Report on Overall Banking Practice of National credit and commerce bank

Executive Summary

A Bank is an economics institution whose main aim is to earn profit through exchange of money & credit instruments. It is a service oriented as well as profits oriented organization. To perform those two function simultaneously, the bank divides its operation mainly in three parts – General Banking, Loan & advanced and Foreign Exchange. Bank also invests their money into different financial security and also in different types of project to diversity the risk and getting more profit.

The banking sector of Bangladesh is passing through a tremendous reform under economic deregulation and opening up the economy. Currently this sector is becoming extremely competitive with the arrival of multinational banks as well as emerging and technological infrastructure, effective credit management, higher performance level and utmost customer satisfaction.

The report represents the four-months working experience on National Credit and Commerce (NCC) Bank Limited. I was assigned Uttara Branch, Dhaka of NCC Bank Ltd. from August 07, 2008 to November 07,  2009. This report gives a clear idea the activities, the operation Strategies and performance of NCC Bank Ltd.

 Bank is an important and essential financial institution for the necessity of the use of money and the protection of the money in Background of the study. As a BBA student, with major in Finance, I felt bank was my destiny to gather the real practical knowledge, with a view to develop skilled professional in banking sector.

I have completed my Internship in the Uttara Branch of the NCC Bank Ltd. During my internship period I found here a good job environment and also got a lot of cooperation from every department and every person. It is a great task to prepare a report on a big branch and at this moment I feel very happy to complete this. I found that The NCC Bank gain success very early because they have a very strong backup to provide financial as well as administrative support. Within a very short time this bank has very much popular to people. They gain success from the very beginning of their operation and were capable enough to hold the success year after year.

My over all experience had been very fascinating and I believe internship period at NCC Bank Ltd. will definitely help me a lot in Building my future career.

INTRODUCTION

A bank is the financial institution that deals with money. Banks do many things that are not included in the functions of offering deposit and loan services. They provide trust services, arrange mergers and acquisition, and guarantee payment from one party to another through letters of credit and other devices. Mainly bank is a commercial organization and commercial banks are profit-making institution that collects deposits from the surplus unit of the society. The commercial banks act as the financial intermediary. As banks are profit earning concern; they collect deposit at the lowest possible cost and provide loans and advances at higher cost. The functions of commercial banks have changed as the need of the economy has changed.

Now a day there are various kinds of financial services are being performed and practiced in modern economy and many of them are very much helpful and up to dated to boost up the economy of today’s world. And we know one thing that changed the financial activities today marvelously that is technology. Technology has given commercial sectors a lot of opportunities to move forward rapidly and smoothly and to satisfy the people by providing their real time functionalities. As a result there is opened a new era of banking which is called ‘on-line banking’ are very much popular today which eventually made possible to building up today’s ‘e-commerce’. So we should introduce such technology into where the economy is weak to survive.

Origin of the Report:

This report is prepared as partial requirement of the three-month internship program for the BBA. National Credit and Commerce Bank Limited (NCCBL) has given me the opportunity to complete internship program. In the report I have mainly given concentrate on “Overall Banking System of National Credit and Commerce Bank Limited”. Basically this report highlights about evaluation and assessment of NCCBL banking products. Information has taken from bank’s website, Annual report and different banking oriented books.

Objectives of the Report:

• To describe and understand General Banking activities, Foreign Exchange and Credit management activities of Uttara Branch of NCC Bank Ltd.
• To identify the problems regarding the banking activities of Uttara branch.
• To make some recommendations to overcome the problems of  the activities of that branch.

 Scope of the Study:

National Credit and Commerce Bank Limited is one of the leading banks in Bangladesh. The scope of the study is limited to the Branch level only. The report focuses upon the organizational structure and the financial services offered by NCCBL and the performance of the bank.

Methodology:

The report is Descriptive in nature.  Data used in this report have been collected from both primary and secondary sources.  Regarding the organizational part, information required was collected within the organization from the different departments of National Credit and Commerce Bank Ltd.

Primary sources of data:

All Officers of Uttarabranch.

Data Collection Method: Face to face conversation with the officers.

The Secondary sources of data:

1) Annual Reports of NCCBL.

2) Periodicals published by Bangladesh Bank.

3) Different Books, articles, compilations etc. regarding general banking functions, foreign exchange operations and credit policies.

AN OVERVIEW OF THE NCC BANK LTD.

Historical Background of NCCBL:

The banking system plays a critical role in underpinning economic development. Against the background of Financial Sector Reform Policies in Bangladesh, National Credit and Commerce Bank Ltd. has resulted in great success in all areas of operation with a view to improve the socio-economic development of the country. National Credit and Commerce Bank Limited emerged as bank in the country on 17th May, 1993 out of a great turbulent situation encountered by erstwhile National Credit Limited. However, the institution survived the ordeals and came out as full-fledged commercial bank. The company raised its authorized capitals to tk.750 millions as per guidelines set out by the Bangladesh Bank. The paid up capital was fixed at tk.390 million of which 50% the sponsor and the balance 50% of public have paid up i.e. tk.195 million in cash. The sponsors of the new bank consisted of 26 (Twenty six) Members, who comprised the first Board of Directors.

Mission:

“To mobilize resources from within to contribute to development and growth of the country and also to play a catalyst role in the formation of capital market”.

Vision:

To be in the forefront of national development by providing all the customers inspirational strength, dependable support and the most comprehensive range of business solutions, through our team of professionals who work passionately to be outstanding in everything we do.

Objective of the NCCBL:

The objective of the organizational structure and corporate governance of NCCBL is to establish a strong, customer- oriented and transparent management. They constantly focus on understanding and anticipating customer needs. As the banking scenario undergoes changes so is the bank and it repositions itself in the changed market condition. The main objectives of NCCBL are as follows:

•  To conduct banking business.
•  To establish a good and cordial relationship between the bank and the customers.
•  To invest in various profitable sector to assist the boosting up the industrial sectors.
•  To extend its hands to uplift the economic condition of the country.
•  To rise the living standard of the people providing various schemes.
•  To develop the human resources it acts consciously.
•  To make employment.
•  To ensure safety of the customer’s assets and deposit.
•  To advise on financial matter to the new entrepreneur.
• To invest its capital in the potential sector.

 Division of NCCBL:

  Currently there are eight divisions and two cells in the band.  Each division is charged with specific tasks and the cells provide necessary support in performing the tasks.

[a].International Division:  Transactions related to import-export financing involving foreign currency.

[b].Credit Division: Appraisal of loan proposal within the country and recovery of loans.

[c ]. Establish division: All establishment related responsibilities.

[d].Board Division: Performing all accounting functions.

[e].Central accounts Division: Performing all accounting functions.

[f]. Human Resources and Administrations division: All administrative and human resource related works.

[g]. Marketing and Branch Division: Marketing of products and supervision of branches.

[h]. Audit and Inspection Division: Internal audit and inspections for internal control.

Recovery cell helps credit division in recovery of overdue loans and computer cell maintains all information necessary for managements.

Like all other commercial bank NCCBL actively participates in deposit mobilization, loan disbursement, making investment in Govt. securities NCCBL also offers Islamic Banking to its customers. During the period of 1993 to 2001 deposit and loan increased from tk.1073 million to TK. 8663.

GENERAL BANKING

Customer Services:

Customer services are one of the most talked about subject now a day. In banking, it is a major rule to earn a comparative edge. Customer service means to meet customer needs in a prompt and efficient way. In service-oriented organization like, quality means customer satisfaction. And customer satisfaction depends on the services provided by the organization. So, customer service section is the most important section in NCC Bank Ltd. First of all customer want to collect information before taking services if he/ she satisfied with the information given by the customer-service section, then he/she come to take services. In the sense, it is very sensitive section in NCCBL. To satisfy the customer by giving better services all staff and officers of this section have to take responsibility, be cordial, frank and smiling appearance.

Functions of customer service section

• Account opening
• Remittance
• Collection
• Cash
• Others

·        Clearing

 Concept of Deposit

Deposits are the foundation on which banks thrive and grow. They are a unique item in a bank’s balance sheet that distinguishes it from other types of business firms. Deposits provide most of the raw material for bank loans and, thus, represent the ultimate source of bank profits and growth. Deposits generate legal reserves, and it is out of the excess legal reserves a bank holds that new loans are created. Important indicators of management effectiveness in any bank are whether or not deposited funds have been raised at the lowest possible cost and whether enough deposits are available to fund those loans the bank wishes to make.

Classification of Bank Account

Bank has two type of deposit account, this are-

A. Demand deposit

B. Time deposit

A. Demand deposit

There are mainly two types of demand deposit accounts, these are-

1. Savings account
2. Current account

Both these accounts can be opened jointly or individually. Again current account can be for personal, partnership and proprietorship.

1. Savings Account

To encourage savings habit amongst the general public, bank allows depositors to open savings account. As the name indicates, these accounts are opened for the purpose of savings. Interest is awarded on the balance of the account.

• The minimum balance requires to be maintained at all times is Tk. 1,000.00. And the bank reserves the right to change the minimum balance requirement and/or to close such accounts without prior notice if the balance falls below this amount.

• The maximum interest bearing amount allowed on any Saving Bank account Tk.50,00,000.00 interest is payable on collected funds.

• The Bank reserves to itself the right not to pay any Cheque presented that contravenes the rules. In the event of a Cheque being returned for want of funds a penalty change of Tk.50.00 for each presentation will be made.

Special Savings Scheme (SSS):

Two types of Account can open under this scheme.

1)5 years

2)10 years

Monthly installments start from 100 to 2500 tk during the period of scheme. This is fixed at the time of opening Account. There are remaining 5000 & 10,000 schemes only for 10 years.

The depositors to be paid on the basis of their installments amount and time period as follows:

(Tk.)

AMT. after 5 Years

(Tk.)

AMT. after 10 Years

(Tk.)

100

8000

22500

200

16000

45000

300

24000

67500

400

32000

90000

500

40000

112500

1000

80000

224500

1500

120000

337500

2000

160000

450000

2500

200000

562500

5000

……

1125000

10000

……

2250000

A person is allowed to open more than one account for different installments in the same branch or in the same Bank. No withdrawal shall usually allow before five years. If any one withdraws before five years s/he will get interest at prevailing rate on Savings account along with the principle. No interest will be paid on the deposited amount if the Account is closed before Six months. Installment must be deposited by 10^th day of each month. In case of holidays, Deposit can be paid on next working day. If any one fails to pay installment in time, s/he will have to pay Tk. 10 for each installment with subsequent deposit.

2. Current Account

Current account is an account where the account holder within the funds can make numerous transactions available in its credits. No interest is paid on those deposits. Requirements to open an account are almost same to that of savings account except the initial deposit and the introducer must be the current account holder. Requirement for different types of current account holder are given below:

Limited company

A separate account opening form is used for Limited company. The bank should be cautious about opening account for this type of customer. Requirements to open an account are as follows:

• Articles of association
• Two copies of attested photograph
• Letter of commencement
• Letter of incorporation
• List of directors, their number of shares and status
• Memorandum of Association
• Registration-which the company is registered and certificate relating to this issue, is obtained from the registration office of Joint Stock Company.

Partnership firm

Same account opening form for partnership firm is used. Instruction of account is given in this form. Documents required to open this type of account are as follows:

• Two copies attested photograph of those who will operate the account.
• Partnership deed
• Resolution of the firm regarding account opening should be given
• Trade license

Personal current account

Same account opening form for partnership firm is used. Instruction of account is given in this form. Document required to open   personal current account are given below:

• Two copies photograph of   who will operate the account
• The guarantor who is already maintaining an account introduces personal.

Current proprietorship account

Requirements for opening this type of account are as follows:

• The guarantor attests two copies photograph of who will operate the account.
• Photocopy of trade license.

 Banks are maintained a signature card and different types of register to open every types of accounts. An account number is given for each account and the description of the account entered in the computer. According to rules of the bank a letter of thank should be given to the account holder and to the introducer but in practice it is not done.

B. Time deposit

There are mainly two types of time deposit:

1. Short Term Deposit (STD)
2. Fixed Deposit receipt (FDR)

Short Term Deposit (STD)

In short term deposit, the deposit should be kept for at least seven days to get interest. The interest offered for STD is less than that of savings deposit. In PBL, various big companies, organization, Government Departments keep money in STD account. Frequent withdrawal is discouraged and requires prior notice.

Fixed Deposit Receipt (FDR):

This type of deposit should be kept for a fixed term or period. Prime Bank Limited deals with the following terms deposit.

 REMITTANCE

Demand Draft (DD):

This is an instrument through which customers money is remitted to another person /firm /organization in outstation from a branch of one bank to another outstation branch of the same bank or to a branch of another bank (with prior arrangement between that bank with the issuing bank).

Issuing procedure of D.D:

• Obtain demand draft application form duly filled in and signed by the purchaser /applicant.

• Receive the amount in case/ transfer with prescribed commission and postage amount.

• Insert test number.

• Enter in the D.D. register.

• Issue advice to the payee branch.

Payment procedure of D.D:

• Examine generally of the D.D. viz. Amount, verify signature, test, series, etc.

• Enter in the DD payable register.

• Verify with the ICBA /test etc.

• Pass necessary vouchers.

Telephonic transfer (TT):

This is a mode of transfer / remittance of customer money from a branch of one bank to another branch of the same bank or to a branch of another bank with prior arrangement between the banks with the TT issuing branch through telephonic message. Characteristics of TT are:

• Issued by one branch to other branch and message is tele- communicated.
• Remittance / transfer of money are done through tested tele-messages.
• Remittance is affected on the basis of tested message.
  • Test key apparatus required.

TT issuing procedure

• Obtain TT application form duly filled in and signed by the purchaser/ applicant with full account particulars of the beneficiary.

• Receive the amount in cash/ transfer with prescribed commission, postage, telephone/telex etc.
• Prepare TT message inserting code number.
• Enter in TT issue register.
• Issue advice to the payee branch.

TT payments procedure

• Note the TT message and verify the test number and confirm if TT serial no. Etc. is OK.
• If ok, enter into TT payable register.
• Pass necessary voucher for payment.

Pay order (PO)

This is an instrument issued by the branch of a bank for enabling the customer/ purchaser to pay certain amount of money to the order of a certain person/ firm/ organization/ department/office with in the same clearinghouse area of the pay order-issuing branch. Pay order has different characteristics:

• The issuing branch and the paying branch are same.
• Application for payment with in the clearing house area of the issuing branch.
• This may be open or can be crossed.

Procedure of P.O. issue:

• Obtain PO application form duly filled in and signed by the applicant.
• Receive the amount in cash/transfer with commission amount.
• Issues pay order.
• Enter in pay order register.

Procedures of pay order payments:

• Examine genuinely of the pay order.
• Enter in to pay order register and give contra entry.
• Debit if fund ok for payment.

Money Gram:

Money Gram is one of the innovative products of the bank. This has been functioning satisfactory and rendering prompt and efficient services to the wage earners. Money Gram is represented in over 115 countries and is available at more than 25,000 locations worldwide. In the USA alone Money Gram is available at more than 15,000 locations. All one has to visit a conveniently situated Money Gram agent anywhere in the world and handover the money where they want to send their relatives or friends along with the one-off transaction fee.

 CLEARING

Generally speaking, clearing means settlement but from Banker’s point of view it refers to the procedure of receipts & payments of proceeds of cheques and other instruments through banks.

Clearing House is a place where the representatives of all member banks meet together and settle mutual obligations of banks arising out of cheques & other instruments drawn on one bank and deposited with another bank for collection, under a special arrangement. The characteristic of the clearing house is that at the time of coming to this place the representative of very bank brings with him all cheques etc drawn on other banks along with schedules and delivers the cheques to the clearing house and receives cheques etc drawn on his bank and on the basis of cheques etc. delivered & received the mutual obligations between banks is ascertained and settled through their respective bank accounts maintained with the Central Bank or any other bank which conducts the clearing house.

Types of Clearing

There are two types of Clearing, such as (a) Internal or Inter-branch Clearing and (b) Inter-Bank Clearing. Under the 1^st type all branches of the same bank situated in a particular city settle their mutual obligations through the main branch of the bank. In some banks the term “Transfer Delivery” is used to mean internal clearing. In the other case, in one city the obligations between all banks are settled. In this case Bangladesh Bank or Sonali Bank performs the function of the Clearing House in Bangladesh.

Kinds of Clearing

The Clearing House activities may be grouped into two viz, (1) Outward clearing and (2) Inward Clearing.

Outward Clearing Procedure

• Receipt of instrument with paying in slip.
• Checking of instrument & paying in slip.
• Affixing of seal
  • Special Crossing seal.
  • Clearing Seal (Instrument & Paying in slip)
  • Endorsement Seal with signature.
  • Singing of counterfoil and returning it with seal to the depositor.
  • Separation of instrument from paying in slip.
  • Sorting of instrument bank wise and branch wise.
  • Preparation of schedule- branch wise.
  • Preparation Bank wise schedule.
  • Preparation of clearing House sheet.
  • Tallying of totals of paying in slips with the totals of Clearing House sheet.
  • Making of entries in Clearing Register (Outward)
  • Preparation of vouchers.
  • Sending of instruments to main branch with schedule.
  • Collection of credit advice from Main Branch.

Inward Clearing Procedure

• Receipt of instruments with schedule
• Checking of instruments.
• Sending of instruments to different Departments/Sections for posting
• Preparation of Vouchers and sending of credit advice to main branch.

Clearing Return Procedures

• Outward clearing Return
  • Preparation of return memo.
  • Making of entry in clearing return Register.
  • Preparation of schedule.
  • Sending of instruments to main branch before second clearing.
  • Inward Clearing Return
    • Receipt of instrument with return memo.
    • Preparation of Party debit Voucher.
    • Making of entry in cheque return Register.
    • Sending of instrument with return memo and party debit advice to party by post or through peon.

 COLLECTION

The collecting banker is who on his customer’s behalf, presents to the paying banker, either directly or through the clearing channels, the cheques paid into credit by his customers, or obtained payment from the paying banker of the cheques so presented. However, the law has not imposed any duty on the bank to collect the cheque, dividend warrants and other allied instruments. When a banker collects his customer’s cheques, he acts either;

1. As an agent of the customer
2. As a holder of value

CASH AND OTHERS

Procedure of cash receipts

• While receiving cash the receiving cashier should see that the paying in slip has peen properly filled in
• The paying in slip does not bear the name of another branch or the customer has not mentioned the name of another branch.
• The title and number of account have been mentioned on the paying in slip and the counterfoil.
• The amount in words and figures are the same.
• The particulars and amount on the pay-in slip and the counterfoil are same.
• The Cashier should receive money, count it and mention the denomination of notes on the back of the paying in slip and see that the total tallies with the amount of the paying in slip.
• He should count the notes again and verify the amount from that mentioned on the paying in slip.
• He should enter the particulars as to the name of the party, account number and amount in the Receipt Register.
• He should sign on both the parts of the paying in slip i.e. voucher and the counterfoil.
• He should then hand over the paying in slip and the Receipt Register to the authorized person, Officer in Charge/Head Cashier.
• For the amount received on account of commission, Telegram and postal charges where no separate voucher is passed he should maintain record in a separate book or enter the same in Receipt Register immediately. He should prepare relevant vouchers and hand over the same to the authorized person for affixing the “CASH RECEIVED” stamp and obtain counter signature from the officer.
• After the close of business hours, he should balance the cash receipts from the register, and should keep the cash ready for checking by the authorized person

Procedure of Cash Payments

For Payment of Cheques

• Payment Cashier should see that the cheque is in order i.e. the amount in words and figures is same. The cheque is neither post dated nor state.
• He should then request the presenter of the cheque to sign on the back of the cheque.
• The paying cashier sees that the signature of the ledger keeper and in case of big amount cheques, the signature of the officer and the Manager are there on the cheque as a token of having posted and supervised the cheque.
• If the cheque is payable to the order of payee, the payee or the endorsee (if endorsed) has been properly identified.
• Then he should take out cash and call out the name of the party and ask him about the amount of the cheque and his token number. If the amount stated by the party differs from the amount of the cheque, he should tally the token number, if the token number is the same and the amount differs, he should report the matter to the Officer in charge/ Manager.
• He should obtain another signature of the party on the back of the cheque. He should now see that the second signature tallies with the first one already on it.
• In case the signatures do not tally, he should not make the payment and report to the Officer in charge.
• Before making the payment he should obtain the token from the party and see that the amount and token number are the same.
• He should, once again, ask the party about the amount of his cheque and count the cash for the second time before making payment. When satisfied in all respects he should make payment.
• He should affix the “CASH PAID” stamp bearing the date of payment.
• He should put his full signature under the cash paid stamp.
• He should enter the particulars of the cash payment in his payment Register.
• He should keep the cheques so paid in his safe custody till the Officer in charge/Manager checks his payment register.

CREDIT MANAGEMENT

 INTRODUCTION

The word “CREDIT” is derived from Latin word “credo” that means ‘I believe’. Bank lending is important for the economy in the sense that it can simultaneously finance all of the sub-sectors of financial arena, which comprises agriculture, commercial and industrial activities of a nation. Lending of money to different kinds of borrowers is one of the most important functions of commercial bank. Not only this it is the most profitable business of the commercial bank and the major source of income but lending is a risky business. The nature of their activities, the location of business, financial stability, earning and repayment capacity, purpose of advance, securities all differ and their degree of risk also differ. Although all lending involve risk yet a bank as to go with it for earning profit and economic up liftmen   as well. But the fact is this while going on lending; a bank should be careful in selecting a borrower and must give paramount importance to it. This may ensure safety of the lending of a bank.

What is loan/ Credit?

        “Credit is a promise of future payment in kind or in money given in exchange for present money, goods or services”

In general credit means the granting of a period of time by a creditor to a debtor at the expiration of which the latter must pay the debt due.

Importance of advance towards the nation

Loan & advance is an important part of a bank. Deposit extraction & credit extension is the basic function of a Bank. Proper credit management is the crying need for a Bank. So every Bank follows some policy of direction, monitor, smooth approval & review of lending operation for the proper credit management. NCCBL extent it credits facilities to trade & commerce, small & medium enterprises within the policy guidelines of the Bank & Bangladesh Bank.

CREDIT INVESTIGATION

Credit Investigation refers to the assessment of the loan proposal/venture/project/enterprise from different angles with a view to justifying soundness of the same.

Who shall get credit?

It is easier to find out a depositor than finding out a good borrower. Public money, in the hands of bad borrower, is never saved and secured. Then, whom to lend? In short, the answer is to lend to an entrepreneur. Who is an entrepreneur? An entrepreneur may be defined as a person who, for attaining his own pecuniary interest as well as mental satisfaction together with offering additional services and well being to the society at large, under takes efforts to collect together various types of necessary goods, labor materials, other wealth etc. and by means of application of his wisdom, foresight, creativity, devotion and self confidence, takes initiative  to add additional utility and value to the collected materials and wealth by bringing change and or modification in their form. He manages affairs and loan sanctioning authorities must be acquainted with technique to take correct lending decision so far borrowers attribute is concerned.

Sources of Credit Information:

Broadly, a banker collects the required information about a prospective borrower from the following sources:

Loan Application

When a loan proposal has to be processed a banker first studies the loan application made by the borrower. A loan application usually contains information pertaining to the name of the concern, constitution, nature and place of business, year of establishment, borrower’s experience in the line, particulars of assets and liabilities, purpose of advance, amount required, the period of advance applied for, nature of security offered, sources of repayment etc.

Market Reports

After receiving the loan application form, NCCBL sends a letter to Bangladesh Bank of obtaining a CIB (Credit Information Bureau) report. The purpose of this report is to being informed that borrower has taken loan from any other bank, if ‘yes’ then whether these loans are classified or not.    After receiving CIB report if the bank thinks that the prospective borrower will be a good borrower, then the bank will scrutinize the documents. If all the documents are properly filled up and signed then comes processing stage. In this stage, the bank will prepare a credit proposal.

Study of Account

If the borrower is the customer of the bank, a study of the borrower’s account and his /her past dealings will throw light on the aspect of keeping up commitments, borrowing else-where etc. which will assist a banker in judging about creditworthiness of the borrower. If the account shows a good turnover, and the cheques were never returned for want of funds, which will give an impression about the volume of business of the borrower as well as his/her honest dealings. If some of the parties to whom cheques are issued are known to the bank, further independent enquiry would be possible. If he/she is having account with other bank, he/she may be requested to show the relative passbook and/or statement accounts so that all accounts can be studied side by side. A confidential opinion about the customer from his/her pray bankers should be obtained.

Financial Statements etc.

The borrower should be requested to supply the statement in regard to his/her assets and liabilities. It is always preferable to have audited statements for the last three years. In addition, the lending banker must arrange to obtained a copy of the latest income tax statement of the borrower from which it will be possible to estimate his/her income. Similarly his/her sales tax return will give an idea about the sales. In case of limited companies, the audited balance sheet and profit and loss account for the last three years must be obtained to assess the financial position of the company and various financial aspects of the borrower’s business.

Other Sources

Other sources of information about the borrower include press reports regarding purchase and sales of property, Auctions and decrees, registration, revenue and municipal records can also be referred to with advantage to verify the properties owned by the borrower and charges thereon, if any. If the borrower happens to be a limited company, a search of the records of the registrar of the joint stock companies should be made for finding out if there are any prior charges or mortgage on the company’s assets.

Personal Interview

After having collected all the information from outside sources, it is advisable to arrange for a personal interview with the borrower. The questions must be suggestive and helpful to put him/her at ease so that he/she gives all information required by the bank. The banker should be able to know from the interview the customer’s specific requirements, the prospects of his/her employing the funds prudently, his/her capacity to repay and the suitability of the security offered, if any. Enquires may be made to verify the information given by the customer.

Analysis of the Depth or Risk Allied with Each & Every Credit Proposal.

Main Points of analysis are as follows:

Lending risk analysis:

Since lending involves risk, the primary concern of branch manager/ sanctioning authority must be to assess the relative risks of loan and advance so as to minimize possibility of loan losses by identifying the weak/ risky areas of a proposal/loan and side by side will also point out the areas of strength and profitably.

Lending risk analysis, a new management and operational tool for improving operational and judgment efficiency of bank, has been initiated by financial sector reform project (FSRP) with following points in view:

a) The banking system channels scarce financial resources into those opportunities with maximum return.

b) Profitable enterprise receives fund and grow.

c) Loss making enterprise is refused funding and goes out of business.

d) The bank makes profit and pays tax.

e) The CAMEL standard of bank is raised.

f) The economy grows and people are benefited at large.

Ratio Analysis for Lending Bank-Some consideration.

• Financial analysis involves the use of basic Financial Statement, viz; Balance Sheet, Profit and Loss Account and Trading Account.

Objective:

• To know the financial adventures of an enterprise
• It is a judgment process aiming at evaluating the current and past financial position of a concern.
• To know the result of operations of an enterprise.
• To predict future condition and performance of an enterprise.
• To get answer of some broad question about financial and business position of a concern like liquidity, profitability, activity, solvency and stability

 To visualize:

• Profitability of the concern and profitability of loan repayment
• Operational efficiency of the concern as a whole
• Solvency of the concern and safety of the loan
• Financial stability and trend of growth of the concern
• Possibility of future growth and development
• Location of weak and strong points of the concern
• Extent of borrower’s need for fund
• Pricing of the loan, if sanctioned

Ratio Analysis:

Ratio Analysis depicts financial position, debt repaying capacity performance efficiency and trend of growth (The reverse position as well) of a concern. But the ratios worked out are of no importance if different ratios are not compared in true perspective to arrive at the message the ratios reflect regarding overall position of the concern. Bankers, for lending decision, generally analyze some ratios as can be categorized under following broad heads:

Liquidity Ratio:

Liquidity Ratios reflect liquidity position as well as ability to discharge short term obligation of a concern.

Activity Ratio:

Activity Ratios show efficiency in the operational performance of a firm.

Financial Leverage Ratio:

Financial Leverage Ratios depict long solvency and capital structure position.

Profitability Ratio:

Profitability Ratios show efficiency in the operational performance of a firm like the activity Ratio.

CAMEL RATING:

CAMEL rating analysis is one of the most powerful tools for evaluating the overall performance of a banking institution. Five principal areas are focused on this analysis:

C = Capital adequacy

A = Asset quality

M = Management efficiency

E = Earnings

L = Liquidity

Bangladesh bank sets the standard for each field & ratings

1= Strong               2=Satisfactory                3= Fair

4= Marginal           5= Unsatisfactory

Asset quality: Classified loan/Total loan

Security or Collateral Security Offered

Pledge

Pledge means bailment of goods (goods means every kind of movable property other then actionable claims and money and includes stocks, debentures, etc.) as security for repayment of debt or performance of a promise. There are two parties in pledge 1. Pledge (Baylor is called the pledge) 2. The pledge (to whom the goods are delivered is called pledge)

Hypothecation

In order to secure the advance, the bank insists on having suitable collaterals there against and relies more on the credit worthiness of the borrower than on the hypothecated stocks. Credit worthiness of a borrower means the presence of certain factors and special traits of character in him that inspires the banker to have full confidence in his (borrower’s) ability to properly utilize and willingness to repay the advances in time.

Mortgage

The transfer of property act defines mortgage as “Mortgager is transfer of inters on a specific in movable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability”

Lien

Lien is legally recognized method of charging securities against advances allowed to a customer in the ordinary course of credit management by bankers. A lien is a right to retain goods/properties belonging to the debtor given to the creditor as security until he has discharge the debt due. Lien entitles the retainer to only retain the goods- he cannot sale the goods in the absence of a contract to the contrary.

Set off

Set off means total or partial margin of a claim of one person against another in a counter claim by the latter against the former. It is in effect, the combining of accounts between a debtor and a creditor so as to arrive at the net balance payable to each other. It is a right that accrues to the banker as a result to banker customer relation.

Assignment

Transfer of actionable claim by one person in favor of another person is called assignment. The person who makes such transfer is called assignor and the person in whose favor such transfer is made called assignee. And this process of transferring actionable claim in favor of a banker as security in conformity with the provision of transfer of property act 1882. Now what is actionable claim “It is a privilege and or legal right to take recourse to law by means of filling suit for establishing title on certain assets involving pecuniary interest. Transfer of this right in favor of a bank as security against credit facility (existing or future) is an Assignment.

Guarantee

A contract of guarantee has been defined under section 126 of the contract Act as “a contract to perform a promise or discharge the liability of a third party in case of his default. The person giving the guarantee is called “Surety” or “Guarantor” and the person on whose account the guarantee is given is called the “Principal Debtor” and the beneficiary of the guarantee is called the “Creditor”

Insurance

Insurance is a written and definite contract between two parties (who are capable to enter into a valid contract) under which one party (the insured) pays the other party. The insurer, a definite sum of money called premium in consideration of which the insurer agrees to indemnify the losses, under agreed terms and conditions that the insured may suffer due to specified causes and mutually agreed upon and stated in the cover note / Insurance policy.

Different Types of Loans and Advances offered by NCCBL:

Funded Credit and Non-Funded Credit

Sectoral Classifications:

i.      Private Sector- Public Sector

4. ii.      Different Sectoral Activities:

Commercial and Industrial

Transport

HouseBuilding, etc.

Loans on the basis of terms:

1.                                                              i.      Working Capital Finance and Fixed Capital Finance

1.                                                            ii.      Fixed Term Loans

1. 1. Short Term : Up to 12 months

1. 1. Medium Term: More than 12 and up to 36 months

1. 1. Long Term: More than 36 months

Further Classifications:

1.                                                              i.      Clean – Secured

1.                                                         ii.      Loan

1.                                                         iii.      Overdraft

1.                                                        iv.      Cash Credit (Pledge/ Hypothecation)

1.                                                            v.      Bills Purchased and Discounted

Import Financing:

1.                                                         i.      Loan against Imported Merchandise  (LIM)

1.                                                            ii.      Payment Against Documents (PAD)

Export Financing:

1.                                                              i.      Pre Shipment Export Credit:

1. 1. Packing Credit (P.C.)

1. 1. trust Receipt (TR)

1. 1. Back to Back Letter of Credit (Inland)

1. 1. Back to Back Letter of Credit (Foreign)

1. 1. Red Clause letter of Credit

1. 2.  ii.      Post- Shipment Export Credit:

1. 1. 1. Negotiation of Export Bills

1. 1. 1. Purchase of Export Bills

3. Payment Against Document Sent for Collection

Secured Over Draft (SOD)

The overdraft is a kind of advance always allowed on a current account operated upon by cheques. The customer may be made any number of limits at the convenience of the borrower, provided the total amount overdrawn does not, at any time exceed the agreed limit. Interest is calculated and charged only on the actual debit balances on daily product basis.

Secured Overdrafts (SOD) is four types on the basis of Securities:

1. SOD against FDR
2. SOD against PSP
3. SOD against Scheme
4. SOD General

Product of Loans of NCCBL:

The NCCBL has introduced Consumer Credit Scheme in various head such (1) Small Business Loan (2) Personal Loan (3) House Renovation Loan to extend credit facility to the people of fixed income bracket to improve their standard of living. Under this scheme the bank extends its credit facilities to its honorable customer in the following forms:

Personal Loan

• Age Limit                   : 20-50 yr.
• Qualification               : Permanent employee of Semi Government, autonomous, corporation, bank, insurance, Educational Institution, multinational company and renowned institutions, which is recognized to the bank
• Quantity of Loan        : Tk. 1 Lac.
• Term of Loan             : 6 months but not more than three years.
• Interest Rate               : 16%
• Application Fee          : Tk. 500/– (Non Refundable)

Small Business Loan

• Qualification               : 1. Honest and vigorous entrepreneur who

                                             Has five years experience in business.

2. The customer of the NCCBL who has his current account in the branch of the bank from where he would like to get loan.

• Quantity of loan amount                       : Tk. 5.00 lac (maximum)
• Interest Rate               : 16% (Three months installment basis)
• Application Fee          : Tk. 500/– (Non refundable)

House Renovation Loan

• Age Limit                   : 30-50 yr
• Qualification               : 1. Real Owner of dwelling property. 2. The person who is able to repayment the

Loan and interest. 3. Not over 20 year old property which is going to be renovated and repaired.

• Quantity of loan amount                       : Tk. 5.00  lac (maximum)
• Interest Rate               : 16% (Three months installment)(changeable)
• Application Fee          : Tk. 500/– (Non refundable)

 DIFFERENT LENDING RATES OF NCC BANK LIMITED

As approved by the board of directors of the bank in its 117^th meeting held on 14^th January,2004 and 118^th meeting held on 20^th January,2004, the interest rate structure on loans and advances of bank has been revised as under which will be effective from 1^st January,2004.

•  Outstanding liability against PC & ECC must be adjusted from the export proceeds within due time other wise penal interest @ 1% on outstanding to be applied for overdue period for first three months& @ 2% penal interest be applied for above three months.

• In case of all other loans and advances, if outstanding is not adjusted within due date, panel interest @ 2% on the outstanding to be applied.

• Interest rate @ 12% will be applicable for “Corporate and Prime Customers” depending on their business volume with NCC Bank and its earning from them. Head Office will decide this rate.

See more Part:

Report on Overall Banking Practice of National credit and commerce bank [Part-1]

Report on Overall Banking Practice of National credit and commerce bank [Part-2]