtful and if it remains un-recovered for more than 12 months and above then it will be classified as Bad loan.

In case of Fixed term Loan if any installment is left un-recovered with in the scheduled date, the amount falling due on account of un-recovered installment, will be classified as “Overdue Installment”

A) Fixed Term Loan which is repayable within a maximum period of 5 years in that case

a)     If the amount of Overdue Installment equals or exceeds the amount repayable with in 6 months then such credit will be classified as Sub-Standard.

b)     If the amount of Overdue Installment equals or exceeds the amount repayable within 12 months then such credit will classified as doubtful.

c)     If the amount of Overdue Installment equals or exceeds the amount repayable within 18 months than such credit will be classified as ‘Bad Loan”

(B) Fixed Term Loan which is repay able after 5 years in that case

d)     If the amount of Overdue Installment equals or exceeds the amount repayable within 12 months then such credit will be classified as Sub-Standard.

e)     If the amount of Overdue Installment equals or exceeds the amount repayable within 18 months then such credit will classified as doubtful.

f)      If the amount of Overdue Installment equals or exceeds the amount repayable within 24 months than such credit will be classified as ‘Bad Loan”

Clarification– If any Fixed Term Loan is repayable in monthly installment then the amount of recoverable installment will be equal to the sum of 6 installments (monthly). Similarly, in case of quarterly repayable installment total amount repayable within 6 months will be equal to the amount of the total of two quarterly installments.

1. (A) Short Term Agriculture and Micro-credit will be termed as irregular credit if it is not recovered within the scheduled date as per the contract of the credit. After exceeding 12 months as irregular credit it will be classified as substandard, after exceeding 36 months it will be doubtful and after exceeding 60 months it will be bad.

(B) Qualitative Judgment– Whether any conditions credit or Demand Loan or fixed term loan are classifiable or not on the basis of objective criterion but if there is any doubt or uncertainty as regards their recovery then the loan will be classified on the Qualitative Judgment.

If the recovery of the credit becomes uncertain resulting from change of circumstances under which credit was extended or the borrower sustains loss of capital or the value of the security decreases or any adverse situation arises then the credit will be classified on the basis of Qualitative Judgment.

Besides, if the credit is extended without any logical basis or the credit is rescheduled frequently or the rules of rescheduling are violated or the trends of exceeding credit limit is observed frequently or a suit is field for recovery of the credit or the credit is extended without the approval of the competent authority, then the loan will be classified on the basis of Qualitative Judgment.

Due to the reasons stated above or for any other reason if in spite of possible loss of any credit, there is any probability of changing the present situation through tagging proper steps, the credit will be classified as Substandard on the basis of Qualitative Judgment.  But even after taking proper steps, if the full recovery is not ensured the credit will be classified as Doubtful and after rending all out efforts, if the probability of recovery becomes totally nil the credits will be classified as Bad Loans.

The concerned bank will classify the credit on the basis of Qualitative Judgment and if any improvement is achieved, those credits will again be declassified.

However, the credit once classified by inspection team of Bangladesh Bank team will be treated as final classification and before any subsequent inspection is conducted by Bangladesh Bank the credit will not attain any merit of declassification.

Accounting Procedure of Interest of Classified Loan

If any credit of advance is classified as Substandard or Doubtful, the interest will be imposed on the credit account but such interest will not be transferred to the Income Account. Total interest imposed in Substandard or Doubtful account will be kept in Interest Suspense.

If any credit or advance is classified as Bad and Loss, imposition of interest on that account will be suspended forthwith. If any suit is required to be filed for recovery of such credit, the suit will be filed on the total amount of principal including interest calculated up to the period before the suit if filed. Such interest will be kept on interest suspense account.

If any classified loan or any part thereof is recovered i.e. actual deposit on account of recovery is made in the credit account, the recovery of non-imposed as well as imposed interest will be made first from such deposit. Then original loan will be adjusted.

Reservation of Provision

1. In case of classified loan of Continuous, Demand and fixed Term Credit the bank will keep provision for reserve at the following scale––

1. After adjustment of Interest Suspense and value of Eligible Securities from outstanding balance of classified credit the reservation of provisions will be kept on the calculated balance. General provisions will also be kept at a rate of 1% on unclassified loans.

1. Eligible Securities as stated above will include the following Securities–

In terms of the above Principals / guidelines the bank will conduct the activities of loan classification on quarterly basis. The detailed information containing Classification, Provisioning and Interest Suspense Account will required to be submitted to Bangladesh Bank within 30 days from the date of reference.

 STATEMENTS PREPARED BY THE CREDIT DEPARTMENT:

• Monthly statement prepared by the Credit Department for Bangladesh bank.
• Quarterly statement prepared by the Credit Department for Bangladesh bank.
• Monthly statement prepared by the Credit Department for Head office.

Showing monthly statements prepared by Credit Department for Bangladesh bank

Showing quarterly statements prepared by Credit department for Bangladesh Bank

Showing monthly statement prepared by Credit department for Head office

LEGAL FRAMEWORK FOR LOAN RECOVERY:

After being classified, if the borrower is unable to adjust the loan then the bank can take the following legal actions by filing suit:

1. Filing certificate cases under Public Demand Recovery Act-1913;
2. Filing money suit cases under Artha Rin Adalat-1990;
3. Filing Bankruptcy cases under Bankruptcy Act-1997;
4. Filing cases under Negotiable Instrument Act-1881 section 138 to 141 for insufficient fund.( In case of term loan).

SOME PROBLEMS OF RECOVERY

1. Exemption of interest by govt./ bank.

2.  Exemption of loan including interest by govt.

3. Political pressure and misunderstanding

 GUARANTEE:

NCCBL offers three types of Guarantee which are as follows:

1.      Tender or Bid Bond Guarantee:

The tender guarantee assures the tender that tenders shall uphold the conditions of his tender during the period of the offer as binding and that he /she will also sign the contract in the event of the order being granted.

1. Performance guarantee:

A Performance guarantee expires on completion of the delivery or performance. Beneficiary finds that as a guarantee, the contract will be fulfilled in every respect and can retain the guarantee as per provision for long time. Including a clause stating that the supplier can claim under the guarantee, by presenting an acceptance certificate signed by the buyer can counteract this.

1. Advanced payment guarantee (APG):

This type of guarantee is given against work order. This idea can be made clear with the help of an example.  Before the beginning of Jamuna Bridge construction, the Government collected money from different sources to pay the contractors in advance. But, there was a risk for the Government that the contractors might not do there construction work even they were paid in advance. So, the Government asked Bank Guarantee from them. Then the contractors submitted Bank Guarantee to the Government. This type of Guarantee is called Advanced Payment Guarantee.

Issuance Procedure of Guarantee

Bank guarantee is a contractual relationship between the account (client) and the beneficiary. For issuing Bank Guarantee, a customer has to apply to NCCBL in his or her own pad. Normally the bank prepares the format of the guarantee. The proposal for Bank Guarantee contains the following particulars:

• Name of the Borrower with address
• Nature of Facility
• Extent of Facility
• Purpose
• Security
• Margin
• Commission
• Validity
• Beneficiary
• Liability position of the Borrower—-

a)                                                     Nature of Facility

b)                                                     Extent of Facility

c)                                                     Drawing Power

d)                                                     Margin amount (Tk.)

e)                                                     Outstanding/ Net exposure (Tk.)

f)                                                      Validity.

Then Bank issues Bank Guarantee on Judicial Stamp. The conditions for issuing Bank Guarantee are:

1)     The customer must maintain a Current Deposit (CD) account.

2)     The must keep certain percentage of guaranteed money (usually 2%) as margin.

3)     Bank charges 0.50 % commission on the guaranteed money per quarter (i.e., 3 months).

After realizing all the above charges, Bank then issues the Guarantee. For this issuance, Banker’s Liability is created and the following entries are give:

Customer’s Liability—————–Dr.

Banker’s Liability——————–Cr.

When the guarantee is expired, the guarantee is marked as “cancelled” and the following entries are given:

Banker’s Liability ——————–Dr.

Customer’s Liability —————–Cr.

A Guarantee issue Register is maintained to record following information about  Guarantee:

1)     Name of the Customer

2)     Account no.

3)     Guarantee no.

4)     Issuing Date

5)     Date of Approval/ Reference no.

6)     Beneficiary of the Guarantee

7)     Amount of Guarantee

8)     Margin (percent and amount)

9)     Commission

10) Date of Expiry.

Loans & advances comprise the most important asset as well as the primary source of earning for the banking/financial institutions. However lending money is exposed to risk and uncertainties. So a prudent banker should always try to make an appropriate balance between the risk and return involved in the loan portfolio management. The lending banker has to take into account various consideration which relates to bank itself, the borrower, the proposal, the socio economic factors etc. An unregulated financial institution might be fraught with innumerable and unmanageable risk while lending money to the people for maximizing potential gains. So the bank should be prudent, farsighted and efficient while deploying its funds.

TRADE FINANCE

IMPORT DEPARTMENT:

Modern banks facilitate trade and commerce by rendering valuable services to the business community. Apart from providing appropriate mechanism for making payments arising out of trade transactions, the banks gear the machinery of commerce, specially in case of international commerce, by acting as a useful link between the buyer and the seller, who are often too far away from and too unfamiliar with each other. According to Foreign Exchange Regulation act 1947, “Any thing that conveys the right to wealth in another country is foreign exchange”.

Foreign exchange department plays significant roles through providing different services for the customers. Opening or issuing letters of credit is one of the important services provided by the banks. Letters of credit is the key player in the foreign exchange business. With the globalization of economies, international trade has become quite competitive. Timely payment for exports and quicker delivery of goods is, therefore, a pre-requisite for successful international trade operations. Growing complexity of international trade, separation of commercial parties across the globe and operating in a totally unknown environment underlined the need for evolving a system that balances between the expectations of the seller and the buyer. Documentary Credit has emerged as a vital system of trade payment, and fulfilled the requisite commercial need. This system substantially reduces payment-related risks for both exporter and importer. Not surprisingly, therefore, the letter of credit is the classic form of international export payment, especially in trade between distant partners. The bank upon presentation of stipulated documents (e.g., bill of lading, invoice, and inspection certificate) makes payment, acceptance or negotiation of the credit by the seller.

Foreign exchange business of NCCBL has been divided into two sections:

Import section

Export section

Function of Foreign exchange (An overview)

Foreign exchange   

Documentary credit/letter of credit (LC):

Documentary Credit is an assurance of payment by the bank. It is an arrangement under which the bank at the request of the buyer or on its own undertakes to make payment to the seller provided specified documents are submitted.

Documentary Credit is an arrangement whereby a bank (issuing bank) acting at the request and on the instruction of a customer (the applicant) or on its own behalf undertakes to make payment to or to the order of a third party (the beneficiary) or to accept and pay bills of exchange (draft) drawn by the beneficiary, or authorize another bank to negotiate against stipulated documents provided the terms and conditions to the credit are complied. Thus, documentary credits are akin to bank guarantees. In popular language, they are known as letters of credit (L/Cs). Bank guarantees are, however, issued to cover situation of non-performance whereas documentary credits are issued on behalf of the buyer to cover situation of performance, i.e., the issuing bank agrees to make payment to the beneficiary once he surrenders the requisite complying documents. However, the term documentary credit has of late been extended to cover the situation of non-performance too. Documentary credits have gained wider acceptance in international trade for they try to safeguard the interest of both the buyer and the seller by reducing their risks. Thus, documentary credit offers a unique and universally used method of achieving a commercially acceptable arrangement by providing for payment to be made against complying documents that represent the goods and making possible the transfer of those goods.

Bank as a party of documentary credit:

Parties to the documentary credit may be an issuing bank, an advising bank, a confirming bank, a reimbursing bank or a negotiating bank.

Issuing Bank: The Issuing Bank or the Opening Bank is one which issues the credit, i.e., undertakes, independent of the undertaking of the applicant, to make payment provided the terms and conditions of the credit have been complied with. The payment may be at sight if the credit provides for sight payment, or at maturity, dates if the credit provides for deferred payment. Especially the issuing bank should satisfy himself on the credit worthiness of the applicant. The credit application must be in accordance with UCP 500 and in a workable format.

Advising Bank: The Advising Bank advises the credit to the beneficiary thereby authenticating the genuineness of the credit. The advising bank is normally situated in the country/place of the beneficiary.

Confirming Bank: A Confirming Bank is one which adds its guarantee to the credit opened by another bank, thereby, undertaking the responsibility of payment/negotiation/acceptance under the credit in addition to that of the issuing bank. A confirming bank normally does so if requested by the issuing bank and it is normally the advising bank.

Negotiating Bank: A Negotiating Bank is the bank nominated or authorized by the issuing bank to pay, to incur a deferred payment liability, to accept drafts or to negotiate the credit.

Reimbursing Bank: A Reimbursing Bank is the bank authorized to honor the reimbursement claims in settlement of negotiation/acceptance/ payment lodged with it by the negotiating bank or accepting bank. It is normally the bank with which the issuing bank has account from which payment is to be made.

Types of documentary credit:

Documentary credit

Documentary credit is following types:

Revocable credit

A revocable credit is one where the issuing banks at liberty to revoke i e. cancels the credit at any time.

Irrevocable credit

An irrevocable L/C is one, which cannot be revoked, amended or modified by the issuing bank

Types of importer:

Import is the flow of goods and services purchased by economic agents located in one country from economic agents located in another. Hence, import of merchandise essentially involves two things: bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with its dispatch to the importer. In case of import, the importers are asked by their exporters to open letters of credit so that their payment against goods is ensured.

IMPORT PROCEDURE:

An importer is required to submit the following documents in order to get a license to import through Gulshan Branch of NCCBL Bank –

A bank account with the branch;

Import Registration Certificate (IRC);

Tax Payer’s Identification Number (TIN);

Pro forma Invoice Indent;

Membership Certificate from a recognized Chamber of Commerce & Industry or Town Association or registered Trade Association;

Letter of Credit Authorization (LCA) Form properly filled in duplicate signed by the importer;

L/C Application duly signed by the importer;

One set of IMP Form;

Insurance Cover Note with money receipt;

VAT Registration Certificate (for Commercial Importers);

In case of Public Sector, attested photocopy of allocation letter issued by the allocation authority, Administrative Ministry or Division specifying the source, amount, purpose, validity and other terms and conditions against the imports;

Any such documents as may be required as per instruction issued/to are issued by the Chief Controller of Imports & Exports (CCI&E) from time to time.

On receipt of the LCA Form and the other documents, the branch officials carefully scrutinize the documents and lodge the same in their respective registration books and duly verify the signature of the importer put on the LCA Form.

To import, a person should be competent to be an ‘importer’. According to the “Import & Export Control Act, 1950”, the office of the Chief Controller of Imports & Exports (CCI&E) provides the registration (IRC) to the importer. After obtaining the IRC, the person has to secure a “Letter of Credit Authorization” (LCA) registration from the Registration Unit of Bangladesh Bank. After getting the LCA registration, a person becomes a qualified importer. He is the person who requests or instructs the opening bank to open an L/C is also called the “Opener” or “Applicant” of the credit.

Procedure involved in L/C opening:

There are few steps involved in L/C opening process.

A. APPLICATION

 At first, the L/C opener is required to fill the prescribed application form for requesting to open a L/C for him.

L/C Application Form is a sort of an agreement between customer and bank based on which letter of credit is opened. Moghbazar Branch provides a printed form for opening of L/C to the importer. A special adhesive stamp of value of Tk.150 is affixed on the form in accordance with Stamp Act in force. While opening, the stamp is cancelled. Usually the importer expresses his decision to open the L/C quoting the amount of margin in percentage. Usually the importer gives the following information –

Full name and address of the importer;

Date and place of expiry of the credit;

The mode of the transmission of document (mail/courier/telex);

Whether the confirmation of the credit is requested by the beneficiary or not;

Whether the partial shipment is allowed or not;

The type of loading (loading on board;

Brief description of the goods to be imported;

Availability of the credit by sight payment acceptance /negotiation/ deferred payment;

The time bar within which the document should be presented;

Sales terms (FOB/C &F/CIF);

Account number;

L/C amount;

Shipping mark;

IRC Number;

LCA Number;

Insurance cover note;

Country of origin.

B. Presentation of the documents:

As soon as the seller /exporter receives the L/C and is satisfied that he can deliver the goods mentioning in the L/C he is going to make shipment of the required goods to the buyer and after that, he presents the documents evidencing dispatching of goods to the negotiating bank on or before the stipulated expiry date of the credit. After receiving all the documents, the negotiating bank then checks the documents against the credit. The documents are sent to the issuing bank i.e. NCCBL and the bank will scrutinize all the documents and terms and conditions mentioning in the L/C.  The bank will check the following documents:

Insurance cover note;

Commercial/Performa Invoice;

Bill of lading;

Certificate of origin;

Packing list;

Shipping advice;

Bill of exchange;

Pre-shipment inspection report;

Shipment certificate

Clean report of finding (CFR).

C. Examination of documents:

The documents generally include the following and the basic points of checking by NCCBL are:

Letter of Credit

The documents should have been negotiated or presented before expiry of the credit

The amount which drawn should not exceed the amount available under the credit

Commercial Invoice

It has to be verified that the commercial invoice has been properly drawn and signed by the beneficiary according to the terms and conditions of L/C.

The beneficiary should properly invoice the merchandise.

The merchandise is invoiced to the importer on whose account the L/C is opened.

The description of merchandise and the unit price correspond with that given in the L/C.

The import license or IRC number of the importer, indenters’ registration number and Letter of Credit Authorization number are incorporated in the Invoice.

Bill of Exchange:

It has to be verified that the bill of exchange has been properly drawn and signed by the beneficiary according to the terms and conditions of L/C.

The amount in the Bill is identical with amount mentioned in the invoice.

The amount drawn does not exceed the amount mentioned in the L/C.

The amount in words and figures should be same.

The bill of exchange should be properly endorsed.

The Bill of Lading:

First, it has to be cleared that the Bill of Lading is showing “Shipped on Board” and it has to be properly endorsed to the bank.

The B/L should include the description of the merchandise according to invoice.

The port of shipment and destination, date of shipment and the name of the consignee are in agreement with those mentioned in the L/C.

The shipping company or their authorized agents properly sign the B/L.

The date on the B/L is not ‘stale’ which means it is not dated in unreasonably long time prior to negotiation.

The Insurance Cover Note:

Is the insurance documents specified in the credit submitted?

Does the insurance cover the risks mentioned in the credit in the currency of the credit and for the prescribed amount but not less than CIF value?

Is the insurance documents dated not later than the shipping documents?

Does the insurance policy/Certificate agree with other documents as regards description, weight & marks of the goods, mode of transport & the route?

Does the insurance company attached and as far as necessary, endorsed issue all the copies?

Certificate of Origin:

The Merchandise described in the Certificate is in accordance with the L/C.

D. Scrutinizing:

After receiving the application form with other required documents submitted by the opener, they are to be thoroughly scrutinized.

The NCCBL Official scrutinizes the application in the following manner according NCCBL’s L/C manual:

The terms and conditions of the L/C must be complied with UCPDC 500 and Exchange Control & Import Trade Regulation.

Eligibility of the goods to import

The L/C must not be opened in favour of the importer.

Radioactivity report in case of food item.

Survey report or certificate in case of old machinery

E.  If all the documents along with the application are in order, the financial position and credit worthiness of the importer, market demand of the good will is assessed. Margin for letter of credit will also be determined. The rate of margin depends on the financial condition of the banker, importers previous performance, status of relationship with the importer, nature of goods etc. This margin is to be retained from the importer either in cash or in debiting the importer current account with the bank. The importer is also required to pay the other concerning charge like foreign corresponding charge, telex charge if any, handling charge, and commission etc.

F. Accounting Procedure Involved in L/C opening:

There are two, one is L/C opening and another is liability register, which includes liability amount, margin, foreign correspondent etc. While opening L/C there are few accounting entries:

Party Account—————————————————-Dr.

Sundry deposit margin on L/C———————————–Cr.

Foreign corresponding charge A/C (FCC)———————-Cr.

Income A/C commissions on L/C ——————————-Cr.

Income A/C (stamp and stamp form)————————- –Cr.

Income A/C SWIFT on L/C             —————————Cr.

G. Advising a letter of credit:

The advising or notifying bank is the bank through which the L/C is advised to the exporter. It is a bank situated in the exporting country and it may be a branch of the opening bank. It becomes customary to advise a credit to the beneficiary through an advising bank. Advising depicts the proof of authenticity of the credit to the seller. The opening bank has a corresponding relationship or arrangement throughout the world by which the L/C is advised. Actually, the advising bank does not take any liability if otherwise not requested.

H. Adding confirmation:

The confirming bank does adding confirmation. Confirming bank is a bank, which adds its confirmation to the credit, and it is done at the request of the issuing bank. The confirming bank may or may not be the advising bank. The advising bank usually does not do it if there is not a prior arrangement with the issuing bank. By being involved as a confirming agent the advising bank undertakes to negotiate beneficiary’s bill without recourse to him.

I. L/C Transmitting:

Letter of credit can be transmitted to the advising bank through SWIFT (Society for Worldwide Inter bank Financial Telecommunication).

After verifying all that the respective officer opens an L/C.

Sending message by SWIFT

In the SWIFT following information are provided

Address of the L/C issuing bank;

Input message type (700 for the new L/C, 702 for amendment and some other message number);

Name of the advising bank;

Form of documentary credit (Revocable /irrevocable);

L/C no;

Date and place of expiry;

Applicant/Importer;

Beneficiary /Exporter;

USD;

Draft at (sight);

Partial shipment allowed or not;

Trans-shipment;

Ships on board or deck;

Description of goods and services.

After giving the message to the advising bank, the bank keeps Margin on total L/C value. Normally the margin is kept 25%or it is based on banker customer relationship or based on goods imported.

J. Negotiating:

The beneficiary (exporter) receives the letter of credit from advising bank. After proper shipment of goods as per terms and conditions of the L/C, required documents like Commercial Invoice, Bill of Lading, and bill of exchange are presented to the negotiating bank by the beneficiary for negotiation. If the documents are in order as per L/C then the negotiating bank negotiates the drafts making payment to the beneficiary. Then the negotiating bank forwards the drafts along with the shipping documents to the L/C opening bank. The negotiating bank reimburses the amount paid against the draft from reimbursement bank (authorized by opening bank) by debiting Nostro A/C of the opening bank. Negotiating banks have the option to send the drafts and documents to the opening bank for collection.

K. Amendment:

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

(I) Unit price

(ii) Extension of validity the L/C

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/ Performa 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.

L. Making the payment through the Reimbursing Bank:

The L/C issuing bank after getting the document and check the document and if the terms and condition meet the requirement, the issuing bank take initiative to make payment to the exporter through reimbursing bank

Reimbursing Bank

The issuing bank then inform the importer that his document has come to the Bank and by giving the payment he can release the document and unloading his good from the ship or any other place as per L/C terms and conditions.

After giving the payment to the bank, the bank will give the following accounting entries:

Reverse entry is given

After realizing the telex charge, service charge, interest (if any), the shipping documents is then stamped with PAD Number & entered in the PAD Register. Intimation is given to the customer calling on the bank’s counter requesting retirement of the shipping documents. After passing the necessary vouchers, endorsement is made on the back of the Bill Of Exchange as “Received Payment” and the Bill of Lading is endorsed to the effect “Please deliver to the order of    M/S———”, under two authorized signatures of the bank’s officers (P.A. Holder). Then the documents are delivered to the Importer.

 IMPORT FINANCING:

There are two types of import finance

LIM (Loan against Imported Merchandize)

LTR (loan against Trust Receipt)

LIM (loan Against Import merchandise):

Advances allowed for retirement of shipping documents and release of goods imported through L/C taking effective control over the goods by pledge fall under this type of advance. When the importer failed to pay the amount payable the exporter against import L/C, then NCCBL gives loan against imported merchandise to the importer. The importer will bear all the expenses i.e. the godown charge, insurance fees, etc. and the ownership of the goods retains to the bank. This is also a temporary advance connected with import, which is known as post import finance.

On the arrival of goods and lodgment of import document, importer may request the bank for clearance of goods from the port or custom and keep the same to bank godown. The importer will bear the all the charges and expenses .By taking the money from the bank the importer will release the necessary goods.

Accounting Entry

LIM A/C  —————————- Dr.

PAD A/C —————————- Cr.

After realization of the loan

Party’s Account  ——————–            Dr.

LTR    ———————————           Cr

Interest A/C ————————  Cr.     

 LTR (loan against trust receipt):

Advance against a TR obtained from the customer is allowed when the documents covering an import shipment are given without payment. The customer holds the goods or their sale proceeds in Trust for the bank until the LTR is fully paid off. TR is a document, which creates the banker’s lien on the goods. The period of TR may be 30,45,60 or 90 days. The sale proceeds of goods held in trust must be deposited to the bank by the borrower irrespective of period of TR.

 EXPORT DEPARTMENT:

 Export L/C:

The other type of L/C facility offered by Moghbazar Branch is Export L/C.

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.

Readymade textile garments (both knitted and woven), Jute, Jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters export to foreign countries. Garments sector is the largest sector that exports the lion share of the country’s export. Bangladesh exports most of its readymade garments products to U.S.A and European countries. Bangladesh export about 40% of its readymade garments products to U.S.A.

Most of the exporters who export through NCCBL is readymade garment exporters. They open export L/Cs here to export their goods, which they open against the import L/Cs opened by their foreign importers.

Parties involved in export L/C:

L/C issuing bank

Importer

Exporter L/C advising bank

Negotiating bank

The paying /reimbursing bank

Documents for Export L/C:

These documents should be submitted to the bank for negotiation:

Export L/C

EXP form

Pro forma invoice

Bill of Exchange

Amount of bill differs with Invoice

Not drawn on L/C issuing bank

not signed

Tenor of B/E not identical with L/C

Full set not submitted

Invoice

Not issued by the beneficiary

Not signed by the beneficiary

Not made out in the name of the Applicant

Description, Price, quantity, sales terms of the goods not correspond to the credit

Not marked one fold as original

Shipping marks differs with B/L & packing list

Certificate of origin

Bill of Lading

Full set of bill not submitted;

B/L is not drawn or endorsed to the Order Of Eastern Bank Ltd;

“Shipping on Board”, “Freight Prepaid” or “Freight Collect” etc. notations are not marked on the B/L;

B/L not indicate the name and capacity of the party i.e. carrier or master, on whose behalf the agent is signing the B/L;

Shipped on Board Notation not showing name of pre-carriage vessel/ intended vessel;

Shipped on Board Notation not showing port of loading and vessel name (In case B/L indicates a place of receipt or taking in charge different from the port of lading);

Short Form B/L;

Charter party B/L;

Description of goods in B/L not agrees with that of Invoice, B/E & P/L;

Alterations in B/L not authenticated;

Loaded on deck;

B/L bearing clauses or notations expressly declaring defective condition of the goods and / or the packages.

Packing list

Gross weight, net weight & measurement, number of cartoons/ packages differs with B/L;

Not marked one fold as original

Not signed by the beneficiary

Shipping marks differs with B/L

Inspection certificate

Insurance document

Any other document as per L/C

Respective officer must scrutinize all the documents with reasonable care to confirm whether the terms and conditions are right or wrong.

Procedure for Export L/C:

 These procedures are enumerated as follows:

1.ERC: 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.

2.Obtaining EXP: After having the registration, the exporter applies to NCCBL with the trade license, ERC and the Certificate from the concerned Government Organization to get EXP. If the bank is satisfied, an EXP is issued to the exporter.

An EXP-Form contains the following particulars:

Name and address of Authorized Dealer

Particulars of the commodity to be exported with code

Country of destination

Port of destination

Quantity

L/C value in foreign currency

Terms of Sale

Name and address of Importer/ Consignee

Bill of Lading/ Railway Receipt/ Airway Bill/ Truck Receipt/ Post Parcel Receipt no. and date

Port of Shipment

Land Custom Post

Shipment Date

Name of the Exporter with address

CCI & E’s Registration number and date of the Exporter

Sector (Public or Private) under which the Exporter falls.