Central Recovery Department of Babgladesh Shilpa Bank
1.1 Executive summery
This report is made on Bangladesh Shilpa Bank (BSB) and focused on its Recovery Department. In this report I tried to summarize diversified information, which I gathered from this bank within my internship period.
This report contains five individual chapters. In 1st chapter I tried to describe the background of the report. In the 2nd chapter , overall view of Bangladesh Shilpa Bank (BSB). In 3rd chapter, functions of various department. In the 4th chapter, I tried to make a picture of Recovery Department in details, and in the final that is in 5th chapter I have made some recommendation on the basis of my study.
1.2 Background of the study
The study of any academic course has a great value when it has practical application in the real life. Theoretical knowledge will be less important unless it is applicable in the practical life. So we need proper application of our knowledge to get benefit from our theoretical knowledge to make it more fruitful.
The internship program is an integral part of MBA program. After completion of MBA academic courses, students are sent to different organizations to expose them to real life management situation in the profit seeking commercial under takings. This theoretical knowledge that we have acquired from class lecture, books, journals, case studies, seminar, project, workshop etc, is replenished in the practical settings. Here we also set an opportunity to realize the relevance and usefulness of the learning.
Hence I was placed to the Bangladesh Shilpa Bank (BSB) from July 01, 2005 toSeptember 30, 2005 by MBA program director.
1.3 Scope of the study
While preparing this report, I had a great opportunity to have a depth knowledge of all the divisional work, practiced by Bangladesh Shilpa Bank (BSB). It also help me to acquire a first hand perspective of a leading specialized bank inBangladesh. Nevertheless, this is not the end of it- asset & liability management system, though can be summarized in a few sentences, but nevertheless, it is a board topic and organization are trying its best to reach better quality and minimize discrepancies. Therefore, certain areas of this topic were uncovered while preparing this report.
1.4 Objectives of the study
The main objective of this study is to have a overall idea about Bangladesh Shilpa Bank (BSB), its major functional departments, specially on Recovery Department. If I want to point out, I can make the following major objective of the study—-
• To understand the contribution of BSB towards expansion of industrialization process of the country.
• To have an understanding of the various functions of the bank.
• To have a practical experience in the leading specialized bank of the country.
• To have an overall understanding of Recovery Department.
• To develop knowledge about the reasons of making loan default by the sponsor.
• To indicate the limitations and problems in operation of BSB.
• To recommend necessary steps to overcome such limitations.
1.5 Methodology of the study
In order to conduct the report, I have decided to collect various type of primary & secondary data. In order to make the study effective & efficient, following sources of data have been used in the study—-
• Face to face conversation with the respective officers and staff of BSB.
• Interview of responsible officer.
• Observation of department of BSB.
• Annual report of BSB
• Manuals of different departments.
• Various documents provided by the respective officer
• Relevant papers & publications.
• Material available in the library of BSB.
1.6 Limitations of the study
I have just completed my formal education & this is my first fulltime involvement to the practical field. So the lack of knowledge about the practical field has greatly hampered me to prepare an enriched report. Besides this, I have to face some other limitations too. Those are followings—-
• Lack of availability of data.
• Lack of up-to-date information.
• Time constraint for comprehensive study.
• Officials denied disclosing some information as to maintain secrecy.
• Lack of experience about the proper way in this matter.
• Sufficient books, publications and journals are not available.
2.1 Brief history of BSB
Bangladesh Shilpa Bank (BSB) is the state owned Leading Development Financial Institution (DFI) ofBangladesh. ‘Shilpa’ means industry. BSB provides financial and technical assistance to expand the private as well as public sector industrial base of the country. It prioritizes, especially, Export Oriented/Export Linkage industrial units, Efficient Import Substitution, Joint Ventures, Commercialization of local technology and promotion of agro based industry.
Bangladesh Shilpa Bank (BSB) established under the Bangladesh Shilpa Bank Order 1972 (Presidential Order No. 129 of 1972) on 31 October 1972, to provide credit facilities and equity support to industrial enterprises in Bangladesh. It is the prime development financing institution (DFI) in the country for extending financial assistance for industrialization. Initially, the authorized capital of the bank was Tk 1,000 million in 1972 and the paid up capital was then Tk 750 million, which was subscribed by the government of the People’s Republic of Bangladesh. Later, the authorized and paid up capital was enhanced. In 2000, the authorized capital was Tk 2,000 million divided into 2 million shares of Tk 1,000 each. Tk 1,320 million (66%) was subscribed and paid up by the government while the rest were left for subscription by Bangladeshi nationals or by financial institutions at home and abroad. Presently 100% ownership of the bank belongs to the government.
|Established||:||October 31, 1972|
|Authorized||:||TK 2,000 million|
|Paid-up||:||TK 2,000 million|
2.2 Objective of BSB
Bangladesh Shilpa bank as the prime development financing (DFI) of the country extend financial assistance both local & foreign currencies for setting up new industries. . It also extends short-term bridge financing and working capital loans on a limited scale. . BSB provides free technical advice in respect of plant and machinery, product and process, raw materials, market for products, and other related aspects to prospective entrepreneurs. It prepares project profiles for private entrepreneurs. All industrial projects either in The public sector or in the private sector are eligible for financial assistance from the bank. It follows a policy of diversifying its lending portfolio for widespread geographical dispersal of industrial enterprises, especially in less-developed areas of the country. With the view to bringing more dynamism and diversity in its activities, BSB started full-fledged commercial banking in 1993-94. This enables bank-financed projects to obtain commercial banking services including working capital loans, import of raw materials, etc.
Accelerating the process of industrialization of the country by providing financial assistance and equity support.
Bangladesh Shilpa bank has board of directors consisting of 9(nine) members including the Chairman and the Managing Director. The Managing Director is the Chief Executive Officer (CEO) of the Bank.
|Prof. Abu Ahmed
|Syed Abdul Muqtadir
| MD. Mokbul Hossain
2.5 Regional & Branches offices of BSB
With the objective to develop the industrial sector ofBangladesh, Bangladesh Shilpa bank has several functions. These activities are as follows___
- Extends long and medium term loan facilities in local and foreign currencies to industrial projects (both new and BMRE) in the private and public sectors as well as partnership & proprietorship concern. Here the brief history of sanctioned loan of Bangladesh Shilpa Bank in year 2002- 03 & 2003-04
Sanctioned loan (million taka, approx)
|Nature of the project||2002-2003||2003-2004|
|Number of projects||Local currency||Foreign currency||Total||Number of projects||Local currency||Foreign currency||Total|
• Provides working capital loans to Industrial units. Here some brief history of working capital financing—-
|A. Policy :
Working Capital may be financed to a project depending
on the following policies:
The General terms & conditions applicable for the short term credit may be summarized as under:-
- For Hypothecated loan limit :
Mortgage of assets valuing twice of loan amounts
- For pledged loan limit
Mortgage of all goods, raw materials purchased under finance. In addition, mortgage of additional security amounting twice of loan amount.
- General :
(a) Current ratio should be maintained as 1.3;
(b) Rate of interest should be fall quarterly basis as per rules circulated by Bangladesh Bank and BSB;
(c) Period of loan should he one year;
(d) Renewal of loan should depend on total recovery of loan & interest; and
(e) the loan will be governed by all terms & conditions in BSB Manual for Commercial Banking.
The standard procedures may be classified as under:
At processing stage:
(a) Loan application should be submitted in BSB’s specified Form;
(b) Fully documented all loan case should be placed before the Credit Committee for its recommendation
(c) Assets to be mortgaged as security should be inspected by Bank Officials, as per effective circulars;
(d) Loans should be sanctioned by the competent authority as per delegation of power; and
(e) All processing should be completed within three months (after submission of fully documented loan application form)
At disbursement stage
(a) All disbursement should be governed by the terms & conditions specified in the sanction letter.
(b) Documentation should be completed within one month after issuance of Sanction letter.
During FY 2003-04, the Bank sanctioned working capital / commercial loans of Tk.19.00 million to 5 projects and disbursed TK.27.51 million to 5 projects. The Bank sanctioned Tk. 4.00 million to 1 project and disbursed Tk. 1.00 million to 2 projects in the last year.
- Provides equity support by way of participation in the equity of the company in the form of underwriting and bridge finance to public limited companies.
- Issues guarantees on behalf of borrowers for repayment of loan.
- Extends commercial banking service along with deposit mobilization, foreign business, L/C handling, foreign remittances inland & outland.
- Purchases and sells shares/securities for BSB and on behalf of customers as a member of Dhaka Stock Exchange (DSE) Ltd. and Chittagong Stock Exchange (CSE) Ltd. for capital market development and,
- Conducts project promotional activities along with preparation of various sub-sectoral study.
• Bank also involved in Capital market activities by way of under writing and extending bridge finance to public limited companies.
● Apart from identification and development of viable projects, the Bank assists the interested entrepreneurs in selecting industrial projects having appropriate technology and potential market by providing advisory services and various information.
● for upgrading the professional competence and skills of its employees, the Bank is continually arranging training programs both at home and abroad. During FY 2003-2004, 408 officers were imparted in-house and local training. Besides, 4 officers were sent abroad for this purpose. During the period under report, 4 in-house Seminars/Symposiums were held on the topics viz. “Managing Core Risk in the Banking”, “Project Management”, and “Corporate Governance” and “Anti dowry social movement”.
● to improve the working efficiency and provide better customer service, computerization of Bank’s activities is going on. In this regard, the Bank has undertaken a far-flung action plan. The implementation of the first phase of network based computerization has been completed and the 2nd phase of work is going on.
2.7 Policy for BSB’s own investment
- Debt equity Ratio ranging from 50:50 to 60:40 depending upon the nature of the project, repayment capability, sponsor credit worthiness etc.
- Investment Limit Taka 10 core in a single project but above Taka 10 core may be financed in syndication.
- Working capital loan for BSB-financed projects, especially, for operative and profitable projects under the branch offices of the bank.
- BMRE (Balancing, Modernization, Replacement and Expansion) facility given to regular good borrowers of the Bank.
- Reduction of 1.5% interest or 10% rebate of chargeable interest for regularly repaying borrowers.
- Reduction of rate of interest to attract prospective entrepreneurs.
- Introduction of lending facilities to proprietorship and partnership concerns alongside traditional financing of private and public limited companies.
- Reduction of time limit for processing of loan application from 90 to 60 days.
- Special emphasis to promote agro-based small industries.
- Sub-sectors selected by Bangladesh Bank under EEF (Equity & Entrepreneurship Fund) is encouraged for financing.
- Joint venture projects based on technical collaboration and foreign equity participation is given special preference.
Government Policy, Especially, for Foreign Investment
Major Fiscal Incentives:
- Generous Tax Holiday up to 12 years;
- Concessionary Tax for 5 years after completing initial 10 years;
- Duty free import of capital machinery and raw materials for export oriented industry and concessionary import for domestic industry;
- Avoidance of Double Taxation;
- Tax exemption on royalties, technical know-how fees received by any foreign collaborator, firm, company and expert;
- Exemption of income tax up to 3 years for the foreign technicians employed in industries specified in the relevant schedule of income tax ordinance;
- 100% export-oriented industry outside EPZ will be allowed to sell 20% percent of their products in the domestic market on payment of applicable duties and taxes;
Major Non-Fiscal Incentives :-
- 100% foreign equity allowed;
- Unrestricted exit policy;
- Full repatriation facility of dividend, profit and invested capital;
- Complete legal protection for invested capital;
- Local and foreign borrowing allowed;
- Fund raising from local capital market allowed;
- Permanent residence permit and citizenship for foreign investors;
- Multiple Entry Visa for foreign investors and employees;
- One stop service for foreign investors by BOI/BEPZA;
- Permanent resident ship by investing a minimum of US$ 75,000 (non-repayable);
Foreign investment is specially desired in the following categories:-
- Export-oriented industries;
- To set up Industries in the Export Processing Zones (EPZs);
- Basic industries based mainly on local raw materials;
- Labor-intensive/technology-intensive/capital-intensive industries.
- High technology export-oriented or import substitution products;
- Quality enhancement, marketing and capacity building of existing industries;
Prospective Sectors for Foreign Investment in Bangladesh:-
- Textile (Ready Made Garments, Textiles, Composite Textiles).
- Frozen Foods (Frozen Shrimp, Frozen Fish, Other Items).
- Leather (Finished Leather, Leather Goods).
- Electronics (Home Appliances, Telecommunication Equipment, Semi-Conductor).
- Agro-based Industry (Fresh Fruits & Vegetables, Cooked/Semi Cooked Food Items, Canned Juice, Dairy and Poultry, Livestock and Fisheries).
- Information Technology (Data Processing, Software Development, Hardware manufacturing.
- Ceramic (Tableware, Sanitary ware, Insulator).
- Light Engineering (Machinery Parts, Bi-cycle, Other Consumer Items).
- Natural Gas-based Industries (Electricity, Fertilizer, Petrochemicals, CNG Distribution Network).
- Export-oriented and Export-linkage Industries.
- Steel Industry inBangladesh.
2.8 financial statements
|BSB Financial Statements(2003-2004)|
|Paid up Capital||2,000,000,000||1,320,000,000|
|Capital surplus / (deficit)||1,629,000,000||(370,000,000)|
|Total Loans and Advances||16,168,683,300||16,432,857,959|
|Total Contingent Liabilities and Commitments||1,079,766,756||1,089,110,286|
|Credit Deposit Ratio (%)||2,269.56||2,484.52|
|Percentage of classified loans against total loans and advances||61.99%||58.88%|
|Profit after tax and provision||421,091,255||789,572,631|
|Amount of classified loans||10,024,422,000||9,676,231,000|
|Provisions kept against classified loans||2,913,358,466||3,700,784,300|
|Provision surplus / (deficit)||–||–|
|Cost of fund (%)||8.34||8.11|
|Average Interest earning Assets||10,133,845,676||11,124,632,986|
|Non-interest earning Assets||11,524,634,688||11,182,604,604|
|Return on Investment (ROI)||6.92||6.26|
|Return on Assets (ROA)||1.94||3.54|
|Incomes from Investments||274,200,693||271,670,433|
|Return on Equity (ROE)||17.03||31.82|
|PARTICULARS||30.06.2004(Figure in taka)||30.06.2003(Figure in taka)|
|PROPERTY AND ASSETS|
|Cash in Hand||5,678,336||10,524,257|
|Balance with Bangladesh Bank||89,956,078||71,114,818|
|Balance with other banks||28,435,909||22,736,828|
|Money at Call and Short Notice||163,321,405||291,428,820|
|Loans and Advances||16,168,683,300||16,432,857,959|
|Loans, Cash Credit, Overdrafts, etc.||16,168,683,300||16,432,857,959|
|Bills Purchased & Discounted||–||–|
|Premises and Fixed Assets||213,809,235||218,631,298|
|LIABILITIES & EQUITY|
|Borrowing from other Banks, Agents, etc.||7,191,001,129||8,992,020,712|
|Deposits & Other Accounts||712,141,504||661,408,834|
|Current and other Contingency, Accounts, etc.||252,939,444||248,617,467|
|Saving Bank Deposits||195,726,524||181,213,874|
|Profit & Loss Account||(484,596,786)||(905,688,041)|
|Total Shareholders’ Equity||2,472,947,320||1,371,856,066|
|TOTAL LIABILITIES & SHARE HOLDERS EQUITY||21,658,480,364||22,307,237,590|
|Contingent Liabilities :|
|Acceptance & Endorsements as per contra :|
|Letter of guarantee||973,654,729||1,069,544,982|
|Irrevocable letter of credits||106,112,027||19,565,304|
|Bills for collection|
|Other contingent liabilities|
2.9 Auditors’ Report
To the Shareholders of Bangladesh Shilpa Bank
We have audited the accompanying Balance Sheet of Bangladesh Shilpa Bank as of 30 June, 2004 and the related Profit and Loss Account, Cash Flow Statement, Statement of Changes in Equity, Statement of Liquidity and notes to the financial statements for the year then ended. These financial statements are the responsibility of the management of the Bank. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Bangladesh Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.
Our audit revealed the following:
i) BSB had made an investment of Tk. 10,000,000 in 100,000 Ordinary Shares @ Tk. 100 each of M/s. Sreepur Textile Mills Ltd. during the year 1993-94. But BSB did not receive any return on such investment till date. The market value of shares of the company has come down to Tk. 12.50 per share (on28 October 2004). The bank has in turn lost Tk. 8,750,000 (100,000 x Tk. 100- Tk. 12.50) on this investment. But necessary provision has not been made in the accounts.
ii) In line with the requirement of Bangladesh Accounting Standard (BAS)-10; events after the Balance Sheet date necessary provision has not been made against classified loan account and classified equity investment held with M/s. Sreepur Textile Mills Ltd. As per Order of the Honorable 6thDistrict Judge Court the said loanee was treated as unclassified till30-06-04. But subsequently the order was suspended by the court on27-09-04. As a result, the total loan of Tk. 29,776,738 should be provided for in the accounts for the period ended30 June 2004.
iii) Specific provision amounting to Tk. 4,401,871 due to diminution of market value of Shares of various companies has not been made in the accounts.
iv) Provision has not been made against interest accrued on debenture amounting to Tk. 58,000,508 and these amounts appeared to us not realizable.
v) As per BSB book of accounts balance with Bangladesh Bank held by DCBO (Dhaka Commercial Branch Office) as on30-06-04 amounted to Tk. 68,151,173. Bangladesh Bank confirmed a balance of Tk. 78,431,006. The difference of Tk. 10,279,833 remained unrecognized till the date of our audit.
vi) Other assets of the Bank include Inter Office Adjustment Account Tk. 104,233,782 as on30-06-04. The said amount could not be reconciled by the bank till the date of our audit. As a result, we could not confirm inter office adjustment account.
vii) Fixed assets include a number of damaged items for which no accounting adjustment has been made regarding deletion of such item from the books of accounts.
viii) Requirement of Section 35 of the Bank Company Act 1991 in respect of transfer of unclaimed amount to inoperative accounts to Bangladesh Bank was not complied with.
In our opinion, if the adjustments relating to (i), (ii) and (iv) are reflected in the accompanying financial statements, the net profit shown in the profit and loss account will be reduced by Tk.100, 919,117. Except for the above, the financial statements give a true and fair view of the financial position of the Bank as of 30 June, 2004 and of the results of its operations and its cash flows for the year then ended and comply with the Bank Companies Act 1991, the rules and regulations issued by Bangladesh Bank and the Security Exchange Rules 1987 and the other applicable laws and regulations.
We, except for the matters as mentioned above further report that:
(i) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit and made due verification thereof;
(ii) in our opinion, proper books of accounts as required by law have been kept by the Bank so far as it appeared from our examination of those books and proper returns adequate for the purpose of our audit have been received from branches not visited by us;
(iii) the Bank’s Balance Sheet and Profit and Loss Account dealt with by the report are in agreement with the books of accounts and returns;
(iv) The financial statements have been drawn-up in conformity with the Bank Company Act, 1991 and in accordance with the applicable rules and regulations issued by the Bangladesh Bank;
(v) adequate provision has been made for advances which are, in our opinion, doubtful of recovery;
(vi) the records and statements submitted by the branches have been properly maintained and consolidated in the financial statements;
(vii) the financial statements conform to the prescribed standards set in the accounting regulations issued by the Bangladesh Bank;
(viii) the information and explanations required by us have been received and found satisfactory;
(ix) we were not aware of any other matters which are required to be brought to the notice of the shareholders.
November 22, 2004
ACNABIN & CO.
Ahmad & Ahmad
2.10 Here is some short history about the operational activities of the bank.
Profit and Loss:-
The Bank has made a net profit of Tk. 421.09 million (after adjustment) during FY 2003-04 as against Tk.789.60 million (after adjustment) in the previous year. During FY 2003-04 the Bank earned a total income of Tk. 744.40 million which is less by an amount of Tk. 259.20 million of the previous year. One of the major reasons of declining bank’s income is non–receipt of subsidy from the Govt. against the interest-waiver extended by the Bank, as was received in previous year.
During FY 2003-04, the Bank tried to meet its fund requirement for lending and investment from various sources. The Bank emphasized more on no cost and/or low cost deposit mobilization during the period. Total deposit was Tk. 621.21million onJune 30, 2004.
Loan Application Received:-
During the period under review, the Bank has accepted 51 new loan proposals after proper scrutiny.
Sanction of Term Loans:-
The Bank kept on sanctioning of term loans during FY 2003-04. This year local currency loan of Tk 98.65 million was sanctioned to 27 projects. Of the total sanctioned amount Tk 686.99 million was for 21 new projects, Tk.165.56 million was for 3 BMRE projects and an additional loan of Tk 136.10 million for 3 on-going projects.
Commitment and Disbursement of Term loans:-
During FY 2003-04, the Bank made commitment of Tk. 406.51 million in local currency to 15 projects. During the period, the Bank disbursed term loans of Tk 296.96 million in local currency to 14 projects as against the disbursement of Tk.170.00 million to 11 projects in the previous year. During the period the bank signed loan agreements with the sponsors of 15 sanctioned projects for an amount of Tk.406.51 million. During the last year the number of such projects was 4 and the loan amount was Tk.116.00 million only.
Sanction and Disbursement of Working Capital / Commercial Loans :-
During FY 2003-04, the Bank sanctioned working capital / commercial loans of Tk.19.00 million to 5 projects and disbursed TK.27.51 million to 5 projects. The Bank sanctioned Tk. 4.00 million to 1 project and disbursed Tk. 1.00 million to 2 projects in the last year.
During FY 2003-04, the Bank invested Tk. 22.05 million to purchase shares from the primary and secondary market and the Bank earned an amount of Tk.9.21 million as capital gain, dividend and commission from share trading.
The Bank intensively monitors and supervises implementation of its financed projects. During FY 2003-04, 4 projects commenced commercial production and 43 projects were under different stages of implementation. Of these, 6 projects were under construction, 15 projects completed loan agreement and 22 projects were awaiting documentation.
Total recovery target of loans during the FY 2003-04 was Tk 1500.00 million, against which actual cash recovery was Tk 1124.20 million constituting 75 per cent of the target. During the reporting year, outstanding loan of Tk. 149.40 million was regularized through rescheduling and replacement of bad and doubtful loan accounts. The amounts regularized through cash recovery and rescheduling were Tk. 1315.50 million and Tk. 507.30 million respectively in FY 2002-2003. During FY- 2003-2004, the recovery drive was affected to some extent, among others, due to the ever memorable serious flood the country experienced. During 2003-2004 the percentage of classified loan stood at 62% with a 3% increase over the 59% of the preceding year. In other words, with an increase of TK.348.20 million, during the reporting year the classified amount of loan rose to Tk. 10024.40 million from Tk. 9676.20 million in the previous year. The increase in classified loan was mainly due to the up-datation of the loan accounts along with interest for the purpose of filing suits in Aratha Rin Adalat which were kept suspended earlier by the bank.
Legal Actions Taken for Recovery of Loans:-
The Bank initiates legal actions under the BSB Order, 1972 against those defaulting and recalcitrant borrowers who fail to come up with any satisfactory proposal for settlement of Bank’s dues after all normal recovery efforts have been exhausted. In FY 2003-2004, legal notices were issued against 126 defaulting companies for recovery of Bank’s dues while law suits were filed against 205 companies. Besides, 54 sale notices were published in the national dailies for auction. At the same time, efforts were made for settlement of disputes outside the court through negotiation. As a result, 6 litigated companies settled the disputes outside the court and assets of 2 projects were sold through auction during the year.
Loan Written off:-
During FY 2003-04, the Bank has written off a total loan liability of Tk.2284.25 million of 137 projects
2.11 Here, I m going to show some important financial indicators previous five years better comparison
|Net profil/before tax||(3053)||676||915||790||421|
|Total loan & advances||7433||7133||7151||6877||6513|
|Reserve fund & other reserves||644||823||823||823||823|
|Provision for income tax||–||–||–||–||–|
|Payment to national exchequer||–||–||–||–||–|
|Total income to total assets||3.82||4.12||5.00||4.93||3.56|
|Total expenses to total assets||16.54||1.37||1.30||1.39||1.62|
|Total expenses to total income||433.30||33.20||26.03||28.18||45.40|
|Total financial expenses to total income||55.79||13.71||10.44||10.45||14.92|
|Net profit to total income||–||66.80||73.97||71.82||54.60|
|Net profit to total equity||–||–||157.07||57.58||17.02|
|Administrative expenses to:|
2.12 Now I am going to show the total amount of sanctioned loan in different sectors:-
|Sector-wise Position||(As on30-06-2004)|
|Sectors||No. of Projects||Amount of Total Loan (Milion Taka)|
|Food and Allied Products||58||1335|
|Jute and Allied Products||5||674|
|Cotton. Woolen and Synthetic Textiles||87||148|
|Paper, Paper Products and Printing||15||591|
|Tannery and Leather Products||9||333|
|Non-Metallic Mineral Products||4||130|
|Forestand Wooden Products||1||7|
|Rubber and Rubber Products||2||2|
|Basic Metal Products||1||57|
|Electrical Machinery and Goods||6||354|
|Machinery and Spare Parts||13||190|
|Chemical and Pharmaceuticals||26||812|
|Petro Chemical Products||10||407|
|Total BSB Projects||304||13997|
|Total BSCIC Sponsored Projects||4||1|
2.13 SWOT ANALYSIS
- As a prime DFI, it has a large number of qualified & experienced professionals Structural set-up & business location is Strategic.
- BSB’s assets position is quite satisfactory.
- BSB has requisite strength and opportunity to sustain the challenge of the market economy.
- Adequate attention is given to social benefits.
- Very good project appraisal system.
- There are some fringe benefits to the employees with cash benefit.
- Lengthy procedure and long time involved in the appraisal of project
- Sometimes pressure group’s involvement in sanctioning the loan causes undue loan sanction.
- Unstable policy of the government due to political changes over-time.
- Lack of co-ordination in exchange of transferring information among various banks.
- Lack of adequate management information system (MIS).
- Lack of co-ordination among the departments.
- Lack of proper allocation of human resources.
- Lack of morality & moral teaching.
- Huge resources.
- Favorable policies
- There is trend in industrial development.
- Government has taken a new privatization policy which lead to increased demand for industrial loan.
- Bangladeshgot exemption from enforcing patent law in medicine sector. BSB can capitalize this law by providing loan to pharmaceutical sector.
- Bangladeshgot “General System of Preference (GSP)” of EU, which will be activated from January, 2006. it will help BSB expand its activities in export oriented industries.
- Frequent political unrest.
- Growing completion from private financial institutes.
- Natural disaster proneness.
- Lack of good governance.
- Macro economic instability.
- Policy discontinuance of government
Chapter – 3
3.1 Loan operation department
LOD department is one of the main department in Bangladesh Shilpa Bank (BSB). This is the starting department of sanctioning loan & this department is concerning with making decision about sanctioning loan to a project or not.
Functions of LOD :-
• Issue of loan application form.
• Giving advice & suggestions to entrepreneurs.
• Processing co-financing projects & arrangements for approval.
• In case if needed, accepting the clearance letter from Investment Board on project offer.
• Loan grant letter submitting and sending.
• Scrutiny of loan application and other papers for evaluation of loan proposal.
• Preparation of appraisal report.
• Approving and processing underwriting shares of projects financed by Banks and other financial institution, as a member of ICB consortium.
• Completion of various term statements of waiting loan application & sanctioned project.
• Making safe custody of core paper, sanction notice & sanction article of the project that are already been sanctioned.
• Regular revision of investment policy and providing recommendation there of & notification issue about the policies.
• Selling loan application form to Bangladeshi working or staying in abroad.
• Making proper arrangements to process and sanction loan application by foreigners.
• Inviting foreign lease financing to the country.
• Reviewing loan application by foreign investors.
• Send information to project implementation, documentation, central recovery & other departments.
Project appraisal procedure
There is a prescribed procedure to appraise the project in BSB. This function starts with formulation of a committee named “Project Appraisal Committee” consisting of experts such as financial analyst, economists, Engineers etc…
• At first, a client who wants to have a loan from BSB, asks for an application form.
• Then he has to pay 1/8th of 1% of the total loan amount with the filled form. The person is required to submit necessary papers and document demanded by the bank. The information generally consist-
– Name of the project.
– Name and designation of the entrepreneur.
– Types of project.
– Types of product.
– Location of the project.
– Project cost etc.
• When all the required papers and documents are submitted with necessary payments, the proposal is then under consideration of judging the project viability.
Loan operation department judge the viability with four aspects. These are—–
– Market aspect.
– Economical aspect.
– Financial aspect.
– Technical aspect.
Market aspect :-
When judging the market aspect of a project, the expertise wants to know, whether the product of the project has the demand in the market or not. They try to know–
– The demand for the product
– Total supply condition of the product,
– Whether there is a supply gap,
– Market share,
– Product price
– Marketing strategy etc.
In the economical aspect of a project, the committee wants to measure the contribution of the project to the economy of the country. When a project is socially acceptable and has a positive economic growth in the country and has a positive impact on employment opportunity, the project is said to be economically viable. When the committee goes for judging the economical aspect of a project, they consider some key factors. These can be following—
– Economic rate of return (ERR).
– Financial rate of return (FRR).
– Creation of employment opportunity.
– Contribution to gross domestic production (GDP).
– Foreign currency earnings.
– Bruno ratio.
Financial aspect :-
Here they want to measure the profitability of the project. As the repayment of the loan depends on the profitability of the project, this part of the appraisal procedure is very impotent. To make judgment about the profitability of a project the committee considers the following factors—
– Cost of the project.
– Means of finance.
– Capital structure.
– Financial evaluation.
– Ratio calculation.
– Break even analysis.
– Cash flow statement.
– Projected balance sheet.
– Financial internal rate of return.
– Sensitivity analysis.
Technical aspect : In this section the expertise want to know whether the project is technically sound or not, whether the project comes with quality machinery, whether the spare parts are easily available, whether location of the project is good etc. to being satisfied about the above things the committee look after the following factors—
– Product mix and product capacity.
– Manufacturing process.
– Land & location.
– Building & other civil works.
– Technical service & quality control.
– Erection & installation.
– Raw materials.
– Factory, office furniture fixture & other assets.
– Safety provision.
– Pollution problem.
– Stores & spares.
– Repair & maintenance.
– Schedule of construction.
When all the side is analyzed and judged, the appraisal report is placed to the board. If the board finds all aspects feasible, it recommends foe the approval and the appropriate authority passes
the loan. Before sanctioning the loan it keeps a sufficient amount of security known as collateral as against the loan.
When the project is sanctioned, necessary documents send to the other departments which might need it in the implementation phase such as machineries & procurement department, implementation department, central accounting department etc.
These are the overall activities of LOD department.
3.2 Documentation Machinery Procurement Department
with the objective to procure effective machineries & equipment for the project & for safe custody of the important documents this department have been established. This depart ment has two phases—-
– machinery procurement
procurement phase :
The objective of this phase is to achieve effective role in future in the matters of procurement of machinery, equipment and services for the projects approved by BSB. There are some functions performed by this department—-
• To select and give approval of machinery for inclusion in the tender paper.
• Making invitation for tender of machinery & giving necessary advice to entrepreneur to perform the related task.
• To examine the related papers & collecting information about the supplier of the machineries.
• To select & collect approval from proper authority for machinery after getting the tender analyzing that.
• Prepare the list of inspectors at pre-shipment position.
• To formulate the procurement policies for regional & branch offices.
• To control the quality of machinery.
Procedures for procure machineries by tender :-
The bank has a planed procurement policy. This is like followings—–
|A. Procurement Methods
B. Performance Bank Guarantee (PBG)
|C. delegation of Power for approving machinery procurement:|
|REQUIREMENT OF PAPERS AT THE TIME OF APPRAISAL AND PROCUREMENT
A. Improted Machinery1. Each offer should mention/submit :
2. The offer should be concluded in US$ basis as well as currencies of the country of origin.
5. The supplier/manufacturer must furnish the name & countries to which similar machinery has been exported by them indicating the volume of exports in last three years.6. The suppler/manufacturer should also submit the following :
7. The manufactures/suppliers should provide drawing & technical documents for use in the machinery layout foundation, installating & supervision of the machinery.8. The manufacturer/supplier will guarantee the production as per claimed production capacity.9. The manufacturer/supplier should also mention the following :
10. The manufacturer/supplier if selected required to :
B. Local Machinery1. Each offer should mention/contain.
2. The supplier/manufacturer must furnish the name & countries to which similar machinery has been exported by them indicating the volume of exports in last three years.3. The suppler/manufacturer should also summit the following :
4. The manufacturer/suppliers should provide drawing & technical documents for use in the machinery layout foundation, installation & supervision of the machinery.5. The manufacturer/supplier will guarantee the production as per claimed production capacity.6. The manufacturer/supplier should also mention the following :
7. The manufacturer/supplier if selected required to :
Document is very important. Document give evidence of activities. If there is need for taking legal action relating to any project, there is no way to go without documents.
• Taking necessary steps to complete the creation of necessary documents and completing the agreement between the entrepreneur & bank, after sanctioning the loan.
• Reviewing & examine the documents submitted by the loan taker to the bank.
•To examine the article of association & memorandum of association & taking necessary steps to preserve the interest of bank.
• Making the file with company registrar about the mortgaged assets.
• Taking necessary steps for making renewal of documents when necessary.
Common documents are:-
• Water/soil test report
• Final lay out plan of the factory and other building with details structured drawing, cost estimates etc.
• Final lay out plan of machinery
• Copies of guarantee from the supplier for satisfactory performance
• Copy of agreement with the supplier of machinery for providing erection engineers/ technicians.
• final price quotation both for imported / local machinery
• the sponsoring companies are required to submit the following papers / documents—-
– certified copy of memorandum of association & article of association
– Certified copy of incorporation/commencement of business of the company.
– Certified copy of the return of allotment of shares(if any)
– Permission from the controller of capital issues for rising paid up capital where applicable.
– Auditors certificate regarding the paid up capital of the company
– Any other documents as may be necessary based on the terms and conditions of sanction s of loans.
3.3 Project Implementation department
This is the 3rd stage of the total procedure. After the sanctioning of loan and making proper documentation & procurement of machineries implementation phase starts & this function is done by the project implementation department.
This is one of the main and most difficult task of the bank. Because the successfulness of a project mostly depends on effective implementation. To do so this department has many functions to do. These functions can be following—
• Arranging all sorts of activities for starting the project operation.
• Taking necessary steps to make the factory layout.
• Making necessary attempt to give the loan a stage by stage after the sanction of loan
• To ensure that necessary capital supplied by the entrepreneur and to ensure its proper utilization.
• To give necessary assistance in the case of bridge loan from any financial institution.
• Taking necessary steps to construct the layout of the project according to construction cycle.
• Inspection and monitoring experimental production and production of loan and extension of loan period.
• Making the “Final Construction Report(FCR)” and transferring it to central recovery department.
• Determination of construction period of the project.
• Preparing loan repayment schedule & taking necessary action regarding this.
• Sending the file to law department to take legal action if the borrower fails to pay the first installment.
• Up dating the sanction letter according to necessary of the foreign tender.
• And performing the different activities given by the department.
Pre-requisites for successful project implementation:-
For successful project implementation there are some preconditions, which must be taken into consideration. These are followings—
– Adequate formulation
– Sound project organization
– Proper implementation planning
– Advance actions
– Timely availability of funds
– Better contact management
– Effective monitoring
Projected construction time schedule(average) :-
Land acquisition 1st month
Documentation completion 2nd month
Site development 2nd month
Construction started 4th month
Placement of work order of local machinery 8th month
100% construction completion 8th month
Arrival of machineries at site 9th month
Machinery installation completion 10th month
Trial run 10th month
Normal operation 10th month
3.4 Central Accounting Department
Central Accounting Department (CAD) is the department responsible for maintaining all type of accounts centrally. This department performs some very important functions. As accounting data is very important for measuring performance. Not only that but also these information is very important to take decisions for management as well as for the investors.
This department perform various type of functions. These are followings—
• Maintaining the accounts centrally.
• Preparation of financial statements for the bank & getting the approval of it from the general meeting.
• Preparation of budget relating to income & expense of bank, loan sanction & getting the approval of from BOD of bank & government
• Cash management
• Preparation of payroll of bank.
• Giving the loan to the staff & keeping the records of it.
• Examining the expenses of the bank & taking or giving approval of it as the situation required.
• Making the investment of pension fund of the staff & keeping the records of it.
• Calculating, making payment & keeping records of income tax of the staff.
• Underwriting the shares of the projects.
• Implementation of “Exchange Fluctuation Burden Absorption scheme (EFAS) 1990.
• Giving the information about the gazettes of Bangladesh Bank to different department, branches & regional offices.
• Formulating policies relating to the accounting of the bank.
• Keeping proper records of Benevolent fund, Gratuity fund, making proper use of it & making proper payment of it.
• Keeping proper records of total payable to & receivable from different organizations including Bangladesh Bank.
• Producing weekly, monthly etc report & sending these to Bangladesh Bank.
• Preparation of cash flow statement.
• Performing the task given by the head of the department
3.5 Central Recovery Department
This is one of the main departments of the bank. We can say one project successful or bad by considering its recovery position. Sanctioning loan is easy, proper implementation is difficult but recovery is the main task and the most difficult task. This department conduct the overall procedure of loan recovery.
As recovery is one of the main & most difficult job for the bank, this department perform many functions. These are followings—
• Recovery of loan & taking necessary steps regarding this.
• Maintaining regular communication with client that is borrower.
• Provisioning of loan
• Rescheduling of loan
• Giving necessary information to branches control department about progression of recovery.
• Visiting the project and taking necessary decision.
• Collecting the insurance paper about the asset of the project & making renewal of it.
• Collecting the financial statement of the company & analyzing it & giving necessary suggestion
3.6 Project Rehabilitation Department
The main objective of Bangladesh Shilpa bank is to make industrialization of the country. With this purpose this bank gives loan to industrial sector of the country, but many projects where the bank gives loan may not come as a successful project for many reasons. In this situation those project need assistance from the bank for survival & contribute to industrialization.
In this situation the bank gives more financial assistance, advice and necessary information for overcoming the bad situation.
There are some activities are performed by Project Rehabilitation Department. These are followings—
• Recommendation and taking initiative to rehabilitate a project after tracing the causes of sickness if the files are to project Rehabilitation department from the ensured department /branch/zonal/zonal office after the primary analysis of the project The rehabilitation process starts after the recommendation of the advisory committee formed by the General Managers.
• The files of the projects are transferred to law Department to take necessary actions, which are deemed not to be rehabilitable, Again if there is no opportunity to rehabilitate any it also rejected.
• Verification of the proposal regarding rehabilitation recommendation preparing the implementation schedule and taking necessary initiative to take care the project and deciding the single or joint management of the bank over the project if necessary .
• Taking rehabilitation program controlling projects management and monitoring and ensuring the management system taken over by bank and performing other activities regarding these.
• Production of the rehabilitated project, making of the products analyzing the targeted loan recovery and actual situation and taking necessary initiates regarding these.
• In case of apply right management after the certification that it will be effective and efficient.
Which sick project will be rehabilitated & which project not
The bank has a provision for rehabilitation of the sick project, but all sick projects do not rehabilitated. It depends on the nature of sickness. The department will analyze the project & then decide whether it should be rehabilitated or not.
The sick projects which are probable to rehabilitate get the following assistance-
– Providing financial aid or loan without interest or at lower rate.
– Assistance for replacement of machine
– Changing of management structure
– Giving Inspiration for motivation.
There are some projects which do not rehabilitated. When a project become sick, it will be analyzed & then the department tries to find out, whether the rehabilitation of the project is cost effective & economically feasible or not. For these reason some analysis & measurement have been done. These are —-
– Financial measurement
– Marketing measurement
– Technical measurement
In the financial measurement the following things are calculated—-
– Project cost of capital
– Determination of capital structure
– Present value of net cash inflow
If the above calculation give result in favorable position the project will be rehabilitated.
Under this section demand for the product of the project, market share of the product, consumption trend etc have been calculated.
Here the technology of the project that is machineries of the project is examined. Deciding whether raw material is available or not.
3.7 Law Department
Law Department is one of the main departments of the bank. Because when the bank fails to recover its loan in the normal way, the bank must take legal action for recovering the due amount. Law Department is responsible for taking all necessary steps to take legal action.
• Enforcement of law for recovery of loan.
• Issuing legal notice to execute farther lawful action as against the loan defaulter.
• making all the arrangements to putting case against all the loan defaulters as per the rules of banking act.
• Monitoring the cases which are putted by the branches.
• Monitoring the project petition to the High court &Supreme Court and carrying them till end.
• Enforcement of law for recovery of loans from project other thanDhaka, Mymensingh and Faridpur branch office.
• Call auction of the properties declared by the court.
Cases filled by the BSB against the defaulters
• Recovery case sec-33
• Certificate case sec-35
• Finance loan case sec-5(a)
• Bankruptcy case sec-9(1)
• Case if machinery of project is
transformed from the project
without prior permission sec-37
• Case if false properties are
• Case if check is not cashed
(petition case) sec-138
3.8 Human Resource Departmen (HRD)
The main objective of this department is to manage the human resources of the bank. Human resource management refers to the practice & policies that we need to carry out the personnel for management. Human resources is one of the main & important asset for any organization. So, effective management of this resource is very important for organization, so that the organization can—–
– Recruit right person for any job
– Do the organization’s functions effectively.
– Train up them for better performance.
– Ensure high profitability.
With the purpose of effective management of human resource This department carries out many functions. These can be followings—–
• To control the administration of human resources of the bank.
• To assess and collect compatible personnel who will be perfect for the bank.
• To take program and implement them for developing human resources.
• To provide service rules, correction, expansion, special order and notice for the employees.
• To provide loan for house building and ensuring proper utilization of that loan.
• To communicate with trade union and meet up their demand.
• To give appointment, promotion and appraising performance of officers and stuff.
• To assess and grant retirement facilities at the time of retirement.
• To provide scholarship for brilliant students.
• To give award for excellent performance.
• To maintain and grant leaves without regular leaves.
• To give medical facilities to the stuff
• To co-ordinate and evaluate the branch and regional stuff activities.
Training & Development of Human Resource:
Bank has a Training Department for upgrading the professional competence and skills of its Officers and Staff. Below are the main functions of Training Department:-
- To prepare & implement Annual Training Program.
- To impart training of the Officers/Staff regarding business & operations of the Bank.
- To adopt measures to hold in-house training and make arrangements to send Bank’s Officers to overseas training programs.
- To establish liaison with domestic & overseas organizations relating to training.
- To send Officers to local training institutions for improving professional skills; and
- To organize Seminar/Workshop/Symposium on key economic/banking issues.
Types of Training:
There are as many as 3 (three) types of training as under:-
- Local and
Training Department has the following logistic support:-
- Training Hall with Air-condition facility accommodating about 25 (twenty five) participants.
- Multi-media Projector.
- Flip Chart.
- Mini Computer Lab and
- In-house Resource Persons.
There are five major sections of this department. These are—
– General administrative & policy section
– Management section.
– Disciplinary section
– Welfare section
– Leave section
General administrative & policy section:-
The function of this section is to fix principles for delegating of power, and to prepare and send statements relating to delegation of power. That is the general administrative rules and policies are fixed here.
Management section provides transfer and promotion policies. It also fixes the pay scale for the employees.
This department deals with the disciplinary matter of the bank.
If there is any disciplinary problem arise within the bank it will take necessary steps to fix them. It also mitigate the complaint of personnel.
This section deals with the welfare of the personnel of the bank. It deals with the retirement benefit of the personnel, give financial assistance, provide scholarship to personnel’s children etc.
This section deals with the leave management of the employees of the organization. It also provides facilities and allowance, vacation opportunities, house rent allowance etc.
|Summary of manpower of the bank :|
|As on 15.04.2005|
|A. Job-wise distribution|
|Sl No.||Name of the post||Nos.|
|03.||Deputy General Manager||15|
|04.||Asstt. General Manager||28|
|07.||Senior officer, Librarian/Medical Officer, Sr. Security Officer||117|
|Total Class – |||34|
|Total Class – ||||104|
|Class – |||||194|
|Class – |V||98|
|Grand Total :||741|
B. Profession-wise distribution :
|03.||Professional Accountant (ICMA, FCA, etc.)||04|
|04.||Engineers(Civil, Mechanical, Electrical, Chemical, Naval, Metallurgical)||46|
|05.||IT Expert (From Engineers, MBAs, other professionals having PGD/Diploma in Computer Science , Software Engg, Computer Application, etc.)||15|
|10.||Marketing & Management||12|
|13.||Others (Inclusive of Applied Physics, Applied Chemistry and other University Graduates and Post-Graduates)||529|
|Grand Total :||741|
Central Recovery Department considers to be one of the most important department of the Bangladesh Shilpa Bank (BSB). In true sense, comparatively it is the most important department of the bank because sanctioning loan is much easier than to recover it. Bank can sanction loan very easily but when the question of recover comes, it becomes very difficult.
4.1 brief history of recovery position:-
Total recovery target of loans during the FY 2003-04 was Tk 1500.00 million, against which actual cash recovery was Tk 1124.20 million constituting 75 per cent of the target. During the reporting year, outstanding loan of Tk. 149.40 million was regularized through rescheduling and replacement of bad and doubtful loan accounts. The amounts regularized through cash recovery and rescheduling were Tk. 1315.50 million and Tk. 507.30 million respectively in FY 2002-2003. During FY- 2003-2004, the recovery drive was affected to some extent, among others, due to the ever memorable serious flood the country experienced. During 2003-2004 the percentage of classified loan stood at 62% with a 3% increase over the 59% of the preceding year. In other words, with an increase of TK.348.20 million, during the reporting year the classified amount of loan rose to Tk. 10024.40 million from Tk. 9676.20 million in the previous year. The increase in classified loan was mainly due to the up-datation of the loan accounts along with interest for the purpose of filing suits in “ortha Rin Adalat” which were kept suspended earlier by the bank.
As a very important department this department accomplish different type of activities relating to recovery of loan. now I m going to mention some important function of this department. These are …………
• Recovery of loan & taking necessary steps regarding this.
• Maintaining regular communication with client that is borrower.
• Provisioning of loan
• Rescheduling of loan
• Giving necessary information to branches control department about progression of recovery.
• Visiting the project and taking necessary decision.
• Collecting the insurance paper about the asset of the project & making renewal of it.
• Collecting the financial statement of the company & analyzing it & giving necessary suggestion.
• Keep proper communication with various departments such as project implementation department, project rehabilitation department, branches control department etc.
• Accomplish the responsibilities given by the departmental head.
To carry out these function successfully this department has some efficient and active employees. There is a well structured chain of command, which ensures the accountability and co-ordination.
Total approved staff for the department 29
Current number of staff 23
Vacant position 06
4.3Hierarchy of management of recovery department
SM= senior managerSO= senior officerM= manager
4.4 Principle of loan classification and provisioning
For the purpose of classification of all types of loans & advances are divided into 4 broad heads. These are……
– Revolving loan
– Short-term loan
– Medium term loan
– Long term loan
The loan which can be granted and recovered without any repayment schedule but have an expiry date & maximum limit of loan amount, are called revolving loan.
The loan which is for very short period and must be repaid to the bank as the bank calls it, is called short-term loan.
Medium term loan:
The loan which is for medium period such as not more than 5 years and has a prepayment schedule , is called medium term loan.
Long term loan:
This loan is for long period with repayment schedule. This is a term loan normally more than 5 years.
There are criteria for loan classification of different type of loan . these criteria are as follows—
(i) For revolving loan this criteria is as follows— if the loan is not paid within the due time, then it will be considered for classification.
• If loan is not paid for more than 3 months but not more than 6 months— is classified as sub-standard
• If loan is not paid for more than 6 months but not more than 12 months—is classified as doubtful
• If loan is not paid for more than 12 months— is classified as Bad.
(ii) For term loan, if any installment is not repaid within a
specific time, then it will consider for classification.
Provisions are maintained as per the following rate
(a) For sub-standard—————– 20%
(b) For doubtful——————— 50%
(c) For bad———————— 100%
4.5 Loan rescheduling procedures
Normally bank consider the following criteria for loan rescheduling………
• When the borrower submit application for loan rescheduling, recovery department will inspect the reasons for such application. If it is find out that the borrower has spent the money in the way which not approved by the bank, then the application will not be considered & legal action will be taken.
• The position of liabilities of borrowers to other bank is to be considered.
• The bank will analyze the cash flow statement of the company and financial statement.
• If necessary, the bank will inspect the business of the borrower to ensure that he will be able to repay the scheduled loan.
Normal conditions for rescheduling revolving loan
(i) For rescheduling the loan, at first 30% of total loan or 20% of total dues, which ever is lower must be paid in cash to the bank.
(ii) Schedule for down payment of scheduled loan—
Up to 1 core ———— down payment is 15%
1 core to 5 core———-down payment is 10%( but not less
than 15 lacs)
5 core & more————down payment is 5% ( but not less
than 50 lacs)
(iii) After first time rescheduling, if 2nd time rescheduling is needed, then 50% of expired installment or 30% of total dues, wich ever is lower must be paid in cash at first.
Normal conditions for rescheduling of term loan
(i) For rescheduling of default term loan, at first 15% of expired installment or 10% 0f total due, which ever is lower, must be paid in cash to the bank.
(ii) In 2nd time rescheduling of loan this ration will be 30% 0f expired installment or 20% of total due amount which ever is lower.
Now I want to show the recovery situation of Bangladesh Shilpa Bank (BSB), its default situation & the reason behind it. To do so, I collect 10 years data about the amount of sanctioned loan, their recovery position and the default position of 10 different sectors. These are followings—–
4.6 Amount of sanctioned loan in ten sectors in ten years
If we look at the above chart we can easily find out that the trend of sanctioning loan of the bank is increasing, though there are some exceptions. For example, we can say in 1995-96 & 1997-98 the amount of sanctioned loan is less than the previous year. We can show the total picture in the following bar chart.
4.7 Amount of recovery of loan in 10 sectors in 10 year
If we look at the above chart we can see that the amount of recovery, in comparison to sanctioned loan is not satisfactory. More over it has not been followed any specific trend. For example-in the earlier year recovery position seems good one year & bad another year. But in the recent year it seems better than the earlier years. We can better understand it from following chart—
4.8 Amount of default in 10 sectors in 10 years
If we see to the above chart we can easily find out the bad situation of default position of the bank. In comparison to loan sanction & recovery of particular year, recovery of loan is than the sanctioned loan of that particular year. There is only two exceptions. We can easily understand it from the following chart—
Now let’s try to see the total amount of sanctioned loan, total recovery & position of default in a single chart for better understanding of the position.
In above chart we can see that the amount of recovery is almost less than the amount of sanctioned loan in every year with only two exceptions. So it is easily understandable that the overall recovery position of the bank is not good.
4.9 Reasons for bad recovery position
Now we will try to find out the reasons for this situation. After having some interview with the personnel of recovery department & by observation we have find out the following major reasons for this unsatisfactory recovery position—-
At first I want show some historical background which might have a great influence on this unsatisfactory recovery position—-
Before independence the name of this bank was Industrial Development Bank of Pakistan (IDBP). At that time major portion of management, especially top management was from Pakistani people. So there was no scope for Bangladeshi people to be trained in proper way to be efficient enough for managing the bank in proper way. As a result after liberation war, when IDBP changed to BSB, there was a lack of efficient management. When these inefficient people got into management they could not able to run the bank in proper way. They could not able to sanction the loan in right sector & to right person. Moreover they got problem, when they went for the recovery of the sanctioned loan. As a result default culture started & we are seeing it today also.
Now I want to point out some major reasons which are responsible for bad recovery position—-
• Sometime loans are sanctioned under the political pressure without feasible conditions.
• There is an existence of default culture in our country.
• Sometimes default have been made from the result of project failure due to rapid change in technology
• Sometimes project become failure one because of market failure.
• Sometimes project fail because of unrest political situation.
• Sometimes project fails because of unavailability of raw material.
• Sometimes project fails because, with the passes of time choice of people have been changed which lead to change in demand.
• Sometimes projects fails because of increase in the cost of project
• There is lack of infrastructural facilities, such as- non- availability of electricity, gas, water, road connection etc.
• Inefficient project cost estimation, For example- not considering inflation, waste & spoilage etc.
• Lack of working capital.
• Sometimes loans can not be recovered because of inefficiency of management of the organization.
• The steps for the recovery of loan are not satisfactory.
• The authorized persons who are employed for recovery of loan are not free from biasness.
• The management is not professional for recovery of loan.
• Legal action procedure for recovery of loan is not strong enough.
• Lack of motivation to collect the old loan
• Lack of coordination with other department.
• Lack of proper reward systems for good work.
• Sometimes sanctioned loan can not be realized because of lack of maintaining proper securities against the loan.
• Lack of sufficient staff.
• Natural disaster that hampered production
5.1 Overall Findings and Recommendations
In my three months internship period in the Bangladesh Shilpa Bank (BSB) I have sent to different department to have a practical knowledge about the functions of those department. During these time I have gathered valuable practical knowledge & found some factors, which I consider important. Now I want to reveal those findings—-
• When any person or organization comes to BSB for taking loan he/she/it has to fill up a BSQF form, which is a very lengthy and difficult to understand. So this form should be modified for easy going.
• The loan operation department takes a very long time for making an appraisal report of a project, which will create problem. Because within this time demand for the product may change and factors that are presumed may loss their validity. So time period for making appraisal report must be less & minimum.
• One of the main problems of BSB is political pressure. It is a crucial limiting factor. Since, now the bank is 100% government owned, the governing body or other political pressure make the bank to grant loan to the project which is not viable & feasible. This creates a lot of problem to recover the loan. So there should be some mechanism, which can be applied to avoid such political pressure.
• Time taken by project implementation department is very high. It is more than 10 months. So the bank should take initiatives for making this period less & minimum.
• There is a lack of effective monitoring, inspection and proper control system at the time of implementing the project. So, proper monitoring & control system must be set up for effective implementation of project.
• As our country is not rich in technological sector, the bank has to depend on foreign machineries greatly, which delay the implementation process, as procurement of machineries from abroad takes time.
• Some time real entrepreneur does not get bank loan. BSB must have to identify profitable project and actual entrepreneur for issuing loan.
• Data collection procedure of the bank from the practical field is not good & as well as communication system. The Bank should introduce modern communication system so that every department or unit can get information in their desk. Now one department must have to go other departments for information. It is also time consuming. Preserving documents also need to be computerized instead of filing.
• Lack of experience about the practical knowledge of the machinery and new technology. So there must be some effective training program.
• Inefficient allocation of resources often made in the bank. As resources are very limited it must be allocated effectively on prioritize basis.
• There is frequent change in the policies, which is the result of change in government party. As a result there is no true development in the situation. So, government must not change the policies frequently.
• In spite of various problems, the bank has a great contribution to the GDP through industrialization. So, the bank should continue to make contribution to the GDP but it should work for more effective contribution.
• There is a lack of skilled and professional expertise. So, there must be some effective recruitment & some effective training program for trained up the employees of the bank.
• There is existence of trade union, which often create problem in taking some effective decision.
• There are lack of motivation & team spirit. So, the management should work about it for motivating the employees & for having proper team spirit.
• Sometimes promotion & recruitment are made in the wrong way, which might result in frustration in the mind of employees. So, promotion & recruitment must be fair.
• There are some good projects which are financed by BSB. The bank should identify those projects & give them further financial assistance for better performance.
• Sometimes securities against the loan do not verify strictly. As result that securities may not be enough for recover the loan. So, valuation of securities must be made properly.
It is clear that industrialization is the base of the economy of the country. We cannot think industrialization in our country without meaningful contribution of Bangladesh Shilpa Bank. Although there are some drawbacks of BSB activities nevertheless it plays an important role in the industrial sector ofBangladesh. We get clear idea about this contribution through the analysis of the BSB activities from 1972 to 2005. Although some unexpected political pressure hamper such activity but BSB always tries to overcome these sort of problem by his own policy and procedure.
While working in BSB I have discover some major associated with different departments in the organization. But the management of the bank has a tendency to overcome those limitations with their limited resources & scope.
Bangladesh Shilpa Bank is now loosing concern but it tries to overcome such problem. Though it is a loosing concern, but its contribution in the infrastructural development of the country is undeniable. I observed that the loss of BSB is 100 crore less than that of previous year. It represents that the position of BSB is more strength than previous year. Another notable thing is that BSB reduce their loan sanctioning area. As a result their loan sanctioning reduced to 352 organizations. I think it is not good news for our economy. Because new industry essential for employment generation. At present BSB carefully takes steps for sanctioning loan because of a huge fund become irrecoverable due to sickness of various projects. It is indeed that sickness is the consequences of unconscious and lack of investigation in case of issue of loan. We know sick project is the burden of bank as well as overall economy ofBangladesh. I think proper scrutinizing of project proposal and careful physical verification may make sure to be profitable of that industry as well as Bangladesh Shilpa Bank, Bangladesh Shilpa Bank should concentrate on loan recovery that is necessary for long-term profitability and sustainability. Without pros and cons everybody should to confess of BSB contribution. We expect BSB continue their operations without outside influence and contribute more and more to our industry that brings good luck to the nations.
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6. Bangladesh Shilpa Bank, 2002. Annual Report 2003-04.
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8. Bangladesh Shilpa Bank, 2000. Annual Report 2001-02.
9. Bangladesh Shilpa Bank, 1999. Annual Report 2000-01