Report on Banking Activities of Bangladesh Krishi Bank

Back Ground of the Report:

The major occupation of the people of Bangladesh is “Krishi”. Krishi is a Bengali word which means “Agriculture”. About 85% of the population depends directly or indirectly on agriculture which contributes a significant portion to GDP.

Bangladesh Krishi Bank (BKB) has been established under the Bangladesh Krishi Bank order 1973 (President’s Order No 27 of 1973). BKB is Banking Company under the Banking Company Act-1991. Its Head Office is located at Krishi Bank Bhaban, 83-85 Motijheel Commercial Area, Dhaka-1000, Bangladesh. Krishi bank has started commercial functioning since 1977 to generate more loan able fund from the idle rural and urban savings and invest them for the betterment of our economy.

Origin of the report

As a prerequisite for the Bachelor of Business Administration Degree of Daffodil International University, I was required to complete an internship in a suitable business organization and submit a report on my findings. I had been selected to work as an Internee in Bangladesh Krishi Bank, Motijil for a period of 3 months from September 01, 2009 to November 30, 2009. Md Jelayet Hossain Mollaha Human Resources Development Department, Bangladesh Krishi Bank appointed me as an Internee. After discussion and getting consent, I started to work on the project titled “Foreign Exchange Activity of Bangladesh Krishi Bank: A Study on Motijil Branch”.

Without practical exposure, theory can never be fruitful. For this reason, B.B.A program has been designed in such a way that a student can get practical knowledge. A student needs to go for practical orientation in some organization where his/her duty is to bear all the some things from operations and activities of that branch This internship report is generated under the supervision of Senior Lecturer Mr. Sheikh Abdur Rahim , Faculty of Business and Economics Daffodil International University.

 Objective of the report

The objective of the study may be viewed as:

• General Objective
• Specific Objective

General Objective:

This internship report is prepared primarily to fulfill the Bachelor of Business Administration (B.B.A) degree requirement under the Faculty of Business & Economics, DaffodilInternationalUniversity.

Specific Objective:

More specifically, this study entails the following aspects:

• To have exposure to the Foreign exchange operation of Bangladesh Krishi Bank Bank.
• To have a clear understanding of the business operation of Bangladesh Krishi Bank Bank.
• To discuss the services offered by Bangladesh Krishi Bank.
• To assess and evaluate the growth trends of Bangladesh Krishi Bank.
• To recommend ways and means to solve problems regarding Letter Of Credit operation of Krishi Bank.

Methodology of the report:

There are certain boundaries to cover the report. To achieve the objectives of the report. In this report I tried to analyze the Foreign exchange performance of BKB. For this purpose I have collected primary and secondary data for last 5years.  In the preparation of the report I have used Annual report and different journal. We also conduct face to face conversation with employees of BKB.

Scope of the report:

As I was sent to Bangladesh Krishi Bank, Motijil branch, the scope of the study is only to this branch. The report covers details about Bangladesh Krishi Bank (especially foreign exchange operation).

Limitations of the study:

•  Time was very limited to prepare the report.
•  Employees  was very busy to give their valuable time.
• Management doesn’t want to disclose secret information

Sources of Data:

Both primary and secondary source of data are used to complete this study. These two sources are explained below:

Primary sources:

•   Informal interviews of employees in Foreign Exchange Division.
•   Conversation with the clients
•   Personal observation
•   Desk work
•   Discussion session

Secondary sources:

•   Files and documents of the Branch.
•    Annul report of BKB Bank 2006.
•   Different paper of BKB Bank.
•   Different books periodicals related to foreign Exchange.

Data Analysis

This is a descriptive report aimed at depicting the foreign exchange activities in Motijil BKB Bank. The data/information gathered from both primary and second sources were arranged to get a clear picture about the foreign exchange activities in Motijil Branch of BKB Bank . The study includes both qualitative and quantities analysis of the Motijil Branch of BKB Bank Limited foreign activities such as appraisal criteria, process, methods, guidelines etc. Based on the observational information, I tried to evaluate and analyze the problems involved with the foreign exchange activities in Motijil Branch of BKB Bank .

An overview of Bangladesh Krishi Bank                  

Bangladesh Krishi Bank was established as a full Government owned bank under Presidential Order 27 of 1973. The primary objective of BKB is to provide credit facilities to the farmer for the development of agriculture and entrepreneurs engaged in development of agro-based as well as Cottage industries. The bank is guided in accordance with the policies and principles of the Government of the Peoples Republic of Bangladesh. The main function is to sanction loan to individual and corporate body related to the followings-

•  Production of crops
•  Purchase of Irrigation Machinery and Equipment
•  Development of Horticulture
•  Pisciculture and finally
•  Animal Husbandry

 Corporate Information (As per Annual Report 2006):

Name of the Bank                   : Bangladesh Krishi Bank

Status                                      : Government of Bangladesh owns Bangladesh Krishi

                                                  Bank
Date of Incorporation             : June 02, 1973

Inauguration of First Branch  : August 01, 1975

Authorized Capital                 : Tk. 300 Core

Paid-up Capital                       : Tk. 300 Core

Number of Branches               : 942 Branches

Proposed Branches                 : 197 Branches

Chairman                                 : Khondkar Ibrahim Khaled

Company Secretary                 : Abul Kalam Azad

Managing Director                  : Md. Mukter Hussain

Number of Employees            : 10,454

Credit Rating                          : Long Term (Adequate Safety)

                                                  Short Term (Good Grade)

Registered Offices                  : Krishi Bank Bhaban 83-85 Motijheel Commercial Area
Fax:88-02-956121
Telex:642526BKBBJ
web site : www.krishibank.org.bd

Vision of Bangladesh Krishi Bank:

Bangladesh Krishi Bank believes in togetherness with its customer, in its march on the road to growth and progress with services. To achieve the desired goal, there will be pursuit of excellence at all stages with a climate of continuous improvement, because

Bangladesh Krishi Bank believes the line of excellence is never ending. Bank’s strategic plans and networking will strengthen its competitive edge over others in rapidly changing competitive environment. Its personalized quality service to the customers with the trend of constant improvement will be cornerstone to achieve our operational success.

Mission of Bangladesh Krishi Bank:

Bangladesh Krishi Bank has chalked out the following corporate objectives in order to ensure smooth achievement of its goals:

• To be the most caring, customer friendly and service government bank.
• To ensure ethics and transparency in all levels.
• To ensure sustainable growth and establish full value of the shareholders.
• Above all, to add effective contribution to the national economy.
• Eventually the Bank emphasizes on:
• Providing efficient customer service
• Being trusted repository of customers’ money and their financial adviser
• Making its products superior and rewarding to the customers
• Display team spirit and professionalism
• Sound Capital Base
• Fulfilling its social commitments by expanding its charitable and humanitarian activities.

Objectives of Bangladesh Krishi Bank:

The primary objective of BKB is to provide credit facilities to the farmers for the development of agriculture and entrepreneurs engaged in development of agro-based and cottage industries.

The Bank is guided in accordance with the policies and principles of the Government of the Peoples Republic of Bangladesh

The Bank started commercial functioning since 1977 to generate more loanable fund from the idle rural and urban savings and invest them for the betterment of our economy. For smooth operation, as a part of internal control and compliance system

Products and Services of Bangladesh Krishi Bank:

• Letter of Credit (LC)
• Bill purchase/Discount
• Export Credit (Pre Shipment & Post Shipment)
• Remittance (Inward, Outward)
• Collection, Purchase and Sale of Foreign Currency and Travelers Cheques.
• Maintenance of Student education file.
• Guarantees in Foreign Currency.
• Foreign Currency accounts.
• NFCD (Non-Resident Foreign Currency Deposit) A/C.
• RFCD (Resident Foreign Currency Deposit) A/C
• Forward Contracts
• Correspondent Banking Relations.
• Taka Drawing Arrangement
• Dealing Room

 (a)Import Finance

BKB deals in all kinds of Documentary Credit operation under different credit Lines/Aid/Loan/Grants/cash etc.

BKB finances the following import sectors of the economy:

• All kinds of Capital Machineries for the development of economy giving special emphasis on Agro based industries/Ready made Garments industries and imports substitute industries.
• Import of all kinds of industrial Raw Materials for the industries. Any other improved items and specially items directed by the government.

(b) Export Finance
BKB supports exports of any kind giving special emphasis on the following   financial assistance to all kinds of export oriented industries and other products                         especially export of fruits & vegetables

• Offers confessional rate of interest for Export Finance.
• Does all activities in exports, such as:
• Export bill negotiation /Purchase/Collection.
• Helps the export firms for getting export incentive.
• Financial support for materializing the export order.

(c)  Foreign Remittance:

BKB plays an important role in the field of foreign remittances. Most of the BKB branches (942) located at the remote areas of rural Bangladesh. The Bangladeshi people working abroad and their relatives in the country maintain bank accounts with BKB branches. Bank has an arrangement to allow Bangladeshi people working abroad to send their foreign currencies to their relatives at home. Necessary steps have been taken to widen this sector so that the Bank can serve more people and collect more remittance.

 (d) S.W.I.F.T. (Society for Worldwide Interbank Financial Telecommunication).

Bangladesh Krishi Bank is now a proud member of SWIFT. It is connected with modern international financial telecommunication system. L/C advising/transferring and quick transfers of remittances as well as other financial correspondences have become very easy & speedy with the installation of SWIFT. Bangladesh Krishi Bank’s SWIFT BIC IS BANGLADESH.

(e) Dealing Room
BKB is actively considering the introduction of treasury operation i.e. dealing room operation in its International Department, Head Office, Dhaka to transact foreign currency trading in Inter Bank FC market both at home and abroad.

(f)  Foreign exchanges activities

BKB extends its service to the travelers by endorsement of cash FC/TC in passports.

BKB renders Hajj services to the pilgrims which is 3rd highest in the banking sector.

BKB deals in spot and forward sale and purchase of foreign currency in local   inter-bank market

Classifications of BKB’s credit disbursement:

The total credit disbursement of BKB can be classified into three major groups these are:

1.      Short term loan
2.      Medium term loan
3.      And long term loan

But for the purpose of making diversification modernized as and marketing oriented of agriculture and above all for the improvement of living standard of the rural people BKB has determined seven crucial sector for the loan disbursement considering their possibility and labor intensive. These are shown below:

• Crops
• Fisheries
• Live stock
• Agricultural product & equipment
• Agro based industries
• Micro credit

BKB’s Credit Disbursement Program:

1.      Short term loan: Bangladesh Krishi Bank provides such loan to all sort of people, especially the poor and marginal farmer as well as low income people for the very short term basis. The duration of this loans are 1 to 18 months. Such loans are Crop loan, Continuous loan, Fishery loan.
2.      Medium term Loan: BKB provides such loan for the period of 18 months to 5 years.
3.      Long term Loan: This loan is provided for the period of 5 to 10 years.

Now we will discuss about some of the popular sector of BKB loan in short:

Crop Loan: In case of providing crops loan BKB’s playing premier role from its inception. The major feature of this loan disbursement are-

• Out of total annual allocation of loan portfolio, BKB assign for crop

    financing.

• This program covers all the seasonal crops produced in the country.
• The rate of interest for this sector is 8%.
• All sorts of farmers including marginal farmers are also eligible for the loan.

Crop loan is sanctioned on annual basis.

Credit passbook is issued to each borrower.

Food grains: Paddy, Wheat, Maize, Potato, Mustard etc.Cash Crops: Tea, Jute, Sugarcane, Bettle leaf, Cotton etc.

Winter Crops: Cucumber, Ladies Finger, Korola etc

Summer Crops: Cucumber, Ladies Finger, Korola etc ns, Vegetables, Carrot, Cauli- flower, Cabbage, Tomato etc.

• Nursery development ( fruits, useful trees, flower, urbary culture, spices etc production & marketing )
• Banana, papaya, guava, pineapple, melon, water melon, bettle nut etc
• Mushroom cultivation
• Aromatic and fine rice
• Lettuce, capsicum, broccoli, French bean & other vegetables and promotion of export market
• Spices (onion, garlic, ginger, turmeric etc)

• Baby corn
• Fruit production (mango, jackfruit, litchis, lemon, guava, pineapple, banana etc )
• Floriculture (import substitutes & exportable rajanigandha, ganda, rose, glandules, orchid, christmas tree, bonsai etc).Import alternative fruit production (orange, grapes etc)

Tea: Tea is one of the major exportable items of the country. BKB is the exclusive financing institution providing credit to this sector. The Bank generally provides two types of Loa– Tea production loan and Tea development loan.

Fisheries loan: To accelerate fish production BKB provides various types of credit for-

• Excavation and re-excavation of ponds.
• Development of marshy lands.
• Establishment of fish hatcheries and
• New fisheries project.

In this case, credit is given in the following sub- sector:

(a)    White fish

• Fish culture in existing pond/ tank
• Fish culture by re- excavation of old or derelict tank or tank.
• Fish culture by excavation of new tank.

(b)   Shrimp culture

• Shrimp culture in traditional system.
• Shrimp culture in scientific system.
• Shrimp culture in semi- intensive method.
• Prawn culture in sweet water (Galda). 

Livestock:  Livestock animals, kept especially on a farm, for economic benefits. In Bangladesh these are generally cattle, buffalo, goat and sheep. Livestock constitute an important part of the wealth of a country, since in addition to draft power and leather; it provides manure, meat and milk to the vast majority of the people. Livestock resources necessarily encompass animal health care and welfare, quality production factors, and effective rearing to keep pace with expansion of entrepreneurship related to concerned industries. It plays an important role in the agricultural production sphere. Statistics show that about 6.5% of national GDP is covered by the livestock sector, and its annual rate of productivity is 9%. About 20% of the population of Bangladesh earns their livelihood through work associated with raising cattle and poultry. Draught power for tilling the land, the use of cow dung as manure and fuel, and animal power for transportation make up about 15% of the GDP. In addition, hides and skins, bones, offal’s, feathers, etc, help in earning foreign exchange. Livestock resources also play an important role in the sustenance of landless people.

Irrigational and farm machineries: In this case BKB provide both medium term and long term loan for higher and quality production. In this situation BKB provide medium term loan for-

•  Purchasing power tiller, tractor low deep tube-well, low lift pump etc.
•  The rate of growth in the financial year is 9.44 %( According to BKB’s accounts).

Agro-based industries:

•  BKB basically provide long term credit in this sector. The fundamental purpose of providing credit in this sectors are-
•  Development and expansion of agro- based industries
•  Reduce import costs I case of purchasing various fruits and vegetables.
•  Produce import substitude.
•  Create large employment for a huge numbers of unemployed people.
•  Reduce trade gaps with the neighboring countries, especially witIndia.
•  Meet the house hold as well as changing various fruit based products such as juice

  and various drinks.

•  Encourage people for being self-relent.

The agro based industries are – Poultry farm, Dairy farm, Food processing plant, Fish freezing/Processingindustriesetc

01. Poultry farm

• Poultry broiler farm
• Poultry layer farm
• Poultry (broiler/layer) hatchery

02. Dairy farm

• Milk production
• Milk collection, milk processing (ghee, butter, pasteurized milk etc production) and marketing

03. Food processing project

• Fruit based food preparation, processing, preservation & marketing
• Flour, bread & biscuit vermicelli, noodles, chips., chanachur, corn flakes, potato flakes, French fry, popcorn, baby food, starch etc
• Juice, jam, jelly, tomato ketchup, sauce, pickle etc production & marketing
• Spices processing
• Different types oil mill, dal mill etc
• Small processing industry at farm level
• Dehydrated fruit canning, packaging, preservation & marketing

04. Exportable items

• Fish processing
• Freezing plant
• Dehydration plant (for dry fish processing)
• Salting and Dehydration of Jew fish.

05. Import substitutes

• Leather and Leather Goods
• Fish net/net thread production
• Garments accessories (garments allied industry like washing plant, packaging etc)
• Organic fertilizer, mixed fertilizer, urea super granules etc production & marketing
• Insecticides production

• Bio-pesticide, neem based pesticide production

Micro credit program under Poverty alleviation:

• Credit program for landless and marginal farmers.
• This micro credit program of BKB was launched with BKB’s own fund in 1992-1993 financial years through its all branches.
• About 1388928 beneficiaries have provided with Tk.9949.00 million since its inception.
• Person or peasant having not more than 1.5 acres of cultivate land and annual income of highest Tk.25000 are eligible for getting credit under this program.
• After information of groups and obtaining training the groups and obtaining training the members get credit without any collateral security.
• Under this program, the interest rate for the landless and marginal farmer is 10%.

Capital structure of BKB is given below:

         (Amount in Crore)

                          Figure: Capital structure of BKB

•  BKB has an authorized capital of Tk. 3000 Million only and paid up capital Tk3000
•  Million only which is fully paid by the government.
•  Bank has started commercial functioning since 1977.
•  The bank operates its function through 942 branches (Rajshahi Division) of which
•  808 rural and 134 are Urban.
•  It has 14 Foreign exchange (Authorized Dealer)  branches

•  In the field level the bank has 8 divisional and 51 regional offices for close
•  Supervision of the branch activities.
•  For smooth working bank has also 56 field level audit offices at divisional and
•  Regional levels.

Trends of branch Expansion of BKB:

Figure : Branch Expansion

In the head office the bank has three division 26 departments Headed by General Manager and deputy General Manager respectively.

•  The bank has 10454 employees as on 30 June 2006.
•  The bank has a Board of Director comprising of 11 members headed by a

          Chairman.

•  The director represent both public and private sector and are appointed by

    the Government.

•  The managing director is the Chief Executives of the Bank is appointed by

   the Government

•  In the Head Office there are four division headed by General Managers.

     And the division is:

•  Administrative Division
•  Planning & Operation Division
•  Budget & Accounts division and
•  Loan recovery Division

Deposit:

Bangladesh Krishi Bank offers different deposit banking facilities like Savings Bank Account, Current Deposit Account, and Short Term Deposit Account & Fixed Deposit Account. But the bank doesn’t provide much deposit schemes as other bank of Bangladesh. In the following table we will see the deposit Interest rate and period of deposit.

Figure: Deposit Scheme

SWOT Analysis:

SWOT analysis is the detailed study of an organization’s exposure and potential in perspective of its strength, weakness, opportunity and threat.

Strengths:

• Energetic as well as smart team work.
• Good Management
• Cooperation with each other
• Usage of faster pc bank software
• Membership with SWIFT
• Good banker-customer relationship
• Strong Financial Position
• Online Banking Services
• Strong position
• Huge business area

Weakness:

• Lack of experienced employees in junior level management
• Lack of own ATM services
• Tendency to leave the bank in quest of flexible environment.
• Lack of manpower

Opportunity:

• Growth of sales volume
• Change in political environment
• Launching own ATM card services

Threats:

There are also some areas which might be threatening for BKB’s existing in the competitive businesses. These are

• To take proper as well as feasible initiatives in various Micro Credit programs to make them competitive as well as more demanded to the mass people especially for the poor and marginal entrepreneurs because in this case Grameen exchanging their programs day by day.

Foreign Exchange Activity of Bangladesh Krishi Bank Dhaka.

BKB was issued authorized dealership license in 1981 by the Bangladesh bank for dealing in foreign exchange. In the same year, BKB set up an International Department at its head office. Since then BKB has been participating actively in the foreign exchange business and offering overseas remittance services through its 11 authorized branches for dealing in foreign exchange. The total volume of foreign exchange business handled by the bank in servicing imports, exports, and remittance during 1999-2000 amounted to Tk 5.25 billion compared to Tk 1.32 billion in 1983-84, and Tk 711 million in 1982-83. In 1999-2000, the share of servicing exports in foreign exchange dealings by BKB was 42.86% and that of servicing imports was 40%, and remittances accounted for 17.14%. At present, the bank has correspondent relationships with 98 foreign banks/bank offices throughout the world.

Definition of Foreign exchange:

Foreign Exchange is a process which is converted one national currency into another and transferred money from one country to another country.

According to Mr. H. E. Evitt. Foreign Exchange is that section of economic science which deals with the means and method by which right to wealth in one country’s currency are converted into rights to wealth in terms of another country’s currency. It involved the investigation of the method by which the currency of one country is exchanged for that of another, the causes which rented such exchange necessary the forms which exchange may take and the ratio or equivalent values at which such exchanges are effected. Foreign exchange is the rate of exchange in the both country’s currency.

Foreign Trade and Foreign Exchange:

International trade refers to trade between the residents of two different countries.
Each country functions as a sovereign State with its set of regulations and currency. The difference in the national of the exporter and the importer presents certain peculiar problems in the conduct of international trade and settlement of the transactions arising there from. Important among such problems are:

(a)   Different countries have different monetary units;

(b)   Restrictions imposed by countries on import and export of goods

(c)    Restrictions imposed by nations on payment from and into their countries

Foreign Exchange Department:

Foreign Exchange Department is international department of Bank. It deals globally. It facilities international trade through its various modes of services. It bridge between importers and exporters. If the branch is authorized dealer in foreign exchange market, it can remit foreign exchange from local country to foreign country. This department mainly deals in foreign currency. This is why this department is called foreign exchange department.

Branches dealing in Foreign Exchange Transactions are:

Nostro Accounts are maintained with the following Banks:

Principles of Foreign Exchange:

The following principles are involved in Foreign exchange:
i) The entire system
ii) the media used
iii) the monetary unit.

Function of Foreign Exchange:

The Bank actions as a media for the system of foreign exchange policy. For this reason, the employee who is related of the bank to foreign exchange, specially foreign business should have knowledge of these following functions :-

1)  Rate of exchange.
ii) How the rate of exchange works.
iii) Forward and spot rate.
iv) Methods of quoting exchange rate.
v) Premium and discount.
vi) Risk of exchange rate.
vii) Causes of exchange rate.
viii) Exchange control.
ix) Convertibility.
x) Exchange position.
xi) Intervention money.
xii) Foreign exchange transaction.
xiii) Foreign exchange trading.
xiv) Export and import letter of credit.
xv) Non-commercial letter of trade.
xvi) Financing of foreign trade.
xvii) Nature and function of foreign exchange market.

What is Export & Import?

Import

When goods and services are brought from the country for the fulfillment of the customer needs or their own needs is called import & who is involving in this procedure Is called importer.

Advantages of importers:

a)      Ability: The letter of credit enables the importer of purchase materials without making full advance payment.

b)      Assurance: If the importer  task certain safe guards, like calling for packing list,

      Invoice ate. The quality and quantity of the goods consigned is assured.

c)  Without payment: Prided the buyer has buying credit with the prime bank he may get goods released by the bank under trust (e.s, LTR,LIM etc) i.e. without payment and pay for then on sale.

Export

When good and services are brought from your country to other countries for the fulfillment of their customer needs their own needs is called export & who is involving in this procedure is called exporter.

Advantages of Exporter:

a)      Undertaking: A superior undertaking of the bank under the latter of credit assures the importer then when the documents are tendered as per the turns of the credit payment would be made to him.

b)      Controlling: The exporter is absolved of the botheration of knowing in details the exchanges control regulations of the importer country and is also increased to some extent against charges in such regulation

Import Procedure:

Import section of any Bank deals with L/C opening and post import financing i.e. LIM & LTR. Now the procedure from opening L/C to disbursement against L/C is given below.

Definition of L/C:

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

Classification of L/C:

• Revocable                         Credit
• Irrevocable                        ,,
• Transferable                      ,,
• Restricted                         ,,
• Red Clause                        ,,
• Green Clause                     ,,
• Confirmed                         ,,
• Divisible                            ,,
• Back to Back                    ,,
• LC without resource         ,,
• LC with resource              ,,
• Revolving                          ,,
• Anticipatory                       ,,

Revocable Credit:

A revocable credit is a credit which can be amended or canceled by the issuing bank at any time without prior notice to the seller.

Irrevocable Credit:

An irrevocable credit constitutes a definite undertaking of the issuing bank (since it can not be canceled without the agreement of all parties thereto). Provided that the stipulated documents are presented and the terms and conditions are satisfied by the seller. An irrevocable credit can be either confirmed or unconfirmed depending on the desire of the desire of the seller. Thus sort of credit is always preferred to revocable letter or credit.

 Sometimes, letter of credits are marked as either ‘with recourse to drawer” or “without recourse to drawer”

Transferable Credit:

A transferable credit is one that can be transferred by the original beneficiary in full or in part to one or more subsequent beneficiaries. Such credit can be transferred once only. Fractions of a transferable credit can be transferred separately, provided partial shipments are not prohibited.

Revolving Credit:

The revolving credit is one, which provides for resorting the credit to the original amount after it has been utilized. How much time it will be taking place must be specifically mentioned in the credit. The revolving credit may be either cumulative or non-cumulative.

Back to Back Credit:

The back to back credit is a new credit opened on the basis of an original credit in favor or another beneficiary. Under back to back concept, the seller as the beneficiary of the first credit offers it as security to the advising bank for the issuance of the second credit. The beneficiary of the back to back to back credit may be located inside or the out side the original beneficiary’s country.

Anticipatory Credit:

The anticipatory credits make provision for pre-shipment payment to the beneficiary in anticipation of his effecting the shipment as per L/C conditions.

Red Clause:

When   the clause of the credit authorizing the negotiating bank to provide pre-shipment advance to the beneficiary is printed typed in red, the credit is called “Red Clause letter of credit”

Parties of L/C

                    i.            Importer – Seller who applies for opening an L/C.
ii.            Issuing Bank – It is the bank which opens/issues a L/C on behalf of the importer.
iii.            Confirming Bank – It is the bank, which adds its confirmation to the credit and it, is done at the request of issuing bank. Confirming bank may or may not be advising bank.
iv.            Advising / Notifying Bank – is the bank through which the L/C is advised to the exporters. This bank is actually situated in exporter’s country. It may also assume the role of confirming and / or negotiating bank depending upon the condition of the credit.
v.            Negotiating Bank – is the bank, which negotiates the bill and pays the amount of the beneficiary. The advising bank and the negotiating bank may or may not be the same. Sometimes it can also be confirming bank.
vi.            Paying / Accepting Bank – is the bank on which the bill will be drawn (as per condition of the credit). Usually it is the issuing bank.
vii.            Reimbursing bank – is the bank, which would reimburse the negotiating bank after getting payment – instructions from issuing bank.

Application for L/C limit:

Before opening L/C, importer applies for L/C limit. To have an import L/C limit, an importer submits an application to the Department of Krishi Bank furnishing the following information, –

                    i.            Full particulars of bank account maintained with Krishi Shamoli branch.
ii.            Nature of business
iii.            Required amount of limit
iv.            Payment terms and conditions
v.            Goods to be imported
vi.            Offered security
vii.            Repayment schedule

A credit Officer scrutinizes this application and accordingly prepares a proposal (CLP) and forwards it to the Head Office Credit Committee (HOCC). The Committee, if satisfied, sanctions the limit and returns back to the branch. Thus the importer is entitled for the limit.

2. The L/C Application:

After getting the importer applies to the bank to open a letter of credit on behalf of him with required papers.

1. Documentary Credit Application Form:
2. Bangladesh Krishi Bank provides a printed form for opening of L/C to the importer. This form is known as Credit Application form. A special adhesive stamp is affixed on the form.  While opening, the stamp is cancelled. Usually the importer expresses his desire to open the L/C quoting the amount of margin in percentage.
3. Proforma Invoice: It states description of the goods including quantity, unit price etc.
4. The insurance cover note: The name of issuing company and the insurance number are to be mentioned on it.
5. The Letter of credit authorization (LCA) form: LCA form should be duly attested.
6. The Form-IMP.
7. Tax Information Certificate
8. Forwarding for Pre-Shipment Inspection (PSI):   

Importer sends forwarding letter to exporter for Pre-Shipment Inspection. But all types of goods do not require PSI.

C. Scrutinization of L/C Application:

1. The Krishi Bank Official scrutinizes the application in the following manner, –
2. The terms and conditions of the L/C must be complied with UCPDC 500 and Exchange Control & Import Trade Regulation.
3. Eligibility of the goods to be imported.
4. The L/C must not be opened in favor of the importer.
5. Radioactivity report in case of food item

6. Survey report or certificate in case of old machinery
7. Carrying vessel is not of Israel or of Serbia- Montenegro
8. Certificate declaring that the item is in operation not more than 5 years in case of car.

Accounting Treatment in Case Of L/C Opening:

Now if the Officer thinks fit the application to open an L/C, the following entries are given to realize the L/C commission, charges, postage, L/C margin etc., –

Client’s Account—————————————————————-Dr.

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

Income A/C commission————————————— ————-Cr.

Sundry deposit margin foreign currency clearing (F.C.C) A/C—–Cr.

VAT (15% of Commission) on L/C—————————————-Cr.

Income A/C (postage/telex)———————————– ————-Cr.

After that, L/C number and the above entries are given in the L/C Register. The contra entries stating the liability of the bank and the client are as follow:

Customer’s Liability————————————Dr.

            Banker’s Liability—————————————-Cr.

 1.      Transmission of L/C to Beneficiary through Advising Bank:

Then the transmission of L/C is done through tested telex or fax to advise the L/C to the advising bank. The advising bank verifies the authenticity of the L/C.

Krishi Bank has 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.

Credit Report:

If the amount of L/C exceeds US$10000/=, Krishi Bank takes the credit report of the beneficiary to ensure the worthiness of the of supplying goods

2.      Amendment of the Letter of Credit:

When the parties involved in a L/C, especially the seller want to change the terms and conditions due to some obvious and genuine reasons the credit should be amended. Krishi Bank transmits the amendment by tested telex to the advising bank. If the L/C is amended, service charge and telex charge is debited from the party account accordingly. Amendments must be complete and precise.

 3.      Presentation of the Documents:

1. The seller being satisfied with the terms and the conditions of the credit makes shipment of the goods as per L/C terms.
2. After making the shipment of the goods in favor of the importer the exporter submits the documents to the negotiating bank.
3. After receiving all the documents, the negotiating bank then checks the documents against the credit. If the documents are found in order, the bank will pay, accept or negotiate to Krishi Bank
4. Branch & bank received seal to be affixed on the forwarding schedule
5. The Bill of Exchange & transport documents must immediately be crossed to protect loss or fraudulent.

 4.      Examination of shipping documents

One of the basic principles of documentary credit is that all parties deal with document and not with goods. That is why the documents should be scrutinized properly. If any discrepancy in the document sis found, that is to be informed to the party. A checklist may be followed for examining the documents.

Then the following things can happen. These are indicated in the following:

1. Discrepancy found but the importer accepts – then the bank will lodge the documents
2. Discrepancy found and importer not agreed to accept – Issuing bank would intimate negotiating bank for revised document or return the documents to the negotiating bank for necessary action. Here issuing bank is not bound to pay because the documents send by exporter is not in accordance with the terms of L/C.
3. Documents are OK but importer is not willing to retire the documents – In this case bank is obligated to pay the price of exported goods. Since importer did not pay for bill of exchange, this payment by bank is one kind of credit to the importer and this credit in banking is known as FORCED PAD.

4. Everything is O.K. but importer fails to clear goods from the port and request bank to clear – In this case banks clear the goods and takes delivery of the same by paying customs duty and sales tax etc. So, this expenditure is debited to the importer’s account and in banking it is called LIM.

1. 5.      Lodgment of Documents:

5. Lodgment means retirement of funds. Usually payment is made within seven days after the documents have been received. If the payment is become deferred, the negotiating bank may claim interest for making delay. Lodgment constitute the followings:

1. Requisition for the foreign currency: For arranging necessary fund for payment, a requisition is sent to the International Department.
2. Preparing sale memo: A sale memo is made at B.C rate to the customer. As the T.T & O.D rate is paid to the ID, the difference between these two rates is exchange trading. Finally, an Inter Branch Exchange Trading Credit Advice is sent to ID.
3. Creation of PAD liability: Bangladesh Krishi Bank lodges the converted the bill amount at BC (Bills Collection) rate prevailing on the date of lodgment to PAD A/C and an IBETCA prepared at the converted bill amount at T.T clear rate is sent to ID. PAD A/C should be adjusted within 21 days.

Accounting Treatment:

PAD A/C……………………………………….…………….. Dr.

(Converted the bill amount at BC rate)

H.O. A/C ————————————————————-Cr.

(Converted bill amount at T.T clear rate)

Income A/C profit on exchange ———————————-Cr.

(Difference between B.C&T.T clear rate)

Reversal Entries:

Banker’s Liability ————————————Dr.

Customer’s Liability ———————————Cr.

(When lodgment is given)

4. Payment instruction: Payment instruction is given to the reimbursement bank to debit the issuing banks. NOSTRO A/C to make payment to the negotiating bank.
5. Payment Intimation to the Negotiating Bank: Intimation is sent negotiating bank ensuring that payment has been made.

Accounting Treatment

Then the telex charge, service charge, and interest (if any) are debited to the PAD A/C.

PAD A/C——————————————–Dr.

Income A/C—————————————–Cr.

(Service charge& Telex charge)

Shipping documents is then stamped with PAD Number & entered in the PAD Register

6. Intimation to the applicant

As soon as above formalities are completed the importers are served with PAD bill intimations for retirement of concerned import document.

A letter of intimation regarding receipt of the documents should be sent to the applicant with a request to take delivery of the documents on settlement of all dues against it.

6.      Retirement of Documents:

On intimation the importer approaches with a letter for retirement of the document against full payment with up to date interest and charges payable. Bank prepares cost memo in printed form on account of the concerned party giving details head of charges payable.

Accounting Treatment:

Sundry Deposit L/C Margin A/C————————————Dr.

PAD A/C————————————————————–Cr.

(Margin amount transferred to PAD A/C)

Customer A/C——————————————————-Dr.

PAD A/C ———————————————————–Cr.

Income A/C – interest on PAD———————————Cr.

(Customer’s account debited for the remaining amount)

As far the vouchers are passed and necessary entries are given in PAD Ledger endorsements are made under two authorized signature of the banks officers (P.A. Holder). Then the documents are delivered to the importer.

The bank will endorse the documents in the following manner:

Then importer releases the importers goods from the port authority with the help of the clearing and forwarding agents C&F agent clears the goods from the port and hands over the goods to the importers.

After completion of all official requirements C&F agent submits the bill of entry of the banks. The Bill of Entry is wanted from the party for maintaining the evidence as the goods has been arrived.

Shipping Guarantee:

When goods arrive prior to arrival of documents

This happens mostly in cases of air shipment, shipment by truck from Land or shipment by post parcel. In such cases bank endorses non-negotiable shipping documents for clearance of the goods subject to scrutiny and the documents being in order and settlement of the bank dues against the relative bills.

Export section

Foreign Exchange Regulation Act, 1947 nobody can export by post and otherwise than by post any goods either directly or indirectly to any place outside Bangladesh, unless a declaration is furnished by the exporter to the collector of customs or to such other person as the Bangladesh Bank (BB) may specify in this behalf that foreign exchange representing the full export value of the goods has been or will be disposed of in a manner and within a period specified by BB.

Bangladesh exports a large quantity of goods and services to foreign households. Readymade textile garments (both knitted and woven), Jute, Jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters exports 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 Community (EC) countries. Bangladesh exports about 40% of its readymade garments products to U.S.A. Most of the exporters who export Bangladesh Krishi Bank are 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.

Formalities for Export L/C:

There are a number of formalities, which an exporter has to fulfill before and after shipment of goods. These formalities or procedures are enumerated as follows, –

 1.      Obtaining Export Registration Certificate ERC:

No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with Chief Controller of Imports and Exports (CCI & E) and holds valid Export Registration Certificate (ERC). After applying to the CCI&E in the prescribed from along with the necessary papers, concerned offices of the Chief Controller of Imports and Exports issues ERC. Once registered, exporters are to make renewal of ERC every year.

2.      Securing the order:

After getting ERC, the exporter may proceed to secure the export order. He can do this by contracting the buyers directly through correspondence.

 3.      Obtaining EXP:

After having the registration, the exporter applies to BKB 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.

 4.      Signing of the contract:

After communicating with buyer the exporter has to get contracted for exporting exportable items from Bangladesh detailing commodity, quantity, price, shipment, insurance and mark, inspection, arbitration etc.

 5.      Receiving the Letter of Credit:

After getting contract for sale, exporter should ask the buyer for Letter of Credit clearly stating terms and conditions of export and payment.

       After receiving L/C, the following points are to be looked for:

                  a.            The terms of the L/C are in conformity with those of the contract.
                  b.            The L/C is an irrevocable one, preferably confirmed by the advising bank.
                   c.            The L/C allows sufficient time for shipment and a reasonable time for registration.
                  d.            If the exporter wants the L/C to be transferable, divisible and advisable, he should ensure those stipulations are specially mentioned in the L/C.

6.      Procuring the materials:

After making the deal and on having the L/C opened in his favor, the next step for the exporter is to set about the task of procuring or manufacturing the contracted merchandise.

7.      Endorsement on EXP

Before the export forms are lodged by the exporters with the customs/postal   authorities, they should get all the copies endorsed by Krishi Bank. Before shipment, exporter submits exp. form with commercial invoice. Then Krishi Bank officer checks it properly, if satisfied, certifies the exp. Without it exporter he cannot make shipment. The customer must declare all exports goods on the EXP issued by the authorized dealers

Disposal of Export Forms:

                  a.            Original: customs authority reports first copy of EXP to Bangladesh Bank after shipment of the goods.
                  b.            Duplicate: Negotiating bank reports the Duplicate to Bangladesh Bank in or after negotiation date but not later than 14 days from the date of shipment..
                   c.            Triplicate: On realization of export proceeds Triplicate is reported by the same bank to the same authority.
                  d.            Quadruplicate: Finally, the negotiating bank as their office copy retains Quadruplicate

 8.      Shipment of goods: Exporter makes shipment according to the terms and condition of L/C.

 9.      Presentation of export documents for negotiation:

After shipment, exporter submits the following documents to Bangladesh Krishi Bank for negotiation.

                  a.            Bill of Exchange or Draft;
                  b.            Bill of Lading
                   c.            Invoice
                  d.            Insurance Policy/Certificate
                   e.            Certificate of origin
                   f.            Inspection Certificate
                  g.            Consular Invoice
                  h.            Packing List

                    i.            Quality Control Certificate
                    j.            G.S.P. certificate
                  k.            Photo – Sanitary Certificate.

10.  Cash Against Document (CAD) Contract

In lieu of export LC export can also be made against execution of contract of sale and purchase between the buyer and seller. Usually a CAD contract is made in case of exporting Jute goods.

There are some Bangladesh Jute Mills Corporation (BJMC) enlisted intermediary firms. They make CAD contract with the importer.  Some intermediary firms the client of Krishi Bank. After making contract, the intermediary firm (original exporter) purchases jute from a jute mill. Then, the jute mill’s bank usually an NCB sends forwarding with the following documents to Bangladesh Krishi Bank.

                  a.            Commercial invoice made by the the jute mill
                  b.            Bill of exchange drawn on exporter payable to jute mills bank(authorized that bank as “ pay to the order of Bangladesh Krishi Bank”)
                   c.            Mills specification
                  d.            EXP form – triplicate and quadruplicate on which seal and signature of authorized officer of the jute mill’s bank is given.

Along with these jute mill documents exporter presents his own documents, which were required by the CAD contract.

Exporter presents the documents for negotiation to Bangladesh Krishi Bank and request to remit the amount at which he purchased jute from jute mill to the jute mill’s bank and credit the rest to his account in Krishi Bank.

11.  Examination of Document :

Banks deal with documents only, not with commodity. As the negotiating bank is giving the value before repatriation of the export proceeds it is advisable to scrutinize and examine each and every document with great care whether any discrepancy(s) is observed in the documents. The bankers are to ascertain that the documents are strictly as per the terms of L/C Before negotiation of the export bill. Bank officers

assigned for examining the export documents may use a checklist for their convenience.

12.  Negotiation of export documents :

Negotiation stands for payment of value to the exporter against the documents stipulated in the L\C. If documents are in order, Bangladesh Krishi Bank purchases (negotiates) the same on the basis of banker- customer relationship. This is known as Foreign Documentary Bill Purchase (FDBP).

If the bank is not satisfied with the documents submitted to Bangladesh Krishi Bank gives the exporter reasonable time to remove the discrepancies or sends the documents to L/C opening bank for collection. This is known as Foreign Documentary Bill for Collection (FDBC)

                  a.            Procedure for FDBP:

•                                 i.            After purchasing the documents, DBL gives the following entries, –

FDBP A/C ————————————————–Dr.

( at OD sight rate)

Customer A/C  —————————————————–Cr.

(Before realization of proceeds)

Bank would realize only postage charges from the exporter.

                              ii.            Subsequently, Bank will send the documents to the L/C opening Bank for payment with a forwarding letter detailing the enclosures. Upon realization of proceeds the Negotiating Bank would pass the following vouchers:

Head Office A/C—————————————–Dr.

( at T.T Clean rate)

      FDBP A/C—————————————————–Cr.

      ncome A/C Profit on Exchange Trading—————Cr.

(Adjustment after realization of proceeds)

                     iii.            A FDBP Register is maintained for recording all the particulars.

Foreign documentary bills for collection (FDBC):

2. Bangladesh Krishi Bank forwards the documents for collection due to the following reasons,-

• If the documents have discrepancies.
• If the exporter is a new client.
• The banker is in doubt.

FDBC signifies that the exporter will receive payment only when the issuing bank gives payment. Bangladesh Krishi Bank make regular follow-up with the L/C opening Bank in case of any delay in getting payment.

The exporter submits duplicate EXP Form and Commercial Invoice. Subsequently, the value of the bill is calculated and the following accounting entries are given,

Head Office A/C—————————————————Dr. @ T.T Clean

            Client’s A/C——————————————————-Cr. @ OD sight

            Government Tax A/C————————–Cr. @ 0.10 % of Invoice value

            Postage A/C————————————————Cr.

            Income A/C profit on Exchange————————Cr.

After passing the above vouchers, an Inter Branch Exchange Trading Debit Advice is sent for debiting the NOSTRO account. An FDBC Register is maintained, where first entry is given when the documents are forwarded to the issuing bank for collection and the second one is done after realization of the proceeds.

In case of discrepancies of minor nature, Bank may negotiate the documents depending on their confidence on the customer against execution of the Letter of Indemnity.

Settlement of Local Bills:

The settlement of local bills is done in the following ways, –

1. The customer submits the L/C to BKB along with the documents to negotiate
2. Bangladesh Krishi Bank official scrutinizes the documents to ensure the conformity with the terms and conditions.
3. The documents are then forwarded to the L/C opening bank.
4. The L/C issuing bank gives the acceptance and forwards an acceptance letter.
5. Payment is given to the customer on either by collection basis or by purchasing the document.

Accounting treatment for purchase of local bills:

Local Bill Purchase  Documentary —————————————Dr.

            Party A/C—————————————————————————-Cr.

            Commission————————————————————————-Cr.

            Interest A/C————————————————————————–Cr.

A LBPD Register is maintained to record the acceptance of the issuing bank. Until the acceptance is obtained, the record is kept in a collection register.

MODE of payment of export bill under L/C:

As per UCP 500, 1993 revision there are four types of credit. These are as follows:

                  a.            Sight payment
                  b.            Deferred payment
                   c.            By acceptance
                  d.            Negotiation

a.      Sight Payment Credit:

In a Sight Payment Credit, the bank pays the stipulated sum immediately against the exporter’s presentation of the documents.

Deferred payment Credit:

In deferred payment, the bank agrees to pay on a specified future date or event, after presentation of the export documents. No bill of exchange is involved. In Krishi

Bank, payment is given to the party at the rate of D.A 60-90-120-180 as the case may be. But the Head office is paid at T.T clean rate. The difference between the two rates us the exchange trading for the branch.

Acceptance credit:

In acceptance credit, the exporter presents a bill of exchange payable to himself and drawn at the agreed tenor (that is, on a specified future date or event) on the bank that is to accept it. The bank signs its acceptance on the bill and returns it to the exporter. The exporter can then represent it for payment on maturity. Alternatively he can discount it in order to obtain immediate payment.

Negotiation Credit:

In Negotiation credit, the exporter has to present a bill of exchange payable to him in addition to other documents that the bank negotiates.

Advising L/C:

When export L/C is transmitted to the bank for advising, the bank sends an Advising Letter to the beneficiary depicting that L/C has been issued.

Test key arrangement:

Test key arrangement is a secret code maintained by the banks for the authentication for their telex messages. It is a systematic procedure by which a test number is given and the person to whom this number is given can easily authenticate the same test number by maintaining that same procedure. Krishi Bank has test key arrangements with so many banks for the authentication of L/C messages and for making payment.

BACK-to-back L/C:

A Back-to-Back mechanism involves two separate L/Cs. One is master Export L/C and another is Back-to-Back L/C. On the strength of Master Export L/C bank issues bank to Back L/C. Back-to-Back L/C is commonly known as Buying L/C. On the contrary, Master Export L/C is known as Selling L/C.

Classification of Back-to-Back L/C:

Back to back L/C can be divided into four categories. These are:

1. Local (04)
2. EDF(05)
3. EPZ foreign(12)
4. Foreign (06)

Features of back-to-back L/C:

1. -Is an Import L/C to procure goods /raw materials for further processing?
2. -Is opened based on Export L/C.
3. -Is a kind of Export Finance?
4. -Export L/C is at Sight but back to Back L/C is at Usance.
5. -No margin is required to open Back to back L/C

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

In Bangladesh Krishi Bank Principal Branch, following papers/ documents are required for opening a back-to-back L/C-

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

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

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

Checklist of exports L/C:

Following defective points are usually found in the Master L/C. So, the bank officials so much carefully check these points. These are:

1. Name of the Advising Bank.
2. Name of Transferring Bank
3. Form of Doc. credit:

• Name of Issuing Bank
• Documentary Credit No. and issuing date
• Date of shipment
• Expiry date and place

1. Applicant/ for order of/ On Account.
2. Beneficiary/ Favoring
3. Amount
4. Availability of Credit
5. Partial shipment/ Transshipment
6. Payment condition /Draft Sight
7.  Category.
8.  Description of goods:

• Item
• Total Qty
• Unit price

1.  B/L Clause
2.  Reimbursement clause.
3.  UCPDC Clause
4.  Net FOB value.

Payment under back-to-back L/C:

1. Payment at maturity out of exports proceeds.
2. In case of export failure or non-realization/short realization of export proceeds, forced loan i.e. OAP has to be created in order to settle the Back-to-Back L/C payment.

A simple mechanism of back-to-back L/C:

1. Buyer USA Ltd. instructs his bank to issue the Export L/C in favor of Bangladeshi Garments Ltd.
2. An USA bank issues the L/C and forwards the same to Bangladeshi Garments through a Bangladeshi bank.
3. Bangladeshi Garments Ltd. submits his Export L/C with a request to his bank, say Krishi Bank for lien of the Export L/C and to issue Back-to-Back L/C in favor of Taiwan Textile Ltd.
4. BKB issue Back-to-Back L/C and forwards the same to Taiwan Textile Ltd. through a Taiwanese bank.

Accounting Treatment for Back to Back L/C:

When the document is arrived, the following vouchers are passed,-

Customer’s A/C ————————————————–Dr.

            Commission on acceptance———————————–Cr.

While payment, if the fund is at hand, the accounting entries are,-

Sundry Deposit Margin on Acceptance———————Dr.

            Customer’s A/C ————————————————Cr.

If the party is paid in foreign currency, B.C. rate is applied in this regard. International Department takes the T.T. O.D. rate. If the payment is made to ID in local currency in notional rate, T.T. Clean Rate is followed by ID. When the party is be paid, OD Sight rate is followed.

If the fund is not available to make the payment, the following vouchers are to be passed,-

OAP ———————————————————————Dr.

            Customer’s A/C ——————————————————-Cr.

Reporting to Bangladesh Bank:

At the end of every month, the reporting regarding the following information is mandatory, –

1.       a.            Filling of E-2/P-2 schedule of S-1 category; which covers the entire month amount of import, category of goods, currency, country etc.

2. Filling of E-3/P-3 schedule for all charges, commission with T/M form.

Disposal of IMP form

• Original IMP is forwarded to Bangladesh Bank with invoice.
• Duplicate IMP is kept with the bank along with the bill of entry.
• Triplicate IMP is kept for office record.
• Quadruplicate is kept for Bangladesh Bank.

FOREIGN REMITTANCE SECTION:

Bangladesh Krishi Bank is an authorized dealer for dealings in foreign exchange business. As an authorized dealer, a bank must provide some services to the clients regarding foreign exchange and this department provides these services. The basic function of this department are outward and inward remittance of foreign exchange from one country to another country. In the process of providing this remittance service, it sells and buys foreign currency. The conversion of one currency into another takes place at an agreed rate of exchange, in where the banker quotes, one for buying and another for selling. In such transactions the foreign currencies are like any other commodities offered for sales and purchase, the cost (convention value) being paid by the buyer in home currency, the legal tender.

Workings of this department:

• Overall supervision of Foreign Remit. Dept.
• Foreign TT payment & Purchase of F. Drafts, preparations of F.B.P. (Foreign Bill Purchased).
• Issuance of outward TT & FDD.
• Issuance of proceed responding certificate (PRC).
• Foreign Collection, Bangladesh Bank Clearing Check Collection, which comes from all branch of Bangladesh Krishi Bank Limited.
• Withdrawal from F.C. A/C.
• Encashment of T.C. & Cash Dollar and Sterling Pound.
• Deduction of Tax and VAT. On behalf of Bangladesh Bank.
• Preparation of related statements including convertible Taka Accounts.
• Preparation of IBCA & IBDA and Balancing of Collection and other special assignment as desired by Department in charge.
• Balancing of Account Statements.
• Compliance of audit & inspection.
• Statement of all related works submitted to Bangladesh Bank.

Inward Foreign Remittance:

Inward remittance covers purchase of foreign currency in the form of foreign T.T., D.D, T.C. and bills etc. sent from abroad favoring a beneficiary in Bangladesh. Purchase of foreign exchange is to be reported to Exchange control Department of Bangladesh bank on Form-C.

Outward Foreign Remittance:

Outward remittance covers sales of foreign currency through issuing foreign T.T. Drafts, Travelers Check etc. as well as sell of foreign exchange under L/C and against import bills retired. Sale of foreign exchange is reported to Exchange control Department of Bangladesh Bank on form T/M.

Foreign exchange means foreign currency and includes all deposits, credits and balances payable in foreign currency as well as foreign currency instruments such as Drafts, T.C.s, bill of exchange, and Letters of Credit Payable in any Foreign Currency. All foreign exchange transactions in Bangladesh are subject to exchange control regulation of Bangladesh Bank.

Foreign Remittance Department deals with the following instruments:

Figure: Foreign Remittance Department

Accounting entries:

For T.T incoming:

Gen. A/C ——————————————————-Dr.

      Clients’ A/C ————————————————————- Cr.

For issuance of FDD:

Cash/customers’ A/C ———————————————-Dr.

      Gen. A/C ———————————————————Cr.

      Commission ————————————————————–Cr.

For outward T.T.:

Clients’ A/C ———————————————————– Dr.

      Gen. A/C ——————————————————– Cr.

      Commission ————————————————————- Cr.

Finding and Analysis of the Study:

BKB Bank is one the first time established bank in Bangladesh. BKB Bank has been suffering a few problems. Based on the setting objectives and discussion of the study, the findings of the study are given below:

•   Foreign Exchange need full automation and strong networking.
•   Modern technique equipment such computer is not sufficient in Foreign Exchange department.
•   Employees are exposed to customer excessively which is an obstacle in systematic and prompt service.
•   On line banking does not appear in all of the braches.
•   Lack of manpower in Foreign Exchange Department especially in export division of Shaymoli branch is a big problem. The manpower of that section is not sufficient for prompt services.
•   Lack of promotional initiatives to expand the Foreign Exchange business.
•   From the previous years it has been observing that frequently the currency of taka is devaluating and dollar currency is going very high. And devaluation of taka is hampering import business and other sectors too.
•  Government’s new regulations like as L/C margin has reduced the Foreign Exchange transaction.
•   Employees of that department should have fluency in their tasks, so that customer does not feel bored.

Recommendations:

• The bank should try to arrange more training programs for their officials. Quality training will help the officials to enrich them with more recent knowledge of International Trade Financing.
• Margin and commission on L/Cs varies from customer to customer. A few customers are allowed to open L/C even with nil margin and fees commission. I think the bank should review the customer transaction behavior for a period of time and should develop a certain policy in this regard.
• In case of L/Cs, sometimes customers insist on giving their payments though their documents are found discrepant. In some cases bank has to give payment to these customers for different reasons. But it lessens the credibility of the bank. I think the bank should be strict as possible about giving payment against discrepant documents without hurting the customers.
• In case of export L/Cs, the government encourages the exporters by giving different facilities like tax-cuts. I think the bank should also think about such type of facilities to be given to the Exporters because Bangladeshi Exporters like readymade garments exporters are going to face a tuff situation in coming years from the exporters of others countries.
•  In many cases, the foreign banks want confirmations from other foreign banks with which this bank has correspondence. This proves the poor financial condition of our country. Bank should try to improve this situation.
•  Over burden of work and ill defined assignment unable the employee to discharge their duties in cool manner. It also creates a hazardous situation in the work process. So all the employee should be assigned with proper and specific assignment.

Conclusion:

Commercial banking services to its customers. Foreign Exchange department this is a well established statement that practical situations always differ from theoretical explanation. During the three months internship program at Motijil Branch of Bangladesh Krishi Bank almost all the desks have been observed. I have found theory deviates from the practice more or less though three months are not enough time to find out all the discrepancy between theory and practice. Among all experiences some noticeable observations are described below:

The officers were mostly courteous, friendly in nature and eager to help despite the tremendous workload. Employees were very eager to know about the BBA program.

As a Public Commercial Bank is trying it’s best to extend their service to the private. A very working environment was remaining in the Bangladesh Krishi Bank, Motijil Branch. During the internship, it is found that the Motijil Branch provides all kinds of rendering all the services related to international trade and remittance. General banking is engaged in cash receipt and payment, cheque clearing, local remittance etc.

Foreign Exchange, and Credit department of Bangladesh Krishi Bank which help me a lot to be a professional banker in future.

Out of the above discussion a conclusion can be drawn after saying that, the present customer dealing procedure is quite well at this moment. The computerized transaction makes the system efficient and effective.