4. report

INTRODUCTION

Now a day, education is not just limited to books and classrooms. In today’s world, education is
the tool to understand the real world and apply knowledge for the betterment of the society as
well as business. From education the theoretical knowledge is obtained from courses of study,
which is only the half way of the subject matter. Practical knowledge has no alternative. The
perfect coordination between theory and practice is of paramount importance in the context of
the modern business world in order to resolve the dichotomy between these two areas. Therefore,
an opportunity is offered by Department of Business Administration, University of Development
Alternative, for its potential business graduates to get Four months practical experience, which is
known, is as “Internship Program”. For the competition of this internship program, the author of
the study was placed in a bank namely, “BASIC Bank Limited”. Internship Program brings a
student closer to the real life situation and thereby helps to launch a career with some prior
experience.

This paper is entitled “Credit Management of BASIC Bank Limited” originated from the
fulfillment of the internship program. For the internship program, each student is attached with
an organization. My internship was at BASIC Bank Ltd, Mirpur Branch, Dhaka. During my
internship, I had to prepare a report under the supervision of Mr. Siddique Hayat Khan, Senior
Lecturer, University of Development Alternative.

Background of the Report

Credit Management of BASIC Bank Limited 1

Banking sector is spending its hand in different financial event every 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 increase day by day, they are coming with different innovative ideas &
product. In order to survive in the competitive field of the banking sector, all banking
organization are looking for better service opportunities to provide their fellow clients. As a
result, it has become essential for every person to have some idea on the bank and banking
procedure. This report is a practical requirement of my BBA program, and is submitted after
completion of the three months Internship program in the BASIC Bank to the internship
supervisor Mr. Siddique Hayat Khan, Senior Lecturer, University of Development Alternative.
The internship supervisor authorized me to submit the report of "Credit Management of
BASIC Bank Ltd".

Justification of the Report

There are three types of schedule commercial banks are in operation in our economy. They are
Nationalized Commercial Banks, Local Private Commercial Banks and Foreign Private
Commercial Banks. BASIC Bank has discovered a new horizon in the field of banking area,
which offers different General Banking, Investments and Foreign Exchange banking system
focusing the small industry in Bangladesh. So I have decided to study on the topic “Credit
Management of Basic Bank Limited”. Because the Internship program of the university is an
integral part of the BBA program. So it is obligatory to undertake such task by the students who
desirous to complete and successfully end-up their BBA degree. This also provides an
opportunity to the students to minimize the gap between theoretical and practical knowledge.
During the internship program the teachers of the department are attached to actively and
constantly guide the students. Students are required to work on a specific topic based on their
theoretical and practical knowledge acquired during the period of the internship program and
then submit it to the teacher. That is why I have prepared this report.

Scope of the Study


The study has many dimensions and covers a broad spectrum. The subject matter of the study is
to analysis the overall credit handled by the “BASIC Bank Ltd.” such as short term credit, long
term credit and Micro credit.” If a larger time period was covered then a more comprehensive
understanding of the study would’ve been possible. My honorable supervisor and the authority of
BASIC Bank help me to do a more feasible report.

The study focuses mainly on the credit policy rather than all other credit schemes. In so doing,
credit evaluation criteria along with the credit administration and other related aspects are
covered in the study. In order to gain an insight into the progress of the bank the growth of the
bank since introduction has already been assessed. The loan products applicants have been
segmented and analyzed based on the secondary data provided which could’ve been conducted
on an even broader spectrum. Inclusion of various other topics would have also been helpful.

Objective of the Report


The main objective of the study are to evaluate the credit management of BASIC Bank Limited
and to have an overall idea on how it operates and what functions it does, and prepare a report on
it. Besides this main objective there are some specific objectives.

General Objective:
The General Objective is to prepare & submit a report on the topic
“Credit Management of BASIC Bank Ltd ".

Project objectives:
• To analysis the Lending procedures maintained by the BASIC Bank Ltd.
• To observe principal Lending activities of BASIC Bank Ltd.
• To evaluate Lending performance of BASIC Bank Ltd.
• To understand the project evaluation technique of BASIC Bank Ltd.
• To appraise the actual Recovery position of BASIC Bank Ltd.
• To identify problems in credit operations of BASIC Bank Ltd.
• To measure the actual position in classified Loan and provisions maintained by
BASIC Bank Ltd.

Methodology of the Study


The following methodology has been followed to come to a successful conclusion. To
successfully finish the project certain methodology has been followed. These are:

• Sources of Information & Data
In order to make the Report more meaningful and presentable, two sources of data and
information have been used widely. Both primary and secondary data sources were used to
generate the report

♣ The “Primary Sources” are as follows –
♦ Informal conversation with the course teacher and bankers.
♦ Observing various organizational procedures.
♦ Relevant file study as provided by the officers concerned.
♦ Unpublished information through interviews
♣ The “Secondary Sources” of data and information are –
♦ Published article and manuals
♦ Periodicals published by Bangladesh Bank.
♦ Various books, articles, compilations etc. regarding general banking functions,
foreign exchange operations and credit policies.
♦ From newspapers and internet

• Data Collection Procedure
The study has been primarily based upon information extracted from official documents.
Interviews with the managers and officers of the credit division were also being conducted. On
the other hand, secondary sources (WEB Site) were used to collect data regarding the bank and
its practice of online banking since its inception and publications and different kinds of papers,
annual reports, borrower’s database etc are the major secondary sources.
• Tools use for Analysis


A critical analysis of the data has been made through the bar and line graph over the last few
years. This will enable me to visualize the trend of the variable of interest over time. Indicators
of bank performance have also been computed thorough ratio analysis.

• Sample Size
All the Branches of BASIC Bank located in everywhere in Bangladesh has been taken into
consideration as population. Special focus is given on Mirpur Branch where I have completed
my internship.

Limitation of the Report


In all respect some limitation and weakness remain within which I failed to escape by any
means. These are follows:

 Limitation of time: It was one of the main constraints that hindered to cover all aspects
of the study.
 Lack of Secondary data: The annual report was the main secondary Information source
of information that was not enough to complete the report and private the reader a clear
idea about the bank.
 Confidentiality of data: Confidentiality of data was another important barrier that was
faced during the conduct of this study. Every organization has their own secrecy that is
not revealed to others. While collecting data on BASIC Bank Ltd.'s strategic plan, the
personnel did not disclose enough information for the sake of confidentiality of the
organization.
 Lack of comprehension of the respondents: Lack of comprehension of the respondents
was the major problem that created much confusion regarding verification of conceptual
question

Background of BASIC Bank limited


BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank Limited) is a state-
owned scheduled bank. The name of the bank is indicative of its nature. It has a unique blend of
development and commercial banking functions and offers full range of banking services to its
customers and clients. Fifty percent of its loan able funds require to be invested in small and
cottage industries sector.
BASIC Bank Limited was established as a banking company under the Companies Act 1913 on
the 2nd of August, 1988, started its operations from the 21st of January, 1989. It is governed by
the Banking Companies Act 1991.
At the beginning, the name of the bank was “Bank of Small Industries and Commerce
Bangladesh Limited” that name was changed in 2001 and converted to “Bangladesh Small
Industries and Commerce Bank Limited”
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 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 4th June 1992. Thus the Bank is state-owned. However, the Bank is not
nationalized; it operates like a private bank as before.
Being one of the soundest banks in Bangladesh, 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.

Vision
Making the contribution to the national economy


Mission
♣ High quality financial services
♣ Fast customer service
♣ Sustainable growth strategy
♣ Follow ethical standards in business
♣ Innovative banking at a competitive price
♣ Attract and retain quality human resource
♣ Commitment to Corporate Social Responsibility

Goals
The Bank is unique in its objectives and functions in many ways. As per the Memorandum of
Association (MOA) and Articles of Association (AOA), 50 percent of BASIC’s loan-able funds
are required to be invested in small and medium scale industries sector. Accordingly, it has set
following goals:

♣ To utilize funds for profitable purposes in various fields with special emphasis on
SSIs.
♣ Identification of profitable areas of investment and to undertake project promotion
accordingly.
♣ To search for newer avenues for investment and develop new products to suit
such needs.
♣ To establish linkage with Micro Finance Institutes (MFIs).
♣ To cooperate and collaborate with institutions which are responsible for
promoting and aiding SSI sector.

Functions of the Bank
The Banks offers the following services to its clients:


♣ Extends financial & technical support to industries especially to Small and
Medium Scale Industries.
♣ Gives full-fledged commercial banking service including collection of deposit,
short-term trade finance, and working capital finance in processing and
manufacturing units
♣ Finances and facilitates international trade (export/ import).
♣ Provides micro credit to the urban poor through association with Non-
Government Organizations (NGOs) with a view to facilitating access for the
urban poor to the formal financial market.
♣ Carries out general banking dfacilitiesi rlike t Savings Account, Current Account and
B o a r o f D e c o rs
remittance.
M a n a g in g D i r e c t o r

G e n e ra l M a n a g e r

D e p u ty G e n e ra l M a n a g e r

A s s i s ta n t G e n e ra l M a n a g e r

M a n a g e r/ S y s te m A n a ly s t

D e p u ty M a n a g e r/ P ro g r a m m e r

A s s i s ta n t M a n a g e r / A s s i a ta n t P r o g ra m m e r

O f f ic e r / O f f i c e r ( C a s h , C o m p u te r )

A s s i s t a n t O f f ic e r , G r a d e - 1 / S te n o g r a p h e r

Organograms ofi sBASICO Bank eLtd G r a d e - I I / C a s h , C o m p u t e r , R e c e p t i o n
A s ta n t f fic r,

To achieve its organizational goals, the Bank conducts its operations in accordance with the
C a s h i e r , R e c e p ti o n is t, C o m p u te r O p e r a t o r
major policy guidelines laid down by the Board of Directors, the highest policy making body.
The management looks after the day-to-day operation of the Bank. Organogram is given bellow:
D r i v e r / E le c tr i c ia n / C a r e t a k e r

Credit Management of m e d G Bank dLimited
A r BASIC u a r 10

M es s e n g e r/ G u a rd -c u m -M e ss en g e r

Management System of BASIC Bank Ltd
The Board of Directors, the highest policy making body, has laid down major policy guidelines
in line with the organizational goals. The management looks after the day-to-day operation of the
Bank.

Business Network of BBL

A great deal of investment for developing the physical resource base of the Bank has been made.

BASIC Bank has its presence in all the major industrial and commercial centers of Bangladesh in

order to cater to the need of industry and trade. At the end of 2007, there were thirty

conveniently located branches throughout Bangladesh– eleven branches in the capital city of

Dhaka, seven in Chittagong and one each in Narayanganj, Narsingdi, Rahshahi, Saidpur, Bogra,

Khulna, Jessore, Sylhet, Moulvibazar, Comilla, Barisal and Sirajganj. Besides these, the bank

has three bill collection booths at Ramna , Sher-e-Bangla Nagar and Gulshan exchange Office of

BTTB, Dhaka. A Foreign Exchange booth was opened at Osmani Int’l Airport, Sylhet in April

’05 for mobilizing foreign exchange. This is one of the areas where BASIC Bank is relatively

lagging behind.

Functional Division/Department of BASIC Bank Ltd

All policy formulations and subsequent executions are done in the Head Office. It comprises of

nine major divisions namely Corporate Banking Division, Credit Division, Consumer Banking

Division, Trade Services Division, International Division, Finance and Accounts Division,

Human Resources Division, Information Technology Division, and Audit and Compliance

Division. Besides these main divisions, there is also an Administration Division, which looks

after the Bank’s day–to-day operation.


Financial Highlights of BASIC Bank Ltd
Taka in Million
Particulars 2003 2004 2005 2006 2007
Authorized Capital 2000 20000 20000 20000 20000
Paid up Capital 450.00 675.00 810.00 945.00 1247.00
Reserve and Surplus 799.29 816.25 916.14 1294.00 1349.16
Shareholders’ Equity 1249.29 1491.23 1726.14 2239.00 2596.58
Total Assets 14766.32 19436.53 27136.37 29417.09 38773.91
Deposit 11266.54 15509.18 22325.58 24084.65 31947.98
Loan and Advance 9282.20 12000.15 15339.35 19000.00 22263.35
Placement & 4361.93 6098.51 10236.82 5212.23 13560.92
Investment
Gross Income 1558.52 1768.85 2228.21 2870.32 3549.51
Gross Expenditure 1004.85 1241.63 1599.77 1858.69 2741.37
Profit before tax 553.67 527.22 628.44 1011.62 808.14
Profit after tax 236.39 281.48 285.49 554.17 282.96
Import Business 9882.80 12507.80 14094.96 17804.27 21266.57
Export Business 6933.90 7908.00 11097.23 15463.74 16794.96

Introduction
The role of credit is imperative in a financial institution. These credit schemes serve as the major
source of revenue generation for the bank and as such needs to be handled with a lot of care.
Successful loan application will have positive impact in attaining corporate mission and vision
and ultimately to capitalize the wealth maximization objectives of the corporation.

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


Credit management
Credit management is mainly concerned with the credit disbursement and recovery in order to
strength credit management and recovery position of the loans/advances by a bank it has been
decided by bank to follow some tools and technique for credit appraisal. With the use of such
tools bank credit management has shown their efficiency. Each bank their own credit policy
which generally formulated on the basis of prevailing countries Socio economic condition,
political & other related aspects from time to time and as per guideline of central Bank.

Common Types of Credit by Commercial Banks
• Term Loan

♣ Short Term Industrial Loan, Mid Term Industrial Loan and Long Term Industrial
Loan.
♣ House Building Loan (Commercial)
♣ Loan against Fixed Deposit Receipt/Eligible Financial Instrument

• Continuous Credit (Advances)
♣ Overdrafts
 SOD against easily en-cashable securities (financial obligations) such as
FDR, Bond, and Shares etc. as per rules & regulation in force.
 SOD against Work Orders (as working capital Finance)
♣ Cash Credit
 Cash Credit (Hypothecation)
 Cash Credit (Pledge)
• Demand Loan
♣ LIM (Loan against imported merchandise)
♣ LTR (Loan against Trust receipt)
♣ EDF (Export Development Fund)
♣ Packing Cash Credit (PCC) I Export Cash Credit (ECC)
♣ Cash Incentive & Advance against Incentive


• Other Loans
♣ Loan General
♣ Education Credit Scheme
♣ Multipurpose Loan
♣ Consumers Credit Scheme
♣ Real estate loans
♣ Financial institution loans
♣ Agricultural loans
♣ Leasing finance
♣ International trade finance
♣ Miscellaneous loans

• Analysis of borrower creditworthiness
Borrower creditworthiness can be determined by analysis of 6 Cs which given below:
♣ Character
The first section queries about the applicants’ general biographical information.
♣ Capacity
The second portion of the application form is about the business/ service information of the
applicant. Here the name of the company/office is required. If relationship with current employer
is less than two years then previous employers name must also be mentioned.
♣ Cash
This portion enquires about the estimated cost of purchase and tenure of the loan. This section
analyzes the justification of the loan amount to the purchase cost.
♣ Collection
This section asks whether the application will be 100% secured with the hypothecation over
purchased asset and about the security ratio and the applicable interest rate.
♣ Condition

Understanding the business and economic conditions can and will change after the loan is made.
♣ Control
Conditions refer to the economic policies and procedures that may affect the nature of business
of the applicant and may have future influence on the repayment behavior. And control refers to
the degree to which the bank can check the customer in case of defaults.
• Project appraisal criteria
The following analyses are important tools to the credit manager to project appraisal:
♣ Technical appraisal
♣ Marketing appraisal
♣ Financial appraisal
♣ Economic appraisal
♣ Managerial appraisal
♣ Break-even Analysis
♣ Network Analysis
• Common Documentation of the Loan of commercial Bank
Documentation is obtaining such agreement where all the terms and condition and securities are
written and signed by the borrower. It specifies rights and liabilities of both the banker and the
borrower. In documentation each type of advances requires a different set of documents. It also
differs with the nature of securities. The documents should be stamped according to the stamp
Act. There are no hard and fast rules of documentation and it varies from bank to bank.
Generally, the documents are taken in the case of a secured advance by a commercial bank
♣ Demand promissory note: Here the borrower promises to pay the loan as and
when demand by bank to repay the loan.
♣ Letter of arrangement.
♣ Letter of continuity.
♣ Letter of hypothecation of goods and capital machinery.
♣ Stock report: This report is used for OD and CC. In this report, information about
the quality and quantity of goods hypothecated is furnished.
♣ Memorandum of deposit of title deed of property duly signed by the owners of the
property with resolution of Board of Directors of the company owning the landed.

♣ Personal guarantee of the owners of the property.
♣ Guarantee of all the directors of the company.
♣ Resolution of the board of directors to borrow fund to execute documents and
completes other formalities
♣ Form no. XVII/XIX for filling charges with the register of joint stock companies
under relevant section.
♣ Letter of Revival
♣ Letter of lien for advance against FDR.

• Modes of Charging Security use by commercial Bank
A wide range of securities is offered to banks as coverage for loan. In order to make the
securities available to banker, in case of default of customer, a charge should be created on the
security. Creating charge means making it available as a cover for advance. The following modes
of charging securities are applied in the Basic Bank Limited.
♣ Lien
A lien is right of banker to hold the debtor’s property until the debt is discharged. Bank generally
retains the assets in his own custody but sometimes these goods are in the hands of third party
with lien marked. When it is in the hand of third party, the third party cannot discharge it without
the permission of bank. Lien gives banker the right to retain the property not the right to sell.
Permission from the appropriate court is necessary. Lien can be made on moveable goods only
such as raw materials, finished goods, shares debentures etc.
♣ Pledge
Pledge is also like lien but here bank enjoys more right. Bank can sell the property without the
intervention of any court, in case of default on loan, But for such selling proper notice must be
given to the debtor. To create pledge, physical transfer of goods to the bank is must.
♣ Hypothecation


In this charge creation method physically the goods remained in the hand of debtor. But
documents of title to goods are handed over to the banker. This method is also called equitable
charge. Since the goods are in the hand of the borrower, bank inspects the goods regularly to
judge it s quality and quantity for the maximum safety of loan.
♣ Mortgage
Mortgage is transfer of interest in specific immovable property. Mortgage is created on the
immovable property like land, building, plant etc. Most common type of mortgage is legal
mortgage in which ownership is transferred to the bank by registration of the mortgage deed.
Another method called equitable mortgage is also used in bank for creation of charge. Here mere
deposit of title to goods is sufficient for creation of charge. Registration is not required. In both
the cases, the mortgage property is retained in the hank of borrower.

♣ Trust Receipt
Generally goods imported or bought by bank's financial assistance are held by bank as security.
Bank may release this lien / pledge these goods against trust receipt. This means that the
borrower holds goods in trust of the bank; trust receipt arrangement is needed when the borrower
is going to sell these goods or process it further but borrower has no sufficient fund to pay off the
bank loan. Here proceeds from any part of these goods are deposited to this bank.
♣ Advance against Work-Order
Advances can be made to a client to perform work order. The following points are to be taken
into consideration. The client’s management capability, equity strength, nature of scheduled
work and feasibility study should be judiciously made to arrive at logical decision. If there is a
provision for running bills for the work, appropriate amount to be deducted from each bill to
ensure complete adjustment of the liability within the payment period of the final bill besides
assigning bills receivable, additional collateral security may be insisted upon. Disbursement
should be made only after completion of documentation formalities and fulfillment of
arrangements by the client to undertake the contract. The progress of work under contract is
reviewed periodically.
♣ Advance against Approved Shares


Credit facilities to extend against shares will be called “Investment Scheme against Shares”.
Advance may be allowed against shares of companies listed with the Stock Exchange Ltd.
Subject to margin or may other restrictions imposed by Bangladesh Bank/Head Office of the
bank from time to time. Value of shares & margin should be worked out as per guidelines issued
from time to time by Bangladesh Bank / Head Office of the bank.
♣ Advance against Fixed Deposit Receipts
Advance against Fixed Deposit Receipt will be subject to credit Restrictions imposed from time
to time by Head Office / Bangladesh Bank. Scrutinize the Fixed Deposit Receipts.

Regulation of Lending
It is the last step in credit policy and procedure framework of BBL. Credit monitoring and
review is very important, because it ensures proper utilities and repayment of Bank fund. Credit
monitoring and review feature of BBL is concerned was assessing the quality of different type of
loan.

♣ Assessing Bank’s Loan Portfolio
In order to diversify loan portfolio, every bank engaged itself in investment operations through
special schemes introduced during the years.

♣ Loan Classification Norms
♦ Substandard Loans
The main criteria for a substandard advance are that despite these
technicalities or irregularities no loss is expected to be arise for the bank. These
accounts will require close supervision by management to ensure that the situation
does not deteriorate further.
♦ Doubtful Loans


This classification contains where doubt exists on the full recovery of the loan
and advance along with a loss is anticipated but cannot be quantifiable at this stage.
Moreover if the state of the loan accounts falls under the following criterion can be
declared as doubtful loan and advance.
♦ Bad or Loss Loans
A particular loan and advance fall in this class when it seems that this loan and
advance is not collectable or worthless even after all the security has been exhausted. In
the following table the criteria to be fulfilled to fall in this category are summarized:

♣ Provision System
♦ Specific Provision:
Head office credit division prepares a list of credit accounts, which are considered to be totally or
partially be unrecoverable & keeps a provision against the outstanding loans.

♦ Rate of Provisioning
Banks in the time of loan provisioning to get the real picture of the income
mainly follow the Bangladesh Bank guideline.


Introduction:
The word credit comes from the Latin word “Credo” meaning “I believe”. It is a lender’s trust
in a person’s/ firm’s/ or company’s ability or potential ability and intention to repay. In other
words, credit is the ability to command goods or services of another in return for promise to pay
such goods or services at some specified time in the future. For a Bank, it is the main source of
profit and on the other hand, the wrong use of credit would bring disaster not only for the bank
but also for the economy as a whole. The objective of the credit management is to maximize the
performing asset and the minimization of the non-performing asset as well as ensuring the
optimal point of loan and advance and their efficient management. Credit management is a
dynamic field where a certain standard of long-range planning is needed to allocate the fund in
diverse field and to minimize the risk and maximizing the return on the invested fund.
Continuous supervision, monitoring and follow-up are highly required for ensuring the timely
repayment and minimizing the default. Actually the credit portfolio is not only constituted the
bank’s asset structure but also a vital factor of the bank’s success. The overall success in credit
management depends on the banks credit policy, portfolio of credit, monitoring, supervision and
follow-up of the loan and advance. Therefore, while analyzing the credit management of BASIC
Bank Ltd, it is required to analyze its credit policy, credit procedure and quality of credit
portfolio.

4.2 Credit Policy of BASIC Bank Limited


The credit policy of any banking institution is a combination of certain accepted time tested
standards, and some other dynamic factors determined by the realities of varying and changing
situations in the market place. Credit policy lays down the basic principles and broad parameters
of the lending operations. The key is to a sound, healthy and profitable credit operation,
however, lies in the quality of judgment and sense of proportion of the officers making lending
decisions, and their knowledge of the borrowers and the market place.

4.3 Credit Principles
In the feature, credit principles include the general guidelines of providing credit by branch
manager or credit officer. In BASIC Bank Limited they follow the following guideline while
giving loan and advance to the client.
♣ Credit advancement shall focus on the development and enhancement of customer
relationship.
♣ All credit extension must comply with the requirements of Bank’s Memorandum
and Article of Association, Banking Company’s Act, Bangladesh Bank’s
instructions, other rules and regulation as amended from time to time.
♣ Loans and advances shall normally be financed from customer’s deposit and not
out of temporary funds or borrowing from other banks.
♣ The bank shall provide suitable credit services for the markets in which it
operates.
♣ It should be provided to those customers who can make best use of them.
♣ The conduct and administration of the loan portfolio should contribute with in
defined risk limitation for achievement of profitable growth and superior return
on bank capital.
♣ Interest rate of various lending categories will depend on the level of risk and
types of security offered.


Types of Credit offered by BASIC Bank Ltd
A Bank is nothing but a financial intermediary and it takes deposit from surplus economic units
and deploys the fund to deficit economic units. So, the more recoverable credit is deployed the
more profit is gained. In fact this credit deployment process is run under Loans & Advances
department in branch and Head Office level.

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. OD facilities are of
two types.

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

Temporary Overdraft (TOD):
It is given to the valued customers only. It is not that much secured. Usually it forwards without
any security or sometimes exercise lien against the instrument, deposited in the bank. It is given
by the branch manager discretionary power. Though it is given, but it never desirable.

The processes of extending SOD are as follows –
1. The party must have a current A/C with the branch
2. 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.
3. The party must maintain a good transaction with the branch and have a good turnover rate.
4. The party will apply to the officer in charge of credit department of the branch for SOD
arrangement

5. 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.
6. 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.
7. 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.
8. 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 is satisfied with the terms and conditions of the bank
and retain the duplicate one as record.

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 an overdraft account. Depending on the needs of the business,
the borrower can draw on his cash credit account at different time. Similarly, the liability can be
adjusted at any time. The Bank charges interest on the daily balance of the account. Based on the
creation of charge on securities, the bank allows are two forms of cash credit.

Hypothecation
It is cash credit facility against hypothecation. Hypothecation is a legal obligation of the
borrower to the bank where both title and possession of goods remain with the borrower. The
banker has only equitable charge on stocks, which practically means nothing. So, Cash Credit
(Hypothecation) facility is allowed against sufficient collateral security like registered mortgage
of land and building and personal guarantee of Directors.

Pledge

It is cash credit facility against pledge. Pledge is the bailment of goods as security for payment of
a debt or performance of a promise. In case of pledged goods, the bank acquires 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. The bank usually does not allow
this type of credit facility these days.

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;
3. Fills up the ‘Credit Application Form’ as provided by the respective officer;
4. The concerned officer prepares a ‘Credit Line Proposal’ (CLP) detailing all relevant
information;
5. Sends the CLP to the Head Office, General Advances Division for necessary action;
6. Head Office, General Advances Division examines the proposal and if finds it viable then
sanctions it and sends it to the branch;
7. The branch issues two copies of ‘Sanction Advice’, one for its own record and the other for
the party to keep.
After getting the cash credit arrangement, the banker will issue a claque book for withdrawing
cash from the account. Whenever the CC account holder wants to withdraw cash from the
account, the cash officer will scrutinize the amount of cherub in order to make sure that the total
drawing does not exceed the sanctioned limit.

Term Loan
BASIC bank is advancing both short and medium term credit to the commercial sector on the
basis of their capital structure, constitution and liquidity consideration. Interest rate is 12% for
SSI and 13% for MSI. It is given against land and building along with machinery, personal
guarantee of Directors and hypothecation of raw materials.

Loan General


This type of loan is usually given against work orders. BASIC Bank extends credit facility to
perform a wide range of work orders of different government, autonomous and private
organizations. The Bank charges 12.00% interest against Loan General.

Staff Loan
Mirpur branch provides advances to the staff for purchasing house building, Sanchaypatras, and
meeting up certain requirements like family medical, personal medical, wedding purposes. Bank
provides this facility under installments. Loan able amount varies on the basis of purpose.

Bank Guarantee
BASIC Bank offers three types of guarantees; these are Tender or Bid Bond, Performance
Guarantee and Advanced Payment Guarantee.

Tender or Bid Bond Guarantee
Tender or Bid Bond Guarantee assures the employer/ beneficiary on behalf of the tendered, that
the tendered shall uphold the conditions of his tender during the period of the offer as binding
and that he /she will also sign the contract in the event of the order being granted. The Bank
charges 0.50% per quarter as commission of the guarantee.

Performance Guarantee
A Performance Guarantee is a guarantee issued by the Bank on behalf of the contractor/ supplier
to the beneficiary/ employer that the contractor would fulfill all the terms and conditions of the
contract. In case of failure of the contractor/ supplier to perform the work order or to supply the
goods or to fulfill in any condition of the contract, the bank is obliged to pay the sum of the
guarantee to the beneficiary on behalf of the contractor. A performance guarantee expires on
completion of the delivery or the performance. The Bank charges 0.50% per quarter as
commission of the guarantee.

Advanced Payment Guarantee (APG)
The Bank gives Advanced Payment Guarantee (APG) on behalf of the contractor/ supplier when
the employer makes advance payment to the contractor/ supplier. The guarantee stipulates that
the contractor/ supplier will perform the contract and fulfill all the terms and conditions. The
contractor/ suppliers are required to submit the guarantee before the employer makes any
payment in connection with the work order. The Bank charges 0.50% per quarter as commission
of the guarantee.

Foreign Trade Credit
BASIC Bank Ltd provides various facilities related to L/C and post import finance like loan
against imported merchandise (LIM) and loan against trust receipt (LTR) to the importers and
back to back L/C and pre-shipment finance facilities like export credit, packing credit and
foreign bills purchase (FBP) to exporters. So far, the Bank has established correspondence
relationship with 11 foreign banks in order to facilitate foreign trade...

Post import Credit facility
The Bank provides different form of post-import facility to the customers like LIM (Loan against
Imported Merchandise), LTR (Loan against Trust Receipt) etc.

Export Credit facility
Different types of export credit facilities are available in BASIC Bank, like Export Credit,
Packing Credit etc.

• Credit Evaluation Principles
Some principles or standards of lending are maintained in approving loans in order to keep credit
risk to a minimum level as well as for successful banking business. The main principles of
lending are given below:

Liquidity


Liquidity means the availability of Bank funds on short notice. The liquidity of an advance
means it repayment on demand on due date or after a short notice. Therefore, the banks must
have to maintain sufficient liquidity to repay its depositors and trade off between the liquidity
and profitability is must.

Safety
Safety means the assurance of repayment of distributed loans. Bank is in business to make
money but safety should never be sacrificed for profitability, To ensure the safety of loan. The
borrower should be chosen carefully. He should be a person of good character & capacity as well
as bank must have to maintain eligible number of security from borrower.

Profitability
Banking is a business aiming at earning a good profit. The difference between the interest
received on advances and the interest paid on deposit constitutes a major portion of the bank
income, besides, foreign exchange business is also highly remunerative. The bank will not enter
into a transaction unless a fair return from it is assured.

Intently
Banks sanction loans for productive purpose. No advances will be made by bank for
unproductive purposes though the borrower may be free from all risks.

Security
The security offered for an advance is an insurance to fall bank upon incases of need. Security
serves as a safety value for an unexpected emergency. Since risk factors are involved, security
coverage has to be taken before a lending.

National interest
Banking industry has significant role to play in the economic development of a country. The
bank would lend if the purpose of the advances can contribute more to the overall economic
development of the country.

General procedure for Loans and Advances
The following procedure is applicable for giving loans to the customer. This are-


First Information Sheet (FIS)
First Information Sheet (FIS) 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.
3. 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.
4. Income tax registration no. with the amount of tax paid for the last three years.
5. Details of unencumbered assets (movable & immovable) personally owned by the sponsors.
6. Details of liabilities with other banks and financial institutions including securities held
there against.
7. Purpose of loan sought from BASIC Bank
8. Estimated cost of the project & means of finance.

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.
3. Names of major shareholders (in excess of 5%). State relationship between shareholders.
4. 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).
5. Capital structure & how the capital is deployed in business.


6. Details of properties/assets of the applicant, with valuation against each type of
property/assets and details of charges against them.
7. Names and addresses of subsidiaries/affiliates/allied concerns, stating relationship with
applicant, nature of business and borrowings from banks against each (including BCCI)
8. Nature & details of business.
9. Latest audited/ un-audited balance sheet and profit & loss statement attached will be
submitted by:
10. Management structure (Including their experience and qualification).
11. Names & address of other bankers, sanctioned facilities & liabilities outstanding with details
of securities there-against.
12. Type, extent and period of credit facilities required.
13. Purpose of facility, repayment arrangement (with dates and amount), sources of repayment;
14. Details of securities offered & any other relevant information.

Collecting CIB Report from Bangladesh Bank
After receiving the application for credit line, BASIC Bank 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.

Making Credit Line Proposal (CLP)
If the officer thinks that the project is feasible then he will prepare a Proposal. BASIC Bank
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;
5. Account opening date, introduced by, type of business, particulars of previous sanctions;
6. Existing vis-à-vis proposed credit limits;

7. Particulars of proposed/additional facilities;
8. Security (Existing & Proposed/ Additional);
9. Movement of accounts;
10. Components on the conduct of the account;
11. Details of deposit, liabilities of allied concerns, liabilities with other banks;
12. CIB report;
13. Stock position (Pls. Provide St. report);
14. Rated capacity of the project(Item wise);
15. Production/purchase during the period;
16. Sales during the period;
17. Business received for the period (Last three years);
18. Earning received for the period;
19. 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 (economic).

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;
♣ Who have own land and building for running the project;
♣ Client with innovative ideas;
♣ Client must have net worth more than 2.5 times of the equity required for
investment in the project;
♣ Who have good dealings with the bankers /outside parties and has social
contacts and standings;


♣ Have an a/c with BASIC Bank Mirpur Branch;
After approving the proposal by BCC, branch then sends the CLP to the respective division in
Head Office. In Head Office there are two divisions of credit department. One is Industrial
Credit Division (ICD) and another is Commercial Credit Division. 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.

Project Appraisal
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 CLP. BASIC Bank considers the following aspects in
appraising a proposal:

Technical Appraisal
Technical appraisal report is prepared by an engineer of the appraisal section to see whether the
project is sound with regard to every engineering and technological consideration, including
product specification, product process, size, internal balance, suitability and availability of
physical facilities, designs and layouts of equipment and building etc.

The basic aspects of technical appraisal are:

♣ Cost of the project.
♣ Annual production capacity & manufacturing process.
♣ Location, infrastructural facilities feature and estimated cost of the land.
♣ Civil drawing(s) and cost of civil works.
♣ Layout plan for Building and Machinery.


♣ Estimated cost of machinery with installation.
♣ Selection of product process involving the choice of alternatives, wastage, by-
product, disposal of waste and effluents etc.
♣ Annual requirement of raw material(s) with source of availability.
♣ All input output data of the project.

Marketing Appraisal
An industrial project is to bring in some goods or services for a community. But the community
does not need them infinitely. Their demand is of courses finite and at given prices. Ordinarily,
the market means a precise place where commercial transactions occurred in a broader sense,
however it is termed as the sum of contracts between buyers and sellers of a product or service
the price and quantity and exchanged of which are determined by the forces of demand and
supply. Market analysis is the first “screening” stage in the project appraisal, at which projects
that cannot expect satisfactory market acceptance shall be rejected.

The basic aspects of marketing appraisal are:
♣ Macro/ Micro demand/ supply situation for specific products in the market.
♣ Existing and expected competition in local and foreign markets,
♣ The market share.
♣ One way of identifying them is in term of their complementarily and
competitiveness. Complementary goods are used together in a single consumption
activity.
♣ Cameras, films and developing instruments and chemicals constitute a set of such
complements. Complementary goods may be sold together or separately.

Financial Appraisal
The next step is to prepare a detailed report on the financial viability of the project. The main
purpose of such appraisal is to assess the viability of the project in terms of its operation in the
future years and its financial soundness. It is concerned with assessing the feasibility of a project

from the point of view of its financial result. The project’s direct costs and benefits are calculated
in pecuniary terms at the prevailing market prices. The Bank has to satisfy itself not only about
the current solvency of the Project but also about its continued solvency during the currency of
the loan to ensure timely payment of the principal, regular payment of interest and adequacy of
physician assets representing security for the loan. The revenant information collected on
technical economic and management aspects of the project have got direct bearing upon the
financial appraisal.
The basic aspects of financial appraisal are:
♣ Ratio Analysis:
♣ Break-even Analysis
♣ Earning Forecast
♣ Fund flow Statement
♣ Internal Rate of Return (ERR)
♣ Internal Rate of Return (IRR)
♣ Pay Back Period Method
♣ Net present value (NPV) Method.

Economic Appraisal
Economic analysis of a project aims at determining whether that project is consistent with overall
national and sect oral objectives and whether the investment proposed is the best means of
achieving the intended objectives. It involves a systematic evaluation of a range of options for
achieving the intended objectives. Economic appraisal should cover both quantifiable and non-
quantifiable benefits (where applicable). Such benefits are described ad-seriatim.
The basic aspects of financial appraisal are:
♣ Economic Rate of Return (ERR),
♣ Bruno Ratio/Domestic Resource cost,
♣ Contribution of Gross Domestic product,
♣ Employment Generation and Cost per employment.

♣ To effects that are known to arise but which cannot be measured in physical terms
♣ To effects, this cannot be valued. Difficulties in quantification and valuation will
often go together.

Management appraisal
Appraisal of management is very important part of project appraisal. The successful
implementation and running of the project depends on the resourcefulness, competence and
integrity of its management. There are no sets of rules to find out if the borrowers’ are persons of
integrity. It is done by direct and indirect investigation. His educational background, business
experience, general reputation and above all, his/her receptiveness to new ideas and potentially
to learn new things can assess the borrowers’ experience and capabilities. Closely related to the
management is the type of organizational structure necessary to carry out and operated the
project successfully.
The basic aspects of Management appraisal are:
♣ Structure & Shares.
♣ Memorandum of Articles and relevant (Joint Stock Company’s) registration
certificates.
♣ Introduction to members of the proposed management, relevant experience, net
worth (asset declaration).
♣ Comparison of equity proposed and net worth declared.
♣ Source of working capital or working capital loan.
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.

Head Office Approval


The respective officer of Head Office appraises the project by preparing a summary named “Top
Sheet” or “Executive Summary”. Then he sends it to the Head Office Credit Committee (HOCC)
for the approval of the loan. 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.

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:
1. Name of borrower.
2. Managing partner
3. Nature of Facility
4. Amount
5. Expiry
6. Rate of interest
7. Purpose
8. Security


9. Other terms and conditions: Other terms and conditions are like-
a) Before availing the loan all documentation formalities must be completed.
b) Registered power of attorney in favor of BASIC bank to sell the mortgaged property
without the consent of the court or owner of the lender.
c) DP note and other usual charge documents/ undertakings etc. duly stamped must be
signed and submitted to the authority before the disbursement of loan.
d) The loan shall be governed by all other terms and conditions as per policy and
practices of the bank which will be applicable for the sanction to safe guard interest
of the bank.
e) 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.

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
BASIC Bank Mirpur branch practices these two types of securities.

1. Primary securities: – Cash or cash equivalent that is easily liquidated or convertible into cash.
Example – FDR, Sanchaypatras, 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 thereof 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 sold 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 thereof 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.


Category Wise Documents
All securities are not suitable for all types of advances. There is common type of charge
documents for all types of advances. These are as follows:
• Demand promissory note
• Letter of arrangement
• Letter of disbursement
• Letter of continuity
• Letter of revival.
Other documents are required for following types of advances

Overdraft/ Loan (General)
• Letter of partnership in case of partnership firm or Board resolution in case of limited
companies.
• Letter of pledge/ Letter of hypothecation.
• Letter of lien for ownership transfer of shares.
• Letter of lien for packing credit.
• Letter of lien in case of advance against F D R
• Copy of sanction letter mentioning details of terms and condition duly acknowledge by the
borrower

Cash credit (Hypothecation)
• Letter of hypothecation
• Letter of authority empowering the bank to inspect the goods and take possession of the
goods in case of duly drafted by the lawyer of the bank.
• Stock report duly signed by the borrower on fortnightly basis or after every deposit in the
loan account or before realizing fund against limit.
• Letter of declaration duly signed by the party clearly stating that the goods hypothecated are
not in any case encumbered elsewhere.
• Sufficient insurance cover inserting the name of the Bank as mortgage.


• Letter of Disclaimer signed by owner of the godown in case of 3rd party godown. Third
party Guarantee if required as per sanction advice.
• Statements of other immovable property of the borrower stating those are not encumbered.

Mortgage: Legal
• Certificate from pourasava authority that the concerned property is situated within
pourasava area.
• Original title deed of property.
• Latest CS, RS parcha along with latest rent receipt of land, tax, wasa, gas, electric bills, etc.
• Bia-deeds/ parcha showing chain of transfer of title.
• Letter of guaranty in case of 3rd party ‘s property
• Non-encumbrance certificate by engineer and branch manager.
• Lawyer’s certificate regarding genuineness of title on the property of the mortgage and
stating in clear term weather the property can be accepted as security against advances to be
allowed.
• Letter of guarantee of the owner of the property in case of third party property.
• Memorandum of title deed of property.
• Registered irrevocable power of attorney duly drafted by bank’s lawyer and executed by the
owner of the property.
• Registration certificate is required;
• Valuation certificate (by engineer and branch manager forced sale value to be considered.

Branch shall take note of the following points while accepting a property as a security
1. Land should be situated within municipality area, sub-urban area of city and industrial or
commercial important areas.
2. Rural property, pond and low lying area shall not be taken.
3. Vacant land shall not be taken. It the land is protected by the boundary wall and the
ownership is clearly identified, the same may however be accepted.


4. Land must be owned by the borrower/owner of the project/firm/company and/or member(s)
of the land shall be obtained duly attested.
5. Property owned jointly (‘Ejmali’ property) shall not be accepted.
6. Original title deed and bia-deed, Khatian, Parcha, Mutation, certificate, non-encumbrance
certificate, up to date rent receipt shall be obtained and duly checked by the credit officer,
branch manager and the lawyer.
7. The value of the property shall be at least twice the amount of loan.
Branch-in-charge shall personally ensure properly mortgaged of property and retain the
documents in safe custody. Original mortgage deed should be obtained from the registration
office in time.

Transport Loan:
• Hire-purchase agreement for hypothecation of the vehicle (STAMPED and duly
NOTARISED)
• Purchased documents.
• Registration of the vehicle in the joint name of bank and borrower (copy of the blue book
to be retained in the branch)
• Road permits jointly in the name of bank and borrower.
• Insurance cover against all possible perils inserting name of bank as Mortgage with bank
mortgage clause.
• Certificate signed by the borrower that he has received the vehicle in good condition and
that he will exercise due care for maintenance of the vehicle.
• Letter of installment.
• Undertaking by the party that he will keep the vehicle always ready for inspection by bank
officials.
• Bank’s name must be written in the body of the vehicle in BOLD LETTERS.

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.

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.

Part Two: Data Analysis

Trend Analysis

Deposits Growth
Taka in million


YEAR AMOUNT
2003 11,266.54
2004 15,509.18
2005 22,325.58
2006 24,084.65
2007 31,947.98

Deposit

40000

30000

20000

10000

0
2003 2004 2005 2006 2007

At the end of 2007 total deposits stood at Tk. 31947.98 million, a 32.65% increase compared to
Tk. 24084.65 million from the preceding year. This was undoubtedly a remarkable progress
considering volatile price situation for acquiring deposits.

Mix of Deposit
Now we can focus on the deposit collection under major deposit products of each bank so that
we can understand mode of deposit mobilization they use mostly. Here we can also take a look
on the schemes that are popular to the customers.

Types of Deposit AMOUNT
Term Deposit 27903.70
Saving Deposit 886.30
Bills Payable 290.75
Current & Other Deposit 2867.19


From the table we can have a picture of deposit portfolio of Basic Bank Ltd. Term deposit is
about 87% means, the bank is able to collect maximum deposit relatively at long term. Saving
deposit is 3 % means bank collect lower amount at relatively interest deposit

Deposit Mix

Term Deposit
Saving Deposit
Bills Payable
Current & Others Deposit

From the pie chart we can see about 87% of total deposit are fixed deposit and about 3% are
saving deposit.

Loans and Advances Growth

Taka in million
YEAR AMOUNT
2003 9282.20
2004 12000.10
2005 15339.40
2006 19000.00
2007 22263.35


Loan and Advance

25000
20000
15000
10000
5000
0
2003 2004 2005 2006 2007

Loans and advances of the bank grew strongly by 17.18 percent to 22263.35 million in 2007.
Loans and advance increased by 17.18 percent indicating strong growth in operational
performance. BASIC bank grew loans and advance by 17.18 percent and loans and advances of
industry grew by 16 percent.

Loan Portfolio
Loans and advances consist of industrial loans, micro credit, commercial loans and bills
increased by 17.18 percent to Taka 22,263.34 million compared to Taka 19,000.00 million in
2006.

Taka in million
YEAR Industrial Commercial Micro Credit
2003 6066.30 3029.70 186.20
2004 7577.20 4141.20 281.10
2005 9987.50 5013.55 338.30
2006 12243.56 6397.21 359.24
2007 13901.40 7681.74 680.13


Loan Portfolio

14000
12000
10000
Industrial 8000
Commercial 6000
M icro Credit 4000
2000
0
2003 2004 2005 2006 2007

Industrial Loans
The industrial loan reflected a significant growth of 13.54 percent over the previous year. Total
outstanding industrial loans including term and working capital stood at Taka 13,901.40 million
at the end of 2007 compared to Taka 12,243.56 million of 2006. Total outstanding term loan
stood at Taka 5,055.58 million as on December 31, 2007 compared to Taka 3,897.12 million in
2006 reflecting a growth of 29.72 percent. The outstanding working capital finance extended to
industrial units stood at Taka 9,525.98 million at the end of the reporting period compared to
Taka 8,346.44 million in 2006. Growth rate here was 14.13 percent. BASIC Bank’s services are
specially directed towards promotion and development of small industries. Its exposure to small
and medium industries sector accounted for 56.73 percent of the total loans and advances.
Micro credit
BASIC Bank also provides micro credit to the poor for generation of employment and income on
a sustainable basis, particularly in urban and suburban areas. At the end of 2007, total amount of
Taka 680.13 million remained outstanding as against Taka 359.24 million in 2006. Recovery rate
during this period remained at a highly satisfactory level of 100.00 percent.

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 December 31 2007, total outstanding commercial loans
stood at Taka 7,681.74 million compared to Taka 6,391.21 million in 2006.

Geographic Locations Wise Loans & Advances
Taka in million
Geographic Location AMOUNT
Dhaka Division 69.28
Chittagong Division 16.31
Sylhet Division 1.94
Rajshahi Division 4.44
Khulna Division 4.78
Barisal Division 0.25

Dhaka Division
Chittagoan Division
Sylhet Division
Rajshahi Division
Khulna Division
Barisal Division

Most of the branches of Eastern Bank Ltd situated in Dhaka city, therefore most of the loans are
disbursed in Dhaka division which is about 69.28 % of total loan.

Deposits Loan Comparison
Taka in million
YEAR LOAN DEPOSIT
2003 9282.20 11,266.54
2004 12000.10 15509.18
2005 15339.40 22325.58
2006 19000.00 24084.65
2007 22263.35 31947.98


Deposits Loan Comparison

40000

30000

Loan 20000
Deposit
10000

0
2003 2004 2005 2006 2007

At the end of 2007 total deposits stood at Tk. 31947.98 million, a 32.65% increase compared to
Tk. 24084.65 million from the preceding year. This was undoubtedly a remarkable progress
considering volatile price situation for acquiring deposits. On the other hand, at the end of 2007
total loan stood at Tk. 22263.35 million, a 17.18% increase compared to Tk. 19000.00 million
from the preceding year which is less progress than deposit.

Foreign Exchange Business

Taka in million
YEAR IMPORT EXPORT
2003 9882.80 6933.90
2004 12507.80 7908.00
2005 14094.96 11097.23
2006 17804.27 15463.74
2007 21266.57 16794.96


Foreign Exchange Business

25000
20000
15000
Import
10000
Export
5000
0
2003 2004 2005 2006 2007

The Bank’s performance in the area was satisfactory. Total import and export business transected
were Tk. 21266.57 million and 16794.96 million respectively during 2007. The growth rate of
the import business was 19.45 percent and the main items of import were industrial machineries,
raw materials, commodities and other consumer products. The growth rate of export business
was 8.61 percent and the items of export were RMG, Shrimp, and Jute etc.

Gross Income
Taka in million
YEAR AMOUNT
2003 1558.52
2004 1768.85
2005 2228.21
2006 2870.32
2007 3549.51
Gross Income

4000
3000
2000
1000
0
2003 2004 2005 2006 2007

The Bank’s Gross Income increased during the year by Tk-679.19 million and stood at
Tk-3549.51 million as at 31 December 2007.

Net Profit (After Tax)
Taka in million
YEAR AMOUNT
2003 236.39
2004 291.48
2005 285.49
2006 554.14
2007 282.96

Net Profit (After tax)

600

400

200

0
2003 2004 2005 2006 2007

The Bank’s net profit is not enough stable. Net profit increased during the year 2006 by 94.10 %
but it decrease during the year 2007 Tk-271.18 million and stood at Tk-282.96 million as at 31
December 2007.

Earnings per share
YEAR AMOUNT IN TAKA
2003 30.25
2004 35.99
2005 35.25
2006 58.64


2007 22.68
Earning per share in Year 2003 to 2007

80
60
40
20
0
2003 2004 2005 2006 2007

Earning per share of the bank is not enough stable. EPS decreased during the year by Tk-35.96
and stood at Tk-22.68 as at 31 December 2007.

Total Assets
Taka in million
YEAR AMOUNT
2003 14766.30
2004 19436.60
2005 27136.40
2006 29417.10
2007 38877.90

Total Assets

40000
30000
20000
10000
0
2003 2004 2005 2006 2007

The Bank’s performance in the area was satisfactory. The Bank’s Total assets increased during
the year by 32.16 percent and stood at Tk-38877.90 million as at 31 December 2007

Placement and Investment
Taka in million


YEAR AMOUNT
2003 4361.45
2004 6098.51
2005 10236.82
2006 8212.23
2007 13560.92
Placem ent and Investm ent

15000

10000

5000

0
2003 2004 2005 2006 2007

The Bank’s performance in the area was satisfactory. The Bank’s Total Placement and
Investment increased during the year by 65.13 percent and stood at Tk-1356.90 million as at 31
December 2007

Number of Branches

YEAR Branches
2003 26
2004 27
2005 27
2006 28
2007 30
Number of Branches

30
29
28
27
26
25
24
2003 2004 2005 2006 2007


The Bank’s Number of Branches increased during the year by 2 and stood at 30 branches as at 31
December 2007.

Ratio Analysis
Ratio Analysis expresses the relationship among selected items of financial statement data. A
ratio expresses the mathematical relationship between one quantity and another. The relationship
is expressed in terms of a percentage, a rate, or a simple proportion.

Loan to Deposit Liabilities
The Loan to Deposit liabilities ratio measures the percentage of the total deposit provided to
creditors as loan and advances. It is computed by dividing total loan by total deposit.

YEAR RATIO
2003 82.39
2004 77.37
2005 69.74
2006 78.89
2007 69.69

Loan to Deposit Liabilities

85
80
75
70
65
60
2003 2004 2005 2006 2007

The Loan to Deposit liabilities ratio decreased during the year by 9.20 % and stood at 69.69 % as
at 31 December 2007.

Debt-equity Ratio

YEAR RATIO


2003 6.50
2004 6.95
2005 7.92
2006 9.84
2007 10.46

Debt Equity Ratio

12
10
8
6
4
2
0
2003 2004 2005 2006 2007

Debt-equity ratio increased during the year by 0.62 % and stood at 10.46 % as at 31 December
2007.
Debt (Long term) to total assets ratio
The Debt to total assets ratio measures the percentage of the total assets provided by creditors. It
is computed by dividing total debt by total assets. This ratio indicates the company’s degree of
leverage.
YEAR RATIO
2003 4.56
2004 4.32
2005 3.45
2006 2.82
2007 3.57
Debt (Long term) to Total Assets Ratio

5
4
3
2
1
0
2003 2004 2005 2006 2007


Debt to total assets ratio increase during the year and stood at 3.57 % as at 31 December 2007.

Classified Loan as a % of total loans
YEAR %
2003 4.25
2004 2.70
2005 4.55
2006 3.70
2007 3.25

Classified Loan as a % of total loans

15

10

5

0
2003 2004 2005 2006 2007

The Bank’s performance in the area was satisfactory. The Bank’s classified loan (non-
performing loan) reduced during the year by 0.45 percent and stood at 3.25% as at 31 December
2007

Return on assets ratio (Average)
YEAR RATIO
2003 1.70 %
2004 0.83 %
2005 1.94 %
2006 1.23 %
2007 1.70 %


Return on assets ratio (Average)

2.5
2
1.5
1
0.5
0
2003 2004 2005 2006 2007

Return on assets ratio (ROA) decreased during the year by 0.47 % and stood at 1.70 % as at 31
December 2007.
Return on equity (Average)

YEAR RATIO
2003 20.90 %
2004 21.27 %
2005 17.75 %
2006 27.82 %
2007 11.70 %
Return on equity (Average) in Year 2003 to 2007

25
20
15
10
5
0
2003 2004 2005 2006 2007

Return on equity decreased during the year by 16.12 % and stood at 11.70 % as at 31 December
2007.

Capital adequacy ratio

YEAR RATIO
2003 12.57
2004 12.49


2005 11.77
2006 11.98
2007 12.91

13.5
13 12.91
12.5 12.57 12.49
12 11.98
11.5
11 11.11
10.5
10
2003 2004 2005 2006 2007

Capital adequacy ratio increased during the year by 0.93 % and stood at 12.91 % as at 31
December 2007.

Interest Margin Coverage
Times interest earned provide an indication of the company’s ability to meet interest payments as
they come due. It is computed by dividing income before interest expense and income taxes by
interest expense.
YEAR RATIO
2003 210.87
2004 205.07
2005 214.56
2006 211.72
2007 176.80


Interest Margin Coverage

250
200
150
100
50
0
2003 2004 2005 2006 2007

Interest margin coverage ratio decreased during the year by 34.92 and stood at 176.80 as at 31
December 2007.

Findings

While working at BASIC Bank, Mirpur Branch, I have attained a newer kind of experience.
After collecting and analysis data I have got some findings regarding credit management and
others area of the banking activities. These findings are completely my personal view of point,
which are given below-

1. The controlling officers are effective in providing necessary guidance and support to the
branch.
2. Branch Manager Conscious efforts to achieve the targets and knows how to motivate
employees and how to represent the Bank well in the local community.
3. There are 30 branches of BASIC Bank. From that BASIC bank Mirpur Branch is
successfully operating its credit activities.
4. The strategy and policy making of Branch Manager is effective. So in spite of intensity of
banks, the bank has possessed its place in the competition.
5. As the bank uses some modern technology such as: Fax, Telex, and SWIFT. So their
service is better than most of the bank.
6. The credit analysts have a strong background in accounting financial statement analysis,
business law and economics along with good negotiating skills. This lessens the
possibility of bad debt.
7. The bank is constantly expanding and improving its performance.
8. The loan administration of BASIC Bank Limited enables it to ensure a smooth loan
system.
9. Over the years the loan applications received, approved have all seen an increasing trend
while the number of loan declined has a decreasing trend
10. The bank does not have sufficient attention in “consumer credit”.
11. BASIC Bank has yet not setup proper network system, which is very important to
compete with the others in this electronic world.
12. For credit appraisal, the bank some time depends on the client for its authentication.

Recommendations


I had the practical exposure in BASIC Bank Ltd. for some months, with my little experience in
the bank in comparison with vast and complex banking system, it is very difficult for me to
recommend. I have observed some shortcomings regarding operational and other aspects of their
banking. On the basis of my observation I would like to recommend the following
recommendations-
1. The credit policy of BASIC Bank is very restrictive and defensive. As a result, its loan
sanction procedure is somewhat complex. The loan policy and loan sanction procedure
should be made flexible and easy.
2. BASIC Bank, usually, does not provide overdraft without full coverage of security. As a
result, its overdraft facility is not expanding.
3. BASIC Bank has little attention about publicity and advertisement. As a result, most of
the consumers are unaware about the bank. So extensive publicity and advertisement is
required. BASIC bank can set up bill board and it can sponsor different social program to
introduce BBL.
4. BASIC bank holds huge reserves and fund that are not utilized. As a result, huge
opportunity cost is incurred by BBL. So BBL should provide more loans to the profitable
credit line.
5. BASIC Bank is not introducing retail banking. But in recent time retail banking become
more popular and others bank already engage with retail banking. Therefore, BASIC
Bank should introducing the retail banking to sustain in vary commutative market.
6. BASIC Bank analyses the commercial loan feasibility by “Credit Risk Grading Score
Sheet”. I think this manual lacks about some important factors such as Audit Risk,
Foreign Exchange Risk (in case of import finance), and Inherent Risk of client. So this
factor should be included in Credit Risk Grading Score Sheet.
7. Bank should use more automated and electronic modern equipments like ATM, debit
card, credit card, smart card.
8. BASIC bank training programs can encourage their trainees to seek additional education
including computer classes, accounting, MBA programs and foreign language instruction.
9. 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. It is obviously
a great problem for any commercial bank especially BASIC bank where they have no

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