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- 1. 1 CHAPTER- 01 INTRODUCTION 1.1 BACKGROUND OF THE STUDY The internship program of MBA student of the faculty of business studies is a vital part of MBA program. So we need proper application of our knowledge to get some benefit from our theoretical knowledge to make it more effective. We engage ourselves in such field to make proper use of our knowledge in our practical life. Only when we come to know about the benefit of the theoretical knowledge, such an application is made possible through internship. After compliance of the program period a student must present the report on assigned topic to the supervisor and the department. The program period is three month. During this period I worked with employees of the organization. In consulting with my supervisor of the department and bank employee I have selected a topic. My internship topic is A Study on Loan Sanctions & Recovery of Bangladesh Development Bank Limited The perfect coordination between theory and practice is of paramount importance in the context of the modern business world in order to resolve the dichotomy between the theoretical and practical areas. Any academic course of the study has a great value when it has particular application in the real life. Only theoretical knowledge bears little importance unless it is applicable to the practical life. When theoretical knowledge is obtained from a course study it is only the halfway of the subject matter. So we need proper application of our knowledge to get some benefits from our theoretical knowledge and to make it more fruitful. Such application is made possible through internship. For the completion of this internship program, the author of the study was
- 2. 2 placed in a bank namely, Bangladesh Development Bank Ltd.. Internship Program brings a student closer to the real life situation and thereby helps to launch a career with some prior experience. My internship is on the loan sanction & loan recovery of BDBL. 1.2 OBJECTIVES OF THE REPORT The prime objectives of the study are to evaluate the Loan performance of BDBL. Besides this, there are some other objectives which are as follows: To analyse the loan management by BDBL. To highlight the credit and recovery procedures. To get an idea about the condition of loan default mechanism of BDBL. To find out the contribution of BDBL towards the economy of Bangladesh. 1.3 SCOPE OF THE REPORT I have been selected for my internship program at Head office of Bangladesh Development Bank Limited. The main focus of my report is to analysis the Loan Sanctions & Recovery of Bangladesh Development Bank Limited. Bank gives me the permission to work as an intern in the following department- Human Resource Management Department Principle Branch Loan Operation Department SME Department Loan Recovery Department.
- 3. 3 I have collect information from the bank & the working areas of my internship will mainly in Administrative Division, General banking division & Development Banking Division. 1.4 LIMITATIONS OF THE REPORT I have also faced some problems during my internship that can be considered as limitations of study. This internship report is my first assignment outside our course curriculum in the practical life. In performing this report my lacking of proper knowledge greatly influenced in this performance. Besides this, some limitations in preparing this report have been faced. The main limitations are as follows: Confidentiality is the main problem; as a result some confidential facts were not sufficiently disclosed by the respective personnel. Lack of available up-to-date information Only few days internships experience is not enough to find out all the pros and cons of such a vast project. As Bangladesh Development Bank Ltd. is a large financial institution; it is very difficult to understand each and every aspect of its operation within a very short period of time. 1.5 STRUCTURE OF THE REPORT I prepared this report six chapters. In chapter one describes the Origin of the Report, Background of the Study, Objectives of the Report, Scope of the Report, Limitations of the Report & Structure of the Report. In chapter two, I tried to describe the brief overview of banking in Bangladesh and overview of Bangladesh Development Bank Limited (BDBL). It covers detailed
- 4. 4 information about BDBL. Here I also present corporate information about BDBL. Here I find the financial & ratio analysis of BDBL. On the basis of that I finally figure out the SWOT analysis of the BDBL. In chapter three, I briefly describe the loan sanction practice of BDBL and Sector wise loan performance analysis BDBL describe. Chapter four tells about the recovery of loan. It also describes the Process of Loan Appraisal, Issue of loan application form, Instruction & co-operation to fill up the form, Scrutiny of loan application and other paper evaluation of loan proposed, Preparation of appraisal report, Technical analysis, Financial analysis & Economic analysis / market analysis and a clear picture of loan portfolio and loan administration. Chapter five represents the Findings and analysis regarding the Objectives. And in last and sixth chapter I have drawn the conclusion in the light of overall discussion and also given recommendations on the base of given findings. I have analysed these reports and documents highlight of analytical review. Some graphical presentation, statistical tools, and table to find out different types of analytical result, growth rates and trend analysis have also been used.
- 5. 5 CHAPTER-2 AN OVERVIEW OF THE ORGANIZATION 2.1 BACKGROUND OF BANGLADESH DEVELOPMENT LTD BANK With the decision of the Government, Bangladesh Development Bank Ltd. (BDBL) was incorporated on 16 November, 2009 as a Limited Company under the Companies Act. 1994 by merger of former Bangladesh Shiplap Bank (BSB) and Bangladesh Shiplap Ran Sanest (BSRS) are two Development Financial Institutions (Dais) in the public sector. Bangladesh Shiplap Bank (BSB) was established in October 31, 1972 for accelerating the industrial pace of the country through providing loans and equity to the industrial projects as per Bangladesh Shop Bank Order, 1972 (President's Order No. 129 of 1972). With the same objective, Bangladesh Shiplap Ran Sanest (BSRS) was also established in October 31, 1972 as per Bangladesh Shiplap Ran Sanest Order, 1972 (President's Order NO. 128 of 1972. In order to carry on business activities of Bangladesh Bank issued banking licence on 19-11-2009.Two Vendor Agreements were signed between the Governments of the Peoples Republic of Bangladesh and the BDBL on 31 December, 2009 to acquire and take over all of their (BSB & BSRS) assets, benefits, rights, powers, authorities, privileges, liabilities, borrowings and obligations and to carry on with the same business. As a public limited company, BDBL formally embarked its journey on January 03, 2012.It extends financial assistance for setting up industries and provides all kinds of commercial banking services to its customers through its branch network in Bangladesh. The BDBL also inherited membership of Dhaka Stock Exchange Limited (DSE) and Citation Stock Exchange Limited (CSE). In order to contribute to
- 6. 6 the capital market, it acts as stock dealer and operates two brokerage houses, one at Motijheel and the other at Kawran Bazaar. These provide which are providing services to investors- n small and medium. The BDBL is also managing a close and Mutual Fund with paid up capital of TYK. 5.00 Crore. 2.2 CORPORATE INFORMATION: Table-2.1: List of Corporate information 1. Name Bangladesh Development Bank Limited. 2. Legal Status Public Limited Company 3. Date of incorporation November 16, 2009 4 Banking Licensee obtained November 19, 2009 issued by Bangladesh Bank 5 Vendors Agreement Signed December 31, 2009 between the Government and Board of Directors of BDBL nominated by the Government 6 Formal Inauguration January 03, 2010 7 Registered Office BDBL Bhaban, 8, Rajuk Avenue, Dhaka-1000 8 Authorized Capital TK 1000 crore 9 Paid up capital TK 100.00 crore 10 Reserve TK. 2270 million 11 Total Assets TK 16747 million 12 Total Human Resource 1025 13 Number of Zonal Office 4 14 Number of Branch Office 21 15 .Membership Dhaka Stock Exchange & Chittagong Stock Exchange Ltd 16 Launching of retail banking April 2010 17 Corporate Tax Rate 42.50 % 18 Auditors MESSERS ACNABIN AND HUDA VASI CHOWDHURY & CO 19 Legal Adviser & Consultant A. K. M. Nazrul Islam ,Bar-AT-Law 20 Credit Rating Agency CRISL 21 Income Tax Advisor K. M. HASAN & CO 22 Face Value per share TK.100.00 23 Web Site www.bdbl.com.bd On January 3, 2013 the bank started with 17 Branches, 4 Zonal Offices and 21 Departments in Head Office. Two new departments namely credit Risk Management
- 7. 7 Department and International Banking Department have been added. They plan to open gradually 10 more branches in different commercially and geographically important places of the country and have already got permission from the Central bank for opening three new branches in Dhaka, Narayanganj and Khatungonj in Chattanooga which are under process. Sites in Dhaka, Narayanganj and Khatungonj have already been selected and these three branches may be inaugurated within September & October, 2013 respectively. We know that Present BDBL come from BSB and BSRS. When BSB operate their banking activities only Loan section. And same activities were BSRS. So their employee condition is limited size. But now they are start commercial activities. So need their more employees. On the basis of HR Department of we know that their current employee number is 1025. 2.3 OPERATIONAL ACTIVITIES OF THE BANK Bangladesh Development Bank Ltd. continued its operational activities as was done former BSB & BSRS to make a defective contribution towards industrial development of the having comparative opportunities, export prospects, forward and backward linkages and local technology as well as indigenous raw material based and eco-friendly projects. Commercial banking and capital market operation were also other area of businesses. 2.4 LOAN APPLICATION RECEIVED In 2013, the Bank received 757 loan proposals with loan amount of TK. 73.56 crore. Among these loan applications, 24 loan proposals were for long term loan and 31 for SME, loan while the others included 19 for cash credit and 683 for consumers credit and commercial loan.
- 8. 8 Sanction and disbursement of term loan: The Bank kept on sanctioning of term loans during 2013 also. This year long term local currency loan of TK. 35.93 crore was sanctioned to 37 projects while the Bank disbursed term loan TYK. 37.11 crore to 47 projects / loan proposals in the form of local currency at the year end of 2013. Sanction and disbursement of short term loan: During the year 2013, the bank sanctioned working capital loan of TYK. 31.61 core to 18 projects and disbursed TYK. 30.32 core to 16 projects. The Bank also sanctioned consumer credit TYK. 9.56 crore was disbursed against 630 loan proposals. The details of sanction and disbursement of term loan including short term loan were shown below in Table- 2.2 : Table-2.2: Sanction and disbursement of loan in 2013 Nature of Loan Sanction Disbursements No. Of Projects/ Proposal Amount in Core Taka No. Of projects/ proposals Amount in crore Taka A. Long Term Loan 47 37.11 1)Loan for new project 13 10.50 2)Loan for BMREproject 2 1.05 3)Additional loan for existing project 4 20.41 4)Loan for SME 18 3.96 Sub Total : 37 35.93 47 37.11 B. Short Term Loan 1. Cash Credit 18 31.61 16 30.32 2. Consumer Credit 639 9.70 630 9.56 3. Commercial Loan 13 0.08 13 0.08 Sub Total 670 41.39 659 39.96 Grand Total (A+B) : 707 77.32 706 77.07 2.5 LOAN RECOVERED Recovery of loan is crucial index to measure the success of a lending organisation. |The Bank strengthened its recovery drive for realising loans and dues from its borrowers
- 9. 9 and notable success achieved. In 2013, total recovery target of loans was TYK. 163 .08 crore, against which actual cash recovery was TK. 170.52 crore, showing about a 5% rise over the target. It showed core from written off loan were recovered during the reporting year. The outstanding loan of TK. 39.85 core was regularised through rescheduling and replacement of bad and doubtful loan accounts of 17 projects. Loan recovery scenario was depicted in Table -2.3: Table-2.3: Recovery of loans during 2013 Category of Loans Recovery Target Amount Recovered Unclassified 96.80 122.32 Classified 26.28 23.56 Written-off 40.00 24.64 Total 163.08 170.52 2.6 FINANCIAL STATEMENT & RATIO ANALYSIS Ratio Analysis is used as a way of analysing the performance of a company or organization. As banks have very different operating structures than regular industrial companies, it stands to reason that investors have a different set of fundamental factors to consider, when evaluating banks. This is not meant as an exhaustive or complete list of the financial details an investor needs to consider, when contemplating a bank investment. I choose BDBL & Agroni for financial statement & ratio analysis. 2.6.1 LOAN GROWTH For many banks, loan growth is as important as revenue growth to most industrial companies. The trouble with loan growth is that it is very difficult for an outside investor to evaluate the quality of the borrowers that the bank is serving. Above-average
- 10. 10 loan growth can mean that the bank has targeted attractive new markets, or has a low- cost capital base that allows it to charge less for its loans. On the other hand, above average loan growth can also mean that a bank is pricing its money more cheaply, loosening its credit standards or somehow encouraging borrowers to move over their business. Figure-2.1: loan Growth In this figure we find that loan growth of BDBL is not much better than Agroni Bank. In 2011-2012 BDBL loan growth is improved compared to Agroni bank. But in 2012- 2013 BDBL loan growth is improved but it not better than Agroni Bank. 2.6.2 DEPOSIT GROWTH As previously discussed, deposits are the most common, and almost always the cheapest, source of loanable funds for banks. Accordingly, deposit growth gives investors a sense of how much lending a bank can do. There are some important factors to consider with this number. First, the cost of those funds is important; a bank that 0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 2011 2012 2013 Agroni 12,236,085, 13,256,184, 19,085,656, BDBL 10,046,075, 14,743,064, 15,457,176, Millions Loan Growth Agroni BDBL
- 11. 11 grows its deposits by offering more generous rates, is not in the same competitive position as a bank that can produce the same deposit growth at lower rates. Also, deposit growth has to be analysed in the context of loan growth and the bank management's plans for loan growth. Accumulating deposits, particularly at higher rates, is actually bad for earnings if the bank cannot profitably deploy those funds. Figure-2.2: Deposit Growth In this figure we see that the BDBL deposit growth is improved but compare to the Agroni Bank its not better. Agroni Bank deposit growth is much better than BDBL. 2.6.3 LOAN/DEPOSIT RATIO The Loan/Deposit Ratio helps assess a bank's liquidity, and by extension, the aggressiveness of the bank's management. If the loan/deposit ratio is too high, the bank could be vulnerable to any sudden adverse changes in its deposit base. Conversely, if the loan/deposit ratio is too low, the bank is holding on to unproductive capital and earning less than it should.Loans in the numerator of the formula are investments or 0 5,000 10,000 15,000 20,000 25,000 2011 2012 2013 Agroni 16,283,624, 20,326,011, 22,208,360, BDBL 4,706,790,9 12,945,566, 19,988,788, Millions Deposit Growth Agroni BDBL
- 12. 12 assets for a bank. Deposits in the denominator of the formula can be considered the same as debt as the individual depositors are essentially granting monies to the bank with a return equal to the deposit rates and that can be called upon at any time. In these respects, the loan to deposit ratio is similar to a liquidity ratio and debt ratio. Figure-2.3: Loan/Deposit Ratio In this figure we find that BDBL loan deposit ratio comparing with Agroni bank loan deposit ratio is reduce year to year. 2.7 SWOT ANALYSIS OF THE ORGANIZATION SWOT analysis is a tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, straightforward model that assesses what an organization can and cannot do as well as its potential opportunities and threats. The method of SWOT analysis is to take the information from an environmental analysis and separate it into internal (strengths and weaknesses) and 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 2011 2012 2013 Agroni 163.51% 139.13% 86.95% BDBL 132.43% 148.48% 73.13% Loan/Deposit Ratio Agroni BDBL
- 13. 13 external issues (opportunities and threats). Once this is completed, SWOT analysis determines what may assist the firm in accomplishing its objectives, and what obstacles must be overcome or minimized to achieve desired results. In case of BDBL SWOT analysis is given below: S TRENGTHS W EAKNESSES O PPORTUNITIES T HREATS 1. Weak internal control and working environment. 2. Limited publication even they have no particular books on BSB that may cover everything. 3. Lack of co-ordination in the policies or directives. 1. There are huge demand of micro-credit, small and medium scale finance. 2. Bangladeshi economy is expanding rapidly. 3. Many opportunities of innovation in the Banking industry. 1. More and less all the competitors in the baking industry are competent. 2. Too much interrupted by international assistance institution like World Bank, IMF, WTO etc. 1. Only one industrial bank of our country. 2. Strong capital & asset base. 3. Deep focus on quality control. 4. A dedicated line of human resource & internal control and compliance. Figure-2.4: SWOT analysis of BDBL
- 14. 14 2.7.1 STRENGTH OF BDBL BDDL is a development finance institution. It plays significant role in the industrial development of Bangladesh. Its untiring endeavor is remarkable. As a finance institution it has both strength and weakness. All the contribution of BDBL is the consequences due to its strength. On the other hand failure of BDBL is for unconsciousness and unauthorized exercise of power. It is indeed that the contribution of BDBL is below the expectation. BDBL has some skill manpower such as Engineer, Economist, Business executives, lower and so forth. Their capabilities are deteriorating for lack of proper working environment and unexpected political pressure. In some cases they are not able to work independently. If BDBL can use his personnel sufficiently, it will be profitable in future. BDBL has greater capacity to collect money from foreign countries. It may come through loan aid, grant etc. and BDBL has many potential sectors where it can disburse more money as loan. If BDBL able to merge between two (resource mobilization and loan disburse), it will give good results for the economy as well. BDBL is only one industrial bank of our country. All industrial must have to go BDBL for industrial loan. They can take these opportunities through their willingness and service mentally. 2.7.2 WEAKNESS OF BDBL Working environment& internal control of BDBL is weak. Many people are working in a big room. As a result office room has converted into a noisy place. As a big organization has limited publication even they have no particular books on BSB that may cover everything. Lack of co-ordination in the policies or directives are shown in this BDBL.
- 15. 15 2.7.3 OPPORTUNITY OF BDBL The opportunity of BDBL is that it can regain its market and role by developing some remedial measures, such as making a market research cell, enabling the BOD independent. There are huge demand of micro-credit in that time & economy is expanding rapidly in Bangladesh. It can also reduce the processing time of loan sanction and strengthening its recover drive. However, it should diversify its products and services to compete with the ever rising private commercial bank. 2.7.4 THREATS TO THE BDBL There are many threats to the BDBL most strong one is the rising money market of Bangladesh. There are now so many private commercial banks that provide credit of various terms to the existing and new business. That is why; the demand of BDBLs loan is decreasing over the last decade. The business people do not want to wait three to four months for taking loan. They want one sop service. So time will come when the demand of loan of BDBL would never attract the entrepreneurs. International assistance institution like World Bank, IMF &WTO are interrupt by many ways.
- 16. 16 CHAPTER- 03 LOAN SANCTION PRACTICE OFBDBL 3.1 INTRODUCTION: After appraising the project, project appraisal committee submits the project appraisal report on the basis of that a project is approved. If the project is approved, loan is sanctioned to the proposed project. During FY 2012-13, the bank sanctioned total long term loan of tk.436 million to 27 projects and FY 2011-12, sanctioned loan was tk.918 to 20 projects. 3.2 LOAN SANCTIONS PROCEDURE: First of all, a client who wants to have a loan ask for an application form, which is known as Bangladesh Standard Questionnaire form (BSQE).He has to pay one eight of one percent cash money 1/8th of 1% of the total loan amount with the filled form. The person is required to submit necessary papers and documents by the bank the information generally consists of following: Name of the product. Name & designation of the entrepreneur. Type of project &Type of products. Site of the project. Amount of the project. Copy of memorandum, articles of association and other papers relating to legality of the projects. Site, production process flow diagram etc.
- 17. 17 When all the required papers and documents are submitted along with the fee TK.1000 plus 1/8th of 1% of total loan amount, the proposal is then under consideration of judging the project viability. 3.3 SECTOR-WISE POSITION OF BANKS LOAN PORTFOLIO: Table-3.1: Sector-wise Loan Portfolio Sectors No. of project Total Loan outstanding (In Million Taka ) Food and Allied Products Jute and Allied products.. Cotton. Woolen and Synthetic Textiles. Paper, Paper Products and Printing Tannery and Leather Products Non Metallic Mineral Products. Metal Products .. Electrical Machinery and Goods Machinery & spare parts Water Transport. Chemical & Pharmaceuticals. Petro Chemical Products.. Service Industries.. Miscellaneous 48 1 49 6 4 3 5 1 4 4 14 3 30 3 352 1 4635 124 79 4 19 33 20 54 228 107 196 76 3.4 SECTOR-WISE POSITION OF BANKS LOAN PORTFOLIO: Here are some sector that I present graphically. I summarized last five years data to execute this figure that are given here:
- 18. 18 3.4.1 JUTE & ALLIED PRODUCTS: Figure-3.1: Jute & allied products. During FY 2012-13 total members of jute and Allied products projects in the loan portfolio stood at 1 with a total loan outstanding of Tk. 1 million. In the preceding year under this sector the total member of projects of the loan portfolio stood at 2 with a total loan outstanding of Tk. 1.38 million. In FY 2012-13 the member of project 1 and loan amount Tk. 0.38 mil lion are decreased comparing to the FY 2011-12 under this jute and allied products. During FY 2008-09 to FY 2012-13 there is decreased trend from previous year. During FY 2008-09 total member of Jute and allied products projects in the loan outstanding of Tk. 674 million, total member of projects 5 and loan outstanding amount Tk. 673 million is decreased in FY 2012- 13 comparing to the FY 2008-09 under this jute and allied products. 2008-09 2009-10 2010-11 2011-12 2012-13 No. of Project 5 3 3 2 1 Total Loan outstanding 674 538 535.75 1.38 1 5 3 3 2 1 674 538 535.75 1.38 1 0 100 200 300 400 500 600 700 800 Jute & Allied products No. of Project Total Loan outstanding
- 19. 19 3.4.2 COTTON, WOOLEN AND SYNTHETIC TEXTILES: Figure-3.2: Cotton, woolen and synthetic Textiles. During FY 2012-13 total members of cotton, wooden and synthetic textiles projects in the loan portfolio stood at 49 with a total loan outstanding of Tk. 4653 million. In the preceding year under this sector the total no. of projects of the loan portfolio stood at 52 with a total loan outstanding Tk. 4401.15 million. In FY 2012-13 the total member of projects 3 are decreased and loan outstanding amount Tk. 234 million are increased comparing to the financial year 2011-12 under this cotton wooden and synthetic Textiles sectors. During financial year 2008-09 total number of cotton woolen and synth etic Textiles projects in the loan portfolio stood at 87 with a total loan outstanding at Tk. 4148 million. The total member of projects 38 is increased and loan outstanding Tk. 487 million is also decreased compa ring 2008-09 2009-10 2010-11 2011-12 2012-13 No. of Project 87 53 53 52 49 Total Loan outstanding 4148 5304 4322.43 4401.15 4635 87 53 53 52 49 4148 5304 4322.43 4401.15 4635 0 1000 2000 3000 4000 5000 6000 Cotton, woolen and synthetic Textiles No. of Project Total Loan outstanding
- 20. 20 to the financial year 2012-13 under this cotton woolen and authentic Textiles sectors. 3.4.3 FOOD & ALLIED PRODUCTS: Figure-3.3: Food and allied products. During FY 2012-13 total number of food and allied products projects in the loan portfolio stood at 48 with a total loan outstanding of Tk. 352 million. In the preceding year under this sector the total member of projects of the loan portfolio stood at 46 with a total loan outstanding of Tk. 1335 million. In FY 2011-12 total numbers of projects and total loan outstanding are decreased comparing to the previous FY under this Food and Allied products. 2008-09 2009-10 2010-11 2011-12 2012-13 No. of Project 46 31 43 46 48 Total Loan outstanding 1335 491 224.2 246.16 352 46 31 43 46 48 1335 491 224.2 246.16 352 0 200 400 600 800 1000 1200 1400 1600 Food and allied products No. of Project Total Loan outstanding
- 21. 21 3.4.4 ELECTRICAL MACHINERY AND GOODS: Figure-3.4: Electrical Machinery and goods. During FY 2012-13 total numbers of machinery and spare parts projects in the loan portfolio stood at 1 with a total loan outstanding of Tk. 33 million. In the preceding year under this sector the total member of projects of the loan portfolio stood also 1 with a total loan outstanding of Tk. 21 million. In FY 2011-12 total numbers of projects remain unchanged but loan amount decreased comparing to the FY 2012-13 under this Machinery and spare parts sectors. 2008-09 2009-10 2010-11 2011-12 2012-13 No. of Project 6 0 1 1 1 Amount of loan 354 0 16 21 33 6 0 1 1 1 354 0 16 21 33 0 50 100 150 200 250 300 350 400 Electrical Machinery and goods No. of Project Amount of loan
- 22. 22 3.4.5 PETRO CHEMICAL: Figure-3.5: Petro Chemical Products During FY 2012-13 total number of Petro Chemical Products projects in the loan portfolio stood at 3 with a total loan outstanding of Tk. 107 million. In the preceding year under this sector the total member of projects of the loan portfolio stood 4 with a total loan outstanding of Tk. 123million. In FY 2012-13 total numbers of projects and total loan outstanding are decreased comparing to the previous FY under this Service Industries. 2008-09 2009-10 2010-11 2011-12 2012-13 No. of Project 5 5 5 4 3 Amount of loan 102 133 121 123 107 5 5 5 4 3 102 133 121 123 107 0 20 40 60 80 100 120 140 Petro Chemical No. of Project Amount of loan
- 23. 23 3.5 LOAN SANCTION SCENERY OF BDBL OVER LAST 10 YEARS (Amount in thousand BDT) Here 10 years loan sanction of BSB to various sectors has been shown in the table 3.2: Table-3.2: Loan Sanction of BDBL in 10 years Loan Sanction of BDBL in 10 years Name of the Projects 2003- 04 2004 -05 2005 -06 2006- 07 2007- 08 2008 -09 2009 -10 2010- 11 2011- 12 2012- 13 Textiles 2528 52 4400 93 6284 98 64562 8 6857 94 5304 00 428 690 43224 3 1303 10 47590 00 Electrical 255 365 697 5208 1009 0 0 1581 2055 0 33000 Food & Allied 1759 1 1958 7 2059 7 17819 2265 0 4910 0 292 26 22402 2461 60 35200 0 Jute & Allied 1581 8 4038 5 1832 4 19313 3051 3 5380 0 536 71 53575 1380 1000 Machinery & Metallic Products 8785 3909 4093 7101 8019 7600 111 9 1083 2526 0 20000 Petrol Chemicals 3711 6300 3055 3379 6226 1330 0 126 49 12084 1224 50 10700 0 Rubber 95 109 235 315 301 398 0 0 - - Service 2555 5 2059 4 2582 9 27829 3084 5 2040 0 228 38 22450 2071 10 19600 0 Tannery 1888 0 2020 0 1322 0 13441 1550 9 1000 0 109 03 10606 8933 0 79000 Water Transport 8097 5011 4525 3518 6074 5 5028 603 0 6916 7440 0 54000 Total 3485 67 5561 93 7181 46 90076 4 9059 9 5862 00 565 126 56302 0 5699 740 59650 00
- 24. 24 CHAPTER -4 RECOVERY OF LOAN 4.1 INTRODUCTION Loan recovery is a crucial index to measure the success of a lending organization. The success and failure of a lending organization largely depends on its drive for realizing loans and dues from its borrowers. In 2011-12, was tk.900 million, against which actual cash recovery was tk.981.20 million constituting 100+ percent of the target. But during the reporting year, outstanding loan of tk. 423.00 million is regularized through rescheduling and replacement of bad and doubtful loan accounts of 16 projects. In FY year cash recovery was tk. 1065.71 million and the amount of loan regularized through replacement was tk. 280.20 million. 4.2 RECOVERY OF LOAN Table-4.1: Recovery of Loan Category of loan Loan Amount recovered (Million Taka) 2011-12 2012-13 A) Long Term Loan: Long Term project loan 735 596 Bridge Loan .40 .29 Staff loan 48 62 Administered Loan 38 Sub-Total 784 696 B) Short Term Loan : Working Capital Loan 67 58 C) Others Debenture/ Shares/ loan against FDR 11 16 Written off Loan 120 138 Sub- Total: 131 154 Grand Total (A+B+C) 981 908.29
- 25. 25 4.3 LOAN RECOVERY METHODS: BSB usually follow a formal way to recover its loan. Normally before an installment falls due they issue many reminders to remind sponsor to prepare to pay loan. They use phone call, formal letter, and physical visiting to remind the sponsor to prepare for paying installment on due time. Formally, central recovery department perform this duty. The officers of central recovery department go for physical visit to project site twice in a year. By this visiting they try to understand the present condition of the project and predict future position of the project. By analyzing the condition of the project, they suggest sponsors to take necessary to measure to sustain project and increase the cash flow. Sometime they offer them additional credit to strengthen their cash generation, which is called cash credit. However, the recovery method of BSB is not still modern and sophisticated one like the existing private lending and financial organization. Some Other Technique Which Are Applied by BSB to Recover the Loan and Advances are as follows. BDBL ensures regular recovery of loans as per repayment schedule BDBL reserves the right to nominate its officers to act as directors on the BOD of the company. The borrowers who pay their installments of the principal loan, interest, and other charges on or before due date as per repayment schedule may be allowed rebate at a rate of 5% on interest by BSB Board. Personal properties of directors, managing directors are attached as collateral securities and law department-1 recovers it. Visit the project personally by BSB concerned department officers.
- 26. 26 At first negotiation personally for rescheduling or others without legal action through noticing. Personal negotiation gives positive result to recover the loan then legal action. Thus it can be said that the officers of BSB try hard and fast to recover the advances in any way 4.4 SECTOR-WISE LOAN RECOVERY OVER 10 YEARS Here I present 10 sectors from which BSB recovered loan over 10 years. By the loan recovery table, we will better be able to understand about the performance of BSB in regarding loan collection and sector-wise performance of loan collection. 4.4.1: JUTE AND ALLIED PRODUCTS In collection of loan money in Jute and Allied Products is remarkably upward trend except in FY2012-13. But during FY 2008-09 was recovered tk. 70272. Figure-4.1: Jute and Allied Products 2003- 04 2004- 05 2005- 06 2006- 07 2007- 08 2008- 09 2009- 10 2010- 11 2011- 12 2012- 13 Jute & Allied Products 41458 44371 28171 26285 43001 70272 14972 10182 9170 116000 41458 44371 28171 26285 43001 70272 14972 10182 9170 116000 0 20000 40000 60000 80000 100000 120000 140000 Jute & Allied Products
- 27. 27 4.4.2: COTTON WOOLEN AND SYNTHETIC TEXTILES The highest recovery of this sector is tk. 702722 thousand in the year 2008-09 and other years are medium position. So this sector is in volatile position because increasing and decreasing pattern in existed in these sectors. Figure-4.2: Cotton Woolen and Synthetic textiles 4.4.3: FOOD AND ALLIED PRODUCTS Food and Allied sectors in respect of collection of loan money from the sponsors is positive because it is also a positive sector in our country. Figure-4.3: Food and Allied Products 2003- 04 2004- 05 2005- 06 2006- 07 2007- 08 2008- 09 2009- 10 2010- 11 2011- 12 2012- 13 Cotton Woolen & Synthetic textiles 414589443717281719262854430019702722811319640390612120555940 414589443717 281719262854 430019 702722 811319 640390612120 555940 0 100000 200000 300000 400000 500000 600000 700000 800000 900000 Cotton Woolen & Synthetic textiles 2003- 04 2004- 05 2005- 06 2006- 07 2007- 08 2008- 09 2009- 10 2010- 11 2011- 12 2012- 13 Food & Allied Products 13319 17574 19270 19907 25160 25232 17809 30902 25160 32900 13319 17574 19270 19907 25160 25232 17809 30902 25160 32900 0 5000 10000 15000 20000 25000 30000 35000 Food & Allied Products
- 28. 28 4.4.4: ELECTRICAL MACHINERY AND GOODS This sector was a downward trend from FY 2003-04 to 2009-10. But from 2010-11 to 2012-13 is well recovery position. Figure-4.4: Electrical Machinery and Goods 4.4.5: PETRO-CHEMICALS Loan recovery in these sectors is also in volatile positive. However in 2012-13 the more loans are recovered. Figure-4.5: Petro-chemicals 2003- 04 2004- 05 2005- 06 2006- 07 2007- 08 2008- 09 2009- 10 2010- 11 2011- 12 2012- 13 Electrical Machinery & Goods 176 270 175 130 161 431 881 1825 2800 4552 176 270 175 130 161 431 881 1825 2800 4552 0 1000 2000 3000 4000 5000 Electrical Machinery & Goods Electrical Machinery & Goods 2003- 04 2004- 05 2005- 06 2006- 07 2007- 08 2008- 09 2009- 10 2010- 11 2011- 12 2012- 13 Petro-chemicals 2629 3101 2711 7400 2468 3561 51612 24915 17210 27310 2629 3101 2711 7400 2468 3561 51612 24915 17210 27310 0 10000 20000 30000 40000 50000 60000 Petro-chemicals Petro-chemicals
- 29. 29 CHAPTER- 5 FINDINGS AND ANALYSIS 5.1. FINDINGS ON LOAN SANCTION: BDBL grants normally four kinds of loans such as, continuous loans, demand loan, fixed term loans, and short term agriculture and micro finance credit. During 1995-96, the Bank started sanctioning working capital to the project that they financed, but in this case they incurred huge losses being unable to recover the loan. BDBL uses project appraisal technique comprising technical, market, financial, economic, and management & organization analysis. The main problems can be summarized in the following way: Sponsors always tend to overstate their future cash flow, revenue and income and understate the risk with capturing market and expenses. Market dont remain same over the years especially over the time gap between loan sanction and loan recovery. Loan sanction process is not always free from political pressure. Lengthy procedure and long time involved in the appraisal of project. Sometimes, there is pressure groups involvement in sanctioning loan. Many projects are sanctioned loan due to influence of political and pressure group. Sometimes, the amount of loan sanction is more than that is required by the project because of over invoicing from the part of sponsors. Lack of eagerness to devote themselves for bank because of lower benefits is given to employees.
- 30. 30 5.2: FINDINGS ABOUT THE LOAN RECOVERY: After sanctioning loan, the implementation department recovers the first and second installments then the recovery department takes the duty of recovering the rest of the installments. The recovery process is not satisfactory because the persons involved in the recovery process show lax or laggardness. Usually they inform the borrowers before 15 days of the scheduled date of payment about his/her next upcoming installment due. Visiting to the borrowers premises is hardly done before the loan is defaulted. The recovery department makes the replacement of loan and rescheduling of the loan when necessary. The recovery department cannot coerce or make bound to repay the loan because of pressure from political and other higher management. Every government makes impediment in their normal recovery process especially if the borrower is linked with that political party.
- 31. 31 CHAPTER-6 CONCLUSIONS AND RECOMMENDATIONS 6.1 CONCLUSION Most of the banks of Bangladesh are offering a wide array of financial services including new types of loans and advances and some whole new services are launched every year. As a DFI, BDBL also has to discover new avenues to reach its goal. It is a state owned bank. For this reason it should go to the peoples heart through various schemes. It should follow a mix lending policies designed to improve the quality of its portfolio and reduce its risk exposure so that in near future when competition among banks will serve more it can stand with its own entity. Now BDBL is trying to operate its business successfully in this country. The success has been resulted from the prediction, commitment and dynamic leadership of its management. For success, BDBL has to consider the behavioral issues of this banks customers. By proliferation of new advance service expanding use of automated equipment and electronic transfer of financial information, BDBL can be a truly fascinating institution in the near future. The institutional future of the bank depends on its ability to achieve a substantially higher recovery ratio and profitability in future. And this achievement will help BDBL to overcome its image crisis.
- 32. 32 6.2 RECOMMENDATIONS It is very difficult to give any recommendation about the operation of BDBL because I have not worked here; rather I listened to the personnel of BDBL. However, as per as I understand, I can some recommendations about loan sanction & recovery 6.2.1. RECOMMENDATIONS FOR LOAN SANCTIONS Project appraisal technique should strictly be followed through the loan sanction process. Relevant and accurate data about project should be collected. Persons involved in project appraisal should have more expertise and practical knowledge. In analyzing the viability of a project, market of the products or services and management should rigorously be analyzed. The time of loan sanction should be reduced; it should not be more than 20-30 days. For reducing time, the Bank should instruct the borrower to bring all the documents needed by the documentation department and the functions of loan operation department and documentation department should simultaneously be done. Over invoicing should be checked and detected by expertise. The real price of machinery should be found out by using various sources.
- 33. 33 6.2.2. RECOMMENDATIONS FOR RECOVERY DEPARTMENT Recovery drive should be reshuffled and strengthened. At least before 30-45 days of scheduled time of installments due, the borrowers should be reminded about the installments is falling due. The defaulting borrower should be monitored so that he cannot channel his fund to other business of firms. They should assist the sponsors if he requires continuing his business operation and generating cash to repay loan. No political or other pressure should be considered for loan recovery.
- 34. 34 Bibliography Bangladesh Development Bank annual report 2012/2013 Bangladesh Development Bank annual report 2012/2011 Bangladesh Development Bank annual report 2011/2010 Bangladesh Shilpa Bank Annual Report 2008/2009 Bangladesh Development Bank annual report , 2007/2008 Bangladesh Development Bank annual report , 2006/2007 Bangladesh Development Bank annual report , 2005/2006 Different Project Appraisal reports of BDBL. Loan sanctioning letter of BDBL. Bangladesh Shilpa Bank Ordinance 1972. Manual of different departments of BDBL. Different project appraisal reports of BDBL Loan sanctioning letter of BDBL Bangladesh Shilpa Bank Ordinance 1972 Manual of Different department of BDBL Debnath, Dr. R.M., Business of Banking, Dhaka: Lotus Publishers, 2008. Website-http://www.bdbl.com.bd