Small Industrial Loan Disbursement by BASIC Bank Limited

Main objective of this report is analysis Small Industrial Loan Disbursement By BASIC Bank Limited Gazipur Chowrasta Branch. Other objectives are to evaluate the various loans programs of BASIC bank which includes Industrial, Trade and Commerce etc and to explain the procedures, systems of the credit operations. here also inspect the recovery of loans and measure the actual position in classified Loan and provisions maintained by BASIC Bank. Overall discussion are to get acquainted with the loan structure, size, profile of sector wise outstanding position of loans and system of loan classification of BASIC.

Objectives of the Report:

• To fulfill academic requirement.
• To gain practical knowledge in banking sector of our country.
• To evaluate the various loans programs of BASIC bank which includes Industrial, Trade and Commerce etc.
• To explain the procedures, systems of the credit operations of BASIC Bank.
• To inspect the recovery of loans by BASIC Bank.
• To measure the actual position in classified Loan and provisions maintained by the BASIC Bank Limited.
• To get acquainted with the loan structure, size, profile of sector wise outstanding position of loans and system of loan classification of BASIC.

Background:

BASIC Bank Limited (Bangladesh  Small Industries and Commerce Bank Limited) registered under the Companies Act 1913 on the 2^nd of August, 1988, started its operations from the 21^st of January ,1989. It is governed by the Banking Companies Act 1991. The Bank was established as the policy makers of the country felt the urgency for a bank in the private sector for financing small scale Industries (SSIs). At the outset, the Bank started as a joint venture enterprise of the BCC Foundation with 70 percent shares and the Government of Bangladesh (GOB) with the remaining 30 percent shares. The BCC Foundation being nonfunctional following the closure of the BCCI, the Government of Bangladesh took over 100 percent ownership of the bank on 4^th June 1992. Thus the Bank is state-owned. However, the Bank is not nationalized; it operates like a private bank as before.

BASIC Bank Limited is unique in its objectives. It is a blend of development and commercial banks. The Memorandum and Articles of Association of the Bank stipulate that 50 percent of  loan able funds shall be invested in small and cottage industries sector.

Capital Position:

Functions:

The Bank Offers:

• Term loans to industries especially to small-scale enterprises.
• Full-fledged commercial banking service including collection of deposit, short term trade finance, working capital finance in processing and manufacturing units and financing and facilitating international trade.
• Technical support to Small Scale Industries (SSI) in order to enable them to run their enterprises successfully.
• Micro credit to the urban poor through linkage with Non- Government Organizations (NGOs) with a view to facilitating their access to the formal financial market for the mobilization of resources.

In order to perform the above tasks, BASIC Bank works closely with its clients, the regulatory authorities, the shareholders (GOB), banks and other financial institutions.

Corporate Strategy:

Financing establishment of small units of industries and business and facilitate their growth
Small Balance Sheet size composed of quality assets.

• Steady and sustainable growth.
• Investment in a cautious way.
• Adoption of new banking technology.
• To employ funds for profitable   purposes in various fields with special emphasis on small scale industries.
• To undertake project promotion on identify profitable areas of investment.
• To search for newer avenues for investment and develop new products to suit such needs.
• To establish linkage with other institutions which are engaged in financing micro enterprises.
• To cooperate and collaborate with institutions entrusted with the responsibility of promoting and aiding SSI sector.

Humanresources:
BASIC has a well-diversified pool of human resource, which is composed of personnel with high academic background. Also, there is a positive demographic characteristic. Most employees are comparatively young in age yet mature in experience. As at end 2010 the total employee strength was 735. The Bank follows a strict   recruitment policy in order to ensure that only the best people are recruited. The Bank, so far, has recruited four batches of entry-level management staff, all of  whom have got excellent academic background.

Training:
Intensive training program, on a regular basis, is being imparted to employees of both management and non-management levels to meet the challenges in the banking industry and to help employees to adapt the changes and new working conditions. Human resource is the main driving force and quality human resources are the key sources for the success of today’s banking business. Keeping this view in mind and recognizing the importance of training for professional excellence BASIC Bank Ltd. has established its own training institute in 2005 with modern facilities. In 2008 the institute arranged 27 training courses and provided training to as many as 517 employees of the bank. To cater to the needs of the employees and to keep pace with demand of the time it will continue to arrange regular training courses in the days ahead. During the year 2008, a total of 602 employees of the Bank were provided with training in various fields. Out of them 11 employees participated in training courses held abroad. In 2007 total 122 employees of various stages were given promotion which is almost 17.00percentoftotalemployeesofthebank.
Recruitment of New Officers:
The Bank follows a strict recruitment policy in order to ensure that only the best people are recruited. The Bank, so far, has recruited four batches of entry-level management staff, all of whom have excellent academic background.

BASIC Bank Limited is unique in its objectives. It is a blend of development and commercial banks. The Memorandum and Articles of Association of the Bank stipulate that 50 percent of loan able funds shall be invested in small and cottage industries sector.

Monetary / Financial Resources:

Like any other financial intermediaries, BASIC  Bank Limited is no exception in performing its core functions viz. Mobilization of fund and utilizing such mobilized fund for profitable purposes.

A. Mobilization of fund  
The main sources of fund for the Bank are:
1.   Deposit, and
2.   Borrowing

Deposit
Deposit is the mainstay of the Bank’s sources of funds. Following usual practices, it collects deposit through:
a.   Current Deposit
b.   Savings Deposit
c.   Term Deposit

Borrowing  

Apart from deposit, BASIC Bank Limited received funds from :

• Bangladesh Bank
• Asian Development Bank(ADB)

KfW (kredi tanstalt fur Wieder-aufbau Credit Institution for Reconstruction), a German development bank. All of these funding sources are for  relatively longer period. Receiving the credit lines from ADB and KfW has been a recongniting of the Bank’s highly satisfactory performance.

Functions and operations:

The Bank Offers:

• Term loans to industries especially to small-scale enterprises.

• Full-fledged commercial banking service including collection of deposit, short term trade finance, working capital finance in processing and manufacturing  units  and financing and facilitating international trade.

• Technical support to Small Scale Industries (SSI) in order to enable them to run their enterprises successfully.

• Micro credit to the urban poor through linkage with Non- Government Organizations (NGOs) with a view to facilitating their access to the formal financial market for the mobilization of resources.

Loans and Advances:

In BASIC Bank Ltd., Loans and advances consist of industrial loans, commercial loans, micro credit ,small enterprise financing, loan for women entrepreneurs, agro based industry financing, agricultural loan and bills etc. which increased by  58.37 percent to Tk. 46,341.51 million in 2010 compared to Tk. 29,261.53million in 2009.this increase resulted from expansion of our business in response to the growth of national economy.

 Industrial Credit:

The industrial loan reflected a significant growth of 55.83 percent over the previous year. Total  outstanding  industrial  loans including  term  and  working  capital  stood  at  Taka27,777.89 million at the end of 2010 compared to Taka 17,825.40 million of 2009.  Total outstanding  term  loan  stood  at  Taka  12,225.49 million as on December 31, 2010 compared to Taka 7,718.34 million  in  2009  reflecting  a  growth  of  58.40  percent.  The outstanding working capital finance extended to industrial units stood at  Taka 15,552.40 million at the end of the reporting period compared to Taka 10,1098.20 million in 2009. Growth rate here was 54.01 percent. BASIC Bank’s services are specially directed towards promotion and development of small medium industries.  Its exposure to small and medium industries sector accounted for 54.65 percent of the total loans and advances. During the year total of 111 projects were sanctioned term loan. Out of which 26 were new and the rest were under BMRE of the existing projects. As on 31 December 2010, total 966 projects were in the portfolio of the bank. The textile sector including garments being one of the major contributors to national economy dominated the loan portfolio of the Bank. Other sectors financed include Agro based industry like poultry,  engineering; food and allied industries; chemicals, pharmaceuticals and allied industries; paper, board, printing and packaging;  and other non-metallic goods and jute products.

Commercial Credit:

The Bank also supports development of trade, business and other commercial activities in the country. It covers the full range of services to the exporters and importers extending various facilities such as cash credit, export cash credit, packing credit, short term loans, local and foreign bills purchase facilities. As on December31, 2010 total outstanding commercial loans stood at Taka16,915.32 million compared to Taka 10,877.17 million in 2009 reflecting a growth of 55.51 percent.

Agricultural Credit:

Being instructed by Bangladesh Bank, BASIC Bank set a fiscal target to invest its loan able fund in agricultural sector and achieves 100% during the year 2009-2010.

Micro Credit:

BASIC Bank launched a Micro Credit Scheme in 1994. Micro Credit Scheme provides for the poor for generation of employment and income on a sustainable basis particularly in urban and suburban areas. The Bank follows three systems of credit delivery.

At the end of 2010,total amount of Taka 988.72 million remained outstanding as against Taka 1,072.05 million in2009. Recovery rate during this period remained at a satisfactory level of 97.32 percent.

Foreign Exchange:

The bank achieved substantial growth in export in 2008 and the performance of the bank in import business was also satisfactory. The Bank handled total import business of Taka42,205.80 million and export business of Taka 23,998.47 million in 2010 compared to Tk33,976.60 million and TK 19,887.70 million in 2009 . Major items of exports were garments, jute products, textile, leather etc. Items of import included mainly industrial raw materials, garments accessories, capital machinery, food items and other essential commodities.

The Bank became a proud member of SWIFT (Society for Worldwide Interbank Financial Telecommunication) that would pave the way to achieving uninterrupted communication related to banking for international trade. Business and fund transfer.

Short-falls/weaknesses

The Banking business always involves huge risks. In this backdrop , the management has established a formal program for managing the business risk faced by the bank. Considering the present non-performing  loan position of the country, BASIC Bank ltd. is very much cautious about its investment. Every loan proposal is placed under careful security before approval. proposals of large amount of loans need approval of board of directors .credit administration division  ensures documentation before disbursement .Internal audit and inspection team and recovery team exercise close monitoring in every loan transaction.

Management regularly reviews the Banks overall assets and liabilities position and makes necessary changes in its mix as and when required . The bank also has liquidity policy to ensure financial flexibility to cope with unexpected future cash demands . To manage the risk efficiently and effectively bank has been continuously adhering all instructions and guidelines of Bangladesh bank under core risk management , Anti money Laundering, credit risk Grading, risk based capital Adequacy  framework ,SRP, and stress testing etc.

Utilization of Fund:

BASIC Bank Limited utilizes its funds in accordance with its organizational goals and corporate strategy. Main use is for lending to industrial and trade sectors. Maintenance of cash and statutory liquidity reserve with the Bangladesh Bank covers 20 percent of demand and time liabilities. Placement of funds in Nostro Accounts to handle foreign trade and investment in money market is also done as usual.

Basic Principles of Loans & Advances in BASIC Bank :

A sea of opportunities waits for the small industry sector. This is the best time for new entrepreneurs to enter into the small industry sector. Every country gives support to small industry sector.

The making of loan and advance is always profitable to a bank. As the bank mobilizes savings from the general people in the form of deposit, the most important task of it is to disburse the said deposit as loan or advance to the mass people for the development of commercial, industrial who are in need of fund for investment. Like other business firm, the main purpose of the commercial bank is to make profit. The profitability of the banks depends on the efficient manner and avenues in which the resources are employed. The BASIC Bank Limited has made so far efficient use of the deposit and has the classified rates under control. The Bank disburses loan in different form. It varies in purpose wise, mode wise and sector wise. The varieties used by BASIC Bank are briefly described below with the common terms and condition and performance in each mode.

Classification of Loans and Provisions:

Loans Categories:

Basic Principles of Loans & Advances in BASIC Bank :

1. Aggregate loans and advances shall not exceed the Bank’s   net worth or 65% of customers deposit whichever is lower (excluding loans and advances covered by specific counter -finance arrangements).
2. Within the aggregate limit of loans and advances as mentioned in (1) above 50% of lending will be small industry sector in accordance with prescribed norms of the government and the Central Bank in terms of the banks objectives with 50% to the commercial sector. No term loans will be approved for the commercial sector. Exceptions will be rare and will require approval of the Executive Committee.
3. All lending will be adequately secured with acceptable security and margin requirement as laid down by the Head office credit committee.
4. The bank shall not incur any uncovered foreign exchange risk (currency exposure) in the lending of funds.
5. The Bank shall not incur any risk of exposure in respect of unmatched rates of  Interest   of funding of loans and advances beyond 15% of outstanding loans and Advances.
6. End – Use of working capital facilities will be closely monitored to ensure lending used for the purpose for which they were advanced.
7. Country risk in loans and advances will be accurately identified and shall be within the country limits if any approved for the bank. The same treatment will be given to country risk arising out of contingent liabilities relating to Letters of credit and letters of guarantee.
8. Loans and advances shall be normally funded from customers’ deposits of a permanent nature, and not out of short-term temporary funds of borrowings from other banks or through short-term money market operations.
9. The aggregate outstanding loans and advances (excluding loans advances covered byspecific counter –finance arrangement) shall be dispersed according to the followingguidelines (subject to item above whereby 50% of lending being to small industry sector).
10. Spreads over cost of funds on loans and advances and commissions and fees on other transactions should be commensurate with the rating of the borrower, quality or risk and the prevailing market conditions.
11. Credit risk evaluation will include an accurate appraisal of risk in any credit exposure is highly subjective matter involving quantitative and qualitative judgments. The financial statements of the borrower do not always provide a complete picture of the borrower.

Therefore the bank has to use all financial data available and combine this with a number of qualitative factors analyzing the borrower’s financial position.

Lending Criteria:

• Entrepreneur- Entrepreneur / promoter have to be creditworthy and competent enough to run the proposed industry.

• Viability of the Project-

The project should be viable from organizational, technical, commercial, financial andeconomic points of view.

Technical Viability:

• The project should be technically sound and environment-friendly.
• Technology transfer in case of borrowed know-how ought to be ensured.
• Building should be well planned and well constructed.

Commercial Viability:

• Market prospect and potential for the product has to be fully assured at competitive prices.
• Marketing channel for the product should be accessible to the entrepreneur.

Financial Viability:

• There should be reasonable debt equity ratio as determined by the Bank on individual case basis.
• Debt service coverage ratio should be at least 2.5 times at the optimum level of production.
• IRR should preferably be not less than 20 percent.

 Economic Viability:

The project should ensure benefit to the national economy and create sufficient employment opportunity and be environment friendly.

Eligibility of the client for Loans and Advances:

Confidential reports are prepared on the Loans and Advances client and informationcontained therein is substantiated by-

• Customer’s declaration of liabilities.
• Client’s status report from other banks of the locality.
• Credit references from third parties, as far as practicable.
• Cash flow, personal net worth statements and financial accounts obtained andevaluated where applicable.
• Updated valuation of securities taken as collateral.
• Monthly declarations of trading inventory and receivables duly signed.
• Working capital assessment where applicable.
• Purpose of Loans and Advances/Facility.
• CIB Report obtained.

Loan Sanctioning Procedure of BASIC Bank limited:

• Loan application
• Loan processing
• Sending HO for approval
• Receiving Sanction Letter
• Documentation
• Disbursement

Explanation of Loan Sanctioning Procedure:

Loan application:

After filling up loan application, the following information to be furnished with application form:

• Copy of Business Registration / Company Incorporation Certificate.
• In the case of a Limited Liability Company, copy of Memorandum and Article of Association duly certified by the Chairman or the Secretary of the Company.
• Copy of certified lease agreement in case of existing leasehold premises.
• Details of existing equipment/machinery/vehicles etc(name, make installed capacity, date of purchase and purchase price)
• If a land is proposed to be purchased/taken in a lease, a copy of letter from the vendor or lessor confirming his agreement to sale or lease indicating land extent and expected price.
• Approved plans and priced BOQS (detailed cost estimate) for proposed buildings.
• Proforma invoices/ quotations at least two suppliers with catalogues for proposed machinery.(if the value of machinery exceeds US dollar 50000.00 three alternative quotations should be submitted).
• Cost estimate from relevant authority on power supply and its confirmation on ability to provide the required load.
• In case of an existing business please submit financial statement like, current assets, fixed assets, liability and net worth for the past three years.
• Incase loan of mortgage requested-a recent mouza, site plan depicting the allotment of land and copy of original title deed of transfer,
• mutation certificate.
• Additional information of owner/partner/directors separately.
• Incase of loan exceeding Tk 40.00lac profitability forecast for three years.
• Letter of authorization to the banker in respect of all account held by the business concern and owner/partner/directors of other banks.
• Copy of letter issued by the ministry/department of environment if any confirming that measures have been taken to prevent industrial pollution.

Documentation:

It is essential that the proposal define clearly the of the facility, the sources of repayment, the agreed repayment schedule security and the customer relationship consideration implicit in the credit decision.

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

All approval procedures and required documentation shall be completed and all securities shall be in place, prior to the disbursement of the facilities. General documentations as require for different kinds of advance are enumerated below. There may be requirement of specific banking or legal documents to secure a credit according to sanction terms and conditions, which should also been obtained in addition to the following:

Loan

• P note
• Letter of partnership(in case of partnership concerns)or resolution the board of directors (in case limited companies)
• Letter of arrangement
• Letter of disbursement
• Letter of pledge(in case pledge of goods)
• Letter of hypothecation(in case of hypothecation of goods)
• Trust receipts
• Letter of lien and ownership/share transfer form(in case of advance shares)
• Letter of lien for packing credits(in case of packing credit)
• Letter of lien and transfer authority
• Legal documents for mortgage of property(as drafted by legal advisor)
• Copy of sanction letter mentioning detail terms and conditions duly acknowledged by the borrower.

Overdrafts

• P note
• Letter of partnership(in case of partnership concerns)or resolution the board of directors (in case limited companies)
• Letter of arrangement
• Letter of continuity
• Letter of lien
• Letter of lien and ownership/share transfer form(in case of advance against shares)
• Letter of lien and transfer authority
• Legal documents for mortgage of property

Cash credit

• P note
• Letter of partnership(in case of partnership concerns)or resolution the board of directors (in case limited companies)
• Letter of arrangement
• Letter of continuity
• Letter of hypothecation(in case of cash credit hypo)
• Letter of pledge/ agreement of pledge(in case of cash credit pledge)
• Legal documents for mortgage of property(as drafted by legal adviser)

D.Bill purchased

• P note
• Letter of partnership(in case of partnership concerns)or resolution the board of directors (in case limited companies)
• Letter of arrangement
• Letter of hypothecation bill
• Letter of acceptance, where it calls for acceptance by the Drawee.

All required documents, as enumerated above , should be obtained before any loan is disbursed. Disbursement of any credit facility requires approval of then sure, before exercising such authority that all the required documentation has been completed.

Disbursement:

After completing all the necessary steps for sanctioning loans bank will create a loan account by the name of the party and deposit the money to that account. Bank will give cheque books to the party and advise them to draw the money and use it as soon as possible, because whenever the money will transfer to the account interest will count from that time.

Distribution of loans of the branch:

Rescheduling:

Demand and Continuous Loan

If any Continuous or Demand Loan is rescheduled by restructuring/converting partly or wholly into Term Loan and repayment installments have been fixed, application for rescheduling such loans shall be considered on cash payment of minimum 30% of the overdue installments or 20% of the total outstanding amount of loan, whichever is less. For subsequent rescheduling minimum 50% of the overdue installments or 30% of the total outstanding amount of loan amount shall have to be deposited in cash.

Ratio Analysis: Gazipur Chowrasta Branch : As on 31.10.2011

DUTIES AND RESPONSIBILITIES

Responsibilities as a student Intern:

Being a student we enter a Bank as an internee. It’s a responsibility for an internee to co-operate with every single activity as ordered and self willingness.

Duties:

As in intern we considered as a regular stuff of bank so, like other employees an intern also should follow government time 10.00am to 6.00pm.

Accomplishments:

As an intern we must complete 3months to the required bank and present an informative report on selected topic, which included banks permission as also as university authority, that could enhance an intern self confidence and grew up person to whom every organization accept as skilled one.

New Knowledge Acquired:

Through internship an intern can gather huge knowledge about official environment and complicated work done by employees. Though, 3months is not sufficient time to gain enough but this could help intern to get some new information which could help them in future. an intern generally in internship period exercise general banking and loan& advance sections activities including: proposal  and  a/c opening, deposits, clearing .

Problems encountered:

Through internship everything is not supportive to an intern. In an organization everyone will not be same, helpful to an internee. By internship he/she can discover a new environment and official mentality. To work under a person is not so easy but to have this challenging mode an intern can achieve a practical mind.

How internship experience impacts you career:

As am a intern in BASIC Bank Limited on G.C.B , I can build up my career in a Banking. Internship will help me to manage myself primarily in any Bank as I believe.

SWOT ANALYSIS

I get the following strengths, weaknesses, opportunities, and threats (SWOT) from my practical observation in three months internship program of Basic bank ltd as follows:

Strengths:

• Good asset quality,
• Satisfactory business growth,
• Good profitability,
• Experienced top management,
• Good operating efficiency,
• Equity base enhancement decision,
• No short fall in Capital Adequacy,
• Satisfactory NPL coverage,
• Professional management team,
• Satisfactory risk management structure,
• Multi product financial institution,
• Strong distribution channel,
• Satisfactory IT soft and hard infrastructure,
• Adequate capital base,
• Satisfactory liquidity position,
• Market leader in Small & Medium scale industry banking among the local banks,
• Government ownership

Weaknesses:

• Dependent on fixed deposits,
• Moderate risk management system,
• Limited delegation of power,
• Limited branch network,
• Poor Corporate Governance,
• Insignificant market share,
• Limited disclosure,
• Concentrated ownership,
• Low non-funded business

Opportunities:

• Basel-II compliance for capital adequacy,
• Creation of brand image,
• Dual currency credit card,
• SME and Agro based business,
• Real time online banking,
• Scope of whole sale banking with NBFIs,
• Housing finance

Threats:

• Increased competition in the market,
• Market pressure for increasing the SLR,
• Supply gap of foreign currency

Conclusion:

The BASIC Bank Limited has been trying to operate its business successfully in Bangladesh since 1994. Basic Bank has already developed goodwill among its clientele by offering its excellent services through General banking, Credit/Loan division and Foreign Exchange divisions. This success has resulted from the dedication, commitment and dynamic leadership among its management over the periods. The working atmosphere of the BASIC Bank Limited is very simulating. During the short span of time of its operation, the bank has been successfully to the position itself as a progressive and dynamic financial institution in the country due to the following reasons: Although there was huge loss in the establishment period of the bank due to huge sunk cost and operating cost, from the second year the bank was gradually able to reduce cost proportionately through an effective management. The growth of total exposure of the branch is very satisfactory. Total exposure of Gazipur chowrasta Branch is Tk. 491.32 Crore which is very satisfactory for a branch which has launched at the end of 2010. More over , Classified loan is Zero which is really praise worthy. Interest expanses of the bank are reducing proportionately compared to interest income due to huge accumulation deposits as a result of increasing number of depositors. The number of depositors and the amount of deposits lie in the upward trend due to offering attractive services to the customers. Other income of the bank is also going up every year due to the increase of commission, exchange and brokerage fees in the Loan disbursement section. Loan disbursement of the bank is operating effectively. All this together with its adoption of modern trend of Banking system has enable it to turn out as potential profiteering financial Institution. My course of internship in this Bank has been very valuable.

Recommendation:

Basic Bank is one of the top class banks in our country. When I was placed at Gazipur chowrasta Branch I didn’t have serious problems regarding the operation, customer service, management, human resource department or anything else. In spite of this I found few problems as follows:

• The time to reach Permanent Position from probation period takes almost two years, which is a very longtime process as I considered and it should be less than two year.
• Some Officers of the bank are not self-motivated. They should be self-motivated by training.
• Basic Bank has only 40 branches, which are not so satisfactory to serve the country widely. It requires more branches throughout the country.
• Some banking operations are still operated in manual basis rather than computer system that take more time. Computer should be used in all their activities.
• Credit should be diversified.
• of officers relating to Loan should be increased

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