Loan Classification, Provisioning and Debt Default Trend in Mercantile Bank Limited Assignment

Loan Classification, Provisioning and Debt Default Trend in Mercantile Bank Limited Assignment Words: 9899

LOAN CLASSIFICATION, PROVISIONING AND DEBT DEFAULT TREND IN MERCANTILE BANK LIMITED SECTION – 1 INTRODUCTORY PART 1. 1 Preface Now a day present world especially the Asian countries are going through an economic recession. Though the Asian economic crisis began few years back and it is some how tackled today but the 11 September incident aggravated the disorder in the economic infrastructure of our country. Our economy is much dependent on foreign aids. The World Trade Centre incident created a negative impact on our economy as the foreign aids to Bangladesh have been reduced a lot.

Therefore the government is trying to deal the economic crisis by generating revenue internally. In this aspect the importance of the financial sector, particularly banking sector is emphasized. But the banking sector of our country is already overburdened with huge amount of classified loans. Government tries to improve the situation by new regulations and policies to regularize the debts. Newly established private banks are doing well in the banking sector as they don’t have to bear the pressure of classified loans.

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Also the challenge and competition between the banks has brought a radical change in banking system. 1. 2Origin of the Report MBL is operating in the banking sector for last three years. Like all other scheduled banks of the country MBL also contribute to the national economy by offering credits to different segments of the economy. Now a day loan classification has become a burning problem for the overall financial sector. All the big nationalized and other private scheduled banks have to bear the load of huge amount of classified loan.

Being a new entrant in the banking sector MBL is not out of the risk of having stuck up by the trend of overwhelming classified loan. In this turmoil economic scenario management of MBL feels the necessity to analyze the trend of loan classification in the MBL itself. Keeping this consideration in mind the topic “Loan Classification, Provisioning and Debt default trend in MBL” was assigned by management of MBL. 1. 3Background of the Study Military Institute of Science and Technology (MIST) conducts MBA program. This institution is affiliated with Dhaka University.

Its course curriculum is in line with the Institute of Business Administration of Dhaka University. Selected students from the Armed Forces and general people acquire business knowledge to face the real world of business. As a part of course curriculum students are sent to various organizations under the internship program for practical orientation with the organization. The MBA students acquire practical knowledge in the particular field that the organization operates and relates the same with the theories they learned in the class room. 1. 4 Objectives of the Study

The objectives of the study are as follows: 1. 4. 1 Broad Objective To obtain practical knowledge about functions and activities of various departments at branch level of MBL with special emphasis in loan classification and reservation of provisions. 1. 4. 2 Specific Objective The specific objectives are as follows: General banking activities Procedures for opening a current account, savings account and other accounts including issuance of cheque and deposit receipt Cancellation of cheque, return of cheque, crossing of cheque and stop payment of cheque Procedures for cash receive and cash payments

Preparation of daily account and posting of transferred amount Clearing house procedure including collection of cheque Issuance of DD, MT, TT, PO and SDR including cancellation of the same Lodgment of OBC and IBC Types of loans and deposit schemes Procedures for advances Preparation of different types of proposals for advance Documentation required for loan sanctioning Preparation of Loan Classification Procedure of reservation provisions 1. 5Scope The study covers the concept of loan classification and provisioning practices in MBL.

The scope of the study paper is as follows: The study will be based on general banking activities of MBL including loan classification and provisioning practices Regulation and policies of Bangladesh Bank regarding loan classification and provisioning will be discussed Sequentially the loan classification of MBL will be compared with Bank Asia Limited 1. 6 Sources of Information To gather information and necessary secondary data for the project study purpose various sources have been consulted. They are listed below: Management of MBL

Management of Bank Asia Limited Bangladesh Bank Bangladesh Institute of Bank Management Different books and publications 1. 7Limitations Presently loan classification has become a burning question for the overall banking sector. The monitoring of the central bank is also intensified. All the information and data are collected from the bank might not reflect actual figure due to its sensitivity of nature. The loan classification trend is a vast subject requires detail study, which is not carried out due to time constraint of the internship program.

MBL is extremely new in the banking sector, having a negligible amount of classified loan; therefore its debt default trend may not match with the mainstream of classified loan. 1. 8Report Preview This paper discusses mainly the general banking activities and trend of loan classification in MBL. As it is an internship report and for academic purpose first two sections deal with overall banking system and the organization i. e. Mercantile Bank Limited. The project “Loan Classification, Provisioning and Debt default trend in Mercantile Bank Limited” is detail discussed in the following sections.

The paper will consist six parts: Section – 1 Introductory part Section – 2 General review of banking system in Bangladesh Section – 3 organizational profiles Section – 4 Loan offered by MBL Section – 5 Loan classifications in MBL Section – 6 Provisioning practices in MBL SECTION – 2 GENERAL REVIEW OF BANKING SYSTEM IN BANGLADESH 2. 1Background of Banking System in the Region The territories which now constitute Bangladesh were integral part of Mughal Empire and thereafter British India and then Pakistan.

That’s why we have the common historical background of banking and banking institutions as that of Pakistan and India. For the beginning of banking in the territory now comprised Bangladesh we must go back to the Calcutta Agency Houses. The important two houses were Ms Alexander and Co. and Ms Fergusson and Co. Both the two were the predecessors of the early joint stock banks in the then India. The Bank of Hindustan was the earliest bank started under the direction of the British ruler in British India. After the partition of British India in to Pakistan and India, Bangladesh became integral part of Pakistan.

Immediately after independence in 1947 an expert committee was appointed to study the issue of banking in the then Pakistan. On the recommendation of the expert committee, the Reserve Bank of India continued its functions in Pakistan up to 30th September 1948 and thereafter the State Bank of Pakistan, having been established on 1st July 1948, started functioning and assumed the full control of banking and currency. By the date Bangladesh proclaimed independence, there were about 14 scheduled banks with about 3042 branches all over the country. Some foreign banks were also functioning in Pakistan on that date.

After the surrender of the Pakistani forces on 16th December 1971, the government of the Peoples Republic of Bangladesh formally took over the charge of the administration of the territories now constitute Bangladesh. In order to rehabilitate the war devastated banking system of Bangladesh, the government promulgated a law called Bangladesh Bank(temporary) Order,1971(Acting Presidents Order No 2 of 1971). By this order the State Bank of Pakistan was declared as Bangladesh Bank and the offices, branches and assets of the said State Bank was declared to be deemed as offices, branches and assets of Bangladesh Bank.

It was also declared by the aforesaid Order that all currency notes and coins issued by the said State Bank and government of Pakistan and were in circulation in Bangladesh shall be deemed to have issued by the Bangladesh Bank. By the steps stated above, the banking system of Bangladesh started with a legal shape. On 16th December 1971 there were 12 banks operating in Bangladesh, namely: National Bank of Pakistan Bank of Bahwalpur Ltd Habib Bank Ltd Commerce Bank Ltd Premier Bank Ltd United Bank Ltd Union Bank Ltd Muslim Commercial Bank Ltd Standard Bank Ltd Australasia Bank Ltd Eastern Mercantile Bank Ltd

Eastern Banking Corporation Ltd Immediately after the independence the government of Bangladesh decided to nationalize all the banks of the country. Accordingly, on 26th March 1972 the Bangladesh Banks (Nationalization) Order 1972 (Presidents Order No 26 of 1972) was promulgated. Under article 4 of the nationalizing law, 6 new banks have been constituted with all the legal characteristics of corporate body. The undertakings of existing banks specified in the first column of the table below stands transferred to and vested in the new banks mentioned in the second column of the said table.

SLExisting Banks Before 1971New Banks 11. National Bank of Pakistan 2. Bank of Bahwalpur Ltd 3. Premier Bank LtdSonali Bank 21. Habib Bank Ltd 2. Commerce Bank LtdAgrani Bank 31. United Bank Ltd 2. Union Bank LtdJanata Bank 41. Muslim Commercial Bank Ltd 2. Standard Bank Ltd 3. Australasia Bank LtdRupali Bank 51. Eastern Mercantile Bank Ltd Pubali Bank 61. Eastern Banking Corporation Ltd Uttara Bank

Table 1: List of Banks in 1972 After the promulgation of the nationalizing law, Bangladesh entered in to a phase of some what planned banking. Afterwards Pubali Bank became denationalized in 1984 and Uttara Bank has been declared denationalized in 1983. Bank of Small Industries & Commerce Limited starts its operation in 1989 and it became nationalized commercial bank in 04 June 1992. 2. 2Banks of Different Era For the economic advancement of the country a stable and efficient financial infrastructure is very much essential. Now a day the whole World especially the Asian countries are going through an economic crisis.

To face this critical situation government has taken different steps to boost up the activities of financial sectors, particularly the banking sector. To meet up the economic requirements of the country different banking and financial institutions also enhance their activities and improve the quality of services. Up to January 2002, 51 scheduled banks are operating in Bangladesh. These scheduled banks have total 6242 branches located in different parts of the country. There are about 2511 urban branches and rest 3731 branches are rural branches. Among these scheduled banks 5 are nationalized bank and other are local and foreign private banks.

These local private scheduled banks may be divided as first generation banks, second generation banks and third generation banks. 2. 2. 1First Generation Banks National Bank Limited Arab Bangladesh Bank Limited IFIC Bank Limited United Commercial Bank Limited The City Bank Limited Islami Bank Limited Al Baraka Bank Limited Brac Bank Limited 2. 2. 2Second Generation Banks Prime Bank Limited Al Arafah Islami Bank Limited Dutch Bangla Bank Limited Eastern Bank Limited National Credit and Commerce Bank Limited Dhaka Bank Limited Social Investment Bank Limited South East Bank Limited 2. 2. 3Third Generation Banks

Exim Bank Limited Standard Bank Limited One Bank Limited Mutual Trust Bank Limited First Security Bank Limited The Premier Bank Limited Bank Asia Limited The Trust Bank Limited Mercantile Bank Limited Shahjalal Bank Limited Karmasangshthan Bank Ansar VDP Bank Jamuna Bank Limited SECTION – 3 ORGANIZATIONAL PROFILE 3. 1 Background History “Mercantile Bank Limited- a bank for the 21 Century” with this slogan Mercantile Bank Limited started its operations in 2nd June 1999. The Bank started its Journey with an authorized capital of taka 800 million and a paid up capital of taka 245 millions contributed by the sponsors.

The sponsor directors of the bank are well established businessman and professionals of the country having business in and out Bangladesh. MBL started the journey with 4 branches and at present it has total 15 branches located in different parts of the country both in rural and urban areas. Its head office is located in Dilkusha commercial area. Name of all the branches are as follows: 3. 1. 1 Head Office 61 Dilkusha commercial area, Dhaka – 1000 Tel: 880-2-9559333 Fax: 880-2-9561213 Telex: 642480 MBLBB BJ Email: [email protected] com. 3. 1. 2 Other Branches

Dhanmondi Branch, Dhaka Kawran Bazar Branch, Dhaka Agrabad Branch, Chittagong Joypara Branch, Dohar, Dhaka Banani Branch, Dhaka Rajshahi Branch, Rajshahi Naogoan Branch, Naogaon Sylhet Branch, Sylhet Board Bazar Branch, Gazipur Noyabazar Branch, Dhaka Khatunganj Branch, Chittagong Mohakhali Branch, Dhaka Mirpur Branch, Dhaka Besides all these 15 branches MBL is planning to open more 5 branches in the year 2003. Figure 1: No of Branches of MBL 3. 1. 3My Branch During My internship program I was placed to Rajshahi Branch of the Mercantile Bank Limited. 3. 2 Objective of the Bank

MBL aims at excellence and have a new vision to fulfill and a new goal to achieve. The bank has following objectives: To provide a wide range of quality products and services comparable with those available with any modern bank in the world To explore the needs of the common people including businessman and professionals Extend credit to private sector of economy To serve with quality at a price competitive to any one in the financial market Contribute to the GDP of the country To develop a youthful and exuberant management team – technologically sound and rich in experience 3. 3Organogram

Organogram of the MBL is given below. Besides the organogram of the head office, the organogram of the branch office are also separately given. All these branches are directly under control of the Deputy Managing Director (DMD) of the Bank. All the branches have the same type of organogram. Figure 2: Organogram of MBL Figure 3: Organogram of Branch 3. 4 Board of Directors 30 leading businessman and industrialists of the country came forward to sponsor the bank. The bank has a board of directors of 30 members selected from among the sponsors. The names of member of the board of directors are as follows:

Md Abdul Jalil, MP Md. Selim Alhaj Akram Hossain Md. Anwarul Haque Dr. Taufique Rahman Chowdhury Golam Faruk Ahmed Alhaj S M Shakil Akhtar Engr. Mohd. Monsuruzzaman Alhaj Tara Miah Khan Subrota Naroyan Roy M S Ahsan Jamshed R Khan Md. Tabibul Haque A S M Feroz Alam Md. Aman Uallah Md. Abdul Hannan Feroza Begum Md. Nasiruddin Chowdhury Morshed Alam Md. Shahbuddin Alam SM Abdul Mannan Md. Mizanur Rahman Chowdhury S M Shafiqul Islam Bilkis Begum A K M Shahed Reza Nargis Anwar Jalaluddin Ahmed Yeamin Margina Khan Monzu M Taheruddin – Managing Director A K M Shahidul Haque – Company Secretary 3. 5Management of MBL

MBL started its functions as a private scheduled bank. The bank is run by a management team of talented professionals, proficient in their individual field and dedicated to the cause of bank. [ The chairman of the bank Mr Md. Abdul Jalil is a renowned businessman besides being an eminent personality of the country. Mr. Lutfar Rahman Sarkar is the chief advisor of the bank , had a vast wealth of experience of managing both the private and public sector banks- as he had been the governor of Bangladesh Bank few years back. Mr. M. Taheruddin is the Managing Director (MD) of MBL. The MD heads the management team of the bank.

MD directly supervises five divisions, and other 6 divisions are also indirectly supervised by the MD through a DMD. Presently Mr. M Nurul Islam is the DMD of MBL. All these divisions of MBL Head Office are supervised by the different level of executives. Different divisions of the bank are supervised by following officials: Central accounts division – Assistant Vice President (AVP) [ Credit division – Senior Assistant Vice President (SAVP) Information technology division – AVP International division – AVP General service division – AVP Marketing development and general banking – SAVP

HRD division – SAVP Public relations division – SAVP Research & planning division – Directly supervised by MD Board Secretariat – Executive Vice President Audit and inspection – AVP This is worth mentioning that all these divisions are not supervised by any permanent appointment, but by the individual officers having different level of status and professional knowledge. 3. 6Organizational Hierarchy Mercantile Bank has 13 steps in organizational hierarchy. The entry level post is the Assistant Officer. The organizational hierarchy is shown below: Figure 4 : Organizational Hierarchy of MBL . 7Management in a Branch The Management of any branch of MBL is supervised by the senior most officer of that branch. He is called as Manager or Branch in Charge. The Branch in Charge may be an AVP / SAVP; to some extent some branches of MBL have Branch in Charge who is a VP. Mainly important branches are looked after by the more senior officials. Under the Branch in Charge, there is a post of second officer. Mostly this post is held by a SPO. There is one or two PO and one or two SO also work in a branch office. All the other officers working in a branch office are either AO or JO. 3. Security System in the Bank. All the branches including the Head Office of MBL have some security personnel. These security personnel are the member of a private security company, namely "Punarbhaba Security Company”. This security company provides all types of security for all the branches of MBL, i. e. for collection and depositing cash, internal security, perimeter security etc. 3. 9Performance of MBL MBL aims at excellence and is committed to explore a new horizon of banking and provide a wide range of quality products and services comparable with those available with any modern bank of the country.

Performance of Mercantile Bank in different sector is discussed with the help of the table. Performance of Mercantile Bank Limited (In Crores) Particulars 31. 12. 199931. 12. 200031. 12. 200131. 12. 2002 Authorized capital 80. 0080. 0080. 00100. 00 Paid up capital and reserve 26. 1139. 0059. 6570. 01 Total Asset 476. 50936. 501307. 891522. 92 Deposit 310. 46863. 511223. 471513. 29 Credit / Advance 87. 14391. 30670. 74889. 61 Import Business 209. 62921. 951226. 801511. 25 Export Business 101. 10655. 441045. 751137. 73 Profit 2. 0219. 2142. 0948. 06 No of Branch 4101415

Total Manpower 168219305362 Table 2 : Performance of MBL 3. 9. 1Deposits of MBL MBL could raise a deposit of more than 1513 crore taka by the year ending 2002. Deposits increased 23% in respect of the previous year. Figure 5: Deposits of MBL 3. 9. 2 Loan and Advances MBL provide loan and advances to different sectors of the economy. By the year ending 2002 its loan and advances reached more than 889 crore taka which is 33% more than previous year. Figure 6: Loan and Advances offered by MBL 3. 9. 3Profits In the year 2002 MBL could earn a profit of more than 48 crore taka.

Among all the third generation banks MBL stands first in this regard. Profit has increased by 14% than the previous year. Figure 7: Profits of MBL 3. 9. 4Total Assets Like all other sectors, total assets of MBL also increased in a higher rate. By the year ending 2002 the value of total assets of MBL reached more than 1522 crore taka, which clearly indicates the superior performance of the bank. Figure 8: Total Assets of MBL 3. 10 Deposits Schemes MBL contributes to the national economy by reinvesting its accumulated deposits. Up to 31 December 2002 MBL could build up a deposit of 1513. 29 crore taka.

Different savings scheme offered by this bank could create an excellent response among the middle class people who are the main low scale investors of our country. At present these saving facilities are not available with other nationalized banks. Even government has decided to cut down the interest rate of very popular "Pratirakkha Sanchoy Patro”. That’s why people become very much enthusiastic about different deposit schemes of MBL. At present MBL offers following deposit schemes: 3. 10. 1Bishes Sanchoy Prokolpo (BSP) Any individual, business entities, other organizations even educational institutions may deposit money in this project.

Though the duration of the project is of 10 years, after one year any account holder may withdraw the project with a handsome amount profit. The profit rates of BSP are as follow: Amount of Deposits (Taka) Year5,00010,00050,0001,00,000 Yearly interest with the principal 15,45010,90054,5001,09,000 25,99511,90059,9501,19,900 36,65513,31066,5501,33,100 47,45414,90974,5451,49,090 58,33016,66183,3081,66,616 69,35218,70493,5201,87,041 710,71221,4251,07,1252,14,251 812,51325,0261,25,1302,50,261 914,08928,1791,40,8982,81,796 1015,87931,7581,58,7933,17,587 Table 3: Summary of BSP 3. 10. 2Double Bonus Benefit Scheme (DBBS)

Under this project any deposit becomes double in a duration of 6 years. Any individual, different institutions or overseas inhabitants may invest their money in this project. One can also take loan against this scheme. The summary of the project is as follows: DurationDeposit (Taka)At maturity, amount received (Taka) 6 years10,00020,000 1,00,0002,00,000 10,00,00020,00,000 Table 4 : Summary of DBBS 3. 10. 3 Mashik Munafa Prokalpo (MMP) This project gives monthly benefit for an amount which is deposited for at least five years. The interest (monthly) becomes due just after one month of he deposition. The summary of the project is as follows: Deposit (Taka)Monthly Benefit (Taka) 50,000500 1,00,0001,000 10,00,00010,000 1,00,00,0001,00,000 Table 5: Summary of MMP 3. 10. 4 Monthly Savings Project (MSP) Under this project one investor can build up a huge amount of savings after certain period of maturity by paying monthly installment of 100, 500, 1000, 5000, 10,000 or 25000 Taka. One of the advantages of this project is that one can open as many account as he wish in his own name. Any individual having MSP may take loan against this project.

One may pay the installment in advance also. The summary of the project is as under: Monthly insta/Dur 1002505001,0005,00010,00025,000 5 year 8,28020,50041,00082,0004,00,0008,00,00020,00,000 8 year 16,360 40,00080000160,0007,80,00015,60,00039,00,000 10 Year 23,69059,0001,18,0002,36,00011,00,00022,00,00055,00,000 Table 6: Summary of MSP 3. 10. 5Ajiban Pension Scheme (APS) Under this scheme one may deposit money in monthly installments and get pension for whole life after the maturity date. One may also withdraw whole money by surrendering the pension after the maturity of the scheme.

After the death of the APS holder his / her nominee may get the money in one instance. The summary of the project is as follows: Monthly Install. (Taka)10 year15 year20 year25 year Pension (Taka) One Instance (Taka)Pension (Taka) One Instance (Taka)Pension (Taka) One Instance (Taka)Pension (Taka) One Instance (Taka) 500 1,2501 lac2,5002 lac5,0004 lac10,0008 lac 1,0002,5002 lac5,0004 lac10,0008 lac20,00016 lac 3,0007,5006 lac15,00012 lac30,00024 lac60,00048 lac 5,00012,50010 lac25,00020 lac50,00040 lac1 lac80 lac Table 7 : Summary of APS 3. 11Manpower State, Hiring, and Training System in MBL [ MBL starts its operation with a unique set of executive and officers who already have some banking experiences. Besides these banking professionals MBL also offered jobs to new comers who don’t have any past banking experiences. These new entrants join the bank as Assistant Officer. They have to undergo initial banking training in the Head Office. There is a training institute in the Head Office which is looked after by the HRD in charge of MBL. Senior executives like, Chief Advisor, MD, DMD and other efficient officers of the Head Office used to take class of the new joiners.

This initial training is scheduled for duration of 30 working days. Thereafter the new officers are sent to all the branches of MBL. After joining in to the branch these new officers are sent for foundation course conducted by BIBM. All the new officers have to take this training by turn round the year. HRD division selects the officers periodically. Besides foundation course, HRD division send the officers of different levels to other courses offered by various banking and financial institutions, like Dhaka Chamber of Commerce, Bangladesh Bank, DSE, ICC etc. Some other advanced banking training is also conducted by the MBL itself.

Senior executives/ Branch in charges attend these training. In addition, MBL gives offer to experienced bankers who all are already serving in different banks and other institutions to join the bank. These officials are offered with better facility and handsome salaries, and are adjusted in to upgraded posts. Like SPO of another bank is offered with the post of an AVP in MBL. This bank starts its operation with a working force of 168 in 1999 and by 2002 its manpower state reached 362, among which 41 are executives, 308 are officers and 12 are other staffs. Figure 9 : Manpower State . 12 General Banking Department Internship authority of MIST placed me in Mercantile Bank Limited for my internship program. The HRD division of MBL placed me in the Rajshahi branch. Like all other branches of MBL, Rajshahi branch also has some general banking activities. Banking activities of a branch have different scope. Generally all those activities are subdivided into following sections: General Banking Cash Accounts Bills & Remittance Advance Foreign Exchange 3. 12. 1 General Banking Usually it is the main stream of banking activity which co-ordinates all other activities.

This general banking is again subdivided in to following activities: 3. 12. 1. 1 Account Opening The legal relationship between a customer and the bank itself in established through the opening of an account. MBL has offered different types of accounts opportunity for its customers namely: Current account Savings account Short term deposit account Convertible taka account Non- Resident taka account All these accounts may be opened individually, jointly, as partnership account; public limited company account or even accounts may be opened as club society or trusts.

Any individual, group or business entity has to fill up a prescribed account opening form. The client has to fill up the nomination form. A signature card is to be filled up by the account holder for checking of the signature. The account holder has to fill up the cheque requisition form to collect the cheques. A specimen of such account opening form is attached in the appendix A . For opening an account in MBL different business documents are required. A check list of documents required for account opening in MBL is given below : 3. 12. 1. 1. 1 Proprietorship Trade License Photograph

TIN number 3. 12. 1. 1. 2Partnership Trade License Photograph Partnership deed TIN number 3. 12. 1. 1. 3 Private Limited Company Trade License Photograph of directors Certified copy of memorandum and articles of association Certificate of incorporation List of directors as per return of joint stock Company with signature Copy of the resolution for opening account with the bank 3. 12. 1. 1. 4 Public Limited Company Trade License Photographs of directors Certified copy of memorandum and articles of association Certificate of incorporation Certificate of commencement of business

List of directors as per return of joint stock company with signature Resolution for opening account with the bank 3. 12. 1. 2Cheque Cancellation When any account holder place the cheque to the bank to draw money the cheque is cancelled by the signature of the authorized officer. On confirmation of sufficient fund is available for necessary payment the authorized officer cancel the cheque by signing over it. The cheque bearing the amount less than 10,000 taka is cancelled by a single signature and 10,000 taka and over is cancelled by two authorized signatories. 3. 12. 1. 3 Return of Cheque

There might be some situations when the cheque can’t be honored by the bank. In such circumstances the account holder may not get the payment. Here bank provides a cheque return memo, which bears the reason, for which the cheque is returned. Some of the reasons of return of cheque are: Fund insufficient Cheque is post dated / out of date / mutilated Amount in words and figures differs Cheque crossed "Account payee only” Drawer’s signature differs / requires Alterations in date / figures / words require drawer’s full signature and so on 3. 12. 1. 4Banks Deposit Schemes MBL has deferent types of deposit schemes.

Detail dissuasion on this regard is done at the later portion of this paper. Besides all these special deposit scheme MBL provides some other general savings deposits. The rates of interest of such savings are as follows: Fixed Deposit Rate 1 Month @ 8. 50% 3 Month @ 9. 00% 6 Month @ 9. 25% 1 Year @ 9. 50% 2 Year @10. 00 % 3 Year @ 10. 50% Short Term Deposit @ 6. 00% Savings Account @ 8. 00% For current account no interest is offered. For smooth functioning of the accounts bank takes yearly service charges which ranges between 50 taka to 150 taka and it varies with the nature of the accounts. . 12. 2Cash Section Money is the blood for bank, that’s why this cash section is termed as the most sensitive section of the bank. Therefore handling of cash is done by one of the senior officers of the bank. The cash officer is responsible for all the cash received from the customers, payments made to them and cash deposited to the Bangladesh Bank. Generally in a bank all the moneys are kept in the secured vault after the banking hours have been completed. For further security and accountability a special vault register is maintained by the cash officer.

Every day before the banking hour starts, the cash officer opened the vault of the bank and checks the amount of cash. At the closing of banking hour again he counts the money, write the amount in the vault register lock the vault and seal it. Different cash registers are maintained for receiving the cash from the clients. Cash payments also are indorsed into other registers. In MBL all the cheques are posted into the computer before any transaction is taken place. At the closing hour all these amount of cash payment and received as endorsed in the registers are tallied against the computer data. 3. 12. 3Accounts Section

It is one of the important sections of a bank. In order to maintain clarity of the banking activities and also for security purpose daily account are prepared. Book of account is also maintained regularly after the banking hour. All credit and debit supplementary sheets are also checked by the second officer of the branch. These supplementary sheets are the details of payments and receipts of cash produced by the computer system. These supplementary sheets are checked against all the cheque and deposit receipts. At the end of each month a monthly statement is prepared at branch level and is sent to the Head Office.

Besides general accounting, branch has some other expenditure like entertaining the guests, electricity bills, fuel consumption bills, these all are maintained in a separate income & expenditure register. 3. 12. 4Bills and Remittances This is one of the main avenues of income for a bank. It earns profits by rendering its services to the clients. Bank accumulates income by getting commissions on following instruments. Telegraphic Transfer (TT) Demand Draft (DD) Pay Order (PO) Security Demand Receipt (SDR) The rates of commission of the above mentioned instruments are as follows: Ser RemittanceCommission Rate 1 2 3 4TT

DD PO [email protected] 1. 00 taka per thousand and minimum 15. 00 taka Do Do Per SDR 10. 00 taka Table 8: Rates of commissions Any individual coming for a DD, TT, PO or SDR has to fill up the prescribed form and place the form with the amount of money either in cash or against the cash credit instruments sanctioned to him. Clearing procedure is another important part of this section. When any cheque of other bank / branch is placed with the local branch, this cheque is processed through the clearing house. There are clearing houses located in different locations. Generally in the branches of Bangladesh Bank this clearing is done.

In the places where there no branch of Bangladesh Bank is available, branches of Sonali Bank act as clearing house. Every day this clearing procedure is done. An officer of the branch is earmarked for clearing house procedures. There are two timings of clearing houses. Generally it is known as first house and the second house. In the first house all the representatives of different banks come with all the cheque receivables and in that session they received all the cheque payables to other banks. Thereafter the representative goes back to respective branches, and check all those cheque, whether those cheques are payable or not.

And in second house all these correspondence regarding confirmation are finalized. The bank also get some commissions from the out ward bills for collections (OBC). When any bank is out of the clearing house area this OBC is sent. Similarly the bank also receives inward bills for collections (IBC) which is sent by other branch as OBC. 3. 12. 5Advances In the advance section preparation of different types of advance/credit proposals are done. The members of this section also inspect the clients business, those who all have taken loan. This section also monitors and prepares the classification of loans.

They also seek necessary information from the Credit Information Bureau (CIB) before proceeding to offer a loan. Necessary documentation for a potential lender is also done by this section. If the loan exceeds more than 10 million taka lender risk analysis (LRA) is also carried out in this section. The branch has a legal advisor, who deals with the cases against non performing advances. 3. 12. 6Foreign Exchange In the foreign exchange section necessary procedures for a L/C is done. This section also deals with the purchase of foreign bills, sale of foreign currency and negotiations of export bills.

SECTION – 4 LOAN OFFERED BY MBL 4. 1 Gen Description of different types of Loans As initiated by Bangladesh Bank vide BCD Circular No. 33 dated 16-11-1989 different kinds of lending were subdivided into 11 categories wef 01-01-1990 which was subsequently reduced to 9 vide BCD Circular No. 23 dated 09-10-1993 and again to 7 prime sectors vide BCD Circular No 8 dated 25. 04. 1994 for fixation of rate of interest by the individual banks on competitive basis depending on the cost of funds, prevailing market condition and monetary policy of the country.

Loans and advances have primarily been divided into two major groups: 4. 1. 1 Fixed term loan These are the advances made by the Bank with fixed repayment schedules. The terms of loan are defined as follows: Short term: Up to 12 months Medium term: More than 12 and up to 36 months Long term: More than 36 months 4. 1. 2 Continuous Credits: These are the advances having no fixed repayment schedule, but have and expiry date of which it is renewable on satisfactory performance. Further all categories of loans have been accommodated under the 7 prime sectors as under: 4. 1. Agriculture Credit facilities to the agricultural sector fall under this category. It is subdivided into two major heads. 4. 1. 3. 1Loans to Primary Producers This sector of agricultural financing refers to the credit facilities allowed to production units engaged in farming, fishing, forestry or livestock. Loans to processors or traders of agricultural products are not to be categorized as agricultural loans. Loans to tea gardens for production are treated as agricultural loan, but loans to tea gardens for export should be treated under the category "Export Credit”.

Similarly medium and long term loans to tea gardens are categorized as industrial term lending. 4. 1. 3. 2Loans to Input Dealers / Distributors It refers to the financing allowed to input dealers and (or) distributors in the agricultural sector. Agricultural loans may include short, medium and long term loans as well as continuing credits. As such, it may fall under the head (a) Loans (General), (b) Hire Purchase or (c) Lease Financing. The bank will provide rural credit though rural branches and other rural institutions engaged in rural upliftment through credit delivery.

Small loan particularly micro credits will be extended without collateral security through proper supervision and monitoring. Individual supervising agency may be appointed for supervising such micro credits. 4. 1. 4Term Loan for Large & Medium Scale Industry This category of advances accommodate the medium and long term financing for capital structure formation of new industries or for BMRE of the existing units who are engaged in manufacturing goods and services. Term financing to tea gardens may also be included in this category depending on the nature and size.

As the financing under this category has fixed repayment schedule it falls under the head— Loan (General), Hire purchase or Lease Finance. 4. 1. 5 Term Loans to Small & Cottage Industries These are the medium and long term loans allowed to small & cottage industries. [Small Industries are presently defined as those establishments whose total investment in fixed capital such as land, building, machinery and equipment (including taxes and duties) do not exceed 30 million taka and investment in machinery and equipment (excluding taxes and duties) does not exceed 10 million taka.

Cottage industries also fall with in this definition]. Bangladesh Bank gives interest subsidy @ 3% to the Banks on loans extended under this category. No short term or continuing credits are to be included in this category. Medium & long term weaver credits are also included under this category. Like the large & medium scale industry it is also allowed in the form of “Loan (Gen), Hire- Purchase or Lease Financing”. 4. 1. 6 Working Capital Loans allowed to the manufacturing units to meet their working capital requirements, irrespective of their size big, Medium or small, fall under the category.

These are usually continuing credits and as such fall under the head “Cash Credit (Hypothecation)” 4. 1. 7Export Credit Credit facilities allowed to facilitate export of all items against Letter of Credit / and / or confirmed export orders fall under this category. It is accommodated under the heads “Export Cash Credit (ECC)”, Packing Credit (PC), Foreign Documentary Bills Purchased (FDBP), Local Export Bills Purchased etc. 4. 1. 8Commercial Lending Short term loans and continuing credits allowed for commercial purposes other than exports fall under this category.

It includes import financing, financing for internal trade, service establishment, etc. No medium and long term loans are accommodated here. This category of advances are allowed in the form of (i) Loan against Trust Receipt (LTR), (ii) Payment against Import Documents (PAD), (iii) Secured Overdrafts (SOD), (iv) Cash Credit (Hypo), (v) Loan (Gen), etc. for commercial purposes. 4. 1. 9Other Lending Any loan that does not fall in any of the above categories is considered under the category of other lending.

It includes loan to (i) Transport Equipment, (ii) Construction Works including housing (commercial/ residential), (iii) Work Order Finance, (iv) Personal Loans, etc. 4. 2 Loan Offered by MBL in Different Sectors Depending on the various nature of financing, all the lending activities have been brought under the following major head: 4. 2. 1 Loan (General) Short term, Medium term & Long term loans allowed to individual / firm / industries for a specific purpose but for a definite period and generally repayable by installments fall under this head.

This type of lending are mainly allowed accommodating financing under the categories (i) Large & Medium Scale Industry and (ii) Small & Cottage Industry. Very often term financing for agriculture & other lending are also included here. 4. 2. 2 House Building Loan (General) Loans allowed to individual / enterprises for construction of house (residential or commercial) fall under this type of advance. The amount is repayable by monthly installment within a specified period. Such advances are known as House Building Loan (General). 4. 2. 3 House Building Loan (Staff)

Loan allowed to MBL employees for purchase / construction of house / flat is known as House Building Loan (Staff). These loans are also repaid by monthly installments. 4. 2. 4 Other Loans to staff Loans allowed to MBL employees other than for House Building is grouped under Staff Loan (Gen) head. 4. 2. 5Cash Credit (Hypothecation) Advances allowed to individual / firm for trading as well as wholesale purpose or to industries to meet up the working capital requirements against hypothecation of goods as primary security fall under this type of lending. It is a continuous credit.

It is allowed under the categories (i) ‘Commercial Lending’ when the customer is other than an industry and (ii) “Working Capital” when the customer is an industry. 4. 2. 6 Hire – Purchase Hire- Purchase is a type of installment credit under which the borrower agrees to take the goods on hire at a stated rental, which is inclusive of the repayment of principal as well as interest for adjustment of the loan within a specified period. 4. 2. 7 Lease Financing Lease Financing is one of the most convenient sources of acquiring capital machinery and equipment.

A client is given the opportunity to have an exclusive right to use an asset, usually for an agreed period of time against payment of rent. It is a term financing repayable by installment. 4. 2. 8 Consumers Credit Scheme It is a special credit scheme of the Bank to finance purchase of consumer’s durable to the fixed income group to raise their standard of living. The loans are allowed on soft terms against personal guarantee and deposit of specified percentage of equity by the customers.

The loan is repayable by monthly installment within a fixed period. 4. 2. 9 SOD (General) These are advances allowed to individual / firms against financial obligation (i. e. lien on FDR/ PSP / BSP / Insurance Policy / Share etc. ) This may or may not be a continuous credit. 4. 2. 10 SOD (Other) Advances allowed against assignment of work order for execution of contractual works falls under this head. This advance is generally allowed for a definite period and specific purpose. i. e. t is not a continuous credit. It falls under the category SOD “Others”. 4. 2. 11 SOD (Export) Advance allowed for purchasing foreign currency for payment against L/Cs (Back to Back) where the exports do not materialize before the date of import payment. This is also an advance for temporary period which is known as export finance and falls under the category “Commercial Lending”. 4. 2. 12 PAD Payment made by the Bank against lodgment of shipping documents of goods imported through L/Cs falls under this head.

It is an interim advance connected with import and is generally liquidated against payments usually made by the part for retirement of the documents for release of imported goods from the customs authority. It falls under the category “Commercial Lending”. 4. 2. 13 LTR Advance allowed for retirement of shipping documents and release of goods imported though LC falls under this head. The goods are handed over to the importer under Trust Receipt with the arrangement that sale proceeds should be deposited with the bank to liquidate the advances within a given period.

This is also a temporary advance connected with import and known as post- import finance and falls under the category “Commercial Lending”. 4. 2. 14 IBP Payment made though purchase of inland bills/cheques to meet urgent requirements of the customer falls under this type of credit facility. This temporary advance is adjustable from the proceeds of bills / cheques purchased for collection. It falls under the category “Commercial Lending”. 4. 2. 15 Export Cash Credit (ECC) Financial accommodation allowed to a customer for export of goods falls under this head and is categorized as “Export Credit”.

The advances must be liquidated out of export proceeds within a given period. 4. 2. 16 Packing Credit (PC) Advance allowed to a customer against specific LC/ firm contract for processing / packing / transportation of goods to be exported falls under this head and is categorized as “Packing Credit”. The advances must be adjusted from proceeds of the relevant export within a given period. It falls under the category “Export Credit”. 4. 2. 17 FDBP Payment made to a customer through purchase / negotiation of a Foreign Documentary Bills falls under this head.

This temporary advance is adjustable from the proceeds of the shipping / export documents within 21 days, failing which interest shall be charged at normal rate. This advance falls under the category “Export Credit”. 4. 2. 18 FDBP (Local) Payment made against documents representing sale of goods to Local export oriented industries which are deemed as exports and which are denominated in foreign currency falls under this head. This temporary liability is adjustable from the proceeds of the Bill within 21 days, failing which interest shall be charged at normal rate. . 2. 19 FBP Payment made to a customer through Purchase of foreign currency cheques / drafts falls under this head. This temporary advance is adjustable from the proceeds of the cheque / draft. 4. 2. 20 IDBP Payment made to a customer through purchase of inland documentary bills. This temporary liability is adjustable from the proceeds of the bill. 4. 3 Credit Approval The primary factor determining the quality of the bank credit portfolio is the ability of each borrower to honor, on a timely basis, all credit commitments made to the Bank.

This is accurately determined by the authorized credit personnel prior to credit approval. The credit approval process governed by the bank credit policy framework is summarized under the following heads: 4. 3. 1Credit Evaluation Principles To have the optimum returns from the deployed funds in different kinds of lending, more emphasis is given on refund of loans and advances out of funds generated by the borrowers from their business activities (cash flow) instead of realization of money by disposing of the securities held against the advance which is very much uncertain and time consuming.

With a view to achieving the objective credit is evaluated and the credit evaluation principle is adhered to at every level of approval. The lending risk analysis tool containing analysis of both the business risk and security risk provides overall ratings of risk in a particular loan under the following lending process: Asses risk of failure to repay Decide whether to accept or reject a loan proposal Set price and terms Obtain sanctioning documents and disburse loan Monitor performance and ensure repayment / recovery

The most pertinent and prime part of the process is assessment of risk of failure to repay which deals with the overall lending risk combining the business risk and the security risk in a matrix derived out of six segments of the business risk viz. Supply risk Sales risk Performance risk Resilience risk Management competence risk Management integrity risk Security Control risk Securities cover risk The overall matrix provides four kinds of lending risk which are detailed in the lending risk analysis circular/ credit manual for decision makers of the bank viz.

Good, Acceptable, Marginal Poor Bank do not approve any lending having an overall risk as “marginal” and “poor” without proper justification except for renewal of existing facilities for adjustment purpose under compelling circumstances or for other reasons such as salvage which shall also contain covenants for future improvement of the position. All credit application rated “Poor” require the approval of the Board regardless of purpose, tenor or amount. 4. 3. 2Credit Risk Evaluation / Assessment

The importance of detailed and complete credit risk assessment for each facility and customer relationship cannot be over emphasized. The steps that should be followed in carrying out such an assessment are set out in the bank credit manual and in Head office circulars which are issued from time to time. All proposals of credit facilities are supported by a complete analysis of the proposed credit. A comprehensive and accurate appraisal of the risk in every credit exposure of the Bank is mandatory. No proposal is put up for approval unless there has been a complete written analysis.

It is the absolute responsibility of the proposing officer to ensure that all necessary documentation’s are collected before the proposal is sent to the sanctioning officer. 4. 3. 3Delegation of Lending Authority To ensure proper and orderly conduct of the business of the Bank, the Board of Directors has empowered the Managing Director and other Executives of the Bank to lend up to certain amount under certain terms and conditions at their discretion. The lending officers are broadly categorized as follows: Managing Director Deputy Managing Director Executive Vice President

Senior Vice President Vice President Senior Assistant Vice President Assistant Vice President The amount and scope of each officer’s lending authority is a function of the amount and extent of authority required by the Officers to carry out his / her responsibilities to the Bank and its clients in a prudent, effective and efficient manner. The lending authorities of different officials of MBL are shown below: Delegation Authority of MBL (Figures in ‘00000’) SlNoType of CreditsDelegation of PowersRemarks MDDMDEVPSVPVPSAVP 1Cash Credit (Hypothecation of Goods) 100503020105 Hire- Purchase 1007550302015 3Real Estate Finance, Finance to Developers / owners a. For construction of apartment building 100—–To be repaid within 3 (three) years. b. For purchase of flat 15105—-Do- c. House building loan (Residential)201510531Period not exceeding 5 years. d. House Building Loan (Commercial) 30151052-Period not exceeding 4 years 4Lease finance 5025151052Period not exceeding 5 years. 5Advance against work order / supply order 75503020105 6Loans against pledge of a. FDR / MTDRWL150100755026 b. Various Sanchay Patras issued by NBS WL150100755025 c.

Life Insurance Policy 1053210. 50 d. Shares / debentures listed in stock exchange 1053210. 50 7Consumers credit 333333 8Performance guarantee / cash guarantee a. At 100% margin WLWLWLWLWLWL b. At 50% margin 15010075302010With collateral security c. At 40% margin 125755020158-Do- d. At 30% margin 100503017127-Do- e. At 20% margin 75402515106-Do- f. At 10% margin 50——Do- 10. Bid bond 11. a. At 50% margin 1005030201510 b. At 25% margin 7540201075 c. At 20% margin 503015864 d. At 10% margin 40—– 10. Purchase of Inland documentary bills accompanied by R/R Burge Receipt. 002525151010 11. Purchase of govt. cheque, Pay Orders, Drafts issued on Scheduled Banks. WL7550402510 Table 9: Delegation authority of MBL officials It is emphasized that an officer is not be delegated lending authority only on the basis of his position. In other orders, an officer does not automatically get lending authority by virtue of his corporation and / or functional title. Specified lending authority is delegated; by the Managing Director to various Executives duly approved by the Board after taking into consideration his proven credit judgment, knowledge and experience.

The amount of lending authority approved by the Board for various Executives forms the upper limit of the authority that may be delegated to an officer holding corporate title. Each individual’s lending authority is delegated to him in writing. Authorities give to an incumbent will not automatically be transferred to a replacement. The latter will have lending authorities delegated to him in writing and amount delegated will depend upon the individual. All lending authorities are reviewed periodically by the Managing Director with the Executive Committee / Board. 4. 3. Approval under Dual Signature All approval of credit facilities must be conveyed under dual signatures. Ideally both the signatories must have the required lending authority. If, however, two lending officers of the required lending authority are not available, one of the signatory must have the lending authority. 4. 3. 5The Responsibilities For Credit Procedure, Approval & Review The Responsibilities for credit policy, procedure, approval and review is vested in the following groups: 4. 3. 5. 1Board of Directors Establishing overall policies and procedures for approving & reviewing credits.

Delegating authority to approve and review credit. Approving credit for which authority is not delegated. Approval of all credits which are contrary to Bank’s written credit policies. 4. 3. 5. 2 Executive Committee Executive committee of the Board is responsible for: Approving credit facilities as delegated by the Board of Directors Supervising the implementation of the Directives of the Board of Directors Reviewing of each credit approval by the Head Office Credit Committee / Managing Director Keeping the Board of Director informed covering all the above . 3. 5. 2Policy Committee Formulating lending policy Formulating policies and procedures for reviewing and analyzing credit and loan portfolios 4. 3. 5. 4 Credit Committee Head office credit committee is headed by the Deputy Managing Director, other members are chief of credit division, international division, central accounts division and company secretary. The committee is responsible for: Reviewing, analyzing and recommending credit for approval Evaluating the quality of lending staff in the bank and recommend appropriate steps to improve upon

Recommending credit proposals to the Managing Director for decision In exceptional circumstances when approval of a credit is required a short notice, the proposal may be referred by the branches directly to the Head Office, Credit division by telex / fax. The Head Office, Credit Division with the approval of Managing Director and incase where the amount exceeds the authority of management with the approval of the Executive Committee/ Board of Directors may approve the proposal.

All such approvals, together with the appropriate supporting documentation, is submitted to the Head Office Credit Committee / Executive Committee / Board of Director as the case may be for formal approval at their next regular meeting Ensuring that all elements of the credit application i. e. forms, analysis, statement and other papers have been obtained and are in order Confirming that the transaction is consistent with existing loan policy and Bangladesh Bank guidelines and if not the committee may prepare a recommendation for an exception to or a change in policy for consideration by the Executive Committee / Board of Directors

Not withstanding anything mentioned above, the sanctioning Executives / Officers will remain responsible and accountable for the Credit so sanctioned Formation of Credit committee at the branch level will be decided upon by the Managing Director 4. 4Responsibility at Branch Level The Branch Managers are the first line lending officers and are responsible for exercising their authority with due diligence and discipline. They must also: Know their borrower thoroughly. Comply with the applicable instructions, manuals, circulars and other rules of the Bank as well as those of Bangladesh Bank including Banking companies Act 1991. As amended from time to time). Ensure that Credit proposals submitted to Head office, Credit Division are complete and consistent with established policies and procedures. Ensuring proper judgment regarding financial condition of the borrower evidenced by comparative statement, latest balance sheet, income statement, operating results and supplementary fact as well as by personal net worth statement of the proprietor, partners & directors. Ensuring bank checking & Credit Information Bureau (CIB) checking and financial standing of the borrower obtained through investigation.

Secure necessary and adequate legal and banking documentation as well as insurance coverage, all in Bank’s favor to ensure maximum legal protection. Should also ensure that all charge documents, securities, collateral etc. as per sanction letter have been obtained prior to disbursement of loans. Comply with necessary and customary internal & external control & safeguard. Ensure continuous review of the risks and exposure and compliance with limits with particular attention to term loans. At the minimum the following should be done. I.

Every month all credit facilities should be reviewed by the Branch Manager II. Ensure that all loan covenants are being complied with III. Review that regular deposits are being made in the accounts especially for CC & SOD limits, and the deposits commensurate with limits and business. IV. Ensure verification of stock reports by the Manager or his authorized officer every month. V. Visit the business establishment / factories / office of the borrower at least once in a month to review business position, profitability, future projection etc. and prepare a report of the findings with a copy of Head Office

VI. Ensure that all credit facilities are covered by appropriate approval and that they are kept within approved limits and ensure compliance with terms and conditions of the approval 4. 5 Loans to Directors No credit facilities are allowed to any Director of the MBL as defined by Bangladesh Bank in Banking companies Act. 4. 6Documentation It is essential that the proposal defines clearly the purpose of the facility, the source of repayment, the agreed repayment, schedule, the value of security and the customer relationship considerations implicit in the credit decision.

All approved procedures and required documentation’s is to be completed and all securities have to be in place, prior to the disbursement of the facilities. General documentation’s, as required for different kinds of advances are enumerated below. There may be requirement of specific banking or legal documents to secure a credit according to sanction terms and conditions which should also be obtained in addition to the following: 4. 6. 1 Loan D. P. Note Letter of partnership (in case of partnership concerns) or resolution of the Board of Directors (in case of Limited Companies) Letter of arrangement

Letter of disbursement Letter of hypothecation (in case of hypothecation of goods) Trust receipts (in case of LTR facility) Letter of lien and ownership / share transfer form (in case of advance against shares) Letter of lien for packing credits (in case of packing credits) Letter of Lien (in case of advance against FDR) Letter of Lien and transfer authority (in case of advance against PSP, BSP etc) Memorandum for deposit of title deed (in case of EM of real estate) Copy of sanction letter mentioning details of terms and conditions duly acknowledged by the borrower . 6. 2 Overdrafts D. P. Note Letter of partnership (in case of partnership concerns) or resolution of the Board of Directors ( in case of Limited Companies) Letter of arrangement Letter of continuity Letter of lien (in case of advance against FDR) Letter of lien and ownership / share transfer form ( in case of advance against shares) Letter of lien and transfer authority (in case of advance against PSP, BSP etc) Memorandum for deposit of title deed (in case of EM of real estate) 4. 6. 3 Cash Credit (Hypo) D. P. Note

Letter of partnership (in case of partnership concerns) or resolution of the Board of Directors (in case of Limited Companies) Letter of arrangement Letter of continuity Letter of hypothecation [in case[in case of Cash Credit (Hypo)]dum for deposit of title deed (in case of EM of real estate) 4. 6. 4 Bills Purchased D. P. Note Letter of partnership (in case of partnership concerns) or resolution of the Board of Directors (in case of Limited Companies) Letter of arrangement Letter of hypothecation of bill Letter of acceptance where it calls for acceptance by the drawee

All required documents, as enumerated above, should be obtained before any loan is disbursed. Disbursement of any credit facility requires approval of the authorized official of the branch who should ensure, before exercising such authority, that all the required documentation’s have been completed. 4. 7Valuation of Collateral Securities In case of taking mortgage of land and building as collateral security to secure Bank’s advances the following instructions are followed by the branches: The Bank engages a Surveyor / Valuation company for assessing the value of the property.

The property should be physically inspected and verified jointly by 2 (two) Banks Officers, one of whom should be the Branch Manager or the 2nd Officer. A valuation certificate mentioning market value and forced sale value should be prepared in the designated form supplied to the Branches and to be jointly signed by the above mentioned 2 (two) inspecting officers of the Bank. A specimen copy of such evaluation form is attached as appendix D. The forced sale value of the collateral security will have to be 1. 5 times igher than the facility / facilities allowed unless specifically waived by the approving authority giving full justification. A “Site plan” and “Map” along with 3R size distinct photographs of the mortgaged property covering full exposure from 3 angles mentioning detailed particulars on the back of the photographs duly authenticated by the authorized officer (s) to be obtained by the Branches. It should be ensured that the collateral security is in the physical possession of the mortgagee (s) and the mortgagor (s) has / have valid title over it.

A certificate from the Bank’s Lawyer to be obtained that the mortgage formality has been properly completed. 4. 8Credit Monitoring and Supervision It is the responsibility of the Manager to monitor and supervise the overall profile and risk aspect of the credit portfolio in accordance with the criteria set down in the Bank credit policy. Such monitoring and supervision is done and the comment of the Manager is written in monthly call / visit report and is kept in the credit file with copy to Head Office.

This review is formally performed at intervals prescribed by Head Office but it is the responsibility of the Manager to ensure at all times that the credit portfolio meets the standard set by the Bank. Periodic supervision, review and follow- up should ensure: That terms of approval have been adhered to. That conduct (turnover, regularity of repayments, etc. ) of the borrowing accounts during the period under review has been satisfactory or as expected That the continuing value of collateral is adequate. That there are no adverse trends in market, economic and political conditions which may affect the reliability of the borrower.

That the borrower’s business is being satisfactorily conducted as reflected through a review and analysis of their financial and operating statements and detailed information such as quality of the inventory, aging of receivable, trend in sales and profitability, liquidity and cash flow situation, maintaining various ratios, particularly those stipulated by Bank at the time the facility was granted etc. That the business reciprocity offered and received commensurate with the facilities allowed . That earning from the account are cost effective (i. e. dequate to meet direct cost of funds and leave sufficient margin for adequate risk reward, overheads and profits). All credits are, therefore, are reviewed and graded at intervals prescribed by Head Office. The purpose of this procedure is to monitor leading performance and to identify potential delinquent borrower. The basis of review / classification are risk of the transaction repayment record, conduct of the account, financial capacity and record of the borro