4.1 Loans and Advances

This section lends the fund what the bank mobilizes through its various deposit accounts This is the second function of banks two generic function -deposit mobilization and credit creation. The majorpart of banks income is derived from credit and since the banks credit is customer’s fund, bank takes extreme caution in lending.

4.2 Sanctioning Loans and Advance

To have a clear idea about the credit management of JBL the following points are essential.

a.         Credit policy of the Bank

b.         Credit Sanctioning Authority of JBL and

c.         Processing and Screening of credit proposal

4.1.1 Credit Policy of the Bank

JBL Credit Policy contains of total macro-economic development of the country. as a whole by way of providing financial support to the trade, commerce and industry. Throughout its credit operation JBL goes to every possible corners of the society. They are financing large and medium scale business house and industry. At the same time they also take care entrepreneur through its operation of lease finance and some micro credit, small loan scheme etc. The bank has come up with a scheme where women will be 91-verL financial support for their self employment and development.

4.1.2 Credit Sanctioning Authority of JBL

Delegated powers are expected to be exercised by the authorized executives sensibly keeping the bank’s interest in mind. In exercising the power so delegated authorized

Executive’s shah also have credit restriction, tools and regulations .as governed by Banking Company Act, Bangladesh Bank, and other usual credit norms.  However, the following guidelines are laid down before the executives of JBI. For exercising the delegated power

• The borrower must be a man of integrity and must enjoy good reputation in the

Market.

• The borrower must have the capacity and capability for utilizing credit. Properly and profitably.
• The enterprise of the borrower must be viable and profitable i.e. proposal of (lie borrower must be evaluated properly and carefully so as to ascertain its profitability. The enterprise must generate sufficient fund for debt and servicing.”
• A customer to whom credit is to be allowed should be faras possible within the command area. .
• No sanctioning officer can sanction any credit to any of his near relatives and to any company where his relatives have financial interest.

4.1.2.1 Tools for Appraisal Credit

The 10 C’s of Good and Bad Loan

In addition to the formal credit appraisal, the credit an official of JBL tries to judge the possible client based on some criteria. These criteria are called the C’s of good and bad loan. These are described below:

1.    Character: Make sure that the individual or company they are lending has outstanding integrity.
2.    Capacity: Make sure that the individual or company they are lending has the capability of repaying the loan.
3.    Condition: Understanding the business and economic conditions that whether it will change after the loan is made.
4.    Capital: Make sure that die individual or the company they are lending has in appropriate level of investment in the company.
5.    Collateral:  Make sure that there ^is a second way out of a credit but do not allow that to drive the credit decision.
6.    Complacency: Official do not rely on past. They remain alert every time whether any mistake is taking place or not.
7.    Carelessness: They believe that documentation, follow up and consistent monitoring are essential to high quality loan portfolio.
8.    Communication: They share credit objectives and credit decision making both vertically and laterally within the bank.
9.    Contingencies: Make sure that they understand the risk, particularly the downside possibilities and that they structure and price the loan consistently with the understanding.

10. Competition: They do not get swept away by what others are doing.

Lending Risk Analysis (LRA)

Lending Risk Analysis is a financial tool to analyze the risk associate in a loan proposal. According to Bangladesh Banks order every bank has to conduct LRA. For every loan amounting Tk. I Core and above. JBL is frequent user of this technique.

4.1.2.3 SWOT Analysis

It is a technique used by the credit officers to evaluate credit proposal submitted by the company especially by the production concern. Here,

                        S          stands for Strength

                        W        stand’s for Weakness

                        0          stands for Opportunity

                                     T      stands for Threat

Strength

It analyzes the inherent of the company, resilience, and brand loyalty, endowment etc. Weakness this analyzes the inherent weakness of a company, such as management, supply risk etc.

Opportunity

This analyzes the opportunity, which will be available to a company in a near future, such as tax incentives export credit facilities etc.

Threat

It analyzes the threats, which the company may face such as legal barriers withdrawals of tax exemption and international law, withdraw of most favorable nation (MFN) and GSP facilities etc.

4.1.2.5 Credit Monitoring and supervision Cell

JBL is a unique characteristic in its loan management to make sure that there will be no bad loan in its-loan portfolio; JBL established a loan monitoring and supervision cell headed by a First Assistant Vice President. He along with other official frequently visits customer premises or business whether loan amount, which is taken, is used properly or not. Sometimes customer need more fund or ether types of facilities to run business profitably, then the monitoring authority takes necessary steps to meet customer’s need.

4.1.2.6 COMPUTATION CREDIT RISK GRADING

The following step-wise activities outline the detail process for arriving at credit risk grading.

Step I : Identify all the Principal Risk Components

Credit risk for counterparty arises from an aggregation of the following: Financial Risk

• Business/Industry Risk
• Management Risk
• Security Risk
• Relationship Risk

Each of the above mentioned key risk areas require be evaluating and aggregating to arrive at an overall risk grading measure.

a)         Evaluation of Financial Risk:

Risk that counter parties will fail to meet obligation due to financial distress. This typically entails analysis of financials i.e. analysis of leverage, liquidity, profitability & interest coverage ratios. To conclude, this capitalizes on the risk of high leverage, poor liquidity, low profitability & insufficient cash flow.

b)         Evaluation of Business/Industry Risk:

Risk that adverse industry situation or unfavorable business condition will impact borrowers’ capacity to meet obligation. The evaluation; of this category of risk looks at parameters such as business outlook, size of business, industry growth, market competition & barriers to entry/exit. To conclude, this capitalizes on the risk of failure due to low market share & poor industry growth.

c)         Evaluation of Management Risk:

Risk that counter parties may default as a result of poor managerial ability including experience of the management, its succession plans and teamwork.

d)         Evaluation of Security Risk:

Risk that the bank might be exposed due ‘:o poor quality or strength of the security in case of default. This may entail strength of security & collateral, location of collateral and support.

e)         Evaluation of Relationship Risk:

These risk areas cover evaluation of limits utilization, account performance, conditions/covenants compliance by the borrower and deposit relationship.

Step II             Allocate weight ages to principal Risk Components

According to the importance of risk profile, the following weitght ages are proposed for corresponding principal risks.

Principal Risk Components                                                     Weight:

• Financial Risk                                                             50%
• Business/Industry Risk                                               18%
• Management Risk                                                       12%
• Security Risk                                                               10%
• Relationship Risk

Step III           Establish the key parameters

Principal Risk Components:                Key Parameters:

• Financial Risk                         Leverage, Liquidity, Profitability & Coverage Ratio
• Business/Industry Risk           Size of Business, Age of Business, Business

Outlook,

Industry Growth, Competition & Barriers to Business

• Management Risk                   Experience, Succession & Team Work.
• Security Risk                           Security Coverage, Collateral Coverage and Support.
• Relationship Risk                    Account Conduct, Utilization of limit, compliance

of Covenants/conditions & Personal Deposit.

Step III           Establish the key parameters 

Principal Risk components:                 Key parameters:                                  Weight:

• Financial Risk                                                                                     50%

–Leverage                                           15%

-Liquidity                                            15%

-Profitability                                        15%

-Coverage                                            15%

• Business Industry Risk           –                                                           18%

-Size of Business                                 5%

-Age of Business                                 3%

-Business Outlook                               3%

-Industry growth                                 3%

– Market Competition                         2%

– Entry/Exit Barriers                            2%

• Management Risk                                                                               12%

-Experience                                         5%

-Succession                                         4%

-Team Work                                        3%

• Security Risk                                                                                       10%

-Security coverage                              4%

-Collateral coverage                            4%

-Support                                              2%

• Relationship Risk                                                                                10%

-Account conduct                               5%

-Utilization of limit                             2%

-Compliance of covenants/condition  2%

-Personal deposit                                 1%

Step V Input data to arrive at the score on the key parameters.

After the risk identification & weight age assⁱgnment process (as mentioned above), the next steps will be to input actual parameter in the score sheet to arrive at the scores corresponding to the actual parameters.

This manual also provides a well-programmed MS Excel based credit risk scoring sheet to arrive at a total score on each borrower. The excel program requires inputting data accurately in particular cells for input and will automatically calculate the risk grade for a particular borrower based on the total score obtained. The following steps are to be followed while using the MS Excel program.

a)     Open the MS XL file named, CRG_SCORE_SHEET

b)     The entire XL sheet named, CRG is protected except the particular cells to input data.

c)     Input data accurately in the cells which are BORDERED & are colored YELLOW.

d)   Some input cells contain DROP DOWN LIST for some criteria corresponding to the Key Parameters. Click to the input cell and select the appropriate parameters from the DROP DOWN LIST as shown below.

e)             All the cells provided for input must be filled in order to arrive at accurate risk grade,

f)              We have also enclosed the MS Excel file named, CRG_Score_Sheet in CD ROM for use.

The following is the proposed Credit Risk Grade matrix based on the total score obtained by an obligor.

Table-6: Credit Risk Grade Matrix

5.1.3 Processing and screening of Credit Proposal

There are some common regulations governed by Banking Company Act, 1991 Bangladesh Bank and the law of the State, which has to be followed strictly at the time of screening a credit proposal. In addition. Credit proposals are appraised critically by JBL credit officials from various angles to judge the feasibility of proposal.

The customer at the branch of the bank place credit proposals. When a customer comes with accredit proposal, the credit department officials of the branch make an open discussion with the customer on different issues of the proposal to judge.

Worthiness of ^tile proposal and customer. If theproposal scenes worthwhile in all aspect then the proposal is placed before credit committee of the bank. After threadbare discussion, if the committee agrees in principle the proposal is sanctioned as per the delegated business power of the branch.

However, if the magnitude of the proposal is beyond the delegated business power of the branch they forward it to the Head Office with, sanction of approval.

On receiving rile proposal, the Credit Division of Head Office places the proposal in the Head Credit Committee. The committee further analyzes proposals critically and if agree in principle they sanction the same as per delegated business power. Again if the merit and magnitude of the proposal is beyond the delegated business power of the Head Office Credit Committee or Managing Director forward proposal to the Board of the Bank with recommendation for approval.

If the proposal is found unviable at the branch level they decline the same from their desk. In the same way, proposals are also declined from the Head Office Credit Committee and from Board if it is not feasible.

4A.3A Securities

It is essential that the proposals define clearly thepurpose of^. The sources of repayment. The agreed repayment schedule. The value of security (land, machinery security papers, bond, sanchay patra etc.) and thecustomer relationships consideration implicit In, The credit division.

Where the security is to be accepted as collateral for the facility all documentation relating to the security shall be in the approved from.

All approval procedures and required documentation shall be completed and ail securities shall be place prior to the disbursement of the facility.

For creation of mortgage on the property-A3L requires die following documents:

• Original sale deed favoring owner of the land.
• Certified copy of the sale deed of the previous owner of the same property.
• Duplicate Carson Receipt (DCR)
• Up to date rent receipt and Municipal Tax Receipt
• Certified copy of C.S.S A. and R.S. Khatians
• Up to date Non-Encumbrance Certificate
• Valuation Certificate
• Clearance from RAJUK/WORKS MINISTRY
• RAJUK approved plan of the building with the approval letter
• Photograph of the property from three different angles and the over of the property
• Site Plan/ Mouza Map
• Board Resolution for mortgaging property if the same belongs to any limited company.

The borrower is requested to submit the above-mentioned papers inoriginal for Verification by the Bar-1n lawyer and creation on the property intended to mortgage against advance.

4.2 Documentation

A document is a written statement of facts of proof. or evidence arising out of particular transaction, which on placement may bind the parties there to answerable and liable to the law for satisfaction of the charge in question.

The execution of documents in proper from and according to the requirements of the law is known as documentation. The documentation does establish a legal relationship between the lending bank and the borrower. The terms and conditions of loans and advances, the securities charged and the repayment schedule are recorded in writing Proper documentation is necessary to safeguard the future interest of the bank.

Documents are necessary for the acknowledgement of the debt by the borrower and charging of securities to the bank by him. Proper and correct documentation is essential not only for the safety of advance but also necessary for taking legal action against the debtors in case of non-repayment of dues. Depending on the types of loans and advances different documents are required. Such as

4.2.1 Documentation of Loan

1                    Demand of Promissory (DP) Note

2                    Letter of partnership (in case of partnership concern) or resolution of the board of Directors (in case of Limited concern)

3                    Letter of Agreement

4                    Letter of Disbursement.

5                    Letter of Pledge (in case of pledge of goods)

6                    Letter of Hypothecation (in case of hypothecation of goods)

7                    Trust Receipt (in case –of LTR facility)

8                    Letter of Lien and Ownership (in case of advance against share)

9                    Letter of lien for packing credits (in case of packing credits)

10                Letter of lien (in case of advance against FOR)

11                Letter of Lien and transfer authority (in case of advance against PSP, SSP etc.

12                Legal documents for mortgage of the property (as drafted by legal advisor)

4.2.2 Documentation of Overdraft

1                    Demand of Promissory (DP) Note

2                    Letter of partnership (in case of partnership concern) or resolution of the board of Directors (in case of Limited concern)

3                    Letter of Agreement

4                    Letter of Continuity

5                    Letter of Lien and Ownership (in case of advance against share)

6                    Letter of Lien (in case of advance against FOR)

7                    Letter of Lien and transfer authority (in case of advance against PSP, SSP etc,

8                    Legal documents for mortgage of the property (as drafted by legal advisor)

4.2.3 Documentation of Cash Credit

1. Demand of Promissory (D.P) Note.
2. Letter of partnership (incase of partnership concern) or resolution of the board of Directors (in case of Limited Concern.
3. Letter of Agreement
4. Letter of Continuity
5. Letter of Pledge (in case of pledge of goods)
6. Letter of Hypothecation (in case of hypothecation of goods)
7. Letter of Lien and Ownership (in case of advance against share)
8. Letter of Lien (in case of advance against (FDR)
9. Letter of Lien and transfer authority (in case of advance against PSP, SSP etc,
10. Legal documents for mortgage of the property (as drafted by legal advisor)

4.2.4. Documentation of Bills Purchased

1. Demand of Promissory (D.P) Note.
2. Letter of partnership ( in case of partnership concern) or resolution of the board of Directors (in case of Limited Concern)
3. Letter of Agreement
4. Letter of Hypothecation of Bill

All required Documents as mentioned before should be obtained before any loan is disbursed. Disbursed of any credit facility requires approval of the component authority that should ensure before exercising such delegated authority that all the required documentation have been completed.

4.3 Credit Facilities Extended by JBL

The man functions of a commercial bank are tow:1) to take deposit and 2) to make advance. Making advance is the most important function of a bank. These expend the profitability of the bank. Moreover, Bank make advance out of the deposits to the public which are payable at demand. A Commercial Bank makes advances to different sectors for different purpose i.e. financing of trade and commerce, Export and import, industries Agriculture, Transport, House-Building etc.

4.4.1 CC Hypo (Cash Credit Hypothecation)

Cash Credit allowed against hypothecation of an asset is known as Cash Credit

(Hypo) of goods on which charge of lending bank is created.

For Cash Credit (Hypo) Bankers takes following precaution:

• The banker carefully verifies the stocks of the hypothecated assets and their market price
• Obtains  periodical statement of stock duly signed by the borrower

• Ensure dial docks are duly insured against fire, burglary with bank clause
• Obtains sufficient collateral securities.
• Identify that whether the goods are ready saleable and whether they have good demand in the market.

Ensure the borrowers trustworthiness.

4.4.2 CC Pledge (Cash Credit Pledge)

Cash credit allowed pledge Of goods is known as _“Cash credit (Pledge). For Cash Credit (Pledge) the borrower pledges his goods to the bankers as a security against the credit facility. The ownership of pledge goods remains with the pledged. The bank remains the effective control of the pledged goods. Pledged goods can be stored in the custody of borrower but under lock and key of the bank. Banks appointed guards are taken care of those goods round the clock. The banks delivered the pledged gods to the party by turns against payment.

For Cash Credit Pledge following points arc taken into consideration before allowing.

• Whether the quality of goods is ascertained.
• Whether the goods are easily saleable and those goods must have good demand in the market.
• The quality of goods is ensured. The goods cannot be perishable and will not deteriorate in quality as a result for short and long duration.

4.4.1 CC Hypo (Cash Credit Hypothecation)

Cash Credit allowed against hypothecation of an asset is known as Cash Credit (Hypo) In cash of hypothecation die borrower retains the ownership possession of goods on which charge of lending bank is created.

• For Cash Credit (Hypo) Bankers takes following precautions:
• The banker carefully verifies the stocks of the hypothecated assets and their market price
• Obtains periodical statement of stock duly signed by the borrower
• Ensure Mai stocks are duly insured against fire, burglary with bank clause.
• Obtains sufficient collateral securities.
• Identify that whether the goods are ready saleable and whether they have good  demand in the market
• Ensure the borrowers trustworthiness.

4.4.2 CC Pledge (Cash Credit Pledge)

Cash Credit allowed against pledge of goods _is mown as Cash Credit (Pledge) For Cash Credit (Pledge) the borrower pledges his goods to the banker as a security against the credit facility. The ownership of pledge goods remains with thepledged. The bank remains the effective control of borrower but under lock and key of the bank. stored in the custody of borrower but under lock and key of the bank. Banks appointed guards are take care of those goods round the clock. The banks delivered the pledged gods to the party by turns against payment.

For Cash Credit Pledge following points are taken into consideration before allowing.

• Whether the quality of goods is ascertained.
• Whether the goods are easily saleable and those goods must have good demand in the market.
• The quality of goods is ensured. The goods cannot be perishable and will not deteriorate in quality as a result for short and long duration.
• The borrower has the absolute title of goods.
• The prices of the goods have to steady and are not subject to violent change.
•  Goods should be stored in the presence of a responsible bank office.
• Ensure that stocks are duly insured against fire, burglary, with bank clause.
• Stocks must be invocated regularly byresponsible bank office.
• The locks of the store are scaled and keys are kept in the bank.

4.4.3 Overdraft

The overdraft is always a_llowed on a special A/C operated upon cheques. The customers may be allowed a certain limit up to which he can overdraw within a specific period of time. In an overdraft A/C withdrawal and deposit can be made any number of times within the limit and prescribed period. Interested is calculated and charged only on the actual debit balances on daily product basis.

Overdraft are three types

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

4.4.3.1 Temporary overdraft (TOD)

Temporary overdraft (TOD) is allowed to honor cheques which is future dated for the valued client.  Without any prior arrangement. This kind of facilities is provided for short time.

4.4.3.2 Clean overdraft (COD)       

Sometimes Overdrafts are allowed with no other security except personal security of borrowers.

4.4.3.3 SOD Secured overdraft (SOD)

When Overdrafts are allowed against security is known as secured overdraft (SOD)

Purposes

• To businessman for expansion of their business.
• To contractors and suppliers for carrying construction works and supply orders.
• Lien on fixed/term deposits.
• Shares/Debentures/Protiraksha Sanchay Patra
• Insurance Policy.
• Mortgage on real estates and properties.

Securities

Interest Rate: 15 % per annum

Payment against Document (PAD)

Eligibility

PAD is generally granted to importer for import of goods.

Interest Rate: 16 % per annum

4.5.2Internal Bills Purchased (IBP)

This kind of arrangements is allowed for purchase of internal bills. Some times Contractors need money to his liquidity problem. To avoid thus kind of situation they want to take loan against their future dated cheque.

Eligibility

Internal Bills Purchased is usually provided for future dated cheque against some service charge before 21 days of the maturity date.

4.5.3 Loan against Imported Merchandise (LIM)

This is as similar as CC Pledge. But these loans are provided to the selected customers with internal contract.

Eligibility

These loans only fur old and some special customers.

4.5.3Loan against Trust Received (LTR)

Under this arrangement, credit is allowed against trust receipt and the exportable  goods remain in the custody of exporter but he is required to execute a stamped export trust receipt in favor of the bank. Where the declaration is made that he holds Purchased with financial assistance of the bank lit trust for the ‘bank.

Eligibility

LTR is generally granted to exporter for exportation of goods.

Interest Rate: 16 % per annum.

5.5.4 Local/Foreign Documentary Bills Purchased (LDBP/FDBP)

Under this arrangement, credit is allowed for exporter for o_r exportable goods. Banks provide all the agency commission. Its pay back period is 21 days.

Eligibility

LDBP/FDBP is generally granted to exporter for exportation of goods.

Interest Rate: 16 % per annum

4.5.5 Letter of Credit

Issuing letter of credit is one of the important services for JBL. A letter of credit is a document authorizing by the bank for a specific amount of money. Two types of L/C is provided by JBL.

                                                   Demand Loan ABP Mack T o Back L/C)    Demand Loan ABP (Deferred Payment, L/C)

Eligibility

This facility is given to the exporter/manufacturer /producer

Terms and Conditions

• It should stipulate the name of the loan/credit/grant.
• It should bear the name of the designed bank.
• Item mentioned in the LCA form must contain with the permissible item.

4.6.1 Hire Purchase

The feature of hire purchase is that borrower pays his remaining amount over a period of 6 month to 2 years & some times more then 2 years. For this kind of credit tic goods, which has been purchased, registered to the bank- as owner. And after end of final payment goods are registered to owner formally.

Eligibility

Hire purchase facility is allowed to [hose people who have either fixed source of income or desire to pay it in lump stun.

Interest Rate: 16 % per annum

4.6.2 Loans (General)

When an advance is made in a lump sum repayable either in fixed monthly installment or in lump sum and no subsequent debit is ordinarily allowed except by way ⁱⁿ interest and incidental charges etc. This is loans (general). Loan is allowed for a single purpose where the entire amount may be required at a time or ina number of installments within a period of short Spam. After disbursement of the entire loan amount, there will be only repayment made by the borrower. Loan once repaid in full or in part cannot be drawn again by the borrower.

Entire amount of the loan A/C in the name of the customer and is paid to hen through his SB/CD A/C. Sometimes loan amount are disbursed in cash.

This loan is repayable within few months or few years.

Securities:

1. Lien on fixed/term deposits.
2. Shares/Debentures/Protiraksha Sanchay Patra.

3.      Insurance Policy

4.      Moftgaze of Real estates and properties

5.      Hypothecation of stock/Stock/Machinery.

Interest Rate: 16 % per annum

4.6.3 Lease Finance

Jamuna bank Ltd. is the first private commercial bank^, in Bangladesh who introduced lease finance facilities for funding requirement of valued customers & growth of their business.

Lease Items

• Vehicles like luxury bus, Mini bus, Taxi Cabs Cars, Pick-Up Van Etc.
• Factory equipment.
• Medical equipments.
• Machinery for agro based industry.
• Construction and office equipment.
• Sea or river transport and computer for IT education center.

Lease Period by Items

Table-6: Lease Period by Items

Maximum Limit:

70% of acquisition Cost,

Security /Collaterals.

The following securities are acceptable.

• Ownership of leased assets before the period of loan adjustment.
• Collateral securities in the form of land & building/Fixed Deposits/other cash collateral /Wage Earners Development Bond having liquidation value covering at least 100% amount of finance.
• Deposit Of A category shares, National Savings Certificates, ICB Unit Certificates, assignment of life insurance policies, Bank Guarantee also be allowed as collateral securities.
• Creation of charge of axed assets of file existing industrial units requiring BMRE. Creation of charge on the existing vehicle will also be acceptable as securities.

Charges

Bank charges are modest and competitive.

Lease Deposit

Before disbursement of lease finance, the lessee shall have to deposit 3 months rentals in advance, which will be adjusted at the end of the lease period.

Grace Period

For capital machinery and equipment, maximum grace period of 6 (six) months may he allowed for installation/commercial production.

Payment Date

Rental payments shall be made every month and there shall be three payment dates as detailed below.

If Lease executed.

Between 1^st to 10^th ………5^th of subsequent months

Between I l^a‘ to 20^th……15th of subsequent months

After 20^th ………………25^th of subsequent months.

Insurance Coverage

The vehicle /Equipment /Lease asset shall have to be covered bya comprehensive insurance policy throughout the whole lease term at lessees own cost in the name of Jamuna Bank Limited. The premium shall be on account of lessee.

Repair and Maintenance of Leased items

The lessee is obliged to maintain the vehicle/Equipment in good working order and is solely responsible for any loss or damage as long as it is in his ^possession. Repair and maintenance cost for taking care of normal wear and tear and keeping it _in good running condition during the lea^–se, pen-0d shall’ be the responsibility of lessee.

Transfer price/Lease Renewal Rental

On final adjustment of the lease finance, the lessee may have an option to purchase the equipment at 5% of the lease finance. Besides the above option, tile lessee may renew the lease on year-to-year basis or return, the equipment to the bank.

4.6.4 Personal Loan for Woman

This is one of the new events in Bangladesh in credit sector. Woman who are interested and has the ability to pay it back in time those can get this kind facility To encourage the woman JBL provide loan with low interest.

Eligibility:

The borrower must be the following profession.

• Service holder of Government Organization
• Service holder of Semi-Government Organization
• Service holder of Multinational Organization
• Service holder of Bank and Insurance Company
• Shop owner/has small business.

Interest Rate: 15.5% per annum

4.6.5 Consumer Credit Scheme

Consumer credit is recently new field of micro credit activities; people who have limited income can avail of this credit facility to buy any household effects including car, computer, household and other commercial durables. JBL plays a vital role in extending the consumer credit.

Eligibility:

The borrower must be the employee of the following organization.

• Government Organization
• Semi- Government Organization
• Multinational Organization
• Bank and insurance Company
• Re^puted Commercial Organization
• Professionals

Nature

Mid term Micro Credit

Interest Rate: 16 % per annum

Terms And Conditions

• Client will procure the specified articles from the dealer/agent /shop acceptable by the Bank.
• All of the papers /cash memo etc. related to the procurement of the goods will be in the name of bank ensuring ownership of the goods. The ownership will be transferred in the name of the client after full adjustment of Banks due.
• The clients will have to bear all the expenses of license, registration and insurance etc.
• The clients will have to bear the cost of repair and maintenance of the acquire articles.

Clearing

CLEARING DEPARTMENT:

Accounts section deals with the income and expenditure of the branch and stores each and every transaction of the bank. The accounts officers check all the paper works like bills, vouchers, checks and deposit slips every day. They also prepare a supplementary sheet. Supplementary sheet is prepared for bank’s transaction security to avoid any fraud or misguidance. A Principal Officer is designated in Dilkusha Branch as the account officer in-charge of the department. Supplementary sheet consists of three heads such as General, Transaction with client’s income and expenditure.

Inward Clearing

Inward clearing involves clearing Cheques/DD/PO, which come to the JBL, Dilkusha branch through clearing louse for collection. The clearing officer receives then enters them in the inward logbook. Then sends them to the computer section for checking the account condition. If any problem is found with the instrument, it is marked as ‘dishonored’ mentioning the reason as mentioned above and he sends to the clearing officer. The clearing officer removes Cheques/DD from logbook and informs the matter to the Dilkusha branch.

Outward Clearing

The cheques, PO, DD of different banks, which are submitted to JBL, Dilkusha Branch, for collection, are known as out- Ward clearing cheques.The procedure is quite lengthy.

REMITTANCE
Introduction

Commercial bank in Bangladesh offers the facility of transferring funds, from one place to another place, to their customers as well as to the general public. Such transfer of funds can be affected either through Demand Draft or Telegraphic Transfer or Mail Transfer. The aforesaid methods of remitting money from one place to another within the country are known as Remittance, While, it is for outside Bangladesh the same is called foreign remittance. The advantage of this facility is the quick transfer of money with minimum cost and also the risk of physical transportation of cost is eliminated.

Main Key Terms

Issuance & Payment of Demand Draft, Telegraphic Transfer or Mail Transfer, SDR, STOP payment & Issuance of Duplication In Stead of Lost Ones.

Issue Of Demand Drafts:

 The customer is asked to complete in a form, which is treated as an application as well as voucher. The application form should be checked carefully.

 Commission charge are calculated & inserted in the case provide in the form.

 The voucher given to the customer to deposit the case with the cashier.

 The cashier receives the cash & delivers the voucher to remittance, department against initial in his books.

 Draft is prepared & entered in drafts issued register.

 The draft number is written on the voucher.

 Branch wise serial number is given on the draft besides the oriented number putting on oblique between. The amount of the draft protect graphed.

 Draft block &the voucher along with the register are sent to officer in charge for checking & signatures. He signs the draft & voucher & initials the counterfoil of the draft & the register.

 Then the draft & the voucher are sent to the manager / second officer for second signature.

 The draft is crossed if customer desires & delivered to him against his acknowledgment on the voucher.

 A memorandum is issued to the stoner if the desires.

 The cheque is sent for passing & cancellation.

 Telegraphic intimation under test is sent to the Drawee much for drafts of TK. 50,000/- &  over in or as per the existing of the bank

Issue Of Duplicate Demand Draft 

 The draft is issued marked duplicate in red ink, without altering the printed number & repeating the original number.

 A note to this effect is made on the original from & the draft issues register.

 Drawee branch is advised of issue of the duplicate draft.

 On receipts an application from the purchase of the drafts its loss & issue of duplicate one, the signature of the applicant is verified from the original application.

 On receipt of confirmation from the Drawee branch that the draft is still outstanding in their books & that caution being exercised by them, a duplicate draft is issued to the purchase after obtaining an indemnity Bond.

 The Drawee branch is informed of the loss of draft & requested to exercise caution by letter or telegram as desired by applicant

 Cancellation Of Demand Draft:

 One receipts of application along with the demand draft for its cancellation the signature of the applicant is verified from theoriginal application from & the geniuses of the demand draft is examined.

 Before the draft is cancelled it is ascertained that no duplicate draft has been issued.

 If the date of issue is in favor of a company, semi- government official, consent of the payee in writing is essential.

 The Drawee branch may be advised an about the cancellation of the draft.

 The cancelled draft should be attached to debit voucher along the request letter of the purchaser.

Revalidation Of Draft:

 A draft like cheque becomes stales after lapse of six month from the date of issue. The purchaser of the draft may approach the issuing branch to revalidate the draft to make it payable again.

 The draft should be remind & there must be no alteration in the draft. The purchaser must give a letter in writing requesting for the revalidation of the draft. An officer should duly verify his signature on the letter.

 All particulars of the draft should be compared from the draft issued register. Before the draft is revalidated it is ascertained that no duplicate draft has been issued, a note about revalidation of the letter particular draft be made in the register.

 The drawee branch should be intimated about the revalidation of the draft. A note to this effect in the remark column against the relative entry in the draft payable register should be made at the drawee branch.

Payment of Demand Draft

 Record of loss.

 Record of duplicate draft.

 Record of cancellation draft.

 Record of revalidation.

Payment of Open Draft:

 The date, amounts in words & figures & signatures on the draft is checked.

 If the draft is tested, test should be verified.

 Draft together within the register is sent to the officer in charge for cancellation.

 Cancellation the draft sent to cash department for payment.

Payment Of Crossed  Draft:

 Under N.1. Act crossed draft cannot be paid in cash, expect to a banker, who collects the same for credit to his customer’s account’s.

 In case of any irregularity in the draft an advice letter is sent obtain the confirmation of the issuing branch.

Accounting  Treatment(sale of DD)

Cash /Party A/C—————————————Dr.

HO  A/C  Drawn  on  branch————————Cr.

Income A/C Commission—————————-Cr.

After giving entries an IBCA is prepared.

An IBCA  implies the folloiwing entries:

HO  A/C  issuing  branch—————————–Dr.

Drawn  on  branch————————————-Cr.

The  IBCA  is dispatched to drawn on branch

Role  of  the  drawn  on  branch:

After receiving the instrument, tile IBCA lodgment is done by the branch.

Accounting  Teatment

(after receiving an IBCA)

Issuing  branch A/C————————————–Dr.

Bills payable(DD) A/C———————————-Cr.

When payment given,

Bills payable (DD) A/C———————————Dr.

Customer A/C——————————————–Cr.

Payment is made from the suspense account if the IBCA is not reached, but the instrument has been presented.

Suspense A/C———————————————Dr.

Customer A/C———————————————Cr.

To adjust the payment:

Issuing Bank A/C—————————————–Dr.

Suspense A/C———————————————-Cr.

Telegraphic Transfer:

TT is affected by tile bank through tested telex message by secret check signal, on receipt of which tile paying officer pay the amount to the payee in cash through a telegraphic payment order or credit his account, as the case may be. Both parties must have account in Jamuna Bank Limited, as money is transferred.

Giving Payment Order (PO)

The PO is used for making a remittance to the local creditors.

The procedures for selling a PO are as follow:

 Deposit money by the customer along with application form.

 Give necessary entry in the Bills Payable register where payee’ name, address, date, PO no. amount is mentioned.

 Prepared the instrument.

 After scrutinized & approved the instrument by authority, it is delivered to customer. Signature of customer is taken on the counterpart & register customer’s signature part.

FOREIGN REMFITTANCE

            Foreign Remittance handled by the bank stood at Tk.200.25 million as of December 31, 2003, Country from which inward foreign remittance were received included UAS, UK, Canada, Japan, Taiwan, KSA etc.

Accounts

How to maintain outward Bill collection (OBC) files:

OBC realization file.

OBC closing file.

How to prepare on line receipts & payment voucher (IBDA& / or IBCA):

This type of instrument is to prepare in four pages of IBDA & / Or IBCA.

Check return posting & Inward posting:

After clearing by the Bangladesh Bank clearinghouse the checks come to the branch. These checks are posted in check return & payment inward register.

All jobs are related to the front deskwork & also the customer service oriented. By giving customer service a friendly & cordial relationship has been grown up with the customer.

ACCOUNT TRANSFER

These are internal fund transfers whereby both the debit and credit accounts are held with the bank. These entries are usually made ‘online.

Cash Receipts

Money deposited in cash by the constituents at the cash counter of the bank excluding that of government transaction is known as bank receives (cash). Different typos of form are used for cash deposits for different type accounts. Particulars of some forms are furnished below:

 Current or Savings Accounts pay in slip

 Applications for Fixed Deposit Receipt

 Credit Voucher

 Draft or Mail transfer Application Form

 Telegraph Transfer (T.T) Pay Order Application Form Called Deposit Application Form

 Demand Loan Pays in Slip

Step-1

The Depositor will fill up the appropriate the form properly. The concerned officer working at the General Banking Counter will initial the form relating to the new account.

Step-2

Receiving the cash & voucher at the cash counter, the cash officer will count the cash correctly. Then the voucher will be branded  “Cash Received” seal. Then the Assistant Cash Officer was willing the denomination of the notes & coins in the backside of the voucher. After tax Assistant officer will sign the voucher

Step-3

The Cash Officer will check up the voucher & entered t6he amount in the cash receipt register & put the scroll number. Then the Officer will voucher & send to the computer department.

Step-4

The Officer computer department entry the transaction into the computer & put the posted seal & treasure on the voucher.

Step-5

At the end of the transaction the Cash Officer will total the cash receipt book & the total figure should be tally with scroll maintained by the officer whose scroll will also be totaled. The physical cash received at the counter must be equal to the total figure of the scrolled

Cash Payments

Banks payments include all kinds of payments excluding those of treasury sections. Extreme precautions must be taken at all levels through, which instrument like cheque, drafts, etc. are disposed. All the Instruments received at the general banking counter will be preliminary checked by the dealing officer who will enter the instruments in the respective ledger. Incase of cheque the following particulars will be scrutinized:

 Date (whether post dated or entry dated)

 Amount in word & in figure

 Crossed or open

 Bearer or order

Style of signature  as available in the leisure

 Prohibitory order or stop payment of cheques.

The Cash Officer will follow the following procedures at the time of payments of cheques / other instruments over the cash counter

Step-1

The client will submit the instruments in the computer department first. The Computer officer and cheque passing authorized officer will verify the instrument & posted the instrument. Then it will be sent to the cash counter.

Step-2

After getting the instrument the cash officer will verify the instrument & if necessary the cash can tell the clients to sign in the backside of the instrument.

Step-3

Cash Officer will record the denomination of notes & coins on the backside of the instrument.

Step-4

The Officer will enter the cheque in the cash payments register where the denomination of notes & coins will also be recorded.

Step-5

 The Cash officer will give the amount to the clients at the cash counter & tell the clients to count it immediately and if needed any quarry.

Step-6

All cheques drafts, debit voucher etc must be branded with “ Cash paid” stamp with the current date.

Step-7

After payment the cash department for the purpose of clean Cash Book will send the vouchers.

Step-8

The head of the cash department is responsible for debit vouchers being branded with the cash paid date stamp immediately they are paid & manager must supervise him/ her in this matter as any laxity is extremely dangers

Late Payments

 Incase of any payments instruments must be debited in the ledger and passed in the usual manner. It will enter in the cash paid sheet in the above manner  & cash book under authentication of the manager & Cash Officer. It must also be noted with late mark under initial of the manager with date.

Finally all cash receipts & Payments will be taken into account to calculate the cash balance of the branch. We may take an example to clarify this.

But this is to notify that, at the end of the day of the bank the amount of the cash book and the amount of the computer should be equal. Because, currently the whole banking are being done through computer. So the clean cash of cash department  & the supplementary of the computer must be equal.

Payments & Collection of Cheques

 In the Banking Sector Bill of Exchange is one of the important instruments. Bill of Exchange is a n instrument in writing containing and unconditional order, signed by the maker, directing a certain person to pay on demand or at a fixed determinable future time a certain sum of money only to or to the order of a certain person or to the barrier of the instrument. But the cheque is the most important instrument in the Bill of Exchange. A cheque is a bill of exchange drawn on a specific banker & not expressed to be payable otherwise then on demand.

There are two types of cheque in the bank, such as:

• Cross Cheque
• Collection Cheque

Cross Cheque

Those which can only be paid to a banker for crediting the proceeds to the accounts of its pay is called cross cheque.

Essential elements / requisites of a cheque

• It must be in writing
• It must contain an order to pay on demand or at fixed or determinable future
• The order be an  unconditional one
• The drawee must be certain
• The sum Payable must be certain
• The instrument must contain an order to pay a certain sum
• The payee must be certain

The Payment of open cheque

An open cheque may either be bearer or order. Where the chequed payable to order purports to be indorsed by or on behalf of the payee the drawee is discharged by payment in due course. Where a cheque is originally expressed to be payable to bearer the drawee is discharged by payments in due course to the bearer there of; not with standing any endorsement whether in full or in blank appearing there on and not with standing that such endorsement purports to restricts or exclude future negotiation.

Payments of Crossed Cheque

Where a cheque is crossed generally the banker on whom it is drawn shall not pay it otherwise than to the banker.

Where a cheque is crossed specially the banker on whom it is drawn shall not pay it otherwise than to the banker to whom it is crossed or his agent for collection

Where a cheque is crossed specially to more than one banker except when crossed to an agent for the purpose of collection the banker on whom it is drawn shall refused payment thereof.

Reasons for Cheque Dishonor

There are a lot of reasons for cheque dishonors. Some of the reasons given below

• Refer to drawer
• Not arranged for
• Effects  not cleared  may be presented again/  after days
• Exceed arrangement
• Full cover not received
• Payment stop by drawer
• Drawer signature deferred
• Cheque is post dated/ out of date/ Multilated/ Entry dated
• Amount inwards & figure deferred
• Alternation of date/ figure/words
• Other reasons

Cheque Collection

There is no legal obligation on a banker to collect cheques drawn on other banks  for a customer but as a practice the collection of cheques  & bills on behalf of the customer has become one of the important functions of bank. A banker collecting a cheque for a customer has no better title than that of his customer a cheque belonging to another person can be held liable for con version.

A banker who has in good faith without negligence received payment for a customer of a cheque crossed generally or specially to himself shall not in case the title of the cheque proves defective in cure any liabilities to the true owner of the cheque by reason only of having receive such payment.

Thus statutory protection given to the collecting banker can be claimed only for crossed cheques

3.2 Advance Section:

 Advance Banking

2 Industrial loan:

            The bank provide industrial loan to its client. It is sectioned for five years or above. In order to get loan from the bank clients are obligated to fulfill the certain requirements provided by the bank.

2 Term Loan:

            The term of loan is determined on the basis of gestation of income by the use of the loan such loans are provided for seasonal agriculture activities, farm machinery, dairy, poultry, transport facilities, extension of tea gardens and development of horticulture, fishing, etc. it is categorized in three segments:

            Types of term loans                              Time (Period)

            Short-term loans                                              1 to 3 years

            Medium term loan                                           3 to 5 years

            Long-term loan                                               above 5 years.

2 Over Draft:

            The over draft is one kind of advance. In the case, the customer is allowed to overdraft his or her current account by drawing checks more that is available balance up to an agreed limited within a certain period of time but not exceeding more than one year, against acceptable securities. These facilities are granted to the customer only after reviewing the credit standing; financial ability and status of the customer as will as the

purpose have been favorably established. The overdraft limit is based on “ADVANCED LINE OF CREDIT” available on a receiving basis and reviewing prior of expiration of the agreed of time between the bank and the customer.

OD against Pledge and goods:

 Overdraft against pledge of goods may be extended to the borrowers against pledge of taw materials or finished goods products as security. This is giver accordingly to credit and margin restriction imposed by Bangladesh Bank and FSBL head office time to time. Here the customer signs a dully-stamped letter of pledged by which the customer surrender the physical possession of the goods to the effective control of the bank. The owner ship of the goods remains with the borrower. The outstanding liabilities are adjusted out of the sales proceeds.

Measure taken while providing OD against pledge:

 Quality and quantity of the goods properly ascertained.

 The goods must be readily saleable and have as effective demand in the present market condition.

The goods must not be perishable. It must store in proper warehouses to prevent form deterioration and risk of pilferage.

 The goods have to insured with bank mortgage clause.

 Security personnel are to be posted on the warehouse for safety of the goods.

 Authorized bank personnel are inspected goods or stock regularly.

 Stock card mist be displayed in the warehouse indication the quality, their value and price rate of the goods.

Margin

            The margin is fixed depending on the nature and type of security and the financial stability of the customer. The Bangladesh Bank regulations are of course kept in mind. JBL retains a responsible margin and this is also to cover up any shortage, shrinkage and fluctuation of rate and fall in price etc.

Drawing power

            The drawing power indicates the ceiling of the limit up to which a customer can overdraw in his or her account. The drawing power is calculated in the amount arriver after deducting of the margin from the securities value either in cost price or market price which ever is lower. Under no circumstances, the advance will exceed the drawing power if the customer in the manner described above.

OD against Hypothecation of stock

            JBL prefers and peruses this type overdraft. Under this arrangement, credit facility is provided to the borrower on signing a letter of Hypothecated, creating a charge against the raw materials/ finished goods etc. hypothecated to the bank as primary security against the advance. In this case, both the ownership and physical possession of the goods remains with the bank and when called upon to do so. The bank acquires the right over the goods hypothecated.

Particulars considered and measure taken while providing OD against Hypothecation:

 The clients need to be trust-worthy and reliable.

 The goods should be readily saleable and of course have constant demand in the market.

 The borrowers have had an absolute title of he goods.

 Goods must be insured with the bank mortgaged with a sum of 10% above the sanctioned limit.

Margin

Same as the overdraft against pledges.

 Drawing power

Same as the overdraft against pledges.

2 Consumer Credit Scheme (CCS)

            Consumer credit scheme is sanctioned fir those pupils, who want to buy commodities like generators, computer, freeze, car (brand new), TV, and any kind of home appliances etc. they have to give a guarantee of manage a guarantor who will take the responsibilities of full payment. The interest rare of this scheme is 15% per year and the time of duration is maximum 2 years. Bank finances not mare than 75% to buy the product. Registration of the product will be in name of the bank. Withdrawals of the registration will be done after making all the installment of the product.

Types of Credit Activities:

Loan (General):

            Short term, medium term and long term loans allowed to individual or firm or industries for a specific purpose but for a definite period and generally repayable by installments fall under this head. This type of lending are mainly accommodate to financing under the categories:

# Large and medium scale industry

# Small and cottage industry

Very often term financing for (a) Agriculture and (b) Others are also including here.

Cash Credit (Hypo)

            Advances allowed to individuals or firms for trading as well as whole- sale purpose or to industries to meet up the working capital requirements against hypothecation of goods as primary security fall under this type of lending. It is a continuous credit. It is allowed under the categories:

# Commercial lending-when the customer is a other than industry.

# Working capital-when the customer is an industry.

Cash Credit (Pledge):

            Financial accommodation to individual or firm for trading as well as whole-sale purpose or to industries as working capital against pledge of goods as primary security fall under this head of advance. It is also a continuous credit and like the above allowed under the categories:

# Commercial leading

# Working capital

SOD (General):

            Advances allowed to individual/firm against financial obligation (i.e. lien of FDR/PSP/BSP/Insurance policy, etc.) and against assignment of work order for executing of contractual works fall under this head. This advance is generally allowed for definite period and specific purpose i.e. it is not a continuous credit. It falls under the categories ‘Others’.

SOD (Import):

Advances allowed for purchasing foreign currency for opening L/C for import of goods fall under this type of lending. This is also an advance for a temporary period, which is known as pre-import finance and fall under the category ‘Commercial Lending’.

PAD:

Payment made by the bank against lodgment of shipping document of goods imported through L/C fall under this type of head. It is an interim type of advance connected with import and is generally liquidated shortly against payments usually made by the party for retirement of the documents for release of import goods from the customs authority. It falls under the category ‘commercial lending’.

LIM:

Advances allowed for retirement of shipping document and release of goods imported through L/C taking effective control over the goods by the pledge in go down under banks lock and key fall under this type of advance. This is also temporary advance connected with import that is known post-import finance falls under the category ‘commercial lending’.

LTR:

Advances allowed for retirement of shipping documents and release of goods imported through L/C without effective control over goods delivered to the customers fall under this head. The goods are handed over the import under trust with the arrangement that sales proceed should be deposited to liquidate to liquidate the advances within a given period. This is also temporary advance connected with import that is known post-import finance and falls under the category ‘commercial lending’.

IBP:

Payment made through purchase of inland bills/cheques to meet urgent requirements of the customer’ falls under this type of credit facility. This temporary advance is adjustable from the proceed of bill/cheques purchase for collection. Its falls under the category ‘commercial lending’.

ECC:

Financial accommodation allowed to a party for export of goods falls under this head and is categorized as ‘Export Credit’. The advance must be liquidated out of export proceeds within 180 days.

PC:

Advance allowed to a party against specific L/C firm contract for processing/packing of goods to be exported falls under this head and is categorized as ‘Packing Credit’. The advances must be adjusted from proceeds of the relevant export within 180 days.

FDBP:

Payment made to party through purchase of foreign documentary bills fall under this head. This temporary advance is adjustable from the proceeds of the negotiable shipping/export documents. It falls under the category ‘Export Credit’.

LDBP:

Payment made to a party through purchase of local documentary bills fall under this head. This temporary liability is adjustable from proceeds of the bill.

SS:

This classification contains accounts where such irregularities have occurred but such where such irregularities are considered to be either ‘technicalities’ or temporary in nature. The main criteria for a sub-standard advance are that despite these ‘technical’ or temporary irregularities no loss is expected to arise. These accounts will require close supervision by management to insure that the situation does not deteriorate further. Provision @10% of the base is required for debts in this classification where base is the outstanding balance less interest kept in interest Suspense account less the value of eligible security

4.7 CREDIT RISK GRADING SYSTEM

Credit risk grading is an important tool for credit Risk management as if helps the Banks & financial institutions to understand various dimensions of Risk moved in different credit (transactions. The aggregation of such grading across the borrowers, activities and the lines of business can provide hello assessment of the quality of credit portfolio of abank or a branch The credit risk grading system is vital to take decisions both al the pre-sanctum stage as wellas post-sanction stage.

At the pre-sanction stage, credit grading helps the sanctioning authority to decide whether to lend or not to lend, what should be the loan price. what should be the extent of exposure, what should be the appropriate credit facility. What are the various facilities, what; are the various facilities, what are the various risk mitigation tools to put a cap on the risk level.

At the post-sanction stage, the bank can decide about the depth of the review or enwall, frequency of review, periodicity or the grading and other precautions to be taken.

Review, periodicity of the mid other precautions to be taken

Having considered the significance of credit risk )_–,lading, it becomes imperative for the banking system to carefully develop a credit risk grading model which meets the objective outlined above.

The lending Risk Analysis (LRA) mammal introduced in 1993 by the Bangladesh Bank has been in practice for mandatory use by the Banks & financial institutions for loan size of BDT 1.00 core and above. However, file LRA manual suffers from a lot of subjectivity, sometimes creating confusion to the lending Bankers in terms of selection of credit proposals on the basis of risk exposure. Meanwhile, in 2003 end Bangladesh Bank provided guidelines for credit risk grade scorecard for risk assessment of credit proposals

Since the two-credit risk models are presently in vogue. The Governing; Board of Bangladesh institute of Batik Management (13113M) under (he chairmanship of the Governor, 13;mf; latch Bank decided (hat an integrated Credit Risk Grading; Model be developed incorporating file significant features of the above mentioned models with a view to render a need based simplified and user friendly model for application by the Banks and financial institutions in processing credit decisions and evaluating the magnitude of risk involved therein.

Bangladesh Bank expects all commercial franks to have a well-defined credit risk management which delivers accurate and timely risk grading. This manual describes file elements of an effective internal process for grading credit risk. It also provides a comprehensive but generic discussion of the objectives and general characteristics of effective credit risk grading system In practice a banks credit risk grading system should reflect the complexity of its lending activities and the complexity of risk involved.

DEFINITION OF CREDIT RISK GRADING (CRG)

• The Credit Risk Grading (CRG) is a collective definition based on the pre-specified scale and reflects the underlying credit-risk for a given exposure.
• A Credit Risk Grading deploys a number/ alphabet/ symbol as a primary summary indicator of risks associated with a credit exposure.
• Credit Risk grading is the basic module for developing for developing a credit risk management system

4.8 FUNCTIONS OF CREDIT RISK GRADING

Well-managed credit risk grading systems promote bank safety and soundness by facilitating informed decision-making. Grading systems measure credit risk and differentiate individual credits and groups of credits by the risk they pose. This allows bank management and examiners to monitor changes and trends in risk levels. The process also allows bank management to manage risk to optimize returns.

USE OF CREDIT RISK GRADING

• The credit risk grading matrix allows application of uniform standards to credits to ensure a common standardized approach to assess the quality of individual obligor, credit portfolio of aunt, line of business, the branch of the Bank as a whole.
• As evident, the CRG outputs would be relevant for individual credit selection, wherein ether a borrower or a particular exposure/facility is rated. The other decisions would be relative to pricing (credit-spread) and specific feathers of the credit facility. These would largely constitute obligor level analysis.
• Risk grading would also be relevant for surveillance and monitoring, internal MIS and assessing the aggregate risk profile of a Bank. It is also relevant for portfolio level analysis.

NUMBER AND SHORT NAME OF GRADES USED IN THE CRG

• The proposed CRG scale consists of 8 categories with Short names and numbers are prow\vided as follows:

 Table-7: Short Name of CRG

4.9 CREDIT RISK GRADING DEFINITIONS

A clear definition of the different categories of credit risk grading is given as follows

• Superior- (SUP)-1

• Credit facilities, which are fully secured i.e. fully cash covered.
• Credit facilities fully covered by government guarantee
• Credit facilities fully covered by the guarantee of a top tier international Bank
• Good – (GD)-2
  • Strong repayment capacity of the borrower
  • The borrower has excellent liquidity and low
  • The company demonstrates consistently strong earnings and cash flow.
  • Borrower has well established, strong market share.
  • Very good management skill &, expertise.
  • All security documentation should bein place.
  • Credit facilities fully covered by N^, the guarantee of a top tier local Bank.
  •  Aggregate Score of 85 or greater basest oil the Risk Grade Score Sheet

• Acceptable – (ACC19) – 3
  • These borrowers arc not as strong as COOD Grade borrowers, hu^g still demonstrate Consistent earnings, cash flow and have a good back record.
  • Borrowers have adequate liquidity, cash flow and earnings.
  • Credit in this grade would normally be secured by acceptable collateral    ( its charge over inventory / receivables / equipment / property).
  • Acceptable management
  • Acceptable parcel/sister company guarantee
  • Aggregate Score of 75-84 based oil the Risk Grade Score Sheet
  • Marginal/Watch list – (MG/WL) – 4
    • This grade warrants greater attention due to conditions affecting; the borrower^. 111c inclusion or the economic environment.
    • These borrowers have an above average risk due to strained liquidity, higher thannormal leverage, thin cash flow and/or inconsistent canings.
    • Weaker business credit &’ early warning; signals of emerging business credit detected.
    • The borrower incurs a loss
    • Loan repayments routinely fall past due
    • Account conduct is poor, or other untoward factors arc present.
    • Credit requires attention
    • Aggregate Score of 65-74 based oil the Risk Grade Score Sheet

• Special Mention – (SM) – 5
  • This grade has potential weaknesses that deserve^• management’s’s close attention. If left uncorrected, these weaknesses may result in a deterioration of the repayment prospects of the borrower.
  • Severe management problems exist
  • Facilities should be downgraded to this grade if sustained deterioration in financial condition is noted (consecutive losses_, negative net worth, excessive Leverage.
  • An Aggregate Score of 55-64 based oil the Risk Grade Score sheet.
  • Substandard – (SS) – 6
    • Financial condition is weak and capacity or inclination to repayis in doubt.
    • These weaknesses jeopardize the full settlement of loans.
    • Bangladesh Bank criteria for sub-standard credit shall apply.
    • Ali Aggregate Score of 45-55 oil the Risk grade Score Sheet
    • Doubtful – (DF) – 7
      • Full repayment of principal and interest is unlikely and Hic possibility of loss is extremely high.
      • However, due to specifically identifiable pending factors. Such as litigation, liquidation procedure or capital injection, the asset is not yet classified as Bad & loss.
      • Bangladesh Bank criteria for doubtful credit shall apply.
      • An Aggregate Score of  less than 35-44 based on the  Risk grade score sheet
      • Bad & Loss – (13L) – 8
        • Credit of this grade has long outstanding wills no progress in obtaining  repayment or on the verge of wind up/liquidation,
        • Prospect of recovery is poor and options have been pursued.
        • Proceeds expected from the liquidation or realization of security may be awaited. The continuance of the loan as a bankable asset is riot warranted, and the anticipated loss should have been provided for.
        • This classification reflects that it isnot practical or desirable to defer writing off this basically valueless asset even though partial recovery  may be affected in the future, Bangladesh Bank guidelines for timely write off of bad loans must beadhered to. Legal procedures /suit initiated.
        •  Bangladesh Bank criteria for bad & loss credit shall appl_y.
        • An Aggregate Score of less than 35 based on the Risk Grade Score Sheet.

PRACTICAL ORIENTATION OF JBL

¨     Overview

¨     Ratio Analysis

5.1 OVERVIEW:

The sponsors of Jamuna Bank Limited are highly successful leading entrepreneurs of the country having stakes in different segments of the national economy. They are eminent industrialist and businessmen having wide business reputation both at home and abroad.

JBL is managed by highly professional people. The present managing director of the bank is a forward-looking senior banker having decades of experience and multi decipline knowledge to his credit both at home and abroad. An educated and skilled professional team supports him with diversified experience in finance and banking. The management of the bank constantly focuses on the understanding and anticipating customers needs and offer solution there of. Jamuna Bank Limited has already achieved tremendous progress within a short period of its operation. The bank is already ranked as one of the quality service providers and known for its reputation.

CASH POSITION OF JBL (ONE DAY):

Code 0098                                                               Date: 21.01.07

Opening Balance                                                   72004783

Receiving from banks                                           32000000

Receiving from clients                                          12673611

TOTAL RECEIPT                                                44673611

Paid to banks                                                         30000000

Paid to clients                                                        12384301

TOTAL PAYMENT                                             42384301

—————————————————————-

CLOSING BALANCE TK                      74294093

Closing cash balance as on  21.01.07

Taka (in words)                     Seven crore forty two lac ninety four thousand ninety

                                                Three only.

Receipts Vouchers                109

Payment Vouchers               143

TOTAL VOUCHERS           252

                                                                                                                Authorized officer

5.2 RATIO ANALYSIS

Here, Necessary ratios have been analyzed in order to identify the trend of JBL during their period of 2001 to 2005. As the annual report of the year 2006 has not been prepared yet by the Bank analysis, I cannot interpret and analyze the ratios of that year. Ratio Analysis indicates the financial performance of a particular period. The total overall performance of JBL is steady & showing upward trend that indicates financial soundness of that company. It strongly is influencing macro level variables of the country.

Performance Ratio (In %)                                                                             

Return On Asset (ROA) = Net Income/ Average Total Asset

Table-7: Performance

Interpretation:  It indicates return earning capacity against Fixed Asset with including tax. The above chart shows steady growth during the specific time frame period. Here Industry benchmark is 2. The Chart & the numerical figure shows the company is achieving more than 2 percent for the last 2 consecutive years.

Return On Average Assets After Tax = Net Income + After tax Interest Cost /Average Total Asset

Table-8: Performance Ratio                

Interpretation:  It indicates return earning capacity against Fixed Asset with excluding tax. The above chart shows steady growth during the specific time frame period. Here Industry benchmark is 1/1.5. The Chart & the numerical figure shows the company is achieving more 1 percent for the last 2 consecutive years with satisfactory rate.

Return On Average Equity = Net Income After Tax / Total Income   Capital

Interpretation:  It indicates profit-earning capacity against average equity (Ending + Starting). The chart & the numerical figures indicate that for the Last year (2010) ROE has declined for a marginal rate though the performance is satisfactory. During the time of inception it was only 5.50 but after it has gone tremendously & which is above the benchmark. Their performance could attract the potential stockholders.

Net Interest Margin = Int. income from loan & investment – Int. expense on debt issued / Total assets or total earning assets

Table-9: Net Interest Margin

Interpretation: It indicates how large a spread between interests revenues and interest costs management has been able to achieve by close control over the bank’s earning assets and pursuit over the cheapest sources or funding. The facts & figure indicates it is increasing at a increasing rate. It made the JBL competitive in the highly competitive market.

Return on Investment

Table-10: Return on Investment

Interpretation: It Indicates the Profit gaining capacity against the investment. In 2008 their Financial Performance collapsed because of their wrong Investment in Portfolio  & turn over rate was very high at that time. Besides they gained steady growth over the last five years. But still it does have a lot of room to improve in this arena .

Profit Margin = Net Income After Tax / Total

Operation Revenue

Table-11: Profit Margin Ratio

Interpretation: It Indicates Profit gained capacity against total Assets. Over the last three years it increases at an increasing rate.  In 2010 it reached to 20.19 which indicates recent performance of JBL is tremendously well. & its trends shows it will be able to capture upward benchmark in the upcoming years

Return On Risk Weighted Assets

Table-12: Return On Risk Weighted Assets

Interpretation:  It indicates return against risky weighted Assets. We know that high risk must be compensated by the high profit. The above chart & numerical facts indicate that though they gained profit which are worth of 4.03 & 4.68 in 2009 & 2010 respectively , is not enough to prove the efficiency in terms of  profit against Risky Assets

Interested Yield

Table-13: Interest Yield Ratio

Interpretation:  Interest yield ratio indicates interest-earning capacity from their portfolio & short term in vestment. Their Interest yield is increasing at increasing rate though it collapsed in 2010. Here industry benchmark is 11/12. So easily we can mention that their interest earning capacity is satisfactory

Salary Exp to Overhead Exp

Table-14: Salary Exp to Overhead Exp

Interpretation: Though Manpower is increasing in different branches  but the above ratio shows the salary exp is decreasing  as compare to  total overhead  exp. It indicates that as the firm is growing at steady & increasing rate , Oveerhead  cost goes with it .As a result total salary % is decreasing year by year.

Productivity Ratio

Table-15: Productivity Ratio

Interpretation: It Indicates  Internal growth of JBL with in a specified time period. Over the last five years , specially in the last three years it acieved  benhmark industry  success. Though  the ratio decline in 2008.

Staff Per Branch

Table-16: Staff Per Brance

Interpretation:   In 2010 the company went for downsizing as part of their strategic decision  & simultaneously employee turnover has taken place in that specific time period. Besides this it increasing at  a increasing rate over the last five years which indicates expansion of JBL in different region of Bangladesh to  meet

the different personal organization financial needs

Capital to Deposit %

Table-17: Capita Deposit

Interpretation:  As part of Bangladesh Bank requirement every bank has to maintain minimum amount of capital as part of statuary requirement. Here Capital is increasing which indicates that the dependency on borrowed fund of JBL is decreasing. It indicates Organization is now more dependable on capital rather than borrowed fund.

Non Performing Loan to Total Loan

Table-18: Non Performing Loan to Total Loan

Interpretation:  It indicates the total number of outstanding loan is increasing at decreasing rate of JBL. Especially in the last year 2010 it increased by a large deviation. Which is not accepted but in BD business operation this is very insignificant.

Loan to Deposit

Table-19: Loan to Deposit

Interpretation It indicates Loan giving capacity against their Taking deposit from the different surplus unit. It indicates efficiency of JBL interms of Loan over the last five years.  It also indicates that the loan default culture is being decreased by the efficient Management of JBL.

Leverage Capital Ratio (Capital)

Table-19: Leverage Capital Ratio (Capital)

Interpretation : Though the  Leverage of JBL is increasing over the last five years  & it is expected. Because to make a balance in the capitals structure, The leverage is required. Even they can increase their leverage ration because to get the more tax benefits from the government.

Average Equity to Average Assets

Table-20: Average Equity to Average Assets

Interpretation: It indicates the position of Average Equity against the average the Asset.  Here the annual report of

2010 indicates that their Average equity has increased. As result their Average Asset increased at increasing rate which is more than that of Average Equity.  As a ratio this ratio declined over the last five years. It indicates the marginal efficiency of gaining Asset.

 CREDIT RECOVERY

The Recovery Department should directly manage accounts with sustained dc1crioralion (a risk rating of Sub Standard (6) or worse). Hanks may wish to transfer EXIT accounts graded 4-5 to the RU for efficient exit based on recommendation of CRM and Corporate Banking. Whenever an account is handed over from Relationship Management to RU, a Handover/1Downgrade Checklist (Annexure – 9) should be completed

Down Grading process should be done nomadically and should not be postponed unit the annual review process,

The RU’s primary functions arc:

• Determine Account Action Plan/Recovery Strategy
• Pursue all options to maximize/c recovers, including placing customers into receivership or liquidation as appropriate.
• Ensure adequate and timely loan loss provisions arc made based on actual and expected losses.
• Regular review of grade 6 or worse accounts.
• Management of classified loans and special mention
• Accounts and related works writing off’ B/L loans with the approval of the Board

The management of problem loans (NPLs) must be a dynamic process, and the associated strategy together with the adequacy of provisions muss be regularly reviewed. A process should he established to share the lessons learned from f1w experience of credit losses in order to update the lending guidelines.

6.1 Problems Identification

During internship period in Jamuna Bank Limited Malibagh Branch tile following problems are observed.

• Human resource of any organization is considered as a valuable asset. But human resources, in the branch, are not equipped with adequate banking knowledge. Majority of the human resources have lack of basic knowledge regarding money, banking finance and accounting. Without proper knowledge in these subjects, efficiency cannot be optimized. Bank ^can arrange training program on these subjects.
• There is shortage of computer in general banking section. Sometimes the shortage of computer makes some unfortunate event _in that section.
• Flora On-line banking software is used by JBL and this is quite difficult to use for the employee as the employees are not well trained.
• This bank does not have any plan to enter into the Credit Card Market. It is well versed that tomorrow’s payment will be consisted of only plastic money (Credit Card). A large part of business transaction will be done by credit card III near future. In western world, more than 50% of transactions are _in credit card this bank does not prepare from now on, it cannot compete in the future market. So, the branch should give special attention to the introduction of Credit Card
• Since a number of new banks are coming to existence with their extended customer service pattern in a completely competitive manner. Customer-services must be made dynamic and prompt. Now a days, people especially business people have very little time to waste. So the bank should make its service prompt so that people need not give more time in the banking activities

6.2 Recommendation

• Now a day’s on-line banking is not a very uncommon service 1^,01-ally private commercial bank. JBI, provide On-line banking service but they take source charge for it, if the customers do not use his/her mother branch. To encourage customers to use On-line banking facility this service charge should not be taken charge from the customers.
• Though JBL using very popular software i.e. Flora bank on–line software but the use of it is quite difficult for the employee. (According to the statement of some employee _of JBL who has the experience to use more then one banking software).
• JBL are not taking their clearing cheque for other-     They are using IBC/OBC systems to take that kind of clearing cheque.
• JBI, not providing the credit cards in market which now a days one of the most important part of banking. So for it they are loosing too many customers.
• Customer service of bank has a greater impact onits customer. To provide smarter customer service they need a call center department is very popular now a day.
• Foreign exchange operations of other banks are more dynamic and less time consuming. JBL should take some initiative to compete with those banks.
• In our country financial problem is a great constraint in foreign trade. JBL Is very conservative for post-shipment finance. 11′ it stays in liberal position the exporters can easily over-come their financial constraint

6.3 Conclusion

During the three months internship program at Malibagh branch, almost all the desks have been observed mire or less. Gaining knowledge of practical banking and to compare this practical knowledge with theoretical knowledge. Though all departments and sections are covered in the internship program, it is not possible to go to the dept of each activities of branch because of time limitation. So, objective of this internship program has not been fulfilled with complete satisfaction. However, highest effort has been given to achieve the objective the internship program. During the internship, it is found that the branch provides all the conventional banking services as well as some specialized financing activities to the economy. 

Jamuna Bank limited started with a vision to be the most efficient financial intermediary in the country and it believes that the day is not far off when it will reach its desired goal. It looks forward to a new horizon with a distinctive mission to become a highly competitive modern and transparent institution comparable to any of its kind at home and abroad.

For any B.B.A student who would like to build up his/her career in the banking sector, he/she must need this type of internship training. As a successful intern, I am really a lucky person that I could perform my Internship in Jamuna Bank Limited; Malibagh Branch, which is the second bank of Bangladesh in case of earning profit.

Jamuna Bank Ltd. has been able to continue its over all progress for year to year, specially in granting loan to right sector and its recovery. Since bank’s profit largely depends on its interest income. Jamuna Bank Ltd. was able to achieve 2nd highest profit in year 2002. Which shows that the loan position, interest and recovery are excellent?

This success has been making possible due to dynamic leadership of the bank management, proper guidelines good counsel and devotion and sincerity of all categories of officers an employees of the bank.

Finally it can be said that, customer satisfaction should be more for emerging markets, up warding growth of national income and overall improvement in the standard of living.