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CHAPTER-ONE INTRODUCTION1.1 Origin of the report:This internship report is generated under the academic supervision of prof. DR Anisur Rahman, Dept. of Marketing, University of Dhaka and organizational supervision of Mr. Mohammad Abdul Matin and Mr. Masum Mahmud Baqui principal officer, credit division of prime bank limited. This report is prepared as the partial requirement of MBA degree. The topic is Evaluation of customer services of prime bank limited based on Motijheel branch The main objective of doing this report is to have a practical experience of the real life aspects of the management that we have studied in the academic course. To prepare this report, I have selected and got opportunity to work as an intern in the reported and well known leading Prime Bank Limited.

1.2 Methodology:The Methodology of the report is inductive. The report is based on both primary and secondary sources of information. Officers and employees have provided the primary sources of information. Further more the secondary sources of information are the different annual reports kept in the Bank.

1.3 Key Parts of the report:We are in new dynamic millennium of 21st century. It is very interesting to observe how organizations are involved to shape them for a new arena. Especially banks are directly in action to upgrade the economic position of countries every time. We all know that bank is a service-oriented organization. It renders banking services to the customers. No doubt customer service contributes vastly and rapidly to the development of business as well as the economy. In this regard customer service of Prime Bank Limited has been taken as subject of observation of the report. 1

As a service-oriented organization PBL is serving its customer through its different departments; these are General Banking Department which includes Accounts, Remittance and Clearing Section, Credit & Advance Department, CCS Department, Foreign Exchange Department. PBL is providing the facilities of different types of accounts to its customers such as Current Account, Savings Account, Fixed Account. Beside these they are offering Several Deposit Schemes; are, CSS, MBDS, ESC, SDS. Customers are provided the facilities for issuing Pay order, Demand Draft, Telegraphic Transfer in Remittance Section of General Banking. Credit Department serves customers extending their helping hand for their productive investment. It provides loan of different types; importantly consumer credit, corporate credit, small and medium enterprise, venture capital, house building financing etc. More over the department gives financial advisory services to its valued clients. Consumers Credit Scheme Section gives loan ranges from TK 20,000/- to TK 3,00,000/for the period of one year to three years at 15% interest rate. Foreign Exchange means exchange foreign currency between two countries. This Department is facilitating Export, Import, and helping in remitting money from country to country. The major part of its activities is L/C (letter of Credit) Oriented, which facilitates the import & export of the country. It offers different types of L/C. Back-to-Back L/C is one of those and is most popular one. This department provides post import finance such as PAD, LTR as well as finance in case of export at two stages such as Pre Shipment Credit, Post Shipment Credit.

1.3 Benefits to the Institution through this report:

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The Institution will get an overall picture on Customer Service of the bank through this report. It may take steps to overcome its shortages or weakness; at the same time it may explore the opportunities it does have.

1.4 Broad Objective and Specific ObjectivesThe main objective of the study is the evaluation of the different types of customer services provided by the Prime Bank Ltd. To achieve the main objectives, the study covers the following specific objectives. To analyze the service procedure of Prime Bank Ltd. To know the banking operation. To know the area of General Credit. To know the process of loan disbursement. To know the documents of credit. To know the import & Export finance. To know the process of loan collection

1.5 ScopeThe Present Study is an attempt to evaluate the customer services of the Bank, Therefore, in order to observation of the three sectors of the bank, namely, General Banking, Credit, Foreign Exchange were covered. For this, the presentation has been organized into General Banking Department. Credit Department. Foreign Exchange Department.

1.6 Limitations:

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In spite of having the wholehearted effort, there were some limitations, which acted as a barrier to conduct the program and for doing an empirical research work. The limitations were : The study was limited only to the Prime Bank Limited. Another Problem was time constraints. The duration of my internship Program was only three months. But this allocated time is not enough for a complete and fruitful study. The Bank was a busy one having heavy rush of people, whom officers need to deal with. So allocation of time for an internee is very much tough for the officers of the bank. I was not assigned for a specific task in each day. So I was not able to understand banking activities deeply. Bank is a sophisticate business sector. So bank do not interested to provide me confidential data. As a result in my report there is a confidential data limitation.

CHAPTER-TWO

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BRIEF HITORY OF BANK2.1 Evolution of the Word Bank:The word bank originated from Italian word Banca. Banca means long tool. In ancient time Italian Jews merchant used to do business of lending money by sitting on the tools. It is assumed that the word bank derived from the word Banca. To meet the expense of war of 1171 one type credit certificate was launched in Italy at an interest rate of 5% it was called as Monte in Italian language and Banke in German language then German language was widely used in Italy. As a result the word Banke gradually changed to the word Banca from which the word Bank originated.

2.2 The Emergence of Modern Banking:The linguistics and etymology suggests an interesting story about banking origins. Both the old French word Banque and the Italian word Banca were used centuries ago to mean a bench or moneychangers table. This describes quite well what historian have observed concerning the first bankers, who lived more than 2000 years ago. They were money changers, situated usually at table or in a small shop in the commercial district, aiding travellers who came to town by exchanging foreign coins for local money or discounting commercial notes for a fee in order to supply merchants with working capital. The first bankers probably used their own capital to fund their activities, but it was not long before the idea of attracting deposit and securing temporary loans from wealthy customers became a source of bank funding. Loans were then made to merchants shippers, and landowners at rates of interests low as 6percent per annum to as high as 48 percent a month for the riskiest ventures! Most of the early bank was Greek in origin.

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The banking industry gradually spread outward from the classical civilizations of Greece and Rome into northern and western Europe. The early bank in Europe was places for safe keeping of valuable items (such as gold and silver bullion) as people came to fear loss of their asset due to war, theft, or expropriation by government. when colonies were established in North and South America , old world world. banking practice were transferred to the new

2.3 Development of Banking in Bangladesh:Since early British rule, the history of banking in Bangladesh territory shows that the traditional trade-networks developed before the banks invaded rural areas. And the banking services have slowly flourished in Bangladesh territory. Even today, in many places, moneylenders provide credit services. Small shopkeepers and businessman use informal credit at high interest rate. Traditional mahajan,s money lending business gradually declined due to expansion of bank and the micro credit programs of NGO,s Cooperative banks and government agencies.

Public Sector Banks:During the liberation war in 1971, the economic, political, and social system including the banking system was severally damaged. At that time, all big and medium financial institutions except two small banks had their head office in the west Pakistan. The non-beagle owners and managers of the financial establishments that operated in East Pakistan had abandoned them. After independence in 1971, the new government had to take over management and ownership of all such institutions. The banks Nationalization Order 1972 was issued to nationalize banks and financial institutions (except those incorporated abroad) in order to control chaos in the field of ownership, party bureaucracy, the intelligentsia, and pressure group. By several orders six nationalized commercial banks (NCB,s) : one industrial band (BSB) 6

one agricultural bank(BKB) one industrial development financial institution(BSRS) were created .

The banks and financial institutions which originated during the Pakistan period and were merged, and renamed and functioning after independence of Bangladesh. In the year 1983, the government allowed private sector to participate in the banking business. The public Bank and the Uttara Bank were denationalized in 1985, due to non profitability. This action reduced the number of NCB,S to four. Such restructuring of public sector banks was in order to play their role in industry, agriculture, export, self employment etc.

Private commercial banks:Taking advantage of the liberalization policy of the government regarding participation of private sector in the banking business, a number of private banks were established in and after 1983. With the emergence of private banks in Bangladesh, a competitive situation in the sector has been created. Now there are 52 commercial banks in Bangladesh such as. National bank (1983), prime bank ltd (1995) etc. The emergence of private banks has added a new dimension to the banking system in Bangladesh. The private commercial banks show a steady growth in terms of number of branches, deposit and advances.

Foreign banks:The state bank of India opened one branch July -September 1975. in 1975, the four foreign banks operating in Bangladesh were: Mercian Express 7

International Banking Corporation , Grind lays Bank, The Chartered Bank and State Bank of India. Now there are more than 15 foreign banks. The historical process shows the influence of the various social groups in the governance of the country and the banking systems. During the British regime banking was concentrated only in the areas of commercial and administrative importance. With the independence of India and Pakistan, the banking sector had to be reshaped. The government of Pakistan had to take major initiatives for the growth and extension of banking services of to different sectors of the economy and also to different regions. Independence of Bangladesh saw yet another major change in the banking sector. Immediately after independence of Bangladesh, banks started their operation s under full government ownership. Later, some of the banks were denationalized and the government allowed banks to be established in the private sector. Banking operations have been diversified. A number of specialized banks were established. Development finance institutions also exist to supplement the baking sector. in an effort to boost the economy , government has been following a pragmatic policy relating to the banking sector in Bangladesh . Despite many odds and problems now facing banking sector. It is expected that it would be able to meet up the challenges ahead, particularly of the nest century. Initially this chapter highlights the evolution and progress of banks and financial institutions in Bangladesh with an account of developments in Bengal under the British rule and in East Pakistan. Small and non-scheduled banks mainly provided banking services in East Bengal before partition of India. The state bank of Pakistan was formed in 1948. After independence of Bangladesh, all banks and financial institutions were nationalized. Private 8

Banks stated coming up since 1983. A number of foreign bank branches and private commercial banks now share a remarkable portion of banking business.

CHAPTER-THREE COMPANY STATUS3.1 Background of Prime Bank Limited

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Prime Bank Ltd. incorporated in 12th February 1995 and started operation in 17th April1995. The sponsors are reputed personalities in the field of trade and commerce and their stake ranges from shipping to textile and finance energy etc. The bank has a network of 42 branches strategically located in different cities. All the branches are functioning in computerized environment. As a fully licensed commercial bank, Prime Bank Ltd. is being managed by a highly professional, prompt, and dedicated team with long experience in banking. The constantly focus on understanding and anticipating customer needs.

The bank has already occupied an enviable position among its competitors after achieving success in all area of business operation. The growth of the deposit is growing fast. At the end of 2005 total deposits stood at TK. 36022.4551 million. In a fast changing business environment financial intermediaries are gradually being left Competition is strengthened by the entry of new and innovative providers of financial services through the development of money market and capital market. And to operate in commercial arena of Bangladesh Prime Bank Ltd emerges as a new bank in the private sector with their vision- To be the most efficient in terms of customer services, profitability and technology application

3.2 GOALS AND OBJECTIVES OF PRIME BANK LIMITED To promote trade, commerce and industry. To discover strategies for achieving systematic growth. To improve and broaden the range of product and services. To develop human resource by increasing employment opportunities. To enhance asset of shareholders. 10

To create congenial atmosphere so that the client becomes interested to deal with the prime bank limited. To develop welfare oriented banking service. To offer highest possible benefit to customers. As to its position among its counterparts is held high to let the viewers cast their very first look at it. To build up strong pillar of capital. To keep business morality. To offer standard financial services to the people.

3.3 OperationPrime Bank Limited, since its inception is a fully focused Bank depending on technology. The bank has by now a network of 42 branches strategically located in different cities. All the branches are functioning in computerized environment and integrated through Wide Area Network (WAN) .The branches are full fledged units and can provide all commercial and investment banking service raging from small and medium enterprises to big conglomerates and houses.

The Bank will try to reduce its dependence on interest earnings by giving more emphasis on the fee based income through introduction of capital Market Operation and Leasing .The Capital Market operation will include Portfolio Management, Investors Account, Underwriting Mutual Fund Management etc.. The Bank will introduce modern system of Leasing Operation as in practice with Banks in all other countries of the world. The lease Finance portfolio of the bank will be the first of its kind in a Commercial Bank in Bangladesh.

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A warehousing system will be developed in the country through private entrepreneurs. The conventional Go down system of the Banks will gradually be done away with and a modern system of warehousing will be encouraged in its place for pledge of goods of the clients. Because Banks deal with papers and not with goods. Prime Bank Ltd. Investment Counselors will give all sorts of advice to their Customers as they may require from time to time protecting their assets and safeguard to their interest. The Bank, will the help and assistance of competent NGOs will also initiate Rural Credit Programs. Entrepreneurship Development Training will be arranged to impart operational skill and modern technique of management to introduce new entrepreneurs in the field of industrialization on the basis of participating finance. Prime Bank Limited is one of first few Bangladeshi Banks who have become member of SWIFT (Society for Worldwide Inter-Bank Financial Telecommunication) in 1999. SWIFT is a member owned co-operative, which provides a fast and accurate communication network for financial transactions such as letters of Credit, Fund transfer etc. By becoming a member of SWIFT, the bank has opened up possibilities for uninterrupted connectivity with over 5,700 user institutions in 150 countries around the world SWIFT No. PRBLBDDH. Prime Bank Limited is operating branches on both conformist interest based Banking and Islamic Sariah Principle based Banking. The Islamic Sariah Principle Banking is completely different From the conventional banking. The Bank is Maintaining separate set of accounts for Islamic Banking branches according to the standard adopted by financial Accounting and Auditing organization for Islamic Financial Institution. 12

Prime Bank Training Institute (PBTI) was set up in July 22, 1998 with an aim to create a strong and skill work force. The Institute had played a significant role in making skilled and efficient human resource. It constantly working on improvement of training methods and materials. During 2005 it had conducted 4 Foundation Training Courses, 4 short, courses, 24 workshops for new recruits, junior level management, mid level management, and senior executives. The Training Institute also provided a Foundation course for 30 trainee officers of Jamuna Bank Limited at their cost. In 2005 PBTI imparted training to as many as 500 accomplices and it had enhanced the skill level of their human resource pretty successfully.

Prime Bank Limited will try to achieve excellence in customer service. The customer is most important for them. Their policy is customer driven. The Bank will introduce Inland Travelers Cheque and launch Special Savings Schemes; Special Credit Scheme will also be devised for the benefit of the low-income group, especially for the self employment of the educated youth.

3.4 Capital FundsAuthorized capital of the bank remained unchanged at Tk. 4000.00 million and paid up capital stood at Tk. 1400.00 million as on December 31, 2005.The Banks Capita fund increased by TK.701 million during 2005.Tier I capital i.e Shareholders equity grew by 568 million and stood at TK.2808 million during the year under review. Total capital fund is equivalent to 9.96 percent of Risk Weighted Asset. The details of capital fund is given below: Tier-1 capital Paid up capital 2005 (mil) 1400 2004(mil) 1000 13

Statutory reserve Provision for bonus share Cash dividend Distributable profit Sub total Tier-2 capital 1% General provision on unclassified loan Exchange Equalization Subtotal total Total capital Total Risk Weighted Asset Capital Adequacy Ratio

1055.98 ------------352.02 2807.998 2005 (mil) 364.8 4.5 369.323 3177.321 31890.402 9.96%

815.811 400 -----23.99 2239.801 2004(mil) 231.7 4.5 236.25 2476.058 23050.344 10.74%

3.5 Mission and vision of Prime Bank LimitedThe efforts of Prime bank Limited are focused on delivery of quality service in all areas of banking activities with the aim to add to increased value to shareholders investment and offer highest possible benefits to the customers. There must have the mission as well as vision what should back every efforts of the organization. as it is said that mission without vision is a daydream and vision without mission is a nightmare. Mission: Continuous improvement in the business policies and procedures. Cost reduction through integration of technology at all level. Vision: To be the most efficient bank in terms of customer service, profitability, and technology application.

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CAMEL RATING:The bank has been categorized as 1 rated Bank under Capital, Asset, Management, Earnings & Liquidity (CAMEL) Rating by the Bangladesh Bank and Composite status is rated as "Strong" in the year 2005.

3.6 Managerial Hierarchy of PBL ChairmanBoard Of Directors

Executive CommitteeManaging Director

Additional Managing Director

Senior Executive Vice PresidentExecutive Vice PresidentSenior Vice President

ViceSenior Assistant Vice President

Pr

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Assistant Vice

First Assistant Vice President Senior Executive Officer Executive Officer Principal Officer Senior Officer Management Trainee Officer Junior Officer

3.7 Performance at a glancePrime Bank Limited is a fast growing private sector Bank is already at the top slot in terms of quality service to the customers and value addition for the shareholders. The bank made a satisfactory progress in all areas of business operation in 2005. The retained its lead position with the capital adequacy ratio of 9.96% as on December end 2005, which is well above the predetermined requirement of 8%. The Return on Assets (ROA) was 1.54% well above the industry average. The highlights of financial position for the last 5 years are given below: Taka in millionsParticulars 1.Authorised Capital 2.Paid-up- Capital 3.Reserve Fund 4.Equity Fund 5.Deposits 6.Laons & Advances 7. Investment 8.Foreign Exchange Import Export 9. Business Guarantee 2001 1000.00 500.00 761.43 1258.26 13259.87 9074.94 1730.74 27614.20 13427.60 14186.60 2175.00 2002 1000.00 600.00 807.92 1526.41 16902.29 12686.85 1996.23 31753.70 19564.00 12189.70 3659.30 2003 1000.00 700 602.89 1781.86 20483.23 16492.22 2749.71 41930.80 25440.7 16490.10 4247.73 2004 1000.00 1000 815.89 2239.8 28069.24 23219.67 3083.81 56248.80 36747.00 19501.81 4085.15 2005 4000 1400 1055.98 2808 36022.46 31916.11 3939.50 69185.00 40303.00 28882.00 5302.8

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10.Income 11.Expenditure 12.Operating Profit 13.NPBT 14.Fixed Assets 15.Total Assets 16.Dividend: Cash Bonus 17.Book Value per share 18.Earning per Share 19.Market Value per share (Tk.) 20.No. of Employees 21. Number of Branches 22.No. of Share holder 23.No.of Foreign correspondents 24.CapitalAdequacy Ratio 25. Return on Assets 26.Loan as % of total deposits 27.Ratio of Classified Loans to Total Loans.

1987.58 1231.49 756.09 705.09 174.27 15736.94 30% 5:1 271.63 96.60 409.50 613 26 1081 398 17.50% 4.80% 68% 1.13%

2250.96 1503.12 747.84 696.84 218.50 20047.70 20% 6:1 234.81 69.69 307.51 730 27 1727 422 12.43% 3.73% 75% 1.48%

1593.69 592.28 1001.41 769.91 265.17 24249.13 20% 3:7 233.12 37.55 374.25 777 30 1993 441 11.90% 1.72% 78% 1.98%

1970.37 824.23 1146.14 1064.24 321.68 32361.62 2:5 223.98 43.71 879.50 894 36 2620 501 10.74% 2.61% 81% 1.52%

2406.43 886.09 1520.34 1200.83 372.12 41506.29 1:4 200.57 40.59 681.5 1024 41 4467 517 9.96% 1.54% 89% 0.96%

Trend

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3.8 CLASSFICATION OF BANK PRODUCTIn chart given bellow we find different products / services generally made available by a bank: -

Product

Advance

Deposit

International banking

Consultancy

Miscellaneous

Time demand L/C, Foreign

Currency

Tax, Consultancy Mar cent Banking project Counselling Investment Counselling

Self custody Credit cards, Travellers Cheques, sale of drafts, standing 19 Instruction,

Fund oriented

Non fund oriented

Term, loans, clean loans, Bills Discounting, Pre-shipment. Post shipment, lines, of credits Secured, unsecured, Overdraft,

Guarantees

Letter of credit.

CHAPTER-FOUR GENERAL BANKING4.1 Account Opening: 4.1.1 Types of Account: Current Account. Savings Account. Fixed Deposit Account.

4.1.2 Procedure to open an account:1. For opening an account, at first the prospective account holder will apply for opening an account by filling up account opening form. Account opening form consists of the name of the branch, type of account, name of the 20

applicant(s), present address, permanent address, passport number (if any), date of birth, nationality, occupation, nominee(s), special instruction (if any), initial deposit, specimen signature(s) of the applicant(s), introducers information etc.

2. The prospective customer should be properly introduced by the followings: An existing customer of the bank. Officials of the bank not below the rank of Assistant Officer. A respectable person of the locality who is well known to the manager or authorized officer. Two copies of passport size photograph duly attested by the introducer. 3. Signature of the prospective account holder in the account opening form and on the specimen signature card duly attested by the introducer. 4. Then the concerned authority will allocate a number for the new account. 5. The customer then deposit the initial deposit by filling up a deposit slips. Initial deposit to open a current account in PBL is Tk. 10000.00 and saving account is Tk. 5000.00.But it is fluctuate from time to time. And the account is opened after the payment of initial deposit. PBL maintains all of its accounts in computer. After depositing the initial deposit, PBL records it in the computer by giving new account number. Then it issues chequebook requisition slip by the customer. Then it distributes all relevant papers to respective department.

4.1.3. Activities and papers necessary for opening an account:

(A) Joint Account: If the account is a joint account, then the joint account holder should submit a declaration and operational instructions of the account along with their signature. The declaration is 21

Any balance to the credit of the account is and shall be owned by us as joint depositors. Any liability whatsoever incurred in respect of this account shall be joint and several. (B) (C) Partnership firm: The following documents have to be submitted for preparing an account of a partnership firm: Partnership deed. (a) If the partnership firm is a registered one, then one copy of registration forms. (b) If not, then a copy of certificate from the notary public.

(D) Limited Company: For the opening of an account of a limited company, following documents have to be submitted: A copy of resolution of the company that the company Certified true copy of the Memorandum & Articles of Certificate of Incorporation of the company for inspection

decided to open an account in the Prime Bank. Association of the Company. and return along with a duly certified Photocopy for Banks records. Certificate from the Registrar of Joint Stock Companies that for inspection and return) along with a duly certified the company is entitled to commence business (in case of Public Ltd. Co. Photocopy for Banks records. Latest copy of balance sheet. Extract of Resolution of the Board/General Meeting of the

company for opening the account and authorization for its

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operation duly certified by the Chairman/Managing Director of the company. List of Directors with address (a latest certified copy of Form-XII). (E) Club/Society: Following documents have to be obtained in case of the account of the club or society: Up to date list of office bearers. (F) Certified copy of Resolution for opening and operation of account. Certified copy of Byelaw and Regulations/Constitution. Copy of Government Approval (if registered).

Cooperative Society: Following documents have to be obtained in case of the account of Cooperative Society: Copy of Bye-Law duly certified by the Co-operative Officer. Up to date list of office bearers. Resolution of the Executive Committee as regard of the account. Certified copy of Certificate of Registration issued by the registrar, Cooperative societies. (G) Non-Govt. College / School / Madrasha / Muktab: Following documents have to be obtained in case of the account of non-govt. college / school / madrasha / muktab: Up-to-date list of Governing Body/Managing Committee. Copy of Resolution of the Governing Body/Managing Committee authorising opening and operation of the account duly certified by Gazetted Officer. 23

(H) Trustee Board: Following documents have to be obtained in case of the account of trustee board: Prior approval of the Head Office of PBL. Certified copy of Deed of Trust, up to date list of members of the Trustee Board and certified copy of the Resolution of Trustee Board to open and operate the account. (I) Minors Account: Following documents have to be obtained in case of the account of minor: Putting the word MINOR after the title of the account. Recording of the special instruction of operation of the account. The AOF is to be filled in and signed by either the parents or the legal guardian appointed by the court of law and not by the minor.

4.2 Local Remittance:Local remittance is one of the main components of general banking. activities of local remittance are --i. ii. iii. Telegraphic Transfer, Demand Draft issue, Pay order. The

4.2.1 Telegraphic Transfer (TT):It is an order from the issuing branch to the drawer bank / branch for payment of a certain sum of money to the beneficiary. The payment instruction is sent by telex and funds are paid to the beneficiary through his account maintained with the drawee branch or through a pay order if no account is maintained with the drawee branch.

Procedure of issuing TT: Following procedures are followed while issuing of TT: 24

The applicant fills up the relevant parts of the prescribed application form in triplicate, duly signed the same and gives it to the GB. GB will fill up the commission part for banks use and request the applicant to deposit necessary cash or cheque at the cash booth. GB will prepare telex in appropriate form, sign it and send it to the telex operator for transmission of the message. GB will prepare necessary advice. Debit advice is sent to the client if clients account is debited for the amount of T.T. T.T. Confirmation Advice is sent to the drawee branch. Credit Ticket (second copy of the application form) is used to credit the PBL General Account.

Payment of T.T. In case the beneficiary does not maintain any account with the drawee branch a pay order will be issued in favor of the payee and sent to his banker / local address as the case may be. Every branch maintains a prescribed T.T. Payable Register. All the particulars of T.T. are to be properly recorded in this register duly authenticated. A separate Type of T.T. confirmation advice is sent to the drawee branch on the same day. On receipt of T.T. confirmation advice, the particulars of T.T. are verified with reference to particulars already recorded in the T.T. payable register.

4.2.2 Demand Draft (DD):Sometimes customers use demand draft for the transfer of money from one place to another. For getting a demand draft, customer has to fill up an application form. The form contains date, name and address of the applicant, signature of the applicant, cheque number (if cheque is given for issuing the 25

DD), draft number, name of the payee, name of the branch on which the DD will be drawn and the amount of the DD. The form will be duly signed by the applicant and by the authorized officer. PBL charges .15% commission on the face value of DD as service charge.

Process of issuing Local Draft:Followed procedures are followed while issuing local draft Get the application form properly filled up and signed by the applicant. Complete the lower portion of the form for the banks use. Calculate the total amount including the banks commission. If the cheque is presented for of the local draft, the officer should get the cheque duly passed for payment by the authorized person and record the particulars of local draft on the back of the cheque. If the client wants to debit his account for the payment of the draft amount, the officer should get the account holders signature verified properly, from signature card on record of the branch and debit clients account for the total amount including commission. The first copy of the application form will be treated as Debit Ticket while the second copy will be treated as Credit Ticket and kept by the GB. The third copy is handed over to the applicant as customers copy. The GB Department maintains a prescribed L.D. Issue Register. All the required particulars of LDs issued by PBL should be entered in that register duly authenticated.

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Cancellation of Local Draft:The followings are followed while canceling a L.D.

The purchaser should submit a written request for cancellation of the L.D. attaching therewith the original L.D. The signature of the purchaser will have to be verified from the original application form. Managers prior permission is to be obtained before refunding the amount of draft. Cancellation charge is to be recovered from the applicant and only the amount of the draft less cancellation charge should be refunded. Commission charge, posted charge etc. recovered for issuing the L.D. should not be refunded. The original entries are to be reversed giving proper narration. An IBDA for the cancelled L.D. should be issued on the drawee branch. Cancellation of L.D. should also be recorded in the L.D. Issue Register.

Payment of L.D.:When L.D. is presented for payment at the paying branch, its details are to be carefully examined with reference to the following points Whether the draft is drawn on the Local office. Whether the draft is crossed or not. Amount of crossed draft is not paid in cash to the payee but to be paid to his account with a bank. Draft must have to be signed by two authorized officers of the issuing branch. Their signatures are to be verified from the specimen signature book for being sure that draft that the draft is genuine. The verifier should put his initial.

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Endorsement on the back of the draft must be regular in case the draft is presented through clearing. The amount of the draft should not exceed the amount written in red ink at the top of the draft. The payee is to be properly identified in case of cash payment The particulars of the draft i.e. the draft number, date, amount and the name of the payee should be verified from the L.D. Payable Register. In case of payment, the draft should be cancelled with red ink. The date of payment should be recorded in the L.D. Payable Register.

Stop payment of Local Draft:The payee or purchaser of the draft cannot give stop payment instruction to the drawee branch. If the paying branch receives a request from the purchaser of the draft for stopping payment of the draft, it will ask the purchaser to approach the issuing branch about the purpose. The paying branch should however exercise necessary precaution in this regard. Only the issuing branch can issue instruction for stop payment of the draft under special circumstances.

4.2.3 Pay Order (PO):

For issuing a pay order, the client is to submit an application to GB in the prescribed form. This form should be properly filled up and signed. For issuing pay order PBL charges commission on the following rate

# For Tk. 1 to 10,000, the commission is Tk.10. # For Tk. 10,001 to 1,00,000, the commission s Tk. 15. # For Tk 1,00,001 to 5,00,000, the commission is Tk. 50. 28

# For Tk 5,00,001 to 10,00,000, the commission is Tk. 75. # For Tk 5,00,000 above, the commission is Tk. 100.

Payment of Pay Order:The pay order is presented to the bank either through clearance or for credit to the clients account. While payment, relative entry is given in the pay order register with the date of payment.

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

4.3 Online Branch Banking Section: 4.3.1 Prime Line:29

The Bank has set up a Wide Area Network (WAN) across the country to provide Online Branch Banking facility to its valued clients. Under the Scheme, clients of any branch shall be able to do banking transaction at other branches of the bank. Under this system a client will to be able to do following type of transactions: Cash withdrawal from his/her account at any branch of the Bank irrespective of location. Cash deposit in his/her account at any branch of the Bank irrespective of location. Cash deposit in other's account at any branch of the Bank irrespective of location. Transfer of money from his/her account with any branch of the Bank. Any amount can be deposited or transferred under Prime Line. In the system, however, at present there is a limit for cash withdrawal through bearer or by account holder himself.

4.3.2 Requirement of Prime Line service:The Clients who has account in prime bank or who will open account in prime bank and would be interested to maintain substantial deposits in Savings, Current or STD accounts, will be eligible to get Prime Line Service. Intending and eligible clients have to apply in prescribed application form to the branch to get the online service from the bank. The client should submit two copies photographs and signature cards along with the application form. To avail the Prime Line service, no charge should be paid for online transaction within a locality where the account is domiciled. But charges should be paid by the customer for inter city online transaction.

Online Transaction Membership Fee:Membership fee of Tk. 50/- per month for the Online Branch Banking Service.

30

4.3.3 Transaction Limit:01. Maximum ceiling of cash withdrawal by self is Tk. 10,00,000/- (ten lac) only per transaction. 02. Maximum ceiling of cash withdrawal by third party (bearer) per transaction is below Tk............... Only (Account holder will determine the amount). 03. Cash deposit/transfer by online transaction is unlimited.

4.3.4 Charges for Online Transaction:01. There will be no charge for transaction within the city where the account is domiciled. 02. Fee Tk. 50/- will be realized from the customers account for each remote transaction (inter-city) for amount up to Tk. 1, 00,000 (one lac). 03. Fee at the rate of 0.075% will be realized from the customers account for each remote transaction of amount more than Tk. 1,00,000 (one lac).

4.4 Deposit Schemes of Prime Bank LimitedBank is the largest organization of mobilizing surplus domestic savings. For poverty alleviation, we need self-employment, for self-employment we need investment and for investment we need savings. In the other words, savings help capital formations and the capital formations help investments in the country. The investment in its turn helps industrialization leading towards creation of wealth of the country. And the wealth finally takes the country on road to progress and prosperity. As such, savings is considered the very basis of prosperity of the country. The more the growth of savings, the more will be the prosperity of the nation.

The savings rate in Bangladesh is one of the lowest in the world rate of domestic saving being 17.78 %. In order to improve the savings rate, Financial Institutions responsible for mobilization of savings should offer attractive Savings Schemes so that the marginal propensity to save increases. 31

The savings do not, of course, depend only on the quantum of income but largely depend on the habit of savings of the people. PBL has formulated the following Savings Schemes: Contributory Savings Scheme, Monthly Benefit Deposit Scheme, Special Deposit Scheme, Education Savings Scheme, Fixed Deposit Scheme, Prime Bank Money Scheme, Prime Bank Insured Fixed Deposit Scheme.

4.4.1. Contributory Savings Scheme:This is a Savings Scheme in which a person gets the opportunity to build up savings by contributing monthly installments and receives an attractive fixed amount at the end of a specified term. The Scheme is designed to help the fixed income group to save money.

The salient Feature of the Scheme are given below: The size of the monthly installment is Tk. 100, Tk.250, Tk.500 and Tk.1, 000 to be deposited every month throughout the saving term. The term of saving shall be for 5 years, 8 years, and 10 years. A lump sum amount shall be paid to the depositor after maturity of respective terms of savings as per the following table: Installment Term 5years 8 years 10years Tk. 100 8,000 15,000 20,000 Tk .250 20,000 37,000 50,000 Tk.500 40,000 75,000 1,00,000 Tk .1,000 80,000 1,50,000 2,00,000

Amount Payable at Maturity (Taka)

32

Account under the Scheme can be opened on the separate Form designed for the purpose. The chosen size of installment, at the time of opening the account will not be allowed to change afterwards. Account may be opened in the name of individual or joint names of two individuals. Account in the name of minors can be opened under the Scheme to be operated by the guardian. A person can open more than one account for different size of installments in any Branch of the Bank. The Account holder may appoint a nominee (s) to receive the balance in the account. The specified amount on maturity at any slab shall be paid after one month from the date of deposit of the final installment. Normally no withdrawal shall be allowed before 5 (five) years. But, if any depositor intends to withdraw his savings due to certain unavoidable reasons before 5 (five) years, he will be allowed to do so, in the following manner: No benefit or interest shall be allowed for pre mature encashment within one year. If the account is closed after one year of its opening, benefit shall be allowed on the deposit at normal Savings Deposit rate.

4.4.2. Monthly Benefit Deposit Scheme

This is a Deposit Scheme where the depositor gets a fixed amount of profit every month without disturbance of the principle. The Scheme is designed to attract: 1) The retirement benefits of service holders.

33

2) The investment of Wage Earners who want to pay a fixed amount monthly to their families dependents in Bangladesh from the profit of their investment. 3) The deposit of those persons who intend to meet the monthly expense of their family from the income of their deposit. 4) Investment of fund of Trusts and Foundations which award monthly Scholarships / Stipends to students. 5) Parents who want to defray the educational expenses of their children from the monthly benefit of their deposit with the bank.

The salient Features of the Scheme are given bellow: Deposit of Tk.1, 00,000.00 and multiples there of shall be acceptable for the Scheme. The Deposit shall be for a period of 5(five) years. The Principal amount is refundable on maturity. Profit shall be paid on monthly basis @ Tk. 1,000.00 per Tk. 1,00,000.00. The payment of monthly profit will start after minimum gap of 30 days from the date of deposit. Normally, the deposit will not be encashable before 5 (five) years. But if any depositor intends to withdraw his deposit due to certain unavoidable reasons, he would be allowed to do so, in the following manner: No benefit including interest shall be allowed for per mature encashment within one year.

If the accounts/ deposits are closed / encashed after one year of its opening, benefit shall be allowed on the deposit at normal Saving Deposit rate. If the amount of monthly profit already paid exceeds the amount payable at normal Savings rate, the difference shall be deducted from the principal deposit amount.

34

In case of death of the depositor, the amount will be payable to the nominee or in the absence of nominee, to the legal heirs of the depositor on production of Succession Certificate.Separate

Application Form specially designed for the purpose shall be

obtained duly filled in and signed by the depositor. In addition to this, the depositor must have a separate Savings Bank Account with the Branch wherein the benefit on the amount so deposited shall be credited every month. A specially designed Receipt shall be issued for the deposit under the Scheme in the same manner as issued in case of FDR. The Receipt will not be transferable. Advance against lien on such Receipt can be allowed up to 80% of the deposit bearing normal rate of interest prevalent at the time on Overdraft / Loan. During the period of such Overdraft / Loan, the monthly benefit will be credited to the concerned Overdraft / Loan Account. Income Tax, if any, on the income received from the deposit shall have to be borne by the depositor.

4.4.3. Special Deposit Scheme This is a deposit scheme where an instrument is issued for the full amount payable after a specified period against deposit of a certain amount. The scheme is specially designed to provide for children education, marriage and old age security. It will create good opportunities for attractive investment of provident fund, trust fund, reserve fund / Security fund of institutions and organization. It will also provide opportunities for the wage earners towards profitable investment of their funds.

35

The salient feature of the scheme are given below: 1. Deposit of Tk. 10000.00 and multiples therefore shall acceptable under the scheme. 2. An instrument shall be issued for 5 years and above up to 10 years term.3.

Bank

will

issue

order

instrument

payable to

a

particular

person,

organization, firm etc. for an amount payable at maturity as written on the face of the instrument as per the following table:

Term 5 years 7 years 10 years

Initial Deposit (Taka) 1,00,000 1,00,000 1,00,000

Value payable at maturity 1,65,000 2,00,000 3,00,000

Amount payable with profit at maturity will vary proportionately as per above table according to the size of initial deposit amount.

4.4.4. Education Savings SchemeThe educational expenses particularly the expenses for higher education are sharply increasing day by day in our country. Sometimes, the children are deprived of getting the desired level of education because of the inability of the parents to meet their educational expenses. But the parents would not feel any difficulty to defray such expenses if a proper financial planning is made much ahead of time.

Moreover, Prime Bank Ltd. is receiving demands from the Islamic minded people of our country for an attractive Savings Scheme on the basis of Islamic shariah so as to encourage them to save in Islamic way for education of their children. With this end in view, Prime Bank Limited has introduced a Savings Scheme entitled Education Savings Scheme in accordance with the principles of 36

Islamic Shariah i.e., on the basis of profit and loss sharing. The scheme provides a unique opportunity to the parents to make a future provision for the educational expenses of their children when they enter into Schools, Colleges and University out of the benefit of a small amount of savings with the Bank at an opportune moment.

The salient feature of the Scheme are given below1. Name of the Scheme shall be Education Savings Scheme. 2. The Scheme shall be implemented through our Islamic Banking Branch. Deposit under the Scheme is accepted at any branch of the Bank. The fund shall be transferred to Islamic Banking Branch. Similarly, the issuing Branch shall also make the payment of the Instrument under the Scheme on behalf of the Islamic Banking Branch. 3. Deposit of Tk. 25,000/- and multiples there of at a time will be accepted under the Scheme. 4. The instrument shall be issued for 7 years, 10 years, 15 years or 20 years term. 5. The deposit is payable at maturity with benefit either in lump sum or on monthly basis as education allowance for 6 (six) years starting from the completion of the respective term as per the following table:Term Initial Deposit (Taka) 7 years 10 years 15 years 20 years 25,000 25,000 25,000 25,000 Lump sum amount payable at maturity 55,000 77,000 1,36,000 2,40,000 Amount of education allowance per month (6 Years) 1,000 1,500 2,500 4,500

Note: The lump sum amount and the monthly installment shown in the above table are computed approximate basis.

4.5 ONE STOP UTILITY SERVICES SCHEME:

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Like any other country of the world, the people living in the urban areas of our country lead a very busy life. Times are very valuable to them. Despite this, they are to waste their valuable time at the counter of.

Different Banks and other Institutions for payment of their monthly bills of different utility services like Electricity, Telephone etc. They, as such, face enormous difficulties for payment of their monthly bills in time. Such inconveniences of the urban people can be removed by making an arrangement to collect all the bills of various utility services at one Point.

Scope of Services:With this end in view, Prime Bank Limited has introduced a Scheme entitled ONE STOP UTILITY SERVICES SCHEME. The scheme is designed to provide all the required services to the customer in making payment of their following bills on their behalf from the counter of the Bank: To pay Electricity Bills To pay Telephone Bills To pay Gas Bills To pay WASA Bills To pay Insurance Premium To pay House Rent To collect House Rent To pay Municipal Taxes To collect Pension Money Issuance and Renewal of License of TV, Radio, etc.

Any other like Services.

Objectives 38

To help the customers in payment of their different utility Bills in time and thereby relieve them of their worries and save their valuable time. To help different corporations/ organizations in timely collection of their Bills. To help the senior citizens of the country in collecting their Pension Money every month. To extend financial assistance to the customers by way of overdraft in timely payment of their Bills.

Deposit Rate Offered by PBL SL. 01. Particulars Short Term Deposit a) Up to Tk.1.00 Crore b) Above Tk. 1.00 Crore but not more than 5.00 Crore C) Above 5.00 Crore 02. Saving Deposit a) Up to Tk. 20.00 Lac b) Above Tk. 20.00 Lac 03. Fixed Deposit b) 3(Three) months c) 6(Six) months d)1(One )Year and above 12.25% 12.25% 12.50% 6.00% 7.00% 5.50% 4.00% 5.00% Deposit Rate

Source: Financial Administration Division, PBL(February ,2006)

4.6 Clearing Section:According to the Article 37(2) of Bangladesh Bank Order, 1972,the banks, which are the member of the clearinghouse, are called as Scheduled Banks. The scheduled banks clear the cheque drawn upon one another through the 39

clearinghouse. This is an arrangement by the central bank where everyday the representative of the member banks gathers to clear the cheque. Banks for credit of the proceeds to the customers accounts accept Cheque and other similar instruments. The bank receives many such instruments during the day from account holders. Many of these instruments are drawn payable at other banks. If they were to be presented at the drawee banks to collect the proceeds, it would be necessary to employ many messengers for the purpose. Similarly, there would be many cheque drawn on this the messengers of other banks would present bank and them at the counter. The whole process of collection and payment would involve considerable labour, delay, risk and expenditure. All the labour, Risk, delay and expenditure are substantially reduced, by the representatives of all the banks meeting at a specified time, for exchanging the instruments and arriving at the net position regarding receipt or payment. The place where the banks meet and settle their dues is called the Clearinghouse. 4.6.1 Activities of the Section: (a) Preparation of Clearing Outward and Inward Lodgement and record maintenance of the same. (b) Batch posting as and when required. On receipt of instruments, the same is endorsed here. Then clearing section will sent IBDA to head Office for clearing purpose and on receipt of IBCA from Head Office amount is credited to customers account and vice versa. If the instrument is return then the same is given back to the customer.

4.7 Collection Section:Checks, drafts etc. are drown on bank located outside clearing house are sent for collection. Agrabad Branch collects its clients above-mentioned instruments from other branches of PBL and branches other than PBL. In case of out ward bills for collection customers account is credited after finishing the 40

collection processor. And in case of in ward bills customers account is debited for this purpose. So it place dual role as follows: i) ii) Collecting Banker Paying Banker.

4.7.1 Procedures for Outward Bills for Collection:Depositing the cheque along with deposit-slip Crossing of the cheque are done indicating the Branch as collecting bank

Endorsement Payees A/C will be Credited on realization is given Entries are given in the Outward Clearing Register

OBC Mechanism

4.7.2 Commission for Collection:Up to 1 lac --------------------------------------------- 0.15% Above 1 lac--------------------------------------------- 0.10% Above 5lac ----------------------------------------------0.05% Maximum charge is Tk. 3000 and minimum charge is Tk.10.

4.8 Accounts Section:In banking business transactions are done every day and these transactions are to be recorded properly and systematically as the banks deal with the depositors money. Any deviation in proper recording may hamper public confidence and the bank has to suffer a lot. Improper recording of 41

transactions will lead to the mismatch in the debit side and credit side. To avoid these mishaps, the bank provides a separate department whose function is to check the mistakes in passing vouchers or wrong entries or fraud or forgery. This department is called Accounts Department. Besides these, the branch has to prepare some internal statements as well as some statutory statements, which are to be submitted to the Central Bank and the Head Office. This department prepares all these statements.

4.8.1 Functions of Accounting Department:We can divide the functions of accounting department into two categories. One is day-to-day task and another is periodical task. a. Day to day functions: Here day-to-day function refers to the every day tasks. Accounting department of PBL performs the following day to day functions: Recording of transaction in the cashbook, general and Preparing the daily position of deposit and cash. Making the payment of the expense of the branch. Recordings of inter branch fund transfer. Checking whether all the vouchers are correctly passed. Recording the voucher in the voucher register. Packing and maintains the total debit and total credit

subsidiary ledger.

vouchers. b. Periodical functions: Periodical functions of accounts department include the preparation of different weekly, fortnightly, monthly, quarterly and annual statement. The accounts department prepares the following statements:

42

Monthly statement of deposits, loans and advances, profit Quarterly statement of deposits, loans and advances, profit Yearly statement of deposits, loans and advances, profit and

and loss etc. and loss etc. loss etc. Yearly statement of classified Loans and Advances. Statement of Affairs. Yearly Budget of the Branch, etc.

CHAPTER- FIVE SERVICES OFFERED BY CREDIT DEPARTMENTThe right to receive or an obligation to pay a certain sum of money including a mark-up agreed thereon on demand or at determinable time in exchange of goods and services may be termed as credit.

Bank is a financial intermediary whose prime function is to move scarce resources in the form of credit from savers to those who borrow for consumption and investment. The word credit is derived from the Latin word credere, which means to trust. The fundamental nature of credit is that an element of trust exists between buyer and seller-whether of goods or money.

5.1 Salient features of Prime banks Credit Policy: Assets are built based on customers deposit, which should not exceed 80% of customers based deposit.

43

Rate of interest is variable based on customers integrity and risks associated. Type of security varies on the basis of risks associated in credit. Diversification from all angel viz. type of credit, geographical location, size of credit, sectors and sub-sectors etc. Credit operations are carried out in branch through branch credit committee as per authority delegated to head of branch and through Head Office Credit Committee in respect of delegated to the CEO. credit sanction authority

No credit should be allowed for a period not exceeding 5 years. Aggregate long-term credit facilities shall not exceed 20% of total credit portfolio. Single customers exposure should not exceed 50% of the Banks Capital Funds. LRA is done in most cases. Assessment of volume or amount of credit properly. Utmost care is taken in providing loans to directors. Funded facility 25% of paid up capital.

5.2 Credit Portfolios and Ratio of Prime Bank Limited:Analysis of Current Loan Portfolio: Loan Portfolio Growth: The loan portfolio of the bank has increased by Tk 871.42 Crore from 2321.96 Crore at the end of 2004 to 3193.38 Crore at the end of 2005 registering 37.53% growth over the previous year. At the end of 2003, total loans and advances amounted to Tk 1649.22 Crore and rate of growth in 2004 was 40.79% in comparison with the year 2003. It is evident that rate of growth has slightly decreased from 40.79% in 2004 to 37.53% in 2005.

Sector Wise Credit Growth: During the year 2005, the highest contributing sector was Commercial Lending that represents import finance and local trade finance. It amounts to Tk 835.77 Crore, which is 26.17% of the total loan portfolio and accounts for 44

19.89% growth compared to the year 2004. Term Loan to Large & Medium Scale Industry (Industrial/Project Loan) accounts for 22.16% of the total Loan Portfolio. It has increased from Tk 507.98 Crore to Tk 707.54 Crore with 39.29% growth over the previous year. Besides, working capital finance and export finance accounts for 11.49% and 12.34% of total loan portfolio respectively. Agricultural sector has grown by 12.72%. In 2005, loan to the Housing Sector has increased by 35% from Tk 37.45 crore to Tk 50.57 crore, which now accounts for 1.58% of the total portfolio which faced negative growth in the previous year. Apart from this, Consumer Credit has registered 79.10% growth with a total amount of Tk 121.16 Crore which is 3.79% of total loan portfolio. Table: Comparative Position of Sector Wise ExposureAs on 31.12.03 Sl. No. Sector Amount % of total Loan 2.85 As on 31.12.04 As on 31.12.05 Growth Growth % of % of over over Amount Total Amount Total 2003 2004 Loan Loan (%) (%) 191.93 8.27 307.84 216.34 6.77 12.72

1

Agriculture L&M Industry (Term

47.06

2 3 4 5 6 7

Loan) Working Capital Export Finance Commercial Lending Housing Loan SME Credit Consumer Credit Scheme Others

351.15 252.88 242.25 502.36 54.81 14.25

21.29 15.33 14.69 30.46 3.32 0.86

507.98 21.88 317.14 13.66 314.80 13.56 697.10 30.02 37.45 16.19 1.61 0.70

44.66 25.41 29.95 38.77 31.67 13.61

707.54 22.16 367.06 11.49 394.18 12.34 835.77 26.17 50.57 28.24 1.58 0.88

39.29 15.74 25.22 19.89 35.03 74.43

8 9

46.53 137.93 1649.22

2.82 8.36 100

67.65 171.72

2.91 7.40

45.39 24.50

121.16

3.79

79.10 175.17

472.52 14.80

4537.53

10 Total

2321.96 100

40.79 3193.38 100

Fig in Cr Tk

Geographical Concentration: For better understanding, we have segregated our command area into six geographical areas. Among those, Dhaka region contribute lion share with 71.89% of total loan portfolio. It has accounted 43.34% growth in 2005 over the previous year. While stagnant growth has been observed in Chittagong region with 19.93% of portfolio, Rajshahi region has achieved 75.31% growth over 2004. A comparative position has been shown in the following table: Table: Comparative Position of Geographical Concentration: 2004 Region Dhaka Chittagong Rajshahi Sylhet Barisal Khulna Total No. of Branch 22 6 2 3 1 2 36 O/S 1601.51 459.04 89.75 48.17 24.63 98.86 2321.96 % of No. of Total Branch 68.97 19.77 3.86 2.07 1.06 4.26 100 23 7 2 6 1 2 41 O/S 2295.61 550.52 157.34 62.72 37.86 89.33 3193.38 2005 % of Total 71.89 17.24 4.93 1.96 1.19 2.80 100 Growth over 2004 43.34 19.93 75.31 30.21 53.71 -9.64 37.53

Fig. in Cr Tk

5.3 Types of Bank Credit:Modern banking operations touch almost every sphere of economic activity. The extension of bank credit is necessary for expansion of business 46

operations. Bank credit is a catalyst for bringing about economic development. Without adequate finance there can be no growth or maintenance of a stable output. Bank lending is important to the economy, for it makes possible the financing of agricultural, commercial and industrial activities of a nation. The credit facilities are generally allowed by the bank may be in two broad categories. They are:

1. Funded Facilities:Funded facilities can also be divided into the following categories:Loans:

i) Short term ii) Medium term iii) Long term

: : :

Up to 12 months. More than 12 and up to 36 months. More than 36 months.

Overdrafts: Against hypothecation of goods/stock Against pledge of goods/stock Against any other permissible securities. Other advances: Against import bills. Against imported merchandise. Against Trust receipts (T/R). Against Export Bills Purchased/Discounted Against Work order Against other securities.

2. Non-Funded Facilities: Letter of credit (L/C) Letter of Guarantee (L/G)

5.4 Types of Advances Offered by PBL:

47

1.

Secured Advances:A. The following type of secured advances are allowed against tangible

securities subject to margin restrictions: Loan (General) House Building Loan Other Loans to Staff Cash Credit (Hypothecation) Cash Credit (Pledge) Hire-Purchase Lease Financing Consumers Credit SOD (Export) SOD (Others) PAD LIM LTR IBP Packing Credit FDBP (Foreign) FDBP (Local) FBP

B. These advances are allowed against the following securities: Shares of various Companies approved by Head Office from time to time and listed in the Stock Exchange. Term Deposit Receipts issued by any Branch of our Bank. Lien on balance in Savings A/C, Current A/C. and other Savings Schemes Government Promissory Notes. Various Sanchaya Patras Surrender value of Life Insurance Policies. WEDB Assignment of bills against work orders/supply orders and receivables. Stock of goods in trade (Permissible goods only) pledged or hypothecated. Hypothecation of power driven vehicles or watercraft. Hypothecation of capital Machineries and equipments. Immovable Property. Imported merchandise - pledged or hypothecated. Trust Receipts. Import Bills (PADs)

48

Bills Purchased Scheduled Bank/Insurance Guarantees Export Bills Inland Bills. Personal Guarantee Corporate Guarantee

2. Unsecured Advances:An unsecured or clean Advance is one, which is granted to a constituent without obtaining any security. In such case only charge documents are held an unsecured facility may be allowed in exceptional circumstances, only for a short period, with definite repayment arrangement, subject to restrictions imposed by Bangladesh Bank or any other competent authority, with prior approval of Head Office, to a customer on the basis of his personal credit worthiness, standing and reliability. Unsecured Advances include: i) i) Clean Overdrafts, and Clean Loans.

5.5 Procedure of Giving Advance:1. The borrower has to apply to PBL for loan by filling up of a specific application form.

2. After receiving loan application form, PBL sends a letter to Bangladesh Bank for obtaining a report when loan amount exceed 50 lac. This report is called CIB (Credit Information Bureau) report. 3. After receiving CIB report, if the bank thinks that the prospective borrower will be a good borrower, then the bank will scrutinize the documents. In this stage, the bank will look whether the documents are properly filled up and signed. 4. Then comes processing stage. In this stage, the bank will prepare a proposal. A proposal contains all relevant information (e.g. name of the client,

49

type of the loan, amount of the loan, period of giving loan, security, date of application, financial data, etc.) Branch incumbent (Local Office) has the discretionary power to sanction loan (SOD) up to Tk.25 lac against financial obligations by informing head office. But in that case, the branch manager has to give attention on the following matters: a) b) The interest of the loan must not be less than 14.5%, and

The borrower must maintain 10% margin. Except this case, the branch manager has to send a proposal to the head office. Head office will prepare a minute and submit it before the executive committee. The minute has to be passed in the executive committee (EC) under certain cases. After passing the minute, it will be sent to the Bangladesh Bank for approval. After getting the approval it will again come to the head office. 1. 2. 3. After the processing stage, a sanction advice will be prepared in favour After the sanction advice, bank will collect necessary documents After receiving all the documents, the bank will disburse the loan to of the client. (charge documents). the borrowers. For withdrawing the loan amount, customer creates a current account and the loan amount is transferred to this account.

5.6 Lending Principles:The bankers have to follow some principles or policies or take into consideration some factors for lending money on sound basis. In working out these principles, or constituents a banker is exposed to the following three basic questions. Is the borrower credit worthy? Are loan terms, or in other words, loan agreements properly structured and documented? Has the bank been able to perfect its claim on the assets or securities?

If a banker handling a credit can find the answers to the above three basic questions in a proper fashion lending operation carried out by him based on the same is expected to be sound. To answer the question as to whether the borrower is credit worthy a banker is to have clear idea about the following Cs concerning the borrowers. i. Character ii Capacity iii. Cash Flow iv. Collateral v. Condition VI. Control

50

The 6Cs reflect the following points, which should be kept in mind for sound lending: Judicious selection of Customers Purpose Safety Security Liquidity Adequate return (Profitability) Supervision National/Social interest Credit Control Policy of Bangladesh Bank It is to be always remembered that the Bank is the custodian of public money and as such we must be judicious, careful and selective while lending out the depositors money to ensure timely recovery. The deciding factors for recovery of loans are selection of right type of borrowers, end-use of credits and effective follow-up and proper supervision.

5.7 Securities:To make the loan secured, charging sufficient security on the credit facilities is very important. The banker cannot afford to take the risk of non-recovery of the money lent. PBL charges the following two types of security, -

Primary security: These are the security taken by the ownership of theitems for which bank provides the facility.

Collateral security: Collateral securities refer to the securities depositedby the third party to secure the advance for the borrower in narrow sense. In wider sense, it denotes any type of security on which the bank has a personal right of action on the debtor in respect of the advance.

Modes of Charging Security:There are different modes of charging security are exercised by the bank: 1. Pledge: Pledge is the bailment of the goods as security for payment of a debt or performance of a promise. A pledge may be in respect of goods including stocks

51

and share as well as documents of title to goods such as railway receipt, bills of lading, dock warrants etc. duly endorsed in banks favour. 2. Hypothecation: In case of hypothecation, the possession and the ownership of the goods both rest the borrower. The borrower to the banker creates an equitable charge on the security. The borrower does this by executing a document known as Agreement of Hypothecation in favour of the lending bank.

3. Lien: Lien is the right of the banker to retain the goods of the borrower until the loan is repaid. The bankers lien is general lien. A banker can retain all securities in his possession till all claims against the concern person are satisfied.4. Mortgage: According to section (58) of the Transfer of Property Act, 1882 mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, existing or future debt or the performance of an engagement which may give rise to a pecuniary liability. In this case the mortgagor does not transfer the ownership of the specific immovable property to the mortgagee, only transfers some of his rights as an owner. The banker exercises the equitable mortgage.

5.8 Documentation :Documentation can be described as the process or technique of obtaining the relevant documents. In spite of the fact that banker lends credit to a borrower after inquiring about the character, capacity and capital of the borrower, he must obtain proper documents executed from the borrower to protect him against wilful defaults. Moreover, when money is lent against some security of some assets, the document must be executed in order to give the banker a legal and binding charge against those assets. Documents contain the precise terms of granting loans and they serve as important evidence in the law courts if the circumstances so desire. Thats why all approval procedure and proper documentation shall be completed prior to the disbursement of the facilities.

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5.8.1 Charge Documents:

Following charge documents are necessary while giving loans.Letter of guarantee: This is a document given by the proprietor, directors or the third party in favor of the principal debtor. The beneficiary of this document is the bank. Surety is bound to pay the guaranteed amount if such situation arises. Counter guarantee: The principal debtor agreeing that if the guarantor pays any amount, the principal debtor is bound to pay this amount gives this guarantee. Letter of authority: BY this letter, the principal debtor gives the authority to the bank to debit the current account or investment account of the principal debtor for the following cases: i. ii. iii. Wages of the godwon keeper and godwon guard. Rent of the godwon. Insurance premium and Any other expenses regarding these functions.

iv.

Letter of recall the loan: This letter is given to the bank by the borrower, giving the bank the right of recalling the loan amount at any time if the borrower fails to repay any one of the installments. And the borrower cannot protest such recalling. Letter of continuity: By this letter, the borrower agrees that the promissory note given by the bank will be act as security for the repayment of the ultimate balance or sum remaining unpaid on account of the overdraft or advance. Letter of revival: By this letter, the borrower agrees that he will be liable to bank for payment of the promissory note with interest in respect of all present and future indebtedness liabilities secured thereby which promissory note is to remain in force with all relative securities, agreements and obligations.

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Joint promissory note:This promissory note is given to the bank by the borrower if the borrowers are more than one person. Single promissory note: The borrower to the bank gives this promissory note if the borrower is a single person. Letter of undertaking: This document is given to the banker by the borrower acknowledging the right to cancel the facility at any time with or without intimation to the borrower. Loan disbursement letter: By this letter, the borrower request to disburse the loan sanctioned in his favor by the bank. All the persons, in whose names the account is opened, should sign the letter. Charge over bonds or certificate of shares etc.: It is a document given by the borrower to the banker declaring that the stocks, shares, debentures, securities and investments which are now deposited to the bank and which may from time to time be deposited by the borrower shall stand charged and hypothecated to bank as security for the payment to bank on demand of the balance of the loan amount and of any other indebtedness and liability to the bank of any kind whether mature or accruing and whether incurred alone or jointly with others and whether as principal or surety including all interest document, commission, expenses, charges and costs incurred by the bank in relation any such indebtedness or liability.

Letter of lien against fixed deposit receipt: By this letter, the borrower gives the right to the bank to hold the Fixed Deposit Receipt (FDR) if the borrower fails to repay or adjust the loan on demand or discharge the liabilities to bank. In this letter, FDR number, issuing branch, name of the favoring person and amount are written. Letter of authority to encash FDR: By this letter, the borrower gives the right to bank to encash the FDR in case of need. Here the amount and address of the bank of issue and the signature of the holders are given. Memorandum of deposit of title deeds:

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It is a deed that is necessary in case of mortgage by deposit of title deed or equitable mortgage. Here the mortgagor agrees that he has deposited necessary documents of the property to the bank. Hypothecation of goods to secured a demand cash credit or overdraft or loan account: Here the amount of loan, interest, and the name of the borrowers are written. Here the bank and the borrowers agree on the following terms:

Security Balance due to the bank Borrowers not to the encumber or parts of the goods Sale Inspection Insurance Margin Interest rate Repayment Sale of goods Deficiency Surplus Statement of account Continuing security Title Saving Change of borrowers and Notices.

Guarantee by third party: Sometimes third party guarantee is needed for allowing loan. Here third party gives the guarantee that of the principal debtor fails to repay the loan, and then the guarantor will be bound to repay the loan to bank. Hypothecation of vehicle: This document is necessary in case of transport loan. Here the borrower hypothecated the vehicle to the bank. In case of failure of repay the loan, bank will sell the vehicle to collect the money.

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5.9 Loan Schemes Offered By PBL:Consumer Credit Scheme Lease Finance Small and Medium Enterprise House Building/Apartment Loan Scheme

5.9.1 Consumer Credit Scheme:Consumer Credit is the credit, which is provided to people having fixed but regular income for acquiring consumer durables and other assets for personal use to service from their monthly income. Consumer credit is a collateral free credit. Objectives of the scheme: To sell our services to a wide range of customers and increases our CCS portfolio. To introduce and carry on collateral free credit operation. To improve the standard of living of the fixed income bracket people. To take part in the socio-economic development of the country. To ensure access to credit by mass people as far as possible. Credit limit, Down payment & period of loan: Amount of credit shall be allowed keeping in view the repayment capability of the customer. The amount of credit shall be determined in such a manner that monthly installment does not exceed 50% of the disposable income (take home salary / income) of the customer. Sl. A B C D E F Name of Item Loan Limit Down Payment (minimum) 10% 10% Period of loan (Maximum) 5 Years 4 Years

New Vehicle TK 15 lac to 40 lac Reconditioned TK. 10,00,000 vehicle Other Items TK. 1 to 5 lac 10% 3 Years Motor Cycle TK. 1 to 5 lac 10% 2 Years Personal TK. 1, 00,000 10% 2 Years Computer Photocopier TK. 1, 00,000 10% 1 Year Rate of interest/profit, service charge, risk fund and other

charges:

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Particulars Interest/Profit Service Charge Risk Fund Cost of stampSecurity:

Rate 15% P.A. 1%on loan amount 1% on loan amount TK.470/-

Mode of recovery Equated Monthly Instalments (EMI) Cash Deposit at the time of disbursement. Cash deposit at the time of disbursement. Cash deposit at the time of disbursement.

a. The client will submit crossed cheque in advance for all the stipulated instalments in favour of the bank towards repayment of loan including interest. b. The customer will provide following personal guarantee/Bank Guarantee/Insurance guarantee according to the Banks Prescribe forms/financial instruments.Name of security Personal Guarantee Financial Instruments Bank Guarantee Insurance Guarantee Ownership of vehicles Insurance for Vehicle Corporate Guarantee Number/Quantity 01 02 50% 100% 100% Particulars For Employee of govt. semi-govt.& corporate organizations. For Businessmen and employees of Non Corporate Private Organizations. Personal Guarantee will be waived. Personal Guarantee will be waived. Personal Guarantee will be waived Sole name of Bank/Joint name of Bank and customer. Comprehensive coverage from acceptable Insurance companies. For corporate arrangement with Head Office approval.

Charge Documents: Letter of declaration Demand Promissory Note Loan agreement under consumers Credit Scheme Letter of Hypothecation Letter of Guarantee Letter of Authority Other Required charge documents For a car of any other vehicles: Photocopy of Blue Book/ Certificate of Registration Photocopy of Certificate of Insurance.

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Supervision and Monitoring:

The mechanism of supervision and monitoring are as follows. Regular checking the balance of clients SB/CD A/Cs. cheque. Issuance of letter to defaulting customers and respective guarantors. Regular communication with defaulting customers and guarantorsphysically/over telephone. Issuance of letter to customers immediately after dishonour of

Contact the employers of the defaulting customers (After 03 overdueinstallment). Issuance of legal notice to the customers and guarantors prior to the classification of the loan Issuance of appreciation / greeting letter to the regular customers. Periodical visit to the customer to maintain relationship and supervision of supplied articles. Legal actions to be taken after all possible efforts to recover the Banks dues have gone in vain.

5.9.2 Lease FinanceLease financing is one of the most convenient long-term sources of acquiring capital machinery and equipment. A client is given the opportunity to have a right to use an asset, usually for an agreed period of time, against payment of rent. The lease is obligated to make lease payment until the expiration of the lease agreement, which corresponds to the useful life of the asset. OBJECTIVE Prime Bank Ltd. has introduced the lease finance with the objectives: To assist the genuine and capable entrepreneurs for acquiring Machinery and Equipments to undertake enterprises without equity. Capital following

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To encourage the new and educated young entrepreneurs to undertake productive venture and demonstrate their creativity and thereby participate in the national development. To participate in the industrial development of the country. LEASAE ITEMS / EQUIPMENTS Prime Bank Ltd. offers lease finance for acquiring the use capital machinery,

equipments, medical instruments, automobiles etc. The customers are entitled to decide the specification, price and model of the lease item/ equipment. Bank will purchase the item (s) in accordance with the specifications given by the clients. SECURITY The entrepreneur will be required to provide the following securities: 1. The lease items will remain in the name of the Bank i.e. Bank will be the sole owner of the leased items. 2. Collateral securities having liquidation value covering at least 100% of the amount of finance. 3. Deposit of Listed Shares, National Savings certificates, ICB unit certificates, Assignment of Life Insurance Policies, Bank Guarantee, and Insurance Guarantee etc. will also be acceptable as collateral securities. 4. In case of existing industrial units requiring BMRE, change may be created the existing Fixed Assets as collateral securities for the finances. In case of existing Automobile enterprise, creation of charge on the existing vehicles will also be acceptable as collateral securities. 5. In case of default in payment of lease rental for consecutive 2 (two) months, the Bank will take over the lease items without giving any prior notice.

In case of taking over the lease items by the Bank before maturity the Lessee will be liable for the loss, if any, caused to the Bank for such Premature taking over. The Bank will exercise close and intensive supervision of such project. An officer of the Bank will be engaged separately for supervision

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of such projects to ensure proper utilization of the lease items and time repayment of the monthly rentals.

Risk Fund: A risk fund shall be built up through compulsory contribution by each lessee on the cost of the lease item (s). The amount will be @ 1% in case of Machinery or Equipments and @ 2% in case of Automobiles.

Transport Leasing: Transport is one of the most widely traded lease items in the developed as well as developing countries of the world. The reasons behind success of transport leasing in many countries could by attributed to tax benefit, efficiency in found management and above all to the fact that user could exclusively use the leased transport by paying reasonable rental. The major issues of transport leasing are detailed below: 1. Selection of Vehicle The customer has the right to decide the brand of vehicle, negotiate the price with the manufacturers of dealers, and arrange after sales services with the supplier. 2. Acquisition Cost The acquisition cost shall be the actual purchase price after bargaining and all other incidental expenses incurred by the Bank including financial expenses. 3. Lease Term In case of Transport leasing, the term shall be maximum 4 (four) years starting from the date of execution. But when the lease is cancelled for any reason the lessee will have to return the vehicle to the Bank together with the stipulated loss value mentioned in the agreement.

4. Lease Rental Lease rentals calculated on the basis of acquisition cost and lease term shall be paid monthly. 5. Insurance The vehicle shall be covered by Insurance throughout the lease term with the coverage decided by the Bank. The lessee shall pay the premium. 6. Repair & Maintenance

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The lessee shall be obliged to maintain the vehicle for ensuring its normal operation and shall be solely responsible for loss/ damage as long as it is in his possession. Accordingly, repairing and maintenance cost for normal operation during the lease period shall be borne by the lessee. 7. Registration The lessee will arrange the registration of the vehicle in the name of the Bank at his own cost and also pay annual taxes and fees payable to the concerned authority. In case of his failure, Bank will do it and recover the cost from him.

5.9.3 Small and Medium Enterprise Credit scheme:It is the Prime concern for the nation to generate income through creation of job opportunity and employment. Creation of job opportunity in large scale is not a easy task. What can be done is to help self-employment through financial support. For this Reason Prime Bank has chosen the scheme SME to boost up entrepreneurs with innovative idea, spirit and potentiality. Objectives of the Scheme: To provide credit Facilities to the Small and Medium size entrepreneurs in urban and sub-urban areas. To flow credit for creation of employment and generation of income To assist potential entrepreneurs. To assist dependence on moneylender. To make the small and medium enterprise self-reliant. To develop saving habit and making acquaintance with banking facilities. To inspire for undertaking small projects for creation of employment. Loan Ceiling: i) For small enterprise: maximum Tk.2, 50,000/-(0.25Million) ii) For medium enterprise: maximum Tk.75, 00,000/-(7.5 Million) Securities a) Registered mortgage of loan and building (if available). b) Mortgage / Assignment of possession right.

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c) Assignment of security money, advance rent, if any. d) Assignment of trade receivable not older than 90 days. e) Hypothecation of machineries, equipment, vehicles, stock-in-trade, raw materials, work-in-process and finished good. f) Personal Guarantee from person acceptable to the bank. g) Post dated cheque. h) Lien on deposits/saving certificates/financial certificates. I) Any other securities to be deemed suitable by the bank depending on the situation like insurance guarantee, assignment of contract, security money etc. Period of Loan: a) In case of continuous loan: 01(one) year. b) In case of Term Loan: Maximum 05(five) years. Mode of Repayment: i) In case of continuous loan credit turnover in the account must be equal to the limit in a quarter and full adjustment within the validity period. ii) In case of term loan, the loan should be repaid by monthly installments through post-date cheques as per schedule. iii) Sale proceed should be deposited in the account regularly.

5.9.4 House Building / Apartment Loan SchemeLoans allowed to individual/enterprises for construction of house (residential or commercial) fall under this type of advance. The amount is repayable by monthly installment within a specified period. Such advances are known as Loan (HBL-GEN). Loans allowed to our Bank Employees for purchase /construction of house shall be headed Staff Loan (HBL-STAFF).

5.10 Issuing Of Bank Guarantee:Bank Guarantee is a profitable product of a bank. Sometimes customers need bank guarantee for their business purposes. PBL offers three types of guarantee

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i. ii. iii.

Bid bond: This guarantee is given to the business people for the purpose of participating in the tender. Performance guarantee: This guarantee is in favor of the client for assuring that the client will perform some specific works. Advance payment security: By deposit mobilization. this guarantee, PBL gives assurance of payment in case of advance payment. It helps in

5.11 Credit Disbursement:Having completely and accurately prepare the necessary loan documents, the loan officer ready to disburse the loan to the borrowers loan account. After disbursement, the loan needs to be monitored to ensure whether the terms and conditions of the loan fulfilled by both bank and client or not.

5.12 Credit Monitoring, Follow-Up And Supervision:Credit monitoring implies that the checking of the pattern of use of the disbursed fund to ensure whether it is used for the right purpose or not. PBL Officer checks on the following points: a. The borrowers behaviour of turnover. b. The information regarding the profitability, liquidity, cash flow situation and trend in sales in maintaining various ratios.

lLending Rate Offered BY PBL:Sl . 1 2 3 4 5 Particulars Agriculture/Agro based/Agro Processing Term Loan (Project Loan) Working Capital Funding Pre-Shipment Export Credit (Packing Credit) Trade Finance (Cash Credit, Hire Purchase, TR Loan, IBP Lending Rate 12.00% to 13.00% 13.00% to 15.00% 13.00% to 15.00% 7.00% 12.00% to 15.00%

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6 7 8

etc) Small/Cottage and SME (Term Loan) Other Special Program (Other than Commercial) Others: a) Loan against FDR, MBDS, CCS and all other scheme Deposit of Prime Bank Limited b) Loan against Shares

13.00% to 15.00% 13.00% to 15.00% Up to 2%-3% above the Deposit Rate 13.00% to 14.00%

Source: Financial Administration Division, PBL(February ,2006)

5.13 Classification Procedure:After the date of expiry, if the borrowers do not adjust their loan, PBL at first gives a notice to them. The period of giving notice depends on the nature of the loan. For continuous loan, PBL gives notice for three months. For five-year term loan, PBL gives notice for six months. And for more than five-year term loan, PBL gives notice for m