A REPORT ON-

BASIC BANK LIMITED

A Report On-

BASIC BANK LIMITED

Prepared for-

S M Zahidur Rahman Assistant Professor

Business Administration Discipline Khulna University

Prepared by-

Name ID Md Masrul Mollah 070314 Md Nazmul Huda 070323

Date of Submission: July 23, 2008

BBA Program

Business Administration Discipline Khulna University

Letter of Transmittal July 23, 2008 S M Zahidur Rahman Assistant Professor Business Administration Discipline Khulna University Dear Sir, Here is a report on “BASIC BANK LIMITED”, which you asked me to prepare on the July 01, 2007. To know about the functions, loan schemes and the deposit schemes, we have gone to the local branch of the bank, which I observed as relevant to the topic of the report. The information provided by you in your class lectures was also helpful to us. In this report, we have tried our best to know about the different functions played by the bank. Also we have collected information about the loan and deposit schemes of the bank. Therefore, I hope that our report will fulfill the need to understand the functions, loan schemes and deposit schemes of the bank. I assure you that the report is totally self-explanatory. We will be available anytime if you face any difficulty to translate any meaning of this report. Sincerely yours, Md Nazmul Huda (070323) Md Masrul Mollah (070314)

Acknowledgement I would like to give thanks to those people who helped us to prepare this report and we are very much grateful to them for their cordial assistance, helpful co-operation and essential suggestion. At first we would like to express deep gratitude to my honorable course teacher S M Zahidur Rahman (assistant professor) of Business Administration Discipline, Khulna University, for his sincere guideline and valuable remarks, thoughtful comments and essential suggestion. He inspired us and gave us encouragement to complete this report. We would also like to express our gratitude to the all managers and employees of the organization, where I have gone to collect information for preparing my report. We are really grateful to them. All of the persons stated above played a great role by helping us to make this report a successful one. So again, a special thanks to all of them.

IV

Table of Contents

Contents Page No.Letter of Transmittal IIIAcknowledgement IV Summary of the report 01 Part 1: Introduction 01-04

Origin of the report 03Purpose of the report 03Scopes of the report 03Limitations of making the report 03

Branch Problem 04Shortage of Time 04

Methodology 04Sources of collecting data 04Methods of collecting data 04

Part 2: BASIC Bank & its functions 05-16

Background 06Functions 06Organizational Goals 07Organizational Structures 07

A. Board of Directors 07B. Management 07

Activities of the Bank 08A. Industrial Credit 08B. Commercial Credit 08C. Micro Credit 08D. Foreign Trade 09E. Other Activities 09

Lending Criteria 091. Entrepreneur 092. Viability of the Project 10

A. Technical Viability 10B. Commercial Viability 10C. Financial Viability 10D. Economic Viability 10

Resources & Capabilities 10A. Physical and technological resources 10B. Human Resources 11

C. Training 11D. Recruitment of New Officers 12

Monetary and Financial Resources 12A. Mobilization of fund 12

1. Deposit 122. Borrowing 12

B. Utilization of Fund 13Credit Facilities- BASIC Bank Limited 13

A. Working Capital 13B. Term Loan 14C. Trade Finance 14Loan Categories 14Deposits Offerings 14

Revised Interest Rates on Deposits 15 Part 3: Report Ending 17-18

Conclusion 18 Appendix 19-21

Bibliography 20Reference 21

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Summary of the Report BASIC Bank Limited started its business in 1991 and their goal was to reach banking system more closely to the general people. And this made this bank up to this time. Now BASIC Bank Limited is an improved and modernized bank where the banking system has been easier than the continuing banking system. Basically BASIC Bank Limited performs major four types of functions – Term Loans to Industries, Full-fledged commercial banking service, Technical Support to Small Scale Industries (SSIs), and Micro-credit to urban poor. BASIC Bank Limited is totally strict in its goal and for completing its objectives it has a strong management system. It has three types of Deposit Categories and eight types of Loan Categories. In this report we have discussed detail about the functions and credit ratings of BASIC Bank Limited. For this purpose we contacted with Md Anwar Hossain Rubel from BASIC Bank Limited and we used our text books as references.

Chapter 1 

Introduction  

 

  

 

 

 

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ORIGIN OF THE REPORT S M Zahidur Rahman (Assistant professor), the honorable course instructors of ‘Theory and Practices of Banking’, assigned us to prepare a report on July 01, 2007 about the “functions, Loan schemes and Deposit schemes of BASIC BANK LIMITED”. The date of submission of this report is July 23, 2008. PURPOSE OF THE REPORT: We are very much passionate to be an executive of the coming days. So, we have to gather more experience beside our study. We do not want to concentrate our lessons only in classroom but to implement it in my practical life that will help me in my professional life. The purposes of preparing of this report are-

• To relate my theoretical report writing knowledge with the practical working experience.

• To know about the functions played by the bank.

• To know about the loan schemes and the deposit schemes of the bank.

SCOPE OF THE REPORT We have collected data from the local branch of BASIC Bank in Khulna; we have mainly tried to cover all the information needed to know about the functions played by the bank as well as the various loan schemes and deposit schemes offered by the bank. The entire interviews are taken from the Managing Directors or Managers or various upper level officers of the bank. LIMITIONS OF THE REPORT Though we are lucky to get the chance to prepare this report but unfortunately we have faced some difficulties. We tried to overcome the difficulties and gave our best effort. When preparing this report, some difficulties we faced:

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Branch problem Some employees of the bank told us that they are not authorized to tell anything about the matter. They also told that only the head office can provide information about this. So it becomes a problem working within branch office. Shortage of time This extensive type of report needs too much time to prepare it. But we had to prepare this report within a very short span of time. The managers are also very busy, so it was hard to bring their concentration on the matter.

METHODOLOGY:

Sources of collecting data: The report is based on data & information, which have been collected from various sources. They are stated below:

a) Primary source - Interview - Search through the internet

b) Secondary sources

- Various books related with banking. Method of collecting data: To do this report first we have gone to the local branch of the bank. We have also collected information about the banks past history on the internet. Then we have related all those information with the currently studying course “Theory and Practices of Banking”.

 

Chapter 2 

BASIC Bank & its functions

 

 

 

 

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Background BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank Limited) registered under the Companies Act 1913 on the 2nd of August, 1988, started its operations from the 21st of January, 1989. It is governed by the Banking Companies Act 1991. The Bank was established as the policy makers of the country felt the urgency for a bank in the private sector for financing small scale Industries (SSIs). At the outset, the Bank started as a joint venture enterprise of the BCC Foundation with 70 percent shares and the Government of Bangladesh (GOB) with the remaining 30 percent shares. The BCC Foundation being nonfunctional following the closure of the BCCI, the Government of Bangladesh took over 100 percent ownership of the bank on 4th June 1992. Thus the Bank is state-owned. However, the Bank is not nationalized; it operates like a private bank as before. BASIC Bank Limited is unique in its objectives. It is a blend of development and commercial banks. The Memorandum and Articles of Association of the Bank stipulate that 50 percent of loan able funds shall be invested in small and cottage industries sector. Functions The Bank Offers:

a. Term loans to industries especially to small-scale enterprises. b. Full-fledged commercial banking service including collection of deposit, short

term trade finance, working capital finance in processing and manufacturing units and financing and facilitating international trade.

c. Technical support to Small Scale Industries (SSls) in order to enable them to

run their enterprises successfully. d. Micro credit to the urban poor through linkage with Non- Government

Organizations (NGOs) with a view to facilitating their access to the formal financial market for the mobilization of resources.

In order to perform the above tasks, BASIC Bank works closely with its clients, the regulatory authorities, the shareholders (GOB), banks and other financial institutions.

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Organizational Goals

• To employ funds for profitable purposes in various fields with special emphasis on small scale industries.

• To undertake project promotion on identify profitable areas of investment. • To search for newer avenues for investment and develop new products to suit such

needs. • To establish linkage with other institutions which are engaged in financing micro-

enterprises. • To cooperate and collaborate with institutions entrusted with the responsibility of

promoting and aiding SSI sector. Organizational Structure To achieve its organizational goals, the Bank conducts its operations in accordance with the major policy guidelines laid down by the Board of Directors, the highest policy making body. The day to day operation of the Bank is looked after by the management. A. BOARD OF DIRECTORS As stated earlier the Government holds 100 percent ownership of the Bank. All the Directors of the Board are appointed by the Government of Bangladesh. The secretary of the Ministry of Industries is the Chairman of the Bank. Other Directors of the Bank are senior Government and central Bank executives. The Managing Director is an ex-officio member of the Board of Directors. There are at present 7 Directors including the Managing Director. B. MANAGEMENT The management is headed by the Managing Director. He is assisted by the General Managers and Departmental Heads in the Head Office. BASIC Bank is different in respect of hierarchical structure from other banks in that it is much more vertically integrated as far as reporting to the Chief Executive is concerned. The Branch Managers of the Bank report direct to the Managing Director and, for functional purposes, to the Heads of Departments. Consequently, quick decision making in disposal of cases is ensured.

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Activities of the bank A. Industrial Credit BASIC Bank's services are directed towards the entrepreneurs in the small industries sector. A small industry, as per Industrial policy 1999 approved by the Cabinet, has been defined as an industrial undertaking whose total fixed investment is less than Tk.100 million. The industrial loan reflected a significant growth of 29.85 percent over the previous year. Total outstanding industrial loans including term and working capital stood at Taka 9,987.50 million at the end of 2005 compared to Taka 7,691.20 million of 2004. Total outstanding term loan stood at Taka 3,517.85 million as on December 31, 2005 compared to Taka 2,553.26 million in 2004 reflecting a growth of 37.78 percent. The outstanding working capital finance extended to industrial units stood at Taka 6,469.71 million at the end of the reporting period compared to Taka 5,137.95 million in 2004. Growth rate here was 25.92 percent. BASIC Bank's services are specially directed towards promotion and development of small industries. Its exposure to small and medium industries sector accounted for 51.70 percent of the total loans and advances. During the year total of 175 projects were sanctioned term loan. Out of which 109 were new and the rest were under BMRE of the existing projects. As on 31 December, 569 projects were in the portfolio of the bank. The textile sector including garments being one of the major contributors to national economy dominated the loan portfolio of the Bank. Other sectors financed include engineering; food and allied industries; chemicals, pharmaceuticals and allied industries; paper, board, printing and packaging; glass; ceramic; and other non-metallic goods and jute products. Recovery rate of project loan was 89 percent. B. Commercial Credit The Bank also supports development of trade, business and other commercial activities in the country. It covers the full range of services to the exporters and importers extending various facilities such as cash credit, export cash credit, packing credit, short term loans, local and foreign bills purchase facilities. As on December 31, 2005 total outstanding commercial loans stood at Taka 5,013.55 million compared to Taka 4,024.70 million in 2004. C. Micro Credit BASIC Bank launched a Micro Credit Scheme in 1994. Micro Credit Scheme provides for the poor for generation of employment and income on a sustainable basis particularly in urban and suburban areas. The Bank follows three systems of credit delivery.

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These are-

1. Lending to the NGOs who on-lend to their members. At present there are 15 such NGOs.

2. Lending direct to the targets groups or ultimate borrowers under the Bank’s

own management. 3. Lending direct to the member-borrowers and NGOs providing nonfinancial

services like group formation and monitoring and supervision on exchange for a supervision fee.

At the end of 2005, total amount of Taka 338.30 million remained outstanding as against Taka 284.10 million in 2004. Recovery rate during this period remained at a satisfactory level of 100.00 percent. D. Foreign Trade The bank achieved substantial growth in export in 2005 and the performance of the bank in import business was also satisfactory. The Bank handled total export business of Taka 11,097.23 million and import business of Taka 14,094.96 million in 2005. The export and import business grew by 40.33 percent and 12.69 percent respectively. Major items of exports were garments, jute products, textile, leather etc. Items of import included mainly industrial raw materials, garments accessories, capital machinery, food items and other essential commodities. The Bank became a proud member of SWIFT (Society for Worldwide Interbank Financial Telecommunication) that would pave the way to achieving uninterrupted communication related to banking for international trade, business and fund transfer. E. Other Activities The Bank provides services for remittance, underwriting, guarantee, public offering of shares etc. The bank also provides funds to investment and leasing companies. The Bank has recently created a venture capital fund for equity support to innovative but risky projects. Lending Criteria 1. Entrepreneur

Entrepreneur / promoter has to be creditworthy and competent enough to run the proposed industry.

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2. Viability of the project The project should be viable from organizational, technical, commercial, financial and economic points of view.

A. Technical Viability

• The project should be technically sound and environment-friendly. • Technology transfer in case of borrowed know-how ought to be ensured. • Building should be well planned and well constructed.

B. Commercial Viability

• Market prospect and potential for the product has to be fully assured at competitive prices.

• Marketing channel for the product should be accessible to the entrepreneur. C. Financial Viability

• There should be reasonable debt equity ratio as determined by the Bank on individual case basis.

• Debt service coverage ratio should be at least 2.5 times at the optimum level of production.

• IRR should preferably be not less than 20 percent.

D. Economic Viability

The project should ensure benefit to the national economy and create sufficient employment opportunity and be environment friendly.

Resources & Capabilities BASIC Bank Limited is well prepared to and capable of meeting the demand for a broad range of banking services. It has got adequate resources, both human and physical, to provide the customers with the best possible services. A. Physical and technological resources A great deal of investment for developing the physical resource base of the Bank has been made. The Bank has its presence in all the major industrial and commercial hubs of Bangladesh in order to cater to the needs of industry and trade. At present, there are twenty-seven conveniently located branches throughout Bangladesh. There

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are ten branches in the capital city of Dhaka, six in Chittagong and one each in Narayanganj, Narsingdi, Rajshahi, Saidpur, Bogra, Khulna, Jessore, Sylhet, Moulvibazar, Comilla, and Barisal. Major features of these branches are:

• Fully computerized accounts maintenance. • Well decorated air conditioned facilities. • A fully operational computer network which is currently being implemented.

The work of Local Area Network (LAN) and Wide Area Network (WAN) installation having reliable and secured communication between the branches and the Head Office is in progress to facilitate any Branch Banking and ATM Services.

• Money counting machine for making cash transactions easy and prompt.

Fifteen out of twenty six branches are authorized dealers of foreign exchange. This facilitates speedy disposal of transaction of export and import trade. B. Human resources BASIC Bank Limited has a well diversified pool of human resources which is composed of people with high academic background. Also, there is a positive demographic characteristic - most employees are comparatively young in age yet mature in experience. As of December 2003 the total employee strength is 523. The strength is 435 excluding the menial staff. BASIC Bank Limited has been investing its resources with a view to developing an efficient and professional work force. Two approaches are mainly used in this regard.

Data Of Human Resources

Employees .

Category Level Of Education Age

Management Support Staff

Post Graduate Graduate Under

Graduate Below

40 Above

40Number 66 369 325 115 95 509 26

% 12.62 70.55 62.14 21.99 18.16 97.32 4.97

C. Training Intensive training program, on a regular basis is being imparted to employees of both management and non-management levels to meet the challenges in the banking industry and to help employees adapt to changes and new working conditions. During the year 2003, a total of 164 employees of the Bank were provided with training in various fields. Out of them 6 employees participated in training courses abroad.

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D. Recruitment of New Officers The Bank follows a strict recruitment policy in order to ensure that only the best people are recruited. The Bank, so far, has recruited four batches of entry-level management staff, all of whom have excellent academic background. Monetary & Financial Resources Like any other financial intermediaries, BASIC Bank Limited is no exception in performing its core functions viz. Mobilization of fund and utilizing such mobilized fund for profitable purposes. A. Mobilization of fund The main sources of fund for the Bank are:

1. Deposit, and 2. Borrowing

1. Deposit

Deposit is the mainstay of the Bank's sources of funds. Following usual practices, it collects deposit through:

A. Current Deposit B. Savings Deposit C. Term Deposit

2. Borrowing

Apart from deposit, BASIC Bank Limited received funds from: A. Bangladesh Bank B. Asian Development Bank (ADB) C. KfW (kreditanstalt fur Wieder-aufbau Credit Institution for Reconstruction), a German development bank. All of these funding sources are for relatively longer period. Receiving the credit lines from ADB and KfW has been a recognizing of the Bank's highly satisfactory performance.

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B. Utilization of Fund BASIC Bank Limited utilizes its funds in accordance with its organizational goals and corporate strategy. Main use is for lending to industrial and trade sectors. Maintenance of cash and statutory liquidity reserve with the Bangladesh Bank covers 20 percent of demand and time liabilities. Placement of funds in Nostro Accounts to handle foreign trade and investment in money market is also done as usual.

Credit Facilities- BASIC Bank Limited

Credit Facilities offered to various industries by BASIC Bank Limited

A. Working Capital

Secured Overdraft (SOD), Cash Credit (Hypothecation) [CC(H)]

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B. Term Loan

Term Loan (T/L), Short Term Loan (STL)

C. Trade Finance

Letter of Credit (L/C), Back-to-Back Letter of Credit (B/B L/C), Export Cash Credit (ECC), Packing Credit (PC), Local Bill Purchase (LBP), Foreign Bill Purchase (FBP), Payment against Documents (PAD), Loan against Imported Merchandise (LIM), Loan against Trust Receipt (LTR)

Credit Facilities Interest rate Recovery ratea) Working Capital : Secured Overdraft (SOD) 9% - 12% p.a. Cash Credit (Hypothecation) [CC(H)] 10% - 12% p.a. b) Term Loan: Term Loan (T/L) 9% - 11% p.a. 88% Short Term Loan (STL) 9% - 12% p.a. c) Trade Finance: Export Cash Credit (ECC) 7% p.a. Packing Credit (PC) 7% p.a. Payment against Documents (PAD) 10 - 12% p.a. Loan against Imported Merchandise (LIM) 10 - 12% p.a. Loan against Trust Receipt (LTR) 10 - 12% p.a.

Loans Categories:

01. Term Loan 02. CC (Hypothecation) 03. CC (Pledge) 04. Loan General 05. LIM 06. LTR 07. L/C 08. Bank Guarantee

Deposits Offerings:

01. Saving Accounts 02. Short Term Deposit 03. Term Deposit

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Revised Interest rates on Deposit Category Interest Rate Savings 06.00% STD 04.00% Fixed Deposit 3 Months 07.00% 6 Months 07.25% 1 Year 07.75% 2 Year and above 08.00% 1. Agriculture :

a. Primary Products 10.00% 2. Industrial Term Lending :

a. Agro based industries 11.50% b. Micro industries with project cost up to Tk 50.00 lac 11.50% c. Other small Scale Industries 12.50% d. Medium Scale Industries 13.00% e. Large scale industries 13.50% f. Credit to NBFI for small and medium scale industries 14.00% 3. Working capital (Industrial) :

a. Agro based industries 12.00% b. Micro industries with project cost upto Tk 50.00 lac 13.00% c. Other small Scale Industries 13.50% d. Medium Scale Industries 14.00% e. Large Scale industries 14.50% f. Credit to NBFI for small and medium scale industries 14.50% 4. Export :

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a. Export (Direct) (i) PC 07.00% (ii) ECC 07.00% b. Advance against inland documentary bills accepted by banks (i) Payment in foreign currency 12.00% (ii) Payment in local currency 14.00% 5. Commercial lending

(a) Small Enterprise 15.00% (b) Medium Enterprise 15.00% (c) Large Enterprise 15.00% (d) Trade financing(import financing)/other short term and demand loan

15.00%

6. OD against

6(a). Bank's own fixed deposit 2.00% above FDR rate 6(b) Other Bank's fixed deposit receipt 15.00% 6(c) Govt Bonds and securities 13.00% 6(d) Unit Certificate/Share 14.00% 7. Consumer Finance

(a). House Loan 15.00% (b) Transport loan 15.00% (d) Others 15.00% 8. Wholesale finance to NGOs/NBFI etc for Micro credit and other special programs

11.50%

Chapter 3

Report Ending

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Conclusion BASIC Bank was established as the policy makers of the country felt the urgency for a bank in the private sector for financing small scale Industries (SSIs). BASIC Bank Limited is unique in its objectives. It is a blend of development and commercial banks. The Memorandum and Articles of Association of the Bank stipulate that 50 percent of loan able funds shall be invested in small and cottage industries sector. BASIC Bank's services are directed towards the entrepreneurs in the small industries sector. A small industry, as per Industrial policy 1999 approved by the Cabinet, has been defined as an industrial undertaking whose total fixed investment is less than Tk.100 million. The Bank also supports development of trade, business and other commercial activities in the country. It covers the full range of services to the exporters and importers extending various facilities such as cash credit, export cash credit, packing credit, short term loans, local and foreign bills purchase facilities. BASIC Bank launched a Micro Credit Scheme in 1994. Micro Credit Scheme provides for the poor for generation of employment and income on a sustainable basis particularly in urban and suburban areas. The bank also provides funds to investment and leasing companies. The Bank has recently created a venture capital fund for equity support to innovative but risky projects.

 

 

Appendix   

 

 

 

 

 

 

 

 

 

 

 

 

20

 

Bibliography

1. Commercial Bank Management - Peter S. Rose

2. Business of Banking - Dr. R. M. Debnath

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Reference Md Anwar Hossain Rubel Deputy Manager International Division Basic Bank Limited Head Office Sena Kalyan Bhaban (7th Floor) 195, Motijheel Commercial Area Dhaka- 1000 Mob- 01714-048530 E-mail- rubeliba@yahoo.com