Anderkillah Branch

CHAPTER-1
INTROUDCTION TO THE REPORT
1.1.

ORIGIN OF REPORT:

Acknowledgement
Internship program is an integral part of MBA Program. Every MBA student is deputed to different organizations to learn something within the pre-stipulated time by observing these organizations daily practices. In this regard, my internship was arranged at The City Bank Limited with the deliberate counseling of Mr.Rajib Datta, Lecturer of the Faculty of Business Administration of Premier University Bangladesh. My heartiest gratitude to him for his enthusiastic guidance and consideration during the entire phase of the study made it possible for me to prepare this report. No report is the work of only of its author. I couldnt possibly thank all of those people who have contributed a lot to prepare this report. Theyre of course very special people who cant go without mention. First of all, my hearty thanks go to him who had been very keen at showing me the exact way to prepare this compact report. It would be unwise on part of me if I dont acknowledge the superb support of all the officers, especially of those whom I worked.

I mention the excellent working environment and the positive group behavior of this Bank, which helped me tremendously, observe the banking activities, work with the staffs and stay long for three months without any hesitation. However, to my best, I tried very hard and worked sincerely on this report to make an informative one. At last, my sincere apology goes to the readers for my conceptual and printing mistakes, if there is any.

Anderkillah Branch

Preface
Todays world is changing very rapidly as new business is emerging by placing the old ones. In the new millennium, people feel a growing uneasiness about the future. Many countries suffer from chronic high employment, a persistent deficit and deteriorating purchasing power. Like the other business, banking practices are also changing at an incredible pace. In the banking industry, community branch banks have long been the marketing channels through which customer deposit money and make payments. But the branch banks may soon become a thing of past. As a result of advances in bank automation-from Automatic Teller Machines (ATMs) to telephone banking services-fewer than half of bank customers (43%) in the United States are use bank branches. The upshot: Banks across the United States are preparing to close thousand of local branches. Half of the countrys 5200 branch offices may disappear with in a decade. Now its not easy to operate the banking practices like traditional approaches of 1800 or 1900 A.D. Todays banks need to recognize that they are no longer geographically bound, and that the introduction of electronic autobahn represents a whole new delivery channel for financial services.

Anderkillah Branch

Executive Summary
Internship program of MBA under the Faculty of Business, of Premier University is an obligatory part for all students. The report includes the practical knowledge and information observed and obtained during the program. This report mainly emphasises on product mix of the City Bank Limited (CBL).. The organisational structure of The City Bank and its operation in Chittagong as well as in Bangladesh have been unearthed through this report, which had been observed during the 3-months internship period.This report also finds out some possible recommendation, which might be taken or accepted by the management of the Bank.

Anderkillah Branch

1.2.

OBJECTIVE OF THE REPORT:

1. The main objectives of this report are as follows:

2. 3.

To fulfill the requirement of four years of MBA Program.

To have some practical exposure that will be helpful for my courses. 4. To learn desk-wise activities in bank branch. 5. To gather knowledge the functions and transactions of different departments of bank branch and comparison of practice based on theory. 6. To know about the general banking operation of CBL. 7. To know about the scopes pf Deposit collection of the banking. 8. To know about the area of general Credit. 9. To know about the procedure of settle Loan. 10. To examine the loan collection process. 11. To know about the documents of the Credit.

12.

To identify the problems of CBL, Anderkilla Branch, Chittagong is facing and possible solution of these problems

1.3. METHODOLOGY OF THE STUDY:

In order to make the Report more meaningful and presentable, two sources of data and information have been used widely.

PRIMARY DATA

SECONDAR Y DATA

Both primary and secondary data sources were used to generate the report

The Primary Sources are as follows Face-to-face conversation with the respective officers and staffs of the Branch. Informal conversation with the clients. Practical work exposures from the different desks of the four departments of the Branch covered. Relevant file study as provided by the officers concerned. 4

Anderkillah Branch The Secondary Sources of data and information are

Annual Report (2011, 2012) of CBL. Periodicals published by Bangladesh Bank. Various books, articles, compilations etc. regarding general banking functions,
foreign exchange operations and credit policies.

1.4 ORGANOGRAM OF THE REPORT:

This report has been classified into some chapters in order to clarify my experience and exposure that I gathered during the internship program. Chapter one deals with introduction to the report. While second chapter contains an overview of The City Bank Ltd, chapter three deals with general banking and chapter four holds all sorts of information about foreign exchange. Credit department is discussed in chapter five. Chapter six and seven hold information about accounts department and system department of The City Bank Ltd, Agrabad Branch.

1.5 LIMITATIONS OF THE STUDY:

Twelve weeks observation and orientation is not enough to be a mastermind of commercial banking despite having all sorts of cooperation from the employees. Due to time limitation I could not prepare a dazzling and outstanding report. The banks officials sometimes were busy enough to explain me some of the function.

Anderkillah Branch

CHAPTER-2

OVERVIEW OF THE CITY BANK LTD. 2.1 The

City Bank limited:

The emergence of The City Bank Limited was at the juncture of liberalization of global economic activities. The experience of the prosperous economies of the Asian countries and in particular of South Asia has been the driving force and the strategic operational policy option of the bank. The company philosophy - "A Bank with Vision" has been precisely an essence of the legend of success in the Asian countries. The bank by concentrating on the activities in its area of specialization has achieved good market reputation with efficient customer service. The bank is committed to providing continuous training to its staff to keep them up to date with modern practices in their respective fields of work. The City Bank Limited is the first private sector Bank in Bangladesh. The Bank has been operating since 1983 with an authorized capital of Tk. 1.75 Billion under the entrepreneurship of twelve prominent & leading businessman of the country. The noble intention behind starting this Bank was to bring about qualitative changes in the sphere of Banking and Financial management. Today The City Bank serves it's customers at home & abroad with 77 branches spread over the country & about three hundred oversea correspondences covering all the major cities and business center of the world. The services encompass wide diversified areas of trade, commerce & industry which tailored to the specific needs of the customers and are distinguished by an exceptional level of prompt and personal attention. Over the years the Bank has expanded the spectrums of Its Services. The extensive and ever growing domestic network provides and carries various products and services to the doorsteps of millions. The City Bank Limited has already introduced some new Banking products like duel currency Credit Cards, ATM and Online services which has created attraction among the clients. The Bank is going to introduce real time Internet, SMS and Phone Banking systems with all modern delivery channels at an early date. For significant performance, The Bank has earned national & international recognition. 6

Anderkillah Branch The City Bank Limited was one of the 12 Banks Of Bangladesh among the 500 Banks in Asia for it's asset, deposit & profit as evaluated by "ASIA WEEK" In The Year 2000. Other than that, The City Bank Limited received the "Top Ten Company" award from the Prime Minister Of The People's Republic Of Bangladesh. We have a distinguished Board of Directors which consists of thirteen successful and reputed businessmen. Mr. Deen Mohammad, a top leading businessman, industrialist, pioneer personality & entrepreneur of private sector's Bank in Bangladesh, is the Chairman of the Bank. Mr. Abbas Uddin Ahmed a dynamic, nationally & internationally reputed Banker is the Managing Director of the Bank. After taking his charge as chief executive in the year 2000, the Bank's entire activities have achieved tremendous momentum. Since then, the overall scenario of the Bank has been changed drastically and started making nonstop progress.

2.1 Highlights

Of The City Bank limited:

Incorporated on March 14, 1983 as a Public Limited Company. Commenced operation on March 27, 1983 and has already completed 20 years of business. Carries out the banking operation through 77 branches all over Bangladesh. Initial Public Offering (IPO) in 1986. Listed with Dhaka Stock Exchange in 1986 and Chittagong Stock Exchange in 1995 Authorized Capital of the bank is Tk. 400.00 million. Paid up capital as on December 31, 2003 is Tk. 240.00 million. 50% issued capital of the bank is held by general shareholders. First Rights share offer was made in 1989 and was fully subscribed.

Rights Share Offer Document Second rights shares offered at par 2:1 was made in 2002. The bank has fully covered the provision shortfall as on December 31, 2003. The bank was graded in the top 500 banks in Asia by the "Asia Week" evaluated on the basis of net worth, deposit and profit position. The bank was placed in the list of top twenty banks of Asia in 1999 based on highest return on equity. First ever bank to introduce dual currency credit card. First ever private sector bank to launch on-line real time banking The reserve fund of the bank stood at Tk. 557.21 million as on December 31, 2003 and Tk. 834.06 as on September 30, 2004.

Anderkillah Branch Areas of providing loans are agriculture, trade finance, SME Lending, import and export financing, industrial project financing, housing, consumer credit, transport and other commercial lending. Operating services and schemes are bonus deposit scheme, three stage savings scheme, monthly benefit scheme, education savings scheme, marriage deposit scheme, deposit pension scheme, consumer credit scheme, multiple credit scheme, credit card and ATM services etc.

2.3 MARKET SHARE:

The market share of CBL in terms of deposits in the industry has increased during FY 2003. The banking industry of Bangladesh had a deposit of Tk. 1,134.37 billion and loans and advances of Tk. 895.37 billion as on December 2003, shared among 49 banks including 4 NCBs, 5 specialized banks, 10 foreign banks, 25 private banks, and 5 Islamic banks. Out of the above CBLs share of deposit was Tk. 19.40 billion (1.71% of total market deposits) and share of loans and advances was Tk.14.78 billion (1.73% of total loans and advances) of total market loans and advances. The market share of loans and advances of CBL decreased due to writing off of non-performing loans and advances amounting Tk. 2.03 billion in FY 2003. The private commercial banks (PCBs) had a deposit of Tk 464.40 billion and loans advances of Tk. 372.42 billion as on December 2003. The bank shared 4.18% and 3.97% respectively of the total deposits and total loans and advances among the PCBs during FY 2003, which were 4.52% and 4.42% during EFY 2002.

2.4 OPERATIONAL RESULTS:

CBLs operating performance of FY 2003 was above average among the competing banks of the first generation. The banks profitability parameters showed an acceptable growth from EFY 2001. CBLs operating income increased by 5.75% and operating expenses decreased by 0.41% in 3rd Quarter 2004. During this period, it enjoyed a pretax profit of Tk. 564.97 million, which was increased by 20.16% as compared to Tk. 626.89 million in FY 2003. The banks profitability parameters are comparatively good among its peer group. The Net Interest Margin (NIM) stood at 5.60% and 3.18% in 3rd Quarter 2004 FY 2003. The banks return on average assets (ROAA) increased to 2.81% as compared to 2.44% in 2002. It further increased to 3.15% in 3Q 2004. However, CBLs return on equity slightly decreased to 80.46% in 3Q 2004 as compared to 85.50% in FY 2003 mainly due to higher growth of equity than profit. However, both return on average assets and return on average equity are better than peer group in EFY 2003 due to small equity effect. While analyzing the income portfolio of the bank it was found that the income pie is well diversified than the previous year. The interest income, though grabs the largest portion (42.74%) in total income pie, dependence on it decreased in 3Q 2004. The fee income of the bank shows a significant improvement grabbing the second position in total income having 30.65% shares. The net interest income stood at Tk. 441.63 million (annualized Tk. 588.84 million) in 3Q 2004 as compared to Tk. 579.85 million in FY 2003. The fee income stood at Tk. 316.68 million (annualized Tk. 422.24 million) and 365.62 million in 3Q 2004 and FY 2003 respectively. The bank has still 8

Anderkillah Branch scope to diversify its income components. The CBL improved its efficiency in 3Q 2004 as compared to previous year. The cost to income ratio decreased to 45.35% in 3Q 2004 as compared to 48.12% in FY 2003 as against peer average was 46.66% in FY 2003. Yield per staff of the bank was Tk. 164.29 per staff cost of Tk. 100 in FY2003 and remained lower than the peer average (Tk. 178.90). However, yield per staff cost of Tk. 100 increased to Tk. 196.67 in 3rd quarter 2004. Personnel expenses increased by 6.43% in 3rd quarter of 2004 to Tk. 287.09 million (in 2003: Tk. 411.38 million). Other operating expenses also increased by 21.07%, to Tk. 104.27 million from Tk. 86.12 million during the preceding period.

2.5 Prospects Of The City Bank limited:

The bank envisages to earn operating profit (before provision and taxes) of Taka 895.41 million, Taka. 1180.24 million, Taka 1384.33 million, Taka 1650.33 million, Taka 1887.47 and 1981.96 million in 2004, 2005, 2006, 2007, 2008 and 2009 respectively. This will enable the bank to pay out dividend at substantive rates in years 2004, 2005, 2006, 2007, 2008 and 2009. This will also see share prices appreciate in value yielding incremental benefits to the stockholders.

2.6 Mission of The City Bank Ltd:

To contribute to the socio-economic development of the country. To attain highest level of customer satisfaction through extension of services by dedicated and motivated term of professionals. To maintain continuous growth of market share ensuring quality. To maximize banks profit by ensuring its steady growth. To maintain the high moral & ethnical standards. To ensure participated management system and empowerment of Human Resources. To nature an enabling environment where innovativeness & performance is rewarded

2.7 Vision of The City Bank Ltd:

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Anderkillah Branch To be the leading bank in the country with best practices and highest social commitment.

2.8 Product
Deposit Product Line

Mix of CBL:

Saving A/C Fixed A/C Special Notice Deposit Education Saving Scheme Pension Saving Scheme Marriage Saving Scheme Savers Benefit Deposit Scheme Loan Product Line House Building Loan Commercial Loan Loan against import Working Capital Agriculture Scheme Small Cottage Industry Large Medium Scale Industry

ATM Services

2.9 ASSET QUALITY

Total loan and advances of The City Bank Limited stands at Tk. 14.70 billion including Tk. 2.17 billion non-performing loan (NPL) in 30th September 2004. The NPL of CBL were 14.78% and 14.17% during September 2004 and EFY 2003 respectively as compared to 22.13% NPL of Banking Industry and 12.43% of PCBs. CBL has written off an amount of Tk. 2,029.67 million in EFY 2003, which assisted the bank in improving its balance sheet position. However additional NPL in nine months of 2004 was Tk. 123.00 million. The rescheduled loans and advances of CBL stood at Tk. 27.94 million as on 10

Anderkillah Branch September 2004 which was 0.19% of total loans and advances. This amount was concentrated in 7 clients. During FY 2003 rescheduled loans and advances increased by 295% as compared to FY 2002. The funded portion of rescheduled loans and advances was Tk. 241.85 million (1.91% of total unclassified loans & advances) and Tk. 61.15 million (0.63% of total unclassified loans & advances) during FY 2003 and FY 2002 respectively. The top 5 defaulted branches are still the main source of infection. The overall performance of the above top 5 defaulted branches have further declined in September 2004. These branches hold major portion of the total non-performing loan of the Bank, which is 84.93% of CBLs total classified loans & advances in September 2004. The aforesaid branches disbursed loans and advances of Tk. 7.45 billion against deposits of Tk. 3.40 billion in the same period. These 5 branches hold 16.63% of total customer deposit against disbursement of 50.69% total loan and advances of the bank. However, during 2004 loan and advances of top 5 branches decreased by 9.64% whereas CBLs total loans and advances decreased by 0.50% during the same period representing the intention of bank management to diversify the disbursement of loans and advances instead of concentrating on large branches. While analyzing the loans and advances portfolio of the bank it appeared that the bank has still been facing problem in containing the high percentage of NPL in trade finance sector, demand loan and house building sector.

2.10 CAPITAL ADEQUACY

Although City Bank is under-capitalized till date, its pace in reviving from current situation is commendable. The banks adjusted risk weighted capital adequacy ratio increased to 8.66% in September 2004 as compared to 6.57% in FY 2003. The tier 1 ratio of CBL stood at 6.69% in September 2004 as compared to 4.53% in FY 2003. The CBL is going to issue right share of Tk. 240.00 million to reach the 9% minimum standard set by Bangladesh Bank. Shareholders fund of CBL as against its total assets, total deposits and borrowings has also improved in 2004. Slower growth in loans and advances and increasing profitability enabled the bank to strengthen its capital position. However, in order to cover the ongoing shortfall, CBL will have to retain more of its profit in future until it reaches the standard.

2.11 FUNDING AND LIQUIDITY

CBL enjoys a sturdy source of funding. The customer deposit of CBL, the notable funding source, has increased by 4.03% as against the increase of total deposit by only 1.84% in September 2004 as compared to FY 2003. The liquid asset ratio of CBL over the period was quite outstanding against the required 16% of SLR set by the central bank. The Banks liquid asset ratio increased a bit to 36.84% in September 2004 from 35.92% in FY 2003 and maintained stable liquidity position. However, excess liquidity also 11

Anderkillah Branch indicates idle fund or less profitability. Though net loans to total deposit hiked to 67.12% at the end of year 2003 as compared to 55.31% in FY 2002, it decreased to 65.20% in September 2004. The weighted average cost of deposits of CBL declined slightly to 5.79% in September as compared to 5.84% in FY 2003 (6.61% in 2002). Comparing to both industry and PCBs, the weighted average cost of deposits of CBL is average. During FY2003 weighted average cost of deposits of the industry was 6.25% and PCBs average was 6.77%. The CBL, with its current level of cost of funds, will enjoy a better flexibility in the declining lending rate scenario comparing to other players in industry where some bears around 11% cost of fund. Comparing with its peer group, CBL showed the highest dependence on Fixed Deposits for funds with 58.54% concentration as on December 2003. However, the dependence on fixed deposits decreased to some extent during 1st nine months of 2004. The Bank still showed high dependence on Current Deposits for funds though it decreased to 10.19% in September 2004 from 11.49% in FY 2003 as compared to 9.55% of industry concentration in FY 2003. Though percentage of savings deposits increased during September 2004, still it is low comparing with both industry and PCBs. The deposit concentration risk of City Bank was acceptable. The top 50 deposits amounted to Tk. 1.63 billion as on September was 8.00% of total deposits. The bank had only one depositor in the category of Tk. 100.00 million and above and 10 depositors having Tk. 50.00 million and above deposits. These 10 depositors hold 3.08% of total deposits.

2.12 Islamic Banking:

The Bank operates Islamic Banking in one branch designated for the purpose in complying with the rules of Islamic shariah. The Financial Statements of the branch have also been prepared as per Bank Companies Act. 1991, Bangladesh Accounting Standards (BAS). Financial Accounting Standard issued by the Accountancy & Auditing organization for Islamic Financial Institutions for which a separate set of books and records are being maintained.

2.13 SME Financing:

An enterprise with minimum 3 and maximum of 60 employees. Minimum 2 years in business (exceptional cases for start-up business will be considered if projections are very good).Minimum annual turnover Taka 500,000 to maximum Taka 5 cores. Loan size of minimum Taka 100,000 to a maximum of 1 core (funded line not to exceed 70% of the maximum).

We provide working capital or asset finance through

Overdraft- secured & unsecured 12

Anderkillah Branch Installment loan. Revolving loan. Letter of credit. Guarantee / bonds

Who can avail the facilities?

Shop keepers. Small & medium entrepreneurs, manufacturers, traders etc. Suppliers to corporate businesses. Professionals (doctors, engineers, etc). Business services. Cottage industries. Fleet financing.

Treasury:
Treasuries dealing in local and foreign currencies were of significant value. Since the dealing room is connected with automated Reuters Terminal, the bank had been able to take optimum recourse to opportunities available globally and reap substantial benefits for the Bank.

2.14 Foreign correspondents:

Foreign trade operation of the Bank played a significant role in the overall business development of the Bank. The number of foreign correspondents and agents of the bank covering the prime business and trade centers of the world. During the period the bank maintained excellent relationship with leading international banks.

2.16 Web Page:

The Internet has bought about a revolutionary change in the world leading to convergence of communication and computing technologies. In order to provide round the clock and up to date Information on the bank to the trade and business communities world wide, our own IT Team has developed a web page for the bank. It can be accessed under the domain name:

www.thecitybank.com

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Anderkillah Branch

2.17 Swift:
The City Bank Limited is one of the first few Bangladeshi Banks who has become member of SWIFT (Society for Worldwide Inter-bank Financial Telecommunication) in 1983. SWIFT is members owned co-operative, which provides a fast and accurate communication network for financial transactions such as Letters of Credit, Fund transfer etc. By becoming a member of SWIFT, the bank has opened up possibilities for uninterrupted connectivity with over 5,700 user institutions in 150 countries around the world.

2.9The City Bank at a Glance:

With an eye to having a better view or outlook we can review the different financial terms which are reflected in the below mentioned Tables and graph.

Financial Performance - Overall Activities

Highlights on the overall activities of the bank for the year 2005 and 2004

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Anderkillah Branch Particulars Year Under ReviewPrevious Year ( 2011) (2012) TAKA TAKA Paid-up Capital 720,000,000 480,000,000 Total Capital 2,080,700,000 1,469,400,000 Capital Surplus / (Deficit) 140,500,000 117,400,000 Total Assets 35,303,744,444 26,375,555,589 Total Deposits 30,647,833,255 22,236,956,587 Total Loans & Advances 23,326,338,550 17,027,836,839 Total Contingent Liabilities 9,040,114,395 6,773,807,689 Total Loan Deposit Ratio (%) 76.11 76.57 Ratio of Classified Loan to total Loans & Advances5.71 10.57 (%) Profit before tax & provision 540,924,588 380,262,522 Amount of Classified Loan during the current year 470,081,000 197,826,000 Provision kept against classified Loans 40,879,000 74,000,000 Provision surplus / (Deficit) 22,265,513 105,967,662 Cost of Fund (%) 5.34 5.63 Interest Earning Assets 31,913,926,565 22,914,447,297 Non-Interest Earning Assets 3,389,817,878 3,461,108,292 Return on Investment (ROI) (%) 8.38 8.98 Return on Assets (ROI) (%) 1.75 1.52 Income from Investment 285,323,890 293,513,029 Earning per Share (Taka) 75.13 79.22 Net Income per Share (Taka) 75.13 79.22 Price Earning Ratio (Times) 10.24 11.08

Financial Performance - Balance Sheet Balance Sheet As At 31st December, 2011

PROPERTY & ASSETS 2005 TAKA CASH 2,394,884,119 Cash in hand (Including Foreign Currencies 593,156,307 Balance with Bangladesh Bank & Sonali Bank1,801,727,812 (including foreign currency) 15 2004 TAKA 1,477,386,687 475,002,705 1,002,383,982

Anderkillah Branch BALANCE WITH OTHER BANKS & FINANCIAL466,077,170 1,712,586,460 INSTITUTIONS: In Bangladesh 330,083,214 1,662,336,490 Outsite Bangladesh 135,993,956 50,249,970 MONEY AT CALL & SHORT NOTICE: 3,410,000,000 1,227,500,000 INVESTMENTS: 3,648,267,726 3,161,375,458 Government 3,203,044,680 2,941,146,530 Others 445,223,046 220,228,928 LOANS & ADVANCES: 23,326,338,550 17,027,836,839 Loans, Cash Credit & Overdrafts etc. 20,038,156,664 15,214,378,550 Bills Purchased & discounted 3,288,181,886 1,813,458,289 Fixed Assets 764,900,950 682,367,906 OTHER ASSETS 1,293,275,929 1,086,502,239 NON-BANKING ASSETS --TOTAL ASSETS 35,303,744,444 26,375,555,589 -LIABILITES & CAPITAL LIABILITES: Borrowings from other bank, financial institutions40,000,000 and Agents DEPOSITS & OTHER ACCOUNTS: 30,647,833,225 22,236,956,587 Current Deposits and other accounts 3,059,241,470 2,710,976,718 bills payable 446,326,555 341,640,899 savings Bank Deposits 5,820,415,605 5,371,144,695 Term Deposits 19,647,029,930 12,531,197,484 Other Deposits 1,674,819,695 1,281,996,971 OTHER LIABILITIES 2,697,513,865 2,681,126,266 TOTAL LIABILITIES 33,345,347,120 24,958,082,853 CAPITAL/SHAREHOLDER'S EQUITY: Paid-up Capital 720,000,000 480,000,000 Statutory Reserve 604,605,401 378,420,483 Other Reserve 240,619,365 240,619,365 Retained Earnings 33,172,558 78,432,888 Proposed Bonus Share 360,000,000 240,000,000 TOTAL SHAREHOLDER'S EQUITY: 1,958,397,324 1,417,472,736 TOTAL LIABILITIES & SHAREHOLDER'S35,303,744,444 26,375,555,589 EQUITY

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Anderkillah Branch

Financial Performance - Off-Balance Sheet Off-Balance Sheet As At 31st December, 2011

OFF-BALANCE SHEET ITEMS 2011 TAKA CONTINGENT LIABILITIES Acceptances and Endorsements 840,403,995 Letters of Gurantee 1,180,775,842 Letters of Credit 3,981,767,670 Bills of Collection 3,037,166,888 Other Contingent Liabilities Total: 9,040,114,395 OTHER COMMITMENTS: Documentary credit and short term trade-relatedtransactions Forward assets purchased and forward deposits placedUndrawn note issuance and revolving underwritingfacilities Undrawn formal standby facilities, credit lines andother commitments TOTAL: TOTAL OFF-BALANCE SHEET ITEMS 9,040,114,395 2012 TAKA 1,096,355,031 995,369,728 2,743,088,539 1,938,994,390 6,773,807,689 6,773,807,689

Financial Performance - Profit and Loss For the year ended 31st December, 2005
OPERATING INCOME Interest Income Less : Interest paid on Deposits & Borrowings Net Interest Income Income from Investment 17 2011 TAKA 2,446,263,960 1,366,979,785 1,079,284,175 285,323,890 2012 TAKA 1,809,652,568 1,109,963,353 699,689,215 293,513,029

Commission, Exchange Earnings & Brokerage Other Operating Income TOTAL OPERATING INCOME (A) OPERATING EXPENSES Salary & Allowances Managing Direstor's Salary & Allowances Rent, Taxes, Insurance, Lighting etc. Legal Expenses / Law Charges Postage, Stamp, Telecommunication etc. Stationery, Printing, Advertisement etc. Director's Fee and Meeting Expenses Audit Fee Depreciation and Repair to Bank's Assets Other Expenses TOTAL OPERATING EXPENSES (B) Profit / (Loss) before Provision (C) = (A-B) Provision for Loans & Advances Other Provisions Total Provision (D) Total Profit Before Tax (C-D) Provision for Taxation Net Profit / (Loss) after Tax Retained Earning Brought Forward Retained Profit before Appropriation Appropriation: Statutory Reserve Proposed Bonus Shares Retained Surplus Earning Per Share (EPS)

Anderkillah Branch 510,350,813 234,908,474 1,030,583,177 2,109,867,352 557,942,045 4,950,000 96,438,829 11,063,638 26,620,355 19,860,067 520,382 1,458,000 54,226,042 87,934,973 861,014,331 1,248,853,021 108,365,000 9,563,433 117,928,433 1,130,924,588 590,000,000 540,924,588 78,432,888 619,357,476 226,184,918 360,000,000 586,184,918 33,172,558 75.13

444,468,744 160,212,931 898,194,704 1,597,883,919 424,831,090 3,795,000 83,798,741 5,653,157 23,258,489 19,157,124 677,500 291,220 45,043,684 69,323,714 675,829,719 922,054,200 99,000,000 99,000,000 823,054,200 442,791,678 380,262,522 102,781,206 483,043,728 164,610,810 240,000,000 404,610,840 78,432,888 79.22

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Anderkillah Branch

Financial Graph
The City Bank's nonstop Financial Progress at a glance

Branch Networks of The City Bank

CBL has opened its first Islamic Banking Branch at Motijheel, the commercial center of the capital on November 20, 2003 to attract the religious customers as well as marketing new products. With this Islamic Banking Branch, the total number of branches of CBL stands at 78 located at different locations of Bangladesh. Out of 78 branches, 63 branches are headed by officers of AVP level and above. The bank is providing ATM facilities from 19 outlets and has the plan to add more new booths in FY 2006.

CBL, Agrabad Branch, Chittagong, at a glance

Address: The City Bank Limited, Agrabad branch,Finley house,
Agrabad, Chittagong

Commencement of Operation:
03rd August1983 on Wednesday 19

Anderkillah Branch

No. of Employee:
Total number of employee 50

Activities of CBL, Agrabad Branch, Chittagong

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Anderkillah Branch Customer Care Centre

Accounts opening

Remittance (Local)

Cash

Cash Receipt

Cash Payment

Financial Control Department (FCD)

Daily Accounts

Clearing

Foreign Exchange Department

Import & Remittance (Foreign)

Export

Loans & Advance Department

Continuous

Demand

Term Loan

Time Loan

a. CC (Hypothecation) b. Overdraft c. SOD d. Cash Collateral e. Loan Against Trust Receipt (LTR)

PAD Inland Bill Purchase (IBP) Foreign Documentary Bill Purchase (FDBP)

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Anderkillah Branch

Organgram of CBL, Agrabad Branch

Vice President

Senior Assistant Vice President

Assistant Vice President

Senior Executive Officer

Executive Officer Management Trainee Officer

Senior Officer

Officer

Junior Officer

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Anderkillah Branch

The City Bank Limited

Head Office
Jiban Bima 10 Dilkusha Dhaka-1000, G.P.O Box No.-3381 Cable: City Telex: 642581 Telephone: 880 2 9565925-34 Email: Web: http://www.thecitybank.com/ Tower Commercial Bangladesh Bank CBL

Area

BJ mail@thecitybank.com

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Anderkillah Branch

CHAPTER-3

3.1 Remittance Section:

Remittance means transfer of money from one place to another. In banks it is done in the form of DD (Demand Draft), TT (Telegraphic Transfer) or Pay order. The details are as follows ---

3.1.2. Demand Draft (D.D.):

Demand draft is that kind of instrument which is payable on demand. A branch issues it to another branch containing an order to pay a certain amount of money to a certain person. To issue a D.D. the sender of the D.D. should have an A/C with that issuing branch. D.D. can be send from one branch to another by cash or cheques. Every bank charges a certain amount as commission for issuing a D.D. for the local office the commission is Taka 50.

The flow chart of the total procedure of issuing Demand Draft is as follow: -

Purchaser has an A/C with the branch purchases a D.D.

He purchase the D.D in favor of a person/company

The beneficiary deposits the D.D in his A/C

His A/C is credited when the draft is collected or cleared through clearing house.

3.1.3. Issue of Demand Draft (D.D):

Against Cash

The customer is asked to complete a form (No. Rmtt 230/8) which is

treated as an application as well as credit voucher for H.O account (Br. Concern). 24

Anderkillah Branch Commission charges are calculated and inserted in the form. The voucher then given to the customer to deposit the amount. The cashier receives the cash and delivered the voucher to the remittance department against initial in his book. Then the draft is prepared and entered in the D.D issue register. The amount of the draft is protected by the protect to graph. Then the draft No. is written on the voucher. Draft book and the voucher along with register are sent to officer in charge of the remittance department for part II test, verification and signature. Then the draft and the voucher are sent to general section head for part-I test and signature. Then a memorandum is issued to the customer if he desires so.

Against Cheque: If the cheque includes commission charges -----Party A/C ---------------------------------------Dr. H.O. concern Br. A/C --------------------------------Cr. I/A commission on D.D. ---------------------------- -Cr. If the cheque does not includes commission charges ------Party A/C ---------------------------------------Dr. H.O. concern Br. A/C --------------------------------Cr. Party A/C (voucher No.) with amount of commission --------Dr. I/A commission on DD/TT --------------------------------------Cr.

3.1.4. Payment of DD:

The followings should be checked before payment of D.D.: 25

Anderkillah Branch D.D. is drawn on the branch. Issuing branchs rubber stamp is fixed. Amount in word & the amount in figure should be same. Verify the test number if tested. The payee must be properly identified in case of cash payment. If D.D. is placed before arrival o f IBA then make the payment by debiting. Suspense A/C D.D. paid without advice, advice will come then New general A/C (respective Br.) ---------------Dr. S/A D.D paid without advice ----------------------Cr. Particulars of D.D payable & D.D paid without advice is entered in the respective register.

3.4.3. Issue of duplicate D.D.:

a. Prior permission should be obtained before issuing duplicate D.D. b. On respect of application form purchaser of the draft regarding its loss and issue of duplicate one the signature of an applicant is verified from the original application. c. The drawee branch is informed of the loss of draft and requested to exercise caution by letter on telegram as desired by the applicant. d. On receipt of continuation from the drawee branch that the draft is still outstanding in their books, a duplicate draft is issued to the purchaser after obtaining an indemnity. e. The draft issued marked Duplicate in red ink without altering the printed number and repeating the original number. f. A note of this effect is made on the original application form and the draft issued register. g. Drawee branch is advised to issue the duplicate D.D. h. The indemnity bonds are filed in indemnity bonds for duplicate instrument issued file. Charges taken for the draft: Tk. 50.00 as postage charge is taken and.

3.4.4. Cancellation of Demand Draft:

26

Anderkillah Branch To cancel an issued D.D the client has to submit an application. Issuing branch then sends an I.B.D.A (inter branch debit advice) to the drawn branch against previously issued I.B.C.A (inter branch credit advice). Then the following entries are given ---H.O. A/C drawn on branch ---------------------Dr. Clients A/C --------------------------------------Cr.

3.4.5. Pay Order:

If any person wants to transfer money within the local area where the bank located then the transfer should be made by Pay Order. Deference between Pay Order and Demand Draft is in terms of place only. Pay order is issued for remitting money within the city whereas D.D is issued for within the country.

3.4.6. Issue of Pay-Order:

To issue a Pay-Order the party should maintain an A/C with the bank. The bank also allows special customers without A/c for Pay-Order in special circumstances. The main feature of Pay- Order is that in where (that is in which branch) the P.O. is issued the party should encash the money from the same branch and charge taka 50.

3.4.7. Accounting Treatment:

While issuing Pay-Order the concerned officer gives the following entry:

Partys A/C ---------------------Dr. Pay-Order --------------------------------Cr. Commission ------------------------------Cr. A customer can purchase pay order in different ways: By cash Cash A/C............................................................Dr. Bills Payable (P.O) A/C .....................................Cr. Income A/C Commission on Remittance ..........Cr. Clients A/C ...................................................... Dr. Bills Payable (P.O) A/C .....................................Cr. 27

By account

By transfer

Anderkillah Branch Income A/C Commission on Remittance ..........Cr. Head office \ other departments client A\C ........Dr. Bills Payable (P.O) A/C .....................................Cr. Income A/C Commission on Remittance ..........Cr.

From the above accounting treatments it is clear that the money, which is received by the bank from selling the instrument, is kept under bills payable account. It is current liability on the part of bank, which implies that, money received in this purpose has to be paid to the payees collecting bank on placement of the instrument. The procedure for selling P.O. is as follows: a. Purchaser must be an A/c holder of CBL Pr. Branch. b. Depositing money with P.O. application form. c. Giving necessary entry in the Bills Payable (P.O.) register; d. Payees name, date, P.O. No. etc. e. Preparing the instrument. f. After it has been scrutinized & approved by higher authority, the instrument is delivered to customer. Signature of customer is taken in the counterpart. Practice and operation of pay order: Types of PO Account payee only : Blank Crossed : Cash payment : Settlement of a P.O. When P.O. submitted by collecting bank through clearinghouse, the issuing bank gives payment. Bills payable A\C .......................................... Dr. Balance with Bangladesh Bank ..................... Cr. Thus banks liability is settled by debiting bills payable. But before giving payment it should be examined whether endorsement was given by the collecting bank or not. If not then the instrument is dishonored marking Endorsement required. Unutilized P.O. / Cancellation of a P.O. only can encash it by depositing it in his account. Any one can encash it by depositing in their account. P.O. can be paid in cash if buyer gives a letter of Identification regarding payee.

28

Anderkillah Branch If buyer wants to cancel the P.O. he has to give a letter of instruction in this regard. He will also have to return the instrument. Adjusting entry will be : Bills Payable (P.0.) A\C ...................................................... Dr. Clients A\C ......................................................................... Cr. When PO is lost: Incase the instrument is lost, the holder whether payee or buyer will inform it to the issuing bank immediately. Bank will mark stop payment on the Bills Payable (P.O.) register. Buyer will then ask for a new instrument by submitting a G.D. Copy and indemnity bond of Tk.50.00 (issued by court). A new Instrument will be delivered marked In lieu of. Collection of PO: A customer of CBL who is the payee of a P.O. will deposit it for collection. The instrument is given to the clearing who will place it to the issuing bank in the clearing house. Before placement, SBL as a collecting bank gives necessary endorsement.

3.4.7. Cancellation of Pay-Order:

The following procedure should be followed for cancellation of the Pay-Order: The client should submit a written request for canceling the Pay- order attaching therewith the original Pay-Order. The signature of the purchaser will have to be verified from the original application form. Managers prior permission is to be obtained before refunding the amount of the Pay-Order. Cancellation charge is to be recovered from the applicant and only the amount of the Pay-Order less cancellation charge should be refunded. Commission recorded for issuing of the original Pay-Order should not be refunded. Then the officer should write Cancelled on the Pay-Order. The original entries should be reversed with proper narration.

29

Anderkillah Branch

3.4.8. Telegraphic Transfer (T.T)

This is the most usable instrument in remittance section. In local office, T.T is generally done by telex; telephone is also used where necessary.

3.4.9 Issue of T.T:

To issue a T.T the party should maintain an A/C with that issuing bank. Then --a. The customer is asked to complete an application that is also treated as credit voucher for head office account (Branch concern). b. Telegram charges are also recovered from the customer and are credited to income account telegram charges recovered. A credit voucher is prepared for the customer. c. Text of telegram is written and handed over. d. Then the massage is typed on the form. e. The original telegram & confirmation is sent to the dispatch department. f. IBCA is prepared in duplicate. A separate register is maintained for T.T issue. Telegraphic transfer is one of the fastest means of transferring money from one branch to another or from one place to another. The TT issuing bank instrument is given for T.T. Both parties should have account, as money is transferred.

Outgoing T.T. Its Procedure:

a. b. Application by customer along with money given. In receipt of money a cost memo is given to the customer containing TT serial number. This number is informed to the awaiting party in the other branch, by the customer. Tested fax message is prepared, where TT serial no and the name of the concern party to whom the money will be credited is mentioned. Activity report is received from the telex department confirming transmission of message. 30

c. d.

Anderkillah Branch Accounting treatment: Cash A/C Party A/C ...................... Dr. H/O A/C (Concern Branch) .............. Cr.

Incoming TT Practice:
a. After receiving the fax message it is sent for test agree. b. TT serial number is scrutinized in the TT IN concern branch register c. Voucher is released in this respect giving accounting treatment as H/O (Concern Branch) A/C ....................... Dr. Customer A/C ............................................. Cr.

3.4.9.1. Payment of T.T.:

The payment of T.T. requires a lot of paper works. Vouchers are made. At first H.O. concern bank is debited with T.T. payable credited. Then the T.T. payable is debited with partys A/C credited. The receiving party can also take the cash after his A/C is credited. For the payment of T.T. caution must be taken because various fraud and forgery. So test number is required for its security.

3.5. CLEARING:
Clearing is one of the most important functions of general banking. Mainly clearing is an arrangement held in Bangladesh Bank where daily representatives of the member banks gather to clear their cheques and other instruments. The bank receives many such instruments during the day from the A/C holders. Many of these instruments are drawn payable at other banks. When the bill is within the range of the clearing house it is sent for collection through clearing section. As far as safety is concerned customers get crossed cheque for the transaction Crossed check cant be encashed from the counter; rather it has to be collected through banking channel i.e., clearing. If a client of CBL received a check of another bank which is located within the clearing range and deposit the instrument in his account at CBL then CBL will collect the money through clearing house. On receipt of the check

31

Anderkillah Branch CBL will credit client account. However, the amount is credited in the customer a/c but he will not get the money until the check is honored. Procedures for clearing: a. Received seal is stamped on the cheque b. Crossing of the cheques are done. c. Payees A/C Credited endorsement is given d. Entries are given in the Outward Clearing Register e. Clearing seal is given f. Cheques are sorted bank wise and entries are given to the computer (NIKASH2) g. Entries are given in the Clearing House Register before dispatching to the clearing house. After that, a debit voucher is prepared: Balance with Bangladesh Bank --------------------------------------Dr. All Customers A/C ----------------------------------------------------Cr.

Instruments of other branches

However, the principal branch clears its checks as well as the checks of other branches. Because, no other branch is allowed to represent directly. The other branches send the instruments along with IBDA. Principal Branch acts as an agent in this case. Accounting treatment for concerned branch: HO A/C-Principal Branch -------------------------------------------------------Dr. Customer A/C ---------------------------------------------------------------------Cr. if the instrument is honored, Principal Branch gives the following treatment Balance with B.B. ------------------------------------------------------Dr. HO A/C-concerned branch --------------------------------------------Cr. If the instrument is dishonored, the instrument is returned to the concerned branch through IBDA. The treatment is: HO A/C concerned branch ------------------------------------------------------Dr. Balance with B.B. ----------------------------------------------------------------Cr. Dishonor of Cheque: 32

Anderkillah Branch If the cheque is dishonored, CBL sends a memorandum (cheque return memo) to the customer stating the reason. If the cheque is dishonored due to insufficiency of funds, CBL charges TK.100/= as penalty.

3.7 ATM Services:

CBL along with other some banks have introduced a new horizon in the banking through ATM services. The credit card issued by The City bank along with other several banks holds the following classic as well as vivid features: Reliability Safety Security Utility bill payment Affordable yearly charge

Features of Credit card:

24 hour round the clock service Maximum withdrawal Taka 20,000/= per card per single charge. Minimum withdrawal per transaction Taka 500.00 Maximum withdrawal per transaction Taka 20,000.00 Utility bills payment

Charges of ATM Card:

Annual fee of each card is Taka 2000.00 Taka 200 for replacement of each lost, stolen or damaged card Taka 2000 annual fee per card for bill payments up to first three utility companies. Taka 100 annul fee per card for any additional utility bills payment No annual fee for each card only for staff members

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Anderkillah Branch

CHAPTER-4

.Hub of lofty as well as dynamic business volume

Foreign exchange department is a vital as well as vivacious department for CBL Agrabad Branch that deals with import, export, foreign remittance and post import financing. 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 countrys currency are converted into rights to wealth in another countrys currency. Foreign exchange ensures the hefty earning and headway for the bank. This department is playing an important role in enhancing export earning, which aids economic growth and, will be helpful for economic boost. On the other hand, it also helps to meet those goods and services, which are more demanding and not adequate in our country.

FOREIGN EXCHANGE DEPARTMENT

Foreign Exchange Department

Foreign Exchange Department of CBL Agrabad Branch

L/C operation

Foreign Remittance

Import operation

Export operation

Foreign Currency A/C

Inward remittance

Outward remittance

34

Anderkillah Branch

Foreign exchange department of CBL Agrabad Br has been divided into two sections: --1.Foreign Remittance 2.L/C Operation Before going to detailed discourse lets discuss some inevitable terms.

4.1. Some important terms on foreign exchange:

Letter of Credit:
Letter of credit can be defined as a Credit Contract whereby the buyers bank is committed (on behalf of the buyers) to place an agreed amount of money at the sellers disposal under some agreed conditions. Since the agreed conditions include amongst other things, the presentation of some specified documents, the letter of credit is called Documentary letter of credit. The uniform customs and practices for documentary (UCPDC) published by international Chamber of Commerce (1993) revision, publication no 500 defines Documentary Credit: Any arrangement however named or described whereby a bank (the issuing bank) acting at the request and on the instructions of a customs (the Applicant) or on its own behalf, is to make a payment to or to the order of a third party(the beneficiary) or is to accept and pay bills of exchange(Drafts)drawn by the beneficiary or authorize another bank to effect such payment or to accept and pay such bills of exchange (Drafts) authorize another bank to negotiate against stipulated documents provide that terms and conditions are complied with.

FORMS OF DOCUMENTARY CREDIT:

1. Revocable Credit: A revocable credit is one where the issuing bank at liberty to revoke i.e. cancels the credit at any time. According to UCPDC, a revocable credit may amend or cancelled by the issuing bank at any moment and without prior notice to the beneficiary before shipment of consignment against the L/C. 1. Irrevocable Credit: An irrevocable L/C is one, which can not be revoked, amended or modified by the bank with the concurrence of the interested parties. 35

Anderkillah Branch

4.2. Parties involved in the process of Letter of Credit:

Importer ( Buyer/Applicant) The Issuing Bank (Opening Bank) The Advising Bank/Notifying Bank Exporter/ Seller (Beneficiary) Confirming Bank. Negotiating Bank. The Paying/Reimbursing/Accepting/Remitting Bank. a) Applicant: The person/body (customer of the bank) who requests the bank (opening bank) to issue letter of credit. As per instruction and on behalf of the applicant, bank open L/C in line with the terms and conditions of the sales contract between the buyer and seller. b) Opening bank/ Issuing bank: The bank which open/issue L/C on behalf of the applicant/importer. Issuing banks obligation is to make payment against presentation of documents drawn strictly as per terms of the L/C. C) Advising/Notifying bank: The bank through which the L/C is advised/ forwarded to the beneficiary (exporter). The responsibility of advising bank is to communicate the L/C to the beneficiary after checking the authenticity of the credit. The advising bank acts only as agent of the issuing bank without having any engagement on their part. d) Beneficiary: Beneficiary of the L/C is the party in whose favor the letter of credit is issued. Usually they are the seller or exporter. e) Confirming bank: The bank, which under instruction in the letter of credit, adds confirmation of making payment in addition to the issuing bank. It is done at the request of the issuing bank having arrangement with them. This confirmation constitutes a definite undertaking on the part of confirming bank in addition to that of issuing bank. f) Negotiating Bank: The bank, which negotiate documents and pays the amount to the beneficiary when presented complying credit terms. If the negotiation of documents is not restricted to a particular bank in the L/C, normally negotiating bank is the banker of the beneficiary. g) Reimbursing/ Paying Bank: The bank nominated in the credit by the issuing bank to make payment stipulated in the document, complying with the reimbursing bank. Mechanism of L/S operation:

Indentor

Buyer (Importer) 36

Seller (Exporter)

Anderkillah Branch (3) (2) (4) (5) (6)

(1)

Issuing Bank

(4) (8) (9)

Advising Bank Confirming Bank Negotiating Bank

Legends: 1. 2. 3. 4. 5. 6. 7. 8. 9.

Reimbursement Bank

L/C opening. Present Document Payment against Document Confirming L/C Submit Documents Makes Payment Issue L/C Forward Document Makes Payment

IMPORT SECTION
Import is the flow of goods and services purchased by economic agent staying in the country from economic agent staying abroad. Import section deals with L/C opening and post import financing i.e. LIM & LTR. Now the procedure from opening L/C to disbursement against L/C is given below:

4.3.1. APPLICATION FOR OPENING L/C:

At first, an importer will request banker to open L/C along with the following documents. Indent or Proforma Invoice L/C application Letter of Credit Authorization Application Form(LCAF) Import Registration Certificate (IRC) Taxpayers Identification Number (TIN) Insurance cover note with money receipt A bank account in CBL Agrabad Br Membership of chamber of commerce Valid Trade License Vat Certificate Credit Information Bureau (CIB) report of Bangladesh Bank 37

Anderkillah Branch Suppliers satisfactory Credit Report from internationally reputed company.

Indent or Proforma invoice:

Indent or Proforma Invoice is the sale contract between seller and buyer in import- export business. There is slight difference between indent and Proforma invoice. The sales contract, which is direct correspondence between importer and exporter, is called Proforma invoice. There is no intermediary between them. On the other hand, there may be an agent of exporter in importers country. In this regard, if the sale contract is occurred between the agent of exporter and importer then it is called indent.

L/C Application Form

L/C Application Form is a sort of an agreement between customer and bank on the basis of which letter of credit is opened. CBL Agrabad 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. Usually the importer gives the following information

Full name and address of the importer Full name and address of the beneficiary Draft amount Availability of the credit by payment/acceptance/negotiation/deferred payment Time bar within which the documents should be presented Sales type (CIF/CPT/FOB/C&F) Brief specification of commodities, price, quantity, indent no. etc. Country of origin Bangladesh Bank registration no. (if necessary) Import License/LCAF no. IRC no. Account no. Documents no. Insurance Cover Note/Policy no., date, amount Name and address of Insurance Company Whether the partial shipment is allowed or not Whether the transshipment is allowed or not Last date of shipment Last date of negotiation (expiry date) Other terms and conditions (if any)

sight

38

Anderkillah Branch Whether the confirmation of the credit is requested by the beneficiary or not. The L/C application must be completed/filled in properly and signed by the authorized person of the importer before it is submitted to the issuing bank.

L/C Authorization Form (L/CAF)

The Letter of Credit Authorization Form (LCAF) is the form prescribed for the authorization of opening letter of credit/payment against import 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 Banks Registration Unit located in the concerned area office of the 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&E 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 followings Name and address of the importer IRC no. and year of renewal Amount of L/C applied for (both in figure and in word) Description of item(s) to be imported ITC Number/HS Code No. Signature of the importer with seal List of goods to be imported

Import Permit Form (IMP).

L/C authorization form no Date Value in taka Registration of LCAF Quantity of goods Invoice value Country of origin Port of shipment Name of the steamer Indentors name & address

4.3.2. DELIVERED IMPORTER:

FORMS

BY

BANKER

TO

39

Anderkillah Branch After scrutinizing above-mentioned documents carefully, officer delivers the following forms to be filled up by importer and banker should check: Whether the goods to be imported is permissible or not. Whether the goods to be imported is demanding or not.

4.3.3. PREPARATION OF L/C BY BANKER:

Banks officer prepares L/C when above mentioned forms are to be submitted by customer or importer. Before preparing L/C CBL officer scrutinizes the application in the following manner. 1. The terms and conditions of the L/C must be complied with UCPDC 500 (or latest version) and Exchange Control & Import Trade Regulation. 2. Eligibility of the goods to be imported. 3. The L/C must not be opened in favor of the importer. 4. Radioactivity report in case of food item. 5. Pre-shipment Inspection (PSI) Survey reports or certificate in case of old machinery is required. Bank of the importer is called L/C Issuing Bank. Then issuing bank inform its corresponding bank, called Advising Bank or Confirming Bank located in exporters country to advise and the credit forward to the exporter and simultaneously officer makes L/C opening vouchers. Desk work: One debit voucher to be passed. Corresponding credit vouchers to be passed. (margin, commission, postage, stamp, F.F.C. and others.) Liability voucher to be passed.

Accounting treatment: Particulars L/C Applicant A/C or Customers A/C Margin A/C Commission A/C 15% Vat on Com. Postage A/C Stamp A/C F.F.C(foreign corresponding charge) A/C Telex charge A/C Other A/C Customers liability A/C Bankers liability A/C 40 Dr./Cr. Dr. Cr. Cr. Cr. Cr. Cr. Cr. Cr.

Dr. Cr.

Anderkillah Branch Advance Income Tax (5% on LC com.)---------Dr Source Tax on LC com (5% on LC com.)-- Cr
The L/C Confirming process: CBL Local office (L/C Issuing Bank)

Issue L/C & request to Add Confirm HSBC

(L/C Confirming Bank) USA Exporter (Beneficiary)

4.3.4. FORWARDING DOCUMENTORY CREDIT BY ADVISING OR CONFIRMING BANK:

There are usually two banks involved in a documentary credit operation. The issuing bank and the 2nd bank, the advising bank, is usually a bank in the sellers country. The issuing bank asks another bank to advise or confirm the credit. If the 2nd bank is simply advising the credit, it will mention that when it forwards the credit to seller, such a bank is under no commitment or obligation to pay the seller. If the advising bank is also confirming the credit, this mention that the confirming bank, regardless of any other consideration, must pay accept or negotiate without recourse to seller. Then the bank is called confirming bank also.

4.3.5. SUBMISSION OF NECESSARY EXPORTER TO THE NEGOTIATING BANK:

DOCUMENTS

BY

As soon as the seller/exporter receives the credit and is satisfied that he can meet its terms and conditions, he is in position to load the goods and dispatch them. The seller then sends the documents evidencing the shipment to the bank. Exporter will submit those documents in accordance with the terms and conditions as mentioned in L/C. Generally the documents observed by me in the foreign exchange department are: Bill of exchange Commercial invoice Bill of lading Certificate of origin Packing list Clean report of finding (CRF) Weight list Insurance cover note 41

Anderkillah Branch Pre-shipment certificate Others certificate as required in LC

The negotiation process of import L/C:

USA Exporter (L/C Beneficiary) Document

a. After shipment process document b. Examine HSBC (Negotiating Bank)

g. Pay Negotiating

c. If no discrepancy is found the pay to beneficiary

d. Forwards documents

e. Examine Documents

Bangladeshi importer

f. Debit L/C applicants A/C in settlement

CBL Agrabad Branch

Some inevitable notions involved in foreign exchange:

Bill of exchange: According to the section 05, Negotiable Instruments (NI) Act-1881, A bill of exchange is an instrument in writing containing an unconditional order signed by the maker, directing a certain person to pay [on demand or at fixed or determinable future time] a certain sum of money only to or to the order of a certain person or to the bearer of the instrument. It may be either at sight or certain day sight. At sight means making payment whenever documents will reach in the issuing bank. Commercial Invoice: Commercial invoice issued by exporter is the accounting document by which the seller charges the goods to buyer. Bill of lading: A bill of lading is a document usually stipulated in a credit when exporter dispatches the goods. It is an evidence of a contract of carriage, is a receipt for the goods and is a document of title to goods. It also constitutes a document that is or may be, needed to support an insurance claim.

42

Bank

Anderkillah Branch Clean Report of Findings: This certificate is provided by the Pre Shipment Inspection (PSI) Concerns. The entire world has been brought under the three supervision of the three pre shipment inspection concerns based on different territory. These are as follows Intertek International Limited Cotecna Inspection SA. Bureau Veritas Vivac International SGS Inspection Company

4.3.6. THE DOCUMENTS SENT TO THE ISSUING BANK THROUGH THE NEGOTIATING BANK:
The negotiating bank carefully checks the documents provided by the exporter against the credit, and if the documents meet all the requirement of the credit, the bank will pay, accept, or negotiate in accordance with the terms and conditions of the credit. Then the bank sends the documents to the L/C opening bank. SENDING L/C DOCUMENTS

NEGOTIATING BANK

L/C ISSUING BANK

4.3.4. MAKING THE PAYMENT OF FOREIGN BILL THROUGH THE REIMBURSING BANK:
The L/C issuing bank getting the documents checks immediately and if they are in order and meet the credit requirements, it will arrange to make payment against L/C through reimbursement bank and will send the importer the document arrival notice. Lodgment & Retirement of shipping documents: After scrutinizing the import negotiating document, if no discrepancy are found then it is treated to be accepted after the end of seven banking day following the day of receipt of the document under Article 1(b) of UCPDC 500. If any discrepancy is found then the banker inform it to the importer that whether he accept the bills with discrepancies or not. If the importer does not accept, the banker (CBL) informs it to the negotiating bank within seven banking days following the date of receipt of the documents, otherwise it is treated to be accepted and the opening bank (CBL) must bound to pay against the bill and no complain against the bill will be accepted more than 4 banking days following the date of receipt of the documents under article no. K1 (d) & article no. 14 (c) of the UCPDC-500.

The local office passes the following vouchers after negotiation. 43

Anderkillah Branch Accounting treatment:: PAD (payment against document) A/C --------Dr. H.O. International Division A/C ---------------------Cr. Dr. Cr.

Reverse entry is given. Bankers liability A/C Customers liability A/C

Dr. Cr.

The shipping documents then stamped with PAD number and entered in the PAD register. As soon as the above formalities are completed, the importer is served with PAD bill intimations for retirement of concerned import documents. On intimation the importer calls on the banks counter requesting retirement of the shipping documents against payment to the debit of their account by the bill amount and other charges payable. Bank prepares cost memo in printed form on account of the concerned party giving detailed read of charges payable. Vouchers passed in retiring documents: L/C margin A/C ------------------Dr. Party A/C -------------------------Dr. PAD A/C --------------------------------Cr. Income A/C interest on PAD ----------Cr. Handling Charge on PAD -------------------Cr. Miscellaneous earning -----------------Cr. After the vouchers are passed, endorsement is made on the back of the bill of exchange as Received Payment & bill of leading is endorsed to the effect that Please deliver to the order of M/S under two authorized signatures of the bank officials of CBL. Then the documents are delivered to the L/C applicant (importer). But if there is any discrepancy in the documents, the L/C issuing bank send message to the negotiating bank to rectify it under its risks and responsibilities.

4.3.7 POST-IMPORT FINANCING:

If there is no available in cash in importers hand, he can request the bank to grant loan against the documents for the purpose of post import finance. There are two following forms of post import finance available in CBL Agrabad Br. o LIM (Loan against imported merchandise). o LTR (Loan against trust receipt). LIM: On the arrival of goods and lodgment of import documents, importer may request the bank for clearance of goods from the port (custom) and keep the same to bank warehouse. 44

Anderkillah Branch Proper sanction from the competent authority is to be obtained before clearance of consignment. For giving these types of loan, officer makes loan proposal and sends it to H/O for approval. After getting approval from H/O, bank grants loan in the form of either LTR or LIM. Accounting treatment: LIM/LTR creation: LTR/LIM (Importer) A/C PAD A/C After payment of the loan or delivery of goods: Partys A/C LTR/LIM A/C Interest A/C Dr. Cr. Cr.

Dr. Cr.

Its needless to say that bank only deals with the documents, not with goods & services in case of foreign exchange business.

EXPORT SECTION
CBL Agrabad Branch is running exciting as well lively export to deliver the surplus product to other country and thereby earns huge amount of foreign currency. Payment for goods exported from Bangladesh should be received through an Authorized Dealer in freely convertible foreign currency or in Bangladesh Taka from a Non- Resident Account.

4.4.1. Parties to Export Transactions:

(a) (b) (c) (d) (e) (f) (g) L/C Issuing Bank Importer L/C Advising Bank Exporter Confirming Bank (If any) Negotiating Bank The paying/Reimbursing Bank

Export L/C: Export L/Cs are issued by a foreign bank favouring Bangladeshi exports through our banks having correspondent relationship with them. 45

Anderkillah Branch 4.4.2. SERVICES PROVIDED BY CBL Agrabad BRANCH AGAINST EXPORT L/C:

A) Advising of Export L/C:

The advising bank getting the import L/C sent by the issuing bank located abroad will advise the L/C to the beneficiary without any engagement or responsibly on their part. It will see the following only: a) Authenticity of L/C (Test agreed in case of Telex L/C and signature verified in case (air mail L/C). b) Merchandise specified in the L/C is permissible and clauses incorporated in the L/C are not against countrys regulations. B) Add Confirmation of Export L/C: Bank may add additional confirmation to export L/C where there is specific instruction from the L/C issuing bank to do so. Additional confirmation of L/C gives the seller a double assurance of payment. Banks requirement of adding confirmation: I. Issuing Bank should be a reputed bank. II. Credit Line/Arrangement with the L/C issuing bank. III. L/C clause are to be acceptable to confirming bank IV. Approvals from the competent authority for adding confirmation of export L/C. V. Confirmation charges are to be recovered as per rules. C) Negotiating of Export L/C: Documents/papers to be submitted by exporter to bank for negotiation/collection against export L/C. the exporter submit the documents to bank as per requirement of bank. List of export documents is as follows: Export L/C EXP Form Bill of Exchange Invoice Bill of Lading Packing List Certificate of Origin Inspection Certificate Insurance Document 46

Anderkillah Branch Weight List Any other documents as per L/C

Bank must scrutinize all the documents stipulated in the credit with reasonable care to ascertain whether they confirm with the terms and conditions or not. If the documents are drawn strictly in terms of the credit, the bank may negotiate and pay the value of export bill to the exporter at:Buying Rates: The rates at which the banks are willing to purchase foreign currencies are said to be buying rates, i.e. at these rates foreign currencies are converted into home currency. The various types of buying rates are: (a) (b) (c) (d) T. T. (Clean) T. T. (Documentary) O. D. sight (Export) O. D. Transfer

(a) T. T. (Clean): The T. T. clean buying rate is the basic rate of exchange from which other types of buying rates are computed, since in case of T. T.s fund are paid over at the other end on the same day involving no loss of interest, but may attract only small charges for Telex. The variations in other types of buying rates quoted from the basic T. t. buying rate are primarily dependant upon the nature of instruments to be purchased which indicate the extent of possible loss of interest, extra costs of collection or increased risk of capital loss. (b) T. T. (Documentary): Where the instructions to pay a certain some of money to a certain person on production of certain documents. As the bank is required to handle documents thereof the bank recovers handling charges on the transactions. (c) OD (sight): This rate is applied for transaction resulting in the purchase or negotiating of export bills. OD sight (export) buying rates vary from TT buying rates to the extend of loss of interest for the period the bank remains out of funds i.e. from the time the bank pays out cash at home

Accounting treatment: After adjustment of pre-shipment credit: FBP (foreign bill purchased) A/C Partys A/C Dr. Cr.

Realization of export proceeds:

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Anderkillah Branch On receipt of credit of the export bill from the foreign correspondent, banks realize the bill at specified rate and following vouchers are passed. H/O (ID) --------------------Dr. FBP A/C --------------------------------- Cr. Income A/C on exchange earning---- Cr. Collection Documents: Export documents not covered by and L/C documents not drawn in terms of the credit are accepted on collection basis with the shipper authority at their documents are forwarded through foreign correspondents to the drawee for payment or acceptance. After realization of the bills on collection, exporter is paid appropriate rate after adjustment of liabilities on his account (if any). Voucher to be passed: Lodgment (Accepted for sending on collection):

FBPL A/C FBPC A/C Realization: (Reverse of contra voucher) FDPC A/C FBPL A/C H/O (ID) A/C Partys A/C Income on com/charge

Dr. Cr.

Dr. Cr. Dr. Cr. Cr.

4.5.0. Export Financing:

Financing of export credits is made in two stages: Pre-shipment stage. Post-shipment stage

4.5.1. Packing Credit: (Pre-shipment financing)

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Anderkillah Branch Packing credit is a short-term advance granted by a bank to an exporter against valid export L/C contract for the purpose of purchase of materials or finished goods or manufacturing, processing, packing, transporting up to ware house/port of shipment etc, of exportable for export. Voucher to be passed. Packing Credit A/C--------Dr. Exporters A/C------------ Cr. Adjustment: FBP/FDBC------------A/C Packing credit ---------------Cr. Income A/C interest on PC----------Cr.

4.5.2. Back-to-Back L/C: (Pre-shipment financing)

Back-to-back L/C means one credit backs another credit. It is new credit in favor of another beneficiary. Sometimes beneficiary/seller of a credit himself is unable to supply goods specified in the L/C and required to purchase from another supplier by opening second credit. Besides, the normal formalities and requirements (for L/C opening) the following formalities and documents are also required for opening back-to-back L/C: 1) Master L/C 2) Valid bonded ware house license 3) Quota allocation for quota items 4) ERC in addition to IRC 5) Indemnity/undertaking 6) No objection from previous banker (if any) 7) Factory inspection certificate 8) BGMEA Membership Vouchers and accounting treatments are the same normal L/C opening except margin. In this case, no margin is taken by the bank. After lodgment, maturity date of the import bill 49

Anderkillah Branch is intimated to foreign bank as per L/C terms. The documents are delivered to the order of opener duty indorsed for clearance of goods from custom authority. Goods are cleaned through approved clearing and forwarding agent of the bank. Voucher to be passed: Bankers liability for L/C--- Dr. Reversal of contra Lodgment Customers liability for L/C--------Cr.

Customers liability. on IFBC ---------- Dr. Bankers liability. on IFBC----------------Cr. Partys A/C----------------- Dr. Income A/C Bank charges (if any)

4.6. Payment of Import Bills: Payment of the import bills is at maturity from the relative export proceeds repatriated. The required foreign exchange for payment of import bills is kept in a separate account, out of repatriate proceeds of relative export. Party-wise and export L/Cwise funds are kept in FBPAR (Foreign Bills Awaiting Remittance) account from export proceeds for payment of bills at maturity. Accounting treatment: Bankers liability. on IFBC FBPAR Customers liability. on IFBC HOID(Foreign bank import bill payment). Dr. Dr. Cr. Cr.

4.7 OTHERS: Loro Account: Loro account means their account with you. Account maintained by third party is known as Loro Account. This account may be either in foreign currency or home currency.

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Anderkillah Branch Nostro Account: Nostro account means Our account with you. The account that a home bank maintains with a foreign bank is known as Nostro account. For example, The City Banks US Dollar account maintained with Citi Bank NA New York, USA is NOSTRO Account of a The City Bank. Vostro Account: Vostro account means your account with us. The account maintained by a foreign bank is known as vostro account. We can term nostro account when referred to its account holder (foreign bank) by home bank as vostro account. For example, State Bank of Indias taka account maintained with The City Bank is a vostro account of The City Bank.

FOREIGN DEPARTMENT

REMITTANCE

Foreign remittance means purchase and sale of freely convertible foreign currencies as admissible under Exchange Control Regulations of the country. Purchase of foreign currencies constitutes inward foreign remittance and sale of foreign currencies constitutes outward foreign remittance. 4.8 Key Functions of foreign remittance department: The prime functions of the foreign exchange department are as follows: Overall supervision of Foreign Remit. Dept. Correspondence to Nostro Account. Foreign TT payment & Purchase of F. Drafts, Cheques & preparations of F.B.P. (Foreign Bill Purchased). Checking of all Batches. Assist in preparation of IBCA/IBDA etc. Compliance of Audit & Inspection. Issuance of outward TT & FDD. Issuance of PRC. Statement & all related works regarding deposit of Bangladesh Bank. Foreign Collection, Bangladesh Bank Clearing Cheque Collection, which comes from all branches of CBL. Withdrawal from F.C.A/C. Encashment of T.C.s & Cash Dollar and Sterling Pound. Deduction of Tax and VAT. Preparation of related statements including convertible Taka Accounts. Preparation of IBCA & IBDA and Balancing of Collection and other special assignment as desired by Department in charge. Issuance of TC & Cash Dollar, Correspondence with different Bank/Institution related to TC/Dollar. 51

Anderkillah Branch Student Case handling & preparation of related statements (Head Office and Bangladesh Bank). Balancing of Account Statements. Batch posting and all related statements.

Personal observations:
I have observed the following things:

Inward Foreign Remittance:

Inward remittance covers purchase of foreign currency in the form of foreign T.T., D.D, and bills, T.C. etc. sent from abroad favoring a beneficiary in Bangladesh. Purchase of foreign exchange is to be reported to Exchange control Department of Bangladesh bank on Form-C.

Outward Foreign Remittance:

outward remittance covers sales of foreign currency through issuing foreign T.T. Drafts, Travelers Check etc. as well as sell of foreign exchange under L/C and against import bills retired. Sale of foreign exchange is reported to Exchange control Department of Bangladesh Bank on form T/M. Foreign exchange means foreign currency and includes all deposits, credits and balances payable in foreign currency as well as foreign currency instruments such as Drafts, T.C.s, bill of exchange, and Letters of Credit Payable in any Foreign Currency. All foreign Exchange transactions in Bangladesh are subject to exchange control regulation of Bangladesh Bank.

Foreign Remittance Department deals with the following instruments,

Foreign demand draft (FDD) Telegraphic Transfer (T.T.) Travelers Check (TC) We see that there are two types of Foreign Remittance: a. Foreign Inward Remittance. b. Foreign Outward Remittance. The Foreign Remittance department of CBL Agrabad branch is equipped with a number of foreign remittance facilities. Followings are the types of foreign remittance facilities offered by CBL Agrabad branch-----a) Issuance of Foreign Demand Draft (F.D.D) b) Issuance of Travelers Cheques (T.C) c) Endorsement Of US$ in Passport 4.9. FOREIGN DEMAND DRAFT (FDD): CBL accepts the charges for TOEFL, SAT, GMAT etc. through Foreign Demand Draft. CBL opens Student Files to issue Foreign Demand Draft following the permission of Bangladesh Bank. CBL Agrabad branch has more than 200 Student Files. Before 52

Anderkillah Branch issuance of FDD, CBL asks the students to fill up the TM Form, which contains the following particulars---a) Name of the student b) Full address of the student c) Amount of FDD in Foreign Currency d) Purpose of Remittance e) Address of the Institution to which the FDD will be favored f) Country receiving payment g) Passport no. of the student with date of issue h) Signature of the student TM Form is sent to Bangladesh Bank with photocopies of the Passport of the student and the FDD issued. Commission for issuance of FDD, @ Tk.400. Commission for Cancellation of FDD, @ Tk.400. 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 ways1) Purchase, 2) Sending for collection. 1) Purchase: The following criteria must be fulfilled: a) Firstly, the party applies for a Foreign Bill Purchase (FBP) to limit the facility, which is approved by the Head Office authority for a certain period. b) The local banks will entertain valued clients with this facility. c) The party will give an undertaking regarding adjustment of FBP liabilities which is offered to him in case of non-realization of proceeds (FDD). d) It is necessary that all relevant charge documents (D.P. Note, Personal Guarantee etc.) be collected from the party. The following vouchers are passed after it is posted in the FBP register; Dr. FBP (at the spot buying rate) Cr. Income A/C Commission others Cr. Income A/C Postage The FDD is sent to the American Express Bank, Dhaka for collection along with a R.L. It is drawn on a foreign bank in abroad otherwise it is sent to the respective bank on which the FDD is drawn. After giving endorsement on the backside of the FDD.

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Anderkillah Branch After realizing proceed, the following vouchers are passedDr. SBL G/A Cr. FBP (liability adjusted) Cr. Income A/C (Exchange Gain)

4.9.12Sending for collection:

It is posted in the Foreign Bills for Collection. The following functional activities are undertaken for a FBC: a) It is posted in the FBC register. FBC No. Is assigned to the FDD. b) Then it is sent for collection to the branch of the bank on which it is drawn. If it is drawn on a foreign bank in abroad, it is sent to the AMEX. Dhaka along with a R.L. and liability voucher. Dr. FBR Cr. FBC c) After receiving credit advice the following vouchers are passed. CBL, General A/C, ID (at spot Dr. buying T.T. clean rate) Party A/C. Income A/C postage Income A/C Commission And liability voucher is reversed. . FBC FBR. Dr Cr. Cr. Cr. Cr.

4.9.2Travelers Check.
Travelers check is a very popular method of foreign remittance. It is usually used by the travelers who are willing to remit fund to the place where they are going to visit and encash it from there. Travelers check is a substitute for cash and it is the safest method of transferring fund. 54

Anderkillah Branch

Issue of Travelers check

Requirements: There are some requirements, which are to be fulfilled by the Travelers check purchaser. Passport holder himself has to be present to issue Travelers check. The passport must be a valid one. Air ticket has to be confirmed. 0

4.9.3 Steps involved in issue of Travelers check:

After verifying all these documents the customer is asked to fill up prescribed application form. In the application the customer states the amount he is willing to endorse and it is be verified that his required amount is within the stipulated amount. Then the customer pays cash or by debiting his account the Travelers check is issued. Endorsement is given on the passport and on the ticket. Customer fills up the Travel & Miscellaneous form. Purchase Application Form is prepared and handed over to the purchaser along with the Travelers check. Entry given in three register, Foreign Currency issue register, Travelers check on hand register and Foreign Currency in hand register.

4.9.4 Payment of Travelers check:

When a customer wants to encash his Travelers check he has to show his passport and it is to be verified from the passport that he has traveled outside the country. Then the Travelers check will have to be scrutinized very strictly. If every thing in the Travelers check is in order then the customer will be asked to give his signature on the place of Counter signature. If the signature agrees with the one in the place of The signature of the holder then the payment will be made through giving cash to the customer or crediting his account. Travelers check will be crossed and endorsement given on the back of the received travelers check.

4.9.5DEVIATION PRACTICES:

BETWEEN

THEORIES

AND

1. Theoretically we know that the importer cant unload the product before receiving the collection and shipping document from the issuing bank but now a days 55

Anderkillah Branch issuing bank gives a written permission to unload the product from the port without shipping documents which are on the way form exporters bank. 2. Theoretically there are three types of L/Cs-revocable, irrevocable and confirming L/C. But in the context of Bangladesh, banks are opening only irrevocable L/C in favor of exporter on the behalf of importers/buyers. 3. Banks are advising/forwarding only L/C provided by the bank of importer, but not giving confirmation against the L/C. Hence it is true that there may be confirming bank involved in export import business theoretically, it is not seen in my bank where I have done my practical orientation. 4. There is no provision or laws against taking discrepancy charges in L/C. Practically this charge is well-accepted in banking world.

Chapt er-5 CREDIT DEPARTMENT

Bank lending is important for the economy in the sense that it can simultaneously finance all of the sub-sectors of financial arena, which comprises agricultural, commercial and industrial activities of a nation By the primary security, we mean the financial claim of holder against the real sector of economy. In banking the sector, the financial claim of bank against issuer, (called investors, borrowers and deficit units). The credit department of the bank performs this core function of a bank. In this case, the relationship of bank and customer is that of the creditor and debtor. The word CREDIT is derived from Latin word credo meaning I believe. In general credit means the granting of a period of time by a creditor to a debtor at the expiration of which the latter must pay the debt. From a bankers point of view, credit is the confidence of the lender on the ability and willingness of the borrower to repay the debts at a future date.

Different advances offered by CBL

Funded Credit Facility

Non-Funded Credit Facility

Over Draft (OD)

Cash Credit (CC)

Term Loan

Letter of Credit (L/C)

Letter of Guarantee

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Anderkillah Branch

SOD

TOD

CC Pledg

CC Hypothecation

House Building Loan

Transport Loan

Loan General

Project Loan

Staff Loan against Provident Fund

Staff House Building Loan

5.1Different Types of Credit Facilities:

All types of credit facilities can be broadly classified into two: Funded and Non funded

5.1.2FUNDED CREDIT
A funded credit facility that a bank offers to a customer result in actual disbursement of cash to the customer or to any designated supplier of the customer. In order to provide funded facility to a customer the bank has to incur real liability before hand , i.e.; the bank has to arrange for funds primarily through accepting deposits or otherwise. Funded facility affects the balance sheet of the bank both in terms of increase of liability and increase of assets. Funded credit facilities may be classified into four types: I) Loans II) Cash Credit III) Overdraft and IV) Bill Purchased & discount.

Loans may be a demand loan or term loan. Demand loan is payable on demand which is allowed for a short period to meet short term working capital need. Time loan is payable within one year and term loan is allowed for one year to five years, usually for capital expenditure such as construction of factory building, purchase of new machinery, modernization of plant etc.

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Anderkillah Branch Cash Credit facility is allowed against pledge or hypothecation of goods. Under this arrangement the borrower can borrow any time within the agreed limit and can deposit money to adjust whenever he does have surplus cash in hand. Overdraft is an arrangement between a banker and his customer by which the latter is allowed to withdraw over and above his credit balance in his current account. This is a temporary accommodation of fund to the client. Academically, basic difference between cash credit and overdraft is that businessmen use cash credit for longer period on yearly renewal basis, while overdraft is allowed occasionally and for short-term duration. Bill discounted and purchased: Discount: Banks allow advances to the clients by discounting bill of Exchange / pro. note which matures after a fixed tenor. In this method, the bank calculates and realizes the interest at a prefixed rate and credit the amount after deducting the interest from the amount of instrument.

Purchase of bill: Banks also make advances by purchasing bills, instead of discounting, which are accompanied by documents of title of goods such as bill of lading or railway receipts etc. In this case the bank becomes the purchaser / owner of such bill which are treated as security for the advance. This is allowed primarily relying on the credit worthiness of the client. Other important funded advances / facilities are: i) Against import bills (Bills under L/C, i. e; BLC) Advance against Bills under Letter of Credit are originated from the lodgment of shipping documents received from foreign banks against letter of credit established by the bank. ii) Loan against Imported Merchandise (LIM) Under loan against imported merchandise bank release the imported goods through the nominated clearing agent of the bank. In this case bank holds the possession of the goods. Importer takes delivery of the goods from the bank's warehouse against payment. It is one type of forced loan. iii) Trust Receipt (TR )

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Anderkillah Branch Advance against Trust Receipt to the client are to release shipping documents for taking delivery of merchandise which is hypothecated to the bank.

iv)Packing Credit It is one type of Pre- Shipment export finance. Packing Credit is a short term credit granted by a bank to an exporter to facilitate purchase of raw materials for the purpose of manufacturing processing, packing and exporting the finished goods. The credit is granted after the evidence of a letter of credit or a firm contract in favor of the borrower and against the security of inventory purchased by the borrower.

5.1.3 NON FUNDED CREDIT:

Non funded credit facility to a customer refers to a banks commitment to a third party on behalf of the customer. The commitment itself constitutes facility but does not involve cash outflow from the bank. The banks commitment essentially states that in the event of occurrence / non occurrence of a particular event, within a particular date, due to a particular reason or reasons, a specific sum of money shall be paid by the bank to the third party upon claim in a particular manner. Though these types of facilities are primarily non funded in nature but at times it may turn into funded facility. As such liabilities against this types of credit facilities are termed as contingent liability and do not affect the balance sheet of the bank at the time of commitment but contains the possibility. The non funded facilities are: Letter of Credit: A bankers documentary credit is an instrument or letter issued by a bank on behalf of and for the account of the buyer of the merchandise. By this instrument the bank undertakes that the bill(s) of exchange of the beneficiary (the seller of the merchandise ) drawn on the buyer , or on the issuing bank , or on another bank designated in the instrument, strictly according to the conditions stipulated in the instrument , will be duly honored by acceptance and /or payment depending upon the usance of the bill(s) of exchange in question.

Guarantee:
In banking, it is an irrevocable obligation of a bank to pay a certain sum of money in the event of non performance of a contract by a third party. The basis of guarantee is always a contractual relationship between principal debtor (account holder) and creditor ( beneficiary), which is either a contract that has been definitely concluded or a relationship in its pre-contracted as is the case with the tender guarantee. This relationship is referred to as the principal or underlying relationship or contract. The contract of guarantee is independent of this underlying relationship.

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5.2.4 PRINCIPLES OF SOUND LENDING:

Safet : The very survival of a banker and for the matter of that safety of bank depends on his/her loans and advances. The ideal position is when all the loans and advances positions are fully secured. Thus safety of the advances should be the first principle of lending. Now the question is how to ensure safety of lending? To ensure the safety of lending the following most essential elements of the borrower may be considered :Four Cs M= Man Five Cs M= Management Five Ms M= Money Five Rs M= Materials C= Character / conduct M= Market C= Capacity / capability C= Capital / Credit worthiness R= Reliability C= Condition R= Responsibility P= Person R= Resources P= Purpose R= Respectability P= Product (s) R= Returns P= Place P= Profit Purpose : The bank should not lend money for any purpose for which a borrower may want. So another important point to be studied by a banker before lending is the purpose for which the loan is required and also the resources from which the borrower is expected to repay. Loans may be required for productive purposes, trading purposes, agriculture, transport, self-employment etc. purpose of the loan should be productive. The purpose of loans help the banker to determine his course of action as regards lending. Funds borrowed from obviously for a productive use may be spent on unproductive or speculation purpose. Banker should, therefore, take follow-up measures to ensure end use of fund exactly for the same purpose for which it is borrowed.

Liquidity:
The banker while making advances must see to it that the money lent is not locked up for a long time because, majority of commercial bank liabilities are payable either on demand or after short notice. So the banker should be sure that loan would be liquid. Thus liquidity of money lent is another important principle of lending. Liquidity means availability or readiness of bank funds on short notice. The liquidity of advance means its repayment on demand on due date or after a short notice. The loan must have fair chances of repayment according to repayment schedule. Otherwise, 60

Anderkillah Branch the liquidity position of a bank may be threatened. Liquidity also means conversion of assets into cash without loss.

Security:
The security offered by a borrower for an advance is insurance to the banker. It serves as the safety value for an unforeseen emergency. So another principle of sound lending is the security of lending. Security offered against loan may be various. The securities may very from gold and silver to goods of various types, immovable properties

Profitability:
CBL obtain funds from shareholders and if dividend is to be paid on such shares it can only be paid by earning profits. Even in the case of public sector banks although they work on service motive they also have to justify their existence by earning profits. This is not possible unless funds are employed profitably. In other words banking is essentially a business which aims at earning a good profit.

Spread / Dispersal /Diversification:

The advances should be as much broad based as possible and must be in conformity with the deposit structure. The advances should not be in one particular direction / industry / activity or one or few borrowers because any adversity faced by that particular industry will have serious adverse affect on the bank. Again, advances should not be given in one area alone. There should be spread of advances against different securities, industries / activities, borrowers, areas etc. which will enable the banker to spread the risks and considerably look into the safety of advances. Here the principle is Do not put all the eggs in the same basket. National interest / social benefit: Bank has a significant role in the economic development process of a country. They should keep in mind the national developmental plan / programs while going for lending but maintaining safety, liquidity and profitability. 61

Anderkillah Branch

5.3MODERN PRINCIPLES:

CONCEPT

OF

LENDING

Modern concept of lending presupposes a well developed loan proposal / loan case / project. It will cover as many as six pertinent factors like Managerial, Organizational, Technical, Marketing, Financial and Economic / Socio economic. These are technically known as feasibility or viability study of a loan proposal / loan case / project. By studying all these six factors if a banker is satisfied about the viability of a loan proposal / loan case / project, then he / she can finance it i.e., grant for lending otherwise not.

5.3.1TECHNIQUES APPRAISAL:

OF

PROJECT

Project appraisal means pre-investment analysis of an investment project with a view to determine its commercial and socio-economic feasibility. It is an essential tool for judicious investment decision and project selection. It is the prime step in the process of decision making in respect of sanctioning any loan by financial institutions. The under mentioned appraisals should be conducted while evaluating an investment proposal: Management appraisal. Market appraisal Technical appraisal Financial appraisal Economic appraisal

Management appraisal:
A good project may fail if the management is incompetent. It is necessary to evaluate the following managerial aspects: Overall background of the promoters. 62

Anderkillah Branch Academic qualifications. Business and industrial experience. Past performance & market reputation.

Market appraisal:
Market appraisal is concerned primarily with two questions: Consumption trends in the past and the present consumption level Past and present supply position Production possibilities and constraints Imports and exports Structure of competition Cost structure Elasticity of demand Consumer behavior, intentions, motivations, attitudes, preferences and requirements Distribution channel and marketing policies in use.

Technical appraisal:
The importance of technical appraisal in project evaluation is beyond any question. Technical appraisal of a project broadly involves a critical study of the following: Location and Site Raw material supplies Transportation facilities Power and fuel supply Water Manpower Nature and climate.

Size (Plant capacity): The size of the plant or scale of operation is an important factor that determines the economic and financial viability of a project.

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Financial appraisal:
Financial appraisal seeks to ascertain whether the proposed project will be financially viable in the sense of being able to meet the burden of servicing debt and whether the proposed project will satisfy the return expectations of those who provide capital. The aspects looked into while conducting financial appraisals are: Investment outlay and cost of the project Means of financing Cost of capital Projected profitability Break-even point Cash flows of the project Level of risk

The following different techniques are applied to assess the financial viability of a project : Capital Budgeting: Payback Period Total Investment Payback Period = Annual Cash Inflow The payback period provides an indication of a projects risk and liquidity. The shorter the payback period the better the project is judged to be.

Net Present Value (NPV) Internal Rate of Return (IRR)Profitability Index

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Anderkillah Branch

Economic appraisal:
Economic appraisal, also referred to as social cost benefit analysis, is concerned with judging a project from the larger social point of view. Opportunity Cost: The opportunity cost is the cost of the best alternative forgone due to a particular course of action. Shadow Prices: The prices of inputs and outputs of the project should be suitably corrected to reflect the real cost, if the market prices are characterized by distortions of any time. The outputs and inputs of a project are classified into (i) traded goods and services, (ii) non-traded goods and services, and (iii) labor.

5.3.2. PROCEDURE FOR GIVING ADVANCE:

The potential borrower will submit application to CBL for loan by filling up of a specific Application form. The Application form (Request for Credit Limit) contains following particulars: Name of the Borrower----- A/C No.------ Business address (with telephone no.) [Residential address and Permanent address] ---- Introducer's name, A/C no. & address---- Date of establishment/ incorporation---- Trade license number, date and expiry date (Photocopy of trade license enclosed)--- GIR/ TR no. & amount of income tax paid last year--- Constitution/ Status (Mention whether sole proprietorship/ partnership/ Public Ltd. company/ Private Ltd. company)---- Particulars of Individual/ Proprietor/ Partners/ Directors (Name & Designation, Father's/ Husband's name, present & permanent address with Telephone no., % of shares held)---- Experience and background of Individual/ Proprietors/ Partners/ Directors---- Full particulars of assets in the personal name of Individual/ Proprietor/ Partners/ Directors with valuation---- Names of Subsidiaries/ Affiliates, percentage of share holding and nature of business---- Nature and details of business/ products (for which credit facility is applied for), Markets (Present market price per unit, Factory price), Estimated sales for next one year-----65

Anderkillah Branch Credit facilities required (type, amount, period, purpose and mode of adjustment)---Details of securities offered with estimated value (Primary security, Collateral security, market value of the security)------Details of liabilities in the name of the client or in the name of any other partners/ Directors or Subsidiaries/ Affiliates with SBL and other banks, if any (Name of the Bank, A/C no., Nature of advance, amount, security and validity of limit)----Balance Sheet/ Income Statement or Statement of Accounts of the following years attached (Preferably last 3 years)---Other relevant information-----Proposed debt/ equity ratio---Signature of the Applicant---After receiving the loan application form, CBL sends a letter to Bangladesh Bank for obtaining a report from there. This report is called CIB (Credit Information Bureau) report. This report is essential if the loan amount exceeds Tk.100 Lac. But CBL usually collects this report if the loan amount exceeds Tk.10 Lac. The purpose of this report is to being informed that whether the borrower has taken loan from any other bank; if 'yes', then whether these loans are classified or not. After receiving CIB report if the Bank thinks that the prospective borrower will be a good borrower, then the bank will scrutinize the documents. In this stage, the Bank will look whether the documents are properly filled up and signed.

Then comes processing stage. In this stage, the Bank will prepare a Credit Proposal.

5.3.3The Initial Loan Interview

The initial interview is generally held at the officers bank or, on occasion, at the clients business. The objective of an initial loan interview is to ascertain whether the loan request warrants further consideration (and the additional time and expense) that is entailed in a credit investigation, follow-up interviews and financial statement analysis. The beginning of a loan interview sets the tone for all that follows. The credit officer of CBL should establish a relaxed but businesslike atmosphere. The credit officer should greet the client with a warm handshake, introduce himself or herself by name and ask the client fell ill-at-ease, which can hinder communication during the interview. A small amount of light conversation before the interview can be helpful. There is, however, a distinction between being friendly and being unprofessional. Referring to a client using a flip term such as buddy may perhaps be well intentioned, but it is certainly unprofessional. Questions Pertaining to Specific Areas:

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Questions for the client and the company

i) What is the clients name? Is the company a corporation, S corporation, proprietorship, or partnership? Where is the company located? How long have you been in business? How long has this company been in operation? What are your companys products or services? Who are the principal owners and how many shares does each own? Is management separate from ownership? If so, who are the principal managers? What is the experience of management? How many employees are there? Are the workers unionized? What is your companys position in the industry? Is the company profitable? Is the company well capitalized? Will personal assets be pledged as security for the loan? Who are the major suppliers and customers and what are there addresses? What are the normal terms of trade? Are any contracts or franchises involved? Are any items currently in dispute or litigation?

Questions regarding the loan request

How much money do you want? How much does the client need? How did you arrive at the amount of the loan request? Has the client accurately projected financing needs? What terms are you requesting? Are the terms reasonable based on the nature of the loan-for example, within the useful and depreciable life of the asset being financed? How did you decide which terms were best for you? Are the terms based on the clients ability to pay or on good financial planning? How will you use the proceeds of the loan? Is the purpose of the loan compatible with bank policy? Questions regarding the clients ability to repay the loan How will you repay the loan? How much cash is the company generating from the operating cycle? Can the client provide a specific source of repayment based on reasonable assumptions? What is your secondary source of repayment if the primary source fails? Are there guarantors? 67

Anderkillah Branch If there are guarantors, what is their relation to the client? What is the financial strength of the guarantors? Questions regarding collateral What collateral do you intend to pledge? Who owns the collateral? Where is the collateral located? How liquid is the collateral? Is the collateral controllable and resoluble? Are any special permits required to take title to or to sell the collateral? Questions regarding the clients banking relationships What banks do you currently use? Have you approached other banks with the loan request? How does this loan fit into the companys total banking and lending picture? Why is the client coming to this bank? Do you have loans outstanding with other creditors? What is the nature and extent of these loans? After these and other questions have been answered, the credit officer decides whether to continue with the loan request, reject it, or direct the client to other potential sources of financing. 5.4CREDIT INVESTIGATION: If, after the initial interview, the commercial credit officer decides that the loan request meets basic bank lending criteria, the next step is to conduct a more in-depth investigation, relying upon the documents obtained from the client and from in-bank and outside sources. One of the important functions of a CBL is to channelise funds for meeting the credit needs of genuine borrowers engaged in economic activities of the country. study the integrity and reliability of the borrower. Credit investigation is an essential part of every lending decision for the simple reason that companies have grown more complex in structure and diversified in their operations. It is the rare credit officer who can consistently make accurate appraisals of creditworthiness and risk based on an interview alone. Purpose of Credit Investigation Credit investigations vary among banks. In smaller banks, credit officer s investigates their own loans. The contribution from bank staff is limited to clerical assistance, such as typing credit inquires, maintaining credit files, or spreading financial statements for review and analysis by the credit officer. In many larger banks, the division of 68

Anderkillah Branch responsibility is more specialized, with the credit investigation and loan analysis function separated from the lending function. Interview: Once the major questions have been identified, the credit officer should decide whether each question warrants the time and expense necessary to arrive at an answer. Many banks have standardized forms that list types of information that should be acquired during loan interviewing and credit investigation. Of course, the amount, nature and detail of the information varies depending on the circumstances of the loan request and it is usually left to the credit officer to determine the extent of the information-gathering process. Proforma for obtaining information for compilation of credit report of Sole Proprietor or partnership concern (Proforma 1) Name .Address Date of compilation Nature of the firm Nature of business Investment in the business: Allied of subsidiary, Brief history regarding: Sales Annual income Market reputation Means

13.Bank account and it to the bank. Whether they enjoy credit facilities, if so, state the experience regarding the operation of the account. Names of other bankers,: 5.5.1. Preparation and have signing of credit report : Branch Managers are expected to a very fair idea of the assets, means and the credit position of their borrower constituents. They may depute Credit Investigator to collect credit information but branch managers should make independent inquiries to establish veracity of credit checking made by their branches. Credit report should be signed jointly by the Manager and the Credit Investigator. 5.5.2. Revision of credit report: Every credit report should be revised intelligently and properly at least once in six months. It is, of course, understood that if at any time an adverse report or damaging information is received on a constituent or a major change is noticed in regard to the assets and means of a party, immediate steps should be taken to review and revise the credit lines make 69

Anderkillah Branch available to him. It is also necessary that whenever a new credit proposal or renewal of an existing credit line is recommended, the report on the party concerned is checked up and revised.

5.5.3Proforma for obtaining information compilation of Credit report of Limited Company

(Proforma II) Name of the Company with complete address Date of compilation of the report Nature of the Company Authorized capital, Name of directors Nature of business Nature of allied concerns, subsidiary concerns, if any Obtain a copy of the Verification of prior charges: Bank account and own Experience

for

Other bankers, if any Market reputation Preparation and signing Revision of Credit report

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5.5.4 Credit Line Proposal:

In this step of the term loan the branch sends a credit line proposal to the head office for approval of the term loan. The credit line proposal contains the following particulars: Fresh/Renewal/Revision of the term loan Borrowers name Types of business Capital structure Particulars of previous transaction Existing vis--vis proposed credit limits Movement of the accounts Liabilities of sister concerns

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5.6Process of handling loans:

Getting loan proposal from the Client

Collecting information About Client About project

Legal assessment

Evaluating project and proposal

Evaluating by agent

Evaluating Collateral

Supervision of the loan

Disbursin g loan

Sanctioning and Documentation Of loan

Decision

Branch level evaluation

Recovery of the loan

Head office Level

Branch level

Usual recovery

Legal recovery

5.7Security:
Security is a Cover against loans and advances. It ensures recovery of loans and advances. Though now-a-days greater emphases are put on the purpose of the loan rather than securities, nevertheless the securities play an extremely important role to take a decision.

Types of Security:
The types of securities offered vary from place to place. In metropolitan cities, it may be Govt. bonds / share / assignment of Book debt / Bills receivable etc. whereas, in the industrial area raw materials & finished goods etc. may be offered as securities. 72

Anderkillah Branch Again agricultural produce is the principal securities in the agricultural centers. Further, a bank also accepts moveable & immovable properties, life insurance policy etc. as securities. Securities can be classified into primary security & collateral security:Primary security means the security offered by the borrower himself as cover for the loan. It refers to the asset, which has been bought with the help of the bank. Such as when machinery or some goods have been bought with the help of the bank the machinery and goods constitute the primary security. Collateral security: All other additional security other than the primary securities such as land / Building etc. are considered as collateral securities which may be offered / deposited by the borrower or , by any other third party. Good collateral security must have the following characteristics:

Tangible Transferable / negotiable Easily marketable Price stability Durability (not perishable) Ascertain ability of market value Genuineness of title (free from encumbrance)

5.7.Evaluation of Security
Valuation of security is very important for the lending banker. Therefore valuation of security must be done with careful verification of sources, in respect of nature of procurement, quality, quantity and considering possible risks.

Margin
Margin is a cushion against any possible shortage. It is a portion of borrowers contribution. The fixation of margin depends on the nature and type of security and the financial stability of the customer and also keeping in view the restrictions imposed by the Bangladesh Bank / Head Office from time to time. In case of goods 73

Anderkillah Branch and produce, reasonable margin should be retained for covering any shortage due to shrinkage, fluctuation of rate, fall in prices and charging of bank interest. In case of advance allowed against merchandise imported through bank, the amount of margin fixed should be deducted from the landed cost of the goods. For allowing advances against goods in trade locally purchased the amount of margin fixed should be deducted from the invoice value or ex- factory prices, as the case may be.

Modes of Creation of Charges on Securities: 'Charge' in a transaction for value means that the creditor(Bank) shall have the right to take the property on which charge is created, available to him as security for payment of a debt, by an order of court of law. A charge may be classified as: i)Fixed Charge A charge is said to be fixed if it is made specifically to cover definite and ascertained assets of a permanent nature e.g.; charge on land and building or heavy machinery. It precludes the company from dealing with the property charged without the consent of the charge holder. ii) Floating Charge: It is a charge on the property which is constantly changing, e.g.; stock. The company can deal with such property in normal course of its business until it becomes fixed on the happening of an event. Thus it is a charge on the assets of the company in general. T

Mortgage
Mortgage has been defined in section 58 of Transfer of Property Act 1882. It is the transfer of interest on the property by way of charging immovable property for the security of loan amount. Therefore, for the purpose of securing loan amount when an immovable property is charged for transfer interest on the property is known as mortgage. 74

Anderkillah Branch Classification of mortgage: On the basis of transfer of title in the mortgaged property mortgage can be classified as i) Simple/Registered Mortgage and ii) Equitable Mortgage. Simple / Registered Mortgage: In a legal mortgage the legal title to the property is transferred in favor of the mortgagee (Bank) by mortgage deed duly vetted by legal adviser / retainer. The deed is registered in the Registrar / Sub-Registrars office. This method is expensive as it involves registration charge & stamp duty. After adjustment of the loan the title of the property is to be redeemed. ii) Equitable mortgage: An equitable mortgage is affected by mere delivery of documents of title of property to the mortgagee (Bank).It does not require registration.

Lien
Lien is the right to retain the asset of the borrower until the debt is paid. Lien differs from other forms of charges in respect that it does not arise out of an implied or express agreement. The right of lien arises in law out of business dealings between the parties. The conditions for right of exercise of lien are :(a) Creditors possession of goods /securities in the ordinary course of business (b) the debtor has a lawful debt due to discharge to creditor (c) there must not be any contract to the contrary. There are two types of lien: Particular Lien: A particular lien arises, where goods can be retained by the creditor in respect of a particular debt only. For example a tailor has a particular lien for his charges on the shirt made for his customer. General Lien : Under section 171 of the Contract Act, 1872, bankers, factors (mercantile agents), wharfingers (port authority), attorneys of High Court and policy brokers can in the absence of contract to the contrary, exercise lien and retain security 75

Anderkillah Branch for a general balance of account any goods bailed to them. So general lien confers a right to retain goods and securities not only in respect of a particular debt but in respect of the general balance due by owner of the goods and securities.

Pledge
Pledge is the bailment of goods as security for payment of a debt or performance of a promise. Bailment is "the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, to returned or otherwise disposed of according to the direction of the person delivering them." The person delivering the goods is called the 'bailor' and the person to whom the goods are delivered is called the bailee. Pledge has got the following properties: The ownership of the goods remains with the pledgor. Delivery is necessary in order to complete a pledge. This delivery may be symbolic, as for instance when the key of a warehuose in which the goods are kept or documents of the title relating to the goods are delivered. Possession of the goods may be changed by agreement without any physical change in their position. Right to sell-If the pledgor makes a default in the payment of the debt by the stipulated time , pledgee may either file a suit for the debt and retain the property pledged as security or he may, after reasonable notice, sell the property. If there is deficit the pledgor is bound to make it good to the pledgee and if there is a surplus the pledgee must account for the same to the pledgor.

Hypothecation
Hypothecation is a mode of creating an equitable charge against a property for payment of a debt which continues to be in the possession of the debtor. It is different from pledge because the asset under pledge remains in the possession of the lender. However the hypothecation deed usually provides that the banker will have the power to take the goods hypothecated in its possession if the need arises.

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Anderkillah Branch Hypothecation is particularly useful in those cases where it is almost impossible or impracticable to give possession of the goods to the lender. For example where money is to be borrowed on the basis of goods lying in a retail showroom or on the security of motor vehicle which is to be used by the client for the purpose of his business or stock or raw materials etc., it will not be at all advisable to pledge them to the banker because it may be difficult to run the business without these assets. In such a case hypothecation is the only choice. Precautions to be taken by a banker while loan or advance is allowed against hypothecation of goods: Granting of loans on the basis of hypothecation of goods/assets is quite risky. This is because the borrower may fail to give possession of hypothecated goods/assets when demanded by the bank or he may sell the asset without paying the money to the bank. In order to safeguard itself against all such risks, a banker should take the following steps:

SWOT Analysis
Not surprisingly, in the competitive arena of marketing era SWOT analysis is a must based on Product, Price, Place and Promotion of a financial institute like private bank. From the SWOT analysis we can figure out ongoing scenario of the bank. So to have a better view of the present banking practices of CBL I did the SWOT analysis.

SWOT Analysis

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Internal Factors

External Factors

Strength

Weakness

Opportunity

Threats

In SWOT analysis two factors act as prime movers Internal factors which are prevailing inside the concern which include Strength and weakness. On the other hand another factor is external factors which act as opportunity and threat.

Strength

Stable source of fund Strong Liquidity position Cooperation with each other Lack of default loan. Membership with SWIFT Good banker-customer relationship Strong Financial Position Energetic as well as smart work force.

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o Strong position in CAMEL rating. o Usage of faster pc bank software o Wide network of branches o Experienced top management o Diversified product line o Satisfactory IT infrastructure o Efficient administration Reluctance to ad campaign. Lots of inexpert and laggard assistant officers. Existing manual vouchers. Lack of consumer credit scheme. Entrance of new private banks. o Lack of consumer credit scheme and packing credit. o Shortfall in capital adequacy o Asset infection rate is still high o Relatively high overhead expense Huge business area Introducing consumer credit scheme. Launching Credit Card Division Growth of sales volume o SME and Agro based industry loan o Introducing any branch banking through online. o Regulatory environment favouring o private sector development

Weakness

Opportunity

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Threats

Different services of FCBS (Phone Banking/Home Banking) Different classic services of Foreign Banks. Existing card services of Standard Chartered Gridlays Bank Daily basis interest on deposit offered by HSBC Entrance of new PCBs
o Increased competition in the market for public

deposits as well as quality assets o Market pressure for lowering the interest rate o Shrinkage in export, import and guarantee business due to economic slump and war

Recommendation
Suggestions for uplift of The City Bank Ltd
While getting trough the internship program with your fastest growing classic bank, we are really enjoying the different smarter, faster and better services of different department. With a view to ensuring exciting services and opening up the new window of progression as we as uplift, we would like to present the CBL with several recommendations like: Upgrading product line with new credit card or master card. Introducing the Customers Day or Care U week and new ad on TV Channels. Motivating employees with special bonus and tour to foreign country. Establishing ample eye catching billboards in the shopping centers. Launching one stop service cell and Electronic Fund Transfer facility. Offering pre shipment and post shipment finance. Arranging the City Bank Inter College Debate Contest and quiz test for children. Offering Scholarship for the Varsity Students and school goers. Sending the assistant officers and officer to BIBM for better view over pragmatic knowledge they know what they are doing but they dont know how and why they are adopting different banking practices. Most of the officers lack in communication skill and computer skill they should be trained up 80

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These initiatives will evidently ensure dazzling as well as graceful business boom for The City Bank. A new horizon of possibility will be unveiled. So, why not hunt for being better than best?

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