1.1 Introduction-The word “Bank” refers to the financial institution dealing with money. Commercial banks are the primary contributions to the economy of the country. On the other hand they are borrowing money from the locals and lending the same to the business as loans and advances. So the people and the government is very much dependent on these banks as the financial intermediary. Moreover, banks are profit-earning concern, as the collect deposit at the lowest possible cost and provide loans and advances at higher cost. The differences between two are the profit for the bank.

 Involvement of the banking sector in different financial events is increasing day by day. At the same time the banking process is becoming faster, easier and the banking arena is becoming wider. As the demand for better service increases, the banking organizations are coming with innovative ideas. In order to survive in the competitive field of the banking sector, all banking organizations are looking for better service opportunities to provide to their clients. As a result, it has become essential for every person to have some idea on the bank and banking procedure.

 A student takes the internship program when he or she is at the last leg of the bachelor’s degree; internship program brings a student closer to the real life situation and thereby helps to launch a career with some experience.

 1.2 Background

This is report on internship program of BBA, supervised by Tamanna jaman khan lecturer school of Business studies. I as placed in “Mercantile Bank ltd.” For three months internship I have a practical grasp over the organization’s activities. My intern report is about A Modern Banking Perspective of Mercantile Bank Ltd which has been selected by myself and approximately supported by my internship supervisor.

 1.3   Objective   of the study

1.3.1.1 Broad Objectives

The broad objectives are as follow:

• To find out the factors for profit generation of Mercantile Bank Limited.
• To find out the factors for and growth of Mercantile Bank Limited.

1.3.2 Specific Objectives

• To find out different earning sources of MBL.
• To find out the sources of deposits of MBL.
• To find out the special schemes of MBL.
• To find out interest rates for different loan schemes, advance schemes and savings account.
• To find out different income generating banking activities of MBL.
• To find out major expenditure heads, other expenses and operating expenses of MBL.
• To find out the profit of MBL, Mohakhalil Branch.
• To find out barriers for increasing profit.
• To find out what types of deposits are discouraged
• To find out the opinion of the customers about the service provide by MBL.
• To find out whether customers are interested to do banking in MBL
• To find out the possibility of deposit increase
• To find out how people are interested to take loan
• To find out how people are encouraged to do banking in MBL
• To find out the factors that attracts the customers to deposit in the Bank
• To find out how customers came for the first time to deposit
• To find out the customer opinion with regard to procedure of services like Demand Draft (DD), Telegraphic Transfer (TT), payment Order (PO), and Letter of Credit L/C at MBL
• To find out whether the interest rate is a factor for deposit or not

 1.4             Scope

The report covers MBL’s organizational over view, Management and Organizational Structure, functions performed by MBL. It also covers over view of all sides of banking system such as general banking, Loan and Advanced,Foreign Exccange Dept. identification of problems of Mercantile Bank..

1.5 Mythology

 1.1.1    Primary Sources:

Major sources of Primary information discussed with my supervisor Md.Rezowanul karim (Officer) general banking. And also I have been collected primary information by interviewing employees, personally talking with managers, observing various organizational procedures, structures, directly communicating with different kind of customers.

Primary data has mostly derived from the discussion with the employees & through surveys on customers of the organization.

1.1.2    Secondary Source:

Sources of secondary information will be as follows:

Internal Sources:

• Bank’s Annual Report
• Group Business Principal

External Sources:

• Different books and periodicals related to the banking sector.
• Newspaper
• Bangladesh Bank Report
• Internet

1.6 Data collection instruments:

In-depth interview: During the exploratory research, in-depth interview has been conducted with various managers, employees & customers of Mercantile Bank Ltd.

Data collection Method

Formal questionnaire for data collection has not been used. Information has been collected through informal discussions with Relationship managers & respective Unit heads of customer service and also customers of this Bank.

For the organization part, information has been collected through different published articles,journal and brochures.

1.7 Limitations

• Large-scale research has not been possible due to time limitation.
• In-depth research has not possible due to some rules and restriction posed by the organization.
• In many cases, up to date information has not published.

2.1 Historical Background of Mercantile Bank Ltd (MBL)

Banking system occupies an important place in a nation’s economy. A banking institution is indispensable in a modern society. It plays pivotal role; in the economic development of a country. Against the background of liberalization of economic policies in Bangladesh, Mercantile Bank Limited emerged as a new commercial bank to provide efficient banking services with a view to improving the socio-economic development of the country.

Mercantile Bank Limited has been incorporated on May 20th, 1999 in Dhaka, Bangladesh as a public limited company with the permission of the Bangladesh Bank; MBL commenced formal commercial banking operation from the June 02, 1999. The bank stood 42 branches all over the country up to 2008

There are thirty sponsors involved in creating Mercantile Bank Limited; the sponsors of the bank have a long heritage of trade, commerce and industry. They are highly regarded for their entrepreneurial competence. The sponsors happen to be members of different professional groups among whom are also renowned banking professionals having vast rang of banking knowledge. There are also members who are associated with other financial institutions insurance companies, leasing company’s etc.

The bank provides a broad range of financial services to its customers and corporate clients. The Board of Directors consists of eminent personalities from the realm of commerce and industries of the country.

The Bank is manned and managed by qualified and efficient professionals. Mr.Shah Md. Nurul Alam is holding charge of Managing Director upon expiry of term of Mr.M.Taheruddin as Managing Director on 14.04.2004. Mr. Lutfar Rahman Sarker, the former Governor of the central bank of Bangladesh was the Chief Advisor of the bank. He brings with him a wealth of experience of managing both public and private sector banks

2.2 Vision Mission & Objective

Vision

Would make finest corporate citizen.

Mission

Will become most caring, focused for equitable growth based on diversified deployment of resources, and nevertheless would remain healthy and gainfully profitable Bank.

Objectives

Strategic objectives

●          to achieve positive Economic Value Added (EVA) each year.

●          to be market leader in product innovation.

●          to be one of the top three Financial Institutions in Bangladesh in terms of cost efficiency.

●          to be one of the top five Financial Institutions in Bangladesh in terms of market share in all significant market segments we serve.

Financial objectives

●          to achieve 20% return on shareholders’ equity or more, on average.

Core values

For the customers
providing with caring services by being innovative in the development of new banking products and services.

For the shareholders
maximizing wealth of the Bank.

For the employees
respecting worth and dignity of individual employees devoting their energies for the progress of the Bank.

For the community
strengthening the corporate values and taking environment and social risks and reward into account.

New technology

Adopting the state-of-the art technology in banking operations

 2.3   MBL Time Line (Fig-01)

2.4   Structural Management: (Fig-02)

2.5 Branch Network

Annual statement

3.1 Balance Sheet

Mercantile Bank Limited

Balance Sheet as at December 31, 2008

3.5 Financial Summary 

4.1 Introduction

General banking is the starting point of all the banking operations. This is the department, which provides day-to-day or instant services to the customers. Since bank is confined to provide the services everyday, general banking is also known as ‘retail banking’. Main Functions of general banking department are the followings:

1. Accounts Opening.
2. Local Remittances.
3. FDR.
4. Different Schemes.
5. Collection and Clearing House.
6. Accounts Section.
7. Cash Section.
8. Locker Service

4.1.1 Accounts Opening

For building up the relation between Bank and Customer the first step, that is must be done is to open an account of the customer. Opening of an account binds the same into a contractual relationship. But the selection of customer is very crucial. In fact, fraud and forgery of all kinds start by opening of an account by the customer or customers.

Bank’s success and failure is largely depending on their customers. If customer is fraud, they may create fraud and forgery by their account with bank and thus destroy good will of the banks. So, this section takes extreme caution in selecting its customer base.

One of the basic functions of commercial banks is to accept deposits. For accepting deposits both demand and time, MBL-Mohakhali Branch offers the following types of accounts-

Types of accounts with terms and conditions

This part covers only following types of accounts-

1. Current Account
2. Savings Bank Account
3. Short Term Deposit (STD) Account

1. A.     Current Account: No restriction exists on the number of deposits into and withdrawal from this account. Opening balance must be Tk. 1000 and after than customer must maintain a minimum balance of Tk. 500. Tk. 50 is charged if balance falls short of minimum balance.

Interest Rate = No interest.

Generally businessmen open this kind of account.

1. B.     Savings Account: This account can be opened by depositing Tk. 100. Mercantile Bank requires a minimum balance of Tk. 500 to continue the account. At one time, depositor can draw maximum 25% or Tk 1000 whichever lower.

Interest Rate = 6%

Individual, Businessmen or personally any one can open this kind of account.

1. C.     Fixed Deposit Receipt: This deposit is taken for some maturity period. Depositor isn’t allowed to withdraw or deposit money 1 this account.
2. D.    Bearer Certificate of Deposit: Special Characteristics of these accounts are-

• Transferable by mere delivery only.
• Duration 3-months to 12 months.
  • This certificate doesn’t contain any information about the depositor
  • It is sold at discount so that the difference between purchase price and face value becomes the interest earning for the depositors.
  • Denomination for this account is Tk. 1, 00,000. Tk. 50, 000 and Tk. 25,000 Only.
  • Opening of such account does not require any sort of document or any kind of information about the depositor.
  • Interest rate for BCD ranges from 8% to 9/5% depending of amount and maturity period.

The Bank then issues the following instruments to the customer to operate the account

¨    Cheque Book: It is used to withdraw money from the account.

¨    Deposit Book: It is used to deposit money in the account.

In case of issuing cheque book the above mentioned documents and the account opening form must be checked properly.

Issuing cheque book  For New and Old Account

Fresh checkbook is issued to the account holder only against requisition on the prescribed application form. In case of old account, requisition made on the prescribed requisition slip attached with the checkbook issued earlier. Generate a security no randomly for every check leaf by Manager or authorized person. Prepare the instrument with respective security no on the back of each leaf and signed by the authorized person. Make necessary entries in Check Issue Register. Finally issue the checkbook for client (s).

Issue of Duplicate check book

Duplicate checkbook in lieu of lost one should be issued only when an A/C holder personally approaches the Bank with an application Letter of Indemnity in the prescribed proforma agreeing to indemnify the Bank for the lost checkbook. Fresh check Book in lieu of lost, one should be issued after verification of the signature of the Account holder from the Specimen signature card and on realization of required Excise duty only with prior approval of manager of the branch. Check series number of the new checkbook should be recorded in ledger card signature card as usual. Series number of lost checkbook should be recorded in the stop payment register and caution should be exercised to guard against fraudulent payment.

Account enquiry

A customer can obtain the statement of his A/C by submission of an application in prescribed balance enquiry receipt. Normally it is supplied two times in a year. In addition, customer can know his current deposit position informally.

Transfer of an account

Account holder may transfer his account from one branch to another. For this, he/she must apply with proper reason to the manager of the branch where he is maintaining account. Manager then requests to the manager of that branch where the A/C holder wants to transfer his account. Besides, he also sends original copy of account opening form and signature card and photocopy of application for transferring the account with the balance remained in the account.

Closing of an account

An account may close-

1. When the customer desirous to close the account.
2. When the account is inoperative for a long time.
3. In case of customer’s death, insanity or insolvency.

To close an account, the checkbook is to be returned to the bank. The bank makes charges for the same by debiting the amount from his account and rest amount is then paid to the customer. Necessary entries are given to the account closing register and computer. Finally make sure that A/C holder is completely free from all dues.

Accounts opening process

Individual, firms or company anyone can open an account in the bank according to the bank’s prescribed form. Applicant must submit required documents with his application form. Different kinds of documents are required for different kinds of accounts or applications. For individual only introduction by another account holder of the same bank may be enough but for firm and others relevant papers/documents must be submitted to the bank for verifications. There is a manual (Check list for account opening) of the MBL for general banking division mentioning the required documents for different types of accounts.  The authorized officer scrutinizes the introduction and examines the documents submitted. If every thing appears as satisfactory, three signatures should be made Verified by-Officer, Admitted by-Officer and approved by-Manager. For opening accounts one thing is must that is initial deposit. This should be made in cash no Cheque; no draft is acceptable for opening account purpose.

Procedure & rules to open a new account

Savings account

Before opening of a savings Bank Account, the following formalities must be completed by the customer:

Requirement

ü  Introducer

ü  2 copies passport size photograph dully attested by introducer

ü  Valid passport/ ward commissioner’s identification certificate

ü  Prescribed account opening form filled in properly by intending account holder

ü  Putting specimen signatures in the specimen card.

ü  Fill the KYC form

ü  Initial deposit Tk. 5000/- only

After fulfilling above formalities, opens an account for the client and provide the customer with a deposit book and a checkbook in case of savings account and currents account.

Current account (Individual)

Requirement

ü  Introducer (current account holder)

ü  2 copies passport size photograph dully attested by introducer

ü  Valid passport/ ward commissioner’s identification certificate

ü  Prescribed account opening form filled in properly by intending account holder

ü  Putting specimen signatures in the specimen card.

ü  Fill the KYC form

ü  Initial deposit Tk. 5000/- only

Joint Account

When an account is opened in the names of two or more persons it is called a joint account. However, it is desirable that the number should not exceed three. At the time of opening an account, clear and specific instructions shall be obtained regarding operation of the account and payment of the balance, if any, to the survivors or surviving members in the event of death of one or more joint account holders. Account shall be operated by ‘either of us’ or ‘either of survivor, or us or ‘both of us jointly’ or ‘both of us or survivor’.

Current account (Proprietorship)

No saving account shall be opened in the proprietary concern. Application to open current accounts will be made on which the name of the proprietor and his authorized signature must be obtained. All formalities regarding the benefice of the account openers and the introducer’s rules of the opening of the accounts etc. must be completed to the absolute satisfaction of the manager.

Requirements

ü  Introducer (Current account holder)

ü  2 copies passport size photograph dully attested by introducer

ü  Valid passport/ ward commissioner’s identification certificate.

ü  Trade license

ü  Seal of the firm

ü  TIN Certificate

ü  Prescribed account opening form filled in properly by intending account holder

ü  Putting specimen signatures in the specimen card.

ü  Fill the KYC form.

ü  Initial deposit Tk. 5000/- only

Partnership

In case of partnership account,

Requirements

ü  Introducer (current account holder)

ü  2 copies passport size photograph dully attested by introducer

ü  Valid passport/ ward commissioner’s identification certificate of all partners.

ü  Trade license

ü  Seal of the firm

ü  Partnership deed

ü  Prescribed account opening form filled in properly by intending account holder

ü  Putting specimen signatures in the specimen card.

ü  Fill the KYC form.

ü  Initial deposit Tk. 5000/- only

Current Account (Limited Company)

On having the desire to open an account from a limited company, a MBL Officer asks for the following documents:

Requirements

ü  Introducer (current account holder)

ü  2 copies passport size photograph dully attested by introducer

ü  Valid passport/ ward commissioner’s identification certificate of all directors.

ü  Trade license of the company

ü  Memorandum and articles of association of company (certified copy/ photocopy dully attested by authorized signatory

ü  Board Resolution

ü  Certificate of incorporation

ü  Certificate of commencement of business (for public limited company)

ü  TIN certificate

ü  List of directors

ü  Seal of the company

ü  Prescribed account opening form filled in properly by intending account holder

ü  Putting specimen signatures in the specimen card.

ü  Fill the KYC form.

ü  Initial deposit Tk. 5000/- only

1. The name of the persons who have been authorized to operate the bank account on behalf of the company.
2. The name of the persons who are authorized to execute documents with the bank on company’s behalf.

Societies, Clubs and Associations:

 In case of these sorts of accounts MBL requires the following documents:

ü  Registration Certificate Under the Societies Registration Act, 1962

ü  Copies of Memorandum, Articles of Association

ü  Resolution of the Managing Committee.

ü  Power of Attorney to Borrow.

Non-government Organization (NGO):

The account opening procedure is same but in exception is that the Registration Certificate from the Social Welfare Department of Government must be enclosed with the application.

Joint Account in The Name of Minor:

A minor cannot open an account in his own name due to the incapacity to enter into a contract. He can open an account in MBL in Joint name of another person who will be guardian of him.

4.1.2 Local Remittances:

Cash remitting from one place to another is risky. So, Banks remit funds on behalf of the customer (s) to save them from any awkward happening through network of their branches. There are three modes of remitting funds. These are –

A)                      Pay Order (PO)

B)                      Pay Slip (PS)

C)                      Demand draft (DD)

D)                      Telegraphic Transfer (TT)

A) Pay Order (PO):

Pay order is an instrument, used to remit fund within a clearing zone. Unlike cheque, there is no possibility of dishonoring PO. The PO can only be enchased through the branch that has issued the instrument.

Pay Order (PO) Issuing Process:

For issuing a PO, following formalities are to be maintained. These are –

• Duly filled up the application form by the customer.
• Deposit money either in cash or by cheque with necessary charges.
• Prepare the instrument and make necessary entries in the Bills Payable Register where payee’s name, date, PO no. etc are noted.
• Deliver the instrument to the customer after scrutinized and approved by authority by taking signature of the customer on the counterpart.

Cancellation of PO

The following procedure is followed to refund the pay order by cancellation:

1. Submit written request to refund the pay order attaching therewith the original PO.
2. Verify purchaser’s signature with the original application form on record.
3. Manager/authorized person’s prior permission is required before refunding the amount of pay order.
4. Pay order should be affixed with a stamp ‘cancelled’ under proper authentication and the authorized officer’s signature on the pay order.
5. No charge is created for cancellation. Refund only the pay order amount.
6. The original entries are to be reversed with proper narration.
7. Record the cancelled pay order in the Pay Order Issue Register.

Loss of Pay Order

If the instrument is lost, the holder is asked to fulfill the following requirements-

1. Holder should inform the bank immediately.
2. Record a GD (General Diary) in the nearest Police Station.
3. Furnish an Indemnity Bond.

Collection of Pay Order

If the payee is a customer of Mohakhali Branch, he will deposit it for collection. Then the branch gives necessary endorsement as a collecting bank. Then the instrument places the issuing bank through clearing house.

PO Charge  

Table 7: PO Charge

Use of pay order

¨      A pay order is issued and paid by the same branch of a bank and as such, the drawer and the drawer are the same. The person or the organization in whose favor it is issued is known as payee or the beneficiary. It is some times sold to individual on payment of value who may or may not be a customer and is called the purchaser.

¨      The purchaser should sign the standard application form giving detailed particulars and request for issue of pay order. The payee or beneficiary must not appear to be fictitious. His full name and address should be written on the application. Bank should recover commission of pay order from the purchaser.

¨      A pay order is divided into three parts viz. The actual pay order, the second counterfoil to be returned by the payee and the first counterfoil to be retained by the issuing branch as record.

Characteristics & payment

ü  It should be paid to the payee or beneficiary after proper identification or it may be credited to his account.

ü  A pay order is transferable. As it is a banker’s cheque payable to order the payee/ beneficiary may transfer it, by giving proper discharge on its back, to some one else who receives payment as the transferee.

ü  It is not generally collected for a persons other that the original payee except in cases where the depositor is a valued client known to the bank.

ü  Before making payment the signature of issuing officers should be verified and the date of payment should be marked in the register.

B) Pay slip

If anybody get any amount from MBL then MBL issue pay slip. He can deposit the pay slip in any bank’s any branch.

Meaning & purpose

ü  A pay slip is a written authorization for making payment-specified person or firm payable by issuing branch, for a discharged liability of the bank. As pay slip is originated made payable by the bank in a receipt form there is no need for any application for its issue.

ü  A pay slip is issued to effect payments on account of bills payable by the bank for goods and services purchased or availed by it. For example, bank is required to make payment of bills for the purchase of furniture & fixture, for printing & stationery and for any other works done on its behalf by the other party on agreement with the bank.

Characteristics & payment

A pay slip is receipt of payment received by the payee due from the bank. It should be paid to the payee on proper identification or credited to his account on its being presented duly discharged by him or revenue stamp of required value. Cash payment should not be made if it is crossed except to a collecting bank.

C) Demand draft (DD)

DD is called ‘Banker’s Draft’. It is an instrument, issued by a particular branch, drawn on another branch of the same bank, instructing to pay a certain sum of money. It is very popular instrument for remitting fund from one corner of a country to another. DD is issued in favour of a customer who maintains an A/C with MBL Mohakhali Branch. It can be issued against Cash or Cheque. If DD amount is more than Tk. 50,000/= a test code is given on IBCA. The A/C treatments will be-

The banker even on receiving instructions from the remitter cannot stop the payment of the instrument. Stop payment can be done in the following cases-

i)                        Loss of draft before endorsement: In this case, “Draft reported to be lost, payee’s endorsement requires verification” is marked.

ii)                      Loss of draft after endorsement: In this case, the branch first satisfies itself about the claimant and the endorsement in his favor.

Cancellation of DD

To cancel an issued DD, the client has to submit an application. Issuing branch then sends an Inter Branch Debit Advice (IBDA) to the drawn branch against previously issued Inter Branch Credit Advice (IBCA). After that the following entries are given-

Issue of Demand Drafts

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

ü  Commission charges are calculated and inserted in the case provided in the form.

ü  The voucher given to the customer to deposit the cash with the cashier.

ü  The cashier receives the cash and delivers the voucher to Remittance Department against initial in his book.

ü  Draft is prepared and entered in draft issue Register.

ü  Branch-wise serial number is given on the draft besides the printed number putting on oblique (/) in between. The amount protect graphed.

ü  The draft number is written on the voucher.

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

ü  Then the draft and the voucher are sent to the Manager/ Second Officer for second signature.

ü  The draft is crossed if customers desires and delivered to him against his acknowledgement on the voucher.

ü  If the amount is tendered by a cheque, the drawer to and the purchaser of the draft should be the same person, i.e. the signature on the cheque and on the application form must tally.

ü  A memorandum is issued to the customer if he or she desires.

ü  The cheque is sent for passing and cancellation.

ü  After the cheque is passed, similar procedure as explained above is adopted for issuing draft.

Issuing of Duplicate DD

If the customer wants a duplicate DD, he then is asked to do the following formalities-

1. Throwing an application immediately by the original DD holder.
2. Making a General Diary (GD) in the nearest Police Station.
3. Furnishing an Indemnity Bond.
4. Put a ‘CAUTION’ mark in the register.
5. Inform to the Head Office by the issuing branch
6. Inform all the branches by the HO for stop payment.
7. Issue a new DD (Put the same DD no. and mark DUPLICATE).

DD Charge

            Commission @ 0.10% but minimum Tk. 10/=

            Postage charge Tk. 30/= (Fixed).

            DD cancellation charge Tk. 50/= (Fixed).

            Issuing of duplicate instrument Tk. 50/=

D) Telegraphic transfer (TT)

Telegraphic Transfer may be affected at the written request of any person and against value received from him. A written application on the bank’s prescribed form duly signed by the purchaser should be obtained. If the application for issue of telegraphic transfer contains instruction to debit the account of the purchaser, his signature should be verified. It is however, preferable to obtain a confirmation cheque from the customer.

The application form is in variably checked on the following points:

ü  There should be a branch of MBL in the place on which Telegraphic Transfer will be issued and the said branch has test arrangement with the issuing branch.

ü  Full name of the payee and his A/C no., in case instructions are to credit his test arrangement with the issuing branch.

ü  The amount of T.T Commission and Telegram charges should be received from the purchaser. The total amount may be paid in cash or tendered by a cheque if he is customer of the branch. Some times, the customer may also desire to pay the amount of T.T by cheque and commission and telegraph charges by cash.

ü  In case of amount tendered by cheque, the drawer on the cheque and the purchaser of the TT should be the same person, viz., the signature on the cheque and on the application should tally. Such cheque should be in favor of Mercantile Bank Ltd.

ü  Now, a cost memo for the TT is to be prepared by the officer under his signature which contains the amount of TT Commission & Telegram charges & is delivered to the purchaser.

ü  Now the officer concerned as to the amount, name of the beneficiary has correctly prepared the message, instructions regarding mode of payment and place of payment.

ü  The concern officers should correctly prepare the test.

ü  T.T over telephone may be transmitted on account of valued clients of the bank.

Payment of Telegraphic Transfer

The payment of T.T should be made to the payee or beneficiary after being satisfied in all respect. The serial number of T.T should be entered in T.T payable register on the relative folio next to that of previous message on agreement of test.  The issuing branch should be immediately informed if any number is omitted.

ü  The voucher should be passed. The beneficiary should be intimated the earliest, if possible may be informed on telephone.

ü  If the instructions are to be “Advise and pay, the T.T receipt should be prepared. The manager and the officer of the branch should sign after checking the name of the beneficiary, the amount and the name of the issuing branch. The number of T.T receipt

Should be noted in the T.T payable Register and on the decoded manages. The beneficiary should be advised on the printed prescribed form instead of sending the T.T receipt.

ü  When the amounts are credited/ paid the same and should be noted in the T.T payable register. While making the payment on a T.T receipt, the signatures of the attorney who have signed be verified cancelled.

ü  The T.T receipts are not transferable. They should not bear any endorsement. The beneficiary is too signed on proper revenue stamp in front of the officer. Party acceptable should attest the signatures of the beneficiary to the bank.

4.1.3 Fixed Deposit Receipt (FDR)

Fixed deposits are time deposits or time liabilities. These are the deposits in which an amount of cash is deposited in Bank for a fixed period specified in advance. Before opening a Fixed Deposit Account a customer has to fill up an application from which contains the followings-

• Amount in figures
• Beneficiary’s name and address
• Time period
• Rate of Interest
• Date of Issue
• Date of maturity
• How the account will be operated (singly or jointly)
• Signature (s)
• F.D.R. no.

After fulfilling the above information and depositing the amount, FDR account is opened and a FDR receipt is issued and it is recorded in the FDR Register, which contains the following information-

• FDR account no.
• FDR (Fixed Deposit Receipt) no.
• Name of the FDR holder with address
• Maturity period
• Maturity date
• Interest Rate.

Renewal of FDR

Customer supposes to inform the bank in writing 15 days before the maturity date for encashment. If not, bank normally renews the amount just after the maturity date. Renewal will be for previously agreed maturity period.

Loss of FDR

If the instrument is lost from the possession of the holder, the holder is asked to fulfill the following requirements-

a)                  Holder should inform the bank immediately

b)                  Record a GD (General Diary) in the nearest Police Station.

c)                  Furnish an Indemnity Bond.

On fulfilling the above requirements, MBL bank is then issued a duplicate FDR.

Deposits

The Bank mobilized total deposits of Tk. 25727.48 million as of 31^st Dec, 2005 as compared to Tk. 22385.19 million as of 31^st Dec, 2004. Competitive interest rates, deposits mobilization efforts of the Bank and confidence reposed by the customer in the Bank contributed to the notable growth in deposits. Efforts are being made to broaden the deposit base while reducing the average cost of fund.

4.1.5 Collection and Clearing House

Customers do pay and receives bills from their counter party as a result, a transaction happens. A clearing house is such kind of house where all members Bank settled their inter bank transactions through their Bangladesh Accounts. As the Central Bank, Bangladesh Bank is the leader of clearing House in Bangladesh. There are 53 members Bank in Bangladesh under Central Bank. There are two parties in Clearing House i.e. First House (Cheque Delivery) and Second House (Return Delivery).

MBL collects the bills on behalf of their customers. Collection mechanisms in MBL are clearing, Outward Bill for Collection, Inward Bills for Collection.

Clearing

According to the Article 37(2) of Bangladesh Bank Order 1972, the banks, which are the member of the clearinghouse, are called as Scheduled Banks. The scheduled banks clear the cheques drawn upon one another through the clearinghouse. This is an arrangement by the central bank where everyday the representative of the member banks gathers to clear the cheques. Banks for credit of the proceeds to the customer’s accounts accept cheques and other similar instruments. The bank receives many such instruments during the day from account holders. Many of these instruments are drawn payable at other banks.

The place where the banks meet and settle their dues is called the Clearinghouse. The clearinghouse sits for two times a working day. The members submit the claimable cheques in the respective desks of the banks and vice-versa. Consequently the debit and credit entries are given. At the debit summation and the credit summation are calculated. Then the banks clear the balances through the cheque of Bangladesh Bank. The dishonored cheques are sorted and returned with return memo.

Types of Clearing

Clearing is two types.

ü  Inward Clearing

ü  Outward Clearing

ü Inward Clearing

In Inward clearing process cheques of Mercantile Bank Ltd, General Branches are deposited in other banks and sent back to Foreign Exchange Branch of MBL through clearing house for collection of money. Mercantile Bank Ltd are sent to the local office of Mercantile Bank at first. Then the local office sent those cheques to the General Branch.

Process of Inward Clearing

After receiving the cheques from the local office of Mercantile Bank Ltd, those cheques are directly send to the computer section for checking the balance of those specific A/Cs from which money should be collected. If the required balance is available there then the amount is debited from that account and the cheque is honored. But in case if the required balance is not available the authorized officer of clearing department immediately informs to the head of the general banking or he tries to connect the account holder. If the account holder does not deposit the required balance immediately the cheque is dishonored. Finally the authorized officer gives all the entry of those cheques in inward clearing register.

Dishonor of cheque

If the cheque is dishonored, Mercantile Bank sends a memorandum (cheque return memo) to the customer stating the reason in the following way,

ü  Refer to drawer

ü  Not arranged for

ü  Effects not cleared. May be presented again.

ü  Exceeds arrangements

ü  Full cover not received.

ü  Payment stopped by drawer.

ü  Payee’s endorsement irregular/ required.

ü  Payee’s endorsement irregular, require Bank’s confirmation.

ü  Drawer’s signature differs/ required.

ü  Alterations in date/ figures/ words require drawer’s full signature.

ü  Cheque is post dated/ out of date/ mutilated.

ü  Amount in words and figures differs.

ü  Crossed cheque must be presented through a bank.

ü  Clearing stamp required/ requires cancellation.

ü  Addition to Bank’s discharge should be authenticated.

ü  Cheque crossed” Account Payee Only”

ü  Collecting Bank’s discharge irregular/ required.

Process of outward clearing

For outward clearing cheques, the bearer of the cheque must have an account in General Branch of Mercantile Bank Ltd. After the submission of the cheque, authorized officer gives the entries in software, which is provided by Bangladesh Bank. The name of the software is Nikash. After giving all the entries are printed and are enclosed with the cheques. Then all the cheques with the enclosed sheets are sending to the local office of Mercantile Bank Ltd. for the collection of money. The local office sends it to clearing house.

ü  LBC (Local Bills for Collection) – If the cheque presented by customer is the cheque of JBL’s other branch then to collect the money LBC procedure is follow.

ü  OBC (Outward Bills for collection) – Collection of bills, which is beyond the clearing range and collected through OBC mechanism.

Procedures for collection

1. Received seal is stamped on the cheque.
2. Crossing of the cheques are done.
3. “Payee’s A/C Credited” endorsement is given.
4. Entries are given in the Outward Clearing Register.
5. “Clearing seal is given.
   1. Cheques are sorted bank wise and entries are given to the computer (NIKASH 22).
   2. Entries are given in the Clearing House Register before dispatching to the clearing house.

Instruments of other branches

However, the principal branch clears its check as well as the checks of other branches. Because, no other branch is allowed to represent directly. The other branches send the instruments along with IBDA. Principal Branch acts as an agent in this case.

Dishonor of Cheque

If the cheque is dishonored, MBL sends a memorandum (cheque return memo) to the customer stating the reason.

Outward bills for collection (OBC)

If the bill is beyond the clearing house then it is collected by OBC mechanism. Customer deposit cheque, drafts etc. for collection, attaching with their deposit sleep, Instrument within the clearing house are collected through local clearing house, but the other which are outside the clearing house are collected through OBC mechanism. A customer of MBL of Mohakhali Branch of Dhaka is depositing a cheque, of Sonali Bank, Naogaon Branch, Rajshahi. Now as a collecting bank MBL of Mohakhali Branch will perform the following task

Procedure

            a. Depositing the cheque along with deposit-slip.

            b. Crossing of the cheques are done indicating Principal Branch as collecting bank.

            c. Endorsement “Payee’s A/C will be credited on realization” is given.

            d. Entries are given in the Outward Clearing Register.

Collecting bank can collect it either by its branch or by the drawer’s bank. They will forward the bill then to that particular branch. OBC number will be given on the forwarding letter. Now following procedures will take place in case of the following two cases.

Bills Collected through Branch

If the bill is forwarded to branch they will collect it through IBC procedure. Collecting branch will receive an I.B.C.A. from that particular agent branch.

In this case commission will be charged by the collecting branch, not the agent branch and the drawer’s bank will send a DD to the collecting branch. Here both the banks will charge for collection from the customer. It should be scrutinized that D.D. is containing the OBC number.

Charges of OBC

            UP to 25,000/-                                    = 20%

            25,000/- to 1,00,000/-             = 20%

            1,00,001/- to 10,00,000/-        = 15% or minimum 2,000/-

            Above 10,00,000/-                  = 15% or minimum 5,000/-

Inward bills for collection (IBC)

When the bank collects bills, as an agent of the collecting branch the system is known as IBC. In this case the bank will work as an agent of the collection bank. The branch receives a forwarding letter and the bill. Next steps are:

            a. Entry in the IBC register, a IBC number given

            b. Endorsement given-“Our branch endorsement confirmed”

            c. The instrument is sent to clearing for collection.

4.1.6 Accounts Section

Accounts department maintains all records of transactions and all types of statement. At the end of transaction hour all concerned section sends vouchers of transactions to this department. Accounts department compares all figures/amount, contents of transactions with supplementary statement prepared by computer. If any discrepancy arises regarding any transaction then this department reports to the concerned department. Following are the activities of accounts department:

            à To record all transaction in the cash book.

à To prepare daily, weekly, monthly, half-yearly and yearly fund position.

àTo prepare all kinds of statements related to Bangladesh Bank, Head office and National Board of Revenue (NBR).

àTo prepare monthly salary statement, provident fund statement and administrative expenditure statement.

àTo make charges for different types of duty.

4.1.7 Cash Section

Cash is the lifeblood of all financial activities. Cash section is a very sensitive point of the branch. This section deals with all types of negotiable instruments and it includes vault, used as the store of cash, instruments. Operation of this section begins when the banking hour starts. Cash officer begins his/her transaction with taking money from the vault, known as the opening cash balance. Vault is kept in a more secured place. The amount of opening cash balance is entered into a register. After whole day’s transaction, the surplus money remains in the cash counter is put back in the vault and known as the closing balance. The main functions of this section are-

1. Cash Receipt.
2. Cash Payment.

Cash receipt

Cash receipt procedure is given below-

            i. The depositor first fills up the Deposit-in-Slip.

            ii. Depositor deposits the money.

            iii. Officer receives the money, counts and then enters in the Cash

                Receipt Register, and finally signs with seal send date the deposit-in-slip.

1. Slip is then passed to another officer, who enters the receipt details like serial no, amount, etc. in his register, signs the slip and keeps the banks part of the slip. Other part is given to the depositor.
   1. At the end of the day, entries are cross-checked with the register kept at the cash counter to see whether the transactions are correct or not.

Cash payment

Some important check points for making the payment are as follows-

Cash payment procedure is given below

1.   Customer first deposits the check (s) to the cash section. Authorized individual checks whether it is materially altered, proper endorsed, crossed or not. Being satisfied the total requirements; he passes it to computer for posting. Operator verifies the check leaf security no. If matched, then operator signs. Otherwise noticed to the individual for stop payment;
2.   Authorized officer is then verifying the signature with the Signature Card.
3. If the Authorized officer is conform about the signature then he/she makes the followings;

• Branch Seal.
• Pay cash seal.
• Signature.

1. Then send the instrument to the cash payment counter.
2. Cash officer is then asked the bearer to sign on the back of the instrument. At the same he just enters the payment details in his register and pays the money to the bearer.
3. At the end of the day, this information must be tallied with computer postings to ensure the correctness of payment.

Dishonor of Cheque

If the cheque is dishonored, MBL sends a memorandum (cheque return memo) to the customer stating the reason in the following way;

i.          Refer to drawer

ii.         Not arranged for.

iii.        Effects not cleared, may be presented again.

iv.        Exceeds arrangements.

v.         Full cover not received.

vi.        Payment stopped by drawer.

vii.       Payee’s endorsement irregular/illegible/required.

viii.       Payee’s endorsement irregular/require Bank’s confirmation.

ix.        Drawer’s signature differs/required.

x.         Alteration in date/figures/words requires drawer’s full signature.

xi.        Cheque is posts dated/out of date/mutilated.

xii.       Amount in words and figures differs.

xiii.      Crossed cheque must be presented through a bank.

xiv.      Clearing stamp required/requires cancellation.

xv.       Addition to Bank’s discharge should be authenticated.

xvi.      Cheque crossed “Account Payee Only”.

xvii.     Collecting Bank’s discharge irregular/required.

Sorting of the Voucher

At the day end an authorized officer keep the voucher after doing the following work-

• Collects all the vouchers.
• Then sort those voucher according to the account. Like Savings, Current, Loan etc.
• Separates the Debit a Credit vouchers.
• Check those vouchers with supplementary (Printed from the computer).
• Then those vouchers are stored in the store house.

4.1.8 Locker Service

MBL, Mohakhali Branch offers their valued customer the Locker Service. This service helps the customer to keep their important documents, paper, and instrument and precious item in safe and sound.

These facilities are maintained by two responsible and senior personnel. Both the person maintains separate keys for each account or locker for highest safety.

Locker

In MBL, Mohakhali Branch there is two Chambers. Each of them contains 50 Lockers. According to the size there are different types of locker such as Large, Medium and Small. Below table will show different types of locker and its charged

Procedure

• Must be a savings Account holder.
• An application form must be filled up.
• Single/Joint operation.
• Seal of the company (if required)
• 2 copies of PP size photos.
• Yearly charge must be pain in advance.
• Security money is refundable at the time of closing.

Ending Summery

General Banking engaged in cash received, payment, cheque clearing, opening accounts and local remittance etc. General Banking is the starting point of all Banking operations. It helps to the customers in various ways.

Dispatch: This section is responsible for receiving the entire letter from outside of the bank and to send the entire letter from the bank. For this purpose, this section keeps two register books. It also receives the entire document and any thing addressing the bank. However, two types of letters are continuously received in his branch, these are:

1. Inward (Registered/Unregistered) letters
2. Outward (Registered/Unregistered) letters.

This is in short about general banking which I have learned from the bank at the time of my internship period. If the cash received and cash payment, transfer received and payment are same and no fraud is found then the day transaction is closed and it is time to go.

5.1 Loan and Advance

The Loans & Advances department is very important is very important part of the branch operation that also provides administrative support for the lending activities of the branch. The Loans & Advances department provides and effective perfect check and balance on funds lend to clients and that the transaction is within approved limit for borrower and amount. In MBL, Mohakhali Branch, a big amount of loans and advances are sanctioned every year.

5.2 Principles of Loans and Advances

• All lending will be adequately secured with acceptable security and margin requirements as lay down by the Head Office Credit Committee.
• Loans and advances shall be normally funded from customers’ deposits of a permanent nature, and not out of short-term temporary funds or borrowings from other banks or through short-term money market operations.
• Credit evaluation will include:

a)      Prevalent credit practices in the market place.

b)      Credit worthiness, background and track record of the borrower.

c)      Financial standing of the borrower supported by financial statements and other documented evidence.

d)     Legal jurisdiction and implications of applicable laws.

e)      Effect of any applicable regulations and laws.

f)       Purpose of the loan/facility.

g)      Tenure of the loan/facility.

h)      Viability of the business proposition.

i)        Cash flow projections.

j)        Quality and adequacy of security, if available.

k)      Risk taking capacity o the borrower.

l)        Entrepreneurship and managerial capabilities of the borrower.

m)    Reliability of the sources of repayment.

n)      Volume of risk in relation to the risk taking capacity of the Bank Company concerned.

5.3 Credit Facilities

The credit facilities extended by MBL are-

                                                              Credit

                                                Funded            Non-funded

5.4 MBL’s Loans and Advances

MBL is almost new financial institution in the Banking Sector. MBL’s loans and advances are broadly categorized by following four ways

ü  Loan General

ü  Term loan

ü  Time loan

ü  House building (Commercial)

ü  Consumer credit scheme (CCS)

ü  Loan Against Trust Receipt (LTR)

ü  Packing Credit

ü  Lease Finance

ü  Hire Purchase

ü  Payment Against Documents (PAD)

ü  Staff loan (car)

ü  Staff loan (building)

ü  Personal loan

ü  SOD against the FDR/DPS/DBDS/SS

ü  SOD against work order

ü  Cash Credit (Hypothecation)

ü  Credit card

ü  Export Development Fund (EDF)

ü  Other credit schemes

Overdraft (OD): It is a continuous advance facility. By this agreement, the banker allows his customer to overdraft his current account up to his credit limits sanctioned by the bank. The interest is charged on the amount, which he withdraws, not on the sanctioned amount.

Secured Overdraft (SOD): Branch sanctions SOD against different securities like FDR, MSP, MBDS, DBDS, SS, Sanchaypatras and Work Orders.

The processes of extending SOD are as follows-

i)                    The party must have a current A/C with the branch

ii)                  If the ownership of the firm is proprietorship, then a trade license must be submitted and in case of a limited company, all the documents required to open a current A/C, should be submitted. The financial statements of the concerned firm should also be submitted.

iii)                The party must maintain a good transaction with the branch and have a good turnover rate.

iv)                The party will apply to the officer in charge of credit department of the branch for SOD arrangement

v)                  The concerned officer of the branch will give him a Credit Application form and the party will have to fill up this form. In this form he discloses all the information about his concern, purpose of the loan, description of security, etc.

vi)                The concerned officer will prepare a ‘Credit Line Proposal’ where he writes about the business concern, details of proprietors/

Directors of the concern, management structure, the existing credit facilities, the particulars about the facilities that asked for-such as margin limit, date of expiry, details of security, and any other relevant information. Then the proposal is sent to the Head Office, General Advances Division for approval.

vii)              The responsible Department of the General Advances Division will appraise the proposal and if it seems to a viable then the loan will be sanctioned.

viii)            After the loan is sanctioned, the branch will issue two copies of a sanction advice, where all the terms and conditions set by the bank is mentioned. The borrower is advised to write, “accepted” on the original copy if he/she is satisfied with the terms and conditions of the bank and retain the duplicate one as record.

Terms and condition

v  It may cancel by Bank without assigning any reason.

v  It may cancel if the client fail to pay in due time.

• Cash Credit (CC): By this arrangement, a banker allows his customer to borrow money up to a certain limit. CC is a favorite mode of borrowing by traders, industrialists, etc. for meeting their working capital requirements. It is operated like overdraft account. Depending on the needs of the business, the borrower can draw on his cash credit account at different time and when he gets money can adjust the liability. MBL charges interest on the daily balance of the account. Based on charging securities, there are two forms of cash credit-

1. Cash Credit (Hypothecation): Hypothecation is a legal transaction whereby goods are made available to the lending banker as security for a debt without transferring either the property in the goods or possession. The banker has only equitable charge on stocks, which practically means nothing. It is given against registered mortgage of land and building, hypothecation of goods and personal guarantee of Directors.

2. Cash Credit (Pledge): Pledge is the bailment of goods as security for payment of a debt or performance of a promise. Transfer of possession is the judicial sense. In case of pledge goods the bank acquire the possession of the goods or a right to hold goods until the repayment for credit with a special right to sell after due notice to the borrower in the event of non-repayment. It is not applicable in Mohakhali Branch.

The processes of opening a CC a/c are as follows-

1. The interested party must have a current A/C and good transaction with the branch;
2. Applies for CC pledge or hypothecation arrangement;
   1. Fills up the Application form as provided by the respective officer;
   2. The concerned officer prepares a ‘Credit Line Proposal’ detailing all relevant information;
   3. Sends the CLP to the Head Office, General Advances Division for necessary action;
   4. Head Office, General Advances Division examines the proposal and if finds it viable then sanctions it and sends it to the branch;
   5. The branch issues two copies of ‘Sanction Advice’ one for its own record and the other for the party to keep.

Interest rate

The rate of interest is 14%

 Terms and condition

v  Insurance policy to be obtained against the stocks to be hypothecated covering fire and RSD risk at the cost of the customer.

v  Stock report to be submitted on monthly basis

v  Banks reserve the right to cancel or call back sanctioned credit limit.

 Hire Purchase: This is another form of consumer credit. The feature of Hire Purchase that usually a deposit has to be paid and the rest of the purchased price e is separated over the period of six months, two years or sometimes even longer the article regarded as the property of the Bank until the final payment has been made. Loans are normally allowed to those parties who have either fixed source of income or who desire to pay it in lump sum.

 Interest rate

Interest rate on the hire purchase is only 14%

 Terms and condition

v  The durable will be covered by first party comprehensive insurance policy of each year will be borne by the client.

v  Retailed feasibility report containing marketing, financial, technical, socio-economic aspects showing detailed break-up of project cost and other usual financial analysis duly supported by its assumption.

General Loan: When an advance is made in a lump sum repayable either in fixed monthly installments or in lump sum and on subsequent debit is ordinarily allowed except by way of interest, incidental charges etc. Loans are normally allowed to those parties who have either fixed source of income or who desire to pay it in lump sum.

Interest rate

Interest rate on these types of loan for both only 15%

Terms and condition

v  It may cancel by the Bank without assigning any reason.

v  It may cancel if the client is a defaulter.

v  All the formalities must be completed.

Consumer Credit: People with limited income can avail of this credit facility to buy any household commodities. The borrower must confirm about his profession to the bank.

Terms and condition

v  All the documents related with the articles must be hypothecated to the bank.

v  The client will bear additional cost.

v  The installment will be repaid according to prescribed form by the bank.

v  Service charge 1% and risk fund 1% for house hold item.

Bank Guarantee: A letter of guarantee has special significance in the business of banking as a means to ensure safety of funds lent to the customers. In case, if the borrower is unable to provide the security of tangible assets or the value of the assets falls below the amount of the loans and borrower’s personal security is not considered sufficient, an additional security is sought by the banker in the form of a guarantee given by a third person.

Terms and condition

v  The banks legal adviser must verify all security documents.

v  When the principal debtor defaults in fulfilling this obligation or promise the liability bestow on guarantor.

v  Bank reserves the right to cancel or amend the terms and condition partly or wholly at its direction without assigning any reason whatsoever.

Other Credit Schemes

Our Various Credit Schemes

• Consumers Credit Scheme (CCS)
• Car Loan Scheme
• Doctors Credit Scheme
• Rural Development Scheme
• Lease Financing
• Personal Loan
• Small Loan

 Loan Application Form

The starting point of project appraisal is the receipt of will-documented loan applications from the Sponsors (Client) in the bank’s standard questionnaire form and duly signed by the prospective borrower.

 For any Type of credit facilities relating to the working capital, trade finance, project finance and contract work, Clients/borrowers, must filled an application form with following information. Loan Application From of Mercantile Bank Limited asks the following information about the client.

• Name of Firm/Company/Individual
• Business Address
• Permanent Address
• Constitution/Status (Sole Proprietorship! Partnership! Public Ltd. Co/private Ltd. Co.)
• Date of Establishment and Place of incorporation
• Background and Business Experience
• Particulars of Assets:

™ Land/Building

™ Bank Deposit

™ Stock/Shares

• Nature of Business
• Statement of Liabilities with other Banks

Financial Statements for the last 3 years explaining the following terms

a)      Capital Funds/Net Worth

• Paid up Capital
• Retained Earnings
• General Reserve

b)      Balance Sheet Statistics

• Current Assets
• Fixed Assets
• Current Liabilities
• Term liabilities
• Capital/Equity
• Total Liabilities

For working capital finance clients/borrowers must provide the following information:

• Annual Production
• Annual Sales
• Cash flow Statements

 5.5 LRA (Lending Risk Analysis): Credit Risk Evaluation

Credit officer of the Bank evaluate the risk related to the loan during proposal writing. They evaluate the risk on the basis of the given information by the client; sometime officer do the physical inspection of the project. An accurate appraisal of risk in ant credit exposure is highly subjective matter involving qualitative and quantitative judgment, where Quantitative factors refer to the analysis of financial statement ratios.

 Quantitative factors refer to the assessment of management, industry position, Customer/Supplier relations, account performance and reputation.

 Bank Usually analyzes both quantitative and qualitative factors is a combined way for assessing borrower’s financial position, In evaluating any credit proposal, the credit officers of the bank uses the following distinct and logical steps:

• Evaluating the past performance of the borrower.
• Assessing the risk of failure by identifying factors in the borrower’s present condition and past performance, this indicates likelihood of success to repay the loan.
• Forecasting the probable future condition of the borrower and deciding whether to accept or reject a loan proposal.
• Setting terms and conditions of credit facilities.
• Obtaining the sanction documents and disbursing the loan.
• Monitoring performance and ensuring repayment/recovery.

 The most pertinent and prime part of the process is assessment of risk of failure to repay deals with the overall lending risk combining;

• Business Risks.
• Financial Risks Management Risks.
• Security Risks.
• Environmental Risks.

The following basic aspects are taken into consideration while conducting business risks, Financial Risks Management Risks, Security Risks, and Environmental Risks.

 Business Risks

Credit officers analyze the risk on the basis of the given information by the customer. Credit officer see the description of business, its characteristics, whether the business is labor intensive or capital intensive, competitive or monopoly. Industrial projects are appraised to determine its size, maturity and diversification, they also analyze the suppliers bargaining power, reliability, availability and sources of supply, and Sales analysis is conducted to determine the product’s current demand, unsatisfied demand, future demand and competition.

 Financial Risks

Financial risk assessment is another important part of the proposal. Credit officers do the financial appraisal is to assess the viability of the proposed project in terms of the operation in the future year and its financial soundness. To ensure the current solvency as well as the continued solvency during the currency of loan of its client, bank analyzes the following financial aspects:

™    Investment outlay and cost of the project.

™    Means of financing.

™    Cost of capital.

™    Cash Flow Analysis.

™    Internal Rate o Return.

™    Analyzing Balance Sheet and Income Statement to determine liquidity, profitability, and debt management.

™    Sensitivity analysis and Ratio Analysis.

 Management Risks

™    High degree of employee turnover.

™    Inefficient financial control.

™    Lack of  willingness to adapt the changing situation.

™    Unaware of different market position.

Security Risks

Collateral is one of the important parts for a credit proposal. Security risks refer to inadequacy of collateral offered and supported by liquidation analysis in terms of marketability, valuations of security and legal issues. It is the risk that the bank falls to realize the security. Security risks involve:

• Obtaining a favorable judgment.
• Perfection level of security documents.
• Getting possession of security society or govt.
• Change in weather may affect the demand.
• Realized security value may be less than the exposure.
• Increasing duration of liquidation process.

 Environmental/Economic Risks

A project must be judge from the larger social point of view. It includes:

• Large industries may pollute air and water by the residue like gas and other dangerous chemical liquid, such projects may be considered as environment unfriendly.
• Product or service may be banned by the d of the product.

 5.6 Processing and Screening of Credit Proposal

MBL strictly followed some common regulatory, which are governed, by Banking Companies Act, Bangladesh Bank and the Law of the State. Not only that MBL screening any credit proposal very carefully from the root level.

 In case of taking the credit facilities customers first contact with the branch office. They place their credit proposal to the branch then the credit section of the branch takes necessary steps i.e. discussing with the customers regarding different issue of the credit, to judge whether the investment will be viable or not. The credit section informed the client regarding different formalities about taking the credit. If the credit section is satisfied about the proposal then the proposal is send to the credit department of the MBL. The credit committee critically analyzes the proposal by discussing and by calculating different aspects to make sure that the proposal will be profitable for the MBL.

 5.7 General Procedure for Loans and Advances

The following procedure is applicable for giving loans to the customer. This are-

a)      Information Sheet

b)      Application for Credit Line

c)      Collecting CIB report from Bangladesh Bank

d)     Making credit line proposal

e)      Project appraisal

f)       Head office approval

g)      Sanction letter

h)      Documentation

i)        Disbursement

j)        Monitoring

k)      Recovery

 a) Information Sheet

Information Sheet is the prescribed form provided by the respective branch that contains basic information of the borrower. It contains following particulars-

1. Name of the concern with its factory location, Office address and Tel No.
2. Name of the main sponsors with their educational qualification.
   1. Business experience of the sponsors, details of past and present business, its achievement and failures, name of all the concerns wherein the sponsors have involvement.
   2. Income tax registration no. with the amount of tax paid for the last three years.
   3. Details of unencumbered assets (movable & immovable) personally owned by the sponsors.
   4. Details of liabilities with other banks and financial institutions including securities held there against.
   5. Purpose of loan sought from MBL.
   6. Estimated cost of the project & means of finance.

 b) Application for Credit Line

After receiving the first information sheet from the borrower Bank official verifies all the information carefully. He also checks the account maintains by the borrower with the Bank. If the official becomes satisfied then he gives application for credit line form to the prospective borrower. The Application for Credit Lines Contain the following particulars.

1. Name, address, telephone, telex no. & cable address.
2. Date & place established/incorporated, status/constitution.
   1. Names of major shareholders (in excess of 5%). State relationship between shareholders.
   2. Names and net worth of directors/partners/owners with background & relationship with each other (Net worth statement of each person to be attached as per format).
   3. Capital structure & how the capital is deployed in business.
   4. Details of properties/assets of the applicant, with valuation against each type of property/assets and details of charges against them.
   5. Names and addresses of subsidiaries/affiliates/allied concerns, stating relationship with applicant, nature of business and borrowings from banks against each (including BCCI)
   6. Nature & details of business.
   7. Latest audited/un-audited balance sheet and profit & loss statement attached will be submitted by;
   8. Management structure (Including their experience and qualification).
   9. Names & address of other bankers, sanctioned facilities & liabilities outstanding with details of securities there-against.
   10. Type, extent and period of credit facilities required.
   11. Purpose of facility, repayment arrangement (with dates and amount), sources of repayment;
   12. Details of securities offered & any other relevant information.

c) Collecting CIB Report from Bangladesh Bank

After receiving the application for credit line, MBL sends a letter to Bangladesh Bank for obtaining a report from there. This report is called CIB (Credit Information Bureau) report. Basically branch seeks this report from the head office for all kinds of loans.  The purpose of this report is to being informed that whether the borrower has taken loan from any other bank, if yes, then whether the party has any overdue amount or not.

d) Making Credit Line Proposal

If the officer thinks that the project is feasible then he will prepare a Proposal, MBL prepares the proposal in a specific from called credit line proposal. It contains following relevant information:

1. Borrower;
2. Date established, constitution;
3. Main sponsor/director with background;
4. Capital structure, address;
   1. Account opening date, introduced by, type of business, particulars of previous sanctions;
   2.  Existing vis-à-vis proposed credit limits;
      1. Particulars of proposed/additional facilities;
      2. Security (Existing & Proposed/Additional);
      3.  Movement of accounts;
      4. Components on the conduct of the accounts;
      5. Details of deposit, liabilities of allied concerns, liabilities with other banks.
      6. CIB report.
      7. Stock position (Pls. Provide St. report);
      8. Rated capacity of the project (Item wise);
      9. Production/purchase during the period;
      10. Sales during the period;
      11. Business received for the period (Last three years);
      12. Earning received for the period;
      13. Associated lending/business risk (s);

 After fulfilling the previous particulars, the officer places the CLP to the BCC (Branch Credit Committee). BCC is then finding out the right borrower by considering the following 5 C’s. These are character, capital, capacity, collateral, condition.

selection of right borrower: The borrower has to be creditworthy and competent enough to run the proposed industry. Following are the considerations-

• Preference given for educated/knowledgeable sponsors, who know about their business concern, have technically know-how and expertise in the field of proposed industry;
• Ø Who have own land and building for running the project;
• Ø Client with innovative ideas;
• Ø Client must have net worth more than 2.5 times of the equity required for investment in the project;
• Ø Who have good dealings with the bankers/outside parties and has social contacts and standings;
• Ø Have an A/C with MBL Mohakhali Branch;

After approving the proposal by BCC, branch then sends the CLP to the respective division in Head Office. After receiving the CLP with application for credit line, resolution copy made in the special meeting of the BCC, branch investigation report on borrowers real estate, statement of stock and bank statement (statement of account), the respective divisions then divide the loan proposals into SSI (Small-scale industries) and MSI (Medium scale industries) according to the limit. For SSI the limit is up to 10 crore and for MSI it is 10 crore and above. Then the respective officer goes for project appraisal.

 e) Project Appraisal

It is the pre-investment analysis done by the officer before approval of the project. Project appraisal in the banking sector is needed for the following reasons:

i)                    To justify the soundness of an investment

ii)                  To ensure repayment of bank finance

iii)                To achieve organizational goals

iv)                To recommend if the project is not designed properly

 Basically Head Office is engaged in appraising the following projects

a)              Proposal for sanctioning a term loan.

b)              Proposal for sanctioning a working capital.

c)              Proposal for sanctioning a term loan and working capital.

d)             Proposal for renewal of advance limit.

e)              Proposal for enhancement of advanced limit.

f)               Proposal for enhanced renewal of advanced limit.

g)              Proposal for extension of repayment period.

Techniques of Project Appraisal in ICD

An appraisal is a systematic exercise to establish that the proposed project is a viable preposition. The appraising officer checks the various details submitted by the promoter in first information sheet, application for credit line and CL. MBL considers the following aspects in appraising a proposal:

a)              Technical viability

b)              Commercial viability

c)              Financial viability

d)             Economic viability

The head office (HO) mainly checks the technical, commercial and financial viability of the project. For others HO is dependent on branch’s information. But when the loan size is big, then the HO verifies the authenticity of information physically.

f) Head Office Approval

The respective officer of HO appraises the project by preparing a summary. Then he sends it to the Head Office Credit Committee (HOCC) considers the proposal and takes decision whether to approve the loan or not. If the loan is approved by the HOCC, the HO sends the approval to the concerned branch with some conditions. These are like:

• Drawing will not exceed the amount of bill receivables.
• The tern over in the account during the tenure of the limit should not be less than four times of the credit limit.
• All other terms and conditions, as per policy and practice of the bank for such advance to safeguard the banker’s interest shall also be applicable for this sanction also.
• Bank may charge/alter/cancel any clause (s) of the sanction without assigning any reason whatsoever and that shall be binding upon the client unconditionally.
• Branch shall not exceed the sanctioned limit.
• Required charge documents with duly stamped should be obtained.
• Drawing shall be allowed only after completion of mortgage formalities and other security arrangement.

 g) Sanction Letter

After getting the approval from the HO, the branch issues the sanction letter to the borrower. A sanction letter contains the following particulars amongst other details:

a)              Name of borrower.

b)              Managing partner

c)              Nature of Facility

d)             Amount

e)              Expiry

f)               Rate of interest

g)              Purpose

h)              Security

i)                Other terms and conditions: Other terms and conditions are like-

1. Before availing the loan all documentation formalities must be completed.
2. Registered power of attorney in favor of MBL to sell the mortgaged property without the consent of the court or owner of the lender.
3. DP note and other usual charge documents/undertakings etc. duly stamped must be signed and submitted to the authority before the disbursement of loan.
4. The loan shall be governed by all other terms and conditions as per policy and practices of the bank that will be applicable for the sanction to safe guard interest of the bank.
5. The bank reserves the right to amend, modify or withdraw any or all the terms of the loan at any time without assigning any reason whatsoever or to terminate/call back the loan facility at any time for which bank or its official cannot be held responsible for any loss (s) for such cancellation of the loan.

The borrower receives the letter and returns a copy of this letter duly signed by him as a token of having understood and acceptance of the terms and conditions above.

h) Documentation of loans and advances

In spite of the fact that banker lends credit to a borrower after inquiring about the character, capacity and capital of the borrower, he must obtain proper documents executed from the borrower to protect him against willful defaults. Moreover, when money is lent against some security of some assets, the document must be executed in order to give the banker a legal and binding charge against those assets. Documents contain the precise terms of granting loans and they serve as important evidence in the law courts if the circumstances so desire. That is why all approval procedure and proper documentation shall be completed before the disbursement of the facilities. The documents for loans and advances can be classified into two categories, namely Charge documents & Security documents.

Mode of Charging Securities

MBL Mohakhali Branch practices these two types of securities.

1. Primary securities:- Cash or cash equivalent that is easily liquidated or convertible into cash. Example-FDR, Sanchaypatra, DP Notes, etc.
2. Secondary securities:-These securities are tangible securities which can be realized from sale proceeds or transfer of property. Example-immovable properties like land, buildings, etc.

 The modes of charging securities are as follows-

a)                  Pledge

b)                  Hypothecation

c)                  Lien

d)                 Mortgage

Lien: Lien is the right to retain possession and not right of ownership. Bank’s lien is general lien over its own financial obligation to clients. Property under lien cannot be realized/sold and proceeds there of cannot be appropriated without notice to the owner and sometimes without court’s order.

Hypothecation: This is mortgage of movables by an agreement and here neither possession nor ownership is transferred. Hypothecated goods cannot be sole out/disposed off without notice and court’s order. However, if a special power of attorney is taken in that case can be disposed off without going to the court.

Pledge: Pledge is the bailment of goods as security for payment of a debt or performance or promise. Here, title and ownership are not transferred. Pledge goods may be sold out and proceeds there of may be appropriated towards adjustment of Liability in case of failure of the borrower to repay or fulfill the terms and conditions.

Mortgage: Mortgage is the transfer of interest in immovable property to secure the repayment of money advanced. Ownership remains with the mortgagor. In case of equitable mortgage, Court Order is necessary and in case of registered mortgage court’s order is not necessary for sale/disposal of the mortgaged property for adjustment of advance.

 Proper and correct documentation is essential not only for the safety of an advance but also necessary for taking legal action against the debtors in case of non-payment or dues. Depending on the types of the Loans and Advances different types of documents may be required, such as-

 For Loan:

• Demand Promissory Note
• Letter of Partnership/Board Resolution
• Letter of Arrangement
• Letter of disbursement
• Letter of pledge
• Letter of hypothecation
• Trust Receipts
• Letter of lien and ownership (in case of advance against shares)
• Letter of lien for packing credits
• Letter of lien
• Letter of lien and transfer authority
• Legal documents for mortgage of property

Overdraft:

• Demand Promissory Note
• Letter of Partnership/Board Resolution
• Letter of Arrangement
• Letter of Continuity
• Letter of hypothecation
• Letter of lien
• Letter of lien and ownership
• Letter of lien and transfer authority
• Legal documents for mortgage of property. 

Cash Credit:

• Demand promissory Note
• Letter of Partnership/Board Resolution
• Letter of Arrangement
• Letter of Continuity
• Letter of Pledge
• Letter of hypothecation
• Letter of lien
• Letter of lien and transfer authority
• Letter of lien and ownership
• Legal documents for mortgage of property.

Bills Purchased:

• Demand Promissory Note
• Letter of Partnership/Board Resolution
• Letter of Continuity
• Letter of hypothecation of bill

i) Disbursement

After verifying all the documents the branch disburses the loan to the borrower. A loan repayment schedule also prepared by the bank and given to the borrower.

j) Monitoring

Follow-up

After the disbursement of the loan bank officials time to time monitor the loan by physical observation of the activities of the party. It is done in the following manner:

• Constant supervision
• Working Capital Assessment.
• Stock Report analysis.

Loan classification

          Classification Scale

                        i.          Unclassified    : Repayment is regular.

                        ii.         Substandard    : Repayment is irregular or stopped                                                                                          but has reasonable prospect of Improvement.

                        iii.        Doubtful debt : Unlikely to be repaid but special

                                                            Collection efforts may result in partial recovery.

                        iv.        Bad/Loss         : Very little chance of recovery.

 Classification Procedure

Classification procedure for all types of bank loans including industrial loans is governed by the guidelines contained in BRPD Circular No. 16 issued by Bangladesh Bank in 6^th December 1998 and subsequently revised partially through BRPD Circular No. 9 issued in 14^th May 2001. According to the revised guidelines the principal of credit classification and provisioning are defined as under:

With a view to classifying, loans & advances will be categorized into four different categories. Such as:

• Continuous Loan.
• Demand Loan.
• Fixed Term Loan.
• Short Term Agricultural and Micro-Credit.

 k) Recovery

The loan classification procedure for all types of loan is governed by the guidelines contained in BRPD Circular no 16 dated 06.12.98 issued by Bangladesh Bank and subsequently revised partially through BRPD Circular no 9 and 10 dated 14.05.2001. According to this circular If any borrower fails to repay his amount or installment within the following time period then it will fall under the following classification status.

 Legal Framework for Loan Recovery

After being classified, bank goes for loan recovery by legal action. Head office appoints legal advisers and advises to the branch to file a suit against the defaulted leaned. MBL generally suits files under the Artha Rin Adalat 1990. Besides, other loan recovery acts are as follows through these are not applicable in MBL.

1. Public Demand Recovery Act-1913.
2. Bankruptcy Act-1997.
3. Negotiable Instrument Act-1881 section 138 for insufficient fund (In case of term loan).

 Different Micro Credit Program

MBL provides different types of micro credit programs among the poor/mid/lower class categories person. Mainly the bank provides micro credit loan among the minimum and fixed income group of people.

 Micro Credit Program of MBL

Mercantile Bank Limited is performing 5 types of Micro-Credit Program in the name of different head. These are:

            i.          Consumer Credit scheme.

            ii.         Small Loan Scheme.

            iii.        Lease Finance.

            iv.        Doctors Loan Scheme and

            v.         Rural Development Scheme.

 5.8 Consumer Credit Scheme

Consumer Credit is a relatively new field of collateral free finance of Bank People with limited income can avail of this credit facility to buy households goods including car, computer and other consumer durable.

 The main objective of this scheme is to help the lower mid class people for purchase different types of household equipments and also help to the mid class people for buy car/microbus for personal use.

 MBL has some limitations to take loan under CCS. That is very much important to the bank to recover the loan/disbursement amount within due time. Some of them are:

1. The consumer should be at least Govt. /Non-Govt. officer.
2. In case of business, that should be established and the Bank should accept that.
3. Applicants working place/business firm must be under Dhaka City Corporation.
4. Applicant’s age limit should be 15 to 50.
5. Guarantor should be sign in the Guarantor Latter and main application form where indicated.
6. Working place/business firm of Guarantor must be under Dhaka City Corporation.
7. Applicants will give two attested photographs.

Small Loan

This scheme has been evolved especially for small shopkeepers who need credit facility for their business and cannot provide tangible securities. Payment should be made by monthly within the 1^st week of every month. Incase of car maximum loan amount can be 4 month installment amount is compound made. Lubricant facilities of this scheme are that the loan amount directly placed to the consumer account and not necessary and collateral security for this loan.

Lease Finance

This scheme has been designed to assist and encourage the genuine and capable entrepreneurs and professionals for acquiring capital machinery’s medical equipment, computers and other items which may help them to be economically self reliant. This scheme helps to improve of industries in the country.

Securities

Primary the applicant will mortgage his/her all documents of property and than land, Bank grantee, Shanchay Patra, LCD unit certificate etc.

Facilities

Terms and condition of this scheme have been made easier than ever before in order to help the potential entrepreneurs to acquire equipment of production and services and repay the liability gradually from earning on the basis of Pay as you earn.

Interest Rate

Rate of return of Lease Finance per annum 16% and service charge 1% and risk fund 1% of Loan amount for one time Loan amount will be paid within 3 to 7 years depend on lease category.

Doctors’ Credit Scheme

Doctors Credit Scheme is designed to facilitate financing to new doctors, established doctors, Clinic and Hospitals with in easy terms. This scheme helps to make chamber, purchase treatment instruments etc for FCPS or postgraduate holder Doctors.

Loan Amount

For new Doctors Tk. 5 Lac, experienced doctors Tk. 15 Lac and for hospital clinic and diagnostics center Tk. 50 Lac.

Interest Rate

Rate of return of Doctors Loan scheme per annum 13% and risk fund 1000/- per 1,00,000/- for on time. Loan amount will be paid within 5 Years.

Rural Development Scheme

Rural Development Scheme has been evolved for the rural people o the country to make them self-employed through financing various incomes generating activities. This scheme is operated through the rural branches of Mercantile Bank Limited. This scheme tries to develop rural people and increase purchasing power among the rural branches of Mercantile Bank Limited.

MBL Position in Loan & Advances

A summary of loan disbursed by the MBL is shown below according to their nature:

Nature wise Loans & Advances

Table 13: Nature wise Loans & Advances of MBL

The different amount of loans and advances in 2005, 2006 and 2007 are given below

Loans, Cash Credit and Overdraft (Inside Bangladesh)

Table 14: Loans, Cash Credit and Overdraft of MBL

In the above table it is seen that the total loan and advances in 2005 was 20,065,170,273 which was6% higher than 2004, where loans and advances was 30%and in 2003 the loan and advance was 19% higher than 2002.  But from 2002 to 2005 MBL’s provided loan increased 15% to 36%, so we can conclude that the loan and advance offered have an attractive criteria or the management was good enough in offering the loans.

  5.9 Provisions for Loans & Advances

Table 15: Provisions for Loans & Advances of MBL

General provision for Unclassified Loan and Advances

Table 16: General provision for Unclassified Loan and Advances

Provision for the Classified Loans and Advances

Table 17: Provision for the Classified Loans and Advances

MBL keep the provisions not only for the unclassified loans but also provisions are kept for the loans, which are classified. In the above table we can see the position of this provision for four consecutive years.

MBL Position in Classified Loan

Classifications of Loans & Advances as per BB Circular

Table 18: Classifications of Loans & Advances of MBL

From the following table it can be seen that the amount of classified loans and advances as per the BB Circular, increased from 2005 to 2008. From 2005, which was 8,896,193,113 and it was respectively increase in 2006, 2007 and 2008 by the amount of 1,879,752,418; 6,893,346,740 and 4,187,762,057.

Number of clients and amount of outstanding and classified loan to whom loans and advances sanctioned more than 15% of total capital of the bank is shown below:

 Classified Loans sanctioned more than 15% of Total Capital

Table 19: Classified Loans sanctioned more than 15% of Total Capital

 Ending Summery

In Bangladesh all banks involved in credit department operation & Mercantile Bank Ltd. is one the success fully loan service providers. This report certainly reflects that as a part of Mercantile Bank Ltd. this wing not only Generates suitable amount of revenue but also provides satisfactory Clint service compared to the other non back member houses as it is secured and reliable for share trading.

6.1 Foreign Exchange Department

Foreign Exchange refers to the process or mechanism by which the currency of one country is converted into the currency of another country. Foreign exchange is the means and methods by which rights to wealth in a country’s currency are converted into rights to wealth in another country’s currency. The foreign exchange department of MBL Mohakhali Branch, Dhaka, is playing an important role in enhancing export earning, which aids economic growth and, will be helpful for economic boost. On the other hand, it also helps to meet those goods and services, which are more demanding and not adequate in our country.

 Foreign exchange department of MBL, Mohakhali Branch and Dhaka has been divided into two sections:

2)      Foreign Remittance

3)      L/C Operation

Before going to detailed discourse let’s discuss some inevitable terms.

 6.2 Forms of Documentary Credit

1) Revocable Credit

A revocable credit is one where the issuing banks at liberty to revoke i.e. cancels the credit at any time without prior notice.

2) Irrevocable Credit

An irrevocable L/C is one, which cannot be revoked, amended or modified by the bank with the concurrence of the interested parties.

 6.3 Parties involved in the process of Letter of Credit

• Importer (Buyer)/Applicant
• The Issuing Bank (Opening Bank)
• The Advising Bank/Notifying Bank
• Exporter/Seller (Beneficiary)
• Confirming Bank
• Negotiating Bank
• The Paying/Reimbursing/Accepting/Remitting Bank.

 a) Applicant

The person/body (customer of the bank) who requests the bank (opening bank) to issue letter of credit. As per instruction and on behalf of the applicant, bank open L/C in line with the terms and conditions of the sales contract between the buyer and seller.

b) Opening bank/Issuing Bank

The bank which issues l/Cat the request of the applicant.

c) Advising/Notifying Bank

The bank which advises the L/C to the beneficiary on receipt of it from the Issuing bank.

d) Beneficiary

Beneficiary of the L/C is the party in whose favor the letter of credit is issued. Usually they are the seller or exporter.

e) Confirming Bank

The Bank, which is confirmation h add to an L/C and confirms payment of the L/C value to the beneficiary a the request of the Issuing bank.

f) Negotiating Bank

The Bank, which negotiates the documents submitted by the beneficiary against the L/c .

g) Reimbursing/Paying Bank

the bank which reimburses fund at the instruction of Issuing bank to the Negotiating bank.

 6.4 Legend

1. L/C opening
2. Present Document
3. Payment against document
4. Confirming L/C
5. Submit Documents
6. Makers Payment
7. Issue L/C
8. Forward Document
9. Makes payment

Application for opening L/C

At first, an importer will request banker to open L/C along with the following documents:

• An application
• Indent or preformed invoice
• Import Registration Certificate (IRC)
• Taxpayer’s Identification Number (TIN)
• Insurance cover note with money receipt
• A bank account in MBL O. R. Nizam Road Branch
• Membership of Chamber of Commerce

 Indent or Proforma invoice

Indent or Proforma Invoice is the sale contract between seller and buyer in import-export business. There is slight difference between indent and proforma invoice. The sales contract, which is direct correspondence between importer and exporter, is called Proforma invoice. There is no intermediary between them. On the other hand, they may be an agent of exporter in importer’s country. In this regard, if the sale contract is occurred between the agent of exporter and importer then it is called indent.

 L/C Application Form

L/C Application form is a sort of an agreement between customer and bank, on the basis of which letter of credit is opened. MBL Mohakhali Branch, Dhaka provides a printed from for opening of L/C to the importer. A special adhesive stamp of value Tk. 150 is affixed on the form in accordance with Stamp Act in force. While opening, the stamp is cancelled. Usually the importer expresses his decision to open the L/C quoting the amount of margin in percentage. Usually the importer gives the following information:

• Full name and address of the importer
• Full name and address of the beneficiary
• Draft amount
• Availability of the credit by sight payment/acceptance/negotiation/deferred payment
• Time bar within which the documents should be presented
• Sales type (CIF/FORB/C&F)
• Brief specification of commodities, price, quantity, indent number etc.
• Country of origin
• Bangladesh Bank registration no.
• Import License/LCAF no.
• IRC no.
• Account no.
• Documents no.
• Insurance Cover Note/Policy no., date, amount
• Name and address of Insurance Company
• Whether the partial shipment is allowed or not
• Last date of shipment
• Last date of negotiation
• Other terms and condition (if any)

Preparation of L/C by Banker

Bank’s officer prepares L/C when above-mentioned forms are to be submitted by customer or importer. Before preparing L/C MBL officer scrutinizes the application in the following manner.

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

 Survey reports or certificate in case of old machinery is required. Bank of the importer is called “L/C Issuing Bank”. Then issuing bank informs it’s corresponding bank, called “Advising Bank or Confirming Bank” located in exporter’s country to advise and the credit forward to he exporter and simultaneously officer makes L/C opening vouchers.

Desk Works

• One debit voucher to be passed.
• Corresponding credit voucher to be passed (margin, commission, postage, stamp, F.F.C. and others).
• Liability voucher to be passed.

Submission of Necessary Documents by Exporter to the Negotiating Bank

As soon as the seller/exporter receives the credit and is satisfied that he can meet its terms and conditions, he is in position to load the goods and dispatch them. The seller then sends the documents evidencing the shipment to the bank.

Exporter will submit those documents in accordance with the terms and conditions as mentioned in L/C. generally the documents observed by me in the foreign exchange department are:

• Bill of exchange
• Commercial invoice
• Bill of lading
• Certificate of origin
• Packing list
• Clean Report of Finding (CRF)
• Weight list
• Insurance cover note
• Pre-shipment certificate

 Parties to Export Transactions

1. L/C Issuing Bank
2. Importer
3. L/C Advising Bank
4. Exporter
5. Confirming Bank
6. Negotiating Bank
7. The Paying/Reimbursing Bank

 A) Advising of Export L/C

The advising bank getting the import L/C sent by the issuing bank located abroad will advise the L/C to the beneficiary without any engagement or responsibly on their part. It will see the following only:

1. Authenticity of L/C (Test agreed in case of Telex L/C and signature verified in case air mail L/C).
2. Merchandise specified in the L/C is permissible and clauses incorporated in the L/C are not against country’s regulations.

 B) Add Confirmation of Export L/C

Bank may add additional confirmation to export L/C where there is specific instruction from the L/C issuing bank to do so. Additional confirmation of L/C gives the seller a double assurance of payment. Bank’s requirement of adding confirmation:

1. Issuing Bank should be a reputed bank.
2. Credit Line/Arrangement with the L/C issuing bank.
3. L/C clauses are to be acceptable to confirming bank.
4. Approvals from the competent authority for adding confirmation of export L/C.
5. Confirmation charge is to be recovered as per rules.

 C) Negotiating of Export L/C

Documents/Papers to be submitted by exporter to bank for negotiation/against export L/C. The exporter submits the documents to bank as per requirement of bank. List of export documents is as follows:

• Export L/C
• EXP Form
• Bill of Exchange
• Invoice
• Bill of Lading
• Packing List
• Certificate of Origin
• Inspection Certificate
• Insurance Document
• Weight List
• Any other documents as per L/C

Bank must scrutinize all the documents stipulated in the credit with reasonable care to ascertain whether they confirm with the terms and conditions or not. If the documents are drawn strictly in terms of the credit, the bank may negotiate and pay the value of export bill to the exporter at:

• OD buying rate (Sight Draft)
• Usance rate (For DA Bill)
• Appropriate rate (for DP Bill)

Export Financing:

Financing of export credits is made in two stages:

1. Pre-Shipment stage.
2. Post-Shipment stage.

 Packing Credit (Pre-Shipment Financing)

Packing credit is a short-term advance granted by a bank to an exporter against valid export L/C contract for the purpose of purchase of material or finished goods or manufacturing, processing, packing, transporting up to ware house/port of shipment etc., of exportable for export.

Voucher to be passed:

Packing Credit A/C ————— Dr.

Exporter’s A/C ——————– Cr.

Adjustment:

FBP/FDBC A/C —————— Dr.

Packing credit ——————– Cr.

Income A/C interest on PC —– Cr.

Back-to-Back L/C (Pre-Shipment Financing)

Back-to-Back L/C means one credit backs another credit. It is new credit in favor of another beneficiary. Sometimes beneficiary/seller of a credit himself is unable to supply goods specified in the L/C and required to purchase from another supplier by opening second credit.

 Besides, the normal formalities and requirements (for L/C opening) the following formalities and documents are also required of opening back-to-back L/C.

• Master L/C
• Valid bonded warehouse license
• Quota allocation for quota items
• ERC in addition to IRC
• Indemnity/Undertaking
• No objection from previous banker (if any)
• Factory inspection certificate
• BGMEA Membership

Payment of Import Bills

Payments of the import bills are at maturity from the relative export proceeds repatriated. The required foreign exchange for payment of import bills is kept in a separate account, out of repatriate proceeds of relative export party- wise funds are kept in FBPSAR (Foreign Bills Awaiting Remittance) account from export proceeds for payment of bills at maturity.

6.5 Foreign Remittance Section

Foreign remittance refers to the transfer of funds form one country to another which may be within the country or between two countries through banking channel post office or the informal channel. According to the Foreign Exchange Regulation Act 1947 Foreign Remittance means purchase and sale of freely convertible foreign currencies. Purchase of foreign currencies constitutes inward foreign remittance and sale of foreign currencies constitutes outward foreign currencies.

Foreign remittance is very important for the country as valuable foreign exchange is involved in the transfer mechanism. From the year 1990, financial liberalization has been started which is still going on. Due to liberalization, restrictions on foreign remittance become ease. Bangladesh take is convertible for current account transactions on March 24, 1994 with the view to achieve better exchange rate management system. And from April 1994 Bangladesh Government has accepted the status of Article VIII of international monetary fund. Mercantile Bank Ltd. plays an important role in foreign remittance activities both inward and outward. In MBL main components of foreign exchange remittance are T.T, M.T and Draf

6.5.1 Relevant Topics to Remittance

Buffering foreign remittance and outward remittance, We have to no some relevant tropics in brief discussion.

 Authorized Dealer (AD) Branches: Authorized dealer branches of the bank are those who are permitted by the Bangladesh Bank to deal in foreign exchange business subject to the fulfillment of foreign exchange rules and regulations of the country.

 Agency Arrangement: Agency arrangement may be made between local bank and foreign bank to facilitate foreign exchange business throughout the world. However, in case of agency arrangement accounting relationship may or may not be made.

 Drawing Arrangement: Drawing arrangement is made to facilitate remittances through concluding accounting relationship between a bank & corresponding bank or exchange house.

 NOSTRO Account: The account that is maintained in another bank in foreign by the local bank is known as NOSTRO account.

 VOSTRO Account: The account that is maintained in local bank by the foreign bank is known as VOSTRO account.

 LORO Account: When the third party maintains account is known as LORO account.

 6.5.2 Foreign Inward Remittance

Foreign Inward Remittance refers to the currency / remittance in foreign currency that is received from abroad to our country. In case of foreign inward remittance, TT, MT, Draft etc are drawn in local bank by the foreign banks of exchange houses. When a local bank Purchases foreign bills, TCs and cash foreign currency is also known as inward remittance. A local bank also receives indenting commission of local firm, trademarks, patent fee etc.

 Inward Remittance can be classified into two groups

1. Visible Inward Remittance such as export proceeds.
2. Invisible Inward Remittance such as family maintenance, constancy fee etc.

1. Purposes of Inward Remittance

• Family maintenance.
• Donation.
• Indenting commission.
• Gift.
• Foreign investment.
• Export proceeds.
• Other.

2. Mode of Inward Remittance

• Telegraphic Transfer (TT).
• Mail Transfer (MT).
• Foreign Demand Draft (FDD).
• Foreign Currency Notes.
• Travelers Cheques (TC).
• Payment Order (PO).
• Cover of Export.

3. Problems regarding to Inward Remittance

• Name of the beneficiary, account no. Or correct branch name may not be given in the TT. Those are the required particulars of the beneficiary.
• Further geniuses or signature of drafts may be forged.

In case of payment, sometimes branches of the bank may create certain problem:

• Delay in making payment against remittance to the beneficiary.
• Without ascertain genuinely, drafts may be paid.
• Lack of timely response/communication against the queries of remitter/ beneficiary.
•  Credit TRV’s may not be timely sent to head office. Moreover particulars may not be given in the TRV’s.

If beneficiary is not available, inward remittance may be cancelled. If an inward remittance already reported to Bangladesh Bank is cancelled either in full or in part become of non-availability of beneficiary. The authorized dealer must report the cancellation of the remittance as an outward remittance on TM form.

6.5.3 Foreign Outward Remittance

Remittance that is made from our country to abroad is called Outward Remittance. This remittance includes issuance of TT, MT, FDD issued by local banks on foreign banks. Further it includes rate of foreign currency, notes, TC’s, reimbursements against import, bills retired etc.

Outward Remittance can be classified into two groups

1. Visible Outward Remittance such as payment against import
2. Invisible Outward Remittance such as membership fee, subscription fee etc.

1. Purposes of Outward Remittance

• Traveling purpose.
• Educational purpose.
• Attending seminar and workshop.
• Medical treatment.
• Business travel quota.
• Evaluation fee.
• Membership fee.
• Pre-shipment fee.
• Advertising of Bangladeshi commodities.

In case of purchase of foreign currency, an applicant must be made to an authorized dealer and if necessary requires to Bangladesh Bank. The prescribed application form like IMP form and for other types of remittance TM form is needed for payment against import.

2. Mode of Outward Remittance

• Foreign Telegraphic Transfer (FTT).
• Foreign Mail Transfer (FMT).
• Foreign Demand Draft (FDD).
• Foreign Currency Notes.
• Traveler Cheques

7.1 Conclusion

Mercantile Bank Limited has gained firm confidence in the minds of its clients within a short period of its operation. The bank is in its growth phase. The profit is increasing every year, as the profit generating mechanism is efficient in the organization. In this paper efforts were taken to go in depth regarding the factors that are contributing in-profit generation.

Clients are interested to continue the banking in MBL. In tern they are going to inform others to join in the banking with it. Different services provided by the bank are also well appreciated by its clients. This will help the bank to get more deposit and to earn profit. Clients will do this favor because they are also getting speedy and professional service from the bank. Comfortable internal environment, cooperative officers and attractive benefits will attract the clients towards MBL.

The major contributing factor for profit generation is the interest earned from prudent lending. Loans and advance facilities by the bank help in increasing the amount of profit. To assess the suitability trained and well-experienced human resources are required. With out matures handling loans can bring disaster for the bank also.

7.2 Recommendation 

In order to continue the existing trend of growth and profit generation Following are recommended for MBL:

• From the survey as well axiom available data it was found that there are scope to increase the amount of loans and advances by MBL. To increase earning and profit disbursement of loans and advances can be increased further.
• From clients survey it was revealed that there is possibility to increase the remittance service by increasing no of branches around the country. To increase earnings from remittance services MBL can open new branches in important commercial centers around the country
• From the survey it was found that foreign exchange related activities increase the earnings for the bank. In view of that MBL can take an effort to authorize all the branches to deal with foreign exchanges.
• Clients are satisfied by the services provided by MBL. This reputation should be maintained all through. For that management should constantly monitor the reaction of the clients as they are the asset for the bank.
• As the numbers of customers are increasing day by day so to keep commitment MBL should also increase their efficient manpower.
• Management should also place right person to the right place.
• MBL should up-to-date with currently use of IT in banking sectors like done by other banks.
• Fund management of the bank should be more efficient.
• ATM facility is not so easy for MBL. So they are loosing many potential customers. They should also take necessary steps regarding this concern.