Credit Management in Janata Bank

1
Chapter One
INTRODUCTION
1.1 Introduction
1.2 Origin of the report
1.3 Rationale of the study
1.4 O!ecti"es of the report
1.# $cope of the study
1.% &ethodology of the study
1.' (i)itations of the study
2
1.1NTRODUCTION
Now a day, education is not just limited to books and classrooms. In todays world,
education is the tool to understand the real world and apply knowledge for the
betterment of the society as well as economy. From education the theoretical
knowledge is obtained from courses of study, which is only the half way of the subject
matter. Practical knowledge has no alternative. he perfect coordination between
theory and practice is of paramount importance in the conte!t of the modern business
world in order to resolve the dichotomy between these two areas. herefore, an
opportunity is offered by "ept. of #ccounting $ Information systems, %niversity of
"haka, for its potential business graduates to get three months practical e!perience,
which is known, is as &Internship Program'. For the competition of this internship
program, the author of the study was placed in a bank namely, &(anata )ank
*imited'internship Program brings a student closer to the real life situation and thereby
helps to launch a career with some prior e!perience.
1.2 ORI*IN O+ T,- R-.ORT
his paper is entitled &Credit &anage)ent of /anata 0an1 (i)ited' originated from
the fulfillment of the internship program. For the internship program, each student is
attached with an organi+ation. ,y internship was at (anata )ank *td., Nawaubpur
branch "haka. "uring my internship, I had to prepare a report under the supervision of
aslima Nasreen, #ssistant Professor, "ept. of #ccounting $ Information systems,
%niversity of "haka.
1.3 R2TION2(- O+ T,- $TUD3
"ue to the increased competition of the increased number of commercial banks and the
growing economy, the e!pectations of the customers have also increased than ever
before. -eali+ing the present condition, banks, especially the commercial banks are
trying to elevate their loan giving service as much as reachable to their customers. he
most serious difficulty facing the financial sector is the high level of interest rate and
inflation rate. .o it is the duty of the top management of the commercial banks to work
with the situation.
3
1.4 O0/-CTI4-$ O+ T,- R-.ORT
he objectives of the report are to determine how credit policy applied in sanctioning
and recovering loans and advances. /redit policy varies in terms of loan sector, status
of the organi+ation, government policy, fiscal budget and guidelines etc.
$pecific o!ecti"es5
To present an overview of (anata )ank *imited0()*1
2 o assess the credit structure of the ()*in practice.
2 o measure the effectiveness of the bank in the utili+ation of available resources.
2 o identify the recovery performance of ()*.
2 o point out the problems in fund utili+ation and recovery thereon.
2 o make a critical reasoning in respect to the treatment of provision for bad and
doubtful credit.
2 o assess and highlight on the legal actions followed by the ()*.
2 o find out the e!tent of similarities and dissimilarities in the course of action
followed by (anata )ank.*imited.
2 o compare the credit supervision of. ()*
2 o compare the 3uantitative change from phase45 05667489981 to phase48 0899:4
899;1.
2 o find out problems and suggesting recommendations for further improvement.
1.# $CO.- O+ T,- $TUD3
(anata )ank *imited is the second largest commercial )ank in )angladesh. (anata
)ank *imited operates through 7<7 branches including < overseas branches at %nited
#rab =mirates. It is linked with 5885 foreign correspondents all over the world. I am
assigned to learn practical knowledge from (anata )ank *imited, at Nobawabpur
)ranch. In this study I would try to concentrate on the theoretical aspect of credit
management, that is, the definition of credit management, policy of credit management,
tools for managing credit etc. I would analy+e the data on the bank and various
programs for loan recovery, problems in loan in loan recovery, pattern of loan recovery
and the performance of the bank under study in loan recovery, the information in
respect to the classification of unsound credit and provision thereon and also
4
concentrates on the performance of the bank. #nd finally I would conclude with the
critical evaluation of the credit management under the guidelines of the )ank
/ompanies #ct 5665, I#.>:9 and a discussion on the major findings and
recommendations.
1.% &-T,ODO(O*3 O+ T,- $TUD3
he study is performed based on the information e!tracted from different sources
collected by using a specific methodology. o fulfill the objectives of this report total
methodology has divided into two major parts?
26 Data Collection .rocedure5
In order to make the report more meaningful and presentable, two sources of
data and information have been used widely.
The Primary Sources are as follows:-
I have made 3uestionnaire survey of both managers of credit department and the
customers who have taken loans from (anata )ank *imited.
-elevant file study as provided by the officers concerned.
.haring practical knowledge of officials.
In4depth study of selected cases.

The secondary Sources are as follows:-
#nnual report of (anata )ank *imited
Periodicals Published by )angladesh )ank
@ffice files and documents
.tudy related books and journals
Aeb sites
#
6 Data .rocessing 7 2nalysis5
/ollected information have then processed $ compiled with the aid of ,. Aord,
=!cel $ other related computer software. Necessary tables have been prepared on
the basis of collected data and various statistical techni3ues have been applied to
analyses on the basis of classified information. "etail e!planation and analysis have
also been incorporated in the report.
1.' (I&IT2TION O+ T,- $TUD3
o prepare a report on the topic like this in a short duration is not easy task.From the
beginning to end,the study has been conducted with the intention of making it as a
complete and truthful one. In preparing this report some problems and limitations have
encountered which are as follows?
a1 he main constraint of the study was insufficiency of information, which was
re3uired for the study. here are various information the bank employee cannot
provide due to security and other corporate obligations.
b1 #s the data, in most cases, are not in organi+ed way, the bank failed to provide
all information.
c1 "ue to time limitation, many of the aspects could not be discussed in the present
report.
d1 .ince the bank personnel were very busy, they could not pay enough time.
e1 *ack of opportunity to access to internal data.
f1 I had to base on secondary data for preparing this report.
g1 *egal action related information was not available.
h1 *ack of in4depth knowledge and analytical ability for writing such report.
%
Chapter Two
(IT-R2TUR- R-4I-8
2.1 CR-DIT &2N2*-&-NT
2.2 .ROC-$$ O+ CR-DIT &2N2*-&-NT
2.2.1. .olicy guidelines
2.2.2 &anage)ent structure and responsiilities
2.2.3. .rogra) guidelines
2.3 TOO($ O+ CR-DIT &2N2*-&-NT
2.3.1 Definition of Credit Ris1 *rading 9CR*6
2.3.2 +unctions of Credit Ris1 *rading
2.3.3 Use of Credit Ris1 *rading
2.3.4 Nu)er and short na)e of grades used in the CR*
2.3.# +inancial $pread $heet in Credit &anage)ent
'
2.1 CR-DIT &2N2*-&-NT
*oans or credits comprise the most important asset as well as the primary source of
earning for the banking institutions. @n the other hand, loanBcredit is also the major
source of risk for the bank management. # prudent bank management should always
try to make an appropriate balance between its return and risk involved with the loan
portfolio. /redit appraisal process is the tool, which helps the bank to predict the risk
and return on the proposed project for credit disbursement.. o get a clear idea about
credit appraisal process we need to know the key factors of credit appraisal procedures.
/redit?
he word credit is derived from the *atin word &credo' which means &I believe' and is
usually defined as the ability to buy with a promise to pay. It consists of actual transfer
and delivery of goods and services in e!change for a promise to pay in future. It is
simply the opposite of debt. "iversification of banking service has accelerated the use
of credit in the e!pansion of business operation. It is a fundamental precept of banking
everywhere that advances are made to customers in reliance on his promise to pay
rather than the security held by the banker.
. Principles of Credit # prudent )anker should always adhere to the following general
principles of lending funds to his customers.
)ackground, /haracter and ability of the borrowers
Purpose of the facility,
erm of facility,
.afety,
.ecurity,
Profitability,
.ource of repayment,
"iversity.
2.2.ROC-$$ O+ CR-DIT &2N2*-&-NT
:
/redit management must be organi+ed in such a process that the bank can minimi+e its
losses for payment of e!pected dividend to the shareholders. he purpose of this
process is to provide directional guidelines that will improve the risk management
culture, establish minimum standards for segregation of duties and responsibilities, and
assist in the ongoing improvement of concerned bank.
he guidelines for credit management may be organi+ed into the following sections?
2.2.1 .olicy guidelines?
a. *ending guidelines
b. /redit assessment and risk grading
c. #pproval authority
d. .egregation of duties
e. Internal control and compliance
2.2.2 &anage)ent structure and responsiilities
2.2.3. .rogra) guidelines5
a. #pproval process
b. /redit administration
c. /redit monitoring
d. /redit recovery
Now the guidelines are discussed in the following?
2.2.1. .olicy guidelines
a. Lending guidelines: he lending guidelines include the following?
Industry and )usiness .egment Focus
ypes of loan facilities
.ingle borrowersB group limitsB syndication
*ending caps
"iscouraged business types
;
#s a minimum, the followings are discouraged?
o ,ilitary e3uipmentB weapons finance
o Cighly leveraged transactions
o Finance of speculative investments
o *ogging, mineral e!tractionB mining, or other activity that is ethically or
environmentally sensitive
o *ending to companies listed on /I) black list or known
o /ounter parties in countries subject to %N sanctions
o *ending to holding companies.
. Credit Assessment and Ris !rading:
# thorough credit and risk assessment should be conducted prior to the granting of
loans, and at least annually thereafter for all facilities.
/redit #pplications should summaries the results of the risk assessment and include, as
a minimum, the following details?
=nvironment or social risk inputs
#mount and type of loan 0s1 proposed
Purpose of loans
*oan structure 0 tenor, covenants, repayment schedule, interest1
.ecurity arrangement
#ny other risk or issue
-isk triggers and action plan4condition prudent, etc.
-isk is graded as per *ending -isk #nalysis 0*-#1, )angladesh )anks Duidelines of
classification of loans and advances.
c. Appro"al Authority:
#pproval authority may be as the following?
/redit approval authority has been delegated to )ranch ,anager, /redit
/ommittee by the ,"B )oard
"elegated approval authorities shall be reviewed annually by ,"B
)oard.
1<
,"B )oard?
#pprovals must be evidenced in writing. #pproval records must be kept
on file with credit application
he aggregate e!posure to any borrower or borrowing group must be used
to determine the approval authority re3uired.
#ny credit proposal that does not comply with *ending Duidelines,
regardless of amount, should be referred to Cead @ffice for approval.
d# Segregation of $uties:
)anks should aim at segregating the following lending function?
/redit approvalB risk management
-elationship managementB marketing
/redit administration
e. %nternal Control and Compliance:
)anks must have a segregated internal auditB control department charged with
conducting audits of all branches.
2.2.2. &anage)ent structure and responsiilities
he following chart presents an e!ample of credit management structure?
&anaging Director
,O 0usiness
De"elop)ent = Corporate
0an1ing = &ar1eting
Credit Co))ittee ,O Credit = Ris1
0ranch &anager
&ar1eting Credit Officer Credit 2d)n. (oan Reco"ery
11
2.2.3. .rogra) guidelines
a. Appro"al process: he following diagram illustrates an e!ample of the approval
process?
. Credit administration: he credit administration function is critical in ensuring that
proper documentation and approvals are in place prior to the disbursement of loan
facilities.
c. Credit monitoring? o minimi+ed credit losses, monitoring procedures and systems
should be in place that provides an early indication of the deteriorating financial health
of borrower.
/redit application recommended by )ranch ,anager B
-elationship ,anager B /orporate
Cead @ffice, /redit "ivision
Cead @ffice /redit /ommittee
=!ecutive /ommittee of )oard of "irectors
12
d. Credit reco"ery: he recovery unit of branch should directly manage accounts with
sustained deterioration 0a risk rating of sub4standard or worse1. he primary functions
of recovery unit are?
E "etermine account action planB recovery strategy
E Pursue all options to ma!imi+e recovery, including placing customers into
receivership or li3uidation as appropriate.
E =nsure ade3uate and timely loan loss provisions are made based on actual and
e!pected losses.
2.3 TOO($ O+ CR-DIT &2N2*-&-NT
For credit management, a firm may use tools available to them. .uch tools include
/redit -isk Drading 0/-D1 and Financial .pread .heet 0F..1. /redit risk grading is an
important for credit risk management as it helps the banks and financial institutions to
understand various dimensions of risk involved in different credit transactions. he
aggregation of such grading across the borrowers, activities and the lines of business
can provide better assessment of the 3uality of credit portfolio of a bank or branch.
he *ending -isk #nalysis 0*-#1 manual introduced in 566: by the )angladesh )ank
has been in practice for mandatory use by the banks and financial institutions for loan
si+e of )" 5.99 crore and above. Cowever, the *-# manual suffers from a lot of
subjectivity, sometimes creating confusion to the lending bankers in terms of selection
of credit proposals on the basis of risk e!posure. ,eanwhile in 899: end, )angladesh
)ank provided guidelines for credit risk management of banks wherein it
recommended, interalia, the introduction of -isk Drade .core /ard for risk assessment
of credit proposals.
)angladesh )ank e!pects all commercial banks to have a well defined credit risk
management system which delivers accurate and timely grading. In practice, a banks
credit risk grading system should reflect the comple!ity of its lending activities and the
overall level of risk involved.
2.3.1 Definition of Credit Ris1 *rading 9CR*1
F the /redit -isk Drading 0/-D1 is a collective definition based on the pre4
specified scale and reflects the underlying credit4risk for a given e!posure.
13
F # /redit -isk Drading deploys a numberB alphabetB symbol as a primary
summary indicator of risks associated with a credit e!posure.
F /redit -isk Drading is the basic module for developing a /redit -isk
,anagement system.
Aell4managed credit risk grading systems promote bank safety and soundness by
facilitating informed decision4making. Drading systems measure credit risk and
differentiate individual credits and groups of credits by the risk they pose. his allows
bank management and e!aminers to monitor changes and trends in risk levels. he
process also allows bank management to manage risk to optimi+e returns.
2.3.3 Use of Credit Ris1 *rading
F he /redit -isk Drading matri! allows application of uniform standards to credits
to ensure a common standardi+ed approach to assess the 3uality of individual
obligor, credit portfolio of a nit, line of business, the branch or the bank as a
whole.
F #s evident, the /-D outputs would be relevant for individual credit selection,
wherein either a borrower or a particular e!posureB facility is rated. he other
decisions would be related to pricing 0credit4spread1 and specific features of
credit facility. hese would largely constitute obligor level analysis.
F -isk grading also be relevant for surveillance and monitoring, internal ,I. and
assessing the aggregate risk portfolio level analysis.
2.3.4 Nu)er and short na)e of grades used in the CR*
he proposed /-D scale consists of 7 categories with short names and numbers are
provided as follows?
*rading $hort Na)e Nu)er
.uperior .%P 5
Dood D" 8
14
#cceptable #//P :
,arginalB Aatch list ,DB A* <
.pecial ,ention ., G
.ub .tandard .. H
"oubtful "F ;
)ad and *oss )* 7
2.3.# +inancial $pread $heet in Credit &anage)ent
5. Financial .pread .heet provides a 3uick method of assessing business trends and
efficiency
E #ssess the borrowers ability to repay
E realistically show business trends
E #llow comparisons to be made within industry
8. )orrowers that provide Financial .pread .heets are more likely to be good
borrowers
#t two of the client banks the F.-P consultants could not find 59 bad loans
with : consecutive years of financial statements available.
@ut of 8G good loans reviewed by the F.-P consultants, at two of the client
banks, : consecutive years of financial statements were available on all of
them.
he willingness of the customer to provide detailed financial information
and to answer 3uestion regarding that information, is indication of the
cooperation the bank will receive in the future.
:. # Financial .pread .heet is an important tool in a discipline of organi+ed approach
to credit analysis.
<. he historic financial reports of a company are a primary indicator of its future
financial position. .pread sheets allow proper analysis of financial statements.
1#
Chapter
Three
/2N2T2 02N> (TD5 2T 2 *2(2NC-
3.1 ,istory of /anata 0an1 (td.
3.2 &ission of /anata 0an1 (td.
3.3 $er"ices pro"ided y /anata 0an1 (td.
3.4 Credit progra)
3.# .erfor)ance of /anata 0an1 (td.
3.% (oans and ad"ances
1%
3.1 ,I$TOR3 O+ /2N2T2 02N> (TD
.
(anata means people. his is a progressive )ank. Immediately after the emergence of
)angladesh in 56;5, the erstwhile %nited )ank *imited and %nion )ank *imited were
nationali+ed and renamed as (anata )ank. It has been operating since itIs inception in
56;8 both in )angladesh and overseas. (anata )ank *td. has been playing a significant
role in the economic development of the country by mobili+ing savings and
channeli+ing funds into different productive sectors. It is also a major player in the
fields of micro4credit and software development.
(anata )ank *td, the second largest commercial )ank in )angladesh, has an authori+ed
capital of %.J 5<G.<G million, paid up capital of %.J <;.5H million and reserve of %.J
H.H; million . he )ank has a total asset of k. 8<<9H.55 crore 0appro!. %.J :GH8.6<
million1 as on :5
st
"ecember 899;.
(anata )ank*td. operates through 7<7 branches including < overseas branches at
%nited #rab =mirates. It is linked with 5885 foreign correspondents all over the world.
he )ank employs more than 5G0fifteen1 thousand persons. he corporate head office
is located at "haka with :G 0thirty five1 "ivisions. #s a part the conscious development
of e!isting Cuman -esources, (anata )ank through its three training institutes during
the year 899: imparted training to <H66 officers and staffs. It computeri+ed 69
important branchesK non stop services introduced in 77 branchesK @N*IN= )anking in
H9 important branches under important branches under implementationK #,, =F
facilities.
he )oard of "irectors is composed of ; 0seven1 members headed by a /hairman. he
"irectors are representatives from both public and private sectors. he )ank is headed
by the ,anaging "irector 0/hief =!ecutive1, who is a reputed banker.
3.2 &I$$ION O+ /2N2T2 02N> (TD.
he mission of the bank is to actively participate in the socio4 economic development
of the nation by operating a commercially sound banking organi+ation, providing credit
1'
to viable borrowers, efficiently delivered and competitively priced, simultaneously
protecting depositors funds and providing a satisfactory return on e3uity to the owners.
3.3 $-R4IC-$ .RO4ID-D 03 /2N2T2 02N> (TD.
(anata )ank *td. offers all the major banking facilities and services to its customers.
he )ank with itIs network spreading throughout the country has a uni3ue feature of
ploughing back savings from those places and then investing them into different loan
portfolios.
(anata )ank *td. with its wide ranging branch network and skilled personnel provides
prompt and personali+ed services like issuing?
a. "emand "raft
b. elegraphic ransfer
c. ,ail ransfer
d. Pay @rder
e. .ecurity "eposit -eceipt
f. ransfer of fund by special arrangement,
i1 Normal transfer
ii1 =lectronic transfer through -eady /ash /ard.
he )ank provides the following Internet facilities?
/urrentB.avingsB." account status
F"- account status
#dvance account status
*oan account status
-emittance services are available at all branches and foreign remittances may be sent to
any branch by the remitters favoring their beneficiaries. -emittances are credited to the
account of beneficiaries instantly or within shortest possible time. (anata )ank *td. has
correspondent banking relationship with all major banks located in almost all the
countriesBcities. =!patriate )angladeshis may send their hard earned foreign currencies
through those banks or may contact any renowned banks nearby 0 where they
resideBwork1 to send their money to their dear ones in )angladesh.
1:
(anata )ank *td. has already established a world wide network and relationship in
international )anking through its < 0four1 overseas branches and 5885 foreign
correspondents. he )ank has earned an e!cellent business reputation in handling and
funding international trade particularly in boosting e!port $ import of the country. he
)ank finances e!ports within the frame4work of the e!port policy of the country.
3.4 CR-DIT .RO*R2&
*eneral and Industrial Credit5
(anata )ank *td. has formulated its policy to give priority to small and medium
business while financing large scale enterprise through consortium of banks total loan
and advance of the bank stood at )" 58589<.<G million as of "ecember :5, 899;as
compared to )" 5:7<68.G58; million in 899H. Increase rate is HL compared to 899;.
Following the guideline of )angladesh )ank, credit facilities have been e!tended to
productive and priority sectors. In e!tending credit facilities, the )ank has given due
importance to sectoral needs and re3uirements of both public and private sectors. ,ajor
sectors include (ute, e!tile Ind. $ trade, .teel $ =ngineering, Food $ #llied, and
=!port $ Import etc.
3ear 2d"ance
899< 59;;7H
899G 66;<7.;
899H 595<H5.6
899; 58589<.<G<6
Rural Credit? &icro -nt. 7 $.. .rogra) +inancing5
*oan is provided to the rural people for agricultural production and other off4farm
activities.
*oan pricing system is customer friendly.
Prime customers enjoy prime rate in lending and other services.
Muick appreciation, appraisal, decision and disbursement are ensured.
/redit facilities are e!tended as per guide4lines of )angladesh )ank 0/entral )ank of
)angladesh1 and operational procedures of the )ank.he rates may, however, change
from time to time depending on the level of competition in the financial sector.
1;
#s a nationali+ed )ank it has a social responsibility to improve the financial condition
of the poorBunemployed people. Aith a view to perform that social responsibility, )ank
has initiated rural credit program since 56;<. Now under this rural portfolio there are
:: products.
Information related to important products under this program are shown below?
Tale5 different products under the progra)
aka in million
$l.
No.
Na)e of product
No of
loanees
Outstanding
2)ount
2<<%
@
5 /yber4cafN loan :H 7.H .5G
8
/redit for forestryB
horticulture nursery
;G< 56.; .8G
:
/redit program for
employees
<H:58 5998.99 59
<
Financing & women
entrepreneurship'
88G <<.G .G9
G
Financing goat and
sheep farming
85596 5:5.7 5.99
H Dharoa project 8:85 :G.: .<9
; /rop loan program ::G9;G G9;:.7 G8
7 "octors loan GG 89.7 .:G
6
.mall business "ev.
*oan
6: 57.9 .:G
59 @thers 5G6::G ::;<.9 :G
total GHG:5G 6;87.H 599
2<
# vast majority of the )angladeshis live in the rural areas and their main source of
income is agriculture and agro4business. (anata )ank *td. has opened branches in rural
areas to cater to the banking needs of rural people. #part from accepting deposits from
the rich and moderately well4off villagers, (anata )ank *td. encourages the poor people
to make small savings through different mechanisms.
.o far lending in rural area is concerned, (anata )ank *td. has been financing
agricultural production and poverty alleviation programs since 56;;. It also lends to the
poor landless so that they can make a living. he average loan si+e is about aka
59,999.99 0around %.J 8991 and the number of borrowers under rural credit scheme is
more than G99,999.
5. .hort erm /rop Production *oan
8. Irrigation and #gricultural e3uipment
:. FishB.hrimp Production
<. Corticulture "evelopment
G. #gro4based Industry
H. -ural ransport
;. Aeavers /redit
7. #gri4business *oan
6. ea Production $ Processing *oan
59. "ifferent ,icro /redit Programs
$&- +inancing $che)e5
.mall and ,edium =nterprise 0.,=1 Financing .cheme has been introduced to assist
new or e!perienced entrepreneurs to invest in small and medium scale industries. .mall
business development loan, Dharoa project, credit for forestryBCorticultureBNursery,
crop loan project all are designed for this purpose.
DoctorsA Credit $che)e5
"octors credit scheme is designed to facilitate financing to fresh medical graduates
and established physicians to ac3uire medical e3uipments and set up clinics and
hospitals.
8o)en -ntrepreneurs De"elop)ent $che)e5
21
Deposit Mix
32%
52%
16%
Savings Terms C.D.& Others
Aomen =ntrepreneurs "evelopment .cheme has been introduced to encourage women
in doing business. %nder this scheme, the bank finances the small and cottage industry
projects sponsored by women. otal loan outstanding in 899; was k :GG8.9; crore
he no. of loaned were :5
3.# .-R+OR&2NC- O+ /2N2T2 02N> (TD.
(anata )ank *td. is the second largest commercial bank in )angladesh. he aim of the
)ank is to actively participate in the socio4economic development of the nation by
operating a commercially sound )anking system. It provides credit to deserving
borrowers and at the same time, protects depositors interest.
Deposits5(anata )ank *td. mobili+ed total deposit of )" 567,H:G.76 million in 899;
as compare of )" 5786<H.G:G6 million in 899H . /omparative interest rates deposit
mobili+ation efforts of the bank and confidence reposed by the customer in the bank
contributed to the notable growth in deposit. he bank evolved a number of attractive
deposit schemes to care to the re3uirement of small and medium services. his
improved not only the 3uantum of deposits, it also brought about 3ualitative change in
the depositors structure.
Deposit and Deposit &iB5
)reak4up of "eposit and "eposit ,i!
Ta1a in )illion
ype #s on :545849H #s on :545849;
/urrent and others account deposits 87:77.8H77 :GG59.7:<;7
)ills payable 5GG7.67G5G6 5779.;6H<7
.avings )ank "eposit G675;.976;6 H8;8:.;9:6:
erm "eposit 6:578.5658 67G89.GGH7G
otal 5786<H.G:G6 567H:G.768
22
In"est)ent5
o earn profit, the )ank Prudently invests its fund to different sectors. he investment
portfolio of the )ank is comprised of reasury bill, other bonds, "ebenture, .hares etc.
he )ank earns a handsome profit from this investment portfolio. Oear wise investment
of the )ank is shown in the following table?
3ear In"est)ents 9T1. in )illion6
899< 89<GG.7
899G 87:;G
899H 8<;7G.:7H9:
899; GG7H8.6:9:6
Portfolio wise investment is described below?
0aka in million1
23
899; 899H
5. Dovt.securities 5;.776H88 8<8G:.9<<H8

8. @ther bonds 6<.H76H98 G:8.:<5<57
89
:. Pre4lib debentures 89.<;:H98
<. .hares 88.67G5G5
otal P5GH.9:;;:6 8<;7G.:7H9:7
I)port 0usiness5
For the very beginning the )ank has embarked on e!tensive foreign e!change business
with a view to facilitating international trade transactions of the country. he )ank has
provided )" 7<9HG.<9 million loan as of "ecember :5, 899;. Import mainly confined
to consumer goods, capital machineries and industrial raw materials.
-Bport 0usiness5
-Bport groCth of /anata 0an1 (i)ited 92<<2D
2<<%65
9Ta1a in Core6
Oear arget #chievement
#chievement
-ate
Drowth
8998 <999.99 :<<G.<H ;7.7<L QH.:7L
899: <999.99 <87H.<6 59;.5HL Q8<.<9L
899< <799.99 G<H8.:: 55:.79L Q8;.<:L
Percentage Wise Investment-2006-07
34%
63%
2%
1%
Other Bonds Treasury Bi De!entures Shares
24
899G H78G.99 G7:6.<7 7G.GHL QH.69L
899H ;999.99 ;976.HH 595.87L Q85.<9L
(an4
(uneB899;
;,;67.:7 :<68.89 <<.;7L0(une1 QGL0(une1
Operating inco)e5
he operating revenue of the bank stood to the )"<HGH.99<8"ecember 899;
against7:<9.7< million as 899H.y provision net profit stood at )" 5G.<;H< million as
of "ecember :5,899;.
3ear Operating .rofit 9T1. in )illion6
899< 8589.6
899G 8:58.6
899H 7:<9.7<
899; <HGH.99
3.% (O2N$ 2ND 2D42NC-$?
he main focus of (anata )ank *td. /redit *ineBProgram is financing business, trade
and industrial activities through an effective delivery system. (anata )ank *td. offers
credit to almost all sectors of commercial activities having productive purpose. he
loan portfolio of the )ank encompasses a wide range of credit programs covering about
899 items. /redit is also offered to 5G 0fifteen1 thrust sectors, as earmarked by the
govt., at a reduced interest rate to develop frontier industries. /redit facilities are
offered to individuals, businessmen, small and big business houses, traders,
manufactures, corporate bodies, etc.
Following the guidelines of )angladesh )ank, credit facilities have been e!tended to
productive and priority sectors. he outstanding advance of the bank is k585,89<.<G
million on :5
st
"ecember 899;.In credit facilities, the )ank has given due importance
to sectoral needs and re3uirements of both public and private sector.
.ector wise #dvances are shown below?
2#
/redit constitutes G9L of banks assets and this portfolio is the most important
objective of the )ank of which 5H.:7L is classified. he elaborate status is as
follows?
9+igure in T>6
)* "F .. .,# .tandard otal
5G;;.:
9
597.89 :99.:5 86:.69 67<9.;< 58589.<G
5:.95L .76L 8.<7L 8.<:L 75.56L 599.99L
9Ta1a in crore6
$l Na)e of sector Total
5 )angladesh P/ 5G<G.5G
8 )(,/ ;8;.98
: .teel $ =ngineering G5.:H
< Food $ allied 5GH.56
G =!port credit
85<9
H Import credit
5<:<
; Industrial credit
5G6H
7
-ural, ,= $ .P
Financing
67:
6 .taff loan
7<:
59 Deneral cerdit
H,;89
55 )/I/ 5989.HH
2%
Drand total 5;85H.:7
2'
Chapter Four
CR-DIT .O(IC3
4.1 &-2NIN* O+ CR-DIT .O(IC3
4.2 O0/-CTI4- O+ CR-DIT .O(IC3
4.3 +OR&U(2TION O+ CR-DIT .O(IC3
4.4 -$$-NTI2( CO&.ON-NT$ O+ 2 $OUND CR-DIT
.O(IC3
4.# (-NDIN* *UID-(IN-$5
4.#.1 Industry and usiness seg)ent focus
4.#.2Types of credit facilities
2:
Policy entails projected course of action. (anata )ank *td. have its own policy granting
credit although credit is always a matter of judgment applying common sense in the
light of ones e!perience.
# sound credit policy includes among other things safety of funds invested vis4R4vis
profitability of the bank. =ncouraging ma!imum number of small loans is better than
concentration in a particular type of advances, which ensures sufficient li3uidity with
least incidence of bad debts.
It has to be borne in mind that a good loan allowed to a properly selected borrower is
half collected. In order to make a good loan there should have a good loan policy.
4.2 O0/-CTI4- O+ CR-DIT .O(IC3
here are some objectives behind a written credit policy of (anata )ank *td. that are as
followsK
o provide a guideline for giving loan.
Prompt response to the customer need.
.horten the procedure of giving loan.
-educe the volume of work from top level management.
"elegation of authority of work from top level of management.
o check and balance the operational activities
4.3 +OR&U(2TION O+ CR-DIT .O(IC3
@ne of 3uestions that should arise in a discussion of credit is who should formulate the
policy. #lthough the ultimate responsibilities lay at the highest level in the organi+ation
i.e. the board of directors. Oet the actual drafting shall have to be done by the senior
lending office in consultations with the chief e!ecutive officer and with contribution
from senior officers, associates and subordinates. @bviously the level of origin will
2;
vary with the si+e and structure of the organi+ation. he matter then referred to the
board for approval after careful e!amination consideration and discussion.
4.4 -$$-NTI2( CO&.ON-NT$ O+ 2 $OUND CR-DIT .O(IC3?
here can be some variations based on the needs of a particular organi+ation, but at
least the following areas should be covered in any comprehensive statement of credit
policy and ()*s policy also covers these areas?
5. (egal consideration? he banks legal lending limit and other
constraints should be set forth to avoid inadvertent violation of banking
regulations.
8. Delegation of authority5 =ach individual authori+ed to e!tend credit
should know precisely how much and under what conditions he or she
may commit the banks funds. hese authorities should be approved, at
least annually, by written resolution of the board of directors and kept
current at all times.
:. Types of credit eBtension5 @ne of the most substances parts of a loan is
a delineation of which types of loans are acceptable and which type are
not.
<. .ricing5 In any profit motivated endeavor, the price to be charged for
the goods or services rendered is of paramount without it, individuals
have few guidelines for 3uoting retag or fees, and the variations
resulting from human nature will be a source of customer
dissatisfaction.
G. &ar1et 2rea5 =ach bank should establish its proper market area, based
upon, among other things, the si+e and sophistication of its organi+ation
its capital standpoint, defining ones market area is probably more
important in the lending function than in any other aspect of banking.
H. (oan $tandard5 his is a definition of the types of credit to be
e!pended, wherein the 3ualitative standards for acceptable loans are set
forth.
;. Credit *ranting procedures5 his subject may be covered in separate
manual, and usually is in larger banks. #t any rate, it should not be
3<
overlooked because proper procedures are essential in loan establishing
policy and standards. Aithout proper procedure for granting credit and
constant policing to ensure that these procedures are meticulous carried
out, the best conceived loan policy will not function and inevitable,
problems will develop.
4.# (-NDIN* *UID-(IN-$5
#s the bank have a high rate of non4performing loans. )anks risk taking applied
should be contained and our focus should be to maintain a credit portfolio keeping in
mind of banks capital ade3uacy and recovery strength. hus banks strategy will be
invigorating loan processing steps including identifying , measuring , containing risks
as well as maintaining a balance portfolio through minimi+ing loan concentration ,
encouraging loan diversification , e!panding product range , streamlining security ,
insurance etc. as buffer again une!pected cash flow .
4.#.1 Industry and usiness seg)ent focus
Industry segment focuses on e!tile, Pharmaceuticals, #gro4based, Food and allied,
elecommunication, Power generation and distribution, Cealth care, =ntertainment
.ervices, /hemicals, ransport, Infrastructure development, *inkage industry,
Information technology, /eramics, @thers as decided from tome to time. #nd business
segment focuses on "istribution, )rick field, -ice millB flour millB oil mill, Aork order,
Oarn trading, /loth merchant, Industrial spares, Cardware, =lectronic and electrical
goods, /onstruction materials, Fish trading, Drocery, AholesaleB retail, @thers as
dedicated from time to time
4.#.2 Types of credit facilities5 )ank will go for
erm financing for new project had ),-= of e!isting projects 0large,
medium, .,=, ./I1.
Aorking capital for industries, trading services and others 0large ,
medium, .,=, ./I1.
rade finance for import and e!port
*ease finance
.mall loan for traders, micro enterprise and other productive small
venture.
31
/onsumer finance
Fee business
Chapter Five
+UND IN4-$T-D 03 /2N2T2 02N> (TD.
#.1 INTRODUCTION
#.2 -CONO&IC $-CTOR 8I$- DI$TRI0UTION O+ +UND
#.3 N2TUR- 8I$- DI$TRI0UTION O+ (O2N$ 2ND
2D42NC-$
#.4 &2TURIT3 *ROU.IN* O+ DI$TRI0UTION (O2N$
2ND 2D42NC-$
#.# $-CURITI-$ IN CR-DIT &2N2*-&-NT
32
#.1 INTRODUCTION
he principal function of a bank is to lend. *ending is a dynamic activity. It is through
the medium of lending the banking industry promotes economic activity, instills and
encourages, at the individual level, the principal of self4reliance, and yield earnings for
the bank. It is lending alone that brings banking into a more meaningful and purposeful
contract with public and, therefore, has the greatest impact upon them.
Proper utili+ation of fund is an essential pre4re3uisite of successful bank management.
he procurements of funds supported by an efficient deployment of that procured fund
lead a bank to the highest point of profitability. I would try to concentrate on (anata
)ank *td.s nature, pattern, and allocation of invested resources in this chapter. he
bank under study has divergence in its investment portfolio, loan programs, advances
and recovery rate etc.
#.2 -CONO&IC $-CTOR 8I$- DI$TRI0UTION O+ +UND
(anata )ank *td. is engaged in e!tending long, medium and short term loans to various
economic sectors in the country. #s (anata )ank *td. e!tends its credit programs all
over the economy such as agricultural credit program, industrial credit program and
commercial financing, the bank tries to achieve significant profit from its operations
and also to improve the economic conditions of the general public of the country.
Tale5 econo)ic sector Cise distriution of loans and ad"ances during 1;;:D2<<'
33
-cono)ic
sectors
.haseD1 .haseD2
1;;: 1;;; 2<<< 2<<1 2<<2 2<<3 2<<4 2<<# 2<<% 2<<'
(ute industries ;57.G8 ;56.<5 ;<;.7; ;;7.87 7;9.:H 7:;.59
7,66;.G
9
(ute trade 8:.H6 56.57 5H.:9 5.:8 58.:H 58.G9
;G.<9
annery <56.:7 G96.9: <8:.6H <<<.HG <:6.H9 :H5.H9
<,5G9.H
9
e!tile :<6.95 :H;.G5 :;8.;H :H6.6G :G5.HH :H9.59
<,;8G.9
9
ransport :8.8; 86.5; :9.8; 8<.G< 8<.9< :H.99
<9.89
.teel $
engineering
<;<.;8 858.67 8:5.95 897.G7 8HG.;9 66.79
5,<7<.;
9
ea 5G.69 5<.99 5<.98 5:.66 58.5H 58.89
7G.79
.ugar mills 77.<H 79.95 6;.5; 66.G9 55:.8< 5:7.89
5,GH5.6
9
Couse building :;6.:< <87.78 G88.G6 G7<.96 HG6.78 ;:H.<9
5,8H<.6
9
-ural credit GGH.87 H98.75 HH;.87 ;;7.G9 HG7.58 7:5.:9
6,78G.:
9
)ricks .<G.98 <5.G8 ;6.H< 77.89 69.6G 7G.69
/old storage G.9: 7.<G 59.:7 6.G< 58.:8 7.H9
5G;.99
Food ;<.87 79.9; 5H9.5G 85H.89 58<.87 55H.;9
5,896.H
9
=!port credit ;G5.:9 7GH.:7 595H.G9 5956.89 5889.;7 586G.99
5<,7:G.
69
Import credit H:<.;H 6H<.67 58;:.9H 55G<.67 5G9;.7G 5H5<.<9
5<,85H.
G9
Industrial credit ;78.H8 76<.;8 5966.78 55<H.:G 5<9:.;7 5:75.69
5G,6H:.
69
@thers 5669.<8 88HH.5G 8GHH.H5 :9:H.66 8:;6.5; 87G9.69
<5,<H;.
89
otal ;:<5.99 796G.86 6:86.:6 66;<.7;
595<H.5
6
59;;7.G
9
121?2<4
.4<
34
#.3 N2TUR- 8I$- DI$TRI0UTION O+ (O2N$ 2ND 2D42NC-$
.anctioning advances to customers and others is one of the principal services of a
modern bank. #dvances by the commercial banks are made in different forms?
*oans
@verdrafts
//
*I,
*-
)ills purchase and discounted
(anata )ank *td. sanctions loans under the above mentioned category. It usually grants
short term advances which are utili+ed to meet the working capital re3uirements of the
borrower. @nly a small portion of the banks demand and time liability are advanced on
long term basis where the banker usually insists on a regular repayment by the
borrower in installments. Ahile lending fund, a banker, therefore, follows a very
cautious policy and conduct his business on the basis of well4known principles of
sound lending in order to minimi+e the risk.
#.4 &2TURIT3 *ROU.IN* O+ DI$TRI0UTION (O2N$ 2ND 2D42NC-$
#t the very beginning of taking decision for giving credit, (anata )ank *td. mainly
concentrates mainly on li3uidity. #s it is doing business by public deposits, it is bound
to pay the money when people want. # si+able portion of bank advances are, therefore,
granted to meet the working capital re3uirements of the borrower rather than to meet
the fi!ed capital re3uirement, i.e., construction of building or purchase of fi!ed
deposits. # banker would be failing in his duty to safeguard the interest of his
depositors and shareholders if his credit policy does not provide a method of gradual
repayment and final recovery of the money advanced.
For li3uidity reasons, (anata )ank *td.is giving credit on short period basis and against
security. .hort term loans ensure li3uidity to a greater e!tent than long term loan. Ae
can classify the bank loans and advances under the following maturity stage?
2 Payable on demand
2 Payable within : months
3#
2 Payable within : months to 58 months
2 Payable within 5 year to G years
2 Payable in more than G years
#.# $-CURITI-$ IN CR-DIT &2N2*-&-NT
@ne of the most important functions of a bank is to employ its fund by way of
loans and advances to its customers and a banks strength depends considerably on the
3uality of its loans and advances. In order times, when the bankers knew the customers
personally and intimately and had complete confidence in the integrity and honesty of a
customer, they used to allow loans and advances without a security. he position is
3uite different today. )anks having a large number of officers over a wide area cannot
allow loans and advances without retention of security in one form or the other.
hough the banks are now e!pected to lay greater emphasis on the purpose for
which the borrower needs rather than security he can afford to give, security continues
to be one of the most important factors which determines to a significant e!tent the
bankers willingness to lend money.
.ecurity is obtained as a line of last defense to fall back upon. It is meant to be
an insurance against emergency. )ut taking security, bank ac3uires a claim upon the
assets of the borrower if repayment is not made as planned. )ut what should be the
significant securities of loans depends in the guidelines prescribed by the )angladesh
)ank through )/" circular no. 5;B56;; and also the negotiation of the respective
branch to its borrowers. he most significant categories of security lodged are as?
Doods and commodities
F"-
-eal estate
.tock e!change securities
*ife insurance policies
Dold and gold ornaments
"ocuments of title of goods
.upply bills
(anta )ank *td. keeps sufficient security before final sanctioning of loans and
advances.
3%
Chapter Six
(O2N DI$0UR$-&-NT .ROC-DUR- O+ /2N2T2 02N>
(TD.
%.1 *-TTIN* CR-DIT IN+OR&2TION
%.2 IN+OR&2TION CO((-CTION
%.3 2N2(3EIN* T,-$- IN+OR&2TION
%.4 (-NDIN* RI$> 2N2(3$I$ 9(R26
%.# .RO.O$2( 2N2(3$I$
%.% CO((2T-R2( -42(U2TION
%.: .RO.-R $U.-R4I$ION O+ T,- .RO/-CT
%.' +IN2( D-CI$ION 20OUT T,- .RO/-CT
%.; DOCU&-NT2TION O+ T,- (O2N
%.1< CR-2TION O+ C,2R*-$ +OR $-CURIN* (O2N
%.1 *-TTIN* CR-DIT IN+OR&2TION
3'
(anata )ank *td. collects credit information about the applicant to determine the credit
worthiness of the borrower. he bank collects the information about the borrower from
the following sources?
Personal investigation.
/onfidential report from other bank Cead @fficeB)ranchBchamber of the commerce.
/I) -eport from /entral )ank.
%.2 IN+OR&2TION CO((-CTION
he loans and advances department gets a form filled by the party seeking a lot of
information. he information is listed below?
Name and address of the borrower 0present and permanent1.
/onstitution or status of the business.
"ata of establishment and place of incorporation.
Particulars of properties, partners and "irectors.
)ackground and business e!perience of the borrowers.
Particulars of personal assets, name of subsidiaries, percentage of share
holding and nature of business.
"etails of liabilities in name of borrowers, in the name of any directors.
Financial .tatement of the last three years.
Nature and details of businessBproducts.
"etails of securities offered.
Proposed debt e3uity ratio.
@ther relevant information.
%.3 2N2(3EIN* T,-$- IN+OR&2TION
(anata )ank *td. then starts e!amination whether the loan applied for, is complying
with its lending policy. If comply, then it e!amines the documents submitted and the
credit worthiness. /redit worthiness analysis, i.e. analysis financial conditions of the
loan applicant is very important. If loan amount is more than G9, 99,999, then bank
goes for *ending -isk #nalysis 0*-#1 and .preadsheet #nalysis 0.#1 which are
recently introduced by )angladesh )ank. #ccording to )angladesh )ank -ules, *-#
and .# are a must for the loan e!ceed of one crore.
3:
If these two analyses reflect favorable condition and document submitted for the loan
appeared to be satisfactory, then bank goes for further action.
%.4 (-NDIN* RI$> 2N2(3$I$ 9(R26
*-# is a very important and vital analysis for deciding whether the loan proposal is
potential or not. ,any types of scientific, mathematical, statistical and managerial tools
and devices are re3uired to perform this analysis. (anata )ank *td. maintains a
prescribed format for *ending -isk #nalysis, which includes a spreadsheet to analy+e a
lot of things. It is not possible to discuss the entire *-# in this report.
(ending Ris1 2nalysis 9(R26
&' %ndustry Ris:
i. .upply -isk4 Ahat is the risk of failure to disruption in the supply of
inputS
ii. .ales -isk4 Ahat is the risk of failure due to disruption salesS
c1 Company Ris?
5. /ompany Position -isk?
i. Performance -isk4 Ahat is the risk if the company position is so
weak that it can not perform well enough to repay the loan, given
e!pected e!ternal conditionS
ii. -esilience -isk4 Ahat is the risk of failure due to lack of
resilience to une!pected e!ternal conditionS
8. ,anagement -isk?
i. ,anagement /ompetence -isk4 Ahat is the risk of failure due to
lack of management competenceS
ii. ,anagement Integrity -isk4 Ahat is the risk of failure due to
lack of ,anagement IntegrityS
d1 Security Ris?
i. .ecurity /ontrol -isk4 Ahat is the risk that the bank fail to reali+e the
securityS
ii. .ecurity /over -isk4 Ahat is the risk that reali+ed security value is
less than the e!posureS
3;
%.# .RO.O$2( 2N2(3$I$
he Project Proposal is analy+ed and decision about the project is taken. he loans and
advance department is responsible for the analysis. #fter preliminary appraisal of the
loan project the final approval is obtain from the manager. If the loan amount crosses a
certain amount 0no found1, managers send the loan project to the principal office for
final approval. he e!perts in principal office find out different projected ratios and
developed and understanding about the potentiality of the project. )ank evaluates a
loan proposal by considering few predetermined variables. hese are?
.afety
*i3uidity
Profitability
.ecurity
Purpose of the loans
.ources of repayment
"iversification of risk etc.
he most important measure of appraising a loan proposal is safety of proposal. .afety
is measured by the security offered by the borrower and repaying capacity of the
borrower. he attitude of the borrower is also important consideration. *i3uidity means
the inflow of cash into the project in course of its operation. he profit is the blood of
any commercial institution. )efore approval of any loan project the bank authority has
to ensure that the proposed project will be profitable venture. Profitability is assessed
from the projected Profit and *oss .tatement. he security is the only tangible asset
remains with the banker. .ecuring of collateral is the only weapon to recover the loan
amount. .o bank has to see that the collateral is easy to sale and sufficient to recover
the loan amount. )ank can not sanction loan by only depending on collateral.
he sources of the payment of the project should be a feasible one. "uring sanctioning
any loan )ank has to be attentive about diversification of risk. #ll money must not be
disbursed amongst a small number of people. In addition any project must be
established for the national interest growth.
4<
%.% CO((2T-R2( -42(U2TION5
(anata )ank *td. is very cautious about valuation of the collateral. he bank officials
simultaneously evaluate the collateral of the party offered by the private firm. he
valuation of the collateral increases the accuracy of its value estimated. hree types of
value of the collateral are assumed?
/urrent market price
"istressed price
Price after five years
he legal officers of the bank check the document ascertain their impurity.
%.' +IN2( D-CI$ION 20OUT T,- .RO/-CT
If the loan decision remains with the branch level, that branch sanctions the loan and if
the approving authority is Cead @ffice then the decision comes to the branch by tele!
or fa!.
%.: .RO.-R $U.-R4I$ION O+ T,- .RO/-CT
If such provision is kept in the sanction contracts, the (anta )ank officials *td. go to the
project area to observe how the loan is utili+ed. If no such clause to supervise the loan
is added, even then the bank can see the performance of the project.
%.; DOCU&-NT2TION O+ T,- (O2N
hese are the most fre3uently used and common documents of above mentioned
charged and for other formalities for sanctioning the loan?
"emand Promissory Note? Cere the borrower promises to pay the loan as and
when demanded by the bank to repay the loan.
*etter of #rrangement? Cere the written amount of the loan sanctioned to the
borrower is specified.
*etter of /ontinuity? It is used to take continuous facilities as providing
continuous securities.
*etter of Cypothecation? It is the written document of the goods hypothecated
thus to put in case of need.
.tock -eport? his report is used for .@" and //. In this report information
about the 3uality and 3uantity of goods hypothecated have furnished.
41
Personal guarantee? It is the additional confirmation of the borrower to repay.
Duarantee of the "irectors of the company.
-esolution of the board of directors? It is used to borrow the fund to e!ecute
documents and complete other documents.
*etter of disclaimer? )y this letter, the borrower withdraws his all claim on
the propertyBmortgaged.
*etter of #cceptance? *etter indicating the acceptance of the sanction
proposal by the borrower.
*etter of Pledge? It is the written document of the goods pledge thus the
legality of holding the goods.
*etter of "isbursement? his is the document through which the payment of
sanctioned loan indicates.
*etter of partnership? In case of partnership firm, the partnership deeds are to
be provided.
*etter of Installment? he amount of installment that is to be paid at certain
intervals.
a! Paying /ertificate.
#ny document if described, as essential in the sanctioned advice sanctioned
by the Cead @ffice.
%.1< CR-2TION O+ C,2R*-$ +OR $-CURIN* (O2N
For the safety of loan, (anata )ank *td. re3uires security from the loaner so that it can
recover the loan by selling security if borrower fails to repay. /reation of a charge
means making it available as a cover for an advance. he method of charging should be
legal, perfect complete. Importance of charging securities is as?
Protection of interest.
=nsuring the recovery of the money lent.
Provision against une!pected change.
/ommitment of the borrower.
.ecurities are of two types?
a1 .ri)ary $ecurity4.ecurity deposited by the borrower himself to cover the loan
such as F"-, cash, P.., P.P, easily cashable items.
42
Chapter Seven
b1 Collateral $ecurity4#ny type of security on which the creditor has personal
right of action on the debtor in respect of advance.
R-CO4-R3 .-R+OR&2NC- O+ /2N2T2 02N> (TD.
'.1 .RO*R2&$ +OR (O2N R-CO4-R3
'.2 R-CO4-R3 .RO*R2&$ TO 0- T2>-N 03 /2N2T2 02N>
(TD.
'.3 R-CO4-R3 .2TT-RN$ 2ND (O2N 2ND 2D42NC-$
'.4 .RO0(-&$ IN (O2N R-CO4-R3
43
'.1 .RO*R2&$ +OR (O2N R-CO4-R3
Ahen (anata )ank *td. sanctions loans and advances to its customers, they clearly state
the repayment pattern in the loan agreement. )ut some credit holders do not pay their
credit in due period. he nationali+ed and private sector commercial banks have to face
this sort of problems. his situation is, especially severe in (anata )ank *td. o
overcome the problem of overdue loan, the bank need take particular loan recovery
program.
'.2 R-CO4-R3 .RO*R2&$ TO 0- T2>-N 03 /2N2T2 02N> (TD.
o establish credit supervision and monitoring cell in the bank
o re4structure the loan sanctioning and distributing policy of the bank
o sanction loans and advances against sufficient securities as best as
possible
to give more powers to the branch manager in credit management decision
making process
o offer a package of incentives to the sound borrowers
o give more emphasis on short term loans and advances
o impose restrictions on loans and advances for sick industries
o take legal actions 3uickly against unsound borrowers as best as possible
within the period specified by the law of limitations.
'.3 R-CO4-R3 .2TT-RN$ 2ND (O2N 2ND 2D42NC-$
Denerally (anata bank *td. sanctions loans and advances to every sector of an
economy. )efore going into details of recovery performance, we have to be familiar
with some terms used in recovery performance?
"isbursement? highest outstanding balance on any date during the reporting
period minus outstanding balance at the end of the preceding period.
"emand for recovery? overdue at the end of the reporting period plus recovery
during the reporting period.
-ecovery? highest outstanding balance on any date during the reporting period
minus outstanding balance at the end of the recovery period.
44
@utstanding? @utstanding figures in the ledger at the end of the reporting
period.
@verdue? "emand for recovery minus recovery.
Tale5 Reco"ery perfor)ance of /anata 0an1 (td.
9k in crore1
.articulars
.haseD1 .haseD2
1;;: 1;;; 2<<< 2<<1 2<<2 2<<3 2<<4 2<<# 2<<% 2<<'
otal
disbursement
5785 8:59 8<H7 :5<G :85< :G<H :H:8 G<;H G68G HG<8
"emand for
recovery
<8G; <:HG <78G G5G< G;6H G67H H<;G H7<6 ;85< ;G<<
-ecovery 5H57 5685 858; 8:;5 8<68 86:: 8G69 :877 :H9;
:,;6<
@verdue 8H:6 8<<< 8H67 8;7: ::9< :9G: :77G :GH5 :H9; :7<;
-ecovery as a
percentage of
"F-
:7L <<L <;L <HL <:L <6L <9L <7L G9L <6L
@verdue as a
percentage of
"F-
H8L GHL G:L G<L G;L G5L H9L G8L G9L G5L
@utstanding G7;G G86G G;:: ;:<5 796G 6:86 66;G 595<H 59;;6 58<<;
'.4 .RO0(-&$ IN (O2N R-CO4-R3
here are a lot of reasons for which the loan recovery of the bank is very defective. In
most cases, problems may be raised from sanctioning procedures of loan, investigation
of the project, and investigation of the loans etc. that is, the problem in loan recovery
proves the outcomes of the default process in loan disbursement. he main reasons of
poor loan recovery are categori+ed in four broad types as follow?
A. Problems created by economic environment
he following problems arise from the effect of economic environment?
5# Changing in the management pattern? /hanging of management patterns may
delay the recover of mature loan.
4#
8. Changing in industrial patterns? he nationali+ed banks sometimes sanction
loan to the losing concern for further improvement of the respective sector, but
in most cases, they fail to achieve progress.
:# (peration of open maret economy? In our country mainly industries become
sick and also close their business on account of emerging of open market
economy. he cost of production is high and the 3uality of goods is not of
re3uired of standard. #s a result, they become the losing concerns and the
amount of bad loan increases.
<. Rapid e)pansion of &usiness? here are many companies which e!pand their
business rapidly, but the e!pansion is for short time. In the long run, the amount
of classified loan increases.
B. Problems created by government
he following problems are arisen by the government?
5. *)ternal pressure: (anata )ank *td. has also faced many problems in
the loan recovery process as a part of continuous pressure from various
interested groups.
8. Loan to go"ernment organi+ation? (anata )ank *td. is bound to sanction
loan to government organi+ation, though these are losing concern. For
this reason, banks faced problems in loan recovery.
:. Legal pro&lems? =!isting rules and regulations are insufficient to cover
the legal aspects of loan recovery. #s a result, defaulters can get release
easily from all charges against them.
<. Fre3uent changes in government policies in regard to recovery of loan.
C. .role)s created y the an15
he following problems are created by the banks?
5. Lac of analysis of &usiness ris: )efore lending, (anata )ank *td. does
not properly analy+e the business risk of the borrowers and the bank
cannot forecast whether the business will succeed or fail. If it fails to run
well, the loan becomes classified.
4%
8. Lac of proper "aluation of security or mortgage property: In most
cases, bank fails to determine the value of security against the loan. #s a
result, if the loan becomes classified, the bank cannot recover its loan
through the sale of mortgage.
D. Other general causes of poor loan reco"ery5
#part from the specific reasons creating problems to recoup loan, there e!ists some
other general causes which have a great impact on creating the problems which are
faced by the (anata )ank *td. under study in the loan recovery process. hese are?
5. =arly sanction and disbursement of loan to the borrowers without proper
inspection of the project by the bank on account of pressure from
lobbying group.
8. *ack evaluation of technical and economic feasibility of the program.
:. "elay in disbursement of credit.
<. /redit is not allowed to actual entrepreneurs.
G. *ack of proper supervision.
H. Illiteracy of borrowers.
;. Negative attitude of borrowers to repay the loan.
7. "eterioration of the value system of the borrowers.
6. ,oney borrowers use their loan4money other than specified project, i.e.,
if the loan is sanctioned for industrial purposeK they use the money in
house building or purchase of land for their own purpose.
59. .ometimes borrowers invest their money outside the country. ,any
borrowers transfer loan money to abroad where they deposited this
money in their own account or spent some other purpose.
55. .ometimes local borrowers are found to be so much compelled to grant
them loan without proper study due to some une!pected reasons. .ince
these borrowers are capable of getting loan by e!ercising their influence,
they can also escape the repayment liability.
58. Problems responsible for non4implementation and delayed
implementation of project for which the entrepreneurs of the project
cannot repay the loan. he causes of failure may be?
T Failure to ascertain the economic availability of the projects
T ime lag between approval and sanctioning of the projects
4'
T Import of machinery and raw materials both are the problems of
paucity of foreign e!change and procedures of licensing.
#ll of these reasons discussed above are general reasons for problems loan recovery of
(anata )ank *td. )esides these, there are some specific reasons for loan recovery
problems faced continuously by (anata )ank *td. hey are as?
*oans are given under fictitious names and enterprise
*oans are given without sufficient securities
#pproval of the loans in e!cess of the branch managers power
Improper monitoring and supervision of credit
Political misuse if loan programs operated by the public sector banks
*ack of timely action against willful defaulter
*oans are sometimes for economically unsound project.
Problems in loan recovery are the outcome of the default on loans disbursements in the
earlier period.
4:
Chapter Eight
C(2$$I+I-D (O2N$ 2ND 02N>A$ .-R+OR&2NC-
:.1 INTRODUCTION
:.2 $I*N$ +OR C(2$$I+IC2TION
:.3 (O2N C(2$$I+IC2TIOND*UID-(IN-$ +RO&
02N*(2D-$, 02N>
:.4 .-R+OR&2NC- O+ /2N2T2 02N> (TD.
:.# I&.2CT O+ .RO4I$ION +OR (O2N ON 02N>A$ .RO+IT
4;
:.1 INTRODUCTION
)anks are financial service firm, producing and selling professional management of the
publics funds as well as performing many other roles in the economy. )ut now4 a4days
commercial banks are not performing their activities smoothly for a large burden of
default loan. =very year (anata )ank *td. distributes thousand crore taka among
individuals, organi+ations etc. but a large sum of these distributed fund cannot be
recovered in due time. he )ank has to classify this loan. In this chapter I would like to
concentrate on classification procedure, provision making for particular classification,
performance of the bank regarding classified loan and recovery of such classified loan.
:.2 $I*N$ +OR C(2$$I+IC2TION
First and foremost re3uirement for any and all credit managers is to identify a problem
credit in its earlier stages by recogni+ing the signs of deterioration. .uch signs include
but not limited to the following?
5. Non payment of interest or principal or both on due dates or past dues beyond a
reasonable period or recurring past dues.
8. In case of @verdraft no movement in the account beyond a reasonable period.
:. "eterioration in financial condition of the client, as gathered from clients latest
financial statement.
<. # shortfall in collateral coverage, particularly if the collateral was a key factor in
the decision4making.
G. "eath or withdraw of key4owners or management personnel.
H. /ompany filing for bankruptcy or voluntary dissolution.
;. #dverse market report about the company itself or its principal owners.
:.3 (O2N C(2$$I+IC2TIOND*UID-(IN-$ +RO& 02N*(2D-$, 02N>
/lassification of overdue loans and advances opened a new era in the credit
management of commercial banks in )angladesh. )efore 5676 no specific guidelines
were followed by the commercial banks for this purpose. In 5676, )angladesh )ank
#<
issued )/" circular No.:<B5676 stating specific rules and conditions of loan
classification.
#fter that each schedule banks e!cept )U), -#U%), and ).) would be responsible
for its own loan classification according to the guidelines are presented in the following
table?

#)*=? *@#N /*#..IFI/#I@N .O.=,V
*ength of overdue
.tatus of
classification
-ate of provision
Fre3uency of
classification
2ll loans eBcept
2gricultural loans5
2nnual pro"ision
*ess than 5 year %nclassified 5L
*oans overdue for 5 year but
less than : years
.ubstandard 59L
*oans overdue for : years
but less than G years
"oubtful G9L
*oans overdue for G years or
more
)adBloss 599L
+or agricultural loan5
*oans not overdue for G
years or more
/lassified,
substandard,
doubtful
GL
*oans overdue for G years or
more
)adB loss 599L
V.ource? )/" /ircular no. 5676
#ccording to this circular loans and advances were classified on a loan by loan basis
rather sample classification. his process was continued till 566<. )angladesh )ank
further issued a circular in566G 0)/" circular>89B566<1. he title of the circular was
&-evised rules of classification and provisioning of loans and advances,' which came
into implementation from (anuary 5, 566G.
#1

Tale5 schedule of loan classification and pro"ision progra)F
a. types of
classification
1
st
stage 2
nd
stage 3
rd
stage 4
th
stage #
th
stage
Period
overdue
Period
overdue
Period
overdue
Period
overdue
Period
overdue
%nclassified
*ess than
57 months
*ess than
58 months
*ess than
56 months
*ess than H
months
*ess than :
months
.ubstandard
57 months
or more but
less than :H
months
58 months
or more but
less than 8<
months
6 months or
more but
less than 8<
months
H months or
more but
less than 58
months
: months or
more but
less than H
months
"oubtful
:H months
or more but
less than <7
months
8< months
or more but
less than :H
months
58 months
or more but
less than 8<
months
6 months or
more but
less than 58
months
: months or
more but
less than H
months
)ad
,ore than
<7 months
:H months
or more
:H months
or more
8< months
or more
58 months
or more
. rates of
provision
%nclassified 5L 5L 5L 5L 5L
.ubstandard 59L 59L 5GL 5GL 89L
"oubtful G9L G9L G9L G9L G9L
)ad 599L 599L 599L 599L 599L
c. period of
classification
#nnual
basis
Calf yearly
basis
Calf yearly
basis
Muarterly
basis
Muarterly
basis
V.ource? )/" circular no. 89 of 8;B58B566<
For loan classification )angladesh )ank also issues circular time to time after
8;B58B566< like )P-" circular no 5H,6,8,6 and 5; of HB58B5667, 5<BGB8995, 5GB:B899G,
8GB7B899G, and GB9;B899H respectively. .ome of these are as follows?
Tale5 status? type and definition of classificationF
$tatus loan type Definition of status
#2
%nclassified . all current loan all current loans with
re3uired eligible security
.ub standard 0..1
Ahen degree of risk for
non4payable is high but
there is reasonable respect
that the loan condition can
be improved
/ontinuousBdemandB term
loan
0less than G years1
more than G years
short term agri. credit and
micro credit
overdue is more than :
months but less than H
months if default amount
of installment is e3ual to
installment payable in H
months
If default amount of
installment is e3ual to
installments payable in 58
months.
overdue is more than 58
months but less than :H
months
"oubtful 0"F1
Ahen chance of recovery
is uncertain
/ontinuous and demand
erm loan less than G
years
,ore than G years
.hort term agri. credit and
micro credit
overdue is more than H
months but less than 6
months
months.
to 57 months.
@verdue is more than :H
months but less than H9
months.
)adB loss 0)*1
No security held, borrower
/ontinuous and demand overdue is more than 58
months
#3
not traceable, time barred
loans, no hope of recovery
erm loan
0up to G years1
more than G years
.hort term agri. credit and
micro credit
installment payable in57
months.
installment payable in 8<
months.
overdue is more than H9
months
.ource? )angladesh )ank, )-P" /ircular No. 5H of 5667V
Tale5 loan classification syste)? 2<<%F

$tandard: Rate
Deneral provision maintained on unclassified *oans and #dvances 0
all other credit1
5L
Deneral provision maintained on Couse Finance 0CF1 and *oan for
Professional 0*P1
8L
Deneral provision maintained on other than 0CF1 $ 0*P1 GL
Deneral provision maintained on .hort erm #griculture /redit $ ,icro
/redit
GL
Deneral provision maintained on .mall =nterprise financing 8L
$pecial &ention 2ccount5
.pecial ,ention account *oans $ #dvances GL
Classified loan and ad"ances
.ubstandard *oans $ #dvances 89L
"oubtful *oans $ #dvances G9L
)ad B*oss *oans $ #dvances 599L
V.ource? )angladesh )ank, )-P" /ircular No. G of 899H
#4
Tale5 loan classification syste) 9international standard6
*ength of overdue
.tatus of
classification
-ate of provision
Fre3uency of
classification
*ess than : months %nclassified 5L4GL
*oans overdue for
: months but less
than H months
.ub standard 0..1
59L48GL
*oans overdue for
H months but less
than 6 months
"oubtful 0"F1
G9L4;GL
*oans overdue for
6 months or more
)adB loss 599L
V.ource? .tudies in )angladesh )anking, )I),, 899G
:.4 .-R+OR&2NC- O+ /2N2T2 02N> (TD.
From my analysis it is found that during first phase 05667489981 total loan of (anata
)ank *td. was U G587G crore of which classified loan was U 79GG crore. hat is,
5G.;5L of total credit is classified. "uring second phase 0899:4899;1, total loan of the
bank was U G8H;H crore of which classified loan was U 585H: crore. hat is 8:.96L
of total credit is classified.
Tale5 Classified loan of /anata 0an1 (td.
Oear 8998 899: 899< 899G 899H 899;
otal 796G 6:86 66;G 595<H 59;;6 58<<;
%nclassified G5<G H<6; ;9:5 ;775 7675 5598:
*oan 0H<1 0;91 0;91 0;71 07:1 0761
/lassified 86G9 87:8 86<< 88HG 5;67 877;.:
*oan 0861 0:91 0:91 0881 05;1 0:51
.ource? annual report of (anata )ank *td. 8998, 899:, 899G,899;
##
:.# I&.2CT O+ .RO4I$ION +OR (O2N ON 02N>A$ .RO+IT
Provisioning by the bank has not been isolated action, but represents one component in
an ongoing set of negotiations and relationships between borrowers and the banks,
while the borrowers wish to minimi+e their servicing obligations without damaging
their prospect of future market access, the lending bank wish to ma!imi+e their
receipts. .uch ma!imi+ation may involve agreeing to terms which are not so stringent
as to encourage borrowers to opt for all out default. Provisioning has the effect of
bringing the banks actual balance sheet more in line with the market perception of
what they should look alike.
)angladesh )ank provides specific guidelines for loan provisioning and bases for
calculating such provisions. Provisions for unclassified as well as classified loan are as
follows?
Tale5 rates loan pro"ision
Unclassified loan .ro"ision Classified pro"ision
.mall enterprise
financing
8L .ubstandard 89L
/onsumer
financing
8L "oubtful GH9L
=!cept .=F, /F
and .,#
5L )ad or loss 5999L
.pecial account ,ention GL
)ank and financial sector may be termed as the vital complementary power of the
economy. )ut the uncertainty in respect to effectiveness of this sector in the economy
continuously increases over time. Now a days it open secret that ()* is under direct
control of the Finance ,inistry. /redit management of ()* was so meaningless and
corrupted as it is now assumed that more than k :9999 crore have become
unreali+able within the last 59 years.

#%
#'
Chapter Nine
*UID-(IN-$ +OR CR-DIT &2N2*-&-NT
;.1 INTRODUCTION
;.2 T,- CO&.2NI-$ 2CT 1;;1
;.3 T,- INT-RN2TION2( 2CCOUNTIN* $T2ND2RD$ 9I2$6D 3<
;.4 *UID-(IN-$ +O((O8-D 03 02N> UND-R $TUD3
#:
;.1 INTRODUCTION
/ommercial banks of )angladesh are incorporated under /ompanies #ct 566< and
)ank /ompanies #ct 5665. )ut none of this act clearly mentions guidelines for
managing credit in commercial banks. /entral bank is the controller of money market
in any country. #s central bank, )angladesh )ank controls money market in our
country. )angladesh bank, time to time, issues some guidelines and regulations for
operation of a banking concern. hese guidelines are general in nature. )esides these,
every commercial bank sets credit guidelines for these operations. Ahatever be the
guidelines, the aim of it is to reduce the total amount of unsound credit as well as
improve the overall performance of the banks.
;.2 T,- CO&.2NI-$ 2CT 1;;1
#ccording to the )ank /ompanies #ct 5665, the following rules must be followed by
any commercial bank in our country?
$ection Contents
880510a1
880810c1
8;
86
#ny bank other than new or speciali+ed
bank will not declare dividend on its
share until the bank as written off its
previous losses preliminary e!penses and
other deferred revenue e!penses.
)ank will declare dividend whatever be
stated elsewhere if and only if bank will
take proper steps for their bad and
doubtful credit in accordance with the
satisfaction of their auditors.
"iscuss on some limitations and
restrictions on the distribution of loans
and advances
Aithout prior approval of the )angladesh
#;
)ank, commercial banks will not e!tend
its credit policy any way.
:; )angladesh )ank can disclose
collectively or in any other form the
information about the overdue loans and
advances which fall due to the )) that
those information are re3uired to be
disclosed only in public interests.
;.3 T,- INT-RN2TION2( 2CCOUNTIN* $T2ND2RD$ 9I2$6D 3<
In our country Institute of /hartered #ccountants of )angladesh 0I/#)1 has so far
adopted 85 I#.s out of <9 issued so far. he original I#. :9 was issued in (anuary
566G. I#. :9 is a Denerally #ccepted #ccounting .tandard intended for application in
the financial statements of the bank and similar financial institutions. It is a special
purposeK disclosure based accounting standard catering to the need for proper
presentation of disclosures in the financial statements of bank. It enumerates the
accounting principles and disclosure re3uirements of published financial statements of
banking companies. It thereby provides definitive guidance to corporate management
with regard to the preparation and to independent auditors for audit of financial
information of banks.
)angladesh )ank issued a circular entitled #mendment of First .cheduled Forms of the
)ank /ompanies #ct 5665, 0)-P" /ircular No. 9: dated 57 #pril 89991. %nder this
circular, newly amended forms have been made mandatory for all concerned banks and
financial institutions since :9 ,arch 8999 in )angladesh. he new forms have been
introduced with a view to ensuring the discipline in the banking sector, to minimi+e the
unforeseeable risk, to provide true, relevant and reliable information to the depositors
and shareholders and to meet the financial disclosures in compliance with the
International .tandards. Cowever, the financial institutions should be easy to
understand, informative and transparent. he new forms will reflect all these aspects in
reporting financial information.
he features of the newly introduced formats of I#. :9 are as follows?
%<
a. o provide vertical form of financial statements. his form complies with
the international accounting standards though the heads of accounts are
same as those of the previous formsK
b. o disclose the assets and liabilities according to their relative li3uidityK
c. o bring more transparency in reporting financial position of banks and
financial institutions, it is re3uired to disclose gross loans and advances and
bills discounted and purchased after charging the necessary provisions
thereon. he new format of balance sheet provides the relevant policies for
this practiceK
d. o disclose the re3uired provisions on securities investments under the new
systemK
e. o disclose the loan loss provisions on the profit and loss account separately
and then show the earning per share 0=P.1 of the banksK
f. o show the contingent and contra items 0i.e off balance sheet items1 on
separate statement and enclose with the balance sheetK
g. o make comparison between the performance of two financial years, the
immediate previous years financial statements to be furnished along with
the current years financial statements in the annual reportK and
h. o furnish one additional statements vi+. cash flow statements as per
international accounting standards.
;.4 *UID-(IN-$ +O((O8-D 03 /2N2T2 02N> (TD.
(anata )ank *td. usually prepares its financial statements as per I#. :9 and forms
prescribed by the bank /ompanies #ct 5665 after 8999. )efore 8999 they usually
follow the old format for preparing statements. ()* violates the regulations prescribed
in )ank /ompanies #ct 5665.
Denerally public banks performance is worse than of private banks. Public banks
specially, (anata )ank *td. shows in its profit and loss account but it is found that if
they make actual provisions on their unsound loan they will incur loss.
(anata )ank *td. is concerned about the unsound credit. hey started to maintain credit
risk management division for managing risk of default lo
%1
Chapter Ten
CR-DIT R2TIN* O+ /2N2T2 02N> (TD.
59.5 IN-@"%/I@N
59.8 /-="I -#IND
59.: F#/@-. @F /-="I -#IND
%2
59.5 IN-@"%/I@N
)angladesh )ank has made mandatory from (anuary 899; for all banks to have
themselves credit rated by a credit rated agency vide )-P" /ircular no. H of (uly 899H
for all banks. he first rating by an e!ternal independent rating agency will have to be
completed by (une 899;. #ccordingly (anata )ank has appointed /redit -ating
#gency of )angladesh 0/-#)1 to conduct /redit -ating of the bank which completed
invariably by :9
th
(une 899;. Aith this end and view a memorandum of understanding
has been signed in between (anata )ank and /-#) on 5<
th
,ay 899;.

59.8 /-="I -#IND
/redit -ating of )anks provides opinion on the types of risks associatesd with the
relative ability of a bank for timely servicing its debts and other obligations. he rating
e!ercise is done through a 3uantitative cum 3ualitative approach following a structured
methodology.
59.: F#/@-. @F /-="I -#IND
he major factors considered in rating analysis are as follows?
#.Muantitative Factors?
i./apital ade3uacy
ii.#ssets Muality
iii.Funding $ *everage
iv.*i3uidity -e3uirements
v.=arning Muality
vi. ,arket .ensitivity
). Mualitative Factors
i.@wership
ii.,anagement Muality
iii.-isk ,anagement
iv./ompliance with the .tatutory
v.#ccounting Muality
vi..i+e $ ,arket Pressure
vii. Dovt. .upport etc.
%3
-"aluation of credit )anage)ent of /anata 0an1 (td. fro) the
custo)ersA point of "ieC5
"uring my internship period in (anata )ank *td, I asked a number of customers
regarding the credit management of the bank. he interpretation of the data 0at a
glance1 is given below?
.ubject of asking 3uestions?
5. Image of the (anata )ank *td. to the customers is satisfactory.
8. )anks relation with customers is good.
: he formalities followed by the bank providing loan are necessary.
<. he processing of providing loan is 3uick.
G. he bank keeps customers informed about when loans and advances are provided.
H. he banks authority tries to provide its services at the same time it promises to do so.
;. Oou feel safe in your loan4transaction with ()*.
7. Ahen problems arising from loan facilities the ()* authority shows sincere concern on it.
6. he terms and conditions are fle!ible regarding loan sanction.
59. he loan interest rate is competitive
55. he amount of security against loan amount is tolerable.
58. /ircumstances arising from loan default are strict.
otal number of sample is 59 in every subject.
In this table all the attributes are having specific points.
he table ratings are as follows?
.trongly agree G
#gree <
Neutral :
"isagree 8
.trongly disagree 5
%4
Image of Janata Bank
1"%
#"%
1"%
1"%
"%
Strongy $gree $gree %eutra
Disagree Strongy Disagree
TaleD1
I)age of /anata 0an1 (td. to the custo)er is satisfactory
$( No. .ara)eters No. of respondents .ercentage
1 .trongly agree 5 59
2 #gree ; ;9
3 Neutral 5 59
4 "isagree 5 59
# .trongly disagree 9 9
.ource? survey of primary data
Calculation5
otal points P 59VGQ;9V<Q59V:Q59V8Q9V5 P :79
he weighted average is :79B5G P 8G.::
Interpretation of the data5
In the point &Image of the (anata )ank *td. to the customers is satisfactory', 59L of
the sample customers strongly agree, ;9L agree, 59L neutral, 59L disagree with this.
TaleD 2
0an1As relation Cith custo)ers is good
%#
1"%
&"%
"%
1"%
"%
2 #gree 7 79
3 Neutral 9 9
4 "isagree 5 59
Calculation5
otal points P 59VGQ79V<Q9V:Q59V8Q9V5 P :69
he weighted average is :69B5G P 8H
In the point &)anks relation with customers is good' as answer of this 3uestion, 59L
of the sample customers strongly agree, 79L agree, and 59L disagree with this.
TaleD 3
The for)alities folloCed y the an1 pro"iding loan are necessary.
2 #gree 8 89
3 Neutral H H9
%%
1"%
2"%
6"%
1"%
"%
4 "isagree 5 59
Calculation5
otal points P 59VGQ89V<QH9V:Q59V8Q9V5 P ::9
he weighted average is ::9B5G P 88
In the point &he formalities followed by the bank providing loan are necessary' as
answer of this 3uestion, 59L of the sample customers strongly agree, 89L agree, H9L
neutral, 59L disagree with this.
TaleD 4
The processing of pro"iding loan is Guic1.
2 #gree 5 59
3 Neutral 5 59
4 "isagree ; ;9
%'
"%
1"%
1"%
#"%
1"%
Calculation5
otal points P 9VGQ59V<Q59V:Q;9V8Q59V5 P 889
he weighted average is 889B5G P 5<.H;
In the point &he processing of providing loan is 3uick' as answer of this 3uestion,
59L of the sample customers agree, 59L neutral, ;9L disagree, and 59L strongly
disagree with this.
TaleD #
The an1 1eeps custo)ers infor)ed aout Chen loans and ad"ances are pro"ided.
2 #gree 8 89
3 Neutral ; ;9
4 "isagree 5 59
Calculation5
otal points P 9VGQ89V<Q;9V:Q59V8Q9V5P :59
%:
"%
2"%
#"%
1"% "%
"%
2"%
#"%
1"% "%
he weighted average is :59B5G P 89.H;
In the point &he bank keeps customers informed about when loans and advances are
provided' as answer of this 3uestion, 89L of the sample customers agree, ;9L neutral,
and 59L disagree with this.
TaleD%
he banks authority tries to provide its services at the same time it promises to do so.
2 #gree 8 89
3 Neutral ; ;9
4 "isagree 5 59
Calculation5
otal points P 9VGQ89V<Q;9V:Q59V8Q9V5 P :59
he weighted average is :59B5G P 89.H;
%;
2"%
#"%
1"% "% "%
In the point &he banks authority tries to provide its services at the same time it
promises to do so' as answer of this 3uestion, 89L of the sample customers agree, ;9L
neutral, and 59L disagree with this.
TaleD'
3ou feel safe in your loanDtransaction Cith /0(.
2 #gree ; ;9
3 Neutral 5 59
4 "isagree 9 9
Calculation5
otal points P 89VGQ;9V<Q59V:Q9V8Q9V5P <59
he weighted average is <59B5G P 8;.::
'<
"% "%
#"%
3"%
"%
In the point &Oou feel safe in your loan4transaction with ()*' as answer of this
3uestion, 89L of the sample customers strongly agree, ;9L agree, and 59L neutral
with this.
TaleD:
Ahen problems arise from loan facilities, the ()* authority shows sincere concern on
it.
2 #gree 9 9
3 Neutral ; ;9
4 "isagree : :9
Calculation5
otal points P 9VGQ9V<Q;9V:Q:9V8Q9V5P8;9
he weighted average is 8;9B5G P 57
'1
"%
&"%
2"%
"% "%
In the point &Ahen problems arise from loan facilities, the ()* authority shows sincere
concern on it' as answer of this 3uestion, ;9L is neutral, and :9L disagree with this.
TaleD;
he terms and conditions are fle!ible regarding loan sanction.
2 #gree 7 79
3 Neutral 8 89
4 "isagree 9 9
Calculation5
otal points P 9VGQ79V<Q89V:Q9V8Q9V5 P :79
he weighted average is :79B5G P 8G.::
'2
2"%
&"%
"% "% "%
In the point &he terms and conditions are fle!ible regarding loan sanction', as answer
of this 3uestion, 79L of the sample customers agree, 89L neutral with this.
TaleD 1<
he loan interest rate is competitive
2 #gree 7 79
3 Neutral 9 9
4 "isagree 9 9
Calculation5
otal points P 89VGQ79V<Q9V:Q9V8Q9V95P <89
he weighted average is <89B5G P 87
'3
"% "% "%
6"%
4"%
In the point &he loan interest rate is competitive' as answer of this 3uestion, 89L of
the sample customers strongly agree, and 79L agree with this.
TaleD 11
he amount of security against loan amount is tolerable.
2 #gree 9 9
3 Neutral 9 9
4 "isagree H H9
# .trongly disagree < <9
Calculation5
otal points P 9VGQ9V<Q9V:QH9V8Q<9V5 P5H9
he weighted average is5H9B5G P59.H;
In the point &he amount of security against loan amount is tolerable' as answer of this
3uestion, H9L of the sample customers disagree, and <9L strongly disagree with this.
TaleD 12
'4
2"%
5"%
3"%
"% "%
/ircumstances arising from loan default are strict.
2 #gree G G9
3 Neutral : :9
4 "isagree 9 9
Calculation5
otal points P 89VGQG9V<Q:9V:Q9V8Q9V5 P :69
he weighted average is :69B5G P 8H
Interpretation of the data
In the point &/ircumstances arising from loan default are strict' as answer of this
3uestion, 89L of the sample customers strongly agree, G9L agree, and :9L neutral
with this.
'#
From the survey, we can conclude that sometimes without proper investigation, the
management values the security randomly which is less than the actual value of the
security. he customers also critici+e the margin rate of the bank.
From my survey, I also find that the customers, who are also involved in getting loan
from another private bank, complain the loan giving procedure of (anata )ank *td.
hey comment that the procedure of getting loan is slower than the private bank. #nd
the cooperation of the private banks is comparatively better. .ometimes the customers
need lobbying with top management to get loan.
hough the customers complain the valuation process of security, which is pledged
against the loan, they choose (anata )ank *td. to get loan and advances because of its
competitive interest rate. hough the problems are faced by the customers, they prefer
(anata )ank *td. for its comparative lower interest rate, safety of their security, and
availability of the branches of the bank.
.o the decision4making body, i.e. )@"B op ,anagement should take proper steps in
all aspects of loan giving procedures and overall banking systems. he security
valuation system must be transparent and accurate and verified by the independent and
the efficient persons. he terms and conditions must be fle!ible from now. he
authority may arrange different programs and publish bulletin for the loan providing
procedure and which sectors are emphasi+ed more as most of the people do not know
the loan procedure of the (anata )ank *td. In fine, all the employees must be more
amicable and cooperative.
'%
Chapter Eleven
Findings and Analysis
''
+indings and analysis
=very bank has its own credit procedure. )ank under study possesses a standard credit
procedure. #s the objective of my study is to make a comment on the credit
management of (anata )ank *td, I try my best to collect data for the study and find out
the reality. )ased on the data generated during my study period I will sum up my
findings here and I think this will help me to achieve my objectives.
5. If we look at the historical background of (anata )ank, we see that, the
objective of ()* is to earn profit as well as to improve the economic welfare of
the people as a whole.
8. (anata )ank *td. has a significant role in long term project financing in both
agriculture and industrial sectors. #gain ()* has a deep concern for rural
farmers.
:. Private sector usually concentrates in the urban areas where as public sector i.e.
()* spread their banking network all over the world.
<. Aith a view to implementing government policies, ()* has been maintaining
its position in e!tending credit to government bodies, sector corporations and
private enterprises.
G. hough bank re3uired both 3uantitative and 3ualitative analysis but for big
loans bank emphasi+es on the lending risk analysis 0*-#1. )ut *-# is not a
perfect measure of credit analysis. )ecause businessmen in our society are
usually tempted to take resort of window4 dressing that means accounts are so
manipulated that the vital facts are concealed and facts presented are superficial.
.o banks have to go through both 3uantitative and 3ualitative analysis.
H. #ccording to the standard and banks credit procedure, credit operation is
started from the customer application to the branch for the loan. )ut in most
cases, many customers go directly to the directors of the bank and directors
send them to the branch offices with hisBher reference. In these cases, proper
appraisal is not possible as directors the most powerful persons and bank
management must give priority towards the decision of the directors. his
phenomenon is very common in the bank which hampers the spontaneous
procedure of credit appraisal.
':
;. )angladesh )ank monitors all the policies of all the private and nationali+ed
banks of the country. #ccording to the )angladesh )anks strategy, all banks
must possess the standard policies which are designed by the central bank.
(anata )ank *td. also possesses a standard credit proposal form. In that form all
necessary information are re3uired to fill up. )ut in practice credit officers do
not fill up the proposal form properly. ,ost of the cases, they use assumption
rather than e!act figure. his practice might end up with bad or classified one.
7. # standard policy starts from the customers direct application for the loan in
the branch office. )ut its a common phenomenon that most of the customers
directly contact with Cead office and Cead office choose the branch offices to
disburse the loan. It hampers the normal procedure. )ranches always stay under
pressure when they get order for disbursement from Cead office. Ahen
branches get order from the head office, then appraisal system loses its formal
track. .o Cead office should not send any order to the branch office without
prior appraisal.
6. =very bank has its own budget and plan regarding loan portfolio. his loan
portfolio must be diversified so that bank could diversify its risk. # proper and
preplanned portfolio can eliminate the risk of huge classified loan or bad loans
as this aspect is very much sensitive toward many e!ternal and internal factors.
he bank under study i.e. (anata )ank *td. does not have any proper guide line
where to investK moreover they do not do any future plan to maintain a well
structured portfolio to decrease the possibility of classified loan. his type of
practice is working as an obstacle in smooth credit disbursement as well as in
credit appraisal system.
59. ,ost of the loans that ()* distributes are as cash credit hypothecation and ()*
emphasi+es less on demand loan.
55. ()* distribute loans without sufficient security in some cases. his is violation
of the )angladesh bank order.
58. In many cases bank face this problem because banks credit officer fails to
value collateral property. Proper valuation means collateral will e!actly cover
the risk of bad loan. @fficials must do it with due care.
';
5:. he recovery performance of ()* is not in a satisfactory level at all and the
position of those in that respect deteriorated heavily during last two phases. he
recovery performance in agriculture is worse than in other sectors. @n the other
hand, as private sector banks distribute more loans on short term basis and
relatively better than public sector. )ut if we compare it from the efficiency
point, then it is clear that they are not still efficient in credit management as
they are unable to recover half of their distributed loan in different sectors.
5<. "uring first phase 5G.;5L of the total loan of ()* became classified and this
classified loan came down to 8:L in the second phase.
5G. ()* does not keep enough provisions against classified loans and advances.
5H. Private sector banks are relatively efficient in processing and e!ecuting legal
actions against defaulters for their nonpayment of loans and advances in due
time that of public sector bank.
5;. he credit management of ()* are not fully conformity with the guidelines
prescribed in the bank companies #ct 5665 and International #ccounting
.tanderd4:90I#.4:91
:<
Chapter Twelve
Conclusion and recommendation
:1
Conclusion and reco))endation
I have discussed so far about the different aspects of credit management (anata )ank
*td.. For my report, I have selected (anata bank *td. ()* plays an important role in the
banking sector as well as in our economy. he success of a bank depends largely on the
efficient credit management. # successful credit management is not only need for a
banks own performance but also it is needed for the smooth development of an
economy. In any strategy of economic development, therefore, it is essential to
emphasi+e the evaluation of a sound and well integrated credit management system
from the view point of both resources mobili+ation and efficient allocation of funds. In
conclusion it can be suggested a number of recommendations in order to overcome the
problems and how to remove the causes of problem in credit management.
.ince this an e!ploratory research, hence the recommendation given are not decisions
rather they are only suggestions to improve the default rate. he recommendations are
made on the basis of survey findings.
5. /entral )ank should take proper actions for ensuring e3uivalent distribution of loans
and advances.
8. *ending policies in our country should be geared to growth potential rather than
being determined by the pre4e!isting collateral.
:. /hanges in lending policies will not suffice the purposes unless it is followed by a
change in the attitude and out look of both the borrowers and the bankers.
<. Improvement of credit management depends on the development of relevant,
ade3uate, proper and reliable data base at the public sector banks as well as private
sector banks in )angladesh.
G. For developing a reliable credit management system for the commercial banks
specially (anata )ank *td, it should re3uire to introduce as improved information
system within bank as well as among the borrowers. )ecause ultimately it is what a
:2
borrower does with money that should guide the credit plan, the borrowers also have to
know e!actly where they are going, what their opportunities and how fast they can
move.
H. he security must be valued properly by the independent valuers and constantly
watched so that the value of mortgage property becomes sufficient to recover the
default loan.
;. Publishing the names of defaulter as well as good and regular payers in various
dailies and granting various sorts of facilities to good borrowers will create a moral
persuasion on the borrowers. his may decrease the number of defaulters and the
volume of large outstanding loan amounts as well.
7. Pressure from outsider and influence e!torted by borrowers are also a great
impediment in the smooth functioning of loan recovery process. he role of
government in this case is the most important factor re3uired to solve these sorts of
problem.
6. ,ore and more competent personnel must be recruited to reduce the weakness of
credit management. /ompetent e!ecutives will ensure the reduction of wrong appraisal
and evaluation of projects.
59. Prompt legal actions be taken against willful loan defaulters
55. he new entrepreneurs should be encouraged in disturbing loans and those who
have the records of regular payment, should be given preference.
58. .teps should be taken so that guarantors cannot avoid their responsibility.
5:. It is observed that the defaulters generally get various sorts of e!emptions as
declared by the government from time to time. Dovernment must not show any kind of
mercy to the defaulters in any way which may encourage the default culture. his type
of action may discourse the borrowers to become willful defaulters.
5<. he e!isting huge amount of classified loans demand for special and corrective
attention for e!ample?
)y obtaining suitable reduction on amount.
#dditional security.
,ore complete financial data concerning the obligors condition or
@ther such action as the specific circumstances may re3uire.
5G. he attempt to encourage banks to re3uire borrowers comply with banking laws
and regulations and clear up industrial properties prior to granting a loan.
:3
5H. ()* should follow some straight ward mechanical procedures in assessing the risk
of a borrower.
5;. he formulation of a sound credit policy in the possibility of default loans.
57. he formulation of a sound credit policy in the banking sector as a whole has to
take into account all these factors and each bank has to attempt to work out for itself
what it is capable of doing so as best as possible.
:4
Bibliography
#nnual -eport of (anata )ank *td. 89994899;
)angladesh )ank )/" $)P-" circulars
/howdury, *.PK &# e!tbook on )ankers #dvances'K 8
nd
=ditionK Paradise PrinterK
8998
,anaging /ore -isk in )anking? /redit -isk ,anagement, (anata )ank *td, Cead
@ffice, "haka.
,d. ,aksudur -ahman .arder $ Prashanto Uumer )anerjee 0"ecember 566H1K
(anata )ank *td., Cead @ffice /ircularss
(ournal of )usiness .tudiesK &)reak =ven Point? # Project #ppraisal echni3ue used in
)anking .ector.'
,d. ,aksudur -ahman .arker, &/redit ,anagement of /ommercial )anks? #
/omparative study of Public and Private .ector )anks', he )ureau of )usiness
-esearch, %niversity of "haka, #ugust 566H

-ose, Peter. .K &commercial )ank ,anagement'K Fourth =ditionK Irwin4,cDraw4CillK
5666
Wikmund Ailliam, D., &)usiness -esearch ,ethods'K ;
th
=ditionK homson .outh4
AesternK 899:
AAA.janatabank4bd.com
:#
2..-NDIH
Muestionnaire for ,anagements of (anata )ank?
5. Ahat is the main objective of credit programS
a1 @nly profit motive
b1 Profit motive as well as social welfare
c1 @thers
8. Ahat kind of loans is provided by (anata )ank *td.S
a1 Deneral credit
b1 -ural credit
c1 Foreign commercial loan
d1 .pecial program financing
:. Is there e!istence of delegation of authority in case of sanctioning loanS
a1 Oes
b1 No
<. "o you think that the credit policy is fle!ible to attract the customerS
a1 Oes
b1 No
G. Aho are the target customers of (anata )ank *td.S
a1 )usiness man
b1 Farmers
c1 =ntrepreneurs
d1 @thers
H. #t what point B points will you give more emphasis in case of loan
disbursement procedureS
a1 /redit information of the customers
b1 Nature of the security of the customers
c1 *ending risk analysis
;. Aould you think that the procedure is more familiar with the customersS
a1 Oes
b1 No
7. Ahat are the basic tools of credit managementS
a1 D-D
b1 Financial spreadsheet
c1 @thers
61 Is there any provision to calculate &N' score and &W' score in case of
choosing business or firm for giving loanS
a1 Oes
b1 No
59. Is there any option to sanction personal loanS
a1 Oes
b1 No
55. Ahat are the sectors in which ()* gives more priorityS
:%
a1 Industrial Financing Program
b1 Import and =!port Financing Program
c1 #gricultural financing program
d1 Deneral /redit Program
58. In what maturing stages ()* classifies the bank loans and advancesS
a1 #ccording to )angladesh )ank
b1 @wn procedure
5:. "oes (anata )ank *td. permit any loan without any collateral securityS
a1 Oes
b1 No
5<. "oes the credit department supervise and monitor recovery performance of
the distributed loans and advancesS
a1 Oes
b1 No
5G. Ahat are the main reasons to default loanS
a1 *oan given to fictitious name
b1 *oan given without sufficient securities
c1 Political misuse of loan program
5H. Is I#. > :9 strictly followed in preparing financial statementsS
a1 Oes
b1 No
5;. #re the forms of financial statements prescribed by )ank /ompanies #ct
5665 followedS
a1 Oes
b1 No
57. "o you think that enough provision against classified loans and advances
are keptS
a1 Oes
b1 No
56. Is there any latest loan programS
a1 Oes
b1 No
89. .tandard /redit Proposal Forms designed by /entral )ank are filled up
/redit @fficer withX
a1 =!act figure
b1 #ssumed figure
85. ,ay the loan disbursement procedure be hampered arising from any
situationS
a1 Oes
b1 No
:'
Tale <15 Rate of Interest for Different $ector as on 1.1<.2<<'
$l Na)e Details Rate
<1 2*RO
CR-DIT
2ll crops? sugarcane? shri)p culti"ation? cattle
raising? poultry? anana culti"asion? paan
culti"asion
:.<@
-uip)ent for irrigation? 2groDeGuip)ent? $alt
production
1<.<@
Dal? $pices? Oil seed? &aiIe 2.<@
<2 .RO4-RT3
2((I4ITION
&uliDpurposes ased credit 11.<@
$+D+ 11.<@
Credit for $elf e)ploy)ent 11.<@
Credit for Trained Une)ployed 3oung 1<.<@
Credit for -ducatedUne)ployed 3oung 1<.<@
$elf e)ploy)ent s1ill 11.<@
N*O (in1age6 11.<@
*horoa Credit 92gri6= *horoa Credit 9Non 2gri6 1<.<@
Other personal &icro Credit 11.<@
<3 -.-CI(IE-D
CR-DIT
.RO/-CT
Credit for $trong crops 1<.<@
Credit for floCer Culti"ation and &ar1eeting 1<.<@
0*$D. 1<.<@
*oat raising .ro!ect 1<.<@
Credit for production of ,-R0$ 1<.<@
Credit for *enetically &odified coC rasing 1<.<@
Credit for +isherish 1<.<@
Credit for ,adicaps = Disales 1<.<@
2TD. 1<.<@
<4 OT,-R
.RO/-CT
Consu)er credit 14.<@
Cyer cafJ credit 12.<@
$pecials credit for /o holder 13.#@
Doctors (oan 13.<@
8e)en -ntrepreneursA Credit 1<.<@
$)all usiness de"elop)ent sche)e 11.<@
<# RUR2(
.RO/-CT
Rural transportation 1<.<@
(and &ortgage (oan 1<.<@
<% INDU$TRI2(
CR-DIT
Daily? .oultry? +isherish 9ao"e 3 core Ta1a6 12.#@
Ter) loan for 2gri ased Industry 11.<@
-Bport Oriented 0usiness 11.<@
Cold storage for .otatoes 11.<@
Other Industry 12.#@
(asing co)panies 12.#@
<' $&-
.RO/-CT
Industry ha"ing capital less than 3 core 12.<@
Orher $&- (oan 12.<@
(oo) Industry 1<.<@
<: CURR-NT 2gro ased Industry 12.<@
Cold stroage 12.<@
::
C2.IT2(
(O2N
Other current Capital (oan 13.#@
,us1ing (oan 12.<@
<; I&.ORT
CR-DIT
Ready)ade gar)ents? +roIen foods? 2gro
products? (eather )ade products
'.<@ K 1.<@
se"ice charge
.ac1ing credit '.<@ K 1.<@
se"ice charge
Other eBport credit '.<@K 1.<@
se"ice charge
(TR 14.<@
-Bport oriented pro!ect 13.#@
Inter)idate ter) 12.#@
Cash credit 13.#@
.2D Cash +C 14.<@
.2D 9U+6 14.<@
.2D 9*&T6 payale Cithin 3 )onths 14.<@
.2D 9*&T6 payale after 3 )onths
1< OT,-R
CO&&-RCI2
( (O2N
Other Co))ercial Credit 14.<@
De)and (oan 14.<@
11 OT,-R$ Transportation 13.#@
0ric1 +ield 14.<@
8or1 Order 14.<@
02DC= 0RTC 13.#@
(oan 2gainest +DR 13.<@
(oan 2gainst +DR in Other 0an1s 14.<@
(oan 2gainst National In"est)ent 0onds? IC0
Unit? Insurance policy? Deenture
13.#@
(oan 2gainst 8age? ,onors 0ond 13.<@
+ood industry 13.<@
$er"ice Industry 13.<@
(oan 2gainst D.$ 1'.<@
Co))ercial ,o)e (oan in Uran 2reas 1#.<@
Residential ,o)e (oan in Uran 2reas 14.<@
/ute 0usiness 13.<@
Co))ercial Credit for the pro!ect supported y
U$2
13.<@
Diagonstic 0usiness 1#.<@
Tra"el 2gency 1#.<@
,ouse Reconstraction (oan 14.<@
&iscellaneous 14.<@

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