intern ific

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CHAPTER ONE: INTRODUCTION

1. INTRODUCTION:

In general sense we mean Bank as a financial institution that deals with money.There are different types of banks like Central bank, Commercial bank, Saings bank,Inestment bank, !erchant bank, Co"operatie bank etc. But when we use the term

bank it generally means #commercial bank$ that collects the deposit from surplus unitof the society and then lends the deposits to the deficit units.

%ow"a day$s banking sector is moderni&ing and e'panding its hand in differentfinancial eents eery day. (t the same time the banking process is becoming faster,easier and is becoming wider. In order to surie in the competitie field of the

banking sector all organi&ations are looking for better serice opportunities to proidetheir fellow clients. So it has become essential for eery person to hae some idea onthe bank and banking procedure.

Internship program so called work attachment program is essential for eery BB(student because it helps him or her to ac)uaint with the real life situation. (s bank isone of the most important financial intermediaries* so I hae selected InternationalFinance & Investment Cororation !IFIC"#which is one of the most leading banksin the new banking arena.

$. O%ECTI'E( OF THE REPORT:

The ob+ectie of the internship program is to familiari&e myself with real marketsituation and compare it with bookish concept. The main ob+ectie of this report is tohae an assessment about erall Banking actiities of I-IC Bank imited. Inaddition the study seeks to achiee the following ob+ecties/

To familiari&ed with practical +ob enironment.

To hae an e'posure on the financial institution especially on banking

enironment of Bangladesh.

To present an oeriew of I-IC Bank imited. To identify the problems facing by I-IC Bank imited and suggest

remedial measures.

). (COPE:

This report has been prepared through e'tensie discussion with bank employees andwith the clients. 0rospectus proided by the bank also time of preparing the report, Ihad a great opportunity to hae an in depth knowledge of all the banking actiities

practiced by the I-IC Bank imited.

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*. +I,ITATION(:Some restraint at the time of preparing the report are appended below/

The insufficiency of information is main constraint of the study. !oreoer

employees are not interested to proide all information due to security and

other corporate obligation.

The employees and clients are busy to proide me time for interiew.

Ine'perience and time limitation were the constraints of the study.

-. %AC/ROUND OF IFIC %AN +I,ITED:

2uring 34th5anuary 1678 The 9astern Banking Corporation inaugurated its operation

in 9ast 0akistan as a commercial bank. (fter 7 months of its inauguration it has got

the status of Schedule Bank. It was the first Bengali wned commercial Bank. (fterliberation the 9astern Banking Corporation was changed by name as I-IC Bank td.

2uring 16:3 it was taken under national ownership. (t that time it$s paid up capital

was 76.1; crore and profit figure was p to 3==3 its number of branch stands to 164 and it$s

paid up capital was 1== million. 68? of its shareholder is public and rest of share

holds by @oernment. The bank earned eer"highest operating profit during the year

3==3 among all priate banks of Bangladesh Ae'cept Islami Bank B2 td. The bank

earned an operating profit of Tk. 1;1.14 crore during the year 3==3.

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0. OR/ANIATION HIERARCH2 OF IFIC %AN +TD:

,ana3in3 Director

De4t5 ,ana3in3 Director

Assistant ,ana3in3 Director

/eneral ,ana3er

De4t5 /eneral ,ana3er

Assistant /eneral ,an3er

(enior Princial O66icer

Princial O66icer

(enior O66icer /ra7e89

O66icer /ra7e899

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. ORI/IN OF THE REPORT:

There e'ists huge deference between theoretical knowledge and practical knowledge.

This report is an outcome of practical study. Since it is mandatory for the BB(

program, -aculty of Business Studies, >niersity of 2eelopment (lternatie, tomake a proper blending of student$s theoretical knowledge with the practical e'posure

which they hae earned in their internship program.

This report is an integral part of eery student course curricula and the gaining of his

practical training. It ensures the practical knowledge on a specific matter, which is

assigned to the students by their respectie teachers.

;. O%ECTI'E( OF THE (TUD2:

This report on credit management system of I-IC Bank td. encompasses the

following ma+or ob+ecties/

i. To grasp the theoretical aspects of credit management.

ii. To describe the term Credit by the I-IC Bank td.

iii. To identify arious credit scheme of I-IC Bank td.

i. To introduce the credit structure of I-IC Bank td.

. To identify beneficiaries of loans.

i. To show the disbursement procedure.

ii. To highlight the recoery the loan.

iii. To highlight the problems of recoery.

i'. To identify the oerall performance regarding granting loan.


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11. (OURCE( OF DATA:

(ll the releant data regarding this study are collected from two sources/

a" PRI,AR2 (OURCE(: Interiewing with the bank officials, specially the principal officer of loan

and adance department of I-IC Bank td -ederation Branch.

>" (ECONDAR2 (OURCE(:

(nnual report of I-IC Bank td.

0ublished Booklet of I-IC Bank td.

0ublished 5ournals of -aculty of Business Studies, >niersity of 2haka.

5ournals of BIB!.

arious published documents.

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CHAPTER T?O: /ENERA+ %ANIN/

1. /ENERA+ %ANIN/:

Internship is the means of haing some practical e'perience from an organi&ation

after getting the bachelor or master degree to do +ob in any organi&ation. I feel proud

to do my internship in this bank because its position is second among all the priate

banks in case of earning profit. (s I am an intern the following responsibilities hae

been carried out during my three A; months internship period/

$. OPENIN/ OF ACCOUNT:

Dhen a person want to open an account in I-IC Bank imited, -ederation Branch,

needs to communicate with responsible officer. -or opening an account an accountee

must fill up a bank account opening form and needs to present the following things/

a. Trade license. A-or businessman

b. Citi&enship certificate.

c. Two copies passport si&e photographs.

Ot@er Re4irements:

a. Eeference of an account holder who has an account in this Branch.

b. !inimum deposit "incases of current accounts Tk. 1,=== and for saing

account Tk. 8, ==.

). ,AI+ TRAN(FER !,T":

!ail transfer means money transfer from one branch to another branch of the same

bank. It may occur between the two different banks. !T issues and receies is a

regular task of this branch. In case of !T issue a branch charges commission. This

commission depends on amount, which will be transferred.

-rom !T issue this branch earned about Tk. 3=,=== per month.

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Process o6 ,T:

Dhen any body want to transfer money from this branch to another branch of I-IC

Bank imited or other bank at first the client needs to communicate with responsible

principal officer !d. Famal >ddin and then heGshe collects a printed !T form. (fter

filling the form heGshe needs to deposit cash with commission to the cash counter and

takes a receipt. In case of !T four A


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Process o6 DD:

Dhen any body want to transfer money from this branch to another branch of I-IC

Bank imited or other bank at first the client needs to communicate with responsible

officer and then heGshe collects a printed 22 form. (fter filling this form heGshe

needs to deposit cash with commission to the cash counter and takes a receipt. In case

of 22 four A


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Acco4nt oenin3 an7 closin3:

The customers who came to booth to open an account, necessary support serice wereproided them to fill up the opening form, account number and help them to do otherformalities. (lso help them to close the account.

Clearin3:

Sometimes a few of customers don$t understand how does he fill up the che)uebook,this situation I try to help them as soon as possible.

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CHAPTER THREE: +ITERATURE RE'IE?

1. +OAN PO+IC2:

The Board of 2irectors of a bank has the ultimate responsibility for all of the loans

made by their bank. Because the board delegates to others the task of making loans, it

uses a written loan policy to establish general guidelines and principles for the bank$s

lending actiities. It is important to understand that the policies are guidelines and

they are not infle'ible rules cared in granite.

Dritten policies ary widely from bank to bank. The policies of a small bank that

lends primarily to farmers are going to differ from that of large bank speciali&ing in

international lending. %eertheless, some of the items that are resent in many written

loan polices are presented here.

$. /ENERA+ PO+IC2:

The general policy outlines the bank$s lending ob+ecties in terms of profitability and

risk. -or e'ample, the policy may state that the bank is in the business of making

sound and profitable loans. (n important part of this goal is that all loans should hae

a plan of li)uidation at the time they are made. The general policy section may also

include statements concerning the organi&ational structure for superising lending

actiity.

RisB:

By definition, lending funds inoles some degree of risk, and we know that risk is

related to returns. The higher the risks, the higher the e'pected returns. The degree of

risk that a bank is willing to face could be e'pressed in the following way/The bank is not an inestor and should limit its risk to that which is commensurate

with the return usually aailable to it as a lender. The yield on a customer$s total

relationship should meet the bank$s earning ob+ecties after allowing for the cost of

funds, risk factors, and the cost of administration.

+oan (4ervision:

The Board of 2irectors has policies regarding the lending authority of indiidual

loans officers and the approal process for particular types of loans of arious si&es.

Smaller banks hae fewer layers of management and a simpler approal process.

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/eo3ra@ic +imits:

( bank$s trade area depends on its si&e. Small banks generally hae all local trade

area* medium"si&ed banks may consider themseles regional banks* and large banks

may be national or international in scope. Thus, one bank$s policy may state that,

sound local loans are one of the most satisfactory and profitable means of employing

the bank$s funds. Therefore, it is the intent of the Board that with few e'ceptions the

bank$s loans are limited to the metropolitan area we sere. In contrast, another

bank$s policy is to concentrate our lending efforts in the 0acific Basin.

). CO++ATERA+:

Collateral an7 RisB:

Sound banking practices re)uire that certain types of loans be backed by collateral.

Collateral refers to an asset pledged against the performance of an obligation. If a

borrower defaults on a loan the bank takes the collateral and sells it. Collateral

reduces the bank$s risk when it makes a loan. Howeer, collateral does not reduce the

risk of the loan parse. The risk of the loan is determined by the borrower$s ability to

repay it.

Dhile collateral reduces the bank$s risk, it may increase cost. The higher costs are due

to the need for documentation and the costs of monitoring the collateral. %eertheless,

without collateral some borrowers could not obtain loans. Therefore, collateral

benefits both borrowers and lender in certain type of loans. In other types of loans

collateral is not used.

C@aracteristics o6 3oo7 Collateral:

(lmost anything that is lawful may be used as collateral. %eertheless, some things

are better than others. The fie factors listed ne't determine the suitability of items for

use as collateral. The suitability depends in arying degrees on standardi&ation,

durability, identification, marketability, and stability of alue.

1. (tan7ar7iation:

The standardi&ation leaes no ambiguity between the borrower and the lender as

to the nature of the asset that is being sued as collateral.

$. D4ra>ilit5:

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2urability refers to the ability of the assets to withstand or it can refer to its useful

life. 2urable goods make better collateral than non"durables. Stated otherwise,

crushed rocks make better collateral then fresh flowers.

). I7enti6ication:

Certain types of assets are readily identifiable because they hae definite

characteristics or serial numbers that cannot be remoed. Two e'amples are a

large office building and an automobile that can be identified by make, model, and

serial number.

*. ,arBeta>ilit5:

In order for collateral to be of alue to the bank, the collateral must be marketable.

That is, you must be able to sell it. Speciali&ed e)uipment that has limited use is

not as good as collaterals are dump trucks, which hae multiple uses.

-. (ta>ilit5 o6 'al4e:

Bankers prefer collateral whose market alues are not likely to decline

dramatically during the period of the loan. Common stocks, for e'ample, are not

as desirable as real estate for collateral because stock prices are more ariable than

real estate prices.

T5es o6 Collateral:

The most common types of collateral used in commercial lending are e'amined here/

1. Acco4nts Receiva>le:

(ccounts receiable can be used as collateral in three ways. They are pledging

factoring, and banker$s acceptances.

Ple73in3:

( borrower can pledge accounts receiable with his or her bank. In this case the

borrower retains ownership of the receiables* and there is usually no notification

made to the buyer of the goods for which the receiables hae been pledged.

Before accepting the receiables, the bankers ealuate the credit rating of the firms

owing the receiables. (ccounts receiable from firm with weak credit ratings or

those that are oerdue may not be acceptable as collateral.

The percentage of face alue of the accounts receiable that the banker is wiling to

adance depends on the si&e, number, and )uality of the receiables. !ost bankers

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prefer to adance funds from receiables from a few well"established firms with good

credit ratings.

Factorin3:

-actoring is the sale of accounts receiable to a factor, which is usually a bank or

finance company. Dhen the receiables are sold, the buyer of the goods is usually

notified to make repayments to the factor like pledging, factors prefer receiables

from well"established firms.

%anBers Accetance:

( banker$s acceptance usually arises from foreign trade. The means of payment is a

time draft, which is similar to a predated che)ue.

$. Inventor5:

Inentory is widely used as collateral against commercial loans. The most common

ways in which inentory is used as collateral are e'plained ne't.

Floatin3 +ien:

Eaw material through the finished goods. The floating lien has two adantages from

the ( floating lien or continuous lien is used to coer a firm$s entire inentory the

borrower$s point of iew. It enables the entire inentory to be pledged. The borrower

can self"finished inentory in the ordinary course of business since the lien does not

follow each item. The ma+or disadantage is that banks may only want to lend a small

percentage of the alue of such inentory because of its undesirable characteristics.

Tr4st Receits:

Trust receipts, or floor planning as it is commonly called, are used to finance

automobiles, trucks, airplanes, and consumer durable goods such as teleision, the

title for the inentory is held by the lender and the borrower assumes the role of

trustee for the goods.

C@attel ,ort3a3e:

( chattel mortgage, or security agreement as it is sometimes called, gies the lender a

lien on tangible personal property.

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?are@o4se Receits:

Banks hae the greatest control and security when inentory that is used as collateral

is held in a bonded public warehouse, which is commonly called a terminal

warehouse. >nder this arrangement, the inentory is stored in a public warehouse and

the receipt is held by the lender. Inentory can only be releases when proper receipts

are presented at the warehouse. The receipts may be either negotiable or

nonnegotiable.

Or7er %ills o6 +an7in3:

-inally, there are some ways in which inentories are used that are uni)ue to

particular industries. Common carries, for e'ample, use order bills of lading, which

are a special kind of receipt, as collateral on commodities that are in transit.

+ivestocB an7 Cros:

iestock is widely used as collateral, and credit is e'tended on it through all stages

of the production process. Credit is also e'tended for planting crops. Such loans are

normally payable when the crops are harested.

). ,arBeta>le (ec4rities:

!arketable securities, including corporate stocks and bonds, certificates of deposit

AC2s, Treasury securities, and others, may be used as collateral for business loans.

The amount of credit e'tended on such securities aries widely one problem with

securities as collateral is that the market alue of publicly held stocks an bonds can

ary widely from day to day. Te alue of publicly traded securities is readily aailable

in the press.

*. Nat4ral Reso4rces:

%atural resources, such as oil and gas reseres are used as collateral. The alue of the

natural resources depends on estimates by )ualified engineering firms. The bank

should order the estimates, not by the borrower.

-. Real Proert5 an7 E4iment:

Eeal property refers to real estate, which includes houses,

ffices, buildings, shopping centers, factories, and so on. Such property is widely

used as collateral. In addition, e)uipment of arious sorts may be used.

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0. /4arantees:

Bankers can improe their security by haing a third party guarantee the payments.

The third party may be an indiidual, insurance company.

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CHAPTER FOUR: PROCE(( OF /RANTIN/ CREDIT

1. ?A2( FOR %AN( TO ,AE +OAN(:

Banks intentionally make loans in si' ways. erdrafts, which are unintentional loans

to customers who oerdraw their transaction accounts, are not considered here. There

is no significance to the order in which the methods are presented.

1. %anBs (olicit +oans:

-irst, bank actiely solicits loans in local and distant markets. oan officers isit

prospectie customers offering loans and other serices proided by their respectie

banks. This type of sales effort is typical of banks seeking new customers.

$. %45in3 +oans:

Secondly, bank buy parts of loans, called participations from other banks, suppose

that a large bank is making a J 1== million loan to an airline, but the originating bank

does not want to keep such a large loan in its loan portfolio. It may sell parts of that

loan to other banks. The sale of participations downstream to smaller banks allow

smaller bank to participate in loans that they could not originate. In addition, it is one

way for a bank with slack demand for loans to increase its loan portfolio. It also

allows all of the banks inoled to diersify their loan portfolios. 0articipations can

originate from small banks too. Suppose that a small bank wants to make a loan that

e'ceeds its lending limits. It can make the loan and sell participations upstream to

larger banks.

.

). Commitments:

Third, banks make loans under commitments. (s noted in the preious chapter,

commitments are agreements between banks and borrowers to make a loan under

certain conditions. -or purposes of this discussion, commitments include both letters

of credit and standby letters of credit.

*. Re6inancin3:

-ourth, banks refinance loans. Suppose that interest rates hae declined and that

borrowers with high fi'ed rate loans want to take adantage of the lower rates. The

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can make a new loan at the lower ate and pay off the higher ate loan. The refinancing

is at the borrower$s option, and only occurs when it is to their adantage.

-. +oan %roBers:

-ifth, loan brokers sell loans to banks and other lenders. oan brokers are indiiduals

or firms who act as agents or brokers between the borrower and the lender for

e'ample, a loan broker may contract with a real estate deeloper to find financing for

a particular pro+ect. The broker will seek lenders and arrange for the loan. nce the

loan is made and the fees are paid, the broker is out of the picture.

0. C4stomers Re4est +oans:

The final method of originating a loan is the most common. Someone asks for a

commercial loan. >nfortunately, many potential borrowers are denied loans or do not

get what they need because they do not know what information the bank needs in

order to grant to loan re)uest. Some borrowers, for e'ample, do not know what type

of loan will meet their financial needs or what type of collateral is suitable for their

loans. @ood loan officers work with prospectie borrowers who do not know the

procedures by e'plaining to them what information they must proide to the bank.

$. RO+E OF INFOR,ATION FOR /RANTIN/ +OAN:

Information plays a crucial role throughout the lending process. Initially, there is

asymmetric information one party has substantially more information than the other.

The prospectie borrower knows more about his or her own financial condition and

prospects for the future than the bank knows. It may be in the borrower$s best interest

to reeal only the minimum amount of information necessary to get a loan. -or

e'ample, the borrower might not want to reeal that the book alue of certain assets is

oerstated or that pro+ected sales are inflated. In contrast, the bank wants to obtain as

much releant information as possible in order to A1 ealuate the loan re)uest and A3

reduce the risk of loss if the loan is made.

Banks, wanting to minimi&e the risk of loss, must monitor information about the

borrower$s financial behaior throughout the term of the loan. If the information

suggests that a borrower is haing financial difficulties and may not be able to repay

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the loan, the bank must react )uickly to deal with the problem. 9arly detection of

potential problems may allow the bank to help the borrower resole the problem

before the loan defaults and it becomes a loss. Feep in mind the crucial role of

information as you read no only about commercial loans, but all loans.

). +OAN PROCE((:

The type of information that banks prefers to receie from customers re)uesting

commercials loan is illustrated by the following e'ample. !ost loan re)uests are not

as well organi&ed or as complete as the one presented here. It is a model loan

re)uest that proides the information needed by the bank in order to make a lending

decision.

1. +oan Re4est:

The bank receied a letter from borrower, which is called as application for loan. The

letter contents a brief history of the firm and other pertinent information.

$. %4siness Plan:

( business plan seres tow purposes. -irst, it is a document used to raise money. It

describes a firm$s past and current operations. It also e'plains hoe the funds that are

being raised will be used to further the firm$s goals, the reward the firm$s inestors,

and to repay the loans. Second, a business plan is used internally to proide operating

guidelines to managers so they know what is e'pected of them. Some of key elements

of business plan follow/

The goals and ob+ecties of the business.

( description of the business including its history and comments on products,

serices, and markets. Included here is an analysis of the firm$s strengths,

weaknesses, opportunities, and threats.

Strategies that the firm will use to compete.

(n operating plans to carry out the goals and strategies.

( process to monitor the progress of the plan and to reise it if the need arises.

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). Financial Data:

Borrower need to send the bank its balance sheet and income statements for the -ie

Kears of its e'istence. Some firms proide banks with pro forma financial statement

and cash budgets, which are pro+ections of inflows and outflows of cash. This is

especially useful to banks because loans are repaid out of cash. The cash aailable to

repay loans each month is not same as the net income. The usefulness of cash budgets

and pro forma statements depends on the accuracy of the pro+ections and the

assumptions that are made while constructing them. If the pro+ections and

assumptions are correct, the statement is a useful tool for both the firm and the bank.

therwise, it usefulness depends on the degree to which it errs. The bank$s credit

analysis should make their own pro+ections and do a sensitiity analysis in order to

compare the results. ( sensitiity analysis allows the bank to change critical ariables,

such as sales, and determine the effect of those changes on earnings, cash flows, and

the ability to repay loans.

*. Initial Intervie:

The initial interiew may be the only time the borrower and banker meet face to face.

Therefore, the bank must use this meeting to obtain additional information from the

customer necessary to make a loan decision. -or e'ample, the banker may want to

clarify some points in the customer$s business plan or pro forma statements.

Dhen a borrower$s business plan and financial statements are not aailable, the

banker will want to know/

Dhat is the amount of the loanL

Dhen the funds are needsL

How are the funds going to be usedL

Dhen is the loan going to be repaidL

How is the loan going to be repaidL

Dhat collateral will be pledgedL

(dditional information will be re)uired about the organi&ation of the business Asole

proprietorship, partnership or corporation, its trade area other banking relationships,

and more.

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*. E'A+UATIN/ A +OAN REUE(T:

The bank must ealuate the loan re)uest and determine if a loan will be granted. The

ealuation inoles the 7C$s of credit as follows/

Character Apersonal characteristics of the borrower, honesty and attitudes

about willingness and commitment to pay debts.

Capacity Athe success of the business.

Capital Afinancial condition.

Collateral Apledged assets.

Conditions Aeconomic conditions.

Compliance Alaws and regulations.

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CHAPTER FI'E: T2PE( OF CREDIT

1. CO,,ERCIA+ AND INDU(TRIA+ +OAN:

Commercial and industrial loans ACI loans are loans made to business concerns to

finance their day"to"day actiities Ae.g. inentories, receiables, to finance their

longer"term needs Ae.g. plant and e)uipments and for other business purposes. The

maturity of these loans ranges from one day Acalled oernight loans to 1= years or

longer.

2ifferent types of CI loans are used to finance different types of assts. The principal

types of CI oans presented here/

a. +ine o6 Cre7it:

( line of credit is an agreement between a customer and the bank that the bank will

entertain re)uests from that customer for a loan up to a predetermined amount.

The line of credit is the ma'imum amount that can be borrowed under the terms of the

loan. They are fre)uently made for periods of one year or less, and are used to finance

seasonal increases in inentory, an accounts receiable. Then the inentory is sold,

receiables are collected, and the funds are used to reduce the loan. -re)uently,

lenders re)uire inentory or receiables as collateral. The loans are usually payable on

demand by the bank or within 6= days.

Sometimes short"term loans are renewed or rolled oer so often that both the firms

and the banks iew them as a form of long term financing. Dhen that occurs, both

parties should consider long"term financing.

>. Revolvin3 +oan:

Eeoling loans are similar to a line of credit because these two are used to finance

borrower$s temporary and seasonal needs. ne difference between a reoling loan

and line of credit is that the bank is obligated to make the loans up to the amount of

the commitment, if the borrower is in compliance with the terms of the agreement.

The borrower may repay the loans and then borrow again, up to the amount of the

commitment.

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c. Term +oan:

( term loan is usually a single loan for a stated period of time or a series of loans for

specified dates. They are used for a specific purpose, such as ac)uitting machinery,

renoating a building refinancing debt, and so forth. They should not be used to

finance day"to"day operations.

Term loans can hae an original maturity of fie years or more. The maturity of the

loans should not e'ceed the economic life of the asset being financed if that asset is

being used as collateral for the loan.

The alue of the asset being financed should always e'ceed the amount of the loan.

The difference between the alue of asset and the amount being financed is the

borrower$s e)uity. The borrower$s e)uity represents the borrower$s inestment in the

asset being financed. The also proides the bank with a cushion in the eent of

default. The borrower will lose his or her funds before the bank e'periences a loss.

Borrowers not wanting to less their e)uity inestment hae an incentie to operate

their business so that the loan will be repaid.

7. %ri73e +oans:

Bridge loans are loans that bridge a gap in a borrower$s financing until some

specific eent occurs. -or e'ample, a firm wants to ac)uire a new warehouse facility

but needs funds to finance the transaction until the old warehouse can be sold. (

bridge loan can be used to fill the gap.

e. Asset8%ase7 +en7in3:

(sset"based lending is a form of commercial lending in which the assets of a

company are used to secure the company$s obligation to the lender. In the broadest

sense, all secured loans could be classified as asset"base lending. (sset"based loans

hae as their collateral base accounts receiable, inentory, machinery and

e)uipment, and real estate, single or packaged in arious combinations.

6. Over7ra6ts:

(n oerdraft occurs when a cheek is written on uncollected funds. If a bank pays on a

check written against uncollected balances, it is e'tending and unsecured loan. Some

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oerdrafts are written with period permission of the bank, but most are not. In the

later case, the oerdraft represents a loan that the bank may not want make. It is

certainly a loan where the borrower did not make an application to the bank to re)uest

the funds in adance. The oerdraft loan can be for less than one day, such as when a

check is written or funds transferred wire in the morning and the deposit to coer that

check or wire transfer is not made until that afternoon, or for one or more days.

3. Cas@ Cre7it:

Cash credit refers to the issue of credits to respectable and trustworthy persons against

the guarantee of a third party or parties. The cash credit is a credit specially granted

by the banker in faor of a customer, but instead of the customer haing to take up

whole amount as a demand loan, he can either draw or repay, in whole or in part, the

amount adanced at anytime to suit his own conenience.

This #cash credit$ may either take the form of 0ledge$ or Hypothecation. In case of

Hypothecation possession of goods is not transferred to the banker and therefore,

such an adance is no better that a clean loan. Such an adance can, thus, only be

granted to a person in whose integrity the banker has full confidence, but in case of

pledge the possession of the goods an not the ownership passes to the creditor,

namely, the banker.

@. +oan Commitments:

( loan commitment is an agreement between a bank and a firm to lend funds under

terms that are agreed on in writing. (bout three"fourths of all commercial and

industrial loans are made under loan commitments.

$. REA+ E(TATE +ENDIN/:

Eeal estate loan is the largest olume of loans made by commercial banks. The term

mortgage is used in connection with real estate lending. (t common law, a mortgage

is a written coneyance of title to real property to proide security for the

performance of a duty or the payment of a debt. In some states, mortgage is regarded

as a lien, but not crating title or an estate. In general terms, it is an agreement that the

property will be sold if the debt is not paid as agreed. The proceeds of the sale of the

property are used to reimburse the lender. The mortgage gies the lender a security

3;


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interest on the property, if the mortgage is properly recorded in the country

courthouse.

). CON(U,ER +ENDIN/:Consumer lending is the heart of retail banking. Eetail banking refers to banking

serices proide to indiiduals and to small business concerns. Serices proided to

medium and large"si&e business concerns and goernment is called wholesale

banking. !ost banks do both retail and wholesale banking although some speciali&e

more than others. Small banks tend to speciali&e in retail banking because they do not

hae sufficient assets to do large"scale wholesale lending.

3


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CHAPTER (I: TECHNIUE( OF CREDIT ,ANA/E,ENT

1. INTRODUCTION:

!anagement of credit means the cycle that starts from the issuing of credit and ends

with its recoery. The good credit management means the recoery of credit with

interest. The bank$s credit management policy aries under the different credit

sanction procedures. The bank grants credit by taking securities in order to ensure the

recoery of loans. If the bank can manage those securities effectiely the management

of credit is ensured. This chapter deals with the management of credit under different

credit sanction procedure.

$. FACTOR( +I,ITIN/ THE +E'E+ OF A %AN( CREDIT:

i. The si&e and maturity"wise pattern of deposits/ The primary source of funds is

the deposits made by the depositors. Their si&e and maturity"wise pattern has

an impact on the leel of a bank$s adances. Bank$s capacity to grant loans

adances increases with an increase in deposit resources moreoer, the

maturity"wise pattern of such deposits affects the pattern of adances. In case

of demand liabilities, the banker is under an obligation to repay the fund ondemand and hence he needs larger cash resere.

ii. Credit Control by Eesere Bank. The capacity of banks to proide loans and

adances depends on their cash resources Ai.e. cash in hand and balances with

the Eesere Bank. The cash resources increase through 1. Eise in deposits, or

3. By they$re borrowing from the Eesere Bank, or ;. By sale of their

inestments. The Eesere bank regulates the )uantum of cash resources of the

banks by e'ercising the power conferred upon it. If it feels the necessity of

e'pansion of credit, measures are adopted to increase bank$s cash resources

and ice"ersa.

iii. Seasonal ariations in Bank Credit. (n important feature of bank credit in an

agricultural country like ours is the seasonal ariations in the )uantum of

credit granted by banks.

i. The 2emand of credit. The e'pansion or contraction of credit largely depends

on the demand for bank credit by borrowers, which in turn depends upon.

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1. The leel of production, both agricultural an industrial.

3. The leel of inentories held by business an industrial houses.

;. The price leel of goods and commodities in the country.


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i. The market alue of securities is liable to fluctuations in future with

the result that the banker$s secured loans may turn into party secured

ones.

ii. The liability of the borrower towards the banker increases gradually as

interest accrues and other charges become payable by him.

Factors Determinin3 ,ar3in:

The )uantum of margin is not uniform in case of all commodities or in case of all

customers. The following factors determine the margin/

i. The amount of margin depends upon the likely fluctuations in the prices of the

arious commodities.

ii. In case of shares of industrial concerns the financial position and reputation of

the issuing undertaking is also taken into account. Shares of sound industrial

concerns are treated as good as goernment securities and lower margin is

re)uired.

iii. !argins are fi'ed keeping in iew the credit an reputation of the borrower"

concern.

i. The margin, determined at the time of sanctioning an adance, may be raised

or reduced subse)uently according to the ariation in the prices of the

securities.

. In case of commodities, which are sub+ect to selectie credit control of the

Central Bank, margins are usually prescribed by the Central Bank from time to

time. It is essential for the banks to deep such margins.

$. ,arBeta>ilit5 o6 (ec4rities:

Credits are usually granted for short periods by the commercial banks because their

deposit resources Ae'cept term deposits are either repayable on demand or at short

notice. If the customer defaults in making payment, the banker has to li)uidate the

security. It is, therefore, essential that the security offered by a borrower may be

disposed of without loss of time and money. ( banker should be ery cautious in

accepting assets, which are not easily marketable.

It is proerbially said a banker lends his umbrella when the sky is clear an demands

it back as soon as it rains.

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). Doc4mentation:

2ocumentation means that necessary documents, e.g. (greement of pledge or

mortgage, etc, are prepared and signed by the borrower at the time of securing a loan

from the bank.

*. Realiation o6 t@e Cre7it:

If the borrower defaults in making payment on the specified date, the banker may

reali&e his debt from the sale proceeds of the securities pledged to him.

*. ,ANA/E,ENT OF CREDIT A/AIN(T /OOD(:

Credit sanctioned may be secured by goods and commodities broadly diided into

four main heads as follows/

1. -ood articles.

3. Industrial raw materials.

;. 0lantation products, and


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commodity is an item of necessity, comfort or lu'ury and whether its demand

is elastic or otherwise, is constant through out the year or is seasonal in nature.

;. The banker must be well ac)uainted with the commodity market. He should

know well the commodities offered as security, the conditions and customer of

their trades and also the trend of their prices in the market. Such knowledge is

essential for him to regulate the margins to be maintained.


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PRECAUTION TO %E TAEN %2 THE %ANER:

1. In order to aoid risks of fraud or dishonesty, the banker should accept such

documents a security from honest, reliable and trusted parties only.

3. Special care should be taken to see that documents are genuine and not forged

ones.

;. It should be carefully noted that documents of title do not contain any onerous

or pre+udicial remark about packing of the goods. If the documents contain a

remark to this effect, such as 0acking defectie or @oods not properly

packed or The container is leaking, the banker should not grant any

adance against such receipt.


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>nusual high loan rate Aperhaps an attempt to compensate the bank for a high

M risk loan.

>nusual or une'pected build up of the borrowing customer$s accounts

receiable and Gor inentories.

Eising debt Mto"net"worth Aleerage ratio.

!issing documentation Aespecially missing customer financial statements.

0oor )uality collateral.

Eeliance on reappraisals of assets to increase the borrowing customer$s net

worth.

(bsence of cash flow statements or pro+ections.

Customer reliance on nonrecurring sources of funds to met loan payments

Ae.g., selling buildings or e)uipment.

-or business loan, any sudden change in methods used by the borrowing firm

to account for/

2epreciation

!ake pension plan contributions.

alue inentories

(ccount for ta'es or

Eecogni&e income

Change in the customer$s credit ratings

(derse change in the price of borrowing customer$s stock.

%et earnings losses in one or more years, especially as measured by E(, E9

and 9BIT.

(derse changes in the borrowers capital structures.

2eiations of actual sales or flow form those pro+ected when the loan was

re)uested.

Sudden, une'pected and une'plained changes in deposit balances maintained by

the customer.

nrealistically structured loan installment.

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>nusually high interest rate.

(derse change in the price of borrowing customer$s stick.

%et earnings losses in one or more years, especially as measured by E(,

E9 and 9BIT.

(derse changes in the borrowers capital structures.

Incompetent management.

2ishonesty and immorality of the client.

Sudden rise in corporate ta' rate.

-resh imposition of e'cise or sales ta' on client$s products.

oss of market share of the client.

@eneral economic recession.

bsolescence of the client$s product causing a fall in demand thereof.

Dindow dressing of financial accounts.

!a+or contract loss.

Significant rise business competition.

0rocrastination in pro+ect implementation.

9rroneous pro+ect feasibility analysis.

Borrower$s reluctance to pay off the loan.

oop holes in the stipulated loan contract.

ower e)uity of the borrower in the pledged collateral.

0olitical pressure.

Corrupted loan recoery officer.

1=. (TEP( TO HAND+E PRO%+E, +OAN(:

Dhat a banker should do when a loan is in trouble is of supreme importance for

today$s bank lending operations. 9'perts in loan workouts the process of recoering

the bank$s funds from a problem loan situation"suggest the following key steps/

1. (lways keeps the goal of loan workouts firmly in mind/ to ma'imi&e the

bank$s chances for the full recoery of its funds.

3. The rapid detection and reporting of any problems with a loan are essential.

2elay often worsened problem loan situation.

;. Feep the loan workout responsibility separate from the lending function of

aoid possible conflicts of interest for the loan officer.

;3


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1$. PRO/RA,( FOR +OAN RECO'ER2:

It is the subse)uent step of programs for loan distribution. The detailed programs for

loan recoery are stated within the terms and conditions of loan distribution. (s a

result, it is not a new sub+ect in sound credit management. To ma'imi&e the loanrecoery performance the following programs should be taken/

i. To establish credit superision and monitoring cell in the bank.

ii. To re"structure the loan sanctioning and distributing policy of the bank.

iii. To sanction loans and adances against sufficient securities as best possible.

i. To gie more posers to the branch manger in credit management decisions

making process.

. To offer a package of incenties to the sound borrowers.

i. To gie more emphasis on short"term loans an adances.

ii. To impose restrictions on loans and adances for trading business.

To take legal actions )uickly against un"sound borrowers as best as possible within

the period specified by the aw of imitations.

;


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CHAPTER (E'EN: CREDIT ,ANA/E,ENT (2(TE, OF IFIC

%AN +I,ITED G A PRACTICA+ EPO(URE

1. CREDIT PO+IC2 OF IFIC %AN +TD:

(s a continued process I-IC Bank td followed the course of its own credit policy

within the framework and guidelines outlined by the @oernment and Bangladesh

Bank in respect of deployment of its loan able fund. The Bank continued to e'plore

and diersify the area of its operation to e'tend credit facilities throughout the year to

the arious productie sectors on priority basis.

$. C+A((IFICATION OF CREDIT OF IFIC %AN +TD:

I-IC Bank imited proides arious credit facilities to the borrows general credit

facilities and the interest rate are stated below.

Cre7it Interest Rate

a. erdraft i. (gainst -2E

;? (boethe rate allowed on-2E.

ii. (gainst Share 1nsecured 18.8=?

d. oan (gainst trust Eeceipts 18.8=?

e. 0ayment (gainst 2ocument 18.8=?

f. oan (gainst Import !erchandise 18.8=?

g. Inland Bill 0urchase 18.8=?

h. -oreign Bill 0urchase 18.8=?

). (PECIA+ CREDIT (CHE,E OF IFIC%AN +I,ITED:

Besides general credit facilities I-IC Bank imited also introduced some special

credit schemes named as >ttaran. This scheme encompasses the following credit

facilities.

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Cons4mer Cre7it (c@eme:

!ost of the people of Bangladesh are middle class and in the orbit of imited income.

They are not able to buy necessary consumable goods by their own saings. -or this

reason I-IC Bank imited introduced consumer credit scheme from ctober 1667.

oan disbursed under this scheme stood at Tk. 83.=: corer up to 2ecember 3==3. The

rate of recoery of loan under this scheme also 1== percent.

Feat4res o6 t@is sc@ema are:

a. O>ectives o6 t@e sc@eme:

i. Creating the habits of saings for limited income group

ii. Increasing standard of iing

iii. To play an important role in deeloping the socio economic condition of

Bangladesh.

>. /oo7s 4n7er t@is sc@eme:

%ew and re"conditioned car, !otorcycle, Eefrigerator, Teleision, .C.0, Eadio, Two

in one, (ir Conditioner, Dater Cooler, Dater 0ump, 0.C, >0S, 0rinter, Type Driter,

Dashing !achine, Iron Dooden -urniture, Sewing !achine, Toaster, pressure

Cooker, 0hotocopier, Cellular 0hone, -a', arious kind of -an, 2ish (ntenna,

Bicycle, Baby Ta'i, Tempo, !icrobus etc.

c. Ceilin3 o6 +oan an7 Don Pa5ment:

>nder this scheme highest amount of loan is Tk. 8.== ac. Borrower must pay down

payment at the following rate/

i. %ew !otor Car : ;8?

ii. Eecondition CarG!icrobus :


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7. Interest Rate an7 ot@er C@ar3e:

i. Interest : 1


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.).) Ho4se Reairin3Renovation (c@eme:

This scheme was introduced for e'tending loans to the people who own

houseGbuilding of their own or inherit from their ancestors, which may re)uire

renoationGrepairing but cannot afford to make such e'penditure at a time.

Feat4res o6 t@is (c@eme are:

a. Amo4nt o6 +oan:

>nder House repairingGrenoation scheme you can take loan up to Tk. 8 ac. But the

actual account of loan will depend on your monthly income.

>. Interest an7 Ot@er C@ar3e:

Interest / 18?

oan 0rocessing -ee / Tk. 8,=== A8=? of this amount are refundable if .

re+ected

(pplication -rom / Tk. 1==.

If the customer repay loan regularly and timely than 8? of interest will e'empt.

c. +oan Rea5ment Perio7:

oan must repay within 8 years including interest at installment basis.

+ease Financin3 (c@eme:

( credit schema in the name of ease -inancing Scheme has been functioning

effectiely from 5une 1666 to finance the prospectie and genuine customers for

ac)uisition of capital machinery e)uipment, medical instruments automobiles etc. The

balance of the loan under this scheme stood at Tk.


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performance of the commercial banks Aboth public and priate in Bangladesh

gradually deteriorating oertime, goernment as well as the board of directors of the

respectie banks has taken some special programs in the area of loans recoery.

I-IC Bank td. has taken the following programs to ensure ma'imum recoery/

i. It establishes credit superision and monitoring cell in the bank.

ii. It re"structures the loan sanctioning and distribution policy of the bank.

iii. It sanctions loans and adances against sufficient securities as best as possible.

i. It gies more powers t the branch manager in credit management decisions

making process.

. It offers a package of incenties to the sound borrowers.

i. It gies more emphasis on short"term loans adances.

ii. It imposes restrictions on loans and adances for trading business.

iii. Ti takes legal actions )uickly against un"sound borrowers as best as possible

with the period specified by the aw of imitations.

CHAPTER EI/HT: (TUD2 FINDIN/(

;6


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1. (ECTOR8?I(E PO(ITION OF +OAN AND AD'ANCE A( ON

)181$8$==* I( /I'EN %E+O?:

(ectors o6 +oan & A7vances P4>licNationalie7

ATaka in CrorePrivate

ATaka inCrore

Total

ATaka inCrore

1.A3ric4lt4re:a 0rimary 0roducer

b -ertili&er""

1.7:=.=:

1.7:=.=:

$. In74strial Term +en7in3 18


41/48

$. DEPO(IT( AND AD'ANCE( !CORE TAA" PO(ITION FOR

FI'E 2EAR(:

Deosit & A7vance


42/48

). (ECTOR ?I(E +OAN( AND AD'ANCE( UNDER PIE

CHART:

(ector ?ise A7vance !L"

*. PRO%+E,( IN +OAN RECO'ER2 OF IFIC %AN +TD:

Those who are the sound borrowers can easily to be identified but the status and the

number of unsound borrowers cannot be measured accurately as they are the ma+or

portions of total number of borrowers. This is the present status of credit management

in Bangladesh both in the public sector banking and the priate sector banking also.

0roblems in loan recoery are the outcome of the default in loan disbursement I-IC

Bank td. usually faces the following problems in loan recoery/


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I. Sometimes loans are gien without sufficient securities.

II. Sometimes loans are gien under fictitious names and enterprises.

III. (pproal of loans in e'cess of the branch manager$s powers.

I. Sometimes oer"aluation of securities is a common phenomenon.

. oans are approed against defectie pro+ect appraisal report.

I. Improper monitoring and superision of credit.

II. oans are sometimes disbursed for economically un"sound pro+ect.

III. 9mphasis on public sector inestment causes the high rate of non"recoery.

IN. oans are approed for the parties by the authorities bearing in mind their

personal ob+ecties not the oerall ob+ecties of the bank and the economy.

N. oans are approed for industries, which are only socially desirable.

NI. 0olitical misuse of loans programs.


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CHAPTER NINE: (U//E(TION AND CONC+U(ION

1. RECO,,ENDATION(:

In the light of the ariations of the problem the following measures if adopted, may go

a long way in improing the situation/

1. Selection of borrower shall be made as per rules and procedures of the

adances and after making proper assessment of business establishment,

respectability, creditability, actual re)uirement of fund repayment capacity etc.

(ppraisal of feasibility and iability of the pro+ects shall be dine in proper

manner e'amining all the factors by an efficient and )ualified appraiser so thatno difficulties are faced at any stage of the pro+ect from construction to

production stage.

3. The lack of proper superision, conduct and control of the loan shall be done

by the financiers to ensure purpose for which the loan is sanctioned, close

contact and persuasion shall also be borrowers to ensure recoery of loan

installment as and when due without allowing it to become arrear.

;. The bank should not always be ery much sensitie of recoery of loans and

will not bring necessary pressures for recoery proided the borrowers are

incorrigible and habitual defaulters. The lenders shall not resort to any hasty

decision and take legal action against the borrowers if there is any scope for

recoery of the dues on compromise terms een by allowing some concession

of interest and rescheduling the repayment program by allowing reasonable

time to the borrowers.


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the same. %one of the officials who hae sporadic knowledge in handling loan

cases should be assigned with the duty of operation of loans adances.

7. The lenders shall take legal action against the incorrigible defaulting borrowes

who are aoiding payment on flimsy grounds without bonafide intention to

s)uare up their dues without wasting of time. !oney suits criminal cases

filled against the bad borrower shall be closely followed up for early decision

of the court and immediate steps shall be taken for satisfaction of the decrees

against the +udgment debtors. 0roper igilance are re)uired to be kept oer

disposal of court cases recoery of the decretal dues as per +udgment and in

default, to file e'ecution suit for attachment sale of borrower$s properties

for satisfaction of the decree.

:. (lertness and education amongst the sub"conscious about their obligation to

return bank$s money in time and utili&ation of funds of funds only for

productie purpose of motiation and education field assistants of the lending

bank may play ital role.

4. The officials of the bank shall be honest, sincere and free ices in their deal

with borrowers for personal gain should be skillfully detected and e'emplary

punished to preent others from indulging such irregularities. Steps should

also be taken to arrest growing moral degradation amongst the officials by

improing their serice benefits, socio"economic condition and a standard of

liing where the officials shall hae no reasons to be allured by the borrowers.

6. The problem can be soled by rational strategy formulation.

1=. The lenders shall sanction and disburse loan to the borrowers in proper time

of inestment. They will see that no delay is caused in completing formalities

and processes which may create problem to the borrowers to diert funds

elsewhere or want of scope for inestment and thus the funds become stuck up

ultimately. So loans should always be sanctioned disbursed in proper time

of inestment to ensure recoery of the loan in time from the borrowers.


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$. CONC+U(ION:

-or any B.B.( student who would like to build up hisGher career in the banking sector,

heGshe must need this type of internship training. (s a successful intern, I am really a

lucky person that I could perform my Internship in I-IC Bank imited, -ederationBranch, which is the second bank of Bangladesh in case of earning profit. I hope this

report prepared by me on the basis of my internship training will be beneficial for the

personnel who are already inoled in +ob in any reputed organi&ation and will also be

helpful for the future internees those who will carry out their internship training in

I-IC Bank imited or in other banks.

I-IC Bank td. has been able to continue its oer all progress for year to year,

specially in granting loan to right sector and its recoery. Since bank$s profit largely

depends on its interest income. I-IC Bank td. was able to achiee 3 ndhighest profit

in year 3==3. Dhich shows that the loan position, interest and recoery are e'cellentL

This success has been making possible due to dynamic leadership of the bank

management, proper guidelines good counsel and deotion and sincerity of all

categories of officers an employees of the bank.


47/48

%i>lio3ra@5:

1. Siddi)ui, (. @. MBankier$s (dances AEauf 0ublication.

3. 2r. (. E. Fhan "Bank !anagement, 0rogati 0rakashani, 3nd9dition.

;. Taylor, D.@. ongworth MCredit System, 8th9dition.

Reorts an7 o4rnals:

1. I-IC Bank td. (nnual Eeport M 3==1,3==3,3==;,3==niersity of 2haka.

;. Booklet of I-IC Bank td.


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