Report on Banking System Practices in Dhaka Bank Bangladesh (Part-1)

Introduction    

Internship is the practical working attachment with an organization to have a handy working experience. This working experience is the effective tool to correlate the theoretical knowledge with the pragmatic approach. For this reason internship is a handy tool for a business graduates. As an intern in Dhaka Bank Limited it was an immense scope for me to have an in-depth idea about the banking industry.

The importance of financial intermediaries in the development of the overall economy of country cannot be described in short. From the inception of the civilization the banking sector dominate the economic development of a country by mobilizing the saving from the general people and channeling those saving for investment and thus economic development and growth. With the emergence of banking sector in Bangladesh govt. has also come through different activities to reform and revitalize the sector.

This report is an Internship Report prepared as a requirement for the completion of the BBA Program at Primeasia University. The primary goal of internship is to provide the job exposure to the student and an opportunity to implement theoretical knowledge in real life situation. The program covers a period of 3 months.

Origin of the report

As part of the Internship Program of School of Business course requirement, I was assigned for doing my internship in Dhaka Bank Limited for the period of 3 months starting from April 15, 2010 to July 14, 2010 as an intern. During my intern period in the Dhaka Bank Limited, Bangshal Branch, I worked under all three major departments of the bank. My project was An Overall Banking Practice of Dhaka Bank Ltd, which was assigned by my internship supervisor Taslima Julia Faculty School of Business at Primeasia University.

Objective of the Report

The main objective of education is to acquire knowledge. To acquired knowledge ultimately we must do some practical application in addition to theoretical knowledge. Through this report, I tried my level best to present my practical knowledge as well as to find out-

General:

•        To observe the general banking and advance operation of DBL, and their services.
•        To get an overall practical knowledge concerning banking activities as a financial institution.
•        How a bank operates their activities in different areas being a single organization.
•        What a bank is doing for Bangladesh to develop national economy.

Specific:

•        Presentation of an introduction to the organization- Dhaka Bank Limited as a whole.
•        To get overall idea about the credit and general banking of DBL.
•        To recommend necessary steps to overcome such problems faced by the DBL.
•        To identify the major areas of inefficiency.

Methodology of the Study       

How close to the issue-under-study can a researcher reach depends to a great extent, on how methodically he/she can approach the issue. Although necessity of issuing data and information has been the prime determinant of the quality, accuracy and worthiness of a research project, in these days of abundant availability of data and information this necessity has only been acute, methodology is the pathfinder of working out a good research paper.

For the implementation of the study I have worked on “Dhaka Bank Limited”.

In order to make the Report more meaningful and presentable, two sources of data and information have been used widely.

The “Primary Sources” are as follows-

Face-to-face conversation with the respective Executives & Officers of the Bank.

•        Informal conversation with the clients.
•        Practical work exposures form the different desks of the various departments of the Branch covered.
•        Relevant file study as provided by the officers concerned.

The “Secondary Sources” of data and information are-

•        Annual Reports of Dhaka Bank Limited.
•        Periodicals published by Bangladesh Bank.

       Various books, articles, compilations etc. Regarding general banking functions, foreign exchange operations and credit policies.

       After collection of data, a list of table was prepared on the basis of aims and objectives of the study and processing, editing and coding of the data were done simultaneously. The tabulated data were then analyzed and condensed to obtain the result / objective.

Limitation of the Study

The present study was not out of limitations. But as intern it was a great opportunity for me to know the banking activities in Bangladesh especially of Dhaka Bank Ltd. Some constraints are appended bellow:

      Lack of Information or Data: Adequate and in-depth well-organized information is not available for access. Though the officials tried to assist, sometimes their working pressure couldn’t give me proper assistance what I needed. There is some information which need special permission from top level is not always achievable.

      Time Constraint: It is something like impossible to cover the entire Overall Banking Performance and  performance phenomena exploiting a three month time period while an employee or an officer is awarded with one or two year probationary period to do his or her particular job.

      Secrecy of Information: Some of the information needed to explore the current market scenario of the company was not disclosed.

      Comparison Status: I have had no opportunity to compare the foreign exchange banking system of the Dhaka Bank Limited with that of other contemporary and common size banks. I had compared the banks that information is available. It was mainly because of the shortage of time and internship nature.

      Lack of Experience: Though I have prepared many reports before, I had no experience of internship. So inexperience is one of the main constraints of the study.

AN OVERVIEW OF DHAKA BANL LIMITED (DBL)

Dhaka Bank Limited is the leading private sector bank in Bangladesh offering full range of Personal, Corporate, International Trade, Foreign Exchange, Lease Finance and Capital Market Services. Dhaka Bank Limited is the preferred choice in banking for friendly and personalized services, cutting edge technology, tailored solutions for business needs, global reach in trade and commerce and high yield on investments, assuring Excellence in Banking Services.

Background of Dhaka Bank Limited

Dhaka Bank Limited is a scheduled bank that was incorporated under the Companies Act 1994, started its operation on July 1995 with a target to play the vital role on the socio-economic development of the country. Aiming at offering commercial banking service to the customers’ door around the country. This organization achieved customers’ confidence immediately after its establishment. Within this time the bank has been successful in positioning itself as progressive and dynamic financial institution in the country. This is now widely acclaimed by the business community, from small entrepreneur to big merchant and conglomerates, including top rated corporate and foreign investors, for modern and innovative ideas and financial solution.

Corporate Information

Name of the Bank: Dhaka Bank Limited

Status: Public Limited Company

Date of Incorporation: April 06, 1995

Date of Commencement: July 05, 1995

Registered Office: Biman Bhaban (1^st Floor) 100 Motijheel C/A,

Dhaka-1000 Bangladesh

Telephone: 9554514

Telex: 9556584, 9571013, 9565011

Swift Code: DHBLBDDH

E-mail: info@dhakabank.com.bd

Web Page: www.dhakabankltd.com

Chairman: Mr. Reshadur Rahman

Managing Director: Khondker Fazle Rashid

Mission

To be the premier financial institution in the country providing high quality products and services backed by latest technology and a team of highly motivated personnel to deliver Excellence in Banking.

Vision

At Dhaka Bank Limited we draw our inspiration from the distant stars. Our team is committed to assure a standard that makes every banking transaction a pleasurable experience. Our endeavor is to offer you the razor sharp sparkle through accuracy, reliability, timely delivery, cutting edge technology, tailored solutions for business needs, global reach in trade and commerce and high yield on your investments.

Our people, products and processes are aligned to meet the demand of our discerning customer. Our goal is to achieve a distinction like the luminaries in the skies. Our prime objective is to deliver a quality that demonstrates a true reflection of our vision – Excellence in Banking.

Objectives

•        Be one of the best banks of Bangladesh.
•       Achieve excellence in customer service next to none and superior to all competitors.
•        Cater to all differentiated segments of Retail and Wholesale Customers.
•        Be a high quality distributor of product and services.
•        Use state-of the art technology in all spheres of banking.

Values

•       Customer Focus
•       Integrity
•       Team Work
•       Respect for Individual
•       Quality
•       Responsible Citizenship

Branches

As on June 2009 the Bank serves it’s customers through 50 (Fifty) branches spread all over the country.

 Employee

As on June 2009 the Bank has 924 employees spread all over the country.

 Management Information System

Since its journey as a Commercial Bank in 1995 Dhaka Bank Limited (DBL) has been laying great emphasis on the use of improved Technology. It has gone to Online Operation System since 2003 when two new banking software namely FLEXCUBE & DBCUBE was installed. As a result the Bank is able to give the services of international standards. The bank has launched its Corporate Portal (Intranet), which was initiated by IT/BPR with the primary goal to provide comprehensive and collaborative content management, paperless communication and information management, and to provide a gateway to the web application across the enterprise within one integrated platform, instead of relying of separate fragmented systems. Dhaka Bank Limited invested Tk. 50 crore to install the software and to establish separate IT division.

 SHAREHOLDING STRUCTURE

As a public limited company it is listed in both of the stock exchanges of the country. The total number of shareholders as on 31/12/2009 was 10,530.

 Correspondent Relationship

The Bank established correspondent relationships with a number of foreign banks, namely American Express Bank, Bank of Tokyo, Standard Chartered bank, Mashreq Bank, Hong Kong Shanghai Banking Corporation, CITI Bank NA-New York and AB Bank Ltd. The Bank is maintaining foreign exchange accounts in New York, Tokyo, Calcutta, and London. The bank has set up letter of credit on behalf of its valued customers using its correspondents as advising and reimbursing Banks. The Bank maintains a need based correspondent relationship policy, which is gradually expanding. The number of Foreign Correspondents is 406 till date.

Departments of DBL

If the jobs are not organized considering their interrelationship and are not allocated in a particular department it would be very difficult to control the system effectively. If the departmentation are not fitted for the particular works there would be haphazard situation and the performance of a particular department would not be measured. Dhaka Bank Limited has does this work very well. Different departments of DBL are as follows:

•       Credit Division
•        Treasury Division
•       Financial and Accounts Division
•        Operators Division
•        Central Accounts Division
•       Personal Banking Division
•        Investment Division
•       Information Technology Division
•        Human Resources Division
•        Audit & Risk Management Division
•        Foreign Exchange Division
•        Dhaka Bank Training Institute

 Product and Services

The product and services that are currently available are given below:
Depository Product

Dhaka Bank Limited is now offering different types product for mobilizing the savings of the general people.

      Saving Deposit

      Current Deposit

      Fixed Deposit

      DPS (Deposit Pension Scheme)

      Special Deposit Scheme (Monthly income)

      Deposit Double Scheme

      Excel account (OD-cum-Savings Account)

      Smart Plant

      STD Account

      Foreign Currency Deposit Account

      NFCD Non Resident Foreign Currency Account 

Interest Rate Paid to Different Deposit Liabilities

Above rates will be also applicable for Islami banking branches. Mudaraba Saving’s rate for Banks in Islami Banking Branches is now @ 6.50% and for Customers @ 6.00%.  Savings account @ 6.00%. STD account upto Tk. 5.00 Crores @ 6.00% and above Tk. 5 Crores @ 7%.

In 2009, Retail Banking Division will introduce VISA Credit and Debit Cards. Emphasis will also be given on liability products, which ensures mobilization of funds. Considerable growth has been achieved in both Asset and Liability products during 2009.

The Division has always been focusing on maintaining a quality asset portfolio, which ensures growth as well as good return. The Retail Banking Division ensures quick disbursement of loans in line with market competitiveness.

Loan Product

The Dhaka bank is offering the following loan and advance product to the client for financing different purpose that fulfill the requirements of the bank and have good return to the investment as well as satisfy the client. The loan and advance products are:

      Personal Loan Scheme

      Lease Finance

      Term Loan
Small & Medium Enterprise loan

      Working Capital Financing

      Import Financing

      Export Financing

      Syndicate Loan

      Industrial Financing

 Personal Banking Products

      ATM Card Service

      Credit Card Service

      Excel Account for Executives

SWOT Analysis of Dhaka Bank Limited

STRENGTH

• Better customer relation specially with the Small and Medium Entrepreneurs
• Better customer relation specially with the Small and Medium Entrepreneurs
• Short time requirements of in loan application processing and approval.
• Authority granted to the branch manager to avail excess limit to a client in sudden need.
• A very well organized Credit Unit.
• Correspondence with most of the countries of the world.
• Quick understanding of customer needs
• Efficient and effective means of determining value of the client’s properties
• Capability of doing online banking, internet banking and SMS banking
• Strong procedure in selection of new borrow
• Clearly defined measure in dealing with foreign exchange transaction.

WEAKNESSES

• High cost of fund
• Lack of sufficient field officer to sell different  products of the bank
• High interest charged
• Security and collateral requirement while disbursing the  loans
• Fishery, poultry, dairy and agricultural sector which are largest business sectors of the country are left out of the target market for loans and advances
• Lack of strong recovery team.
• More dependency rests on government sources for deposit mobilization.
• The techniques specified for credit appraisal is not sufficient

OPPORTUNITIES

• Rising of new business venture and prospective entrepreneurs
• Bank’s attractiveness and goodwill in the current market.
• Collection of huge foreign remittance from expatriate Bangladeshis.
• Bank’s business expansion to prospective remote areas.
• Government positive attitude towards low classification.

THREATS

• Increased competition imparted new market participants in the banking industry
• Newer banks with diversity and flexibility to charge variable interest rates to different loan applicants
• Banks with source of low cost fund are getting much better position in SME financing
• Govt. regulations over banking industry.

General Banking

General Banking

General banking is the front-side banking service department. It provides those customers who come frequently and those customers who come one time in banking for enjoying ancillary services. The officers of this department have to perform several kinds of tasks. These are as follows:

1)      Account opening and close.

2)      Collection of cash, cheques from customers.

3)      Issuing of FDR, pay orders, cheque books and demand draft.

4)      Assisting customer to open various deposit scheme.

5)      Conducting clearing house activities.

6)      Collection of local and outward bills.

DBL General banking is divided into five sections

1)      Account opening section.

2)      Bills and clearing section.

3)      Remittance section.

4)      Deposit section.

5)      Cash section.

Account Opening Section

Under this section, DBL Officer opens different types of accounts on the request of clients. The procedure of opening account is given below.

Procedure for Opening of Accounts

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

1. Application on the prescribed form
2. Furnishing photographs
3. Introduction by an account holder
4. Putting specimen signatures in the specimen card
5. Mandate if necessary
6. National ID Card

After fulfilling the above formalities, DBL provides the customer a pay-in-slip book and a checkbook.

Application Form for Current/ Savings Account      

Followings are the contents of the application form for opening Savings or Current account in DBL-

1. Type of the Account: Individual/ Joint/ Proprietorship/ Partnership/ Limited Company/ Club/ Society/ Co-operatives
2. Name of the Applicant(s)
3. Father’s/ husband’s Name
4. Present Address
5. Permanent Address
6. Number, Date of issue, Date of Expiry & Place of Issue of Passport (if any)
7. Date of Birth
8. Nationality
9. Occupation
10. Nominee (s)
11. Special Instruction of Operation of the Account (if any)
12. Initial Deposit
13. Specimen Signature (s) of the Applicant (s)
14. Introducer’s Information (Name, Account Number, Specimen Signature)

In case of Join Account

a)    Operation instruction of the account

b)    Signature (s)

In case of Partnership Account

a)      Partner’s Signature

b)      Partner’s Name ——-

The following formality along with the documents is to be completed before opening an account:

a)      Two copies of photograph of the Applicant duly attested by the Introducer.

b)      Two copies of photograph of the Nominee duly attested by the Applicant.

c)      Passport No/ Voter Id No / National Id No/ TIN No/ VAT Reg. No/ Driving License No.

d)     Introducer’s signature on Account Opening Form to be verified by an officer under full signature.

e)      Work permits license no.

In case of joint account, operational instructions are to be signed by the Join Account Holders.

In case of Club/ Society

a)      Up to date list of office bearers.

b)      Certified copy of Resolution for opening and operation of account.

c)      Certified copy of By-laws & Regulations/ Constitution.

d)     Copy of Government approval (if registered.)

In case of Co-operative Society/ societies Limited

a)      Copy of By-laws duly certified by the Co-operative officer.

b)      Up to date list of office bearers.

c)      Resolution of the Executive Committee as regards of the account.

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

In case of Non- Government College/School/ Madrasha/ Muktab

a)      Up to date list of the Governing Body/ Managing committee.

b)      Copy of resolution of the Governing Body/ Managing Committee.

In case of Trustee Board

Prior approval of Head Office of the Bank.

a)      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.

In case of Limited Company

a)      Certified true copy of the Memorandum & Articles of Association of the company.

b)      Certificate of Incorporation of the company for inspection and return with a duly certified photocopy for bank’s records.

c)      Certificate from the Registrar of the Joint Stock Companies that the company is entitled to commence business (in case of Public limited Co. for inspection and return) along with a duly certified photocopy for Bank’s records.

d)     Latest copy of Balance Sheet.

e)      Extract of Resolution of the Board. General Meeting of the company for opening the account and authorization for its operation duly certified by the Chairman/ Managing Director of the company.

f)       List of Directors with address (a latest photocopy of the form-xii).

g)      Authorized signature.

h)      Name.

GENERAL CONDITIONS OF GOVERNING CURRENT / SAVINGS ACCOUNT

(a)                Minimum Balance to be maintained in current account Tk.5,000 /- and in Savings account Tk. 500/- .

(b)               A suitable instruction by an introducer acceptable to the Bank is required prior to opening an account.

(c)                Recent photographs of the Account openers duly attested by the Introducer must be produced.

(d)               Recent photographs of the nominee duly attested by the account opener.

Deposits Accepted By DBL

DEPOSITS THAT ARE TAKEN BY DBL ARE

(a)                Current Deposit

(b)               Saving Deposit.

(c)                Fixed deposit Receipts (FDR).

(d)               Short Term Deposit (STD).

(e)                Bearer Certificate Deposit (BCD).

(f)                Deposit Pension Scheme (DPS).

Theoretically, total deposits are divided into categories on the basis of withdrawal procedure. Time deposit & demand deposit. In case of demand deposit money is withdrawn on demand. It includes current deposit & saving deposit. On the other hand, a deposit which is payable at a fixed date or after a period of notice is a time deposit; DBL accepts time deposit, for example, FDR. Short Term Deposit (STD) is hybrid A/C in which the features of current and saving account exist. 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 saving deposit. In DBL, various big companies, Organizations, government departments keep money in STD accounts. Frequent withdrawal is discouraged and requires prior notice.

Interest rate for STD Account – 4.00% (Half years compounding). In DBL, usually customers give an instruction 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 —————Debit.

Customer’s STD A/C ——————Credit.

BEARER CERTIFICATE OF DEPOSIT (BCD)

The objective of BCD is to convert black money into white and to reduce Hundi business. 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, any person who bears the BCD receipt can encash it. Another difference of BCD with FDR is that the customer deposits the money deducting the interest. At the maturity he withdraws the total money for which he opened the BCD account.

INTERESTS RATE ON BCD ACCOUNT IS SAME AS FIXED DEPOSIT ACCOUNT

For 3 months @ 8.00%

For 6 months @ 8.24%

For 1 Year or above @ 8.5%

ACCOUNTING TREATMENT IN CASE OF ISSUING OF BCD

Cash A/c Debit.

BCD A/c Credit.

ACCOUNTING TREATMENT IN CASE OF ENCASHMENT OF BCD

BCD A/c ………………………….Dr.

Excise Duty on Deposit ……..Cr.

Tax on Interest ………………….Cr.

Cash A/C ………………………….Cr.

In a very recent circular of the central Bank i.e. Bangladesh Bank directed all commercial bank’s not to open any BCD Account due to preventive measures and protection of Money Laundering.

BILLS AND CLEARING SECTION

There are two types of cheque which are-

1. Inward Clearing Cheque
2. Outward Clearing Cheque.

INWARD CHEQUES

Inward cheques are those ones drawn the respective branch which have been presented on other banks and will be cleared / honored through the clearing house of Bangladesh Bank. For example the cheques drawn on DBL Bangshal Br. Then the cheque is called inward cheques of DBL Bangshal Br. Accounting treatment:

                                              Customer’s A/C Debit.

                                              DBL General A/C Credit.

OUTWARD CHEQUES

Outward cheques are those ones drawn on other bank branches which are presented on the concerned branch for collection through clearing house of Bangladesh Bank. These cheques are called outward cheques. For example, the cheques drawn on Mercantile Bank Ltd, Kawran Bazar Branch has been presented on DBL Bangshal Branch. This cheque is called the outward cheques of DBL Bangshal Branch. Hence it is said that the cheques which is the inward cheques of one bank is the outward cheques of another bank.

Whenever a cheque is brought to the collection the concerned Officer does two functions:-

 i.      Giving the special crossing with “Dhaka Bank Ltd Bangshal Branch Dhaka”

 ii.    Endorsed by the collecting bank.

The following table is showing endorsement of instrument in DBL;

ENDORSEMENT   

Payee’s A/C credited pay to Mr. XXXXX

Received payment

Payee’s A/C credited Pay to DBL. Mr., XXXXXX

Payee’s A/C credited pays Mr. XXXX of DBL

Payee’s A/C will be credited on realization Bills for Collection

OUTWARD BILLS FOR COLLECTION (OBC)

By OBC, we mean that those cheques drawn on other banks which are not within the same clearing house. Officer gives OBC seal on this type of cheques and later sends a letter to the manager of the branch of the same bank located in the branch on which cheques has been drawn. After collection of that bill branch advises the concerned branch in which cheques has  been presented  to credit the customer account through Inter Branch Credit Advice (IBCA).

In absence of the branch of the same bank, officer sends letter to manager of the bank on which the cheques is drawn. That bank will send pay order in the name of the branch. This is the procedure of OBC mechanism.

CLEARING

The scheduled banks clear the cheques drawn upon one another through the clearinghouse of Bangladesh Bank. DBL is a scheduled Bank. According to the Article 37 (2) of Bangladesh Bank Order, 1972, the banks which are the member of the clearinghouse are called as Scheduled Banks. This is an arrangement by the central bank where everyday the representative of the member banks gathers to clear the cheques. The place where the banks meet and settle their dues is called the clearinghouse. The clearinghouse sits for two times a working day.

The DBL Bangshal Branch. sends the instruments through Inter Branch Debit Advice (I.B.D.A). DBL Bangshal Branch. acts as an agent in this case. For this, Bangshal Branch gives the following entries,

DBL General A/C (Bangshal Br.) —————Dr.

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

If the instrument is dishonored, the instrument is returned to the Bangshal Branch through I.B.D.A. along with the following entries,

Customer’s A/C————————————-Dr.

                                 DBL General A/C————————————Cr.

RECEIVING CHEQUES FOR COLLECTION

In DBL, cheques of its customers are received for collection from other banks. In case of receiving cheques, following points should be checked very carefully-

a)       The cheques should not carry a date older than the receiving date for more than 6 months. In that case it will be a ‘stale cheque’ and it will not be allowed for collection. Again the date of the cheque should not be more than 1 day’s forward than the receiving date.

b)      The amount in figures and words in both sides of the pay-in-slip should be same and it should also be same with the amount mentioned in figures and words in the cheque.

c)       The name mentioned in the cheque should be same in both sides of the pay-in-slip and it should be the same with the name mentioned in the cheque.

d)      The cheque must be crossed.

CHEQUES AND CROSSING

A “Cheques” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. [According to section-6, negotiable Instrument Act, 1881.]

A cheque may be classified into:

a)      An open cheque which can be presented for payment by the holder at the counter of the drawer’s bank.

b)      A crossed cheque which can be paid only through a collecting banker.

Crossing Cheque: A cheque is said to be crossed when two transverse parallel lines with or without any words are drawn across the face. Crossing may be general, special or restrictive.

ISSUING CHEQUE BOOK

Following procedures are maintained by DBL, Bangshal Branch for issuing Cheque Book.

(a)     Firstly the customer will fill up the cheque requisition form.

(b)    The leaves of the Cheque Book under issue are counted to ensure that all the leaves and the blank requisition slip are in tact.

(c)     The officer writes A/C number and Branch name on all the leaves of the checkbook.

(d)    The name and the A/C number of the customer are than entered  in the checkbook register against the particular checkbook series.

(e)     Then the officer sightseer, checkbook, and requisition slip.

(f)     Lastly the checkbook is handed over to the customer after taking acknowledgement on requisition slip.

A cover file containing the requisition slip is effectively preserved as vouchers. If any defect is noticed by the ledger keeper, he makes a remark to that effect on the requisition slip and forward it to the cancellation officer to decide whether a new checkbook to be issued to the customer or not.

REMITTANCE OF FUNDS

Remittance of funds means transfer of money from one place to another through the banking channel. Remittance of funds is ancillary services of DBL like other commercial banks. It aids to remit fund from one place to another place on behalf of its customers as well as non- customers of bank. DBL has its branches in the major cities of the country and therefore, it serves as one of the best mediums for remittance of funds from one place to another.

The main instruments used by DBL, Bangshal Branch for remittance of funds.

                                  -Pay Order/ Banker’s check.

                                  -Demand Draft.

                                  -Telegraphic Transfer.

BANK’S CHEQUE/ PAY ORDER

The Pay-Order is an instrument issued by bank, instructing itself a certain amount of money mentioned in the instrument taking amount of money and commission when it is presented in bank. Only the branch of the bank that has issued it will make the payment of pay order. The banker’s cheque must come to the branch for payment wherever it is presented.

ISSUING OF PAY ORDER

The procedures for issuing a Pay Order are as follows:

1. Deposit money by the customer along with application form.
2. Give necessary entry in the bills payable (Pay Order) register where payee’s name, date, PO no, etc is mentioned.
3. Prepared the instrument.
4. After scrutinizing and approval of the instrument by the authority, it is delivered to customer. Signature of customer is taken on the counterpart.

A customer can purchase PO in different modes:

1. By cash: Currently it is not permitted by the DBL, Head Office.
2. By account:
3. By transfer:

PO A/C is the current liabilities of bank, which is acquired to be discharged by beneficiaries against cash or through an account.

                                  Bills Payable (PO)……………Dr.

                                    Customer A/C………………Cr.

BANK DRAFT/DEMAND DRAFT

A  DD is an order to pay money drawn by one office / branch of the bank upon other office/branch to the same bank for a sum of money payable to order on demand.

ISSUANCE OF DEMAND DRAFT

• Application in prescribed form (Cr. Voucher)
• Cash deposit/ account debit (with comm./ VAT/ Tel charges
• Draft preparation
• Entry into DD issuing register
• Insert the serial number beside printed number in the DD block
• Write printed and serial number of DD on the application form
• Punched the amount on DD with protect graph
• Apply test no. if applicable
• Check and sign by two authorized (PA holder) officer
• Crossed/ open as per desire of the customer
• Handover to customer after due acknowledgement
• Issue a cost memo (if customer desire)
• Send telegram (if applicable)
• Prepare credit advice favoring paying branch (drawee) and send it in time.

ACCOUNTING PROCEDURES FOR DD

(a) DURING ISSUANCE OF DD

Dr. Customer A/C or Cash

Cr. HO A/C paying Br.

Cr. Income A/C DD commission

Cr. Suspense A/C VAT

(b) DURING PAYMENT OF DD

Dr. HO (IBTA), A/C; Issuing Br. (Responding entry)

Dr. B/P DD Payable A/C

S/D A/C DD paid W/A

           Cr. Customer A/C or Cash

MAIL TRANSFER (MT) OR TELEGRAPHIC TRANSFER (TT)

Mail transfer system is an arrangement by the banks to remit funds of the customers from one place to another through ordinary postal channel.  Banks instruct their concerned branch to pay a certain amount to a specified person or to his order.

TELEGRAPHIC/TELEX TRANSFER (TT)

Sometimes people are in urgent need of remitting money from one place to another. In such cases, they prefer to remit money through Telegraphic / Telex Transfer (TT). It is an internal arrangement by the banks to remit funds through telex messages instead of postal message. The TT application form has to be duly filled in and signed by the applicant.  After receipt of cash or after passing necessary transfer entries usual acknowledgement on standard cost memo is issued to the applicant and actions are taken for issuance of TT.

ISSUING OF TT

DBL follows the following procedures

i)                    The customer deposits money with DBL to be sent.

ii)                  The customer obtains a cash memo containing TT serial number.

iii)                TT serial number, notifying part name is mentioned in the telex message.

iv)                The Telex Department confirms transmission of the telex.

ACCOUNTING ENTRIES FOR TT

Cash A/C/ Client’s A/C —————————Dr.

    DBL General A/C (Bangshal Branch)————–Cr.

PROCEDURES FOR THE INCOMING TT

After receiving the telex, it is authenticated by test. TT Serial number is verified by the “TT in-Concern branch” register. The following entries are given in the vouchers,-

DBL General A/C (Bangshal Br.)—————Dr.

Client’s A/C——————————————Cr.

Tk. 50/= is taken as postal charge. The minimum commission is Tk. 50/= or o.15% of the amount whichever is higher.

FIXED DEPOSIT

Fixed deposit is one, which is repayable after the expiry of a predetermined period fixed by him. The period varies form 3 months to 1 year. These deposits are not repayable on demand but they are withdrawable subject to a period of notice. Hence, it is a popularly known as ‘Time Deposit’ or ‘Time Liabilities”. Normally the money on a fixed deposit is not repayable before the expiry of a fixed period.

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)            Instructions:

         – To be renewed automatically with interest for the next period.

         – Not to be renewed for next period.

         – Pay interest to account no. (——-) on maturity

h)            Special instruction

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

j)              Signature (s)

k)            F.D.R. no.

Then a FDR account is opened and it is recorded in the FDR Register which contains the following information,-

a)                  FDR A/C no.

b)                  FDR (Fixed Deposit Receipt) no.

c)                  Name of the FDR Holder with address

d)                 Maturity period

e)                  Maturity date

f)                   Interest rate

In case of Fixed Deposit Account the Bank needs to maintain a cash reserve. So DBL offers a high interest rate in Fixed Deposit accounts. The Interest rates followed by DBL in Fixed Deposit accounts are,-

                            Table 01: Interest rate for FDR

But in a very exception case this rate of interest is flexible case to case basis. This rate is the Bank’s internal policy not controlled by the Central Bank.

The FDR becomes renewed automatically in DBL if the customer does not encash it within 7 days of maturity. In case of encashment of F.D.R in maturity, following accounting treatments are given:

                              Excise Duty on FDR——————–Dr.

Income Tax on interest —————–Dr.

FDR A/C———————————-Dr.

Cash A/C———————————-Cr.

Interest on FDR A/C——————–Cr

If the customer wants to draw the interest only, then following entries are given-

                                 Interest on FDR A/C——————–Dr.

                                 Cash A/C———————————-Cr.

In case of ‘before maturity enactment’ interest is calculated for the days from the date of opening the FDR account in a Saving A/C. rate of interest.

CASH SECTION

The cash section of any branch plays very significant role in general banking department because, it deals with most liquid assets. The DBL Bangshal Br. has an equipped cash section with modern electronic machinery with fully computerized environment and gives one stop counter service. This section receives cash from depositors and pay cash against cheques, draft, PO, and pay in slip over the counter.

RECEIVING CASH

Any people who want to deposit money will fill up the deposit slip and give the form along with the money to the cash officer over the counter. The cash officer counts the cash and compares with the figure written in the deposit slip. Then he put his signature on the slip along with the ‘cash received’ seal and records in the cash receive register in the computer against A/C number.

At the end of the procedure, the cash officer passes the deposit slip to the counter section for posting purpose and delivers duplicate slip to the clients.

ACCOUNT TREATMENT

     Table 02: Account Treatment

DISBURSHING CASH

The customer who wants to receive money against cheque comes to the payment counter and presents his cheque to the officer. He verifies the following information-

a)      Date of the cheque

b)      Signature of the A/C holder

c)      Material alteration

d)     Whether the cheque is crossed or not

e)      Whether the cheque is endorsed or not

f)       Whether there is any difference between the amount in figure and in word.

Then he checks the cheque from computer for further verification. Here the following information is checked;

1)      Whether there is sufficient balance or not

2)      Whether there is stop payment instruction or not

3)      Whether there is any legal obstruction (Garnishee Order) or not

After checking everything, if all are in order the cash officer gives amount to the hold and records in the paid register.

ACCOUNT TREATMENT

The cash section of DBL 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. The vault is insured up to Tk.01 (one) Crore. If the cash stock goes beyond this limit, the excess cash is then transferred to Bangladesh Bank. When the excess cash  is transferred to DBL Bangladesh Bank, the cash officer issues IBDA.

ACCOUNT TREATMENT

When cash is brought from DBL Head Office.

ACCOUNT TREATMENT

LOCKER SERVICE

DBL is providing facility of locker service for the purpose of safeguarding 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 locker provided by bank.

CLOSING OF AN ACCOUNT

 For two reasons, one can be closed. One is by banker and other is by the customer.

By banker: If any customer doesn’t maintain any transaction within six years and the A/C balance becomes lower than the minimum balance, banker has the right to close an A/C.

By customer: If the customer wants to close his A/C, he writes an application to the manager urging him to close his A/C.

Different procedures are followed in cash of different types of A/C to close. Fixed deposit A/C is closed after the termination of the period. BCD A/C is closed when the certificate is surrendered.

CLOSING PROCESS FOR CURRENT & SAVINGS A/C

1. After receiving customer’s application the officer verifies the balance of the A/C.
2. He then calculates interest and other charges accumulated on the A/C.
3. If it bears a credit balance, the officer writes advice voucher. He gives necessary accounting entries post to accounts section.
4. The balance is returned to the customer. And lastly the A/C is closed.

But in practice, normally the customers don’t close A/C willingly. At times, customers don’t maintain any transaction for long time. Is this situation at first, the A/C becomes dormant and ultimately it is closed by the bank.

EXTRACT

Extract is a statement of all originating and responding transactions among inter –branches through inter branches debit and credit advice. At the end of the day, all the debit and credit advices of different department come to accounts  department. It makes extract in light of all advices.

Actually extract shows the balance of DBL Bangshal Br. General A/C. The objective of preparing it is to know how many transactions have been originated and responded by the respective branch per day. Branch has to send it its Head Office keeping one photocopy.

DEBIT VOUCHER

For making cash payment like entertainment, conveyance, and account department writes a debit voucher. Amount is withdrawn through cash section by presenting debit voucher.

STATEMENT OF AFFAIRS

Accounts section prepares the statement of affairs for finding the profit /loss as well as amount of assets and liabilities of concerned branch per day. Theoretically, it is called financial statement and has two parts:

“Income and Expenditure A/C.

“Statement of assets & liabilities.

AMORTIZATION AND DEPRICIATION

Amortization is the allocation of the cost of an intangible asset to expense. For example; prepaid expenditure, prepaid insurance and goodwill etc. Amortization schedule is determined by the decision of management.

Depreciation is a process of cost allocation of assets not a process assets valuation.

a)                  Fixed Assets have been show at cost less accumulated Depreciation.

b)                  Depreciation has been charged on straight-line method at the following rate on cost of assets for the full year irrespective of their date of purchase.

                           Table 03:  Rate of interest of particular assets

FUNCTIONS PROVIDED BY ACCOUNTS DEPARTMENT

Like all other Banks, in DBL Accounts Department is regarded as the nerve Center of the bank. In banking business, transactions are done every day and these transactions are to be recorded properly and systematically as the banks deal with the depositors’ money. Any deviation in proper recording may hamper public confidence and the bank has to suffer a lot otherwise. Improper recording of transactions will lead to the mismatch in the debit side and in the credit side. To avoid these mishaps, the bank provides a separate department whose function is to check the mistakes in passing vouchers or wrong entries or fraud or forgery. This department is called as Accounts Department.

Besides the above, the Bank has to prepare some internal statements as well as some statutory statements which are to be submitted to the central bank. Accounts Department prepares these statements also. The department has to submit some statements to the Head Office, which is also consolidated by the Head Office later on.

The tasks of the Accounts Department of DBL Bangshal Br. may be seen in two different angles:

1. Daily Tasks.
2. Periodical Tasks. 

Loans Advances

Credit

Credit may be defined broadly or narrowly. Broadly, credit is finance made available by one party (lender, shareholder / owner) to another (borrower buyer, corporate or non-corporate firm). Narrowly, credit is simply the opposite of debt. Debt is the obligation to make future payments. Credit is the claim to receive those payments.

The word credit comes from the Latin word “Credo” meaning “I believe”. It is a lender’s trust in a person’s/ firm’s/ or company’s ability or potential ability and intention to repay. In other words, credit is the ability to command goods or services of another in return for promise to pay such goods or services at some specified time in the future. For a bank, it is the main source of profit and on the other hand, the wrong use of credit would bring disaster not only for the bank but also for the economy as a whole.

Simply ‘credit is a promise of future payment in kind or in money given in exchange for present money, goods, or services’. In other way- ‘In general, credit means the granting of a period of time by a creditor to a debtor at the expiration of which the later must pay the debt due’.

In a credit economy, that is economy with borrowings & lending each spending unit can be placed in any of the three categories:

• Deficit spenders,
• Surplus spenders,
• Balanced spenders

The chief function of credit is to relax balanced budget constraint that allows promoting savings, investment, and better allocation of resources and growth of economy.

Bank Credit

Bank is financial intermediary that provides finance from surplus units to deficit spenders of an economy. Bank accepts deposits from individuals & institutions and makes loans.

IMPORTANCE OF BANK CREDIT

MACRO ASPECT

1. Credit influences & is influenced by quantity of money, level of economic activity (GNP) imports and net foreign assets.
2. Credit provides vital linkage among Govt. sector, Private sector, financial sector and foreign sector.
3. Credit is an important determinate of money creation and hence of production, consumption and national income.
4. Credit influences imports and capital movements, and hence the outcome of balance of payment.
5. The macro aspect of credit planning has to take into account the overall volume of credit expansion to meet the requirements of the economy in the context of over all increase in money supply & the trends in real output.
6. It may be necessary to direct special credit facilities to certain lines of high priority. Emphasis should be given on reduction of regional and sectional imbalances are the availability of banking facilities and on the credit particularly to the weaker sections and neglected sectors.

IMPORTANCE OF CREDIT

 MICRO ASPECTS

1. Credit influences behavior of economic sectors (industry, agriculture) and behavior of economic agents (business, financial institutions, household).
2. Two-way relationship between credit & deposit.
3. Credit is the most important activity of banks, because interest on loans constitutes the major part of Bank income. Hence vital importance of making good loans.

There should be greater efforts on the part of individual Bank to formulate appropriate Credit budgets at the micro level in the context of available resources and in the light of directions and guidelines provided by the Bangladesh bank.

CREDIT POLICYOF DBL

One of the most important ways, a bank can make sure that its loan meet organizational and regulatory standards and they are profitable is to establish a loan policy. Such a policy gives loan management a specific guideline in making individual loans decisions and in shaping the bank’s overall loan portfolio. In Dhaka Bank Limited there is perhaps a credit policy but there is no credit written policy.

CREDIT PRINCIPLES

In the feature, credit principles include the general guidelines of providing credit by branch manager or credit officer. In DHAKA Bank Limited they follow the following guideline while giving loan and advance to the client. Credit advancement shall focus on the development and enhancement of customer relationship. All credit extension must comply with the requirements of Bank’s Memorandum and Article of Association, Banking Company’s Act, Bangladesh Bank’s instructions, other rules and regulation as amended from time to time.

 Loans and Advances shall normally be financed from customer’s deposit and not out of temporary funds or borrowing from other banks.

 The bank shall provide suitable credit services for the markets in which it operates.

It should be provided to those customers who can make best use of them.

The conduct and administration of the loan portfolio should contribute with in defined risk limitation for achievement of profitable growth and superior return on bank capital.

Interest rate of various lending categories will depend on the level of risk and types of security offered.

GLOBAL CREDIT PORTFOLIO LIMIT OF DBL

The feature which deals with how much total deposit would be used as lending the proportion of long term lending, customer exposure, country exposure, proportion of unsecured facility etc. the most notable ones are:                   

 The aggregate of all cash facility will not be more than the 80% of the customers deposit

Long term loan must not exceed 20% of the total loan portfolio.                  

 Facilities are not allowed for a period of more than 5 (Five) years.

Credit facilities to any one customer group shall not normally exceed 15% of the capital fund or TK. 100 crores.

TYPES OF LOANS AND ADVANCES OF DBL

Credit may be classified with reference to elements of time, nature of financing and provision base.

CLASSIFICATION ON THE BASIS OF TIME

On the basis of elements of time, bank credit may be classified into three heads, viz.

      Continuous loan

      Demand loan

      Term loan

CONTINUOUS LOANS

These are the advances having no fixed repayment schedule but have an date at which it is renewable on satisfactory performance of the clients. Continuous loan mainly includes following:

  Overdrafts

      SOD against easily en-cashable securities such as FDR, bond, and shares as per rules and regulation in force.

      SOD against work Orders (As working capital finance)

  Cash Credit

      Cash Credit (Pledge).

      Cash Credit (Hypothecation)

DEMAND LOAN

In opening letter of credit (L/C), the clients have to provide the full L/C amount in foreign exchange to the bank. To purchase this foreign exchange, bank extends demand loan to the clients at stipulated margin. No specific repayment date is fixed. However, as soon as the L/C documents arrive, the bank requests the clients to adjust their loan and to retire the L/C documents. Demand loans mainly includes following:

•       LIM (Loan against imported merchandise)
•       PAD ( Payment against Document)
•       LTR (Loan against trust receipt)
•       PCC (Packing cash credit)
•       ECC (Export cash credit)
•       Cash Incentive
•       EDF (Export Development Fund)

TERM LOANS

These are the advances made by the bank with a fixed repayment schedule. Terms loans mainly includes “, “Lease finance”,” Hire purchase”, and “Staff loan”. The term loans are defined as follows:

      Short Term Loan: Upto 12 Months

      Mid tern Loan: More than 12 months & up to 36 months

      Long Term Loan: More than 36 months

CLASSIFICATION ON CHARACTERISTICS OF FINANCING OF DHAKA BANK LIMITED (DBL)

CLASSIFICATION ON CHARACTERISTICS OF FINANCING

Funded                                                                          Non-funded

Overdraft                                                                     Letter of Credit
Loan                                                                            Bank Guarantee
Consumer Credit
LTR
PAD
Cash Credit (Pledge & Hypo)
Staff Loan
Term Loan
Packing Credit

The varieties used by DBL are briefly described below with the common terms and condition. Banks generally offer different kinds of credit facilities to the customers.

The credit facilities of DBL may be broadly classified into five categories. They are as follows:

     Loan

     Cash credit

     Overdraft

     Bills purchased and discounted

     Consumer loan/personal loan

They are discussed below accordingly

LOAN

In case of loan the banker advances a lump sum for a certain period at an agreed rate of interest. The entire amount is paid on an occasion either in cash or by crediting in his current account, which he can draw at any time. The interest is charged for the full amount sanctioned whether he withdraws the money from his account or not. The loan may be repaid in installments or at expiry of a certain period. Loan may be demand loan or a term loan.

Eligibility:  Loans are normally allowed to those parties who have either fixed source of income or who desire to pay it in lump sum.                   
Interest Rate: 12%-15% per annum (Quarterly paid).

CASH CREDIT

In Cash credit, banker specifies a limit called the cash credit limit, for each customer, up to which the customer is permitted to borrow against the security of tangible assets or guarantees.  Cash credit is given through the cash credit account. The purpose of cash credit is to meet working capital need of traders, farmers and industrialists.
Cash credit in true sense is against pledge of goods. Cash credit is also allowed against hypothecation of goods. In case of hypothecation the ownership and possession of the goods remain with the borrower. By virtue of the hypothecation agreement bank can take possession of the goods hypothecated, if the borrower defaults.

Rate of Interest: 12%-14%.
Renew System: it is renewed in periodic basis (yearly).

OVERDRAFT

Overdrafts are those drawings which are allowed by the banker in excess of the balance in the current account up to a specified amount for definite period as arranged for. These advances are secured The loan holder can freely draw money from this account up to the limit and can deposit money in the account off course, this loan has an expiry date after which renewal or enhancement is necessary for enjoying such facility.  Any deposit in the OD account is treated as repayment of loan. Interest is charged as balance outstanding on quarterly basis. Overdraft facilities are generally granted to businessmen for expansion of their business, against the securities of stock-in-trade, shares, debenture, Government promissory notes, fixed deposit, life insurance policies etc.

BILLS PURCHASED AND DISCOUNTED

Banks grant advances to their customers by discounting bill of exchange or pro-note.

Personal Loan (Consumer Credit Scheme)

OBJECTIVES

The objectives of this loan are to provide essential household durable to the fixed income group (Service Holders) and other eligible borrowers. Car loan, loan for house renovation, vacation loan, marriage loan and loan for household equipment well as entertainment products are governed by personal loan program. The Total amount of loans along with the duration in which these loans taken, need to be repaid is given below:

for Businessman

1.00

2 years

3.Household items

for Service holders

Up to 3.00

2 to 3 years

4. OthersSpecial ConsiderationsSpecial Considerations

Personal loan is given under personal guarantee of the borrower and another third parson known to the borrower. As this loan is collateral free the rate of interest is little bit high such as 15% to 18%. There is also a processing fee of 1.5% taken at the time of disbursement of the loan.

TYPES OF BORROWER

Borrower must be the customer of the bank holding a bank account. Different types of borrower are given below-

Minor Account & Bankrupt:  Cannot Borrow.

Joint Account:  With the consent of all a/c holders, bank will lend.

Married Woman:  A married woman can borrow for his own business but she can not transfer his liability to her husband.

Executor /Administrator: They normally can not borrow but if the loan is needed for the preservation of the will property, then they can be the borrower, otherwise not.

Lunatic person: Lunatic person will not get loan but bank need certificate of lunacy.

Local Govt: Cannot borrow but for specific purpose can borrow.

Proprietorship: Declaration in Pad and by showing trade license, can borrow from bank.

Partnership: Can borrow by showing resolution for taking loan.

Company: Can borrow by submitting three years financial statement and resolution.

Non-trading concern: non-trading concern will not get loan but their specific unit doing business can borrow from bank.

Govt. Corporation: they need not to take loan and they will not provide loan but can take other facilities.

APPLICATION FOR LOAN

Applicant applies for the loan in the prescribed form of bank. The purpose of this forms is to eliminate the unwanted borrowers at the first sight and select those who have the potential to utilize the credit and pay it back in due time.

Getting Credit information

Then the bank collects credit information about the borrower from the following sources:

1. Personal Investigation

2. Confidential report from other bank/ Head office/Branch/Chamber of commerce

3. CIB report from central bank

SCRUTINIZING AND INVESTIGATION

Bank then starts examination that whether the loan applied for is complying with its lending policy. If comply, than it examines the documents submitted and the credit worthiness. Credit worthiness analysis, ie. analysis of financial conditions of the loan applicant are very important. Then bank goes for Lending Risk Analysis (LRA) and spreadsheet analysis, which are introduced by Bangladesh Bank. According to Bangladesh Bank rule, LRA and SA is must for the loan exceeding Dhaka core.

If these two analyses reflect favorable condition and documents submitted for the loan appears to be satisfactory then, bank goes for further action.

Final Part of the Post

Report On Banking System Practices In Dhaka Bank Bangladesh (Part-2)