Rajshahi Krishi Unnayan Bank Credit Management and Loan Distribution

Introduction:

The management of specialized banks assets must be conducted in a profitable and safe manner. Safety is essential to commercial banking since banks hold billions of Taka of deposits of individuals, business, and governments. Profit is also necessary for the successful operation of a bank. Lending is the most profitable as well as the most risky function preformed by specialized banks. Therefore, it must be done efficiently and with a minimum of loss so credit management is essential for the bank.

Definition of credit:

“A credit may be defined as money lent at interest or on profit. It is nothing but temporary parting with one’s [an individual or an institution] resources in order to augment the purchasing power of the receiver of such facility with a promise to return the same with interest profit or otherwise as mutually agreed upon.”

Importance of bank credit:

          Banks lending is very important to the economy. It makes possible for the financing of the agricultural, commercial and industrial activities of the nation:

• To produce capital goods which are used later in the production of consumable goods
• Banks loan also make possible production for inventory
• Availability of bank loans the farmer is able to purchase seed, feed, fertilizer

Some additional causes: –

1) Crop credit

2) Cash crop credit

3) Horticulture credit

4) Warehouse credit

5) Rural housing credit

6) Poultry & Fisheries

7) Small & Cottage industries credit

8) Agri Mechaanisation credit

9) Improved seed Credit

10) Other Tools Machines credit.

Types of credit:

Rajshahi Krishi Unnayan Bank generally deals with credit business. Credit is the main source to earn income. Rajshahi Krishi Unnayan Bank provides three types of loan

             a)  Short term loan: A short-term loan is the loan, which is fully repaid within one year or below one year.

             b)  Medium term loan: Medium term loan is the loan, which is fully repaid within more than one year to five years.

             c)  Long term loan: Long-term loan is the loan, which is fully repaid more than five years.

Over drafts:

            In the case of advances sanctioned by way of overdrafts, the customer is sanctioned a limit up to which he can over draw his current account within a stipulated period In case where the customer can not offer any kind of security expect his personal security the facility is termed as a clean overdraft, on the other Hand, where the customer offers a security acceptable to the bank facility is treated as a secured overdraft.

Doubtful loans:

          Doubtful loan are those that are considered by bank examines to be doubtful of repayment, such loans are considered to contain some loss but the amount cannot be ascertained.

Credit management:

          Lending is the one function of specialized banking. The successful banker is a successful lender. The tools used to manage lending are credit analysis, budgeting and supervision. Lending also has to be enlightened by a competitive but reasonable policy for interest charges on loans.

Banks are major financial institutions, which coordinate between borrowers and lender. They mobilize funds from one group of people at low rate and lend the same to other groups of people at the highest rate of return to maximize profit. Unless the fund functions are efficiently planned and executed the bank can not achieve its maximum potential profit, the specific Objectives of credit management as well as the bank management in a specialized bank are:

• To provide service in special sector
• To maximize earnings
• To provide adequate liquidity and cash
• To manage the loan and investment portfolios in the best possible manner so as to ensure profitability
• To maintain reserve for contingencies

Credit management in banking is mainly liable to its concerned authority. At any cost they have to bind to keep its funds in safety and returnable with maximum profit from the investment.

Main credit portfolio of Rajshahi Krishi Unnayan Bank:

Rate of interest on credit:

Bank usually determines various rates of interest in different sectors. The rate of interest changes overtime and becomes effective from prescribed date. But rate of interest can not be changed when the

Disbursed loan is funded from the foreign aids. The variation of interest rate hinge upon credit program and tenure of the loan.

The rate of interest, which exists at present, is as follows:

Introduction:

It is known to all that the strong base of Rajshahi Krishi Unnayan Bank is totally dependent on sound investment. As because interest on loan is the main source of income. That is why qualitative loan disbursement is so much important as well as quality to increase total income of the bank.

Loan Sanction Procedure:

Based on information available in the appraisal report, credit report, leg mate credit, Needs of the farmer client should be carefully analyzed by the sanctioning authority. Before according section analysis of status of application, credit worthiness liabilities, project viability from technical, financial, economic, Marketing and management point of view. As soon and the security is finalized and the sanctioning authority is satisfied he should proceed for sanction of loan advance.

Loan handling diagram:

Features of loan:

Some important are considered for loan disbursement by the bank. These are as follows:

1. Loan must be Bangladeshi
2. They must be matured
3. They will not loan defaulter
4. For ltd co. the join stock company register must be needed
5. For co-operative society it must be registered.
6. They have ability to proper use and payable capacity and goodwill
7. They will not mad and mental disorder. For the process of selecting loan, bank considers “4 p’s”

a)     Person

b)     Purpose

c)     Profitability

d)     Proper or Security

Documentation:

After the loan or advance become effective, the manager should ask the borrowers promptly to comply with the loan covenants stipulations and execute the documents. Correct documentation is essential securing safe repayment of loan and advances.

Security:

          Rajshahi Krishi Unnayan Bank maintains the security listed below in recovering the loans without risk.

1.                  Lien: It’s a right to retain the property / goods of the borrower as security until the debit are adjusted. In this case the banker can only hold the possession of the goods he cannot sell them. A banker’s lien is a general hen. He can sell the securities under lien after giving reasonable notice to the borrower.

2.       Pledge: Pledge is created only for movable property like goods document etc. In case of pledge the ownership of the goods remains with pledge but the possession of the goods vests with pledge until the loan is recovered. Pledge does not occur until the goods are transferred. The pledged goods are returned to the owner after the loan is adjusted. If the borrower fails to repay the loan the banker can sell the pledged goods after giving reasonable notice to him.

3.       Mortgage: Only the immovable properties are kept under mortgage. It is a method of creating charge on immovable properties.

4.       Hypothecation: Hypothecation is nothing but the mortgage of movable property. It is an extended idea of pledge. In this case both possession and ownership remains with the borrower but by the hypothecation agreement he undertaken to transfer possession whenever required. Here the lender possesses the right of a pledge. Hypothecation is very much risky and Rajshahi Krishi Unnayan Bank does not want utilize this method for creating charges.

Disbursement of loan:

Before release of sanctioned loan or advance, all terms and conditions as laid down in the sanction letter are to be fully complied with. To that effect, the following basic requirements:

a)         Loan affectivity terms and conditions as to collateral security and equity of the borrower shall be fully met.

b)        Specified documentations as specified in the sanction letter must be completed.

c)         Verification of encumbrances of security properties.

1. Non-encumbrances certificate.
2. Execution of Halapnama.

d)        Creation of charge on the collateral security:  In case of limited company, the charges on the company assets should be limited

e)         With in 21 days from the date of creation of charge, by registered post to the register, joint stock company.

f)          Insurance for:

1. Security properties, as applicable.
2. Assets creates or to be created out of a loan fund or with two equity.
3. Stock of goods pledged with the bank as collateral shall be taken with appropriate risk cover.

g)         Any other stipulations as per sanction letter.

Loan Supervision and Monitory:

Under its charter, the bank is required, as for as possible, to ensure that a loan is spent on the purpose for which it is made, and if this requirement is not complied with by the borrower, the bank may require the repayment of the loan forthwith.

1. Primary responsibility of the manager is to supervise and monitor the cash loan/WCL project and term loan stage by stage, ensure project constriction work, acquiring kind items and project goods as per approved arrangement specified in the sanction letter.
2. Bank finance project should be inspected by the regional manager and manager periodically, to assess physical conditions of the projects facilities and the level of the project’s capacity utilization.
3. Cash loans are liable to misuse for non-productive process. Special attention must, Therefore, by given on borrowers past antecedents. When releasing cash loans. When substantial cash amount is required to be drawing by a borrower for civil works of a project, WCL for requiring goods the managers must be particularly. Vigilant on the usage of loan. Total responsibility for credit super vision of cash credit/WCL lies with the manager.
4. The manager should deploy a project supervision officer after documentation is release of first loan installment with the assignment of over all project supervision the duty of the PSO has been laid down in Ch: 25.07. The PSO should be stationed in the project site or nearby and see for himself the project developmental work and inform the progress to the manager through progress report predictably.
5. After inspection, the manager/authorized officer should countersign the Borrower’s acknowledgement receipt under his signature and seal. Only after such counter-signature in the Borrower’s acknowledgment receipt, supplier’s bill con is processed for payment the branch should complete the verification of goods supplied by a supplier with a week and process payment of supplier’s bill promptly when the same is in order. 

(WCL= Working capital loan)

Loan disbursement situation of Rajshahi Krishi Unnayan Bank:

a)        Position of Loan disbursement last four year. (Amount in Lac- TK)

Source: Rajshahi Krishi Unnayan Bank

* Achievement rate =  ´ 100

Comment: It is evident, from the Above table that 2000-2001 to 2002-2003 Loan disbursement target are increased gradually on the other hand Loan  achievement is also increase gradually. But in the financial year 2003-2004 Loan disbursement target decreased from the previous year but in this year Loan disbursement is not Satisfactory. Here highest achievement rate in the year (2000-2001) is112.43% and lowest achievement rate in the year (2002-2003) is 22%

•  Bar Diagram Presentation Last four years disbursement (amount in lac Tk.

b)      Loan disbursement for 2000-2001.

Rajshahi Krishi Unnayan Bank projected lending target of TK 103.50 Lac. Disbursement of loan during the year amounted to TK 116.37 Lac (112.43% percent of the target). For a reform expansion of the loan portfolio the following seven sectors were given priority in investment planning.

The highest amount of TK 38.52Lac was disbursed for Poverty alleviation. The next highest amount at TK 36.19 Lac was disbursed for Crops such as rich, potato, sugarcane etc. Loan disbursement at livestock, Irrigation equipment and farm machinery and Continuous more than the target, there was no Loan disbursement at Agro-based industries sector.

 Position of Loan disbursement for the financial year 2000-2001 (Amount in Lac TK)

Source: Rajshahi Krishi Unnayan Bank, 

* Achievement rate =  ´ 100

Comment: It is evident. From the Above table that irrigation equipment and firm machinery is the highest achievement percentage that is 293% and poverty alleviation is the lowest achievement percentage, which is 103.38%. Others disbursement item is not considered here.

c)       Loan disbursement of 2001-2002

Rajshahi Krishi Unnayan Bank projected a lending target of TK 141 Lac for the financial year 2001-2002. Disbursement of loan during the year amounted to TK 141.19 Lac (100.13 percent of the target). For a reform expansion of the loan portfolio the following seven sectors were given priority in investment planning.

• · Crops · Continuous · Poverty alleviation. · Fishery · Livestock · Irrigation equipment and farm machinery · Agro-based industries

The highest amount of TK 45 Lac was disbursed for crops as rice, potato Sugarcane etc. The next highest amount of TK 44 Lac was poverty alleviation. Total disbursement was TK 37.50 Lac higher than that of the previous year.

Position of Loan disbursement for the financial year 2002-2003. (Amount in Lac TK).

Source: Rajshahi Krishi Unnayan Bank,

* Achievement rate =  ´ 100

Comment:  It is evident, from the above table that Live stock is the highest achievement percentage which is 140.66% and Agro based industry is the lowest achievement percentage which is 55% Others disbursement items is not considered here

d)      Loan disbursement for 2002-2003

Rajshahi Krishi Unnayan Bank projected a lending target of TK 761.77 Lac for the financial year 2002-2003. Disbursement of Loan during the year amounted to TK 167.39 Lac (22 percent of the target). For a Reform expansion the Loan portfolio the following seven sections were given priority in investment planning.

• · Crops · Continuous · Poverty alleviation. · Fishery · Livestock ·Irrigation equipment and farm machinery · Agro-based industries.

The highest amount at TK 47.39 Lac was disbursed for Crops, the next highest amount of TK 44.95 Live stock. Total Disbursement was TK 26.20 Lac higher than that of the previous year.

Position of disbursement of the financial year 2002-2003. (Amount in Lac TK).

Source: Rajshahi Krishi Unnayan Bank,

* Achievement rate  ´ 100

Comment:  It is evident, from the above table that Poverty alleviation is the highest achievement percentage which is 117.45% and Agro based industry is the lowest achievement percentage which is 0.08% Others disbursement items is not considered here and fishery achievement is nil.

e)       Loan disbursement for 2003-2004

Rajshahi Krishi Unnayan Bank,  Projected a lending target of TK 365 Lac for the financial year 2003-2004. Disbursement of Loan during the year amounted to TK 167.25 Lac (46 percent of the target). For a Reform expansion the Loan portfolio the following seven sections were given priority in investment planning.

• · Crops · Continuous · Poverty alleviation. · Fishery · Livestock ·Irrigation equipment and farm machinery · Agro-based industries

The highest amount of TK 45.70 Lac was disbursed for Live stock.  The next higher amount of TK 41.65 Lac as disbursement of cash credit. Total disbursement was TK 0.2 Lac lower than that of the previous year.

Position of disbursement of the financial year 2003-2004. (Amount in Lac TK).

Source: Rajshahi Krishi Unnayan Bank, 

* Achievement rate =  ´ 100

Comment: It is evident. From the above    table that agro based industries Loan in the highest achievement percentage which is 138.56 % and

Irrigation equipment farm machinery is the lowest achievement percentage which 23.69%. Other disbursement item is not considered here.