Internship Report On Ific Bank 4xt1h

INTRODUCTION 1.1 Scene behind the Study Banks play an important role in the development of a country. Bangladesh Government and Central Bank developed implemented different rules and regulation on behalf of the healthier economy. World Bank also gave his favorable eyes to restructure the banking society. “MBM- for 21st centuries banking” is the most dynamic innovation for the new millennium. This internship program is part of our Academic structure. I have tried my best in be oriented with the practice of banking in real life. Modern banks play an important part in promoting economic development of a country. Banks provide necessary funds for executing various programs underway in the process of economic development. They collect savings of large masses of people scattered through out the country, which in the absence of banks would have remained ideal and unproductive. These scattered amounts are collected, pooled together and made available to commerce and industry for meeting the requirements. Economy of Bangladesh is in the group of world’s most underdeveloped economies. One of the reasons may be its underdeveloped banking system. Government as well as different international organizations have also identified that underdeveloped banking system causes some obstacles to the process of economic development. So they have highly recommended for reforming financial sector. Since 1990, Bangladesh Government has taken a lot of financial sector reform measurements for making financial sector as well as banking sector more transparent, and formulation and implementations of these reform activities has also been participated by different international organization like World Bank, IMF etc. In 1996, World Bank published ‘Bangladesh: Agenda for action’ in which it has suggested a lot of recommendations for economic development of our country. These recommendations include special presentation for reforming banking sector. In this agenda, World Bank has suggested to introduce MBM as follows: “Professional sings the banking business will generate large, long term payoffs in the form of a more efficient banking system apart from functional and technology-related training required at Bangladesh Bank and the commercial banks. Consideration should be given to starting a Masters in Bank Management program at the Bangladesh Institute of Bank Management.”

Practical orientation in IFIC Bank – Motijheel Branch

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Our high banking official has also felt the importance of having entry-level officer who are well educated in banking field. Accordingly, MBM program has been started in earlier of this year. The entire fourth term of this MBM program has been designed for gaining practical knowledge about banking and all the MBM students are required to go to various financial institutions for practical exposure. Having completed practical orientation, all the students are also required to submit a report on their experience. 1.2 Objectives of the Study The primary objective of this study is to attend the course of Practical Orientation in Banks, which is the subject of MBM 4th Term. But the objective behind this study is something broader. Objectives of the study are summarized in the following manner a. To comply with the entire branch banking procedures b. To make a bridge between the theories and practical procedures of banking day to day operations c. To understand the that has been taught in the last nine months in BIBM and the courses that will be taught in the next year courses d. To analyze the performance of the branch as well as IFIC Bank Limited as a whole. e. To have some practical exposures that will be helpful for my second year courses in the MBM program. 1.3 Important of the Report This report is prepared to give a concrete idea about the dealing and transactions of any Commercial Bank. I believe that my report will help a lot those who want an orientation about banking. Bank management also can be using the information of my observation for their managerial decision if needed. 1.4 Methodology This report has been prepared on the basis of experience gathered during the period of internship form 12 October to 28 December. Within this period I visited three department namely General Banking, Advances and Foreign Exchange departments.


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Firstly total duration were divided into total working days that came to a total working day of 58 days and were distributed in the following manner Departments

Duration

In Days

General Banking

From 12 October to 30 October

15 Days

Advances

From 31 October to 28 November

24 Days

Foreign Exchange

From 30 November to 28 December

19 Days

Duration of rotation in different departments in the branch is shown in the graph below.

I have worked different kinds of desks .I have collected some data for organize the report. Both primary and secondary data sources were used to generate this report. Primary data sources: 1. Schedule survey 2. Informal discussion with professionals 3. Observation while working in different desks etc. Secondary data sources: 1. Previous internship reports 2. Corporate newsletters 3. Manual 4. Different publications of Bangladesh Bank.


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1.5 Organisation of the Report This report has been prepared in different chapters in order to explain my experience in the easiest way. Traditional over view is presented in the 1st chapter. Second chapter contains about the IFIC Bank at a glance. General banking and its operation in detailed in the 3rd chapter. Advances are discussed in fourth chapter. Foreign exchange is discussed in the fifth chapter. Finally, observation and research consulted wit hare in the chapter six. 1.6 Limitations of the Study Ten weeks observation and orientation is not enough to be an expert on commercial banking though I have been received the maximum assistance from the every individual of the Motijheel Branch. Definitely, I could not produce an outstanding report for the time limitations.


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BACKGROUND OF IFIC BANK 2.1 Portrait of the Bank International financial investment and commerce (IFIC) Bank Limited started banking operations on June 24, 1983. Prior of that it was set up in 1976 as a t venture finance company at the instant of the Government of the People’s Republic of Bangladesh. Government then held 49 percent shares while the sponsors and general public held the rest. The objectives of the finance company were to establish venture Banks finances companies and s abroad and to carry out normal functions of a finance company at home. When the Government decided to open up banking in the privet sector in 1983 the above finance company was converted a fullfledged commercial Bank. Along with this, the Government also allowed four other commercial banks in the private sector. Subsequently, the Government denationalized two banks, which were, then fully Government-owned. While in all these Banks Government is holding nominal 5 percent shares, an exception was made in the case of the Bank. It retained 40 percent shares of the Bank. The decision by the Government to retain 40 percent shares in IFIC Bank was in pursuance of the original objectives, namely, promotion of the participation of Government and private sponsors to establish t venture Banks, financial companies, branches and s abroad. 2.2 Ownership Structure The sponsors hold ownership of the Bank in the private sector and Government of the People’s Republic of Bangladesh. Sponsors and individuals now own about 62 percent of the share capital and the Government owns a little more than 38 percent of the shares. 2.3 Capital and Reserves The Bank started with an Authorized capital of Tk. 100 million in 1983. Paid up capital at that time stood at Tk. 71.50 million only. Over the last 19 years, the authorized and paid-up capital has increased substantially. The paid capital stood at Tk. 406.39 million as on December 31,2001.


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The Bank has built up a strong reserve base over the years. In last 19 years its Reserves and Surplus have increased overly. As against Tk. 21.20 million only in 1983 Reserve and surplus increased to Tk.622.53 million in 2001. This consistent policy of building up Reserves has enabled the Bank to maintain a better adequacy ratio as compared to others. With the active and guidance from the Government, the bank has been showing a steady and improved performance. In its fifteen years operation, the bank has earned the status of leading in of both business and goodwill. Starting modest deposit of only Tk. 863.40 million in 1983 the Bank has closed its business with Tk. 17616.68 million of deposit as on December 31, 2001. The annual growth rate has mostly been higher compared to both banking sector growth and individual growth rates achieved by others. As against a profit of Tk. 21.94 million in 1984, the Bank earned a record profit of Tk. 248.00 million for the year ended on December 2001. 2.4 Distribution of Branches The Bank covers by its activities all the important trading and commercial centers of the country. As on December 22, 2002 it had 55 branches within Bangladesh. 2. 5 Operation Abroad t Venture a.

Bank of Maldives - In 1983, IFIC Bank set up a t venture bank names Bank of Maldives Limited (BML). It is the first bank of Maldives. In 1992, as per contract, IFIC Bank handed over the management of BML to Maldives.

b.

Oman-Bangladesh Exchange - To facilitate remittance by Bangladeshi in Oman, IFIC bank set up a money exchange company as a t venture, named Oman-Bangladesh Exchange.

Branch abroad a.

Pakistan Branch - IFIC Bank opened its first overseas branch in Karachi, Pakistan. It opened its second branch at Lahore in Pakistan.


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b.

Nepal Bangladesh Limited - In December 1993, the Bank got permission to establish a t venture bank with 50% equity capital in Nepal. The Bank known as, Nepal Bangladesh Ltd. came into operation in June 1994.

2.6 Human Resource Development The Bank has a Human Resource Development & Research Department to develop human resources internally. The Academy is equipped with professional library, modern training aids professional faculty and other facility. It is now under Personnel & Human Resource Development & Research Division. The Academy conducts regularly foundation courses, specialized courses and seminars on different areas of banking to take care of the professional needs. Total manpower stood at 1737 as on December 31, 2001.


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2.7 HIERARCHY of the Management of this Bank

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GENERAL BANKING 3.1 Introduction General Banking department performs the core functions of Bank operates the day to day transactions. They take the deposit from the customer and meet their demand for cash honoring their cheeks. The department is very rush and the employee here are too their duty. They entry of every transaction within the day. It opens new s, remit funds, issues bank draft and pay order etc. Since Bank is confined to provide these services everyday, general banking is knows as “Retail Banking”. 3.2 Different Departments of General Banking It has five major parts in the branch to perform. The sections are as following a. b. c. d. e.

opening section Remittance Checks clearing Cash FDR

3.3 Different Types of A/C: 3.3.1 CD A/C IN IFIC BANK, Motijheel Branch. This is very popular type of among the business people. The Main feature of this is that the A/C holder can draw money from the as many times as he needs. No interest is allowed on this type of . But the depositors in this generally get other customer service such as overdraft facility, collection of cheques, transfer of money, providing agency facility, and general ancillary services. This minimum amount of balance required to open and to be maintained varies accordingly. In general IFIC Bank, Motijheel Branch asks fir as least Tk. 5000 minimum balance to be maintained. The opening form current A/C has to be filled up by the applicant of the . The required identification information is collected. Any new holder has to be introduced by a customer who has as current in the bank branch. The introducer can be an officer of the branch also. For applicants with ports don’t need any introducer as because for port holder Government himself is the introducer. A set of specimen signature is collected fir later verification in the cheque.


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3.3.2 Savings (SB) A/C in IFIC Bank Ltd. Motijheel Branch All the features of current a/c’s are available for savings deposit s accept, a customer can draw money from this type of only a limited number of times. The minimum amount of balance to be maintained with this type of is Tk. 2000. The forms for opening this type of A/C is almost like CD A/C except little exception. 3.3.3 STD A/C in IFIC Bank Ltd., Motijheel Branch The STD is a very important class of in this branch. The minimum amount of balance has to be maintained with STD A/C is Tk. 200,000. 3.3.4 Fixed Deposit Receipt (FDR) : During opening of this sorts of , along with other conventional procedure, the A/C holder is given the receipt of his deposited amount and date to maturity of his deposit. An interest rate ranging from 6% to 9% is offered depending on different amount and tenure of deposits. 3.4 opening This sections opens s. Selection of customer is very important for the bank because banks success and failure largely depends on their customers. If customer is bad, they may create fraud and forgery by their with bank and thus destroy goodwill of banks. So, this section takes extreme caution in selecting its customer base. This section opens the fir the customer. In general banking, the section plays a very important role. Selection of customer for opening is very crucial for the institution. If the holder finds out irregular largely depends on their customer. It hampers the goodwill also. So the bank should be extreme caution in its selection.


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3.4.1 s Opening Process

Step 1

Receiving filled up application in bank’s prescribed form mentioning what type of is desired to be opened 1. The form is filled up by the applicant himself / herself 2. Two copies of port size photographs from individual are taken, in case of firms photographs of all partners are taken

Step 2

3. Applicants must submit required documents 4. Application must sign specimen signature sheet and give mandate 5. Introducer’s signature and s number – verified by legal officer

Step 3

Authorized Officer accepts the application

Step 4

Minimum balance is deposited – only cash is accepted

Step 5

is opened and a Cheque book and pay-in-slip book is given


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3.4.2 Opening Procedure with a low Chart

Applicant fills up the application form in the

He required filling up the specimen

For individual introduction is needed by an holder

The authorized officers scrutinize the introduction and examine the documents submitted

Issuance of deposit slip and the deposit must be made in case, no check no draft is acceptable to the bank

After depositing cash one checkbook issued opened

3.5 Target Customers o IFIC Bank, Motijheel Branch The customers for loan service are categorized as follows: i.

Individual person

ii.

Sole proprietorship firm

iii.

Partnership firm

iv.

Private Limited Company

v.

Public Limited Company

vi.

Government and semi Government Organization

vii. Bank Employee Practical orientation in IFIC Bank – Motijheel Branch

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3.6 Special Caution or the documents from the opener of the following types In order to open an in IFIC bank LTD , Motijheel Branch, the party has to fill up an opening form and specimen signature card provided by the banker. There are different forms for different types of . The customer has to fill that particular form for which he wants to open. Generally, the following information is required to open an : •

Name of the applicant(s)

•

Profession/Nature of business

•

Permanent & present address

•

Special instruction regarding the operation the (if any)

•

Introducer’s name & number

•

Specimen signature in the signature card

•

Partner’s name, address and signature (in case of partnership firm)

•

Photocopy of port/Ward Commissioner’s certificate/ Chairman certificate of Union parishad/Employer’s certificate regarding identification and nationality of the person(s) concerned

•

Two copies of photographs

The Bangladesh Bank has recently made the selection of a nominee by the applicant mandatory and the applicant, in the relevant part of the form, must attest the photograph of the nominee. The concerned officers the opening form. If the particulars are properly filled up and in order, the customer is entitled to open the . He has to submit some particular documents, which vary due to the kinds of the s. Documents required for opening an : In order to open any kind of a customer is required to submit particular documents that vary due to the kinds of . Here are required documents according to the kinds of s:


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For Individual/t/Partnership/Social Club: The bank requires the following documents, which must be up-todate and duly completed: •

opening form properly filled up and signed by the applicant(s)

•

Specimen signature in the signature card

•

Two copies of photographs of each partner/director

•

The photos must be attested by the introducer

•

Mandate or authority from the opening an individual, partnership is to be obtained where a customer want to authorize another person to operate on his .

•

Certified true copies of by-laws, rules, regulations constitutions in case of societies, club, association and limited companies etc.

•

Certified copy of resolution authorizing opening and operation of the with bank ed by the executive committee/ managing committee of the society/ club of association, limited companies etc.

•

List of the directors.

•

Partnership deed or letter of partnership for partnership firm.

For sole proprietorship concern: •

All the general information regarding opening an

•

Trade license

For limited companies/corporation: •

opening form.

•

Specimen signature card.

•

Memorandum and articles of association.

•

Resolution of board of directors authorizing opening of the with the bank.

•

Certificate of incorporation.

•

Certificate of commencement at business.

•

List of directors


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•

Individual bio-data of each director & Photocopy of port/ Ward Commissioner’s certificate/Chairman certificate of Union Parishad/Employer’s certificate regarding identification and nationality of the directors concerned

Minimum deposit for opening an : Every customer has to deposit a certain sum of money to incorporate the . •

For current initial deposit is Tk 10,000

•

For savings initial deposit is Tk 5,000

3.7 Chequebook issue: The following procedures are maintained for issuing a Chequebook: •

Firstly the customer will fill up the cheque requisition form.

•

The leaves of the Chequebook under issue shall be counted to ensure that all the leaves and the requisition slip are intact and the name & number shall be written on all the leaves of the Chequebook and on requisition slip.

•

The name and the number of the customer shall be written in the Chequebook against the particular Chequebook series.

•

Then the officer in charge signs the , Chequebook, and the requisition slip.

•

Then the Chequebook is handed over to the customer after taking acknowledgement on the requisition slip.

A cover file containing the requisition slip shall be effectively preserved as vouchers. If any defect is noticed by the ledger keeper, he will make a remark to that effect on the requisition slip and forward it to the cancellation officer to decide whether a new Chequebook should be issued to the customer or not. 3.8 Transfer of an to another Branch: Sometimes the customer wants to transfer his to another branch due to various reasons. IFIC Bank, Motijheel Branch, also


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gives this kind of facility to the customer. In this case, they will have to submit an application to the branch manager stating the reasons. The officer verifies the signature and finds out the balance of the holder. The holder also submits the rest cheque leaves along with the application. Then the officer issues an Inter Branch Credit Advice (IBCA) to that branch and a debit voucher with the balance of deposit in that . He also sends the opening form and specimen signature card to that new branch. The new branch officer verifies the customer signature with opening form supplied to him. The amount mentioned in the (IBCA) considered as the initial deposit of the new branch. 3.9. Closing Procedure of an : For two reasons an can be closed: 3.9.1. By Banker: banker has the right to close the if the customer does not maintain any transaction six years and the balance is become lower than the minimum balance. 3.9.2 By Customer: if the customer wants to close his he will write an application to the manager and the manager then close the . Firstly, the concerned customer has to apply for closing his/her . Then to close the the cheque book is to be returned to the bank. After charging the closing charge the Manager will close the . Closing charges are as follows: For savings bank --------------20 Taka For current ----------------------30 Taka The rest amount of money laid in the respective is paid to the customer by a payment order. In case of payment order certain commissions and vat are cut off from the . 3.10 Local Remittance Sending money from one place to another place for the customer is another important service of banks. And this service is an important part of country’s payment system. For this service, people, especially businessmen can transfer funds from one place to another place very quickly. There are five kinds of techniques for remitting money from one place to another place.


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Bank transfer funds from one place to another place on behalf of its customers. The main modes of transfer fund are: These are: Demand Draft Pay Order Telegraphic Transfer Telephone Transfer Mail Transfer – Time consuming and not frequently used Telegraphic and Telephone transfer are almost the same, both are them are known as TT in short. So the basic three types of local remittances are discussed below:


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Points

Explanation

Payment from

Generally used to Remit fund

Payment Process of the paying bank

Pay Order

Pay Order gives the payee the right to claim payment from the issuing bank

Demand Draft

Demand Draft is an order of issuing bank on another branch of the same bank to pay specified sum of money to payee on demand.

TT

Issuing branch requests another branch to pay specified money to the specific payee on demand by Telegraph/ Telephone

Payment from Payment from ordered issuing branch branch only

Payment from ordered branch

Within the clearinghouse area of issuing branch.

Anywhere in the country

Outside the clearinghouse area of issuing branch. Payee can also be the purchaser.

Payment is 1.Confirm that the DD made through is not forged one. clearing 2.Confirm with sent advice

1.Confirm issuing branch 2.Confirm Payee A/C

3.Check the ‘Test Code’

3.Confirm amount

4.Make payment

4.Make payment 5.Receive advice

Charge

Only commission

Commission charge

+

telex Commission telephone

+

Unlike Cheque, there is no possibility of dishonoring of PO/ Possibility of DD/TT because before issuing, issuing bank takes out the dishonor amount of the instrument in advance from the customer– common for all instruments


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3.10.1 Test Arrangement For all these techniques of remittance except telephone transfers, Test is deployed. Test is security number by decoding which the paying bank can be sure that the DD/TT/MT is not forged one. Only authorized officers know the test number. Bank maintains secret code for each of its officers, date, week, year, and amount to be transferred. 3.10.2 Payment Order A payment Order (PO) is an instrument to remit fund within a clearing zone. The PO can only be cashed through the issuing branch. 3.10.3 Issuing of a Payment Order The procedures for issuing a PO are as follows: • Customer submit application to the officer along with money • Give necessary entry in the bills payable where payees name, date, PO- no, etc. are mentioned • Prepared the instruments • After approved the instruments by authority, it is delivered to the customer • Signature of the customer is taken on the counterpart. Rate of commission: Commission

Up to Tk

Tk 15

Tk 1 to Tk 1000

Rate of commission: Commission

Up to Tk

Tk 15

Tk 1 to Tk 1000

Tk 25

Tk 1001 to Tk 100000

Tk 50

Tk 100001 to Tk 500000

Tk 100

Above Tk 1000


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3.10.4 Demand Draft: A demand draft is also called the Bankers Draft. It is an instrument, issued by a particular branch, drawn on another branch of the same bank, instructing to pay a certain amount of money. DD is very much popular instrument for remitting money from one place to another place. The remitter of funds can purchase a DD making the amount payable to any one including him. The banker is discharged from liability only by payment in due course. According to section 13 of Negotiable Instruments Act, DD is not a Negotiable Instrument. But a DD has all the attributes of a bill of exchange. Such as Instrument in writing, containing an unconditional order, signed by the banker etc. Hence a DD is treated as bill of exchange. 3.10.5 Procedure for issuing a DD is as follows: •

Deposit money with DD application

•

Necessary entries are given to

•

Issuing of the payee only crossed instrument.

3.10.6 Telegraphic Transfer: Telegraphic Transfer are affected by telegram, telephone, telex as desired by the remitter. Transfer of funds by telegraphic Transfer is the most rapid and convenient but expensive method. Some times the remitter of the funds requires the money to be available to the payee immediately. In that case the banker is requested to remit the funds telegraphically. Such type of remittance is called Telegraphic Transfer (TT). But in practice banker uses telephone to remit fund. Banker uses a test serial to maintain secrecy.


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3.10.7 Procedure for the outgoing TT: • Deposit of money by the customer along with application form • In receipt of money a cost memo is given to the customer containing TT serial number, which is informed to the awaiting party in the paying branch by the customer. • Tested telex message is prepared, where TT serial number, notifying party name is mentioned. • The telex department confirms transmission of the message. 3.10.8 Procedure for the incoming TT: • After receiving the telex, it is authenticated by tested • TT serial number is verified by the “TT in concern branch” • Voucher is released in this respect giving ing treatment as: 3.10.9

ing entries for the PO, DD and MT Cases

PO / DD Cash A/C------------------Dr.

Against Cash Originating

–

TT / MT Cash A/C------------Dr.

IFIC General A/C ----Cr.

IFIC General A/C ---Cr.

Commission A/C ----Cr.

Commission A/C ----Cr. Telex Charge A/C---Cr.

Party A/C------------------Dr. Against Transfer – Originating

Party A/C------------Dr.

IFIC General A/C ----Cr.

IFIC General A/C ---Cr.

Commission A/C ----Cr.

Commission A/C ----Cr. Telex Charge A/C---Cr.

Responding When Received DD

Advice - for

IFIC General A/C -------Dr.

IFIC General A/C -----Dr.

Party A/C ---------Cr.

Party A/C -------Cr.

IFIC General A/C ------------------------------------------Dr. Bills Payable DD Payable A/C ------------------------Cr.

When DD Placed Against Advice

Bills Payable DD Payable A/C ------------------------ -Dr.

When DD Paid without receiving Advice

Sundry Asset DD Paid without Advice A/C -----------Dr.

Party A/C ---------------------------------------Cr. Party A/C ----------------------------------------------Cr.

3.10.10 Cancellation of DD / PO / TT


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Step 1

Application in written to the Manager of the maintaining branch

Step 2

Verification of the specimen signature

Step 3

Incoming

Journal

Bills Payable DD Payable ----------------Dr. IFIC General A/C --------------------Cr. FIC General A/C --------------------------Dr.

Posting

Outgoing

Step 4

Send letter to the paying Bank.

Party A/C -----------------------------Cr.

3.11 Cheque Clearing This section receives all kinds of Cheques in favor of the client for clearing as the part of their banking service. After receiving the Cheque it is necessary to endorse it and cross it specially. Basically the Cheques for clearing are of following types: Types Inward Clearing Cheque Outward Clearing

Explanation

Clearing Process

Cheques received from the Clearing House, of our bank

Party’s A/C ------Dr. IFIC General -------Cr.

Cheques of other branch of IFIC Bank within our clearing house area

These Cheques are directly sent to the respective branch and request them to send IBCA. When IBCA comes, then customer’s s are credited for the amount of the Cheque.

Cheques another within clearing area

These Cheques are sent to clearing house via the Motijheel Branch. When drawee bank honor the Cheques, then the of Cheque depositors are credited.

OBC (Outward Bills for Collection) Clearing Cheque


of bank our house

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Types

Explanation

Clearing Process These Cheques are cleared in two ways:

OBC (Outward Bills for Collection)

Inward Bills for Collection (IBC)

From Bank

other

Cheques of another bank which is situated outside the clearing area

branch

of

IFIC

From another bank outside the clearinghouse

Firstly, if any branch of our bank exists within the clearinghouse area of drawee bank, then we send the Cheque to that branch of our bank and that branch collects the proceeds through clearing house formalities and sends an IBCA to us. In second way, if there is no branch of our bank, then we directly sends the Cheque to the drawee bank and request them to send the proceeds by TT, MT, or DD or by in any other means These Cheques are settled by sending IBCA, i.e. debiting depositor’s and crediting sender’s branch . These Cheques are settled debiting depositor’s and sending DD, MT, TT in favor of sender’s bank

3.12 Cash Section Cash department is the most vital and sensitive organ of the branch as it deals with all kinds of cash transactions. This department starts the day with cash in vault. Each day some cash that is opening cash balance are transferred to the cash officers from the cash vault. Net figure of this cash receipts and payments are added to the opening cash balance. The figure is called closing balance. This closing balance is then added to the vault. And this is the final cash balance figure for the bank at the end of any particular day. Cash department in the IFIC Bank, Motijheel Branch is authorized dealer of foreign currency, so it can deal with buying and selling of foreign currency.


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3.12.1 Functions of Cash Department 1. Cash payment is made only against cheque Cash Payment

2. This is the unique function of the banking system which is known as “payment on demand” 3. It makes payment only against its printed valid Cheque 1. It receives deposits from the depositors in form of cash

Cash Receipt

2. So it is the “mobilization unit” of the banking system 3. It collects money only its receipts forms

3.12.2 Cash payment or Cheque cancellation process Step 1

Receiving Cheque by the employee in the cash counter Verification of the followings by the cash Officer in the computer section 1. Date of the Cheque (it is presented within 6 month from issue date) 2. Issued from this branch

Step 2

3. Amounts in figure and sentence written does not differ 4. Signature of the drawer does not differ 5. Cheque is not torn or mutilated Step 3

Gives pay cash seal and sends to the payment counter

Step 4

Payment officer makes payment

3.12.3 Books Maintained by this Section Vault

It keeps of cash balance in vault in the bank.

Cash Receipt

Cash receipt in whole of the day is recorded here.

Cash

Cash payments are made in a day are entered here.

Payment

Rough Vault –

Cash calculation for final entry in vault is done here, as any error and correction here is not acceptable.

Cash Balance Book

Balance here is compared with vault . If no difference is found, indicates no error.


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In book 1 and book 5, notes and currency are recorded by mentioning their denominations and number of each denomination. Same set of these books is maintained separately for both local and foreign currency. 3.13 FDR This branch maintains a separate section for maintaining Fixed Deposit. FDR is an important factor for the bank and volume of FDR determines the investment base of the bank. FDR is found to be 60% of the total deposit of this branch. Basically this is the mobilization unit of the Bank. It is obvious to give due importance. 3.13.1 Liquidation of FDR i.

Only the holder himself and the authorized person can liquid the FDR after maturity.

ii.

In case of t name, authentication from both is necessary.

iii.

In case of liquid.

iv.

In case of Death, the survivor cannot encash the FDR even if there exist the either or survivor clause – succession certificate from the court is needed.

v.

If demanded before the maturity the last expired duration is considered to pay interest.

‘Either of Survivorship ‘ clause – any one can

FDR section provides another service on behalf of the government. These services– this bank issues and encash the following two government securities: i.

Five Years Bangladesh Sanchay Patra

ii.

Pratirakha Sanchay Patra

This section of this branch is also fully computerized. No ledger, no other subsidiary books are maintained separately in this section. All entry is given directly in the computer and then necessary information is printed when required.


25

3.14 Establishment section This section deals with employee’s salary, many types of internal expenses such as purchase of pen, paper, equipment, machinery and payment of labor cost and employee conveyance. In case of leave of absence employee collects prescribed form from this section. This section of the bank is simply maintained by a single person 3.15 s section This is obviously an independent and unique department, which works as the composition of all the departments of the branch, but it is under the In-Charge of the General Banking in this branch. This section in this branch is fully computerized. So the conventional large ledger and journal books are not kept like the nationalized banks. Only four personnel maintain the entire s section. It receives the vouchers from all departments and prepares the subsidiaries and maintains s. 3.15.1 Books maintained by this section Daily Position

It shows the daily position of the branch

Clean Cash

It records all cash transaction of the day under different head

Extract

It keeps the vouchers from different department along with their summary sheet

General Ledger

There are different heads of the general ledger which are prescribed by the head office and the s are maintained through those heads

Statement Affairs

of

It is the balance sheet of the concern under periodic ing system. It shows the daily profit of the concern along with the asset and liability of the respective day.


26

ADVANCE 4.1 Introduction This is the survival unit of the bank because until and unless the success of this section the survival is a question to every bank. If this section is not properly working the bank itself may become bankrupt. This is important because this is the earning unit of the bank. Banks are accepting deposits from the depositors in condition of providing interest to them as well as safe keeping their interest. Now the question may gradually arise how the bank will provide interest to the clients and the simple answer is – advance. Why the bank provides advances to the borrowers – a. To earn interest from the borrowers and give the depositors

interest back b. To accelerate economic development by providing different

industrial as well as agricultural advances c. To create employment by providing industrial loans d. To pay the employees as well as meeting the interest groups

Credit is continuous process. Recovery of one credit gives rise to another credit. In this process of revolving of funds, bank earns income in the form of interest. A bank can invest its fund in many ways. Bank makes loans and advances to traders, businessmen, and industrialists. Moreover nature of credit may differ in of security requirement, disbursement provision, and conditions etc. We often use loans and advances as an alternative to one another. But academically this concept is incorrect. Academically Advances is the combination such items where loans is a part only. For this credit section of the banks is known as advance section. Academically Advance is the combined form of the following items Credit: 

An important function of bank.



Credit is the finance made available by one party to another.



Credit is simply opposite of debt. Debt is the obligation to make future payment.



Credit is the claim to receive this payment.


27



Credit allowed to the potential clients of a bank.



To earn money in form of interest.



Receiving back the credit amount after the maturity or as per contract.

Banking business is like all other profit-oriented business .It depends mainly on how much profit they con make. Profit is the yardstick for the bank to move on. Banking is a business that deals only with money and credit. Banks are profit oriented. They invest their fund in many to earn income. Huge amount of income derives from loans and advances. Banks makes loans and advances to traders, businessman and industrialists against the security. 4.2 Sources of fund for lending: 1.Own fund: a) Paid up capital b) Reserve c) Undistributed profit/ Retained earning 2.Outside source: a) Deposit (up to 80%) b) Borrowings from other banks c) Refinance. 4.3 General principle of good lending: 1. Saftey-“Safety is the first” 2. Liquidity 3. Purpose 4. Profitability 5. Security 6. Diversity/ spread 7. National interest


28

4.4 General criterion for selection of borrower: 1.

Character-Intention to pay the loan.

2.

Capacity-Borrower’s competence in the field of employ to fund profitably and ability to generate income.

3.

Capital-Financial strength to cover a risk.

4.

Condition-It general business condition.

5.

Collateral-Implies additional security.

4.5 Creation on Charges on Security: Banks gives different types of loans and advances. Banks take different types of security for loans and advances. Charging a security means making it available as a cover for an advance. The common modes of charging securities are as following: 1.

Pledge

2.

Hypothecation

3.

Mortgage

4.

lien

5.

Assignment

6.

Set-off

4.5.1 Pledge: Pledge is the bailment of goods as security for payment of a debt or performance of a promise. Bailment is the delivery of goods by one person to another for some purpose under a contract. Delivery of goods: 

Actual delivery



Symbolic or constructive delivery

Characteristics of a valid pledge: 

The ownership of the goods remains with the pledgor.



Delivery of goods is necessary.


29



Pledgee has aright to retaining the goods for the security until final payment of debt.



Right to sell the goods after reasonable notice, if the borrower default.

Goods should not be accepted as securities in pledge : 

Chemicals



Explosive



Inflammable goods



Goods that may cause damage



Non saleable goods



Goods that have no open market



Price of goods constantly fluctuate



Adulterate goods



Goods of inferior quality



Old stock of goods

4.5.2 Hypothecation: In this charge creation method, physically the goods remained in the hand of debtor. But document of title of goods are handed over to the banker .The method is also called equitable charge. Since the goods are in the hand of the borrower, bank inspects the goods regularly to judge its quality and quantity for the maximum safety of loan. Characteristics of hypothecation: 

Only moveable assets and book debts can be hypothecated.



The charge is floating.



The stocks are constantly changing.

4.5.3 Mortgage: When a customer as a security for loan offers immovable property, like building and land, a charge there on is created by means of a mortgage.


30

Elements of mortgage: 1.

Mortgagor

2.

Mortgage

3.

Mortgage money

4.

Mortgage deed

5.

Mortgage Property schedule



Land/Building



Benefits that arise out of the Land/Building



Things that are attached to the earth

Characteristics of Mortgage: 1.

It does not transfer the ownership of the property to the Mortgagor.

2.

It relates only immovable.

3.

The object of a mortgage is to give security for the loan.

4.

The mortgagor gets back all his rights after repayment of loan.

Types of Mortgage: 1.

Legal/ed Mortgage

2.

Equitable Mortgage

3.

Mortgage by conditional sale

4.

English Mortgage

5.

Usufructuary Mortgage

6.

Anomalous Mortgage

Banks takes only two types of mortgage: Legal/ed mortgage: In this way the mortgagor transfers to the mortgage the legal title and interest of the property.


31

Equitable mortgage: 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. But in equitable mortgage bank an undertaking from the customer that if bank required, customer is bound to the property to bank. 4.6 Processing of Loan Application for loan Applicant applies for the loan in the prescribed form of bank. Getting credit information: The bank collects credit information about the applicant to determine the credit worthiness of the borrower. Bank collects the information about the borrower from the following sources: i.

Personal investigation

ii.

Confidential Report from other Bank Head Office/Branch/ Chamber of the Commerce

iii.

CIB report from Central Bank

Analyzing these information: Bank then starts examination that whether the loan applied for is complying with its lending policy. If comply, then it examines the documents submitted and the credit worthiness. Credit worthiness analysis, i.e. analysis financial conditions of the loan applicant are very important. If loan amount is more than 50 Lac then bank goes for Lending Risk Analysis (LRA) and Spreadsheet Analysis (SA) which are recently introduced by Bangladesh Bank. According to Bangladesh Bank rule. LRA and SA are must for the loan exceed one core. If these two analyses reflect favorable condition and documents submitted for the loan appear to be satisfactory, then bank goes for further action.


32

4.7 Existing Process of Handling Loans: The process of sanctioning a loan is as follows: Getting Loan Proposal from Party About Project Collection Information About Party Evaluating Project & Proposal

BR. Level Evaluation Legal Assessment

Evaluating Collateral

Evaluation by Agent

Branch Level

Decision

Principal Officer Leave

Sanctioning & Disbursing Loan

Supervision of Loan Legal Recovery Recovery of Loan Usual Recovery


33

4.8. Information Collection The loans and advance department gets a form filled by the party seeking a lot of information. The information are listed below: 1. Name and address (present and permanent) 2. Constitution or status of the business 3. Date of establishment and place of incorporation 4. Particulars of properties, partners and directors 5. Background and business experience 6. Particulars of personal asset, names of subsidiaries, percentage of share holding and nature business 7. Details of liabilities in name of borrowers, in names of any directors 8. Financial statement of for the last three years 9. Nature and details of business/products 10. Details of requested credit facilities 11. Details of securities offered 12. Other relevant information 13. Proposed debt equity ratio 4.9. Relevant Matter of Document Checked Before Sanctioning Any Loan a) There must be an of the person want to take loan. The must transact for not less than 3 months to 6 months, otherwise the loan will not be sanctioned. b) After checking the duration of A/C than the transaction made by the holder must be checked. The debit credit position must be also checked, because it is related with future dealings of the borrower. c) The purpose for what the loan is taken by the borrower is another important matter to see and check. Whether the purpose is business or else must be checked with its marketability. Because there is risk of fraud and forgery by the borrower by seeing one purpose in cash of ding any illegal business. d) The banker should check through security whether it is enough or not Practical orientation in IFIC Bank – Motijheel Branch

34

4.10 Proposal Analysis The project proposal is analyzed and decision about the project is taken. The loans and advance department is responsible for the analysis. After preliminary appraisal of the loan project the final approval is obtained from the manager. If the loan amount crosses a certain amount (not fined) manager sends the loan project to the principal office for final approval. The experts in principal branch find out different projected ratios and develop an understanding about the potentiality of the project. Bank evaluates a loan proposal by considering few predetermined variables. These are safety, liquidity, profitability, security, purpose of the loans, sources of repayment, diversification of risks etc. The most important measure of appraising a loan proposal is safety of the project. Safety is measured by the security offered by the borrower and repaying capacity of him. The attitude of the borrower is also an important consideration; liquidity means the inflow of cash into the project in course of its operation. The profit is the blood of any commercial institution. Before approval of any project the bank authority has to be sure that the proposed project will be profitable venture. Profitability is assessed from the projected profit and loss statement. The security is the only tangible remains with the banker. Securing or collateral is the only weapon to recover the loan amount. So bank has to see that the collateral it is accepting is accepting is easy sale and sufficient to cover the loan amount. Bank cannot sanction loan by only depending on collateral. The sources of the payment of the project should be a feasible one. During sanctioning any loan bank has to be attentive about diversification of risk. All money must not be disbursed amongst a small number of people. In addition any project must be established for the national interest growth. 4.11 Collateral Evaluation The IFIC Bank, Motijheel Branch is very cautions about valuation of the collateral. The bank officials and simultaneously evaluate the collateral the party offers by private firm. This two-way valuation of the collateral increases the accuracy of its value estimated. Three types of value of the collateral are assumed; current market price, distress price and price after five years. The legal officers of the bank check the documents ascertain their impurity.


35

4.12 Final Decision about the Project If the loan decision remains with branch level, branch sections the loan and if the approving authority is head office then the decision comes to the branch by telex or fax. 4.13 Proper Supervision of the Project If such provision is kept in the sanction contracts the bank officials go to the project area and observes how loan is utilized. Of no such close to supervise the loan is added, even then the bank can see the performance of the project. 4.14 Forms of Advance: Banks generally offer different kinds of credit facilities to their customer. They are different forms with different categories. The credit facilities may be broadly classified into following categories: a) Overdraft 2 b) Loan 4.15 Overdraft: Overdraft are those advance which is allowed on current operated upon by cheques. The customer may be sanctioned a certain limit within which .he can overdraw his current within a certain period .The customer can withdrawals or deposits any numbers of within his limit. Interest is calculated and charged only on the actual debit balances on daily product basis. Overdraft facility is generally given to businessman for expansion of their business. Bank gives overdraft in following three ways: 

SOD (secured overdraft)



Cash credit



Export cash credit


36

4.15.1 Secured Overdraft (SOD): Secured overdraft is a continuous credit facility to the customer of the bank. This kinds of credit facility is given on following security: 

Various kinds of Sanchay Patras



Government security



FDR (fixed deposit receipts)



Shares



ICB unit certificate



Work order

If any customer wants to get SOD facility from the Bank, he has to submit an application to the Bank manager .It must be done in prescribed form of the bank. In this has to submit details about his business. After getting application form bank made an office note. In this note bank officer write down the following things: 

Nature of limit



Extent of limit



Security



Margin



Rate of interest rate

 Validity Then the Bank Authority mark the security as a lien in their . For getting any credit facility from the Bank the customer must have a current in that bank branch. Bank can give up to 80% credit facility of the security like FDR, BSB, PSP, ICB unit certificate. SOD limit for FDR, BSB, PSP, ICB unit certificate: 

Two care from branch level



Above from head office

SOD limit for different kinds share: 

20 lac from branch label



If it is more then 20 lac, the branch has to take approved from head office


37

For share bank can sanction 70% credit facility for “A” grade share and 60% for “B” grade share .In case of SOD on share the last six months average value or present value, which one is higher, is considered. SOD on work order: If any party wants to get SOD facility from the bank after getting work order, he has to submit an application with reliable security mention there .In past time bank give SOD facility without any collateral security. But now bank do not give any SOD facility against work order .If bank see that all of his papers are eligible for getting SOD facility, bank asks him to give a power of attorney to the bank for receiving all kinds of payment for the work. He can get up to 50%of the amount of the work that he has to done. But he has to submit his collateral security for that. He gets 50% SOD facility against his collateral security. After getting power of attorney bank sends a request letter to the authority by which the work has been issued. Then that authority sends a letter to the bank that they will make all of the payment of the party through the bank. After getting the letter the bank credits the SOD amount to the customers current . When bank gets payment from the authority, they make a ratio and cut off their amount from that payment. The following charge documents are taken from the customer: 

D.P (promissory note) note: Three types 1) Single DP note 2) t DP note 3) t and several DP note



Letter of arrangement



Letter of continuity



Letter of lien for advances against share, stocks and security.

4.15.2 Cash Credit (CC): Cash credit is the favorite mode of borrowing by traders, industrialist etc. for meeting their working capital. Cash credit is a kind of continuous overdraft. For cash credit facilities Banks allow a limit for his customer. Cash credit facilities is given for one year. Practical orientation in IFIC Bank – Motijheel Branch

38

In Banking system cash credit is given for two purpose .The purpose are as following: 

Working capital



Trading purpose

It is a favorite mode of advance for the customer. For cash credit facility bank allow a limit for his customer. The customer can make continuous transaction with in that limit. CC is given for one year. After one year the customer can renew his CC facility. Interest: For CC facility interest is counted daily basis. That means customer has to only that amount of interest which is outstanding in his CC . Interest is cut off from customer current in tram wise. Mode of security: For CC banks take two type of security. These are as following: 

Pledge



Hypothecation

Pledge: Pledge means the customer transfer his goods to the bank. But the ownership ship of the goods is in his position. That means only transfer the goods to the banks but not ownership. Hypothecation: It is a kind of security where neither the ownership nor the position of the goods is transfer to the bank. 

But nowadays banks do not give any CC facility without any extra security like Land, Building etc .The security has been taken by Bank as equitable mortgage.



If any person wants to get any CC facility from the Bank, he has to submit an application to the Bank by giving details condition of his business.



This has to done in a printed form of the bank.


39



In this form the customer mention the limit of his Cc facility, which is he wants to get from the bank. He also gives details about security.



After getting the application bank analysis the application very carefully.



If the bank satisfy about his security, bank takes a survey about the security.



The banks have some enlisted surveyor. After getting survey report, if bank personals are satisfied about the security, they will give CC facility to the customer.

In branch level bank cannot give more then 30lac taka to his customer. But if bank want give more then 30 lacs. The branch has to get approval from head office of the bank. For giving CC bank take following charge document: 1.

DP note

2.

Letter of arrangement

3.

Letter of continuity

4.

Letter of hypothecation of goods

5.

Stock of goods report

6.

Personal guarantee of all the director of the company

7.

Deed on additional charge on the fixed assets of the company

8.

Form for filling charge with of t stock companies

9.

Resolution of board of directors

10. Insurance policy for stock In CC facility bank only allow 50% credit facility of the stock that the customer has been pledge or hypothecation. Bank gives CC only for one year. After one year customer has to renewal it. 4.15.3. Export Cash Credit (ECC): 1. ECC to Whom: ECC facility is allowed to an exporter to finance the purchase and/or manufacturing of the goods to be shipped by him.


40

2. Consideration for ECC: In following this loan, the following should also be taken into consideration:

3.

a.

Bank must obtain insurance cover under Export Credit Guarantee Scheme of Sadharan Bima Corporation (both pre-shipment and post-shipment).

b.

ECC is utilized solely for the purchase of goods to be shipped under letter of credit/contract.

c.

Goods purchased or under manufacture under this arrangement are kept separate from all other goods, and a Stock Report signed by the parties and duly certified by the shippers or the Clearing Agents or an Officer of the Bank is submitted to the Bank.

d.

Goods are kept fully insured against all risks.

e.

Shipment is made through the Clearing Agent approved by the Bank.

f.

Goods under ECC must comply with the of the credit/ contract.

g.

No advance is obtained from any other Bank, on the goods purchased or manufactured with the amount advanced under the ECC.

h.

The original letter of credit/contract is stamped “Under our Lien” and retained with the Bank so that the exporters do not avail similar facility with any other Bank against the same letter of credit.

Charge Documents: Obtain the following charge documents from the exporter: a.

Demand Promissory Note

b.

Letter of Lien for ECC

c.

Letter of Pledge/hypothecation

d.

Letter of Arrangement

e.

Letter of Disbursement

f.

Letter of Partnership alongwith ed Partnership Deed in case of Partnership s.


41

g.

Resolution alongwith Memorandum & Articles of Association of the Company in case of s of Limited Company. In case of Corporation, resolution of the Board alongwith Charter.

h.

An undertaking from the Directors of the Public Company to obtain prior clearance from the Bank before declaring any

4.16 Loan: In case of loan, the banker advances a lump sum for a certain period at an agreed rate of interest. The entire amount is paid an occasion either in cash or by credit in this current , which he can draw at any time. The interest is charged for the full amount sanctioned whether he withdraws the money from his of not. The loan may be repaid in installments or at expire of a certain period. Loan may be demand loan or a term loan. Advance made in a lump sum repayment either on fixed installment basis or in lump sum on subsequent debit except by way of interest, incidental charge, etc. is called a loan. After creation of loan there will be only repayment by borrower. The loan may be repaid in installment or at expire of a certain period. Loans are normally allowed to those parties who have either fixed source of income who desire to pay it in lump sum. Banks gives different types of loan to his party. 4.17 Types of loans: The different types of loan that banks give to his party are as following: 1.

Term loan: a) Industrial b) Transport loan c) House building loan d) Others

2.

Staff house building loan


42

3.

Loan against trust receipt

4.

Staff loan against PF (Provident Fund)

5.

Consumer credit

6.

LIM (Loan against Imported Merchandise)

7.

Loan general/Demand loan

4.17.1 Term Loans: Types of Loans

Characteristics a. It is given for 3 years at equal monthly installment

Industrial Loans

b.

Grace Period is allowed depending on types of project



c. To facilitate the industrial growth this is given a. This is given nationwide Transport Loans

to

accelerate

the

transport

facility

b. It is given for 3 years at equal monthly installment c. Others conditions are almost same as the Industrial Loans a. This Loan is give for the construction of dwelling house.

House Loans

Building

b. It is given for 3 years at equal monthly installment c. Term of this loan is only three years. d. This Loan is not given frequently.

Others Loan – Including agricultural Loan

Actually Agricultural loan is not given from this branch of IFIC Bank but the all other items excluding the mentioned above will go under this head of term loans.

4.17.2 Staff house Building Loan (SHBL): Every employee is eligible to get SHBL, which is 120 times of his basic salary. For SHBL, the staff has to apply in the prescribed form of the bank and that form must be send to the head office through manager of the respective branch by recommendation. Head office sanction an advice to the manager of the respective branch with the approval of sanction of SHBL and the term and condition of the loan.



Grace period – period require to earn visible return


43

Rate of interest: Rate of interest is one percent higher then bank rate. Disbursement of the loan is made through payment order in favor of the company/person from which the land/building is bought. Security: Legal mortgage of that land or flat. Documents to be obtained: 1.

DP note

2.

Letter of disbursement

3.

Letter of installment

4.

Letter of authority for deducting salary

5.

Interim guarantee

6.

Deed of legal mortgage

7.

An undertaking on non-judicial stamp shall be obtained from the borrower authorizing the bank to realize loan installments from monthly salary.

8.

An undertaking on non-judicial stamp that the bank will have the right to adjust liability from the service benefits.

Repayment of HSBL loan will start after one year from disbursement date. The loan has to cut off with in twenty year from his salary. 4.17.3 Consumer Credit Scheme (CCS): Eligibility Criteria: a.

The potential borrower must be a national of Bangladesh and aged at least 18 (eighteen) years.

b.

The potential borrower’s employer business or profession, as the case may be should preferable be located in the same town/city as his/her residence and lending branch of IFIC Bank Ltd.

c.

The potential borrower must provide his/her permanent residential address in case he/she is living a rented house/flat.


44

d.

Each prospective borrower must open a Savings with our branch (if not already held).

e.

The potential borrower should preferable be a regular Income Tax and/or other applicable Tax payer. Last Tax paid assessment certificate prominently indicating TIN should preferable be submitted with the loan application form.

For service holder: a.

Borrower can be any person employed by a reputed company as a confirmed employee. He must submit certificate regarding salary, confirmation and length of service. b. His minimum monthly take home salary should not be less than Tk. 5000/- and 3 (three) times of Equated Monthly Installment (EMI). c. He must have at least 5 (five) years of employment left.

For Self Employed Person: A self employed person must be of repute in the respective profession/business. a.

He must have a net take home income of at least Tk. 10,000/per month and 3 (three) times of EMI.

b.

He is running his own business for at least 5 (five) years and has a satisfactory banking relationship with IFIC Bank Ltd.

For defense service personnel: a.

Employer’s certificate should be obtained only from the commanding officer of borrower’s unit.

b.

In case of a solder, the guarantor should not be below the rank of Junior Commission Officer.

c.

The respective unit of the borrower will provide a guarantee certificate that the borrower will pay the monthly installments in due time.

All other & conditions are same as service holder. Item Financed: Domestic Appliances, Office Equipment & Entertainment Equipment


45

Limit Range: Tk. 10,000/- to Tk. 7,00,000/Loan Amount: Loan amount will be 80% of the Invoice/Quotation amount. Down Payment: Minimum equity contribution will be 20% of the invoice/ quotation amount which will be realized from the borrower’s Savings . Interest Rate and Fees: a.

Each set of Application Forms Tk. 30/-

b.

Interest rate @ Tk. 14.50 P.A. with quarterly rest.

c.

2% service charge of the loan amount (minimum Tk. 500/-) will be realized from the borrower’s Savings s. d. 2% Risk Fund of the loan amount will be realized from the borrowers’ Savings .

Payment Order: A payment order of the Invoice/Quotation amount will be issued in fervor of the supplier of the consumer item. Application Form & Other Forms: Customer must submit Application Form (Bank’s prescribed form) duly field in and also submit the following forms, a. Form A – Letter from the borrower to his/her employer b. Form B – Employer’s certificate to the Bank c. Form C – Particulars of guarantor and a letter of guarantee duly executed from a person acceptable to the Bank. Photograph: A recent port size photograph of the customer (attested by the employer or the guarantor when customer is a businessman) and the guarantor (attested by the Gazette Officer). Delivery Challan & Money Receipt Borrower must deliver Money Receipt and Delivery Challan of the asset purchased to the lending.


46

Repayment Arrangement: a.

The installment shall be payable monthly on or before 7th of the subsequent month.

b.

Post dated cheques of the amount equal to the installment size (one of each installment) and one undated cheque (double of installment size) in favour of IFIC Bank Ltd. should be submitted before disbursement of the loan.

Penal Interest: Penal Interest for delay payment will be charged @ Tk. 50/- if the installment is not paid within 15 days from the 7th of each month. Thereafter, penal interest for delayed payment will be charged @ Tk. 75/- for subsequent delay of each 15 days. 4.17.4 Staff loan against provident fund: IFIC bank has so long been allowing loan to staff against provident fund upto 80% of their own contribution adjustable in 24 (twenty four) equal monthly installments. We are now pleased to inform you that Management has, of late, decide to allow loan to staff against their provident fund as per the following criterion: Sl. No.

Criterion

P.F. Loan ceiling

Repayment period (Maximum)

i)

Employees having less than 5 years continuous confirmed service in the Bank

80% of own contribution

48 equal monthly installments

ii)

Employees having 5 years less than 7 years continuous confirmed service in the Bank

60% of both contribution


iii)

Employees having 7 years less than 10 years continuous confirmed service in the Bank



iv)

Employees having 10 years above continuous confirmed service in the Bank



This facility will come into force with immediate effect. All other & conditions will remain unchanged.


47

4.17.5. Advances (Loans) Against Trust Receipts: 1. Advance Against Trust Receipts: a. Advance against a Trust Receipt obtained from the customers are allowed when the documents covering an important shipment are given (to first class parties only) without payment. b. The customer holds the goods or their sale proceeds in trust for the Bank, till such time, the loan allowed against the Trust Receipt is fully paid off. c. The Trust Receipt is a document which creates the Banker’s lien on the goods and practically amounts to hypothecation of the proceeds of sale in discharge of the lien. 2.

Period Of Trust Receipt: The period of Trust Receipt may be 30, 60 or 90 days as allowed by the Head Office. The loan is adjustable within this period. It should be noted that the sale proceeds of goods held in Trust must be deposited in the Bank by the borrower irrespective of the period of the Trust Receipt.

3.

Charge Documents: Obtain the following charge documents allowing the advance: a.

Demand Promissory Note.

b.

Trust Receipt.

c.

Letter of Arrangement.

d.

Letter of Disbursement.

e.

Letter of Partnership alongwith ed Partnership Deed in case of Partnership s.

f.

Resolution along with Memorandum & Articles of Association of company in case of s of Limited Company. In case of Corporation, resolution of the Board along with Charter.

g.

Personal guarantee company.

h.

Insurance Policy covering the goods against all risk with bank Mortgage clause is obtained where Trust Receipt facility is allowed against imported goods.

i.

The particulars of LIM transactions should be recorded in LIM and LIM liability Ledger.


of

48

Director

in

case

of

limited

4.17.6. Advance (Loan) Against Imported Merchandise (LIM): A. Head Office Approval For LIM:

B.

a.

Advance (Loan) against the security of merchandise imported through the Bank may be allowed with prior approval from Head Office retaining margin prescribed on their Landed Cost, depending on their categories and credit restrictions imposed by the Bangladesh Bank.

b.

Branches shall also obtain a letter of undertaking and indemnity on our standard form from the parties, before getting the goods cleared through LIM .

c.

Clearance of the goods should be made through approved Clearing Agent of the Bank.

Points For Consideration In Granting LIM: The following points must be taken into consideration while allowing advance against the security of imported goods:

a.

Storage of imported goods under LIM facility may be allowed for specified time as prescribed by Bangladesh Bank within which period importer should take delivery of the goods against payment.

b.

Generally part-delivery is not allowed from LIM . This may, however, be allowed only on specific request.

4.18 Loan Classification: Every Bank has to send a quarterly CIB Report to the Bangladesh Bank for amounts due up to TK.50,000 mentioning the name of the borrower and the purpose for which loan has been sanctioned and a monthly statement for the amount due more 1 core Taka. Bangladesh Bank provides CL (Classification Form) to every bank for preparing this report. The procedure for loan classification is given by Bangladesh Bank under BRPD circular no 16, dated 06/12/1998.


49

According to Bangladesh Bank there are four types of loan: If any borrower fails to repay his amount or installment within the following time period then it will fall under the following classification status. Types of loan Classification

Continuous loan (C/C; O/D.)

Demand loan (LIM; PAD; FBP; IBP)

Term loan up to 5 years

Term loan above 5 years

Unclassified

Less than months

Less than months

3

Less than 6 months

Less than 12 months

Substandard

3 months or more but less than 6 months


6 months or more

12 months or more

Doubtful



12 months or more

18 months or more

Bad loan

12 months more

12 months more

18 months or more

24 months or more

3

or

or

Bank should preserve following provisions for continuous, forced, and term loan. a)

For unclassified loan -------------------------------------1%

b)

For substandard loan-------------------------------------20%

c)

For doubtful loan-----------------------------------------50%

d)

For bad loan---------------------------------------------100%

4.19 Lending Risk Analysis – LRA: LRA is a very important and vital analysis for deciding whether the loan proposal is potential or not. Many types of scientific, mathematical, statistical and managerial tools and devices are required to perform this analysis. Before LRA the following analysis were used to analyze the loan proposals. This branch maintains a prescribed format containing 14 pages for Lending Risk Analysis, which includes a spreadsheet to analyze a lot of things. It is not possible to discuss the entire LRA in this report but the entire framework under which it works has given in the following manner:


50

4.19 Decision matrix from LRA: Select overall risk from matrix Status

Criteria

Decision

1

2

3

4

A

A

A

A

B

B

B

B

C

C

C

C

D

D

D

D

Good

Acceptable

Marginal

Poor

1A - Indicates that the loan is least risky hence it should or could be given From the LRA sheet we can calculate the following numbers and plotting them into the matrix we can arrive into the decision of lending. The calculated result criteria is as under Business Risk

Security Risk

1

2

3

4

13 – 19

20 - 26

27 - 34

34 ++

A

B

C

D

-20 ~ -15

-14 ~ 0

0 ~ 10

10 ++

4.20 Issuance of Bank Guarantee: A. Meaning: Issuance of Bank Guarantee on behalf of its clients is a common banking service to be rendered by a commercial bank within the preview of credit portfolio of the bank. Guarantees are expressed commitment of the bank to make good any financial loss the beneficiary of the guarantee may sustain when the party named in the guarantee on whose behalf the guarantee is issued fails to perform the contract. B. Purpose: Commensurate with the need as may be warranted by multifarious directional ever increasing business activities of its clients a bank may be required to issue various types of guarantee like: tender bond, performance bond, advance payment guarantee, investment bank guarantee and other miscellaneous type to in a single bond of surety undertaking direct obligation under the surety bond.


51

C. Precaution: Whatever may be the type of the guarantee, before issuance, the specimen of the guarantee should be thoroughly examined to ascertain that it has no ambiguity. The issues like (1) the extent of liability (guarantee amount/interest/charges etc.), (2) validity (contract period/claim submission period/clause of extension etc.) and (3) responsibility of the bank (on demand unconditional/at own initiative etc.) should stand clearly defined. D. Duration: Normally a bank issues guarantees for a period not exceeding one year at a varying percentages of margin and security determined. On the basis of customer banker relationship and nature of liability undertaken. A bank may also issue guarantee for longer duration or a continuing bank guarantee subject to its security aspect well taken care of. E. Application: While approached for issuance of a bank guarantee, the branch should as ask the customer to submit the following papers. a) A written request for the guarantee specifying the purpose, amount, period and the security offered. b) The details of the security other than the cash margin. c) Specimen of the guarantee (in case a prescribed proforma does not exit, a specimen may be drafted to suit the requirement incorporating the amount, tenor and purpose with bank’s obligation clearly spelled out). F. Formalities: While deciding the issue a guarantee, the following should obtained prior to issuance. a) Cash margin as may be determined. b) Counter guarantee signed by the client. c) Specimen of guarantee duly approved by the customer. In case the guarantee is covered by any other security other than cash margin which may generally be following types: a.

Fixed Deposit Receipt.

b.

Sanchaya Patras or any other financial obligation.


52

c.

Pledge/hypothecation of goods and procedure of construction materials/equipment etc.

d.

Mortgage of immovable properties.

In such circumstances the legal requirements should be got completed and other charge documents as may be required in relation on the type of security should be obtained. G. Central Bank Rules: It may be noted that as per directives of the Central Bank, in force, besides the margin determined on the basis of customer- banker relationship the uncovered portion of the guarantee is to be got covered by readily realized security. H. Records To Be Maintained: The particulars of the guarantee issued should be recorded in the Letter of Guarantee and Letter of Guarantee margin ledger. Safe-insafe-out should be used for entering the counter guarantee (indemnity), other charge documents/mortgage documents if any. Bank gives local guarantee as well as foreign guarantee. Commission: Local – 3% of guarantee Foreign – 2% of guarantee 15% vat on commission Local guarantee three party: 1. Principle (party) 2. Guarantee (Bank) 3. Beneficiary Foreign guarantee: Four party: 1. Principal 2. Foreigner 3. Local bank 4. Beneficiary 5. Agent (if any)


53

Foreign Exchange 5.1 Introduction: Foreign Exchange Department is international department of Bank. It deals globally. It facilitates international trade through its various modes of services. It bridges between importers and exporters. If the branch is authorized dealer in foreign exchange market, it can remit foreign exchange from local country to foreign country. This department mainly deals in foreign currency. This is why this department is called foreign exchange department. Some national and international laws regulate functions of this department. Among these, Foreign Exchange Act, 1947 is for dealing in foreign exchange business, and Import and Export Control Act, 1950 is for Documentary Credits (UDC – 1993 revision & International Chamber of Commerce Publication no – 500) is also an important law for settlement of and conditions between exporter and importer in international trade. Governments’ Import &Export policy is another important factors for import and export operation for banks. 5.2 Import Operation: Introduction: Import of merchandise essentially involves two things, bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with its dispatch to the importer. The first part is regulated by the ministry of commerce while Bangladesh Bank regulates the payments for these imports. Import section helps business and other people to import goods. In international environment, buyers and sellers are often unknown to each other. So seller always seek guarantee for the payment for his goods exported. Here is the role of bank. Bank gives export guarantee that it will pay for the goods on behalf of the buyer. This guarantee is called Letter of Credit. Thus the contract between importer and exporter is given a legal shape by the banker by its ‘Letter of Credit’. When a buyer goes to import some goods from a foreign buyer, he request his bank makes payments to the exporter of goods. And the bank recovers the amount from the importer. Practical orientation in IFIC Bank – Motijheel Branch

54

5.3 Importer Categories: a) Commercial Importer b) Industrial Importer c) Leasing Company d) Actual e) Government 5.4 Procedure And Mechanism For L/C Opening: Issuing documentary credit: a)

The buyer and seller conclude a sales contract providing for payment by document credit

b)

The buyer instructs his bank- the issuing bank- to issue a credit in favour of the seller (Beneficiary)

c)

The Issuing bank ask another bank usually in the country of the seller, to advise and perhaps also to add its confirmation to the documentary credit

d)

The advising or confirming bank informs the seller that the credit has been issue

5.4.1 Parties to a documentary credit: Importer

Who applies for L/C

Issuing Bank

It is the bank which opens/issues a L/C on behalf of the importer.

Confirming Bank

It is the bank, which adds its confirmation to the credit and it, is done at the request of issuing bank. Confirming bank may or may not be advising bank.

Advising or Notifying Bank

It is the bank through which the L/C is advised to the exporters. This bank is actually situated in exporters country. It may also assume the role of confirming and/or negotiating bank depending upon the condition of the credit.

Negotiating Bank

It is the bank, which negotiates the bill and pays the amount of the beneficiary. The advising bank and the negotiating bank may or may not be the same. Sometimes it can also be confirming bank.

Paying or Accepting Bank

It is the bank on which the bill will be drawn (as per condition of the credit). Usually it is the issuing bank.

Reimbursing bank

It is the bank, which would reimburse the negotiating bank after getting payment – instructions from issuing bank.


55

5.4.2 Settlement:

a)

The seller sends the documents evidencing the shipment to the bank where the credit is available

b)

After checking the documents meet the credit requirements, the bank makes payment

c)

This bank then sends the documents to the issuing bank

d)

The Issuing bank after checking that the documents meet the credit requirement makes reimbursement in the pre-agreed manner

e)

The issuing bank then sends the documents to the Buyer

f)

Reimbursement is obtained in the pre-agreed manner


56

5.4.3The following diagram brings out clearly the operation of letter of credit: sale(1) Contract of Exporter London (Beneficiary)

Importer Dhaka (Applicant)

Ships goods to (5)

Forwards L/C to (4)

Presents Docs and Obtains Payment Form (6)

Midland Bank London Advising/ Negotiating Bank

Recovers Amount Form (8)

Obtains Reimbursement Form (7)

Opens L/C and sends it to (3)


57

Applies For Opening of L/C (2)

Modern Bank Dhaka (Issuing Bank)

5.4.4 Steps for import L/C Operation: Step 1 - Registration with CCI&E: 1.

For engaging in international trade, every trader must be first ed with the Chief Controller of Import and Export.

2.

By paying specified registration fees to the CCI&E. the trader will get IRC/ERC (Import/Export Registration Certificate), to open L/C with bank, this IRC is must.

Step 2 - Determination of credit: 1.

The of the letter of credit are depending upon the contract between the importer and exporter. The of the credit specify the amount of credit, name and address of the beneficiary and opener, tenor of the bill of exchange, period and mode of shipment and of destination, nature of credit, expiry date, name and number of sets of shipping documents etc.

Step 3 - Application by importer to the banker to open letter of credit: 1.

For opening L/C, the importer is required to fill up a prescribed application form provided by the banker along with some required documents

Step 4 - Opening of L/C by the bank for the opener: 1.

Taking filled up application form from the importer

2.

Collects credit report of exporter from exporter’s country through his foreign correspondence there.

3.

Opening bank then issues credit by air mail or cable followed by credit advice as asked for by the opener through his foreign correspondent or branch as the case may be, at the place of beneficiary. The advising bank advises the credit to the beneficiary on his own form where it is addressed to him or merely hands on the original credit to the beneficiary if it is so addressed.


58

Step 5 – Shipment of goods and submission of documents by exporter: 1.

Then exporter ships the goods to the destination of the importer country

2.

Sends the documents to the L/C opening bank through his negotiating bank. Generally the following documents are sent to the Opening Banker with L/C:

Step 6 -Lodgment of Documents by the opening Bank from the negotiating bank: 1.

After receiving the documents, the opening banker scrutinizes the documents. If any discrepancy found, it informs the importer. If importer accepts the fault, then opening bankers call importer retiring the document. At this time many thing can happen. These are indicated in the following: ⇒

Discrepancy found but the importer accepts - no problem occurs in lodgment.

⇒

Discrepancy found and importer not agreed to accept - In this case, importer protest and send back all the documents to the exporter and request his to make in the specified manner. Here banker is not bound to pay because the documents send by exporter is not in accordance with the of L/C.

⇒

Documents are OK but importer is willing to retire the documents - In this case bank is obligated to pay the price of exported goods. Since importer did not pay for bill of exchange, this payment by bank is one kind of credit to the importer and this credit in banking is known as FORCED PAD.

⇒

Everything is O.K. but importer fails to clear goods from the port and request bank to clear - In this case banks clear the goods and takes delivery of the same by paying customs duty and sales tax etc. So, this expenditure is debited to the importer’s and in banking it is called LIM.


59

5.4.6 Flow Chart for opening of L/C for importing at a glance: Following document duly signed: L/C application form LCA form IMP form Authority to debit D.P Note

Documents submitted by the importer. Indent/ Proforma invoice insurance

Banker examines the liability position of the importer form different department

Credit report of the exporter asked from the negotiating bank

L/C opened and sends to advising Bank through mail or telex

1. Original IRC submitted to the bank 2. TIN certificate 3. Trade license (up to date( copy 4. Chamber hip certificate (copy)

Sanctioned by the Bangladesh Bank Positive Report

Send documents


60

Negative Report

5.4.7 Insurance coverage: - ICC - ND (Non-delivery) - War - SRCC (Srike Riot, Civil Commotion) 5.4.8 Guide Lines of opening L/C’s: • Import policy & export policy • Foreign Exchange Regulation Act • Foreign Exchange Circular • Public Notices 5.4.9 Requirements of an Importer: 1.

Current maintained with the bank

2.

IRC (Import Registration Certificate)

3.

TIN (Tax Identification Number)

4.

hip certificate from enlisted business concerns

•

In a year, TIN & hip certificate must be submitted to bank

5.4.10 Letter of Credit Proposal: It includes: •

Liability position of concerned party

•

Liability position of Associates

•

Total liability

•

Proposal L/C

•

Grand Total liability

•

Remark about repayment

•

Approval

margin,


61

amount,

,

goods,

basis

5.4.11

L/Cs SET:

1.

Demand promissory note-02 copies

2.

L/C application-01 copies (Application & agreement for confirmed irrevocable without recourse to drawers L/C)

3.

LCA form – 6 copies make a set (LCA application form in lieu of import license)

4.

Insurance cover note with money receipt

5.

Request letter for opening L/C- 01 copies

6.

Declaration of an importer – 01 copies

7.

Authority to debit – 01 copies

8.

Request letter for amendment – 01 copies

9.

Pro-forma invoice

10. IMP form (Foreign exchange regulation act 1947 – 04 copies make a set) 11. Debit voucher (corresponding credit) 12. L/C copy (06 copies) •

02 copies to advising bank, 01 for advising bank & other for exporter

•

02 copies to importer, 01 copy as officer advising copy & other customs clearance

13. L/C forwarding letter 01 copies 14. Reimbursement authorization – 03 copies 5.4.12 L/C application form: It includes: 1.

L/C No.

2.

Name & full address of openers

3.

Name & full address of beneficiary

4.

Amount of foreign currency

5.

Nature of goods imported


62

6.

Name of indentor

7.

Document accompanied

8.

Name of insurance company

9.

Shipment information

10. Approval (for use of bank only) 11. and conditions (overleaf) 5.4.13. Letter of Credit: It includes1.

Irrecoverable documentary credits No.

2.

Name of advising bank

3.

Beneficiary’s name

4.

Name of Applicant

5.

Amount specified

6.

Shipment

7.

Expiry

8.

Accompanied documents a) Invoice b) Full set of (Shipped on board/ocean bill of lading/truck receipts) c) Insurance cover

1.

Shipment information

I) Shipment from ................ to ................... ii) Partial shipment allowed/prohibited iii) Transshipment allowed/prohibited 1.

Special conditions

2.

Instructions for negotiating bank

3.

Other and conditions


63

5.4.14 ing Treatment: Contra voucher (2 copies make a set) DR: Customers liability L/C cash file]

[copy for s & other for

Con. CR: Bankers liability L/C cash (It is taken in nearest thousand) DR: Party s (3 copies) • 1 copy for s • 1 copy for party • 1 copy for file CR: Sundry deposit- Margin on L/C cash (2 copies) • 1 copy for s • 1 copy for file Income A/C; Commission; L/C cash (1 copy) + Income A/C; other Receipt; TLX recoveries (1 copy) + Income A/C; Other Receipts; Postage recoveries (1 copy) 5.5 Lodgment of Import Bill: ing Treatment: Contra voucher CR: Customers liability L/C cash Contra DR: Bankers liability L/C cash DR: PAD cash (Inv. Value) CR: IFIC Bank General A/C – H/O DR: PAD/Party A/C (Interest from value date to lodgment date) CR: Income A/C Intt. Received on PAD Cash.


64

5.6 Retirement of Import Document: On receipt of information letter the importer approaches the bank for retirement of the documents against full payment of bank’s dues including interest on PAD and other charges. After recovery of dues bank will handover the documents to the party by endorsing the documents in favour of the party. ing Treatment: Dr. Party A/C/LIM/T.R. Loan/Other Loan (PAD created amt. + Intt. on PAD lodgment date to retirement date- Margin on L/C cash- Intt. Payable on Margin) Dr. Sundry deposit margin on L/C Cash + Intt. Payable on margin (if applicable). Cr. PAD Cash CR: Income A/C Intt. Received on PAD (From lodgment date to retirement date) After retirement the following particulars to be noted in the PAD retirement : Date, PAD no. L/C No., Name of the Party, PAD Amt. Interest, Others, Total amt., L/C margin, Net amt. 5.7 Shipping Guarantee: When needed: In absence of original documents for clearance of goods Procedure: 1. Party application 2. Submission of invoice and transport receipt 3. Scrutinize of submitted non-negotiable copy 4. Proper voucher making 5. Certified seal on non-negotiable copy 6. Letter of authorization/No objection certificate 7. Letter of guarantee to the shipping line


65

Mentioning: •

B/L No.

•

Port of lading

•

Brief description

•

Marks

t seal/signature Party’s signature & seal and For International Finance Investment and commerce Bank Limited Motijheel, Dhaka Authorized Signature Back side of L/G Form: Please deliver to the order of M/S ............................................................ For International Finance Investment and commerce Bank Limited Motijheel, Dhaka Authorized Signature ing Process: DR: Party A/C CR: Sundry deposit margin on L/C Cash CR: Income A/C Commission on PAD Cash When original documents come to out hand, then DR: Sundry deposit margin on L/C Cash CR: IFIC Bank General – H.O 5.8 Export Operation: Bangladesh exports a large quantity of goods and services to foreign households. Readymade textile garments (both knitted and woven), Jute, Jute-made products, frozen shrimps, tea are the


66

main goods that Bangladeshi exporters exports to foreign countries. Garments sector is the largest sector that exports the lion share of the country’s export. Bangladesh exports most of its readymade garments products to U.S.A and European Community (EC) countries. Bangladesh exports about 40% of its readymade garments products to U.S.A. Most of the exporters who export through IFIC are readymade garment exporters. They open export L/Cs here to export their goods, which they open against the import L/Cs opened by their foreign importers. Export L/C operation is just reverse of the import L/C operation. For exporting goods by the local exporter, bank may act as advising banks and collecting bank (negotiable bank) for the exporter. a. As an advising bank:

It receives documents from the foreign importer and hands it over to the exporter. Sometimes it adds confirmation on the L/C on request from the Opening Bank. By adding confirmation, it assumes the responsibility to make payment to the exporter. b. As Negotiating Bank:

It negotiates the bills and other shipping documents in favor of the exporter. That is, it collects the proceeds of the export-bill from the drawee and credits the exporter’s for the same. Collection proceed from the export bill is deposited in the bank’s NOSTRO in the importer’s country. Sometimes the bank purchases the bills at discount and waits till maturity of the bill. When the bill matures, bank presents it to the drawee to encash it. In our country, Export and Import operation of bank is very much related with one another because of use of Back to Back and maturity of payment for Back-to-Back L/C is set in such that it can be paid out of export proceeds. So export and import sections works as one unit. These two operations can hardly be separated from one another in the branch.

5.9 Back to Back L/C: For procurement of raw materials and accessories banks sometimes provide finance by opening Back to Back L/C on strength of the L/C received by its customer (exporter) for export from Bangladesh. Back to Back L/Cs are frequently used for export of ready made garments. Back to Back L/C does not involve cash outlay the pre-shipment stage. It constitutes a commitment to pay


67

when the goods are shipped as per the of the credit. The original L/C and lien on imported goods constitute the bank’s security. 5.9.1 Documents submitted at the time of BB L/C opening: 1.

Demand promissory note – 02 copies

2.

L/C application – 01 copies (Application & Agreement for confirmed irrecoverable without recourse to drawers L/C)

3.

LCA form – 06 copies make a set (LCA application form in lieu of import license)

4.

Insurance cover note with money receipt

5.

Request letter of opening L/C – 01 copies

6.

Declaration of an importer – 01 copies

7.

Authority to debit – 01 copies

8.

Request letter for amendment – 01 copies (Necessary for amendment only)

9.

Pro-forma invoice

10. IMP form (Foreign exchange regulation act. 1947-04 copies make a set). 5.9.2. After BB L/C Opening: 1. L/C copy (06 copies) •

02 copies advising bank – 01 for advising bank & other exporter

•

02 copies to importer– 01 as officer copy & other for customs clearance

•

02 copies for opening bank– 01 copy as office copy & other for CCI & E 2. L/C forwarding letter – 01 copies 3. Reimbursement authorization – 03 copies

5.9.3 Voucher: Contra voucher DR: Customer’s liability L/C BB


68

Contra CR: Banker’s liability L/C BB LODGMENT Contra voucher CR: Customer’s liability L/C BB Contra DR: Banker’s liability L/C BB IFDBC (Inward Foreign Documentary Bill for Collection) Creation Contra voucher DR: Foreign Bills Lodged A/C Contra CR: Foreign Bills Collection A/C 5.9.4 BB L/C Payment: Contra voucher CR: Foreign Bills Lodged A/C Contra DR: Foreign Bills Collection A/C Debit voucher (Double currency voucher) DR: Exporter’s F.C A/C Credit voucher (Double currency voucher) CR: IFIC Bank General A/C – ILO (It is ed by IBETCA) 5.11.

PAD (EDF):

At the period of creation DR: PAD (EDF) CR: IFIC Bank General A/C – H.O (ed by IBETCA) At the period of realization: DR: IFIC Bank General A/C – H.O (ed by IBETCA) CR: PAD (EDF) DR: EFC A/C CR: IFIC Bank General A/C- H.O + CR: Income A/C – Interest Others


69

5.11 Forced PAD: When needed: Due to failure of export shipment Approval: Post facto approval is needed from Exchange Control Policy department, Bangladesh Bank Intimation: Intimation is sent to member custom, National Board of Revenue Payment:

Payment is given by debiting PAD A/C

Amount = Invoice value + Interest charged At the period of creation: DR: PAD amt. (forced) CR: IBDA (sent by H.O & responded by branch) At the period of realization: DR: Exporter’s EC A/C

Notional Rate

CR: IFIC Bank General A/C – H.O DR: IFIC Bank General A/C- H.O [At ready buying rate] CR: PAD (FORCED)

[TT buying rate]

+ CR: IFIC Bank General A/C- H.O (amt. = 20% exchange gain) + CR: Income A/C- Exchange gain (amt. = 80% exchange gain) Total Gain: Foreign Currency (in US$) * (Ready buying rate = TT buying rate)

5.12 Export Negotiation: If the export documents are in order then the concept of FDBP emerges. FDBP Amount = Document value – BB L/C Finance – 5% of doc value as load. • 5% of doc. Value is taken as load amount for payment of interest against BB L/C Practical orientation in IFIC Bank – Motijheel Branch

70

ing Treatment: DR: FDBP A/C CR: Party A/C (CD) + STD A/C Used as inking find) + Income A/C – Postage Recovery (DHI charge) + Sundry deposit A/C – Sundry Creditors (It covers both income tax and local commission) Local Commission Payment: DR: Sundry Deposit A/C - Sundry Creditors CR: PO (In favour of concerned buying house) + Income A/C – Commission on Remittance Inland Buying house commission: Usually commission rate is mentioned in the back page of L/Cs ed by transfer mechanism.

5.13 FDBC (Foreign Documentary Bill for Collection): If export documents are not in order then banker sends the documents for collection. FDBC amount = Draft amount ing Process: At the time of creation: Contra Voucher DR: Foreign Documentary Bills Receivable Con CR: FDBC for collection At the time of realization of export bill: Contra Voucher CR: Foreign Documentary Bills Receivable Con. DR: FDBC for collection DR: IFIC Bank General A/C- H.O (100%) Practical orientation in IFIC Bank – Motijheel Branch

71

CR: EFC – 80% + FCAD – 50% + Other ........... 15% •

CD A/C

•

STD A/C

•

DHL Charge – Tk. 1500

•

Local Commission (if any)

•

Tax (if any)

•

Handling Charge – Tk. 500

Tax: For garments Doc Value * 0.25 For others, Doc Value * 0.50% Exchange Gain Calculation: Total Exchange Gain = FDBP value x (debating rate purchased rate) Or = FDBC value x (debating rate purchased rate) Earning of H.O (Ex. Gain) = FDBP x 20% 5.14 L/C under EDF: 1.

Exporter development Fund is created by Bangladesh Bank to give encourage to the exporter in Bangladesh.

2.

Generally Back-to-Back L/C is Usance L/C that is here bill of exchange is payable after some maturity date say 90 or 120 days after the date of acceptance/negotiation. But some foreign seller may require sight payment. Here import L/C matures first. In that case Bangladesh Bank gives the fund to the bank to pay the price of imported goods in favor of the local purchaser of raw materials. When export proceeds come, first Bangladesh Bank loan to the importer is adjusted and remaining part goes to the importer of raw materials.


72

5.15 Cash L/C: 1.

Generally bank requires 25% margin for opening cash L/C.

2.

The rest 75% will be recovered after reaching the Bill of Exchange from the foreign exporter.

5.16 Nature of Credit: a. All import credit is generally documentary credit that is Document clean credit

&

bill of exchange must contain documents to the title of goods. Mere presentation of B/E by exporter is not sufficient for honoring the bill in case of Documentary credit.

b. Clean credit requires no document with B/E for it’s

honoring. Clean L/C is not allowed in Bangladesh except with the prior approval of the Exchange Control of the country.

a. In revocable L/C, the opener of L/C can anytime withdraw Revocable Irrevocable

&

his commitment to honor the Bill of Exchange of the Exporter.

b. In case of irrevocable L/C, banker cannot withdraw his

obligation. Here his commitment is legal obligation. In international trade, only irrevocable L/C is used.

a. Sometimes the exporter may not rely on the L/C of our

Adding Confirmation

bank. Exporter requires the L/C to be confirmed by another bank situated in his country. Then on request of issuing Bank, any bank in exporter’s country gives guarantee about the payment. This is called Confirming Bank. Generally this confirming bank is Advising Bank.

b. By

adding such confirmation, confirming banks undertakes the liability to honor the Bill of Exchange of exporter and for this it debit the of Issuing Bank with it.

a. Sometimes, the importer may require amendment to be Amendment of Credit

made in L/C.

b. But this amendment must be made with the consent of exporter otherwise amendment will have no validity.

Validity Expiry Credit

and of

a. All L/C must mention the expiry date of L/C within which documents presented.

for

payment/acceptance/negotiation

must be

b. This date must exceed the last date of shipment. c. L/C must also stipulate a specified time period after the date of issuance of the bill of lading or other shipping documents, during which presentation of documents for payment / acceptance / negotiation must be made.

d. In the absence of a specified period of time being stipulated the period will be assumed to be 21 days from the


73

date of the bill of lading.

5.17 Kinds of Credits occurred in L/C operation: During L/C operation some Credit facilities evolved to the importer and exporter. This credit facilitates are mentioned below Export Credit

Cash

(ECC)

a.

It is given to the exporter for processing of raw materials like light, gas, water, rent etc. to manufacture the goods for export.

b.

This nature.

a.

is pre-shipment credit and short-term in

This loan is related to cash L/C.

b. Payment Against Document (PAD)

After opening L/C, foreign exporter sends goods to the importer and a bill of exchange along with shipping documents to the L/C opening bank. Upon receiving bill of exchange and other documents, bank immediately make payment to the exporter if no discrepancies are found on the shipping documents. Bank hands over the shipping documents to the importer only after his recovery of the payment from the importer. Since bank pay to exporter on the basis of shipping documents, this is called Payment Against Documents.

a.

LIM is occurred from PAD.

b.

Loan Against Imported Merchandise (LIM)

After payment to the exporter on the basis of shipping documents, bank recovers the amount from the importer. Sometimes for financial crisis, importer fails to pay the amount stipulated in bill of exchange to the Opening Bank. In this case, he request to the bank to treat PAD as credit and handover the shipping documents to him so that he can clear the imported goods from the port. Then banks convert the PAD to regular credit and hand over the documents to the importer, and take the imported goods as security for the loan. Since this loan is given on the imported goods, this is called Loan against Imported Merchandise. Duration of this loan is one month only. If the loan is no repaid after one month, it is treated as forced LIM.

a.

This loan is given to the exporter.

b. Foreign Bills Purchased (FBP)

When local exporter gets a Usance bill of exchange, he has to wait until the maturity of the bill for receiving payment. Sometimes he cannot wait until maturity and request the bank to purchase it. If bank decides to purchase it, then it makes payments to the exporter against the bill of exchange. Upon maturity, banks present it to the drawee of the bill for encashment. Bank purchases it at discount.


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a. IP Loan

When L/C opener has no sufficient fund to purchase Foreign Exchange to open L/C, then bank provides him credit to purchase necessary foreign exchange under the WES/SEM. This loan is called Import Loan under WES/SEM or IP loan.

5.18 Inland L/C Operation: Inland L/C operation is same as Import/Export L/C operation. It opens L/C on request from the buyer in favor of the seller. That is, it undertakes the responsibility to make payments to the seller on behalf of the buyer. Most of the inland L/C is ‘Back to Back L/C’ and currency involved is denominated in foreign currency (Dollar or Pound).

5.19 Foreign Remittance Department: This bank is authorized dealer to deal in foreign exchange business. As an authorized dealer, a bank must provide some services to the clients regarding foreign exchange and this department provides these services. The basic function of this department are outward and inward remittance of foreign exchange from one country to another country. In the process of providing this remittance service, it sells and buys foreign currency. The conversion of one currency into another takes place at an agreed rate of exchange, which the banker quotes, one for buying and another for selling. In such transactions the foreign currencies are like any other commodities offered for sales and purchase, the cost (convention value) being paid by the buyer in home currency, the legal tender.


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5.19.1 The remittance process involves the following four modes

Cash Remittance Dollar/ Pound

Traveler’s Cheque (TC)

Sell

Bank sell Dollar / Pound for using in abroad by the purchaser. The maximum amount of such sell is mentioned in the Bangladesh Bank publication of ‘Convertibility of Taka for Currency Transactions in Bangladesh’.

Purcha se

Bank can purchase dollar from resident and non – resident Bangladeshi and Foreigner. Most dollars purchased comes from realization of Export Bill of Exchange.

Issue of TC

TC is useful to traveler abroad. Customers can encash the TC in abroad from the drawee bank. TC is alternative to holding cash and it provides better security than holding cash in hand.

Buying Of TC

If any unused leaf of TC is surrendered bank buys it from the customer. All payments are made in local currency. Banks generally buy only those TC.

This bank for collection receives unused leaves of TC for traveler’s cheque issued by another banks. collecti Generally it takes 21 days for collection and on customer can draw cash after one month.

Telex Transfer

Foreign Demand Draft

Outwar d TT

It remits fund by tested TT via its foreign correspondence bank in which it is maintaining its NOSTRO .

Incomi ng TT

It also makes payment according to telegraphic message of its foreign correspondence bank from the corresponding VOSTRO .

Bank issue Demand Draft in favor of purchaser or any other according to instruction of purchaser. The payee can collect it for the drawee bank in which the Issuing bank of Demand Draft holds its NOSTRO . Bank also makes payment on DD drawn on this bank by its foreign correspondence bank through the VOSTRO .

In these processes of remittance, bank must have to make profit as a business institution. Profit is made in two ways – a) Commission charged b) Difference in the buying and selling rate.


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5.19.2 Inward Remittance: In this case foreign currency is received from foreign correspondents in shape of T.T., D.D, or M.T which are drawn on. In such cases, the following vouchers to be ed: Rate- T.T. clean buying rate. DR: IFIC Bank General A/C – H.O. CR: Customers A/C While purchasing cash currency the following entries have to be ed DR: Foreign Currency in Hand CR: Customer A/C (O.D Buying rate to be applied) 5.19.3 Outward Remittance: In this case foreign currency goes to abroad in the form of T.T, D.D or M.T against Bangladesh Bank approval. In such cases vouchers to be ed are as under: DR: Customer A/C : T.T OD selling rate CR: IFIC Bank General A/C – H.O: to be applied In case sale the following vouchers to be ed: DR: Customer A/C CR: Foreign Currency in Hand 5.19.4 Insurance of T.C/Cash dollar and endorsement: •

Maximum travel quota allowed in a calendar year up to US$ 3000 for other than SAARC countries and Myanmar against confirm air ticket.

•

In SAARC countries and Myanmar is US$ 1000 by air & 500 by land.


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5.19.5 For T.C Sale: I) DR: C/D A/C or cash

: Selling Cash & T.C

CR: WES Fund purchase A/C

: Rate to be applied

+ CR: Income A/C – Commission ii) DR: F.C Fund A/C

: Notional Rate

CR: IFIC Bank General A/C – H.O For T.C Settlement, authorize, AMEX, NY, USA to debit our A/C along with purchase agreement. 5.19.6 For Cash (US Dollar/pound) Sale: i) DR: C/D A/C or cash

: Selling Cash & T.C

CR: WES Fund purchase A/C

: Rate to be applied

CR: Income A/C – Commission ii) DR: F.C Fund A/C

: Notional Rate

CR: Foreign Currency in Hand WES T.C or Cash issued by debiting F.CA.D A/C 5.19.7 For T.C Sale: i)

DR: F.C Fund A/C

: Notional Rate

CR: FC Fund A/C DR: Cash or C/D SB A/C CR: Income A/C – Commission ii)

DR: F.C Fund A/C

: Notional Rate

CR: IFIC Bank General A/C – H.O (For Settlement) For Cash sale i)

DR: F.C.A.D A/C CR: Foreign Currency in Hand WES


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5.19.8. Foreign Bill Purchased (FBP): DR: Foreign Bill Purchased CR: C/D or Branch (IBCA) CR: Income A/C – Commission - Instruments to be sent to AMEX, NY through R.I., if drawn on NY - Other currencies instrument to be sent directly to the respective Bank or to out correspondent. 5.19.9 Foreign Bill for Collection (FBC): Instruments to be sent for collection as above procedure on realization entries to be ed as under: DR: IFIC Bank General A/C – H.O CR: C/D or Branch (IBCA) Purchase of Cash of Dollar from other Bank i) DR: WES Fund purchase A/C CR: Balance with Bangladesh Bank (Bangladesh Bank Cheque issued) ii) DR: Foreign Currency in Hand WES: Notional Rate CR: F.C Fund A/C F.C Fund Transferred to Head Office i) DR: F.C Fund A/C CR: IFIC Bank General A/C – H.O ii) DR: F.C Fund A/C

: Mid Rate

CR: WES Fund Purchase A/C: T.T Clean Rate CR: Income A/C – Others


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5.20 Miscellaneous Services by this Department:

Student File

NRIT

F.C.

Students who are desirous to study abroad can open file in the bank. By opening this file, bank assures the remittance of funds in abroad for study. ‘Non –resident Investors’ Taka is Non-resident Bangladeshi can deposit foreign currency for investment in security of stock exchanges. Foreign Currency s opened in the names of Bangladeshi nationals or persons of Bangladeshi origin working or selfemployed abroad can now are maintained as long as the holders desire. Stands for Non-resident Foreign Currency Deposit

NFCD

Eligible persons may open such s even after their return to Bangladesh, within six months of their arrival. Stands for Resident Foreign Currency s

RFCD s

Persons ordinarily resident in Bangladesh may maintain foreign currency s with foreign exchange brought in at the time of their return to Bangladesh from visit abroad. Balance of such s is freely remittable abroad.

5.21 Opening of F.C : Requirements: 1.

Application

2.

Employers certificate

3.

Photograph (one copy)

4.

Nominee’s Application form along with Nominee’s photograph (02 copies)

certificate

or

any

confirmation

certificate/job

If Applicant wants to open his/her wish cash Dollar/Pound entries to be ed as under: DR: Foreign Currency in Hand CR: FCAD A/C No. ................. of ............ Notional Rate 5.22 OPERATION OF F.C A/C: A. For depositing cash foreign exchange: DR: Foreign Currency in Hand CR: FCAD A/C No. ................. of ............ Notional Rate


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US

B. For depositing foreign cheque/D.D/T.C etc: DR: Foreign Bill Purchased CR: FCAD A/C No. ................. of ............ Notional Rate For collection instruments on receipt of credit advice from foreign correspondent the following entries to ed: DR: IFIC Bank General A/C – H.O CR: Foreign Bill Purchased C. For T.T and other instruments drawn on IFIC Bank Ltd.: DR: IFIC Bank General A/C – H.O CR: FCAD A/C No. ................. Of ............ 5.23 NFCD (Non-resident Foreign currency deposit): A. Procedure of opening NFCD A/C •

Opening NFCD A/C from F.C A/C

DR: FCAD A/C CR: NFCD A/C (NFCD receipt to be issued) on maturity, interest will be paid as underFor interest: i) DR: F.C Fund A/C CR: NFCD A/C ii) DR: Interest paid on NFCD A/C CR: WES Fund Purchase A/C At the time of encashment: i) DR: NFCD A/C

: Notional Rate

CR: FCAD A/C ii) DR: FCAD A/C : Notional Rate CR: F.C Fund A/C iii) DR: WES Fund Purchase A/C: TT/OB Buying Rate CR: Customer’s A/C


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CONCLUSION AND RECOMMENDATION 6.1 Conclusion: During the three months internship program at Motijheel Branch, almost all the desks have been observed more or loss. This internship program, in fast, has been arranged for gaining knowledge of practical banking and to compare this practical knowledge with theoretical knowledge. Comparing practical knowledge with theoretical involves identification of weakness in the branch activities and making recommendations for solving the weakness identified. Though all departments and sections are covered in the internship programme, it is not possible to go to the depth of each activities of branch because of time limitation. So, objectives of this internship programme have not been fulfilled with complete satisfaction. However, highest effort has been given to achieve the objectives the internship programme. During the internship, it is found that the branch provides all the conventional banking services as well as some specialized financing activities to the economy. Foreign exchange services department the largest department of the branch in of manpower and profit earned. In this year, it earns more than 60% of branch’s total profit. Thus by providing this various services, Motijheel Branch, IFIC Bank is playing an important in the banking system and in the payment system of Bangladesh. 6.2 Observation: Though I am not in any position to provide any assistance for the betterment of this branch, but I am expressing my taste from the three months observation: i.

Bank can more flexible on customer service. It can introduce credit card, increase consumer credit scheme etc. Actually service diversification is mandatory to survive in the competitive atmosphere.

ii.

Lending processing is more or less cumber some and time consuming. All the necessary steps are needed to be processed through head office. If it is possible to minimize consumer will be benefited.

iii.

In the modern information era the branch badly needs the interest facility for faster communication. By introduction this ultimately branch and customer both will be benefited.


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iv.

About eighty employees for a branch that deals one hundred voucher (Average) per day is seemed over employed to me. Operating cost of this branch is one of the important reasons the cost of fund.

v.

Maximum employees don’t have any proper training in banking. It is better for the employees if they are offered training session to be familiar with the bank’s custom.

6.3 Recommendation: Although this branch is making huge amount of profit and generating large volume of deposit, a number of problems have been detected while working this branch. These problems along with the recommendations for solving them are stated here. 6.3.1 Speed up processing of loan application: Processing of loan takes at least three – six months and short- term loan takes about one month in the branch. Most of this time is spent for correspondence between Head Office and Branch. In developed economy, banking system takes on average 3-8 weeks for processing term loan and 7-15 days for short- term loan. If loan processing time is lengthy, it will not get good borrower. So the branch manager should be given more power to sanction loan. This power can eliminate the time, which would be lapsed in correspondence between Head Office and Branch. Branch should have independent appraiser for appraising term loan proposal. Now term loan is appraised by Head Office appraiser. 6.3.2 Bank should immediately enter into the credit card market: This bank does not have any plan to enter into the Credit Card Market. It is well versed that tomorrow’s payment will be consisted of only plastic money (Credit Card). A large part of business transaction will be done by credit card in near future. In western world, more than 50% of transactions are in credit card. If this bank does not prepare from now on, it cannot compete in the future market. So, the branch should give special attention to the introduction of Credit Card.


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6.3.3 Introduction modern technology: With out using modern technology no bank can even think of remaining in the business in near future. So the bank must decide right now how it can equip its branches with modern technology. Use of modern technology in one sense can increase cost but another sense it increases productivity highly and it attract big clients. It can introduce ATM services in branch. Use of automatic machine like cash counter machine, ATM brings speed in banking services. 6.3.4 Information System should be developed: For information transfer, branch uses primitive ways of telex, messenger and personal visit. It makes correspondence with the head office by peon or orderly. For international correspondence the branch uses telex machine, which is very costly. And in the branch, manager has to visit specific desk for collecting information. Paper communication is too involved between manager and employees. But branch can use INTERNATE for both local and international correspondence. E-mail can reduce the telex cost substantially. Within the branch, they can use computerized information system for correspondence between manager and employees. Bank should take urgent decision to create own WEB Page in INTERNATE so that it can communicate with others very quickly. 6.3.5 Development of human resources: Human resource is another sector for the branch to be developed urgently. Human resources, in the branch, are not equipped with adequate banking knowledge. Some of the human resources are lack of basic knowledge regarding money, banking finance and ing. Without proper knowledge in these subjects, efficiency cannot be optimized. Bank can arrange training programme on these subjects from time from these lacking. 6.3.6 Reduce classified loan on an emergency basis: It is observed in the loans and Advances department that classified loan is about to 36% of the total portfolio. Such a big share of classified loan indicates weakness in the lending policy of branch. Probably bank’s customer selection process is not right. Bank should take special action in order to reduce the amount of classified loan. Although branch is maintaining the required


84

provision for its classified loan, branch should consider recovering classified loan on an emergency basis. For this bank should motivate the defaulter for repaying. If motivation failed, then bank should be stringent about the defaulter and take legal action. Branch must be careful about the quality of its services. Quality of services is needed to attract new customer and to exist customer base. One thing which is very much important for the any bank in that actually customers are bank’s assets and bank’s real capital is public confidence. Without customer no bank can alive. So bank should take extreme care in customer satisfaction. 6.3.7 Bank should be innovative and diversified in its services: This branch provides only conventional services. Modern banking today is introducing various kinds of deposit with different attractive features each of which may attract different groups of people. For example, Saving Certificate Scheme introduced by Islami Bank is one of its unique services in the banking in Bangladesh. Even the bank does not provide any ‘Customer Loan’ facility, which has been found very much profitable for those banks who have introduced it in their banking services. Bank should diversify its banking services and add new features in its services so that it can attract customers from all groups of people. Financial Engineers of IFIC Bank should be innovative in developing new banking services, which will attract customers and reduce costs. It can introduce customer loan scheme, provide bridge loan, or can engage in lease financing. It can also underwrite shares of newly incorporated public companies. 6.3.8 Bank must try to be computerized: There are computers almost in every branch in the IFIC Bank, but it does not mean that the bank is maintaining a network among them. The networking system obviously charges a high installation cost, but it will definitely reduce the overhead costs and an error free banking may be in progress. Moreover by adopting this system the bank can in modern competition of along with e-commerce concept. The main problem is that the foreign banks and other private commercial banks have started providing these facilities, so introduction of these facilities will be added as modern facilities enhanced, rather it will be a question of survival in the next decade for the bank.


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