Trend of operation of IFIC Bank Ltd.from 2000 to half year of 2006.

RAB 8 Barisal

  CHAPTER- ONE:Introduction

The internship :

serving in the IFIC Bank  since July 24, 2006  as  an  internee  and will finish in October 2006. I divided my internee period into two parts. The first 3 weeks were stipulated for collection  of  data. The  remainder of  the time  was for the completion of the report.

With permission  from  my  honorable supervisor Dr. A.R. Khan. I decided to write on the “trend of operation of the IFIC Bank ltd”. with the introduction of the market economy in the country, the banking sector, like others have become more and more competitive and challenging. The  growth of operation of IFIC Bank ltd is important  factor. By discussion of this topic I can understand the overall present condition  of IFIC Bank ltd. From the present condition of the bank I found  some good side and bed side and suggested how bank can overcome their problems.

My supervisor in the bank was SK. Rashid Ahmed ( manager, IFIC  federation branch), he  cooperative  me strongly and let me share his experience in banking. Besides, all the employees of the IFIC Bank ltd, federation branch assisted me gladly and took considerable interest into what I was doing.

  Background of  the reportjmbh

In   recent years, competition in the banking sector has increased to a considerable  degree. The domination of the government banks  has  been  in the evanescence not only because ‘customer’ faith in the reliability of the private commercial banks has strengthened but also because, service condition in the government banks has deteriorated. The ‘invisible hand’ of the free market now determine  interest rates on deposit and lending. As such, on  bank  is being  able to offer a considerably  superior interest rates on deposit and lending. So the only means to draw the customers lies with better improved and innovative customer product and service. IFIC Bank ltd.  is a leading bank among the private  commercial  banks. The banks overall progressive  evaluation has  gained considerable  momentum over the  last few years. But to retain this  status, it has to improve its service condition to a better degree. In my report, I have discussed on trend of operation of IFIC Bank ltd. I tried to show the trend of operation like: deposit, advances, foreign exchange, net profit, admin cost, income and expenditure, reserve fund and their overall position  from 2000 to june of 2006 and I have also tried to give some suggestions to improve prevailing shortcoming of the operations of the banks.

 Objective of the study

The objective was to analyze  the IFIC Banks overall performance from previous years to half year of 2006 and to find out the weak side and bed side of IFIC Bank on the basis of this analysis and provide some recommendation about how bank can overcome their weak side and some suggestions of how IFIC Bank can improve in future than other competitors. As we all know, in the service sector like that of banks innovative and better customer service ultimately contribute to the overall progress of the organization. Better customer relation and customer satisfactions contribute to banks achieving the market leader position too. I wanted to see how much successful IFIC in this regard.

 Methodology

For the procedure of different banking operation, I have observed the operations and worked with the officers at the same time, I have interviewed of the IFIC Bank officials for getting more information. For the analysis of trend of operation of IFIC Bank ltd. from previous years to half year of 2006, data have been collected from federation branch manager sir and from different statement, annual report, files and document of the branch. Personal experience gained by visiting different desks during internship period and personal interview with branch officials/executives. For gaining in depth knowledge old files and manuals published by IFIC Bank were reviewed.

Duration of rotation in different departments

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   Sources of information

Data for my topic was collected from various sources. First of all I have talked with my branch manager(federation branch). Manager sir provide me current information on my topic and also discussed with me about my topic related information. The main purpose of collection of data is to compare the operational position of IFIC Bank ltd. from 2000 to 2005

I have collected information from IFIC library. There Mr. Shahabuddin sheikh(library in charge) helped me to collect my topic related data. I also collect data from annual report 2002,2003 of IFIC Bank ltd. and from current manual.

I also explored the pages financial magazines(local) in order to find out the current position of IFIC Bank ltd. and also to find out real life case study on bank & banking which is aimed at customer satisfaction.

 Scope of the study    

IFIC Bank ltd. is one of the leading bank in Bangladesh. The scope of the study is limited to the federation branch only. It was not possible to go all branches of the bank. The report covers the background, overall banking activities and performance of the banking activities.

 Limitation of the study

There were limitation too. The flow of my work was hampered for a short time because my departmental requirement was to submit the report within one month. So within this short time I can not able to collect complete data on my topic and some data /information I can not collect for banks internal restrictions. Besides the truth is that, my topic is too broad to engulf within a shortly span of time.

Chapter- Two: Background of the IFIC Bank ltd.

 The Bank in a Sketch

International Finance Investment and Commerce Bank Limited (IFIC Bank Ltd) is a banking company incorporated in the people,s republic of Bangladesh with limited liability. It was set up at the instance of the government in 1976 as a joint venture between the govt. of Bangladesh and sponsors in the private sector with the objective of working as a finance company within the country and setting up joint venture banks/financial institutions abroad. The govt. held 49% shares and the rest 51% were held by the sponsors and general public. In 1983 when the govt. allowed banks in the private sector IFIC was converted into full-fledged commercial banks.

  Ownership structure

The govt. of the people,s republic of Bangladesh now holds 35% of share capital of the bank. Leading industrialists of the country having vast experience in the field of trade and commerce own 34% of the share capital and the rest is held by the general public.

     Composition of the board

unlike other banks in the private sector, Board of directors of the banks is a unique combination of both private and govt. sector experience. Currently it consists of 13 directors. Of them 8 represent the sponsors and general public and 4 senior officials in the rank and status of joint secretary/additional secretary represent the government. Managing director is the ex- officio director of  the board.

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  Capital and reserves

 IFIC Bank has been consistently maintaining the ‘capital adequacy ratio’, as prescribed by Bangladesh Bank. This has been made possible by a policy of building up both capital & reserves. It started with an authorized and paid-up capital of Tk. 100 million and Tk. 63.20 million respectively in 1983. Authorized and paid-up capital increased to Tk. 500 million and Tk. 406.39 million respectively in 2005.

  Mission statement

The mission of IFIC Bank ltd is to provide service to our clients with the help of a skilled  and dedicated workforce whose creative talents, innovative actions and competitive edge make our position unique in giving quality service to all institutions and individuals that we care for.

We are committed to the welfare and economic prosperity to the people and the community, for we drive from them our inspiration and drive for onward progress tom prosperity.

We want to be the leader among banks in Bangladesh and make our indelible mark as an active partner in regional banking operating beyond the national boundary.

In an intensely competitive and complex financial and business environment, we particularly focus on growth and profitability of all concerned.

  Chapter- Three:Banking operation of IFIC Bank Ltd.

General Banking

Introduction

During my practical orientation I was placed in IFIC Bank Limited. First I was placed in Federation Branch. I have completed General Banking and some exposure in Advance in this branch. General Banking is the starting point and main function of all the banking operations it is the department which provides day-to-day service to the customers. Everyday it collects deposit from the customers by allowing broking interest rate, meets their demand for cash by honoring Cheques and lend it to the customers against ending interest rate. Lending interest rate in higher than borrowing interest rate, this is the profit for the bank.

Functions of this department

♦This department maintains following functions.

♦Accounts opening section.

♦Cash section Remittance section.

♦Clearing section.

♦Accounts section.

♦Establishment.

Accounts Opening Section

This section opens different types of account for their valued customers. Selection of customer is very important for the bank because bank’s success and failure largely depends on their customers. If customers are bad they creates fraud and forgery by their account with bank and, this destroys the good will of the banks. So, this section takes extreme caution in selecting its valued customer.                                                                                                                     

Types of Accounts

Accounts can be classified into two types:

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Operational Nature of Accounts

♦ Current Deposit Accounts (CD account)

– A current account may be opened by any individual, firm, company, club, associates, etc. Bank: may, however, refuse without assigning any reasons to open current account to any body.

– Minimum balance of Tk. 5000 while open.

– No current account will be opened with Cheques.

– Fund in the current deposit account shall be payable on demand.

– Minimum balance to be maintained of Tk. 1000.

– If minimum balance falls then incidental charges of Tk. 50 will be realized half is early.

– No interest is payable on the balance of CD.

– In case of closing of current account Tk. 100 is to be realized against incidental charges.

♦ Saving Deposit Accounts (SB account)

– 6.00% interest is provided to depositors.

– The minimum amount of balance to be maintained with this type of account is Tk. 2000

– A depositor can withdraw two times in a week for more withdrawal depositors are not entitled for any interest.

– To withdraw above Tk. 20,000 the depositors has to notice.

– No savings account will be allowed to be overdrawn.

♦ Short term deposit (STD A/C)

. . Generally opened by big business firm.

– Interest depends on the amount deposited.

– Minimum amount of balance has to be maintained with STD account is Tk 2 lacs, while open

– Interest is given at a rate of 4.5%( for less than Tk. 1 crore, 5% for more than 1 crore,     5.5% for more than 5 crore, 6% for more than 10 crore and 2.5% for bank to bank)

– Minimum amount is Tk 5000 must be maintained.

♦ Pension Savings Scheme (PSS)

– This is a scheme to make the customer introduced to the banking system under this schemes the customers are to pay a certain of money at monthly interval up to a period of 3 to 5  years and after the period they will get the returns along with the full interest earned during the period and the principal amount. Most of the clients under this scheme are middle class and lower middle class people

– Generally opened by small sever.

– Minimum Amount Tk 500 and maximum Tk 5000

– Interest rate 8% for 3 years maturity and 7.5% for 5 years maturity period.

– Maturity 3 to 5 years.

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Liquidation of PSS

In case of premature encashment if the period is below 1 year then no interest will be provide.

ff above 1 year interest will be given @ Savings.

Fixed Deposit Reserve (FDR)

– FDR is neither transferable nor negotiable.

– It can be opened by all.

– Provided 6.50% – 11.50% interest.

– Interest rate very on principal amount.

– The deposited principal amounts have not fixed by the Bank.

– One can deposit any sum of amount under fixed deposit reserve.

– In case of with drawl before maturity the previous maturity period is considered to pa: interest according to savings interest rate 6.5% it is known as pre matured en-casement.

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Liquidation of FDR

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

In case of joint name authentication from both is necessary.

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

 Account opening process

Step l- Receiving filled up application in bank’s prescribed form mentioning what type of

account is desired to be opened.

Stop 2The form is filled up by the applicant.

Step 3Two copies of passport sized photographs for individual and in case of firm’s

photographs of all partners are necessary.

Step 4-Applicant must submit required document.

Step 5-Applicant must sign specimen signature sheet and give mandate.

Step 6-Introducer’s signature and accounts number verified.

Step 7- Authorized officer accepts the application

Step 8- Minimum balance is deposited only cash is acceptable.

Step 9- Account is opened and deposit slip and a cheque book has given.

Account Opening Procedure in a flow chart :

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Issuing Cheque books to the customers

 

The bank issues 10 leaves cheque book for savings account and 20, 50 and 100 leaves cheque books for current account. To complete the issuing of cheque books a customer has to fill up the requisition form for cheque books. Then a new cheque book will be filled up by the account number of the customer. The requisition slips are maintained and recorded in a register as voucher.

 

Dormant account

 

If any account is inoperative for more then one year is called dormant account. To operate this accounts manager’s permission is necessary.

Transfer of Account

Account holder may transfer his account from one branch to another branch. For this he must apply to the manager of the branch where he is maintaining his account. Then the manager sends a request to the manager of the branch where the account holder wants to transfer his account for opening the account.

Closing of Account

To close an account parties may be request to send an application along with the unused leaves of the cheque book. On receipt of the application the following steps are taken.

i) The signature of the account holder is verified.

ii) The number of the unused cheque leaves shall be noted therefore.

iii) Debiting the incidental charges to the account.

iv) The account holder is advised to draw the remaining balance.

Kinds of Account Holders

Branch may open accounts of the following categories of depositors:

1) Individuals – Individuals are adult persons of 18 years age or more who are competent to

enter into contracts.

2) Joint accounts – More than one adults jointly or adult with minor(s) may constitute joint

accounts.

3) Sole Proprietorship concern – A business trading concern owned by a single adult person

is sole proprietorship concern.

4) Partnership firms – A business concern owned and managed by more than one persons

which may be registered or not registered is a partnership firm.

5) Private limited – A body corporate formed and registered under companies Act 1994,

with limited members.

6) Public limited – A body corporate formed & registered under companies Act 1994 with

limited liability of the shareholders and with no upper ceiling of shareholding both

certificate of incorporation and certificate of commencement has given by registrar.

7) Trusts – Trusts are created by trust deed in accordance with the law.

8) Liquidators – Liquidators are appointed by court of law for companies going into

liquidation.

9) Executors – Executors are appointed by a deceased himself before his death by

“with” to settle the accounts of the person after his death.

10) Club/Associations/Societies – There are organizations created & registered or not

registered under societies registration act.

11) Co-operatives – There are corporate bodies registered under societies registration Act or

companies Act or the co-operative societies Act.

12) Non-Govt. Organization – NGOs are voluntary organizations created & registered and

society’s registration Act or co-operative societies Act.

13) Non-Trading concern – These are organization registered under societies registration Act

or companies Act or co-operative societies Act.

Cash Section Cash department is the most vital and sensitive organ of a branch as it deals with all kinds of cash transactions. This department starts the day with cash in vault. Each day some cash i.e. 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.

Functions of cash department

-Cash payment

-Cheque cancellation process

-Cash receipt

♦  Cash payment

Cash payment is made only against cheque.

This is the unique functions of the backing system which is known as “payment on demand” .

It makes payment only against its printed valid cheque.

♦ Cheque cancellation process

Receiving cheque by the employee in the cash counter and verification of the following by the cash officer in the computer section:

i) Date of the cheque. (it is presented within 6 month from issue date)

ii) Issued from this branch.

iii) An amount in figure and in word does not differ.

iv) Cheque is not torn or mutilated. Then gives pay cash seal and sends to the payment counter and payment office makes payment.

 

♦ Cash receipt                      .

Another important function of this department is receipt of cash. Depositors deposit money in the account through this section by deposit slip.

i) It receives deposit from depositors in the form of cash.

ii) So it is the “mobilization unit” of the banking system.

iii) It collects money only its receipts from.

iv) It receives cash for issuing pay order TT, DD.

Books maintained by this section:

i) Vault register: It keeps accounts of cash balance in vault at the bank.

ii) Cash receipt register: Cash receipt in whole of the day is recorded here.

iii) Cash payment register: Cash payments are made in a day are entries here.

iv) Rough vault register: Cash collection for final entry in vault registers done here, as

any error and correction is not acceptable.

v) Cash balance book: Balance here is compared with vault register. If no deference is

found, indicate no error and omission.

Local RemittanceSending money from one place to another place for the customer is another important service of the bank. This service is an important part of transaction system. In this service system, people, especially businessman can transfer funds from one place to another place easily. There are three kinds of technique for remitting money from one place to another these are: ­

-Demand draft (DD)

-Pay order (PO)

-Telegraphic Transfer (TT)

  Demand Draft (DD)

DD is an order of issuing branch on another branch of the same bank to pay specified sum of money to payee on demand. It is generally issued when customer wants to remit money in any place i.e. outside or the clearing house area of issuing branch. Payee can be the purchaser himself or another mentioned in the DD. It is safe technique of transferring money from one place to another.

Payment process of the paying bank:-Test confirmation if the DD value is more then Tk. 25,000.00

-Confirm that the DD is not forged one.

-Confirm with sent advice.

-Make payment.

Commission and charges of DD:

Postal charge Tk. 15.00 + commission 0.1% + 15% Vat on commission. No telex charge.

How DD Works

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Cancellation of DD:

Step I :            Application is writing to the manager of the account maintaining branch.

Step 2 :         Verification of specimen signature.

Step – 3 :         Journal posting for incoming:

   -Bills payable DD payable              Dr.

              – IFIC General AIC                         Cr

Journal posting for outgoing:

-IFIC general A/C                           Dr.

               -Party A/C                                      Cr.

Step – 4 :      Send a letter to paying bank

  Pay Order (P.O)

 Pay order gives the right to claim from the issuing bank. A payment is an instrument from one branch to the another branch of the bank to pay a specific sum of money. Unlike cheque there is no possibility of dishonoring because before issuing pay order the bank takes money in advance. There are three reasons behind use of P.O:

Remitting Purpose

Advice to Pay

Payment against bill submitted to the bank.

 Pay Order consists of three parties:

                –  Beneficiary

                –  Applicant

                –  Counter Part.

Commission and charges of P.O:

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Payment Process of Paying Bank:

Payment is made through clearing.

 

Payment of Pay Order :

An the PO issued by the bank is crossed one it is not paid over the counter. On the contrary the amount is transferred to the payees’ account. To transfer the amount the payee must duly stamp the PO.

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Cancellation of P. 0:

 Step-I: Application writes to the manager of the account maintaining branch.                               Step-2: Verification of specimen signature.

 

Encasement of P.O: To encashment of that P.O. the payee of the instrument deposits the P.O. to his bank. The bank sends the pay order to the issuing bank through clearing. Then the P. O. is passed through the deposit section and the P. O. is send back to the clearing house again and later the amount of P.O. credited to payee’s account.

Flow Chart of P.O.-How It Works

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 Telegraphic Transfer (TT)

 Issuing branch requests to another branch to pay specified sum of money to a specific person on demand by telegraph or telex or telephone. Transfer of fund by TT is the rapid and Convenient but expensive method.

TT (Issue):

¨         Customer fills up the TT form and pays the amount along with commission in cash or by cheque.

¨         The respected officer issues a cost memo after receiving the TT form with payment seal, then sign it and at last give it to the customer.

¨         Next a TT confirmation slip is issued and its entry is given in the TT issue register.

¨         A test number is also put on the face of the slip. Two authorized officer signs this slip.

¨         The respective officer transfers the message to the drawee branch mentioning the amount, name of the payee, name of the issuing branch, date, test number and his her power of attorney (P.A.) number.

 ¨      The confirmation slip is send by post.

  How TT Works (Outward) :

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Payment Process of TT:

 Step-I: Test confirmation

Step-2: Confirm issuing branch

Step-3: Confirm payee’s account.

Step-4: Confirm amount

Step-5: Make payment

Step-6: Advice sends to the Head Office for reconciliation.

Commission and Charges of TT:

–  Telephone or Telex charge TK.30.

– .1% Commission of Principal amount.

–   15% VAT on commission.

Entry for TT

a)         On Issuing of TT :

1.   Cash / Respective A/C (issuer) ————– Dr.

IFIC BANKGeneral A/C —————————- Cr.

(Principal amount)

Income A/C-postage ————————– ——-Cr.

Income A/C-Commission on TT —————- –Cr.

2.   IFIC BANKGeneral A/C ————————– Dr.

Bills Payable A/C-TT Payable ——————- Cr.

b)         On Payment of TT

Bills Payable A/C – TT Payable ———————- Dr.

Party A/C ————————————— Cr.

 Test Arrangement of TT & DD

Test is the security code by decoding which any branch can be sure that the TT or DD is not forged one. Only the authorized officers know the test code. Each bank maintains secret code for this. That is the test arrangement is the combination of different secret codes.

 Clearing Section

This section receives all kinds of cheque in favor of the valued client for clearing on the part of their banking services. After receiving cheque it is necessary to endorse it and cross it specially. Clearing of cheque is done through the clearing house in Bangladesh Bank.

– 1 st clearing

– 2nd clearing

 Types of cheque for clearing

There are four types of cheque for clearing:

1) Inward clearing cheque.

2) Outward clearing cheque.

3) Inward bills for collection.

4) Outward bills for collection.

Inward clearing cheque

It refers the instruments drawn on IFIC bank received by other banks in the clearing house from the representative of other bank.

Outward bills for collection

When our branch sends Cheques to other branch ofIFIC bank is called OBC. Accounting treatment of this process:

IFIC general (Sender’s Branch)          Dr.

Depositor’s A/C                                  Cr.

Inward bills for collection (lEC)

There are two types of clearing, firstly cheque collects from the other branch of IFIC banle These Cheques are settled by sending mCA i.e. debiting depositors account and crediting

sender’s branch account.                                        .

Secondly cheque collects from another bank outside the clearing house. These cheque are settled debiting depositors account and sending DD or TT in favor of senders bank.

Outward Clearing Cheque

Cheque drawn of another branch of IFIC bank are called Outward Clearing Cheque. These types of cheque are directly sent to the respective branch and request them to send IBCA.

 Accounts section

This is obviously an independent and unique department, which works as the composition of all the departments of the branch. This section is fully computerized. So the conventional large ledger and journal books are not kept like the some nationalized bank. It receives the vouchers from all departments and prepares the subsidiaries and maintains accounts.

 

Establishment section

This section deals with employees salary, many types of internal expenses such as purchases of stationary, equipment, machinery, payment of labor cost and convince. In case of leave of absence employee collects prescribed form from this section.

 

 

 ICC: Internal control and compliance department. This department check all the activities as per requirements of Bangladesh Bank.

Locker facilities

Locker facility is available in this branch. Generally people keep their valuable ornaments in the locker. Lockers are three sizes one are small and other are middle and big. If any body want to open a locker s/he has to pay rent Tk. 1800 for big size, Tk. 2500 for large and Tk.1200 for small size annually. Any individual can open a locker.

   Loans & Advances

Introduction

This is the survival unit of a bank because until and unless the success of this section is a question to every bank. If this section is not properly working, the bank it self 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 deposits. Now the question may gradually arise how the bank will provide interest to the clients and the simple answer is advance.

We often use loans and advances as an alternative to one another. But academically this concept is incorrect. Advance is the combination of such items where loan is a part only for this credit section of the bank.

Types of  Advance

All loan and advance that are provided by this bank can be categorized into there heads according to the nature and characteristics of each product:

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Nature of Different Types of Advance

Cash Credit HYPOTHECATION (CC HYPO)

¨      Cash credit is given through the cash credit account. Cash credit is an active and running account where deposit and withdrawals may be made frequently. The debit balance of the account on any day can not exceed the agreed limit.

¨      Instrument HYPOTHECATION DEED.

¨      50% margin requires to open a CC account. (varies)

¨      Operation of cash credit is same as that of overdraft the purpose of cash credit is to meet working capital needs of traders, farmers, and industrialist.

¨      It is granted only the first class parties.

¨      It is charged against a property where neither the ownership nor the possession is passed to the bank.

Cash Credit PLEDGE

¨      The nature, operational work, and characteristics of CC- PLEDGE in as same as CC­HYPO.

¨      CC.PLEDGE in different from CC-HYPO only from the securities or business goods against the loan amount.

¨      It is charged against properties where the ownership may remain to the borrower but the possession is passed to the bank.

¨      Instrument – Pledge Deed.

Secured Overdraft (SOD)

¨      Overdrafts are those drawings, which are allowed by the banks in excess of the balance in the current account up to a specified amount for definite period as arranged for.

¨      Generally it is given to the businessmen to increase their business activities.

¨      Usually provide against FDR, PSS, i.e. financial obligation or any primary securities. The interest charges from the date of first withdraw.

¨      Interest is calculated and charged only on the actual debit balance on daily product basis.

¨      Balance of OD account are fluctuates

¨       The interest rate of SOD is 3% above of FDR interest rate if the FDR is in our Bank.

If the FDR is in other bank then the interest rate is 14.50

 

Industries Loan

It is a term loan.

It is given for three (3) years at equal installment.

Grass period is allowed of this types of loan.

Grass period is the period that require to earn visible returns.

Others loan

Loan provided for other purpose which is productive and less risk rather industrial sector are treated as others loan.

The terms and conditions of these types of loan are same as industry loan.

House Building Loan

This loan is give for the construction of building house. It is gives for three (3) years at equal monthly installment. This loan is not provides frequently.

Staff House Building Loan (SHBL)

120 times of BASIC salary is provided as SHBL. Bank rate + 1 % interest is charged to the loan amount. Repaymeilt adjusted from their monthly salary. Repayment is made at equal monthly installment.

Consumes Credit Scheme

Under this scheme credit is given to the customer to purchase necessary and luxury commodities like computer, motor vehicle, television, refrigerator, music system sewing machine, furniture etc.

Other then the employee it is given to the valuable client.

It is a 24,36,48 installment system @ 15.50% interest.

Stuff loan against Provident Fund (SLPF)

10% of basic in contributed by employee Repayment is adjusted from their on they salary. Maximum sanction from PF.

Loan against PSS

This loan is provides against PSS fund. 80% are given of the PSS fund.

This is 100% secured for the bank.

Payment Against Document (PAD)

The importers are to open letter of credit through any bank for importing goods. Most of the time they are to extend credit to the importers if not prohibited by Bangladesh bank. This loan creates, on receipt of shipping documents from the negotiating bank, is transferred and lodged to PAD.

PAD is associated with import and import financing. The bank opening letter of credit is bound to honor its commitment to pass for import bills when these are presented for payment provided that it is drawn strictly in terms of the letter of credit, in fact the amount their sends advanced on behalf of the importer.

Loan against imported Merchandise (LIM)

In many cases, a bank has to clear the goods imported under letter of credit at the request of the borrower. When the importer does not come forward to retire the documents inspire of repeated reminders bank has on forced circumstances to clear the imported consignment on arrival of the same to avoid demurrage at the port which adds to the burden of commitment. When the importer fails to retire the documents or request for clearance of goods, the outstanding under PAD is transferred to LIM account.

After clearance, consignments are taken delivery by the importer on full payment of bank’s liability. Normally part delivery is not allowed while on LIM A/C. when the delivery in part is desired by the importer, the LIM is converted into cash credit account retaining proper margin and executing charge documents, the delivery is effected themselves on obtaining pro rate payment.

Trust Receipts (TR)

This is an arrangement under which credit is allowed against trust receipts and imported or exportable goods remain in the custody of the importer or exporter but he is to execute a stamped trust receipt in favor of the bank where a declaration is made that goods imported or bought with the bank’s financial assistance are held by him in trust for the bank.                                                                                                                                  .

Export Cash Credit (ECC)

ECC are extended to an export to facilitate the export of goods & commodities for which there is export letter of credit or contract on hand. It is a pre-shipment & short term credit to be liquidated out of the proceeds of export documents which include negotiation or purchase of export documents.

 

Securities against Advances

 

The following securities are to be obtained by the branches depending on the nature of advances while allowing secured advances to the parties.

– Pratirakshya Sanchay Patra, Bangladesh Sanchay Patra, ICB unit certificates,

Wage Earner Development Bond

– Fixed Deposit Receipt issued by any branch of IFIC Bank Limited.

– Shares quoted in the Dhaka Stock Exchange Limited

– Pledge of goods and produce

– Hypothecation of goods, produce and machinery

– Immovable property

– Fixed assets of a manufacturing unit

Cheques, Drafts, Pay Order, Railway Receipts, Steamer Receipts, Burge Receipts of the Govt. or Corporations

Shipping document

 

Which Advances Against Which Securities

All securities are not suitable for all types of advances. Each security has its own suitability. Specific securities to be obtained by the branches while allowing advance are shown below against the types of advances:

Types of advances  Securities

Loans   Lien of various kinds of Sanchay Patras, Govt. Securities, and Shares quoted in the Stock Exchange, Debentures, Fixed Deposit Receipts, Pledge of gold/Gold ornaments, hypothecation of vehicles. Collateral of immovable properties.

Overdraft    Sanchay Patra, Non-resident for deposit (NFCD), shares, debt. Promissory notes, fixed deposit, insurance policies, gold etc.

Cash Credits   Pledge or hypothecation of stock, produced merchandise.

 

Inland bills purchase (IBP)       The bill itself.

 

PAD                                          Shipping document for imports.

IM                                             Pledge of imported merchandise.

TR                                             Trust receipt obtained in lieu of trustees.

ECC                                          Pledge or hypothecation of goods receipts.

Foreign Bills Purchase              Shipping document for exports.

Process of Loan Sanction Step-1     :    Sanctioning by the competent authority

A secured advance may be grant to a party only after getting a limit sectioned from the competent authority.

 

Step-2     :    Loan/Advance Proposal

 

For obtaining a loan/advance the party must make an application in standard form in writing to the branch where he maintains his operative account. After receiving the application from the party, the branch manager will take immediate steps to compile report regarding the party based on the following sources of information:

Personal investigation

  • Confidential supports from
  • Other banks,
  • Chamber of commerce
  • CIB from Bangladesh bank as the earnable.
  • Treading account P/C, B/S. M/A if’ any and other documents submitted by the party.
  • The average balance and the present maintained in the account.
  • The nature of operations during the last six months and the date of opening account.

Step-3     :    Preparation of limit proposals

The branch, may prepare a limit proposal after being fully satisfied with the following points:

v  The financial position of the party.

v  Purpose for which advance is required.

v  Nature of securities offered.

v  The payment arrangement.

 

Step-4     :    Renewal Proposal.

 

Step-5     :    Approval by Head Office and Branch responsible.

 

v  Limit proposal sent to HO.

v  Sanction/reject

v  Receive the limit section advice.

Step-6     :    Disbursement of loan.

Step-7     :    Loan monitoring and administration.

Classification of Loan (CL)

Advance may classified or unclassified are determine on the basis of regularity of loan recovery.

Figure: Shows the Classification or 1oanUnclassified Loan: the repayment of advance which have regularity are called unc1assifiec advance. This is a clean loan that is these is no overdue installment or not the expire due date.

Classified: The repayments of advance which have no regularity are classified. That means which are irregular in nature, overdue installment of payment, and expire the due date. There are three standards of classification:

–  –    Sub Standard

–    Doubtful

–    Bad Loan

         Eligible security

– For land and building 50%.

– Financial obligation 100%.

Interest suspense

– Total balance of interest against classified loan.

 

Base for provision

– Formula: Outstanding – Interest surpasses – Eligible security

– In case of unclassified advance the base for provision should kept 1 % of the total

outstanding amount.

– In case of bad loan the base for provision should kept 100% of the total outstanding

amount

– In case of doubtful loan the base for provision should kept 50% of the total

outstanding amount.

– In case of sub standards loan the base for provision should kept 20% the total

outstanding amount.

Basically this standards of classification are depends on the expansion of time. There are separate systems of classification for each type of loan. Each banking institution have develop there own system of loan classification

Credit Risk Analysis (CRG)                 

CRG is the combination of analysis of various types of risks that may occur while a loan have sanctioned. This is an analysis of the measurement of performance of a company or individuals. When a loan have been provided by the bank then all types of risks have to calculate. This is not easy to express all the pros and corns of CRG are not possible in this report. Before sanctioning a loan it is necessary to analyze the CRG. IFIC Bank has formatted this analysis which contains several sheets of analysis to identify the strength and weakness and the repayment probability of the lending.

  Foreign-exchange Banking

 Introduction

 A person living in Dhaka city can make payment to another in Chittagong with money or by Cheques on any bank of the country. Such payments do not present any problems. But things are different when the debtor and the creditor live in different country. When a trader from Dhaka city imports goods from New York, the payment involves certain complication. The Dhaka man can pay in taka but taka is of no use to New York exporter. There must be some means of changing taka into dollar. Obviously the intervention of a third party is required. So there is a need for a foreign exchange mechanism.

 

Foreign exchange refers to the process or mechanism by which the currency of one country is converted into the currency of another country. Foreign exchange is the means and methods by which rights to wealth in a country’s currency are converted into rights to wealth in another country’s currency.

                                                                                                                                                          -L.R. CHOWDHURY

 

 

In terms of foreign exchange regulation Act 1947, as adapted in Bangladesh,

foreign exchange means foreign currency and includes all deposits. credits and balances payable in foreign currency as well as all foreign currency instruments such as, drafts, travelers Cheques, and bills of exchange in any foreign country.

Administration of Foreign Exchange in Bangladesh

 The statute for administration of foreign currency in Bangladesh is the foreign exchange regulation Act, 1947 as adapted in Bangladesh. Under this Act, the responsibility and authority of administration of foreign exchange is vested by the government with the Bangladesh bank.

While the Bangladesh bank has full authority to administer foreign exchange in Bangladesh, it cannot do so by itself. This is not possible for Bangladesh bank to deal with a large number of exporters and importers individually. Therefore, provision has been made in the act, enabling the Bangladesh bank to delegate its powers of functions to authorized dealers.

Authorized Dealers (AD)

In administering exchange control and foreign trade, Central Bank of the country (Bangladesh Bank) authorizes few branches of commercial banks to deal in foreign exchange. These branches are known as “Authorized Dealers”. They act as an agent of the Central Bank and work under the “Foreign Exchange Regulations Act-1947” and “Guidelines for Foreign Exchange Transactions-Volume 1 & 2” prescribed by Bangladesh Bank.

Handling of Foreign Exchange at IFIC Bank

The IFIC Bank deals with foreign exchange with goodwill for a long time. It is handling of foreign exchange closer to twenty (20) years. Nowadays 16 branches of this bank are authorized to deal foreign exchange by Bangladesh Bank.

IFIC Bank offers two types of credit facilities to its customers. Such as-

            a)   Funded Credit and

            b)   Non Funded Credit

 

a)         Funded Credit :

 The credit facilities in which the fund of the bank is directly invested is known as funded credit. Such as-Cash Credit, Secured Overdraft act.

 b)         Non Funded Credit:

 The credit facilities in which bank’s funds are not directly invested are known as non-funded credit. Such as-Letter of Credit (L/C), Guarantee etc.

Letter of Credit / Documentary Credit (“L/Cs”) is the key player in the foreign exchange business. With the globalization of economy. International trade has become quite competitive. Timely payment for exports and quicker delivery of goods is, therefore, a pre-requisite for successful international trade operation. Growing complexity of international trade, separation of commercial parties across the globe etc. underlined the need for evolving a system that balances between the expectations of the seller and the buyer. Documentary Credit has emerged as a vital system of trade payment, and fulfilled the requisite commercial need. This system substantially reduces payment-related risks for both exporter and importer. Thus the letter of credit is the classic form of international export payment, especially in trade between distant partners. Payment, acceptance or negotiation of the credit is made by the bank upon presentation by the seller of stipulated documents (e.g., bill of lading, invoice, inspection certificate).

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Documentary credit or Letter of credit (L/Cs):

                                                          

Documentary Credit or letter of credit is nothing but an arrangement whereby a bank (issuing bank) acting at the request and on the instruction of a customer (the applicant) or on its own behalf undertakes to make payment to or to the order of a third party (the beneficiary) or to accept and pay bills of exchange (draft) drawn by the beneficiary, or authorize another bank to negotiate against stipulated documents provided the terms and conditions to the credit are complied. Thus, Documentary Credits are akin to bank guarantees. In popular language, they are known as Letters of credit (L/Cs). Bank guarantees are, however, issued to cover situation of non-performance whereas documentary credits are issued on behalf of the buyer to cover situation of performance, i.e., the issuing bank agrees to make payment to the beneficiary one he surrenders the requisite complying documents.

  Types of Letter of Credit

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Nature of Different types of L/C

Revocable Credits                 :  A revocable credit is one which can be amended or cancelled by the          issuing banker at any time without prior notice.

Irrevocable Credits                : An irrevocable letter of credit contains an absolute undertaking on the part of the issuing bank to accept.

Transferable Credit               : The main theme of this type of credit is transferable i.e. if the

                                                 exporters can not able to supply the goods then. they can transfer it to others.

Non-transferable Credit        : These types of credit can not be transferable.

Sight L/C                              : In international business this types of credit is most preferable. The main theme of this credit is the payment is properly secured.

Deferred L/C                        : A maturity period specified there. The payment is made on between the maturity periods.

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Bank as a party of documentary credit :

 Parties to the documentary credit are-an issuing bank, an advising bank, a confirming bank, a reimbursing bank or a negotiating banks.

           Issuing Bank : The Issuing Bank or the Opening Bank is one which issues the credit, i.e., undertakes, independent of the undertaking of the applicant, to make payment provided the terms and conditions of the credit have been complied with. The payment may be at sight if the credit provides for sight payment, or at maturity dates if the credit provides for deferred payment. Especially the issuing bank should satisfy himself on the credit worthiness of the applicant. The credit application must be in accordance with the Uniform Customs and practices for Documentary Credit (UCPDC)- ICC publication no. 500 edition of 1993.

¨         Advising Bank: The Advising Bank advises the credit to the beneficiary authenticating the genuineness of the credit. The advising bank is generally situated in the country/place of the beneficiary.

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¨      Confirming Bank : A Confirming Bank is one which adds its guarantee to the credit opened by another bank, thereby undertaking the responsibility of payment / negotiation / acceptance under the credit in addition to that of the issuing bank. A confirming bank normally does so if requested by the issuing bank. When the creditworthiness of the issuing bank is in doubt, beneficiary’s bank may request the issuing bank to give additional confirmation by another bank. It is said, ‘Add Confirmation’ in practice.

¨         Negotiating Bank : A Negotiating Bank is the bank nominated or authorized by the issuing bank to pay, to incur a deferred payment liability, to accept drafts or to negotiate the credit.

¨         Reimbursing Bank : A Reimbursing Bank is the bank authorized to honor the reimbursement claims in settlement of negotiation / acceptance / payment lodged with it by the negotiating bank or accepting bank. It is normally the bank with which the issuing bank has account from which payment is to be made. Reimbursement claims in foreign exchange business is settled by the Uniform Rules for Reimbursement (URR)-ICC publication no. 525.

The Foreign Exchange Department is mainly divided into three sections. Such as-

            1.   Import Section

            2.   Export Section &

            3.   Remittance Section     

The import Section deals with L/C in the perspective of the importers and the Export Section deals with L/C in the perspective of the exporters.

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Import is the flow of goods and services purchased form one country to another. Hence, 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 this to the importer. In case of import, the importers are asked by their exporters to open letters of credit so that their payment against goods is ensured.

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IMPORT PROCEDURES :

An importer is required to submit the following documents in order to get a license to import through IFIC Bank Federation Br.

 ¨         A bank account with the branch

¨         Import Registration Certificate (IRC)

¨         Tax Payer’s Identification Number (TIN)

¨         Performa Invoice / Indent

¨         Membership certificate from a recognized Chamber of Commerce & Industry or Town Association or registered Trade Association.

¨         Letter of Credit Authorization (LAC) Form properly filled in quintuplicate signed by the importer.

¨         L/C Application duly signed by the importer.

¨         One set of IMP Form.

¨         Insurance Cover Note with money receipt.

¨         VAT Registration Certificate (for Commercial Importers)

¨         In case of public Sector, attested photocopy of allocation letter issued by the allocation authority, Administrative Ministry or Division specifying the source, amount, purpose, validity and other terms and conditions against the imports.

¨         Any such documents as may be required as per instruction issued/to are issued by the Chief Controller of Imports & Exports (CCI&E) from time to time.

¨         On receipt of the LCA Form and the other documents, the branch officials carefully scrutinize the documents and lodge the same in their respective registration books and duly verify the signature of the importer put on the LCA Form.

 To import, a person should be competent to be an ‘importer’. The office of the Chief Controller of Imports & Exports (CCI&E) provides the registration (IRC) to the importer. After obtaining the IRC, the person has to secure a “Letter of Credit Authorization” (LCA) registration from the Registration Unit of Bangladesh Bank. After getting the LCA registration, a person becomes a qualified importer. He is the person who requests or instructs the opening bank to open an L/C. He is also called the “Opener” or “Applicant” of the credit

Proposal For Opening Of L/C     

In case of an L/C of a small amount only the prescribed application form, i.e., the LCA Form is enough to open an L/C. But when the L/C amount is reasonably high or where the party intends to avail a credit facility, then the importer needs to submit an application to the Foreign Exchange Department for getting a limit of the L/C amount.

The salient features of the application are –

¨         Full particulars of the bank account

¨         Nature of business

¨         Required amount of limit

¨         Payment terms and conditions

¨         Goods to be imported

¨         Offered security

¨         Repayment schedule

The L/C Application Form :                       

L/C Application form is a sort of an agreement between customer and bank on the basis of which the letter of credit is opened. IFIC Bank Federation Branch provides a printed form for opening of L/C to the importer. A special adhesive stamp of value Tk. 150 is affixed on the form in accordance with Stamp Act in force. While opening, the stamp is cancelled. Usually the importer expresses his decision to open the L/C quoting the amount of margin in percentage (Some L/C’s are opened for 100% margin).

Requirements of L/C Opening

¨.Applicant must hold a current deposit (CD) account in the Bank.

¨ He must have a trade license of import

¨ Tax Identification number (TIN)

¨ Vat certificate.

¨ Membership certificate.

¨Import registration certificate (IRC) for industrial or commercial.

An importer must ensure the above requirements while he is going to issue a L/C with any bank to import some thing form another country.

The Letter Of Credit Authorization Form (Leaf)

The Letter of Credit Authorization Form (LCAF) is the form prescribed for the authorization of opening letter of credit/payment against importer and used in lieu of import license. The authorized dealers are empowered to issue LCA Forms to the importers as per basis of licensing of the import Policy Order in force to allow import into Bangladesh. If foreign exchange is intended to be bought from the Bangladesh Bank against an LCAF, it has to be registered with Bangladesh Bank’s Registration Unit located in the concerned area office of CCI&E. The LCA Forms available with authorized dealers are issued in set of five (05) copies each. First Copy is exchange control copy, which is used for opening of LC and effecting remittance. Second Copy is the custom purpose copy, which is used for clearance of imported goods from custom authority. Triplicate and Quadruplicate Copy of LCAF are to be sent to concerned area of CCI&F office by authorized dealer/Registration Unit of Bangladesh Bank. Quintuplicate Copy is kept as office copy by authorized dealer/Registration Unit.

The Letter of Credit Authorization Form (LCAF) contains the following details-

            (1)  Name and address of the importer.

            (2)  IRC no. and year of renewal.

            (3)  Amount of L/C applied for (both in figure and in word).

            (4)  Description of item(s) to be imported.

            (5)  Import Trade Certificate (ITC) Number / Harmonized System of Code (HS      Code Number.

The imp form :

The IMP Form contains the followings –

            ¨   Name and address of the Authorized Dealer.

            ¨   Amount of remittance to be permitted (i.e., L/C amount).

            ¨   LCA Form number, date, value in Tk.

            ¨   Description of goods, quantity.

            ¨   Invoice value in foreign currency (i.e., L/C amount)

            ¨   Country of origin.

            ¨   Port of shipment.

            ¨   Name of steamer/airline (i.e., by road/by ship/by air etc.)

            ¨   Port of importation.

            ¨   Indentor’s name and address.

            ¨   Indentor’s registration number with CCI&E and Bangladesh Bank.

            ¨   Full name and address of the applicant.

            ¨   Registration number of the applicant with CCI&E

            ¨   Type of LCF i.e. Commercial or Industrial.

Scrutinization of l/c application :

On receipt of L/C application, the branch officials scrutinize the same very carefully giving emphasis to the following points-

            1.   L/C application is stamped (as per Govt. Stamp Rule) as it is a guarantee of payment.

            2.   All information mentioned in different columns have been furnished;

            3.   The items to be imported are eligible according to import entitlement;

            4.   If L/C is opened against indent, Bangladesh Bank’s permission, valid registration, authority to issue indent by indentor are to be checked;

            5.   The terms and conditions stipulated in the L/C application are consistent with the Bangladesh Bank Foreign Exchange Guidelines, Import Trade Regulations, UCPDC etc;

            6.   The amount and description of merchandise are relevant to LCAF and proforma invoice/ indent / purchase order;

            7.   Survey Report or Certificate in case of old machinery;

            8.   Carrying vessel is not of Israel or Serbia, Montenegro, Iraq, Israel & Afghanistan;

            9.   Certificate declaring that the item is in operation not more than 5 years in case of car.

Accounting Treatment in Case of L/C Opening

 As soon as L/C is opened, the bank accepts a liability on behalf of the importer to make payment against the credit. Provided that the shipment is made within the period and other term, and conditions as per L/Care complied with, naturally, bank has to pass an entry in L/C liability ledger and also in the general ledger to show its actual liability accepted on L/C. A liability voucher in passed as

 Contingent liability voucher

 Customer’s liability on L/C     Dr.

                    Bank’s liability on LIC            Cr.

   Margin and bank charge

   Margin, Commission, Postage and Cable Charge are recovered from the party by passing entries as under:

Parties AIC                        Dr.

Margin AlC on LIC.          Cr.

All charges on LIC           Cr.

Transmission of L/C

In international trade, receipt of L/C by cable, telex, fax is preferred by all. In that case the whole text of L/C is to be transmitted to the advising bank.

Transmission Process of IFIC Bank

The transmission process of L/C of IFIC Bank are much more advance. They are sending all foreign L/C to the advising bank through SWIFT.

SWIFT- Society for World Wide Inter Bank Tale Communication. This is a system of inter bank transaction. Every bank or other financial institutions must get the membership of SWIFT to share the information. This is a system of communication where further confirmation will not require

Amendment of l/c :

The letter of credit opened by a bank may need to amendment. If the supplier finds. that the terms of the credit cannot be complied with in full, he would arrange for necessary amendments by the opener before the goods have shipped. These amendments must be advised by the opening bank to the supplier through advising bank. Some time the opener also may like to amend the credit after it has been advised.

Adding confirmation :

Sometimes beneficiary or supplier of the goods insists the importer for adding confirmation to L/Cs or to issue L/Cs with add confirmation. In that case, at the request of the importer, the Issuing Bank requests the Advising Bank or any third bank to add their confirmation to the L/C. Normally, add confirmation charge is borne by the beneficiary and the confirmation charge differs from bank to bank.

Lodgment & retirement of shipping documents:                    

 On scrutiny, if it is found that the document drawn in conformity with the terms of the credit, i.e., the documents are in order, this Branch lodges the documents in PAD (Payment Against Documents) and the following accounting treatments are given-

PAD A/C ————————————————— Dr.

            IFIC BANK General A/c (at HO prescribed rate) —Cr.

            Exchange A/C —————————————Cr.

 The reversal entries are as follow –

 Banker’s Liability ——————————— Dr.

Customer’s Liability —————————— Cr.

(When lodgment is passed)

 After passing the lodgment vouchers, the shipping documents are then stamped with PAD Number and entered in the PAD Register. Intimation is given to the customer calling on the bank’s counter requesting retirement of the shipping documents. The retirement vouchers are as follows –

 L/C Margin A/C ———————————————— Dr.

Party’s A/C —————————————————– Dr.

                  PAD A/C ——————————————————– Cr.

                  Interest / Commission A/C ———————————– Cr.

                  P & T Charges A/C ——————————————– Cr.

After passing the retirement vouchers, endorsement is made on the back of the Bill of Exchange as “Received Payment” and the Bill of Lading endorsed to the effect “Please deliver to the order of M/S —–”, under two authorized signatures of the bank’s officers (P.A. Holder). Then the documents are delivered to the importer.

  Export Section & Export Financing :

 In the Export Section, two (02) types of L/Cs are handled in this branch-

             1)   Back-to-Back L/C; and

            2)   Export L/C

 Export financing can be done in two ways. These are:

                  1)   Pre-shipment Financing;

                  2)   Post-shipment Financing.

 Pre-shipment financing can be done by opening of back-to-back L/C and Packing Cash Credit (PCC). In case of pre-shipment financing, about 90% is financed by the bank. Of that portion, about 75% is for back-to-back L/C and 10% is for packing cash credit. Financing in Back to Back L/C changes according to the products i.e. Normal fabric, Flannel fabric, Woven fabric etc. Example of post-shipment financing by bank is Foreign Documentary Bills for Purchase (FDBP).

Back to Back L/C:

In case of a “Back-to-Back” letter of credit, a new L/C (an import L/C) is opened on the basis of an original L/C (an export L/C). Under the “Back-to-Back” concept, the seller as the beneficiary it as a ‘security’ to the Advising Bank. The beneficiary of the back-to-back L/C may be located inside or outside the original beneficiary’s country. In case of a back-to-back L/C, no cash security (no margin) is taken by the bank; bank liens the first L/C (the master L/C). In case of a back-to-back L/C, the drawn bill is usage/time bill.

Papers/documents required for opening of back-to-back L/C are as follows –

 ¨         Master L/C

¨         Valid Import Registration Certificate (IRC) and Export Registration Certificate (ERC)

¨         L/C Application and LCAF duly filled in and signed

¨         Proforma Invoice or Indent

¨         Insurance Cover Note with money receipt

¨         IMP Form duly signed

¨         In addition to the above documents, the following papers/documents are also required to export oriented garment industries while requesting for opening of back-to-back letter of credit –

¨         Textile Permission

¨         Valid Bonded Warehouse License

¨         Quota Allocation Letter issued by the Export Promotion Bureau (EPB) in favor of the applicant for quota items.

¨         A permission from Bangladesh Garments Manufacturer’s & Exporter’s Association (BGMEA).

 In case the factory premises is a rented one, Letter of Disclaimer duly executed by the owners of the house / premises to be submitted. A checklist to open back-to-back L/C is as follows-

 ¨         Applicant is registered with CCI&E and has bonded warehouse license.

¨         The master L/C has adequate validity period and has no defective clause

¨         L/C value shall not exceed the admissible percentage of net FOB value of relative Master L/C¨   Usage Period will be up to 180 days.

 Flow Chart for back-to-back L/C

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Payment for back to back L/C:

 In case of back-to-back L/C for 30,60,90,120 & 180 days of maturity period, deferred payment is made. Payment is given after realizing export proceeds from the L/C Issuing Bank. For Garments Sector, the duration can be maximum 180 days. For importing machinery items or capital goods for 360 days Back to Back L/C can be opened.

  Export L/C :

The other type of L/C facility offered by this Branch is Export L/C. Bangladesh exports a large quantity of goods and services to other countries. Readymade garments (both knitted and woven), jute, jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters export 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 of USA and European Community (EC) countries. Bangladesh exports about 40% of its readymade garments products to USA. Most of the exporters who export through this Branch are readymade garment exporters.

 Formalities for export L/C 

 The export trade of the country is regulated by the Imports & Exports (Control) Act, 1950. There are a number of formalities that an exporter has to fulfill before and after shipment of goods. These formalities or procedures are enumerated as follows –

 ¨     Export Registration Certificate (ERC) : The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Imports & Exports (CCI&E). No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI&E and holds valid ERC. The ERC is required to be renewed every year. The ERC number is to be incorporated on EXP Forms and others documents connected with exports.

        The EXP Form: After having the registration, the exporter applies to this Branch with the Trade License, ERC and the Certificate from the concerned Government Organization to get the EXP Form. If the branch is satisfied, an EXP Form is issued to the exporter.

¨         Securing the Order : Upon registration, the exporter may proceed to secure the export order. This can be done by contracting the buyers directly through correspondence.

 ¨         Signing of the Contract : While making a contract, the following points are to be mentioned: (a) description of the goods, (b) quantity of the commodity, (e) price of the commodity, (d) shipment, (e) insurance and marks,  (f) inspection, and (g) arbitration.

 ¨         Procuring the Materials : After making the deal and on having the L/C opened in this favor, the next step for the exporter is set about the task of procuring or manufacturing the contracted merchandise.

 ¨         Registration of Sale : This is needed when the proposed items to be exported are raw jute and jute-made goods.

 ¨         Shipment of Goods : The following documents are normally involved at the stage of shipment: (a) EXP From, (b) photocopy of registration certificate, (c) photocopy of contract, (d) photocopy of the L/C, (e) customs copy of ERF Form for shipment of jute-made goods and EPC Form for raw jute, (f) freight certificate from the bank in case of payment of the freight if the port of lading is involved, (g) railway receipt, berg receipt or truck receipt, (h) shipping instructions, and (i) insurance policy.

 The following points should be looked for –

 ¨         The terms of the L/C are in conformity with those of the contract.

¨         The L/C is an irrevocable one, preferably confirmed by the Advising Bank.

¨         The L/C allows sufficient time for shipment and a reasonable time for registration.

¨         If the exporter wants the L/C to be transferable, advisable, he should ensure those stipulations are specially mentioned in the L/C.

At last, the exporter submits all these documents along with a Letter of Indemnity to this branch for negotiation. An officer scrutinizes all the documents. If the documents are clean one, the branch purchases the documents on the basis of banker-customer relationship. This is know as “Foreign Documentary Bills for Purchase”.

 Procedure for FDBP :

After purchasing the documents the following entries are made –

FDBP A/C ————————————————- Dr.

            Liabilities A/C ————————————————- Cr.

            Charges A/C ————————————————— Cr.

            Exporter’s A/C ———————————————— Cr.

(Before realization of proceeds)

IFIC BANK General A/C (ID, Head Office) ——————————- Dr.

            FDBP A/C —————————————————– Cr.

            Charges A/C ————————————————— Cr.    

            Exporter’s A/C  ———————————————– Cr.

(Adjustment after realization of proceeds)

The FDBP Register is maintained for recording all the particulars.

Settlement of local bill :    

The settlement of local bills is done in the following ways –

¨         The customer submits the L/C to the branch along with the documents to negotiate.

¨         The branch officials scrutinize the documents to ensure the conformity with the terms and conditions.

¨         The documents are then forwarded to the L/C Opening Bank.

¨         The L/C Issuing Bank gives the acceptance and forwards an acceptance letter.

¨         Payment is given to the customer on either by collection basis or by purchasing the document.

The following accounting treatments are made for the purchasing of local bill –

Local Bill Purchase —————————————————- Dr.

            Party’s A/C ————————————————————– Cr.

            Commission ————————————————————- Cr.

            Interest A/C ————————————————————- Cr.

A local bill purchase register is maintained to record the acceptance of the Issuing Bank. Until the acceptance is obtained, the record is dept in a Collection Register.

Modes Of Payment For Export Bills Under L/C:

The most common methods of payment under a L/C are as follows-

¨         At Sight Payment :  In At Sight Payment, the bank pays the stipulated sum immediately against the exporter’s presentation of the documents.

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¨         Deferred Payment : In deferred payment, the bank agrees to pay on a specified future date or event, after presentation of the export documents. No bill of Exchange is involved. In this branch, the payment is given to the party at the rate of 30,60,90,180,360 days rate as the case may be. But the Head Office is paid under T.T. Clean Rate. The difference between the two rates is the exchange margin for the branch.

¨         Negotiation Credit: In Negotiation Credit, the export has to present a bill of exchange payable to him in addition to other documents that the bank negotiates.

¨         Acceptance Credit: In Acceptance Credit, the exporter presents a bill of exchange payable to him and drawn at the agreed tenor (that is, on a specified future date or event) on the bank that is to accept it. The bank signs its acceptance on the bill and returns it to the exporter. The exporter can then represent it for payment on maturity. Alternatively he can discount it in order to obtain immediate payment.

 Test key arrangement :

 Test Key Arrangement is a secret code maintained by the banks for the authentication for their telex messages. It is a systematic procedure by which a test number is given and the person to whom this number is given can easily authenticate the same test number by maintaining that same procedure. IFIC Bank Federation Branch has test key arrangements with so many banks for the authentication of L/C messages and for the transfer of funds.

  Foreign exchange :

 “Foreign remittance” means purchase and sale of freely convertible foreign currencies as admissible “Foreign Exchange Regulations Act-1947” and “Guidelines For Foreign Exchange Transaction-VOL. 1 & 2” of the country. Purchase of foreign currencies constitutes inward foreign remittance and sale of foreign currencies constitutes outward foreign remittance.

So we see that there are two types of Foreign Remittance:

 ¨         Foreign Outward Remittance.

¨         Foreign Inward Remittance.

  Mode of Outwards Remittance :

 ¨         Foreign Telegraphic Transfer (FTT).

¨         Foreign Mail Transfer (FMT).

¨         Foreign Demand Drafts (FDD).

¨         Travelers Cheque (TC).

¨         Foreign Currency Notes.

¨         Mode of Inward Remittance

¨         Telegraphic Transfer (TT).

¨         Mail Transfer (MT).

¨         Mail Transfer (MT).

¨         Foreign Demand Drafts (FDD).

¨         Payment Order (PO).

¨         Travelers Cheque (TC).

¨         Foreign Currency Notes.

 Telegraphic Transfer (TT)

 Telegraphic Transfer refers to the payment instruction by tested telex/cable or authenticated fax by bank in abroad on an inland bank (local/foreign bank). Normally foreign banks, with which corresponding banking relationship / drawing prevails, send T.T.

 Foreign Demand Draft (FDD)

 The foreign bank/exchange company on local bank usually issues Foreign Demand Draft. It is an order to pay a certain sum to a certain person or as his instruction, issued by the bank on its overseas branch or on its correspondent bank. The demand draft is handed over to the purchaser who sends it to the beneficiary. The beneficiary obtains payment on presentation to the bank on which the draft is drawn.

 Encashment of FDD may take place in two ways-

¨         Purchase,

¨         Sending for collection.

 Endorsements of us$ in passport :     

 IFIC Bank endorses US Dollars (USD), Great Britain Pound (GBP) in passports. To endorse US Dollar, the client has to apply in the prescribed form (TM Form). The following entries are given in this regard, –

             Cash or Customer’ A/C          Dr.

                   Foreign Currency on Hand                       Cr.

                  (Dollar Special)

  Student file open :

As we know that Bangladesh – Taka is not fully convertible. Only current account not capital account of our currency is convertible. But in case of students who studied abroad can take any amount for their study cost. Thus IFIC Bank Federation Branch opens student file to remit the costs to the respective institutes on behalf of the student subject to scrutinizing the appropriate documents issued from the registrar.

Chapter – Four:Performance Analysis of  IFIC Bank Ltd.

     Performance analysis of IFIC Bank Ltd.

  1. Authorized Capital is 500.00 Million (in Taka).
  1. Paid – up Capital is  406.39  Million ( in Taka)
  1. Reserve & surplus position from 2000 to 2005:

 Untitled

From the  table & graph showing that, reserve & surplus position of the IFIC Bank Ltd. isgood because it is gradually increasing. Bank has a capital & reserve of Taka. 175.00 crore with an excess of taka  4.06 crore as of May 2006. Although  there is an excess capital  of taka 4.06 crore, this is not enough because they have already a commitment of taka 150.00 crore daily approved by the board to be disbursed over the next few months.

 4. Business performance of the Bank deposit from 2000 to 2005:

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Graph showing the deposit position of IFIC Bank Ltd.

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   From the graph we see that, deposit volume of IFIC Bank Ltd. is continuously increasing. The deposit amount was tk. 16577 in 2000 and 22505 million tk. Was in 2005. The Banks yearly deposit target in 2006 is 2600.00 crore taka.

  5.   Credit position of IFIC Bank Ltd. from 2000 to 2005:

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Graph showing the credit position of IFIC Bank Ltd.

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From the above graph we have seen that, From 2000 to 2002 credit sanction amount is increased, but in 2003 it was fall and it again increase from 2003. The half yearly advance target was 2364.74 crore taka and banks achievement was 2402.89. The banks yearly credit target in 2006 is 2500.00 crore taka.

6.   comparison of Deposit & credit of IFIC Bank Ltd.

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Graph showing the comparison of Deposit & credit position of IFIC Bank Ltd.

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The comparison is showing that the growth of credit is little faster than growth of deposit from 2000 to 2004 but In 2005 growth of deposit was more than credit.

7.   Foreign exchange business:Untitled

Graph showing the import & export business:

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we see that,  IFIC Bank,s export business is greater than import business but in 2003 import business was greater than export business. The IFIC Bank foreign-exchange business target in 2006 is 7200.00 crore taka. Till june IFIC Bank Ltd. achieved 4272.55 crore taka from export-import business.

  1. Income & expenditure position of IFIC Bank Ltd.:

       The income & expenditure position  is given below, we see that, total income of IFIC Bank Ltd. is gradually increase and expenditure also increase. Total income in 2005 was 2055 million taka and total expenditure was 2065 million taka in 2005

The total income till june 2006 was 168.19 crore and total expenditure was 125.85 crore taka.

Table & Graph showing the income & expenditure of IFIC Bank Ltd. (In million Taka)

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  1. Net profit(gross profit):

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From the above table we see that, net profit after tax of IFIC Bank  was 157 million taka in 2000 and it gradually decreased from 2000 to 2004 but in 2005 net profit was again increased in 82 million taka.

Graph showing the Net profit of IFIC Bank Ltd.

Untitled

Total operating profit till june 2006 was 42.34 crore taka and Banks profit target till  December 2006 is 100.00 crore taka.

  1. Guarantee Business outstanding:

The IFIC Bank Ltd. is holding a large volume of guarantee business.

                   Table showing the data of guarantee business outstanding:

    Untitled

Graph showing the guarantee business outstanding of IFIC Bank Ltd.

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From the graph we see that, guarantee business was tk. 1656 million in 2000 but in 2001 it was fall in tk. 1323 million. From 2002 to 2003 it increased to tk. 2206 million  but in 2004 it was fall again and in 2005 it become 2688 million tk. From 1266 million tk.

 So I can say that, guarantee business is not constant. It is unexpectedly ups and down.

   Number of employees in IFIC Bank Ltd. was 1990 till 2005.

       12.          Number of Branches of IFIC Bank Ltd. is 65.

       13.          The  administration cost of IFIC Bank Ltd. is 3.70%. It is higher then other                      banks.

 The recovery position is :

 Its half yearly target was 55.00 crore taka till june 2006 but it achieved 22.32 crore taka. and yearly target is 110.00 crore taka till December 2006.

     15.         IFIC Bank Ltd. investment amount was 406.54 crore taka in the market as on june 2006.

     16.        Its liquidity position is it has excess liquidity of 305.00 taka. which bank can not deploy for profitable investment despite ample opportunities in the market.

 SOWT    ANALYSIS

Strength:

  • Well trained and qualified manpower.
  • Competent management and dynamic director
  • Sound liquidity position
  • More than required provisioning against the classified advances,  plus 1% general provision on loans and advances.
  • High commitment of customer & qualified & experience resource

Weakness:

  • Too much classified loan being carried over
  • Higher rate of interest
  • Traditional banking in most suburban branches
  • Dependence on unripe software in most urban branches
  • Prevalent bureaucracy
  • Lack of strong internet banking

Opportunity:

  • The bank can always look  forward to a bright future with its well trained manpower
  • The experience, skill, compatibility of its management and the directors may always come to a great help to a bank
  • Growing business in the south Asian region
  • More business personal like MBAs are available in the country. They can be picked with due remuneration
  • Provision against classified and unclassified loans being adequate, IFIC can concentrate its development.

 Threats:

 Growing employee turnover may cause financial & image loss

  • Unique software that runs on trial & error basis can seriously hamper the day to day processing of the branches
  • Increased competition in the overall banking sector may cause profit to plummet.
  • Lack of competitiveness in product & service innovation
  • Lack of transparency and excessive bureaucracy may impede the future prospect

Chapter- Five    : FINDINGS

@ Hopefully the management decided to provide fully computerized services that will booster services of the bank.

@ When a joint stock company comes to open an account if the company happens to be an existing one, the banker should demand copies of the balance sheet and profit & loss account, which will reflect the financial growth of the company and its soundness, But in practice companies and the bankers as well don’t even bother.

@ Few officers of the bank are competent. Even though many of them simply know the working procedure of what they are doing but don’t know the philosophy behind doing those and some are inefficient to serve the customer.

@ Project loan requires testing of feasibility of project and judging the marketability of the product. It requires infusion of knowledge of both the fields-marketing and banking. But the bank has hardly any person with this kind of ability.

@ Officers of the desk, where workload is very high, hardly get the chance to go out for development purpose and always feel that their duties for the organization would not be evaluated unless they can show a good amount of deposit collection against their name.

@  Banks administration cost is too high than other banks in the market

@ All the branches are not linked on  on – line banking system. Only 5 branches linked on on-line banking

@ Traditional banking system followed in some cases

@ Recently management committee is changed so new management board take some development strategy to develop the overall IFIC Bank.

RECOMMENDATION

In order to get competitive advantage and to deliver quality service, top management should try to modify the services.

♦ The synergy of dedicated manpower, technology, market opportunity can lead the organization to achieve the goal, a bank must establish and adhere to adequate of loan provision and reserve.

♦ IFIC Bank should train up their branch personnel about all sort of information regarding SWIFT and its service.

 

♦ Due to lack of proper knowledge about the operation procedures and services provided to the customers by SWIFT, certain customers are facing problem, as they have to wait for certain tin1e to get service. and sometimes personnel are not being able to operate SWIFT without any confusion. They are not fully independent of handling SWIFT. Official training is the solution to this problem.

♦ IFIC Bank should always monitor the performance of its competitors in the field of Foreign Trade.

♦ Mercantile Bank Ltd. Standard Bank Ltd. Mutual Trust Bank Ltd. Premier Bank Ltd. First Security Bank Ltd. Eastern Bank Ltd. Bank Asia Ltd. and Dhaka Bank Ltd. and all other private banks are emerging competitors of IFIC Bank. They should continuously strive and try .to introduce new products and services as access card. ATM with future improved quality services.

♦ For customer’s convenience in Foreign Exchange Department of IFIC Bank Ltd. should provide more personnel to deliver faster services to their honorable customer.

♦ It seems to me that day-by-day customers operation is increasing, individual employee has to handle different types of job. But that is pocking a back for an employee. As a result it might be happen any big mistake by the employee and service is also timed consuming and customer has to suffer for this situation. May be it would be the reason for employee’s de-motivation as well as the customer’s dissatisfaction.

♦ IFIC Bank Ltd. should focus on their promotional activities.

♦ They should also focus on the marketing aspects to let customers know about their products and offerings and more promotion should be given to attract new customer.

 ♦IFIC Bank Ltd. must develop electronic banking system to moderate the service. Technological advantage of a bank ensuring its competitive edge in the market place can only be achieved by efficient manpower. It is market share to reduce its operating cost and to generate new revenue. Electronic banking system also allows increased access to the financial system by its customers.

Bank should  reduce their administrative cost. by reducing unnecessary expenses

Few other important factor that should be focused on the development process:

@  Evaluate customer’s needs from their perspective and explain locally the shortcomings.

 @  Customer’s convenience should receive priority over other.

@  Improve office atmosphere to give customers better feeling.

@ Time consumed at service level should be minimized at optimum level.

@ Use of effective management information systems.

@  Use appropriate techniques in evaluating customer need professionally.

@ To deliver quality service top management should try to mitigate the gap between customer’s expectation and employee’s perception.

 FEW SUGGESTATIONS

  I. ­The bank can offer to its customer better service if all of its departments are computerized and incorporated under Local Area Network (LAN)

­II. At the entry position the bank should enroll more expertise people to augment quality services.

III. Nowadays-conventional banking concept is outmoded. Now banks are offering more ancillary services like credit card, on line services and many others. IFIC Bank Ltd. should differentiate its services adopting the modern facilities.

_IV. Bank is providing both internal and external training for the officers but bank should be scrupulous about the training facilities so that official can implicate this in their job.

­V. People are very choosy about environment now a day_ so bank premises should be well decorated and IHC Bank Ltd. should look into the matter very seriously.

­VI. Bank should provide advances towards the true entrepreneur with reconsidering conventional system of security and collateral, moreover, the whole process should be completed within an acceptable time.

 CONCLUSION

 Form the learning and experience point of view I can say that I really enjoyed my internship period in IFIC Bank Ltd. at Federation Br. from the very first day. I am confident that this 3 (three) months internship program will definitely help me to realize my  carrier in the job market.

 Performance analysis of a bank is not so sufficient to measure and express perfectly within this short time of my internship period. But it is a great opportunity for me to get used to with the operational environment of commercial banking of IFIC Bank. I have tried by soul to incorporate the necessary relevant information in my report.

 Top management of IFIC should conduct a comprehensive study or survey on the branches’ performance, its managements performance and the employees’ performance and their motivation as well. Few loyal committed customer base, lack of modern and effective technology or facilities, not enough skilled employee in some sector, considering all of these very important factors. IFIC Bank should always try to improve their service level in every terms.

 The marketing department should think freshly about their marketing objectives and practices. Rapid changes can quickly make yesterday’s wining strategies out of date. As a developing private bank in Bangladesh, IFIC Bank shouldn’t allow their client to get dissatisfied with their service. They have their competitors who actively striving to take the advantages in every side.

 During the course of my practical orientation I have tried to learn the practical banking to relate it with my theoretical knowledge, what I have gathered and going to acquire from various courses.

BIBLIOGRAPHY

  • My daily – Daily Notebook, written during the orientation program.
  • IFIC BANK LTD., Working Manual for different department.
  • Annual report 2002, 2003 IFIC BANK LTD.

               Business of Banking – Dr. R.M. Debnath.

                A Text Book on Research Methodology – C .R. Kothari

  • Managerial conference Report– Published by IFIC Bank

FINDINGS

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